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Operation Prosperity Guardian to protect Red Sea shipping – Industry roundup: 19 December

Multi-national security initiative to protect Red Sea shipping

Operation Prosperity Guardian, a security initiative backed by 10 countries – the US, the UK, Bahrain, Canada, France, Italy, Netherlands, Norway, Seychelles and Spain – has been launched to protect shipping in the Red Sea and the Gulf of Aden from attacks by Houthi militia.

“The recent escalation in reckless Houthi attacks originating from Yemen threatens the free flow of commerce, endangers innocent mariners, and violates international law,” stated US Secretary of Defence Lloyd J Austin III.

“The Red Sea is a critical waterway that has been essential to freedom of navigation and a major commercial corridor that facilitates international trade.”

Fears that the attacks could trigger a new global supply chain crisis have grown since the hijacking of the car carrier Galaxy Leader by Houthi militia on 19 November, of which all 25 crew remain held hostage. Attacks on commercial shipping in the Red Sea have become increasingly frequent and growing number of major shipping companies have started to reroute vessels away from the region.

Energy company BP announces on Monday that its owned and chartered vessels would avoid transiting the Red Sea, following the lead of operators Maersk, Mediterranean Shipping Company (MSC), CMA CGM and Hapag-Lloyd, which have begun taking the much longer route via the Cape of Good Hope between Asia and Europe.

Responding to the threat to commercial shipping and trade Austin announced the establishment of Operation Prosperity Guardian under the umbrella of the Combined Maritime Forces and the leadership of its Task Force 153. He said the goal of the operation would be ensuring freedom of navigation for all countries in the Southern Red Sea and the Gulf of Aden, as well as bolstering regional security.

The World Shipping Council (WSC), which represents liner shipping, thanked the member nations of Operation Prosperity Guardian and hoped that the coalition would succeed in creating the necessary conditions for safe passage through the Red Sea.

WSC CEO John W. Butler said: “On behalf of our member carriers, I particularly want to stress the importance of the coalition’s action to defend the safety and lives of our seafarers – the thousands of men and women from around the world who every day ensure vessels carrying food, medicines, humanitarian supplies, and goods of all kinds safely reach their destination ports on every continent.”

Yemeni Houthi militia have stated they are targeting Israeli-linked vessels and ships bound for ports in Israel in support of Hamas in the Gaza conflict, targeting commercial ships with ballistic missiles and uncrewed drones, as well as hijackings.

Attacks continued on Monday with the Hansa Tankers chemical/oil tanker Swan Atlantic by a drone and an anti-ship ballistic missile according to US Central Command. The warship USS Carney was dispatched to assess the damage to the vessel.

Peter Sand, chief analyst for Xeneta, an Oslo-based leading freight market service, noted the chaos that followed the closure of Suez after the Ever Given’s grounding in 2021. The Canal’s temporary closure plunged supply chains into months of disruption. Now the backdrop is worse: global supply chains are already tightly stretched, with unprecedented delays at the Panama Canal, a result of drought and low water levels. 

“The ocean freight industry has been deeply scarred by Ever Given and is frankly terrified of any situation which threatens the closure of the Suez Canal,” said Sand, noting that 50 ships transit the Canal every day with billions of dollars of goods bound for destinations in the Mediterranean, North Europe and the east coast of the US.

“We are already seeing ocean freight liner operators and owners choosing to re-route vessels away from the Red Sea and Gulf of Aden region,” Sand noted. “Due to the importance of the Suez Canal to global supply chains, even a small disruption can have big consequences. The main alternative is to sail around the Cape of Good Hope, which adds up to 10 days sailing time for services from Asia to Europe and the East Mediterranean.” 


Asian Development Bank bullish on growth in India and China

The Asian Development Bank (ADB) has raised its 2023 economic forecast for developing economies in Asia and the Pacific, after robust domestic demand drove higher-than-expected growth in the People’s Republic of China (PRC) and India.

The regional economy is expected to grow 4.9% this year, up from an earlier forecast of 4.7%  in September, according to the Asian Development Outlook (ADO) December 2023. The outlook for 2024 is unchanged at 4.8%.

China’s economy is projected to expand by 5.2% this year, against a previous forecast of 4.9%, after household consumption and public investment boosted growth in the third quarter. The growth outlook for India has been raised to 6.7% from 6.3% following faster-than-expected expansion in the July-September quarter, driven by double-digit growth in industry. The upgrades for China and India more than offset a lowering of the forecast for Southeast Asia, caused by lacklustre performance in the manufacturing sector.

“Developing Asia continues to grow at a robust pace, despite a challenging global environment,” said ADB Chief Economist Albert Park. “Inflation in the region is also gradually coming under control. Still, risks remain, from elevated global interest rates to climate events such as El Niño. Governments in Asia and the Pacific need to remain vigilant to ensure that their economies are resilient, and that growth is sustainable.”

The region’s inflation outlook for this year has been lowered to 3.5% from an earlier projection of 3.6%, according to ADO December 2023. For next year, inflation is expected to edge up to 3.6%, against a previous forecast of 3.5%.

The growth outlook for Southeast Asia this year has been lowered to 4.3% from 4.6%, due to weak demand for manufacturing exports. The outlook for economies in the Caucasus and Central Asia has been raised slightly, while projections for Pacific economies are unchanged.

Risks to the outlook include persistently elevated interest rates in the US and other advanced economies, which could contribute to financial instability in vulnerable economies in the region, especially those with high debt. Potential supply disruptions caused by the El Niño weather pattern or the Russian invasion of Ukraine could also rekindle inflation, particularly regarding food and energy.

ADB is “committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty.” Established in 1966, it is owned by 68 members, of which 49 are from the region.

Ifo reports that German business sentiment has “clouded over”

The business climate in Germany has unexpectedly declined this month, with indicators for both current conditions and future confidence slipping.

The Munich-based IFO Institute's Business Climate index, which surveys around 9,000 manufacturing, services, trade and construction companies across Germany each month, fell to 86.4 this month from a downwardly revised 87.2 in November.

The market researcher’s latest index shows that German companies are less happy about current economic conditions, and also gloomier about the economic outlook.

Ifo’s current situation index has fallen to 88.5 from 89.4 in November, while its gauge of economic expectations declined to 84.3 in December from 85.1 in November.

Ifo said that “sentiment in German business has clouded over”. Within manufacturing, it reported that order books are shrinking, while energy-intensive industries are having “a particularly tough time”.

In the services sector, the business climate improved slightly, but future expectations in the restaurants and catering business “took a nosedive”.

Ifo president Clemens Fuest commented: “As the year draws to a close, the German economy remains weak.”


Cambridge University could drop Barclays due to fossil fuel links

The UK’s prestigious Cambridge University is reportedly considering ending its more than 200-year relationship with Barclays due to the bank’s financing of fossil fuels.

According to a Financial Times report, following demands from students and staff for a greener lender, the university is looking to switch to a bank with robust climate policies to manage “several hundred million pounds” in cash and money market funds.

A new bank’s mandate would likely cover more than £200 million (US$252 million) in assets and earn up to £10 million in fees per year, two unnamed sources told the newspaper.

Cambridge said it was “exploring opportunities to find financial products that do not finance fossil fuel expansion” as part of a “net zero engagement strategy with the banking sector”.

Several UK churches and religious charities are also reportedly seeking an alternative bank due to Barclays’ continued investment in oil and gas companies.

Climate Christian Action, a community of religious organisations, said Sheffield Cathedral, the Community of Christ and Greenbelt Festival have announced their intention to move away from the bank, having been clients for more than 65 years combined.

The groups said this financing is misaligned with their own missions to reduce emissions and help to tackle the climate crisis.

“We have grown increasingly uneasy about banking with Barclays, especially as we have become more and more committed to doing all that we can to be a climate-responsible organisation and to being as sustainable as we can be,” said Derek Hill, MD of Greenbelt Festival.


Hong Kong keen for more digital green bond sales

Hong Kong is reported to be considering offering green bonds managed on distributed ledger technology (DLT), the latest step in the city’s efforts to become a digital-asset hub, following its first sale of similar notes earlier this year.

The government has hired HSBC Holdings, Credit Agricole, Bank of China (Hong Kong), Industrial and Commercial Bank of China (Asia) and UBS Group to form a working group to explore the possibility of a multi-series fixed rate “digitally native” green bond issuance, according to people familiar with the matter.

The notes would be recorded and cleared using a DLT platform provided by HSBC, the unidentified individuals added.

Such technology — similar to the foundation upon which Bitcoin operates — would bring bonds as well as relevant parties and activities onto a single digital platform. That can facilitate interaction, “substantially” reduce costs and remove any settlement delays, according to the Hong Kong Monetary Authority (HKMA).

Still relatively nascent, digital securities have gained popularity recently. Japanese issuer Hitachi Ltd this month sold the nation’s largest digital corporate bond with a ¥10 billion (RM3209.28 million) green note. Euroclear launched a blockchain platform for digital note sales in October. 

However, Moody’s Investors Service has warned of potential risks, cautioning that digital bond platforms are relatively new and untested, could potentially be impacted by new laws or regulations, and could be more susceptible to cyberattacks.

The bonds that Hong Kong is considering offering may be denominated in dollars, euros, offshore yuan and the Hong Kong dollar, with tenors of up to two years, according to the people.

The city issued HK$800 million (RM478.47 million) of 365-day tokenised green notes in February, in its debut issuance.


Tennessee sues BlackRock in landmark ESG lawsuit

The US state of Tennessee is suing BlackRock, the world's largest financial asset manager, in what is reported to be a first-of-its-kind lawsuit alleging the firm has harmed consumers through its environmental commitments and climate strategy.

According to the lawsuit filed in state court, BlackRock has articulated two inconsistent positions: one prioritizing financial returns and the other prioritising investment policies to combat climate change. While BlackRock has faced widespread opposition over its environmental, social and governance (ESG) strategy, Tennessee’s action marks the first legal challenge to accuse BlackRock of violating consumer protection laws.

“We allege that BlackRock’s inconsistent statements about its investment strategies deprived consumers of the ability to make an informed choice,” said Tennessee Attorney General Jonathan Skrmetti. “Some public statements show a company that focuses exclusively on return on investment, others show a company that gives special consideration to environmental factors.

“Ultimately, I want to make certain that corporations, no matter their size, treat Tennessee consumers fairly and honestly.”

The past two years has seen Republican state attorneys general and state financial officers in the US step up their criticisms of BlackRock, which manages US$9.1 trillion worldwide, and founding chairman and CEO Larry Fink, over its ESG policies, which officials have said amount to the firm using its financial power to force companies into adopting certain policies. 

Critics allege that ESG-focused asset managers like BlackRock are sidestepping their legally-mandated fiduciary duty to consider the well-being of clients whose money they manage. Promoting climate policies may lead to worse financial performance given the high profitability of fossil fuel industry, according to officials.


China publishes new rules for non-bank payment firms

China's State Council, led by Premier Li Qiang, has published rules that come into force on May 1 for the supervision and management of non-banking payment institutions.

The new rules, among other measures, implement tougher licensing regulations and call for stronger risk management of non-bank payment platforms to prevent misappropriation of funds and other criminal activities, People's Bank of China (PBOC), the country's central bank, and the Ministry of Justice said in a joint statement.

The rules also require institutions to strengthen the protection of user information, clearly mark prices for their services and charge ”reasonable” fees. They also raise “the degree of punishment for serious violations”.

The joint statement also said that in cases of violations of the rules the central bank would impose “fines, restrictions on some payment operations, or order them to suspend business for rectification, up to the revocation of their payment business licenses.”


Deutsche Bank-backed Taurus tokenises German SME loans

Swiss crypto custody firm Taurus,which is backed by Deutsche Bank, has partnered with Teylor, a Zurich-based fintech lending platform specialising in the German SME marketplace, adding to the current trend for all sorts of tokenised assets.

Teylor’s credit portfolio tokens, whose structure was overseen by law firm Allen and Overy, can be admitted for secondary market trading on Taurus’ TDX marketplace, the companies announced.

The tokenisation process involves a Luxembourg-based investment vehicle and is compliant with Swiss and European regulations, according to Taurus co-founder Lamine Brahimi. The tokenised debt product for the German SME market will receive “landmark” investment from some institutional investors in the next two weeks, Brahimi added.

“TDX market is Taurus’ other business besides custody, and we have done 20-plus transactions,” Brahimi said. “These include tokenised equity, debt, structural products and art. In terms of notional value, it’s over US$1 billion so far.”

The tokenisation of traditional finance has taken off globally, and crypto-friendly Switzerland is giving a range of asset classes an institutional-grade blockchain treatment.

Teylor, which offers loans between €100,000 (US$109,000) up to €1.5 million to Germany’s vibrant Mittelstand economy, is backed by investors such as Barclays Bank The fintech firm offered nearly US$25 million of loans last month, its CEO Patrick Stäuble said in an interview.

“We give loans to businesses that make usually between five and 50 million revenues, that are kind of maybe a little bit too big for a bank branch, and a little bit too small for a corporate finance department,” Stäuble said. “The loans we are going to tokenise will be for fantastic German businesses, everything from industrials, chemicals and precision machinery to import/export.”


Standard Chartered sells Côte d’Ivoire consumer banking arm to Coris Bank

Standard Chartered has entered into an agreement with Burkina Faso-based Coris Group for the sale of its consumer banking business in Côte d’Ivoire. Subject to regulatory approvals and the transfer of business, the deal marks the completion of the divestment process from various markets, first announced in April 2022.

Sunil Kaushal, CEO of Standard Chartered AME, said: “This agreement marks a milestone in Standard Chartered’s journey in the AME region towards streamlining the business and providing further impetus to our delivery of best-in-class services and expertise to our clients. The successful conclusion of the Bank’s strategic divestments will see us double-down on growth opportunities in AME by leveraging our long track record in the region. Alongside Coris Bank International, we are confident that this transition will be executed seamlessly as part of our commitment to prioritise the satisfaction of retail customers, the wellbeing and stability of our people.”  

Standard Chartered Bank "will maintain its presence in Cote d’Ivoire with focus on its Corporate, Commercial and Institutional Banking business where the Bank will continue to deliver best-in-class services to its clients," the group announced.

Idrissa Nassa, President of Coris Group, commented: “The acquisition of Standard Chartered Bank’s retail segment in Côte d’Ivoire is strategic to further strengthen Coris Bank International’s positioning in this emerging country. We will continue the satisfaction of this privileged clientele through our offers reinforced with new products and innovative services.

"The third largest banking group in the WAEMU, the Pan-African banking group Coris, aims to accelerate growth in its areas of presence, and this acquisition is an opportunity for us to offer our best quality of service. We reassure our new clients of our institution’s ability to preserve and strengthen the quality of service.”


FutureBank teams with Paymentology on virtual cards

FutureBank, the open banking and embedded finance platform has announced a partnership with global issuer-processor, Paymentology, in order to “provide banks and fintechs with streamlined integration to modern card issuing and processing technology, enabling instant issuance of virtual cards.”

The collaboration of the two companies “enables instant issuance of virtual cards even for financial institutions constrained by their core legacy banking systems, offering traditional banks a digital edge and speed without the need for a major replacement.”

A release noted that among the payment challenges facing banks and fintechs globally is “the capability to issue card payment instantly to their customers, individuals and businesses alike. Yet today, legacy core banking systems work in batch environments, while modern fintech use cases and user journeys require near real time responses.”

FutureBank and Paymentology tackle this issue “at its source by enabling instant insurance through deep integration of both platforms, allowing for both virtual and physical cards to be available for use immediately upon request. Instant issuance allows financial institutions to print their customers’ payment cards at the time of onboarding and order, or display them instantly as virtual cards onto a mobile phone.”

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