The investment bank vs. retail bank divergence; bitcoin bull charges on

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The future of CRE

Commercial property markets “are becoming tougher for landlords,” who “may soon be competing with their own tenants as companies sublet space they no longer need,” the Wall Street Journal reports. “Few businesses will commit to a new lease until they understand how remote working will change their real estate needs, so competition for tenants is intensifying. ”

“Landlords’ next challenge will come from tenants that are beginning to unload space they no longer want. Although companies cannot break leases without reputational damage, they are able to sublease all or part of their offices.”

“Work from home and lockdowns have carved up the real-estate sector into a handful of winners and many more losers,” a Bloomberg analysis says. “The resulting split into the good, the bad and the ugly presents a challenge for investors who expect diverging valuations to revert to historic averages in 2021. It’s hard to assess what might happen because there are two big unknowns.”

“One is whether people will simply head back to the office when the pandemic is under control. The other uncertainty is the sustainable level of rents in retail and leisure. The resumption of office working would support city centers, but malls have a harder job preventing the online journey becoming one way. Their owners face the cost of making locations more attractive while servicing high debts. But if vaccines truly bring back some semblance of normal life, an indication of where consumer habits are settling could emerge in 2021.”

Financial Times

Divergent fortunes

“The chief executives of some of Wall Street’s largest deal-making companies enjoyed gains of tens of millions of dollars in 2020 thanks to surging share prices while the heads of banks with big retail operations saw their paper fortunes shrink, highlighting contrasting performances across the industry. The divergent fortunes are personified by two men with the biggest stakes in their companies: Rich Handler, chief executive of Jefferies, and Jamie Dimon of JPMorgan Chase.”

“Mr. Handler made the biggest paper gain of Wall Street chief executives. The value of his shares rose almost $54 million in a year when his bank’s share price gained 14.5%.” By contrast, Mr. Dimon, “who had more than $1.1 billion of JPMorgan stock at the start of the year through a combination of personal ownership and interests of his close family, suffered paper losses of just over $100 million on those shares last year, as low interest rates and high loan loss charges battered U.S. retail banks. JPMorgan’s earnings for the first nine months were 39% lower than a year earlier, even as its investment bank benefited from buoyant market conditions.”

Rethinking regulation

Ana Botín, executive chairman of Santander, says we need a regulatory “rethink” because “the challenges posed by the Covid-19 pandemic are different from those caused by the 2008 financial crisis.”

Banks “need to be able to deploy more of the capital they have built up,” she writes in an op-ed. “And if they want to build up more capital to deploy, they need to be able to attract investors.” Secondly, “regulators should consider how to reduce the cost of capital for banks that finance green activities.”

“The third challenge is the digital revolution. Regulation now favors tech companies that intermediate financial services over banks. We need to level the playing field — not to give banks an advantage, but to remove the advantage that tech companies have had for the last 10 years.”

“The global financial system in 2021 will face a gigantic stress test,” a separate op-ed says. “It is a more opaque, fast-moving financial world that poses huge challenges for regulators. As for the financial system itself, the big future challenge will be how to refinance an ever-growing mountain of debt when so many banks and non-banks have flawed or constrained balance sheets. The conclusion must be that central banks’ market stabilizing activities will be with us for longer than many now expect.

Happy New Year

“Bitcoin climbed above $34,000 for the first time on Sunday, extending a record-breaking rally in the volatile cryptocurrency that delivered a more than 300% gain last year. With trading in key financial markets yet to commence in 2021, bitcoin has resumed its dizzying ascent, rising more than 10% in the first few days of January.”

“The rally has fed concerns that bitcoin is set to repeat the events of three years ago, when a bull market dramatically collapsed. But some analysts have pointed to an increase in corporate and institutional interest in bitcoin. Well-known investors such as Paul Tudor Jones and Stanley Druckenmiller have thrown their weight behind it, and crypto-focused hedge funds have outshone peers.”

Green pressure

“British banks are launching a wave of climate-change products and tightening lending standards amid criticism over their slow response to global warming. The U.K.’s largest lenders, HSBC, Barclays, Lloyds and NatWest, have failed to impress campaigners, despite ambitious statements about their commitment to reducing carbon emissions in 2020.”

“With the U.K. preparing to host the UN COP26 climate summit in Glasgow at the end of 2021, scrutiny of the banks is likely to intensify with campaigners and politicians already stepping up the pressure. But bankers warn there are limits to how much banks could do alone.”

Quotable

“We continue to do better and therefore meet the criteria to sit at the table when it comes to a possible consolidation of the European banks — and not just as a junior partner.” — Deutsche Bank CEO Christian Sewing, telling a German newspaper that the bank expects to play a leading role in the consolidation of the European banking industry.