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Banking

The pandemic effects of European banks

Banking sector has been massively hit by the economic repercussions of the Covid-19, as have other sectors like public health. But as in the past crises like the global financial and the European debt crises, this time it did not start with the financial sector but in no time it became very clear that the financial sector was critically hit and was trying hard to mitigate the impact of crisis and in supporting the recovery process. It became a vicious cycle with financial institutions also being affected by the economic interruption which went in loop, for example, by not earning money, households was unable to repay mortgages and consumer credits; by not having clients or not being able to produce goods/services results, firms in turn suffered lost revenues, undermining their ability to repay loans. This did not stop here, SMEs with no access to public capital markets withdrew their own credit lines in order to have sufficient cash buffers at the time of disruptions, which implied that there was an increase in the funding demands on banks.

To add to this, governments have recycled the banking system to station support to the real economy, extending from credit guarantees to payment holidays. Governing authorities throughout the globe have been engaged in few important steps to stop a credit crunch causing from the pro cyclical tendencies in bank lending, including depressing countercyclical buffers where they were before above zero, letting banks to operate temporarily below the level of capital defined by the Pillar 2 Guidance (P2G) and the capital conservation buffer (CCoB) and permitting banks to operate below 100 percent of the liquidity coverage ratio (LCR). While the regulatory authorities, particularly in Europe, intensely encouraged banks and other financial institutions to abstain from profit circulation.

Current focus is on crisis mitigation and it is clear that non-profits have been accumulating in the banks is most likely on balancing sheets. Deriving from the scenario, the banks will have the major role in the post pandemic re allocation of resources. To start with, few sectors will recover stronger from this crisis like the information technology [IT]) and others will emerge fragile and with less response for their goods or services. There will definitely be a wave of liquidations of unrealistic firms over the coming years, a course in which banks as prominent creditors for these firms will perhaps play important roles but also incur losses. And next, there is more over-all corporate over-in debtedness in the economy, not all overleveraged firms are unrealistic; restructuring (as under chapter 11 in the United States) might be well-organized than liquidation (as under chapter 7 in the US) again, banks will partake critical roles in this procedure. To end with, corporate over-indebtedness and insolvencies will be replicated in the non-performing assets on banks’ balance sheets. Permitting banks to timely suspend the acknowledgment of these losses can lead to zombie lending, as was seen in Japan with the crisis of the 1990s as it will again avoid the essential reallocation of resources. Forcing them to recognize these losses, yet, can result in undercapitalized, if not worsening, banks. To conclude, the banks will be required to deal with significant losses to be acknowledged in the next few years and they will have to play an important role in corporate reorganizations while being anticipated to support rising sectors of the economy with subsidy.

The banks around the world also playing the roles in the economic recovery, where as In Europe, the banking sector itself will be needing the utmost restructure possible.

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Banking

Goldman banker hired by the Citi bank

Citigroup has hired Luisa Leyenaar-Huntingford from Goldman Sachs. This new hire is to co-head its global infrastructure franchise. Because, it seeks to win more business from cash-rich investment firms focusing on infrastructure deals. Leyenaar-Huntingford will be based in London. Responsibility will be shared with Todd Guenther in New York.

The pair will work closely with industry teams covering healthcare, industrials, natural resources and clean energy transition (NRCET), technology and communications. Leyenaar-Huntingford helped in the establishment of the Goldman’s infrastructure franchise in her time at the Wall Street bank. They will team up with Citi’s Iberia co-head of banking, capital markets and advisory (BCMA) Jorge Ramos will continue to be a senior member of the global infrastructure franchise.

The infrastructure sector is poised for further growth, according to the memo. The memo was released by Citi’s global co-heads of the alternative assets group Anthony Diamandakis and John Eydenberg, and its EMEA head of BCMA Nacho Gutierrez-Orrantia. There was significant private investment demand across the globe to deal with environmental, energy, transportation, waste, communication, digital and other social needs.

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Banking

Banks make slow progress on UK gender pay

Major banks in Britain made a slight dent in their gender pay gaps. Several insurers went backwards. Companies in Britain with more than 250 employees have been required to publish the difference between the pay and bonuses of their male and female employees. They got a reprieve due to the pandemic, last year. The financial services sector has shown one of the largest genders pay gaps in Britain. The lack of women in senior jobs is the main reason.

Pay gap data from 21 major financial institutions showed a narrowing in their average mean gender pay gap. This is just 0.4 percentage points. Banks alone had a pay gap which narrowed by one percentage point. Ann Francke, chief executive of the Chartered Management Institute said that the UK’s financial services industry has often been singled out. It really does have to get its house in order. Goldman Sachs had the widest gender pay gap in the year to April 2020. Goldman posted a gender pay gap of 51.8%. The bank told the staffs that narrowing the gap further was a critical priority. A spokesperson for banking lobby group UK Finance said, that there is clearly more still to be done.

FTSE 100 insurers Prudential, Legal & General and M&G reported a widening in their pay gaps. Prudential’s UK gender pay gap widened to 45.2%. M&G also reported a widening in its pay gap in the most recent year to 30.5%. The M&G spokesperson said that they are determined to narrow their gender pay gap and will do this by achieving better representation of women in all roles at all levels of our organization. Legal & General’s mean gender pay gap widened to 30.8%.

The insurer said that the legal & general is tackling the underlying causes of its pay gap. This is by creating a more diverse workforce and a more inclusive culture through sustained, long-term action. Admiral had a gender pay gap last year of 12.8%. The 21 firms surveyed were Barclays, HSBC, Lloyds, NatWest, Standard Chartered, Bank of America Merrill Lynch, Goldman Sachs International, JPMorgan, Morgan Stanley, UBS, Credit Suisse, Deutsche Bank, PGMS (a Phoenix unit), abrdn, Schroder Investment Management, St James’s Place, Legal & General, Prudential, Admiral Group, Aviva and M&G.

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Banking

BOJ to lower inflation target-Japan’s finance minister

Japan’s outgoing finance minister, Taro Aso, said that he had proposed lowering the central bank’s 2% inflation target. This is when the prices took a hit from plunging oil prices. He was the finance minister for nearly nine years. The slump in oil price was among the main reasons the government could not officially declare an end to deflation. In his final news conference as finance minister, Aso said that he proposed to Governor Kuroda that, with oil prices falling this much, it would be hard to achieve 2% inflation. Hence, the target must be lowered at some point. He stated this by referring to Bank of Japan (BOJ) chief Haruhiko Kuroda.

Aso also said that the governor said he would do his best to achieve the target. This is stated by adding that policymakers must scrutinise at some point, why the BOJ’s inflation target of 2% has not been met. The remarks highlight how the government and lawmakers distanced themselves from the BOJ’s target years ago, despite central bank reassurances that achieving the target was possible by maintaining or increasing stimulus.

Aso was deeply involved in negotiations with the BOJ. After Kuroda took over as governor, he deployed a massive asset-buying program. This is for pulling Japan out of deflation. Aso supported the BOJ’s stimulus efforts. He is a member of the cabinet. And also, had raised many doubts that monetary policy alone can reflate the economy out of the doldrums. New Prime Minister Fumio Kishida is set to form a cabinet.

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