Business

Biden says US banking system is safe

Published

2 years ago

March 14, 2023

The US will do “whatever is needed” to shore up banks after a string of failures raised fears about financial stability, President Joe Biden said.

His comments came after the US guaranteed all deposits at Silicon Valley Bank and Signature Bank, which both collapsed last week.

The US is trying to stop people taking out funds from banks after SVB collapsed amid a rush of withdrawals.

Americans should “rest assured that our banking system is safe”, Mr Biden said.

People and businesses who have money deposited with SVB – the country’s 16th largest bank – would be able to access all their cash from Monday, he said.

Taxpayers will not bear any losses from the move, which extends protection beyond the $250,000 (£205,000) in deposits typically insured by the government. The cost will instead be funded by fees regulators charge to banks.

“Let me also assure you we will not stop at this. We’ll do whatever is needed,” Mr Biden said.

How did Silicon Valley Bank collapse?

SVB – which specialised in lending to technology companies – was shut down by regulators on Friday. It was the largest failure of a US bank since the financial crisis in 2008.

It came after SVB had scrambled to raise money to plug a loss from the sale of assets affected by higher interest rates. Word of the troubles led customers to race to withdraw funds, leading to a cash crisis.

Authorities on Sunday also took over Signature Bank of New York, which had many clients involved in crypto and was seen as the institution most vulnerable to a similar bank run after SVB.

As part of their moves to restore confidence, US regulators unveiled a new way to give banks access to emergency funds, making it easier for banks to borrow from it in a crisis.

But there is concern that the failures, which came after the collapse of another bank, Silvergate Bank, last week, are a sign of troubles at other firms.

US financial markets were roughly flat in early trading on Monday, but shares of many banks were under pressure.

Shares in First Republic bank, which is based in San Francisco, plunged roughly 70% before trading was halted.

Elsewhere, HSBC said it was buying the UK arm of SVB for £1, while authorities in Canada took temporary control of the assets of SVB’s branch in the country.

Paul Ashworth of Capital Economics said the US authorities had “acted aggressively to prevent a contagion developing”.

“But contagion has always been more about irrational fear, so we would stress that there is no guarantee this will work,” he added.

Bailout debate

The US measures have re-ignited debates – similar to those seen following the 2008 financial crisis – about how much the government should do to regulate and protect banks.

Mr Biden called for tougher rules and emphasised that investors and bank leaders would not be spared.

“They knowingly took a risk… that’s how capitalism works,” he said.

Still, Republican Senator Tim Scott, seen as a potential presidential candidate in 2024, called the rescue “problematic”.

“Building a culture of government intervention does nothing to stop future institutions from relying on the government to swoop in after taking excessive risks,” he said.

Once again people are worried about banks. Once again there is intense debate about bailouts. But this isn’t 2008.

Following the global financial crisis, the focus was on reforming banks considered “too big to fail”. Today’s problems are centred around medium- and smaller-sized banks.

Both of the banks that collapsed – Silicon Valley Bank and Signature Bank – had the same thing in common: their business models were too concentrated in one sector and they were over exposed to assets whose values came under pressure from rising interest rates.

The criticism is that they should have foreseen this and they didn’t. US Federal Reserve chair Jerome Powell has gone to great lengths to signal the Fed’s intention to raise interest rates.

Since most banks are well diversified and have plenty of cash on hand, the assumption is that the risk to the rest of the banking sector is low. That won’t stop regulators looking into what went wrong and what rules need to change.

And the pressure on small- and medium-sized banks hasn’t gone away. What happens to the US economy and the fight against inflation also remains to be seen.

SVB started as a California bank in 1983 and expanded rapidly as the tech sector boomed. A crucial lender for early-stage businesses in the industry, it was the banking partner for nearly half of US venture-backed technology and healthcare companies that listed on stock markets last year.

The firm came under pressure last year, as its customers increasingly drew on deposits, because higher interest rates were making it more difficult to bring in new money through private fundraising or share sales.

That forced the firm to sell a large portfolio of assets, mostly of US Treasuries, at a loss – news that prompted client withdrawals to accelerate, while raising fears that other banks with large sums of money tied up in bonds could face similar losses.

Central banks around the world – including the US Federal Reserve and Bank of England – have raised interest rates sharply as they fight to stabilise rising prices.

Those moves have reduced demand for bonds with lower yields, which creates a problem for owners, like SVB, if circumstances force a sale.

In Silicon Valley, the reverberations from the collapse were widespread as companies, many of which had unsecured deposits, faced questions about what it meant for their finances.

Ben Kaufman, chief executive of toy retailer Camp, said his firm, which kept about 85% of its cash at SVB, was unable to transfer funds last week as panic swirled around the bank.

In response, he put out a plea to customers to buy at a discount, ultimately selling more than 100,000 products in 48 hours – as much business as Camp typically does in a month.

“We knew that this would resolve itself somehow but we knew we needed that short-term liquidity and our customers provided it for us,” he told the BBC.

The government’s guarantee for unsecured deposits had been “very helpful”, he added.

“I’m not an economist so I don’t know the ramifications of this but I know that as a business operator we rely on the cash that we have in the bank.”

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Business

Six tonnes of cocaine found in banana shipment

Published

5 months ago

July 16, 2024

Sniffer dogs in Ecuador have found 6.23 tonnes of cocaine hidden in a banana shipment, police say.

The dogs alerted their handlers, who seized 5,630 parcels filled with a white substance that later tested positive for cocaine.

The shipment was destined for Germany, officials said, and would have been worth $224m (£173m) had it reached its destination.

Five people had been arrested following the discovery, according to the prosecutor-general’s office.

Police said they had found the massive cocaine haul during a routine inspection of container stored at Posorja deepwater port south-west of Ecuador’s largest city, Guayaquil.

The cocaine parcels had been hidden beneath crates of bananas destined for export.

One of those arrested in connection to the drug discovery was a representative of the export company responsible for the shipment, whom prosecutors said had been present at the inspection and gave officials the names of the four other suspects.

They include the managers of the banana plantation where the cocaine is suspected to have been added to the fruit shipment, as well as the driver who took the container to the port.

Ecuador has become a major transit country for cocaine produced in neighbouring Peru and Colombia, with transnational criminal gangs using Ecuador’s ports to ship the drug to Europe and the US.

Last year, Ecuadorean security forces seized more than 200 tonnes of drugs, most of it cocaine. Only the US and Colombia seized more drugs in 2023.

Gangs have caused a wave of violent crime in Ecuador, leading President Daniel Noboa to declare a state of emergency and deploy tens of thousands of police officers and soldiers in an effort to combat them.

These security forces have stopped large amounts of cocaine from being shipped to Europe.

In January, officers found the largest stash ever to be seized in Ecuador – 22 tonnes of cocaine – buried in a pig farm.

However, extortion, kidnappings and murders remain high in the Andean country.

Reports /Trainviral/

Business

Thailand expands v-free entry to 93 countries

Published

5 months ago

July 16, 2024

Thailand has expanded its visa-free entry scheme to 93 countries and territories as it seeks to revitalize its tourism industry.

Visitors can stay in the South-East Asian nation for up to 60 days under the new scheme that took effect on Monday,

Previously, passport holders from 57 countries were allowed to enter without a visa.

Tourism is a key pillar of the Thai economy, but it has not fully recovered from the pandemic.

Thailand recorded 17.5 million foreign tourists arrivals in the first six months of 2024, up 35% from the same period last year, according to official data. However, the numbers pale in comparison to pre-pandemic levels.

Most of the visitors were from China, Malaysia and India.

Tourism revenue during the same period came in at 858 billion baht ($23.6bn; £18.3bn), less than a quarter of the government’s target.

Millions of tourists flock to Thailand every year for its golden temples, white sand beaches, picturesque mountains and vibrant night life.

The revised visa-free rules are part of a broader plan to boost tourism.

Also on Monday, Thailand introduced a new five-year visa for remote workers, that allows holders to stay for up to 180 days each year.

The country will also allow visiting students, who earn a bachelor’s degree or higher in Thailand, to stay for one year after graduation to find a job or travel.

In June, authorities announced an extension of a waiver on hoteliers’ operating fees for two more years. They also scrapped a proposed tourism fee for visitors flying into the country.

However some stakeholders are concerned that the country’s infrastructure may not be able to keep up with travellers’ demands.

“If more people are coming, it means the country as a whole… has to prepare our resources to welcome them,” said Kantapong Thananuangroj, president of the Thai Tourism Promotion Association.

“If not, [the tourists] may not be impressed with the experience they have in Thailand and we may not get a second chance,” he said.

Chamnan Srisawat, president of the Tourism Council of Thailand, said he foresees a “bottleneck in air traffic as the incoming flights may not increase in time to catch up with the demands of the travellers”.

Some people have also raised safety concerns after rumours that tourists have been kidnapped and sent across the border to work in scam centres in Myanmar or Cambodia.

A fatal shooting in Bangkok’s most famous shopping mall last year has also caused concern among visitors.

Reports /Trainviral/

Business

Royal Mail will deliver letters forever

Published

5 months ago

July 16, 2024

The prospective new owner of Royal Mail has said he will not walk away from the requirement to deliver letters throughout the UK six days a week, as long as he is running the service.

“As long as I’m alive, I completely exclude this,” Czech billionaire Daniel Kretinsky told the BBC.

Mr Kretinsky has had a £3.6bn offer for Royal Mail accepted by its board.

Shareholders are expected to approve the deal in the coming months, but the government also has a say over whether it goes ahead.

Currently the Universal Service Obligation (USO) requires Royal Mail to deliver letters six days a week throughout the country for the same price. But questions have been raised over whether the service could be reduced in the future.

In an exclusive interview with the BBC, Mr Kretinsky also said he would be willing to share profits with employees, if given the go-ahead to buy the group.

However, he appeared to reject the idea of employees having a stake in Royal Mail, which unions have called for in exchange for their support.

The Royal Mail board agreed a £3.6bn takeover offer from Mr Kretinsky in May for the 500-year-old organisation, which employs more than 150,000 people. Including assumed debts, the offer is worth £5bn.

But because Royal Mail is a nationally important company, the government has the power to scrutinise and potentially block the deal.

As well as keeping the new government on side, Mr Kretinsky also faces the task of convincing postal unions that the proposed deal will benefit employees.

The USO is a potential sticking point for both the government and unions.

Royal Mail is required by law to deliver letters six days a week and parcels five days a week to every address in the UK for a fixed price.

How well this has actually been working in practice is a different matter. Ten years ago, 92% of first class post arrived on time. By the end of last year it was down to 74%, according to the regulator Ofcom.

Last year the regulator fined Royal Mail £5.6m for failing to meet its delivery targets.

Royal Mail has been pushing for this obligation to be watered down. It wants to cut second class letter deliveries to every other weekday, saying this will save £300m, and lead to “fewer than 1,000” voluntary redundancies.

‘Unconditional commitment’

Mr Kretinsky has committed in writing to honouring the USO, but only for five years.

And after that, in theory, the new owners could just walk away from it.

However, Mr Kretinsky told the BBC: “As long as I’m alive, I completely exclude this, and I’m sure that anybody that would be my successor would absolutely understand this.

“I say this as an absolutely clear, unconditional commitment: Royal Mail is going to be the provider of Universal Service Obligation in the UK, I would say forever, as long as the service is going to be needed, and as long as we are going to be around.”

Mr Kretinsky added that the written five-year commitment was “the longest commitment that has ever been offered in a situation like this”.

Woman's hand posting a letter into a red post box

Another potential stumbling block for the deal, however, is how the company will be structured.

Unions would like to see the company renationalised, but Dave Ward, general secretary of the Communication Workers Union (CWU), told the BBC that would be “difficult in the current political and economic environment”.

Instead, what the CWU is pushing for is “a different model of ownership” – that is, where the employees part-own the business.

To get its support for the takeover, the union wants employees to share ownership of the company, along with other concessions including board representation for workers.

It says profit sharing is “not going to be enough to deliver our support and the support of the workforce”.

If the union doesn’t get what it wants, it won’t rule out industrial action, Mr Ward said. Its members went on strike in 2022 and 2023.

Although Mr Kretinsky said he is “very open” to profit sharing, he is not in favour of shared ownership.

“I don’t think the ownership stake is the right model,” he said. “The logic is: share of profit, yes, [but an] ownership structure creates a lot of complexity.

“For instance, what happens if the employee leaves? He has shares, he is leaving, he is not working for the company, he [still] needs remunerating.”

Mr Kretinsky said he didn’t want to create “some anonymous structure” but instead “remunerate the people who are working for the company, and creating value for the company”.

The union is also concerned about job losses and changes to the terms and conditions of postal workers’ contracts.

Mr Kretinsky has guaranteed no compulsory redundancies or changes in terms and conditions but only until 2025.

“If we are more successful, and we have more parcels to be delivered, we need not less people, but we need more people,” he said. “So really, job cuts are not part of our plan at all.”

He said if the management, union and employees work together, “we will be successful”.

Another concern is the potential break-up of the business.

The profit for Royal Mail’s parent company last year was entirely generated by its German and Canadian logistics and parcels business, GLS. Royal Mail itself made a loss.

Mr Kretinsky has promised not to split off GLS or load the parent company with excessive debt, although borrowings will rise if the deal goes through.

But he has a way to go to convince the CWU.

“I can’t think of any other country in the world that would just just hand over its entire postal service to an overseas equity investor,” Mr Ward of the CWU said.

However, Mr Kretinsky said that the postal unions “do understand that we are on the same ship, and that we need this ship to be successful, and that if we are there, we don’t have any real problems to deal with, because the sky is blue, and it’s blue for everybody.”

The union cannot stop this deal but the government can block it under the National Security and Investment Act.

Business Secretary Jonathan Reynolds has said he will scrutinise the assurances and guarantees given and called on Mr Kretinsky to work constructively with the unions.

Mr Kretinsky may say that he and the unions are ultimately on the same ship but, as things stand, they are not on the same page.

Who is Daniel Kretinsky?

Daniel Kretinsky started his career as a lawyer in his hometown of Brno, before moving to Prague.

He then made serious money in Central and Eastern European energy interests.

This includes Eustream, which transports Russian gas via pipelines that run through Ukraine, the Czech Republic and Slovakia.

He then diversified into other investments, including an almost 10% stake in UK supermarket chain Sainsbury’s and a 27% share in Premier League club West Ham United.

The Czech businessman is worth about £6bn, according to reports.

Royal Mail

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