Most people are aware of the EB-5 Immigrant Investor Program. It's a somewhat complicated programme that offers U.S. permanent residency and a path toward citizenship for foreign nationals who invest a certain amount of capital in the country and create at least ten full-time jobs in the same area where they made this investment. Interestingly, if you were to think about risks regarding this programme, failing EB-5 projects is probably not on the list.
Should you be concerned with what happens if an EB-5 investment fails? The answer is yes. But why should an EB-5 investment failure be such a big deal?
The EB5 Visa Process
The EB5 visa process is complicated. Applying for the final green card can take three to five years. Professional investment management services such as eb5visainvestments.com make the process easier, but you can also go down the winding road yourself. The process consists of two parts: pre-approval and investment progression phases.
Investors must first file Form I-526, Immigrant Petition by Alien Entrepreneur, and wait for USCIS approval before applying for permanent residency. The first step in the process is to find a suitable project that meets the requirements of the EB-5 programme. This stage typically takes 6 to 12 months from start to finish.
The second step is to invest at least $1,050,000 or $800,000 in “General Areas” or “Target Employment Areas.” After investing this money, an investor must create ten full-time jobs for U.S. workers within two years of receiving conditional green cards from USCIS.
The investor may then apply for permanent residency after completing these steps and proving that they have maintained all required investments over time.
What Happens To Your Money If An EB5 Investment Fails?
A lot can happen to your money if an EB-5 investment fails. Here's what could happen, depending on the circumstances surrounding the failure:
Your Money Is Gone
Even though the novel idea behind your financial investment is towards creating value, there isn't much chance you'll get your money back after a failed EB5 project. Instead, your chances will depend on whether or not USCIS approved the project before things took a downturn.
If USCIS approved the project before it failed, the government would still honour the petition. However, if USCIS didn't approve the project before it failed, they can choose not to honour it — even if it was approved previously.
Your Visa May Be At Risk
Suppose an EB5 project fails, and you've already received permanent residency status. In that case, it's unlikely that DHS will revoke your status or deport you unless you've done something wrong (such as committing fraud).
On the other hand, if you're waiting for permanent residency status, it can be revoked if the DHS believes that the investment failed due to some fault. This flag could be anything from not contributing enough money to providing false information about yourself or your partner company when applying for citizenship.
You May Qualify For A Hardship Waiver Or Other Forms Of Relief From Removal
If your investment has failed, but you are in good standing with the USCIS and have not otherwise violated the terms of your visa status, you may be able to apply for a hardship waiver or other forms of relief from removal.
A hardship waiver allows you to reapply for an immigrant visa and shows that your failure to maintain lawful permanent resident status was due to circumstances beyond your control. To qualify for this type of waiver, you must show that there is no other way to resolve your immigration problem other than to leave the United States.
When Should You File An I-526 Withdrawal Request?
If your project fails or is not moving forward as originally planned – or even if it has reached its goal, but your business model doesn't work out – you might consider withdrawing your I-526 petition.
You can file this request up until 120 days after filing Form I-924B for USCIS review (if there are no other issues). It's important to note that withdrawing does not automatically mean that USCIS will grant your request; however, it does give them enough time to determine whether your request qualifies for approval or not.
How To Avoid Being Left Out In The Cold
You've invested in an EB5 investment, and it's gone south. You're not alone. The good news is that there are steps you can take to avoid being left out in the cold when an EB5 investment fails.
First and foremost, if your EB5 investment fails, start by contacting your attorney as soon as possible. If you're unsure who your attorney is or how to contact them, contact the project developer to know who they used for legal services.
If you have trouble getting in touch with them or their legal team, consider hiring another attorney specialising in real estate law or immigration law to help get you through this difficult time.
Final Thoughts
So, if an EB5 project fails, what can you expect? It's unlikely that you'll find yourself in a situation where you need to worry about whether your visa or green card is at risk, provided you acted with prudence and did your due diligence.
It's not impossible, but the likelihood of this happening is low if both parties take all the proper precautions and invest in good faith.
As the total crypto market cap dropped by $90 billion within 24 hours, the number of searches containing “Bitcoin dead” surged.
While experts are divided on what the plummeting of cryptocurrency means — a temporary setback or signs of a larger recession — it is clear that the increased volatility of the market offers many lessons for investors. Whether you’ve been hesitant to invest in crypto or are second-guessing your choice to do so, here’s how the crypto crash illustrates the risks of cryptocurrency investments and what you can do to manage those risks.
Understanding the risks associated with crypto
The crypto market isn’t a stranger to crashes. Bitcoin alone experienced a major crash in late 2018, followed by significant crashes during the COVID-19 pandemic. However, crypto’s tumble into its lowest levels since 2020 is evidence that holding onto your crypto assets can be a dangerous game in itself. Even Coinbase has laid off 18% of its workforce, and many investors are predicting a long-lasting crypto winter. We’ll explore some of the risks that the current state of the market has unearthed.
Loss of money
One of the core lessons that the crypto crash can teach investors is the fact that cryptocurrency isn’t a reliable investment at all. When you hold onto your crypto assets through a crash — or when you decide to take advantage of low costs to invest — there’s never a guarantee that your assets will bounce back. This is because cryptocurrency like Bitcoin has no intrinsic value.
To manage your risk, it’s important to avoid putting all (or even most) of your eggs in the crypto basket. Crypto should be treated as a gamble. Whether you sell or keep your crypto assets should be a question of how much you’re willing to risk, and perhaps what reward you’re waiting for before you cash out. If you’re looking to increase your profit to reach your long-term financial goals, maintaining safer investments, like high-yield savings accounts and index funds, is ideal.
Reputational harm
If you’ve developed a professional network or gained followers due to your crypto usage, the current crypto crash may have been a blow to your reputation. For many old-school investors and others outside of the investment world, the crash is being viewed as evidence that crypto isn’t a legitimate investment.
One key to risk management for crypto investors is being willing to take ownership. When crypto falls more than you expected, be willing to admit your miscalculations. Continuing to promote crypto as a volatile market can damage your reputation further when the market fails to bounce back quickly.
Cybersecurity threats
The plunge in cryptocurrency value hasn’t deterred blockchain hackers from taking advantage of virtual vulnerabilities. As the market crashed, hackers made off with $100 million in cryptocurrency. Crypto and NFT thefts and fraud are continuing to rise.
Choosing a secure internet and a cold wallet is key to reducing risk when investing in crypto. Cold wallets aren’t connected to the internet — which limits your susceptibility to cyberattacks — and are protected by physical keys that you can store in a secure place. You can even store your assets in multiple wallets to get further protection.
However, it’s always important to keep potential insider threats, which cause over 30% of breaches, in mind. People close to you — and even those inside investment firms — are more easily able to hack crypto wallets and steal funds. Avoid having your entire investment portfolio on a public blockchain, which can make you a greater target for hackers. Ideally, crypto shouldn’t make up more than 5% of your portfolio.
Environmental issues
Cryptocurrency is widely recognised as a threat to the environment due to the large amount of energy needed for mining. Unfortunately, the crypto crash doesn’t have much of a silver lining, as the amount of processing power used for mining isn’t declining. This is an important time for investors to consider the carbon footprint they’re leaving behind, as well as evaluate whether the environmental and financial costs of energy are worth the uncertain earnings.
Stablecoins are not so stable after all
Many crypto investors turn to stablecoins to avoid the volatility of the greater crypto market. Stablecoins, like Tether and Terra, are meant to maintain their value since they’re pegged to real assets, like gold or the U.S. dollar. However, TerraUSD crashed with the rest of the crypto market, leading to disastrous results for its sister token Luna.
Investors must recognise that there isn’t actually a safe way to enter the crypto market. Stablecoins don’t provide the stability they’re meant to, which means they can’t reduce your risk. As international governments discuss the possibility of regulating stablecoins, the future of stablecoins is largely unknown and, once again, a gamble.
Protecting yourself from bad crypto investments
While there isn’t an easy way to protect yourself from bad crypto investments, there are a few ways you can evaluate how reputable a cryptocurrency is. For instance, you can read up on the team behind the cryptocurrency — which should be disclosed and experienced — and read about their roadmap, so you can evaluate their potential for success. Taking a look at a cryptocurrency’s trading history, which should display steady growth, is also key to limiting your risk.
If you’re part of an investment firm — which is likely already taking steps to evaluate crypto — you can still take action to protect your business by keeping your organisation agile. In a volatile market, a firm that learns from failure and eliminates bottlenecks created by silos and hierarchies is best equipped to think on its feet when issues occur.
There’s no telling what’s in store for crypto in the future, so anyone involved in or considering investments must be wary of the market’s volatility and take steps to manage their own risk.
About the author: Adrian Johansen lives and thrives in the Pacific Northwest. She covers topics related to business and tech, especially when they intersect with sustainability and diversity issues. You can follow her on Twitter at @AdrianJohanse18.
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This volatility has made it difficult to predict what to do with crypto because you never know if it will dip even lower or rise higher. It can also be hard to pick the best currencies and figure out which ones are worth buying, which has prevented people from investing.
Despite the ever-changing and unpredictable volatility of cryptocurrency, many experts in the industry have found a way to make money off of these fluctuations by doing crypto arbitrage.
What Is Crypto Arbitrage Trading?
Crypto arbitrage trading is a financial strategy that involves simultaneously buying and selling cryptocurrencies to generate profit. The goal is to exploit any price discrepancies between the exchanges where the cryptocurrencies are traded to make a profit.
Cryptocurrency arbitrage trading is a strategy that allows traders to take advantage of price differences between different exchanges. For example, if Bitcoin sells for $10,000 on one exchange and $9,500 on another, a trader can buy Bitcoin on the cheaper exchange and sell it on the more expensive exchange, pocketing the $500 difference.
Crypto arbitrage trading opportunities usually come when there is a large enough price difference between exchanges. This can happen when there is a sudden change in market conditions or when one exchange lags behind the others in terms of prices.
It is important to note that arbitrage trading is a high-risk strategy and should only be attempted by experienced traders with adequate capital. The risk of this strategy is that the asset price can change quickly, which can lead to a loss on the investment.
How Does Crypto Arbitrage Trading Work?
Certain conditions must be met for a crypto arbitrage to occur:
- There must be an imbalance in an asset price across exchanges. Crypto arbitrage is usually done with the same assets but at different market prices.
- The two trades must be executed simultaneously on different exchanges. The token is bought on the exchange that has a lower price and at the same time sold on the exchange with the higher price.
Despite the profitability of cryptocurrency arbitrage, it is not a popular strategy. This type of trading generally lasts for only a few minutes, as the prices in the different exchanges quickly converge. Thus many traders are unable to keep up.
In order to find and take advantage of arbitrage opportunities, traders need to have access to real-time data from multiple exchanges. This data can be challenging, so many arbitrage traders use specialized software to find and execute trades automatically.
Crypto arbitrage trading software allows for real-time monitoring of all trades and seamless execution of buy and sell orders across multiple exchanges. This enables traders to capitalise on any price discrepancies between the exchanges.
Types Of Arbitrage Trading
There are different types of crypto arbitrage strategies that traders can use to take advantage of price discrepancies in the market. Some of them include:
1. Cross-exchange arbitrage
The trader buys a crypto asset on one exchange and sells it immediately on another exchange where the price is higher. This is possible because the same asset prices can vary from one exchange to another. The trader needs to have accounts on both exchanges and be quick to take advantage of the price difference.
2. Spatial arbitrage
This involves buying and selling cryptocurrencies in different locations around the world to earn a profit. One example of a place where this could be profitable is Japan, which has a much higher demand for cryptocurrency than most other countries. By buying and selling cryptocurrency in Japan, you can earn a profit while avoiding the risks associated with investing in cryptocurrencies overseas.
3. Triangular arbitrage
Triangular arbitrage is a type of crypto arbitrage that uses the price of a digital asset to speculate on the price of another digital asset. This technique can be used to make money by trading one asset for another and immediately selling the second asset for a higher price. The idea is to exploit the difference in prices between the two assets to make a profit.
Is Crypto Arbitrage Still Profitable?
Crypto arbitrage trading is still possible today, although it has become more complicated than before. This is because there are now more exchanges and more liquidity in the market. As such, it is more difficult to find price differences that can be exploited.
That said, crypto arbitrage trading can still be profitable if done correctly. In order to be successful, traders need to have a good understanding of the market and be able to execute trades quickly. Here are some things to look for when considering crypto arbitrage:
1. Volatility: There needs to be enough price movement in the markets you're trading in order to make a profit. If prices are too stable, you won't be able to make enough of a profit to offset the costs of trading.
2. Liquidity: There needs to be enough liquidity in the markets you're trading so that you can buy and sell without affecting the prices too much. If there's not enough liquidity, you may not be able to execute your trades at the prices you want.
3. Fees: Trading costs, such as commissions and spreads, will eat into your profits. Make sure you're taking these into account when considering whether or not arbitrage is suitable for you.
4. Risk: Arbitrage involves risk, as do all trading strategies. Before deciding if crypto arbitrage is right for you, be sure to understand the risks involved.
Risks Associated With Crypto Arbitrage Trading
Crypto arbitrage trading can be a lucrative investment strategy, allowing investors to take advantage of price discrepancies in different digital currencies. However, there are a number of risks associated with this type of trading.
First and foremost, crypto arbitrage trading is highly speculative. The possibility of making a large profit quickly can lead to significant losses if the market moves against you. Furthermore, crypto arbitrage trading is often based on small price differences, which can be easily manipulated. Finally, there is the risk of being scammed by fraudulent brokers or traders. As a result, it is essential to exercise caution when undertaking this type of trading.
But in contrast to other types of trading, crypto arbitrage trading seems safer. If you buy and sell crypto on two exchanges simultaneously, you might not always make a significant profit, but you most likely won't make a considerable loss either.
Crypto arbitrage is, therefore, an excellent alternative for people who don't want to risk long-term investments in the volatile cryptocurrency market, mainly because there are tools to make the process easier.
Conclusion
Crypto arbitrage still seems to be a viable strategy for those looking to make money in the crypto space in 2022. While there are some challenges, such as increased regulation and volatility, it appears that arbitrage is still a viable way to make a profit. So if you're looking to make some extra cash in the coming year, keep an eye on prices and see if you can take advantage of any opportunities that arise.
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1. Forex signals cannot predict the future
No matter how good a forex signal provider is, it cannot predict the future. The best they can do is provide you with information that can help you make informed decisions about your trading. Many forex signal providers will talk about their "proprietary" methods for analysing the markets, but the reality is that they are all based on past data and no one can accurately predict what the markets will do in the future. Additionally, even the best forex signal providers cannot control the markets, so there is always a risk that the market will move in a way that is not anticipated by the signals. It's important to remember that forex signals are not guaranteed to make you money and there is always a risk of loss.
2. Forex signals are not a "get rich quick" scheme
If you're looking for a quick and easy way to make money in the forex market, forex signals are not for you. While forex signals can be a helpful tool, they are not a magic bullet that will make you rich overnight. To be successful with forex signals, you need to have a solid trading strategy and risk management plan in place. Additionally, it's important to remember that even the best forex signal providers have lost trades. No one can win all of the time and you should be prepared to accept losses as part of your trading strategy. It's also important to note that forex signals are not free.
3. Forex signals come with risks
As with any type of trading, there are risks associated with using forex signals. One of the biggest risks is that you could end up following a bad signal and losing money. It's important to do your research and only use forex signals from reputable providers. Additionally, you should always test any forex signals you plan on using with a demo account before risking real money. By doing this, you can get a feel for how the signals work and whether or not they are right for you.
4. You need to be able to act quickly
In order to profit from forex signals, you need to be able to act quickly. This means that you need to have a good understanding of the market and be able to make trades quickly. If you're not comfortable with making quick decisions, forex signals may not be right for you. Additionally, you need to have a good understanding of how to use the signals. If you're not sure what the signal is telling you, you could end up making a bad trade.
5. You need to have a solid trading strategy
If you want to be successful with forex signals, you need to have a solid trading strategy in place. This means that you need to know when to buy and sell, as well as how to manage your risk. Many forex signal providers will give you their trading recommendations, but it's important that you back-test their recommendations and make sure they fit your trading style. Additionally, you need to be comfortable with the level of risk you're taking on. Remember, even the best forex signal providers can't guarantee success, so it's important that you're prepared for the possibility of losses.
6. You need to be patient
One of the most important things to remember when using forex signals is that you need to be patient. Just because a signal provider is giving you a buy or sell recommendation does not mean that you need to act on it immediately. Oftentimes, the best thing to do is wait for the market to confirm the signal before making a trade. Additionally, you should always use a stop-loss order when trading based on forex signals. This will help you limit your losses in case the market goes against you.
Forex signals can be a helpful tool for traders, but they are not a magic bullet that will make you rich overnight. There is always a risk of loss when trading and you should be prepared to accept losses as part of your trading strategy. No one can win all of the time and you need to be patient when using forex signals. If you're not comfortable with the risks associated with forex trading, you should not use forex signals.
When searching for something to invest in without a great deal of risk, jewellery may be a good choice, especially when you consider that its value will always grow in time. However, the ease of this process depends on how you tackle jewellery investing. Investing in diamonds, particularly, can be quite tricky if you don’t know what to look for.
Tips for Diamond Investing
If you want to make the most out of diamond investing, here are a few tricks you should know:
Be picky
Don’t just go on a buying spree simply because someone says they’re selling diamonds. Choose something that will actually hold value later on when you decide to sell. For one, you should stay away from fashionable jewellery, since it won’t hold much value in the future compared to classic pieces.
Study before buying
Don’t commit the mistake of thinking that you can’t lose anything when investing in diamonds. If you are serious about investing, you should know the diamond 4 C’s, which stands for cut, colour, clarity, and carat. As always, classic shapes often do well in the resale market.
Authenticate the diamonds
You have to make sure that the diamond you are buying has the proper certifications from authenticating bodies, such as the Gemological Institute of America (GIA) certification. If it’s too good to be true, then it most likely is. Recent technological advancements have made it easy for scammers to replicate a real diamond that only experts can spot. Before you sign that cheque, ask for certification. If there isn’t any, don’t think twice about walking away.
Remove emotional attachment
If you plan to go into diamond investing, you should keep an emotional distance on the items that you are buying. Don’t get too hung up on holding on to an item, as it will be more difficult for you to let go later on when you get a good offer.
Keep a low profile
Don’t go publicising that you’re set on investing in diamonds. This could make you a target for scammers. Keep your items in check, keep your valuables safe, and never meet up in a private place. Go public and never share personal details that will compromise your safety.
Know your market
When you go into diamond investing, you always have to make sure that you can easily buy and sell. Aside from knowing where to buy, you should also know where to sell your items should you decide to let go of some of the pieces in your collection. You can’t simply go on eBay and list your items for auction there. You have to widen your market so you can be sure that you get the best value for your diamonds.
If you plan to sell your items online, you have to be well aware of the different payment platforms, delivery services, and even insurance offers so you can build your reputation in the diamond investing industry without compromising your safety and security.
Diamond investing is rising in popularity as many realise that these items can truly hold their value. However, it still does come with some pitfalls that you should be aware of. This way, you can maximise your financial portfolio.
Deutsche Bank on Wednesday posted a pre-tax profit of €908 million for the first three months of 2020 – its best quarterly performance in seven years, and a notable increase on its profit of just €66 million for the same period in 2020.
Profits rose across all of the bank’s core divisions, though its investment banking arm performed most strongly with a 134% rise in pre-tax profits to €1.5 billion. Revenue across the bank grew 14% to €7.2 billion, its highest total since 2017.
CEO Christian Sewing attributed the strong results to effective risk management and tight control of costs. "Our first quarter is further evidence that Deutsche Bank is on the right path in all four core businesses, and is building sustainable profitability," he said. "In addition to substantial revenue growth over an already strong prior year quarter, we demonstrated cost and risk discipline."
Deutsche Bank’s strong quarterly performance is also significant in its avoidance of damage from the implosion of Archegos Capital Management. The family-run hedge fund collapsed in March and dragged down the profits of major banks tied to it. Credit Suisse made an immediate loss of $4.7 billion, while Morgan Stanley lost $1 billion and Nomura lost $1.43 billion.
However, Deutsche Bank made no mention of Archegos in its quarterly report despite being a client of the fund. The bank is understood to have conducted a relatively small amount of business with Archegos and exited positions quickly upon its collapse, minimising damages to its revenue.
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Shares in Deutsche Bank rose as much as 6% in early trading on Wednesday upon the release of the quarterly earnings report.
UBS reported on Tuesday a net income of $1.8 billion for the first quarter, revealing that it had taken a considerable hit to earnings from the collapse of Archegos Capital Management.
The Swiss bank said that it had taken a $774 million hit to revenue as a result of Archegos’s default earlier in the quarter. The hedge fund was a client of UBS’s prime brokerage business.
UBS added that it had ended all exposure to Archegos and that any related losses in the second quarter would be “immaterial”.
UBS CEO Ralph Hamers told CNBC on Tuesday that he was “very disappointed” by the loss, and that the bank is “taking it very seriously”.
“We have started a very detailed review of the different prime brokers’ relationships that we have … in order to really get the lessons learned and make sure we implement them so that going forward it doesn’t happen again,” he said.
Meanwhile, Nomura – Japan’s largest brokerage and investment bank – recorded a net loss of 155.4 billion yen ($1.43 billion) for the first quarter of 2021, its greatest quarterly loss since the 2008 financial crisis. Like UBS, its losses stemmed from exposure to the collapse of Archegos.
The collapse of the New York-based family hedge fund in March has resulted in immense damages for global banks. Credit Suisse, one of the first to report losses resulting from the implosion, took a hit of $4.7 billion.
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Between the UBS and Nomura announcements, total bank losses resulting from the collapse of Archegos are estimated to have reached $10 billion.
Credit Suisse on Thursday reported a net loss of 252 million Swiss francs ($275 million) for the first quarter following the implosion of US-based hedge fund Archegos Capital.
The bank reported that the loss reflected a “significant charge with respect to the US-based hedge fund matter in 1Q21 (first quarter), offsetting positive performance across wealth management and investment banking.”
In response, the bank raised roughly $2 billion to bolster its capital position. To do this, it sold mandatory convertible notes to "a selected group of core shareholders, institutional investors and ultra-high-net-worth individuals."
In total, Credit Suisse has issued notes that will convert into 203 million shares in the bank. Half of these will convert in six months’ time at a 5% discount against the market rate.
Archegos Capital, a relatively unknown family office in New York, collapsed last month after making a series of highly leveraged bets on media and tech stocks. Credit Suisse, which dealt with the firm, was rocked by the collapse; the bank made an immediate loss of 4.4 billion Swiss francs ($4.7 billion) and dumped $2 billion worth of stock to end its connection with Archegos. The bank also overhauled its leadership, with Chief Risk Officer Lara Warner and investment banking head Brian Chin stepping down in the aftermath of the loss.
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The $4.4 billion loss provision wiped out a 30% jump in Credit Suisse’s revenues for the first quarter, powered by an 80% revenue increase in its investment banking arm. The bank’s loss contrasts starkly with its 1.2 billion franc profit in the same quarter last year.
Credit Suisse is not the only major bank to have made significant losses on the collapse of Archegos. Last week, Morgan Stanley revealed a loss of almost $2 billion despite a 150% profit increase in the first quarter.
Morgan Stanley on Friday disclosed a loss of almost $1 billion from the collapse of private fund Archegos Capital Management, undercutting an otherwise upbeat 150% jump in first-quarter profit.
The Wall Street giant was one of six banks that had exposure to Archegos, a family office fund run by controversial former hedge fund manager Bill Hwang. Last month, Archegos defaulted on margin calls and triggered a stock fire sale.
In a call with analysts, Morgan Stanley CEO James Gorman said the bank initially lost $644 million on stocks it held related to Archegos’ positions, which it sold. It then decided to “derisk” its remaining positions, triggering the loss of a further $267 million.
"I regard that decision as necessary and money well spent," Gorman said.
Other firms hit by the collapse of Archegos include Credit Suisse, which estimated its losses from the event to reach $4.7 billion, and Nomura, which flagged a loss of $2 billion. The fund’s implosion is now being probed by a number of US watchdogs, as well as the Senate Banking Committee.
Shares in Morgan Stanley were down more than 1% in premarket trading after news of its losses broke. However, the bank’s overall results easily beat expectations, spurred on by a spike in trading volumes partly led by the Reddit-driven “meme stock” frenzy around companies such as GameStop and AMC Entertainment.
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Morgan Stanley reported a net revenue jump of 61% to $15.72 billion. Net revenue applicable to shareholders rose to $3.98 billion, or $2.19 per share, as of 31 March.
Credit Suisse will overhaul the leadership of its investment bank and risk division following the collapse of hedge fund Archegos Capital, which the firm estimates will cost it $4.7 billion.
In a statement on Tuesday, the firm said it would take a hit of 4.4 billion Swiss francs from “the failure by a US-based hedge fund to meet its margin commitments”. The hit will likely undo “the very strong performance that had otherwise been achieved” and set the lender on course for a 900-million-franc loss in the first half of 2021.
Credit Suisse was one of several lenders acting as prime broker for family office Archegos Capital, run by controversial former hedge fund manager Bill Hwang. The firm collapsed last month after several large leveraged bets failed to pay off.
Credit Suisse dumped $2 billion worth of stock to end its exposure to Archegos. It also announced that Chief Risk Officer Lara Warner and investment banking head Brian Chin would step down follow the losses.
In addition to the hit taken from Archegos, Credit Suisse has also been caught up in the implosion of Greensill Capital, a major supply chain finance firm that also collapsed last month. Credit Suisse ran funds worth a total of $10 billion that invested in debt instruments generated by Greensill Capital. The funds were suspended after Greensill’s collapse.
The firm has yet to calculate the cost of its involvement with Greensill Capital.
“The significant loss in our Prime Services business relating to the failure of a US-based hedge fund is unacceptable,” Credit Suisse CEO Thomas Gottstein said in a statement. "In combination with the recent issues around the supply chain finance funds, I recognise that these cases have caused significant concern amongst all our stakeholders."
However, Gottstein expressed optimism for the future of the company. “Serious lessons will be learned. Credit Suisse remains a formidable institution with a rich history,” he said.
Peter Ku, VP and Chief Financial Strategist for Informatica, outlines the challenges posed by the transition and how firms can turn them into opportunities.
The London Interbank Offered Rate (LIBOR) underpins some $240 trillion in financial contracts, and with just 11 months to go until the move to risk free rates, Sterling Over Night Indexed Average (SONIA), financial services firms are under pressure to finalise this complex change programme.
Widely considered one of the biggest transformation programmes undertaken by modern financial services firms, the shift away from LIBOR is a complex business challenge which impacts teams across the business. Failure to adequately prepare represents significant operational risk. Why? Because at the heart of it all is data – what is it, where is it, how is it connected, governed, and made available to the business. Board level committees, cross-functional teams and significant resources have been dedicated to managing this intensive and – at times – painful process. However, it’s not all imposition; there are meaningful upsides to having trusted, governed and relevant data, shifting it from tool to strategic business asset.
The Road Ahead
The Bank of England recently published an updated 2021 Roadmap, outlining key milestones that need to be met in order to prepare for the LIBOR transition. It suggests that by the end of Q1 2021, organisations will have completed the identification of all legacy LIBOR contracts. For banks that have hundreds of systems – each with thousands of indexes – locating and tracking the lineage of this data across all systems is a mammoth task.
After completing the LIBOR data inventory, firms can begin conducting an impact analysis on all existing LIBOR contracts. This is a crucial, in-depth exercise covering a number of areas. What will the financial impact be of switching from LIBOR to SONIA? What is the market, operational, credit and reputational risk? Data quality is paramount to being able to perform accurate analysis and in turn manage risk. It’s important to keep in mind that a change of a single data point will impact multiple systems and, in most cases, hundreds of reports. Therefore, having confidence that the data is accurate and trusted is essential. Finance and accounting teams will need to update risk and valuation models once the risk exposure is identified. These include valuation models, pricing future revenue streams and how those impact daily, monthly and annual reporting.
What will the financial impact be of switching from LIBOR to SONIA? What is the market, operational, credit and reputational risk?
Alongside this work, legal and compliance teams will be working to review and replace fall back language in LIBOR contracts which expire in 2022 and beyond. The roadmap published by the Bank of England working group suggests that firms complete these conversions by the end of September 2021. The success of this maps back to the data inventory, and whether teams are able to determine which systems service which contracts, and adequately address corrupt data.
The singular thread through it all, whether it be those managed by legal and compliance, finance and accounting, or risk management, is a dependency on data that is good for use. Unfortunately, many organisations today still struggle with data quality. There are instances where the correct data just isn’t available, or it’s unclear where the data is located or how it is connected to other indexes. This is a continuous work in progress but the conversion from LIBOR to SONIA is undoubtably driving improvements in the automation and scale of existing data governance projects.
Operationalising Data Governance
The LIBOR transition may be a landmark one, but it certainly won’t be the last challenge for the financial sector, which will continue to face increasing market pressures fuelled by rapidly emerging technologies, global interconnectedness, changing economic and jurisdictional factors, and consumer demands. It is the adoption of cloud-based technologies and steady foundation of intelligent data governance that will deliver sustainability, resilience and efficiency moving forward.
As Chief Data Officers round out these gargantuan programmes, a continued focus on two core areas will accelerate the shift of data governance from an IT-centric discipline to a core business function that empowers all within the organisation to be more data-driven.
First, there needs to be a continued focus on resolving data quality issues. Data quality management should be proactive, measured, monitored, and communicated across all data stakeholders from data engineers, analysts, stewards to executive business decision makers. This will ensure data quality management is transparent, predictable and measurable.
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Secondly, users need to leverage tools and technologies to make data governance processes more automated and agile. AI-driven data governance solutions can operationalise data governance by decentralising data stewardship and enabling self-service stewardship to reduce the cost to the business, while still allowing data governance to scale.
Data is the new currency of financial services firms. Forward-thinking organisations will view the overhaul required to move away from LIBOR as a stepping stone to turn data management challenges into opportunities.
Commerzbank announced on Friday that it plans to write off the €1.5 billion in goodwill that remain on its books due to “deteriorating market conditions,” including low interest rates in Poland and the euro area where the bank maintains a presence.
Further to the write-off, the bank increased its risk provisions, with at least €1.7 billion in bad loan provisions booked. This figure includes a €500 million top-level adjustment for the expected impact of the COVID-19 pandemic in 2021.
These changes, which will be taken for the 2020 financial year, suggest that Commerzbank will post a larger loss than analysts had predicted. Its shares fell as much as 4.1% following the announcement, trading at €5.53 as of 12:09 PM in Frankfurt. Overall, shares in the bank have fallen 4.9% over the past 11 months.
“After this balance sheet clean-up, we are well prepared for the road ahead of us,” Commerzbank CEO Manfred Knof said in the company’s statement. “Our goal is to make the bank more profitable in the long term.”
A former Deutsche Bank executive, Knof took over Commerzbank on 1 January after being tapped for the position last September. He is currently heading up a radical restructuring of the bank, warning that it “needs to undergo a fundamental transformation”.
Last month, Commerzbank said that it would set aside €610 million in the fourth quarter to cover these restructuring costs, and in November warned of the potential for its outlook to worsen depending on how the second wave of the pandemic developed.
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In the 2019 financial year, Commerzbank ranked as the second largest bank in Germany by the total value of its balance sheet.
