90 seconds at 9 am: Regulators flex muscles

90 seconds at 9 am: Dutch bank nationalised; sharp US and UK bank crackdowns; Visa sued in Australia over fx conversion; Dow down, gold up; NZ$1 = US$0.846 TWI - 76.3

5th Feb 13, 8:45am by David Chaston

Here's my summary of the key news overnight in 90 seconds at 9 am, including news that banking regulators are making the headlines today.

Firstly, Dutch bank SNS was nationalised after being classified as 'systemically important' by the national government on Friday. The bank’s large exposure to real estate had damaged its capital position and shut it out of the wholesale funding market. Private sources of capital couldn’t be found, leaving the bank in a precarious position.

The government clearly felt that a bankruptcy would be disastrous to the Dutch banking system, so nationalisation was the next step. SNS had acute problems that were specific and not necessarily shared by other banks. However, the announcement by the Dutch Ministry of Finance could have implications for banks across the whole of Europe.

In Britain, the government there has announced that UK banks - including Barclays, HSBC and RBS - will be broken up if they do not follow new rules to ring-fence risky investment operations from retail banking.

And Spanish and Italian bond and stock markets tumbled overnight, bringing a months-long rally to an abrupt halt as investors pulled back amid a political storm in Madrid and as Silvio Berlusconi staged an electoral fightback in Italy. Yields on Spanish sovereign debt suffered their biggest one-day percentage jump since September as the row over slush fund allegations engulfed prime minister Rajoy and his party.

In the US, bank regulators and lawmakers are also pushing to limit the risk that the government again winds up financing the rescue of one or more of the nation’s biggest financial institutions.

Strategies being considered range from laws that would cap the size of big banks, make them raise more capital, regulate them to discourage mergers, and require them hold specified levels of long-term debt to convert into equity in a failure.

Closer to home, Australia's competition watchdog has sued credit card company Visa for alleged "misuse of market power". The regulator alleged that Visa "engaged in exclusive dealing" and barred retailers from using rival currency conversion services. The outcome of this case could have implications for retailers here and give a significant opportunity to non-bank fx dealers.

Late today the RBA will review its official rates. No change is expected from that review.

The Dow is down 0.8% in mid-day trade. Oil is down, but gold is up.

The New Zealand dollar starts today retaining its recent gains at 84.6 USc, 81.2 AUc, and the TWI starts at 76.3, edging closer to the all-time high of 76.9.

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8 Comments

by dh | 5th Feb 13, 9:15am 1360008955

Reserve Bank of Australia announces its economic predictions have been no more accurate than tossing coins.

http://www.abc.net.au/news/2013-02-04/economic-forecasts-no-better-than…

by David Chaston | 5th Feb 13, 9:17am 1360009024

There has been a good continuing recovery in readymix concrete production in NZ in Q4.

http://www.interest.co.nz/charts/commodities/readymix-concrete

This is a bounceback-plus from the unexpectly low Q3 levels, and is up almost +18% from the same quarter a year ago.

This data won't hurt Q4 GDP.

by Gareth Vaughan | 5th Feb 13, 9:24am 1360009483

Here's the latest from the IMF on Spain:

Statement on the Second Financial Sector Monitoring Mission to Spain

Press Release No. 13/34

February 4, 2013

A staff team from the International Monetary Fund (IMF) visited Madrid January 25-February 1 for the second independent monitoring mission of the financial sector in the context of the European financial assistance for bank recapitalization, as agreed with the Spanish authorities and the European Commission (EC) on July 20, 2012 (see Terms of Reference). The team met with official and private sector representatives and presented its preliminary findings to the Spanish authorities and their European partners at the end of the visit. A final report will be conveyed to the authorities and the EC in early March.

The main finding of the mission is that major progress has been made in implementing financial sector reforms. The program remains on track: the clean-up of undercapitalized banks has reached an advanced stage, and key reforms of Spain’s financial sector framework have been either adopted or designed. Indeed, the bulk of all of the measures for the entire program have now been completed. Going forward, it will be important to maintain this momentum with strong completion of initiated reforms and continued vigilant oversight, as risks to the economy and hence to the financial sector remain elevated as Spain undergoes a difficult process of fiscal and external adjustment.

More specifically, the mission’s preliminary findings include the following:

On bank recapitalization: Action is being taken to address banks’ capital shortfalls. This clean-up is a major achievement that should strengthen confidence in the system and improve its ability to support the real economy. Remaining elements of the recapitalization and burden sharing exercise should be completed in a timely manner and in ways that minimize taxpayer costs.
On SAREB: Important progress has been made. Key achievements include the establishment of the company, the receipt of real estate-related assets from the weakest banks, and the adoption of strong servicing agreements with participating banks to manage the transferred assets. Going forward, policy priorities to address remaining challenges include the completion of an updated and comprehensive long-term business plan and robust implementation of servicing agreements to safeguard the value of SAREB’s assets.
On monitoring and maintenance of financial stability: To safeguard the program’s gains, it will be important to continue closely monitoring the health of the financial system. To facilitate this as well as the forthcoming partial transfer of supervisory powers to the European Central Bank (ECB), specific timelines should be drawn up to implement the Bank of Spain’s recent proposals to strengthen its supervisory procedures.
On savings bank reform: The draft law to reform the savings bank system is a welcome step aimed at enhancing these banks’ governance and reducing risks to financial stability. It will be important to ensure that the draft law sets effective incentives for former savings banks to gradually divest their controlling stakes in commercial banks.
On household indebtedness: We welcome the government’s plan to increase the protection of the most vulnerable mortgage debtors, while maintaining this sector’s historically strong credit discipline.

The third financial sector monitoring mission is expected to take place in the second quarter of 2013.

by waymad | 5th Feb 13, 9:33am 1360010010

Good points made by JW over at the Torygraph re banking regulation:

"the messages on banking and the City are becoming ever more mixed. Regulators urge banks to raise more capital while simultaneously making it harder for them to do so. Criticised for lending far too much during the boom, bankers are now told that they are not lending nearly enough even as the capital requirements governing higher risk forms of small business lending are raised ever higher.

Royal Bank of Scotland is told that it must axe bonuses this year in punishment for the Libor scandal, but by doing so it only floors the bit of the business – investment banking - which is making all the money, thereby depriving RBS of the profits it needs to work off its bad debts. The Government wants a business it can sell back to investors at a profit, but seemingly it undermines this endeavour at every available opportunity. Again, the City is celebrated by the Government as a British success story on the one hand, but is demonised on the other for allegedly wiping 10pc off the country’s wealth (Osborne’s figure). Politics is a mass of compromises and contradictions, I know, but for heaven’s sake make up your mind."

by Happy123 | 5th Feb 13, 11:26am 1360016777

I worked at the FSA in 2004 when the then CEO John Tiner proposed capital adequacy requirements for the UK banks. It prompted Tony Blair (then PM) to say "any regulation that effects the international competitiveness of our banks is unacceptable".

The banks are not the only ones hamstrung by the politicians.

by Gareth Vaughan | 5th Feb 13, 9:49am 1360010985

The new challenge for British bankers. Find your way through or around an electric fence:

But Osborne said he was prepared to go further. "If a bank flouts the rules, the regulator and the Treasury will have the power to break it up altogether - full separation, not just a ring-fence. In the jargon, we will 'electrify the ring fence'," he said - http://www.afr.com/p/world/britain_sets_out_new_law_to_break_xJ2dA2Kwt7…

by notaneconomist | 5th Feb 13, 3:30pm 1360031438

Export opportunity for NZ here. Those Council staff administering the RMA are damn good at ring-fencing...... heck they can stop just about anything from happening at all.

Maybe Britain would like to hire these staff from NZ....... Anyone know the going rate?

Would a declaration of contents be necessary?

Can someone write a disclaimer?

Exports of products GST free....check.....

Price per hour.........? I reckon if the Brits give them free board n grazing I'd be happy.

by goNZ | 5th Feb 13, 3:03pm 1360029831

Maori bullies up to usual tricks at Waitangi - nothing that a taser wouldnt handle tho - dunno why the PM puts up with it actually

Hone Harawira says no one will tell his mum what to do.

Heated discussions about who would escort the Prime Minister onto Te Tii Marae delayed John Key's welcome by over half an hour this morning.

The Mana Party MP says it's a job his mum, Titewhai, has done for years, and will continue to do.