Lloyd's of London Reports £900bn of Losses in 2020
Also: Deutsche Bank, Mastercard & the FCA, Credit Suisse and Nomura
I hope you have a happy Easter - to those of you who celebrate. It really was a boring week, but still there were a few interesting stories.
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The Week’s Briefing
Banking, Insurance & Regulation
Lloyd’s of London warns of nearly £6bn in claim losses as a result of Covid as well as possible losses from Suez Canal blockages
Ex-CFTC chair hired by Citadel Securities after just 27 days of leaving the agency
S&P, Moody’s and Fitch downgrade credit rating outlooks for Nomura, Credit Suisse to negative after Archegos losses
The Payment Systems Regulator, a division of the FCA, accuses 5 companies are ‘operating a cartel’ in the payments card market
Nomura warns of approximately $2bn in losses related to Archegos Capital
Credit Suisse warns of Archegos Capital-related losses, estimated to be potentially in the $5 - $10bn range
Wells Fargo, Goldman Sachs and Deutsche Bank unwound Archegos exposure with no losses - it expected to be the same for Morgan Stanley.
Credit Suisse and Nomura stocks fell 20% through the week
Credit Suisse looks into replacing Chief Risk Officer
Deutsche Bank extends CEO’s contract to 2026
Former Melrose Credit Union CEO convicted on bribery charges; faces up to 30 years in prison
Economics & Markets
S&P cuts Morocco’s credit rating to junk
UK house price growth slowed in March, falling 0.2% MoM vs. a 0.7% gain in February
US added 916,000 in March, led by services sector; unemployment rate falls to 6%.
Biggest Stories of the Week
Lloyd’s of London warns of nearly £6bn in claim losses as a result of Covid
Lloyd’s of London, the insurance and reinsurance marketplace , reported a net-loss of £887MM for 2020, down from a pre-tax profit of £2.5bn a year earlier. Covid-19 losses, net of reinsurance, incurred were £3.4bn.
Gross customer payouts of $6.2bn are expected, £2.6bn of which are reinsured.,
Lloyd’s market’s combined ratio was 110.3% - 13.3% of which was related to Covid. This is significantly worse than the 102.1% reported in 2019.
(Simply put: below a 100% combined ratio, it means a profit is registered; the lower the ratio the better)
Total major claims in 2020 were £6bn - 60% of which was from Covid.
The largest catastrophe losses were related to Hurricanes Sally, Zeta, Laura, Delta, and Isaias; the tornadoes in Tennessee; global protests against racial injustice, as well as the Port of Beirut explosion.
They reported underwriting losses of £2.7bn. Adjusted for Covid-19 related losses, Lloyd’s underwriting segment improved YoY with profits of £800MM and a combined ratio of 97%, better than the 102.1% in 2019.
They had gross written premiums (GWP) of £35.5bn for 2020, down from £35.9bn in 2019.
Credit rating agencies downgrade Nomura and Credit Suisse outlooks
As a result of Archegos Capital losses, S&P, Moody’s and Fitch all downgraded their outlooks on Credit Suisse, and Nomura, to negative.
Moody’s said Nomura’s willingness to take on large exposure to clients without sufficiently hedging risk was a driver of its downgrade, on top of the ~$2bn of losses.
Mood'y’s on Nomura:
“The magnitude of the potential loss also highlights the difficulties Nomura has in managing the risks of large complex transactions,”
Fitch downgraded its “viability rating” of Nomura to negative for about the same reasons as Moody’s noting the Japanese bank’s risk appetite and potential for “further reputational and earnings decline”.
Nomura earns approximately $2 billion in net income per year, so a single client’s exposure will wipe out a year’s worth of their earnings.
S&P Global Ratings downgraded its outlook on Credit Suisse to negative from stable. JPMorgan analysts estimate Credit Suisse’s losses from Bill Hwang’s family office to be in $5 to $10bn range - a huge amount. They maintained their BBB+ long-term credit rating for the main holding company and A+ rating for the operating bank unit.
S&P said:
“The incident raises questions about the quality of risk management, the group’s risk appetite, and adequacy of the risk return profile”
The Payment Systems Regulator, a division of the FCA, accuses 5 companies are ‘operating a cartel’ in the payments card market
The UK’s payments watchdog says 5 companies, all members of a group funded by Mastercard, took advantage of vulnerable consumers for 6 years.
They said the companies agreed not to poach clients from each other and share leads under an agreement between 2012 until 2018 - this was said after the PSR raided several of the companies’ offices.
The companies, other than Mastercard, are known as Cashplus - comprised of Allpay, Prepaid Financial Services, Sulion and APS.
The focus is on prepaid card services that local authorities use to distribute welfare payments to vulnerable people such as the homeless, victims of domestic violence and asylum seekers.
The managing-director of the PSR Chris Hemsley said:
“Prepaid card services like these can provide significant benefits to local authorities as one way to make welfare payments to some of the most vulnerable people in society but collusion in payments is absolutely unacceptable. Where we see it happening, we will take action, stop it, and seek to impose significant penalties”.
The companies will pay a maximum fine of £32MM if the PSR can confirm their accusations - £31.5M of which will come from Mastercard itself.
Deutsche Bank extends CEO’s contract to 2026
Deutsche Bank extended the contract of its CEO Christian Sewing - who became CEO in 2018 - for five more years to 2026. The contract was set to expire next year before this extension.
Since Sewyer became CEO he pledged, in a restricting plan pitched in 2019, to cut 18,000 jobs and divest a large portion of its balance sheet by 2022. DB’s share price has risen 50% since the plan was unveiled.
The management board will also be reshuffled in due course.
Deutsche Bank’s COO will leave when his contract ends later in the year and Rebecca Short will join the management board becoming its new Chief Transformational Officer, as well as head their asset divestment unit. She was previously head of group planning and performance management.
What we’re reading:
Bloomberg: The Jobs Numbers: Who’s Hiring in America—and Who’s Not
American Banker: Where Goldman, Citi, JPMorgan are putting fintech investment dollars
WSJ: Need a Mortgage Loan? Good Luck. Lenders Are Tightening Standards.
NYT: How to Fix SPACs: : Keep Their Backers Locked In Longer
Bloomberg: Biden’s Infrastructure Plan Is Good But Needs Work
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