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Commerzbank to shed i-bank; Delta Lloyd shuns NN; Asya shops insurance units

Broadband Only Homes Skyrocket In 2018 Validating Top MSOs Connectivity Pivot

Street Talk Episode 40 - Digital Banks Take a Page Out of 'Mad Men'

Power Forecast Briefing: As retirements accelerate, can renewable energy fill the gap?

2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Fundamentals View


Commerzbank to shed i-bank; Delta Lloyd shuns NN; Asya shops insurance units

Citi rates Europe's banksat 'overweight': Analysts at Citigroup upgraded their recommendationon Europe's embattled banking sector to "overweight" from"neutral," suggesting that buying European banks would be "theworld's most contrarian trade," CityA.M. writes.

* ECB chief economist Peter Praet said the central bank remainscommitted to upholding its ultra-easy monetary policy "to secure a returnof inflation to levels below, but close to, 2% over the medium term."

* ECB supervisory board member Ignazio Angelonisaid banks under the ECB's supervision are expected to meet the central bank'scapital requirements in addition to meeting their compulsory capitalrequirements, noting also that an overall softening of capital requirements isnot warranted at this time, Reuters reports.

UK AND IRELAND

Merkel takes toughstance on May plans:German Chancellor Angela Merkel said unless the U.K. fully accepts the fourbasic EU principles of freedom of goods, services, capital and people, it willnot be granted full access to the bloc's single market, The Wall StreetJournal reports. Her comments follow U.K.Prime Minister Theresa May's statements that she would prioritize immigrationcontrols in Brexit negotiations.

* Meanwhile, IMF chief Christine Lagarde defended the fund's stark warnings about the potentialimpact of the Brexit vote a week before the referendum, saying it was the IMF'sjob to call attention to risks to the economy, The Daily Telegraph notes.

* U.K. Chancellor Philip Hammond dismissedspeculation that the government will pursue a "hard Brexit" in itsnegotiations with the EU, Bloomberg News reports.

* Separately, Hammond said he would welcome it ifMark Carney decides to extend his term as Bank of England governor for anotherthree years, Sky News writes. Carney initially agreedto serve a five-year term, which began in 2013.

*  thismorning confirmed that its offer for SVG Capital plc is being extended and will remain open for acceptance until Oct. 13, andurged shareholders to accept the offer "without delay." SVG Capitalhas deemed the offer too low.

* Barclays Plc agreed to sell its U.K. trust business to ZEDRA — an independentspecialist in trust, corporate and fund services.

*  isconsidering taking on MBNALtd.'s liabilities related to payment protection insurancemisselling in a bid to beat rival bidders, insiders tellBloomberg News. Barclays, however, has lost interest in the unit overantitrust concerns considering its Barclaycard division.

GERMANY, SWITZERLANDAND AUSTRIA

Commerzbank to losei-bank: CommerzbankAG is planning to bundle and spin off its investment bankingbusinesses, including exchange traded funds, certificates and other structuredfinancial products, as it faces rising costs due to tougher regulations, Frankfurter Allgemeine Zeitung reports.CEO Martin Zielke said the bank would first create an independent unit thatwould then be sold or floated in the medium term. The move would free up €500million in net capital tied to its investment banking operations and reducebalance sheet risks by €6 billion. Stricter regulations would increase theserisks to €8 billion in the coming years.

*  is holdinginformal discussions with senior advisers at Wall Street banks to explore itsoptions, including a stock sale to raise about €5 billion and asset disposals,insiders tellBloomberg News. A decision to sell the shares will largely depend on the sizeof the U.S. Department of Justice's fine on a probe linked to RMBS, which wasoriginally mooted at $14 billion.

*Deutsche Bank is preparing to float a minority stake of its assetmanagement unit, insiders tellthe Financial Times. No decision hasbeen taken yet and any such move is unlikely to take place before the firsthalf of next year.

* Handelsblatt reportsthat the CEOs of several Germanblue-chip companies are prepared to offer Deutsche Bank a capital boost in thesingle-digit-billion-euro range if necessary. Under an emergency plan, thecompanies will purchase the bank's stocks to help shore up its reserves.

* Meanwhile,Deutsche Bank announced plansto cut another 1,000jobs in Germany in addition to the 3,000 layoffs already agreed inthe first round of negotiations with employee representatives in June.

* Nearly 1,000 employees at volunteeredfor a redundancy plan, Reuters says.The UniCredit SpAunit will decide on the final number of job cuts at the end of the month.

* SparkasseHannover plans to cut 200 jobs by 2019, Handelsblatt reports.The bank also plans to reduce the number of branches in the greater Hannoverarea by 20 to 99.

* UBS GroupAG is launchingan online asset management service starting at €100,000 for private customersin Germany. Finews.ch has a report.

FRANCE AND BENELUX

Delta Lloyd turns NNdown:  thismorning turned down an unsolicited takeover bid by NN GroupNV. The latter has offered €5.30 in cash per ordinaryDelta Lloyd share, and said it plans to suspend the remaining outstanding partof its €500 million share buyback program in light of the offer.

* NN Group may have to sweeten its bid, raising its offer to€5.80 per share, De Telegraaf writes,citing ING analysts, who also noted uncertainty regarding Delta Lloyd's mainshareholders, Fubon, which is said to be keen to increase its 20% stake.

* Low interest rates and increased costs may forceBNP Paribas Fortis SAto close as many as 40 of its 787 branches in Belgium, Het Financieele Dagblad reports.

* CrelanNV is preparing a restructuring plan that is likely to result injob losses, accordingto L'Echo, which says details willbe released after a board meeting in two weeks.

* The Belgian government is considering scrapping thecontroversial speculation tax, De Tijdsays.The tax, which forces investors to pay 33% on any profit they make from shares,options and warrants if they buy and sell within six months, was introduced inJanuary. L'Echo also reports.

SPAIN AND PORTUGAL

Popular Españolrestructuring entails 302 branch closures: will close302 branches and reduce regional headquarters to 25 under its new restructuringplan, Expansión reports.

* Portuguese authorities informally set the end of October asthe deadline for candidates to present proposals for the acquisition ofNovo Banco SA, Público reports.If the offers are not attractive, the alternative solution will be prioritized,with China Minsheng Banking Corp.Ltd. expected to emerge as a leading investorin a private placement, Jornal deNegócios adds.

* Weeks before a crucial decision on Portugal's investmentgrade status, DBRS — the only one among the big four rating agencies to stillmaintain the country's investment grade rating — warned that the Portugueseeconomy is stuck in a "vicious cycle" of high debt, low growth andstalling economic reforms, the FinancialTimes notes.

ITALY AND GREECE

Apollo, Atlante mull joint bid for 4 rescued lenders:Apollo and Italy's Atlante fund are discussing the possibility of making ajoint offer for the four Italian banks bailed out last year if an alternativedeal that would see Unione diBanche Italiane SpA purchase three of the four lenders fallsthrough, Il Sole 24 Ore says.

* Banca Montedei Paschi di Siena SpA is expected to allow investors to take partin a voluntary conversion of their subordinated bonds into equity ahead of theconstitutional referendum slated for Dec. 4, while the bank's capital increaseof up to 5billion is expected to begin immediately after the referendum and complete byChristmas, MF writes.The Qatari and Kuwaiti sovereign wealth funds could buy shares in the capital increaseand also each invest roughly 1billion in the senior tranche of nonperforming loans the bank is preparing tosell, Il Messaggero says.

* Veneto BancaSpA has called a shareholders meeting for Nov. 16 to vote onpossible legal action against previous management, Reuters notes.

* BancaGenerali SpA General Manager Gian Maria Mossa tells Il Sole 24 Ore that thebank is not in negotiations to buy FinecoBank SpA.

* Attica BankSA Deputy CEO Athanasios Tsadaris said the bank will issue €380million of government-guaranteed bonds that will be used as collateral for thebank to receive Emergency Liquidity Assistance from the central bank, Euro2day writes.

NORDIC COUNTRIES

Nordea offer for ABNAMRO shunned: Nordea Bank AB(publ) has been in takeover talks with Dutch lender in recentmonths, but the Netherlands, which owns 77% of ABN, turned down the offer, Het Financieele Dagblad reports.Berlingske Tidende also covers.

*  said its board ofdirectors does not recommend that its shareholders accept 's mandatory offer. The boardbelieves the bid does not represent an attractive offer price.

* Topdanmark alsoannounced its profit forecast model for 2017, saying it expects a practicallyunchanged premium level for nonlife insurance in 2017, and a combined ratio of90% to 91%, excluding run-off. 

* Danish industrialist and investor Eigild BødkerChristensen is thought to have acquired a minority shareholding in . The size of theequity purchase is not known, FinansWatch writes.

EASTERN EUROPE

Asya shops insuranceunits: Asya Katilim BankasiAS, whose banking license was canceled in July, has put insurancesubsidiaries Asya Emeklilik ve Hayat and Isik Sigorta on sale for 33.2 millionlira and 40.8 million lira, respectively, Sigorta Medya says.

* The N1.1 core capital adequacy ratio of fell below 5.1% in September, after which the bank wrote off 1.5 billion rublesof subordinated debt to maintain its core capital ratios, Vedomosti says.

* The authorities of Sevastopol, a city in Russia-annexedCrimea, decided not to transfer a 25% holding in Genbank to the Crimeangovernment, Kommersant writes. The transfer was needed inorder to consolidate Genbank with Black Sea Bank of Reconstruction andDevelopment.

* Polish regulator FSA will verify the size of individualcapital buffers for banks with FX mortgage exposure by the end of October, PAP says,citing FSA deputy head Wojciech Kwasniak. Also, the FSA is working on arecommendation for banks to start offering fixed-rate mortgages in Poland, Rzeczpospolita and Parkiet write.

* RaiffeisenBank International AG CFO Martin Gruell said the bank will most likely have to keep the Swiss franc loanportfolio of its Polish unit, Raiffeisen Bank Polska SA, Reuters reports. RBI CEOKarl Sevelda said the management board will most likely not propose adividend for 2016.

* Azerbaijan's Bank Standard CJSC was declared bankrupt and its licenserevoked, Reuters reports.

* Low interest rates will continueto negatively affect revenue and profits of Hungarian banks in the next fewyears, although all major financial institutions expect to end 2016 in theblack, Reuters reports, citing the CEOs of various Hungarian lenders.

* The share of problem loans in the Ukrainian banking systemstood at 30.6% at the beginning of September, Delo.ua says,citing the Ukrainian central bank. The regulator noted, however, that thefigure could be higher because banks with Ukrainian capital are slow inrecognizing problem loans and setting aside required provisions to cover them.

IN OTHER PARTS OF THEWORLD

Asia-Pacific: Goldman buys Postal Savings Bank shares; RBI eases interbank loan norms

Middle East & Africa: Bank Hapoalim raises provisions; Emirates Islamic launches rightsissue

Latin America: Banco do Brasil ends partnership with postal service; Fenabansweetens wage proposal

North America: Caldwell Holding to buy Progressive National in Louisiana; 2Wisconsin banks strike MOE

North America Insurance: MetLife to spin off retail biz; insurers, reinsurers brace forMatthew losses

NOW FEATURED ONS&P GLOBAL MARKET INTELLIGENCE

Data DispatchEurope: European banks meet leverage mark, but could face G-SIB add-onchallenge: European banks are generally well-placed to meet globalstandards on leverage that come into force at the start of 2018, but thebiggest lenders could be squeezed by regulatory add-ons, according to datacompiled by S&P Global Market Intelligence.

Bankers fear'hard Brexit' as UK Tories fall out of love with the City: The U.K.Conservative Party has long championed bankers. That may be changing, just asBrexit talks mean bankers need government help more than ever.

As memory of$81M cyber heist lingers, SWIFT faces threat to dominance: Asquestions arise over the security of the SWIFT international money transfersystem, tech-savvy startups are trying to establish a foothold in the market.

Xana Kakoty, Ed Meza,Danielle Rossingh, Esben Svendsen, Beata Fojcik, Thanasis Kakalis, Ali Kayalar,Heather O'Brian, Brian McCulloch, Praxilla Trabattoni and Mariana Aldanocontributed to this report.

The Daily Dosehas an editorial deadline of 7 a.m. London time. Some external links mayrequire a subscription.


Technology, Media & Telecom
Broadband Only Homes Skyrocket In 2018 Validating Top MSOs Connectivity Pivot

Highlights

The segment stood at an estimated 23.6 million as of Dec. 31, 2018, accounting for 24% of all wireline high-speed data homes.

The following post comes from Kagan, a research group within S&P Global Market Intelligence.

To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Mar. 20 2019 — The U.S. broadband-only home segment logged its largest net adds on record in 2018, validating Comcast Corp.'s and Charter Communications Inc.'s moves to make broadband, or connectivity, the keystone of their cable communication businesses.

The size and momentum of the segment also put in perspective the recent high-profile online-video video announcements by the top two cable operators as well as AT&T Inc.'s WarnerMedia shake-up and plans to go toe-to-toe with Netflix in the subscription video-on-demand arena in the next 12 months.

We estimate that wireline broadband households not subscribing to traditional multichannel, or broadband-only homes, rose by nearly 4.3 million in 2018, topping the gains from the previous year by roughly 22%. Overall, the segment stood at an estimated 23.6 million as of Dec. 31, 2018, accounting for 24% of all wireline high-speed data homes.

For perspective, broadband-only homes stood at an estimated 11.3 million a mere four years ago, accounting for 13% of residential cable and telco broadband subscribers.

The once all-powerful, must-have live linear TV model, which individuals and families essentially treated as a utility upon moving into a new residence, increasingly is viewed as too expensive and unwieldy in the era of affordable, nimble internet-based video alternatives. This has resulted in a sizable drop in penetration of occupied households.

As a result, continued legacy cord cutting is baked in and broadband-only homes are expected to continue to rise at a fast clip, with the segment's momentum in the next few years compounded by Comcast's, Charter's and AT&T's ambitious moves into online-video territory.

Note: we revised historical broadband-only home estimates as part of our fourth-quarter 2018, following restatements of historical telco broadband subscriber figures and residential traditional multichannel subscriber adjustments.

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Q4'18 multichannel video losses propel full-year drop to edge of 4 million

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Q4'18 multiproduct analysis sheds more light on video's fall from grace

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Listen: Street Talk Episode 40 - Digital Banks Take a Page Out of 'Mad Men'

Mar. 20 2019 — Some fintech companies are making hay with digital platforms that tout their differences with banks, even though they are often offering virtually the same products. In the episode, we discuss with colleagues Rachel Stone and Kiah Haslett the deposit strategies employed by the likes of Chime, Aspiration and other incumbent players such as Ally Financial, Discover and Capital One. Those efforts conjure up memories of a Don Draper pitch in Mad Men and likely will enjoy continued success.

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Watch: Power Forecast Briefing: As retirements accelerate, can renewable energy fill the gap?

Mar. 19 2019 — Steve Piper shares the outlook for U.S. power markets, discussing capacity retirements and whether continued development of wind and solar power plants may mitigate the generation shortfall.

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Credit Analysis
2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Fundamentals View

Mar. 15 2019 — On November 20, 2018, a joint event hosted by S&P Global Market Intelligence and S&P Global Ratings took place in London, focusing on credit risk and 2019 perspectives.

Pascal Hartwig, Credit Product Specialist, and I provided a review of the latest trends observed across non-financial corporate firms through the lens of S&P Global Market Intelligence’s statistical models.1 In particular, Pascal focused on the outputs produced by a statistical model that uses market information to estimate credit risk of public companies; if you want to know more, you can visit here.

I focused on an analysis of how different Brexit scenarios may impact the credit risk of European Union (EU) private companies that are included on S&P Capital IQ platform.

Before, this, I looked at the evolution of their credit risk profile from 2013 to 2017, as shown in Figure 1. Scores were generated via Credit Analytics’ PD Model Fundamentals Private, a statistical model that uses company financials and other socio-economic factors to estimate the PD of private companies globally. Credit scores are mapped to PD values, which are based on/derived from S&P Global Ratings Observed Default Rates.

Figure 1: EU private company scores generated by PD Model Fundamentals Private, between 2013 and 2017.

Source: S&P Global Market Intelligence.2 As of October 2018.

For any given year, the distribution of credit scores of EU private companies is concentrated below the ‘a’ level, due to the large number of small revenue and unrated firms on the S&P Capital IQ platform. An overall improvement of the risk profile is visible, with the score distribution moving leftwards between 2013 and 2017. A similar picture is visible when comparing companies by country or industry sector,3 confirming that there were no clear signs of a turning point in the credit cycle of private companies in any EU country or industry sector. However, this view is backward looking and does not take into account the potential effects of an imminent and major political and economic event in the (short) history of the EU: Brexit.

To this purpose, S&P Global Market Intelligence has developed a statistical model: the Credit Analytics Macro-scenario model enables users to study how potential future macroeconomic scenarios may affect the evolution of the credit risk profile of EU private companies. This model was developed by looking at the historical evolution of S&P Global Ratings’ rated companies under different macroeconomic conditions, and can be applied to smaller companies after the PD is mapped to a S&P Global Market Intelligence credit score.

“Soft Brexit” (Figure 2): This scenario is based on the baseline forecast made by economists at S&P Global Ratings and is characterized by a gentle slow-down of economic growth, a progressive monetary policy tightening, and low yet volatile stock-market growth.4

Figure 2: “Soft Brexit” macro scenario.5

Source: S&P Global Ratings Economists. As of October 2018.

Applying the Macro-scenario model, we analyze the evolution of the credit risk profile of EU companies over a three-year period from 2018 to 2020, by industry sector and by country:

  • Sector Analysis (Figure 3):
    • The median credit risk score within specific industry sectors (Aerospace & Defense, Pharmaceuticals, Telecoms, Utilities, and Real Estate) shows a good degree of resilience, rising by less than half a notch by 2020 and remaining comfortably below the ‘b+’ threshold.
    • The median credit score of the Retail and Consumer Products sectors, however, is severely impacted, breaching the high risk threshold (here defined at the ‘b-’ level).
    • The remaining industry sectors show various dynamics, but essentially remain within the intermediate risk band (here defined between the ‘b+’ and the ‘b-’ level).

Figure 3: “Soft Brexit” impact on the median credit risk level of EU private companies, by industry.

Source: S&P Global Market Intelligence. As of October 2018.

  • Country Analysis (Figure 4):
    • Although the median credit risk score may not change significantly in certain countries, the associated default rates need to be adjusted for the impact of the credit cycle.6 The “spider-web plot” shows the median PD values for private companies within EU countries, adjusted for the credit cycle. Here we include only countries with a minimum number of private companies within the Credit Analytics pre-scored database, to ensure a robust statistical analysis.
    • Countries are ordered by increasing level of median PD, moving clock-wise from Netherlands to Greece.
    • Under a soft Brexit scenario, the PD of UK private companies increases between 2018 and 2020, but still remains below the yellow threshold (corresponding to a ‘b+’ level).
    • Interestingly, Italian private companies suffer more than their Spanish peers, albeit starting from a slightly lower PD level in 2017.

Figure 4: “Soft Brexit” impact on the median credit risk level of EU private companies, by country.

Source: S&P Global Market Intelligence. As of October 2018.

“Hard Brexit” (Figure 5): This scenario is extracted from the 2018 Stress-Testing exercise of the European Banking Authority (EBA) and the Bank of England.7 Under this scenario, both the EU and UK may go into a recession similar to the 2008 global crisis. Arguably, this may seem a harsh scenario for the whole of the EU, but a recent report by the Bank of England warned that a disorderly Brexit may trigger a UK crisis worse than 2008.8

Figure 5: “Hard Brexit” macro scenario.9

Sources:”2018 EU-wide stress test – methodological note” (European Banking Authority, November 2017) and “Stress Testing the UK Banking system: 2018 guidance for participating banks and building societies“ (Bank of England, March 2018).

Also in this case, we apply the Macro-scenario model to analyze the evolution of the credit risk profile of EU companies over the same three-year period, by industry sector and by country:

  • Sector Analysis (Figure 6):
    • Despite all industry sectors being severely impacted, the Pharmaceuticals and Utilities sectors remain below the ‘b+’ level (yellow threshold).
    • Conversely, the Airlines and Energy sectors join Retail and Consumer Products in the “danger zone” above the ‘b-’ level (red threshold).
    • The remaining industry sectors will either move into or remain within the intermediate risk band (here defined between the ‘b+’ and the ‘b-’ level).

Figure 6: “Hard Brexit” impact on the median credit risk level of EU private companies, by industry.

Source: S&P Global Market Intelligence. As of October 2018.

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  • Country Analysis (Figure 7):
    • Under a hard Brexit scenario, the PD of UK private companies increases between 2017 and 2020, entering the intermediate risk band and suffering even more than its Irish peers.
    • Notably, by 2020 the French private sector may suffer more than the Italian private sector, reaching the attention threshold (here shown as a red circle, and corresponding to a ‘b-’ level).
    • While it is hard to do an exact like-for-like comparison, it is worth noting that our conclusions are broadly aligned with the findings from the 48 banks participating in the 2018 stress-testing exercise, as recently published by the EBA:10 the major share of 2018-2020 new credit risk losses in the stressed scenario will concentrate among counterparties in the UK, Italy, France, Spain, and Germany (leaving aside the usual suspects, such as Greece, Portugal, etc.).

Figure 7: “Hard Brexit” impact on the median credit risk level of EU private companies, by country.

Source: S&P Global Market Intelligence. As of October 2018.

In conclusion: In Europe, the private companies’ credit risk landscape does not yet signal a distinct turning point, however Brexit may act as a pivot point and a catalyst for a credit cycle inversion, with an intensity that will be dependent on the Brexit type of landing (i.e., soft versus hard).

1 S&P Global Ratings does not contribute to or participate in the creation of credit scores generated by S&P Global Market Intelligence.
2 Lowercase nomenclature is used to differentiate S&P Global Market Intelligence credit scores from the credit ratings issued by S&P Global Ratings.
3 Not shown here.
4 Measured via Gross Domestic Product (GDP) Growth, Long-term / Short-term (L/S) European Central Bank Interest Rate Spread, and FTSE100 or STOXX50 stock market growth, respectively.
5 Macroeconomic forecast for 2018-2020 (end of year) by economists at S&P Global Ratings; the baseline case assumes the UK and the EU will reach a Brexit deal (e.g. a “soft Brexit”).
6 When the credit cycle deteriorates (improves), default rates are expected to increase (decrease).
7 Source: “2018 EU-wide stress test – methodological note” (EBA, November 2017) and “Stress Testing the UK Banking system: 2018 guidance for participating banks and building societies”. (Bank of England, March 2018).
8 Source: “EU withdrawal scenarios and monetary and financial stability – A response to the House of Commons Treasury Committee”. (Bank of England, November 2018).
9 As a hard Brexit scenario, we adopt the stressed scenario included in the 2018 stress testing exercise and defined by the EBA and the Bank of England.
10 See, for example, Figure 18 in “2018 EU-Wide Stress Test Result” (EBA November 2018), found at:https://eba.europa.eu/documents/10180/2419200/2018-EU-wide-stress-test-Results.pdf

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2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Market-Driven View

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