Currencies

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 […]

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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 […]

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Banks

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 […]

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Currencies

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 […]

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Financial

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 […]

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Archive | Banks

RBS: ‘additional actions may be required’ after stress test failure

Posted on 30 November 2016 by

Royal Bank of Scotland said it has agreed a “revised capital plan” of cost reductions and asset sales and said “additional management actions may be required” to strengthen its balance sheet after emerging as the biggest failure in the Bank of England’s annual stress tests.

The bank said it would implement an “array of capital management actions” to supplement capital generation from its core businesses, including decreasing its cost base, reducing risk-weighted assets, the run-down and sale of non-core loan portfolios and “proactive management of undrawn facilities”.

Ewen Stevens, RBS chief financial officer, said:

We are committed to creating a stronger, simpler and safer bank for our customers and shareholders. We have taken further important steps in 2016 to enhance our capital strength, but we recognise that we have more to do to restore the bank’s stress resilience including resolving outstanding legacy issues.

US politics, bond yields and Brexit all test financial stability, says BoE

Posted on 30 November 2016 by

The result of the US election earlier this month 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.

Vulnerabilities that were already considered “elevated” by the BoE have got worse since its last report on financial stability in July in the weeks following the UK’s vote to leave the European Union, the central bank said on Wednesday in its assessment of risks to the financial system.

The election of Donald Trump as US president has pushed up yields on sovereign bonds from advanced economies, while also weighing on expectations around global trade.

“The US election has reinforced existing vulnerabilities,” the BoE’s twice-yearly Financial Stability Report reads. “Following the US election, there have been significant changes in global asset prices. Expectations of expansionary US fiscal policy have contributed to an increase in advanced economy sovereign yields, reversing much or all of their falls observed earlier in the year.”

UK banks are particularly exposed to China, Hong Kong and emerging markets — around 20 per cent of UK banks’ total assets. The report highlighted the difficulty of emerging markets servicing their debts in the new environment.

Financial firms sharply pulling out of London because of Brexit could also threaten financial stability — both that of the UK and of Europe as a whole, the BoE added.

“If any such adjustments take place in a short timeframe, there could be a greater risk of disruption to services provided to the European real economy, which could spill back to the UK economy through trade and financial linkages,” the report reads.

The BoE also flagged risks from European banks — particularly Italian ones — which are suffering from various headwinds and have questions over the viability of their business models. The report also highlighted the various unresolved misconduct investigations hanging over European banks.

But despite the challenges the BoE considers the UK system to be strong enough; it is happy with the overall level of capital in the banking system following Wednesday’s publication of its stress tests — even though Royal Bank of Scotland failed and vulnerabilities were highlighted at Barclays and Standard Chartered.

RBS emerges as biggest failure in tough UK bank stress tests

Posted on 30 November 2016 by

Royal Bank of Scotland has emerged as the biggest failure in the UK’s annual stress tests, forcing the state-controlled lender to present regulators with a new plan to bolster its capital position by at least £2bn.

Barclays and Standard Chartered also failed to meet some of their minimum hurdles in the toughest stress scenario ever modelled by the Bank of England, but they were judged to have sufficient capital-raising plans already in place.

The outright failure of RBS — partly caused by heavy litigation costs still hanging over the bank — underlines how it is still struggling to regain a stable footing eight years after being bailed out by the taxpayer in the financial crisis.

It is also a blow to UK government, which wants to start selling down its 73 per cent stake in the bank, and shareholders, who had hoped for the resumption of dividend payments.

RBS had its revised capital plan accepted overnight by the BoE after it suffered the second-highest ever percentage fall in capital under the stressed scenario after the Co-operative Bank in 2014.

RBS shares opened down 2.3 per cent after the news on Wednesday morning.

Overall, the BoE said the results showed the banking system had continued to increase its overall levels of capital and came out of the stressed scenario with stronger balance sheets than in previous years.

RBS, however, was the only bank to fall below the minimum hurdle rate even after “assumed management actions” but before the presumed benefit of converting its loss-absorbing hybrid debt know as alternative tier one (AT1) securities.

In the stressed scenario, RBS’s common equity tier one ratio — a measure of capital to risk-weighted assets that is the main benchmark of banking strength — fell from 15.5 per cent to 5.9 per cent after management actions but before AT1 conversion. That is below its 6.6 per cent hurdle rate and its 7.3 per cent “systemic reference point” — a second, more stretching target set for systemically important banks.

“The stress test demonstrates that RBS remains susceptible to financial and economic stress,” the BoE said. “Based on RBS’s own assessment of its resilience identified during the stress-testing process, RBS has already updated its capital plan to incorporate further capital strengthening actions and this revised plan has been accepted by the PRA board.”

RBS said in a statement that its revised plan was made up of “an array of capital management actions”.

These included “further decreasing the cost base of the bank; further reductions in RWAs [risk-weighted assets] across the bank; further run-down and sale of other non-core loan portfolios in relation to our personal and commercial franchises; reduction in certain non-core commercial portfolios in commercial banking; and the proactive management of undrawn facilities in 2017”.

It added that “additional management actions may be required until RBS’s balance sheet is sufficiently resilient to stressed scenarios”.

Ewen Stevenson, finance director, said: “We are committed to creating a stronger, simpler and safer bank for our customers and shareholders. We have taken further important steps in 2016 to enhance our capital strength, but we recognise that we have more to do to restore the bank’s stress resilience including resolving outstanding legacy issues.”

The BoE said Barclays and StanChart also fell below their hurdle rates before management actions and conversion of AT1 securities. But in Barclays case the regulator was confident that its capital plan — including selling much of its African subsidiary — would be enough to fix its shortfall. In StanChart’s case, it said the bank had recently issued AT1 securities that would resolve its shortfall.

Lloyds Banking Group, HSBC, Nationwide and Santander UK all passed the stress test, which the BoE said hit riskier corporate loans harder than residential mortgage books.

The BoE toughened the tests from the previous two years and introduced higher individual targets for each bank — including an extra hurdle rate for the most systemically important lenders — instead of a standard hurdle rate.

BoE governor Mark Carney said on Wednesday: “We are pleased to see the banks will have resilience consistent with the ability to withstand what’s a very severe shock [modelled in the stress tests]. ‘Withstand’ means to being able to meet the demand for borrowing, for loans, for mortgages in that scenario — so growing lending in this scenario despite being hit with all this shocks. That’s what we want to see.”

He said RBS had made “a lot of progress over the last few years” in its core business of serving UK households and businesses. “Its challenge is that it still has legacy issues, misconduct costs, non-core assets and impaired assets. The orders of magnitude of their plans are much bigger than the size of the shortfall highlighted in the stress test.”

This year the test modelled the impact of a sharp contraction in Chinese and Hong Kong growth, with an overall 1.9 per cent contraction of the global economy, combined with the knock-on effect of emerging market currencies depreciating against the US dollar. It also examined the consequences of a 31 per cent fall in UK house prices over a five-year timeframe.

Steven Hall, banking partner at KPMG, said the banks’ performance was worse than expected. “All banks started this test in a better place than they have previously but this year’s test is the most severe we’ve seen. As predicted misconduct costs have weighed heavy on results.”

RBS emerges as biggest failure in BoE stress test

Posted on 30 November 2016 by

Royal Bank of Scotland has emerged as the biggest failure in the UK’s annual stress tests, forcing the state-controlled lender to present regulators with a new plan to bolster its capital position by at least £2bn.

Barclays and Standard Chartered also failed to meet some of their minimum hurdles in the toughest stress scenario ever modelled by the Bank of England, but they were judged to have sufficient capital-raising plans already in place.

The outright failure of RBS – partly caused by heavy litigation costs still hanging over the bank – underlines how it is still struggling to regain a stable footing eight years after being bailed out by the taxpayer in the financial crisis.

RBS presented its revised capital plan to the BoE overnight after the bank, which is 73 per cent owned by the state, suffered the second-highest ever percentage fall in capital under the stressed scenario after the Co-operative Bank in 2014.

Overall, the BoE said the results showed the banking system had continued to increase its overall levels of capital and came out of the stressed scenario with stronger balance sheets than in previous years.

RBS, however, was the only bank to fall below the minimum hurdle rate even after “assumed management actions” but before the presumed benefit of converting its loss-absorbing hybrid debt know as alternative tier one (AT1) securities.

In the stressed scenario, RBS’s common equity tier one ratio – a measure of capital to risk-weighted assets that is the main benchmark of banking strength – fell from 15.5 per cent to 5.9 per cent after management actions but before AT1 conversion. That is below its 6.6 per cent hurdle rate and its 7.3 per cent “systemic reference point” – a second, more stretching target set for systemically important banks.

“The stress test demonstrates that RBS remains susceptible to financial and economic stress,” the BoE said. “Based on RBS’s own asssessment of its resilience identified during the stress-testing process, RBS has already updated its capital plan to incoroporate further capital strengthening actions and this revised plan has been accepted by the PRA board.”

The BoE said Barclays and StanChart also fell below their hurdle rates before management actions and conversion of AT1 securities. But in Barclays case the regulator was confident that its capital plan – including selling much of its African subsidiary – would be enough to fix its shortfall. In StanChart’s case, it said the bank had recently issued AT1 securities that would resolve its shortfall.

Lloyds Banking Group, HSBC, Nationwide and Santander UK all passed the stress test, which the BoE said hit riskier corporate loans harder than residential mortgage books.

The BoE toughened the tests from the previous two years and introduced higher individual targets for each bank – including an extra hurdle rate for the most systemically important lenders – instead of a standard hurdle rate.

This year the test modelled the impact of a sharp contraction in Chinese and Hong Kong growth, with an overall 1.9 per cent contraction of the global economy, combined with the knock-on effect of emerging market currencies depreciating against the US dollar. It also examined the consequences of a 31 per cent in UK house prices over a five-year timeframe.

In a statement following the stress tests, StanChart said it had a “strong and liquid balance sheet”, with the overall results demonstrating the lender’s “resilience to a severe global stress scenario”.

RBS share drop accelerates on stress test flop

Posted on 30 November 2016 by

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 equity tier one ratio — a measure of capital to risk-weighted assets that is the main benchmark of banking strength — fell from 15.5 per cent to 5.9 per cent after management actions but before AT1 conversion. This came in below a 6.6 per cent hurdle rate and a 7.3 per cent “systemic reference point” set by the bank.

Following the results, RBS has submitted plans to bolster its capital position by at least £2bn – a move that was welcomed by BoE Mark Carney this morning.

Read more: BoE stress tests – all you need to know

Banking app targets millennials who want help budgeting

Posted on 30 November 2016 by

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 into debt.

Loot already offers a prepayment card in some UK universities. This week it is launching an account into which salaries can be paid and a contactless debit card. The fee-free account does not pay interest and will allow two cash withdrawals a month at the outset, followed by a £1 fee per time.

The Loot app permits customers to set a budget or savings goal and then track their spending, sending notifications on how much can be spent during the day to stay on course.

Customers can compare their spending with peers, and are offered discounts at retailers and coffee shops based on their spending habits. Loot will share spending data anonymously, in return for commission.


Loot founder Ollie Purdue, a 23-year-old law graduate, wanted to create “an app that said: you can spend this much today” after regularly running out of cash when he was studying © Loot Bank

“I realised at university that I had a student loan and worked in a shop and yet every month I would somehow run out of cash,” Mr Purdue said. “My bank app told me my balance and that was about it. I wanted to know how much was I spending and whether it was normal. I wanted an app that said: you can spend this much today.”

Unlike the app-based “challenger” banks that are attempting to compete with high street lenders, Loot does not have a banking licence.

Instead of applying for regulatory approval in the UK, which allows banks to gather customer deposits and lend them out, Loot has a partnership with Wirecard, a regulated German payment processing company, to hold customer cash.

Mr Purdue said that applying for a licence was time-consuming, expensive and involved continuing regulatory compliance that made it harder to turn a profit.He said the arrangement with the UK division of Wirecard means customers’ cash is ringfenced and not lent out.

There are limitations. Customer deposits are not covered by the Financial Services Compensation Scheme and the Loot bank account cannot offer an overdraft, unless it partners with another company.

Loot will also offer other services — such as international money transfers — for low fees, it said.

Some 23,000 people have signed up for the account ahead of the launch, Mr Purdue said. Loot has publicised itself using social media sites such as Instagram.

Mr Purdue said he pitched the idea to the chief executives of the largest high street banks and requested meetings, but the lenders declined his requests. They told him their customer data were not accessible enough for the project to work or that mobile apps were not a priority, prompting Mr Purdue to launch Loot.

A number of venture capital firms have backed the app, including Speedinvest — which has supported Holvi, a money management service for businesses — and Global Founders Capital, which has backed Iwoca, a small business lender. To date, Loot has raised more than £4.2m.

Barclays: life in the old dog yet

Posted on 30 November 2016 by

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

Those incurable optimists on Threadneedle Street envisaged a severe world recession, a financial shock and, for all we know, plagues of locusts. Barclays undershot its main 7.8 per cent target for equity as a proportion of risk-weighted assets in the war games, even after projected dividend and coupon cuts. However, the bank would have weathered the apocalypse by half a percentage point after hybrid bonds converted to equity.

Despite the skinniness of that margin, the Old Lady did not require chief executive Jes Staley to rework his numbers, a process that might have raised the possibility of a cash call. He apparently got credit for an anticipated one percentage point increase in headline capital, currently 11.6 per cent, reflecting the sale of shares in Barclays Africa and a noncore asset rundown. Just as well. He got no credit at all for any ability to lift capital in a crisis through managerial ability.

These days, central bankers are immune to the charisma of Barclays bosses. The City, which is more impressionable, has warmed to Mr Staley. His vision of a bank and a credit card business serving corporate and retail clients on either side of the Atlantic has coherence. The shares have been lifted by enthusiasm for Wall Street banking following Donald Trump’s presidential win, pricing them at a substantial premium to former glamour stock Lloyds.

Most of the misconduct issues Barclays now enumerates at the back of results statement are of mature enough vintages to merit the title “legacy” too often applied to anything bank bosses feel embarrassed about. Analysts expect steady step-ups in profits over the next few years. With an investment bank in the mix, the real numbers will be volatile. But the mood around Barclays is better than it has been for years. Give the old dog a stroke. There’s life in him yet.

jonathan.guthrie@ft.com

RBS falls 2% after failing BoE stress test

Posted on 30 November 2016 by

Royal Bank of Scotland shares have slipped 2 per cent in early trading this morning, after the state-controlled lender emerged as the biggest loser in the Bank of England’s latest round of annual stress tests.

The lender has now given regulators a plan to bulk up its capital levels by cutting costs and selling assets, worth at least £2bn.

Speaking on Wednesday, Mark Carney, governor of the BoE, praised RBS’s progress and welcomed plans to raise its capital levels by an “order of magnitude much bigger than the size of the shortfall” revealed in the stress tests.

Barclays and Standard Chartered also failed to meet some of the BoE’s minimum hurdles but will not be asked to submit any fresh plans to raise capital.

Here’s what bank shares are doing this morning:

  • RBS falls 2.3 per cent to 192p
  • Barclays shares rise 0.1 per cent to 214p
  • Standard Chartered down 0.5 per cent at 628p
  • Lloyds climbs 1.19 per cent to 58.5p
  • HSBC up 0.17 per cent to 632p

Read more: BoE stress tests – all you need to know

Basel Committe fail to sign off on latest bank reform measures

Posted on 30 November 2016 by

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 said a key element will have to be decided later -meaning the Basel Committee on Banking Supervision will likely miss a self-imposed target of completing the reform package by the end of the year.

At issue is how banks can use their internal models to determine the riskiness of their loans, an area on which US and European policymakers have publicly clashed on.

The reforms are an attempt to stop banks gaming rules put in place in the wake of the financial crisis, known as Basel III. Banks argue the reform package amounts to another capital-raising exercise by the backdoor, dubbing it “Basel IV”- something policy makers strongly push back against.

The US – at least under its current administration – is pushing for output floors, which would restrict banks’ use of models to assess their loan books. But European banks and politicians have warned that such a measure will disproportionately hit their balance sheets since European banks hold most of their mortgages themselves whereas US banks typically sell them on.

While the Chile talks forged an agreement around output floors, there is still no consensus on what level they should be set at, a senior Basel Committee official said on Wednesday.

“I expect an output floor will be part of our package of reforms. It will be based on the standardised approaches and the final calibration of the floor is subject to endorsement by the GHoS,” said Stefan Ingves, chairman of the Basel Committee who is also governor of the Swedish central bank.

GHoS is the Basel Committee’s supervisory board and is chaired by Mario Draghi, governor of the European Central Bank. The board is next expected to meet in January – although it could convene again before the end of the year – meaning no clarity on the final level of an output floor will happen until then. The committee had pledged for at least the last two years to finish the reforms by the end of 2016.

Mr Ingves’s speech, published after the meeting in Chile, revealed “the contours of an agreement” reached by the various countries that are members of the Basel Committee, which sets global minimum standards for banks.

Carney: UK is ‘investment banker for Europe’

Posted on 30 November 2016 by

The governor of the Bank of England has repeated his calls for a “smooth and orderly” UK exit from the EU, saying that a transition out of the bloc will happen, it was just a case of “when and how”.

Responding to the BoE’s latest bank stress tests, where lenders overall emerged with more resilient balance sheets, Mark Carney said the strength of the UK’s financial system was welcome in light of the possibility of a “UK-specific risk to financial stability” materialising in the coming years.

The governor said it was imperative that British businesses know “as much as possible, as early as possible” about the transition arrangements and the level of access to the EU’s internal market following the referendum.

“Having a degree of clarity, when appropriate, will help an orderly transition,” said Mr Carney.

He added that EU leaders should also push for a smooth Brexit, as the UK was “effectively the investment banker for Europe”.

The BoE’s financial stability report said the US election had amplified existing vulnerabilities in the global financial system, but on the economy, Mr Carney welcomed plans by US president-elect Donald Trump to inject fiscal stimulus into the world’s biggest economy.

Read more: BoE stress tests – all you need to know