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Swiss pressure to reconfigure financial system after banking crisis
(Bloomberg) — As Credit Suisse headed toward insolvency early last year, a group of Swiss bankers, technocrats and regional officials were already busy laying the groundwork for a new kind of financial infrastructure.
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Nine months after the Swiss bank was rescued by rival UBS Group AG in March 2023, the cantons of Zurich and Basel issued the first tokenized bonds settled in Switzerland’s experimental digital currency. Lugano’s city government followed suit soon after.
On Thursday, the country’s central bank announced it will extend the pilot program under which these bonds were sold for two years, describing it as “very successful.” Rival financial centers have yet to catch up to the Swiss blockchain-based system.
Tokenization projects are underway in virtually every major financial center in the world, but in Switzerland, the efforts have taken on additional significance as authorities try to change perceptions surrounding its diminished banking industry.
The forced marriage between Switzerland’s two largest banks has sparked widespread criticism that authorities waited too long to intervene. For some, it was further proof that a banking system designed to discreetly manage the money of the world’s rich was no longer adequate to guarantee Switzerland’s place among the preeminent financial centers.
“Switzerland is known as one of the most important financial centers in the world, but we have lost time,” said Paolo Bertolin, deputy finance director of the city of Lugano. The country’s financial sector “is dormant,” he added.
The central premise of tokenization is, at least on the surface, relatively simple. By representing an asset like a share or bond in the form of digital tokens on a blockchain, everything from settlement to recording ownership can be done faster, less complex and potentially more securely, its proponents argue.
Read more about how tokenization works
There are hundreds of tokenization projects underway around the world, some run in-house by large global lenders like JPMorgan Chase & Co. and others overseen by central banks or public sector bodies like the Bank for International Settlements. Use cases range from pillars of the global economy, such as trade finance, to more enigmatic applications, such as tokenizing a century-old violin. In addition to Switzerland, tokenized securities are also listed in markets such as the US and Luxembourg.
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Citigroup Inc. predicts there will be up to $4 trillion in tokenized securities by 2030.
“Over time, more and more assets will be transferred to digital exchanges – initially illiquid assets, and perhaps with new regulations traditional assets could also be transferred,” said Marni McManus, head of banking at Citigroup for Switzerland, Monaco and Liechtenstein.
Where Switzerland is more advanced than others is in integrating the various aspects of issuing and trading tokenized securities.
World Bank Digital Bond
SIX Digital Exchange, created in 2021 for trading digital bonds and shares, claims to be the first platform of its kind in the world to be fully regulated.
In 2023, Switzerland went a step further and allowed tokenized bonds issued in SDX to be settled in a central bank digital currency, part of the pilot program that the Swiss National Bank is now scaling up. On June 11, a 200 million franc ($224 million) bond sold by the World Bank – the first digital fixed income instrument from an issuer based outside Switzerland – was settled in this way.
“I believe it is important that we remain at the forefront of financial innovation,” central bank President Thomas Jordan said in an interview on Thursday when asked about extending the pilot program.
Settlement and clearing of financial transactions in a CBDC – as opposed to a private token – eliminates credit risk, according to the Swiss central bank. In the US, digital bonds issued to date have been settled in private digital tokens that do not have the same safeguards as a central bank-backed currency.
“The lack of digital money compatible with distributed ledger technology is often a significant obstacle to the advancement of this technology,” Moody’s Corp. said. in a statement on Friday. “Switzerland is the most advanced country in this area.”
Even as tokenization advances in countless applications around the world, skeptics question whether blockchain-based systems will offer tangible advantages over existing ones. Even proponents say it will be years before tokenized assets largely displace their traditional counterparts.
It is also unclear how long Switzerland’s advantage will last. Stock exchanges in several other countries, although still far behind the Swiss system, are racing to catch up.
Meanwhile, CBDCs have sparked controversy in many parts of the world amid fears they erode privacy. In the US, presidential candidate Donald Trump said he would “never allow” a central bank-issued digital dollar, saying it would represent “government tyranny.” The Federal Reserve has been hesitant to experiment with CBDCs.
The difficult battle of Lugano
When Lugano employee Bertolin approached big banks to help issue SIX’s first tokenized bond in the months before the UBS-Credit Suisse deal, the only company willing to take on the role was Zuercher Kantonalbank, a 250-year-old Swiss lender. .
Another challenge was persuading Moody’s Corp. that a tokenized security should receive the same credit rating as a traditional security. It took three months of negotiations involving rating agency Zuercher Kantonalbank and SDX before Moody’s analysts were convinced that using a digital platform did not bring additional risks, Bertolin said.
“DLT-based bond issues have specific characteristics,” Moody’s said, referring to the digital ledger technology. “A broader set of attributes needs to be analyzed compared to traditional bond issuances.”
Lugano sold the first digital title before the CBDC pilot program began. It took around 90 minutes for investors to purchase the 100 million franc issue, according to Bertolin. The second issue, of similar size and settled in digital francs, sold out in 25 minutes.
Bertolin, who worked as a banker earlier in his career, said he is not sure whether support from a central bank explains the difference. But two decades of seeing Switzerland’s financial sector lose global influence – first through the erosion of banking secrecy and then the demise of Credit Suisse – have convinced him that laying the dice on new technologies will be key to making up lost ground.
“Now we really have to hurry to regain this leadership in the financial sector once again,” he said.
–With assistance from Myriam Balezou.
Bloomberg Businessweek Most Read
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The spotlight next week will shift somewhat to the Federal Reserve’s second-quarter earnings season and monetary policy. Market watchers will be treated to results from several major names, including Dow 30 components Goldman Sachs (GS), UnitedHealth (UNH), Johnson & Johnson (JNJ) and American Express (AXP), along with streaming giant Netflix (NFLX).
The Fed will still attract some attention as investors will be eager to hear from a packed lineup of central bank speakers just before the policy meeting lockout period.
In terms of the economic calendar, after fifteen days of labor market and inflation indicators, activity data will gain momentum in the form of the latest retail sales and industrial production reports.
Earnings Highlight: Monday, July 15 – Goldman Sachs (GS) and BlackRock (Black). See the full earnings calendar.
Earnings Highlight: Tuesday, July 16 – UnitedHealth (UNH), Bank of America (BAC), Progressive (PGR), Morgan Stanley (IN), PNC Financial (PNC) and JB Hunt Transport (JBHT). See the full earnings calendar.
Earnings Highlight: Wednesday, July 17 – Johnson & Johnson (JNJ), US Bancorp (USB), Morgan Children (KMI), United Airlines (UAL) and Ally Financial (ALLY). See the full earnings calendar.
Earnings Highlight: Thursday, July 18 – Netflix (NFLX), Abbott Laboratories (ABT), Black stone (BX), Domino’s pizza (ZDP) and Taiwan Semiconductor Manufacturing (TSM). See the full earnings calendar.
Earnings Highlight: Friday, July 19 – American Express (AXP), Halliburton (THANKS) and Travelers (VRT (return to recoverable value)) See the full earnings calendar.
IPO Observation: Hospital and healthcare clinic operator Ardent Health Partners (TARDT), insurance service provider Twfg (TWFG) and the biotechnology company Lirum Therapeutics (LRTX) are expected to price their IPOs and begin trading next week. The analyst quiet period ends at Rectitude (RECT) to free up analysts to publish ratings.
Police cars outside the residence of Thomas Matthew Crooks, the suspected shooter at a Trump rally on Saturday, investigate the area in Pennsylvania. Following the incident, one rally attendee was killed, two rally attendees are in critical condition and Donald Trump suffered a non-fatal gunshot wound. The shooter is dead after being shot dead by the United States Secret Service. (Photo by Kyle Mazza/Anadolu via Getty Images)
Investors will initially favor traditional safe-haven assets and may lean toward trades more closely tied to former President Donald Trump’s chances of winning the White House after he survived an assassination attempt, according to market watchers.
“There will undoubtedly be some protectionist or safe-haven flows into Asia early this morning,” said Nick Twidale, chief market analyst at ATFX Global Markets. “I suspect gold could test all-time highs, we’ll see the yen being bought and the dollar, and flows into Treasuries as well.”
Early market commentary suggested Trump’s shooting at a rally in Pennsylvania on Saturday could also prompt traders to increase his likelihood of success in the November election. His support for looser fiscal policy and higher tariffs is generally seen as likely to benefit the dollar and weaken Treasuries.
An indicator of market sentiment heading into the weekend: Bitcoin surged above $60,000, likely reflecting Trump’s pro-crypto stance.
Other assets positively linked to the so-called Trump trade include stocks of energy companies, private prisons, credit card companies and health insurers.
Traders will also be closely watching market measures of expected volatility on Monday, such as those in the tariff-sensitive Chinese yuan and Mexican peso, which have begun to price in the U.S. vote.
Trump said he was shot in the right ear after a shooting at his rally. His campaign said in a statement that he was “fine” after the incident, which prompted him to rush off the stage.
“Currencies will be the first major market on Monday in Asia to react to the weekend’s shots. There’s potential for extra volatility, and getting a clear reading could be especially difficult because liquidity will be hurt by Japan’s national holiday,” said Garfield Reynolds, Asia team leader for Bloomberg Markets Live.
Strategists had already expected a volatile run-up to the election, particularly as Democrats are still agonizing over President Joe Biden’s candidacy after his poor performance in last month’s debate raised questions about his age. Investors were also grappling with the possibility that the election could end in a drawn-out dispute or political violence.
But there is little precedent for events like those in Pennsylvania. When President Ronald Reagan was shot four decades ago, the stock market plunged before closing early. The next day, March 31, 1981, the S&P 500 rose more than 1% and benchmark 10-year Treasury yields fell 9 basis points to 13.13%, according to data compiled by Bloomberg.
Bond investors should pay particular attention as the attack is likely to boost Trump’s election chances and ultimately lead to concerns about the fiscal outlook, according to Marko Papic, chief strategist at California-based BCA Research Inc.
“The bond market must at some point become aware of President Trump’s greater chances of winning the White House than any of his rivals,” Papic wrote. “And I continue to believe that as his chances increase, so too must the likelihood of a bond market revolt.”
Kyle Rodda, senior financial markets analyst at Capital.com, said he was seeing client flows into Bitcoin and gold following the shooting.
“This news marks a turning point in American policy norms,” he said. “For markets, it means safe-haven trades, but more tilted toward non-traditional safe-havens.”
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Jio Financial share price: Should you buy this Reliance group stock on Monday ahead of Q1 FY2024 results?
Q1 2024 Results: Jio Financial Share Price will be in focus on Monday as the Reliance Group company has a fixed board meeting on July 15, 2024 to consider and approve the company’s unaudited standalone and consolidated financial results. Trust Group company informed about the Q1 2024 Results date on Wednesday last week via an exchange filing. According to stock market experts, Jio Financial Services Limited is poised to deliver impressive Q1 results for FY25 on solid operating income. They have forecast a healthy QoQ PAT for the company in Q1 FY25.
Jio Financial Services News
Speaking on the Jio Financial Services Q1 2024 results, Manish Chowdhury, Head of Research, StoxBox, said, “We believe Jio Financial Services is poised to deliver impressive results in Q1FY25 aided by its operating income, which is likely to show robust growth driven by strong investment income, which in turn should lead to healthy PAT growth on a sequential basis. Jio Financial Services continues to make strategic moves such as launching digital products and expanding its ecosystem, with a clear focus on future growth. The company has announced plans to introduce products for lending against stocks and mutual funds, leveraging Jio’s large user base, which could be a significant growth driver in the coming quarters.”
“Furthermore, with the NBFC receiving RBI approval to become a primary investment company, Jio Financial Services is well-positioned to unlock value from its investments. Overall, we expect the company to report robust numbers in the upcoming quarter,” the StoxBox expert added.
Jio Financial Stock Target Price
Speaking about the technical outlook of Jio Financial share price, Ganesh Dongre, Senior Manager, Technical Research at Anand Rathi, said, “Jio Financial Services share price is poised to make a fresh high at the ₹260 apiece level. If the stock breaks above this mark, the Reliance Group stock could make a fresh high by touching the ₹290-₹295 zone. Hence, those with Jio Finance stock in their portfolio are advised to stick to the script by keeping a stop loss at ₹205. If the stock breaks above ₹260 decisively, then one can upgrade the stop loss at ₹240 for the near-term target of ₹295.”
On the advice to new buyers regarding Jio Financial stock, Ganesh Dongre said, “New buyers are advised to wait for the breakout. Once the stock breaks above â‚ą260, one can buy this Reliance Group stock at the short term target of â‚ą295, keeping a stop loss of â‚ą240 apiece.”
Disclaimer: The views and recommendations made above are those of individual analysts or brokerage firms, and not of Mint. Investors are advised to consult with certified experts before making any investment decisions.
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