RBS share drop accelerates on stress test flop

Stressed. Shares in Royal Bank of Scotland have accelerated their losses this morning, falling over 4.5 per cent after the state-backed lender came in bottom of the heap in the Bank of England’s latest stress tests. RBS failed the toughest ever stress tests carried out by the BoE, with results this morning showing the lender’s […]

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Renminbi strengthens further despite gains by dollar

The renminbi on track for a fourth day of firming against the dollar on Wednesday after China’s central bank once again pushed the currency’s trading band (marginally) stronger. The onshore exchange rate (CNY) for the reniminbi was 0.28 per cent stronger at Rmb6.8855 in afternoon trade, bringing it 0.53 per cent firmer since it last […]

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Sales in Rocket Internet’s portfolio companies rise 30%

Revenues at Rocket Internet rose strongly at its portfolio companies in the first nine months of the year as the German tech group said it was making strides on the “path towards profitability”. Sales at its main companies increased 30.6 per cent to €1.58bn while losses narrowed. Rocket said the adjusted margin for earnings before […]

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Spanish construction rebuilds after market collapse

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

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Nomura rounds up markets’ biggest misses in 2016

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

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Archive | November, 2016

Ex-Barclays man charged with passing tips to plumber

Posted on 31 May 2016 by

A Barclays logo sits on a sign outside a Barclays Plc bank branch in London, U.K., on Wednesday, May 7, 2014. Barclays will cut 7,000 jobs at its investment bank, bringing the total number of jobs to be cut across the firm by 2016 to 19,000, including the 12,000 the lender announced in February it would cut this year, Barclays said in a statement. Photographer: Simon Dawson/Bloomberg©Bloomberg

A former Barclays director was arrested on Tuesday on charges of passing insider information on upcoming mergers to his friend, a plumber, who allegedly repaid him in part by doing up his bathroom.

Steven McClatchey, 58, was charged in a criminal complaint filed in Manhattan federal court with conspiracy, wire fraud and securities fraud after the plumber, Gary Pusey, pleaded guilty on Friday and agreed to co-operate with authorities. Mr Pusey also faced conspiracy, securities fraud and wire fraud charges and the Securities and Exchange Commission has also filed insider trading charges against the two men.

    Government officials allege Mr McClatchey gave tips to Mr Pusey, 47, ahead of at least 10 separate transactions before they became public, including deals involving Petsmart, CVS Health and Duke Energy.

    In exchange for the tips, which allegedly earned him $76,000 in trading profits, Mr Pusey made cash payments totalling thousands of dollars to Mr McClatchey by occasionally placing cash in a gym bag or handing over the cash directly in Mr McClatchey’s garage, it is alleged. He also allegedly provided a free refitting of Mr McClatchey’s bathroom at his home in Freeport, on the south shore of Long Island.

    In a statement, the bank said: “Barclays wholly supports the Southern District of New York, the SEC and the FBI in their respective investigations, and has co-operated fully with them since learning about this incident involving a former employee. We have rigorous and extensive conduct and compliance training at Barclays which we underpin with a steadfast commitment to acting with integrity and respect. Barclays will take appropriate action when employees do not hold themselves to the conduct and control standards which are embedded in our culture.”

    Barclays has been retooling its investment bank in the US under the leadership of Jes Staley, the chief executive appointed last year after more than 30 years working for JPMorgan Chase. In March Mr Staley said he wanted to build on Barclays’ heritage as a transatlantic consumer, corporate and investment bank, anchored in London and New York.

    In global M&A the bank ranks seventh so far this year, according to Thomson Reuters, having advised on 67 deals worth a total of $124bn up to the end of last week. That represents a significant gain on last year, when it ranked 14th by deal value at the same point.

    Barclays wholly supports the Southern District of New York, the SEC and the FBI in their respective investigations . . .

    – Barclays

    Mr McClatchey had worked in the New York offices of the London-headquartered bank from December 2008 to the end of last year. He met Mr Pusey at a marina, where they kept fishing boats of the same make and model in adjacent slips.

    Beginning in at least 2013, the pair communicated frequently, according to the SEC, contacting each other at least 500 times by telephone or text message.

    Mr McClatchey worked in a back-office role at Barclays and did not interact directly with clients, according to a bank insider. His job included collecting information on potential M&A transactions involving the bank’s clients, then providing summaries in PowerPoint presentations which he distributed to senior members of the investment banking division.

    His last rank was director, one notch above vice-president and below managing director.

    In its complaint, the SEC cited an alleged instance in November 2014 when Mr McClatchey learnt of a potential acquisition of Petsmart, the Phoenix-based retail chain, by Barclays’ client BC Partners. On November 18, Mr Pusey spent about $59,000 on his first ever purchase of Petsmart stock, then generated unrealised profits of more than $6,000 by the time the deal emerged in December, it is alleged.

    “We will continue enhancing our market surveillance techniques to detect patterns of insider trading and expose schemes, even when alleged perpetrators like McClatchey and Pusey attempt to avoid detection by providing in-person tips and cash payments,” said Joseph Sansone, co-chief of the market abuse unit at the SEC’s enforcement division.

    Central banks as last-gasp pawnbrokers

    Posted on 31 May 2016 by

    James Ferguson cartoon©James Ferguson

    Will there be another huge financial crisis? As Hamlet said of the fall of a sparrow: “If it be now, ’tis not to come. If it be not to come, it will be now. If it be not now, yet it will come — the readiness is all.” So it is with banks. They are designed to fall. So fall they surely will.

    A recent book explores not only this reality but also a radical and original solution. What makes attention to this suggestion even more justified is that its author was at the heart of the monetary establishment before and during the crisis. He is Lord Mervyn King, former governor of the Bank of England. His book is called The End of Alchemy

      The title is appropriate: alchemy lies at the heart of the financial system; moreover, banking was, like alchemy, a medieval idea, but one we have not as yet discarded. We must, argues Lord King, now do so.

      As Lord King remarks, the alchemy is “the belief that money kept in banks can be taken out whenever depositors ask for it”. This is a confidence trick in two senses: it works if, and only if, confidence is strong; and it is fraudulent. Financial institutions make promises that, in likely states of the world, they cannot keep. In good times, this is a lucrative business. In bad times, the authorities have to come to the rescue. It is little wonder, then, that financial institutions have become so large and pay so well.

      Consider any large bank. It will have a wide range of long-term and risky assets on its books, mortgages and corporate loans prominent among them. It will finance these with deposits (supposedly redeemable on demand), short-term loans and longer-term loans. Perhaps 5 per cent will be financed by equity.

      What happens if lenders decide banks might not be solvent? If they are depositors or short-term lenders, they can demand their money back immediately. Without aid from the central bank, the only institution able to create money without limit, banks will fail to meet that demand. Since a generalised collapse would be economically devastating, needed support is forthcoming. Over time, this reality has created a “Red Queen’s race”: governments try to make finance safer and finance exploits the support to make itself riskier.

      Broadly speaking, two radical solutions are on offer. One is to force banks to fund themselves with far more equity. The other is to make banks match liquid liabilities with liquid and safe assets. The 100 per cent reserve requirements of the
      “Chicago plan”, proposed during the Great Depression, is such a scheme. If liquid, safe liabilities finance liquid, safe assets — and risk-bearing, illiquid liabilities finance illiquid, unsafe assets — alchemy disappears. Finance would be safe. Unfortunately, the end of alchemy would also end much risk-taking in the system.

      Lord King offers a novel alternative. Central banks would still act as lenders of last resort. But they would no longer be forced to lend against virtually any asset, since that very possibility must create moral hazard. Instead, they would agree the terms on which they would lend against assets in a crisis, including relevant haircuts, in advance. The size of these haircuts would be a “tax on alchemy”. They would be set at tough levels and could not be altered in a crisis. The central bank would have become a “pawnbroker for all seasons”.

      The value of liquid assets would then be known. They would consist of re­serves at the central bank plus the ag­reed collateral value of any other assets. In the long run, argues Lord King, liquid assets, so defined, should match an institution’s liquid liabilities, defined as loans of a year’s maturity or less.

      This scheme has several advantages. First, it recognises that only the central bank can create needed liquidity in a crisis. Second, it offers a path to a world without alchemy. Third, it offers an option between the status quo and the extreme of 100 per cent reserve banking. Fourth, it eliminates moral hazard, since the penalty on obtaining liquidity would be defined in advance. Fifth, it exploits today’s circumstances, including the reserves created by quantitative easing and the infrastructure created by central banks to assess and manage collateral. Sixth, regulation could then be reduced to just two rules: a higher maximum leverage ratio (of at most 10 to one) and the rule that the pledgeable value of assets at the central bank must exceed the value of liquid liabilities.

      Martin Wolf

      The self-inflicted dangers of the EU referendum

      British Prime Minister David Cameron delivers a speech at a Stronger In campaign event in his Witney constituency in central England on May 14, 2016. Prime Minister David Cameron on Saturday stepped up his campaign for Britain to remain in the EU, warning that exiting the bloc would cost Britain billions of pounds in investment. / AFP PHOTO / POOL / EDDIE KEOGHEDDIE KEOGH/AFP/Getty Images

      Cameron might soon be known as the man who left the UK in far-from-splendid isolation

      In spring 2015, the value of the collateral of UK banks at the BoE was £314bn and of bank reserves was £317bn. This makes total liquid assets of £631bn. That is to be compared with deposits of £1.82tn. Over time, this gulf could be eliminated. The BoE should make existing reserves permanent. It could raise reserves by further permanent increases in the monetary base. Finally, it could agree the pledgeable value of more assets.

      This is a radical and interesting set of proposals. If the proposed rule were in effect, the only people with an interest in “running” from a bank would be long-term lenders and shareholders. But if share prices did crash and long-term loans dried up, management would be under the right sort of pressure. It would also give time to resolve the financial position of institutions in difficulty. If equity were insufficient, then these losses would fall on longer-term creditors in a predefined order.

      This scheme has drawbacks. Pledge­able values would have to vary with economic conditions, which could create a degree of stress. But it is a valiant attempt to discipline a financial system that makes promises it cannot keep. At the very least, the cost of making those promises would be made predictable and transparent. Alchemy would be less lucrative; banks would be better capitalised; and runs by short-term creditors should cease. These ideas deserve open-minded consideration.

      Banks lined up for $15bn Saudi bond sale

      Posted on 31 May 2016 by


      Saudi Arabia will host meetings with banks in Riyadh next week as the oil exporter seeks to launch its debut international bond of around $15bn as early as July.

      Bankers briefed on the plans said the ministry of finance and a newly-formed debt management office would be hosting a “beauty parade” of lenders on June 6-7 to hear proposals on how to organise the cash-strapped government’s first dollar-denominated bond.

        Banks expected to take part include the Bank of Tokyo-Mitsubishi, HSBC and JPMorgan, who were lead lenders on the kingdom’s $10bn loan in April. Others thought to take part in the talks include BNP Paribas, Citi, Deutsche Bank, Goldman Sachs and Morgan Stanley.

        Riyadh could shortlist lead and second-tier arrangers as early as mid-June, one of the bankers said. The planned issuance, which could come as early as July, will include several tenors up to 30 years in maturity and would probably be followed by a further bond later this year and potentially another one next year, he said.

        Growth in the kingdom has slowed to around 1 per cent of gross domestic product as the government has been forced to slash spending and deplete fiscal reserves to deal with the yawning budget deficit.

        The unprecedented step of borrowing on international capital markets, as well as reflecting a stark fiscal crisis, is also part of a broader economic plan to diversify the economy by boosting the private sector and raising non-oil revenue. Although oil prices have recently risen to $50 per barrel from a low of around $27 in January, they are half the level they were in September 2014.

        The government has already been carrying out due diligence and preparing documentation so that it can push ahead with the issuance after the holy fasting month of Ramadan, when regional business activity tails off.

        “Now is the right timing for international banks to come back and take business back off the local banks,” said one of the bankers, referring to a liquidity shortage that has beset regional banks since the oil price crash.

        Gulf governments are rushing to issue ahead of Saudi Arabia’s large issuance, which could dominate the market.

        Governments have got used to operating their economies when prices for commodities were substantially higher than they are now. So although prices for oil and gas have recovered, they are still not back to the levels they were a year ago

        – Mike Trounce

        Gas-rich Qatar surprised markets last week by issuing $9bn in international bonds with maturities of five, 10, and 30 years, the largest issuance ever from the Middle East.

        Qatar’s sale drew investor orders of over $20bn, raising expectations that a sale of dollar-denominated debt by Saudi Arabia might be similarly well received by international investors. The sale means governments, banks and companies in the six-nation Gulf Cooperation Council raised $12.5bn from capital markets in May — the largest sum on record.

        Oman, which alongside Bahrain has been hardest hit among the Gulf states by the oil price slump, is also close to launching an international bond of $1bn-$2bn.

        Bankers in talks with the government say the sultanate’s roadshow could start as early as next week, taking in London, the US and Asian destinations

        “If investors are prepared to lend these sums then why wouldn’t governments take it?” said Mike Trounce, emerging market economist at Standard Chartered. “Qatar was prudent to borrow what it could. Across the region governments have got used to operating their economies when prices for commodities were substantially higher than they are now. So although prices for oil and gas have recovered, they are still not back to the levels they were a year ago.”

        Germany: Draghi v the banks

        Posted on 31 May 2016 by

        Mario Draghi, president of the European Central Bank

        In Dillingen an der Donau, a small town in rural Bavaria, the local Sparkasse savings bank is providing an unusual service. For customers who live a long way from a branch, it is giving out free bus tickets. And for those who cannot get to the bank at all — the old or sick, for example — it offers to send a member of staff
        directly to their homes to deliver small sums of cash.

        The Sparkasse came up with the idea to compensate for the fact that it was closing several branches as revenues dwindled due to interest rates being at a record low and customers visiting less frequently. “If your revenues are shrinking, then you have to do something about your costs,” says an official at the bank. “You have to economise.”

          The pressure on Germany’s army of savings banks is just one example of the increasing strains on the country’s financial system caused by the ultra-loose monetary policy of the Frankfurt-based European Central Bank.

          In a bid to jolt the eurozone’s lacklustre economy back to life
          , the central bank has, over the past five years, slashed interest rates to record lows and even pushed its deposit rate into negative territory. On top of this, it has launched a €1.7tn asset purchase
          programme, which has driven down bond yields across the continent.

          The measures have bought time for reform in the battered economies of southern Europe. Yet in Germany, they have met a blizzard of opposition. The country’s hawkish monetary policy establishment has always nurtured a degree of scepticism about the institution that succeeded the Bundesbank as the custodian of Germany’s monetary stability. But as
          savers, banks and insurers have been increasingly hurt by low interest rates — nominal yields on 10-year German bonds have fallen from about 4 per cent in 2008 to less than 0.2 per cent today — the criticism of the ECB has intensified.

          The media has accused the central bank of fuelling a “social disaster”, while one bank has claimed that low interest rates will have deprived German households of €200bn between 2010 and the end of this year. Germany’s financial watchdog, BaFin, branded low rates a “seeping poison” for the country’s financial system. The most dramatic intervention, however, came from Wolfgang Schäuble, the hawkish finance minister, who blamed ECB president Mario Draghi for “half” the rise in support for Alternative for Germany, the rightwing, anti-immigration, anti-euro party.

          Mr Draghi hit back, archly noting that the ECB has a mandate “to pursue price stability for the whole of the eurozone, not only for Germany”, and argued that low borrowing costs were symptomatic of a glut in global savings for which Germany was partly to blame.

          The two men have toned down their rhetoric but, with parliamentary elections in Germany next year, the argument will not go away. Indeed, with the AfD likely to do well in regional polls this September, “the immediate risks are political”, says Carsten Nickel, of Teneo Intelligence, a political research group. “With a year of elections ahead, there is a lot of potential for conversations about monetary policy.”

          Fringe benefits

          Despite the damaging public duel between Berlin and Frankfurt, the eurozone’s biggest economy has also benefited from the ECB’s policies. The plunge in yields on government bonds means that Mr Schäuble can borrow extraordinarily cheaply. Annual interest costs have plunged from €63.9bn in 2010 to €48.5bn in 2015, helping Germany to run a budget surplus last year despite the costs of the refugee crisis, and plan for another this year.

          Chart: German bank data

          its European trading partners remain afloat has enabled them to keep buying German goods. At the same time the euro’s dive against other currencies has made German exports cheap for buyers outside the currency bloc.

          For German savers these factors matter less than the pressures in the country’s financial system. It is these people that are potentially the biggest losers.

          The virtue of saving is ingrained in the national psyche, with the thrifty Swabian housewife a near-mythical figure. In 2015, Germans set aside 17 per cent of their disposable income, second only to Sweden within the EU. Not only do Germans save more than most of their European peers, they do so in a way that makes them particularly sensitive to low interest rates.

          “We have a savings culture that is going to break if low interest rates continue,”
          says Alexander Radwan, a finance expert from Bavaria’s centre-right CSU, the sister party to Chancellor Angela Merkel’s CDU.

          The country has the EU’s lowest home ownership rate,
          52.4 per cent,

          meaning that many Germans have not benefited from the rising property prices that have accompanied the ECB’s expansive monetary stance. Germans, meanwhile, have never really developed a taste for investing in shares. Just 14 per cent of adults say they hold stocks, according to the Deutsches Aktieninstitut, a lobby group.

          There are various reasons for this, according to Gerrit Fey, head of capital markets policy at the Deutsches Aktieninstitut. Some are structural. The tax system does little to encourage widespread share ownership, and the public pension system does not require people to get involved with markets.

          “There is no capital stock linked to a particular worker that needs to be built up for retirement, so people aren’t forced to think about the stock market in the same way,” says Mr Fey.

          There is also a psychological element.
          “Germans are very conservative about how they invest,” he says. “The basic mentality is: if I don’t have to take a risk, I won’t.”

          Chart: German bank data

          The big stock market cycles of the past 20 years have not made it any easier to overcome that scepticism. Millions of Germans bought shares in the part privatisation of Deutsche Telekom, only to be burnt when the dotcom bubble burst. The 2008 financial crisis deepened Germans’ suspicion about shares.

          Squeeze on insurance returns

          As a result, Germans park much of their spare money in savings accounts or low risk fixed-income products. Among the most popular investments have been life insurance policies — particularly those with guaranteed returns.

          Chart: German bank data

          In the good years, the returns were as high as 4 per cent. However, as the ECB has driven down yields on government and corporate bonds — which Germany’s life insurers traditionally bought to secure the income to meet these promises — the sector has come under huge pressure.

          The Bundesbank’s latest stability report paints a worrying picture. In the worst of three scenarios it suggested that 21 of the 83 insurance companies it surveyed, with a market share of 35 per cent, would not meet minimum capital requirements by 2025.

          People in the industry say this is overly pessimistic. Nonetheless, the government wants to cut the maximum return that insurers are allowed to guarantee to just 0.9 per cent of what policyholders pay in each year, and the industry is trying to sell more non-guaranteed products. To boost their investment income, insurers are also taking on more risk, by buying longer duration bonds, and tentatively venturing into alternative asset classes.

          Chart: German bank data

          Many observers, however, remain sceptical. “Even if you cut the guarantees from 1.2 per cent to 0.9 per cent, so long as 10-year Bunds are yielding 0.2 per cent, you have a problem,” says Olaf Stotz, professor at the Frankfurt School of Finance and Management.

          The situation in the banking sector is no easier.


          industry is among the least consolidated in the eurozone, with a huge network of savings and co-operative banks. The top five institutions hold a market share of just 32 per cent, resulting in ferocious competition, which has only intensified as interest rates have plunged.

          The prominence of the savings and co-operative banks — whose business revolves around taking deposits from and making loans to local communities — means that, in aggregate, the German banking system is highly dependent on interest rates.

          Martin Wolf

          Germany is the eurozone’s biggest problem

          Ferguson illustration

          The monetary union will fail if it is run for the benefit of creditors alone

          As the ECB has pushed rates towards zero, bank margins have withered. A study by BaFin and the Bundesbank last year found that Germany’s 1,500 small and midsized banks expected profits to fall by an aggregate of 25 per cent by 2019, mainly due to the collapse in net interest income. The study projected that if rates fell a further 100 basis points, lenders’ profits would plunge at least 60 per cent by the same date.

          The ECB’s decision to cut its deposit rate to minus 0.4 per cent in March also means that German banks have to pay a charge on their excess liquidity. Last year, the bill was €248m, according to the Bundesbank.

          “It’s the triple Draghi,” summarises one senior German banker. “Part one is the interest rates. Part two is that there are no alternative investments. And now the ECB is starting to buy up corporate bonds the margins on those will get smaller, and that will have a ripple effect [on business loans and therefore bank margins] for other segments as well.”

          In some countries, banks have tried to protect their margins from negative rates by increasing the interest they charge on loans. However, bankers say that this is unlikely to work in Germany. “I can see it happening in markets like Switzerland or France or the Netherlands, [places] where there are four or five banks, which have 70 to 80 per cent of the market,” says one senior banker.

          With the exception of one small co-operative bank, German groups have shied away from passing negative rates on to ordinary savers for fear of a backlash. Instead they have targeted institutional and corporate clients.

          “I think the savings banks and Landesbanken will hold the line as long as possible,” says Gunter Dunkel, head of the Association of German Public Banks, and chief executive of NordLB, a Hannover-based Landesbank. “The man on the street will be protected.”

          Cutting back

          Banks have also, quietly, begun introducing fees for services that have previously been free and cutting costs. HVB, the German subsidiary of UniCredit, is axeing almost half its branch network, while Deutsche Bank said last year that it would close 200 of its 700 retail branches in Germany.

          Markus Kerber, head of the business lobby BDI, argues that the sector needs consolidation, “Germany is overbanked,” he says.

          For now, combining back office operations and small-scale mergers between savings banks are seen as a more likely scenario than a blizzard of industry-wide dealmaking. “This is a slow burner,” says one banker. “But the pain will keep mounting”.

          What may be a slow-burner for the savings banks could be anything but for Germany’s political leaders. With Ms Merkel’s CDU/CSU bloc losing public support over its controversial immigration policy, the last thing she needs is for savers — and bankers — to turn against her. But with little sign that Mr Draghi will change the direction of ECB monetary policy markedly before the autumn of 2017, near-zero interest rates will remain high on the political agenda.

          Pensions: funds struggle in a low-rate world


          It is not just Germany’s banks and life insurers that are suffering from low interest rates, BaFin has also singled out
          corporate pension schemes.

          “Pension schemes are suffering even more badly,” said Frank Grund, head of insurance and pension fund supervision at the financial watchdog’s annual press conference in Frankfurt last month
          . “It’s possible that some will soon be in a position where they can no longer fully meet their obligations from their own means.”

          Although BaFin has been pushing pension schemes to build up reserves to cope with low rates, the interest rate they must apply on existing contracts stands, on average, at 3.28 per cent — a level that is becoming hard to meet when 10-year Bunds yield less than 0.2 per cent.

          “The situation at the moment is OK, but the problem is that if you extrapolate into the future, it doesn’t look very rosy,” says Alfred Gohdes, from Willis Towers Watson, an adviser to institutional investors. “Benefits will be reduced . . . Will they be reduced to zero because the pension system goes bust? No. But they will be reduced here and there by 5 per cent or 10 per cent depending on the degree of shortfall
          . And whatever event the [corporate pension schemes] cannot finance, falls back on the employer to make whole,” he says.

          Mario Draghi, president of the European Central Bank, has acknowledged that German pension funds are under pressure but denied that the problem was simply low rates, saying: “This has to do with a variety of reasons . . . but basically it’s not because of the monetary policy”.

          Mr Gohdes disagrees. “The central banks certainly saved the financial system with their actions in 2008. But if there is a central bank buying government bonds come what may, then of course there will be consequences,” he says. James Shotter

          Iberdrola files lawsuit against Bankia

          Posted on 31 May 2016 by


          The Spanish utility Iberdrola has filed a lawsuit in Madrid against the state-owned Bankia over losses it suffered in the bank’s ill-fated initial public offering in 2011.

          Iberdrola’s suit is seeking €12.4m in compensation for losses it suffered on its €70m investment. The utility confirmed that the lawsuit was filed last week. Bankia declined to comment on the suit.

            The filing comes as Bankia attempts to turn the page after its collapse and €22bn bailout in May 2012, less than a year after its controversial flotation, which came to symbolise Spain’s banking crisis and saw the fall of Rodrigo Rato, the former Spanish economy minister and later International Monetary Fund managing director who was chairman of Bankia during its IPO.

            The Spanish state owns 64 per cent of Bankia, which it has said it will privatise by the end of 2017.

            In February, after Spain’s Supreme Court upheld two lower court rulings on the basis that Bankia’s offering documents had contained “serious inaccuracies”, Bankia announced that it would compensate retail investors who had lost money in its IPO. So far, Bankia has paid out €1.2bn to retail investors and expects €400m more in claims, the lender said; the bank has set aside some €1.8bn in provisions for such claims.

            The February ruling was widely seen as differentiating between retail investors, who deserved compensation, and institutional investors, who had more ability to understand the risks of the IPO, said Daragh Quinn, European banks analyst at Keefe, Bruyette & Woods. At the time of Bankia’s bailout, institutional investors held about €600m in stock.

            As of February, 50 smaller institutional investors had sued Bankia for a total of €35m in loss compensation, but Bankia has received no notifications of new institutional lawsuits since then, until Iberdrola, said Bankia.

            Many of Spain’s large banks and companies — including insurer Mapfre, Banco Santander, Iberdrola, and Banco de Sabadell — invested in Bankia’s IPO, reportedly under pressure from the government to make the flotation a success.

            “At the time, there was significant government pressure on Spanish corporates to take action for the good of Spain. It was an important IPO and it was important for Spain that it did well,” says Mr Quinn. “What are Telefónica and Iberdrola and every other significant Spanish corporate doing taking part in a bank IPO? It’s not normal practice.”

            It is unclear whether Iberdrola will have much luck with its suit, or whether other large investors will follow. Santander chief executive José Antonio Álvarez and Banco de Sabadell chairman Josep Oliu have both ruled out trying to recover losses on their investments.

            For its part, Mapfre, which invested €280m in the IPO, pointed to an earlier statement by its chief executive, Antonio Huertas, who said: “Mapfre continues to analyse the situation and has not taken any decision to make legal demands given that, as we said at the time, we understand that the possibilities for success are scarce.”

            On a day when the IBEX 35 index was down 0.9 per cent in Madrid, Bankia fell 3.3 per cent to €0.78, while Iberdrola slid 1.2 per cent to €6.09.

            US IPO market running on empty in 2016

            Posted on 31 May 2016 by

            epa03936073 An employee walks past a logo of Alibaba Group at its new base on the outskirts of Hangzhou, Zhejiang province, China, 04 November 2013. Last month, nearly 10,000 employees finished to move into the new base called 'Taobao City.' Alibaba Group's plans to revolutionise China's retail industry, investing 16 billion US dollars in logistics and support by 2020, will open up China's vast interior and bring access to hundreds of millions of potential new customers. China's e-commerce market is expected to leapfrog that of the United States this year to become the world's largest by total customer spending, management consultancy firm Bain & Company says, and could account for half of all Chinese retail spending within a decade. EPA/JEFF LEE©EPA

            Where’s Alibaba when you need it? Two years ago, the US listings market was abuzz about an impending initial public offering from the Chinese ecommerce juggernaut that would go on to be the largest ever.

            Now, with the midyear mark approaching and no marquee deals anywhere close to Alibaba’s size in sight, the US IPO market is on track for its slowest year since the financial crisis.

              Brutal selling from almost the opening bell of 2016 cast a pall on the listings market. Issuance all but dried up in the first quarter. It has begun to recover over the past two months, with US Foods, the second largest IPO this year after raising more than $1bn, rising sharply on its debut, last week. A ‘unicorn’ — private tech start-ups that have achieved valuations of more than $1bn — also filed its paperwork with regulators last week.

              Even with these hopeful signs and the S&P 500 now in positive territory for the year, the outlook for the key summer period remains difficult. A backdrop of a possible Brexit vote, uncertainty about an interest rate rise from the Federal Reserve and the US presidential election all pose challenges for bankers trying to make up for a weak first half.

              “Everyone across the street has a huge backlog of diverse names — healthcare, industrials, financials and tech — but I don’t see it as the floodgates opening and we will see massive turnround,” says Jill Ford, Americas head of the equity syndicate at Credit Suisse. “While everyone wants to become active, the practicalities of it mean there are not that many windows.”

              Unlike bond deals that can launch and price potentially in the same day or week, IPOs take some planning. Deals have to be vetted by regulators, and companies embark on a marketing blitz to pitch investors in different cities, all of which takes time.

              Companies considering pushing ahead now risk pricing deals in the teeth of a monetary policy meeting from the Fed and Britain’s vote on whether to stay in the EU — both in June. July is not much better, with the back-to-back conventions for the Republican and Democrat parties.

              In late August, the market typically slows as participants head out on holiday and there will be only a small window when they return before the political uncertainty generated by the unpredictable US presidential election intensifies before November’s vote.

              “As we get to the fourth quarter, which will have the election, there will be lots of reasons not to put risk on,” says Mark Hantho, global head of equity capital markets at Deutsche Bank. “The global backdrop makes it more difficult to take companies public.”

              This year 34 deals have priced, raising $7.2bn, the worst showing since 2009, according to Dealogic.

              The mood among the buyers of IPOs also isn’t that cheery. Hedge funds have underperformed and even contrarian styles of investing have had trouble making money this year. Equity funds last week suffered their seventh consecutive week of outflows, taking net redemptions for the year above $100bn, according to EPFR Global.

              Past performance of some of their IPOs has also not encouraged more buying. Investors have lost 15 per cent on average on 2015’s class of IPOs, according to Renaissance Capital. In turn, they have demanded price concessions on this year’s vintage to cushion against volatility, and those that have managed to price are up nearly 20 per cent.

              While that helps, the backlog of companies that are potential IPO candidates haven’t included the kind of big brand names seen in the past few years, such as Facebook, Twitter or Alibaba.

              Chart: The slowest year for US IPOs since 2009

              “We haven’t presented to investors the same large-cap, must-own IPOs that we have done over the last few years,” says Michael Wise, global vice-chairman of equity capital markets at Bank of America Merrill Lynch. “It has been more a handful of mid-cap IPOs.”

              Tech deals, typically a mainstay of the US listings market, remain scarce. The hottest names out of Silicon Valley have been able to raise billions of dollars at high valuations privately in recent years. Some are flush with cash and can bide their time before going public, but there is also a disconnect between the valuations that these companies have garnered in a white-hot private market and what they will fetch in the public markets that are luke warm at best.

              Chart: Weak showing of 2015 listings hurts sentiment

              Two unicorns have publicly filed with regulators to go public. Nutanix, which makes products for computing and storage, and Twilio, which enables companies to add voice and messaging services to apps and filed IPO paperwork last week, will be widely watched as tests of demand.

              “There needs to be a resolution of this backlog of tech names,” says Matthew Kennedy, an analyst at Renaissance Capital. “That comes when the VC firms either decide to cut their losses and offer bargain prices compared with what they paid, if risk appetite grows or if these companies experience a faster shift to profitability. Any of those could cause more tech IPOs. Investor sentiment towards growth does ebb and flow.”

              For now, it’s the wider US IPO market that is in need of some growth.

              How investors will trade the rest of 2016

              Posted on 31 May 2016 by


              A Chinese tourist at Boracay, the Philippines

              Can investors navigate the rest of 2016 safely?

              Well into the second quarter, markets have recovered after a torrid opening to the year, however sentiment remains challenged by the lack of a
              strong investment case to rally firmly behind.

              With the arrival of June, a critical month for markets featuring the Brexit referendum and a Federal Reserve meeting, the FT asked market commentators how the rest of the year will pan out.

              What events or data will shape markets for the remainder of 2016?

              Brexit and Federal Reserve meetings figure prominently, while China lurks in the background.

              “The question is whether the Fed overshoots,” says James Bateman, head of portfolio management at Fidelity. “There is a danger that the Fed may be caught between what’s right for the economy and what’s right for markets, bowing to pressure to please the latter.”

              John Bilton at JPMorgan Asset Management is optimistic about global growth and thinks that will aid dollar consolidation, spurring risk appetite, but says UK investors will “find it difficult to focus on much beside Brexit risk”.

              Commentators also worry about China across a multitude of areas — from a growing non-performing debt problem and restructuring of State Owned Enterprises, to growth data and its capital account.

              trades of 2016

                Which asset classes feel most and least attractive?

                Attractive assets? There aren’t any, says Larry Hatheway at GAM: “The choice facing investors is choosing the least unattractive offerings.”

                Alain Bokobza, head of global asset allocation at Société Générale, favours inflation-protected bonds, while Mislav Matejka of JPMorgan prefers “hard assets” — such as gold and real estate — because policy will shift from monetary to fiscal stimulus.

                Equities may no longer be cheap, says Mr Bilton, but they are still an attractive alternative to bonds. Mr Bateman is convinced Brexit won’t happen, so plumps for UK equities on a relief rally.

                But for Mr Matejka “least attractive from here are equities, given the potential end of the cycle”.

                Which three assets would you back?

                Buy every G10 currency against the dollar, advises Ulrich Leuchtmann of Commerzbank. “I find it hard to believe that the trend we saw in the first months of 2016 is over,” he says. Gold gets a good following, oil is also reasonably favoured, and there is a smattering of support for EM assets.

                Real estate, credit and gold are Mr Matejka’s preferences, while Mr Monson opts for high-yielding global equities, global bank stocks and a selection of EM equities. “International investors will need to remain patient, but valuations versus developed markets are offering near decade low discounts,” he says.

                Which trade do you wish you had recommended this year?

                The swings in market sentiment this year mean there are many profitable surprises to choose from: Long yen, long EM, short US dollar, long oil.

                “This year has all been about the momentum reversal and the rally in anything related to emerging markets or the dollar,” says Richard Turnill, global chief investment strategist at BlackRock.

                Anthony Karydakis, chief economic strategist at Miller Tabak, says: “The highly counter-intuitive surge of the yen in response to the BoJ’s foray into negative rates in late January arguably takes the cake as the biggest missed trading opportunity for many people so far this year.”

                market trades of 2016

                Which trade recommendation do you wish you hadn’t made (and could it still come good)?

                European equities were favoured at the start of the year on hopes for divergent monetary policy, but early investors in the Euro Stoxx 600 are down more than 4 per cent in 2016.

                The European banks sector sits nearly 16 per cent lower this year and over a third off their 2015 high.

                Jeremy Hale, global macro strategist at Citi, recommended buying European banks after March’s announcement but now says “it was a mistake. They look cheap but may stay cheap.”

                However, Mr Monson stands behind his global banks subsector — capital-rich dividend-paying banks with limited EM, southern Europe and investment banking exposure — to generate growing dividends and price appreciation from today’s “very low valuations” and as a “hedge” against rising interest rates.

                Australian bonds have been helped by the Reserve Bank of Australia cutting interest rates, says Matthias Scheiber, multi-asset fund manager at Schroders, “but it remains a volatile trade driven by uncertainty about the Chinese recovery”.

                Mr Bilton also likes the Aussie bonds as “valuations on credit assets offer a more attractive entry point than equities”, and they are one of the few sovereign bonds with relatively high returns.

                It’s May 2017 and the Fed still hasn’t raised rates again — what are the chances, and what would be your investment strategy now?

                While most forecast a raise this year, Mr Hale says the do-nothing option is “a real possibility”.

                To believe this scenario, you are “counting on economic disaster”, says Mr Bateman and so recommends haven assets of gold, oil and inflation-linked bonds. Likewise, Mr Matejka would focus investment on free cash flow, buybacks and yield, adding that “real estate and utilities should be the winners in this scenario”.

                However, if there was no recession in the scenario, the dollar would weaken and “this would be extremely positive for commodities and most emerging markets”, says Mr Bokobza. Mr Turnill agrees an environment with the Fed on the sidelines and where global growth “is holding up but remains low” would be extremely bullish for emerging markets and commodities.

                market trades of 2016

                Mis-selling scandal spreads to store cards

                Posted on 31 May 2016 by

                Shoppers pass in front of the Debenhams Plc department store at The Broadway shopping complex in Bradford, U.K. on Thursday, Nov. 5, 2015. The $419 million, 550,000 square-foot complex is managed by Westfield Corp. and owned by a group of investors led by property fund manager Meyer Bergman Ltd. Photographer: Matthew Lloyd/Bloomberg©Bloomberg

                Thousands of customers who bought store cards from high-street retailers such as Laura Ashley and Debenhams as long as 40 years ago might have unknowingly bought payment protection insurance, paving the way for billions of pounds of compensation claims.

                Some of these “hidden” claims for mis-sold PPI date back to the 1980s and came about because customers did not tick an opt-out box or were not paying attention after a quick sale at the till.

                  Experts believe few consumers have complained about store cards, either because they are unaware they were sold the insurance or are unsure where to file the complaint.

                  The development comes as the Financial Conduct Authority consults on a two-year deadline for PPI complaints, the results of which are expected in the coming weeks, according to one banker. PPI has become the largest consumer mis-selling scandal in the UK banking sector, forcing lenders to earmark more than £30bn for claims.

                  Although high-street shops sold PPI, they were often staffed with retail assistants permitted to sell the insurance on behalf of a bank or insurer. For example, the credit for a Debenhams store card was provided by GE Capital Bank.

                  At one point, 300,000 staff at various shops were able to sell insurance on behalf of GE Capital Bank. In 2005 alone, 850,000 policies including PPI were sold on its behalf.

                  While the amount originally paid for PPI on a store card might have been small, years of statutory interest at 8 per cent, or 15 per cent before 1993, means consumers could be in line for billions of pounds.

                  James Daley, founder of consumer site Fairer Finance, said: “It’s possible there are people out there with claims for thousands of pounds because interest rates on store cards were high — often 30 per cent and above — so potentially there could be people with sizeable claims.”

                  But he added it was likely that such people “would have already made a claim”.

                  Figures from a report by the UK’s competition watchdog show that in 2002, there were 17.5m active store cards in the UK.

                  Nick Baxter, chairman of the Professional Financial Claims Association, said: “Store cards are worse than the banks. There’s a perception that the PPI issue is largely done but the reality is we are nowhere near the end.”

                  But Mr Baxter said that consumers risked losing out as a result of the time limit for claims if they were unaware that they had PPI, especially in relation to store cards, because of the “convoluted and confusing” process.

                  For example, anyone who claimed from a bank and was rejected before 2005 had no recourse to the Financial Ombudsman Service. This is because store cards were exempt from the ombudsman until 2005.

                  But had the consumer approached the underwriter in the first instance, they could have access to the ombudsman.


                  Amount earmarked by UK banks for PPI claims

                  Of all the rejected PPI complaints in the past financial year, the ombudsman found in favour of the consumer in 66 per cent of all cases.

                  In one case brought to the ombudsman, seen by the FT, the body says that “there has been some confusion regarding which business should deal with the complaint”. It concluded that “the complaint should be registered against Genworth [an insurance company] rather than Santander”.

                  The claims management body is now urging the FCA to make financial services providers direct rejected customers to alternative routes.

                  Mr Baxter said: “If financial services firms know a route where customers could pursue their claim, then it’s wrong morally to not make consumers aware of it. There is a route for people to get redress if they were sold before 2005, they just don’t know about it.”

                  Santander UK was one of the largest store card issuers after it bought General Electric’s store card business in 2008, which it sold in 2013. GE Capital Bank had provided store cards to retailers over a few decades from the 1980s.

                  In letters seen by the FT, Santander said to a number of rejected consumers that if the store cards were sold before 2005, they would “not be able to escalate their PPI mis-selling complaint to the Financial Ombudsman Service, as this sale was made before January 14 2005”.

                  Although claims management firms offer a route for consumers, they have come under fire. A report by MPs on the public accounts committee said that claims management companies had made up to £5bn from PPI claims, which it described as a “failure of the system of regulation and redress”.

                  Sources close to Santander UK said that the bank was looking at developing the process for claims on pre-2005 policies to gain access to the ombudsman.

                  Zurich suicide highlights executive stress

                  Posted on 31 May 2016 by


                  The latest suicide of a top executive in Switzerland has focused attention on the stresses placed on senior managers, their ability to cope with a sudden job loss, and whether society creates particular pressures.

                  Zurich Insurance announced on Monday that Martin Senn, its former chief executive, had taken his own life six months after he quit the Swiss insurer under a cloud.

                    His death came three years after Pierre Wauthier, then Zurich’s finance director, took his own life. Other high-profile suicides include Carsten Schloter, chief executive of Swisscom, the telecoms company, who was found dead at his home just a few weeks before Mr Wauthier’s death.

                    In 2008, Alex Widmer, chief executive of Julius Baer, the Swiss private bank, took his life.

                    Each case was different, but in Senn’s case those who knew him said he had difficulties coping with his sudden altered status. Such life upheavals could have contributed to depression, experts said.

                    “If you are high in a hierarchy and have a dominant psychology, and you define your life and values as such, it can be very damaging for your psychological wellbeing if you lose your position,” said Dr Thomas Heinsius, head doctor at Winterthur’s Policlinic for integrated psychiatry, near Zurich.

                    “You become depressed if your psychological repertoire is not sufficiently equipped to deal with the new challenge.”

                    “Top people who lose their jobs often fall into a deep hole,” said Rolf Butz, director of the Zürich branch of the Swiss professional employees association. “It is difficult to define their life beyond their profession, their function, status.”

                    The emotional challenges might be more acute in Switzerland, where the business elite moves in small circles and the loss of job can lead to exclusion from social networks.

                    Senn’s departure from Zurich was abrupt. After losing his job, he also stepped down as chairman of the Swiss-American chamber of commerce, although he had agreed to stay on until a successor was elected.

                    The managers who hold the line on workplace stress

                    Timely recognition of warning signs benefits staff and employers alike

                    “The Swiss suicide rate is not so far off the European rate, but maybe Swiss men are less used to sharing emotions or seeking help. Maybe it is more difficult losing your status in a small country, where you cannot easily just change town,” said Dr Heinsius.

                    Business environments can be stiff; a former Zurich employee complained that open discussion of Wauthier’s death in 2013 was discouraged.

                    Some in Switzerland’s also point out there is less of a culture of “acceptable failure” than in the US — the idea that you can recover after a setback — which means the stakes are even higher for chief executives. Those involved in big corporate failures are often never heard of again.

                    Mr Senn left Zurich after large losses in its general insurance division and an aborted takeover bid for RSA, the UK insurer.

                    Drawing parallels is hard, however, even in the two Zurich Insurance cases. The death of Wauthier came while he was still in his job — although independent investigations later concluded there was no indication he had been subjected to undue pressure by any of the insurer’s leadership and that there were no irregularities in its financial reporting.

                    Trying to find common causes behind recent Swiss executive suicides smacked of “hobby psychiatry”, warned Martin Naville, chief executive of the Swiss-American chamber of commerce. “It is a very unlucky set of coincidences. They were all very different situations and characters.”

                    Silicon Valley and Europe’s productivity

                    Posted on 31 May 2016 by

                    A cyclist rides past Google Inc. offices inside the Googleplex headquarters in Mountain View, California, U.S., on Thursday, Feb. 18, 2016. Google, part of Alphabet Inc., plans on tapping into existing fiber networks in San Francisco to deliver ultra-fast internet access across the city. Photographer: Michael Short/Bloomberg©Bloomberg

                    “If you are an entrepreneur, the best thing you can do is move to the US.” This is not the boast of a proud American but the advice one successful German entrepreneur hands out to his compatriots.

                    I heard this at a recent conference on how to revive growth and jobs in Europe. It is typical of the stories told by frustrated European entrepreneurs. Europe has one of the most skilled workforces on the planet, they say, so why doesn’t it have its own Facebook, Google or Apple?

                      They complain that regulators and companies have battened down the hatches as waves of technological change sweep in from the west. Europe seems condemned to be disrupted, rather than to disrupt. That may be so, but I wonder whether a European Silicon Valley is really the answer to the continent’s economic problems.

                      That is not to say that innovation is unimportant if you want to generate growth and jobs. Even though big companies are generally more productive than small ones, OECD research shows that there are tight correlations between productivity growth and dynamism in the corporate world: higher corporate “birth” and “death” rates enable resources to move where they can be best used.

                      At the same time, new companies come up with novel ideas that force complacent old incumbents to boost their own levels of productivity.

                      So, it is not surprising that European entrepreneurs cast jealous glances across the Atlantic, where there are fewer problems to contend with. In Europe, the flow of credit to small businesses has been hampered by the hangover of bad debts from the financial crisis and regulators’ attempts to make the system safer. The US did a better job of flushing out the rotten loans from the system.

                      The US is also a true single market, which makes it easier for a small company to expand quickly across a population of more than 300m. In Europe, despite frequent pledges to “complete” the single market for services, companies that want to exploit the scale of the continent must contend with a thicket of regulations that vary from country to country.

                      But in spite of all the US’s advantages — in spite of its Elon Musks, its Facebooks and its Ubers — the country is doing no better than the eurozone when it comes to productivity growth. In fact, this year it is doing worse.

                      Figures published last week by the Conference Board, a US think-tank, suggest productivity is set to fall in the US for the first time in three decades. American workers are producing about 0.2 per cent less gross domestic product per hour than they were last year. Even workers in the eurozone are doing better than that: their output per hour is about 0.3 per cent higher.

                      Productivity growth has slowed across the developed and developing world in recent years. Yet it is particularly puzzling in the country that has produced some of the most innovative companies.

                      What is going on? Some argue that today’s innovations are simply not as transformative as those of the past. Others think the “diffusion machine” may be broken: that innovation is simply not seeping out from a handful of groundbreaking companies into the rest of the economy.

                      If you look past the frenetic activity around San Francisco, you see the number of business start-ups in the US as a whole has slumped, just as it has in Europe.

                      Work published by the OECD suggests that there is a growing divide between “frontier” businesses and the rest of the economy, with some regions and workers left behind in a low-skill, low-productivity trap.

                      Indeed, policymakers gathered in Paris for the OECD’s annual meetings this week are starting to explore the possibility that there is a vicious circle between rising inequality and slowing productivity.

                      Whatever the origins of the world’s productivity problem, Silicon Valley does not seem to be supplying the solution. While America’s great technology companies have changed the way we live and generated vast wealth for some people, they have not triggered a widespread improvement in US productivity or household incomes.

                      Some Europeans may hanker after a Silicon Valley of their own. But the better question is not why Europe cannot emulate America’s brand of innovation but why America’s brand of innovation does not seem to work for the economy any more.

                      Twitter: @sarahoconnor_