Banks

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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Economy

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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Currencies

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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Banks

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

Eurozone growth rate doubles, ‘Gucci’ paper handbags and China’s robot revolution

Posted on 29 April 2016 by

Test your knowledge with the week in news quiz.

Eurozone growth has exceeded economists’ expectations, growing 0.6 per cent quarter on quarter at the start of the year — its fastest quarterly pace since the same quarter in 2015 and a doubling of the growth rate at the end of last year. It is good news for European policymakers, who have been forced to ramp up stimulus measures to revive the economy.

In contrast, the US economy grew at its slowest pace in two years during the first three months of 2016, raising questions over the durability of its expansion at a time of global uncertainty. Gross domestic product growth of 0.5 per cent was less than half the rate set in the previous quarter due to tumbling corporate investment and lower exports. The numbers were also held back by a deceleration in consumer spending growth. (FT)

In the news

I am in forced exile: Vijay Mallya His passport has been revoked, there is a warrant out for his arrest and India’s foreign ministry has written to the UK government requesting his deportation — but the boisterous Indian beer and spirits tycoon has declared he is ready to settle hundreds of millions of pounds owed to banks after the collapse of his company, Kingfisher Airlines. (FT)

Germany eyes jobless migrant benefits ban The country is planning to ban EU migrants from most unemployment benefits for five years after their arrival, in a dramatic response to rightwing populist assaults on Chancellor Angela Merkel’s liberal immigration policies. (FT)

Carl Icahn sells all his Apple stock The billionaire investor, who was among the company’s largest outside shareholders, said he no longer held a position, citing concerns about China’s attitude towards the tech firm. (FT)

Comcast buys DreamWorks Animation The largest US cable TV provider has agreed to pay $3.8bn for the studio behind Shrek and Kung Fu Panda. (FT)

Taiwan chipmakers worried about brain drain The companies are facing an exodus of talent as they are squeezed by competition from Chinese competitors. (NAR)

Amazon delivers good quarter for investors Amazon reported its most profitable quarter to date on Thursday as sales beat expectations, with the subsequent 12 per cent rise in its share price valuing the group at almost $280bn. Sales for the quarter were $29bn, up 28 per cent from a year earlier, representing Amazon’s highest revenue growth in nearly four years. (FT)

Gucci cracks down on fakes for the dead The Italian brand is asking Hong Kong funeral shops to stop selling paper versions of the fashion house’s handbags to be burnt as offerings for those in the afterlife. (FT)

It’s a big day for

Iranian politics A run-off parliamentary election is to take place for 68 parliamentary seats following February’s general election. Results then showed allies of President Hassan Rouhani made big gains from the conservative Islamic establishment, but neither faction has a majority, meaning the run-offs will decide who controls the 290-seat parliament. (FT)

Food for thought

Obama weighs his economic legacy GDP is growing and unemployment is at 5 per cent — but many voters feel like the US never recovered from the financial crisis. The president has a theory about why. (NYT)

The bombing of MSF The Kunduz Trauma Center run by Médecins Sans Frontières in Afghanistan remained open throughout the battle for the city last year — until an American AC-130 gunship dropped a bomb on it. (The Intercept)

China’s robot revolution Across the country, factories are replacing humans with robots in a new automation-driven industrial revolution, the effects of which will be felt around the world. (FT)

Good reasons to buy gold Why did pirates wear gold earrings? So that when they came to a violent or disease-ridden end on a distant shore, they might stand a greater chance of getting a Christian burial, paid for by the jewellery on their body. That’s one historical nugget of a story from a London underground bullion store. (FT)

Can Hill thrill after you’ve felt the Bern? Hillary Clinton is on track to win the Democratic nomination but can she persuade wary supporters of rival Bernie Sanders to follow her? Sign up for our daily US politics newsletter here.
(FT)

Trumpology: a masterclass A roundtable with five writers who have covered Donald Trump, and delved deep into his psyche. (Politico)

Video of the day

The US in three numbers US managing editor Gillian Tett explains the three figures that give an insight into the workings of the US economy. (FT)

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Unpaid bills add to China debt problems

Posted on 27 April 2016 by

epa04896969 A ticket sales staff (L) receives payment from a tourist at a tourist viewing park in Beijing, China, 25 August 2015. Global share prices posted some of their biggest falls on 24 August since the global financial crisis in 2008, amid growing fears about the economic outlook for China. On 25 August, China shares fell sharply again as markets opened. The benchmark Shanghai Composite Index opened down 6.4 per cent, at 3,004.13 points. The Shenzhen Component Index opened lower by 6.9 per cent, 10,212.47. EPA/ROLEX DELA PENA©EPA

Times have changed for Yu Xingzhi since China’s economic boom years. Despite the slowing economy, sales at Shanghai Caison Color Material Chemical are holding up. The trouble is, her customers — garment manufacturers and packaging producers buying her dyes and inks — are taking more time to pay for what they buy.

“Receivables are the unavoidable problem for traditional manufacturers. If you don’t accept receivables, you have no business. It’s standard industry practice, even though no one likes it,” says Ms Yu, the dyemaker’s general manager.

    It is a vicious circle and one threatening the health of the economy. Ever longer delays in bills being paid are creating a chain of squeezed cash flow and debt that runs from large state-owned enterprises through to smaller suppliers and even employees struggling to pay their own bills.  

    Listed companies had to wait a median 70 days to receive payment last year, the longest delay in 14 years, as cash flows tightened amid slack final demand. That compares with a median 60 days in 2014 and 46 days in 2011, according to Wind Information, a Chinese financial database. 

    Ms Yu says that an increasing share of customers now insist on paying with a bankers’ acceptance rather than cash. Similar to a postdated cheque, bankers acceptances are a kind of IOU from a company and its bank. Ms Xu says that a few years ago, 5 to 10 per cent of her sales were paid this way, but that has now risen to 20 to 30 per cent. Most cannot be cashed for 90 or 180 days.

    Nor does the problem end with Ms Yu. “We have no choice but to pass the delays upstream [to our suppliers],” she says.

    China’s supply chain is more dense than in Europe or the US, and often concentrated in localities — meaning bills that go unpaid for months have a knock-on effect that can quickly rip through entire industrial ecosystems.

    Thus when Shenzhen Eycom Technology Co, which makes hardware and software for mobile phones, held up payments two of its Shenzhen-listed vendors were forced to warn investors in stock exchange filings. In Nanchang city, in China’s southern Jiangxi province, a small manufacturer of medical-grade plastic blamed late payments from customers for its inability to pay Rmb1.1m in salaries to more than 120 employees last September, prompting a fine from the local labour bureau, according to local media. 

    The woes of the Shenzhen group, which operates in a notoriously competitive and low-margin industry, illustrate what economists say is the crux of the problem: weak final demand, especially in low-end manufacturing sectors wracked with overcapacity. Companies must whittle down inventories before they have enough cash to pay suppliers. 

    chart: China accounts receivable at industrial enterprises

    But the build-up of receivables also reflects bottlenecks in the financial system. China’s central bank has eased monetary policy substantially since late 2014. But looser money often fails to reach smaller, privately owned businesses that struggle most in paying their bills on time.

    “It looks like liquidity is very ample, but a lot of that is being used to help the real estate sector refinance. It’s not circulating widely through the economy,” says Shao Yu, economist at Oriental Securities in Shanghai. 

    The banks, however, sniff opportunity in the rising stock of receivables: both financing and securitising payments. Financing is dominated by the Big 4 state-owned “bad banks”, which once exclusively purchased non-performing loans from commercial banks but have now diversified into other distressed assets. 

    At China Huarong Asset Management, the country’s biggest bad bank, nearly two-thirds of newly acquired assets, or Rmb147bn, were from non-banks in 2015. Non-bank assets were “mainly” corporate receivables, Huarong said in its annual report. Following years of pilot projects, in February, eight government agencies led by the People’s Bank of China issued policy guidelines that pledged to “accelerate securitisation of receivables” in order to “revitalise the stock of industrial assets”.

    chart: China cash conversion cycle lengthening

    Many Hong Kong exporters have adopted a 30-40-30 structure to keep cash flows running, whereby customers make partial payment before, during and after shipment.

    Willy Lin, managing director of Hong Kong-based Milo’s Knitwear — which exports upmarket China-made clothes to Europe — says he and other Hong Kong exporters are “playing safe” with payment terms. He typically uses a 30-40-30 structure in which customers make partial payment before, during and after shipment.

    Mr Lin says that high-end manufacturers, whose customers cannot easily switch to a competitor, have more bargaining power, but that he is aware many smaller Chinese manufacturers face increasing difficulty.

    “The problem is quite common in mainland private enterprises because many of the companies rely on guanxi [connections] and nepotism to make a business deal. A deal usually comes from friend of a friend or someone’s relatives,” says Mr Lin.

    Additional reporting by Ma Nan and Gloria Cheung

    Twitter: @gabewildau

    Goldman Sachs opens to the masses

    Posted on 24 April 2016 by

    The Goldman Sachs & Co. logo is displayed at the company's booth on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Friday, July 19, 2013. U.S. stocks fell after benchmark equities gauges rose to records yesterday, as worse-than-estimated profit from Google Inc. and Microsoft Corp. (MSFT) overshadowed China’s plan to remove the floor on lending rates. Photographer: Scott Eells/Bloomberg©Bloomberg

    For almost 150 years Goldman Sachs has been the go-to bank of the rich and powerful. But now the Wall Street titan is opening up to the masses on Main Street by offering online savings accounts for as little as $1 on deposit.

    Goldman’s shift down market comes as the bank is under pressure to develop new streams of funding. Weak first-quarter results from the big US banks have highlighted the challenges faced by their investment banking units, under pressure from volatile markets and tight regulations.

      Analysts last week fired a barrage of questions at the US banks, and at Goldman in particular, wondering why they were not doing more to reboot their businesses. Goldman posted the lowest quarterly return on equity — just 6.4 per cent, on an annualised basis — of the past four years.

      The bank last week launched GSBank.com, a platform it inherited via the acquisition of a $16bn book of deposits from GE Capital.

      Through that deal it gained about 145,000 retail depositors and is now seeking more, offering annual interest rates of 1.05 per cent on a savings account — many times better than the rates of the biggest US brick-and-mortar lenders such as Citibank, JPMorgan Chase or Bank of America.

      Stephen Scherr, Goldman’s chief strategy officer, said the aim was to broaden sources of funding for GS Bank, its New York State-chartered lender. Until now, the unit has focused on wholesale funding sources and so-called “brokered deposits”, which are bulk sums that banks acquire from brokers in exchange for high interest rates.

      By tapping regular retail depositors, Mr Scherr said, the bank can open up “a different avenue to use, with a different orientation and a different tenor”.

      Devan Goldstein, banking expert at NerdWallet, a San Francisco-based personal finance site, said he was unsure whether rate-hunters would be drawn to GS Bank from other online banks such as Ally or Discover. But he predicted the Goldman brand was probably enough to pique interest.

      “It’s synonymous with the dream of wealth in America,” he said.

      [Goldman Sachs brand is] synonymous with the dream of wealth in America

      – Devan Goldstein, NerdWallet

      Goldman’s acquisition of GE Capital’s deposit book, which closed a week ago, is a good fit with the demands of regulators, which have been urging the biggest banks to fund their activities through deposits rather than short-term bonds or loans. Under a new liquidity standard introduced by the Basel Committee that came into effect last January, deposits from retail customers are considered the least likely to vanish when problems arise.

      In addition to the instant-access savings account, GS Bank is offering a range of certificates of deposit, from six months to six years. The six-month CD pays an annual percentage yield of 0.7 per cent, more than five times the national average.

      $98bn

      GS Bank deposits as of December last year

      GS Bank had been aggressively gathering deposits independently of the GE deal. As of last December it had total deposits of $98bn, up from $83bn the previous year.

      Mr Scherr said the new funds could support Mosaic, the bank’s embryonic effort to rival online lenders such as Lending Club and Prosper. That unit, run by a former senior executive at Discover, now numbers about 100 people, and is preparing to start originating loans by the end of the year.

      Goldman’s push into mass-market banking will not be significant enough to replace lost trading revenues, said Jeffery Harte, an analyst at Sandler O’Neill in New York. But he said it was worth exploring, all the same.

      Greybull Capital in steelworks rescue

      Posted on 22 April 2016 by

      This file photo taken on March 31, 2016 shows the sun rising above Tata Steel's blast furnaces at their Scunthorpe Plant in north east England. The British government on April 21, 2016 offered "hundreds of millions of pounds" in financial support for potential buyers of crisis-hit Tata Steel's UK operations and said it could even buy up to a quarter of the company.©AFP

      Greybull Capital: British fabrication

      City Insider

      The news that Greybull Capital is swooping to the rescue of one of the UK’s biggest steelworks was cheered by staff in the sector. Tata Steel of India has agreed to offload its struggling European long products unit, which is based in Scunthorpe, Lincolnshire, to the family investment firm. Not only does the deal offer a lifeline to 4,800 mostly UK-based employees. Greybull has also pledged to resurrect the British Steel name — spawned almost 50 years ago to unite and nationalise Britain’s 14 big steelmakers. That’s a slick marketing wheeze. But the workers at Scunthorpe are about the only British thing about the rescue. Greybull is the family office of the French-born Meyohas family, who made their fortune in finance, and the Swedish Perlhagens, who made their money in medicines. Greybull itself is named after a town near Yellowstone National Park in Wyoming. A tad more glamorous than the chimneys of Scunthorpe.

      António Horta Osório, Group Chief Executive (CEO) of Lloyds Banking Group, addresses delegates at the British Chambers of Commerce in central London on February 10, 2015.©AFP

      António Horta Osório: Next challenge

      At HSBC’s annual meeting on Friday, succession planning tops the agenda for shareholders. Douglas Flint is expected to be replaced as chairman within a year, and the bank is likely to seek a successor to CEO Stuart Gulliver the following year. Gulliver, the boss since 2011, has said he plans to see through his “pivot to Asia” strategy to the end of 2017. After that, pressure from investors may mean it breaks with its tradition of plotting succession internally. Henri de Castries, Axa’s outgoing boss, joined HSBC as a non-executive director last month. He’s the favourite to succeed Flint. As far as the CEO succession goes, might António Simoes, the European head and an option for the role if it was to go to an insider, give way to a rival António. City Insider hears fellow Portuguese banker António Horta Osório, currently head of Lloyds and a popular figure among investors, may see 2018 as a good time to move to his next challenge.

      Britain's ambassador to Israel, Matthew Gould visits the site where a Grad rocket fired by Palestinian militants hit in a residential area in the southern Israeli city of Beersheva, about 40 kilometres (25 miles) from the Gaza Strip, on March 23, 2011 as two Grad rockets fired by Gaza militants slammed into Beersheva, a day after two deadly Israeli raids killed eight Gazans.©AFP

      Matthew Gould: Cyber man

      The hazy world of cyber security is all the murkier when government gets involved. Last August, the Cabinet Office appointed high-flying diplomat Matthew Gould — until then UK ambassador to Israel — to the role of cyber security director. The job made him a key go-between linking government cyber policy to the City of London and the broader business world. Over the past year or two, cyber has overtaken the likes of credit risk and market risk as a key concern for financiers, though of late has been upstaged by Brexit fears. How appropriate, then, that Gould moved — barely six months into his cyber job — to head the anti-Brexit “referendum unit”. City Insider hears Gould, dubbed the government’s Scaremonger General, will not return to the cyber job. So it’s official. Brexit risk beats cyber risk even after June’s poll.

      Chris Saul: Legal high

      To the Saatchi Gallery, where Magic Circle law firm Slaughter and May threw a party last Thursday for popular retiring senior partner Chris Saul and his successor, Steve Cooke. As a backdrop for the evening, Saul, a rock fan and inveterate festival goer, had picked Exhibitionism: an immersive exhibition with over 500 original Rolling Stones artefacts. In Keith Richards’ autobiography “Life”, the star recalls that “for many years I slept, on average, twice a week. This means I have been conscious for at least three lifetimes.” The legal eagles admired his stamina. One partygoer joked: “He ought to have been a corporate lawyer.” Keith must be kicking himself.

      Greece’s debt crisis looks familiar

      Posted on 22 April 2016 by

      Farmers demonstrate outside the Greek parliament during a protest against pension reform and tax issues, on February 12, 2016.
Fears that Greece will exit the eurozone, a "Grexit", could revive if Greek authorities do not come up with "credible" reforms, notably on pensions, a senior IMF official said February 11. / AFP / ARIS MESSINIS (Photo credit should read ARIS MESSINIS/AFP/Getty Images)©AFP

      While Europe’s political class has been consumed with preventing refugees from entering the EU and Britain from exiting, the mother of all EU crises has slowly and quietly been gathering steam again: Greece.

      Eurozone finance ministers will meet on Friday after yet another round of fruitless talks in Athens where almost nobody agreed on the way forward.

      And just like the Greek crisis that gripped the EU last year, there is a hard stop arriving very soon: unless Athens receives its next round of bailout aid, it risks defaulting on €3.5bn in debt payments in July, raising anew the agonising prospect of Grexit.

      Why Greece and bailout monitors are at loggerheads again

      Greek prime minister Alexis Tsipras

      There are questions about whether the IMF will stay in the programme at all

      How could this be happening again?

      After a series of increasingly desperate summits nearly a year ago, EU leaders agreed an €86bn bailout that pulled Greece back from the brink. Just months later, a chastened Alexis Tsipras, the far-left prime minister who made his political bones railing against two similar EU rescues, won re-election promising to implement the harsh fiscal measures included in a third programme.

      European Commission officials were touting Mr Tsipras as a changed man; shorn of his ornery finance minister Yanis Varoufakis, Brussels convinced itself that the long-time radical had transformed into a diligent economic reformer.

        But they overlooked the political realities in Athens — not to mention the financial realities of the bailout.

        In fact, last summer’s deal was less a cure-all for Greece’s economic woes than a collective kicking of the can down the road. It avoided default by loaning Athens €13bn very quickly in exchange for a narrowly focused set of pension and tax reforms.

        Even then, much of the heavy lifting was put off until the new programme’s first quarterly review — including the politically combustible issue of debt relief. As if to underline how ephemeral the deal was, the International Monetary Fund made clear it was not participating and would put off any decision on whether to join until it was certain Mr Tsipras, who had become the first leader of a developed country to default on an IMF payment, would live up to his commitments.

        That first quarterly review has now stretched into two additional quarters, and the three-dimensional stand-off between Athens, Berlin and the IMF has only deepened.

        While the IMF has demanded a restructuring of Greece’s debts, Germany has suddenly decided that no debt relief is needed at all. Still, it has insisted the IMF participate anyway.

        Meanwhile, the IMF has decided the agreement reached in July was badly constructed and should have lower budget surplus targets.

        As for Mr Tsipras, he has returned to an angry, defensive crouch, railing against outside forces.

        There is little political capacity in Athens to push through additional reforms or spending cuts even if Mr Tsipras wanted to.

        “Europe’s politicians have been distracted with other challenges and markets have become complacent about the inherent risks in Greece’s new bailout,” said Mujtaba Rahman, head of European analysis at the Eurasia Group risk consultancy. “But if Berlin doesn’t revise its approach, this is going to blow up in everyone’s faces.”

        Greece has defied doom-mongers — now the IMF must do its bit

        People look at goods at a shop in central Athens on August 22, 2013. ECB board member Joerg Asmussen said Wednesday that Europe would consider additional aid to Greece if Athens makes progress on cutting its budget deficit and meets all the terms of its bailout deal. .AFP PHOTO / LOUISA GOULIAMAKI (Photo credit should read LOUISA GOULIAMAKI/AFP/Getty Images)

        After six years of recession, we are laying the foundations for recovery, writes Alexis Tsipras

        The players, the arguments and even the choreography have changed little since last year. But the consequences of failure may have.

        A year ago, EU leaders felt confident they had ringfenced Greece and that a Grexit, while severely damaging to the Greek economy, would have little impact on the rest of the eurozone.

        Now, however, they are deeply worried about the prospect of a failed EU member state with 50,000 Syrian, Iraqi and Afghan refugees stuck in deteriorating camps — a state the rest of the bloc is looking to as a front line against the influx of migrants into Europe.

        And then there’s Britain. Senior EU officials are acutely aware that another ugly Greece fight just as Britons go to the polls on June 23 to decide on whether to stay in the EU would not help their cause. One official involved in the talks said Euclid Tsakalotos, the Greek finance minister, has been warned to wrap up a deal by the end of May — or be ready for radio silence until June 24.

        In the end, these pan-European political realities make another Greek agreement all the more likely. But that does not mean it will be pretty.

        Dell’s SecureWorks unit IPO disappoints

        Posted on 22 April 2016 by

        Dell computer cyber security

        Dell computer cyber security

        SecureWorks, the cyber security division of Dell, raised less than expected with the first technology initial public offering of 2016 casting doubt on the outlook for future deals.

        The company sold 8m shares at $14 a piece, according to a person familiar with the deal, for $112m. That is down from the 9m shares it had planned to sell at a range of $15.50 to $17.50.

          The deal is the first US listed tech IPO since Chinese peer-to-peer lender Yirendai went public on December 17, according to Dealogic, and comes after 30 tech deals in 2015 raised just less than $10bn. There had been hopes for high demand that would pave the way for what is thought to be the many tech offerings in the pipeline.

          But the disappointing IPO cast a pall over what had been positive recent listings from exchanges operator Bats Global Markets and dialysis provider American Renal Associates. They priced at the high end of their ranges, traded up and created enthusiasm about the health of the US listings market.

          “There is excitement over the first tech IPO of 2016, but investors are still doing their homework,” said Matthew Kennedy, an analyst at Renaissance Capital, which runs IPO-focused exchange traded funds. “It does have implications for the large backlog of tech IPOs that are waiting.”

          As US stocks sold off in the first quarter, more companies delayed deals than executed them. Public tech listings in particular have been few and far between over the past year. Emerging companies instead have used private transactions to raise billions of dollars of funding at high valuations that don’t appear to be matched in the current state of the public markets.

          SecureWorks also priced on a day when the tech sector was hit with bad news. Alphabet, the parent of Google, and software maker Microsoft, fell sharply in after-hours trading after the groups revealed weaker-than-expected quarterly earnings.

          SecureWorks also went public at a time when private funding for cyber security start-ups is proving difficult. After years of large increases in venture capital going to companies providing a new generation of cyber defences, far beyond antivirus and firewalls, some start-ups have said it is becoming more challenging to attract funding in what is now an overcrowded market.

          There is excitement over the first tech IPO of 2016, but investors are still doing their homework.

          – Matthew Kennedy, Renaissance Capital

          As cyber attacks rise, investors have been drawn to companies offering solutions, but appear to be realising that even these new products cannot single-handedly stop hackers and that many customers do not have sufficient IT security teams to deploy the new software.

          Shares in public cyber security companies have also been hit, with FireEye down 60 per cent in the past year, Fortinet falling 20 per cent, and Rapid7 down 52 per cent since its initial public offering last summer.

          The SecureWorks IPO comes as Dell is funding a $67bn planned acquisition of storage maker EMC. Cash raised will stay with the company, though the public listing would make it easier for Dell to shed some or all of its remaining stake at a later stage.

          Additional reporting by Adam Samson in New York

          Public backs stamp duty change, says poll

          Posted on 22 April 2016 by

          An estate agent arranges a "Help to Buy" sign amongst a display of residential properties up for sale in London, U.K., on Monday, Dec. 30, 2013. U.K. house prices rose in December and will extend gains in 2014, led by London and southeast England, Hometrack Ltd. said. Photographer: Simon Dawson/Bloomberg©Bloomberg

          The stamp duty surcharge on buy-to-let and second homes has won strong public support, according to a poll that suggests people believe it will help first-time buyers compete for homes against property investors.

          Asked whether they supported or opposed the three percentage point extra levy introduced on April 1, nearly half of respondents (47 per cent) said they were in favour of the tax, compared with 18 per cent against.

            Landlord groups have attacked the tax, claiming it will drive up rents by reducing the number of available homes in the sector. Solicitors, meanwhile, have complained about its complexity, which puts a greater burden on them to verify the property interests of buyers.

            Paula Higgins, chief executive of HomeOwners Alliance, said the survey demonstrated public support for the view that homes should not be the target of speculative investment: “The stamp duty surcharge might be bad for landlords but it will allow more young people to realise their dream of owning the roof over their head,” she said.

            “This is why we initially called for the tax system to differentiate between aspiring homeowners and property investors.”

            The survey, which quizzed over 2,000 adults, was conducted by YouGov for campaign group Homeowners Alliance and BLP Insurance.

            The findings come as data from HM Revenue & Customs showed a dramatic spike in transactions ahead of the stamp duty change tax as buyers rushed to beat the deadline. The number of residential transactions in March was 75 per cent higher than in February and 77 per cent up on the same month last year.

            The scale of the stampede was underlined by data, also published on Thursday, from the Council of Mortgage Lenders, which estimated that gross mortgage lending reached £25.7bn in March. This was 43 per cent higher than February, 59 per cent higher than March 2015 and the highest March figure since 2007.

            House prices also rose sharply, according to the Hometrack UK Cities House Price Index, which found house price inflation in British cities rose 4.2 per cent over the first three months of 2016 — the highest quarterly rate of growth for 12 years.

            Serious money

            Does stamp duty really have to be so complex?

            No wonder confusion reigns — even with 29 pages of guidelines

            Lucian Cook, head of residential research at agent Savills, said the data confirm a “frenzy of buying activity” in the run-up to the stamp duty change — but warned of a subsequent drop-off in sales. “This is clearly a one-off event and such volumes are unsustainable against a backdrop of economic uncertainty and the prospect of an increased regulatory environment for buy to let borrowing.”

            Mohammad Jamei, CML economist, said the distortion the levy caused was larger than under any previous stamp duty change.

            “As a result, we expect there will be about 10,000 fewer mortgaged transactions each month in the second quarter of 2016 than would otherwise have been the case, offsetting the increase in activity seen in March,” he said.

            US equity funds suffer more outflows

            Posted on 22 April 2016 by

            ©Bloomberg

            US equity funds continue to bleed money as investors fearful of weak company earnings and wavering oil prices remain unconvinced by the market’s strong rally over the past week.

            Globally, equities lost $7.3bn for the week ending Wednesday, with the US responsible for $4.2bn of outflows, taking total outflows in the US to just shy of $50bn this year. Retail investors remain especially cautious, clocking up their 24th consecutive week of outflows, according to data from EPFR.

              Equity markets continue to rally, with the S&P 500 indicative of Wall Street’s charge, rising a little less than 1 per cent for the week ending Wednesday, to 2,102.40. The index sits close to fresh highs, with some analysts believing the market has the legs to set a new record.

              But despite efforts from central bankers globally to keep markets calm — with the US Federal Reserve dampening expectations of a further rate rise in the near future and Mario Draghi, president of the European Central Bank, maintaining aggressive policy on Thursday — investors still see much to be concerned about.

              The beginning of the US earnings season is proving underwhelming, even starting from low expectations.

              Oil prices have survived potential collapse after a meeting last weekend in Doha failed to produce agreement on a production freeze. But nerves remain with fears that if oil falters equity will not be far behind.

              “Oil remains of focus following the meeting in Doha, where major oil-producing countries failed to reach a production agreement,” said Terry Sandven, chief equity strategist at US Bank Wealth Management, in a research note. “We continue to believe that oil will remain a source of tension for the equity market until the price of crude oil becomes stabilised as a result of a greater balance between production and consumption levels.”

              Commodity sector funds continued their strong 2016 performance with fresh inflows, while energy sector funds suffered their steepest outflows of the year. Investors are braced for upcoming earnings from Exxon and BP next week after the collapse of US coal group Peabody.

              In Europe, equity redemptions ahead of Thursday’s ECB meeting pushed the year-to-date total to more than $20bn, according to EPFR data. Investors also remain concerned about a recovery in the eurozone and the health of the Italian banking system. Japanese equities also suffered, with $2.5bn heading out the door.

              It has meant a continuation of support for bond funds, which saw broad inflows across sectors and geographies. Emerging market bond funds have taken in more than $1bn in five of the past seven weeks. US inflows were dominated by long-term corporate funds, while long-term government bond funds saw outflows.

              Flows separately tracked by Lipper reported inflows of $410m to high-yield bond funds over the past week, while loan funds saw outflows of $93m.

              Warren blasts SEC approval of Cohen fund

              Posted on 21 April 2016 by

              Left to right: Elizabeth Warren, Steven Cohen, Mary Jo White©Bloomberg

              Elizabeth Warren (left), Steven Cohen, Mary Jo White

              Senator Elizabeth Warren has accused a US regulator of making a “mockery” of its mission by permitting hedge fund manager Steven Cohen to register a new fund.

                In a strongly-worded letter addressed to Mary Jo White, head of the Securities and Exchange Commission, Ms Warren called the regulator’s approval of Mr Cohen’s new Stamford Harbor Capital last month an “unacceptable outcome” and “the latest example of an SEC action that fails to appropriately punish guilty parties, deter future wrongdoing, and protect investors”.

                Mr Cohen was banned from supervising funds that manage outside investor money until 2018 after an insider trading scandal that ensnared SAC Capital, a hedge fund group that he controlled. SAC pleaded guilty to insider trading in 2013 and paid a $1.8bn fine. Mr Cohen was never charged with criminal wrongdoing.

                While Mr Cohen will not supervise the activities of anyone acting on its behalf, and is not breaching the terms of his SEC agreement, he owns Stamford Harbor, and it shares the same management team as his family office, Point72 Asset Management, which manages Mr Cohen’s fortune.

                That approval, along with a settlement that specifically provided for a structure that accepts outside money, “make a mockery of the SEC’s core mission to ‘protect investors’,” according to Ms Warren.

                She also asked for a list of other individuals banned from managing funds but who were indirectly involved with SEC-registered funds.

                “I urge the commission to put procedures in place that ensure that future settlement agreements cannot be so easily undermined,” she wrote.

                Ms Warren has risen to prominence in part by accusing Wall Street of getting special favours in Washington.

                Steven Cohen lays groundwork for new fund

                Banned hedge fund billionaire registers Stamford Harbor with SEC

                Mark Herr, Point72’s spokesman, said the SEC’s conditions with Mr Cohen were clear.

                “We are not going to manage one dollar of outside money prior to January 1 2018,” he said. “We are fully meeting and continue to meet the letter and spirit of the agreement.”

                The SEC also noted that Mr Cohen would be subject to close inspection.

                “As the only law enforcement agency to charge Steven Cohen, the SEC imposed important restrictions, including a supervisory bar plus the additional oversight requirements in the settlement that are even stronger than typical remedies available under the securities law,” Andrew Ceresney, director of the SEC’s enforcement division, said in a statement.

                “Under the settlement’s significant requirements, the SEC will scrutinise his trading activity closely going forward to protect investors,” he added.

                Brussels to get tough on tax avoidance

                Posted on 21 April 2016 by

                EU Commissioner of Justice, Consumers and Gender Equality Vera Jourova speaks during a joint press a joint press conference on the subject of a Creating Digital Single Market at the EU headquarters in Brussels on December 9, 2015. The commission proposes modern digital contract rules to simplify and promote access to digital content and online sales across the EU. / AFP / JOHN THYS (Photo credit should read JOHN THYS/AFP/Getty Images)©AFP

                Vera Jourova, the EU’s commissioner for justice, consumers and gender equality

                  The EU commissioner in charge of corporate transparency said it was unacceptable that the wealthy can hide their money abroad to avoid paying tax, as Brussels stepped up its campaign against the aggressive avoidance revealed by the Panama Papers scandal.

                  Vera Jourova said she was exploring ways to toughen existing rules aimed at forcing trusts and companies to disclose their true owners. These rules, agreed on last year, require nations to set up registers disclosing “beneficial ownership”.

                  The existing legislation includes carveouts for trusts from important parts of the rules — meaning that, in some cases, they are not required to register their true ownership at all.

                  “We have to look at the accessibility of the beneficial ownership registers and also look at the rules for trusts,” said Ms Jourova, EU justice commissioner. “We need to further increase transparency.”

                  She added: “No ordinary citizen who works hard every day and pays taxes can understand why there are still ways for some people to hide their money from tax authorities. We cannot tolerate this — it is a question of fairness and justice in the EU.”

                  The former Czech government minister — who said tougher rules would also help thwart the financing of terrorists and criminal groups — was speaking ahead of a meeting of EU finance ministers in Amsterdam on Friday, where tax avoidance will be discussed.

                  Brussels’ plans could spark protests in London and Berlin. The carveouts for trusts were a big concession won by the UK in work on the 2015 law, while Berlin also pushed then to thwart demands for the information on companies to be made fully available publicly.

                  No ordinary citizen who works hard every day and pays taxes can understand why there are still ways for some people to hide their money from tax authorities — it is a question of fairness and justice

                  – Vera Jourova, EU justice commissioner

                  But the leak this month of millions of documents from a Panamanian law firm, showing how it helped thousands of individuals to hide money offshore, has left governments reeling from criticism that they have not done more to tackle tax evasion.

                  David Cameron, UK prime minister, has come under intense scrutiny after it was revealed his father had been a director of an offshore fund advised by the law firm, Mossack Fonseca. It later emerged he personally intervened in 2013 to stave off more ambitious EU transparency rules for trusts.

                  At present, trusts only have to register if they are deemed to generate “tax consequences” — wording criticised at the time by the Austrian government as “too broad and highly prone to circumvention and evasion”.

                  While countries have until the middle of 2017 to set up their central registers, Brussels is now calling for the work to be completed by the end of the year.

                  However, the rules on how these registers can be accessed have also come in for criticism from tax campaigners as being open to interpretation.

                  While they will be fully accessible to tax authorities, members of the public only have a right to examine them if they can demonstrate a “legitimate interest,” for example if they are an investigative journalist.

                  In depth

                  Panama Papers Leak

                  The fallout from the data leak revealing widespread use of offshore financial centres by the rich and powerful is spreading

                  Even these rules do not apply to trusts — a concession won by the UK which argued the role of trusts in managing issues around, for instance, inheritance would mean public access would allow unwarranted intrusion into families’ privacy.

                  While the UK, along with Denmark, the Netherlands and Slovenia, is committed to making information on companies fully public, Germany has indicated that public access will be limited to “relevant specialist non-governmental organisations and specialist journalists”.

                  In addition to toughening the transparency rules for shell companies and trusts, Ms Jourova also said she would reinforce other EU rules to tackle money laundering, including having better co-ordination of asset freezes across the bloc.

                  “I will propose to make cross-border confiscation and freezing of these assets more effective so criminals can no longer hide their assets abroad,” she said.