Death Star Economics



“Unlike cigarettes, banks don’t actually kill people”

Unlike cigarettes, banks don’t actually kill people.” That’s how Anthony Browne, new head of the BBA, the British Bankers Association, opened the organizations annual conference. The BBA is currently working on a proposal to have City bankers register with an independent organization, which can ban them from their profession in case of ethical or professional misconduct. A regulation like that would exceed the power of the FSA (Financial Services Authority), which only extends to senior-level management and traders. read article

In other banking news, Credit Agricole is getting closer to selling its Greek operations Emporiki to Alpha Bank, after looking to strike a deal for months. Alpha Bank is Greece’ second largest bank and if you’re thinking “where in god’s name did they get the money from?”, just bear with me. The total price will amount to €1, a joke, an insult, a token fee. Overall, Credit Agricole will lose around €2bn on the entire operation (including transaction fees of more than €300m), as the Wall Street Journal reports.

As part of the deal, Credit Agricole will need to inject an additional €550 million into Emporiki before the sale, which it hopes to complete by year-end. It will also need to maintain a €1.4 billion credit line to Emporiki that the Greek bank would repay in three installments over the next two yearts.

Yesterday’s big news came in right after lunch, with Citigroup’s CEO Vikram Pandit resigning after five years of service. Pandit had been with Morgan Stanley for ages, then left Wall Street to start his own hedge fund, Old Lane, which was then bought by Citigroup, who promoted Pandit in practically no-time. Rumor has it that Pandit may have resigned over disagreements with the chairmen of the board, but other sources say the parting had been on perfectly friendly terms. According to the FT:

Michael Corbat, the new chief executive, said he did not want “to alter the strategic direction” of Citi, with a continued concentration on increasing the size of its emerging markets business and the shedding of the remainder of Citi Holdings, the “bad bank” of non-core assets.

Corbat was formerly Citi’s head of international operations for EMEA. But despite the above statement, changes of direction due to new management are likely. Plus, all this is following Sandy Weill’s (ex-chairman) comment regarding the necessary separation of investment and retail banking, which had led to the initial formation of Citigroup in 1998.

Also in the US (and also yesterday, sorry about that), a more acceptable presidential debate took place between Barack Obama and Mitt Romney. Obama was more on his A-game than last time, but it appears that the jury is still out on who won. The Washington Post has put another 2-minute summary video together. So is anyone going to turn this into a rap battle a la Keynes vs Hayek or what?!

Otherwise, happy news for the UK, with employment number rising and jobless benefit claims falling between August and September. The unemployment rate beat expectations by 0.3% and the overall number of working people rose to the highest level ever recorded (i.e. since Q1 1971, when ‘records began’). read article

Yesterday (jesus…) was a historic day for Cuba: the country abolished its travel restrictions and announced that its citizens will be able to leave the country for up to 24 months starting on January 14, 2013. A Cuban blogger responded saying the island would be empty come January. read article

So long.


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Fixing Libor, fixing the law

After the worst of the storm has gone, the Financial Services Authority has announced its reform of Libor. Unfortunately, the quest for an alternative benchmarking index failed, and so the new-old-Libor will just use transaction data instead of banks’ estimates to calculate the London Inter-Bank Offered Rate. However, there is no rule on the publishing of said transaction data so far.The BBA, the British Banker’s Association, will be stripped of its responsibility for monitoring the rate, passing the job on to the FSA, at least for the interim. The BBA’s administrator role will be publicly tendered (apparently, Bloomberg has its own proposal).

Alphaville summarizes: more banks will be involved (i.e. transactions from more banks will be taken into account), rate submissions will be kept confidential for three months, daily fixings will be reduced to 20 (from 150 and five less for currencies), the FSA will approve every individual in the banks involved in submitting rates, banks will need to add an explanation/reasoning to their rate estimates, the BAA will be replaced and manipulation will become a crime.

The Spanish budget was announced, featuring all those expected austerity measures that are likely to infuriate the Spanish people. According to the new plan, government spending will be cut by 8.9%, while tax revenues are forecasted to rise by €5bn to €175bn in 2013, partly through an increase in sales tax. Although Spain’s Finance Minister Luis de Guindos said the EU had still not specified the terms and conditions of a possible bailout, the new budget follows many of Brussel’s recommendations.

Also on the budget bandwagon: France. In an effort to reduce the budget deficit, the FT calls it the harshest budget in 30 years. Despite the sensationalist sound of that, they may not be far off. Tax revenues will increase by €20bn, mostly through increased taxes on corporations and the upper income tax brackets. And yes, that includes the 75% marginal income tax rate on earnings above €1m. Most people who are subject to this tax increase will have left by now, or are heading to the airports as I type. At least, it spares France the kind of austerity measures and cuts that cause riots in other parts of Europe. For 2013, France’ debt to GDP ratio is expected to be 91.3%, with net debt issuance falling by €8bn [to €170bn] from this years rate. read article

With quarter three ending today, the spotlight turns to the US presidential election. According to the German Handelsblatt, George Soros put $1m towards Obama’s re-election last night. Gillian Tett writes in the FT’s Market Insight column that according to a recent study by Absolute Strategy Research shows that in terms of economic data, voters care most about real estate prices. Following the housing bubble and subprime mortgage crisis that tore holes in the US economy, this is little surprising.

Weekend reading:

– Gender debate: Heidi Miller (formerly JP Morgan) an how women are weakread article

– The US’ states of play: an election infographicread article

– China’s first aircraft carrierread article

– Popculture explosion: “Gangnam style” actually made it into BusinessWeek, read article

Have a good one.

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