Leaders and Losers
UBS buys Credit Suisse, China cuts US treasuries, Xi and Putin reunited, China EV exports surge, BRICS + + bigger than G7, AUKUS imitates comedy, Moody's: US banks rapidly deteriorating.
UPDATE: The banking crisis in the US and Europe is deepening as systemic weaknesses exacerbated by years of massive quantitative easing, poor economic governance, ballooning military budgets, belligerent foreign policies, sanctions and dollar weaponisation and endless wars takes its toll.
China's cut in US debt holdings reflects an ongoing trend by the world's second-largest economy to diversify its international portfolio and ensure reserve security as dollar asset safety comes into question.
Guided by a vision of lasting friendship and win-win cooperation, China and Russia are committed to no-alliance, no-confrontation and not targeting any third party in developing their ties.
China has significantly increased its car exports in the last 3 years, gaining the number two slot behind Japan, and pushing Germany and South Korea into third and fourth place. In 2022, China exported 679,000 new-energy vehicles, up 120 percent.
The BRICS grouping has overtaken the group of 7 industrialised countries (G7) in Purchasing Power Parity (PPP) share of global GDP. BRICS now contribute 31.5% of global GDP, with further projected growth. Meanwhile the G7 have fallen to 30%.
Australia’s AUKUS imitates comedy and asks; why is Australia financing US and British military production to provide 3 old nuclear submarines to protect the supply chains with its biggest trading partner, China - against China?
In a harsh blow to an already-reeling sector, Moody’s Investors Service cut its view on the entire banking system to negative from stable. The firm, part of the big three rating services, said Monday it was making the move in light of key bank failures that prompted regulators to step in Sunday with a dramatic rescue plan for depositors and other institutions impacted by the crisis.
UBS to acquire Credit Suisse
A focused Investment Bank, remaining committed to UBS’s model; strategic Global Banking businesses to be retained, majority of Credit Suisse markets positions moved to non-core. UBS plans to acquire Credit Suisse. The combination is expected to create a business with more than USD 5 trillion in total invested assets and sustainable value opportunities. It will further strengthen UBS’s position as the leading Swiss-based global wealth manager with more than USD 3.4 trillion in invested assets on a combined basis, operating in the most attractive growth markets.
The transaction reinforces UBS’s position as the leading universal bank in Switzerland. The combined businesses will be a leading asset manager in Europe, with invested assets of more than USD 1.5 trillion.
UBS Chairman Colm Kelleher said: “This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue. We have structured a transaction which will preserve the value left in the business while limiting our downside exposure.
Under the terms of the all-share transaction, Credit Suisse shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares held, equivalent to CHF 0.76/share for a total consideration of CHF 3 billion. UBS benefits from CHF 25 billion of downside protection from the transaction to support marks, purchase price adjustments and restructuring costs, and additional 50% downside protection on non-core assets.
The combination of the two businesses is expected to generate annual run-rate of cost reductions of more than USD 8 billion by 2027. UBS anticipates that the transaction is EPS accretive by 2027 and the bank remains capitalized well above its target of 13%.
Colm Kelleher will be Chairman and Ralph Hamers will be Group CEO of the combined entity. The transaction is not subject to shareholder approval. UBS has obtained pre-agreement from FINMA, Swiss National Bank, Swiss Federal Department of Finance and other core regulators on the timely approval of the transaction.
Conference Call
Management will be hosting an analyst call at 10pm CET. Participants can access the webcast via the following link https://stream.swisscom.ch/ubs/20230319/
UBS Group AG and UBS AG
China's US debt holdings at lowest in over 12 years
China's cut in US debt holdings reflects an ongoing trend by the world's second-largest economy to diversify its international portfolio and ensure reserve security as dollar asset safety comes into question. As the second-biggest foreign holder of US debt, China's holdings in US Treasury securities slid for six consecutive months to $859.4 billion as of the end of January, down from $867.1 billion in December, data from the United States Treasury Department showed on Wednesday.
The reduction brought China's holdings of US government debt to the lowest level in more than 12 years, experts said. They attributed the continuous decline to the fading attractiveness of dollar assets as radical monetary tightening by the US Federal Reserve has pushed down prices of US government bonds and led to rising financial fragility, as seen in the recent failure of Silicon Valley Bank.
"I wouldn't be surprised to see this trend continuing, as a reflection of weakening US asset safety and its losing performance since last year […] China is not the only economy that has reduced US debt holdings. (Hong Hao, chief economist at GROW Investment Group)
Total foreign holdings of US Treasury securities stood at $7.4 trillion as of the end of January, down from $7.66 trillion a year earlier. Among the top five US debt holders, Belgium and Luxembourg also trimmed holdings in US Treasury securities in January while Japan and the United Kingdom boosted their holdings, according to the US Treasury Department.
While trimming holdings in US debt, China has increased holdings in gold with the country's official reserves of the yellow metal standing at 65.92 million ounces as of the end of February, up from 65.12 million ounces in January, said the People's Bank of China, the country's central bank.
With SVB's failure due to liquidity stress serving as a red flag, the PBOC said on Friday it will reduce the reserve requirement ratio for financial institutions by 0.25 percentage point on March 27 to keep liquidity in the banking system reasonably ample and support the real economy.
On Thursday, China unveiled a plan to establish a central financial commission to ensure financial stability and promote further development, which experts said will help strengthen financial regulation coordination and prevent major financial risks.
Read more here.
President Xi Releases Article on Sino-Russian Visit
Excerpts:
China and Russia are each other's biggest neighbor and comprehensive strategic partner of coordination. We are both major countries in the world and permanent members of the UN Security Council. Both countries uphold an independent foreign policy and see our relationship as a high priority in our diplomacy.
Guided by a vision of lasting friendship and win-win cooperation, China and Russia are committed to no-alliance, no-confrontation and not targeting any third party in developing our ties.
China and Russia are firmly committed to safeguarding the UN-centered international system, the international order underpinned by international law, and the basic norms of international relations based on the purposes and principles of the UN Charter. We have stayed in close communication and coordination in the UN, the Shanghai Cooperation Organization, BRICS, the G20 and other multilateral mechanisms, and worked together for a multi-polar world and greater democracy in international relations.
The world today is going through profound changes unseen in a century. The historical trend of peace, development and win-win cooperation is unstoppable. The prevailing trends of world multi- polarity, economic globalization and greater democracy in international relations are irreversible.
“our world is confronted with complex and intertwined traditional and non- traditional security challenges, damaging acts of hegemony, domination and bullying, and long and tortuous global economic recovery. Countries around the world are deeply concerned and eager to find a cooperative way out of the crisis”
I have proposed the Belt and Road Initiative, the Global Development Initiative, the Global Security Initiative, and the Global Civilization Initiative on different occasions.
The international community has recognized that no country is superior to others, no model of governance is universal, and no single country should dictate the international order. The common interest of all humankind is in a world that is united and peaceful, rather than divided and volatile.
Since last year, there has been an all-round escalation of the Ukraine crisis. China has all along upheld an objective and impartial position based on the merits of the issue, and actively promoted peace talks. I have put forth several proposals, i.e., observing the purposes and principles of the UN Charter, respect of the legitimate security concerns of all countries, supporting all efforts conducive to the peaceful settlement of the crisis, and ensuring the stability of global industrial and supply chains. They have become China's fundamental principles for addressing the Ukraine crisis.
Not long ago, we released China's Position on the Political Settlement of the Ukraine Crisis, which takes into account the legitimate concerns of all parties and reflects the broadest common understanding of the international community on the crisis. It has been constructive in mitigating the spillovers of the crisis and facilitating its political settlement. There is no simple solution to a complex issue. We believe that as long as all parties embrace the vision of common, comprehensive, cooperative and sustainable security, and pursue equal-footed, rational and results-oriented dialogue and consultation, they will find a reasonable way to resolve the crisis as well as a broad path toward a world of lasting peace and common security.
To run the world's affairs well, one must first and foremost run its own affairs well. The Chinese people, under the leadership of the Communist Party of China, are striving in unity to advance the rejuvenation of the Chinese nation on all fronts through the Chinese path to modernization. Chinese modernization is characterized by the following features: it is the modernization of a huge population, the modernization of common prosperity for all, the modernization of material and cultural-ethical advancement, the modernization of harmony between humanity and nature, and the modernization of peaceful development.
Read full text here.
China EV Exports Surge
China has significantly increased its car exports in the last 3 years, gaining the number two slot behind Japan, and pushing Germany and South Korea into third and fourth place. In 2022, China exported 679,000 new-energy vehicles, up 120 percent. Chinese EVs have already been exported to markets like France, the UK, the Netherlands and Norway.
"Chinese EV manufacturers have advantages in technology, cost performance and software when compared with EU carmakers.”
There are now more than 700 BYD e-buses in service or on order in the Nordic region, and more than 3,000 in Europe, covering 95 cities in 17 European countries. BYD e-buses have collectively traveled more than 197 million kilometres and reduced carbon emissions by more than 211,000 tons. NIO, another Chinese EV maker, is participating in the EU's Horizon Europe research and innovation program, which aims to invest 95.5 billion euros ($102.35 billion) between 2021-27 to together with world-class research teams to tackle climate change.
While, the European Parliament has formally passed a law to ban the sales of new gasoline and diesel cars and vans in the EU starting in 2035 as part of the bloc's strategy for reaching climate neutrality, China’s explosive growth has caused some regulatory resistance from some European countries.
According to Gavekal Research, as long as Chinese automakers retain access to the emerging markets, Western counter measures do not pose a serious threat to China's ambitions to move up the industrial production chain. China's automobile export growth is fuelled by its dominance in the EV space, which accounts for a quarter of all its car exports.
China's exports of new-energy vehicles may rise at least 50 percent year-on-year in 2023 to about 1 million units. China's pure EVs have strong global competitiveness and accounts for about 70 percent of the market globally. , China’s production has shown significant improvements over other producers in terms of performance and technological innovations such as battery endurance and man-machine interactions.
BRICS+IPEAKS the next wave
The BRICS grouping has overtaken the group of 7 industrialised countries (G7) in Purchasing Power Parity (PPP) share of global GDP. Brazil, Russia, India, China, South Africa (BRICS) now contribute 31.5% of global GDP, with further projected growth. Meanwhile Canada, France, Germany, Italy, Japan, United Kingdom, and United States (G7) have fallen to 30%.
Throughout 2022 the theme of BRICS expansion has taken on notable momentum as China’s BRICS+ initiative has engendered increasing aspirations from some of the largest developing economies to join the BRICS grouping. Countries from diverse geographies such as Argentina, Turkey, Saudi Arabia, Algeria and others have expressed interest in joining BRICS. The BRICS countries vowed to explore the possibility of undertaking the next steps towards expansion in membership, with one of the key targets being the decision on the criteria for new members. These criteria once agreed upon will lay the foundation for the formation of a second wave or a second generation of BRICS economies.
Among the key criteria that are likely to feature in the list compiled by the core BRICS countries there may be the role played by the candidate country in its region as well as the sharing of BRICS values that in turn may be reflected in the scale of cooperation with BRICS within the framework of the BRICS+ activities. Another possible criterion may be an even-handed representation of the main regions of the developing world in the BRICS/BRICS+ circle, which implies that representative countries will be selected from each of the main regions of the Global South. These criteria potentially can narrow down the circle of countries that may be viewed as the second wave of BRICS to the following emerging economies:
East Asia: Indonesia as a G20 member and the largest economy in ASEAN
South Asia: Pakistan as the second most significant economic power in South Asia after India
Africa: Egypt as one of the leading economic powers in Africa
Latin America: Argentina as one of the heavyweights in Latin America
Eurasia: Kazakhstan as the second largest economy in the CIS space
Middle East: Saudi Arabia as the leading economy in the Middle East
The resulting grouping may be referred to as IPEAKS can constitute a grouping that works closely with the core BRICS groups under the umbrella of the BRICS+ process. Importantly, all of the above economies (apart from Pakistan) have already participated in the BRICS+ formats and have either applied formally or expressed an interest in joining the BRICS grouping. If values and new global governance are to serve as guiding principles in the expansion process, this widening of the ranks of BRICS should not be simply confined to picking the G20 members that are from the Global South. With Lula’s comeback, the rise of the African Union on the global stage, as well as China and India becoming the main growth engines for the global economy, the current juncture offers a unique opportunity for the Global South to forge greater solidarity and synchronicity on the international arena.
Read more here.
Aussie defence policy imitates Comedy
Before:
After:
Moody’s cuts outlook on U.S. banking system to negative, citing ‘rapidly deteriorating operating environment’
In a harsh blow to an already-reeling sector, Moody’s Investors Service cut its view on the entire banking system to negative from stable. The firm, part of the big three rating services, said Monday it was making the move in light of key bank failures that prompted regulators to step in Sunday with a dramatic rescue plan for depositors and other institutions impacted by the crisis.
“We have changed to negative from stable our outlook on the US banking system to reflect the rapid deterioration in the operating environment following deposit runs at Silicon Valley Bank (SVB), Silvergate Bank, and Signature Bank (SNY) and the failures of SVB and SNY,” Moody’s said in a report.
The move followed action late Monday, when Moody’s warned it either was downgrading or placing on review for downgrade seven individual institutions.
The moves are important because they could impact credit ratings and thus borrowing costs for the sector.
In its downgrade of the entire sector, the rating agency noted the extraordinary actions taken to shore up impacted banks. But it said other institutions with unrealized losses or uninsured depositors still could be at risk.
The Federal Reserve established a facility to ensure that institutions hit with liquidity problems would have access to cash. The Treasury Department backstopped the program with $25 billion in funds and vowed that depositors with more than $250,000 at SVB and Signature would have full access to their funds.
But Moody’s said that concerns remain.
“Banks with substantial unrealized securities losses and with non-retail and uninsured US depositors may still be more sensitive to depositor competition or ultimate flight, with adverse effects on funding, liquidity, earnings and capital,” the report said.