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Tuesday's headlines, Financials edition

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


Tuesday's headlines, Financials edition

ECBups pace of sovereign bond buying as market sells off Reuters
ECBdenies giving Deutsche Bank special treatment during EBA stress test EuropaPress
BaselCommittee: Anxiety continues to rise in Europe Les Echos
Europeand its banks should stick together in these challenging times Financial Times
UBSskeptical about European banks
Börsen-Zeitung
France,Germany put offensive against strengthening capital buffers
HetFinancieele Dagblad
Blockchainstarts transition from hype to everyday use in markets Financial Times

UK AND IRELAND

Bankof England moves to clear up SONIA rate setting Reuters
'Hard Brexit' may cost £66 billion a year, leaked papers warn
Sky News
Brexitwill hurt UK investment, growth, says Nobel Prize-winning economist The Independent
UKfirms reluctant to invest after Brexit vote, says British Chambers of CommerceBloomberg News
EuropeanInvestment Bank chief warns UK will struggle without cheap EU loans Financial Times
UKto negotiate leverage on financial passporting, says Brexit ministerReuters
Two-thirdsof UK investors say stocks overvalued FinancialTimes
UKbonds losing appeal as inflation set to pounce City A.M.
Britainshould embrace weaker pound and it needs to fall further, says former BoE chiefThe Daily Telegraph
EuronetWorldwide acquires UK-based ATM operator Reuters
Irishgovernment to cut debt faster than EU requires The Irish Times
BritishInsurance Brokers' Association urges members to contact enterprise liquidatorPost

Esure Group
Hedgefund boss now owns 13% of Esure Post

KBC Bank Ireland
KBCBank Ireland fined €1.4 million for breaching lending rules Irish Independent

RoyalBank of Scotland Group
RBSdenies allegations of causing SMEs to fail Financial Times
RBSdenies deliberately forcing small businesses to collapse Bloomberg News
MPscould re-open RBS probe as leaks reveal 'dash for cash' in 2008 The Daily Telegraph
RoyalBank of Scotland executives must be held to account over small business scandalThe Independent
Watchdogcalled on to publish report after 'shocking' revelations about RBS City A.M.
RBS'sworst-case legal bill could hit $27 billion Reuters

RSA Insurance Group
RSAopens new Birmingham trading site InsuranceTimes

SVG Capital
HarbourVestvows to outbid rivals in battle for SVG Capital Financial Times
Theboard of SVG is now considering two sale options with a third waiting in thewings City A.M.

Ulster Bank
UlsterBank sells loan portfolio to Cerberus TheIrish Times

Willis Towers Watson
WillisRe makes senior structured solutions hire Insurance Day

GERMANY, SWITZERLAND AND AUSTRIA

Bundesbankwarns against cyber attacks Börsen-Zeitung

BSI
FormerBSI employees prosecuted by Singapore authorities in relation to 1MDB probeBörsen-Zeitung
Singaporesues former BSI bankers finews.ch

Commerzbank
Commerzbankplanning 2,400 job cuts Börsen-Zeitung
Commerzbankto plan strong job cuts Handelsblatt

Credit Suisse Group
Ex-CreditSuisse banker wins dismissal of rogue trader charges Bloomberg News

Deutsche Bank
DeutscheBank received special treatment in EU stress tests Financial Times
Deutsche Bank fails to reach deal over $14 billion fine
The Independent
DeutscheBank forced into rethink as strategy overhaul stutters - sources Reuters
DeutscheBank hopes for trend reversal in the ETF business
Börsen-Zeitung

Euroclear
Blockchainof enormous value for Euroclear, says CEO Börsen-Zeitung

Falcon Private Bank
Singaporeorders Falcon Private Bank unit to shut down, fines DBS, UBS Reuters
FalconPrivate Bank confident about its future after end of 1MDB investigationReuters

Heta Asset Resolution
Austrianprovince of Carinthia says Heta buyback offer successful Reuters
Financialsector can be integrated into Heta
Börsen-Zeitung
Hetacreditors waving extra profit WirtschaftsBlatt

Landesbank Baden-Württemberg
IncomingRainer Neske to bring former deputy to LBBW Börsen-Zeitung
Neskebrings former colleague to LBBW Handelsblatt

Landesbank Berlin
LandesbankBerlin could have been involved in short-term deals Börsen-Zeitung

Raiffeisen Bank International
Raiffeisento sell its Polish leasing unit soon if value not destructive Warsaw Business Journal

Sparda-Bank Hannover
Sparda-BankHannover, Sparda-Bank Münster fall behind merger schedule Börsen-Zeitung

Swiss Life Holding
SwissLife takes over real estate company Börsen-Zeitung

UBS Group
UBSMexico brokerage to swallow banking arm in restructuring – memo Reuters
Ex-UBStrader's alleged LIBOR rigging actions were part and parcel of work culture,court hears City A.M.
UBSwants to continue with its planned Europabank in the fourth quarter
Börsen-Zeitung
UBSpoaches Deutsche Bank's Asian wealth management head finews.ch
UBStargeting skilled youngsters for online asset management business Handelsblatt

FRANCE AND BENELUX

Franceoffers help to banks considering Paris move after Brexit vote The Guardian
Notforbidden to 'help banks reflect' on Paris move after Brexit, says Frenchfinance minister Reuters
Dutch BankingAssociation to launch mortgages website De Telegraaf
New investment bankpreys on customers of ABN AMRO, ING Groep, Rabobank De Telegraaf

CNP Assurances
CNPAssurances plans debut euro Tier 3 bond - source Reuters

NN Group
NNhas capacity for higher bid, say analysts De Telegraaf

SPAIN AND PORTUGAL

CaixaBankasks registration for BPI bid Jornal De Negócios
RuiVilar's duties as director of Portuguese central bank suspended
JornalDe Negócios
CNMVappoints Elvira Rodriguez, Lourdes Centeno as advisers Europa Press

Bankia
Businessman'sson in law entangled in court with Bankia over 'black' cards Europa Press

Bankinter
Bankintercut rates of mixed, fixed interest mortgages Europa Press

Caja Madrid
ExCaja Madrid president insists he took 'black' card as means of payment forexpenses El País
FormerCaja Madrid secretary seeking to remove idea of all directors who said that'black' card was remuneration for personal expenses El País

Ibercaja Banco
Ibercajaplaced €500 million in mortgage bonds at record low cost in Spain EuropaPress

Novo Banco
Capitalizationof Novo Banco will help to choose buyer Jornal De Negócios

ITALYAND GREECE

Italyis serious about deficit, says Moscovici Il Sole 24 Ore
Italyon right track regarding NPL, says Italian central bank governor ANSA

Eurozoneministers delay sanctioning extra €1.7 billion to Greece The Irish Times
Greecegets positive reform review from EU executive, Germany still skepticalReuters
Greecegets fresh loan payout as eurozone looks to help on debt Bloomberg News
Eurogroup ministers back further bailout loans for Greece
The Guardian
Greeceunlocks fresh bail-out funds as Athens completes demand checklist The Daily Telegraph
Acceleratedchanges in Greek banks' administrations
Kerdos

AtticaBank
EUapproves liquidity support for Attica Bank Kerdos

AzimutHolding
Azimutto merge Brazil asset managers Quest, Legan - sources Reuters

NORDICCOUNTRIES

Norway'skrone slides as inflation boosts case for steady rates Bloomberg News
Swedishauthorities facing IT attacks
Dagens Nyheter

Skandiabanken
Skandiabanken namesCEO SvD Näringsliv

SvenskaHandelsbanken
Interestrates will be cut again in summer 2017, says Handelsbanken

EASTERNEUROPE

Romaniaparliament committees okay Swiss franc loan conversion Reuters
Turkey'sprivatization program will focus on public offering in 2017
Hürriyet
Chrzanowskiappointed new head of Polish financial market regulator Warsaw BusinessJournal
Hungariannational bank introduces unconventional tools to fine-tune liquidity BudapestBusiness Journal

ING BankSlaski
Polishsupervising authority informs ING Bank Slaski PAP

Gazprombank
Gazprombankdivests its stake in Areximbank Reuters
Gazpromenergoholding to focus on debt reduction and dividend payment Reuters

The Daily Dose Europe "Headlines" editionaggregates banking, financial services and insurance headlines from thewebsites of a limited number of major European publication titles andnewswires, with an editorial deadline of 6 a.m. London time. Some externallinks may require a subscription. Language translations to English are providedby an automated service and may not be entirely accurate.


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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