Aurelia Butler

LONDON (Reuters) -Scandal-hit lender Credit Suisse has opted to tap investors for a pricier dollar bond in order to repay a $1.5 billion capital-boosting issue, a measure investors say was necessary to avoid raising concern over its ability to pay debt. Credit Suisse’s bond issue raised $1.65 billion at a 9.75% interest rate, according to an IFR pricing sheet on Friday. A source familiar with the matter confirmed the details to Reuters.The bond sold this week, like the one it refinances, is a so-called Additional Tier 1 issue – a type of contingent convertible (CoCo) bond. Deemed to be the most risky debt banks can issue, CoCos are designed to be perpetual in nature, though banks can repay them after a specified period.It is standard practice for banks to redeem or “call” AT1 instruments at the first opportunity but past exceptions — notably Deutsche Bank (ETR:DBKGn) in 2020 – imply Credit Suisse could have done the same, instead of opting to issue another bond at a higher price.Its new bond pays 9.75%, considerably above the 7.125% interest rate on the previous high-trigger convertible issue.Some investors said, however, that choosing not to redeem the bond risked raising concerns that the bank might be unable to repay debt as it weathers a turbulent period. “The position that CS has been in the headlines over the last year or 18 months, they probably couldn’t afford this to go wrong,” Dillon Lancaster, portfolio manager at TwentyFour Asset Management, said. “I think the first decision was to do it and I think that’s a good one made by management in terms of being bondholder-friendly. And the second one was having the ability to do it, to get the book for the new deal to (refinance) the old deal.”Lancaster estimated that had the original bond not been called, its coupon would have reset at around 8.55%, meaning the new deal cost Credit Suisse roughly 120 basis points more than sticking with the old one.Devised in the wake of the 2008 financial crisis, AT1 securities aim to bolster a bank’s capital buffers and aim to ensure that investors, rather than taxpayers, would be on the hook if a bank ran into financial difficulties.But while a bank can opt not to call the bond, Deutsche Bank’s 2020 decision not to redeem its $1.25 billion in AT1 bond sparked market turmoil.It followed a similar move in 2019 by Santander (BME:SAN).Filippo Alloatti, head of financials at Federated Hermes (NYSE:FHI) Limited, welcomed the decision to redeem the debt calling, saying “it helps Credit Suisse credit spreads to be perceived as a good corporate citizen”.Credit Suisse shares closed 2% higher on Friday following the news, while rival UBS’ shares were down.Credit Suisse also said that redeeming the outstanding instruments helped it to simplify its AT1 capital portfolio. All its AT1 bonds will now be structured to be written off should capital fall below a certain threshold, as opposed to being converted into equity, as was case with the bond now being redeemed.Some argue too that borrowing costs are likely to increase in coming months as central banks raise interest rates.Finally, for the bank battered by a string of scandals and profit hits, (the new issuance) was an opportunity to send “a message to the market,” one person familiar with the situation told Reuters.”That Credit Suisse can raise an AT1 for size…and get investors buying Credit Suisse paper.” More

BOGOTA (Reuters) -The election of Colombia’s first leftist president, Gustavo Petro, is indicative of widespread yearning for a more equal and inclusive society, analysts and business leaders said, but the former guerrilla will need to act fast to reassure investors.Petro, a 62-year-old former mayor of the capital Bogota and current senator, won some 50.4% of votes on Sunday, handily beating construction magnate Rodolfo Hernandez.The election of a former guerrilla marks a radical change for a country still scarred by decades of conflict and highlights the depth of frustration with the right-leaning political establishment accused of overseeing a wide gap between rich and poor. Petro has pledged to fight inequality with free university education, pension reforms and high taxes on unproductive land in the Andean country, where nearly half the population lives in poverty. His proposals – especially a ban on new oil projects for environmental reasons – have startled some investors, though he has promised to respect current contracts.This campaign was Petro’s third presidential bid and his victory adds the Andean nation to a list of Latin American countries that have elected leftists in recent years.Petro will take office at a time when Colombia is struggling with low credit ratings, a large trade deficit and national debt which is predicted to end the year at 56.5% of GDP.Oil accounts for nearly half of exports and close to 10% of national income.”Colombia was governed for so many years by the economic and political elite,” said Gimena Sanchez-Garzoli, Andes Director for the think tank Washington Office on Latin America. “In many ways this election is basically the voice of most of the population in the country, especially the rural poor, women, Afro-Colombians, the indigenous.””People didn’t want a change at any cost, they wanted a change that would actually be with actual proposals which include making the peace accord a priority,” said Sanchez-Garzoli referring to the 2016 peace deal with the Revolutionary Armed Forces of Colombia (FARC), which brought an end to that group’s role in the nearly 60-year-old internal conflict.Petro has pledged to fully implement the FARC accord – which detractors accuse current President Ivan Duque of failing to adequately support – and to seek talks with the still-active ELN rebels.”Petro’s election may have just saved the peace process,” said Oliver Kaplan, associate professor at the University of Denver’s Josef Korbel School of International Studies.On Sunday night, as he celebrated his win, Petro told his supporters: “Peace is someone like me being able to be president.”BUSINESS JITTERSPetro regularly praises the mostly young protesters who have taken to the streets over the last three years to decry inequality and police violence, in demonstrations where more than 40 people were killed.The president-elect, who was arrested by the military in 1985 while carrying weapons for the M-19 rebels, has said he was tortured during his 16-month detention. His victory has high-ranking armed forces officials bracing for change.”There’s a segment of the population that is totally opposed to him because of his M-19 past,” Kaplan said. “Maintaining security and protection of civilians will depend on good civil-military relations, and it’s uncharted waters in that regard.”But Petro’s proposals will face challenges, not least because of a deeply divided congress where a dozen parties hold seats.”Petro is going to have a very strong opposition from day one, we’re going to have a congress that all of a sudden is disjointed from the executive branch,” said Colombia Risk Analysis founder Sergio Guzman. “I think this means people’s priorities have moved beyond the conflict,” Guzman said. “This marks a really stark departure from where we’ve been as a country.”Business leaders and the market were awaiting ministerial appointments, especially for key positions like finance minister, and have predicted volatility in the peso and in bonds when trading opens on Tuesday after a holiday weekend.Petro has floated some moderates as possible finance ministers, including Alejandro Gaviria, a centrist economist and former health minister, as well as ex-ministers like Rudolf Hommes and Jose Antonio Ocampo.”It will be very important that total confidence between everyone is restored, that there is confidence for businesses, citizens, that there is confidence for investors, that there is confidence with the rule of law,” Bruce Mac Master, president of the Colombian Business Association (ANDI), said in a statement following Petro’s victory.”In us, he can expect a constructive partner,” he said.Petro was emphatic that business and development had important roles to play under his government. He has pledged to strengthen agriculture, tourism and manufacturing.”We are going to develop capitalism in Colombia,” told supporters on Sunday. Development is needed to overcome the “feudalism” and “pre-modernity” from which Colombia still suffers, he said. More

The writer, a former permanent secretary to the Treasury, is a visiting professor at King’s College LondonLast week’s interest rate rise by the Bank of England has provided some temporary respite to sterling. But the pound is still 10 per cent weaker against the US dollar compared with its January peak, and 3 per cent weaker against the euro.Apart from the occasional shrug about the cost of a pint of lager in Marbella or an entry ticket to Disney World in Florida, the British people always seem profoundly relaxed about devaluation. Why is this the case? And are they right?The past hundred years of British history divides neatly into two periods. Until 1972, the pound’s exchange rate was generally fixed, first under the gold standard and then under the Bretton Woods system. Britain’s addiction to consumption over investment and its chronic productivity problems meant that balance of payment difficulties tended to emerge for any given exchange rate. Governments would resist devaluation in pursuit of credibility, arguing that this time it was different. But sooner or later the dam would burst, with successive devaluations in 1931, 1949 and 1967. Devaluation was humiliating for the government and traumatising for the electorate, who tended to punish the government accordingly.British politicians did not cause the break-up of the Bretton Woods system in 1972, but they were major beneficiaries. The pound floated. Its value gyrated. When the British economy encountered problems, sterling would fall. The British people were more tolerant of devaluation by stealth. The British state duly took note.Only when John Major tied sterling and himself to the mast of the European exchange rate mechanism in 1990 was there a brief reversion to the old days of making a fetish of the exchange rate. But sterling did not stay the course. Major pushed the ejector button in 1992, and to this day governments have made a virtue of not having an exchange rate target.From the politicians’ point of view a downward drift in sterling is the perfect policy instrument. It allows the economy to adjust after a period when the country has been living beyond its means. I saw this at first hand in the Treasury in the early 1990s and again after the financial crisis. We saw it again with the Brexit referendum. But it carries a cost and one which has potentially increased over time.First, devaluation tended to benefit exporters, helping to reduce, albeit briefly, Britain’s persistent trade deficit. However, there are signs that exports have become less responsive to recent devaluations either because the service economy behaves differently from the old industrial economy, or because of post-Brexit trade barriers.Second, a weak exchange rate increases the cost of living. Back in the summer of 2008 the oil price was much higher in dollar terms than it is now. But because the pound has fallen by 40 per cent against the dollar, the price at the pumps is approximately 50 per cent higher than it was 14 years ago.Although the UK’s current inflation rate has not yet diverged from that of the US or the eurozone, there are grounds for thinking that inflation will remain higher for longer than that of our competitors.Labour markets are much more flexible than they were in the latter half of the 20th century. That means we are unlikely to witness the structural unemployment of the 1930s or the 1980s. But the flip side is that in the absence of a strong trades union movement, real wages of those working are likely to fall at potentially alarming rates.There are other consequences, too. Britain tends to save less than other industrialised nations. We therefore need foreign investors to buy our public debt. As former BoE governor Mark Carney memorably put it, we rely on the kindness of strangers. But however kind those strangers are, they require a premium to buy bonds in a depreciating currency. You don’t have to agree with the Bank of America’s claim that sterling has become an emerging market currency to recognise they may be on to something. In its March forecast, the Office for Budget Responsibility suggested this year’s record debt interest bill would be an aberration. Debt interest would fall back by £30bn next year as inflation receded. But with interest rates and inflation rising further and faster than expected, chancellor of the exchequer Rishi Sunak will be dreading the OBR’s autumn forecast.Faced with a drop in living standards, and debt interest eating into resources better spent on the NHS and education, the British people may begin to reflect on the consequences of devaluation. Maybe it’s not a free lunch. Maybe it’s time to embrace sound money. More

MILAN (Reuters) – Telecom Italia (BIT:TLIT)’s (TIM) top investor Vivendi (OTC:VIVHY) wants its fixed landline network to be valued at 31 billion euros ($33 billion) in any sale, far higher than analysts and the telecom company had forecast, a source close to the French group said.TIM’s landline grid should carry at least 10 billion euros of the company’s debt were it to be separated from the group’s services arm, the person said, asking not to be named because deliberations are confidential.Shares in TIM extended gains after the report and were up more than 3% by 1132 GMT, outperforming a 0.6% rise in Italy’s blue-chip index.Vivendi owns 23.8% of TIM and its support is important for any asset separation deal to go through. TIM declined to comment.The comments come as TIM’s new CEO Pietro Labriola works on a revamp plan for the debt-laden phone group centred on the separation of its wholesale fixed network operations from its services businesses.Labriola will present his strategy to investors on July 7.As part of the plan, TIM is considering an outright sale of its domestic landline grid and its international cable unit Sparkle, sources have previously said. TIM has signed a non-binding accord with state lender CDP – the second-biggest investor in TIM after Vivendi – to create a unified broadband champion in Italy combining TIM’s network assets with those of CDP-controlled rival Open Fiber.CDP would control the combined network entity. After opposing for years the idea that TIM could lose control of its main infrastructure asset, Vivendi has opened the door to supporting Rome’s efforts to create a single broadband operator under state oversight.However, Vivendi CEO Arnaud de Puyfontaine has warned Vivendi would only back a sale of the network that valued it fairly, rejecting as inadequate analyst valuations for the grid of 17-21 billion euros before synergies. The value is also far higher than a price tag for the business estimated by TIM of about 20 billion euros including debt.Vivendi’s much higher valuation could potentially complicate reaching an accord with CDP and Open Fiber over the sale of the network.The source close to Vivendi said the French media group was a long-term investor in TIM and, following a split, would focus its strategic efforts on the group’s services arm which it ruled out selling. ($1 = 0.9511 euros) More