|Bid||0.00 x 0|
|Ask||0.00 x 0|
|Day's range||37.33 - 38.09|
|52-week range||24.50 - 54.22|
|Beta (5Y monthly)||1.65|
|PE ratio (TTM)||6.58|
|Earnings date||31 Jul 2020|
|Forward dividend & yield||N/A (N/A)|
|Ex-dividend date||25 May 2020|
|1y target est||61.49|
(Bloomberg Opinion) -- Plans for a change of leadership at two of Britain’s major banks could hardly be better timed. The economic shock of the pandemic, plus the uncertainty around Brexit, will probably demand a strategic reset at both Lloyds Banking Group Plc and Barclays Plc.Lloyds, the U.K.’s biggest mortgage lender, this week said Chief Executive Officer Antonio Horta-Osorio will step down in 2021 once a successor is found. While Barclays says no search is underway, the lender could seek a replacement for CEO Jes Staley as soon as next year and recently reached out to potential candidates, Bloomberg News reported.Just before markets turned in response to the spread of Covid-19, Lloyds’s stock price was roughly unchanged from its level when Horta-Osorio started in 2011, while Barclays’s shares were down nearly 25% under Staley. Both stocks have fallen sharply in the crisis this year, with the less diversified Lloyds the worst hit. They languish close to lows last seen during the financial and euro-zone debt crises, and trade at discounts to peers.In February, Barclays said Staley was being investigated by the U.K. regulator over how he characterized his relationship with deceased financier and sex offender Jeffrey Epstein. The board unanimously backed him after concluding Staley had been sufficiently transparent with the company. But questions around Barclays’s strategy have been mounting. Staley staked his success on maintaining a sizable securities unit that could compete with Wall Street peers. Among the handful of European firms that still aspire to run global investment banks, Barclays has the advantage of owning an established U.S. franchise through the Lehman Brothers business it acquired during the financial crisis.The approach has rightly attracted opposition. Activist Edward Bramson has been pushing for a retreat from trading given its relatively poor returns. Barclays’s U.K. commercial lending business posted a return on tangible equity of around 18% last year, compared with 8% at the investment bank. At the group level, ROTE stood at 9%.True, a trading surge in the first quarter of 2020 helped the securities unit post better returns than the U.K. business, which had to book provisions for loan losses. But it’s questionable whether this reversal will last once debt markets return to normal activity levels and volatility subsides.Barclays probably needs to dial back, be more selective in investment banking (as are BNP Paribas SA and Deutsche Bank AG) and look elsewhere for growth. Investors would likely reward a less volatile firm with a higher valuation, strengthening the shares as an acquisition currency. Buying a cheaper peer could go some way towards diluting the risk of the investment bank. That opportunity may however not present itself.In the meantime, a further pruning of U.K. retail branches (more than half are within a 10-minute drive of each other, according to analysts at UBS Group AG) and improving cross-selling in the consumer bank look like sensible and available options. All told, that could be enough to re-energize the strategy.As for Lloyds, after almost a decade on the job, Horta-Osorio is one of the longest-serving CEOs in European banking of his time. Having exited state ownership by repairing the balance sheet and becoming more efficient (the cost-income ratio is the envy of European peers) Lloyds is now wrestling with a margin squeeze in the cut-throat home-loans market. It is also exposed to prolonged U.K. economic weakness and any negative impact from Britain leaving the European Union.Horta-Osorio’s successor has little room for maneuver. Overseas expansion would be highly risky. That leaves pushing for further growth in wealth management and insurance, as is reportedly already envisaged. Aside from two dominant players, the U.K. market for financial advice is fragmented with one-third of advisers working for firms with fewer than five professionals. That’s an obvious target for a bank with many affluent account holders on its books.Despite the historically generous pay packets, running big lenders is not an enviable job. A candidate with a choice might find it easier to make a decisive break with the past at Barclays than at Lloyds.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.
(Bloomberg) -- The Federal Reserve said Monday that it will begin buying individual corporate bonds under its Secondary Market Corporate Credit Facility, an emergency lending program that to date has purchased only exchange-traded funds.The central bank also spelled out for the first time how it plans to implement its buying strategy, saying it would follow a diversified market index of U.S. corporate bonds created expressly for the facility. The Fed built the index internally, and a spokesman couldn’t immediately say whether its details would be made public.“This index is made up of all the bonds in the secondary market that have been issued by U.S. companies that satisfy the facility’s minimum rating, maximum maturity and other criteria,” the Fed said in a statement. “This indexing approach will complement the facility’s current purchases of exchange-traded funds.”The creation of the index removed a potential hurdle for companies that would have had to certify that they were in compliance with restrictions outlined for the program.Investors CheerU.S. stocks climbed to the highs of the day after the announcement. BlackRock’s iShares iBoxx $ Investment Grade Corporate Bond exchange-traded fund, the largest credit ETF, jumped 1.9% to hit session highs, while the iShares iBoxx High Yield Corporate Bond ETF climbed as much as 1.6%.The cost to protect investment-grade corporate debt against default dropped the most since April 9, when the Fed expanded the scope of its bond-buying program to include some high-yield debt.“It’s a significant positive,” said Dominique Toublan, head of U.S. credit strategy at BNP Paribas SA. “The main reason is that they removed the requirement that issuers certify their eligibility. Many investors were worried that this would impair the ability of the Fed to buy bonds.”The SMCCF is one of nine emergency lending programs announced by the Fed since mid-March aimed at limiting the damage to the U.S. economy by the coronavirus pandemic. With a capacity of $250 billion it has so far invested about $5.5 billion in ETFs that purchase corporate bonds.The New York Fed said in a separate statement that purchases of bonds from eligible sellers will begin on Tuesday.Buying LevelsMarket watchers said that while the announcement wasn’t a complete surprise, confirmation by the Fed that it would start buying individual bonds in addition to ETFs provided additional support for the bond market.The program also laid out what might be a wider pallet of bonds than was originally expected, according to Dennis DeBusschere, head of portfolio strategy at Evercore ISI.“The reason credit spreads are tight is because investors believe that they would follow through on the program,” DeBusscher said. “If they didn’t follow through, credit spreads would move significantly wider and the Fed would have to purchase even more debt to shore up credibility.”The Fed said it could slow or even pause daily purchases if market functioning showed sustained improvement, though buying could pick back up if conditions worsened again.An index assures the Fed complies with the spirit of the law under Section 13.3 of the Federal Reserve Act which says emergency lending facilities must be broad based, and provides a mechanism for the central bank to avoid industry concentration.Earlier Monday, the Fed separately announced that it has opened its Main Street Lending Program for small and mid-size businesses.(Updates with market reaction in fifth 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.
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 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.
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.
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 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.
(Bloomberg Opinion) -- Since taking over as the euro zone’s main banking supervisor, the European Central Bank has spearheaded efforts to reduce the amount of bad loans that had cumulated throughout the great recession and the euro zone sovereign debt crisis. This pile has fallen from 6.8% of total loans at the peak in the December 2015 to 2.9% in September 2019.But critics, including the Bank of Italy, have insisted that the ECB has been blind to another risk lurking within the banking system: illiquid Level 2 and Level 3 assets, such as interest rate swaps or unlisted equity investments, which are hard to value and dispose of and can be especially problematic during these times of financial stress. These assets sit on the balance sheets of many banking giants such as Deutsche Bank AG and BNP Paribas SA. In light of new research, the supervisor would be wise to monitor the level of these assets among smaller banks, too.To be sure, Italy’s warning was in part self-serving: the country had a particularly high proportion of bad loans, which has come down sharply only in recent years. But regulators and supervisors should certainly be asking whether they are doing enough to ensure that Level 2 and Level 3 assets won’t contribute to the next financial crisis – especially since these played an important role in the 2008 crash.The European Systemic Risk Board, the body in charge of monitoring threats to the financial system as a whole, has produced a study to examine the dangers behind these instruments. They suggest that supervisors pay greater attention to the exposures of mid-sized banks, which are often less transparent than Europe’s banking giants in disclosing their assets. The report documented a high level of heterogeneity in disclosing Level 2 and Level 3 assets by individual banks. The authors looked at a sample of 22 lenders from the European Economic Area – including the 11 systemically important banks. They found that all the largest banks, including the likes of Deutsche Bank and BNP Paribas, have high levels of transparency.Conversely, smaller banks are more cagey about what they hold. In fact, the amount of detail they give declines as the proportion of Level 2 and Level 3 assets increases. This means that supervisors who are worried about the role of these instruments should also look beyond the usual suspects that are the larger banks. While these may be a concern for the size of their balance sheets, smaller lenders may have more to hide.The report offers a list of sensible recommendations. These include demanding greater transparency from smaller, individual banks, and speeding up Europe’s implementation of the “Fundamental Review of the Trading Book”, a set of capital rules for trading activities that was internationally agreed upon by the Basel Forum last year.However, the most important check on the real health of banks must come from supervisors monitoring individual ones. They need to verify that the valuations of individual assets and the models used to evaluate risk are realistic. Level 2 and Level 3 assets need not be dangerous, so long as the ECB ensures they are properly accounted for.To contact the author of this story: Ferdinando Giugliano at firstname.lastname@example.orgTo contact the editor responsible for this story: Nicole Torres at email@example.comThis column does not necessarily reflect the opinion of Bloomberg LP and its owners.Ferdinando Giugliano writes columns on European economics for Bloomberg Opinion. He is also an economics columnist for La Repubblica and was a member of the editorial board of the Financial Times.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.
For many investors, the main point of stock picking is to generate higher returns than the overall market. But its...
MILAN/LONDON, Feb 6 (Reuters) - European banks have started 2020 on a strong note, much like their rivals in the United States, with a revival in bond trading offsetting pressures from negative interest rates. The European bank shares index erased all of its year-to-date losses on Thursday as strong trading and fee revenues from major banks in the region pointed to a better-than-expected earnings season. Although BNP Paribas had to cut profit targets on Wednesday because of the lower for longer rate environment, investors reacted positively to the French bank's bumper trading revenues.
BNP Paribas <BNPP.PA> is looking for further opportunities to expand its investment banking franchise in Europe and fortify its lead over local rivals after last year taking over Deutsche Bank's electronic equity and prime broking operations. France's biggest bank has jumped to the top of Europe's investment banking league tables by gaining market share in fixed income and equities trading, as others pare back or exit. Yann Gerardin, head of corporate and institutional banking at BNP Paribas, told Reuters after the bank reported a doubling of fourth quarter global markets revenue that it would examine openings like the Deutsche <DBKGn.DE> one if they arose.
Credit Suisse <CSGN.S>, BNP Paribas <BNPP.PA> and French public investment bank Bpifrance are the latest lenders to join an initiative to link provision of shipping finance to cuts in carbon dioxide emissions. Global shipping accounts for 2.2% of the world's CO2 emissions and the industry is under pressure to reduce those emissions and other pollution. Last year, a group of leading banks signed up to environmental commitments known as the "Poseidon Principles", whereby financiers will for the first time take account of efforts to cut CO2 emissions when providing loans to shipping companies.
Britain's finance sector is losing hope of securing even basic access to European Union markets from Dec. 31, as talk that the EU wants UK fishing rights in exchange draws the industry into a political struggle between the bloc and its departing member. Hopes were high that Prime Minister Boris Johnson would prioritise the financial sector -- Britain's largest export industry and biggest corporate tax generator -- in trade talks. Until now, financial firms running EU operations from Britain believed that technical assessments by EU banking, insurance and markets regulators would be enough judge UK rules 'equivalent' to those governing EU-based firms, granting them market access after December.