English News

UBS completes merger of Swiss business with Credit Suisse

(Reuters)-03/07/2024

Swiss bank UBS (UBSG.S), opens new tab has completed the merger of its domestic unit with Credit Suisse’s operations in its home market, the bank said on Monday, adding that the head of the Credit Suisse business was leaving the bank.

Andre Helfenstein, CEO of Credit Suisse Switzerland, has decided to leave the bank following the merger of UBS Switzerland AG and Credit Suisse (Schweiz) AG, the bank said.

Following the merger, UBS Switzerland has taken on all the rights and obligations of Credit Suisse, with the process expected to ease the migration of clients and operations to the UBS platform.

Sabine Keller-Busse, president of UBS Switzerland, said the step was an important milestone in the integration of Credit Suisse UBS following last year’s takeover.

“The migration of the majority of client transactions in Switzerland to the UBS platform will take place in 2025 and will be gradual, with tailored updates to our clients,” she said in a statement.

UBS has already begun to move over clients from Credit Suisse in Hong Kong and Singapore.

The merging of the entities also paves the way for UBS to speed up progress on its plan to axe 3,000 jobs in Switzerland. Globally analysts have estimated more than 30,000 staff could be cut.

Debate has been vigorous in Switzerland about the size and power of the enlarged UBS, which analysts say has a dominant position in areas such as the Swiss loan and debt markets since it took over Credit Suisse in a state-engineered rescue.

However, Switzerland’s financial regulator last month ruled that the takeover did not create any competition concerns, despite recommendations from the country’s antitrust watchdog that it merited further scrutiny.

EU banks vulnerable to real estate ‘cracks’, says watchdog

(Reuters)-03/07/2024

Banks in Germany, France and elsewhere in the EU have lent more than 1.4 trillion euros ($1.5 trillion) to the commercial real estate sector, leaving some lenders vulnerable to “cracks” in the market, the bloc’s banking watchdog said on Tuesday.

In its latest risks report, the European Banking Authority (EBA) said banks faced “elevated uncertainty” from geopolitical factors, with analysts seeing the French parliamentary election as a potential risk.

Capital levels are “comfortable”, but caution is needed as payouts rise on the back of higher profits, the EBA said.

“Planned payouts in 2024 reach nearly 100 billion euros for the covered sample of banks, which is the highest volume for years,” the EBA said in the report, which surveyed about 80% of the banking sector.

It also scrutinised banks’ exposure to property, private credit and non-bank financial intermediaries (NBFI) such as investment funds.

“Structural and cyclical factors have caused cracks in commercial real estate markets,” EBA said.

Total EU bank exposures to real estate have risen 40% to 1.4 trillion euros over the past decade, with several, mainly smaller banks, having exposures that are now multiples of their equity, making them vulnerable to downturns, the watchdog said.

“Although banks domiciled in France and Germany reported the largest exposure, exceeding 280 billion euros, followed by banks in the Netherlands that reported 175 billion euros, only German banks reported an elevated share of their total client lending towards CREs,” it said, referring to commerical real estate borrowers.

EU banks have already set aside 31 billion euros against loans to real estate going sour, and the risks should be “manageable”, EBA said, adding that Denmark’s capital buffer for property risk is one way of mitigating such risks.

As of December 2023, the NBFI sector accounted for more than a quarter of bank-issued debt, and growth in private credit or lending by NBFI directly to households and business, has been “rapidly accelerating” in several EU states, EBA said.

“The downturn of the real estate market might also have stronger repercussions on market stability, negatively affecting NBFIs significantly exposed to the segment,” the report said.

EU banks’ exposures to NBFI reached 9.2% of total assets in 2023, bringing welcome competition for borrowers, but also risks such as potentially lower lending standards, EBA said.

“To detect potential contagion channels early on, supervisors and macroprudential authorities also need to have a particular focus on the direct and indirect linkages between banks and NBFIs,” it added.

The bloc’s executive European Commission has begun scoping out a macroprudential framework for NBFI. EBA said transparency should be improved, with better data on linkages between banks and non-banks also needed.

($1 = 0.9319 euros)

German gov’t transfers another $52M in Bitcoin, threatening more BTC selling pressure

(Coin Telegraph)-03/07/2024

A “German Government (BKA)” labeled cryptocurrency wallet has sold another $52 million worth of Bitcoin, sparking suspicions that the government is selling its vast BTC holdings.

The wallet associated with the German government transferred 832.7 Bitcoin in four individual transactions on July 2.

The wallet sent 100 BTC to Coinbase, 150 BTC to Bitstamp and 32.74 BTC to Kraken, according to Arkham Intelligence data.

The lion’s share, or 550 BTC worth over $32 million, was sent to the wallet “139Po,” which remains unknown but has previously received funds from the German government, including 500 BTC on June 25 and 800 BTC on June 20.

Tracking the selling patterns of large Bitcoin holding entities can give investors valuable cues about the Bitcoin price since large sell orders can create more downward price pressure.

German government could introduce more Bitcoin selling pressure

The BKA-labelled wallet, which holds over 43,850 BTC worth over $2.75 billion, could threaten Bitcoin’s price due to more potential selling pressure.

The Bitcoin price has been in a downtrend since the beginning of June, falling over 7.3% during the past month. BTC found a local bottom above the $58,450 mark on June 24 before bouncing back above the current $62,000 mark, according to Bitstamp data.

Bitcoin has amassed significant support at the $61,500 mark. However, a move below it would liquidate over $1 billion worth of cumulative leveraged long positions across all exchanges, according to Coinglass data.

Is the German government actively selling BTC?

Besides the largest transfer worth $32 million, the rest of the Bitcoin was transferred to centralized exchanges, which signals that Germany’s government is potentially looking to sell its Bitcoin.

Cointelegraph has approached Germany’s Federal Criminal Police Office (BKA) for comment.

The German government-labeled wallet first sparked suspicions of potential Bitcoin selling on June 19, when it executed a 6,500 BTC transfer worth over $425 million.

Before the transfer, the wallet held nearly 50,000 BTC since February 2024. The funds are believed to have been seized from the pirate movie website operator Movie2k.

3 ways futures traders can use leverage and avoid liquidation losses

VC Roundup: Blockchain-AI startups grab investors’ attention

(Coin Telegraph)-03/07/2024

The intersection of artificial intelligence and blockchain seems to be a growing focus for venture capitalists and innovators worldwide. Companies developing solutions based on these technologies disclosed substantial capital raises in June, many of them seed rounds.

One of these protocols is Sentient, which raised $85 million in funding to develop an open-source artificial intelligence platform. The round was led by Peter Thiel’s Founders Fund, Pantera Capital, and Framework Ventures.

The startup is an AI research organization that wants to enable developers to monetize their open-source models and data, similar to other ecosystems such as the Super Intelligence Alliance.

Another startup, ORA, also uses AI models and blockchain to generate revenue for developers. In early June, the protocol raised $20 million from Polychain, HF0 and Hashkey Capital. It is working on a mechanism that will entitle anyone who buys a token to own and share revenue generated by an AI model.

“I am particularly excited about opportunities at the convergence of AI and Crypto, although even that distinction will sound dated in a few years,” Pantera Capital’s portfolio manager Cosmo Jiang told Cointelegraph.

Jiang said that, in the future, every business will use AI as a tool, just as every business has adopted the internet in the past 20 years:

“There won’t be a distinction between “AI businesses” and “Non-AI businesses” […] As such, we expect many blockchain-enabled businesses will explicitly solve problems with or related to AI.”

Pantera is also an investor in Bittensor, a decentralized platform for building and using AI models. It functions like a marketplace where users can create, train and share AI models, earning rewards for contributing to the network.

The funding was made in early 2024, and the amount invested has not been disclosed. “It is a meaningful position in our portfolio,” said Jiang about the token deal. The venture firm, traditional in the blockchain space, has allocated $200 million to AI projects.

This edition of Cointelegraph’s VC Roundup features another batch of startups that raised capital in June.

Lombard raises $16M seed round for Bitcoin restaking

Lombard has closed a $16 million seed funding round to develop a Bitcoin restaking ecosystem in collaboration with Babylon. Polychain Capital led the round, along with participation from dao5, Nomad, Foresight Ventures, and ABCDE.

Major exchanges, including OKX and Bitget, also contributed. The startup’s flagship product is LBTC — a liquid and yield-bearing representation of BTC that can move across decentralized finance protocols as collateral, according to Lombard.

The product is expected to unlock liquidity from BTC staked on Babylon’s protocol. Former executives from Argent, Coinbase and Maple Finance are behind the startup.

Redacted secures $10 million funding co-led by Spartan Group for “entertainment datasphere”

Redacted has raised $10 million in a funding round co-led by Spartan Group, with participation from Saison Capital, Animoca Brands, and Polygon Ventures.

The startup promotes a Web3 entertainment ecosystem that integrates blockchain and artificial intelligence to create an “entertainment datasphere,” which will allow users to play, trade, and watch content while earning rewards — a process known as farming.

The Redacted leadership team is said to include backgrounds from companies such as Tesla, Bank of America, Kraken, and LEGO. The team has allocated more than 50% of the tokens to its community and ecosystem.

A group of advisers and consultants from companies such as Saison Capital, Confiction Labs, King/Candy Crush, Amazon, and Microsoft is assisting in the design and building of the ecosystem.

RedStone closes $15 million Series A round led by Arrington Capital

Modular oracle developer RedStone has closed a $15 million Series A round led by Arrington Capital, with participation from SevenX, IOSG Ventures, Spartan Capital, White Star Capital, Kraken Ventures, Amber Group, Protagonist, gumi Cryptos, Apeiron (Samara Group), among others.

RedStone’s total value secured (TVS) has reached over $4 billion, according to the protocol. The startup claims to have more than 110 clients across 60 chains, including Pendle, Morpho and Venus. In January, RedStone became the only oracle to integrate with TON (The Open Network) and secured a $500 million staking commitment from EtherFi in April.

It provides data feeds to Ethereum, zkSync Era, Avalanche, Base, Polygon, Linea, Celo, Optimism, Arbitrum, Fantom, BNB Chain, Blast, and Bitcoin layer 2s such as Merlin Chain and BOB.

Covalent closes $5M round to offer long-term data availability across Asia

Blockchain infrastructure firm Covalent has announced the closing of a $5 million strategic funding round led by RockTree Capital, with participation from CMCC Global, Moonrock Capital, and Double Peak Group.

The funds will be used to expand Covalent’s operations in Asia and support long-term data availability in China, Korea, Singapore, and other regions. The startup has been working on its modular data infrastructure layer with Ethereum Wayback Machine (EWM) since 2019 and claims to have integrated with over 225 blockchains and 240 million wallets.

Covalent’s structured data pool is used for decentralized artificial intelligence training. Former BitMEX CEO Arthur Hayes serves as Covalent’s strategic adviser.

DePIN Base Camp announces six startups for Web3 accelerator program

Outlier Ventures has announced the six startups selected for the DePIN Base Camp accelerator program. The remote 12-week is a collaboration between Outlier, Peaq and Borderless Capital. The selected startups are Aydo (United Arab Emirates), Kaisar Network (Vietnam), Roam Network (Finland), ROVR (Hong Kong), TouchBrick (USA), and YOM (U.K.).

These startups are building products in Internet of Things hardware networks, decentralized computing and AI, wireless network optimization, digital twin technology, cybersecurity, and cloud gaming and metaverse.

Throughout the program, the teams will receive support from Outlier on product roadmap, community building, entity structuring, and fundraising. Meanwhile, peaq will share its expertise in building and running a DePIN. In addition, each team will receive investment from Borderless Capital.

3 ways futures traders can use leverage and avoid liquidation losses

(Coin Telegraph)-03/07/2024

Every once in a while, headlines about $100 million or larger Bitcoin and crypto futures contracts liquidations appear, causing novice investors and non-expert analysts to point to excessive leverage by retail traders as the culprit.

Gamblers are undoubtedly responsible for a large portion of these risky bets, especially when the liquidation is concentrated on retail-oriented exchanges such as Bybit and Binance, but not every futures liquidation is the result of reckless leverage use.

Not all futures liquidations are caused by leverage

Some trading strategies used by professionals also end up being liquidated during sudden sharp price moves, but they do not necessarily represent a loss or a sign of excessive leverage. The Chicago Mercantile Exchange (CME), OKX and Deribit typically exhibit a much lower liquidation ratio when compared to retail-driven exchanges, indicating that those traders are usually deploying more advanced strategies.

Using futures markets, especially perpetual contracts (inverse swaps), is fairly easy. Almost every crypto exchange offers 20x or higher leverage, requiring just an initial deposit, known as margin.

However, unlike regular spot trading, a futures contract cannot be withdrawn from the exchange. These leveraged futures contracts are synthetic, but they also offer the possibility to short, meaning one can bet on the price downside.

These derivatives instruments have unique benefits and can improve a trader’s outcomes, but traders who become overly confident seldom end up being profitable in the mid- to long term. To avoid falling into this mental trap, pro traders usually deploy three different strategies aiming to maximize profits without relying solely on directional trades.

Forced liquidations on low-liquidity pairs

Whales use futures contracts to exploit volatile markets by targeting low-liquidity pairs. They open highly leveraged positions, anticipating forced liquidations due to insufficient margins. This triggers a chain reaction, pushing the market in a preferred direction.

For instance, if a price drop is desired, large amounts are sold, causing other traders to be liquidated and sell as well, further driving down the price. Though it seems money is being lost initially, the cascading effect benefits the strategy.

Executing this tactic requires substantial capital and multiple accounts. It effectively leverages market mechanics to create a significant impact, and understanding market behavior is crucial for this approach.

Cash and carry trading

The cash and carry trade involves purchasing an asset in the spot market and simultaneously selling a futures contract on that same asset. This strategy locks in the price difference between the spot and futures prices. Traders hold the asset until the futures contract expires, profiting from the convergence of these prices at maturity.

This arbitrage approach is low-risk and capitalizes on pricing inefficiencies between the markets. It is particularly effective in stable markets, providing consistent returns irrespective of overall market volatility, making it a favored strategy among risk-averse investors.

Funding rate arbitrage

Perpetual contracts (inverse swaps) charge a funding rate typically every eight hours to balance buyers and sellers. This rate varies with market leverage demand. When buyers (longs) demand more leverage, the funding rate becomes positive, making buyers pay fees.

Market makers and arbitrage desks exploit these differences by opening leveraged positions and hedging them by buying or selling in the spot market. They also explore differences between exchanges or between perpetual and monthly contracts.

This strategy, called funding rate arbitrage, involves capitalizing on varying rates across markets, requiring constant monitoring and precise execution to maximize profits while managing risk effectively.

In essence, using derivatives requires knowledge, experience and a substantial capital reserve to withstand market volatility. However, strategies like funding rate arbitrage can be effective even in less volatile markets, where there is minimal price action. These approaches prove that it is possible to use leverage prudently, maximizing profits even in calmer market conditions.

Bitcoin circles $63K as liquidity sparks hopes of 40% BTC price gains

(Coin Telegraph)-03/07/2024

Data from Cointelegraph Markets Pro and TradingView showed BTC price action attempting to cement gains, which accompanied the monthly close.

Despite an overall failure to tackle key resistance levels above $64,000, Bitcoin traders had renewed cause for optimism as July got underway.

“Bitcoin has resumed its uptrend,” popular trader and analyst Rekt Capital summarized in one of several news posts on X (formerly Twitter).

Rekt Capital highlighted the monthly close as a key sign of strength, with a chart showing a breakout from the downtrend that characterized June.

“The goal? To build a foundation from which it will be able to springboard to the Range High area at ~$71500 over time,” he explained.

Fellow trader Daan Crypto Trades, meanwhile, placed emphasis on United States dollar liquidity trends. As Cointelegraph reported, these are crucial for crypto market performance, with expectations of positive repercussions increasing last month.

“During this range, the BTC price has moved mostly in line with USD Liquidity,” he asserted on the day alongside a comparative chart.

“We just saw a big decrease into a nice move up during this end of the quarter into the new quarter. Liquidity has moved little this year but both BTC & Stocks have been front running a future expansion of USD liquidity.”

Market analyst Cole Garner went further, suggesting that recent Federal Reserve liquidity changes could have a tangible short-term impact on BTC price strength.

“Biggest Fed Net Liquidity rate-of-change spike in 15 months,” he observed.

“Last time that happened, bitcoin rose ~40% in one week. Not assuming a repeat, but you love to see it.”

Bollinger Bands demand BTC price breakout

Technical indicator data likewise teased signs of increased volatility hitting Bitcoin next.

On weekly timeframes, Bollinger Bands were constricting to levels only seen a handful of times in Bitcoin’s history — a classic precursor to major breakouts.

The phenomenon was observed on X by popular analyst Matthew Hyland.

Tether signs MoU to promote crypto freedom in Turkey

(Coin Telegraph)-03/07/2024

Tether is increasing its presence in Turkey by partnering with a local cryptocurrency firm to promote industry knowledge.

The firm, issuer of the Tether stablecoin, has signed a memorandum of understanding (MoU) with local crypto platform BTguru to evaluate digital asset-related educational initiatives in Turkey, it announced on July 2.

BTguru positions itself as a technology and strategy partner, specializing in virtual crypto assets “for primarily banks.”

As part of the agreement, Tether will assess the development of programs to introduce private and public stakeholders in Turkey to the benefits of cryptocurrency and blockchain technology.

The MoU also aims to promote peer-to-peer (P2P) technology using BTguru’s connections to facilitate discussions with financial institutions in the country.

Additionally, Tether and BTguru will explore real-world asset tokenization use cases for banks and evaluate regional payment network scenarios.

Tether to evaluate what business lines can be introduced into Turkey’s banking verticals

According to Tether CEO Paolo Ardoino, Tether and BTguru are committed to promoting the transformative potential of digital assets and P2P technologies.

“This MOU has the potential to provide a solid foundation for the responsible and informed use of digital assets. We are excited to be part of a movement that could promote freedom and educate people across Türkiye,” Ardoino said.

BTguru partner Can Bukulmez said that the new collaboration with Tether aims to introduce new business lines with the stablecoin firm. The partnership will also evaluate what business lines can be introduced into Turkey’s banking verticals and emerging digital assets businesses.

Turkey emerges as a global cryptocurrency hub

Tether’s expansion in Turkey comes amid cryptocurrency adoption, which has been gaining traction in the country at a significant pace. According to data from Binance, Turkey ranks fourth in transaction volume and 12th in adoption, with a rate of 40%, making it a significant player in the global crypto ecosystem.

Turkey’s stablecoin purchases also make up a significant share of the country’s gross domestic product, accounting for 4.3% of its GDP, which is the highest among global economies, according to Chainalysis.

“With the interest of the Turkish community in digital assets and blockchain technology, Turkey emerges as one of the leading global hubs for crypto with a dynamic ecosystem, active participants, and significant transaction volumes,” Binance TR general manager Mücahit Dönmez said in a statement on July 2.

Tether and Binance’s growing efforts to participate in the Turkish crypto ecosystem follow a massive hack of the local crypto exchange BtcTurk. According to Peckshield, hackers stole more than $100 million in crypto from BtcTurk on June 22.

The events also follow a local regulatory milestone. In late June, the Financial Action Task Force (FATF) removed Turkey from its gray list, citing “significant progress” in improving its regime for Anti-Money Laundering (AML) and countering terrorist financing.

As Cointelegraph previously reported, the FATF’s AML requirements, including those related to cryptocurrency, have accelerated the urgency for Turkey to introduce crypto regulations in 2024.

France may be next test of the euro’s foundations

(Reuters)-26/06/2024

“Because it’s France” was how Jean-Claude Juncker, European Commission president at the time, explained Brussels’ decision in 2016 to give leeway to the large, founder member of the European Union on the bloc’s budget rules.

That patience continued even as the EU endured a sovereign debt crisis that almost sunk the euro and forced smaller, more indebted nations such as Greece and Portugal to adopt swingeing austerity measures.

But any indulgence for French exceptionalism may come to an end if France’s snap election produces a eurosceptic, far-right government in Paris that could strain ties with other European capitals and test the very foundations of the euro project.

Marine Le Pen’s National Rally (RN) insists it would not blow up the French budget. But questions persist about how it would fund costly spending plans within the eurozone’s newly minted budget rules and whether the European Central Bank could step in to help if financial markets turn on France.

“If a country can just ignore the rules and be helped by the central bank, you’ll get a lot of doubts about the future value of the euro and the future cohesion of the euro,” said Holger Schmieding, an economist at Berenberg.

Such concerns are not on the official agenda of Thursday’s EU summit. But with the RN leading polls in the two-round vote starting June 30, they are bound to occupy the minds of President Emmanuel Macron’s fellow leaders.

Senior German government sources said they were dismayed by Macron’s surprise decision to call elections that could usher in an RN-led government. One compared it to former UK premier David Cameron’s ill-fated gamble on an “in-out” Brexit referendum.

In Italy, with an even bigger debt pile than France, a tinge of Schadenfreude over France’s misfortunes is offset by fears that a French crisis could extend across the Alps, said Francesco Galietti of Rome-based political risk consultant Policy Sonar.

Otmar Issing, the ECB’s first chief economist and one of the euro’s architects, compared the debt of Italy and France to “a sword of Damocles hanging over the monetary union”, bound to fall unless the problem is tackled.

“You can pull the hair by which it is attached but it cannot hold for ever,” he said in an interview.

Even Greece is not cutting France any slack, with central bank governor Yannis Stournaras stressing that all member states needed to respect EU rules.

NO MORE INDULGENCE

Polling points to the RN emerging as the largest party, with or without a clear majority to pursue an awkward “cohabitation” with Macron until the 2027 presidential election.

France’s fiscal credibility is already at stake with the International Monetary Fund questioning how it will reduce a budget deficit running at around 5.1% this year and its credit rating downgraded by two agencies.

In truth, France’s fiscal sins far pre-date Macron. It has run budget deficits greater than the EU-mandated 3% for most of the 25 years since those rules came into force.

Brigitte Granville, economist at London’s Queen Mary University and author of “What ails France?”, said its rejection in the 1990s of German proposals for more complete political union reflected a desire to retain sovereignty over its finances.

She expected the RN, which long ago dropped calls to leave a single currency broadly accepted by French voters, to moderate its plans just enough to please Brussels if it came to power.

“They don’t have a choice unless they want to leave the euro,” Granville said in an interview.

RN statements to that effect have reassured investors, who were demanding a premium of just 70 basis points to own 10-year French bonds rather than their safer German counterparts – a far cry from peaks of 190 points for France and nearly 560 points for Italy during the 2011 debt crisis.

ECB chief economist Philip Lane told Reuters the moves in the French bond market did not appear “disorderly”, meaning they don’t meet one of the conditions for the central bank’s intervention.

CAUTIONARY TALES

Observers point to cautionary tales ranging from Greece, where a leftwing government was brought to its knees by financial and political pressure, to Britain, where Prime Minister Liz Truss was forced to resign after unveiling a budget that unnerved investors.

Most analysts emphasise the ECB has the tools to stem contagion from a French crisis by buying bonds of other countries that do respect the EU’s fiscal framework, meaning Paris might find itself isolated at times of need.

“There is, of course, a possibility that Frankfurt would intervene if the problems with France were to have some kind of external negative effects on other countries, like Italy,” former ECB policymaker Ewald Nowotny said.

An EU official cited Rome as a model for Paris after Prime Minister Giorgia Meloni toned down her anti-EU rhetoric once elected in 2022.

This, along with her support for the EU’s stance on conflicts in Ukraine and Gaza, has helped Italy keep the Commission and financial markets on-side despite repeatedly raising its deficit forecasts.

Jeromin Zettelmeyer, director of the Bruegel economics think tank in Brussels, said RN’s rhetoric thus far did not suggest it was seeking a major confrontation with the Commission that could trigger a financial crisis.

However he said that if its officials ended up running key ministries, they could hamper EU moves to reform energy markets, advance the green transition and boost the bloc’s competitiveness by reforming its capital markets.

“If the far-right gets elected that is bad news for EU integration because they would control the government positions involved in most dimensions of EU policy-making,’ he said.

“The question is whether that is reversible or existential.”

Big US banks expected to be cautious on shareholder payouts

(Reuters)-26/06/2024

Big U.S. lenders are expected to show they have ample capital to weather any renewed turmoil during this week’s Federal Reserve health checks, but will be conservative on investor payouts amid economic and regulatory uncertainties, analysts said.

The central bank on Wednesday will release the results of its annual bank “stress tests” which assess how much cash lenders would need to withstand a severe economic downturn and how much they can return to investors via dividends and share buybacks.

The results come a year after three large banks failed and as higher Fed interest rates continue to squeeze regional lenders’ margins and their commercial real estate (CRE) portfolios. Weakening consumer demand has also dampened sentiment on the trajectory of the economy.

With more mid-sized banks in the mix this year, the tests should provide fresh insight into the health of those lenders.

Introduced following the 2007-2009 financial crisis, the annual exercise is integral to banks’ capital planning.

The results will also likely fuel Wall Street banks’ campaign to ease draft capital hikes proposed by the Fed, which they say are unnecessary because big banks are already flush with cash.

Bank groups will be scouring Wednesday’s results for evidence that boosts their case, while being cautious on payouts since big dividends and buybacks could hurt banks’ argument that extra capital demands would impede their capacity to lend.

“The stress test could be used as a proxy battle in the overall capital regulatory reform war,” said Ed Mills, an analyst at Raymond James. “There could be some increase in returning capital to shareholders but it is expected to be modest as capital norms are yet to be finalized.”

This year 32 lenders will be tested. Wall Street giants JPMorgan Chase (JPM.N), opens new tab, Citigroup (C.N), opens new tab, Bank of America (BAC.N), opens new tab, Goldman Sachs (GS.N), opens new tab, Wells Fargo (WFC.N), opens new tab and Morgan Stanley (MS.N), opens new tab usually attract the most scrutiny.

Citi and Goldman, as well as smaller lender M&T Bank (MTB.N), opens new tab, are expected to perform well due to changes in their balance sheet mixes, said analysts at Keefe, Bruyette & Woods (KBW).

With some lingering investor jitters about regional banks, mid-sized lenders including Citizens, KeyCorp (KEY.N), opens new tab and Truist (TFC.N), opens new tab are likely to be in the spotlight too, as will Discover Financial Services (DFS.N), opens new tab, whose compliance problems helped make it a takeover target.

“KeyBank is well capitalized with strong credit quality and deposit profiles,” a bank spokesperson said, adding Key also has a moderate risk profile with a wide range of funding sources.

Spokespeople for Wells Fargo, Citi, Morgan Stanley, Truist and M&T Bank declined to comment while Goldman Sachs, JPMorgan, Citizens and Discover did not respond to requests for comment.

CRE EXPOSURE

The industry has performed well in recent years, although some critics say the tests are too easy. The Fed faced criticism after the 2023 bank failures for not having probed lenders’ ability to withstand higher rates, for example.

Analysts expect all 32 banks will show capital in excess of regulatory minimums. Last year, the central bank found the 23 banks tested would suffer a combined $541 billion in losses in a severe economic downturn, but that would still leave them over twice the capital required under Fed rules.

This year’s test is similar in its severity, but includes around 10 banks that are tested less frequently.

The Fed’s 2024 “severely adverse” scenario envisages the unemployment rate jumping 6.3 percentage points, compared with 6.4 points in 2023, to a peak of 10%. It includes sharper declines in the stock and bond markets this year, but slightly less severe dips in home prices and the overall economy.

As with 2023, the test also envisages a 40% slump in CRE prices, an area of concern as lingering pandemic-era office vacancies and high rates continue to stress landlords.

How well a bank performs dictates the size of its stress capital buffer (SCB) – an extra cushion of capital the Fed requires banks to hold to weather the hypothetical economic downturn, on top of regulatory minimums needed to support daily business. The larger the losses under the test, the larger the buffer.

Piper Sandler and KBW analysts predict that SCBs will mostly be flat across the group, although KBW expects Citi’s will fall after the bank sold most of its international consumer loans and that Goldman’s will likewise decline thanks to lower exposure to equity and real estate investments. M&T Bank’s efforts to reduce its CRE exposure should also result in a smaller SCB, said KBW.

KeyCorp and Truist, meanwhile, could experience an increase in their SCBs from a hypothetical hit to their income, KBW said.

Christopher Wolfe, head of North American banks ratings at Fitch, said investors will be watching how banks’ CRE loans perform.

“The banks have been keeping aside reserves of up to 10% for the office loan portfolio and CRE will be a focus but mainly for regional banks compared to large lenders,” he said.

Hong Kong shows off crypto, Web3 prowess in Toronto

(Coin Telegraph)-26/06/2024

Canadian crypto and Web3 startups could benefit from “lower taxes” and regulations that cater to “pre-commercial specialist technology companies,” said a Toronto ETO official.

Hong Kong government entities dedicated to attracting foreign investments visited a tech conference in Toronto, Canada, to advertise its offshore ready-to-move technology hub for Canadian crypto and Web3 startups.

The Hong Kong Economic and Trade Office in Toronto (Toronto ETO), Invest Hong Kong (InvestHK) and StartmeupHK (SMUHK) co-hosted an event at Collision 2024 in Toronto, highlighting Hong Kong’s crypto-centric landscape.

Speaking at the event, Toronto ETO director Emily Mo underscored existing startup-friendly regulations, such as lower taxes than in Canada and Hong Kong’s willingness to work with “pre-commercial specialist technology companies.” She added:

“There is a creative mindset on Web3/virtual assets developments. Fintech, health technology, green technology and property technology, etc, are trending in Hong Kong and Asia these days.”

Tax treaty between Canada and Hong Kong

Mo said that Canadian businesses in Hong Kong are allowed to receive public and private funding.

The governments of Canada and Hong Kong have had a double tax agreement in place for more than a decade. It was designed to avoid double taxation and prevent fiscal evasion regarding taxes on personal and corporate income.

On June 22, Hong Kong Legislative Council member Johnny Ng Kit-Chong announced the formation of the Subcommittee on Web3 and Virtual Asset Development to promote the development of Web3 and digital assets in Hong Kong.

The council seeks feedback on several critical aspects of Web3 policy development, including balancing technical, legal and regulatory frameworks to create a cohesive environment for Web3 development with robust and clear regulations.

Crypto exchange exodus in Hong Kong

In May, all crypto exchanges operating without a license in Hong Kong were forced to shut down. While more than 20 exchanges had initially applied for a crypto license, most withdrew it after failing to meet the set requirements.

One Hong Kong-based cryptocurrency exchange, Gate.HK, said it would relaunch its services after reconstructing its platform to comply with Hong Kong’s regulatory requirements. These requirements include establishing Anti-Money Laundering and Counter-Terrorist Financing measures. The company stated:

“Gate.HK is actively working on the aforementioned overhaul. We plan to resume our business in Hong Kong in the future and contribute to the virtual asset ecosystem after obtaining the relevant licenses.”

Crypto exchanges that retracted their license applications include prominent global players such as OKX, Huobi HK and Bybit, among others.