Thursday, April 17, 2014

Finance News Q1 2014 – “Tail risk has now been taken away.”

“Tail risk has now been taken away.”
Anshu Jain (Deutsche Bank) – January 23, 2014

Let's assume you spend the last three months on an island in the Pacific Ocean without access to the outside world. Tomorrow, you will be back in the office. Here are the key topics that you need to know something about:

Monetary policy – tapering vs. asset purchases

The U.S. FED continues its tapering policy and disrespects criticism from emerging markets. In Europe, the ECB sticks to its loose monetary policy and even evaluates asset purchase programs. Germany doubts whether the ECB can do that.

Bank scandals – Madoff, LIBOR, and FOREX

Madoff, LIBOR, and FOREX are still with us. By the way, Goldman Sachs has found what was responsible for these scandals: It's the computer messaging services that traders use... BNP Paribas adds international embargo violation to the list of scandals.

Banks' earnings – trading volumes down.

Banks' earnings suffer in Q1. Many suffer from decreasing trading volumes, namely in commodity, fixed income, and FOREX markets.

European debt crisis was yesterday. Deflation is today?

As Ireland issues its first post-bailout bond, Greece obtains another bailout tranche, and sovereign bond yields in Europe decline, we hear less about sovereign debt. Politicians, beware of complacency! Deflation fills the news gap and becomes the new hot macro topic in Europe.

For those who didn't know yet: AQR means asset quality review.

The European Central Bank reviews the quality of banks' assets and this starts making people nervous. Are German shipping loan portfolios worse than expected? Will the European banking sector consolidate?

Is Bitcoin good or bad?

The U.S. and Russia take action to welcome the new currency (if ever it is a currency). Germany, as always, criticizes.

Is securitization back?

In the U.S., auto-loan securitization, namely of sub-prime loans, is in vogue again. In Europe, the ECB also takes action to revitalize its securitization market. How does that fit with fears in Europe about covenant lite loans and new credit bubbles?

Bonus up / Staff down

Barclays learns that timing is important in communication: It raises bonus payments by 10 % and, at the same time, cuts 10,000 staff. The financial press is more than willing to take up the story.

19 BUSD for a smart-phone application!

Facebook buys WhatApp for 19 BUSD. Did you try to explain that to your grandparents?

Is China's credit market dangerous?

The People's Bank of China tries to decrease lending by retaining liquidity from the market. We also learn about a bank run in the country; the PBC ensures that deposits are safe. Finally, China allows private companies to default.

European Banking Union

At the beginning of the year, politicians disagree about the decision-making mechanisms in case of winding up European banks and about how to fund the bailout mechanism. By the end of the Q1, they reach an agreement and Europe celebrates its banking union. Will it work?

As time goes by...

The German constitutional court again rejects plaints against the European ESM. The French Cour de Cassation confirms Société Générale's ex-trader's Jérôme Kerviel's condemnation in last resort.

These topics were ground-breaking news some time ago. Today, they are worth a small newspaper article, at most.