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MILESTONE: AIIB Holds Official Signing Ceremony

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Beijing-based Asian Infrastructure Investment Bank (AIIB), an international development bank to rival the World Bank and Asian Development Bank (ADB), held its official signing at Beijing’s Great Hall of the People. The Articles of Agreement (AoA) were officially signed. This milestone event demonstrates China’s global economic influence. 57 counties including Germany, Singapore, United Kingdom, Australia and South Korea are among the founding members. China will hold a 25% to 30% stake in the bank, with India possibly holding 10% to 15% in the financial institution. This gives Beijing significant veto power over key decisions. Russia and Germany would be the next biggest shareholders of the bank. Indonesia will be the eighth biggest shareholder in the AIIB.

The AIIB will have authorized capital of US$ 50 billion, ultimately to be expanded up to US$ 100 billion. The AIIB has pledged to be less bureaucratic than the World Bank and Asian Development Bank. A 2014 World Bank study concluded the average time for a privately-managed bank project from start to completion was two years and five months. To minimize political games, the AIIB will have a nonresident board to center on technical decision making.

The United States and Japan, both opposing the AIIB, have not joined.

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Lou Jiwei, the former Chairman and CEO of the China Investment Corporation (CIC) and current Minister of Finance for China, commented to the media that the AIIB could start functioning before the end of 2015. The AIIB is led by Jin Liqun who is the interim head. He is tipped to be the bank’s first president.

Silk Road Infrastructure Fund

As China leads in the formation of the AIIB, its US$ 40 billion Silk Road infrastructure fund has opened up a new level of transparency. Jin Qi, the fund’s chief executive, at the Lujiazui Forum in Shanghai, stated the fund will use government transfers, equity sales and stock market listings as exit strategies for divesting in project and investments. This is in order to ensure financial returns from its investments. Beijing maintains the fund is a for-profit fund rather than an aid vehicle. Some of the infrastructure fund’s current investors are the CIC, the Export-Import Bank of China and China Development Bank.

SWFI First Read, March 20, 2019

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Bentall Kennedy Buys Stockton Logistics Center

Bentall Kennedy, through a U.S. fund it manages, acquired a NorCal Logistics Center in California for US$ 105 million. The property is located at: 4611 Newcastle Rd, Stockton, CA 95215.

Point Raises $122 Million

Point is a company that provides shared home equity financing. Point raised US$ 122 million in funding in an investment round led by Prudential Financial and DAG Ventures. Other investors in the round include Andreessen Horowitz, Ribbit Capital, Bloomberg Beta, Financial Venture Studio, and Enterprise Community Partners.

FBI Probes Boeing over 737 MAX

The Seattle Times reports the U.S. Federal Bureau of Investigation (FBI) is conducting a criminal probe into the Boeing 737 Max. Part of the probe includes whether Boeing staff had unduly influence and possible kickbacks to government officials at the Federal Aviation Administration (FAA).

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Cassa Depositi e Prestiti Guides Companies to Find Opportunities in Naples Region

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The Cassa Depositi e Prestiti Group (CDP) and its investee companies, which include Fincantieri, Italgas, Snam, and Terna, have reached an agreement with the Municipality of Naples and the Authority of the Central Tyrrhenian Sea Port System. The entities will cooperate to provide for the development of Naples and its surrounding area. There will be a focus on helping the institutions and the community at large through financial support, real estate, and infrastructure investment, and support for local businesses. Signatories can help to provide technical expertise and planning, loans, and oversee public projects. Further, assistance and consulting will be provided, particularly as they relate to interventions and renegotiation of contract terms for the purposes of freeing up capital. Sustainable mobility will be a priority, with natural gas and biomethane forming the core fuels of the future. The group will be developing the ports, which will include the construction of emission-reducing structures.

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PIVOT: Federal Reserve Signals Zero Rate Hikes in 2019

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The Federal Reserve made a decision to hold interest rates steady and indicated that no more hikes will be coming for 2019. Federal Reserve Chairman Jay Powell addressed the media saying that the Chinese and European economies have slowed ‘substantially’. Despite low U.S. employment, Powell explained to the media that the U.S. has the lowest labor force participation rate among developed nations.

There were four interest rate hikes in 2018.

The Federal Reserve committee intends to conclude the reduction of its aggregate securities holdings in the System Open Market Account (SOMA) at the end of September 2019. Essentially, the Federal Reserve is ending quantitative tightening in September 2019. Furthermore, the committee intends to slow the reduction of its holdings of Treasury securities by reducing the cap on monthly redemptions from the current level of US$ 30 billion to US$ 15 billion beginning in May 2019.

In a March 20, 2019 statement called “Balance Sheet Normalization Principles and Plans”, a portion of it reads, “The Committee intends to continue to allow its holdings of agency debt and agency mortgage-backed securities (MBS) to decline, consistent with the aim of holding primarily Treasury securities in the longer run.

Beginning in October 2019, principal payments received from agency debt and agency MBS will be reinvested in Treasury securities subject to a maximum amount of $20 billion per month; any principal payments in excess of that maximum will continue to be reinvested in agency MBS.

Principal payments from agency debt and agency MBS below the $20 billion maximum will initially be invested in Treasury securities across a range of maturities to roughly match the maturity composition of Treasury securities outstanding; the Committee will revisit this reinvestment plan in connection with its deliberations regarding the longer-run composition of the SOMA portfolio.

It continues to be the Committee’s view that limited sales of agency MBS might be warranted in the longer run to reduce or eliminate residual holdings. The timing and pace of any sales would be communicated to the public well in advance.”

source: Federal Reserve website

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