Deutsche Bank HQ searched over potential money laundering; eurozone faces stagflation; Russia cuts interest rates – business live | Business
German authorities search Deutsche Bank over potential money laundering
Prosecutors, federal police and other officials are conducting a search at Deutsche Bank in Frankfurt, the city’s prosecutors have said.
Germany’s largest lender said the search involved suspicious transactions it had itself reported in relation to money laundering, and that it was cooperating fully.
Prosecutors said they had a search warrant but declined to elaborate. They said representatives of financial regulator BaFin were also taking part.
BaFin and federal police declined to comment.
Deutsche Bank, under CEO Christian Sewing, has been trying to repair its reputation after a series of embarrassing and costly regulatory failings.
This week, the bank posted a better-than-expected 17% rise in first-quarter profit as investment banking revenue climbed, but it warned that the Russia-Ukraine conflict could hurt annual earnings.
A Reuters witness said that there was no sign of authorities outside the bank’s headquarters.
Deutsche Bank’s shares are down around 2%.
Russia’s central bank chief has said the danger of an inflationary spiral have decreased, as she explained today’s rate cut.
Central Bank Governor Elvira Nabiullina said inflationary pressure stabilised in the second half of March, and pointed to stabilizing inflation expectations and improving savings sentiment among households.
Nabiullina said (via Interfax):
“In April, households’ inflation expectations have returned to the levels of mid-2021. According to the surveys of households, expected inflation is below the observed price growth, meaning that people believe that prices will no longer rise as quickly.
Companies’ short-term price expectations have edged down as well, though they remain higher than last year.
US consumer sentiment picked up in April.
As anxiety over the economic outlook eased — even as the economy went into reverse — according to the University of Michigan’s consumer sentiment index. It rose to 65.2 for April, up from 59.4 in March. but still below 88.3 in April 2021.
Most of the surge was concentrated in expectations, with gains of 21.6% in the year-ahead outlook for the economy and an 18.3% jump in personal financial expectations.
The University of Michigan consumer sentiment index is at 65.2 in the final reading for April, a small downward revision from the preliminary report of 65.7. It is up from the final 59.4 in March. pic.twitter.com/01bUpdj1u5
— Econoday, Inc. (@Econoday) April 29, 2022
Richard Curtin, surveys of consumers chief economist, says confidence is still weak, though:
The global economy has added even more uncertainties about prospects for the U.S. economy, including the growing involvement in the military support for Ukraine, and renewed supply line disruptions from the covid crisis in China. Who would not be apprehensive about future conditions, even if on balance they anticipated a continued expansion?
Moreover, consumers have lost confidence in economic policies, with fiscal actions increasingly hampered by partisanship in the runup to the Congressional elections
Wall Street has dipped in early trading, as Amazon’s shares slide after it reported its first loss since 2015.
Amazon have fallen almost 12% to $2,547, their lowest since June 2020, after it reported a net loss of $3.8bn in the quarter.
It was dragged into the red by a fall in the value of its stake in electric vehicle maker Rivian. But revenue growth slowed to just 7%, Amazon’s slowest growth rate in nearly two decades.
Craig Erlam of OANDA says Amazon was the latest to catch Wall Street off guard, as it faced a multitude of challenges — including the Ukraine war, the cost of living squeeze, and the end of lockdown restrictions.
There were the usual strong points to the report, like the cloud and advertising businesses – although the latter did fall a little short of expectations – but like many others, the company is struggling to adjust to post-pandemic life having scaled up massively over the last couple of years.
The tech-focused Nasdaq index is down 1.3%, as is the broader S&P 500, with Amazon leading the fallers.
Russia default fears ease as dollar payments made
The risk of Russia defaulting on its sovereign debt may be easing today, after Moscow made a number of already-overdue international debt payments in dollars.
Moscow has said that dollar payments on two foreign bonds are progressing after sanctions held them up for weeks.
It has previously used roubles to cover the payments after US restrictions prevented them being made in dollars. Missing the dollar payments breached the terms on the debt, starting a 30-day grace period that ends next week.
Russia’s finance ministry said it had managed to pay $564.8m on a 2022 Eurobond and $84.4m on a 2042 bond in dollars – the currency specified on the bonds.
RUSSIA’S FINANCE MINISTRY SAYS IT PAYS MATURITY AND COUPON OF $564.8 MLN ON 2022 EUROBOND AND COUPON PAYMENT OF $84.4 MLN ON 2042 EUROBOND IN U.S. DOLLARS
RUSSIAN FINANCE MINISTRY SAYS IT HAS CHANNELED THE REQUIRED FUNDS TO CITIBANK, N.A., LONDON BRANCH via @Reuters https://t.co/g9UxkhUIr0
— Jorgelina do Rosario (@jdorosario) April 29, 2022
The ministry said it had channeled the required funds to the London branch of Citibank, one of the so-called paying agents of the bonds whose job is to disburse them to the investors that originally lent the money to Moscow.
We now wait to see if the money reaches the bond holders before the 30-day grace period expires on 4th May…..
Russian default risk eases.
Concern Russia may default on USD denominated bonds eased after Russia’s Finance Ministry confirms payments made today in US dollars on two seperate bonds.
Russia Says It Made Sovereign Bond Payments in U.S. Dollars https://t.co/wZxku7MSP2
— James Wallace (@JamesWallace78) April 29, 2022
Britain’s cost of living crisis, and the ongoing problems in the global supply chain, continue to hammer AO World, the online electricals retailer.
AO, which sells kitchen appliances, computers, TVs and gaming consoles over the web, warned that its profits will dive this year as it faces falling sales.
AO had previously been hit by global supply chain issues and a shortage of drivers. Now, customers are cancelling warranties on its products to save money amid the cost of living crisis, as my colleague Sarah Butler explains:
It said underlying profits would be only £8m for the year to 31 March 2022, down from £64m last year, reflecting higher costs from driver shortages, extra marketing spending in Germany as well as lower sales and warranty cancellations. Sales fell 6% to £1.6bn in the year but remain 52% ahead of pre-Covid levels.
The company said it had noticed “higher warranty cancellations than average historical trends” in March as customers “responded to the escalating cost of living”.
It said the latest trading figures indicated the trend was continuing, potentially forcing a writedown of the value of its insurance contract leading to a “material impact on full-year profits”.
Shares in AO have slumped 20% to 70p, a two-year low, having soared over $4 in January 2021 as the pandemic drove a boom in web shopping.
Eurozone facing stagflation as growth slows and prices soar
The eurozone faces stagflation after growth slowed to 0.2% in the last quarter and inflation hit a record level of 7.5%.
Russia’s war in Ukraine is driving up energy costs across the continent, just as economies emerged from Omicron disruption, while China’s Covid-19 outbreaks threaten more disruption oo.
Berenberg Bank explains:
Putin’s war means Eurozone stagflation: Russia’s brutal war against Ukraine has driven up prices for energy and foodstuffs, disrupted supply chains and dealt a serious blow to consumer confidence. As the most exposed major region globally, the Eurozone has fallen into stagflation as a result.
Tough luck: A series of unusual shocks is battering the Eurozone. In late 2021 and the beginning of 2022, the Delta and Omicron waves of the COVID-19 pandemic weighed on economic activity in the Eurozone much more than in the US and the UK. Moreover, just as the region was gearing up for a major rebound – as indicated by a February bounce in economic sentiment – Putin’s war derailed the nascent upturn. Due to its strong reliance on global trade, the Eurozone is now more at risk from Chinese lockdowns than the US.
My colleague Richard Partington says warning lights are flashing in the eurozone economy today, after France stalled and Italy shrunk in the last quarter.
Raising the spectre of stagflation as living costs soar while growth in GDP falters, France’s economy unexpectedly ground to a halt in the first three months of the year, recording zero growth as supply chain disruption and higher energy costs held back activity.
Italy’s economy shrank, Spain lost momentum, while Germany rebounded from a contraction in the fourth quarter when Omicron and supply chain problems had weighed heavily on the euro area’s largest economy.
Suggesting a weaker period ahead as the conflict continues to push up the price of energy, hitting net importers of gas across the continent, separate figures for April showed eurozone inflation hit a record high of 7.5%.
Here’s the full story:
Over in the US, the Federal Reserve’s preferred measure of consumer inflation has just hit a 40-year high.
The PCE prices index rose by 6.6% in the year to March, the highest reading since 1982, with energy prices up 33.9% and food up 9.2%
In March alone, the PCE rose by 0.9% in March, up from 0.5% in February.
PCE m/m 0.9% (est 0.9%, last 0.5%)
PCE y/y 6.6% (est 6.7%, last 6.3%)
PCE core m/m 0.3% (est 0.3%, last 0.3%)
PCE core y/y 5.2% (est 5.3%, last 5.3%)— Mario Cavaggioni (@CavaggioniMario) April 29, 2022
Despite rising prices, Americans kept spending last month. Consumer spending grew 1.1%, faster than expected, meaning real spending was up 0.1% after inflation
Personal income rose 0.5% in March, as wages increased (but still lagged inflation), while the savings rate dipped to 6.2% from 6.8%.
US March Personal income climbs 0.5%, spending increases 1.1%, while real spending rises 0.2%. Core PCE Y/Y increases at a moderate 0.2% & is 5.25 Y/Y. M/M PCE up 0.9%. Q1’22 Employment Cost Index comes in hot at 1.4%. This underscores the urgency at the Fed to act decisively.
— Joseph Brusuelas (@joebrusuelas) April 29, 2022
Deutsche Bank has been under pressure from authorities in recent years to improve its areas such as money-laundering controls, ahead of today’s searches.
Back in 2018, Germany’s financial watchdog, Bafin, ordered Deutsche to do more to prevent money-laundering and “terrorist financing,” and appointed KPMG as an independent auditor to assess progress.
Three years later, Bafin ordered Deutsche to bring in tighter controls, and expanded KPMG’s mandate.
In 2020, Frankfurt Prosecutor’s Office fined Deutsche Bank €13.5m for being slow to report suspected money laundering in more than 600 cases related to its work with Danske Bank, but dropped a money-laundering probe against Deutsche Bank managers.
Seperately, in Janary 2021, Deutsche agreed to pay US authorities around $130m and entered into a deferred prosecution agreement to resolve allegations that it breached bribery and fraud laws.
Last month, Deutsche admitted it had breached this DPA by failing to flag a whistleblower complaint over its environment, social and governance work – meaning the DoJ has extended its monitorship.
Today’s may add to a list of legal and regulatory issues looming over Deutsche Bank’s CEO Christian Sewing, says Bloomberg:
Recent challenges include an internal probe into staff’s widespread use of private communication channels, a lawsuit alleging mis-selling of foreign-exchange derivatives, and criticism from U.S. and German regulators of the bank’s deficient controls.
German authorities search Deutsche Bank over potential money laundering
Prosecutors, federal police and other officials are conducting a search at Deutsche Bank in Frankfurt, the city’s prosecutors have said.
Germany’s largest lender said the search involved suspicious transactions it had itself reported in relation to money laundering, and that it was cooperating fully.
Prosecutors said they had a search warrant but declined to elaborate. They said representatives of financial regulator BaFin were also taking part.
BaFin and federal police declined to comment.
Deutsche Bank, under CEO Christian Sewing, has been trying to repair its reputation after a series of embarrassing and costly regulatory failings.
This week, the bank posted a better-than-expected 17% rise in first-quarter profit as investment banking revenue climbed, but it warned that the Russia-Ukraine conflict could hurt annual earnings.
A Reuters witness said that there was no sign of authorities outside the bank’s headquarters.
Deutsche Bank’s shares are down around 2%.
Russia’s economy could shrink 10% this year – central bank
Russia’s economy is expected to contract by between 8% and 10% this year, the Bank of Russia warns.
The decrease will be mainly driven by “supply-side factors”, it says — namely the sanction imposed on Russia since the war began.
That would be the worst drop since Russia’s economy shrank for several years in the early 1990s, exceeding the 7.8% decline after the 2008 financial crisis.
Anouncing today’s rate cut, the Bank says the economy has already begun to decline
Based on Bank of Russia estimates, economic activity began to decline in March 2022.
High-frequency indicators point to a contraction in consumer and business activity. After a temporary surge, consumer demand is decreasing in real terms, accompanied by a rise in households’ propensity to save. The decline in imports due to the introduction of external trade and financial restrictions is outstripping the decline in exports.
Despite the gradual change in the country and commodity structure of exports and imports as new suppliers and sales markets emerge, businesses are experiencing considerable difficulties in production and logistics.
It predicts that the Russian economy will begin growing gradually in 2023, amid a structural transformation:
In 2023 Q4, output will be up by 4.0–5.5% on the same period in 2022.
However, the overall GDP change in 2023 will be within the range of (-3.0)—0.0% due to the base effect of 2022 Q1. In 2024, GDP will increase by 2.5–3.5%.
@bank_of_russia cuts key rate to 14% from 15%, sees 2022 GDP contracting 8%-10%. Inflation running 17.6% in April, yet sees more rate cuts ahead.
Initial rate rise wasn’t about cooling demand to forestall inflation, but to keep money in the country.
Key headline:
1/2— Michael McKee (@mckonomy) April 29, 2022
*BANK OF RUSSIA SEES 2022 CURRENT ACCOUNT SURP. $145B; SAW $133B
European energy payments fill the hole from frozen forex reserves, keep Russia afloat 2/2— Michael McKee (@mckonomy) April 29, 2022
Russia’s central bank says that inflation in Russia could be as high as 23% this year, a sign of the economic damage caused by sanctions imposed since the Ukraine war:
Announcing today’s interest rate cut, it says:
As of 22 April, annual inflation was 17.6% (vs 16.7% in March).
In the baseline scenario, the Bank of Russia expects annual inflation to continue to increase in the coming months, due to the base effect, to total 18.0–23.0% in 2022.
Inflation is then seen at 5.0–7.0% in 2023, before returning to the Bank of Russia’s 4% target in 2024.
Russia cuts interest rates to 14%
Russia’s central bank has lowered interest rates to 14%, a bigger cut than expected.
At its regular meeting, the Bank of Russia lowered its key rate by 300 basis points to 14% from 17%.
Economists had expected a smaller cut to 15%, but this still leaves borrowing costs much higher than before the Ukraine war.
Announcing the move, the Bank of Russia says that inflationary pressures have eased after the rouble recovered from its plunge when the Ukraine invasion began in February:
The external environment for the Russian economy remains challenging and significantly constrains economic activity. With price and financial stability risks no longer on the rise, conditions have allowed for the key rate reduction.
Recent weekly data indicate a slowdown in current price growth rates on the back of a strengthening of the ruble and a cooling of consumer activity. Further inflation movements will be shaped by such impactful factors as the efficiency of import substitution processes and the scale and speed at which imports of finished goods, raw materials and components will be recovering.
The Bank of Russia’s monetary policy will take into the account the need for a structural transformation of the economy and will ensure a return of inflation to target in 2024.
In February, Russia’s central bank more than doubled interest rates from 9.5% to 20% shortly after the war began, in an attempt to support the sliding rouble.
Russia’s currency has since recovered to levels before the invasion, at around 70 to the US dollar, having hit a record high of 135 to the rouble in March.
In the City, shares in UK specialist chemicals group Johnson Matthey are up 18% after the investment arm of New York-based industrial firm Standard Industries took a 5.23% stake
Matthey’s stock jumped as much as 30% on the FTSE 250 index of mid-size firms, and are trading at their highest since November.
That was the month when the company announced it was pulling out of the fast-growing market for electric vehicle batteries, sending shares sliding and leading to Johnson Matthey exiting the FTSE 100 index.
Johnson Matthey shares have jumped nearly 30% this morning. Standard Latitude Master Fund has taken a 5.2% stake in the company
— Dan Coatsworth (@Dan_Coatsworth) April 29, 2022
Reuters says:
A London trader, on condition of anonymity, said the stake deal could be a prelude to “some kind of move”, referring to possible transactions.
ING: A turbulent quarter, and more high inflation to come
The eurozone slowed rapidly due to a “hodgepodge of reasons”, from Omicron to the Ukraine war, says ING senior economist Bert Colijn.
Zooming out, we see a eurozone economy undergoing a turbulent quarter though managing to eke out a small positive growth number, with the Omicron impact milder than expected and the war in Ukraine having an increasing impact from early March onwards.
Supply chain problems flared up again in March, causing production shutdowns across the eurozone, which has added to the slowing growth figure in 1Q.
Colijn also fears that core inflation across the eurozone could continue to climb this year, hurting households.
The spike in fuel, electricity and gas prices from early March at the start of the war in Ukraine was followed by cautious retreats and governments reducing taxes on energy. This has resulted in a slight moderation of energy inflation, but concerns remain for the months ahead. The recent jump in market gas prices on the back of Russia cutting off Poland and Bulgaria from gas supply illustrates that it is very possible energy prices spike once again as the war continues.
The impact on core inflation remains key and poses a concern for the ECB. Second-round effects and supply chain problems add to faster price increases in goods and services as well, which has caused core prices to jump from 2.9% in March to 3.5% in April.
Eurozone core inflation jumps to 3.5% in April. Second round effects of high energy prices are coming in faster than expected. Key figure for the ECB out of all data just released. pic.twitter.com/JCRqKoyPWT
— Bert Colijn (@BertColijn) April 29, 2022
With supply chain problems set to last longer and become more severe again due to Chinese lockdowns and the war, expect core inflation to trend higher for most of 2022 at least. This broadening of high inflation is a key concern for the ECB and adds to pressure to act quickly, despite the fact that this inflation continues to be rooted in supply-side issues beyond the control of the central bank.
