Cass Finance Blog

June 23, 2014
by Thorsten Beck
1 Comment

SME Finance – back to the future?

My agenda last week was dominated by SME Finance. First, in Yerevan, for the annual meetings of the European Fund for Southeast Europe, where the dominating theme was how banks can better target SME clients.  Relationship building was top of the agenda – a focused approach to customers in specific sectors or with specific profiles; possibly by offering additional services.  One interesting example of an Armenian bank was to share the market and sectoral information that the bank collects in the loan application process with the borrower, thus improving his/her marketing.  My second encounter with this topic was as lunch speaker at a meeting of fund managers in Amsterdam who are  interested in investing in SME focused banks in developing countries.  Finally, on Friday I met with a friend interested in exploring new opportunities in SME banking in the UK.  The UK High Street banking sector has long  been accused of ignoring SMEs at the expense of corporate clients and investment banking. While already five years ago, the crisis seems to have destroyed a lot of trust in High Street banks, which gives an opening for new players.

A common thread through these conversations was not only the high financing constraints faced by SMEs, but the fact that they are an attractive market for financial institutions.  The challenge for financial institutions is how to best cater to this market segment.  Beyond all the talk about new non-bank players in the market and the importance of transaction-based (hard assets, hard information) lending, there seems to be a rediscovery of traditional relationship-based lending!

June 19, 2014
by Meziane Lasfer

A tale of two cities: Who trades in takeovers?

One of the major puzzles in corporate finance is the asymmetric reaction of the market to takeover announcements. For long, stock prices of the target firms tend to increase significantly on the announcement date, while those of the bidders tend to decrease. On average, previous empirical studies show that, while target shareholders see their excess returns amount to about 30%, depending on the timing of the base price relative to the price on the announcement date, those of the bidder are relatively zero if not slightly negative. This raises a question of whether such decisions are value creating or destroying, and whether all the synergies tend to accrue to only the target shareholders. In this blog, I assess whether this is the case of the recent takeover bid by Pfizer of AstraZeneca, and I also address the question of whether this asymmetric reaction is limited to the announcement date or extends to the pre- and post-event period. Continue Reading →

June 17, 2014
by Thorsten Beck

Cross-border Banking in Africa – Facts, Opportunities and Challenges

For a long time, banking in Africa was dominated by European banks, often focusing on the former colonies.  This has dramatically changed over the past two decades, with regional banks gaining more importance.  After the end of Apartheid, South African banks started expanding north.  Nigerian banks started expanding throughout the region after they found themselves with excess capital after a consolidation wave in the early 2000s.  In recent years, Moroccan and Kenyan banks have also started moving across borders.  And then there is the pan-African bank par excellence, Ecobank, present in 34 countries across the continent.  What does this trend imply for financial deepening in Africa?  And what are the risks?  What can international experience and the recent European crises teach Africa, if anything?  In a recent policy report, sponsored by Association of African Central Banks, the German Development Corporation and the World Bank,,  I have addressed these and other issues together with Michael Fuchs, Dorothe Singer and Makaio Witte.  Last week saw the launch of the report in Dakar, Senegal. Continue Reading →

June 16, 2014
by Peter Hahn

Unbanking our poorest?

“Who will bank the unbanked?” is the header for a recent article in The Banker magazine discussing opportunities and challenges in banking the world’s poorest countries (a topic my colleague Thorsten Beck likes to talk about), but it is perhaps becoming a bigger issue in the UK and some other Western nations where changes in banking may lead to society’s poorest being forced out of the banking system.   In the US, those with the least resources appear to be leaving the bank,s due to increasing basic fees, for what amounts to pre-paid debit cards with lower fees than current accounts.  While meeting current internet and other payment needs for users at perhaps lower fees than banks, consumers will eventually find such activity won’t provide the necessary credit history to access the least cost car and mortgage loans from banks.  Will they be trapped with no access or only loan-shark debt?  It is also hard to imagine how some of these card-bank users might handle an unexpected receipt of a multi-thousand pound cash payment.  Card or mattress? Continue Reading →

June 13, 2014
by Richard Payne
1 Comment


I’m just returning from a conference on High-Frequency and Algorithmic trading organised by City University of Hong Kong (which has no relation to City University, London). A couple of papers caught my attention.

First, Matthew Baron presented a paper, jointly written with Jonathan Brogaard and Andrei Kirilenko, called “Risk and Return in High Frequency Trading”. This paper uses proprietary CFTC data that allows the researchers to identify high-frequency trading firms and to track their trading activity in the E-mini S&P 500 futures contract. The authors show that the levels of HFT trading revenues and the consistency of those revenues over time are both breathtaking. Continue Reading →

Who benfits in takeovers?

June 12, 2014 by Meziane Lasfer | 0 comments

As the dust is now settled, it is appropriate to ask the question of who benefited from Pfizer’s bid intentions of AstraZeneca. Undoubtedly, the various advisers have gained lots of fees, which, so far, are not known as they are not disclosed by the two companies. In terms of investors, the answer to this question lies in the behaviour of stock prices around the financial press reports and the various news announcements. Continue Reading →

June 11, 2014
by Peter Hahn

TSB: Challenger, Consolidator, or Consolidatee?

TSB is the bank governments (EU & UK) and regulators built – not necessarily by choice, but that is history.  This is no small part of why investors are having trouble valuing a bank that appears soundly capitalised yet poorly profitable.  Not so much a Dr Frankenstein bank, it is at the same time perhaps Britain’s prettiest and ugliest major bank in terms of safety and performance.  Yet a valuation discussion based upon profitability and return misses the point about TSB. Investing in TSB is about M&A speculation.  TSB is the ultimate ‘commodity’ product bank in a very commoditised market yet it is without scale (only 4-6% market shares in key products that are not growing).  There is certainly room for niche players in Britain’s bank market, but in commoditised markets only the largest players have a chance at decent profitability and returns.  Players like the new TSB are usually hoovered up by equals or larger competitors, as the original TSB many years ago was acquired by Lloyds.   TSB’s IPO asks the big question about who is going to be the next bank consolidator in the UK and, of course, at what prices this will occur?  Will it be TSB or will TSB be acquired? Continue Reading →

June 9, 2014
by Thorsten Beck

Postcard from Lusaka – some thoughts on financial inclusion

One topic that came up several times on my recent visit to Tanzania and Zambia was the definition of financial inclusion. For a long time, being financially included was seen as a simple yes or no. Either someone has a connection with a formal financial institution or not. This also led the Gates foundation a few years ago to declare the 100% financial inclusion goal as all households in a country having access to a deposit or savings account.   Looking at recent data collections, however, shows that many have a bank account but use it rarely.  As shown by the recent Global Findex survey, 10 percent of adults in developing countries make neither withdrawals from nor deposits into their account in a typical month. And the majority of account holders use it rarely, a few times per month.  This raises the question of the depth of financial inclusion. Continue Reading →

June 6, 2014
by Thorsten Beck

Monetary policy – it is all in the language

When news on the ECB  policy decision broke yesterday, the New York Times reported on “negative interest rates”, while the German Frankfurter Allgemeine reported the introduction of “penalty interest rates.”   The Spanish El Pais focused on the  400 billion Euro injection to reactivate credit.   The Spanish and German reactions give insights into the different interests of both economies, but also the general divergence that still rules across the Eurozone. The interest rate decision is part of a careful policy path by the ECB to avoid deflation, while at the same time keeping within the legal and political constraints, where the latter are mostly given by German interests.

The question is whether this will be enough to avoid deflation, without having to go to quantitative easing, as done by the Fed and the Bank of England.  And the question remains whether the banking system is healthy enough to transmit this looser monetary policy, especially in those countries most in need of credit recovery.  Unfortunately, we will not find out the answer to this question until after the summer.

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