There was another scramble last weekend, this time to find a buyer for Credit Suisse. Its rival UBS was marched down the aisle by Swiss authorities in something of a shotgun wedding.
The deal caused
outrage among additional tier 1 bondholders who had $17bn of investments wiped out, while shareholders received $3.2bn. It was a surprise move as debt investors are usually given priority over equity holders in debt recovery.
Policymakers in the EU and UK were quick to
reassure investors they would stick to the usual order. But while US investors prepare to litigate, Finma, the Swiss regulator, today
defended its decision, saying all the contractual and legal obligations had been met for it to act.
UBS is now looking at how it will carve up its newly-acquired partner, with Credit Suisse employees facing thousands of job losses.
“The takeover threatens job cuts on a scale that the labour market in the banking sector cannot absorb,” said the Swiss Bank Employees’ Association on Tuesday.
It’s too soon to say exactly who will go, but
17,000 investment bankers are in danger as sources say UBS is looking to wind down most of that business. Domestic Credit Suisse roles are also looking precarious as UBS will want to realise efficiencies.
In the UK, the collapse of SVB and Credit Suisse has
halted the regulatory pendulum mid-swing, writes business columnist Helen Thomas. Keen to capitalise on post-Brexit freedoms there had been moves to ease regulation on banks.
Not any more, she writes. “Those who argue that robust and unyielding regulation is, through the cycle, a competitive advantage in banking now have the whip hand over detractors.”
To pause or not to pause: that was the question
The banking turmoil muddied the waters for policymakers who needed to make rate decisions this week.
The Fed opted for a quarter-point rise yesterday,
bringing the federal funds rate to a new target range of 4.75 per cent to 5 per cent – a high not seen since 2007.
It did signal, however,
that this could be the end of aggressive tightening – though only because turmoil in the banking sector, and a looming credit crunch, could tame inflation for them.
Within the last few hours,
the BoE followed suit, with a quarter-point rise.
Again policymakers need to
balance financial instability with UK inflation, which rose last month. The
annual CPI increased to 10.4 per cent last month – above forecasts. Core inflation also increased to 6.2 per cent in February – up from 5.8 per cent in the previous month.
Both these raises follow the ECB’s 0.5 percentage point increase last week. President Christine Lagarde warned that while lower energy prices are cooling inflation,
domestic demand is notching it up as companies increase profit margins and workers demand higher wages.
It does not sound like Bundesbank president
Joachim Nagel wants to take his foot off the pedal any time soon. “There’s certainly no mistaking that price pressures are strong and broad-based across the economy,” he said. “If we are to tame this stubborn inflation, we will have to be even more stubborn.”
A ticking time bomb
UN scientists issued a stark warning this week on the climate emergency.
Global warming is “more likely than not” to reach the 1.5C point in the short-term, according to a UN report, and the risks of the increase in world temperatures are worse than previously thought when the last assessment was made in 2014.
“The climate time-bomb is ticking,” said UN secretary-general António Guterres. “The 1.5C limit is achievable. But it will take a quantum leap in climate action.”
Methane is a significant contributor to global warming, and the Biden administration has doubled down in its commitment to curb pollution caused by the gas.
There was tough talk from Michael Regan, administrator of the Environmental Protection Agency, who wants to ensure that
new regulations to control methane emitted by oil and gas systems in the US are not watered down in the face of opposition.
“There are no facilities that are getting out of jail free,” Regan told the Financial Times.
Pay, tenures and auditors
Remcos might raise an eyebrow at Centrica’s decision to award its chief executive, Chris O’Shea, a £4.5mn pay packet for 2022. This is a
more than fivefold increase on last year – when he did not take a bonus as customers faced the cost of living crisis.
But this comes at a particularly bad time for Centrica. The group has come under fire after an investigation by The Times alleged that agents acting for Centrica broke into vulnerable people’s homes to fit more expensive prepaid meters. The regulator Ofgem has launched a probe.
Elsewhere, Fiona McBain has
stepped down as chair of the FTSE-listed Scottish Mortgage Investment Trust. She had held the role since 2017, having joined the board in 2009.
The move comes after a very public spat with Amar Bhidé, who had been a non-executive director since 2020. He was
scathing about governance at the trust on a range of issues, including calling out McBain’s tenure as chair.
“She is long past the point at which she had any independence and her role so far as I can see is to protect managers from criticism and questioning,” he said.
And finally, following the Wirecard scandal, auditors in Europe have become more cautious about who they work with – and the Adler Group is feeling the effects. KPMG ditched the German real estate company as an audit client last year, and so far has not been replaced.
This raises the question:
what happens to companies that cannot find an auditor? Should they be allowed to fail? Or perhaps the courts could appoint one? More thinking needs to be done, writes Frankfurt correspondent Olaf Storbeck.
