The Bank for International Settlements (BIS) in its latest quarterly report warns that the global economy is heading for a turbulent storm as confidence in policymakers recedes with the uneasy calm in financial markets last year having given way to uncertainty. The BIS believes that financial markets are losing faith in the ability of central banks to boost the world’s main economies and are skeptical of the effectiveness of negative interest rates. The BIS also reports that markets remain fearful about the health of some global banks with weak oil and commodity prices also added to the uncertainty. The warning comes days before Mario Draghi, the Head of the European Central Bank, is expected to push benchmark interest rates for the 19 eurozone nations deeper into negative territory.
U.S. employment surged in February, providing a positive indication of labour market strength and easing fears that the U.S. economy was heading into recession. This could allow the Federal Reserve to gradually raise interest rates during the year. Non-farm payrolls increased by 242,000 jobs in February and 30,000 more jobs were also added in December and January than had previously been reported. The unemployment rate remained unchanged at an eight-year low of 4.9% due to more people returning to the labour market.
China has given itself some room to manoeuvre when it lowered its economic growth target for this year, though it still set the pace at a relatively high 6.5% to 7.0%, confirming that the government prefers buoying the slowing economy to more painful retrenchment. For the first time in two decades, China also adopted a range for its growth target, rather than a specific number, giving itself more flexibility in a system where hitting stated goals remains politically important. China predicts that growth over the next five years should average at least 6.5%. The growth target remains above the expectation levels of Western economists and the International Monetary Fund. To leave room for more spending, China has set the targeted budget deficit at 3.0% of gross domestic product for this year, up from 2.3% in 2015.
Metro Bank has raised £400m in a stock market flotation which values the six-year-old lender at £1.6bn. The valuation means the bank can expect to join the FTSE 250 index later in the year. The institutions that have invested in the bank so far will be able to start trading the shares conditionally during the week before formal listing and public trading of the stock begins on Thursday (i.e. 10thMarch). Around 70% of the investors are from the U.S. with one-third of the £400m raised coming from new investors and two-thirds coming from existing investors that are putting in more money.
Barclays Plc plans to sell its 62% stake in Barclays Africa Group over the next two to three years, ending its presence on the African continent after more than a century and becoming a “transatlantic” bank focused on the U.S. and the UK. The Bank intends to concentrate on two divisions, Barclays UK and Barclays Corporate & International, to comply with ring-fencing regulations aimed at safeguarding its retail banking business from riskier operations. The Bank also intends to cut its dividend to 3.0p per share from 2016, from 6.5p in 2015, a move which should help the Bank to maintain its capital levels while it disposes of unwanted assets. The share price fell heavily on the dividend news but has since recovered.
U.S. authorities have decided not to pursue criminal charges against any Citigroup executives or employees involved in packaging and selling mortgage-backed securities at the heart of the 2008 financial crisis. The decision – which followed Citigroup’s $7.0 billion settlement in 2014 to resolve federal and state civil claims related to mortgage bonds – was taken because U.S. prosecutors concluded that there was not enough compelling evidence to charge anyone. The investigation focused on the bank’s practices related to its sale and issuance of mortgage bonds from 2006 to 2007.
|5-YEAR CDS SPREADS AND SHARE PRICES|
|Date:||7th March 2016|
|5-Year CDS Spreads (bps)||Equity Share Prices (LCL)|
|Allied Irish Banks||69||71||-2.8%||7.74||6.55||+18.2%|
|Parent: Arbuthnot Banking Group plc|
|Arbuthnot Latham & Co.||n/a||n/a||n/a||13.10||13.14||-0.3%|
|Aust and NZ Banking Group Ltd||122||139||-12.2%||25.02||22.56||+10.9%|
|Banco Bilbao Vizcaya Argentaria S.A.||145||171||-15.2%||6.24||5.77||+8.1%|
|Parent: Barclays plc|
|Barclays Bank plc||117||137||-14.6%||1.74||1.69||+3.0%|
|BNP Paribas S.A.||95||113||-15.9%||46.49||42.45||+9.5%|
|Parent: Close Brothers Group plc|
|Close Brothers Limited||n/a||n/a||n/a||14.00||13.16||+6.4%|
|Credit Agricole S.A.||95||114||-16.7%||10.07||9.43||+6.8%|
|Parent: Credit Suisse Group AG|
|Credit Suisse AG||145||164||-11.6%||16.19||14.86||+9.0%|
|Deutsche Bank AG||209||242||-13.6%||18.02||15.91||+13.3%|
|Parent: HSBC Holdings plc|
|HSBC Bank plc||107||128||-16.4%||4.54||4.67||-2.8%|
|Parent: ING Groep N.V.|
|ING Bank N.V.||73||86||-15.1%||12.53||10.81||+15.9%|
|Intesa Sanpaolo S.p.A.||136||161||-15.5%||2.52||2.34||+7.7%|
|Parent: Investec plc|
|Investec Bank plc||n/a||n/a||n/a||4.89||4.76||+2.7%|
|Parent: Lloyds Banking Group plc|
|Lloyds Bank plc||91||105||-13.3%||0.73||0.72||+1.4%|
|Nordea Bank AB||87||95||-8.4%||88||86||+2.3%|
|Parent: RBS Group plc|
|Royal Bank of Scotland plc||126||136||-7.4%||2.31||2.27||+1.8%|
|Ult. Parent: Banco Santander S.A.|
|Santander UK plc||88||88||0.0%||4.12||3.69||+11.7%|
|Parent: Standard Chartered plc|
|Standard Chartered Bank||185||216||-14.4%||4.86||4.30||+13.0%|
|Svenska Handelsbanken AB||68||81||-16.0%||109||110||-0.9%|
|FTSE 350 BANK INDEX||n/a||n/a||n/a||3323||3310||+0.4%|
|SNR FIN ITRAX CDS 5-YEARS||101||122||-17.2%||n/a||n/a||n/a|
Flagstone has not independently verified the information or data used in the Update which is based solely on publicly-available information. Neither Flagstone nor any of its advisers, representatives, officers or agents makes, or is authorised to make, any express or implied representation, warranty or undertaking as to the accuracy or completeness of the Update.