Tony's Ten: Re-regulation
26 September, 2014Tony Gandy
One of those bits of legislation which seemed so significant at the time, the Markets in Financial Instruments Directive (MiFID), now seems such a distant memory.
Countries like the UK had already experienced a disassembling of barriers to trade in financial markets and an opening up of markets under the big bang. Much of the rest of Europe had not and the introduction of MiFID some ten years ago broke cosy monopolies and cartels and made the Anglo Saxon way king. Indeed it even went further allowing broker-dealers to expand their ""darkpools"" and allowed the entry of alternative trading platforms to such a point that trading on a formal stock market became a nice-to-have option.
The world is moving on and well connected journalist Anthony Hilton suggests banks are overlooking the re-regulation which is at the heart of the MiFID 2 regulation. In the Evening Standard he says that within 18 months there is going to be fundamental change which few broker-dealers/banks are preparing for. They will have to make a choice between broking or market making and if they want to do both then they need to be completely separate activities.
I have to say I am not seeing much concern, but then I’m not connected in the way that I was. Undoubtedly the breaking up of cosy cartels and the liberalisation of markets were good things and it is a hard to see how MiFID contributed to the financial crisis, but in the atmosphere, maybe we should be surprised by any re-regulation.
Bad times for European banks
I was stuck by a diagram from the FT this week which showed a steep decline in returns on equity among European banks, to a point where in 2013-14 they hovered on average around 2.5-4%.
Banks, once used to 20% returns on equity and with many British ones looking at much greater returns, they are now targeting much lower returns. Antony Jenkins at Barclays has set a future target of a 12% return, but it will take time to get there. HSBC, with a target of 12-15%, is undershooting that target fairly substantially. At the lower end, both these banks are setting targets pretty much half of what they may have expected to in the past. In Europe, Deutsche Bank is looking to achieve 12% in 2015 and 2016. It seems astonishing that as recently as 2010, ex CEO Josef Ackermann was still targeting 25%.
Still at least these banks can think about a return to shareholders, though little will actually be distributed, if any, as banks look to increase capital reserves. Other European banks would be very pleased to simply break even this year and worry about setting a target return sometime in the future.