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 […]

Continue Reading


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 […]

Continue Reading


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 […]

Continue Reading


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 […]

Continue Reading


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 […]

Continue Reading

Archive | November, 2016

Falling reinsurance prices spark concern

Posted on 31 December 2014 by

An AirAsia Bhd. aircraft takes off at Soekarno-Hatta International Airport in Cengkareng, near Jakarta, Indonesia, on Monday, Dec. 29, 2014. Planes and ships from four nations scoured the Java Sea for an AirAsia passenger jet that vanished off the coast of Borneo more than a day ago with 162 people on board, as Indonesian investigators said the jet had likely crashed to the bottom of the sea. Photographer: Dimas Ardian/Bloomberg©Bloomberg

A third straight year of falling prices for back-up insurance against earthquakes, hurricanes and other catastrophes is raising concerns about the business models of the global reinsurance industry.

Tough competition has forced reinsurers to reduce premiums even in areas hit by big claims such as aviation. Insurers face their costliest annual bill for this area since 2001 following a series of disasters including the loss of the AirAsia jet this week.

    Rates for political risk cover have also come under pressure in spite of the threat of losses from rising instability in Russia, among the largest markets for such insurance.

    Brokers said prices for some types of protection, such as UK property catastrophe reinsurance, have come down to their lowest levels since the early 1990s.

    Premiums are being depressed because of a relative absence of costly natural disasters and also because reinsurers face new competition from non-traditional sources. Yield-hungry investors are buying “insurance linked securities” such as catastrophe bonds, an alternative to traditional reinsurance.

    Overall, rates for natural catastrophe protection — traditionally a main source of profits for reinsurance groups — have dropped about 10 per cent for new policies taking effect January 1, according to a report to be published by the broker Willis Re this week.

    However, the scale of the price reductions is not as large as last year. James Vickers, chairman of Willis Re International, said this was partly because insurers were not simply picking the cheapest reinsurance deal as they grow increasingly wary of cut-price offerings.

    “If you’re going to be asking a reinsurer to pay a claim in 10 years, you want to make sure it’s still around,” he said. “They [insurers] wish to maintain sustainable relationships.”

    Although the lack of catastrophes in recent months has supported profits and share prices, regulators and rating agencies are becoming more concerned about how well prepared the industry will be for a costly calamity.

    Moody’s predicted this month that reinsurance company returns were likely to be squeezed in 2015 to “near or below the industry’s cost of capital”. Larger groups such as Munich Re and Gen Re, part of Warren Buffett’s Berkshire Hathaway, were better placed than their less diversified peers, the rating agency added.


    drop in rates for new policy natural catastrophe protection

    Bankers are predicting a flurry of takeover bids in the sector, particularly for catastrophe reinsurance specialists that operate in Bermuda and syndicates at the Lloyd’s of London market.

    New York-listed XL is continuing talks with Catlin over the terms of its planned acquisition of the FTSE 250 company, which would be the largest ever purchase of a Lloyd’s insurer. The two sides hope to reach an agreement early in the new year.

    Willis Re added that for many reinsurers, “their only sustainable course of action is to change their business models, portfolio mixes and to strive for scale so they cannot be ignored by buyers”.

    In a sign that a price floor may be being reached, Willis Re said some reinsurers had become increasingly less willing to write business at the lower prices. “This is particularly true of natural catastrophe, where some reinsurers have declined offered terms on some placements with thin margins as a step too far.”

    “Many reinsurance underwriters are also going into 2015 with reduced budgets, which helps them resist overly aggressive pricing and terms and conditions,” Willis Re added.

    Risk of Greek fallout hits European stocks

    Posted on 30 December 2014 by

    Tuesday 21:00 GMT. Global equities lost momentum on Tuesday, with European equities dropping as the snap election called in Greece drew in further casualties.

    Shares on Wall Street also eased but benchmark indices still remain near record highs. The S&P 500 closed 0.5 per cent lower at 2,080.35 points, while the Dow Jones Industrial Average ended the session 0.3 per cent weaker.

      The declines were steeper in Europe, where the international FTSE Eurofirst 300 ended the session down 1 per cent at 1,362.85, its weakest close for four sessions. The Xetra Dax 30 in Frankfurt fell 1.2 per cent, while the Paris CAC 40 lost 1.7 per cent and London’s FTSE 100 fell 1.3 per cent to 6,547.

      The Athens General index fell a further 0.5 per cent to 816.15, heading back toward its weak point for the year of 756.8 after adding to Monday’s 12 per cent plunge.

      The lingering uncertainty was caused by the potential rise to power of the leftwing Syriza party, which intends to renegotiate Greece’s international bailout. After heading sharply higher on Monday Greece’s 10-year sovereign borrowing costs eased by 6 basis points to 9.54 per cent.

      “The calling of early elections in Greece has triggered a number of fresh questions about the outlook for the eurozone,” said Jens Nordvig at Nomura Securities.

      “The key risk is a Syriza win on January 25, and a subsequent shift towards confrontational policies with the EU, IMF and ECB.”

      Nonetheless, broader dollar-weakness helped the euro’s continued rally above its pre-Christmas year-low. The shared currency gained 0.2 per cent to $1.2156.

      Its US counterpart’s long, strong run higher in 2014 left it ready for a break as the year-end loomed. The dollar index, which tracks the US currency against a range of its peers, slipped 0.2 per cent to 89.97. Since January, it is up by around 12 per cent. Sterling strengthened 0.3 per cent to $1.5564.

      There was some US data and it pointed to a continued cooling of the American housing market. The S&P/Case-Shiller index for the month, which monitors house prices in 20 cities, showed a seasonally adjusted 0.1 per cent month-on-month decline.

      The wider sense of caution helped haven assets. Japan’s yen was 1.2 per cent stronger against the dollar at Y119.17, while gold rose 1.8 per cent to $1,204.16.

      Asian equities markets also fell back, with traders unwilling to add to their risk exposure. Japan’s Nikkei 225 fell 1.6 per cent during the session — its last of 2014. The fall cut the Tokyo benchmark’s advance for the year to 7.1 per cent. In Australia, the S&P/ASX 200 fell 1 per cent as recent losses for commodity prices hit the resource-rich nation’s mining and oil stocks.

      The FTSE All-World index fell 0.5 per cent.

      Brent crude, which briefly climbed above the $60 mark on Monday, was 0.6 per cent lower at $57.55 after touching a fresh five-year low of $56.74 a barrel. Nymex WTI, the US benchmark, ended the session higher in New York up 0.1 per cent at $53.68 after earlier declining to $55.48 a barrel. Volatility in energy markets hurt oil stocks across the globe. In London, BP shares fell 2.1 per cent, while France’s Total lost 2.8 per cent.

      Predictions for 2015

      Posted on 30 December 2014 by

      Barry Falls illustration©Barry Falls

      As 2014 comes to a close, the Financial Times once again engages in a harmless bit of soothsaying. As ever, we invite some of the FT’s experts and commentators to dim the lights, dust down their crystal balls and predict what the next 12 months will bring on topics ranging from the British general election to the outlook for wearable technology.

      This is a hazardous enterprise, of course. Looking back at last year’s essay in New Year forecasting, there were a few predictions we would rather not talk about. Chris Giles said the Bank of England would raise interest rates in 2014. Simon Kuper predicted that Brazil would win the football World Cup. Clive Cookson predicted that Virgin Galactic would launch its first successful commercial flight this year.

      You need JavaScript active on your browser in order to see this video.

      No video

        Some colleagues should take a bow. Victor Mallet correctly declared that Narendra Modi would win India’s general election; Jonathan Ford was bang on about Scotland voting No to independence (even if that looked shaky before the poll); Gideon Rachman foresaw wins for both the French National Front and Britain’s UK Independence party in the May European elections.

        Of course, an exercise such as this is only partly about providing the right answer to a given question. Much of the skill lies in choosing the correct question in the first place. Last year, it did not occur to us to inquire whether Vladimir Putin would invade Ukraine, whether a shady group called Isis would become a strategic threat in the Middle East or whether Cuba would come in from the cold. It will doubtless be the same in 2015. Things will happen in the theatre of global news that none of us can — as yet — imagine. James Blitz

        Will Britain have a National Government after the next general election?

        Yes. Britain’s last election in 2010 resulted in the first coalition government since 1945. The next one in May will go further, recreating the “National” governments of the 1930s by bringing the two main parties, Labour and Conservatives, into power together. As in 1931, this will be a matter of necessity, not choice.

        The shrinkage of the vote of all three main parties will make it impossible to construct a workable coalition involving the Liberal Democrats and either the Tories or Labour. The price of doing business with the surging fringe parties, such as the Scottish National party and Ukip, will be too high for either Labour or the Conservatives to stomach. So will the risk of a minority administration, followed by a quick second poll.

        The formation of a National Government will not be easy — and there will be much agony over the question of who should lead it. Any coalition deal will be highly contentious and lead to defections from both sides. Politicians will take time to adapt to the newly fragmented landscape. Jonathan Ford

        Will the oil price drop below $50 per barrel?

        Yes. There are two reasons for thinking that the oversupply in the global oil market that caused the Brent benchmark price to drop by almost 50 per cent between June and December this year will persist into the first half of 2015 at least.

        First, supplies are likely to grow. The US shale oil industry, widely seen as the most immediately vulnerable sector in the downturn, will be able to increase production despite of the financial pressures it faces. Meanwhile Saudi Arabia and other members of Opec, the oil producing countries’ group, are unlikely to make anything other than a notional cut in their production.

        Second, demand growth will remain as torpid as in the second half of 2014. A substantial rebound in growth in China and other emerging economies could change that but is months away at best. In those conditions, oil can be expected to fall below $50 a barrel.

        Over time, market forces will work. Lower prices will stimulate demand and choke off supply, especially in the US, and oil prices stand a good chance of being higher at the end of the year than at the beginning. One thing is for sure: the further prices fall, the greater the damage to investment in oil production — and hence the steeper the bounceback will be. Ed Crooks

        Will the European Central Bank adopt full-scale quantitative easing?

        Yes. Headline inflation in the eurozone has tumbled to 0.3 per cent, far beneath the ECB’s target of “below, but close to, 2 per cent over the medium term”. The risks of entrenching expectations of ultra-low inflation or outright deflation are now great.

        This is why Mario Draghi, ECB president, announced on December 4 2014, that the balance sheet “is intended to move towards the dimensions it had at the beginning of 2012”. The implied increase in the balance sheet is about €1tn. It is hard to believe alternatives to outright purchases of sovereign bonds would secure this result.

        The shift in language from “expected” to “intended” was, unfortunately, over the opposition of six members of the council. Yet, however fierce the opposition, the ECB will almost certainly be forced to try. Then watch the sparks fly. Martin Wolf

        Will Russia annex new territory in Ukraine or Europe?

        No. Faced with an economic crisis at home and with sanctions overseas, Mr Putin will call a halt to his expansionism — at least in 2015. Instead, the Russian leader will attempt to consolidate his gains in Crimea and to keep parts of “eastern Ukraine” in a frozen conflict. This will prevent them from being governed effectively from Kiev.

        Still, that judgment should be tempered by two sobering qualifiers. First, the Russian leader has consistently surprised western observers on the downside — few anticipated Russian annexation of Crimea in 2014. Second, one possible reaction to economic trouble at home would be for Mr Putin to stir up domestic support and nationalism by further intensifying the conflict in Ukraine. But despite all that, the economic and military risks of an expanded war look too great for Moscow in 2015. Gideon Rachman

        Will the US put combat troops on the ground against Isis in Iraq and Syria?

        No. Isis — the Islamic State of Iraq and the Levant — will certainly continue to represent a major threat in 2015. The Pentagon will therefore remain heavily focused on the region — especially in Iraq — seeking to degrade the capabilities of Isis.

        Special forces are already on the ground assisting with the direction of air strikes. A bigger deployment of these elite contingents is likely next year. America will also send more military advisers to Baghdad, even using them to accompany Iraqi troops on operations — though President Barack Obama is still resisting this.

        What the US and its European allies will not do, however, is deploy their own combat forces on the battlefield. Fighting Isis will still be up to the Iraqi army. Western governments will stick to the view that Isis will only be defeated when the Iraqi national army, local Sunni tribes and rebel groups are strong enough to take it on. Roula Khalaf

        Will China’s growth rate fall below
        7 per cent in 2015?

        Yes. Beijing may be intent on keeping its official gross domestic product growth target next year at 7 per cent or above to prevent confidence from unravelling. Unfortunately, the Chinese economy is unlikely to oblige and will slow to just below this figure.

        With GDP already set to come in slightly below official expectations in 2014, economic planners will be eager to avoid missing the target for a second time next year. Nevertheless, the sharp build up in domestic debt, slowing fixed asset investment, weak property sales and a lacklustre manufacturing sector will all weigh heavy on China’s dynamism.

        Monetary policy will probably ease further as Beijing attempts to prevent an environment of low inflation (as measured by consumer prices) from slipping into a deflationary spiral. Such moves are set to underpin consumer spending, Beijing’s best hope to drive growth. James Kynge

        Which central bank — the US Federal Reserve or the Bank of England — will be the first to raise interest rates?

        The US Federal Reserve. The adage is never to bet against the Fed and it remains good advice regarding interest rates in 2015. Economics alone would not lead you to this conclusion. Britain’s rapid growth and productivity crisis has all but eliminated spare capacity in the economy, reducing the scope for further non-inflationary growth. With lower participation, the US labour market appears to have more slack and can safely hold interest rates lower for longer.

        Predicting interest rates is not just about economics. The behaviour of the central bank is also important. While the Fed is reasonably predictable, the BoE is notoriously flighty. One month, it suggests it has its finger on the trigger; the next, it appears it could not be further from a rate rise. It will not want to do anything before the May general election and is likely to find excuses to wait for the Fed thereafter. Chris Giles

        Will a serious rival emerge to Hillary Clinton in 2015?

        No. We will not know the name of the Republican nominee until 2016. Even then, he — there are no female hopefuls among the 20 or so names doing the rounds — will be so bruised that Mrs Clinton will begin the general election with a head start.

        In the Democratic field, she will be challenged by one or two second-tier candidates, such as James Webb, the former Virginia senator, and Martin O’Malley, the outgoing governor of Maryland. But Mrs Clinton will keep her grip on the primaries. Her only real threat, Elizabeth Warren, the populist senator from Massachusetts, will decline to run in spite of strong urging from the liberal left. When it comes to it, Ms Warren will not want to stand in the path of the election of America’s first female president. Edward Luce

        Will there be a fall in the value of London super-prime property?

        Yes. Prices will fall by about 10 per cent in 2015 because of an oversupply of new build super-prime properties — although this will mainly be felt outside the traditional top-end residential stamping grounds such as Mayfair and Knightsbridge.

        Some new build super-prime properties — such as Neo Bankside and Battersea — will struggle to hold their value. The former may have remarkable views across the Thames to St Paul’s Cathedral and easy access to the City but it is a far cry from Mayfair. And while Battersea power station has some surface glamour, its immediate environs are still more Battersea dogs’ home than super-prime.

        The threat of Labour’s mansion tax also hangs like a sword of Damocles over well-heeled property buyers. “Adjustments” and “corrections” will continue until the May election. Jane Owen

        Will India’s growth rate accelerate under Narendra Modi?

        Yes, but it depends what you mean by accelerate. India really ought to grow faster under Mr Modi than in the last dismal year of the previous government. In truth, growth had probably already hit bottom when it dipped below 5 per cent in 2013. It rose to 5.7 per cent shortly after Mr Modi took over, though he can take little credit for that. Next year, India has a few things going for it. The weak oil price will ease pressure on the current account deficit. It should also help bring inflation further under control, opening up the prospect for a growth-enhancing cut in interest rates. In Raghuram Rajan, Mr Modi is lucky to have a world-class central bank governor.

        The real challenge, however, is to get India’s growth potential back to the 7-9 per cent range it occupied only a few years ago. This will require structural change. He will have to do more than frighten a few bureaucrats into turning up to work on time. Some big-bang reforms — say in the labour market, on tax or foreign investment rules — are needed to help convince investors that India is back in business. David Pilling

        Will Ebola be eliminated in west Africa by the end of 2015?

        Yes. The west African Ebola epidemic started in Guinea a year ago and started causing serious alarm in September. Since then the world has put enough medical and financial resources into the battle against the virus to brake the exponential growth in cases, though with the death toll approaching 7,000, the epidemic is not yet under control.

        Virologists say the nature of the virus — often lethal to those who catch it but not super-infectious — makes eradication possible, if other people avoid direct physical contact with patients. Local health workers are tackling Ebola more safely and effectively today, after a traumatic learning period, and outside assistance is still pouring in from the World Health Organisation, Médecins Sans Frontières and many other organisations. There will be setbacks and flare-ups during 2015 but west Africa can look forward to an Ebola-free 2016.
        Clive Cookson

        Will this be the year that bitcoin and other crypto currencies collapse?

        No. There are too many deep-pocketed interests standing ready to throw good money after bad defending the cryptocurrency experiment, thus preventing an outright or dramatic collapse.

        Nevertheless, the chances of bitcoin, the most popular of this new breed of self-clearing financial instruments, making it as a mainstream currency are now zero. Prices have been floundering at around $350 a coin for months, escalating losses for those who invested at last year’s $1,200 highs.

        Add to this a stream of high-profile scandals over the past year, such as the collapse of Tokyo-based currency exchange Mt Gox in February, and you realise it is not a question of if but when the public loses interest in this experiment entirely.
        Izabella Kaminska

        In personal technology, will 2015 be the year of wearables?

        No. Apple’s Watch, due to launch soon, has at least cracked the aesthetic code: it is a wearable you might actually want to wear. It will also become a powerful techno-status symbol. But other than a few useful things such as telling the time, it is not clear why you would need it.

        The other great hope of the wearables industry, Google Glass, has missed its promised launch date and is in danger of becoming a symbol of tech hubris. Does Google really expect people to adopt its cyborg chic in their everyday lives? Expect it to reboot the idea this year, probably in a more limited way: there are many jobs where having a heads-up display would be very useful.

        For the mass market, applications such as health monitoring hold great promise. But wearables still look like a technology in search of a purpose. The truly useful gadgets are yet to be invented. Richard Waters


        Letter in response to this column:

        How the Swedes handily combine a Yes with a No / From Nick Chipperfield

        Greek shares drop on vote outcome

        Posted on 29 December 2014 by

        ©Michael Debets/Getty

        On the march: Alexis Tsipras, the leader of Syriza, with supporters in Athens

        Greek shares and bond prices fell on Monday after an unsuccessful presidential vote left the country facing a snap general election and political unrest.

        Athens stock exchange fell to a two-year low and the country’s short term borrowing costs jumped close to 12 per cent as international investors anticipated a political victory for the radical leftwing Syriza party.

          The snap general election was triggered after Stavros Dimas, the presidential candidate backed by the prime minister, failed to win the necessary 180 votes required for the Greek parliament to elect a new president.

          Global investors are concerned that the early general election will put the far-left Syriza party in power and lead to a reversal of the country’s recent economic reforms.

          A recent visit by senior Syriza politicians to London sparked serious concern among investors, with one describing the party’s plans for Greece as worse than communism. Alexis Tsipras, leader of Syriza, has vowed to seek a substantial write off of Greece’s sovereign debt and increase public spending.

          The yield on Greece’s three-year government bonds rose to 11.77 per cent in the wake of Monday’s vote, a record high since the bonds were issued earlier this year at a yield of 3.5 per cent.

          Yields for short-term Greek debt are now higher than longer term debt, a clear indication that investors are concerned about the country meeting its near term debt obligations.

          Earlier in 2014, Greece made a triumphant return to capital markets, attracting orders of more than $20bn in its first bond sale since the eurozone crisis, a success that was seen as proof of the country’s economic turnround since its multibillion euro bailout in 2012.

          However, investors have become increasingly concerned about the country’s prospects as political unrest grew.

          Greek prime minister Antonis Samaras had warned that Greece faces a “catastrophic” exit from the eurozone if Mr Dimas, a former EU environment commissioner, was not elected as president.

          Yields on Greece’s benchmark 10-year government bonds rose to 9.6 per cent on Monday, the highest point in more than a year, while the Athens Stock Exchange fell by 10.9 per cent before regaining some ground. Shares in the country’s banks, including National Bank of Greece and Piraeus Bank, were hit particularly hard, falling by more than 10 per cent.

          In the wider eurozone, investors sold out of peripheral government debt and moved towards the haven of German Bunds, pushing up yields in Italian and Spanish bonds. The Stoxx Europe 600 index was down around 0.2 per cent by mid morning while the euro was broadly flat at $1.22.

          Chinese brokerages rush to raise capital

          Posted on 29 December 2014 by

          A Citic Securities sign is seen with Skyscrapers, in Guangzhou, China, on Tuesday, June 5, 2007©Bloomberg

          Chinese securities brokerages have seen their valuations soar as investors bet the industry is entering a new golden age, fuelled by a booming stock market and financial innovation that is opening up new business areas.

          While most have no immediate need for additional funds, brokerages have taken advantage of rising valuations to raise cheap capital.

            “For a long time everyone just remembered that brokerages did well during the 2007 bull market and then badly when the market fell and trading commissions dried up,” said Xu Lirong, fund manager at Franklin Templeton Sealand Fund Management in Shanghai. “Now the market is taking a fresh look and realising that things have changed. Their reliance on commissions has dropped substantially.

            Shares in Guosen Securities, a mid-sized Chinese brokerage, spiked 44 per cent, the maximum allowable rise for new shares, in their Shenzhen debut on Monday. Guosen’s Rmb7bn ($1.1bn) initial public offering this month was the mainland’s biggest since 2011.

            Meanwhile, Citic Securities, China’s largest brokerage by assets, will raise HK$30bn ($3.9bn) in a private placement in Hong Kong, the company said in a filing late on Sunday. Citic’s Hong Kong-listed shares have risen 52 per cent since October.

            Citic’s announcement follows a similar HK$30bn share sale last week by Haitong Securities, the country’s second-largest brokerage. Haitong’s shares have risen 44 per cent in the same period.

            Chinese brokerages have traditionally relied on trading commissions, IPO underwriting and other revenue sources linked to a rising stock market. Investors are now betting that new business areas such as margin lending, corporate loan underwriting and securitisation will create fresh sources of profit.

            But analysts warn that the rally in recent weeks in brokerage shares, which have strongly outperformed the broader Chinese “A-share” market, itself the best performing major market in the world this year, looks overdone.


            The amount Citic Securities will raise in a private placement in Hong Kong

            Richard Xu, China financials analyst at Morgan Stanley, says brokerages are essentially a bet on the broader stock market. He estimates that equity market-linked business account for 56 to 86 per cent of total brokerage revenues.

            “We continue to view Chinese securities firms as cyclical stocks. A-share market performance and trading turnover are their biggest revenue and share-price drivers, despite ongoing new business launches,” Mr Xu wrote in a note.

            Combined equity trading volume in Shanghai and Shenzhen has averaged Rmb799bn per day in December as the market surged, up from only Rmb252bn daily through the first 11 months of 2014. But if the market pulls back or even merely levels off, volumes are likely to fall back, hitting commissions.

            Another concern for brokerages is that income from new business lines may not pan out. Commercial banks are increasingly involved in loan underwriting, in which they act as an intermediary between corporate borrowers and debt investors in exchange for a fee. That puts them in competition with brokerages.

            “Banks may be allowed to enter into underwriting business via consulting subsidiaries, which could marginalise the brokers given the banks’ strong client bases and distribution channels,” Judy Zhang, an analyst at BNP Paribas, wrote on a note.

            Chinese brokerages listed in Hong Kong are trading at 2.3 times book value, compared with only 0.8 for commercial banks, a gap that Ms Zhang says is “hard to justify.”

            Additional reporting by Ma Nan in Shanghai

            Kiev targets oligarchs with new budget bill

            Posted on 28 December 2014 by

            Recession-battered and war-torn Ukraine overhauled its business-choking tax system late on Sunday, promising to lower the burden on small businesses and lower-income citizens while closing loopholes long exploited by influential oligarchs.

            The package of legislation adopted after 9pm on Sunday also envisions controversial increases in import duties to help stabilise stretched state finances and counter a balance of payments crisis.

              The laws are to form the revenue-boosting backbone of a new austerity-packed 2015 budget officials hope will unlock fresh multibillion-dollar bailouts from the International Monetary Fund and other western donors.

              A vote on the budget, which is expected to sharply cut subsidies and government spending, is expected to be held early on Monday.

              Adopted after 10 hours of gruelling negotiations that tested the unity of a pro-western coalition, the tax legislation aims to bolster small and medium-sized business and reduce a massive shadow economy while squeezing what officials described as a fairer share of revenue out of oligarch-owned businesses.

              Officials described the legislation as a new social contract for an economy that has long been seen as controlled by oligarchs.

              “We worked out the right package which will allow us, on the one side to introduce a fair taxation system, while on the other side, to fill the budget,” said Arseniy Yatseniuk, Ukraine’s prime minister.

              Controls were imposed on profits being funnelled to offshore tax havens through transfer pricing schemes.

              Oligarchs, Mr Yatseniuk insisted, “will no longer be able to hide their profits and fortunes in offshore zones”.

              In a bid to simplify business activity in a country notorious for having one of the world’s most unfriendly taxation systems, the total number of taxes will be streamlined from 22 types to 9.

              Rates for pension fund contributions, now at some 41 per cent, are to be cut by more than a half in coming years. Officials hope this measure will broaden the collection base, steering business away from the widespread practice of paying employee salaries under the table.

              The desperate moves to reboot long-term growth and fill short-term budget gaps come as gross domestic product contracted about 7 per cent this year on the heels of Russia’s annexation of Crimea and a continuing eight-month military stand-off with Russian-backed separatists controlling breakaway eastern regions.

              To finance increased defence spending despite further economic contraction expected next year, Kiev’s cash-strapped government plans to cut spending sharply by building fresh sources of revenue.

              Tax rates will be hiked sharply on luxury items including expensive automobiles, passive income, royalties, dividends from offshore entities, cigarettes and alcohol.

              A 10 per cent tax has been slapped upon lotteries; property taxes on large apartments and homes are being introduced; and fees for hydrocarbon production will be increased.

              The decision to no longer refund value added tax to traders on the export of grain could spark protests from international agribusinesses that have invested heavily into the country.

              After much debate, lawmakers approved government plans to introduce additional 5-10 per cent custom duties on imported goods for one year.

              Mr Yatseniuk said his government would explain the dire need for the protective measures in consultation with other WTO member countries and the EU, with which Kiev this year inked a free-trade agreement.

              Ukrainian officials hope the higher import duties will generate $1bn in additional revenue for a treasury that envisages a deficit of 3.7 per cent of gross domestic product next year.

              They are under pressure to adopt the budget before the end of this year in order to swiftly re-engage with the IMF.

              With fears of a financial meltdown spreading after central bank reserves halved this year to about one month of import coverage, the IMF concluded this month that Ukraine would need $15bn of additional support on top of its existing $17bn loan programme.

              Rush for exposure to US fuels ETF inflows

              Posted on 28 December 2014 by

              Finished post flags sit in a box at the Annin & Co. production facility in Coshocton, Ohio, U.S., on Friday, May 4, 2012. Annin & Co. is the world's largest and oldest flag company with 500 hundred employees producing 15 million flags a year, according to the company web site. Photographer: Ty Wright/Bloomberg©Bloomberg

              A scramble for exposure to the US’s economic recovery dominated flows into fast-growing exchange traded funds in 2014, and contrasted with fading investor enthusiasm for Europe.

              International flows into all ETFs with exposure to the US this year were equivalent to almost 50 per cent of starting assets under management — the strongest since 2008, according to an analysis for the Financial Times by Markit, the financial data provider.

                ETFs trade like stocks but track baskets of securities and are used by investors as an easy way to take bets on economies or regions. The asset class has expanded rapidly in recent years with total assets under management increasing 16 per cent to $2.7tn in 2014. ETF data provide an up-to-date guide to investor trends.

                The popularity of US-orientated ETFs reflected investor optimism in the country’s growth prospects relative to other economies. “The dollar is rallying, the US economy is doing quite well, and the US S&P 500 is also doing quite well,” said Simon Colvin, research analyst at Markit. “Investors are clamouring to get exposure.”

                Growth data released last week showed the US economy grew in the third quarter of 2014 at its fastest pace for a decade. But continental European economies continue to flirt with recession.

                The transatlantic divergence in economic fortunes was also reflected in ETF sales, with international inflows into European-focused funds last year equivalent to just 16 per cent of assets under management. Internationally-listed European ETFs had more than doubled in size in 2013.

                Even though inflows were still positive overall, the annual figures masked a sharp shift in global sentiment towards Europe during 2014. Initially, global investors saw the continent recovering from its debt crisis. But inflows into European ETF equities “faded as expectations for Europe’s economy deteriorated and deflation concerns emerged”, reported BlackRock in a separate review of 2014 flows. A weakening euro also hit global investors’ holdings.

                However a country breakdown by Markit showed Spanish ETFs showing the strongest growth in 2014 among established ETF markets, with Italian ETFs also expanding rapidly.

                You need JavaScript active on your browser in order to see this video.

                No video

                Russian ETFs also saw large inflows — although from a low base — underscoring how investors are using such products to place tactical bets. “No matter how bad the news got with the Ukraine crisis and the fall in oil [prices], investors kept adding to their exposure,” said Mr Colvin. India also proved popular with ETFs providing an relatively easy way to profit from Narendra Modi’s election as prime minister in May.

                By contrast, German ETFs saw large outflows, although the data were distorted by $10bn redemptions from an iShares fund based on Germany’s DAX share index, according to Markit. One explanation is the investors switched from German equities into safer European bond markets.

                Disrupters, destruction and opportunity

                Posted on 28 December 2014 by

                Previous image
                Next image

                Next Thumbnails
                Previous Thumbnails

                As buzz words go, it is an ugly one. But, in 2014, “disrupters” have been wreaking havoc on traditional business models everywhere, writes Sarah Gordon, Business editor.

                As technology puts new tools into innovators’ hands, the old boundaries between sectors are breaking down. Amazon has transformed bookselling, branched out into general retail and is now experimenting with delivery by drones. Apple shook up both the music and telecoms industries, and now has designs on our wrists. Six years after it came into existence, Airbnb has more rooms available than IHG or Hilton, the world’s top hotel groups.

                Innovation, of course, is as old as time. And there is nothing new about disruptive companies or about the imagination of the people who create them. “If I’d asked customers what they wanted, they would have said a faster horse,” Henry Ford reportedly said before turning the transport industry on its head with mass production of the motor car.

                But what feels different about today is the range and number of individuals and companies that are upending business models around the world. Whether it is the plethora of social media that are challenging journalism to reinvent itself; or the advances in technology that have transformed the way we order clothes, the latest film or a taxi; or the increased price efficiency that allows retailers to sell us cheaper goods, the disrupters are everywhere.

                Disruption is typically destructive, forcing companies out of business and, often, people out of jobs. But disruption also presents huge opportunities — for consumers, for the disrupters themselves, and for other companies as new techniques such as crowdfunding or big data mining become available to all.

                Starting today, and continuing over the next two days, FT reporters have assessed the impact of disrupters in different industries across the globe.

                1. Uber — Tim Bradshaw, San Francisco and Murad Ahmed, London

                After a year of multibillion-dollar fundraisings, bans in cities around the world and massive expansion, Uber, the ride-hailing app provider, has become Silicon Valley’s poster child for disruption.

                The five-year-old company has revolutionised the taxi market in more than 230 cities in 51 countries without owning a single car. Its marketplace connects drivers of regular cars and taxis with passengers through its smartphone app, backed by a “big data” team that tries to ensure a ride is never more than five minutes away.

                Led by co-founder Travis Kalanick, Uber has crushed competition from other ride-sharing start-ups and taxi unions alike, delivering a valuation of $40bn as it raised $1.2bn in new funding in December.

                This war chest allows it to slash fares as part of its attritional battle to win market share from rival apps and incumbent cab services. Its success has seen San Francisco taxi rides fall by two-thirds in less than two years and caused Hailo, a London-based taxi app, to exit North America complaining it was impossible to compete with Uber’s pricing tactics.

                Some of Uber’s drivers have also complained they are forced to work longer hours to make the same amount of money.

                A backlash has begun. Regulators, particularly in Europe, have launched probes into the company’s operations, while sometimes Uber disrupts itself. In November, one of its senior executives said Uber should hire investigators to dig up information about the “personal lives” of critical journalists. The comments created a firestorm of criticism.

                The incident led many to ask whether the company’s corporate culture, embodied by the man at the helm, would prove to be its Achilles heel.

                Mr Kalanick has spoken of Uber fighting political campaigns to expand into cities against taxi drivers’ resistance. To this end, he hired David Plouffe, a former adviser to President Barack Obama, as his head of policy in August.

                “I don’t subscribe to the idea that the company has an image problem,” Mr Plouffe told Vanity Fair. “I actually think when you are a disrupter you are going to have a lot of people throwing arrows.”

                And as it races towards a $10bn revenue target next year, Uber is not satisfied with taking on taxis alone. From burgers in Beirut and cycle couriers in New York to kittens in Seattle, it is already experimenting with moving more than just people.

                2. Alibaba — Charles Clover, Beijing

                Having claimed nearly $300bn-worth of online sales via its eBay-style marketplace in the year to June 30, ecommerce group Alibaba has already transformed retail in China.

                But now the company, and its rivals, are making inroads into everything from taxi hailing to financial services — snapping up the low-hanging fruit in overly state regulated markets.

                Alibaba’s part-owned taxi app Kuadi Dache has made hailing a ride more efficient, while the Yu’E Bao money market fund, which acts like a bank deposit and offers higher interest than the state regulated rate, had attracted Rmb534bn in funds as of the end of September.

                Joe Tsai, executive vice-chairman of Alibaba and right hand man to founder Jack Ma, told the Financial Times in November that financial services and healthcare were “very large industries where technology can roll out to reform the current system because some of these industries are very antiquated”.

                But Mr Tsai admitted that moves into cosy state-owned industries providing services, such as finance, have not gone as smoothly as they would have liked.

                He admitted that plans for expanding into financial services, such as online money market fund Yu’E Bao, had been dealt “a setback” by the central bank’s decision to block plans for a virtual credit card last spring. It felt the introduction of internet competition would have hurt Union Pay, the state credit card monopoly.

                “The central bank obviously said ‘let’s slow things down a bit. Let’s understand what these innovations are really about, and let’s bring reform rather than disruption’,” said Mr Tsai.

                3. Bob Diamond in Africa — Javier Blas, London

                Bob Diamond may not have disrupted a market or an industry, but he has challenged the traditional view that money cannot be made by investing in sub-Saharan Africa.

                Since quitting Barclays after it was fined for manipulating the Libor interest rate benchmark in 2012, Mr Diamond has since raised more than $600m on the London Stock Exchange to invest in African banks through his Atlas Mara venture.

                Although the American banker is not alone among a new wave of investors in the continent, which includes private equity firms such as KKR and Carlyle and state-owned funds including Investment Corporation of Dubai and Temasek of Singapore, Mr Diamond has become one of the most recognisable faces, competitors say.

                “Wall Street investors would put money in Africa just because of him,” says an Africa-focused investment banker. “He has name recognition.”

                Mr Diamond initially raised $325m through an initial public offering in London in December 2013, and tapped the market again this year, although he missed a target of $400m. The American banker has partnered with Ashish Thakkar, head of Mara Group, a $1bn conglomerate with business in 19 African countries.

                Atlas Mara has already sealed three deals in Africa, building operations in countries including Botswana, Mozambique, and Tanzania. And Mr Diamond anticipates more. “Global banks not in Africa are not looking at it all. It is fantastic — the heart of the reason we are doing this for,” he told the Financial Times in November.

                4. Aldi — Andrea Felsted, London

                German discounters Aldi and Lidl are disrupting the grocery market around the world — from their heartlands of continental Europe to the UK, US and Australia. Aldi is even exploring a move into China.

                In the UK, they have almost doubled their market share over the past four years. At the same time, all of the big four supermarkets — Tesco, Asda, J Sainsbury and Wm Morrison, have lost market share.

                Aldi has opened 1,350 stores in the US, and plans to take this to almost 2,000 by 2018. Lidl is also preparing to enter the US market, creating further headaches for the market’s big players, such as Walmart, which are already grappling with the threat from the dollar stores.

                Mike Paglia, a director of Kantar Retail, says the arrival of Lidl will increase the pressure on established retailers, particularly as it sells more branded goods than Aldi.

                “When Lidl comes in . . . I think that is where it gets scary for the Dollar Generals and Walmart,” he says.

                According to consultancy Planet Retail, Schwarz Group, which owns Lidl, is already Europe’s biggest food retailer with sales including VAT of €81.7bn in 2013. Aldi had global gross sales of €67.4bn in 2013.

                But incumbent retailers are fighting back. In the UK, the big four supermarkets have pledged to spend billions of pounds cutting prices, while in the US chains such as Walmart are opening swaths of smaller stores.

                There are tentative signs that the growth of the discounters is beginning to slow in the UK, but Aldi and Lidl have become such mighty forces in global grocery that they are unlikely to ever revert to the niche positions they once occupied.

                5. Ford — Robert Wright, New York

                When the first redesigned version of the US’s bestselling pick-up truck rolled off the production line in November, it was not obvious how revolutionary it could be.

                But, under the paint on Ford’s new F-150, the body was made of aluminium — a metal that had never before been used on a vehicle produced in such high volumes.

                This switch in materials trimmed 700lbs — 13 per cent — from the vehicle’s weight, slashing fuel consumption by between 5 and 22 per cent compared with previous F-150s depending on the model type.

                A visit to Ford’s bodyshop complex in Dearborn, Michigan, shows how much of a gamble the company has taken: it has had to replace its arc welding equipment with machines to screw, rivet, glue and laser-weld panels together.

                All of this represents a significant risk, given that some analysts say the Ford 150 provides 90 per cent of the group’s operating profits.

                “It’s a huge change,” Michelle Krebs, an analyst at, says. “Aluminium has been used in cars before, but on a much more limited basis than Ford is using it.”

                Ford — whose history of bold innovation goes back to the invention of modern manufacturing by founder Henry Ford a century ago — hopes it is taking a decisive step to win an advantage over rivals.

                The company believes that General Motors and Chrysler will also have to redesign their vehicles to meet strict new fuel-efficiency standards. The first manufacturer to make the transition successfully may be able to cement a long-term dominant position.

                6. Just Eat — Kadhim Shubber, London

                David Buttress, chief executive of Just Eat, describes himself as an “anti-cooking activist”, an apt label for a man who wants to tempt time-poor consumers out of the kitchen and on to its takeaway delivery app and website.

                The UK’s largest takeaway group, which was founded in Denmark in 2001 but moved to Britain five years later, has changed the way takeaways are ordered. It acts as a middleman, connecting thousands of restaurants with consumers who want to be able to shop around on one platform.

                In 2013, Just Eat processed more than 40m orders, charging about 10 per cent commission on each and generating £96.8m in sales.

                After years growing on investor capital, the group went public in April in a float that valued the business at about £1.5bn.

                The company soon joined the ranks of 2014’s disappointing initial public offerings as its shares languished beneath its float price of 260p for months. But the shares are now trading at more than 300p and its debut half-year results in August showed revenues up 60 per cent to £69.8m for the six months to June 30.

                Just Eat operates in 13 countries, including Brazil, India and Canada, but the UK’s £5bn takeaway market is its most lucrative, accounting for almost all of its profits. Globally, it has more than 40,000 restaurants on its app and website, all of whom it charges a signing on fee to be listed.

                Some analysts are sceptical, arguing that the business model is easily replicated. With Amazon now trialing a takeaway delivery service in Seattle, it is possible Just Eat could see their lunch eaten by a big US tech company.

                7. Aereo — Shannon Bond, New York

                Aereo was the little disrupter that could not disrupt. Launched in 2012, the New York-based start-up had an audacious pitch: for $8-$12 a month, viewers could stream high-definition, broadcast TV signals to their smartphones, tablets, laptops and web-connected televisions. It raised nearly $100m, largely from Barry Diller’s IAC, and set about challenging TV’s economics.

                “We know there’s demand for this,” Chet Kanojia, Aereo’s chief executive, told the FT. “We don’t know if it’s 30 per cent of the market or 5 per cent or 2 per cent, but even at 5 per cent this could be a massive business.”

                But Aereo’s dime-sized antennas sparked opposition from powerful broadcasters including ABC, NBC, CBS and Fox, which have seen their businesses transformed in recent years by the ability to charge pay-TV providers growing fees to carry their free-to-air channels. Aereo threatened those “retransmission” fees, which SNL Kagan estimates at $4bn a year.

                The networks sued to shut Aereo down on claims the service violated their copyrights by rebroadcasting signals without consent. Aereo countered that it was offering a more convenient form of rabbit ear antennas.

                In June, the Supreme Court sided with the broadcasters and ordered the service to shut down. IAC took a $66.6m writedown on its investment and by November, Aereo had filed for bankruptcy protection.

                Mr Kanojia wrote in a note to customers that the legal and regulatory challenges “have proven too difficult to overcome” but said his company had “push[ed] the conversation forward, helping force positive change in the industry for consumers”.

                Aereo never disclosed revenue, but filings revealed it had just over 77,000 subscribers in 2013. In the end, said CBS chief executive Les Moonves, it was “a lot of attention for a service that virtually nobody was using”.

                Day 2 disrupters to be featured: Lending Club, Tesla,, SoundCloud, Three, Appear Here, Mario Costeja González

                Day 3 disrupters to be featured: Netflix, Tinder, Xiaomi, Embraer, iMatchative, eMoov, Indian e-commerce

                Back to the top of the page

                Klarna expands online payments business

                Posted on 28 December 2014 by

                Klarna, one of the few European technology start-ups valued at more than $1bn, is planning to expand from online shopping into money transfers between individuals and payment systems for newspaper articles and public transport.

                Having become a leader in ecommerce payments in Germany, France and Italy, the Swedish company is now launching in the UK and US. Its online shopping payment system has grown in popularity as it allows shoppers to buy more quickly and receive goods before paying for them, while taking on the credit risk for retailers.

                  Klarna uses complex algorithms — based, for instance, on the time of day and a customer’s shopping history — to permit one-click purchases and detect fraud.

                  In Sweden, about 40 per cent of the 10m population has used Klarna, primarily for online shopping. But Niklas Adalberth, co-founder and deputy chief executive, told the Financial Times that the group was looking to “use our knowledge in ecommerce in new verticals”.

                  Klarna already has a deal with Dagens Nyheter, Sweden’s leading newspaper, to make buying individual articles or day passes for its website quicker and simpler. It has also teamed up with SL, which runs public transport in Stockholm, to sell bus, train and metro tickets using one click over a mobile phone.

                  Mr Adalberth said other possibilities included providing airlines with simpler ways of selling additional services to passengers.

                  “You could receive an SMS [saying] ‘do you want lounge access for SKr29?’” he explained. “They are still missing out on all the upside opportunities — food on flight, business class upgrade.”

                  Klarna is also looking into consumer-to-consumer payments and is set to enable buyers to pay other individuals for goods on Tradera, eBay’s Swedish auction website.

                  However, it is facing increased competition from an array of companies moving into mobile and online payments, including traditional payment groups such as Visa and MasterCard as well as technology companies such as PayPal and Apple.

                  Klarna’s rise has not been without problems either. It faced heavy media scrutiny in Sweden when some customers in the country had problems with receiving and paying online invoices.

                  Mr Adalberth said the company had changed its practices and reminded customers by text message when they had an invoice. But he conceded that the eventual payment for goods through Klarna involved “more friction” than the initial purchase on a retailer’s website.

                  Klarna is now seeing a surge in mobile use. Mr Adalberth said mobile transactions accounted for almost half of the total, up from a fifth in March.

                  He added that Klarna had increased the sales conversion rate — how many completed sales a retailer gets after a customer puts something in their shopping basket — to 50 per cent on mobile devices, from an average of 3 per cent when the company’s services were not used.

                  The Swedish group is investing at least $100m in its push into the US as it enters the home turf of larger rivals such as PayPal and Square. 

                  Co-op set to offload risky assets

                  Posted on 28 December 2014 by

                  A pedestrian passes the entrance to a Co-Operative Bank branch©Bloomberg

                  Co-operative Bank is under pressure to offload risky assets and strengthen its capital position, after a year of intense regulatory scrutiny.

                  In December, it became the only UK lender to fail the regulator’s stress tests, making the bolstering of its capital buffers an imperative in the next 12 months.

                    This test showed the Co-op would significantly undershoot the 4.5 per cent core tier one capital needed to weather a severe economic scenario.

                    However, the bank points out the test measures its balance sheet as at the end of 2013, and does not account for the actions it has undertaken this year to buttress its capital position.

                    “These were tough tests and saw RBS and Lloyds Bank scrape through whilst the Co-operative Bank failed,” says Tim Maloney, a partner at law firm Dorsey & Whitney. “To survive, Co-op Bank will need to shed its non-performing assets.”

                    The regulator has forced the lender to submit a new capital plan following the failed test result. The plan requires a “rephrased and significant” reduction in its riskier assets, which lowers the need to hold higher levels of capital. The bank emphasised that it does not “at the present time” need to raise new equity capital as a result.

                    But the successful sell-off of certain portfolios — namely Optimum, its £7.1bn closed book of bad home loans acquired through the merger with Britannia in 2009 — will largely depend on market conditions.

                    While the “economic conditions in the UK are better than originally expected”, according to the bank, market uncertainty in the run-up to next year’s general election could hinder investor appetite for potential sales.

                    The focus on strengthening capital buffers could also rein in lending in certain areas. Ray Boulger, a technical analyst at John Charcol, says the bank’s troubles have so far not stopped them from being competitive in the mortgage market.

                    “As the only bank to fail the stress test, it they want to expand lending, it makes sense to do so in a lower-risk area that needs less capital,” he says.

                    Mr Boulger notes the bank offers competitive rates on fixed-rate, lower loan-to-value mortgages.

                    “But this is where all the lenders want to be, so competition is strong,” he says. Concentrating on lower-risk lending will also mean profit margins will not be as high, Mr Boulger adds.

                    Indeed the bank has already warned that it does not expect to be profitable until at least 2017. The lender had started to substantially stem losses to £76m in the first half of 2014, down from £845m the previous year.

                    But customers are voting with their feet: more than 38,000 current account holders walked out the door in the first half following the storm of negative publicity surrounding the bank.

                    With more banks coming to market offering slicker, faster services and as switching becomes easier, the Co-op Bank could find itself struggling to stem the exodus of customers.