MarketLine Blog

Posts about Banking

Car Loan Debt: Consumer debt getting out of control and risky betting on subprime loans

MarketLine

There are worries of a financial bubble forming in the car finance industry. Both in the UK and USA there has been a growing prevalence for dealers and manufacturers to offer PCP finance deals and this has led to a culture of consumers viewing vehicle ownership as direct debit agreements. This has rapidly increased new car registrations and thereby the amount of consumer credit and house debt that buyers are taking on because the amount of new vehicle sales that are funded by finance options is above 80%. Worryingly many… Read more

Another headache for RBS as European Commission probes plan to abandon Williams & Glyn sale

MarketLine

It seems like an eternity since the European Commission (EC) told RBS that it needed to divest of some of its banking operations as a result of receiving state aid in the form of a bailout. The EC argued that it would be unfair to enjoy such a position of power in the UK banking market (particularly in the SME segment) having needed such an injection of government cash. Almost nine years on from receiving that funding, the bank is no closer to any such divestment, having seen three separate… Read more

The Digital Age: A Hackers delight

MarketLine

Online storage is a huge leap forward in technology, allowing files to be accessed from anywhere without the need to send them via email. Files can be shared in a much simpler fashion and can be locked to ensure that any changes made are present in a single file as opposed to numerous versions of the file. This online system serves as a backup for companies and customers. A network of banking telecommunications (SWIFT) has been the target of numerous hacking and data leaks over recent years, serving to reduce… Read more

Brexit – the meaning of a messy divorce for the Euro area.

MarketLine

The lending channel between many industries and banks in the Euro area has been far from normal since 2008. This factor puts Britain in a better position to negotiate Brexit next year. The Euro area will embark on a period of further unprecedented slowdown by detaching itself from the world’s fourth largest economy. Credit to industries coming from the banking sector is key for the region to grow as the single currency area has a bank-based model as opposed to a capital market model. Debt financing to companies is largely… Read more

Trump’s win is good news for US economy

MarketLine

Donald Trump’s whole mantra during his campaign (as evidenced by his rather natty headwear) has been to ‘Make America Great Again.’ In order to do this, he knows he must make the US competitive on the global stage. He has pledged to reduce taxes heavily for low and middle income Americans and also to make sure that the wealthy (including corporations) do not pay too much as that undermines jobs. This should help boost the currently questionable level of job creation and to increase spending power, which should in turn… Read more

An inconvenient truth about the euro area

MarketLine

The creation of the euro area was a mistake. Top ranks of business and political classes in Europe were expecting an explosion in trade and economic activity following the creation of the single currency area in 2002. The euro would lubricate the integration of the newly formed euro area. It would be possible to achieve higher levels of growth and long-term prosperity. Unfortunately, the real GDP of the euro area increased only by 1.8% per year between 2001 and 2006 and by merely 0.2% per year within the 2007 -2015… Read more

Uncertainty over political events trumps fundamentals as markets fall

MarketLine

On Thursday June 23, 2016 the UK went to the polls to decide on its future as a member of the European Union (EU). By a small margin, the country opted to leave and despite the fact that no steps to enact Article 50 have yet been taken by Theresa May and her government, speculation about an imminent implosion of the British economy has been rife, damaging the value of the Pound and serving as a rather convenient scapegoat for everything from companies’ poor performance to increased prices, to political… Read more

China’s banking industry: BIS scaremongering unwarranted but warning signs must be heeded

MarketLine

China’s economic growth has been slowing for a while now and while it remains healthy, there are concerns over the state of the country’s banking industry. Non-performing loan (NPL) rates have been increasing, with some of the country’s biggest banks seeing a surge in that particular metric. Bank of China and ICBC saw noticeable increases in their NPL rates during 2015, necessitating greater allowances for credit losses, while Agricultural Bank saw something of a surge from 1.54% to 2.39%, with the retail and wholesale industry the main cause for concern…. Read more

Williams & Glyn: RBS abandons spin-off IPO plan

MarketLine

To comply with European Commission State Aid requirements, RBS agreed in 2009 to a series of restructuring measures that were to be implemented over a four year period. One of these measures was the divestment of the RBS branch network in England and Wales and the NatWest branches in Scotland. This was scheduled to be completed by 2013, but an extension was granted after the original bidder, Santander, pulled out. A consortium known as Corsair stepped into the breach and invested, facilitating a later sale or, more likely, an IPO…. Read more

Block Chain Tech The DAO becomes the largest crowd funding campaign in history

MarketLine

Block Chain technology is seen as the key breakthrough which allowed the development of Bitcoin, the enormously successful cryptocurrency. The Block Chain stands as proof of all the transactions on the network and the block is the live part of a Block Chain which records all of the recent transactions. When completed the individual block goes into the Block Chain as permanent database or ledger. Each block is arranged properly in chronological order and connected to the block next to it. Looking at the banking system for instance, this would… Read more

Williams & Glyn: Future of RBS spin-off in doubt as launch delayed

MarketLine

Overly ambitious growth strategies initially brought great success for RBS and the company was seen as the darling of the stock market, consistently delivering double digit growth. However, the company swelled to such a size that its assets were twice the size of the UK economy and a woefully ill-advised acquisition of ABN Amro in 2007 as part of a consortium tipped the bank over the edge as it took ownership of a large amount of toxic assets. The weakness was ruthlessly exposed during the global crash of 2008/2009 and… Read more

UK Economy – held back by euro area Treaty

MarketLine

The Maastricht Treaty has been slowly asphyxiating any possibility of sustained economic recovery in Britain. It has been partially responsible for the erratic recovery of manufacturing, production and construction industries. The Gross Domestic Product (GDP) of Britain peaked back at pre-crisis level in the second quarter of 2013 driven mainly by the growth of the services industry. This industry is 13 per cent larger in value compared to 2009 (figure below). Production, construction and manufacturing industries are on average 7% smaller than their pre-crisis levels. The majority of UK industries… Read more

A new dynamism for major European economies

MarketLine

The expansion of household debt in Europe in the 1980s, 1990s and 2000s was unprecedented by historical standards and the economic growth of European countries has become partially dependent on it. The numbers from the Bank of International Settlements (BIS) and Marketline analysis reveal that the outstanding credit from the banking system to European households increased more than 170%, in nominal values, from US$4tn in 1995 to more than US$ 11tn by the end of the 2000s. In the UK alone, household debt is running at US$2.4tn which represents an… Read more

Market maturity and intense competition forces banks to expand overseas

MarketLine

Overseas expansion is a key trend in the global banking industry as many major players look to reduce their reliance on mature and intensely competitive domestic markets. The push for overseas expansion is beginning to kick start M&A activity within the sector. CCB, ICBC, Credit Agricole, and Mitsubishi UFJ have all engaged in M&A deals that involve the purchase of at least a stake in a non-domestic player since 2013. As explored in detail in the MarketLine case study Top ten global banks: An analysis of financial performance, growth opportunities… Read more

Rise in non-performing loans potential time bomb for China’s swollen banks

MarketLine

As measured by total assets, four of the ten largest banks in the world are now headquartered in China. As the Chinese economy has swelled, so too have the balance sheets of its largest banks. This has spurred great growth in operating incomes and net profit as demand for credit has soared. However, there are signs that the curse of non-performing loans (NPLs) that wreaked such havoc with the West’s banking system could potentially strike China, a ticking time bomb if left unaddressed, with several economic sectors posing a significant… Read more

Prosperity based on debt

MarketLine

A large number of European governments were keen to embark on the deregulation of the financial sector in the 1980s. The deregulation in Europe was initially proposed in the United Kingdom by the Prime Minister Margaret Thatcher and, subsequently, adopted by a large number of European governments. It opened up the doors to the addiction of European consumers to credit. Waves of bank loans and mortgages became available to consumers and it quickly turned into a necessity. Later on, it became clear that banking in Europe turned into a highly… Read more

Sabadell’s TSB takeover sparks wave of optimism

MarketLine

On Friday (March 20), Spanish banking group Banco Sabadell announced that it had reached an agreement to acquire UK high street bank TSB, sparking talk of a potential wave of M&A activity. The cash offer of 340p ($5.60) per share represents a premium of 30% on the June 2014 flotation price of 260p ($4.28) and a slight premium on the current share price of 333p ($5.48). The advantages for all parties are clear. For its part, Banco Sabadell is prepared to pay a premium for what it sees as growth… Read more

Lloyds success to pave way for RBS sale?

MarketLine

The UK government has sold another tranche of the shares it owns in the Lloyds Banking Group – one of the banks controversially bailed out during the financial crisis. The latest round of sales, aimed to capitalise on prices close to the 12-month high, have coincided with Lloyds’ announcement that it will commence paying dividends for the first time since the bailout on the back of a fourfold increase in the group’s underlying profit. UK Financial Investments (UKFI), the entity set up to manage government stakes in bailed-out banks, had… Read more

Bank of America and Citigroup: Poor Q4 results see share prices fall sharply

MarketLine

Yesterday (January 15), Bank of America (BoA) and Citigroup announced underwhelming results for Q4 2014 that seemingly caught the market off guard and caused share prices in both banks to fall. Bank of America announced Q4 revenues of $18,955m, down 12.7% on the same period a year earlier. Net income also fell from $3,439m in Q4 2013 to $3,050m, a drop of 11.3%. This has impacted preliminary 2014 full year results as revenue has fallen 5.2% on a year-on-year basis, and net income by a staggering 57.7%. Citigroup’s results did… Read more

Barclays: Can global restructuring boost bank’s profits?

MarketLine

In February 2013, Barclays CEO Antony Jenkins announced a new group strategy with the central aims of simplifying the bank’s operations and boosting profitability. The plan, termed by Jenkins as a ‘bold simplification of Barclays’, involves the establishment of a ‘non-core’ operation consisting of assets and businesses that Barclays plans to run down or exit, a noticeable reduction in headcount, a scaling back of investment banking operations, increased automation of banking processes, and changes to the bank’s UK branch network. As explored in the MarketLine case study ‘Barclays PLC: Reshaping… Read more

Developments in international tax important for multinational corporations

MarketLine

Outrage in the press can cause confusion about the process of tax planning. The nuanced relationship between the spirit and the letter of the law, and wider issues such as the conflict between disparate national tax systems and competitive international trade are therefore often missed. A recent MarketLine case study gives detailed examples of tax planning involving both multinationals and private individuals as well providing insight into changes in tax policy and the debate around the morality of tax avoidance. Although tax law itself may not be the most exciting… Read more

Commonalities between Japan, United Kingdom, US and the Eurozone – Fixing the Financial System but not necessarily the Economy

MarketLine

The Bank of Japan (BoJ) was the first central bank to adopt quantitative easing (QE) to fight the upsurge of a deflationary path in 2001. At that time, the feeble GDP reflected the collapse of aggregate demand following a financial crisis in the late 1990s. The most vicious side effect of a collapsing aggregate demand was a generalized decline in prices and production, which was already a reality in Japan at the beginning of the 2000‘s. In response to highly negative events, the BoJ launched the Quantitative Easing program (QE),… Read more

Barclays to cut 19,000 jobs in major shakeup

MarketLine

Barclays has today announced that it is to cut 19,000 jobs by the end of 2016 as it plans a major operational shakeup. According to the announcement, almost half the job losses (around 7,000) will be in the UK, with Barclays investment arm most heavily affected as CEO Antony Jenkins comes under pressure to increase profits at the bank. Barclays also announced plans to set-up a so-called ‘bad bank’ to manage, and then either run down or sell off £115bn (approximately $179.7bn) of non-core operations. Unsurprisingly, this includes around £90bn… Read more

Financial services from Facebook?

MarketLine

Is Facebook planning to enter the European money transfer market? Yes, according to a report in the Financial Times that has been widely disseminated in the media. If so, it’s a bold move, but potentially a highly lucrative one. Let’s look first at the lucrative bit. The global money transfer market is huge and growing. One driver is remittances: money sent home by migrant workers. The figure below shows net transfers (inflows minus outflows) for several regions of the world. It is clear that between 1990 and 2010, there has… Read more

Euro Area Malaise

MarketLine

The pace of economic recovery in the Eurozone is yet to gain momentum. Real Gross Domestic Product, which is the gross income of the entire region, rose by 0.1% in 2013, following a decrease of 0.4% in 2012. However, according to the latest projections of the European Central Bank, “a gradual recovery in domestic and external demand is expected to be the driving factor behind the projected sustained increase in activity in 2014.” Let’s not forget that the financial crisis has had a permanent impact on the Gross Domestic Product… Read more

Polymer notes announced for UK arrival in 2016. De La Rue to capitalize?

MarketLine

The Bank of England announced on 18th December 2013 that they are planning to change the UK’s paper £5 and £10 bank notes to plastic, polymer bank notes in 2016 and 2017, respectively. The Bank of England took to shopping centers nationwide to gauge public interest on the change to polymer notes. Out of the 13,000 people who participated in the consultation, 87% of respondents were in favor of the change, 6% opposed it and 7% were neutral. There have been a few issues raised by the public, such as… Read more

The rise, fall and rise of Bitcoin

MarketLine

The digital currency Bitcoin has experienced a surge in value in recent weeks, increasing rapidly since October to exceed a value of $900 for one unit on the Bitcoin exchange Mt. Gox. The value of Bitcoin fell to $125 after the closure of the Silk Road (a website where users could buy and sell illegal items using Bitcoin) by the FBI on October 2nd 2013, but has since rallied well to briefly reach $900 on November 19th, before falling to below $500. One of the reasons linked to this sudden… Read more

Islamic finance presents opportunities for US banks

MarketLine

Islamic, or more accurately Sharia-compliant, finance is a huge potential market for specialist providers and global banking giants alike. Estimates place the global Muslim population at 1.6 billion, equivalent to approximately 23% of the world total, this offers an excellent potential client base but the range of available Islamic finance products and services is largely under-developed. Some countries with majority Muslim populations, such as Malaysia and Saudi Arabia have relatively advanced offerings, and although there are signs that the market in Europe is finally taking off in earnest, North America’s… Read more

Banking regulator for 28-nation EU by November 2014?

MarketLine

Back in September 2012, the European Commission (EC) proposed a European Union (EU) banking regulator, which has come to be known as the Single Supervisory Mechanism (SSM), to oversee the 28-nation bloc’s banking sector. This week, the establishment of such a body moved a step closer. Lithuania’s Finance Minister (Lithuania currently holds the EU’s rotating presidency) Rimantas Sadzius announced yesterday that he was “very glad to note the adoption of this very important single supervisory mechanism package.” Michel Barnier, Commissioner responsible for internal market and services,  was even more enthused… Read more

With Dread Pirate Roberts arrested, and Silk Road shut down, what next for Bitcoin?

MarketLine

With recent major news events covering the FBI’s arrest of Dread Pirate Roberts (Ross Ulbricht), the accused owner and mastermind behind the dark web’s primary illegal online marketplace Silk Road, Bitcoin has once again found itself in the spotlight. With the FBI seizing approximately $3.2m in Bitcoins, and the subsequent drop in value on the digital currency’s exchanges, Bitcoin once again finds itself in a difficult situation. First of all what is Bitcoin? Bitcoin is a form of crypto-currency with its origins dating back to 2008. It utilizes cryptography, a… Read more