Archive

Reuters blog archive

from Breakingviews:

Santander has a 6 bln euro capital opportunity

By Fiona Maharg-Bravo

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

Santander looks light on capital. The euro zone’s largest bank doesn’t disclose its current Basel III “fully loaded” common equity Tier 1 capital ratio, and no wonder: it seeks 9 percent by year-end, way off the 11 percent average of European peers. Ana Botin, Santander’s new chair, can probably get away with inaction. But given her bank’s toppy valuation, she’d be better off moving now.

Santander’s party line has long been that it needs less capital than rivals. Arguably tougher local regulation means its risk-weighted assets are a bigger percentage of its balance sheet than European peers’. It predominantly does relatively low-risk retail banking, is well diversified, and has a Moody’s credit rating one notch above the Spanish government. After avoiding any quarterly losses during the global economic crisis, profit is now up 22 percent in the first half of the year.

Yet Spanish peer BBVA is also diversified, albeit less so. It boasts a capital ratio of 10 percent. And Botin will know that capital in foreign subsidiaries isn’t always easy to shift around.

from Financial Regulatory Forum:

Bank of America’s mortgage-fraud deal yields quick impact; message may not be what enforcers wanted

By Stuart Gittleman, Compliance Complete

NEW YORK, Aug. 26, 2014 (Thomson Reuters Accelus) - It took just one day for U.S. Attorney General Eric Holder's announcement Thursday that Bank of America would pay $16.65 billion over charges of fraudulent mortgage origination, securitization and servicing to have an impact.

But the impact was probably one of the last things Holder wanted to see as a result of the deal.

from Global Investing:

Emerging markets; turning a corner

Emerging markets have been attracting healthy investment flows into their stock and bond markets for much of this year and now data compiled by consultancy CrossBorder Capital shows the sector may be on the cusp of decisively turning the corner.

CrossBorder and its managing director Michael Howell say their Global Liquidity Index (GLI) -- a measure of money flows through world markets -- showed the sharpest improvement in almost three years in June across emerging markets. That was down to substantially looser policy by central banks in India, China and others that Howell says has moved these economies "into a rebound phase".

from Breakingviews:

Review: Zero margin call

By Robert Cole

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

Seismic shifts in the organisation of human civilisation have occurred only twice in the last 10,000 years. Or so says Jeremy Rifkin in his new book, “The Zero Marginal Cost Society.” We are, he writes, in the throes of a third transition. It is one that will bring the death of capitalism and the onset of the “Collaborative Commons.”

from Financial Regulatory Forum:

U.S. regulation risks a “Balkanization” of cross-border capital

By Henry Engler, Compliance Complete

NEW YORK, Mar. 12 (Thomson Reuters Accelus) - The term “unintended consequences” has often been used by critics of U.S. regulatory reform when characterizing its complexities. While well-intentioned individually, when unleashed in unison the multiple requirements banks that face become highly unpredictable, including across national borders.

What critics emphasize is that it is impossible to know how bank behavior might change when confronted with layers of regulation. Specifically, for foreign banking organizations (FBOs) operating in the United States, three separate pieces of reform will raise the cost of doing business in American markets:

from India Insight:

Book Talk: Rana Dasgupta on a ‘vastly under-imagined Delhi’

Rana Dasgupta’s first non-fiction book is an investigation into what makes Delhi a city of unequal transformation, salted with ambition, aggression and misogyny. "Capital: A Portrait of Twenty-First Century Delhi" takes its shape from an "outsider’s" anxiety about not being able to understand a city that is primarily the by-product of refugees from India’s partition in 1947.

Dasgupta, 42, was born and raised in England, and belongs to a family of migrants whose roots are in the Lahore of British India, now Pakistan. In 2000, he flew to Delhi after quitting a marketing job in New York and fell "into one of the great churns of the age".

from MacroScope:

Shock now clearly trumps transparency in central bank policymaking

The days of guided monetary policy, telegraphed by central banks and priced in by markets in advance, are probably coming to an end if recent decisions around the world are any guide.

From Turkey, which hiked its overnight lending rate by an astonishing 425 basis points in an emergency meeting on Tuesday, to India which delivered a surprise repo rate hike a day earlier, central banks are increasingly looking to "shock and awe" markets into submission with their policy decisions.

from Breakingviews:

ECB’s bank review balances pragmatism and pain

By George Hay and Neil Unmack

The authors are Reuters Breakingviews columnists. The opinions expressed are their own.

The European Central Bank has struck a balance between pragmatism and pain. The euro zone’s central bank has lifted the veil on its balance sheet review of 124 banks it will supervise from the end of next year. It has slightly pulled its punches, but in ways that might be justified.

from Bethany McLean:

The top five unlearned lessons of the financial crisis

In capital we trust. Capital is our savior, our holy grail, our fountain of youth, or at least health, for banks. Seriously, how many times have you read that more capital will save the banks from another Armageddon? Even the banks point to capital as a reason to have faith. "Financial institutions have also been working alongside regulators to make themselves and the financial system stronger, more transparent, more resilient and more accountable,” wrote Rob Nichols of the Financial Services Forum, which is made up of the chief executive officers of 19 big U.S. financial institutions. “Specifically, capital, which protects banks from unexpected losses, has doubled since 2009.” If you were a cynic -- who, me? -- you might say that the mere fact that the banks are pointing to capital is proof that capital is not all that.

Everyone seems to be ignoring the basic fact that capital isn’t a pile of cash. It’s an accounting construct. On his Interfluidity blog (which I found courtesy of Naked Capitalism), Steve Waldman writes, “Capital does not exist in the world. It is not accessible to the senses. When we claim a bank or any other firm has so much ‘capital,’ we are modeling its assets and liabilities and contingent positions and coming up with a number. Unfortunately, there is not one uniquely ‘true’ model of bank capital. Even hewing to GAAP and all regulatory requirements, thousands of estimates and arbitrary choices must be made to compute the capital position of a modern bank.” In other words, even if you give bankers credit for good intentions, the accounting that would truly capture “capital” may not exist. Or as Waldman writes, “Bank capital cannot be measured.” Layer in some real world realities. The next time things get tough, will regulators once again practice forbearance and allow firms to overstate their capital, which has the perverse effect of making no one trust reported capital? Let’s not forget Lehman, which according to Lehman had a very healthy Tier 1 ratio of 10.7 percent on May 31, 2008 and a total capital ratio of 16.1 percent. This didn’t matter, because no one believed Lehman’s capital was real.

from Global Investing:

Russia — the one-eyed emerging market among the blind

It's difficult to find many investors who are enthusiastic about Russia these days. Yet it may be one of the few emerging markets  that is relatively safe from the effects of "sudden stops" in foreign investment flows.

Russia's few fans always point to its cheap valuations --and these days Russian shares, on a price-book basis, are trading an astonishing 52 percent below their own 10-year history, Deutsche Bank data shows.  Deutsche is sticking to its underweight recommendation on Russia but notes that Russia has:

  •