Week in Review

Appointment of Lagarde the only one that matters

From an investor perspective, the identity of the President of the European Commission, Council and Parliament matters little in the short term. All important is the identity of the ECB President, for which Christine Lagarde was nominated this week.

Nominating the former IMF Managing Director presents a radical departure from an unwritten rule that the ECB should steer clear of politics. Provided she gets through a European Parliament hearing, Lagarde will take office on 1 November for a term which will last until 2027. Her appointment has prompted some concern that of the six-person ECB Executive Board, only Ireland’s Philip Lane has a background in monetary economics. Nevertheless, countries in the Eurozone periphery that had feared a Jens Weidmann era of tightening at the ECB, are pleased with this outcome.

European Banking Authority finds €135.1 billion shortfall in largest European lenders.

Europe’s biggest banks’ capital requirements would rise by almost a quarter, creating a €135.1 billion collective shortfall, under final Basel III international standards, the European Banking Authority said today.

Ahead of a hearing in Paris on the impact of Basel III international standards on 189 EU banks, the European Banking Authority released its estimate of a €135.1 billion shortfall, based on conservative assumptions, if the banks had to immediately comply with the requirements. Without identifying specific lenders, the EBA indicated that the capital shortfall would come almost entirely from the “large globally active” European banks. The EBA also found that if banks retained their profits during the transition period, the capital shortfall would shrink to €58.7 billion.

Technical report gives succour to Di Maio’s insistence that the motorway concession for Atlantia is revoked

A 62-page report delivered to the Italian transport ministry by MIT technicians highlighted several technical faults for which it is argued that the government would be legally justified in revoking Atlantia’s concession to run Italy’s motorways.

However, the report also cited the strong possibility that, in the event of revocation, Atlantia could be due in the region of €25 billion while affected shareholders and bondholders could also demand compensation. As a result, the report opined that “there could be a different solution, following a political or legislative evaluation, aimed at the renegotiation of the concession". With Lega, the main opposition and the unions strongly against, we remain of the view that the revocation of the concession is unlikely.