Saturday 18th April 2015
NEWS TICKER FRIDAY APRIL 17TH 2015: -On June 9, 2015, the Federal Trade Commission will host a workshop to examine competition, consumer protection, and economic issues raised by the proliferation of online and mobile peer-to peer business platforms in certain sectors of the economy, often referred to as the “sharing economy.” The workshop will take place in Washington, D.C., at the FTC’s Constitution Center conference space. Peer-to-peer platforms, which enable suppliers and consumers to connect and do business, have led to the emergence of new business models in industries that have been subject to regulation. The FTC’s sharing economy workshop will explore how regulatory frameworks can accommodate new sharing economy business models while maintaining appropriate consumer protections and a competitive marketplace. “We are seeing a dramatic growth in products and services that are built on peer-to-peer platforms, such as ride-sharing and property rentals, as more entrepreneurs harness the power of technology to reach more consumers,” says FTC Chairwoman Edith Ramirez. “The resulting business models have great potential to benefit our economy and consumers. Through our workshop, we want to better understand the competitive impact of these new business models, as well as their interactions with existing regulatory frameworks.” - he Straits Times Index (STI) ended 6.42 points or 0.18% lower to 3525.19, taking the year-to-date performance to +4.76%. The top active stocks today were Keppel Corp, which declined 2.01%, DBS, which gained 0.91%, SingTel, which gained 0.23%, UOB, which gained 0.38% and ComfortDelGro, with a 1.70% advance. The FTSE ST Mid Cap Index fell 0.30%, while the FTSE ST Small Cap Index rose 0.06%. The outperforming sectors today were represented by the FTSE ST Utilities Index, which rose 1.60%. The two biggest stocks of the Index - United Envirotech and Hyflux – ended 5.12% higher and 2.09% lower respectively. The underperforming sector was the FTSE ST Basic Materials Index, which slipped 1.82%. Midas Holdings shares declined 2.56% and Geo Energy Resources remained unchanged - It has been a testing day in the markets, with most stock markets reporting substantial losses. The spectre of another crisis in Greece as the IMF talked tough on the country adhering to its repayment schedule, a terminal outage at Bloomberg and a clampdown on OTC and short selling in China combined to test investor sentiment. The FTSE 100, fell briefly below 7000 to end up finding support at 7007; however Spain's Ibex and Italy's FTSE MIB were both 2% down while the German DAX 30 slid 1.8% and France's CAC 40 fell 1.2% - The outage impacted the UK DMO’s offer of £300m 1 month bill, due 18-May-2015(ISIN GB00BDNKWT09); the £1,000m 3-months bill due 20-Jul-2015 (ISIN GB00BDNLZ833), and the £1,500m 6-months bill due 19-Oct-2015 (ISIN GB00BDNNDG38) was conducted between midday and14.30 today. Any bids submitted in the aborted operation earlier this morning were deemed null and void - Catastrophe bond issuance is forecast to have risen almost 30% so far this year, though the size of the market remains modest. The increase in demand for cat bonds means that some bonds are now trading at a discount to their original issue price for the first time in years. Issuance for the year through to mid-April is predicted to be up 27% on 2014, at around $2.1bn, The full-year trend also looks positive, following on from a record cat bond issuance of $8.4bn in 2014 - Moody's Investors Service has described in detail the approach it takes to allocating expected credit losses across the various classes of debt issued by banks in the US, the EU and Switzerland. The liability hierarchy or "waterfall" that Moody's employs to allocate estimated losses to debt classes in these three jurisdictions incorporates the implications of key structural differences in their bank resolution and bail-in frameworks. In this way, the liability hierarchy aims to capture the prioritisation authorities will give different debt classes when apportioning losses to creditors in the event of a bank's failure. The construction of a given bank's liability structure at failure serves as the starting point of Moody's Loss Given Failure (LGF) analysis, instituted as part of its new bank rating methodology. The LGF framework is used to assess and differentiate creditor risk across banks' liability structures, as detailed in Moody's report "How Resolution Frameworks Drive Our Creditor Hierarchies." The bank resolution and bail-in frameworks in the US, EU, and Switzerland all aim to limit the use of public funds in bank resolutions while mitigating risks to financial stability. Important differences in these frameworks include the degree of power authorities have to write down or convert capital instruments, differences in depositor preference, and variations in the obligations of holding companies to their operating companies - Close Brothers has reportedly acquired advisory firm Mackay Stewart & Brown for an undisclosed amount. Andy Cumming, head of advice at Close Brothers Asset Management, said the acquisition would strengthen the national advice firm’s Scottish operation.

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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