6bn hit to profits from fines

Royal Bank of Scotland faces a 6bn hit to its profits over the coming years as it continues to set aside huge sums for fines and compensation, according to a leading investment bank.

Analysts at JP Morgan predicted that the taxpayer owned lender faces the biggest remaining bill for misconduct of the major UK banks, more than six years after its 45bn bail out.

In total, RBS, Barclays, HSBC and adidas originals Lloyds face 15.1bn worth of provisions for expected foreign exchange fines, PPI payouts and penalties related to US mortgages in the next two years, JP Morgan said.

The bank Raul Sinha raised his provision forecasts by 2.8bn on Monday, after saying RBS and Barclays would have to put aside more than previously thought.

When including the 11.5bn of unused provisions the banks already have on their balance sheets, this suggests 26.7bn worth of remaining fines and redress for the banks.

RBS is facing a fine of billions of pounds for selling mortgage backed securities in the US in the run up to the financial crisis.

The bank, 79pc owned by the taxpayer, was dealt a blow in the US Supreme Court on Monday, when an appeal from RBS and three other banks seeking to derail lawsuits from the Federal Housing Finance Agency over the toxic loans was unsuccessful.

The banks had argued that the FHFA had missed a deadline for filing the case.

JP Morgan said RBS will have to take an extra 3.1bn worth of provisions over the case. Although it is unclear when any fine will come, it is expected as soon as the first quarter of this year.

If a large proportion of these provisions are taken when the bank releases annual results for 2014 in February, it could wipe out much of its annual profit expected to be the first since its bail out in 2008.

The fines could also eat into bonuses, following pressure from the City watchdog.

JP Morgan said the industry’s total bill for PPI mis selling will rise above 25bn in the coming years, with Lloyds continuing to bear the biggest cost.

Global Forex Market

CENTRAL banks have been in the centre focus over the week, with the Federal Reserves, the Bank of Japan (BoJ) and the Reserve Bank of New Zealand (RBNZ) all announcing their monetary policy during the week.

The surprised move of both BoJ and RBNZ to hold their monetary policy unchanged has led to some sharp swings in the forex markets as market players have priced in for some sort of actions.

Although the Fed, as widely expected, left interest rates unchanged, there has been a subtle hawkish shift in the Federal Open Market Committee (FOMC) statement. The FOMC dropped its reference to global economic and financial developments posing risks, but it noted domestic growth had slowed.

Besides the surprises from both BoJ and RBNZ, the weaker than expected US economy growth also weighed on the US dollar index. US advanced first quarter GDP rose only 0.5% seasonally adjusted and annualised rate (Saar), the slowest pace in two year, as businesses slashed investment by the steepest amount since the Great Recession.

Euro strengthened against the US dollar as deteriorated risk sentiment fuelled the demand for adidas originals haven currency. The surprised move of central banks to stand pat on monetary policy, adidas obuv dámska the weaker than expected quarterly earnings which resulted in the selling pressure on US equities and the soft US economic growth has weakened the sentiment in the currency market.

Japanese yen strengthened by 4.1% after BoJ surprised the market by holding off on expanding monetary stimulus as policymakers opted to take more time to access the impact of negative interest rates. The yen soared around 2.6% after the announcement of the policy as market players forecasted a policy move.

Asian currencies with an exception to Philippine peso, Indonesian rupiah and Indian rupee were strengthened marginally against the greenback as strong yen helped to lift currencies across the region. Leading the gain were Singapore dollar, Korean won and China yuan.

In China, the state planner, National Development and Reform Commission, announced a 10 point plan to promote consumption and boost economy, also helped to support the yuan.

Ringgit increased marginally against the US dollar on the back of the rally in crude oil prices and the decrease in US dollar/ringgit one month volatility. A weaker US dollar and the solid fundamental helped to support the rally in crude oil prices. The nternational Energy Agency latest weekly report showed the continued decline in crude oil production.

At the same time, the Prime Minister Office announced the appointment of Datuk Muhammad Ibrahim as the governor of Bank Negara for a term of five years, starting on May 1, 2016. Muhammad Ibrahim has been deputy governor of Bank Negara since 2010 and a member of the monetary policy committee.

US Treasury yields edged lower after Fed left interest rates unchanged and the US economy growth came in at the slowest pace in two years. On Friday 11:00am pricing, the 2, 5 and 10 year UST traded at 0.78%, 1.29% and 1.82%.

Local govvies saw sell off across the curve due to lower risk sentiment where, as at the time of writing, 10 year benchmark increased 12 basis points from last Friday closing. The week also saw the re opening of 7 year Malaysian Government Securities (MGS) which garnered a bid to cover ratio of 2.044 times at an average yield of 3.800%.

Local govvies saw RM10.9bil trading volume, translating into daily average of RM2.7bil. This was lower compared to preceding week daily average of RM3.6bil. On Friday 11:00am pricing, the 3, 5, 7, 10, 15, 20 and 30 year benchmark MGS yields settled at a respective 3.27%, 3.48%, 3.80%, 3.92%, 4.19%, 4.30% and 4.65%.

In the secondary private debt securities market, we saw a higher volume in trading activities this week compared to last week. Total trading volume for the week stood RM3.2bil, averaging RM788mil daily compared to last week average of RM594mil. About 72% of the trading volume was contributed by the GG/AAA segment and 27% by the AA segment with the remaining 1% in the A segment.

In the GG/AAA segment, 2016 2024 Cagamas Bhd bonds traded at mixed to close at the range of 3.30% 4.32% with a collective trading volume of RM170mil. Danga Capital Bhd eased 4 basis points to close at 4.05% while increased 1 basis point to settle at 4.44%, with a combined total of RM60mil changed hands. 2022 2036 PLUS bonds traded at mixed at the range of 4.18% 4.93% with a total trading volume of RM60mil.

Elsewhere in the AA segment, 2016 2024 BGSM Management Sdn Bhd bonds traded at mixed within the range of 4.06% 5.01% with a total trading volume of RM60mil. Meanwhile, 2025 2031 Jimah East Power Sdn Bhd bonds saw yield traded at mixed to close at 4.88% 5.18%, with a total RM36mil changed hands. On the other hand, Malaysia Airport Holdings Bhd saw yield remained unchanged to settle at 4.97% with a total trading volume of RM190mil.