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Itaú, Citi said to near deal; name change for Banco Nacional de México

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

Broadband Only Homes Skyrocket In 2018 Validating Top MSOs Connectivity Pivot

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

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


Itaú, Citi said to near deal; name change for Banco Nacional de México

* Citigroup Inc.said it will change the name of Mexican unit Banco Nacional de México SA to Citibanamex and will spendanother $1 billion on its operations in the country to upgrade and expand its technological offerings and retailnetwork. As part of the plan, Citi will add 100 so-called digital branches and another2,500 ATMs in the country.

* Negotiations between ItaúUnibanco Holding SA and Citigroup Inc. for Itaú to purchase Citi's retailbanking assets in Brazil are in the final stage and there is a high probabilitythat the two parties will sign a dealin the coming days, Valor Econômico reported,citing three sources with knowledge of the matter.

MEXICO AND CENTRAL AMERICA

* Paulina Alejandra Del Moral Vela has as general director at in order to become labor secretary in Mexico state governor EruvielÁvila's cabinet, El Economista reported.

* Canal Bank SAaims to expand its loanportfolio by 20% to 25% as part of changes in the bank's overall business strategyfollowing its acquisition of BancoUniversal SA, Capital Financieroreported, citing CEO Roberto Brenes. The bank will focus specifically on its portfolioallocated to the agricultural sector.

* Banco de MéxicoGovernor Agustín Carstens said the central bank's next policy decision will dependon the outcome of U.S. presidential elections in November, Reuters reported. "Ifthere's a good result, we've moved ahead of the Fed, and possibly it won't be necessaryto raise them [rates]," Carstens said on local TV.

* Fitch Ratings assigned insurer financialstrength ratings of BBB- and national scale insurer financial strength ratings ofAA- to both Afianzadora InsurgentesSA de CV and AfianzadoraAserta SA de CV, with a stable outlook. Both companies' efficiency levelshave remained stableand competitive as of June, the agency said.

* Overall profitsfor commercial banks in Mexico increased 8.8% in the first eight months of 2016compared to the same period a year ago, ElFinanciero reported, citing data from banking and securities commission CNBV.

* The process of cancelling the registration of Mexican multiplepurpose financial entities, or Sofomes, that did not renew their registration bythe June 6, 2015, deadline is very complicatedand the deregistration of 1,231 Sofomes is still pending after more than a year,El Economista reported, citing financialconsumer protection agency Condusef.

BRAZIL

* Bankruptcy requests in Brazil ticked up 16.7% in theaggregate period between January and September, while judicial recovery filingsjumped 70.2%, accordingto data from credit research firm Boa Vista SCPC.

* Brazil's major banks will need to submit new recovery plans by year-end with guidelines onhow they'll respond in stressed scenarios, ValorEconômico reported, citing Murilo Portugal, the head of banking federation Febraban."These plans will provide greater predictability, transparency and securityin the adoption of recovery strategies by banks to maintain the normal functioningof the financial system under stress situations," Portugal was quoted as saying.

* Brazilian banks reduced the granting of in both 2015 and the first halfof 2016 by 3.2% and 6.8%, respectively, driven by recession, slumping consumer spending,weaker confidence and falling investment, Fitch Ratings said. "We expect banksto continue this cautious approach to credit demand until they see clear signs thateconomic growth can be sustained," the rating agency said.

* Investors, pension funds and government agencies are accusingbig banks of neglectinginvestments that went bad in Brazil and are seeking around 9.3 billion reais incompensation from banks including BNYMellon Servicos Financeiros Dtvm SA, Banco Bradesco SA, BTGPactual Group, Banco CitibankSA, Deutsche Bank AGand Banco Santander (Brasil) SA,O Estado de S. Paulo reported. Investorsallege the banks were negligent in supervising funds or were co-responsible forlosses.

* Brazil's Itaúsa– Investimentos Itaú SA and Cambuhy Investimentos Ltda. plan to submita joint offer for a controllingstake in state-run oil firm Petrobras' fuel distribution unit in a deal thatcould be valued at $6 billion, Bloomberg News reported, citing "people withdirect knowledge of the matter." Private equity firms GP Investimentos SA andAdvent International Corp. are also thinking about making a bid, the sources said.

* Industrial output in Brazil declined3.8% in August from the previous month and fell 5.2% from a year earlier, BloombergNews reported, citing the national statistics agency.

* Brazilian President Michel Temer's administration submittedto Congress a proposalto limit government spending, and a special lower house committee is expected tovote on the measure in the coming days, Bloomberg News reported. The proposal wasrevised to increase minimum health expenditure in 2017 to 15% of net current revenuefrom 13.2%, as opposed to raising it gradually through 2020.

* The deadline for Brazilians to sign up for a government amnestyprogram for undeclared foreign assets could be extendedto Nov. 16 from Oct. 31, Reuters reported, citing Rodrigo Maia, the speaker of thelower house.

* A poll by Ibope showed that the number of Brazilians who believePresident Michel Temer's government is "great" or "good" increasedslightly to 14% from 13% in a previous poll, Reuters reported.The number of people who consider the government to be "bad" or "terrible"remained at 39%.

* S&P Global Ratings affirmed its B+/B global scale and brBBB-/brA-3national scale ratings on Banco PanSA and removedthem from CreditWatch with negative implications. The move follows a similar actionon parent Banco BTG Pactual SAin September.

* Italy's Generalihas partnered with Banco BMG SAto sell insurance for a 20-year period starting in January 2017, Valor Econômico reported. The dealis expected to provide BMG with a financial return of 1.5 billion reais in the overallperiod.

* Murilo Portugal, the president of Brazilian banking federationFebraban, said Brazil has started to emerge from its economic recession, but forsustained improvements, Congress must approvea proposal to limit increases in public spending, Valor Econômico reported.

ANDEAN

* Banco dela Nación said it appointedLuis Fernando Gonzalez Prada Saponara as a director, effective Oct. 4.

* Banco De DesarrolloDe América Latina said it approveda $60 million loan for BancolombiaSA to be used for the development of environmental projects. The developmentbank has already disbursed the first $10 million, which Bancolombia will use forseven identified development initiatives.

* Peru's CorporaciónFinanciera de Desarrollo SA said it plans to auction 10-year bonds worth up to 50 million Peruvian soles,though the offering is expandable to 150 million soles. The bonds, which will beissued Oct. 6, will carry a fixed annual interest rate.

* Profitsfor Peruvian banks fell 3.2% year over year in the first eight months of 2016, withtwo banks posting losses for the period, ElComercio reported, citing banking and insurance regulator SBS. The sector'sdelinquency rate rose to 2.91% in August from 2.7% a year ago.

SOUTHERN CONE

* Argentina has started marketingbenchmark-sized, euro-denominated bonds that mature in January 2022 and January2027, IFR reported. The 2022 bond is being offered with a yield in the 4.5% areaand the 2027 note in the 5.625% area.

* Banco Centralde la República Argentina maintainedits 35-day benchmark Lebac interest rate at 26.75%, saying that overall inflationexpectations for the last quarter of 2016 are above the central bank's officialtarget of 1.5% or less.  

PAN LATIN AMERICA

* Moody's said its liquidity-stress index fellfor the sixth consecutive month in September, to 7.1% from 7.5% in August. The indexfalls when corporate liquidity appears to improve and rises when it appears to weaken.

IN OTHER PARTS OF THEWORLD

* Asia-Pacific: SompoHoldings to acquire Endurance Specialty; India cuts policy rates

* Middle East & Africa: Attijariwafa to buy Barclays Egypt; South Africa's FSB backs new exchange

* North America: Regulatorsrelease updated versions of living wills by 8 large banks; CFPB issues new prepaidcard rules

S&P Global Ratingsand S&P Global Market Intelligence are owned by S&P Global Inc.

Paula Mejia contributedto this article.

The Daily Dose has an editorialdeadline of 8 a.m. São Paulo time, and scans news sources published in English,Portuguese and Spanish. Some external links may require a subscription.


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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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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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.

Learn more about Market Intelligence
Request Demo

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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