Aurelia Butler

SEOUL (Reuters) -South Korea’s financial services regulator has asked major commercial banks to prepare around $4 billion in financing to support a credit cooperative hit by customer withdrawals, two banking sources familiar with the matter said on Monday.An official at the Financial Services Commission said it could not confirm the amount or other details, but it had asked the banks for cooperation in preparing liquidity through repurchase-agreement facilities to aid MG Community Credit Cooperatives (MGCCC).”(Authorities) are closely monitoring the liquidity of MGCCC,” the official said, declining to be named due to the sensitivity of the matter. The commission had no further comment.Depositors were lining up last week to withdraw funds from a branch of the cooperative after local media reported a rise in non-performing loans tied to real estate projects. The branch, in the city of Namyangju east of Seoul, is due to be closed soon.South Korea’s top financial authorities pledged on Sunday to ensure liquidity at the credit cooperative, which has nearly 1,300 branches, saying in a statement that MGCCC’s capital ratio and liquidity far exceeded regulatory ratios and it had sufficient cash-equivalent assets.Sharply rising interest rates and a cooling property market have raised concerns about the potential impact on Asia’s fourth-largest economy.South Korea’s five major commercial banks have signed or are in the process of signing repurchase agreements with the credit union, said the sources, who declined to be identified because of the sensitivity of the issue. Repurchase facilities allow for raising cash in exchange for collateral, such as bonds.Woori Bank, Hana Bank, Shinhan Bank, KB Kookmin Bank and NongHyup Bank had been asked to make financing available to MGCCC, although the actual amount extended to the credit union would depend on deposit withdrawals, the sources said.The sources added that each of the banks was asked to prepare 1 trillion won of financing, or 5 trillion won in total ($3.84 billion), as potential support.State-run Korea Development Bank and Industrial Bank of Korea are also setting up repurchase agreements with the credit union, Yonhap news agency reported on Monday, citing unnamed financial industry sources. MGCCC and the banks did not immediately respond to requests for comment.MGCCC said in a statement last week that its debt delinquency rate was manageable and it would work with the Interior Ministry to improve its financial soundness.Sunday’s statement, from officials at the Bank of Korea and the Ministry of Finance as well as the Financial Services Commission, added that withdrawals at MGCCC had slowed and new deposits had been coming in since last Thursday.An investor note from Citi last week played down the risks from the incident but warned of negative effects on economic growth from the indebted real estate sector.”We don’t see systematic risks from the event,” said Kim Jin-wook, an economist for Citi in Seoul, adding that any negative effects would likely be far less than those of a missed bond payment by a theme park developer late last year. South Korean financial authorities coordinated with financial groups to set up a liquidity programme last November when a missed bond payment by theme park developer Gangwon-Jungdo Development sparked worries about a credit crunch. ($1 = 1,302.7800 won) More

Welcome to Trade Secrets. The spotlight’s off the economics and trade policy area this week, with the big international event being the Nato summit in Vilnius. Mind you, the fact that US policymakers sound keener on Ukraine acceding to the EU than joining Nato intensifies the debate about how the union can incorporate a corrupt low-income country that also happens to be globally competitive in agriculture, Europe’s most sensitive sector. Today’s newsletter is mainly about the great global hunt for critical minerals, plus a note on the EU’s new trade deal with New Zealand and what it tells us about Brexit and the Asia-Pacific. Charted waters looks at the sorry state of Russia’s currency.Calming the commodities commotionThe global tussle for minerals needed for the green transition was always likely to be a pretty exciting spectator sport for trade types. Fortunes made in the (literally and politically) dirty business of mining; importing countries coaxing, bullying and bribing exporters to supply them first; the riveting spectacle of an EU bilateral trade agreement being tweaked to relax restrictions on preferential domestic supply: it’s all there.There have been some juicy new developments. China last week announced it was restricting exports of the metals gallium and germanium which European, Asian and US manufacturers used to make various high-tech goods. (As noted by Karthik Sankaran, veteran markets guru and inexhaustible source of globalisation-related gags, it’s rather embarrassing for the EU to run short of elements named after France and Germany.)On Friday the EU, which won a World Trade Organization ruling against Indonesia’s export controls on nickel only to see Jakarta put the case into limbo by appealing to the WTO’s non-functioning Appellate Body (AB), unsheathed a shiny new trade dispute weapon, the “enforcement regulation”. The legal instrument enables Brussels to impose compensatory trade sanctions without an AB hearing.The conventional wisdom is that export controls defeat themselves by stimulating supply elsewhere. The best cure for high prices is high prices, cartels contain the seeds of their own destruction, you know the drill.It’s certainly true that there’s a big push on to increase output. Precedents and habits are being overturned. Germany, a country with Greens running the economy ministry, is now reopening mines that closed a quarter of a century ago.It’s also true that previous attempts to corner markets were self-correcting. In 2010, China imposed export quotas to divert its rare-earth supply to domestic manufacturers, but reversed course in 2015 after a combination of mines being opened up elsewhere, minerals being smuggled out of China and losing a WTO case to the US.Thing is, though, it still gave Chinese manufacturers a few years of preferential supply, and in fast-moving green tech sectors that might be all you need to get a global edge in technology and process. How can importing countries respond? Jennifer Harris, who recently left her White House post as senior director for international economics, said in last week’s FT that one common suggestion, the EU, US and Japan explicitly or implicitly setting up a “buyers’ club” to control prices and ensure supply, was likely to provoke exporters into forming a counterbalancing cartel.A better solution, she reckoned, was an agreement with exporting and importing countries to stabilise prices and supply. Nice idea, but the Biden administration isn’t exactly renowned for its rock-solid commitment to good faith international co-operation, as I wrote last week about its proposed green steel climate club. And of course there’s always the spectre of a second term for Donald Trump, and God only knows what he thinks of the matter. It looks to me like the entertaining critical minerals free-for-all has a while to run.Europe cuts a deal with the KiwisBy contrast, the EU signing a preferential trade deal with New Zealand, as it did yesterday, doesn’t immediately look like a crowd-pleasing spectacular. Apart from its small size, New Zealand is a pretty open economy anyway, so no huge gains for the EU. Also, Brussels, not being politically desperate for a deal, conceded fewer tariff cuts on agriculture than the UK did in its New Zealand agreement.There are a couple of interesting aspects, though. One is the importance of the EU’s sheer economic heft to trading partners like New Zealand. The EU opened up less than the UK did, but its massively bigger economy means that, for example, New Zealand’s tariff savings just for kiwi fruit will be bigger than all the gains from the entire UK deal. The UK just isn’t big enough to matter that much.Certainly any Brexiters’ ideas that Brussels negotiators were panicking about being outflanked by London are pretty delusional. Brexit didn’t deliver a huge gain for New Zealand (or the UK) despite what some British Commonwealth sentimentalists would like to believe. Oh yes, and New Zealand also just joined the EU’s Horizon research network, the one that the UK has embarrassingly tried to haggle over the price of rejoining.Second, while the EU’s trade initiatives in the Asia-Pacific are unlikely to rival the Trans-Pacific Partnership (CPTPP), the New Zealand agreement does mean it has concluded a deal in the region with an advanced economy CPTPP member with some of Brussels’ favourite stuff about shared progressive values and regulatory co-operation. The EU’s having difficulties in negotiations with another CPTPP member, Malaysia, thanks to its policies on palm oil and deforestation, but it’s certainly not absent from the region. Nor, evidently, is its model trade agreement entirely alien to the US-inspired approach of the CPTPP. Charted watersThe Russian rouble last week hit its lowest level since the invasion of Ukraine. That should have caused some satisfaction to the rich countries trying to deprive Russia of oil revenues through price caps and diversifying suppliers. Only some satisfaction, though, because while Russia’s oil and gas revenues have dropped by a quarter from a year ago, its imports have rebounded as traders have found ways of evading sanctions. Capital flight and falling export earnings are weakening Russia’s ability to fight the war, but it’s still managing to buy more from abroad than its opponents would like.Trade linksThe latest Global Trade Alert report on protectionism argues that attempts to restrict critical minerals supply don’t necessarily work and that countries have in fact reduced their rare earths sourcing from China already.The European Commission has proposed a co-ordinated EU withdrawal from the Energy Charter Treaty, the overbroad provisions of which it says threaten the green transition. This has been coming for a while, not least because some hardline signatories to the ECT, notably Japan, have resisted reform that might constrain its reach. There’s a 20-year sunset clause though, so this is a long game.Another big economy lines up to join the race to produce semiconductors, with India saying they will be rolling off the production line in 18 months. (Just in time to add to the global glut, if they’re unlucky.)More subsidy race news as Canada decides it’s going to go for its own version of Joe Biden’s green handouts to revive its flagging plans for battery plants.The Wall Street Journal reports on what happens when industrial policy goes wrong — the massive underperformance of a huge factory built with public money by New York state and then leased to Tesla supposedly to create the Western Hemisphere’s biggest solar panel plant. Trade Secrets is edited by Jonathan Moules More

SYDNEY (Reuters) – The cost of serving up a sandwich with a cup of coffee has hit the roof across Australia’s vaunted cafes, squeezing profits and forcing a wave of closures for those that managed to survive the COVID slump.The A$10 billion ($6.6 billion) Australian cafe industry, the world’s biggest outside Europe per capita, is shaping as an early, visible casualty of a perfect storm of rising utility bills, produce costs, wages and rents plus a slowdown in discretionary spending brought on by interest rate hikes, say economists and people in the industry.A Reuters analysis of popular cafe orders found the cost to commercially produce a steak sandwich, including all overheads from electricity to cuts of beef, rose by one-sixth in the past two years, while discretionary spending flatlined, effectively wiping out the 10% profit margin typical of the industry.The cost to make a flat white, one of the most popular Australian coffee orders, jumped by nearly one-fifth.The result is smaller profits, a shrinking pool of regular customers and business owners heading for the exit.”The cost of living started to bite, especially on people who used to come in for a daily meal,” said Jack Hanna, a former World Latte Champion who closed Goodsline Cafe in downtown Sydney last month, two years after opening to rave reviews and spending roughly A$1.5 million on the fitout.”People are just not willing to spend money on discretionary items when the supermarket also costs quite a lot. We had to increase our prices and pay staff a living wage,” Hanna added.Damian Krigstein, a nearby cafe owner who helped Hanna pack up Goodsline, said his business, Bar Zini, plans to convert to takeaway to cut costs.”When you look around Sydney and you look at so many businesses for lease, institutions from when you were a child just completely gone now, people losing their livelihoods – it’s scary times,” said Krigstein.Before COVID-19, hospitality venues were about one-third of Australian small businesses advertised for sale. Now there are more businesses up for sale, and the percentage of hospitality venues is closer to half, with asking prices being discounted by up to 50% of historic market values, say selling agents.”Many of these hospitality vendors are simply exhausted after surviving COVID,” said Peter Meredith (NYSE:MDP), a broker at SBS Business Brokers. “They are relieved to get out of leases.”About one-sixth of cafes advertised for sale now close down before finding a buyer.”People are starting to panic with increased electricity, wages, rent,” said Guy Cooper, a director at Link Business Sales Australasia, which has more than 400 hospitality businesses for sale nationwide.Australian Securities and Investments Commission data showed business insolvencies in May at the highest monthly rate in eight years as COVID-related government protections expire.So far, the insolvencies have been dominated by construction firms, but hospitality is expected to overtake it in the next year, says CreditorWatch, a credit reporting agency.CreditorWatch CEO Patrick Coghlan said while a business-to-business organisation can raise prices 10% or 20%, that’s not possible in hospitality.”You can’t charge A$30 for a bacon and egg roll. There’s no real respite.”COST PRESSURESDriving inflation, energy prices have jumped as much as 30% after the Ukraine war disrupted coal and gas markets, while wholesale produce costs have surged after years of extreme weather events.With unemployment near the lowest on record, wages are rising, too, including for hospitality staff.In addition, the pandemic increased cafes’ reliance on third-party delivery platforms which take a cut of revenue.To combat inflation, Australia’s central bank has raised interest rates by 400 basis points in 14 months, the fastest tightening in a generation. It paused in July but warned it may resume hiking if inflation, still running at 7%, fails to slow.As rising utility bills and a collapse of consumer spending make it impossible to make rent, David Cox, a cafe owner from Sydney’s suburbs, said he is selling, with expectations he will lose at least 60% of the A$170,000 he spent buying and refurbishing the business two years ago.”The mortgage rates have done a lot of damage,” said Cox, 59, who recently laid off his three casual staff when daily takings dipped from A$1,000 last year to A$200. Cox’s monthly energy bill is about to jump from A$3,000 to A$3,800, nearly all his revenue.”Some of my regulars I used to have will still come and get coffee and say, ‘We had to bring lunch. We just brought it in from home,'” he said.($1 = 1.5103 Australian dollars) More