The Economist - USA (2019-10-05)

66 Finance & economics The EconomistOctober 5th 2019

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other, each complaining at various points

that the other was unwilling to negotiate.

Most recently it has been the eu that has

submitted proposals to America, only to be

rebuffed. Meanwhile, the boxes have been

piling up and the lawyers raking in fees.

The Trump administration wasted no

time in starting the formalities at the wto

that will allow it to apply the tariffs. That

means the eu can expect tariffs on October

18th. As well as tariffs of 10% on large air-

craft and 25% on agricultural and industri-

al goods, the list the ustr published on Oc-

tober 2nd included Italian Parmesan,

Scotch whisky and German waffles. Even if

a product is not on the list it may still be hit,

as items could be shuffled in and out.

For all the fuss the dispute will generate

among connoisseurs of European cheese,

the biggest impact will be on aircraft, of

which America imported $5.1bn-worth in

2018, mostly from France and Germany (the

ustr has said that only a portion will be

hit). It could have been worse—the Ameri-

cans could have applied a tariff of up to

100%—but even one of 10% will bite. Amer-

ican airlines fear that tariffs will raise the

price of Airbus aircraft, and that Boeing

will lack the capacity to expand supply.

Perhaps the wto will find that the eu

has removed its subsidies, and the Ameri-

cans will stand down. Or in eight months’

time, when the wto authorises the eu to

place retaliatory tariffs on American im-

ports as part of the Boeing dispute, the two

sides might finally negotiate away their

differences. By then Mr Trump’s appetite

for tariffs may have been sated, and he

might abandon separate threats to put ta-

riffs on European cars and car parts. But it

is also possible that trade disputes between

the two sides become fiercer. America is

blocking the appointment of judges to the

wto’s court of appeals. If either side makes

a move that the other judges an infraction,

and a complaint to the wto cannot be

heard for lack of judges, that could be the

end of playing by the rules. 7

B

usinessdaysnowbegininIndiawith

a scan of the headlines and then a

click to check on the shares of Yes Bank,

the country’s fourth-largest private bank.

They peaked at 394 rupees ($5.64) in

August 2018, and have staggered down-

wards ever since. On October 1st they hit

32 rupees after a 23% drop on the day,

before rising by 23% on October 3rd as

The Economistwent to press.

Yes is not alone in its troubles. The

shares of Indiabulls Housing Finance,

the second-largest home lender—and,

not coincidentally, a big borrower from

Yes—have also plummeted. Late last

month the Reserve Bank of India (rbi),

the central bank, suddenly capped with-

drawals from a small lender, Punjab and

Maharashtra Co-operative Bank. That

brought into the open what a police

investigation now alleges was a vast

lending fraud. Rumours of similar issues

at other financial institutions prompted

the rbi to tweet on October 1st reassuring

“the general public that the Indian bank-

ing system is safe and stable and there is

no need to panic”.

That is unlikely to help. Such words

from a financial authority are prone to be

heard as a signal to stampede. Even if

that is averted, India’s banks are obvious-

ly faltering. They are still dealing with

the overhang from a splurge of bad lend-

ing years ago. Yes Bank is merely a partic-

ularly marked example. The rbi has been

concerned about the source of its seem-

ingly impressive growth for some time.

But only in January this year did the

regulator push out the bank’s founder

and chief executive, Rana Kapoor. Write-

offs followed, but there are worries about

what remains to be uncovered. A report

by Credit Suisse estimated that 9.4% of

YesBank’sloansareintheprocessof

being restructured—far higher than the

2.8% average for India’s other banks. It

will probably need to raise capital, but

that will be hard.

Although Yes’s problems are real,

market movements may be exaggerating

them. Some of the selling pressure has

come from the forced liquidation of a

large stake that had been retained by Mr

Kapoor but pledged as collateral for

loans. Holding companies linked to him

have also sold shares to cut their debt.

These sales created a vicious circle that

may now be exhausted. The optimistic

case for India’s banks is that something

similar is playing out across the financial

system: real problems, and an overheat-

ed market response. But for the market-

watchers who have become accustomed

to shocks, India’s banks steadying them-

selves would be a real surprise.

LotsofNo-Nos

India’s struggling banks

NEW DELHI

Yes Bank has become an example of all that ails India’s banking system

Look behind the headlines

A

t noon onSeptember 17th, in central

Zurich, Iqbal Khan confronted a man

he suspected of following him. The suspi-

cion was correct. The incident sparked a

criminal investigation, still under way, and

a speedy inquiry by Homburger, a law firm,

for Credit Suisse, Mr Khan’s former em-

ployer. The inquiry led on October 1st to the

resignation of Pierre-Olivier Bouée, the

bank’s chief operating officer, and Remo

Boccali, its head of security.

Until July Mr Khan oversaw Credit

Suisse’s wealth-management business

outside Switzerland and Asia. He was a

star. The chief executive, Tidjane Thiam,

was reorienting the bank towards wealth

management and away from the riskier

bits of investment banking, and after a

rocky start the bet was paying off. In the

second quarter of 2019 the bank’s return on

equity was 9.7%, a shade under the 10% that

investors regard as par. Revenues and pro-

fits in Mr Khan’s division had grown nicely.

Alas, Mr Thiam and his talented, ambi-

tious protégé had fallen out. Living next

door to each other made matters worse. Mr

Thiam was reportedly annoyed by Mr

Khan’s lengthy building works; Mr Khan,

by Mr Thiam’s planting of trees on the

boundary. Eventually Mr Khan quit the

bank. On August 29th ubs, Credit Suisse’s

bigger local rival, said he would become its

co-head of global wealth management.

According to Homburger’s report, Mr

Bouée decided to have Mr Khan observed,

fearing that he would try to poach employ-

ees or clients. The fact that Mr Khan contin-

ued to socialise with ex-colleagues while

on gardening leave added to his worries.

The report says Mr Bouée admitted acting

A furore over spying rocks

Switzerland’s second-biggest bank

Swiss banking

Discredit Suisse