Benign neglect of NIMs in the US

Central bankers in Europe have been thinking a lot about The Death of Banks lately. Not so much in the US.

There’s good reason for that, of course. Europe has been bleeding out banks with negative rates, so policy makers there have become painfully aware of the banks’ role implementing monetary policy.

The US Federal Reserve, on the other hand, has been keeping banks alive with a steady drip of interest on excess reserves, or IOER, to control rates in a financial system awash with liquidity. The Fed’s releasing a policy statement today (we understand if you forgot about that in the heli-frenzy before the BoJ on Friday).

Of course, keeping banks on life support with IOER doesn’t help net interest margins. NIM is a key measure of bank profitability. It’s also closely tied to the US yield curve — which is unfortunate for banks, because that sucker has been positively steamrolled lately by the combination of low yields abroad, low inflation expectations and rising US policy rates.  Read more

A message from Alan Clark

The following memo from SAB’s CEO Alan Clark has created a lot of fuss on Wednesday afternoon.

For example, here’s how the WSJ sees itRead more

Today in circularity and potential leading indicators

From SocGen, with the suggestion that the recent shoddy PMI numbers might get worse before they get better:

 Read more

If you’d rather see the apocalypse happen than agree with Bill Ackman…

John Hempton of Bronte Capital has good news for you.

Hempton, an avowed Herbalife bull, is sceptical about whether any inventory loading happened at the company. When a firm requires its distributors to buy lots of inventory, it’s one sign of a pyramid scheme, which grows by recruiting distributors instead of actually selling products. Hempton says there probably wasn’t inventory loading because the company refunds distributors for unsold products.

A look at Herbalife’s website shows that they did offer refunds as of 2014, with one caveat found in a footnote of its pitchbook: “If requested within 90 days for the return of the HMP [Note: That's the Herbalife Member Pack, a starter pack] and one year for the return of resalable inventory, upon leaving the business.” That’s a conditional refund, to be sure.

Still, Hempton has been hunting for the telltale distributors with tons of unsold Herbalife shakes in his or her basement, and has had trouble — but for one grim exception. Read more

Koo on why helicopter money just won’t work

Helicopter money won’t work in Japan, says Nomura’s Richard Koo in a note on Tuesday, because when the typical Japanese citizen finds a 10,000-yen note lying on the ground, she will turn it in at the nearest police station rather than spend it.

Put differently, a helicopter money policy can only work if the people in a country have little sense of right and wrong.

Koo, of course, is talking about the effectiveness of actual banknotes being thrown out of helicopters in the sky. It’s one of four ways he thinks helicopter money policy could be implemented — since the real challenge with helicopter money is how it would be distributed, and to whom. Read more

FT Opening Quote: GSK signals post-Brexit confidence

GSK announces UK investment, Taylor Wimpey shrugs off Brexit concerns and Arm Holdings revenues are up. FT Opening Quote is your early Square Mile briefing. You can sign up for the full newsletter here. Read more

The BoJ’s delivery problem

Expectations can be tricky things to manage, as in life so in central banking.

The Bank of Japan has everyone ramped up for its decision on the 29th. Although not many actually expect helicopter money (for a variety of reasons, including legal and excluding the fact that it’s not clear it would actually work) there is a belief in the market that some extra bit of stimulus is en route — which will be backed up by some fiscal goodness too.

Here’s a Barclays summary of those expectations: Read more

Further reading

Elsewhere on Wednesday,

- Andrew Ross Sorkin on the (potential, and most probably just partial) return of Glass-Steagall.

- How does this hedge fund manager make so much money? He haz spreasheetz. Obviously.

- Also… Bridgewater, sex, fear, and video surveillance.

- Musings on the implications of a higher dollar Libor.  Read more

FirstFT – Clinton makes history, the value of a poor memory and how not to worship your boss

Hillary Clinton becomes the first female nominee to run for the White House Read more

As goes correspondent banking, so goes globalisation

The IMF’s Christine Lagarde gave a speech to the New York Fed last week, lamenting another sign of globalisation going backwards — the decline of correspondent banking in some of the world’s most precarious countries: Read more

Minimum repayment pressure for N Brown?

The Financial Conduct Authority today released their final report on the UK’s credit card market, highlighting among other things the profits lenders make from customers who just make minimum repayments. The full 70-page report is here, or you can check out the FT’s write-up:

Almost one in nine card holders have balances it would take them more than a decade to repay, the Financial Conduct Authority said in a report on the industry. There are also 1.6m customers who repeatedly make minimum repayments, the regulator found. Read more

On Funding Circle’s valuation

Private technology startups are pretty tough to value, particularly if you’re on the outside looking in.

First, you have the inherent subjectivity in valuing any company. Investors can differ on which metrics are most appropriate and what to include or exclude in their calculations. Even a price set by a reasonably liquid market doesn’t settle the argument; after all, one of the reasons an investor buys or shorts a stock is that they disagree with the market.

Second, you have opaque and complicated capital structures. The classic, clean idea of selling equity involves a certain number of shares at a certain price giving a straightforward percentage ownership of a company. In the tech world, however, liquidation preferences are common and the blurred line between debt and equity make it difficult to deduce anything sensible from fundraising announcements. Read more

FT Opening Quote: Reprieve for Openreach

Ofcom rules on Openreach, CMC rules on Labrokes-Coral merger, Sergo shrugs off Brexit gloom. FT Opening Quote is your early Square Mile briefing. You can sign up for the full newsletter here. Read more

A friendly reminder that return is “not really a function of yield”

When x happens, yields fall — Rule 1?

It’s not a search for yield, it’s a search for safety — Potential Rule 2?

Two charts to make the point for us once again from the good folks at BofAML’s relative value department: Read more

Further reading

Elsewhere on Tuesday,

- Says the BoE: “CB digital currency… issuance could have far-reaching consequences for commercial and central banking – divorcing payments from private bank deposits and even putting an end to banks’ ability to create money.”

- Seeing China through its economic history. And how the west was won.

- Banks giving up on their dreams of global empire…

- More on Larry Ball’s contention that Lehman could have been saved by the Fed.

- “Justin Zhen was in his WeWork [ the world’s ninth-richest startup, valued at $16 billion] office in midtown Manhattan on July 19 when he published the blog post that would result in his startup, Thinknum, being removed from the co-working space three days later.”  Read more

FirstFT – Sanders’ ringing endorsement, the world’s fastest-growing people and Britain’s thriving nostalgia industry

Sanders urges his supporters to ensure that Hillary Clinton beat Donald Trump in November Read more

The Metro Bank book ban

“[Censors] rake through the entrails of many an old good author, with a violation worse than any could be offered to his tomb.” – John Milton

We live in sad times. Across the world, radicalism and hate is on the rise. The future of western democracy itself is uncertain. And on top of all this, yet another injustice. Read more

Markets Live is on a one-week break

Bryce has fled north of the border; Murphy’s skulking at home in London. There’s no session of Markets Live today, or any day this week. Unless there’s a market emergency, of course. Normal service will be resumed on August 1. Read more

In knighthood news

Your lady here is sort of suggesting here I should remember about a board meeting in 20-whatever it was…

– (Sir) Philip Green, evidence to the parliamentary committee inquiry into the collapse of BHS, last month Read more

FT Opening Quote: Philip Green in hot water

Philip Green slammed by MPs, an approach for William Hill and a warning from Rangold. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can sign up for the full newsletter here. Read more

How to trade President Trump/ Clinton

Below the break is just one of what we are sure will be many US election guesswork charts.

It’s from HSBC this time and includes solid ‘buy gold’ and ‘currency war’ moments.

The shorthand at the top of each column could be expanded thusly: Read more

Further reading

Elsewhere on Monday,

- Gavyn Davies: Regime change in the financial markets.

- Bill McBride: The future is still bright!

- You break it, you pay for it, Brexit edition.

- John Lanchester on Brexit: “One of the things you notice, travelling around the country talking to people about economics, is that young people in particular feel they are living in an economic system rather than a political one.”

- Er, and Trump and Putin is maybe, actually, possibly, a real thing? Read more

FirstFT – Democrats in turmoil, the cheapest generation and why we are all so tired

Sign up to receive FirstFT by email here

The head of the Democratic National Committee has resigned after the leaking of 20,000 emails exposed rifts in the party leadership, throwing Hillary Clinton’s campaign into turmoil on the eve of this week’s convention. Read more

From Cardiff Garcia, locked-down earlier in Munich…

Quick audio vox pop here from Cardiff, who happened to in a restaurant near the site of the lone gunman attack on Friday night… Read more

Thought for the weekend

I do like the simplicity of the one product. We’ll probably expand in time, though. Maybe people would cook more if they could do things a little differently. Maybe, functionally, a new ingredient would allow that. People are still using eggs and milks and bread. When were those invented? People upgrade their iPhones every couple of years but we’re still eating the same foods that our ancestors did.

– Rob Rhinehart, inventor of Soylent meal-substitute gunk, enjoying Lunch with the FT

Engineers vs urban geometry

Should we really be surprised then that someone like Elon Musk, a man not just from Mars but an active card-carrying citizen of Mars, should be continuously confusing what are ultimately social problems for engineering ones?
 Read more

Peter Thiel bets on European deposit protection

Take a look at Deposit Solutions, a Berlin-based fintech company backed by Peter Thiel. This week it raised another €15m from the Trump-supporting billionaire and other investors at a reported €110 million valuation. What’s the idea behind the four-year-old startup?  Read more

Alphachat guide: the tradeoffs of city life, and a new era for the business of mixed martial arts

Alphachat is available on Acast, iTunes and Stitcher. Read more

Markets Live: Friday, 22nd July, 2016

Live markets commentary from 

Re-setting Ratesetter’s provision fund

Ratesetter founders Rhydian Lewis and Peter Behrens

Is 22 per cent a big number?

That’s how much Ratesetter increased its expected future losses on Thursday, “partly to reflect greater economic uncertainty due to external events”. The online lender, which is one of the UK’s top three, added £3m to the £13.9m of expected claims on its provision fund, which serves as protection against defaults for its retail investors.

Those “external events” are presumably a reference to Brexit, but sceptical readers might also remember the higher than expected defaults on its 2014 cohort of loans. At the start of that year, Ratesetter had expected a 2.07 per cent default rate. So far, defaults on the 2014 cohort of loans have reached 2.915 per cent. It’s also worth noting that last month Ratesetter brought on board a new chief risk officer, Cyrille Sallé de Chou, who joined from Lloyd’s. Read more