How Much Did Barclays Make From Manipulating Libor?

No doubt at some point a full calculation will be forthcoming. It is important to remember that many banks are involved in the scandal, and that for every long derivative there’s a short, so there were winners and losers and the sums are all mixed up. It may well be that just as Bank X’s […]

A Look at Fitch Ratings European Credit Outlook 2011

This post is a summary of Fitch’s views drawn from a recent Fitch conference: European Credit Outlook 2011, London January 21, 2011

  • Fitch are sanguine about the EZ crisis and expect a muddle through, despite noting substantial risks and not providing convincing explanations why they won’t happen or what will mitigate them.
  • In aggregate, banks should be able to transition to new Basel III via retained earnings.
  • But banks’ funding costs are at risk from the removal of government support: “Roughly one quarter of developed market EMEA IDRs are at their support floors and are vulnerable to rating downgrades arising in a ‘lower support’ bank resolution regime world”.
  • Covered bond programmes are quite sensitive to issuer downgrades.

New Bank Stress Tests—Capturing Solvency and Liquidity Risk?

The capturing of true EZ bank exposures requires a new round of stress tests starting February 2011, as announced on December 7 by EU Commissioner Olli Rehn. Those tests will be “based on new financial architecture,” i.e. under the remit of the new European Banking Authority. Moreover, the example of the two largest Irish banks, […]

Highlights from the CEPR Conference on Financial Reform

Yesterday, the CEPR hosted “The Future of Regulatory Reform”, a conference targeted at central bankers, financial regulators and academics. The discussion was wide in scope, ranging from resolution regimes to fair value accounting and shadow banking. I was pleasantly surprised by the candour of the participants, and in particular, the regulators. There was a palpable admission of failure and pre-crisis regulatory capture, and significant concern and uncertainty about the economic effects of the much needed reforms under debate. Carol Sergeant, CRO of Lloyds TSB and a former regulator, likened the process of regulation to pulling giant levers which stimulate both desirable outcomes and unintended consequences. This heightened concern about the unintended consequences (including the displacement of commercial banks by shadow banks) as well as the harsh light of realism, was most palpable in comments from Jochen Sanio and José María Roldán from the BaFin and Banco de España, respectively. Below we highlight some points that emerged from the panel discussions and academic commentary.

Hungarian Banks Under Pressure

The Hungarian banking sector is generally less fit than its regional peers —with a higher-than-average loan-to-deposit ratio and a below-average capital adequacy ratio—and considerable challenges lie ahead. The main risks relate to asset quality. Non-performing loans (NPLs) as a percentage of total loans jumped from 4.7% at year-end 2008 to 10.1% at year-end 2009. The deputy CEO of OTP, Hungary’s largest bank, says the NPL ratio will keep climbing as long as lending declines, and this state of affairs looks set to continue.

European Market Snapshot: Most Stocks Fall as Economic Growth Concerns Outweighed Strong Corporate Earnings

Early on in the trading hours, European markets posted gains on optimism about corporate earnings before paring down those gains to close lower for the day on concerns over economic growth. (See RGE Analysis: Cross Asset Monthly: A Summer of Discontent: Navigating the Tug of War Between Greed and Fear). U.S. durable goods orders unexpectedly declined 1% in June, its second straight monthly decline. Economists surveyed by Bloomberg expected an increase of 1%. (See RGE Critical Issue:  U.S. Business Investment: Are Durable Goods Orders Pointing to A Moderation in H2 2010?).

RGE’s Wednesday Note: Still Stressed After Tests

We’ve been digesting the results of European bank stress tests, which appear to have made neither markets nor analysts less stressed. According to the Committee of European Bank Supervisors (CEBS), only seven banks failed to pass muster out of the 91 tested. The CEBS also announced on July 23 that the recapitalization needs of the failures—five Spanish cajas, Germany’s Hypo Real Estate (HRE) and Greece’s ATEbank—amounted to €3.5 billion (US$4.5 billion).

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