Damage limitation efforts continue after SVB collapse

SVB Financial Group and two top executives have been sued by shareholders over the collapse of Silicon Valley Bank (SVB), as efforts continue to limit the fallout from the biggest bank failure since 2008.

The proposed class action was filed in the federal court in San Jose, California. The bank’s shareholders accuse SVB’s chief executive Greg Becker and chief financial officer Daniel Beck of concealing how rising interest rates would leave its Silicon Valley Bank unit “particularly susceptible” to a bank run.

It is potentially the first of many lawsuits over the demise of the bank, which US regulators seized on 10 March after a surge of deposit withdrawals.

Many traders believe that the US Federal Reserve will now hold off raising interest rates next week as part of efforts to limit the contagion from SVB’s collapse. “In light of the stress in the banking system, we no longer expect the FOMC to deliver a rate hike at its next meeting on March 22 (vs. our previous expectation of a 25 basis point (bp) hike),” said analysts at Goldman Sachs.

“We have left unchanged our expectation that the Federal Open Market Committee (FOMC) will deliver 25bp hikes in May, June, and July and now expect a 5.25-5.5 per cent terminal rate, though we see considerable uncertainty about the path,” they added.

On Sunday, US state regulators closed New York-based Signature Bank, the third largest failure in US banking history, two days after authorities shuttered SVB.

The Federal Deposit Insurance Corporation (FDIC) took control of Signature, which had US$110.36 billion in assets and $88.59 billion in deposits at the end of last year, according to New York state's Department of Financial Services.

Depositors of Signature Bank and SVB will be made whole, and “no losses will be borne by the taxpayer,” the US Treasury Department and other bank regulators said in a joint statement.

However, concerns remain that the contagion could spread to other banks. Moody’s Investors Service has placed First Republic Bank and five other US lenders on review for downgrade, the latest sign of concern over the health of regional financial firms. This is despite First Republic announcing on Sunday that it had secured additional financing through JPMorgan Chase Co, giving it access to a total of US$70 billion in funds through various sources.

Western Alliance Bancorp., Intrust Financial Corp., UMB Financial Corp., Zions Bancorp andwere the other lenders put on review by Moody’s.

Among reports issued in recent days is a list of firms with exposure to SVB and an analysis by Clifford Rossi, professor at the Robert H. Smith School of Business, University of Maryland, of the failures of risk management that led to the bank’s demise.

In good news for British businesses, HSBC acquired the UK arm of SVB for a token payment £1 after a weekend of crisis talks with the Bank of England and government ministers following the collapse of the bank’s US parent on Friday.

The last-minute rescue has averted a crisis for the UK technology industry. SVB’s British business is a key banking partner for venture capital firms and start-ups and has more than 3,000 customers in the UK.

“If I were a start-up and I’d got my money in Silicon Valley Bank, I would certainly be thinking, ‘Well, maybe I should have had it somewhere like HSBC to begin with',” commented Sarah Boyce, an associate director at the Association of Corporate Treasurers (ACT).

• “The Silicon Valley Bank affair should at least be a wake-up call for corporate treasurers. Banks can go bust very, very quickly. Deposits aren’t guaranteed above £85,000. Governments have made it crystal clear they will not automatically bail out bust banks. It’s not hard to understand the danger of putting all eggs in one basket, but this episode is exposing seemingly reckless practice by some UK corporates. Trustpilot had $54 million out of its $74 million cash pile with SVB. Naked Wines had £14.6 million out of £32 million. This time, treasurers got lucky. No depositor will lose a penny. They may not be so lucky next time.” Patrick Hosking, The Times of London (14 March)

Power outages pressure South African banks’ asset quality, warns Fitch

South African banks face near-term asset quality pressures due to record load shedding – caused by the country’s increasingly fragile power supply – and its impact on economic activity, says Fitch Ratings.

The ratings agency says that load shedding, or power blackouts, has caused significant disruption in South Africa and reduced business confidence, currently at a two-year low, as well as raising labour market uncertainty. “This adds to existing asset quality and profitability pressures from persistently slow economic growth, high inflation and rising interest rates,” Fitch notes.

The financial health of South Africa’s electricity sector, particularly that of the state-owned power utility Eskom (B/Stable), which provides 85% of the country’s electricity, has continued to deteriorate.

The South African Reserve Bank (SARB) recently updated its GDP growth figure for the fourth quarter of 2022 to a 1.3% contraction. This follows a downward revision in its 2023 GDP growth forecast to 0.3%, from 1.1% previously. The lower forecast is partly due to SARB’s revised estimate of load-shedding days in 2023, exerting a 2 percentage point (pp) drag on GDP growth during the year due to lost working days.

According to SARB, the sectors most affected by load shedding are agriculture, mining and manufacturing. Load shedding will also add to inflationary pressures given disruptions to supply chains and decreased output. Increased reliance on diesel generators during power outages has caused the commercial property industry’s cost of operations to surge. Pressure on all businesses is compounded by the recent 18.7% rise in electricity prices, well above the 6.9% rate of annual inflation.

Fitch notes that Standard Bank views energy shortages as one of the biggest barriers to economic growth in Africa, although South African banks are reporting 2022 earnings and profit growth, boosted by higher interest rates and the post-pandemic recovery in lending “However, we expect load shedding to have a delayed effect on the banks’ earnings and asset quality, which will become more pronounced in 2023,” the agency concludes. “As a consequence, we expect banks to adopt more cautious views on credit growth.”

Nedbank recently reported in its Industry Insights report that since the start of 2023 there has been load shedding every day. “Based on our calculations, real GDP is likely to shrink by a further 0.4% in Q1, which means that the economy probably entered a recession in the final quarter of last year,” the bank said.

Three global cities booming as major financial hubs wane

Miami, Dubai and Singapore are booming as international financial hubs by welcoming those chased out of rival locations claims Ruchir Sharma, chair of US financial services group Rockefeller International.

Writing in the Financial Times, Sharma says that New York appears indifferent to an exodus of its wealthy citizens since the advent of Covid-19, apparently complacent that it will always be “the gravitational centre of the cultural universe”. However, the pandemic demonstrated how easy it is to relocate, persuading many high-net-worth individuals and professionals to abandon the Big Apple’s “high taxes, surging crime [and] simmering anti-capitalist hostility” — in a flight to no taxes and a warm welcome in Miami.

Moscow is suffering a similar loss, as rich Russians reject heavy-handed Kremlin tactics and opprobrium caused by the war in Ukraine by opting for more hospitable options such as Dubai, which offers ‘golden visas’ that allow the wealthy to buy property and stay. Meanwhile, regulatory pressure from Beijing is driving tycoons to buy second homes in Singapore.

Sharma notes that millionaire populations dropped by 12% last year in New York, 14% in Hong Kong, and 15% in Moscow. By contrast Dubai, Singapore and Miami are deliberately exploiting this migration by opening their doors to capitalists.

“Increasingly, unabashedly capitalist cities are finding one another,” he concludes. “The migration of jobs and capital are leading indicators of development and of decline. Global cities hostile to wealth will end up sabotaging their own economic prospects to the benefit of more welcoming rivals” such as the three new boom cities.

Argentina’s US$21.7 billion debt swap gives temporary reprieve

Participation in Argentina’s recent US$21.7 billion debt swap may have been less than initially reported last week, with government officials and analysts disagreeing on how the results of the swap should be counted.

On 9 March it was announced that Argentina had swapped pesos (ARS) 4.34 trillion – equivalent to US $21.66 billion – in domestic debt, amounting to around 64% of loans due to mature through June and helping to ease near-term fears of a debt default as the economy falters under pressure from a devastating drought.

However, local analysts insist that the participation rate was nearer 58% than the 64% reported by the government, because the Economy Ministry included securities in the swap that were already included in a debt exchange in January.

The swap exchanges old debt for new bonds maturing in 2024 and 2025, according to an economy ministry statement. “In this way, the uncertainty about the debt maturities of the coming months is cleared up, helping to preserve the sustainability of the Treasury debt," the ministry said.

The bond swap, Argentina's third since August 2022, still leaves the country with an estimated US$170 billion of local debt due, given the swap only pushes back the payment deadline.

The economy is also feeling the impact of severe drought, which threatens to shave off three percentage points this year a local grains exchange has warned, compounding high prices and a weakening currency.

Rosario Grains Exchange (BCR) estimates that extremely dry conditions will clip the country’s gross domestic product (GDP) this year by US$19 billion, compared to 2022, as crop forecasts for the nation's main grains harvests have been repeatedly cut back in recent weeks. Argentina is one of the world's top grains producers and exporters, especially for key staples including soybeans, corn and wheat.

Viterra gets sustainability-linked trade finance facility from DBS

Singapore’s DBS has provided a US$50 million trade finance facility to Viterra, a subsidiary of Swiss multinational commodities trader Glencore, linked to sustainable sourcing of palm oil products.

The working capital loan enables Viterra to receive preferential pricing providing it hits targets relating to sustainability in its supply chains.

A DBS spokesperson said that targets involve ensuring that the palm oil and palm kernel expeller (PKE) are traceable to the mills Viterra purchased them from, and that the trader’s suppliers are members of the Roundtable on Sustainable Palm Oil (RRSPO) or have committed to no deforestation, no peat and no exploitation policies.

Viterra has already met those goals for most of its volumes, the spokesperson added, and the targets aim to maintain or increase the volumes covered by the sustainability commitments over the life of the loan.

The palm oil industry has long been at the centre of concerns over deforestation, which contributes to climate change, biodiversity loss and the shrinking habitat of endangered species such as orangutans and Sumatran rhinos. Human rights groups have also highlighted labour exploitation issues in the sector.

Viterra, which began trading physical palm oil cargoes in 2021, sources its products from Indonesia and Malaysia. At the Cop27 summit last year the company signed up to the Agriculture Sector Roadmap to 1.5°C, an initiative aimed at reducing emissions from agriculture.

“Viterra is pleased to partner with DBS to establish this sustainability-linked finance facility which supports the emphasis Viterra places on sustainability,” said Joanna Lim, the company’s executive manager for Asia.

“We recognise the demand from customers for sustainable products, and we are committed to supporting industry initiatives. Across our network, we want to drive change to meet the demand of consumers while preserving the same opportunities for future generations.”

Last month Viterra refinanced its A$800 million (US$533 million) sustainability-linked borrowing base facility, led by the Commonwealth Bank of Australia (CBA), which included more ambitious sustainability targets in the grain, protein meals and cotton sectors.

India “to discourage foreign trade settlement in Chinese yuan”

India has asked banks and traders to avoid using Chinese yuan to pay for Russian imports, due to long-running political differences with its neighbour, claims a Reuters report that cites comments from three government officials involved in policy making and two banking sources,

India, which since the February 2022 invasion of Ukraine has emerged as a top buyer of Russian oil as well as discounted coal, would prefer the use of United Arab Emirates dirhams to settle trade, three government officials said.

One of the government officials directly involved in the matter said New Delhi is “not comfortable” with foreign trade settled in yuan but that settlement in dirham “is okay”.

The second official said that India cannot allow settlement in yuan till the relations between the two countries improve. Thousands of Indian and Chinese troops are locked in a standoff along their disputed Himalayan border since 2021.

MoneyGram and Lynx launch digital receive capabilities in Jamaica

MoneyGram International has teamed up with Jamaica's mobile wallet application, Lynk, to provide its consumers with the ability to receive cross-border payments directly to their smartphones.

The move expands MoneyGram's global footprint as Lynk is owned by National Commercial Bank Financial Group, which controls more than 60% of the payments markets in Jamaica, said MoneyGram Chief Revenue Officer Grant Lines.

In December 2022, Lynk announced that its mobile wallet hit $1.5billion JMD in transactions in its first year of operations. Along with the new remittance feature, the app enables users to purchase mobile credit, pay bills at over 300 locations, transfer to other Lynk accounts, and pay for goods and services at over 5,000 local businesses across Jamaica.

"Lynk joins a strong roster of digital partners helping us to expand our mobile wallet capabilities into some of the largest receive markets around the world," said MGI Chairman and CEO Alex Holmes.

As part of its global expansion, MoneyGram expanded its payments platform to Brazil, Latin America's largest economy, in December.

India applies anti-money laundering laws to cryptocurrency

India is tightening the regulation of cryptocurrency transactions as the country’s Ministry of Finance, in a gazette notification, announced that all transactions related to cryptocurrencies or virtual tokens will come under the Prevention of Money Laundering Act (PMLA) 2002.

Under the provisions, said the Ministry, it is mandatory for local crypto exchanges and entities dealing with virtual digital assets to conduct know-your-customer (KYC) due diligence on their users and for every reporting entity to maintain a record of any transaction exceeding US$12,200 for a minimum of five years.

The PMLA, passed by the National Democratic Alliance government in 2002, came into force on July 1, 2005 and represented India’s commitment to the Vienna Convention on combating money laundering, drug trafficking, and countering the financing of terror (CFT). The law was aimed at curbing the process of converting illegally earned money into legal cash. The Act empowered the Enforcement Directorate (ED) to control money laundering, confiscate property, and punish offenders.

In India, concerns around the use of cryptocurrencies for laundering illegal cash came to the fore in June 2021, when the authorities discovered that nearly US$488 million had been laundered via crypto transactions in the previous year alone.

ING closes US$400 million SLD for China’s Ant Group

Dutch bank ING has closed Chinese tech firm Ant Group's first sustainability-linked derivative (SLD), a US$400 million transaction that is an interest rate swap designed to hedge the interest rate risk of drawings under a floating rate credit facility with sustainability features.

ING said that the derivative transaction is also the bank’s first in the Chinese technology sector. “The SLD incorporates a two-way mechanism where Ant Group gets a rebate for reaching environmental and social key performance indicators (KPIs). Conversely, if none of these targets are met, the firm will need to payback a pre-agreed amount to ING,“ the bank commented.

“We hope that the uniqueness of the deal structure would encourage more firms to incorporate sustainability in their business decisions and recognise the importance of being carbon neutral.”