Capital Markets, Financial

BGC Partners eyes new platform to trade US Treasuries

BGC Partners plans to launch a new platform to trade US Treasuries early next year, in a bid to return to a market in the middle of evolution, according to people familiar with the plans.  The company, spun out of Howard Lutnick’s Cantor Fitzgerald in 2004, sold eSpeed, the second-largest interdealer platform for trading Treasuries, […]

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Financial

Sales in Rocket Internet’s portfolio companies rise 30%

Revenues at Rocket Internet rose strongly at its portfolio companies in the first nine months of the year as the German tech group said it was making strides on the “path towards profitability”. Sales at its main companies increased 30.6 per cent to €1.58bn while losses narrowed. Rocket said the adjusted margin for earnings before […]

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Currencies

Renminbi strengthens further despite gains by dollar

The renminbi on track for a fourth day of firming against the dollar on Wednesday after China’s central bank once again pushed the currency’s trading band (marginally) stronger. The onshore exchange rate (CNY) for the reniminbi was 0.28 per cent stronger at Rmb6.8855 in afternoon trade, bringing it 0.53 per cent firmer since it last […]

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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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Property

Spanish construction rebuilds after market collapse

Property developer Olivier Crambade founded Therus Invest in Madrid in 2004 to build offices and retail space. For five years business went quite well, and Therus developed and sold more than €300m of properties. Then Spain’s economy imploded, taking property with it, and Mr Crambade spent six years tending to Dhamma Energy, a solar energy […]

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Archive | November, 2016

US asset managers face tighter scrutiny

Posted on 30 September 2013 by

In a sign that asset managers could be the next group of financial institutions to face tighter government regulations, the US Treasury’s Office of Financial Research issued a report on Monday detailing the ways in which the industry could create vulnerabilities in the financial system.

The data will be used by the Financial Stability Oversight Council, which requested the report and makes decisions on whether certain non-bank financial institutions including asset managers pose a systematic risk.

    The designation of being a Systematically Important Financial Institution, or SIFI, carries stricter government regulations in risk-based capital, leverage and liquidity.

    The research office said asset managers could create vulnerabilities in the financial system if they increased leverage, bought similar assets at the same time because of competitive pressures, or engaged in fire sales.

    But the report also said there were gaps in the data because not every asset manager was required to publicly report data, making it difficult to conduct a broad analysis.

    A senior research office official said it was difficult to say how much of a risk the asset managers posed, but the issue was material enough that the vulnerabilities were identified in the report.

    The research office did not focus on specific companies that could pose risks, but it did mention the largest asset managers, including BlackRock, Vanguard Group and Fidelity Investments. At least some of these groups are expected to lobby against a potential SIFI designation, according to people familiar with the matter.

    The report also noted that risk management practices were varied and although all registered investment companies and advisers were required to have chief compliance officers by the Securities and Exchange Commission, not all asset managers had chief risk officers.

    The research office listed several kinds of behaviour that could pose a risk, such as low interest rates prompting portfolio managers to purchase riskier assets, or sudden, large redemption requests in a stressed market.

    “Concerns about the liquidity of one fund can quickly spread to similar or related funds, or to the sponsor of a fund complex,” the report said.

    The report also said increased leverage could be a problem and noted that “during the financial crisis, the use of derivatives to boost leverage resulted in significant losses for some registered funds”.

    Asset managers could also transmit risk through links with creditors, counterparties and investors. The report noted that asset managers had increased their connections with banks, broker-dealers, insurance companies and others, which could create more vulnerabilities in the financial system.

    On September 20, the Financial Stability Oversight Council rejected an appeal by life insurer Prudential Financial, which objected to the SIFI label and is weighing its options.

    That move came after the FSOC designated insurance group AIG and GE Capital, the finance arm of General Electric, as systematically important. AIG, which needed a $182bn bailout by the US government during the financial crisis, and GE didn’t fight the SIFI label.

    Dimon visits White House amid settlement talks

    Posted on 30 September 2013 by

    Negotiations between JPMorgan Chase and US officials to resolve allegations the bank mis-sold mortgage securities in the run-up to the financial crisis are focusing on how credit and blame will be distributed in any settlement, people familiar with the matter say.

    As talks enter their second week, lawyers for the bank and the government are continuing to work on the details of a deal, which could see JPMorgan pay about $11bn in penalties and consumer relief.

      JPMorgan is seeking to avoid breaking down the claims by the entity that securitised them. The US government’s allegations involve JPMorgan, and two entities it acquired during the financial crisis, Bear Stearns and Washington Mutual, these people say.

      The bank, which has implied most of the faulty securitisations were done by Bear Stearns and WaMu before they were acquired, would prefer to not break down the claims to avoid shining a spotlight on JPMorgan, these people say.

      There is also an impression that the government agencies – the Department of Justice, Federal Housing Finance Agency and New York state attorney-general – are considering how to best allocate credit without having any agency appear weak. It is not clear how strong a factor that is, since settlements usually specify how much each government entity will receive.

      It is possible a settlement might not be reached if both sides cannot reach an agreement on admissions of wrongdoing by JPMorgan, these people say. The DoJ is pressing for admissions as part of any settlement, while the bank wants to limit the admissions to avoid consequences in private litigation.

      The threat of criminal charges still looms over the negotiations, these people say. The DoJ is pursuing a criminal component to the settlement, which could derail negotiations as the bank believes it is paying one of the largest financial settlement to buy peace. Talks began in earnest last Tuesday as the bank sought to delay a threatened action by the US attorney for the Eastern District of California. Jamie Dimon, chief executive, went to Washington on Thursday to meet Eric Holder, the US attorney-general.

      Separately, Mr Dimon is returning to Washington for a scheduled meeting, with other bank executives, with President Barack Obama on Wednesday.

      An industry participant said concern over the debt ceiling battle would be raised. A White House official said: “The president will meet members of the Financial Services Forum at the White House while they are in town for their annual meeting.”

      Lloyd Blankfein, chief executive of Goldman Sachs, is also expected to attend. Other members of the forum who will be present include Brian Moynihan of Bank of America and Anshu Jain of Deutsche Bank.

      After initially indicating he would not attend, AIG said Robert Benmosche, its chief executive, would also join the gathering. He was criticised last week by politicians and regulators for comparing the furore over bonuses at AIG with racist lynchings. Mr Obama was a leading critic of the bonuses in 2009. Mr Benmosche later apologised.

      Mortgage data undermine Help To Buy push

      Posted on 30 September 2013 by

      David Cameron highlighted the plight of young people struggling to get a foot on the housing ladder as he brought forward the launch this week of the coalition’s Help to Buy mortgage guarantee scheme.

      Yet data on Monday showed mortgage approvals at their highest level in more than five years, raising fresh questions over whether government intervention was necessary to spur recovery in the market.

      Key figures

      Key figuresSales volumes, loans approved and change in lending

        According to Bank of England figures, lenders approved 62,226 mortgages in August, up 30 per cent from a year earlier. Data from other sources suggest mortgages granted to would-be homeowners have increased even more rapidly than that.

        Much of the new lending is going to first-time buyers – precisely the people the prime minister says he wants to help. Figures from the Council of Mortgage Lenders, a trade body for the industry, show loans to first-time buyers rose 41 per cent in the year to July to 25,300. For existing homeowners, the number of loans rose by less than 10 per cent over the same period to 32,000.

        BoE data published this month showed the proportion of mortgages involving riskier forms of lending, with high loan-to-value ratios and high income multiples usually favoured by first-time buyers, is now at its highest level since the second quarter of 2009.

        “What interests me above everything else that’s going on in the housing market at the moment is why we’re seeing such a strong recovery in reported first-time buyers,” says Bob Panell, economist at the CML.

        However, even after the recent pick-up, mortgages to first-time buyers remain well below the levels seen at the peak of the housing boom. Mr Cameron claimed on Sunday that only “people with rich parents to help them” could afford the hefty deposits demanded by lenders.

        He said the coalition was riding to the rescue of those excluded from the market by launching the next phase of Help to Buy three months earlier than planned next week. Under the scheme, the government will provide a partial guarantee to help people secure mortgages on homes valued at up to £600,000 with just a 5 per cent deposit.

        “As prime minister I am not going to stand by while people’s aspirations to get on the housing ladder are being trashed,” he said.

        A Conservative aide yesterday pointed to CML figures showing that the typical first-time buyer needs a deposit of 20 per cent, equivalent to £29,000 for the average loan of £117,000. “Not many young people have easy access to that kind of money,” he said.

        Figures from Hometrack showed that loans granted to first-time buyers are now 31 per cent lower than levels seen at the peak of the boom in 2006. That is less than the fall in lending to existing homeowners, which is down by half, possibly reflecting a decision by many homeowners to stay put during the downturn rather than realising losses on their property. “The aspirational home movers have certainly been suppressed,” said Richard Donnell, director at Hometrack.

        Buy-to-let mortgages are down by 57 per cent, though CML figures suggest there has been some recovery in recent months. Buy-to-let remortgaging has also surged, rising by almost a quarter between June and July.

        Mr Donnell said high rental prices in London, coupled with more availability of mortgages secured with deposits of 10 per cent or less, has helped drive demand from first-time buyers.

        The surge in loans granted to first-time buyers could in part reflect pent-up demand from previous homeowners who sold their property around the time the boom collapsed and have been renting for a few years, waiting for the market to settle. These would-be homeowners are likely to be older – and with larger deposits – than most first-time buyers.

        “Our data capture those who are coming back into home ownership,” Mr Pannell said. “Anecdotally, lots of people have put plans on hold. That the first-time buyer numbers are coming back as strongly as they had done, it wouldn’t surprise me if a larger than usual proportion of those [are previous homeowners].”

        Mr Pannell estimates that, even in more normal times, the numbers of first-time buyers who have previously owned homes is around a fifth.

        Additional reporting by Jim Pickard

        Realising the promise of new technologies

        Posted on 30 September 2013 by

        Can banking platforms meet tomorrow’s requirements?

        Technology investments in the financial services sector continue to surge as banks and other firms compete to take advantage of the benefits enabled by technology-driven innovation. From new ways to service customers to deeper insights into customer preferences, streamlined delivery models to enterprise capabilities for measuring and managing risks, the examples span geographies, sectors, and products. Technology has reshaped the financial industry, and customer expectations.

          In Kenya, with a few key strokes on her cell phone, a house cleaner in Nairobi buys food for her children from the local grocer and then transfers money to her mother to buy medication at a pharmacy 100 kilometres away. In China, a man uses an instant messaging app on his phone to invest in money market funds while waiting for the bus. Technology-fuelled competition is continuing to grow for financial services companies, much of it in non-traditional sectors. And it is not restricted to “unbanked” customers in emerging markets.

          More traditional customers increasingly expect to be able to manage accounts, transfer funds, and access an array of reports, services, and other functionality – all from a smartphone.

          Retail banks, credit card companies, and even online shopping sites offer financial products and services, often custom-tailored to the customer’s location and circumstance, directly to customers through their phones and social media. And with consumer-focused digital players like PayPal, Apple, Zynga, and Facebook encroaching through payment innovations that bypass financial institutions entirely, financial institutions’ investments to enhance customer experience may struggle to keep pace with heightened customer expectations.

          At the same time, regulatory requirements, including more stringent risk management and reporting, bring a whole new set of operating challenges. In countries around the world, new rules and requirements – and even new agencies -emerge constantly while financial institutions have become increasingly large and complex, webs of affiliates generating vast amounts of transaction data. In the aftermath of 2008, banks seek to assess and better understand risk across businesses and counterparty relationships. Large financial institutions require technology platforms that can converge risk positions across business units, regions, and countries to provide comprehensive, enterprise views.

          Given these changes, it is surprising how deeply dependent the industry is on legacy operating systems that can be ill-equipped to support, or even allow, the types of new product, service, and operating models banks need to survive. In a 2013 survey of financial services executives, nearly 30 per cent of respondents indicated their companies need to address core system issues to support changing business requirements and growth objectives. Add in the evolving regulatory requirements and some financial institutions may barely be able to comply, much less compete, with their inflexible, old systems. Sixty per cent of respondents deemed the relationship with regulators a key concern.

          Big technology investments require business support

          Transformation of core platforms is typically a complex, costly multiyear effort. To be effective, technology decisions cannot be driven only by technology – business leaders have to help co-lead technology transformation programs. Business and technology leaders should consider working closely together to understand the impact of new technology investment on current operations and future capabilities.

          From the business side, leaders need to fully appreciate that they are in a technology business and that technology decisions are strategically important to the business in terms of brand, customer experience, and capabilities that drive market positioning. Giving chief information officers a seat and a voice at the table when strategic decisions are made is likely to be an important step toward business/technology alignment.

          Another is to have business units co-own IT projects and be jointly accountable with IT for project success. Finally, eliciting and sustaining support across the life cycle of a multiyear IT transformation requires clearly defined business- and IT-cost benefits and impacts across business and technology.

          Business and technology share responsibility

          Neither IT nor business leaders have a crystal ball to know tomorrow’s requirements. By working together, business and IT can better ensure they build the right capabilities and focus on upgrading the platforms and infrastructure needed to support whatever new products, service models, and financial innovations emerge to address industry opportunities and changing customer expectations.

          One area of focus – customer intelligence enabled by social, mobile and customer data – is a pervasive effort to cleanse data and build customer-facing channels that capture data and provide intelligence to drive product and business decisions. With the right information viewed through the right lens, a financial institution can reap real customer insights that could enable financial products being custom-designed, -priced, and – distributed when and where they are needed.

          Yet a business leader is unlikely to understand all of the underlying technology requirements – such as data analytics providers, software, and infrastructure – and capabilities needed to inform business and product strategy. Another key area for financial institutions – core banking platform replacement – is a multiyear effort that requires deep business involvement to ensure that the program achieves the intended impact.

          To effectively prioritise, design, and build these capabilities, business leaders should be active participants in IT transformation programs – from their inception – framing the investment case, design decisions, and testing and guiding the rollout of new product platforms.

          For their part, chief information officers and other IT leaders should prioritise and frame IT systems issues in terms of the business priorities, capabilities built, and overall business impact. Both sides should communicate in a shared language of the company’s strategy, objectives, and capability requirements. Effective joint governance over complex, expensive, multiyear IT change programs requires a shared view of what drives cost and timing and how to achieve the intended impact.

          What tactics have you found useful in getting business and technology leaders to share a common view of expectations and effectiveness? What else should financial services leaders think about to ensure that IT transformation programs meet current and future requirements?

          Eric Openshaw is a vice-chairman and the US Technology, Media & Telecommunications leader for Deloitte and Larry Albin is a principal and lead of Deloitte Consulting’s US technology services for Financial Institutions.

          Second woman in 800 years heads City of London

          Posted on 30 September 2013 by

          A woman has been elected Lord Mayor of London for only the second time in
          the institution’s 800-year history.

          Fiona Woolf, a partner at London-based law firm CMS Cameron McKenna, will don the ceremonial ermine and tricorn in November as she becomes the 686th head of the City of London Corporation, the Square Mile’s local authority.

            Ms Woolf, 65, is an expert in electricity markets and infrastructure. During her 40-year career, the privatisation specialist has worked in Argentina, India and Turkey, and lead the 38-strong team that advised on the privatisation of the National Grid electricity transmission network in the 1990s.

            In 1981, Ms Woolf became the first woman to become a partner at her law firm. Dick Tyler, senior partner at CMS Cameron McKenna, said she had driven the creation of the firm’s global practice in energy markets.

            “She was always a trailblazer. Forget the fact that she was a woman,” Mr Tyler said.

            One industry expert said she had a “highly commercial, pragmatic” style tempered by the political aspects of working with governments. “She would see all the angles,” the person said.

            The Lord Mayor plays a largely ambassadorial role for the City, spending at least three months of a year-long period of office promoting the UK financial services industry in overseas markets.

            But the sector remains under considerable pressure over banking reform, Britain’s uncertain future in Europe and the reverberations of the Libor scandal.

            Acknowledging the challenges faced by the City, Ms Woolf highlighted its importance to the economy. “Despite all the difficulties, the UK financial, business and professional services sectors continue to play a crucial role in driving jobs and growth in the UK and right across the world,” she said in a statement following her election yesterday.

            Ms Woolf, a former president of the Law Society of England and Wales and until this year a member of the Competition Commission, worked with the World Bank on bringing electricity infrastructure to countries emerging from war, including Liberia and Sierra Leone.

            As Lord Mayor, she
            follows in the footsteps of Mary Donaldson, who became the first woman to be elected to the post in 1983. Ms Woolf’s election will shine a light on gender balance in a City that remains male-dominated, particularly at senior levels.

            Just 6 per cent of managing directors in the Square Mile are women, and one-fifth of mid- to senior positions are filled by women, according to a survey last year by Astbury Marsden, recruitment agency.

            “She might act as a beacon to others, drawing attention to the fact there are more women in the City than in the past,” Mr Tyler said.”

            Ms Woolf will succeed Roger Gifford, who headed the UK arm of Swedish bank Skandinaviska Enskilda Bank. Her accession will take place on November 8, when Mr Gifford steps down at the Guildhall in a ritual known as the silent Ceremony.

            Singing solicitor hits high note

            Fiona Woolf was born in 1948 and educated in Edinburgh

            ● 1970 Keele University, BA in law and psychology

            ● 1973 Qualifies as a solicitor then joins Clifford Chance

            ● 1978 Joins McKenna, later part of CMS Cameron McKenna and becomes the firm’s first female partner in 1981

            ● 1985 Works on Channel tunnel negotiations

            ● 1990s Leads 38 lawyers advising on privatisation of National Grid, listed in 1995

            ● 2001-02 Senior fellow at Harvard. Made CBE

            ● 2007 Elected Alderman for the ward of Candlewick, City of London

            ● 2010-11 Sheriff of City of London

            ● 2013 Made lord mayor

            ● Interests A keen singer, she used to chair the Chelsea Opera Group and is part of its chorus. Governor of Guildhall School of Music and Drama

            Weidmann in sovereign debt warning

            Posted on 30 September 2013 by

            Jens Weidmann, Deutsche Bundesbank president©Bloomberg

            Jens Weidmann, Deutsche Bundesbank president

            Jens Weidmann, president of the Bundesbank, has risked angering Europe’s crisis-hit governments by warning of the dangers posed by high levels of sovereign debt on banks’ balance sheets.

            Writing in the Financial Times, Mr Weidmann demands that lenders cut their holdings of government bonds and set aside more capital to reflect their riskiness. “The time is ripe to address the regulatory treatment of sovereign exposures,” he writes.

              His intervention comes as the European Central Bank considers whether to offer another set of cheap multi-year loans, known as long term refinancing operations or LTROs, as its first two LTROs, deployed in 2011 and 2012, approach maturity. Anecdotal evidence suggests a great part of the €1tn the ECB pumped into the banking system in LTROs was invested in sovereign debt.

              Mr Weidmann notes that there is no limit on a bank’s exposure to a single sovereign, whereas the risk they can take on from other counterparties is limited to a quarter of their eligible capital. Additionally, sovereign debt attracts low or zero capital requirements for the banks.

              This has made it very attractive for banks to invest in government bonds and the “home bias” of buying the local sovereign’s debt has increased during the crisis. Because such debt can usually be lodged as collateral at the ECB in return for cheap funding, exposure to government bonds of countries like Spain and Italy is even more attractive since the debt now also yields more.

              “The more vulnerable banks are, the more they expose themselves to sovereign debt,” Mr Weidmann writes. “Weak banks invest in high-yield sovereign bonds and refinance at currently low interest rates. Such ‘carry trades’ sustain the low profitability of those banks and postpone necessary adjustments of their business model.”

              The Bundesbank chief, who also sits on the ECB’s governing council and stood alone in opposing its landmark bond-buying plan last year, said the banks loading up on such debt enjoyed the “yield mark-up if things go well” and “what happens in the event of a joint sovereign-bank default is not relevant to them.”

              Across the euro area, the share of sovereign bonds in total bank assets has increased over the past five years to 5.3 per cent from 4 per cent. But the figure rises to 10 per cent for banks in Italy and 9 per cent in Spain, according to calculations by Barclays.

              While Mr Weidmann’s proposal would entail big changes in regulation and would take years to agree, it could weigh on ECB policy makers’ minds as they consider another LTRO and prepare to undertake a comprehensive assessment of the health of the biggest 130 eurozone banks ahead of taking over supervisory responsibility for them in a year’s time.

              Additional reporting by Ralph Atkins in London

              Currency anger poses threat to trade talks deal

              Posted on 30 September 2013 by

              Pedestrians and shoppers walk through the Ginza area of Tokyo, Japan, on Sunday, Sept. 8, 2013. Japanís economy grew faster than previously estimated in the second quarter, aiding Prime Minister Shinzo Abeís reflation campaign as he considers whether the nation can withstand a sales-tax increase©Bloomberg

              When, in the 1990s, Sandy Levin, the veteran congressman, was looking for an example of Japanese trade barriers and the competitive advantage carmakers there gained from a weak yen he headed to Joe’s Auto Parts in Royal Oak, Michigan.

              There, Mr Levin bought a universal joint for $11.46. When he took it to Japan, the Michigan Democrat says, he found the same US-made steel joint sold there for $105 and, with that, he had a story to tell.

                These days, the universal joint from Joe’s, which Mr Levin carried with him until it wore a hole in his suit, sits mounted on a plaque on his office window sill. It also, he says, still sells for a whopping $35 in Japan, much more costly than a locally-made part.

                Cars, manufacturing and currency politics still run deep in America. And it is for that reason that, almost two decades after Mr Levin’s trip to Joe’s, the Obama administration is finding itself facing a new currency conundrum as it tries to wrap up a 12-country Pacific Rim trade deal by year-end.

                When 60 Senators from both major parties last week sent a letter to the administration demanding that the issue of currency manipulation be included in the agenda of the Trans-Pacific Partnership, they joined a bipartisan majority of members of the lower house who earlier this year sought the same.

                At a time when getting anyone in Congress to agree on anything is beyond unusual, the bipartisan majority in both houses, driven to act in large part by the US auto industry, sent a very clear signal of intent.

                In depth

                Japan – war on deflation

                Japan War on Deflation

                Aggressive monetary easing is under way in Japan to rid the economy of the deflation that has dogged it for almost two decades

                The question now is what the demands will mean for the Obama administration as it tries to close the TPP deal and how much of a shadow they will cast over talks among the leaders at this week’s Asia-Pacific Economic Cooperation summit in Bali.

                While the immediate target of Congress’s ire is Japan, where the yen has weakened by more than 20 per cent over the past year, the bigger long-term issue for many US legislators is China and its tight management of trading in the renminbi.

                Japan has repeatedly denied that its aggressive monetary policy and other efforts that Prime Minister Shinzo Abe unveiled to tackle deflation are aimed at manipulating the yen.

                The TPP is being sold by the administration as a trade deal that will set benchmarks for others. After initially being critical of the negotiations, Chinese officials have also in recent months been hinting they may some day want to join the bloc.

                Mike Froman, the US Trade Representative, has argued currency is the preserve of the US Treasury department rather than trade negotiators. Others have pointed out that even raising the issue could mean subjecting the Federal Reserve and its response to the financial crisis, which helped drive a weakening of the dollar, to scrutiny.

                But Mr Froman has been forced to at least open talks with Congress over how to address their currency demands. “We share a number of the concerns about currency and its impact on trade and we’re continuing consultations with Congress and stakeholders about their concerns,” he said last week.

                The problem for the administration is that other participating countries have made clear they are not interested in bringing the subject into discussions.

                “We believe a macroeconomic issue like currency issues should be dealt with outside a specific trade negotiation,” Canada’s trade minister, Ed Fast, told the Toronto Globe and Mail.

                But on Capitol Hill, legislators and aides from both parties insist that the administration will at the very least have to insert some language on currency manipulation in any TPP agreement. The risk of ignoring 60 senators would be that, without a reference to currency, any TPP deal could fail to pass Congress.

                Moves are also afoot in Congress to make sure that currency is addressed in any bill restoring the president’s “fast track” authority to negotiate trade agreements, which expired in 2007 and is a “critical tool” Mr Froman wants restored.

                Formally called “Trade Promotion Authority”, its purpose is to allow presidents to negotiate trade deals without subjecting them to myriad amendments when they reach Congress. Securing that authority from Congress is crucial not just for the TPP negotiations but also those over an even larger EU-US trade agreement about to enter their second round.

                Mr Levin, the senior Democrat on the House Ways and Means Committee, which is responsible for overseeing trade in the lower chamber, is clear that he wants currency to be addressed in both the TPP and the fast track. Mr Levin does not hide the fact that, almost two decades after he bought his universal joint from Joe’s, he still has Japan in his sights.

                “As we compete with Japan it’s absolutely essential that we open up the auto market,” he told the FT in an interview. “It is probably the number one objective in TPP.”

                Japan, he concedes, would not now be found guilty of currency manipulation this year under the IMF’s current guidelines. But he has an eye on the future and is determined not to let the issue go. “To say this issue of the currency is not [for] trade negotiations is just wrong.”

                Hedge funds move out of shorts

                Posted on 30 September 2013 by

                Hedge funds’ bets on falling share prices have dropped to their lowest level in years as traders predict an extended bull run for equities over the coming months.

                According to data from Markit, the overall value of short positions on European shares has dropped to $144bn, the lowest level since the data provider began monitoring in 2006.

                  In the US too, short positions are touching record lows. Just 2.4 per cent of S&P 500 shares are on loan to short sellers, Markit said.

                  The figures represent hedge funds’ conviction that equity markets are poised for significant further gains in the wake of the US Federal Reserve’s decision not to curb its programme of quantitative easing earlier this month and renewed belief in strong corporate performance in the coming months.

                  “The dynamics in the securities lending markets prior to the Lehman crash were completely different than they are today,” said Alex Brog, director at Markit. “Firstly, there were far more hedge funds, which were more leveraged. Regulatory uncertainty has deterred some from engaging in short selling. Also in today’s prolonged bull market, it has been hard for short sellers to bet against a rising tide, much of which has been driven by macroeconomic sentiment.”

                  Global equities have risen 19 per cent so far this year, according to the MSCI All World Index.

                  US stocks have been among the strongest performers. The S&P 500 is up 18 per cent over the past nine months.

                  Paul Hickey, co-founder of Bespoke Investment Group, said that US equities have average positive returns on the day of their earnings report for the past five quarters, the longest streak for Wall Street stocks in at least a decade. The US third-quarter earnings season is about to begin.

                  “With shorts getting burnt repeatedly, there are only so many times you are going to put your hand on the hot stove,” he said.

                  The average equity hedge fund has made about 7 per cent so far this year, according to HFR, though some of the biggest names in the industry have posted outsize returns.

                  TCI, the $7bn London-based activist hedge fund run by Christopher Hohn, is up 34 per cent so far for 2013, according to an investor. Mr Hohn has enjoyed big gains from investments in companies such as EADS in Europe and News Corp in the US.

                  Lansdowne Partners, Europe’s biggest equity hedge fund, is meanwhile up 20 per cent, thanks in part to wagers on US banks.

                  John Paulson, the US hedge fund manager who correctly called the housing bubble in 2007, has seen big gains for his Recovery fund, which is geared to the state of the US economy. The fund has made its investors more than 35 per cent in the first eight months of the year, thanks to US stock market picks.

                  Gleeson pays first dividend in five years

                  Posted on 30 September 2013 by

                  Gleeson, the housebuilder that focuses on cheap homes in the north of England, is to pay its first full-year dividend in five years after seeing revenues rise by nearly 50 per cent.

                  The Sheffield-based group, which recently restructured to focus on housebuilding in deprived areas of northern England and on buying land in the south, saw its turnover for the year to June 30 2013 rise 46 per cent to £60.7m as it sold 406 homes.

                    Adjusted operating profit, excluding exceptional credits of £1m in 2013 and £3m in 2012, increased from a £231,000 loss to £5m. Pre-tax profit on the same basis rose from break-even to £4.8m.

                    Houses built on expensive plots bought before the recession were being sold off, while newer homes are commanding higher margins. Gleeson pays less than £10,000 for a plot of land now, compared with £30,000 before the credit crunch.

                    The proportion of homes sold from new, higher margin sites rose from 31 per cent in the prior year to 75 per cent.

                    Jolyon Harrison, chief executive, said the average asking price would fall, from around £117,000 in the 2013 financial year to £115,000 in the following year.

                    He said there would be little competition from Help to Buy, the government scheme to lend deposits, which is being extended to second-hand homes: “We have to hold our customers’ hands through the buying process. Help to Buy is complicated. You have to go through everything twice.”

                    Alan Martin, chief financial officer, said revenue and profitability would continue to rise in the current financial year. “I don’t think we’ll grow 49 per cent, but it should be 25 per cent.” The company’s land bank continues to grow and stood at 3,860 plots at the year-end.

                    Gleeson Strategic Land, which buys sites in the south and obtains planning permission before selling on to housebuilders, recorded operating profit of £3.5m (£3.7m) on turnover of £12.7m (£8.2m). It made seven land sales, with a combined acreage of 42.5 acres.

                    Ten new sites were secured covering 203 acres, with the potential to deliver 1,200 houses. Heads of terms have been agreed for a further five sites covering 116 acres, with the potential for 950 plots.

                    The land owned or part owned by the group has residential planning permission for a total of 1,084 plots.

                    A full year dividend of 2.5p was recommended. Aside from a 5p special dividend in 2011, it is the first payout since 2008.

                    Basic earnings a share improved by 216 per cent to 21.7p (2012: 6.9p). Excluding the exceptional deferred tax credit, the basic earnings a share improved by 99 per cent to 13.7p (2012: 6.9p). For continuing operations only, excluding the exceptional deferred tax credit, basic earnings a share improved from 5.5p to 11.1p.

                    Boom year for hedge fund equity bulls

                    Posted on 30 September 2013 by

                    For all the nervousness over Washington’s budget wrangling and the political crisis in Italy, hedge funds have rarely been more bullish on equities.

                    In the US as a whole, only 2.4 per cent of shares, close to an all-time low, are out on loan – a measure of short selling activity, says data provider Markit.

                      Only six companies have more than 3 per cent of their stock sold short. In Europe, it is only two.

                      With global stocks up 19 per cent so far this year, according to the MSCI world index, it is little wonder.

                      “In today’s prolonged bull market, it has been hard for short sellers to bet against a rising tide, much of which has been driven by macro-economic sentiment,” says Alex Brog, a director at Markit.

                      “The muted borrowed demand today is the new reality.”

                      According to HFR, the average equity hedge fund is up 7 per cent for 2013.

                      Although the figure compares favourably with other hedge fund strategies, which are up only 4.5 per cent this year, and with equity hedge funds’ recent lacklustre run of only 8 per cent in the entire preceeding three years, it hardly screams mastery of the universe.

                      However, the headline numbers do not tell the whole story.

                      “In a ripping bull market I wouldn’t expect hedge funds to keep up fully,” says Rick Teisch, US director of research at Liongate Capital, which has $2bn invested in hedge funds on behalf of clients.

                      “I’d expect them to capture some of the upside and to significantly limit the downside. And that’s what they have mostly done this year.”

                      In August, Mr Teisch notes, equity markets dropped dramatically, yet the average equity hedge fund did not, and many even made money.

                      “And there are plenty of equity hedge funds – particularly those with a long bias, concentrated portfolio of a focus on a particular theme – that have done really well this year,” he says.

                      “We have seen returns of as much as 30 or 35 per cent from some.”

                      For managers whose modus operandi is zero in on the fundamentals of corporate performance – old fashioned stock-picking – 2013 is proving to be a boom year.

                      For example, TCI
                      , the multi-billion equity hedge fund run by Chris Hohn has made its investors 34 per cent in the past nine months, according to a client, thanks to timely wagers on companies such as EADS
                      , which Mr Hohn has been pressing to dispose of its stake in Dassault Aviation.

                      Egerton Capital
                      , run by John Armitage, was up 23 per cent as of the end of August.

                      Big gainers for the firm have included Sky Deutschland
                      and Prada
                      .

                      “Fundamentals are increasingly being rewarded,” says Ben Watson at Aberdeen Asset Management
                      .

                      “Even though there is still macro risk and negative headlines at every turn, the fundamentals are shining through and share prices are taking more account of them than there were in 2010 or 2011 or 2012. . . It’s a stockpickers’ market.”

                      Some of the most successul fundamental equity bets this year have been in financials – a sector hardly well-placed when it comes to swings in macro sentiment.

                      Algebris, the financials-focused fund run by Davide Serra, has made its investors 36 per cent so far this year in its equity fund, according to an investor. Mr Serra has also raised $100m in the past few weeks for a brand new long only fund targeted specifically at financial services companies.

                      Lansdowne Partners
                      , Europe’s biggest equity hedge fund, has also seen its bets on banks, which for a long time had dragged on the fund’s performance, finally come good.

                      The flagship Lansdowne developed markets fund is up 20 per cent so far this year.

                      Toscafund
                      , the hedge fund firm founded by former top-rated bank analyst Martin Hughes, has been another beneficiary of British banks’ rerating. The firm’s flagship financials fund, run by Johnny de la Hey, is up 17 per cent so far this year.

                      As for where future opportunities lie, equity managers of all stripes are now looking at Europe. Flows into European markets have been muted over the past few years and companies have traded at steep discounts thanks to fears over the eurozone debt crisis.

                      The situation is set to change, many hedge fund managers believe.

                      And, of those, a great number – particularly US firms – are now putting money behind their views. Demand for hedge fund office space and equity analysts in London has been rising fast this summer.