“There
was no hiding, there was no lying, there was not bullshitting.
Period.”
Jamie
Dimon, CEO of JP Morgan Chase, on 11 June 2013, about
the London Whale derivatives loss affair
April
On
financial markets, the Bitcoin
virtual currency bubble grows and
the gold
price falls significantly;
other
commodities (including WTI and Crude Oil) follow.
In
the Eurozone,
financial fragmentation is
gaining place: Southern
SMEs pay significantly higher financing costs than their Northern
peers; the
spread
is
around
3-4 %. The
ECB
leaves interest rates
stable at 0.75 % but signals a
willingness to lower the rate, given current inflation below 2 % and
high unemployment. Portugal faces
political problems: Its
constitutional courts rejects
austerity measures necessary for the country to meet
deficit-reduction targets. As
a consequence, the
country's
next 2 bn Euro installment
of its 78 bn Euro bailout facility
will
be postponed. Ireland
obtains longer repayment periods for paying back the its
bailout loans. Greece
is on track for meeting financial targets of its bailout line and
will receive the
next
tranche payment on
time.
Finally,
Fitch
downgrades the UK to AA+.
Bankers'
bonuses are again in the financial
news:
London
fears it could loose attractiveness for foreign banks due to stricter
bonus restrictions in Europe. Commerzbank
looses a
legal
battle before the U.K. Court of appeal and must pay 50 MEUR bonuses
to
104 bankers related to their
2008
(good
or bad?) performance.
Positive
news comes from
the U.S.
banking industry, where
JP
Morgan, Goldman Sachs, and Citi beat analyst Q1
earnings
expectations.
On
the regulatory side, banks
lobby for carving out trade finance from new Basel III rules. They
argue that trade finance carries very
low risk and default rates. The
U.S. FED
suggests
leverage
standards above
the minimum 3 % suggested by
Basel III
regulation.
Any
litigation or bank
scandal
in April? Yes, the German Bundesbank
investigates against Deutsche Bank; the
institution
could have
hidden
credit derivatives' losses during the financial crisis. RBS is sued
by shareholders who have lost money in a rights' issue in 2008. They
complain about untrue
and hidden
material information in the
bank's prospectuses.
In
Asia, China's
president Xi Jingping promises to ameliorate the
business
conditions for foreign companies operating in China.
At
the same time, Fitch
downgrades China from AA- to A+.
The
IMF
starts
off the tapering debate as the fund warns
that extraordinarily loose monetary policies might create the next
credit bubble.
May
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Federal Reserve Building |
Portugal
plans austerity measures;
the
Government intends
to cut government
spending by 6
bn Euro over the next four years. Fitch
upgrades Greece from CCC to B- and Greek 10Y government bonds fall by
1 % to 8.2 %. The
EU stability and growth pact is in the news, because France,
Spain, and Netherlands will be allowed to disrespect the 3 % budget
deficit rule. The
WTO announces that Brazilian Roberto
Azevedo will become its
new head.
In
the banking sector, Santander
thinks
about
floating
its auto loan subsidiary Santander Consumer USA. Negative
news comes from Germany: Commerzbank posts a 94
MEUR net loss in Q1 2013 and
the financial regulator
BaFin
announces
that German
banks are,
at the end of 2012,
14 BEUR short of Basel III capital. Barclays
is said having
paid bribes to a member
of the Saudi royal family to
obtain a banking license
in Saudi Arabia. JP Morgan stakeholders
discuss whether Jamie Dimon should continue
combining the
CEO and Chairman role.
To make a long story short: Yes, he should and will! The
Bank of Spain asks Spanish banks to further write down their loan
portfolios with
regard to
Spanish borrowers. Later
in May, Spanish
banks report
10 BUSD additional bad loan provisions. They
promise to stop their "extend
and pretend" practice (a
nice expression to describe too
low provisions...).
JP Morgan and Goldman
Sachs complain about how Bloomberg uses the data generated by their
employees using Bloomberg text messaging services.
Another
hot topic in May is international taxation rules. Luxembourg
blocks an
update of the EU saving directive
about EU tax sharing rules. The
EU
opens negotiations
of a tax treaty with Switzerland: Core of the negotiations will be
automatic exchange of information. The
EU
proposes
a bonus
cap regulation: Without
shareholder approval, bonus payment should only be possible up to
twice the
fixed
salary.
On
financial markets, FOREX
revenues for investment banks are down, due to fierce competition. A
senior
BNP trader leaves
the company after causing a loss of 10-25 MUSD. Finally,
LIBOR
will
probably
be replaced in
2014
by a dual-track system, based on survey-based lending rates and
transaction-linked indices. The
NYSE
experiences
a flash crash on May
17,
as
Anadarko Petroleum stock
moves
from 90 USD to 1 cent within the blink of an eye.
In the lending market,
covenant lite loans to highly indebted companies have increased to
more than 50 % of total leveraged debt, as investors search for
higher returns.
The most important news
this month comes from the U.S. FED; it announces the beginning of the
end of its bond repurchase programs.
June
UBS is under
investigation in France for having solicited clients to evade taxes.
HSBC faces a civil lawsuit in the US for having violated a law
providing for negotiating with mortgage home-owners to avoid
foreclosure. BNP Paribas plans merging its US retail subsidiary Bank
West with its U.S. CIB business to improve its capital and funding
efficiency in the US and to counter upcoming regulatory reforms ins
the U.S. Jamie Dimon comments on the London Whale scandal: “There
was no hiding, there was no lying, there was not bullshitting.
Period.” Stephen Hester announces his resignation as CEO of Royal
Bank of Scotland and a further 2,000 headcount cut in the investment
banking unit. Co-operative bank outlines its restructuring plan that
includes of a 1.3 bn Sterling debt bail-in of junior bondholders. In
France, UBS must pay a 10 MEUR fine for violation of money laundering
regulation. Finally, European banks’ senior debt issues are at
lowest levels since 10 years, due to investors’ fears about
regulatory bail-in schemes.
On financial markets,
U.S. hedge funds consider leaving the EU as a result of the upcoming
AIFM directive. Securitization of car loans slumps in the U.S,
because Lenders find other cheap refinancing sources such as customer
deposits or secured borrowing. Due to a crisis in the government's
coalition, Greek government bond yields rise sharply (75 bps).
Finally, Italy faces a potential loss of 8 bn Euro on its interest
rate derivatives portfolio and has launched an investigation,
including the banks which have sold such derivatives.
The IMF says the first
110 BEUR Greek bailout was based on too optimistic growth
assumptions. The fund considers that an upfront debt restructuring
could have been a better option. The G8 debates the three t's –
trade, tax, and transparency.
The European Commission
plans to terminate self-regulation of LIBOR and to put the inter-bank
rates under the administration of Paris-based ESMA. ECB's outright
market transactions (OMT) are subject to a court hearing in Germany's
constitutional court. Cyprus president Nicos Anastasiated wants to
overhaul the country's bail-out package, saying that it harms the
economy too much.
Eurozone's finance
ministers come a step closer to the European banking union as they
agree that the EU ESM will have the right to invest in struggling
banks, if the member state in question also makes a capital
investment. Later in June, EU finance ministers cannot agree on how
much flexibility member states should have when avoiding own domestic
banks' failures.
Central banks play a
major role in June: Ben Bernanke announces the end of the FED's
quantitative easing program for mid 2014, when unemployment will be
at 7 %. In Europe, Mario Draghi says an exist of the ECB from the
exceptional monetary policy measures remains distant. Credit crunch
in China! The Chinese central bank first refuses to pump liquidity
into the system to address long-term overheating of the financial
system. A few days later, it makes a u-turn and says that it will
support Chinese banks with liquidity if need be.