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Business

U.S. banks get ready for shrinking profits and recession

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NEW YORK, Jan 10 (Reuters) – U.S. banking giants are forecast to report lower fourth quarter profits this week as lenders stockpile rainy-day funds to prepare for an economic slowdown that is battering investment banking.

Four American banking giants — JPMorgan Chase & Co (JPM.N), Bank of America Corp (BAC.N), Citigroup Inc (C.N) and Wells Fargo & Co (WFC.N) — will report earnings on Friday.

Along with Morgan Stanley (MS.N) and Goldman Sachs (GS.N), they are the six largest lenders expected to amass a combined $5.7 billion in reserves to prepare for soured loans, according to average projections by Refinitiv. That is more than double the $2.37 billion set aside a year earlier.

“With most U.S. economists forecasting either a recession or significant slowdown this year, banks will likely incorporate a more severe economic outlook,” said Morgan Stanley analysts led by Betsy Graseck in a note.

The Federal Reserve is raising interest rates aggressively in an effort to tame inflation near its highest in decades. Rising prices and higher borrowing costs have prompted consumers and businesses to curb their spending, and since banks serve as economic middlemen, their profits decline when activity slows.

The six banks are also expected to report an average 17% drop in net profit in the fourth quarter from a year earlier, according to preliminary analysts’ estimates from Refintiv.

Reuters Graphics

Still, lenders stand to gain from rising rates that allow them to earn more from the interest they charge borrowers.

Investors and analysts will focus on bank bosses’ commentary as an important gauge of the economic outlook. A parade of executives has warned in recent weeks of the tougher business environment, which has prompted firms to slash compensation or eliminate jobs.

Goldman Sachs will start laying off thousands of employees from Wednesday, two sources familiar with the move said Sunday. Morgan Stanley and Citigroup, among others, have also cut jobs after a plunge in investment-banking activity.

The moves come after Wall Street dealmakers handling mergers, acquisitions and initial public offerings faced a sharp drop in their businesses in 2022 as rising interest rates roiled markets.

Global investment banking revenue sank to $15.3 billion in the fourth quarter, down more than 50% from a year-earlier quarter, according to data from Dealogic.

Consumer businesses will also be a key focus in banks’ results. Household accounts have been propped up for much of the pandemic by a strong job market and government stimulus, and while consumers are generally in good financial shape, more are starting to fall behind on payments.

“We’re exiting a period of extraordinarily strong credit quality,” said David Fanger, senior vice president, financial institutions group, at Moody’s Investors Service.

At Wells Fargo, the fallout from a fake accounts scandal and regulatory penalties will continue to weigh on results. The lender expected to book an expense of about $3.5 billion after it agreed to settle charges over widespread mismanagement of car loans, mortgages and bank accounts with the U.S. Consumer Financial Protection Bureau, the watchdog’s largest-ever civil penalty.

Analysts will also watch if banks such as Morgan Stanley and Bank of America book any writedowns on the $13-billion loan to fund Elon Musk’s purchase of Twitter.

More broadly, the KBW index (.BKX) of bank stocks is up about 4% this month after sinking almost 28% in the last year.

While market sentiment took a sharp turn from hopeful to fearful in 2022, some large banks could overcome the most dire predictions because they have shed risky activities, wrote Susan Roth Katzke, an analyst at Credit Suisse.

“We see more resilient earning power through the cycle after a decade of de-risking,” she wrote in a note. “We cannot dismiss the fundamental strength.”

Reporting by Saeed Azhar, Niket Nishant and Lananh Nguyen
Editing by Nick Zieminski

Our Standards: The Thomson Reuters Trust Principles.

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World

Brazil markets tumble on Lula’s first full day in office

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BRASILIA, Jan 2 (Reuters) – Brazilian markets delivered a withering verdict on leftist President Luiz Inacio Lula da Silva’s first full day in office on Monday, after he pledged to prioritize social issues and ordered a budget-busting extension to a fuel tax exemption.

Lula’s decision to extend the fuel tax exemption, which will deprive the Treasury of 52.9 billion reais ($9.9 billion) a year in fiscal income, was a stinging rebuke of his finance minister Fernando Haddad, a Workers Party (PT) loyalist who had said it would not be extended.

Haddad, who is seeking to dispel market fears that he might not maintain fiscal discipline, took office on Monday, pledging to control spending. “We are not here for adventures,” he said.

Markets seemed unconvinced.

The real currency lost 1.5% in value against the dollar in afternoon trading, while the benchmark Sao Paulo stock market index (.BVSP) ended 3.06% down. Shares of state-run oil company Petrobras (PETR4.SA) retreated nearly 6.45%.

In speeches delivered at his inauguration in Brasilia on Sunday, Lula promised that tackling hunger and poverty would be “the hallmark” of his third presidency after two previous stints running the country from 2003 to 2010.

Financial analysts said the start of Lula’s third presidency was in line with his campaign promises, and looked similar to earlier Workers Party policies that led to a deep recession.

Lula narrowly defeated far-right incumbent Jair Bolsonaro in October, swinging South America’s largest nation back on a left-wing track.

On Monday, Lula instructed ministers to revoke steps to privatize state companies taken by the previous administration, including studies to sell Petrobras, the Post Office and state broadcasting company EBC.

On Sunday, he signed a decree extending an exemption for fuels from federal taxes, a measure passed by his predecessor aimed at lowering their cost in the run-up to the election, but which will deprive the Treasury of 52.9 billion reais ($9.9 billion) a year in fiscal income.

The federal tax exemption for fuels will last one year for diesel and biodiesel and two months for gasoline and ethanol, a decree published in the official gazette showed on Monday.

Gabriel Araujo Gracia, analyst at Guide Investimentos, said Lula’s plans to increase social spending, expand the role of state banks and abolish a constitutionally mandated spending ceiling harked back to the worst days of Workers Party rule.

“The policies remind us of Dilma Rousseff’s government rather than Lula’s,” Gracia said, referring to Lula’s handpicked successor, who was impeached while in office. “Her policies led to Brazil’s worst recession since 1929.”

Lula, who lifted millions of Brazilians from poverty during his first two terms, criticized Bolsonaro for allowing hunger to return to Brazil, and wept during his speech to supporters on Sunday as he described how poverty had increased again.

Allies said Lula’s newfound social conscience was the result of his 580 days in prison, Reuters reported on Sunday.

Lula kicks off his third presidential term after persuading Congress to pass a one-year, 170 billion-reais increased social spending package, in line with his campaign promises.

“The package ended up being bigger than expected, with potential repercussions for public debt sustainability,” Banco BTG Pactual said in a research note.

Lula spent his first day in office meeting with more than a dozen heads of state who attended his inauguration.

The meetings started with the king of Spain, and continued with South American presidents, among them the leftist leaders of Argentina, Chile and Bolivia, as well as representatives from Cuba and Venezuela, and Vice President Wang Qishan of China.

On Twitter, Lula said he had received a letter from Chinese leader Xi Jinping expressing a desire to increase cooperation between the two countries.

“China is our biggest trading partner, and we can further expand relations between our countries,” Lula added.

The new president is also set to attend the wake of Brazilian soccer star Pele, who died on Thursday at 82 after battling colon cancer.

Lula will pay his respects and pay tribute to Pele and his family on Tuesday morning, the president’s office said in a statement.

($1 = 5.3633 reais)

Reporting by Anthony Boadle, Marcela Ayres and Gabriel Araujo; Editing by Matthew Lewis and Jonathan Oatis

Our Standards: The Thomson Reuters Trust Principles.

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Business

Tesla sends Shanghai boss and aides to jumpstart U.S. output

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SHANGHAI/SAN FRANCISCO, Dec 21 (Reuters) – Tesla Inc’s (TSLA.O) China chief Tom Zhu and a team of his reports has been brought in to troubleshoot production issues in the United States, fueling talk among colleagues he is being groomed for a bigger role at a time when Chief Executive Elon Musk has been distracted by Twitter.

Zhu, who heads Tesla’s Asia operations, has been traveling with a team including Shanghai gigafactory manager, Song Gang, to Tesla’s plants in California and Texas, and was there as recently as last week, according to two people with knowledge of the matter. Both asked not to be named because they were not authorized to speak to the media.

Tesla did not respond to written requests for comment from Reuters sent to its Shanghai and global media relations accounts. Musk did not respond to a Reuters’ email seeking comments for the story. Zhu and Song could not be reached for comment.

Under Zhu, Tesla Shanghai rebounded strongly from lockdowns this year to bring Tesla close to its growth target for 2022 of 50% production growth. Analysts expect output to fall short at closer to 45%, based on forecasts for the just-concluding fourth quarter.

Zhu and others made their first trip to the United States for Tesla this year in August, one of the people said, at a time when the company has some key management roles there unfilled.

Among the projects the Shanghai team have worked on is Tesla’s long-delayed Cybertruck, its next new model, a third person said.

Tesla’s Austin plant is ramping up production of the Model Y and readying the Cybertruck. The Fremont plant is preparing to launch a new version of the Model 3, which will start production in Shanghai next year, Reuters has reported.

Some Tesla investors and analysts have voiced concerns about Musk’s distraction following his acquisition of Twitter in October and the depth of the executive bench at the electric-car company.

Bloomberg reported this month that Zhu was helping to run the Austin plant. However, Zhu’s colleagues in Shanghai believe he is in line for a more senior and wider-ranging role at Tesla, the two people said.

A close aide to Zhu in Shanghai circulated a farewell poem for the China boss in recent weeks on social media, anticipating his new assignment, according to the message reviewed by Reuters.

SHANGHAI TEAM ON THE ROAD

At the Austin factory, Chinese engineers were seen by people at the plant working in the area reserved for development of the Cybertruck and batteries, a third person with knowledge of operations there said. Tesla has targeted production of the Cybertruck next year.

At Fremont California, Chinese staff have been working on Model Y underbody assemblies, according to another person with knowledge of their work there.

When Tesla posted a picture on Twitter on Friday to celebrate Austin hitting a new production milestone of 3,000 Model Ys in a week — still less than a third of the weekly output of Shanghai last quarter — Zhu was shown smiling with hundreds of people on the factory floor.

Zhu, who was born in China but now holds a New Zealand passport, is a no-fuss manager who favors Tesla-branded fleece jackets and lives in a government-subsidized apartment a 10-minute drive from the Shanghai Gigafactory, according to people who work with him and his comments to Chinese media.

When Musk sent a memo in early June warning he had a “super bad feeling” about the economy, Shanghai was on track to end the quarter down 36% from the quarter before because of COVID lockdowns, data released later showed.

With help from Shanghai officials, Zhu restarted operations by asking thousands of workers and suppliers to stay at the factory for more than six weeks. Zhu himself opted to stay longer, sleeping at the factory as Musk had in 2018 when Fremont was struggling to ramp production, two people with knowledge of the events told Reuters.

Shanghai, a complex that employs some 20,000 workers, came roaring back in the third quarter, with output of the Model Y and Model 3 up over 70% on the quarter.

Through September, Shanghai accounted for more than half of Tesla’s output.

The plant has excelled in applying cost-saving, factory-floor innovations for Tesla, including the use of massive casting machines to simplify production.

“The manufacturing people who led that push are obvious choices to spread the production gospel into the other new plants,” said Sam Fiorani, who tracks production trends Auto Forecast Solutions.

Tesla board member James Murdoch said last month the company had recently identified a potential successor to Musk without naming the person. Murdoch did not immediately respond to a request for comment.

Reuters has no evidence that Zhu is the possible candidate.

“With Elon Musk’s attention currently being pulled in a number of directions, finding someone to help guide Tesla is important, especially someone with the manufacturing know-how that Tom Zhu has,” Fiorani said.

Some investors are skeptical that Zhu alone could turn things around: “In America, doing business is very, very different than running a factory in China,” Ross Gerber, a Tesla investor and CEO of Gerber Kawasaki Wealth and Investment Management said on Twitter Spaces on Tuesday. “So I think Elon needs to be at Tesla.”

Reporting by Zhang Yan in Shanghai and Hyunjoo Jin in San Francisco; editing by Kevin Krolicki and Daniel Flynn

Our Standards: The Thomson Reuters Trust Principles.



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Business

Core Scientific files for bankruptcy as crypto winter bites

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Dec 21 (Reuters) – Core Scientific Inc (CORZ.O), one of the biggest publicly traded cryptocurrency mining companies in the United States, said on Wednesday it filed for Chapter 11 bankruptcy protection, the latest in a string of failures to hit the sector.

Austin, Texas-based Core Scientific attributed its bankruptcy to slumping bitcoin prices, rising energy costs for bitcoin mining and a $7 million unpaid debt from U.S. crypto lender Celsius Network, one of its biggest customers.

Core Scientific said in court filings that it had suffered a net loss of $434.8 million for the three months ending September 30, 2022, and had just $4 million in liquidity at the time of its bankruptcy filing.

The company engaged restructuring advisers in October and has been negotiating with creditors about a potential bankruptcy filing since that time.

More than a trillion dollars in value has been wiped out from the crypto sector this year with rising interest rates exacerbating worries of an economic downturn. The crash has eliminated key industry players such as crypto hedge fund Three Arrows Capital and Celsius.

The biggest blow came after major crypto exchange FTX filed for bankruptcy protection last month. Its swift fall has sparked tough regulatory scrutiny of how crypto firms hold funds and conduct business operations.

After rapid growth in 2020 and 2021, bitcoin – the most popular digital currency by far – is down more than 60% this year, pressuring the crypto mining sector.

Processing bitcoin transactions and “mining” new tokens is done by powerful computers, hooked up to a global network, that compete against others to solve complex mathematical puzzles.

Bitcoins are seen in this illustration picture taken September 27, 2017. REUTERS/Dado Ruvic

But the business has become less profitable as the price of bitcoin has slumped, while energy costs have soared.

Celsius, which filed for Chapter 11 bankruptcy protection in July, owns several bitcoin mining rigs hosted at Core Scientific’s facilities. Celsius’s bankruptcy has prevented Core Scientific from collecting on higher energy bills that the company is racking up at a rate of $900,000 per month, according to court filings.

Core Scientific said it would not liquidate, and intends to pursue a restructuring backed by creditors who hold over 50% of the company’s convertible notes.

Those creditors have agreed to provide up to $56 million in debtor-in-possession financing, and convertible noteholders would ultimately end up with 97% of Core Scientific’s equity shares if the restructuring is approved in court.

The company’s shares have lost roughly 98% of their value so far in 2022, shrinking its market cap to about $78 million.

The stock fell another 50% in trading on Wednesday. Shares of other crypto miners including Riot Blockchain (RIOT.O), Marathon Digital (MARA.O) and Hut 8 Mining Corp have all shed more than 80% this year.

In its bankruptcy petition, Core Scientific said it has $1 billion to $10 billion in assets and liabilities, and between 1,000 and 5,000 creditors.

Core Scientific went public in 2021 through a merger with a blank-check company in a deal that at the time valued the miner at $4.3 billion.

Core Scientific’s first bankruptcy court hearing has been set for Dec. 21 at 0915 CT (1515 GMT).

Reporting by Siddharth Jindal, Maria Ponnezhath, Akriti Sharma and Manya Saini in Bengaluru, and Dietrich Knauth in New York and Hannah Lang in Washington; editing by Uttaresh.V, Maju Samuel, Alexia Garamfalvi and Deepa Babington

Our Standards: The Thomson Reuters Trust Principles.

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Business

Goldman to cut thousands of staff as Wall Street layoffs intensify -source

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NEW YORK, Dec 16 (Reuters) – Goldman Sachs Group Inc (GS.N) is planning to cut thousands of employees to navigate a difficult economic environment, a source familiar with the matter said.

The layoffs are the latest sign that cuts are accelerating across Wall Street as dealmaking dries up. Investment banking revenues have plunged this year amid a slowdown in mergers and share offerings, marking a stark reversal from a blockbuster 2021 when bankers received big pay bumps.

Goldman Sachs had 49,100 employees at the end of the third quarter after adding significant numbers of staff during the pandemic. Its headcount will remain above pre-pandemic levels, the source said. The workforce stood at 38,300 at the end of 2019, according to a filing.

The number of employees that will be affected by the layoffs is still being discussed, and details are expected to be finalized early next year, the source said.

The bank is weighing a sharp cut to the annual bonus pool this year, a separate source familiar with the matter said. That contrasts with increases of 40% to 50% for top-performing investment bankers in 2021, Reuters reported in January, citing people with direct knowledge of the matter.

“GS needs to show that its costs are as variable as its revenues, especially after a year when it provided special rewards to top managers during the boom times,” wrote Mike Mayo, a banking analyst at Wells Fargo.

“Goldman Sachs now needs to show that it can do the same when business is not as good and that they live up to the old Wall St. adage that they ‘eat what they kill,'” he said in a note.

The company’s stock fell 1.3% in afternoon trading alongside shares of JPMorgan & Chase Co (JPM.N) and Morgan Stanley (MS.N), which fell 0.6% and 1.3%, respectively.

Goldman shares have slumped almost 10% this year. But they have outperformed the broader S&P 500 bank index (.SPXBK), which is down 24% year to date.

[1/2] The logo for Goldman Sachs is seen on the trading floor at the New York Stock Exchange (NYSE) in New York City, New York, U.S., November 17, 2021. REUTERS/Andrew Kelly/File Photo

CONSUMER BANK STRUGGLES

The latest plan would include hundreds of employees being cut from Goldman’s consumer business, a source said.

The bank signaled it was scaling back its ambitions for Marcus, the loss-making consumer unit, in October. Goldman also plans to stop originating unsecured consumer loans, a source familiar with the move told Reuters earlier this week, another sign it is stepping back from the business.

Chief Executive Officer David Solomon, who took the helm in 2018, has tried to diversify the company’s operations with Marcus. It was placed under the wealth business in October as part of a management reshuffle that also merged the trading and investment banking units.

Trading and investment banking — the traditional drivers of Goldman’s profit — accounted for nearly 65% of its revenue at the end of the third quarter, compared with 59% in the third quarter of 2018, when Solomon took the top job.

Semafor earlier on Friday reported that Goldman will lay off as many as 4,000 people as the bank struggles to meet profit targets, citing people familiar with the matter.

Goldman Sachs declined to comment.

The latest plans come after Goldman cut about 500 employees in September, after pausing the annual practice for two years during the pandemic, a source familiar with the matter told Reuters at the time.

The investment bank had first warned in July that it might slow hiring and reduce expenses.

Global banks, including Morgan Stanley (MS.N) and Citigroup Inc (C.N), have reduced their workforces in recent months as a dealmaking boom on Wall Street fizzled out due to high interest rates, tensions between the United States and China, the war between Russia and Ukraine, and soaring inflation.

Reporting by Saeed Azhar and Lananh Nguyen; Additional reporting by Noor Zainab Hussain and Mehnaz Yasmin in Bengaluru; Editing by Mark Porter

Our Standards: The Thomson Reuters Trust Principles.

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World

German car giants and Asian battery kings: a match made in Hungary

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  • German, Chinese and S.Koreans head to Hungary
  • They dominate auto investment and subsidies
  • Orban’s Hungary keen to court foreign business

BERLIN/BUDAPEST, Dec 13 (Reuters) – German automakers and Asian battery suppliers are getting together in Hungary in a multi-billion-dollar marriage of convenience to drive their electric ambitions.

The companies are flocking to central Europe, where Viktor Orban’s government is defying Western wariness of China and offering generous benefits to host foreign operations and stake Hungary’s claim as a global centre for electric vehicles (EVs).

Investment in the Hungarian auto industry is being dominated by three countries – Germany, a champion carmaker, plus China and South Korea, EV battery leaders way ahead of European rivals.

Companies from those three countries have accounted for 29 out of the 31 cash subsidies handed out by Hungary for major investments in its auto and battery sector over the past decade, according to a Reuters analysis of government data that shows the scale of German, Chinese and Korean convergence there.

“Cathodes, anodes, separators, assembly lines, the full battery supply chain is here,” said Dirk Woelfer of the German-Hungarian Chamber of Commerce in Budapest. “This is a foot in the door to Europe.”

Recipients of such subsidies included the likes of German automakers BMW (BMWG.DE) and Mercedes-Benz (MBGn.DE), and battery makers such as China’s BYD and Korean rival Samsung SDI (006400.KS). The median subsidy level has been 15% of investment.

In total, Hungary has received over 14 billion euros ($15 billion) in foreign direct investment into its battery sector alone in the past six years, according to government figures.

Major investments are broadly classed as those worth over 5-10 million euros, varying with factors such as jobs created.

State incentives and the opportunity for automakers and battery suppliers to work next door to each other is proving a strong pull, according to interviews with about 20 industry players and consultants in Germany, Hungary, China and South Korea.

China’s CATL (300750.SZ), the world’s No. 1 EV battery maker, and Korean battery giants SK Innovation (096770.KS) and Samsung SDI, all told Reuters that the planned proximity to German carmakers was a key factor in their decisions to invest in Hungary, as well as being able to source separators and other components there.

CATL is investing $7.6 billion to build Europe’s largest battery plant in Hungary. This plant and the $2.1 billion BMW factory will both be sited in the city of Debrecen, which is attracting an ecosystem of suppliers, ranging from makers of brakes and battery cathodes to industrial machinery.

Mercedes-Benz is converting its factory in Kecskemet to produce electric cars, while Volkswagen’s (VOWG_p.DE) Audi is making cars and electric motors in Gyor.

Such big business could present a boon for Prime Minister Orban’s government as the country faces its toughest economic environment in more than a decade, with inflation running above 20%, the economy slowing and EU funds in limbo.

Yet the Hungarian EVs project also faces stiff obstacles, according to many of the industry insiders.

One key concern is the huge demands that massive battery plants will place on the electricity grid, which needs to shift away from fossil fuels towards renewables to meet the net-zero emissions targets of much of the auto industry, the people said.

A lack of specialised workers in Hungary to work in battery cell manufacturing could also drag on capacity, they added.

HIPA, the Hungarian Foreign Ministry agency responsible for attracting investments in areas ranging from batteries and cars to logistics, did not respond to Reuters queries about the EV industry.

‘CHINA’S MADE GOOD STEPS’

Hungary’s welcome to Asian battery makers might jar with concerns expressed by Brussels and Berlin about the perils of Europe becoming too dependent on China and other foreign powers, particularly in technologies central to the green transition.

Still, for now, the need to ramp up EV output leaves the European auto industry little choice but to source from Asian players, said Csaba Kilian of Hungary’s automotive association.

“I absolutely agree that European manufacturers should have their own sources … but it’s a competition, and China has made good steps,” he added. “There is a learning curve.”

Europe should have a EV battery manufacturing capacity of 1,200 gigawatt hours (GWh) by 2031 if current plans come to fruition, outstripping expected demand of 875 GWh, Benchmark Mineral Intelligence (BMI) estimates. But of that 1,200 GWh, 44% will be provided by Asian companies with factories in Europe, ahead of homegrown firms on 43% and U.S. pioneer Tesla (TSLA.O) with 13%, according to a Reuters calculation based on BMI data.

The prospects for developing a battery sector in Germany have been set back by record energy there as a result of the loss of Russian gas, according to autos consultants at Boston Consulting Group and Berylls Strategy Advisors.

Hungary offers a comparatively stable energy system bolstered by nuclear energy, as well as high subsidies and Europe’s lowest corporate tax rate of 9%.

The entire battery supply chain has come to the country, said Ilka von Dalwigk, policy manager at the European Battery Alliance, launched by the European Union in 2017 to kick-start a homegrown industry.

“Everything is located there. When we look at the forecast for 2025 and 2030, it looks like it will have one of the largest production capacities in Europe,” she added.

“It might very well be that Hungary is in fact the next big battery production cluster in Europe.”

Asked about concerns about reliance on Asia for technology, an EU official said the bloc – which must approve member state subsidies to investors – had a system in place to cooperate and exchange information on investments from non-EU countries that may affect security.

The European Commission is currently in talks with Hungary over the size of the subsidy the country will offer to CATL for building the Debrecen plant, the official added.

‘SENDING THE WRONG SIGNAL’

For some Western companies, setting up shop in Hungary is a tough decision.

German autos supplier Schaeffler said it was on the verge of setting up its primary electric motor plant in Hungary rather than Germany in August because of the appeal of Hungary’s incentives, but decided on Germany for fear of sending “the wrong signal” to Germans who fear a loss of jobs to overseas.

Other industry players expressed a range of concerns over potential pitfalls for the burgeoning Hungarian auto industry as factories ramped up, including the power grid issue.

Batteries, in particular, are highly energy-intensive parts of EVs to produce, requiring high amounts of power for the drying the materials and machine operation.

Hungary’s sources of energy in 2021 comprised 80% fossil fuels, 14.5% nuclear and 3.6% solar, according to a Reuters calculation of data from the BP Statistical Review of World Energy.

The mix spells trouble for carmakers who will soon need to showcase carbon-free credentials across their supply chains under new German and European legislation.

Hungarian Foreign Minister Peter Szijjarto met senior executives from BMW and auto suppliers including Schaeffler and Knorr-Bremse in Munich last month, ahead of the German carmaker announcing it was beefing up its investment in the country.

Topics discussed included plans to improve logistics infrastructure in Hungary and increasing the amount of renewables energy used for the power grid, according to one of the companies that attended.

When BMW first announced its plan to build its Debrecen plant, in 2018, the government committed to spending around 135 billion forints on improving local infrastructure, according to calculations by the German-Hungarian Chamber of Commerce.

On the battery side, CATL told Reuters it was considering developing solar power with local partners in Hungary.

Despite the risks, Alexander Timmer, a partner at Munich-based consultants Berylls Strategy Advisors who has worked on several autos and battery projects in Hungary, said the country presented an appealing package.

“The combination of cost advantages, state subsidies, and closeness to automakers’ plants makes Hungary increasingly attractive to battery producers, he added.

($1 = 397.54 forints; $1 = 0.9483 euros)

Reporting by Victoria Waldersee in Berlin, Gergely Szakacs in Budapest; Additional reporting by Heekyong Yang, Zhang Yan; Editing by Pravin Char

Our Standards: The Thomson Reuters Trust Principles.

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Business

Exclusive: Goldman Sachs on hunt for bargain crypto firms after FTX fiasco

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LONDON, Dec 6 (Reuters) – Goldman Sachs (GS.N) plans to spend tens of millions of dollars to buy or invest in crypto companies after the collapse of the FTX exchange hit valuations and dampened investor interest.

FTX’s implosion has heightened the need for more trustworthy, regulated cryptocurrency players, and big banks see an opportunity to pick up business, Mathew McDermott, Goldman’s head of digital assets, told Reuters.

Goldman is doing due diligence on a number of different crypto firms, he added, without giving details.

“We do see some really interesting opportunities, priced much more sensibly,” McDermott said in an interview last month.

FTX filed for Chapter 11 bankruptcy protection in the United States on Nov. 11 after its dramatic collapse, sparking fears of contagion and amplifying calls for more crypto regulation.

“It’s definitely set the market back in terms of sentiment, there’s absolutely no doubt of that,” McDermott said. “FTX was a poster child in many parts of the ecosystem. But to reiterate, the underlying technology continues to perform.”

While the amount Goldman may potentially invest is not large for the Wall Street giant, which earned $21.6 billion last year, its willingness to keep investing amid the sector shakeout shows it senses a long term opportunity.

Its CEO David Solomon told CNBC on Nov. 10, as the FTX drama was unfolding, that while he views cryptocurrencies as “highly speculative”, he sees much potential in the underlying technology as its infrastructure becomes more formalized.

Rivals are more sceptical.

“I don’t think it’s a fad or going away, but I can’t put an intrinsic value on it,” Morgan Stanley (MS.N) CEO James Gorman said at the Reuters NEXT conference on Dec. 1.

HSBC (HSBA.L) CEO Noel Quinn, meanwhile, told a banking conference in London last week he has no plans to expand into crypto trading or investing for retail customers.

Goldman has invested in 11 digital asset companies that provide services such as compliance, cryptocurrency data and blockchain management.

McDermott, who competes in triathlons in his spare time, joined Goldman in 2005 and rose to run its digital assets business after serving as head of cross asset financing.

His team has grown to more than 70 people, including a seven-strong crypto options and derivatives trading desk.

Goldman Sachs has also together with MSCI and Coin Metrics launched data service datonomy, aimed at classifying digital assets based on how they are used.

The firm is also building its own private distributed ledger technology, McDermott said.

‘TRUSTED’ PLAYERS

The global cryptocurrency market peaked at $2.9 trillion in late 2021, according to data site CoinMarketCap, but has shed about $2 trillion this year as central banks tightened credit and a string of high-profile corporate failures hit. It last stood at $865 billion on Dec. 5.

The ripple effects from FTX’s collapse have boosted Goldman’s trading volumes, McDermott said, as investors sought to trade with regulated and well capitalized counterparties.

“What’s increased is the number of financial institutions wanting to trade with us,” he said. “I suspect a number of them traded with FTX, but I can’t say that with cast iron certainty.”

Goldman also sees recruitment opportunities as crypto and tech companies shed staff, McDermott said, although the bank is happy with the size of its team for now.

Others also see the crypto meltdown as a chance to build their businesses.

Britannia Financial Group is building its cryptocurrency-related services, its chief executive Mark Bruce told Reuters.

The London-based company aims to serve customers who are eager to diversify into digital currencies, but who have never done so before, Bruce said. It will also cater to investors who are very familiar with the assets, but have become nervous about storing funds at crypto exchanges since FTX’s collapse.

Britannia is applying for more licenses to provide crypto services, such as doing deals for wealthy individuals, he said

“We have seen more client interest since the demise of FTX,” he said. “Customers have lost trust in some of the younger businesses in the sector that purely do crypto, and are looking for more trusted counterparties.”

Reporting by Iain Withers and Lawrence White, Editing by Lananh Nguyen and Alexander Smith

Our Standards: The Thomson Reuters Trust Principles.

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Business

FX swap debt a $80 trillion ‘blind spot’ global regulator says

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LONDON, Dec 5 (Reuters) – Pension funds and other ‘non-bank’ financial firms have more than $80 trillion of hidden, off-balance sheet dollar debt in FX swaps, the Bank for International Settlements (BIS) said.

The BIS, dubbed the central bank to the world’s central banks, also said in its latest quarterly report that 2022’s market upheaval had largely been navigated without major issues.

Having repeatedly urged central banks to act forcefully to dampen inflation, it struck a more measured tone and picked over crypto market troubles and September’s UK bond market turmoil.

Its main warning concerned what it described as the FX swap debt “blind spot” that risked leaving policymakers in a “fog”.

FX swap markets, where for example a Dutch pension fund or Japanese insurer borrows dollars and lends euro or yen before later repaying them, have a history of problems.

They saw funding squeezes during both the global financial crisis and again in March 2020 when the COVID-19 pandemic wrought havoc that required central banks such as the U.S. Federal Reserve to intervene with dollar swap lines.

The $80 trillion-plus “hidden” debt estimate exceeds the stocks of dollar Treasury bills, repo and commercial paper combined, the BIS said. It has grown from just over $55 trillion a decade ago, while the churn of FX swap deals was almost $5 trillion a day in April, two thirds of daily global FX turnover.

For both non-U.S. banks and non-U.S. ‘non-banks’ such as pension funds, dollar obligations from FX swaps are now double their on-balance sheet dollar debt, it estimated.

“The missing dollar debt from FX swaps/forwards and currency swaps is huge,” the Switzerland-based institution said, adding the lack of direct information about the scale and location of the problems was the key issue.

Off and on-balance sheet dollar debt

CLOSER

The report also assessed broader recent market developments.

BIS officials have been loudly calling for forceful interest rate hikes from central banks as inflation has taken hold, but this time it struck a more measured tone.

Asked whether the end of the tightening cycle may be looming next year, the head of the BIS’ Monetary and Economic Department Claudio Borio said it would depend on how circumstances evolve, noting also the complexities of high debt levels and uncertainty about how sensitive borrowers now are to rising rates.

The crisis that erupted in UK gilt markets in September also underscored that central banks could be forced to step in and intervene – in the UK’s case by buying bonds even at a time when it was raising interest rates to curb inflation.

“The simple answer is one is closer than one was at the beginning, but we don’t know how far central banks will have to go,” Borio said about interest rates.

“The enemy is an old enemy and is known,” he added, referring to inflation. “But it’s a long time since we have been fighting this battle”.

Market volatility

DINO-MITE

The report also focused on findings from the recent BIS global FX market survey, which estimated that $2.2 trillion worth of currency trades are at risk of failing to settle on any given day due to issues between counterparties, potentially undermining financial stability.

The amount at risk represents about one third of total deliverable FX turnover and is up from $1.9 trillion from three years earlier when the last FX survey was carried out.

FX trading also continues to shift away from multilateral trading platforms towards “less visible” venues hindering policymakers “from appropriately monitoring FX markets,” it said.

The bank’s Head of Research and Economic Adviser Hyun Song Shin, meanwhile, described recent crypto market problems such as the collapse of the FTX exchange and stable coins TerraUSD and Luna as having similar characteristics to banking crashes.

He described many of the crypto coins sold as “DINO – decentralised in name only” and that most of their related activities took place through traditional intermediaries.

“This is people taking in deposits essentially in unregulated banks,” Shin said, adding it was largely about the unravelling of large leverage and maturity mismatches, just like during the financial crash more than a decade ago.

Reporting by Marc Jones; Editing by Toby Chopra and Alexander Smith

Our Standards: The Thomson Reuters Trust Principles.

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Business

Banking giants and New York Fed start 12-week digital dollar pilot

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NEW YORK, Nov 15 (Reuters) – Global banking giants are starting a 12-week digital dollar pilot with the Federal Reserve Bank of New York, the participants announced on Tuesday.

Citigroup Inc , HSBC Holdings Plc (HSBA.L), Mastercard Inc (MA.N) and Wells Fargo & Co (WFC.N) are among the financial companies participating in the experiment alongside the New York Fed’s innovation center, they said in a statement. The project, which is called the regulated liability network, will be conducted in a test environment and use simulated data, the New York Fed said.

The pilot will test how banks using digital dollar tokens in a common database can help speed up payments.

Earlier this month, Michelle Neal, head of the New York Fed’s market’s group, said it sees promise in using a central bank digital dollar to speed up settlement time in currency markets.

Reporting by Lananh Nguyen; Editing by Chizu Nomiyama

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Business

Musk sells Tesla shares worth $3.95 bln days after Twitter takeover

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Nov 8 (Reuters) – Tesla Inc (TSLA.O) Chief Executive Officer Elon Musk has sold $3.95 billion worth of shares in the electric vehicle maker, according to U.S. regulatory filings, days after he completed his purchase of Twitter Inc for $44 billion.

Musk, whose net worth dropped below $200 billion after investors dumped Tesla stock, unloaded 19.5 million shares between Friday and Tuesday, filings published by the U.S. Securities and Exchange Commission showed.

The latest share sale leaves Musk with a stake of roughly 14% in Tesla, according to a Reuters calculation.

The purpose of the sale was not disclosed.

The latest sale dump comes as analysts had widely expected Musk to sell additional Tesla shares to finance the Twitter deal.

Musk, the world’s richest man, had asserted in April he was done selling Tesla stock. Still, he went on to sell another $6.9 billion worth Tesla shares in August and said the sale was conducted to pay for the social media platform.

Musk, the world’s richest man, had about $20 billion in cash after selling a part of his stake in Tesla, including the sales made last year. This would have required him to raise an additional $2 billion to $3 billion to finance the takeover, according to a Reuters calculation.

Tesla has lost nearly half its market value and Musk’s net worth slumped by $70 billion ever since he bid for Twitter in April.

Twitter and Tesla did not immediately respond to Reuters’ requests for comment.

Musk took over Twitter last month and has engaged in drastic measures including sacking half the staff and a plan to charge for blue check verification marks.

The billionaire pledged to provide $46.5 billion in equity and debt financing for the acquisition, which covered the $44 billion price tag and the closing costs. Banks, including Morgan Stanley (MS.N) and Bank of America Corp (BAC.N), committed to provide $13 billion in debt financing.

Musk’s $33.5 billion equity commitment included his 9.6% Twitter stake, which is worth $4 billion, and the $7.1 billion he had secured from equity investors, including Oracle Corp (ORCL.N) co-founder Larry Ellison and Saudi Prince Alwaleed bin Talal.

Musk had tried to walk away from the deal in May, alleging that Twitter understated the number of bot and spam accounts on the platform. This led to a series of lawsuits between the two parties.

Reporting by Akriti Sharma in Bengaluru and Hyunjoo Jin in San Francisco; Editing by Sherry Jacob-Phillips

Our Standards: The Thomson Reuters Trust Principles.

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