The IFR published earlier this month a piece on the challenges currently faced by SG - its worth a read. Author Christopher Spink tells us that the French lender may join the list of European lenders which are worrying investors these days. Key concerns include growing litigation costs, potential losses on energy clients, and a tough trading environment. Given the reduction in revenue and growth in opex, ROE declined in Q3 to 4.7%. A SG official cited in the literature that banks have better capital and liquidity positions than before, but longer periods of deflation and pressure in NIMs have the potential to hit banks hard. These issues are in no way unique to SG and have the potential to plague other lenders as well as interest margins further squeezed. The same edition of the IFR reports that bank credit spreads have widened out to levels not seen since 2012 and senior bank spreads have widened from from + 185bp at the beginning of the year to over + 220bp, as evidenced by widening of the BAML US Financial Services Index. These market pressures may also extend to the AT1 market for capital notes, with bid prices declining from the mid to low 90s and in some cases even below 80% as of late February 2016.
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