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JPMorgan invests heavily in leveraged loans – Industry roundup: 22 July

Due to new RBI guidelines, fintech Slice shifts focus to real-time term loans

Slice, an India-based fintech unicorn, has switched from credit lines to real-time term loans since the RBI prohibited loading credit lines onto prepaid payment instruments. Slice CEO and founder Rajan Bajaj announced this modification as a feature upgrade dubbed Purchase Power, clarifying that the update represents an estimate of how much money a user might be able to borrow from Slice.

Bajaj noted that Purchase Power is supported by a sophisticated risk and data technology infrastructure, allowing for real-time underwriting and providing clients with the best credit offered during the transaction time. Additionally, the release stated that a new approval decision, which is based on the merchant's credibility, risk, fraud checks, and the user's previous payments and repayment patterns, would determine the best amount the user may borrow for the transaction each time a user initiates a purchase using a Slice card.

Purchase Power is said to be distinct from the fixed credit limits that Slice previously provided to its customers. The available amount for borrowing varies with each purchase in this model. In addition, Slice has also shifted its tagline from “credit card challenger” to “easiest way to pay”. Users can now see loan agreements and sanction letters from customers, according to the release.

Following the RBI's new guidelines, many buy now, pay later businesses have either ceased operations or changed their business model. Slice's competitor Pay-in-1/3rd card, UNI, is also considering a shift to co-branded credit cards in collaboration with banks, indicating that it would no longer be a pay-later card. Another company, PayU's LazyPay, is also reportedly considering transitioning from a Visa prepaid card to a credit card.

According to industry insiders’ reports, many BNPL companies misled customers by failing to clearly disclose loans taken in the customer's name, which ultimately drew the Reserve Bank of India’s attention. Additionally, businesses who offer pay-later goods with minimal KYC rather than full KYC have raised concerns.

First rate increase by the European Central Bank in 11 years

The European Central Bank (ECB) increased interest rates for the first time since 2011 in order to combat eurozone inflation, which reached 8.6 percent in June 2022. On Thursday, the ECB raised its base rate by 0.5 percentage points, surprising economists who expected a 0.25-point increase. The ECB, which has joined the US Federal Reserve and the Bank of England in the combat against inflation, stated that the increase was necessary to limit price pressures over the next two years.

The governing council reportedly agreed to increase the three major ECB interest rates by 50 basis points. Effective 27 July 2022, the interest rate on the main refinancing operations, as well as the interest rates on the marginal lending facility and the deposit facility, will be raised to 0.50 percent, 0.75 percent, and 0.00 percent respectively.

The euro is steadily declining against the US dollar, while the Fed expects to raise its key interest rate by 0.75 percentage points next week. Reports also indicate that the Bank of England may hike rates again in August 2022. German, Dutch and Austrian officials have pressed ECB officials to raise borrowing costs, despite concerns that debt financing costs for eurozone members would rise.

The Italian government collapse on Thursday raised the cost of Rome's borrowing and placed pressure on the ECB to intensify its anti-fragmentation programme, which is intended to protect nations who experience difficulties with debt financing.

Concerns about the recession have reportedly assisted in driving the euro to a 20-year low versus the dollar, which is said to complicate the ECB's efforts in combatting inflation by raising already high energy prices. One of the numerous commodities with a dollar price is oil. Carsten Brzeski, Chief Eurozone Economist, ING bank, claimed that the economic outlook is worsening rapidly.

JPMorgan invests heavily in leveraged loans to compete with direct lenders

According to an interview with Kevin Foley, Head of Global Debt Capital Markets at JPMorgan (JPM), the bank has invested a sizeable amount of cash to retain self-funded leveraged loans on its balance sheet in order to compete with direct lenders.

JPMorgan reportedly began issuing that debt in 2021 and has secured approximately 20 deals. Foley said that the bank prefers to retain it instead of underwriting leveraged loans and high-yield bonds for syndication. Reports indicate that JPMorgan's investment bank has created a new division dedicated to extending loans to businesses without the use of an intermediary in response to client demand.

The move to capitalize on the expanding private credit market emerged as JPMorgan attempts to reclaim market share lost to direct lenders such as KKR, Apollo Investment, Golub Capital and Ares Management. Foley added that the bank’s team will focus on direct lending throughout its banking, markets and commercial banking sectors.

Visa to consider investment in fintech Airwallex

Visa is in discussions to extend the most recent fundraising round for the Australian-based global fintech firm, Airwallex, which provides cross-border end-to-end payments and collection solutions and employs over 1000 employees across nineteen offices (China, Australia, Japan, US and UK). According to the reports, the Tencent Holdings-backed business is looking to extend its series E round by raising US $100-150 million, with some potential participation from current shareholders.

According to a press release, Airwallex previously raised US $100 million in November 2021 from investors, including Lone Pine Capital and Sequoia Capital China, bringing the total fundraising in the series E round to approximately US $300 million, with Airwallex valued at approximately US $5.5 billion in that round. According to the reports, the startup is expected to be valued at the same level in the extension round. No definitive decisions have been finalized, and details are still subject to change.

The US Securities and Exchange Commission to register crypto lending firms

The US Securities and Exchange Commission (SEC) is reportedly working to enable crypto lending companies that operate similarly to investment firms with the proper registration. The SEC also stated that the determination to include cryptocurrency options in client portfolios lies mainly with major financial institutions, but the risks of crypto tokens must be publicly stated.

Companies involved in cryptocurrency have stated that they are sceptical of US regulations governing products that allow customers to earn interest on holdings rather than trading them, according to reports. Since May 2022, there has been renewed focus on cryptocurrency markets, attributed to recent market volatility which has concerned regulators.

Reports indicate that several crypto lenders have faced problems in recent weeks as cryptocurrency prices have fallen. Celsius Networks filed bankruptcy, while BlockFi chose to collaborate with FTX, giving the crypto exchange the option to purchase BlockFi for up to US $240 million.

Companies with cryptocurrency exposure have reportedly issued warnings that drops in token prices could have repercussions, such as triggering margin calls. Reports also show that as the US Federal Reserve continues to raise interest rates to combat inflation, investors are withdrawing from the crypto markets.

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