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UK firms face new costs from Brexit border checks – Industry roundup: 30 April

UK firms fear supply chain disruption from new Brexit border checks

Physical product inspections on goods ranging from flowers to cheese will apply at UK ports from today may incur costs and increase supply chain delays, say business owners.

Thel inspections will be introduced at British ports on animal products, plants and plant products coming from Europe.

All high-risk imports such as live animals, plants, eggs and seeds will be checked and up to a third of those deemed medium risk — dairy, wild caught fish and some cut flowers — will be subject to spot inspection.

As part of the new system all imports through the Port of Dover and Eurotunnel will be subject to a “common user charge” of up to £145 (US$182) for each mixed consignment and there will be additional costs for every inspection carried out.

The long-delayed border checks were designed to ensure imports are safe but UK business owners and industry leaders have serious concerns about the potential disruption caused by the reforms.

Phil Pluck, the chief executive of the Cold Chain Federation, said: “Border Force control officers are raising concerns that they have not been adequately trained and informed as to how to operate the new rules. It is unravelling days before it’s due to go live.”

The physical checks come othrree months after the UK's introduction of new documentation for imports, including health certificates that require vets and plant inspectors to sign off consignments.

With importers also facing a charge for each consignment that comes into the UK irrespective of whether it is stopped for inspection, the uK government admits it will add more than £330 million to annual business costs and add 0.2% to food inflation over three years.


HSBC’s CEO Quinn surprises market by announcing retirement

HSBC’s results have been overshadowed by news that its Chief Executive Noel Quinn is to retire - a surprise departure by its leader of five years who has overseen a sweeping series of asset sales across the globe. The bank has launched a formal process to find a successor.

Quinn will remain CEO until his successor starts in the role, and he has agreed to remain available through to the end of his 12-month notice period expiring on 30 April 2025, to support the transition, the bank said in a statement.

Chief Financial Officer (CFO) Georges Elhedery, appointed to the position last January after a sabbatical before which he headed the bank's markets business, is likely the leading internal candidate for the job, reports suggest.

“After an intense five years, it is now the right time for me to get a better balance between my personal and business life. I intend to pursue a portfolio career going forward,” Quinn said.

Quinn, who joined HSBC in 1987, was named the chief executive of the bank, which makes most of its revenues and profits in Asia, in March 2020, after serving as an interim CEO following the surprise ouster of his predecessor.

He played a crucial role in navigating challenges during and after the coronavirus pandemic, as well as heightened geopolitical tensions that weighed on the bank's key market, China.

One of the main tasks for Quinn after he took over was to improve returns for shareholders, and he sought to do that by shrinking the bank's footprint in non-profitable markets and unveiling job cuts while doubling down on an Asia pivot strategy.

The bank's shares have gained roughly 30% during his tenure.

HSBC reported pretax profit of US$12.7 billion for the quarter ended March against US$12.9 billion a year earlier, reflecting rising costs from expansion in Asia and amid inflationary pressures. However the results were better than the US $12.6 billion average of analysts' forecasts compiled by HSBC.

The London-headquartered bank also announced US$3 billion worth of share buybacks on top of US$2 billion in share purchases announced in February.


Postbank problems resurface at Deutsche Bank

Shares in Deutsche Bank fell sharply on Monday, following reports that a long-running lawsuit alleging that the bank underpaid for the purchase of its Postbank division could cost up to €1.3 billion (US$1.39 billion).

Postbank’s persistent problems is a setback to Germany’s largest lender, which last week posted better-than-expected earnings.

Analysts at JPMorgan and Royal Bank of Canada (RBC) cut their target prices for Deutsche Bank, despite rating the bank ”overweight” and ”outperform” respectively. “It is disappointing that improved performance and a constructive operating environment are overshadowed by legacy litigation from a long time ago,” RBC analysts wrote in a note to clients.

Litigation relating to Postbank dates back to 2011. Three years previously during the global financial crisis, Deutsche Bank bought a stake in the retail bank of just under 30% for €2.8 billion, based on €57.25 per share. As Deutsche Bank gradually increased its stake over the following years, the financial crisis was in full swing and Deutsche Bank's offer for remaining shares halved, irking Postbank's smaller shareholders.

Since May 2018, Postbank has been a subsidiary of the retail division within Deutsche Bank, which aimed to broaden its reach in Germany and achieve steady income stream after years of rapid international expansion. Instead, Postbank has become a source of consumer complaints, regulatory scrutiny and labour strife In addition to potentially costly litigation.

Late on Friday, Deutsche Bank unexpectedly announced that it would make a provision to offset possible claims in litigation in the suit following oral arguments at a hearing earlier in the day.

It stressed that it ”continues to disagree strongly” with claims that it underpaid for Postbank. Without specifying the amount it had set aside, the bank noted that claims totalled about €1.3 billion.

In a subsequent announcement late on Sunday, Deutsche said it would "carefully assess" options for a possible settlement and that it was too early to tell whether it would conduct another share buyback in 2024 in light of the latest development. It added that the provision for litigation would impact its second-quarter and full-year profitability. Analysts at KBW said they believed a second buyback “will be scrapped altogether”.

Deutsche Bank shares had previously gained steadily over the past year, recovering from falls in March 2023 when bank rescues were conducted in the US and Switzerland.

In addition to last week’s earnings release, the bank was further boosted when Euroclear Bank selected Deutsche Bank as its cash settlement and foreign exchange bank with the Korea Securities Depository (KSD). The bank will support Euroclear in its South Korean government bond activity across Korea treasury bonds and Monetary Stabilisation Bonds.


Boeing taps debt market and raises US$10 billion

Boeing on Monday tapped debt markets to raise US$10 billion, after the US plane manufacturer burned US$3.93 billion in free cash during the first quarter of the year following slowing production of its best-selling jet, sources familiar with the matter said.

Boeing’s credit rating hovered above “junk” status last week from rating agencies as the group attempts to recover from a crisis that began in January after a midair blowout of a cabin panel door plug on a nearly new 737 MAX 9.

Investors and analysts have said Boeing could tap bond markets to get ahead of more than US$12 billion in combined debt coming due in 2025 and 2026.

Credit rating agencies both assigned ratings nearing junk to Boeing’s new senior unsecured notes, with Standard & Poor’s (S&P) assigning a BBB- rating and Moody’s assigning a Baa3 rating.

Moody’s said the rating reflects Boeing’s still-strong business profile, which continues to mitigate ongoing weak performance in commercial aircraft, although headwinds surrounding the division could persist through to 2026.

Boeing will use the bond proceeds to increase its liquidity ahead of maturities on its existing debt load, including US$4.3 billion in 2025, S&P wrote.

“It looks like it will go well,” said one of the sources reported, who was looking at buying the bonds, adding that he was told it was eight times oversubscribed.

The deal’s bookrunners leading the bond sale include Bank of America, Citi, JPMorgan and Wells Fargo, according to the deal’s term sheet.

During the company’s earnings presentation last week Chief Financial Officer (CFO) Brian West said that Boeing was committed to managing its balance sheet in a prudent manner, with the goal of prioritising its investment-grade rating and helping the factory and supply chain to stabilise.


Eurozone inflation holds at 2.4%

The eurozone's annual rate of inflation remained unchanged this month from March, in line with economists' expectations, official data shows.

Consumer price rises in the single currency area stood at 2.4% in April, the European Union’s (EU) statistics agency said. Most analysts had forecast that inflation would hold in April.

The data comes a day after figures showed German inflation rose slightly this month to 2.4% , according to preliminary data from the federal statistics office.

German consumer prices, harmonised to compare with other European Union countries, rose by 2.3% year-on-year in March. However, core inflation in Germany, which excludes volatile food and energy prices, was at 3.0% in April, down from 3.3% in March.

Economists pay close attention to German inflation data, as Germany publishes its figures before the euro zone inflation data release,

The European Central Bank (ECB) has signalled it will start lowering borrowing costs in June and the data will increase expectations of an interest rate cut.


Bank of Japan moves closer to digital yen

The Bank of Japan (BoJ) has published an interim report on its central bank digital currency (CBDC) work. It revealed that it launched a CBDC API Sandbox this month, mentioning the similar Project Rosalind developed by the Bank of England (BoE) and the Bank for International Settlements (BIS).

The central bank ran two previous proofs of concept (PoCs) for the digital yen, the latest ending a year ago. In contrast to the PoCs the latest work extends beyond the CBDC platform, involving end-to-end experiments including with intermediaries. In addition to application programming interfaces (APIs) it is exploring interoperability with external systems more generally and additional functionality.

A key feature of the latest activity is extensive industry engagement with five working groups. So far much of the work is desk-based research, but the BoJ plans to experiment based on the results.

Examples of additional functionality explored in the current phase include privacy and scalability. On the privacy front, the central bank wants to separate personal data from payment data, mentioning the digital euro as an example. However, the paper also explores potentially selling data including details about purchases if users provide consent.

Should this path is pursued the BoJ suggests that the data distribution function should be external to the central bank and intermediaries.

In terms of scalability, the CBDC platform needs to be capable of processing tens of thousands of transactions per second during normal periods and more than 100,000 transactions per second during peak times.

Other functionalities discussed included compatibility with offline payments, extending functionality including programmable payments, and security.

The BoJ has yet to actually commit to launching a CBDC and could find it challenging to promote given consumer awareness of the concept is particularly low in Japan. The bank is also participating in, Project gora, the BIS project for cross border payments using tokenization. Meanwhile, the first Japanese  tokenised deposit solution, Decentralised Cloud Infrastructure to Japanese Yen (DCIJPY), is expected to launch in the coming months. 


Chinese firms use unconventional means for Sino-Russian trade

Chinese businesses, struggling with challenges in conducting transactions with Russia amid concerns over US sanctions, are reported by Reuters to be resorting to unconventional methods to facilitate payments.

As a result, companies are exploring alternative channels, including currency brokers along the China-Russia border and even banned cryptocurrency, to overcome these payment hurdles.

According to the report, the reluctance of China’s major banks to process transactions related to Russia has prompted small Chinese exporters to seek alternative avenues for payments.

Accompanied by fears of being targeted by US sanctions, these banks have tightened scrutiny on Russia-related businesses, complicating trade finance for Chinese exporters.

The delays in payment clearance have prompted concerns among businesses, with some opting to scale back operations in the Russian market or explore unconventional payment methods to mitigate financial risks.

As reported by Reuters, transactions between China and Russia are increasingly being routed through underground channels, including currency brokers and even banned cryptocurrency, as mainstream banking channels face heightened restrictions.

However, these alternative channels also carry inherent risks, raising concerns about the long-term sustainability of such practices.

Chinese banks, particularly rural banks along the China-Russia border, have emerged as alternatives for processing payments to Russia.

However, the influx of businesses seeking to leverage these banks has resulted in bottlenecks, with some businesses reporting lengthy delays in opening accounts.

Despite efforts to explore these alternative options, challenges persist, with some companies encountering obstacles in accessing banking services or receiving payments from Russian clients.

The impact of restricted payments from Russia extends beyond individual businesses, affecting China's financial institutions and trade relations with Russia.

Major Chinese banks have reported declines in Russia-related business activities, reversing previous growth trends. China Construction Bank and Agricultural Bank of China are among those to have experienced drops in assets attributed to their Russian subsidiaries.

As Chinese companies grapple with payment delays and uncertainty in conducting business with Russia, concerns persist about the sustainability of alternative payment channels and the potential for further disruptions.

Some businesses have already begun reconsidering their presence in the Russian market, citing liquidity management concerns and the unpredictability of future developments.


Hong Kong Exchange to require IFS-based climate disclosure from 2025

The Stock Exchange of Hong Kong announced that all listed companies will be required to begin providing mandatory climate-related disclosures based on the IFRS Foundation’s International Sustainability Standards Board (ISSB) new reporting standards, with Scope 1 and 2 emissions disclosure beginning as of the 2025 reporting year.

The announcement follows last year's launch by the HKSE of a consultation proposing new climate-related disclosures for companies. The exchange reported that it “received broad-based support for its proposals,” leading to the decision to adopt the consultation proposals.

The IFRS released the inaugural general sustainability (IFRS S1) and climate (IFRS S2) reporting standards  in June 2023 and in July, The International Organisation of Securities Commission (IOSCO), the international policy forum and standards setter for securities regulators called on regulators to incorporrate the standarrds into their sustainability reporting regulatory frameworks.

The decision also follows the release last month by the Hong Kong government of a statement setting out its approach towards the development of a comprehensive ecosystem for sustainability disclosure, including working with regulators and stakeholders to develop a roadmap on the appropriate adoption of the ISSB standards, and to develop local sustainability reporting standards aligned with the ISSB.

Katherine Ng, Head of Listing at Hong Kong Exchanges and Clearing Limited (HKEX), said: “The New Climate Requirements form part of the wider Hong Kong roadmap for the local adoption of the ISSB Standards. This will be an important part of our ongoing efforts to prepare listed companies towards eventual sustainability reporting in accordance with the local sustainability disclosure standards under development, enhancing Hong Kong’s capital markets attractiveness and competitiveness.”


BlackRock and Temasek raise US$1.4 billion for decarbonisation growth fund

US investment management giant BlackRock and Singapore’s state-owned Temasek Holdings announced that their joint venture Decarbonization Partners raised US$1.4 billion at the final close of its inaugural fund, Decarbonization Partners Fund I, well ahead of the firm’s US$1 billion fundraising target.

Decarbonization Partners was launched by BlackRock and Temasek in 2022, establishing a late-stage venture capital and growth private equity partnership to invest in companies providing technologies and solutions that help accelerate the transition to a net zero economy by 2050. Since launch, the Decarbonization Team has grown to more than 25 members across offices in New York, San Francisco, Singapore, London, Paris and Houston.

Larry Fink, Chairman and CEO of BlackRock, said: “There is enormous demand for energy infrastructure as many countries seek to transition to lower-carbon sources of power while also achieving energy security. Decarbonization Partners brings together the best of Temasek and BlackRock to identify generational investment opportunities in climate technology that we believe will help to bring down the green premium, enable a more affordable energy transition, and generate long-term financial returns for our clients.”

The firms initially committed a combined US$600 million to the partnership. In addition to BlackRock’s and Temasek’s commitments, the fund received commitments from more than 30 institutional investors across 18 countries, including public and private pension funds, sovereign wealth funds, insurance companies, corporates and family offices.


BNY Mellon and AccessFintech partner ahead of T+1 settlement 

New York-based AccessFintech, which enables data and workflow collaboration across the financial industry, is working with BNY Mellon to develop a joint solution to the market for addressing foreign exchange (FX) workflow challenges ahead of the forthcoming T+1 settlement regulations.

In a release, it said “Upcoming T+1 settlement regulations in North America are posing significant challenges for market participants. Significant attention has been paid to the immediate impact of the shortened securities settlement cycle, projecting increased fails rates and pressure on the international investor community from misalignment in cross border settlements. The immediate impact of these challenges is increased capital constraints due to higher fail rates and operating costs.

“Funding and FX requirements are set to be a more complicated challenge, particularly for international brokers and investors operating across settlement jurisdictions and time zones. The complexity of misaligned settlement cycles means that these parties need to manage their FX requirements on trade date to settle within the T+1 window. Security transactions left with the broker to execute during US market hours results in FX requirements only being available after hours. The local FX funding window will need to be executed on a same day basis in a less liquid market than if the FX had been executed during US trading hours the previous day and with a T+2 settlement cycle.”

BNY Mellon and AccessFintech are collaborating to work with clients on addressing this challenge, providing clarity on securities trades ‘predicted to settle’ status. Clients based on AccessFintech’s network will be able to instruct BNY Mellon to broker FX transactions based on these ‘predicted to settle’ insights before the end of the US trading day, helping to provide the necessary liquidity for international clients trading of US securities.

AccessFintech specialises in post-trade financial transactions where there is a distributed supply chain of organisations. AccessFintech enables optimal data transparency through the normalisation, visualisation, and ease of access to extensive transaction data on its Synergy platform. The Synergy T+1 solution ensures real time data transparency and cross-market collaboration through the entire transaction lifecycle, offering transaction data pairing to support enhanced pre-matching and reduce fail rates. Synergy further enables data visibility on T+0 with real-time local market information included for AccessFintech Synergy Network participants.

“At BNY Mellon, we are laser focused on developing solutions that support our clients’ investment performance and success,” said Jason Vitale, Head of Global Markets Trading, BNY Mellon. “Our collaboration with AccessFintech will provide clients the ability to leverage our recently launched Universal FX platform to fund their T+1 settlement activity in an efficient and transparent manner.”   

Roy Saadon, CEO and Co-Founder at AccessFintech added: “BNY Mellon has the foresight to help clients across this challenging time in FX settlement. Together, we can achieve T+1 settlement by collaborating as a unified ecosystem.’

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