As always, the @ecb 's FSR is a treasure trove of information. Here’s a thread with my top 10 charts in the report and why I think they’re interesting. (No special order). 1/13
Investor sentiment on CRE

What’s interesting here is that the last time sentiment was 20% “at through”... the market was actually at a through! But since 2015, “peak” sentiment has been growing, and so have prices.
Regressing bankruptcies rate and GDP: this spectacular chart tells the economic story of Covid better than 1000 words: losses have been “socialized”, banks & SMEs have been shielded. I think we won’t get back to the regression line simply bc losses have already been transferred.
CFD/Equity TRS volumes. This chart is absolutely insane because, let’s be honest, equity TRS/CFD are widely used by retail investors to take exposure they absolutely don’t understand.
This chart is important because it shows that the ECB is still desperately trying to find reasons to worry about asset quality, despite excellent bank results. This time it’s the uptick in forborne loans. It’s hard to share their concern.
Always nice to have an up to date view on moratorium, this from Feb 2021. The huge default rate in Ireland is worrying and Portugal is clearly the country where risk remains largely unknown.
Let’s look at what contributed positively (in green) to changes in bank profitability and what contributed negatively (in red.) You can’t seen any green? Yeah, me neither. But banks are up 27% this year! Can you spell forward looking?
And the reason for that is in this chart – also a key item for the SSM, the ECB’s supervisory arm: profitability is expected to rise sharply. But look at that big orange bar! Cutting costs will be crucial. Social costs + execution risk = be careful.
This chart is extremely puzzling.

Credit risk RWA increased sharply in Q1.. then fell. This can’t be because ratings improved. Public guarantees were supposed to cover new loans, but I suspect what we see here is that banks have been offloading risks on the governments.
The right part of the chart is really for people who mock internal models: at least, those models didn’t say credit risk is going down during the biggest macro shock in a decade!

Really puzzling difference between IRB/SA
Just a fun chart on data which is hard to find: what kind of alternative assets do insurers buy?

Real estate, real estate, oh, and real estate. Also a bit of loans. All veryyyy liquid 😊
And the last one, on a major but geeky topic. Banks with a small capital buffer were VERY reluctant to use their buffers, despite reinsurances from supervisors that they could do so.
Maybe they didn’t believe it, maybe they didn’t see a quick path to restore buffers post crisis
Anyhow, this puts the topic of MDA on the table again – and AT1 investors should really watch this, it could be a game changer.

Go read the whole thing, it's really good!

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More from @jeuasommenulle

18 May
*SCOR RISES 3.8% AFTER CEO STEPS DOWN

This story is bananas. Let me recap.

After years of fighting, Kessler, long time Chairman & CEO finally accepts to follow "good practices" and split the two roles.

Kessler looks around and finds the perfect CEO candidate, "French style" :
Benoit Ribadeau-Dumas, admin supreme court judge, former member of the PM's staff under Chirac and former chief of staff of Edouard Phillipe.

All is well in the country of France
He is to take the position in 2022, after Kessler steps down as CEO and some "training" (he's never been in the insurance business before).

But Kaboum
Read 5 tweets
18 May
Maybe I'm late here, but I've just realised why Tesla wants to allow crypto payments (Bitcoin or other) and it's definitely NOT because they want to jump on the crypto bandwagon.

Here's the crucial bit in the terms and conditions

1/2
So what you're doing here, is give them a free option on the Crypto. With a basic assumption of 3-month delivery time and the 70% vol we have on #bitcoin, this is worth around 13.5 of the price you pay 🤣

When deliveries are driven by efficient option exercise, it'll be fun.
13.5% obv
Read 4 tweets
15 May
Not sure if this of any use to any1 but that tweet raises a question: why is a bank safe? Here's my (very simple) take, by order of importance.
1. Because it makes money from clients - always the most important thing.
2. Because it has diversified businesses (country/product)
3. Because it has enough capital in case 1. is temporarily not true. (Shock absorber - but won't work if 1. is structurally not true)

4. Because it has access to capital : equity (1. needs to be true for investors to have appetite) and debt (with the CB just in case)
5. Because it understands its risks and has a strong compliance (this is slowly moving upwards in the hierarchy !) Risks can be high or low, it doesn't really matter if you understand and price them properly.
Read 5 tweets
14 May
#CreditSuisse International published its annual report which contains this useful information on #Archegos:
3 lessons:
1) Addt'l 600m loss in Q2
2) Still 3% exposure!
3) Thanks to the banking surcharge, UK taxpayer providing a "tax shield" of 1.3bn$ (maybe more with new budget)
Also interesting to notice that CSI didn't book the full DTA (54% by my quick calc), suggesting they won't pay any tax in the UK for more than a decade.
Final important point: 0 loss in the US, 0 loss in Switzerland, so the PRA might be the one who takes a close look at the operations and risk management.
Read 4 tweets
7 May
There's something really weird going on with Monte Paschi's Q1 results.
i) they booked a massive gain on BTP
ii) they changed real estate valuation to fair value to increase equity
iii) they delayed the impact of TRIM
As a consequence they don't have a capital shortfall 1/2
But the capital shortfall is going to appear soon, in 2022. Why is this weird? Because we have the EBA stress test results in Q4. It almost looks like they're engineering a 'no shortfall' situation ahead of the stress test in order to have one in the stress test. 2/3
Why would they do that? Well, state aid/BRRD rules are not the same if the shortfall comes from the stress test...

Call me a cynic but this is odd.

3/3

(yes the numbering was off, as always)
Read 4 tweets
29 Apr
Who wants another thread about the absurdity of risk management in the financial sector?

(The crowd goes wild, it’s #RiskManagementMonth #Archegos)
There is a crucial concept in risk management: a group of companies.

Because they are strongly connected, the risk of those companies is similar and highly correlated.

So you want to know if companies belong to the same group.
This is precisely the crucial topic that explains (in part) the bankruptcy of Greensill and the criminal proceedings against its German bank @BondHack & @cynthiao have been talking about:

Was the “Friends of Gupta” a group or not?
Read 13 tweets

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