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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Draghi: Eurozone will decline without vital productivity growth

It’s productivity, stupid. European Central Bank president Mario Draghi has become the latest major policymaker to warn of the long-term economic damage posed by chronically low productivity growth, as he urged eurozone governments to take action to lift growth and stoke innovation. Speaking in Madrid on Wednesday, Mr Draghi noted that productivity rises in the […]

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Asia markets tentative ahead of Opec meeting

Wednesday 2.30am GMT Overview Markets across Asia were treading cautiously on Wednesday, following mild overnight gains for Wall Street, a weakening of the US dollar and as investors turned their attention to a meeting between Opec members later today. What to watch Oil prices are in focus ahead of Wednesday’s Opec meeting in Vienna. The […]

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Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

Royal Bank of Scotland has emerged as the biggest failure in the UK’s annual stress tests, forcing the state-controlled lender to present regulators with a new plan to bolster its capital position by at least £2bn. Barclays and Standard Chartered also failed to meet some of their minimum hurdles in the toughest stress scenario ever […]

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Barclays: life in the old dog yet

Barclays, a former basket case of British banking, is beginning to look inspiringly mediocre. The bank has failed Bank of England stress tests less resoundingly than Royal Bank of Scotland. Investors believe its assets are worth only 10 per cent less than their book value, judging from the share price. Although Barclays’s legal team have […]

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Archive | November, 2016

Helios in deal for Crown Agents key units

Posted on 31 March 2016 by

Helios, the pan-African investment firm, is set to deliver a postcolonial turnround with a deal for key divisions of Crown Agents — a company which was once a pillar of the British empire.

The deal for Crown Agents Bank and its sister asset management company, for an undisclosed sum, marks the first time an African-managed fund has won approval from regulators to acquire a UK financial institution.

    Helios is one of the largest investment firms focused on Africa, and among the few private equity groups founded and managed by Africans.

    Tope Lawani, its Nigerian co-founder, says the firm will retain the management of the two divisions — with combined assets of $2.6bn — and inject capital to build on their client relationships across many, mostly Commonwealth states.

    The acquisition was spurred in part by the exit from small frontier and emerging markets of bigger, global banks, Mr Lawani told the Financial Times, citing the recent decision by Barclays to sell its Africa division.

    The growing pressure of regulatory compliance and capital requirements is driving mainstream banks from smaller markets where returns no longer justify costs.

    “Despite the moment we are in, in the economic cycle, demand for trade finance and transaction banking is growing significantly while supply is diminishing,” Mr Lawani said.

    Recent research by the African Development Bank estimates shortfalls in trade financing on the continent at $110bn-$120bn annually.

    This provides an opportunity for Crown Agents, Mr Lawani said, adding that the goal is to create the leading wholesale bank for small and medium sized countries.

    Crown Agents was set up in 1833 to manage grants, raise capital and run supply chains in British dependencies. It has been through numerous incarnations since, from managing engineering projects to assisting post-independence institution-building in former colonies and advising on the creation of sovereign wealth funds.

    The development organisation was privatised in 1997 and became a non-profit-making foundation. It is headquartered and regulated in the UK but has a presence across states in Africa, Asia and the Caribbean.

    “We have seen Angola making investments in Portugal,” Mr Lawani said, drawing a parallel with the oil-rich southern African state and its former colonial ruler. “This is not quite the same dynamic. Crown Agents is uniquely British. I am not aware of any similar financial institution anywhere.”

    The banking division has relations with central banks and corporate entities in smaller states such as Sierra Leone, Malawi and Rwanda. But under foundation ownership it has lacked resources to capitalise on its client networks. Helios hopes to change this using its experience developing businesses across African borders.

    “One of the things we have seen, and not just in banking, is that you can develop a nice protective moat around companies that develop significant market share in small countries,” Mr Lawani said.

    “These are very concentrated markets and that is an opportunity for Crown Agents. It has been in these places for 180 years.”

    Chinese join the mega-dealmakers’ club

    Posted on 31 March 2016 by

    Chinese Chairman of ChemChinaRen Jianxin gestures as he speaks during a press conference of the Syngenta's annual results presentation at the company's headquarters in Basel on February 3, 2016. State-owned China National Chemical Corp on February 3, 2016 offered $43 billion in an agreed takeover for Swiss pesticide and seed giant Syngenta, in what would be by far the biggest-ever overseas acquisition by a Chinese firm. / AFP / MICHAEL BUHOLZER (Photo credit should read MICHAEL BUHOLZER/AFP/Getty Images)©AFP

    Ren Jianxin , chairman of ChemChina

      A new class of Chinese dealmaker has joined the global heavyweights of mergers and acquisitions — business leaders with the connections, confidence and backing to pursue their own multibillion-dollar takeovers, and even gatecrash others.

      In an otherwise lacklustre quarter for M&A activity, it was the bids and bargaining from China’s biggest companies that drove the country’s cross-border deals to record highs, even as previously red-hot US takeover activity fell to a two-year low.

      China’s appetite for overseas assets helped push the overall value of cross-border M&A to $311bn — representing a record 46 per cent of the $682bn in deals in the first quarter, according to Thomson Reuters data. Chinese deals, at $101bn, accounted for roughly a third of that cross-border activity, an all-time high.

      They also took China’s percentage of total global M&A activity to its highest in any quarter: 15 per cent of deals in the period involved an overseas Chinese acquirer.

      China’s dealmaking surge helped to mask a 29 per cent fall in deal value in the US, to $256bn, as M&A activity was slowed by sharp market volatility in January. Europe’s first quarter values improved on the year before, however, rising 11 per cent to $181bn.

      For a handful of politically-connected Chinese business leaders — such as Anbang Insurance’s Wu Xiaohui, ChemChina’s Ren Jianxin and HNA Group’s Chen Feng — the takeover successes of early 2016 have served as an induction into an elite club of global dealmakers: those capable of consecutive billion-dollar deals in a matter of months.

      In several cases, the businessmen have asserted their status with higher bids for existing takeover targets — upending previously agreed deals, often with superior, all-cash offers.


      Rise of Wu Xiaohui, Anbang’s chairman

      Wu Xiaohui, Anbang chairman

      Former auto dealer used intelligence and charm to win backers for global financial empire

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      That tactic was best highlighted in March by Anbang’s chairman, who stepped into a months-old deal between Starwood Hotels & Resorts and rival US hotel group Marriott International. Earlier this week, an emboldened Mr Wu raised his all-cash offer to $14bn for Starwood, heaping greater pressure on Marriott to increase its cash-and-stock bid. Despite repeated questions about the source of his funding and warnings from the Chinese insurance regulator, Mr Wu then attempted to put to rest questions over his ability to pay, telling Chinese media he had Rmb1tn in assets.

      Anbang’s original bid for Starwood came just one day after it had secured a $6.5bn deal for 15 prime US luxury hotel properties owned by private equity group Blackstone.

      “You get extra points for certainty right now because we are closer to a ‘risk-off’ than a ‘risk-on’ market,” explains Michael Carr, global co-head of M&A at Goldman Sachs, who says this partly explains why Chinese companies are winning the fiercest bidding wars.

      In February, ChemChina succeeded in the the biggest outbound acquisition a Chinese company has made to date with its $44bn all-cash buyout of Swiss agrochemical company Syngenta — the largest-ever takeover in the chemical sector. It came a mere four months after chairman Ren finalised a $7.7bn takeover of Italian tyremaker Pirelli.

      M&A-deals chart

      Chinese aviation and logistics conglomerate HNA Group also returned to the market in the first quarter, agreeing to buy US electronics distributor Ingram Micro for $6bn in February. Just months earlier, group chairman Chen Feng had added US-listed aircraft lessor Avolon Holdings for $2.6bn and closed a $2.8bn takeover of airport operator Swissport last year.

      But this spate of deals has not been solely based on the personalities of the chairmen themselves. Experts say low interest rates, coupled with a growing reliance on in-house investment banking expertise on the mainland, have enabled the wave of first-quarter deals.

      Person in the news

      Ren Jianxin: merger master with staying power

      Joe Cummings illustration

      ChemChina’s founder can win over foreign investors and Beijing, write Tom Mitchell and Ralph Atkins

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      “Now they have the liquidity and sophistication to do this,” says Raghu Narain, head of corporate advisory at Natixis. “These leaders have been able to amalgamate the resources that have allowed them to go out.”

      China’s central bank has cut interest rates six times during the past year and a half, lowering the cost of bank financing. In addition, mainland regulators have recently granted permission, or so-called “road passes”, for multiple companies to hunt down the same takeover target.

      In November, Beijing Enterprises Water Group, Beijing Capital Group and China Everbright International, were all found to be competing for German waste management company EEW. Beijing Enterprise won the contest in February for $1.6bn.

      Miranda So, a Hong Kong-based partner at Davis Polk & Wardwell, says: “A ‘road pass’ may not mean exclusivity for a Chinese buyer, as we have seen cases where a second Chinese buyer enters bidding for the same asset.”

      China’s appetite for dealmaking

      Date Target Acquirer Activity Value ($bn)*
      Feb 2 Syngenta (US) ChemChina Chemicals 46.8
      Mar 14 Starwood Hotels & Resorts (US) Anbang Insurance-led consortium Hotels and lodging 15.2
      Mar 13 Shenzhen Metro (China) China Vanke Transportation & infrastructure 9.2
      Mar 23 YTO Express (China) Dalian Dayang Trands Transportation & infrastructure 8.8
      Mar 13 Strategic Hotels (US) Anbang Insurance Hotels & lodging 6.5
      Feb 17 Ingram Micro (US) Tianjin Tianhai Invest Technology 6.3
      Jan 15 GE’s appliance business Qingdao Haier Household and personal products 5.4
      Feb 25 GreatWall Info Industry (China) China Greatwall Computer Technology 4.9
      Jan 26 Terex Corp (US) Zoomlion Machinery 4.7
      Mar 23 Liaoning Zhongwang (China) CRED Metals & Mining 4.7
      Mar 14 CITIC Real Estate (China) China Overseas Land & Invest Real estate 4.6
      Jan 12 Legendary Entertainment (US) Dalian Wanda Media & entertainment 3.5
      Notes: * Includes debt
      Source: Thomson Reuters

      Even as M&A activity slumped in the US, the trend of large corporates seeking to lower their US tax bills by acquiring an overseas-headquartered rival remained prevalent.

      For example, US conglomerate Johnson Controls agreed a $20bn reverse takeover of Ireland-based Tyco International — a deal that would have the same effect as a so-called ‘tax inversion’.

      Meanwhile, US company IHS agreed to combine in a $13bn all-stock deal with UK-based financial information provider Markit in a deal that would create a corporate information powerhouse based in London — and also lower its tax bills.

      Anu Aiyengar, JPMorgan’s head of M&A in North America, said deal activity had slowed down in certain sectors such as healthcare and tech, which were very busy in 2015, while others — such as financial services and industrials — have picked up.

      Bankers say one area that remains ripe for further dealmaking is the consumer sector, which produced some of last year’s blockbuster transactions but saw relatively little dealmaking activity in the first quarter.

      Jens Welter, head of consumer and retail group at Credit Suisse, says the buyers are there.

      “Strategic acquirers continue to be very confident and those that pursue a specific strategy are being rewarded when it comes to M&A . . .” he says. “Overall, the larger deals that captured the headlines last year were highly complex and relied on intricate structures. Some of that will continue to happen in highly consolidated sectors.”

      Buyout groups struggle with shortage of buyers


      Private equity dealmakers made it through tough conditions in the debt markets in early 2016 to secure not one but two $10bn-plus buyouts by the end of the first quarter.

      But in a twist that reflects the dominance of Chinese outbound dealmaking, the biggest buyout was Chinese insurer Anbang’s $15bn cash offer to take Starwood Hotels of the US private. Classic private equity buyout groups were not bidders.

      One of the big four private equity groups, Apollo Global Management, was involved in the next-largest buyout: the $12bn acquisition of home-security group ADT. Apollo is known for its unusual skill in navigating tough debt markets to leverage deals.

      Raising debt finance proved difficult as investors nursed losses on oil and gas company bonds and became unwilling to buy into junk bonds and leveraged loans, making buyout financing more volatile.

      This year Carlyle cut the price it could pay for Veritas — the biggest buyout announced in 2015 — to $7.4bn as banks struggled to sell the debt attached to it.

      In a reflection of these conditions, Apollo had arranged fully committed financing before it announced its cash offer for ADT, including a relatively large slug of equity — $4.5bn — from funds and co-investors.

      Thanks to those two large deals, private equity-backed M&A in the first quarter surged to $52.9bn by volume, according to data compiled by Thomson Reuters — a 36 per cent increase on the same period last year.

      Take out these two deals, though, and the total is only $25.5bn — lower even than the $29bn recorded in early 2015, which at the time was the slowest three months for buyouts since 2009.

      “In January and February we were all getting a bit worried,” said Karan Dinamani, a partner at Allen & Overy. “But in the last two weeks, several processes have started.

      “Whether that translates into deal activity remains to be seen.”

      In Europe $1bn-plus deals — such as EQT’s buyout of travel company Kuoni and KKR’s acquisition of a unit from Airbus — suggest private equity dealmaking may be on the mend. Last year’s $4bn buyout of LeasePlan, a Dutch car lessor, was also successfully financed in March.

      “The tone has definitely improved, as the success of LeasePlan showed,” said Klaus Hessberger, co-head of financial sponsors for Emea at JPMorgan.

      But in some situations “you might see a little less leverage and a little more equity being used”, he added.

      US election: Trump’s man in Vegas

      Posted on 31 March 2016 by

      LAS VEGAS - JULY 12: Donald Trump (L), chairman and president of the Trump Organization, and Phil Ruffin (R), owner of the New Frontier Hotel and Casino, shake hands after cutting the ribbon with showgirls during a ceremonial groundbreaking for the 64-story Trump International Hotel & Tower Las Vegas July 12, 2005 in Las Vegas, Nevada. The $300 million, 1.6 million square-foot, luxury residential hotel condominium tower will be built on part of the New Frontier's 41-acre property and will feature 1,282 hotel rooms, 50 luxury suites, a spa and restaurants. (Photo by Ethan Miller/Getty Images)©Getty

      Phil Ruffin’s life would make a great paperback novel. He is, after all, the rare US billionaire who has repossessed a pet monkey for a Texas department store, parlayed a fortune rooted in Kansas convenience stores into casino holdings in the Bahamas and Las Vegas, married a Ukrainian beauty queen four decades his junior and wound up living in a mansion previously occupied by Prince Jefri of Brunei.

      But after 81 years of hard work, derring-do and good fortune, he now finds himself in his most unexpected role: a character on the political stage. Mr Ruffin is a business partner, friend and campaign ally of Donald Trump. The two are co-owners of the Trump International Hotel & Tower in Las Vegas. When Mr Ruffin was married in 2008, Mr Trump served as best man. When Mr Trump celebrated his win in Nevada’s Republican presidential caucuses, Mr Ruffin’s Treasure Island hotel hosted the party.

        As the world tries to make sense of Mr Trump’s rollercoaster business career and surprising rise to the top of the Republican presidential field, Mr Ruffin offers a rare insider’s perspective. The partners in the 64-storey condominium-hotel overlooking the Las Vegas Strip form a mutual admiration society. Each sees something of himself in the other. Both feel part of a rare breed.

        While introducing Mr Ruffin at a rally in Iowa this year, Mr Trump paid his partner perhaps his ultimate compliment — the same one, he told the crowd, that his late father Fred used to bestow on his son. “It’s like everything he touches turns to gold,” Mr Trump said of Mr Ruffin. The latter acknowledges an “instinct” for good deals and discerns a similar tendency in the former. “Donald uses a lot of instinct,” he says, describing his business partner as “an alpha male”.

        “You are at a table with seven or eight people, he dominates,” Mr Ruffin tells the Financial Times during an interview in his Las Vegas office. “He’s very exceptional. You don’t get those kind of people running for president. You get guys that are Class B lawyers. They don’t know anything. Comparing Donald to [Texas senator Ted] Cruz, [Florida senator Marco] Rubio or some of those guys — that’s men against boys.”

        Mr Ruffin delivered his verdict calmly. A wiry, wily Wichita, Kansas, native who was 147 pounds when he was winning titles as a high school wrestler, Mr Ruffin is the stylistic opposite of his brash buddy from New York. He wears wire-rim glasses. His thinning hair, dyed a deep orange, falls haphazardly across his scalp, unlike Mr Trump’s structured coiffure.

        They are the kind of Americans who inspired historian Walter McDougall’s description of the US as a nation of “hustlers”, by which he meant “builders, doers, go-getters, dreamers, hard workers, inventors, organisers (and) engineers” as well as “self-promoters, scofflaws, occasional frauds and peripatetic self-reinventors”.

        Both trace their family histories in the US to the frontier. Mr Trump is the grandson of German immigrants who took part in the Alaska gold rush before settling in New York. Mr Ruffin’s paternal grandfather left Lebanon for Oklahoma, where Mr Ruffin’s father recalled witnessing the 1924 gunfight that took the life of Bill Tilghman, the legendary gunslinger and marshal of Dodge City, Kansas.

        Neither Mr Trump nor Mr Ruffin has created a smartphone app or commanded an enterprise of the complexity of a General Electric, a Goldman Sachs or a Google. They are wheelers and dealers in real estate, hotels, casinos and whatever else comes their way. Theirs is a milieu where money is made by seizing moments, squeezing contractors, battling creditors, and “pushing and pushing and pushing”, as Mr Trump put it in The Art of the Deal, his 1987 book.

        “We negotiate all the time,” says Mr Ruffin. “We negotiate something every week.”

        Hustlers’ convention

        Mr Ruffin came into Mr Trump’s life in the late 1990s when the New York developer and casino operator was in need of new friends. Many of his old ones had lost patience with him. Weighed down by a mountain of debt, much of it backed by his personal guarantees, he began the decade by seeking to reorganise his corporate empire in a federal bankruptcy court.

        The years-long workout that followed was brutal for just about all concerned. Mr Trump was forced to shed many of his prized assets — New York’s historic Plaza Hotel, his eponymous airline and his 281-foot yacht among them. He also “pushed and pushed and pushed”, as he said he would. Even today, leading New York lenders such as JPMorgan Chase and Citigroup, whose predecessor companies backed him in the old days, keep their distance from Mr Trump.

        But the Trump name still played in the provinces. After taking over the Frontier Hotel in Las Vegas in 1998, Mr Ruffin said he sounded out Mr Trump about collaborating. “I thought he could help me with the Frontier, do something with the Trump name,” Mr Ruffin says. “But that never worked out.”

        Mr Trump had never run a casino in Las Vegas. Then again, neither had Mr Ruffin, though such details had never stopped him before. He was a college dropout whose route to the big time began in the 1950s, when his manager at the WT Grant department store in Houston, Texas, dispatched him to reclaim a monkey whose owner had fallen behind on his payments to the retailer.

        “He was a mean little bastard,” Mr Ruffin says of the lesser primate in the transaction. “He bit me.” Licking his wounds, Mr Ruffin spied a man driving “a beautiful Cadillac with a redhead” by his side. “I said, ‘Who is this guy?’” Told he was the store’s landlord, Mr Ruffin resolved to be like him. Borrowing $1,500 from his father, a grocer, he went back to Wichita and bought a convenience store in 1959.

        Retailing treated Mr Ruffin better than the monkey did. His first big break came after he found out his store was too small to be covered by local laws requiring it to close on the Sabbath. So he opened on Sundays and prospered, buying more stores in other states. His next breakthrough came when he installed self-service fuel pumps, a strategy that proved profitable, if problematic, in his home state of Kansas.

        “It happened to be illegal at the time,” says Mr Ruffin, who then waged a court battle that overturned the prohibition and secured the right of people in Kansas to pump their own petrol.

        ‘Gross becomes net’

        As he neared his 60th birthday, Mr Ruffin owned more than 60 stores and a dairy to supply them with milk, as well as real estate, hotels and oil wells. But he was not finished yet. He leased his retail locations to Total of France and headed offshore, buying the Crystal Palace resort in the Bahamas for $80m in 1994 from Carnival, the cruise ship company. With help from Perry Christie, a lawyer who is now prime minister of the Bahamas, Mr Ruffin obtained a gaming licence and made himself at home.

        “The good part about the Bahamas is that gross becomes net, there is no income tax,” says Mr Ruffin, who sold the resort for $147.5m in 2005. “I like doing business in the Bahamas. It was very easy. We didn’t have high wages.”

        Another benefit was personal. Mr Ruffin found his redhead in a Cadillac when Oleksandra Nikolayenko, Ukraine’s representative at multiple beauty pageants, took part in one at the Crystal Palace. When they celebrated their nuptials at Mr Trump’s Mar-a-Lago beach club in Palm Beach, Florida, the groom was 72 and the bride was 26. The best man was so moved he picked up the tab for all the guests. “It was crazy,” Mr Ruffin says, estimating the gesture cost Mr Trump $300,000.

        Mr Ruffin still likes what he sees in his wife, as he demonstrates when Mrs Ruffin walks into her husband’s office during his FT interview to deliver a smartphone he had left at their home. “Ain’t she pretty?” he asks, rhetorically.

        Mr Ruffin’s Bahamian sojourn set the stage for his move into Las Vegas and his partnership with Mr Trump. Mr Ruffin said he learnt in 1997 that the Frontier, an ageing facility with considerable land holdings along the Strip, was for sale. But there was one problem. Culinary Workers Union Local 226 — known as “the Culinary” — had been on strike for more than six years. To make the deal work, Mr Ruffin had to reach one agreement to buy the property — paying $165m to the Elardi family — and another with union leader John Wilhelm to resolve the walkout.

        “He and I met at Caesar’s Palace,” Mr Ruffin said. “We had a couple of drinks.” He agreed to take back the strikers and cover what they were owed, in return for salary cuts in future years. Labour peace ensued. “I have union experience,” says Mr Ruffin, who previously dealt with the Teamsters union at his Kansas dairy. “They are tough — oh, God, are they tough. If you can deal with the Teamsters, the Culinary was easy.”

        ‘I want etched glass’

        Mr Ruffin
        became the man with the golden touch — in Mr Trump’s eyes — when he sold the Frontier site in 2007 for $1.24bn to El-Ad of Israel. The deal valued the land at more than $30m an acre, about 10 times what experts say it would have fetched after the crisis hit. Following ill-fated attempts to invest the proceeds on Wall Street — “we didn’t have the expertise to deal with those guys,” Mr Ruffin says — he stuck to Las Vegas and struck a $775m deal in 2009 to buy the Treasure Island Hotel & Casino from Kirk Kerkorian’s MGM Mirage group.

        Mr Ruffin’s dealings with Mr Trump in Las Vegas have proved less profitable. Over a decade ago, the two settled on a plan to build a condominium-hotel — originally conceived as twin towers — on land that Mr Ruffin owned behind the Frontier. Mr Ruffin says Mr Trump worried at first that the Trump International site was too far from the Strip. But he won over his partner by assuring him the Trump name would be visible “all the way down” the thoroughfare.

        Mr Ruffin said the partners invested about $20m each and secured a loan of more than $500m led by Hypo Real Estate of Germany to build the first tower. By the time it was topped out in 2007, the partners thought they had offers for most of the 1,282 units. But when the US economy tanked, only about 300 of those deals closed and plans for a second tower were shelved.

        “We started losing $8m a year. I put in $4m. He put in $4m. He never squawked,” Mr Ruffin says. “He’s a big boy. I’m a big boy. Sometimes you lose money on this stuff.”

        Cushioning the blow was the social relationship between the Ruffins and Mr Trump, 69, and his third wife, Melania, 45, a former Slovenian model. The quartet’s activities in recent years have included a viewing of the film Lincoln, which apparently bored both wives.

        “The two girls are from Europe and they didn’t know what the hell was going on,” Mr Ruffin told the Las Vegas Review-Journal in 2013.

        The outlook for the tower today is improving. “We have no debt now,” Mr Ruffin says. “It’s in the black.” With 418 unsold units currently, Mr Ruffin believes the partners “could sell the balance” for “$300m or $400m”.

        All these years later, the project is also a work in progress. About 4 acres of available land at the site affords the partners the opportunity to add convention facilities or even a casino. Another wild card involves Local 226. Tower workers have voted to be represented by the union, but Mr Trump, as managing partner, is still battling to keep Local 226 out. Union officials say they remain confident of eventual victory.

        Mr Ruffin says he deals with Mr Trump’s son, Eric, on tower matters now the campaign is under way. While complimentary of Eric, he misses his old interaction with Mr Trump. “We used to talk about business all the time — this deal or that deal,” he says. “When I saw him work over here with Trump Tower, he is just brilliant. He makes his mind up quick. He would walk through with the contractor and say, ‘Do this, do this, do this. I don’t want this glass in the shower rooms, I want etched glass.’”

        Mr Ruffin says Mr Trump “will make a great president” and donated $1m at the candidate’s fundraiser for veterans in January. He trusts in Mr Trump’s instincts, just as he trusts in his own. But there is also a part of him that wonders why a person with so much in life would go through all the trouble of running for the White House. Mr Ruffin is more of a Cadillac-and-redhead man himself.

        “He always had an interest in politics. He thought about running a couple of times,” Mr Ruffin says of his friend’s ambitions to become US president. “I told him don’t run . . . I said you are king of the world for God’s sake. You are making a couple hundred million a year. You’ve got all this stuff. He said, ‘It’s broken and I can fix it.’”

        Private equity faces bigger tax on profits

        Posted on 31 March 2016 by

        LONDON, ENGLAND - MARCH 16: British Chancellor of the Exchequer, George Osborne holds up the Budget Box as he poses for photographs outside 11 Downing Street on March 16, 2016 in London, England. Today's budget will set the expenditure of the public sector for the year beginning on April 1st 2016 against the revenues gathered by HM Treasury. (Photo by Dan Kitwood/Getty Images)©Getty

        Britain’s private equity executives are adjusting to a new era after legislation revealed how much more tax they will have to pay on their profits.

        After the Budget in March, the opposition Labour party attacked UK chancellor George Osborne for “looking after a wealthy minority” by cutting the higher tax rate on capital gains from 28 per cent to 20 per cent.

          However, Mr Osborne kept the old rate for “carried interest”, the cut of profits — often one-fifth — that private equity managers share with their investors when deals come to fruition.

          Historically, carried interest has been considered capital rather than income, which attracts a higher tax rate. This preferential treatment has attracted criticism from politicians on both sides of the Atlantic.

          Details in the government’s finance bill published last week showed that Mr Osborne was making changes that meant tax authorities would treat carried interest more like income — a big change for the UK’s sizeable private equity industry.

          As of April, the Treasury will tax carried interest wholly as income if deals last fewer than three years, and partly if groups withdraw from them within 40 months.

          Treasury forecasts expect the rule to be a big earner, raising £210m for the exchequer in the 2017-18 tax year.

          Tim Hames, director-general of the British Private Equity and Venture Capital Association, a body representing the industry, said it welcomed the changes that would be “incremental” for most companies.

          Industry executives say the measure is unlikely to affect most investments, which are usually planned to last for at least four to five years. Their investors also expect private equity takeovers to outperform public markets by taking a long-term view.

          But some accept that the taxman sees carried interest as the Achilles heel of private equity compared with other areas of finance.

          The new rules revise a draft last year that would have extended the minimum holding period to four years. Mr Osborne has also tweaked carried interest taxation in other recent Budgets.

          Last year’s Summer Budget, for example, closed loopholes that allowed some managers to pay less than the full capital gains rate.

          “At times, the blend of absurdity bordering on surrealism which has characterised some of the proposals has lent a distinctly Kafkaesque feel to the proceedings,” Richard Ward and Ceinwen Rees, lawyers at Debevoise & Plimpton, wrote in a note to clients last week.

          Private equity: a misunderstood industry

          Leon Black

          PE believes investors do not grasp their long-term cash flow generation capabilities

          Part of the problem is how to apply the holding period to the increasingly diverse world of private markets — beyond old-fashioned buyouts — where the meaning of “long-term” investment becomes harder to define.

          Venture capitalists investing in the next generation of British start-ups will have to justify how far they control the boards of companies they invest in, and whether they ultimately intend to list their investments, for example.

          Funds that invest in private debt, meanwhile, will not fall foul of the new regime if they sell pieces of a new deal to other investors, as part of a syndication.

          But carried interest on direct loans to companies — a growth area for funds since UK banks have reduced their lending — is now presumed to be taxable as income.

          Fund managers from buyouts to real estate private equity also say they have a duty to get the best price for their investors when withdrawing from an investment. In some cases that may mean selling or listing years earlier than planned.

          Mr Ward and Ms Rees ask: “What is wrong as a policy matter with an investment doing well and being realised quickly?”

          When it comes to new investments, the industry is also grappling with separate changes that make interest payments on debt less tax-deductible.

          This is part of efforts to bring in OECD-approved reforms to tax profits where economic activity takes place.

          In depth

          UK Budget 2016

          Chancellor George Osborne delivers his eighth Budget at a time of political turbulence for the Conservative party

          A new rule tying deductions to 30 per cent of a company’s UK earnings before interest, tax, depreciation and amortisation is meant to stop large multinationals loading their UK arms with debt, for example.

          But private equity investors are likely to be hit by the measure. They tend to use high levels of leverage in transactions to enhance returns.

          “It’s a trade-off between interest costs and the time and effort involved [to come up with new structures],” Tom Whelan, a partner at Hogan Lovells, says.

          Companies may have to rejig the share of debt used in future deals — although that skill is in part what investors pay them for. “The great beauty about private equity is that it is so adept,” Mr Whelan adds. “These guys are clever.”

          Buy-to-let clampdown: need to know

          Posted on 31 March 2016 by

          BATH, ENGLAND - MAY 13: A 'To Let' letting sign is seen displayed outside a rental property in an area that is popular for buy-to-let properties on May 13, 2014 in Bath, England. The Labour party has announced that if it wins the election it would cap rent increases in the private sector and scrap letting fees to estate agents. (Photo by Matt Cardy/Getty Images)©Getty

          Buy-to-let investors this week faced the prospect of new curbs on their ability to borrow, as the Bank of England proposed affordability checks and interest rate “stress tests” for those looking to buy a property for rent.

          The Bank of England’s Prudential Regulation Authority, which monitors the soundness of banks and lenders, wants to lay down underwriting standards that it thinks will prevent landlords getting into mortgage payment difficulties if they have a shock to their income or if interest rates climb rapidly. It published a consultation paper on the subject on Tuesday, inviting responses by June 29.

          What is it proposing?

            The PRA wants lenders to assess either whether the monthly rental income from the property is enough to cover the mortgage, or whether the landlord has enough money — along with rental income — to keep paying the mortgage.

            It made clear that affordability — which was subject to new regulations in the residential market in 2014 — should never be based on the value of the equity in the property used as security for the mortgage, and nor should lenders rely on predictions of rises in house prices to justify loan sizes.

            The first of these tests requires lenders to calculate an “interest coverage ratio” (ICR), the relationship of the expected monthly rental income — as verified by an independent valuer — to the monthly interest payments. This should be at a minimum of 125 per cent, the PRA says, and the calculation should take into account all costs of buy-to-let, including estimated voids, council tax, repairs, letting-agents fees and utility costs.

            Tax liabilities should also be incorporated into the sums, including changes resulting from the government’s limits on mortgage interest tax relief, due to start next year.

            If lenders want to use a borrower’s personal income as justification for the loan, they will be obliged to carry out a highly detailed assessment of their personal finances, taking into account everything from income, pensions and savings to tax liabilities, credit card debt or car loans, utility bills and even the amount spent on food and childcare.

            Belt and braces. But what if interest rates go up?

            It has that covered, too. The PRA wants lenders to test a borrower’s affordability under a hypothetical borrowing rate of at least 5.5 per cent over a minimum of five years from the start of the mortgage. Interest rates matter more to buy-to-let borrowers because three-quarters of them have interest-only loans, which are more sensitive to changes in rates.

  , a website for landlords, worked out an example of the changes. If a property was producing £500 a month in rental income with an ICR of 125 per cent and a mortgage interest rate of 5 per cent, the landlord would be able to borrow a maximum £96,000. If the rate went up to 5.5 per cent and the calculation incorporated a 20 per cent reduction for costs, then the same rental income would cover a mortgage of only £69,818, it said.

            What about remortgaging?

            There was some good news for landlords: if you are not increasing borrowing, the test will not apply.

            Why the clampdown on lending?

            The Bank’s motives are different from those of chancellor George Osborne, who has suggested that curbing buy-to-let will help more first-time buyers get on to the housing ladder. The PRA is worried about loose lending, which it thinks could worsen instability should there be a fall in house prices.

            Many lenders already impose an ICR of 125 per cent but some will vary the ratio based on other factors. On the stress tests, the PRA thinks that about a quarter of lenders will need to raise the notional interest rate they use to gauge affordability.

            The PRA acknowledges that the measures will damp lending, forecasting that the number of approvals will fall by between 10 and 20 per cent by July 2018.

            How have landlords and others reacted?

            Mortgage and buy-to-let lenders were relieved that the Bank did not impose a straightforward limit on the ratio of the size of the loan to the value of the property — the LTV ratio. But in saying it would not do so “at this time”, it reserved the right to impose such a measure later on.


            Pension freedoms and the buy-to-let meltdown


            Are we investing our pension cash wisely or being scammed? Buy-to-let investors in panic rush to buy before a big tax rise

            There were also complaints that the Bank is over-egging the regulatory pudding: the government is already hitting landlords by raising stamp duty for buy-to-let homes, limiting tax relief on mortgage interest payments and cutting “wear and tear” payments.

            David Smith, policy director of the Residential Landlords Association, said: “The Bank needs to be careful it does not overreact to the surge in buy-to-let applications aiming to beat tax increases in April.”

            Others think the moves are a welcome brake on the appetite for buy-to-let, particularly among older buyers with access to pension cash. Gareth Shaw, head of consumer affairs at Saga Investment Services, said: “Fears of a housing crash should give pause for thought when thinking about what vehicle to place money in.”

            Breuer to pay D Bank €3.2m over Kirch

            Posted on 31 March 2016 by


            Rolf Breuer, former chief executive of Deutsche Bank

            Rolf Breuer, Deutsche Bank’s former chief executive, has agreed to pay his previous employer €3.2m over an interview he gave in 2002 which triggered a costly legal dispute with the estate of the media tycoon, Leo Kirch.

            Two years ago, Deutsche Bank paid €928m to the heirs of Mr Kirch, who died in 2011, to settle a 12-year legal battle over the bank’s alleged role in the collapse of his media empire in Germany.

              Mr Kirch had long claimed that Deutsche Bank was in part responsible for his media group’s demise after Mr Breuer questioned the company’s financial health in a television interview with Bloomberg in 2002. Deutsche Bank always denied the allegations.

              In documents released on Thursday, Deutsche Bank spelt out the details of proposed settlements with Mr Breuer and a group of insurers that covered the bank’s top staff. The settlements must be approved by shareholders at the bank’s annual meeting on May 19.

              Deutsche Bank said that it had sought damages from Mr Breuer in relation to his interview with Bloomberg, but that he rejected the bank’s claims and held that he “did not breach his duties as management board spokesman, nor cause compensable damages as a result”.

              To resolve the dispute, Mr Breuer will pay the bank €3.2m “without precedent or acknowledgment of a legal duty due to or in connection with the Bloomberg interview”. In exchange, Deutsche Bank will drop its claims against Mr Breuer. A lawyer for Mr Breuer declined to comment.

              Deutsche Bank will also receive a net sum of €90.1m from a group of insurers that provided so-called directors and officers coverage to the German bank in the year of Mr Breuer’s interview.

              Deutsche Bank’s management and supervisory board told shareholders that a settlement would be better than seeking recourse through the courts, given the uncertainty of how such a process would end, as well as the associated costs and reputational risks.

              In a batch of documents released ahead of its shareholder meeting, Deutsche Bank also spelt out details of its new pay structure for management board members, which came into force at the beginning of this year.

              Under the new system, in addition to a basic salary and bonuses linked to the bank’s and their own performance, divisional heads will also be eligible for a bonus linked to their division’s performance.

              Deutsche said that the maximum its co-chief executive, John Cryan, could theoretically receive under this system this year would be €12.5m, while Jeff Urwin, head of Deutsche Bank’s corporate and investment bank, could earn €13.2m.

              However, as in the previous two years, Deutsche Bank will cap the amount that individual board members can earn at €9.85m. Last year, Mr Cryan, who succeeded Anshu Jain as co-chief executive in July, was paid €2.37m including his salary, pension and fringe benefits. His co-head, Jürgen Fitschen, who is stepping down this year, was paid a total of €4.5m.

              Long-dated bonds star amid market upturn

              Posted on 31 March 2016 by

              Governor of the Bank of Japan (BoJ) Haruhiko Kuroda explains his negative interest rate plan using a board during his regular press conference in Tokyo©Getty

              Governor of the Bank of Japan Haruhiko Kuroda explains his interest rate policy

              Stock markets have staged an impressive comeback this quarter, clawing back their severe losses from January and February but the real stars of financial markets this year have been long-dated government debt.

              While the March rebound has helped the FTSE All World index recover almost all of its early-year losses, longer maturity government bonds have been on a tear since the start of the year, propelled by subdued inflation, negative interest rates and low yields on shorter-dated debt.

                Eurozone government bonds with a maturity of 10 years or above have returned 8 per cent in the first three months of the year, according to Bloomberg data, a performance only beaten in two quarters since 1998.

                German “long bonds” have returned over 10 per cent and longer maturity UK gilts have gained over 7 per cent.

                Longer dated US Treasuries have handed investors a 7.3 per cent gain but both eurozone and US “govvies” have been put to shame by the performance of long maturity Japanese government bonds, which have returned 10.6 per cent in the first quarter of 2016. That is the best quarterly performance since at least 1991.

                The blow-out performance is a reflection of the paucity of returns available in shorter dated debt.

                Quantitative easing and negative rates in the eurozone and Japan have pushed the yield of trillions of dollars worth of bonds into negative territory, forcing many investors into longer-duration debt that yields more.

                “You can either go down in credit quality, and many people don’t want to do that, or just go nuts on duration,” said Jack Flaherty, a bond fund manager at GAM.

                As a result, long-term borrowing costs for a host of major countries have fallen precipitously. The US, Germany and Japan can now borrow for 30 years at just 2.64 per cent, 0.84 per cent and 0.53 per cent, respectively.

                “There’s been a significant change in yields in the first quarter, not just domestically but also in Europe and Japan,” said Alex Roever, head of US rate strategy at JPMorgan. “The increase and anticipation of quantitative easing has pushed yields even lower . . . There’s now just much less positive yielding debt out there.”

                However, the performance of longer dated government bonds is not just caused by technical factors such as the swelling universe of negative-yielding debt but also reflects still-muted expectations for global economic growth and inflation.

                Strategists still mostly expect bond yields to climb in the coming year — albeit gently.

                The 10-year US Treasury yield is on average forecast to rise to 2.3 per cent by the end of 2016, and the German, UK and Japanese equivalents to 0.6 per cent, 2 per cent and 0.01 per, respectively, according to Bloomberg data.

                Even if many fund managers doubt that yields will climb meaningfully — or at all — in the coming year, the performance of the first quarter will be difficult to replicate, given the limited scope for safer government bond yields to fall much further.

                JBA head predicts spike in overseas buys

                Posted on 31 March 2016 by

                Takeshi Kunibe, President and Chief Executive Officer of Sumitomo Mitsui Banking Corporation, at its company headquarters, for Michiyo Nakamoto's story. 05/24/2011

                Takeshi Kunibe

                The new head of the Japanese Bankers’ Association is predicting a spike in overseas acquisitions as Japanese companies are prodded into an “aggressive mindset” by the country’s negative interest rate policy (Nirp).

                The country can also expect a Nirp-driven increase in domestic consolidation in the banking industry and beyond as Abenomics — the package of policies under prime minister Shinzo Abe intended to definitively break the economy free from deflation — enters a “critical phase”.

                  The comments by Takeshi Kunibe — who is also president of Sumitomo Mitsui Banking Corporation, Japan’s second-biggest financial group by assets — come as he takes over on Friday as chairman of the influential JBA.

                  He does so in what is arguably the organisation’s most turbulent year for more than a decade, as new banking laws are debated and the JBA’s 64 members accelerate consolidation talks that have produced three separate mergers over the past couple of months.

                  Headwinds have been strengthened by the Bank of Japan’s decision on January 29 to introduce Nirp to the world’s third-biggest economy. That has hit banking shares hard, and highlighted the challenges of a sector feeling the squeeze of Japan’s ageing demographics.

                  “The timing of the Nirp announcement was when the global economy was still risk-off . . . which means that the effect of Nirp has been weakened, but it should eventually stimulate consumption,” Mr Kunibe said.

                  He said that in the short term, negative rates would hit an industry where deposits surpass loans and in which banks hold large volumes of Japanese government bonds. The yield on the benchmark 10-year JGB has turned negative under Nirp.

                  Over the longer term, according to Mr Kunibe, there “will eventually be a positive impact”.

                  He said his main focus as JBA chairman would be the effort to generate demand for loans. “I have been talking to CEOs, and the ones who were considering capital expenditure and investment in M&A are willing to be more aggressive following the introduction of negative rate policy. There are quite a few CEOs with this mindset,” Mr Kunibe said.

                  Japanese Government Bond yield hits record low

                  Pedestrians walk past a stock prices board showing numbers of the Tokyo Stock Exchange in Tokyo on February 2, 2016. Tokyo shares opened lower February 2 as oil prices resumed their drop and after a weak lead from financial markets in Europe and on Wall Street. AFP PHOTO / KAZUHIRO NOGI / AFP / KAZUHIRO NOGI (Photo credit should read KAZUHIRO NOGI/AFP/Getty Images)

                  Investors show frustration with NIRP and faltering Abenomics growth programme

                  By some indications, Japanese companies have already turned aggressive, with 2015 a record year for Japanese outbound M&A in terms of yen value, according to Dealogic.

                  But Japanese companies are realising with ever greater urgency that they must push beyond their shrinking home market, Mr Kunibe said. Companies’ efforts to “firmly establish themselves in global markets” will require more outbound acquisitions, he said, while domestically, companies in all sectors will defend themselves with consolidation.

                  Japan’s parliament is expected to approve, by this summer, banking law revisions designed to update an industry that has been slow to introduce cutting-edge financial technologies employed elsewhere in the world. The proposed legal changes would allow Japanese banks to invest directly in IT and financial technology companies.

                  Despite the prolonged Abenomics campaign to convince Japanese households to shift from savings deposits into investment, banks have largely failed to prompt that leap of faith.

                  The current market condition — in which the yen has climbed sharply against the dollar since January while Japan’s main Nikkei 225 stock average has shed more than 10 per cent — was described by Mr Kunibe as “non-transparent” and, he said, could make it even harder to convince Japanese to take on more risk.

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                  Panmure Gordon swings to full-year loss

                  Posted on 31 March 2016 by


                  Panmure Gordon confirmed on Thursday that it swung to a statutory loss of £16.7m during a “disappointing” 2015, in the first set of results unveiled by new chief executive Patric Johnson, who is trying to turn round the fortunes of the City stockbroker.

                  The overall loss was driven by a decision to write off outstanding historic accounting goodwill of £13.2m on the balance sheet, which dates back to 2005, and start 2016 with a clean slate.

                    Panmure reported a loss after tax from normal operations of £4.1m for 2015, compared with a profit in 2014. This is in line with the company’s warning in December that it expected to suffer a pre-tax loss of £4m–£4.5m in 2015 after a decline in capital markets transactions.

                    Mr Johnson said: “The problem is that last year we didn’t do as many transactions as we should have done. We didn’t focus enough on origination.”

                    Panmure, whose name dates back 140 years, and its stockbroker peers are suffering from structural challenges to their business model coming from more regulation, which is compounded by fewer deals and lower corporate retainers.

                    Revenue from corporate finance and other fee income was down 38 per cent to £12.8m during 2015, while net commission and trading income increased 11.3 per cent to £10.5m.

                    Mr Johnson was promoted to chief executive in February after his predecessor Phillip Wale quit abruptly, a week after chairman Ed Warner announced his decision to leave the group. The same month Panmure announced it had agreed a £5m loan facility from its Qatari backers QInvest to bolster its balance sheet.

                    Panmure’s headcount has reduced roughly from 140 people last year to just over 100 today. Since he took the helm, Mr Johnson has cut costs by shutting non-core desks such as the five-person Swiss office and a fixed-income desk that was part of Panmure’s acquisition of Charles Stanley Securities in 2015.

                    The company has moved from a generalist approach to being sector-driven to position itself for Mifid 2, the EU directive that is reshaping Europe’s financial services industry and putting pressure on asset managers’ research budgets.

                    Mr Johnson said: “We are under no illusion as to the potency of the dangers that lie ahead of us this year and the external factors that will weigh heavily on the fundraising opportunities in our market [ . . .] My key focus now is to swing the business back into the black.”

                    Separately, on Thursday Panmure’s rival Numis Corporation issued a trading update for the six months to the end of March. It said it expects to report revenue and profits above the first half of last year, on the back of 27 equity transactions and 10 initial public offerings so far this financial year. In the first half of its 2015 financial year, Numis recorded revenues of £45.7m and £14.3m in adjusted pre-tax profits.

                    Spain deficit fight suffers setback

                    Posted on 31 March 2016 by

                    Spanish acting Prime Minister Mariano Rajoy looks on before holding a meeting of the Popular Party parliamentary group at the Spanish Parliament in Madrid on February 4, 2016. Rajoy has struggled to form a government as other parties consistently refused to support him, citing inequalities created by drastic spending cuts implemented during his four-year term, as well as corruption scandals afflicting the PP. AFP PHOTO / JAVIER SORIANOJAVIER SORIANO/AFP/Getty Images©AFP

                    Mariano Rajoy, Spain’s acting prme minister

                    Spain has veered sharply off course in its long-running effort to reduce the budget deficit, unveiling a 5.2 per cent shortfall in 2015 that is likely to raise alarm inside the European Commission and impose significant political constraints on the next Spanish government.

                    Cristóbal Montoro, the budget minister, said the funding gap stood at €55.8bn last year — significantly worse than predicted by either the Spanish government or the Commission. The shortfall is almost a full percentage point above the deficit target set by Brussels, which has warned repeatedly in recent months about the state of Spain’s public finances.

                      Crucially, the gap also makes it all but impossible for Madrid to comply with its target of reducing the shortfall to below 3 per cent of gross domestic product this year — an objective that senior Spanish officials insisted until recently was well within reach. To meet the Brussels budget objective for this year, the next government would have to cut spending by at least €20bn.

                      Pierre Moscovici, the EU’s economic and financial affairs commissioner, said in a statement: “The data published today confirm the commission’s concerns about Spain’s budgetary trajectory.”

                      Mr Montoro blamed the latest budget deviation on overspending by Spain’s powerful regional governments, many of which are now controlled by the leftwing opposition. But he also drew attention to the overall improvement in Spain’s economic performance, and to the fact that the government had again managed to lower the deficit — even if by less than originally hoped for.

                      “Our legacy is an economy that is growing and that is once again creating jobs,” he told a press conference in Madrid on Thursday.

                      Analysts were less kind in their assessment, saying the government itself had made the deficit worse, not least by cutting taxes ahead of last year’s general election. “The government relaxed its stance because we had an election year — and the European Commission looked the other way. This was very bad fiscal policy,” said José Ignacio Conde-Ruiz, a professor of economy at the Complutense University in Madrid.

                      Prof Conde-Ruiz said Spain’s yawning budget gap had come about despite the overall buoyancy of the Spanish economy. Helped by a revival in domestic demand and record tourism receipts, GDP grew by 3.2 per cent last year, one of the fastest rates of expansion in the eurozone. “This is proof that Spain’s fiscal crisis is far from solved. And it means that the next government will have a very tough start. These numbers means that many of the parties’ election promises have become totally unrealistic,” he said.

                      Spain has been without a proper government since the election in December, when voters failed to hand a clear majority to either the political left or the right. Party leaders have since struggled to forge a workable government, amid growing speculation that Spain is now on course for a repeat election in June. Mariano Rajoy, prime minister, will continue to serve as de facto leader until fresh elections are called, but his government lacks the constitutional and parliamentary power to push through fresh budget measures.

                      All the main Spanish parties, including Mr Rajoy’s Popular party, have promised to strike a new deal with Brussels that would give Madrid more time to bring the public deficit into line. In addition, both the opposition Socialists and the anti-austerity Podemos party have vowed to raise spending on social measures, education and other areas.