FT : Banks turn to blockchains to reform costly bond market

Banks turn to blockchains to reform costly bond market
Putting new debt on modern technology could lead to substantial savings, bankers say

A growing number of banks are experimenting with issuing bonds on blockchains, in a shift they say could eventually revolutionise an asset class that has lagged behind in adoption of new technologies.

Blockchain — the digital ledger that records and verifies transactions and underpins cryptocurrencies such as Bitcoin — has the potential to streamline the process of selling new debt, leading to substantial cost savings, bankers say.

“I think blockchain has a real future in debt capital markets,” said Sean Taor, head of European debt capital markets at RBC. “If you can use blockchain from start to finish, you take out a lot of the costs, a lot of the risks in terms of counterparty and settlement risks.”

In April the European Investment Bank raised €100m from a two-year bond registered on the ethereum blockchain network, in the first such deal involving a syndicate of banks. The deal came three years after the World Bank sold the first bond to be created and managed using blockchain.

Singaporean food producer Olam International last year sold a bond using HSBC’s blockchain-based settlement platform, while JPMorgan has also tested the use of blockchain technology for issuing financial instruments.

For the issuers the motivation is obvious. Over the life cycle of a bond, using blockchain technology could save at least 35 per cent of the costs associated with issuance, according to a study last year by German fintech firm Cashlink, by automating processes such as the emailing back and forth and manual updating of bond documentation. Use of blockchain could also cut down the number of intermediaries involved in the process — for example the bonds would no longer need to be registered with a central securities depository.

A similar 2019 study by HSBC looking at the green bond market — where a public ledger would help streamline the process of tracking the use of the bond’s proceeds — identified much larger savings of up to 90 per cent.

Blockchain issued bonds are not denominated in cryptocurrencies, but they use the same underlying technology to reconcile orders from different systems, record and update ownership of the asset, and allow the transaction to be settled without the need for extensive manual cross-checking. Rather than settlement taking three days, as is typical, money can flow to the issuer seamlessly once the bond is priced.

“It’s essentially a glorified database,” said Matthew McDermott, head of digital assets at Goldman Sachs, one of the banks which handled the EIB deal along with Santander and Société Générale. “This technology reduces the number of intermediaries involved in any given transaction.”

The bank has had more than 100 one-to-one meetings with investors and would-be issuers about the potential use of blockchain as a result of the interest generated by that transaction, McDermott said.

Blockchain also offers a way to easily locate current holders of bonds — often a tricky task in the relatively fragmented world of fixed income where bonds are often traded directly “over the counter” rather than on centralised exchanges.

Billions of dollars have been poured into analytics to help traders locate debt securities to buy or sell, according to Kevin McPartland, head of market structure at Coalition Greenwich. “A universal database of who owns what, at least in theory, avoids the need for that,” he said.

Issuers would also find it much easier to communicate with investors — some bonds, for example, contain clauses which allow bondholders to sell back to the company if it changes hands.

Moreover, banks could also save money on fees charged by trading venues and allow deals to be negotiated without giving away data to the rest of the market.

By lowering some of the barriers to participation in bond markets, blockchain technologies could eventually open them up to much smaller players, according to Denis Coleman, co-head of the global financing group at Goldman Sachs. “This is just the very start of a journey, but you could see the democratisation of bond markets,” he said.

The HSBC report, which was co-authored by the Sustainable Digital Finance Alliance, recommended the setting up of “DIY” bond platforms on blockchain, which would enable smaller companies to tap debt markets with a minimum of fixed costs.

Some of the claims made about its potential may be overblown, McPartland said. The massive investment necessary to change the systems that underpin debt markets will probably happen slowly, and regulators won’t necessarily approve, he argued.

“Distributed ledgers will have a role to play in helping markets become more liquid and transparent,” he added. “But some of this is just hype around a new technology. I’m not sure it’s quite as revolutionary as it’s sometimes made out to be.”

FT : Equity investors warned of 20% shock from carbon tax

Equity investors warned of 20% shock from carbon tax
Asset manager Kempen outlines worst-case scenario for global stock market prices


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Global equity markets could fall by as much as 20 per cent if companies around the world were suddenly hit by a $75 a tonne carbon price, according to new analysis that argues investors are failing to account for climate risks in equity valuations.

The modelling, which looked at how hard a shock increase in the carbon price could hit share prices, said global markets would fall by about 4 per cent if just scope 1 and 2 emissions — which cover emissions from a company’s own operations — fell under a $75 per tonne carbon tax.

But Kempen Capital Management, the €86bn asset and fiduciary manager behind the research, warned of a 20 per cent drop if indirect emissions, known as scope 3, were included. The analysis also found that if the carbon price were to hit $150 a tonne, global markets could fall by as much as 41 per cent.

Nikesh Patel, head of investment strategy at Kempen Capital Management UK, warned that investors and markets were failing fully to factor in the impact of higher carbon prices. “The kind of risks that you will be exposed to over the next coming years are very different to risks from the past,” he added.

Earlier this month, staff from the IMF suggested the introduction of a global carbon price floor over the coming decade to meet the goals of the Paris agreement, where countries around the world agreed to limit global temperature rises. The IMF staff argued that such a move could “jump-start emissions reductions through substantive policy action”.

At the moment, 64 separate carbon pricing initiatives cover about 21.5 per cent of emissions globally, according to figures from the World Bank. Last month, the EU carbon price hit €50 a tonne for the first time, pushing up the cost of polluting in the bloc to more than double its pre-pandemic level.

“All of these systems are very complicated and don’t cover all the emissions,” said Jaime Ramos, manager of the global equities climate transition fund at Aviva Investors. “If we were in a scenario where China, EU and the US had proper carbon pricing that would be a very strong signal for the world and for markets.”

The Kempen research, which assumed the cost of the tax would hit balance sheets rather than be passed on to consumers, found that US equities could fall by almost 27 per cent on the back of a $75 carbon price, but this fall would be just 15.4 per cent in Europe.

Kempen’s modelling focuses on the worst-case outcome for markets of a sudden introduction of a global carbon price, whereas many believe a gradual rollout is more likely with a gentler impact on equity valuations.

Nick Stansbury, head of climate solutions at Legal and General Investment Management, the UK’s largest asset manager, said a big challenge of trying to calculate the impact of the carbon price on equity valuations was the question of how much of the cost would be passed on to the consumer and how much would hit a company’s profits.

In many cases customers will probably have to pick up a large chunk of the bill, he said.

LGIM’s own calculations estimate that global equities could be about 16 per cent weaker than they would otherwise have been by 2050 in the event of the imposition of a global carbon price. This is based on the assumption of an “orderly transition” and a carbon price that increases gradually to $383 per tonne by 2050.

The energy sector would be hardest hit under LGIM’s analysis, with more than 60 per cent of the value in the sector at risk over this timeframe as a consequence of carbon risks, while utilities and basis materials could also suffer.

“It is absolutely essential investors factor in the carbon prices,” Stansbury said.

FT : Citizens Financial chief: ‘We’ve earned the rights to do more deals’

Citizens Financial chief: ‘We’ve earned the rights to do more deals’
Bruce Van Saun sees more bank consolidation following lenders acquisition of HSBC’s US business

The chief executive of Citizens Financial, which recently bought HSBC’s US retail banking business, has predicted there will be more opportunities for mergers and acquisitions as smaller banks struggle to keep up in the financial technology race.

The comments from Bruce Van Saun underscore one of the key drivers of recent bank dealmaking in the US, which has spiked in 2021.

Bank M&A totalled around $31bn so far this year, already eclipsing deal activity for all of 2020, according to S&P Global Market Intelligence.

“I do think we’ll see some opportunities just because smaller banks are stressed with the move to digital business models and all the technology capex that is required,” Van Saun told the Financial Times.

Demand for digital banking services has accelerated during the Covid-19 pandemic, highlighting the need for banks to bolster tech spending.

“It does seem like there’s a lot of pent up demand for bank M&A, partly because the banking space has become more competitive, which has made it harder for banks to generate adequate revenue growth,” said Ken Usdin, an analyst at Jefferies.

“In terms of sellers, one group will be banks that have underinvested and would need to embark on a multiyear catch up on technology spending,” he added.

Rhode Island-based Citizens was spun out of Britain’s RBS in 2015. RBS bought the bank in 1988, near the start of a global expansion that ended in huge losses and a bailout by the UK government.

Van Saun last month agreed to acquire London-based HSBC’s bank branches on the east coast of the US, a network with roughly $9bn in deposits which bolsters Citizens’ presence in the New York metro area.

Now the 19th largest US bank by assets, according to S&P, Citizens is not “actively seeking” further bank acquisitions, Van Saun said, but he left the door open for more deals.

“What I’ve found often is once you’ve printed a deal in this space, then you start to see inbounds,” he said.

“We’ve earned the rights to do more deals by just being thoughtful and making sure they’re low execution risk and they have good financial metrics, and they make strategic sense.”

Van Saun also said Citizens is working with Fidelity, its clearing firm, to enable wealth management clients to store cryptocurrencies, a capability it aims to roll out later this year.

It’s a further sign of banks’ gradual embrace of crypto, despite doubts over its viability as a currency to rival the dollar.

“We’re viewing it (crypto) more as an investment asset as opposed to something that’s likely to turn into a near-term payment opportunity,” Van Saun said.

FT : Zaoui brothers join Europe’s emerging Spac movement

Zaoui brothers join Europe’s emerging Spac movement
Odyssey Acquisition will focus on health and tech and list in blank-cheque hub of Amsterdam

The Zaoui brothers dealmaking duo have teamed up with several prominent European executives to create a special purpose acquisition company that is raising €300m to invest in healthcare and technology businesses in the region.

Odyssey Acquisition will list on the Euronext exchange in Amsterdam, according to people familiar with the situation, as the main beneficiary of a post-Brexit shift of euro-denominated equity trading from London emerges as the Spac capital of Europe.

Spacs list on the stock market and then go hunting for a target company with which to merge. Led by a flurry of activity in the US, they have raised almost $110bn globally from 381 listings this year, according to data provider Refinitiv, and more than 500 are on the prowl for acquisitions. The market in Europe trails behind: just 18 Spacs have raised about $5bn between them so far this year, according to Refinitiv.

Following an 18-month boom, activity has slowed in the US since so-called Pipe financing — a crucial source of funding for blank-cheque companies to complete their acquisitions — dried up.

Michael Zaoui is chair of Odyssey and his brother Yoël is co-chief executive with Jean Raby, the former chief executive of Natixis Investment Management in Paris. 

Michael was a former co-head of European mergers and acquisitions at Morgan Stanley, while Yoël was previously co-head of global M&A at Goldman Sachs before the pair struck out on their own and set up London-based investment banking boutique Zaoui & Co in 2013. 

Odyssey will be supported by Zaoui & Co in all stages of dealmaking, from identifying targets to completion. It will be advised on telecoms, media and technology deals by Michel Combes, SoftBank International president and former CEO of telecoms groups Sprint, Altice and Alcatel-Lucent. For healthcare deals, it will draw on the experience of Olivier Brandicourt, the former boss of French pharmaceuticals group Sanofi and an adviser to Blackstone. 

“It’s a strong and experienced team, and the Spac market in Europe is under-developed relative to the US,” said Peter Schoenfeld, founder of PSAM, a $3bn New York-based hedge fund that is buying into the Zaouis’ blank cheque company on day one.

“As Europe emerges from the pandemic, I expect privately held companies will look for capital to scale. Odyssey Acquisition is in a position to deliver this capital more efficiently than a traditional IPO process.”

The rationale behind Odyssey, whose IPO is underwritten by Goldman Sachs and JPMorgan, is to support the development of European businesses at a time when the pandemic has accelerated behavioural changes and the digital transformation of entire industries. 

A growing number of European — privately held companies that are valued at more than $1bn — are emerging at the intersection between healthcare and technology. They include companies such as health insurance start-up Alan; Doctolib, an online medical appointment management service linking patients and healthcare professionals; and BenevolentAI, which develops artificial intelligence and computational medicine technology. 

Spac founders are attracted by the potential for large rewards from a successful acquisition target. The vehicles’ sponsors often receive 20 per cent of its shares for a nominal fee. Last week leading short seller Jim Chanos accused some who have taken companies public via a Spac of “playing fast and loose with their projections” in an effort to entice retail investors, something that has also drawn scrutiny from the US Securities and Exchange Commission.

A target size of €300m would put Odyssey among the larger Spacs in Europe. In April, a blank cheque company created by LVMH chief executive Bernard Arnault and former UniCredit chief Jean Pierre Mustier to invest in European financial companies raised €500m in its Amsterdam listing.

Since its 2013 launch, Zaoui & Co has advised on transactions worth €225bn. Most recently, it advised SoftBank on the sale of British chip designer Arm Holdings to Nvidia for $40bn, and the Peugeot family on the $50bn merger between France’s PSA and Italian-American rival Fiat-Chrysler.

NY Post : Bill Gates was an office bully who opposed diversity efforts, report c

Bill Gates was an office bully who opposed diversity efforts, report claims

Bill Gates was an office bully who brushed-off diversity initiatives as attempts to “destroy” Microsoft — and was once seen lying on top of a woman at a company event, according to a new report.
A former Microsoft executive told news site Insider that he saw Gates lying on top of a woman at 5 a.m. during a Microsoft retreat at a French Alps ski resort in 1988.
The two were “just snuggling,” the ex-executive said — but the alleged cuddle session occurred the year after Gates started dating his wife-to-be Melinda.
Elsewhere in the report, former Microsoft board member Maria Klawe accused Gates of dismissing diversity efforts during profanity-laden board meetings in the 2010s.
When board members suggested considering more diverse candidates for future executive roles, Gates would reportedly reply, “Are you trying to effing destroy the company?”
Bill Gates is described in a new report as an office bully and womanizer.
Getty Images for Robin Hood
“The message was, ‘Caring about diversity has nothing to do with the success of Microsoft,’” said Klawe, a board member from 2009 to 2015.
Another former Microsoft executive told Insider that Gates was an equal opportunity berater.
“Bill yelled at everyone the same,” the executive said, adding that they appreciated the founder’s straightforwardness.
Other Microsoft insiders attributed at least some of his undesirable behavior to mere awkwardness. “He doesn’t know how to joke really or how to connect with people,” one former executive said. “If he told you he liked your hair, he wasn’t trying to flirt with you. He just actually liked your hair.”
The report on Gates’ questionable behavior comes as the world’s fourth richest man navigates a messy divorce from his wife of 27 years.
Criticisms of Bill Gates’ office behavior come as he wades through a divorce from his wife Melinda
Getty Images
The divorce comes amid questions about the Microsoft founder’s ties to dead pedophile Jeffrey Epstein, and reports that he left Microsoft’s board last year amid a probe into his alleged affair with a subordinate.
Gates has denied any “business partnership or personal friendship” with Epstein, saying their meetings were purely tied to philanthropy. But the Daily Beast has reported that Gates visited Epstein‘s Manhattan townhouse as a “respite from his marriage.”
Microsoft, which did not immediately reply to a request for comment on the report, has sought to distance itself from Gates’ alleged misbehavior.
“The Microsoft of 2021 is very different from the Microsoft of 2000,” CEO Satya Nadella said in May, adding that the company will investigate allegations of misconduct even if they are decades old.

>>> US After Hours Summary: VTNR +48% jumps on asset sale; ALT -36.5% falls on d

After Hours Summary: VTNR +48% jumps on asset sale; ALT -36.5% falls on discontinuing further development of AdCOVID; AVAV -4.9% falls on earnings

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: POWW +9.6%

Companies trading higher in after hours in reaction to news: VTNR +48% (VTNR to sell used motor oil collection and re-refining assets to CLH for $140 mln), FTI +2.1% (awarded substantial subsea contract by PBR), ATO +2.1% (files for $5 bln mixed securities shelf offering), CFLT +1.3% (Coatue Management discloses 9.99% stake), FCAC +0.5% (shareholders approve business combination, will begin trading as Sharecare), ACN +0.2% (acquires Bionic), FSLY +0.1% (names new CFO), QGEN +0.1% (announces commercialization partnership with Verogen), WMT +0.1% (announces strategic agreement with Ibotta to launch new digital offers program), O +0.1% (files mixed securities shelf offering)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: AVAV -4.9%, BNED -0.1%

Companies trading lower in after hours in reaction to news: ALT -36.5% (discontinuing further development of AdCOVID beyond completion of Phase 1 trial), REPX -10.2% (stock offering), GDYN -8% (stock offering), EGLE -5.9% (stock offering), CERE -5.7% (stock offering), MDB -4.2% (commences 2.3 mln share offering), CDMO -3% (files for mixed securities shelf offering; also files for common stock offering by selling shareholders), PTSI -2.8% (files for $350 mln mixed shelf; also files for 1.5 mln share offering by selling shareholder), VAL -0.2% (awarded extension to jackup contract), NMM -0.2% (to acquire five drybulk vessels)

>>> US Close Dow +0,03% S&P +0,03% Nasdaq +0,19% Russell -0,56%

Closing Stock Market Summary

The S&P 500 (+0.03%) and Nasdaq Composite (+0.2%) eked out intraday and closing record highs on Tuesday, with the S&P 500 touching the 4300 level for the first time. The Dow Jones Industrial Average (+0.03%) closed fractionally higher like the S&P 500, while the Russell 2000 fell 0.6%. 

The session started with a modest rotation into value/cyclical stocks, partly due to a slew of expected dividend increases announced by the banks, a better-than-expected 127.3 reading in the Conference Board's Consumer Confidence Index for June (Briefing.com consensus 120.0), and month-end rebalancing activity. 

Value and cyclical stocks stocks faded their early gains throughout the day on no specific catalyst, although some suggested that with the quarter ending tomorrow, there might have been a greater propensity to position into growth stocks amid potentially lower economic growth rates in the second half of the year. 

Apple (AAPL 136.33, +1.55, +1.2%) and Microsoft (MSFT 271.40, +2.68, +1.0%), the only two companies with market capitalizations over $2.0 trillion, powered the S&P 500 information technology sector (+0.7%) to the top of the sector leaderboard. The Philadelphia Semiconductor Index (+0.8%) was another pocket of strength. 

Interestingly, AAPL and MSFT helped overshadow an advancing/declining line that favored declining issues at both the NYSE and Nasdaq. Eight of the 11 S&P 500 sectors closed lower, led by utilities (-1.7%) as the only sector with a decline over 1.0%. 

The financials (-0.3%) and energy (-0.5%) sectors were arguably bigger disappointments, though, considering they were both up by at least 1.0% in early action. The SPDR S&P Bank ETF (KBE 51.26, -0.36, -0.7%) extended its two-day decline to 3.1%. 

Separately, the market presumably didn't lose sight of the valuation-oriented appeal that a 10-yr yield trading below 1.50% had on growth stocks. The 10-yr yield increased one basis point to 1.48%. Others would add that a CBOE Volatility Index (16.02, +0.26, +1.7%) well under 20.00 was supportive for overall risk sentiment.   

The 2-yr yield increased one basis point to 0.26%. The U.S. Dollar Index increased 0.2% to 92.05. WTI crude futures increased 0.4%, or $0.26, to $73.08/bbl. 

Reviewing Tuesday's economic data:

  • The Conference Board's Consumer Confidence Index jumped to 127.3 in June (consensus 120.0) from an upwardly revised 120.0 (from 117.2) in May. June marked the highest level for the index since the first pandemic surge in March 2020.
    • The key takeaway from the report is the understanding that consumer spending activity is expected to remain robust in the short-term, evidenced by a rise in plans to take a vacation and an increase in the proportion of consumers planning to buy homes, automobiles, and major appliances.
  • The FHFA Housing Price Index increased 1.8% m/m in April while the S&P Case-Shiller Home Price Index increased 14.9% yr/yr in April.

Looking ahead, investors will receive the ADP Employment Change report for June, the Chicago PMI for June, Pending Home Sales for May, and the weekly MBA Mortgage Applications Index on Wednesday. 

  • Russell 2000 +16.9% YTD
  • S&P 500 +14.3% YTD
  • Nasdaq Composite +12.7% YTD
  • Dow Jones Industrial Average +12.0% YTD

FT : Elon Musk says SpaceX prepared to spend $30bn on Starlink

Elon Musk says SpaceX prepared to spend $30bn on Starlink
Satellite internet network has 70,000 users in 12 countries and aims for global coverage by August

Elon Musk said his private rocket company SpaceX is prepared to spend up to $30bn to establish Starlink, its satellite internet network that now has 70,000 users across 12 countries.

Musk said Starlink is on track to provide global coverage — “everywhere except the poles” — by August and aims to have half a million users “within 12 months.”

SpaceX currently has 1,500 satellites in low orbit providing broadband internet service for Starlink, a service that fills the geographical gaps between areas covered by ground-based fibre connections and 5G, Musk said. At full capacity the service will have 12,000 satellites.

“It’s really meant for sparsely-populated regions,” said Musk, speaking from California in a video interview for the Mobile World Congress in Barcelona. “We’re really getting to parts of the world that are hardest to reach — the most difficult to reach 3 per cent, possibly 5 per cent.”

The $30bn investment figure cited by Musk was new and is multiples higher than earlier forecasts, though it is not clear if this projection can be compared directly with previous estimates. Musk said the numbers would vary depending on whether development of the Falcon 9 rocket is included.

In a 2018 TED Talk, chief operating officer Gwynne Shotwell said that establishing 12,000 satellites would cost “about $10bn or more”.

Musk said SpaceX expects to invest between $5-$10bn in Starlink before it becomes cash flow positive, and overall he estimated the costs at between $20bn and $30bn. “It’s a lot, basically,” he said.

Musk did not comment on Starlink’s revenue potential, but in the past has predicted that it could attain annual revenues of $30bn by 2025.

Musk acknowledged that all earlier attempts to provide constellation-based broadband services, going back to the 1990s, have failed. He joked that, a few years ago, his goal was simply to avoid bankruptcy.

The cost of a Starlink “terminal”, or satellite dish, is $499, plus a monthly subscription cost of $99. Musk said the hardware currently costs about twice what it is charging customers.

The billionaire entrepreneur also said Starlink has signed two big telecoms partnerships, but he declined to name them.

In December, the Starlink project was awarded almost $900m in US federal subsidies to support rural broadband connections. The award accounted for about one-tenth of a $9.2bn auction held by the Federal Communications Commission and will be distributed monthly over a decade.