|Bid||0.00 x 0|
|Ask||0.00 x 0|
|Day's range||34.94 - 36.83|
|52-week range||24.50 - 54.22|
|Beta (5Y monthly)||1.38|
|PE ratio (TTM)||6.11|
|Forward dividend & yield||N/A (N/A)|
|Ex-dividend date||25 May 2020|
|1y target est||N/A|
(Bloomberg) -- Oil posted its biggest monthly advance on record, just a few weeks after prices made a dramatic plunge below zero.Crude surged about 88% in May, with U.S. futures on Friday rising above $35 a barrel for the first time since March, driven by massive supply curbs by producers across the world. Still, prices are well below levels at the start of the year, and demand that was crushed by the coronavirus crisis may need to show a sustained improvement for the rally to extend further.For now, the outlook for consumption looks bleak, though it’s on the mend. While virus-related lockdowns are easing, demand isn’t yet roaring back in the U.S. Fuel sales that were clobbered in European nations such as Spain and Italy will take time to recover. China is a bright spot, but the rest of Asia is still struggling.The number of rigs drilling for oil in the U.S. fell for the eleventh week, stemming the massive glut of crude that flooded the market. Yet there’s a risk that oil’s advance could tempt producers to turn on their taps again.“At the end of the day, what is driving everything is fuel demand,” said Tom O’Connor, senior director of petroleum markets at global consultancy ICF. “There is going to be an underlying depression in demand that is going to be there for some time.”U.S. crude futures fluctuated Friday, as Federal Reserve Chairman Jerome Powell defended aggressive action to shield the economy as the coronavirus pandemic took hold. Prices surged at the close, with West Texas Intermediate oil settling 5.3% higher at $35.49 a barrel, after falling as much as 4% earlier in the day. Futures posted the biggest monthly jump in data going back to 1983.Brent crude for July, which expires Friday, rose 4 cents to $35.33, closing below WTI for the first time since 2016. The global benchmark has rallied almost 40% this month. The more active August contract rose 5% to settle at $37.84.Meanwhile, U.S. President Donald Trump is poised to sign a measure that would punish Chinese officials for imprisoning more than one million Muslims in internment camps, as he looks to rebuke Beijing over its crackdown in Hong Kong and its response to the coronavirus. He has also discussed putting targeted sanctions and trade measures on China’s financial sector.“It’s a bit of a potentially volatile environment right now,” O’Connor said regarding tensions between the world’s two largest economies. “If it affects relationships to the point that the Chinese aren’t going to take crude exports from the U.S., that would have a negative effect.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
A U.S. judge on Thursday said institutional investors, including BlackRock Inc <BLK.N> and Allianz SE's <ALVG.DE> Pacific Investment Management Co, can pursue much of their lawsuit accusing 15 major banks of rigging prices in the $6.6 trillion-a-day foreign exchange market. U.S. District Judge Lorna Schofield in Manhattan said the nearly 1,300 plaintiffs, including many mutual funds and exchange-traded funds, plausibly alleged that the banks conspired to rig currency benchmarks from 2003 to 2013 and profit at their expense. "This is an injury of the type the antitrust laws were intended to prevent," Schofield wrote in a 40-page decision.
(Bloomberg) -- Prime Minister Shinzo Abe doubled Japan’s stimulus measures as he looked to deliver on his bold promise to keep businesses and households afloat with the world’s biggest virus-response package.His cabinet approved Wednesday a 117 trillion yen ($1.1 trillion) set of measures that includes financing help for struggling companies, subsidies to help firms pay rent and several trillion yen for health care assistance and support for local economies. The spending will be funded by a second supplementary budget that breaks a record for an extra budget set only last month.The latest aid was finalized after data last week confirmed Japan has sunk into a deep recession and polls showed support for Prime Minister Abe’s cabinet dropping to a fresh low over its handling of the outbreak. Apparently sensing the need to do more, Abe vowed on Monday to bring the tally of measures to around 40% of gross domestic product.“We are determined to protect the Japanese economy,” said Abe’s deputy, Taro Aso, after the cabinet approved the latest extra budget. “We are facing a crisis that goes beyond the scale of the Lehman shock.”The ramped-up support went well beyond what was expected just a week ago giving a stronger impression that the administration was pulling out all the stops to save jobs and businesses despite the spotty disbursement of earlier measures such as cash handouts and subsidies.“When popularity goes down, politicians tend to want to do something big,” said economist Hiroshi Shiraishi at BNP Paribas SA. “These measures are designed to stop or alleviate the damage done by the pandemic on companies and individuals, not to boost growth. So even with this package, Japan’s pickup will be very gradual.”Abe Declares End to Japan Emergency And Seeks to Boost EconomyWhile the government ended its nationwide state of emergency this week and new virus cases have tailed off, the economic outlook is still grim. Analysts see GDP shrinking by more than 20% this quarter and say the recovery could be slow as exports, tourism and business investment struggle to rebound.The new measures match the overall size of April’s 117 trillion package, bringing the total of the two packages to just under 234 trillion yen. The record second extra budget of 31.9 trillion yen to help fund the measures comes less than a month after the passage of the first.The economic package also boosts loans and investment via government-backed lenders by 39 trillion yen to a record 62.8 trillion yen in the current fiscal year, measures that don’t show up in the extra budget figures.Kuroda, Government Pledge Joint Action to Keep Japan’s Businesses AfloatThe government’s extra spending comes amid reassurances from the Bank of Japan that it won’t allow bond yields to rise.In a rare joint statement last week, the government and the central bank pledged tight cooperation to get funds to struggling businesses and shield the economy from the virus’s fallout. Governor Haruhiko Kuroda told parliament Tuesday that the BOJ would buy more government debt if the yield curve needed to be lowered.Japan will boost its debt issuance by 59.5 trillion yen to fund the second extra budget and the other loans and investment in the new stimulus package, the finance ministry said. That will bring the total bond issuance this fiscal year to about 212 trillion yen, another bump from the 128.8 trillion yen planned in December.The new spending will push Japan’s debt dependency ratio up to a record 56.3%, the finance ministry said. Japan already has the developed world’s biggest public debt load at more than twice the size of the economy.Still, finance chief Aso said now was clearly not the time to be fretting about fiscal reform. A growing economy is needed first, he said.What Bloomberg’s Economist Says“Japan is preparing another monster fiscal stimulus package. The cost will be a mind-spinning surge in the debt-to-GDP ratio this year. The benefits, though, should be worth it. The much-needed support for hard-hit companies should reduce the chances of more lasting damage (a surge in bankruptcies and unemployment) that would impede a recovery once the pandemic abates.”\--Yuki Masujima, economistClick here to read more.(Adds comments from finance minister’s press briefing.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- After 2008, metals and oil rebounded together from the depths of the financial crisis, as China’s consumption of raw materials took off. This time, their recoveries may look quite different.Crude faces a lengthy convalescence from the catastrophic lows of April, when U.S. oil plunged into negative territory. Industrial metal prices have fallen far less, and look healthier: Closures to control the spread of coronavirus in countries like Peru have squeezed production, just as China is gearing up. Add in Beijing’s infrastructure plans, expected to be outlined at the National People’s Congress meeting starting Friday, plus the prospect of green stimulus and more mineral-intensive clean energy, and the outlook looks rosier still.Copper is indicative of these divergent paths. Out of other metals, Bloomberg Intelligence reckons it has moved most closely with oil over 160 years — a coefficient of 0.96 over that time. The link is beginning to weaken, and the current crisis will only make that more pronounced.Why so?Oil has certainly made an impressive comeback over the past few weeks: Many producers are still losing money, but West Texas Intermediate is back above $30, and there was no repeat of April’s crash when the contract rolled over this week. Brent crude is up almost 90% after last month dropping below $20. That’s because the supply glut has shrunk, thanks to the end of Russia’s price war with Saudi Arabia and significant involuntary shutdowns among U.S. producers, easing concerns about global storage capacity. That’s helpful, even if improving prices could bring back some shale activity.Metals have also taken a hit to output from coronavirus lockdowns in Latin America and elsewhere. In late April, BMO analysts estimated these affected 23% of global capacity for copper, 15% for nickel and 24% for zinc. Projects like Anglo American Plc’s Quellaveco in Peru, where workers downed tools, could see delays. That’s helped copper to rise back toward a modest $5,500 per metric ton.Supply reductions aren’t enough to make a difference without better demand, though, and that’s where the divergence becomes clearer. China tells part of the story. Construction activity and manufacturing are on the mend, drawing down metal inventories. It’s true that oil consumption is reviving, too: China’s taxis, buses and cars have been back at normal levels since early April, and traffic congestion has returned. But while that’s good news for gasoline and local refiners, it’s hardly salvation for global oil. Recoveries elsewhere are progressing more slowly and most of the world’s aircraft are still grounded. Simply put, China’s recovery matters more for metals, with the country accounting for roughly half of global consumption. By comparison, it makes up less than 14% of oil demand.Now consider the cautious nature of Beijing’s economic reboot, which is a signal for other countries, and the bumps along the post-pandemic road to recovery. These make the picture darker for oil. Factories might keep producing washing machines, but more of us will stay away from leisure travel and work from home if incidents like the reappearance of the virus in China’s northeast repeat themselves. It’s not even clear that an aversion to the risks of public transport will get us back in our cars again, as my colleague David Fickling has pointed out. Demand for personal protective equipment like masks is hardly enough to offset a drop in gasoline and even jet fuel, which past experience suggests will take years to recover.The NPC is expected to include a revived version of past efforts to develop the country’s western hinterland, alongside other stimulus efforts. No one anticipates a boost akin to what was seen in 2008. Even a similar amount would probably have a weaker multiplier effect — yet the boost will matter for copper, zinc and more. And that’s before the wider green fiscal push, in and outside China, that favors mined materials needed for batteries, grids and energy storage. The solar industry in Asia-Pacific alone is expected to use around 378,000 tons of copper by 2027, almost double 2018 levels.Mark Lewis, global head of sustainability research at BNP Paribas Asset Management, splits the long-term pressures in three: the world’s push toward reducing carbon emissions, cheap renewable energy and air pollution, highlighted by the clear blue skies of recent weeks. Add in the behavioral changes brought by the pandemic and the future of oil is more uncertain than ever, he argues. With even Royal Dutch Shell Plc arguing that peak oil demand will come sooner than expected, it’s hard to disagree.There may not be a uniform global green stimulus, and some ambitions will remain just that. Yet a World Bank report last week gives an indication of the potential growth story: It says the goal of limiting the global temperature rise to 2 degrees Celsius will require production of graphite, lithium, and cobalt to ramp up by more than 450% by 2050, compared with 2018, in order to meet energy storage requirements. Aluminum and copper, used across technologies, will also be in demand. And that’s excluding infrastructure like transmission lines.In the future we’ll still need oil. We just might need metals more.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Clara Ferreira Marques is a Bloomberg Opinion columnist covering commodities and environmental, social and governance issues. Previously, she was an associate editor for Reuters Breakingviews, and editor and correspondent for Reuters in Singapore, India, the U.K., Italy and Russia.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Abu Dhabi raised more money from international debt markets just weeks after a $7 billion bond sale as it takes advantage of a drop in borrowing costs to bolster its finances.The emirate sold an additional $3 billion of its three-tranche deal priced in April, according to people familiar with the matter who asked not to be identified because the matter is private. The yields on those bonds, which garnered about $45 billion in orders last month, declined on Monday to all-time lows as optimism that the worst of the oil crisis triggered by the coronavirus pandemic is over offered relief for energy-related borrowers.“For Abu Dhabi, pricing was never an issue, they are a solid credit with good sponsorship,” said Angad Rajpal, the head of fixed income at Emirates NBD Asset Management in Dubai. “It is a smart call to tap and further shore up their buffers than to draw down on the reserves.”Pricing results:135 basis points over U.S. Treasuries of similar maturity for $1 billion of debt due April 2025A spread of 150 basis points for $1 billion of bonds due April 2030For the 30-year bond tap, 3.25%Abu Dhabi, the wealthiest of the seven emirates that make up the United Arab Emirates, is rated AA by S&P Global Ratings. The cost of insuring Abu Dhabi’s debt against default for five years has fallen to about 100 basis points, from a more than 10-year high of 162 basis points in March, when crude prices collapsed.The slump in oil has put a strain on the finances of Middle Eastern energy producers, prompting Saudi Arabia, Qatar, members of the UAE and Bahrain to sell about $31 billion of bonds this year. Abu Dhabi’s Mubadala Investment Co. raised $4 billion last week.Brent crude has lost almost half its value this year, even after recovering to around $35 a barrel from an 18-year low reached last month.The need for large stimulus around the world has prompted other countries to issue more debt as well. Indonesia, Spain and Italy are among nations that have recently offered notes, as massive central bank stimulus helps global credit markets rebound from a March rout.The gradual easing of lockdowns in some economies around the world, together with additional stimulus from governments and central banks, is also buoying investor sentiment, even as many uncertainties remain about the virus and global economy.BNP Paribas SA, First Abu Dhabi Bank PJSC, JPMorgan Chase & Co. and Standard Chartered Plc are the joint lead managers for the Abu Dhabi sale.(Updates with pricing throughout.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
The Bnp Paribas Sa (EPA:BNP) share price has risen by 12.3% over the past month and it’s currently trading at 28.59. For investors considering whether to buy,...
(Bloomberg) -- The 50-year old Hang Seng Index is poised to embrace change, and it couldn’t come soon enough for investors forced to put up with years of dismal underperformance.On Monday at around 4:30 p.m. in Hong Kong, the compiler of the gauge is expected to announce whether companies with secondary listings and unequal voting rights will be included for the first time, namely Alibaba Group Holding Ltd. Doing so would open the door to transforming the Hang Seng from a gauge overstuffed with banks and insurers to one that better reflects the technological dynamism of China’s economy.Alibaba -- one of China’s most valuable companies -- launched a secondary listing in Hong Kong in November. Another potential candidate for inclusion is Meituan Dianping, China’s largest food-delivery website, while JD.com Inc. is considering a secondary listing of its own in the city. With almost $30 billion of pension-fund assets and exchange-traded funds tracking the gauge as of December, such a change could spur a flood of local share sales by U.S.-listed firms.“The decision is going to completely change the nature of index, which has been characterized as one with low valuation and low growth rate for a long time,” said Yang Lingxiu, strategist at Citic Securities Co.About half of the total weighting of the Hang Seng Index is in financial firms, compared with about 15% on average for benchmarks in Europe, the U.S., Japan and mainland China, according to data compiled by Bloomberg. The gauge has gained 1.7% a year on average in the past decade, versus 5.2% for the MSCI All-Country World Index. In January, the Hang Seng approached its lowest level relative to the MSCI measure since 2004.The process of adding the likes of Alibaba may take some time, however. “In order to reduce the one-off impact on the market, the index may propose adding the weight of Alibaba gradually,” said Chi Man Wong, analyst at China Galaxy International Financial Holdings. Alibaba is the biggest company listed in Hong Kong by market cap and is the second most actively traded stock in the past 30 days, just after the Hang Seng Index’s largest component Tencent Holdings Ltd., according to data compiled by Bloomberg.The index would need to delete two companies to add Alibaba and Meituan, as current rules require the number of firms on the gauge to be fixed at 50. Component maker AAC Technologies Holdings Inc. and snack firm Want Want China Holdings Ltd. are among likely candidates for deletion due to their smaller market capitalization, according to traders.The addition would raise the Hang Seng Index’s forward price-to-earnings ratio to about 12 from the current 11, making it more expensive than Shanghai Composite Index, data show.Ultimately, the weight of technology and consumer discretionary sectors’ could surge from the current single digits to more than 30%, if all U.S.-listed Chinese companies that match the Hang Seng’s requirements list in the city and are included in the index, according to Citic Securities Co.To be sure, giving greater weight to companies with unequal voting rights could raise investor concerns.“The key issue is that weighted voting rights create an opportunity for someone to have greater influence than their economic ownership would suggest,” said Gabriel Wilson-Otto, head of stewardship Asia Pacific at BNP Paribas Asset Management. “The underlying concern is that this heightens the potential for agency risk, and reduces avenues of recourse if the company does something that’s not in the best interests of the minority shareholders.”Investors in some U.S-listed Chinese firms have recently been burned by accounting scandals, raising questions about the standard of corporate governance at some companies.Two Accounting Scandals in a Week Burn China Inc. Investors (1)The Hang Seng Index would nevertheless benefit from luring more U.S.-listed companies, said Cliff Zhao, head of strategy with CCB International Securities Ltd.“More funds will be attracted to follow the index, which is a good thing for Hong Kong’s stock market.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- BNP Paribas SA’s insurance arm is in talks to buy a significant minority stake in PT Bank Rakyat Indonesia’s life insurer, according to people familiar with the matter.BNP Paribas Cardif SA submitted the highest bid for a stake in PT Asuransi BRI Life, the people said, asking not to be identified because the matter is private. Other bidders including FWD Group Ltd., backed by Hong Kong billionaire Richard Li, remain interested in acquiring the share, the people said.Bank Rakyat Indonesia, the country’s oldest lender, had revived earlier this year its plan to sell a stake in its life insurance unit for about $500 million, Bloomberg News reported in March. A transaction would involve a so-called bancassurance partnership, which allows an insurer to sell its products through the bank’s branches, the people have said.An agreement could be reached within the next few weeks, the people said. Talks are ongoing and the companies could decide against pursuing a transaction, they said.Representatives for Cardif and FWD declined to comment, while a representative for Bank Rakyat Indonesia said the bank is still studying the matter internally.This would be at least the third attempt by state-owned Bank Rakyat to sell a stake in the insurer. The lender tried to dispose a 40% stake in BRI Life in 2015. At that time, FWD and BNP Paribas Cardif were already among parties vying for the holding, Bloomberg News had reported. In 2018, Morgan Stanley was hired to advise on the sale only to see the process put on ice again last year.Shares of Bank Rakyat Indonesia have fallen 44% this year, giving the lender a market value of about $20.5 billion.Cardif reported a pre-tax net profit excluding some items of 1.7 billion euros ($1.8 billion) last year, a 16% increase from a year earlier. It had 260 billion euros in assets under management as of the end of 2019, and a presence in Europe, Asia and Latin America.(Updates to add Bank Rakyat Indonesia’s share price in seventh paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Investments banks cut jobs at the fastest pace in six years during a first quarter in 2020 even though the coronavirus pandemic triggered a surge in volatility and boosted revenues to a five-year high, data published on Wednesday by research firm Coalition showed. While investment banks have benefited from the short-term increase in trading, they are expected to be hit hard by a global recession triggered by the COVID-19 crisis and have already imposed hiring freezes. Coalition's data showed that the banks' revenues from fixed income, currencies, and commodities had their strongest first quarter since 2015, surging 20% to 22.7 billion dollars, as the financial turmoil from the coronavirus crisis prompted a spike in trading.
(Bloomberg) -- Turkish regulators banned local banks from trading with Citigroup Inc., UBS Group AG and BNP Paribas after currency interventions and a stiff new raft of anti-manipulation rules failed to stem the Turkish lira’s slide to a record low.President Recep Tayyip Erdogan has laid the blame for the lira’s decline on foreign speculators, and the tough new rules unveiled Thursday by the banking regulator run the risk of making the nation’s currency and swaps market even less liquid.The lira erased its losses after authorities banned trading the currency with three of the world’s biggest banks, saying they had failed to meet their lira liabilities.UBS declined to comment. A BNP representative was not immediately in a position to comment. Edwina Frawley-Gangahar, a spokeswoman for Citigroup in London, didn’t immediately comment.The regulations -- which coincided with a state news report about a possible lawsuit against unnamed London firms -- may further deter short selling and limit media coverage of local markets.“It looks like the authorities are overstepping the mark,” said Nigel Rendell, a senior analyst at Medley Global Advisors in London. “It’s a fine line between spreading ‘misleading and wrong information’ and having a view on the currency, rates, asset prices that the government may not agree with.”The lira fell as much as 1.1% to 7.2690 per dollar on Thursday, pushing it past the level it reached during the country’s 2018 currency rout. It erased its decline and was trading 0.5% stronger at 7.1557 per dollar as of 5:53 p.m. in Istanbul.To help slow the decline, state banks have flooded the market with dollars and the banking regulator has restricted foreign investors’ access to lira liquidity, making it difficult for them to bet against the currency. On Thursday, the watchdog expanded the definition of manipulative trades -- which may further deter short sellers.According to the new regulations, bank trades that result in “misleading pricing” or keep asset prices at “abnormal or artificial” levels will now be considered manipulative.London FirmsIn a story published late Wednesday, the state-run Anadolu Agency said unidentified London-based financial institutions are facing possible legal action for taking “manipulative positions” against the country’s currency.The crackdown comes amid a foreign exodus from Turkish assets that is piling pressure on the lira. Investors are concerned about the drop in central bank’s gross reserves, which have fallen by $20 billion since the start of the year to around $86 billion through the end of April.The draw-down has coincided with interventions in the currency market by state lenders, fanning speculation that authorities are using their buffers to counter capital flight, even as they move to stimulate the economy with lower rates.Rates, Reserves“The key issue here is that many analysts and investors are negative on Turkey because of the actions of the central bank,” Medley’s Rendell said. Policy makers are “throwing caution to the wind and slashing interest rates aggressively and burning through borrowed FX reserves,” he said.Turkey has more than $168 billion of foreign-currency debt coming due over the next 12 months and relies on external financing to roll these obligations. Yet foreign investors have pulled more than $8 billion out of local-currency bond and equity markets this year, with the outflows picking up pace amid the fallout of the coronavirus pandemic.In an investor call on Wednesday, Treasury and Finance Minister Berat Albayrak downplayed the disquiet over Turkey’s cash pile, saying the central bank’s reserves are “sufficient,” and ruled out borrowing from the International Monetary Fund, according to people who attended the teleconference. Citigroup was one of the call’s organizers.Swap LinesTurkey has been lobbying the world’s biggest central banks to gain access to the type of currency swap lines that the U.S. Federal Reserve provided other emerging markets in March, easing their access to dollar liquidity.The latest restrictions -- which follow a gradual clampdown on how much lira foreign investors can access -- have contributed to a periodic shortage of the currency in offshore markets, squeezed funding rates, and forced traders betting against the currency, or hedging their exposure to Turkish assets, to exit their positions.Turkey’s state banks don’t comment on their activities in the foreign-exchange market. Last week, central bank Governor Murat Uysal said that Turkey has no policy to defend any specific currency level and that it maintains a floating-rate regime.(Updates with banks in first paragraph, new lira prices)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- A key money maker for French investment banks has blown up just as they prepare to deal with the fallout from the coronavirus crisis.BNP Paribas SA, Societe Generale SA and Natixis SA all saw revenue from equities trading wiped out in the first quarter by heavy losses on complex derivatives, an area of traditional strength. Most of their rivals navigated the market panic more successfully in the wake of the outbreak, posting double-digits gains from the same business.The result in Paris was a slump of 1.4 billion euros ($1.5 billion) in equities revenue that overshadowed a strong performance in fixed-income trading. At a time when lenders have to set aside billions to prepare for defaults by borrowers ruined in the unprecedented lockdowns, at least one of the French firms indicated it will take a closer look at whether the derivatives business is still worth the risk.“We can’t say in the medium run we can be happy with what we generated by equity derivatives,” Francois Riahi, the chief executive officer of Natixis, said on a call after being asked whether the bank would consider exiting the business. “But we aren’t going to make decisions based on just this. We are going to review what we want to do and don’t want to do in the future.”One of the reasons for French banks’ equities-trading disaster is that they pursue structured products -- multi-layered securities that get increasingly difficult to manage when markets fluctuate -- over other equity-derivatives businesses that saw record volumes in the first quarter. Their traders were battered even further when corporations began canceling their dividends, key components in many of their complicated deals.Equities-trading revenue at Natixis tumbled 126%, the smallest of the three banks said late Wednesday. BNP Paribas slumped to its worst result in equities since at least 2014 and SocGen saw the poorest performance since the 2008 financial crisis.The results contrast with gains across Wall Street banks, led by Bank of America Corp. Equity-derivative traders at JPMorgan Chase & Co. brought in about $1.5 billion of revenue, at least twice what they normally do, Bloomberg reported.French banks missed out on these gains because they are relatively small players in businesses such as flow-equity derivatives, which include options linked to the S&P 500. Demand for these products surged to records in the chaotic first quarter as investors rushed to protect their holdings and wager on soaring market volatility.Spokeswomen for BNP Paribas and SocGen in London declined to comment. A spokesman for Natixis in Paris also didn’t comment.BNP Paribas and SocGen got just 12% of their combined stock revenue in 2019 from flow and corporate equity derivatives, little more than half of what their 10 biggest rivals got, according to data from Coalition Development Ltd. By contrast, they got 39% from structured products, almost three times as much as their competitors.The French banks are among the biggest players in the market for structured products, complex securities that are typically linked to the performance of a stock or an index of shares. A popular example is the autocallable, which pays an attractive coupon as long as the underlying stocks don’t fall below a preset amount.The products are popular with high net-worth clients and are also sold to retail investors in Japan and South Korea. But their complexity makes them fraught with danger for the banks that arrange them. Natixis lost hundreds of millions of dollars when trades linked to Korean autocallables went awry in late 2018, losses that attracted scrutiny from the European Central Bank.Read More: How Natixis Lost Almost $300 Million in a Black Hole in AsiaBanks that arrange structured products enter into a series of offsetting transactions to protect themselves from losses. Yet this becomes increasingly costly when markets become volatile. All three lenders cited hedging costs as a key factor explaining the trading results.Traders at the French banks typically use derivatives linked to dividends as part of their efforts to hedge, according to Eric Barthe, head of financial engineering at Anova Partners in Zurich. This strategy was upended when corporations began canceling payments to shareholders, some in response to requests from regulators, he said.“Hedging them is a complex job and can be costly when the quantitative models the banks use fail to predict reality,” said Barthe, who recently analyzed the losses. “What we have seen on dividends this year is typically something most models would not have captured.”SocGen, BNP Paribas and Natixis lost more than half-a-billion euros combined from the canceling of dividends, accounting for about 40% of the decline in equities-trading revenue from a year ago. On a May 5 call with analysts, BNP Paribas Chief Operating Officer Philippe Bordenave said this was “a very isolated one-off loss.”‘Brutal Reduction’“We went through extraordinary dislocations of the market in the second half of March,” SocGen Chief Executive Officer Frederic Oudea said in an interview on Bloomberg TV. There was “this brutal reduction -- sometimes going to zero -- of dividends.”For the CEOs of all three banks, the losses are an embarrassing setback because they hit a core business that they have defended for a long time. Oudea just restructured the investment bank, emphasizing SocGen’s traditional strength in equities and related derivatives after exiting or refocusing some fixed-income trading and cutting jobs. The firm is now amending its business model and looking to develop products that are less complex and easier to manage, a person familiar with the matter said.BNP had been burnt by derivatives before, when its traders were flummoxed by sharp market moves in late 2018 and a series of U.S. trades that went awry and lost tens of millions of dollars. CEO Jean-Laurent Bonnafe has since sought to bolster the equities unit, agreeing last year agreed to take over Deutsche Bank AG’s prime brokerage clients to add market share.At Natixis, the first quarter ended a brief respite for CEO Riahi, who had been trying to draw a line under a series of missteps since taking over in June 2018, including the losses on Korean securities, a liquidity scare at its H2O Asset Management subsidiary and oversight problems.“The lesson is that there’s always another risk lurking around the corner,” said Benjamin Clerget, a former equity-derivatives trader at SocGen and ex-fund manager at Banco BTG Pactual SA’s hedge-fund arm. “Bank models incorrectly showed there was no risk.”(Updates with responses, SocGen amending business model)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Turkey’s banking watchdog barred local lenders from trading liras with Citibank NA., BNP Paribas SA and UBS AG, saying the three foreign banks failed to meet their lira liabilities.The banking regulator issued the ban after state media blamed unidentified London-based financial institutions for taking manipulative positions against the lira.UBS declined to comment. A BNP representative wasn’t immediately available to comment.The currency weakened to a record low against the dollar earlier Thursday but erased losses following the regulator’s announcement. It was trading 1.2% higher at 7.1065 per dollar at 3:31 p.m. in Istanbul.The regulator has recently limited the amount of liras Turkish banks can make available to foreign investors and banks, in an apparent attempt to make it tougher to bet against the local currency.It also expanded the definition of manipulative trades in financial markets. Trades that generate “misleading pricing” or keep asset prices at “abnormal or artificial” levels are now considered to violate the law.(Updates with more details from the third paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- HSBC Holdings Plc and BNP Paribas SA‘s risk limits were repeatedly breached in March after unprecedented market volatility blew out estimates on how much they could lose or gain on their trading desks.Europe’s two biggest banks exceeded their value-at-risk limits -- a measure of risk used to calculate how much capital they need to hold against potential losses -- more times in March than over several years during calmer times, according to first-quarter filings.In March alone, HSBC’s trading models breached the daily expected profit-and-loss threshold 12 times. BNP Paribas reported nine such incidents during the quarter, close to a third of all such instances reported since 2007. London-based HSBC and French lender BNP have almost $6 trillion in combined assets.Regulators have closely scrutinized banks that have problems gauging the risks their traders are taking ever since the huge losses racked up during the last financial crisis. While significant breaches usually lead to automatic penalties, regulators have eased off given how quickly trading models can become obsolete during such a virus pandemic.HSBC said it would normally only expect to record two to three breaches in an entire year. The pandemic “caused price disruptions that have not been observed in the past two years,” according to a filing last week from the bank’s U.S. arm.VAR “modelling forms just one part of our market risk management toolkit,” HSBC said in an separate e-mailed statement to Bloomberg. BNP Paribas declined to comment further beyond its filings.Other firms including Germany’s Deutsche Bank AG reported such “backtesting outliers” as well. UBS Group AG, the biggest Swiss bank, reported three “negative backtesting exceptions” in the quarter because of “unprecedented price moves in various asset classes,” filings show.The Bank of England said in March that it would temporarily allow banks to offset increases in value-at-risk calculations “through a commensurate reduction” in other risks they take.HSBC had 15 “back-testing exceptions” in January and March, when the firm was caught out by moves in the prices of precious metals. Europe’s biggest bank said it made two outsized profits and one loss in January that were driven largely by palladium volatility; later problems were caused in part by “delivery disruptions in the gold market” as well as interest rates volatility.At BNP Paribas, the average daily value at risk soared to 35 million euros ($38 million) because of “the shock of volatility on equity markets,” mostly from mid-March onwards, according to a presentation Tuesday. That was the highest level in four years, and 49% above its quarterly average last year.The wild gyrations were reflected in BNP Paribas’ results. Its stock-trading business swung to a loss in the quarter; fixed-income trading, meanwhile, climbed 35% as investors rushed to wager on interest rates, foreign exchange and corporate debt.Deutsche Bank has said the impact of the modeling breaches was mitigated because the European Central Bank relaxed its rules, and there was no overall impact on its capital requirements as a result.(Updates with slide from BNP Paribas presentation.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- Investors are particularly wary of European banks. Since February, shares in the region’s lenders have lost more than 40% of their value to hit lows not seen even in the depths of the global financial crisis. The concern is that a fragmented industry still grappling with meager profitability will be crippled by the pandemic-inflicted economic slump, notwithstanding all the government assistance.How banks are preparing for the inevitable buildup of bad loans isn’t helping confidence, either. Some took their bitter medicine in the first quarter, making large provisions that ate into profit. Others, perhaps encouraged by regulators, took a more benign view of the impact of the worst economic contraction in living memory.The result? While banks’ loan books differ from each other — with varying exposures to different geographies and industries, and to secured and unsecured borrowers — it will take time to convince investors that things are OK. The mountain of bad loans that plagued lenders after the previous crises took years to reduce. Whether lenders have become truly more prudent remains to be seen.Take France’s BNP Paribas SA. Its outlook is much brighter than that of the markets. The last of Europe’s big banks to report first-quarter earnings said on Tuesday that it only expects a drop of net income for the year of between 15% and 20%. Analysts have been forecasting a 30% drop or more for 2020.Profit fell by a third to 1.3 billion euros ($1.4 billion) in the first three months of 2020, after the bank set aside an additional 502 million euros for the hit from the pandemic, chiefly for its corporate bank and consumer finance businesses. For the rest of 2020, the lender sees net-interest income offsetting a decline in fees. At the same time, BNP said more cost savings would help soften the blow of what it has to set aside for deteriorating credit.The bank expects to lend more, filling a vacuum left by some banks that are less keen to extend credit into Europe. And it plans to capitalize on its shift into automation by not replacing employees who leave.Still, when asked what bad loans will look like over the coming quarters, Chief Financial Officer Lars Machenil told Bloomberg Television it’s “a tad too early to say.” On a call with analysts, executives also declined to share details on the assumptions for gross domestic product that the bank has used. For shareholders, this lack of clarity will remain a cause for concern. Government backing of companies with loan guarantees and grants will help, but the speed with which economic activity will resume is still largely unknown.And there are always the one-offs. BNP missed out on the Wall Street trading bonanza where its peers posted their best quarter in eight years. Instead, its equities revenue was wiped out. The firm lost $200 million on equity derivatives, and unspecified amounts on misfiring hedges and building reserves. Blaming European authorities for restricting dividends, which caused BNP’s bets on payouts to backfire, was a feeble attempt to deflect attention from the real issue. The bank was caught on the wrong side of the market.BNP said there were nine instances in which its trading profits or losses exceeded what its internal “value-at-risk” models had predicted, a sign of the strain the trading business came under in the quarter. Luckily, regulators have lent a hand, easing the capital requirements for banks that get caught out like this.Investors will also take comfort that the bank has a more diverse business than its domestic rival Societe Generale SA, which lost money on similar derivatives bets and plunged into the red for the quarter. BNP trades at 40% of its tangible book value, or twice SocGen’s multiple. The gap has widened, but it’s a stretch to say BNP is a safe bet.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Elisa Martinuzzi is a Bloomberg Opinion columnist covering finance. She is a former managing editor for European finance at Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
You can share your thoughts with Thyagaraju Adinarayan (firstname.lastname@example.org), Joice Alves (email@example.com) and Julien Ponthus (firstname.lastname@example.org) in London and Stefano Rebaudo (email@example.com) in Milan. The German meal-kit delivery firm is still currently up over 6% in what is a clearly 'risk-on' morning session: oil and gas, miners, banks, autos, travel and leisure are all having a good day so far. Other winners following their trading updates include Pandora, Total, Siemens Health or BNP Paribas, all up 4% and 7%.
BNP Paribas set aside more than half a billion euros in loan provisions on Tuesday as the coronavirus crisis wiped out the French bank's revenue from equity derivatives trading and knocked a third off its first quarter profit. Provisions for expected losses due to the coronavirus crisis were 502 million euros, BNP said. While BNP warned that its 2020 net income could be about 15% to 20% lower than in 2019, the bank's loans and repurchase agreements almost doubled during the quarter, with its balance sheet growing to 2.7 trillion euros from 2.2 trillion as it rolled out emergency loans to help businesses weather lockdowns.
(Bloomberg) -- A trader changed his position on Wirecard AG from long to short. Then he asked prosecutors and regulators to investigate the German fintech company.The former investment bank employee, who can only be identified as Armin S., filed a criminal complaint with police and market regulator Bafin seeking an investigation into whether Wirecard violated EU market manipulation rules.The request came just after an independent audit into Wirecard by KPMG criticized the payment processor for internal “shortcomings” and unwillingness by its third-party partners to contribute to the report.Wirecard hired KPMG in October to look into its third-party partner business and its operations in India and Singapore following articles by the Financial Times that accused the company of accounting fraud in several countries. The German fintech had drip-fed parts of the report to the market, including a statement earlier this month that the accounting firm had not made any substantial findings of questionable accounting methods.“The company repeatedly said that KPMG didn’t find any wrongdoing, while they concealed that the auditor wasn’t able to get the necessary documents from Wirecard itself,” Armin S. said in an interview.The trader admitted in the complaint, however, that he changed his position on the company’s shares on the same day as the KPMG report. In the filing, Armin. S. said that he bought Wirecard shares through January as “he believed in the company,” but on Tuesday he changed his position, buying derivatives that allowed him to profit from falling Wirecard stock prices.Wirecard’s press office didn’t immediately reply to an e-mail seeking comment. A Bafin spokeswoman said she can’t immediately comment.The trader said in an interview that he isn’t a “typical” short seller, who bets on a company’s stock falling.“I have been long on Wirecard for a long period and really made good money,” Armin S. said in an interview. “I believed what the company communicated and now we saw it wasn’t based on facts. So when the report came out on Tuesday, I switched to short. And that has already worked well.”The company’s shares fell as much as 36% after the KPMG report was published before rebounding 4.9% Thursday. Activist investor Christopher Hohn called on Wirecard to remove Chief Executive Officer Markus Braun, putting additional pressure on the stock this week.Wirecard, based in Aschheim near Munich, on Tuesday said “no incriminating evidence was found” in the KPMG report “for the publicly raised accusations of balance sheet manipulation.”BNP Wins Dismissal of Suit Over $186 Million ‘Fat Finger’ ErrorThis isn’t the first time that Armin S. has made headlines. The trader sued French lender BNP Paribas SA over what he called a 163 million-euro ($177 million) “fat-finger” mistake on a transaction.He lost a ruling in the case in Frankfurt and has appealed. He has also sued BNP in Paris.“It angers me when I see that big players think they are above the law and can interpret the rules as they please,” Armin S. said. “The small trader is immediately being held accountable for the slightest issue because it’s easy to get after him. I’ve seen that many times.”Bafin spokeswoman Anja Schuchhardt declined to comment. Bafin has long been conducting a market manipulation probe into Wirecard and will also add the information from the KPMG report to its investigation, she said.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- Global banks, fitter than they’ve ever been, were going to be the doctors of the economy during the Covid-19 pandemic, Societe Generale SA Chief Executive Officer Frederic Oudea said confidently just a few weeks ago. For now, the French lender is looking more like a patient.Derivative bets that backfired and a surge in bad-loan provisions pushed SocGen into its first quarterly loss in almost eight years. Now it’s having to scramble to deliver yet more cost cuts in 2020. Ending the company’s overreliance on volatile trading won’t be easy.SocGen lost 200 million euros ($218 million) on equity derivatives linked to shares and corporate payouts, the bank said on Thursday, confirming a report by my Bloomberg News colleagues. Essentially, the bank’s bet went wrong because companies scrapped their dividend payments as economies shut down. The firm’s equities-trading revenue — typically its biggest source of trading income — was effectively wiped out as counterparty defaults and higher reserves for its structured products also took a toll.Oudea put this all down to the “extraordinary dislocation” of the financial markets in second half of March. BNP Paribas SA, another big French bank, reportedly lost money on similar trades. Yet Wall Street competitors including JPMorgan Chase & Co. and Citigroup Inc. managed to make more money in equity derivatives amid the mayhem of March. This is a reminder of how wild market swings can play out very differently between even the most sophisticated investment banks. Structured trades — complex financial instruments that use derivatives — don’t give you a business that you can rely on every quarter.There was better news for SocGen in fixed income, where revenue rose 32%, in line with peers. While that cushioned some of the trading blow, there was more pain elsewhere.Charges on two fraud-related cases — SocGen is one of the banks exposed to troubled Singapore oil trader Hin Leong Trading — and provisions for the probable buildup of bad loans cost the firm 820 million euros. All told, it posted a 326 million-euro loss, compared to a profit of 686 million euros this time last year.To protect profitability for the rest of 2020, the bank is eyeing another 700 million euros of net savings. It will deliver these by banning travel and events, which is not so difficult at present, and by cutting bonuses and freezing recruitment. The bank has promised not to make any new job cuts until September, however, which does limit its room for maneuver on reducing expenses during this particular economic crisis.At least the bank’s capital has held up. At 12.6%, its key common equity Tier-1 ratio still gives SocGen a comfortable buffer before it faces restrictions on how it can use its capital. Even if the ratio fell to 11%, and there were further bad-loan provisions of as much as 5 billion euros this year, that buffer should be preserved, the bank said.The trouble with SocGen, as I’ve argued before, is that under Oudea — the longest-standing CEO among Europe’s top lenders — it has made strategic missteps that aren’t easily reversible. Crucially, having scaled back in asset management, it is less diversified than its rivals. The bank’s traders showed in the quarter that they can’t always be relied upon, and pressure is building on SocGen’s commercial and consumer banking divisions because of rock-bottom interest rates and recession. With more bad loans on the way, SocGen is showing exactly where its weaknesses lie.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Elisa Martinuzzi is a Bloomberg Opinion columnist covering finance. She is a former managing editor for European finance at Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
AT 9:45 AM ET (1345 GMT), Crude Oil WTI futures traded 3.6% lower at $12.32 a barrel, while the international benchmark Brent contract rose 0.9% to $23.27. Overnight, the United States Oil Fund (NYSE:USO), an ETF that accounts for a large block of exposure in WTI futures, said it would sell off all its contracts for June delivery, replacing them with longer-term contracts. According to a notice by the company seen by Bloomberg, "this unscheduled roll is being implemented based on the potential for the June 2020 WTI crude oil contract to price at or below zero as well as the steady decline in open interest for the June 2020 contract.”
U.S. investment banks are shrinking lending activity in Europe as the coronavirus crisis forces them to retreat home, allowing BNP Paribas and other European lenders to fill the funding gaps and grab market share, seven sources told Reuters. Facing unprecedented demand for loans, and under pressure to support their local economy, the likes of Bank of America and JPMorgan have taken a more cautious approach on Europe, the sources said, speaking on condition of anonymity.
(Bloomberg Opinion) -- Regulators and central bankers, pressed to keep economies alive through the Covid-19 lockdowns, have whizzed through their crisis playbooks to pump liquidity into the financial system. The mission is noble, and essential: to make sure banks can support companies and individuals until business activity resumes. But the methods need to be scrutinized carefully. There’s plenty that can go wrong when you start going easy on the finance industry. For example, while supervisors have rightly lowered the demands on how much capital a bank should hold, they’ve also granted greater flexibility in how lenders make provisions for loans that turn bad. Equally troubling is a new move to ease the capital requirements on trading businesses that have come under extreme market strain. There’s a risk here of investors losing confidence in the handful of companies that are most critical to financial stability: the world’s biggest investment banks.During the first quarter of 2020, Wall Street banks earned the most from trading in eight years, as mayhem in the markets forced clients to buy and sell securities at unprecedented speed. Yet global regulators — in the euro zone, the U.K., Switzerland and Canada — have decided to loosen the rules where firms didn’t do so well. Banks that faced trading losses that repeatedly exceeded their modeled forecasts will get temporary respite on how much additional capital they have to set aside to make up for the shortfalls.Each regulator has relaxed these trading rules to varying degrees, a deviation from post-2008 global banking standards that could itself damage investor trust. But their goal is similar: The world’s biggest trading firms are getting leeway if they’ve scored poorly on a crucial indicator of market risk. It’s similar to a bank not penalizing a credit card borrower for overdue payments.Banks set aside capital for the different types of risk they take on. Typically, credit — or lending — risk makes up most of their exposure. It accounts for 85% of European banks’ risk-weighted assets on average. Market risk — essentially the exposure from trading — accounts for between 3% and 4% of those assets on average in Europe. That ratio rises to as much as 6% at Barclays Plc and 7.7% at Deutsche Bank AG, two European banks with big trading operations.Banks determine how much capital they need to set aside for that market exposure by measuring “value-at-risk” (VaR). That’s the maximum they could lose in a set time frame, based on recent historical prices. To make up for this being a backward-looking measure, and one that may not capture more extreme market moves, banks must also compute a measure of “stressed VaR,” reflecting how their positions might have fared in the worst market conditions; as the 2008 crisis showed, VaR on its own can give a false sense of the finance industry’s resilience.The more frequently a bank’s VaR model undershoots the actual risk that emerges in real-world trading, the more capital the bank is required to hold. Or at least that was the case until the new rule relaxations. Regulators have now decided, temporarily, to tweak or do away with that additional capital requirement. In effect, they’re deciding to ignore an alarm bell.The Swiss financial watchdog conceded that firms witnessed an increased number of trading losses that exceeded their forecasts when markets went wild over the past few weeks, but it says market volatility was the problem, not the banks’ models.Yet as recently as February, France’s BNP Paribas SA was boasting of VaR’s reliability over many years, including during the 2008 crisis. It told investors that it had only experienced 22 incidents of VaR not getting it right between January 2007 and December 2019, less than two per year.The new regulatory leniency raises questions about how much capital support the banks need. Companies will argue that their own VaR assessments have gone up anyway over the past quarter, meaning they’ll have to hold more capital to cover the exposure. Take JPMorgan Chase & Co., which reported earnings last week. Its average VaR for the quarter rose to $58 million from $37 million in the previous three months.For some European banks, the capital impact of similar increases in VaR could be significant. For every 10% increase in its trading-risk assets, Barclays would see its common equity Tier-1 ratio drop by 14 basis points, while Deutsche Bank would see it fall 11 basis points, according to analysts at Berenberg. At JPMorgan, market risk rose by about 30% in the period.Asking these lenders to set aside more capital at a time of unprecedented economic contraction may hurt businesses and individuals. But turning a blind eye to potential trading risk is a troubling alternative.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Elisa Martinuzzi is a Bloomberg Opinion columnist covering finance. She is a former managing editor for European finance at Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- Banks insist they’re in much better shape than they were during the run-up to the 2008 financial crisis. This time, as the coronavirus lockdowns wreck output, lenders can be “doctors of the economy,” in the words of one industry executive. True, banks have much larger capital buffers and better access to funding than was the case 12 years ago. How smart they've been at running their trading businesses remains to be seen.Some of Europe’s biggest banks have gone into the worst economic contraction since the Second World War sitting on huge piles of complex, risky trades whose fair value is hard to determine. These are the so-called Level 2 and Level 3 assets, the types of instruments that blew up in 2008.Valuations of Level 2 assets — mainly over-the-counter derivatives and illiquid stocks — are derived from using observable external measures, such as the price of similar instruments traded in the market. Level 3 assets are the most illiquid instruments, whose prices depend on inputs that aren’t observable to outsiders. Unlike Level 1 assets, which have easily viewed market prices, investors have to rely on banks’ internal models, and own judgments, to get a handle on the Level 2 and Level 3 exposure. Fair values for the same instrument might easily differ from firm to firm.The absolute size of these risky asset pots — totaling several hundred billions of dollars at many of the largest banks — is eye-watering. They dwarf the lenders’ capital by many multiples. Take Deutsche Bank AG: Its stock of Level 2 and Level 3 assets is more than 11 times its common equity Tier 1 capital. At Britain’s Barclays Plc, it is just shy of 11 times, at France’s Societe Generale SA it’s seven times and at Switzerland’s Credit Suisse Group AG it’s almost eight times. While plenty has been written about the inevitable build-up of bad loans in the Covid-19 downturn, these piles of interest-rate swaps and collateralized debt obligations need to be considered too. In the recent market rout, every major asset class was upended. U.S. stocks fell into a bear market at record speed, the dollar soared and safe-haven assets such as government bonds were rocked. How banks’ risky assets fared during the unprecedented turmoil is guesswork from the outside. All the banks listed in the table above declined to comment for this piece. One bank executive, who asked to remain anonymous, said the balances of banks’ Level 2 and Level 3 assets and liabilities may both have increased in the quarter, which would be a welcome sign that hedges have been working in the turmoil.For example, the decline in long-term interest rates would have increased the present value of years-old derivatives that swapped fixed rates for floating rates. Interest-rate derivatives tend to make up the bulk of the portfolios, and they may have offset declines in the prices of equities and loans. (That said, some hedges would have been for interest rates and inflation to rise, so they could be heavily in the red.)Less welcome is that banks will probably have to start moving things from Level 2 to Level 3 as price discovery becomes more difficult. Some may decide that observable measures through mid-to-late February are sufficient to keep assets in the Level 2 pot for the first quarter. Each bank has its own model. Lehman Brothers allegedly shifted mortgage-backed securities and other assets from Level 2 to Level 3 in 2008 in an effort to prop up their values.The market became hugely skeptical about these instruments during the financial crisis. A 2015 study published by the Journal of Accounting and Public Policy showed that investors valued Level 2 assets at 85 cents on the dollar and Level 3 assets at 79 cents during 2008. More troubling for the banks sitting on large stocks of Level 2 instruments is that an analysis by Wharton Research Scholars shows they were discounted even more significantly during the crisis than the more opaque Level 3 stuff.Investors should look at how frequently banks turn over their Level 3 assets, according to analysts at Berenberg, who published a report this week saying that France’s BNP Paribas SA, Credit Agricole SA and SocGen have the lowest turnover of Level 3 instruments among 12 banks they studied, which means the assets are probably “stickier and harder to sell.” Credit Suisse has the highest turnover among the group.The French banks, Credit Suisse, Barclays and Deutsche each hold Level 3 assets that are as large as, if not larger than, those of Citigroup Inc. and Bank of America Corp., even though the latter have much bigger trading businesses.The European Systemic Risk Board, the European Union body that monitors the financial system’s stability, has also noted the Level 2 and Level 3 threat — particularly the prospect for “opportunistic behavior” by managers and the overvaluation of assets. “If several banks were to be affected simultaneously at a time of acute fragility in the financial system, concerns could spread to the macroprudential domain and affect financial stability,” a February report from the board warned.What’s more, banks no longer have to use the crisis-era filters that protected their capital positions from movements in the fair value of assets they hold for sale. Without these filters, fair-value gains and losses are directly recognized in banks’ income statements even if they’re unrealized. And as my colleague Ferdinando Giugliano noted, significant risks may lie in smaller banks that may not have been as transparent in their Level 2 and Level 3 disclosures.Equally concerning is the faith being placed in banks’ risk management practices, especially since regulators started loosening the rules because of the Covid-19 crisis. In its 2019 review, the European Central Bank’s Single Supervisory Mechanism, its bank oversight arm, observed a worsening of internal governance, especially among the larger lenders. Regulator’s plans to tackle this area of weakness with a new set of capital rules for trading desks — known as the Fundamental Review of the Trading Book — was pushed back a year to January 2023 as part of the response to the coronavirus lockdowns. By then, it could be glaringly obvious how clever banks have been at managing risk.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Elisa Martinuzzi is a Bloomberg Opinion columnist covering finance. She is a former managing editor for European finance at Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- Banks in Asia are suddenly shy to part with dollars. And who can blame them? Many of their corporate clients are borrowing the U.S. currency and depositing it with the same banks — just in case they can’t get the funding when they need it. The caution amid the coronavirus outbreak isn’t all that different from Amazon.com Inc. trying to discourage vendors from cornering toilet paper supplies. “Corporate banks are becoming a bit more discretionary about permitting draws on credit lines where hoarding cash is the sole objective,” according to Greenwich Associates consultant Gaurav Arora. The dollar squeeze is evident, as one of us wrote Monday, in the hefty premiums South Korean banks must fork out to borrow the U.S. currency — a reliable indicator of trouble in the past. It also appears that China’s banks may be less eager or able than before to fund the dollar needs of their corporate borrowers, Bloomberg Opinion’s Anjani Trivedi noted Wednesday.For Asia, the crunch is an unwanted gift from European lenders, whose departure from the region post-2008, as well as regulations that reined in Wall Street firms, have led to a funding hole. Japan’s banks have expanded and lenders like BNP Paribas SA have scaled up trade finance, but they’re yet to fill the void, especially as troubled Deutsche Bank AG shrinks. The German lender was in the top five corporate banks in Asia in 2014; last year, it wasn’t even in the top 10, according to Greenwich. Some countries like Korea have felt the loss more keenly than others. U.K. banks’ exposure to Korea has dwindled to $77 billion from $104 billion in the first quarter of 2008. German lenders’ claims have fallen to $13 billion from $36 billion.Japan’s lenders have taken up part of the slack. Driven by negative interest rates and aging demographics at home, they have dished out funds aggressively in Southeast Asia as well as to global deal-chasing clients like SoftBank Group Corp. The large U.S. operations of megabanks like Mitsubishi UFJ Financial Group Inc. also provide them with liquidity, as does their stack of fully convertible, cheap yen deposits. But some Japanese lenders have piled into off-balance sheet products, which suck liquidity in times of stress. Japan's Norinchukin Bank, a lender to farmers and fisherman, was one of the world’s largest buyers last year of collateralized loan obligations, bundled U.S. leveraged loans.When the Fed extended emergency swap lines to South Korea, Australia, Singapore and New Zealand last week to ease the worldwide dollar shortage, a step that our colleague Shuli Ren called for here, it was a sign that the liquidity problem was serious enough. Overall, the Fed gave temporary access to nine authorities in addition to the five that it has permanent arrangements with for making dollars available.(2) Emerging economies like India, Indonesia, Chile and Peru, though, have seen their requests for swap lines rebuffed in the past. The U.S. only helps those it sees as important to the stability of its own banking system.So what can Asia do? Start with the most extreme case. Australia needs U.S. dollar funding not just for foreign-currency loans but also for Australian dollar mortgages. That’s because the domestic deposit base is small, compared with the size of the banking industry. The average loan-to-deposit ratio of Macquarie Bank Ltd. and other major Australian lenders was 126% versus 68% for the top Asian banks, namely DBS Group Holdings Ltd., Mizuho Financial Group Inc., MUFG, Standard Chartered Plc, and HSBC Holdings Plc, according to banking analyst Daniel Tabbush, founder of Tabbush Report.Offshore funding sustains around one-third of major Australian banks' total worldwide operations. While the International Monetary Fund and others have flagged the reliance on foreigners as problematic, the Australian regulators have so far refrained from discouraging lenders to borrow abroad. Yet, the fact that the country had to seek dollars from the Fed during the epidemic upheaval and auction them to its banks will call into question the sagacity of this relaxed approach. In rest of Asia, one lesson from the dollar squeeze is to shun protectionism. Well-capitalized regional banks like Singapore’s DBS could supplement the three traditionally entrenched foreign lenders: HSBC, StanChart, and Citigroup Inc., a big cash management bank for Western multinationals. DBS could emerge as an Asian global bank, though in good times its expansion has been stymied by regulators playing to nationalist political sentiment, as we saw when it wasn’t allowed to buy Indonesia’s PT Bank Danamon in 2013.The next step may be to seek more intermediaries with scale. JPMorgan Chase & Co. is pumping top dollar into serving corporate treasuries as a safeguard against the fickle fortunes of investment banking. Japan’s lenders could also do more: MUFG is already one of the region’s most aggressive lenders and has the historical advantage of having a dollar clearing license, like HSBC. Unlike 2008, this isn’t a credit contagion yet, though that could change if large, messy financial bankruptcies were to erupt. But beyond the current crisis, the regulators must plan for the next squeeze. Since not everyone can rely on the Fed, the dollar supply chain is each country’s responsibility. At least until a credible alternative to the U.S. currency comes along. (1) The standing facilities are with the Bank of Japan, the Bank of England, the Bank of Canada, the Swiss National Bank and the European Central Bank.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Nisha Gopalan is a Bloomberg Opinion columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Hedge fund behemoth Bridgewater has shown its hand in Europe with roughly $15 billion in bets against companies on the continent and in Great Britain, filings reviewed by Reuters show. The world's biggest hedge fund manager's short positions amount to more than $5.3 billion in France and $4.7 billion in Germany, while in Spain its shorts add up to almost $1.4 billion and $821 million in three Italian companies. Hedge funds engage in the practice of 'shorting' by borrowing a stock from an institutional investor, such as a pension plan, and selling it back at a profit when the price drops.