Currencies

Nomura rounds up markets’ biggest misses in 2016

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

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Property

Spanish construction rebuilds after market collapse

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

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Currencies

Euro suffers worst month against the pound since financial crisis

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

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Banks

RBS falls 2% after failing BoE stress test

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

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Currencies

China capital curbs reflect buyer’s remorse over market reforms

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

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Archive | November, 2016

Greek crisis presents buying opportunity

Posted on 30 June 2015 by

epa04825200 People walk past a graffiti reading 'Nol' in central Athens, Greece, 30 June 2015. European leaders have made a last-minute offer to Greek Prime Minister Alexis Tsipras in a bid to solve his country's bailout crisis, which has reached fever pitch after Tsipras on 26 June unexpectedly called for a referendum on the terms of a bailout deal, putting an abrupt end to the aid negotiations and leading to a cap on Greek emergency bank loans and forcing Athens into capital controls. Greek voters will decide in a referendum whether their government should accept an economic reform package put forth by Greece's creditors. EPA/SIMELA PANTZARTZI©EPA

People walk past a graffiti reading No in central Athens

Fund managers said the crisis in Greece may present a buying opportunity, especially for European equities which are expected to gain over the longer term from the region’s stimulus programme.

The MSCI Europe index is down 3.6 per cent from a week ago after Greece called a referendum on a new bailout proposal from its creditors and imposed capital controls, resulting in the closure of the country’s banks. This has raised the prospect of a Greek default and exit from the euro.

    As markets initially fell, Premier Asset Management’s multi-asset team used cash and fund inflows to keep its existing positions at the same level, effectively topping up markets that had fallen, such as Europe.

    Schroders’ multi-manager funds hold above-index positions in European equities, and may deploy cash — which they hold in place of bonds — to top up some positions, according to Marcus Brookes, who heads the team.

    “Our views on Europe are still positive. Our hope is that we may be able to add some more exposure to the funds at lower levels — after all, the Euro Stoxx [index] is still up 10 per cent in the year to date,” he said.

    Dean Turner, economist at UBS Wealth Management, said the European Central Bank, whose asset purchase programme has already buoyed markets in the region, would act to limit contagion if Greece leaves the single currency.

    “We believe remaining invested in eurozone equities will prove the correct path over a six-month investment horizon,” he said.

    By contrast, the multi-asset team at Old Mutual Global Investors reduced its European equities holdings to a market-neutral position on Monday “for risk management reasons”, said John Ventre, head of multi-asset funds.

    “We will be looking to re-enter once we have we have greater certainty as to the road map from here, one way or the other,” he said.

    Most UK investors have little direct exposure to Greece.

    Danny Cox, chartered financial planner at Hargreaves Lansdown, said investors in their £125m Multi-Manager European fund hold about £35,000 in Greek equities, or less than 0.03 per cent of the fund.

    Artemis’s European Opportunities fund holds no Greek stocks.

    Martin Wolf

    The difficult choices facing the Greeks

    The Greek flag is framed by the arch of Hadrian atop the Acropolis hill in Athens, Greece June 26, 2015. The leaders of Germany and France offered to release billions in frozen aid on Friday in a last-minute push to talk Greek Prime Minister Alexis Tsipras into contentious pension reforms in exchange for filling Athens' empty coffers until November. REUTERS/Yannis Behrakis

    If I were a voter, I would bemoan my government’s leftism and the eurozone’s self-righteousness

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    Darius McDermott, managing director at Chelsea Financial Services, said most fund managers made changes to portfolios about two weeks ago as negotiations between Greece and its international creditors faltered. “We knew this was going to be a close thing,” he said.

    Justin Oliver, deputy chief investment officer at Canaccord Genuity Wealth Management, said his team trimmed positions in European equities, technology and energy to reach a 5 per cent cash position in balanced portfolios two weeks ago.

    Like many investors, Canaccord hedges its exposure to the euro, whose fall against sterling has accelerated since the start of the year.

    Mr McDermott said self-directed investors should resist panic moves in response to Greece’s troubles.

    “Markets could fall again next week — no one knows. But the knee-jerk reaction is usually wrong. Remember what you are investing for and over what time horizon, and try and ride the volatility out if you can,” he said.

    “What we do support is topping up on weakness — it’s much easier to do.”

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    Santander unveils ringfenced UK arm

    Posted on 30 June 2015 by

    ©Bloomberg

    Santander UK has outlined clear plans to meet new ringfencing rules, appointing heads of the carved-out retail and corporate divisions that it intends to create by September.

    The UK bank will split into a retail arm for personal and small business customers, and a corporate bank for institutional clients and its markets business, according to an internal memo seen by the Financial Times.

      The details of the UK overhaul were outlined to staff on Tuesday as the bank’s Spanish parent launched another sweeping management reshuffle across the broader group.

      In the UK, Javier San Felix, global head of retail across the group, will move to London to become head of the ringfenced retail bank. Steve Pateman, head of UK banking, will run the non-ringfenced bank.

      “This will also prepare us, over time, to conform with the new regulatory regime under the Banking Reform Act,” said Nathan Bostock, chief executive of Santander UK, who will lead the holding company that will straddle both businesses.

      He said Santander UK would start to operate under the new structure “more fully” from the end of September.

      However, he warned that the “detailed structure” would take “quite some time” to establish, although it is expected to be fully implemented by January 2018 — one year ahead of the deadline.

      At the same time, Santander announced in Madrid that Ignacio Benjumea would leave his executive role as general secretary and become an external board director, while Juan Rodriguez Inciarte had resigned from the board for personal reasons.

      New appointments included Rami Aboukhair as the country head for the group’s Spanish division, and the elevation of Jaime Pérez Renovales to group secretary and secretary of the board.

      “These changes complete the management team which José Antonio Álvarez and I began restructuring in 2014,” said Ana Botín, Santander’s executive chairman. “We must simplify and make our organisation more competitive.”

      This will also prepare us, over time, to conform with the new regulatory regime under the Banking Reform Act

      – Nathan Bostock, chief executive of Santander UK

      The changes mark the third shake-up since Ms Botín took over from her late father last year.

      Mr Álvarez was appointed Santander’s chief executive just two months after Ms Botín became chairman. She has since reshuffled both the board and senior management, appointed a string of new country bosses, while pushing through a capital increase and cutting Santander’s dividend.

      A number of other senior executives have also resigned from their roles in the past few weeks, including Luis Moreno as head of private banking, and José María Espí, director of internal control and risk assessment.

      British banks are divided over ringfencing law, which forces them to shift their retail operations into subsidiaries separate from riskier activities, such as investment banking, by 2019.

      Banks with global, diversified models with more business sitting outside the ringfence are more likely to be disrupted and face higher costs than UK-facing retail banks, according to experts.

      £1m home sales reach ‘high-water mark’

      Posted on 30 June 2015 by

      A long row of Victorian townhouses in West Hampstead, London.©iStock

      Britain’s property market boom pushed sales of the most expensive homes to a record level last year but early indications are that this may prove a peak.

      The number of homes worth more than £1m changing hands hit a record high in 2014, according to figures released by HM Revenue & Customs on Tuesday.

        Some 19,000 properties worth more than £1m were sold in 2014 — up from 15,000 the previous year and for the first time topping the 16,000 sales level reached in 2007.

        In all, £303bn of housing changed hands in 2014, up 19 per cent year on year; homes worth more than £1m made up 14 per cent of the total value. House prices across Britain rose by 8.2 per cent in 2014.

        Lucian Cook, director of residential research at property adviser Savills, said the 2014 figures marked “the high-water mark” for Britain’s luxury housing market.

        Chancellor George Osborne’s radical stamp duty reform announced in December has subsequently damped sales. Transaction volumes in the first five months of 2015 across the market are lower than they were at the same time the previous year but agents say the slowdown has hit the top end of the London market especially hard.

        In a surprise move Mr Osborne shifted stamp duty — a tax paid by the buyer of a property — from a flat-rate structure to a sliding scale in last year’s Autumn Statement.

        In depth

        UK housing market

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        The change means that buyers of homes worth under £937,000 now pay less tax than previously, but people buying more expensive homes face a considerably higher tax bill — up to 12 per cent of the purchase price.

        “December’s stamp duty increases left high-value residential property looking fully taxed,” Mr Cook said. “Buyers are now thinking hard before committing, particularly at the top end of the market, and there is a real gap in price expectations between buyers and sellers in parts of the market which could hold back a recovery in transaction levels.”

        At the time the reform was introduced estate agents predicted that it would “clobber” the top end of London’s luxury housing market, which has boomed in recent years.

        The Office for Budget Responsibility scaled back its forecasts for the revenue that stamp duty will raise in coming years as a result of the reform, citing “lower than forecast transaction volumes” as a key reason.

        A slowdown at the top end of the market “could have a significant impact on [tax] receipts”, the OBR warned at the time.

        Over the past couple of years Mr Osborne has also raised taxes on foreign homeowners, another policy that has contributed to the market slowdown according to estate agents.

        The government’s introduction of tighter lending rules in the Mortgage Market Review last spring may also have been a factor, Mr Cook added.

        Greek pension funds ration payouts

        Posted on 30 June 2015 by

        A protester bears on her wrist the ''NO'' slogan in reference to the forthcoming referendum on bailout conditions set by the country's creditors, during a demonstration in front of the Greek parliament in Athens on June 29, 2015. Greece shut its banks and the stock market and imposed capital controls after creditors at the weekend refused to extend the country's bailout past the June 30 deadline, prompting anxious citizens to empty ATMs. AFP PHOTO / ARIS MESSINIS (Photo credit should read ARIS MESSINIS/AFP/Getty Images)©AFP

        Greek banks struggled on Tuesday to arrange payments to hundreds of thousands of cash-strapped pensioners amid mounting fears that capital controls imposed this week may not be sufficient to prevent a financial meltdown.

        Queues lengthened at ATMs outside closed bank branches across the country. Many cash machines dispensed only €50 even though the daily limit is €60 because of a growing shortage of €20 banknotes.

          As the atmosphere turned increasingly anxious, Louka Katselli, governor of National Bank of Greece, the main channel for paying pensions, denied reports that its ATMs were no longer being replenished.

          “We have plenty of funds, no matter what people say, and we’ll do our best to look after all our customers in spite of these difficult conditions,” Ms Katselli told the FT.

          But many pensioners were growing frustrated over successive announcements cutting the amounts they would be allowed to withdraw. On Sunday the finance ministry said pensioners could take their full payments before capping that on Monday at €240 and then, a day later, halving it to €120.

          Angry pensioners protested outside the offices of OAEE, the state pension fund for self-employed workers, which was unable to transfer funds to retirees’ bank accounts overnight.

          Tasos Petropoulos, OAEE’s director, said the fund’s 350,000 pensioners would receive half the monthly amount due by the end of the day and the remainder next week, provided the lossmaking fund can raise another €130m in the interim.

          The finance ministry said 850 bank branches would open on Wednesday where pensioners would be the only customers. The ministry website then crashed as pensioners tried to log on to find the nearest cash machine.

          Several other state pension funds, among them TAP-OTE, the main telecoms operator’s fund, and OGA, which covers more than 1m Greek farmers, said they were delaying disbursements normally made at the end of the month.

          Meeting a monthly pensions and wages bill for public sector workers has become an increasingly fraught exercise for Greece’s cash-strapped government.

          Even as the government withheld recent payments from the International Monetary Fund — and was on Tuesday poised for a full-fledged default to the Fund — it has worked diligently to pay its own workers by raiding any and all stores of public cash.

          The government had claimed at the weekend that pensions would be paid as usual on June 30 after it raised an extra €300m from pension funds with excess resources.

          FT Explainers

          The Greek Crisis

          Greece debt crisis

          Why is the euro resilient?


          ‘Grexit’ will not necessarily undermine the single currency project

          Greece’s IMF payment: When is a default not a default?


          Ten things to know as the clock ticks towards potential default

          What happens if Greece leaves the euro
          ?
          Failure of bailout talks raises fears but would Grexit be so bad?

          Greece imposed capital controls on Monday to prevent a bank run as tax revenues dried up and talks with creditors on a bailout extension collapsed. But with droves of citizens lining up to withdraw funds, and ATMs running dry, depositors are increasingly worried that the banks may run out of cash in a matter of days.

          Haris Theoharis, formerly the head of Greece’s independent revenue collection office, said the government was preparing to issue IOUs next month to pay more than 600,000 public sector workers as a first step towards readopting the drachma.

          He said a team from the national accounts office at the finance ministry was working on a “drachma plan” at the office of prime minister Alexis Tsipras.

          “The first stage is to replace euros with IOUs that could be sold at a discount, for example, and used to pay taxes,” Mr Theoharis told the FT. “It would take several months to implement the return of the drachma.”

          A government spokesman denied the existence of such a team.

          Standing in one of the many queues outside an Athens ATM, John, a 73-year-old pensioner, who declined to give his surname, said that those advocating a return to the drachma by rejecting the bailout proposal had no idea of the dangers.

          “Young people say No because they have not suffered. I remember the hell after World War Two with the drachma,” he said, standing in a queue outside a bank waiting to withdraw his pension.

          “Despite what they say, we are used to a quality of life now, and we cannot go back to what our life was like in the 1950s,” he said. “It would be terrible to go back.”

          Additional reporting by Henry Foy

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          Grainger changes chief as activist circles

          Posted on 30 June 2015 by

          The UK’s largest publicly listed residential landlord has appointed a new chief executive as it faces down a threat from an activist hedge fund.

          Crystal Amber, a Guernsey-based fund, disclosed last week that it has built a 3 per cent stake in Grainger, which manages about 20,000 properties in the UK and Germany.

            Two-thirds of Grainger’s £2bn housing portfolio consists of homes with rent-controlled regulated tenancies, which it can sell as the properties become vacant.

            Crystal Amber, which has a record of agitating for change at companies it regards as underperforming, is reported to be pushing Grainger to offload these homes more quickly and realise up to £500m in the process.

            On Tuesday, Grainger named Helen Gordon as its new chief executive from January next year, replacing Andrew Cunningham, who will step down in February after 20 years at the company — seven of them as chief executive.

            Grainger said the timing of the announcement was coincidental.

            The change marks the third major leadership change in four months for Grainger: in February, chairman Robin Broadhurst stepped down and was replaced by Ian Coull, who then resigned the following month due to ill health. Longstanding senior independent director Baroness Ford stepped into the role.

            Mike Prew, an analyst at Jefferies, said the long handover timetable and short overlap between Mr Cunningham and Ms Gordon meant that Grainger now faces “a period of vulnerability”.

            “Crystal Amber has parked its tanks on the Grainger lawn and Grainger is under pressure,” he said. “It is a very collegiate business, well-run, and Andrew Cunningham is highly regarded but the handover period is much too short.”

            Crystal Amber is run by Richard Bernstein and also holds a stake in film studio group Pinewood; it recently sold out of chocolatier Thorntons when it was taken over by rival Ferrero.

            Ms Gordon joins Grainger from Royal Bank of Scotland, where she is global head of real estate asset management. She has overseen the bank’s wind-down of its book of distressed property assets.

            Before that she was the property director of Legal & General Investment Management’s £4.5bn Life Fund.

            Baroness Ford said that Ms Gordon was “a recognised authority on the residential sector”. “Over the next period Grainger’s focus is on simplification of our business and accelerated execution of our private rented sector strategy,” she said.

            In particular, Grainger is selling off rent-controlled properties and developing new properties for rent at market rates. It also plans to build 2,000 homes for rent at market rates in the next two years.

            Some market analysts argue that Crystal Amber’s plan to speed up Grainger’s sell-off of rent-controlled homes would not bring as great a financial reward as the fund says.

            Efforts grow to ease Greece contagion fear

            Posted on 30 June 2015 by

            TOPSHOTS Carrying banners calling for a "NO" vote in the forthcoming referendum on bailout conditions set by the country's creditors, protesters gather in front of the Greek parliament in Athens, on june 29, 2015. Some 17,000 people took to the streets of Athens and Thessalonique to say 'No' to the latest offer of a bailout deal Monday, accusing Greece's international creditors of blackmail. AFP PHOTO / LOUISA GOULIAMAKILOUISA GOULIAMAKI/AFP/Getty Images©AFP

            17,000 people took to the streets of Athens and Thessalonika calling for a No vote in this weekend’s referendum

            Central and eastern European regulators have sought to allay fears of contagion spreading from Greece to neighbouring countries where struggling Greek banks have significant market share.

            Some analysts have warned a Greek bank collapse could cause a depositor panic and possibly a liquidity crisis in some lenders in southeast Europe, where Greek banks have a strong presence. There is also uncertainty over how assets held by Greek banks in non-EU countries would be dealt with in the event of a collapse of the parent.

              The worries helped to push Bulgarian borrowing rate to their highest point of the year on Monday, with the yield on the 2024 bond hitting 3.27 per cent.

              Bulgaria’s central bank insisted in a statement on Tuesday that its banks were well-capitalised and that events in Athens “cannot in any way affect the normal functioning and stability of the Bulgarian bank system”. Bulgarian bonds rallied on Tuesday, sending the yield, which move inversely to prices, down to 3.12 per cent

              Serbia’s central bank said it had increased supervision of local units of Greek banks temporarily, limiting transactions they can conduct with their parents. The central bank in Macedonia, meanwhile, has instructed banks under its control to withdraw deposits in Greece and banned the country’s residents from investing in Greek securities for six months.

              Greek banking assets account for between 12 and 21 per cent of the sector in southeastern European countries, although exposure has reduced significantly. Greek bank market share in Albania, for instance, has shrunk to 16 per cent from 28 per cent in 2008. Greece’s Alpha bank has operations in Bulgaria, Romania and Serbia while Piraeus Bank operates in Macedonia.

              Jonathan Charles, director of communications at the European Bank for Reconstruction and Development, which has taken steps to strengthen southeast Europe’s banks in recent years, said Greek banks’ subsidiaries in the region were “well-capitalised and liquid”.

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              National authorities also emphasised that most Greek-owned banks are legally constituted as subsidiaries and not branches, meaning capital cannot be repatriated to Greek parent banks. There were no reports of queues at cash machines in the region.

              Officials said any sale or liquidation process of Greek-owned subsidiaries would be managed in line with rules to prevent sudden capital outflows and in co-ordination with EU banking regulators.

              In depth

              Greece debt crisis

              Greece debt crisis

              The Syriza government faces resistance to its plans to tackle the country’s massive debt burden

              Read more

              “Leaving the Serbian market overnight . . . is not a possibility [for Greek lenders] because these banks have been founded as subsidiaries within our legal system,” Jorgovanka Tabaković, governor of the National Bank of Serbia, said in an email.

              “This enables the NBS to act pre-emptively, should the need arise, in order to prevent a potential spillover of the negative effects to our banking sector.”

              The EBRD provided financing of more than €630m to foreign subsidiaries to strengthen them in 2010. Very little of that was now outstanding, said one EBRD official said.

              “People have got used to the idea over the past few years that these banks may have Greek names and parents, but that they are separate businesses. Local authorities have been hammering that home too,” said the official.

              Greek bond prices enter default territory

              Posted on 30 June 2015 by

              The shadow of a protestor waving the Greek national flag is seen through a European Union (EU) flag, during a pro European Union (EU) demonstration in Thessaloniki, Greece, on Monday, June 22, 2015. After a day of talks on Monday, leaders from Greece’s 18 fellow euro-zone countries agreed that Greek Prime Minister Alexis Tsipras’s government was finally getting serious after it submitted a set of reform measures that began to converge with the terms demanded by creditors. Photographer: Konstantinos Tsakalidis/Bloomberg©Bloomberg

              Prices for benchmark Greek debt were already pricing in a default — or arrears — as electronic trading of the country’s government bonds was halted.

              Non-regulated, over-the-counter trading of bonds remains possible and one banker in Europe said he had seen a small number of Greek bond sales on Monday. However, a number of electronic bond platforms have suspended fixed-income trading as the Athens stock exchange and the country’s banks remain closed ahead of a July 5 referendum on new bailout terms offered by the country’s creditors.

                The cessation of electronic based debt trading comes with 10-year Greek sovereign paper indicated at a price around 43 cents in the euro, valued at a level considered a precursor to default. The benchmark was quoted around a price of 57 cents on the euro last Friday.

                Greece missed payment of €1.6bn to the International Monetary Fund on Tuesday, becoming the first developed country to default to the fund. However credit rating agency S&P said it would not declare the country in default until it missed a payment on commercial obligations.

                Private investors hold more than €46bn of Greek paper, representing 15 per cent of the country’s debt, according to research by Citi, including €4.5bn issued to wide acclaim last year when Greece was thought to have escaped the crisis that nearly shattered its economy.

                Among the buyers of the debt were Invesco, Legal & General Investment Management and BlackRock. Although Invesco went on to sell most of the bonds it had bought, portfolio manager Nick Wall later said that the election of the left-wing Syriza party in January was a buying opportunity. The fund houses have not confirmed whether they still hold Greek bonds.

                A small volume is also owed to investors who refused to take part in the 2012 bailout, including Yen-denominated debt sold in 1995 and due for repayment on July 14.

                Prices for Greek debt had proven resilient to the deepening crisis earlier this year, with investors hopeful that either a solution between the country and its creditors would be found, or that their relatively small share of the overall debt would be spared swingeing losses.

                Now they are facing up to reality, said David Benamou at Axiom Alternative Investments, which has a small position in Greek covered bonds. “Markets may have shrugged off the idea of debilitating contagion but that doesn’t mean it can’t happen.”

                In depth

                Greece debt crisis

                Greece debt crisis

                The Syriza government is facing resistance to its plans to tackle the country’s massive debt burden

                Read more

                Regulators across Europe moved at the start of the week to prevent a wholesale sell-off of Greek assets by suspending electronic trading and short selling.

                “Suspensions of this scale are very rare,” said Reemt Seibel for European financial watchdog, the European Securities and Markets Authority. “There were bans in the wake of September 11 and during the global financial crisis, but this is one of the broadest.”

                In the UK, the Financial Conduct Authority notified electronic marketplaces including Tradeweb that the ban would remain in place until Greece’s July 5 referendum on new bailout terms offered by the country’s creditors.

                Luxembourg has suspended trading in the Greek sovereign bonds as well as those of National Bank of Greece, Alphabank, Eurobank, Piraeus Bank, Eurobank, the Hellenic Railways Organisation.

                MTS, London Stock Exchange’s electronic bond trading platform, said it had ceased trading in Greek sovereign debt voluntarily before markets opened on Monday.

                “Following events in Greece and confirmation this morning from the Bank of Greece that all new transactions against payment will not be settled until further notice we have now suspended all Greek bonds . . .” said MTS in a statement.

                Additional reporting by Joel Lewin

                Greek heat dries up new stock sales in EU

                Posted on 30 June 2015 by

                Protesters shout slogans during a demonstration in front of the Greek parliament in Athens on June 29, 2015. Greece shut its banks and the stock market and imposed capital controls after creditors at the weekend refused to extend the country's bailout past the June 30 deadline, prompting anxious citizens to empty ATMs. AFP PHOTO / ARIS MESSINIS (Photo credit should read ARIS MESSINIS/AFP/Getty Images)©AFP

                Greeks protest in front of their parliament at the closure of banks and the stock market and the imposition of capital controls

                New bond and equity sales have dried up in Europe as companies and financial institutions await a resolution of the Greek crisis before bringing fresh stock to market.

                Sudden freezes in European capital market activity — which Brussels views as crucial for economic growth prospects across the continent — have become an increasingly common phenomenon of late, testing the patience of investors and companies.

                  Signs of economic recovery and continued loose monetary policy in Europe make conditions ripe for new bond and equity issuance. Bond markets have been active this year, with European and US companies flocking to take advantage of low borrowing costs.

                  However, market uncertainty stemming from Greece and other factors has frequently arisen, unsettling the supportive issuance narrative. And this only reinforces how European primary capital markets are locked into a kind of stop-start syndrome — an issue observed less often on the other side of the Atlantic, where capital markets play a much larger role in the flow of credit.

                  “Given the market backdrop, issuers cannot execute their deals at the moment,” says Peter Mason, head of financial institutions debt capital markets at Barclays. “We’re all largely on the sidelines for this week.”

                  There have been only $335m of euro-denominated corporate bonds issued so far this week, according to data from Dealogic, compared with an average of $1.2bn a day last week.

                  The call for a referendum last week by Greek prime minister Alexis Tsipras prompted widespread volatility in secondary debt markets, and the latest freezing-up of primary issuance. That comes after a halt in activity during May, when banks stopped issuing new debt in euros after a widespread bond sell-off spooked markets. Earlier in June, Greek negotiations and concerns over secondary market liquidity led to a backlog of deals.

                  “We are coming to an abrupt hold,” says Armin Peter, global head of debt syndicate at UBS. “We had seen some low level of issuance activity last week and it seemed to have some impact on the dollar market as the Greek story became a global discussion point. Now, after this weekend in Europe we are holding any project until we have clarity.”

                  The current nervousness has extended to equity issuance: German real estate company Ado Properties on Monday postponed an initial public offering indefinitely due to market volatility and the German state-owned PBB (Pfandbriefbank) pulled its prospectus.

                  When it comes to fixed income markets, the impact of an ill-received deal on an issuer’s reputation is contributing to the slowdown in new bonds.

                  “European financial institutions don’t want to do a poor capital-raising transaction and thereby want to protect their ‘issuing brand’, especially in their home currencies,” says Mr Mason.

                  But the sudden slowdown, like others over recent months, is unlikely to continue throughout the summer. Greece is only a barrier to getting deals done in the short term, says Sarwat Faruqui, a managing director of fixed income syndicate at Citigroup.

                  “Yes there will be uncertainty, neither investors nor issuers will be wanting to test the market too early, but once we’re the other side of the referendum then markets will find their level and it should not prevent a functioning capital market,” he says. “At the moment we’re a little bit in limbo.”

                  The long-term picture remains cloudy. Since the eurozone sovereign debt crisis in 2011, Europe has been accused of consistently delaying its own recovery by failing to negotiate a lasting solution to Greece’s problems. There is increasing optimism, however, that conditions are starting to improve and that the Greek referendum will provide capital markets with a much needed dose of certainty, whatever the outcome.

                  Moreover, in the absence of Greek disruption, there have been recent signs of improved sentiment. Last week, the issuance of two aggressively priced convertible bonds, which offer equity-like upside to investors, was viewed as a potential harbinger of a broader rotation into equities — a long-awaited signal of European recovery.

                  And amid the general drought, there are still some signs of life this week. Italy’s Banca Sistema priced a €146m IPO on Monday, which will launch in July, and the French management consultancy Capgemini placed a €2.75bn bond to complete its acquisition of the IT services company iGate.

                  But as the current freezing of issuance demonstrates, Greece continues to be a thorn in the side of European capital markets, even if contagion is now “manageable”. The extent of economic optimism, and its impact on markets, will only become clear once that thorn has been removed.

                  “It’s too early to say what direction we’re heading from here. But we’re in a very different position from the stress that the market was under a few years ago,” says Ms Faruqui. “And that is encouraging for business as near usual as possible.”

                  The difficult choices facing the Greeks

                  Posted on 30 June 2015 by

                  The Greek flag is framed by the arch of Hadrian atop the Acropolis hill in Athens, Greece June 26, 2015. The leaders of Germany and France offered to release billions in frozen aid on Friday in a last-minute push to talk Greek Prime Minister Alexis Tsipras into contentious pension reforms in exchange for filling Athens' empty coffers until November. REUTERS/Yannis Behrakis©Reuters

                  How would I vote in the referendum on the eurozone’s economic programme if I were Greek? The answer, alas, is that I am unsure. If I believed Greece could make a success of going it alone, I would surely vote against the programme. But I could not be certain: if Greece could use monetary sovereignty wisely, it would not be in its current state. If I voted in favour of the programme, I would not know whether it was still on offer: the eurozone says it is not, but it might be bluffing. What I would know is that, if Greece voted Yes, it might face years of retrenchment and depression. But that might still be better than post-exit chaos.

                  I would also surely wonder whether there might be middle ground. Thus some argue that it would be possible to stay inside the eurozone even if the government were in default. This might also justify a No vote.

                    In making my decision, I would bemoan both the idiotic leftism of my own government and the self-righteousness of the rest of the eurozone. Nobody comes out of this saga with credit.

                    The Syriza government has failed to put forward a credible programme of reform that might solve the multiple problems of the Greek economy and polity. It has instead made populist gestures. It is, in brief, a dreadful government produced by desperate times.

                    Yet the eurozone, too, deserves substantial blame for the outcome. One would never guess from its rhetoric that Germany was a serial defaulter in the 20th century. Moreover, there is no democracy, including the UK, whose politics would survive such a huge depression unscathed. Remember, when Germany last suffered a depression of this magnitude, Hitler came to power. Yes, Syriza is the outcome of infantile and irresponsible Greek politics. But it is also the result of blunders committed by the creditors since 2010 and, above all, insistence on bailing out Greece’s foolish private creditors at the expense of the Greek people.

                    Yet all these mistakes are now sunk costs. Greeks must look to the future.

                    Even this perspective does not help as much as one would like. The bailout extension did not offer a plausible exit into recovery: it left too big a debt overhang and, more important, demanded too much short-term austerity. Given the recent backsliding, it seems to demand a move from a primary fiscal balance (before interest) of close to zero this year to a surplus of 3.5 per cent of gross domestic product by 2018. Achieving this outcome might demand fiscal measures that would raise the equivalent of 7 per cent of GDP and shrink the economy by 10 per cent

                    One does not put an overweight patient on a starvation diet just after a heart attack. Greece needs growth. Indeed, the economic collapse explains why its public debt has exploded relative to GDP. The programme should have eliminated further austerity until growth was established, focused on growth-promoting reforms, and promised debt relief on completion. If the programme on offer was so bad, should I risk voting No? In deciding that I would need to think through what would happen. The short-term position would be clear. The European Central Bank has curtailed emergency support for the Greek banks, forcing tight limits on withdrawals. Some argue this is a huge error. Others believe it is an incentive for voters to vote Yes.

                    If the Greeks voted Yes, the curtailing of ECB support might be reversed. But it is hard to imagine a successful revival of the eurozone’s programme if the present government were still in charge. After campaigning for a No, the latter would surely have lost all the confidence of the creditors. So a new government would have to emerge. It would then also have to sign on the dotted line.

                    In depth

                    Greece debt crisis

                    Greece debt crisis

                    The Syriza government is facing resistance to its plans to tackle the country’s massive debt burden

                    Read more

                    A Yes vote then would offer an unpleasant and uncertain, but at least imaginable future. Now imagine a No vote. There would then be two conceivable outcomes. One would be a true exit. The Greek government would introduce a new currency and convert all contracts under Greek law into it. The new currency would surely then collapse in value relative to the euro. How much it would fall would depend on the policies and institutions (particularly the governance of the central bank) established by the government.

                    One might reasonably fear the worst. Some even argue that Greece would remain “euroised”. If so, the collapse in the external value of the new currency might offer little gain in competitiveness. Personally, I would be more optimistic: the improvements in competitiveness might well be large.

                    The second outcome would be to stay in the eurozone, despite an insolvent government. This is logically possible. The banking system could be recapitalised by converting uninsured bank liabilities into equity. This looks technically feasible. But it would impose a large negative shock on private wealth.

                    Whether the ECB would then restart emergency lending and on what scale would become the big questions. This looks an unattractive option to me: it would present all the problems of being part of a currency union, with the additional disadvantages of a comprehensive government default. Better than that surely would be to vote Yes.

                    So I, as a Greek voter, face a choice between the devil and the deep blue sea. The devil is familiar: the never-ending demands of the eurozone for further austerity against which my people voted in the last general election. The deep blue sea is sovereign default and monetary sovereignty. If I am Prime Minister Alexis Tsipras, I think there is a third way — endless bailouts and few conditions. But I am sure he is deluded. So which would I choose? Being cautious I would be tempted to stick with the devil I know. but I might well do better to risk the sea.

                    martin.wolf@ft.com

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                    Banks return to riskier lending

                    Posted on 30 June 2015 by

                    Credit cards©Bloomberg

                    Interest-only mortgages are staging a comeback and zero per cent credit card deals are getting more competitive as banks return to riskier areas of lending in search of higher returns.

                    Such is the growth of complex credit card deals with “teaser” rates that regulators are beginning to to a closer look at the sector, mindful of the scandals of recent years such as the mis-selling of payment protection insurance.

                      The Financial Conduct Authority is undertaking a review of the credit card market amid concerns that customers do not understand zero per cent offers for transferring balances, which revert to much higher annual percentage rates.

                      The review, which is expected to conclude in the next few months, comes as a number of high street banks are launching enticing credit card and mortgage offers and considering interest-only loans in attempt to win market share and boost revenues.

                      Zero per cent balance transfer credit cards attract customers to shift their debts by offering lower rates. As competition in the market heats up, more banks are offering such deals over longer periods. The average balance transfer term on credit cards has more than doubled from 352 days three years ago to 527 days now, according to consumer site Moneyfacts.

                      “The balance transfer market is highly competitive with lenders battling it out to be the top of the best buys,” said Charlotte Nelson of Moneyfacts. “There is greater choice in the credit card market than there as ever been.” There are also “credit impaired” products coming available for those with a poor credit history.

                      But concern is mounting customers will not understand the complicated fee structures on these credit cards and many end up paying high annual percentage rates as a result.

                      Justin Bisseker, an analyst at Schroders, said zero per cent balance transfer cards entail an “implicit subsidy from one customer group to another”, which is “not a good place to be in terms of future mis-selling risk.”

                      4.59%

                      Average rate on a 95 per cent loan-to-value mortgage deal

                      Some banks have pulled out of the sector over potential mis-selling concerns. Ross McEwan, chief executive of Royal Bank of Scotland, said last year the bank is “not competing with those who offer zero per cent balance transfers on credit cards that trap over 60 per cent of your customers in spirals of ever increasing debt”.

                      However, challenger banks such as TSB and Virgin Money are targeting this sector to grow this business and achieve scale to compete with established lenders.

                      A recent report by Standard & Poor’s, the credit rating agency, said there was “strong growth in consumer credit, which is now at pre-crisis levels”. Analysts added: “We expect mortgages and consumer finance to lead net lending gains again in 2015, with approximately 2 per cent industry-wide growth in mortgage balances and 8 per cent growth in consumer credit.”

                      Mortgage providers are also engaging in a “rate war” to win customers, grab market share and boost revenues. “Lenders working hard on retaining customers and the rate war that has ensued is focused on saying ‘come to us’,” said David Hollingworth of mortgage broker London and Country. “If you can’t loosen criteria, then price is main lever.”

                      But a greater number of risky mortgages, with higher loan-to-value rations, are emerging. There are now 195 mortgages requiring a 5 per cent deposit, up from 63 products three years ago, according to Moneyfacts. The average rate on a 95 per cent loan-to-value deal has dropped to 4.59 per cent from 5.79 per cent three years ago.

                      Brian Murphy, head of lending at Mortgage Advice Bureau said that the average borrower is taking out a “bigger loan than at any point since the recession”.

                      In depth

                      UK housing market

                      For sale signs uk

                      Price indices have presented wildly contrasting pictures of the health of the housing market.
                      Further reading

                      Interest-only came under criticism from the regulator a few years ago when Martin Wheatley, chief executive of the FCA, described them as a “ticking time-bomb” with pensioners still owing on their mortgages as they reached retirement.

                      However, these mortgages — where borrowers make pay monthly interest and return the loan at the end of the term — are making a comeback.

                      Ray Boulger, a mortgage expert at broker John Charcol, said: “Over the next couple of years, we will see some relaxation of interest-only mortgages.” He said these products, if issued wisely, will be useful for older borrowers who have substantial equity in property and the ability to repay a large loan but might be refused a standard 25-year mortgage.

                      Santander is planning to launch interest-only mortgages for existing older borrowers next year. A spokesperson for the bank said: “We are looking to introduce Lifetime mortgages to specific interest only maturity customers by the end of next year, but have no plans to offer lifetime to new borrowers at this time.”

                      Mr Boulger said the launch of such products will put pressure on other major lenders to provide loans into retirement on an interest-only basis, provided they can prove affordability. “I’m pretty optimistic there will be pressure from government at some stage for lenders to be more realistic,” he added.