Credit Suisse gets CHF50 billion from Swiss central bank
Credit Suisse is to take a 50 billion Swiss francs (CHF) (US$53.7 billion) loan from the Swiss central bank, in an action that will “pre-emptively strengthen its liquidity” as it moves to stem a crisis of confidence a day after its share price fell by as much as 30%.
This additional liquidity would support the Swiss investment bank in taking the “necessary steps to create a simpler and more focused bank built around client needs” a statement by the bank added. Credit Suisse said it was also making buyback offers on about US$3 billion worth of debt.
The borrowing measures “demonstrate decisive action to strengthen Credit Suisse as we continue our strategic transformation to deliver value to our clients and other stakeholders”. The news appeared to reassure investors, with Credit Suisse shares rebounding by more than 35% in premarket trading on Thursday morning.
Susannah Streeter, head of money and markets at UK financial services group Hargreaves Lansdown commented: ‘’Credit Suisse is the first major bank, deemed too big to fail, to take up the offer of an emergency lifeline. The announcement that it will draw on emergency funds from the Swiss National Bank (SNB) underlines how fragile the lender had become, as the withdrawal of deposits continued at pace and confidence seeped away.
“It also highlights the lightning speed of the global fall-out of Silicon Valley Bank’s collapse, which has shaken the banking sector, and prompted investors spotting weaknesses in other institutions, to race for the exit. The US$54 billion rescue wad is staunching worries about a bigger run on Credit Suisse and the repercussions for other institutions around the world exposed to its operations.
“For now, the move has restored a little stability to global markets, with the S&P 500 regaining ground once it appeared the SNB was standing by to help. Nerves are still frayed though and that has been evident during trade in Asia. Gold prices have slipped back a little in the past few hours but have shot up over the past week and are now hanging around the strongest level since early February, above $1,915 an ounce. The dollar and the yen have also gained ground since Credit Suisse’s problems intensified yesterday, though have retreated a little as the bank reached out for the financial lifeline.
“Systemic risk to the sector is still considered to be low, as larger banks have built up bigger capital buffers from the financial crisis and have stable deposits, while the coffers of some are believed to have swelled as customers seek out sturdier institutions for their deposits.”
“Credit Suisse meets the capital and liquidity requirements imposed on systemically important banks,” said the SNB. Credit Suisse is one of 30 banks globally deemed too big to fail, forcing it to set aside more cash to weather a crisis.
Credit Suisse shares had fallen sharply on Wednesday, prompted by comments from the bank’s largest shareholder, Saudi National Bank (SNB), which said it was unable to stump up more cash because of regulatory restrictions limiting its holding to below 10%.
"Saudi National Bank turned down the role of white knight and refused to ride to the rescue," noted Streeter. "SNB has cited regulatory issues but given that the bank has revealed it found material weaknesses it’s little surprise its steering clear of taking on any more risk in this current climate."
The high-profile economist Nouriel Roubini, known as Dr Doom, said that a collapse of Credit Suisse would be a “Lehman moment,” referring to the collapse of the US investment bank Lehman Brothers in August 2007 which marked the beginning of the global financial crisis.
On Wednesday, Streeter posted that the recent fall in European banking shares had taken on “another ominous twist”.
“The worry is that banks sitting on large unrealised losses in their bond portfolios might not have sufficient buffers if there is a fast withdrawal of deposits. Although the biggest players are judged not to be at risk, thanks to the chunky layer of capital they are sitting on and the stable nature of their deposits, the nervousness is palpable,” she commented.
“A game of whack a mole seems to be emerging, and problems are popping up elsewhere in the world. Investors seem to be waiting on words and action from the European Central Bank (ECB), as so far policymakers have been quiet about what support there may be if the situation deteriorates further.’’
Earlier this week Credit Suisse said that it had launched a review of its financial reporting after discovering “material weaknesses” in how it prepares its accounts. The bank warned that it had failed to set up processes that would properly prevent the mis-statement of its finances after a regulatory intervention delayed the publication of its annual report.
Bank of America gains US$15 billion in deposits since SVB failure
Bank of America has attracted more than US$15 billion in new deposits in just days, emerging as one of the big winners after the collapse of three smaller US banks dented confidence in the safety of regional lenders, reports Bloomberg.
It says that inflows offer a first glimpse into the deluge of deposits that made its way to the biggest US largest banks as customers fearful of a spreading crisis sought refuge in the firms seen as too big to fail. The money flowing into BoA, the second-largest US bank, was described to Bloomberg by people with direct knowledge of the matter, who asked not to be identified.
Silicon Valley Bank’s (SVB) seizure on 10 March marked the biggest US bank failure since the financial crisis. Precipitated by fleeing depositors it sent ripples across the global financial system and also forced the Biden administration to put in place extraordinary new measures to shore up faith in the banking system. A week ago, crypto-focused bank Silvergate Capital announced it was shutting operations and authorities shut down New York-based Signature Bank on Sunday.
Bloomberg notes that other major banks like JPMorgan, Citigroup and Wells Fargo have also raked in billions in new deposits, but the figures have not been disclosed yet.
Wall Street banks saw a surge in deposits from March 2020 as the Covid-19 pandemic saw customers and businesses stash away cash from stimulus measures. As the pandemic receded, government assistance programmes ran off and interest rates rose, the cash started heading out the door. At the end of last year, deposits at BoA were down US$8 billion compared to the end of the third quarter.
Commenting on the opportunity for fund managers and institutional investors to acquire SVB’s loan book in the US, Haakon Blakstad, Chief Commercial Officer at Validus Risk Management, said: “Silicon Valley Bank’s loan book in the United States provides an interesting opportunity to large private capital funds and certain institutional investors such as insurance firms. A large part of the book consists of financing facilities to funds, typically secured against investor commitments, which have different dynamics to typical corporate loans. For example, the duration of fund finance facilities are often short, with the expectation of annual renewals for example.
“As we see it, this leaves funds and institutional investors with two options as they consider buying this particular book of business: either buy the loan book at a discount and let it run off, or buy the loan book at some agreed fair value and manage the relationships to maintain, or even extend the book."
- US-based payments provider Modern Treasury, which on 2 March said that it had launched a new service, Global ACH, with Silicon Valley Bank has not yet announced what will happen following SVB’s seizure. Global ACH was described as a solution that would allow mutual clients to send cross-border payments efficiently and cost-effectively using local payment platforms. Modern Treasury said that it would offer a less expensive alternative to the SWIFT network and other third-party entities that charge foreign exchange fees.
India “using SWIFT to settle Russia dollar trade”
Indian companies are using the SWIFT global payment system to settle dollar payments with Russia, reports Reuters – at a time when India has sharply increased its purchases of discounted coal and oil from Moscow – is even though many Russian banks are blocked from the network due to Western sanctions.
The report cited a top trade official as the source The official, who requested anonymity, stated: “We are using SWIFT for dollar payments.”
According to government data released on Wednesday, India’s imports from Russia rose sharply from US$8.54 billion to US$41.56 billion in the period April 2022 to February 2023 compared to the same period in 2021-22.
Since Russia’s invasion of Ukraine in February 2022, India has been employing various currencies, including the dollar, euro, and dirham, to settle trade with Russia, according to Santosh Kumar Sarangi, the Director-General of Foreign Trade for India.
Indian refiners have paid for most of their Russian oil purchased via Dubai-based traders in United Arab Emirates dirhams (AED) instead of US dollars, Reuters has reported.
As a result of Western sanctions imposed soon after the conflict began several Russian banks, such as Sberbank and VTB, are unable to access the SWIFT network, making it more difficult for Russian companies to conduct business.
US regulators at odds over stablecoins
A jurisdictional “battle” for digital asset oversight between two regulators in the US is potentially emerging as each asserts their jurisdiction over fiat-based stablecoins.
At a recent Senate Agriculture Committee hearing Rostin Behnam, chair of the US Commodity Futures Trading Commission (CFTC) argued that fiat-based stablecoins – such as USD Coin (USDC), Tether (USDT), and Binance USD (BUSD), all of which are pegged to an underlying fiat currency – should be considered as commodities and therefore subject to the CFTC’s enforcement jurisdiction.
This assertion conflicts with Securities and Exchange Commission (SEC) Chair Gary Gensler, who has stated on several occasions that nearly all digital assets, other than Bitcoin, are securities and fall under the SEC’s purview. The SEC has reportedly taken the view that BUSD, a USD-pegged stablecoin, is an unregistered security and recently issued a notice to BUSD’s issuer, Paxos, stating as much.
However, in his testimony before the committee, Behnam averred that “notwithstanding a regulatory framework around stablecoins they are going to be commodities, in [his] view.” According to Behnam, the CFTC had, “done the legal analysis” that established stablecoins as commodities as part of the CFTC’s enforcement action against Tether in 2021.
In that enforcement action, the CFTC analysed stablecoins as a commodity on the basis that stablecoins fell under the Commodity Exchange Act’s definition of a commodity as “other goods and articles… and all services, rights and interests… in which contracts for future delivery are presently or in the future dealt in,” that could form the basis for derivatives contracts.
Although the legal justification of the CFTC’s jurisdiction in the 2021 enforcement action is regarded as thin, Behnam implied in the Senate Agriculture Committee hearing that the internal debates at the CFTC over extending its jurisdiction over any given financial product are substantial. He noted the agency has credibility and litigation risk and would not make a classification determination (as with ETH futures) unless the CFTC staff had serious legal defences to support its arguments. Nonetheless, market participants are awaiting a more fleshed-out understanding of the CFTC’s legal position.
Should the CFTC maintain the broader view that all stablecoins are commodities, it could potentially set up a clash with the SEC. Despite his testimony, Behnam left some wiggle room for himself and the agency, recognising that his “colleagues might have a different opinion,” when it comes to regulating stablecoins as a commodity. He also noted that algorithmic stablecoins are not necessarily classified in the same manner as fiat-backed stablecoins.
Binance to halt sterling transfers
Cryptocurrency exchange Binance could potentially be further pushed out of the financial system after the business revealed that it was being forced to stop deposits and withdrawals in sterling.
Binance, which has faced mounting regulatory scrutiny, said that these services had halted for new customers from Monday and would be suspended for all of its clients on 22 May after a decision by payments group Paysafe to pull back from its partnership with Binance.
Paysafe said it had concluded that “the UK regulatory environment in relation to crypto is too challenging to offer this service at this time and so this is a prudent decision on our part taken in an abundance of caution”.
Although one of the world’s biggest crypto exchanges Binance has faced growing pressure as regulators crack down on its operations and the wider markets for digital assets. On 6 February, Binance announced that it would suspend US dollar withdrawals and deposits for international customers with effect from Wednesday 8th without giving an explanation for the move.
Days later blockchain company Paxos announced that it had been instructed by the New York State Department of Financial Services (NYDFS) to stop issuing BUSD, a Binance-branded stablecoin pegged to the US dollar and would stop issuing the token from 21 February. In the UK, the Financial Conduct Authority (FCA) had warned that Binance was “not capable of being effectively supervised”.
Binance said the decision by Paysafe would hit less than 1% of its customers and that it will “ensure that affected users are still able to access their GBP balances”.
NatWest, one of the UK’s big five high street banks, said this week that it had seen an increase in crypto scams and was tightening customer limits on payments to digital assets exchanges to a daily cap of £1,000 (US$1,200) and a 30-day ceiling of £5,000. It had already banned payments to Binance for more than a year and previously had different limits for other crypto exchanges.
Greek utility PPC acquires Enel’s Romania assets for €1.26 billion
Greek utility Public Power Corporation (PPC) has agreed to acquire all of the equity interests held by Italian energy giant Enel and its subsidiaries in Romania for €1.26 billion (US$1.35 billion). Enel is the second-largest power distributor in Romania, controlling 35% of the market.
Enel has said that it plans to focus on ts home country, Spain, the US, Brazil, Chile and Colombia and is also preparing divestments in Greece, Argentina and Peru. The Italian utility signed an agreement to sell its entire business in Romania to PPC, which is also taking over €300 million in debt while minority interests are valued at €350 million.
PPC said that it would cover €800 million from a five-year loan of €485 million that it secured from Greek banks and a further €315 million from international lenders. The remainder would be from its own funds.
The deal marks the first major expansion abroad for the Greek company, which is controlled by the government through a minority stake, The takeover is expected to close “by the third quarter” pending regulatory approval, the two companies said. Enel announced a month ago that the acquisition should be done by the end of June. The final sum could be bigger due to potential additional payment based on the future value uplift for the supply business
Enel is the second-largest company in power distribution in Romania, with its three majority-owned power distribution firms controlling 35% of the market: E-distribuție Muntenia (which includes the Bucharest area), E-distribuție Banat and E-distribuție Dobrogea.
It is the biggest electricity supplier in the country with Enel Energie Muntenia and Enel Energie, in which it holds 78% and 51%, respectively. They have a market share of 16% in total, PPC said. The two subsidiaries supply gas as well.
PPC, also known for its Greek acronym DEI, is the only power distributor in its home market while it holds a 63% stake in the electricity supply sector.
Chevron partners with agri firms to produce renewable fuels
Chevron USA is collaborating with agribusiness firms Corteva and Bunge to produce renewable fuels from canola crops. As part of the agreement, the companies will introduce winter canola hybrids in the southern US.
Bunge Chevron Ag Renewables, a joint venture between Bunge and Chevron , will purchase the harvested winter canola crop from farmers and use the resulting oil to create renewable fuel.
US state programmes, led by California’s Low Carbon Fuel Standard (LCFS), reward fuel producers for decarbonising by producing renewable fuels, and the producers have responded by ramping up production of such “greener” fuels.
The transportation sector accounts for about a quarter of the United States’ greenhouse gases. The US Energy Department projects that renewable diesel will be about 7% of the overall diesel pool by 2030. It is currently just 5%.
By introducing the winter canola crop, the companies said they hope to provide a sustainable crop rotation option and create a new revenue stream for farmers. “We’re pleased to work with Bunge and Chevron to bring a new option in the southern U.S. that will deliver solutions for farmers to increase productivity and sustainability on their acres, as well as contribute to the need for renewable and less carbon-intensive fuel options,” said Chuck Magro, CEO, Corteva Agriscience.
Diamond Trust Bank and Mastercard partner on payment cards for fintechs
Kenya’s Diamond Trust Bank (DTB) and Mastercard have formed a partnership that will enable DTB to offer payment cards to tech-enabled companies, including fintechs in Kenya.
The agreement enables tech companies to issue their own card propositions through DTB – which is active in Burundi, Tanzania and Uganda in addition to Kenya – using Mastercard‘s technology.
DTB can process and settle payments faster, more conveniently, and cost-effectively, as it seeks to expand its footprint in the region. The agreement will also enhance the reach and ability of fintechs, edtechs, and health techs to accept or make card payments securely and quickly. The bank has also received approval from the Central Bank of Kenya to offer cards-as-a-service using its regulatory licence to tech-enabled approved partners.
“We believe that this partnership will not only enable us to enhance our service offering, but also contribute to the development of a more inclusive and advanced digital payment ecosystem in East Africa,” aid. Nasim Devji, group chief executive officer at DTB.
Mark Elliott, division president for Sub-Saharan Africa at Mastercard, commented: “Our innovation approach has been based on establishing partnerships that can drive the expansion of digital and financial inclusion in Africa.
“Our long-standing partnership with DTB marks a significant step in our commitment to empowering digital service providers in the region with much-needed solutions to scale and grow their businesses.”
The partnership is the latest between DTB and Mastercard in East Africa, with the bank exclusively issuing Mastercard payment cards in Kenya, Uganda, and Tanzania. It also supports the growth of digital solutions in the region.
Fintech startups in Africa grew 81% in 2021, with South Africa, Nigeria, and Kenya emerging as key hubs on the continent, according to a Mastercard study on the state of fintech in African markets.
Kellogg’s snack business rebrands as Kellanova
Kellogg’s global snacking business will be called ‘Kellanova’ following the spin-off of its North American cereal unit, the US packaged food giant has announced. The company will split into two units – Kellanova and WK Kellogg Co – later this year.
The spin-off, first announced last June, will see the Kellogg’s name remain on brand packaging.
Kellogg said it solicited employee ideas to name the two companies and received more than 4,000 submissions. Around one on five workers who submitted names suggested a variation of founder W K Kellogg’s name for the cereal business.
Last June’s initial plan envisaged a three-way split as it also included the sale or separation of the plant-based business, which includes Morningstar Farms. However, Kellogg said in February it has reversed course as consumers’ and investors’ interest in the category waned. Instead, it will be a part of Kellanova.
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