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Week in review: Financials in focus

This week: UK Financial Stability Report, U.S. bank stress tests and a Rogaine robbery.

The finance industry was squarely in the spotlight this week with the Bank of England’s financial stability report and the second round of the Federal Reserve’s (Fed’s) bank stress tests. On Tuesday, the International Monetary Fund (IMF) cut U.S. growth forecasts, citing President Trump’s current inability to follow through on tax reforms and infrastructure spending plans. The IMF lowered its prediction for 2017 gross domestic product growth to 2.1% from 2.3%.

Stress-free testing

The results of the Fed’s stress testing, published on Wednesday, showed a marked improvement in the health of the U.S. banking sector. All 34 of the largest U.S. banks were found to have built up sufficient capital buffers to safeguard against catastrophes while improving their management procedures. These banks are now eligible to pay out 100% of their projected annual net income to shareholders, up from 65% last year.

It was a different story on this side of the Atlantic. The Financial Stability Report –published this week by the Bank of England (BoE) – recommended that Britain’s major lenders set aside more of their capital to protect against economic downturn. The BoE is anxious that consumer credit is growing too rapidly, and has instructed lenders to set aside a further £11.4 billion (US$14.8 billion) over the next 18 months to minimize the risk of triggering another credit crunch.

Banks have mostly taken this week’s activities in their stride, while wider equity markets were slightly down at close on Thursday. In the U.S., the S&P 500 Index fell 0.8%, while the UK’s FTSE 100 dropped 1.0%.

May Fosters relations

On Monday morning, after several weeks of negotiations, UK Prime Minister Theresa May concluded an agreement with Arlene Foster, head of Northern Ireland’s Democratic Unionist Party (DUP). The DUP has promised a ”supply and confidence” agreement, guaranteeing that its 10 Members of Parliament (MPs) will vote with the government on the Queen’s Speech, the Budget and legislation relating to Brexit and national security. In return, Mrs. May has granted an extra £1 billion (US$1.3 billion) in funding for the province, and dropped the unpopular Tory manifesto pledges to end the triple lock on pensions after 2020 and to means test winter fuel payments for pensioners.

European M&A soars

Merger and acquisition (M&A) activity in Europe has surged, overtaking the Asia-Pacific region. A flurry of transactions in the first six months of 2017 - including the planned €16.3 billion (US$18.6 billion) takeover of Spanish toll-road operator Abertis by Italian rival Atlantia and China Investment Corporation’s €12.25 billion (US$14 billion) deal to acquire pan-European logistic group Logicor from Blackstone – resulted in a 33% year-on-year jump in European deal-making volumes to $440.5 billion. Figures from Thomson Reuters also showed that U.S. M&A activity fell 17% to $559 billion in a period largely devoid of high-value deals. Bankers and lawyers are attributing this to a combination of the high stock-market valuations and uncertainty surrounding Donald Trump’s presidency.

And finally…

Police in an outlying district of Detroit are hunting down a distinctive shoplifter. The man they seek was caught on CCTV stealing seven boxes of Rogaine, a medication for hair regrowth, from a local Walgreens store. The images captured show that the thief in question is bald. As he combed over the area, Dearborn Police Chief Ron Haddad said, “While this is not the most hair-raising crime, we must protect our retailers.” Let’s hope they catch the follicly challenged felon soon, before chances of a conviction recede.

Important Information

Foreign securities are more volatile, harder to price and less liquid than U.S. securities. They are subject to different accounting and regulatory standards, and political and economic risks. These risks are enhanced in emerging markets countries.

Companies mentioned are for illustrative purposes only and are not intended to be a recommendation to buy or sell any security.

Indexes are unmanaged and are included for illustrative purposes only. You cannot invest directly in an index.

ID: US-300617-35708-1