Asia Stocks Poised to Open Higher on US Tailwinds: Markets WrapJPMorgan Says Crowded Stocks Sow Risk of ‘Out-of-the-Blue’ ShockB.
The UBS banker’s outburst, which got little pushback from those present, exposes the cracks emerging in a multitrillion-dollar transition finance project, and taps into what’s rapidly becoming one of the most contentious issues in the global banking industry.
Banks that had enthusiastically committed to align their entire operations with net zero goals are having second thoughts as the real-world ramifications of acting on those pledges become painfully apparent. Some of the world’s biggest lenders, including Deutsche Bank AG, HSBC Holdings Plc and Bank of America Corp., are adding caveats to their restrictions on financing coal, the planet’s most-polluting energy source.
“For banks with substantial capital markets businesses, like those competing with the JPMorgans of the world, it’s fee income that’s on the line here,” said James Vaccaro, Chief Catalyst at Climate Safe Lending Network, a group that helps the finance industry figure out how to cut its carbon footprint. “Ditching clients off track from 1.5C means losing major lines of revenue.”
The ECB noted that many banks depend largely on clients in energy-intensive sectors for revenue. It looked at six industries — power, automotive, oil and gas, steel, coal and cement. On average, these exposures amount to 15% of their highest-quality capital, although the ECB cited “significant variation among banks.” In other words, widespread losses on loans to high-carbon sectors would probably wipe out a large chunk of banks’ financial reserves.
Cirebon is one of hundreds of coal-fired plants that power homes and industry across Asia. Unlike in the US or Europe, many coal plants in Asia are still just a few years into an estimated lifespan of roughly four decades. They’re also locked into long-term power agreements and have investors who expect the returns they were promised when they allocated funds to the plants. So shutting them early comes at a significant financial cost.
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