2021/2022 Edition

December 2021

Non-compliance and sanctions for HSBC

On December 17th, the bank HSBC was condemned by the financial conduct authority. It was fined 63.9 million pounds, which is approximately 75.22 million euros. Indeed, HSBC was pronounced guilty of «  deficient transaction monitoring », since 3 key elements of the automated transaction monitoring systems had serious weaknesses between 2010 and 2018 according to the FCA. In particular, the FCA stated that the monitoring of "indicators of money laundering" and "terrorist financing" was inadequate.

This affair is reminiscent of another HSBC scandal, regarding its involvement in the laundering of more than 881 million dollars for drug cartels. The bank was then fined a hefty 1.9 billion dollars by US regulators in 2012.More recently, in 2019, the subsidiary paid nearly 300 million euros in Belgium to avoid a trial over a 2014 investigation involving HSBC in "serious tax fraud" and "money laundering" cases.


However, HSBC has proven to be very cooperative. The fine could have reached 91.4 million pounds, but ended up being reduced to 63.9 millions because HSBC did not contest the charges and deemed itself « profoundly engaged in the fight against financial criminality ». HSBC says it is ready to settle the fine quickly and the bank has already embarked on a program to correct its procedures under the auspices of the FCA.

The timing of this scandal is less than optimal, as it breaks off from the bank’s current good dynamic. HSBC was gradually coming back from a complicated period. But, the fine won’t have a major impact for the subsidiary. Indeed, the subsidiary was already going through a major restructuring plan with 35,000 job cuts worldwide before Covid-19. The health crisis then strongly shook the bank, making its annual net profit plunge by 35% between 2019 and 2020. But HSBC came back stronger in 2021 notably with very encouraging results, as its net profit more than tripled in the first half of 2021 and its results were beyond expectations, as for the third quarter of 2021. HSBC had even announced a large and generous share buyback plan of 2 billion following the announcement of its results for the third quarter of 2021.


In the end, this case’s only impact will be the public’s perception of HSBC, as it revives memories of other cases and the impact on the markets was very small. After the announcement of the conviction and the FCA's statement, the share price decreased slightly but HSBC still ended the year in a very good way with a closing price of more than 445,500 pence sterling in 2021, which is an increase of more than 17% of the share price over the year.

Amundi buys Lyxor, Société Générale’s subsidiary

Le classement des fournisseurs d’ETF et ETP en Europe se retrouve bouleversé avec l’acquisition de la filiale de Société Générale par Amundi. En effet, l’acquisition de Lyxor permettra à Amundi de posséder 14% des parts de marché en étant à la deuxième place derrière BlackRock. La filiale du Crédit Agricole est la plus intéressante annoncée en Europe.


L’acquisition devait avoir lieu deux mois plus tard mais Amundi a annoncé en ce dernier jour de l’an 2021 la finalisation de cette acquisition de la filiale de gestion d’actifs pour 825 millions d’euros. Les autorisations réglementaires et concurrentielles nécessaires ont été obtenues en aval ce qui a permis l’accélération de l’opération.

En juin dernier, Amundi et Société Générale avaient annoncé avoir signé le contrat-cadre en vue de l'acquisition, en avance sur le calendrier initialement envisagé.

Lors de cette opération, la filiale doit faire face à une cession concernant les activités de gestion passive de Lyxor et de gestion active. Malgré l’acquisition importante, cela ne représente qu’un dixième de la capitalisation d’Amundi. L’encours est estimé à près de 124 milliards d’euros d’actifs. C’est l’acquisition des activités de gestion passive de Lyxor qui intéresse principalement la Société Générale puisque cela permet à Amundi de devenir numéro deux en Europe sur le segment porteur de la gestion passive. Cette acquisition permet également de doubler sa taille dans le secteur des ETF, néanmoins comme dit précédemment BlackRock s’impose toujours comme un monopole avec 44% des parts de ce marché.

De plus, Nicolas Calcoen, le directeur financier d’Amundi assure de très bons résultats à l'issue de cette acquisition : "Le multiple de résultats sera de dix fois environ après synergies de coûts, contre 13-14 fois sur le marché.”. Cet argument est soutenu par le groupe mettant également en avant le résultat net anticipé de “35 millions d’euros en 2021”.

Toutefois, cette acquisition ne doit pas être célébrée trop vite puisqu’il reste l’absorption par Amundi qui fera face à différentes problématiques. Yves Perrier, CEO d’Amundi, compte sur un turnover naturel pour une réduction d'effectifs allant tout de même de 450 à 500 personnes puisqu’il ne souhaite pas de départs contraints de la société. Avec l’espoir d’obtenir 200 millions d’euros de revenu supplémentaire sur ce périmètre et un ratio de charges augmentant de plus de 50% qui serait alors supérieur au ratio de charges d’Amundi en 2020. Amundi compte sur son savoir-faire dans le domaine des acquisitions afin de réduire les coûts en aménageant les meilleurs plans de restructuration.

The inflation outlook in the face of the ECB's accommodating monetary policy

On Thursday, December 16, ECB President Christine Lagarde and ECB Vice-President Luis de Guindos held a press conference in Frankfurt/Main on the monetary policy statement.

Inflation continues to rise, driven by the explosion in energy prices - which INSEE estimates costs 64 euros more per month per household – and by demand outstripping supply in some sectors (shortage of paper, semiconductors ...) as well as tensions on maritime freight; while the recovery of the eurozone economy continues, slowed by the Omicron variant.


A press conference on the ECB's monetary policy statement is held every six weeks. At the penultimate conference prior to this month's, the ECB kept its main interest rate at zero, with the president judging that inflation would only be temporary and therefore urging its members not to "overreact." "We still need an accommodative monetary policy in order to come out of the pandemic safely and bring inflation back to 2% on a sustainable basis," she said.


What is the situation today?


The Governing Council, the ECB's main decision-making body, adopted the following decisions on Thursday, December 16th:


First, the ECB should end net asset purchases under the Pandemic Emergency Purchase Programme (PEPP) at the end of March 2022 in the face of economic recovery and rising inflation. 1,850 billion, is an unconventional monetary policy program that consists of massive bond buybacks, thereby contributing to an increase in demand for bonds and keeping interest rates low.


Second, the ECB Governing Council decided to extend the reinvestment horizon of the PEPP to at least the end of 2024. Remember that principal repayments on maturing securities purchased under the PEPP are reinvested to ensure the maximum effectiveness of the program.


Third, the ECB announced that its monetary policy will remain flexible in order to ward off threats and adverse shocks from the pandemic that undermine the primary objective of price stability. In this regard, two points were particularly highlighted: the first is that PEPP reinvestments will be "flexibly adjusted over time, across asset classes and jurisdictions"; the second is that net asset purchases under the PEPP could extend beyond the end of March 2022.


Fourth, the ECB announced an increase in the Asset Purchase Programme (APP) for the coming quarters, which will replace the net asset purchases under the PEPP. 40 billion in the second quarter of 2022, €30 billion in the third quarter of 2022, and then return to a monthly rate of €20 billion from October 2022. Remember that the PPA is a quantitative easing program which is in place since 2015 and consists of massive repurchases of financial assets on the secondary market, contributing to increasing demand and keeping interest rates low.


As for inflation, the ECB expects it to remain high in the short term (i.e., above 2%) and then decline over the course of 2022, while cautioning that the path of the factors underlying inflation remains uncertain. Thus, the ECB has kept its main interest rate at zero.

But can we really count on this expectation of a decline in the general price level to keep inflation under control?

Future energy prices and the pace at which bottlenecks in the supply chain are resolved and disappear is risky for the economic recovery and inflation outlook.

In Asia, some countries - such as China - are adopting a zero Covid strategy to eradicate Covid-19 and are closing their factories and ports. As an example, this month an outbreak of Covid-19 in Zhejiang, China, resulted in factory closures, putting a strain on companies' global supply chains.

Thus, Covid-19 is acting as a drag on corporate supplies and helping to fuel inflation, with demand picking up against supply that remains disrupted by the crisis, and this situation can continue as long as the various Covid-19 variants destabilize economies.


If the ECB were to raise interest rates, this would not solve the current tensions such as supply/demand imbalances, soaring energy prices or the shortage of raw materials.