Coronavirus is latest test for Europe’s banks; UBS CEO heading to Swiss Re

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Good timing

“Watchdog,” former Consumer Financial Protection Bureau Director Richard Cordray’s “love letter” to the agency, was published on Monday. Coincidentally, on Tuesday the Supreme Court is scheduled to hear arguments “in a case that could determine once and for all whether a president can fire the CFPB director ‘at will.’ The ruling could shape the future of the 1,600-person bureau and throw into question the legitimacy of the billions of dollars in fines it has imposed on mortgage lenders, credit card companies and banks over the past eight years.”

Chief Justice John Roberts, often the swing vote on the conservative court, has "a fairly formalist view of executive power" but doesn't like upsetting the status quo, American Banker’s Kate Berry writes.

The Wall Street Journal Editorial Board says the case could be the “most important case” the high court hears this year because it "goes to the heart of the separation of powers and whether the administrative state is accountable to the people."

Another challenge

“Already toiling amid negative rates and slow growth, European banks — which have long been considered one of the weaker links in the global financial system — now face the prospect of the economies and companies they serve being severely hit by the coronavirus outbreak, making a challenging outlook much worse,” the Wall Street Journal reports. “Their stocks took another hammering Monday amid signs the impact of the virus is starting to hurt economies, which has immediate effects on banks’ business of taking and lending money.”

“Banks in Europe are better equipped to face a crisis since boosting capital and liquidity levels following the sovereign debt crisis in 2010. Funding costs are still below those at the start of last year despite last week’s spike. But a global recession would translate into a pickup in defaults and souring loans, forcing banks to take losses and hurting already weak profitability.”

One of those banks, Banco BPM, Italy’s third largest bank, “is rushing to set up new disaster recovery rooms after an area close to one of its existing crisis facilities emerged as the epicenter of the coronavirus outbreak,” Reuters reports. The bank’s core operations are centered in Lombardy and Veneto, “the areas hardest hit by one of the world’s worst outbreaks of the new coronavirus outside of China.”

Career change

UBS CEO Sergio Ermotti, who is scheduled to leave the bank in November, is set to become chairman of Swiss Re in 2021, succeeding Walter Kielholz, who has held that post since 2009. UBS announced last month that Ermotti is being succeeded by ING CEO Ralph Hamers.

Sergio Ermotti
UBS CEO Sergio Ermotti will accept the post of chairman of insurer Swiss Re.

The Journal suggests “European banks on the hunt for superstar chief executives might be overcomplicating things. The data suggests they should think local and low-key.”

“Most top U.S. bankers aren’t affordable for European banks — perhaps mercifully, as the data shows little correlation between pay and performance. They should look for local talent instead, given the tendency of market-beating CEOs to hail from their bank’s home country. Diversifying the C-suite might bring in fresh ideas, too.”

Wall Street Journal

Charged

The U.S. “indicted and sanctioned two Chinese nationals accused of helping North Korean hackers launder around $100 million in stolen virtual currency,” which Pyongyang is using to fund its nuclear weapons program. Prosecutors accused the two of “helping the hackers convert the funds, including through exchanging the bitcoin for prepaid Apple iTunes gift cards. The complaint also accused North Korean hackers of perpetrating the theft of nearly $50 million in ether coins from South Korean cryptocurrency exchange Upbit in November.”

Quotable

“The key question mark revolves around the depth and length of the [virus] containment measures, and the impact these will have on the economies, which would then in turn affect bank financials, starting from asset quality.” — Marco Troiano, deputy head of the banks team at rating agency Scope Ratings, commenting on coronavirus’s possible impact on European banks

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