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Global insolvency

The general manager, Agustin Carstens, of Bank for International Settlements (BIS) said and quotes “We have only just overcome the liquidity phase of the crisis in countries that are now relaxing restrictions. In many others, the health crisis is still acute. And the epidemic could flare up again anywhere. Importantly, the shock to solvency is still to be fully felt. Business insolvencies and personal hardship may well increase,” Acknowledging in late June whilst discussing the Bank’s 2020 Annual economic report.

Although in the recent months there has been a positive prospection in the global recovery from the virus. The announcements of vaccines have certainly raised hopes of a return to normal or the new normal at some stage. These news have positive implications on the economy in a longer run but as the saying goes ‘Old habits die hard’, there are few underlying weakness which are likely to remain for some more time. The alarming concern is the likely emergence of a solvency crisis, as the companies are about to file for bankruptcy since the liabilities swell to a place where they are unable to pay down their debts. To address the immediate liquidity constraints the banks took on a substantial amounts of debts. The largest 900 non- financial companies in the world was under the debt of $1 trillion been added to their year of 2020 to shore their finances up against the virus. The company borrowings around the world rose to record $8.3 trillion in 2019 which 8.1 per cent more than the previous year and it was the fastest annual increase in the previous five years. The records will now go even higher courtesy of the coronavirus , a 12 per cent rise was seen in 2020. The future will be all about conserving the capital and building a fortified balance sheet.

To sum up, the pandemic has left a number of businesses , entire industries like physical retails and travel sectors are struggling to survive , considerably raising the likelihood of a wave of bankruptcies sweeping across the world in the near future. A trade-credit-insurance and risk-management company, Atradius estimated that global corporate insolvencies would increase by 26 percent in 2020 as the major regions are expected to be vulnerable. Turkey, the United States, Hong Kong SAR, Portugal, the Netherlands and Spain are among the countries expected to experience the largest increases in insolvencies. In US, the recession might not be expected to be as deep as in the southern European countries. But the fluctuation of insolvencies are highly responsive in the economic activity. The effectiveness and the scale of the PPP ( Paycheck Protection Program ) are likely to remain lower than in the European countries, as they have provided with ample of liquidity assistance through wage subsidiaries. Although Germany, France, Austria, Belgium, Switzerland and Italy, insolvencies are likely to go up by percentages ranging from 6 percent to 20 percent. Many countries implemented laws which temporarily prevented insolvency proceedings which were declared as inadmissible in the courts. But everything depends on nature and the speed of the recovery during the coming months. A research report from RAND corporation states that there is a high risk of corporate default in the United states , the country responsible for almost half of the world’s corporate debt. That being said the report did not acknowledge that the credit market interventions may prevent the worst of the default risk scenarios from extending the credit access to firms. 

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Banking

Goldman banker hired by the Citi bank

Citigroup has hired Luisa Leyenaar-Huntingford from Goldman Sachs. This new hire is to co-head its global infrastructure franchise. Because, it seeks to win more business from cash-rich investment firms focusing on infrastructure deals. Leyenaar-Huntingford will be based in London. Responsibility will be shared with Todd Guenther in New York.

The pair will work closely with industry teams covering healthcare, industrials, natural resources and clean energy transition (NRCET), technology and communications. Leyenaar-Huntingford helped in the establishment of the Goldman’s infrastructure franchise in her time at the Wall Street bank. They will team up with Citi’s Iberia co-head of banking, capital markets and advisory (BCMA) Jorge Ramos will continue to be a senior member of the global infrastructure franchise.

The infrastructure sector is poised for further growth, according to the memo. The memo was released by Citi’s global co-heads of the alternative assets group Anthony Diamandakis and John Eydenberg, and its EMEA head of BCMA Nacho Gutierrez-Orrantia. There was significant private investment demand across the globe to deal with environmental, energy, transportation, waste, communication, digital and other social needs.

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Banking

Banks make slow progress on UK gender pay

Major banks in Britain made a slight dent in their gender pay gaps. Several insurers went backwards. Companies in Britain with more than 250 employees have been required to publish the difference between the pay and bonuses of their male and female employees. They got a reprieve due to the pandemic, last year. The financial services sector has shown one of the largest genders pay gaps in Britain. The lack of women in senior jobs is the main reason.

Pay gap data from 21 major financial institutions showed a narrowing in their average mean gender pay gap. This is just 0.4 percentage points. Banks alone had a pay gap which narrowed by one percentage point. Ann Francke, chief executive of the Chartered Management Institute said that the UK’s financial services industry has often been singled out. It really does have to get its house in order. Goldman Sachs had the widest gender pay gap in the year to April 2020. Goldman posted a gender pay gap of 51.8%. The bank told the staffs that narrowing the gap further was a critical priority. A spokesperson for banking lobby group UK Finance said, that there is clearly more still to be done.

FTSE 100 insurers Prudential, Legal & General and M&G reported a widening in their pay gaps. Prudential’s UK gender pay gap widened to 45.2%. M&G also reported a widening in its pay gap in the most recent year to 30.5%. The M&G spokesperson said that they are determined to narrow their gender pay gap and will do this by achieving better representation of women in all roles at all levels of our organization. Legal & General’s mean gender pay gap widened to 30.8%.

The insurer said that the legal & general is tackling the underlying causes of its pay gap. This is by creating a more diverse workforce and a more inclusive culture through sustained, long-term action. Admiral had a gender pay gap last year of 12.8%. The 21 firms surveyed were Barclays, HSBC, Lloyds, NatWest, Standard Chartered, Bank of America Merrill Lynch, Goldman Sachs International, JPMorgan, Morgan Stanley, UBS, Credit Suisse, Deutsche Bank, PGMS (a Phoenix unit), abrdn, Schroder Investment Management, St James’s Place, Legal & General, Prudential, Admiral Group, Aviva and M&G.

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Banking

BOJ to lower inflation target-Japan’s finance minister

Japan’s outgoing finance minister, Taro Aso, said that he had proposed lowering the central bank’s 2% inflation target. This is when the prices took a hit from plunging oil prices. He was the finance minister for nearly nine years. The slump in oil price was among the main reasons the government could not officially declare an end to deflation. In his final news conference as finance minister, Aso said that he proposed to Governor Kuroda that, with oil prices falling this much, it would be hard to achieve 2% inflation. Hence, the target must be lowered at some point. He stated this by referring to Bank of Japan (BOJ) chief Haruhiko Kuroda.

Aso also said that the governor said he would do his best to achieve the target. This is stated by adding that policymakers must scrutinise at some point, why the BOJ’s inflation target of 2% has not been met. The remarks highlight how the government and lawmakers distanced themselves from the BOJ’s target years ago, despite central bank reassurances that achieving the target was possible by maintaining or increasing stimulus.

Aso was deeply involved in negotiations with the BOJ. After Kuroda took over as governor, he deployed a massive asset-buying program. This is for pulling Japan out of deflation. Aso supported the BOJ’s stimulus efforts. He is a member of the cabinet. And also, had raised many doubts that monetary policy alone can reflate the economy out of the doldrums. New Prime Minister Fumio Kishida is set to form a cabinet.

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