@jeuasommenulle's Threads
The repo drama of last month brought bank liquidity back to the spotlight. How lucky are we that the ECB disclosed the results of its stress this week! Plenty of insights there, so bear with me. (Warning: geeky thread.)
Before getting into the details you must understand two things: (i) this is a stress test on no name basis and (ii) liquidity regulations are mostly driven by the LCR (Liquidity Coverage ratio) and that stress test is not a binding constraint.
So what’s the point, you might ask? Well, three things.
My honest opinion is that I have absolutely no clue what will happen on #Brexit in the newt 3 weeks. But I though you might be interested to know what investors believe, so here’s some data from a recent poll. (thread)
Let's start with the big question: Average probability of exit by end of October: 36%, Mode probability 25%. That's high!
What about no deal? Do investor view it likely?
Circa 20% believe it’s a 10%-20% proba event, 20% says a 20% to 30% proba and 20% say it’s a 40%-50% event. Average proba 42%. So yes, I'd say pretty likely. Not sure everyone is trading accordingly though.
Circa 20% believe it’s a 10%-20% proba event, 20% says a 20% to 30% proba and 20% say it’s a 40%-50% event. Average proba 42%. So yes, I'd say pretty likely. Not sure everyone is trading accordingly though.
I’ve been really a stoic and (almost) managed not to tweet about that repo story, but considering the amount of bs I’ve been reading, it’s just too tempting to write
What has happened is simple: a small number of actors have seen a large amount of cash move around in an unexpected way (remember that on a very short term, cash just moves around, it doesn’t appear or disappear.)
This was triggered by all sort of things: MMF redemptions, oil shock, Fed meeting upcoming, TBill coupons, etc. Nobody knows for sure, not even the Fed or the Treasury😊
Obv I had questions on the various impacts of the ECB’s decisions on banks – so here’s a quick thread.
First, tiering.
The formula (6x multiple) should exempt 45%-50% of deposits at the ECB from the penal -50bps rate. So all in it’s a nice reduction of the (increased) cost.
For some strange reasons there seem to be a flurry of tweets and takes about the incoming crisis of Eurozone banks – probably partly triggered by Raoul’s tweets, partly by those chart below. So a quick thread on the situation of EZ banks today. 
Yes, the index is at a all time low, but is it hugely relevant - if you’re a long-term shareholder it certainly is, but more generally? Has something changed recently to justify the fears?
First thing: Q2 wasn’t that bad. In fact, it was better than expected. Banks’ results were approx +6% above consensus, with star performers being Intesa, UBS or Natixis and laggards being Unicredit, Deutsche and Commerz.
By popular demand, a #DB thread (yeah, we all know I’m doing this just to get new followers, but who could resist the ego boost!) #DeutscheBank
So, that restructuring plan: OOOHHH MY GAWD they are putting 300bn of shitty derivatives in a bad bank, they arrrre sooo bust! The woooorld is going to end!
You got your lazy headline, so let’s look at it more seriously now.
STOP EVERYTHING YOU'RE DOING. IT IS HERE.
THE FIRST ZERO COUPON PERPETUAL BOND EVER.
THE FIRST ZERO COUPON PERPETUAL BOND EVER.
(In case your pricing model breaks done with 0/0 #DIV0 stuff, the current market price is 70% of par.)
Jokes aside, this is actually extremely interesting because this is afaik the first time a coupon formula for a bond gives a negative coupon. Which leads to a fascinating legal question since the different between a bond and a loan is that
Thread of the #MiniBOT saga. This will focus on technicalities – others like @SMerler or @LucioMM1 will be more useful if you try to understand the politics of this and the full implications.
First: what are MiniBOT exactly? Still vague ofc but the bulk of the idea is that they are small denomination bearer bonds used to pay the gvt's commercial debts and which can be used to pay taxes.
Every word in that definition is important as we’ll see below.
So what is this new decision on bank resolutions all about? It is about state aid when the monies come from the deposit guarantee fund. Those funds are mandatory under EU law and are here to protect depositors in case of bank failure.
Banks have to be members and have to contribute to those funds in the EU.
When a bank fails, it is tempting for the banks and for the government to bailout the failing bank with the money which is in the fund and which, most of the time, is sitting there useless.
I already tweeted my main thoughts on a #Deutsche #Commerz deal but since it is now LIVE, a few additional thoughts (thread.)
The social cost is likely to be very high (think 20,000 jobs.) The government must be really desperate about the situation of Deutsche to push for that deal!
Is it a good deal though? German banking M&A is notoriously difficult, there are a few horror stories (Dresdner, HVB…) and even in Excel land, the maths are not great – that’s even if you make bold assumptions on synergies.
A thread on why the “Vienna Convention trick” could solve the Brexit impasse. In a nutshell the idea is the following: instead of having a unilateral way out of the backstop, the UK would have a unilateral way out of the entire WA. 1/n
You can easily see how it solves everyone’s problem: from the EU’s pov, there is a signed deal and the worst-case scenario is that the UK votes to get back to the other option, which is no deal anyway! 2/n
Moreover, that UK vote is very unlikely (they can’t agree to anything!) and some cash would have already been paid! 3/n
There's usually so much shit going on with EU banks that I try not to blame banks based only on unconfirmed press reports / rumors, but the latest developments on #Swedbank are so OMFG that I just can't help it! (Quick thread)
Ofc you remember how #Danske was hammered because of ALM in the Baltics, the CEO resigned etc. Ever since the Danske story broke in full speed there were fears of similar situation at nordic banks.
A week ago, a similar AML story broke on Swedbank and the stock crashed. I joked about the poor performance of the management on the investor call ("we checked and had no common clients with Danske". "That is, we checked 7 clients" 🤣)
So I've been asked my thoughts on the #AT1 non call decision by #Santander so here's a quick thread on this. Careful, reader, this is not 50% as fun as a thread on #Deutsche 🤪🤣#Coco
So what happened? Yesterday, Santander decided not to call its 6.25% AT1 bond. We were all watching because it was the first bond to come to call date with no obvious decision.
This was more or less expected. Some (@BondHack e.g.) saw it coming, some [@subfincredit e.g.) were more optimistic. Overall, it's total b/s to say the market was shocked. It was more a popcorn type of event than the DB non call in 2008
BOUUUUUM *SANTANDER TO SKIP CALL OPTION ON EURO 6.25% AT1 NOTES
Watch the bids disappear live
I'm keeping my sell ticket at 99.38 on feb 6th for my all-star collection 🤣
So we had a fantastic presentation from @Sime0nStylites this morning and you can tell Brexit is a bloody mess by the simple fact that I'm none the wiser after it 😂
Seriously - my bottom line after listening to all the options and the mechanics of Parliament is the following:
There aren't that many stable equilibrium as possible outcomes:
1) No deal Brexit
2) Withdrawal agreement approved
3) the no customs union / single market red line is abandoned and this probably requires a mandate from general elections
1) No deal Brexit
2) Withdrawal agreement approved
3) the no customs union / single market red line is abandoned and this probably requires a mandate from general elections
The #NordLB bailout plan is getting clear and in a funny twist of events, German pundits and politicians are going to take a looong look at the "funny" case of the tiny Italian bank Banca Tercas 1/n
This bank was bailed out by the Italian deposit guarantee scheme and nobody told the European Commission about it. In a move that surprised exactly no one, when they discovered it, the EC got quite pissed off
So they ruled that the bailout was state aid because (mostly) the deposit guarantee fund was public resources (despite the pirvate ownership etc.) This was an extremely important decision (and explains why the Carige bailout was funded from a side pocket of that fund)
Yeaaah it’s results day at #Deutsche bank and I know what all you guys want is a #Deutsche thread. I feel a bit useless because @subfincredit basically said everything you need to know yesterday, but let’s try!
1st the results: well, they’re shitty, but in the ‘shitty like always’ kind of way. So no drama. 300m loss, close to consensus, ROE of 0.4% for FY 2018 (please don’t laugh, it’s not funny) but the underlying is also 0 vs 100m expected profit.
Strategy has changed, like every quarter: now they are going to reduce costs and increase revenues. Sounds familiar? Yeah, I wonder why. I guess they are going to fudge the FTE numbers again.
As you (probably don't) know, I do every year an analysis of the #NPL of EU #banks and the trends that appear in the EBA Transparency data (the only consistent dataset on EU banks.) Again this year the results are very interesting.
1/n
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First of all an important disclaimer: this is *not* investment advice, i could be totally wrong and please don't rely on anything I say. 2/n
this being said, the most striking thing in the data is that THE BIG DELEVERAGING IS OVER. Yes, banks are lending again. Here's a scatter plot showing the size of the loan books 2018 (y-axis) vs 2017 (x-axis): pretty uniform and healthy growth across the board. 3/n
1. So, as promised. Let's start with the basics and apologies to those who know all about it. It's generally accepted that having well capitalized banks is important & good for the economy because they can lend and help transmit monetary policy.
2. But what does it mean for a bank to be well capitalized? The amount of capital is not hugely relevant, it's the capital ratio which is, i.e. a metric entirely determined by a set of very complex rules.
3. Going into more detail now: the basic ratio is this Capital/RiskExposureAmount. The bulk of RiskExposureAmount is credit risk (& I'll only talk about that) which is basically the risk you are taking from your lending activity.
Following #Aviva's shocking announcement the situation unfolding in the UK #pref space is quite fascinating following #Aviva's announcement. Bear with me for an analysis. 1/n
Basically we are talking about fixed income instruments, issued a long time ago, with vey high coupons and counting as regulatory capital for banks and insurers. 2/n
Because they have coupons in the range of 8% - 13% they trade very high, sometimes above 200% of par. Because they are regulatory capital instruments, they cannot be redeemed and are perpetual. Every single prospectus says "non redeemable" bond. 3/n
