February 2012
1 post
Week in review: The cavalry has arrived
Like in a classic Western, the cavalry was late but arrived eventually. There is a pervading sense that banks’ funding problems are all but gone thanks to the recent interventions of the ECB. The pattern is copied exactly from the Fed and Bank of England, the cheap funding allowing banks to generate extra profits that reinforce their capital position. The effect on the credit markets was...
January 2012
5 posts
Week in review: everybody's in Davos
Somehow the news seemed slow this week, perhaps owing to the fact all the world’s good and great are hobnobbing in Davos. Nonetheless, some newly installed bank CEO’s decided the potential negative impact on their image was too big and decided not to attend. One not-so-new CEO who is prominently present is Vikram Pandit, who is co-chairing this year’s edition. He ensured he would...
Scrutinising Europeank bank funding
Conflicting messages this morning on Europeank bank funding. From Bloomberg:
European banks, shunned by investors and each other, may borrow as much next month from the European Central Bank as they did in a record offering in December as they seek refuge from frozen funding markets.
There are two arguments supporting this statement. The first one is technical and refers to the fact that...
Week in review: shifting business models
Banking business models
The week saw more signs of a shift in banking models, with all banks still under pressure from the fallout of the financial crisis. Goldman Sachs’ results were telling; although their profits exceeded expectations, this was despite revenue falling even more than expected. The most worrying sign is the return on equity (RoE), which came in at 3.7%. With all the...
Week in review
Economic uncertainty continues
Mario Draghi earlier this week stated that the ECB strategy for battling the eurozone sovereign crisis was starting to work, only to suffer a setback yesterday with S&P’s ratings action, stripping France and Austria of their AAA rating and downgrading Italy to BBB+ from A. Beyond the obvious impact on investors, there will also be a technical impact for...
Targeting the ECB's "stealth bailout"
Slate’s Moneybox takes issue with the ECB’s “stealth bailout” of Italy:
Basically, as an alternative to directly guaranteeing the Italian government affordable loans the ECB is guaranteeing super-cheap loans to European banks. The banks are then able to plow that money into government debt at a profit and the strong demand for government debt assures that borrowing...
December 2011
2 posts
The Digest - Weekend edition
Business Week profiles Palantir, whose software is used by police and intelligence agencies to detect and disrupt terrorist plots. The data mining software is now also used by banks to detect fraud and even generate trade ideas. — Business Week
Moving OTC trading to a central counterparty (CCP) is often seen as a silver bullet to reduce systemic risk, but as it turns out it’s not that...
The Digest
Another “Banks’ business models will have to change” story, this one looking at cost of funding and impact on lending. — FT
Hedge funds are delevering, due to banks having to reduce their lending and increasing margin calls on their positions. — Reuters
The European debt crisis in eight graphs: nice overview of the economic forces at work. — Wonkblog
The Digest is a daily(-ish)...
November 2011
6 posts
The Digest
ING chief says assets cannot be sold on fair terms in the current market and asks the EU to relax its demands for disposals following state aid — Bloomberg
“Tech is the new rock’n’roll.” The UK government pins its hopes for an economic revival on the startups of Silicon Roundabout. — The Guardian
An interesting idea for saving the Eurozone: conditional eurobonds. —...
The Digest
There are two major themes in today’s links, so it made sense to group them accordingly.
First off, the ride isn’t getting any easier for banks. They are having to scramble to raise capital and are reluctantly coming to terms that there are many more lean years ahead.
“If the book value of a bank is higher than the share price, […] the book value is going to be diluted.”...
The Digest
S&P seems to have some issues with its headline-writing process… — Bloomberg
Eurozone debt web: Who owes what to whom? Interesting visualisation from BBC — BBC
China Construction Bank, “following their customers”, looks to establish a presence in Brazil by acquiring a local bank — FT
The Digest is a daily(-ish) overview of interesting stories in financial services...
The Digest
The Chinese central bank plans to coax underground lending into the public realm, presumably to regulate it better… — Reuters
How not to make friends at the European Commission: S&P accidentally downgraded French credit rating on Thursday. — Reuters
UK retail banking upstart Metro Bank sees a slow start, casting doubts on the viability of other upstarts. I wonder how Banksimple will...
The Digest
Adventures in CDS investing: after the Dexia split, what entity will end up being the contracts’ reference? — IFR
Are the side-effects of the Goldman Sachs halo a root cause of MF Global’s demise? — NYT Dealbook
HSBC CEO tentatively moves toward agreeing with regulator on restraining bankers’ pay, which seems sensible in the current climate. — FT
MF Global’s collapse...
The Digest
Credit Suisse cuts 1,500 more jobs, and intends to scale back its fixed income business. — Reuters
Sadly, MF Global bankers who lost their job yesterday may have trouble finding a new one in the current market — Bloomberg
Rabobank issues a Basel-III compliant “hybrid Tier 1 capital” bond, that “bails in” holders when certain capital ratio thresholds are breached — FT
...
October 2011
6 posts
The Digest
In an attempt to get them to square the circle, the EBA tells banks to increase capital ratios but not deleverage excessively — Reuters
The Dutch government has proposed legislation blocking bonus pay-outs at banks that have been bailed out — Reuters
Question of the day: would the latest Greek debt restructuring plan constitute an event of default or not? — IFR
The Digest is a (near-)daily...
The Digest
BoE official wants a resolution regime for CCP’s, to guard against taxpayer bailouts — FT
Dexia Bank Belgium is looking for a new name, the current one triggers too many negative connotations — De Standaard
EU’s naked CDS ban: “if you can show correlation greater than zero then you can buy sovereign CDS”
— IFR
The Digest is a (near-)daily overview of interesting...
The Digest
Banks’ appetite to reduce capital requirements by buying credit protection from “regulatory capital relief” funds is soaring — FT
ABN AMRO has ambitions to become a global bank again, building on its strong performance in the home market — FT
KPMG’s new CEO is based in Asia and sees the future growth of the company there — FT
EU leaders tell banks to find €108bn in...
The Digest
IBM buys provider of high-speed and big data solutions to banks Platform — GigaOm
Africa is the new frontier for financial services — FT
EBA wants 9% capital ratio for EU banks, but banks may opt to shrink assets rather than raise capital to meet target — FT
Code and algorithms, rather than people, are becoming financial firms’ most valuable assets and they can be stolen — FT
The...
The Digest
The new head of the BIS promises tough scrutiny of Basel 3 implementations and repeats he will enforce leverage and liquidity ratios — FT
The timing of the above intervention was fortunate, since the FSB and BCBS released their study on the GDP impact of the Basel III capital requirements and conclude it is limited — BIS
The Chinese SWF that already owns stakes in the biggest Chinese banks is...
The Digest
The US Fed adds two additional primary dealers to its line-up — Reuters
The FT sketches what is at stake with the European Market Infrastructure Regulation and the political wrangling around it — FT
The EU issues a ‘statement of objections’ to the Deutsche Börse/NYSE Euronext merger, but the merger itself shouldn’t be threatened — Reuters
After the second Dexia rescue,...
September 2011
12 posts
The Digest
The EU Competition Commissioner opens an investigation into the European Payments Council for blocking new market entrants — Reuters
The EU is pushing for new rules that would force the Big 4 to abandon their consultancy business — FT
Telling a story is a better way to persuade people and inspire them to action than a Powerpoint bulletted list — FT
The Reuters special report into UBS’...
15%
Martin Wolf in the FT has a very lucid analysis of banks’ Return on Equity (RoE) targets. For most banks, this target is around 15%. The analysis is sanguine, its thrust being that such a return is impossible in an economy growing at 2% per year. Instead:
when banks tell us that 15 per cent (or something in that neighbourhood) is their target returns on equity, they are saying that their...
The Digest
Very interesting investigation into the settlement practices for ETFs, in light of the alleged rogue trading at UBS — Reuters
PIMCO created a fund to invest in banks and even problem assets, hoping to generate outsize returns after the crisis — Reuters
The back office hasn’t kept up with the front office, but efforts are underway to change that — FT
Malaysia’s SWF delays its...
The Digest
Commerzbank chooses Arkelis to provide its global SWIFT messaging infrastructure — Bob’s Guide
ECB delays Target2Securities project—aiming at unified settlement for securities within Europe—for up to a year — FT
The Digest
The Digest
Financial advisers in the US are increasingly engaging with existing or prospective clients through social networks — WSJ
The founder of Linden Labs, creator of virtual reality game “Second Life”, thinks self-organising groups are better than hierarchies. Linden Labs applies his ideas and they are now opening up the tools they use. Interesting input for IT project...
The Digest
Citigroup plans to open an R&D centre in Israel, to “develop advanced products and applications for the capital markets.” — Reuters
Global banks cut MENA research roles; is this a portent of the end of the MENA banking boom? — Reuters
A primer on legal-entity identifiers and the push for a global standard. — Smartblog on Finance
Despite regulatory, funding and general...
On UBS' unauthorised trading loss
Unsurprisingly, the discovery of $2.3bn in losses at UBS caused by unauthorised trading last week continues to make headlines. The similarities with the Kerviel case at SocGen over three years ago are striking. Both worked on the same desk, seem to have used a similar system to hide their activity and worked in the back-office before becoming traders. That such an incident occurred again raises...
The Digest
Some of the proposals of the UK’s Independent Commission on Banking are making long-term unsecured funding for banks more uncertain and therefore more expensive. Covered bonds may fill the gap where needed.
Goldman Sachs shutters its Global Alpha fund after its AUM never recovered from the 2007 loss and it posted a negative return this year. Another nail in the coffin for hedge funds...
Investec buys Evolution Group, mainly for its... →
Wealth management independent from investment banks that might collapse and take deposits with them are undoubtedly a growth area.
The Digest
Barry Eichengreen e.a. argue the IMF and G20 need to step in and sort out the Eurozone debt crisis; interesting ideas. (FT)
Portfolio Probe runs some experiments with portfolios having beta = 1. The results are interesting! (Portfolio Probe)
SWIFT launches reference data solution for payments. Reference data will be one of the big topics in a profit-challenged banking environment, it’s a...
The Digest
IMF and Eurozone squabble over report estimating impact of sovereign debt holdings for EZ banks at 12% of capital base (FT)
Piraeus Bank calls on Greek central bank Emergency Liquidity facility, indicating it can no longer borrow from ECB (FT)
FSA shows increasing toughness by fining and “naming and shaming” day-trading firm for manipulating markets (FT)
UK bank restructuring...
Are the new European regulators starting to...
In the aftermath of the 2008 financial crisis, the EU revamped its financial supervision framework and created three new European Supervisory Authorities:
The European Banking Authority in London,
The European Securities and Markets Authority in Paris,
The European Insurance and Occupational Pensions Authority in Frankfurt
On top of all this is a European Systemic Risk Council, which is...
August 2011
32 posts
Trichet and Rehn give reassurances on Eurozone...
Picking up on the issues they have with funding, the FT reports that in his testimony for the European Parliament:
Mr Trichet went so far as to calculate the total amount of “marketable securities eligible for Eurosystem credit operations” – central bank jargon for the amount of collateral banks could give the ECB when they needed short-term cash.
That amount, €14,000bn ($20,310bn), was...
On Eurozone banks' funding profiles
Reuters states that Eurozone banks’ woes are not only due to the quality of their assets but also to their funding profile. Their loan to deposit ratio is too high, i.e. the size of their loan book is bigger than their deposit base. That difference has to be funded in the bond market, which tends to seize up in times of uncertainty, as it did this summer. Quoting from the article:
At...
Draft plan outlines standardised disclosure...
Reuters writes:
The Committee on Payment and Settlement Systems (CPSS) of central bankers and the International Organization of Securities Commissions (IOSCO) want lenders to report trades according to global minimum requirements from the end of 2012.
This would apply to both financial institutions entering in derivatives trades and the central counterparties that will be used for clearing...
Banks top up pension funds with their illiquid...
Interesting strategy highlighted by the FT (reg req’d):
Some of Britain’s biggest banks have begun quietly ridding themselves of billions of pounds of assets they have found difficult to sell following the financial crisis, moving them off their balance sheets and into staff pension funds.
Not as bad as it sounds at first, since the pension funds’ liabilities only become due in...
Lloyds looking at ways to make its branch sale...
After its injection of state aid during the financial crisis, Lloyds Banking Group needs to sell a number of branches to comply with the EU directive on state aid. Most of the interested parties are companies that do not have a long track record in retail banking, and as a result they would not be eligible to calculate their capital requirements using a Basel II AMA, they have to use the...
Linux the OS of choice for demanding financial...
Both banks and exchanges rely more and more on Linux to power their most demanding applications, like high-frequency trading and trade matching.
As an alternative to traditional Unix, Linux has become a dominant player in finance, thanks to the operating-system kernel’s ability to pass messages very quickly, Lameter said in an interview with IDG. In fact, the emerging field of...
NY Fed steps up scrutiny of EU banks' US branches
The New York Federal Reserve is concerned that the branches may be affected by their parents’ woes with the EU sovereign debt crisis, and intends to scrutinise their funding position more closely. Ultimately, the US regulators want these branches to reduce dependence on their parents and to become self-financed organisations. EU regulators may not be so keen on more money leaving the parent...
BarCap exec: Chinese banks growing in Asian...
Traditionally dominated by Western investment banks, Chinese banks are now becoming a force to be reckoned with for M&A deals and equity issuance in Asia. They are competing both for deals, squeezing margins, and for the bankers, driving up compensation costs. Quoting Barclays Capital’s head for Asia:
“They’re very real competition; they absolutely win deals and in many cases, they...
The declining importance of banks
Frank Partnoy (author of FIASCO) argues in the FT (reg req’d) that banks will decline in importance and become smaller.
In the future, improved technology will reduce the number of human beings needed to allocate capital, as it has done in other service industries. People will also play a smaller role in dealmaking and trading, just as they do when we board a plane or shop for clothes....
Banks face challenges with refinancings
The recent market turmoil caused by the various debt crises is having an impact on the banks that provided bridge financing for PE deals in the first half of this year. The bridge loan that enables a deal to go through quickly usually has a maturity of less than a year, among others to attract favourable capital treatment, and gets refinanced by a bond issue to investors before it matures. Since...
Behind the scenes at the Belgian Debt Management...
Interesting look (in Dutch) at the activities and impact of the Belgian Debt Management Office, responsible for securing funding for the government on the best possible terms. The market turmoil and gathering sovereign debt crisis doesn’t make the agency’s job easy, but on the other hand they don’t seem too worried yet. I wonder to what extent that feeling is shared in other Debt...
BankSimple secures $10m funding and announces... →
New retail bank BankSimple aims to provide an unrivalled customer experience and now has both the funding and banking infrastructure in place to open its doors to customers.
While I think BankSimple’s launch is positive for the industry and its pace of innovation, I’m slightly skeptical that it is effectively outsourcing the entire back office. Launching a full front-to-back bank...
BATS Europe and UBS MTF offer participants choice... →
The two trading platforms now offer participants the choice of three CCPs, rather than mandating the use of one. This is the first manifestation of a charter signed by Europe’s biggest trading platforms, clearing houses and trading firms to work towards “interoperability”.
Having a choice of CCP will enable trading firms to consolidate trading in one CCP, thereby getting bigger...
FSA publishes consultative paper on "living wills"... →
Mandated by the Financial Services Act 2010 in the UK, “living wills” require financial institutions to outline plans to recover from a crisis (e.g. by selling assets etc.) and to enable an orderly liquidation without endangering financial stability. Every institution managing client’s money with assets over £15bn, including subsidiaries of foreign groups, will have to draw up...
Why S&P downgraded the US and Moody's didn't →
Felix Salmon has a long post analysing the fundamental difference between S&P’s ratings and Moody’s ratings - the former only looks at probability of default whereas the latter is focused on expected losses, and therefore also includes recovery rates in its analysis.
Philosophically, Moody’s also pays attention to the signalling value of its rating, whereas S&P seems to...
Bullion storage costs up →
And BNYMellon is charging depositors a fee for large cash deposits. Unintended consequences of the flight to safety and liquidity…
Putting the market chaos into perspective →
Empirical Finance Blog puts the recent market turmoil into perspective, analysing monthly returns over a longer period of time.
Mebane Faber does a similar analysis. He concludes that a move of 5% up or down in a day should be expected several times a year and a move of 10% up or down once in several years.
Not that this kind of analysis gives any kind of breakthrough insight, the most...
HSBC puts US credit card business up for sale →
Thereby reducing its US presence further.