TheChek News Flow

Telegram founder Pavel Durov announced Wednesday that users on the chat app with personal accounts can now convert them into business accounts by paying a monthly fee. This gives users the ability to list information such as location and opening hours, which might be helpful for small cafes and shop owners.

Some of the other features for business accounts involve organizing chats with color labels, using automatic greetings or away messages, and shortcuts for quick replies. On his channel, Durov said that Telegram plans to launch more business features this month including a way to integrate AI-powered chatbots for customer service.

“Telegram Business accounts will be able to seamlessly add chatbots as their invisible secretaries to respond to all or certain chats. With AI, these chatbots can bring customer service automation to an entirely new level,” he said.

Telegram is trying to compete with WhatsApp Business, which crossed the mark of 200 million monthly active users last year, with these new features. However, a major differentiation is that Telegram is charging a subscription fee to use business features, while WhatsApp relies on the type of conversations and frequency of chats to generate revenue.

Meta-owned WhatsApp introduced many business-facing features last year including personalized customer messages and flows to complete e-commerce transactions without leaving the app.

Over the last two years, Telegram has focused on increasing its business through premium subscriptions, self-custodial crypto wallet, and auction of premium usernames. The chat app, which has more than 800 million users across the globe, is also planning to launch its ad platform this month with a revenue-sharing program for channels.

Oil and gas companies could be a source of additional funding for a UN climate financing to help developing economies cope with the consequences of climate change, according to a draft EU document seen by Reuters.

After failing so far to establish a clear-cut framework of how much wealthy developed nations should contribute to a fund to help developing economies, the next COP summit in Azerbaijan at the end of this year is seen as the deadline for reaching some kind of a deal.

The COP29 climate conference in Baku, Azerbaijan, is expected to decide in November if the climate finance goal should include only public funding, or raise funds from the private sector and international institutions, too.

The EU, which aims for carbon neutrality by 2050, is looking at the fossil fuels sector for potential additional contributions to these funds.

“Recognising that public finance alone cannot provide the quantum necessary for the new goal, additional, new and innovative sources of finance from a wide variety of sources, including from the fossil fuel sector, should be identified and utilised,” according to the draft EU statement which Reuters has seen and which has been prepared for a meeting of the foreign ministers of the bloc later in March.

Developed economies need to provide at least $1 trillion per year to climate finance for developing countries to meet the national and global climate targets, one of the biggest developing economies and a major carbon polluter, India, said in a proposal to the United Nations last month.

Developed countries have pledged to support developing economies with funding to address climate change and reduce emissions. Developing countries have been arguing for years that they cannot meet climate goals without substantial international mobilization of finance. In addition, the worst effects of climate change are being felt in many developing and very poor countries that don’t have the financial means to recover and build resilience amid extreme weather events and natural disasters.

The hedge fund-bank nexus

The BIS eyeballs prime brokers

The Bank for International Settlement’s latest Quarterly Review is out, and it includes an interesting little aside on prime brokerages, the corner of investment banks that service hedge fund clients.

PBs are one of the main links between traditional banks and shadow banks, offering services like custody, margin loans, derivatives, research and introduction to companies and investors. In return, they hope to get thiccc trading commissions.

However, the risks can also flow both ways. A stricken investment bank can yank credit lines from hedge funds and send its problems rippling through markets. Conversely, a major hedge fund collapse can cause havoc at a bank.

As the BIS says, with Alphaville’s emphasis in bold below:

Prime brokerage is designed to be a low-risk activity, but wrong-way risk (WWR), the opaqueness of funds’ positions and poor risk management can create vulnerabilities for PBs. WWR refers to the risk that a PB’s credit exposure to a hedge fund counterparty increases at the same time as the likelihood of the counterparty’s default. Opaqueness is present when the PB does not have the necessary visibility into the funds’ positions, eg because they are booked in different entities, the assets are complex or the assets do not have readily verifiable market values. The resulting risk exposures often become apparent only when the fund is facing severe difficulties.

If this sounds implausible — or like something from the 1990s — remember that Credit Suisse’s death spiral arguably started with the whole Archegos Capital debacle. Here’s the BIS again:

The fund had large and concentrated positions in a small number of shares. When these stocks suddenly plummeted, the fund’s financial strength suffered a blow, while PBs’ exposure to the fund surged, exacerbated by leverage — a case of WWR. Illustrating opaqueness, Archegos’ PBs were not fully aware of the size of the fund’s positions with other banks, thereby underestimating its overall leverage and impact on the markets in which it was active. Compounding these risks, Credit Suisse, the PB most affected by Archegos’ failure, had not set sufficiently conservative terms for the leverage it had provided. This resulted in both an excessive credit exposure for the bank and excessive leverage of the fund.

As the BIS notes, the prime brokerage business is incredibly concentrated. While large hedge funds have relationships with multiple offices — say, in London, Hong Kong and New York — the Goldman Sachs, Morgan Stanley and JPMorgan trio dominate the rankings.

It’s also inherently procyclical. When times are good, everyone wants to court the big hedge funds and capture the immense revenues they can throw off. When markets puke, banks often want to ratchet back their exposure, especially to their more opaque hedge fund clients.

As the BIS puts it:

PBs tend to provide more margin loans to hedge funds when markets are buoyant: secured borrowing by hedge funds correlates closely with stock market valuations, just as leverage in dealer balance sheets is procyclical. Hedge fund credit quality as perceived by dealers deteriorates during weak market conditions, when the value of assets the banks hold as collateral vis-à-vis the funds falls. This positive correlation between default probability and net credit exposure constitutes WWR. As for opaqueness, the assets of a quarter of hedge funds are not fully independently valued, comprising 38% of hedge fund assets, making it more difficult for PBs to trust the fund’s stated asset values, especially in adverse market conditions.

PBs accommodate hedge fund requests for better conditions on margin loans during calmer market periods, only to tighten these conditions during stress episodes. The Archegos episode is an extreme example: well in advance of the fund’s troubles, those in Credit Suisse who wanted to maintain a relationship with Archegos reportedly resisted efforts by risk management to demand more margin. Evidence suggests that such efforts to accommodate customers occur in the market in aggregate, reinforcing procyclicality. When hedge funds seek looser trade conditions with their PBs, such as better pricing or lower margin requirements, fewer dealers report margin loan tightening. Dealers tighten such terms when markets turn volatile.

These vulnerabilities call for sound risk management by PBs, overseen by risk-based, proactive supervision. Further, the global nature of prime brokerage illustrates the value of international supervisory collaboration.

There are several charts to underscore the points as well, if you’re into that kind of thing.

It’s interesting that organisations like the BIS are starting to focus on specific areas of banks that could prove a contagion nexus. Alphaville isn’t aware of anything similar from the BIS like this in the past. That said, this falls squarely in the “known known” risk bucket.

Indeed, it’s more interesting that no really major hedge fund has gotten in trouble for a while (Archegos doesn’t count), and no PB snafus have emerged in a long time (CS was, well, CS) — despite a LOT of nasty shocks over the past decade-plus.

Yes, things would undoubtedly have gotten hairy hadn’t the Fed gone full ape in 2020. But that was mostly a violent generalised shock, rather than the classic type of systemic hedge fund blow-up that people have been fretting about ever since LTCM.

That might indicate that the people involved are generally doing a better job than they get credit for from regulators and financial journalists? Of course, having written this down someone big is surely going to faceplant tomorrow

Foreign minister hails ‘new paradigm’ in relations with Moscow as trade picks up

China’s foreign trade grew faster than expected in the first two months of this year, driven partly by electronics and increased exports to emerging markets and Russia, with Beijing’s foreign minister touting “a new paradigm” in relations with Moscow.

China’s exports rose by 7.1 per cent in January and February compared with a year earlier, beating a Reuters poll of analysts that forecast an increase of 1.9 per cent. Imports were up 3.5 per cent, compared with a 1.5 per cent estimate. 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 per cent decline for the full year in 2023, is good news for policymakers as the country’s politicians gather in Beijing this week for the annual meeting of the rubber-stamp parliament.

China’s economy is struggling to rebound from a property crisis, weak consumer and investor confidence and a fall in export earnings last year, but the government has set what analysts describe as an ambitious target of 5 per cent gross domestic product growth for 2024.

In the first two months of this year, the Association of Southeast Asian Nations bloc was China’s biggest trading partner, with trade rising 4.8 per cent, followed by the EU, with which trade fell 4.1 per cent. Trade with the US was up slightly, rising 0.7 per cent.

Among China’s single-country trading partners, Russia’s ranking has risen rapidly, with bilateral trade growing 9.3 per cent to a total of $37bn in the first two months of this year and China’s exports to its neighbour rising 12.5 per cent.

Russia became China’s fifth-biggest single-country trading partner last year, up from ninth in 2020, as trade reached $240bn, exceeding a target of $200bn. Russia roughly maintained that position in the first two months of this year, losing fifth place only by a fraction to Australia.

Beijing’s foreign minister Wang Yi on Thursday emphasised how the two countries were pursuing trade as part of a strategic relationship, in comments that are likely to increase unease in the EU, which sees China as tacitly supporting Russia’s invasion of Ukraine.

“China and Russia have created a new paradigm of major-country relations,” Wang said in a press conference during the meeting of the National People’s Congress. “The two sides’ political mutual trust continues to deepen. Russian natural gas is reaching households in China, while Chinese cars are driving on the streets of Russia.”

European leaders have repeatedly warned Beijing that its support for Russia is eroding China’s popularity in the EU. But Wang said China’s partnership with its neighbour was in its own interests and not directed at any “third parties”.

China’s trade with India and Brazil also soared during the first two months of the year, rising 15.8 per cent and 33.3 per cent, respectively.

Zhang Yansheng, lead researcher at the China Center for International Economic Exchanges, attributed part of this rise to “friendshoring” as producers shifted operations away from China to evade protectionist measures by the US and EU. “The impact of geopolitics has accelerated structural changes in trade,” he said.

Moody’s analysts Sarah Tan and Aditi Raman said: “China looks to be increasingly involved in the supply chains powering India’s recent industrialisation wave as it positions itself as the next site of final assembly.”

Steel exports also surged 32.6 per cent year on year during the period, while iron ore imports rose 8.1 per cent. This was probably due to overcapacity in China, where the property slowdown has reduced domestic metals demand.

Brazil, meanwhile, was probably buying more electronics from China and exporting more iron ore, Moody’s Tan and Raman said.