Financial Times Europe - 19.09.2019

(Jacob Rumans) #1

Thursday19 September 2019 ★ FINANCIAL TIMES 17


COMPANIES


O L A F STO R B E C K A N D M A RT I N A R N O L D
FRANKFURT


Deutsche Bank aces the threat of af
European Central Bank investigation
after buying and selling its own debt for
more than three years without
regulatory approval, according to
people familiar with the matter.
Employees at Germany’s biggest
lender forgot to apply for the necessary


approval to buy and sell its additional
tier 1 (AT1) bonds between 2014 and
2017, which it did to help ensure
liquidity in the securities, one of the
people said.
AT1 bonds are the riskiest class of
bank debt that regulators introduced
after the financial crisis to shore up
banks’ balance sheets and shield tax-
payers from losses when a lender runs
into trouble.
A formal investigation by the ECB
would join a long list of litigation and
misconduct cases that have cost
Deutsche Bank billions of euros in fines
and settlements.

These included a $7.2bn settlement
with the Department of Justice’s over
alleged mis-selling of mortgage securi-
ties in late 2016.
European lenders have needed regu-
latory approval since 2014 to buy their
own AT1 bonds.
The AT1 trades under focus were

conducted by Deutsche’s corporate and
investment bank, according to a person
familiar with the matter. The bank
did not get formal approval from the
ECB for such transactions until 2017,
a person said.
The transactions were not intended to
alter the bank’s capital structure and
were not part of big bond repurchasing
programs, the person said. Instead, they
were designed to create a liquid market
for the holders of the bonds.
Deutsche Bank chief executiveChris-
tian Sewing s overseeing one of thei
most radical restructurings in the
lender’s history.

The overhaul will shrink its invest-
ment bank and see it focus on its retail
business and providing banking serv-
ices to corporate clients.
Earlier this year, Deutsche Bank’s
chief administrative officerKarl von
Rohr aid that 19 of the 20 largests
legacy issues have been “partly or com-
pletely resolved”.
Shares in Deutsche Bank have
climbed almost 4 per cent this year.
German daily Süddeutsche Zeitung
first reported the unauthorised bond
trades and the potential ECB probe.
The ECB declined to comment.
Deutsche declined to comment.

Banks


Deutsche faces threat of ECB debt probe


Staff forgot to apply for


permit to trade AT1 bonds


in push to ensure liquidity


TA N YA P OW L E Y— LONDON

British Airways’ pilots have cancelled
next week’s planned strike action and
called on the airline to restart talks and
end one of the most serious industrial
disputes in its history.

The British Airline Pilots’ Association,
which represents the majority of BA’s
pilots,said yesterday it had decided to
take the “responsible course” before the
dispute escalated and “irreparable dam-
age” was done to the brand.
The announcement comes just a week
after BA was forced to ground almost all
of its 1,700 flights for 48 hours after the
majority of its pilots went on strike in a
dispute over pay. The industrial action
affected 195,000 customers.
Last week, the airline also cancelled
most of its flights for September 27, the
pilots’ announced strike date.
“In a genuine attempt at establishing
a time out for common sense to prevail,
we have lifted the threat of the strike
onSeptember 27,” said Brian Strutton,
Balpa general secretary.
BA has offered pilots a payrise of
11.5 per cent over three years but Balpa
has asked for more money and a profit-
share scheme. Mr Strutton told the FT
yesterday that Balpa was willing to
“move our position”.

“BA passengers rightly expect BA and
its pilots to resolve their issues without
disruption and now is the time for cool
heads and pragmatism to be brought to
bear,” he said. “I hope BA and its owner
IAG how as much responsibility as thes
pilots.”
However, Balpa added that should BA
refuse “meaningful new negotiations”, it
retained the right to announce further
strike dates.
BA said: “We have just received this
news. We are considering the implica-
tions and we will give updates in due
course.”
The row with pilots over pay adh
showed no signs of being resolved. Just
days before the 48-hour walkout, BA
rejected Balpa’s offer of last-ditch talks,
saying it would only meet without pre-
conditions. In an escalation of the dis-
pute, the airline subsequentlystripped
strikers nd their families of perks, sucha
as heavily subsidised travel, for three
years.
The move to cancel the strike with
more than a week’s notice should give
BA enough time to restore the flights it
cancelled on September 27, according to
aviation commentators.
John Strickland, an aviation analyst,
said there would be operational benefits
to BA for restoring flights, such as ensur-
ing that aircraft were in the right posi-
tions around the world and therefore
not having any subsequent knock-on
effect on flights either side of the strike.
“On the face of it this is a good step.
Both sides can reflect and reach a win-
win solution. There needs to be a win-
win solution for both parties in the dis-
pute as well as customers,” Mr Strick-
land added.

Airlines


BA pilots call


off strike but


warn of more


if pay talks


are refused


DAV I D K E O H A N E— PARIS
SY LV I A P F E I F E R— LONDON


The world’s biggest space companies are
stepping up plans to capture a nascent
market in satellite technology in an
effort to make up for plunging sales
caused by the cultural shift away from
watching television to using mobile
phones and computers.
Thale s and B o eing last we ek
announced proposals for a new genera-
tion of flexible satellites, capable of cop-
ing with the changing demands of cus-
tomers who want mobile phones that
can connect to the web on planes, trains
and cars as well as in isolated regions.
Currently, satellites are sent into orbit
with a fixed function, for example to
broadcast images to televisions or fixed
screens — a significant drawback as an
increasing number of consumers spend
more time on their mobile phones and
computers, which use WiFi or cellular
connections.
It is hoped that the move will revive
demand for satellites after orders fell to
nine last year compared with about 20
in 2015.
Jean-Marc Nasr, head of space sys-
tems atAirbus Defence and Space,
which earlier this year signed a deal with
Inmarsat, the telecoms group,for three
flexible or reprogrammable satellites,
said the industry was experiencing a
fundamental shift.
“We are living at a turning point of the
telecommunications satellite history.
Up to now, the main mission of telecom
satellite was TV broadcast,” he said.
The flexible satellites being devel-
oped by some aerospace companies use
digital payload technology that allows
them to switch between different func-
tions by increasing the amount of power
they bring to bear on a region or a plane
or car.
The technology enables their anten-
nas to generate different types of satel-
lite coverage and to modify itquickly
when needed, jumping between broad-
cast TV over Europe to internet access
in Africa, for example.
Jean-Loïc Galle, chief executive of
Thales Alenia Space, one of Europe’s
leading satellite manufacturers, said
there were “so many uncertainties” that
customers “cannot afford for the next 15
years to have what I call a static satellite


that has absolutely no flexibility”.
Mr Galle, who described the market
for traditional satellites as “really
awful” over the past three years, said the
industry needed a solution to provide
customers with “satellites that can fit all
kinds of applications”.
The old satellites, which would
remain in orbit for more than 15 years,
had “no way to switch through mobility,
across mobility, or even broadband
access”.
Mr Nasr added that the days of opera-
tors being able to build a 15-year busi-
ness case around new satellites with a
single function are over.
Eric Jensen, vice-president of global
commercial satellite sales at Boeing,
said technological advances enabled
manufacturers to offer not just a stable
platform but onethat is flexible and can
be customised.
Data from Euroconsult, the research
group, show that the market for satellite

technology will increase to $19bn in
2028 compared with $11bn in 2018,
with mobility services provided to cars,
planes and boats the fastest-growing
sectors.
This is projected to rise to 17 per cent
of the market from 5 per cent last year.
This compares with broadcast and video
services, which accounted for 59 per
cent of the market in 2018, and is pro-
jected to reach 23 per cent in 2028.
Thales plans to launch its first flexible
satellite in 2023, and Mr Galle is betting
that by 2025 “more than two-thirds,
maybe three-fourths of the market will
be served by digital satellites”. This
would include the military, which needs
high-speed connectivity for its fighter
jets.
The new generation of satellites will
take 18 months to deliver, compared
with between 24 and 30 months for
the older generation. Thales has spent
about €300m on research and develop-

ment in the past five years, Mr Galle
said.
Magali Vaissiere, director of telecom-
munications and integrated applica-
tions at the European Space Agency,
said the switch to flexible satellites was
part of the “softwarisation” of the indus-
try. She said this is bringing the satellite
market closer to other information and
communication technology industries,
such as the cellular sector.
The space agency launched the devel-
opment of flexible satellites in 2015 with
the Quantum, a joint project between
Airbus andEutelsat.
A dedicated R&D programme focused
on flexible satellite product lines will be
proposed at the next ministerial council
meeting of the agency in November.
Ms Vaissiere said: “This is a huge
development for the satellite industry,
equivalent to the migration from main-
frame computers to the personal com-
puter.”

Technology. obilesM


Flexible satellites throw lifeline to space industry


Thales and Boeing look at next


generation to cope with


changing consumer demands


Sky’s the limit:
satellite dishes
scan the heavens
where the latest
technology is
expected to
transform
coverage

‘We are
living at a

turning
point. Up

to now,
the main

mission of
telecom

satellite
was TV

broadcast’


‘BA passengers rightly


expect BA and its pilots to
resolve their issues

without disruption’


L AU R A P I T E L— ISTANBUL


Turkish regulators have told the coun-
try’s banks to write off more than $8bn
worth of bad loans as they seek to clean
up the damage from last year’s cur-
rency crisis and reboot lending.


Banks will need to reclassify about
TL46bn ($8.1bn) of their loans as non-
performing by the end of the year and
make provisions to cover losses, the
Banking Regulation and Supervision
Agency (BRSA) said late on Tuesday.
The reclassification of the loans,
which are largely to Turkey’s ailing
energy and construction industries, will
see the sector’s overall ratio of non-per-
forming loans jump to 6.3 per cent from
4.6 per cent, the regulator said.
Although the intervention from the
regulator will erode the earnings of
banks this year, some analysts said it
should help dispelconcerns hat lenderst
were understating their bad loan prob-
lems after a bruising drop in the lira last
year and subsequent recession.
Okan Akin, an emerging markets
credit analyst at AllianceBernstein,
described the announcement as “a
move in the right direction”.


“Investors were overall very sceptical
of the NPL numbers of the banks and
this move shows the BRSA is on top of
the problems in the system and pushing
the banks to do the right thing,” he said.
The increase in bad loans after the
regulator’s move will dent the capital
adequacy ratio of the sector, pushing it
down to 17.7 per cent from 18.2 per cent.
That remains above the minimum of 12
per cent set by the regulator.
Some voiced concern that the meas-

ures were further evidence of a drive by
President Recep Tayyip Erdogan to
revive the fast-paced, credit-fuelled
growth that ultimately helped trigger
last year’s crisis.
Mr Akin said it would be important to
see the impact on individual banks, and
if any would suffer capital shortfalls.
The BRSA did not provide details of
how much each bank would be forced to

write down, but analysts saidGaranti
Bank,Yapi Kredi nda Akbank ad theh
biggest exposures to the most problem-
atic sectors.
The almost 30 per cent plunge in Tur-
key’s currency last year strained the
corporate sector, which has seen its debt
burden double to 70 per cent of gross
domestic product since 2008.
Many Turkishcompanies ook outt
loans in dollars or euros in recent years
despite earning most or all of their reve-
nue in local currency. The lira’s weak-
ness sent the cost of servicing these for-
eign debts soaring, which in turn trig-
gered a rise in bad loans across the bank-
ing sector and curbed new lending.
Turkish banks are generally seen as
robust and well-managed following an
overhaul after a 2000-01 financial cri-
sis. However, some investors still har-
bour concerns about their reporting in
the wake of last year’s turmoil. One Lon-
don-based banking analyst said the lat-
est announcement by the BRSA “high-
lights that credit quality problems
remain significant at Turkish banks”.
The analyst added that it also “raises
questions” about the way Turkish
banks reported their asset quality.

Financials


Turkish banks told to write off $8bn of loans


‘This move shows the


[regulator] is on top of the
problems... and pushing

banks to do the right thing’


A formal investigation by


the central bank would
join a long list of litigation

and misconduct cases

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