After the Ebola epidemic in 2017, the World Bank issued $320m worth of pandemic bonds to fund the relief efforts. The bonds paid out high-interest rates to investors, but holders of the instrument could lose all their money if there was a pandemic. Once triggered, the money would go to the World Bank.
Investors initially thought it was an attractive investment, as the FT calculated the riskier tranche, activated with only 250 deaths, paid 11.5% over Libor and had an “expected loss” of only 7.7%. The less risky tranche which required 2,500 deaths, only paid 6.9% over Libor, compared with an expected loss of 3.6%.
Now, with the Coronavirus claiming over 1,300 lives since the end of 2019, the bonds are on the edge of default. According to the World Bank, the funds can only be released for non-flu epidemics 12 weeks after the "start of the event," leaving funds locked up until late March.
We are likely to see more pandemic bonds, despite questions to its efficacy. As insurance people will tell you: nothing is uninsurable, you just need more data.
Catastrophes and correlations - The problem with a global pandemic bond for financial investors is that it's correlated, as the market goes down so do the value of the bonds. “Catastrophe bonds" for hurricanes and earthquakes are uncorrelated. Read more
Coronavirus strikes World Bank’s 2017 catastrophe bonds - The World Bank launched a $320m catastrophe bond issue in 2017 to back its Pandemic Emergency Financing Facility. Originally scheduled to mature in July this year, they are teetering on the edge of default because of Coronavirus. Read more
Pandemic stress-tests China’s fragile financial system - The central bank has slashed money-market lending rates, and banks have been told to extend the terms of loans. Pessimists say the crisis could be the catalyst for a long-awaited collapse of the country's over-indebted financial markets. Read more
You probably won’t dump your investment manager this Valentine’s Day — but maybe you should - New research out of the UK suggests that, for richer or poorer, in good times and bad, British investors are unlikely to break up with their wealth managers. Read more
Counting rent would improve credit scores of public-housing residents, HUD finds - More public-housing residents in the US would see their credit scores improve if their rent payments were reported to credit agencies, according to a new study by the U.S. Department of Housing and Urban Development. Read more
Technology is poised to upend America’s $34tr property market - As the Economist reports, the real estate market has been characterized by low volumes and extortionate transaction costs. This antiquated model is on the verge of being disrupted with tech powering i-buyer models that are quicker, easier and cheaper. Read more
Credit-card debt in U.S. rises to record $930b - Total credit-card balances increased by $46b to $930b, well above the previous peak seen before the 2008 financial crisis, according to data released by the Federal Reserve Bank of New York on Tuesday. Read more
Tech startups are flooding Kenya with apps offering high-interest loans - As Bloomberg reports - Kenyans are discovering that financial inclusion also comes with some risk. High borrowing rates from apps like Tala and others have caused one in 10 adults to default on digital loans with some people borrowing from one app to pay off another. Read more
Digital banking goes mainstream as Varo is closer to securing first national banking charter - After three years and tens of millions invested in gaining a national banking license, Varo has received the critical stamp of approval from the FDIC. Read more
N26 exits UK market following Brexit - Customers who opened a bank account in the U.K. will have to transfer their deposits, spend everything with their card or withdraw money at an ATM, as all accounts will be automatically closed on April 15, 2020. Read more
Parents sigh of relief as the IRS quietly removes tax guidelines for Fornite's virtual currency - Fortnite's V-bucks, which are purchased with real dollars, were to be taxed by the IRS with other virtual currencies. The directive on the taxation of virtual currencies by the IRS implies they are taxed like property. Read more
Peru's startup scene is ready for more - Peru is home to an estimated 120 fintech startups actively tackling issues of financing inclusion and better servicing the region's SMBs - with some factoring and FX startups gaining some early velocity and already branching out to neighboring markets. Read more
Circle continues to sell off its non-core assets - Circle has signed a definitive agreement to sell its Circle Invest app which was launched in March 2018 to crypto brokerage Voyager (for a 4% ownership stake). Read more
Coinbase launches margin trading for some users - Margin trading is going to be available on Coinbase Pro. Both retail and institutional investors will be able to submit margin trading orders with up to 3x leverage. It’ll work with any pair of assets with USD as the base currency. Read more
SEC’s CryptoMom proposes framework to ‘de-securitize’ ICO tokens - An ICO made in reliance on the new safe harbor will still have to comply with certain disclosure requirements, but will give a three year grace period to tweak their token-based models and determine whether they need to comply with federal securities laws. Read more
GS Report: America's wealthiest 1% of households own more than $21.4tr of total equity - The amount is roughly 56% of all US equities held by households in the US, while the bottom 90% own $4.6 trillion of equities or 12% of the total. Read more
BlockFi - NYC based crypto financial products company has raised a $30m Series B led by Valar Ventures. Read more
Elliptic - London based cryptocurrency monitoring startup has raised an additional $5m from Wells Fargo Strategic Capital, bringing the size of its Series B to a total of $28m. Read more
Fenergo - Dublin based regulatory compliance software for financial services raised $80m in funding at a post-money valuation of $800m led by ABN AMRO and DXC Tech. Read more
Flywire - Boston based vertical payments company raised $120m in Series E funding led by Goldman Sachs. Flywire also acquired Simplee, a healthcare payments platform that had raised $36.4m. Read more
iDonate - Texas based digital giving software raised $8.7m in Series B funding led by PerformanceEdge Partners. Read more
Liwwa - Jordan based SME lending marketplace raised $6m in equity funding led by Dutch Entrepreneurial Development Bank FMO. Read more
Nova Credit - San Francisco based cross-border credit reporting platform raised $50m in Series B funding led by Kleiner Perkins. Read more
Ramp - New York based corporate credit card provider has raised $25m in Series A funding led by Founders Fund. Read more
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