RBS’ analysts have revisited predictions made in 2011 that eurozone banks would have to shed €5.1tn of assets.
The good news is they have managed to get through almost half of that, or €2.9tn, since May 2012. The bad news being there remains another €3.2tn to go, including €661bn from the biggest banks — of which Deutsche Bank, Credit Agricole and Barclays need the most capital, followed by Societe Generale and Commerzbank. 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
The IMF’s latest global growth forecasts are, unsurprisingly, lower than their last set of forecasts. Which were in turn lower than their previous set of forecasts. And that’s as far as we want to go back, thankyouverymuch. And even with the reduced forecasts, there are caveats. Big, ugly caveats… Read more
Click the pic for the 135-plus pages of the ECB’s latest Financial Stability Review…
Banking in Europe boomed upon the creation of the euro and the global expansion of credit in the 2000s. In the US, banks were also riding high on strong assets growth and accompanying increases in market capitalisation. Cross-border claims also climbed as banks sought to grab an even bigger share outside their domestic markets.
Things have since changed. Read more
Wells Fargo, the largest US bank by market value, has sold $1.5bn of five-year senior unsecured notes at 175 basis points over comparable Treasuries, says the FT, underscoring the ability of US banks to secure funding at a time when their European competitors are struggling to raise money. US banks’ cost of funds last quarter dropped 20bp from last year to 0.7 per cent, according to the Federal Deposit Insurance Corporation, the lowest quarterly figure recorded in data going back to 1984. The spread between US bank debt and comparable Treasury securities stood at 386bp as of Friday, according to Bank of America Merrill Lynch index data. European bank spreads were at 434bp over government securities. However, because US banks are sitting on a record $10tn in deposits, they have only raised $106bn in debt this year, according to Dealogic. About $14bn of that has come in the past four months. European banks have issued more than $659bn in debt this year.
Apologies for being a downer on a Friday, but the upcoming EU summitS (yes, there will now be two) are unlikely to produce a bazooka-style solution.
Sure, you already know this, but Citi (the same bank who predicted the bazooka would turn out to be a peashooter) has captured the gloomy sentiment rather succinctly. Read more
European officials look set to speed up plans to recapitalise the 16 banks that came close to failing last summer’s pan-EU stress tests as part of a co-ordinated effort to reassure the markets about the strength of the bloc’s banking sector, the FT reports, citing a senior French official who said those banks would now have to seek new funds immediately. Although there has been widespread speculation that French banks are seeking more capital, none is on the list. Other European officials said discussions were still under way. The Euroepan Banking Authority had given those banks until April 2012 to implement plans to shore up their capital buffers. While the banks are expected to turn to private markets first, officials said that state aid may be required. The French government appears to favour using the European financial stability fund, but other member states are likely to argue for national action.
Bond vigilantes — per James Carville — are intimidating things.
And no more so than in Europe. Rising bond yields in the region have managed to force austerity onto places like Greece, and are currently testing political will in Italy. Read more
Have you heard about this new euro daaaahling? Is great. Lets buy thingz with it!
Some European financial institutions should have taken bigger losses on their Greek government bond holdings in recent results announcements, according to the body that sets their accounting rules, the FT says. In a private letter sent to the European Securities and Markets Authority, the European Union’s market regulator, the International Accounting Standards Board criticised the inconsistent way in which banks and insurers have been writing down the value of their Greek sovereign debt. Separately, the FT also reports that on Monday two top European officials went before parliament to defend the region’s banks.
Overseas lending to eurozone countries fell in the first quarter of this year amid worries about the health of Greece and other peripheral countries, reports Reuters, in contrast to a rebound in bank lending across the rest of the world. Lending to eurozone countries dipped by $77 billion, or 0.4 per cent, in the three months to March, according to Bank for International Settlements data released on Tuesday. Though the decline was less severe that the $423bn slump in lending to eurozone countries in the Q4 2010, it was in contrast to the global lending trend, which rose 1.5 per cent. Meanwhile Deutsche Bank’s quarterly results on Tuesday showed it cut its net exposure to Italian sovereign debt by 88 per cent in the first half, the FT reports.
This is timely given the relief rally in the European banking sector.
It’s some back-of-the-envelope calculations from Citigroup on the potential magnitude of underinvestment in Europe’s peripheral banks: Read more
European leaders are looking at ways to keep Greek banks afloat as part of a new €115bn bail-out plan for Athens, the FT says. The plans could add as much as €20bn to an increasingly costly bail-out plan, according to estimates by the European Commission, but the size would likely depend on how long Greek banks were cut off from ECB financing. Under one proposal, eurozone governments would set up a “cash buffer” to assist Greek banks. Other proposals are “emergency liquidity assistance” similar to a facility used extensively in Ireland, while there is rising support for a tax on banks to help pay for rescues. The NYT says some sources saw the bank tax proposal, which was introduced at a late stage in the talks, as a sign of confusion about the architecture of a bailout.
Let the stress test analyses commence…
Aside from the their acceptance of “mitigation” measures taken by the tested banks, one of the big criticisms European Banking Authority’s stress tests is the rather mild sovereign scenarios they considered. Read more
Eight banks failed — five Spanish, two Greek, one Austrian — by posting capital ratios below 5 per cent. But sixteen almost failed, posting ratios between 5-6 per cent. Read more
The publication of European banks’ stress test results on Friday could lead to a wave of distressed debt deals, according to investment bankers and restructuring experts, the FT says. The results of the stress tests – due at 5pm London time – are expected to see about 10 of the 91 banks tested fall short of having the required 5 per cent core tier one capital, including a clutch of four smaller Spanish savings banks and as many as three Greek banks. The Guardian adds that analysts expect between five and 15 European banks to fail stress tests as Italy prepares to vote on austerity budget.
That the European Central Bank has stepped in to replace much of the eurosystem liquidity that used to be provided by the banks’ themselves is well-known. Did you know, however, that one measure of the ECB’s liquidity provision is now higher than in the depths of the 2008 financial crisis? Read more
It’s a little over a week until we get the results of Europe’s second round of stress tests.
Here on FT Alphaville we’ve often wondered what’s the point, given that every one seems to think that the assumptions used by the stress test administrators, the European Banking Authority, are too lax. Read more
Roll-over, roll-over send … no one right over?
Citi argues on Friday that getting the holders of shorter-term Greek debt to roll-over their holdings into longer-term bonds will be no easy feat, even as the eurozone seems to be pressing ahead with the plan. Read more
Meanwhile in Europe … Money markets are also moving.
Recent bidding patterns at the European Central Bank’s seven-day funding operation below: Read more
Gotta love this straight-shooting piece of research from Alliance Bernstein.
The word “re-profiling” comes straight from “Newspeak“, the communication model employed by the Ministry of Truth in Orwell’s 1984. The one thing that is clear about re-profiling is that it does not include haircuts to the principal of the debt, but alterations to the maturity and potentially also to the coupon of the bonds. Read more
Here’s a tip for all financial journalists and market participants.
To spot the next source of financial instability — simply identify the assets currently considered ‘safest.’ At the moment we’d argue those are covered bonds, and of course, sovereigns. The first hasn’t gotten much regulatory scrutiny of late but the second, well, there are some capital games afoot. Read more
So it begins.
The first research we’ve seen quantifying European bank exposure is out to Japan following last Friday’s terrible earthquake and subsequent nuclear problems is out. Read more
In case you forgot that other crisis…
The European Banking Authority has just published parameters for the upcoming European bank stress tests. A first glance has them about as meek as expected. Read more
Set aside those unrealistic macroeconomic assumptions in Europe’s stress tests.
Focus instead, on the complete lack of a sovereign bond ‘shock; in the 2010 version. And that’s despite the whole sovereign-bank loop thing, which has worried investors. Read more
There are plenty of strange things about Europe’s banking stress tests. Notably, the idea of engaging in a test which is meant to assure nervous investors with its rigorousness — but not frighten them too much by actually finding big problems.
It’s Europe’s Goldilocks banking exercise. But more fantastical. Read more