Macron: Europe needs Capital Markets union – Bloomberg

The French president Emmanuel Macron says  the EU needs the Capital Markets union. In the Bloomberg interview on Monday Macron estimates that Europe needs one trillion euros more to be an effective alternative to European funds.

He was referring to the US financial markets as an effective market place while a major part of all EU savings will be invested in the US. He is  recalling reallocation.

Marcon says also that banking sector must continue consolidation. He would not be surprised if there would be a major banking merger deal in order to increase the sector efficacy.

Macron says Europe needs more investments, innovations and new business models to be competitive.

London FTSE slightly up – Lloyds net income 17,9 billion pounds 2023

Stocks closed slightly up in London today. FTSE100 closed up 0,29% to 7684 points, while Frankfurt Dax closed up 1,47% to 17.370 points and Paris CAC40 up 1,27% to 7911 points.

The Lloyds banking group reported net income of 17,9 billion pounds for 2023, up 3% year earlier. Underlying profit was 7,8 billion pounds, increase of 11% from year ago. The EPS increased to 7,6 pence from 4,9 pence year ago. The company said it is making a provision related to its car financing.

The stock of Lloyds increased 6,16% to 45,96 pounds.

Pharma companies AstraZeneca closed down 0,88% and GSK down 0,51%. Luxury group Burberry closed down 0,06% to 1306 pounds.

UK forcing banks to protect the rights of their customers

The UK government is forcing banks to protect the rights of their customers. The Sunak Cabinet said today that the new rules will give regulators green light to take firm actions if any bank is found to undermine or fails to protect the rights of their customers.

The cabinet is asking FCA, the financial conduct authority, to conduct a deep dive into this issue. The FCA is the financial markets regulator in the UK and the regulator for about 50.000 financial services firms in the country.

According to the release, this new ruling is following the concerning reports that banks may have been closing bank accounts of customers based on their political views.

Fed minutes: Markets expect the peak rate to be maintained through January next year

According to the latest US Federal Reserve minutes, markets expect the Fed peak rate to be maintained through January 2024 FOMC meeting.

The minutes show the markets expected the 25 basis points rate increase in May meeting and that the rate would be 5,25%. In the Fed survey, some respondents are still expecting the rate to be above 5,25%. The next FOMC meeting will be in June 13-14.

The minutes also state that deposit outflow from small and medium sized banks largely stopped in late March and April.

– Altough equity prices for regional banks fell further over the period, for the vast majority of banks, these declines appeared primarily to reflect expectations for lower profitability rather than solvency concerns, the minutes stated.

– The closure and acquisition of First Republic Bank were seen orderly though investors remained focused on stresses in the banking sector. In addition, the US Treasury Department announced it may not be able to fully satisfy the federal governments obligations as early as June 1, if the debt limit is not raised or suspended but that the actual date would occur might come a number of weeks later. Yields on Treasury bills and coupon securities maturing in the first half of June, increased notably amid significant volatility, the minutes said.

Lagarde: ECB will continue the rate hikes

The President of the ECB, Christine Lagarde said in today’s press conference that the Central Bank will continue its rate hikes. Today the ECB raised rates by 25 basis points, for example the refinancing operation rate is now 3,75%. During this year the hikes have been 125 basis points.

According to ECB, the inflation has been too high for too long. The April annual euro inflation was expected to be 7%, up from 6,9% in March, according to Eurostat.

Lagarde said that all governing council members supported the rate hikes, some even 50 basis points at their meeting in Frankfurt today.

– We are not pausing, Lagarde said. She said the rate hikes will continue. The next ECB monetary meeting is on June 15th.

The current banking sector turbulence in the markets is causing concerns in central banks. One reason for the suddenly and quickly expanded crises has been the digital banking combined with the social media impact.

Central banks and banking supervisors are re-evaluating the current banking framework and operations. According to ECB, the euro banks are well capitalised and resilient.

FED Powell: Wages are not principal drivers for inflation

The US Federal Reserve Chairman Jerome Powell said on 3rd May press conference that wages are not principal drivers for inflation. He was speaking about the latest Fed decision to raise rates by 25 basis points and the Fed’s targets about maximum employment and 2% inflation over time.

According to him, the Fed will continue to monitor the price stability and target the 2 % inflation over time. Powell said the governors are working with the target, but noticed it will take its time.

He reminded the Fed will make monetary decisions by incoming data meeting be meeting. He confirmed also that slowing down the rate hike pace was a right move but declined to further estimate if the 6 weeks interval is enough for data analysis or does it need more time. The next monetary FOMC meeting will be in June.

Powell estimated also that the recent banking turmoil in the US regional banks will tighten the regulatory actions and supervision further. According to him, it is wise to identify the things and to make sure it will not happen again.

JP Morgan to buy First Republic’s assets

The US investment bank JP Morgan has bought most of the assets of the Californian First Republic’s bank on Monday morning.

The deal was announced by the Federal Deposit Insurance Corporation and the deposits of the Californian bank were 93,5 billion dollars.

The Federal Reserve, Fed has said earlier that it will tighten the banking supervision after the regional banking failures.

ECB Lagarde: Inflation target remains the same

The President of the European Central Bank Christine Lagarde said in the bank’s press conference today that the ECB will continue to mitigate the inflation down towards 2% in the medium term.

She declined to comment about the next rate hike or if the ECB will pass or continue the rate hikes in this spring time. The next Governing Council meeting will in May. The recent banking sector market tensions have increased the estimates that the Central Banks could ease the phase of rate hikes or even pass them. On the other hand, the sticky inflation keeps the bankers hiking rates.

According to Lagarde, clear majority of central bankers voted for this 50 basis point rate hike today and there were no other monetary options on table.

ECB has stated that the banking system in Europe is well capitalized and secure and Lagarde reminded that banks are applying the Basel 3 requirements. Price stability and financial stability are top focus areas for the ECB and Lagarde said that ECB is ready to act if needed to support liquidity.

ECB will start to analyse climate change risk management in the banking sector 2021

The European Central Bank (ECB) will start to analyse Climate Change risk management in the euro-area banking sector next year.

The Central Bank has published its guide on climate-related and environmental risks on Friday November 27th. The guide explains how the ECB expects banks to manage and transparently disclose such risks under current rules and also when the next evaluations will happen.

-The ECB will now follow up with banks in two concrete steps. In early 2021 it will ask banks to conduct a self-assessment in light of the supervisory expectations outlined in the guide and to draw up action plans on that basis. The ECB will then benchmark the banks’ self-assessments and plans, and challenge them in the supervisory dialogue. In 2022 it will conduct a full supervisory review of banks’ practices and take concrete follow-up measures where needed. 

-In line with the growing importance of climate change for the economy and increasing evidence of its financial impact on banks, the ECB will conduct its next supervisory stress test in 2022 on climate-related risks. Further details will be provided in the course of 2021. 

-The ECB today also published a report which finds that banks are lagging behind on their climate-related and environmental risk disclosures. While there has been some improvement since the previous year, banks need to make significant efforts to better support their disclosure statements with relevant quantitative and qualitative information. In the second half of 2021 the ECB intends to identify remaining gaps and discuss them with the banks. The guide will apply immediately, the Central Bank said.

The UK Central Bank, the Bank of England has said earlier that it will also conduct climate change assessment among its banking industry during next summer 2021.

ECB: European banks underestimate the Climate Change risk for their operations

The European Central Bank´s Supervision report finds that in general the European banks underestimate the Climate Change risks for their operations and that they lack the internal processes to evaluate the risks.

– Almost one-third of the banks has not even considered these risks (Climate Change) in their risk identification processes at all. The vast majority of banks have not yet established internal processes that allow them to systematically identify and manage climate-related risks. Therefore, these banks continue to take uninformed business decisions that expose them to risks that could have material negative consequences for capital adequacy in the medium to long term. Banks are encouraged to quickly adopt a forward-looking, comprehensive and strategic approach to managing these risks, the Central Bank report says.

-The risk taxonomies used by banks are heterogeneous. Usually, banks bundle climate-related risks with other risks, with “environmental and social risk” and “sustainability risk” being the most common categories. Mostly, banks include climate-related risks in other risk categories, most frequently in credit or operational/reputational risk. Only a few banks treat climate-related risk as a separate risk category, the report states.