Financial Hub Logo Financial Hub
iPage site builder banner
54
The great carve-up of European banking continuesEUROPEAN bank presentations used to be filled with graphs of assets that sloped pleasingly upward. For those at the mercy of the European Commission, they now all lurch sickeningly downward.On October 28th the commission approved plans to split Northern Rock, which was nationalised by the British government last year, into two. The bigger surprise came two days earlier when ING, the biggest bank in the Netherlands, said that it would dismember itself—splitting its banking and insurance businesses and selling its American online-banking arm&
Read More
#8212;and shrink its balance-sheet by almost half. Such butchery was unexpected. Earlier plans for “back to basics” banking entailed salami-slicing businesses worth just €2 billion-3 billion ($3 billion-4.5 billion). ...
20
Splitting Northern Rock is just the beginningNORTHERN ROCK was rescued in September 2007, more than a year before the much-bigger Royal Bank of Scotland (RBS), Lloyds TSB and HBOS. The mortgage bank may also be the first to wriggle out of government hands. On October 28th the European Commission approved a restructuring plan, as required under the European Union’s state-aid rules, splitting it into a good bank and a bad bank. The good bank will keep the retail deposits and some existing mortgages. The bad bank will take no deposits and look after the remaining assets. UK Financial Invest
Read More
ments (UKFI), which manages the government’s shareholdings in RBS and Lloyds, will take over both bits after the split. The plan is to sell the good bank and gradually run down the assets of the bad one, making sure in the process that neither distorts competition. ...
31
America’s big banks are getting healthier. The small fry are notJUDGED by their giant compensation bills, Wall Street’s banks are in fine fettle. But pay is one of the few numbers in their accounts it is easy to make sense of. The investment banks may be booming but they remain black boxes. Both Goldman Sachs and Morgan Stanley, which reported a third-quarter profit of $498m on Wednesday October 21st, continue to take high levels of trading risk. The accounts of big, troubled banks—in particular Bank of America (BofA) and Citigroup—are awash with exceptional items, incl
Read More
uding tax gains and changes in the value of their own debt. After adjusting for the funny stuff, those two firms’ common shareholders still made losses in the third quarter. Transparency did at least take a small step forwards at Wells Fargo, America’s fourth-biggest bank by assets and its most taciturn. As well as unveiling a $2.6 billion profit, it announced this week (by press release) that it would start conducting conference calls for investors and stockmarket analysts from January. ...
10
A dramatic restructuring for ING. Which big European bank is next?IF ICELAND is the place that has suffered most from the banking crisis, the Benelux countries can make a justifiable claim to second place. After the calamitous sale of ABN AMRO and the subsequent dismemberment of Fortis, ING, the biggest bank in the Netherlands, announced on Monday October 26th that it was splitting itself up. The bank will sell its insurance businesses, divest the American arm of its ING Direct online-banking unit and carve out some bits of its Dutch retail activities. By the time the restructuring is done, in
Read More
2013, the bank’s balance sheet will be 45% smaller than it was in September 2008. That isn’t all. The bank also announced plans for a €7.5 billion ($11.2 billion) rights issue to help repay half the money that the Dutch government injected into ING in October last year. Investors reacted with dismay to the prospect of dilution and the uncertainty of the planned restructuring, sending the bank’s shares down sharply on Monday. ...
18
Smaller American banks are now at the centre of the credit stormPARTNERS BANK of Naples, Florida, earned a dubious distinction on Friday October 23rd. It became the 100th American bank failure of the year. On the same day six other lenders—two more in Florida and banks in Minnesota, Wisconsin, Illinois and Georgia—joined the rollcall of failure in the aftermath of the credit crisis.More banks have failed in other years. The post-war record was set in 1989 when 534 banks went under. That was at the peak of the savings-and-loan (S&L) crisis, which erupted in the late 1980s and co
Read More
ntinued in the early 1990s. This year has seen more failures than any since 1992, but another 75 banks must go under to overhaul that year’s total. ...
47
Banks are booming on the back of public support. That subsidy should be clawed backWATCHING an industry committing political suicide is ugly. That is what investment banks are doing by paying bumper bonuses a year after they were saved by state intervention. Goldman Sachs is set to award staff a near record $20 billion this year. Firms making losses for shareholders, such as Citigroup and Bank of America, are still paying hefty bonuses.Such rewards, in the face of public protest, feed the impression that banks are victims of what some call “employee capture”. The top ten investment
Read More
banks at the start of 2008 made an average return on equity of just 8% between 1999 and 2008. Four made cumulative losses. Staff got four times as much as shareholders did in profits. In 2008 Merrill Lynch paid cash to staff equivalent to over 100% of the capital left by the year-end. ...
53
It needs more than indignation to put brakes on bankers’ payLORD MYNERS, the City minister, is allegedly worth GBP30m ($47m). He is an unlikely tribune of the people. Yet he has been sounding off, more vociferously than his colleagues, about “unacceptable” pay deals for bankers. Derivatives traders are not footballers with unique talents and “should not be paid as though they are”, he said last month. More recently he has railed against “market failure”, accusing big clients of investment banks of not challenging the fees and margins they are charged.
Read More
The crisis does not seem to have affected the way bankers are rewarded. Lack of transparency makes them seem the more villainous. “The nation is angry about this. I’m angry,” says Lord Myners.But such attempts at moral suasion are not working, and those in authority seem reluctant to do more. “We are not an incomes regulator,” says Hector Sants, chief executive of the Financial Services Authority (FSA). The watchdog’s only sanction is to demand more regulatory capital from those banks whose pay policies appear to be putting their firms at greater risk. ...
17
Mervyn King declares for narrow bankingFOR more than a year, deep thinkers have been pondering how to prevent the most catastrophic financial crisis in decades from happening again. Should banks be cut down to more manageable size, or given a stern talking-to and loaded with capital requirements to deter recklessness? So far, regulators and politicians seem to be plumping for the second option. But as bank profits and bonuses mount, discontent at what looks like business as usual is growing. This week one of Britain’s biggest financial beasts broke cover to argue for the more radical sol
Read More
ution. Mervyn King, governor of the Bank of England, told businessmen in Edinburgh on October 20th that regulation is not enough to keep banks from becoming “too important to fail”. Moral hazard is endemic: bankers take big risks, pocketing the profits but counting on governments to pick up the pieces if things go wrong. ...
52
America’s big banks are getting healthier. The small fry are notJUDGED by their giant compensation bills, Wall Street’s banks are in fine fettle. But pay is one of the few numbers in their accounts it is easy to make sense of. The investment banks may be booming but they remain black boxes. Both Goldman Sachs and Morgan Stanley, which reported a third-quarter profit of $498m on October 21st, continue to take high levels of trading risk. The accounts of big, troubled banks—in particular Bank of America (BofA) and Citigroup—are awash with exceptional items, including tax
Read More
gains and changes in the value of their own debt. After adjusting for the funny stuff, those two firms’ common shareholders still made losses in the third quarter. Transparency did at least take a small step forwards at Wells Fargo, America’s fourth-biggest bank by assets and its most taciturn. As well as unveiling a $2.6 billion profit, it announced this week (by press release) that it would start conducting conference calls for investors and stockmarket analysts from January. ...
12
Banks are paying bonuses even as shareholders make losses. That is a problemMUCH of the recent anger over bank bonuses has been focused on Goldman Sachs, which, according to results just published, accumulated a further $5.4 billion for its staff in the most recent quarter. Yet the one thing that can be said about Goldman is that if its employees are making hay partly on the back of an implicit public guarantee, so are shareholders. In the same quarter the bank generated an annualised return on equity of 21%. Not so for some of America’s other banks. There, the owners (and in theory the
Read More
controllers) of the firms seem to have been forgotten, even though pay remains relatively high. About the only consistent beneficiaries of the new boom are employees. Take Citigroup. During the latest quarter the firm’s common shareholders suffered a loss of $3.2 billion. Some of that reflected accounting quirks: a generous interpretation of “one-offs” would suggest a small underlying profit had in fact been made, but even then the bank still only generated an annualised return on equity of 2% for its shareholders. At Bank of America (BofA) common shareholders suffered a loss of $2.2 billion, and even adjusting for one-offs they still made a loss. Yet the banks paid out a combined $13.7 billion in compensation during the same quarter. Taken together, on an annualised basis, employees received the equivalent of 27% of the core equity in the firm, whereas shareholders got a return of zero. ...