Financial

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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Banks

BoE stress tests: all you need to know

The Bank of England has released the results of its latest round of its annual banking stress tests and its semi-annual financial stability report this morning. Used to measure the resilience of a bank’s balance sheet in adverse scenarios, the stress tests measured the impact of a severe slowdown in Chinese growth, a global recession […]

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Property

Zoopla wins back customers from online property rival

Zoopla chief executive Alex Chesterman has branded rival OnTheMarket “a failed experiment”, and said that his property site was winning back customers at a record rate. OnTheMarket was set up last year, aiming to compete with Zoopla and Rightmove, the UK’s two biggest property portals. It allowed estate agents to list their properties more cheaply […]

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Currencies

Asia markets tentative ahead of Opec meeting

Wednesday 2.30am GMT Overview Markets across Asia were treading cautiously on Wednesday, following mild overnight gains for Wall Street, a weakening of the US dollar and as investors turned their attention to a meeting between Opec members later today. What to watch Oil prices are in focus ahead of Wednesday’s Opec meeting in Vienna. The […]

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Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

Royal Bank of Scotland has emerged as the biggest failure in the UK’s annual stress tests, forcing the state-controlled lender to present regulators with a new plan to bolster its capital position by at least £2bn. Barclays and Standard Chartered also failed to meet some of their minimum hurdles in the toughest stress scenario ever […]

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Archive | November, 2016

The young will inherit wealth or poverty

Posted on 21 December 2013 by

‘Securing a juicy inheritance may prove the best bet for the generation that came of age under Margaret Thatcher, with their prospects for decent retirement incomes looking increasingly bleak.’

Financial Times, December 17

Is that news? I thought we knew that our pensions were worth nothing.

    Some pensions are worth plenty – including those for many people now on the brink of retirement. This story was based on a report from the Institute for Fiscal Studies, examining the broader question of how today’s 40-year-olds are doing compared with 40-year-olds 10, 20 and 30 years ago.

    In other words, are we richer than our parents?

    To be precise, are we richer than our parents were when they were our age, judging by income, savings, debt, pensions and housing.

    And the baby boomers took all the money?

    The boomer generation did roll like a gigantic steamroller through the past 60 years and did pretty well. Take real equivalised household income.

    Take what?

    A measure of income corrected to take account both of inflation and different family sizes. What the IFS finds is that the generation born in the 1940s – currently about 70 – was richer at the age of 60 than the 1950s generation is today, now aged about 60. And the 1950s generation was richer at the age of 50 than the 1960s generation is today, just as the 1960s generation was richer at the age of 40 than the 1970s generation is today.

    So we’re all getting poorer. But the economy hasn’t been shrinking for 40 years, has it?

    No. It shrank a lot five years ago and has hardly recovered. That is largely why each generation now is doing badly relative to the previous cohort 10 years ago. But there’s more to the story than the recession. What we see is that the 1970s generation had more money when they were young than their parents did. But they spent it.

    They really only have themselves to blame, then.

    Well – perhaps, perhaps not. Nobody knew quite how generous – or expensive – today’s pensions were going to be. Even if the younger generation were far-sighted it’s not clear they would want to pay for quite such gold-plated retirements. But anyway, they were short-sighted, as we all are, and will pay the price. Their parents may have been equally myopic but typically had automatic pensions and didn’t have the same freedom to mess up.

    So today’s thirty and fortysomethings have been screwed on pensions.

    Well, yes, they have. But they’ve also hurt themselves. At the age of 30, the 1970s generation was spending almost twice as much as the 1940s generation and, unlike all previous cohorts, they were net borrowers rather than net savers.

    What about house prices?

    That’s another part of the story, in which everything seems to be conspiring to favour the boomer generation. House prices are near record levels, which of course helps homeowners – who tend to be older. Younger people have struggled not only to buy a home, but also to upgrade the homes they have. According to estimates cited by the IFS, the average age of first-time buyers has risen by five years since the 1960s – but the average age of second-time buyers has risen by an astonishing 15 years. Even people who can get on the housing ladder have only grabbed the bottom rung and are digging their fingernails into the wood.

    No wonder the IFS sees salvation in inheritance . . .

    But inheritance is unevenly distributed, as well as a slightly demeaning way for a 50-year-old finally to establish a pension pot. This is a social mobility issue: young people can’t get ahead without receiving money from mum and dad.

    So what is to be done?

    A spot of strong economic growth would do no harm: although this issue has long been brewing, it has been worsened by the recession. Building more houses would help young people to find jobs and buy homes – as well as deflating house prices and thus shrinking those inheritances. A property tax might nudge a few empty-nesters into downsizing their homes. And it is absurd that as austerity is hitting schools, university, services and working-age benefits, the state pension is sacrosanct for current pensioners. The problem is becoming too acute not to be addressed – too late for today’s thirtysomethings, but not too late, perhaps, for their offspring. If they can ever scrape together the cash to afford children.

    tim.harford@ft.com

    Inga Beale, Lloyd’s of London trailblazer

    Posted on 21 December 2013 by

    Joe Cummings illustration of Inga Beale

    Before 1972, women were not even allowed to set foot in the underwriting room at Lloyd’s of London. It was not until the following decade that female brokers were permitted to wear trousers. Even today, for all the assertive modernity suggested by its arresting Richard Rogers-designed building in the heart of the City, the insurance market remains a place where old habits die hard. Nearly all the underwriters are white, most are British and almost two-thirds men.

    This week Lloyd’s moved to break with that past when it appointed as chief executive a 50-year-old woman who has prided herself on breaking down stereotypes. Inga Beale has pledged to champion diversity at the City institution that retains huge global reach – Lloyd’s provides cover to about nine in ten members of the Dow Jones Industrial Average – but also risks becoming increasingly less relevant as rival centres develop, especially in emerging markets.

      “This is a brave move for Lloyd’s – and also for her,” says Barbara Schönhofer of insurance headhunters Jacobson. “The forward-thinking people in the market are very much behind it but you’re going to have an old guard who will be cynical.”

      If she does encounter any prejudice, friends say the new chief executive is unlikely to flinch. Ms Beale has brushed aside sexist bullying in the past to rise through the ranks of insurance. As a junior underwriter in the early 1980s she once took issue with posters of half-naked women that had been put up around the office. Colleagues responded by removing them from the wall – and plastering them across her chair and computer instead. “There have been a few interesting moments in my career,” she told a conference for women in insurance earlier this year.

      Such experiences have allowed Ms Beale – a former competitive rugby player for Wasps, who almost made it to international level and continued to play into her thirties – to develop a steely edge. “She’s not someone you want to mess with,” says an associate.

      At the same time, friends describe the middle of three children of a Norwegian mother and English father as a warm person with plenty of emotional intelligence who is highly articulate if not especially academic. Her home counties childhood in Berkshire was comfortable, though not pampered. An aptitude for numbers was honed in accounting and economics studies at Newbury College, but a streak of teenage rebelliousness led her to spurn the university degree and accountancy career that her father had in mind and take a job in insurance instead.

      Ms Beale’s combination of toughness and tact will be useful in her new role, which comes at a critical time for Lloyd’s. Mounting competition is squeezing premiums, weak investment returns are cutting into profit margins and insurance brokers are starting to put pressure on smaller syndicates.

      David Gittings of the Lloyd’s Market Association, which represents underwriters, describes the position as a “three-dimensional role”.

      On the one hand, it is in effect a quasi-regulator, ensuring that the competing underwriting syndicates that comprise Lloyd’s do not rack up the disastrous losses of the kind that ruined the fortunes of thousands of people at the start of the 1990s.

      The job also requires a big dose of business acumen. After the crisis two decades ago, Lloyd’s is no longer the domain of wealthy individuals – or “names” who underwrite the market – but largely financed by big multinational corporations.

      The market, founded in 1688 by Edward Lloyd in his coffee house overlooking the Thames, has carved out a lucrative, specialist niche insuring complex risks ranging from movie stars’ limbs to elephants being transported across the Atlantic. But it needs a strategy to remain relevant. Companies based across the world still turn to London to secure coverage – but local insurance industries in markets from China to Brazil are growing fast.

      As a result, says Ms Beale, diversity makes good business sense. The UK insurance industry, which she has described as being “chauvinistic” in the past, needs to become “more reflective” of the customers it serves, she argues.

      Ms Beale, who helped set up the global Insurance Supper Club for top female executives, sets a high standard for worldliness. She might have spent her entire career in insurance – unlike the outgoing Lloyd’s CEO Richard Ward, a former head of the International Petroleum Exchange – but is no corporate apparatchik. She took the best part of a year off from the industry to backpack around Asia and cycle around Australia. Ms Beale has previously lived with a female partner, though is now engaged to Philippe Pfeiffer, a jewellery designer.

      Although her first job was at Prudential in London, most of the senior positions she has held have been outside her homeland. She remains better known in continental Europe than in UK. After leaving the Pru in 1992 she headed for General Electric’s insurance arm, starting as an underwriter before switching to management in Kansas in 2001, an experience one associate says “changed her life”.

      Two years later she was moved to continental Europe, taking on increasingly senior roles in Paris and then Munich. But it was not until she left GE in 2006 that really made her name as head of Converium, a struggling Swiss reinsurer that she helped turn round. Ms Beale returned to London two years ago to run the Lloyd’s insurer Canopius, though she continued to commute between the UK and Zurich. It was from Canopius – which this week agreed to be bought by Sompo of Japan for about £600m – that she was headhunted to run Lloyd’s.

      This all seems a world away from the young woman who, like many insurance lifers, stumbled into the industry. “For the first 10 years I didn’t really care about the job,” Ms Beale recalls. “I just made money and continued to do my sport. I wasn’t focused on my career at all.”

      The writer is the FT’s insurance correspondent

      High-yield bonds benefit from rotation

      Posted on 21 December 2013 by

      Anyone looking at the stunning rise in US equities and losses in bonds this year would conclude that a ‘great rotation’ between the asset classes has defined 2013.

      From a performance perspective bonds have been truly buried by equities.

        The S&P 500 sports a rise of some 27 per cent since January, while the bond market’s benchmark, the Barclays Aggregate index is set for its first annual negative total return since 1999, with a decline of around 1.8 per cent.

        Looking solely at the scoreboard, however does not tell the full story and illustrates how, in spite of Wall Street’s mantra of a great rotation out of bonds into equities, demand for yield that bestows a fixed income remains robust.

        “The great rotation is more of a myth than reality,” says Joyce Chang, global head of fixed income research at JPMorgan. “Bond funds have received positive inflows for the year and primary issuance has set new records this year. The rotation has been a US retail phenomenon, it’s not global.”

        Certainly, holders of long-dated US Treasury and inflation-linked bonds are nursing hefty losses and there have been outflows from these sectors as they have borne the brunt of preparing for the Federal Reserve’s taper of quantitative easing, which was finally announced this week.

        As we near year end the 10-year Treasury yield sits just shy of 3 per cent, representing a near doubling from its low in May, ahead of the Fed trimming its monthly bond buying by $10bn to $75bn in January.

        No matter the large rise in the benchmark yield for the broader fixed income universe, the taper tantrum of 2013 has failed to stem money piling into higher yielding corporate securities.

        Beyond positive net mutual fund flows into US investment grade and high-yield bonds this year, according to Lipper, one only has to look at the $100bn of orders for Verizon’s record $49bn bond sale in September to see that plenty of investors desire income from bonds rather than seeking the opportunity of capital appreciation from equities.

        “There has been a rotation out of Treasuries and investment grade and high-yield bonds have been the beneficiaries,” says Edward Marrinan, head of credit strategy at RBS Securities.

        A burning question is whether corporate bonds retain favour as the Fed’s taper gathers pace during 2014.

        There are reasons to think that the preference for yield will remain robust and not just because more baby boomers are retiring and seeking income.

        Despite strong sales of corporate and government bonds in recent years, annual net issuance of financial assets currently hovers around $1tn, well below the $3tn to $4tn sold in the years before the crisis.

        Ms Chang says apart from municipal bonds, US retail investors do not dominate fixed income, rather it is institutional investor-based, led by pension funds, insurers, sovereign wealth funds and money managers. These investors are seeking to own quality paper in an environment where net issuance of debt remains well below the level seen before the financial crisis.

        The dearth of quality bonds means the end of Fed support for the bond market may not be a big event, particularly if the 10-year Treasury yield only rises modestly to around 3.5 per cent next year as many bond strategists predict.

        At such a yield level US government bonds will look appealing against a backdrop of low inflation and modest economic growth when compared with other leading sovereign counterparts such as Japan, Switzerland and Germany.

        “Unless you have a strong conviction that rates are going up rapidly, there is still enormous demand for bonds,” says James Sarni, managing principal at Payden & Rygel.

        This view is also enhanced by the fact that equities no longer look so appealing after their big run this year, and whenever the Fed has pulled back from QE in the past, stocks have not fared so well.

        “It’s hard to see a great rotation as you can’t look at equities and say they are a cheap asset class,” says Mr Sarni.

        In truth, bonds will continue to play a big role across investment portfolios and may stand to benefit from any turbulence for equities as QE steadily tapers.

        Brazil consumer confidence falls

        Posted on 21 December 2013 by

        Data has slowed ahead of the festive season, but there is plenty to think about in Brazil where consumer confidence reached its lowest point in more than three years ahead of the holidays. The French business climate, however, appears to be returning to something like normal.

        Americas

          Mexico: The unemployment rate dropped more than expected to 4.47 per cent in November from 4.85 per cent in October. Separately, the central bank released its minutes for its policy meeting earlier in December. According to a report from Barclays Capital, the board is expecting a stronger global economy both next year and in 2015, while anticipating low inflation. It is forecasting a “moderate level of volatility” in markets, because of the advent of tapering in the US.

          US: A pick-up in services and sales meant third-quarter growth was revised up to an annualised 4.1 per cent from the second estimate of 3.6 per cent.

          Canada: The core consumer price index slipped to 1.1 per cent year on year in November from 1 per cent in the month before. Headline CPI rose to 0.9 per cent year on year from 0.7 in October.

          Retail sales declined 0.1 per cent in October after growing 1 per cent in September. Excluding auto sales, retail sales were weaker at 0.4 per cent.

          Brazil: The FGV consumer confidence index
          slipped from 112.8 to 111.5 – the lowest point since February 2010.

          Europe

          UK: The final GDP reading confirmed that the economy grew 0.8 per cent
          quarter on quarter, while the year-on-year rate of growth was revised up to 1.9 per cent. Growth was supported by household spending, business investment and government spending, though exports fell 3 per cent quarter on quarter.

          Public sector net borrowing increased to £16.5bn in November from £9.1bn in October. The GfK consumer confidence index
          fell by 1 point, returning to the August level of -13 per cent.

          Norway: The unemployment rate remained at 2.6 per cent in December, against expectations for a small rise.

          Sweden: Producer prices rose
          0.4 per cent month on month in November, after dropping 0.3 per cent in October.

          Czech Republic: Business and consumer sentiment improved for the fifth consecutive month in November, pushing the index up 0.8 point month on month. The consumer sentiment index slipped 0.2 points to 92.6 as consumers reported fears of a deterioration in the economic situation over the next year. However business sentiment rose 1 per cent to 90.9.

          Eurozone: Consumer confidence rose to a 29-month high in December to -13.6 from -15.4 in November. Howard Archer, an economist at IHS Global Insight, said: “The suspicion is that consumers will probably remain pretty cautious in their spending in the near term at least so that any improvement in consumer spending will probably be gradual.”

          France: The Insee business climate indicator
          for industry rose 2 points to return to its long-term average of 100.

          Germany: The GfK consumer sentiment index
          rose to 46.1 in December from 45.7 in November.

          Producer prices dropped
          0.1 per cent month on month, taking the producer price index to 0.8 per cent lower than the same point last year.

          Asia Pacific

          Taiwan:
          Export orders rose 0.8 per cent year on year
          in November, beating market forecasts for a contraction. The growth came from gains in information and communications technology, electronics and textiles. Sales of new mobile devices helped the ICT sector to reach a record high of $11.74bn of orders. By region, strong growth was seen in export orders from Europe and Japan, while orders from China dropped 1.3 per cent and from the US contracted 4 per cent.

          Boardroom trades December 21

          Posted on 21 December 2013 by

          Directors at Arcontech Group were buying shares in June just before a trading embargo imposed ahead of annual results.

          Dealers assumed that the show of confidence by senior directors Richard Last and Matthew Jeffs might herald forecast-busting results in August, so news of continued losses disappointed and the shares fell back to their June levels – as low as 10p – in the weeks that followed.

            The market data business has increased sales this year and continued to invest.

            Despite the volatility, shareholders have doubled their money this year as the stock was trading above 13p last Wednesday, following further investment by Mr Last.

            He added 51m shares to increase his stake by a third, while finance director Michael Levy held a more modest stake – but followed up on Monday by trebling it.

            There were also two buyers at rival software group Micro Focus whose shares have added about 25 per cent this year. The gains put chairman Kevin Loosemore ahead on his £154,000 investment last December and he followed up in June as shares recovered from a bout of weakness.

            Last Friday he bought for a third time, joining finance director Michael Phillips who increased his stake via options and invested a further £13,000 on market.

            Sector peer SDL has an office presence in many countries but has found trading conditions tough this year, prompting the board to lower its profit expectations again for the current year.

            The shares fell to 252p following the October announcement, but have been trading ahead this month. Mark Lancaster made his largest purchase to date on Monday to increase his stake by 75 per cent. He banked profits on five occasions between 2003 and 2010 as the shares rose.

            Shares in Carpetright have dipped since founder Lord Harris sold a £2.7m stake in October. The disposal left 97 per cent of his stake intact but with dealers fretting over a high stock rating and poor trading conditions in Europe, the price fell as low as 515p this month – off 25 per cent for the year.

            Sentiment did not improve on Tuesday when Lord Harris sold again. He was joined by his son, commercial director Martin Harris, who parted with a smaller stake last week.

            Directors’ deals – December 18, 2013

            Company name Sector Deal date Amount Value (£) No of dir Holding
             BUY
            32Red Travel & Leisure 12 Dec 13 75,000 50,625 1 Not Reported
            Amati VCT Equity Inv. 11 Dec 13 55,855 42,126 2 321,787
            Arbuthnot Banking Group Financial Serv. 17 Dec 13 3,000 37,500 1 8,190,901
            Arcontech Group Software & Comp 13 Dec 13 55,000,000 60,500 2 203,339,595
            Arsenal Holdings Travel & Leisure 12 Dec 13 13 199,000 1 41,596
            Barr (A G) Beverages 13 Dec 13 50,000 282,375 1 19,961
            Bioquell Healthcare 12 Dec 13 180,000 243,000 2 1,113,113
            BP Oil & Gas Prod 17 Dec 13 10,690 50,011 1 22,320
            Centaur Media Media 11 Dec 13 90,000 49,500 1 90,000
            Digital Barriers Support Services 13 Dec 13 282,712 455,167 3 5,603,344
            Genesis Emerging Markets Fund Ltd Equity Inv. 09 Dec 13 7,690 39,411 1 7,690
            Iofina Oil & Gas Prod 17 Dec 13 150,000 150,000 1 1,400,000
            Kazakhmys Mining 17 Dec 13 27,000 52,969 2 32,000
            London Mining Plc Industrial Metal 17 Dec 13 107,227 108,997 3 266,605
            Macau Property Opportunities Fund Real Estate 12 Dec 13 250,000 506,250 1 4,650,000
            Man Group Financial Serv. 18 Dec 13 60,947 49,641 1 Not Reported
            Medgenics Inc Pharma & Biotech 13 Dec 13 24,500 81,564 2 130,500
            Micro Focus International Software & Comp 11 Dec 13 9,912 77,677 2 343,847
            Mondi Plc Forestry & Paper 10 Dec 13 5,000 48,646 1 Not Reported
            Phoenix Group Holdings Life Insurance 11 Dec 13 7,123 48,929 2 7,123
            Planet Payment Inc Support Services 13 Dec 13 75,000 101,681 1 580,000
            Reckitt Benckiser Group Household Goods 12 Dec 13 13,629 629,623 1 13,629
            Rexam Gen. Industrials 16 Dec 13 10,000 48,728 1 47,000
            SDL Software & Comp 16 Dec 13 515,350 1,546,565 1 1,201,994
            Soco International Oil & Gas Prod 12 Dec 13 50,000 192,485 1 9,058,820
            Spirent Communications Technol Hardware 11 Dec 13 50,000 50,395 1 180,481
            Symphony International Holdings Ltd Financial Serv. 12 Dec 13 250,000 112,702 1 51,614,062
            Unilever Plc Food Producers 11 Dec 13 2,099 50,880 1 212,032
             SELL
            Carpetright Gen. Retailers 17 Dec 13 2,500,000 13,240,000 2 16,257,816
            CLS Holdings Real Estate 17 Dec 13 20,000 244,000 1 82,548
            Lancashire Holdings Limited Insurance 11 Dec 13 40,000 307,800 1 0
            Local Shopping Reit REITs 11 Dec 13 2,400,000 576,000 1 5,255,171
            M.P. Evans Group Food Producers 13 Dec 13 12,000 56,640 1 435,065
            Mears Group Support Services 13 Dec 13 22,420 102,473 1 50,000
            MoneySupermarket.com Media 16 Dec 13 500,000 900,000 1 465,362
            Optimal Payments Support Services 12 Dec 13 25,000 82,750 1 100,463
            Pearson Media 16 Dec 13 38,751 497,721 1 397,017
            Peel Hotels Travel & Leisure 11 Dec 13 300,000 228,030 1 50,000
            Whitbread Travel & Leisure 16 Dec 13 10,850 384,587 1 20,943
             Value cut-off £35,000; Source: Directorsdeals.com

            Week in Review, December 20

            Posted on 21 December 2013 by

            Week in Review

            A round-up of some of the week’s corporate events and news stories.

            Saab lands key Brazil fighter contract

            In a surprise move this week, Brazil announced that Saab’s Gripen would become its next fighter jet, sending the Swedish company’s shares nearly 30 per cent higher and the company’s bigger French and US rivals home empty-handed, writes Carola Hoyos.

              The $4.5bn contract to supply 36 fighter jets is the biggest export contract that Saab has ever won and extends its fighter jet production life to 2023.

              Gripen beat France’s Rafale, built by Dassault, and the F/A-18 Super Hornet built by Boeing of the US.

              Successive French presidents lobbied Brazil over 15 years to buy the Rafale. The jet fighter was long viewed as favoured over the Gripen. Boeing was also believed to be ahead of its Swedish rival until revelations that the NSA had spied on Brazil’s leaders soured relations and dashed its chances, according to analysts and people close to the deal.

              But one person close to the deal said the Brazilian Air Force had “always wanted Gripen”.

              Many who had followed the contest since 1998 had expected Brazil to delay the purchase for another two years because of the slowdown of the nation’s economy.

              But its Mirage fighter jets were getting so old and expensive to maintain that they needed to be grounded, prompting the decision.

              Gripen helped seal the deal with its lower
              price tag and willingness to transfer technology to Brazil and allow much of the fighter to be built there.

              BP Sign©Bloomberg

              BP in $1.1bn Brazil writedown

              BP has announced a flurry of multibillion-dollar deals and has said it made a “significant” discovery in the US Gulf of Mexico. But the good news was offset by a $1.1bn writedown following poor results from a well off the coast of Brazil, writes Guy Chazan.

              Also this week, a former BP engineer became the first person from the company to be convicted for an offence related to the 2010 Deepwater Horizon disaster.

              A jury in a US federal court in New Orleans found Kurt Mix guilty on one count of obstruction of justice, based on his deletion of a text exchange with his BP supervisor regarding the flow-rate from the stricken Gulf of Mexico well. He faces a maximum sentence of 20 years in prison.

              The first big deal BP announced this week was a
              $16bn agreement with Oman to develop a huge “tight” gasfield, Khazzan.

              Also last week, a BP-led consortium fired the starting gun on a $28bn gas development in the Azerbaijani sector of the Caspian Sea, known as Shah Deniz 2. The gas will be brought into the heart of Europe through pipelines stretching across Turkey and Greece into Italy.

              Meanwhile, in the deepwater Gulf of Mexico, BP said it had made a “significant” oil discovery in its Gila prospect.

              But a well drilled off Brazil – Pitanga – turned out to be a duster. As a result, BP said it was relinquishing the block where the well was drilled, which it acquired as part of a $7bn deal with Devon Energy in 2010, and writing off a total of $1.1bn.

              GSK

              GSK shakes up sales practices

              GlaxoSmithKline this week unveiled plans to scrap individual sales targets for its marketing employees around the world, as part of efforts to remove incentives perceived as encouraging inappropriate prescribing, writes Andrew Jack.

              The idea, building on a programme already rolled out in the US in 2011, is to link bonuses to broader company-wide financial targets and individual performance of representatives in provide information of value to doctors.

              Those obliging drones

              Jeff Bezos

              No wonder Jeff Bezos wants to build delivery drones. Amazon workers in Germany have gone on strike over higher pay and the right to collective bargaining. Drones won’t want to unionise. Better yet, they won’t mind when Amazon says, as it did of its German workers: “Some have not even properly finished school.”

              Separately, the UK-based pharmaceutical group aims to scrap payments made to external doctors to give talks on its behalf to their peers, and to stop funding their travel and expenses conferences. AstraZeneca and some other companies have taken similar moves.

              The moves come as GSK seeks to reform after paying a record $3bn regulatory fine last year in the US, and to conclude a probe over alleged bribery in China.

              They follow recent legislative efforts in the US and France to increase transparency over the size of payments made by companies to doctors against a backdrop of concerns over the practice. In the US alone last year, 12 companies paid doctors more than $1bn.

              GSK and other drug companies have also announced voluntary plans to step up disclosure of payments in other countries.

              Sir Andrew Witty, chief executive, insisted that the reforms were not a response to the situation in China, but reflected a broader shift in society’s attitudes and a reflection of the need to meet doctors’ and healthcare systems’ expectations.

              scales of justice

              Ex-SAC portfolio manager convicted

              US prosecutors won their 77th insider trading conviction when a New York jury found a former
              SAC Capital portfolio manager guilty of trading securities after learning confidential earnings information, writes Kara Scannell.

              Michael Steinberg, the former portfolio manager and friend to SAC founder Steve Cohen, is the fund’s seventh former employee to be guilty of illegal trades.

              Mr Cohen, who was sued by securities regulators for failing to supervise his employees, has not been charged with insider trading. SAC has pleaded guilty and paid $1.8bn to resolve criminal and civil charges.

              Not half bad

              Breaking bad

              Better call Netflix
              ! Fans of the shady lawyer Saul Goodman in Breaking Bad will have to turn to the video streaming site for the first look at the upcoming spin-off series Better Call Saul. But there will be no binge viewing – Netflix’s rights only allow it to show each episode internationally immediately after its US broadcast.

              The conviction bolsters the reputation of Preet Bharara, the US attorney in Manhattan who was on the cover of Time magazine as the man busting Wall Street. It also comes as Mr Bharara finds himself in the unusual position of defending his office after criminal charges were filed against an Indian consular officer for allegedly filing false statements to US authorities to gain a visa for her housekeeper.

              US authorities continue to investigate corruption on Wall Street.

              Mr Steinberg was convicted of trading in advance of Dell and Nvidia earnings, which made more than $1m in profits for the hedge fund.

              Next up for prosecutors is Mathew Martoma, a former SAC money manager, who is due to face trial on January 6 on a charge of trading drug company stocks in advance of negative clinical trial results. He has pleaded not guilty.

              London Stock Exchange

              House of Fraser talks to Galeries Lafayette

              British retailer House of Fraser is in advanced talks to be acquired by Galeries Lafayette, the French department store chain, the Financial Times revealed this week, writes Andrea Felsted.

              The family-controlled French retailer is in exclusive talks with House of Fraser, and has exclusivity until the end of January.

              Don McCarthy, chairman, is looking for a price tag of at least £450m from a sale, according to some people familiar with the situation.

              The talks come as House of Fraser prepares to float on the London Stock Exchange early next year, in a move that could value the retailer at £350m.

              House of Fraser is expected to run a dual-track process while the talks with Galeries Lafayette continue. It has hired Rothschild to manage the process, and has been holding a beauty parade for advisers over recent weeks. Appointment of banks to advise on the float is expected shortly.

              House of Fraser and Galeries Lafayette both declined to comment.

              A deal with Galeries Lafayette would end House of Fraser’s informal efforts over the past two years to secure a buyer.

              Mike Ashley, who controls Sports Direct, last year looked at buying a minority stake in House of Fraser, but this came to nothing. House of Fraser has also previously held talks with Qatari investors.

              However, news of the talks came at a tough time for the department store sector. Rival Debenhams demanded a 5 per cent discount from suppliers just eight days before Christmas.

              sports direct

              And finally …

              ● While easyJet attempts to woo business travellers, Virgin Atlantic
              appears to be borrowing tactics from the budget airlines. Economy passengers will soon have to pay up to £25 to reserve a seat before check-in, part of Virgin Atlantic’s plan to stem losses. Rumours of charging for toilets being the next innovation are unconfirmed.

              ● Banks were minded to shoot the instant messenger this week. JPMorgan
              banned its staff from using chat services, which are at the heart of market manipulation investigations. Bloomberg
              said banks could monitor staff’s use of its popular chat function, and even block suspect words, such as Bollinger and steak dinner.

              RSA shareholders raise pay concerns

              Posted on 20 December 2013 by

              Key Speakers At 2013 Insurance Summit©Bloomberg

              Leading shareholders in RSA have raised fresh concerns about the executive pay practices of the FTSE 100 insurer after they endured heavy losses from a string of profit warnings.

              A week after Simon Lee quit as chief executive, big investors in Britain’s largest non-life insurer by market capitalisation said worries about pay policies they raised earlier in the year had deepened since the group ran into recent difficulties.

                One top 15 investor said the board should do everything it could to try to recoup bonuses paid to Mr Lee, who stood aside last week. Another called on the group to conduct a review of how regional managers are remunerated.

                RSA handed Mr Lee a pay package of £2m for 2012. On top of a £800,000 salary, he received a £480,000 cash bonus and £470,000 of share awards.

                Despite discontent over pay that shareholders raised last year, RSA avoided a full-scale revolt.

                However, one leading investor said yesterday the board should revisit the subject given the group has since discovered accounting irregularities at its Irish business that have left it needing to raise hundreds of millions of pounds to firm its balance sheet.

                Shareholders “didn’t know the half of it” when they approved the pay plan, the investor added.

                RSA has since introduced a bonus clawback policy for 2013. However, it applies to future awards and is not retrospective.

                Mr Lee left with immediate effect last Friday following two years in the job and will receive a year’s salary of £824,000, assuming he does not take another job next year.

                Following the discovery of under-reserving in Ireland, another top 15 investor called on the company to ensure regional managers were not being encouraged to increase profits at the expense of reserving.

                “I would want to know how the individual business heads were being remunerated, not to be incentivised to seek short-term results.”

                People familiar with the matter said RSA would review criteria used to determine bonuses, but that it does so every year.

                They said investors had not raised the subject of remuneration in meetings that Martin Scicluna, executive chairman, held with them this week.

                Privately, investors said they had more immediate concerns.

                A fund manager at another top 10 investor said: “We are not thinking about [trying to] claw back Lee’s pay at this stage, but it is something that may be considered in future.”

                Fed targets bank evasion of capital rules

                Posted on 20 December 2013 by

                The Federal Reserve clamped down on bank moves to evade tougher capital rules on Friday, warning that transactions intended to reduce risk would be closely scrutinised during annual stress tests on bank balance sheets.

                Banks around the world are being forced to meet higher capital levels under the new Basel III regime, which is due to be implemented by 2019. To help their ratio of equity to assets, banks have examined ways to reduce their stated assets without an outright sale.

                  Some of these regulatory capital trades, which typically involve insurance offered by a third-party, are legitimate while others are evasion, the Fed indicated.

                  If the risks are shifted to a “thinly capitalised counterparty or affiliated entity of the firm, any residual risk is effectively captured in the firm’s internal capital adequacy assessment”, the agency said in its guidance note to large banks.

                  “Examiners will closely consider such transactions, and potential residual risks, when evaluating an institution’s capital adequacy,” the Fed said.

                  Banks are expected to maintain sufficient capital to account for such risks, regulators said. Companies are typically reluctant to divulge details of the trades, though some have come to light.

                  Blackstone last year insured Citigroup against initial losses on a pool of shipping loans. Though the assets stayed on Citi’s balance sheet, the insurance was designed to boost capital ratios.

                  In some cases, the Fed could decide not to recognise a transaction as a mitigating factor for risk-based capital, meaning a bank would have to find substitutes to meet those standards.

                  The Fed said bank staff should bring these kinds of transactions to the attention of senior management.

                  The Fed did not cite specific cases it was concerned about but mentioned instances in which a bank transfers a portfolio risk to an entity which is unable to absorb losses equal to the risk-based capital requirement for the risk transferred.

                  The Fed said the entity could be a thinly capitalised special purpose vehicle, such as a subsidiary that serves as a counterparty.

                  In March, the Basel Committee on Banking Supervision also addressed the issue to crack down on regulatory arbitrage. The committee, which sets global bank safety rules, said it would levy hefty charges on banks that use pricey credit default swaps to cut their capital requirements.

                  The committee was targeting banks that were buying credit protection on risky loans but deferring or spreading out the premiums for several years. The committee said it would require banks, under certain circumstances, to calculate the present value of what was paid for the credit protection in a specific way.

                  “The proposed changes are intended to ensure that the costs, and not just the benefits, of purchased credit protection are appropriately recognised in regulatory capital,” the committee said.

                  Rosneft buys Morgan Stanley oil trade unit

                  Posted on 20 December 2013 by

                  Morgan Stanley has taken the first step towards dismantling its once-mighty commodities division with the sale of the US bank’s global oil trading business to Rosneft, the Russian state-controlled energy group.

                  The bank was one of the original duopoly that dominated commodities on Wall Street, along with Goldman Sachs. But the business has struggled under both regulatory and financial pressures as Morgan Stanley aims to reduce risks.

                    A Rosneft subsidiary will buy Morgan Stanley’s global oil merchant unit for an undisclosed sum, the bank said on Friday. The sale will include an international network of oil tank storage contracts, inventories, supply agreements and freight shipping contracts as well as the bank’s 49 per cent stake in Heidmar, a manager of oil tankers.

                    The transaction would need approvals from the Committee on Foreign Investment in the United States, which can block sales of US assets on national security grounds.

                    However, Morgan Stanley is not selling Rosneft some of its more sensitive US commodity assets including TransMontaigne, which distributes about 300,000 barrels of fuel per day across the US southeast. The bank said it was separately exploring strategic options for its stake in TransMontaigne.

                    Commodities businesses including gas and electricity trading, and Morgan Stanley’s stakes in power plants, will not be part of the sale.

                    Morgan Stanley has long been the most active bank in physical oil markets, building up the business since the early 1980s. But during the financial crisis the investment bank came under the oversight of the Federal Reserve, which has taken a sceptical view of such enterprises.

                    The relatively small scope of the sale leaves a question over the remainder of Morgan Stanley’s physical commodities business, which it has been trying to sell for two years, including protracted and ultimately failed negotiations with Qatar’s sovereign wealth fund. JPMorgan Chase is also trying to sell a rival business.

                    There has been no specific directive from the Fed that Morgan Stanley and Goldman Sachs should sell their physical commodity assets, according to people familiar with the matter.

                    But the two banks have taken different views of the Fed’s ultimate position, with Morgan Stanley believing the regulatory atmosphere militates against them retaining the business.

                    Morgan Stanley has been more driven to reduce risk than Goldman and this transaction will have a modest positive impact on its capital levels because it reduces risk-weighted assets.

                    Rosneft already has an oil trading business in Geneva, supplying its refineries in Europe. However, the Morgan Stanley deal will put the state-run oil company in competition with traders Glencore and Vitol and some of the world’s leading energy companies.

                    Former Morgan Stanley chief executive John Mack sits on the board of Rosneft. He is also a non-executive director at Glencore.

                    In a recent report, Oliver Wyman predicted between five and 10 “significant” competitors would emerge in commodities trading over the next five years.

                    The consultants predicted the move would be spearheaded by national oil companies which would attempt to build in-house trading arms in an attempt to squeeze higher returns from their assets and protect access to end markets.

                    BP, Royal Dutch Shell and Total SA all have significant trading arms. Saudi Aramco, the state oil company, has also set up a trading business focused on refined products.

                    Morgan Stanley plans to retain its oil trading business to facilitate client transactions.

                    Regulator keeps close eye on Co-op Bank

                    Posted on 20 December 2013 by

                    The UK financial watchdog continues to draw up contingency plans for a potential collapse of the Co-operative Bank, even though the lender has completed a sweeping recapitalisation.

                    The deal, handing a 70 per cent equity stake in the bank to institutional bondholders including several US hedge funds, follows a catastrophic period for the bank. A series of group and bank directors has left and Paul Flowers, the bank’s former chairman, was filmed allegedly buying illegal drugs.

                      The Co-op Bank on Friday finalised a £1.5bn debt exchange intended to strengthen its fragile capital position. The decision is an important step towards restoring normality at the bank after a turbulent six months triggered by the exposure in June of a £1.5bn capital hole.

                      While the regulator is satisfied that the recapitalisation heads off any imminent threat to the bank’s stability, it remains cautious about its prospects, according to people familiar with the situation. They said there were several obstacles in the new year that could thwart its recovery

                      These people said the Prudential Regulation Authority is continuing to work on back-up plans to ensure it is ready to put the bank into resolution if it were to encounter further difficulties next year.

                      Crucially, the Co-op Group must sell its general insurance business to raise the £333m of cash it has pledged to inject into the bank by the end of 2014. If it were to fail to sell the insurance business, the Co-op Group would need to raise the money by other means.

                      Meanwhile the Co-op Bank must implement a tough new business plan that involves radically shrinking its retail branch network and dramatically reducing its overinflated cost base.

                      The bank – and its parent Co-op Group – are also subject to multiple reviews
                      of what went wrong and of how their governance and controls should be improved.

                      Announcing the completion of the recapitalisation on Friday, Niall Booker, chief executive of the bank, said: “There is much work to do, but I and the rest of the management team are confident that under our new ownership structure we are now well-placed to deliver a sustainable improvement in our performance.”

                      Euan Sutherland, chief executive of Co-op Group, whose holding in the bank will fall to 30 per cent, said the scheme was a “major step forward in securing the future of the Co-operative Bank”.

                      While the debt swap will impose heavy losses on creditors, it won the almost unanimous backing of institutional and individual bondholders in recent weeks. The final outcome was better than an earlier proposal by the Co-op Group, which would have forced bigger haircuts on its bondholders and enabled the mutual to retain a majority stake in the bank.

                      The completion of the scheme will enable the bank to raise the required £1.5bn of capital before the end-of-year deadline imposed by the PRA. The Co-op said it would consider a stock market listing next year.