Dutch bank ABN Amro says it will slash the size of its corporate and investment banking business, according to the FT.
The news comes after a series of high-profile losses, excessive risk-taking in the division and the impact of COVID-19.
The state-backed bank on 12 August says it will wind down all of its non-European corporate banking operations. It will also stop providing trade and commodity finance. The decision follows a review led by Robert Swaak, the new chief executive.
“Over the years, CIB has been unable to generate the required profitability at an acceptable risk level,” the bank says.
ABN says it would shut non-core operations worth about 35% of the unit’s risk-weighted assets and 10% of the overall bank over the next three to four years, with about 800 jobs affected.
Clifford Abrahams, ABN chief financial officer, says the bank would consider selling assets to speed up the wind-down if market conditions improve, but adds that it was “not going to adopt a fire sale approach”.
Russell Quelch, financials specialist at Redburn, says the division has “long been an overhang on group profitability”, and investors welcome the plan to shrink it. Shares in ABN rose by 8% on 12 July.
The announcement marked the second restructuring of the division in as many years. However, while an earlier programme focused on shrinking assets the latest plan included a stronger focus on reducing risk.
Martina Matouskova, analyst at Jefferies, says before the restructuring was announced that “ABN’s corporate finance division lacks scale, and we believe it compensated for this by taking bigger risks to deliver better margins”.
Large losses in the corporate and investment bank weighed on the group’s results for the second quarter, pushing it to a small net loss of €5 million compared with €693 million profit in the same period last year. Revenues fell 15% year-on-year, to €2 billion.
A €703 million impairment charge is behind the bank’s losses. This is partly linked to a weaker economic forecasts rather than current customer defaults. However, the bank says it was also affected by a number of large impairments in the oil and gas sector, and a potential fraud case in Germany.
ABN and its main Dutch rival ING were among the largest lenders to German payments group Wirecard, which collapsed in a fraud scandal in June.
ABN says it expects impairments to rise further in the second half of the year, increasing its full-year forecast from €2.5 billion to €3 billion. Tanja Cuppen, chief risk officer, says the bank expected to see a particular increase in problems among small and mid-sized business customers as government support schemes and payment holidays come to an end.
The second-quarter charges followed a number of even larger one-off losses in the first quarter because of the collapse of a US hedge fund and a fraud at Singaporean oil trader Hin Leong.
French bank BNP Paribas will also be scaling back its commodity trade finance business after a series of heavy losses.
Here’s how Nasdaq-listed MicroStrategy went about buying $175m in Bitcoin
MicroStrategy has become the poster child of mainstream Bitcoin adoption amongst corporations. It is the only publicly listed company to turn towards BTC as a reserve asset to store their capital in.
Their announcement last month regarding their decision to ditch the US Dollar in favor of BTC to store their capital was a big one, because it showed that the benchmark digital asset is gaining utility as a store of value.
For a company with hundreds of millions of dollars in cash, the decision makes sense, as the crypto’s scarcity allows them to avoid the massive losses that would otherwise be incurred due to inflation.
Acquiring this much BTC without going through over the counter (OTC) venues is no easy task, however, and the company’s CEO explained in a recent tweet how they went about doing this.
MicroStrategy now holds 38,250 Bitcoin
Earlier this week, Microstrategy CEO Michael Saylor announced that his company had doubled down on their Bitcoin bet, adding $175m worth of the digital asset to their holdings.
This massive purchase came about just weeks after the company had revealed its plans to switch to an alternative Bitcoin-focused financial strategy. They now intend to hold their entire capital reserves in BTC to avoid inflation and devaluation of the US Dollar, which is being printed at unprecedented rates.
This strategy is unprecedented and was kicked off by the purchase of a whopping $250m worth of the digital asset.
The company revealed on September 15th that they were buying even more BTC, conducting a $175 million purchase via the spot retail markets. This may have caused Bitcoin’s price to rally to $10,900 while the rest of the market trended lower.
Their total holdings now stack up to 38,250 Bitcoin, with an aggregated purchase price of $425 million.
Here’s how MicroStrategy market-bought 16,796 BTC
During their latest bout of purchasing, MicroStrategy used the retail market to acquire their crypto, with the company’s CEO explaining that they purchased 16,796 BTC throughout 74 hours of continuous trading.
“To acquire 16,796 BTC (disclosed 9/14/20), we traded continuously 74 hours, executing 88,617 trades ~0.19 BTC each 3 seconds. ~$39,414 in BTC per minute, but at all times we were ready to purchase $30-50 million in a few seconds if we got lucky with a 1-2% downward spike.”
The massive amount of capital that was introduced into the market as a result of these 74 hours of continuous trading likely had lasting impacts that may still be influencing Bitcoin.
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EU to see comprehensive crypto regulation by 2024
The European Union, or EU, plans to incorporate crypto and blockchain technology into its main processes by 2024.
Over the next four years, the economic union aims to firm up fresh regulations that will promote blockchain and digital asset usage for international money transfers, according to internal documents that Reuters reported on Friday.
The documents detailed:
“By 2024, the EU should put in place a comprehensive framework enabling the uptake of distributed ledger technology (DLT) and crypto-assets in the financial sector […] It should also address the risks associated with these technologies.”
Finding that almost 80% of its population transacts in paper money, the European Commission, the union’s governing entity, wants to see digital payments become more common, while aiming for immediate transaction times, Reuters explained.
The commission’s reported aims include a desire for increased data access, financial activities availability — all while aiming for increased efficiency. “By 2024, the principle of passporting and a one-stop shop licensing should apply in all areas which hold strong potential for digital finance,” the documents noted. Over the next year, fast transaction avenues will likely take over, Reuters added.
Although the COVID-19 pandemic may have expedited the desire for digital payments across the globe, blockchain and crypto assets have been the talk of the regulatory town, with many countries looking toward central bank digital currencies to streamline their payments infrastructures.
UPDATE Sept. 18, 21:00 UTC: This article has been updated.
Good business: Eco-friendly credit cards on the horizon
Share The plastic credit card consumers keep in their wallets may soon change. With more consumers demanding eco-friendly business practices, issuing banks could benefit from using more sustainable card materials, according to Aite Group’s report, “Eco-Friendly Card Material: Bringing Sustainability to Card Issuance.” “Not only is there approximately 150 million metric tons of plastic in …Read More
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