In the news this week

Author: Amélie Labbé | Published: 4 Jan 2019
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EMEA: against the odds

Denmark is look into new ways to reduce the links between its financial regulator, the Financial Supervisory Authority (FSA), from the banks it oversees. The report follows the $230 billion money laundering scandal involving Danske Bank, last year, which was found to have funnelled funds through its Estonian branch, and is now under investigation in the EU and the US for compliance failings. The FSA’s former chairman Henrik Ramlau-Hansen was Danske Bank's finance director.

The Financial Times reports that the UK’s largest banks could be at a disadvantage compared to their European and US counterparts because of new Bank of England ringfencing rules that came into force on January 1. The rules separate a bank’s retail and investment operations, in the event the latter collapse – only bank with assets over £25 billion are subject to the requirement. Experts have argued that Mifid II, Brexit and these rules are eroding British banks’ competitivity. 

In the first move of its kind, the European Central Bank has appointed administrators to oversee troubled Italian lender Banca Carige. The announcement follows the resignation of the bank’s directors, and means three external temporary administrators and a surveillance committee will now manage the lender. It failed to raise the necessary €400 million which would have kept it afloat. The ECB had given the bank until the end of 2018 to find a buyer or raise funds privately.

Americas: trouble and turmoil

As 2018 drew to a close and the financial markets opened preparations for a new calendar year, the US government still sits in the compromising position of a near 2-week shutdown. The effects are widespread, affecting federal workers and government programmes across the country. On Thursday, President Trump tweeted that the shutdown was due to the democratic response to the 2020 Presidential election, which came on the same day that Democrat Nancy Pelosi was elected as speaker of the House.

The new year was extra significant in Brazil this year. With the inauguration of Trump ally, arch conservative new President Jair Bolsonaro on January 1. The country waits in anticipation to see how his term will be. 

The stock market had another volatile and tumultuous week, the Treasury’s yield curve flattened once again leading some to suggest that the US economy is close to recession. Low sales reports from Apple led the Dow to close more than 600 points down on Thursday, further adding to global concerns.

American pharmaceutical company Bristol-Myers Squibb announced on Thursday it will take over New Jersey-based Celgene, the cancer and inflammatory disorder medicinal company, advised by in a $74 billion cash and stock deal. The merger intends to create a top specialty biopharmaceutical company, as both entities carry significant debt and financial woes that they hope can be allayed. 

Some older news that was swept up in the hubbub of the Christmas/holiday season in the US saw the International Swaps and Derivatives Association finally publish its report summarising its views on benchmark fallbacks for derivatives contracts that reference interbank offered rates. The report was widely anticipated and is expected to act as something as a guide for other sectors of the industry to base their processes on. Elsewhere several US government agencies asked for comment on proposals to exclude community banks from the Volcker Rule.

Asia: all signs point to change

Chinese officials will meet with their US counterparts for formal talks next week, the first since the three-month temporary suspension of their ongoing trade was announced. The talks will focus on intellectual property and China’s industrial policy, two areas that are at the centre of most of the discussions between the two countries.

China premier Li Keqiang has also announced China a reduction in its banks’ reserve requirement ratios (RRRs), taxes and fees, to boost lending. This is the fourth time this kind of policy has been announced in the past 12 months as the Asian country’s economy shows signs of a slowdown. Li made the comments at a meeting with officials of the country’s banking and insurance regulator after visiting major banks including Bank of China, and Industrial and Commercial Bank of China.

Staying in the PRC, the government has announced a new foreign investment law which it said would ban forced technology transfer. The current draft highlights the ban on authorities to 'force foreign businesses to transfer technology or illegally restrict(ing) their market access’. The issue has been a point of contention in the ongoing trade talks between the US and China.