Currencies

China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

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Banks

Carney: UK is ‘investment banker for Europe’

The governor of the Bank of England has repeated his calls for a “smooth and orderly” UK exit from the EU, saying that a transition out of the bloc will happen, it was just a case of “when and how”. Responding to the BoE’s latest bank stress tests, where lenders overall emerged with more resilient […]

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Currencies

China stock market unfazed by falling renminbi

China’s renminbi slump has companies and individuals alike scrambling to move capital overseas, but it has not damped the enthusiasm of China’s equity investors. The Shanghai Composite, which tracks stocks on the mainland’s biggest exchange, has been gradually rising since May. That is the opposite of what happened in August 2015 after China’s surprise renminbi […]

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Capital Markets

Mnuchin expected to be Trump’s Treasury secretary

Donald Trump has chosen Steven Mnuchin as his Treasury secretary, US media outlets reported on Tuesday, positioning the former Goldman Sachs banker to be the latest Wall Street veteran to receive a top administration post. Mr Mnuchin chairs both Dune Capital Management and Dune Entertainment Partners and has been a longtime business associate of Mr […]

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Banks

Financial system more vulnerable after Trump victory, says BoE

The US election outcome has “reinforced existing vulnerabilities” in the financial system, the Bank of England has warned, adding that the outlook for financial stability in the UK remains challenging. The BoE said on Wednesday that vulnerabilities that were already considered “elevated” have worsened since its last report on financial stability in July, in the […]

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Archive | November, 2016

Spain unveils toughest budget since 70s

Posted on 30 March 2012 by

Many Spaniards disagree on many matters with Cristóbal Montoro, the uncharismatic cabinet minister who unveiled his 2012 budget on Friday. But few could dispute his claim that his was “the most austere budget” since the restoration of Spain’s democracy in the 1970s.

With tax rises for companies and individuals and drastic cuts in government spending, Mr Montoro said he would cut the central government deficit this year by €27.3bn from 2011, thereby helping Spain reduce its total public sector deficit from 8.5 to 5.3 per cent of gross domestic product in accordance with European Union demands.

José Manuel García Margallo, minister of foreign affairs and cooperation, called it “a war budget in absolutely extraordinary circumstances”, after his own ministry’s budget was cut by more than half. His was the hardest hit, but three others – responsible for public works, industry, energy, tourism, agriculture and the environment – had their spending cut by around a third.

The budget underlines the determination of Mariano Rajoy, the centre-right prime minister who defeated the Socialists in a general election last November, to bring Spain’s public finances under control and avert a bailout by the EU and the International Monetary Fund. Several questions, however, remain unanswered.

First, will the Popular party government be able to force the 17 autonomous regions to meet their deficit targets as well – the cuts announced on Friday concern only the central government – to satisfy skittish investors in sovereign bond markets? The axe is falling on the central government, where it was easier to cut than in the regions that are responsible for schools and hospitals, notes Nicholas Spiro of London-based Spiro Sovereign Strategy.

Second, are the numbers given by Mr Montoro realistic, and will he be able to achieve them? Economists say that nominal cuts in government spending and higher tax rates can have perverse effects in a shrinking economy such as Spain’s, in some cases increasing eventual expenditure – on unemployment benefits, for example – and failing to increase tax revenue.

One of Mr Montoro’s controversial assumptions is that the social security system will move into equilibrium from a slight deficit last year, even though the number of unemployed is rising, pensions have been increased, and the number of contributors is in decline. Spain is already on the brink of its second recession since the collapse of Lehman Brothers in 2008, and the economy is expected to shrink by between 1.5 and 3 per cent this year.

Surprisingly, the central government’s personnel costs are budgeted to rise by 1.3 per cent this year, in spite of a continued pay freeze. Overall, current costs will fall only slightly, although capital spending is set to drop by more than a third.

Third, is the fiscal clean-up sustainable beyond the end of this year, and can Spain’s deficit be cut yet again in 2013 to the EU-mandated target of 3 per cent of GDP? Luis Garicano, professor of economics and strategy at the London School of Economics, said some of Mr Montoro’s 2012 deficit cutting measures were one-offs – for example the €2.5bn to be raised through a 10 per cent tax on “black money” repatriated from overseas under a new tax evasion amnesty.

“They are doing a large deficit reduction, larger than I expected – they do seem to be willing to bite the bullet,” prof Garicano concluded. “But it remains to be seen what the regions can do. And there’s a lot of things that are hard to repeat in this budget.”

Mr Rajoy and Mr Montoro have inevitably failed to convince all Spaniards of the necessity for reforms and austerity. On Friday, the Union General de Trabajadores, one of the trade unions behind the disruptive general strike the previous day, said government policies were leading to “generalised impoverishment”.

But in the coming months, Spanish demonstrators will not be the only participants in the debate. Mr Montoro will also need to convince Spain’s increasingly vigilant European partners, and the bond markets, that he has the budget under tight control.

Peer-to-peer lenders gain traction

Posted on 30 March 2012 by

Direct lending from savers to borrowers has received a nod of approval from the coalition government, as a way of giving individuals access to more sources of finance.

Online peer-to-peer lending exchanges say they can offer better loan and deposit rates than high street banks, and claim the past 12 months have been their most successful yet.

Although financial advisers point out that the services are still new, and lack the safety net offered by traditional lenders, they admit the rates on offer are attractive.

Zopa, one of the largest online peer-to-peer lenders, provides personal, unsecured loans at annual percentage rates (APRs) starting at 6.1 per cent – equal to the best high-street alternative. Depositors receive an average return on their money of 6.2 per cent, which beats the best cash savings rate on the market.

Its success led Andy Haldane, head of policy at the Bank of England, to give a speech arguing that peer-to-peer lenders could create a revolution in banking. “Small peer-to-peer lenders like Zopa and Funding Circle could in time replace high street banks,” he said.

Earlier this month, Nick Clegg, the deputy prime minister, also cited the industry as a possible solution to the lack of credit provided to businesses.

Giles Andrews, chief executive of Zopa, said the public statements were proof of how far the industry has come. In his view, direct “social lending” offers a solution to the problems that ordinary people face when trying to access personal loans.

“Innovative alternatives such as Zopa are going to shake up the banking sector far more effectively than just adding more banks doing the same old things,” he said.

With banks still reluctant to lend money to all but those with the cleanest credit histories, peer-to-peer exchanges such as Zopa, Funding Circle and Crowdcube have quickly expanded their alternative model.

Zopa, founded in 2005, expects to lend £100m this year, up from £60m in 2011, according to the Peer-to-Peer Finance Association.

Lenders who want to deposit money with Zopa to be lent out to borrowers must give up 1 percentage point of the interest Zopa receives, and are charged a further 1 per cent if they choose to withdraw their money early.

Borrowers using the site are rated according to their credit history, and lenders can choose to provide them with loans directly, or spread their loans across a pool of borrowers. Although the default rate among borrowers has crept up slightly in recent months, it remains less than 1 per cent.

But in spite of the growth in the sector, few of the providers expect to overtake the high street banks.

James Meekings, co-founder of Funding Circle, said: “Peer-to-peer lending has grown steadily in recent years, and we’re confident that this trend will continue as savers recognise that they can use peer-to-peer lending to get a better return while helping those around them.”

Funding Circle, founded in 2010, allows investors to lend directly to small businesses. It claims to have quadrupled its funding in the past year.

Total lending exceeds £27m and more than 650 businesses have received loans between £5,000 and £250,000. These loans are made by pooling money from different lenders, who receive on average 8.3 per cent on the money they put in. Losses incurred by lenders can be offset against capital gains tax.

However, while sites such as Kiva and Zopa say they have a 99 per cent repayment rate, some advisers are worried that defaults might rise in the current economic environment. Last year, social lending site Quakle closed amid reports of a 100 per cent default rate. Peer-to-peer lending sites are regulated by the Office of Fair Trading, but the money deposited is not protected by the Financial Services Compensation Scheme – meaning losses have to be borne by individual lenders.

RateSetter, which has received a five-star rating from financial research company Defaqto, operates its own compensation scheme. So far, it has loaned £18m out to users and charges an arrangement fee as well as a fee on interest earned by lenders. A portion of this money is pooled to create a provision fund, which can be drawn on in the event of a late payment or default by a borrower.

Laxey urges 3i to sell off investments

Posted on 30 March 2012 by

3i logo

Laxey Partners, the activist hedge fund, has greeted Michael Queen’s resignation as chief executive of 3i Group by calling for the private equity group to sell off investments and return cash to shareholders.

After announcing his impending departure on Thursday, Mr Queen criticised demands from unhappy shareholders to increase the company’s debt level in order to carry out share buybacks.

However, Laxey responded by submitting a pair of resolutions ahead of 3i’s annual meeting in July, calling for the group to sell its investments and return the proceeds to shareholders. This should be done “until such time as the [shares] cease to trade at a discount to their underlying net asset value”, said the Isle of Man-based fund, which holds 0.9 per cent of the company.

It added that 3i should make no new investments until the discount was eliminated, except investments to which it had already committed, or those necessary to protect or enhance the value of existing assets.

3i shares have lost a quarter of their value in the past year, and trade at a 27 per cent discount to their last stated NAV.

Mr Queen said on Thursday that he was “fundamentally opposed” to a large-scale buyback scheme. “I think that gives you a short-term, superficial financial kicker, but damages the business in the medium and long term,” he said.

But analysts at JPMorgan Cazenove called Laxey’s intervention a “well-timed move”, noting that ”a managed liquidation strategy is being pursued by other listed private equity companies with a better record than 3i such as Candover, Conversus and LMS”.

“We suspect that the final outcome will be somewhere nearer what Laxey is proposing than the status quo”, they added.

Sir Adrian Montague, chairman of 3i, said the company would “think hard about what [Laxey] say … The top priority is to try to run this business and for value in the long term. We have got some great people here, and some really good assets”. And he added that he hoped to announce the appointment of a new chief executive at or before the July’s annual meeting.

Last year Laxey tabled a similar motion at the annual meeting of Alliance Trust, calling on the Dundee-based company to carry out buybacks whenever the share price discount exceeded 10 per cent. The proposal was voted down, but Alliance has since spent £250m on its own stock. Laxey is now trying to force the company to consider outsourcing the management of its assets.

The hedge fund’s letter to 3i on Friday follow its calls last year for the group to sell its minority stake in its listed infrastructure fund, and pay out the proceeds to shareholders.

Iain Scouller, an analyst at Oriel Securities, said that “to effectively put [3i] into windup mode is a pretty dramatic step. With a new chief executive, and clarity on the new strategy, the majority of the shareholders would be keen for the company to keep investing. You don’t want to be in a fire sale situation.”

Mr Scouller said that the new chief executive might look to compromise by committing to return a fixed proportion of realised gains to shareholders.

3i shares rose 2 per cent to 214p.

Optimal Payments revenues more than double

Posted on 30 March 2012 by

Optimal Payments reported that revenues more than doubled in 2011 after what it called a “transformational” acquisition.

The group – formerly known as Neovia and, before that, Neteller – used to specialise in processing payments for the online gambling industry. It announced revenues of $127.9m for 2011 compared with $61.5m in the previous year.

In February 2011 Neovia acquired Optimal Payments for $50m in an attempt to widen its range of online payment processing clients.

The company’s clients now include Canadian rail provider CN Rail and financial group Desjardins.

However, the company made a pre-tax loss of $26.2m due to a $21m writedown of its Neteller business, as well as restructuring and acquisition costs.

Joel Leonoff, chief executive, said the company was in discussions with a “fairly impressive” US bank to use its Netbanx platform for merchants to process online sales.

Treasury risks shortfall in stamp duty

Posted on 30 March 2012 by

The Treasury could end up with a shortfall of billions of pounds in stamp duty over the next five years as a result of over-optimistic assumptions by the Office of Budget Responsibility, according to property experts.

Some £6bn was raised in taxes on residential property purchases in 2011 but the Office of Budget Responsibility has forecast this will jump to £8.5bn in fiscal 2016/17 – higher than the £6.7bn peak generated before the recession.

The increase assumes a sharp rise in housing transactions over the next few years, as well as a bigger tax take from a smaller number of deals.

Although the OBR accepts that housing sales will remain flat in 2012, it has forecast a 57 per cent growth in transactions by 2016-17, with a 19 per cent increase next year and a 16 per cent rise in 2014-15.

Property analysts and economists said this was “improbable”. Simon Rubinsohn, economist at the Royal Institution of Chartered Surveyors, said: “The idea that we are going to see transactions back at normal levels is improbable to say the least. It’s just not going to happen.”

According to official data this week mortgage approvals fell to their lowest level in eight months in February, while banks are planning to restrict lending even further in the next few months. This is likely to suppress the already moribund housing market, analysts say.

Japan set for IPO activity, says Hirano

Posted on 30 March 2012 by

Japan is poised for a period of substantial fundraising activity as companies face growing pressure to reform their businesses in order to better compete in global markets, according to the incoming president of the country’s largest bank by assets.

“There will be quite large initial public offerings in Japan from now on,” said Nobuyuki Hirano, who will become head of Bank of Tokyo-Mitsubishi UFJ on Sunday, in an interview with the Financial Times.

“Japanese industry will restructure their business models, for example, so there is a good chance that there will be large-scale fundraising,” said Mr Hirano, who will head the core bank of the Mitsubishi UFJ Financial Group.

Mr Hirano’s comments come as Japan has seen a sharp drop in new listings with only 36 companies coming to the market last year, compared with 341 in China, according to Dealogic.

Nevertheless, Mr Hirano expects the need for structural reform among Japanese industrial companies to drive IPOs as companies spin off their non-core divisions.

Japanese electronics companies, in particular, have suffered from declining global competitiveness, with Panasonic forecasting a Y780bn ($9.5bn) net loss in the year ending March 31 and Sony expecting a Y220bn full-year net loss.

Mr Hirano said increased IPO activity would be one area in which the bank could benefit from its investment in Morgan Stanley, the US investment bank in which MUFG owns a 22.4 per cent stake.

As banker to many of Japan’s leading corporations, BTMU has a long history of close ties to top management at companies ranging from Mitsubishi Corp, the trading house, to Kirin, the brewer.

Morgan Stanley, meanwhile, has investment banking expertise as well as global distribution capability.

Mr Hirano said the relationship with Morgan Stanley had yielded “big results in Japanese mergers and acquisitions”.

MUFG Securities was ranked third by deal value among advisers in Japanese M&A deals last year, according to Thomson Reuters.

“It is still too early to tell whether or not the results are worth the Y900bn MUFG put into Morgan Stanley,” said Shin Tamura, banking analyst at Barclays in Tokyo.

Nevertheless, the stake in Morgan Stanley has enabled MUFG to avoid heavy investments in overseas markets, particularly in Asia, which have dragged down many investment banks by failing to provide the expected profits, he said.

Mr Hirano denied any interest in taking a greater stake in Morgan Stanley in order to beef up Mitsubishi’s investment banking capabilities.

“That is the most favourable structure, we both think … because MUFG is aiming to be a global commercial bank with Japan as its mother market and we want to focus on that. Morgan Stanley is an investment bank and they have their own expertise,” Mr Hirano said.

He also brushed aside widespread speculation that Mitsubishi was interested in acquiring Nomura, saying, “we are not thinking about that now”.

Auditors urged to be more medieval

Posted on 30 March 2012 by

Auditors should imagine themselves as loyal medieval servants to ensure they vet company accounts with sufficient scepticism.

This was the advice given to the profession on Friday by the Financial Reporting Council, the accountancy and corporate governance regulator.

Frustrated by the failure of some auditors to challenge figures produced by company executives, the FRC has tried to define the scepticism it wants them to demonstrate in a wide-ranging paper.

As well as exploring analogies from Greek philosophy and Victorian capitalism, the FRC guidelines suggest that auditors consider the origins of the modern audit, which they trace back to English manor houses in the 14th century.

Then, the most trusted servant was asked to vet the way other servants had looked after their master’s assets. Modern auditors could understand their role by putting themselves in the shoes of these loyal retainers, the FRC said.

The regulator said such servants were sure to ask the questions their aristocratic masters would have asked, and demand the same amount of supporting evidence. Modern auditors ought to represent the needs of investors and other stakeholders in the same way, it said.

“If you go into that mindset, you should be able to make the right judgments,” said Marek Grabowski, FRC director of audit policy. Scepticism is “the absolute cornerstone of an effective audit”, he added.

The performance of auditors in the run-up to the financial crisis has come under intense regulatory scrutiny in various countries, particularly with regard to the profession’s failure to give advance warning of bank collapses.

The FRC said properly sceptical audits needed to consider whether there was any evidence that would contradict management assertions, rather than just vetting evidence supplied by the audited company.

It also questioned whether some audits might be done more effectively if auditors employed more people with business experience outside the audit profession to do the work.

The traditional “pyramid” structure, in which recent graduates do much of the work under the supervision of a relatively small number of senior staff, “may not always be appropriate”, the FRC said.

Audit committees – the non-executive directors who manage a company’s relationship with its auditor – also needed to encourage others in the business to respond constructively to any challenges made by auditors, the regulator added.

The fact that auditors were paid by the audited company, “in a way that is relatively detached from shareholders”, could be a threat to scepticism, the FRC said.

It said the strong relationships that audit firms built with audited companies and their managers could also compromise auditor independence.

Eurozone acts to quell contagion fears

Posted on 30 March 2012 by

Eurozone governments moved to quell fears of renewed crisis on Friday, with finance ministers raising the so-called firewall to back countries that get into financial difficulties as Spain moved more aggressively than expected to cut its fiscal deficit.

Introducing the most swingeing cuts of the post-Franco era,Madrid announced a series of measures to cut the country’s deficit by €27.3bn this year, including slashing government spending by 16.9 per cent, raising corporation tax and freezing public sector pay.

Underlining a collective will to corral the inflagration that had forced Greece into a technical default earlier this year, the Spanish budget minister Cristóbal Montoro said “extraordinary measures” would have to be taken, because Spain’s fiscal situation was “critical”.

“We are facing a very tough adjustment that will mean giving up many spending programmes”.

The measures unveiled by Madrid, which also included a 7 per cent increase in electricity bills, are part of an agreement to bring Spain’s budget deficit down from 8.5 per cent of gross domestic product in 2011 to 5.3 per cent by the end of this year.

Meanwhile, in Copenhagen, eurozone finance ministers agreed to enlarge their fiscal bailout system to €700bn, a 40 per cent increase that officials hope will prevent instability on Europe’s periphery from spreading to healthier economies.

Fears had been growing that, both on a national and eurozone level, governments were not prepared to take the drastic measures needed to prevent the crisis reaching the largest economies in the continent.

The increase in the size of the firewall will be achieved by setting aside the €200bn currently committed to Greek, Irish and Portuguese bailouts from a new €500bn bailout fund that will start in July, called the European Stability Mechanism, allowing the new ESM to have a full €500bn in capacity even as the bailouts continue to run. Originally, those bailouts were to have been folded into the ESM.

In addition, ministers unexpectedly allowed €240bn in unused funds in the current, temporary rescue fund – the European Financial Stability Facility – to be accessed during “a transitional period” until the ESM is fully up and running. Under the agreement, the ESM will not be fully capitalised until the first half of 2014. The extra funds will be available until mid-2013.

Since the European Central Bank unveiled its longer-term refinancing operation in December, the bond positions of vulnerable states such as Italy and Spain have stabilised with analysts saying the eurozone governments have a window of opportunity to stabilise the overall fiscal position.

The Spanish budget cuts came a day after violence hit the streets of its biggest cities during a general strike called by trade unions.

Before the measures were announced, there was a blow to confidence in European economies when Norway’s sovereign wealth fund, the world’s sixth-richest, said it was proposing to cut investment in the continent, both in equity and bond markets.

However, there were better signs from France, where the government of President Nicolas Sarkozy was able to announce a small cut in its budget deficit target for this year after official figures showed an unprecedented reduction in the shortfall in 2011.

A fall in the deficit to 5.2 per cent of GDP, from 7.1 per cent in 2010 and well below the official target of 5.7 per cent, was bigger than expected and was seen by analysts as increasing Mr Sarkozy’s hopes in a tough re-election battle due next month.

Reporting by Peter Spiegel in Copenhagen, Miles Johnson in Madrid, Hugh Carnegy in Paris and Ben Fenton in London

Natural disasters push Lloyd’s into loss

Posted on 30 March 2012 by

The devastating earthquake and tsunami in Japan, Thailand’s worst flooding in decades, and a series of other natural catastrophes pushed the Lloyd’s of London insurance market to a pre-tax loss last year of £516m – its heaviest since the September 11 terrorist attacks on the US in 2001.

In spite of falling into the red for the first year since 2005 – when hurricane Katrina struck New Orleans – underwriters are struggling to push through widespread increases in premiums, their traditional response to such disasters.

The sector remains well capitalised after several relatively benign years for claims. Lloyd’s executives also said capital was attracted to the sector because of weak potential returns available elsewhere.

As a result, if an insurer tries to increase rates rivals are willing to undercut it.

The costliest natural catastrophes for Lloyd’s, which comprises more than 80 syndicates, arose from the Asia-Pacific region, from which the market garners only a small chunk of premiums.

This prompted some analysts to say relatively strong insurers would in fact welcome an active US hurricane season this year as that would allow underwriters to increase premiums across the board rather than just in loss-hit areas. “It’s like an insurance industry secret,” said one.

Meanwhile, John Nelson, who replaced the long-serving Lord Levene as chairman in October, shook up how senior executives at the historic insurance market were paid. Managers were granted salary increases of up to 20 per cent but also saw their maximum potential bonuses cut.

BlackRock asks European regulators to delay new ETF rules

Posted on 30 March 2012 by

BlackRock, the world’s largest provider of exchange traded funds, is asking Europe’s main financial regulator to delay the implementation of any rule changes for ETFs until next year, arguing it is not practical to bring in new guidelines in 2012.

The European Securities and Markets Authority has said new rules for ETFs should be in place this year but BlackRock said it would require more time to update documentation and educate investors about the implications of any rule changes.

It is also resisting pressure from regulators to return all income generated by securities lending activities to its funds. BlackRock currently retains 40 per cent of the net income (after fees) generated by securities lending, with 60 per cent returned to the fund to reduce overall costs to investors.

Esma has said fees from securities lending should “as a general rule” be returned to the fund, while any fee-sharing arrangements with the fund manager or a lending agent should be clearly disclosed.

However, BlackRock said requiring all securities lending revenues to be returned to the fund would “further exacerbate the unlevel playing field that exists with derivative-replicating ETF providers”.

Synthetic ETF providers do not disclose how they benefit from securities lending activities as this is usually done by an affiliate bank and not by the ETF manager.

BlackRock, in contrast, has provided quarterly updates of revenues earned from securities lending since 2011 and it also publishes details of the collateral (assets received as security) that it holds on its website on a daily basis.

Esma wants the criteria governing collateral to go further than the existing guidelines. It suggests the reinvestment into risky assets of any cash received as collateral in securities lending should no longer be possible.

BlackRock, however, said requiring “risk-free” reinvestment of cash collateral was not necessary.

Cash is not widely used as collateral in securities lending in Europe but some US funds encountered problems with cash reinvestment programmes in the aftermath of the collapse of Lehman Brothers.

Esma also wants ETF providers to ensure the collateral they receive in combination with any assets that are not lent out to comply with Ucits diversification criteria.

BlackRock said this was based on a wrong perception of the role played by collateral in mitigating counterparty risk. It said Ucits rules had two objectives, with collateral diversification intended to reduce counterparty risk while the purpose of asset diversification (within a fund) is to prevent excessive concentration of investments.

“Good credit quality and liquidity of the collateral are much more important than diversification in the context of the objective that collateral rules have,” said Stefan Kaiser, the director at iShares responsible for securities lending.

BlackRock’s comments were included in its response to new draft European guidelines for ETFs which Esma brought out in January.

Responses by other ETF providers will be published on Esma’s website on Monday.

BlackRock is continuing to press regulators to ensure that an indentifier to distinguish “physical” ETFs from “synthetic” ETFs to be included in the name of the ETF.

Joe Linhares, head of iShares Emea for BlackRock, said it seemed logical that if ETF providers were prepared to identify their replication strategy (physical or synthetic) in the key investor information document (KIID), then there was no plausible reason why it could not be identified in the labelling of the fund. These measures, noted Mr Linhares, had already been adopted by the regulator in Hong Kong’s ETF market.

BlackRock also wants the costs of derivative contracts/swaps used to run synthetic ETFs to be disclosed as these do not appear in published management fees but can affect the true cost of ownership for an end investor.

It continues to object that significant conflicts of interest arise when an ETF issuer is part of a bank that is also the sole swap provider (derivative counterparty) to the ETF. This is the model employed by Deutsche Bank, Europe’s second largest ETF provider, in its db-X trackers business.

Preliminary data from iShares suggest the ETF industry has enjoyed a record breaking start to the year with an estimated $60bn in net new inflows globally in the first quarter of 2012.

In Europe, iShares has attracted inflows of around $4bn, capturing more than half of the estimated $7.5bn gathered by European ETF providers so far this year.