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Shell CEO expects prolonged energy crisis – Industry roundup: 30 August

Energy crisis will extend beyond winter, predicts Shell CEO

Europe’s business and consumers face the prospect of several winters marked by high power bills and electricity rationing as Russia cuts back gas supplies, warns the chief executive of Shell.

“It may well be that we have a number of winters where we have to somehow find solutions through efficiency savings, through rationing and as a very, very quick build out of alternatives,” Ben Van Beurden told reporters at a conference in Stavanger, Norway. “That this is going to be somehow easy or over, I think is a fantasy we should put aside -- we should confront the reality.”

Russia, the major supplier of gas to many European Union (EU) member states before the war in Ukraine, has sharply reduced exports in response to western sanctions imposed since Vladimir Putin’s invasion six months ago.

Although not all EU countries are directly reliant on Russian supplies, competition for scarce resources has pushed wholesale European gas prices up by a factor of 12 compared with a year ago. The coming winter is likely to see the greater use of energy rationing as governments across the continent push to develop alternative supplies.

Meanwhile the spike in wholesale prices has left consumers facing huge bills and the highest rates of inflation since the 1980s, which many small and medium-sized enterprises (SMEs) have said will put them out of business.

The president of the European Commission, Ursula von der Leyen, has promised that a package of emergency measures will be unveiled soon. Speaking in Slovenia as EU officials work on a plan, which could even be announced later this week, Von der Leyen said “emergency interventions” would be introduced in addition to longer-term energy market reforms.

“Skyrocketing electricity prices are now exposing, for different reasons, the limitations of our current electricity market design,” she said.

France’s prime minister, Elizabeth Borne, warned companies that energy could be rationed this winter, while Belgium’s energy minister, Tinne Van der Straeten warned that “the next five to ten winters will be terrible if nothing is done.”

In a Twitter thread, Tinne Van der Straeten called for greater measures to reduce prices for consumers, like freezing natural gas prices. “Electricity is produced today at a price that is much lower than the price at which electricity and gas are sold,” she wrote. “There is no longer any link between the cost of production and the selling price.”

Speaking alongside Shell's CEO in Norway, the head of another energy company, TotalEnergies’s Patrick Pouyanné, said Europe’s governments and policymakers would have to plan for a future without Russian gas.

The comments were made at a ceremony to mark a carbon capture and storage deal between the two firms, the Financial Times reported. “If you think without it [Russian gas], we will manage. There is enough energy in this planet to do without it,” Pouyanné added.

European gas prices have soared in recent weeks, reaching almost €350 (£299) a megawatt hour last week as countries rushed to build up supplies before the winter. The Ukrainian president, Volodymyr Zelenskiy, on Monday accused Russia of “economic terror” by trying to cut gas supplies to Europe.

“It is exerting pressure with price crisis, with poverty, to weaken Europe,” he said.

China pressures banks to step up lending and revive growth

China’s central bank is reported to stepped up pressure on the country’s lenders with new instructions to expand their loans books, according to six insiders from the Chines banking industry as the world’s second-biggest economy faces an economic downturn and a sharp decline in borrowers’ confidence.

The informal message, issued via phone calls over recent months to commercial, rural and even foreign banks, was to lend more money to productive businesses and put less of it in financial investments, the banking sources said.

The calls, which the sources said came from the People’s Bank of China (PBOC) and in one case the China Banking and Insurance Regulatory Commission (CBIRC), are the latest in a series of official efforts to encourage money out of a financial system with an excess of cash and into lending that can drive real growth.

The South China Morning Post reports that Beijing has sent senior officials, including central bank governor Yi Gang and several cabinet ministers, across the country to supervise stimulus policies. China’s economic growth has slowed due to several factors, including strict anti- Covid-19 lockdowns, an extensive drought and turmoil in the Chinese property market.

Last Wednesday China’s State Council ordered teams to carry out inspections in 19 provinces, including key drivers of economic growth like Guangdong, Jiangsu and Zhejiang, according to state media.

The inspections were announced a day before Premier Li Keqiang rolled out 19 new support policies for the economy. The stimulus package is worth one trillion yuan (US$146 billion) and focused largely on infrastructure.

China’s gross domestic product (GDP) grew by only 0.4% in the second quarter of 2022 and only 2.5% over the first half of the year, due mainly to disruption from zero-Covid controls. Industrial profits contracted 1.1% year-on-year in the first seven months of 2022. The government’s annual growth target of “around 5.5%” is now looking increasingly unobtainable.

Reflecting the troubles of the Chinese property market its biggest developer, Country Garden Holdings has reported a 96% drop in profits, blaming a “severe depression” that “only the fittest can survive”.

The company, which is listed in Hong Kong, said preliminary net profit collapsed from CNY 15 billion (US$2 billion) to CNY 612 million (US$88 million) in the first six months of 2022 due mostly to the housing market crisis.

India’s RBI lifts restrictions on American Express card issuance

The Reserve Bank of India (RBI) announced that it is lifting curbs imposed on American Express more than a year ago that had prevented it from taking on new customers in India, after deciding that the US credit card group had shown “satisfactory compliance” with its data storage rules.

In April 2021 AMEX, together with Mastercard and Diners Club was indefinitely barred from onboarding new customers as they were deemed to be falling short of new rules introduced in 2018 requiring all payment system providers store full end-to-end transaction details in systems “in country” in India only.

The RBI subsequently eased the ban on Mastercard in June this year as several major enterprises including AMEX, MasterCard, Visa, PayPal, Amazon and the US government railed against the adjudication when it was brought down by the Indian government.

“In view of the satisfactory compliance demonstrated by American Express Banking Corp with the RBI circular on Storage of Payment System Data, the restrictions imposed on onboarding of new domestic customers have been lifted with immediate effect” the central bank said in a statement.

“We welcome the decision by the Reserve Bank of India, which enables American Express Network to onboard new customers effective immediately,” said AMEX Interim CEO and COO India, Sanjay Khanna. “India is a key strategic market for American Express and the decision is the result of our significant local investments in technology, infrastructure, and resources. American Express’ ability to deliver best in class value and customer experiences will enable us to meet the increasing demand for premium products and services and grow our business in India.”

Hong Kong’s exodus shrinks workforce

Hong Kong’s status as one of Asia’s main financial hubs is being undermined by a continuing exodus of key workers from the financial sector, who are moving to rival destinations such as Singapore and Sydney.

Since August 2018, Hong Kong’s labour force has fallen by about 6% to 3.75 million people, the lowest figure in nearly a decade, according to the latest official figures. In April alone, the total number of employed and those looking for work fell by about 33,700, the biggest monthly drop based on data going back to 1990.

The loss is making Hong Kong age faster, as the departure of younger workers and their children increases the proportion of retirees as a percentage of the population. “Labour force and jobs are what keeps Hong Kong vibrant and its status as a major financial centre,” says DBS Bank economist Samuel Tse.

The former British colony is struggling to revive its role as a global finance and commerce hub in the wake of the Covid-19 pandemic. Travel restrictions have prompted firms to shift staff from Hong Kong to rival Singapore and elsewhere. Further evidence of a brain drain came in a recent survey by the Hong Kong Investment Funds Association (HKIFA), which showed more than a third of fund-management companies moved some or all regional and global roles from Hong Kong to other locations.

About 121,500 residents departed the city in the year ended 30 June, leaving the population at about 7.29 million, according to government data released this month. That means the population fell 1.6%, marking the third straight year of declines and the biggest drop in at least six decades.

The number of new arrivals is also dropping rapidly. Hong Kong awarded 32,248 work visas last year, down from 62,155 in 2017, according to the Immigration Department. Only 5,701 visas were approved for international workers under the General Employment Policy in the first half of 2022, compared to 20,314 in the first half of 2018. Visas for professionals from mainland China fell 10% in the same period.

Even before the coronavirus pandemic, concerns were voiced about available workers. In a 2019 report, the government projected the supply of local manpower would drop at an average annual rate of 0.6% from 2022 to 2027.

The number of residents aged 29 and below dropped to 24.1% of the total population midway through this year, from 27.8% four years ago, according to data by Hong Kong’s Census and Statistics Department. The percentage of residents aged 65 or above increased to 20.9% from 17%.

Women having fewer children mean the situation is likely to worsen over time unless Hong Kong can import more labor. The birth rate in 2021 was 772 babies per 1,000 women, the lowest figure since records began in 1971. 

The economy is already feeling the impact. Gross domestic product (GDP) may potentially contract this year for the third time since 2019, according to the government. Fitch Ratings warned in a report this month that Hong Kong’s apparent prioritisation of national strategies and governance practices over economic competitiveness may undermine the city’s role as an international financial centre.

Euribor’s future looks increasingly cloudy

Increasing use in the swaps market of the euro short-term rate (€STR) raises the longer-term prospect of declining use of Euribor and possibly its ultimate demise, suggest analysts.

Euribor, aka the euro interbank offered rate, serves as a key reference rate for products such as savings accounts and mortgages and is also a benchmark for interest rate swaps that allow corporates to borrow money at more favourable rates. However, with the London interbank offered rate (Libor) now gone in most currencies and settings, the focus has moved to Euribor and whether it should be discontinued.

Two years ago Steven Maijoor, chair of the European Securities and Markets Authority (ESMA), said that Euribor had performed well during the early months of Covid-19-related market volatility and the markets watchdog had no plans for scrapping the benchmark

But an article published earlier this summer noted that “the euro swaps market remains steadfastly bound to Euribor, and regulators are showing no signs of prodding the market away from the legacy benchmark. Yet one set of products – cross-currency swaps – has defied this inertia, with €STR, gaining momentum as the market standard for the euro leg on interdealer trades.”

And in a research note published last month by ING, the authors referenced the widening of the Euribor-€STR basis as an example of how tighter financing conditions are feeding through to various corners of the economy and markets.

€STR, the average rate at which banks borrow overnight deposits from other financial institutions – including non-banks – on an unsecured basis, is being used more widely for the euro leg of interdealer cross-currency swap trades, hinting at the possibility of €STR usurping Euribor across the whole euro swaps market.

For cross-currency swaps, “the market is predominantly in risk-free rates, so a USD vs EUR cross-currency trade is set as referencing the secured overnight financing rate (SOFR) versus €STR,” writes Paul Golden of Euromoney.

“Across all the major currencies – EUR, USD, GBP, JPY, CHF – only the euro reference rate continues to be based on the ‘old’ contribution methodology, albeit with improvements to ensure that it is compliant with the EU Benchmarks Regulation.”

Standard Bank adds Google Wallet in South Africa

South Africa’s Standard Bank said that Google Wallet has been added to its growing list of digital payment methods, which customers have largely embraced as they seek digital payment solutions that are convenient, easy and safe to use.

Google Wallet enables customers to make payments in store using only their Android smartphones or supported Wear OS watches.

“Customers simply hold their Android device near a payment terminal to make a contactless payment,” said Nelisa Zulu, Head of Card Payments at Standard Bank South Africa “Every purchase is secure because there are multiple layers of security; each payment is authenticated with face unlock (on supported devices), Touch ID, or device passcode.

“Additionally, the app uses an encrypted number or what is known as industry-standard tokenization, which means when using your Google Wallet to pay in store or online, transactions are made using a virtual card number (a token). A token is device-specific and associated with a dynamic security code that changes with each transaction.”

Google Wallet also lets users sync the app with their Gmail account to easily find the likes of boarding passes or any other travel tickets. This does away with the need to carry a boarding pass physically or having to dig through emails to find the pass to present at the terminal.  

“The Google Wallet provides a fast, easy and safe way to pay with any Android phone or Wear OS device,” said Jenny Cheng, Vice President and General Manager, Google Wallet. “Tap and ride the train, tap to pay in stores, have easy access to your boarding pass, store your loyalty cards and more. Keep everything protected in one place, no matter where you go.”

Australia’s Heritage Bank adds cross-border payments

Australia’s Heritage Bank said that customers will be able to send and receive money from overseas more easily, as a new online international payment service from money transfer company Convera is rolled out.

Heritage and Convera have worked together before, having been partners for years in Australia and the bank will now offer an international payments facility through internet banking or the mobile app, through the API solution from Convera. The feature is an upgrade as international payments previously could only be done at a branch and took 48 hours to complete.

“With the explosion of online purchases now taking place across international marketplaces, our new international payments service provides a seamless facility for our members,” said Heritage Bank CEO Peter Lock. “This fantastic new service allows our members to send and receive money internationally direct from our online and mobile banking system, in close to real time and around the clock no matter where they are.”

According to Sam Fitzpatrick, regional vice president and head of APAC at Convera, research shows that a third of post-Covid recovery will be derived from “modern digital, deliverable services,” so Convera has been working on digital transformation for financial institutions.

LPA partners with OpenRisk to improve document digitisation and analytics

Capital markets software and advisory firm announced that it had enhanced its Contract Navigator solution offering through a partnership with business solutions developer Open Risk Technologies. The partnership will see LPA integrate OpenRisk micro-services into its new financial markets solution offering, Contract Navigator.

Contract Navigator is described as “a modular solution for financial institutions to improve the efficiency of a broad range of financial market agreements throughout their entire life cycle. The solution offers deal transparency through a high-impact digital interface, with its ultimate objective being the discontinuation of paper documents in Capital and Debt Markets.

“The OpenRisk platform complements Contract Navigator, introducing computer vision, semantic web, state-of-the-art natural language processing, and machine learning algorithms for significant increase in productivity and efficiencies. Focused on the domain-specific context of data, OpenRisk platform transforms legal language and tabular data into readily usable facts, rules, and executable mathematical expressions.  

“As an integral part of Contract Navigator, OpenRisk micro-services will be used to digitise legal contracts in the financial markets, namely trading agreements such as ISDA/ CSA, syndicated lending agreements, credit agreements, term sheets, funding requests and agent notices. These micro-services will extract all relevant contract data fields and feed the Contract Navigator solution case files, offering a centralised, searchable contract repository. Furthermore, the micro-services will harvest the agreements to feed the Contract Navigator sophisticated clause library.”

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