Markets searching for right narrative on coronavirus | Big US banks have UK lending market in their sights | Research: Prime borrowers helped inflate US housing bubble
February 27, 2020
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Top Stories
Market participants are struggling to find the right narrative that accurately captures the effects and risks of the coronavirus outbreak. The turmoil in equity markets began as the original narrative surrounding the outbreak -- that it was contained and would have only a small impact on the global economy -- no longer rang true.
Full Story: Bloomberg Businessweek (tiered subscription model) (2/26) 
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UK banks are facing fresh challenges as major Wall Street firms including JPMorgan Chase and Goldman Sachs aim their new digital banking units at country's retail lending market.
Full Story: Financial Times (subscription required) (2/27) 
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Research by the Federal Reserve Bank of New York finds that prime mortgage borrowers were a driving force in the housing bubble of the early 2000s in particular parts of the country. This runs counter to the prevailing theory that subprime mortgages and mortgage fraud were major culprits, finding instead that a deluge of prime buyers in some rising markets inflated the bubble.
Full Story: Liberty Street Economics (Federal Reserve Bank of New York) (2/26) 
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Bloomberg Insights
The downturn in China's economy related to coronavirus is being felt across the world and is hurting the supply chains for many businesses. This story highlights some of the companies struggling to work through issues, including a watch-maker in Hong Kong, an art and furniture maker in Mexico and a mining equipment manufacturer in Japan.
Full Story: Bloomberg Professional Services (2/26) 
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Major banks in the U.A.E. see technology and digitization as key factors when it comes to winning and keeping customers. "High IT spending may spur a consolidation of smaller banks as larger peers revamp legacy systems, merge and emerge stronger," according to Bloomberg.
Full Story: Bloomberg Professional Services (2/26) 
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The six countries in the Gulf Cooperation Council are struggling to grow their economies after oil prices have dropped, and the outlook is not promising, according to this analysis. Some states are showing signs of growth, but the potential withdrawal of public stimulus remains a risk factor.
Full Story: Bloomberg Professional Services (2/26) 
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Trading Trends
The US systemically important banks saw trading of fixed income and interest rate contracts rise 154% to $21.4 billion in 2019, while trading revenues from commodity and other exposures rose 18% to $3.4 billion, according to Federal Reserve data. The banks also saw an aggregate $607 million decline in trading revenues due to valuation adjustments to derivatives.
Full Story: Risk (subscription required) (2/26) 
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Investors are unloading high-yield bond exchange-traded funds amid concerns about economic consequences of the coronavirus outbreak. Withdrawals have totaled more than $4 billion during the past week, Bloomberg-compiled data shows.
Full Story: BNN Bloomberg (Canada) (2/26) 
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Investors are buying up municipal bonds as a safe haven from uncertainty surrounding the economic impact of the coronavirus. This rush has pushed yields to a 38-year low as investors look to decrease risk.
Full Story: The Wall Street Journal (tiered subscription model) (2/26) 
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Operational Efficiencies
JPMorgan Chase is citing climate change as a risk factor for its business, including the potential for "prompt changes in regulations or consumer preferences, which in turn could have negative consequences for the business models of JPMorgan Chase's clients," according to a regulatory filing. The disclosure followed news that the bank would stop financing for some coal-fired power plants as well as new oil and gas projects in the Arctic.
Full Story: Bloomberg (tiered subscription model) (2/25) 
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Some international bankers working in China and Hong Kong are choosing to leave, rather than be subjected to a regional travel ban that has slowed business.
Full Story: Financial Times (subscription required) (2/26) 
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Have you curtailed any of your travel thus far due to concerns about the coronavirus?
The latest funding round for British digital banking app Revolut has raised its valuation to $5.5 billion, solidifying its status as one of the world's most valuable fintechs. Revolut will use the money to roll out new products, improve its customer service and further expand in Europe.
Full Story: Reuters (2/24) 
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Regulatory Review
The US Alternative Reference Rates Committee is preparing to impose stricter deadlines for transitioning to the Secured Overnight Financing Rate from Libor, sources say. This follows establishment of deadlines by the UK Financial Conduct Authority and the Bank of England for switching to the Sterling Overnight Index Average.
Full Story: Practice Insight (2/26) 
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A UK court rejected a claim by large investors, such as Allianz and Pimco, asking for banks to widen their data searches to include derivatives contracts from 2002 to 2005 to show potential trader misbehavior. These dates had not been included in regulatory inquiries.
Full Story: Financial Times (subscription required) (2/26) 
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London financial executives have told the UK Parliament maintaining EU equivalence should remain its primary negotiating position, with some flexibility on creating and interpreting rules.
Full Story: Financial Times (subscription required) (2/26) 
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Research & Analysis
This analysis released by the Bank of England looks at variances in housing supply and how builders respond to price changes, which can be an indicator of why homes prices vary by region. The researchers find that the US housing market may be "more sensitive to changes in demand than before the crisis," especially those with large price declines during the crisis or where regulations have tightened.
Full Story: Bank Underground (Bank of England) (2/25) 
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