Raphael Stevens

Europe’s tough competition policy is something of a historical accident. After the second world war Germany wanted to contain cartels, which it viewed as a threat to its young democracy and market economy. France, meanwhile, saw cracking down on big firms as a way to promote its economic interests. Messy negotiations ended up handing lots of power to the European Commission, where it resides to this day—much to the dismay of many in Silicon Valley. In recent years Brussels has launched a series of regulatory investigations into America’s tech giants, including Apple, Google and Meta. More

This month China’s central bank revealed that its digital currency, the e-CNY, had been used for 7trn-yuan-worth of transactions in its short life—an amount equivalent to almost $1trn. China is not alone. Over 130 countries are exploring digital currencies, according to the Atlantic Council, a think-tank. Proponents of official digital currencies believe that a combination of ubiquitous smartphones, innovative cryptography and vast computing power means it is possible to remake the financial system. More

Last week, UniCredit announced it had taken a 9% stake in Commerzbank, confirming that half of this shareholding was acquired from the government.
UniCredit continues to surprise markets with some stellar quarterly profit beats.
It earned 8.6 billion euros last year (up 54% year-on-year), also pleasing investors via share buybacks and dividends.
Analysts are hoping that a move by UniCredit will encourage more cross-border consolidation.

The Commerzbank building (second from right) in Frankfurt am Main, western Germany, on Sept. 25, 2023.
Kirill Kudryavtsev | Afp | Getty Images

UniCredit’s move to take a stake in German lender Commerzbank is raising questions on whether a long awaited cross-border merger could spur more acquisitions and shake up the European banking sector.
Last week, UniCredit announced it had taken a 9% stake in Commerzbank, confirming that half of this shareholding was acquired from the government. Berlin has been a major shareholder of Commerzbank since it injected 18.2 billion euros ($20.2 billion) to rescue the lender during the 2008 financial crisis.

UniCredit also expressed an interest in a merger of the two, with the Italian bank’s CEO Andrea Orcel telling Bloomberg TV that “all options are on the table,” citing the possibility that it either takes no further action or buys in the open market. Commerzbank has given a more lukewarm response to the merger proposals.
Orcel said the Italian bank was able to buy 4.5% of the state’s stake in Commerzbank because the government trusts UniCredit, Reuters reported Thursday citing local media. When asked if UniCredit would launch an unsolicited tender offer to buy out other investors in Commerzbank, the CEO told the Italian paper: “No, it would be an aggressive move.”

But analysts have welcomed the move by UniCredit, particularly because a tie-up might spur similar activity in Europe’s banking sector — which is often seen as more fragmented than in the U.S., with regulatory hurdles and legacy issues providing obstacles to mega deals.

Right fit for UniCredit?

So far, the market has responded positively to UniCredit’s move. Commerzbank shares jumped 20% on the day UniCredit’s stake was announced. Shares of the German lender are up around 48% so far this year and added another 3% on Wednesday.
Investors appreciate the geographical overlap between the two banks, the consistency in financials and an assumption that the transaction is “collaborative” in nature, UBS analysts, led by Ignacio Cerezo, said in a research note last week. According to UBS, the ball is now in Commerzbank’s court.

Analysts at Berenberg said in a note last week that a potential merger deal, “should, in theory, have a limited effect on UniCredit’s capital distribution plans.” They said that while there is “strategic merit” in a deal, the immediate financial benefits might be modest for UniCredit, with potential risks from the cross-border deal diminishing some of the benefit.

David Benamou, chief investment officer at Axiom Alternative Investments, hailed Orcel’s decision to take a stake in Commerzbank as a “fantastic move” that makes sense because of the increase in German market share it would grant UniCredit.
As Commerzbank “missed on costs in Q2 [the second quarter], currently it’s at a very low valuation, so the moment [Orcel] stepped in, is probably one of the best moments he could have,” Benamou told CNBC’s “Squawk Box Europe” last week.
When asked how imminent a takeover was in the short term, Benamou suggested it was possible, saying, “they will probably come to it.”
According to Arnaud Journois, senior vice president of European Financial Institution Ratings at Morningstar DBRS, UniCredit is already on its way to becoming a leading bank in Europe.
He told CNBC’s “Street Signs Europe” Wednesday that there was a “double logic” behind UniCredit’s move as it enables the Italian lender to access both the German and Polish markets where Commerzbank currently operates.
“UniCredit has been very active in the past two years, doing a few targeted acquisitions … So this is the next logical step,” Journois said.
UniCredit continues to surprise markets with some stellar quarterly profit beats. It earned 8.6 billion euros last year (up 54% year-on-year), also pleasing investors via share buybacks and dividends.

What does it mean for the sector?

Analysts are hoping that a move by UniCredit will encourage more cross-border consolidation. European officials have been making more and more comments about the need for bigger banks. French President Emmanuel Macron, for example, said in May in an interview with Bloomberg that Europe’s banking sector needs greater consolidation.
“European countries might be partners, but they are still competing sometimes. So, I know that from an EU standpoint — policymaker standpoint — there is appetite for more consolidation to happen. However, we think that there are a few hurdles that make that difficult, especially on the regulatory side,” Journois told CNBC.
A cross-border styled merger between UniCredit and Commerzbank would be more preferential than a domestic merger between Deutsche Bank and Commerzbank, according to Reint Gropp, president of the Hall Institute for Economic Research.
“The German banking structure is long overdue for a consolidation process. Essentially, Germany still has almost half of all banks in the euro zone, that’s significantly more than its share in GDP. So any consolidation process would be welcome now,” Gropp told CNBC’s “Street Signs Europe” on Wednesday.
He noted that Commerzbank has always been a “big candidate for a takeover” in the German banking sector because most of the other banks in the country are savings banks which cannot be taken over by private institutions, or cooperative banks which are also difficult takeover targets.

Will Deutsche Bank swoop?

Deutsche Bank, which was still seen as the prime contender to take over Commerzbank following an abrupt collapse of initial talks in 2019, is said to be mounting its own defense strategy in the wake of UniCredit’s stake.
Filippo Alloatti, head of financials at Federated Hermes, said Deutsche Bank is unlikely to present a strong rival offer for Commerzbank.
With a CET1 ratio of 13.5% compared to its target of 13%, Deutsche Bank is rather “limited.” CET ratios are used to gauge the financial strength of a lender. The German bank also has less excess capital than UniCredit and therefore “cannot really afford” a takeover, Alloatti said.

However, Deutsche Bank could put on a “brave face,” Alloatti suggested, and consider another target such as ABN Amro. The Dutch bank, which was also bailed out during the 2008 financial crisis by the state, has been the subject of acquisition speculation.
“We’ve been waiting for this,” Alloatti said, speaking about the potential for further consolidation in the sector. “If they [UniCredit] are successful, then of course, other management teams will study this case,” he said, noting that there was also scope in Italy for domestic consolidation.
Gropp acknowledged that UniCredit’s CEO had made a “very bold move” that caught both the German government and Commerzbank by surprise.
“But maybe we need a bold move to effect any changes at all in the European banking system, which is long overdue,” he said.

What’s next?

In comments reported by Reuters, Commerzbank’s Chief Executive Manfred Knof told reporters on Monday that he would look at any proposals from UniCredit in line with the bank’s obligations to its stakeholders.
Knof informed the bank’s supervisory board last week that he would not seek an extension of his contract which runs until the end of 2025. German newspaper Handelsblatt reported that the board might be considering an earlier change of leadership.
The supervisory board at Commerzbank will meet next week to discuss UniCredit’s stake, people familiar with the matter who preferred to remain anonymous told CNBC. There are no plans to replace Knof as soon as that meeting, the sources added.
– CNBC’s Annette Weisbach, Silvia Amaro and Ruxandra Iordache contributed to this report. More

Cryptocurrency exchange Binance has seen a 40% increase this year in institutional and corporate investors joining the platform, CEO Richard Teng told CNBC’s Lin Lin.
The stated growth reflects how so-called big money is warming up to bitcoin and other cryptocurrencies, and willing to work with an exchange that was hit with a U.S. probe and $4.3 billion settlement.
Teng noted how Binance has pivoted from a founder-led company to one led by a board with seven directors — a structure he said that regulators are more used to.

Cryptocurrency exchange Binance has seen a 40% increase this year in institutional and corporate investors joining the platform, CEO Richard Teng told CNBC’s Lin Lin in an interview Wednesday.
“Allocation into crypto by institutions is just at the tip of the iceberg. It’s just beginning, because a lot of them are still doing their due diligence,” Teng said on the sidelines of the Token2049 conference in Singapore. He became CEO in November 2023.

“So we on our own, we are seeing a huge uptick in terms of institutional and corporate investors. We have seen a 40% increase in onboarding in that category throughout the course of this year alone,” he said. Teng did not name specific firms or share how large they were.
The stated growth reflects how so-called big money is warming up to bitcoin and other cryptocurrencies, and now willing to work with an exchange that was hit with a U.S. probe and $4.3 billion settlement.
Changpeng Zhao, the billionaire co-founder and former CEO of Binance, stepped down last year as part of the settlement. Zhao remains a major shareholder, Teng said.
Teng noted how Binance has pivoted from a founder-led company to one led by a board with seven directors — a structure he said that regulators are more used to.

Teng joined Binance in 2021 as CEO of the company’s Singapore operations. He was previously CEO of the Financial Services Regulatory Authority at Abu Dhabi Global Market and chief regulatory officer of the Singapore Exchange, among other roles.

Bitcoin launched in 2009, paving the way for many other cryptocurrencies based on similar blockchain technology. The tech eliminates the need for a third-party intermediary by quickly creating a permanent and secure record of transactions between two parties.

More institutions coming in

After years of regulatory uncertainty, the U.S. in January approved the the first exchange-traded funds for spot prices of bitcoin. In July, the U.S. allowed trading of similar funds for ether, another cryptocurrency.
Such regulatory clarity “will give certainty to mainstream users,” Teng said. He attributed bitcoin’s record high earlier this year — above $70,000 in March — to “the effect of institutions coming through.”
He noted how BlackRock CEO Larry Fink has turned from bitcoin skeptic to calling it “digital gold.”
The company and other traditional Wall Street investment firms such as Franklin Templeton have also issued ETFs for bitcoin and ether.
Franklin Templeton CEO Jenny Johnson told CNBC in May that bitcoin gains at the time were due to “the first wave of the early adopters.” She said she expects another wave of “much bigger institutions” to buy crypto funds.
Bitcoin was trading near $60,440 as of Wednesday afternoon Singapore time.
Teng declined to share a specific price forecast, but noted how cryptocurrency prices tend to “warm up” 160 days after bitcoin goes through a technical event known as “halving.” The last such event was in April.
As of Wednesday, Teng pointed out the market was “nine days away from that 160 days.”
— CNBC’s Ryan Browne, MacKenzie Sigalos and Jesse Pound contributed to this report. More

As the U.S. Federal Reserve implemented its first interest rate cut since the early Covid pandemic, billionaire investor Ray Dalio flagged that the U.S. economy still faces an “enormous amount of debt.”
“The challenge of the Federal Reserve is to keep interest rates high enough that they’re good for the creditor, while keeping them not so high that they’re problematic for the debtor,” the founder of Bridgewater Associates told CNBC’s “Squawk Box Asia.”

Ray Dalio, Bridgewater Associates co-chairman and co-chief investment officer, speaks during the Skybridge Capital SALT New York 2021 conference.
Brendan McDermid | Reuters

As the U.S. Federal Reserve implemented its first interest rate cut since the early Covid pandemic, billionaire investor Ray Dalio flagged that the U.S. economy still faces an “enormous amount of debt.”
The central bank’s decision to cut the federal funds rate by 50 basis points to a range of 4.75% to 5%. The rate not only determines short-term borrowing costs for banks, but also impacts various consumer products like mortgages, auto loans and credit cards.

“The challenge of the Federal Reserve is to keep interest rates high enough that they’re good for the creditor, while keeping them not so high that they’re problematic for the debtor,” the founder of Bridgewater Associates told CNBC’s “Squawk Box Asia” on Thursday, noting the difficulty of this “balancing act.”
The U.S. Treasury Department recently reported that the government has spent more than $1 trillion this year on interest payments for its $35.3 trillion national debt. This increase in debt service costs also coincided with a significant rise in the U.S. budget deficit in August, which is approaching $2 trillion for the year.

On Wednesday, Dalio listed debt, money and the economic cycle as one of the top five forces influencing the global economy. Expanding on his point Thursday, he said he was generally interested in “the enormous amount of debt that is being created by governments and monetized by central banks. Those magnitudes have never existed in my lifetime.”
Governments around the world took on record debt burdens during the pandemic to finance stimulus packages and other economic measures to prevent a collapse.
When asked about his outlook and whether he sees a looming credit event, Dalio responded he did not.

“I see a big depreciation in the value of that debt through a combination of artificial low real rates, so you won’t be compensated,” he said.
While the economy “is in relative equilibrium,” Dalio noted there’s an “enormous” amount of debt that needs to be rolled over and also sold, new debt created by the government.”

Dalio’s concern is that neither former President Donald Trump or Vice President Kamala Harris will prioritize debt sustainability, meaning these pressures are unlikely to alleviate regardless of who wins the upcoming presidential election.
“I think as time goes on, the path will be increasingly toward monetizing that debt, following a path very similar to Japan,” Dalio posited, pointing to how the Asian nation has kept interest rates artificially low, which had depreciated the Japanese yen and lowered the value of Japanese bonds.
“The value of a Japanese bond has gone down by 90% so that there’s a tremendous tax through artificially giving you a lower yield each year,” he said.
For years, Japan’s central bank stuck to its negative rates regime as it embarked on one of the most aggressive monetary easing exercises in the world. The country’s central bank only recently lifted interest rates in March this year.

Additionally, when markets do not have enough buyers to take on the supply of debt, there could be a situation where interest rates have to go up or the Fed may have to step in and buy, which Dalio reckons they would.
“I would view [the] intervention of the Fed as a very significant bad event,” the billionaire said. Debt oversupply also raises questions of how it gets paid.
“If we were in hard money terms, then you would have a credit event. But in fiat monetary terms, you have the purchases of that debt by the central banks, monetizing the debt,” he said.
In that scenario, Dalio expects that the markets would also see all currencies go down as they’re all relative.
“So I think you’d see an environment very similar to the 1970’s environment, or the 1930 to ’45 type of period,” he said.
For his own portfolio, Dalio asserts that he does not like debt assets: “so if I’m going to take a tilt, it would be underweight in debt assets such as bonds,” he said.  More

Ray Dalio said the 2024 U.S. election will likely be the most important of his life, adding that he thinks the country needs is a “strong leader of the middle.”
The founder of Bridgewater Associates explained that what the U.S. should aim to reach “broad-based prosperity” and that the upcoming elections highlight challenges to society’s ability to function smoothly.
Asked about who he supported in the presidential race, Dalio said: “Neither is what the country needs.”

Ray Dalio said the 2024 U.S. elections will likely be the most important of his lifetime and he thinks the country needs a “strong leader of the middle.”
Speaking to CNBC’s “Squawk Box Asia” on Thursday, the founder of Bridgewater Associates explained that the U.S. should aim to reach “broad-based prosperity” and the presidential election highlights challenges to society’s ability to function smoothly.

“As far as the election goes, it’s going to be the most consequential election of my lifetime because we now have irreconcilable differences between the two sides,” he said. “The first question we’ll ask is: will we have an orderly transition of power? We have the question- the fact that it is possible — that election results may not be accepted — that’s quite something.”
On Wednesday, Dalio had named the elections as a major force shaping the global economy, calling it an “issue of internal order and disorder.”
He told CNBC on Thursday that there’s a larger problem with a “win-at-all-cost mentality,” as it presents “challenges to being able to compromise and make decisions in a way that is conducive to our democracy working effectively.”

Republicans and Democrats are sharply divided on a number of issues, such as abortion access, immigration and climate change. Top concerns for voters across the spectrum, however, include inflation and the high cost of living, according to nationwide polls.
When asked about who he supported in the presidential race, Dalio said “neither is what the country needs.”

“What the country needs is the moderates coming together to be able to work together and make great reform,” he said. “What the country needs is broad-based prosperity.”
While Dalio expressed optimism about certain parts of American society, like the universities and culture for innovation, he said that those exceptional elements benefit only a small percentage of the population.
He explained that broad-based prosperity creates a society where there is both order and opportunity, pointing to Singapore as an example. The Southeast Asian nation is frequently lauded for its high level of education and availability of public housing. More

The Federal Open Market Committee chose to lower its key overnight borrowing rate by a half percentage point, or 50 basis points, amid signs that inflation was moderating and the labor market was weakening.
It was the first interest rate cut since the early days of the Covid pandemic.
“The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” the Federal Reserve statement said.

WASHINGTON – The Federal Reserve on Wednesday enacted its first interest rate cut since the early days of the Covid pandemic, slicing half a percentage point off benchmark rates in an effort to head off a slowdown in the labor market.
With both the jobs picture and inflation softening, the central bank’s Federal Open Market Committee chose to lower its key overnight borrowing rate by a half percentage point, or 50 basis points, affirming market expectations that had recently shifted from an outlook for a cut half that size.

Outside of the emergency rate reductions during Covid, the last time the FOMC cut by half a point was in 2008 during the global financial crisis.
The decision lowers the federal funds rate to a range between 4.75%-5%. While the rate sets short-term borrowing costs for banks, it spills over into multiple consumer products such as mortgages, auto loans and credit cards.
In addition to this reduction, the committee indicated through its “dot plot” the equivalent of 50 more basis points of cuts by the end of the year, close to market pricing. The matrix of individual officials’ expectations pointed to another full percentage point in cuts by the end of 2025 and a half point in 2026. In all, the dot plot shows the benchmark rate coming down about 2 percentage points beyond Wednesday’s move.
“The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” the post-meeting statement said.

The decision to ease came “in light of progress on inflation and the balance of risks.” Notably, the FOMC vote was 11-1, with Governor Michelle Bowman preferring a quarter-point move. Bowman’s dissent was the first by a Fed governor since 2005, though a number of regional presidents have cast “no” votes during the period.

“We’re trying to achieve a situation where we restore price stability without the kind of painful increase in unemployment that has come sometimes with this inflation. That’s what we’re trying to do, and I think you could take today’s action as a sign of our strong commitment to achieve that goal,” Chair Jerome Powell said at a news conference following the decision.
Trading was volatile after the decision with the Dow Jones Industrial Average jumping as much as 375 points after it was released, before easing somewhat as investors digested the news and considered what it suggests about the state of the economy.
Stocks ended slightly lower on the day while Treasury yields bounced higher.
“This is not the beginning of a series of 50 basis point cuts. The market was thinking to itself, if you go 50, another 50 has a high likelihood. But I think [Powell] really dashed that idea to some extent,” said Tom Porcelli, chief U.S. economist at PGIM Fixed Income. “It’s not that he thinks that’s not going to happen, it’s that he’s not he’s not pre-committing to that to happen. That is the right call.”
The committee noted that “job gains have slowed and the unemployment rate has moved up but remains low.” FOMC officials raised their expected unemployment rate this year to 4.4%, from the 4% projection at the last update in June, and lowered the inflation outlook to 2.3% from 2.6% previous. On core inflation, the committee took down its projection to 2.6%, a 0.2 percentage point reduction from June.
The committee expects the long-run neutral rate to be around 2.9%, a level that has drifted higher as the Fed has struggled to get inflation down to 2%.
The decision comes despite most economic indicators looking fairly solid.
Gross domestic product has been rising steadily, and the Atlanta Fed is tracking 3% growth in the third quarter based on continuing strength in consumer spending. Moreover, the Fed chose to cut even though most gauges indicate inflation well ahead of the central bank’s 2% target. The Fed’s preferred measure shows inflation running around 2.5%, well below its peak but still higher than policymakers would like.
However, Powell and other policymakers in recent days have expressed concern about the labor market. While layoffs have shown little sign of rebounding, hiring has slowed significantly. In fact, the last time the monthly hiring rate was this low – 3.5% as a share of the labor force – the unemployment rate was above 6%.
At his news conference following the July meeting, Powell remarked that a 50 basis point cut was “not something we’re thinking about right now.”
For the moment, at least, the move helps settle a contentious debate over how forceful the Fed should have been with the initial move.

However, it sets the stage for future questions over how far the central bank should go before it stops cutting. There was a wide dispersion among members for where they see rates heading in future years.
Investors’ conviction on the move vacillated in the days leading up to the meeting. Over the past week, the odds had shifted to a half-point cut, with the probability for 50 basis points at 63% just before the decision coming down, according to the CME Group’s FedWatch gauge.
The Fed last reduced rates on March 16, 2020, part of an emergency response to an economic shutdown brought about by the spread of Covid-19. It began hiking in March 2022 as inflation was climbing to its highest level in more than 40 years, and last raised rates in July 2023. During the tightening campaign, the Fed raised rates 75 basis points four consecutive times.
The current jobless level is 4.2%, drifting higher over the past year though still at a level that would be considered full employment.
“This was an atypical big cut,” Porceli said. “We’re not knocking on recessions’ door. This easing and this bit cut is about recalibrating policy for the fact that inflation has slowed so much.”
With the Fed at the center of the global financial universe, Wednesday’s decision likely will reverberate among other central banks, several of whom already have started cutting. The factors that drove global inflation higher were related mainly to the pandemic – crippled international supply chains, outsized demand for goods over services, and an unprecedented influx of monetary and fiscal stimulus.
The Bank of England, European Central Bank and Canada’s central bank all have cut rates recently, though others awaited the Fed’s cue.
While the Fed approved the rate cut, it left in place a program in which it is slowly reducing the size of its bond holdings. The process, nicknamed “quantitative tightening,” has brought the Fed’s balance sheet down to $7.2 trillion, a reduction of about $1.7 trillion from its peak. The Fed is allowing up to $50 billion a month in maturing Treasurys and mortgage-backed securities to roll off each month, down from the initial $95 billion when QT started.

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