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New Fed rule boosts requirements for “too big to fail” banks
Capital Markets
<p>It only makes sense that if you’re “too big to fail”, then you need to have extra financial reserves to see you through a worst case scenario. The U.S. Federal Reserve proposed a new rule on Friday, October 30th, that will require the six “global systemically important banks” (GSIBs) to up their debt/equity reserves by a total of around $120 billion.Industry analysts note that megabanks will almost certainly meet this new requirement by issuing long-term debt, given current ultra-low interest rates.</p> <p>The new proposed rule is basically in line with what banks had been expecting expectations, and, as it should be, the rule is focused on the total loss-absorbing capacity of each GSIB.</p> <p>New Fed rule bolsters cushion for “too big to fail” banks<br /> The proposed rule is really just the latest of a series of new rules aimed designed to contain risk in thebanking system by making too big to fail banks use a reasonable amount of debt and equity to fund themselves.</p> <p>The Federal Reserve governors approved a draft of the proposal in a vote this week, and it will now be submitted for a public comment process.</p> <p>One staffer who worked on the rule commented in a public meeting that the banks should have little problem complying with the new rule, because the requirement overlapped with current rules. Moreover, the majority of the debt requirements can be fulfilled by refinancing existing debt, the staffer noted.<br /> The proposed rule would require domestic GSIBs to hold at least:</p> <p> A long-term debt the greater of 6% plus its GSIB surcharge of risk-weighted assets and 4.5% of total leverage exposure; and<br /> A total loss-absorbing capacity (TLAC) the greater of 18% of risk-weighted assets and 9.5% of total leverage exposure.</p> <p>Of note, a few of the new requirements must be met by Jan. 1, 2019, but some of the more-stringent requirements do noy have to be fully complied with January 1, 2022.</p> <p>Keep in mind that the most stringent requirements are applied to JPMorgan, followed by Citigroup. Thencomes Bank of America, Goldman Sachs and Morgan Stanley, all of which have the same requirement. Wells Fargo requirement is next, followed by State Street Corp and finally Bank of New York Mellon.</p> <p>Apparently, two two banks already comply with the long-term debt requirements under Friday’s proposal, but Fed officials would not provide further details.<br /> Statement from Fed Chair Yellen<br /> “The long-term debt requirement we are proposing today, combined with our other work to improve the resolvability of systemic banking firms, would substantially reduce the risk to taxpayers and the threat tofinancial stability stemming from the failure of these firms,” Fed Chair Janet L. Yellen noted. “This is an important step toward ending the market perception that any banking firm i</p>
Star-backed UK crowdfunding platform to launch in US
FinTech
<p>U.S. investors will soon have another option for easily buying small amounts of stocks.</p> <p>Seedrs, a U.K. crowdfunding platform, will launch in the U.S. in the coming weeks, with a full, official launch due in early 2016, reports Business Insider. The online platform has star power: It's backed by fund manager Neil Woodford and venture capital firm Lord Rothschild and boasts tennis star Andy Murray as an advisor. Seedrs enables individuals to buy stocks in startups for as little as 10 pounds. Startups can join the platform with a funding goal, and agree to sell a certain number of shares to meet that.</p> <p>Seedsr has been eager to break into the U.S., and bought a similar California-based platform called Junction Investments in 2014. Before Friday, Seedrs was prohibited from a U.S. expansion by the JOBS Act. The act previously prevented non-accredited investors, or those with a net worth of less than $1 million or an income of less than $200,000 for the last two years, from investing in equity crowdfunding platforms.<br /> Photo: adifansnet </p>
This emerging markets ETF can deal with the strong dollar
Asset Management
<p>Much has been made of the strong dollar's impact on emerging markets equities and the relevant exchange traded funds. Price action bears out that impact.</p> <p>Over the past year, the Vanguard FTSE Emerging Markets ETF VWO and the iShares MSCI Emerging Markets ETF EEM, the two largest emerging markets ETFs by assets, are both down just over 15 percent while the PowerShares DB US Dollar Index Bullish Fund UUP, the U.S. Dollar Index tracking ETF, is higher by 10.2 percent.</p> <p>The declines of EEM and VWO do not paint the entire picture of the repudiation suffered by emerging markets ETFs at the hands of the strong greenback. From Brazil to South Africa to Turkey, scores of emerging markets funds have been pummeled by the rising dollar and speculation that higher U.S. interest rates could stoke a raft of credit ratings downgrades throughout the developing world.</p> <p>Read more at Benzinga.<br /> Photo: images money</p> <p>&nbsp;</p> <p>&nbsp;</p>
Daily Scan: More signs of China slowdown give Asian markets chills; Eurozone factory activity improves
Capital Markets
<p>European stock markets traded nervously at the opening but bounced back after a gauge of factory activity proved more robust than expected. The Eurozone PMI for October printed at 52.3, up from 52 in September. A reading above 50 signals expansion. Earlier in the day, Asian bourses were guided by two Chinese PMI reports that remain stubbornly below 50, hesitancy ahead of key U.S. employment data on Friday, and speeches by a roster of heavyweight central bankers throughout the week.</p> <p>Here's what else you need to know:</p> <p>October factory activity in China contracts. The government number posted a figure of 49.8, which sent shares prices reeling. It was slightly mitigated by a better-than-expected number for the Caixin PMI for private firms at 48.3 early Monday. The Shanghai Composite ended 1.7% lower. Weakness was further exacerbated by a government clampdown on illegal futures trading.</p> <p>Asian markets finish lower. The MSCI Asia-Pacific index (excluding Japan) fell 0.7% to its lowest level for two weeks and the Tokyo Nikkei 225 slumped 2.1% -- signaling disappointment that the Bank of Japan didn't expand its stimulus program on Friday as some had expected. The soft opening to the week follows the best monthly performance in October for six years by major stock markets. ECB and Asian central bank officials promised investors renewed monetary stimulus while in the U.S. the interest rate doves seemed to have the edge over the hawks.</p> <p>HSBC profits rise. HSBC shares traded flat in Hong Kong despite the U.K.-bank posting a 52.5% increase in third-quarter net income. Profits of $5.23 billion were offset by a 4% fall in revenues due to weaker performance in retail banking and wealth management as well as global markets and banking. Investors are keen that HSBC that management gets moving on its restructuring plans. WSJ (paywall)</p> <p>Foreign banks accused of "window-dressing" their accounts in U.S. A study by the Washington D.C.-based Office of Financial Research suggests that overseas banks regularly use the repo market to reduce their balances by about $170 billion at the end of each quarter. The idea is to look safer and more profitable. Financial Times (paywall)</p> <p>Exports in South Korea drop even more than expected to lowest in six years. Exports plummeted 15.8% in October vs expectations of 14.5% as trade with China, the U.S., and Europe weakened. Low oil prices also hurt. South China Morning Post (paywall)</p> <p>Hong Kong Exchange Fund reveals shocking quarterly loss.  The Hong Kong Exchange Fund announced a HK$63.8 billion ($8.2 billion) third-quarter loss, the worst performance ever in its 80-year history. The fund, which is run by the Hong Kong Monetary Authority to defend the territory's currency peg to the US dollar, made most of its losses in equity investments. SCMP (paywall)</p> <p>U.S. navy stretched by Chinese and Russian maritime exercises. Beijing sent warplanes and naval ships into the South China Sea last week where U.S. warships had recently passed, using live fire. The U.S. Pentagon has said it expects to conduct military exercises twice a quarter in the region.  </p>
Daily Scan: Chinese PMI reports indicate weaker global demand and Asian stocks slide
Capital Markets
<p>Asian stock markets were guided by two Chinese  purchasing managers reports, hesitancy ahead of key US employment data on Friday and speeches by a roster of heavyweight central bankers throughout the week.</p> <p>China's official PMI for state-run businesses on Sunday showed that October factory activity contracted for the eighth consecutive month, recording a figure of 49.8, which sent shares prices reeling. It was slightly mitigated by a better-than-expected number for the Caixin PMI for private firms at Monday's opening, but the Shanghai A-Share index was down more than 1% at midday amid fears of slower global demand. Weakness was further exacerbated by a government clampdown on illegal futures trading.</p> <p>The MSCI Asia-Pacific index (excluding Japan) fell 0.7% to its lowest level for two weeks and the Tokyo Nikkei 2.1% slumped 2.1%. European markets are likely to open lower too.</p> <p>The soft opening to the week follows the best monthly performance in October for six years by major stock markets. ECB and Asian central bank officials promised investors renewed monetary stimulus while in the US the doves seemed to have the edge over the hawks.</p> <p>Here's what else you need to know:</p> <p>Hong Kong Exchange Fund reveals shocking quarterly loss.  The Hong Kong Exchange Fund announced a HK$63.8 billion ($8.2 billion) third-quarter loss, the worst performance ever in its eighty-year history. The fund, which is run by the Hong Kong Monetary Authority to defend the territory's currency peg to the US dollar, made most of its losses in equity investments. SCMP (paywall)</p> <p>HSBC profits rise. HSBC shares traded flat in Hong Kong despite the UK-bank posting a 52.5% increase in third-quarter net income. Profits of $5.23 billion were offset by a 4% fall in revenues due to lower to weaker performance in retail banking and wealth management, as well as global markets and banking. Investors are keen that HSBC are keen that management gets moving on its restructuring plans. WSJ (paywall)</p> <p>Foreign banks accused of "window-dressing" their accounts in US. A study by the Washington D.C.-based Office of Financial Research suggests that overseas banks regularly use the repo market to reduce their balances by about $170 billion at the end of each quarter. The idea is to look safer and more profitable. Financial Times (paywall)</p> <p>Exports in South Korea drop even more than expected to lowest in six years. Exports plummeted 15.8% in October vs expectations of 14.5% as trade with China, the U.S., and Europe weakened. Low oil prices also hurt. South China Morning Post (paywall)</p> <p>US navy stretched by Chinese and Russian maritime exercises.  Beijing sent warplanes and naval ships into the South China Sea last week where U.S. warships had recently passed, using live fire. The U.S. Pentagon has said it expects to conduct military exercises twice a quarter in the region.  Wall Street Journal (paywall) Separately, the US faces a build up in activity by  the Russian navy from the Black Sea and Mediterranean to the Pacific Ocean. Fin</p>
Video: NYU Stern conversation with Morgan Stanley CEO James Gorman
Capital Markets
<p>Listen to James Gorman, chairman and CEO of Morgan Stanley tell Professor Charles Murphy at NYU Stern on October 8 that banks must acknowledge their responsibility for the 2008 crisis, adjust to the new regulatory reality and focus on what they are individually good at.<br /> Photo: Insider Monkey<br /> &nbsp;</p> <p>&nbsp;</p>
Bank on your smartphone, not your laptop -- and other tips to protect your financial identity
4:01
<p>Most of us are aware of the threat posed by hackers stealing our private information. But the theft, allegedly by two teenagers, of credit card details from 1.2 million TalkTalk customers has highlighted the problem – maybe inducing a little paranoia.</p> <p>The Daily Telegraph has drawn up a simple list of dos-and-don’ts we can follow to ensure that a 12-year old working out of his bedroom or an organized gang can’t empty our bank accounts. Here are some of my favorites:</p> <p> Get rid of user accounts that have grown cobwebs from lack of use.<br /> Don't use your regular bank account for online purchases. Use a separate account.<br /> Grab your smartphone rather than your laptop. Phone apps are newer and boast more sophisticated features.<br /> Go the extra mile: Use “two-step” verification. On the nuisance scale, it's only about '2' and way less annoying than dealing with a hack.</p> <p>For more tips, go to The Daily Telegraph here.<br /> Photo: Jonathan Colman</p>
Have commodities reached an inflection point?
Capital Markets
<p>This week the Federal Reserve announced that it would delay the interest rate liftoff yet again, but while everyone seems concerned about nominal rates—the federal funds rate, in this case—real rates have already risen about 5 percent since August 2011. This “invisible” rate hike is much more impactful to commodity prices and emerging markets than a nominal rate hike, which is simply the “tip of the iceberg.”</p> <p>Since July 2014, the U.S. dollar has appreciated more than 20 percent. This has had huge implications for net commodity exporter countries, both developing and emerging, which typically see their currency rates fluctuate when prices turn volatile.</p> <p>But why does this happen?</p> <p>The main reason is that most commodities, including crude oil, metals and grains, are priced in U.S. dollars. They therefore share an inverse relationship. When the dollar weakens, prices tend to rise. And when it strengthens, prices fall, among other past ramifications, as you can see in the chart below courtesy of investment research firm Cornerstone Macro.</p> <p>Indeed, commodities have collectively depreciated close to 40 percent since this time a year ago and are at their lowest point since March 2009. We might very well have reached an inflection point for commodities, which opens up investment opportunities.<br /> Net Commodity Exporters under Pressure<br /> The number of developing and emerging markets that are dependent on commodity exports has risen in recent years, from 88 five years ago to 94 today, according to the United Nations Conference on Trade and Development (UNCTAD). Many of these countries—located mostly in Latin America, Africa, the Middle East and Asia—have a dangerously high dependency on a small number of not only commodity exports but also trading partners.</p> <p>For many suppliers, China is the leading buyer. But the Asian giant’s imports have been slowing as its economy transitions from manufacturing to services and housing, forcing many net commodity export countries to rethink their dependency on China.</p> <p>This is the position Indonesia finds itself in right now. As much as 50 percent of its total exports consists of crude oil, palm oil, copper, coal and rubber, all of which China has historically been a vital importer. A stunning 95 percent of Mongolia’s exports flow into its southern neighbor, according to the World Factbook. And for Chile, commodities represent close to 90 percent of total exports, about 25 percent of which goes to China.</p> <p>But countries needn’t have such a high dependency on commodit</p>
China’s QDII2 set to launch
Asset Management
<p>China’s policy makers take the long view. During the past five years the momentum for renminbi internationalization and increased cross-border investment has picked up, most notably with the introduction of the Shanghai-Hong Kong Stock Connect program late last year.</p> <p>On Friday, the People’s Bank of China (PBoC) approved the latest channel for private individuals – those with at least Rmb1 million ($158,000) – to diversify their portfolios with foreign assets.</p> <p>“The central bank gave the official nod to QDII2, the version of the qualified domestic institutional investment scheme for individuals to launch in the Shanghai Free Trade Zone (FTZ). This will allow eligible wealthy investors to invest in overseas real estate, financial assets and direct investments,” reports AsianInvestor. (paywall)</p> <p>In addition, the PBoC will allow onshore managers to set up index fund subsidiaries in the FTZ and has approved domestic managers segregated account subsidiaries to make cross-border investments.</p> <p>No implementation date has been announced yet, but these developments are a sign that its strategy of opening up China’s capital markets and fund industry remain on track.</p> <p>This is despite this year’s wild stock market fluctuations and a host of macroeconomic concerns.<br /> Photo: epSos .de<br /> &nbsp;</p>
The world's best guide to the ride share funding wars: The money behind Uber, Lyft, and Didi Kuaidi
Venture Capital
<p>In recent days it has come to light that Uber is looking to raise another $1 billion, just three months after its last mega round. It's no surprise that Uber is burning through cash. With local competition in almost every market it operates, the ride-hailing app has made a lot of enemies and needs a big war chest.</p> <p>In the U.S. it competes with Lyft; in China it grapples with Didi Kuaidi; in India it's up against Ola, and in Southeast Asia it has GrabTaxi to deal with. Now it seems these competitors are forming a global alliance to take Uber down. A recent example:  In September Didi and Lyft decided to link their apps. The Chinese firm also invested $100 million in Lyft to seal the deal. The pair are now expanding this tie-up to include GrabTaxi and Ola, squeezing Uber into a global four-way clustercuss.</p> <p>But who are Uber and its backers really up against? A look at the roster of investors on both sides offers a revealing insight on the corporate alliances behind the the battle for dominance in the ride-hailing app space:</p> <p>Main backers of Uber</p> <p> Baidu: This Chinese internet giant is a major rival of Alibaba and Tencent . It has led two rounds for Uber totalling $1.8 billion, including its most recent fundraise for Uber China.<br /> Goldman Sachs: A early investor in Uber's $37 million Series B, this venture capital tourist led a $1.6 billion debt financing for Uber at the start of the year.<br /> Tata: The Indian conglomerate made the decision to bet against local player Ola and invest $100 million in Uber in August.<br /> Microsoft: The Silicon Valley giant got behind Uber in July taking part in its $1 billion Series F.<br /> BlackRock: The asset manager was relatively early to the game, backing Uber's $1.2 billion Series D round.<br /> Google: The search engine behemoth backed Uber via its venture capital unit, taking part in the $37 million Series B round and leading the $258 million Series C in 2013.</p> <p>Main backers of the alliance (Lyft, Ola, Didi Kuaidi, GrabTaxi) </p> <p> Softbank: The mastermind behind the alliance. The Japanese telecoms company backed Didi Dache/Kuaidi Dache prior to their merger earlier this year. It also led a $210 million and $250 million Series D round for Ola and GrabTaxi, respectively, and re-upped with both this year. Softabank also owns an indirect share in Lyft via its stakes in Didi Kuaidi and Alibaba.<br /> Alibaba: The Chinese internet giant and Baidu rival was an early backer of Kuaidi Dache prior to its merger, and led the most recent $2 billion round for the newly formed Didi Kuaidi. It also took part in two rounds for Lyft, including the most recent.<br /> Didi Kuaidi: A taxi app with several VC-backers, its also in invested in GrabTaxi and Lyft.<br /> Temasek Holdings: The Singapore investment fund took part in Didi Kuaidi's most recent $2 billion round. It also led a Series A round for GrabTaxi via its subsidiary Vertex Ventures. It came back for the Series B round in May last year<br /> Tencent Holdings: This Chinese internet firm was an early backer in Didi Dache, prior to its merger. Also took part in Lyft'sSeries E round.<br /> Tiger Global Management: Backed the Didi Kuaidi merger.  Led the Series A round for Ola, and every round thereafter. Took part in two investment rounds for GrabTaxi.</p> <p>&nbsp;<br /> Photo: bfishadow</p>