ADB and South Korea to launch climate tech hub

South Korea and the Asian Development Bank (ADB) plan to launch a joint organisation to facilitate climate change talks and networking. The country’s Finance Minister Choo Kyung-ho and ADB President Masatsugu Asakawa signed an agreement to set up the organisation, titled the ADB-Korea Climate Technology Hub, or K-Hub, in South Korea’s capital Seoul in 2024.

Asia’s multilateral development bank is also launching a new finance facility aimed at creating billions of dollars in climate finance loans.

The ADB said that the Innovative Finance Facility for Climate Change in Asia and the Pacific (IF-CAP), a programme for financing efforts to counter climate change, could create up to US$15 billion in new loans through a goal of US$3 billion in guarantees.

The plan, first reported last month, was formally announced at a meeting of senior Asian finance professionals in the South Korean city of Incheon, ADB president Masatsugu Asakawa said: “The climate events we have experienced over the past 12 months will only increase in intensity and frequency, so we must take bold action now. IF-CAP is an exciting, innovative programme that will have a real impact.”

Back in 2019, the ADB pledged to allocate US$100 billion of its own resources for climate finance over the period to 2030. The new IF-CAP will contribute significantly to delivering this ambition.

The UK, US, Sweden, Denmark, Japan and Korea have been named as the initial partners for the ADB’s new facility, which is being described as the first of its kind, in that no other multilateral development banks host a leveraged guarantee mechanism for climate finance.

More than 40% of climate-related disasters occurring since 2000 have been in the Asia-Pacific region, the ADB has stated. The World Meteorological Association estimated the cost of extreme weather events, made more likely and more intense due to climate change, at US$35.6 billion in 2021 alone. Costs are likely to be higher in 2022, due to an unprecedented summer of extreme weather events globally.

Once established, the proposed K-Hub will host climate experts from the public and private sectors, and function as the base of a global climate change network. It will support ADB member countries in the Asia-Pacific region as a climate think tank, sharing policies and knowledge related to climate change. It will be the first regional unit of the Manila-based international organisation in Korea.

“Korea is proud to help the economies of Asia and the Pacific to meet their development needs,” Choo said through the ADB. “I hope K-Hub will be a platform for governments and companies around the world to explore climate solutions and share climate technology and knowledge.”

 

Walmart and Kroger could be first US retailers to integrate FedNow

The US Federal Reserve’s new instant payments system, FedNow, currently scheduled to launch this July, could quickly be adopted by retailers Walmart and Kroger.

FedNow is being introduced by the US Federal Reserve banks in July after years of development. It would provide payments in seconds around-the-clock and on weekends and holidays. Such real-time payments (RTP) systems are already available in more than a dozen other countries, with billions of RTP transactions annually in India, China, Thailand, Brazil and South Korea.

Both US retailers are reportedly keen to offer the service to customers as an alternative to card payments according to payments news service Payments Dive, which cited comments from the retailers’ representatives during a panel at the US Faster Payments Council’s (FPC) spring meeting.

Speakers at the March event included Matt Howarter, Walmart’s senior director of payments services and Kathy Hanna, Kroger’s vice president of payments acceptance and services. Both expressed enthusiasm for the possibilities of real-time payments, not just FedNow, but also the real-time payment (RTP network services already offered by The Clearing House (TCH), said Reed Luhtanen, the FPC’s executive director who was at the meeting.

Stephanie Martz, chief administrative officer and general counsel at the National Retail Federation, agrees that US retailers are keen to find a payment option that is “cheaper and faster than the payment rails that are currently available and we’re excited to work with the Fed to get that interface out the door as quickly as possible.”

Real-time payments (RTP) and account-to-account (A2A) transfers have not yet taken off for consumer-to-business (C2B) transactions in the US, where the retail space is still dominated by card payments. However, FedNow’s instant payments are expected to bring US retailers three key benefits according to insiderfintelligence.com:

• Fee savings: The average A2A payment could cost merchants just one-fifth of a debit card transaction because it avoids interchange and other transaction-based fees. In addition, FedNow will be operated by the US government – which means it can’t turn a profit – and so could offer even more competitive pricing than other products on the market.
• Time savings: Card payments can take anywhere from one to three business days to process. But RTP payments give merchants immediate access to funds, improving their cash flows.
• Data insights: RTP provides enhanced communication between the buyer and seller by including transaction-specific data. This helps lead to more transparency in the payment process and more efficient accounting and reconciliation.
   

Covid “has limited graduates’ communication skills”

Covid pandemic lockdowns and the switch to remote learning in lieu of face-to-face sessions and socialising has impacted on young financial professionals, according to two of the UK’s ‘big four’ accounting firms.

Deloitte and PwC are offering extra training to younger recruits after finding that those who spent large parts of their education remote working and studying from home have struggled with communication and teamwork tasks.

The firms said they were helping newer recruits to develop skills that may have been neglected during the pandemic such as giving face-to-face presentations and participating in in-person meetings.

The past three years have seen university graduates had their education disrupted, with the pandemic preventing face-to-face learning and socialising for lengthy periods. The negative effects on students’ mental health at the time were well documented, and some researchers have expressed concerns that young people have been left with skills gaps.

The Big Four, also including EY and KPMG, run some of the largest graduate recruitment schemes that together hire thousands of university leavers every year.

PwC said it was increasing coaching for junior staff, including allowing senior managers to coach full-time on a secondment basis. The feedback from initial trials in some parts of the business “has been really positive”, and the firm plans to roll it out more broadly.

Ian Elliott, the chief people officer at PwC UK, said: “It’s wholly understandable that students who missed out on face-to-face activities during Covid may now be stronger in certain fields, such as working independently, and less confident in others, such as presentations to groups. It’s something we’re noticing but recent joiners are also telling us themselves. They’re keen for more support.”

Deloitte has found that recent recruits had less experience of office working than their predecessors, it told the Financial Times, which first reported the firms' additional training.

Jackie Henry, Deloitte’s UK managing partner for people and purpose, said she was seeing more younger workers seeking to delay professional exams – for which accountants study while working – due to stress. Deloitte has introduced a new induction programme, as well as training on conducting presentations and building professional networks.

Henry said there was “a greater need for employers to provide training on basic professional and working skills, that wasn’t necessary in prior years”.

Another PwC initiative encourages senior partners and directors to “identify more moments every day to involve junior staff”, as well as providing more guidance to people applying for the company’s graduate schemes.

 

Fed eases up on pace of US rate hikes

The Federal Reserve has raised US interest rates by a quarter of a percentage point in line with expectations and indicated that it may pause further increases, giving officials time to assess the fallout from recent bank failures, wait on the resolution of a political standoff over the U.S. debt ceiling, and monitor the course of inflation.

The 0.25% rise in the Fed’s benchmark interest rate was the 10th hike since March 2022, when interest rates were zero and the Fed started its rapid inflation-fighting campaign. The interest rate now stands at 5% to 5.25%, the highest level since 2007 just before the global financial crisis.

The Fed chair, Jerome Powell, has consistently argued that the central bank must prioritise taming resurgent inflation, which in June 2022 hit a 40-year high of 9.1% in the wake of the Covid-19 pandemic. The annual inflation rate has since eased and stood at 5% in March, but remains well above the Fed’s target rate of 2%.

In a statement, the Fed said the banking system was “sound and resilient.”

“Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The committee remains highly attentive to inflation risks,” said the Fed.

The statement indicated that the Fed’s rate increase cycle could be nearing an end. The statement omitted a phrase suggesting additional increases might be appropriate that was included in its previous rate rise announcement.

Commenting on Wednesday’s announcement, Kambiz Kazemi, chief investment officer (CIO) of Validus Risk Management said: “During the question period, Chair Powell struck a different tone from previous meetings – a more cautious and at times negative tone with regards to the prospects for the economy. The banking crisis and potential resulting credit tightening are also front and centre of the Fed’s risk concerns.

“All in all, Powell signalled that the Fed’s hiking action is done for now. However, he also emphasised that its view is that inflation will be readjusting slowly and as such, the divergence between what the market prices – cuts coming soon – and Fed’s message is well and alive.”

• The Fed’s latest rate decision came on the same day that the US Treasury announced plans to launch a programme for buying back government securities – its first since 2000 – some time next year, in a bid to ease liquidity in the (approximately) US$24 trillion market at the centre of the global financial system.
  According to the Wall Street Journal, the department is still designing the specifics of the programme, which officials said would start small and not significantly change the overall portfolio of US government securities on the market.
  The WSJ said that officials had been studying the possibility of a buyback programme for several months as a way to address the bouts of liquidity problems in recent years. Quickly buying and selling Treasurys at listed prices has at times been more difficult as big banks and asset managers—traditionally major buyers—retreat from the market.

• The European Central Bank (ECB) on Thursday followed the Fed’s lead and increased its benchmark interest rate by 0.25% as it continues to fight a surge in consumer prices. The seventh successive rise takes eurozone rates to levels last seen in November 2008. The central bank commenced its current rate increase cycle in July 2022, when it brought its main rate from -0.5% to zero. “The inflation outlook continues to be too high for too long,” the ECB said in a statement. With the latest increase, the bank’s benchmark rate will move to 3.25%, as of May 10.

Société Générale warns on fallout from credit crunch

The crunch in credit conditions could more than double the rate that some US companies will default on their debts, according to Société Générale.

Strategists at the French bank pointed to tighter lending standards in the US in response to recent vulnerability in the banking sector. The collapse of regional banks Silicon Valley (SVB), Signature and First Republic is expected to make banks less willing to offer loans.

SocGen noted that credit conditions in the US are back at their tightest level since the Covid-19 pandemic when stay-at-home orders shuttered the global economy and sparked the steepest recession since the 2008 global financial crisis.

That is likely to impact on the finance sector, as tighter lending conditions have traditionally been followed by a higher percentage of defaults on speculative-grade debt, representing high-yield loans given to companies with lower credit.

“The current bank lending standards imply a rise in defaults to 8.4%, more than twice the long-run average and well above what current US high yield spreads imply,” SocGen strategists wrote in a note on Wednesday, advising global credit investors to shift to debt in Europe over the US.

Analysts have warned of the rising risk of corporate defaults since the failure of SVB in early March – particularly within the commercial real estate (CRE) sector, since small- to mid-sized lenders finance around 80% of all debt in the industry.

US real estate giant Brookfield Corporation has reportedly already defaulted on nearly US$1 billion in commercial real estate debt so far this year. And major industry executives, such as Apollo Global Management’s CEO Marc Rowan, have warned that the second part of the banking crisis could show up through turmoil in the CRE space.

PacWest shares drop after reports of possible sale

Shares in another regional US bank halved on Wednesday night following a Bloomberg report that it was evaluating possibilities including raising funds or selling itself. PacWest Bancorp shares tumbled by 54.4%, or US$3.49, to US$2.93 during out-of-hours trading.

PacWest, based in the Beverley Hills area of Los Angeles, is hoping to avoid the fate of three other banks, Silicon Valley (SVB), Signature and First Republic, which have failed in the past two months. PacWest also has an office in Denver, Colorado, and a workforce of around 2,200 employees.

Bloomberg reported on Wednesday that PacWest has been weighing a range of strategic options, including a sale, citing people familiar with the matter.

The bank has been working with a financial adviser and has also been considering a breakup or a capital raise, said the individuals, who asked to not be identified. While it is open to a sale, the company hasn’t started a formal auction process.

PacWest secured financing in March, amid concern over the stability of smaller banks in the wake of SVB’s failure but failed to reassure investors. Before Wednesday’s after-hours fall the group’s stock had declined by nearly 72% since the start of 2023.

The bank admitted that it had been hit by a flurry of withdrawals in the immediate aftermath of SVB’s collapse but reported last week that this had been short-lived. “Deposits stabilised in the latter part of March and rebounded nicely in April,” Paul Taylor, PacWest’s chief executive, told shareholders, adding that they had increased by about $700 million last month.

The pressure on PacWest has extended to other lenders. Shares in Western Alliance Bancorporation, based in Arizona, fell by 32% in after-hours trading; Zions Bancorporation, based in Utah, was 12%  lower and Truist Financial Corp, based in North Carolina, declined 4%.

 

Suriname reaches debt restructure deal with bondholders

Suriname has reached an agreement in principle with its Eurobond creditor committee for the restructuring of its debt, the government said on Wednesday.

The deal to restructure the debt of the small South American country, situated on the northeastern coast, was first reported by Reuters.

It centres on two outstanding dollar-denominated bonds and includes a single, US$650 million 10-year bond with a 7.95% interest rate, amounting to a 25% “haircut on the total recognized claims,” the government said in a statement. “Of the 7.95% interest rate, 4.95% is required to be paid off in 2024 and 2025, with the remainder added to the principal.”

A value recovery instrument linked to future oil revenues and with an end date of December 31, 2050, is part of the deal.

“Suriname will allocate a certain portion of royalty income from Block 58 in the future to compensate bondholders for losses incurred as a result of debt restructuring,” said the government statement.

The first US$100 million in royalties from that block will go to the government, after which 30% of annual royalties will be allocated for payments to compensate debt holders.

A representative for the creditor committee did not respond to a request for comment. Members of the committee, which holds about 75% of outstanding bonds, include Franklin Templeton Investment Management Limited, Eaton Vance Management, Grantham, Mayo, Van Otterloo & Co LLC and Greylock Capital Management LLC.

Suriname said the deal was subject to reaching a staff-level agreement with the International Monetary Fund (IMF) by June 15. Last month, the IMF said it was working closely with Suriname authorities to bring their financing program back, while looking for progress in bilateral debt talks between the government and China. A nearly US$700 million program was agreed in late 2021, but it stalled after the first review was approved more than a year ago.

There were no fresh details on the bilateral talks with China in Wednesday’s government statement.

 

The World Federation of Exchanges develops educational certification for market infrastructure

The World Federation of Exchanges (The WFE), the global body for exchanges and central counterparty clearing houses (CCPs), is creating a new Market Infrastructure Certificate (MIC) programme aimed at educating the next generation of financial services leaders globally. 

The WFE named London’s Bayes Business School as the university educational partner for the programme. It said that the MIC programme will be purpose-built to serve the learning needs of all senior managers and mid-career professionals who need to engage with, and understand, the functioning and role of the organisations that underpin public markets. It is expected to support professionals at central banks, buy-side and sell-side firms, exchanges, clearing houses and regulatory bodies. 

The MIC will operate a blended learning approach, with both online and face to face elements, including two residential weeks: one at Bayes with teaching by faculty and the other at a WFE member for an industry immersion experience. The MIC will be an accredited programme and successful participants will obtain from Bayes Business School a post-graduate certificate worth 60 credits upon completion.  

The programme will consist of online webinars covering the theory of the core principles, case-based examples and a mix of academic and industry leader led sessions. The online component will include recorded sessions which participants can access at a time that suits them and a series of live webinars which will be highly interactive. 

The taught modules will be: 

• Module 1 – Payments and Market Infrastructures, 
• Module 2 – Exchanges, Asset classes and Market Micro-Structure, 
• Module 3 – Regulation, ESG and Ethics
• Module 4 – Industry Project

The WFE invited applicants to register interest or to receive updates about the programme by email at MIC@world-exchanges.org. Applications will open later this year.

 

Revolut enters South American market with Brazil launch

Digital bank Revolut is making its first foray into Latin America and has begun offering crypto investments in Brazil as it bids to tap into the country’s growing demand for crypto assets.

Revolut, which already offers crypto investments across Europe, announced by e-mail that it is now open for business in Brazil, where it says that there are around 10 million crypto users.

“Our mission is to unlock a borderless economy with financial products that are accessible and easy to use and that allow our customers to use their money efficiently, said CEO Nik Stronsky. “We will start with the global account and crypto investments, but this is just the beginning.”

Revolut has around 29 million customers worldwide and aims to carve out a share in Latin America's most populous country, where digital bank Nubank is entrenched as the market leader with around 70 million customers. Nubank introduced crypto trading in June 2022, gaining one million users within a month and made headlines in March when it followed up with the launch of its own cryptocurrency, Nucoin.