BoE stress tests: all you need to know

The Bank of England has released the results of its latest round of its annual banking stress tests and its semi-annual financial stability report this morning. Used to measure the resilience of a bank’s balance sheet in adverse scenarios, the stress tests measured the impact of a severe slowdown in Chinese growth, a global recession […]

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Draghi: Eurozone will decline without vital productivity growth

It’s productivity, stupid. European Central Bank president Mario Draghi has become the latest major policymaker to warn of the long-term economic damage posed by chronically low productivity growth, as he urged eurozone governments to take action to lift growth and stoke innovation. Speaking in Madrid on Wednesday, Mr Draghi noted that productivity rises in the […]

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Asia markets tentative ahead of Opec meeting

Wednesday 2.30am GMT Overview Markets across Asia were treading cautiously on Wednesday, following mild overnight gains for Wall Street, a weakening of the US dollar and as investors turned their attention to a meeting between Opec members later today. What to watch Oil prices are in focus ahead of Wednesday’s Opec meeting in Vienna. The […]

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Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

Royal Bank of Scotland has emerged as the biggest failure in the UK’s annual stress tests, forcing the state-controlled lender to present regulators with a new plan to bolster its capital position by at least £2bn. Barclays and Standard Chartered also failed to meet some of their minimum hurdles in the toughest stress scenario ever […]

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Barclays: life in the old dog yet

Barclays, a former basket case of British banking, is beginning to look inspiringly mediocre. The bank has failed Bank of England stress tests less resoundingly than Royal Bank of Scotland. Investors believe its assets are worth only 10 per cent less than their book value, judging from the share price. Although Barclays’s legal team have […]

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Categorized | Banks, Financial

European lenders take Libor scandal hit

Posted on July 31, 2012


The spreading scandal over the manipulation of key lending rates and the downturn of Europe’s economy took their toll on two of the region’s leading investment banks, Deutsche Bank and UBS, which both revealed increased provisions and sharp profit falls.

Both banks are caught up in the scandal around the alleged manipulation of the London Interbank Offered Rate and related benchmark lending rates and on Tuesday topped up their estimates for litigation risk by a combined €580m. This reflects in part the expected costs of settling regulatory probes round the world.

Barclays last month paid £290m to settle its case with regulators in the UK and US over the Libor affair in a move that led within days to the resignation of the bank’s top three directors, including Bob Diamond, chief executive.

    The dual impact of recent banking scandals, including the Libor affair, and struggling profitability has led to a crisis of confidence in the sector. Sentiment has been particularly bleak in Europe, amid growing anxiety that the eurozone crisis will worsen over the coming months.

    In the three months to the end of June, Deutsche increased its estimate on unprovisioned litigation costs from €2.1bn to €2.5bn, while UBS added SFr210m to its litigation and regulatory provisions.

    Both banks revealed more information about their potential exposure to the issue. UBS said the Libor affair had been taken up by attorneys-general in several US states, in addition to regulators and the US Department of Justice. Deutsche said it was being sued over claims it manipulated the Yen Libor rate and the price of derivatives tied to the Euroyen benchmark in a suit filed by US litigants in April.

    However, neither bank would comment on suggestions that talks with regulators could lead to settlement deals as soon as the autumn.

    Both banks were also hit by the ongoing impact of the economic downturn, with net profits for the three months to June falling 58 per cent at UBS and 46 per cent at Deutsche.

    “The current environment continues to result in significantly lower levels of client activity, both in investment banking as well as in certain parts of our retail business,’’ Deutsche Bank said in its quarterly report. ‘’We expect this to continue in the second half of the year.’’

    The hits were hardest in investment banking, as clients reduced business volumes dramatically, particularly in equities trading. Second-quarter profits at Deutsche’s investment banking unit fell by nearly two-thirds to €357m. At UBS operating income in investment banking tumbled from SFr2.9bn to SFr1.7bn, with the unit generating a pre-tax loss of SFr130m, thanks to a one-off hit of SFr349m from the botched flotation of Facebook three months ago.

    UBS announced plans to take legal action against Nasdaq over the affair, which left brokers including UBS with excess supplies of shares when orders were duplicated.

    Deutsche announced it would eliminate €3bn of overheads and cut 1,900 jobs from its payroll of 100,000. Anshu Jain, co-chief executive, also pledged to lead the way in reforming the culture of the investment banking industry.

    Though Deutsche made clear that no senior manager had been implicated in the Libor probes, Mr Jain said he would put renewed emphasis on ethical standards throughout the bank and “root out bad behaviour”. He also promised to be “at the forefront” of reforms to investment banker pay.