Month: October 2021

Financial investors, ladies and gentlemen, haven’t paid too much attention to sensitivities: at least not to the fact that Aareal Bank’s new CEO wanted to come first: know the employees, refine the strategy, rethink everything. What you do in the first hundred days, and that’s probably what Jochen Klösges had planned as well, since mid-September he’s been CEO of the aforementioned Aareal bank.

Instead, Klösges had to issue an ad hoc announcement last week – the 17th working day – with big implications: the bank, it was said, confirmed “open discussions with a group of financial investors concerning a majority shareholding ”. Specifically, three US private equity firms, all based in cities far from New York and Boston, have hunted down traditional Aareal bank with the intention of taking it over. If that doesn’t mean anything: Aareal Bank finances real estate around the world, particularly offices and hotels, has 3,000 employees and is one of only three listed German banks. With a balance sheet total of 45 billion euros, that’s significantly less than Commerzbank or Deutsche Bank, but at least it is.

In any case, the stock market deemed the offer plausible, the price jumped more than twenty percent on Friday. And the CEO must now do what corporate law requires, namely control advances, if only for the benefit of its shareholders: investors Centerbridge, Advent and Towerbrook could spend 1.74 billion euros to the bank, depending on the first offer. It would be one of the biggest bank acquisitions in Germany in years.

What does the supervisor think of the “grasshopper model”?

What exactly the three financial investors want remains to be seen. One thing is clear: To meet their expectations of higher returns, they need to come up with something, like splitting up the bank’s IT branch, cutting costs and managing it better. Even though Aareal Bank points out that this is anything but a crisis, Corona has hit the bank.

A strategy refined in January had fizzled out on the stock market and the top spot had been vacant for nearly a year. A militant shareholder had previously tried to shake up the management of the bank.

But there is also a fundamental question behind this: is it acceptable that German banks – and therefore possibly critical infrastructure – fall mainly in the hands of foreign investors? After the financial crisis, many wondered if it was not a mistake to simply hand over some of the zombie banks of the time to financial investors. The example of the American investor Lone Star is well remembered, who about six years ago simply abandoned the Düsseldorf real estate bank after various problems and ceded the remaining risks to the private banking community. The financial supervisory authority Bafin, which must approve such takeovers, has therefore long been skeptical of the “grasshopper” model, in particular vis-à-vis the big banks which, in the event of of doubt, should even be absorbed by taxpayers.

However, a lot has happened since: the American investment firm Cerberus has taken small stakes in Deutsche Bank and Commerzbank. The Americans were also involved in the takeover of the ailing HSH Nordbank, which now operates as Hamburg Commercial Bank. Lone Star has also kept a low profile, at least as owner of the Düsseldorf-based IKB, and a consortium around investor Apollo recently snatched up the Oldenburgische Landesbank. “They have shown they can do it,” said one bank lobbyist. “So why shouldn’t you invest in the German banking market? “

How relaxed politics and oversight is seen in the still struggling Commerzbank. According to Handelsblatt, financial investor Cerberus, which owns 5% of the bank, is interested in buying the state stake. The American investor could imagine resuming the participation of the federal government after the federal election, it is said. Is it true? Not clear. What is striking, however, is the frequency with which Commerzbank officials and senior Cerberus officials have met with the Secretary of State responsible for the Federal Ministry of Finance in recent months.

What’s next at Aareal? It is said that a breakup would not be appreciated in Wiesbaden. And anyway, a bank in Germany has never been taken over against the will of management or supervision. Maybe Klösges will still run his planned 100-day schedule after all.

A weekend rally allowed the S&P 500^® index to return to its 100-day moving average, relieving some of the anxiety caused by the 5% pullback between September 2^sd and the 30^e. The index was even lower for the entire week, falling 2.2%, its third weekly decline in the past four. Friday’s rally on the first day of October sparked some optimism that the market may put September’s weakness behind, historically the weakest month of the year. Friday’s rally was led by the sectors most sensitive to the economy.

Anticipation of a move on the fiscal policy front last week fizzled out as Democrats failed to reach agreement on the final size of the social infrastructure package proposed by the 3,500 president. billions of dollars. The negotiations appear to be centered on a smaller package of around $ 1.5 billion to $ 2.0 billion. House leaders were forced to postpone voting on the $ 1 trillion hard infrastructure bill that has already been passed by the Senate, until the end of October, well beyond the end of October. initial objective of September 7. Congress, however, passed a continuing resolution to maintain the federal government. government operating until December 3. No progress has been made on raising the debt ceiling as the Treasury is expected to run out of cash on October 18.

A string of negative headlines made a tough week for the Fed

It wasn’t a good week for the Federal Reserve either. For an institution that relies on the explicit trust of investors and ordinary citizens, the regional Federal Reserve bank chairmen of Boston and Dallas retired on Monday after it was reported that the two had engaged in corporate actions which, although apparently within the framework of the Fed’s ethical guidelines, raised the appearance of impropriety. And on Friday, Bloomberg reported that Fed Vice President Clarida did something similar in 2020, at the start of the Fed’s emergency response to the pandemic. And on Tuesday, Massachusetts Senator Warren called Fed Chairman Powell a dangerous man to lead the Fed due to her record of regulatory oversight of the banking system, saying she would oppose his re-appointment. Powell’s term expires in January.

It was also not a great week for the Fed in terms of mounting inflationary pressures, which the Fed continues to believe will prove to be transitory. The August PCE core deflator, the Fed’s preferred inflation indicator, has remained at 3.6% over the past twelve months, its highest level in 30 years. The overall rate reached 4.3%, down from 4.2% in July, also the highest in 30 years. Nonetheless, the surge in bond yields that began after the Fed meeting two weeks ago peaked earlier in the week, before moderating. The yield on the ten-year Treasury bill closed on Friday at 1.46%, after hitting 1.56% on Tuesday. Before the Fed meeting, it stood at 1.30%. The two-year note followed a similar path, peaking at 0.29% on Thursday, before ending the week at 0.27%. Before the Fed meeting, it stood at 0.22%. At the start of the session this week, they returned 1.50 and 0.27% respectively.

Economic activity generally appears healthy; Investors await September jobs report this week

Otherwise, it was a generally good week for the economy. Durable goods orders in August beat expectations and September’s ISM manufacturing report rose for the second month in a row, following a moderating trend since the end of the first quarter, although it remained at a low high throughout. Personal spending rebounded in August from a decline in July, and home prices remained firm in July, while pending home sales rose in August. However, all was not firmer. The Conference Board’s consumer confidence survey fell for the third consecutive month in September, although the University of Michigan’s consumer sentiment survey rose for the first month in three, following a sharp drop in August. Motor vehicle sales fell for the fifth consecutive month, leaving them 34% below April’s level. And initial jobless claims rose for the week in a row, albeit modestly.

This week’s economic calendar is headlined by the September Jobs Report. The Bloomberg consensus forecasts the creation of 470,000 new non-farm jobs, double the September total. The unemployment rate is expected to drop slightly to 5.1%. President Powell said the Fed had “almost” reached its target for progress in the labor market. This week’s jobs report will be the last the Fed sees before its November meeting, but a report that is close to consensus would appear to pave the way for the start of tapering.

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A 10-year Treasury bill is a debt obligation issued by the United States government that matures in 10 years. The 10-year yield is generally used as an indicator of mortgage rates and other measures.

The ISM manufacturing index, also called the purchasing managers index (PMI) is a manufacturing estimate for a country, based on approximately 85% to 90% of total Purchasing Managers Index (PMI) survey responses each month. It is considered a key indicator of the state of the US economy.

The personal consumption expenditure (PCE) Measures of the prices that people living in the United States pay for goods and services. The PCE price index is known to capture inflation (or deflation) across a wide range of consumer spending and to reflect changes in consumer behavior.

The Consumer confidence index (CCI) is a survey that measures the degree of optimism or pessimism of consumers about their expected financial situation. It is based on consumers’ perceptions of current business and employment conditions, as well as their business, employment and income expectations for the next six months.

The Michigan Consumer Sentiment Index (MCSI) is a monthly survey of consumer confidence levels in the United States. It is a statistical measure of the overall health of the economy as determined by consumer opinion. It takes into account people’s feelings about their current financial health, the health of the economy in the short term, and the prospects for long-term economic growth, and is widely regarded as a useful economic indicator.

Past performance is no guarantee of future results.

An index is a statistical composite that is not managed. It is not possible to invest directly in an index.

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