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ECB primes markets for June rate cut - Industry roundup: 12 April

ECB primes markets for June rate cut

The European Central Bank (ECB) Governing Council maintained the three key ECB interest rates at its April meeting, but the accompanying statement on the decision and the press conference from President Christine Lagarde strongly hinted at a rate cut for the Bank’s next monetary policy meeting in June.

The ECB noted that European inflation has continued to fall, led by lower food and goods price inflation. Most measures of underlying inflation are easing, wage growth is gradually moderating, and firms are absorbing part of the rise in labour costs in their profits. Financing conditions remain restrictive and the past interest rate increases continue to weigh on demand, which is helping to push down inflation. The only fly in the ointment is that domestic price pressures are strong, keeping services price inflation high.

“Our future decisions will ensure that our policy rates will stay sufficiently restrictive for as long as necessary,” commented Lagarde. “If our updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase our confidence that inflation is converging to our target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction.”

While the first rate cut seems tantalisingly close, the expectations for the level of cuts for 2024 have softened thanks to the persistent nature of both headline and core inflation.

“Market reaction to the meeting was limited, rate expectations haven’t changed significantly – the market still expects the first cut in June, this likelihood sits at 80% and we would expect that to creep toward a certainty as time progresses,” said Shane O'Neill, Head of Interest Rate Trading at Validus Risk Management. “What happens after this is where the interest lies, current pricing is for a little over 75bps of cuts in total for 2024, compared with approximately 40bps in the US. Whilst this is significantly lower than the start of the year, we still believe the risk to current pricing is an under delivery of cuts from the ECB – they will do whatever they can to guard against a renewed spike in inflation, and if yesterday’s US print taught us anything it is that good progress and a job done are two very different things.”


Rising cyber threats pose serious concerns for financial stability

The risk of extreme losses from cyber incidents is increasing, according to the International Monetary Fund’s (IMF) April 2024 Global Financial Stability Report, which reports that cyberattacks have more than doubled since the pandemic. 

While companies have historically suffered relatively modest direct losses from cyberattacks, some have experienced a much heavier toll. US credit reporting agency Equifax, for example, paid more than US$1bn in penalties after a significant data breach in 2017 that affected about 150 million consumers.

Such losses could potentially cause companies to have funding problems and even jeopardise their solvency. The size of these extreme losses has more than quadrupled since 2017 to US$2.5bn, and indirect losses like reputational damage or security upgrades are substantially higher.

The financial sector is uniquely exposed to cyber risk. Given the large amounts of sensitive data and transactions they handle, financial firms are often targeted by criminals seeking to steal money or disrupt economic activity. 

“Attacks on financial firms account for nearly one-fifth of the total, of which banks are the most exposed,” state the report authors, the IMF’s Fabio Natalucci, Mahvash S. Qureshi, and Felix Suntheim.

Incidents in the financial sector could threaten financial and economic stability if they erode confidence in the financial system, disrupt critical services, or cause spillovers to other institutions. For example, a severe incident at a financial institution could undermine trust and, in extreme cases, lead to market selloffs or runs on banks. Although no significant “cyber runs” have occurred thus far, IMF analysis suggests modest and somewhat persistent deposit outflows have occurred at smaller US banks after a cyberattack. Cyber incidents that disrupt critical services like payment networks could also severely affect economic activity. 

While cyber incidents will occur, the financial sector needs the capacity to deliver critical business services during these disruptions. To this end, the report suggests that financial firms develop and test response and recovery procedures, and national authorities should have effective response protocols and crisis management frameworks in place.


BNY Mellon and Kyriba bring short-term investment platform to SaaS solution

BNY Mellon has announced a collaboration between its short-term investment platform, LiquidityDirect, and Kyriba. This development combines Kyriba’s SaaS solution with the bank’s short-term investment platform in a move designed to enhance liquidity performance and unlock greater cash visibility. 

In addition, a statement says that clients will be provided with a seamless, holistic cash management experience that bridges operational efficiencies for self-directed cash management, payments and investments. 

“Whether its cash visibility or trade execution, treasury teams are demanding increased efficiency and straight-through execution,” said Edi Poloniato, Global Head of Banking Channel & Working Capital Solutions, Kyriba. “Collaborating with BNY Mellon's LiquidityDirect platform enables our customers to improve their liquidity performance.”


Surecomp embraces new APIs to harmonise digital trade finance adoption

Surecomp has announced its latest initiative to embrace the new application programming interface (API) SWIFT standards for bank guarantees and standby letters of credit (SBLCs). The APIs were developed in collaboration with the International Chamber of Commerce (ICC) to support the industry’s first API standards to promote structured digital exchange of financial messages.

Surecomp says it is working with several European banks that are actively building their own APIs to support the SWIFT standard for bank guarantee and SBLC processing. Developing the APIs in its collaborative trade finance platform RIVO and connecting its back-office solutions DOKA-NG and IMEX, Surecomp assures both corporates and banks that they will be able to process live transactions by the end of the year. 

This latest development follows the API-first approach, which already allows RIVO customers real-time access to digital trade document exchange and verification, maritime risk and compliance monitoring, contract management, and ERP connectivity.

“As the digital trade finance landscape continues to rapidly evolve, banks are under ever-increasing pressure to deliver a faster and more efficient customer service,” explained Enno-Burghard Weitzel, Chief Solutions Officer, Surecomp. “The need for interoperable solutions is paramount to streamline processes, reduce operational risks and improve trade finance transparency. By integrating the ICC and SWIFT’s latest standards into our solution suite, we are enabling banks and corporates to seamlessly connect with their counterparties, streamline workflows and enhance customer experience.”


Smurfit Kappa closes its green bond offering

Smurfit Kappa Group, one of the world’s largest integrated manufacturers of paper-based packaging products, has announced that it has successfully closed a triple-tranche offering by one of its wholly-owned subsidiaries, Smurfit Kappa Treasury Unlimited Company, comprising US$750m in aggregate principal amount of senior notes due 2030, US$1,000m in aggregate principal amount of senior notes due 2034 and US$1,000m in aggregate principal amount of senior notes due 2054.

The 2030 Notes priced at 99.880% and have a coupon of 5.200%, the 2034 Notes priced at 100.000% and have a coupon of 5.438% and the 2054 Notes priced at 100.000% and have a coupon of 5.777%. 

The net proceeds of the Notes will be used in part to finance the previously announced combination with WestRock Company (“WestRock”) and for general corporate purposes including the repayment of indebtedness, and will be subject to a special mandatory redemption in the event the combination with WestRock is not completed.

Absent any such special mandatory redemption of the Notes, Smurfit Kappa intends to use an amount equivalent to the proceeds of the Offering to finance or refinance a portfolio of Eligible Green Projects in accordance with the Group’s Green Finance Framework, which the Group may, in the future, update in line with developments in the market.

“The significant level of investor appetite for our Triple Tranche transaction, which enabled us to raise US$2.75bn very efficiently across the three tranches, was great to see and demonstrates the depth of liquidity available to the Group,” commented Emer Murnane, Group Treasurer, Smurfit Kappa.


Santander to introduce Openbank to the US

Santander has announced the launch of a digital offering in the US under the Openbank brand in the second half of 2024. Openbank will also be launched in Mexico in the same timeframe.

Openbank operates with a technological platform designed in-house at Santander that the bank says provides a secure and simple customer experience by combining functionality and design. Currently, Openbank serves more than two million customers across Europe (Spain, Portugal, Germany and the Netherlands), and has €18bn in deposits.

The rollout of Openbank in the US market marks the first time Santander has combined all its core proprietary technology to deliver a cloud-based banking platform. The launch aims to accelerate Santander US’ execution against its profitable growth strategy, generating deposits to fund its auto franchise.


Deutsche Bank issues largest FI panda bond in six years

Deutsche Bank has issued its third panda bond, raising RMB3bn (US$415m) via two-year senior preferred notes. The transaction attracted an orderbook of over RMB8bn (US$1.1bn). A statement from the bank said it drew robust investor demand and priced attractively versus existing Deutsche Bank debt.

This marks the largest panda bond issuance by a financial institution since 2018. The proceeds of this transaction will be used for general business activities and development. Panda bonds are bonds issued by foreign entities in mainland China, allowing them to tap into the domestic RMB bond market.

“It has been a positive start to the year for the panda bond market, with RMB61bn of issuance in the first three months,” commented Samuel Fischer, Head of China Onshore Debt Capital Markets, Deutsche Bank. “We continue to see strong levels of interest from both European and Emerging Market issuers, looking to tap into the market.”

Following the bank’s successful issuances throughout 2023, this marks the third issuance from the bank, which adheres to the pre-approved program by the People’s Bank of China (the PBOC). The program allows Deutsche Bank to issue RMB bonds in an aggregate principal amount of up to RMB8bn (US$1.13bn) periodically in up to two years, upon approval from China’s interbank bond market (CIBM).


Airwallex aims to streamline global expense management for Canadian businesses 

Airwallex has introduced its Borderless Visa Card in Canada. The virtual card is issued by Peoples Trust Company, part of Peoples Group, and aims to enable Canadian businesses to make payments globally, anywhere Visa is accepted.

Many of the business card solutions available in Canada today require businesses to fund transactions in Canadian dollars, which incurs high FX costs when used to spend with US or international vendors. The Airwallex card uses Visa’s virtual card capabilities, enabling Airwallex customers in Canada to instantly generate and issue virtual cards and pay global expenses directly from their multi-currency wallet, eliminating FX conversion fees.

If the account has an insufficient balance in the specified currency to fund the transaction, Airwallex will automatically convert funds held in the account in other currencies. With single- and multi-use card capabilities, the card is designed to allow for stronger security, better control, and heightened visibility of company spending.

The cards are integrated with Airwallex’s Expense Management offering, enabling teams to upload receipts, submit expense reports, and send through approval flows, giving businesses a unified view of expenses across all currencies and accounts. 

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