Dean on CNBC: European Banks Preparing for the Stress Tests

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European Banks preparing for the stress tests
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The latest comments of Ms Nouy, the Single Supervisory Mechanism Chair, picture a new scenario for European banks. The new pan-European regulator certainly wants to establish an high degree of credibility and is sending a clear message to the banks: act now or fail.
 
Overall the new stress tests will strengthen the banking sector that faces several challenges.
One of these challenges is the intimate link between banks and sovereign bonds that the SSM is trying to break. 
Several European banks still rely on the profitable carry trade that lead to an increase of EU Government-debt holding to 4.3% of last December from a 3.5% of June 2012. 
Said increase underlines how the ECB financing is not always used to lend and relaunch the economy. The upcoming stress tests will apparently use leverage ratio as a “crucial measure” that creates some disparity with the way U.S. banks are assessed.
Some failures are to be expected and can be positive to reinforce the European banking sector but several unpredicted failures might create a sense of insecurity to both investors and the public.
 
It seems that banks that have recently received state aid would have to pass a more simplified stress test based a on profit and loss statement set in the restructuring plan.
 
National regulators should conduct their own reviews and provide with clear alternatives to these banks that might not pass the stress tests and are in need of capital. 
Lending and Growth
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It is clearly very challenging for several European companies to remain competitive in a climate of higher fiscal pressure and limited lending opportunities. The ECBE should think about ways to solve the transmission mechanism weaknesses and ensure both the good health of the European banking sector and access to credit (particularly relevant for SMEs). 
 
National Governments should also ensure that the current austerity measures are combined with incentives for companies to hire and therefore reduce unemployment.
 
Over the medium and longer term this is one of the main European challenges: maintain and increase competitiveness during the recovery process.   
 
In Short
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– SSM is determined to conduct reliable and credible stress tests but National Regulators should ensure that ill-capitalised banks act now
– The Transmission mechanism might not provide sufficient lending to European small and mid size companies and therefore needs to be improved.
– European countries facing austerity measures should be concerned about maintaining and increasing their competitiveness. 

 

Robert Kennedy College – University of Cumbria MBA 2013 Graduations

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We are excited and proud to share the success of our MBA Class of 2013 graduates that attended the graduations ceremony in the wonderful setting of the Carlisle Cathedral.  The Robert Kennedy College University of Cumbria MBA class of 2013 received their award by the University Chancellor: The Most Reverend and Right Honourable Dr John Sentamu, Archbishop of York. In behalf of the College I extend my most sincere congratulations for their outstanding achievement.
I am certain that this video will inspire both existing and prospective students in achieving their dreams and be part of our next graduations.
Are you ready to achieve your goals and graduate next year? Click Here to apply now!

Dean on CNBC: Europe to return to growth in 2014 – Whatever it takes

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Europe to return to growth in 2014 – Whatever it takes
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The ECB renewed commitment to maintain an accommodative monetary policy will be among the factors that will help Europe to continue the path to recovery that should result in positive GDP growth this year. While Mario Draghi was cautious in calling the end of the crisis his firmer language echoes the famous 2012 speech that drove the return of investors confidence in Europe.  Valuations in Europe remain attractive and there are several investment opportunities both in the broad indices and specific sectors like financials and consumer discretionary. 
 
This does not mean that the challenges are over:
– Unemployment remains at very high levels of 12.1% (particularly in the periphery)
What is particularly concerning is the level of youth unemployment that reached  very high levels (36.8% in Portugal, 41.6% in Italy, 57.7% in Spain).
– The monetary transmission system of passing the high liquidity provided to banks is not functioning properly.
Small and mid size companies are still seeing limited financing opportunities and the same is true for consumers. 
 
With the industrial production improvement in Germany (Nov data) and the economic sentiment at a 29 month high the environment is still positive for investors. In the specific I will continue to favour companies with global exposure including consumer discretionary.
 
European banks 
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With the renewed support of the ECB there are still opportunities in the European banking sector particularly in the periphery (with the exclusion of few banks that still have not adapted to the new environment and raised sufficient capital). Overall the creation the banking union later this year will further strengthen the whole sector and reduce the sense of insecurity that has prevented some investors to enter the market. 
The banking union will increase uniformity across Europe and ensure an even higher degree of regulatory oversight and transparency.
 
In Short
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– ECB renewed commitment to maintain an accommodative monetary policy will be positive for European Markets in 2014.
– The European steady path to recovery should translate in positive GDP growth in 2014. 
– Europe still faces several challenges like high unemployment that will take time to normalise. 
– European Banks in the periphery present interesting valuations and a good opportunity for investors. 

Dean on CNBC: Banks face legal charges from the past

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Banks face legal charges from the past

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Rabobank is just the last bank to have reached a record settlement of $1.07 billion for
alleged misconduct in the libor and other interest rates manipulation scandal.

Barclays is also facing a $700m charge after losing the appeal with hedge fund diamond capital.

Legal charges have also impacted Q3 results of UBS, which now faces
higher provision requirements from the FINMA, and Deutsche Bank that had to increase
litigation reserves of 1.2 billion to 4.1 billion Euro. The situation of
Deutsche Bank is different as it did not yet reach a settlement with the regulators.

This uncertainty over possible further legal charges makes it difficult for
investors to assess the real litigation risk faced by some of these banks.

Banks are therefore going to face higher legal charges and might be required by
regulators, like in the case of UBS, to hold more capital.

Investors can benefit from this volatility in the sector by paying attention to
some unique situations in the industry like:

– Swiss banks maintain a competitive advantage as the regulator moved very quickly
after the crisis to increase capital requirements and do not face the same issue
of other European banks where bad loans have reached $1.7 Trillion ;

– Some Europe banks have no pending legal charges and limited exposure to bad loans
and are a good opportunity for investors;

Given that non performing loans in Europe have double in the last 4 years the environment
will remain challenging. Swiss banks will improve and maintain their strong position in
some banking areas e.g. wealth management.

European banks & bad loans
==========================

The increase of European banks bad loans to $1.7 billion raises the question on how
banks will prepare for the next year stress test but, and perhaps more importantly,
how this might impact access to credit in many european economies that need financing to
fuel growth.

In Short
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– Litigation risks represent a big challenge for banks and investors that need to
assess how this will impact their future results;
– Swiss banks maintain their competitive advantage due to the strong capital base and the already
reformed Swiss regulatory environment;
– European banks operate in a more challenging environment with higher bad loans and the need to reinforce their capital positions well ahead of the 2014 stress tests.

Dr. David Costa – Dean’s Interview on CNBC: Overlook of banking and Italy

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Italy to submit budget to the European Commission
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Last Wednesday the Italian Government has approved a number of measures that will allow Italy to keep
the budget deficit inside the 3%. These measure worth 1.6 billion are comprised of 1.1 billion 
in spending cuts by government and local authorities and 500 million in the sales of public buildings.
The target of the Government is a 2.9% budget deficit vs. a 3% of 2012.
 
The Government objective remains to cut spending and taxes at the same time with emphasis on cutting
payroll taxes to increase competitiveness and improve salaries. 
 
In my view Italy benefits from several competitive advantages (notably the made in Italy) but has to find
a way to maintain and enhance competitiveness particularly for small and medium size companies where 
access to credit can improve. 

The Dean on CNBC: German Elections: the impact for Europe and European Investors

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German Elections: the impact for Europe and European Investors
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The upcoming German elections should not present any drastic change for other European
countries or European investors.
 
We do not know what the Government coalition will be and if some minor parties, like the anti-euro party will
meet the 5% necessary to hold a seat in the parliament, but some points are already well defined:
 
– In Germany there is a strong consensus against any form of debt mutualisation so we are unlikely to see
any form of Eurobond. That might only happen when and if Europe will have a centralised supervision that will
ensure no overspending. Germany is unlikely to accept and support a fiscal union.
 
– The banking union process will progress at a slow pace and Germany sees the union more as a long term
institutional structural change and not as a tool to fight the crisis in the short term. 
 
– Both the German public and the majority of politicians believe on the principle of fiscal austerity and low inflation
which doesn’t stimulate consumers spending.  This is unlikely to change despite the wishes of both the U.S. and other
European countries to stimulate growth. 
 
 
German Elections for European Markets
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Investment flows in Europe are back at pre-crisis level. What markets really want now is continuity.For this 
reason the re-election of Angela Merkel will be positive for the markets.
In a post-election scenario the new German governments could have more flexibility if needed as there will be
less anxiety about the immediate public reaction.
 
What I do think it that it is highly unlikely to see a new crisis as the one experience in 2010-2012 which was,
primarily, a crisis of confidence. 
 
Wide Divide
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As highlighted in a recent EY study the divide between northern and southern European economies is widening. For instance
in 2014 unemployment is likely to remain lower than 5.4% in Germany but to peak to 27% and 29% in Spain and Greece.
While as a whole Europe will maintain a steady path to recovery this divide creates opportunities for investors that 
select these European countries, industries and sectors that are more likely to recover in the short term. 
In Short
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– German elections is likely to result in policy continuity with the same position on Eurobonds, Banking Union and a recovery
based on fiscal austerity and low inflation;
– European markets are likely to benefit from this continuity and another crisis is unlikely;
– Wide divide to remain with substantial gaps in unemployment and growth between northern and southern european economies. 

The End of Swiss Banking Secrecy ?

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The End of Swiss Banking Secrecy ?

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The Swiss government proposed bill to allow banks to share clients data with the U.S. received a setback with the parliamentary committee rejection of the draft.
Today’s vote by the upper house will probably decide the future of Swiss banking secrecy. Both bankers and Cantonal financial directors are supporting the agreement as a rejection could lead to criminal indictments for some Swiss banks with obviously a very bad impact to business.

With very limited information available it is however clear that one of the historical competitive advantages of Swiss banks is going to be impacted. The main issue is if the acceptance of some unilateral conditions will set an important precedence that might lead to the end of Swiss banking secrecy.

In my view several Swiss major banks have already adapted their business model by leveraging their competitiveness on security and stability and by refocusing on high growth area like Asia but with a very fierce competition the loss of secrecy might have a negative impact to business.

A recent drop on several Swiss banks might still be a buying opportunity, especially for these banks that have already successfully changed their business model.

The Dean on CNBC: Swiss Banks & Gold will rise again

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In my latest interview on CNBC I discuss about the outlook for Gold and the Banking sector, especially the better than expected results of some Swiss Banks like Credit Suisse. My students in the class “Money Management” – that is part of our Master in International Business Management and MBA in Leadership & Sustainability have a chance to combine theory with practice: the assessment of the course consist on a personal portfolio that each student can build and track on a daily basis. If you are not a student in the University of Cumbria Master in International Business Management or MBA the next intake is starting in June (with the induction starting in May) and we are currently accepting applications for the last places.

Robert Kennedy College Online MBA Financial Times 2013 Listing

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We are happy to announce that the University of Cumbria MBA at Robert Kennedy College has been listed again this year on the Financial Times 2013 Online MBA Listing.

The University of Cumbria long history that dates back to 1822 has been combined with the unique expertise of our College to offer one of the most content and cost competitive programmes in the World.

The Financial Times listing highlights that the The University of Cumbria MBA at Robert Kennedy College is now one of the largest MBA programmes in world. (you can download the full listing and report here ).

Our Students come from all over the World our programme incorporates a one week residency in Cumbria, England and allows our graduates to enjoy the same benefits of full time students including attendance to the annual graduation ceremony at the Carlisle Cathedral. 

We are currently accepting applications for the April 2013 and May 2013 intakes. If you are ready for this challenge you are welcome  to apply now!

 

In the video below you can see the impressions of our students during the residential week at the University of Cumbria World class campus in the idyllic Ambleside

 

Are you ready for the challenger and start your MBA ?  click  to apply now!

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