IFR 03.7.2020

International Financing Review March 7 2020 17

People

&Markets

Please contact us if you have information about job moves: [email protected]

depending on the deal terms and context,”

he said.

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around differences pragmatically, but over

the next six months such renegotiations

could lead to more serious situations.

“Depending very much on how things

develop, parties might then look to invoke

force majeure, MACs or other exit mechanisms

if things continue to worsen in the coming

MONTHSûWITHûLITIGATIONûORûARBITRATIONûTHEûlNALû

resort as parties look backwards at allocating

risk for the outbreak,” Kelly said.

Deals at an earlier stage of negotiation are

being affected too, according to Paul Choi, global

CO

LEADERûOFû-!ûATûLAWûlRMû3IDLEYû!USTINûh7Eû

have certainly seen some deals on pause at

various stages prior to signing,” he said.

Christopher Spink

have already exceeded earnings for several

years on average.”

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CHAIRûFORûSUPERVISIONû

SAIDûTHEû3"#ûMATERIALLYûSIMPLIlESûTHEûPOST

crisis capital framework for banks, while

maintaining the strong capital

requirements.

“We should be focused on common equity

• the highest quality and most loss absorbing
  form of capital - than the variety of
  sometimes esoteric instruments that have
  counted as various tiers of capital in the
  PAST vû1UARLESûSAID
  Banks also keep certain voluntary buffers
  above required minimums, he said. “Nothing
  in the SCB rule adopted today gives banks an
  incentive to reduce those buffers.”
  Based on stress test data from 2013 to 2019,
  Common Equity Tier 1 capital requirements
  would increase US$11bn, or 1%, from current
  capital requirements. That includes a US$46bn
  increase at GSIBs and a US$35bn decrease for
  smaller banks, the Fed said.
  Philip Scipio

Former Goldman

Sachs banker Michael

“Woody” Sherwood

has joined payments

firm REVOLUT as a

non-executive director.

His appointment

follows a Series D

funding round where

Revolut raised

US$500m, valuing it

at US$5.5bn. Revolut

is looking to

strengthen its

governance as it

expands in the US and

Asia. Sherwood left

Goldman in 2016 after

joining in 1986 and

rising to partner, aged

just 29. Ian Wilson,

who has worked at

RBS and Santander,

also joined Revolut’s

board.

Roland Domann has

joined MUFG in its

structured solutions

coverage and

distribution team in Paris

as part of a push to

expand its business with

financial services firms.

Domann will join this

month as head of Paris

distribution and

structured financing and

solutions sales in

Germany, Austria and

Switzerland (DACH). He

will join from Nomura,

where he was head of

insurance structuring in

EMEA. Domann

previously worked for

Deutsche Bank as head

of cross-asset sales

structuring for the DACH

region and has also

worked for BlackRock

and Barclays.

Bank earnings prospects

dim on rate cuts, virus

"ANKSûAREûEXPECTINGûlRST

QUARTERûTRADINGû

results to return to historic pattern -

typically the strongest three months of the

year - but it may not be enough to offset a hit

from lower interest income.

“The banks that get hurt the most in the

short term are the ones that have built up

some of the strongest long-term franchises,”

said Wells Fargo bank analyst Mike Mayo.

“The irony is that a bank like BANK OF

AMERICA with US$1trn in low-rate, core

deposits gets penalised in an interest rate

environment such as this.”

The US Federal Reserve cut its federal

funds rate by 50bp on Tuesday to a range of

1% to 1.25% in a surprise move intended to

head off a slump in the US economy related

to a potential worsening coronavirus

OUTBREAKû)TûWASûTHEûlRSTûEMERGENCYûRATEûCUTû

SINCEûTHEûSTARTûOFûTHEûlNANCIALûCRISISûINû

As the Fed slashed rates, analysts slashed

earnings estimates, especially for money

centre banks on the likely decline in net

interest income, and also the decline in

capital markets activity related to the

coronavirus.

The earnings impact would be worst for

CITIGROUP, BofA and JP MORGAN, Mayo said in a

note. The bear case for the coronavirus on

bank earnings is an overall hit of 12%,

assuming reductions to NII, lower capital

markets and spread revenue. The estimate

used the 2003 SARS outbreak as a guide.

The bull market case includes better-than-

expected trading from added volatility and

higher mortgage banking from falling rates.

So far the bull market scenario appears to

be playing out for trading, with volumes

surging and at least one bank, JP Morgan,

saying markets trading is strong.

“INDUSTRY TEST”

But that strength would be easily eclipsed by

lower NII, and capital markets revenue

could fall between 3% and 10% even as banks

have shown an ability to cut expenses

aggressively in response to falling revenue.

Advisory revenue could fall 25% under the

bear case scenario, according to Wells Fargo

analysts.

Given the chance for more rate cuts

there’s a chance that earnings could be hurt

even more severely, and no large bank is

immune to the negative impact of lower

interest rates on spread revenues.

“This is a test for the banking industry,”

Mayo said. “The entire last decade revolved

around the banks preparing for a scenario

such as this, so it’s game time.”

Philip Scipio

“The banks that get hurt the

most in the short term are the

ones that have built up some

of the strongest long-term

franchises”

“This is a test for the banking

industry. The entire last decade

revolved around the banks

preparing for a scenario such as

this, so it’s game time”

5 IFR PM 2323 p 15 - 24 .indd 17 06 / 03 / 2020 19 : 22 : 44