BNP has very good notes on the US elections and how to trade them. They are mostly focused on timing and the info you should focus on. Here's my summary Before the elections

Apart from betting markets / polls, a source of info is mail-in ballot statistics.

Early voting doesn’t favor the Dems as much as 2020 (but Covid).

Maybe you’ve seen the crazy price action on Close Brothers last Friday or heard about the Hopcraft appeal court ruling and its impact for UK banks.

What is it about?

I’ll try to explain why it’s important but not Armageddon. This is all about getting financing when you buy a car, more precisely getting so-called “Point of sale” financing, i.e. the car dealer acts as broker for the actual bank or finance company providing the loan.

Italian press reports that Italian banks will contribute to 3-4bn€ to Italy’s budget… but this will cost nothing to banks.

How is this possible?

Who’s ready for some Italian black magic and a thread on the beautiful world of DTA? First some jargon busting: DTA means deferred tax asset, which is an accounting way to represent future lower payments on taxes.

If you think they’re just a technical detail, for some banks DTA represent more than 10% of their RWA – while their equity is 15-ish% of RWA!

Commercial real estate lending is one of the biggest risks to the banking sector (hello, NYCB ?) – so it’s crucial that banks have an accurate assessment of the value of the collateral they have. The ECB did an inspection on this recently, and the results are hilarious. Thread. For reference, the fair value of the collateral should be this

For those of you trying to make sense of that story, here’s a recap. It’s wild.

RBI is a large Austrian bank formerly making 50% of its profits in Russia. After Russia invaded Ukraine, what happens to this biz is obviously their key financial, strategic and political question

https://twitter.com/jeuasommenulle/status/1831764726583537720

Everyone in the “West” is pushing for a full exit but it’s not that easy because there’s also Russian law, RBI staff on the ground in Russia, clients, etc., no easy buyer to find and some argue selling for à like SG did is just handing out money to Putin’s cronies.

What's going to be the costs of the Crowdstrike outage for the insurance industry? Impossible to know precisely but Mediobanca has a nice breakdown explaining why it won't be massive.

There are 3 areas of losses:

- cancelled flights
- Business interruption
- Cyber policies

1/n Cancelled flights: reports are approx 5000 flights cancelled per day, still ongoing (backlog). That's big but 2010 Icelandic volcano had 100k cancelations ut MunRe explained the insured losses were low
munichre.com/en/company/med…

Thoughts about what's next in France + some important budget geekery in the middle. A long thread.

There is obviously no party capable of governing, But the two most important figures for me are approx

- RN + LFI = 214, 256 if we add EELV and PCF
- LR + PS + ENS = 131+162=293 In practice, this means that there is no “immediate” majority for votes of no confidence LFI + RN and that it will take the vote of one bit of the three “moderates” to pass one. The governement will not be that unstable.

There are also important rules to keep in mind:

Incredible story with finance and greed at its best. A thread.

Please consider that every tweet starts with "allegedly" because these people enjoy litigation, and I don’t want to get sued.

ft.com/content/60d454… It all started with the Morgan Stanley block trade (disgraceful) settlement with the DOJ, see below.

.

Buried in the docs, were the mentions of hedge funds on the other side of the trades that help Passi scam his clients.

https://x.com/jeuasommenulle/status/1747156420154290455

If you're following French politics, you'll probably hear about a weird theory soon, as it's likely to go mainstream: Macron could resign, call for new presidential elections and run again, effectively bypassing the 2-term limit.

Is it credible? I don't think so and here's why. The Constitution bans more than two consecutive terms.

Everyone pretty straightforwardly understands this as "Macron can't run again in 2027" (but could pull a Putin & come back in 2032.)

By now you've probably read 10 times that Macron called parliamentary elections to put RN/Le Pen in power & wait for them to mess up so much that Macron's heir will win in 2027.

I think that's a possible scenario but not his goal at all. It misses Macron's real target.

Thread.

https://twitter.com/ojblanchard1/status/1799904348379455981

Many reasons why it's probably not his goal.

1.- The main negative for Le Pen is that she (&her father) have always been seen as incapable of governing. They’re a protest party, nothing more. Break that taboo and you could actually help them.

The headlines that grabbed attention yesterday was this: "ECB to Impose First-Ever Fines on Banks for Climate Failures."

But the climate and bank headline that was actually important is a totally different one.

An (important?) thread.

https://twitter.com/Banqkys/status/1796063399824003379

An “ECB” working paper (so in theory just academic work, but, errr.) published 2 days ago discussed capital buffers for climate risks. T

he basic idea makes sense: an increased pace in energy transition is good for the climate but could hurt the credit profile of some companies.

Is another (what ?! not again!) Italian bank going to be bust?

The price action of BFF certainly doesn’t inspire much confidence.

What happened? Simple: the Bank of Italy did an inspection and suspended dividends (but not AT1 coupons.)

But why? Now, that’s a funny story. The bank’s called BFF – no, it’s not your teenager’s best friend, it’s the old Banca Farma Factoring.

They have a very odd business model: they buy commercial claims on public administrations.

Because PA are so late in payments, cash strapped SME go to BFF to get their money.

Interesting note this morning from DB about ECB policy review and money market rates. Let me summarize it.

ECB has de facto moved from a corridor system to a floor system with unlimited MRO + QE.

But as QE etc unwind, there’s a big risk lurking. A thread For those unfamiliar with the jargon, a corridor means that the market rate (EONIA) is stuck between two policy rates, the deposit facility rate (DLF) and the marginal lending rate (MLF.)

That’s what it looked like before 2008 & the GFC.

(Market rate is yellow)

My 2 favorite docs are the Jap & Ger financial stability reports because they give a glimpse at the horror of small unlisted banks😁(don’t sue me, I’m just kidding).

What did we get from the new German one ?

Buckle up, as they say in 10,000$ a year doomsday newsletters. You won’t believe it: CRE is in trouble – but tbh office is surprisingly resilient so far.

With all the macro debates going on around rates, recession, CRE, etc, banks’ loan losses are obv key. They are what makes the diff between recession & depression imo

That’s why the EBA report on banks’ provisioning practices is key – Here are my main takeaways. 1) Stage 2 loans (i.e. deteriorating loans for which lifetime expected credit losses = ECL should be booked) are a total mess. There's no consistency in methodologies. Here are the main problems

A few comments on the Metro Bank situation & capital rausing plan announced yesterday evening.

I'll start with a quick recap and then what I think it means for Metro and (more importantly) for the sector. The deal has four components:
- Haircut of 40% on Tier 2 debt + extension of the 60% left, but voluntary, not bail-in
- Extension of MREL debt to 2029 (+4y) and new MREL issuance at 12%
- 150m new equity at 30p (IPO was at 2190p…)
- Planned asset sale of 3bn of resi mortgages

IFRS & bank regs are almost killing bank M&A - something the Brits might regret in the next few days 😉 & the SSM might consider unintended consequence !

Here's why. Let's take a simple bank with loans & deposits. Regulations (IRRBB) and common sense mean they can't massive interest rate riskj, so on top you add some rates derivatives to hedge.

The ECB just published an economic bulletin on banks’ distributions, and I’m still puzzled as to why the ECB is so obsessed with this and constantly fight payouts.

So a thread about bank dividends ! My commonsense view here is that the EA banking sector is trading at unhealthy P/B ratios & it’s both in the banks’ and supervisors’ interests to see them go up.

But it looks like the ECB disagrees.

Weird stuff going on in Switzerland with the “Credit Suisse” ordinance that was adopted on Sunday evening, the day of the “bail-in” of AT1 bonds.

A thread, I believe interesting for the new AT1s UBS is issuing and for the former CS AT1 holders. As a quick reminder, after saying CS was solvent and liquid, the Swiss government adopted a nonpublic ordinance for emergency funding to CS on March 16th.

Then on March 19th they added an article saying they were allowed to wipe out AT1 holders.

A follow-up on this.

Many of us (including me, often) are stuck in the old pre-GFC mindset about UK mortgages.

So it’s time for a refresher to check what that market really looks like now.

https://twitter.com/jeuasommenulle/status/1673223116506497024

First: it’s big.

Mortgages are 88% of total UK household debt & UK household debt is 85% of GDP vs. e.g. 58% in Euro area!

The debt service is also big: the ratio is 8.5, vs e.g. 7.7 in the US, 6.5 in France or 5.7 in Spain.

A question I get a lot: what about TLTRO redemptions in June, will this trigger liquidity problems for some banks & Liquidity coverage ratios (LCR) falling sharply?

Lots of doom takes on this, so let’s look at the facts. First, the numbers.

TLTRO is now 1.1tn (down from 2.1tn), banks redeemed last year after the carry trade was (controversially) killed by the ECB.

Still big numbers in Italy (143bn), France, Germany.