Wednesday 10th February 2016
NEWS TICKER: KPMG has appointed Adrian Stone as its UK head of audit with immediate effect, succeeding Tony Cates who now leads KPMG's international markets and government practice. Stone joined KPMG's Sheffield office in 1984 and has been an audit partner since 1997. He previously held several senior roles in KPMG's audit practice including head of audit for the north of England and Scotland, chief operating officer for the UK audit practice, head of internal audit and head of KPMG's department of professional practice. He has been KPMG's interim head of audit since November last year - Bridge Bank says it has provided faith based Spark Networks with a $10m revolving credit facility - BNP Paribas Securities Services has been appointed by Sampo Group, the Finnish financial services group, to provide global custody and settlement services for Sampo’s €25bn of insurance assets held globally - Saudi Arabia is reportedly reconsidering the requirement for foreign companies setting up in the country to have a local partner. A committee led by the Saudi Arabian General Investment Authority, the Ministry of Commerce and Industry and the Ministry of Labour, will look at ways to spur additional inward investment into the realm, according to newspaper Asharq Al Awsat. The committee is expected to ease the bureaucratic barriers for foreign firms that want access to the Saudi Arabian economy. Foreign direct investment is vital as the kingdom looks to make up foreign exchange losses and balance its $98bn budget deficit – European president Donald Tusk met with Georgian premier Giorgi Kvirikashvili today. Discussion focused on continued reforms of the Georgian judiciary, rule of law and human rights are important priorities and I underlined the EU's readiness to assist. It is crucial that criminal investigations and prosecutions be evidence-based, transparent and impartial, in line with the commitments of the Association Agreement. “I share Georgia's concerns about the continued implementation of the so-called “treaties" between Russia and Abkhazia and South Ossetia. I saw for myself the situation at the administrative boundary line, including the "borderisation" [sic] process, during my last visit to Georgia,” said Tusk following the meeting. The European Union will continue to give its firm support for the territorial integrity of Georgia within its internationally recognised borders.” - February 9th 2016: The Polish Financial Supervision Authority (KNF) at its meeting today confirmed the appointment of Małgorzata Zaleska as President of the Management Board of the Warsaw Stock Exchange, following her appointment as president on January 12th. Zaleska is the director of the Institute of Banking, Warsaw School of Economics; the Chairperson of the Committee of Finance Sciences of the Polish Academy of Sciences; a member of the NBP Economic Research Committee; a member of the Central Commission for Degrees in Finance – Today’s equity markets tell a tale of fears of a global slowdown with even the US considered a candidate for recession. The US session yesterday was not pretty, with the S&P500 down 1.42%. The index has lost around 9% of its value this year and is now 13% below the nominal high that it reached last year. The DJIA was down 1.1% and Nasdaq100 fell 1.59%. The Nasdaq100 is now 17.92% below the nominal high that it reached last year. Swissquote says: “The sentiment is risk-off at the moment, with gold reaching $1,200 for the first time since June. Gold’s bullish momentum continues yet commodity linked currencies such as the AUD and NZD failed to gain the advantage as outside precious metals and other commodities broadly fell. In particular, WTI Crude is now back around below $30 a barrel over continued oversupply concerns. Markets are now fearing that this period of lingering low oil prices could last a long time”. – In the Asian session Japanese stocks fell more than 5% and the yield on the benchmark government bond dropped into negative territory for the first time. The decision by the Bank of Japan to introduce negative interest rates looks to have pushed down yields for both short and longer termed bonds. In afternoon trading in the Asian session, the benchmark 10-year government bond was yielding minus 0.025; in other words, investors were willing to lend the over-indebted Japanese government money for 10 years and get back less than they put in. Remember that Japanese sovereign debt is more than double the country’s GDP. The question is now, how far down can yields go? Moreover, when will central banks stop flirting with negative interest rates. It is a dangerous policy. The stock market took the brunt of investor fears today, as the Nikkei Stock Average closed y down 5.4%, falling 918.86 points to finish at 16,085.44. This is a sizeable drop and the largest one-day fall for about two and a half years. Yet again, the yen did well, rising against the US dollar to 114.80. Financial shares took the brunt of today’s pain with Mitsubishi UFJ Financial Group Inc. (MTU) shares closing down 8.7%, and Nomura Holdings losing 9.1%. Australia's S&P/ASX 200 ended the session 2.9% lower, and New Zealand's S&P/NZX 50 was down 1.3%. India's Sensex was 1.2% lower. Chinese, Singapore and Korean markets are closed today. In Europe, equity futures are mixed. The CAC40 has dropped 0.22%, the DAX is down 0.21% while the FTSE100 is unchanged, but there’s still half a day’s trading to go.

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Will Global Trends Call the End of the Long Summer for Nordic Banks?

Thursday, 01 September 2011
Will Global Trends Call the End of the Long Summer for Nordic Banks? Nordic banks appear to have remained resilient in the face of the stresses on the euro and European sovereign debt woes and the sector looks set for steady growth. Even so, the region’s banks have been through their own share of troubles in the near past. Nordic banks have worked hard to extend funding maturities away from short-term debt, recover losses and build liquidity and by and large sailed through the European Banking Authority’s (EBA) health check of 90 European banks in July. However, it looks like the current rosy picture will be marred by the impact of the global economic slowdown; a development which has already impacted on some of the second quarter’s reporting banks.

Nordic banks appear to have remained resilient in the face of the stresses on the euro and European sovereign debt woes and the sector looks set for steady growth. Even so, the region’s banks have been through their own share of troubles in the near past. Nordic banks have worked hard to extend funding maturities away from short-term debt, recover losses and build liquidity and by and large sailed through the European Banking Authority’s (EBA) health check of 90 European banks in July. However, it looks like the current rosy picture will be marred by the impact of the global economic slowdown; a development which has already impacted on some of the second quarter’s reporting banks.

Swedbank, Nordea and Handelsbanken all reported solid earnings over the second quarter of this year benefiting from strong economic growth in Norway and Sweden, where margins are on the rise and capital is building up once more. It is a distinct contrast to the fortunes of other banks in Europe. However, any well earned crowing on the part of the region’s banks might soon be curtailed. Swedbank’s economic outlook paper suggests that while Swedish growth continued strong in the first half of 2011, the downturn in global markets is expected to dim the picture somewhat in the second half of the year: “we are seeing a significant slowdown for the remainder of the year. Exports will be affected by a slowing of global growth, and falling confidence of households and companies will limit consumption and investment growth.”

In consequence, the bank has revised the country’s growth rate downwards for 2012 to 2.2%, and, for 2013: “we expect growth to reach 2.3%. The current economic situation presents a policy challenge, and we expect monetary policy to scale back rate increases, but fiscal policy to become too tight. Thus, targeted, timely, and temporary actions will be required to push unemployment down.”

For its part, Swedbank reported an operating profit of SKR4.32bn ($666m), almost double the profit of the same period last year; helped in large part by Sweden’s swift economic recovery up to now, export growth and strong domestic demand. Moreover, margins on lending are expected to rise as the Swedish central bank is expected to raise interest rates. The bank noted in its performance statement that funding costs were easing, as the bank rebuilds its balance sheet following restructuring resulting from loan losses from its Baltic businesses. Two years ago, Swedbank posted second quarter losses of SKR2bn (around $300m) losses as it suffered loan losses from exposure to the troubled economies of the Baltics and the Ukraine. In the event, those losses have been lower than expected and some of the provisions have been written back into the bank’s balance sheet. It is a positive note over the outlook for the Baltic states; a view mirrored by competitor bank DnBNor in its second quarter statement, where it anticipates that over the next two years, growth in the Baltic States will again surpass European levels.

Swedbank has continued to refinance state loans, extended through the financial crisis, with capital market financing at lower cost and undertake some small level share buybacks. Chief Executive Michael Wolf noted in a journalists conference call that. “We continue to believe that there will be some margin expansion on the lending side and cost control is also going to be very helpful.”

Nordea meantime reported second quarter operating profit of €949m, better than forecast, which helped buoy its stock after competitor SEB reported less than stellar earnings over the same period, of which more later. Even so, Nordea’s performance statement could not hide the fact that its second quarter profits were down on the first quarter of the year, when operating profits had risen by 21% over the last quarter of 2010. The bank noted that the continuing crisis elsewhere in Europe and continued “imbalances in the global economy have increased economic uncertainty. “Income from customer areas increased by 5% in the quarter and both operating and risk-adjusted profit are higher than last year. Loan losses are at the lowest level since 2008 and credit quality. At the same time, the trading result decreased from last quarter’s high levels due to volatility in the financial markets and interest income was affected by increased and prolonged funding,” highlights Nordea chief executive officer Christian Clausen.

Nordea said lower income in treasury due to higher funding costs offset increased customer activity, and its CEO said the bank would need to be more efficient to reach its goal of 15% returns on equity (ROE). “Nordea’s relationship strategy has laid a solid foundation for our New Normal [sic] ambition to reach an ROE in the top leave of European banks of around 15%. In the autumn, we will continue to improve capital efficiency and implement plans to contain cost growth in the latter part of 2011 and thereafter keep costs largely unchanged for a prolonged period of time.”

Elsewhere in the region, DnBNOR achieved a profit of NOK3, 546m in the second quarter of 2011, an increase of NOK723m on the same period a year earlier, an uptick of almost 500%. “This is our second best quarterly performance since the financial crisis, surpassed only by the particularly healthy profits recorded in the fourth quarter of 2010. Rising interest rate levels and low write-downs had a positive impact on the quarter, though there is still intense competition for both loans and deposits in the Norwegian market,” noted Rune Bjerke, DnB NOR group chief executive in the bank’s performance statement.

“Norway is doing well, with low unemployment and strong growth, both in GDP and in the population. This provides a sound basis for our growth ambitions, as we are influenced by increased investment willingness among our customers. In the personal customer market, intense competition and pressure on home mortgage margins will continue,” noted Bjerke.

Against expectations however, Swedish banking group SEB’s second quarter earnings were SKR4.3 billion crowns ($665.2m), down 2% on the first quarter, with net interest income down at SKR4.2bn. Most of the bank’s business (over 60%) is sourced from the Swedish market; though it has expanded operations to cover Germany (a key market for the bank) and the Baltics. “In the wake of the uncertain global environment and the potential negative impact on funding markets, we have continued to safeguard balance sheet resilience,” chief executive Annika Falkengren noted in the bank’s performance statement.


Moody's Investors Service published a Special Comment in early August that underscored the relatively high levels of average concentrations across the region, between 2008 and 2010, although in some cases, these levels are reducing. According to the ratings agency, this means that many of the rated Nordic banks score poorly in terms of credit risk concentration on the agency's banking scorecard, with this weakness reflected in their bank financial strength ratings (BFSRs). The survey captures the 20 largest exposures of banks rated by the agency in the Nordic region. As the survey only considers rated banks, the results of the survey should not be construed as indicative of the region as a whole, says Moody's.

According to the comment, the Nordic region, defined by the survey included Denmark, Finland, Norway and Sweden. Iceland was excluded due to a small sample size. The high levels of single client concentrations primarily reflect the limited size of many rated banks, which increases their sensitivity to a small number of large exposures; the desire of many small banks to be involved with corporations of all sizes within their regional footprint; and the general trend for relatively low banking profitability, which affects metrics that investigate profits in relation to exposure size.

In terms of Nordic regional disparities, the survey suggests that Swedish banks' concentrations are, on average the lowest, followed by Finland and then Denmark and Norway. However, the exact ranking is less clear and depends on the metric used. The agency quotes, for example, the ratio of the top 20 exposures to either tier I capital; gross loans to customers; total assets; or pre-provision income (PPI)). The survey also shows that the Nordic banking systems have relatively high concentration levels compared to other, similarly developed banking systems, although well below some of the more developing systems.

The survey also shows a general trend of improving concentration metrics in the Nordic region over 2010 following a much more mixed story during 2009, due in part to movements during 2010 in the metric denominators such as Tier 1 capital (from capital raisings during the financial crisis) and improved profitability. However, it also reflects actual reduced exposure concentrations as banks looked to reduce their risks in this area.

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