October
“If
confirmed by the Senate I pledge to do my utmost to keep that trust
and meet the great responsibilities that Congress has entrusted into
the Federal Reserve.”
Janet Yellen – 10
October 2013
ECB' Vitor Constancio
points out that European banks are better performers than their
market valuation suggests; capital adequacy ratios are, on average,
stronger than in the US. UniCredit considers a sale of its Ukrainian
banking business and a purchase of Poland’s BGZ Bank. In its 2014
stress tests, EU regulators intend to penalize EU banks who continue
relying on the ECB's cheap funding program LTRO. Monte Dei Paschi's
board accepts a 2.5 BEUR capital increase, imposed by European
regulators. If investors cannot be found, the bank's bailout bonds
subscribed by Italy will have to be converted into equity. A
subsidiary of Goldman Sachs, Leed International Education Group, is
subject of investigations in China; authorities assume bribes paid to
Lei Yi, chairman of the Chinese company Yunnan Tin. European banks'
exposure to their own sovereigns, through holding government bonds,
is again on the rise and reaches up to 10 % in certain European
countries. JP Morgan settles CFTC's London Whale investigation for
100 MUSD. To comply with Basel III rules, BBVA raises 1 BUSD by
selling 5 % of its 15 % stake in Chinese Citic Bank. JP Morgan
settles its next litigation and reaches a 15 BUSD agreement with U.S.
authorities about mortgage backed securities selling claims. Rabobank
faces a 1 BUSD LIBOR fine by U.S., U.K., and Dutch regulators. Wells
Fargo strikes a deal with the Federal Housing Finance Agency for less
than 1 BUSD related to mortgage backed securities litigation.
The US Congress has fixed
a deadline for extending the U.S. debt cealing for October 17, 2013.
This may become the possible date for a U.S. sovereign debt default.
A few days later, China and Japan criticize the USA for not dealing
efficiently with its budgetary crisis, as fears about a U.S.
sovereign debt default rise. Next, the U.S. senate suggest to extend
the U.S. debt ceiling temporarily for further 6 weeks. The financial
press outlines the dramatic consequences, that a U.S. government debt
default would have on REPO markets: U.S. government bonds could
become unacceptable as collateral for REPO transactions. Fitch also
reacts: The rating agency puts the U.S. and its AAA rating on
credit-watch negative, due to ongoing discussions about the rising of
the U.S. maximum debt level. Finally, on October 17, the U.S.
congress approves a deal to raise the debt ceiling of the U.S.
temporarily until February 7, 2013.
Janet Yellen will become
the next chairman of the U.S. Federal Reserve. The European Central
Bank and the People’s Bank of China agree on a currency swap which
is meant to encourage the use of the Renminbi in China/EU trade
relations. Real estate bubble in Germany? The Bundesbank warns that
real estate prices in big German cities could be 20 % overvalued. The
ECB publishes its criteria for carrying out next year’s stress
tests on the biggest European banks. The tests will be finished by
November 2014. The U.S. FED leaves its monetary policy unchanged but
considers a slowdown of bond repurchases in January and February
2014.
After Q3 2013, the
Spanish economy puts an end to its recession.
ICE and NYSE continue
their ambitions to merge. European regulators are not likely to
oppose the deal. Hedge Funds appear more and more on REPO markets
which are less interesting for banks, due to upcoming leverage ratio
regulation. The financial press reports that private equity funds are
very active in financing the shipping industry. For buying a new
ship, typically 80 % of equity financing is provided by private
equity funds.
November
“If things continue to
be this bad year after year, one way or another, the thing [the
Eurozone] will crack.”
Paul Krugman – 22
November 2013
Barclays suspends six FX
traders (including its chief currencies trader) for market
manipulation. Goldman Sachs confirms being involved in FX trading
probes lead by several national regulators. Barclays, UBS, Deutsche
Bank, RBS, Citigroup, and JP Morgan are also affected. Commerzbank
beats Q3 earnings expectations significantly. Later in November, we
learn that 15 banks in total are subject to FOREX manipulation
investigation. Citigroup has closed 22 branches in South Korea since
the beginning of 2013. Reasons are weak loan growth, regulatory
interventions, and a low interest rate environment. RBS is said to
sell its structured retail investor and equity derivatives business
to BNP Paribas. Crédit Suisse will ring-fence its Swiss private
banking, retail, corporate, and institutional business from its
global investment banking operations by creating a separate Swiss
subsidiary. RBS' global restructuring unit is accused of abusing its
corporate customers. The allegation is that RBS deliberately exploits
temporary difficulties of otherwise strong companies to seize their
profitable assets. Monte dei Paschi di Siena will approve a 3 bn €
capital increase to gain approval from the European Commission for
4.1 bn € bailout bonds subscribed by the Italian Government.
Deutsche Bank intends to sell its U.K. wealth management branch,
Tilney Investment Management, to the private equity group Permira.
UBS prohibits its traders using social chat rooms. Exceptions remain
possible and single client chat rooms remain open.
Spain experiences an
investment boom in the car industry. The OECD criticizes France for
its lack of structural reforms to restore its competitiveness. Iran
signs a deal with the U.S., Britain, France, Germany, Russia, and
China to curb its nuclear program and to receive, in return,
alleviation from economic sanctions.
The hedge fund SAC
Capital agrees to pay a 1.8 BUSD fine for insider trading. Twitter is
successfully introduced to the New York Stock Exchange. The company
is valued 31.2 BUSD. The U.S. Senate holds a meeting to debate if and
how to regulate Bitcoin currency. The use of covenant lite corporate
loans in CLOs increases to record highs since the financial crisis. A
decline of gas prices is under way. U.S. shale gas is significantly
cheaper than traditional gas contracts in Europe and Asia, which are
linked to the price of oil.
The ECB cuts interest
rates in response to falling inflation across the Eurozone: The
refinancing rate is fixed at 0.25 %, interest on reserves is 0 %, and
the interest rate for ECB's regular lending facility is 0.75 %. Janet
Yellen, future chairman of the FED, says that the US economy lacks
behind its potential and that the FED's monetary accommodation should
be used to stimulate the economy further; she confirms that an
inflation target of 2 % is a top priority for the FED. Raghuram
Rajan, governor of Indian's central bank RBI, intends to liberalize
the Indian banking sector over the next years, opening it up to
national and foreign competition. U.S. banks warn they could charge
interest for client deposits if the FED still lowers interest rates
received for FED deposits. Chinese regulators intend to limit
interbank lending to avoid a build-up of leverage in the financial
system.
December
Silicon Valley
entrepreneurs start investing in Bitcoin exchanges, seeing in its
open protocol a good opportunity to develop low-cost exchange
transfer systems. Later in the month, the European Banking Authority
warns about the use of unregulated Bitcoin currency exchanges that
imply very high volatility of exchange rates. The Gold price falls to
its lowest level since July 2013 and, on December 2, stands at 1,218
USD. New cash crunch in China: Money markets are short of cash and
short-term lending rates soar from 4.3 to 7.6 %. The central bank
reacts with short-term liquidity operations. It injects 4.8 bn USD in
the financial system via open market transactions and succeeds to
bring inter-bank lending rates down again.
Portugal prepares a bond
swap; the country intends to fully return to capital markets by mid
2014. Ireland regains economic sovereignty as the country exits the
phase of international bail-out. Greece and Ireland are among the
best performing stock markets in 2013, with 45 % and 35 % gain in USD
terms respectively.
Investment bank bonuses
for 2014 are expected to decline by average 5 to 10 %. RBS' retail
business experiences a technology breakdown, making it impossible for
customers to use the bank’s credit and debit card payment services.
Deutsche Bank, Société Générale, Citibank, and JP Morgan settle
anti-trust claims in relation to EURIBOR fixing violations with the
European Commission for 1.7 BEUR in total. HSBC is thinking about
selling / floating its U.K. business. BaFin investigates whether
Deutsche Bank has participed in a fixing of gold and silver prices.
JP Morgan Chase intends to sell its Asian investment business, Global
Special Opportunities Group, for 1 BUSD. The goal is to streamline
the bank's operations and anticipate future financial regulation that
could forbid this type of business. A few days later, JP Morgan sues
the Federal Deposit Insurance Corporation and claims more than 1 BUSD
on the ground that FDIC mismanaged JP Morgan's subsidiary, Washington
Mutual, when the latter went into receivership. Citi sells its oil
trading business to Rosneft. The Brazilian investment bank, BTG
Pactual, strengthens its commodities trading business in London and
intends to hire 100 additional staff.
U.S. regulators agree on
the details of the Volcker rule, specifying namely the details of
forbidding proprietary trading for banks. Banks react by preparing
law suits against upcoming regulation. The ECB announces its
intention to stricter regulate holding sovereign bonds by banks. This
should create better incentives for corporate lending instead of
buying sovereign debt. According to EBA data, this intention has not
been successfully put in place so far: Sovereign bond holdings by
European Banks increase and stand today at 66 % of sovereign bonds.
In Southern European countries, this number stands significantly
higher. New Foreign Bank Organization rules in the U.S. will be
postponed and come into force early 2014.
The European Council
approves the principals of the European Banking Union: Member states
will still be allowed to to wind down or recapitalize banks outside
specific European rescue funds.
The U.S. FED starts off
its new tapering policy by reducing quantitative easing transactions
from monthly 85 BUSD to 75 BUSD. Emerging markets are the first
victims of this new policy: Debt funds investing the these countries
have lost 12.4 bn USD in 2013, 9.4 bn USD of which were pulled out in
relation to the FED's recent tapering decision.