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from Breakingviews:

ECB deserves to lose market’s inflation confidence

By Swaha Pattanaik

The author is a Reuters Breakingviews columnist. The opinions expressed are her own. 

The case of the euro zone’s vanishing inflation rate has so far stumped European Central Bank President Mario Draghi. Quite rightly, investors’ faith in his ability to do anything about the problem is also evaporating.

The clearest sign is a sharp decline in the ECB’s preferred barometer of market inflation expectations, which tracks how investors see inflation behaving over a five-year period beginning five years from now. At first glance, the measure’s modest drop - from 2.12 percent at the end of July to this week’s 1.94 percent low - doesn’t seem to reflect scepticism in the ECB’s ability to lift inflation back up to its 2 percent medium-term target. But things aren’t that simple.

Immune to the blips and dips of monthly data, the “five year/five-year forward” gauge rarely moves much. Yet it has just suffered its biggest four-week decline since 2012, and is now at its lowest since 2011, according to Credit Agricole. More sensitive indicators of inflation expectations have fallen even lower.

from Breakingviews:

BES bail-in leaves CDS traders struck out

By Neil Unmack

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Banco Espirito Santo’s bail-in has been a nice earner for some bond traders. Anyone who bet that Portuguese authorities would save senior creditors but burn bonds lower down has made a killing. But anyone who tried to follow suit with BES credit default swaps will be feeling much less cheery.

from Counterparties:

The bad banks of Europe

It was a day of record losses for European banks. Both France’s BNP Paribas and Portugal’s Banco Espirito Santo have just reported second-quarter earnings — somewhat unsurprisingly for those following the news in the last few months, both banks lost billions.

BES disclosed a €3.6 billion ($4.8 billion) net loss in the first half of the year. The Bank of Portugal is requiring BES to raise capital after it set aside money to cover the losses, and it may end up needing state aid. Paul Murphy writes, “the losses appear to have taken the bank’s equity tier 1 capital ratio down to circa 5 per cent – that’s the wrong side of an absolute regulatory floor of 7 per cent.” Additionally, Reuters reports, “BES's top risk management, compliance, supervision and audit officials had been suspended over suspected ‘harmful management’ that may have contributed to the bank's massive losses.” The New York Times quotes analyst Antonio Barroso saying the moves by the Portuguese central bank are effectively a back door nationalization of BES.

from Breakingviews:

Shock loss at BES makes bail-in a real risk

By George Hay

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

A solution to the Banco Espirito Santo debacle looks increasingly likely to involve creditors. The troubled Portuguese lender revealed a much bigger-than-expected 3.6 billion euro loss on July 30 and warned of possible past law-breaking. If the kitchen-sinking was intended to help fill BES’s capital deficit with private investment, it may not work.

from Breakingviews:

Deutsche/UBS: there’s life in EU bond trading yet

By Dominic Elliott

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Deutsche Bank and UBS have shown there is life in Europe’s bond traders yet. The two banks and Credit Suisse have been losing share to Wall Street since last year, but in the second quarter they hit back. Fixed-income revenue at Deutsche was flat year-on-year, and down just 2 percent at UBS – against a 9 percent average fall at American banks.

from Breakingviews:

Memo to Wall Street: more Ace Greenberg please

By Antony Currie

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Wall Street needs more leaders like Alan “Ace” Greenberg. The onetime Bear Stearns boss, famed for his pithy missives to staff, died on Friday. He was 86. Though he was no longer in charge, the firm’s 2008 collapse is a notable blemish on an otherwise illustrious career. The industry could use more of Greenberg’s scrappy PSD: poor, smart and driven.

from MacroScope:

EU slowly tightens screw

A coffin of one of the victims of Malaysia Airlines MH17 downed over rebel-held territory in eastern Ukraine, is carried from an aircraft during a national reception ceremony at Eindhoven airport

The EU is slowly tightening the screw on Russia, with senior officials proposing yesterday to target state-owned Russian banks in its most serious sanctions so far. Ambassadorial talks on how precisely that is to be done continue today and the measures are likely to be enacted next week.

One key proposal is that European investors would be banned from buying new debt or shares of banks owned 50 percent or more by the state. These banks raised almost half of their 15.8 billion euro capital needs in EU markets last year. That is a big deal and there are increasing signs of investors turning their back on Russia lock, stock and barrel. However, with its giant FX reserves, the central bank can provide dollars to fund external debt for a considerable period of time.

from Breakingviews:

StanChart at risk of “doing an HSBC” – badly

By George Hay

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Standard Chartered STAN.L is doing a passable impression of HSBC circa 2010. The UK-based emerging markets bank has told investors that it does not accept “media rumours” concerning the future of Chairman John Peace and Chief Executive Peter Sands. The parallels with HSBC’s succession planning four years ago – a crisis that culminated in the dual departures of chairman and CEO amid a boardroom power struggle – are worrying.

from Breakingviews:

“New Deutsche” just got pushed back again

By Dominic Elliott

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Raising $12 billion last month now looks like the easy part of Deutsche Bank’s renewal. The German lender is, it emerges, under fire from United States regulators for a raft of procedural failings. Deutsche may have repaired its capital position and revamped its strategy this year. But persuading investors the bank holds itself to higher standards than before the crisis is starting to look like a generation’s work.

from Breakingviews:

Credit Suisse cost cuts mask uneven performance

By Dominic Elliott

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Credit Suisse’s cost-cutting is masking uneven performance overall. The Swiss bank’s ugly second-quarter net loss was down to an already announced 1.6 billion Swiss franc charge: part of a mega-fine to U.S. authorities for helping American citizens evade taxes. But even after stripping that out, investors can’t sleep easy.

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