The Great Debate UK
The debate about reforming the financial system is often presented as an argument between regulators on one side and banks on the other. But it is also beginning to throw up some differences among banks. One such rift has been exposed by the suggestion that banks should be forced to hold greater reserves of liquidity and capital in national subsidiaries.
Regulators see this as a way of dealing with the future failure of a big bank. Rather than relying on the bank's home government to pick up the tab -- something it may not be able or willing to do -- each country where the institution operates could take responsibility for its local subsidiary.
Josef Ackermann, chief executive of Deutsche Bank, is concerned that this approach will lead to the fragmentation of the financial system. On Monday, he warned a conference organised by the Financial Services Authority of Britain that it would make markets less efficient and lead to lower economic growth.
However, the chief executive of Abbey, the subsidiary of Spanish giant Santander, told the same conference that his bank already operates along the lines envisaged by regulators: its British, Brazilian, Mexican and Portuguese subsidiaries are all separately capitalised.
Is the worst over for Spanish mortgage defaults? That’s one way to interpret Santander’s offer to buy back up to 16.5 billion euros of its outstanding asset-backed debt.
The securities are trading below par – more than 40 percent in some cases before today’s announcement - allowing the bank to reduce debt by buying them back. Cash-rich banks such as HSBC have launched similar buybacks this year to profit from the ABS market dislocation, but it's the first time a Spanish bank has launched such a large public buyback.
Banks and insurers are looking for ways to bolster their capital, while having the flexibility to strike if there are acquisitions to be had on the cheap. To achieve these twin goals, Spain's Santander and now British insurer Aviva intend to float minority stakes in subsidiaries.
Aviva's chief executive Andrew Moss, who cut the insurer's dividend with its first-half result on Thursday, argued that it must be ready to take advantage of acquisition opportunities. Moss plans to float 25-30 percent of Delta Lloyd so that Aviva's 92 percent owned Dutch insurance unit can take part in the restructuring of the Benelux insurance market.