RBS share drop accelerates on stress test flop

Stressed. Shares in Royal Bank of Scotland have accelerated their losses this morning, falling over 4.5 per cent after the state-backed lender came in bottom of the heap in the Bank of England’s latest stress tests. RBS failed the toughest ever stress tests carried out by the BoE, with results this morning showing the lender’s […]

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Renminbi strengthens further despite gains by dollar

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

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Sales in Rocket Internet’s portfolio companies rise 30%

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

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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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Nomura rounds up markets’ biggest misses in 2016

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

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Archive | November, 2016

Mexico issues more Banamex arrest warrants

Posted on 31 May 2014 by

A customer exits a Citigroup Inc. Banamex bank branch in Mexico City, Mexico, on Monday, March 28, 2011. The pension fund at Citigroup Inc.'s Banamex unit is selling peso debt with maturities between three and four years and shifting money into stocks on concerns inflation will rise. Photographer: Gustavo Graf/Bloomberg©Bloomberg

Mexico has issued more arrest warrants – including an unspecified number for staff at Citigroup’s Banamex unit – a day after detaining the owner of the oil services company at the centre of the $400m alleged fraud scandal that has rocked the bank since it came to light three months ago.

“Yes, there are more arrest warrants, but there are no further detentions yet, we are trying to execute the orders,” Jesús Murillo Karam, Mexico’s attorney-general, told reporters.

    Citi, which has purged a dozen staff at Banamex after a two-month investigation, and has admitted it failed to spot a plethora of warning signs in the alleged factoring fraud, has already fired 12 staff at its formerly star unit over the scandal. Four of those dismissed were senior managers in Mexico and the bank had been bracing for criminal investigations into some staff, according to a person familiar with the investigation close to the investigation.

    Citi had also said it expected to have to sanction other staff – probably in the form of docked pay and bonuses – before the affair could be laid to rest.

    Asked if the arrest warrants included Banamex staff, Mr Murillo Karam said: “Yes there are, but I am not going to say who.”

    A Banamex spokesman could not immediately be reached for comment.

    Mr Murillo Karam said “one of the main people responsible” had been detained.

    The scandal erupted in February when Citi announced a $235m hit to 2013 profits caused by an alleged fraud at its accounts receivables business in Mexico. The bank then took a further $165m charge in the first quarter.

    Citi’s chief financial officer John Gerspach told a conference on Tuesday: “We’re still hopeful of some level of recovery, but we’re not counting on that as yet.”

    Banamex had been a strong performer in the global group but the bank has been forced to admit, in the words of Michael Corbat, Citi CEO, that there were “tell tales along the way that people should have escalated, and they didn’t”.

    Amado Yáñez, the chief executive and main owner of Oceanografía, the Mexican oil services company was arrested on suspicion of complicity in the $400m fraud earlier this week.

    Samwer brothers eye €3bn Rocket flotation

    Posted on 31 May 2014 by

    Three German brothers famous for copying Silicon Valley start-ups are aiming to float their investment vehicle with a desired valuation of between €3bn and €5bn.

    Rocket Internet, founded by Marc, Oliver and Alexander Samwer, has appointed Berenberg, Morgan Stanley and JPMorgan to evaluate a potential offering in Frankfurt, two people familiar with the situation said. 

      The move could be one of Europe’s most controversial ecommerce offerings, with venture capitalists having criticised Rocket as a clone factory that hinders innovation. 

      However, the business has emphasised its central technology platform, which has allowed it to launch fast-growing online marketplaces and payments companies in Latin America, Africa and Asia, regions it argues are neglected by major global players. 

      “There are three ecommerce companies in the world – Amazon, Alibaba, and us,” Oliver Samwer, the middle brother who is Rocket’s main executive, told the FT in 2013. 

      A mix of an incubator and a venture fund, Rocket’s investments include transport service Easy Taxi and takeaway provider Foodpanda. 

      One person familiar with its plans cautioned that the listing might not happen, with the company having previously raised funds from private investors. 

      Another person familiar with the company said Rocket may be better off remaining private and building its business further, rather than rushing to do a listing as interest in technology IPOs has cooled in recent months. 

      The potential listing was first reported by Bloomberg. Rocket, JPMorgan and Morgan Stanley declined to comment. Berenberg could not immediately be reached for comment. 

      Last year Rocket said it had raised nearly $2bn within two years from backers including Swedish investment firm Kinnevik and Access Industries, the investment vehicle of US billionaire Len Blavatnik. 

      A 2012 investment round valued Rocket at about €3bn, although at that time its assets included equity in online retailer Zalando. That stake was subsequently transferred to Kinnevik, Access Industries and the Samwers’ European Founders Fund. 

      Opting for an IPO would mark a change of strategy for the Samwers, who had previously sold their companies to bigger US rivals such as eBay and online discounts provider Groupon. 

      As part of one of those deals, Oliver and Marc received shares in Groupon that were valued at $1bn when the company floated. 

      An IPO of Rocket could lead to a further windfall for the brothers, as well as their backers including Kinnevik and Access Industries. 

      Kinnevik’s shares more than doubled last year on optimism about its links to Rocket’s companies, although they have slipped subsequently. 

      Investors have shown varying appetite for ecommerce listings. In the UK, shares in white goods seller AO World and clothes retailer have dropped steadily since floating earlier this year. 

      Rocket announced this month that Goldman Sachs partner Peter Kimpel would join as its chief financial officer.

      TSB must learn lessons of past mistakes

      Posted on 31 May 2014 by

      A customer enters a TSB bank branch, operated by Lloyds Banking Group Plc, in Winslow, U.K., on Friday, March 21, 2014. TSB, the banking business Lloyds Banking Group was ordered to sell as a condition of a the U.K. government's bailout, is expected to have an IPO before this summer. Photographer: Chris Ratcliffe/Bloomberg©Bloomberg

      Any bank that likes to say yes is asking for trouble. Unfortunately, there is nobody left at TSB to explain to its enthusiastic chief executive, Paul Pester, what happened last time this bank had more capital than it needed. Like nearly all other clearing banks since, it plunged into the exciting world of investment banking. It bought Hill Samuel, and the pain was such that it was not long before the TSB was saying yes to Lloyds, where it has resided quietly ever since.

      Until now. The offer of shares will be aimed squarely at those who either bought, or wish they had bought, Royal Mail, and hope for the same instant profit. After all, this is a nice clean bank, a sort of mini Lloyds as it would have been without the horrors of HBOS, with low-risk mortgages financed by consumer deposits, and a socking £21.60 in equity for every £100 of liabilities.

        This is such a fat cushion that there is no hope of earning a decent return on the difference between mortgage and deposit rates, which is one reason there is no dividend until 2017. The other is Mr Pester’s ambition to grow by as much as a half (sensibly, he does not say how fast), winning market share from banks old and new. He might even buy one of the newcomers, but of course there is no question of going into investment banking, no siree.

        TSB seems likely to be priced at a modest discount to net asset value, so Lloyds shareholders are giving away far less than they would have done with the disastrous Co-op deal. Despite the summer ennui towards new issues, TSB is likely to get away. The 5 per cent bribe to retail shareholders if they hold on for two years looks curious considering that Lloyds is obliged to have sold out completely before then. Curiouser still is the decision not simply to give TSB shares to Lloyds shareholders and let the market price both. Nothing to do with the fees paid to the investment bankers, surely.

        More light, please

        David Blake at the Pensions Institute reckons that the disclosed fees on pooled funds can be as little as 15 per cent of the true cost to the investors. He is pressing for better, if not full, disclosure of the real amounts that punters pay to have their money managed by others.

        This is a thoroughly laudable aim, and the Retail Distribution Review has already forced reductions in management fees, but claiming that 85 per cent of the true cost remains hidden requires some heroic assumptions about the return on spare cash, the bigger spread on large trades and the rate of churn in the portfolio.

        The RDR has turned the spotlight on to a dark, and highly lucrative, corner of the City, while the Financial Conduct Authority’s push for fuller disclosure continues. The true rewards enjoyed by those managing other people’s money, often for mediocre performance, are only starting to become apparent, and as they do, more individual investors are likely to decide that they can (mis)manage their own affairs just as well, and save themselves the fees.

        Alternative Asset Class

        Go on, you have always wanted your own steam train. Here is your chance. Lovingly maintained, cleared to run on Swiss railways (in other words, everywhere) it is yours for . . . oh, probably not very much. The vendor of the magnificent locomotive prosaically named 141R568 is, curiously enough, Andrew Cook, co-author of Coal, Steam and Comfort, and better known as the boss and proprietor of William Cook Holdings, makers of precision steel castings.

        Mr Cook hardly comes across as sentimental, having successfully steered the family business through 32 years that have done for so many Sheffield steel businesses. The buyers of complex, reliable, mission-critical parts are not that worried about the price. The buyer of 141R568 should not be, either. He will find the purchase price is merely the down payment, as romantic buyers of the Flying Scotsman discovered as their money disappeared into the black hole of maintenance.

        Still, with imagination, 141R568 could be promoted as a 2-8-2 Alternative Asset Class loco, with dividends in the form of trips through the Gotthard Tunnel. Don’t all rush.

        IC: May 31 highlights

        Posted on 31 May 2014 by

        Telford Homes

        Buy: Telford Homes (TEF)

        As well as explosive growth, high earnings visibility and a big dividend increase, the shares are trading more cheaply than most of its rivals, writes Jonas Crosland.

          With a forward order book stretching out four years, London-based housebuilder Telford Homes now has a development pipeline worth more than £875m.

          That is up 40 per cent from the previous year, and serves as an illustration of the insatiable demand for apartments and houses close to central London.

          Further evidence came with news that 94 per cent of apartments in its Stratford Central development – not expected to complete until March 2018 – were sold off-plan within four weeks.

          Such strong demand has transformed the financial metrics. Operating margins have nearly doubled to 17.1 per cent, and gearing has fallen from 47.3 per cent to zero.

          Pre-tax profits have risen sixfold in the last two years and are expected to more than double again over the next four.

          Of the current year’s targeted output, 98 per cent has already been sold, with 35 per cent sold to owner occupiers, a third to UK-based investors and 32 per cent to overseas investors.

          The average open market selling price rose from £353,000 to £400,000.


          Sell: SABMiller (SAB)

          SABMiller Brand

          With trading conditions expected to remain broadly unchanged and input costs likely to rise, the share price looks too demanding, writes Julia Bradshaw.

          Currency concerns, excise duty increases and regulatory change helped drain profits at brewer SABMiller last year. But the underlying performance was reasonably robust as faster-growing emerging markets offset declines in Europe and the US.

          Net producer revenue, which excludes excise and other taxes, rose 3 per cent year-on-year. Combined with cost efficiencies, this boosted the group’s trading profit by 7 per cent. Latin America, Africa and Asia Pacific were the main engines of growth, reflecting volume increases, higher pricing and a better product mix.

          Africa was particularly strong and profits there jumped 12 per cent, due to higher volumes and market share gains. Sales in China, where the growing middle classes are increasingly trading up, surged by 17 per cent.

          However, profit in Europe dipped 15 per cent, and currency problems were particularly acute in South Africa, where the rand depreciated significantly against the US dollar.

          Management announced a new cost-cutting programme that should deliver $500m (£298m) of savings a year by 2018. That will involve restructuring costs of $350m, $59m of which was incurred last year.


          Hold: De La Rue (DLR)

          De La Rue, banknotes being printed

          Overcapacity looks likely to remain a problem, but the potential for further cost savings and a generous dividend yield make the shares worth holding, writes Kirsty Green.

          Printing money might sound like a road to riches, but De La Rue has struggled of late. Overcapacity and pricing pressures in the banknote paper market forced the world’s largest banknote printer to issue a profit warning in October. De La Rue said it would no longer meet its 2013-14 operating profit target of £100m, sending the shares into a tailspin.

          These numbers brought some respite. The shares rose 9 per cent in morning trading when De La Rue announced it had delivered slightly above its revised operating profit target of £90m.

          In the final year of its three-year improvement plan, the group achieved a further £20m of cost savings, taking the annualised run rate to £40m. That has driven operating profit to £90.5m, from £40m three years ago.

          Management tell us they expect to deliver further operating efficiencies this year, but did not want to put a figure on likely savings. A decision by the Bank of England as to who will print its next generation of banknotes, likely by the year-end, is the potential wild card.


          Stock screen: Bags of US value

          This week’s screen, which looks at the US market, was devised by accountancy professor Joseph Piotroski, writes Algy Hall. Based on the Russell 3000 constituents, the screen produced a portfolio of 33 stocks, the smallest of which has a market cap of $105m.

          Last year’s US Piotroski portfolio of 16 stocks underperformed the market. While the 14.3 per cent total return the stocks delivered is not to be sniffed at, it is disappointingly inferior to the 18.1 per cent achieved by the Russell 3000.

          Conventional wisdom suggests that market-beating returns through screening are only achieved over the long term by sticking doggedly to a chosen strategy. Indeed, the 2012 US Piotroski screen boasted a return of 62 per cent compared with 27 per cent from the market.

          Investors who had stuck with that May 2012 portfolio rather than switching to the 2013 portfolio would now be sitting on a return of 111 per cent compared with the 83 per cent cumulative return achieved by switching. The Russell 3000 returned 48 per cent over the same period.

          Mr Piotroski’s screen is based on using historic fundamentals to predict whether cheap stocks, identified by low price-to-book ratios, are dogs or recovery plays.

          There are nine fundamental tests that Mr Piotroski applies to “cheap” stocks – those with price-to-book-values among the lowest quarter of the market. The tests look at profits, cash flows and the balance sheet.

          The current ratio is a simple and somewhat crude way of measuring whether a company is well place to pay its upcoming bills. The ratio is calculated by simply dividing current assets (assets that should be fairly readily available to pay upcoming bills) by current liabilities (upcoming bills). The rule of thumb is that a current ratio of less than one is a worry and anything more than one is reassuring.

          Mr Piotroski does not care what the current ratio actually stands at, but he does want to see it is moving in the right direction.

          To reinforce this focus on improving fundamentals, he also wants an indicator that this is happening without the need for outside finances. Two further tests are that shares in issue have not risen in the past 12 months – no money is coming in from selling new shares to the public – and that gearing has fallen – new debts are not being taken on to pay upcoming bills.

          The only “per share” measure that the screen bothers itself with is the initial assessment of value based on the price-to-book ratio. Companies must achieve at least eight of nine criteria, which include positive and growing post-tax profits (excluding exceptional items), rising gross margins and improving capital turn (turnover as a proportion of net assets).

          The screen’s focus on book value means it is prone to highlight certain kinds of companies that have more capital intensive operations and rely on assets to generate profits.

          Of the 33 companies that meet Piotroski’s criteria this year, here are three of the larger stocks: Loews Corporation, which has interests ranging from insurance, to drill rigs and hotels; Consolidated Edison, one of the biggest utilities in the US with operations focused in and around New York; and insurance and asset management business Lincoln National.

          Brussels judge opens inquiry into UBS

          Posted on 30 May 2014 by

          A Brussels judge has opened an investigation into UBS on “suspicion of money laundering and criminal organisation”, making Belgium the latest European country to probe the foreign activities of the Swiss bank.

          A spokeswoman for the prosecutors department in Brussels said that the investigation was being run by Michel Claise, a specialist in white collar crime, but declined to give any further details of the case.

            UBS, which is Switzerland’s largest bank by assets and one of the world’s largest wealth managers, said that it was “not aware of any preliminary investigation concerning UBS Belgium and hence [we] are not in a position to comment”.

            “UBS conducts its business in full compliance with applicable laws and regulations. UBS does not tolerate any activities intended to help its clients circumvent their tax obligations,” the bank added.

            The Belgian investigation follows probes into UBS’s cross-border business for wealthy clients by various other European countries.

            Last year, French authorities placed the French unit of the Swiss bank under investigation as part of a probe into allegations that it solicited French clients to open accounts designed to evade taxes.

            UBS has also run into difficulties in Germany, where officials in 2012 carried out numerous searches of its clients’ properties, following moves by German regional authorities to buy CDs containing client data. After analysis of one CD, a prosecutor alleged that German account holders at UBS had evaded about €204m in taxes.

            UBS said at the time that it did not help clients evade taxes and that since 2009 it had carefully examined its business and tightened its rules where necessary.

            ECB poised to cut main interest rates

            Posted on 30 May 2014 by


            The European Central Bank is next week poised to cut interest rates and boost lending to credit-starved smaller businesses in its battle to head off the threat of Japanese-style deflation.

            The ECB is expected to go where no central bank has gone before and lower one of its interest rates below zero at its rate-setting meeting on Thursday. The move contrasts with the British mood, where the Bank of England is considering raising rates as its recovery gains pace.

              Senior ECB officials have hinted that they will also present measures to tackle the plight of the eurozone’s struggling SMEs to counter what ECB president Mario Draghi this week dubbed a “pernicious negative spiral” of low inflation and tight borrowing constraints.

              Jens Weidmann, Bundesbank president, is planning to support the ECB’s proposal to ease constraints on smaller businesses in more troubled parts of the currency bloc, according to a senior European central banker, but his vote for rate cuts is thought to be more finely balanced.

              The ECB is expected to announce a fixed-rate offer of cheap central bank funds, often referred to as a longer-term refinancing operation, according to two people familiar with the matter. Under the LTRO, banks could borrow as much as they wanted from the central bank in the form of loans with maturities of a number of years.

              The ECB has used LTROs to pump €1tn into the eurozone’s financial system, though the amount offered this time could be lower as banks’ demand for central bank cash has waned.

              People familiar with the matter say the fixed rate will depend on banks’ commitments to support credit creation in certain areas. The LTRO is expected to ape the design of the BoE’s Funding for Lending Scheme, which allows banks to shrink their balance sheets and still benefit from the cheap loans, so long as the level of contraction is not too large.

              Most analysts expect a cut of 10 or 15 basis points to the ECB’s main refinancing rate, now 0.25 per cent, to be matched by a cut to its deposit rate, which stands at zero. A move into negative territory in effect imposes a levy on reserves held at the ECB – a change that policy makers hope will spur lending from banks in the region’s core to those in the periphery, as well as weakening the euro.

              After more than six months of talks, the ECB has been expected to act in June since Mr Draghi said in early May that rate-setters were “comfortable with acting next time”. The ECB president said after this month’s policy vote there was consensus within the ECB council over “dissatisfaction about the projected path of inflation”.

              At 0.7 per cent, eurozone inflation is worryingly low and stands at less than half the ECB target of below but close to 2 per cent. The central bank will set out projections for inflation at Thursday’s meeting, with the forecasts for 2016 set to determine whether or not the governing council’s more hawkish members back rate cuts.

              The ECB president signalled the central bank would take action to boost lending on Monday, saying credit constraints were “putting a break on the recovery in stressed countries, which adds to disinflationary pressures”.

              Lending to businesses around the bloc has continued to fall despite early signs of an economic recovery. Conditions have been particularly tight for smaller companies in peripheral countries.

              The ECB declined to comment.

              Death of US dollar is greatly exaggerated

              Posted on 30 May 2014 by

              What does not kill the dollar makes it stronger. There have been plenty of obituary notices for the US dollar’s reserve currency status in recent years, and with good reason. Other countries are growing far faster; the 2008 financial crisis destroyed confidence in its banking system; and measures taken since to recover from the crisis, keeping rates low and flooding the markets with money, should adulterate the currency.

              And yet, whenever crisis hits, the dollar rises – even when the epicentre of the crisis is itself in the US. On a trade-weighted basis, the dollar gained almost 27 per cent during 2008 and early 2009, as the collapse of Lehman Brothers rocked the world. Then it rallied almost 20 per cent in the months after the outbreak of the eurozone crisis in late 2010; and in 2011 the decision by Standard & Poor’s to downgrade US sovereign debt sparked a rally of more than 15 per cent for the dollar.

                The long-term trend for the dollar does appear to be gently downwards; but it is still the place to which money comes home when there is trouble.

                To illustrate these trends in microcosm, look at the past few weeks. During the past year, a relatively benign period for perceived risks, in which the crisis in the eurozone had died down, while the Federal Reserve bumpily but successfully started tapering off its “QE” bond purchases, the dollar has steadily weakened. But this month, it started to strengthen.

                This week brought the news that annual gross domestic product growth in the US was -1 per cent for the first quarter. This was far worse than expected, and the first time in three years that growth had turned negative.

                The response on the currency markets? Negligible. The euro barely gained on the dollar in the aftermath, and has dropped some 3 per cent against the US currency in a matter of weeks. Chart patterns matter a lot for currency traders, and the euro remains just below its 200-day moving average (an average of the past 200 days’ closing prices), which implies that the euro may have moved into a decisive downward trend.

                Similar factors were at work when looking at a broader trade-weighted index of the dollar against major US trading partners.

                Other round numbers have had their effect recently. The rise of the euro stalled just below $1.40 – a level that has aroused complaints from European politicians in the past – while the pound sterling has also been falling, having almost but not quite hit $1.70.

                What is going on? Janet Yellen, the head of the Federal Reserve, has convinced markets that the imminent end of bond purchases does not mean that rates will rise soon. That weakens the dollar. But there are limits to how far this can go, and it appears that the market has reached those limits.

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                In the broader picture, this is part of what Eswar Prasad, who teaches economics at Cornell University, calls the “dollar trap”. In a new book he argues that the dollar will not lose its status as the world’s reserve currency. Instead, a growing demand for “safety” combined with a shortage of “safe” assets anywhere else, will ensure that it continues to anchor the world financial system.

                Emerging central banks, led by China, have piled into US assets. A far higher proportion of US government debt is held by foreigners than is true of eurozone or Japanese government debt. So international trust in the US continues to be deep.

                Other options of safety are dwindling. Since the crisis, both eurozone bonds and mortgage-backed paper look far less safe. China’s renminbi remains tightly controlled. And no other market has the depth of the US. If foreigners are nervous about the US (as they well might be) and want to put their money somewhere else, they will find few other places that can take it.

                So the logic of supply and demand means, according to Mr Prasad, that we take shelter from problems in the dollar.

                Thus the US, having taken measures that would have risked collapse for any currency that did not benefit from the “dollar trap”, can now raise rates over the next few years, strengthening the dollar. In the immediate future, the feeling is that the European Central Bank must take measures next week to combat the risk of deflation, and that this will involve weakening the euro against the dollar.

                Mr Prasad admits that the trap “seems to run counter to logic”, and that the world economy is in a “fragile equilibrium” so that we may be on “a sandpile that is just a few grains away from collapse”. The dollar trap may yet turn into a crash. But it has avoided many opportunities for such a denouement so far.

                For the longer run, it appears that the dollar has us all entrapped. There is simply nothing that is better, and nothing that is safer. To quote Mr Prasad, it has become “a protective but prickly cocoon for a troubled world, which could do a lot worse than putting its money and trust in the US”.

                The Dollar Trap, by Eswar S. Prasad, Princeton University Press

                South Korean won at highest in six years

                Posted on 30 May 2014 by

                An employee counts South Korean 10,000 won banknotes at the Shinhan Bank headquarters, a unit of Shinhan Financial Group Co., in Seoul, South Korea, on Thursday, Feb. 6, 2014. Shinhan Financial, South Korea’s biggest financial company by market value, is scheduled to release fourth quarter earnings on Feb. 11. Photographer: SeongJoon Cho/Bloomberg©Bloomberg

                The South Korean won has ended the month at its highest level in almost six years as capital inflows and strong export data put pressure on the currency to rise.

                Elsewhere in the currency markets, the dollar ended the week on a softer footing with sterling on Friday paring its biggest monthly loss against the US unit since January.

                The won has gained more than 10 per cent against the dollar over the past 12 months, making it the best-performing currency in Asia.

                  It reached Won1,020 per US dollar on Friday, its strongest since August 2008.

                  Geoff Kendrick, FX strategist at Morgan Stanley, now forecasts a won rally all the way to Won950 a dollar, which would be the highest since January 2008. Its historic record level is Won920, reached in December 2006.

                  Portfolio investment has been a major factor guiding the won. In the past week, global investors have put $588m into Korean equity funds, according to data released on Friday by EPFR, the fund flow tracker.

                  Bond buying has also been strong with overseas sovereign wealth funds and central banks adding billions of dollars to their Korean debt holdings this year.

                  With economies in the west showing signs of building momentum, export-driven markets in Asia – particularly Korea and Taiwan – are also benefiting from improved demand for goods.

                  Trade data released this week show that won strength has done little so far to dent export performance. Even so, the rising currency is an increasing cause for concern among Korean manufacturers.

                  A recent survey by the Korea International Trade Association highlighted a level of Won1,045 as the point beyond which the won would start to have a negative impact on the bottom line.

                  That level was breached in April as the country’s economic picture showed signs of improvement.

                  In the wider currency markets, the dollar index was 0.2 per cent lower on Friday to stand flat on the week while sterling’s gain of 0.3 per cent against the dollar limited weekly losses to 0.4 per cent.

                  “The dollar’s ambitious rally on Wednesday against the euro and pound was checked by the market this past session,” said John Kicklighter of DailyFX. “Though the ‘risk on’ mentality that is driving volatility measures across asset classes lower may not be leading the currency to a comparable collapse, it prevents bulls from gaining a foothold.”

                  Rising swap costs hit mortgages

                  Posted on 30 May 2014 by

                  What does this show?

                  It’s the interest rate on five-year swaps, which is now back above 2 per cent.

                  Five-year swap rates have almost doubled since May last year, but two-year swaps, which are more sensitive to base rate expectations, have risen more since the start of this year.

                  In the middle of March, two-year swaps were still below one per cent, but rose to 1.16 per cent by mid-May, according to weekly swap data supplied by broker SPF Private Clients. Five-year swaps were priced at 1.98 per cent at the end of March, but had reached 2.08 per cent by mid-May.


                  What are swaps?

                  Banks and building societies use a variety of funding sources for mortgages, including retail savings deposits – which must account for at least half of building societies’ funding. But money from the interbank markets is also a major source of funds, and swaps allow lenders to insure against rising interest rates.


                    Isn’t the base rate the benchmark?

                    Tracker mortgages tend to be linked to the Bank of England’s base rate, which has been at an all-time low of 0.5 per cent since March 2009. But lenders use swaps to price fixed-rate mortgages.

                    The swap market is an indicator of where the market thinks the base rate might be heading.


                    Do rising swap rates mean dearer mortgages?

                    The increase suggests the era of inexpensive mortgage deals is ending, according to mortgage brokers.

                    “As we move closer to the point at which the base rate is expected to climb, the swap rates reflect this,” said David Hollingworth of broker London & Country.


                    Should I fix my mortgage rate now?

                    “Some people think borrowers should hold firm before the base rate moves, but fixed rate mortgages are already more expensive by then,” Mr Hollingworth added.

                    Mark Harris, chief executive of SPF Private Clients, noted that although the cost of swaps has gone up, mortgages rates have not risen by the same amount because lenders are competing to attract business.

                    “The margins banks have applied to swap rates have come down because of competition. They’ve worked on smaller margins compared to a year ago,” said Mr Harris.

                    $10bn fine reports hit BNP Paribas shares

                    Posted on 30 May 2014 by

                    Shares in BNP Paribas fell to their lowest level in eight months after reports that the Paris-based lender faces as much as a $10bn fine from US authorities for alleged sanctions violations.

                    The figure, which is far higher than the $3.5bn previously reported, raised concerns that the bank would have to cut its dividend and prompted calls on France’s socialist government to do more to defend the lender.

                      BNP shares fell as much as 6 per cent on Friday. The stock is now down nearly 18 per cent since early February when the bank first said that it was taking a $1.1bn legal provision to cover the costs of any possible fines.

                      The reports prompted France’s far-right National Front, fresh from an electoral breakthrough at European polls this month, to accuse the government of failing to protect France’s biggest bank against US regulators. “It goes without saying that the French bank cannot allow itself to pay such a colossal fine, the cost of which will inevitably be borne by its clients and savers,” said the party.

                      The investigation by the US authorities focuses on whether BNP violated sanctions and anti-money laundering rules between 2002 and 2009 by disguising transactions in US dollars with countries including Iran, Sudan and Cuba.

                      The settlement could include a suspension of BNP’s ability to clear US dollar transactions, which would be a blow to the bank, hurting its ability to serve clients of its wholesale bank as well as its large US retail bank.

                      Investors and analysts expressed concern that if the fine came to $10bn the bank might have to cut its dividend or be forced to raise fresh capital.

                      “We don’t know the exact size of the fine, but $10bn would be very bad news,” said Yohan Salleron, fund manager at Mandarine Gestion in Paris. “BNP may have to cut their dividend for this year and maybe next year as well,” he said.

                      A $10bn fine would leave the group with a core tier one capital ratio of about 10 per cent, still above the 9 per cent required by regulators under Basel III rules, but would probably mean cancelling the dividend for 2014, analysts say.

                      “BNP will probably propose to skip the 2014 dividend as a simple way to mitigate the damage,” said Jean-Pierre Lambert, analyst at Keefe, Bruyette & Woods. “This would not be popular with investors, many of whom are dividend orientated.”

                      He added that it could also lead to BNP cutting the bonus pool for investment bankers and considering raising fresh capital. It comes in the midst of an EU “stress tests” of banks’ financial health.

                      A note by Moody’s on Friday said that the bank faces a “potentially significant loss of client business in the US” if hit by criminal charges, with money market funds, pension funds and institutional clients all potentially taking business elsewhere.

                      People in the bank have expressed frustration about how long the settlement process is taking and the uncertainty being created, with some wanting to settle as soon as possible to restore clarity for investors and clients.

                      A deal, if one is reached, is still weeks away, and the fine size could change as part of the talks, people familiar with the matter say. The $10bn figures was reported in the Wall Street Journal on Thursday night. BNP declined to comment.

                      The Wall Street Journal article said that BNP was looking to pay less than $8bn, citing sources close to the talks, but a person close to BNP said its negotiators had not mentioned an $8bn figure in the discussions.

                      Christian Noyer, the governor France’s central bank, earlier this month defended BNP, saying that the lender had broken no European or French rules, adding that the case was being watched closely. “We have indeed verified that all the transactions were in line with EU and French rules, regulations and directives,” said Mr Noyer at a news conference. “So there have been no breaches.”