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

Housing change adds £60bn to UK debt

Posted on 30 October 2015 by

BRISTOL, ENGLAND - APRIL 17: The sun illuminates properties that were recently built by a housing association to provide affordable homes in a mixed use development called J3 on April 17, 2015 in Bristol, England. Housing, like the economy and the future of the NHS have become key election issues in the general election being held in the UK next month. (Photo by Matt Cardy/Getty Images)©Getty

New homes built by a housing association in Bristol

Housing associations have been reclassified as public sector bodies by official statisticians in a move that will add about £60bn to government debt, an increase of 4 per cent.

The decision could potentially lead to fewer homes being built as the government seeks to control borrowing, say the housing providers.

    The government said it would attempt to reverse the change by loosening its control over the sector “as quickly as possible”.

    The Office for National Statistics said it had made the decision because the 1,300 or more regulated social housing providers — which previously existed as privately financed philanthropic organisations — were “subject to public sector control” under European law.

    Housing associations’ bank and bond debt will also be added retrospectively to public sector net debt going back to 2008.

    Because cutting the national debt is a Conservative pledge, the ONS decision to add £60bn — equivalent to 3.2 per cent of gross domestic product — is potentially a setback for the government. The ONS had estimated the public debt burden peaked last December at 81.6 per cent of GDP and had drifted down to 80.8 per cent in July.

    The quest to cut borrowing had led to fears that the government might seek to limit housing associations’ debt once it appeared on the public balance sheet — in turn hampering the associations’ ability to build homes.

    We will bring forward measures that seek to allow housing associations to become private sector bodies again as soon as possible

    – Government official

    Ministers have sought to allay such fears. “We will bring forward measures that seek to allow housing associations to become private sector bodies again as soon as possible,” said a government official.

    The Office for Budget Responsibility, which provides independent forecasts for the government, has previously said that a cut to social housing rents announced in the Summer Budget would also add to public sector net debt after the reclassification, since it would, in effect, become a cut to public sector income.

    That cut is set to reduce landlords’ income from rents by £2.5bn a year, according to the Institute for Fiscal Studies think-tank. The ONS will provide more information on the effect of the extra debt in late November.

    The ONS began reviewing housing associations’ status in September after the government said it would force them to make their properties available for sale under the Right to Buy scheme, although it later reached a voluntary agreement with the associations instead.

    The statisticians said their decision on Friday was based on the Housing and Regeneration Act 2008, a law brought in under the former Labour administration that gives the government powers over the providers.

    The National Housing Federation, which represents affordable housing providers, said it was “disappointed” by the reclassification, which could potentially lead to fewer homes being built if the government did seek to control housing associations’ debt.

    “We therefore welcome the government’s commitment to take the necessary steps through deregulatory measures in the housing bill to address the issues raised in this decision,” said David Orr, chief executive.

    The last organisation to be reclassified by the ONS was Network Rail in 2013, after a change in EU rules. That decision added £30bn to the government balance sheet.

    Housing associations began to receive substantial public funding in the late 1980s and then raised private borrowings to take over ownership of council homes that were sold off by local authorities when they could not afford to maintain them.

    They build one in five of all new homes across Britain, and house one in 10 British households. George Osborne, the chancellor, has previously threatened the associations with a “more confrontational relationship” if they fail to start building more homes.

    Credit Suisse under scrutiny over Fifa

    Posted on 30 October 2015 by

    ©Bloomberg

    Credit Suisse has become the first global bank to declare it has been contacted by US and Swiss authorities over alleged corruption at Fifa and asked about its relationships with individuals at football’s governing body.

    The Swiss bank, one of more than 20 lenders in a US indictment against Fifa for handling allegedly corrupt payments, said in its quarterly results report that it was co-operating with authorities.

      “The US and Swiss authorities are investigating whether multiple financial institutions, including Credit Suisse, permitted the processing of suspicious or otherwise improper transactions, or failed to observe anti-money laundering laws and regulations, with respect to the accounts of certain persons and entities associated with Fifa,” the bank said.

      However, a person familiar with the matter played down the significance of the statement by Credit Suisse, saying that it was a “routine disclosure” by the bank of “an industry-wide fact-finding process” by regulators.

      The person added that the bank had not received a “target letter” from US regulators, which are used to request that a person or institution provide testimony, advising them of their rights and informing them that they are a target of an investigation.

      Sepp Blatter and Michel Platini, the presidents of Fifa and Uefa, were suspended from their roles at the beginning of October after a SFr2m payment in 2011 from Fifa to Mr Platini was reported to the authorities by UBS.

      The indictment unsealed by the US Department of Justice in May mentioned more than 20 banks used by nine Fifa officials and five sports industry executives to transfer and receive alleged bribes, including HSBC, Standard Chartered, Julius Baer, JPMorgan Chase, Citigroup and Bank of America.

      None of the banks was accused of wrongdoing, but the indictments said the Fifa officials had “relied heavily on the United States financial system in connection with the enterprise”. Investigators also said they were looking at whether the banks were aware that they were helping to transfer bribe payments.

      The DoJ said in a statement: “All told, the soccer officials are charged with conspiring to solicit and receive well over $150m in bribes and kickbacks in exchange for their official support of the sports marketing executives who agreed to make the unlawful payments.”

      Lunch with the FT: Sepp Blatter

      Illustration by James Ferguson of Sepp Blatter

      His reputation may be spoiled but his legacy remains intact, the suspended president of Fifa insists over ‘Mama Blatter’s salad’ in Zurich

      Read more

      At the time, Citi said it had been co-operating with the DoJ, UBS said it routinely co-operated with law enforcement agencies and JPMorgan, Bank of America, HSBC and Julius Baer declined to comment. JPMorgan and BofA did not mention the Fifa scandal in their recent quarterly reports.

      This month a report in the Handelszeitung newspaper claimed that Julius Baer had launched an internal investigation into its links with Fifa and that several Fifa officials held accounts at the bank. It also said Julius Baer was co-operating with the authorities. The Swiss private bank said the report contained some “wrong statements” but did not specify which part of the report it was disputing.

      Credit Suisse last year pleaded guilty to charges that it helped clients evade US taxes and agreed to pay a $2.6bn penalty. This year it appointed Tidjane Thiam from UK insurer Prudential to take over as its chief executive from Brady Dougan. Shares in the bank were down slightly at SFr24.77 on Friday morning.

      Bears hit City and Street for Halloween

      Posted on 30 October 2015 by

      15th November 1963: English actor Christopher Lee playing a vampire in one of the many horror films he has starred in. (Photo by BIPS/Getty Images)©Getty

      This weekend millions will dress up as ghouls, vampires, aliens, goblins and Justin Bieber to celebrate all things scary and horrific for Halloween. For the finance industry’s small cabal of “perma-bears” it is also celebration time.

      While most markets are now back to near record highs, the litany of things investors worry about has grown no shorter over the past year, and new things keep cropping up to be added to the list and further cloud the outlook.

        Global debt levels continue to rise, deflation fears fester and extraordinary action from central banks has failed to buttress the economic recovery. The International Monetary Fund recently sliced its growth forecast for this year to 3.1 per cent, which, excepting the financial crisis, would be the lowest since 2002. International relations remain frosty.

        Drilling down, things also look bleak. Corporate revenues are stagnating or falling, Europe remains weak, politically fraught and vulnerable, the US recovery has hit the skids, and some fear another recession is in the pipeline.

        Japan’s “Abenomics” is failing, China’s growth is sliding and emerging markets as a whole are in a funk. The Federal Reserve is either going to cause carnage by lifting interest rates too early or too late, depending on your point of view.

        For the financial industry’s ultimate iconoclasts — investors, economists and analysts who see a hurricane brewing behind every innocuous cloud — this is partly a welcome vindication of their remorseless pessimism.

        “It gets a little boring, always rattling my chain and proclaiming the end is nigh,” Albert Edwards, Société Générale’s famously bearish strategist, told a collection of clients in New York last week, before gleefully launching into an explanation for why the end is indeed nigh.

        On fears that the US and Europe were going down the same path towards stagnancy trod by Japan, Mr Edwards said: “The west isn’t like Japan, it’s going to be much worse.” France is stagnating, Germany will soon become the weakest eurozone country and “Italy is bust,” he argued.

        China will devalue further, triggering currency wars, and the US 10-year bond yield will fall below 1 per cent as the economy “inevitably” falls into a recession.

        The SocGen strategist argued that the Fed should just lift interest rates as soon as possible and trigger the inevitable mayhem, because “the longer finance is allowed to pump itself full of crack the worse the recession will be”.

        chart: China GDP growth

        Aside from the perennial subject of the Fed, China is the current obsession of the perma-bears. While the economy expanded at a reasonable 6.9 per cent clip in the third quarter, fears over a devaluation have abated and signs of a rebalancing are growing, some observers continue to prophesy an impending calamity, after rampant borrowing in recent years.

        “This is a credit bubble of epic proportions,” Marc Faber, aa forecaster who writes a report called Gloom, Boom & Doom, told Bloomberg TV this week. “I would bet on the locals, who are shifting money out of China at a record rate.”

        Mark Grant, managing director at Hilltop Securities, is also worried about China, arguing that “no one believes their numbers any more”, as well as a litany of other concerns.

        “Now, any of these issues, taken alone, is bad enough and a cause for concern. However, all of them added up and considered together, is far past being just a concern and may be regarded as a potential catastrophe for the equity markets,” he wrote in a note this week. “It will be the Grinch this year I am afraid as Santa Claus remains at home in his ice palace.”

        Of course, most investors have shrugged off these concerns. After the turbulence of August and September, the combination of more central bank easing in Europe and China, and bets that the Fed will stay on hold until next year, have helped markets claw back much of their recent losses.

        chart: FTSE All World index and S&P 500 index

        The FTSE World index is just 6.5 per cent below its record peak, the S&P 500 is back in positive territory for the year, the FTSE Eurofirst is up 7.9 per cent and the Japanese Nikkei gauge is 8.5 per cent higher in 2015. Bond markets are steady and even commodities appear to have found a floor.

        However, some of the concerns are spreading to the “mainstream” analyst community as well. Willem Buiter, Citi’s chief economist, has predicted that another global recession is looming, this time led by the developing world. Although his definition of a recession is somewhat unusual, fears over China’s slowdown and the broader implications are endemic.

        In a Halloween-themed post at M&G’s ‘Bond Vigilantes’ blog, Anthony Doyle also spelt out some of the disconcerting signs — such as rising market correlations, often an ill omen.

        “Worryingly, the tendency for global asset prices to move in unison is now at a record high level and correlations have remained elevated even during periods of low volatility. A large scare in investment markets could really test the fragility of the financial system should asset values deteriorate across the board,” Mr Doyle wrote.

        Saronom Holdings and residential property in Jamaica

        Posted on 30 October 2015 by

        Accelerating its investment paces Saronom Holdings Limited pays more and more attention to the territory of Caribbean region and Jamaica in particular.

        Cyprus investor Saronom Holdings Limited is ready to offer newly acquired apartment complexes in the cities of Kingston and Ocho Rios. These objects are of buy-to-let type. Acquiring these units the clients can be sure that these investments will pay back for sure. Saronom Holdings Limited has a vast experience in this investment form. Such real estate units are quite popular on the territory of Cyprus as long as this country is also among top tourist zones. Within last 3 years Saronom Holdings Limited has attracted more than 30 investors from all over the world to this type of property. Currently the company can offer more than 30 variants on the territory of its domestic market and 4 objects in Jamaica. Soon this figure will be much higher. The company is constantly enlarging its portfolio. According to the representative of Saronom Holdings Limited the company is going to double this figure by the end of the year.

        Saronom Holdings

        2 out of 4 newly acquired complexes already have constant renters and are already filled by 80-90%. This means that investors or interested parties will get an income right from the start. Apart from the current prices are beaten down by the effect of the crisis. Currently the investors and customers can buy the interested unit of this type at the price of 50% from the prices established in years 2006 – 2007. With the current paces of world economy recovery current investments will pay back almost double in time. Thanks to drastic price fall the renting fees went down by only 10-15%.

        Right now buy-to-let premises are the number one target of Saronom Holdings Limited. The time will show whether this Cyprus-based investor will make any changes in the chosen srategy and the target assets.

        Philip Fitch
        Stasinou 1, Mitsi Building 1, Floor 1,
        Flat 4, Liberty square
        CY-1060, Nicosia, Cyprus

        WebLink: http://eastwestpropsol.com
        Mirror: http://estateswofrontiers.com

        Aviva confronts sceptics on Friends deal

        Posted on 29 October 2015 by

        ©Bloomberg

        Aviva’s chief executive has confronted sceptics over the insurer’s purchase of Friends Life, saying its latest financial results showed the £5.6bn transaction was “everything we expected it to be”.

        Mark Wilson on Thursday acknowledged that much of the City was still not convinced about Aviva’s all-share acquisition of its FTSE 100 rival, the biggest UK insurance deal since 2000.

          But the New Zealander said the group was already reaping rewards from the tie-up
          with Friends as he unveiled a 23 per cent jump in quarterly new business profits at its life and pensions operation.

          “I understood the scepticism at the time — historically not too many deals have worked in the UK,” he said. “A lot of analysts and investors said we would be distracted.

          “But this one has shown, for two successive quarters, we are getting the benefits of the deal. It’s everything we hoped for and expected it would be.”

          He said Aviva had already generated £90m in savings from the integration, putting the group ahead of schedule in its plan to reduce annual costs by £225m by the end of 2017. About 1,500 jobs are expected to go.

          The acquisition has divided opinion in the City.

          Mr Wilson has pitched the deal, forged in the wake of chancellor George Osborne’s historic pensions reforms, as a way to improve Aviva’s cash generation and increase its financial firepower.

          Yet Aviva shares, which had rallied strongly after he took the helm, have struggled for momentum this year on concerns the insurer has paid a full price for an acquisition in a mature market.

          Aviva shares rose 0.8 per cent to 483p on Thursday. Yet they remain at a discount to peers, trading at less than 130 per cent of the company’s book value. Rival Prudential changes hands at about 320 per cent.

          “Clearly the market doesn’t yet believe,” said Mr Wilson, who was hired almost three years ago after a shareholder revolt ousted his predecessor Andrew Moss.

          But he added: “As people analyse this, they will see that all we’ve been doing is what we said we would — and maybe a little bit more.

          “The market will eventually see that.”

          Aviva’s life arm generated £289m worth of “value of new business” — a measure of profits — in the third quarter, up 23 per cent from the same period a year ago assuming currencies were constant.

          Aviva disclosed it held 72 per cent more capital than required by regulators and signalled the looming Solvency II shake-up of insurance financial safety standards would be manageable.

          The insurer said it had taken further steps to strengthen its balance sheet in recent months, disposing of a £2.2bn of commercial mortgage holdings and reinsuring a chunk of its UK general insurance business.

          Mr Wilson added the group was making progress turning round Aviva Investors, although the asset management arm endured net outflows in the period as £4.5bn worth of redemptions offset gross sales of £4bn.

          In general insurance, the group lost 94p in claims and expenses for every £1 worth of premium income in the first nine months of the year — an improvement from 95.9p in 2014, helped by fewer weather-related payouts.

          Fed crafts clearer message on US rates

          Posted on 29 October 2015 by

          Marriner S. Eccles Federal Reserve building©Bloomberg

          After weeks of mixed messages, the US Federal Reserve on Wednesday gave its clearest signal yet that there is a serious possibility of an upward move in short-term interest rates in December.

          The statement had an instant impact on financial markets, which have been struggling to decipher the Fed’s intentions amid conflicting messages from a range of Fed speakers. Calculations from Cornerstone Macro now put the market-implied odds of a move on December 16 at slightly better than 50 per cent.

            The Fed’s new language, issued after its latest policy meeting on Wednesday, by no means makes a December move a certainty.

            Divisions within the central bank over whether it should move without good evidence of accelerating inflation and wages are still very real. And the ultimate decision will depend on the contents of a cloudburst of economic indicators that starts with Thursday’s third-quarter gross domestic product figures, followed crucially by wage numbers on Friday and jobs data a week after that.

            But a handful of key changes in the Fed’s messaging on Wednesday have led to a clearer picture of the discussion within the central bank.

            In particular, whereas turbulence in financial markets and overseas economies exerted an outsized impact on the Fed’s deliberations in its September meeting, the US central bank in October brought the focus back to the domestic data.

            In dropping language warning of risks to US growth and inflation from skittish financial markets and a sluggish global economy, the Fed eased a major barrier to an upward move in rates — even if it insisted it was still monitoring overseas developments.

            Among the possible implications is that the Fed sees recent policy easing moves by the European Central Bank and the People’s Bank of China as a net positive for the US, because they will help global growth.

            Further stimulus from the ECB in particular in December could well carry a nasty sting for the US by driving up the dollar, especially if the Fed is gearing up for a rise that month. Diane Swonk, chief economist at Mesirow Financial, is among those who believe the Fed needs to choose its poison.

            “A strong dollar is less poisonous than a crumbling global economy. The rest of the world is stepping up where they can . . . That does give the Fed a little more wiggle room in terms of foreign risks,” she said.

            Despite a run of soggy data, the Fed also decided to upgrade its language describing the strength of US consumer spending, which is far and away the biggest driver of the economy. Assuming that message is confirmed in Thursday’s gross domestic product numbers, that is a bullish statement on the health of US demand — even if it was coupled with an acknowledgment by the Fed of softer jobs numbers.

            Puppet or muppet? The Yellen Put and the Fed’s market control

            WASHINGTON, DC - JULY 16: Federal Reserve Board Chair Janet Yellen testifies during a hearing before Senate Banking, Housing and Urban Affairs Committee July 16, 2015 on Capitol Hill in Washington, DC. The committee held a hearing on "The Semiannual Monetary Policy Report to the Congress." (Photo by Alex Wong/Getty Images)

            FOMC’s statement will provide investors with further clues to timing of a rate rise

            Read more

            The other big shift was the Fed’s decision to explicitly name its December 15-16 meeting as a moment where it will consider the merits of a move. Fed chiefs have always insisted every meeting is “live”, but many financial market players had started to drift towards a view that the central bank was quietly starting to give up on 2015.

            “They went out of their way to brace the markets,” said Robert Tipp, chief investment strategist at Prudential Fixed Income. “It was a surprise return to the active, potentially hawkish side from what seemed a pretty cautious posture in the last meeting.”

            An extra plus that the Fed did not mention was this week’s deal in Congress lifting the debt ceiling and paving the way to a two-year budget agreement. That should remove the danger of a government shutdown or worse fiscal crisis in December — something that would have quickly removed any chance of a change in Fed policy that month.

            Apart from a number of critical data releases, among the key events to watch from here are the minutes to Wednesday’s meeting, a speech from Janet Yellen, the Fed chair, on December 2 and testimony to Congress the following day.

            December may be firmly in play, but it is very far from being a nailed-on certainty. The jobs data could yet sag further, and inflation and wages remain quiescent. Ms Yellen might be more reluctant to move if there were still a risk of outright dissent by either Lael Brainard or Daniel Tarullo, the dovish duo on the Federal Reserve Board.

            But after befuddling markets with murky messaging at its September meeting, the Fed laid down a clearer marker on Wednesday. December is in the crosshairs and traders cannot claim they have not been warned.

            Music streaming service Deezer aborts IPO

            Posted on 28 October 2015 by

            The Deezer music mobile app, right, sits next to the Spotify Ltd. music app on a smartphone in this arranged photograph in London, U.K., on Tuesday, Aug. 18, 2015. Deezer is seeking funds from investors in a transaction that could value the French music-streaming service at about 1 billion euros ($1.1 billion), according to people familiar with the matter. Photographer: Chris Ratcliffe/Bloomberg©Bloomberg

            Deezer has become the latest tech company to abort an initial public offering, after the music streaming service failed to convince stock market investors that it justified a valuation of as much as €1.1bn.

            The French company, which had planned to raise €300m from the IPO, said it pulled the deal “due to market conditions”. In a brief statement, the company added that it was “well funded and well positioned as it continues to pursue its growth strategy”.

              The news comes after Digicel, the Caribbean telecoms group, scrapped its planned flotation in early October also due to lacklustre investor appetite.

              The aborted deal adds to the evidence that investors are becoming increasingly discerning about the terms of new tech listings which have been criticised for their inflated valuations.

              “This is indicative of the dichotomy that exists between private valuations and public valuations,” said Mark Tluszcz, chief executive of venture capital firm Mangrove Capital Partners.

              He added: “There’s lots more companies that won’t stack up when they are properly scrutinised. Many of the unicorns of today will be the unicorpses of tomorrow.” A “unicorn” is Silicon Valley jargon for a technology start-up that has been valued at more than $1bn.

              The cancelled IPO is a blow for Deezer’s shareholders, who include French telecoms tycoon Xavier Niel. In 2012, Deezer raised €100m from billionaire investor Len Blavatnik’s Access Industries and Idinvest Partners. Other shareholders include Orange, the French mobile operator, and music groups Universal, Sony, and Warner.

              Investor concerns about the lack of profits among streaming companies have intensified in recent weeks. Pandora Media, the US-listed music service, has seen its market value tumble by more than a third in recent days after its financial results fell short of investor expectations.

              Deezer, which gives its users access to a catalogue of 35m songs, is one of the largest music streaming companies. But it faces fierce competition from rivals such as Spotify and Apple.

              As with most streaming services, which must make large royalty payments to music copyright holders, Deezer has never made a profit. It reported an operating loss of €27m in 2014 on revenues of €142m.

              Deezer said that as of June, it had 6.3m “total subscribers”. However, of that total, only 3.8m were generating revenue for the company. Many of Deezer’s “total subscribers” are part of telecom bundling deals and do not actively use the service.

              While some new listings have struggled in recent months, the IPO market is by no means closed. Ferrari, the luxury carmaker, completed a $9.8bn IPO in the US last week, having priced its shares at the top of its marketed range.

              Norway oil fund hit by volatile EM stocks

              Posted on 28 October 2015 by

              Yngve Slyngstad, chief executive officer of Norges Bank Investment Fund, stands on stage during a news conference in Oslo, Norway©Bloomberg

              Norway’s oil fund revealed on Wednesday the extent of the impact of the market turmoil during the third quarter amid losses from Volkswagen and Chinese stocks.

              Norges Bank Investment Management reported a 4.9 per cent loss for the period, while its chief executive warned that inflows from the government could dry up in the fourth quarter.

                The oil fund, one of the biggest equity managers in the world, was hit hard by the shakeout in Chinese stocks in the three months to the end of September, losing NKr273bn ($32.3bn), its third worst fall to date in krone terms.

                Its worst-performing investments in the quarter were VW — it lost NKr4.9bn following the carmaker’s emissions scandal — Glencore and Daimler.

                The value of its equity investments, which made up 59.7 per cent of the fund at the end of the quarter, fell 8.6 per cent in the period. Bond investments fared better, gaining 0.9 per cent.

                NBIM holdings in property, to which it is extending its exposure, returned 3 per cent. They made up 3 per cent of the fund by the end of the quarter, against its ambitions for 5 per cent.

                The fund had a market value of NKr7.019tn on September 30. The extent of the pressure it faced was offset by a weakening krone, which helped boost the fund’s value by NKr382bn after foreign denominations were translated.

                “We’ve had a reset of investors’ expectations of global growth during the course of this year,” Yngve Slyngstad, NBIM chief executive, told the Financial Times.

                “Although the macroeconomists almost every year . . . have revised downwards their initial expectations, this time it seems like the market has followed that quite directly.

                “The importance of China is of course obvious. It’s clear that it affects directly a lot of sectors we invest in.”

                Norway’s national income tracks the decline in crude oil prices, so the fund faced the prospect of capital outflows back to the government.

                Inflows in the third quarter were NKr12bn, making NKr29bn for the year so far. Typical annual inflows in the past have been closer to NKr240bn

                “It is quite likely that you will see a fourth quarter without inflows,” Mr Slyngstad said.

                “But it’s still a situation we are comfortable with . . . There isn’t any practical issue from the management of the fund with regards to a lower inflow.”

                Although the macroeconomists almost every year . . . have revised downwards their initial expectations, this time it seems like the market has followed that quite directly

                – Yngve Slyngstad, NBIM chief executive

                Andrew Parry, head of equities at Hermes Investment Management, said: “On first sight, this does seem to be quite a large negative return and could well reflect their deeper exposure to domestic markets, which are more sensitive to the oil price.

                “But one disappointing quarter doesn’t really mean anything for long-term investors unless you are going to panic and sell at depressed levels. The fund does not make that mistake — its strong governance structure stops them panicking.”

                The fund has come under pressure to divest from fossil fuel stocks. In anticipation of restrictions on its investments, it continues to sell out of coal miners and is talking to conglomerates about hiving off their coal interests.

                NBIM is already excluded from buying tobacco companies and many defence companies.

                US banks hit out at new collateral rules

                Posted on 28 October 2015 by

                ©Getty

                Banks are reeling after rules finalised by US regulators, aimed at reducing the risk of trading esoteric derivatives, are set to increase trading costs and further hit deteriorating fixed income business.

                The Federal Deposit Insurance Corporation will require banks to post and receive collateral to protect against losses on derivatives that are traded bilaterally, as opposed to being centrally cleared.

                  Banks will also have to collect collateral on trades done with their own affiliates, but here the burden has been eased a little as the FDIC’s proposed rules required inter-affiliate trades to both collect and post collateral.

                  However, this requirement does not go far enough, the industry has said. One large US dealer claimed its cost of funding transactions would double, pushing banks to trade fewer uncleared derivatives, reducing liquidity and increasing costs for clients.

                  “The inter affiliate issue is not solved by this,” said a risk manager at the bank. “I am certainly not happy having read this.”

                  The new rules come at a time when banks’ fixed income units are under pressure, squeezed by tougher rules on capital and a shift among clients to simpler, less profitable products. Last year’s global FICC revenue pool of $118bn was 46 per cent lower than in 2009, according to data from Coalition, a research group, and is set to dip again this year.

                  At Goldman Sachs, a one-third drop in FICC revenues in the third quarter — knocking return on equity down to 7 per cent, the lowest in two years — was the talk of the US banks’ earnings season.

                  Large, sprawling banks often trade derivatives between different legal entities to centralise risk, or offset risks within different parts of the bank. The requirement to collect collateral when they trade with affiliates would tie up assets that could otherwise be put to work in the market.

                  The FDIC rule applies to banking entities. Eyes will now turn to rules being written by the Commodity Futures Trading Commission that will apply to non-bank affiliates. If the CFTC requires non-bank affiliates to also collect collateral then the combined rules will effectively still require two-way posting.

                  “While the requirement to only post one-way rather than two-way with certain affiliates is clearly better than requiring two-way with all affiliates, this rule increases the cost of serving clients and hedging risk while doing nothing to enhance the safety and soundness of the organisation,” said Greg Baer, president of The Clearing House Association, an industry organisation.

                  The rules also affect the securitisation industry, where assets such as mortgages or loans are packaged up and sold to investors. Often, derivatives are used in the packages to smooth out the different interest rates of the underlying assets, or to convert fixed rate assets into a variable rate that is more suitable to investors.

                  Ellen Pesch, partner at law firm Sidley Austin, warned of the increased cost of securitising assets, making some deals uneconomic. She added that it could also encourage investors to move deals to Europe where the rules are less stringent.

                  “I think there are deals getting done on skinny budgets and if you have increased cost because you are posting collateral, then it will inhibit those deals,” she said.

                  European IPOs test risk appetite

                  Posted on 27 October 2015 by

                  Mailboxes and a mailbag are seen in front of the headquaters of Poste Italiane in downtown Milan, Italy©Reuters

                  British share registrar Equiniti’s share price fell about 8.5 per cent in the first day of trading on the London stock market after pricing at the bottom of its range in its initial public offering.

                  The company, which was previously owned by Lloyds TSB and is now backed by the private equity firm Advent, was priced at £1.65 a share but by the close of trading had fallen to £1.51 — the latest example of what has been a difficult few months for initial public offerings.

                  Volatility in equity markets initially sparked in late summer by concerns about China’s slowing growth rate and expectations that the Federal Reserve would raise interest rates in September, has put a damper on flotations as investors shy away from taking on any additional risk.

                  Dutch government to float ABN Amro

                  State to recoup some of the €22bn it ploughed into bailed-out lender

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                  IPOs have been pulled or repriced across Europe and the US.
                  First Data, the largest deal in the US this year, priced $2 below its initial range, and fell on the first day of trading, while Digicel, a Caribbean telecoms group, and Albertson, a grocer, pulled their planned flotations in the US.

                  In Europe, Xella of Germany and Shield Therapeutics, a Newcastle-based pharmaceuticals group, also deferred their IPOs, while Hastings, a motor insurer that floated at the beginning of this month, is trading below its IPO price.

                  Poste Italiane, the Italian post office and bank that priced last week and began trading on Tuesday, barely moved, with its share price falling 0.5 per cent after the start of trading. The company priced at €8.8bn, which was below the figure of €10bn reported in the Italian press as a potential valuation of the company, although a market participant dismissed that valuation as “aspirational”.

                    While initial shareholders got no return on the first day of trading, the fact that Poste Italiane’s share price did not jump avoided the political controversy that surrounded the privatisation of Britain’s Royal Mail. The UK government was widely criticised for undervaluing the company, which rose substantially on the first day of trading.

                    “The [Poste Italiane] deal has gone very well, as you can imagine the deal was launched in a volatile environment,” said Claudio Villa, an equity capital markets banker at Citigroup who worked on the offer.

                    “There is a degree of IPO fatigue out there but we haven’t seen it with this transaction,” he said.

                    Elsewhere, the Dutch government announced on Tuesday that it would sell its stake in ABN Amro before the end of the year in an attempt to recover some of the €22bn that it spent bailing the bank out during the financial crisis.

                    In a letter to the Dutch House of Representatives, finance minister Jeroen Dijsselbloem said NL Financial Investments, the body in charge of the bank, had said the three conditions necessary for an IPO had been met.

                    “The financial sector is sufficiently stable for a sale, there is sufficient interest from the market and ABN Amro is ready for a sale,” he said.

                    This article has been amended to correct an earlier statement that Covestro, the spin-off of Bayer’s material science group, is trading below its IPO price.