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Those expecting a quiet-run in to the year-end are likely pleasantly surprised this morning after a host of news related to the exciting banking sector.
Firstly, overnight news that Monte dei Paschi is set to receive state aid as part of a €20bn package to keep the bank and troubled peers afloat is something of a relief, even if it does involve taxpayer funds and represents a big déjà vu, having already been rescued in recent years. It allows savers to have a quieter break following an eventful week that saw the bank struggle and ultimately fail to raise funds privately. Now it’s a question of what price institutional bondholders have to pay and what sort of compensation retail investors will be offered to ensure the bailout follows new EU rules preventing the bill for state aid being unfairly pinned on taxpayers and that the deal is more politically palatable. It also remains to be seen how long the process will take. Talk yesterday of it taking several months to complete is a worryingly long time, allowing unhappy investors to brood and savers take flight, potentially making the current situation even worse. Veloce!
Secondly, news from the US overnight makes for a mixed bag with continental behemoths Deutsche Bank and Credit Suisse settling with the Department of Justice (DoJ) for pre-crisis mis-selling of mortgage backed securities (MBS). The former settled for $7bn (only half payable in cash) which is just half the $14bn challenge that shook markets this summer, something considered to be US retaliation for the EU’s call on Apple to repay Ireland €13bn in back taxes. Credit Suisse settling for $5bn for similar allegations makes it two out of three. However a pre-Christmas hat-trick eludes the DoJ with UK giant Barclays refusing to give in, viewing claims against it as disproportionate to misdemeanours committed. Considering itself liable for just $1bn, it was happy to settle for $2bn, however, talks have broken down. The DoJ clearly wants more.
Deutsche bank shares +3.7% suggests relief at a good result and the affair being closed. Credit Suisse shares flat implies an acceptable deal. Barclays -0.3% indicates some uncertainty about what it eventually ends up paying. However there is no panic. If anything, the standout performer this morning is the bank that we have yet to mention. We already know the DoJ wants to fine RBS $12bn for its own MBS mis-selling. Its shares are likely +1.8% on a combination of optimism that it too could settle for half, like Deutsche, although gains may be capped by the prospect of the DoJ taking a dislike to Barclays pushing its luck and decides to make life difficult for the UK duo.
Mike van Dulken, Head of Research, 23 December
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