ROTTERDAM, August 25 -- Eleven years after the global financial crisis, the European banking industry is once again preparing for tough days ahead.
After Deutsche Bank announced a large-scale layoff plan not long ago, another large European bank might follow suit to do the same. Italy’s largest bank by asset size UniCredit is considering 10,000 job cuts, accounting for 10% of the bank’s total global workforce. This layoff makes up part of the business plan that UniCredit will announce at the end of this year. UniCredit will announce at least 9,000 layoffs, and almost all the employees getting retrenched will be Italians. The negotiations between UniCredit and the union will begin after the announcement of its business plan for 2020-2023 on December 3 this year. The negotiations between both parties may help to reduce the number of layoffs from the original figures.
UniCredit is a European bank headquartered in Milan, with operations in 19 countries and having more than 28 million customers. It is also one of the largest banking groups in Europe. The core business of UniCredit is mainly distributed in the more well-off regions of Italy, Austria and southern Germany, as well as a large number of businesses in Central and Eastern Europe. With assets of EUR 91 billion, UniCredit has become the largest bank in the Eurozone, the third largest in Europe and the sixth largest in the world. However, its profitability is in decline. According to publicly-accessible information, UniCredit’s net profit for 2018 was EUR 3.892 billion, a decline of nearly 29% compared to a net profit of EUR 5.473 billion in 2017.
The recent frequent layoffs could be a possible indication that the European banking industry has not fully recovered from the financial crisis. After the crisis, the United States adopted quantitative and accommodative monetary and fiscal policies as guarantees, and through legislation to strengthen supervision of the banking industry. At the same time, the government helped the banks through the crisis by using national capital injection. The period of de-leveraging the banking industry is relatively short, and the profitability of the U.S. banking industry therefore recovered within a shorter span of time.
In Europe, there was a lack of a unified fiscal policy. It was only in November 2014 that the single regulatory mechanism for the banking sector in the euro zone was launched. The de-leverage of the European banking industry lacked sufficient policy support and assistance, hence slowing its process of deleveraging. Since the total loans of 27 banks in Europe account for a much higher proportion of non-financial debt than the United States, the impact on the economy in its de-leveraging process was much greater, which in turn affected its profitability.
On a more general level, the poor performance of the European banking industry stemmed from the slow recovery of the European economy and the tightening of banking regulations. Data from the World Bank reveals that from 2010 to 2017, the world’s GDP increased from US$ 65.96 trillion to US$ 80.73 trillion, representing an increase of 22.39%. Among them, the U.S. GDP increased from US$ 14.96 trillion to US$ 19.39 trillion, an increase of 29.61%. However, the EU’s GDP only increased from US$ 16.98 trillion to US$ 17.28 trillion, a mere 1.76% increase and far less than that of the United States. The economic growth of the EU is not only significantly lower than the global average, but also significantly lower than the United States.
The reason why European banking performance is closely related to its economy is because European banks, especially small and medium-sized banks, are not highly globalized, and their business is mainly located in Europe. Only a few larger banks, such as Deutsche Bank, have branches around the world that provide services to customers globally. As the global trade frictions intensify and the downward pressure on the economy increases, the profits of these large banks are being affected. Small and medium-sized banks whose businesses are mainly concentrated in Europe will see difficulty in achieving improvement.
After the financial crisis, especially since the European debt crisis, the strength of regulation in Europe has been increasing. The European debt crisis has exposed two major problems of the European banking industry. Banks conducting higher-risk businesses and the general EU financial system were under-regulated. To resolve this, the EU on the one hand has increased the banking capital adequacy requirements, prohibiting large banks from engaging in proprietary trading, and curbing excessive speculation in the banking industry. On the other hand, it established a banking industry alliance to form a unified regulatory mechanism, clearing mechanism and deposit insurance system. However, EU member states have major differences in the relevant new banking regulations. The increase in capital adequacy ratio and the divestiture of risky assets have augmented the stability of the banking industry. At the same time, it also led to a decline in the income and profit of the banking industry.
Kevin Dowd, a professor of finance and economics at Durham University, has previously analyzed that the large European banks have suffered setbacks in the United States, and also contraction of their business activities. However, a careful analysis will reveal that the main problem in the EU banking industry is happening in European soil. The European banking industry is facing a major repayment crisis, and this crisis has been brewing for a long time. The thorny issue facing the European banking industry is caused by none other than the EU itself.
Due to quantitative easing policies and excessive tolerance policies, the existing problems have worsened. Dowd believes that the EU banking industry is currently moving in the direction towards a crisis, and the EU bank’s bad debt loaning solution will fail to work. In the end, there will be the scenario where the taxpayers will have to bailout the banking industry who will then become too big to fail. It is worth noting that both Deutsche Bank and UniCredit are regarded as banks with high importance in the global financial system. If these banks are having problems, they will inevitably hold a major impact over the European financial system. In particular, the European economy has not recovered from the crisis so far. With the global trade war resulting in economic slowdown, the European Central Bank has clearly stated that in order to support economic growth, it may further introduce easing policies and even cut interest rates further.
Long-term negative interest rates have seriously affected the profitability of the European banking industry, and should the interest rates fall further, the impact on these banks will be even greater. As these banks get into trouble, they will also affect the lending behavior of enterprises, which will in turn drag down the growth of the entire European economy and thus turning these events into a vicious cycle. If this shock continues to expand, it may trigger a new round of global economic crisis.
Final analysis conclusion: The recent frequent layoffs in the European banking industry have highlighted its vulnerability in the post-crisis era, and in the context of global trade war and economic slowdown, this vulnerability may eventually evolve into a trigger for a new global economic crisis.
HONG KONG, August 22 -- Hong Kong stocks are poised for their worst quarter since 2015 and corporate earnings are unlikely to save them.
After a sell-off erased more than US$600 billion from the city’s equities, attractive valuations stood as a potential bright spot. But those multiples don’t look so good when analysts keep slashing their profit forecasts for 2019. Their call for an average 19 per cent slump in operating income would be the biggest contraction for Hang Seng Index companies since the global financial crisis, data compiled by Bloomberg show. While a protracted US-China trade war and a weak yuan are to blame for a big chunk of the profit reductions, the latest cuts reveal a deeper issue. With Hong Kong’s slowing economy buckling under the pressure of 11 straight weeks of protests, demand for everything from bank loans to utility gas may be jeopardized. “The third quarter could be even worse given the local political situation and the trade war escalation,” said Jackson Wong, asset management director at Amber Hill Capital. “Potential downside surprises have not been fully reflected in share prices.” Shares of utilities provider Hong Kong and China Gas fell 5.3 per cent on Wednesday after it posted disappointing results and said the local business environment is “full of challenges.” Political unrest in Hong Kong may dampen its sales to the hospitality industry as people opt to cook at home rather than dine out, analysts at Daiwa Securities Group say. The threat from the trade war and weeks of local unrest has been apparent in the property market, as well as hotel occupancy and retail sales. CK Asset Holdings, whose shares fell to lowest since January 2017 last week, postponed a luxury residential project because of the protests. HSBC Holdings and BOC Hong Kong Holdings have lost about 9 per cent this month as investors become increasingly concerned about capital flight.
HONG KONG, August 17 -- A collection of rare Japanese whiskies fetched 7.19 million Hong Kong dollars ($917,000) at an auction Friday in Hong Kong, a record high for whisky produced in Japan.
Hanyu Ichiro's Malt Full Cards Series consisting of 54 bottles, sold to an Asian female collector, was made in 1985 through 2014 at a distillery in Saitama Prefecture near Tokyo. Each bottle of whisky was matured in different barrels and is featured with labels of playing cards. The price nearly doubled from 3.80 million Hong Kong dollars fetched in 2015 at an auction held by Bonhams. "I was shocked" to hear the price, said Ichiro Akuto, president of the distillery, Venture Whisky. "I appreciate the high evaluation, but I'm anxious if they would be consumed with satisfaction after being sold at such an extraordinary price. I will be glad if they are consumed," he said.
BEIJING, August 17 -- China has decided to lower real interest rates through market-oriented reform measures to address the financing difficulties facing small businesses.
China will take market-oriented reform measures to meaningfully reduce real interest rates and ease financing difficulties, the State Council's executive meeting chaired by Premier Li Keqiang decided on Friday. The Chinese government puts high emphasis on work related to lowering real interest rates and financing costs for businesses, particularly private, micro and small firms. Since the beginning of this year, the overall financing interest rate in China has steadily declined. "Thanks to the measures taken by various sides since early this year, real interest rates have been lowered to a certain degree. While borrowing was made less expensive, the difficulty in accessing financing has become more acute," Li said at the meeting.
Attendees at the Friday meeting pointed out that it is important to keep liquidity reasonably sufficient, and take reform measures to notably lower real interest rates. It was decided at the meeting to reform and improve the loan prime rate (LPR) mechanism. An above-five-year LPR will be made available in addition to the current one-year LPR to serve as pricing references for new bank lending. The purpose is to catalyze further reductions in real interest rates. It is important to make lending rates and fees more open and transparent. Charges by financial institutions will be strictly regulated and intermediate agencies will be urged to cut fees. "The lowering of real interest rates should be carried out in an open and transparent manner. There needs to be continuous progress in reducing financing costs to deliver tangible benefits to businesses," Li said. It was agreed at the meeting that a combination of monetary and lending policy tools will be implemented to facilitate a greater role by the guarantee system and reduce financing costs for the real economy. "The central bank needs to take a multi-pronged approach and employ a mixture of tools to ensure meaningful reductions in real interest rates," Li said. The meeting also decided to enhance lending support for creditworthy enterprises with market potential and ensure that loans will not be discontinued for no good reason. Financing woes of micro and small firms must be effectively addressed. Evaluation and supervision will be strengthened to guide banks in expanding market, innovating businesses models and delivering better services for the real economy. "We must earnestly address the financing difficulties of micro and small firms. Otherwise, employment could be affected given the large number of these companies," Li stressed.
BEIJING, August 10 -- The International Monetary Fund (IMF) released a report on Friday in Washington showing the yuan was broadly stable against the basket of currencies despite the yuan/dollar depreciation.
"Despite the RMB/USD depreciation, the RMB was broadly stable against the basket and depreciated in real effective terms by about 2½ percent since the last Article IV. Estimates suggest little FX intervention by the PBOC (The People's Bank of China)," the report said. The report is based on the Executive Board of the IMF the Article IV consultation with China, which was concluded on July 31, 2019. "The bilateral RMB/USD rate depreciated relatively rapidly from mid-June to early August 2018, when measures to counter depreciation pressure – the 20 percent reserve requirement for FX derivatives (a capital flow management measure (CFM)) and the countercyclical adjustment factor (CCAF) in the daily trading band's central parity formation – were reintroduced," the report said. "At about US$3.2 trillion, China's foreign currency reserves remain more than adequate to allow a continued transition to a floating exchange rate," the report said. The Trump administration labeled China a currency manipulator on Monday, after yuan fell past 7 against the dollar. Jeffrey Sachs, economics professor at Columbia University, said, "The IMF report makes clear that there has been absolutely no currency manipulation and that China's external balance has been appropriate,".
"The US Treasury action declaring China a currency manipulator was blatantly arbitrary, capricious and political, based on Trump's tweets rather than on objective analysis," said Sachs. Based on the press releases of IMF, China's economic growth stabilized in early 2019 and is expected to moderate to 6.2 percent and 6.0 percent in 2019 and 2020, respectively. The IMF Executive Directors acknowledged China's recent reform progress, in particular, in reducing financial sector fragilities and continuing opening up of the economy. They noted the highly uncertain external environment and emphasized that successfully shifting from high-speed to high-quality growth requires continuing with deleveraging and strengthening rebalancing efforts while adjusting macroeconomic policies to respond to rising trade tensions. The directors welcomed the Chinese government's commitment to multilateralism and a rules-based trading system. In this regard, they saw scope for China to work constructively with trading partners to better address shortcomings in the international trading system. They agreed that tensions between China and the United States should be quickly resolved through a comprehensive agreement that avoids undermining the international system, according to the report.
Trump has frequently accused China of artificially devaluing its currency in order to support its exports -- charges long denied by Beijing. The US president jolted global stock markets last week when he issued the threat of more tariffs just a day after US and Chinese trade negotiators revived talks aimed at ending the year-long dispute. The extra 10% duties Trump threatened to implement from Sept 1 would mean he has now targeted virtually all of the $500 billion in goods America buys from China every year.
China on Friday threatened to retaliate to any new tariffs slapped on by the US -- it has already imposed its own duties on $110 billion in American goods, almost all of the products it imports from the US. The yuan is not freely convertible and the government limits its movement against the US dollar to a two% range on either side of a central parity rate which the People's Bank of China (PBOC) sets each day to reflect market trends and control volatility. The daily central rate was at 6.9225 per dollar on Monday, 0.33% weaker from Friday. "It appears that the tariffs hike suggests the return of tit-for-tat moves and a suspension of trade talks, and the PBOC sees no need to keep the yuan stable in the near term," Ken Cheung, a senior currency strategist at Mizuho Bank said. In a statement Monday morning, the PBOC said it would "resolutely crack down on short-term speculation and maintain stable operation of the foreign exchange market and stabilise market expectations." It went on to say that it had the "experience, confidence and ability to keep the RMB exchange rate basically stable at a reasonable and balanced level."
WASHINGTON, July 27 -- The US Supreme Court on Friday (July 26) handed President Donald Trump a victory by letting his administration redirect US$2.5 billion (S$3.4 billion) in money approved by Congress for the Pentagon to help build his promised wall along the US-Mexico border even though lawmakers refused to provide funding.
The conservative-majority court voted 5-4 - with the court's liberals in dissent - and blocked in full a ruling by a federal judge in California barring the Republican president from spending the money. The basis was that Congress did not specifically authorize the funds to be spent on the wall project fiercely opposed by Democrats and Mexico's government. "Wow! Big VICTORY on the Wall. The United States Supreme Court overturns lower court injunction, allows Southern Border Wall to proceed. Big WIN for Border Security and the Rule of Law!" Trump tweeted just minutes after the court acted. A brief order explaining the court's decision said the government "made a sufficient showing" that the groups challenging the decision did not have grounds to bring a lawsuit. In a highly unusual move, Trump on Feb 15 declared a national emergency in a bid to fund the wall without congressional approval, an action Democrats said exceeded his powers under the US Constitution and usurped the authority of Congress. The administration has said it plans to redirect US$6.7 billion from the Departments of Defense and Treasury towards wall construction under the emergency declaration after failing to convince Congress to provide the money, including the US$2.5 billion in Pentagon funding. Congress earlier failed to provide US$5.7 billion in wall funding demanded by Trump in a showdown in which the president triggered a 35-day partial shutdown of the federal government that ended in January.
The case arose from a challenge to Trump's action brought by Sierra Club, a leading environmental group, and the Southern Border Communities Coalition, a group advocating for people living in border areas. The challengers have said the wall would be disruptive to the environment in part because it could worsen flooding problems and have a negative impact on wildlife. US District Judge Haywood Gilliam ruled on May 30 in Oakland, California, that the administration's proposal to build parts of the border wall in California, New Mexico and Arizona with money appropriated for the Defense Department to use in the fight against illegal drugs was unlawful. The judge issued an injunction barring use of the Pentagon funds for a border wall. The administration asked that the injunction barring use of the reprogrammed funds be put on hold pending an appeal but the San Francisco-based 9th US Circuit Court of Appeals declined to do so.
BANGKOK, July 26 -- The Bank of Thailand (BOT)’s latest measure to manage the inflow of foreign money should not affect long-term foreign investment in the country, BOT director of economic analysis Pornpen Sodsrichai said on Thursday.
"Our latest measure to prevent baht speculation by reducing the limit on the outstanding balance of non-resident baht accounts (NRBA) and non-resident baht accounts for Securities (NRBS) from Bt300 million to Bt200 million is focused on foreign investors who are speculators, but the BOT continues to welcome foreign investors seeking to expand investment in the country for the long term," said Pornpen. She added that the bank had taken the measure to cap non-resident accounts in response to an increase of foreign inflows in June that helped push up the baht. Pornpen said the BOT had plenty of measures in hand to manage the baht according to future developments, but would always leave room open for foreign individuals and organisations interested in expanding their long-term investment in Thailand.
Kobsit Silapachai, economic and capital markets research manager for Kasikorn Bank, said that following the BOT measure the baht had effectively weakened from Bt30.60 per US$ to Bt30.90. The measure to reduce currency speculation, especially in the bond market, was effective in reducing short-term foreign bond purchases from Bt120 billion to just over Bt80 billion. However, Kobsit forecast that the upward trend of the baht would continue this year. "I believe the baht will appreciate because, along with short-term investors the country also still has long-term investors who will drive up the baht till the end of this year," he said. Meanwhile, at its end-of-July meeting the US Federal Reserve is expected to cut the interest rate by 0.25 per cent, which should serve to weaken the dollar and perhaps cause a short-term impact on the baht, he said.
LONDON, July 21 -- British Finance Minister Philip Hammond said on Sunday he would make a point of resigning before Mr Boris Johnson became prime minister, saying he could never agree to his Brexit strategy.
Mr Johnson is widely expected to win the governing, centre-right Conservative Party's leadership contest on Tuesday and be named as prime minister once Mrs Theresa May resigns the premiership on Wednesday. Mr Hammond has become an increasingly fierce critic of Mr Johnson's Brexit strategy - leaving the European Union with or without a deal on Oct 31 - and would never have expected to remain as chancellor of the Exchequer in a Johnson government. But the fact that the second-most senior figure in the government is making a point of resigning rather than wait to be moved on in the incoming prime minister's reshuffle is a significant gesture - and an indicator of the opposition Mr Johnson could face in pursuing his Brexit strategy. "I'm sure I'm not going to be sacked because I'm going to resign before we get to that point," Mr Hammond told BBC television. "Assuming that Boris Johnson becomes the next prime minister, I understand that his conditions for serving in his government would include accepting a no-deal exit on the 31st of October. "That is not something that I could ever sign up to. "It's very important that the prime minister is able to have a chancellor who is closely aligned with him in terms of policy, and I therefore intend to resign to Theresa May before she goes to the palace to tender her own resignation on Wednesday."
Mrs May will head to Buckingham Palace in London on Wednesday to see Queen Elizabeth II, the head of state, and relinquish her office. Mr Johnson's rival for the premiership is Foreign Secretary Jeremy Hunt, who has said that Britain should prepare for a no-deal Brexit if a deal seems unlikely by the end of September. Mr Hunt would be prepared to delay Britain's departure date if a deal seemed within reach, but is also prepared to take Britain out of the EU without a divorce deal. Mr Hunt has not said who he wants running the Treasury should he win the leadership contest.
CHANTILLY, July 17 -- The Group of Seven industrialized nations started a two-day financial meeting Wednesday in France, focusing on effective measures to regulate Facebook Inc.'s proposed digital currency Libra to prevent potential money laundering and terrorist financing.
The G-7 finance ministers and central bank governors are also expected to discuss ways to reform global corporate tax rules amid criticism that big internet companies get away without paying their fair share of taxes as they can book profits in low-tax jurisdictions. The meeting came as regulators, lawmakers and central bankers are scrutinizing Facebook's project -- unveiled just last month -- to create a crypto currency-based retail payments system in a move that critics say could affect the global financial system and challenge the role of the dollar as the world's main reserve currency. Speaking to reporters ahead of the meeting in Chantilly, north of Paris, Bank of Japan Governor Haruhiko Kuroda sought close international coordination in drawing up regulations for Libra and crypto currency payments. "If (Libra) were to be used as a means of payments, it could well affect the economy and finance," Kuroda said, calling for necessary regulations to curb a significant impact if the project were to be implemented "on a huge platform." He was referring to the social media giant's global reach with its user base of 2.7 billion, about a third of the world's population.
The BOJ chief said that together with measures for financial stability, antitrust and privacy issues could also be part of regulations.
Kuroda and Finance Minister Taro Aso are representing Japan at the gathering, which also brings together their counterparts from Britain, Canada, France, Germany, Italy, the United States and the European Union. U.S. Treasury Secretary Steven Mnuchin has warned that Libra and other cryptocurrencies are a "national security issue," and that digital asset providers must be subject to government regulations and oversight just like any bank. Mnuchin said President Donald Trump's administration has "very serious concerns" that Libra, which Facebook plans to launch as early as next year, could be used for unlawful activity such as money laundering and financing terrorism. France, which holds this year's G-7 presidency, has launched a task force to study how central banks can regulate Libra and other cryptocurrencies to prevent money laundering and ensure consumer protection and financial system stability. The G-7 also plans to discuss a French call for minimum corporate taxation as part of efforts to appropriately tax information technology giants such as Google LLC, Amazon.com Inc., Facebook and Apple Inc. in a revamp of cross-border tax rules proposed by the Organization for Economic Cooperation and Development. But it is not known whether France will win G-7 backing for its initiative, partly because the United States has criticized Paris' new tax on major internet companies' revenue in the country for "unfairly" targeting American companies.
Customarily, the G-7 will assess the state of the world economy and look into measures to mitigate downside risks to global growth such as trade tensions between the United States and China. Federal Reserve Chairman Jerome Powell has signaled the U.S. central bank will likely cut interest rates in late July for the first time in 11 years, given uncertainties about trade policy and the world economic outlook. China's economic growth slowed to 6.2 percent in the April-June quarter, the weakest pace in at least 27 years, as Trump sharply raised tariffs on Chinese imports in May to pressure Beijing into altering what Washington says are unfair trade practices. The G-7 finance ministers and central bankers are not planning to issue a joint statement after the meeting, but French Finance Minister Bruno Le Maire is expected to release a summary of discussions, according to Japanese delegation sources.