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Bayer to shift focus away from Europe – Industry roundup: 17 January

Bayer to deprioritise “innovation unfriendly” European markets

Germany’s Bayer AG, one of the world’s largest pharmaceutical groups. Intends to shift its focus away from Europe and the UK, citing the region’ “innovation unfriendly” policies amid sector-wide concern about new taxes threatening the pharma sector’s profits.

Stefan Oelrich, head of Bayer’s drugs business, told the Financial Times that the group would concentrate on its US and Chinese businesses, as an expanded medicines levy in the UK and similar schemes in Germany were a deterrent to investment. This year the UK will require manufacturers of branded medicines to return almost £3.3 billion (US$4.0 billion) in sales revenue – or 26.5% of sales – to the government, up from around £0.6 billion in 2021 and £1.8 billion in 2022.

“Europe is making some real big mistakes,” said Oelrich, detailing how Bayer would shift its commercial footprint away from Europe. “European governments are trying to create incentives for research investments, but they are making our lives miserable on the commercial side.”

Oelrich recently reported an improved outlook for Bayer’s kidney drug Kerendia, with potential annual sales now seen at more than €3 billion. The drug previously made than €1 billion in its best year, but a strong uptake in the US and growth prospects in China made for a brighter picture, he told Reuters.

Other European multinationals have declared their concerns about the region’s competitiveness. Last October, German chemicals group BASF said it would have to “permanently” downsize and cut costs at its European sites in response to higher energy prices and to protect the company from weakening chemical market conditions across Europe. By contrast, BASF has committed to large-scale investment in China, which it expects to become a more important market for its products.

US companies “turning to convertible bonds”

US companies have turned to convertible bonds in recent weeks as fundraising in Wall Street’s main equities market has dropped to its lowest level for three decades, according to reports.

Figures show that December was the busiest month of 2022 for convertible issuance by deal count, according to Refinitiv data, as activity picked up over the second half. The amount that US-based companies raised more than doubled in H2 2022 from the preceding six months, after a sharp earlier slowdown.

Michael Zeidel, head of Americas at law firm Skadden Arps’ capital markets division, told the Financial Times: “For more than 80% of the year, the [convertibles] market was essentially dead” but it had “opened up” in the past two months of 2022 “and we are now seeing activity”.

Extreme volatility and rising interest rates made 2022 the worst year for traditional stock market listings in the US since 1990, reports the FT. Most experts think it will take at least another quarter for initial public offerings (IPOs) — the most lucrative and high-profile part of the equity capital markets business — to pick up.

But a recent steadying in valuations and encouraging inflation data have prompted a burst of activity in deals deemed to be less risky, especially sales of convertible bonds — debt that includes an equity component. “Converts are always a market that tends to be interesting to a broader array of companies when other markets are experiencing difficulties,” said Craig McCracken, co-head of equity capital markets at Wells Fargo, “because of their greater certainty of execution”.

Bank of Thailand to allow first virtual banks by 2025

Bank of Thailand has disclosed plans to allow virtual banks to operate in the country for the first time. Financial firms will be able to provide services by 2025, according to a Bloomberg report.

The Consultation Paper on Virtual Bank Licensing Framework published by the central bank says that applications will be available later this year allowing virtual banks to act as financial services providers. The move focuses on increasing competition and boosting Thailand’s economic growth.

The Bank will issue three different licenses for interested companies by 2024. There are at least 10 parties interested in granting permissions, the report states.

Regulations and supervision for virtual banks will be the same as those for traditional commercial banks under the licensing framework. Moreover, qualified applicants will need to meet certain requirements. The central bank also noted: “Virtual banks should not initiate a race to the bottom through irresponsible lending, give preferential treatment to related parties, nor abuse dominant market position which will pose risks to financial stability, depositors, and consumers as a whole.”

According to the central bank, virtual banks will be under a “restricted phase” during their first years of operation, which includes close monitoring to prevent financial systemic risks. Thailand’s Securities and Exchange Commission recently announced plans to tighten rules for crypto, aiming to expand investor protection. A strict set of guidelines for crypto ads is also being developed by the authority.

Thailand recently signed a technology cooperation agreement with Hungary to support the adoption of blockchain technology, amid a fast growth of demand for mobile payments, e-commerce, and cryptocurrencies in the country, a report by the Cointelegraph website states.

The country saw several crypto-related developments in 2022, including plans to pilot a central bank digital currency (CBDC) for around 10,000 users. Thailand is ranked eighth on the Global Crypto Adoption Index by analytics company Chainalysis.

Standard Chartered chief bullish on India’s economic prospects

India is justifiably confident about the state of its economy, which is managing strong growth amid a global economy pummelled by multi-decade high inflation, war, an energy crisis and turbulent financial markets, said Bill Winters, group chief executive of Standard Chartered.

The country’s policy makers, businesses and the financial system appear to be singing from the same song sheet, in a turnaround from the earlier discordant notes across the economic spectrum, he told the Economic Times website.

“Earlier, the beginning of every meeting (in India) was a little litany of things that are going badly,” Winters said in an interview. "Now, the early part of the discussion is, isn't it going great? I have been coming to India for 35 years and the alignment between perspectives of local businesspeople, small businesses, medium-sized businesses, large businesses, financial institutions, external investors, domestic investors, government, economists has never been this consistent.”

India has rallied since the economy was hard hit by the early waves of the pandemic, achieving growth of 8.7% in the 2021-22 financial year, which the World Bank expects to slow to a still impressive 6.9% in 2022-23 and 6.6% in 2023-24 and has not felt the impact of the energy crisis, Covid-related lockdown and supply disruptions as much as some rivals.

Consumer price index (CPI) inflation was above the level of 6% deemed acceptable by the Reserve Bank of India (RBI) for much of 2022 but had reduced to 5.66% in December, although the RBI raised the main interest rate the same month from 6.15% to 6.50%.

Winters believes central banks need to run tight monetary policies to contain price pressures, which would translate into slower economic growth. “I'm still of the view that inflation is going to be pretty difficult to bring down,” he said. " “I think central banks have to do a little more. Ideally, you can slow wage growth because I think that is really the driver at this point. You can’t slow wage growth without slowing the economy.”

While the global financial system, especially the banking sector, has been resilient despite turbulence in the markets, the same may not be true for the shadow banks. “I think it is amazing we haven’t had more accidents,” said Winters.

“This is the worst year in markets since 1972. It has been horrific in both equity and fixed income markets. You get a massive shock with a pandemic, and then a further massive shock with wars and the effects of climate change and geopolitical tensions. And there’s almost no impact on the economy because the banking system is rock solid.”

US House of Representatives creates subcommittee for crypto

The US has established the first ever subcommittee on digital assets.

The House of Representatives created the new congressional subcommittee focused on digital assets, as one of its first moves under the control of the Republican Party, said Congressman Patrick McHenry.

The Subcommittee on Digital Assets, Financial Technology and Inclusion will be the first in the US specifically focused on digital assets and will operate under the House Financial Services Committee.

Republican Congressman French Hill, the digital asset subcommittee lead, said, “we want to create a regulatory legal framework for digital assets … that makes America a leader from an innovation point of view but also protects consumers and investors.” Analysts said that despite a lack of constructive action so far from the US in response to crypto’s meteoric rise, the move was a step in the right direction.

The new subcommittee will provide rules for federal regulators on the topic of digital currencies, develop policies to promote digital financial technology and strengthen diversity and inclusion in the industry, according to a press release.

The Subcommittee will be chaired by Hill, who has spearheaded efforts to explore a US central bank digital currency (CBDC).

“At a time of major technological advancement and change in the financial sector, it is our job to work across the aisle and promote responsible innovation while encouraging FinTech innovation to flourish safely and effectively in the United States,” said Hill.

The formation of the new subcommittee follows a House Financial Services Committee inquiry into the recent collapse of Bahamas-based crypto exchange McHenry, the incoming chair of the committee, said that the Securities and Exchange Commission (SEC) had not done enough against bad actors in crypto.

This inquiry was held amid a flurry of legislative activities in the US as lawmakers rushed to address perceived regulatory shortcomings following the FTX collapse. In December, Senator Elizabeth Warren introduced a bill that would require US crypto businesses to follow the same know-your-customer (KYC) rules as banks to prevent money laundering.

Insurers may gain from Royal Mail cyber-attack

A cyber-attack last week on the UK’s Royal Mail by a ransomware gang linked to Russia, which forced the company to suspend its international postal deliveries, provides opportunities for insurers such as Axis, Axa, Beazley and Hiscox that have pioneered speciality cyber insurance cover, believes Bloomberg Intelligence.

Reports state that Royal Mail's investigation found the gang, named Lockbit, infected machines that print customs labels for parcels being sent overseas. The attack has left more than half a million parcels and letters undelivered.

Lockbit's signature ransomware, known as Lockbit Black, scrambles computer files and demands payment in cryptocurrencies that are hard to trace in exchange for unscrambling them.

Defence and security company Leonardo estimated that cybercrime reached US$6 trillion globally in 2021, against US$600 billion in 2018 according to a McAfee estimate. While data for 2022 is sparse, there seems to be a consensus that and ransomware attacks have risen sharply since Russia’s February invasion of Ukraine. Data sharing and interconnectivity rank high as attractive targets for criminals. Widespread adoption of the cloud to store and process data heightens the operational challenges, with supply-chain vulnerabilities exploited for the first time in 2020.

“The cyber-attack on the Royal Mail could represent the latest very public manifestation of what we believe to be a sharp rise in ransomware attacks,” said Kevin Ryan, Bloomberg Intelligence’s Senior Industry Analyst (Insurance). “Though it’s unclear whether this is the issue at the post office, there’s been a dramatic rise in ransomware incidents since the Ukraine war began and a corresponding decline in data breaches. Bad actors seem increasingly likely to use ransomware as a weapon. The rise in ransomware attacks may be unrelated to the Russian invasion of Ukraine but the rise in number of incidents is striking.

“The Royal Mail incident illustrates what we see as a burgeoning new business opportunity for insurers such as Axa, Axis and Beazley, which have focused on this niche market.”

There were 623 million ransomware attacks globally in 2021 according to Sonic wall, representing a 105% year on year increase. The UK saw a 228% surge and a 65% increase in never-seen-before malware. For insurers there has been a strong rise in cyber insurance premium rates in 2022, with, for example, Beazley’s 1H cyber premiums up 77%. Ryan adds that as companies become more aware of the debilitating effects of cyberattacks, it’s logical this will lead to more purchases of cyber cover and a large source of new business for insurers.

Deutsche Bank's Blue Water Fintech Lab launches first commercial product

Deutsche Bank's Blue Water Fintech Lab, set up in September 2019 in Shanghai, has released its first commercial product, a robotic process automation (RPA) platform for multi-bank data processing and reconciliation. The bank is currently offering the RPA product to corporate clients in China through a direct service model.

Rachel Whelan, Deutsche Bank’s Asia-Pacific head of cash management, said: “The evolving state of digital finance means business customers expect more modern technologies a part of their corporate banking engagements. Our new RPA solution allows clients to manage automated reconciliations and makes the business process lean and efficient. This is a first step in supporting our clients on their digital transformation journey.”

According to data from a pilot programme conducted with clients, the introduction of RPA saved 60-80 hours of manpower every month. The solution can process tens of thousands of financial documents at the same time, and significantly shorten reconciliation time from two or three days to within one hour. It also helps avoid data problems caused by manual entry errors.

Yi Zhu, head of China innovation and fintech products at Deutsche Bank Corporate Bank, said: “Adopting a two-step strategy from proof of concept (POC) to commercialisation, we have successfully extended from bank channels to clients' supply chains. It is our goal to create a win-win ecosystem between banks and enterprises by integrating resources and new technology.”

BNP Paribas and SimCorp expand partnership

BNP Paribas Securities Services has expanded its partnership with Software-as-a-Service (SaaS) investment management solutions provider SimCorp to provide insurance accounting and reporting solutions within its custodian and banking services.

SimCorp’s new investment operations and accounting services solutions will be available to common clients, continuing BNP Paribas’ use of the company’s SimCorp Dimension service in its front-to-back investment value chain. SimCorp’s Asset Service Hub will offer data interoperability between BNP Paribas’ banking services and SimCorp’s accounting services.

Following updates to both companies’ connectivity and service integration operations, asset owners will see a more efficient onboarding process, the companies say.

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