NEWSLETTER of August 14, 2020

The following content has been added at finexpert:

Oliver Wyman
AIM FOR REVIVAL. NOT JUST SURVIVAL - EUROPEAN BANKING 2020
The Corona crisis is not stopping at the banking sector. On the contrary: European banks will have to reckon with credit losses of over 400 billion euros over the next three years. Should a second, similarly far-reaching lockdown be necessary due to a rapidly growing number of Covid-19 infected people in Europe, the losses could double to 800 billion euros. In combination with further declining earnings opportunities, this would result in a burdensome situation that the European banking system can only cope with if industry, supervisory authorities and politicians work together. >more

PwC
EUROPEAN PRIVATE BUSINESS SURVEY 2020
The COVID 19 pandemic forces German-speaking SMEs to radically reorient their corporate strategy. Several factors are decisive: first and foremost, customer focus, fast decision-making and a solid financial position. Coupled with the necessary flexibility, German-speaking SMEs can emerge from the crisis more resilient and stronger than their EU counterparts and prepare for the future. These are the findings of the PwC European Private Business Survey 2020, for which PwC surveyed 2,500 companies in 31 European countries (EU plus Norway, Switzerland, Turkey and the UK) shortly before the outbreak of the COVID 19 pandemic and 400 again in May and June. The first survey involved 580 companies from Germany, Austria, Switzerland (DACH), the second survey involved 112 companies from the DACH region. >more

Deloitte
DELOITTE PROPERTY INDEX 2020
The current Deloitte Property Index shows that the German housing market remains tense. Real estate prices have again risen significantly, especially in major cities, with Munich still leading the way in terms of property prices. However, the percentage price increase in Hamburg, Frankfurt and Berlin is higher than in the Bavarian capital. At the European level, it can be observed that COVID-19 and the effects of the pandemic are already inhibiting construction activity in many countries and may lead to new housing shortages in the longer term. >more

Deutsche Bank Research
GLOBAL HEADWINDS MAKE CONTINENTAL VALUE CHAINS MORE ATTRACTIVE
The German export sector has had to cope with numerous challenges over the last few years. These include “homemade” problems, above all in the auto industry, but also the shift in US trade policy. Climate change has become an increasingly important issue, too; in fact, it implies massive changes. That is why the long-term trend in many manufacturing sectors appeared unclear even ahead of the coronavirus pandemic. Now, COVID-19 has compounded already existing uncertainties. From our vantage point, a number of reasons support our hypothesis that continental value chains are likely to gain importance. >more

INSTITUTIONAL DEBT HOLDER GOVERNANCE
Aneel Keswani, Anh L. Tran, and Paolo F. Volpin
2020
Using data on the universe of US-based mutual funds, we find that two out of five fund families hold corporate bonds of firms in which they also own an equity stake. We show that the greater the fraction of debt a fund family holds in a given firm, the greater its propensity to vote in line with the interests of firm debt holders at shareholder meetings, even when against ISS recommendation. Voting has direct policy consequences as firms that receive more votes in favor of creditors make corporate decisions more in line with the interests of debt holders. >more

SOVEREIGN DEBT PORTFOLIOS, BOND RISKS, AND THE CREDIBILITY OF MONETARY POLICY
Wenxin Du, Carolin E. Pflueger, and Jesse Schreger
2020
We document that governments whose local currency debt provides them with greater hedging benefits actually borrow more in foreign currency. We introduce two features into a government's debt portfolio choice problem to explain this finding: risk-averse lenders and lack of monetary policy commitment. A government without commitment chooses excessively counter-cyclical inflation ex post, which leads risk-averse lenders to require a risk premium ex ante. This makes local currency debt too expensive from the government's perspective and thereby discourages the government from borrowing in its own currency. >more