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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Banks, Financial

Banking app targets millennials who want help budgeting

Graduate debt, rent and high living costs have made it hard for millennials to save for a house, a pension or even a holiday. For Ollie Purdue, a 23-year-old law graduate, this was reason enough to launch Loot, a banking app targeted at tech-dependent 20-somethings who want help to manage their money and avoid falling […]

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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

Brexit – Europe plots a bank heist

Posted on 30 June 2016 by

On a rainy June morning in Paris, five dozen men and women gathered in a basement in La Défense, the city’s financial district. Over bitter coffee and fluffy croissants, the great and the good of French politics, business and finance had gathered to plot a heist.

Podcast

Brexit and the City

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What will Brexit mean for the City of London? Whatever terms Britain manages to negotiate with the other 27 member states, countries across the EU are eager for a bigger bite of the financial services sector that the City enjoys the lion’s share of today, say Financial Editor Patrick Jenkins and FT reporters. The big question is which rivals are likely to benefit most

With two weeks to go before the Brexit vote, they wanted to be ready with a sales pitch to lure the international financial groups based in London, should Britain vote to leave the EU. Now, they reasoned, any company with pan-European aspirations would be compelled to move jobs, business lines, even headquarters out of London.

At the time hardly anyone seemed to believe that the UK electorate would really vote to leave. But that didn’t stop the Parisien elite. Jean-Louis Missika, a deputy mayor of Paris, promised he would be “rolling out the red carpet” to bankers if Brexit happened. Gérard Mestrallet, head of the Paris Europlace lobby group, says this was “the moment” for Paris as a financial centre.

It is a dramatic turning of the tables. Four years ago, Boris Johnson, the then London mayor turned Brexit frontman, who said on Thursday he would not enter the race to be next Conservative prime minister, was goading Paris for the “tyranny and terror” of its rich-soaking tax policies and inviting French bankers to escape to London. “Vous êtes tous bienvenus,” he boomed.

This time it is Paris that is appealing to bankers in London with a “Welcome to Europe” slogan.

The French charm offensive has been notably aggressive, but they are not alone. Frankfurt and Dublin — and a long list of others from Luxembourg to Warsaw — are now clamouring to appeal to the banks, insurance companies and asset managers for whom using the City of London as a single European hub may no longer be sensible. And where those financial services groups go, a whole host of ancillary roles — in law, accountancy, consultancy and the rest — will follow. Tens of thousands of jobs, out of nearly half a million in the City, could be at risk, financiers estimate.

Chart: UK share of financial markets

The sales pitch is simple. If the UK is outside the EU, financial services companies will be stripped of the “passporting” rules that allow them to operate across borders without local licences. Those companies will need instead to think about a new EU base. The City, which has grown and globalised since the Big Bang deregulation reforms 30 years ago, would shrink and deglobalise.

Not everyone buys the argument. Some contend the City has an even brighter future as a centre focused less on Europe — excelling, for example, in offshore renminbi trading and financial technology. In any case, bullish British lawyers reckon that UK negotiators will be able to strike a deal to extend passporting. If that proves politically impossible, they point to new rules, under the so-called Mifid II rule book that comes into force in 2018. These should give any non-EU country with “equivalent” financial rules access to the single market on level terms.

One snag is the risk of an EU country — like France — sensing a competitive opportunity and seeking to have the rules tweaked to disadvantage the UK.

Even if a good deal is reached, says Simon Gleeson, a lawyer at Clifford Chance who advises many of the big banks, it may be academic. “Banks [will] have to write their contingency plans before they know the [political] situation that will exist in the future.”

In other words, a bank may need to decide to shift chunks of its business to more secure EU locations, regardless of what politicians manage to negotiate.

Paris

For banks and investors, there is likely to be an added impetus to move at least some functions to an EU location if, as expected, the European Central Bank insists that future euro-denominated financial trades are cleared and settled within the EU.

The question, then, is which city will win out?

Paris can claim the prize for boldness. Arnaud de Bresson, managing director of Paris Europlace, says he has already been in talks with half a dozen global banks. “They are shocked about the result, but looking to move people to Paris,” he says.

Promoters of Paris point to several strengths. It has an established financial ecosystem, with five of Europe’s 20 largest banks by assets based there. It has a large funds industry managing €3.6tn, second only to London. It is also one of the world’s great cities, with its wealth of opera houses, theatres and restaurants. Frankfurt cannot compare, they say.

Podcast

The future of the City of London after Brexit

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An extended discussion on the implications of Britain’s vote to leave the European Union for foreign and UK banks in the City of London

Paris is a corporate capital as well as a financial one, says Mr Mestrallet. “In Paris you find clients, whereas in Frankfurt you find rival banks,” he says, arguing that Paris should be able to attract jobs in asset management, corporate bonds, foreign exchange and clearing. London currently dominates euro-
denominated trading and clearing.

Detractors highlight an uncertain political and fiscal environment, not least the possibility of a French referendum on EU membership. President François Hollande declared finance his “enemy” in 2012 as he proposed hitting the rich with a 75 per cent tax rate. Foreign banks point to high social charges. A €300,000 salary paid in the UK costs a bank €352,740 a year after all charges, while in France this same salary cost €471,799. Rules introduced in 2008 mean charges do not apply to foreigners for up to five years, but for long-term local staff it is expensive.

Philippe Villin, an outspoken French investment banker and close adviser of former president Nicolas Sarkozy, says Paris will never become a major financial centre as long as corporate and personal taxes are so high. “At this stage, Paris is almost as appealing as Caracas or Havana for big banks and well-paid and wealthy professionals,” he says.

Lobbying groups say the reforms are coming. Ahead of the UK referendum the French government loosened rules for international bond issues. Reformers are also pushing to extend the advantageous tax status for foreigners and add more international schools.

Frankfurt

Frankfurt has played its pitch cooler, but in many ways is a more natural contender to suck business from the City of London. “I think it is certainly possible that we could see around 10,000 jobs move from London to Frankfurt over the next five years,” says Hubertus Väth, from Frankfurt Main Finance, a group that promotes the city as a financial centre. “German, Swiss and US banks are most likely to move.” He says it is “relatively clear” that trading activities will shift to Frankfurt.

Frankfurt’s biggest trump card is the presence of the ECB, which not only sets eurozone monetary policy but now also supervises the bloc’s biggest banks. “You can argue whether it is good to be the capital of regulation, but the ECB has definitely helped boost the city,” says one top German banker.

At the fulcrum of the London-Frankfurt see-saw is the increasingly fragile-looking merger deal between Deutsche Börse and the London Stock Exchange. The headquarters of the group were supposed to be in London — a decision the companies said would transcend the risk of Brexit and strengthen Germany’s access to London’s more vibrant capital market. But German regulators and politicians have made it clear that a London HQ would no longer be politically acceptable. One London-based banker close to the deal said such a stance betrayed the small-minded attitudes in Frankfurt that would stop it becoming a major financial centre.

A broader issue militating against Frankfurt is the relative inflexibility of German labour law, such as how expensive it is to fire staff — a particular concern for US banks. Local groups have suggested to the German labour ministry that it consider setting up a zone in Frankfurt where British rather than German labour law is applied as a way of attracting bankers.

Dublin

Dublin, the other EU financial centre with broad appeal, is portraying itself as a more natural fit with City types.

“Dublin and Ireland are the closest you’re going to get to London and the UK,” says Martin Shanahan, chief executive of IDA Ireland, the inward investment agency, pointing to the English language, common laws and a skilled workforce. Industry leaders say the fact that Dublin already has an established finance industry — it has grown from nothing to employ 30,000 people in 25 years — is one of its key advantages.

Dublin’s biggest selling point may be that it is about 40 per cent cheaper than London for financial services groups, says Kieran Donoghue, head of international financial services at the IDA. Still, he says the scarcity of high-quality homes is “a pinch point”.

Other contenders

Alongside the likes of Paris, Frankfurt and Dublin is a long list of upstart challengers. These include locations that might not be obvious bases for glamorous “front-office” roles, but have nonetheless already drawn large numbers of backroom jobs from the City.

Poland has quietly but rapidly become a big “nearshoring” location. More than 50,000 people are now employed by global banks there. “Nearshoring to Poland is only going to grow even further after Brexit,” says Wojciech Poplawski, who heads Accenture’s service centre operations in Warsaw. “There’s EU access and competitive costs. It’s a no-brainer.”

At the same time, locations outside Europe may also become more appealing. For banks such as Goldman Sachs, JPMorgan Chase or HSBC, lawyers believe Brexit may be the trigger to shift some business to Asia or the US.

Brexit threatens London’s status as a markets hub: a Q&A

London is the world centre of the complex plumbing of markets, but leaving the EU complicates that

For most banks, insurers and asset managers, the response to the rival pitches is unlikely to be straightforward. “It isn’t obvious that you try to replicate London where you have everything in one city,” says one senior UK-based banker. “Everywhere has deficiencies, nowhere is a perfect cluster like London,” says another, describing French labour law as a “disaster”.

Instead, groups are expected to disburse employees around the region, depending on office capacity, existing licences and staff preferences. JPMorgan, for example, has licences in Frankfurt, Luxembourg and Dublin and may upgrade other locations such as Paris to fully fledged operations.

“If we move roles to Europe, we have the option of distributing them across several locations,” says one bank insider. “Not all our competitors do.”

Richard Gnodde, co-head of Goldman Sachs’ international operations, headquartered in London, told a business summit in London this week: “If passporting was totally removed, we would have to adjust our footprint and where people were located.” Goldman has a banking licence for its Frankfurt operation, which includes a small number of staff in securities sales and trading, making the city the most likely destination for any activities moved out of the UK. Goldman is also weighing other options such as Dublin and Amsterdam.

Brexit business tracker

Pedestrian pass by as skyscrapers including Tower 42, the Heron Tower, the Leadenhall building, also known as the "Cheesegrater," 30 St Mary Axe, also known as "the Gherkin," and 20 Fenchurch Street, also known as the "Walkie-Talkie," stand beyond, in London, U.K., on Tuesday, June 28, 2016. Banks demand for cash surged at the Bank of Englands first liquidity operation since the U.K. voted to leave the European Union, with financial institutions requesting more than double the amount allocated. Photographer: Simon Dawson/Bloomberg

Which companies have announced job cuts and profit warnings since the UK voted to leave the EU?

The British banks facing the greatest disruption from any loss of passporting rights are Barclays and HSBC, which have the largest investment banking operations in the City dealing with clients from the continent. Barclays says it has an investment banking licence in Dublin. HSBC executives point to its sizeable trading floors in both Paris and Düsseldorf. Stuart Gulliver, HSBC chief executive, said before the vote that it may move as many as 1,000 jobs to Paris if the Leave campaign won. Among non-banks, fund manager M&G has already decided to launch a new range of funds based in Ireland rather than the UK.

Unless there is rapid political manoeuvring to reverse the process of Brexit, there is one certainty — parts of the City of London’s fabric will soon start to unravel. But amid all the panic and jostling for business, there are those who sit back and say shrinkage may be no bad thing.

A senior banker, who has large operations in London and Paris, takes a big-picture view. “The overconcentration of financial services in London and in the UK has done big societal damage, as the financial crisis demonstrated,” he says. “It may be no bad thing for everyone if there is some redistribution across a number of other financial centres. If 50,000 out of 500,000 jobs move from the City to Paris or Frankfurt, so what?”

Reporting team: Michael Stothard in Paris, James Shotter in Frankfurt, Vincent Boland in Dublin, Henry Foy in Warsaw and Patrick Jenkins, Martin Arnold and Laura Noonan in London

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Deutsche Bank hit by IMF hazard warning

Posted on 30 June 2016 by

The Deutsche Bank AG logo sits illuminated on the bank's headquarter offices at dusk in Frankfurt, Germany, on Wednesday, Jan. 27, 2016. German domestic demand, buoyed by a stable labor market and low oil prices, will propel the country's economic growth this year and compensate for slowing exports as emerging economies stumbles. Photographer: Krisztian Bocsi/Bloomberg©Bloomberg

Deutsche Bank’s shares tumbled on Thursday after the International Monetary Fund branded it the riskiest globally significant bank, and one of its US businesses failed a Federal Reserve stress test.

In its annual review of the stability of the German financial sector, the IMF said that among globally important banks, Deutsche, which is highly interconnected with other financial institutions due to its investment and transaction banking units, “appears to be the most important net contributor to systemic risks, followed by HSBC and Credit Suisse”.

    “The relative importance of Deutsche Bank underscores the importance of risk management, intense supervision of [globally systemically important banks] and the close monitoring of their cross-border exposures, as well as rapidly completing capacity to implement the new resolution regime,” the IMF said in its report.

    Deutsche, Credit Suisse and HSBC declined to comment on the report.

    By mid-afternoon shares in Deutsche were down 3.2 per cent at €12.26, up marginally from the 30-year low of €12.05 that they hit earlier in the day. The pan-European Stoxx 600 Banks index was down 0.9 per cent.

    The German group’s stock has been hit by a variety of factors in recent months. These range from broader fears about the health of the global financial system in the face of slowing growth and record-low interest rates to more specific concerns about Deutsche itself.

    The bank is battling to settle a number of regulatory probes — including into its mortgage-backed securities business and its Russian operations — and is also in the midst of a 5-year restructuring effort aimed at boosting capital and profits. Last year it suffered a €6.8bn net loss.

    The warning from the IMF about Deutsche as a source of systemic risk coincided with the failure of Deutsche Bank Trust Corporation in the Fed’s annual stress test, the second year in a row in which the unit has fallen short.

    The Fed criticised Deutsche and Santander, which also failed the test, for having “broad and substantial weaknesses” in their capital planning and for making insufficient progress since the last round of tests in March 2015.

    Failing the exercise — known as the comprehensive capital analysis and review (CCAR) — prevents DBTC from distributing capital to its parent company. However, Deutsche said that the unit had not make a request for a distribution.

    Analysts at Citi said that DBTC’s failure, which was due to “shortcomings in the risk management, stress testing, and data infrastructure” rather than a lack of capital was “expected”.

    Additional reporting by Laura Noonan

    Europe’s bank regulator eyes London exit

    Posted on 30 June 2016 by

    A pedestrian walks towards One Canada Square in the Canary Wharf business, financial and shopping district of London, U.K., on Thursday, Oct. 29, 2015. In its monthly consumer confidence index, GfK said a measure of Britons' outlook for the economy over the next 12 months dropped to minus 4 in October, the lowest reading this year. Photographer: Simon Dawson/Bloomberg©Bloomberg

    Europe’s banking watchdog is set to take a multimillion pound hit as it looks to force through an early exit of its Canary Wharf headquarters following the UK’s decision to exit the EU.

    The European Banking Authority — which oversees EU-wide bank policy and stress testing — has said that it would move in the event of a vote to leave the EU.

      The regulator is locked into a £1.8m-a-year lease on a Canary Wharf tower until the end of 2020, meaning that its early departure will leave the EBA on the hook for the Docklands offices.

      When it triggers the move, the European banking regulator could become the first financial institution to leave London following the referendum.

      London’s property sector is braced for a slowdown should demand for office space weaken as financial services and other companies review their presence in a city that will move outside the EU.

      On Thursday, HSBC reaffirmed its commitment to the UK but executives at other investment banks have already begun to reconsider the need to keep staff here if the UK loses its right to sell financial services across the continent.

      Outside the banking sector, Vodafone has also said this week that it was rethinking its headquarters in London. The UK telecoms group, which said that no decision had been made, occupies a building in Paddington.

      The EBA’s move is likely to come at a cost, however. The EBA only moved to Canary Wharf’s iconic One Canada Square tower in December 2014, quitting Tower 42 in the City when its 150 staff needed more space.

      “Our lease does have a clause that allows the EBA to break the lease of 12 years after six years of commencement of the lease in case . . . the seat of the EBA is removed from London,” a spokesperson said.

      She added that “any decisions regarding its possible relocation will have to be discussed at EU level”. Reuters reported on Tuesday that an EU official said the EBA would move to either Frankfurt or Paris.

      The EBA would not say whether it could sublet the property to another tenant to mitigate the cost of moving, citing the confidentiality of the agreement with their landlord.

      But property agents said that even if the EBA managed to sublet the building, the regulator would face losses if other banks moved sizeable operations out of London.

      “A large part of the demand decline is likely to hit Canary Wharf, given its concentration of global megabanks,” said Robert Duncan, analyst at Numis Securities.

      Richard Divall, head of cross-border capital markets at Colliers, the property advisers, said: “Rents are likely to fall from market highs.”

      The transfer of specific banking functions to elsewhere in Europe is likely to result in office space becoming available, agents say.

      Some 100,000 workers may be transferred from London to elsewhere in Europe, according to analysts at Jefferies, even as 26m square feet of new office space is expected to be built in the next four years.

      Agents point to a search for an office by law firm Freshfields as a barometer of occupier appetite. Freshfields has reached an advanced stage of a search for a new London headquarters, according to property agents who said they would see that move going ahead as a reassuring signal.

      Meanwhile, Mr Divall said that companies looking to move staff rapidly to other European cities might struggle to find adequate office space.

      “You can’t just get up and go, ‘I want to find 40,000 square feet in Paris or Frankfurt or Dublin’, because the buildings just aren’t there. You’re going to have to take a hit on the type of building or the location that you want. These cities just don’t have the same infrastructure as London.”

      The market is also in better shape that it was before the 2008 downturn, according to agents. Vacancy levels in Canary Wharf are at record lows, while its average remaining lease length is 14 years.

      Some new London office developments are also expected to be called off as a result of the Brexit vote, mitigating the effects of lower demand.

      “If we are going to have a major problem, we’re in a very good position to deal with it,” said one property agent, who asked not to be named.

      Equity funds lose billions after Brexit

      Posted on 30 June 2016 by

      Traders from BGC, a global brokerage company in London's Canary Wharf financial centre react as European stock markets open early June 24, 2016 after Britain voted to leave the European Union in the EU BREXIT referendum. REUTERS/Russell Boyce TPX IMAGES OF THE DAY©Reuters

      Investors have pulled billions of dollars from global equity funds since Britain voted to leave the EU last week, exacerbating problems for asset managers grappling with heightened market turbulence and pressure on profits.

      After the result of the UK referendum on EU membership was decided early last Friday, investors pulled $3.3bn out of global equity exchange traded funds that track international stock markets.

        On Monday the outflows worsened, with $5.6bn pulled from global equity ETFs, according to Markit, a data provider. The outflows came after international stock markets shed trillions of dollars in some of their worst ever trading sessions following the vote.

        Investors returned in part to the products on Tuesday, but not enough to make up for the previous outflows.

        Simon Colvin, vice-president of Markit, said the $1.6bn of inflows recorded on Tuesday came as a result of investors hunting for bargains, or shifting into indices perceived to be less risky, such as the S&P 500.

        Gold ETFs have also attracted big inflows, drawing $729m on Friday and $650m on Monday as people rushed to put money in haven assets.

        Fund managers have sought to reassure investors that they can withstand market shocks. However, many have been forced to levy exit fees that are triggered when redemptions rise above a certain level.

        Cameron Brandt, director of research at EPFR, the research company, said flows to funds are likely to remain volatile in the coming weeks.

        According to its data, UK equity funds suffered $350m of outflows on Monday — the fifth-largest daily level of withdrawals of the past 12 months.

        Economists who have revised growth expectations for Britain say that clarity on domestic politics, central bank policy and a trade deal with Europe will be necessary to shore up confidence.

        “[We] anticipate plenty of short-term volatility as investors absorb the shock of an outcome that was not generally expected and make their best guesses about what will happen next,” Mr Brandt said.

        Despite weeks of redemptions, UK-focused equity funds have lost fewer assets in the first quarter of the year than counterparts exposed to stocks in continental Europe.

        Belgium-focused funds had been the biggest winners in the weeks preceding the vote, while those focused on Italy, France and Ireland registered substantial outflows.

        Invesco, the US asset manager, said today its UK and continental Europe business had suffered outflows of $213m since last Friday.

        Martin Flanagan, president and CEO of Invesco, said the redemptions in the wake of the Brexit vote were “consistent with what we’ve seen in other volatile markets, but not exceptional”.

        Brexit forex trading bonanza boosts banks

        Posted on 30 June 2016 by

        UK sterling coins and notes©Dreamstime

        Bank foreign exchange desks raked in fees from investors bailing out of sterling as they handled up to 10 times normal volumes on the first day of trading after the UK unexpectedly voted to leave the EU.

          But the forex trading bonanza was not enough to be a profits “game changer” for the second quarter, which ended this week, and some of the boost was eroded by losses on equities and other desks, said bank insiders and analysts.

          “It was one of the busiest days in FX trading in our history,” said James Bindler, global head of foreign exchange at Citigroup, the third-biggest foreign exchange, currencies and commodities player in the Emea region last year, according to league tables from industry monitor Coalition.

          Morgan Stanley’s Asia desk experienced 10 times its usual volume, according to someone with direct knowledge of the situation. By the time its New York desk closed on Friday, overall volumes were up 2.3 times across New York, London and Asia in the 24-hour period.

          Jamie Dimon, the boss of JPMorgan Chase, sent a triumphant internal memo to staff last Friday, in which he boasted that JPMorgan had forex trading of about three times its normal level, and that activity at its etrading channels peaked at 1,000 trading tickets per second.

          “In dramatic times like these, the quality, scope, capabilities and character of JPMorgan Chase truly come into focus . . . Let’s keep up the great work,” Mr Dimon said. JPMorgan came joint first in Coalition’s fixed income, currency and commodities (FICC) league tables for Europe, Middle East and Africa last year.

          “Banks had a monster day on Friday,” a senior banks analyst in London said. “They probably made 5-10 times their normal daily P&L [profit and loss].”

          On Friday spot currency trading on Thomson Reuters, one of the world’s largest venues, soared to $258bn compared with average daily volumes of $94bn while CME Group saw record volumes of more than 500,000 sterling-related futures and options contracts.

          A senior banker said banks would have made “tens of millions” from the foreign exchange trading. Regulators had prevented lenders from taking big bets on the vote ahead of the referendum and closely monitored banks’ exposures on the day to make sure no one was taking too much risk, he added.

          The bumper trading followed a 28 per cent fall in revenues for FICC in the first quarter of the year, according to Coalition data. Banks also lost heavily in FICC in the final months of 2015.

          But one bank’s head of macro trading said the trading bonanza is not a “game changer” for this quarter’s profits, and other analysts and bankers expressed caution about how Brexit would affect banks’ trading revenues and profits more broadly.

          Mike Mayo, a New York-based analyst at CLSA, stressed that it was “only a couple of days’ price moves” and therefore not enough for banks “to have big gains”.

          One London-based banks analyst who walked his bank’s equities floor on Friday said it was a “very different story” for those desks. “Things were moving so fast,” he said. “If your commission is 0.2 per cent and stocks are falling at 2 per cent a minute, you’ve had it . . . Clients just dump on you.”

          The UK’s FTSE 250 index fell 7 per cent on Friday, while the FTSE 100 index, which includes a greater number of internationally focused UK stocks, closed down 2.6 per cent. European stocks also had a dismal day, with Germany’s DAX index down 7 per cent, France’s CAC 40 down 8 per cent and Spanish and Italian stock markets falling 12 per cent. Banks posted the most dramatic movements across the continent, with Royal Bank of Scotland opening down 34 per cent in the UK, Italy’s UniCredit falling 24 per cent and Spain’s Santander down 20 per cent.

          Sound as a pound

          Wads of British Pound Sterling banknotes are stacked in piles at the GSA Austria (Money Service Austria) company's headquarters in Vienna July 22, 2013. REUTERS/Leonhard Foeger/File Photo

          Winners and losers


          Who has profited and who has lost from sterling’s fall to its lowest level in 30 years

          What next for the currency?


          FT markets editor Michael Mackenzie answers post-Brexit questions

          JPMorgan, Deutsche Bank and Citi are the region’s strongest FICC players, followed by Goldman Sachs and BNP Paribas. The strongest equities players in the region are Morgan Stanley, UBS, Société Générale, Goldman and JPMorgan.

          The London-based analyst said foreign exchange desks could ultimately see pain from Brexit because the prolonged uncertainty about the terms of the UK’s future relationship with clients would result in lower trading activity over the medium term. Several bankers said Friday’s trading had showed the resilience of their systems, which managed to stay online despite the surge in trading.

          “We built the capacity and we had more than we needed,” said one senior executive whose institution saw four to five times normal volumes on forex and equities on Friday. “We will be looking very closely at how everything went on Friday, and what aspects performed well and what aspects might have gotten a bit tired.”

          Before the referendum, regulators made banks prepare for a rise in trading by stress-testing the systems and drafting in currency traders, salespeople and technology staff to work around the clock. Many of them ended up working for 36 hours straight.

          “When the unexpected happened, the infrastructure was up to the task . . . It all went very seamlessly,” said Mr Bindler of Citi.

          He said he expects trading volume in Europe to stay high for at least the next six months because of pent-up activity that was put off before the vote. “Now that it is in the past, people will execute a series of investment or divestment decisions. We expect to see Europe as the busiest of the three regions, with a lot of catch-up activity,” he said.

          Additional reporting by Philip Stafford in London

          HSBC’s chairman commits to UK base

          Posted on 30 June 2016 by

          ©Getty

          Douglas Flint, chairman of HSBC, has ruled out moving the bank’s headquarters away from London following the UK’s vote to leave the EU.

          The UK’s largest bank said in February it would keep its headquarters in London, an endorsement of the country’s attractiveness as a financial centre. The decision followed 10 months of internal debate about whether the bank would be better off with an overseas base, most likely in Hong Kong.

            At the City UK conference on Thursday, Mr Flint said the referendum result would not prompt another review of the bank’s base.

            “We said at the time we made the decision that we’d taken that [a Brexit] into consideration and that in the event of this outcome we would not call for that to be revisited.”

            Explaining its decision to stay in the UK earlier this year, HSBC said London was “one of the world’s leading international financial centres and home to a large pool of highly skilled, international talent”.

            However, the UK’s position has come into question following the EU vote, with implications for its ability to “passport” financial services across the continent.

            Mr Flint said on Thursday that London “continues to be the most important [foreign exchange centre] in the world”. He did not believe a Brexit would end the City’s status as a base for the renminbi.

            “I think it continues, whether it pauses I don’t know, but I think it continues because this is still the foreign exchange trading capital of currencies that have nothing to do with Europe so . . . the major trading currency in the world today is the dollar”.

            Asked about the implications of euro-denominated clearing shifting to the eurozone, he said: “The market will go where the liquidity, the legal system, the expertise, the cluster is.”

            The referendum vote would “not to any meaningful degree” affect HSBC’s hiring plans.

            Economic and trade uncertainty is the biggest Brexit threat

            A "Britain Stronger in Europe" campaigner hands out leaflets and stickers to pedestrians in London, U.K., on Monday, June 6, 2016. U.K. Prime Minister David Cameron said he'll hold a long-pledged referendum on the U.K.'s membership of the European Union on June 23. Photographer: Simon Dawson/Bloomberg

            It would be a struggle to replace current agreements quickly and favourably, writes Douglas Flint

            Before the referendum, the bank, which has 47,000 workers in the UK, said it could look to shift 1,000 jobs to Paris in the event of a Brexit.

            On Thursday Mr Flint said: “Our presence in Europe is well established; we have a very big bank in France, so we’ve got clarity as to what we’re doing in Europe and we’re pursuing that. This is the time to be reflective, not reactive.”

            The chairman called for “better clarity” on why Europe and the single market was good for the country. “The big issue is what is our relationship with Europe?” he said. “They clearly want to have access to this market and we clearly want to have access to that market.

            “The most important thing is we start with the presumption we need very full access to the single market and what will it take to deliver that.”

            A decision could then be taken on trade-offs. “It’s very difficult to think that we get absolutely everything that was on a wish list,” he warned.

            This week Moody’s, the rating agency, lowered the outlook for UK banks to negative.

            Laurie Mayers, associate managing director at Moody’s, said the downgrade was based on the expectation of lower economic growth and heightened uncertainty over the UK’s future trade relationship with the EU.

            Brexit gives Dombrovskis sway over banks

            Posted on 30 June 2016 by

            Valdis Dombrovskis©Reuters

            Valdis Dombrovskis

            Valdis Dombrovskis had a blunt message for Latvians when he took over as the country’s prime minister in the depths of a financial meltdown in 2009: “We are facing national bankruptcy. It’s going to be tough.”

            In a twist of fate — Britain’s shock vote to leave the EU — Mr Dombrovskis now finds himself in charge of bank regulation across Europe, and with a mandate to prevent a recurrence of the sort of crisis that rattled his Baltic nation.

              From next month, Latvia’s member of the European Commission will inherit the financial services brief sacrificed by Britain’s commissioner, Jonathan Hill, who resigned after the Leave vote. Mr Dombrovskis will also continue his current job of policing eurozone governments’ adherence to EU budget rules that were strengthened after the last crisis.

              Whatever Britain’s eventual relationship with Europe, the promotion means Mr Dombrovskis will be one of the most important rulemakers for the City of London. That is because EU officials and City executives believe that, for the sake of continuity, many EU financial regulations will remain in place in the UK even after a new trading arrangement is eventually secured. Meanwhile, any new EU rules will have to be taken into consideration for UK banks hoping to operate on the continent.

              “Unless the UK is prepared to burn all of its legislative bridges to the single market, Dombrovskis and his commission are likely to remain the primary legislators for the City,” said Simon Gleeson, a financial regulation lawyer at Clifford Chance in London.

              Asked about Mr Dombrovskis, several City bankers confessed they had not even heard of him before Mr Hill’s resignation. (One ventured hopefully that he represented “a clean slate”.)

              For Mr Dombrovskis, taking on a post in a turbulent time is nothing new. A bank run was under way as he was sworn in as prime minister, aged 37, in 2009. Unemployment surpassed 20 per cent while Latvia’s economy contracted by a fifth.

              Krišjānis Kariņš, who co-founded Latvia’s centre-right New Era party with Mr Dombrovskis, told the FT that rivals were keen to step aside and hand him the “hot potato” of guiding Latvia through a painful austerity programme. Mr Dombrovskis himself has described “being asked to pick up power off the floor”.

              “The plan was Dombrovskis would do it, accept the IMF loans, be hated for it and then the men would take over again,” Mr Kariņš says. Instead, he orchestrated an economic recovery and won three consecutive elections, becoming Latvia’s longest-serving prime minister since independence.

              Before that, Mr Dombrovskis’ main brush with public prominence had been a two-year stint as finance minister in the early 2000s and a year as chief economist of the Bank of Latvia. His background is in the sciences — he holds a masters degree in physics from the University of Latvia and has worked as a laboratory assistant in Germany.

              Former colleagues say his calm, technocratic style was well suited to the troubled times in which he took power. So were his frugal habits: his home in Riga is a flat in a Soviet-era apartment block.

              Will Brexit force foreign banks to leave the UK?

              Office lights are on in banks as dawn breaks behind the financial district of Canary Wharf, in London, Britain June 24, 2016. REUTERS/Neil Hall

              The loss of ‘passporting’ rights could see lenders move their headquarters from London

              While supporters praise him as a cool-headed leader whose ordinariness meant people could relate to him, some political rivals see it differently.

              Iveta Grigule, a MEP from the Union of Greens and Farmers party, describes Mr Dombrovskis as “very kind” but adds: “He will not be the person who will take brave and tough decisions.”

              She says his tough policy agenda in Latvia was a product of Mr Dombrovskis simply driving through diktats from the EU and the IMF, and that he “always tries to make some compromises” rather than lead. Officials who have worked with him challenge the assessment, saying he resisted key IMF demands, for example, on pensions.

              But what kind of financial services tsar will he be?

              For a man nicknamed “the teddy bear”, Mr Dombrovskis has proved to be a tough economic disciplinarian — and not just when it comes to wrenching Latvia’s economy back from the abyss. His willingness to administer tough medicine at home has underlined his insistence that eurozone countries should take hard steps to comply with EU debt and deficit targets.

              This has touched off a struggle in the Commission against the more lenient Pierre Moscovici, France’s commissioner and holder of the fiscal policy portfolio, and the assembly’s president, Jean-Claude Juncker.

              Brexit: live coverage

              All the latest news on the political and economic fallout from the Brexit vote

              City lobbyists are now wondering how Mr Dombrovskis’ experience of the crash will influence his thinking about financial rules and whether he will continue a Lord Hill agenda that emphasised the need to spur investment, in part by making regulation “more proportionate”.

              A key item in Mr Dombrovskis’ in-tray is the rollout of a European version of international rules aimed at preventing banks being too-big-to-fail.

              Some EU officials already see one likely change: Brussels’ dual approach to regulating financial services — one set of policies for the single market and one for the smaller eurozone — will increasingly merge. They expect more pressure on non-eurozone countries to voluntarily sign up to the eurozone’s “banking union”.

              Whatever these intentions, Krišjānis Kariņš insists that Mr Dombrovskis is an enthusiast for the single market and believer in liberal economics — not unlike his predecessor. Still, he has a message for any lobbyists who come knocking on the commissioner’s door: “Expect someone who will be as read-up and as well informed as you,” he says. “Don’t be surprised by that.”

              Pension watchdog rules out deal clearance

              Posted on 30 June 2016 by

              A BHS shop on Oxford Street in London, as the retailer is to disappear from the high street, resulting in the loss of up to 11,000 jobs, after administrators failed to find a buyer. PRESS ASSOCIATION Photo. Issue date: Thursday June 2, 2016. The business will be wound down and all BHS's 163 shops will close and be sold off to other retailers. See PA story CITY BHS. Photo credit should read: Lauren Hurley/PA Wire©PA

              Companies should not be forced to obtain clearance from the Pensions Regulator before undertaking corporate deals, the watchdog has told MPs probing the collapse of retailer BHS and its pension scheme.

              Lesley Titcomb, chief executive of the regulator, made the comments in a letter to the Work and Pensions Select Committee, one of two parliamentary committees scrutinising the failure the high street chain.

                When Sir Philip Green sold BHS for a £1 in 2015, the group’s pension scheme was underfunded and the retailer’s subsequent collapse has left many of the 20,000 current and former staff in the scheme facing steep falls in their retirement income.

                There is no requirement for companies to seek prior approval from the Pensions Regulator on planned corporate transactions, even if the deal involves a pension scheme which is significantly underfunded.

                Ms Titcomb said in the letter that in the “vast majority” of cases it would be “disproportionate” for prior clearance to be made mandatory.

                “Given the vital role of acquisitions and mergers in the UK economy . . . making such pre-clearance compulsory would raise significant and important questions, which would include the potential delay in key business decisions which are often time critical,” she wrote.

                “The threat of anti-avoidance action already concentrates minds in such scenarios, albeit there will always be some individuals who are prepared to take that risk.”

                Ms Titcomb added that a compulsory regime would have “significant” resource implications for the regulator and its levy payers, which support it financially.

                The Pensions Regulator is considering whether to use its anti-avoidance powers against Sir Philip, to settle the BHS scheme’s debt, which was last estimated to be £571m on a “buy out” basis.

                While not advocating a blanket requirement for companies to obtain prior clearance, Ms Titcomb said she did see a case for imposing a duty to involve the regulator where a pension scheme was significantly underfunded or where a transaction put the security of the scheme at risk.

                “This approach has struck the right balance,” said Richard Farr, managing director of Lincoln International, a specialist pension advisory firm.

                “Requiring all businesses to apply for clearance would impose on them a turgid and inefficient process, which can’t be good for the economy. Compulsory clearance should be targeted at the employers with the riskiest pension schemes.”

                Ms Titcomb also said it would be “useful” for the regulator to be given enhanced information gathering powers.

                Sherwood admits Goldman reputation not enhanced by BHS

                Michael Sherwood, Vice Chairman pf Goldman Sachs BHS hearings - RSS Business, Innovation and Skills Committee and Work and Pensions Committee Wednesday 29 June 2016

                US bank chiefs tell MPs they are reviewing whether to keep Sir Philip Green as a client

                “We think it would be useful to consider whether a more flexible information-gathering power, along with a general duty on parties to co-operate with the regulator, would improve the efficiency and effectiveness of our information gathering,” she said.

                “Additional information-gathering powers, for example, the ability to compel parties who we believe may have relevant information to submit to an interview with us, could also prove useful to our work.”

                Ms Titcomb also suggested that pooling the thousands of workplace pensions schemes in the UK, both defined benefit and defined contribution, should be explored.

                “Consolidation may yield significant benefits for members, sponsors and the PPF [Pension Protection Fund], as well as for TPR as we may be able to focus our regulation and target our efforts on a smaller pool of schemes,” she said.

                “This is a complex area but given the significant potential benefits we believe it is worthwhile exploring and have been in discussions with the DWP and PPF on this issue.”

                ECB keeps calm and carries on

                Posted on 30 June 2016 by

                Mario Draghi did not give the impression of a man — or a central bank — in panic mode©Reuters

                Mario Draghi did not give the impression of a man — or a central bank — in panic mode

                Brexit was the issue of the day when Mario Draghi addressed the European Central Bank’s annual conference in Sintra this week — but in his set piece speech the ECB president did not even mention the B-word.

                Since Mr Draghi is famed for his ad-libs, his decision to stick to planned remarks on the international monetary system says much about how the eurozone’s monetary guardians view the UK’s vote to leave the EU.

                  In previous brief comments, the ECB president had characterised his reaction to the vote as one of sadness. But he did not give the impression of a man — or a central bank — in panic mode.

                  The script did not need to be ripped up, as it did in the summer of 2012 in London when Mr Draghi said he would do “whatever it takes” to save the eurozone from collapse. The response this time around was more a case of that supposedly British virtue: keeping calm and carrying on.

                  ECB officials acknowledge it is too early to properly judge the impact of Brexit. But the reaction of holders of bank stocks in Italy and Spain, which slumped in the aftermath of the referendum, could herald a reversal in the eurozone’s economic fortunes.

                  On Tuesday, Italian banks shares fell sharply again after Matteo Renzi, the Italian prime minister, failed to persuade the EU to allow Rome to go ahead with a state bailout of its lenders, despite his invocations of the Brexit market turmoil. Ignazio Visco, Italy’s central bank governor, remained at the conference at the luxurious Penha Longa resort as stocks slumped.

                  While spreads on Italian government bonds have been well contained, fears persist of a more pronounced banking crisis in the Eurozone’s third-largest economy, amid worries that Brexit could be followed by other systemic shocks.

                  This week the US arms of two of the eurozone’s biggest banks, Deutsche Bank and Santander, failed the Federal Reserve’s stress tests again, raising questions about the banks’ operations in the US.

                  Chart: Italian bank stocks

                  For now the ECB is not alone in what the coming weeks and months could prove to be a dangerous sense of complacency — its view matches private sector forecasts that suggest the UK’s decision to quit the union could cost the eurozone 0.5 percentage points of gross domestic product over three years. While that is a setback for an economy that remains weak, it is no disaster.

                  Even at the height of market turmoil over the past week, there were no serious bouts of liquidity shortages. While ECB executive board member Benoît Coeuré described Brexit as a “major shock”, there was little sign that the ECB was about to unleash a fresh round of rate cuts or boost its mass bond-buying quantitative easing package. It remains in wait-and-see mode.

                  Will Brexit force foreign banks to leave the UK?

                  Office lights are on in banks as dawn breaks behind the financial district of Canary Wharf, in London, Britain June 24, 2016. REUTERS/Neil Hall

                  The loss of ‘passporting’ rights could see lenders move their headquarters from London

                  The blow would be much more damaging for Britain itself, which Vítor Constâncio, Mr Draghi’s deputy, said on Wednesday was “not a major economic area.” Some thought a more important milestone for the global economy was whether the US Federal Reserve would raise interest rates or be swayed by Brexit to stand pat.

                  Mr Draghi seemed less sanguine than others about what could unfold and his reluctance to speak out on Brexit may have owed as much to caution about how appropriate it would be for an unelected technocrat to air his views on such a politically charged issue.

                  The ECB president displayed such caution throughout the referendum debate, in part because of fears that any plea by him to remain would have aided the leavers more than those in the UK who campaigned to stay in.

                  The big worry is still that a Brexit could trigger a serious bout of uncertainty about the European project. Should political tensions shift from the UK to the continent, the nascent recovery in investment in the single currency area would fall flat and there would be little central bankers could do to fix it.

                  Mr Constâncio gave little away about what the ECB could do if the UK’s decision to quit the EU triggered a broader wave of uncertainty across Europe. “If the consequences would be more severe, what could be done? It’s with other authorities, it’s not with the ECB.”

                  The ECB’s top brass will, however, want to play a role in shaping Europe’s political response — soon after he had delivered his remarks, Mr Draghi left the rarefied air of Sintra for the hum of Brussels.

                  The ECB president has already made it clear that his institution favours much more federalism. Events could yet push Mr Draghi to speak out more boldly in the coming months.

                  Brexit — how will central banks respond?

                  (L to R) Governor of the Bank of England Mark Carney, Chair of the Board of Governors of the Federal Reserve System Janet L. Yellen, European Central Bank President Mario Draghi, and US Secretary of the Treasury Jacob J. Lew leave following a photo session of the G7 Finance Ministers and Central Bank Governors' Meeting in the hot spring town in Sendai on May 20, 2016. Finance ministers and central bankers from the G7 kick off meetings in Japan on May 20 as they look to breathe life into the wheezing global economy. / AFP / KAZUHIRO NOGI (Photo credit should read KAZUHIRO NOGI/AFP/Getty Images)

                  Policymakers’ existing struggle with low productivity and high debt has become more complicated

                  On the sidelines of the ECB gathering, held in the hills outside Lisbon — at what was once the holiday resort of the Portuguese royal family — all the talk was about events closer to the ground.

                  Two of the star speakers in a conference that had quickly established itself as a prime fixture on a circuit that is full of them had already pulled out. Janet Yellen and Mark Carney, the respective heads of the US Federal Reserve and the Bank of England — had stayed home to mind the markets. The session they skipped was replaced with an emergency panel on Brexit.

                  The outcome of the vote had left those who did make the trip full of sorrow. They had worked in European institutions, and felt a sense of loss for British nationals they had collaborated with.

                  Some wore the expression of jilted lovers who could not understand quite why they had been dumped. Those from the UK were apologetic. David Vines, an academic at the University of Oxford, tried to reassure the audience that the issue was not about the EU but the UK — he was, he said, “embarrassed” to come from the country that had unleashed this shock on the rest of the world.

                  UniCredit brings back Mustier as chief

                  Posted on 30 June 2016 by

                  Jean-Pierre Mustier, CEO of Societe Generale Corporate and Investment Banking attends a press conference, 24 January 2008 in La Defense outside Paris. Trading in shares of Societe Generale was supended, 24 January 2008, after the French banking giant announced a sole trader was responsible for racking up 4.9 billion euros (7.15 billion dollars) in losses. Euronext, the operator of the Paris Bourse, told AFP it was not sure when trading would be allowed to resume in shares of Societe Generale, which closed just over four percent lower on Wednesday at 79.08 euros a share AFP PHOTO MARTIN BUREAU (Photo credit should read MARTIN BUREAU/AFP/Getty Images)©AFP

                  Jean-Pierre Mustier had been viewed as a likely candidate to succeed Daniel Bouton as head of SocGen

                  UniCredit, Italy’s biggest bank by assets, has lured back Jean-Pierre Mustier, its former investment banking chief, to become its next chief executive.

                  Bankers briefed on the plan said the group is due to announce the appointment of the Frenchman later on Thursday, after the board voted unaminously in favour of the move. Mr Mustier is expected to start in his new role after a board meeting on July 11.

                    His ascent to the CEO job at UniCredit represents a comeback for one of Europe’s most experienced bankers.

                    London-based Mr Mustier left UniCredit, where he was head of the corporate and investment banking division, 18 months ago to join Tikehau, an asset management boutique. He was previously head of investment banking at Société Générale, where he was the former boss of Jérôme Kerviel, the rogue trader.

                    Mr Mustier had been considered the person most likely to succeed Daniel Bouton as head of SocGen until his career was halted when the Kerviel scandal broke.

                    His appointment by UniCredit now means that two Frenchmen will lead Italy’s two largest companies, after Philippe Donnet was made CEO of Generali, the insurer, in March.

                    Unicredit’s decision comes more than five weeks after Federico Ghizzoni stepped down as chief executive after months of investor dissatisfaction. Mr Mustier faces the task of turning round a bank with about €80bn in bad loans. Senior bankers say the institution has lost its way strategically and suffered protracted board infighting.

                    UniCredit shares have lost 63 per cent of their value this year on concerns about its capital, governance and strategy. Its common equity tier one capital fell to 10.5 per cent in March, lagging behind peers. Analysts estimate it could need to raise €5bn to €10bn of additional capital.

                    “A credible CEO will surely ‘kitchen sink’ and raise capital, and potentially sell assets,” said Johan De Mulder, a Bernstein analyst, in a recent note.

                    The problems at UniCredit, Italy’s only globally significant financial institution, have weighed heavily on the wider Italian financial sector, which has seen its value halve this year on concerns about the extent of non-performing loans amid weak economic growth.

                    Shares in UniCredit suffered their latest suspension on Thursday after falling to fresh four-year lows when a proposal by the Italian government to recapitalise Italy’s banks was rebuffed by Berlin and Frankfurt.

                    In May, the bank reported that first-quarter profits fell by a fifth to €406m because lower revenues and restructuring costs had offset a drop in provisions for bad loans.