Europe

Banco Santander said it will no longer hire Andrea Orcel, the outgoing boss of UBS’s investment bank, as its chief executive in a big U-turn just four months after Spain’s largest lender announced his appointment. Santander said the reversal was triggered by the amount that the bank would have had to pay Mr Orcel to compensate him for deferred stock awards that he earned during his seven-year career at UBS, the Financial Times reported.

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Investors are asking fresh questions over whether the $8tn market in credit derivatives offers any true protection against debt default, after an obscure quirk threatened to render contracts relating to telecoms company VodafoneZiggo completely worthless, the Financial Times reported. The price of about $600m worth of credit-default swaps on the Dutch company has tanked over the past four days, nearly a year after problems first occurred with the contracts, which are designed to pay out if a borrower defaults.

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The European Central Bank has warned banks that it expects them to hit stringent targets for cleaning their balance sheets of bad loans. The central bank’s regulatory arm, the Single Supervisory Mechanism, has started to write to banks to tell them how much capital they should hold against old loans that have turned sour, the Financial Times reported. Each of the eurozone’s big lenders will be told how long it has to cover loans that have been more than seven years in default.

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Provident Financial, the London-listed subprime lender, shed a fifth of its market value on Tuesday after warning that full-year pre-tax profits would be towards the lower range of expectations because of an increase in bad debt, the Financial Times reported. The subprime lender, which also issued two profit warnings in 2017, reported a rise in impairments and bad debt at its Vanquis credit card division, which accounts for almost 60 per cent of revenues, and tighter underwriting conditions.

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The pound declined in Asia trading as investors start to weigh a worst-case Brexit after Prime Minister Theresa May’s bill was roundly defeated by lawmakers. Sterling slipped 0.3 percent to $1.2829, while also dropping against every Group-of-10 peer, with traders saying flows were thin as most investors stayed on the sideline, Bloomberg News reported. While May is expected to survive a vote of no confidence called by the opposition party later Wednesday, uncertainty over how she will pull together a new deal has spurred risk aversion.

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A gauge of financial health is flashing a warning sign on European growth. Investors are demanding higher premiums for the region’s riskiest bank bonds than those for Latin American lenders -- the first time that’s happened since the throes of the eurozone crisis in 2012, Bloomberg News reported. As headwinds gather from the weakest German economy in five years, Brexit chaos and Deutsche Bank AG’s troubles, spreads on subordinated financial paper are breaking out. To Alberto Gallo, a partner at London hedge fund Algebris Investments, it’s a buying opportunity.

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China’s surprisingly weak trade data brought a four-day rally in European shares to a halt on Monday, with luxury goods and technology stocks leading the drop as investors fretted about slowing global growth and weaker-than-expected earnings, The Irish Times reported. Trading volumes fell below average on the Irish market on Monday with the Iseq overall index dipping 0.54 per cent. The smaller Iseq 20 index was led lower by Swiss-Irish baking group Aryzta which dropped 8.4 per cent to €1.05. Traders noted the stock has been quite volatile of late, moving between 95c and €1.15.

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This week’s collapse of Greece’s coalition government comes at a delicate time for the country’s suffering financial sector, the Financial Times reported. Over the weekend Alexis Tsipras, prime minister, called a confidence vote in his government after Panos Kammenos, defence minister, resigned in protest over a deal with Macedonia to end a dispute over its name. If the Syriza government loses, there will be early elections. This would, temporarily at least, disrupt plans for government involvement in much-needed bank reform.

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Eurozone manufacturers’ limp performance in November has crushed hopes of a resurgence in regional growth in the final quarter of last year, the Financial Times reported. Eurostat, the European Commission’s statistics bureau, said on Monday that industrial production fell by 1.7 per cent between October and November. The fall, which followed a gain of just 0.1 per cent in October, was the sharpest since February 2016 and highlighted the pressures on the single currency’s manufacturers as global trade faltered.

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UBS Asset Management has turned bullish on beaten down Asia junk dollar bonds and expects investors to buy more on borrowed money due to the appeal of higher yields, Bloomberg News reported. The firm is positive on such securities from Chinese property companies in particular, its key overweight globally within high yield. The money manager expects China’s stimulus measures to help borrowers gain access to funding onshore, reducing offshore bond sales. Despite a recent rally in Asia junk securities, yields are still near the highest since 2012, according to a Bloomberg Barclays Index.

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