Financial Times Europe - 20.03.2020

Friday 20 March 2020 ★ FINANCIAL TIMES 13

COMPANIES

DAV I D C R OW, ST E P H E N M O R R I S
A N D L AU R A N O O N A N

The banking industry is demanding that
regulators relax or delay many post-cri-
sis rules on everything from capital and
liquidity to accounting and climate
change, which they argue are hamper-
ing their ability to respond to the coro-
navirus crisis.
Executives have launched the co-or-
dinated appeal to supervisors including
the Bank of England, the European Cen-
tral Bank and US regulators to ensure
that rules and standards do not impede
efforts to keep money flowing to the real
economy.
“With the pandemic continuing to
cause significant pressures on mar-
kets... policymakers may need to
move to new realms of response includ-
ing targeted supervisory and regulatory
policy measures,” said Axel Weber,
chairman of Swiss bank UBS and
the Institute of International Finance,
the trade body. “Anything short of a glo-
bal, integrated approach will prove
unsuccessful.”
This month the Stoxx Europe 600
Banks index and the Dow Jones Bank
index of US lenders have each lost more
than 40 per cent, while the cost of insur-
ing bank debt through credit default
swaps has soared.
As the pandemic roiled markets, the
Bank of England made an emergency
cut to interest rates and the Federal
Reserve slashed US interest rates to
zero, part of wider packages to shore up
support for the global economy.
“Cutting interest rates is almost irrel-
evant,” said one bank executive, who is
among those leading the lobbying effort.
“The right thing to do is to get the regu-
lation appropriate to the conditions and
to flood the market with liquidity.”
Chief among their concerns was the
introduction of international capital
rules known as Basel IV that force banks
to hold extra loss-absorbing buffers,
according to several people briefed on
the discussions between banks and
supervisors.
One executive said banks were push-
ing for an extension of the implementa-
tion of Basel IV—which is due to come
into full effect by 2027—to prevent
banks having to build up capital levels
by 2021.
“Banks have started to lobby for sub-
stantial changes to Basel IV — that is
where they will fight,” said Jérôme
Legras, head of research at Axiom Alter-
native Investments.
However, Sascha Steffen, a professor
at the Frankfurt School of Finance and
Management, warned regulators not to
roll back the introduction of capital
rules that were “responsible for the fact
that banks have entered the coronavi-
rus crisis in a much better position than
they did the 2008 crisis”.
Bill Coen, former head of the Basel
committee of international banking reg-
ulators, said that after two decades of
engaging with bank advocacy efforts,
“my knee-jerk, somewhat cynical reac-

tion is the phrase, ‘Never let a good crisis

go to waste.’ However, in this crisis

extraordinary measures are required.

“So long as the measures are just tem-

porary, not structural or permanent, it

could help reestablish confidence. I

don’t think regulators are using the

word forbearance; flexibility is the bet-

ter f word.”

Capital requirements are just one area

where banks are demanding regulatory

relief. The industry has identified an

array of other rules on accounting and

liquidity they describe as procycli-

cal,meaning they become more oner-

ous in times of economic stress.

In Europe, banks are calling for super-

visors to delay introduction of tough

accounting rules, IFRS 9, which force

banks to set aside money to cover loans

to distressed borrowers before they

start to default. The industry fears they

could be forced to record large upfront

losses that would eat into their buffers

and impede their ability to lend

to struggling groups and consumers.

Lenders in the UK had written to the

Bank of England to demand that the

transition to the rules—which are due

to come into full effect by 2023—be

extended, said several people who have

seen the letter.

Executives made much the same

argument at a meeting in Downing

Street last week with chancellor

Rishi Sunak, outgoing BoE governor

Mark Carney, and new governor

Andrew Bailey.

Jes Staley, chief executive ofBarclays,

which is based in the UK but has a sizea-

ble Wall Street investment bank,

“repeatedly pushed” the IFRS 9 issue at

the meeting, said several people who

attended.

Banks are confident that the BoE will

act to ameliorate the impact of the

accounting rules.

“They are open minded to delaying or

at a minimum looking through it but not

completely suspending it,” said one per-

son briefed on the discussions.

Another executive said that they

expected the ECB to follow suit.

Mr Carney promised to raise the issue

with banks’ auditors to remind them

that while the standards required lend-

ers to predict future losses, they allowed

some leeway to “look through” crises

such as the coronavirus outbreak and

make smaller provisions if they believed

there was going to be a quick V-shaped

recovery.

Several executives said the industry

was asking supervisors to take a “best

efforts” approach to money-laundering

and market abuse, whereby banks

would avoid punishment as long as they

had tried to do the right thing,even if

they had technically breached rules.

For example, with many traders and

compliance staff working from home,

banks have asked for leniency on the

requirement that they record phone

calls of traders and dealmakers. Some

lenders have reported difficulty distrib-

uting recording devices to staff who are

operating remotely.

Banks said that at a time of explod-

ing trading volumes they w ere strug-

gling to input extra data into the moni-

toring systems used to create compli-

ance and market abuse alerts, which

supervisors use as a starting point for

investigating malpractice. They argued

that their IT departments should be

focused primarily on ensuring that their

trading systems were able to operate

smoothly.

Executives have asked that the transi-

tion from the discredited Libor rate to

new interest benchmarks be delayed

from its hard deadline of 2022 to free up

employees to work on more pressing

matters.

Some signs exist that regulators are

reacting favourably to the banks’

demands. For instance, the US Federal

Reserve has relaxed some bank liquid-

ity requirements while the Securities

and Exchange Commission has waived

some requirements on recording trad-

ers’ calls.

In Germany, the main financial

watchdog loosened capital require-

ments on Wednesday, partly reversing

its earlier position, while European reg-

ulators have delayed stress tests that

measure banks’ balance street strength.

In addition to lobbying their national

regulators, banks are co-ordinating

their efforts globally through the

IIF. Still, executives have bemoaned a

lack of international co-operation.

“The increasingly nationalist politics

of the world has meant that there has

been little to no co-ordinated action

between the individual countries,” said

the executive, who contrasted the lack

of co-operation with co-ordinated

measures during the financial crisis.

Another person involved in the talks

said: “As each country is making deci-

sions, the issue of co-ordination

becomes quite urgent.”

In addition, banks are pushing back

against newer regulations that will

require them to start disclosing the

exposure to climate-related risks from

the end of the year.

In the UK, banks are also pushing

for the BoE to delay climate change

stress tests.

“Steps on the whole green debate have

put an additional onus on banks,” said

the executive. “We’ve got to be prag-

matic.”

Additional reporting by Tabby Kinder in

London, Olaf Storbeck in Frankfurt, and

Kiran Stacey in Washington

Banks demand rethink over post-crisis rules

Sector wants regulations on everything from capital and liquidity to accounting and climate change relaxed or delayed

Coronavirus pandemic has shattered bank stocks

Sources: Refinitiv; Autonomous

Indices rebased

Banks are in a better position now than they were

in the financial crisis

Common equity tier one ratio ()















Jan  Mar

Dow Jones Bank Index

Stoxx Europe  Banks

    

Morgan Stanley

HSBC

Barclays

UBS

Deutsche Bank

Goldman Sachs

Credit Suisse

Bank of America

JPMorgan Chase

BNP Paribas

Citigroup

 

A co-ordinated

appeal has been

launched to

supervisors

including the

Bank of

England, the

ECB and US

watchdogs

Charlie Bibby

TA N YA P OW L E Y— LO N D O N

DAV I D K E O H A N E— PA R I S

Airlines want to defer payments to

Europe’s air traffic controllers, worth

about €500m a month, as they battle a

deepening cash crisis from a virtual

shutdown of international travel amid

the coronavirus pandemic.

Carriers are collectively pushing back

on paying February’s charges that are

due next month to Eurocontrol, accord-

ing to people familiar with the situation.

Eurocontrol co-ordinates national air

traffic management agencies and is

responsible for collecting route charges

from carriers to fund air navigation

facilities and services in the EU.

It comes as the global airline industry

faces a cash crunch. The International

Air Transport Association on Tuesday

said the sector will need up to $200bn in

emergency support as the travel indus-

try bleeds cash in the face of a global

lockdown.

The airlines’ main trade body has

warned that the majority of carriers face

running out of money within two

months because of the sudden halt in

international flights by governments

attempting to contain the outbreak.

A4E, the European airline trade

body, said it was asking governments

in the region to defer the payment of

air traffic control charges due as well

as waiving aviation taxes at EU or

national level to help the sector’s future

recovery.

“At this point, many of Europe’s air-

lines have made the difficult decision to

ground all or a substantial part of their

fleet for the coming weeks. Many carri-

ers have also been forced to proceed

with temporary staff cuts... Any fiscal

burdens should be put aside until the

industry is back on a sound operational

and financial footing.”

The payment for February is due on

April 13, according to Eurocontrol’s

website. Eurocontrol works by collect-

ing money from airlines that fly over

European airspace and pays a propor-

tion of that to national governments. In

2018, it collected over €9bn.

Based on figures for January, Ryanair

would have paid the most in air traffic

charges to Eurocontrol at about €48m.

Eurocontrol declined to comment on

the request to defer payments.

Andrew Charlton, a Swiss-based avia-

tion consultant, said that if air traffic

controllers — who are in charge of keep-

ing the skies safe on a daily basis — are

not paid by airlines, then the whole air

travel system goes into even more of a

“meltdown”.

He noted that most air traffic control

groups typically only have about two or

three months’ worth of cash, of which a

large proportion goes on salaries.

On Tuesday, Canso, which represents

global air traffic managers, warned that

the coronavirus crisis was having a big

impact on the sector, which is a critical

part of national infrastructure.

It noted that air traffic controllers’

revenues are directly related to the vol-

ume of air traffic they control and so are

“extremely vulnerable to the decreasing

traffic”.

Airlines

Carriers seek delay to Europe

air traffic control payments

JAV I E R E S P I N OZ A— B R U S S E L S
K AT E B E I O L E Y— LO N D O N

Some of the world’s biggest mergers are
likely to be delayed, as regulators take
action to cope with the impact of the
coronavirus pandemic.

Competition regulators in Brussels have
recently suspended in-depth investiga-
tions of a number of proposed deals and
have also asked companies looking to
complete mergers to delay starting the
official process.
In the US, federal regulators have
moved to accepting electronic filings
instead of hard copies as their staff work
from home, with the Department of Jus-
tice requesting a 30-day extension on
some merger review deadlines and the
Federal Trade Commission saying com-
panies will not be fast-tracked even for
deals that pose no issues.
In the UK, the Competition and Mar-
kets Authority is considering extending
time limits for assessing mergers where
legislation lets it and is reallocating
resources to ensure critical work can be
finished on time.
Deals facing delay could includeAma-
zon’s tie-up withDeliveroo, which is in
the throes of an in-depth investigation
by the CMA.
In Brussels, regulators have sus-
pended work on three proposed merg-
ers, includingBoeing’s acquisition of
Embraerand the purchase ofChantiers
de l’Atlantique byFincantieri.
A commission representative said
new measures such as remote working
for its staff would affect the way mergers

were reviewed, but added that the EU

“is prioritising actions to fulfil its mis-

sion and meet legal deadlines”.

There were also delays because merg-

ing companies were finding it harder to

provide information, the representative

said.

In the UK, the CMA has 24 weeks

to undertake in-depth merger investiga-

tions but can extend that period by

eight weeks under “special” circum-

stances.

The CMA said on Wednesday that

staff were working from home and that

it was reallocating resources to critical

work. On Monday, it delayed the publi-

cation of an investigation of the funeral

industry by six months, citing the diffi-

culty of sourcing information and com-

municating with third parties.

UK competition lawyers said compa-

nies should expect a longer wait

between notifying the CMA and the

start of a formal investigation. The CMA

said it intended to “continue progress-

ing its cases, making decisions and

meeting deadlines”.

In Brussels, the EU is also asking for

delays of mergers that have not yet

started formal probes.

Additional reporting by Kadhim Shubber in

Washington

Regulation

Big mergers face hold-up as

watchdogs suspend probes

J O E M I L L E R— F R A N K F U RT

The world’s second-largest airline

Lufthansahas warned that the aviation

industry will be hit much harder than

the rest of the global economy by the

coronavirus pandemic, and that it is

likely to emerge as a smaller business.

“The Lufthansa Group after the crisis

won’t return to the old normal status

and just continue flying as usual,” said

the group’s chief executiveCarsten

Spohr.

“We react twice as strongly to changes

in the world economy,” he added.

“Lufthansa Group as a result will

shrink.”

The airline has grounded 700 of its

763 planes and is set to reduce its capac-

ity by 95 per cent as of next week. Sub-

sidiariesAir Dolomiti,Austrian Airlines

andBrussels Airlineshave stopped all

regular flights, whileSwisswill offer just

three weekly flights to the US and a

much reduced short-haul schedule.

“We have no incoming bookings any

more, hardly any,” said Mr Spohr,

although he confirmed increasing

demand for its cargo fleet, and that the

group is considering using passenger

aircraft to support supply chains.

Lufthansa has been attempting to

drastically reduce costs since the coro-

navirus outbreak started to have an

effect on passenger numbers.

Last week, it said it would scrap its

2019 dividend to preserve liquidity. It

had already offered employees unpaid

leave, introduced a hiring freeze, sus-

pended all non-essential training and

put 31,000 of Lufthansa’s 138,

employees on reduced working hours.

The group, whose share price has

more than halved since the start of the

year, also announced yesterday that

executives would take a 20 per cent cut

in their basic pay.

However, unlike many of its US and

European competitors, Lufthansa has

stopped short of asking for state aid.

With liquidity of €5.1bn, “this support is

not needed as of now,” Mr Spohr said.

The chief executive also pointed to

the company’s large fleet, which the

company owns — it is worth roughly

€10bn and could be used to secure

financing.

But Mr Spohr admitted he was afraid

of “unfair market conditions” emerging

as a result of differing national

responses to the industry’s problems

“In China, many airlines have been

nationalised; the US administration

introduced a large package of meas-

ures... so many governments are sup-

porting the aviation companies,” Mr

Spohr said.

“We need to talk to national govern-

ments and also to the European Com-

mission, to see what role we want the

European Champions to play in the

future on a global level.”

Airlines

Lufthansa warns it will emerge

smaller from virus pandemic

Deals affected could

include Amazon’s tie-up

with Deliveroo, which is

under CMA investigation

Chief

among the

concerns is

Basel IV,

which

requires

extra

buffers to

absorb loss

The group ‘after the crisis

won’t return to the old

normal status and just

continue flying as usual’

MARCH 20 2020 Section:Companies Time: 19/3/2020 - 18: 42 User: cathy.pryor Page Name: CONEWS2, Part,Page,Edition: EUR, 13 , 1