Currencies

Nomura rounds up markets’ biggest misses in 2016

Forecasting markets a year in advance is never easy, but with “year-ahead investment themes” season well underway, Nomura has provided a handy reminder of quite how difficult it is, with an overview of markets’ biggest hits and misses (OK, mostly misses) from the start of 2016. The biggest miss among analysts, according to Nomura’s Sam […]

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Banks

RBS falls 2% after failing BoE stress test

Royal Bank of Scotland shares have slipped 2 per cent in early trading this morning, after the state-controlled lender emerged as the biggest loser in the Bank of England’s latest round of annual stress tests. The lender has now given regulators a plan to bulk up its capital levels by cutting costs and selling assets, […]

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Currencies

Euro suffers worst month against the pound since financial crisis

Political risks are still all the rage in the currency markets. The euro has suffered its worst slump against the pound since 2009 in November, as investors hone in on a series of looming battles between eurosceptic populists and establishment parties at the ballot box. The single currency has shed 4.5 per cent against sterling […]

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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 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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Archive | November, 2016

God’s new banker

Posted on 31 May 2013 by

Any banker might feel the need for divine intervention these days to survive a career in finance. Ernst von Freyberg perhaps more than most.

Not only does the new head of the Vatican bank not have any experience of running a retail bank, he is the first non-Italian to do the job since the Holy See’s Institute for the Works of Religion was set up in 1942.

    Mr von Freyberg made his public debut this week with interviews to demonstrate his determination to open the bank up to greater public scrutiny. The highly secretive organisation has for decades been tainted by allegations that it laundered money for unsavoury clients including Mafia and terrorists.

    Two years ago, Italian authorities seized $30m from two accounts and launched an investigation into its activities. This year, after it failed to meet a deadline for improved supervision, the Bank of Italy banned other banks from doing business with the Holy See

    Mr von Freyberg aims to reassure the world that he will shine a light on all questionable activities. Top-notch investigative firms have been called in to go through accounts one by one. He says many allegations are based on myth: no Mafia clients, no terrorists on the books.

    So far so good. But it is surely wrong that in more than one interview Mr von Freyberg insists his priority is the bank’s “bad reputation … in the media”. This has to be secondary to eradicating bad practices from the past.

    To succeed, he will have to take on the vested interests for whom secrecy has become a way of life. This will almost certainly be the biggest challenge for God’s new banker. Mr von Freyberg will have to overcome the Catholic Church’s instinctive aversion to transparency. Yet it is only by disclosing what is found in a full and open manner that the bank’s reputation will be restored.

    Confession, as a good Catholic banker should know, is the path to salvation.

    Hope for retirees as annuity rates rebound

    Posted on 31 May 2013 by

    Pensioners©Getty

    Savers approaching retirement are getting more value for their pension savings with economic conditions turning in their favour and pushing up annuity rates and fund values.

    Since the beginning of this year, annuity rates offered by insurers in exchange for pension savings have risen by more than 3 per cent.

      In January, a 65-year-old male or female with a pension pot of £100,000 could secure an annual level income of about £5,250, according to Annuity Direct, the independent financial advisers. However, the same retiree would this week be offered £5,437 a year.

      The annuity rebound comes after rates fell by about 11 per cent in 2012. The rise has also been coupled with a stock market rebound, which has been a boon for those who kept their pension pots invested.

      Pension advisers said the rate rebound was linked to an increase in gilt yields. Gilts are the assets used by insurers to price their annuity rates. The 15-year benchmark gilt yield has risen from 2.15 per cent in early May to 2.52 per cent today.

      However, advisers said those retiring this year should not set too much store by a continued rebound.

      “I still hold on to my view that although we can expect yields to rise in the future, not all of the increased yield will be passed on to annuitants,” said Billy Burrows, director of the Better Retirement Group, the annuity specialists.

      “In short: don’t delay purchasing an annuity simply in the hope that rates will increase, because deferring an annuity is a complex business and there is more to it than just the annuity rate.

      “For example, you have to look at fund values and the effects of life expectancy and health on future annuity pricing.”

      Meanwhile, pension providers have denied that record profits from annuity sales were down to profiteering ahead of the introduction of gender-neutral rates on December 21.

      Legal & General was one of many insurers to report record annuity business for the fourth financial quarter, a period during which men were being cautioned by some advisers that their income could drop by as much as 10 per cent with the switch to unisex rates. Since December there has been a general rebound in rates.

      L&G said that concerns about a big drop in male rates had “fuelled a lot more business in Q4 without any doubt”, but it denied profiteering.

      “We gave our customers an extra window of a 40-day guaranteed period to complete their business, which seemed a very equitable thing to do,” said Tim Gosden, head of Annuity Product Development and Marketing with L&G.

      “The rise in rates since December is down to more positive market conditions.”

      Luxury goods sector comes under pressure

      Posted on 31 May 2013 by

      European stocks had a volatile week and month, and investors rode it out by taking profits from cyclical sectors which had performed well in the first four months of the year as global growth had looked like it was returning.

      This week saw the luxury goods sector under pressure after a strong start to the year. Equity strategists remained in favour of the sector – Credit Suisse on Friday reiterated its overweight stance on cyclical stocks, among them the luxury sector – yet the stocks continued to fall.

        Swiss watchmakers were among the biggest fallers over the week, even after receiving the news that China was to reduce the import tax levied on their products. Swatch Group fell 3.7 per cent to SFr552, while Richemont lost 3.2 per cent to SFr85.85.

        But there were bright spots amid the FTSE Eurofirst 300’s five-session decline of 0.9 per cent to 1,216.17.

        Fiat, the Italian carmaker, announced its intention to raise finance to purchase the 41.5 per cent of US partner Chrysler that it does not already own. Fiat shares rose 11.6 per cent to €6.13 over the week.

        There were also some resilient performances in the bank sector with Danske Bank up 7.1 per cent over the week to DKr113.40 and UniCredit 6.8 per cent higher at €4.39.

        Deutsche Börse got a boost from reports that European authorities were to water down proposals for a financial transaction tax. UBS, commenting on the report from Reuters, said: “The update is encouraging and should lead to a re-rating of the shares.”

        Shares in the German stock market operator were up 7.2 per cent over the week to €49.61.

        During a week when investors also raised concerns about the sustainability of the progressive dividend policies of many utilities and telecoms groups, Suez Environnement, the French waste and water group, fell 9.2 per cent to €9.93, while Deutsche Telekom lost 4.6 per cent to €8.85.

        During the month, the FTSE Eurofirst 300 was up 1.3 per cent.

        US group buys listed London market hall

        Posted on 31 May 2013 by

        Ashkenazy Acquisitions, a US property group has made its maiden UK investment with a £110m deal for Old Spitalfields Market, the historic London retail hub, in a move that highlights the international demand for real estate in the capital.

        The deal, one of the largest in the London retail property sector this year, comes less than two months after Ballymore, the Irish property company that has owned the market since 1998, put the asset up for sale.

          The listed market hall is something of a trophy asset for retail property investors. Located on the edge of the City of London, it is one of only a small handful of shopping areas in the centre of London.

          Demand for retail property in and around London has taken off during the past six months, with British Land snapping up a string of shopping centres and retail outlets for £180m and Westfield and Hammerson signing a £1bn mall development in Croydon. The Broadgate Estate, the vast City of London office and retail campus is, meanwhile, expected to be sold later this year.

          Michael Alpert, president of Ashkenazy Acquisitions, said the company, which owns Boston’s Faneuil Hall, would use the deal as a springboard for more property purchases in London – some of which are already planned. The market is “similar to other properties we have throughout the United States”, he added.

          Ashkenazy was advised by Mayer Brown. Ballymore was advised by Coady Supple and law firm Berwin Leighton Paisner.

          Franco-German challenge to bank plan

          Posted on 31 May 2013 by

          German Chancellor Angela Merkel (left) and French President François Hollande arrive at the Élysée Palace©AP

          German Chancellor Angela Merkel (left) and French President François Hollande arrive at the Élysée Palace

          The leaders of France and Germany agreed to an outline for the future of the eurozone that strongly leans towards Berlin’s vision of more control from Brussels on fiscal matters but more leeway for national authorities on banks.

          In a nine-page “contribution” issued after a meeting in Paris between François Hollande, French president, and Angela Merkel, German chancellor, the two leaders laid down their most detailed vision on issues bedevilling the eurozone since Mr Hollande came to office last year.

            Most significantly, it calls for national bank authorities to continue to have a prominent role in the repair and recapitalisation of eurozone banks, a German demand that is strongly at odds with a proposal being prepared by the European Commission and the wishes of the European Central Bank.

            Under the Franco-German plan, bank bailouts would be handled by a “single resolution board involving national resolution authorities” – a far looser configuration than originally envisioned when the EU’s highly-touted “banking union” was launched last year.

            ECB officials have been particularly concerned about leaving control of bank clean-ups to national authorities now that European leaders have agreed to create a single EU bank supervisor in Frankfurt. Central bank officials are worried that the ECB will now have the authority to declare eurozone banks insolvent, but have no power to do anything about it other than push national governments to move.

            Berlin publicly broke with the ECB on the issue earlier this month, arguing that current treaties do not give the EU authority to perform bank bailouts on its own – which, as in the case of Cyprus, could involve seizing private property – and that the legal authority must only come after the treaties are changed, a potentially long and laborious process.

            French officials insist the “resolution board” goes further than Berlin originally envisaged. Under Germany’s original publicly stated position, future bank clean-ups would be managed by a “network” of national supervisors. But the creation of a single board is significantly closer to the single agency originally envisioned by Brussels, Paris said.

            “This was very important in terms of the robustness of the system,” said one French official. European Commission and French officials also insisted that the joint agreement was much closer to where their proposal will end up, noting it allows for “decision-making at the central level” – something Berlin appeared to previously oppose.

            “It was never planned, nor would it be possible, to eliminate the national authorities from the system,” said one commission official, arguing the document also appears to give them leeway to propose a single European bailout fund.

            The French official said Paris won German agreement to have the eurozone’s €500bn bailout fund serve as a “public backstop” – meaning all national governments will have recourse to EU-level money to clean up their banks if they cannot do it on their own, once fiercely resisted by Berlin.

            Still, Ms Merkel got Mr Hollande to push off a decision on how the €500bn fund, the European Stability Mechanism, would be used to bail out struggling banks.

            The so-called “direct recapitalisation” – where the ESM would inject cash directly into failing financial institutions – was the cornerstone of last June’s deal aimed at shoring up Spanish finances, and EU leaders had vowed to have an “operational framework” in place by next month.

            But under the Franco-German deal, such a plan will be put off until agreements on more incremental banking regulations are completed, potentially delaying them for several months.

            In depth

            Eurozone in crisis

            The giant Euro symbol stands illuminated outside the headquarters of the European Central Bank (ECB)

            The eurozone struggles with austerity and attempts to regain competitiveness

            Taken together, the less-ambitious bank resolution scheme and delayed direct recapitalisation plan means Ms Merkel can go into September’s German national elections without the potential for new EU agencies with the authority to use German taxpayer money to assist banks in struggling eurozone countries.

            Ms Merkel’s opponents in the election, the Social Democrats, had vowed to make the use of German cash to bail out eurozone banks an issue in the upcoming vote.

            The two also agreed to back a more German vision of the eurozone’s fiscal future. Paris, with the backing of Brussels, had sought a substantial eurozone budget that could be used to provide counter-cyclical payments to struggling countries, such as a eurozone-wide unemployment insurance scheme.

            Instead, the two sides agreed to explore a less-ambitious “specific fund” that could only be tapped to provide incentives for countries to agree tough economic reform measures.

            Such reform measures would be part of new “contractual arrangements” between national governments and Brussels that would be akin to the detailed reform agenda’s currently agreed only with bailout countries.

            The contractual arrangements and a limited incentive fund have long been part of Berlin’s agenda for eurozone reform.

            Additional reporting by Quentin Peel in Berlin, Alex Barker in Brussels and Matthew Steinglass in Amsterdam

            EM currencies suffer heavy losses

            Posted on 31 May 2013 by

            Emerging market currencies suffered heavy losses and the dollar index rose as investors bet that improving data on the US economy would encourage the Federal Reserve to reduce its monetary stimulus that has boosted investment into riskier assets.

            The South African rand, Mexican peso and Hungarian forint were some of the hardest hit currencies against the dollar after a volatile week in the global currency market that saw investors reduce their exposure to risk-related assets.

              “It has been a very sharp and severe move that caught many people by surprise,” said Dagmar Dvorak, a currency and fixed-income investor at Barings, who has sold some positions in the peso, the rand and the Polish zloty.

              The dollar rose 1 per cent against the rand to touch R10.28, its strongest level in more than four years, and gained 1.5 per cent against the forint to a month-high at Ft229.77.

              The Mexican peso, which has been one of the most popular emerging market currencies among global investors this year, was one of the heaviest losers, with the dollar rising 0.7 per cent to 12.94 pesos.

              The dollar index, which weighs the US currency against a basket of major counterparts, gained 0.5 per cent to trade at 83.4, after a monthly index of US consumer confidence was even higher than its preliminary reading earlier in the week, reaching its strongest level in nearly six years.

              The dollar has been rising in line with positive data on the US economy after it was revealed earlier in May that some members of the Fed had considered tapering the central bank’s bond-buying scheme as early as next month amid a recent spate of stronger data.

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              The New Zealand dollar fell more than any other developed currency against the dollar after Graeme Wheeler, governor of the Reserve Bank of New Zealand, warned on Thursday that the so-called Kiwi dollar remained overvalued and that the central bank would continue to intervene in the currency markets to weaken the dollar if needed. The central bank said earlier in the week that it sold $256m Kiwi dollars in April as part of its efforts to weaken the Kiwi dollar, which fell 1.3 per cent on Friday to $0.7972.

              The euro was not helped by figures showing that the unemployment rate in the eurozone hit a fresh record high in April at 12.2 per cent. The single currency fell 0.6 per cent against the dollar to $1.2972 and was 0.2 per cent weaker against the pound at £0.8552.

              The Japanese yen was more resilient against the dollar, which was flat against Japan’s currency at Y100.80 after the yen strengthened during the week amid a bout of profit-taking by investors.

              Danish retail chain Matas plans float

              Posted on 31 May 2013 by

              Matas, the Danish health and beauty product retailer, has announced plans to float on the local stock market in the first initial public offering in Denmark for more than two years.

              The retail chain, which is part owned by private equity group CVC Capital Partners, is likely to float before July 1 in a move that is expected to value the company’s total equity at about $1bn.

                The news comes as private equity groups rush to revive plans to list the companies they own as equity markets recover and volatility eases. The eurozone crisis hampered their ability to use the IPO option to cash in on deals last year.

                Søren Vestergaard-Poulsen, chairman of Matas and partner at CVC, said the money would be used to support future growth. “We are very excited about inviting investors to participate in this important new phase,” he said.

                The flotation will be the first substantial listing on the Danish stock exchange since jewellery maker Pandora in 2010, and potentially the third-largest IPO in Europe this year, according to Dealogic.

                CVC paid Dkr5.2bn in 2007 for two-thirds of Matas. The retailer, which has nearly 300 stores around the country, made a pre-tax profit of Dkr336m ($58m) in the year ending March 2013 on revenues of Dkr3.2bn.

                The Danish IPO market received a shock in 2011 when ISS, the Danish outsourcing group, pulled plans for a $2.5bn listing. This was part of a wider trend due to volatility surrounding the eurozone debt crisis.

                Risk appetite in the wider markets has been strong since late last year due to widespread bond buying by central banks around the world, which has prompted investors to push money into equity markets.

                Slovenia sees sharp slump in output

                Posted on 31 May 2013 by

                Slovenia’s economy contracted by much more than expected in the first three months of this year, putting further pressure on a country that is striving to avoid becoming the next recipient of an EU bailout.

                Output declined in the first quarter by 4.8 per cent, year-on-year – its worst performance since the global recession of 2009, far outstripping the 2.9 per cent contraction economists had forecast in a Bloomberg survey. The economy shrank 0.7 per cent from the previous quarter.

                  The poor performance reflects domestic consumption that has fallen 7.7 per cent year-on-year, and a huge 20.7 per cent drop in investment. Exports, however, increased 1.8 per cent, marking an improvement from previous quarters.

                  The Balkan country, which joined the EU in 2004 and the euro in 2007, has been pushing through reforms in an effort to avoid needing EU funds to help stabilise its heavily indebted and largely state-owned banking sector. Slovenia moved centre stage after the mishandled EU bailout of Cyprus in March.

                  The government is selling assets in a new privatisation programme as part of a $1.2bn recapitalisation plan.

                  But Marko Kranjec, governor of Slovenia’s central bank and a member of the European Central Bank’s governing council, said the country would have to take further steps if it was to avoid a bailout.

                  “Slovenia is not out of the woods yet. A lot of work is still to be done,” he told a conference in the resort of Bled.

                  Slovenia’s authorities had to press ahead urgently with privatisation, said Tim Ash, emerging markets economist at Standard Bank.

                  “The question is now whether the depth of the recession is sustained, how this impacts official growth projections for the year, and what it means in terms of budget financing and implications for the cost of cleaning up the banks,” he said.

                  He warned that the weaker than expected economy could push up non-performing loans in the banking sector even further.

                  The European Commission this week gave Slovenia two more years to bring its budget deficit below the target of 3 per cent of output, and said its reform programme was broadly on the right track. But it told Slovenia to hire outside, independent auditors next month to evaluate the health of the banking sector, with the work to be completed by the year-end – a potential warning signal.

                  Brussels has also been assuming a 2 per cent decline in the economy this year, which may now be optimistic given the poor first-quarter result.

                  Anton Balazic, president of Mercator, Slovenia’s leading retail chain with nearly a third of the market, said the contraction was little surprise as declining revenues at his company showed that consumers were spending less.

                  “Consumer behaviour is first of all psychologically driven. If people are living in a situation where there is a cut in salaries, an announcement of higher VAT, where there is speculation about a crisis tax, people become more cautious,” he said.

                  Mr Balazic warned that unemployment was rising, salaries were stagnating and household savings were falling. He said Mercator expected the situation to stabilise by the end of this year, but zero growth next year.

                  CVC urges early subscription to fund

                  Posted on 31 May 2013 by

                  CVC Capital Partners, the buyout fund that owns Formula One and Samsonite, has been encouraging investors to subscribe to its fundraising sooner rather than later to beat restrictions under new EU rules.

                  The fund, which is domiciled in the Channel Islands, faces the prospect of being closed to investors inside the EU after the new rules come into effect next month.

                    The EU’s Alternative Investment Fund Managers Directive grants the Paris-based European Securities and Markets Authority and national watchdogs the ability to limit access of private equity firms based outside the EU to investors inside the bloc.

                    CVC was targeting a total fundraising of about €9bn but after a strong reception could match its previous exercise, which raised €11bn, one person with knowledge of the situation said. The person said the issue was being raised in talks with potential investors who were being encouraged to commit to the fund’s first close set for mid-June.

                    The first close is expected to be about €7bn. Investors that commit early will have their requested allocation guaranteed as an extra incentive.

                    By pre-empting the July 22 deadline for the new rules, CVC would not need to go through an authorisation process. The news was first reported by Bloomberg.

                    CVC last month abandoned an attempt to take over Betfair, the UK gaming group, after the board rejected its offer. The private equity investor also recently agreed a deal to buy back Ista, the German metering company that it sold to rival Charterhouse six years ago.

                    CVC started its latest fundraising earlier this year and was expected to benefit from previous strong fund performance to attract new investors. CVC’s previous fund was returning 8.8 per cent annually after fees as of September, according to Oregon’s public pension fund, an investor. This is more than the 7.3 per cent median return for European funds raised the same year, according to Preqin. The firm’s previous fund, raised in 2005 and invested during the credit boom, is returning 16.5 per cent a year.

                    CVC distributed €5bn to investors last year and expects to make as much as seven times its $1bn investment in Formula One, the motor racing company slated for an initial public offering in Singapore this year.

                    Lending to companies falls

                    Posted on 31 May 2013 by

                    A third consecutive fall in net lending to companies in April stemmed the flow of good economic data on Friday, suggesting the UK economy remains a long way from a self-sustaining recovery.

                    Although lending to households continued to rise and consumer confidence jumped higher, the caution from companies suggested the corporate sector still had little confidence to borrow and invest.

                      After falling in February and March, net lending to private non-financial companies dropped another £3bn in April, pushing the annual decline back down to 4 per cent after recovering earlier this year.

                      Behind the headline net lending figures, repayments of loans, which have increased in recent months, have continued to outstrip new lending, which has been volatile but flat since the start of last year.

                      In April, the decline in bank net lending to companies was not offset by other borrowing in bond or equity markets, suggesting that a lack of demand for credit rather than an unwillingness to borrow from banks lay behind the weak figures.

                      With the cost of borrowing to companies also rising modestly, Howard Archer, of IHS Global Insight, said: “There is clearly low demand for credit with many companies still very wary about borrowing and investing in the current difficult economic environment. Furthermore, many companies are looking to pay down debt”.

                      The weak corporate credit figures came after almost six weeks of mostly positive economic data, which Treasury officials believe have exaggerated the underlying strength in the economy.

                      Household lending data, by contrast to corporate credit, continued to improve modestly. Mortgage approvals for house purchases rose marginally to 53,710 in April, continuing a slow pick-up in the mortgage market, and the cost of household borrowing continued to fall.

                      Loans and borrowing on credit cards continued to rise to an annual rate of 2.9 per cent, underpinned by the highest level of consumer confidence since spring 2011, according to GfK, the market research agency.

                      Although the Bank of England has cautioned that it is too early to determine whether the Funding for Lending Scheme and its recent extension were working, economists said the corporate lending figures were disappointing.

                      Simon Hayes, of Barclays Capital, said an imbalance between credit conditions for households and companies was emerging. “The authorities will hope that the changes to the terms of the FLS that were announced at the end of April – and heavily skew incentives towards business lending – stop this imbalance from growing.”

                      Michael Saunders, economist at Citigroup, said that in the nine months after the FLS scheme was introduced, net lending to households and businesses dropped £6.4bn, compared with only £3.7bn in the nine months before the scheme was introduced. “So far, rather than providing funding for lending, the FLS still seems to be providing funding for not lending,” he said.

                      The BoE continues to expect the FLS scheme to help improve credit conditions, although Sir Mervyn King, governor, has stressed it is not a “game changer”. He has emphasised the limits of monetary policy in trying to persuade companies and households to borrow when they want to reduce their debts.