Big insurers will be relieved the Bank of England has accepted their internal capital models as they count the cost of Storm Desmond. 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.
Do too many kids go into finance? The first part of the question is predicated on the empirical fact that a disproportionate number of students from elite colleges end up on Wall Street. That result is particularly perverse since most top American schools eschew professional majors for humanities, social and physical sciences.
Lloyds has reached a PPI settlement and is withholding bonuses from executives, Vodafone is talking to Liberty Global and farewell Alan Bond. FT Opening Quote with commentary by City Editor Jonathan Guthrie is your early City briefing. You can sign up for the full email here.
On Monday Mark Carney, Bank of England governor, injected fear into the hearts of highly paid bankers everywhere by stating… Standards may need to be developed to put non-bonus or fixed pay at risk. That could potentially be achieved through payment in instruments other than cash. Bill Dudley’s recent proposal for certain staff to be paid partly in ‘performance bonds’ is worthy of investigation as a potentially elegant solution. Senior manager accountability and new compensation structures will help to rebuild trust in financial institutions. In a diverse financial system, trust must also be rebuilt in markets. His comments came on the back of growing regulatory concerns that banks avoid bonus caps by boosting fixed salaries and so offer less variable pay, weakening the link between performance and compensation.
Deutsche Bank withholds bonuses from co-chiefs and top executives || Financial regulator begins full investigation of Tesco || Mario Draghi pushes for ECB to accept Greek and Cypriot ‘junk’ loan bundles || UK manufacturing activity falls to 17-month low || Sainsbury suffers fall in second-quarter sales || France insists delay on deficit target justified || Markets
Markets: Asian markets were broadly positive on hopes of a robust US second quarter gross domestic product report due out later today. Tokyo markets were subdued after data released on Wednesday showed a 3.3 per cent decline in Japanese industrial production from May to June. (FT’s Global Markets Overview)
Markets: Asian markets were under pressure in the face of fresh tension in Ukraine and after the S&P 500 dropped to a two-month low on Friday. However, action was muted as investors waited for key Asian data later in the week, including China GDP figures on Wednesday. The US earnings season also ramps up, with about 10 per cent of S&P 500 companies set to report this week. (FT’s Global Markets Overview)
Markets: Japanese stocks were on pace for their worst week of declines since 2011, leading a broader Asia-Pacific sell-off. A 6 per cent drop in US biotech shares spooked markets, sending the S&P 500 down by 2.1 per cent in its worst session since early February. The tech-heavy Nasdaq Composite tumbled 3.1 per cent for its worst day since November 2011. The negative tone spread across Asia, with Japanese stocks under added pressure following the release of minutes from the Bank of Japan’s March 10-11 meeting, which depicted a central bank that sees little reason to unleash further stimulus. (FT’s Global Markets Overview)
Rising demand boosts UK construction || UBS increases bonus pool after strong year || Arm hit by slowdown in smartphone sales || Real estate bubbles on Sydney Harbour || Toyota drives up profit outlook for second time on weaker yen || HP details Autonomy allegations || Brazil suffers record trade deficit || Markets
This occasional Alphaville contributor just got back from a prolonged reporting stint in Las Vegas. On the agenda was not one but two securitisation conferences. Some readers may recall that the American Securitization Forum (ASF) has for many years hosted an annual gathering, most often in the pleasant confines of the Aria hotel in Las Vegas. This year, a bitter schism within the securitisation industry meant there were dueling conferences – one organised by the ASF and the other by the break-away Structured Finance Industry Group (SFIG).
Markets: “Asian shares eased and the dollar firmed on Tuesday as unexpectedly strong U.S. factory activity bolstered expectations the Federal Reserve will soon trim its stimulus, while the yen tumbled on speculation of further central bank easing.” (Reuters) (Financial Times)
FURTHER FURTHER READING - Corporate Raiders 2.0: When Carl and Bill and George met Mary Jo. - The neoliberal choice: Noah Smith on Japanese labour markets. - Anna Karenina and the business cycle. - Perry Mehrling of “Dealer of Last Resort” fame is teaching an online banking course.
Asian stocks mixed || Osborne’s budget cuts in trouble || Dell earnings miss || Singapore Airlines reports loss || Europe bank stress tests delayed but tougher || Bolland’s M&S bonus under threat again || BoE queries IMF calculations on easing loss || BP Gulf could see late surge of compensation claims || Tett on phony QE peace || Gold bears feeling good
The world’s pool of Aaa-rated government debt has fallen 60 per cent since the start of the financial crisis || European regulators to charge banks over derivatives || Cyprus readies capital controls || Fund manager bonuses cap set to be eased || Warren Buffett will become one of Goldman’s largest shareholders || Credit Suisse is to buy Morgan Stanley’s wealth management arm in Europe, the Middle East and Africa || US crackdown on Citi laundering laws || Commodities trading rule call rejected || Improving home prices help drive US economy || Markets wrap || FTAV’s latest
Asian stocks mixed || Qatar in talks on £10bn UK infrastructure || CFTC investigating gold pricing || New UK regulator warns on bonus cap costs || Xi Jinping becomes China’s president || Diet lower house approves BoJ nominees || Australian job numbers beat expectations
As the FT reports on Monday, banks in Europe are rushing to redraft executive pay deals in order to comply with recently passed legislation capping bonuses at the amount of fixed pay, or twice that amount where approved by investors. We submit for discussion an illustration plus narrative on the subject the bonus cap, penned by Kevin Roose. (H/T Barry Ritholtz)
Asian markets mostly up || China maintains 7.5% GDP target, raises deficit || FSA to crack down on CEO access fees || London banks consider suing EU over bonuses || StanChart record profit expected || Complaints about Lloyds and PPI rise sharply || France eyes tougher merger rules || Alwaleed challenges Forbes over rich list || Cyprus agrees to money laundering review
Some time ago Brussels decided that capping bankers’ bonuses is going to help prevent another financial crisis. A very fashionable move. In fact, the passage of the Basel reforms was contingent on a cap being introduced, so after months of negotiations, a deal was finally stuck this week. From the FT (our emphasis): Bankers’ bonuses are to be capped at twice their salary and banks will be subject to a strict transparency regime, under a provisional EU deal that includes minimal concessions to cushion the most severe pay crackdown since the 2008 financial crisis.
EU secures deal to cap bankers’ bonuses || Iberia charge pushes IAG to €997m loss || RBS seeks more time for branch disposals || Apple shareholders in protest vote on pay || Shell puts Arctic ambitions on ice || JC Penney loses one-third of its sales || Markets: Bulls back in charge
Asian markets up || Kuroda nomination confirmed || European bank bonus caps passed || Vivendi may suspend GVT sale || Shell pauses Arctic campaign || Argentina won’t pay holdouts regardless of ruling || Chinese provinces cut growth targets || BP ‘misreported’ vital data
G20 to Japan: Just don’t talk about it || UK defeated over banker pay curbs || Obama’s plan sees 8-year wait for illegal immigrants || Chavez is home || Anastasiades wins first round in Cyprus || Basel considers specifying VaR model time range || Readers’ Digest files for bankruptcy || Natixis to cut ties to retail lenders || Thailand grows at record rate || Dollar Sibor may be dropped || German growth depends on eurozone, says minister || New Man Group CEO Emmanuel Roman will shake up management || Only one in three support UK staying in EU || Chinese holiday week retail sales grew at the slowest rate since 2009 || Nigerian kidnappings || Not so sterling || Markets round up
UBS reported a fourth quarter loss of CHF1.2bn — actually CHF1.9bn, when considering Libor fines and other regulatory and legal costs, plus restructuring costs. The loss came in a little lower than the median estimate of analysts surveyed by Bloomberg. The full monstrous PDF is here, but meanwhile, we note the FT’s Daniel Schäfer scooped an interesting change to the bank’s bonus policy for its 6,500 highest earners:
Soon, it appears, we’ll have another big Libor settlement to write about — this one from RBS. Both the FT and the WSJ are tipping the fines to be in the order of £500m. The FT says it could be more than £400m to the US authorities and about £100m to the FSA; the WSJ doesn’t mention how it might breakdown between the US and UK, but says the settlement “could be completed within the next two weeks”. Also, yikes! RBS (or specifically, an Asian unit of RBS) might have to plead guilty to some criminal charges if the US prosecutors have their way, says the WSJ. Shockingly RBS does not like this. But… RBS may not have any choice:
US prosecutors want Libor guilty plea from RBS || Asian shares higher || Seymour Pierce seeks cash injection || Draghi meets Italian ministers over MPS || US bank stress test scenarios revealed || Goldman Sachs raises $1bn from ICBC sale || 787 battery maker cleared || (Some) RBS bonuses defended
China’s Q4 GDP above forecasts || Cameron’s EU speech delayed by Algerian hostage crisis || BoJ eyes open-ended asset buying || Barclays eyes bonus pool for Libor fines || Glencore and Xstrata agree deal extension || Republicans consider short-term debt ceiling increase FAA || Boeing experts examine grounded ANA Dreamliner || Intel’s profits fall 15% || US experts examine ANA Dreamliner || Markets
China’s Q4 GDP above forecasts || Asian markets rise, yen falls || Cameron’s EU speech delayed by Algerian hostage crisis || Barclays eyes bonus pool for Libor fines || FAA, Boeing experts examine grounded ANA Dreamliner || Why US companies are really hoarding cash