Tony's Ten: 2013 and 2014

16 December, 2013

The economy clearly has a more positive outlook and that is good for banking and finance, as it is for all sectors (well maybe not certain asset classes which may have been propped up by loose money policy). The US is brighter, the UK is brighter, China has not hit the buffers after all and even Europe, dear Europe, has some hope. At least Ireland has left the emergency support mechanism put in place to bailout the crisis caused by its interwoven property and banking sector.

From analysis houses like IHS to formidable bond traders like PIMCO’s Mohamed El-Erian, growth prospects for 2014 are being marked upwards. UBS estimates that global growth was 2.5% this year and will accelerate to 3.4% in 2014 and 2015. We’d be happy with that kind of growth, but in terms of global growth, UBS still suggests the “new normal” is not great. They estimate US growth in 2014 and 2015 will hit 3%, but Europe is still the basket case with a guesstimated growth of 1.1% in 2014 and 1.5% in 2015.

Notably though, public sector analysts at the IMF and the OECD are less sanguine, while they expect faster global growth next year than this, they are reducing their estimate of what this growth will be.

What we will certainly see in 2014 is a lot of action around banks. The BIS’ concern about the funding advantages of banks will be tested when markets will be asked to provide equity to the likes of TSB, Williams and Glynn, Abbey (OK, in reality Santander UK) and even, though very unlikely, a partially spun off Midland Bank! Wow, it is a while since we have heard some of those names. Some will happen, others will not. However, it is positive that these capital raising exercises coupled to possible further sales of state stakes in Lloyds (and I guess if the economy really booms RBS) are being discussed. As the economy grows, and despite the competition from alternative providers, one would expect banks to at last be asking for more capital, but this time not for satisfying regulatory demands, but because the new and the old banks alike will hopefully need more capital to fund a bit of new business – wouldn’t that be nice!