Aurelia Butler

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is EU commissioner for tradeGlobal trade has been a key driver of prosperity and poverty reduction over the past few decades and the World Trade Organization has been at the heart of this. Now, at a time of geopolitical tensions, political uncertainty and the growing weaponisation of trade, the value of multilateral co-operation within the WTO is greater than ever. This new geopolitical reality requires a reformed WTO and is the reason the EU is leading efforts to update the rule book.The existing WTO rules, which still govern the majority of global trade, are our best guardrail against economic fragmentation. The EU continues to be a leading supporter of the organisation. It’s in our interests: almost 60 per cent of EU trade is done under WTO rules. But we now need to see a strong and reformed WTO that can effectively respond to the distinctive challenges of the 21st century. The upcoming 13th ministerial conference of the WTO, which takes place in Abu Dhabi next week, represents a golden opportunity to give further impetus to this organisation. Our aim is to shake up its core functions, from settling disputes to tackling urgent global challenges. The WTO has provided a vital forum for resolving trade disputes over the past quarter of a century. But the Appellate Body became defunct under the Trump administration. As a result, appeals cannot be heard and disputes are left in limbo — or “appealed into the void”. Reforming this dispute settlement system is critical to the WTO’s overall legitimacy and to stopping the erosion of trade rules. It is vital in providing stability for companies to invest and export. The EU and others have now made good progress on a set of reforms, but there is still work to be done to have a fully functioning system, including the possibility of appeal review, as soon as possible. We also want the WTO to strengthen its contribution to sustainability. The organisation delivered on this in 2022 at the last ministerial conference with a landmark agreement to protect our oceans by tackling harmful fisheries subsidies. WTO members must now deliver on the second part of this deal to address overfishing and overcapacity. This would also help us fully meet the relevant UN Sustainable Development Goals. The EU also wants a stronger WTO to ensure that trade can positively contribute to tackling global environmental challenges such as climate change, biodiversity loss and pollution. As part of that, we should enhance dialogue on domestic environmental measures, such as incentivising the green transition in a trade-friendly way. Together with Ecuador, Kenya and New Zealand, I will also be convening the 60-member Coalition of Trade Ministers on Climate to discuss how trade can support climate change objectives.  Agricultural reform and food security will also be of prime importance in Abu Dhabi. Climate change, geopolitical tensions, not least Russia’s brutal invasion of Ukraine and its weaponisation of food supply, all affect agricultural value chains and food availability. The EU will lead efforts to encourage WTO members to move away from trade-distorting subsidies and embrace the transition to sustainable farming — a goal that the EU has already pursued through successive reforms of the Common Agricultural Policy. The EU will also engage with other members on the pressing issues related to the challenges of the current food insecurity crisis, notably export restrictions applied to food products. Then there is digital trade. Here, we need to modernise the WTO rule book. The key demand of the business community — in developed and developing countries alike — is for ministers to renew the current moratorium on applying duties on ecommerce. This is vital to ensure that countries and businesses, especially small and medium-sized enterprises, can reap the benefits of the fast-growing digital economy. We also want to see a work programme to address the digital divide and we will work hard to secure these outcomes.  More broadly, the WTO must re-establish itself as the key international forum for discussing and delivering on other pressing global policy challenges, such as those posed by industrial policy. We also need to agree an agenda to facilitate the integration of developing countries into the global economy, especially the least developed. An array of challenges is facing us all. Ensuring that the WTO is effective and capable of helping us meet them is in everybody’s interests. More

Typically, the interest on credit card debt comprises borrowing cost determined by the U.S. Federal Reserve and an additional rate charged by the lender. The additional rates, called the annual percentage rate (APR) margin, were raising costs for consumers by billions of dollars a year, CFPB said.Major credit issuers have increased the average APR margin by 4.3 percentage points over the last 10 years, the consumer watchdog said, adding it had found evidence of practices inhibiting customers’ ability to find alternatives to expensive products.The credit card market, being a highly-concentrated industry, has attracted scrutiny from regulators and lawmakers for years. Concerns about competition were renewed this week after Capital One Financial (NYSE:COF) agreed to buy Discover Financial for $35.3 billion, with analysts predicting tough antitrust scrutiny for the proposed merger.CFPB said the APR margin for revolving accounts – a type of credit account that lets customers borrow up to their maximum credit limit – is now at 14.3%, the highest in recent history.This has boosted the profitability of credit card companies. Last week, the watchdog said that large credit card companies that dominate the market charge higher interest rates than smaller banks and credit unions. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The European Central Bank has announced its first annual loss for almost two decades, prompting policymakers to carry forward an annual deficit to offset against future profits for the first time.The €1.3bn loss for 2023 reflects the impact of higher interest rates paid to national central banks, which the ECB has raised to a record level in response to the biggest surge in inflation in its history.The central bank would have made a much bigger loss last year if it had not drawn on the remaining €6.6bn of provisions it built up in recent years to cover financial risks.Higher rates pushed up the ECB’s net interest expense, reflecting a sharp rise in interest paid to other national central banks that share the euro, from €900mn in 2022 to €7.2bn last year. However, the interest the ECB earns on the vast portfolio of bonds bought over the past decade has not increased anywhere near as much as many of these are long-term government securities that have locked in low or even negative rates for many years.Central bank losses are likely to be seized on by critics of their recent massive bond purchases, with one case against this still pending in the German constitutional court. Public finances will also be hit by an end to the big dividends finance ministers were used to receiving from central banks.But while the loss could increase political pressure on the ECB and threaten its independence, most analysts think it should not matter whether central banks are profitable.“I don’t see any meaningful implication for policy at this stage,” said Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management. One concern had been that governments might need to bail out some northern central banks with the highest losses, such as the Dutch one. But this risk faded after De Nederlandsche Bank agreed a plan with the government to rebuild its capital from future profits.The downturn in the ECB’s financial outlook had already forced it to scrap the dividend it pays to national central banks last year. These dividend payments — which amounted to €5.8bn between 2018 and 2022 — are usually passed on by national central banks to eurozone governments.The central bank said it was “likely to incur losses over the next few years, but is then projected to return to making sustained profits”. It added that its balance sheet was backed by its capital and “substantial revaluation accounts”, which together totalled €46bn at the end of last year.“In any case, the ECB can operate effectively and fulfil its primary mandate of maintaining price stability regardless of any losses,” it added.The last time the ECB made an annual loss was in 2004 when it was hit by foreign exchange losses due to the rapid appreciation of the euro, but it absorbed that loss rather than rolling it forward. Last year, the ECB made zero profits as it used provisions to offset a €1.6bn deficit.The ECB has been slowly reducing the €4.7tn bond portfolio it owns along with the eurozone’s national central banks since last year, while the ultra-cheap loans it gave to commercial banks during the pandemic have also been expiring. These moves helped to shrink the balance sheet of the eurosystem — which includes the ECB and 20 national central banks — to €6.94tn at the end of last year — down from a peak above €8.8tn in mid-2022. More

This article is an on-site version of our Energy Source newsletter. Sign up here to get the newsletter sent straight to your inbox every Tuesday and ThursdayGood morning and welcome back to Energy Source, coming to you from New York.US energy secretary Jennifer Granholm played down concerns regarding the Joe Biden administration’s pause on permits for new liquefied natural gas terminals in a wide-ranging interview at the National Press Club in Washington yesterday.“We are the largest exporter of natural gas in the world, and we will continue to be the largest exporter,” Granholm said. “[The pause] is not going to impact any relationship that we have with our allies or their ability to access energy.”The remarks come as the Biden administration faces backlash against its decision to pause permits. Last week, the Republican-led House of Representatives passed a bill that would undo this freeze. The Democrat-controlled Senate has yet to approve the legislation.Elsewhere, the US Ninth Circuit Court of Appeals struck down a moratorium on coal leasing on federal lands yesterday in a setback for environmentalists, and the Supreme Court heard oral arguments in a potentially consequential case over the Environmental Protection Agency’s “good neighbour” policy finalised last year, which addresses interstate pollution.Today’s newsletter looks at one of the largest US solar factories starting production this month, less than two years after the passage of Biden’s landmark climate law. The factory, a joint venture between renewable giants Invenergy and Longi, has sparked concerns from some local residents over its Chinese ties, but it’s also causing shifts in attitudes towards clean energy and blue-collar jobs. We end with a quick dive into the projected slowdown in US oil production growth. Thanks for reading, AmandaChinese-backed solar factory highlights Biden’s clean energy conundrums This week, one of the largest US solar panel factories began production in Pataskala, a rural town on the outskirts of Columbus, Ohio, the state capital.The $600mn factory, known as Illuminate USA, is a joint venture between two of the biggest players in clean energy: Invenergy, the largest private US renewables developer, and China-based Longi, the world’s largest solar panel manufacturer.The factory is one of dozens of clean energy manufacturing projects being built across the country and serves as an important case study on how Biden’s landmark climate law, the Inflation Reduction Act, is transforming small towns in an election year.“It’s a catalytic project for Pataskala,” said Alexis Fitzsimmons, executive director of Grow Licking County, the local economic development organisation. “Those are good-paying manufacturing jobs that are going to increase the wealth of our citizens in our region.”The IRA included lucrative tax credits to rapidly decarbonise the country’s economy while building out a domestic manufacturing base for clean technologies to reduce reliance on China, the world’s dominant producer. Kurt Wagner, chief financial officer of Illuminate USA, said the tax credits were “an important financial component” for the project.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Illuminate USA is located in the county of Licking, which voted for former president Donald Trump in 2016 and 2020. Licking is on the frontline of the White House’s strategic supply chain initiatives, with Intel planning to build semiconductor factories worth $20bn in the county. That has helped drive unemployment to a record low. But the factory’s ties to a Chinese company have sparked concerns among some residents, who accuse the Illuminate USA project of serving as a warehouse for the Chinese Communist party. Longi, meanwhile, has warned the west that their countries risk slowing down the energy transition if they restrict Chinese companies from their supply chains. My story last week has more on the opposition and what it tells us about the Chinese conundrum facing the US energy transition.Another important theme is how the project is reshaping attitudes towards clean energy and manufacturing in the local community. At full production, Illuminate USA will employ more than 1,000 workers, marking the largest manufacturing project in Pataskala to date.“I’m much more aware now of how much we’ve not been looking at or utilising renewable energy,” said Patrick Killoran, a production line operator at Illuminate USA. Killoran earns 45 per cent more making solar panels than at his previous manufacturing job and would like to purchase solar panels for his future home.John Berry, president of Central Ohio Technical College, said the factory marks a “golden moment” for trade professions. A “significant amount” of students with bachelor degrees have returned for a technical education, he added.“There is an understanding that this is a new era of manufacturing,” Berry told Energy Source. “These are long-term stable careers that can really change the lives of students and their families.”But whether these jobs can help shore up more support for Biden is less clear. More Americans trust Trump to handle the economy, according to the most recent FT-Michigan Ross survey. A poll last summer by the Washington Post and the University of Maryland found the majority of voters were not aware of the IRA. The US is at an inflection point for solar, which is expected to be the leading source of growth in the country’s electric power sector through 2025. At the same time, solar manufacturers are facing a global reckoning as a glut in panels spurred by overproduction in China threatens their viability — a situation the US is relatively insulated from because of subsidies in the IRA.Former Trump officials have told the FT that he will gut the climate law if elected president in November, a scenario the solar industry has warned would be “devastating”.“The IRA is essentially 100 per cent of the reason why we are talking about solar manufacturing today,” said Pol Lezcano, an analyst at BloombergNEF. “Some of these factories will be cost competitive but only after subsidies.”Illuminate USA and its workers aren’t worried about a potential change in the administration. Wagner said the company “will deal with the challenge” if the tax credits went away.Killoran, the production line operator, doesn’t see his job tied to Biden’s policies and plans to vote for Trump in November.“I think [Biden] is ruining this country at a rapid pace,” he said. “The manufacturing aspect, I think Trump would be a better one to have.”US oil production snapshotGrowth in US onshore oil production is set for a slowdown. A new outlook from Wood Mackenzie expects oil production in the lower forty-eight states to grow by 270,000 barrels a day in 2024, down from 900,000 b/d last year, and the lowest growth rate since 2016, excluding Covid-19 pandemic years. The deceleration comes as inflation, private consolidation and declining rig count hamper supply. Wood Mackenzie’s forecast for 2024 is higher than the outlook from the US Energy Information Administration, which expects oil production in the lower forty-eight states to grow by 110,000 b/d this year and 360,000 b/d in 2025. Despite slower growth, US oil output, which sits at a historic high, is still set for new heights.But the slowdown in US production growth removes some of the pressure from Opec+ producers to cut production to buoy prices, said Ann-Louise Hittle, vice-president of oil markets at Wood Mackenzie.“The slower US growth rate in oil production could be a price supportive factor as Wood Mackenzie expects strong oil demand growth,” Hittle said. The consultancy expects Brent, the global benchmark, to average $85.90 a barrel for 2024.Job MovesØrsted nominated Lene Skole and Andrew Brown to serve as chair and deputy chair, respectively, of its board of directors.Avangrid appointed Justin Lagasse as chief financial officer and senior vice-president. Lagasse has been serving as interim CFO since November following the departure of Patricia Cosgel.EnCore Energy appointed Shona Wilson as chief financial officer. Wilson joins the US uranium developer from electricity analytics firm kWantix.SunPower appointed Tom Werner as executive chair of its board. Werner previously served as the residential solar company’s chief executive.Power PointsEnergy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu and Tom Wilson, with support from the FT’s global team of reporters. Reach us at [email protected] and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.Recommended newsletters for youMoral Money — Our unmissable newsletter on socially responsible business, sustainable finance and more. Sign up hereThe Climate Graphic: Explained — Understanding the most important climate data of the week. Sign up here More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.UK business activity expanded more than expected in February fuelling hopes that Britain’s recession could already be over, according to a closely watched survey. The S&P Global flash UK PMI composite output index, a measure of the health of the private sector, rose to 53.3 in February, up from 52.9 in January and the highest since May 2023, according to data on Thursday. This was also higher than the 52.9 forecast by economists polled by Reuters and above the 50 mark, which indicates a majority of businesses reporting rising activity. The survey pointed to renewed price pressures, such as the shipping crisis in the Red Sea and sustained wage growth, which will support policymakers’ caution over cutting interest rates too quickly this year.Chris Williamson, chief business economist at S&P Global Market Intelligence, said the results pointed to the economy growing at a rate of 0.2-0.3 per cent in the first quarter of 2024, “allaying fears that last year’s downturn will have spilled over into 2024 and suggesting that the UK’s recession is already over”.But the survey also signalled supply chain delays were at their highest level for more than 18 months, linked to Red Sea shipping disruptions, which meant the selling price of goods rose at its fastest pace for nine months.Service sector inflation also ticked up driven by higher wage costs, which boosted costs for businesses and resulted in rising output prices, according to the survey. “With growth accelerating and prices on the rise again . . . policymakers are increasingly likely to err on the side of caution when considering the appropriateness of cutting interest rates,” said Williamson.The results, based on interviews conducted between February 12 and 20, showed that growth was driven by the services sector, with an index of 54.3. Some respondents noted that boosted activity was due to less restrictive funding costs.Manufacturing activity fell, continuing a 12-month trend. However, the rate of decline eased to the lowest level since November 2023. Business optimism over prospects for the year ahead was at its highest level for two years, boosting an expansion in hiring. The UK economy entered a technical recession in the second half of 2023, as GDP contracted by 0.3 per cent in the final quarter, official data showed last week.However, the PMI results suggest the economy has already rebounded from the downturn. The UK results were significantly stronger than those in the eurozone, where the composite PMI only rose to 48.9 in February, up from 47.9 in the previous month but still below to 50 mark. More

TORONTO (Reuters) – Limited exposure to U.S. commercial real estate (CRE) is giving shareholders hope that Canada’s big banks can weather the storm that has rocked rivals in the United States and Europe.However, investors will be on alert for signs of stress when Canada’s top six banks next week post first quarter earnings, that will continue to be pressured by high bad loan provisions. The beleaguered U.S. CRE sector has taken a toll on banks in Europe and Asia, with borrowers at the risk of defaulting on loans as high interest rates and low occupancies hit valuations.The recent sell-off of New York Community Bancorp (NYSE:NYCB) has soured sentiment and dragged down U.S. peers, reviving fears of a global contagion stemming from the sector. “While the space is undoubtedly challenged … it will be largely unimpactful to the Big-6 Canadian banks given their diverse loan books,” Canaccord Genuity analyst Matthew Lee said.Canadian Imperial Bank of Commerce, the country’s fifth largest lender, has the biggest CRE exposure at 11% of its loan book, quarterly filings show. Around 10% of total loans at the top three Canadian banks involved CRE, while National Bank of Canada (OTC:NTIOF)’s exposure was 8%, the banks said at the end of fiscal 2023. Of the country’s six biggest banks, National Bank of Canada has no exposure to office real estate in the U.S., while Bank of Nova Scotia’s lending is minimal, filings showed.The others have said their portfolios are largely diversified, with U.S. office accounting for less than 1% to 2% of overall lending books, with many holding back on new loans. Big U.S. banks have a relatively small exposure compared to some regional lenders, which face many challenges including unanticipated losses in office and multi-family properties.Earnings from Canada’s top six banks are expected to fall between 3.8% and nearly 16%, LSEG data shows, largely due to them setting aside large provisions for bad loans and a slower pace of lending. “If you look at their (Canada banks) results, the one big change that we see is they’re not lending as much commercial and personal. That’s really it,” said Shilpa Mishra, managing director in BDO’s capital advisory services.Canadian insurer Sun Life Financial (NYSE:SLF) Inc cut the value of its U.S. office property portfolio by 26% in its latest quarter, underscoring the risk to banks. BRIGHT SPOT Canada’s top banks have expanded in the U.S. due to limited options in a highly regulated and competitive home market.But hurdles, including the U.S. Justice Department’s probe in TD’s anti-money laundering lapses and Royal Bank of Canada’s capital injection to rescue its U.S. unit City National, have made some investors wary.”The challenge in the U.S. is that it’s just not as profitable … So, the question is, you’re deploying capital, what is your expected return on that?,” Colin White, CEO and portfolio manager at Verecan, said. “You just can’t see the returns in the U.S. that they (Canadian banks) are able to see in Canada,” White added.Capital markets revenues are expected to rebound, however, as deal activity resumes after a long lull. Earnings from the segment are expected to grow 16% from the prior quarter in total for the large Canadian banks, RBC Capital Markets said. “There’s a backlog of businesses in Canada that needs to transition and many business owners have held off going to market over the last year. This has resulted in pent up activity in the deal making space,” BDO’s Mishra said. More

While the bank said it can operate effectively “regardless of any losses”, the accounts have broader implications – from reputation and independence to state finances.The following explainer looks at the risks and costs associated with losses at the ECB and the national central banks across the 20-nation euro zone. WILL THAT AFFECT THE ECB’S REPUTATION? The ECB printed trillions of euros over almost a decade, despite copious warnings from conservative economists. The losses could amplify critical voices, especially if central banks ask for additional capital from their governments, which some may portray as a public bailout. The losses, which have already reduced state incomes and may lead to additional expenditure, could prompt governments to question how the central bank operates, a potential risk to legitimacy and ultimately independence.While official bodies from the International Monetary Fund to the Organisation for Economic Co-operation and Development (OECD) argue that losses are not an indication of policy error, the broader public may struggle to understand the nuances, especially because central banks operate differently to any other firm.Sustained losses could also damage central bank credibility because then investors would assume it would be printing currency over a longer period.WILL THE LOSSES AFFECT GOVERNMENT BUDGETS?Governments across the euro zone enjoyed a dividend payout from their central banks for decades, so losses also mean a loss of income to budgets. If provisions are exhausted and losses must be carried forward as is the case now, even future profits become inaccessible to shareholders since the bank must first make up for losses, then rebuild provisions, before any dividends can be paid. WILL THE ECB NEED RECAPITALISATION?Central banks do not operate like commercial banks and can even function with negative equity. Indeed, the Reserve Bank of Australia and the Czech National Bank, among others, have negative equity, as did Germany’s Bundesbank for some of the 1970s.However, some, including the central bank of the Netherlands, have warned a negative equity situation cannot be maintained for an “extended period” and a government recapitalisation may be required.The central banks of the Netherlands, Belgium and Germany have all warned in the past that more large losses are likely.Sweden’s Riksbank – which is not part of the euro zone – has already said that according to its new statutes, it must apply to parliament for recapitalisation because its capital fell below the required threshold.WILL THAT AFFECT THE ECB’S FRAMEWORK REVIEW?The ECB is currently reviewing its operational framework, including how it will provide liquidity to lenders in a new normal of central banking.Over the past decade, it provided “abundant” funds and there is still 3.5 trillion euros ($3.8 trillion) of excess liquidity sloshing around in the financial system, years after ultra-easy monetary policy was abandoned.One issue under consideration is how much the ECB pays lenders on their excess liquidity parked at the bank overnight. Some policymakers argue that the ECB should remunerate a smaller portion of bank deposits at the 4% deposit rate, thereby lowering its own interest rate expense at the cost of bank earnings. However, there is little monetary policy justification for such a move and the ECB’s only mandate is price stability, so a move to shore up its own finances might be legally contentious.Still, a longer period of losses may be deemed unacceptable because it questions the sustainability of the framework, so this could provide an acceptable justification for reducing payments to commercial lenders.($1 = 0.9215 euros) More

The ECB, which has raised rates at an unprecedented pace over the past two years, has a bloated balance sheet after a decade of financial stimulus and commercial banks now earn hefty interest on the trillions of euros it printed during the era of anaemic inflation.”The loss… reflects the role and necessary policy actions of the Eurosystem in fulfilling its primary mandate of maintaining price stability and has no impact on its ability to conduct effective monetary policy,” the ECB said.The ECB, the central bank for the 20-nation euro area said its loss before the release of provisions was 7.9 billion euros after a loss of 1.6 billion euros in 2022. Once all risk provisions are wiped out, a loss of 1.3 billion euros will be carried forward, to be offset against future profits, its financial accounts showed. The bank said it was still well-capitalised and could operative effectively regardless of any losses.”The ECB is likely to incur further losses over the next few years as a result of the materialisation of interest rate risk, before returning to making sustained profits,” the bank said.Unlike commercial banks, a central bank can operate with depleted provisions and even negative equity. However, these losses can raise credibility concerns, deprive governments of dividend earnings and could influence a looming debate over a new operational framework.For an explainer on why central bank losses matter, click here.The core of the problem is the ECB’s large scale money printing operation, the hallmark of its stimulus efforts under former President Mario Draghi. The ECB printed cash to buy government bonds in the hope that abundant and cheap credit would rekindle economic growth and push inflation back up to 2%. When interest rates were negative, this had little cost to the ECB but it must now pay a 4% interest rate on the funds it handed to lenders. Commercial banks still sit on 3.5 trillion euros worth of excess liquidity across the euro zone and it could even take a decade to extract this cash from the financial system without causing instability.Meanwhile the ECB earns only a modest interest income on the bonds it bought during the stimulus scheme. The ECB’s balance sheet holds some potential risk, too, because the value of these very bonds has dropped sharply since their purchase. But the ECB has again decided against writing down their value because they are held until maturity, mostly with fixed coupons and tend to have long durations.”The ECB can operate effectively and fulfil its primary mandate of maintaining price stability regardless of any losses,” it said. More