Finance Friday 23.10.2015

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Finance Friday

By Nikola Kedhi.

Deutsche Bank and Credit Suisse made some big announcements during the week. Stocks continued to fluctuate while Ferrari delivered on the investor’s expectations. For everyone who could not catch up due to exams, Tra i Leoni brings some of the most important financial news of the week.

A junior employee at Deutsche Bank’s foreign exchange division sent around $6 billion to a hedge fund in the US. This news made the headlines of every major newspaper as it was revealed to have been a mistake on the part of the junior analyst who processed the order as a gross figure instead of as a net value. Of course, the money was recovered and only a day later. Although it had happened in June, the announcement was made at the beginning of this week. However, neither the employee, nor the hedge fund’s name have been made public. Mistakes like this one cause traders to buy or sell much larger positions than they had planned. The fate of the employee remains unknown.

The news is ill-timed for Deutsche Bank, which on Sunday announced a major reshuffle in its management. The new CEO, John Cryan, announced that they will split the investment banking division in two parts. As reported in Deutsche’s press release, effective 1 January 2016, a business division called Corporate and Investment Banking will be created that will merge the Corporate Finance business and Global Transaction Banking, whereas the sales and trading activities will be combined to create the Global Markets’ division. Additionally, several high ranking managers were let go. This is part of the fresh vision the new CEO has concerning the future of Deutsche Bank: he announced that he plans to scale back the global investment banking. New regulations with strict capital requirements, record-low interest rates and the slow paced recovery are cited as reasons for this radical change.

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Meanwhile, similar news come from Credit Suisse, whose management sees this as a necessary and permanent step. They will not only scale back their activity, but will completely turn their focus towards wealth management. For Credit, just like Deutsche, scaling down investment banking operations is the only opportunity to move forward and increase earnings for the companies as a whole, which have been among the worst performing banks since the crisis. Not long ago, Standard and Poor’s decreased Deutsche Bank’s rating to BBB+, just three scores above junk, while Moody’s announced this Wednesday that it has placed the ratings of Credit Suisse on review for a possible downgrade. This is further proof of the bad situation the two banks find themselves.

The European markets welcomed these announcements to a certain extent with the Stoxx Euro 600 Index adding 0.3 % on Monday. Deutsche increased 3.7%, however the same cannot be said for Credit Suisse. The shares in the Switzerland-based bank fell while investors questioned the new direction the CEO declared and the decision to cut 5600 jobs across The US and Europe. After Monday’s gains, attributed mostly to Deutsche’s increases, European shares alternated between gains and losses as the week unfolded. After decreasing 0.1% early on Tuesday, the Stoxx Euro 600 rose 0.4% only to decrease 0.8% as the stock markets reached their close. According to analysts, this volatility will continue next week and towards the end of October as well.

The World Bank has decreased its expectations for 2015 on oil prices from $57 a barrel — as predicted in August — to $52. This is further proof that the world economy is not improving as previously anticipated. Furthermore, commodity prices have as well decreased this quarter by 12%, reflecting low demand, especially from China. They are expected to decrease by a further 16% by the end of 2015.

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Finally, as anticipated in the last week’s column, Ferrari went public on Wednesday on the New York Stock Exchange. The stock was priced at $52 and went as high as around $61, climbing 17%. This was seen as a success in Fiat Chrysler’s ambitious plan to expand and completely modernize some of its brands like Alfa Romeo and Jeep.

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