In the news this week

Author: John Crabb, Karry Lai, Olly Jackson | Published: 21 Sep 2018
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Americas: progress

Judge Brett Kavanaugh’s Supreme Court hearings continued this week, amid allegations of sexual assault from Christine Ford caught public attention and drew much speculation. Kavanaugh has voted to curb financial regulation in the past. President Trump this week also nominated Nellie Liang, a former Federal Reserve staff member, and financial regulation expert, to join the Fed’s board of governors.

Sheila Bair, former chair of the Federal Deposit Insurance Corporation, suggested that economic recovery since the 2008 financial crisis has been driven by increasing consumer and corporate debt at overwhelming rates fuelled largely by low interest rates. This comes in the same week that saw the US stock market reach new record highs, despite fears of an escalating trade war on multiple fronts. It feels like old news, but billions of dollars of new tariffs were imposed by both China and the US this week. 

Another broken record is the ongoing back and forth between the US, Canada and Mexico regarding the renegotiations of the North American Free Trade Agreement. Things intensified this week as congressmen Steve Scalise and Canadian prime minister Justin Trudeau came to blows over a lack of flexibility and progress.

New York’s transport authority, the Metropolitan Transportation Authority, has become the first municipality to issue the first debt linked to the secured overnight financing rate (Sofr), the Federal Reserve Bank of New York’s new benchmarking rate.

Asia Pacific: one step forwards, two steps back

Continuing its plans to expand smart banking initiatives, the Hong Kong Monetary Authority has launched the faster payment system to improve the efficiency of fund transfers. Compared to the present transfer system between banks, which can take two to three days and incur charges, the system allows real-time fund transfers on payment systems such as Alipay and WeChat Pay after customers register their mobile phones or email addresses to connect bank accounts.

The People’s Bank of China and the China Securities Regulatory Commission have released a notice on measures to increase the supervision of credit rating agencies. These include improving information sharing, onsite checkups of credit rating agencies from regulators and improved review and registration procedures for rating agencies. This is happening against a backdrop of corporate bond defaults in China and the recent corruption scandal that Dagong, one of China’s biggest credit rating agencies, was involved in. Dagong was ordered to suspend its operations in August after it was revealed that it was selling good ratings to client firms. More than 90% of bonds rated by domestic rating agencies are rated AA or above.

EMEA: turmoil and trouble

Another week goes by and the UK and EU remain at an impasse, following an informal dinner which EU leaders made it clear that UK prime minister Theresa May needs to give up ground on trade and the Irish border by the end of next month. At the moment, while trade may be an issue where progress is made, the Irish border is unlikely to be resolved. May after the dinner said that the EU must evolve its stance for Northern Ireland to be aligned with EU rules; but EU leaders have rubbished this idea, saying it is unrealistic for a soft border to remain if the UK is to leave the single market. After more criticism for May’s Chequers plan, a compromise needs to be made for agreement from her own party, let alone the EU. Time is running out.

A leaked memo from unnamed HSBC executives said the investment banking strategy has 'utterly failed’ and its 'performance is really appalling’. The memo is being treated as a whistleblowing event by the bank, with a formal process set to investigate. One of the most disparaging aspects of the memo was reserved for the existing leadership, said to have failed to create a successful strategy year-on-year. The investment banking and markets unit saw two senior executives depart to Jefferies and Goldman Sachs, and was ranked 38th this year for fees earned from M&A advice.

Phoenix Group is looking to sell debt in the euro market for the first time, after hiring a series of banks to arrange a sale of the 10-year tier two bonds. ABN Amro, HSBC, Citi and NatWest have been hired and the structure of the deal is said to be in a rare bullet format.