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UK drops Lloyds retail sale; Deutsche still in US talks; ABN AMRO Asia sale

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


UK drops Lloyds retail sale; Deutsche still in US talks; ABN AMRO Asia sale

UK AND IRELAND

UK abandonsplans for Lloyds retail share sale: The U.K. Treasury has plans to sell off itsremaining 9.1% stake in LloydsBanking Group Plc to the public, saying market volatility made aretail offer unviable. The chairman of UK Financial Investments Ltd., JamesLeigh-Pemberton, recommended the withdrawal of plans to sell Lloyds shares toretail investors, leading the government to return to selling down its Lloydsstake through a so-called trading plan that has previously seen the stake cutfrom just under 25% to the current 9.1%. 

* HarbourVest Partners LLC said it has approachedSVG Capital Plc'sboard over a possible offer for 100% of SVG Capital's investment portfolio.HarbourVest said it is willing to propose an asset purchase transaction,although it believes that the full and final cash offer provides shareholderswith a transaction with certainty and clarity as opposed to a winding down ofSVG Capital. SVG Capital, meanwhile, said its board continues to believe thatHarbourVest's final cash offer of 650 pence per share undervalues the companyand urges shareholders to take no action.

* is in the finalphase of negotiations to acquire UKGreen Investment Bank Plc for about £2 billion, according to the FinancialTimes.

* U.K. Chancellor Philip Hammond said thegovernment has no intention to change the Bank of England's mandate andinsisted that the central bank will remain independent, Reuters reports. His statement followedspeculation that the government wanted to influence the BoE after PrimeMinister Theresa May cited the negative side effects of its record low interestrates.

* HSBC Holdings Plc's chief European economist, KarenWard, joined Chancellor Hammond's team as a special economic adviser, according to Sky News.

* Prudential Plc's intends to establish a new investment unit in Luxembourg, the FinancialTimes reports. The move is part of the asset manager's efforts to continue easy accessto its mainland European investors and in response to concerns about losingaccess to the European single market after Britain leaves the EU.

* Allied Irish Banks Plc named David McLaughlin head ofits private banking unit, the Irish Independent reports.

GERMANY, SWITZERLANDAND AUSTRIA

Qatariinvestors mull larger stake in Deutsche Bank: Qatar's royal family is raising its stake in to up to 25%from about 10%, insiders told Bloomberg News. Former Qatari Prime MinisterHamad bin Jassim bin Jabr al-Thani and former Emir Hamad bin Khalifa al-Thani,together with other investors, are considering boosting their stake to a sizethat would give them greater control over Germany's biggest bank. Separately,insiders tellReuters that the Qatari investors are likely to acquire more shares in the bankshould it launch a capital hike, but prefer to keep their stake below the 10%level for regulatory reasons.

* Deutsche Bank CEO JohnCryan was unable to reach an agreement with U.S. authorities during a meetingin Washington D.C. with Department of Justice representatives over the investigation into thebank's sale of MBS, Handelsblatt reports. DeutscheBank is aiming to reach a settlement by the U.S. presidential elections Nov. 8.Deutsche Bankis also now looking into selling a part of its asset management businessthrough an IPO in a bid to raise capital, going against Cryan's previousstatement that the bank does not plan to sell the unit, the Financial Timesreports.

* Meanwhile, Deutsche Bank Chief Risk Officer Stuart Lewis tellsWelt am Sonntag that concern by investors and political leaders over thelender's €46 trillion derivative portfolio isunfounded, adding that risks from its derivatives are widely overestimated.Lewis said €46 trillion is the theoretical nominal value of its hedgingtransactions, though that the actual risk of the bank's derivative portfoliowas a net €41 billion, less than that of many of its rivals. 

*Volksbank Bielefeld-GütersloheG and Volksbank eG in Warendorf are planning tomerge in 2018, Börsen-Zeitung reports. Announcingtheir plans Friday, the banks said they would begin cooperating immediately andaim to increase cost synergies through the planned merger.  

* is expanding itsleasing and factoring activities, Börsen-Zeitung reports. The bank isin advanced negotiations to take over a leasing company, which it plans torealign. The leasing market is developing more dynamically than classic bankfinancing, according to the lender. Bankhaus Bauer recently acquired FLCSolutions, a software developer focusing on factoring and purchase financing.

* has placedfive employees on leave while it carries out an investigation into tax matters, Reutersreports.SonntagsZeitung writes that the bank's action was linkedto a U.S.investigation into Credit Suisse's Israeli unit over possible tax evasion.

* Kieren McCormack, Credit Suisse's head of primebrokerage sales for Europe, the Middle East and Africa, is said to be leavingthe group, insiders tell Bloomberg News.

* Credit Suisse's newsubsidiary Credit Suisse (Schweiz) AG will begin operations Nov. 21, Reuters reports.The lender plans to float a 20% to 30% share in the unit in the second half ofnext year, raising CHF2 billion to CHF4 billion.

* named Daniel Schmucki CFO,effective April 1, 2017, at the latest. Schmucki has been CFO anddeputy CEO of Flughafen Zu¨rich AG since 2008.

* UBSGroup AG is set to commence so-called robo-advice service in Britainnext month in an effort to attract younger customers, the Financial Timesreports.

FRANCE AND BENELUX

ABN AMRO mulls sale of Asian private banking biz: ABN AMRO GroupNV is exploring a sale of its Asian private banking operations andhas sounded out investor interest for such a sale, insiders tellBloomberg News. Meanwhile, Dutch Finance Minister Jeroen Dijsselbloem said thegovernment prefers a gradual sale of ABN AMRO to private investors over atakeover or merger, Het Financieele Dagblad writes.

* , which last weekrejected NN GroupNV's unsolicited offer to acquire the company for €5.30 per share,now wants an offer that is at least €6.50 per share, insiders tellHet Financieele Dagblad. Meanwhile, Norges Bank cut its stake in DeltaLloyd to 2.36% from 3.57%, De Telegraaf reports.

* International banksbased in Paris say the cost of getting rid of highly paid employees in Franceis one of the main hindrances to Paris gaining more financial industrybusinesses after the U.K. leaves the EU, accordingto Les Echos. In France, employees normally get between 18 months ortwo years of their fixed salary when they are laid off from financial firms.

* French central bankGovernor François Villeroy de Galhau said European banks are doing well, withFrench lenders doing better than most of its peers in the region, Le Mondereports.

SPAIN AND PORTUGAL

Sabadell,Popular chairs meet amid merger rumors: The chairmen of and , JosepOliu and Ángel Ron, met privately at the end of August amid months of speculationregarding talks on a potential merger between the two banks, La Vanguardia reports.Insiders tell the paper that the two agreed to give each other time and assessthe situation before proceeding to assess a hypothetical merger.

*Ricardo Mourinho Félix, Portugal's secretary of state for finance and thetreasury, said the country does not expect DBRS to change its sovereign creditrating Oct. 21, accordingto CNBC. DBRS is the only ECB-recognized rating agency to rate Portugal atinvestment grade, and a downgrade could exclude Portuguese bonds from the ECB'sasset-buying program.

* Angolan investor Isabel dos Santos will control 51.9% ofBanco de Fomento AngolaSA as part of a solution to resolve Banco BPI SA's exposure toAngolan assets, NovoJornal, DinheiroVivo and Jornalde Negócios write. It remains unclearwhether Dos Santos will sell her 18.5% stake in Banco BPI to , which has launched afull takeover bid for the Portuguese bank.  

* Caixa Geral de DepósitosSA's recapitalization could be postponed until 2017 as thePortuguese government seeks to limit any potential impact on the country'sbudget deficit, Jornal de Negócios writes.   

* Thereis a serious possibility that Novo Banco SA could be acquired by Chinese investors, Jornal de Negócios reports.China's Minsheng Financial group was recently reported to be in the running tobuy the Portuguese lender.   

ITALY AND GREECE

Alternativerescue plan for Monte dei Paschi in the works: Quaestio CapitalManagement, which oversees the Atlante bank rescue fund, said Atlante had nointention of investing in 's €5 billion capital-raising efforts, Reuters reports. Former Italian minister Corrado Passera is meanwhile reportedly workingon an alternative rescue plan for Monte dei Paschi amid signs that the €5billion capital increase is not attracting investor support, insiders tell Reuters. Private equity firms, including Warburg Pincus, are said to bedeveloping a plan with Passera that includes a reserved capital increase of upto €2.5 billion.

* isreportedly engaged in discussions with several banks in a bid to assessinterest in its sale of FinecoBank SpA, Reuters writes.

* The European Commission an extension of the sales processfor Nuova Banca delle MarcheSpA, Nuova Bancadell'Etruria e del Lazio SpA, Nuova Cassa di Risparmio di Ferrara SpA and , which were created in November 2015 as part of the resolutionof their predecessors. The EC said the timelines of the process are keptconfidential to protect the effectiveness of the sale process.

* Milanmagistrates requested the dismissal of charges against former ChairmanMassimo Ponzellini and four other persons, who were accused of fraud and obstructingregulatory oversight, Il Sole 24 Ore writes.

* Apax,Apollo and JC Flowers have, in addition to JPMorgan Chase & Co., expressed interest inBanca Popolare di VicenzaSpA and Veneto BancaSpA, La Repubblica reports.

* closedthe sale of its secured nonperforming loan portfolio with a gross book value of€106 million, Reuters reports.

* Eurozone finance ministers are expected toapprove today the partial or full disbursement of a €2.8 billion tranche ofloans to Greece as the country has met nearly all the 15 reform milestonesnecessary to obtain the payout, Reuters writes.

NORDIC COUNTRIES

Sweden topropose 15% payroll tax on financial firms: The Swedish government is set to propose anew 15% payroll tax on financial institutions in a bid to level the playingfield between the sector and other industries, Reuters writes.Banks have warned that such a tax could lead to thousands of job cuts andhigher costs for borrowers.

* European financial regulators are starting toquestion Nordea BankAB's plans to transform its subsidiaries in countries outsideSweden into branches, Bloomberg News reports.

EASTERN EUROPE

PozavarovalnicaSava chairman faces recall: Slovenia's Insurance Supervision Agency requestedPozavarovalnica Sava ddto call a shareholders meeting in order to recall supervisory board ChairmanBranko Tomažic from the post. The meeting must take place within 45 days ofreceipt of the regulator's order, though an appeal can be filed within eightdays. The regulator previously said that Tomažic ceased to meet all theconditions for appointment as a member of the supervisory board.

* PJSC Sovcombank acquired a 100% holding in from Severgroup, Vedomosti writes.

* Shareholders of and approved a mergervariant for the two lenders under which B&N Bank will beintegrated into MDM and the merged company will operate under the B&Nbrand, Vedomostiand Kommersant report.

* Raiffeisen Bank International AG CFO Martin Grüll saidthe Austrian bank hopes to reach an agreement soon regarding the sale of itsPolish leasing business, PAP reports.PKO Bank Polski SA isin negotiations with RBI to acquire Raiffeisen-Leasing Polska, while is in discussionsto purchase Raiffeisen BankPolska SA without its Swiss franc mortgage portfolio.

* Cyprus Popular Bank Public Co. Ltd. entered into anagreement to sell 99.09% of fully paid share capital and 72.50% of preferredshares in Marfin Bank Serbia to Expobank LLC Czech unit , SEEBiz reports.The deal, signed Sept. 30, is pending the regulatory approval in Serbia, theCzech Republic and Cyprus.

* Romanian parliamentary committees are likely toapprove today a bill allowing Swiss franc-denominated mortgage holders toconvert their loans into Romanian leu at historical rates, Reuters reports,adding the decision would be against the recommendations of the Romaniancentral bank.

* Aktif Yatirim Bankasi AS, the Islamic Corp. forthe Development of the Private Sector and Ijara Management Co. signed apartnership agreement to invest in Halic Finansal Kiralama AS, or HalicLeasing, Finans Gündem reports.The agreement will give Aktif Bank a 32% stake in the leasing firm.   

IN OTHER PARTS OF THEWORLD

Asia-Pacific: ABN AMRO may sell Asianprivate banking biz; Macquarie in talks to buy Green InvestmentBank

Middle East & Africa:

NOW FEATURED ONS&P GLOBAL MARKET INTELLIGENCE

: Nordea Bank's bid for ABN AMROover the summer was never likely to win over the Dutch government, and there islittle prospect for its revival, analysts told S&P Global Market Intelligence.

: The finance ministers of two Belgianstates that each own 25% of Ethias disagree on whether to merge thecapital-strapped insurer with another company.

: Banks whose riskmodels significantly diverge from those of their peers may face a"significant" increase in capital charges under upcoming rule changesdue by the end of the year, according to the secretary general of the BaselCommittee on Banking Supervision.

 Leo Magno, Ed Meza, Brian McCulloch, DanielleRossingh, Praxilla Trabattoni, Helen Popper, Yael Schrage, Esben Svendsen,Beata Fojcik and Ali Kayalar contributed to this report.

TheDaily Dose has an editorial deadline of 7 a.m. London time. Some external linksmay require 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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