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Credit Suisse financial recovery strategy – Industry roundup: 3 October

Credit Suisse assures strong financial position to workforce

Credit Suisse bank plans to announce its strategy to reverse its poor financial situation status, which reportedly could include downsizing and sale of assets. After credit markets rated Credit Suisse's default risk as the highest in a decade, the CEO of the bank has reportedly aimed to ensure the workforce that the Swiss company has a strong financial position. Ulrich Körner, the bank's CEO, stated that there were "many factually inaccurate statements being made" pertaining to the bank's crisis. The share price has decreased by 60% this year and weakened by 9% today.

Reports indicate that the interest rate on Credit Suisse credit default swaps, which is insurance against the bank defaulting on its borrowings, increased by 6 basis points to 2.47% last Friday. This is said to be the highest level in ten years, as market participants continued to lose confidence in the bank. The swaps cost 0.57% at the beginning of the year. On Friday, the bank's shares rose 3.87% to close at 3.98 Swiss francs (£3.64), but the increase did not suppress market speculation about the company's difficult financial condition according to reports.

Credit Suisse is reportedly preparing to reveal a financial recovery strategy on 27 October, which would potentially include job cuts, asset sales and a new round of investor funding. Körner reportedly wrote in a staff memo on Friday, "I trust you are not confusing our day-to-day stock price performance with the bank's strong capital base and liquidity position." He added that the bank is currently redesigning its structure to create a long-term and stable future.

Credit Suisse is one of thirty internationally well-known banks listed by the Bank of International Settlements that must set aside additional capital to cover potential losses due to their significance to the global financial system.

The bank's profit fell from 2.7 billion francs (£2.47 billion) in 2020 to a loss of 1.65 billion francs (£1.51 billion) in 2021. This decline was primarily caused by significant losses on investments in the failed hedge fund Archegos and supply chain finance company Greensill, whose founder Bill Hwang and three other individuals have been charged by the US government with racketeering and fraud offenses.  Furthermore, the losses continued into 2022, with an additional 1.8 billion francs (£1.64 billion) recorded in the first six months of 2022.

Hopscotch Flow: a new solution to assist users in financing invoices

Hopscotch, a first-of-its-kind payments platform for small businesses and entrepreneurs, launched the release of a new feature that enables users to finance invoices in just a couple of clicks, helping them to avoid cash flow gaps, remain versatile, and make more informed decisions. Hopscotch Flow reportedly provides a method for businesses to unleash revenue from outstanding invoices and the ability to obtain compensation on demand, in addition to immediate, fee-free payments.

The release of Hopscotch Flow coincides with reports indicating that small businesses currently account for almost half of all economic activity in the nation. The pandemic reportedly resulted in the creation of more than 4.4 million new businesses.

Long processing times and exorbitant transaction fees (up to 3.5% on some platforms) impact revenue. Furthermore, unpredictability in payment cycles makes it challenging for many small businesses to effectively manage their cash flow, which is a leading cause of failure in the sector. Hopscotch Flow is a private financial tool that places the authority of financial security entirely in the control of the payee, without the risk of jeopardizing professional relationships.

US Fed pilot program to include six US banks in evaluating their climate resilience

The US Federal Reserve is leading a climate scenario-analysis activity designed to provide insight into climate risk management. The Financial Services Forum, a trade group, is formed of six of the largest US banks, including Bank of America Corp., Citigroup Inc, Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley, and Wells Fargo & Co. The Fed's exercise is scheduled to begin in 2023 and conclude by the end of the year.

The main objective of the activity is reportedly to assess financial institutions' resilience under various climate scenarios, according to the Federal Reserve Board of Governors. Furthermore, the pilot program is distinct from the standard bank stress tests to determine whether they have adequate capital to proceed with financing activities during an economic crisis. According to the Fed, the pilot will not have any effects on participating banks' capital or supervision.

The action comes as US banking regulators and the banks themselves continue to pay close attention to potential risks that climate change could pose to the financial sector. The pilot test would aid in risk identification as well as encourage risk management procedures. The Fed stated that “by considering a range of possible future climate pathways and associated economic and financial developments, scenario analysis can assist firms and supervisors in understanding how climate-related financial risks may manifest and differ from historical experience."

The Fed will reportedly release the variables, such as climate, economic and financial, that will be used in the scenarios at the start of the exercise. Additionally, the Fed expects to share the insights gained at the end of the pilot without disclosing firm-specific details.

Thunes intensifies its focus on ESG with new credential achievements

Thunes, a Singapore-based payments company, has reportedly pledged to the environmental, social and governance (ESG) initiatives of the United Nations Global Compact and EcoVadis.

The UN Global Compact corporate sustainability initiative, launched in 2000, reportedly promotes sustainable business practices in accordance with the UN Sustainable Development Goals (SDGs) on human rights, labour, the environment, and anti-corruption. The project initiated by EcoVadis reportedly provides business sustainability ratings that rank businesses across 198 classifications and 160 countries based on their ESG impact.

Reports indicate that Thunes is one of a growing number of ESG-conscious fintechs that adhere to such initiatives, such as placing recycling bins in a number of its offices around the world. Last year, the company's Paris office collected 271 kg of recycled waste, which, according to reports, was used to produce new glass bottles and electric scooters. Additionally, 71% of Thunes’ clients take proactive measures to ensure they do not sell goods or services to organizations that do not respect human rights, stated reports.

BIS and three nations collaborate on cross-border CBDC payments experiment

The Bank for International Settlements (BIS) has launched Project Icebreaker in collaboration with the central banks of Israel, Norway and Sweden and their e-currency branches to investigate CBDCs and its role in the international payments landscape.

Project Icebreaker objectives include identifying methods by which CBDCs can resolve issues that currently exist in international settlements. Reports indicate that some of these include exorbitant prices, a lack of transparency, sluggish speeds and restricted availability.

The participating banks will reportedly build a hub to connect their respective digital currencies: NOK, e-krona and the digital Shekel. This experiment aims to delve deeper into the technology, architecture and design decisions and trade-offs, as well as related policy issues, aiming to provide key insights to central banks considering the use of CBDCs for cross-border payments.

Project Icebreaker rolled out just after the BIS stated its satisfaction with the CBDC pilot involving real-value transactions conducted in collaboration with several Asian national banks valued at over US $22 million. The BIS has reportedly been engaged in numerous CBDC-related projects for many years and has shown its support for digital currencies issued by central banks in fifty-six different countries as early as 2021.

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