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ABN AMRO may sell Asian private banking biz; Macquarie in talks to buy Green Investment Bank

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


ABN AMRO may sell Asian private banking biz; Macquarie in talks to buy Green Investment Bank

* ABN AMROGroup NV is considering a sale of its Asian private banking business, BloombergNews reported, citing "people with knowledge of the matter." The companyhas reportedly engaged a financial adviser and reached out to possible buyers.

* MacquarieGroup Ltd. is in the final phase of negotiations to acquireUK Green Investment BankPlc for £2 billion, the FinancialTimes reported.The Australian bank has reportedly outbid other contenders. The deal may becompleted within the next few weeks.

* KASIKORNBANKPCL and Tencent Holdings Ltd. are collaborating to let WeChat usersin China make payments when traveling to Thailand by using the app's electronicwallet service and the bank's QR code-readable devices, Krungthep Turakij reported.WeChat is an instant messaging application developed by Tencent Holdings.

* Indonesia and Japan have extended a bilateral currencyswap facility of US$22.76 billion, almost double the value of a previous dealsigned between the two countries in 2013, TheJakarta Globe reported.

* Wissam Farah was named Nomura Holdings Inc.'s head of global markets sales forEurope, the Middle East and Africa.

GREATER CHINA

* Zhou Xiaochuan, governor of the People's Bank of China,said that risks in China's banking system are controllable and Chinese lendershave adequate capital even as bad loans increase, China News Agency reported. Zhounoted that China's credit growth is growing fast, a reflection of the country'sefforts to boost growth amid a weak global economy.

* China's bond funds increased to 986.6 billion yuan at theend of August from 693.78 billion yuan at the end of 2015, Shanghai Securities News reported.Analysts said the bleak domestic stock market and the bull bond market madebond funds popular.

* The comprehensive returns rate of China's online lendingdropped to less than 10% in September, compared with 12.6% in the prior-yearperiod, Golden Securities reported. Thenumber of investors active in the peer-to-peer industry declined 1.81% monthover month to 3.45 million in September.

* The number of China's normally operated P2P lendingplatforms dropped to 1,912 from more than 4,000 at its peak, Hua Xia Times reported.

* The People's Bank of China issued a series of regulationseffective Dec. 1, for guarding against telecommunications fraud, Beijing Daily reported.The new regulations stipulate that people can ask to revoke transferred moneywithin 24 hours of transactions made through ATMs.

* AllPay Financial Information Service Co. Ltd. becameTaiwan's first third-party payment service provider, which is available inabout 20,000 locations on the island, the TaipeiTimes reported.

JAPAN AND KOREA

* Haruhiko Kuroda, governor of the Bank of Japan, said thatadditional easing on top of the current negative interest rate is not necessaryfor now, The Asahi Shimbun reported.

* YamaguchiFinancial Group Inc. plans to roll out finger vein authenticationtechnology in 2017, The Mainichi Shimbunreported.Finger vein recognition will allow customers to withdraw cash without usingother physical means of authentication.

* Nippon LifeInsurance Co. will adopt artificial intelligence for underwritingdecisions and claim verifications, TheSankei Shimbun reported.

* Tokyo Governor Yuriko Koike said that the metropolitangovernment would launch a "one-stop" platform for supporting foreignfinancial institutions setting up operations in the capital city, Tokyo's The Nikkei reported.

* MitsuiSumitomo Insurance Co. Ltd. and Aioi Nissay Dowa Insurance Co. Ltd. will introduceterrorism and natural disaster insurance designed for schools sending studentsabroad, the Nikkan Kogyo Shimbun reported.

* South Korea's Financial Supervisory Service willstrengthen credit card consumer protection by requiring credit card companies tonotify cardholders of any overdue payment within two business days, Yonhap NewsAgency reported.

* South Korean banks lost a total of 149.2 billion won ontheir ATM operations in 2014 because ATM fees did not cover ATM operatingexpenses, Money Today reported.

ASEAN

* KASIKORN Securities said factors that should be monitoredfor the movement of the Thai stock market during the week of Oct. 10 includethe operating profit reports of listed companies for the third quarter as wellas key economic figures of the U.S., the eurozone and China, Thailand's Daily News reported.

* The Thai Bankers' Association and the Office of InsuranceCommission of Thailand are collaborating to issue guidelines on bancassurancefor bank customers to prevent misunderstanding when purchasing insuranceproducts through banks, Post Today reported.

* The Office of Insurance Commission of Thailand will askthe Thai Bankers Association to urge banks to make sure that their onlinebanking services are covered in case of cybercrime-related incidents, Daily News reported.

* Bank Indonesia expects growth in working capital andinvestment credit to improve in 2017, Kompasreported.

* The Indonesian National Police warned that cybercrime isincreasing in the banking sector, with 909 cases reported in 2015 compared with52 cases in 2014, Bisnis Indonesia reported.

* Ha Van Tham, former chairman of Vietnamese lenderOcean Commercial One MemberLimited Liability Bank, will likely be charged for lendingviolations by the police in connection with US$68 million in losses to thelender, VnExpress reported.Tham approved US$23.5 million without complete paperwork to a real estate firm,which later defaulted, among other indiscretions.

* The Bangko Sentral ng Pilipinas closed down Rural Bank ofLuna (Isabela) as part of efforts to remove "weaker" institutionsfrom the country's banking sector, ThePhilippine Star reported.This is the 16th such bank that shuttered in a similar fashion in the country .

SOUTH ASIA

* The Indian government plans to bring down its in to 52% and has instructedthe lender's management to explore possible options, including a strategicsale, The Economic Times reported,citing "people aware of the matter."

* India's Central Bureau of Investigation carried out raidsat the offices of Repco HomeFinance Ltd., as well as residences of its senior officials inconnection with allegations of fee waivers made to favor certain clients, Business Standard reported,citing sources.

* PunjabNational Bank expects better recovery of bad loans during thefiscal second quarter ended Sept. 30 compared with the prior-quarter period, Business Standard reported.The bank recovered over 48 billion Indian rupees from nonperforming assets inthe first quarter.

* DCB BankLtd. opened its first fingerprint-enabled ATM in Rajasthan thatlinks to the Aadhaar database, which is operated by the Unique IdentificationAuthority of India, Planetbiotmetrics.com reported.The bank intends to upgrade more than 400 ATMs to offer biometric functionalityin the next six months.

AUSTRALIA AND NEWZEALAND

* The Australian Securities and Investments Commissionexpects inconsistencies in the disclosure of various fees by superannuationfunds once it becomes mandatory in February 2017, The Australian Financial Review reported.The super funds, which have advocated a delay in the implementation of the newdisclosure regime, are not certain which fees need to be disclosed.

* The Australian Prudential Regulation Authority has foundthat superannuation funds have become targets of cyberattacks more frequentlythan banks and other financial institutions, The Sydney Morning Herald reported,citing official figures. The attacks reported have not caused any materiallosses thus far.

Sally Wang, Jonathan Cheah,Jaekwon Lim and Santibhap Ussavasodhi contributed to this report.

The Daily Dose has aneditorial deadline of 6:30 a.m. Hong Kong time. Some external links may requirea 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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