Capital Markets

Mnuchin expected to be Trump’s Treasury secretary

Donald Trump has chosen Steven Mnuchin as his Treasury secretary, US media outlets reported on Tuesday, positioning the former Goldman Sachs banker to be the latest Wall Street veteran to receive a top administration post. Mr Mnuchin chairs both Dune Capital Management and Dune Entertainment Partners and has been a longtime business associate of Mr […]

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Financial system more vulnerable after Trump victory, says BoE

The US election outcome has “reinforced existing vulnerabilities” in the financial system, the Bank of England has warned, adding that the outlook for financial stability in the UK remains challenging. The BoE said on Wednesday that vulnerabilities that were already considered “elevated” have worsened since its last report on financial stability in July, in the […]

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Zoopla wins back customers from online property rival

Zoopla chief executive Alex Chesterman has branded rival OnTheMarket “a failed experiment”, and said that his property site was winning back customers at a record rate. OnTheMarket was set up last year, aiming to compete with Zoopla and Rightmove, the UK’s two biggest property portals. It allowed estate agents to list their properties more cheaply […]

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Hard-hit online lender CAN Capital makes executive changes

The biggest online lender to small businesses in the US has pulled down the shutters and put its top managers on a leave of absence, in the latest blow to an industry grappling with mounting fears over credit quality. Atlanta-based CAN Capital said on Tuesday that it had replaced a trio of senior executives, after […]

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BoE stress tests: all you need to know

The Bank of England has released the results of its latest round of its annual banking stress tests and its semi-annual financial stability report this morning. Used to measure the resilience of a bank’s balance sheet in adverse scenarios, the stress tests measured the impact of a severe slowdown in Chinese growth, a global recession […]

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Categorized | Banks, Capital Markets

Shadow banks fill project debt void

Posted on January 31, 2013

Pension funds and insurance groups are filling the void left by banks in the rapidly changing infrastructure debt market, raising hopes this kind of financing can help spur a global economic recovery, according to Standard & Poor’s.

Infrastructure debt is vital for the building of schools, hospitals and roads, which governments hope will help create jobs and drag the faltering economies in the industrialised world out of the economic doldrums.

    Pension funds and insurance groups, dubbed shadow banks as they replace traditional banks as lenders, are forecast to more than double the amount they lend for infrastructure or project finance globally this year, S&P, the rating agency, will say in research published on Friday.

    But the agency warns of the dangers of a credit bubble because of the opaque nature of shadow banking, where it is difficult to track price movements, particularly in a market that is relatively illiquid.

    Michael Wilkins, a managing director at S&P, said: “The landscape of infrastructure financing is changing. With traditional lenders such as banks and governments under severe economic pressure, infrastructure projects worldwide are increasingly turning to the shadow banking sector.”

    S&P forecasts lending by pension funds and insurance groups for infrastructure or project finance will rise to $25bn globally in 2013, a sharp increase from the estimated $10bn last year. The total market is valued at $198.7bn, according to Project Finance International, a data provider.

    Although banks still provide the bulk of the loans, they have started to withdraw lending for infrastructure or project finance because of new regulations and capital constraints following the financial crisis, which mean they need more liquid instruments such as government bonds.

    S&P said alternative debt financing from shadow banks, which is mainly from pension funds and insurance companies with a small amount from hedge funds and sovereign wealth funds, may help reduce the cost of borrowing for infrastructure projects. But, on the downside, it says there is the threat of a build-up of systemic risks because of the opaque nature of the sector.

    Banks are expected to continue to be the predominant source of financing for infrastructure as shadow banking groups remain cautious, particularly over lending for so-called greenfield projects.

    Infrastructure projects are classed as greenfield, which involves raising money for new buildings where there is construction risk as a venture may be delayed or left unfinished, and brownfield, which is considered less risky as it is for improvements or upgrades to existing infrastructure.