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CommentP&M Notebook

P&M Notebook: Windows

It’s outlook season for hardworking market hacks and the word of the moment is “windows”, a phenomenon demonstrated all too well by the weekend’s political action.

The consensus from right-thinking capital markets bankers is that next year is going to be tougher. Political risk, central banks and headlines will open and shut markets at a moment’s notice, which, combined with blackout periods, will require issuers to be more nimble than ever before.

Of course, this is mostly a repackaging of the age-old book-talking of the syndicate banker — issuers should do deals quickly and do them cheap. No point sitting on the sidelines for the sake of a few basis points: get printing.

Just because it’s somewhat self-serving, doesn’t make it wrong. The market has spent Monday morning trying to digest the Italian referendum 'no' vote — is it a rejection of a badly designed constitutional reform, of Renzi, of elites, of the euro, or none of the above?

There’s also the big question of what it means for banks. Monte dei Paschi’s tortuous rescue operation is in its most crucial phase and can ill-afford any further knocks to confidence. Worse is if the rescue operation fails, since that will require decisive action from an Italian state that may not even have a government.

UniCredit, too, is supposed to be announcing a sweeping restructure next week, for execution in 2017. It shouldn’t need any public sector help, but confidence is still key – estimates for the size of the rights issue range up to €13bn – and an unstable political climate doesn’t help.

Also in the mix are a big NPL sale and a revival of the group’s various spin-off plans. UniCredit confirmed on Monday that it was talking to Amundi (mostly owned by Crédit Agricole group) about selling Pioneer Asset Management. Talks with Santander about the same trade dragged on for years without coming to anything, and UniCredit had been expected to look at listing it. But a strategic buyer, one hopes, could move more quickly and comprehensively.

The week ahead will also bring a string of Brexit headlines, like it or not, as the UK’s Supreme Court ponders whether Parliament should vote on the government triggering the Article 50 clause to begin leaving the European Union. There’s no special reason to think the Supreme Court would overturn the High Court’s earlier judgement that Parliament should be involved — but it’s going to be a huge occasion either way, the first time the whole court has ruled on an issue, and with the potential to cause a major constitutional crisis in the UK.

That’s probably left analysts with precious little time left to scour the European Banking Authority’s Transparency Exercise for any pearls of wisdom about the European banking system. The EBA’s release, after market hours last Friday, flagged NPLs and cyber risks as problems across Europe, but the real value is in the bank-by-bank disclosures.

Delving into such documents can yield a good headline though. GlobalCapital looked back through Credit Suisse’s third quarter numbers to figure out how much the bank’s innovative “Operational Re” bond, insuring itself against operational risks, had saved it. More than Sfr1bn ($991.5m) of RWAs is the short answer, though this still leaves the bank’s Global Markets business with rather more capital devoted to op risk than, um, markets risk. The back-of-a-fag-packet sketch of a universal bank is normally about 70% of RWAs in credit risk, 20% in market risk and 10% in op risk. But successive fines of ever-increasing severity have fattened the op risk buffer until it dwarfs the actual risk-taking part of trading businesses.

Conduct, of course, loomed large over the UK’s stress tests, published last week. Royal Bank of Scotland was the surprise failure, but it wasn’t that much of a surprise… the equity bounced around a little but ended the day broadly unchanged and the bank’s “revised capital plan” doesn’t look to be revised very far. It’s still, really, all about dodging the next round of Department of Justice fines, which could be as much as $12bn. Since that’s coming straight out of UK taxpayer pockets, you’d think it was a foreign policy matter, as much as a piece of financial regulation — so watch Donald Trump’s twitter feed for the latest updates.

It’s not really the time of year for much people news — the highlight of the week being an internal reshuffle at HSBC, prompted by Rob Gardiner’s switch from FIG syndicate to DCM, which seems to have set off multiple relocations (New York to London, Sydney to New York, trading to syndicate).

Also notable is a continuation of Rothschild’s stateside expansion — it’s hired Michael Speller, a leveraged finance and coverage banker from Credit Susise, to run its debt advisory business for North America.

Watch out for more though — Canadian banks have had their year end and bonus season will soon be upon us for the more mainstream institutions. Decent third quarters across fixed income have cheered bank management, and hiring plans may be less frozen than in previous years. Bon chance!

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