RBS share drop accelerates on stress test flop

Stressed. Shares in Royal Bank of Scotland have accelerated their losses this morning, falling over 4.5 per cent after the state-backed lender came in bottom of the heap in the Bank of England’s latest stress tests. RBS failed the toughest ever stress tests carried out by the BoE, with results this morning showing the lender’s […]

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Capital Markets, Financial

BGC Partners eyes new platform to trade US Treasuries

BGC Partners plans to launch a new platform to trade US Treasuries early next year, in a bid to return to a market in the middle of evolution, according to people familiar with the plans.  The company, spun out of Howard Lutnick’s Cantor Fitzgerald in 2004, sold eSpeed, the second-largest interdealer platform for trading Treasuries, […]

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Sales in Rocket Internet’s portfolio companies rise 30%

Revenues at Rocket Internet rose strongly at its portfolio companies in the first nine months of the year as the German tech group said it was making strides on the “path towards profitability”. Sales at its main companies increased 30.6 per cent to €1.58bn while losses narrowed. Rocket said the adjusted margin for earnings before […]

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Renminbi strengthens further despite gains by dollar

The renminbi on track for a fourth day of firming against the dollar on Wednesday after China’s central bank once again pushed the currency’s trading band (marginally) stronger. The onshore exchange rate (CNY) for the reniminbi was 0.28 per cent stronger at Rmb6.8855 in afternoon trade, bringing it 0.53 per cent firmer since it last […]

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Nomura rounds up markets’ biggest misses in 2016

Forecasting markets a year in advance is never easy, but with “year-ahead investment themes” season well underway, Nomura has provided a handy reminder of quite how difficult it is, with an overview of markets’ biggest hits and misses (OK, mostly misses) from the start of 2016. The biggest miss among analysts, according to Nomura’s Sam […]

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Categorized | Banks

Swedish banks: house mafia

Posted on November 25, 2016

Crazy-low interest rates, debt-to-income ratios at record highs and millennials revolting over house prices. Not Stockwell — Stockholm. Young Londoners have it easy compared with their peers in the Swedish capital. Sweden’s go-go property market offers a stark contrast with its sober banks. They are among the best capitalised in Europe. As the Riksbank’s latest financial stability report makes plain, they had better be.

Sweden’s house price boom — prices have trebled nationwide since the mid-1990s, and are up sevenfold in the capital — recalls the run-up to the country’s spectacular property bust in the early 1990s. That led to a banking crisis. To the casual observer, there are ample reasons to worry. The banking system is oligopolistic. The large banks — Handelsbanken, Nordea, Swedbank and SEB — account for four-fifths of lending, are deeply interconnected and massively exposed to the mortgage market both in terms of lending (70 per cent of loans) and funding (through covered bonds). The Riksbank has highlighted “significant structural liquidity risks” due to this reliance on wholesale finance. The average Swede has debt equivalent to 180 per cent of disposable income.

The banks have high core tier one capital ratios. But the risk weights on their assets are calculated according to internal models. Scope Ratings points out that since 2007, average risk weight intensity for the four major banks has declined from 37 per cent to 20 per cent. Banks say this is down to strong risk management; annual loan losses at Handelsbanken, for example, have averaged 7 basis points since 2003.

The Riksbank is calling for yet bigger capital buffers and an increase in the leverage ratio. Investors are unlikely to pay it much heed. Swedish banks pay generous dividends and are efficient. Shares have outperformed the Stoxx Europe 600 Banks index by nearly two-thirds over the past five years. The punchbowl is full, the party will go on.

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