Measures launched to support EU banks through the coronavirus pandemic could reinforce the sovereign-bank nexus that contributed to the sovereign debt crisis, according to Fitch, as banks increase government exposures in carry trades.

Fears over banks' exposures to their governments, the so-called bank-sovereign doom loop, came to the fore during the eurozone crisis, in particular in weaker economies.

Untangling the risk remains a challenge, and progress could be reversed by new crisis measures, said Fitch.

Seeking to support bank lending to businesses and households amid the pandemic, the ECB is offering banks loans at rates as low as -1% through its TLTRO III.

Meanwhile, EU legislators have increased banks' capital headroom through measures including relief on IFRS 9 accounting rules and the reintroduction of a prudential filter, which temporarily insulates banks' capital ratios from falls in the value of their sovereign bond portfolios.

Fitch...

More investment and innovation is required to combat a surge in plastic waste caused by the coronavirus pandemic as government and industry policies are insufficient to stem the flow of plastic waste into the oceans, according to research by HSBC.

The rising tide of plastic finding its way into oceans is likely to triple in the next 20 years unless drastic action is taken, according to a study in the journal Science, and ocean conservation groups are already reporting a surge in ocean plastic waste in recent months due to the pandemic.

The International Solid Waste Association estimates that demand for single-use plastic in the US may have increased by 250%-300% since the onset of the crisis due to the use of medical personal protective equipment, and the packaging associated with takeaway foods and e-commerce.

By 2050, plastics could account for 20% of oil consumption, and 15% of greenhouse gasses, and there could be more plastics than fish in the ocean,...

Verizon is readying a return to the US ABS market with a deal backed by mobile payment plans as more of its customers fall behind on payments amid the Covid-19 pandemic.

The biggest US wireless service carrier by revenue is expected to soon offer a new device plan securitization with RBC, MUFG, Barclays and TD Securities as its underwriters, according to its 15G filing made last Friday.

Verizon last tapped the ABS market in January with a US$1.6bn offering, VZOT 2020-A, in January. Strong investor demand led the company to upsize the deal from US$953.9m.

Mobile payment ABS, while a tiny part of the ABS market, are seen as low-risk, comparable to securitized debt backed by prime auto and credit cards because customers have shown they are committed to making their monthly payments, analysts said.

However, delinquencies on Verizon ABS have increased during the pandemic as unemployment soared.

The Federal Communications Commission announced the "Keep...

European bond market borrowers are increasingly seeing the benefit of pure cash tender offers as low cash deposit rates and high levels of liquidity push a growing number of issuers towards debt buy backs.

In recent weeks investment-grade corporates Aroundtown and NorteGas (and Russian aluminium producer Rusal, which is not investment grade) have all brought pure cash tender offers with no new bond issues alongside. The trend is not, however, limited to the corporate market. Regione Lazio, the Italian region, last week announced it was looking to reduce its debt levels via a cash tender offer for its US$100m 6.53% February 2028s.

"Tender offers are an efficient way for companies to deploy liquidity since they can generate attractive yields on bonds repurchased versus other alternative uses," said Graham Bahan, head of liability management EMEA, at Citigroup.

"Especially when cash deposit rates are relatively low. Companies that have strong liquidity will use...

Deutsche Bank said it plans to stop funding activities in coal mining by 2025 and immediately stop financing oil and gas projects in the Arctic region as part of a revised sustainability strategy.

Deutsche said on Monday it has tightened its fossil fuels policy with a new framework for business activities involving oil, gas and coal. The revised policy covers financing and all capital market transactions.

In oil and gas, it will no longer finance new projects in the Arctic region or oil sand projects and will stop financing projects that use hydraulic fracturing in countries with scarce water supplies. It plans to review all activities across the sector by the end of this year, with the aim of reducing its activities.

In coal power, it will review by the end of this year all activities in Europe and the US and clients' plans to diversify. It will start reviewing activities in Asia in 2022 - later due to the region’s high dependency on coal power. Deutsche said...

Confirmation that around a third – or €225bn – of the European Union's up to €750bn "Next Generation EU" recovery plan will be funded via green bonds, combined with other money earmarked for climate-related financing via the EU's Green Deal, is set to transform sustainable finance.

"About €225bn of new green bonds is seismic. In the SSA space it would be a more than doubling of the amount [of green bonds] outstanding," said Frazer Ross, head of investment-grade debt syndicate for EMEA at Deutsche Bank.

That €225bn is only part of the money that the EU is mobilising via its Green Deal as it seeks to meet the ambitious target of being the first climate-neutral continent by 2050. More funding will come from the €1.074trn 2021–27 EU budget that was agreed last week.

“This is a massive step towards the greening of the European economy and moving to a carbon-neutral goal in 2050,” said David Zahn, head of European fixed income at Franklin Templeton.

“This is...

The European Union is primed to leap from second-tier issuer to bond market colossus, transforming the landscape as it races through up to €850bn of funding in just over four years.

Last week's agreement to set up the €750bn "Next Generation EU" funding programme – and to fund it through debt issuance – in response to the coronavirus pandemic will see the EU become the world's biggest issuer of syndicated bonds, shaking up the government bond market in the process. Most of that total will come from a Recovery and Resilience Facility of €672.5bn, (including €360bn of loans and €312.5bn of grants).

"It will transform capital markets," said Philip Brown, head of public sector DCM at Citigroup. "We've never seen issuance on this scale before and it is a truism that supply creates demand."

The NGEU fund comes on top of the €100bn "Support to mitigate Unemployment Risks in an Emergency" (SURE) loan programme that will also be financed in the capital...

Key questions remain around how subordinated green bonds sold by banks would work in a crisis, as regulators could force the bonds to absorb losses and take writedowns on some non-green assets, according to Fitch.

The issue raises difficult questions around green bank capital, specifically on banks’ inability to ring-fence green assets and liabilities and highlights the time-lag between rapidly-developing sustainable finance and the slower pace of regulation, the ratings agency said.

"The issue here is that the regulatory framework hasn't yet quite caught up with innovations in the market," said Monsur Hussain, a senior director in financial institutions at Fitch.

Spain’s BBVA sold a €1bn green hybrid bond offering in early July that qualifies as Additional Tier 1 regulatory capital and Dutch bank de Volksbank issued €500m of subordinated Tier 2 green bonds a week later.

Both deals can be used to absorb losses through writedowns or debt-for-equity swaps...

UK pub company Stonegate is hoping to lure investors into the bond financing for its acquisition of Ei Group with a chunky yield.

Leads Barclays (left), Goldman Sachs and Nomura sent out price talk for its €1.344bn-equivalent dual-currency senior secured bonds on Thursday.

Stonegate's new £950m five-year non-call two fixed-rate bond is being talked at 8%-8.25%, while the €300m 5NC1 floating-rate note is being talked at a 7.25%-7.5% yield. Books are set to close on Friday.

The yield on the sterling tranche has grabbed investor attention. Whispers had been heard in the high 7%/low 8% range.

"Before [March] I would have been reticent about Stonegate. Now actually it's more interesting – it's coming around 8% in sterling – relative to a market which is yielding around 5% on average," said one high-yield investor.

"You're getting paid a premium. You still have to evaluate their security, whether they have flexibility, and what the liquidity situation...

Traders and investment bankers are slowly returning to major offices in London and New York, but stunning results last quarter have shown banks do not need to hurry the process.

About 15% of staff are in offices in London at major corporate and investment banks, and the steady trickle returning in recent weeks is likely to continue through the summer, industry sources said.

Goldman Sachs has 700-800 staff on an average day in its main London office, which had about 6,000 staff before lockdown. The bank said 15% of its UK staff are back in the office, but they are not all going in every day.

It is a similar level for JP Morgan in London. It had 15% of London staff in offices this week and plans to increase that to a little over 20% from August 3 - or 2,500 of its 12,000 people in the city. It expects up to 50% of staff to be in the office during autumn.

What staff find is far different to the offices they left in March: temperature checks on arrival and...

The European Union is primed to leap from second-tier issuer to bond market colossus, transforming the landscape as it races through a €850bn plus funding programme in a matter of years.

The EU's average annual borrowing needs will roughly equate to €110bn in 2021-2024, Commerzbank analysts say, predicting €900bn of net issuance over the next three years. The figure dwarfs incumbent market heavyweights such as KfW, which plans to issue €65bn this year.

"It will transform capital markets," said a banker, "because we've never seen issuance on this scale before and it is a truism that supply creates demand."

The dramatic increase in the EU's stock of outstanding bonds from the current level of around €52bn will principally be driven by the EU's €750bn recovery fund, which will disburse €390bn in grants and €360bn in cheap loans.

Bond markets are also braced for a slug of issuance emanating from the EU's €100bn "Support to mitigate Unemployment Risks in an...

The US primary bond markets are set for another quiet day with just one high-yield and one high-grade trade on the roster for pricing on Wednesday.

The backdrop for issuance is certainly less stable as broader risk markets take a hit after the US closed the Chinese consulate in Houston, further fanning tensions between the two nations.

That combined with rising Covid-19 cases makes for an uncertain outlook for economic growth, though credit spreads have been shrugging off such risks.

Average high-yield and high-grade spreads ended Tuesday 21bp and 3bp tighter at 533bp and 141bp, respectively, according to ICE BofA data.

Meanwhile, yields on the 10-year US Treasury were hovering around 0.584% earlier this morning, their lowest levels since April.

"These are not happy times for many US yield-sensitive investors such as insurance companies," BofA analysts wrote in a report released today.

HIGH GRADE

Air conditioning and ventilation company...

Ten financial institutions have joined a push by the UK and Swiss governments to build a nature-related reporting framework to limit risks to the financial sector by stopping environmental degradation and biodiversity loss.

The Task Force for Nature-related Financial Disclosures (TNFD) will be created by early next year to help financial institutions identify nature-related portfolio risks and start moving finance at scale into businesses that support nature.

It aims to bring the same level of disclosure to nature that has already been applied to environmental risks through the Task Force on Climate-related Financial Disclosures, and which will give the financial sector a more complete view of natural risk and start to value natural capital, which underpins the UN’s Sustainable Development Goals.

“The new task force will complement the reporting recommendations that already exist for climate-related risks, to give investors, lenders and insurers a complete...

The Kingdom of Thailand will hold an investor roadshow next Wednesday ahead of an inaugural sustainability baht-denominated bond offering.

Global investors are being invited to a virtual roadshow organised by Bangkok Bank, Bank of Ayudhya and Standard Chartered Bank Thai.

The fundraising will be done through the Ministry of Finance’s Public Debt Management Office.

No other details were disclosed.

The government of Thailand launched a Bt1.9trn (US$60bn) stimulus package at end-May to support an economy that has been badly hit by the coronavirus outbreak. It has projected that it would need to raise some Bt1trn through various options to fund the stimulus programme.

Deutsche Bank said its capital ratio was stronger than analysts expected after clients repaid credit they had drawn down, joining rival Barclays and others to report a sharp, unexpected improvement in balance sheet strength.

Deutsche said its common equity Tier 1 ratio at the end of June was 13.3%, up from 12.8% at the end of March and above market expectations and previous guidance.

Deutsche said the increase was mainly due to lower-than-anticipated credit risk-weighted assets because clients repaid credit facilities - especially in the latter part of the quarter - and a reduction of derivative volumes.

"The client facilities were initially drawn in reaction to the Covid-19 pandemic economic challenges and subsequently repaid or refinanced," Deutsche said.

The bank said it expects results for the second quarter to be "slightly above average consensus estimates" that it compiled on Tuesday. It is due to release Q2 results on July 29.

The news will...

Malaysia Finance Minister Tengku Zafrul Aziz said that senior representatives from Goldman Sachs had flown to the country in order to discuss the recovery of assets at Malaysian sovereign wealth fund 1MDB.

The Straits Times reported that a six-member team from Goldman had entered Malaysia on Saturday using a special permit granted by the government in order to resume negotiations on 1MDB. The country has imposed restrictions on overseas visitors since March following the Covid-19 outbreak.

In a statement confirming their arrival, Zafrul expressed hope that the talks would allow Malaysia "to move closer towards achieving the desired results on the recovery of 1MDB assets".

"Most importantly, the government is fully committed to ensuring the recovery of 1MDB assets. We are taking every action and step to ensure a recovery value that is fair and just for the Malaysian people."

The negotiations follow comments from the finance minister last month, when he...

With just a year and a half to go before the end of Libor, Japan's Financial Services Agency and the Bank of Japan called on banks to accelerate their preparations in a survey released yesterday.

About 70% of financial institutions have not yet formed a committee to deal with the transition, and major Japanese banks have a large exposure to the benchmark interest rate, according to the survey's findings.

The financial authorities surveyed 278 financial institutions operating in Japan, including mega-banks, regional and foreign banks, securities firms, insurers and specialised banks, from October to December last year to find out how prepared they are for the end of the most widely used benchmark rate.

According to the survey, about 30% of the respondents have set up a Libor project team or working group. While all major banks and foreign securities firms have done so, many insurers, Japanese securities firms and regional banks have not. This is probably due to...