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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Capital Markets

Mnuchin expected to be Trump’s Treasury secretary

Donald Trump has chosen Steven Mnuchin as his Treasury secretary, US media outlets reported on Tuesday, positioning the former Goldman Sachs banker to be the latest Wall Street veteran to receive a top administration post. Mr Mnuchin chairs both Dune Capital Management and Dune Entertainment Partners and has been a longtime business associate of Mr […]

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Banks

Financial system more vulnerable after Trump victory, says BoE

The US election outcome has “reinforced existing vulnerabilities” in the financial system, the Bank of England has warned, adding that the outlook for financial stability in the UK remains challenging. The BoE said on Wednesday that vulnerabilities that were already considered “elevated” have worsened since its last report on financial stability in July, in the […]

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Currencies

China stock market unfazed by falling renminbi

China’s renminbi slump has companies and individuals alike scrambling to move capital overseas, but it has not damped the enthusiasm of China’s equity investors. The Shanghai Composite, which tracks stocks on the mainland’s biggest exchange, has been gradually rising since May. That is the opposite of what happened in August 2015 after China’s surprise renminbi […]

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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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Archive | November, 2016

Mercer strips Pimco funds of top rating

Posted on 30 September 2014 by

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One of the most influential pension consultants has stripped Pimco’s $223bn Total Return bond fund of its top rating, complicating the asset manager’s attempts to persuade clients to stick with the fund.

Mercer downgraded the Total Return and four other funds that had been run by Bill Gross, the Pimco founder who walked out of the firm after 43 years last week, according to people familiar with the move.

    The downgrade immediately triggered a review of Pimco holdings by one of its UK pension fund clients.

    Mercer cut Pimco’s Total Return fund and four other funds to a B grade on its A-to-C scale. Pension consultants hold considerable sway, particularly with smaller funds with fewer resources to assess investment opportunities, and Mr Gross’s Total Return fund has been a core recommendation of many consultants for a generation.

    Pimco planned to fire Mr Gross as chief investment officer last weekend, but he quit to start a new bond fund at Janus Capital before the firm could move against him.

    Morningstar, the research group most widely followed by retail investors, has also taken action against the Total Return fund, scrapping its “gold” analyst rating late on Monday. It downgraded the fund to “bronze” because of the “uncertainty regarding outflows and the reshuffling of management responsibilities”.

    Many of the assets held by the Total Return fund have tumbled in price as traders anticipate that Pimco investors will pull their money, and rivals report strong flows into their own products in recent days.

    US regulators are monitoring trading and fund flows, in what could prove a test case in the debate over whether asset management groups contribute to systemic risk.

    Officials at the Securities and Exchange Commission, the Federal Reserve and the US Treasury, among other bodies, have been talking to industry executives about market developments and the potential for unintended consequences if investors pull their money from Pimco.

    Regulators around the world are discussing new rules for large asset management groups and curbs on some of their activities, amid concern that the next “too big to fail” institutions may not be banks but asset managers.

    US officials want to make sure that investors, including hedge funds and other investment managers, are not exacerbating risks if they contemplate moving their money from Pimco, said people familiar with the efforts.

    Representatives from the agencies concerned are telling investors to make sure they understand the potential knock-on effects of their actions.

    The conversations with executives do not signal imminent concern so much as an effort to understand the market dynamics when a large asset manager finds itself under pressure. Outflows have so far been managed in an orderly way, according to people familiar with the regulators’ efforts.

    A report commissioned by the US Financial Stability Oversight Council
    warned that large funds might be subject to “runs” if investors believe there is an advantage to pulling their money first.

    Additional reporting by Katrien Van Hoof, MandateWire

    Ebay defends spin-off plan for PayPal

    Posted on 30 September 2014 by

    Ebay©Dreamstime

    Ebay is to spin off PayPal which accounts for as much as half of its $65bn stock market value, in a further unravelling of one of the few remaining successes from the dotcom era of internet companies.

    The move marks a dramatic climbdown coming just months after the company rejected calls by the activist investor Carl Icahn to sell the online payments system.

      The reversal is also a setback for some of Silicon Valley’s best-known figures, who had rallied round eBay’s chief executive John Donahoe in recent months denouncing Mr Icahn’s campaign. Ebay founder and chairman Pierre Omidyar, PayPal and LinkedIn founder Reid Hoffman and venture capitalist Marc Andreessen all backed him.

      Coming just three years after eBay sold Skype, the decision to spin off PayPal represents a final dismantling of the strategy pursued by Mr Donahoe’s predecessor, Meg Whitman, to make eBay more than just an auction business.

      Ebay bought PayPal for $1.5bn in 2002, and PayPal’s founders and employees include some of the more illustrious names in technology, including the venture capitalist Peter Thiel and Elon Musk, founder of Tesla Motors and SpaceX. Some analysts believe the business could be worth more than $30bn.

      Mr Donahoe, who is to step down as chief executive once the demerger is completed, defended the rethink saying circumstances had changed drastically in the payments business in the five months since the company struck a truce with Mr Icahn.

      Apple’s recent announcement of a payment system for the iPhone and Watch was the latest sign of the race to dominate mobile commerce, though such a move had been widely anticipated in the payments world for years.

      “The pace of change is accelerating – I didn’t think it was possible, to be honest, but it is,” Mr Donahoe told the Financial Times. “We felt that given that change there were bigger opportunities and more diverging opportunities for eBay and PayPal.”

      Shares in eBay jumped 8 per cent on Tuesday in reaction to the news that it would list the faster-growing PayPal business as a publicly traded company when the split takes effect in 2015.

      The latest move leaves eBay focused on the slow-growing auction and marketplace business on which it was founded in 1995. It had tried to use the acquisitions of PayPal in 2002 and Skype in 2005 to build a broader range of services around its online community, in part to make it easier for people to carry out transactions with each other.

      However, both PayPal and Skype picked up more custom via users outside eBay. This persuaded the company to spin them off as standalone businesses.

      Mr Donahoe said he had called Mr Icahn the night before the announcement to alert him to the board’s decision. The hedge fund magnate had launched a proxy fight nine months ago to push the company to spin off its payments business. eBay’s board appeared to have fought him off and the two sides had announced a deal in April, with Mr Icahn gaining one seat on eBay’s board.

      “I think he was pleased,” said Mr Donahoe.

      Mr Icahn released a statement Tuesday praising the move and called for PayPal to look to consolidate the payments industry further, either through acquisitions or a merger, to fight off competition from newcomers.

      “The sooner these consolidations take place, the better. As one of the largest shareholders of eBay, I intend to have discussions in the near future with John Donahoe,” he wrote.

      Devin Wenig, president of Marketplaces for eBay Inc., speaks during an interview in New York, U.S., on Monday, July 28, 2014. Wenig discussed the company's response to a data breach earlier this year and growth strategy. Photographer: Jin Lee/Bloomberg *** Local Caption *** Devin Wenig©Bloomberg

      Devin Wenig, chief executive designate of eBay

      Devin Wenig, president of eBay Marketplaces, will become CEO of the new eBay. Dan Schulman, who joined the company this year from American Express, was appointed president and chief executive-designate of the standalone PayPal.

      The move by eBay’s board comes as the company’s shares lagged behind the performance of the broader technology market. Until the close of trade on Monday, shares in eBay had dropped 5.6 per cent over the past year, while the Nasdaq – home to many of the world’s largest technology companies – had gained 19 per cent.

      “I think quite honestly the Icahn moves made them really revisit it,” said Robert Peck, an analyst at SunTrust Robinson Humphrey, a brokerage. “When they are turning around a slowing ecommerce business and facing challenges on the PayPal side with new competition it would be a big endeavour, but the longer PayPal sat within eBay the harder it was going to be.”

      Mr Icahn had argued a split would end conflicts of interest between the companies, allowing each to focus on its own strengths, which would generate more value for shareholders. Though his departure as chief executive caught some by surprise, Mr Donahoe has said he expects to be on the board of one or both companies after the split.

      Goldman Sachs and Allen and Co advised eBay.

      PayPal’s chief executive designate

      Dan Schulman, PayPal’s chief executive-designate, joined the company this year from American Express, where he led the credit card group’s strategy to launch new digital payment services, writes Robert Cookson.

      Dan Schulman, CEO of Virgin Mobile USA Inc., speaks during the Reuters Global Technology, Media and Telecom Summit in New York May 20, 2008. REUTERS/Brendan McDermid (UNITED STATES)©Reuters

      The 56-year-old previously held the top jobs at Virgin Mobile USA, the telecoms group, and Priceline, the owner of websites for booking cars, hotels and flights.

      He began his career at AT&T, where he rose through the ranks over 18 years to become the youngest person to serve in the telecom group’s operations group, its most senior executive body.

      After joining Priceline in 1999, when it was just a start-up, Mr Schulman helped the company more than double its revenues. But the company fired him within two years as it struggled to turn a profit.

      In 2001 he helped found Virgin Mobile USA along with Sir Richard Branson, the British entrepreneur. During his eight years at the company, it evolved from one of the first US prepaid cell phone providers into a public company that was acquired by Sprint Nextel in 2009 for $688m.

      Timeline: The rise of PayPal

      1998:
      Peter Thiel and Max Levchin launch Fieldlink, later renamed Cofinity, which develops software to allow owners of PalmPilots and other PDAs to store encrypted information on their devices, creating the first digital wallet.

      1999: PayPal first appears as an online demo that allows people to email payments in US dollars.

      2000: Reaches 1m users after changing its payment systems to enable eBay payments. Cofinity name disappears after merger with Elon Musk’s X.com. Elon Musk becomes chairman and chief executive.

      2001: X.com changes its name to PayPal.

      2002: eBay buys PayPal for $1.5bn, just eight months after the online payment provider’s initial public offering. It extends its service to allow payments in euros and British pounds.

      2004: PayPal becomes a payment option on the UK site of eBay, resulting in a 300 per cent jump in PayPal revenues to $1.4bn

      2006: Expands internationally, adding 10 currencies including the Swiss franc and Singapore dollar.

      2007: Granted an EU banking licence.

      2008: eBay acquires PayPal’s rival Bill Me Later for just under $1bn, including $820m in cash.

      2009: PayPal adds five new currencies, taking the number of currencies in which it supports payments to 24.

      2010: PayPal launches apps for the iPhone and Android-powered devices.

      2011: PayPal mobile payments hit $4bn.

      2012: Mobile payments more than treble year-on-year, to $14bn.

      2013: Mobile payments almost double again year-on-year, to $27bn.

      2014: eBay announces plans to spin off PayPal into a separate business in 2015.

      Source: PayPal

      Buyout managers face investor competition

      Posted on 30 September 2014 by

      RAC van

      These days, private equity fund managers are not just jostling with other buyout houses, cash-rich multinationals and debt-savvy entrepreneurs such as Warren Buffett and Patrick Drahi in their quest for acquisitions – they are also competing with their own investors.

      Last week, Singaporean sovereign wealth fund GIC, one of the world’s biggest and oldest backers of private equity funds, agreed to buy nearly half of RAC from its owner, Carlyle, in a deal valuing the company at more than £2bn including debt. The bid, which derailed plans to list the UK roadside recovery specialist, followed approaches from Apax, CVC, Cinven, Blackstone and Charterhouse, people with knowledge of the situation said.

        The move highlights how years of record low interest rates are pushing some of the largest pension plans and sovereign wealth funds to invest their cash directly – and save the expensive fees charged by buyout fund managers – to boost returns. The intensifying trend is yet another illustration of the competitive squeeze affecting private equity houses’ ability to put money to work.

        “Some pension plans, like the Canadians, and some of the largest sovereign wealth funds are becoming serious competition in the buyout market,” Fotis Hasiotis, head of European financial sponsors at Lazard says. “Like GIC, we may see more limited partners become more proactive with fund managers they back, by using their knowledge of the portfolio companies to buy stakes directly from them.”

        In the future, sovereign wealth funds and other long-term investors could even “team up with some of the larger public institutional investors that are able to hold illiquid assets,” says Alasdair Warren, head of private equity coverage in Europe at Goldman Sachs. The RAC “is an example where you have strong, cash generative businesses that some of those investors now want to own directly”.

        This additional capital will not help buyout groups spend $464bn of unspent investor commitments they have amassed in their funds, an amount that has swollen 16 per cent compared with 2013 following fresh fundraising, according to Preqin. “Dry powder” is nearing the $481.5bn peak recorded in 2008, when the collapse of Lehman Brothers roiled markets and brought dealmaking to an abrupt halt.

        Meanwhile, the average prices paid for assets have crept to levels higher than those seen before the financial crisis, but the volumes of deals have not recovered to the same extent, despite supportive equity and credit markets. Private equity transactions in the US, the largest single market for leveraged buyouts, have shrunk 22 per cent to $77bn this year, compared with 2013 when Silver Lake co-led the $25bn acquisition of Dell, according to Thomson Reuters. Globally, volumes were up 14 per cent to $195.6bn, equalling levels recorded about a decade ago.

        There is hope, however, that as multinational companies accelerate the pace of mergers and acquisitions, there will be leftovers for private equity groups in the form of non-core units. Lafarge and Holcim are planning to sell as much as $5bn worth of cement factories and GlaxoSmithKline is looking to sell a $5bn portfolio of mature drugs.

        But until these complex carveouts materialise, “it continues to be more of a sellers’ market,” Mr Warren notes.

        Multibillion cross-border deals return

        Posted on 30 September 2014 by

        Pfizer's aborted bid for AstraZeneca was an attempt at tax inversion©Bloomberg

        Pfizer’s aborted bid for AstraZeneca was an attempt at tax inversion

        It may have started in the US in the first few weeks of the year, but the global mergers and acquisitions boom of 2014 has spread to Europe and Asia – sparking a surge in cross-border deals, as companies seek to exploit favourable market to buy global expansion.

        In the first nine months of this year, the value of M&A is nearly two-thirds higher than it was in the same period in 2013, at $2.66tn – a level of activity that frustrated dealmakers have not seen since 2008.

          But, more than this leap in value, M&A advisers say the type of deals being done is the clearest sign that market has come back: multibillion dollar cross-border deals, which were almost entirely absent in the past five years, have surged.

          “The cross border deals we are seeing are long term, well thought out deals, rather than simply being reactions to the recent market performance in the US,” claims Frank Aquila, an attorney at Sullivan & Cromwell. “Although the individual companies being acquired may have only been identified in the last few months, the decision to come to the US and do a meaningful transaction is something that many of these buyers have been planning for a long time.”

          This year’s trend towards cross border M&A – deal values have now passed $1tn for the first time since 2008 – has been helped, at least in part, by corporate tax inversions. Under these deals, US companies use the acquisition of a foreign rival to relocate a lower tax jurisdiction. Pfizer’s abortive $116bn bid for UK drugmaker AstraZeneca – the largest deal attempted in the year to date – was an attempt at such a deal.

          However, while tax inversions have been one of the most discussed topics of the year, they have accounted for a relatively small proportion of overall deal volume – and they are now under fire from Washington. A set of executive measures were introduced earlier this month with the aim of withdrawing the financial incentives for US companies to consider a move overseas.

          A more significant factor – which the US government has little power, or incentive, to suppress – is the growing desire of European and Asian companies to buy US rivals. So far this year, there have been some $260bn-worth of inbound deals to the US, according to Thomson Reuters.

          In just the past month, German companies embarked on something of a spending spree. Siemens paid $7.6bn for Dresser-Rand, a US company that makes equipment used in the oil and gas industry, software group SAP bought US technology business Concur for $8.3bn, and ZF acquired American auto-parts company TRW for $11.7bn. Rather than seeing this jump in cross-border deals as a one off, advisers suggest it is a further sign of a market finding its feet.

          Global M&A top 10 deals/Global cross-border M&A volumes

          “The recent investments in the US by German companies are a return to the norm – they were always more confident in the US than most other markets,” argues John Studzinski, global head of Blackstone Advisory Partners. “It shows that the world is getting back to a commercially confident dealmaking environment.”

          Hernan Cristerna, co-head of global M&A at JPMorgan Chase, suggests these Europe-to-US deals will keep coming as European companies “are frustrated that there is no evidence of short-term growth, so they realise they have to go abroad to get that growth. There’s a real frustration about the slow pace of recovery in Europe.”

          Doing deals to buy US companies cannot only bring more reliable growth, it can also provide opportunities to cut costs through consolidation, adds William Vereker, head of European investment banking at UBS.

          The recent investments in the US by German companies are a return to the norm. It shows that the world is getting back to a commercially confident dealmaking environment

          – John Studzinski, Blackstone Advisory Partners

          But one set of dealmakers has failed to capitalise so far this year: the private equity groups. Buyout activity among private equity investors has been sluggish, with just $195.6bn of deals announced so far this year – the same level recorded about a decade ago. In the US – the largest single market for leveraged buyouts – activity fell 22 per cent against 2013 levels, to $77bn.

          Jorge Mora, US head of financial sponsors at Macquarie Capital, says part of the difficulty is that US companies are awash with cash or cheap debt, and under little pressure to divest parts of their businesses.

          “At the same time, a lot of money has been raised by private equity groups and there is growing pressure to put that money to work,” Mr Mora says. “The pressure to invest and the pressure to not overpay are beginning to collide. Combine that with great liquidity in the leverage market, and we are seeing some big prices paid for assets.”

          In terms of individual advisers, Goldman Sachs retained the top spot for M&A advisory work. The Wall Street firm worked on some $776bn of deals – almost $100bn more than its nearest rival. One notable change from earlier quarters was the absence of boutique investment banks in the M&A banker rankings. Only Centerview, which has worked on some of the largest deals this year, including the complex four-way transaction between Lorillard, Reynolds American, British American Tobacco and Imperial Tobacco, featured in the top 10.

          However, M&A experts predict the best is yet to come. “We haven’t seen the hubris in the boardroom yet, with no outsized megadeal being announced,” says Henrik Aslaksen, head of M&A at Deutsche Bank. “So it feels like there is another leg to this upcycle.”

          The day M&A deals stood still

          For all the resurgence of “animal spirits”, one day in the past quarter will go down as one of the most depressing for dealmakers in recent years, writes Arash Massoudi. In a matter of a few hours on August 5, two of the highest profile deals of 2014 collapsed – while a third went ahead with worrying implications for other companies.

          First to fall was the audacious $71bn bid from Rupert Murdoch’s 21st Century Fox for rival media producer Time Warner. Mr Murdoch’s uncharacteristically quick capitulation caught out both Time Warner – which was still outlining a robust takeover defence – and the market. Shares in Fox leapt as the company instead announced plans for $6bn in share buybacks.

          Then Sprint, the US telecoms company backed by Japan’s SoftBank, walked away from its informal bid for larger rival T-Mobile US – a deal that would have consolidated the US mobile phone market from four operators to three.

          Sprint’s plans had run into resistance from regulators over competition concerns, which led France’s Iliad to make its own attempt to acquire a majority stake in T-Mobile US. However, the French telecoms group’s bid was rejected shortly afterwards – although it is considering a renewed push.

          Finally, US pharmacy chain Walgreens said it would not attempt to change its tax domicile or move its corporate headquarters to Europe as part of its £10bn deal to buy the 45 per cent of Alliance Boots that it did not already own.

          That decision sent shares in Walgreens tumbling by a fifth, as dismayed investors realised that the company would not benefit from a lower corporate tax rate through a so-called “inversion” – the politically sensitive move that several US groups had been considering.

          Since then, the impact of Walgreen’s decision has been felt elsewhere, denting Pfizer’s chances of redomiciling to Europe after its failed $120bn merger with rival drugmaker AstraZeneca. Other mooted tax inversions – including a $36bn plan by Monsanto, the US seed company, to acquire Swiss rival Syngenta – have also gone quiet.

          Indeed, for many bankers, 2014 may prove the best year for dealmaking since 2007 – but still be remembered for the deals that did not come off.

          “This is still an environment where people are inherently cautious about M&A plans,” says Charles Martin, senior partner at UK-law firm Macfarlanes. “It’s not like the way it was during the last M&A boom before the financial crisis, where growth at all costs seemed for many to be the order of the day.”

          Ireland under pressure over low tax rates

          Posted on 30 September 2014 by

          Just when good news was starting to flow again out of Ireland, along comes the European Commission to spoil the celebrations. The Irish economy is growing strongly after its three-year, €67bn bailout. But its cherished corporate tax regime, which has attracted billions of dollars of foreign direct investment over four decades, is now under intense international scrutiny.

          As the government endures a big investigation into Ireland’s tax arrangement from the commission on allegedly sweetheart tax deals with technology giant Apple, it is considering whether to make another far-reaching decision on the tax front.

            In its preparations for next year’s budget, details of which will be announced in two weeks, the government needs to decide how to respond to pressure to close a tax avoidance measure known as the Double Irish, which allows foreign companies including Google and Facebook to reduce their effective overall tax rates well below Ireland’s official 12.5 per cent corporate tax rate.

            The tax regime has been the cornerstone of Irish development policy for four decades, and has brought a flood of FDI, particularly from technology and pharmaceutical companies. But the Apple controversy and the Double Irish measure are feeding into a global backlash against corporate tax avoidance, with Ireland squarely in the centre of it.

            Michael Noonan, the finance minister, told parliament last week of the controversy surrounding Ireland’s corporate tax system: “There is no doubt we are under an international focus.”

            The dilemma for the government is whether to close the loophole unilaterally in this budget, or signal that it will do so in the future, or do nothing until an international consensus has been forged on corporate tax avoidance.

            Such a consensus may be forming. Last month the Organisation for Economic Cooperation and Development made progress on agreeing a set of globally agreed rules to clamp down on corporate tax avoidance. The OECD’s interim report showed the initiative is winning the support of governments – including Ireland.

            The government says it is confident that its stance on Apple will stand up to scrutiny. The European Commission on Tuesday published a letter it has sent to Dublin arguing that Ireland’s tax agreements with Apple violate the principles of state aid. The case in favour of the Double Irish tax loophole may be more complicated.

            The avoidance measure allows companies to be registered in Ireland but not tax resident, enabling them to hold their intellectual property in Irish companies that are tax-resident in another country which has a zero rate of corporate tax, such as Bermuda or the Caymans.

            The risk for Ireland is that any move to close the loophole makes its overall tax offering less competitive than jurisdictions like the UK, the Netherlands and Luxembourg, which it regards as its toughest competitors. The Double Irish “is a big selling point for Ireland,” says Peter Vale, a tax partner at Grant Thornton.

            Some in the Irish business community want to see the loophole shut down. Danny McCoy, chief executive of Ibec, the employers’ lobby, says: “We are defending ourselves all the time over something that brings no benefits whatsoever to the vast majority of Irish companies.” He says it is “inevitable” that measures such as the Double Irish will be closed down. “If you know you are going to have to close it down, do it.”

            But Mark Redmond, chief executive of the American Chamber of Commerce in Ireland, says the government should not act too hastily. “It must be done in a way that ensures the certainty” of the tax system, he says. The government is being urged by business groups to ensure that, if it decides to make a unilateral move on the Double Irish, it compensates by improving the tax treatment of intellectual property, research and development, and other areas where they say the Irish system is losing competitiveness.

            The government has signed up fully to the OECD report on ending “base erosion and profit shifting” (BEPS) – the erosion of national tax bases by companies that shift profits around to avoid paying tax. Neither Brussels nor the OECD is targeting Ireland’s 12.5 per cent headline rate. But the OECD wants to ensure that having a low corporate tax rate does not facilitate profit-shifting, says Pascal Saint-Amans, the organisation’s top tax official.

            “The question for the government is, ‘do we lead by example?’ Being active is always better than being passive,” he says.

            State Street fires back in ETF price war

            Posted on 30 September 2014 by

            The price war among exchange traded fund providers in Europe further intensified on Tuesday after State Street Global Advisors announced fee cuts averaging 20 per cent across 15 of its core equity and fixed income ETFs.

            SSgA had previously avoided being dragged into the price war but its move means fee cuts have now been announced by all of the leading ETF providers in Europe including BlackRock, Deutsche Asset and Wealth Management, Lyxor, Amundi, UBS and Source.

              The new fees on the 15 SSgA ETFs now range between nine basis points and 55bp from 15bp to 65bp previously.

              Industry watchers noted that SSgA’s fee cuts mean that the new charges for its European-listed ETFs were still higher than those for directly competing products offered by some rival managers.

              Alexis Marinof, head of SPDR ETFs for Emea, said that headline fees were just “one piece of the puzzle” for investors who also considered the underlying benchmark, trading costs and tracking error in assessing the total cost of ownership when choosing an ETF.

              The biggest reduction was made on the SPDR S&P 500 exchange trade fund, the world’s largest ETF where fees have been chopped to nine basis points from 15bp previously.

              Peter Sleep, a senior portfolio manager at 7IM, who uses both ETFs and index trackers, said that fees for European listed ETFs tracking the S&P 500 index averaged around 40bp three years ago so it was clear that price competition was driving costs in Europe lower.

              “This is very welcome indeed,” said Mr Sleep.

              SSgA is the second largest ETF provider globally, a position that it is in imminent danger of losing to its faster growing rival Vanguard, which has been more aggressive in cutting fees in recent years.

              In Europe SSgA is ranked as the eighth-largest provider with assets of $10.5bn, according to ETFGI, a consultancy. However, this position is also under threat from Vanguard, which has built up European ETF assets of $10.3bn and moved up to ninth spot.

              Vanguard’s European ETF operations have gathered net inflows of $5.6bn so far this year, substantially more than SSgA which has attracted $1.8bn.

              Mr Marinof, however, insisted that SSgA’s fee cuts were “neither too little nor too late” to effectively counter competition from Vanguard and other rivals.

              Deutsche Bank withholds bonuses

              Posted on 30 September 2014 by

              ©Bloomberg

              Deutsche Bank is withholding several million euros in bonuses from its co-chief executives and other current and former top managers as it seeks to hold senior staff responsible for a host of costly legal and regulatory problems.

              Anshu Jain and Jürgen Fitschen are among the executives who will not be paid this year’s instalment of bonuses awarded for their performance in 2011, two people close to the situation said.

                The move stems from a decision by the German lender’s supervisory board this summer amid mounting legal bills for past misconduct. “This is the supervisory board demonstrating it is holding people to account. But it is a precautionary measure, not a sign of wrongdoing on management’s part,” one of the people said.

                Deutsche is involved in at least a thousand legal disputes including high-profile investigations into the alleged rigging of financial benchmarks including Libor and a crucial foreign exchange fix.

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                The bank had to pay €3bn in legal costs last year and it stocked up its reserves for litigation and regulatory fines by €450m to €2.2bn in the second quarter of this year.

                Mr Jain and Mr Fitschen have vowed to change the lender’s culture, seeking to overhaul its image and leave behind legacy legal problems.

                The bonuses relate to a period before they took over as co-chief-executives in June 2012. The other current executives affected are Rainer Neske, head of private and business clients, and Stefan Krause, chief financial officer.

                The former top managers affected by the mover were on the board in 2011. They are Josef Ackermann, the previous chief executive who left two years ago, Hugo Baenziger and Hermann-Josef Lamberti.

                Deutsche granted its seven-member management board a total of €17.2m in bonuses for 2011 that were to be paid out over the course of several years.

                It is unclear how much of that is being withheld but people close to the situation said a total sum of several million euros is not being paid out.

                Deutsche’s supervisory board, headed by Paul Achleitner, will scrutinise progress on the bank’s many legal matters on an annual basis, in order to gauge whether to pay the withheld bonuses out at a later stage or not. The board’s move – first reported by Handelsblatt – highlights the impact of a stricter regulatory regime where banks need to withhold or cancel bonuses in case of wrongdoing.

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                Several banks, including Barclays, Lloyds Banking Group, Royal Bank of Scotland and UBS, have recouped bonuses in the wake of legal settlements over their involvement in the Libor rate-rigging scandal.

                Lloyds this week became the latest bank to force eight former employees to forfeit £3m of their bonuses after finding that they had attempted to manipulate benchmark interest rates between 2006 and 2009.

                Inflexion raises £1bn for private deals

                Posted on 30 September 2014 by

                Inflexion, the London-based fund manager that owns stakes in clothing designer Jack Wills and travel agent On the Beach, has amassed more than £1bn, the largest amount raised for UK private equity deals.

                The investment group, which targets small to medium sized companies, has simultaneously raised £650m for leveraged buyouts and £400m to buy minority stakes in UK businesses, double the amount it raised for a single pool in 2010.

                  Both funds were oversubscribed within five months in part thanks to “overwhelming support“ from existing investors, highlighting how the private equity groups that have weathered the financial crisis are attracting a greater share of investors’ cash, while those that have had losses struggle to raise any money.

                  “We just had a brilliant last 24 months during which we’ve done lots of new investments and some fabulous exits,” Simon Turner, managing partner at Inflexion, told the Financial Times.

                  Fundraising volumes have picked up in the past year as fund managers were able to accelerate the pace of asset sales and distributions to their investors. Inflexion returned more than 16 times its initial investment in FDM in four years when it sold its shares in the IT company through a London listing in June. The group’s fund raised in 2006 is marked at more than twice its cost and the 2010 pool is profitable, Mr Turner said.

                  The new minority stakes fund will be headed by David Whileman, who defected a year ago from 3i Group, where he was head of the UK.

                  This new pool will “provide solutions to entrepreneurs who don’t want to take on debt and don’t want to sell control but who do want the benefits of an institutional investor being involved,” Mr Turner explained.

                  The total amount raised by Inflexion’s two funds tops Exponent Private Equity Partners’ £805m pool collected in 2008, and follows ECI’s closing of a £500m fund dedicated to UK deals last month. Last year, Graphite Capital garnered £475m.

                  The successful fundraisers contrast with the fate of Gresham, one of the oldest names in British private equity, which in June, decided to abandon plans to raise another fund and focus on selling its portfolio instead.

                  There were 193 UK buyouts completed in the first half of this year, according to data compiled by the Centre for Management Buyout Research. This compares with 365 for the whole of 2013, the lowest number of deals since 1985, and a peak of 718 buyouts in 2003.

                  Australia: I should be so lucky

                  Posted on 30 September 2014 by

                  The lucky country. The 1964 book that provided the nickname for Australia was, in fact, a critique of the nation. In the past decade of Chinese growth, it has made sense to interpret the moniker unironically.

                    But that luck is changing. China’s growth is slowing. The demand for commodities that has sucked money into Australia is not as strong as it was. The halo effect on the rest of the economy is dimming. Interest rates have slipped and with them the Australian dollar.

                    Although attached to the 10th largest global economy, the Aussie is the fifth most actively traded currency, according to the Bank for International Settlements. It has been punching above its weight as a proxy for Chinese growth.

                    In many countries, a weaker currency might be good for exports. But aside from commodities, Australia has few listed exporters. A National Australia Bank survey released last week showed that two-way trade in goods and services accounted for two-fifths of GDP in 2013. This trade is dominated by imports.

                    And despite the years of favourable exchange rates, the country’s oligopolistic, cosseted industries did not take the opportunity to build their defences. Department stores such as Myer and David Jones indulged in fat margins, attracting new entrants. Meanwhile, Australia’s four big banks, led by expensive favourite Commonwealth Bank of Australia, rode the house price boom. They now face risks from the mortgage market, according to the central bank – which has hinted at cooling measures.

                    Yet despite the poor backdrop, the Aussie is the best-performing currency in the G10 this year against the US dollar. The benchmark Australian index, the S&P/ASX 200, has posted a flat total return this year in US dollar terms against up to 5 per cent for the MSCI World index.

                    Given the fickleness of fortune, the reaction seems mild. Australia is pushing its luck.

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                    Euro drops as inflation hits new low

                    Posted on 30 September 2014 by

                    The Euro logo is pictured outside European Central Bank ahead of the the meeting of the Governing Council in Frankfurt am Main, central Germany, on August 1, 2013. Mario Draghi, President of the European Central Bank, ECB repeated a pledge that eurozone interest rates would remain low or could even fall further amid risks for the euro area. AFP PHOTO / DPA / BORIS ROESSLER GERMANY OUT (Photo credit should read BORIS ROESSLER/AFP/Getty Images)©AFP

                    The euro slid to a fresh two-year low against the dollar on Tuesday, after data showing a continued decline in eurozone inflation fuelled speculation that the European Central Bank would be forced to step up its stimulus policies.

                    The euro – which has fallen some 9 per cent against the dollar since the start of May – dipped below $1.26 on Tuesday for the first time since September 2012.

                      “The market is starting to price in quantitative easing,” said Peter Kinsella, currency strategist at Commerzbank, who added that even if it was too early to expect action yet, the exchange rate had effectively become the ECB’s “key policy tool”.

                      The euro’s sharp drop came as consumer inflation in the eurozone dipped to 0.3 per cent this month from 0.4 in August, hitting a five-year low. Price pressures are now at less than a fifth of the ECB’s target of below but close to 2 per cent.

                      Core inflation, which excludes more volatile items such as food and energy prices, fell unexpectedly to 0.7 per cent, from 0.9 per cent last month, according to a flash estimate from Eurostat, the European Commission’s statistics bureau.

                      Euro against the dollar

                      Analysts believe the surprise drop in the core measure is particularly concerning for the ECB, as it prepares to flesh out its latest plan to rid the region of the threat of economic stagnation.

                      “[The fall in core inflation] might well prove to be a blip, and could be revised higher with the final estimates,” said Frederik Ducrozet, economist at Crédit Agricole. “But at the very least this will keep [pressure on] the governing council to do more.”

                      Monetary policy makers travel to the Italian city of Naples later this week, where they will on Thursday unveil details of a plan to buy asset-backed securities worth hundreds of billions of euros. Central bankers hope the plan, announced last month, will revive the region’s ailing recovery.

                      But investors are increasingly betting that the ECB will now be forced to contemplate more radical measures – including outright purchases of sovereign bonds – before the end of the year.

                      Chart

                      Mr Ducrozet said: “A further adjustment to existing programmes is a possibility on Thursday, and either way the door should remain wide open to proper sovereign quantitative easing. The latter would become more likely if the ECB qualifies the drop in core inflation as a ‘worsening of the outlook for price stability’.”

                      Separate data also out on Tuesday showed that unemployment in the eurozone remained at 11.5 per cent in August, the same level as in July. Eurostat estimated 18.3m of those looking for work in the currency area were without it.

                      Italy said youth unemployment had risen to a fresh high, with 44.2 per cent of people in the labour market aged 15 to 24 without jobs. For older workers conditions have improved slightly. Istat, Italy’s statistics authority, reported unemployment has fallen to 12.3 per cent, from 12.6 per cent in July.

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