WSJ : Saudi Arabia, Gulf Countries Want Better Returns for Bailing Out Egypt

Saudi Arabia, Gulf Countries Want Better Returns for Bailing Out Egypt
Egypt has been asked to devalue its currency, appoint new officials to run its finances

CAIRO—Saudi Arabia and other Persian Gulf countries have warned Egypt that any financial bailout would depend on Cairo devaluing its currency and appointing new officials to run its economy, according to Egyptian and Gulf officials, raising the bar for its embattled neighbor after providing years of easy assistance.

The economy of the Arab world’s most populous country is in dire straits after the Covid-19 pandemic hit its tourism sector and the war in Ukraine pushed up global food and commodity prices. Inflation has soared to over 40% and Egypt’s currency is one of the worst performers globally this year, pushing millions more into poverty.

Since Egyptian President Abdel Fattah Al Sisi seized power in 2013, Gulf countries have provided tens of billions of dollars to Egypt in the form of aid and direct deposits to prop up an ally that is also a key security partner in the region. Now he is turning again to Egypt’s biggest benefactors, visiting Saudi Arabia in a surprise trip last Sunday to drum up more financial support for Cairo, according to people familiar with the matter.

But while Mr. Sisi tweeted about meeting Saudi Arabia’s de facto ruler, Crown Prince Mohammed bin Salman, his visit didn’t result in any immediate Saudi funding promises, the people said.

Egypt’s wealthy neighbors all want better returns for their money now as they focus on reshaping their own energy-dependent economies, Egyptian and Gulf officials said. At the top of their list of demands is a further devaluation of the Egyptian pound, which would potentially make Gulf investments in Egypt more lucrative, the officials said. The Gulf states have asked for Egypt’s military to cut back its involvement in the economy in favor of a bigger role for the private sector, a move that would potentially allow Gulf companies to take stakes in Egypt’s growth sectors.

The Gulf states also want a more effective leadership to run its finances, the officials said, amid years of concerns over mismanagement and corruption.

Egypt, so far, has done little to address the Gulf countries’ demands. Analysts expect Cairo could soon let the currency fall sharply, marking the fourth devaluation by Egypt’s central bank since Russia invaded Ukraine in February 2022.

Egypt’s Ministry of Foreign Affairs didn’t respond to a request for comment. Saudi Arabia and the United Arab Emirates didn’t immediately respond to requests for comment.

Egypt’s economy has managed to stay afloat thanks in part to the International Monetary Fund. The international creditor agreed last year to lend Egypt $3 billion over the coming four years and in December extended the first of nine tranches. But the bailout isn’t enough to plug the financing gap that Egypt faces in the coming years as it seeks to pay back tens of billions of dollars in debt, economists say.

The IMF said it expects Egypt to bring in an additional $14 billion in financing from the Gulf and other countries in the four-year time frame.

To help cover the country’s immediate financing needs, Egyptian leaders have tasked its sovereign-wealth fund with raising $2.5 billion by June. Some of the money will come from a privatization drive that Egyptian authorities recently launched to sell stakes in 32 state-run companies, although that program is expected to take until early 2024.

Negotiations with sovereign-wealth funds and companies in the Gulf over various state assets have stalled, according to people familiar with discussions, with no deals coming to fruition. They see the Egyptian pound as still being overvalued, according to the people, despite the currency’s decline of over 40% against the U.S. dollar over the past year.

The Gulf states also agree with the IMF that Egypt needs to rein in fiscal spending and dial back the role of its military in the economy, the people said. In the past decade, the armed forces have been put in charge of hundreds of infrastructure projects and expanded into sectors ranging from food and beverages to cement.

Ayman Soliman, chief executive of the Sovereign Fund of Egypt, said in an interview that the fund is helping to manage the sale of 14 of the 32 state-owned firms and aims to announce a couple of deals soon, helping the fund reach its immediate target of raising $2.5 billion.“ The goal is achievable,” he said.

At the same time, he said prospective investors have concerns about the economy, including the trajectory of interest rates and the Egyptian pound. Investors’ mind-set is “purely commercial,” with a focus on “valuation, returns, governance” he said.

Between 2013 and 2020, Gulf countries provided Egypt with a total of $97 billion in central bank deposits, direct investment and other forms of financial aid, according to a tracker by Karen E. Young, a researcher on Middle East political economy at the American Enterprise Institute. Saudi Arabia has led the way, providing more than $46 billion.

As the war in Ukraine began to hurt Egypt’s economy in early 2022, some Gulf countries deposited $13 billion into the Central Bank of Egypt, helping Egyptian authorities shore up their foreign currency reserves. It included $5 billion from Saudi Arabia last March.

Frustration from Gulf states grew later in the year, however, as the IMF considered the terms of its bailout package. The United Arab Emirates refused to act as a guarantor by transferring over a percentage of the total loan value as a deposit to Egypt’s central bank, according to officials familiar with the discussion. This prompted Cairo to turn to Saudi Arabia and Kuwait, but they refused to help as well, the officials said.

The IMF didn’t respond to requests for comment.

Gold Switz. : Golden Question? Is the Petrodollar the Next Thing to Break?

Golden Question? Is the Petrodollar the Next Thing to Break?

As we warned throughout 2022, the Fed’s overly rapid and overly steep rate hikes would only “work” until things began breaking, and, well…things have clearly begun to break, including the petrodollar.

Even prior to the recent headlines regarding US regional banks, “credit event” stressors were already tipping like dominoes around the world, from the 2019 repo crisis and the 2020 bond spiral to the 2022 gilt implosion.

Then came SVB et al in 2023, and, of course, the forewarned disaster at Credit Suisse…

But as we also warned literally from day 1 of the sanctions against Putin, the oh-so-critical petrodollar would be among the next dominoes to tip, and tipping is precisely what we see.

As argued below, petrodollar shifts are yet another headwind for USTs and USDs, but an obvious tailwind for gold.

But before we dig into this historical tipping point, it’s important to see the forensic cause of all that is breaking…

The Bond Market, Of Course…
We can’t repeat this point enough: The bond market is the thing.

And toward this end, the signs of generational and global shifts in global trade, currency settlements and political instability is directly tied to broken sovereign credits reeling under the pressure of artificial rate hikes.

Less Credit, Less Growth, More Volatility
In the wake of recent bank failures and now carefully muted headlines, credit is tightening behind the curtains, and that’s a bad sign.

Even the safer companies in the US with “investment grade” credit status aren’t issuing bonds into a credit market that has seen volatility on the short end of the UST market which looks more like a crypto-coin trade than a “risk-free-return” UST.

The recent gyrations in the 2-year UST and futures market surpassed vol levels seen in 1987, 9-11, or even the GFC of 2008, but I’m betting those details didn’t make the headlines of the financial media with much attention to detail…

As the WSJ recently noted, however, March issuance of bonds by even the highest rated companies came in at just under $60B, significantly below the five-year average of $180B for the same month.

And as for the junkier companies and their junkier bonds, well…their luck, as well the demand for their IOUs, has all but dried up.

March saw US zombie/junk borrowers (who live off “extend-and-pretend” low rates and yield-desperate investors [suckers]) issuing only $5B in bonds, compared to a five-year average of over $24B for the same month.

Hmmm.

Uh-oh?

Stated simply, easy, cheap and freely available credit, which has been the fun but toxic wind beneath the otherwise broken wings of the so-called post-08 “recovery” (bubble), is ending/breaking, which means hope for any vestige of US economic growth is now all but an open joke.

Small banks, which will be falling off the vine one by one in the coming months as depositors openly move toward the larger banks and money markets, means that credit, and hence hope, for small businesses in the US will be harder to get than an honest voice in Congress.

Needless to say, none of these open signals of tightening credit bode well for Main Street in particular or economic growth in general.

The Fed’s Generational Sucker-Punch
The Fed may have given the top 10% of the US 90% of all the bubble wealth which came from their post-08 rate repression…

… but now that same centralized (and rate-hiked) bank is giving the ignored 50% of small business owners and average Joes on Main Street the sucker-punch of a generation.

The recession in which we likely already find ourselves will nevertheless (and soon) become more and more undeniable, and yes dis-inflationary, within an over-all inflationary backdrop.

In the near-term, moreover, such slowing growth and tightening credit will also be a tailwind for the USD.

But those dis-inflationary winds and rising dollars won’t last for long in my opinion.

Why?

Here are six simple reasons…

Why Dis-Inflationary Forces and a Rising USD Will Indeed be “Transitory”
Of course, I hate using a word like “transitory” … but here are six reasons a strong USD and near-term dis-inflationary forces likely won’t last for long.

With:

1) Uncle Sam running twin deficits while…

2) the US stares down the barrel of $33+T in year-end debt levels and…

3) declining tax receipts (down 10% y/y) with…

4) true-interest expense on outstanding US sovereign debt at 118% of tax receipts—and all within the setting of…

5) openly tightening credit while facing…

6) a de-dollarizing world with less rather than more interest in American IOUs/USTs…

… the US will hit that fork in the road where it must print money to survive.

In short: A Pivot Will Come
Why?

Because, when forced to choose between imploding credit markets or a dying currency, the central planners will sacrifice the dollar, not the market(s).

As warned many times, the currency is always the last bubble to pop in a broken financial system.

And that, folks, is precisely when the inflationary forces of magical mouse-clicked trillions will surpass the dis-inflationary forces (above) of a broken economy and an increasingly loan-less banking system—all of which we can thank each and every central banker since patient-zero Alan Greenspan took a chair at the Eccles Building.

All Roads Lead to Gold…
All of this, of course, leads us to my favorite topic and asset: Physical gold.

Needless to say, my colleague, Egon von Greyerz, and I have always had a lot to say about this so-called “barbarous relic.”

Many, of course, will just chalk such conviction to the good-ole “gold bug” retort, but those who understand the math and history of money in general or broken credit cycles in particular are a bit more than just “gold bugs” …

And as for gold’s inevitable direction, we know it will trend north for the undeniable reason that currencies, ever since Nixon welched on the Bretton Woods gold standard, have been steadily trending south.
It’s really that simple.

The OPEC Factor… History Rhyming, Gold Shining
But notwithstanding our consistent and common-sense arguments, let’s look at the petrodollar shifts of late.

Toward this end, folks like Chris Rutherglen and Luke Gromen have done an exceptional job in reminding us of the history as well as critical importance of gold, oil and credit markets.

History Rhyming
As I’ve presented elsewhere, history (borrowing from Mark Twain) may not repeat itself, but it certainly rhymes.

And toward this end, Rutherglen and Gromen have shown the poetry of rhyming patterns in the context of the ever-changing petrodollar politics, which, modestly, we too foresaw over a year ago.

As we warned from literally day-1 of the western sanctions against Putin, the end result would be disastrous for the West in general and the USD in particular.

And nowhere was this US Dollar prognosis truer than with regard to the petrodollar—i.e., those good ol’ days when nearly every oil purchase was linked to the USD.

However, and as Gromen and Rutherglen suggest, that oil-USD linkage was never a sure thing in the 70’s, and will be even less of a sure thing in the years ahead.

And this, folks, will have a massive impact on gold in the years ahead.

How so?

Let’s dig in.

Gold and Oil—Ready to Link?
Although still in diapers when Nixon closed the gold window in 71, and still watching Saturday morning cartoons when gold soared from $175/ounce in 1975 to over $800/ounce less than five years later…

… I am at least old enough now to glean a few historical lessons and patterns which may point toward similar and rising gold valuations tomorrow.

Gold, as Gromen and Rutherglen remind, was ripping in the late 70’s largely because it was not yet a foregone conclusion that oil would be pegged to USDs.

In that bygone era of disco, ABBA, wide neckties and checkered suits, neither OPEC nor Europe was against the idea of settling oil transactions in gold rather than USTs.

This was because those very same USTs (thanks to Nixon’s welch) were not very well…loved, trusted or valued in the 70’s.

(See where I’m going [rhyming] with this?)

Fortunately, Paul Volcker was able to seduce the oil nations into trusting Uncle Sam’s fiat money by cranking (and I do mean cranking) interest rates to the moon to restore faith in the UST and hence give OPEC the confidence to sell oil in dollars rather than settle in gold.

Specifically, Volcker took rates to 15+%, a move which placed real rates on that all-important 10Y UST at +8%.

Such hawkish policy was thus a game changer for making the petrodollar a reality and hence the USD the world’s reserve energy asset (and bully) for a generation to come.

Powell Ain’t No Volcker
Unfortunately, and thanks to Uncle Sam’s embarrassing bar tab (i.e., debt levels), those days, and those USDs and USTs, have fallen from grace, and hence are slowly falling off the radar of OPEC.

For this, we can also thank an openly cornered Powell’s so-called war on inflation, which has, among so many other backfired fiascos, led to a slow and steady process of de-dollarization and declining faith in that oh-so-important global IOU otherwise known as the UST.

The Oil Nations Aren’t Stupid
The OPEC folks know that Uncle Sam’s IOU’s aren’t what they used to be.

Unlike Volcker, however, Powell can’t get the 10Y UST to an 8% real (i.e., inflation-adjusted) rate.

Even his so-called “hawkish” nominal rates of 5% have crushed credit markets, Treasuries and nearly everything else in its path.

And if Powell even dreamed of pushing rates to 15% ala Volcker to seduce OPEC, he would literally murder the entire US economy with a double-digit rate hike against a $31T public debt pile.

In short, there is simply no way to compare Volcker’s options in the 70’s to Powell’s debt reality in 2023.

This means the Fed can’t do what will be needed this time around to prevent OPEC from looking outside the USD or UST and hence inside the gold markets as a primary asset to settle its energy transactions.

The days of the mighty petrodollar, as I warned (in two languages) over year ago here, here and here, are slowly but steadily coming to end.

Think about that a second.

Or better yet, look at it for a second—with kudos again, to Gromen and Rutherglen.

Something to Think About
Boiled down to simple math, if the 2020’s rhyme with the 1970’s, which is clearly plausible, and gold becomes a primary (or even secondary) settlement asset in the energy market, this factor alone would place gold near $9000 an ounce by 2027 or 2028.

Again, something to think about, no?

In the interim, I’d hate to be in Powell’s shoes.

We’ll have to see if he’ll try to save the petrodollar by destroying the US economy or, who knows, even something worse…

Perhaps his neocon neighbors in DC will distract us with more war games?

We can only wait and see as the US runs out of good options and is left with only the bad (and desperate) ones, a pattern which Hemingway, rather than Twain, made perfectly clear and is worth repeating:
Image of Ernest Hemingway. Matthew Piepenburg quotes.
Got gold?

FT : Lego/IPO: more welcoming to day- trippers than investors

Lego/IPO: more welcoming to day- trippers than investors
A listing for the toy group would be a visitor attraction in itself

A trip to a Lego theme park will be obligatory for some families this holiday weekend. The appeal of the toy is that it can turn into anything a child wants. Maintaining the Danish company’s magic formula is vital for Kjeld Kirk Kristiansen, the founding family patriarch now overseeing a handover to the fourth generation.

That move has come with the tiniest hint of a future initial public offering. The bulk of the economic ownership will remain within the family. Kirk Kristiansen has meanwhile transferred just over a third of the votes in family holding company Kirkbi to a non-profit foundation, K2. This has stated that it would not block any listing unanimously supported by the family.

A listed Lego would be a visitor attraction in itself. The toy bricks and their spin-offs are a big commercial success. Sales of $9.3bn and operating profits of $2.6bn last year have both risen by 60 per cent since 2019. Profit margins are double those of Dungeons & Dragons maker Hasbro and higher still compared to Barbie owner Mattel.

Selling brick kits remains important but visitor destinations are a growing part of the mix. An IPO would be worth more with these included. Properties include the Legoland theme parks acquired by Kirkbi when it bought a controlling stake in Merlin in 2019. Another offshoot is Legoland Discovery Centres, a growing venture that repurposes old retail space as activity sites.

Academic David Robertson sees this as part of a broader emulation of Disney’s early days. This involves creating characters and stories that are monetised via multiple channels.

Assuming that it grows strongly, Merlin would be worth $8.5bn on a 20 times multiple of operating profit. A lower multiple for the toy business should be expected. US toy makers trade on about 11 times. That would value the mini brick business alone at $33bn.

In the unlikely event that Lego ever opens its doors to investors as well as day-trippers, they should expect to pay a steep premium for stock.

FT : The UK business that shipped $1.2bn of electronics to Russia

The UK business that shipped $1.2bn of electronics to Russia
Company registered to terraced house in London sent goods including semiconductors, according to customs data

A British business registered to a terraced house in a north London suburb appears to have arranged the sale of about $1.2bn of electronics into Russia since Vladimir Putin’s full-scale invasion of Ukraine at the start of 2022.

Mykines Corporation LLP, a company based in the London borough of Enfield, is listed in Russian records as having sent shipments including semiconductors, servers, laptops, computer components, telecoms network equipment and consumer electronics. The records list brands ranging from Huawei and H3C to Intel, AMD, Apple and Samsung.

According to these customs filings, at least $982mn of the goods listed as sent by Mykines are subject to restrictions on export by UK companies or individuals to Russia. Sale of these goods to Russia without permission from the UK authorities may constitute a breach of its sanctions, even though the goods shipped by Mykines entered Russia from other countries — largely China.

These findings raise questions over the effectiveness of the attempts to clamp down on Russia’s ability to obtain critical technologies used by the country’s military industrial complex.

The raw data analysed by the Financial Times was obtained from Maxim Mironov, a professor at IE Business School in Buenos Aires who is an expert on analysis of customs flows. A subset of the records was corroborated by comparison to data from ImportGenius, a commercial customs data provider.


While many of the Mykines exports are consumer goods, they also include a large volume of high-end microchips, telecoms equipment and servers, which may support Russian infrastructure.

A UK government spokesman said: “All businesses registered in the UK are bound by law to comply with the Russia sanctions regime. We take potential breaches very seriously, but do not discuss the details of how we enforce trade sanctions for specific cases.”

The trade also raises questions about the use of British secrecy jurisdictions. Mykines’ accounts from previous years show that at that time it passed its profits directly to two entities in the British Virgin Islands whose ownership is unknown.

The FT visited the terraced house where Mykines is registered in Southgate, an area of Enfield. It is one of two active companies registered to the address, which is owned by Savvas Themistocleous, the Cyprus-based owner of a fiduciary service. In 2013, he set up a company in which he was the sole director called “Russian Trading Company Ltd”.

Themistocleous told the FT that he would pass on questions to the person listed as having “significant control” over Mykines — Vitalii Poliakov, a 53-year-old Ukrainian, who is described as resident in Ukraine. According to Molfar, a Ukrainian open-source intelligence group, only one person matches the given description of Poliakov — a road worker employed by a Ukrainian state mining concern. He did not respond to requests for comment.

Until last August, the controlling owner of Mykines was listed as a 34-year-old Ukrainian woman born in the same town as Poliakov. According to an online testimonial posted in 2018, she attended a two-week English language course at a small college in London and stayed with a host family. Her public Instagram page lists her activities as an IT professional and pole dancer. She did not respond to requests for comment.

Mykines had been active in Russia prior to the invasion, but the records imply its business with the country suddenly took off after the onset of the war.


The other firm listed at the Enfield address, Denirello LLP, had been active in selling similar goods to Russia before the war, but appears to have wound down and ceased exporting to Russia as tougher sanctions were introduced in 2022. Denirello described itself as “a dynamic diversified company distributing medical, industrial and IT equipment in Russia and CIS [Commonwealth of Independent States]”.

The overwhelming majority of the 10,600 batches of goods are listed as having been sent to Marsala, a Moscow-based company. Russian records show it imports very little except from Mykines. The company appears to be strongly linked to Merlion, a large computing and electronics distributor within Russia. Marsala and Merlion have been approached for comment.

While most of the goods appear to be primarily civilian in nature, Marsala has declared in Russian official listings that one of its counterparties is Microcontract, a company that owns a joint venture with Novgorod State University Engineering Center. This centre, launched in collaboration with Rostec, the vast state-owned military conglomerate, lists its areas of research as including aviation and drones, microelectronics, sensors and industrial electronics.

Some of the customs records have errors — or may have been the subject of subterfuge. For example, there are six entries logging the import of paper. But the implied price of this paper is, in some cases, $500,000 a kilogramme. The purported paper is also listed as having been made by Huawei and New H3C Technologies, Chinese high-end technology companies.

WSJ : Declines in Loan Values Are Widespread Among Banks

Declines in Loan Values Are Widespread Among Banks
Lenders could face pressure on earnings or liquidity, or to pay higher rates for deposits

Two big bank runs, two different reasons.

When Silicon Valley Bank collapsed last month, the core problem was a giant hole in its bond portfolio. When depositors started fleeing First Republic Bank FRC 4.39% soon afterward, the concern mainly was about a hole in its loan book.

Nearly every publicly traded bank in the country is sitting on loans that have declined in value since they were made. The culprit is rising interest rates, which also slashed the value of banks’ other big asset, their holdings of securities.

The overall market-value losses on securities are well known because they are tallied up industrywide by banking regulators. The scale of market-value losses on loans made by publicly traded banks has to be tallied from banks’ securities filings.

“Fair values of loans and securities are not qualitatively different,” said Tom Linsmeier, an accounting professor at the University of Wisconsin and former member of the Financial Accounting Standards Board. “They measure the same amount: the price at which the asset can be sold in an orderly transaction in the market today.”
First Republic’s balance sheet showed $166.1 billion of loans as of Dec. 31, at amortized cost. A footnote said their fair-market value was $143.9 billion. The $22.2 billion difference was greater than First Republic’s $17.4 billion of total equity, or assets minus liabilities.

The bank was seen by investors as risky because most of its loans at year-end were home mortgages with fixed or hybrid rates, meaning their low rates would stay fixed for one to 10 years. It also had $4.8 billion in unrealized losses on bonds. About 68% of its deposits were uninsured at year-end, meaning they exceeded Federal Deposit Insurance Corp. limits, which created greater flight risk. In that respect, it was similar to Silicon Valley Bank, which estimated that 88% of its deposits were uninsured.

First Republic bought itself time last month after a group of 11 banks led by JPMorgan Chase deposited $30 billion to halt the run. While the deposits helped liquidity, they didn’t boost First Republic’s capital. A First Republic spokesman declined to comment.

While First Republic is an extreme example, it isn’t alone. Among 435 publicly traded U.S. banks listed on major exchanges, 97% of them reported that their loans’ market value was less than their balance-sheet amount as of Dec. 31, according to data provided by S&P Global Market Intelligence.

Combined, they had $242 billion of unrealized losses on their loans, defined as the difference between the loans’ fair values and carrying amounts. That was equivalent to 14% of their total equity and 21% of their tangible common equity, which is a widely used measure of net worth that excludes preferred stock and intangible assets.

A year earlier, the same banks said their loans’ fair value exceeded their carrying amount by $96 billion, the data show. The same group showed $299 billion of unrealized losses on held-to-maturity securities as of Dec. 31. Those losses aren’t included on companies’ balance sheets.

The unrealized losses on loans and securities likely fell at many banks in recent weeks as Treasury yields declined. The lower yields signal that investors think the economy is slowing. If they are right, then borrowers could start to fall behind on their loans, adding to losses on bank balance sheets.

Banks reporting large fair-value discounts on their loans could face earnings or liquidity pressure. They could face pressure to pay higher rates for deposits and other funding sources, while yields on fixed-rate loans they own stay low. “If liquidity issues arise for these banks, they may need either to issue additional debt capital at higher interest rates or to sell those loans to become more liquid,” Mr. Linsmeier said.

The 435 banks in The Wall Street Journal’s sample included 100 where the combined unrealized losses on loans and held-to-maturity securities were equivalent to 50% or more of their total equity.

Bank of Hawaii Corp. in its most recent annual report said it had $985 million of unrealized losses on loans and $799 million of unrealized losses on held-to-maturity securities, as of Dec. 31. The combined $1.8 billion total exceeded Bank of Hawaii’s $1.3 billion of total equity. The company estimated that 52% of its deposits were uninsured at year-end. A Bank of Hawaii spokeswoman declined to comment.

Phoenix-based Western Alliance Bancorp. reported $3.9 billion and $177 million of unrealized losses on loans and held-to-maturity securities, respectively, as of Dec. 31. By comparison, the company had $5.4 billion of total equity. Western Alliance estimated that 55% of its deposits were uninsured at year-end.

Western Alliance this week filed disclosures showing updated fair-value and deposit figures. Unrealized losses for loans and held-to-maturity securities had declined to $2.9 billion and $139 million, respectively, as of March 31. Deposits were $47.6 billion, down 11% since Dec. 31, while the uninsured-deposit ratio fell to 32%.

Dale Gibbons, Western Alliance’s chief financial officer, in an email said, “Western Alliance has access to significant liquidity from a variety of sources, including pledging loans to secure credit facilities, which mitigates need to sell assets and realize adverse asset marks.” He said the company doesn’t need to raise capital.

CVB Financial Corp. , based in Ontario, Calif., reported $919 million and $399 million of unrealized losses on loans and held-to-maturity securities, respectively, as of Dec. 31. Combined, those were equivalent to 68% of its total equity, and they exceeded its tangible common equity. CVB estimated 65% of its deposits were uninsured at year-end.

CVB’s chief executive officer, David Brager, said the bank’s deposit relationships remain strong and often span decades. “We haven’t had significant relationships that have expressed concern,” he said. He noted the bank has grown slowly and doesn’t have any large industry concentrations comparable to Silicon Valley Bank’s tech-heavy focus.

CVB’s chief financial officer, Allen Nicholson, said “most likely those unrealized losses have diminished somewhat” since year-end, because rates declined.

Systemically important banks have an advantage over smaller banks, because they are widely perceived as too big to fail and implicitly backed by the government. Consequently, they may continue to attract low-cost deposits and retain uninsured deposits at the expense of smaller competitors, even if their disclosures show they have large capital holes on a fair-value basis.

>>> Europe : Brokers Upgrades & Downgrades - 7th of April 2023

>>> Up
* TUI Raised to Neutral at Citi; PT 8.55 euros
* Wihlborgs Raised to Neutral at Kempen & Co; PT 80 kronor

>>> Down
* Beiersdorf Cut to Hold at SRH AlsterResearch; PT 130 euros
* Hensoldt Cut to Hold at Kepler Cheuvreux; PT 33 euros
* SBB Cut to Sell at Kempen & Co; PT 11 kronor

>>> Initiation
* Equinor ADRs Rated New Buy at Baptista Research; PT $36.40
* HUTCHMED China Rated New Buy at Citic Securities

>>> Call

>>> What to look at today - 7th of April 2023

US stock futures were little changed after underlying indexes eked out gains in thin trading ahead of a three-day weekend that will see a crucial jobs report. The yen fluctuated after declining Thursday against the dollar for the first time this week. European markets are mostly shuttered for the Good Friday holiday, and equity markets also will be closed in the US, though the government will release a payroll report that traders will scrutinize for clues on the Federal Reserve’s next policy move. Stock futures are trading and will close at 9:15 a.m. in New York, 45 minutes after the jobs data land.  US Treasuries traded as usual in Tokyo, were closed during London hours and are reopening for a shortened session in New York. Trading is expected to restart around 6 a.m. in New York, with the recommended close at noon.
While much of Asia including Australia, Hong Kong and Singapore is closed for holidays, financial markets in Japan and mainland China were open. Japan’s benchmark Topix edged higher, ending a two-day slump, and shares in China and South Korea advanced.  The S&P 500 just concluded its first losing week in the past four as a batch of economic data stoked concern that the US economy is headed for a recession. Data Thursday showed filings for jobless claims surpassed estimates last week, a day after a private payrolls report indicated hiring slowed more than forecast. Trading in S&P 500 stocks was 20% below the 30-day average Thursday, as traders refrained from big bets ahead of the jobs data and long weekend. The payrolls report is expected to show hiring slowed to a still-strong 230,000 jobs in March and the unemployment rate held near a historic low. As investors have aggressively priced in rate cuts this year, a “too hot” payrolls number would undermine those expectations, while a “too cold” report would add to worries about a hard landing. US stocks bounced back from early losses on Thursday after St. Louis Fed President James Bullard said he didn’t think tighter credit conditions stemming from the recent banking turmoil would tip the economy into recession. Meanwhile, the International Monetary Fund warned that its outlook for global economic growth over the next five years is the weakest in more than three decades, urging nations to avoid economic fragmentation caused by geopolitical tension and take steps to bolster productivity.

Nikkei +0,17% Hang Seng closed CSI +0,65% Shanghai +0,45% Shenzen +0,93%

Eur$ 1,0915 CNH 6,8736 CNY 6,8695 JPY 131,72 GBP 1,2441 CHF 0,9044 RUB 82,3770 TRY 19,2582 WTI$ 80,70 Gold 2,008 -0,60% BTC 27,895 -0,35% ETH 1,857

S&P -0,07% Nasdaq 0,01% EuroStoxx +0,50% FTSE +1,19% Dax +0,60% SMI +0,92%

Macro :
- Israel Hits Gaza, Lebanon After Dozens of Rocket Attacks

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FT : LetterOne challenges UK national security sale of broadband provider Upp

LetterOne challenges UK national security sale of broadband provider Upp
Group backed by sanctions-hit Russian oligarchs seeks to reverse forced divestiture

LetterOne, the investment group backed by sanctions-hit Russian oligarchs, has launched a legal challenge to overturn the decision taken by the UK government on national security grounds to force the sale of its broadband business Upp.

The claim for a judicial review will be a test for the UK’s National Security and Investment Act, which has so far been used only five times to block acquisitions of a business since it came into force at the start of last year. Four of those involved Chinese companies.

In December, Grant Shapps, the UK energy minister who was then business secretary, used the act to order LetterOne to divest its entire shareholding in Upp, citing “a risk to national security” given the “ultimate beneficial owners of LetterOne Core Investments and Upp’s expanding full fibre broadband network”.

LetterOne is part-owned by sanctions-hit oligarchs Mikhail Fridman and Petr Aven, although their shareholdings account for less than half of the group. It has cut ties with the businessmen to remain outside of the sanctions regime.

The Russian owners were cut off from decision-making and operations, with shares effectively frozen and dividends stopped. Staff with personal links to the Russians have left.

LetterOne acquired Upp in 2021 as part of a promised £1bn plan to build a regional British broadband network to compete with BT that aimed to cover 1mn premises in eastern England by 2025.

The UK’s decision in December marked the first time the NSI Act had been used to block a deal with links to sanctions-hit Russian oligarchs.

LetterOne, which is not under sanctions and owns other UK businesses such as retailer Holland & Barrett, has filed a claim seeking judicial review of the final order issued by the government, arguing that its ownership of Upp does not pose a national security risk.

LetterOne confirmed the legal action.

“L1 is not sanctioned and has taken fast, decisive action to put in place strong measures to distance itself from its sanctioned shareholders,” the company said. “They have no role in L1, no access to premises, infrastructure, people and funds or benefits of any description.”

It added that Upp was overseen by Ofcom and “already has processes in place that remove any perceived threat to national security”.

This included a UK leadership team, only British, US and EU personnel on the board, and security protocols about access to information, data and sites of critical technological infrastructure, LetterOne said.

The UK government said: “The energy secretary made a final order in December under the National Security and Investment Act, requiring LetterOne to divest Upp.”

The act was brought in at the start of 2022 to overhaul rules governing takeovers of UK companies, which included the ability to retrospectively order the sale of assets that were deemed of risk to national security.

This week, Cabinet Office minister Oliver Dowden told the Financial Times that he would bring greater transparency over the decision-making process of the legislation, which had been criticised by dealmakers for being a “black box” process that left them uncertain over whether certain deals might be at risk.

>>> US Close Dow +0,01% S&P +0,36 Nasdaq +0,76%

Closing Stock Market Summary

The stock market started this last session of the holiday-shortened week on a softer note as investors digested another weak economic release. Things improved considerably, though, around mid-morning thanks to some mega cap stocks staging a strong recovery from their lows of the day. 

The main indices all closed near their best levels today, albeit on below-average volume. Alphabet (GOOG 108.90, +3.95, +3.8%), Microsoft (MSFT 291.60, +7.26, +2.6%), Apple (AAPL 164.66, +0.90, +0.6%), and Amazon.com (AMZN 102.60, +0.96, +1.0%) all had an outsized influence on index level performance. 

The Vanguard Mega Cap Growth ETF (MGK) logged a 0.8% gain while the Invesco S&P 500 Equal Weight ETF (RSP) closed with a 0.1% gain. 

Despite today's gains, the growth concerns that drove price action in recent sessions did not completely dissipate as evidenced by the underperformance of economically-sensitive sectors.

The S&P 500 energy (-1.5%), materials (-0.2%), and industrials (-0.03%) sectors were the lone laggards to close in the red. On the flip side, the communication services (+1.7%) and information technology (+0.7%) sectors were among the best performers, thanks to gains in their respective mega cap constituents. Other notable outperformers were the utilities (+0.7%) and real estate (+0.7%) sectors. 

The 2-yr Treasury note yield rose five basis points today to 3.81% and the 10-yr note yield settled unchanged at 3.29%.

As a reminder, the stock market will be closed tomorrow for Good Friday. The U.S. Treasury market will be open until 12:00 ET.

Looking ahead to Friday, the Employment Situation report for March will be released at 8:30 a.m. ET.

  • Nasdaq Composite: +15.5% YTD
  • S&P 500: +6.9% YTD
  • S&P Midcap 400: +0.7% YTD
  • Dow Jones Industrial Average: +1.0% YTD
  • Russell 2000: -0.4% YTD

Reviewing today's economic data:

  • Weekly Initial Claims 228K ( consensus 203K); Prior was revised to 246K from 198K; Weekly Continuing Claims 1.823 mln; Prior was revised to 1.817 mln from 1.689 mln
    • The key takeaway from the report is that it featured a revision to the seasonal adjustment factor, which resulted in big upward revisions to figures from recent weeks a sizable miss in this week's report. That said, the higher level of claims will invite some questions about the strength of the labor market after last week's release of the Job Openings and Labor Turnover survey for February showed a big drop in openings.
  • Weekly EIA Natural Gas Inventories showed a draw of 23 bcf versus a draw of 47 bcf last week.