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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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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Zoopla wins back customers from online property rival

Zoopla chief executive Alex Chesterman has branded rival OnTheMarket “a failed experiment”, and said that his property site was winning back customers at a record rate. OnTheMarket was set up last year, aiming to compete with Zoopla and Rightmove, the UK’s two biggest property portals. It allowed estate agents to list their properties more cheaply […]

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Hard-hit online lender CAN Capital makes executive changes

The biggest online lender to small businesses in the US has pulled down the shutters and put its top managers on a leave of absence, in the latest blow to an industry grappling with mounting fears over credit quality. Atlanta-based CAN Capital said on Tuesday that it had replaced a trio of senior executives, after […]

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BoE stress tests: all you need to know

The Bank of England has released the results of its latest round of its annual banking stress tests and its semi-annual financial stability report this morning. Used to measure the resilience of a bank’s balance sheet in adverse scenarios, the stress tests measured the impact of a severe slowdown in Chinese growth, a global recession […]

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Archive | November, 2016

Market volatility boosts BNP Paribas

Posted on 31 July 2015 by

The logo of BNP Paribas is seen on top of the bank company's building in Fontenay-sous-Bois, eastern Paris, in this May 30, 2014 file photo. BNP Paribas SA is likely to pay $8 billion to $9 billion as part of a potential settlement with U.S. authorities over violations of sanctions, according to a person familiar with the matter. REUTERS/Charles Platiau/Files (FRANCE - Tags: BUSINESS LOGO)©Reuters

BNP Paribas reported its highest quarterly profits since 2012 as the eurozone’s biggest bank by assets benefited from market volatility and bouncing back from back from a multibillion fine in the same period last year.

The Paris-based lender said that net profits were €2.6bn in the three months ended June 30, compared with a €4.2bn loss a year earlier when it received a record fine for violating US sanctions.

    In June last year, US regulators imposed an $8.9bn fine following BNP Paribas’s guilty plea after finding that the bank had processed more than $30bn of transactions for groups in Sudan, Iran and Cuba between 2002 and 2012.

    Pre-tax profit from its corporate and investment banking divisions rose 26 per cent in the second quarter to €1bn, helped by stronger trading activity amid a tumultuous quarter in certain equity markets, particularly in Asia.

    The past few months have seen severe market turbulence in China amid fears of a slowing economy. The Shanghai Composite shed 8.5 per cent on Monday, its steepest drop since 2007.

    BNP said that the quarter had seen a “favourable environment for equity markets” although it said that fixed income had been less strong due to “uncertainties over monetary policies and tensions related to Greece”.

    The bank said the weakness of the euro had contributed to the healthy results. Over the past three months, the euro has fallen 2.3 per cent against the dollar and since the start of the year it has lost 8.3 per cent.

    Revenue in its French retail banking division declined by 2 per cent in the second quarter, however, as the company continued to struggle with the low interest rate environment and sluggish growth.

    But overall the company reported a 16 per cent rise in revenue to €11.08bn, above analyst’s expectations, helped in part by the acquisition of Polish bank BGZ made last year.

    The company took the opportunity to strengthen its balance sheet, with the bank’s core tier-one ratio, a key measure of financial strength, rising to 10.6 per cent at the end of the quarter, up from 10.3 per cent in March.

    BNP Paribas’s retail banks in France, Italy, Belgium and Luxembourg collectively posted a 3 per cent rise in revenue to €4.02bn.

    The bank’s international financial services division, which includes retail banking outside the eurozone, insurance and private banking posted a 21 per cent jump in revenue to €3.88bn.

    The bank boasted annualised return on equity of 10.1 per cent excluding exceptional in the first six months of the year, in line with its strategic plan for 2016 which provides it is established at 10 per cent minimum.

    Lloyds reveals payout plans

    Posted on 31 July 2015 by

    The Lloyds' prancing horse logo sits on a sign as it hangs outside a Lloyds Bank branch, a unit of Lloyds Banking Group Plc, in London, U.K., on Monday, July 27, 2015. Lloyds Chief Executive Officer Antonio Horta-Osorio is poised to present investors with what they've been waiting for: plans to increase the dividend. Photographer: Simon Dawson/Bloomberg©Bloomberg

    Lloyds Banking Group has revealed it will pay out excess capital to shareholders in a move that paves the way for a special dividend ahead of government’s retail share offer next year.

    The state-backed lender reported a 38 per cent surge in first-half profits on Friday, despite being forced to set aside a further £1.4bn to cover payment protection insurance mis-selling.

      The bank posted a profit before tax of £1.2bn in the first half, up from £863m in the same period last year but below analyst expectations of £1.8bn.

      Underlying pre-tax profit — excluding some one-off items — increased to £4.4bn, up 15 per cent from the same period last year. Lloyds said profit was buoyed by a 2 per cent increase in income, a 75 per cent reduction in impairments and lower costs.

      António Horta-Osório, chief executive, said: “The improvement in our profitability and capital position has enabled the group to announce an interim dividend payment to our shareholders.”

      Lloyds will pay an interim dividend of 0.75p per share, delivering a total of £535m to shareholders. The bank will also pay a full year dividend for 2015, while the board will consider using excess capital above a core tier one ratio of 13 per cent for special dividends or share buybacks.

      Mr Horta-Osório said paying a dividend was “clearly more attractive” for a government retail share offering, by which point Lloyds will have established a progressive policy that targets a 50 per cent payout ratio over time. A retail share offer is expected in March after the bank’s full-year results, according to people familiar with the situation.

      The bank has already bolstered its core tier one capital buffer to 13.3 per cent post-dividend, above the excess target, up from 12.8 per cent at the end of last year.

      Ivan Jevremovic, an analyst at UBS, forecasts Lloyds to reach a capital buffer of 14.1 per cent by the end of this year, which should allow for a special dividend of 3p, amounting to a total payout of about £2.1bn.

      He added that future capital growth could support total capital return of 6p a year.

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      Alex Wright, a fund manager at Fidelity, said that such dividend growth is “very rare in large caps” and that there are early signs of income investors becoming more interested in the company.

      “Company management is not looking to grow into new markets, meaning profits will be available to shareholders,” he said. “Our analysis suggests that the stock could yield nearly 6 per cent in the next 18 months.”

      However, analysts at Jefferies said although Lloyds’ 13.3 per cent core tier one ratio was strong, it only improved marginally over the past quarter. “We would expect excess capital distributions sometime in 2017,” they said.

      Lloyds started paying a token dividend of 0.75p this year for the first time since the financial crisis. The resumption of dividend payments clears the path for the government to offload more of its stake in the lender, which currently stands at 14.98 per cent.

      A programme to drip-feed shares into the market, unveiled in December, has reduced the government’s stake by 10 per cent so far this year and is set to run until the end of the year.

      However, the bank was forced to set aside a further £1.4bn in the first half to cover the cost of mis-selling payment protection insurance. A further £435m was earmarked for other conduct issues, although this included a record £117m fine the bank received in June for mishandling PPI complaints.

      Mr Horta-Osório said: “We are disappointed to announce a further provision today but we do so from a position of financial and capital strength.”

      He added that although the number of reactive PPI complaints continues to fall, it is dropping at a slower rate than expected.

      The PPI provision takes the total bill for Lloyds to above £13bn, the highest of any UK bank as Lloyds sold a greater proportion of PPI as the biggest lender. Lloyds subsequently established a remediation programme to review or pay 1.2m customers who have complained about PPI.

      The bank improved its outlook for net interest margin, a key measure of profitability, to 2.6 per cent for 2015, marking the second upwards revision this year.

      As part of the bank’s ongoing restructure following its bailout, Lloyds yesterday announced the sale of an Irish loan portfolio for £827m, effectively marking its exit from the Irish commercial property market.

      Euro and economy boost company earnings

      Posted on 31 July 2015 by

      The Dax index in Frankfurt©Bloomberg

      The Dax index in Frankfurt

      European companies are delivering quarterly profits ahead of expectations thanks to a weaker euro and improving economies across the region.

      During the current second-quarter earnings season, two-thirds of eurozone companies that have reported results have eclipsed earnings per share estimates, according to Citi, topping the long-term average of roughly 48 per cent. “We think we’ve hit the sweet spot in the cycle for [eurozone] earnings growth,” said Peter Sullivan, head of equity strategy at HSBC.

        The robust performance by eurozone companies is seen as laying the ground for pushing equity markets back to their highs of April, when investor sentiment was buoyed by the launch of quantitative easing by the European Central Bank.

        With companies in the US S&P 500 facing their first quarterly decline in earnings year-over-year since 2009, investors are expected to focus on brighter prospects for the eurozone region.

        Blue-chip companies in the eurozone are on track for 15 to 20 per cent second-quarter earnings growth, while US companies are set for a 3 per cent fall in earnings, according to HSBC.

        The bank forecasts earnings per share growth of 25 per cent for eurozone companies this year, compared with a 2 per cent contraction for UK companies.

        The weakening euro has helped insulate eurozone companies from the full weight of macroeconomic issues that have rocked global markets, such as the Greek crisis, the Chinese stock crash and a possible US rate rise. “It’s a battle royal between the bright earnings outlook and the macro risks,” said Mr Sullivan.

        “Investors are fighting with those two conflicting forces. We believe the strength of earnings will be the dominant factor.”

        Simon Colvin, Markit vice-president, said: “The steps taken by the European Central Bank have revitalised the equity market and this can be seen in the record breaking fund flows. Furthermore, the improving economic situation is starting to filter through to corporate earnings which has seen a further wave of inflows into the region’s ETFs.”

        The euro has depreciated 21.5 per cent against the US dollar since mid-2014 as the ECB has embarked on an aggressive policy of monetary easing, which has helped improve the competitiveness of eurozone exporters.

        Sterling has also strengthened significantly, gaining 20 per cent against the euro since 2013, which has eroded UK corporate profits.

        “Earnings growth is much stronger in Europe than in the UK. The currency is a headwind in the UK but a tailwind in Europe,” said Mr Sullivan.

        In domestic currency terms the German Dax, French CAC 40 and Eurofirst 300 are all up at least 15 per cent so far this year, a stark contrast to the FTSE 100 and the S&P 500, which are up just 1.5 per cent and 2 per cent respectively over the same period. But in dollar terms, the FTSE Eurofirst index is only up 3.5 per cent, because of the depreciation of the euro.

        The currency swing has spurred US investors to buy exchange traded funds that offset the lower value of the euro, and eurozone equity tracking ETFs have generated record inflows this year. Investors have pumped in €32.9bn year to date, already more than double the previous annual record of €14.07bn hit in 2008, according to Markit.

        Tsipras wins battle with Syriza far left

        Posted on 30 July 2015 by

        Greek Prime Minister Alexis Tsipras gestures as he delivers his speech during a central committee of leftist Syriza party in Athens, July 30, 2015. Tsipras on Thursday called for his Syriza party to hold an emergency congress next month to overcome divisions but said a snap party referendum would be acceptable if leftist dissenters wanted a quicker solution. REUTERS/Yiannis Kourtoglou©Reuters

        Alexis Tsipras at the central committee meeting on Thursday

        Alexis Tsipras won his battle with a mutinous far-left faction in the governing Syriza party after a day of tense discussions that laid bare deepening divisions within the party over a new €86bn bailout being negotiated with Greece’s creditors.

        The prime minister’s proposal to hold an extraordinary party congress in September to examine the bailout once it has been completed was approved by Syriza’s 200-strong central committee in Athens early on Friday, without resorting to a roll-call vote.

          Mr Tsipras’s earlier suggestion of a party referendum on the bailout to be held immediately was dropped following objections by Panagiotis Lafazanis, the premier’s sharpest critic and leader of the rebellious Left Platform, the party’s internal opposition.

          “How many referenda are we going to hold? We’ve already done one and we won with 62 per cent of the vote”, said Mr Lafazanis, a former communist who was sacked as energy minister in a cabinet reshuffle earlier in July.

          He was referring to the No vote in a national referendum on July 5 on a bailout plan the government had already rejected — a result that boosted Mr Tsipras’s standing at home, even though he accepted a new bailout on harsher terms a week later.

          The premier appeared to have won a breathing space, but Thursday’s highly charged debate signalled that the Left Platform, which supports an end to austerity and a “Grexit” from the euro, would continue to oppose a fresh bailout.

          Earlier on Thursday, the prime minister had addressed the central committee proposing the Yes-or-No vote on the bailout for Sunday.

          “Anyone who wants a different government or a different premier should say so,” said Mr Tsipras, making clear he viewed a vote to be a judgment on his tenure as prime minister. “Those who believe this is the worst memorandum [bailout] of all should say so now.”

          Greek radio and television stations interrupted their regular programmes to broadcast Mr Tsipras’s speech live from the party gathering at an Athens cinema — a sign of how the meeting was seen as critical to the country’s stability.

          Since agreeing to the bailout after a bruising meeting with fellow EU leaders, Mr Tsipras has been forced to contend with rising discontent from Syriza’s left flank. The Left Platform has staunchly opposed the reforms tied to the bailout, fuelling speculation it might break from the party and leave Mr Tsipras without a governing majority.

          Mr Lafazanis has openly argued that Greece should have brought back the drachma. Earlier this week, he told supporters that “an exit from the euro . . . in spite of all the dark propaganda, would in no way be a disaster”.

          The threat from Mr Lafazanis is complicating Mr Tsipras’s already difficult task of finalising a new rescue programme that is deeply unpopular in Greece. Making matters more challenging, he is also facing demands from creditors for even more economic reforms before they will release the first tranche of aid payments.

          Leaving the euro without any possibility of economic support, and without foreign exchange reserves, would mean a huge devaluation, harsh austerity and further recourse to [the IMF] for support. Anyone who doesn’t accept this is either wilfully blind or is hiding the truth

          – Alexis Tsipras

          If Athens and its bailout creditors cannot reach a deal by August 20, when a €3.2bn bond held by the European Central Bank becomes due, the EU will be forced to provide Greece with a second bridge loan. But that would come with its own conditions, and might well force Mr Tsipras to propose another round or reforms to the Greek parliament in a matter of weeks.

          Those reforms are expected to focus on privatisations, a public administration overhaul and rolling back some of the measures that Mr Tsipras passed in February over the objections of bailout creditors.

          The prime minister has so far succeeded at winning parliamentary support for two packages of reforms connected to the bailout, even while expressing his own misgivings about them.

          At the outset of Thursday’s meeting, he lashed out at supporters of a Greek exit from the euro — believed to comprise at least 40 per cent of Syriza’s central committee members — for ignoring the reality of Greece’s predicament.

          “Leaving the euro without any possibility of economic support, and without foreign exchange reserves, would mean a huge devaluation, harsh austerity and further recourse to the International Monetary Fund for support,” he said. “Anyone who doesn’t accept this is either wilfully blind or is hiding the truth.”

          But the tensions within Syriza have raised questions about the future of the current government and prompted speculation about early elections — possibly in September. Mr Tsipras has already reshuffled his cabinet, dumping Mr Lafazanis and accepting the resignation of his former finance minister, Yanis Varoufakis.

          Thursday’s central committee meeting coincided with the scheduled arrival in Athens of Delia Velculescu, the IMF’s new head of mission. The IMF is part of the “quadriga” of bailout monitors that also includes the European Commission, the ECB and, for the first time, the European Stability Mechanism, the EU’s own bailout fund.

          Additional reporting by Peter Spiegel in Brussels

          KKR to inject $150m into India’s JBF

          Posted on 30 July 2015 by

          An electronic ticker board indicates the closing figures of the S&P BSE Sensex at the Bombay Stock Exchange (BSE) building in Mumbai, India, on Monday, Aug. 19, 2013. India's biggest stock market slide in almost two years, surging bond yields and an unprecedented plunge in the rupee are pressuring officials for fresh steps to stem capital outflows and revive a struggling economy. Photographer: Prashanth Vishwanathan/Bloomberg©Bloomberg

          JBF Industries, a listed polyester maker based in Mumbai, is to receive a $150m capital infusion from KKR in a transaction expected to be announced on Friday following board approval, people close to the situation said.

          Like other industrial companies, JBF took on a lot of bank debt to meet a surge in demand that failed to materialise and ran into funding issues. The money from KKR will be used to complete a $600m petrochemical plant in Mangalore in the south-western Indian state of Karnataka, while the remaining portion will help pay down JBF’s $1.6bn net debt.

            The deal is a small indication that foreign capital is flowing into India 14 months after the Narendra Modi government came to power with its promise to get the Indian economy moving once again. But local private sector investment has been virtually stagnant and much of the initial euphoria which greeted the new government has faded.

            “The Prime Minister needs these kinds of deals which bring in foreign capital to complete projects and help get the country growing again,” said one person involved in the transaction. “India is more attractive today than it was 18 months ago.”

            Part of the reason India looks attractive is because many other emerging nations appear relatively less attractive. A combination of slower growth, market volatility and slow decision making as a result of the anti-corruption campaign has diminished the lure of China, while lower commodity prices have posed challenges in many other emerging markets including Brazil, Chile, Indonesia and South Africa.

            Business people in India cite a welcome new flexibility in negotiations. Promoters are willing to give up more of their equity, while banks — though still reluctant to write down the value of their debt — are more willing to make concessions on covenants and other terms.

            On the JBF deal, the controlling Arya family will see their 54 per cent stake in the company drop as KKR takes 20 per cent of the equity, which could rise if the investment group takes advantage of a conversion mechanism in the debt.

            Between April 2014 and March 2015, India received net foreign direct investment flows of $33bn, up from $22bn the year before and portfolio flows, which include both debt and equity, of $41bn, compared to just $5bn the year before, according to data from JPMorgan’s chief India economist, Sajjid Chinoy.

            KKR declined to comment, while JBF could not be reached for comment.

            A disaster’s lessons for Dodd-Frank

            Posted on 30 July 2015 by


            One hundred years ago this month
            , 2,500 passengers in a festive mood boarded the SS Eastland for a picnic cruise on Lake Michigan. Just as the ship was to leave its mooring in the Chicago river, the Eastland suddenly capsized and 841 passengers lost their lives — more than in the Titanic disaster.

            The fate of the Eastland is one of America’s great unremembered tragedies, yet it carries important lessons for policymakers today, specifically about how a regulatory response to one disaster can unleash unintended consequences that could contribute to another. The fifth anniversary this month of the Dodd-Frank Act reforming financial regulation seems like a particularly good time to consider this.

              After the Titanic’s sinking in 1912, an International Conference on Safety of Life at Sea was convened to develop a global response. Sensible reforms included taking more southerly transatlantic routes to reduce the likelihood of encountering icebergs and creating an iceberg patrol, still operating today, to monitor and warn of the risks.

              Similarly, after the 2008-2009 financial crisis, the Group of 20 leading nations, Financial Stability Board, the Basel Committee and other international regulatory bodies convened to provide a co-ordinated global response, promoting rules to reduce banks’ risk exposure and to increase macroprudential monitoring.

              But an important response to the Titanic was “lifeboats for all”. If only the Titanic had had enough lifeboats for all its passengers and crew, perhaps no one would have perished. What could be more sensible and obvious?

              The measure was adopted in the 1914 International Convention relating to Safety of Life at Sea. It was immediately clear to some, however, that this policy might have unwanted ramifications. In testimony to Congress, A A Schantz, the general manager of the Detroit & Cleveland Navigation Company, questioned whether such a requirement should be applied to ships plying the Great Lakes.

              “The extra weight of the lifeboatsand rafts would make [ships on the Great Lakes] top-heavy and unseaworthy, and  . . . some of them would turn turtle [capsize] if you attempted to navigate them with this additional weight on the upper decks,” he said.

              While Congress did not mandate “lifeboats for all” for ships on the Great Lakes, the 1915 La Follette Seaman’s Act significantly increased the requirements. The Eastland had already increased its number of rafts in 1914, as federal inspectors tightened the rules.

              New regulations can undermine their own goals; ‘lifeboats for all’ can bring a false sense of comfort

              Just three weeks before the tragedy, and after the passage of the act, the Eastland added more life boats and rafts to boost its licensed capacity to accommodate 2,500 passengers for the ill-fated picnic cruise. The ship was designed in 1903 with six lifeboats. When the catastrophe occurred, it had 11 lifeboats and 37 life rafts. (Each raft weighed some 1,100  pounds.)  

              The additional weight of the lifeboats and rafts may have been only one factor contributing to this calamity, but it illustrates how powerful unintended consequences can be of even the most sensible-seeming regulatory reforms. So what is to be learnt from the Eastland disaster?

              First, even if a rule solves some problems, it does not necessarily solve them all. In some cases, new regulations can undermine their own goals, creating new sources of instability. New rules can interact with other weaknesses in the system. “Lifeboats for all” can bring a false sense of comfort, and inspectors and supervisors may not look as carefully for other vulnerabilities.

              Second, one-size-fits-all regulation may not be appropriate. Higher capital and liquidity requirements for the largest global banks relative to smaller banks may be appropriate, just as “lifeboats for all” may be more appropriate for transoceanic ships but not for steamships on the Great Lakes.

              Third, costs and benefits need to be taken seriously. The anniversary of the Dodd-Frank act is an excellent moment to gather data to assess the benefits and costs, their interactions and potential unintended consequences. Have activities moved into the shadows and how has this affected the robustness of the system? What has been the impact on liquidity of markets? As with icebergs, it is not what you can see but what you cannot that is often most dangerous.

              The key lesson from the Eastland tragedy is certainly not that regulation is inevitably counterproductive but that we always need to consider unintended consequences and cost-benefit trade-offs, even for extremely well-motivated rules, to protect us from turbulence in financial markets — and on the seas.

              The writer is a professor of economics at the University of Chicago and former governor of the US Federal Reserve

              FCA names third supervision chief in year

              Posted on 30 July 2015 by

              A maintenance worker cleans the entrance area of the headquarters of the new Financial Conduct Authority (FCA) in the Canary Wharf business district of London in this April 1, 2013 file photo. To match Special Report BRITAIN-BANKS/SOPHISTICATION REUTERS/Chris Helgren/Files (BRITAIN - Tags: BUSINESS)©Reuters

              The UK’s financial regulator has named its third director of supervision in a year as it faces major upheaval in its senior ranks following the ousting of its chief executive.

              The Bank of England has agreed to lend the Financial Conduct Authority one of its senior directors for a year to plug the hole left by the promotion of Tracey McDermott into the top spot, which will be vacated by Martin Wheatley when he leaves in September.

                Megan Butler, currently an executive director at the BoE’s Prudential Regulation Authority, will temporarily succeed Ms McDermott as head of supervision, the PRA and FCA said on Wednesday.

                Ms Butler was described by Andrew Bailey, head of the PRA, as “an extremely talented supervisor with vast experience of both prudential and conduct regulation”.

                Mr Wheatley was forced out as chief executive after the Treasury said earlier this month it would not renew his board membership of the FCA next year. Mr Wheatley, who last week said he was “disappointed” to be leaving the FCA, has forged a tough reputation with banks following record-breaking fines for a string of City scandals such as the rigging of the Libor interest rate and foreign exchange benchmarks.

                His ousting came just weeks after George Osborne, chancellor, announced a new “settlement” with the City, suggesting a shift from an era of tough regulation of the financial services sector. Since then Mr Osborne has also announced a recalibration of the government’s tax on banks and the BoE’s Financial Policy Committee has been given an added objective of ensuring the UK remains an attractive location for the financial sector.

                Ms McDermott will serve as interim replacement to Mr Wheatley, but it is thought that the Treasury will want an outsider to replace him permanently.

                Ms McDermott is a litigator by training who was head of enforcement until earlier this year. As enforcement chief, she presided over the forex and Libor investigations that yielded record levels of fines.

                Considered a rising star, she was moved into the director of supervision role earlier this year during one of the most sensitive periods in the FCA’s short history.

                She took over from Clive Adamson, who was tainted by association with a botched media briefing last year that caused shares in the UK’s major insurers to plummet. Mr Adamson left the FCA as part of a wider restructuring announced the same week as the publication of a damning report into the debacle.

                The fiasco weighed heavily on the FCA and also on Mr Wheatley personally, who had to forgo his bonus last year as a result. It is thought to have been a key factor in Mr Osborne’s decision to replace him.

                New Deutsche Bank chief blunt on outlook

                Posted on 30 July 2015 by

                A logo sits on display in front of the Deutsche Bank AG headquarters at dawn in Frankfurt, Germany, on Tuesday, Dec. 31, 2013. Deutsche Bank AG and Allstate Corp. settled a suit the insurer brought that accused the bank of misrepresentations and omissions in connection with loans backing $185 million in mortgage securities. Photographer: Ralph Orlowski/Bloomberg©Bloomberg

                Deutsche Bank’s new chief executive described its latest results as “nowhere near good enough” as he delivered a blunt assessment of the array of challenges facing Germany’s biggest lender.

                In the three months to the end of June, Deutsche reported a net profit of €818m — or €0.40 per share — up from €238m in the same period last year. Helped by the weakness of the euro, revenues rose strongly, climbing 17 per cent from €7.9bn to €9.2bn.

                  The figures were better than expected — analysts had forecast net profits of €722m from revenues of €8.6bn — and shares in the bank closed up 5.3 per cent to €31.85 in Frankfurt.

                  However, John Cryan, the former UBS banker who succeeded Anshu Jain as co-chief executive of Deutsche on July 1, said the results — which included a €1.2bn litigation charge mainly linked to “legacy US mortgage-related matters” — underscored the problems facing the bank.

                  “Our challenges are . . . evident in the unacceptably high level of our costs, our continuing burden of heavy litigation charges, a balance sheet that must be more efficient, and the poor overall returns to our shareholders,” he said.

                  “Our cost-income ratio of 85 per cent and annual return on tangible equity of 5.7 per cent are both well below where we aim to be and should be,” he added in a forthright note to staff.

                  Mr Cryan reiterated that he was committed to the five-year strategy laid out by Mr Jain and co-chief executive, Jürgen Fitschen, in April, which involves selling the Postbank retail banking business, cutting assets at the investment bank, and shrinking Deutsche’s cost base by €3.5bn.

                  The 54-year-old Briton, who is due to give details of how he will implement the plan in the autumn, did not spell out any precise initiatives on Thursday. However, he insisted that for the strategy to succeed, Deutsche would have to become more efficient.

                  “We must be disciplined in how, where and with whom we do business. We must critically review any countries, business lines, products and relationships that are unattractive,” he said.

                  CFO John Cryan of Swiss Bank UBS smiles as he addresses a news conference to present the results for 2010 in Zurich in this February 8, 2011 file picture. Deutsche Bank on June 7, 2015 said it will appoint John Cryan to become co-chief executive of Germany's largest lender effective July 1, 2015 to replace Anshu Jain who steps down on June 30, 2015. Deutsche bank said co-CEO Juergen Fitschen to remain in his current role until conclusion of annual general meeting on May 19, 2016. REUTERS/Arnd Wiegmann/Files©Reuters

                  John Cryan

                  “We must shrink our balance sheet, focusing on our many low-return assets. We must reduce organisational complexity, which inhibits effective decision making, blurs accountability and embeds wasteful cost.”

                  The two areas of the new strategy where analysts are most keen for more detail are costs and capital — both longstanding weaknesses for Deutsche. “Revenue growth has been slower than cost growth in core divisions. That has to be reversed,” said Kinner Lakhani, an analyst at Citigroup.

                  Deutsche Bank
                  Deutsche Bank
                  Deutsche Bank
                  Deutsche Bank

                  On the face of it, Deutsche’s capital position at the end of the second quarter showed signs of improvement. The bank shed assets, helping its core tier one capital ratio — a key measure of financial strength — climb from 11.1 per cent at the end of March to 11.4 per cent at the end of June.

                  However, Deutsche warned the ratio was likely to fall again in the second half of the year, as a result of new regulations.

                  The bank also has a number of legal wrangles to resolve — ranging from investigations into sanctions-busting to probes into whether Deutsche breached anti money-laundering laws for Russian clients — and some analysts have speculated that it could need to raise more capital.

                  Mr Cryan acknowledged the bank could not control “external” events. However, he said that he did not think raising capital was in the best interests of Deutsche’s shareholders, and made clear that he would prefer to shed assets to improve the bank’s capital position.

                  Mr Lakhani said this stance would reassure investors. “The reiteration of the Postbank sale has helped to alleviate market concerns. However, the exit price remains an open question, especially in context of Postbank’s weaker earnings.”

                  Deutsche’s best-performing division in the quarter was its asset and wealth management arm, where pre-tax profits more than doubled to €422m.

                  However, the bank’s other divisions also reported strong gains, with Deutsche’s flagship investment banking arm notching up a 45 per cent increase in pre-tax profits. Deutsche’s global transactions unit managed a 28 per cent increase and profits at its retail bank climbed 27 per cent.

                  “Overall these were a good set of numbers, both in terms of how the trading businesses did versus expectations, as well as the improvement in the balance sheet,” said Jon Peace, an analyst at Nomura. “However, we’re still waiting for the details of the strategy. Execution will be everything.”

                  Russians await interest rate decision

                  Posted on 30 July 2015 by

                  A woman talks on the phone while walking past a board showing currency exchange rates of the U.S. dollar, Euro and the British pound (top-bottom) against the rouble in Moscow, Russia, July 28, 2015. Russia's growth prospects deteriorated sharply midway through last year, when an existing slowdown was compounded by Western economic sanctions over the Ukraine conflict and a collapse in the price of oil, the country's main export earner. The economic slide gathered pace from the start of 2015 as falls in retail sales and real wages deepened, reflecting weak consumer demand and high inflation linked to the weaker rouble. REUTERS/Sergei Karpukhin©Reuters

                  Izvestiya, the Kremlin-friendly Russian daily, is known primarily for its coverage of the country’s politics and military. Yet this week, it splashed with a front-page story it knew would really captivate its 230,000 Russian readers: the future of the country’s benchmark interest rate.

                  Once a topic of interest primarily for Moscow bankers and economists, the future of the rate has become a national sport after a year of wild currency fluctuations, an emergency rate rise and worsening forecasts for the economic growth.

                    In recent months, the central bank and Russian business have been engaged in a fairly public tug of war over monetary policy. The central bank has made clear that lowering inflation and a relatively stable currency are its main priorities, while the latter fears higher rates are stymieing economic growth. With the rouble in the midst of another plummeting spiral – it has lost 15 per cent of its value against the dollar since May – attention is turning to a central bank policy meeting on Friday.

                    After raising its benchmark rate from 10.5 per cent to 17 per cent in a surprise overnight rise last December, the central bank has consistently lowered the rate at each of its monthly policy meetings since January.

                    In its front page story this week, Izvestiya reported that the central bank’s head, Elvira Nabiullina, had warned Russian business leaders at a closed-door session last week that the central bank would not lower rates this week.

                    The central bank does not publicly comment on monetary policy in the days leading up to its monthly policy announcement and Izvestiya’s scoops have sometimes been wrong. A majority of analysts surveyed by Bloomberg forecast the central bank would go ahead and lower rates by 0.5 percentage points as previously predicted.

                    But fears rates could remain on hold has angered business, which sees it as a sign the bank is prioritising the rouble’s stability and lower inflation over economic recovery.

                    High interest rates are hurting business, said Siegfried Wolf, chairman of Russian Machines, a subsidiary of Oleg Deripaska’s Basic Element holding group. “In Russia we have three to four times higher interest rates than you have in the countries you’re competing with. The banks themselves have to borrow money from the central bank at double digit [rates]. This is a very hard exercise to be successful.”

                    Others argue the rouble’s recent volatility has been hard on Russian business owners. “All our materials are in euros and dollars,” said Andrei Artemov, a Moscow fashion designer. “We are always thinking now about how to cut costs.”

                    On Wednesday, the central bank announced that it had halted its daily foreign currency purchases after the rouble lost more than 5 per cent of its value against the dollar in a week, a reflection of the weaker oil price. The purchases were meant to shore up Russia’s international reserves.

                    Ivan Tchakarov, chief economist at Citi in Moscow, said he believed the central bank was more likely to cut rates now that it had stopped its daily foreign currency purchases this week. Otherwise it would suggest the central bank is overly concerned about inflation and rouble volatility, he said.

                    “If the central bank cuts rates, it shows that all is fine and everything is under control,” said Oleg Kouzmin, an economist at Renaissance Capital. “If they’re not cutting, it shows that they are very concerned about the current [situation].” He added: “I think it’s better to cut this time.”

                    Voicing the concerns of Russian executives, Izvestiya said businessmen at the central bank’s meeting last week had pleaded with Ms Nabiullina to lower interest rates further. According to the newspaper, the central banker offered only the hope that rates would be cut by a symbolic 0.5 percentage points.

                    “For the businesses, of course they want low rates,” said Alexander Vassiouk, a Moscow-based director at the fund Prosperity Capital Management. “Good companies can still borrow at relatively good rates,” he insisted. “They’re still able to find financing.”

                    Numis, Crowdcube to offer retail IPOs

                    Posted on 30 July 2015 by

                    Retail investors will be offered the chance to invest in London floats through Crowdcube as part of its tie up with corporate brokers Numis.

                    Numis said Thursday it had bought 8.49 per cent of Crowdcube as part of a new £6m funding round that valued the UK’s largest equity crowd funding platform at £51m. The brokerage, which will gain a seat on the platform’s board. Balderton Capital, already a Crowdcube investor, and fellow venture capitalists Draper Esprit also participated.

                      “We think Crowdcube will have the opportunity to democratise IPOs [initial public offerings] in the future, and we’ll work with them to do that so that individuals can get access to IPOs that in the past they haven’t been able to,” said Oliver Hemsley, Numis chief executive.

                      “We think that companies will raise money via online platforms with increasing frequency,” he added. Numis has raised £10bn for businesses since 2009 in at least 46 IPOs, it says.

                      Crowdcube will offer access to IPOs on the Alternative Investment Market (AIM) and main market of the London Stock Exchange alongside its existing crowdfunding offerings for start-ups. The aim is to launch this feature within a year, with the minimum investment at a “very affordable level”, said Darren Westlake, chief executive of Crowdcube.

                      Right now, most individuals are shut out of IPOs unless the company chooses to hold a retail offer.

                      Regulations in the US are being developed to allow the general public access to equity crowdfunding offers. Rules that took effect in June enable crowdfunding “mini-IPOs” for the first time.

                      Numis’ fixed income team will also work with Crowdcube to develop its mini-bond offering, in which retail investors lend directly to companies, Mr Westlake said. This may include the development of a secondary market.

                      Four-year-old Crowdcube, the venue for £45m of investment so far this year, is the largest player in the fast expanding UK equity crowdfunding market, which enables individuals to buy stakes in private companies online – sometimes putting in as little as £10.

                      The sector grew by an average of 410 per cent annually between 2012 and 2014, with platforms facilitating about £84m of investments last year, according to Nesta, an innovation charity. However, the sector has faced criticisms including that inflated valuations leave some investors unlikely to make a return in proportion with the risks.

                      “We want to help bring some discipline and some reality to the valuations,” said Mr Hemsley.

                      “There are always growing pains when new areas are developed.”

                      Mr Hemsley said he expects equity crowdfunding to become more institutionalised, like peer-to-peer lending, which was initially dominated by retail investors before a recent influx of institutional cash.

                      Crowdcube will also use the new funding to expand its existing operations, including in Spain, its only overseas branch, where it expects new regulation modelled on the UK regime to aid the growth of equity crowdfunding.

                      It celebrated its first successful exit in July when investors in E-Car Club, which raised money on Crowdcube in 2013, received a return of about three times when the company was sold to Europcar.

                      Crowdcube’s funding round follows a £10m round by rival Seedrs, whose investors included the fund manager Neil Woodford and Augmentum Capital, a venture-capital fund backed by Lord Rothschild. It valued Seedrs at £30m.