Ad Hoc Commentary – banks as the whipping boy; Buba tacit approval to Europe QE

eurozoneinflation“…Wall Street banks and their foreign rivals have paid out $100bn in US legal settlements since the financial crisis, according to Financial Times research, with more than half of the penalties extracted in the past year…”
“…During stress tests last week, the Federal Reserve found that the biggest banks could still face a further $151bn bill for operational risk, repurchasing soured mortgage bonds and dealing with the falling value of buildings they own…”

“…the S&P500 should outperform the Dow in the future…”

The reason to prefer the S&P500 over the Dow is because the S&P500 is less skewed towards financials. Financials in developed countries are too risky because regulators are making them a whipping boy for the economic malaise. The yearly US legal costs had so far been:
All in US$ bn
2009 $2.7
2010 $3.3
2011 $3.7
2012 $32.1
2013 $52.5
2014 $5.1 (year to date)
Total $99.5

Since the stress tests say that banks can take a further 151bn, you can count on the regulators to continue on with their investigations of perceived misconduct by the former masters of finance. The financial press might try to gain some sympathy by giving more airtime to banker suicides. However, this is unlikely to bring much relief to the finance world mainly because those committing suicides are mostly of the working level, not the upper echelons yet. It is likely that legal costs will continue to be a greater burden on Western banks as regulators compete for legal settlement dollars.

The most important news this week had been the story about Jens Weidmann tacit approval to European QE:
“…Quantitative easing in the eurozone is not ‘out of the question’ and could be used to revive the ailing 18-nation bloc, according to the head of Germany’s central bank…”

Now that the Buba had ‘given’ green light for European QE, the only thing that we need to wait for is a low European inflation print. The Eurostat will give a flash estimate of European CPI YoY on Mar 31, and the final print will be out on Apr 16. So, if you are finding reason to celebrate in the equity markets and sell EURUSD, this will be one of your main reasons for the coming months.

Good luck in the markets.