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European banks linda

European economy 26th December 2020

European Banks: Becoming More And More Utility-Like

Scope Ratings | The pandemic showed that in times of crisis, politicians, supervisors, and central banks are willing to extend significant help to the banking sector. No major European bank has come close to resolution this year; nor will any in the near future in our view. Credit markets took note. After an initial scare in March, senior spreads tightened close to pre-crisis levels. Our view is that banking is turning into utilities and that the sector is becoming what it should be: boring. 

comisioneuropeaTC

European economy 23rd December 2020

Brussels Says ‘No’ To The Creation Of A Bad Bank

The European Commission is concerned about the management of NPLs after the impact of the pandemic and the economic slowdown in the Q4. However, Brussels is reluctant to create a bad bank, mainly because of the high costs of creating a European agency to manage these assets. Instead, the EC proposes to reform the insolvency and debt recovery regime, with the aim of unifying legislation at European level. At the same time, making it easier for banks to get rid of doubtful assets on their balance sheets.

Protectionism vs free trade

European economy 22nd December 2020

Eurozone Trade Surplus Grows By 10.3% In October To €30 Bn

The positive trend in the euro area trade balance increased in October by 10.3% year-on-year, reaching 30 billion euros, according to data on international trade in goods published by Eurostat. By items, exports of goods from the euro area to the rest of the world contracted by 9%, to 199.3 billion euros. The fall was offset by a sharper decline in exports, which fell by 11.7%, to 169.3 billion euros. Commercial activity amongst the euro members fell by 6.8% in the tenth month of the year, to 166.1 billion euros.

The “R” club is recruiting

European economy 17th December 2020

Sharp Rise In Public Debt: Will The Euro Area Resist?

Adriá Morrón Salmerón (CaixaBank Research) | The COVID-19 pandemic is causing a sharp increase in debt. Since the outbreak of the pandemic, public debt ratios have risen suddenly and significantly to almost unprecedented levels (the historical precedents are closely linked to major wars). For instance, in Italy and Spain a jump of +25 pps of GDP is expected in just one year, whereas it took five and three years, respectively, to amass a similar increase after the financial crisis of 2007-2008.

 

Does the new ECB's Purchase Programme result into a more volatile basis between bond credit spreads and CDS premia?

European economy 16th December 2020

The ECB’s Partial Lifting Of Dividend Veto Leaves Pay-Out 40%-50% Below Pre-Crisis Distribution

The Supervisory Board of the European Central Bank yesterday agreed to lift the veto on banks’ dividends. However, it is urging them not to distribute more than 15% of accumulated profits in 2019-2020, nor exceed 0.20 points of the CET1 capital ratio. From both options they have to choose the lesser one. The measure will be in force until end-September 2021, when it will be reviewed to see if it can be lifted in light of the economic situation.

European banks management

European economy 15th December 2020

Covid-19: The First Real-Life Stress Test For European Banks Since Post-GFC De-Risking

Scope Ratings | European banks have proven resilient in the face of Covid-19. There has been no banking crisis and no bank has come close to resolution. Supportive fiscal, monetary and supervisory policies have offset credit, funding and solvency risks. Most banks entered the crisis with healthy balance sheets. Balancing the stabilisation effect of the expected rebound against asset-quality deterioration, and factoring in business-model adjustments will underpin our rating approach to the EU banking sector next year.

Bulgaria

European economy 14th December 2020

Bulgaria-Recession Softened By Fiscal And Monetary Measures

Crédito y Caución (Atradius) | Bulgaria’s monetary policy framework is strong, with a solid commitment to its currency board arrangement (the lev has been pegged to the euro since 1997). As a result, the Bulgarian Central Bank usually follows monetary policy decisions made by the European Central Bank. Although Bulgaria entered the Exchange Rate Mechanism II of the EU in June 2020, an adoption of the euro seems rather unlikely in the short run. While the currency peg supports foreign investor confidence, it somehow limits Bulgaria’s ability to combat external imbalances.

Eurogrupo Europa chuli

European economy 11th December 2020

The EU Unblocks Recovery Fund In Return For Delaying Rule Of Law Regulation For Hungary And Poland

The European Council has reached an agreement on the Rule of Law Mechanism’s application that convinces Hungary and Poland and the rest of the 25. Thus, the European Commission commits itself not to develop the specific regulation on this Mechanism and not to publish the guidelines that will structure its working until the EU’s Court of Justice has ruled on whether the mechanism is fully in accordance with European law or not. This may take between six months and a couple of years. Aids from the EU recovery fund could begin to flow from June 2021. 

EZforecastok

European economy 10th December 2020

Eurozone-2020 Not Ending Fast Enough

Apolline Menut (AXA IM) | For Eurozone economies, 2020 cannot end soon enough. After a 15.1% decline in the first half of the year and a strong, but partial, rebound in the Q3, the euro area economy is set to contract again in Q4 (-4.1%qoq). The autumn lockdowns triggered by the pandemic’s second wave are less restrictive than in the spring (schools, the public sector and industry remain open this time), and so is our assumption of activity hit (-10% in November on average for the euro area versus around -25% in April). But the euro area will finish the year 8.3 percentage points (ppt) below end-2019 levels and with large dispersion across countries. Virus developments, stringency of restrictions, exposures to the most affected sectors (Exhibit 1) and fiscal supports vary across countries. For that reason, we see German growth shrinking by “only” 6%yoy in 2020, half of the contraction we expect in Spain, and much better than the 7.7% decline we project for the euro area as a whole.

ECB

European economy 7th December 2020

Busy Thursday

This Thursday could be a key moment for Europe, with the ECB meeting and the beginning of the European council. We could get a positive surprise on the time extension of PEPP, but the constraints on the “top-up” are significant. There is some tentative progress on the “rule of law” spat but hurdles abound. The Council meeting could bring about the denouement of the Brexit saga.