Breaking News This Morning ...
ECB QE Expansion: While the Fed considers a rate hike, central bankers across the pond appear did the opposite. The European Central Bank Thursday increased stimulus in the face of low inflation. The ECB slashed the deposit rate to -0.30% from -0.20%. Inflation in Europe remains well off where central bankers want it to be, at 0.1% versus the desired 2%. The effects of this QE expansion though are unclear, according to the New York Times. At the very least, it is expected to widen the gap between the dollar and the euro, but it could also put pressure on non-eurozone countries Sweden, Denmark and Switzerland to ease their monetary policy. It's not all negative for the ECB though: the measures the central bank is taking have encouraged banks to lend more in most countries, the Wall Street Journal notes. Credit availability for small and medium-size businesses in Europe has outpaced need for the first time since 2009, according to an ECB report.
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Yellen Sings a New Tune: Fed chair Janet Yellen is ready for a change, saying current economic conditions make it a good time to begin raising the Fed's benchmark interest rate. Yellen's remarks before the Economic Club of Washington and comments made by other Fed officials Wednesday show the central bank is truly poised to raise rates when it meets later in December, according to the New York Times. And while never an outright opponent to increasing rates, Yellen has nonetheless remained cautious about such a change, with these most recent remarks being her most optimistic to date. The Fed beige book released Wednesday pointed to stronger economic activity. Further, Yellen cautioned that another delay in rate increases could harm the economy in various ways, including forcing investors to make riskier choices that could endanger the country's financial system yet again, the Wall Street Journal writes.
Barclays to Sell Italian Retail Bank: Barclays will sell its Italian retail banking division to CheBanca, a division of the Mediobanca Group of Italy. The move is part of the British bank's efforts to restructure and to focus on what it sees as its four core businesses, according to the New York Times. These businesses include Barclays' British corporate and retail bank, its investment bank, the Barclaycard credit card division and its banking businesses in Africa. The move also doubles down on previous exits from continental Europe: last year Barclays sold its retail banking operations and other noncore businesses in Spain and Portugal. The Italian sale is not without its downside though. As the Financial Times points out, the sale is expected to cost Barclays 200 million pounds, or about $300 million.
Wall Street Journal
Leveraged loans to companies in serious debt have fallen roughly 20% in the past year as underwriting standards improved, a report three federal banking regulators found. The loans had become a lucrative business for banks, particularly in the post-crisis era, and have aided companies ranging from Wendy's to SeaWorld. But regulators quickly soured on them, as they began to observe supposed parallels between these loans and the mortgage loans that underpinned the financial crisis. Wednesday's report demonstrates their efforts against leveraged loans have worked ... regulators coerced banks into compliance with minimum underwriting standards regardless of the credit risk, and now their portfolios of these loans are shrinking.
Big bank bond traders have lost their claim to the title of "Masters of the Universe." While overall bonds have grown 11% since 2011, big banks' revenue from bond trading has plummeted roughly 24%, the paper reports. As a result, big banks are no longer the focal point of the bond trading industry; in their wake, hedge funds, mutual funds and others have come to dominate the field. That's left big banks with little choice but to shrink their bond trading staffs – the number of bond traders on Wall Street dropped 17% between 2010 and 2014. Consequently, that's made news like Morgan Stanley's decision Monday to cut bond and currency trading jobs by 25% hardly surprising.
If you think central bankers in the U.S. and Europe are influential, then take a look at Kenya's top man. Patrick Njoroge, a Yale graduate and former IMF official, has taken aggressive steps to stabilize the country's currency, the Kenyan shilling, and is building the country's dollar reserves in anticipation of a U.S. rate increase. Njoroge has also made efforts to retain a sense of incorruptibility in the face of the country's longstanding graft and corruption. That could also be a nod to his status as a numerary in the Catholic group Opus Dei, which requires he remain celibate and live with other members in a group home rather than the luxurious residence maintained for the head of the central bank. Either way, his work has paid off according to his fellow countrymen, who regularly stop him in the street to pick his brains on fiscal policy. Now, try to imagine that happening to Yellen or Draghi.
Standard & Poor's has downgraded eight of the biggest banks in the U.S., including Bank of America, JPMorgan Chase, Citigroup and Wells Fargo. The shift comes as the ratings agency turned sour on the prospects that the federal government would support the institutions in a future crisis. In particular, as the Fed finalizes its rules regarding total loss absorbing capacity, S&P said it sees government support as uncertain. The downgrades were therefore the result of the agency removing an uplift based on government support from the companies' ratings.
Goldman Sachs is looking to patent a cryptocurrency settlement system. Called "SETLcoin," it stems from the blockchain architecture underpinning bitcoin. It would allow faster – reportedly nearly instantaneous – execution and settlement of trades for assets like stock and bonds. Goldman's not alone in its efforts though. This technology is simply another attempt by a bank to adopt blockchain technology and apply it in a way that reduces the need for middlemen. For instance, Citigroup is at work developing its own "Citicoin" system.
CNBC: It's time to stop treating central bankers like rock stars. That's according to money manager Brian Kelly, who argues in an op-ed that we've become far too enamored with central bankers, as evidenced by Ben Bernanke's $200,000 haul per speech or Janet Yellen's ability to move markets with a few comments. This adoration is a recent phenomenon, which Kelly says owes to the Great Recession. Before then he says, central bankers reveled in being boring. Since the financial crisis however, central bankers have come to a place of significance. And he contends the result is their decisions, such as the Fed's choice to extend QE in 2012, have become tainted by popular opinion.