Kyriba reports sharp rise in FX headwinds

The headwinds caused by currency fluctuations increased sharply over the first three months of 2024, reports Kyriba.

The treasury management software specialist announces the rise in its just issued its Q1 2024 Currency Impact Report (CIR). The report, which analyses the effects of foreign exchange (FX) rates on international corporate earnings, highlighted a 44.6% increase in negative impacts from currency movements, totalling US$9.83 billion among North American and European companies..

The CIR analyses the earnings calls of 1,700 publicly traded North American and European companies and provides insight into the influence of foreign exchange movements on global organisational revenues, earnings, and cash flows.

The findings include a sharp increase in currency headwinds for US corporations, with their collective FX impact rising 219% in the first quarter of 2024, compared to the last quarter of 2023.

European companies have also felt the sting of currency fluctuations, Kyriba observes, albeit in a contrasting trend to their North American counterparts, as they reported US$2.72 billion in FX-related losses during Q1 2024, a 65.2% decrease from the previous quarter.

In what may be a surprise given the dollar’s advance against the yen, the Japanese currency is not cited as an impactful currency by corporates. Instead, the Argentinian peso along with the US dollar are most frequently cited as impactful currencies by North American and European firms, respectively. The Turkish lira was noted for its high volatility during the quarter.

“Currency volatility continues to pose a substantial risk to multinational corporations, significantly impacting their bottom lines,” says Melissa Di Donato, chair and CEO at Kyriba. “Our latest report underscores the heightened challenges companies faced in the first quarter of 2024. More importantly, it reinforces the critical need for strategic currency risk management and the use of advanced predictive analytics to mitigate these risks and optimise liquidity performance.”

Andy Gage, SVP of FX solutions and advisory at Kyriba, adds, “The early 2024 trends are showing an unexpected strength in the US dollar, thus forecasting a rise in FX headwinds for US corporations for the second half of 2024. Inflation, coupled with this strong dollar, is putting additional pressure on global economic stability, making it imperative for companies to employ robust risk management strategies.”

 

JCI-Hitachi confirms US$8.1 billion JV sale to Bosch

US industrial multinational Johnson Controls and Japan’s Hitachi have confirmed an agreement to sell their European air conditioning joint venture business to German manufacturer Robert Bosch in an US$8.1 billion deal.

The transaction includes the North America ducted business and global residential joint venture with Hitachi, of which Johnson Controls owns 60% and Hitachi owns 40%. 

As part of the transaction, the Johnson Controls-Hitachi (JCH) Shimizu factory, a development and manufacturing base for commercial air conditioning equipment, will be transferred to Hitachi Global Life Solutions Inc (Hitachi GLS). 

The new company, with its new shareholder Bosch, and Hitachi GLS will enter into a brand licence agreement for the new company to continue providing Hitachi-branded air conditioning equipment globally. In addition, Hitachi GLS says it will leverage Bosch’s footprint in Europe to strengthen the global rollout of highly competitive Hitachi-branded air conditioning equipment through Bosch and the new company.

By transferring the Shimizu factory to Hitachi GLS and integrating the development, manufacturing, sales and maintenance services of the commercial air conditioning business in Japan, Hitachi GLS will be able to develop highly competitive products that meet market needs.

Hitachi said the deal would enhance its competitiveness in the global air conditioning industry, which is undergoing consolidation. “Hitachi, and Hitachi GLS together with JCI, identified Bosch as the best partner to enable further growth of the global air conditioning business due to its footprint in Europe and its track record in heating business,” it said.

Johnson Control said the transaction would substantially simplify its portfolio with enhanced strategic focus, aligned with the company’s objective to be a pure-play provider of comprehensive solutions for commercial buildings. “The transaction represents a significant portion of the company’s previously announced strategic evaluation of non-core product lines,” it said.

Johnson Controls’ R&LC HVAC business generated approximately US$4.5 billion in consolidated revenue in 2023.

 

Bank of England to choose repo for liquidity management

The Bank of England (BoE) plans to manage liquidity through repurchase agreement (repo) practices rather than by purchasing large quantities of government bonds at pace reports The Desk which cites a senior official.

During a speech given at the Association for Financial Markets in Europe (AFME), Victoria Saporta, the BoE’ recently appointed executive director for markets, outlined the importance of preparing for the normalisation of the Bank’s balance sheet after a period of extraordinary monetary policy actions.

“Both we, the Bank, and you, the market, need to prepare ourselves for increased usage of both our short-term and long-term repo operations,” she stated.

The Bank welcomes the increased use of short-term repo (STR) to ensure interest rate control as the balance sheet is normalised, Saporta said. However, in order to generate sufficient reserves to establish a steady, demand-driven operating framework, other mechanisms need to come into play alongside this.

Asset purchases and lending should be conducted through repo agreements, she continued, sharing that the Bank is reviewing the calibration of its Indexed Long-Term Repo facility (ILTR) to ensure it is capable of supporting a potentially large provision of reserves.

The process of moving from an environment of surplus reserves to a demand-driven framework is already in motion, Saporta assured, but noted that the accuracy of estimates of the preferred minimum range for reserves demand may be inaccurate.

“It’s important therefore that our facilities are robust to this uncertainty, and that firms step up their preparations to ensure they are ready to use them sooner rather than later,” she warned. “The point at which banks will be required to borrow reserves to satisfy their payments and precautionary demand is firmly in sight.”

As such, the Bank welcomes increased use of its STR and ILTR facilities as it continues the transition.

Saporta concluded her speech with the assertion that firms need to be prepared to use STR and ILTR facilities as the Bank adjusts its liquidity approach.

“It will be important to have ensured you have been through the relevant testing and then by using the facilities, considered your collateral pre-positioning, and that you have considered how our facilities can play a key role in your day-to-day liquidity management,” she said. “I ask that you ensure you are signed up, operationally ready, and have positioned sufficient collateral to use in both BAU and in stress.”

 

Hungary cuts key interest rates

The Magyar Nemzeti Bank (MNB), Hungary's central bank, has cut its base rate by 25 basis points to 6.75%, in line with consensus estimates. This was the 10th rate cut since October, when the country's monetary loosening cycle started. 

The overnight deposit rate was also reduced to 5.75%, while the collateralised loan rate was cut to 7.75%. 

ʺThe inflation outlook continues to be consistent with the projection in the June Inflation Report. FX swap market processes at the end of the quarter were stable, which was also supported by the use of central bank instruments,ʺ the MNB said in a press statement. ʺIn addition, the incipient recovery in Hungarian economic growth, historically high foreign exchange reserves, the persistent current account surplus, the government's deficit reduction measures and a cautious approach to monetary policy act in the direction of an improvement in the country's risk perception.

ʺHowever, the volatile financial market environment, significant geopolitical tensions and the risks to the outlook for inflation continue to warrant a careful and patient approach.ʺ

It comes as Hungary's year-on-year inflation rate fell to 3.7% in June, which was below May’s five-month high of 4%, and also well under analyst expectations. 

According to the European Commission May economic forecast: ʺHungary's gross domestic product (GDP) contracted in 2023 in a context of high inflation and interest rates and weaker external demand. A gradual recovery is expected over the forecast horizon as households’ purchasing power rises and financing conditions ease.

ʺInflation has fallen from very high levels, but the recovery of consumption and strong nominal wage growth are set to limit its further decrease. After a large deterioration in 2023, the general government deficit is projected to remain elevated. The debt-to-GDP ratio is set to increase slightly this year." 

The European Commission expects Hungary's GDP growth to increase from 2.4% this year to 3.5% next year, while inflation is expected to come down from an average of 4.1% this year, to 3.7% next year. 

 

Revolut wins UK banking licence after three-year wait

Britain’s most valuable fintech firm, Revolut, has secured a UK banking licence – with “restrictions” – more than three years after it first lodged its application with regulators. Although It marks a milestone for the company, there could be a further wait before it can hold its customers’ deposits.

Tentative approval from the Bank of England means Revolut is in the mobilisation stage, where it will build its banking operations before a formal launch.

The firm first lodged its application for a UK banking licence in 2021. The challenge, in part, had been convincing regulators that Revolut has addressed several accounting and reputational concerns in recent years, after EU regulatory breaches, questions over its corporate culture and the late filing of its accounts.

A UK banking licence is a key step in accelerating Revolut’s growth, as it moves the company on from its current status as an e-money firm that operates as intermediary between consumers and licensed banks.

A UK licence will allow it to hold customer deposits, opening the door to new income streams, since it can start funding own-branded loans and mortgages. However, it will also face more stringent regulations and have to guarantee customer deposits up to £85,000.

Approval by UK regulators is likely to persuade regulators in other key countries, such as the US, to follow suit.

 

Bank of Canada trims growth expectations

The Bank of Canada trimmed its key policy rate by 25 basis points (bps) for the second successive month as expected, bringing it down to 4.5%, and said more cuts were likely if inflation continued to moderate in line with forecasts.

The bank had previously kept the rate at a two-decade high of 5% for almost a year in a bid to combat high inflation by by suppressing economic growth.

The bank reiterated that inflation should return sustainably to its 2% target in the second half of 2025. “We are increasingly confident that the ingredients to bring inflation back to target are in place,” Governor Tiff Macklem told reporters.

The Bank trimmed its 2024 growth forecast to only 1.2% the 1.5% that it predicted in April, in part because households are setting aside more money to pay debts and have less to spend on discretionary items.

Money markets are seeing a 52% chance of a cut in the Bank’s next monetary policy decision announcement on 4September, and factoring in just one more 25 bps cut this year, which would bring the policy rate down to 4.25%.

“We need growth to pick up so inflation does not fall too much,” said Macklem. The downside risks to inflation were taking on increased weight in monetary policy deliberations, he said.

Accenture to acquire Germany’s Camelot Management

Professional services company Accenture is set to acquire Camelot Management Consultants, an SAP-focused management and technology consultancy based in Germany. Financial terms and other details of the transaction were not disclosed by the companies.

Completion of the deal is now subject to receipt of regulatory approvals and fulfilment of other customary closing conditions.

Established in 1996, Camelot has a strong portfolio in supply chain, data, and analytics. As a SAP partner in Germany, Austria, and Switzerland, the company serves a diverse client base in the life sciences, chemicals, consumer goods, and industrial manufacturing sectors.

Camelot, which has its headquarters in Mannheim, Germany, also operates in the India, Poland, Spain, Switzerland, United Arab Emirates and the US.

The integration of Camelot into Accenture ʺis expected to enhance the latter’s services in reinventing clients’ supply chains capabilities, helping clients build the intelligent and resilient supply chains that today’s business landscape demands.ʺ

 

Visa partners with First Abu Dhabi on cross border payments

Visa announced a partnership with UAE’s First Abu Dhabi Bank (FAB) to expand the Visa B2B Connect network in the region. The collaboration aims to enhance corporate cross-border payments, allowing businesses in the UAE to conduct secure and efficient transactions worldwide.

Visa B2B Connect is a non-card-based multilateral platform that provides predictable, secure, and cost-effective cross-border payments for financial institutions and their corporate clients. The platform simplifies international transactions by reducing the number of intermediaries involved, improving efficiency and transparency.

The agreement was signed by Sanjay Sethi, Head of Global Transaction Banking at FAB, in the presence of Sara Al Binali, Group Head of Corporate and Commercial Banking at FAB, and Shahebaz Khan, Senior Vice President and head of Commercial and money Movement Solutions for Visa B2B Connect, CEMEA. This partnership marks a strategic milestone for both companies, reflecting their shared commitment to innovation and excellence in the financial sector.

“We are excited to welcome FAB to the Visa B2B Connect network,” said Vishal Virmani, Head of Visa B2B Connect CEMEA at Visa. “This partnership represents a significant step forward in our mission to provide seamless, secure, and efficient payment solutions for businesses. FAB’s market leadership and extensive network will be instrumental in driving the adoption of our platform across the UAE.”

 

Liberis and Nexi join forces on revenue-based financing in Germany

Liberis Group, which operates a global embedded finance platform, has partnered with Italy’s payment technology company Nexi, to mark its entry into the German market.

The collaboration, operated through Liberis Debt Fund GmbH & Co. KG and managed by Liberis Debt Fund Management GmbH, aims to introduce ‘Nexi Financing’—a venture powered by Liberis. ʺThis initiative is set to benefit 120,000 merchants by offering them flexible financing options essential for sustaining and expanding their businesses,” a release added.

The partnership between Liberis and Nexi is primarily driven by the need to support the substantial small-to-medium-sized enterprise (SME) sector in Germany, which constitutes over 99.6% of all businesses and accounts for approximately 58.5% of employment in the country. This initiative aims to bolster the German economy by providing SMEs with the necessary resources to thrive and innovate.

The Liberis Group” is renowned for its flexible embedded finance solutions that significantly impact businesses by offering accessible and responsible finance options. Founded in 2007, Liberis has been at the forefront of delivering tailored financial solutions to small businesses, enabling over 100,000 jobs through more than $1bn funded across 60,000 transactions.

Nexi specialises in PayTech solutions across Europe, enhancing the financial infrastructure with innovative services that add value to merchants and small businesses, facilitating their growth and operational efficiency.

 

China’s Shenghe to acquire 50% of Peak Rare Earth’s Tanzania project

Australia’s Peak Rare Earths announced that Chinese miner Shenghe Resources is to acquire a 50% stake in an UK-based firm that owns 84% of its Ngualla project in Tanzania.

Ngualla is a rare earths project in southern Tanzania owned by PR NG Minerals, 87.5% of which is owned by Peak.

Shenghe Resources, through its subsidiary Shenghe Resources (Singapore), already holds a 19.9% stake in Peak and has been involved in the company’s governance since December 2022.

The announcement of the term sheet follows the execution of a binding offtake deal with Shenghe Singapore for rare earths that secured the clearance of Peak shareholders last month.

Shenghe’s investment will cover new shares amounting to approximately A$96 million (US$63.57 million).