Analysts are poring over new statistics on debt exposure from the Bank for International Settlements released today. As has become customary with each quarterly release of this data, the report’s (virtual) pages are flipped directly to the section detailing the size of banks’ portfolio of bonds issued by governments on the euro area’s troubled periphery.

French and German banks are the most exposed, by far, to troubled government debt. Although banks have been reducing their exposure—the value of debt from Greece, Ireland, Portugal and Spain held by foreign banks fell by 35% last year—significant holdings remain. German banks, for example, were sitting on more than 40% of the US$54bn in foreign-held Greek government debt at the end of 2010.

The inevitable restructuring of Greek debt will be painful for lenders, although the severity will vary according to the method employed. In the meantime, attempts to cajole banks into a voluntary refinancing of Greece’s daunting debt pile (along the lines of the “Vienna Initiative” in central and eastern Europe) will continue, despite a glaring lack of incentives for lenders to take part.

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After reaching a (nominal) record price early this month, gold is back in the news, with prices resuming their climb after a mid-month stumble. Risk aversion tied to renewed fears over the euro area is generally cited for the recent spurt.

Taking a longer view, the Economist Intelligence Unit believes that the gold price is now at or near its peak (details can be found at our Global Forecasting Service site: free registration required). The average price is expected to peak this quarter, with an 8% slide forecast for the second half of the year. Monetary tightening and a stronger dollar should push the gold price down further in 2012—in terms of the average annual price, we expect a decline of 12% next year.

The number of reports of suspected mortgage fraud in America rose by 5% last year, to a record annual high, according to the Treasury Department. But a new study by the LexisNexis Mortgage Asset Research Institute, which collects its own data on mortgage fraud, claims that cases of “verified, material misrepresentation” in the mortgage origination process fell by 41% over the same period.

A stricter definition of fraud explains some of the difference with the Treasury’s figures, as does a general decline in mortgage lending, LexisNexis says. More worryingly, the company notes that “fraud has become more complex and harder to verify using traditional methods.” More than 90% of the fraud submissions received in 2010 dealt with loans written in prior years; with time, more fraud perpetrated in 2010 will likely come to light. Among the cases reported to LexisNexis last year, Florida saw three times as many submissions as its share of the national mortgage market. Fraud volume in New York and California was more than twice those states’ share of overall mortgage originations.

Munich Re, the world’s largest reinsurer by premiums, reported its latest quarterly results today, covering “the most loss-afflicted [quarter] in reinsurance history in terms of natural catastrophes,” according to chairman Nikolaus von Bomhard. The devastating earthquake and tsunami in Japan, in addition to another earthquake in New Zealand and widespread flooding in Australia, saddled Munich Re with €2.7bn in costs in the first quarter.

The impact of recent natural disasters on reinsurers is vividly illustrated by key players’ combined ratios—the ratio of losses and expenses to earned premiums. Munich Re reported a combined ratio of 159% in the first quarter, up from 96% in the previous quarter. Second-ranked reinsurer Swiss Re reported a similarly dire combined ratio of 164% in the first quarter.

Financially speaking, there is a silver lining to the recent losses: upward pressure on premium prices. Munich Re saw price increases of up to 50% on certain earthquake policies for April renewals, and predicts a “hardening effect” on a broader range of business lines during the July renewals. For its part, Swiss Re saw “strong” price increases in Japan and a “flattening” in prices in the US and Europe following decreases in January. With a series of severe tornadoes striking the US South and Midwest in April, and the Atlantic hurricane season approaching, further catastrophe losses could bring about a decisive turn in the pricing cycle sooner rather than later.

The majority of data and analysis at Financial Services Briefing is available only to subscribers. Each week, a small share of content from the service is made available to non-subscribers.

A series of tough measures, accompanied by equally tough talk, have made it clear that Bank of Israel governor Stanley Fischer is determined to prevent a crisis in Israel’s property market.

Israel’s latest directive imposing restrictions on the mortgage market was issued by its newly-appointed banking sector regulator, David Zaken, on April 28th and took effect on May 5th. It restricts the share of mortgages with adjustable rates that change at least once every five years to one-third of total lending. This restriction applies to all forms of financing in use in Israel, namely shekel floating-rate mortgages, loans linked to the consumer price index and loans linked to exchange rates (generally the shekel versus the dollar). According to the latest central bank data, these three channels comprise 48%, 32% and 6%, respectively, of total mortgage borrowing.

Read more at Financial Services Briefing: “Pre-emptive strike” (May 6th)

The IMF is worried about overheating in some Latin American economies, thanks to an “excessively stimulative environment”.

Although the institution is reluctant to label current conditions in the region’s largest markets bubbly, when it comes to credit growth the IMF acknowledges that concerns are rising about whether loan growth is becoming “excessive and eventually unsustainable.” Equity prices are also showing signs of “stretched valuations” in places like Chile, Colombia and Peru.

Despite being one of the region’s most active users of “macroprudential” measures to cool its economy, Peru stands out from the pack due to its rapid recent credit growth and, especially, sky-high equity valuations.

Today, Standard & Poor’s announced a new equity index based on the CIVETS countries. The moniker, coined by the Economist Intelligence Unit a few years ago, describes a group of sizeable emerging markets—Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa—with appealing conditions for sustained high growth. Although not yet part of common parlance like the BRICs (Brazil, Russia, India and China), the CIVETS are generally the most-discussed markets in the next tier of emerging economies.

For its part, S&P describes the group as characterised by “dynamic, rapidly changing economies and young, growing populations.” Back-testing its new index, the CIVETS-based construction has recently outperformed indexes based on the BRICs as well as emerging markets in general. But this is not to say that shares in the CIVETS countries are uniformly buoyant: since the start of 2008, Colombian large caps have risen by more than 60% while large Egyptian stocks have shed more than 50% of their value. The group is an eclectic mix of political and economic systems, with financial markets of widely varying maturities. Thus, an index built from the CIVETS offers exposure to a targeted yet diversified basket of important emerging economies.

The recent performance of CIVETS shares will attract adventurous investors seeking outsized returns, much like intrepid coffee lovers who covet a rare, expensive type of bean harvested with the help of the civet, a cat-like mammal. In a less auspicious omen, civets were also linked to the spread of the deadly SARS virus.

The majority of data and analysis at Financial Services Briefing is available only to subscribers. Each week, a small share of content from the service is made available to non-subscribers.

“Straightforward to characterise, but difficult to quantify”. The Independent Commission on Banking (ICB), a group assembled by the British government to make recommendations on regulatory reforms, delivered its interim report on April 11th. “Everyone agrees that we need a much more robust banking system than that of the past decade”, said Sir John Vickers, the ICB’s chairman.

A week after the report’s publication, markets continue to mull the implications of the report, as well as the prospects for British banking in general. Tellingly, the initial rally in many banks’ shares immediately following the release of the report quickly fizzled, with all of the major banks now trading below the levels seen on the eve of the report’s publication

It appears that the UK’s approach to restructuring its banking system will rely on higher capital requirements for retail units and an attempt to engineer a viable “challenger” to the biggest banks from the portfolio of Lloyds Banking Group. Other countries with significant financial centres, like Switzerland, have already gone further on capital requirements while others, like the US, have been stricter on limiting the market share of major players.

It may take years to judge whether regulators can promote a more stable and competitive banking market in the UK. In the meantime, markets have shorter-term concerns.

Read more at Financial Services Briefing: “For better or worse” (April 20th)

Today, Wells Fargo reported  record quarterly earnings of US$3.8bn, up nearly 50% on the same quarter last year. JPMorgan kicked off the reporting season last week with quarterly net profit growth of 67%. The country’s other banking giants—Bank of America, Citigroup and Goldman Sachs—shared less encouraging news, with first-quarter profits down on last year.

What all of these banks have in common, however, is falling revenues. From racy investment banks to retail-focused lenders, America’s largest banks are still shrinking. Releasing provisions and cutting costs can only go so far; a true recovery will begin when top lines start to grow again.

The majority of data and analysis at Financial Services Briefing is available only to subscribers. Each week, a small share of content from the service is made available to non-subscribers.

These are tense times for Turkish bankers. The five-year term of Durmus Yilmaz, the country’s central bank governor, ends on April 18th. His successor, announced on April 14th, is Erdem Basci, a long-standing deputy governor. The change at the top comes as the risks to Turkey’s economic and financial stability are rising, not least due to a ballooning current account deficit fuelled by a credit-driven surge in domestic demand.

The appointment of Mr Basci ensures continuity at the central bank, but since he is seen as close to deputy prime minister Ali Babacan worries are surfacing about the extent of the central bank’s independence from the government. The unorthodox two-pillar approach adopted by Turkey’s central bank since December has combined steady increases in banks’ reserve requirements at the same time as reductions in short-term interest rates. Although government ministers have commended these policies, Turkey’s bankers complain that recent measures unduly punish the industry.

Read more at Financial Services Briefing: “Changing of the guard” (April 14th)

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