France lowers 2024 economic growth forecast to 1%

France’s Finance Minister Bruno Le Maire has revised the country’s 2024 economic growth forecast from 1.4% to 1% and announced plans to cut spending by €10 billion (US$10.8 billion).

Le Maire lowered the outlook for gross domestic product (GDP) in a television interview on Sunday and said that central government spending cuts will be made across all ministries and some programmes with immediate effect, in order to make up for the shortfall in output.

The move will allow France to maintain its target of lowering its deficit to 4.4% of economic output in 2024 from 4.9% last year, he added. “The principle of responsibility is to act at the right moment with rigor but without brutality to keep control of our public finances, deficits and debts,”

“I am committed to not increasing taxes,” said Le Maire, who has been in his role since Emmanuel Macron was first elected President in 2017. “We have cut them and won’t deviate from this line. French people can’t bear any more tax.”

Budget Minister Thomas Cazenave said on Monday that it’s “very probable” the government will have to save more than €12 billion next year.

The deterioration in France’s prospects is a major blow to Macron, who has sought to improve France’s fiscal position without austerity or tax hikes, instead relying on stronger economic growth that he said would come from pro-business and labour-market reforms.

However, the policy has come under pressure as spending ballooned during the Covid-19 pandemic and again in the energy crisis sparked by the war in Ukraine. In December, S&P Global Ratings kept a negative outlook on France’s credit rating and cautioned it could downgrade at some point this year, depending on how government spending and economic performance affect public finances.

In September, France presented a first step toward tackling high debt with €16 billion of savings to reduce its deficit to 4.4% of economic output in 2024 from 4.9% last year. But most of that will come from withdrawing vast support provided to households and firms during the energy crisis, and the plan relied on stronger economic growth.

“It’s still positive growth but it takes into account the new geopolitical context,” Le Maire said. He cited the wars in Ukraine and the Middle East, a slowdown in China and recession in Germany as taking a toll on the French economy.

 

Barclays to return £10 billion to shareholders

Barclays has confirmed plans to hand back £10 billion (US$12.6 billion) to shareholders by 2026 despite a drop in its full-year earnings.

The UK ‘Big Four’ bank is also launching a £2 billion cost-cutting drive across the business over the next two years in a bid to revive profits.

Barclays reported a 6% decline in annual pre-tax profits for 2023 to £6.6 billion. In the fourth quarter, its profit was down by 92% at £110 million against £1.3 billion in Q4 2022. The bank revealed £927 million worth of structural cost actions in the final quarter, including £300 million related to staff.

Barclays’ chief executive C S Venkatskrishnan is setting out details of the UK bank’s first major strategic review in a decade, days after announcing its £600 million deal to purchase Tesco Bank from Britain’s biggest supermarket chain.

Venkatakrishnan, known as Venkat, said the bank’s new three-year plan will improve performance. “Our new three-year plan.... is designed to further improve Barclays' operational and financial performance, driving higher returns, and predictable, attractive shareholder distributions," he said in a statement.

The plan includes reorganising the bank to focus on five divisions to improve its financial performance and focus on the UK division.

Vim Maru will become the chief executive of the UK bank, replacing Matt Hammerstein, who will move to head up the UK’s corporate bank as part of the reorganisation.

“Medium-term guidance was positive and points to around 54% of today’s market cap being returned to investors by 2026,” commented Matt Britzman, equity analyst for financial services firm Hargreaves Lansdown:

“But there may be some who question whether it’s a little optimistic, especially relating to growth expected from the investment bank. Barclays’ huge presence in the investment banking world is an attractive proposition. But conditions are still poor and low activity in the capital markets continues to weigh on performance.”

 

Israel’s economy slumps as war takes toll

Israel’s economy suffered one of its worst-ever slumps in the fourth quarter of 2023, after the outbreak of war paralysed businesses, forced people to evacuate their homes and caused the military to call up hundreds of thousands of reservists.

Growth has contracted more than anticipated by its war with Hamas following the attack on Israel on 7 October, with output in the final three months of 2023 falling by 19.4% compared with Q4 2022.

The fall was more than market analysts had expected and marks the biggest contraction since 2020 when the Covid-19 pandemic was impacting, according to Israel's Central Bureau of Statistics’ first estimate.

The decline was partially due to a dive in business activity as workers were called up for military duty and Palestinian employees were denied entry to Israel. Private consumption shrank by 26.9%, while business investment fell by 67.8%. Exports declined by 18.3% and imports were down 42%.

Government spending offset some of the losses, climbing by 88.1%, mainly on war expenses. 

Despite the sharp contraction in Q4 Israel’s economy for the whole of 2023 was still up by 2%, according to the statistics office, but down on 2022's figure of 6.5%.

Moody's credit rating agency last week lowered Israel's credit rating, commenting: “The negative impact on the country's institutions and public finances ... may prove more severe than Moody’s currently assesses.”

 

Australia’s A$4.9 billion ANZ-Suncorp deal moves closer

Australia’s ANZ Bank has won ia lengthy battle to overturn a competition watchdog decision to block its proposed A$4.9 billion (US$3.2 billion) purchase of Suncorp Group Ltd.’s banking arm.

The Australian Competition Tribunal announced its decision in the Federal Court in Sydney on Tuesday. It will now require final approval from the Queensland state government and Treasurer Jim Chalmers.

ANZ first made a bid for Suncorp’s bank in July 2022, as part of a plan to expand in retail banking, but the Australian Competition and Consumer Commission rejected the deal last August, saying it would entrench a banking oligopoly.

ANZ appealed to the tribunal last year, saying the transaction would help it take on industry giant Commonwealth Bank, and has been awaiting today’s decision.

Today’s ruling paves the way for Australia’s biggest banking merger since Commonwealth Bank of Australia (CBA) took out ailing Bankwest during the global financial crisis in 2008 and could mean further consolidation in the sector amid intense competition for home and business loans.

While competition tribunal’s deputy president, John Halley, said co-ordination between the banks was a risk in a market as concentrated as the banking sector, recent developments had “reduced, and are likely to continue to reduce” the danger.

 

Investors avoid riskiest US corporate bonds

The riskiest US corporate bonds have come under fresh pressure since the start of 2024, missing out on a rally across broader debt markets as investors are wary of stop-start access to funding and deepening distress for low-grade borrowers, reports the Financial Times.

The business daily reports that Triple C-rated US bonds — the bottom rung of the credit quality ladder — are yielding 13.6% on average, according to data from Ice BofA, up from just over 13% at the end of 2023, with rising yields reflecting falling prices.

In turn, the spread — meaning the premium that those lowly-rated borrowers must pay to issue debt over the US Treasury — has risen to 9.28 percentage points from 8.51% in late December.

The data contrasts with a rally across higher-quality credit markets in recent weeks that has fuelled a wave of debt issuance. Investment-grade borrowers posted a record January for bond sales, while high-yield or “junk” volumes reached a two-year high, as finance chiefs took advantage of a drop in yields to borrow at more attractive rates.

Although US inflation data for January showed a rate of 3.1%, higher than expected and sparking concerns that interest rates cuts will take longer than previously anticipated, overall credit spreads were little changed. Pharmaceuticals group Bristol Myers Squibb sold US$13 billion of debt on Wednesday.

Investors and analysts said that the disparity between the highest- and lowest-quality bond spreads reflected persistent worries over very risky companies losing access to funding, forcing them further into distress — a scenario that could spark more defaults.

“Our view is that for reasonably high-quality businesses, there will be interesting ways to access capital,” Ed Testerman, partner at investment management firm King Street Capital, told the FT. “[But] for the lowest quality companies, there will be fewer options at their disposal, which may drive more defaults.”

 

Japan issues first climate transition bond

In a world first, the government of Japan, via the country’s central bank, has embarked on its Climate Transition Bond (CTB) with an inaugural transaction worth yen (JPY) 800 billion (US$5.5 billion) in 10-year bonds.

Plans to pioneer the world’s first government-issued transition bonds designed to help Japan achieve net zero by 2050, were first revealed last October by the Prime Minister, Fumio Kishida.

The offering marks the first tranche of a planned JPY1.6 trillion CTB to fund Japan’s ambitious Green Transformation (GX) programme, with the remaining half to be issued through a five-year bond.

The GX Plan is at the centre of Japan’s plans to raise JPY150 trillion (US$1 trillion) worth of public and private investments over the next 10 years in advanced, sustainable technologies. These investments are the means through which it hopes to support its national emissions reduction plan and reach carbon neutrality by 2050.

The bond proceeds will see 55.5% allocated to research and development initiatives in areas including renewable energy and hydrogen utilisation in steelmaking. The remaining 44.5% is earmarked for subsidies, for activities including electricity storage batteries manufacturing and energy-efficient buildings.

The country recently allocated JPY3 trillion over the next 15 years to subsidise the production of cleaner hydrogen.

 

Goldman launches global green bond ETF

Goldman Sachs Asset Management (GSAM) has launched a new exchange traded fund (ETF) in Europe offering broad exposure to green bonds, diversified across currencies and fixed income sectors worldwide.

The Goldman Sachs Global Green Bond UCITS ETF is listed on London Stock Exchange (LSE) and SIX Swiss Exchange in euros. The fund is also available through a sterling-hedged share class on LSE as well as euro-hedged share classes on Borsa Italiana and Xetra.

Green bonds are financial instruments designed to raise funds specifically for projects with environmental benefits, such as renewable energy, energy efficiency, and pollution reduction. They play a pivotal role in funding the climate transition, as evidenced by the record issuance of green bonds in 2023 from a growing range of issuers.

Green bond ETFs offer diversified exposure to the green bonds market, enabling investors to replace a portion of their existing fixed income portfolios with bonds that meet sustainable investment criteria.

GSAM’s launch of its first green bond ETF in Europe “builds on the firm’s strong foundation in green bond investing, where it stands as a leading manager of open-ended green bond UCITS funds, distinguished by both the size of assets under management and the net inflows received in 2023.”

Bram Bos, Global Head of Green, Social & Impact Bonds at GSAM, commented: “The latest addition to our growing green bonds fund range demonstrates our continued commitment to offer investors a plethora of ways to access the green bonds markets. Today’s green bond investors include a growing number of traditional fixed income clients, not just those focused primarily on impact and environmental, social and governance criteria.”

Hilary Lopez, Head of EMEA Third Party Wealth at GSAM, added: “The global green bond market is an increasing source of opportunity for investors as they look to complement their fixed income exposure with dedicated green, social and impact bonds. We are delighted to be launching this innovative product which brings the expertise of our green bonds team to an ETF format for the first time.”

 

BNY Mellon unveils direct-to-custody trading platform

BNY Mellon has announced the launch of a new digital direct-to-custody trading solution for clients’ investment and cash management needs.

Named NEXEN Markets, the platform is designed to enable clients to place equity, exchange traded fund (ETF) and US Treasury orders directly from their accounts.

It will provide clients with a real-time view of cash balances and positions, with a view to supporting straight-through processing and mitigating settlement and operational risks.

Additional features include direct electronic order communication from custody accounts, real-time trade execution data, price stream for click-to-trade capabilities, and automated end-to-end processing from trade to settlement.

BNY Mellon ranks among the top 12 dealers in executive Treasury bill volume on Bloomberg and is an authorised participant for over 40 ETF issuers.

 

Battery manufacturer ACC raises €4.4 billion in debt

European battery maker Automotive Cells Company (ACC) has closed a €4.4 billion (US$4.7 billion) debt raising, increasing the funding for the construction of three gigafactories for lithium-ion battery cell production in France, Germany and Italy, as well as for research and development.

A release said that the operation will accelerate the development of ACC and strengthen its position as a key player in the battery industry to equip high-performance, low-carbon electric vehicles. In December 2023, the company started production for Stellantis at its Billy-Berclau Douvrin gigafactory in France.

“This success paves the way for further industrial developments to meet demand, marked by the start of construction of the second block on the French site, before launching the construction of the first block in Germany and the double block in Italy,” the company stated,

The debt package will contribute to finance these capacities and is fully underwritten by a consortium of commercial banks – BNP Paribas, Deutsche Bank, ING and Intesa Sanpaolo – and supported by Bpifrance, Euler Hermes and SACE. BNP Paribas acted as exclusive financial adviser to ACC.

ACC’s three shareholders – Stellantis, Mercedes-Benz and Saft – showed their engagement, the battery maker says, by working together with the company and participating in a capital increase to ensure its success. By the end of March 2024 and with the next capital injection, Stellantis will own 45% of ACC’s shares, Mercedes-Benz 30% and Saft 25%.

Stellantis and Mercedes-Benz confirm their commitment as leading shareholders and customers of ACC’s battery modules. They have agreed to modify ACC’s capital shareholding and plan to progressively increase their equity stakes in the battery maker. Saft, a wholly owned subsidiary of TotalEnergies, is committed to continuing to work with ACC, it notes, as a long-term shareholder and by adding its technological know-how.

“The transition to the electrification of vehicles is still on the way,” says ACC’s chief executive Yann Vincent. “To meet this immense challenge, our customers must be able to rely on robust and reliable European players like us who are capable of delivering high volumes of competitive batteries with a low CO2 [carbon dioxide] footprint.”

 

Saudi CMA chief forecasts growth for open banking

The open banking market is growing fast and on course to reach US$43 billion by 2026 from US$7 billion in 2018, says the chairman of Saudi Arabia’s Capital Market Authority (CMA).

Speaking at the Open Banking Hackathon 2024 in Riyadh, Muhammad bin Abdullah Al-Quwaiz said this growth reflects the increasing acceptance and integration of open banking frameworks around the world, according to a report in state media.

The hackathon was held to familiarise participants with the relatively new technology used for open banking services. The programme offered expert coaches and mentors who guided participants on how to pitch their projects.

Open banking practice allows banks and financial institutions to give third-party financial service providers access to consumer banking, transaction, and other financial data through the use of application programming interfaces.

Al-Quwaiz said: “It is also evidence of the crucial role that open banking plays in shaping the future of financial services, thanks to its ability to enhance transparency, improve the experience of customers, and encourage fair and effective competition between financial institutions.”