US announces more weapons for Ukraine
RT.com, Mar 20 2023

The US DoD announced on Monday that it will send Ukraine another $350m worth of military aid. The further supplies come as Ukraine reportedly gears up for a spring offensive, despite suffering heavy losses in Donbass. The package is the 34th tranche of military aid doled out to Ukraine by the US since Aug 2021. It includes ammunition for Kiev’s US-provided HIMARS rocket artillery systems, 155mm artillery rounds, high-speed anti-radiation missiles (HARMs), riverine patrol boats, and other anti-tank and mortar systems. Amid reports of dwindling stockpiles at home, the Pentagon no longer discloses how much of each ammunition type its arms packages include. These figures have been omitted from every such statement since the beginning of January, but a comparison of the supplemental fact sheets released with each package suggests that the US has sent Ukraine at least 500k 155mm shells since the beginning of March. These NATO-standard shells are in desperate demand, with Ukrainian Defense Minister Aleksey Reznikov claiming earlier this month that his forces need 594k per month to fire their Western-provided guns at full capacity. Aside from those provided by the US, Reznikov has asked the EU to provide 250k shells per month. At a meeting on Monday, however, 18 EU countries committed to providing just a million of these shells within a year, a figure that falls well short of Kiev’s demands. Media reports have warned for months that the effort to arm Ukraine has depleted military inventories in the US and Europe. With Kiev reportedly ignoring Western advice and refusing to surrender the encircled city of Artyomovsk (Bakhmut), US and EU officials are now concerned that its forces may lack the ammunition for a springtime offensive against Russia, the NYT reported last week. The US has given Ukraine more than $32.5b in military aid since last February, out of more than $110b allocated by the Biden administration for military and economic assistance to Kiev. Russia has repeatedly warned that such military outlays will not change the outcome of the conflict but make Western nations de facto participants in the hostilities.

Swiss bank rescue threatens Western bond market – Bloomberg
RT.com, Mar 21 2023

The merger between Switzerland’s two largest lenders, the embattled Credit Suisse and UBS, could have a negative impact on the entire Western bond market, Bloomberg reported on Monday, citing analysts. UBS agreed on Sunday to acquire its rival, which was on the brink of insolvency due to the loss of investor and customer confidence, for 3b Swiss francs ($3.24b) in stock. The deal, brokered by the Swiss authorities, came with a 9b franc government guarantee for potential losses from Credit Suisse assets and 100b francs in liquidity assistance from Switzerland’s central bank. However, as part of the deal, Swiss financial market regulator FINMA ordered Credit Suisse to write down to zero some 16b Swiss francs ($17.24b) of its Additional Tier 1 (AT1) bonds, with the aim of bolstering the bank’s capital and resolving its liquidity problems. AT1 bonds are a riskier form of bank debt, which were created in the wake of the global financial crisis of 2008, and represent a type of junior debt that allows banks to transfer risks to investors instead of taxpayers in cases of financial difficulties. Investors find them attractive as they pay higher interest due to the fact that they carry more risk than regular bonds. While bondholders will be left with nothing, Credit Suisse shareholders will receive $3.23b under the UBS deal, despite the fact that bonds traditionally stand above equities in the banking hierarchy. The situation has angered bondholders, Bloomberg reports, as they now fear the authorities in other countries may follow the Swiss government’s lead. Jerome Legras, the head of research at Axiom Alternative Investments, an investor in Credit Suisse’s AT1 debt, has said:

It’s stunning and hard to understand how they can reverse the hierarchy between AT1 holders and shareholders. Wiping out AT1 holders while paying substantial amounts to shareholders goes against all the resolution principles and rules that were agreed internationally after 2008.

Patrik Kauffmann, a fixed-income portfolio manager at Aquila Asset Management, who also holds the bonds, told Bloomberg:

This just makes no sense. Shareholders should get zero. It’s crystal clear that AT1s are senior to stocks.

Some analysts, however, argue that the write-off of the bonds is a logical step, as this is part of the reason they were created, as a way to impose losses on creditors instead of taxpayers in case of bank failures. Overall, experts predict that either the AT1 market will soon be closed for new issuance, or the bonds will surge in price because of the extra risk displayed by the Credit Suisse rescue merger.

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