China Everbright Bank placed itself directly in the firing line of terrible puns last week when reports it had defaulted started to circle.
Thankfully, Anne Stevenson-Yang from J Capital read into the news a bit further than most:
The interbank defaults last Thursday provided definitive, if indirect, proof that the cash coming into China is for financial investment and interest arbitrage. It masquerades as a trade surplus but is not. With the tightening of the domestic central bank credit window, Chinese banks are heavily dependent on these inflows for the cash they need to roll over loans. That is why the banks immediately went into distress when regulators decided to clamp down on fraud on the trade account.
The world is becoming intimately acquainted with the technical ins-and-outs of the Bloomberg LP empire.
There is Bloomberg’s bread-and-butter business of selling sophisticated data terminals to thousands of banking, hedge fund and regulatory authorities around the world. There is also the well-respected news wire run by Matt Winkler. Read more
A telling chart (which you can click to enlarge) from BNP Paribas’ Ricardo Santos and Michelle Lam. As they note — after a break particularly in the second half of 2012, there’s recently been a marked increase in banks’ holdings of sovereign debt… especially in Italy, France, Portugal and Spain. Read more
The Aussie banks are very good companies. They are profitable, resilient, well capitalised, well managed, shareholder focused and have a very strong industry and regulatory structure. However, following the significant leveraging of the Australian & NZ households over the last thirty years they are now low growth and remain heavily exposed to housing, funding markets & unemployment risk. Read more
Cyprus may not be a template but as Pawel Morski said, the actual template is probably not going to look all that different.
We’ve already written a little bit about this and on Thursday Barclays published a note suggesting the Cyprus mess, plus the incoming common resolution framework, might wipe €15bn annually from the profits of Europe’s biggest banks. The draft of said framework is scheduled to come into play by 2015 with the bail-in tool, which had been delayed until 2018, perhaps being moved forward. We await clarity from European legislators this summer
, if the summer ever arrives.
Concerning Barclays’ €15bn figure, it’s made up of a few different, but connected, elements. Read more
Gary Jenkins writing in Credit Matters this week gets to the heart of the matter when it comes to what investors should do with their money (our emphasis):
Is nowhere safe? The natural reaction to this is that fi nancing for banks should become more expensive. We are already seeing this reaction in the market to some degree. But what does this mean for a product like Cocos? How does an investor monitor the risk of conversion if the ECB could, on any given day, decide to withdraw liquidity unless the bank were to improve its capital position?
Starring A. European Banker as the Cookie Monster and Mario Draghi as Ernie:
Ernie gets Cookie Monster to eat a carrot Read more
Enjoy! Some 148 pages of accounting-for-loan-losses reading:
It’s the IASB’s latest version of its attempt to make banks recognise “lifetime expected” losses on loans or bonds as soon as there are “significant” signs of a credit going bad, instead of waiting until it’s too late and risking a sudden wave of defaults. Read more
Yeah, so “stupid Libor emails” is now an established sub-genre in banker literature.
Though the funny thing about Wednesday’s RBS revelations is that attempts at manipulation generally, at least at the start, weren’t written down. The whole problem was that people trading rates were sat right next to people in charge of submitting rates for Libor. That’s due to the “Short-Term Markets Desk”, RBS management’s October 2006 bid to “facilitate more communication”. Oops. Read more
Well, we think “Dutch-bottomed” is probably a better metaphor for what’s happened to SNS Reaal’s subordinated bondholders than Bond Vigilantes’ “Going Dutch”. That just means splitting the bill. Dutch-bottomed is empty, or perhaps fallen through the trap door.
The Netherlands government did an unusual thing when it nationalised SNS, a small and struggling mortgage bank on Friday. It expropriated subordinated bonds of the lender. Here’s the decree. It theoretically suggests the holders still have a claim on the value of the bonds, at some point: Read more
So, it’s happening. The Banking Reform bill to be published today will give the Treasury and the bank regulator the power to break up a bank that doesn’t respect the ringfence between retail banking and the riskier stuff. Read more
That’s a very small €3.7bn take up by banks participating in the European Central Bank’s three-month Long Term Refinancing Operation on Wednesday. We’d expected more. Read more
Are you a bank agonising over whether to keep your triple A-rated covered bonds as part of your liquidity buffer or send them to the European Central Bank? Not sure what to do with your AA-rated non-financial euro corporate debt?
Then you need this handy table from BofAML’s structured finance guru, Alexander Batchvarov. Read more
Whatever it is that Iceland gains from winning this EFTA court case on the Icesave deposits…
They all come from this Stefan Ingves speech given on Thursday — in which the Basel Committee chair addresses “some concerns… that banks are not calculating risk weighted assets” – the denominator in a bank’s regulatory capital ratio – “consistently”.
Basel is about to release results of a probe into banking and trading books… Read more
LTRO repayment chat is speeding up the closer we get to the fateful day at the end of January when Euro-banks might actually start sending back once cheap cash to the central bank. How much will be repaid, by whom and when are the questions that need to be answered.
Thing is, it seems that by at least one measure, the market is mispricing the amount of cash that’ll flow back to the European Central Bank. And maybe ignoring the ECB’s motives in this whole debate. Read more
Amidst a general fiscal-fudge-relief-rally on Wednesday, one sector stood out…
Dear central bank of Santa,
We, the banks, think we have been really good this year. We didn’t pick on retail customers. We didn’t tell on our Libor manipulating friends. We respected our regulator parents. And most importantly we didn’t have a hissy fit that nearly brought down the global monetary system. Read more
Nothing like systemic risk to bring the banks together. The crisis at times left little between them. Eventually though, the market will start to differentiate more. As Huw van Steenis and his colleagues at Morgan Stanley put it in a recent note Read more
Click through the pic for the full document (it’s not the most fun read):
Now, we don’t want to get carried away here. The report – covering lending in the third quarter and expectations for the fourth – wasn’t pretty, but it’s worth pointing out that there are glints of cautious funding optimism to be found, both within the report and without, particularly where corporates are concerned. Read more
Read enough books and economics papers about the recent US financial crisis, and at some point you might notice something odd.
Most of them are about the factors that made the crisis and subsequent recession so profound and enduring — excess leverage, deregulation, lax lending standards, the rise of securitisation, blindness of the rating agencies, fraudulent bankers — but very few of them are about what actually started the crisis. Read more
Consider this chart from Bank of America Merrill Lynch:
What it shows is pressure building on the front-end of Euribor contracts. Short positions might be stacking up, apparently.
Why? It might be because there is speculation flitting about that European banks will begin to pay back some of their LTRO cash in the near future. Something not everyone thinks is likely to happen. Read more
Figures from the BBA on Tuesday generally confirmed what we already knew: July’s £100bn Funding for Lending scheme, which was supposed to reduce the real cost of borrowing in return for the banks getting even cheaper access to cash, is simply failing to get through.
Call it can-kicking at the highest European level. Call it inevitable. Both statements are probably true.
Nevertheless, banking stock across Europe were racing higher on Thursday on the back of this: Read more
Here’s the Liikanen Report. Click to view.
Basel catches European bank capital legislation letting big cross-border lenders play a bit too fast and loose with zero risk-weighting of government bonds for its taste, the FT says.
Well, here’s the key para… Read more
Fact du jour on collateral accepted at European Central Bank liquidity ops, via Benoît Cœuré, ECB executive board member:
...non-marketable assets and above all, credit claims (i.e. normal bank loans) have become the largest single asset class in our collateral portfolio. Read more
US banks as one of the last big carry opps, really? Chart via Ralph Axel at BofA Merrill Lynch: