RBI governor’s remarks seek to deflect criticism over recent Punjab National Bank scandal
В четверг, 15 марта, ключевые фондовые индексы Индии продемонстрировали отрицательную динамику вслед за биржами США и Азии на фоне опасений по поводу торговой войны. При этом наибольший удар на себя приняли представители банковского сектора, продолжающие отступать на фоне новых подтверждений мошенничества в Punjab National Bank. Кроме того, в отраслевом разрезе в числе аутсайдеров оказались акции металлургических и медиа-компаний, а также поставщиков товаров повседневного спроса. По итогам торгов, индекс Nifty 50 уменьшился на 0,49% до 10360,15 пункта, тем временем, BSE Sensex ослаб на 0,44% и закрылся на уровне в 33685,54 пункта. К 13:38 МСК валютная пара USD/INR опускается на 0,11% и торгуется на уровне в 64,885, а пара EUR/INR понижается на 0,04% до 80,1599. Доходность десятилетних государственных облигаций Индии поднимается и находится на отметке 7,688%.
Sentiment towards India’s state-backed sector drops after alleged fraud at lender
It has been more than two weeks since Punjab National Bank - one of India's largest state-owned financial institutions - informed the public about a nearly $2 billion lending fraud allegedly masterminded by Nirav Modi, a famous celebrity jeweler and one of India's richest men. And still, investigators are just beginning to piece together the exact mechanics that allowed a celebrity jeweler, working with a handful of rogue bank employees at PNB's Mumbai branch (the bank is based in New Delhi) to pull off the largest financial fraud in modern Indian history. In their latest update, federal investigators told Reuters and a host of other media organizations that Modi and his uncle Mehul Choksi - who played an integral role in the fraud - successfully bribed bank employee with gold coins and diamonds to help coax them to look the other way when signing off on fraudulent letters vouching for the shell companies receiving the loans. Authorities have apprehended a retired PNB manager named Gokulnath Shetty, pictured below, who was essentially Modi and Choksi's inside man at the bank. Last week, we pointed out a disturbing trend whereby large multinational financial institutions were backing away from Indian banks, setting the stage for a painful credit crunch that could potentially destabilize the Indian economy. The Central Bureau of Investigation (CBI), which has arrested 14 people in the case, on Saturday for the first time said bribes were paid to at least one Punjab National Bank (PNB)official by Modi. The agency told the court that Yashwant Joshi, who worked as a manager in the forex department of the Mumbai branch that is at the center of the fraud, admitted to having received two gold coins weighing 60 grams and a pair of gold and diamond earrings from Modi. The articles have been recovered from Joshi’s house in the presence of independent witnesses, the CBI said. Police have also arrested two low level employees from the Brady House branch of PNB for helping ferry the fraudulent guarantee letters past the bank's internal controls. The two men allegedly helped produce some of the letters of understanding, then recorded them in the bank's internal system, effectively leaving its stewards in the dark. As any expert on India's state-run banks would tell you, the fact that most Indian banks haven't integrated their internal controls with the Society for Woldwide Interbank Telecommunication (SWIFT) leaves them incredibly vulnerable to fraud, particularly when bank employees who have nearly unfettered access decide to take advantage of their position. In its latest story, Reuters provided a detailed graphic explaining exactly how Modi and his crew managed to secure the fraudulent loans. The fake letters of undertaking that were so vital to the scheme allowed shell companies controlled by the fraudsters to receive loans mostly from foreign branches of Indian banks. Over the weekend, an Indian federal judge issued a warrant for Choksi's arrest. Both Choksi and his nephew Modi have fled the country, and are believed to be in Hong Kong. Prosecutors are also zeroing in on Modi, who is believed to be the ringleader of the whole scheme. “Modi appears to be the prima donna in the whole saga of the fraud perpetrated on the PNB,” the directorate said in a filing to the court seen by Reuters. But perhaps even more embarrassing - and ultimately more problematic - than the authorities' inability to apprehend the ringleaders of the fraud (though they have arrested a total of 14 people over their suspected involvement in aiding or abetting it) is the fact that nothing is being done to strengthen oversight of Indian banks. Without that, the damage to the credibility to the state-run banking system may never be repaired - and if that happens, it's the small business owners of India who will suffer as credit conditions are rapidly tightened.
MUMBAI/NEW DELHI (Reuters) - An official of India's Punjab National Bank received gold and diamond jewelry from a billionaire jeweler accused of being involved in a $2 billion bank fraud, the federal police told a court on Saturday.
В четверг, 1 марта, фондовый рынок Индии завершил торговую сессию умеренным снижением основных индексов. На мировых биржевых площадках сегодня преобладает подавленный настрой, и индийские площадки не стали исключением несмотря на то, что вышедшие данные по ВВП Индии за минувший квартал оказались благоприятными – экономика азиатской страны расширилась на 7,2%, наибольшую процентную величину за 5 кварталов, и стала самой быстрорастущей крупной экономикой с опережением Китая. Так или иначе, неблагоприятный внешний фон привел к тому, что индийский рынок не отреагировал ростом на вышедшую статистику, при этом в минусе индексы финишируют уже третью сессию кряду. Банковский сектор возглавил отступление в силу сохраняющейся обеспокоенности инвесторов, особенно после скандала с мошенническими сделками в Punjab National Bank. По итогам торгов вторника индек
The Punjab National Bank (PNB) is India’s second-largest state-owned bank. The PNB is now at the center of India’s biggest bank fraud on record, with the fraud’s tally approaching $2 billion. So, just what do we know about the PNB’s health? To answer the question, I took a look at the PNB’s books.
Банковский сектор Индии продолжает штормить, после того как была выявлена самая масштабная в истории страны мошенническая схема В середине февраля Punjab National Bank (PNB) обратился в Центральное бюро расследований Индии с жалобой на предположительно мошеннические действия группы лиц, в числе которых был Нирав Моди, ювелир, занимающий 85-е место в списке богатейших людей Индии по версии Forbes. Ничего нового индусы не изобрели: читать далее…
The biggest financial fraud in India's history just got bigger. On Monday, Punjab National Bank disclosed that a fraud previously believed to be $1.7 billion had swollen to $2 billion as the true extent of the fraud is still coming into focus. But the impact that this now-$2 billion fraud has had on the shares of PNB and other state-run Indian banks is having a wide-ranging impact across the country's financial system, according to Bloomberg. Foreign banks, worried about the systemic lapses that the scandal has exposed, have become unwilling to lend money to smaller Indian firms - causing massive disruptions in trade finance. All of this pressure has hammered the Indian rupee, which is on track for its first monthly drop since September. This is largely because India's economy, like the US, runs a trade deficit, and depends on capital inflows to function. Foreign capital comes through foreign funds’ purchases of Indian stocks and bonds, local exporters’ sale of foreign-currency earnings and dollar loans from foreign banks. India is one of the world’s biggest users of trade funding worldwide, according to the ICC Global Survey 2017. The fraud was purportedly masterminded by Nirav Modi and his uncle Mehul Choksi, both of whom are on the run. The two men worked with a PNB employee named Gokulnath Shetty, who recently retired. Shetty would issue fraudulent letters of undertaking to help companies create by Choksi and Modi apply for loans through the foreign branches of other Indian banks. The fraud continued as, when it came time to repay the loans, Shetty would issue still more LoU's to cover the balance. Citigroup Inc., Deutsche Bank AG, Standard Chartered Plc and HSBC Holdings Plc are among banks reducing exposure to these transactions, used by smaller companies to access short-term dollar funding, said people with knowledge of the matter. As questions are raised about the creditworthiness of guarantees from Indian state-run banks, rates have risen by as much as 0.5 percentage point for some types of financing, the people said, asking not to be identified as the details are private. Spokesmen in Mumbai for Deutsche Bank, HSBC and Citigroup declined to comment. “We continue to support our clients on transactions that meet our internal controls and standards,” a spokesman for Standard Chartered said by email. If doubts about the safety of Indian firms continue to grow, some firms may soon be forced to pay a full percentage point above Libor, compared with 0.5 percentage point before the PNB fraud was disclosed. As Bloomberg points out, the interlinked nature of global trade means trust is a crucial component of these transactions. The one silver lining is that at least larger Indian companies, which have direct access to funding from foreign lenders and don’t rely on interim guarantees, haven't been affected by the credit crunch. Possibly making matters worse, PNB has blamed other banks for negligence by failing to detect the fraud, though the fact that the bank's internal controls weren't connected to SWIFT - the international banking telecommunications system - making it much more difficult to detect the fraud. So the real question is: Will India's banking regulators finally act to install meaningful controls? Or will the fallout from this short-term finance crunch continue to worsen until it blossoms into an acute capital-flight crisis.
Indian billionaire diamond jeweller Nirav Modi has been accused of orchestrating the biggest banking scam the country has ever witnessed, allegedly having defrauded the state-owned Punjab National Bank (PNB) of close to two billion US dollars.
India has been gripped by the scandal involving billionaire jewellers and state-run institutions
Alleged fraudulent transactions uncovered at Punjab National Bank undermine the firm’s capital position; RBI launches investigation into “increasing incidence of frauds”
After a week in which stock-trading abruptly algos decided that rising yields are irrelevant at worst, and at best positive for equities, the correlation has again flipped overnight sending Asian shares lower and European share erasing earlier gains as bonds fell around the globe, with the 2Y Treasury yield rising 3bps to 2.23% - highest since September 2008 - and the 10Y briefly as high as 2.93%... ... ahead of this week's "monster issuance" of $258 billion in TSY bills and notes... ... which in turn has sent the recently beaten down dollar higher for the third day in a row... ... and pushed S&P futures sharply lower for the second consecutive day, as the VIX is above over 21 as of 6am ET. Europe’s main bourses saw a steady start as lower domestic currencies helped their cause, although early gains were quickly faded amid declines in auto and banking, but weakness across Asia where Tokyo and South Korea saw drops more than 1%, meant MSCI’s 47-country world share index was 0.2 percent in the red. European equities trimmed initial gains (Eurostoxx 50 flat) to trade with little in the way of firm direction ahead of the US return to market. The FSTE 100 lagged peers (-0.4%) after disappointing earnings from index heavyweights HSBC (-4%) and BHP Billiton (-4%), dampening sentiment for UK stocks and the former leading to underperformance in the financial sector. Other individual movers include Hikma Pharmaceuticals (+9%) after appointing their new CEO, Fidessa (+21.4%) are also seen higher after reports that Swiss-listed Temenos (-6.8%) are to make an offer for the Co., while Intercontinental Hotels (-3.9%) have faced selling pressure this morning following a lacklustre earnings update. MSCI Asia Pacific index declines for first time in seven days. The Hang Seng index slipped after HSBC profits missed; H-shares erase most losses after falling as much as 1.9%. n. In Australia, the ASX 200 came under pressure from material and financial names, with many of the large banks reversing the prior days gains. Over in Japan, the Nikkei (-1.0%) had tripped through 22,000 amid softness in tech names. The Hang Seng (-0.8%) reopened for the first time since last week, however initial gains had been short-lived. But all attention today will be on the bond market, where as Bloomberg notes, debt investors are trading with caution as Treasury markets reopened after the Presidents’ Day break as the VIX jumped to its highest level in five sessions. As reported yesterday, Treasuries are under pressure ahead of what Bloomberg has dubbed "monster debt supply" in which the U.S. gets set to sale a record amount of debt with three days of auctions today totaling $258 billion. And while speculators are turning bearish - rapidly covering net short bets across the curve but mostly in the 2Y... ... money managers are looking at the highest U.S. yields in years as a buying opportunity in a world where shorter-term Japanese and German notes still carry negative yields. “I just advise caution,” said Principal Global Investors’ chief global economist Bob Baur said about stocks as Wall Street futures also pointed lower. "I‘m not sure whether this (early February sell-off) was the dip to buy, there will probably be a relapse and then another relapse, before maybe around mid-summer stocks make another run up.” European bond yields pushed up too, with traders also working through the options of who could succeed Mario Draghi as European Central Bank chief next year after Spain’s economy minister was nominated for the bank’s number two job. In other news, BOJ governor Haruhiko Kuroda didn’t discuss monetary policy during an appearance in parliament today. Speculation has been swirling about the possibility the BOJ is scaling back its stimulus since the central bank reduced its purchases of government bonds in January. The UK is said to have a secret plan to withhold Brexit payments if the EU refuses to provide the UK with a desirable trade deal. Elsewhere, according to a letter seen last week, Netherlands government has linked its decision to activate hard Brexit plan amid a lack of clarity from the UK. Echoing China, the German Economy Minister says the EU will respond appropriately if the US puts a tariff on European steel imports. Speaking of Germany, it reported mixed February ZEw numbers: German ZEW Economic Sentiment (Feb) 17.8 vs. Exp. 16.5 (Prev. 20.4); German ZEW Current Conditions (Feb) 92.3 vs. Exp. 93.9 (Prev. 95.2) South Africa’s rand and Turkey’s lira both gave back more of their recent gains, while growing concerns about the previously reported alleged fraud at India’s second-largest state-run bank sent the rupee skidding to a near three-month low: "Punjab National Bank will need to provide for at least a substantial portion of the exposure. As a result, the bank’s profitability will likely come under pressure,” rating agency Moody’s said as it put it on a downgrade warning. In commodity markets, Oil prices were mixed, with reduced flows from Canada pushing up U.S. crude while Brent sagged $65.45 per barrel on the back of weaker Asian stocks and the dollar’s bounce. Spot gold slipped 0.4 percent to 1,341.06 an ounce, also corseted by the dollar’s bounce, while industrial metals including copper drifted lower for a second day in a thinner-than-usual trading due to new year holidays in China. Bitcoin broke above $11,500, almost double its intraday low from just two weeks ago. Bulletin Headline Summary from RanSquawk European equities have trimmed initial gains (Eurostoxx 50 flat) to trade with little in the way of firm direction ahead of the US return to market EU Parliament is to call for Britain to have privileged single market access after Brexit, according to Business Insider Looking ahead, highlights include US supply, WalMart earnings Market Snapshot S&P 500 futures down 0.6% to 2,719.50 STOXX Europe 600 up 0.1% to 378.63 MSCI Asia Pacific down 0.9% to 176.50 MSCI Asia Pacific ex Japan down 0.5% to 575.76 Nikkei down 1% to 21,925.10 Topix down 0.7% to 1,762.45 Hang Seng Index down 0.8% to 30,873.63 Shanghai Composite up 0.5% to 3,199.16 Sensex down 0.09% to 33,745.75 Australia S&P/ASX 200 down 0.01% to 5,940.85 Kospi down 1.1% to 2,415.12 German 10Y yield rose 2.0 bps to 0.755% Euro down 0.4% to $1.2355 Brent Futures down 0.6% to $65.28/bbl Italian 10Y yield rose 5.6 bps to 1.773% Spanish 10Y yield fell 0.3 bps to 1.508% Brent Futures down 0.6% to $65.28/bbl Gold spot down 0.7% to $1,337.27 U.S. Dollar Index up 0.6% to 89.60 Top Overnight News Latvia will seek to prevent ECB Governing Council member Ilmars Rimsevics from returning to his post after he was caught up in a bribery probe that’s rocked the Baltic nation, the country’s prime minister said in an interview Treasuries are about to reach a turning point, with the trend toward a flatter yield curve poised to end in the next few months, says Akira Takei, a fund manager at Asset Management One Chancellor Angela Merkel sent a strong signal in the debate over her preferred successor as German leader by appointing close ally Annegret Kramp-Karrenbauer as general secretary of her Christian Democratic Union party Prime Minister Theresa May’s team is eyeing up a contingency plan to hold back billions of pounds in Brexit payments, if the European Union refuses to give the U.K. the trade deal it wants Brexit Secretary David Davis will reassure the European Union that the U.K. won’t try to undercut the bloc by tearing up regulations after the split, making the case for mutual trust between regulators on each side Spain’s Economy Minister Luis de Guindos won the backing of euro-area finance ministers late Monday to replace ECB Vice President Vitor Constancio; some economists reckon he may side with the more optimistic governors on the council, who have long been pushing for an end to quantitative easing, while at the same time being mostly consensus-oriented Australia’s central bank reiterated that inflation is expected to “only gradually” accelerate as the economy strengthens and wage pressures increase, in minutes of this month’s policy meeting Asian equity markets are somewhat fragile, with major Asian bourses off to a weaker start. US markets were closed for President’s day and as such, Asian participants took the cue from European equities which slipped in yesterday’s session. In Australia, the ASX 200 (flat) has come under pressure from material and financial names, with many of the large banks reversing the prior days gains. Over in Japan, the Nikkei (-1.0%) had tripped through 22,000 amid softness in tech names. The Hang Seng (-0.8%) reopened for the first time since last week, however initial gains had been short-lived, with the index conforming to the sombre tone. JGBs are flat in thin-trade, March futures contract down 2 ticks and hovering near yesterday’s levels. USTs off by 6+ ticks with yields continuing to pick up, 2yr yields now at the highest since Sep’08 after hitting 2.22%, while the US curve is also flattening this morning. The RBA meeting minutes failed to provide any fireworks with the central bank sticking with its neutral tone. As such, AUD had been largely unmoved post the release of the minutes and instead focus will fall on the wage price index due out tomorrow. RBA February minutes states that low rates are helping reduce unemployment and lift inflation, additionally rising AUD would impede pickup in economic growth and inflation, however AUD TWI is still within narrow range of past couple of years. Top Asian News Espenilla Says Philippine Rate Hike on Table But Data Dependent India Is Said to Tighten Approvals for Offshore Borrowing Bitcoin Rises as South Korea Talks ‘Active’ Support for Trading BHP Falls as Much as 3.8% in London After Adj Profit Misses Ests Toyota Readies Cheaper Electric Motor by Halving Rare Earth Use European equities have trimmed initial gains (Eurostoxx 50 flat) to trade with little in the way of firm direction ahead of the US return to market. The FSTE 100 modestly lags its peers (-0.4%) after disappointing earnings from index heavyweights HSBC (-4%) and BHP Billiton (-4%), dampening sentiment for UK stocks and the former leading to underperformance in the financial sector. Other individual movers include Hikma Pharmaceuticals (+9%) after appointing their new CEO, Fidessa (+21.4%) are also seen higher after reports that Swiss-listed Temenos (-6.8%) are to make an offer for the Co., while Intercontinental Hotels (-3.9%) have faced selling pressure this morning following a lacklustre earnings update. Top European News Gulliver Ends HSBC Tenure With Rare Profit Miss on Margins U.K. Has Plan to Halt Brexit Cash If EU Backslides on Trade Deal Morgan Stanley Says Stock Slide Was Just Appetizer for Real Deal Oil Holds Momentum That’s Driven by OPEC’s Promise to Re- Balance A Diversified Portfolio May Not Help Investors Much This Year In FX, the DXY has now rebounded above 89.500, and on broad-based gains vs G10 rivals, albeit mainly inspired by another round of short covering. A major French bank notes that the market remains very short of Dollars (in line with latest weekly CFTC spec positioning data) and modestly long Jpy and moves in the headline pairing off last week’s circa 105.55 low support the rebalancing theory as spot trades back over 107.00. 107.32 offers eyed next, and as a recap this level now forms resistance rather than support on the way down as the 2017 low. Similar price moves elsewhere, as Eur/Usd recoils further from recent peaks and briefly testing bids at 1.2350 with small stops just below, but not challenging key Fib support at 1.2319. Cable briefly reclaimed the 1.4000 handle after reports in Business Insider suggested that the EU Parliament is to call for Britain to have privileged single market access after Brexit. Usd/Chf now inching closer to 0.9350 and Usd/Cad just shy of 1.2600 amidst the ongoing Greenback recovery, while Aud/Usd is retesting 0.7900 on the downside with little direction gleaned from RBA minutes overnight, but key data to come tomorrow (wage growth). Nzd/Usd straddling 0.7350, with strong chart support around 0.7338. In commodities, WTI and Brent crude futures are seen higher albeit off best levels as the firmer USD caps gains; WTI holds above the USD 62.00bbl level (note the weekly API inventories will be released tomorrow, not today due to yesterday’s US market holiday). In terms of energy news flow, the Joint OPEC/non-OPEC Technical Committee concluded that the oil glut is dissipating at a faster pace than anticipated, according to sources. Additionally, UAE energy minister claims OPEC and allies are to continue oil cooperation beyond 2018 and notes UAE, Saudi Arabia and Russia all support an extension cut beyond 2018. In metals markets, spot gold trades lower alongside the aforementioned firmer USD while copper prices have seen little in the way of firm direction as Chinese participants remain away from market. UAE Energy Minister says the UAE is expected to over-deliver on production cuts in Q1 due to maintenance commitment with OPEC-led pact. Global Event Calendar Mexico Citibanamex Survey of Economists 8:30am: Canada Wholesale Trade Sales MoM, Dec., est. 0.4%, prior 0.7% 10am: Mexico International Reserves Weekly, Feb. 16, no est., prior 173b Bond Auctions: 11:30am: U.S. to Sell USD51 Bln 3-Month Bills 11:30am: U.S. to Sell USD45 Bln 6-Month Bills 1pm: U.S. to Sell USD55 Bln 4-Week Bills 1pm: U.S. to Sell USD28 Bln 2-Year Notes DB's Jim Reid concludes the overnight wrap With Chinese New Year holidays and President’s Day in the US, yesterday was always going to be quiet and we weren’t disappointed on this. It was a far cry from two weeks ago last night when we saw the largest single day spike in the VIX on record and a 1000 point move on the DOW in c20 minutes towards the end of the session. In reality the market has regained its poise very impressively since. For the markets that were open yesterday, it was generally a down day though. The Stoxx 600 fell for the first time in four days (-0.63%), but trading volume was thin and at roughly half the 30 day average. Within the Stoxx, losses were led by the health care, consumer and real estate sector, with Reckitt Benckiser down 7.5% after warning pricing pressures would continue to hit margins. Across the region, the DAX (-0.53%) and FTSE (-0.64%) also fell modestly while Italy’s FTSE MIB was the relative laggard at -1.0%. The Vstoxx rose for the first time in six days, up 7.7% to 19.13. Government bonds weakened with core 10y bond yields up 2-4bp (Bunds +2.8bp; Gilts +2bp), in part reversing Friday’s gains in the absence of material macro data. Key peripherals yields were also up 2-5bp, while Greek bonds outperformed with its 10y yields down 1.9bp after Fitch upgraded the country’s long term issuer rating from B- to B with a positive outlook retained. Post the change, Fitch’s rating is now in line with S&P’s. In FX, the US dollar index was marginally higher (+0.13%) while the Euro was broadly flat and Sterling fell 0.19%. In commodities, WTI oil was up 1.33% to $62.50/bbl while precious metals were little changed (Gold -0.04%; Silver +0.18%). This morning in Asia, markets are broadly lower with the Nikkei down for the first time in four days (-1.06%), while the Kospi (-1.27%) and Hang Seng (-0.37%) are also lower, as the latter pared back earlier gains as trading resumed post the New Year holidays. The UST 10y yield is up 2bp and S&P index futures are down c0.3% this morning. Back in Europe, finance ministers have nominated the Spanish Economy Minister Luis de Guindos to be the next Vice President of the ECB to replace Mr Constancio. The decision puts Spain back on the ECB’s executive board after a six year absence. Mr de Guindos will resign from his existing post within days and said he is “pragmatic” rather than a dove / hawk when it comes to monetary policy and will always defend the ECB’s independence. Looking ahead, he will face a hearing at the EU Parliament and then EU leaders will ratify his appointment at their summit on March 22. Elsewhere, Germany’s acting Finance Minister Peter Altmaier said Mr de Guindos would be an “excellent choice” for the role. Staying with the ECB, the latest QE purchases data was released yesterday. It was yet another very strong week for CSPP relative to PSPP which now leaves little doubt about the ECB's intentions to keep the former elevated relative to the latter, given that we now have 6 full weeks of data since they halved the net flow of QE. The CSPP/PSPP ratio was 29.4% (27.3% over last 4 weeks). As a reminder, before Apr 2017 when QE was still €80bn/m the ratio was 11.5%. Between Apr-Dec 2017 (QE €60bn/m) the ratio edged up to 12.7% but since Jan 2018 (QE €30bn/m) the ratio is now 25.5%. Indeed the strength of corporate vs. government purchases as proxied by the CSPP/PSPP ratio has so far surpassed our expectations of "roughly 20%". Staying in Europe, an interesting story yesterday as SPD members now start voting as to whether to enter a coalition with Mrs Merkel, was the one that suggested that the far right AfD party has overtaken the SPD in the polls for the first time. The Bild/INSA poll put them at 16% and 15.5% respectively against 12.6% and 20.5% at the election back in September. The fear from the SPD was always that a renewed collation agreement would lead to them seeing their popularity drop further but with stalemate elsewhere they were left with limited choice but to negotiate in the end. Are the electorate punishing them for their decision to enter talks or the fact that it took so long to do so? Either way, in our view the fact that far right in Germany are now second in the polls is fairly remarkable really. Continuing with politics, ahead of the 4th March national election in Italy, DB’s Clemente De lucia noted that the risk of a hung parliament remains high, but it is a close call as the centre-right coalition is closing the gap to get an outright majority. If the elections prove to be inconclusive, Clemente expect the parties and institutions to work hard to form a grand coalition. Whatever the result of the elections, the fiscal stance will be in the spotlight after the vote. All parties are pledging significant expansionary policies. As things stands, Italy does not comply with EU fiscal rules and without some adjustments, Rome could be on a collision course with Brussels. With the gap between Rome and Brussels not significantly large, we expect a compromise to be reached. Refer to the note for more details. Now turning to some of the Brexit headlines. The BOE governor Carney noted the transitional deal to be reached before the end of March “obviously won’t be a hard, legally binding agreement, but….something that has legal text associated with it, which will be part of the separation agreement, (then) that should be good enough”. Elsewhere, three unnamed senior British officials have told Bloomberg that the UK have a fall back option of withholding the £40bn divorce Brexit payments to ensure the EU agrees to the trade deal it wants. The former leader of PM May’s conservative party Iain Duncan Smith said “either the EU gives us a trade deal or they won’t get any money at all”. Finally, DB’s Oliver Harvey has assessed the suitability of a CETA (comprehensive economic and trade agreement) type deal between the UK and the EU and the implications for growth and markets. Overall, the team believes there are no workable alternatives for the UK to maintain close to present levels of trade with the EU27 in the current time frame outside of the EEA and a separate customs agreement. They expect this to be the ultimate destination of Brexit, but not before a political crisis. Refer to their note for more details. Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. The February Rightmove index on asking prices for UK homes was above the prior month’s reading at 0.8% mom (vs. 0.7% previous) and 1.5% yoy (vs 1.1% previous). The Euro area’s current account surplus in December was below last month’s reading at €29.9bln (vs. €32.5bln previous) but the fullyear surplus rose to a new high of €392bn. In Asia, Japan’s Reuters' Tankan manufacturers' index fell 6pts to +29 in February (vs. the prior reading at an 11- year high), while the non-manufacturers index was steady at a solid level of +33. Looking at the day ahead, the January PPI and the February ZEW survey are due in Germany. The February CBI selling prices data in the UK and the February consumer confidence print for the Euro area are also due in the afternoon. In terms of politics, the Social Democrats party in Germany will begin a two-week period for members to vote on the proposed coalition pact.
Stocks of Indian jewelers and state-run banks have been sinking since Friday, when the full extent of what's now understood to be the largest bank fraud case in Indian history was unveiled in a complaint to Indian federal banking regulators filed by the the Punjab National Bank, a state-owned bank based in New Delhi. The bank discovered the first bread-crumbs in January, but the full extent of the fraud - which was carried out over seven years and involved the theft of nearly $1.8 billion - wasn't known until very recently. And before today, when Reuters published a report fleshing out some newly uncovered details, little was known about the mechanics behind it. The pressure has dragged the S&P BSE SENSEX - an index of some of India's most established companies - lower. Last week, we learned that the fraud involved Nirav Modi, one of India's 100 richest men and a well-known jeweler who has dressed both Hollywood and Bollywood stars, was at the center of the conspiracy. He was aided by Mehul Choksi, whose Gitanjali Group of companies was intimately involved in the fraud. Finally, the third key conspirator was PNB branch deputy manager Gokulnath Shetty, who oversaw the circulation of fake "letters of undertaking" - essentially one bank vouching that a certain client is credit-worthy and should qualify for a loan from another bank. From the broadest possible perspective, the fraud unfolded as follows: Modi and Choksi controlled a group of fraudulent jewelry companies. Shetty would circulate "letters of undertaking" vouching for collateral that didn't really exist. Based on these letters, the shell companies secured loans from foreign branches of India-based banks. This money then disappeared. A fourth individual - a junior employee who worked for Shetty - is also being held but his or her involvement is still unclear. But in the first major review of the case by an English-language media organization, Reuters said the details available overwhelmingly point to a shocking failure of oversight by both India's banking regulators and the state-owned bank's internal controls. As a result, criminals were able to steal early $2 billion from PNB largely because nobody was watching. A review of bank and government documents related to the case - and interviews with current and former PNB executives, bank auditors and experts - points to a lack of accountability and standards in the country’s public banking system. As of last September, those banks held about 87 percent of the Indian banking system’s 9.46 trillion rupees (about $147 billion) of soured loans that are non-performing, restructured or rolled over. A preliminary investigation by the nation’s tax authority said of the PNB fraud that “the hit Indian banks would take in the end may well exceed” $3 billion, according to an internal note seen by Reuters. “Yes, there is a problem. We have recognized it,” bank Chief Executive Officer Sunil Mehta said during an investor call on Friday. “We are in the process of fixing it up. We’ll see wherever the loopholes are there. The people-related risk, we are going to mitigate.” But despite that promise of action, one current senior executive at the bank’s headquarters in New Delhi said further problems could not be ruled out. “In Indian banks, we don’t work under ideal situation,” the executive, who declined to be identified, said during an interview at his office. “We are in the business of risk, you can’t say there won’t be road accidents.” Reuters also provided the most detailed account yet of how Shetty was able to circulate the fraudulent letters to other Indian banks... According to court documents filed on Saturday by the CBI, branch deputy manager Gokulnath Shetty issued a series of fraudulent Letters of Undertaking – essentially guarantees sent to other banks so that they would provide loans to a customer, in this case a group of Indian jewelry companies. These letters were sent to overseas branches of banks, thought to be almost all Indian, that would then lend money to the jewelry firms. Shetty did so using the bank’s SWIFT system to log in with passwords that allowed him, and in at least some instances a more junior official, to serve as both the person who sent messages and as the person who reviewed them for approval, according to court documents and interviews with bank executives. “The involvement and connivance of more staff members and outsiders at this stage cannot be ruled out,” said a CBI document submitted to the court in Mumbai. ... After entering the transactions on SWIFT, the CBI documents said, Shetty – who worked at the same branch from 2010 to 2017 despite normal bank practices of regular rotations - did not record them on the bank’s internal system. Because PNB’s internal software system was not linked with SWIFT, employees were expected to manually log SWIFT activity. If that was not done, the transactions did not show up on the bank’s books. A SWIFT spokeswoman said in a statement last week that the company does not comment on individual customers. All together, there were at least 150 such fraudulent Letters of Undertaking during a seven-year period, according to a CBI official who spoke on the condition of anonymity. As one of the bank's auditors' said, the fraudulent transactions was "off books". The mechanics of how the fraud happened, and what it says about the underlying industry culture, are worrying, said Abizer Diwanji, national leader for financial services in India at accounting firm Ernst & Young. “Checks and balances are there in public banks as well but they are not followed earnestly,” said Diwanji, who has tracked India’s financial services industry for more than two decades. “This is where the discipline, the culture is not there. I always believe that we don’t have the culture to manage risks, even operational risks. PNB is not an outlier in this.” To control such risks, most private sector banks require branches to route SWIFT messages through their central offices, Diwanji said. They also usually integrate their own software systems and SWIFT, meaning that activity such as a Letter of Undertaking being sent would get automatically recorded. Neither is the case at PNB or most state-run banks in India, Diwanji said. Representatives of two of the external audit firms listed on PNB’s annual report for the 2016-17 fiscal year said they could not have known what happened. “It was off-books, so auditors will not be in a position to detect it,” said Sudesh Punhani, a partner at Chhajed & Doshi. The question now is: Will Indian banking regulators make the hard but necessary decision to force banks to integrate their systems with SWIFT while strengthening other oversight tools? Even if it risks uncovering other embarrassing fraud cases? Remember, it was just October, when we discussed Indian Prime Minister, Narendra Modi’s, decision to hand over $32bn to recapitalize India’s state banks. The motivation was India’s slowing growth rate and the need to add one million Indians to the workforce every month. India has the second highest bad debt ratio of the world’s largest economies – possibly third since China’s official figure is patently incorrect. Crippled by massive bad debts, the state-owned banks were struggling to extend more credit to the economy. The announcement caused a surge in India’s Sensex equity index, led by the banks. So much for that? Time for another bailout!!
В понедельник, 19 февраля, фондовый рынок Индии завершил торговую сессию умеренным снижением основных индексов. Сегодня торги на азиатских площадках проходят в "облегченном" режиме с учетом того, что в Соединенных Штатах биржи закрыты по случаю Дня президентов, а в Гонконге и Китае отдыхают в связи с Новым годом по лунному календарю. Отступление котировок на индийском рынке возглавил банковский сектор, которому оказали медвежью услугу известия о крупном мошенничестве в государственном банке Punjab National Bank. По итогам торгов вторника индекс Nifty 50 понизился на 0,71% до отметки 10378,40 пункта, а BSE Sensex уменьшился на 0,69% и достиг уровня 33774,66 пункта. Среди голубых фишек наибольшие потери, от 1% до 6%, зафиксировали Tata Steel, Larsen & Toubro, Bharti Airtel и ITC. В плюсе завершили сессию Hindalco, Vedanta, Yes Bank. Валютная пара USD/INR ушла в плюс на 0,22% до отметки в 64,545.