New York Community Bank wins US$1 billion capital raise

Trading in New York Community Bank (NYCB) stock was halted on the New York Stock Exchange (NYSE) on Wednesday after a sharp drop in the share price.

The temporary suspension was ordered pending further news from the bank, which is the 35th largest in the US and was founded in 1859. Trading later resumed after the struggling regional lender announced a US$1 billion capital raise and a leadership shake-up headed by former US Treasury Secretary Steven Mnuchin, leading to a sharp rebound for its stock.

NYCB has agreed to a deal with several investment firms including Mnuchin’s Liberty Strategic Capital, Hudson Bay Capital and Reverence Capital Partners for more than $1 billion in exchange for equity in the regional bank, according to a press release issued Wednesday afternoon.

Mnuchin will be one of four new members of the bank’s board of directors as part of the deal. Joseph Otting, former comptroller of the currency, is also joining the board and taking over as CEO.

NYCB shares had earlier fallen sharply as The Wall Street Journal reported that the Long Island-based regional lender was seeking a major cash infusion. The report, citing people familiar with the matter, said bankers are actively trying to “gauge investors’ interest in buying stock in the company.”

The bank, with 420 branches and hundreds of thousands of customers, has been under pressure in recent months after the quality of its commercial real estate loans deteriorated and ratings agencies downgraded its credit status to junk.

Many US companies have given up on offices and downtown retail spaces, after Covid-19 normalised working from home and accelerated the decline of downtown shopping.

That left the owners of commercial buildings unable to pay lenders like NYCB. Around 16% of its loans are for commercial real estate acquisition, development and construction.

The bank's share price first started to fall at the end of January, after it cut its dividend and posted a unexpected loss. Last week the bank disclosed it had identified “material weaknesses” in internal controls tied to its review of loans.

Earlier this week the international Monetary Fund (IMF) marked the first anniversary of the collapse of Silicon Valley Bank (SVB) by warning that high interest rates and falling corporate property prices posed a serious risk to the US banking system and the prospect of further failures.

 

China’s foreign trade makes strong start to 2024

China’s foreign trade grew faster than expected in January and February, helped by electronics and increased exports to emerging markets and Russia, with Beijing’s foreign minister touting “a new paradigm” in relations with Moscow.

Exports rose by 7.1% in the first two months of 2024 from a year earlier, well above the estimate from a Reuters poll of analysts that forecast an increase of 1.9%. Imports were up 3.5%, also beating the estimate of 1.5%. China reports economic data for January and February together to account for the disruption of the annual lunar new year holiday.

“A big driver of that export recovery has been basically the upswing of the global tech product cycle, basically electronics,” said Tao Wang, chief China economist at UBS. “We have seen that already, that cycle bottoming, in the latter part of last year.”

The improvement in China’s trade, which compares with a 5% decline for the full year in 2023, is good news for policymakers as the country’s politicians gather in Beijing this week for the National People’s Congress annual meeting.

“The better-than-expected readings indicates increasing demand for products in key markets and among domestic consumers,” said Susannah Streeter, head of money and markets and financial services firm Hargreaves Lansdown. “With interest rate cuts eyed on the horizon in countries hit by high borrowing costs, light is being glimpsed at the end of the tunnel and there’s more confidence to place orders.

“Weak factory output has been a drag on the economy, already weighed down by a crisis-hit property sector, which has affected wealth perceptions and consumer behaviour. The trade rebound comes from a low base and could partly be due to manufacturers slashing prices to secure deals, which may be why investors appeared underwhelmed, with key indices falling back.

“There is clearly still a lot of work to do to shore up confidence, and the People’s Bank of China (PBOC) has hinted that more stimulus could be incoming with the governor saying there is ample room for monetary policy and room to cut banks’ reserve requirements further.”

 

EU to dilute supply chain law

European Union (EU) countries are set to vote on a significantly watered-down law that holds companies liable for human rights and environmental abuses in their supply chain, reports the Financial Times.

The business daily reports that the concessions are in response to resistance from Germany and Italy to the proposed regulation. According to the FT, a compromise deal will mean that only companies with more than 1,000 employees and €300 million (US$327 million) in turnover are affected, up from 500 employees and €150mn turnover previously.

The law, which was initially designed to make companies liable for their suppliers’ wrongdoing in places like China’s Xinjiang region, was voted down last week after both countries withdraw their support at the last minute.

Germany has its own version of the due diligence directive but the liberal Treed Democratic Party (FDP) that is part of Chancellor Olaf Scholz’s governing coalition said the EU law would create too much legal uncertainty and red tape for companies. Italy’s government also sided with industrial groups warning that the law would hurt small and medium enterprises.

References to downstream activities such as recycling and disposal of goods have also been removed from the text in an effort to address Italian concerns, according to the draft circulated on Wednesday by Belgium, which holds the rotating EU presidency and coordinates the ministers’ meetings.

An additional line “highlighting the benefits of the directive for the agricultural sector in the EU” was also added in a sop to EU governments, which are increasingly worried about widespread farmer protests across the bloc.

 

UK’s Nationwide agrees £2.9 billion deal to buy Virgin Money

The UK’s biggest building society, Nationwide, has agreed to buy rival Virgin Money in a £2.9 billion (US$3.7 billion) deal which would see the latter brand eventually disappear.

The deal would create one of the UK's largest mortgage and savings groups and increase Nationwide’s challenge to the UK’s ‘Big Four’ banks.

Nationwide said it would not make any material changes to Virgin Money's 7,300 employees “in the near term” and would continue to use the Virgin Money brand initially, but would phase it out over six years once the proposed takeover is completed.

Although the deal was unexpected, given the building society’s strategic aim it makes sense, said Susannah Streeter, head of money and markets at Hargreaves Lansdown. “Nationwide wants to bolster and diversify streams of funding, tap into business deposits, and give a rocket boost to the development of its services. A mutual taking over a listed bank is a rare move, but Nationwide clearly does not want to be stuck in the past and wants the know-how and access to scoop up future customers who demand more cutting-edge financial services.

“The Virgin Money board is minded to accept the deal, which at a 38% premium to yesterday’s closing price, may not be surprising given the difficulties faced by the company over the last year amid swirling cost-of-living pressures increasing credit card arrears. There will be some handwringing again over yet another listed company leaving the London Stock Exchange (LSE). Valuations are weak, weighed down by the highly sluggish economy, and to some extent the lingering effects of Brexit.”

In April 2020, CTMfile reported that Nationwide’s plans to move into  the business banking market had been derailed by the Covid-19 pandemic.

 

South Africa's economy grew by 0.6% in 2023

In Q4 2023, six of the country’s principal 10 industries kept the economy out of recession The transport, storage and communication industry made the biggest positive impact, expanding by 2.9% and contributing 0.2 of a percentage point to GDP growth. Increased economic activity was reported for all transport services across the industry.

Mining activity was up by 2.4%, pushed higher by stronger production figures for platinum group metals, chromium ore, coal and diamonds. However, this was offset by declines in the heavyweights of iron ore and gold in the fourth quarter.

Electricity, gas and water scored a second consecutive quarter of positive growth, expanding by 2.3%. The country experienced fewer days of power outages – aka loadshedding –  in Q4 (63 days) compared with the third quarter (91 days), with the rise in electricity production and consumption reflecting positively in the GDP numbers.

The personal services industry was up on the back of stronger growth in healthcare and education. Finance, real estate and business services grew by 0.6%, pushed higher by financial intermediation, auxiliary activities, real estate and business services.

Manufacturing edged higher by 0.2%, lifted mainly by growth in transport equipment, food and beverages as well as wood, paper, publishing and printing.

On the downside, trade, agriculture, construction and government were weaker. Agriculture, forestry and fishing had a particularly tough quarter, shrinking by 9.7% on the back of weaker production figures for field crops (grain sorghum, hay, wheat, sugarcane and chicory root), horticulture products (viticulture and citrus fruits) and animal products (pigs, poultry and eggs).

The fourth quarter data concludes the results for the calendar year. South Africa’s economy grew by 0.6% in 2023 after expanding by 1.9% in 2022 (Figure 3).

The finance, real estate and business services sector was the main star in 2023, growing by 1.8% and contributing 0.4 of a percentage point to GDP growth. Personal services, transport, storage and communication, manufacturing, construction and government services also helped keep the economy in positive territory.

 

Jerome Powell says Fed on track to cut US rates

The US economy appears to be at little risk of falling into recession, Federal Reserve Chair Jerome Powell said on Wednesday, but he noted it remains unclear when the central bank may cut interest rates and underpin the current expansion given further progress on inflation was not assured.

Appearing before lawmakers, Powell told members of the House Financial Services Committee "there's no evidence, there's no reason to think, that the US economy is in, or in some kind of short-term risk of, falling into recession."

Instead, Powell said that the Fed is on a “good path” to achieve its hoped-for soft landing for the US in which inflation continues falling to its 2% target while the economy grows and the unemployment rate, currently 3.7%, remains low.

But ahead of a charged presidential election year, Powell also avoided committing to any timetable for rate cuts, acknowledging there were risks the Fed might wait too long to ease monetary policy, and damage the economy, but also that it did not want to ease credit conditions too soon and see inflation reaccelerate.

“We expect inflation to come down, the economy to keep growing,” Powell said. “If that's the case, it will be appropriate for interest rates to come down significantly over the coming years.”

Attention now turns to today’s interest rate decision by the European Central Bank (ECB), which is generally expected to keep EU interest rates on hold despite growing fears of a recession in the region. Investors will focus on the Bank’s projections for the eurozone economy and on the words of ECB President Christine Lagarde for any hints about when cuts will come.

 

Visa and Western Union expand cross-border payments partnership

Visa has signed a seven-year agreement with Western Union, under which Western Union customers will be able to send money to their family and friends’ eligible Visa cards and bank accounts in 40 countries across five regions.

The agreement encompasses card issuance, Western Union’s integration with Visa Direct, and value-added service es delivery including risk products. Western Union customers will also be able to receive Visa prepaid cards in select markets offering an innovative solution that bridges the physical and digital world.

The two companies are also developing disbursement programmes for humanitarian organisations and governments to support the delivery of critical funds during a disaster. The programmes aim to support emergency and humanitarian payouts, cross-border pension payouts, and domestic benefits and disbursement payouts.

“People rely on remittances to send lifeline payments to their loved ones overseas. When we consider the urgency and need for accessibility, secure payment options with added convenience can make all the difference,” said Chris Newkirk, Global Head of Commercial & Money Movement Solutions, Visa. “Visa’s global scale and Western Union’s digital capabilities are revolutionising how customers send funds around the world. We are proud to offer more people fast and efficient solutions for cross-border payments.”

“Aspiring populations around the world rely on Western Union to provide them with innovative and accessible financial services that offer flexibility, value and trust,” said Sam Jawad, Head of Ecosystem, at Western Union. “By strengthening our strategic collaboration with Visa, together we will deliver impactful products and services that can help empower our customers to build a life of opportunity for themselves and their loved ones.”

 

Virginia passes bill to set up first green bank

A bill to establish the US state of Virginia’s first “green bank” was passed 57-40 with bipartisan support in the House earlier this week.

The bill, SB 729, creates the Virginia Clean Energy Innovation Bank, which is a government organisation that speeds up clean energy projects through public funds, grants, loans and other financial methods, said Kimberly McKay, legislative fiscal analyst for the committee.

Lee Francis, deputy director of the Virginia League of Conservation Voters (VLCV) added that said the new bank will fund projects that support clean energy, energy efficiency and water conservation and will focus on supporting projects in low-income communities.

The VLCV is a political action committee that advocates for environmental bills to pass in the state. Michael Town, its executive director, described the bipartisan vote as “a huge win for clean energy in Virginia,” in a press release.

The bank will receive funds from the Inflation Reduction Act’s (IRA) Greenhouse Gas Reduction Fund, a US$27 billion investment that can be distributed to states, cities or Tribal governments. Surovell said Virginia is falling behind other US states for not accessing these funds sooner.

If Virginia invests US$3 million, the state will receive US$97 million in federal loans for the green bank, Surovell said. He added that the bill is inspired by Minnesota’s Climate Innovation Finance Authority which passed legislation in May 2023. There are 21 green banks in 16 US states, according to the American Green Bank Consortium from 2021.

 

BILL adds cash flow forecasting to SMB financial operations platform

US fintech BILL, which focuses on small- to medium-sized businesses (SMBs), is adding new cash flow forecasting and insights capabilities to its financial operations platform.

The predictive cash flow tools are designed to provide SMBs and their accountants with information that will help them make better business decisions, faster, the company said in a press release.

“For SMBs, data drives success,” said Irana Wasti, chief product officer at BILL. “Decisions on how, when and where to allocate capital, make new investments or adapt business strategy require timely forecasting and insights capabilities that are actionable.”

These new capabilities will be integrated into the BILL Financial OPerations Platform, according to the release. They are now available to select customers, and they will become more widely available by the end of Q1 2024.

One new offering, BILL Cash Flow Forecasting, leverages accounting data to generate forecasts, the release said. It helps SMBs predict future cash flow, get timely cash flow visibility and track business performance with visual cash flow metrics. 

The other new offering, BILL Insights, provides visibility into accounts payable (AP) trends, per the release. It features easy-to-use dashboards that help SMBs scan key metrics quickly, uncover trends and opportunities, and renegotiate payment terms.

 

Amundi launches Paris-Aligned corporate bond ETF

French asset manager Amundi is extending its climate exchange traded fund (ETF) range with the launch of a US-dollar Paris-Aligned Benchmark (PAB) corporate bond ETF.

The Amundi Corporate Bond PAB Net Zero Ambition UCITS ETF(USIC) listed on the London Stock Exchange and Borsa Italiana last month with a total expense ratio (TER) of 0.14%. The firm unveiled USIC after rebranding the Lyxor ESG USD Corporate Bond UCITS ETF (USIH) as it continues to overhaul its range.

Amundi made a similar move in December 2022 on its euro-denominated equivalent, the Amundi EUR Corporate Bond Climate Net Zero Ambition PAB UCITS ETF (CRP).

USIC tracks the Bloomberg MSCI Corporate PAB Green Tilted index, which offers exposure to investment grade, US-dollar denominated corporate bonds from developed market issuers with a minimum MSCI ESG rating of BB.

The index uses an optimisation strategy and aims to increase the weight of issuers that meet carbon reduction targets, increase the weight of green revenue versus fossil-fuel based revenue, and increase the weight of green bonds of the index.

It will align with the Paris Agreement which targets initial decarbonisation versus the core/equivalent benchmark of 50% and an additional decarbonisation target of 7%.

Amundi is the latest issuer to launch a PAB corporate bond ETF after Fidelity expanded its active multi-factor fixed income range last October.