ECB Spurring Fixed Income Pickup, Credit Agricole's Hocher Says

  • January, February were `disappointing' months on bond markets
  • Credit Agricole's Hocher speaking in interview in Paris

The European Central Bank’s pledge for broader bond purchases is bolstering a recent pickup in fixed-income trading after a weak start to the year, said Jean-Yves Hocher, head of Credit Agricole SA’s corporate and investment bank.

Conditions in bond markets are improving after the ECB expanded its quantitative-easing program, added corporate bonds to the assets that can be purchased, and introduced new long-term loans to banks to boost lending and economic growth across the euro area, Hocher said in an interview in Paris.

Jean-Yves Hocher

Photographer: Herve Thouroude

Investment banks have been forced to overhaul securities businesses amid stiffer capital rules and a slump in trading revenue. The world’s largest lenders last year generated the lowest revenue from fixed-income products since 2008, according to research firm Coalition Development Ltd., with some of Europe’s largest debt-trading firms including Deutsche Bank AG and Barclays Plc cutting staff and assets.

Negative Rates

“The first two months of the year were disappointing on bond markets,” while advisory businesses started “rather well,” Hocher said, declining to make specific forecasts for this year. Following ECB President Mario Draghi’s “announcements, a new important buyer comes up on the private-debt market. This decision reinforces the improvement observed in March on the market.”

At its March 10 meeting, the ECB increased monthly bond purchases to 80 billion euros ($90 billion) from 60 billion euros, added corporate debt to the program and cut the rate on cash parked overnight by lenders by 10 basis points to minus 0.4 percent. The Frankfurt-based central bank also launched a new series of long-term loans to banks.

“Negative rates start seeping into the practices of financial institutions,” Hocher said, declining to specifically comment on Credit Agricole.

Some of Europe’s largest lenders including Deutsche Bank and UBS Group AG have already warned that earnings are going to be hurt by turbulent markets this year. By contrast, Credit Agricole earlier this month announced targets through 2019, including a 3.8 percent average annual sales growth goal for capital-markets and advisory revenues, faster than the pace it expects at its corporate-financing activities.

Credit Agricole’s large-customers businesses, which include trading and asset-custody services, committed to optimize capital use and keep risk-weighted assets flat through 2019, while expanding in areas such as securitization.

To absorb the effects of harsher regulation, the unit is seeking to cut 12 billion euros of risk-weighted assets over the next three years through more “selective” choices in doing business with large corporations and by “better managing” the risk weightings of custody operations, Hocher said.

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