Deutsche Bank has long been an unloved stock.
Not only does it trade stubbornly below book-value, a bleak revenue outlook in January led to the promise of a major strategy rethink for the group, including the prospect of job cuts, asset sales and the streamlining of investment banking divisions.
Among options on the table is a sale of the group’s Postbank retail business — a division it acquired in 2008 in the hope of bringing deposit funding to the aid of its investment banking arm. Read more
Here’s a comment to note in the Bank of England’s “fundamental change” section of its One Bank Research Agenda discussion paper:
Technology is potentially transforming the landscape for money and banking. New digital or e-monies and new methods of payment and financial intermediation raise fundamental questions for financial regulation, money demand generally and central bank money in particular. For example, might central banks issue digital currencies and what would be the impact on existing payment and settlement systems? Is the cryptographic technology behind Bitcoin transformational? How will financial regulation need to adapt if new non-bank credit intermediaries emerge in scale?
Talk of official digital money, of course, is not new to FT Alphaville readers. Nor, for that matter is talk of collaborative non-bank credit unions that mint their own currencies for their own network use. Or even talk of digital money solutions that open up the central bank’s balance sheet to more people in a way that eases the safe-asset shortage. Read more
This from Dan Davies is worth a bit of your time — supposedly four minutes of your time according to Medium’s time-thingy.
It makes the very good point that the lack of Greece-dominated headlines over the weekend is most probably good news. As Dan says, we haven’t had stories of deposit flight and bank runs, there haven’t been anymore leaked documents, the ECB hasn’t piled on any more pressure and there has been no grandstanding of note — from Greek or German politicians.
From Davies: Read more
So, this weekend, the Bank for International Settlements released a preview of an upcoming report in which they make a connection between financialisation and the oil market.
Tracy’s written it up here.
But, before you get too excited, two things must be pointed out.
The first, of course, is that a BIS admission about financialisation effects on the oil market is pretty unexpected.
You see, as far as we’ve tracked or heard from BIS economists on this matter, they’ve resisted arguments and models pointing to financialisation effects, embracing instead explanations that link price effects to fundamentals.
Which brings us to the second thing. Yes, the BIS is shifting its view on the financialisation argument, but the paper also shows it doing so in a really convoluted and unconvincing way. Definitely the opposite of Occam’s Razor. Read more
The FT’s Gillian Tett reports from Davos that the Powers that Be may finally have noticed how — while they were busy regulating the banks — the technology companies quietly moved into what was once their unregulated turf.
Via Wednesday’s Davos dispatch:
Large technology companies will experience the same collapse in reputation as banks have endured in recent years unless they rapidly change their policy approach, business leaders cautioned in Davos. Their warning was directed at the influential heads of technology companies, such as the Silicon Valley giants, who were told they needed to recognise that self-regulation will not be sufficient to stave off mounting public alarm about issues such as privacy.
“Self-regulation, no matter what you do, is just not going to be good enough [for tech companies],” said Paul Achleitner, chairman of the supervisory board of Deutsche Bank. He pointed out that a self-regulatory approach had been previously employed by banks — but notably failed to quell a political backlash against their over-reach.
Fascinating what a few months of sub $90 per barrel oil prices can do to the dialogue about the respective merits of cheap energy.
So, whilst three months ago it was all about “trillions in stimulus from cheap oil!!“, today it’s “$50 oil changes everything!” and ARGHH “energy defaults may be the new subprime!”.
As FT Alphaville warned at the start of December:
If it is true that the commodity ecosystem is collapsing, then it is also true that all dependent industries are at risk. On that basis, those analysts who say that low prices will be a boon for many western economies that depend on oil imports, all miss that none of this necessarily guarantees increased demand.
Margins may be temporarily improved for intermediaries, manufacturers and retailers, but if we end up heading towards a price war on all fronts, all we get is a deflationary spiral that threatens contracts, salaries and debt.
The results of the ECB’s Asset Quality Review are in. As ever it was the taking part that counted, we’re all winners here. Were you minded to look for losers, however, here’s the FT:
Italy’s central bank was thrown on the defensive on Sunday as its banking sector emerged as the standout loser in health checks aimed at restoring confidence in the euro area’s financial sector.
Nine Italian lenders fell short, out of 25 banks mainly in Europe’s periphery and Germany that need more capital following the stress tests. The general reaction, however, seems to be that the whole exercise is credible, without unpleasant surprises, and that we really need to talk about lending. Read more
Buried in the Reserve Bank of Australia’s most recent Financial Stability Review is a discussion of how Australian banks have heroically managed their costs over the past two decades.
The lessons could be useful to banks in the US and Europe, which are currently caught between regulators who (rightly) want lenders to stop threatening the financial system with excessive leverage and shareholders who yearn for a decent return on equity. Read more
The self-described data geeks at Citi have a new note on who buys euro-denominated bonds, and we want to share some highlights.
Even though European banks were endangered by their significant holdings of sovereign debt, their portfolios were relatively less exposed compared to pensions, insurers, and foreigners. Read more
Close your eyes, lay back and imagine yourself as a regulator at the US Securities and Exchange Commission (do we have to? -ed). Read more
Iren Levina, economics lecturer at Kingston University, brings to our attention a fascinating, if under-appreciated, phenomenon in finance.
She describes this as the “puzzling rise in financial profits and the role of capital gain-like revenues” throughout most of the 2000s, which were totally delinked from real economic growth during the period.
Okay. Why so puzzling you ask? Don’t we know these profits were the result of too much risk taking? And haven’t there been hundreds of papers about this sort of thing?
Well, yes. But this isn’t quite Levina’s argument.
In a paper published in April this year she instead argues that the reason financial profits became disassociated from real economic growth was because of the way they were formed and the way they were transferred through the financial system consequently.
More to the point, because they were enabled by the very phenomenon of “capital gain-like revenues’.
Unfortunately, the monetary assets which facilitated these revenues have been incorrectly understood by the financial system. In Levina’s eyes they are not, as many believe, borrower liabilities matched by real assets at financial institutions, but rather borrower liabilities matched by something altogether different. Read more
Citi analysts have read 38 European banks’ annual reports for last year.
People who value their sanity are not supposed to do that. (HSBC’s 2013 report, all 590 pages of it, is pictured below.) So it’s interesting to note what Citi found. Read more
Given the repeated hints from across the pond that BNP Paribas is going to get clobbered with a $10bn fine by the US authorities for alleged sanction busting, etc, we should not be too surprised that the European banks team at Credit Suisse has almost doubled its estimate of continent-wide litigation costs. The CS base case has been hiked from the $58bn guessed at in February last year to $104bn now.
To put that number in context, $104bn is roughly half the losses registered during the subprime crisis. And CS reckons some $39bn has yet to be provided for, so litigation risk is inevitably going to be a drag on growth and capital return for the foreseeable…
We’ll share the CS charts below, but first a quick glance at the main areas of potential pain: Read more
Introducing a new series tracking the slow death of the traditional investment banking model (if not banking itself).
Just to round up the recent spate of gawd awful Q1 results from the banking sector: Read more
Some expansive credit-related thoughts arrive from Alberto Gallo at RBS, for a quiet May Day when Europe’s capitalists take the day off in honour of its workers.
In short, its the safe stuff that may not be safe anymore as/if/when the continent’s economy expands: Read more
We’ve been harping on about the rise and importance of the central execution desk and internalisation practices more generally for a long while.
But we haven’t touched the topic recently because, well, banks and concerned parties tend not to enjoy discussing it very much. Read more
That’s banks’ exposure to Russia by major economy, put together using BIS data by Gilles Moec and team at Deutsche. Click the image to enlarge. Read more
Alternate title: the market isn’t entirely nuts, when’s the crash?
While tech titans and buyers of initial public offerings dream of a wondrous future, bank investors appear to be saying something very different.
Here’s the FT’s Tom Braithwaite and co, recently foreshadowing the US bank earnings season:
Citigroup and JPMorgan Chase have warned publicly that fixed income revenues – the engine of most investment banks’ profits since 2000 – will be down by double digits when they report first-quarter earnings next month.
After six years in the red (the latest an £8.2bn loss for 2013) the only way is up and this bank is on it:
Today RBS is announcing a new plan with the ambition of building a bank that earns its customers’ trust by serving them better than any other bank.
And here is Ross McEwan rallying clearly delighted staff with that message.
Picture a kangaroo in a sauna, its pouch stuffed with cash. The Aussie banks are where you go for bank dividends, paying out practically all their earnings in durable swimable plastic cash.
But Citi would like to draw your attention North: Read more
Wondering where next to focus attention after the emerging market carnage? Citi has a bank chart for you:
Are you sitting comfortably? Too comfortably, perhaps?
Huw van Steenis isn’t. He’s come back from Davos with the feeling that while banks have got ahead of europe-wide stress tests by raising capital (€25bn, in fact, he calculates) he is far from relaxed about the consequences of the Asset Quality Review. Read more
In our previous post we argued that one of the reasons QE may have failed to perform as expected, especially when it comes to stimulating price levels and employment, is because the modern monetary system isn’t what many believe it to be. Or at the very least, money doesn’t work exactly the way many economists and analysts believe it does.
As Tyler Cowen noted on Tuesday:
Milton Friedman, some time ago, wrote that money was for the most part neutral, and that the new money rapidly mixes in with the old. That made sense to me at the time, and it nudged me away from Austrian views, yet we have seen decidedly non-neutral effects from the various QEs and the periodic taper talk.
“We haven’t forgotten who keeps us in business,” reads the slogan on the website of Zions Bancorp, Utah’s biggest bank. Read more
Another good snippet from the BIS quarterly review that’s worth highlighting comes in the observation that banks are losing their raison d’etre due to the erosion of their funding advantages versus non-banks. Which means they’re increasingly resembling listless entities devoid of purpose in a capital shadowland that’s not willing to let them move onto another more deathly plane.
From the survey (our emphasis):
The erosion of banks’ funding advantage limits their effectiveness as intermediaries. There are indications that euro area banks, for instance, passed on some of their relatively high borrowing costs. The average interest rate on euro area bank loans stalled at levels above 3% over the past three years, in spite of falling policy rates. As the cost of funding in bond markets trended downwards, large corporates increasingly faced incentives to bypass banks and tap markets directly (Graph 6, left-hand panel).
A useful chart from Citi on Thursday morning (which you may click to enlarge), on the recent rise in bank holdings of sovereign debt. Read more
What does this mean?
Seriously — what does it mean?
It’s an analyst’s take on Lloyds Banking Group’s latest profits update, whatever it was that actually constituted profits here. Beyond that you’re on your own: Read more
Friday bank chart time, and as we like ambiguous messages, lets look at debt issuance by the Giips — banks across Greece, Italy, Ireland, Portugal and Spain.
The good news is that it is up a lot so far this year, $7bn or a hefty 16 per cent rise on the same period last year. Whooo.
The bad news is that it is still down a lot compared to, say, the same period in any of the preceding six years. Hoooo dear. Read more
We don’t know exactly what next year’s Asset Quality Review will involve yet, but we are starting to get a picture of what investors think about the ECB’s forthcoming burrow through bank balance sheets.
In short, given that it might not be all over until the end 0f 2014, everyone is feeling pretty good about the banks right now, and that might explain a surge of appreciation for European stocks. Read more
Monte dei Paschi di Siena, Italy’s third largest, oldest, most loved and, ahem, only moderately state supported lender revealed its big survival plan on Monday.
More earnings, more capital, buy signals are bound to start flooding in this morning and… oh. Read more