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    Why it matters when trades settle

    THE PAEANS that followed the recent retirement of KKR founders Henry Kravis and George Roberts, formerly private equity’s barbarians-in-chief, are a reminder that the story of Wall Street is one of big deals, bold trades and the people behind them. Those further behind them, in the “back offices” of banks, brokers and buy-out firms, barely get a look in. Understandably so: their world is colourless compliance and “post-trade” processes, like clearing and settlement. They are the plumbers of finance, toiling behind the scenes to ensure that the pipework, well, works. Every so often, however, there’s a gurgling noise loud enough to unsettle even those cocksure colleagues out front.The system for settling stock trades—ensuring the buyer gets her security and the seller his cash—came under strain during the covid-induced volatility of March 2020. It creaked again early this year amid the meme-trading frenzy in GameStop shares. A report by regulators into that episode, published on October 18th, noted drily that post-trade processes, “normally in the background, entered the public debate”. It was thanks to spiking margin calls and volatility-induced settlement risks that Robinhood, a retail broker, restricted trading in GameStop stock, causing uproar.Risk is a function of time. The longer between trade execution and completion, the bigger the “counterparty” risk, or the chance that one side or the other fails to pony up—as anyone caught mid-trade when Lehman Brothers or Archegos Capital collapsed can attest. And, therefore, the heftier the margin payments that brokers and investors have to post with clearing-houses.Hence the long-running push to bring down trade-processing times—from 14 days (“T+14” in the parlance) in the 18th century, when certificates were carried on horseback and ship; to under a week following reforms in the wake of the 1968 Wall Street paperwork crunch, when a trading boom forced exchanges to close one day a week for months to allow the backroom boys to catch up; to T+5, then T+3, and, four years ago, T+2.Still, a lot can happen in two days on Wall Street, so why stop there? Spurred by the market gyrations of last year, a group representing banks, investors and clearers has been studying a move to T+1 and is expected within weeks to unveil a plan for how to get there. The signs are that the Securities and Exchange Commission will bless it. If so, the halving of settlement time could kick in as early as 2023. Europe, for one, would probably follow suit.Lest anyone think the titans of finance are going soft, it should be pointed out that they are not pushing this solely for the greater good. They are as interested in cutting their own costs as systemic risks. During last year’s market turmoil, overall margin demanded by the DTCC, America’s clearing agency for stocks, jumped five-fold, to more than $30bn daily. Hundreds of billions more a year are tied up by “fails-to-deliver”, delays owing to settlement failures (the causes of which range from mistyping errors to more sinister practices such as failing deliberately in order to manipulate the price of a stock). Freeing up this capital would leave financial firms with a lot more to invest profitably.Why then stop at one-day settlement? Evangelists for so-called distributed-ledger technology are touting the possibility of going to T+0, known as “atomic” settlement. This looks technically feasible; indeed, some broker-to-broker trades at the DTCC are already settled on a near-instantaneous basis.But is it desirable? There is a big difference between reducing settlement time and eliminating it. In the latter, the buyer would have to be pre-funded and the seller immediately ready to swap. Every bit of a complex process would need to be synchronised, with no room for error. It may also require a wrenching restructuring of the giant securities-lending market, which is designed to fit with settlement with a time lag.Cue cries of “Luddite!” But Buttonwood is in good company in advocating keeping some redundancy in the process. Ken Griffin, boss of Citadel, one of America’s largest marketmakers, and thus no techno-slouch, has described real-time settlement as “a bridge too far” because it requires “everything [to] work perfectly in a world where there’s still people involved”. The message is clear: pushing things too far could replace one set of risks with another, scarier one, in which a small number of failed trades set off a chain-reaction across back offices worldwide. Atomic indeed.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Finance & economics section of the print edition under the headline “When the pipes creak” More

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    Time for orderly resolution for Evergrande is running out

    HOMEBUYERS, investors and analysts have been waiting for months for a peep from China’s regulators on a plan for Evergrande, a massive homebuilder on the brink of collapse. But when the central bank at last chimed in on October 15th to say that the risks were controllable, few took comfort.The situation in recent weeks has become only more unwieldy. Evergrande has already missed several offshore-bond payments and could, after a 30-day grace period, officially default on October 23rd. A plan to raise $2.6bn by selling a stake in its property-services arm has fallen through. Confidence in China’s housing market has been jolted. A handful of other developers have either missed or say they plan to miss offshore-bond payments. Sinic became the latest to default on October 19th.Many investors fear that the authorities are running out of time to avert greater turmoil in the housing market. The main concern is that Evergrande and other troubled developers will not be able to complete the homes they have already sold to ordinary Chinese people. (Evergrande alone owes an estimated 1.4m pre-sold units to buyers.) That would further drain confidence from the housing market and deliver a devastating shock to already weak economic growth.Averting broader fallout will depend on two things. The first is opening the channels of finance, in order to keep building sites buzzing with workers and suppliers. Here things do not look good. Many industry-watchers had expected the central government to capitulate to the crisis and command banks to lend more to developers. But that has not happened so far. The situation in the bond market is worse. The distress at Evergrande has helped fuel a cash crunch for other high-yield-bond issuers, shutting even non-property firms out of the market for desperately needed dollars.Developers were once able to bring in lots of liquidity by pre-selling homes. But now activity is slowing down. Developers’ spending on capital expenditure and land purchases fell by 3.5% in September, compared with a year earlier. Home starts and sales by value have continued to slide. House prices fell in September, the first monthly decline since 2015.Help could also come in a second form: a grand restructuring plan. But that would take time. Evergrande alone has more than 1,000 projects across China; other developers will only add more to the count. If the projects are to be kept running, local governments will probably need to take over their operation, requiring complex negotiations in hundreds of cities. Whether all this can be pulled off is far from clear. Yet failing to deliver on projects that have already been purchased would be catastrophic for the government, given that Xi Jinping, the president, has promised a new era of social equality. If the state has a plan, it will need to make it known soon.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Finance & economics section of the print edition under the headline “Evergrande plans” More

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    Stocks making the biggest moves before the bell: AT&T, IBM, Crocs, Blackstone & more

    Crocs store in New York City.
    Michael Brochstein | SOPA Images | LightRocket | Getty Images

    Check out the companies making headlines before the bell:
    AT&T (T) – AT&T rose 1.5% in premarket trading, after the company beat estimates by 9 cents with an adjusted quarterly profit of 87 cents per share. Revenue also came in above analyst forecasts, with AT&T seeing growth in demand for its phone and internet services as well as HBO and HBO Max.

    Danaher (DHR) – The maker of medical and diagnostic equipment earned an adjusted $2.39 per share for the third quarter, 24 cents above estimates, with revenue also topping predictions. Danaher saw a significant contribution to results from Covid-19 testing and treatment. Shares were flat in the premarket.
    Blackstone (BX) – The private equity firm stock gained 2.8% in premarket action, after earnings per share came in at $1.28, topping a consensus estimate of 91 cents. Blackstone benefited from strong investment performance, among other factors.
    Dow Inc. (DOW) – The chemical maker came in 19 cents above estimates with an adjusted third-quarter profit of $2.75 per share, with revenue also above estimates. Dow saw improved performance in packaging and specialty plastics as well as coatings, and the stock rose 1.2% in premarket trading.
    Quest Diagnostics (DGX) – The medical lab operator saw its shares jump 3.4% in the premarket following better-than-expected quarterly results. Quest earned an adjusted $3.96 per share, compared to a consensus estimate of $2.88 per share. The company’s results got a boost from increased Covid testing, and it raised its full year outlook.
    Crocs (CROX) – Crocs surged 11.1% in the premarket, following adjusted quarterly earnings of $2.47 per share compared to a $1.88 consensus estimate. The shoe maker’s revenue also beat forecasts, with digital sales up 69%.

    IBM (IBM) – IBM beat estimates by 2 cents with adjusted quarterly earnings of $2.52 per share, but revenue fell below analyst forecasts amid some weakness in the company’s cloud business and a pullback in client spending. IBM slid 5% in premarket trading.
    CSX (CSX) – CSX reported quarterly earnings of 43 cents per share, 5 cents above estimates, with the railroad operator’s revenue exceeding estimates as well. The beat was driven by an increase in shipping volumes that was 3% above the strong year-ago level. CSX shares rallied 3.9% in premarket trading.
    Tenet Healthcare (THC) – Tenet earned an adjusted $1.99 per share for its latest quarter, well above the $1.02 consensus estimate, and the hospital operator also reported better than expected revenue as well as raising its full-year earnings forecast. Tenet’s results got a boost from increased admissions as well as a jump in revenue per admission. The stock jumped 4% in premarket action.
    Unilever (UL) – Unilever gained 1.3% in premarket trading after the consumer products giant reported better than expected quarterly results. The maker of Dove soap and Hellman’s mayonnaise was able to raise prices to offset higher input costs, but warned that it expects inflation was likely to accelerate in 2022.
    Canadian National Railway (CNI) – The Wall Street Journal reported that activist investor Elliott Management has taken a “substantial” stake in the rail operator. Another activist investor, TCI Fund Management, already has a more than 5% stake in Canadian National. Shares were flat in the premarket.

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    'Plenty of worry in the market,' but this chart suggests the bulls will prevail

    Long-term market bull John Stoltzfus is questioning the October comeback’s stamina.
    He lists risks tied to Covid-19 variants, the inflation surge and Washington policy as catalysts that could dampen Wall Street’s appetite for stocks into year-end.

    “There’s plenty of worry in the market,” the chief investment strategist at Oppenheimer Asset Management told CNBC’s “Trading Nation” on Wednesday during a big day for the Dow. It hit its first intraday high since Aug. 15.
    Based on market activity since 2008, Stoltzfus suggests a potentially sharp drop at this juncture shouldn’t scare investors. He highlighted a chart in a recent report showing the S&P 500 saw a half dozen corrections since March 9, 2009, which marked the financial crisis’ lowest point and the beginning of the next bull market.

    Arrows pointing outwards

    “Markets do not grow like trees. They don’t grow to the sky, and they also don’t grow in a straight line upwards,” Stoltzfus said. “You have periods where you can have corrections. You could even have a near bear market or a bear market.”
    Despite the near-term pullback risks, Stoltzfus contends corporate profits and economic strength are encouraging.
    “You have these fundamentals that remain strong in the sense that business is posting good earnings,” he added. “We’re moving towards a recovery process that will likely become a global economic recovery on the back of a sustainable U.S. expansion.”

    Stoltzfus expects stocks to “climb a wall of worry” into year-end. His S&P 500 year-end target is 4,700, which implies about a 4% gain from current levels.
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    Watch CNBC’s Sustainable Future Forum: Money & Investing

    [The stream is slated to start at 6:30 a.m. ET. Please refresh the page if you do not see a player above at that time.]
    Click on the stream above to watch to CNBC’s Sustainable Future Forum. Thursday’s session from Europe focuses on money and investing.

    We turn the spotlight on money flows and how they can help influence the way we treat the planet.
    Environment-focused finance is a growing but sometimes bewildering industry.
    From full finance systems such as Carbon Trading, to specific and new asset classes like Green Bonds, the choice on where to put your cash has never been greater. CNBC demystifies the systems, analyses the products and shines a light on where some of the world’s most influential investors see the best (and greenest) returns.
    The lineup for Thursday’s sessions are below, and click here for the full schedule of the week.

    Panel: How investing with principles doesn’t mean sacrificing returns6:30 p.m. SGT/HK | 11:30 a.m. BST
    Tim Adams, president and CEO of the Institute of International Finance, and Fiona Frick, CEO of Unigestion.
    Sustainable finance is booming. A record $231 billion was raised in the first quarter of this year alone, selling green, social and sustainability bonds and $347 billion was poured into ESG-focused investment funds last year. Tim Adams, president and CEO of the Institute of International Finance, and Fiona Frick, CEO of Unigestion, join us to discuss what products are making a difference and how investing with principles does not mean sacrificing returns.
    Add to calendar

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    Barclays profit gets boost from investment banking, following Wall Street's lead

    The British bank reported attributable profit of £1.45 billion for the third quarter; analysts had expected it to come in at £931.25 million.
    Barclays’ corporate and investment banking division had its strongest year-to-date third-quarter performance in terms of fees and equities income.
    Barclays’ Wall Street competitors Goldman Sachs, Wells Fargo, Citigroup, Bank of America, Morgan Stanley and JPMorgan have all topped earnings expectations this quarter.

    Barclays reported better-than-expected third-quarter profits on Thursday, following its Wall Street rivals in receiving a significant boost from its investment banking division.
    The British bank reported attributable profit of £1.45 billion for the third quarter. Analysts had expected it to come in at £931.25 million, according to Refinitiv data, and the figure marks a significant increase from the £611 million reported in the same period last year.

    Barclays CEO Jes Staley told CNBC on Thursday that 2021 is “going to be quite a year” for the bank.
    “For many years, we were being asked the question of ‘how does Barclays get to its target return on capital of 10% or better?’ and I think 2021 will be a pretty strong answer to that question,” he said.

    Stock picks and investing trends from CNBC Pro:

    Barclays’ corporate and investment banking division had its strongest year-to-date third-quarter performance in terms of fees and equities income, boosting the bank’s return on tangible equity — a key ratio used to assess profitability.
    Income from investment banking fees increased 37% to £2.7 billion, “driven by a strong performance in Advisory and Equity capital markets reflecting an increase in the fee pool and an increased market share,” the bank said in its earnings release. Equities income climbed 28% to £2.47 billion on the back of “strong client activity in derivatives and increased client balances in financing.”
    Other highlights:

    Common equity tier one capital (CET1) ratio was 15.4%, compared to 14.6% at the end of the third quarter of 2020 and 15.1% in the previous quarter.
    Group income hit £5.5 billion, up from £5.2 billion for the same period last year.
    Return on tangible equity (RoTE) was 14.9%, compared to 3.6% in the third quarter of 2020.

    Barclays’ Wall Street competitors Goldman Sachs, Wells Fargo, Citigroup, Bank of America, Morgan Stanley and JPMorgan have all topped earnings expectations this quarter on the back of investment banking strength over the past week.
    The British lender also released £622 million from its loan loss provisions for the quarter. This compared to a £608 million charge booked at the end of the third quarter of 2020.

    Credit risks

    Although Covid-19 cases in the U.K. have risen to a seven-day rolling average of around 45,000, Staley said Barclays was well positioned to weather any further economic headwinds.
    “We still have well over £6 billion of impairment reserves on our balance sheet for any issues in the economy going forward,” he said, adding that the U.K.’s fiscal and monetary policy response has been “extraordinarily robust.”
    “The actual credit delinquencies that we’re seeing are at very, very low levels, so if unemployment stays roughly where it is — and the government support, I think, has had its impact, the markets are very liquid, balance sheets are in very good shape, whether it’s consumers or small businesses — we just don’t see the signs yet of a significant deterioration in credit, but if there is one, we are more than amply reserved on our balance sheet.”
    Read more: PRO: Wall Street analysts expect strong earnings from Europe. Here are 25 of their top stock picks
    Barclays shares fell around 1% in early trade Thursday. Over the year to date, the bank’s stock is up over 35%.

    Rate hike impact

    The Bank of England is broadly expected to hike interest rates by the end of the year, with the potential for two more hikes in 2022. Staley said this would have a positive impact on Barclays’ earnings going forward.
    “There are six cylinders that drive a bank like Barclays: three cylinders are lending — so the interest we earn on credit extended to corporations and small businesses and consumers. The other side of that is interest we earn on deposits that are left with us, the cash that is left with Barclays, and obviously that has been quite slow given that interest rates have been effectively close to zero,” he said.
    “So I think getting some degree of inflation back, given the economic recovery that we’ve seen, translated into a move in interest rates, particularly as central banks begin to taper off the quantitative easing. I think we’ll have higher interest rates and that will be actually quite positive for Barclays.”

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    China Evergrande shares plunge 12.5%, after $2.6 billion asset sale falls through

    Heavily indebted Evergrande was in talks earlier this month to sell part of its services unit to Hopson Development Holdings, its smaller rival.
    Hopson said Wednesday that talks fell through to purchase just over half of shares issued by Evergrande Property Services.
    The collapse of the Hopson deal comes as Evergrande faces the end of a 30-day grace period on Saturday for a closely watched $83 million interest payment to investors in an offshore U.S. dollar-denominated bond.

    China Evergrande Group started returning a small portion of the money owed to buyers of its investment products, weeks after people protested against missed payments at its Shenzhen headquarters, pictured here on Sept. 30, 2021.
    Gilles Sabrie | Bloomberg | Getty Images

    BEIJING — China Evergrande shares dropped 12.5% on Thursday, after a deal to sell some of its assets to Hopson Development Holdings fell through.
    Hopson shares closed nearly 7.6% higher, while Evergrande Property Services shares fell 8%.

    Heavily indebted Evergrande was in talks earlier this month to sell part of its services unit to Hopson, its smaller rival. However, Hopson announced late Wednesday that talks fell through to purchase a 50.1% stake in Evergrande Property Services. Evergrande confirmed the termination of the deal in a separate filing.
    The deal would have been worth 20.04 billion Hong Kong dollars ($2.58 billion), according to filings.

    Loading chart…

    Evergrande is China’s second-largest developer by sales and the industry’s largest issuer of offshore bonds, with a total of about $300 billion in liabilities. Worries about the company’s ability to repay its debt have raised concerns of spillover into China’s real estate market, which — along with related industries —accounts for about a quarter of national GDP.
    Trading in the three stocks resumed Thursday, more than two weeks after the companies had halted trading ahead of a “major transaction.”

    No progress on asset sales

    The collapse of the Hopson deal comes as Evergrande nears the end of a 30-day grace period for a closely watched $83 million interest payment to investors in an offshore U.S. dollar-denominated bond. If the developer fails to pay by Saturday, it will technically default.

    Evergrande said late Wednesday that since selling its $1.5 billion stake in Shengjing Bank in late September, “there has been no material progress on sale of assets of the Group.”

    Last week, Reuters reported, citing sources, that Chinese state-owned Yuexiu Property has dropped a $1.7 billion deal to buy Evergrande’s Hong Kong headquarters building.
    Both companies did not immediately respond to a CNBC request for comment.
    Evergrande’s high reliance on debt to expand rapidly came under greater government scrutiny last year, with the rollout of “three red lines” policy for real estate companies to reduce the ratio of their debt to their assets.
    China Evergrande had violated all three red lines as of the first half of this year, while Hopson and Yuexiu hadn’t crossed any of those lines, according to Natixis.

    Read more about China from CNBC Pro

    Evergrande said that as of Oct. 20, the company’s contracted property sales from the beginning of September totaled 3.65 billion yuan ($571.1 million).
    That’s 90% lower than in August, when contracted property sales totaled 38.08 billion yuan.
    Year-to-date contracted sales of properties through Oct. 20 was 442.3 billion yuan, Evergrande said.

    Authorities seek to assure

    China has sought to allay fears of contagion, which spooked global markets earlier.
    Since Friday, the People’s Bank of China has said more than once that Evergrande is an individual, controllable case.
    Most recently, central bank governor Yi Gang said Wednesday that the first measure of response is to prevent Evergrande’s risks from spreading to other real estate companies.
    Vice Premier Liu He said at a financial forum Wednesday that individual problems have appeared in the real estate market, and that reasonable funding needs are being met. Liu did not mention Evergrande by name.

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    CNBC’s Sustainable Future Forum Asia: Money & Investing

    On Thursday, CNBC’s Sustainable Future Forum focused on money and investing.
    We turned the spotlight on money flows and how they can help influence the way we treat the planet.

    Environment-focused finance is a growing but sometimes bewildering industry.
    From full finance systems such as Carbon Trading, to specific and new asset classes like Green Bonds, the choice on where to put your cash has never been greater. CNBC demystifies the systems, analyses the products and shines a light on where some of the world’s most influential investors see the best (and greenest) returns.
    The lineup for Thursday’s sessions are below, and click here for the full schedule of the week.

    Panel: What’s next for ESG investment in Asia?2 p.m. SGT/HK | 7 a.m. BST
    Yimei Li, CEO of ChinaAMC, and Loh Boon Chye, CEO of Singapore Exchange.
    Analysts have hailed Asia as the new frontier for sustainable investment. Boosted by China’s commitment to achieve carbon neutrality by 2060, the region brought in a record $25.4 billion in ESG funds in 2020, up 131% on the year before. ChinaAMC’s CEO Yimei Li and Loh Boon Chye, CEO of SGX, join us to discuss what has been driving growth, whether the momentum can continue, and what challenges remain.
    Add to calendar

    Fireside: ESG opportunities in real estate2:20 p.m. SGT/HK | 7:20 a.m. BST
    Lee Chee Koon, Group CEO at CapitaLand Investment.
    The built environment accounts for 38% of all GHG emissions, and therefore has a pivotal role to play in achieving net-zero carbon by 2050. Ranked as one of the top real estate companies in the “Global 100 Most Sustainable Corporations in the World” index, CapitaLand has been leading the way in setting ambitious sustainability goals for the sector. CEO, Lee Chee Koon, joins us to discuss how the company is integrating environmental considerations into its investments, what ESG opportunities there are in real estate and how the industry is transitioning to a more sustainable future.
    Add to calendar

    Panel: How investing with principles doesn’t mean sacrificing returns6:30 p.m. SGT/HK | 11:30 a.m. BST
    Tim Adams, president and CEO of the Institute of International Finance, and Fiona Frick, CEO of Unigestion.
    Sustainable finance is booming. A record $231 billion was raised in the first quarter of this year alone, selling green, social and sustainability bonds and $347 billion was poured into ESG-focused investment funds last year. Tim Adams, president and CEO of the Institute of International Finance, and Fiona Frick, CEO of Unigestion, join us to discuss what products are making a difference and how investing with principles does not mean sacrificing returns.
    Add to calendar

    Subscribe to CNBC International on YouTube.  More