Daily Agenda: Bank of England Cuts Rates; Concerns Over Italian Banks

New Jersey pension cuts hedge fund allocation; Goldman retirement fund parts ways with Och-Ziff; ANC loses ground in South African polls.


Despite a deal announced late last week that will provide fresh capital for Monte dei Paschi di Siena, the world’s oldest lender in continuous operations, concerns over the weakness in the Italian banking system continue to haunt European investors. The move to spin off nonperforming loans into a so-called bad bank comes in the wake of the firm’s failure in its European Central Bank stress test. Estimates by the International Monetary Fund that the total percentage of loans that have gone sour among Italian financials has reached 18 percent, or more than €350 billion ($389 billion). While concerns over the impact of the UK’s departure from the European Union have dominated market risk narratives, the growing potential crisis in Italy has garnered far less attention. It appears that a combination of political pushback against forcing losses upon shareholders and creditors as well as a sluggish pace of regulatory reform has left the nation’s banking system in a vulnerable state that presents a threat to the euro zone’s overall growth. With a referendum in September on political reforms in sight, few elected officials in Italy appear prepared to address the ongoing banking crisis, suggesting that the issue will continue to weigh heavily on investors’ minds in the coming weeks.

Bank of England announces rate cut. Earlier today the Monetary Policy Committee of the Bank of England announced fresh monetary policy actions to combat the potential impact of Brexit on the U.K.’s economy. For the first time in seven years, the benchmark lending rate was reduced in a 25-basis-point cut that brings it to an all-time low of 0.25 percent. Separately, the central bank’s asset purchase facility was increased by £60 billion ($79 billion) earmarked for government securities and an additional £10 billion for corporate debt acquisitions. As much as £100 billion will be extended in credit to banks in additional liquidity measures.

NYSE to split shares. In a regulatory filing released yesterday, Intercontinental Exchange, parent company to the New York Stock Exchange, announced a 5-for-1 stock split that will see the company’s share price changed to roughly $56 versus a prior closing price of more than $278. The move comes at a time when the popularity of stock splits has waned on the back of the prevalence of institutional investors and funds as primary allocators in U.S. equity markets.

New Jersey, Goldman to drop hedge funds. Bloomberg reported late last night U.S. Eastern time that a Goldman Sachs Group employee retirement fund will liquidate approximately $350 million invested in a hedge fund managed by Och-Ziff Capital Management Group, a hedge fund firm founded by Goldman alumnus Daniel Och. The move comes as hedge fund performance generally has lagged market benchmarks, causing consternation among institutional investors because of relatively high fees. Och-Ziff has faced mounting redemptions following a period of underperformance and a federal probe into activities in Libya. Goldman clients continue to represent a major portion of the more than $30 billion managed by Och-Ziff. Separately, state pension fund New Jersey Investment Council announced its intention to reduce total exposure to hedge funds as an asset class from 12.5 percent to 6 percent of total allocations is the latest signal that the appetite among institutions for alternative managers is waning.

South African elections shake up ANC. Critical municipal elections held throughout South Africa overnight surprised the ruling African National Congress party, as many voters appeared to reject the establishment in favor of rival centrist groups. Although the ANC is still expected to emerge victorious, the percentage lead on a national average basis may be the lowest since the end of apartheid in 1994. Chief among the opposition parties who fared well in polling is the Democratic Alliance, which is perceived as a probusiness entity that rejects calls for nationalization of industries and is a target of ire among the nation’s powerful labor unions.

Goldman settles over Fed leak. Regulators revealed yesterday that Goldman Sachs Group has agreed to a fine of $36.3 million in connection with charges that firm executives inappropriately accessed information from Federal Reserve employees. Joseph Jiampietro, the specific Goldman executive accused of accessing the information, has indicated that he intends to contests the charges against him personally in court. Two other individuals involved have already pleaded guilty, accepted modest fines and being barred from the industry.

Nokia looks to slash overhead. Second-quarter financials Finnish mobile phone equipment giant Nokia Corp. released today revealed the second consecutive year-over-year loss as the firm continues to grapple with expenses related to the ongoing merger with French rival Alcatel-Lucent. Revenues for the period were 11 percent lower than the combined top line reported by the separate companies during the same period in 2015.

Rousseff faces potential removal in Senate vote. A Brazil senate committee is to vote today to decide whether Brazilian President Dilma Rousseff will be permanently removed from office, potentially ending the ongoing impeachment drama that is part of the Petrobras corruption scandal. The removed president has maintained that charges against her are politically motivated and is boycotting the Olympic opening ceremonies in Rio de Janeiro tomorrow.