| | | | | | | Presented By The Ascent | | | | Axios Markets | | By Aja Whitaker-Moore ·Jun 08, 2021 | | Welcome back, markets people. Today's newsletter is 1,165 words, 4.4 minutes. 🚨Free stuff alert: We've launched a referral program! If you refer new subscribers to Axios Markets or one of our other newsletters, you can get free Axios swag! Click here to get started. | | | | | | 1 big thing: The de-globalization of retail banking |  | | | Illustration: Annelise Capossela/Axios | | | | Big banks are pulling back from the heights of their global ambitions for retail banking, writes Axios' Kate Marino. Why it matters: The globalization dogma says bigger is better, and that more markets offer more opportunities for making money. But increasingly, the international mega-bank model is getting clunky, more expensive — and less popular. Tech disruption is driving competition — and costs — to new levels, especially in payments and lending. - Digital competitors like Dave, Monzo and Venmo litter the web and have no costly branches.
- Investors are paying attention. Banking app Dave, launched in 2017, said on Monday it would merge into a SPAC at an expected equity value of $4 billion.
Meanwhile, traditional banks are unwinding retail banking purchases made in the pre-cloud era. - HSBC is the latest, selling its unprofitable U.S. business to Citizens Bank and Cathay Bank.
- BBVA also recently sold its underperforming U.S. retail business to PNC. And Citi announced in April it's selling its Asia retail business.
What they're saying: "What we're seeing today would have been a surprise 10-15 years ago," says Greg McBride, chief financial analyst at Bankrate. - "There are limited synergies in running a global consumer business. It's all about local scale," says Jan Bellens, EY's global banking sector leader.
- That's because many products don't translate across national boundaries. Mortgages, for one.
The intrigue: International banks are increasingly looking for cost savings, like shedding underperforming assets, and using that to invest in digital banking platforms, says Wedbush analyst Peter Winter. - To adapt, legacy banks have also gotten into bed with fintechs.
Case in point: Signature Bank and Customers Bank both struck deals for their customers to use blockchain-powered real-time B2B payments platform TassatPay. What to watch: The re-globalization of banking — driven by cloud-based fintechs unburdened by old technology or brick-and-mortar infrastructure. They'll be best positioned for expansion, Bellens says. The bottom line: Consolidation in traditional retail banking is expected to continue. - A former Santander executive told the FT in December that the Spanish bank had been "outmaneuvered" by BBVA's U.S. asset sale, and that Santander "should have lined up such a favorable exit itself."
|     | | | | | | 2. Catch up quick | | The White House will announce a new task force today to focus on the supply chain disruptions created by the pandemic and economic shutdowns. (Axios) MicroStrategy is borrowing $400 million from the bond market to buy bitcoin, while at the same time writing down the value of the bitcoin it already holds. This is the first high-yield bond raised to finance a crypto purchase. (Bloomberg) Credit Suisse was left vulnerable amid the Archegos collapse thanks to a risk-management system that didn't perform properly and left the bank to rely on out-of-date trading data. (WSJ) | | | | | | | | 3. An investment grade record 🏅 |  Data: Bloomberg Barclays U.S. Corporate Index; Chart: Will Chase/Axios Interest rates may be low in the U.S., but they're also low — and in some cases lower — around the world. As a result, foreign investors are continuing to snatch up U.S. investment grade (IG) bond funds in order to get paid more for their trouble, Kate writes. Why it matters: Foreign investor demand has helped bring the key IG index's spread over Treasuries to a record-tight level. In turn, some IG fund managers are stretching into lower-rated assets to help boost returns. State of play: "We're seeing an insatiable demand for investment grade credit from Japan," Matt Brill, head of investment grade for North America at Invesco, tells Axios. - Demand is particularly strong from Japan because the country has adopted a negative short-term interest rate policy, with long-term rates targeted at around zero.
- Net inflows to all IG U.S. bond funds this year total $236 billion, far outstripping the $25 billion into high-yield funds, according to financial data provider EPFR.
By the numbers: Since the start of the year, the IG spread over Treasuries has tightened by 13 basis points, to around 0.85%, as measured by the Bloomberg Barclays U.S. Corporate Index. The impact: With spreads so tight, IG managers are dipping into the high-yield bond market more than usual, says Marc Kremer, fixed income portfolio manager at Franklin Templeton. - "People are looking for yield, especially to the degree they feel like we're in a good fundamental environment, and growth will support the credit metrics," Kremer says.
Of note: Distressed hedge funds, lacking opportunities, have also stretched into high yield. Amid the extra demand, the ICE BofA high yield index is at a near-record low of its own, at 4.2%. What to watch: Whether the Fed's unwinding of its $13.7 billion emergency bond purchasing facility has any impact on spreads. | | | | | | | | A message from The Ascent | | The high cash back card that smart spenders dream about | | |  | | | One of the highest cash back cards available now has 0% APR into 2022. Cardholders also enjoy: - No annual fee and up to 5% cash back on everyday purchases.
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See why The Ascent says this is their "number one pick for a one card wallet." | | | | | | 4. The mega-LBO returns |  | | | Illustration: Sarah Grillo/Axios | | | | Those historically low yields in the debt capital markets will no doubt assist a trio of private equity firms in funding their newly announced mega-buyout of Medline Industries, Kate writes. Why it matters: Medline's deal values the medical supplies company at around $34 billion, making it one of the largest of LBOs of all time. It could crack open the door for more super-sized deals. By the numbers: At $34 billion, it would be the second-largest post-financial crisis LBO, according to PitchBook data. - But the largest post-crisis deal, Dell Technologies' $67 billion purchase of EMC in 2016, was different because it was also a strategic tie-up.
- The only pre-crisis buyout larger than Medline's size is the acquisition of Energy Future Holdings for $45 billion in 2007.
State of play: Medline's new owner group — Blackstone, Carlyle and Hellman & Friedman — is expected to kick in $17 billion of equity, Bloomberg reports. That would leave up to $17 billion to be financed with debt. - In comparison, the largest LBO debt financing post-crisis so far was $14.6 billion for Kraft Heinz in 2013, according to S&P Global Market Intelligence's LCD.
The bottom line: On the debt market's ability to absorb that much new issuance, a high-yield manager tells Axios: "If market conditions stay status quo — cakewalk." Go deeper with Axios Pro Rata author Dan Primack's take on the deal. | | | | | | | | 5. The economic impact of Black women |  Reproduced from S&P Global; Chart: Axios Visuals Economic inequality has been exacerbated by the pandemic and left Black women — and potential growth for the broader U.S. economy — even further behind, according to a new report today from S&P Global. Why it matters: Black women have been hindered by economic disparities in nearly all aspects of American life, particularly when it comes to wage growth and opportunities in school and at work. What they found: If Black women were able to obtain college degrees at the same rate as white women from 1960 to 2019, the U.S. would have generated an additional $107 billion in economic activity, according to the report. - Moreover, if Black women in the professional world were in positions that matched their education and skills, the productivity boost alone would have added another $507 billion.
What they're saying: The inequities faced by a demographic group that makes up over 6% of the U.S. population has impacted the economy's potential growth outlook, S&P Global U.S. chief economist Beth Ann Bovino tells Axios. - "If you look at potential growth, where it was back before the financial crisis and Great Recession, we were looking at about 2.75% … and it has slowed now to under 2%," Bovino says, adding that CBO estimates call for a further dip in the next decade.
What to watch: The impact of the corporate world's increasing focus on anti-racist causes since the murder of George Floyd. - Goldman Sachs, for one, launched in March a decade-long plan to inject $10 billion into projects that it says will impact 1 million Black women.
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See why The Ascent says this is their "number one pick for a one card wallet." | | | | Thank you for reading! Send tips, or feedback to aja.moore@axios.com or reach out on Twitter @AjaWMoore. |  | | The tool and templates you need for more engaging team updates. | | | | | | Axios thanks our partners for supporting our newsletters. If you're interested in advertising, learn more here.
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