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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Draghi: Eurozone will decline without vital productivity growth

It’s productivity, stupid. European Central Bank president Mario Draghi has become the latest major policymaker to warn of the long-term economic damage posed by chronically low productivity growth, as he urged eurozone governments to take action to lift growth and stoke innovation. Speaking in Madrid on Wednesday, Mr Draghi noted that productivity rises in the […]

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Asia markets tentative ahead of Opec meeting

Wednesday 2.30am GMT Overview Markets across Asia were treading cautiously on Wednesday, following mild overnight gains for Wall Street, a weakening of the US dollar and as investors turned their attention to a meeting between Opec members later today. What to watch Oil prices are in focus ahead of Wednesday’s Opec meeting in Vienna. The […]

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Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

Royal Bank of Scotland has emerged as the biggest failure in the UK’s annual stress tests, forcing the state-controlled lender to present regulators with a new plan to bolster its capital position by at least £2bn. Barclays and Standard Chartered also failed to meet some of their minimum hurdles in the toughest stress scenario ever […]

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Barclays: life in the old dog yet

Barclays, a former basket case of British banking, is beginning to look inspiringly mediocre. The bank has failed Bank of England stress tests less resoundingly than Royal Bank of Scotland. Investors believe its assets are worth only 10 per cent less than their book value, judging from the share price. Although Barclays’s legal team have […]

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Categorized | Capital Markets

EBRD deepens ties to China with new fund

Posted on September 20, 2016

European Bank for Reconstruction and Development (EBRD) President Suma Chakrabarti gestures during a press conference in Brussels on March 3, 2015. The EBRD annouced that it will start investing in Greece on a temporary basis in response to a request from the Greek authorities in order for the bank to support reforms and return to economic growth. AFP PHOTO / EMMANUEL DUNAND (Photo credit should read EMMANUEL DUNAND/AFP/Getty Images)©AFP

Suma Chakrabarti, EBRD president, said there was significant demand for investment due to reduced capital flows into developing countries since the financial crisis.

The European Bank for Reconstruction and Development has launched an unusual €350m investment fund, deepening ties to China as it raises money to take direct minority stakes in businesses across a sphere that stretches from Ljubljana to Ulan Bator.

Designed to make long-term investments which advance the aims of the multilateral bank, the structure of the fund could offer a model for others to expand investment programmes by offering participation in an institution’s activities.

    The EBRD said this week it has completed a first financing round for its so-called Equity Participation Fund with two cornerstone investors, sovereign wealth funds from China and Azerbaijan: the State Administration of Foreign Exchange (Safe), which has committed €250m; and the State Oil Fund of Azerbaijan (Sofaz), responsible for the remaining €100m.

    Suma Chakrabarti, EBRD president, said there was significant demand for investment from the bank due to reduced capital flows into developing countries since the financial crisis. “The EPF will enable leading institutional investors to join us in seeking equity opportunities which boost growth and promote change in our countries of operations,” he said.

    The EBRD is seeking further long-term investors for a fund which offers a 20 per cent to 30 per cent “economic interest” in new equity investments of more than €10m made by the EBRD over five years, with the option to sell back undivested investments at the end of the fund’s expected 12 to 15 year lifetime.

    Rather than establish a typical fund structure with separate management to invest alongside the EBRD, investors in the new vehicle instead receive an equity return swap, a contractual arrangement to share in the value of new investments made by the bank in the ordinary course of its activities.

    Based in London, the EBRD was established in 1991 as a response to the collapse of communism in eastern Europe, and reports making €11.2bn of direct minority investments over 25 years.

    Now owned by 65 countries, the bank lends and invests across central and eastern Europe, Turkey, Russia and central Asia as part of commitment to “market-oriented economies and the promotion of private and entrepreneurial initiative”. In recent years it has extended its area of operation to include north Africa and Greece.

    The investment from Safe deepens a relationship with China, which became a member of the institution in January.

    For Azerbaijan, the commitment to the fund is the latest sign of a softening of attitudes to the West following a collapse in oil revenues which has been followed this year by the country’s attempts to reform its economy.

    This comes at a time when international investors more broadly have begun to return to emerging markets. For instance, the Institute of International Finance has indicated investors poured $24.4bn into emerging markets in August, taking cumulative net portfolio flows since June to $76.6bn, with the bulk of this going into listed equities. According to Morningstar, July flows into emerging market mutual funds were the largest in more than three years.

    The MSCI Emerging Market index has risen 14 per cent so far in 2016, after losing a fifth of its value the previous year.