JPMorgan tops list of risky banks: US government study

The bank had a "systemic risk score" of 5.05 per cent for 2013 in a group of 33 large US bank holding companies. 

PHOTO: BLOOMBERG

18 Feb10:50 AM

[WASHINGTON] JPMorgan Chase & Co bears the highest potential hazard to the financial system if it were to fail, a staff study released by a US government research agency showed, providing a first-of-its-kind numerical risk ranking of US banks.

The bank had a "systemic risk score" of 5.05 per cent for 2013 in a group of 33 large US bank holding companies, the study by staffers at the Treasury Department's Office of Financial Research (OFR) said.

The study's numerical score is a measure of a bank's risk as a ratio of the total risk contained by a worldwide group of banks. The scores are based on metrics such as size, interconnectedness, complexity and cross-border activities, OFR said.

The OFR said the study reflected the views of the authors, not of the office or the Treasury Department. The findings come as US regulators seek to finalize rules for capital buffers big banks need to hold, to make them more resilient and contain systemic risk if one of them were to collapse.

The method is designed by the Basel Committee of global bank regulators, but that body does not publicly release its rankings of the riskiness of banks.

Citigroup Inc ranked second in the amount of havoc it could unleash on the financial system if it were to fail, with a score of 4.27 per cent. Bank of America Corp was third at 3.06 per cent, followed by Morgan Stanley and Goldman Sachs Group, the study showed.

Goldman Sachs, Morgan Stanley, Bank of America and Citi declined to comment on the study. JPMorgan did not return requests for comment.

John Dearie, executive vice president for policy at the Financial Services Forum, a banking group, said the numbers did not measure whether the largest banks had become safer than before the crisis. "It's just a ratio that assumes a constant level of aggregate risk among all large banks, which given the significant changes over the past few years, is undoubtedly not true," Mr Dearie said.

The OFR was set up after the 2007-09 credit meltdown to help regulators detect areas of concern in financial markets.

The office has the power to retrieve bank data, including through subpoenas. It has a large degree of independence, and is funded by money levied from banks.

In 2013, it spotted risks in asset management in a report mandated by the Financial Stability Oversight Council, a group of the heads of the main U.S. regulatory agencies. The asset management report triggered attacks by the industry, which fiercely opposed any move toward tougher rules.

The latest study looked at 33 US banks with assets over US$50 billion. At that size, such banks are deemed "systemically important" and are subject to tighter rules. The eight largest banks in the group need to meet even tougher standards.

But size was not the only determining factor in measuring the risk in these banks, the study said. "Several of the largest banks scored high in systemic importance because they dominate specific businesses, such as payments and asset custody services," the study said. "Others scored high in complexity because of their trading and derivatives businesses."

REUTERS

      

Global policy easing spreads to Southeast Asia, will Thailand be next?

18 Feb5:08 PM

[JAKARTA] They might be late to the party, but central banks in Southeast Asia are joining the global rush of easier policy, as deflationary pressures create room for them to prop up faltering growth without weakening defences against capital outflows.

Indonesia surprised markets with a rate cut on Tuesday, and Singapore eased its policy in January. Next month, many expect Thailand to lower interest rates, but Malaysia and the Philippines are not likely to do so in coming months.

Deflationary forces are giving policymakers some room to support faltering economies, as many grow at the slowest pace since the global financial crisis. As inflation falls, and sometimes turns negative, real interest rates are rising.

Bank Indonesia cited an improving inflation outlook, driven by the sharp drop in global fuel prices, when it cut its benchmark rate 25 basis points, reversing a hike three months earlier.

"Such policy measures were instituted based on Bank Indonesia's conviction that inflation will remain under control," Governor Agus Martowardojo said.

Southeast Asia's five main economies are estimated to have grown by just 4.5 per cent in 2014, the slowest since 2009, the International Monetary Fund said in January.

Before Indonesia's move, the market thought Southeast Asia would largely hold out against the global easing trend, for fear of triggering capital outflows, particularly if US rates were to rise.

But falling inflation and the risk that rising real interest rates could choke off already-weak growth are leading some central bankers to reassess.

"This is actually a good opportunity to adjust rates down to give growth a bit of a boost," said economist Santitarn Sathirathai at Credit Suisse.

The Bank of Thailand is thought to be the closest to following Indonesia by cutting rates. The coup-hit economy grew just 0.7 per cent in 2014, the slowest in three years, and has sunk into deflation.

The central bank prefers the military government lift spending to revive growth. And it remains concerned that cheaper borrowing costs might inflate credit bubbles - household debt is equal to 85 per cent of gross domestic product.

However, consumer prices in January fell 0.4 per cent from a year earlier, and the prospect of deflation making personal debts weightier in real terms suggests a rate cut may come soon.

It looks "increasingly likely" that the Bank of Thailand will cut rates at its March 11 meeting, HSBC told clients.

But Thai Finance Minister Sommai Phasee on Wednesday reiterated that cutting rates 25 or 50 basis points "will not help the economy much" and said the government is accelerating spending to spur growth.

Rate cuts may take longer in Malaysia and the Philippines, the region's fastest-growing economy, and may not happen. Analysts that disinflation gives the Philippines, which raised rates in 2014 when the pace of inflation was increasing, room to hold them the rest of this year.

Asked if Indonesia's cut might affect Manila, Bangko Sentral ng Pilipinas deputy governor Diwa Guinigundo said policy was determined by domestic factors, not "the monetary policy of our neighbours".

The Philippines had annual growth of 6.9 per cent in the fourth quarter, boosted by strong private consumption and exports.

"The economy remains robust and if additional stimulus is necessary, the big fiscal space is more appropriate," Mr Guinigundo said.

Malaysia's growth prospects are not so bright.

The net oil exporter is hurting, as crude prices are about 50 per cent of their June level. Malaysia's high growth - 5.8 per cent in the fourth quarter - isn't expected to last.

But even though interest rates are the highest since late 2008, economists don't see Bank Negara Malaysia cutting them right now.

Household debt is equivalent to 87 per cent of GDP. The ringgit's 10 per cent slide since mid-2014 aids manufacturing exports, yet keeps authorities cautious about reducing rates, which might lead to capital outflows.

Annual inflation fell to 1.0 per cent in January, the lowest since late 2009.

There's an array on opinion on what Malaysia will do next on rates, with most now believing it will make no change this year.

"There is room for Bank Negara Malaysia to ease if necessary, but that's not our base case at this juncture," ANZ bank said.

REUTERS

      

MORE

• Thai cabinet approves US$154m budget for drought-hit areas
• Thailand extends Bangkok airport expansion period to 2020
• Bank Indonesia unexpectedly cuts interest rate to bolster growth
• Jakarta: Stocks up 0.13% at Thursday's close
• Thailand eyes fast trains to tourist hotspots
• Bangkok: Shares rebound from 2 sessions of losses

    

SNB seen cutting rates to shield economy after franc shock

The Swiss National Bank will cut interest rates again in an effort to head off economic damage from the franc's surge after scrapping its currency cap, according to a survey. 

PHOTO: REUTERS

18 Feb5:51 PM

[ZURICH] The Swiss National Bank will cut interest rates again in an effort to head off economic damage from the franc's surge after scrapping its currency cap, according to a survey.

Twenty-six of 28 economists in Bloomberg's monthly survey forecast that SNB will loosen policy if the economy weakens following its shock decision to give up the franc ceiling in January. Forecasts collected by Bloomberg show a gloomier outlook with growth expected to slow through June of this year. Twenty-two of the respondents see the SNB cutting the rate on sight deposits, currently at minus 0.75 per cent, in tandem with a reduction in the benchmark interest rate.

SNB President Thomas Jordan, who has indicated that there's room for a further rate cut, predicts that Swiss economic growth will lose pace, and the economy may even shrink in one quarter. Economists in the survey share that view, forecasting a contraction in the three months through June.

"Switzerland has to avoid an all-out sharp recession and deflation," said Janwillem Acket, chief economist at Julius Baer Ltd. in Zurich, who predicts growth of at least 0.3 per cent every quarter this year. At the same time, Acket argues that the deposit rate could go as low as minus 5 per cent.

"Never say never - we live in times where nothing is impossible."

SNB officials are scheduled to publish a new economic forecast at their next monetary policy review on March 19. In an unusual move, policy makers will also brief the press that day, which the SNB said had been decided upon owing to decision to give up the cap and introduce negative rates. Traditionally the SNB has only held press conferences after its June and December decisions.

The franc soared against the euro after Switzerland's central bank gave up its three-year-old cap of 1.20 per euro on Jan 15. That raised the prospect of weakening growth and inflation in the export-oriented economy at risk of suffering a bout of capital inflows due to bond buying by the European Central Bank.

The deposit rate may to drop as low as minus 1.5 per cent, according to the median estimate in the survey conducted between Feb 6 and Feb 12. As for other measures the SNB could enact, nearly a third of respondents said it could link the franc to a basket of currencies, while a fifth suggested the SNB could reduce the exemption threshold financial institutions are granted on the deposit charge, intensifying the levy.

"Even a slightly weaker euro, if coupled with ECB quantitative easing and a persistent Greek exit risk, could be enough to push the SNB further down," said Julien Manceaux at ING in Brussels. "As this takes time to achieve, managing short term shocks through foreign exchange interventions is possible." Gross domestic product will probably rise just 0.1 per cent this quarter and fall 0.2 per cent next. Growth will resume in the second half of the year, according to the survey. The economy will expand 0.9 per cent in 2015 and 1.3 per cent next year. The projection for this year is just half the pace forecast by the SNB in December.

The SNB will be "active in the foreign exchange market, should this prove necessary in order to influence monetary conditions," Mr Jordan said in Brussels on Tuesday, reiterating a view SNB officials have shared repeatedly over the past five weeks.

Sight deposits - the cash commercial banks hold with the central bank - have risen since mid January, stoking speculation the SNB has intervened. So did a newspaper report that the central bank has a unofficial corridor for the franc of 1.50 to 1.10 per euro. Even so, central bank data suggest that the SNB may have stopped intervening on Jan 29 and Jordan has declined to comment on any transactions.

The franc, which investors like to buy at times of heightened market stress, has largely traded weaker than 1.046 per euro this month, and it stood at 1.06854 per euro at 9:45 am in Zurich on Wednesday. Mr Jordan termed it significantly "overvalued" at its current level in a speech in Brussels on Tuesday.

Between 2009 and 2011, prior to setting the cap, the SNB pumped tens of billions of francs into markets via interventions in a bid to weaken the Swiss currency, causing its reserves to double. The franc still nearly hit parity with the euro in August 2011.

"The major difference with 2009 and 2010, when the SNB purchased foreign currencies without publicly targeting a precise exchange rate, comes from the valuation of the Swiss franc," said Maxime Botteron, economist at Credit Suisse Group AG. "Back then the franc was not clearly overvalued against euro as it is now."

BLOOMBERG

      

MORE

• Swiss franc surge puts strain on WHO's US$4b budget plan
• Eurozone worries spark leap in gold sales
• Fear of price jump in Swiss watches unfounded
• Credit Suisse says introducing measures to deal with strong franc
• Switzerland slides into deficit on surprise revenue fall
• SNB faces deflation challenge as Swiss prices plunge