Economy

ECB backs global rules for bonds wiped out in Credit Suisse rescue

Published

6 months ago

November 17, 2023

ECB backs global rules for bonds wiped out in Credit Suisse rescue

FRANKFURT (Reuters) – The European Central Bank’s chief supervisor on Thursday supported creating global standards for convertible bonds that were wiped out as part of Credit Suisse’s rescue by rival UBS earlier this year.

Holders of Credit Suisse’s Additional Tier 1 bonds with a notional value of 16 billion Swiss francs ($18.1 billion) lost their whole investment while stockholders received some shares in UBS – a differential treatment that triggered lawsuits and sent shockwaves through financial markets.

ECB chief supervisor Andrea Enria backed the decision by Swiss authorities, which reflected clauses enshrined in local bonds, but urged global standard-setters on the Basel Committee on Banking Supervision to put some order in this market.

“It would be good if the Basel committee could in future think further on some standardization of contracts in these areas,” Enria told the annual conference of the European Systemic Risk Board.

“Adding some common features, I think, would be beneficial to avoid that there is a sort of contagion between different instruments and that everybody understands how they work in times of stress.”

Speaking on the same panel, the Basel Committee’s chairman Pablo Hernández de Cos said the issue was “on the list”.

The Basel Committee said in a report last month it would review the features of AT1 bonds, including the “loss-absorbing hierarchy”.

Shares are generally regarded as junior to bonds, meaning they suffer losses first in a crisis. But Credit Suisse’s bonds contained a clause allowing authorities the write down those bonds without winding down the bank.

This clause is not a feature in bonds issued by European Union banks and the ECB has made clear that it would impose losses on shareholders first.

($1 = 0.8856 Swiss francs)

Economy

Russian central bank says it needs months to make sure CPI falling before rate cuts -RBC

Published

4 months ago

December 26, 2023

Russian central bank says it needs months to make sure CPI falling before rate cuts -RBC

MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.

The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.

Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.

“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.

Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.

“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.

The bank will next convene to set its benchmark rate on Feb. 16.

The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.

Economy

China identifies second set of projects in $140 billion spending plan

Published

4 months ago

December 25, 2023

China identifies second set of projects in $140 billion spending plan

© Reuters. FILE PHOTO: Workers walk past an under-construction area with completed office towers in the background, in Shenzhen’s Qianhai new district, Guangdong province, China August 25, 2023. REUTERS/David Kirton/File Photo

SHANGHAI (Reuters) – China’s top planning body said on Saturday it had identified a second batch of public investment projects, including flood control and disaster relief programmes, under a bond issuance and investment plan announced in October to boost the economy.

With the latest tranche, China has now earmarked more than 800 billion yuan of its 1 trillion yuan ($140 billion) in additional government bond issuance in the fourth quarter, as it focuses on fiscal steps to shore up the flagging economy.

The National Development and Reform Commission (NDRC) said in a statement on Saturday it had identified 9,600 projects with planned investment of more than 560 billion yuan.

China’s economy, the world’s second largest, is struggling to regain its footing post-COVID-19 as policymakers grapple with tepid consumer demand, weak exports, falling foreign investment and a deepening real estate crisis.

The 1 trillion yuan in additional bond issuance will widen China’s 2023 budget deficit ratio to around 3.8 percent from 3 percent, the state-run Xinhua news agency has said.

“Construction of the projects will improve China’s flood control system, emergency response mechanism and disaster relief capabilities, and better protect people’s lives and property, so it is very significant,” the NDRC said.

The agency said it will coordinate with other government bodies to make sure that funds are allocated speedily for investment and that high standards of quality are maintained in project construction.

($1 = 7.1315 renminbi)

Economy

Russian central bank says it needs months to make sure CPI falling before rate cuts -RBC

Published

4 months ago

December 25, 2023

Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.

“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.

Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.

“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.

The bank will next convene to set its benchmark rate on Feb. 16.

The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.