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Daily briefing - 23 September 2019

The end of the world may have been prevented for a while with news coming in this morning that 130 major banks have reluctantly signed up to a non-binding resolution on de-carbonising their loan portfolios. The United Nations-backed scheme is aimed at preventing the end of the world via global warming. The principles will encourage banks to do things such as "set targets to increase 'positive impacts' and reduce 'negative impacts' on people and the environment. We believe that number crunchers at various banks are working hard to define 'positive impacts' in a way that falls within already-existing metrics. "The principles' main backers say the norms will encourage banks to pivot their loan portfolios away from carbon-intensive assets and redirect capital to greener industries," according to Reuters. "Critics argue that banks should go much further by explicitly committing to phasing out financing for fossil fuel projects and agribusiness that drive deforestation in the Amazon, Southeast Asia and other regions."

Meanwhile, many of the same banks were involved in a complicated tax avoidance scheme in Europe that would have previously made the news only to be drowned in the waves of engineered chaos lapping out of Downing Street. Martin Shields, one of the instigators of the scheme, told a court last week that the scheme was called tax optimisation. In Germany alone, it accounted for the avoidance of $60 billion in taxes that should have gone to local municipalities for schools and hospitals. "This was the environment at that time: a financial industry that - at least as far as I could see - was geared towards maximum profit optimisation," the 41-year-old told a packed courtroom on Wednesday. "One tool to achieve this goal was tax optimisation: avoiding taxation as far as possible - and taking advantage of any opportunities that could be found or created. This was not the clandestine approach of a few. Rather, I saw it as the clear and openly communicated expectation of most major banks and their customers." Shields, who trained as an engineer at Oxford in the 1990s, explained that the City of London was like a magnet for number crunchers and engineers. From his class of 120 engineering graduates, only five went into engineering. The rest headed for the City of London.

The FT today explores how India's HDFC avoided the pains now wracking other Indian banks, and it picks up on themes Lafferty Group has published since 2016, where HDFC Bank was first highly-rated by our bank quality benchmarking reports - and has continued to remain in the top rankings. The key to its success has been focus on the retail lending market and avoidance of the big prestige projects that banks often covet. "Key to HDFC's strategy has been its decision to do the 'boring' work, as Greenwich's Asia-Pacific banking head Gaurav Arora put it. The companies have prioritised retail loans and short-term lending, helping to shield them from the troubles that have hit other lenders who gave out large loans for long-term projects that went bad, a phenomenon which helped spark the country's bad-debt crisis."

As if to underline the point, Bloomberg is reporting today that tremors now running through the banking systems, which are popping up as repo rate spikes and the Fed pouring short term funds into money markets, are alarmingly similar to the last crisis. " Banks may be indirectly exposed to collateralized loan obligations if the hedge funds they have relationships with suffer losses on their holdings, the Bank for International Settlements said." What a fun week it's going to be in Basel.

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