Posts tagged 'Regulatory Capital'

Anti-Abacus, anti-BISTRO and anti-balance sheet synthetic securitisation


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

About that Deutsche Bank capital…

Gather round nerds, and hear the tale of Deutsche Bank’s mysterious new CoCo bonds.

It’s a tale that involves an €8bn capital raising anchored by the Qataris, some German accounting standards and one terrible cereal-based pun. Read more

I, Claudius, caller of bank bonds

Claudius was a Roman emperor from AD 41 to 54.

Claudius notes are Tier 1 instruments that were issued by Credit Suisse back in 2010 and which feature a call date that first comes into effect in December 2015. Except, as bank bond investors have experienced from time to time, the issuers of such securities have an unnerving tendency to sometimes behave unexpectedly. Credit Suisse made some noise when it released earnings last week that it may call the Claudius bonds thanks to something known as a “regulatory par call.” Read more

Digging into dealer inventories

There’s an oft-quoted number in the debate raging over liquidity in the bond market.*

It is, depending on the week, 75-78 per cent — the amount by which dealer banks’ inventories of corporate bonds are said to have declined since their peak of $235bn in 2007, according to Federal Reserve dataRead more

Whose overconfident banks are these?

Here’s a list from the Federal Reserve of good and bad practices by bank holding companies tasked with planning how to stay capitalised under its stress tests and big forward-looking capital reviews. (Ergo: “…designing an internal capital planning process that simply seeks to mirror the Federal Reserve’s stress testing is a weak practice“.)

It doesn’t name names. More’s the pity. Read more

Industrial quantities of risk-weighting, HSBC edition

HSBC’s interim report 2013:

– Pages: 295
– Words: loads
– Risk-weighted assets: $1,105bn Read more

Dear Mr Bailey…

The Commission encourages bondholders, where they are sufficiently concerned, to raise such issues publicly where practical. The PRA should examine the scope for extending bondholder influence of this type…

‘Changing Banking for Good’, Parliamentary Commission on Banking Standards

It’s actually well worth reading the full letter from Mark Taber to Andrew Bailey of the Prudential Regulation Authority, the latest protest against the £500m bail-in of subordinated bondholders that’s emerged from the Co-op Bank mess.

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RWAs, straight outta Basel

The Basel Committee on Banking Supervision is back with another look at risk-weightings — that is, the risk weighting done by banks using their own models rather than the standardised BIS methods.

A new BIS/Basel paper focuses on the banking book, whereas a study published in January looked at the trading book. Read more

Some UK bank shortfalls

Click to enlarge for the Prudential Regulation Authority’s table on UK bank capital shortfalls…

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Reforming RWAs, some reading

As promised

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Reforming risk-weights, quotes du jour

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

Treating bonos as Treasuries, with MF Global

Hat-tip to the FT’s Tracy Alloway…

Some interesting detail from the House Financial Services Committee’s report into the collapse of MF Global. It’s an account of the broker-dealer’s arguments over the capital treatment of the eurozone sovereign debt which was used in its repo-to-maturity trades.

The gist of the argument was that the debt — Italian, Spanish, Belgian — should be treated as US Treasuries (safe, little to no haircut) or, oddly, as a corporate bond if it was Portuguese or Irish. Read more

Give me Basel III, but not yet

Fresh from the Fed. (And FDIC, and OCC) Read more

The UBS cull begins

The Swiss bank has wasted no time in starting the cost cutting programme it announced just this morning. Some people learnt of this when they tried to enter their offices on Tuesday morning, only to discover their passes weren’t working.

Our hedge fund sources also tell us that many of their UBS contacts “have red dots on their B’berg” this morning, meaning they’re not logged in. It sounds like sales staff have generally been the first to go. Read more

Sovereign risk-weighting, face-off du jour

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

M&T and Hudson City’s clean capital

Peter Eavis over at Dealbook notes an underrated aspect of the big M&T/Hudson City regional banking deal — regulatory capital:

To do well in annual Federal Reserve stress tests, M&T Bank may want to increase its Tier 1 common ratio substantially. Read more

‘The new form of corporate alter ego’: SPEs, encore

We qualify ‘new’. This paper is a full 30-year history of the special-purpose entity in banking, from Mike Milken to the Abacus CDO, via Bistro — up to the denouement of FAS 167.

Penned by William Bratton and Credit Slips blogger Adam Levitin, it also points out that corporate law continues to lag the accountancy profession in understanding the implications of SPEs. That weakness is important when the original purpose of many SPEs — for banks to replace equity with contracts as a means of controlling assets taken off-balance sheet, in order to gain relief from regulatory capital — is as relevant as ever. Read more

A CoCo critique, Lloyds edition

It comes from a hedge fund activist par excellence:

That’s a letter (hat-tip to Bloomberg) from Christopher Hohn, managing partner at The Children’s Investment Fund, to British financial regulators questioning “loss absorbency” of contingent capital at the state-backed lender. The FT reportsRead more

What a UK bank ring fence looks like (maybe)

Click the pic to peruse the UK government’s white paper on bank reform, published on Thursday in response to Vickers

The consultation is open until September. On a quick read-through we’d highlight some of the proposed exemptions from ring-fencing retail ops — also this move on leverage ratios: Read more

Banks seek to offload risk on insurers

Now when and where did that last happen…

In Tuesday’s FT, Brooke Masters reported on a rather novel approach that some banks are trying to take in order to reduce their capital requirements. The trick is to reduce the predicted loss that would be experienced if a borrower were to default. This is effectively done by getting an insurer to guarantee the future value of the collateral held as security for the loan. Read more

‘Bye Bye Basel?’, seen in the RWAs

Portrait of a bank capital-counting model in trouble – charts via Barclays Capital:

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Killing VaR

Hopefully that headline gets your attention for the Basel Committee on Banking Supervision’s latest review of capital rules for banks’ trading books.

There is a lot in it — the Committee has been tinkering with trading books since the crisis exposed serious mismatches between the capital that banks’ models said they needed for trading structured credit, and the losses they ended up experiencing. In fact this review follows up on the 2009 rule-set dubbed ‘Basel 2.5’. Read more

Basel III bunfight: Is this the beginning of the end?

On Wednesday, as FT Alphaville has already illustrated, European finance ministers failed to agree legislation that would enshrine Basel III bank capital rules into law. This despite all those involved having already agreed in principle to Basel III back in 2010.

So why the failure to agree? Read more

The latest in regulation-induced innovation – Part 2

In Part 1, we discussed the interest Spanish banks, and the likes of JP Morgan, have shown in securitisations that may lower their regulatory capital burdens by bundling up assets and selling the riskiest pieces of the resulting structures to investors.

Here, we look at another worrisome and expensive exposure on bank balance sheets, and discuss how the treatment of these deals has varied from regulator to regulator — something the Basel Committee has recently started to cast a critical eye on. Read more

The latest in regulation-induced innovation – Part 1

Regulations set forth by the Basel Committee that govern the amount of capital that banks have to hold are meant to set a level playing field round the world.

Or at least, we thought harmonisation was the point. Read more

StanChart camps out at the securitisation BISTRO – Part 2

In Part 1, FT Alphaville described what ‘synthetic securitisation’ deals done by Standard Chartered in the second half of 2011, looked like:

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All is for the best in the best of all possible Commerzbanks

Shares in Commerzbank were up about 11 per cent at pixel time. It’s generally a strong day for European banks as well, but we suppose (bemusedly) it’s following this statement from the German lender on its €5.3bn capital hole

The capital requirement in accordance with the EBA methodology could be reduced by the end of 2011 from EUR 5.3 billion by EUR 3.0 billion thanks to risk-weighted asset reduction (Core Tier 1 relief approximately EUR 1.6 billion), a reduction in regulatory capital deductions (some EUR 0.2 billion) and retention of earnings in the fourth quarter 2011 (approximately EUR 1.2 billion). As of year-end 2011 Commerzbank has thus already fulfilled 57 % of the EBA capital requirement. Read more

Regulating 2000s RBS… with 2010s rules

…we don’t like carrying more capital than we need to. You’ve heard me before on the subject of building up war chests and carrying; that’s not the way we would wish to operate at all.

At end-2006 and end-2007 respectively, RBS published tier 1 capital ratios of 7.5% and 7.3% of RWAs, and total capital ratios of 11.7% and 11.2%…

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Is there a world outside EBA capital targets? [updated]

Update — FT Alphaville has heard that the answer to this question is in fact… yes. See below for more details.

The official EBA numbers on European bank capital shortfalls are out. In aggregate it’s €114.7bn. Read more

Honey, I shrunk the seniors

We missed this earlier — these are Societe Generale credit strategists’ 2012 forecasts for supply of bank and corporate bonds issued in euros.

Spot the odd (shrunken) one out? Read more