Forex five fined $5.7bn

BY Richard Summerfield

Five of the world’s largest banking groups have been handed fines totalling $5.7bn for their role in manipulating the foreign exchange market.

For the banks - JPMorgan, Barclays, Citigroup, RBS and UBS - the fines continue to stack up as the latest scandal to hit the banking sector once again makes headlines.

According to regulators, forex traders from the banks met in online chatroom groups, named ‘the Cartel’ and another ‘Mafia’, and colluded to set rates that cheated customers while adding to their own profits. "They acted as partners - rather than competitors - in an effort to push the exchange rate in directions favourable to their banks but detrimental to many others," said US Attorney General Loretta Lynch.

The fines, meted out by the US Department of Justice, and separately by the US Federal Reserve, bring total penalties related to rate rigging of the foreign exchange markets to nearly $9bn, according to the Justice Department. Indeed, in November 2014 a number of the same banks agreed to pay $4.25bn to resolve foreign exchange investigations by a raft of regulators.

Four of the five banks under investigation by the DoJ plead guilty – namely Barclays, RBS, Citigroup and JP Morgan. However UBS was granted immunity for being the first to report the manipulation of the $5 trillion a day forex. A sixth bank - Bank of America - was separately fined $205m by the Fed. Announcing the settlements, Ms Lynch said: “The penalty they will pay is fitting, it’s commensurate with the pervasive harm that was done. It should deter competitors from chasing profits without regard to fairness to law or public welfare."

Barclays has been the hardest hit institution; in total, the bank has been fined $2.4bn – the highest amount any bank has paid for the scandal. US banks JPMorgan Chase and Citigroup will pay $900m and $1.2bn in fines respectively. Citigroup’s fine included a $925m antitrust settlement. The firm called the scandal "an embarrassment to our firm, and stands in stark contrast to Citi's values”. RBS agreed to pay around $660m. UBS agreed to pay more than $500m in fines, some of which was earmarked for Libor crimes and the rest for currency manipulation.

News: Global banks admit guilt in forex probe, fined nearly $6 billion

Unwanted European loans to top €100bn in 2015

BY Fraser Tennant

European banks are currently holding €1.9 trillion of unwanted loans - around 4 percent of European banking assets - according to new PwC research published this week.

The research, contained in PwC’s ‘Portfolio Advisory Group Market Survey 2015’, predicts that it will take another five years (at the minimum) for the banking sector to fully get to grips with the loans issue.

The PwC research also forecasts that portfolios with a face value of €100bn will trade in 2015.

Last year, banks sold loan portfolios with a face value of €91bn, an increase of around 40 percent of the total volume of loan portfolios sold in 2013.

The PwC research also shows that: (i) Italian banks hold more non-performing loans than any other European country, estimated by PwC to be some €185bn, which is roughly 15 percent of total non-performing loans across Europe; (ii) significant growth is expected in the number of transactions in Italy and other countries in Central and Eastern Europe; and (iii) loan portfolio transactions in Italy in 2014 totalled just €8bn and PwC expects a total of more than €15bn in 2015.

“There remains very significant investor interest in acquiring banking assets as the sector continues its unprecedented and much needed restructuring," said Richard Thompson, global leader for portfolio transactions at PwC. “There is significant competition between the numerous investor groups looking to acquire assets and, as a result, we’ve observed price increases in the market, making it much more attractive for banks to sell assets.

“Our research shows that investors’ return expectations are largely unchanged over the previous years, leading us to believe that investors are being more bullish as to their potential cash flow returns from these assets. In other words, more of the upside potential is being priced into these deals, particularly in the more liquid markets in the UK, Spain and Ireland.

“This trend favours the established investors in the market, which is likely to lead newer investors to focus on the emerging markets for loan transactions of, for example, the CEE region and Italy.”

Coinciding with the Market Survey this week is the publication of PwC's analysis of buyers and sellers of loan portfolios, which reveals that private equity (as well as other classes of investors) are currently holding more than €70bn to be spent on assets being sold by the European banking sector.

Report: Portfolio Advisory Group Market Survey 2015

2015 to be lending turning point

BY Richard Summerfield

2015 is likely to be the year that business lending grows and mortgage lending reaches an all time high in the eurozone, according to EY. In its report, 'EY Eurozone Forecast March', the firm notes that the wider eurozone is expected to be woken from its four-year slumber.

Business, consumer and residential mortgage lending are all expected to increase in 2015 for the first time since the dark days of the 2008 credit crunch. Much of this return to growth will be built on the boost that sliding oil prices have provided to much of the eurozone. Falling oil prices have had a positive effect on both consumer spending and appetites for credit.

EY estimates that business loans, which have decreased by €551bn since 2008, will increase by €53bn, or 1.2 percent, in 2015 - the first increase in lending since 2011. In 2016, business lending is expected to climb by €184bn. By the same token, EY forecasts that consumer credit lending will increase by 1.6 percent this year, reaching €573bn. Residential mortgage loans will also increase by around 1.9 percent in 2015.

Andy Baldwin, EY’s financial services leader for Europe, the Middle East, India and Africa (EMEIA), says “It’s taken six years to create the conditions to kick start growth in the Eurozone, but all the levers you can pull to stimulate demand have now been pulled, and there’s the additional stimulus of lower energy prices. So, if we don’t see growth in 2015 and 2016, we’ll have to conclude there are much more fundamental supply side issues to tackle."

EY does not believe that the ECB’s program of quantitative easing has yet had a lasting impact on the eurozone’s economy. As Mr Baldwin notes “The ECB’s QE program cannot take the credit for the improved outlook in lending, which is much more closely linked to cheap energy prices. And QE is a double edged sword - this level of economic stimulation is set to have a distinctly mixed effect on financial services. Investment banks and asset managers will benefit in the short term, but retail banks will find their profit margins squeezed, and insurers are facing an extra two years at least of punishingly low interest rates.”

Report: EY Eurozone Forecast

North Africa leads the way - PwC

BY Richard Summerfield

Africa is a continent on the rise. Indeed, for many commentators Africa has become an emerging market hotspot, with investment flowing into countries across the continent at an impressive rate. Though the region is still subject to economic and political risks, Africa is undoubtedly on an upward trajectory. According to the World Bank, it is one of the world’s three fastest-growing regions, expected to see economic expansion of around  5.2 percent in 2015-2016, up from 4.6 percent in 2014-2015.

A new report from PwC notes that a number of North African cities demonstrate the greatest potential for economic development in the next few years. The report, ‘Into Africa – the continent’s cities of opportunity’, details the 20 African cities set to become the most dynamic on the continent.

The PwC study was designed to evaluate the strengths and weaknesses of Africa’s major urban hubs, though the firm imposed the stipulation that only one city per country could be assessed. Accordingly, PwC ranked the selected locations in terms of infrastructure, human capital, economics and society, and demographics.

Four of the top five cities listed in the report - Cairo, Tunis, Algiers and Casablanca – are found in North Africa. Johannesburg in South Africa is the only southern city featured in the top five. The relative age of the cities and states in the north are enough to give them an advantage over the majority of those in sub-Saharan Africa.

PwC notes in its report that the infrastructure, regulatory and legal framework, and socio-cultural ecosystems required to establish a successful city, have been present in the northern cities for longer, which has allowed places like Cairo to flourish. Johannesburg’s establishment as a political centre in the mid 1880s allowed the city to develop the requisite infrastructure and services, which have been historically lacking in the south of the continent.

“We believe that these cities demonstrate the relative strengths and weaknesses of Africa’s urban future,” said Kalane Rampai, PwC local government leader for southern Africa.

Despite the dominance of northern cities, a number of sub-Saharan cities scored highest in terms of society and demographics, excelling in diversity and population growth.

Report: Northern African cities lead the way as continent changes: report

Alternative lending to hit the heights across UK and mainland Europe in 2015

BY Fraser Tennant

Alternative (non-bank) lending increased rapidly in 2014 and is expected to continue strongly throughout 2015, according to a new report from Deloitte.

The sixth Alternative Lender Deal Tracker – which covers 36 leading alternative lenders and focuses on primary deal flow in the European mid-market – reveals that non-bank lenders were involved in 195 deals in the UK and across mainland Europe in 2014 – a substantial increase on 2013 figures.

Also highlighted in the deal tracker are predictions for the 2015 private debt market. These include: (i) the increased use of direct lending funds by smaller mid-market private equity and leveraged corporates; (ii) an increasing interest from direct lenders in mainland Europe and increasing numbers of private debt funds opening up local offices; and (iii) a continued imbalance of supply and demand for liquidity will keep pressure on pricing and structures and favour borrowers in the mid-market.

Overall, the alternative lending outlook for 2015 is very strong, says Deloitte, with the deal tracker estimating that European direct lending funds are looking to raise in excess of €15bn over the next 12 months for private debt strategies.

“With strong year on year growth, 2015 could offer a bumper time for alternative lenders, now firmly established alongside mainstream banks," said Fenton Burgin, head of UK debt advisory at Deloitte. “With increased confidence in the markets and wider funding options, we are seeing a pick-up in M&A activity.”

This pickup in activity is substantiated by the deal tracker, which shows that M&A was the primary reason for just over half of all transactions monitored by Deloitte since 2012.

Offering a note of caution amid the confidence, however, is Floris Hovingh, head of alternative lender coverage at Deloitte. “There is increasing activity in France, Germany and Southern Europe. However, mainland Europe may not embrace direct lenders with the same lightning speed as the UK due to the larger share of family or founder owned businesses, who are intrinsically more risk averse than private equity,” she says.

Deloitte’s Alternative Lender Deal Tracker compiles data and information from the final quarter of 2014.

Report: Deloitte Alternative Lender Deal Tracker - Focussed on primary deal flow in the European mid market