Property

Spanish construction rebuilds after market collapse

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

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Currencies

Euro suffers worst month against the pound since financial crisis

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

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Banks

RBS falls 2% after failing BoE stress test

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

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Currencies

China capital curbs reflect buyer’s remorse over market reforms

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

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Banks

Carney: UK is ‘investment banker for Europe’

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

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Archive | November, 2016

German business confidence holds steady

Posted on 26 March 2014 by

Europe

Germany: Monday’s lacklustre German purchasing managers’ index has been followed by steady business confidence data, with little indication that the Crimean crisis has dented sentiment significantly.

    The closely watched Ifo Institute survey for the business climate in March came in at 110.7, just shy of the 111.0 predicted in a Reuters poll. It is also under the 111.3 seen in February, which was the best level since July 2011.

    But the reading from the Munich think-tank’s “current conditions” survey of 7,000 companies looks better. That came in at 115.2, better than the 114.6 predicted and February’s 114.4.

    UK: The rate of inflation slowed to 1.7 per cent in February from 1.9 per cent in January, the lowest since October 2009, reinforcing the Bank of England’s scope to keep nurturing the economic recovery by keeping interest rates low. However, the “core” annualised inflation rate unexpectedly edged up to 1.7 per cent, from 1.6 per cent in January.

    Asia Pacific

    Philippines:
    Imports were higher
    than expected in January, jumping 21.8 per cent year on year to widen the trade deficit to $1.4bn from $813m. Imports of lubricants surged up 33 per cent while mineral fuel imports jumped 27.3 per cent. Imports of electronics also rebounded after three months of contraction.

    Government offloads £4.2bn Lloyds stake

    Posted on 26 March 2014 by

    A woman enters the head offices of the Lloyds Banking Group in London March 9 2009©Reuters

    The UK government has moved a step closer to returning Lloyds Banking Group to the private sector before next year’s general election by selling £4.2bn worth of its shares in the bank.

    The sale of more than a fifth of its stake takes UK Financial Investments, which manages the stake on behalf of the government, to slightly below the 25 per cent level at which it wields a blocking minority in Lloyds.

      The sale was agreed at 75.5p a share, a 4.6 per cent discount to the closing price on Tuesday. The offering price was above the 73.6p per share cost of the government’s bailout of Lloyds during the financial crisis and generated a profit of about £105m for the taxpayer.

      In September, the government sold a smaller tranche of shares at 75p a share, a 3 per cent discount to the previous closing price at the time.

      Shares in Lloyds were 4 per cent lower at 75.88p in early Wednesday trading in London.

      UKFI said it sold 5.56bn shares in the bank, amounting to a 7.8 per cent stake, via an accelerated bookbuilding process on Tuesday night that was restricted to institutional investors.

      People close to the transaction said recent market volatility of the market, triggered largely by the crisis in Ukraine, meant the government did not want to risk involving retail investors at this stage.

      UKFI is likely to launch a bigger offering of Lloyds shares to retail investors as early as September, by which time the bank expects to be able to restart dividend payments, according to one banker familiar with the situation.

      If that were followed with a share buyback by Lloyds and a further “mopping up” sale of shares in early 2015, the banker said the government could have sold its entire stake by the time of the election in May.

      However, another banker said there was “zero chance” that the government would be able to sell the remainder of its holding in Lloyds this year – and it was likely to still have a stake beyond the election.

      The offer comes six months after the government first sold some of the shares it received when it used £20bn of taxpayer funds to bail out Lloyds during the financial crisis.

      Spurred by signs of an economic recovery in the UK, institutional investors have been queueing up to invest in the country’s retail lenders, sending Lloyds shares up almost two-thirds in the past 12 months.

      The Lloyds share sale contrasts with the government’s 81 per cent stake in lossmaking Royal Bank of Scotland, which it has little prospect of selling down for several years.

      Morgan Stanley was added to the list of banks working on the Lloyds deal. The other bookrunners were Bank of America Merrill Lynch, JPMorgan Chase and UBS. Lazard advised UKFI.

      The banks have all agreed to waive their fees.

      Bargain hunters drive EM equity rally

      Posted on 26 March 2014 by

      Emerging market stocks climbed for a fourth straight day, their longest streak of gains since October, as investors concerned at the lofty valuations of western markets sifted through the developing world for bargains.

      The FTSE Emerging Market index was up 0.5 per cent on Wednesday, buoyed by a 1.3 per cent gain for Singapore’s main gauge, and 0.7 per cent rise in Hong Kong’s benchmark index.

        Emerging markets have over the past year been periodically whiplashed by concerns over Chinese growth, the US Federal Reserve tapering its quantitative easing programme and Russia’s annexation of Ukraine’s Crimean region.

        Concerns over China have eased a little in recent days on hopes recent soft data will prompt the central bank into stimulus action, while the absence of further sanctions against Russia from this week’s nuclear security summit in the Hague also helped ease tensions.

        Moscow’s Micex index has put in two sessions of gains this week, up 0.5 per cent on Wednesday for a two-day rally of 2.5 per cent. The Micex index now stands higher than its close of last Wednesday, after which the latest round of sanctions against Russia were announced.

        Despite warnings from Russia’s deputy economy minister on Monday that the country faced up to $70bn in capital outflows in the first quarter, analysts at Brown Brothers Harriman said Russian equity ETFs were reportedly drawing in funds. “There is some talk that leveraged players were short the Micex and are covering.”

        The FTSE EM index remains 12 per cent below its peak last year and more than 27 per cent below its pre-financial crisis peak, even as developed stock markets have hit new records. That has spurred some investors to seek bargains in now fairly cheap emerging market stocks.

        Barclays analysts urged investors to look for “tactical opportunities” in the developing world.

        “We believe cheaper valuations, lighter positioning, higher EM policy rates and ongoing external adjustments argue against treating EM assets as a clear short,” they said.

        Turkey’s markets rallied after the government said it had authorised the central bank to pay interest on reserve requirements held in lira by the country’s lenders.

        The banking sector was the primary driver of Tuesday’s 1.6 per cent advance on the BIST 100 index as investors anticipated the move, and the benchmark was up a further 1.5 per cent on Wednesday following the announcement.

        The country’s benchmark 10-year bond yield fell 30 basis points to 11.06 per cent, while the lira eased 0.4 per cent to TL2.2180.

        India’s rupee continued to climb, hitting an eight-month high, on hopes of an election win for the opposition Bharatiya Janata Party, which has pledged to revive economic growth. The currency added 0.5 per cent to Rs60.20.

        PBoC steps in to calm China bank run

        Posted on 26 March 2014 by

        People gather in front of a branch of Jiangsu Sheyang Rural Commercial Bank, in Yancheng, Jiangsu province, March 25, 2014. Hundreds of people rushed to withdraw money from a branch of a small Chinese bank on Monday after rumours spread about its solvency, local media reported, reflecting growing anxiety among investors as regulators signal greater tolerance for credit defaults. REUTERS/Stringer (CHINA - Tags: BUSINESS) ATTENTION EDITORS - CHINA OUT. NO COMMERCIAL OR EDITORIAL SALES IN CHINA©Reuters

        Hundreds of depositors have raced to pull their cash from a small rural bank in eastern China, forcing local officials to take emergency measures to calm the panic after the bank run began to spread.

        Coming weeks after the first true default in the Chinese bond market, the run on Jiangsu Sheyang Rural Commercial Bank is the latest sign of growing stresses in the country’s financial system.

          But it has also been a localised event, contained to one farming county where lightly regulated credit co-operatives and loan guarantee companies failed this year after mismanaging funds.

          Worried depositors rushed to Jiangsu Sheyang Rural Commercial Bank after rumours spread that it was on the verge of collapse, according to state media. The panic first hit the bank’s branch in an industrial park on Monday. On Tuesday, big queues of depositors gathered at its branches in at least three other villages in Sheyang county, according to the Xinhua news agency.

          The bank took steps to try to reassure people: photographs showed that the bank had prepared large bricklike stacks of renminbi to meet the demand for withdrawals; on the dot matrix sign outside one stricken branch, the bank promised to operate uninterrupted for 24 hours to serve people withdrawing money.

          At its doors, the bank broadcast a recorded message on repeat: “Savers’ deposits are protected by law. There is no situation in which we cannot meet cash withdrawal demands. Depositors must not listen to rumours and cause unnecessary panic.”

          But these measures failed to allay concerns. Crowds on Tuesday gathered in the rain outside the bank to withdraw cash.

          Default risks rise at China steel mills

          China steel

          Chinese steel mills suffered in mid-March as sales slowed, production levels slumped and profits plunged, according to an investment bank survey that foreshadows the risk of debt defaults in the largest steel producer . . . 

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          With the panic reaching other branches of the bank, the government intervened on Wednesday. In a video posted on the local government’s website, the governor of Sheyang county promised depositors that their money was safe. Tian Weiyou, the governor, said that People’s Bank of China, the central bank, would protect depositors.

          At least Rmb80m was wiped out in Sheyang county this year when credit co-operatives and loan guarantee companies closed suddenly. Local media said the bosses of these institutions, which operate without the same strict regulatory oversight as banks, had fled after racking up investment losses.

          Zang Zhengzhi, chairman of Jiangsu Sheyang Rural Commercial Bank, blamed the bank run on worries sparked by these earlier collapses. “Because ordinary people here have been scammed by the credit guarantee companies, when they hear that the banks might also have problems, they come right away to pull their cash out,” he told state radio.

          Local police said they would investigate the source of the rumour.

          The Sheyang bank run highlights China’s lack of a bank deposit insurance scheme. Regulators are expected to reveal a deposit insurance plan in the coming months. But in the meantime, bank deposits are covered only by implicit government guarantees.

          With the stacks of renminbi behind the teller windows at the Sheyang bank delivered in plastic bags emblazoned with the central bank’s insignia on it, that implicit guarantee appears to be holding strong.

          From a systemic perspective, the bank is tiny. It managed Rmb12bn of deposits at the end of February, accounting for about 0.01 per cent of the total assets in the Chinese banking system.

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          Santander UK faces £12.5m FCA fine

          Posted on 25 March 2014 by

          Men walk past by Santander bank branch in Rio de Janeiro

          Santander UK is to be hit with a £12.5m fine – one of the biggest ever retail banking penalties – for providing unsuitable investment advice to customers in its branches.

          The fine, expected to be announced by the Financial Conduct Authority on Wednesday, follows a mystery shopping exercise in 2012, which uncovered serious failings in the way the bank advised customers.

            While the regulatory probe focused on a number of UK banks and building societies, Santander UK was singled out for enforcement action early last year.

            In March 2013, the bank closed down its UK investment advice division, which had 800 employees.

            The fine will be the largest paid by Santander UK – and a big blow to the bank, given that it has focused on attempting to improve its substandard reputation for customer service.

            It is larger than the £10.5m HSBC was fined for mis-selling investment bonds to elderly clients but smaller than the £28m penalty handed to Lloyds Banking Group for the way its staff were incentivised to sell retail products.

            The initial findings of the regulator’s mystery shopping exercise found that a quarter of customers across all the banks were given poor investment advice. Over the course of more than 200 branch visits the regulator – then the Financial Services Authority – found that advisers were providing unsuitable advice in 11 per cent of cases and that in a further 15 per cent they had failed to collect enough information to make sure their advice was suitable.

            However, not all customers are expected to have suffered as many of the investment products recommended have since increased in value.

            Santander UK has recently relaunched a slimmed-down advice service with 100 advisers across its branches.

            A number of other banks have retrenched from this market in recent years, as regulatory changes, principally from the retail distribution review, have made it more costly and risky to offer investment advice.

            In January 2011, Barclays became the first big bank to stop offering customers financial advice at its branches. Lloyds Banking Group has also axed its mass market investment advice service and now only offers the service to wealthier customers.

            Meanwhile, HSBC last year set aside $149m to launch a probe into the advice it had given customers and to compensate those who had received unsuitable products as a result.

            However, a number of mutuals – including Yorkshire and Skipton – have said they plan to expand their advice services to fill the gap left by the big banks.

            Santander UK and the FCA declined to comment on the fine, which was first reported by Sky News.

            UK government to sell fifth of Lloyds stake

            Posted on 25 March 2014 by

            Lloyds Bank Branches As Lender Posts Fourth Consecutive Loss On Costs Of Redress©Bloomberg

            The UK government moved a step closer to returning Lloyds Banking Group to the private sector before next year’s election after it announced plans to sell more than £4bn worth of its shares in the bank.

            The sale of more than a fifth of its stake is likely to take UK Financial Investments, which manages the stake on behalf of the government, to below the 25 per cent level at which it wields a blocking minority in Lloyds.

              A bigger offering of Lloyds shares to retail investors is likely to be launched by UKFI as early as September, by which time the bank expects to be able to restart dividend payments, according to one banker familiar with the situation.

              If that was followed with a share buyback by Lloyds and a further “mopping up” sale of shares in early 2015, the banker said the government could have sold its entire stake by next year’s election.

              However, another banker said there was “zero chance” that the government would be able to sell the remainder of its holding in Lloyds this year – and it was likely to still have a stake beyond the May 2015 election.

              People close to the transaction said the volatility of the market, triggered mainly by the crisis in Ukraine, meant the government did not want to risk involving retail investors at this stage.

              The sale of 5.35bn shares in Lloyds, amounting to a 7.5 per cent stake, was to be agreed overnight on Tuesday via an accelerated bookbuilding process that is restricted to institutional investors. It will raise about £4.2bn for the taxpayer.

              The offer comes six months after the government first sold some of the shares that it received when it used £20bn of taxpayer funds to bail out Lloyds during the financial crisis.

              Spurred by signs of an economic recovery in the UK, institutional investors have been queueing up to invest in the country’s retail lenders, sending Lloyds shares up almost two-thirds in the past 12 months.

              Despite rockier markets, bankers were optimistic that the sale would be completed at a good price. While the discount to Tuesday’s closing price is unlikely to be as narrow as in the first sale in September, bankers expected it to be about 3-4 per cent to Lloyds’ closing price of 79.11 on Tuesday.

              A 4 per cent discount would generate about £130m of profit for the government – more than double the return it made from selling a 6 per cent stake at 75p per share last year – slightly above the 73.6p per share cost of its bailout.

              A Treasury spokesman said the government would only conclude a sale if it met its objectives – “getting the best value for the taxpayer, maximising support for the economy and restoring private ownership”.

              The Lloyds share sale contrasts with the government’s 81 per cent stake in lossmaking Royal Bank of Scotland, which it has little prospect of selling down for several years.

              Morgan Stanley was added to the list of banks working on the Lloyds share sale. The other bookrunners were Bank of America Merrill Lynch, JPMorgan Chase and UBS. Lazard advised UKFI. The banks have all agreed to waive their fees.

              Cash calls that came with a heavy price

              Posted on 25 March 2014 by

              When it comes to discounted rights issues, RSA – and the insurance sector – has form.The exit of Bob Mendelsohn, then chief executive, in September 2002 was the price investors demanded for allowing the group to proceed with a rights issue when it needed to raise capital.

              A £960m rights issue was finally announced by new chief executive Andy Haste in September 2003 with the price of 70p a share – less than half the opening price on the day.

                Prudential’s £1bn discounted rights issue announced in October 2004 to support expansion in the UK caused shock, less for the scale of the discount than because investors believed they had been assured the group had the cash flow to fund growth. It was part of a series of setbacks that in March 2005 cost Jonathan Bloomer his job as chief executive.

                The financial crisis and its aftermath saw a wave of fundraisings, as banks sought to bolster their capital bases, and non-financials needed to pay down debt as the credit market tightened.

                In the spring of 2008, these moves included a deeply discounted £12bn rights issue from Royal Bank of Scotland and a failed attempt by HBOS to raise £4bn. Just 8 per cent of the new shares were taken up by institutional investors – a flop that contributed to the bank’s takeover by Lloyds TSB.

                More recently, G4S became the poster child for the deeply discounted rights issue when, in October 2011, it announced plans to raise £2bn at an initial discount of 38 per cent to finance its bold attempt to take over its larger rival ISS, the Danish services provider. In the end, the deal came to nothing in the face of widespread investor opposition.

                Cheap corporate debt has led to deeply discounted rights issues becoming less popular, but FirstGroup produced a classic last May. Its £615m cash call to maintain its credit rating was accompanied by the resignation of chairman Martin Gilbert and was greeted by an on-the-day share price fall of 30 per cent.

                ‘Crystal Methodist’ went through hell

                Posted on 25 March 2014 by

                Paul Flowers

                Paul Flowers, the disgraced former chairman of the Co-operative Bank, has said he suffered “hellish moments” and needed addiction treatment after he was arrested for supplying illegal drugs last year.

                Mr Flowers, a Methodist minister who was dubbed the “Crystal Methodist” after he was filmed buying drugs, told BBC’s Newsnight that he had received “cathartic and traumatic” professional treatment for addiction and still had therapy every week.

                  “For me personally there have been several moments where it has been hellish,” he said.

                  The allegations about Mr Flowers – who was forced out of the Co-op Bank last summer after a £1.5bn capital hole was found in its balance sheet – was a particularly low point for the lender, which claims to have higher ethical standards than other banks.

                  Mr Flowers told the BBC that the Co-op had come under “considerable” pressure from the government to buy a portfolio of branches being sold by part-nationalised Lloyds Banking Group.

                  The Co-op had agreed to buy the branches but the deal collapsed as its capital problems emerged. There has been much speculation since over whether the government applied pressure on Lloyds to select the mutual ahead of other bidders in an attempt to boost its ability to compete with the biggest banks.

                  Mr Flowers said ministers “clearly . . . wanted a deal which would help them in terms of public finances. They actually said that they were keen on Co-op becoming a much more significant player with more scale”.

                  He said there was “pressure certainly from [former financial secretary] Mark Hoban, but I believe and know that that originated much higher up with the chancellor himself”.

                  Last year, when Mr Flowers appeared in front of the Treasury select committee, he denied there had been actual pressure from politicians to complete the Lloyds deal, saying it was “mainly a sense of political goodwill”.

                  The Co-op Bank was recapitalised in December, and a 70 per cent stake handed to bondholders including hedge funds. But its problems resurfaced this week as the bank admitted it needed to raise an additional £400m to cover a string of misconduct issues.

                  Hester revisits pay pressure at RSA

                  Posted on 25 March 2014 by

                  Stephen Hester©Reuters

                  Stephen Hester

                  Stephen Hester, the banker dragged into successive pay rows when he led Royal Bank of Scotland, is now facing questions from some shareholders in his new employer, RSA.

                  As the insurance group unveiled the details of an emergency £775m rights issue, certain investors pointed out that the former RBS chief could be entitled to a bonus even if the insurer’s profitability came in slightly below its previously stated target.

                    Although there is no sign that Mr Hester is set for a pay dispute on the scale he faced at RBS, some investors still queried a package that could entitle him to £5.3m for his first year running RSA.

                    About one-third of his share-based long-term incentive plan depends on RSA delivering a 11 per cent return on tangible equity in each of the next three years. But investors noted that this differed from RSA’s target of at least 12 per cent “over the medium term”.

                    One of the company’s largest 20 shareholders also expressed concern about the use of qualitative performance metrics that rewarded executives for “tying their shoelaces”.

                    However, RSA said it had begun sounding out major investors about the pay plan and that they had been broadly supportive of changes it was making.

                    The insurer is increasing the emphasis on capital strength and profitability, over sales, in determining executive bonuses. It added that its targeted return on tangible equity would represent a big improvement from its performance last year, when the outcome was minus 16.7 per cent.

                    RSA disclosed the details of the pay plan along with the terms of a share issue intended to boost its finances.

                    As joint underwriters to the issue, Bank of America Merrill Lynch and JPMorgan Cazenove will share 2.5 per cent of the sums raised.

                    One leading institutional investor acknowledged that these fees were typical for a rights issue, but said there was little risk that the banks would be on the hook. “A question could be asked about whether the fees could be lower,” the shareholder said.

                    Top institutional investors have said they will back the cash call to allow RSA to move on after uncovering accounting irregularities in Ireland.

                    Albemarle goes into administration

                    Posted on 25 March 2014 by

                    Pawnbroker Albemarle & Bond has collapsed into administration, putting 900 jobs at risk. PwC, the professional services firm, said on Tuesday that it had been appointed as administrator to the business, which had suspended its shares a day earlier.

                    Mike Jervis, joint administrator and partner at PwC, said: “Our priority is to keep all pledged items safe and available for redemption as normal. We plan to sell all or part of the business to protect as many jobs as possible and we have already paid, or will be paying all staff – including accrued bonuses – as normal in March.”

                      He added: “Also, all landlords have been paid. However, some redundancies may be necessary depending on the outcome of efforts to sell the business. Every branch will initially remain open as sale discussions progress. This also enables customers to continue to redeem their goods as normal as they pay off their loans.”

                      Albemarle, the second-largest pawnbroker in the UK, with 183 branches and almost 900 staff, on Monday admitted defeat after trying to negotiate with lenders in its attempts to stave off collapse. At one stage it even melted down some of its gold stocks to raise cash.

                      The shares were suspended after management said there was “no realistic prospect of any value being attributable to the company’s ordinary shares”.

                      The pawnbroker was battered by a falling gold price following its overhasty expansion, and an intensification of competition.

                      This combination brought about a reversal of fortunes for a company whose former chief executive Barry Stevenson had in 2011 declared the start of what he called the “age of the pawnbroker”.