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The impact of the crisis on smaller companies and new mechanisms for non-performing loans
July 22, 2020--The ongoing recession will result in a fresh surge in non-performing loans (NPLs) once payment holidays and moratoria end later this year. NPL investors played a valuable role in tackling the stock of problem loans from the last crisis, but in the aftermath of the current recession more complex financial restructuring will be needed. Governments should facilitate the refinancing of distressed but viable companies, possibly through a special regime for SMEs.
In November 2019, the European Banking Authority (EBA) and the Eurogroup reviewed progress in ‘risk reduction' in the euro-area banking system and highlighted the improvement in the management of non-performing loans (NPL). The NPL ratio in ECB-supervised banks had fallen to 3.1% of total loans at end-2019, from 7% in 2015, mirroring the ambitious NPL reduction targets set by the European Central Bank for about 30 high-risk banks. Several elements of the Council’s 2017 NPL Action plan had been implemented, including the ‘prudential backstops', which require early provisioning, thereby discouraging banks from holding on to questionable loans.
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Source: bruegel.org
EU reaches historic deal on pandemic recovery after fractious summit
July 20, 2020--European Union leaders clinched an historic deal on a massive stimulus plan for their coronavirus-throttled economies in the early hours of Tuesday, after a fractious summit lasting almost five days.
The agreement paves the way for the European Commission, the EU's executive, to raise billions of euros on capital markets on behalf of all 27 states, an unprecedented act of solidarity in almost seven decades of European integration.
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Source: reuters.com
Boosting the resilience of Europe's financial system in the coronavirus crisis
July 17, 2020--Europe has a heavily bank-based financial structure, but bank-based financial structures are associated with higher systemic risk than market-based financial structures. The higher level of systemic risk in Europe suggests caution when pursuing policies that stimulate risk taking and debt creation by banks, especially in the wake of COVID-19. Priority should be given to financial diversification and equity finance.
Bank-based and market-based financial structures mobilise savings, allocate capital, price risks and absorb shocks in different ways. While banks conduct financial intermediation and bear risks on their balance sheets, markets channel resources directly from savers to borrowers, serving as platforms via which equity and debt securities are priced, distributed and traded. A key question is whether differences in financial structure are associated with systemic risk, which has implications for public policy efforts to sustain real economic activity.
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Source: bruegel.org
ESMA publishes its first Review Reports on the MiFIR transparency regime
July 16, 2020--The European Securities and Markets Authority (ESMA), the EU's securities markets regulator, has published today two final Reports reviewing key provisions of the MiFID II/MiFIR transparency regime.
The first Report reviews the MiFIR transparency regime for equity instruments and contains proposals for targeted amendments regarding the transparency obligations for trading venues and specifically the double volume cap mechanism.
It also includes recommendations on other key transparency provisions, in particular the trading obligation for shares and the transparency provisions applicable to systematic internalisers in equity instruments. The second Report reviews the pre-trade transparency obligations applicable to systematic internalisers in non-equity instruments.
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Source: ESMA
Can the global recovery be sustained even as the pandemic rages?
July 16, 2020--The global economy is showing signs of recovery from the economic crisis caused by COVID-19, though the spread of the coronavirus is accelerating in some countries. In this circumstance, policymakers must weigh up the trade-offs involved in dealing with the pandemic while easing lock downs and sustaining economic activity. Differences in age structures, urbanisation rates and other factors will inform decision making in different countries.
The incidence of new cases of COVID-19 might be declining in Wuhan, Bergamo, Madrid, and New York-at different times the epicentres of the disease-but many experts believe that these are still the early days of the pandemic.
At this writing, cases are growing at the exponential rate of 1.5% a day, implying a further doubling of cases by late August. The reproduction rate has fallen to well below 1 in China and the Western Pacific, across Europe and in the north-eastern United States, which if sustained (a big if) points to the eventual extinction of the virus in those regions.
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Source: bruegel.org
The EU's Opportunity to Turn Its Markets Toward the Future
July 16, 2020--Meeting the fiscal demands of COVID-19 will require the European Union to borrow on capital markets more than ever, and for European pension funds and households to look more widely for ways to build their nest eggs safely. The EU should take the challenges of the pandemic and Brexit as a chance to get its financial infrastructure house in order.
The EU is newly looking to harness financial markets for good on its recovery path out of the COVID-19-caused recession. Germany's U-turn from abhorring public debt to ramping it up for a good cause has given momentum to a continental shift that may lead, for the first time, to joint EU borrowing at scale. EU leaders now are considering a sizeable aid fund that would allow the 27 member states to borrow jointly, harnessing their collective reputations to raise private-sector money for the recovery effort.
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Source: bruegel.org
New HSBC ETFs on Xetra: Sustainable investments in Europe, Japan and the USA
July 15, 2020--Since Wednesday, three new exchange traded funds from HSBC Global Asset Management have been tradable on Xetra and Börse Frankfurt.
With the HSBC Europe Sustainable Equity UCITS ETF, the HSBC Japan Sustainable Equity UCITS ETF and the HSBC USA Sustainable Equity UCITS ETF, investors can invest in companies from Europe, Japan or the USA.
The selection of the securities is based on sustainability criteria. Companies with significant business activities in nuclear energy, tobacco, coal for power stations, military or civil weapons are excluded from the index. This also applies to companies that violate the principles of the United Nations Global Compact (human rights, labour, environment and anti-corruption). The weighting of the individual stocks is based on the ESG rating and the level of CO2 emissions. A further objective is to minimise the tracking error to the corresponding parent indices of FTSE Russel.
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Source: Deutsche Börse
Forecasts for the UK economy: July 2020
July 15, 2020--A comparison of independent forecasts for the UK economy in July 2020.
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Source: gov.uk
BNP Paribas Asset Management launches innovative environment-themed long/short equity fund
July 15, 2020--BNP Paribas Asset Management ('BNPP AM') announces the launch of BNP Paribas Environmental Absolute Return Thematic fund ('EARTH'), an equity long/short alternative UCITS strategy that seeks to identify opportunities among those companies that are facing or addressing significant environmental challenges.
These challenges arise as the increased demand for food, water and energy resulting from forecast global population growth of two billion by 2050 will lead to increased waste production and carbon dioxide emissions, while the world is simultaneously targeting carbon neutrality by the same date under the terms of the Paris Agreement. With such challenges come opportunities for those investors looking for meaningful ways to deploy capital to help fight climate change.
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Source: BNP Paribas Asset Management
ESMA promotes consistent application of prospectus disclosure requirements
July 15, 2020--The European Securities and Markets Authority (ESMA), the EU's securities markets regulator, has published today its final Guidelines on disclosure requirements under the Prospectus Regulation.
The Guidelines provide guidance to financial market participants regarding the disclosure of financial and non-financial information in the prospectus.
The aim of the Guidelines is to ensure that market participants have a uniform understanding of the relevant disclosure required in the various annexes included in the Commission Delegated Regulation (EU) 2019/980. The Guidelines will help those responsible for the prospectus to assess which disclosure is required and to promote consistency across the EU in how the annexes to the Delegated Regulation are applied.
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Source: ESMA
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