Currencies

China capital curbs reflect buyer’s remorse over market reforms

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

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Banks

Carney: UK is ‘investment banker for Europe’

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

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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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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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Archive | November, 2016

How Brookfield and QIA came out on top

Posted on 30 January 2015 by

LONDON, ENGLAND - NOVEMBER 12: Citibank, Barclays and HSBC headquarters buildings at Canary Wharf on November 12, 2014 in London, England. Five banks have been fined £2 billion by financial regulators in the United Kingdom for manipulation of foreign exchange rates. A seperate investigation into Barclays is still ongoing. (Photo by Peter Macdiarmid/Getty Images)©Getty

The view from Canary Wharf Group’s offices in One Canada Square — the first and tallest skyscraper in London’s Docklands — is one of the best in the city.

And for the directors of Songbird, the holding company whose sole asset is a majority stake in Canary Wharf, that view will have served as a reminder of the staggering interest in London property trophy assets.

    Songbird board members had met there last December, with some dialling in from abroad, because they were facing a takeover by Canada’s Brookfield and Qatar’s sovereign wealth fund — a deal that, if completed, would be the biggest in UK property for a decade.

    Brookfield and the Qatar Investment Authority had teamed up to launch an audacious £2.6bn bid to buy Songbird’s Canary Wharf portfolio: 34 office buildings and 300 shops and restaurants, serving the east London finance district’s 105,000 daily workers.

    QIA already owned a 28.6 per cent stake in Songbird, while Brookfield had a 22 per cent position in the subordinate Canary Wharf Group.

    If their bid proved successful Brookfield and QIA would be able to squeeze out minority shareholders, collapse the tangled ownership structure and take full control of the estate.

    The Songbird board — which represented its complex ownership history — did not think the bid was high enough. The decision was in the hands of the Qataris’ fellow Songbird shareholders: New York billionaire Simon Glick, Morgan Stanley and the China Investment Corporation.

    Was this the right time to exit London’s property market? It was a question that weighed heavily on the trio of shareholders this week.

    Mr Glick first invested in Canary Wharf in 1995 — and the former diamond trader turned real estate billionaire has seen first hand how the London business district suffered during the property downturns of 2000 and 2008.

    Morgan Stanley was open to a sale as its real estate investment fund — which took a stake in 2004 and profited handsomely from a 2009 recapitalisation — had matured.

    CIC, meanwhile, had taken profits where it could many times in other deals.

    Did they really want to pass up on a takeover that would give them an immediate exit, especially now that Londoners were debating the longevity of the city’s property boom? Their answer was no.

    On Wednesday, the three shocked the property world by revealing their support for the QIA-Brookfield bid, in spite of the Songbird board’s view. The deal was a juicy return on their cash — and one that might not be forthcoming again before the market turned.

    Their decision ended a testy three-month stand-off that began in November when news of the Brookfield-led approach was leaked. All sides deny leaking and have indicated suspicion of each other.

    It was not the first time Brookfield had expressed an interest in the towering clutch of skyscrapers. In 2004, it was bested by Mr Glick and Morgan Stanley in a takeover battle. Then a 2009 bid by the Canadian property group was foiled at the last minute when Songbird brought in CIC and QIA to bolster its equity instead.

    Ric Clark, head of Brookfield’s property arm, approached the QIA last summer to team up. It was a relationship that blossomed over two months.

    The duo’s first offer in November of £2.2bn, or 295p per share, was quickly rejected. Songbird’s board argued that the bid “significantly undervalued” the business, and moved quickly to commission an independent valuation. This gave Songbird a value of 381p per share, or £2.8bn.

    At least one other bidder was seriously interested but the tight timescale and complicated ownership structure were deterrents

    Brookfield and the QIA countered that their offer covered the costs of refinancing Songbird’s highly priced debts.

    But the two sides were not talking — the shareholders referred the bidders to the board, while the board simply reiterated its focus on price.

    With just two days to go until the duo had to table a firm offer, under the UK takeover code, the pair drafted two separate announcements.

    The first announced a capitulation: they would walk away. The second carried a final offer of 350p per share, or £2.6bn.

    Before a decision could be made, the QIA was rocked from within. Ahmed al-Sayed, the head of the fund and someone closely involved in the deal, was unexpectedly removed. His departure cast a question mark over the QIA’s London property strategy. “We were not clear at that point whether there would be another bid,” says one person involved.

    But new QIA leader Sheikh Abdullah bin Mohamed bin Saud al-Thani was amenable. So on 4 December, Brookfield and QIA put their 350p-a-share offer on the table.

    The board triggered a search for other bidders. At least one was seriously interested but the tight timescale and complicated ownership structure were deterrents.

    Until Tuesday, Brookfield and QIA had no inkling their bid would win out. When Morgan Stanley, CIC and Mr Glick revealed their support the following day, it paved the way for the bidders to take charge of Canary Wharf’s ambitious expansion plan.

    Songbird’s board had argued that expansion would add value to the company. If it does not, Brookfield and the QIA may rue buying near the top — even as they enjoy the view from it.

    Radicals of Syriza endure a rocky start

    Posted on 30 January 2015 by

    A Greek and an EU flag wave in front of the ancient temple of Parthenon atop the Acropolis hill in Athens on January 13, 2015. Greece could exit the euro by accident, Finance Minister Gikas Hardouvelis said Wednesday in a new warning of what could happen if anti-austerity leftist party Syriza wins the election later this month. AFP PHOTO / ARIS MESSINISARIS MESSINIS/AFP/Getty Images©AFP

    Any hopes that the new Syriza-led government in Greece would have a sedate and calming beginning were rapidly dispelled after it took office this week. Investors took fright and sold off Greek assets over fears that the country would abrogate its debt and leave the euro. Meanwhile, the EU’s foreign policy establishment was rocked by reports that Athens was blocking the extension of sanctions on Russia.

    Everyone needs to take a deep breath and calm down. The apparent sense of shock is unwarranted. Syriza has done little more in office than it promised in the campaign. That said, it has proved itself poor at communicating its policies, and has started out with disturbing gestures towards placating its core vote rather than embarking on a broad policy of reforming the state.

      The Russian sanctions episode was an excellent example of conveying a confusing message. On Tuesday, a government spokesman gave the impression Greece would block renewed restrictions on EU travel bans and asset freezes. It was Thursday before Yanis Varoufakis, the economics minister, took to his blog to explain that the government was merely making the point that it had not been consulted.

      As it happens Athens then meekly voted for extending existing sanctions and considering tighter measures next month. But if all ended well, the prospect of a major diplomatic row needs a swifter and more definitive response than a finance minister blogging about it two days after the event.

      Such slips may be put down to uncertainty in a party with no previous experience of office. Other announcements, though, are more alarming. Syriza chose its first week to declare that it would halt privatisation of Piraeus port and the Public Power Corporation.

      The relevance of this is not that such privatisations are utterly indispensable to growth in the Greek economy. It is that the Piraeus dockworkers and the PPC are political clients of Syriza. If the government is concerned about the treatment of dockers, for example, the solution is to enforce employment regulations, not to keep an inefficient company in public hands.

      Indeed, one of the more peculiar aspects of the election has been the jubilation of some leftwing politicians and commentators in the rest of the EU and beyond, who appear to regard Syriza as standard-bearers for a resurgent European left. In reality — as symbolised by Syriza’s coalition with a far-right party — Greece’s problems are not ideological. Rather they involve entrenched interests throughout the economy and a clientelist tradition that aims to buy off particular groups rather than governing for the nation.

      Politically and even economically, for example, Syriza may be right to start its clampdown on tax-dodging with what it and other Greeks call the “oligarchs” who dominate favoured companies. But it cannot end with the rich: evading tax is endemic throughout Greece’s economy.

      No matter what happens with the debt and the target primary fiscal surplus, Syriza is facing a hard slog trying to reform a low-productivity economy riddled with rent-seeking and regulation. It is obvious that it will need relief on its sovereign debt and its target fiscal surplus. But the government will not persuade the rest of the eurozone that debt cancellation and fiscal leeway are warranted if it merely continues to hand out favours to its core voters.

      Investors’ response to Syriza’s first week looks an overreaction. But the new government is learning that, when balancing precariously on a fiscal tightrope, moves in the wrong direction can be deadly. The markets should give Syriza more time. Syriza should use it.

      ‘Final salary’ safeguards watered down

      Posted on 30 January 2015 by

      LONDON, ENGLAND - FEBRUARY 01: The Houses of Parliament glow in the early morning sun on February 1, 2010 in London, England. Londoners woke up to a beautiful clear morning despite temperatures falling dramatically over the weekend. (Photo by Dan Kitwood/Getty Images)©Getty

      The government is to water down a proposed safeguard designed to protect workers giving up small final salary pensions to take advantage of new pension freedoms.

      Under changes coming into force in April, savers with defined contribution pensions will have new freedom to take their savings as a lump sum from the age of 55. Savers in final salary pensions will be able to take advantage of the freedoms but must first transfer their pension to a DC scheme.

        The government had proposed that savers wishing to transfer a final salary pension would first need to get professional advice, as a safeguard against making poor decisions and giving up valuable benefits.

        Individuals were to have been exempt from the advice requirement if their total pension wealth was below £30,000, including their DB and any other pension plans. But Lord Newby, a Liberal Democrat peer, indicated this week that the requirement would be relaxed “in response to feedback”.

        The advice safeguard will only apply if the final salary pension to be transferred has a “transfer value” of £30,000 or more.

        “We have decided that this should apply only to safeguarded benefits in the scheme from which the member intends to transfer, and be calculated on the basis of the cash equivalent transfer value, which is the standard measure in the industry,” said Lord Newby.

        Pension consultants said the change would mean that more people approaching retirement would not need to pay for authorised financial advice.

        “Advice can cost the thick end of £1,000, so there was always going to be an exemption for smaller pensions,” said Stephen Green, a senior consultant at Towers Watson, the pension consultants.

        “Basing this on the value of the individual pension rather than the individual’s total savings will make the rules a lot easier for trustees to police.”

        FCA denies political pressure over pension protection reforms

        Pedestrians pass hotels and residential apartments as they walk along the beachfront promenade in Eastbourne, U.K., on Tuesday, April 1, 2014. Pensioners and savers have seen returns on their money shrink since the financial crisis drove interest rates to a record low. Photographer: Chris Ratcliffe/Bloomberg

        The City watchdog has denied it came under political pressure to rush through stronger safeguards for pension customers, one month before what is expected to be a closely fought general election.

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        Towers Watson estimates that for many people approaching retirement at 65, a transfer value of £30,000 may correspond to a pension of £1,500 a year or a little less.

        However, others described the change in planned safeguards as “worrying”.

        “Transfer valuations offered by pension companies can be very difficult to understand,” said Ros Altmann, an independent pensions expert and the government’s Business Champion for Older Workers.

        Under new requirements to come into force from April, trustees of a final salary pension scheme must check whether the member has taken advice before processing a transfer, if it has a transfer value of £30,000 or more.

        IC — January 31 highlights

        Posted on 30 January 2015 by

        Buy: Crest Nicholson (CRST)

        On top of excellent growth prospects and a sector-leading forecast dividend, shares in Crest Nicholson are cheaper than its rivals, writes Jonas Crosland.

        Annual results from Crest Nicholson provide further evidence of the healthy state of the UK housebuilding sector.

          The company remains on target to achieve revenue growth of up to 80 per cent in the three years following its partial flotation in February 2013. Return on capital employed jumped to 26 per cent, while operating margins grew to 20.1 per cent.

          Other targets set at the time of the flotation have also been met ahead of schedule, with completions in the year to last October up by 16 per cent at 2,530 homes.

          Average selling prices on open market homes rose by 15 per cent to £287,000, reflecting both price inflation and a change in the mix away from apartments. Crucially, the increase in selling prices more than offset higher raw material costs and wage inflation.

          Historically, margins have been squeezed in boom times as land prices have risen, but there is no sign of this happening now, perhaps due to the constraints on bank lending. Crest also controls a very large land bank. Including so-called strategic land holdings — those lacking planning consent — it now has over 33,000 units in the pipeline. That gives a gross development value of over £9bn.

          As a result of the company’s progressive dividend policy, analysts at Numis expect the dividend yield to rise to about 8 per cent by 2017. They forecast pre-tax profit for the coming year of £142.7m, and earnings per share of 44.7p.

          Buy: PZ Cussons (PZC)

          The historic trading premium of PZ Cussons’ stock relative to peers has evaporated due to the problems in Nigeria, writes Mark Robinson.

          It’s not just oil companies that are vulnerable to civil unrest in Africa. Interim figures from PZ Cussons were hit by Islamist violence in northern Nigeria, not least due to the consequent devaluation of the state currency, the naira.

          The UK personal goods manufacturer, which produces Imperial Leather among other well-known toiletry brands, reported a 3.7 per cent fall in operating profits to £42m for the six months to November 30.

          However, the 2013 comparative figures were flattered by £3.4m in operating profits linked to disposals. Stripping out these and other one-off items, operating profits rose 3.5 per cent and the underlying margin increased to 11.9 per cent.

          Revenue comparisons, too, are skewed by disposals — notably the sale last February of the group’s low-margin Polish Home Care brands. Hence European revenues were down by a quarter even as reported profits rose marginally.

          Problems in Nigeria had the greatest impact, however. While the group continues to make headway with its electrical and cooking oil businesses in the African state, trading and distribution have become increasingly prone to disruptions in the north of the country. Adjusted operating profit from the African unit, which is dominated by Nigeria, fell from £14.7m to £12.2m in the half.

          The country’s problems have also been exacerbated by the sharp fall in crude oil prices during the final quarter of 2014, which has placed considerable strain on Nigeria’s oil-dependent economy.

          EnQuest (ENQ)

          Rejigged terms with lenders will help calm investor fears that EnQuest’s covenants may have been tested this year, writes Mark Robinson.

          The share price of EnQuest has more than halved over the past three months as sentiment towards North Sea drillers soured on the back of the plunge in crude oil prices.

          There was some respite last week, however, after the company, which heads the development of one of the largest pending UK offshore projects, successfully negotiated an agreement with lenders to ease debt covenant conditions.

          The company’s balance sheet has been stretched as it moved ahead with the $3.2bn (£2.1bn) development of the Kraken field in the North Sea.

          EnQuest has also had some hefty capital commitments in relation to the Alma/Galia oilfield. The company intends to bring the complex back into production midway through this year, which should help to drive 2015 production towards a midpoint guidance of 34,500 barrels of oil per day, on a working interest basis.

          EnQuest’s share price rose by 22 per cent on news of the credit facility covenants, which represent a vote of confidence on the part of the banks. The covenants have been relaxed until mid-2017, by which time production from Kraken is expected to kick in.

          The driller has also cut its capital expenditure outlay for this year to around $600m from the previous estimate of $700m to $800m. At 33.1p a share, EnQuest’s shares trade at roughly half Canaccord’s core valuation, excluding development and appraisal assets, assuming oil at $90 a barrel.

          Stock screen: Euro stocks for yield, growth and value

          The European Central Bank’s plans for quantitative easing have ignited the markets and the ongoing bond-buying programme could push equities higher for some time to come, writes Algy Hall.

          Meanwhile, the Greeks’ rejection of the recent economic orthodoxy with the election of anti-austerity party Syriza, may mark a new chapter in the region’s approach to reviving its flagging economies.

          But what stock picking strategies are likely to prosper most during such eventful times? Rather than go for just one screen, I’ve run four which have track records on the UK market. They respectively target growth, contrarian value, dividend yields and my own “Have-It-All” screen.

          The shares I am looking for are those of companies that report in euros and are part of the S&P Europe BMI index, which contains 1,780 companies. The index covers all of Europe, including non-eurozone countries, as I have taken reporting in euros as an indication that they have high exposure to the region and its currency.

          The “growth” screen, whose criteria include five-year earnings-per-share (EPS) compound annual growth rate of between 7.5 per cent and 20 per cent and positive free cash flow in each of the past three years, delivered six companies.

          Among these is Deutsche EuroShop, which has investments in 19 shopping centres in Germany, Austria, Poland and Hungary. If QE is able to reinvigorate the fortunes of the European man on the street, then shopping centres should prosper. Other “growth” companies are Amadeus FiRe, Bechtle, Heurtey Petrochem, Reply and Rockwool International.

          The “contrarian” screen, which focuses on stocks that are cheap compared with sales and where there are grounds to hope profitability can be boosted, delivered five companies.

          French-listed oil services company Technip is particularly sensitive to lower oil prices, but it boasts a solid balance sheet and management is keen to diversify the business to achieve growth. Other “contrarian” companies are Tessi, Bekaert, Prosegur Compañía de Seguridad and Semperit Aktiengesellschaft.

          No company met all of criteria set by the “have-it-all” screen, which requires shares to tick many of the classic boxes investors would expect from “value”, “growth” and “income” stocks.

          Eight passed all but two, however, including vehicle manufacturer Daimler. While some markets remain soggy, such as truck sales in Europe and Brazil, overall demand has been good, especially for its new range of Mercedes-Benz cars. Should the ECB’s monetary experiment boost the economies of the eurozone, it should certainly refuel the car, truck and bus maker.

          The other companies to pass the screen were Origin Enterprises, Montupet, Stef, Amsterdam Commodities, MARR, ProSiebenSat. 1 Media, and Michelin.

          French tyre giant Michelin also passed the “safe yields” screen, which focuses on solid signs that the dividend being paid out is sustainable and likely to grow. That means good cash conversion, good interest cover and healthy dividend cover along with an encouraging record and forecasts. The other two companies to pass were Adecco and Colas.

          Michelin cited weak European truck demand as one reason for disappointing third quarter sales last year, and is also battling against slower emerging market demand and competition from lower-end tyremakers. The falling oil price, as well as ECB action, has the potential to help the company, which is still expected to increase earnings in coming years.

          Standard Life in Reit switch

          Posted on 30 January 2015 by

          EDINBURGH, SCOTLAND - MARCH 04: The Standard Life House logo is displayed on March 4, 2014 in Edinburgh, Scotland. Edinburgh based pensions and savings firm Standard Life has announced that it is making contingency plans to move its business from Scotland if there is a Yes vote in the independence referendum in September. (Photo by Jeff J Mitchell/Getty Images)©Getty

          Standard Life has converted its £191m Property Income Trust into a real estate investment trust (Reit), as the tax-efficient fund structure proves increasingly popular with investors.

          The £281m F&C Real Estate Investment Trust is undergoing a similar switch. Both funds have been domiciled in Guernsey but are moving to the UK for tax purposes.

            “We see a growing trend for Guernsey property companies to convert to Reits as they offer investors a more established, accessible and liquid form of investment, with greater tax efficiency,” said Gordon Humphries, head of investment companies at Standard Life.

            Reits are required to pay out at least 90 per cent of their taxable income as dividends to shareholders.

            Standard Life’s fund, like other property funds, has attracted interest from investors in search of income and is trading at a premium of 13.2 per cent to net asset value. It yielded an annualised 6.1 per cent in dividends in the first six months of 2014.

            The fund increased its share capital by 58 per cent in 2014 and plans at least one rights issue this year.

            It may call a halt to its expansion after that, as “we don’t want to raise and invest too close to the top of the market,” said fund manager Jason Baggaley.

            Real estate investment trusts led new issuance among investment companies last year, with European property funds creating £1.6bn of shares — £910m of this in the form of new fund launches — and UK-invested property vehicles issuing shares worth £612m. Reit indices were up sharply during the year.

            However, high valuations in the commercial property sector have led to concerns that Reits’ rally may be losing some of its momentum.

            Dollar rally stalls on rate rise rethink

            Posted on 30 January 2015 by

            The Marriner S. Eccles Federal Reserve building stands at sunrise in Washington, D.C., U.S., on Tuesday, Oct. 28, 2014. The Federal Open Market Committee meets today and tomorrow after six weeks of volatility in global financial markets. Since the FOMC met in mid-September, oil prices have tumbled 14 percent, and the Standard & Poor's 500 Index of stocks dropped as much as 7.4 percent from a record close. Photographer: Andrew Harrer/Bloomberg©Bloomberg

            The Federal Reserve this week offered no new clues as to the next rise in US interest rates, which left dollar bulls feeling they had pushed the currency high enough for now.

            As measured against six of its leading rivals, the dollar index ended the week unchanged at 94.78.

              At its first policy meeting of the year, the Fed kept rates between zero and 0.25 per cent and maintained its “patient” approach to the timing of any rise.

              The flatness of the dollar index, however, failed to illustrate how expectations of a mid-year rate rise are now fading.

              The index maintained its position over the week largely down to the dollar’s strong gains against the Swiss franc, which lost 5.4 per cent to SFr0.9281 following its extraordinary jump after the Swiss National Bank abandoned its euro ceiling earlier in the month.

              Both the euro and the pound gained against the dollar — the euro making its first weekly advance following six down weeks.

              The single currency was 0.8 per cent stronger over the five sessions to $1.1301 while the pound gained 0.3 per cent to $1.5034.

              Fourth-quarter US growth data did little to either harm or help the dollar on Friday with GDP rising at an annual rate of 2.6 per cent, down from a rate of 5 per cent in the third quarter, as business investment fell.

              Chris Williamson at Markit said: “The latest numbers suggest that we could see the Fed thinking about pushing back its first rate hikes into late 2015, and even early 2016.”

              This was a sentiment expressed in the market even heading into Wednesday’s monetary policy meeting.

              The euro’s rally this week was all over by Wednesday, and came in the immediate aftermath of the Greek elections, won by the anti-austerity Syriza party that promised to renegotiate the country’s debt repayments.

              Analysts said the victory had been priced in, and that there was some relief that Syriza did not win an outright victory, which may take some of the sting out of its radical agenda.

              Nevertheless, few were confident the euro could mount a comeback here.

              Although the Fed may back down from a mid-year rate rise, the European Central Bank’s policy easing is far from over and Friday’s consumer prices data saw the eurozone deflationary woes deepen.

              “The ECB will undoubtedly be hoping that the euro falls further and that this feeds through to push up import prices sooner rather than later,” said Howard Archer at IHS Global Insight.

              “The ECB will also be fervently hoping that the markedly weaker euro, very low oil prices and its quantitative easing programme increasingly foster eurozone growth.”

              Varoufakis to keep his blog readers posted

              Posted on 30 January 2015 by

              Greek economist Yanis Varoufakis is seen outside the Syriza party headquarters in Athens on January 25 2015©Reuters

              Yanis Varoufakis: ‘the time for crisis-denial, retribution and finger-pointing is over’

              Yanis Varoufakis, Greece’s new finance minister, is the latest in a long line of economics professors to try their hand at rescuing the country’s economy. But Mr Varoufakis will be the first to chronicle his efforts online.

              The Essex University graduate and authority on game theory and bargaining launched his blog, “Thoughts for the post-2008 world”, as Greece plunged into its worst recession on record.

              Mr Varoufakis, 53, has vowed to continue it as “an open line to the outside world” even after assuming his ministerial post as part of the government led by the far-left Syriza party.

              In depth

              Greece debt crisis

              Greece

              Greece struggles on with drastic austerity as eurozone leaders continue to argue over how to help the country cope with its debt mountain

              Further reading

              “The time to put up or shut up has, I have been told, arrived,” he wrote this week. “My plan is to defy such advice. To continue blogging here even though it is normally considered irresponsible for a Finance Minister to indulge in such crass forms of communication.”

              An Athens-born biker and contemporary art enthusiast, Mr Varoufakis taught for several years at Sydney university in Australia. He left Athens in 2012 to become a visiting professor at the university of Texas “following death threats to my family that followed my insistence to discuss publicly the Greek bankers’ latest scandals”. All the while, he continued to blog on the social impact of the crisis in Greece.

              With his new job, readers can expect an insider’s take on the ups and downs as Syriza seeks to end austerity and persuade its European partners to accept debt forgiveness for the Greeks — all delivered in a Varoufakis style that is dramatic, eloquent and at times bordering on overwrought.

              Below is a selection of Mr Varoufakis’s writings:

              Drop-in image On Greece's first bailout
              On Greece’s first bailout, 21 November 2010

              “Not only was the EU-IMF ‘rescue’ plan bad for Greece but, even worse, it was bad for Germany. [It] was akin to the Versailles Treaty that the Great War’s victors had imposed in 1920 upon the defeated Germany . . . 

              . . . With the exorbitant interest rates that it charges, and given its steadfast resistance to any renegotiation of Greece’s existing debt, it pushes Greece further into insolvency. Just like a cruel doctor administering enough medicine to keep the patient alive for a while longer so that she keeps suffering more excruciating pain, but not enough medicine to prevent her from shuffling off the mortal coil, so too the EU-ECB-IMF package, as it stands, only prolongs the Greek state’s agony without preventing the inevitable bankruptcy.

              And when the bankruptcy comes, it will come at a time of a smaller national income and a higher overall debt level. It is not, therefore, unreasonable to describe this package as a punishment that is as cruel as it is unusual.”

              Drop-in image On Germany
              On Germany’s role in the bailout, 21 November 2010

              “ . . . when the money markets ganged up against Greek bonds, many Germans felt that the Greeks had got their comeuppance.

              Retribution was the order of the day, especially in the mindset of a nation that, over the past century, has accepted its collective punishment gracefully and managed to rise out of the mire through sheer hard work and extensive reform. Greece should pay for its sins too. For Germans, the cost of saving the Greek state from the clutches of the money markets was not the issue. The issue was that Greece should suffer a deserved punishment for putting at risk a club which gallantly bent the rules to have it admitted as its member. And when the said club is the one issuing the currency in which the German people trade, save and take collective pride, that punishment took on the significance of a crucial bonding ritual.”

              Drop-in image On austerity
              On the effects of austerity, 12 November 2012

              “[A] snapshot attracted my horrified gaze the other day. It was the image of a disabled 60-year[-old], his corpse dangling from a rocky cliff face in Northern Greece, at an advanced stage of decomposition, suspended by the belt which the deceased had used to hang himself . . . 

              [The man’s] last sighting was at the Social Security Offices (IKA) in a small town called Siatista, where he was told that his small monthly disability allowance of 280 euros was suspended, as a result of the latest austerity measures.

              This was, of course, not the first suicide to have come out of the Great Greek Depression of our times. But the fact that it was not meant as a political gesture (unlike the very public suicide of the pharmacist that shook the world), does not make it less poignant. Quiet desperation has a power, a tender despondency, that can pierce the denials of even the most callous of austerians. There is no guarantee of course. At the very least, however, it is incumbent upon us to ensure that they are not shielded from it.”

              Drop-in image George Papandreou
              An open letter to former Prime Minister George Papandreou, 6 June 2011

              “ . . . Thus we arrived in May 2010, a juncture where you were ambushed by the most momentous decision any peacetime Prime Minister has had to face hitherto. You know that we disagreed on whether it was the correct decision. It matters little now. They convinced you that the deal you put your signature to was a genuine bailout; a lifejacket offered after a shocking shipwreck for the purposes of allowing the shipwrecked a chance to buy time and find their way, through stormy waters, toward some terra firma.

              I considered the same ‘bailout’ a massive ball-in-chain, attached to our collective ankles, dragging the whole of the eurozone toward the bottom (surplus and deficit nations alike, North and South bound together in a deathtrap). You chose to follow the advice of your counsellors, and of the captains of finance, judging that the ‘bailout’ was, indeed, buying you precious time. Nevertheless, to the extent that I know you, your decision filled you with angst and sadness.”

              Drop-in image Syrizas
              On the 2015 Greek election results, 26 January 2015

              “Today, the people of Greece gave a vote of confidence to hope. They used the ballot box, in this splendid celebration of democracy, to put an end to a self-reinforcing crisis that produces indignity in Greece and feeds Europe’s darkest forces.

              The people of Greece today sent a message of solidarity to the North, to the South, to the East and to the West of our continent. The simple message is that the time for crisis-denial, retribution and finger-pointing is over. That the time for the reinvigoration of the ideals of freedom, rationality, democratic process and justice has come in the continent that invented them.

              Greek democracy today chose to stop going gently into the night. Greek democracy resolved to rage against the dying of the light.

              Fresh from receiving our democratic mandate, we call upon the people of Europe and, indeed, the world over, to join us in a realm of shared, sustainable prosperity.”

              Investor fears over Brazil homes scheme

              Posted on 30 January 2015 by

              Anthony Armstrong Emery in Brazil, where he has established a successful property business©Anna Berthier

              Anthony Armstrong Emery in Brazil, where he has established a successful property business

              Nerys Pearce’s life changed forever when an illegally parked car backed out in front of her motorbike in London in 2008.

              The accident left the aspiring physiotherapist and triathlete, who planned to serve full-time in the British Army, paralysed from the chest down and unable to work.

                After a five-year court battle, the Ascot, Berkshire, resident received a net settlement of nearly £1.2m. But her bad luck was far from over — she invested a large chunk of the money in EcoHouse Developments, a company controlled by former high-flying entrepreneur, Anthony Armstrong Emery.

                A UK-based company that attracted investors from Britain, Singapore and other countries to its housing projects for the poor in Brazil, EcoHouse collapsed suddenly late last year and is now being probed by police in the UK and Brazil.

                “After what I had been through in the last few years, the opportunity to help somebody else out and better my own future at the same time was kind of what I bought into,” said Ms Pearce, 33, who now fears she will not have the funds to fund her retirement.

                The plight of Ms Pearce and hundreds of others who bought into EcoHouse highlights the dangers facing small investors desperate for higher returns to fund living expenses or retirement during an era of low interest rates.

                Fears about the consequences of picking the wrong investment have been intensifying ahead of new rules that allow people greater freedom from April to invest their pension pots, rather than forcing them to buy an annuity.

                Investing overseas may bring greater risk, even through companies that seemingly offer the protection of local law. EcoHouse Developments, based in Little Green, Richmond, attracted British investors by guaranteeing their money would be held in escrow in the UK.

                “This should be a wake-up call,” said Renata Sa, a lawyer with firm Brazil Property Lawyers, who says she is representing 400 Singapore and other investors of EcoHouse in two class actions.

                Brazil’s president, Dilma Rousseff (right), poses with a family in an apartment built by the ‘Minha Casa, Minha Vida’ social programme, in Sao Paulo, Brazil in 2013.

                A colourful businessman who sponsored football teams in Brazil and Italy, Mr Armstrong Emery generated a wave of publicity with EcoHouse’s plans to build hundreds of low-cost houses for the poor in Brazil’s northeast.

                In flashy marketing campaigns, the company said it was participating in Brazil’s Minha Casa Minha Vida scheme, in which the government offers low-income earners subsidised loans to buy a low-cost home.

                But as the Financial Times reported in November, EcoHouse’s name does not appear on a government list of participants in the scheme.

                That month, EcoHouse announced it was suspending operations worldwide and putting UK-registered EcoHouse Developments Ltd into administration. Mr Armstrong Emery, who could not be reached by the FT, is believed to have gone to the Middle East.

                EcoHouse blamed the “unexpected intervention” of the Brazilian Federal Police on “malicious, inaccurate and fanciful allegations” by competitors and former landowners.

                The Brazilian police and tax authorities, meanwhile, announced they were investigating the company for alleged money laundering, tax evasion, tax-related crime and criminal conspiracy involving funds totalling 150m reals (£37.2m).

                The matter is being probed by the Fraud and Linked Crime Online Team of the Metropolitan Police in the UK, which is liaising with police in Singapore and Brazil.

                In a statement, the Met did not name EcoHouse but said “enquiries were continuing” into a referral about a “property investment company based in Little Green, Richmond”. While no arrests had been made at this stage, the number of complainants was estimated at 200 with losses totalling £7m.

                EcoHouse offered fixed returns of 20 per cent per year on investments of about £23,000 per unit in projects in the northeast and south of Brazil. These had names such as Arco Iris — or Rainbow, and Bosque das Acacias — Acacia Grove and slogans such as “Invest in Brazil today — the safe way”.

                Ms Sa said she had won freezing orders on behalf of her Singapore clients over Mr Armstrong Emery’s and EcoHouse’s assets in Brazil from a court, the Brazilian Civil Tribunal of Justice of Natal.

                She also has photos she says are of the company’s developments, which show empty or undeveloped plots. EcoHouse could not be reached for comment.

                Another investor, St John Rowntree, said he invested £90,000 in EcoHouse that his late mother, a hard-working immigrant who was born in the then British Guiana (today Guyana), had painstakingly saved as an inheritance for her family.

                He said at the first meeting this month with liquidator Travers & Co, EcoHouse Developments UK director Charles Fraser-Macnamara telephoned Mr Armstrong Emery, who claimed to be somewhere in the Middle East. Mr Rowntree said the entrepreneur had told the meeting he was trying to raise more funds to resurrect the business and that his life was in danger if he returned to Brazil.

                Mr Armstrong Emery refused to stump up any funds for the liquidation, Mr Rowntree said, claiming poverty. Mr Fraser-Macnamara also would not divulge Mr Armstrong Emery’s phone number, Mr Rowntree said. Mr Fraser-Macnamara did not respond to a request for comment.

                Investors said they were looking at all their options, including whether there was scope for a potential suit against UK advisers selling the investments or the escrow agent, or perhaps a payout under the Solicitors’ Compensation Fund.

                Ms Pearce said she only undertook the investment in EcoHouse after consulting with three solicitors, a financial adviser and the manager of her trust account.

                Mr Rowntree said: “None of these investors are fat cats or get-rich-quick people who could afford to buy 10 units and forget about it.”

                Additional reporting by Helen Warrell in London

                Negative yields are everywhere

                Posted on 30 January 2015 by

                I said here last week that I couldn’t imagine not holding some gold in today’s increasingly odd financial environment. It isn’t exactly the first time I’ve said it. But it is the first time I haven’t had much of a response from readers.

                Usually I get a raft of emails telling me how ludicrous it is to suggest as an investment something that you effectively have to pay to hold. Gold pays no dividends or interest and you have to store it somewhere, so changes in its capital value aside, the very act of holding it costs you something every day. That, say those who don’t much fancy gold, is completely ridiculous.

                  The thing is that it doesn’t look quite as ridiculous today as it did even a year ago. The base interest rate in Denmark and in Switzerland is currently negative — you pay to get the central banks to hold your money — and the FT reproduced a chart from JPMorgan this week showing the value of outstanding European government bonds that have a negative yield.

                  Back in June 2014 that number was negligible. Now it is over €1.5tn. And this isn’t just a Europe thing: Japan auctioned bonds with a negative yield for the first time late last year. Let’s have a closer look at this. The words “negative yield” are bandied about in the bond market these days as though they made perfect sense.

                  They don’t. Clearly if we were to use words as they are meant to be used, there would be no such thing as a “negative yield”. But we are in the world of finance here. So let’s have a look at what the words are actually used to mean in this context. Let’s assume first that we are talking about zero-coupon bonds. These don’t pay interest but are issued at one price and redeemed at another.

                  Normally the redemption price is the higher. So you could sell a one year bond at 95.23p and redeem it at 100p, making the effective interest rate (yield) on it about 5 per cent. But if you sold the bond for 101p and redeemed it at 100p you would have created a bond with a negative yield of 1 per cent. Holding it for a year costs investors 1p per bond.

                  Bonds that offer a conventional rate of interest or “coupon” when first offered can also end up with a negative yield. If their price goes higher than their face value (the amount you get back when the bond is repaid) plus the cumulative value of the interest payments still to come, again it costs you actual cash to hold it for its full term. That too is referred to as a negative yield.

                  You will be wondering who on earth would be idiot enough to pay to buy this stuff. Well, Mario Draghi for starters: he was very clear last week that his QE programme doesn’t rule out buying bonds with negative yields. But he clearly isn’t alone in this: think like a trader and buying bonds such as these makes a crazy kind of sense. Why? Because if interest rates go even lower the yields on the bonds will become more negative and the price of the bonds rise even further. You might lose on the interest front but in the short term you could make some capital gains.

                  I can hear your horror. That’s not investing, you say. Ignoring income in the hope of making only capital gains is just gambling on the greater fool theory. You’re right, of course. But while this seemingly insane behaviour is new to the bond market, we have long experience of it in other markets. Remember the dotcom bubble, when everyone bought stocks with no actual income on the basis that the capital gains would more than compensate them for their costs of investing?

                  St George's Wharf, Vauxhall

                  St George’s Wharf, Vauxhall

                  And what of the UK property market? Most buy-to-let investors I meet tell me they expect all their profit to come from capital gains: even with rates this low, it’s hard for the mortgaged to make a real return from their rents. The same goes surely for the foreigners buying up London property at the moment.

                  Let’s say you buy a super smart two-bedroomed flat in “award winning riverside development,” St George’s Wharf in Vauxhall. The best ones, apparently, cost £4m but the more workaday ones will hit you for a mere £2m. The rent seems to be in the region of £5,000 a month, a gross yield of about 3 per cent.

                  But then there are the service charges. Given the “extraordinary level of service” available to residents and provided by “internationally renowned Harrods Estates Asset Management” these don’t come cheap: think £9.25 per square foot in this case, or some £10,000 a year. The yield is now 2.5 per cent. Factor in the occasional void period; council tax; and some renovations (tenants in this kind of property don’t like wear and tear) and you could easily end up paying to own the thing.

                  If I am going to pay to hold something I’d rather it was some portable lumps of yellow stuff than IOUs from a modern government — or a identikit flat in an area which was once best known for its ugly and dangerous gyratory

                  – Merryn Somerset Webb

                  Have a mortgage and you definitely will. If you treat the flat as a safety deposit box and never rent it out, you will incur a minimum negative yield of 0.5 per cent — the service charge as a percentage of the value of the flat. That’s rather worse than the yield on Swiss or German bonds, but much the same price as a bank currently pays to hold money at the Danish National Bank.

                  The point here is that paying to hold an asset in the hope that it will either keep most of your capital safe or offer you a greater fool gain is a perfectly well established investment strategy in today’s very odd investing environment. But if I am going to pay to hold something I’d rather it was some portable lumps of yellow stuff than IOUs from a modern government — or a identikit flat in an area which was once best known for its ugly and dangerous gyratory, but which has recently been rebranded as “prime central London”.

                  Merryn Somerset Webb is editor-in-chief of MoneyWeek. The views expressed are personal. merryn@ft.com. Twitter: @MerrynSW

                  UK banks: painful, persistent, interminable

                  Posted on 30 January 2015 by

                  It takes something special to prompt sympathy for the UK’s banks. And yet the weeping sore that is payment protection insurance comes close. PPI policies, sold as an add-on to loans, were lucrative for the banks. Between 1990 and 2010, £44bn of policies were sold. Or perhaps mis-sold, as it turns out. For the past four years the banks have been paying compensation to people who should not have bought the policies in the first place. They have paid more than £17bn since 2011.

                  And so they should. If the industry is to win back any sort of confidence from the public (and heaven knows it needs to), then it has to repay those who have been wronged. In any case, PPI claims have been an economic stimulus. With an average claim size just over £1,500, PPI has been credited with helping new car sales, which have been growing for three years.

                    But now a regulator, the Financial Conduct Authority, plans to examine how the complaints process is working. It is even talking vaguely about setting a time limit. That will be music to the ears not just of bank executives, but also the wider UK public who are assailed daily by marketing calls from companies that manage PPI claims.

                    There is a delicate balance to be struck here between principle and pragmatism. Anyone who was mis-sold should be compensated. And the banks have been doing so. But every penny that is paid out is a penny that cannot be used to back new lending. Around £22bn has been set aside in total so far. To put that in context, Santander UK, the UK’s fifth largest bank, has shareholder funds of £14bn. Regulators are pushing banks to hold more capital. PPI claims are pushing capital in the opposite direction.

                    There cannot be a person in the UK who does not know that it is possible to claim for mis-sold PPI. Setting a final date for claims would allow the laggards to get their forms in, while giving the banks certainty about when it will all end. It is time for a time limit.

                    Email the Lex team at lex@ft.com