Defaults on loans to high-risk borrowers have skyrocketed by 250 per cent, according to the Bank of England’s latest Financial Stability Report. Global defaults on leveraged loans have risen from 2 to 7 per cent since early 2022, with 73 per cent of these loans tied to private equity-backed firms, the report said.
Though defaults have not yet reached the 12 per cent peak seen during the financial crisis, the BoE is concerned about potential economic spillovers from the private equity sector, which now finances around 10 per cent of the UK’s private sector workforce.
The report warns of potential credit losses for banks due to their significant exposure to private equity activities. “The potential impact of losses on these exposures could in part reflect weaknesses in banks’ risk management practices,” the BoE stated.
As reported by the Financial Times, the BoE and the Prudential Regulation Authority are urging banks to improve transparency around valuation practices and leverage levels related to their private equity investments.
The BoE’s report notes that assets managed by private equity groups have surged fourfold over the past decade to $8tn, fuelled by record-low interest rates that attracted investor funds and made acquisitions more affordable. This growth has led buyout groups to become deeply integrated with various sectors of the UK economy and a significant source of fees for banks.
The BoE also highlighted increased hedge fund leverage, especially in fixed-income strategies, which could lead to market disruptions.
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Australia has given the green light for ANZ Group’s A$4.9bn ($3.26bn) acquisition of Suncorp’s banking business, ending nearly two years of regulatory scrutiny.
Treasurer Jim Chalmers said in a statement on Friday that the deal can proceed subject to enforceable conditions following an extensive consultation with the Australian treasury, financial regulators and trade union bodies.
“Following this lengthy and robust process, I received clear advice […] that it would not be in the national interest to prohibit this transaction,” Chalmers stated in the release. He said that the conditions, including a three-year prohibition on branch closures and job cuts across Australia, aim to safeguard banking services and employee interests.
Initially blocked by Australia’s competition regulator last August, the deal was later cleared by the Australian Competition Tribunal in February following appeals by both parties.
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The Financial Action Task Force announced on Friday that Monaco has been added to its “grey list” of countries subject to heightened scrutiny for anti-money-laundering measures.
At a plenary meeting in Singapore, the task force also announced that Venezuela was also added to the list of nations considered to have “strategic deficiencies” in countering money laundering and terrorist financing.
Jamaica and Turkey were removed from the list after resolving identified deficiencies identified by FATF.
FATF also urged countries to implement countermeasures against Iran and North Korea, citing North Korea’s activities related to weapons of mass destruction proliferation and Iran’s non-ratification of key international conventions on terrorism financing.
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The European Central Bank advised Eurozone countries on Friday to refrain from cutting bank capital buffers, suggesting some should even increase them due to record profits in the sector and looming economic challenges.
“The Governing Council supports national authorities planning to increase capital buffer requirements,” the ECB said in a statement.
The bank emphasised the need to maintain buffers to help banks absorb potential losses, highlighting concerns about overvalued property and high debt levels in some EU countries.
Additionally, the ECB cautioned that “geopolitical risk and macro-financial uncertainty remain elevated, creating the potential for further adverse shocks to the economy and to the financial system, while increased threats from cyber risks may also pose challenges to financial stability”.
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UBS is restructuring its wealth-management division to better cater to ultra-high-net-worth clients, as reported by Reuters citing an internal memo from the division’s new co-leaders, Rob Karofsky and Iqbal Khan.
According to the memo, UBS will, on July 1, launch GWM Solutions, a new business unit which integrates its investment management, lending, family and institutional wealth management and alternative investments. The new unit will be headed by Yves-Alain Sommerhalder, formerly of Credit Suisse.
Additionally, UBS announced the creation of another new unit called Unified Global Alternatives, which aims to bring some of its alternative asset management products closer to its wealth division, including real estate and private market investments.
Wealth management is pivotal for UBS, contributing over half of its total revenues. Last month, the Swiss bank restructured its top roles, positioning Karofsky and Khan as the top internal candidates to eventually succeed CEO Sergio Ermotti, who the bank has previously indicated could remain in charge until 2027.
