By Jaisal Pastakia , Investment Manager at Heartwood Investment Management
In many ways, the European Central Bank (ECB) more than delivered on its latest stimulus package. The deposit rate was cut by ten-basis-points and the main refinancing and marginal lending facility rates were each reduced by five basis points. These reductions were within the market’s expectations, but the ECB positively surprised with a larger than expected expansion of the asset purchase programme from €60 billion to €80 billion per month. Significantly, asset purchases will now include non-financial investment grade corporate bonds, signalling that the ECB is willing and able to widen the range of its purchases to include private-sector assets. Longer term, this shift could pave the way for other non-government or unsecured risk purchases, allowing more room to expand the asset purchase programme if needed.
Will the latest ECB measures stimulate growth?
Central banks around the world have been buying assets, reducing interest rates and flattening yield curves (i.e. lowering longer-term interest rates) to stimulate economic activity and push inflation higher. And yet despite these herculean efforts, ECB staff projections barely expect to see positive inflation this year. Forecasts were revised lower to 0.1% year-on-year from 1.0%. Annual GDP growth has also been downwardly revised for this year and in 2017.
Banks are the transmission mechanism through which ECB policy can impact the real economy. Europe needs a bank system that functions. Notwithstanding the improvements in European banks’ balance sheets in recent years, the flow of credit into the real economy continues to be the bottle neck in the euro-area. While the credit cycle turned positive in April 2015 after a three-year period of contraction, bank lending to the private sector remains at relatively anaemic levels. Moreover, as the ECB pushes further into negative interest rate territory, concerns are building around banks’ profitability and the negative impact this would have on the supply of lending to households and corporates.
In our view, the ECB’s decision to launch a new series of targeted longer-term refinancing operations (TLTRO II) goes some way to ease concerns. Starting in June of this year, the programme will have four tranches and provides low cost financing to banks of four years’ maturity at a fixed rate of currently zero percent. This is meaningful because banks can potentially lock in zero percent financing into the next decade (i.e. until March 2021), providing ample stimulus to the economy.
Incentivising banks to lend
A second important feature of this programme is that banks are incentivised to lend. TLTRO II has been designed so that if banks’ net lending surpasses a set ECB benchmark, the interest rate applied can be set as low as the deposit rate, which is currently minus 0.40 percent. In other words, the ECB could effectively be paying the banks to borrow, as a way to offset the damaging impact on their net interest margins when lending into the real economy.
Currency and bond markets were disappointed in their initial reaction to the ECB’s announcement. Of course, investors are worried more generally about global central bank efficacy, and whether policymakers have enough ammunition to support growth and fight deflationary headwinds. If TLTRO II is taken up, we believe these measures will help the flow of credit within the euro-area, while not inadvertently increasing costs for borrowers. As financial markets digest the longer-term effects of these measures, we expect European assets will find support, including equities and investment-grade corporate bonds.
Hackers can now empty out ATMs remotely – what can banks do to stop this?
By Elida Policastro, Regional Vice President for Cybersecurity, Auriga
In 2010, the late Barnaby Jack famously exploited an ATM into dispensing dollar bills, without withdrawing it from a bank account using a debit card. Fast forward to the present day, and this technique that is now known as jackpotting, is emerging as a threat and is growing as an attack on financial services. Recently, a hacking group called BeagleBoyz in North Korea have caught the attention of several U.S. agencies, as they have been allegedly stealing money from international banks by using remote hacking methods such as jackpotting.
The reality behind jackpotting
Jackpotting is when cybercriminals will use malware to trick their targeted ATM machine into distributing cash. As this criminal method is relatively easy to commit, it is becoming a popular tool for cybercriminals, and this trend will sure continue in 2021, unless financial organisations implement policies to prevent this and protect consumers.
During this difficult time, when access to cash has never been more important to banking customers, it is imperative that banks give their customers reliable ATMs that work, 24/7, 365 days a year. However, due to the sensitive data that ATMs possess, such as credit card or PIN numbers, they have now become a profitable object for cybercriminals to manipulate. As cybercriminals have been evolving in their efforts of attacking the IP in ATM machines, we will definitely see more jackpotting stories emerge in the coming months, especially with the large return on investment.
How criminals exploit the vulnerabilities found in ATMs
Since ATMs are both physically accessible and found in remote locations with little to no surveillance, this gives an opportunity for criminals to carry out jackpotting, especially with the software vulnerabilities that may exist in many ATMs.
ATM machines have been easily manipulated due to the outdated and unpatched operating systems that they run on. If banks wanted to resolve this issue and update these systems, it would take large amounts of time and money to do so. However, some banks do not have such resource and because of this, cybercriminals take advantage by penetrating the software layers in ATMs and exploiting the hardware to dispense cash.
How can banks tackle this?
As the sector has a complex technical architecture, banking organisations will have to make sure that they have control over the transactions that take place, and this includes the management of security when it comes to communication between various actors. When financial organisations are reviewing their ATM infrastructure, they will also need to protect their most vulnerable capabilities within their cybersecurity. Banks, for example, can encrypt the channels on the message authentication, in the event bad actors try to tamper with their communications.
Because ATM networks need to be available 24/7, banks not only, need to implement greater protection over their systems, but they need to do so with a holistic approach. One action that banks can take is to implement a centralised security solution that protects, monitors and controls their various ATM networks. This way banks can control their entire infrastructure from one location, stopping fraudulent activities or malware attempts on vulnerable ATMs.
Another way for banks to reduce the risk of jackpotting attacks is to update their ATM hardware and software. To do this, they will need to closely monitor and regularly review their machines in order to spot any emerging risks.
What the future holds for the banking industry
As confirmed by the warnings from the U.S. agencies, jackpotting remains a very serious threat for financial organisations. Evidence has also emerged, which shows hackers are becoming more innovative in their tactics. It was reported last year, for example, that hackers stole details of propriety operating systems for ATMs that can be used to form new jackpotting methods.
The emergence of jackpotting highlights the need for banks to actively work to protect their customers’ personal information and critical systems now and for the foreseeable future. In order to stay secure and reduce the risk of attacks, they will need to put in place the aforementioned solutions, which include updating their ATM hardware and software as well as closely monitoring and regularly reviewing their ATMs. As cybercriminals continue to become more innovative in their ways of attacking the machines, the issues mentioned will only continue to rise if they are not addressed. Although the method of jackpotting requires little action from cybercriminals, if financial organisations can implement a layered defence to their ATM security, they can stop themselves from becoming another victim to this type of attack in the future.
SoftBank Vision Fund set for new portfolio champion with Coupang IPO
By Sam Nussey and Joyce Lee
TOKYO/SEOUL (Reuters) – SoftBank’s $100 billion Vision Fund is poised to have a new number-one asset in its portfolio with the upcoming floatation of top South Korean e-tailer Coupang, furthering a turnaround that has seen the fund yo-yo from huge losses to record profit.
The $50 billion target valuation that Reuters reported this month would likely see the decade-old firm surpass recently listed U.S. food deliverer DoorDash Inc on a roster of assets that also includes stakes in TikTok parent ByteDance and ride-hailers Grab and Didi.
The Vision Fund built up its 37% stake in Coupang for $2.7 billion, mostly at an $8.7 billion post-money valuation, a person familiar with the matter said. The fund is not expected to sell shares in the initial public offering (IPO) that Coupang filed for in New York, the person said, declining to be identified as the information was not public.
SoftBank Group Corp and Coupang declined to comment.
Achieving a $50 billion valuation would add to good news for the fund which is bouncing back from an annual loss in March. This month, it announced record quarterly profit, driven by the listings of DoorDash and home seller Opendoor Technologies Inc and share price rise of ride-hailer Uber Technologies Inc.
The fund has written big cheques for late-stage startups to fuel rapid growth, with two-thirds of the value of its portfolio concentrated in 10 assets including Coupang.
The 10 include 25% of British chip designer Arm – to be sold to Nvidia Corp pending regulatory approval – but not stakes in high-profile stumbles like office-sharing firm WeWork.
The fund’s largest assets include its 22% stake in DoorDash, whose share price has doubled since the firm’s December IPO, sending its market capitalisation to $65 billion.
FACTBOX: Vision Fund’s investment hit parade
SoftBank initially invested in Coupang in 2015, adding it to a stable of e-commerce hits that included 25% of China’s Alibaba Group Holding Ltd, before placing it under the fund.
The e-tailer has grown rapidly during stay-home policies while the COVID-19 pandemic has forced other portfolio firms like Indian hotel chain Oyo to scramble to preserve cash.
Analysts see Coupang’s $50 billion valuation as feasible given its first-mover status and as it expands beyond replacing brick-and-mortar retail with a rising number of online channels.
It is the biggest e-tailer in South Korea that directly handles inventory, with 2020 purchases at about 21.7 trillion won ($19.62 billion), showed data from WiseApp.
“The market’s assessment isn’t exaggerated,” said analyst Park Eun-kyung at Samsung Securities. “Coupang’s market leadership is a premium factor.”
($1 = 1,106.1800 won)
(Reporting by Sam Nussey in Tokyo and Joyce Lee in Seoul; Editing by Christopher Cushing)
Five things to look out for in HSBC strategy update
By Alun John
HONG KONG (Reuters) – HSBC Holdings PLC will update its “transformation” plan announced a year ago on Tuesday, when the Asia-focussed lender also reports annual results.
As part of its latest strategy, the bank said in February last year it would shrink its investment banking operations and revamp its businesses in the United States and Europe resulting in 35,000 jobs being cut.
HSBC’s pretax profits for 2020 is expected to fall 38% to $8.3 billion, according to analysts’ estimates compiled by the bank, because of the impact of the COVID-19 pandemic.
Here are five key things to look out for in the new plan to revive its growth —
1. How will HSBC boost fee income?
The bank has promised details of its plans to make more money from the fees it earns from selling products to customers than it does by pocketing the difference between the interest rates it offers savers and charges borrowers.
This could involve selling more products to wealth management clients, charging corporate clients in different ways, and maybe even charging retail clients for basic banking services.
2. What do the plans to double down on China and Asia mean?
HSBC intends to refocus resources from elsewhere on what it calls its “high returning Asia business”, but investors want to know what this means in practice for markets and business lines.
Politics could make this harder. HSBC has been attacked by British lawmakers for assisting Hong Kong police with investigations into pro-democracy activists, including freezing some bank accounts.
CEO Noel Quinn said last month the bank had to comply with police requests and he could not “cherry-pick which laws to follow”.
3. Will HSBC resume paying a dividend?
HSBC has not announced a dividend since the third quarter of 2019, on instructions from the Bank of England. This angered retail investors in Hong Kong who tried unsuccessfully to have the policy changed.
The regulator has since lifted the ban, and British rival Barclays said Thursday it would pay a dividend of one pence a share. However, despite beating analyst expectations with its 2020 results, Barclays shares fell as a vague outlook without profit targets left investors underwhelmed.
HSBC investors will be looking beyond the day’s numbers for concrete commitments towards improved returns and a more positive outlook for key economies.
4. How will HSBC shrink its U.S. and European footprint?
HSBC’s French high street banking operations are up for sale, but it has had trouble finding a buyer.
The market is due an update on whether HSBC has managed to find a buyer on terms it will accept, or whether it will seek to wind the business down more gradually.
HSBC will also give details of how it will accelerate its existing efforts to shrink assets, staff and branches in the U.S., which accounted for 0.5% of the group’s pre-tax profit in the first half of last year.
5. More job cuts on the way?
HSBC employed 307,000 people at the end of 2010. The bank’s management said last year it was aiming to reduce the headcount of 235,000 closer to 200,000 by 2023. Investors want to know whether the new plan will mean deeper cuts. Nearly every new strategy launched by HSBC in the past decade has resulted in fewer people being employed by the bank.
(Reporting by Alun John; Editing by Sumeet Chatterjee & Shri Navaratnam)
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