China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

Continue Reading

Capital Markets

Mnuchin expected to be Trump’s Treasury secretary

Donald Trump has chosen Steven Mnuchin as his Treasury secretary, US media outlets reported on Tuesday, positioning the former Goldman Sachs banker to be the latest Wall Street veteran to receive a top administration post. Mr Mnuchin chairs both Dune Capital Management and Dune Entertainment Partners and has been a longtime business associate of Mr […]

Continue Reading


Financial system more vulnerable after Trump victory, says BoE

The US election outcome has “reinforced existing vulnerabilities” in the financial system, the Bank of England has warned, adding that the outlook for financial stability in the UK remains challenging. The BoE said on Wednesday that vulnerabilities that were already considered “elevated” have worsened since its last report on financial stability in July, in the […]

Continue Reading


China stock market unfazed by falling renminbi

China’s renminbi slump has companies and individuals alike scrambling to move capital overseas, but it has not damped the enthusiasm of China’s equity investors. The Shanghai Composite, which tracks stocks on the mainland’s biggest exchange, has been gradually rising since May. That is the opposite of what happened in August 2015 after China’s surprise renminbi […]

Continue Reading


Hard-hit online lender CAN Capital makes executive changes

The biggest online lender to small businesses in the US has pulled down the shutters and put its top managers on a leave of absence, in the latest blow to an industry grappling with mounting fears over credit quality. Atlanta-based CAN Capital said on Tuesday that it had replaced a trio of senior executives, after […]

Continue Reading

Categorized | Banks

US banks avoid plight of European peers

Posted on October 3, 2016

Fish-eye view of Wall Street buildings - New York City, USA. Image shot 2008. Exact date unknown....B1X52W Fish-eye view of Wall Street buildings - New York City, USA. Image shot 2008. Exact date unknown.

For US banks, the big crisis-era litigations are mostly in the rear-view mirror

    Deutsche Bank’s transatlantic influence is falling in more ways than one — last week proved the German lender cannot even infect US banking stocks any more. Europe’s banks felt every blow almost as painfully as Deutsche, falling sharply during a torrid few days on the European stock market.

    On Friday morning, three of the region’s biggest — Credit Suisse
    , Barclays
    and BNP Paribas
    — lost more than 4 per cent of their market value as investors’ concerns about Deutsche spilled over into the sector. All of them then rebounded on rumours that the German bank was close to settling with US enforcers over mortgage securities allegations. On Monday, the German exchange was closed for a holiday, but Deutsche’s US depository receipts fell a little, as did some of the European banks.

    But Wall Street enjoyed much more stable trading. Here’s why.

    The US banks are in decent shape 

    Eight years on from the financial crisis, the US banking industry has record capital, record amounts of liquidity and each year undergoes a pretty severe stress test. After the most recent round of tests, in June, two banks — both European — had their capital-return plans rejected, while Morgan Stanley
    was given a conditional clearance, and told to fix flaws by the end of the year. 

    Since the first run of stress tests in 2009, the big US banks have added more than $700bn in common equity tier one capital between them. Their aggregate capital ratio now stands at 12.2 per cent of risk-weighted assets, up from 5.5 per cent then. Twenty of the eurozone’s biggest banks have a similar average CET1 ratio — about 12.2 per cent — but there is great variation among banks and countries. Deutsche’s, for example, was just 10.8 per cent at the end of June, while the Netherland’s ABN Amro had a CET1 ratio of 16.2 per cent.

    In the US, there is more uniformity. Every big bank is now ahead of the minimum capital levels required by 2019 under the Basel III standards, notes Jason Goldberg, an analyst at Barclays. 

    “The [US] banking system is multiples safer than it was pre-crisis,” he says. 

    Chart: Banks balance sheet strength

    Litigation worries are (largely) behind them 

    Investors in Deutsche Bank
    are wondering how much the US Department of Justice will wring out of the bank after a probe into its sales of mortgage-backed securities. Several other European banks — including Barclays and Credit Suisse — are still awaiting fines for that same issue, so a big number for Deutsche has direct implications for them.

    Chart: Deutsche Bank data

    However, for the US banks the mortgage fine issues and big crisis-era litigation are mostly in the rear-view mirror. Bank of America
    ’s legacy assets and servicing division, for example, which was formed in the wake of the crisis to accommodate the bank’s toxic mortgage-related assets and non-core businesses, had litigation expenses of $800m last year — about one-eighth the yearly average between 2011 and 2014. 

    Person in the news

    John Stumpf, the labrador of Main Street

    Person in the News web - John Stumpf

    The chief executive made Wells Fargo the biggest bank but now faces scandal, writes Gary Silverman

    New risks are always cropping up, of course. Wells Fargo
    has been under fire for its fake-accounts scandal, with senators last week appealing to the Securities and Exchange Commission to investigate whether the bank should have alerted investors to its sacking of more than 5000 people over five years, and whether it should have done a better job of protecting whistleblowers. Other regulators including the Federal Reserve are “piling on”, says Kevin Barker, an analyst at Piper Jaffray, saying they will be studying other banks’ sales practices. 

    But for the US industry as a whole, the chances of further big hits appear to be receding. Every quarter, Goldman Sachs
    takes a guess at how much it could lose in litigation proceedings above its total reserves for litigation (which it does not disclose). In the second quarter this year, its maximum “reasonably possible aggregate loss” was $2bn — down from $5.9bn a year earlier. 

    Regulators have a strong grip 

    The regulatory landscape is clear in the US: the Fed is in charge. Over the past six years the central bank has deprived the big banks of much of their operational freedom by twiddling the dials on its annual stress test to ensure, if they want to remain in certain lines of business, it is going to cost them through higher capital charges. 

    What is more, the direction and scale of the dial twiddling tends to change each year, forcing the banks to err on the side of caution in their requests to return capital through dividends and buybacks. That is a deliberate strategy to keep lenders guessing, on the part of Daniel Tarullo, the Fed’s lead banking supervisor. 

    “The banks are likely to be in the star chamber for a few more years, where we think they will never be quite certain what exactly the inquisitor wants,” says Chris Kotowski, analyst at Oppenheimer. 

    Last week Mr Tarullo tightened the screws further, saying the eight US banks considered most critical to the financial system — Bank of America, Bank of New York Mellon
    , Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, State Street
    and Wells Fargo — would have to build even bigger capital buffers against losses, perhaps from next year. 

    The banks, and some lawmakers, have bridled against this, arguing that the Fed has been aloof and impervious to reason. Congresswoman Ann Wagner, a Republican from Missouri, last week asked Janet Yellen, the Fed chair, if the central bank would stop to consider the costs of its policies, as well as the benefits. “Shouldn’t the Fed at least attempt to understand the cumulative effects its rules are having on the economy?” she asked. 

    Ms Yellen replied: “Well, we are carefully monitoring how our regulations are working and, by and large, my conclusion is that we have a safer and sounder banking system.”

    That’s a “no” then. 

    Contagion risk is limited, because no one believes Deutsche will fail 


    Deutsche Bank reflects shattered ambition and Schadenfreude

    The headquarters of Deutsche Bank, Frankfurt, Germany

    Bid to forge new identity in investment banking has turned spectacularly sour, writes David Marsh

    Despite all the talk in recent years about ensuring big banks can collapse without state assistance, many on Wall Street see it differently. If push really comes to shove, they say, the German government will stand behind Deutsche. The Basel Committee on Banking Supervision has judged Deutsche the third most systemically important bank on Earth, they note — level with Barclays, BNP Paribas and Citigroup. Would Berlin really walk away? 

    “They will blink at the eleventh hour, so if you’re Goldman, say, dealing with Deutsche, why would you stop?” says one London-based analyst. “If you have a repo line with Deutsche, you don’t feel like you’ll lose money.” 

    A New York luxury real estate developer, and big client of the bank, put it slightly differently. “Deutsche Bank — you know what that stands for? That stands for The Bank of Germany. I don’t believe The Bank of Germany is ever going out of business.”

    Additional reporting by Laura Noonan in Dublin