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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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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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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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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Hard-hit online lender CAN Capital makes executive changes

The biggest online lender to small businesses in the US has pulled down the shutters and put its top managers on a leave of absence, in the latest blow to an industry grappling with mounting fears over credit quality. Atlanta-based CAN Capital said on Tuesday that it had replaced a trio of senior executives, after […]

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Archive | November, 2016

RBS suspends two forex traders

Posted on 31 October 2013 by

Royal Bank of Scotland has suspended two traders in its foreign exchange division according to two people familiar with the situation, in another sign that the global probe by regulators into the suspected manipulation of the currency market is rapidly gaining traction.

Some of the world’s largest banks, including UBS, Barclays, Deutsche Bank and RBS, have confirmed they are co-operating with regulators in investigations into the world’s largest financial market, where $5.3tn changes hands each day.

    The two traders would be the first RBS employees to be suspended in the widening probe that echoes the Libor interbank lending manipulation scandal.

    The bank, which declined to comment on the suspensions, confirmed this month that it has received requests for information from regulators. “Our ongoing inquiry into this matter continues and we are co-operating fully with the FCA and our other regulators,” the bank said two weeks ago.

    Last month, people close to the situation said that RBS had turned over records of emails and instant messages to the UK regulator, the Financial Conduct Authority, sent to and from a former trader. This trader, Richard Usher, left RBS in 2010 and is understand to have be given leave from his current position as European head of forex spot trading at JPMorgan.

    Rohan Ramchandani, head of European spot trading at Citi, went on leave this week, while Matt Gardiner, a former senior currencies trader at Barclays and UBS, was suspended by Standard Chartered this week.

    None of these traders have been accused of any wrongdoing.

    Mr Usher’s instant message group included bankers at Barclays and Citigroup, people close to the situation said.

    UBS said this week it had taken action against some of its employees after the Swiss regulator, Finma, said it was investigating suspected manipulation of the foreign exchange market at a number of Swiss banks.

    At least six authorities globally – the European Commission, Finma, Switzerland’s competition authority Weko, the FCA, the Department of Justice in the US and the Hong Kong Monetary Authority – are looking at allegations that bankers colluded to move the currencies market.

    HSBC, Citigroup, JPMorgan and Credit Suisse have also launched internal probes or received requests for information from regulators, said people familiar with the situation.

    Banks are scouring through years’ worth of instant messages and emails to search for instances of wrongdoing.

    News about the probes has rattled traders in an area that has been one of the bigger profit drivers of investment banks’ trading units in past years but which has been challenged this year as low volatility in currencies cuts opportunities for speculators.

    Some bankers have tried to play down the affair by saying the vast and highly liquid foreign exchange market is almost impossible to manipulate, but senior traders are saying this is not necessarily true.

    A senior trader said that despite the huge volume of daily foreign exchange trading, the fragmentation of liquidity between different trading platforms and banks’ increasing use of their own internal platforms meant that “you can start to get an impact on the market at quite small ticket prices”.

    The news came on the same day as Credit Suisse announced it had dismissed a trader at its London exchange traded funds desk this week after he had caused a nearly $6m loss late last year.

    “The bank promptly notified the relevant authorities and has been co-operating with its regulators. We are confident the trader acted alone and that the matter has been contained,” Credit Suisse said.

    Additional reporting by Delphine Strauss

    AIG completes buyback as profits improve

    Posted on 31 October 2013 by

    AIG announced it had completed its first share buyback since its $182bn government bailout during the financial crisis, as the insurance group posted improved third-quarter profits on Thursday.

    Net income rose to $2.2bn, or $1.46 a share on a diluted basis, in the third quarter, up from $1.9bn, or $1.13 a share, a year earlier.

      Operating profits, which excludes some investment results, were exactly in line with analysts’ expectations of 96 cents a share, down from 99 cents a share a year earlier.

      Insurance operations made operating income of $2.2bn, up 38 per cent on last year. The overall results were held back by the prior year’s inclusion of almost $1bn in one-time gains from changes in the fair value of assets.

      “AIG’s solid performance this quarter underscores the strong fundamentals of our businesses, and builds up the momentum that we generated in the first half of this year,” said Bob Benmosche, chief executive.

      The insurance group has slowly recovered from its near-failure in 2008, repaying the emergency infusion of funds from the US Treasury and Federal Reserve. It has now recorded its sixth profitable quarter in the last seven.

      AIG announced its first post-crisis dividend last quarter which it maintained at 10 cents a share. This quarter it added its first post-bail-out buyback, worth $192m.

      The company did not provide an update on the potential sale of ILFC, its aircraft leasing business, which it had announced had been acquired by a Chinese consortium before the transaction hit obstacles.

      A person familiar with the situation said AIG was continuing to prepare for an initial public offering for ILFC should the sale be definitively called off.

      Shares in the company fell 2.4 per cent in after-market trading to $50.40, after a rising of 46 per cent over the past year.

      Germany rebuffs US Treasury criticism

      Posted on 31 October 2013 by

      Germany has struck back at the US Treasury after it became the target of an unusual swipe in a report blaming the eurozone’s biggest economy for giving a deflationary bias to the euro area and the world economy.

      Although the US Treasury has criticised German policy before, in its new semi-annual currency report it elevated the comments to a “key finding” alongside China’s undervaluation of the renminbi and Japan’s monetary stimulus.

        The German federal finance ministry responded that its current account surplus was “no cause for concern, neither for Germany, nor for the eurozone, or the global economy”.

        “There are no imbalances in Germany that need correction,” a finance ministry spokesman said. “On the contrary, the innovative German economy contributes significantly to global growth through exports and the import of components for finished products.”

        The spokesman added that Germany had “robust” wage growth and that the economy had shifted towards domestic demand.

        The US decision to name Germany directly in the report highlights deep frustration with the eurozone’s largest economy among international policy makers who find it hard to see how peripheral countries such as Greece can grow if Germany will not create demand for their exports.

        “Germany has maintained a large current account surplus throughout the euro area financial crisis, and in 2012, Germany’s nominal current account surplus was larger than that of China,” the Treasury report said.

        “Germany’s anaemic pace of domestic demand growth and dependence on exports have hampered rebalancing at a time when many other euro-area countries have been under severe pressure to curb demand and compress imports in order to promote adjustment.”

        Although eurozone policy makers have pointed to signs of recovery in Spain and elsewhere, US policy makers remain deeply sceptical that the currency area’s problems are solved, and fearful of another crisis that would hurt their own growth.

        However, Germany has resisted policies to encourage faster wage growth or running a larger budget deficit in order to stimulate demand.

        The currency report also sounded a renewed note of warning about China’s currency, saying that the renminbi had appreciated little in recent months, and China had resumed intervention.

        “The evidence that China has resumed large-scale purchases of foreign exchange this year, despite having accumulated $3.6tn in reserves . . . is suggestive of actions that are impeding market determination and a currency that is significantly undervalued,” the Treasury report says.

        But it stopped short of officially naming China a currency manipulator. If the Treasury names any country a manipulator then, under the statute that requires the report, it must immediately open negotiations with the country to adjust the exchange rate.

        In recent years, the Treasury has preferred to encourage China to revalue the renminbi, and argued that it has made progress towards doing so.

        Recovery palpable but direction not clear

        Posted on 31 October 2013 by

        Governor of the Bank of England, Mark Carney©Charlie Bibby

        Governor of the Bank of England, Mark Carney

        Britain’s economy is in recovery mode. But will this be another false dawn as in 2009-10 or a prolonged upswing that boosts prosperity and improves household and public finances?

        Does the expansion merely represent the flickering flames of another property inferno on the back of rampant debt and consumption growth? Or is the consumer-led recovery the inevitable first step in an orderly rebalancing? And how does this square with Mark Carney’s vision for growth led by financial services, outlined by the Bank of England governor last week?

        These are the broader questions that will shape Britain’s move from stagnation to growth; they will provide both the consequence of policy decisions and the trigger for action. As they are resolved over the next few years, there is very little consensus as to the most likely scenarios.

        For all George Osborne’s protestations that “growth is balanced across all sectors of the economy”, so far the chancellor has seen little rebalancing from services to manufacturing, from London to the regions, from consumption to investment and exports.

          There has been a shift in income away from the rich and towards the poor, but this reflects the effect of the great recession and initial tax increases and poorer families are now being hit by deep benefit cuts. There has been no fundamental change in economic structure.

          Most worrying is the breakdown of total expenditure. After a 25 per cent depreciation of sterling, Britain’s current account deficit has barely improved, a situation Charlie Bean, Bank of England deputy governor, called “distinctly disappointing”. British exporters have performed far worse than their counterparts in Ireland, Spain and Portugal. Falls in investment have been detracting from economic growth since 2010 with private consumption again becoming the main driver of expansion.

          When gross domestic product is analysed by the strength of industrial sectors, a similar story is evident. Construction and production, including manufacturing, remains more than 10 per cent below the 2008 peak, while the service sector surpassed the peak in the third quarter of 2013.

          Judging by house prices and incomes, the traditional North/South divide is operating again – recovery is strongest in London and weakest in the most peripheral English regions.

          The picture remains business as usual for the UK economy, although households are still saving more than they were and the growth of credit is far below the levels of the 1990s and 2000s. With such a lack of rebalancing, it would be natural for Mr Osborne to shy away from talk of balanced growth and cringe when reminded of his “march of the makers” 2011 Budget speech. But he is having none of it, and praises schemes such as Help to Buy as easing “lack of mortgage availability at higher loan-to-value ratios [which] has itself been one of the biggest factors holding back the supply of new housing”.

          The chancellor’s approach is similar to that of Lord King, the former Bank of England governor, who regularly talked of a “paradox of policy” in which it was necessary to stimulate consumption with loose monetary policy in the short term with the hope that rapid initial unbalanced growth would soon give way to higher business investment, more exports and domestic substitutes for imports.

          The Bank of England’s task is to ensure the UK can host a large and expanding financial sector in a way that promotes financial stability. Only then can it be both a global good and a national asset . . . [But] we’re not cheerleading for the City

          – Mark Carney

          The current governor favours a different approach. In his groundbreaking speech last week, Mr Carney moved away from Lord King’s disdain for growth led by financial services and the City of London and instead embraced the idea, within a strong regulatory framework.

          “If organised properly, a vibrant financial sector brings substantial benefits,” he said, envisioning a world in 2050 where banking assets grew from four times national income to nine times. “The Bank of England’s task is to ensure that the UK can host a large and expanding financial sector in a way that promotes financial stability. Only then can it be both a global good and a national asset,” he added, while insisting later: “We’re not cheerleading for the City”.

          The benign scenario

          This is the outcome policy makers expect. As consultancy Capital Economics sums up: “What starts as the ‘wrong’ sort of growth [is] the trigger for a shift into the ‘right’ sort.”

          Businesses, reassured by the rise in household spending, finally start to invest their huge cash piles. Companies are also confident enough to borrow money again, and banks are confident enough to lend to the ones with viable prospects. Fresh demand and investment helps to improve productivity after years in the doldrums.

          For economists who have been sceptical of the recovery’s sustainability, this is important. “The one world in which everything could be OK is if productivity starts to turn around,” says Andrew Brigden from Fathom, an economic consultancy.

          Because productivity is on the rise, unemployment comes down slowly and inflation stays in check. This means the Bank of England is not under pressure to raise interest rates.

          As workers become more productive, their employers start to pay them more, and real incomes grow again. This allows households to spend more without cutting the rate at which they are saving. House prices rise gradually, which encourages more housebuilding.

          Manufacturing is never going to be a big part of the UK economy, but it does grow in importance as more sectors follow the success of the car industry. The trade deficit improves after the eurozone emerges from recession, helped by growing financial services exports from a strong and stable City of London.

          The boom-bust scenario

          As animal spirits return, Britain proves once and for all it is addicted to financial services and property speculation. The Help to Buy scheme persuades another generation to borrow to the hilt to buy assets that are already overvalued.

          Housebuilding, hamstrung by restrictive planning laws, cannot keep up with demand, and prices continue to rise.

          The buoyant property market encourages homeowners to spend more in the shops, even though their wages are still falling. They cut the rate at which they are saving. Banks funnel loans to consumers and housebuyers, not to businesses.

          Meanwhile, productivity does not recover as the Bank of England had expected. Instead, companies have to hire more workers to cope with higher demand. Unemployment falls quickly. Inflation picks up. The BoE comes under pressure to raise interest rates, or cancel Help to Buy, or both.

          As George Buckley, an economist at Deutsche Bank, points out, up until this point the economy has enjoyed a lot of outside help. “You’ve got rates at a 300-year low, you’ve got QE worth almost 25 per cent of GDP, you have the Funding for Lending Scheme . . . [and] the Help to Buy schemes one and two. All of that is a lot of support, and you think to yourself, is that sustainable? Well, it depends how long they keep those policies in there for.”

          The withdrawal of some of this stimulus – or even the threat of withdrawal – pushes up borrowing rates. The most leveraged households cannot cope. Repossessions rise. House prices fall. Sterling tumbles as foreign investors head for the exit.

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          Hollande holds key to Merkel’s euro plan

          Posted on 31 October 2013 by

          ingram pinn illustration

          Join a conversation about Germany and the talk is soon about France. The present dynamics of Europe are shaped by German hesitation and French weakness. These postures are connected. The Franco-German motor ran out of steam a while ago but, seen from Berlin, nothing much can happen unless the two nations are travelling in the same direction.

          Berlin wants to deepen other relationships. A few years ago, Angela Merkel thought Britain might be drawn into a troika. The German chancellor gave up on the idea when Britain’s government decided to detach itself from EU affairs. Poland has taken Britain’s place in German diplomacy. But the partnership with Paris remains an indispensable if insufficient condition for progress.

          Europe and the euro have not loomed large in the post-election negotiations between Ms Merkel’s Christian Democrats and the centre-left Social Democrats. The future of the single currency has been parcelled off to a subcommittee of one of a dozen groups discussing the terms of a grand coalition. This does not imply the euro has been pushed to the margins; rather that the big arguments between the two parties lie elsewhere.

            As I understand it, the chancellor’s office has submitted to the coalition negotiators four possible paths for the eurozone. All presume that the EU is an essential anchor for German prosperity and security and that the union would not survive the demise of the euro; and all depend on good working relations between Ms Merkel and François Hollande, the French president.

            The first of the options might be described as “muddle through”. The eurozone’s drive towards banking union and mutual economic oversight would remain within the existing legal framework. The EU treaties, the argument runs, have proved remarkably flexible in allowing deeper euro integration.

            The second is at the other end of the spectrum. Echoing the views of Wolfgang Schäuble, the finance minister, it calls for a comprehensive set of measures, underpinned by treaty change, to secure the euro’s future. It would finish the work left undone when France blocked German calls for political union at the time of the Maastricht treaty.

            The third option acknowledges that banking union, implicit or explicit debt mutualisation and shared responsibility for national fiscal policies will indeed require changes to the treaties, but prefers a rifle to a shotgun. Treaty amendments would be narrowly drawn to avoid a need for national referendums. The European Stability Mechanism provides a precedent.

            Finally, there is what I call the “if Britain plays silly buggers” option. Were Britain to seek to block changes, the eurozone would make new arrangements outside of the treaties. This is what happened when David Cameron tried and failed to veto a new fiscal pact. One would hope that Britain’s prime minister learnt something from that mistake.

            Ms Merkel’s cautious pragmatism argues for the third as her preferred option. A big bang approach would be the more convincing show of confidence in the euro’s future but, one or more national electorates would probably shoot it down – even assuming that Mr Hollande, for one, was prepared to take such a risk.

            Whatever the choice, Berlin believes that the long-term future of the euro depends on France. As I heard many times at a conference hosted by the Ditchley Foundation, Ms Merkel has put a new understanding with Mr Hollande at the top of her list of priorities. Berlin knows two sides will always take a different view of, say, the respective responsibilities of surplus and deficit nations within the eurozone, but they need to stake out common ground. Far from exulting in French weakness, Ms Merkel sees it as an obstacle to bilateral co-operation.

            The maddening thing is that Mr Hollande knows what must be done. Visitors to the Elysée Palace find a president clear-sighted about the imperatives of rebuilding competitiveness and shifting the burden of fiscal adjustment from higher taxes to lower spending. The problem lies in the gulf between the analysis and the willingness to act. Mr Hollande worries that if he moves too fast, the French will take to the streets. Yet by moving too slowly he is driving them toward the xenophobic extreme represented Marine Le Pen’s National Front.

            Returning growth is nurturing a belief that the euro crisis is over. Recent weeks have seen US hedge funds scrambling to buy the once toxic debt of the eurozone’s weakest economies. Some will take this as a bad sign – many of the same funds were not so long ago losing large amounts of their clients’ money by betting against the survival of the single currency. I have never understood how people so supposedly smart about markets can be so expensively dumb about politics.

            On this occasion, the hedgies are probably right about the short term. There are squalls ahead, perhaps one or two rough ones, but eurozone governments have not gone through the agonies of the past few years to throw in the towel now. Ms Merkel, though, is right about the long term: the euro has a future only if over time member states achieve a rough parity of competitiveness. And that has to start with France.

            Politics saved the monetary union. The hedge funds missed the sheer force of political will behind the project. Rising populism across the continent, however, threatens an opposing dynamic; a public mood that comes to blame the euro for the wrenching economic and social adjustments demanded of Europe by globalisation. The single currency is safe for the time being. It would be a mistake to say the game is over.


            Europe’s flirtation with deflation

            Posted on 31 October 2013 by

            The US government could not have chosen a better day to attack Germany for pushing the eurozone into deflation. Hours after the US Treasury published a report that was highly critical of Berlin’s large current account surpluses, fresh statistics showed that inflation in the eurozone fell to 0.7 per cent in October, a four-year low.

            The US is clearly not in a position to lecture any country on economic policy making. For weeks, Congress has flirted with a US default, which would have been calamitous for the global financial system. This game of Russian roulette may well resume next February, when the US is expected to hit its debt ceiling again. Yet, the faults of the messenger do not invalidate what he has to say. While the blame for the eurozone’s disinflation does not rest with Berlin alone, the US Treasury’s analysis is both correct and timely.

              The eurozone’s slow march towards what some see as Japanese-style deflation began in crisis-hit countries, where companies cut prices to counter chronically feeble demand. Germany should help its weaker partners during this difficult transition, cutting taxes and letting wages rise. German workers would have more cash to spend on imports, some of which would come from countries such as Spain, Greece and Italy. Yet Berlin has repeatedly ignored this prescription. As the US Treasury notes, in 2012 Germany’s nominal current account surplus was larger than China’s.

              While fiscal expansion in Germany is desirable, it will not, on its own, rescue the rest of the eurozone from a lengthy depression. There is only so much money that Germans can spend on an extra holiday in Rhodes or a new designer bag made in Milan. Saving the eurozone from deflation requires a concerted effort among its institutions, starting with the European Central Bank.

              After buttressing the single currency with its conditional bond-buying scheme, the ECB has done little to stop inflation undershooting its target of close to (but below) 2 per cent. A rate cut in May and a promise to keep monetary policy loose until growth returns was all Frankfurt had to offer. When the ECB’s governing council meets next week, it should immediately cut its policy rate from 0.5 to 0.25 per cent. A new round of cheap loans to the banks – perhaps linked to how much they lend to companies – should also be on the cards. Germany should not oppose these moves. A stronger eurozone is in the interest of Berlin and of the rest of the world.

              New proposals to toughen bank trade rules

              Posted on 31 October 2013 by

              Global regulators are cracking down on banks that try to bend capital rules for their trading businesses by proposing new standards for the way lenders assess risk.

              The Basel Committee on Banking Supervision yesterday published a consultation paper that analysts said could have significant repercussions for the way banks run their trading operations.

                It comes after regulators uncovered wide divergences between banks, with some using their complex internal models to minimise the amount of capital they have to set aside.

                The new system will require banks to calculate risks according to a standardised approach in addition to their own in-house methodology. The Committee said it may go further after assessing the effect of its proposals and introduce the standardised approach as a minimum requirement.

                Patrick Fell, director of financial services at PwC, said the new system would prompt investors to challenge banks when their in-house models showed a much lower risk figure than under the standardised approach.

                “Some banks may have a hard time in the public arena,” he said.

                Thomas Huertas, partner in Financial Services Risk at EY, said the proposals would also restrict the ability of banks to put illiquid assets in their trading books.

                “The proposal could have knock-on effects on the liquidity of some markets if the trading inventory of market-makers ends up being reduced,” he said. “It may increase some banks’ capital requirements but many of these banks already have capital that is substantially in excess of minimum requirements.”

                A pinch of Basel

                Jonathan Guthrie

                Wile E. Coyote never quite manages to catch Road Runner, his quarry in the old Warner Brothers cartoons. The pursuit of banks by the Basel Committee on Banking Supervision is similarly Sisyphean, writes Jonathan Guthrie. The banks have a habit of dodging measures the regulator creates to make them bolster their capital.

                Continue reading

                The new system would introduce more rigorous assessments of the models banks wish to use for their trading books. It would create a new method for banks to calculate the losses they could incur, dropping the so-called value at risk method in favour of an alternative called “expected shortfall”, which better captures their ability to withstand extreme market shocks.

                The boundary between banks’ trading books and their banking book will be made less “permeable” in order to limit firms’ ability to shunt assets between different books in order to reduce their capital requirements.

                Thursday’s paper was the second released by the Basel Committee as part of its “fundamental review” of trading book capital requirements. Regulators hope the detail will give investors a better idea of the capital implications for the industry.

                NSA revelations boost corporate paranoia

                Posted on 31 October 2013 by

                The US embassy in Berlin: Washington denies trying to steal commercial secrets from foreign companies to help their US competitors©Getty

                The US embassy in Berlin: Washington denies trying to steal commercial secrets from foreign companies to help their US competitors

                On a mild day in late August a German police helicopter buzzed low over the US consulate in Frankfurt, the financial capital of Germany.

                On the instruction of the Office for the Protection of the Constitution (BfV), Germany’s domestic intelligence agency, its mission was to photograph the rooftop of the US outpost, which is located less than 5km from the European Central Bank and Bundesbank.

                German media say the BfV hoped to identify the presence of listening antennas and the action prompted an exchange between the US and the German foreign ministry in Berlin.

                In depth

                US Security State

                US security state

                Analysis of revelations about the extent of the surveillance state in the US

                James Clapper, US Director of National Intelligence, insisted again in September that the US does not use foreign intelligence capabilities “to steal the trade secrets of foreign companies on behalf of . . . US companies to enhance their international competitiveness or increase their bottom line”.

                But ever since Edward Snowden, the contractor turned whistleblower, began releasing his treasure trove of US surveillance secrets, European governments and business leaders are no longer sure whether to take the director at his word.

                Reports that the US National Security Agency spied on Brazilian oil company Petrobras
                and gained access to data held by US cloud providers including Google and Yahoo have ratcheted corporate paranoia about state surveillance to new highs.

                The final straw came when it was revealed that Chancellor Angela Merkel’s phone had been bugged, possibly for about a decade. If Europe’s most powerful person can be targeted, then surely business leaders are also potential targets.

                  “Snowden has made transparent the intensive collaboration between [US] intelligence services and companies. I think it’s conceivable that these data are used for mutual benefit. Germany must wake up,” says Oliver Grün, president of BITMi, which represents small and medium sized German IT companies.

                  German companies believe the US now poses almost as big a risk as China when it comes to industrial espionage and data theft, according to a survey published in July by EY, the consultancy.

                  In all the documentation leaked by Mr Snowden, there has, however, been no evidence to date that the US has passed on foreign companies’ trade secrets to its own companies.

                  Politicians have expressed concern that the EU lacks certain IT and internet capabilities and should strive to reduce its dependence on the US. Business leaders are sceptical about this.

                  “Someone in the German parliament says we should build a German Google. I can only shut my eyes and slowly open them again . . . That’s not the way,” Hasso Plattner, chairman of German business software company SAP, says. “[If one wanted a strong European IT industry] then one shouldn’t have let it die out 20 years ago. Everything is subsidised in Germany, from coal, to cars and farmers. [Everything] but the IT industry.”

                  Still, the reach and technical sophistication of US spy agencies exposed by the Snowden revelations have come as a shock to some companies who previously thought the biggest surveillance risk was posed by China.

                  A big shift is occurring in
                  cloud computing where European executives have become more aware that data stored in the US is subject to that jurisdiction and therefore potentially vulnerable.

                  According to a survey carried out by the Cloud Security Alliance, a trade body, some 10 per cent of non-US members cancelled plans to use a US-based cloud provider after revelations about the US Prism data mining programme.

                  Jim Snabe, co-chief executive at SAP, says: “We see a new question from customers that didn’t come up a year ago – which is where is my data stored and can you guarantee that it stays physically in that jurisdiction.”

                  Many German executives argue that the latest reports are simply confirmation of what they already knew: that powerful states want to steal their most prized secrets and these data must therefore be guarded at all costs.

                  “That economic spying takes place is not a surprise . . . it has always taken place. This has been a topic for many years and hasn’t fundamentally changed through the current discussion,” says Kurt Bock, chief executive of chemical maker BASF.

                  The Americans spy on us on the commercial and industrial level as we spy on them too, because it is in the national interest to defend our businesses

                  – Bernard Squarcini, former head of the French internal intelligence agency DCRI

                  Corporate leaders are not generally keen to boast about the countermeasures they have taken, in case this hands an advantage to an attacker.

                  For large companies, the message has long since been drummed home that picking up a free USB stick at a trade fair, or leaving a laptop unguarded in a hotel room are unwise, to say the least.

                  Ulrich Hackenberg, board member at carmaker Audi, says it has been standard practice for years for mobile phones to be collected before board meetings so they cannot be used as remote listening devices.

                  Germany’s BfV advises executives to consider using simple prepaid mobiles when on foreign trips because of the risk that smart phones are compromised. The prepaid mobiles are then thrown away afterwards.

                  However, there is concern that small and medium-sized companies remain vulnerable to hacking and surveillance. In Germany, many of these companies are global market leaders in their particular niche.

                  “Small and medium sized companies often lack the experience, personnel and financial resources to protect corporate secrets effectively against unauthorised access,” the BfV warns in a report.

                  The US warns its own companies about economic espionage by other countries. The US National Intelligence Estimate in February named France alongside Russia and Israel in a second tier of offenders who engage in hacking for economic intelligence, behind China, according to The Washington Post.

                  A board member at a German blue-chip company concurred that when it comes to economic espionage, “the French are the worst”.

                  Bernard Squarcini, former head of the French internal intelligence agency DCRI, was quoted in an interview this month as saying: “The services know perfectly well that all countries, even as they co-operate in the antiterrorist fight, spy on their allies. The Americans spy on us on the commercial and industrial level as we spy on them too, because it is in the national interest to defend our businesses. Nobody is fooled.”

                  AB Foods advances on Primark hopes

                  Posted on 31 October 2013 by

                  What next for Primark? Owner AB Foods hit a record high on Thursday, up 2 per cent to £22.67, ahead of annual results on Tuesday.

                  The stock surged 20 per cent in October on optimism about the global expansion of its Primark chain, which has revived talk of a potential break-up.

                    Analysts expect Primark to overtake sugar as AB’s biggest profit contributor, providing nearly half of group earnings for the year.

                    And with sugar likely to remain in decline ahead of an EU quota change in 2017, speculation has been building that a standalone Primark might be better equipped to accelerate growth.

                    The US offered one likely avenue for expansion, analysts said, with Westfield the most likely partner.

                    The success of Primark’s Stratford store in east London was “paving the way for [a] potential global collaboration”, Morgan Stanley said.

                    The wider market stuttered, with the FTSE 100 down 0.7 per cent, or 46.27 points, to 6,731.43.

                    Marks & Spencer was the day’s main talking point after William Adderley, the former boss of soft furnishings specialist Dunelm Group, revealed a maiden 3 per cent stake worth about £240m.

                    Ahead of results on Tuesday, M&S jumped 2.1 per cent to 503.5p.

                    Much weaker than expected results gave Royal Dutch Shell its biggest fall in two years with its B shares falling 5.2 per cent to £21.60.

                    High exploration expenses and weak refining margins combined with myriad operational problems to cut year-end earnings forecasts by about 6 per cent.

                    By contrast, BG Group was up 2.2 per cent to £12.74 after its results beat forecasts in spite of UK maintenance work and turmoil in Egypt.

                    Chemical maker Croda dropped 7.6 per cent to £24.36 after delivering quarterly earnings that missed consensus forecasts and tempering guidance for the rest of the year. Subdued end markets took the blame.

                    Rentokil Initial sunk 6.8 per cent to 104.5p after its biggest shareholder Invesco Perpetual sold an 11 per cent stake.

                    The news intensified speculation that Invesco would have to liquidate more UK investments after star fund manager Neil Woodford said he was leaving the group.

                    Capita edged down 0.1 per cent to 986p and Drax fell 3.7 per cent to 636p.

                    Among the gainers, Reckitt Benckiser took on 1.2 per cent to £48.48 on a reheat of speculation that its pharmaceuticals division was attracting interest from drugmakers including Shire, down 0.4 per cent to £27.51.

                    BWin edged up 0.3 per cent to 122.8p after its founder shareholders agreed to sell their combined 14.3 per cent stake to help the gaming group’s application for a licence to operate in New Jersey.

                    The pair, who are divorcing, put their stock into a trust to submit individual licence applications to the gambling regulator.

                    Ashtead drifted 1.1 per cent to 655p in spite of Redburn Partners starting coverage with a “buy”.

                    Data warehouse operator Telecity dropped on news its long-serving finance director was stepping down in January. Ahead of a trading update due on Monday, the stock dropped 3.5 per cent to 762.5p.

                    In August, Telecity said it had misstated key operational metrics for 2012 and half of 2013.

                    The group has also faced claims of underinvestment, with Merrill estimating that the group employs half the number of sales and marketing staff as rival Equinix Europe in spite of similar revenues.

                    Euro tumbles on ECB rate cut speculation

                    Posted on 31 October 2013 by

                    A tram passes the giant Euro symbol outside the headquarters of the European Central Bank (ECB)©Getty

                    The euro fell sharply on Thursday after data showing eurozone inflation at its weakest in nearly 4 years prompted speculation that the European Central Bank could soon take action to avert the risk of Japan-style deflation.

                    The euro has been one of the strongest major currencies this year, supported by a hefty current account surplus, a resumption of capital inflows to equity markets and a broader perception that its long-term survival is no longer in doubt.

                      It has also regained a role as a haven currency as uncertainty over US monetary policy and aggressive monetary easing in Japan reduced the attractions of the dollar and yen.

                      Even after Thursday’s fall of 1 per cent to $1.3595 against the dollar, it has gained almost 5 per cent against the US currency in the past year – a move that is proving painful for many eurozone exporters.

                      However, October’s inflation print of 0.7 per cent, coupled with data showing unemployment stuck at a record high, will increase the pressure on ECB policy makers to discuss a further cut in interest rates when they meet next week.

                      Although they have said they do not see the euro’s recent appreciation as a concern, the currency’s strength is a further factor that will limit inflation.

                      “We do not expect a monetary policy move at the next meeting as it can be argued that the internal devaluation is part of the necessary process of correction of imbalances . . . Nonetheless, it is to be expected that President Mario Draghi will in all likelihood be grilled on the deflation threats at the next press conference,” wrote François Cabau, economist at Barclays.

                      “The print will fuel expectations of a rate cut next week and a dovish statement,” said Valentin Marinov, strategist at Citi, adding: “The ECB president could highlight the link between currency appreciation and eurozone disinflation.”

                      Many analysts think the euro is now vulnerable to a change in market sentiment, since currency speculators had placed heavy bets on its rise that they might now unwind.

                      Steven Saywell, strategist at BNP Paribas, argues that the market had underpriced the risk of the ECB cutting rates in December, leaving “substantial scope” for the euro to weaken over the next few weeks.

                      Ian Stannard, analyst at Morgan Stanley, said portfolio inflows that had supported the single currency in recent months could also slacken, since valuations of European equities no longer looked as attractive.

                      Mr Marinov argued that the effect of a strong euro on corporate earnings could itself deter future demand for European assets, saying: “Given the importance of equity inflows for the euro outperformance, we suspect that evidence that these flows are abating could add to the headwinds for the single currency across the board.”

                      The euro also weakened sharply against sterling, falling 1.1 per cent to trade at £0.8473.