Chart: Americans Have Negative Real Wage Growth for 23 Months Straight in February 2023

Source : Bloomberg

Charts: U.S. CPI YoY Declined in February 2023

Source : Bloomberg

Charts: U.S. Container Imports Plunge

Source : Bloomberg

Chart: U.S 20 Largest Bank by Total Assets in 2022

Source : New York Times

Charts: Venture Funding Across Regions Declined in 2022

Global Layoffs of Tech Workers by Country

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Source : Rest of World

In Pictures: Food of Ikoyi Restaurant in London, U.K.

Fine Dining British Cuisine with Western African Spice-based Dishes

The 2022 Michelin 2-star Restaurant

 

 

 

 

Infographic: 30 Years of Central Bank Gold Demand

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Source : Visual Capitalist

What Are AT1 Bonds and Why Are Credit Suisse’s Now Worthless?

Anna Cooban wrote . . . . . . . . .

Investors in a riskier type of Credit Suisse’s bonds had the value of their holdings slashed to zero Sunday after Swiss authorities brokered an emergency takeover of the bank by rival UBS.

On Sunday, the Swiss National Bank (SNB) announced that UBS would buy Credit Suisse for 3 billion Swiss francs ($3.25 billion) — or about 60% less than the bank was worth when markets closed on Friday. Credit Suisse shareholders will be largely wiped out, receiving the equivalent of just 0.76 Swiss francs in UBS shares for stock that was worth 1.86 Swiss francs on Friday.

But it is the owners of Credit Suisse’s $17 billion worth of “additional tier one” (AT1) bonds who have been left fully in the cold. Swiss authorities said those bondholders would receive absolutely nothing. The move is at odds with the usual hierarchy of losses when a bank fails, with shareholders typically the last in line for any kind of payout.

“The extraordinary government support will trigger a complete write-down of the nominal value of all AT1 shares of Credit Suisse in the amount of around 16 billion [Swiss francs],” the Swiss Financial Market Supervisory Authority said in a statement Sunday.

David Benamou, chief investment officer at Axiom Alternative Investments, a French wealth management firm with exposure to AT1 bonds, called the decision “quite surprising, not to say … shocking.”

The European market for such bonds is worth about $250 billion, Joost de Graaf, co-head of European credit at Van Lanschot Kempen, a Dutch wealth management firm, told CNN, and it could now go into a deep freeze.

What are AT1 bonds?

AT1 bonds are also known as “contingent convertibles,” or “CoCos”. They were created in the wake of the 2008 financial crisis as a way for failing banks to absorb losses, making a taxpayer-funded bailout less likely.

They are a risky bet — if a lender gets into trouble, this class of bonds can be quickly converted into equity, or written down completely.

Because they are higher-risk, AT1s offer a higher yield than most other bonds issued by borrowers with similar credit ratings, making them popular with institutional investors.

What’s the controversy?

It is not the write-down of Credit Suisse’s AT1 bonds that has rocked investors, but the fact that the bank’s shareholders will receive some compensation when bondholders will not.

Ordinarily, bondholders are higher up the pecking order than shareholders when a banks fails. But because Credit Suisse’s demise has not followed a traditional bankruptcy, analysts told CNN, the same rules don’t apply.

“The hierarchy of claims remains applicable in the EU… there is no way that shareholders can be paid and AT1 holders [are] paid zero,” Benamou said. “The decision taken by the Swiss authorities is really very strange.”

Michael Hewson, chief market analyst at CMC Markets, told CNN: “It appears that in this case, because it was not a bankruptcy situation it was considered that AT1 bondholders and shareholders would both feel the pain.”

EU banking regulators and the Bank of England moved Monday to reassure AT1 investors more broadly that they would take priority over shareholders in the event of future bank crises.

“Common equity instruments [stocks] are the first ones to absorb losses, and only after their full use would additional tier one be required to be written down,” the EU regulators said in a statement. “This approach has been consistently applied in past cases.”

The Bank of England said that “holders of [AT1s] should expect to be exposed to losses” when a bank fails according to their usual ranking in the capital hierarchy.

What now for investors?

The legal basis for the Credit Suisse losses may be contested. Quinn Emanuel Urquhart & Sullivan, a litigation firm headquartered in Los Angeles, said Monday that it had assembled a team of lawyers who were discussing options with Credit Suisse’s AT1 bondholders.

The surprise move by the SNB has rattled Europe’s AT1 bond market, with investors now questioning whether their holdings could be obliterated if another bank collapses.

De Graaf said his fund did not invest in AT1s because he was “afraid [of] something like this,” where regulators could decide that a bank was no longer viable and write down the bonds’ value.

“For the coming few years, [the AT1] market is going [to go] into some kind of a hibernation probably, where new AT1s will be very hard to place for issuers at acceptable levels,” de Graaf said.

The impact will likely spill over into the wider bond market, he added, with investors demanding higher yields for bonds now seen as riskier.

“For the foreseeable future, [banks’] funding [through bonds] will be more expensive,” de Graaf said.

There are signs that shift may already be happening.

Invesco’s AT1 Capital Bond exchange-traded fund, which tracks AT1 debt, is currently trading down 5.5% compared with last Friday’s close. WisdomTree, another AT1 ETF listed on the London Stock Exchange, fell 7.4% in afternoon trade.

But the real damage is the precedent the write-down may have set, said Benamou of Axiom Alternative Investments.

“No financial analyst had ever believed that AT1 bonds would be brought to zero… given the level of solvency of Credit Suisse… [and] pretty high level of regulatory capital,” he said.

Source : CNN

India’s Oil Deals With Russia Dent Decades-Old Dollar Dominance

Nidhi Verma and Noah Browning wrote . . . . . . . . .

U.S.-led international sanctions on Russia have begun to erode the dollar’s decades-old dominance of international oil trade as most deals with India – Russia’s top outlet for seaborne crude – have been settled in other currencies.

The dollar’s pre-eminence has periodically been called into question and yet it has continued because of the overwhelming advantages of using the most widely-accepted currency for business.

India’s oil trade, in response to the turmoil of sanctions and the Ukraine war, provides the strongest evidence so far of a shift into other currencies that could prove lasting.

The country is the world’s number three importer of oil and Russia became its leading supplier after Europe shunned Moscow’s supplies following its invasion of Ukraine begun in February last year.

After a coalition opposed to the war imposed an oil price cap on Russia on Dec. 5, Indian customers have paid for most Russian oil in non-dollar currencies, including the United Arab Emirates dirham and more recently the Russian rouble, multiple oil trading and banking sources said.

The transactions in the last three months total the equivalent of several hundred million dollars, the sources added, in a shift that has not previously been reported.

The Group of Seven economies, the European Union and Australia, agreed the price cap late last year to bar Western services and shipping from trading Russian oil unless sold at an enforced low price to deprive Moscow of funds for its war.

Some Dubai-based traders, and Russian energy companies Gazprom and Rosneft are seeking non-dollar payments for certain niche grades of Russian oil that have in recent weeks been sold above the $60 a barrel price cap, three sources with direct knowledge said.

The sources asked not to be named because of the sensitivity of the issue.

Those sales represent a small share of Russia’s total sales to India and do not appear to violate the sanctions, which U.S. officials and analysts predicted could be skirted by non-Western services, such as Russian shipping and insurance.

Three Indian banks backed some of the transactions, as Moscow seeks to de-dollarise its economy and traders to avoid sanctions, the trade sources, as well as former Russian and U.S. economic officials, told Reuters.

But continued payment in dirhams for Russian oil could become harder after the United States and Britain last month added Moscow and Abu Dhabi-based Russian bank MTS to the Russian financial institutions on the sanctions list.

MTS had facilitated some Indian oil non-dollar payments, the trade sources said. Neither MTS nor the U.S. Treasury immediately responded to a Reuters request for comment.

An Indian refining source said most Russian banks have faced sanctions since the war but Indian customers and Russian suppliers are determined to keep trading Russian oil.

“Russian suppliers will find some other banks for receiving payments,” the source told Reuters.

“As it is, the government is not asking us to stop buying Russian oil, so we are hopeful that an alternative payment mechanism will be found in case the current system is blocked.”

FRIENDLY VERSUS UNFRIENDLY

Paying for oil in dollars has been the nearly universal practice for decades. By comparison, the currency’s share of overall international payments is much smaller at 40%, according to January figures from payment system SWIFT.

Daniel Ahn, a former chief economist at the U.S. State Department and now a global fellow at the Woodrow Wilson International Center for Scholars, says the dollar’s strength is unmatched, but the sanctions could undermine the West’s financial systems while failing to achieve their aim.

“Russia’s short-term efforts to try and sell things in return for currencies other than the dollar is not the real threat to Western sanctions,” he said.

“(The West) is weakening the competitiveness of their own financial services by adding yet another administrative layer.”

The price cap coincided with an EU embargo on imports of Russian seaborne oil, rounding off a year of bans and sanctions, including largely expelling Russia from the SWIFT global payments system.

Around half of its gold and foreign exchange reserves, which stood near $640 billion, were frozen.

In response, Russia said it would seek payment for its energy in the currency of “friendly” countries and last year ordered “unfriendly” EU states to pay for gas in roubles.

For Russian firms – as payments were blocked or delayed even if they were not violating any sanctions, due to overly zealous compliance – dollars became potentially a “toxic asset”, independent analyst and former adviser at the Bank of Russia Alexandra Prokopenko, said.

“Russia desperately needs to trade with the rest of the world because it’s still dependent on its oil and gas revenues so they are trying all options they have,” she told Reuters.

“They’re working on building a direct infrastructure between the Russian and Indian banking systems.”

India’s largest lender State Bank of India has a nostro, or foreign currency, account in Russia. Similarly, many banks from Russia have opened accounts with Indian banks to facilitate trade.

IMF Deputy Managing Director Gita Gopinath said in the month after Russia’s invasion of Ukraine that sanctions on Russia could erode the dollar’s dominance by encouraging smaller trading blocs using other currencies.

“The dollar would remain the major global currency even in that landscape but fragmentation at a smaller level is certainly quite possible,” she told the Financial Times. The IMF did not respond to a Reuters request for comment.

Beyond Russia, tensions between China and the West are also eroding the long-established norms of dollar-dominated global trade.

Russia holds a chunk of its currency reserves in renminbi while China has reduced its holdings of dollars, and Russian President Vladimir Putin said in September Moscow had agreed to sell gas supplies to China for yuan and roubles instead of dollars.

INDIA DISPLACES EUROPE

India in the last year displaced Europe as Russia’s top customer for seaborne oil, snapping up cheap barrels and increasing imports of Russian crude 16-fold compared to before the war, according to the Paris-based International Energy Agency. Russian crude accounted for about a third of its total imports.

While India does not recognise the sanctions against Moscow, the majority of purchases of Russian oil in any currency have complied with them, trade sources said, and almost all sales have taken place at levels below the price cap.

Even so, most banks and financial institutions are cautious about clearing any payments to avoid unwittingly breaching any international law.

For Indian refiners that in recent weeks started settling some Russian oil purchases in roubles, according to the trade sources, payments have been processed in part by the State Bank of India via its nostro roubles account in Russia.

Those transactions are mostly for oil purchases from Russian state energy giants Gazprom and Rosneft, the sources added. Bank of Baroda and Axis Bank have handled most of the dirham payments, the sources added.

The banks, Gazprom and Rosneft did not respond to a Reuters request for comment.

India has prepared a framework for settling trade with Russia in Indian rupees should rouble transactions be cut off by further sanctions, the sources said.

Asked for comment, the U.S. Treasury referred to the assertion by U.S. Treasury Secretary Janet Yellen two weeks into the war: “I don’t think the dollar has any serious competition, and is not likely to for a long time.”

Source : Reuters

Infographic: 中国新一届国务院机构设置

Source : 中国政府网