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IMF stresses NPL issue; SVG accepts Goldman, CPPIB offer; RBI, RZB to merge

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

IMF stresses NPL issue; SVG accepts Goldman, CPPIB offer; RBI, RZB to merge

IMF sees 'urgent'need for action on NPLs: The IMF saidEuropean banks need "deep-rooted reforms and systemic management" to reducesignificant risks to financial stability and should prioritize taking"urgent and comprehensive action" to address excessive nonperformingloans and capital deficiencies. Peter Dattels, the fund's deputy director ofmonetary and capital markets, saidEuropean banks have "too many branches with too few deposits" andurged them to revamp their business models.

* Joseph Stiglitz,Nobel laureate in economics, predicted that Italy and other countries wouldleave the eurozone in the coming years, Reuters writes, citing German newspaper Die Welt.Stiglitz added that the euro and austerity policies in Germany are to blame forthe bloc's economic malaise.

* ECB Supervisory Board member Ignazio Angeloni said the central bank does not see any risk of a bankingcrisis in the eurozone despite "individual cases" of banks withproblems, Reuters reports.


SVG accepts Goldman,CPPIB offer: said this morning that its board agreed in principle to a proposed sale of100% of its entire investment portfolio to a unit of and certaininvestment entities managed by the Canada Pension Plan Investment Board forapproximately £748 million, or 680 pence per share, representing a 6.8%discount to the value of the assets as of July-end.

* SVG had saidyesterday that it continues to recommend that its shareholders not acceptHarbourVest PartnersLLC's offer, which was deemed too low. Meanwhile,HarbourVest said Aviva Investors and Legal & General Investment Managementhave withdrawn their letters of intent to support HarbourVest's takeover bidfor SVG, Reuters notes.City A.M. also covers.

* Bidders for MBNA Ltd., including Lloyds Banking Group Plc and Santander UKPlc, were askedto table revised bids in two weeks' time, insiders tellSky News. A number of the bidders were trying to negotiate an indemnity forfuture payment protection insurance costs with MBNA owner Bank of AmericaCorp., but were turned down.

* Standard CharteredPlc named Mohamed Abdel Bary regional CFO for Africa and the Middle East, Reutersnotes.

* Gareth Murphy, Central Bank of Ireland's outgoing directorof markets supervision, is to join Standard Life Plc as chief risk officer of its assetmanagement arm and deputy group CRO in January 2017, The Irish Times reports.

* The FCA finedAviva Plc £8.2 million for failing toproperly oversee outsourced providers in relation to the protection ofclient assets.

*  picked CerberusCapital Management as a preferred bidder for Capital Home Loans Ltd.'s remaining mortgageportfolio, insiders tellReuters. The remaining mortgage book, comprising mostly buy-to-let mortgages,totals about £2.5 billion.

* U.K. Chancellor Philip Hammond is meeting with Wall Street banks andother financial services firms in a bid to reassure them of London's dominanceas the world's leading global financial center despite the country's decisionto leave the EU, Reuters writes.


RBI/RZB mergergreenlighted: The boards of Raiffeisen Zentralbank Österreich AG and subsidiaryRaiffeisen Bank InternationalAG yesterday approveda merger between the companies. RZB will be merged into RBI. Handelsblatt covers.

*  dismisseda media report that new CEO Walter Berchtold is facing pressure to find a buyerfor the bank, and said it is not up for sale, Reuters reports. Banque Heritage (Suisse) SA was reported to be apotential buyer.

* The German government is engaging in discreet talks withU.S. authorities in a bid to help reach aquick settlement over allegations that it missold MBS, insiders tellReuters. The government hopes that a near-term settlement well below the $14billion originally demanded will help alleviate pressure on the bank and giveit time to regain its footing.

* Former German Finance Minister Peer Steinbrück will serveas an adviser to ING GroepNV unit ING-DiBaAG's board, Les Echos reports.Die Zeit also reports.

*  was dismissedfrom a class-action lawsuit accusing it of conspiring to manipulate silverprices and exploit market distortions, Reuters reports.The U.S. federal judge, however, rejected efforts by and to dismiss thelawsuit.

*  agreedto pay the U.S. SEC a $90 millionfine to settle charges that it misrepresented a key performance metric relatedto its wealth management business. The regulator found that Rolf Bögli, formerCOO of the bank's private banking division, pressured employees to classifycertain high-net-worth client assets as net new assets.

* Herbert Scheidt, the newly elected president of the SwissBankers Association, tellsHandelsblatt that Swiss banks are notonly stable but among the most stable in the world, particularly Credit Suisseand UBS Group.


Confusion on how todeal with Ethias: As EthiasSA submitted its new recovery plan to the Belgian national bank,the finance ministers of the Walloon and Flanders regional governments, whicheach, along with the federal government, hold 25% stakes in the insurer, launcheddiffering strategies. Walloon said it is ready to help recapitalize Ethias ifnecessary, while Flanders is looking for an investment bank to advise it on itsstake, L'Echo reports.

* CréditMutuel Group's Cofidis SA consumer credit unit was fined €100,000and ordered to pay nearly €1.3 million in costs after being found guilty of illegalselling in a solar panel fraud case dating to 2010, Le Monde reports.The company plans to appeal.


Banco Popular tobring back dividends: BancoPopular Español SA CEO Pedro Larena said that in 2017 the bank willreturn to paying dividends and that in 2018 the entity would ensure a 40% cashdividend payout. In May, the lender suspended the payment of dividends for 2016after announcing a €2.51 billion capital increase, Europa Press writes.

* Separately, the bank acceleratedits employee layoff program, inviting trade unions to a meeting to negotiatethe conditions of the 2,900 job cuts planned for the coming months, El Mundo reports.

* The IMF estimatesthat in 2021 Portugal will have a budget deficit of 2.9% of GDP, the worst inthe eurozone, Público writes.


Amundi offers €4B for Pioneer: made a roughly 4 billion nonbinding offerfor UniCredit SpA'sPioneer Global Asset ManagementSpA, while a consortium led by Poste Italiane SpA offered around 3.4 billion, IlMessaggero says.

* Talks with funds that earlier this year expressed interestin purchasing the four bailed-out Italian banks are resuming as authorities seeka backup plan for selling them should an alternative plan involving buying three of the four lenders fall through, Il Sole 24 Ore writes.

* International property asset managers and Italian propertygroup Prelios are among market players working on the creation of closed fundsalong the lines of the Atlante fund to invest in Italian NPLs, MF says.These funds are expected to launch next year.

* The IMF said Italy should do more to deal with NPLs,recommending that recent insolvency reforms introduced to accelerate assetrecovery in bankruptcies be extended to cover existing NPLs and that Italianauthorities monitor the asset quality of smaller banks not overseen by the ECB,Reuters reports.

* The Bank of Italy ordered Latvian bank to close its Italianbranch by the end of the year, Reuters says.

* is expectedto launch its voluntary redundancy plan this month, Kerdos writes,noting that the bank is required to reduce 2,100 staff by 2018. The cost of theplan is estimated to reach €118 million.

* The IMF considers the fiscaltargets contained in the Greek Memorandum for the period after 2017 to beunrealistic, and hence is not willing to further fund the Greek economy, Imerisia says.

* The ECB loweredthe cap on emergency liquidity assistance that Greek banks can draw fromthe Bank of Greece by €100 million to €51.8 billion.


Swedbank namesdigital banking chief: namedLotta Lovén head of digitalbanking. She was previously acting co-head of the unit.

* Skandinaviska Enskilda Banken AB has more than tripledlending to Danish businesses since 2009, FinansWatch reports.From 2013 to 2015, business lending increased 35%.

* Danish pension company PFA Pension Forsikrings A/S is closing its Greenlandunit, FinansWatch reports.According to PFA, the expense per customer at PFA Soraarneq, which was founded16 years ago, was twice that in Denmark.

* Stefan Alexandersson, CEO of Swedish niche bank Collector,intends to resign, Dagens Industri reports.Alexandersson has been with the company for 12 years and was responsible for itsIPO. Collector expects to have a replacement for the CEO in spring 2017.


Alior seeks toexclude Raiffeisen Bank Polska'smortgage book from deal: Alior Bank SA, which is negotiating the purchase ofRaiffeisen Bank PolskaSA, wants the RBI unit's entire mortgage portfolio excluded fromthe transaction, not just Swiss franc-denominated loans as per the agreementbetween the Polish FSA and RBI, Puls Biznesureports.

* The Polish FSA classified 12 Polish banks as "other systemicallyimportant institutions" and calculated additional capital buffers for thelenders that reflect their risk exposure.

* JSC RussianAgricultural Bank plans to reduce overdue loans to 15% of itsportfolio in 2016 and to 14% in 2017, from 20% at the end of 2015, Vedomosti writes.

* The Russian central bank revoked the license ofiMoneyBank, saying the lender invested in low quality assets and improperlyassessed risks, Interfax reports.Some of the shareholders of iMoneyBank were also co-owners of Finprombank,which lost its license in September.

* Oleg Tinkov and his partners intend to increase theirstake in TCS Group HoldingPlc by acquiring up to $10 million of its GDRs on the London StockExchange, Vedomosti says.

* Viktor Shevchenko will be named president of ,while Sergey Malyshev will be retail business head at , Kommersant reports.Both executives come from PAOSberbank of Russia.

* Safmar Group wants to use leasing company as a basis to form aholding that will bring together the group's pension, insurance and leasingbusinesses, RBK reports.Safmar hopes to conclude the main part of the deal by 2017. The consolidationplans will not include B&N Bank Group.

* Yapi veKredi Bankasi AS signed a syndicated loan agreement for $1.15 billion,Finans Gündem reports.


Asia-Pacific: Chinese firms to acquire Singapore reinsurer; Switzerland asksMalaysia for legal help on 1MDB probe

Middle East & Africa: Fidelity Bank Ghana mulls IPO; FirstRand eyes M&A opportunitiesin Africa

Latin America: Itaú, Citi said to near deal; name change for Banco Nacional deMéxico

North America: Regulators release updated versions of living wills by 8 largebanks; CFPB issues new prepaid card rules

North America Insurance: Japan's Sompo to buy Endurance; Markel/Allied World deal talksfail


Delta Lloydshould hold out for higher offer from NN Group, analysts say: DeltaLloyd is likely to get a better takeover deal from NN Group if it refuses the€2.4 billion on offer, analysts told S&P Global Market Intelligence.

Deutsche Bank tightensgrip on asset management unit despite capital pressure: DeutscheBank will fight to hold on to its prized asset management division despiteincreasing pressure to shore up its capital position, experts say.

Data DispatchEurope: Top 20 European banks by market capitalization: ChartWatch: There was relatively little movement among Europe's top 20banks by market capitalization during the third quarter, according to datacompiled by S&P Global Market Intelligence.

Xana Kakoty, Ed Meza, Danielle Rossingh, Esben Svendsen, Beata Fojcik, Thanasis Kakalis, AliKayalar, Heather O'Brian, Brian McCulloch, Praxilla Trabattoni and Mariana Aldano contributedto this report.

The Daily Dose has aneditorial deadline of 7 a.m. London time. Some external links may require asubscription.

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


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.

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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:

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

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