MONOPOLY CAPITALI$M

Analysis-Kroger, Albertsons spin-off is extra ammunition in regulatory battle

Abigail Summerville and Anirban Sen
Mon, October 17, 2022 a

A customer leaves an Albertsons grocery store in Riverside


NEW YORK (Reuters) - Kroger Co and Albertsons Cos Inc are willing to divest up to 650 supermarket stores to secure regulatory clearance for their $24.6 billion deal, but if they cannot find buyers they have an unusual spin-off structure up their sleeves.

The two largest U.S. operators of stores dedicated to groceries said on Friday they may divest some stores by placing them in a new company that will be owned by Albertsons shareholders. They said the spun-off company could have between 100 and 375 stores.

The structure is intended to give the companies a stronger hand in negotiations with the Federal Trade Commission (FTC), the U.S. regulator that can sue to block the deal if it believes it will be detrimental to consumers at a time of rampant price inflation.


Companies that agree to merge can take months to divest assets as they try to appease antitrust regulators. The spin-out structure would make it easier and faster for Kroger and Albertsons to divest stores if they cannot easily sell them outright, people familiar with the arrangement said.

The companies may struggle to find many buyers because Albertsons' stores are unionized, making them less attractive to potential bidders such as private equity firms. Kroger and Albertsons are likely to shed their least profitable stores and keep the best ones to themselves, analysts said.

Kroger and Albertsons did not immediately respond to requests for comment.

A previous merger involving Albertsons offers a cautionary tale to potential buyers. When Albertsons agreed to acquire peer Safeway for more than $9 billion in 2014, it subsequently won regulatory backing by signing a deal to sell 146 stores to West Coast regional grocer Haggen for $300 million. Haggen filed for bankruptcy months later and blamed the deal with Albertsons for its demise. Albertsons then agreed to buy many of the Haggen stores back for $300 million.

To be sure, at least one competitor of Albertsons and Kroger is expected to take a close look at their potential divestitures. Ahold Delhaize Chief Executive Frans Muller has said his company, the fourth-largest player in the U.S. grocery sector, has a "very active" mergers and acquisitions strategy and that it is looking to expand in the western United States. That region contains the most store-overlap between Kroger and Albertsons and is where divestitures are most likely, according to analysts.

Ahold did not immediately respond to requests for comment.

"Any stores that we need to divest, we would intend to fully market them, and we will look at SpinCo as one option within that plan," Kroger's chief financial officer, Gary Millerchip, told analysts on a call on Friday, referring to the company that Kroger and Albertsons plan to form which encompasses the spun-off stores.

Between them, Kroger and Albertsons now operate a total of 4,996 stores. Their contract specifies that Kroger does not have to agree to divestitures exceeding 650 stores to appease regulators. If their deal falls through, Kroger will then owe Albertsons a breakup fee of $600 million.

FTC CHALLENGES

The FTC, under Chair Lina Khan, has sued to block six mergers in the past year, sometimes successfully. It forced U.S. arms maker Lockheed Martin Corp to abandon its acquisition of rocket engine maker Aerojet Rocketdyne Holdings Inc and forced chipmaker Nvidia Corp to walk away from its purchase of SoftBank Group Corp's Arm Ltd.

But the agency also suffered a bruising defeat last month, when a U.S. administrative judge ruled against its challenge to genetic analysis equipment manufacturer Illumina Inc's acquisition of cancer detection test maker Grail Inc, finding that the deal would not hurt competition. The FTC's counterpart in the European Union was successful in challenging the Grail deal, a decision Illumina has appealed.

Khan, an appointee of U.S. President Joe Biden and former law professor, has been highly skeptical of the purported benefits of big mergers to consumers and has criticized the FTC's handling of Albertsons' deal with Safeway. In a Harvard Law & Policy Review article published five years ago, she wrote that "even a casual observer could have predicted that Haggen would have great difficulty expanding its store fronts nearly ten-fold" following its deal with Albertsons, and argued that the antitrust remedy that was agreed "backfired".

The FTC declined to comment.

Kroger and Albertsons are mindful that any new company they create to take some of their stores has to be financially healthy, given what happened with Haggen, people who worked on their deal said. They intend for the spun-off company to not carry any debt, the sources added.

(Reporting by Anirban Sen and Abigail Summerville in New York; Editing by Matthew Lewis)

Goldman Sachs Chooses the Rich over the Average Joe

Luc Olinga - Yesterday 

The prestigious investment bank seems to be giving up on its ambitions to seduce Main Street.

It looks like a flip-flop that doesn't say its name.

Goldman Sachs (GS) - Get Goldman Sachs Group Inc. (The) Report seems to be giving up on its ambitions to seduce Main Street.

The prestigious investment bank whose name is associated with Wall Street and complex financial products has just made a decision that clearly indicates that it is returning to its origins and what makes it bread and butter.

The famous bank will carry out a major reorganization, the fourth since 2020, report the Wall Street Journal and Bloomberg News. This restructuring will create three major divisions within the bank, much like its rivals.

This reorganization plans to regroup the investment-banking and trading businesses into a single unit. Basically, bankers advising companies on their M&A transactions, IPOs and capital raising will once again be under the same roof as traders.



Rafael Henrique/SOPA Images/LightRocket via Getty Images© Provided by TheStreet

Disbandment of Retail Bank

Goldman Sachs will also merge the asset management and wealth management activities into a single entity. Employees managing the money of the wealthy will unite with those managing the money of pension funds and other institutions with deep pockets.

A third division will house the bank's portfolio of fintech platforms, specialist lender GreenSky and partnership activities with Apple (AAPL) - Get Apple Inc. Report and General Motors (GM) - Get General Motors Company Report, write the Wall Street Journal and Bloomberg.

Contacted by TheStreet, Goldman Sachs declined to comment.

The bank publishes its results for the third quarter on Oct. 18 and could undoubtedly formalize this reorganization on this occasion.

The big bang of this reorganization is the radical disbandment of retail banking or consumer banking, which CEO David Solomon made one of his priorities when he took the reins in October 2018.

These efforts to reach consumers through an online retail banking platform offering traditional Main Street financial services - loans, deposits and credit cards - appear to be taking a big hit.

Part of the activities of this retail bank are thus found in the third division created by the reorganization, its partnerships with GM and Apple that includes GreenSky, a "fintech" that provides home improvement project loans to consumers since its inception in 2006.

The bank acquired GreenSky in 2021 to strengthen its consumer banking unit, Marcus. The goal was to have more predictable revenue businesses and reduce Goldman Sachs' reliance on trading and investment activities, which are more fluctuating.

The other piece of retail banking, that is under the Marcus brand, is going to be housed in the wealth management business. Marcus was launched in 2016.

Bet on the Rich

All this suggests that Goldman Sachs, whose bet on Main Street was met with internal skepticism, seems to be stepping on the brakes. The firm will again become the bank of the wealthy.

The reorganization indeed appears to mark the end of efforts to make Goldman Sachs everyone's bank. The firm no longer expects a big rollout of checking accounts to the masses, says Bloomberg News. These checking accounts will be reserved for well-off customers and employees of its partner companies.

Marcus Invest, the bank's robo-adviser (online savings management platform) and savings accounts will also now be reserved for the same wealthy customers.

"In the decades to come, I expect us to be a leader in our consumer business, just like we are in our institutional and corporate businesses," Solomon had said in a memo to employees in 2019 when the bank launched its first credit card in partnership with Apple.

But the strategic reversal illustrates the difficulties of the prestigious New York bank to develop in the business of retail banking, whose economic model is based on a large volume of customers and low margins contrasts with that of the more lucrative investment bank.

If Goldman Sachs has managed to attract around 13 million customers with Marcus, and accumulated more than $100 billion in deposits, it is still struggling to make this diversification profitable.

This year, the losses of Marcus, whose activity is 100% online and also available in the United Kingdom, should amount to at least $1.2 billion. Goldman Sachs hopes Marcus will be profitable from 2022.

Marcus generated revenues of nearly $1.1 billion in the first half, including $608 million in the second quarter alone, up 67.5% year-on-year. The firm had set a target of $4 billion annually in 2024.

REAL AMERICAN BANKING

"ANTI-WOKE" ONLINE BANK IMMEDIATELY DISINTEGRATES INTO CHAOS

WHAT AN ABSOLUTE DISASTER.

GETTY IMAGES/FUTURISM

Conservative Banking

An "anti-woke" bank, which tried to woo customers who think Wall Street is too liberal, has imploded and almost went bankrupt shortly after launching, The Wall Street Journal reports.

Despite backing from big-name investor billionaires including Ken Griffin and Peter Thiel, the startup — called GloriFi — descended into chaos within a matter of months, according to the WSJ's reporting, with investors' money rapidly drying up.

GloriFi touts itself as a place for blue collar "pro-American values" people, who want to experience unfettered freedom to "celebrate your love of God and country," according to the company's website.

Founder Toby Neugebauer said he wanted to target those who didn't want to do business with large banks that became too progressive, divesting from industries like coal mining, guns, and the private prison system.

"It is about my friends that played football at ‘Friday Night Lights,'" Neugebauer told the WSJ. "And they don’t feel loved. They don’t feel respected."

Volatile Leadership

The company has been off to a rough start, though.

Staff had to work from Neugebauer's 16,000-square-foot mansion in Dallas, for one thing. According to the report, staffers complained about Neugebauer, who they said was volatile and had a drinking problem ("The attacks on what I do in my home after 5 p.m. are beneath" the WSJ, he told the paper.)

GloriFi failed to meet its own deadlines, with contracting insurance company Unqork filing a lawsuit against the startup, claiming an alleged breach of contract. According to lawsuit documentation viewed by the WSJ, an unnamed GloriFi manager was seen on camera "in a state of undress, on a bed with a companion who was similarly in a state of undress" following a conference call with Unqork.

That wasn't its only snafu; a plan to build credit cards out of the same material as shell casing fell apart, according to the WSJ, when the material turned out to interfere with chips and be too thick for point-of-sale systems.

In March, Neugebauer informed investors the startup had run out of cash, and investors were understandably wary to give them any more funds, which resulted in the company coming close to bankruptcy.

GloriFi's fate is still uncertain. In July, the company merged with an acquisition company, which valued it at an astonishing $1.7 billion.

But the company has yet to release any projected earnings or presentation, which isn't exactly surprising, given the circumstances.

READ MORE: How a New Anti-Woke Bank Stumbled

BANK CRISIS

Credit Suisse Weighs US Asset-Management Sale, Investment Bank Chief to Exit

Matthew Monks, Jan-Henrik Förster and Dinesh Nair

Tue, October 18, 2022

(Bloomberg) -- Credit Suisse Group AG is exploring a sale of its US asset-management operations and moving closer to securing financing for other businesses, as it nears a strategy revamp that’s likely to fundamentally reshape it.

The Swiss bank has recently begun a sales process for the US operations of Credit Suisse Asset Management, or CSAM, according to people familiar with the matter. No final decision has been made and Credit Suisse could opt to hold onto the unit, the people said, asking for anonymity to discuss internal considerations.

Abu Dhabi and Saudi Arabia, meanwhile, are separately weighing whether to put money into Credit Suisse’s investment bank and other businesses to take advantage of depressed values, other people said. Deliberations are at an early stage and it isn’t clear if they’ll lead to firm offers.

With little more than a week remaining, Credit Suisse is racing to line-up financing for a restructuring that will likely see steep job cuts and a significant reshaping of the business. The investment bank is at the center of the plans and could even be broken up. While Credit Suisse made preparations to tap shareholders if needed, it would prefer to raise money through asset sales and by winning outside investors to fund businesses that it wants to spin out.

Shares of the lender rose for a second day, gaining 1.3% at 9:27 a.m. in Zurich trading. They’ve lost about half of their value this year and recently hit a new low.

“We have said we will update on progress on our comprehensive strategy review when we announce our third-quarter earnings,” Credit Suisse said in a statement. “It would be premature to comment on any potential outcomes before then.”

A sale of the US asset management operations, which include a platform for investing in collateralized loan obligations, could draw interest from private equity firms or other asset managers, the people familiar with the process said. The bank has said that the Americas account for 146 billion Swiss francs ($147 billion) of its assets under management.

The unit is one of two large businesses that the bank is looking to sell. Credit Suisse is also in the process of finding investors for or divesting its securitized products group, which has drawn interest from parties including Mizuho Financial Group Inc. and Apollo Global Management Inc., Bloomberg News has reported.

The bank is also seeking to bring in an outside investor to inject money into a potential spinoff of its advisory and investment banking businesses. A separation of the dealmaking and underwriting unit would effectively break the troubled investment banking division into three pieces.

Abu Dhabi and Saudi Arabia are exploring investments through sovereign wealth funds such as Abu Dhabi’s Mubadala Investment Co. and Saudi Arabia’s Public Investment Fund, people familiar with the matter said. A deal could also come through other vehicles in which each country owns significant stakes, the people said. But the potential investors are wary about the risk of future losses or legal issues, they said.

Abu Dhabi’s media office and the PIF in Saudi Arabia didn’t immediately have representatives available to comment. Mubadala declined to comment.

Credit Suisse has long counted on wealthy Middle Eastern investors as top shareholders, including the Qatar Investment Authority and Saudi Arabia’s Olayan Group. They’ve often invested in times of need, including the QIA’s participation in Credit Suisse’s approximately $2 billion convertible notes issuance in April 2021. That helped shore up the balance sheet after Archegos.

Separately, Credit Suisse has gauged the QIA’s interest in investing via a capital injection or stake purchase in one of the units, according to people familiar with the matter. A representative for QIA declined to comment.

As part of the planned changes, investment bank head Christian Meissner is set to depart the lender, Bloomberg reported. The banker, who has been focusing on the overhaul of the business, is looking at options including starting his own advisory firm or joining another institution next year.

An Austrian citizen, he was initially hired by Credit Suisse in October 2020 to co-run a newly created group connecting clients of the wealth management unit with investment-banking services. He became Credit Suisse’s investment-bank chief in 2021 in the wake of the $5 billion hit from the collapse of Archegos Capital Management.

Credit Suisse looks for capital from Mideast, top banker to leave

John Revill and Oliver Hirt
Mon, October 17, 2022 

A clock is seen near the logo of Swiss bank Credit Suisse in Zurich

ZURICH (Reuters) - Credit Suisse Group AG has approached at least one Middle Eastern sovereign wealth fund for a capital injection, a source said, while some funds are looking at the scandal-hit Swiss bank's businesses as potential investment opportunities.

Abu Dhabi and Saudi Arabia were weighing up, through their sovereign wealth funds, whether to put money into Credit Suisse's investment bank and other businesses, Bloomberg reported. An investment would be to take advantage of low valuations, it said.

Credit Suisse's investment banking chief, Christian Meissner, will be leaving the bank once it has announced a strategic overhaul on Oct. 27, a source familiar with the situation said.

The size and other details of a potential capital injection could not be learned.

A spokesperson for Credit Suisse declined to comment, reiterating that it will update on its strategy review when it announces third-quarter earnings.

The largest Middle Eastern sovereign fund investor in Credit Suisse, the Qatar Investment Authority, declined to comment. Mubadala declined to comment. ADIA and PIF did not immediately respond to requests for comment.

Credit Suisse's U.S.-listed depository receipts closed 3.6% higher on Monday. (Graphic: Cost of insuring Credit Suisse debt, https://graphics.reuters.com/CREDITSUISSE-CDS/dwpkroxdxvm/chart.png)

Credit Suisse, one of the largest banks in Europe, is trying to recover from a string of scandals, including losing more than $5 billion from the collapse of investment firm Archegos last year, when it also had to suspend client funds linked to failed financier Greensill.

Analysts have said the company might need as much as 9 billion Swiss francs ($9 billion) as part of a reorganization, some of which may have to come from investors and some from the sale of assets.

It has already begun a sale process for its U.S. asset management arm, with initial bids due at the end of this week, a source familiar with the matter said. Bloomberg News, which first reported the news on Monday, said the unit is expected to draw interest from private equity firms.

Its approach for a capital raise indicates that the sale of assets alone may not be enough to cover the costs of an imminent overhaul that the embattled bank hopes will draw a line under heavy losses and a string of scandals.

On Monday, the Swiss lender agreed to pay $495 million to settle legal action over mortgage-linked investments in the United States, adding to the billions it has been paying out to resolve legal cases linked to its residential mortgage-backed securities (RMBS) business in the run up to the 2008 financial crisis.

The New Jersey case was the largest of its remaining exposure on its legacy RMBS business, Credit Suisse said, with five remaining cases, all far smaller, still in litigation.

In June, Credit Suisse was convicted of failing to prevent money laundering by a Bulgarian cocaine trafficking gang, while a Bermuda court ruled that a former Georgian prime minister and his family were due damages of more than half a billion dollars from Credit Suisse's local life insurance arm.

Credit Suisse's chairman, Axel Lehmann, pledged on Friday to reform the bank after a "horrible" 2021 in which it lost billions of dollars, the biggest ever loss in its history.

"We are fully aware that we need to change and we will change, clearly," he said.

Lehmann took over in January at the Swiss bank.

(Reporting By Paritosh Bansal in New York, Elisa Martinuzzi in London, John Revill, Oliver Hirt and Noele Illien in Zurich, and David French in New York; additional reporting by Yousef Saba in Dubai; editing by John O'Donnell, David Evans and Stephen Coates)

Credit Suisse pays $495 million to settle legacy U.S. case

John Revill
Mon, October 17, 2022



ZURICH (Reuters) -Credit Suisse has agreed to pay $495 million to settle a case related to mortgage-linked investments in the United States, the latest pay-out related to past blunders that have battered the Swiss bank's reputation.

The lender has been paying out billions of dollars to resolve legal cases linked to its residential mortgage-backed securities (RMBS) business in the run up to the 2008 financial crisis.

The decline in mortgage payments reduced the value of the assets, leading to huge losses for investors.

Switzerland's second biggest bank is trying to move on from these legacy issues which have dogged its performance and cost it billions of dollars.

The bank is also trying to recover from other missteps, including losing more than $5 billion from the collapse of investment firm Archegos last year, when it also had to suspend client funds linked to defunct financier Greensill Capital.

The latest RMBS case, brought by the New Jersey Attorney General, alleged Credit Suisse had "misled investors and engaged in fraud or deceit in connection with the offer and sale of RMBS."

The attorney general's office had claimed more than $3 billion in damages in a case filed in 2013.

"Credit Suisse is pleased to have reached an agreement that allows the bank to resolve the only remaining RMBS matter involving claims by a regulator," the bank said in a statement.

"The settlement, for which Credit Suisse is fully provisioned, marks another important step in the bank’s efforts to pro-actively resolve litigation and legacy issues."

The New Jersey case was the largest of its remaining exposure on its legacy RMBS business, Credit Suisse said, with five remaining cases at various stages of litigation.

These are expected to be resolved in the next six months, a person familiar with the matter told Reuters. The total cost likely to be much less than $100 million, the source added.

RMBS are a debt-based securities, seen as similar to bonds, which are backed by the interest paid on home loans packaged together to sell to investors.

But poorly constructed RMBS's contributed to the financial crisis in 2008 - when wider groups of mortgages defaulted leading to big losses.

Credit Suisse, whose share price has more than halved in the last 12 months, has already paid out huge sums to resolve claims related to the products, including a $5.3 billion deal with the Department of Justice in 2017.

It said at that time products it sold did not meet underwriting guidelines.

It also paid $600 million to MBIA Inc last year after the New York based-municipal bond insurer paid out hundreds of millions to compensate investors.

The bank, one of the largest in Europe and one of Switzerland's global systemically important banks, is scheduled to release details of a much anticipated strategic review alongside third-quarter results on Oct. 27.

In June, the bank was convicted of failing to prevent money laundering by a Bulgarian cocaine trafficking gang, while a Bermuda court ruled that a former Georgian Prime Minister and his family were due damages of more than half a billion dollars from Credit Suisse's local life insurance arm.

The U.S. Justice Department is also investigating whether Credit Suisse continued helping U.S. clients hide assets from authorities, eight years after the Swiss bank paid a $2.6-billion tax evasion settlement.

(Reporting by John Revill and Oliver Hirt; Editing by Kirsten Donovan, Mark Potter and Jane Merriman)

Morgan Stanley evaluating job cuts, CEO says

Steve Gelsi - Yesterday - Bloomberg


Morgan Stanley CEO James Gorman said the marquee investment bank is studying potential job cuts as the latest big financial institution to look for ways to reduce costs headed into an expected economic slowdown.



“Obviously we’re looking at head count,” Gorman said on the firm’s conference call with analysts on Friday, according to a transcript from FactSet. “You’ve got to take into account the rate of growth we’ve had until the last few years, and we’ve learned some things during COVID about how we can operate more efficiently.”

The bank is working on these plans from now until the end of the year, Gorman said.

“We want to provide growth opportunities across the platform, but we’ve also identified some efficiencies, so over time, that will become clearer,” Gorman said.

Morgan Stanley ended the most recent third quarter with 81,567 personnel, up from 78,386 in the second quarter and 73,620 in the year-ago quarter.

Overall, layoffs have been increasingly on the table for the megabanks as they cut back businesses with less demand such as mortgages, which have weakened in the face of higher interest rates.

For now, however, the only major bank to report a head count reduction in the third quarter was Wells Fargo & Co. which has been stating publicly it would make cuts in its mortgage business.

Meanwhile, Goldman Sachs Group Inc. is reportedly eyeing a re-alignment of its business units in a move that often includes job cuts when companies restructure their businesses into three major units.

Goldman Sachs will group its investment bank and trading operations in the same business unit. It will also combine its asset and wealth management into a second department, while a third division will be home to its financial technology platforms as well as specialty lender GreenSky, The Wall Street Journal reported.

Bank of America Corp. which reported better-than-expected earnings on Monday, finished out the third quarter with 213,270 employees, up 18% from 209,407 people in the year-ago quarter, and ahead of the 209,824 figure as of June 30.

Wells Fargo reported total head count of 239,209 as of Sept. 30, down from 243,674 people at the end of the second quarter and 253,871 at the end of the year-ago quarter.

JPMorgan Chase & Co.’s head count grew to 288,474 as of Sept. 30, up from 278,494 at the end of the second quarter and 265,790 at the end of the third quarter of 2021.

Citigroup, which rounds out its head count numbers to the nearest thousand, ended the third quarter with 238,000 people on its payroll, up from 231,000 at the end of the second quarter and 220,000 in the year-ago quarter.

BYD flags huge quarterly profit jump as China sales surge past Tesla

Mon, October 17, 2022 



(Reuters) -BYD Co, China's biggest electric car maker, said third-quarter net profit likely more than quadrupled as it extends its sales lead over Tesla Inc in the world's largest auto market. Shares in BYD jumped.

Having ditched gasoline vehicles from its product mix this year, BYD has, more than any other automaker, been able to capitalise on a range of incentives for electric cars offered by the Chinese central government as well as local governments.

Robust sales and a product range broader than other EV competitors have in turn allowed the company, which is 19% owned by Warren Buffett's Berkshire Hathaway, to significantly reduce costs per vehicle.

An improved product mix led by vehicles such as its upmarket Han sedan has also helped drive earnings.

BYD estimated net profit for the July-September quarter to come in between 5.5 billion yuan and 5.9 billion yuan ($765 million to $820 million) - an increase of 333% to 365% from the same period a year earlier.

Its Hong Kong-listed shares shot 6% higher by Tuesday afternoon, giving the automaker a market capitalisation of around $93 billion - not far off the combined market values of General Motors Co and Ford Motor Co. Its Shenzhen-listed shares climbed 5%.

BYD's combined sales of pure electric and hybrid plug-in vehicles increased 250% in the first nine months to 1.2 million units, outpacing a 110% rise for the overall EV segment.

By comparison, Tesla sold just over 318,000 electric vehicles in China during the first nine months of the year. Among domestic EV rivals, XPeng Inc and Nio Inc - both loss-making - sold more than 98,500 and over 31,600 respectively.

BYD said its huge jump in vehicle sales had relieved the pressure brought on by increases in raw materials costs, though it did raise prices on some models by as much as 6,000 yuan.

BYD's strategy of producing batteries and some microchips internally has also helped it to better weather supply-chain bottlenecks and inflation-driven cost increases, analysts at Fitch Ratings have noted.

The China Association of Automobile Manufacturers has estimated that EV sales in China will increase by about 56% this year to 5.5 million units - a market far greater than most countries' entire auto sales.

EVs are also expected to account for 20% of overall China vehicle sales this year, up from 13.6% in 2021, the industry association said.

Some subsidies for electric vehicles are set to expire this year although the government has extended an exemption of the purchase tax for EVs to the end of 2023.

($1 = 7.1993 Chinese yuan)

(Reporting by Zhang Yan and Brenda Goh; Editing by Edwina Gibbs)

U.K. chancellor throws out almost all major tax cuts from the mini-budget and pares back energy support

Anviksha Patel - MARKETWATCH - YESTERDAY


The U.K.’s new Chancellor of the Exchequer Jeremy Hunt has scrapped the majority of the £45 billion previously announced unfunded tax cuts in an emergency statement on the mini-budget.


Related video: Chancellor Hunt slashes energy price guarantee, scraps mini budget tax rate cut   Duration 6:03  View on Watch

Hunt pulled back the government’s energy price guarantee, which was due to support households and businesses for two years. It will now remain universal until April next year, so that it will cost taxpayers “significantly less than planned.”

He said that a Treasury-led review will be created to look into how people can be supported from April onwards.

“There will be more difficult decisions I’m afraid on both tax and spending, as we deliver our commitment to get debt falling as a share of the economy over the medium term,” Hunt said.

Together, the moves save some £30 billion, ahead of the official budget plan due at the end of October.

Bond yields on the 30-year gilt — which the Bank of England was buying last week — as well as the 10-year fell sharply on Monday, by nearly 50 basis points, while the British pound rose. Sterling was up 1% to $1.1361 during Monday trading.

The government had already backtracked on a plan to cut the personal tax rate of those making more than £150,000, as well as corporate taxes.

Now the chancellor also threw out plans to cut the basic rate of income tax to 19% from 20%, as well as dividend tax cuts and a freeze on alcohol taxes.

See also: Who is Jeremy Hunt? Meet the new U.K. chancellor

The tax proposals that will remain are the cuts to stamp duty on property purchases and cuts to national insurance contributions, the latter which had already been enacted into law.

As soon as he came into the post over the weekend after Kwasi Kwarteng was fired on Friday, Hunt said he would not wait until Oct. 31 to make its medium-term fiscal statement in an effort to cool down the markets.

“No government can control markets by every government can give certainty about the sustainability of public finances. And that is one of the many factors that influence how markets behave,” Hunt stated.

The Bank of England on Monday said its temporary bond purchase program ended and “as intended, these operations have enabled a significant increase in the resilience of the sector.”

Read: Why Kwasi Kwarteng could not survive the battle with the Bank of England

Market reaction

Market commentators have welcomed the early announcement and the bank intervention.

Ganesh Viswanath-Natraj, assistant professor of finance at Warwick Business School, said the policies can help “maintain the pound’s value as it makes sterling assets more attractive.”

“This signals to financial markets that government debt is on a sustainable path, leading to a more stable demand for gilts by investors,” he said.

Pantheon Macroeconomics chief U.K. economist Samuel Tombs said the announcement amounts to £31 billion of savings found, with “a further £40 billion or so to go.”

“For context, Mr. Hunt will have to reduce the average annual growth rate of total managed expenditure, excluding debt interest payments, over the years to 2025/26 to 1.8%, from the 2.7% rate in the mini-budget, if all of the remaining £40B savings are to be found from spending,” Tombs added.

Nick Macpherson, a former Treasury official, said on Twitter that the early statement was a good move to help the markets.

“There is no doubt this means market turmoil should lessen,” added Neil Birrell, chief investment officer at Premier Miton Investors, adding that domestic equities should benefit from the U-turn as well.

“However, political uncertainty has not gone away, but has probably increased. Furthermore, for investors outside the UK looking to commit money here, this see-sawing can’t help our case,” he added.

The U.K. FTSE 100 rose 1.36% on Monday.U-turn on Trussonomics

The flipflopping from Liz Truss’s administration has angered political opposition, but more importantly, Truss’s own Conservative party members, triggering a wave of bets on who could replace Truss.

Reports from The Times note that Tory MPs in the 1922 committee -– which oversees how Conservative party leaders are chosen –- held talks on Friday night to discuss Truss’s future as prime minister.

The opposition Labour could win in a landslide in the next election, according to polling by Opinium.

BOE to Delay Bond Sales Again After Gilt Strain, FT Says

Ruth Carson and David Goodman
Tue, October 18, 2022 

(Bloomberg) -- The Bank of England is likely to delay its planned sale of government bonds after the government’s botched fiscal plan roiled financial markets, the Financial Times reported, without saying where it got the information.

The central bank had scheduled to start the sales on Oct. 31 under a so-called quantitative tightening program, weeks later than it originally planned. Policymakers led by Governor Andrew Bailey always said they would be willing to change tack in times of market stress.

A BOE spokesman declined to comment on the report.

Officials regard the gilts market as having been “very distressed” in recent weeks, a view backed by the BOE’s Financial Policy Committee, the FT said. The pound jumped as much as 0.5% to $1.1410 after the report, before erasing gains.

A delay in quantitative tightening, along with the UK government’s reversal on its fiscal policies, may offer a reprieve for pension funds that had been trying to manage their exposure to a gilt selloff. Short sellers have said they’re reducing their positions.

“The BOE backtracking on QT is a welcome relief, but the issues are deeper,” said Patrick Bennett, strategist at Canadian Imperial Bank of Commerce. “Despite any changes taking place on the ground, there is a loss of external confidence in gilts and GBP that will not be easily recovered.”

Pushing Back

The Bank of England has almost £840 billion ($956 billion) of gilt holdings, which grew during the quantitative easing it deployed for more than a decade to stimulate the economy through the global financial crisis and pandemic.

The central bank had said it intended to complete around 80 billion pounds of active sales in the next year. While that’s not vast in issuance terms, analysts had been worried about the signal it would give to markets already struggling with a lack of investor confidence and a deterioration in liquidity.

Another postponement would be the latest sign the central bank is concerned by the state of bond market in the wake of a run on UK gilts following Prime Minister Liz Truss’s ill-fated fiscal plan.

Truss’s new Chancellor of the Exchequer Jeremy Hunt on Monday reversed more of the measures his predecessor set out in September, and Oct. 31 is the date he’s due to set out his complete package.

Truss Sees UK Vision Dismantled as Rivals Fight for Her Job

The BOE on Friday finished its emergency bond-buying plan on schedule. That program was aimed at injecting liquidity into markets to help prevent a fire sale of the gilts used in some pension funds. The bonds soared Monday after a statement from Hunt.

The BOE has already conducted so-called “passive” quantitative tightening, whereby maturing bonds are allowed to roll off the balance sheet, but the process is a slow and uneven one given the distribution of maturities compared to other central banks such as the Federal Reserve.

UK gilts, pound and stocks rally on expected U-turn on fiscal plans

Reuters
Publishing date: Oct 17, 2022 • 

LONDON — Long-dated British government bonds, the pound and shares all rallied on Monday ahead of a statement from new finance minister Jeremy Hunt who is expected to reverse swathes of Prime Minister Liz Truss’s economic growth plan which triggered a market rout.

Yields on 20- and 30-year gilts slid by around 34 basis points in early trade, reversing most of their sharp rises seen on Friday when a statement by Truss failed to reassure investors about the government’s fiscal plans.

The pound, which had also fallen on Friday, rose 0.7% against the dollar to $1.1258 and gained on the euro , while Britain’s domestically-focused FTSE250 outperformed European peers and gained 0.63%.

Hunt will announce tax and spending measures on Monday, two weeks earlier than scheduled, to stem a collapse in investor confidence that began when Truss’s government unveiled a push for economic growth based on unfunded tax cuts last month.

“The message is that they’re clearly trying to repair some fiscal stability,” said Kenneth Broux, senior currency strategist at Societe Generale.

“From a market perspective that makes complete sense, hence why we’re seeing yields collapse and why sterling is bid.”

“Obviously, they have to reverse everything that happened in the last three weeks, and the question is how long that takes, and whether that requires the removal of the Prime Minister.”

MARKET VOLATILITY

While in historic terms a 34 basis-point fall in yields would represent a huge rally for gilts, on Monday it only put them back to a levels seen last week – a reflection of the enormous market volatility recently.

Gilt yields remain well above the levels seen before former finance minister Kwasi Kwarteng announced Truss’s growth agenda on Sept. 23 – a measure of the deficit in investor confidence that Hunt must now address.

The 20-year gilt yield was about 71 basis points higher on Monday than its closing level on Sept. 22, the day before the announcement of the “Growth Plan,” leaving it closer to its recent peak than its pre-plan level.

“It would take an almighty fiscal tightening package to convince the market that a) the fiscal path is now sustainable and b) that Bank of England hiking risk is reduced,” said Antoine Bouvet, rates strategist at ING.

Rate futures priced in a roughly 80% chance that the BoE will raise interest rates by 100 bps to 3.25% on Nov. 3, having priced in a smaller increase to 3.0% at the end of last week.

BoE Governor Andrew Bailey said on Saturday: “As things stand today, my best guess is that inflationary pressures will require a stronger response than we perhaps thought in August.”

While the pound was roughly back to where it was before Kwarteng’s mini budget, it remains highly volatile with moves in sterling and British yields driving moves in other currencies and government bond markets around the world.

Speculators increased their exposure to the pound by a fifth in the latest week – the most in two months, according to data from the Commodity Futures Trading Commission.

Investors such as hedge funds added to their bullish bets on sterling for the first time since late September. 

(Reporting by Andy Bruce and Alun John, Editing by William Schomberg and Ed Osmond)

Hedge Fund Titan Warns UK Pension Crisis Is Just the Start

Nishant Kumar
Mon, October 17, 2022 


(Bloomberg) -- For one of the world’s largest hedge funds, the UK pension fund crisis is just starting as central banks around the world raise interest rates and turn off quantitative easing.

Paul Marshall, co-founder of $62 billion investment firm Marshall Wace, said central banks had created the perfect environment for “mal-investment’ by artificially holding interest rates low for years.

“The UK LDI industry is the first casualty of the end of the ‘money for nothing’ era -- the first dead fish to float to the surface as rising central bank interest rates act like dynamite fishing in global asset markets,” Marshall said in a letter sent to clients this month.

So-called liability-driven investments are a form of financial engineering that involve derivatives and allow defined benefit pension schemes to jack up leverage and juice returns. The Bank of England was forced to step in to stabilize markets after rising gilt yields triggered margin calls at the funds that came too quickly for them to manage.

JPMorgan Chase & Co. estimates the losses from so-called liability-driven investments deployed by pension schemes has grown to as much as £150 billion ($171 billion) since early August.

The pensions were acting like hedge fund managers with much less knowledge or nimbleness, Marshall said in the letter.

Crispin Odey, the British hedge fund manager who has profited this year from short wagers on gilts, warned the LDI crisis is only just beginning.

“LDI investors are forced to sell to pay for their losses and it does not look like it will stop,” Odey wrote in a letter sent to investors this month.

Representatives for Marshall and Odey declined to comment.

“Everyone wanted to blame the new Chancellor, Kwasi Kwarteng, for the melt down,” Odey said, referring to the former UK chancellor who stepped down from the role last week. “But I believe it was really 20 years in the creation and brought about by the unstoppable rise in prices,” Odey said.

Marshall said people won’t all agree on who should take the blame for the crisis.

“We can argue how much of the collapse in the UK gilt market was due to the timidity of the Bank of England on interest rates, how much due to Kwasi Kwarteng’s budget and how much due to the distress in the LDI industry,” he wrote.

Central banks reversing years of quantitative easing to contain spiraling inflation have induced volatility and roiled stock, bonds and currency markets. The UK government under a new chancellor has now reversed tax cuts it announced last month that sparked a sell-off in gilts and exposed the weakness in the LDI structures.

Next in line could be the European sovereign bond markets, Marshall said. The billionaire also flagged the risk of central banks pausing their tightening process given the fragility of the financial system.

“The painful path will bring casualties and it will be interesting to see how central banks react when these casualties float to the surface,” Marshall wrote. “Time will tell. But for the moment, we believe the best opportunities remain in the short side,” he said referring to a strategy that makes money from falling prices.

Marshall Wace’s flagship Eureka hedge fund is up 4.2% this year. Odey Asset Management’s Odey European Inc. hedge fund has returned a record 193% through September this year.

A lack of financing could hinder India’s shift towards a low-carbon economy


Kundan Pandey
Mon, October 17, 2022 

October, a month that is typically associated with celebration and festive fervour in India, came with some unexpected news for those who track global finance. In the first week, reports said that one of the top American national banks, JPMorgan Chase & Co, has held off on including India in its global bond index, a semi-annual review of its emerging-market debt index which is a useful indicator for investors. This was a dampener in the usually upbeat season—India’s ability to attract foreign investment would have benefited from the inclusion in the internationally regarded global bond index. The inclusion would have further benefitted the resource-constrained green sector, which includes environmentally oriented business sectors such as the renewable energy sector.

It was anticipated that if India had been included in the global bond index, tens of billions of dollars would have poured into the Indian market. But there was uncertainty over the domestic market’s ability to handle a large amount of capital inflow. A managing director at the Los Angeles-based firm TCW, David Loevinger, said to the media that if India is added to global bond indexes, there would be more investment for India’s journey towards a low carbon economy.


The Pavagada Solar Park in Karnataka. India’s inclusion in the global bond index could’ve benefitted the country’s renewable energy sector.

Talking about the significance of inclusion in a global bond index, especially from the green finance perspective, Neha Kumar, head of the India programme, Climate Bond Initiative which works to mobilise global capital for climate action says, “Inclusion in the global bond index is a broader issue, and an important one. The inclusion of government bonds would have been beneficial for emerging market investors. It could have increased their participation in Indian government securities (G-Secs) and infused the much-needed liquidity. Green finance would have automatically benefitted, especially owing to the fact that currently, the demand for green products emanates mainly from the offshore investor base and is a big opportunity to meet the massive local green financing needs.”

A funding gap of nearly $170 billion a year through 2030, in meeting India’s climate targets, cannot be bridged with domestic capital alone, she adds. But, to hinge the growth of the Indian green finance market, squarely on international index inclusion, would be a narrow lens.

Kumar lists other options for India to grow its green finance market by saying that it not only needs credible green bonds but also credible sustainability-linked bonds, loans, and transition bonds (used to fund a firm’s transition towards reduced environmental impact). The country needs its sovereign green issuance to set the highest credibility standard and kickstart a programme of sovereign and sub-sovereign issuances, to infuse liquidity and scale, that benefits private sector investment for the green transition.

Moving on a similar track, on Sep. 29, India announced that it was borrowing 16,000 crore rupees ($1.94 billion) through the issuance of Sovereign Green Bonds. Union Minister of Finance Nirmala Sitharaman had earlier made an announcement (pdf) in this regard while presenting the annual national budget in Parliament on Feb. 1.

Coal mining in India’s Odisha district. India requires $170 billion a year through 2030, to meet its climate goals. Domestic funding alone cannot sustain the requirement.

In the present global climate finance structure, mobilizing green finance is not an easy task for an emerging economy. Given this, the government is trying out different options to generate the necessary impetus to draw investors for green finance. In the first week of October, just a day before the news about JP Morgan not including India in its global bond index came, the International Financial Services Centres Authority (IFSCA) released a report in which it recommended a slew of measures to mobilize finance for the green sector. IFSCA is a statutory authority established by the Government of India. The central government operationalized India’s first International Financial Service Centre at Gujarat International Finance Tec-City (GIFT) in 2015. Now, IFSCA, its expert committee has come up with the report aiming to identify existing and emerging opportunities in Sustainable Finance for GIFT-IFSC to act as a gateway to meet India’s requirements.

The committee, in its report, has recommended several short, medium, and long-term roadmaps to mobilise sustainable finance. It includes creation of a voluntary carbon market and global climate alliance. The committee has also talked about devising a framework for promoting a regulatory sandbox for green fintech and transition bonds along with setting up a platform for sustainable lending for small and medium enterprises. “A regulatory sandbox serves as a framework that allows live, timebound testing of innovations under IFSCA’s oversight,” the report explains.

Reacting to the IFSCA report, Kumar says that IFSCA, as a financial services SEZ, and with an aim to become a sustainable finance hub, is considering putting in place many innovative regulation regimes and incentives including tax incentives (such as 0% GST and reducing withholding tax to 4% from 5%) to attract green finance from international investors. Some of them could be replicated outside of the IFSCA as well. For example, leveraging pooled investment vehicles such as Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) will allow companies to monetise operational cash-generating assets.
The wide gap

All these initiatives are meant to reduce the climate funding gap that’s one of the barriers in achieving ambitious climate goals stated in the Nationally Determined Contributions (NDCs). For this, India needs around $2.5 trillion between 2015 to 2030. It translates into $170 billion every year till 2030. This estimate, however, is based on India’s earlier NDCs and not the latest ones that India submitted in August this year. The revised goals are more ambitious and include a net zero goal as well, which the Prime Minister of India announced during COP26. According to the report of the IFSCA Expert Committee on Sustainable Finance, India would require cumulative investments of $10 trillion to achieve the net zero target by 2070.

India requires a cumulative investment of $10 trillion to achieve net zero target by 2070.

India managed to raise only $44 billion in the financial year 2019-20, approximately 25% of the total target of the required budget every year for a green transition, notes a report published by Climate Policy Initiative (CPI), an independent, non-profit research group, headquartered in San Francisco, US. The report appeared in August and tracks green investment for the financial years 2019 and 2020.

In this amount that India raised, the contribution of international finance has been 13% in 2019 and 17% in 2020. One of the writers of the report, Neha Khanna, says that a major part of finance was raised domestically. Most international private capital flows, according to experts, lean towards well-established industries such as renewable energy and take the least risky route. Financial transfers from the Global North to the Global South continue to be a structural impediment. This calls for novel approaches to modify risk premiums for emerging market economies (EMEs).

When asked why India’s green sector is not able to lure foreign investment, Namita Vikas, founder and managing director of auctusESG LLP, an expert advisory and enabling firm working with the aim of accelerating global sustainable finance, lists a few reasons such as hedging costs which can be a pain point for foreign investors. Hedging is a financial strategy used to safeguard investments from adverse circumstances that could result in a loss of value. For example, offshore investments, mostly foreign currency denominated, are susceptible to currency fluctuations. To protect their investment from any uncertainty, investors can choose from a variety of hedging strategies with associated expenses. It is reported in the media that the hedging cost is close to 5% in the region.

Vikas, who was also a part of the IFSCA committee, says that an enabling environment, where risks are balanced, underpins the flow of investments. The renewable energy sector has gone on to become the fourth most attractive sector in India, owing to the policies and regulations that have spurred both domestic and foreign investor interest.

Regarding hedging costs, she adds, “Lowering the cost of capital would reduce the currency hedging cost and mobilise foreign capital. If the expected cost of the foreign exchange hedging facility is borne by the government, the cost of debt, renewable energy, and the cost of government support may be reduced. The Indian government has shown interest in providing a government-sponsored exchange rate hedging facility. However, the design of the facility would need to be carefully considered, given that currency movements can be uncertain and volatile. There is also a need to look for innovative financial structuring to enable foreign capital flow such as green securitisation, India’s Viability Gap Funding (VGF) model, supplier-based finance, and sovereign green bonds to attract foreign capital into the Indian markets.”

Sectoral preferences

The CPI report gives sectoral trends as well noting that the total fund flow towards climate mitigation was almost equally split between clean energy (42%) and energy efficiency (38%) while clean transport received just 17%.

Within clean energy, solar projects received the greatest share of financial investments accounting for 41% of the total finance flows to the clean energy sector. Interestingly, when clean transportation received the maximum funding (96%) from public sources, investment in the energy efficiency sector was primarily from the private sector (91%).

The report also gave details of funding for adaptation saying that the total amount of green finance was $5 billion per annum. It was mostly funded by central and state government budgets.

Underlining the bigger trend of green finance in India, Khanna says, “Debt accounts for about 50% of total finance flows, equity for 26%, and government and budgetary expenditures at about 19%. Flows to all sectors increased from the previous years. However, these flows were limited to certain sub-sectors such as solar in the clean energy segment and Mass Rapid Transport System (MRTS) in the clean transport segment.”

According to the Climate Policy Initiative report, the clean transport sector received only 17% of the total funds ($44 billion) for climate mitigation.

Talking about the low contribution of the private sector, Namita Vikas says that it could be because the nature of risks in the green sector is largely unknown or unaccounted for. Unlike the traditional business models which are tried and tested, businesses in the green sectors are yet to have a well-established risk management structure. As a result, only large issuers have been prominent in the green finance space–owing to their capital prowess and risk-bearing capacity–whereas the mid to small companies have remained off the radar. Further, the private sector’s nascent understanding of green sector finance is another challenge, which also leads the private sector to perceive bankability issues such as high transaction costs, long gestation periods, and higher risk-return profiles–referred to as risk perception.

“While the government is keen on steering away from carbon-intensive assets, given the scale of investments required, public sector investors will need to act as facilitators rather than the sole investor,” Vikas adds. Private capital needs to be roped in through de-risking mechanisms, such as guarantees and catalytic capital, as deployed in blended finance structures. Policies and regulations need to be made conducive for the private sector to participate, along with appropriate pricing and guidance on innovative financial products for green finance. In essence, the public sector needs to institutionalize mechanisms for the private sector to participate in order to achieve a more balanced ratio for green financing.

Challenges to tracking green finance

In India, it is not easy to track green finance as there is no organised effort to develop a system in this regard. The CPI report also underlines this fact by saying, “While this report presents the most comprehensive information available, methodological issues and data limitations persist. Tracking green finance faces multiple issues related to the availability, quality, and robustness of investment data on both public and private sectors.”

When asked about the challenges faced during the study, Khanna says that there is non-availability and trackability of disbursements. Extracting this information can be challenging due to the lack of an effective Measurement, Reporting, and Verification (MRV) system in India. The Public Financial Management System in its current form does not provide granular information about the flow of finance and its end use. To overcome this challenge, the team has had to resort to the use of legally available mechanisms such as the Right to Information Act, 2005, which was cumbersome and only partially effective, she adds.

About other challenges regarding tracking green finance, Khanna underlines the difficulty in green tagging of the budget entries. “The lack of a harmonised green finance taxonomy in the country, and non-standardised reporting of data, make green tagging of domestic entries arbitrary and vulnerable to the user’s discretion,” she says.

Namita Vikas emphasized the need for a uniform definition and a taxonomy for green finance that is currently not in place in India, which makes it harder to track the green sector in India for investment purposes. Currently, disclosures serve as the primary source of ESG/green information. While think tanks and some organizations have attempted to track green financial flows, it is largely on the back of contextualized and customized definitions.

This post appeared first on Mongabay.com.

Microsoft plans to lay off nearly 1,000 workers over weaker sales

The silicon valley giant has endured the lowest revenue growth in five years in this quarter, which ended on September 30th.

IT tech giant Microsoft is planning to lay off nearly 1,000 workers across multiple divisions as the software maker’s revenue is expected to slow in the coming months. The latest move seems to come after Microsoft reported weaker sales of Windows licenses for PCs.

According to the Microsoft website, they currently house about 2,21,000 employees worldwide. According to the latest move, 0.45% (nearly 1000 workers) of the workforce would be relieved of their jobs. The number of layoffs spans various departments and regions including gaming and operating systems such as Xbox, Windows and Edge. 

Also Read: After Wipro, Infosys terminates employees for moonlighting

"Like all companies, we evaluate our business priorities on a regular basis and make structural adjustments accordingly. We will continue to invest in our business and hire in key growth areas in the year ahead,” a Microsoft spokesperson told CNBC.com.

Microsoft is scheduled to release quarterly earnings on 25 October 2022 and after that, the firm is expected to take a final call. 

The latest layoff reports come almost three months after Microsoft announced they would be sacking 18,000 employees over the next year as part of “structural readjustment”. This included 12,500 workers in the company’s sales, marketing, and engineering divisions. 

Microsoft is the latest to join the long list of tech companies that have decided to lay off employees in 2022. Meta dissolved its “responsible innovation team’. Snapchat parent company Snap laid off 20% of their workforce. Twilio’s CEO announced they would be laying off 11% of their workforce due to restructuring. Along with the attrition, many companies like Apple, Oracle, Google and more have also announced a hiring freeze for the incoming months.  

The ‘layoff winter’ has impacted South Asian countries like India, with companies like Byju’s and EPAM planning to lay off workers in thousands.

Justice Dept’s crypto chief: Crypto thefts are 'serious national security concerns'

David Hollerith

·Senior Reporter

Mon, October 17, 2022

The amount of crypto stolen by hackers has risen by more than a quarter this year, even as the value of cryptocurrencies has plunged.

Blockchain thieves have nabbed as much as $3 billion of investor funds through 141 various crypto exploits since January, according to data from DeFi Yield, a 31% increase over the same period last year. That means 2022 likely will surpass 2021 as the biggest year for crypto hacks on record,

Of the nearly weekly occurrence's of crypto exploits this year, those involving “cross-chain” crypto bridges have accounted for as much as $600 million in October and $2 billion worth of stolen funds year to date, with at least $1 billion in exploits attributed to North Korean-linked hackers, according to Chainalysis estimates.

“These are serious national security concerns that really stretch beyond the fact that there are millions of dollars being stolen in single episodes that we see with the DeFi hacks and exploits,” Eun Young Choi, director of the National Cryptocurrency Enforcement Team (NCET), said at Yahoo Finance's All Markets Summit.

Effectively, Choi’s team - NCET - provides one possible link in the chain for how companies and investors might recover stolen funds.

Formed little more than a year ago, NCET is intended to act as a “one-stop shop” of the federal agency’s investigators specializing in crypto, according to Choi.

Working at times with other government agencies both in the U.S. and abroad, NCET has helped seize over $3.8 billion worth of stolen crypto this year with the bulk of that sum coming from a February indictment involving alleged money launderers of proceeds stolen in 2016.

Those billions won’t be returned to victims any time soon or at least not until the trial for the case reaches some conclusion.

HONG KONG - 2018/11/22: In this photo illustration, the Cryptocurrency electronic cash Bitcoin logo is seen displayed on an Android mobile device with a figure of hacker in the background. (Photo Illustration by Miguel Candela/SOPA Images/LightRocket via Getty Images)

On the flip side, during a record year for crypto exploits, illicit crypto earned by scams (-65%) and darknet markets (-43%) declined notably between January and July, according to a report from blockchain analytics firm, Chainalysis.

In April, an investigation by the Justice Department also led to the shutdown of the world’s largest darknet marketplace, Hydra market.

While also in part attributed the crypto market’s performance, rising exploits and dropping darknet flows illustrates how illicit use of crypto has changed in recent years.

“Early days, it was darknet markets and it was people buying and selling all sorts of contraband,” Choi explained. “These days, we're seeing [crypto] pop up in any every single type of criminal activity the department looks into.”

Although Choi admitted cases involving crypto can be different in nature, NCET prosecutes cases involving digital assets virtually the same way the Justice Department pursues criminal activity dealing in stocks, commodities, and other assets.

“These transactions can oftentimes be relatively frictionless and quick, but it also means that if we identify a particular transaction as being criminal, we can't go to some centralized, you know, financial institution and ask for that money to come back,” Choi said.

Nevertheless, Choi admitted her team has a role to play in reducing the high degree of crypto exploits plaguing the industry.

“We have to work with the private sector and ensure that they understand the ways in which we've identified particular tactics that bad actors might be using in order to exploit these types of platforms,” she said.

“The industry is still, in our view, in a maturation phase and in a lot of respects we're looking at companies and hoping that they will understand that doing things such as basic risk reduction, having robust compliance programs and ensuring that they are decreasing the opportunities for these types of exploits on their own platform is the first, best line of defense.”

—

David Hollerith is a senior reporter at Yahoo Finance covering the cryptocurrency and stock markets. Follow him on Twitter at @DsHollers