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One bit of programming to start: school’s out for summer. Don’t miss our selection of summer books — from politics, economics and history to art, food and, of course, fiction. This newsletter will be back for the autumn term on September 4. Until then . . . happy holidays.

How bonds ate the entire financial system

Bonds have long been considered the most boring bit of finance. They occasionally crop up in literature, almost always as a signifier of dreariness, writes my colleague Robin Wigglesworth in this fascinating cover story for FT Weekend Magazine.

The Great Gatsby’s narrator Nick Carraway was a bond salesman and Sherman McCoy in Tom Wolfe’s The Bonfire of the Vanities traded them. Bonds have never figured in the popular imagination in the same way as stocks, say, or corporate M&A. There has never been a “meme bond”. Ian Fleming chose the name Bond for his spy because he thought it was “the dullest name I’ve ever heard”.

Even so, they have played an integral role in the development of human society, from subsistence farming to the modern era, funding everything from wars and railways to Tesla’s electric cars and Netflix. “The bond market is the most important market in the world,” says Ray Dalio, the founder of the world’s largest hedge fund, Bridgewater. “It is the backbone of all other markets.”

While the bond market has become larger and more powerful, the importance of banks — historically the workhorses of the capitalist system — is subtly fading. The global bond market was worth about $141tn at the end of 2022. That is, for now, smaller than the $183tn that the Financial Stability Board estimates that banks hold globally, but much of the latter is actually invested in bonds — a fact that some US banks have recently rued.

Three decades ago, James Carville, the American political adviser, quipped about wanting to be resurrected as the bond market because “you can intimidate everyone”. Since then, the market has grown fivefold. Tighter regulations on traditional lenders resulting from the accurate rash of bank failures in the US will force even more borrowers towards bonds.

The market is now facing one of its biggest tests in generations. Last year, resurgent inflation — the nemesis of financial securities that pay fixed interest rates — triggered the worst setback in at least a century. Overall losses were almost $10tn, shaking UK pension plans and regional banks in the US. And although bonds have regained their footing this year, they are still beset by rising interest rates.

Even if the bond market adapts, as it has in the past, its ballooning power, reach and complexity has some awkward implications for the global economy. “This transformation has been extraordinary and positive,” says Larry Fink, head of BlackRock, the world’s biggest investment group. “But we have a regulatory system designed for a time when banks were the dominant players. They aren’t any more.”

To properly understand the role of the bond market today, you have to go back almost a thousand years to 12th-century Italy. Read the full story here.

Top stock pickers hit by ‘tremendous’ amount of uninvested cash

Top active fund managers say they are struggling to attract money from large investors who are holding back in the face of volatile markets and cash accounts offering the best yields in years, writes Madison Darbyshire in New York.

Institutional investors such as pension funds, endowments and foundations control billions in capital and are responsible for the majority of allocations to the biggest asset managers. Cash sitting in US institutional money market accounts now totals almost $3.5tn, according to the Investment Company Institute, a sum that has climbed steadily this year even though stock markets are gathering strength.

“There’s a tremendous amount of money on the sidelines,” Rob Sharps, chief executive of the $1.4tn manager T Rowe Price, said in an interview. The US-based asset manager was battered over the past quarter by $20bn in net outflows and said it did not expect flows to turn positive again until 2025.

His comments come after the Federal Reserve has aggressively raised US interest rates to tame inflation, in turn boosting the appeal of cash accounts. Yields at the largest money market funds now average more than 5 per cent and are rising fast, according to Crane Data.

“You’re getting yields on money market funds that you haven’t had in 15 years,” Sharps said. “There are a lot of people who are calling for a meaningful slowdown or a recession in the economy, which creates bumpier conditions for credit and equities.”

We’re probably experiencing the worst of it right now,” he added. “Investors are waiting for the Fed to get out of the way.”

Institutional investors pulled more than $3bn in the latest quarter from active funds at AllianceBernstein, the $646bn manager. Seth Bernstein, chief executive, said “people are sitting out” after the Fed propped up short-term interest rates and may raise them further. “You’re being paid to wait,” he said.

Read the full story here.

Chart of the week

Investors are warming to the riskiest US corporate debt as optimism about the state of the world’s biggest economy narrows the gulf between the top and bottom rungs of the $1.35tn junk bond market, writes Harriet Clarfelt in New York.

The gap between the yield on double-B and triple-C bonds narrowed to its tightest level in 15 months at 6.53 percentage points in accurate days, before widening slightly to 6.74 percentage points at Friday’s close — underscoring investors’ growing confidence that the US can avoid a recession even though the Federal Reserve has raised interest rates 11 times since March last year.

Such hopes of a “soft landing” follow a flurry of positive data, with persistent evidence of easing inflation and better than expected second-quarter US growth figures.

Five unmissable stories this week

Investors are increasing their bets that Europe will sink into a painful economic downturn, in a growing contrast to the conviction in financial markets that the US is headed for a “soft landing”.

Carlyle Group’s profits fell in the past quarter as the buyout group failed to benefit from a rebound in markets and struggled to drum up interest in a new flagship fund, underlining the challenge facing new chief executive Harvey Schwartz. Meanwhile, Marc Rowan, chief executive of Apollo Global Management, warned that a lucrative age for private equity buyouts has ended. 

The US House of Representatives China committee has accused BlackRock and MSCI of profiting from investments that help the Chinese military and undermine American values and security. It said the groups’ decisions meant that American investors in their funds were “unwittingly funding” Chinese companies that develop weapons for the People’s Liberation Army.

Carl Icahn’s embattled investment conglomerate Icahn Enterprises has slashed its quarterly dividend by half in an attempt to conserve cash after a short seller criticised the payouts as unsustainable.

Shares in the world’s largest listed hedge fund manager Man Group tumbled on Tuesday as performance fees and profits collapsed. Chief financial officer Antoine Forterre said the group wanted to expand further in credit and was considering more acquisitions. 

And finally

To mark the 300th birthday of artist Joshua Reynolds, a free exhibition at Kenwood on the edge of Hampstead Heath showcases the chronicler of Georgian England. And don’t miss the FTWeekend Festival at Kenwood on September 2.

Future of Asset Management North America

Hosted by the Financial Times, in collaboration with Ignites and FundFire, Future of Asset Management North America is taking place on September 27-28 at etc.venues, 360 Madison Avenue, New York. It will bring together senior leaders from leading US asset managers, including Capital Group, BlackRock and Goldman Sachs and many more. For a limited time, save up to 20 per cent off on your in-person or digital pass. Register here

The layers of historical dysfunction in the financial management of Southwestern Baptist Theological Seminary continue to be peeled back as current trustees and administrators have pledged more transparency — as evidenced by the release of 21 years of audited financial statements, something no other Southern Baptist Convention entity has done.

Yet even that is not enough for some critics — internal and external — of the seminary who believe a forensic audit is needed.

Religion News Service reported Aug. 4 that one of the seminary trustees most critical of the financial situation — who recently was censured by the board — has resigned from the board and still is calling for a forensic audit.

At the same time, Baptist News Global has come into possession of a series of internal documents that show this tug-of-war between administration, trustees and outside financial advisers well predates the current crisis and has to do with the way SBC trustees are appointed.

Unlike most colleges and universities that elect board members with specific expertise in business or education or law to serve as trustees, in the SBC institutional trustee positions often are doled out as political favors to pastors and lay leaders regardless of their expertise. There are no minimal educational requirements, for example, for someone to serve as a seminary trustee.

Historical irony

Dorothy and Paige Patterson

For evidence of how that plays out, consider this twist of historical irony: The current chancellor of the seminary, O.S. Hawkins, while serving as president of the SBC’s GuideStone Financial Resources in 2009 fired the seminary’s Foundation board as a client. The reason: Those trustees were too difficult to work with and were uneducated about long-term investment strategies.

In a letter dated Feb. 20, 2009, Hawkins wrote to Southwestern Seminary President Paige Patterson: “GuideStone Capital Management has resigned from the investment advisory relationship with Southwestern Seminary’s Foundation as of Friday, February 6, 2009. … Simply put, the working relationship had become intolerable and in many respects insoluble in a go-forward manner.”

Hawkins continued: “From our perspective, some of the members of your committee increasingly acted in a hostile, unprofessional, condescending and disrespectful way toward our people. … From our perspective, your committee has become in some ways dysfunctional. They exhibit a lack of understanding related to GuideStone’s investment platform and the value of our manager of managers approach. In short, there is a huge philosophical difference related to investment management between the seminary Foundation board and GuideStone.”

“Our people have never been treated nor talked to in such an unprofessional manner as certain members of your board have spoken to members of our staff.”

Further: “The board has little experience in asset management or endowment fund management and thus in our opinion has disregarded conventional endowment fund management concepts. … Our people have never been treated nor talked to in such an unprofessional manner as certain members of your board have spoken to members of our staff. Sadly, the relationship has become unworkable.”

Amid a bear market

Southwestern’s Foundation board was forced to take its assets invested with GuideStone and move them to a new investment manager amid one of the worst bear markets in modern history.

The two-month period from Jan. 1 to Feb. 27, 2009, represented the worst start to a year in the history of the S&P 500 with a drop in value of 18.62%. By March 2, the Dow Jones Industrial Average Index had dropped more than 50% from its October 2007 peak — a drop compared to the Great Depression.

Within two weeks of Hawkins’ letter to Patterson, the Dow had a percentage decline exceeding the pace of the market’s fall during the Great Depression. However, by March 10 that year, a market rally began and over the next two months stocks grew more than 150%.

Clearly, this context was part of the contention between Southwestern’s board and GuideStone’s advisers.

Patterson wrote Hawkins in reply to lament: “As if it is not difficult enough to salvage a seminary for the Baptist cause in the midst of the taffy pull of Calvinists, Emergents and a host of others on Southern Baptist life, I have to see, at cross purposes, the entity that I have, as you know, vigorously supported from the day of your arrival at its headship and the entity that I now attempt to lead. But, of course, that is life, and it is also invariably the way the devil works.”

“First, I was forced to make decisions on the matters I know the least about.”

Patterson acknowledged he had to rely on the guidance of his board members.

“Apparently, you are a whole lot more conversant with matters of monetary investments and marketing than I could ever hope to be,” he wrote. “The scenario in which the seminary finds itself is undeniably, in my opinion, the worst one for this particular president. First, I was forced to make decisions on the matters I know the least about. I am fairly conversant with theology, preaching, curricula and otherwise to train a generation of preachers and missionaries. I know, however, virtually nothing about money and frankly despise it and all associated with it. In addition to that, the safety net of endowment that was supposed to protect a school like this in times of financial difficulty has, in fact, proven to be a Mount Everest-sized problem.”

Just two years earlier, in 2007, Southwestern had moved its investments from the Baptist Foundation of Texas — now known as HighGround Advisors — to GuideStone. HighGround has been among the most reputable and successful managers of church-related institutional funds in the nation. HighGround manages assets for a host of Baptist entities, including many universities. (HighGround also manages assets of the ABP Foundation, which helps to fund Baptist News Global.)

“I spent most of my clout in getting the money removed from the Baptist Foundation of Texas and getting a substantial percentage of it placed with GuideStone,” Patterson told Hawkins. “I think (trustees) believe the first move to have been a good one, but they do apparently have their concerns about the second, and I was unfortunately not capable of presenting a convincing case to the contrary. I still feel I must follow their advice because I do not have their expertise. The uncertainty of the whole financial debacle makes me believe more and more that nobody really has the answer to it. Unfortunately, at this point my eschatology becomes pretty focused and none of it surprises me.”

According to Southwestern’s audited financial statements, the seminary lost more than $18 million (20%) in endowment value in 2009, compared to 2008.

Where did the cash come from?

One question that has not been answered by Southwestern’s current leadership is how the Fort Worth, Texas, school floated the $140.1 million cumulative operating deficit it recorded from 2002 to 2022.

Where did the cash come from to fund year after year of deficit spending?

Often, nonprofits — sometimes to their peril — borrow from their own assets to fund current operations. Those assets may include (legally) unrestricted investments and (illegally) designated gifts held as investments.

Additional documentation provided to BNG shows this very question was of paramount importance to the seminary in 2018, when trustees hired an outside firm to review whether any violations had occurred in spending designated funds for purposes other than those designated. That review found that, despite alarms raised by an internal audit committee, the only problem was institutional advancement staff recording descriptions of desired uses of gifts that were not technically designations for those gifts.

Aaron Sligar

With this and more as background, a West Virginia pastor who was elected by the SBC to serve on Southwestern’s board became alarmed about a history of financial practices that continued from Patterson’s tenure into the administration of his successor, Adam Greenway. Greenway was forced out of the presidency last fall, and trustees have released scathing reports of his use of funds.

That now-retired pastor, Aaron Sligar, gave an interview to Bob Smietana of RNS last week.

Aaron Sligar

After being censured and targeted for investigation by the rest of the board this spring, Sligar resigned as a trustee in June, RNS reported.

That story says: “Sligar … said that Greenway deserves some blame, but not all of it. A former investigator for the Federal Bureau of Prisons, the pastor said that in allowing Greenway to resign the trustees shirked their own accountability. If Greenway was solely to blame, he asked, ‘Why didn’t we fire him?’ As he learned more about the school’s finances, Sligar asked for a forensic audit, a common practice during his time at the federal prison bureau. ‘It’s hard to reset and go forward financially if you don’t know where the money has been spent,’ he said.”

Sligar told RNS he got “volumes” of receipts for Greenway’s spending but was cut off when he asked about spending of other seminary leaders. “To be honest, they gave me what they wanted me to have.”

Trustee officers have portrayed Sligar as a lone ranger who inserted himself into the investigation and caused alarm among the board without justification.

Whether that’s true or not, the seminary’s financial management and declining enrollment are currently the subject of a review by the Southern Association of Colleges and Schools Commission on Colleges, which has said Southwestern has not complied with the accrediting agency’s rule for board governance.

Related articles:

Southwestern trustees release 20 years of financials that show devastating decline began under Patterson

Confirmed: Greenway out at Southwestern Seminary

Behind the numbers: How Southwestern Seminary’s enrollment came to be the lowest it has been since World War II | Analysis by Mark Wingfield

What happened at Southwestern and why does it matter? | Analysis by Mark Wingfield

Why we must be cautious about understanding what’s going on at Southwestern Seminary | Opinion by Mark Wingfield

Here’s how to force SBC entities to be accountable to people in the pew about their finances

Eight months later, there still aren’t many public details on the financial and enrollment problems that led to Greenway’s departure from Southwestern | Analysis by Mark Wingfield

The saga of Southwestern Seminary and the Pattersons just got stranger, and it’s all in the SBC Book of Reports

We have just experienced the worst financial crash the world has seen since the Great Depression of the 1930s. While real economies in general did not crash as they did in the 1930s, the financial parts of the economy certainly did, or, at least, came very close to doing so. Hundreds of banks in the United States and Europe have been closed by their supervisory authorities, forcibly merged with stronger partners, nationalized or recapitalized with the tax payers' money. Banks and insurance companies had, by mid 2010, already written off some 2000 billion dollars in credit write-downs on loans and securities. In this book, Johan Lybeck draws on his experience as both an academic economist and a professional banker to present a detailed yet non-technical analysis of the crash. He describes how the crisis began in early 2007, explains why it happened and shows how it compares to earlier financial crises.

'A detailed and careful account of what happened and why in the global financial crisis. Full of facts and astute observations, this is an invaluable reference for anyone seeking to avoid a repeat of that awful experience.' Simon Johnson, MIT Sloan School of Management, and co-author of 13 Bankers (2010)

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Organization: Family Wealth Management
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Coverage of this Article

1.G20 Introduction
G20 formed in 1999 for global economic collaboration. 19 countries + EU, 85% global GDP, addresses stability, climate, health.

2. Origins and Goals
Formed due to 1990s financial crises. Started finance-focused, expanded after 2008 crisis.

3. G20 Objectives
Stable growth, policy coordination, financial rules, global governance.

4. Significance
Diverse economies, effective problem-solving, premier cooperation.

5. G20 History Overview
Formed due to late 1990s crises. Started informally, transitioned to summit meetings.

6. Global Financial Crisis
Crisis boosted G20's role.
Leaders' Summit started in response.Focus on reforms, financial rules.

7. Economic and Financial Reforms
G20 shaped international policies. Basel III Framework for stable banking.

Introduction 

Governments and governors of central banks from 19 nations and the European Union meet in the Group of Twenty, or G20, popularly abbreviated. In reaction to the financial crises of the late 1990s, it was founded in 1999 to bring together the main advanced and emerging nations to discuss and collaborate on matters relating to global economic stability and growth. In addition to two-thirds of the world's population, the G20 accounts for around 85% of the global GDP. Including the European Union (EU), the G20 consists of 19 distinct nations. Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United States of America, and the United Kingdom are among the individual nations. Together, these member nations represent a varied mixture of developed economies and growing markets from different parts of the world.

The G20 coordinated efforts to fight tax evasion and advance climate action and served as a platform for international collaboration in the field of health during times of crisis. It generated collaborations and conversations that resulted in genuine results since it was able to bring together leaders from various backgrounds. The G20's transition from a meeting with a financial focus to one that serves as a forum for discussing a wide range of international issues is generally seen as what defines the organisation's economic and political history. Due to its ability to bring together a diverse range of economies, it has been able to profoundly impact political and economic agendas on a worldwide basis.

Origins and Establishment

The G20 initially concentrated on economic and financial matters, but after the 2008–2009 global financial crisis, it began to play a far larger role. The G20 leaders started hosting yearly meetings at the level of heads of state and government as the crisis deepened and challenged the sustainability of the global financial system. These summits gave world leaders a forum for cooperation in addressing the crisis, putting in place stimulus measures, and organising initiatives to change the global financial system.

Objectives

The primary objectives of the G20 include: -

• Global Economic Stability, Growth, and Development: The G20 aims to Strengthen coordination and collaboration among the major economies of the globe. 
• Policy Coordination: Member countries use the G20 as a platform to coordinate their actions on a variety of economic issues, such as financial crises, trade disputes, and exchange rate fluctuations. 
• Financial Regulation and Reform: The G20 has played a critical role in promoting and implementing regulatory measures that will strengthen the global financial system. These modifications are meant to increase the resilience of financial institutions and stop forthcoming financial disasters.
• Global Governance: The G20 offers a forum for major economies to examine and reshape the global governance landscape.

Significance

The G20 is significant because it brings together a wide range of economies that together make up a significant portion of the global population and output. A more representative and effective way to address global issues is made possible by this openness. The G20 high-level conferences offer direct communication between world leaders, facilitating swift policy solutions to urgent issues. The G20 has evolved from its inception as a response to financial crises to become a premier worldwide forum for economic and political cooperation. It is an important venue for addressing the complex concerns of the interconnected global economy due to its diversified makeup and comprehensive agenda.

Overview of the economic and political history of the G20

Formation and Early Years (1999-2008):

To address the financial crises of the late 1990s, particularly the Asian financial crisis of 1997–1998 and their aftermath, the G20 was first formed in 1999. Its original goal was to offer a forum for the heads of the central banks and finance ministries of the main nations to communicate and cooperate on matters about global financial stability. The necessity to address the issues brought on by the financial crises of the late 1990s—with a particular emphasis on the Asian financial crisis of 1997–1998—had an impact on the founding and early years of the G20. 

Background and Need for Cooperation: 

A variety of currency devaluations, stock market meltdowns, and economic downturns occurred in several Asian countries, including Thailand, Indonesia, South Korea, and Malaysia, as a result of the Asian financial crisis, which began in 1997. The global financial system's weaknesses were made apparent by the crisis, which also showed the potential for financial instability to spread quickly across national boundaries. It became clear that the current structure of international finance was insufficient to foresee and manage such crises.

Formation of the G20: 

As a result, the idea of creating a new forum that would include emerging countries in addition to advanced economies attracted more interest. The G20 was formally created in 1999. In contrast to the Group of Seven (G7), which mostly included the major developed economies of the globe, the G20 brought together a greater variety of developed and developing nations. The objective was to create a forum that would be more receptive to all viewpoints while debating issues about the global economy. The G20 was established to give central bank governors and finance ministers of significant economies a forum for discussion and coordination on issues relevant to global financial stability. It aimed to promote conversation, information exchange, and policy coordination among its members to better foresee and handle financial crises. 

Informal Nature and Collaborative Spirit: 

The G20 initially operated more casually and adaptively than more established international organisations like the International Monetary Fund (IMF) or the World Bank. Member countries were able to collaborate and have open talks due to the laid-back atmosphere. Representatives had the opportunity to convey their opinions and lessons learned during the Asian financial crisis at the G20 conferences. The G20 initially focused on financial and economic issues, but it quickly expanded its agenda to include more urgent courses that were significant to the entire world. The G20 recognised the interdependence of social, environmental, and geopolitical factors and economic stability. The G20's decision to broaden its agenda made it possible for it to discuss concerns other than financial crises, such as climate change, development, and trade. 

Transition to Summits:

The G20 changed from being a forum for finance ministers and central bank governors to hosting annual meetings at the level of heads of state and government as it gained relevance and influence. This development occurred because high-level collaboration was required to stabilise the global economy amid the 2008–2009 global financial crisis. In conclusion, the financial crises of the late 1990s, notably the Asian financial crisis, were a major factor in the formation of the G20 in 1999. With its establishment, a shift towards a more accepting and team-based approach to resolving economic issues worldwide was established. The G20's informality, emphasis on financial stability, and development into a forum for high-level conversations and coordination among the member countries were all characteristics of the group's early years.

Global Financial Crisis (2008-2009):

The global financial crisis of 2008–2009 significantly increased the G20's visibility. The G20 leaders started hosting yearly summits at the level of heads of state and government as the crisis worsened and jeopardised the stability of the global financial system. In response to the crisis, the G20 Leaders' Summit was held for the first time in 2008, and succeeding conferences were vital in coordinating worldwide efforts to reform international financial institutions, stabilise the financial system, and spur economic growth. One of the worst financial and economic crises to ever affect the world was the one that occurred between 2008 and 2009. It started as a result of the collapse of the U.S. subprime mortgage market and swiftly expanded to become a global credit crunch, which resulted in the failure or verge of failure of major financial institutions and a severe recession in many economies.

The first-ever summit of chiefs of state and government of the G20 countries was held on November 15–16, 2008, in Washington, D.C., in response to the crisis' rising intensity. The summit aimed to Strengthen global coordination and collaboration in crisis management. The decision-makers understood that a coordinated effort was required to calm down the financial system, boost economic activity, and avert a worsening of the world economic crisis.

Economic and Financial Reforms:

The G20 continued to be a key player in shaping international economic policies after the global financial crisis. Among the subjects on which G20 leaders focused were the International Monetary Fund (IMF), financial regulation, and proposals to reorganise international financial organisations. One of the fundamental lessons from the global financial crisis is the need for stronger and more effective financial regulations to prevent excessive risk-taking, maintain transparency, and enhance the stability of the financial system. The G20 leaders realised how important it was to make regulatory measures to avert another tragedy. A few of the measures were:

The Basel III Framework: The framework imposed higher capital and liquidity requirements for banks, was supported by the G20. These actions attempted to make banks better able to withstand financial shocks and lessen the possibility of a systemic disaster.

Derivatives Regulation: The G20 backed initiatives to Strengthen governance and transparency in the derivatives market, which had a substantial impact on the financial crisis. Enhancing the standardisation and clearing of derivatives contracts was the emphasis of the reforms. 

Strengthened Supervision: G20 participants stressed the significance of efficient supervision of financial institutions to identify and resolve emerging risks before they materialise into crises. This included making national regulatory authorities' coordination amongst one another better.

Fiscal Stimulus and Economic Recovery:

G20 leaders realised the need for concerted fiscal stimulus measures in the immediate wake of the crisis to fend off the catastrophic economic collapse. These actions attempted to increase overall demand and support economic recovery. Even if the specifics of the stimulus packages varied per country, the G20's united commitment to stimulus helped prevent a more severe global slump. The G20's agenda has evolved throughout time to cover a variety of global topics, including trade, development, geopolitical tensions, and climate change, in addition to financial and economic concerns. It was possible to address global challenges more inclusively and thoroughly because of the G20's ability to bring together leaders from both developed and emerging economies.

The G20 was able to reflect a diverse range of viewpoints and interests because of its open membership, which increased its effectiveness in tackling difficult global issues. The G20 promoted a feeling of shared accountability for global stability and growth by bringing together both established economic powers and rising economies. The development of consensus and cooperative efforts—both of which are necessary for efficient global governance—were facilitated by this inclusive approach. 

Political History of G20

The beginnings and development of the G20's economy are strongly related to its political history. As a global meeting for central bankers and finance ministers to debate economic and financial concerns, the G20 was initially founded. However, it has evolved through time to serve as a forum for more in-depth discussions, including those on political courses that have a significant impact on the global economy. The G20 was established in 1999 as a reaction to the financial crisis of the late 1990s. The key area of worry was the stability of the economy and finances. The primary subjects of discussion at the forum's initial gatherings included financial regulations, currency exchange rates, and international financial organisations. 

The worldwide financial crisis of 2008–2009 helped the G20 become more well-known. The crisis served as a reminder that global economic difficulties require coordinated answers. For a coordinated response to the crisis, the inaugural G20 Leaders' Summit was organised in November 2008. It was at this point that the G20 began to evolve into a venue for important political discourse. G20 leaders kept holding meetings following the crisis to talk about ways to stabilise the world economy. But as it became clear that geopolitical and social considerations are entwined with economic stability on a global scale, the agenda started to stray from traditional economic concerns and include broader political ones.

Geopolitical Tensions: 

Since it brought together leaders from large economies with a diversity of geopolitical interests, the G20 became a forum for addressing and trying to resolve geopolitical tensions. Conflicts, regional security, and international relations were all on the G20 agenda. One significant growth of the agenda was the G20's interest in environmental issues, particularly climate change. As world leaders have come to recognise the economic importance of environmental challenges, sustainable development, the shift to a clean energy future, and environmental protection have all been hot subjects of discussion at G20 meetings.

Humanitarian Crises: 

Humanitarian crises, such as those brought on by calamities and disease pandemics, were also discussed at the G20. The G20's function in organising international aid and exchanging best practises was highlighted by the global response to incidents like the 2011 earthquake and tsunami in Japan and the COVID-19 pandemic. The G20 has also tackled issues about social welfare, poverty alleviation, inequality, and development. The connection between economic development and social advancement is highlighted by this.

Trade and Economic Governance: 

The G20 agenda frequently includes issues relating to trade tensions and conflicts between major economies. Given the importance of trade to the world economy, the G20 debates have aimed to advance free markets, lessen protectionism, and rectify trade imbalances. Bilateral encounters between leaders are frequently possible at G20 summits in addition to the official summit sessions. Through these contacts, leaders can Strengthen diplomatic ties and solve urgent political issues. The political history of the G20 has developed alongside its economic emphasis, to sum up. The G20 has expanded the scope of its agenda since it was established as a response to financial crises to cover discussions on a range of political issues that affect the global economy. The event has developed into an important venue for addressing both economic difficulties and more general global challenges because of its ability to bring together leaders from different geopolitical backgrounds.

Achievements of G20:

Financial Regulatory Measures: In reaction to the world financial crisis, the G20 was instrumental in promoting and putting into effect regulatory measures aimed at bolstering the international financial system. The Basel III framework and other measures contributed to the improvement of risk management procedures and bank resilience. 

Money Laundering and Tax Evasion: The G20 has collaborated on projects like the Common Reporting Standard (CRS) to tackle money laundering and tax evasion. To combat tax avoidance, member nations communicate bank account information automatically. 

Sustainable Development and Climate Change: The G20's emphasis on these issues has sparked talks and agreements to solve environmental issues. Despite uneven progress, the G20 has given world leaders a forum to discuss climate change and promote the switch to cleaner energy sources. 

Global Health Cooperation: The COVID-19 epidemic brought attention to the significance of such cooperation. The G20 participated in discussions on fair vaccination distribution, exchanging top tips for responding to pandemics, and tackling the socioeconomic effects of the crisis. 

Trade facilitation: The G20 has aided in talks about trade regulations and obstacles. While obstacles still exist, the G20's efforts to promote free markets and reduce protectionism have made the world trading environment more transparent and linked. 

Reforms to the International Monetary Fund (IMF): The G20 campaigned for changes to international financial institutions, such as IMF quota and governance reforms, to ensure more fair representation and take into account the shifting nature of the world economy.

Conclusion

The economic and political development of the G20 is evidence of the growth of a group that rose from the ashes of financial crises to play a key role in determining the direction of global economic policy and tackling complex problems. The G20's history, which began with its formation in 1999 in reaction to the Asian financial crisis, has been characterised by transformational stages that reflect the shifting nature of global politics, economics, and geopolitical forces. Focusing on financial and economic stability during the G20's early years gave it its name. The forum initially had the goal of bringing together central bankers and finance ministers from major nations to prevent and manage financial crises. But the 2008–2009 global financial crisis was when its true potential was realised. The G20 being elevated to a venue for high-level leaders' summits at a time when the globe was experiencing an unprecedented economic crisis was a watershed. A commitment to strengthen international financial institutions as well as coordinated fiscal stimulus policies, thorough financial regulation changes, and other prompt responses were all made necessary. 

The significance of the G20, however, went beyond these quick reactions. As time went on, it changed into a venue for discussion of a broad range of issues, recognising the complex interactions between politics, economics, and global issues. The G20 was able to address a variety of topics, from climate change and sustainable development to trade tensions and geopolitical conflicts, thanks to its distinctive makeup of large industrialised nations and emerging markets. The economic and political history of the G20 is one of evolution, adaptability, and collaboration, to sum up. From its beginnings as a reaction to financial crises, the G20 evolved into a forum that addressed a variety of global concerns, encouraging discussion, agreement, and teamwork. Its voyage highlights the critical importance of international collaboration by illuminating how powerful economies can overcome their differences and collaborate to create a more stable, inclusive, and sustainable global economic system. The G20's legacy as it continues to adapt resides in its ability to manage complexity, spur innovation, and create a brighter future for a connected world.
 

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Introduction

The very accurate report that came out from UMB Financial Corporation (NASDAQ:UMBF) showed EPS come along the expectations for the quarter, at $1.93 per share. The company has had its share price plummet over the last months as the regional bank's meltdown earlier had a severe impact on the sector. The question about banks' genuine liquidity levels and security arose, but I think UMBF is among the better options right now. The valuation is below the sector and the dividend yield is decent too.

The loans saw a decent rise in the last quarter and this led to UMBF now having gross loans of $22.5 billion. This has netted them an ROE of 12.56%. For the investor that wants a dividend addition that has a fantastic track record of growing it and isn't overleveraged with an outrageously high payout ratio then right now, UMBF is looking very solid. This concludes my rating it a buy right now.

Company Structure

UMB Financial has been in the sector ever since 1913 which is its founding year. The headquarters lie in Kansas City and has built up a national presence in the United States. Building on what they have made UMBF has turned into a very solid dividend income company that is steadily growing it and not risking overleveraging. For 21 consecutive years, the dividend has been raised.

As for the industry the company is in, we can box it in with regional banks, an industry that saw a lot of turmoil earlier on in the year. They were two notable banks that went under and this caused a chain reaction in the industry that dragged down the share price of many, UMBF included.

Within UMBF there are three various segments, these are as following: Commercial Banking, Institutional Banking, and lastly Personal Banking. The first segment of the business focuses mostly on providing clients and customers with commercial loans, credit cards, and real estate financing. Moving to the second segment, Institutional Banking offers asset management and various healthcare services too. But the company has also diversified, and this segment now also includes alternative investment services and underwriting. Lastly, the Personal Banking segment generates its revenues from deposit accounts and retail credit cards but also from private banking.

Seeing as interest rates have been rising since the FED recognized the dangers of inflation and that it is no longer transitionary but rather sticky. There is a quite high likelihood of us having to endure a higher interest rate environment. This wouldn't be the worst possible thing as being invested in UMBF during this period will likely yield decent returns. In a market such as this UMBF thrives and the ROE sits at the highest level in the past 5 years, at 12.56%.

Earnings Transcript

The earnings from UMBF came out very recently and the Q2 report showed strong results as the average loans increased by 17.3% on a linked-quarter, annualized basis. This is showcasing strength and momentum in a still uncertain and difficult market. Deposit balances also increased to $33.5 billion and helped result in a stronger ROE for the quarter.

But, from the earnings call, there were some very worthwhile comments from the management team that helped shed some light on the results and how their operations have been going. The CEO Mariner Kemper said the following.

As noted in our last call, the deposit pricing pressures the industry is experiencing is not dissimilar to the price of commodity or raw materials for other industries. As other industries would, we are reacting to our cost of raw materials by pricing our products for this environment. As we have noted, 62% of our existing loans also reprice with movements in rates.

This comment highlights some of the likely volatility that UMBF could see in earnings. Not every quarter perhaps, but on a yearly depending on how the interest rates set by the FED are developing. This makes it important for UMBF to manage its portfolios efficiently to maintain strong ROE.

If you look at our 20-year history, ending with the full year of 2022 our annual losses have averaged just 29 basis points and our 10-year average was 26 basis points. What makes it even more impressive is that over these periods, we have enhanced our reach and footprint through market and vertical expansion and are generally a more complex organization. We've achieved this through our focus on risk management and with a consistent approach that comes from having the same team. Our allowance to loan coverage ratio further increased 2 basis points sequentially to 99 basis points of total loans a level we believe to be prudent.

This comment here is highlighting the fact that UMBF has been able to operate at very solid levels in the difficult market environment. In a palace with higher rates, I think UMBF is ripe to report solid QoQ growth numbers going forward.

Valuation & Comparison

As for my GGM model for UMBF, it comes out that to receive a required rate of return of 10% one would need to buy at $38 or under right now, a number that is far too low ever be reached I think. Looking as to why UMBF is still spelling I think we need to highlight the dividend a bit more.

Dividends being raised for 21 consecutive years paints the picture here that shareholders are valued by the management and future raises to it are likely to happen. This paired with the fact UMBF is trading below its historical p/e by nearly 30% and the loans and deposit portfolio is growing nicely makes for a decent buy case here.

Investor Takeaway

Consistency and reliability are key components when finding a long-term addition to a portfolio. Right now I think UMBF is ticking those boxes. The company has a fantastic history of raising its dividend. Besides that, the market position of the company is broad and in the face of rising interests still, there is a strong likelihood of growing earnings I think. The fact UMBF is also trading below historical averages helps a buy case even more. What investors need to watch out for is the ROE as a direct reflection of the future potential dividend raises. But with 12.56% in Q2 of 2023, UMBF presents itself as very good right now. Concluding this article, I am rating UMBF a buy.

BEIJING, Aug. 22, 2023 (GLOBE NEWSWIRE) -- iQIYI, Inc. (Nasdaq: IQ) ("iQIYI" or the "Company"), a leading provider of online entertainment video services in China, today announced its unaudited financial results for the second quarter ended June 30, 2023.         

Second Quarter 2023 Highlights

• Total revenues were RMB7.8 billion (US$1.1 billion¹), increasing 17% year over year.
• Operating income was RMB610.4 million (US$84.2 million) and operating income margin was 8%, compared to operating income of RMB125.8 million and operating income margin of 2% in the same period in 2022.
• Non-GAAP operating income² was RMB786.4 million (US$108.4 million) and non-GAAP operating income margin was 10%, compared to non-GAAP operating income of RMB343.8 million and non-GAAP operating income margin of 5% in the same period in 2022.
• Net income attributable to iQIYI was RMB365.2 million (US$50.4 million), compared to net loss attributable to iQIYI of RMB214.0 million in the same period in 2022.
• Non-GAAP net income attributable to iQIYI² was RMB594.7 million (US$82.0 million), compared to non-GAAP net income attributable to iQIYI of RMB78.3 million in the same period in 2022.
  

“Our original content strategy continued to deliver top-notch titles, which in turn brought the strongest second-quarter performance in our history in terms of key metrics, such as total revenues, profits, free cash flow, and average daily subscribers," commented Mr. Yu Gong, Founder, Director, and Chief Executive Officer of iQIYI. "On top of these exceptional results, we are investing in transformative technologies, including generative AI, to prepare us for future growth.”

“Our second quarter total revenues grew by 17% year over year, while GAAP and Non-GAAP operating income grew by 385% and 129%, respectively. In addition, our operating cash flow and free cash flow reached RMB886 million and RMB872 million, respectively, each maintaining positive for five and four consecutive quarters. Our total interest-bearing debt decreased significantly quarter over quarter.” commented Mr. Jun Wang, Chief Financial Officer of iQIYI. “We are making solid progress in delivering high-quality growth.”

Second Quarter 2023 Financial Highlights

Second Quarter 2023 Other Operating Highlights

• The average daily number of total subscribing members³ for the quarter was 111.2 million, compared to 98.3 million for the same period in 2022 and 128.9 million for the first quarter in 2023. The average daily number of subscribing members excluding individuals with trial memberships⁴ for the quarter was 110.7 million, compared to 97.7 million for the same period in 2022 and 128.1 million for the first quarter in 2023.
• The monthly average revenue per membership (ARM⁵) for the second quarter was RMB14.82, compared to RMB14.53 for the same period in 2022 and RMB14.35 for the first quarter in 2023, increasing 2% year over year.

Footnotes:
[1] Unless otherwise noted, RMB to USD was converted at an exchange rate of RMB7.2513 as of June 30, 2023, as set forth in the H.10 statistical release of the Board of Governors of the Federal Reserve System. Translations are provided solely for the convenience of the reader.
[²] Non-GAAP measures are defined in the Non-GAAP Financial Measures section (see also “Reconciliations of Non-GAAP Financial Measures to the Nearest Comparable GAAP Measures” for more details).
[³] The average daily number of total subscribing members for a quarter is calculated by averaging the number of total subscribing members in each day of such quarter.
[⁴] The average daily number of subscribing members excluding individuals with trial memberships for the quarter is calculated by averaging the number of subscribing members excluding individuals with trial memberships in each day of such quarter.
[⁵] The monthly ARM for the quarter is calculated by dividing our total revenues from membership services during a given quarter by the average daily number of total subscribing members for that quarter and the number of months in the quarter.

Second Quarter 2023 Financial Results

Total revenues reached RMB7.8 billion (US$1.1 billion), increasing 17% year over year.

Membership services revenue was RMB4.9 billion (US$682.2 million), increasing 15% year over year, primarily attributable to the increase in the number of total subscribing members and our continuous efforts in refining operations to Strengthen monetization capabilities. The average daily number of total subscribing members increased from 98.3 million for the second quarter in 2022 to 111.2 million for the second quarter in 2023. The number of total subscribing members reached 109.5 million as of June 30, 2023, compared to 95.6 million as of June 30, 2022.

Online advertising services revenue was RMB1.5 billion (US$206.2 million), increasing 25% year over year. The increase was primarily driven by the growth of performance-based advertising business and, to a lesser extent, the growth in the brand advertising business.

Content distribution revenue was RMB553.3 million (US$76.3 million), increasing 15% year over year, primarily driven by the increase in average unit price of barter transactions.

Other revenues were RMB807.0 million (US$111.3 million), increasing 16% year over year, primarily driven by the revenue derived from third-party cooperation, partially offset by the deconsolidation of live broadcasting business.

Cost of revenues was RMB5.8 billion (US$796.3 million), increasing 10% year over year, primarily driven by higher content costs. Content costs as a component of cost of revenues were RMB4.1 billion (US$571.2 million), increasing 7% year over year. The increase in content cost was primarily driven by higher number of original dramas and variety shows launched during the quarter.

Selling, general and administrative expenses were RMB979.0 million (US$135.0 million), increasing 22% year over year, primarily due to higher marketing spending.

Research and development expenses were RMB439.0 million (US$60.5 million), decreasing 9% year over year, primarily due to the decrease in personnel-related compensation expenses.

Operating income was RMB610.4 million (US$84.2 million), compared to operating income of RMB125.8 million in the same period in 2022. Operating income margin was 8%, compared to operating income margin of 2% in the same period in 2022. Non-GAAP operating income was RMB786.4 million (US$108.4 million) and non-GAAP operating income margin was 10%, compared to non-GAAP operating income of RMB343.8 million and non-GAAP operating income margin of 5% in the same period in 2022.

Total other expense was RMB234.6 million (US$32.4 million), compared to total other expense of RMB291.0 million during the same period of 2022. The year over year variance was primarily due to increased interest expenses and the foreign exchange loss due to the fluctuation of exchange rate between Renminbi and the U.S. dollar, partially offset by higher interest income and less loss from equity method investment.

Income before income taxes was RMB375.8 million (US$51.8 million), compared to loss before income taxes of RMB165.2 million in the same period in 2022.

Income tax expense was RMB7.9 million (US$1.1 million), compared to income tax expense of RMB36.2 million in the same period in 2022.

Net income attributable to iQIYI was RMB365.2 million (US$50.4 million), compared to net loss attributable to iQIYI of RMB214.0 million in the same period in 2022. Diluted net income attributable to iQIYI per ADS was RMB0.37 (US$0.05) for the second quarter of 2023, compared to diluted net loss attributable to iQIYI per ADS of RMB0.28 in the same period of 2022. Non-GAAP net income attributable to iQIYI was RMB594.7 million (US$82.0 million), compared to non-GAAP net income attributable to iQIYI of RMB78.3 million in the same period in 2022. Non-GAAP diluted net income attributable to iQIYI per ADS was RMB0.61 (US$0.08), compared to non-GAAP diluted net income attributable to iQIYI per ADS of RMB0.10 in the same period of 2022.

As of June 30, 2023, the Company had cash, cash equivalents, restricted cash, short-term investments and long-term restricted cash included in prepayments and other assets of RMB6.1 billion (US$840.8 million). In the second quarter of 2023, the Company had repurchased a total principal amount of US$133.6 million of its 4% convertible senior notes due 2026 for cash.

Conference Call Information

iQIYI's management will hold an earnings conference call at 7:00 AM on August 22, 2023, U.S. Eastern Time (7:00 PM on August 22, 2023, Beijing Time).

Please register in advance of the conference using the link provided below. Upon registering, you will be provided with participant dial-in numbers, passcode and unique access PIN by a calendar invite.

Participant Online Registration: https://s1.c-conf.com/diamondpass/10032705-gh86y7.html

It will automatically direct you to the registration page of " iQIYI Second Quarter 2023 Earnings Conference Call", where you may fill in your details for RSVP.

In the 10 minutes prior to the call start time, you may use the conference access information (including dial-in number(s), passcode and unique access PIN) provided in the calendar invite that you have received following your pre-registration.

A telephone replay of the call will be available after the conclusion of the conference call through August 29, 2023.

Dial-in numbers for the replay are as follows:

A live and archived webcast of the conference call will be available at https://ir.iqiyi.com/.

About iQIYI, Inc.

iQIYI, Inc. is a leading provider of online entertainment video services in China. It combines creative talent with technology to foster an environment for continuous innovation and the production of blockbuster content. It produces, aggregates and distributes a wide variety of professionally produced content, as well as a broad spectrum of other video content in a variety of formats. The Company distinguishes itself in the online entertainment industry by its leading technology platform powered by advanced AI, big data analytics and other core proprietary technologies. iQIYI attracts a daily subscriber base of more than 100 million, and its diversified monetization model includes membership services, online advertising services, content distribution, online games, IP licensing, talent agency, online literature, etc.

Safe Harbor Statement

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," "confident" and similar statements. Among other things, the quotations from management in this announcement, as well as iQIYI's strategic and operational plans, contain forward-looking statements. iQIYI may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission, in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including but not limited to statements about iQIYI's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause genuine results to differ materially from those contained in any forward-looking statement, including but not limited to the following: iQIYI's strategies; iQIYI's future business development, financial condition and results of operations; iQIYI's ability to retain and increase the number of users, members and advertising customers, and expand its service offerings; competition in the online entertainment industry; changes in iQIYI's revenues, costs or expenditures; Chinese governmental policies and regulations relating to the online entertainment industry, general economic and business conditions globally and in China and assumptions underlying or related to any of the foregoing. Further information regarding these and other risks is included in the Company’s filings with the Securities and Exchange Commission. All information provided in this press release and in the attachments is as of the date of the press release, and iQIYI undertakes no duty to update such information, except as required under applicable law.

Non-GAAP Financial Measures

To supplement iQIYI’s consolidated financial results presented in accordance with GAAP, iQIYI uses the following non-GAAP financial measures: non-GAAP operating income, non-GAAP operating income margin, non-GAAP net income attributable to iQIYI, non-GAAP diluted net income attributable to iQIYI per ADS and free cash flow. The presentation of the non-GAAP financial measure is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.

iQIYI believes that these non-GAAP financial measures provide meaningful supplemental information regarding its operating performance by excluding certain items that may not be indicative of its business operating results, such as operating performance excluding non-cash charges or non-operating in nature. The Company believes that both management and investors benefit from referring to the non-GAAP financial measures in assessing its performance and when planning and forecasting future periods. These non-GAAP financial measures also facilitate management’s internal comparisons to iQIYI’s historical operating performance. The Company believes the non-GAAP financial measures are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. A limitation of using these non-GAAP financial measures is that the non-GAAP measures exclude certain items that have been and will continue to be for the foreseeable future a significant component in the Company’s results of operations. These non-GAAP financial measures presented here may not be comparable to similarly titled measures presented by other companies. Other companies may calculate similarly titled measures differently, limiting their usefulness as comparative measures to the Company’s data.

Non-GAAP operating income represents operating income excluding share-based compensation expenses, amortization and impairment of intangible assets resulting from business combinations.

Non-GAAP net income attributable to iQIYI, Inc. represents net income attributable to iQIYI, Inc. excluding share-based compensation expenses, amortization and impairment of intangible assets resulting from business combinations, disposal gain or loss, impairment of long-term investments, fair value change of long-term investments, adjusted for related income tax effects. iQIYI’s share of equity method investments for these non-GAAP reconciling items, primarily amortization and impairment of intangible assets not on the investees’ books, accretion of their redeemable non-controlling interests, and the gain or loss associated with the issuance of shares by the investees at a price higher or lower than the carrying value per shares, adjusted for related income tax effects, are also excluded.

Non-GAAP diluted net income per ADS represents diluted net income per ADS calculated by dividing non-GAAP net income attributable to iQIYI, Inc, by the weighted average number of ordinary shares expressed in ADS.

Free cash flow represents net cash provided by operating activities less capital expenditures.

For more information, please contact:

Investor Relations
iQIYI, Inc.
ir@qiyi.com

(1) Net cash provided by or used for investing activities primarily consists of net cash flows from investing in debt securities, purchase of long-term investments and capital expenditures.
(2) Capital expenditures are incurred primarily in connection with leasehold improvements, computers and servers.

(1) This represents amortization and impairment of intangible assets resulting from business combinations.
(2) This represents iQIYI’s share of equity method investments for other non-GAAP reconciling items, primarily amortization and impairment of intangible assets not on the investee’s books, accretion of their redeemable noncontrolling interests, and the gain or loss associated with the issuance of shares by the investees at a price higher or lower than the carrying value per shares.
(3) This represents tax impact of all relevant non-GAAP adjustments.