Eight Japanese chipmakers plan US$30 billion investment in semiconductors

Eight Japanese companies, including Sony and Mitsubishi Electric, plan to invest yen (JPY) 5 trillion (around US$30 billion) in semiconductors in response to the growing opportunities in artificial intelligence (AI), electric vehicles (EV), and the carbon reduction market. The investment is expected to increase the production of image sensors, power semiconductors, logic semiconductors, and other products.

The ¥5 trillion investment will be made over the period to 2029, driven by the optimistic outlook for the AI and carbon reduction markets. A report compiled by Nikkei surveys the equipment investment plans of eight major Japanese semiconductor manufacturers between 2021 and 2029: Sony, Mitsubishi Electric, Rohm, Toshiba, Kioxia, Renesas, Rapidus, and Fuji Electric.

The report indicates that Sony will invest about ¥1.6 trillion from 2021 to 2026 to increase the production of complementary metal oxide semiconductor (CMOS) image sensors and other products, with plans to build a new factory in Kumamoto Prefecture. Additionally, Japanese manufacturers are expanding the production of power semiconductors in response to the growing AI data centre and electric vehicle (EV) markets.

Toshiba and Rohm plan to invest a combined total of around ¥380 billion to increase production of silicon (Si) and silicon carbide (SiC) power semiconductors. Mitsubishi Electric aims to increase its SiC power semiconductor capacity to five times the 2022 level by 2026 and will invest about ¥100 billion to build a new factory in Kumamoto Prefecture. Mitsubishi Electric President Kei Urushima stated that they aim to establish a system capable of competing with its rival Infineon, which is the global leader in the SiC power products.

Japanese semiconductor companies reportedly held a 50% global market share in 1988, but after the 1990s, they lost the competition to Taiwanese and South Korean manufacturers, leading to their withdrawal from advanced process research and development in the early 2000s. By 2017, Japan’s market share had fallen below 10%.

In recent years, the Japanese government has been actively revitalising the semiconductor industry. In the field of advanced logic semiconductors necessary for AI, the Japanese government has decided to provide up to ¥920 billion in support to Rapidus. Rapidus plans to begin trial production of 2-nanometer chips in April 2025 and commence mass production in 2027.

 

New UK government launches £7.3 billion National Wealth Fund

The UK’s first female chancellor, Rachel Reeves, has officially launched a £7.3 billion (US$9.35 billion) national wealth fund (NWF), as part of a drive by the newly elected Labour government to attract billions of pounds of private sector cash for major infrastructure projects across the country.

The NWF, which Reeves said would be established “in less than a week”, aims to assist projects such as ports, gigafactories, hydrogen and steel projects in attracting a mix of investment, aiming for about £3 of private funds for every £1 of taxpayer cash.

Reeves said the fund would essentially operate as a “concierge service for investors and businesses that want to invest in Britain, so they know where to go”.

The investments will then be managed by the existing UK Infrastructure Bank, the pivate banking company set up three years ago and headed by the former HSBC chief executive John Flint, with support from a revamped British Business Bank, best known for running the Covid business loans scheme. 

Commenting on the government initiative Susannah Streeter, head of money and markets at financial services provider Hargreaves Lansdown said: “Investors are continuing to assess the implications of the new Labour government’s National Wealth Fund, which is set to start channelling funds to companies supporting UK infrastructure projects imminently.

“The new fund is set to support the production of electric vehicles, clean steel, improved ports and carbon capture. It would work alongside the recently formed Great British Energy, another publicly owned company, which is set to focus on the production of clean, low carbon energy. Both bodies look set to play a crucial role in delivering investment needed for the green transition and help the UK hit targets. But how they efficiently work together and with existing organisation may be critical to their success.”

 

Saudi Aramco begins issuing US dollar-denominated bonds

Energy giant Saudi Aramco has begun issuing US dollar-denominated international bonds under its Global Medium Term Note Program.

Aramco stated that the bonds have a minimum subscription of US$200,000, with the offering price and value determined based on market conditions. The offering began on 9 July and is due to conclude on 17 July.

The issue marks the state oil firm’s return to the debt market after a three-year hiatus, it having last tapped the global debt markets in 2021 to raise US$6 billion from a three-tranche sukuk, or Islamic bond. In February, it indicated plans to issue another bond this year.

Gulf companies and governments have been eager to leverage debt markets this year amid declining global interest rates. In January, the Kingdom issued US$12 billion in dollar-denominated bonds as part of this trend. 

Aramco stated that its US dollar-denominated bonds are direct, general, unconditional, and unsecured obligations of the company. The bonds are aimed at institutional investors, specifically qualified investors in jurisdictions where the offering complies with local regulations. The issuance is managed by Citi, Goldman Sachs International, and HSBC. JP Morgan, Morgan Stanley, and SNB Capital are also participating as active joint bookrunners. 

Additional joint bookrunners include Abu Dhabi Commercial Bank, anb capital, and Bank of China, alongside BofA Securities, BSF Capital, and Emirates NBD Capital Limited. 

It also includes First Abu Dhabi Bank, GIB Capital, and Mizuho, along with MUFG, Natixis, Riyad Capital, SMBC Nikko, and Standard Chartered Bank. 

Aramco disclosed various redemption options for the bonds, such as redemption at maturity, upon an event of default, or for tax reasons. These options include the issuer’s call, maturity par call, and make-whole call. Additionally, they encompass investor put and change of control put, all subject to prevailing market conditions.

In February, Ziad Al-Murshed, executive director of new business development at Saudi Aramco, emphasised prioritising long-term goals and plans over short-term ones, hinting at a forthcoming timeframe. He mentioned that Saudi Aramco could potentially issue longer-term bonds up to 50 years and might offer these financial instruments in 2024 as market conditions improve. 

The sale of over US$10 billion worth of shares by Aramco last month marked the second public offering from the Saudi firm. The 1.55 billion shares on offer represented 0.64% of the company’s issued shares. In a Tadawul statement, the oil firm disclosed at that time that the price range was set between Riyal (SR)26.70 and SR29 (US$7 to $7.70) per share. 

Globally, Saudi Arabia has emerged as the leading issuer of international bonds amongst emerging markets, surpassing China with US$33.2 billion in bond sales to date, as reported by Bloomberg last month.

 

Banks enjoy record profits on back of higher interest rates

After years in the doldrums, soaring interest rate income has boosted bank profits, according to The Banker’s Top 1000 World Banks 2024 ranking, with some lenders reporting their best year on record in terms of pre-tax profits in 2023.

The magazine’s annual list is compiled after all the world’s largest lenders release their yearly financial statements. Total bank pre-tax profit was US$1.53 trillion last year, an overall average 14% increase from the previous ranking and a far higher 41% increase for Europe — with markets like Switzerland and Italy recording rises of 155% and 72% respectively.

In the US, JPMorgan reported its highest-ever pre-tax profit at US$61.6bn, the highest-ever pre-tax profit achieved by a US bank, and a 33% increase from the previous year.

If higher interest rates have pushed up banks’ net interest income, they have also made borrowing more expensive and challenging for bank clients, and there are some early signs of discomfort in loan portfolios — specifically for so-called “stage 2” loans, the magazine reports.

“After a record year, normalising interest rates will impact profitability in many banking markets around the world. But banks will also be looking at fee-earning business areas, rationalising costs and, particularly in Europe, at mergers and acquisitions to gain scale and compete with larger peers,” said Silvia Pavoni, editor in chief of The Banker.

Under IFRS international accounting standards, stage 2 indicates a loan whose credit risk has increased significantly since the previous reporting date. There have been noticeable increases in a number of large banking markets, with stage 2 loans now accounting for a higher share of total gross loans in Australia and Germany, at 17% and 10% respectively, as property loans have been a significant area of concern for banks in both countries in recent years.

China’s banks continue to dominate the Top 1000 ranking, with ICBC, China Construction Bank, Agricultural Bank of China and Bank of China remaining the four largest banks globally by Tier 1 capital, which is a core measure of financial strength under the international Basel regulatory framework. A further two Chinese banks, Bank of Communications and China Merchants Bank, are in ninth and 10th place.

ICBC’s Tier 1 capital now stands at US$524 billion, which is almost twice that held by its nearest non-Chinese peer, JPMorgan. China Merchants Bank, whose Tier 1 capital increased by 12.58%, leapfrogged the only previously remaining European lender in the largest 10 banks group, HSBC, at the very top of the ranking, which is now solely occupied by Chinese and US names.

Measured by asset size, however, HSBC remains the world’s seventh-largest bank, accounting for over 40% of UK banking’s pre-tax profits. Two other European names, French banks BNP Paribas and Crédit Agricole, are also among the largest 10 lenders by assets. 

Elsewhere in Europe, banks in Italy and Switzerland reported their highest aggregate pre-tax profits in three decades’-worth of data; while lenders in several other countries, including the UK and Spain, achieved their highest pre-tax profits since the 2007-09 global financial crisis.

 

HSBC will reshape investment banking to emulate rivals

HSBC is reshaping segments of its investment banking arm, following the lead of rivals such as Citigroup, according to Bloomberg News.

Citing unnamed sources, it reports that Europe’s biggest bank is merging several of the industry coverage groups within its global banking business. It was said that the changes would enable bankers to work more efficiently.

“Servicing our clients is our priority and therefore ensuring we have the right people in the right places,” an HSBC spokesperson commented. “These groups underline our client focus and alignment.ʺ

The reported moves echo those made by Citi, which has combined several of its sector groups in recent years. In one instance, Citi established a “super group” focusing on technology and communications firms, while another spans across covers healthcare, consumer and retail companies.

In 2021, Citi merged its energy, power and chemicals coverage units to create a new natural resources team.

The news comes as HSBC prepares for global interest rates to begin falling from the levels reached in 2022-23, with central banks’ loosening of monetary policy set to weigh on the profits of global banks. It was recently reported that HSBC was slowing down hiring and encouraging its investment bankers to trim expenses as part of efforts to cut costs.

The European Central Bank (ECB) last month became the west’s first central banak to cut rates, with the Bank of England likely tofollow in August or September and the US Federal Reserve later this year.

Rate hikes propelled HSBC’s pretax profit to a record £24.0 billion (US$30.3 billion) last year, up 78% from 2022. However, its profit edged down in the first quarter of 2024 and a further fall in profit is expected in HSBC’s second-quarter results, due later this month.

Analysts expect HSBC to post a revenue of £12.6 billion (US$16.1 billion) for the second quarter, which would mark a 4.9% fall compared to the same period last year

The group’s investment banking arm has also been impacted by a global slump in dealmaking and capital markets activity in recent times, with the Asia-focused lender particularly exposed to China’s sluggish economic recovery from the Covid-19 pandemic.

HSBC’s chief executive Noel Quinn aims to bolster its finances before stepping down from his role by the end of April 2025. The bank plans to namel his successor in the coming weeks.

 

ESMA consults on liquidity management guidelines for AIFMD and UCITS

The European Securities and Markets Authority (ESMA) is seeking input on draft guidelines and technical standards relating to the revised Alternative Investment Fund Managers Directive (AIFMD) and the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive.

Both directives aim to reduce financial stability risks and promote harmonisation of liquidity risk management in the investment funds sector.

The draft Regulatory Technical Standards (RTS) define the characteristics of Liquidity Management Tools (LMTs). This includes calculation methods and activation mechanisms. ESMA has also released draft guidelines on LMTs for UCITS and open-ended Alternative Investment Funds (AIFs).

These guidelines provide instructions on how managers should select and calibrate LMTs. This selection should consider their investment strategy, liquidity profile, and redemption policy.

“The revised AIFMD and UCITS Directive have introduced long-awaited provisions on the availability and use of Liquidity Management Tools. ESMA is now consulting on how to apply these provisions in practice,” said Verena Ross, ESMA Chair.

“These new rules being proposed are in line with the latest global standards provided by the Financial Stability Board (FSB) and the International Organisation of Securities Commissions (IOSCO) and will contribute to the strengthening of the EU regulatory and supervisory regime for investment funds.”

ESMA has also released its second Final Report on the Markets in Crypto-Assets (MiCA) Regulation, detailing eight draft technical standards, as reported by Finance Magnates. These aim to enhance transparency for retail investors and clarify disclosure and record-keeping requirements for providers. The standards also introduce data protocols to aid National Competent Authorities in supervision.

 

GRI assists compliance with CSRD sustainability reporting standards

International independent standards body the Global Reporting Initiative (GRI) announced the launch of its new GRI-ESRS Linkage Service, aimed at enabling companies reporting under its disclosure standards to align with the European Sustainability Reporting Standards (ESRS) underlying the EU’s new Corporate Sustainable Reporting Directive (CSRD).

The Amsterdam, Netherlands-based GRI was set up in 1997 and GRI Sustainability Reporting Standards have become one of the most commonly accepted global standards for sustainability reporting by companies, developed to enable consistent reporting across companies and industries, providing clearer communication to stakeholders regarding sustainability matters.

The GRI published a major update of the standards in 2021, and more recently issued new proposed climate change and energy reporting standards as well as a new biodiversity reporting standard. The GRI’s standards are developed by the Global Sustainability Standards Board (GSSB).

The ESRS, developed by the European Financial Reporting Advisory Group (EFRAG), and officially adopted by the European Commission in 2023, set out the rules and requirements for companies to report on sustainability-related impacts, opportunities and risks under the CSRD. The CSRD, which began applying to some companies as of the beginning of 2024, will significantly expand the number of companies required to provide sustainability disclosures to over 50,000 from around 12,000 currently, and introduce more detailed reporting requirements on company impacts on the environment, human rights and social standards and sustainability-related risk.

The launch of the new service follows the confirmation last year by the GRI and EFRAG that they have achieved a high level of interoperability between the ESRS and the GRI Standards. The organizations subsequently announced that they would deepen their cooperation on sustainability reporting and collaborate in areas including reporting standards development and training, in addition to launching a GRI-ESRS Interoperability Index, a new tool outlining how the disclosure requirements and data points in ESRS and the GRI standards relate to each other, preventing the need for “double reporting” for entities disclosing under both systems.

Under the new service, the GRI will look at a reporting company’s GRI content index and provide feedback on specific GRI-ESRS linkages, including explaining areas in which disclosures do or do not align. The GRI will also provide feedback on ESRS Topical Areas covered by the reporting organization’s material topics disclosures, and provide suggestions on how to structure the ESRS sustainability statement, as well as delivering a list of all ESRS data points that do not have linkages to GRI standards.

 

Mercedes-Benz marks first green auto loan ABS in China

Mercedes-Benz Auto Finance Ltd. (MBAFC), part of the Mercedes-Benz Mobility group, announced the issue of its first Green Auto Loan Asset-Backed Security (ABS) in the Chinese Interbank Bond Market. This renminbi (RMB)765 million (€100 million/US$108 million) issuance is a pioneering move as Mercedes-Benz becomes the first foreign automotive company to issue a Green ABS in China.

The Class A Notes had a weighted average life of 1.42 years and an annual coupon rate of 1.87%, with an oversubscription ratio of three times. The issuance was arranged by China Merchants Securities, BNP Paribas (China), Bank of China, and Standard Chartered Bank (China).

“In line with our Ambition 2039, we continue to expand our green finance strategy,ʺ said Steffen Hoffmann, Head of Treasury and Investor Relations of Mercedes-Benz Group AG.”With this Green ABS, we are offering investors in the Chinese capital market another green financial investment. In 2022 and 2023, we had already successfully issued Green Panda Bonds.ʺ

The Green Auto Loan ABS adheres to China’s double-green approach for finance companies, with a collateral pool composed of auto loans for Battery Electric Vehicles (BEVs). The proceeds will be used to fund new BEV loan contracts for MBAFC customers over the coming months.

“With our product range we offer customers a comfortable entry into the electric era. The securitisation of our customer receivables for electric vehicles demonstrates how much our financing products already support the sales of Mercedes-Benz electric vehicles,” commented Franz Reiner, CEO of Mercedes-Benz Mobility.

 

Italy's government denies involvement in UniCredit's ECB lawsuit

Italian Prime Minister Giorgia Meloni's government is not involved in any way in a legal challenge by UniCredit of the terms set by the European Central Bank (ECB) for it to cut its presence in Russia, a senior government source said.

Euro zone banks still having business in Russia more than two years after Moscow invaded Ukraine have come under growing pressure in recent weeks from the bloc's supervisors, as well as US authorities, over their ties to the country.

The euro zone banking sector's Chief Supervisor Claudia Buch said in May the ECB had told banks with significant exposure to Russia to speed up their de-risking efforts by setting a clear roadmap for downsizing and exiting the Russian market.

In the same month, Bank of Italy Governor and ECB policymaker Fabio Panetta urged Italian banks ʺto get outʺ because of reputational risks.

UniCredit said last week it was contesting the ECB's decision in the European Court of Justice, seeking its suspension pending a judgment. Decisions by the court typically take on around 20 months, while the ruling on the suspension requests should be ready within weeks.

The government source, who requested anonymity, told Reuters the bank was free to do what it thought best to protect its interests but the government plays no part in the matter.The person added that UniCredit had informed the government of its plans.

UniCredit also voiced doubts over whether the terms set by the ECB to cut its Russian exposure were consistent with Russian laws and Western sanctions against Russia.

The bank said it needed the court to provide clarity on the matter before complying with the ECB demands because there was a risk of ʺserious unintended consequencesʺ its Russian unit and the group as a whole.

Forza Italia leader and Foreign Minister Antonio Tajani said last week he shared need for clarity, adding hasty decisions on such matters only risked damaging Italian and European companies.

In the past months, Tajani chaired meetings focused on the Italian companies operating in Russia which involved representatives of business with interests there.

With 56 branches at the end of last year and a full-time staff of about 3,150 people, AO UniCredit is Russia's 15th largest lender by assets, based on a ranking from April 2024 compiled by Interfax.

HSBC’s Zing leverages Visa for cross-border payments

Visa has partnered with HSBC Group’s fintech arm Zing, to develop an international payments app that Zing launched in the United Kingdom in January.

The Zing app allows members to hold funds in up to 10 different currencies, send more than 30 currencies, and transact in more than 200 countries and territories, a press release added.

“We shared a clear vision with our partners at Visa — that people all across the globe want easy to use, secure and trustworthy financial products that enable them to live their best international lives,ʺ said James Allan, CEO and founder at Zing,. “Zing delivers on that promise, and we look forward to building on this partnership in the future.”

The release said that Zing leverages Visa technology to provide UK consumers with low-cost and transparent currency exchange, financial management, instant collections, real-time exchange rates and person-to-person payments — all of which is linked to a Visa card.

By collaborating with Visa, Zing was able to have a single point of contact for the project and to leverage the Visa solutions Currencycloud, which enables a multicurrency wallet, and Tink, which allows users to top-up an account via “quick bank transfer” powered by open banking technology.

Currencycloud and Tink provided the Zing team with ready-made solutions that they added to Zing’s core infrastructure, saving time and money in development, per the release.