International Financing Review March 21 2020 13

People

&Markets

21

Former

Barclays and

Merrill Lynch banker

Richard Taylor joins

boutique advisory firm

Greenhill

18

The US

Federal

Reserve reboots

three credit crisis-era

lending programmes

for banks as part of a

global rescue effort

17

HSBC veteran

Noel Quinn

gets the CEO job

permanently - seven

months after he took

over on a temporary

basis

„ FRONT STORY CORONAVIRUS

Virus knocks banks off target

Deutsche, Barclays warn of impact of recession, bad loans

BARCLAYS is “very, very unlikely” to hit its

returns target this year due to the

coronavirus pandemic and DEUTSCHE BANK

said it could be “materially” hurt, as banks

face up to the impact of global recession and

a jump in losses from bad loans.

Several bank chiefs said the crisis had

also effectively shut primary capital

markets activity, although trading activity

was performing well.

Deutsche Bank on Friday warned that it

MIGHTûMISSûITSûlNANCIALûTARGETSûASûAûRESULTû

of coronavirus and the “resulting

disruption of economic activity” that

could hit revenues and increase loan

losses.

“We may be materially adversely

affected by a protracted downturn in local,

regional or global economic conditions,”

the bank said. But it said it was “far better

equipped” to cope with the market

turbulence now than in the past, thanks to

its ongoing major restructuring.

Barclays had offered a similar warning

three days earlier.

“It’s going to be a tough year, I think,

for earnings,” said Tushar Morzaria,

"ARCLAYSûCHIEFûlNANCIALûOFlCERûh4HEû

provisioning build will be a much more

SIGNIlCANTûHEADWINDûANDûTHEûRATEû

environments become, obviously, a much

MOREûSIGNIlCANTûHEADWINDûASûWELLûANDû

growth probably starts shrinking, possibly

even going backwards.”

Those fears hammered bank stocks

again at the start of the week, before

stabilising. By 14:00 GMT on Friday, the

US bank index was down 16% during the

week and had lost 41% in the past month.

The European bank index was down 4%

on the week, and down 40% in the past

month.

Barclays said last month its goal of getting

return on tangible equity to 10% in 2020, up

FROMûûLASTûYEARûWOULDûBEûDIFlCULTûBUTû

achievable.

“Well, the world has moved on since the

full year. It feels like a lifetime ago at the

moment. I think where we are now, that

looks very, very unlikely,” Morzaria said in a

presentation to investors and analysts.

The presentation was via webcast because

of the coronavirus.

PIPELINE UP, EXECUTION DOWN

At the same “webcast” conference, CREDIT

SUISSE said earnings across its business had

CONTINUEDûTOûIMPROVEûINûTHEûlRSTûQUARTERû

despite the coronavirus, and sales and

TRADINGûREVENUESûWEREûhSIGNIlCANTLYûHIGHERvû

this quarter than a year ago.

That offset the negative impact on trying

to execute deals in primary capital markets.

h/URûPIPELINEûISûSIGNIlCANTLYûUPûBUTûTHEû

rate at which this can be executed will be

disrupted and depend on market

conditions,” said CFO David Mathers.

UBS CFO Kirt Gardner said primary

markets had pretty much “shut down”.

But he said the pipeline for deals was “in

quite good shape”.

Barclays’ Morzaria also said trading

conditions for the investment bank had

been good. “It’s generally a good

environment for sales and trading type

businesses – more market volatility, very

high sort of volumes of activity, as well as

quite a bit of a spread that allows you to

MONETISEûSOMEûOFûTHATûmOWv

CREDIT LINES DRAWN

Corporate customers are drawing on their

credit lines, which has raised worries that

it could stretch bank balance sheets.

“Absolutely, you would expect

corporations with such a sudden sort of

jolt to the economy to themselves, want

to get defensive and draw down cash lines

where they can. And we are seeing a bit of

that,” Morzaria said.

Banks across the board said they were in

a far stronger capital and liquidity position

than in 2008 – often with double the

capital they had in 2008 and far more in

immediately available liquidity reserves.

Analysts agreed, but said they face

hefty losses from exposure to companies

in trouble across energy, airline,

hospitality and most other sectors.

“In 2008, the solvency of banks was

core to the crisis. In 2020, the banking

system is not a major area of

vulnerability, but rather the hub of

some of the Fed’s lifelines,” Jefferies

analyst Ward McCarthy said in a note.

Steve Slater, Christopher Spink

Source: Eikon; Europe bank index is STOXX Europe 600,

US index is DJ US banks

%

0

Citi

Goldman

JPM

First Republic

Societe Generale

ING

Barclays

CS

BNP Paribas

SwedbankStanChart

HSBC

European banks -42% US banks -41%

BANK CRASH; SHARE PRICE % FALL OF SELECTED

STOCKS IN THE PAST MONTH

5 IFR PM 2325 p 13 - 22 .indd 13 20 / 03 / 2020 20 : 28 : 32