Bank investors welcome ECB and BoE response to crisis

Analysts and investors in Europe’s fragile banking sector are quietly optimistic with the efforts by the Bank of England (BoE) and the European Central Bank (ECB) to limit the economic damage of the coronavirus pandemic, although it may have failed to calm the markets. A bank analyst at Jefferies, (investment bank) Benjie Creelan-Sandford, and his team wrote in a note recently: “From a wider market perspective, the ECB response was half-done, however, from a bank perspective, we do think the ECB has delivered a significant package.”
Commentators point to the provision of an additional 1.2tn euros of borrowing capacity to eurozone banks under the ECB’s Targeted Longer-Term Financing Operations and its temporary lowering of their capital requirements as positive steps. Jefferies’ analysts wrote: “We calculate for banks under coverage that this boosts capital ‘room for manoeuvre’ by circa 120bn euros, on top of more than 100bn euros (of) existing buffers over minimum levels. This gives banks meaningful additional scope to absorb near-term headwinds if needed.”
According to their analysts, Spain’s Santander, Italy’s Uni-Credit, the French banks BNP Paribas and Societe Generale, and the Netherlands’ ING are among the biggest beneficiaries. Others investing in the sector were also cheered by the Bank of England’s move. LCM Partners, which acquires and manages portfolios of loans from UK and eurozone banks, welcomed the decision by the BoE’s Prudential Regulation Authority to reduce banks’ capital buffers.
Paul Burdell, chief executive of LCM Partners, said the system was “acting exactly as it is meant to – reducing the amount of capital that banks need to hold in times of stress, which makes lending cheaper for them and so aiming to prevent the negative loop of a contraction in credit leading to a deterioration in the real economy, and increased defaults and provisions.”
He added: “At the moment, we do not see this as causing any capital or liquidity strains to the banking industry, based upon the coordinated measures implemented in the last few days, and that banks are in a strong position in terms of capital and liquidity, we wouldn’t expect that the crisis should be a driver of loan sales in the UK.
“This is all based upon the assumption that we will see a sharp recovery, and of course everything may change depending on what further measures the government takes and the wider knock-on impact this has on the economy, but at present this is our expectation.” According to Mark Holman, a partner and portfolio manager at TwentyFour Asset Management, the UK’s capital buffer cut could free up £200bn of new lending – equivalent to 13 times UK banks’ total lending in 2019.
On a separate issue, the BoE has implemented special measures for tackling the outbreak of coronavirus from last week, on the first day of Andrew Bailey taking over as governor. At a press conference earlier this month, outgoing governor Mark Carney said the bank was taking “a series of contingency measures” to tackle Covid-19 risks, including the splitting and rotation of critical teams.
The bank’s new shift pattern involves splitting the organisation’s staff so that some teams come into the office while others work from home, with teams trading places on a weekly basis. The impact of the coronavirus has swept through the financial services sector, with a number of banks and fund managers relocating staff to contingency sites.
The pattern of relocating and of asking staff to work from home has spread widely throughout the UK and has spread globally among banks and various other sectors. In the UK, American banks Citigroup and Morgan Stanley have relocated staff to different sites. In New York, JP Morgan have asked up to half of the staff to work from home as it joins other large financial institutions. Reinsurer Swiss Re, has asked its staff across the globe to work from home in response to the virus outbreak.
Swiss Re, which has 15,000 employees globally, has asked its workers in Beijing, Hong Kong, Shanghai, Tokyo, Seoul and Singapore to work remotely, and split its team in Switzerland, with 50 per cent of employees asked to work from home as part of recommendations by Swiss health authorities. Its employees in Milan are also working from home, in line with local government restrictions. This trend of work-arrangement is, understandably, continuing to be on the increase during this critical period. (The writer is our foreign correspondent based in the UK. He can be reached at