Currencies

Dollar rises as markets turn eyes to Opec

European bourses are mirroring a tentative Asia session as the dollar continues to be supported by better US economic data and investors turn their attention to a meeting between Opec members. Sentiment is underpinned by US index futures suggesting the S&P 500 will gain 3 points to 2,207.3 when trading gets under way later in […]

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Banks

Basel Committe fail to sign off on latest bank reform measures

Banking regulators have failed to sign off the latest package of global industry reforms, leaving a question mark hanging over bankers who complain they have faced endlessly evolving regulation since the financial crisis. Policymakers had hoped to agree the contentious new measures at a crunch meeting held in Chile this week, but a senior official […]

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Financial

Travis Perkins and Polymetal to lose out in FTSE 100 reshuffle

Builders’ merchant Travis Perkins and mining company Polymetal face relegation from the FTSE 100 after their recent performances were hit by political events. The share price of Travis Perkins has dropped 29 per cent since the UK voted to leave the EU in June, as economic uncertainty has sparked concerns among some investors about the […]

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Economy

Eurozone inflation climbs to highest since April 2014

A welcome dose of good news before next week’s big European Central Bank meeting. Year on year inflation in the eurozone has climbed to its best rate since April 2014 this month, accelerating to 0.6 per cent from 0.5 per cent on the back of the rising cost of services and the fading effect of […]

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Financial

Wealth manager Brewin Dolphin hit by restructuring costs

Profits at wealth manager Brewin Dolphin were hit by restructuring costs as the company continued to shift its focus towards portfolio management. The FTSE 250 company reported pre-tax profits of £50.1m in the year to September 30, down 17.9 per cent from £61m the previous year. Finance director Andrew Westenberger said its 2015 figure was […]

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Archive | November, 2016

Investors’ hopes rest on resilient oil

Posted on 21 April 2016 by

A worker pours liquid oil into a barrel at the delayed coker unit of the Duna oil refinery operated by MOL Hungarian Oil and Gas Plc in Szazhalombatta, Hungary, on Tuesday, July 9, 2013. Hungary refiner Mol may take part in oil exploration in Montenegro after country calls tender in July, daily Magyar Hirlap says. Photographer: Akos Stiller/Bloomberg©Bloomberg

Refinery operated by MOL in Szazhalombatta, Hungary

We are all oil traders at the moment.

The resilience of crude prices in the wake of a failed production freeze deal in Doha firmly illustrates the importance of black gold for sentiment across the broader financial system at the moment.

    Talk of a freeze in recent weeks propelled the robust recovery in oil prices. However, the lack of an agreement and the crackling tension between Iran and Saudi Arabia is being downplayed by energy traders. They are looking ahead to the prospect of supply and demand becoming balanced during the second half of the year, thus supporting crude prices.

    Relief that oil prices quickly reversed their opening plunge on Monday after Doha helped drive global equities to new highs for 2016 this week, as measured by the FTSE All World index, extending a broad recovery from the February lows. A relief trade is certainly driving US shares at the moment as investors cheer companies beating heavily reduced earnings expectations, notably US banks.

    The yin and yang of a firmer oil price and a weaker dollar have exerted considerable influence over the performance of equities, emerging markets, junk debt and dollar-bloc currencies in recent months.

    A lower US dollar, shackled by a Federal Reserve reluctant to push up borrowing costs in the face of a fragile global economy, has also bolstered commodity prices and calmed emerging markets, notably China, where the prospect of a currency devaluation sits on the back burner.

    Importantly, the rebounding oil price has calmed the fears of a deflationary spiral that rattled markets at the start of the year and had some questioning the effectiveness of central bank policy.

    Investors are interpreting higher commodity prices — led by Brent crude approaching $46 a barrel on Thursday, the highest level since late November — along with very supportive central bank policies as signalling stronger economic growth later this year.

    Here the upbeat mood of the oil market chimes perfectly with the eternal optimism of many other investors; it’s all about the second half of the year. Forget the troubling signs that asset prices have rebounded sharply on the back of no real improvement in underlying fundamentals. There appears plenty of faith in the idea that bad debts related to the energy sector are contained and that the present S&P 500 earnings recession will fade, justifying rising valuations by the end of the year.

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    At a time when investors flocked for a slice of Argentina’s $16.5bn sale of government debt, plenty of money is clearly sloshing through the financial system, looking for a home and downplaying risk in favour of return.

    Analysts at JPMorgan earlier this week made the interesting observation: “Investors have re-levered and adjusted their positioning, with macro funds, long/short equity strategies, volatility targeting and risk parity portfolios having already increased their exposure to equities.”

    Other analysts are also warning that positioning in general is becoming far too bullish, raising the prospect that markets are getting ahead of fundamentals. Given how many highly paid active investment managers missed the rebound in equities back in February, the suspicion is that they are now making up for that missed opportunity.

    FT Series

    Oil: Lower for longer

    Further coverage of the far-reaching implications of the protracted slump in oil prices

    The robust performance of small capitalised stocks suggests investors are playing a game of catch-up, buying shares with a higher beta, or those whose price rises faster than that of the broad market, rather than betting on a stronger domestic US economy.

    So what can possibly go wrong?

    Crowded positioning across many markets is vulnerable to any type of shock that upsets the current narrative. That brings us back to the oil price, where bets on higher crude are at, or near, record levels.

    As already seen earlier this year, a pronounced slide in oil back towards $30 a barrel or lower has the power to inflict considerable damage across the financial system and reinvigorate market volatility.

    The disinflationary consequences of cheap oil present a considerable challenge to central banks and expose the limits of interest rate policy, a point firmly made during the International Monetary Fund’s annual meeting in Washington last week.

    Plenty is riding on a resilient oil price.

    michael.mackenzie@ft.com

    Draghi goes on offensive against Berlin

    Posted on 21 April 2016 by

    European Central Bank (ECB) President Mario Draghi addresses a news conference at the ECB headquarters in Frankfurt, Germany, in this March 10, 2016 file photo. REUTERS/Kai Pfaffenbach/Files GLOBAL BUSINESS WEEK AHEAD PACKAGE - SEARCH "BUSINESS WEEK AHEAD APRIL 4" FOR ALL IMAGES©Reuters

    In the past month, Mario Draghi has come under near constant attack from German politicians. Always hostile to easy monetary policy, they blame the European Central Bank’s stimulus measures, in particular its embrace of negative interest rates, for squeezing Germany’s savers, fuelling the rise of extremist political parties and putting its financial institutions under strain.

    These criticisms are unhelpful. What is unacceptable is the overt attempt to pressure the ECB

    into changing its course, including calls for “more German handwriting” in the central bank’s policies and a German as its next head.

      On Thursday, the ECB president fought back. The central bank obeys the law, not politicians, he stressed, and its governing council is unanimous in defending its current stance and its independence. It was absurd to portray ECB policy as the product of an Italian president: similar measures have been adopted across the developed world.

      Moreover, negative interest rates are working, he contended. Without the policies in place since 2014, deflation would have set in and eurozone growth would be substantially lower. Low interest rates were a symptom of low growth and inflation, and a necessary condition for any recovery. If critics called the ECB’s credibility into question, they risked damaging business confidence — and the only result would be that the ECB would need to keep its policies in place for even longer to achieve its objectives.

      Mr Draghi acknowledged, though, the concern that has made the ECB’s stance so difficult for German politicians to stomach. The first year of negative interest rates has not prevented European banks becoming more profitable in aggregate, but the policy is punishing Germany’s small savings banks, its pension funds and life insurers who are legally bound to guarantee a fixed rate of return. A monetary policy stance that makes sense for the eurozone economy may over time prove financially ruinous for the bloc’s biggest creditor country.

      Yet the answer to this problem is not — as conservative German politicians apparently presume — to pressure the ECB to serve the national interests of a single powerful member. As Mr Draghi rightly pointed out, US pension funds and insurers did not collapse under the strains of prolonged near-zero interest rates. Germany’s institutions, whose losses are offset by substantial capital gains from the ECB’s bond-buying programme, are suffering primarily because of national regulation and their particular business model.

      Berlin needs to accept responsibility for this problem, despite the political sensitivities at a time when the government is already struggling to contain criticism of its refugee policy. The ECB’s legal obligation is to bring inflation back to target, not to shield Germany’s savings system; and with Berlin blocking several of the alternatives, it may have little option but to keep interest rates near their current low level for some years to come.

      FT View

      A tepid crusade against illicit offshore finance

      File photo dated 18/4/2010 of David Cameron greeting his father Ian. The Prime Minister's late father was reported to be among names - including those of six peers, three ex-Tory MPs and political party donors - named in relation to investments set up by Panamanian law firm Mossack Fonseca. PRESS ASSOCIATION Photo. Issue date: Monday April 4, 2016. David Cameron must take "real action" to crack down on offshore tax havens, opposition figures have demanded after a massive data leak exposed the scale of efforts by the rich and powerful to hide assets. See PA story POLITICS Offshore. Photo credit should read: Johnny Green/PA Wire

      The UK’s transparency plans seem unlikely to make a big difference

      This is why — despite the fighting talk — Mr Draghi was cautious about the scope for further easing. There is no hint that policymakers are ready to cut rates again, or even discuss helicopter money — which Berlin adamantly opposes. This is understandable — but it is time for a more open discussion of what policies would be politically possible, if further action is needed.

      Trying to depict ECB policy as a battle between national interests undermines the foundations of European monetary union. This is not in Germany’s own interests. If Berlin wants European monetary union to succeed it must stop trying to create a clone of the Bundesbank, and back down.

      Top London homes being sold at a discount

      Posted on 21 April 2016 by

      E5FFJH Eaton Square SW1, City of Westminster, London, England, UK©Jeff Gilbert/Alamy

      More than half of homes being sold in London’s most expensive neighbourhoods are changing hands at discounts of 10 per cent or more off their initial asking prices as vendors are forced to adapt to a slowing market.

      About 59 per cent of sales in Knightsbridge and Belgravia were at discounts of 10 per cent or more in the first quarter of this year, as were 56 per cent of sales in Mayfair and Marylebone, according to figures from LonRes, a data provider.

        This represents a steep rise from two years ago, when only a quarter of sales in Knightsbridge and Belgravia had such large discounts, and even fewer in neighbouring areas.

        The market has swung in favour of buyers as a series of factors have cut into the appetite for expensive London homes. These have included higher stamp duty charges, downturns in emerging market economies that have limited some buyers’ purchasing power and worries about the impact of the June vote on Britain’s EU membership.

        “There is always a bit of optimism, on the part of an agent or a vendor, about what a property is worth. But what’s changed is that they are having to reduce once or twice to attract buyers,” said Marcus Dixon, head of research at LonRes.

        “There are fewer buyers out there, and the majority realise they’re in a pretty strong position.”

        Prices are now declining after a period of buoyant growth: the estate agency Savills said last month that prices in central London’s prime residential areas had dropped 6.7 per cent since their 2014 peak.

        The Mayfair landlord Grosvenor, owned by the Duke of Westminster, declared this week that “the top end of the residential market in London has passed its peak, due in part to the recent changes to stamp duty, along with the strength of sterling during 2015”.

        The effect was most pronounced with houses on the market for £5m or more, which were discounted by 11.1 per cent on average, LonRes said.

        Sellers may still be basing their price expectations on sales in their area when prices were at their peak, said Mr Dixon, who added that the slowdown may ripple outwards to less expensive areas.

        “People are always thinking ‘that property sold for this amount, and mine has a nicer kitchen’. But now the market has changed,” he said.

        The high-end property market, which depends more on overseas buyers, is also experiencing a “Brexit effect” ahead of June’s referendum on EU membership, he added.

        “There are a lot of reasons why people should wait [to buy a new home] at the moment, and one is that the referendum is looming,” Mr Dixon said.

        Transaction levels are down 10 to 15 per cent on a year ago in prime central London, according to LonRes, and about 30 per cent down on their 2014 peak.

        Similar trends have been affecting rentals, with 37 per cent of lettings in the same area agreed at rents 10 per cent or more below the asking price — up from 25 per cent a year ago.

        Argentina bonds in blockbuster return

        Posted on 21 April 2016 by

        Argentina Flag on blue sky background.

        Fierce demand for Argentina’s first sale of debt in more than a decade spilled into the secondary market on Thursday, driving up prices and rewarding investors who gained a slice of the issue from underwriting banks.

        The price for the country’s $16.5bn benchmark 10-year government bond rose to 103 cents in the dollar on Thursday, pushing the yield down to 7 per cent from 7.5 per cent.

          Claudia Calich, fund manager at M&G described the issue and subsequent rally in price for Argentine bonds as a “blowout”.

          “For a country selling debt of this size to see prices up three or four points, I can’t remember seeing something like this before.”

          The blockbuster reception, however, has caused affront in certain quarters of Wall Street and the City of London as the scale of demand left many investors with far smaller allocations than they had hoped for, prompting them to scramble for more paper in the secondary market.

          One European fund manager called his allocation “poor” while another said he had switched maturities at the last minute in order to improve his chances.

          A small number of US fund managers took the lion’s share of issuance, while allocations between 10 and 20 per cent of bids were common elsewhere, according to one trader. In total, US investors took two-thirds of the sale, with Europeans allocated 25 per cent, the Middle East 5 per cent and investors in Latin America 4 per cent.

          Allocation of three-year bonds, which were rumoured to have been added to Argentina’s list of maturities at the request of a particular investor, was heavily dominated by a single name, according to the same investor.

          The price for three- and five-year bond prices rose 3.5 and 3.3 points respectively, while the longer 30-year maturity, sold at discount of 95.7 cents on the dollar, has shown the greatest gain with a rise of more than 4 points.

          Investors say Argentina is one of the few positive stories in the emerging market universe, noting that its exile from global markets over the past decade has necessitated deleveraging. The bonds may also be included in the influential JPMorgan index of emerging market bonds, which is tracked by billions of dollars of passively invested funds.

          In spite of being technically in default and burdened by one of the worst track records for repaying debt, Argentina attracted orders of $69bn for its $16.5 bond sale, enabling it to borrow at lower than expected rates. As a result of the issuance squeeze, demand for the paper has provided successful buyers with an immediate gain.

          Alfonso Prat-Gay, Argentina’s finance minister, described himself as “very happy” with the results of the sale. The former JPMorgan currency strategist and his Wall St alumni team are known personally to many investors who participated in the sale, a fact one investor described as “helpful”.

          The new government’s commitment to repair relations with the international financial community by taking steps to address domestic economic problems and solve the conflict with so-called “holdout” creditors has added to the country’s appeal.

          Argentina is now set to make payments to holdout creditors which will allow it to exit default and the government hopes that accessing markets freely will curtail reliance on central bank finances, helping to reduce inflation and boost growth.

          Argentina’s Mendoza and Córdoba provinces are expected to be some of the first to take advantage of the success of the sovereign debt sale by tapping capital markets in the next few months.

          Insurance bonds up as ECB gives details

          Posted on 21 April 2016 by

          The President of the European Central Bank (ECB) Mario Draghi speaks during the new year's reception of Deutsche Boerse (German stock exchange ) at their headquarters in Eschborn, outside Frankfurt, Germany, January 25, 2016. REUTERS/Kai Pfaffenbach TPX IMAGES OF THE DAY - RTX23YC1©Reuters

          Mario Draghi, president of the European Central Bank

          The price of insurance bonds rose sharply after European Central Bank president Mario Draghi laid out fresh details of a corporate bond buying programme designed to invigorate the eurozone economy.

          Insurance bonds have been hit hard this year, as fears over the ECB’s negative interest rates policy sparked concerns over their business model.

            However, Mr Draghi referred to insurers being eligible for purchases under the extended programme. The value of European insurance bonds jumped in afternoon trading on Thursday, with debt sold by Italy’s Generali and German insurer Allianz benefiting.

            Facing sustained criticism about its limited impact on the eurozone economy, particularly in Germany, Mr Draghi mounted a sharp defence of the central bank’s monetary policy.

            The euro traded 0.9 per cent higher on the dollar to just below $1.14 as Mr Draghi began his press conference. But in the aftermath of his comments, the euro had given up its gains to end the London session largely unchanged at $1.1280.

            That was typical of euro fluctuations on the days of recent ECB meetings, said Simon Derrick of BNY Mellon.

            Euro trading reaction reflected investors’ sensitivity to their positions, analysts said. Jane Foley at Rabobank said the market went short on the euro-dollar cross on Wednesday in case Mr Draghi came out with a surprise. Although the euro rose, the $1.14 level proved “a tough barrier,” she added.

            Several foreign exchange strategists said the ECB was doing no more than hold the line. Mr Draghi “played a straight bat”, said Mr Derrick, while Ugo Lancioni, protfolio manager at Neuberger Berman, said the ECB was urging the market to be patient and wait for its its policy measures to feed into the real economy.

            It was noticeable, Mr Lancioni added, that Mr Draghi sought to avoid discussing the currency, spurning the chance to talk down the euro. The ECB has endured an unwanted currency appreciation, seeing the euro rise 4.5 per cent this year against the dollar.

            Kit Juckes at Societe Generale said: “You get the impression there’s very little if anything that the ECB can do to talk or otherwise persuade the euro lower, and we’ll remain range-bound until the bland US economic and Fed outlook changes.”

            Attention will turn to next week’s Federal Reserve meeting, said Mr Lancioni. A backdrop of higher equities, risk-on sentiment, a lower dollar and solid US jobs data “should open the door for a less dovish Fed”.

            The ECB announced its corporate bond-buying programme will begin in June and cover investment-grade euro-denominated bonds from non-bank issuers.

            US bank chiefs face fresh pay crackdown

            Posted on 21 April 2016 by

            US banking and finance executives face tighter restrictions on pay after regulators put forward long-awaited plans to toughen bonus deferrals and “clawback” regimes.

            In one of the final pieces of the Dodd-Frank reforms, drawn up to prevent another financial meltdown, regulators on Thursday unveiled proposals to toughen schemes that put executives on the line for future losses.

              Schemes that allow companies to recoup bonuses if executives have acted fraudulently or are guilty of wilful misconduct are already standard practice on Wall Street.

              However, the proposed rules would make such schemes a formal requirement and beef up the provisions. Senior managers at investment advisers, brokers and credit unions, as well as banks, would be covered by the reforms.

              Under the plans, executives could be on the hook for as long as seven years.

              Provisions could be triggered if the executive runs inappropriate risks, fails to comply with regulatory requirements — triggering an enforcement or legal action — or is guilty of other misconduct.

              The proposed requirements are linked to the size of the institution, which are divided into three tiers depending on the size of their assets, as well as the role of the individual.

              Top executives at the largest institutions — those with at least $250bn of assets — would face the toughest restrictions. They would have three-fifths of their bonuses deferred for four years.

              Those at groups with between $50bn and $250bn of assets would have half of their bonuses delayed for at least three years.

              While the proposals are tougher than current US practices, they are less onerous than regulations passed by the EU.

              In the 28-nation bloc, bonuses for key bank staff are capped at one times salary. The cap can be doubled to two times salary with explicit shareholder approval, but cannot go any higher.

              The UK, which must apply EU rules and has the largest number of high-earning bankers in Europe, has also imposed clawback rules on senior banker pay, with bonuses able to be revoked for as long as a decade.

              Pay continues to be a hot topic in the industry.

              In depth

              Bank bonuses

              Bank bonuses

              The issue of bankers’ bonuses continues to be a political hot potato as bank chiefs defy political and public pressure to curb payouts

              Further reading

              The regulators’ proposal comes as campaigning shareholders call on JPMorgan Chase, Bank of America and Citigroup — whose chief executives received a combined pay package of almost $60m this year — to beef up their claw back schemes.

              Under those plans from activists, executives would effectively need to set aside a “substantial portion” of their overall remuneration for a decade. Bank shareholders will have a chance to vote on those proposals during the annual meetings season, which starts next week.

              Separately, this month corporate governance experts complained about Citigroup’s pay scheme, arguing executives led by Michael Corbat were being handed generous rewards while the bank produces underwhelming results.

              Other big earners on Wall Street include Goldman Sachs’ chief Lloyd Blankfein, who received a $23m package for 2015 and James Gorman of Morgan Stanley, who was handed a $21m deal.

              The latest proposals were by forward by the National Credit Union Administration, one of the six agencies drawing up the reforms.

              Other regulators, including the Federal Reserve, Securities and Exchange Commission and the Federal Deposit Insurance Corporation, are expected to vote in the coming weeks.

              A comment period runs until July 22.

              Additional reporting by Caroline Binham

              Rate rise helps boost BNY Mellon income

              Posted on 21 April 2016 by

              A woman walks past a logo at the office of the Bank of New York Mellon in Brussels, February 25, 2010. BNY Mellon Corp, the world's largest custodian of financial assets, announced the loss of 199 jobs in Belgium out of 875. REUTERS/Sebastien Pirlet (BELGIUM - Tags: BUSINESS EMPLOYMENT) - RTR2AVQK©Reuters

              Bank of New York Mellon saw a much-needed boost in interest income during the first quarter, but nonetheless kept firm pressure on costs at the urging of Nelson Peltz’s Trian Partners, its activist board member.

              BNY, which keeps records, tracks performance and lends securities for institutional investors, has grappled for years with the profit-sapping effects of low interest rates, drawing the attention of activist funds including Trian — which won a seat on the board last year — and David Einhorn’s Greenlight Capital.

                In the first quarter BNY saw positive effects from the December move from the US Federal Reserve to push up short-term interest rates for the first time in nine years, it said on Thursday. The increase meant that BNY’s net interest margin improved by 4 basis points to 1.01 per cent, while in the US it started to reimpose some of the management fees it had been forced to waive on its money-market funds.

                Revenues came to $3.72bn, down 2 per cent from a year earlier, but expenses dropped 3 per cent, helping to push net income up 5 per cent for the period to $804m. Earnings per share were 75 cents, better than expectations of 68 cents. The shares rose 2 per cent to $40.50 in late morning trade.

                Expenses will remain in focus, said Todd Gibbons, chief financial officer, citing further reductions in real estate costs and travel costs, due to greater use of videoconferencing.

                “It was nice to see [the rate increase] come, but we can’t control it,” he said, adding that he was “no longer in the game of betting on the direction” of central banks around the world. “We have to operate with the environment we’ve got.”

                The comments were in tune with other senior executives during the US bank earnings season, in which many have stressed their determination to cut costs in the face of volatile markets, sluggish growth in core markets and spillover effects from rising bankruptcies in the energy sector.

                All those forces suggest that the Fed may be reluctant to push up rates any further, having finally achieved “lift-off” four months ago.

                BNY’s efforts to trim expenses showed “very good progress” in the period, said Ken Usdin, analyst at Jefferies in New York.

                But some analysts say the bank needs to do more to cut its bloated global workforce of 52,100. One of them, Mike Mayo of CLSA, used the opportunity of last week’s annual meeting of shareholders to challenge Ed Garden, who has represented Mr Peltz’s Trian on BNY’s board for just over a year.

                Mr Garden — the son-in-law of Mr Peltz — said that he was confident that the bank was building a more durable business. Trian held about 3 per cent of BNY’s stock as of February.

                “Do we have more work to do? Absolutely,” he said. “The board holds management accountable and is not interested in mediocrity.”

                The results came a day after the US Department of Treasury had decided to feature Civil War-era abolitionist Harriet Tubman on the $20 bill, and abandoned a plan to remove Alexander Hamilton, founder of The Bank of New York 232 years ago, from the $10 bill.

                Treasury secretary Jack Lew said the about-face came in response to an unexpected backlash over the removal of Mr Hamilton after the plan was announced last June — a response fuelled, in part, by the popularity of the Broadway musical based on the life of the Founding Father.

                On a call with analysts on Thursday, chairman and chief executive Gerald Hassell said he was “very, very pleased” with the outcome.

                Banks score victory in fightback on capital

                Posted on 21 April 2016 by

                Banks scored a coup in their fightback against rising capital requirements as global standard-setters dropped plans to force them to hold yet more capital against the risk of interest-rate moves.

                The Basel Committee on Banking Supervision said on Thursday that it would not implement proposals floated last year that would have raised capital needs across the world’s banking system.

                  Instead, supervisors in each country will be responsible for making sure their lenders are holding enough capital to protect them from losses due to rate changes. In earlier papers, the Basel group had estimated that interest rate risk should account for roughly 15 per cent of a bank’s total capital.

                  However, banks will be forced to give investors more information about their vulnerability to sharp rate changes. The committee said BCBS said lenders should run stress tests using six different “shock” scenarios and report how they would affect total assets and net interest income.

                  “Even though the committee is not currently proposing mandatory capital charges specifically for interest-rate risk in the banking book, all banks must have enough capital to support the risks they incur, including those arising from interest-rate risk,” the Basel group said.

                  The original proposal for a mandatory capital increase sparked outcry across the industry, which complained that banks are being subject to a round of capital-raising by stealth they have dubbed “Basel IV” on top of the post-crisis Basel III reforms.

                  Policymakers disagree, saying they are trying to standardise how banks calculate their capital needs and make it harder to game the system.

                  Wayne Abernathy of the American Bankers Association, which criticised the original proposals, said: “We’re glad that in this particular area the Basel folks have recognised that they’ve come across an important issue but also one that the [US bank] supervisors have been well aware of and are dealing with . . . A new global regime would be at best redundant.”

                  Banks will be considered “outliers” and subject to tougher scrutiny if they set aside less than 15 per cent of their tier one capital — the safest kind — for interest rate risk. The old threshold was 20 per cent of overall capital. Regulators expect about 15 per cent of banks to fall into this category.

                  Policymakers are becoming increasingly concerned about stability risks posed by interest rates as central banks around the world push rates to record lows. The European Central Bank separately on Thursday kept interest rates unchanged after cutting them to fresh record lows last month.

                  “The new Basel guidelines on interest rate risk management in the banking book could not have come at a better time,” said Mayra Rodriguez Valladares, a regulatory consultant. “It is imperative that banks improve and disclose more about how they measure interest rate risk.”

                  With reporting by Barney Jopson in Washington and Laura Noonan in London

                  Swiss private banks target overseas growth

                  Posted on 21 April 2016 by

                  When US President Barack Obama made the case last month for the FBI to access encrypted Apple phones, he warned that if it was not granted, everyone would be “walking around with a Swiss bank account in their pocket”.

                    However, a global clampdown on tax evasion, led by US law authorities, means a Swiss account is no longer such an easy place to hide ill-gotten gains.

                    That raises the question: without its famed reputation for secrecy, what is the point of a Swiss bank account?

                    The answer on Zürich’s upmarket Bahnhofstrasse or Geneva’s Rue du Rhône is not straightforward.

                    Swiss private banking is in the middle of a historic upheaval, hit by turbulent global financial markets as well as a collapse in demand triggered by tax “regularisation”.

                    The number of private banks is shrinking while rising regulatory costs are eating into the profit margins of those that remain. But industry stalwarts refuse to retreat. Instead, they are spearheading expansion into emerging markets — and emphasising other strengths that they say will ensure continued global dominance.

                    “Private banking was invented in Switzerland,” says Boris Collardi, chief executive of Julius Baer, invoking a history that stretches back to the 15th century. “This is a place where you keep your money . . . an island in the world for stability, solidarity.”

                    Mr Collardi’s bank manages almost SFr300bn ($308bn) of client assets, up 75 per cent in five years. Its growth comes amid a broader industry decline: there are only about 150 Swiss private banks now, down from 350 in 1995.

                    “The agreements Switzerland has signed since 2009 on exchanging bank information have been a game-changer,” says Jürg Zeltner, head of wealth management at UBS, the world market leader.

                    Since paying a $780m fine to settle with US authorities in 2009, UBS has ensured its global business “actively promoted a stand for transparency on fiscal and tax matters”, a decision that Mr Zeltner says has cost the bank more than SFr30bn in client assets.

                    Still, the shadow of the old ways lingers. When the Panama Papers leak recently revealed details about the widespread use of offshore accounts to shelter the wealth of the super-rich from scrutiny and taxes, three Swiss banks were listed among the top 10 lenders that created such structures.

                    And the head of Switzerland’s financial supervisor, Finma boss Mark Branson, announced earlier this month that 14 of the roughly 300 institutions he oversees had been given a “red” rating for their money laundering risks.

                    Swiss bankers defend their use of offshore accounts, despite the negative publicity from the Panama Papers.

                    “The hypothesis being portrayed is that if you’re hiding something, it is because it’s illegal,” says Mr Collardi. “That’s not necessarily true. For most people it’s protection of privacy, succession, estate planning.”

                    “The reputation of Switzerland in the world with clients is better than you would think when you read the press,” says Tobias Unger, deputy chief executive at Falcon, a midsized Swiss private bank. “If you have something to hide these days the first destination is not Switzerland, it’s the US.”

                    Swiss bankers believe they still provide services that others cannot. They speak more languages, operate accounts in more currencies and issue a wider variety of national tax statements than rivals, Mr Unger argues.

                    He adds that Swiss banks still do a better job of protecting people from prying eyes than those elsewhere.

                    A banker asking a colleague about a celebrity client in Zurich would be given short shrift but “if the same thing happened in England, the guy . . . even talks about it [the client] at dinner parties,” says Mr Unger.

                    Mr Zeltner argues that Swiss banks, like technology companies in Silicon Valley, have benefited from a “cluster” effect. “When it comes to managing wealth and the wealthy, it’s Switzerland that has the experience,” he says.

                    The country’s banks have worked to improve the financial performance they deliver to clients, which Andreas Venditti, banks analyst at Vontobel, says has “historically not been great”.

                    Are clients impressed? Executives at “family offices” — the companies which manage portfolios for the world’s rich — dispute the uniqueness of Swiss banks, especially large ones. One says that once banks get to a certain scale, their defining characteristic is size, not nationality — “They [big Swiss banks] are like the big Americans”.

                    “The Swiss tend to bank with Swiss private banks,” says Jorge Frey, managing partner at Zurich-based family office Marcuard. “Foreigners are considering more and more international institutions.”

                    Swiss banks, he says, still benefit from their experience and emphasis on customer service but “unluckily, what has distinguished [them] from the Anglo-Saxon banks is vanishing.”

                    American private banks — the other significant force in the global industry — say they are taking on the Swiss, even close to and on their home turf. James Holder, head of private banking for northern Europe at Citi, says his bank can “more than adequately” cater for clients “who need global delivery management.” “Just being a Swiss-owned or Swiss-registered bank doesn’t deliver results,” he says.

                    Still, Switzerland remains the world’s biggest centre for offshore funds, and the Alpine country’s banks have become dominant forces internationally. Three Swiss banks — Credit Suisse, UBS and Julius Baer — are among Asia’s five biggest wealth managers, as ranked by Asian Private Banker. UBS and Credit Suisse are the only foreign banks to feature in the 12 biggest wealth managers in the US, according to the latest Barron’s Penta rankings.

                    International expansion — particularly to Asia — features high on the agendas of Credit Suisse, UBS and Julius Baer while other Swiss banks are targeting Russia, Africa and the Emirates.

                    Scores of smaller Swiss banks are also targeting international growth. They know that they will have to rely on more than their old strengths to make their expansions stick. “[We must] be better when it comes to products,” says Mr Unger. “Historically, that was not so good . . . we had a mandate not to lose it [money] and ideally protect it for inheritance and from prying eyes or be tax efficient.”

                    “More and more, the client wants performance.”

                    TSB steps up challenge with strong growth

                    Posted on 21 April 2016 by

                    TSB cash machine: Challenger banks argue the new tax will dent their profits and ultimately their ability to lend

                    TSB’s charge into the retail banking market is gathering pace as the Spanish-owned lender attracted a record number of mortgage customers and posted a 53 per cent surge in first-quarter profits.

                    The so-called challenger to the UK’s large high street banks reported pre-tax profit of £53m in the three months to the end of March, compared with £34.3m in the same period last year.

                      Customer lending grew to £22.4bn, up 20 per cent year-on-year as more customers took out a mortgage with TSB.

                      The bank boosted mortgage growth last year by offering loans through brokers, the channel that accounts for about 70 per cent of mortgage sales in the UK.

                      TSB’s assault on the retail banking sector gained momentum after the challenger was acquired last year by Sabadell in a £1.7bn takeover. The Spanish bank has grand plans to launch digital services for TSB and will support its growth in the business banking market.

                      TSB’s mortgage book was buoyed after it snapped up £3.3bn of assets from Cerberus at the end of last year. The deal came after the private equity firm agreed to purchase a record £13bn of former Northern Rock mortgages from the UK government. It meant TSB became the mortgage lender to more than 30,000 former Northern Rock customers.

                      TSB said it was targeting loan growth of up to 50 per cent over five years from listing on the market in June 2014.

                      Paul Pester, chief executive, said the bank had seen record growth in people choosing TSB for their mortgage and deposits, the latter of which swelled to £27bn, up more than £2bn from a year ago.

                      About 7.1 per cent of people opening a new current and savings accounts or switching from another bank moved to TSB in the first quarter, in a sign that the challenger bank is competing with attractive rates and superior service.

                      However, TSB faces stiff competition from other so-called challengers and high street banks attempting to grow their mortgage book.

                      Rival Tesco Bank revealed this week that it was entering the broker market in a push to grow its loan book. It followed an announcement by HSBC that it was expanding its mortgage distribution through brokers.

                      TSB was carved out of Lloyds Banking Group in 2013 with half the balance sheet it was intended to have but a large cost base with more than 600 branches.

                      Costs are expected to come down over the coming years as it moves off Lloyds’ IT systems on to Sabadell’s own platform.

                      Andrew Lowe, an analyst at Berenberg, said: “TSB is an all-singing, all-dancing retail bank. It’s not trying to be a niche player. It seems to have done a good job at winning market share.”