By Alex Plough March 13, 2015
Banco Santander, Santander, Spain ©Mario Hoyos/Flickr
Mixed Marks in Stress Test
This week two European banks failed the US Federal Reserve’s annual ‘stress test’ designed to make sure banks hold enough capital to survive a sharp economic downturn.
Germany’s Deutsche Bank and Banco Santander, Spain’s biggest bank, were singled out by the US regulator for weakness in capital planning and risk management. It was the second year running US officials have criticized Santander, which has struggled to centralize compliance and risk management in its US operation despite spending $170 million a year and hiring about 500-600 people the past 18 months to deal with the issue.
All major US banks passed inspection, but Bank of America, the second largest bank in the country, barely scraped by with a provisional bill of health and could fail later this year unless it fixes weaknesses in how it projects losses and revenues.
Bank of America admitted just weeks after last year’s round of tests that it had overstated its capital by $4 billion, prompting the Fed to order a freeze of a planned share buyback and dividend rise. Overall the ‘stress test’ results showed that the US financial sector is in much better shape than before the crisis. US banks today are far less reliant on borrowed money and hold more capital reserves than before the financial crisis.
An unintended consequence of safer banks is that riskier activities, such as loans to non-investment grade firms, are being pushed to the unregulated ‘shadow banking’ sector of non-bank financial intermediaries. A recent report by Goldman Sachs estimates that these alternative lenders, which include technology driven start-ups like the LendingClub and CommonBond, could take up to $11 billion in bank profits over the next five years.
IMF Offers Ukraine Lifeline
The International Monetary Fund (IMF) approved plans to inject $17.5 billion of emergency funding into Ukraine’s troubled economy to keep the country afloat as it struggles with armed separatists and the threat of a Russian invasion. Kiev will get immediate access to loans of $5 billion by the end of this week and a further $5 billion in the coming months. The bailout is part of a larger, $40 billion international package that includes a restructuring of some of Ukraine’s debt that is yet to be negotiated.
On Wednesday, the IMF predicted that the Ukrainian economy will shrink by 5.5% in 2015 but should return to growth the following year. The country’s currency has fallen in value by 69% since President Viktor Yanukovych fled office over a year ago. Meanwhile, inflation is expected to reach at least 26% this year, prompting Ukrainian central bankers to sharply raise interest rates from 19.5% to 30% earlier this month.
Critics of the West’s response to the Ukrainian crisis noted that the bailout came with strings attached in the form of greater public-spending cuts, practically guaranteeing several years of economic misery for ordinary Ukrainians weary from a year of sectarian fighting.
Apple Watch Launch, or Invasion?
This week California technology colossus Apple released details of its latest luxury accessory for people with money to burn: the $17,000 Apple Watch.
The new device is designed to act as a smartphone for your wrist, letting wearers make phone calls, read emails and eventually use the same third-party applications already enjoyed by iPhone users when it launches in April this year.
Critics have pointed out that the Apple Watch needs to be paired with a nearby iPhone to work and raised questions about the purpose served by the device. With prices ranging from an entry-level $350 to $17,000 for a 24-karat gold version and battery-life lasting a single day, some claim it is little more than an expensive and gaudy fashion accessory. But Apple can easily silence the ‘haters’ by pointing to 2014 revenues of $182.8 billion, proof that its high-end approach works, particular when targeting the aspirational and increasingly wealthy Chinese middle class.
Last year, Apple’s attention to China’s consumer tastes paid off when it released a large screen version of its iPhone there to great success. It is repeating these tactics with the Apple Watch. The gold-plated version is expected appeal to status-conscious Chinese shoppers and the firm highlighted the device’s ability to use the popular Chinese WeChat messaging service.
Vox suggested that, as well as making the device hugely profitable, a $17,000 price tag is part of a broader strategy to make smartwatches a legitimate luxury good in the same class as an expensive Rolex or Cartier watch. Luckily, Gawker’s Sam Biddle has a winning strategy to keep that from happening, and he asks you to join him: ‘Take the Pledge: I Will Not Have Sex With Anyone Who Wears an AppleWatch.’ In the meantime, he expects the future may look rather grim.
“Over-eager piss boys and piss girls with blinking wrists will soon be at every bar and restaurant, trying to get Siri to understand that you’re saying NEGRONI, NEGRONI INGREDIENTS, WHAT ARE THEY, CALL TAYLOR!!!! You can’t stop them.”
Jail Inc., Interactive
For over a decade, successive Australian governments have continued the legacy of controversial immigration laws with a policy of mandatory detention of asylum seekers. People fleeing warzones who try to reach Australia, a wealthy and sparsely populated country, are arrested and indefinitely jailed in offshore detention centres out of the public eye.
This policy, described as tantamount to torture by the United Nations, is also big business according to an investigation by Guardian Australia. Using data of contracts awarded by the Department of Immigration relating to the mandatory detention system, journalists found that the enforced detention policy benefited contractors by up to AUS$10 billion (US$7 billion) since mid-2007. Readers can also interact with the data to see which companies have profited the most.
This entry was posted on Friday, March 13th, 2015 at 1:40 pm. It is filed under Week in Review and tagged with Apple Watch, Australian jails, Banco Santander, Deutsche Bank, stress test, Ukraine. You can follow any responses to this entry through the RSS 2.0 feed.
Comments are closed.
