Category: Transactional and Investment Banking

Bank of England Sets Out How It Will Resolve Failed Institutions
BankingTransactional and Investment Banking

Bank of England Sets Out How It Will Resolve Failed Institutions

The Bank of England is today publishing its approach to resolving a failed bank, building society or investment firm. Resolution is the process by which the authorities can intervene to manage the failure of a firm.

The need for a robust set of resolution arrangements was made clear during the financial crisis. Given the risks to financial stability that would have arisen had individual institutions been allowed to fail and enter normal insolvency, it was necessary for the public authorities to intervene to limit the disruption, including by providing public funds to recapitalise some banks.

The Bank of England has a remit to maintain financial stability: to protect and enhance the resilience of the UK financial system. As part of achieving that, firms must be able to fail in an orderly way without causing systemic consequences or critical disruption to economic activity. This publication explains how the Bank would use its resolution powers to do this in practice.

The publication sets out the Bank of England’s toolkit and provides detail about how it would be applied. It explains the purpose and objectives of the UK’s resolution regime, its key features, the approach that the Bank would take to resolve a failed firm and the arrangements for safeguarding the rights of depositors, clients, counterparties and creditors.

To achieve orderly resolution, individual firms need to have feasible and credible resolution strategies and the financial authorities need to have the necessary resolution powers, and the capacity to apply them. The UK’s permanent resolution regime was put in place in 2009 and has been enhanced subsequently, including through the Banking Recovery and Resolution Directive.

The approach document sets out three key stages of resolution which firms would go through. These are:

• Stabilisation phase: Once a firm has entered resolution, the Bank must decide on the most appropriate method to stabilise the firm. This may be through transferring some of its business to a third party or through bail-in to recapitalise the failed firm;

• Restructuring phase: Once the firm has been stabilised, it will need to restructure to address the causes of failure and restore confidence; and

• Exit from resolution: This is the end of the Bank’s involvement with a firm in resolution – either the firm will cease to exist or they will be restructured and no longer require liquidity support.
Commenting on the publication, Andrew Gracie, Executive Director of Resolution, Bank of England said:

“This is a significant milestone in our resolution regime. It sets out exactly how we would go about resolving a bank, building society or investment firm in practice. The failure of these firms should have the same impact as that of the failure of any other institution i.e. the rest of the system is not impacted and taxpayers do not bear the cost. This is what resolution achieves.”

Equity Research Hire at Cantor Fitzgerald Europe
BankingTransactional and Investment Banking

Equity Research Hire at Cantor Fitzgerald Europe

Cantor Fitzgerald Europe (“CFE”), a leading global financial services firm, has announced the appointment of Jonathan Richards as an equity research analyst on the Financial Institutions team. Richards will be focused on covering listed asset and wealth managers within the firm’s growing Research department.

Gordon Neilly, Co-Chief Executive Officer of CFE, commented, “I would like to welcome Jonathan to the rapidly expanding CFE team. His appointment complements a core sector team for our business, and underscores our commitment to growing our financials research coverage alongside our corporate offering. We expect his depth of knowledge and breadth of contacts will add immediate value to the research team.”

“The addition of seasoned professionals like Jonathan demonstrates our unwavering commitment to providing exceptional service to support the evolving needs of our clients and to strengthening our research and banking franchise. We are continuing to see opportunities to gain market share by making strategic hires and enhancing our service offering across specialist industry sectors,” said Shawn Matthews, Chief Executive Officer of Cantor Fitzgerald & Co.

Richards joins CFE from Bank of America Merrill Lynch where he covered UK and European diversified financials and was the primary analyst on a number of stocks. Whilst at BOAML, he was highly-ranked in both the Institutional Investor and Extel surveys. Prior to Merrill Lynch, Richards covered the diversified financials space at UBS in London. He began his career at Lehman Brothers covering FIG companies in the Investment Banking vertical. Richards has a Bachelor’s Degree in Economics from Columbia University.

Headquartered in London, Cantor Fitzgerald Europe is an integrated mid-market investment bank offering clients corporate finance and corporate broking services, together with institutional cash equities, fixed income, equity derivatives and foreign exchange products. CFE advises some 70 corporate clients and makes markets in over 700 companies and investment trusts. CFE is 100% owned by US-based Cantor Fitzgerald.

US and UK Officials Discuss Resolution of a Global Systemically Important Bank
BankingTransactional and Investment Banking

US and UK Officials Discuss Resolution of a Global Systemically Important Bank

The heads of the Treasuries and leading financial regulatory bodies in the United States and United Kingdom today participated in an exercise designed to further the understanding, communication, and cooperation between U.S. and U.K. authorities in the event of the failure and resolution of a global systemically important bank, or G-SIB.

The event was hosted by Federal Deposit Insurance Corporation Chairman Martin Gruenberg.

Additional participants from the United States were Treasury Secretary Jacob J. Lew, Board of Governors of the Federal Reserve System Chair Janet Yellen, Comptroller of the Currency Thomas Curry, U.S. Securities and Exchange Commission Chair Mary Jo White, U.S. Commodity Futures Trading Commission Chairman Timothy Massad, Federal Deposit Insurance Corporation Vice Chairman Thomas Hoenig, Federal Deposit Insurance Corporation Board Member Jeremiah Norton, Federal Reserve Board Governor Daniel Tarullo, Federal Reserve Bank of New York President William Dudley, and Deputy Treasury Secretary Sarah Bloom Raskin.

Participants from the United Kingdom were Chancellor of the Exchequer George Osborne, Bank of England Governor Mark Carney, Deputy Governor for Financial Stability Sir Jon Cunliffe, Deputy Governor for Prudential Regulation and Chief Executive Officer of the Prudential Regulation Authority Andrew Bailey, Deputy Governor for Markets & Banking Minouche Shafik; and Financial Conduct Authority Chief Executive Martin Wheatley.

The exercise’s high level discussion furthered understanding among these principals regarding G-SIB resolution strategies under U.S. and U.K. resolution regimes, aspects of those strategies requiring coordination between U.S. and U.K. authorities, and key challenges to the successful resolution of U.S. and U.K. G-SIBs. This exercise builds on prior bilateral work between U.S. and U.K. authorities, which, since late 2012, has included the publication of a joint paper on G-SIB resolution, participation in detailed simulation exercises for G-SIB resolution, and participation in other joint G-SIB resolution planning efforts.

The exercise demonstrates the continued commitment of the United States and the United Kingdom since the financial crisis to promote a safer and sounder financial system by cooperating to address issues involved in the orderly resolution of large and complex financial institutions without cost to taxpayers. Both countries reiterated their commitment to the Financial Stability Board’s ongoing work concerning G-SIB resolution. The exercise was timed to coincide with the IMF annual meeting.

Bank of England Proposes Financial System Reform
BankingTransactional and Investment Banking

Bank of England Proposes Financial System Reform

The Bank of England has today published four papers that propose changes to improve the resilience and resolvability of deposit-takers and reduce the disruption to customers and the system if a deposit-taker or insurer fails.

Following recommendations made by the Independent Commission on Banking, the Government introduced legislation to allow for ring-fencing of core banking services in the UK from activities associated with trading and financial interconnectedness. These changes are intended to ensure that ring-fenced banks, and groups containing ring-fenced banks, can be resolved in an orderly manner with minimal disruption to the provision of core services.

From 1 January 2019, banks with core deposits greater than £25 billion (broadly those from individuals and small businesses) will be required to ring-fence their core activities. To prepare for this, the Prudential Regulation Authority (PRA) is consulting on three areas of ringfencing policy: the legal structure of banking groups; governance; and continuity of services and facilities.

All banks that expect to reach the threshold for being subject to ring-fencing requirements by 2019 must submit a preliminary plan of their anticipated legal and operating structures to the PRA by 31 December 2014.

The PRA is also consulting on changes to enhance depositor and insurance policyholder protection.

For depositors, the proposed changes implement the requirements for deposit-takers under the European Deposit Guarantee Schemes Directive, as well as proposing new rules which would allow customers to continuously access the deposits covered by the Financial Services Compensation Scheme (FSCS) if their deposit-taker fails. The proposals aim to provide a mechanism to transfer accounts to another financial institution in the event of a deposit-taker’s failure or enable faster pay-out of compensation. The proposals also introduce additional FSCS coverage for deposits that are temporarily higher than the £85,000 compensation limit, e.g. house purchase or personal injury compensation.

For insurance policyholders, the PRA is proposing changes to the insurance limits for FSCS compensation to increase protection for policyholders in the event of an insurer failing. This would increase the limit to 100% of cover for annuities, pure protection, claims arising from death or incapacity and professional indemnity insurance. This reflects the potential for significant adverse consequences to policyholders, and the wider financial system, of cover being disrupted. The limits for all other types of insurance remain the same.

The PRA is also publishing a discussion paper on operational continuity in resolution. These proposals will help ensure deposit-takers make the appropriate changes to enable critical functions to operate effectively at all times, even if the deposit-taker fails.

Andrew Bailey, Deputy Governor of the Bank of England and Chief Executive of the Prudential Regulation Authority said
“Improving the resilience and resolvability of firms has been at the heart of international and domestic reforms since the financial crisis. Ring-fencing will improve banks’ resilience, by protecting them from shocks, and facilitate orderly resolution – both of which are needed for a stable financial system.

“These proposals will allow customers to have continuous access to the money in their bank account – or receive payment from the FSCS if this is not possible. Additionally, the increase in FSCS limits for certain types of insurance will mean policyholders who may find it difficult to obtain alternative cover, or who are locked into a product, have greater protection if their insurer fails. ”

ECB Running Out of Options but Remains Cagey on ABS Programme Details
BankingTransactional and Investment Banking

ECB Running Out of Options but Remains Cagey on ABS Programme Details

The European Central Bank (ECB) voted to leave rates unchanged today, as expected. The main borrowing rate remains at 0.05%, while the deposit rate stands at -0.2% and the marginal lending facility at 0.3%. ECB President Mario Draghi also gave details of the asset-backed securities purchase programme announced last month, saying that it could include Greek and Cypriot securities but refusing to give an estimate of its planned size.

The pressure on the ECB shows no sign of abating. The Eurozone unemployment rate for August, released this week, stayed at 11.5%, little down from its all-time high of 12.0%. The same day we learnt consumer price inflation dropped from 0.4% to 0.3%. Part of this is due to the large fall in energy costs, but core inflation – which strips out this source of volatility – also fell from 0.9% to 0.8%, demonstrating the weakness of demand. The ECB is meeting in Naples today, after Italian youth unemployment rose to a record 44.2%. Anger at the ECB burst out into the streets, with protestors criticising the bank and the austerity policies which have come to be associated with it. European stock markets fell this morning, with other major markets following.

Reflecting this mood, Draghi yesterday compared the ECB’s task to that of Hercules, using the metaphor of the many-headed Hydra which grew two new heads each time one was cut off. Weak growth and low-flation – which threatens to turn into deflation – has replaced the sovereign debt crisis of 2010-12 as the main economic danger.

The ECB is increasingly powerless to tackle these new threats: it has already lowered rates beyond what was thought possible, launched long-term refinancing operations and announced an asset-backed securities purchase programme. The implemented measures have yet to strengthen demand and many think the ABS programme will not be enough. Its only remaining option is full quantitative easing through sovereign bond-buying, something that will be resisted by the Bundesbank for as long as possible. The aggregate demand deficiency also suggests a role for fiscal policy – hence today’s anti-austerity protests – yet that remains entirely beyond the ECB’s remit.

This did not stop Draghi from mentioning fiscal policy, though he reiterated that member states needed to stick to the EU’s stability and growth pact. Cebr’s view remains that full quantitative easing is necessary (although probably not sufficient) to raise the growth rate. But we expect that the ECB will delay for some months before introducing such a policy.

Halcyon Names Co-Heads of London Office
BankingTransactional and Investment Banking

Halcyon Names Co-Heads of London Office

Halcyon Asset Management LLC, a leading investment manager which with its affiliates (collectively “Halcyon”) has more than $12.5 billion in assets under management, today announced significant developments with respect to the management of its London office and European capabilities. The firm named Daniele Benatoff, who has been with Halcyon since May and focuses on European mergers and special situation strategies, Co-Head of Halcyon Asset Management (UK) LLP, along with Co-Head Damien Miller, who will focus on European credit and will join the firm by year-end. Additionally, the two Co-Heads will be among the portfolio managers for Halcyon funds dedicated to investing in European opportunities.

David Snyder, already a Managing Principal and Portfolio Manager of Halcyon Loan Management LLC, will continue leading Halcyon’s European CLO efforts and bank loan strategies as Head of Halcyon Loan Advisors (UK) LLP, a subsidiary of HLM and manager for Halcyon’s CLO 2.0 European offerings.

Prior to joining Halcyon, Mr. Benatoff co-founded Benros Capital Partners LLP in London, an event-driven hedge fund where he served as CEO and Head of Research from 2011 to 2013. Previously, he worked at Goldman Sachs International in London as Executive Director of Goldman Sachs Principal Strategies (GSPS) from 2004 to 2011.

Mr. Miller was most recently a Managing Director and Global Head of Special Situations at Alcentra, beginning in 2007, where he built out the firm’s distressed and opportunistic credit investment business and acted as Portfolio Manager. He was previously a Director and Portfolio Manager for the Special Situations Group at Barclays Capital in New York.

“Both Daniele and Damien are extremely talented investors whom we have been watching for a long time,” said John Bader, Halcyon’s Chairman. “They are uniquely well-equipped to represent us in Europe, and we are delighted that they have both decided to join us and serve as Co-Heads of Halcyon Asset Management (UK) LLP.”

Benatoff said, “I’ve known the Halcyon team personally and professionally for years, and it is an honor to join its ranks. At Halcyon, Damien and I have a tremendous platform that will allow us to source interesting investment opportunities in Europe for years to come.”

“I couldn’t be more excited about this opportunity.” Miller said. “I’m absolutely delighted to be joining old friends and such a highly regarded global asset manager. I believe that, together with Halcyon’s deep bench, Daniele and I will make a formidable team in Europe.”

Acquisition and Staff Hire at Guggenheim Securities
BankingTransactional and Investment Banking

Acquisition and Staff Hire at Guggenheim Securities

Guggenheim Securities, the investment banking and capital markets division of Guggenheim Partners, has announced the execution of a definitive purchase agreement to acquire the London operations of Lazard Capital Markets (LCM), expanding the firm’s international presence. Consummation of the transaction is subject to approval by the Financial Conduct Authority.

The acquisition, upon approval, would allow Guggenheim to conduct a range of sales and trading operations, with an initial focus on European corporate and sovereign debt and US and foreign equities.

Guggenheim plans to operate the business under the new name of Guggenheim Securities International Ltd.
“We are excited to have the opportunity to extend Guggenheim’s products and services to clients in Europe,” said Alan Schwartz, Executive Chairman of Guggenheim Partners and CEO of Guggenheim Securities. “At a time when many European clients are looking to restructure and find funding in the capital markets, we believe that the client-focus partnership model that has served us so well in building our business in the United States will allow us to extend our growth throughout Europe, and this is an important step toward that.”

As part of the acquisition, Guggenheim is welcoming LCM’s team of 10 professionals, led by Duncan Riefler, who ran the LCM London office. He will report to Ronald Iervolino, Senior Managing Director and Head of Fixed Income, based in New York.

“My colleagues and I are looking forward to joining the Guggenheim team and providing the same world-class client service in Europe that has long been the firm’s hallmark in the rest of the world,” Riefler said.

Joining Riefler from LCM are David Corney, Phillip Bloch, Jay Larkin, Nannette Bax-Stevens, Piero Greco, Samir Patel and Alison Kilsby. In addition, Dennis McKenna and Tomas Mannion will also be joining the platform in high-yield trading and research roles, respectively, marking the start of the growth commitment from Guggenheim.

Before joining LCM, Riefler was a co-founder and partner of Sonas Partners in London, an independent brokerage focused on trading fixed-income securities. Prior to that, he had a 19-year career at Merrill Lynch with a number of roles within fixed income in New York and London. He holds a BA from Denison University.

BoJ Purchases One-year Government Debts at Negative Yield
BankingTransactional and Investment Banking

BoJ Purchases One-year Government Debts at Negative Yield

Courtesy of Shutterstock

The first time the BoJ has taken such action, it demonstrates the conviction of the bank to hit its 2% inflation target by expanding the country’s monetary base.

The action follows a further first-time move by the bank last week, where it bought three- and six-month bills at a negative yield – ensuring that when redeemed the bills will make a loss.

Friday’s purchase however, which has not been confirmed by Japan’s central bank but said to be ‘highly likely’ by traders in the country, is the first time it has ventured into one-year bills.

It further underpins the bank’s decision to stalk a doubling of its base money to Y270tn ($2.5tn) by the end of this year.

The Introduction of QQE

Introducing a new ‘quantitative and qualitative easing’ (QQE) regime, the announcement has seen borrowing costs in Japan fall to record levels.

Core consumer price inflation has since risen to 1.5% – a six-year high whilst the consumer price index has levelled out at 1.3%,

There are fears that buying the bills at a negative yield will increase concerns that the BoJ is simply propping up a wasteful government. This financial year, Japan’s government is set to spend around two times the value that it will take in tax receipts.

Active Venture Partners Appoints Two Key Team Members
BankingTransactional and Investment Banking

Active Venture Partners Appoints Two Key Team Members

Active Venture Partners has announced the appointment of two new team members with strong entrepreneurial and venture capital experience. Active has doubled its team from five to 10 team members in the last three years and is one of Europe’s fastest-growing venture capital firms. Sebastian Blum joins as partner coming from previous senior roles in Silicon Valley’s mobile technology and VC market while Georg Stockinger takes up his role as venture advisor bringing large-scale digital business expertise to the firm. Common to both is a strong commitment to extending Active’s game-changing approach based on active value building and operational support for its portfolio companies which is setting the company apart from traditional venture capital fund managers.

Building on its success in the mobile startup community, Active has appointed Sebastian Blum from his previous position as VP of business development at California-based photo viewing app developer Cooliris, where he was responsible for corporate & business development and partnerships with special focus on Asia. Previously he was in senior positions at T-Venture, the VC arm of Deutsche Telekom, and most recently as the managing director of its San Francisco office where he drove investments in mobile start-ups throughout Europe and the US. Blum will expand Active’s representation in Berlin and other German-speaking startup hubs.

“There had to be a compelling reason for me to return from the US to Europe, and I found it in Active,” said Blum. “This is such an exciting opportunity; to work with a phenomenal and passionate team of entrepreneurially-minded professionals dedicated to helping other entrepreneurs succeed. I fully embrace the enlightened, fresh and disruptive approach that Active brings to venture capital in Europe, with a true focus on the people inside startups supporting them to realise their ambitions.”

Georg Stockinger brings experience in helping large-scale digital businesses in Europe and Latin America to grow their operations and internationalisation efforts. He was managing director at Rocket Internet LatAm, which has helped to launch and support companies such as Groupon, eDarling and Zalando. Previously, he gained experience in management consulting with McKinsey & Company and was part of the founding team of the German e-commerce start-up Casacanda, which was successfully exited. Stockinger has collected significant investment experience by being active as a private investor in digital businesses based in Germany, Spain, the UK, Mexico and Colombia.

Commenting on his new role at Active, Stockinger, said: “Active has strongly held values relating to the long-term development of people and naturally diverse teams, and I share these. It is offering much more to its portfolio companies than simply capital and to enable this, it employs experts who can advise on a wide range of skills from marketing and strategy through to internationalisation and operational excellence. We are developing a unique support platform and my role is to ensure it is successfully used across our portfolio.”

Like all team members at Active, both Blum and Stockinger bring many additional skills to their roles. They both have international business experience and networks and speak a variety of different languages.

“Sebastian and Georg add immensely to the rich diversity of the Active team that is now composed of seven nationalities and speaks 10 languages,” said Christopher Pommerening, founding partner at Active Venture Partners.

“They are committed to helping us to challenge and change our traditional sector through our new approach to venture capital. They bring their experience and networks from the US, Latin America and Asia to our portfolio entrepreneurs and can add great value through their operational start-up expertise. Sebastian and Georg will greatly enhance our support and partnership with the entrepreneurial teams that work with us.”

Abingworth Promotes Ken Haas and Vin Miles to Partners
BankingTransactional and Investment Banking

Abingworth Promotes Ken Haas and Vin Miles to Partners

Abingworth, the international investment group dedicated to life sciences and healthcare, has announced the promotions of Ken Haas and Vin Miles to partners. They are both based in the US where they source and manage deals including early-stage and late-stage venture capital, venture growth and public market investments as well as VIPEs (venture investments in public equities).

Haas has spent 25 years in the management of both early-stage and public high technology and biotechnology companies. As part of the Abingworth team, Ken has led several investments including Clovis Oncology, Gynesonics and Intellikine. Before joining Abingworth, he was part of the founding management team at IntelliGenetics, one of the world’s first bioinformatics companies and was CEO of IntelliCorp, a publicly-traded enterprise software company. Haas joined Abingworth in 2004 and is based in the group’s Menlo Park, California office.

Miles has more than 30 years of management experience in the biotech industry. He is currently on the boards of Chiasma, Dicerna, Hydra BioSciences and Magellan Bioscience. Before joining Abingworth in 2007, he was senior vice president, business development, of the Abingworth portfolio company Alnylam Pharmaceuticals. Previously, Miles was at Millennium Pharmaceuticals, where he held VP positions in business development, strategic planning and corporate communications. Miles is based in the group’s Boston, Massachusetts office.

“We are pleased to announce the promotions of Ken and Vin,” said Stephen Bunting, managing partner. “They both have extensive operating experience and have made significant contributions to our portfolio companies from our Menlo Park and Boston offices.”

Evidence Growing of Shifts in Banking Behaviour
BankingTransactional and Investment Banking

Evidence Growing of Shifts in Banking Behaviour

The Q2 John Gilbert Financial Research (JGFR) Banking Barometer finds 83% of the adult population has a designated main financial services provider (MFSP, normally a high street bank), the lowest proportion since December 2007.

The drop in designated MFSPs may reflect the further growth of ‘commoditised’ financial services in the past year, as more people use online banking, accessed increasingly by smartphones and tablets.

More people may regard their personal current account akin to a payments utility, and less a product gateway, following pressure by government, industry regulators and consumer bodies, keen to break the dominant position of the high street banks and generate greater competition.

Among the near 44 million people with a designated MFSP, the top ten brands have an 83% share of consumers, down from 85% in Q1 and 86% in Q2 2013. With the separation of TSB from Lloyds Bank brand, the latter has been replaced in the past 2 quarters as the leading MFSP by Barclays. TSB has established a consistent 3.5% share in the past 2 quarters.

Overall the Lloyds Banking Group has a 24% MFSP share, followed by RBS and Barclays (both 15%), HSBC (13%) and Santander (9%).

The challenger banks with current accounts have made little impact to date as MFSPs. Tesco Bank, M&S Bank, Virgin Money and the Post Office have just 1.1% market share combined.

Where there is strong competition is at a regional level and this is perhaps where new challenger brands, with branch networks may be better placed to succeed.

The focus on current accounts is because of its gateway to other financial products. The Q2 JGFR/GfK Financial Activity Barometer shows the demand across 18 categories of saving, investment and borrowing products; by cross-analysis with the customers of the respective MFSP brands the Barometer shows the importance of an active customer base on revenue generation.

Such activity will partly reflect the financial position of customers, with HSBC and Nationwide having the greatest proportions of customer households currently saving. By contrast the newly floated TSB has a less active customer base and will need to recruit more financially active customers.

Among key market segments, Barclays and HSBC compete strongly for the under 30’s; HSBC is leader among graduates, both in market share and as a proportion of its customer base (48%). Not surprisingly it is leader among higher earners (£50,000+).

Barclays is the market leader among the over 50s, retired and among outright owners. By intending product activity, in the competitive, yet attractive revenue producing mortgage and credit card markets, Barclays is market leader. Halifax is leader in the personal loan market and has the highest proportion of customers intending borrowing by credit card.

Research for the 2014 JGFR/ComPeer Financial DIY Report highlights the growing debate surrounding the onset of digital banking. The majority of people use an omni (mix) of channel approach with online dominating. Around 4 in 10 cite visiting a branch, well down on over a half two years ago. There is still a people factor in financial services with around 1 in 5 citing the use of a named relationship manager / adviser.

With more challenger banks offering current accounts and becoming potential MFSP’s, the Q2 Banking Barometer asked about the relative attraction of branch-based and digital banks. There would appear an appetite for change among the public in banking arrangements. Some 22 million adults (42% of the population) responded positively to new branch-based banks rather than a digital bank, which is likely to be more niche in its appeal. Interestingly students (52%) are among the most supportive segment of the statement. For many people there would seem to be the need for a human face to a digital bank.

For a minority of the public (14%) access to finance through a Visa / Mastercard or PayPal account is more important than a bank account. This figure has changed little in the past 3 years.

With increasing focus on the role of corporate and social responsibility among businesses, branch based banks are viewed by the public as having a much greater social and community impact. An example is firstdirect. The bank scores very highly in surveys surrounding its customer focus, but is well behind (8%) the major branch based banks (19% – 49%) in how customers view its social and community presence.

Overall 28% of the public believed their MFSP to be very involved in charitable and socially responsible activities, with the leading MFSP brands falling into two divisions; a Premier Division with brands taking over 35% support and a second division with below average levels.

“There is great change taking place in the current account market as a combination of technology, competition and regulation bring about greater switching opportunities. The major high street brands will do well to maintain their MFSP market shares in the face of growing commoditisation of the current account market. The attraction of new branch based organisations with a regional aspect, and prepared to support local communities and be socially responsible, may well be the preferred model of the public.”

Time for Asset Managers to Shine
BankingTransactional and Investment Banking

Time for Asset Managers to Shine

Opportunities abound for the global asset management industry as the shrinking of the banking sector has thrust asset management to the heart of global capital flows and the pace of regulatory change is starting to ease off, according to a new KPMG report.

KPMG’s Evolving Investment Management Regulation report highlights that the regulatory uncertainty of the past years has settled down and predicts that 2014 is the year the wheel turns, with the sector now entering the implementation phase of regulation with much greater clarity.

Tom Brown, global head of investment management at KPMG, said: “It is indeed the ‘age of asset management’. The industry has come through the financial crisis well and is now operating in a much more stable regulatory environment with greater clarity and certainty. The next five to ten years hold enormous potential for asset managers and I expect to see players introduce innovative products and adopt new strategies as the industry plays its role in the broader savings debate.

“Regulators have followed through on their promise to restrict trading and private funds within banks, which has led to trillions of assets being spun off. As talented traders have less access to bank balance sheets, we will increasingly see them migrate toward the asset management continuum, which is another positive for the industry.

“While there is enormous opportunity, the industry is also likely to come under more intense scrutiny as firms are increasingly considered systemically important institutions. With so many activities previously housed in banks moving over to asset management it is inconceivable that the industry will not be closely monitored.”

The report examines the key regulatory challenges to face investment managers in the future, discussing shadow banking and the call for additional data and reporting requirements to improve transparency.

Traders’ World Cup Kicks Off
BankingTransactional and Investment Banking

Traders’ World Cup Kicks Off

The competition will be based on the official World Cup tournament’s groups. The winning country for each match will be determined by metrics such as the relative strengths of GDP growth, currencies, equities, inflation, unemployment, commodities and other macro data. The metric for each game will be drawn at random on the morning of the match. The two countries that emerge from each group in the pool round will be those with the best performance, according to our market/financial metrics.

For instance, the US is due to play Portugal in Group G. If the selected metric is FX, the winner will be determined by the performance of the euro vs. dollar on the day of the match. Traders might favour the dollar given its quiet comeback since the spring, but equally market volatility might give the euro an unexpected edge. In a similar way, other outcomes will be judged on the best equity market performance, or the average return of two key exporting goods such as cotton or crude oil.

The competition is open to all through the TradingFloor.com platform, Saxo Bank’s proprietary social trading platform which allows users from around the world to share their trading strategies and performance across a broad range of asset classes. Participants simply need to register and name their chosen winner from the 32 countries to be eligible for the prize.

A dedicated webpage will provide interactive tables and scores as well as serving as a forum through which participants can debate the match outcomes.

Steen Jakobsen, Chief Economist & CIO at Saxo Bank, said: “There are manifold similarities between playing the markets and playing the beautiful game. Whilst Spain has dominated the sport since the last World Cup, its dominance in Brazil is by no means assured; the familiar investment disclaimer, “Past success is no guarantee for future success”, is equally true for football. Both the markets and competitive sport are subject to unforeseen, disruptive forces which make picking winners difficult to predict.

“Football continues to be the one game which can get us all excited. If politicians and policy makers had been active footballers, they would understand that football has all the solutions to the world’s economic problems: a strong team has a great defence, skills and individualism in midfield and a vanguard of clinical strikers.”

UK Rate-Hawks Caught Out by Carney – Coutts
BankingTransactional and Investment Banking

UK Rate-Hawks Caught Out by Carney – Coutts

Sterling has taken a hit after Bank of England (BoE) Governor Mark Carney reiterated the message of no interest rate rises for some time, despite a rapid decline in unemployment and fast-rising house prices, says Mark McFarland, chief economist at private bank Coutts.

“Our forecast remains unchanged – we look for a quarter-point hike next spring – although there are risks that rates could rise faster amid surprisingly strong growth that has yet to be matched by gains in productivity,” says McFarland.
“Our forecast remains for sterling to fall modestly against the dollar, toward US$1.62 by year end, while we see limited room for further gains in UK government bonds (gilts). Gilt prices rose on Carney’s remarks and a benign BoE Inflation Report, but ended up only slightly above their level of a week ago.

“Carney repeated his message from February that the pace of rate rises would be only modest once they do start to go up. We also maintain our view that the first increase will be followed by only another quarter-point hike next year, taking the base rate to 1.0% from 0.5% currently.

“Carney’s dovish view and the relatively benign inflation expectations in the BoE’s report come against the backdrop of unemployment falling below 7%—the level set last August as the point at which the Bank would start to consider tightening monetary policy—and rapidly rising house prices. But Carney suggested financial stability was the responsibility of those regulating banks and issuing mortgages, not the Bank of England, with monetary policy being the final tool used to curb excess. How effective tighter regulation will be in maintaining stability remains to be seen.

“With growth in GDP running at 3.1% and inflation at 1.6%, traditional models for rate setting would suggest a UK base rate around 1.5%. Estimates of the slack in the UK economy vary widely, but we believe having sufficient slack and increasing productivity will be the crucial factors in keeping rates low and raising them only gradually. The BoE believes there is still room for GDP growth to increase by 1.0-1.5 percentage points, which is roughly in the middle of the range of economists’ forecasts, without a serious threat of inflation.

“We see inflation staying relatively subdued and rates rising only from next spring, and then only gradually. But the risks around this relatively benign view are skewed to the upside. As a result, we remain cautious on gilts, which would need a substantial reduction in growth expectations to make significant further gains, and maintain our forecast for only a modest depreciation in sterling against the dollar.”

UK Economy to Grow by 2.9% in 2014
BankingTransactional and Investment Banking

UK Economy to Grow by 2.9% in 2014

After growing only very marginally in 2012, growth accelerated rapidly, and is now running at around 3% year-on-year. The National Institute of Economic and Social Research (NIESR) forecasts GDP growth of 2.9% this year, an upward revision of 0.4 percentage points on its forecast published just three months ago. This means that GDP will exceed its previous peak in 2008 in the next few months, although per capita GDP still remains well below its previous peak, and will not exceed it before 2017. The NIESR has lifted its GDP growth forecasts for 2015 through to 2017 to about 2.4%. Similarly, while the NIESR expects real wages to grow this year, they are currently about 6% below their 2009 level, and they are not expected to make up that lost ground until 2018 or so.

The unemployment rate has fallen by 1 percentage point in the past year, and the NIESR expects it to drop to close to 6% from 2015. The corollary of robust growth in employment over the past few years, combined with economic weakness, has been a sharp fall in productivity growth. Indeed, since 2008 UK productivity performance has closely tracked that of Italy. Even the return of GDP growth, however, has not yet resulted in significant productivity increases. This matters in the short run, since without any improvement in productivity, robust economic growth will see spare capacity absorbed relatively quickly; it matters even more for the medium to long run since ultimately productivity is the main, if not the only, driver of real wages and overall prosperity.

The NIESR has seen few signs of domestic inflationary pressures, with wage growth in particular remaining subdued, and inflation is expected to stay very close to the 2% target. Nevertheless, considerable uncertainty surrounds monetary policy on several dimensions: the path of interest rate rises, where market expectations remain for a rate rise in early 2015; the new equilibrium level, which the Bank has said is likely to be materially below 5%; and the exit strategy for quantitative easing, in particular whether this is used as an active policy tool.

On the basis of current government plans, the NIESR expects a continued slow decline in net public sector borrowing this year, accelerating in subsequent years, and reaching an absolute surplus in 2018. The net debt to GDP ratio will peak in 2015–16.

The UK’s trade performance remains disappointing, with the current account deficit running at about 4% of GDP, on average, over the period 2012–14, although improving subsequently as the global economy continues to strengthen.

FCA Speaks Out on Dealing Commission
BankingTransactional and Investment Banking

FCA Speaks Out on Dealing Commission

Investment managers should only use client dealing commission to pay for substantive research or costs related to executing trades, said the Financial Conduct Authority (FCA) as it published a policy statement on forthcoming changes to dealing commission rules.

The changes reinforce the current rules and provide greater clarity on what investment managers can pay for using client dealing commission – worth approximately £3 billion per year. Firms that already meet the rules will not need to make significant changes to the way they operate.

FCA chief executive, Martin Wheatley, said: “Investors should be confident that dealing commission is only used to buy execution or research services that deliver real value. These changes offer firms a real opportunity to show they put their clients first and strengthen the industry’s reputation for transparency.”

The UK is a global centre for investment management, and the sector is vital to the UK’s economy, investing over £5 trillion on behalf of clients across the world. The FCA’s work on dealing commission reflects its priorities for the sector – it expects firms to ensure:

• They are acting as good agents and taking proper account of investors’ interests;
• They spend their clients’ money as though it was their own, seeking to manage costs with as much tenacity as they pursue returns; and
• Clients are given easily understood information on the risks and costs of the service, and investment decisions reflect their stated objectives.

The changes on dealing commission come into force on 2nd June and are a result of extensive industry consultation. They will prevent investment managers using dealing commission to pay for access to senior staff at firms they invest in (corporate access).

The changes also clarify which costs investment managers can pass on to their clients through dealing commission, including specific guidance on mixed use assessments, where substantive research is bundled together with services that firms cannot pay for using dealing commission. Past reviews found that controls on how dealing commission is spent could be improved and in 2012 we asked firms to confirm their controls were effective.

The FCA has a statutory objective to secure appropriate protection for consumers and enhance market integrity.

River and Mercantile Group appoints Kevin Hayes as Chief Financial Officer
BankingTransactional and Investment Banking

River and Mercantile Group appoints Kevin Hayes as Chief Financial Officer

River and Mercantile Group (R&M) has announced the appointment of Kevin Hayes as Chief
Financial Officer to help lead its growth strategy.

His recruitment comes after investment consultancy P-Solve and asset manager River and
Mercantile merged last month.

Hayes has more than 20 years of financial services and asset management experience both in the UK
and US. He was previously Finance Director at Man Group plc, has held senior positions with
Lehman Brothers and was a partner in Ernst & Young’s financial services practice in New York.

“I am very pleased to be part of the leadership team and look forward to helping to
shape the future of the newly merged group,” said Hayes. “Both businesses have developed strong franchises in client-orientated investment solutions and the combination provides an exciting opportunity to be part of the ongoing success and growth of the company.”

R&M Chief Executive Mike Faulkner said: “Kevin’s background and deep experience is a great match
for what we aim to achieve and we are delighted he has joined us. His insight and skills will be
critical in taking the next steps for our new business.”

R&M Chairman Paul Bradshaw said: “I look forward to working with Kevin, who brings significant
public company knowledge to the board and will help us develop the robust governance to support
the growth of the business.”

Ukraine Crisis “to Impact on Investors”
BankingTransactional and Investment Banking

Ukraine Crisis “to Impact on Investors”

Latest developments in the Ukraine crisis are game-changers for investors, according to a leading global investment analyst.

The observations from Tom Elliott, International Investment Strategist at deVere Group, one of the world’s largest independent financial advisory organisations, come as European stock markets, including the FTSE which slid back from a seven-week high, tumbled as the tensions in Ukraine deepened on Friday.

“Six weeks ago, in market terms, the crisis looked like it might become little more than ‘a local issue’. But things have changed significantly in the last few days and they are continuing to evolve rapidly, and of course, this will impact investors,” said Elliott.

“It is becoming increasingly evident that the more success Putin has in ‘protecting’ ethnic Russians abroad, the greater the risk of trade sanctions by the west, and the weaker he will be at home. The Putin Paradox. Putin is gambling that the west remains divided and prefers to talk and trade rather than to act, an assumption that the US is actively challenging.

“Assuming direct evidence of Russian meddling in eastern Ukraine is found, reluctant Europeans – including the UK – will be shamefaced into tightening the existing sanctions on Russia. This, I believe, could trigger the end game for Putin.”

The Russian economy was already weakening before the Ukraine crisis unfolded, and it will be unable to withstand trade sanctions, said Elliott. “Russia is still, in essence, an exporter of commodities and arms, in return for which it buys western manufactured goods. “Putin’s popularity will almost certainly ebb with economic hardship. He will try to engineer a handover of power to someone in his ‘circle of trust’, but from all accounts that’s quite small,” he said.

As for the effect on already increasingly nervous investors, Elliott said that any sudden de-coupling of the Russian economy from the west—which is for the time being looking increasingly likely—will certainly hurt investors. “Retail investors have only a marginal direct exposure to Russia, while Ukraine is an even more exotic ‘frontier’ market that has attracted only professional investors,” he said.

“But the impact on the eurozone of trade sanctions could be severe in the near term, given that the region is only slowly emerging from its own economic crisis. Trade sanctions may involve limits on exports to Russia of European manufactured goods, and a cut-off of Russian gas imports, either self-imposed or because Moscow limits supply in retaliation.

“However, if sanctions are to remain in place over the long term, the West will inevitably and, I believe relatively quickly, readjust. For example the development of alternative sources of hydro-carbons such as fracking will be accelerated, and European consumer goods manufacturers will carry on as before but now re-priced to exclude growth prospects in Russia,” Elliott said.

State-Registered U.S. Banks “the Fastest Growing Bank Wealth Management Segment”
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State-Registered U.S. Banks “the Fastest Growing Bank Wealth Management Segment”

State-registered banks are the fastest growing bank wealth management segment in the U.S., according to new research from global analytics firm Cerulli Associates.

“Despite the post-crisis damage to the reputations of many major investment banks, investors continue to turn to bank trusts for long-term multigenerational wealth strategies,” said Donnie Ethier, associate director at Cerulli.

“While bank trust assets have consistently increased since 2008, state-chartered bank trusts have been buoying the overall growth,” said Ethier. “This is due to both new trust companies electing state charters, as well as many smaller, regional banks electing to sidestep federal regulation.”

In their report “High-Net-Worth and Ultra-High-Net-Worth Markets 2013: Understanding the Contradictory Demands of Multigenerational Wealth Management,” Cerulli analyzes the U.S. high-net-worth (HNW) (investable assets greater than $5 million) and ultra-high-net-worth (UHNW) (investable assets greater than $20 million) marketplaces.

“The bank trust channel is in the midst of a transition to open architecture, which potentially has huge implications for asset managers,” Ethier said. “Since bank trusts are becoming more receptive to third-party managers and products, asset managers have more latitude to target their services toward a larger asset base.”

Cerulli is now able to break out trust assets by national- and state-registered banks. This has become increasingly important to asset managers because in recent years numerous state-registered trust companies have formed due to states liberalizing their trust laws.

“By recognizing the subtleties of each segment, asset managers can better determine the true opportunity and position their wealth-preservation-oriented products,” said Bing Waldert, director at Cerulli.

Bank of America Reports First Quarter Net Loss
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Bank of America Reports First Quarter Net Loss

Bank of America Corporation today reported a net loss of $276m, or $0.05 per diluted share, for the first quarter of 2014, compared to net income of $1.5bn, or $0.10 per diluted share, in the year-ago period.

Revenue, net of interest expense, on an FTE basis declined three% from the first quarter of 2013 to $22.8bn. Excluding the impact of net debit valuation adjustments (DVA) in both periods, revenue was down four% from the year-ago quarter to $22.7bn.

The results for the first quarter of 2014 include $6.0bn in litigation expense related to the previously announced settlement with the Federal Housing Finance Agency (FHFA), and additional reserves primarily for previously disclosed legacy mortgage-related matters.

“The cost of resolving more of our mortgage issues hurt our earnings this quarter,” said Chief Executive Officer Brian Moynihan. “But the earnings power of our business and customer strategy generated solid results and we continued to return excess capital to our shareholders.”

“During the quarter, our Basel 3 standardised capital ratios and our liquidity improved to record levels and credit quality also improved,” said Chief Financial Officer Bruce Thompson. “In addition, expenses in our legacy mortgage servicing business, excluding litigation, declined by $1bn from the year-ago quarter.”

Nearly 40% of Investors Need Increased Advice
BankingTransactional and Investment Banking

Nearly 40% of Investors Need Increased Advice

Nearly 40% of investors indicate an increased need for investment advice, according to global analytics firm Cerulli Associates.

“One of the challenges facing the advisory industry is simply helping potential clients understand the value an advisor can provide,” comments Roger Stamper, senior analyst at Cerulli. “The good news for advisors is that investors are expressing increased interest in seeking advice regarding their portfolios. Overall, 37% of our survey respondents indicate an increased need for investment advice.”

Cerulli’s U.S. Retail Investor Advice Relationships 2013: Sorting Out the Winners and Losers report provides perspective on the relationship between financial providers and retail investors, covering the provider-client relationship from end to end, starting with client acquisition, progressing through advice delivery, investment management, pricing, and client retention strategies.

Rather than fighting over those investors who have already engaged with a provider, Cerulli believes the real opportunity for providers to substantially increase their marketshare is to address those in the middle segment who are unsure of the value of advice.

“Instead of trying to convince clients who are generally happy with the advice they receive, firms have the opportunity to address a new segment of clients,” Stamper explains. “Only by expanding the addressable client base overall does the industry benefit.”

Read the full report at https://external.cerulli.com/file.sv?Cerulli-RIAR-2013-Info-Pack

 

X

Advisor Migration Projected to Grow Independent Channels
BankingTransactional and Investment Banking

Advisor Migration Projected to Grow Independent Channels

According to research from global analytics firm Cerulli Associates, advisor migration is projected to grow independent channels to 38% of asset marketshare through 2016.

“We anticipate the registered investment advisor and the dually registered channels are going to be the beneficiaries of advisor movement,” states Kenton Shirk, associate director at Cerulli.

Cerulli’s Intermediary Distribution 2013: Managing Sales Amid Industry Consolidation report examines the distribution of financial products within the U.S. The report includes advisor marketsizing, advisor product use, and asset manager sales organizations.

“Across the advisor industry, there is a strong desire for independent operation and ownership. The draw of autonomy, combined with the trend toward fee-only relationships, has enhanced the appeal of the independent channels,” Shirk explains.

To manage advisors transitioning between channels, Cerulli recommends that distributors clearly delineate ownership, empower divisional sales managers to track advisor transitions, and standardize transition hand-offs between wholesalers to ensure relationship continuity with the firm.

The Long-term Financing of the European Economy
BankingTransactional and Investment Banking

The Long-term Financing of the European Economy

 

European Private Equity & Venture Capital Association (EVCA) Chief Executive Dörte Höppner said: “European private equity, including venture capital, has a significant contribution to make to the long-term financing of Europe’s businesses and economy.

The EVCA welcomes today’s Communication, which recognises the industry’s role in supporting SMEs and helping investors such as pension funds meet their long-term liabilities.

“This is an encouraging step in the right direction but policymakers must encourage the best conditions for investment in long-term investment vehicles, such as private equity funds, whose engaged, patient capital boosts innovation, competitiveness, productivity and growth in the companies they back.”

The Commission today also adopted a proposal to revise the Institutions for Occupational Retirement Provision Directive (IORP Directive).

EVCA Director of Public Affairs Michael Collins said: “Internal Market Commissioner Michel Barnier was true to his word and did not propose Solvency II style capital requirements for pension funds. Long-term asset classes such as private equity do not now have to fear they will be priced out of the market for pension fund investment.

“Long-term investors such as pension funds or insurers must not be deterred from private equity by inappropriate capital requirements because this will only block much needed investment in European companies and make it harder for those investors to serve their customers.”

Widening the Investment Net
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Widening the Investment Net

 

Interest in so-called ‘alternative property assets’, such as healthcare, hotels, student accommodation, privately rented housing, and infrastructure has never been so pronounced. According to research by JLL, alternative assets account for 5% of institutional investors’ portfolios at present, but that number is set to rise to 15% by 2023.

Some investors are looking to diversify their portfolios; others are attracted by higher returns and yields; some by the availability of long, index-linked leases that match their requirements. At an event held by the British Property Federation and JLL today, key industry figures will talk about these drivers, and whether alternative assets will play a much greater role in property investment in the future.

As the UK demographic changes, and an ageing population, an international student base and Generation Rent emerge, the healthcare and private rented and student accommodation sectors are becoming attractive to a range of investors. The panel will today discuss what is driving this increased appetite, and whether these assets offer sustainable investment solutions.

Liz Peace, Chief Executive of the British Property Federation, said: “Having recently launched a student accommodation committee, we are aware of the growing demand for alternative assets and for new income streams. As new asset classes emerge it is important to identify and discuss potential problems areas so that we can understand them fully and ensure that they are brought onto a level pegging with more traditional outlets such as office and retail.”

Bill Hughes, Managing Director of Legal & General Property, commented: “We view the rise of alternative real estate sectors, ranging from residential, care homes and student accommodation through to leisure, as an important tool for fund managers looking to maintain the diversification benefits of property as an asset class and manage structural change as well as a conduit for injecting much needed investment into the UK’s social and economic infrastructure. As these emerging sectors in turn become mainstream, there are a number of important implications for how we define the property universe. As part of this, we should expect to see the up-skilling of fund managers to provide their clients with in-depth knowledge and understanding, as well as a full range of risk/return solutions.”

Kenneth Mackenzie, Managing Partner of Target Advisers, said: “The importance of specialist investment vehicles with diversified risk profiles and specialist managers is key to wise investment in some of these niche areas. While the background demographics in healthcare are persuasive, specialist and in depth knowledge is key if the mistakes of the past are to avoided in the future. The underlying client group are residents and families in distress, served by lowly paid staff, and moderate long term rents and returns are key to sustainability. Investors need longer memories.”

Jon Neale, Head of UK Research at JLL, said: “We estimate that today, institutional investors have circa 5% of their portfolio invested in alternatives. Based on a survey we carried out among fund managers during the middle of last year, we expect this to rise to around 15% by 2023. Our respondents suggested that this would be driven mainly by a greater need for diversity and the availabililty of the very long, index-linked leases that match pension fund requirements. However, it also identified some issues with the sectors – in particular the lack of data and information and the need for skills beyond those of the traditional property investor.”

DIV 50 Index Licensed to Deutsche Bank
BankingTransactional and Investment Banking

DIV 50 Index Licensed to Deutsche Bank

 

STOXX Limited, a leading provider of innovative, tradable and global index concepts, introduced that the newly launched STOXX Europe Low Beta High Div 50 Index has been licensed to Deutsche Bank to be used as the basis for structured products. The index selects the 50 stocks with the lowest beta out of the members of the STOXX Europe 600 Index with a dividend yield which is higher than the EURO STOXX 50 Index’s dividend yield. It is the first index of its kind, and is designed to act as an underlying to structured products and other investable products, such as exchange-traded funds.

“The STOXX Europe Low Beta High Div 50 Index creates a hybrid portfolio of high dividend and low risk investment strategies based on Europe’s two most favored benchmarks, “said Hartmut Graf, chief executive officer, STOXX Limited. “The innovative and transparent concept, combines screens based on the composition of the underlying STOXX Europe 600 Index with thresholds derived from the fundamental values of the EURO STOXX 50 Index.”

Giulio Alfinito, Head of Equity Investor Products Europe at Deutsche Bank, said: “STOXX Europe Low Beta High Div 50 Index is a significant development in the low volatility and low beta investment space. The intuitive selection mechanism provides access to stocks with low historic exposure to systematic risk. The index is an ideal candidate for investors seeking partial or full capital protection through options and other structured products”.

The STOXX Europe Low Beta High Div 50 Index is derived from the STOXX Europe 600 Index. To be eligible for inclusion in the new index, companies must have a net dividend yield for the past twelve months that is higher than the overall net dividend yield of the EURO STOXX 50 Index over the same time period. All those companies are then screened for their beta to the EURO STOXX 50 Index over the past twelve months, and only those 50 companies with the lowest beta are selected. A cap of eight companies per country is applied to ensure diversification in the index.

The STOXX Europe Low Beta High Div 50 Index is weighted by liquidity measured through components’ three month average daily trading volume (ADTV), with a single component’s weight cap of 5 percent. The index is reviewed annually in December, with the cutoff date for dividend yield and beta data being the last trading day of the previous month.

The STOXX Europe Low Beta High Div 50 Index is calculated in price, net and gross return versions and available in Euro and USD. Daily historical data is available back to December 23, 2002.

Embrace the Bull in the China Shop
BankingTransactional and Investment Banking

Embrace the Bull in the China Shop

 

A rise in negative investor sentiment towards China ignores a number of stronger positives and the long-term investment case remains firmly intact, believes Investec Wealth & Investment (“IW&I”).

The thrust of most negative reports centres around six key issues: that China has grown at an unprecedented rate; has a lot of debt; struggles with corruption; has unreliable statistics; is suffering a growth slowdown; and, because of its size, if it goes wrong could be a real problem for the global economy.

However, China is fully aware of its challenges, believes IW&I. The current slowdown is largely self-engineered by the new leadership, whose efforts to rein in lending and tackle corruption have imposed a significant austerity burden on growth – IW&I estimates over 3% of GDP. As China ‘cleans house’, bankruptcies and insolvencies will increasingly be part of the regular news-flow from China – but this is a sign that markets are being allowed to work, not a harbinger of imminent disaster.

John Haynes, Head of Research, Investec Wealth & Investment, said: “China has a lot of debt – the total burden of public and private sector debt has risen from around 150% of GDP to over 200% of GDP since 2008. But the country also has a lot of assets, even beyond the $3.8trn of foreign exchange reserves which amount to around one-third of GDP.

“Only a small fraction of investment over the past five years has been in ghost cities or corrupt projects; a good deal has been in productivity enhancing infrastructure, including housing and transportation. To the extent that it has been in ‘bad’ assets, these have largely been sponsored by regional/provincial governments whose credit will ultimately be supported by the remarkably solvent central government.”

Current concerns over the “shadow” banking system in China have a high profile because their products have been sold to consumers, but the sector is a small part of the overall debt burden, according to IW&I. The rise in China’s debt over the past five years has in fact predominantly come from the corporate sector – largely a function of loans to State Owned Industry. Once again, this is government debt by another name and the Chinese government is “good” for its debt, believes IW&I.

John Haynes continues: “For a crisis to develop either politics or the financial system must be unstable. Neither is the case in China. We know from our experience of the Eurozone crisis what to watch for – namely bankruptcies (or the possibility thereof) of key banks. This will not happen in China because the key institutions are state-owned and well funded: banks’ loan to deposit ratios are only around 70%, savings are all locally sourced, there is no risk of deposit flight and foreign funds in China are in illiquid investments.

“Many China watchers appear to be confusing the signals generated by a necessary tightening of control in the financial sector with an imminent crisis. We think this will prove to be overly pessimistic. We are not factoring-in a China ‘surge’ in our positive investment outlook for the year but simply a stabilisation. Since we think China is in control of its own destiny, to us this seems like a modest expectation.”

Fisch Asset Management AG joins GBAM
BankingTransactional and Investment Banking

Fisch Asset Management AG joins GBAM

Fisch Asset Management is an independent asset management boutique based in Zurich and is one of the leading convertible bond managers worldwide.

The Group of Boutique Asset Managers (GBAM) is a global network of like-minded, independent specialist asset managers who have come together to improve their presence in international marketplaces. Members do so by sharing information and promoting their presence both individually and collectively to potential investors.

The principle activities of GBAM are:-

• To foster cooperation among member firms.
• To identify best practice and share experiences in all aspects of asset management (research portfolio management, risk control, marketing etc).
• To improve understanding of operating in international markets.
• Improve recognition in the marketplace of the advantages offered by small, specialist businesses by providing a representative voice in the media.
• To support members by highlighting their expertise in their chosen fields.

The chairman of GBAM José Luis Jimenez said, “We are delighted that a boutique of the calibre of Fisch has joined our group. Since our inaugural meeting in Valladolid under a year ago the group has now grown to 16 members, representing asset managers from Europe, Latin America, Africa and Asia and managing over €100bn of asset under management.”

Dr. Pius Fisch, chairman and founding partner of Fisch Asset Management said, “I am very pleased to be working with a range of different specialist boutiques from around the world. I’m sure I will learn much from their expertise while making a useful contribution to the Group.”

Interest Rates to Rise Next Spring
BankingTransactional and Investment Banking

Interest Rates to Rise Next Spring

Mike Franklin, Chief Investment Strategist at Beaufort Securities says, “Given the significance of the timing of an interest rate rise after the prolonged period of no increase, it is unsurprising that much speculation surrounds any hints from the Bank of England’s Monetary Policy Committee or from any individual members of the Committee about when the next move would come.

The Bank of England has now decided to move from the level of unemployment as a sole threshold for reviewing interest rates to a much wider range of criteria. This is probably more realistic but complicates the situation for ‘rate twitchers’.”

Mike continues, “The perception of the timing of a rate change is a particularly important component of equity market sentiment. The current hot spot for estimates is spring 2015 and, more specifically, May 2015.

Of course, a lot can change in the world economy before then and the ramifications for the UK economy could be significant. Consequently, even the Central Bankers here and elsewhere, including the Federal Reserve, cannot know for certain when in the future they will decide to move rates.

It is axiomatic that, given the sacrifices that have been made already to nurture economic recovery around the world to a sustainable level – that is, without the need for long term Central Bank intervention – Central Bankers will not wish to jeopardise the recovery by raising rates too soon.

However, that does not mean that they will get their timing right and that is part of the risk facing equity and bond markets as well as the many companies attempting to formulate their plans for future investment.”

Mike concluded, “In a nutshell, if economies recover much more quickly to a level where they are deemed to be able to cope with a rise in interest rates, then interest rates will probably rise sooner. If Central Banks are right on this, then any rise in itself should not be a problem.

With question marks over the rate of growth in the Chinese economy and Latin America, some moderation of global growth in 2015 looks possible, in which case, interest rates would be unlikely to rise before the second half of 2015.”

Name Change for China Private Equity
BankingTransactional and Investment Banking

Name Change for China Private Equity

 

AIM-quoted China Private Equity Investment Holdings Ltd (CPE) has been renamed Adamas Finance Asia Limited (AFA). The Company’s new AIM ticker is ADAM.

The renaming follows the completion of an Agreement announced last December which sees control pass to the Hong Kong-based asset management group Adamas Asset Management (Adamas).

Adamas has approximately US$500 million under management, and was winner of the Acquisitions International Best Mezzanine Fund Award 2012. In recognition of its specialist expertise, it has also been nominated by Private Debt Investor alongside KKR and Oaktree for the forthcoming Best Asia Lender Award 2013.

Adamas’ investment professionals will provide AFA with investment management services, and with access to consistent deal flow. Their investment policy will target SME’s needing capital in Asia, with a focus on Greater China. Transactions will be structured as senior debt, bridge loans, mezzanine finance and other types of structured private financing, with a targeted internal rate of return of 20% per annum.

H.I.G. Capital Strengthens London Team
BankingTransactional and Investment Banking

H.I.G. Capital Strengthens London Team

Leading global investment firm, H.I.G. Capital has announced that two experienced private equity investors, Johannes Huttunen and Johan Pernvi, have joined the London team.

Johannes was formerly at Silverfleet Capital where he worked on the origination and execution of transactions as part of the team in London. Before that he was at European Capital, working on UK buyouts, and in the healthcare M&A team at Deutsche Bank in London. Johannes has a first class honours degree in Management Sciences from the London School
of Economics.

Johan was previously a Senior Investment Manager at publically listed Swedish private equity company, Ratos, where he worked on buyout transactions. Before that he was at Bain & Co. Johan has an MSc from Stockholm School of Economics and a BSc from Lund University, School of Economics and Management.

Commenting on the appointments Paul Canning, H.I.G. London Managing Director said: “We are delighted to welcome Johannes and Johan. These appointments will further strengthen our team’s in-house operational, financial and strategic expertise as we continue to seek opportunities to drive value creation working with businesses in the mid-market.”

Spain’s Largest SICAV Doubles Assets
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Spain’s Largest SICAV Doubles Assets

The inflows into Torrenova confirms March Gestión’s position as Spain’s most successful home grown asset management business with assets trebling over the past five years in a local market which has
largely stagnated.

With an aggressively customer focused mind-set, simple, transparent products based on its global equity skill-set and backed by Europe’s best capitalised bank, Banca March, the asset manager has UK and European expansion firmly in mind.

Using Torrenova to enhance and protect Spanish investor’s assets over the past 25 years (including those of the March family whose policy is to co-invest in March Gestión funds)* March Gestión now has its eyes firmly fixed on those UK investors who seek long term growth with lower average volatility in a highly transparent investment vehicle.

March Gestión CEO José Luis Jimenez said today that by targeting European CPI plus 2% Torrenova’s simple transparent bond/equity mix had shown all the hallmarks of a total return fund – one which had seen consistent growth while demonstrating defensive qualities. During the last 10 years average return has been 4.7% while volatility has been reduced to 2.56%. In 2013 the fund returned 6.2%,.

José Luis said, “For those who seek greater certainty in a simply uncomplicated fund Torrenova is a straight forward, transparent global equities plus bond fund whose success has been driven by the stock picking and asset allocation skills of Juan Berberana – a manager with over 20 years’ experience – and the rest of the team at March Gestión.

The fund also avoids the lack of clarity surrounding some well-known total return funds by avoiding complex financial instruments to manage returns and that, we believe, is valued by many investors.

“With a proven track record over 25 and more years the fund has been the investment of choice for many investors who are keen to protect and supplement their wealth without taking the sort of significant risks which severely impact their investments.

Even during the financial crisis of 2009 when markets plummeted, Torrenova proved itself with a modest fall of just -5.4% compared with far more significant equity market falls (see illustrative chart in notes to editors). Now, within a UCITS structure, it has become available in the UK market to those wealth managers who seek this style of investment for their customers,” said Jimenez.

Genii Capital Appoints Andrew Ruhan
BankingTransactional and Investment Banking

Genii Capital Appoints Andrew Ruhan

Genii Capital SA has appointed Andrew Ruhan as Partner. This appointment will enable Genii to strengthen and broaden its reach in the real estate, oil and gas, automotive and financial services sectors.

Having worked with Andrew on a number of projects in the past, this appointment is part of Genii’s strategy to further enhance its credentials in these core areas. In real estate, this will mean access and implementation of major global projects, including in Central Europe, the United Kingdom and major cities in the United States.

There are also a number of synergies in the oil & gas sectors, particularly in supply and distribution, initially focusing on distribution in Africa. Genii automotive division, which will be managed by Patrick Louis, will also benefit from Genii’s stronger position.

On the appointment Gerard Lopez, Chairman of Genii Capital, said: “having teamed up with Andy on a variety of projects in recent years, we know that we work well together and share the same values and ambition to pursue exciting business opportunities across a variety of different industries.

In addition to being a savvy investor and a fine strategist with an impressive proprietary deals track record, Andy shares our passion for excellence and is results oriented. Outside our business relationship, we share a strong friendship and have several interests in common, such as racing.”

Andrew Ruhan said: “I am delighted to be joining the Genii team at this exciting time for the business, when it is continuing to focus on major new projects. Genii Capital has an excellent reputation around the world for its work, in particular in investing and financial transactions.

We have already identified a number of projects to pursue, which will enable us to leverage our investment management capabilities and global network. I am confident this will be a very successful long term partnership.”

Loans: A Tactical  Investment Opportunity
BankingTransactional and Investment Banking

Loans: A Tactical Investment Opportunity

“At Insight we believe that senior loans in Europe will return 5% in 2014 despite tightening spreads across most credit markets, with the benefit that loans are typically senior in the capital structure with a higher implicit
credit rating.

“This is an investment opportunity that has arisen due to the hunt for yield across asset classes and many investors lacking the specialist expertise to access the loan market. Five years on from setting up the fund, the asset class remains as relevant as ever,” says Singh Lakhpuri.

The appeal of loans is likely to increase as investors anticipate the normalisation of monetary policy. Loans are floating rate products, meaning that the interest they pay intermittently resets with market rates, thus offering some protection against rising interest rates. The Insight Loan Fund is benchmarked against three-month Libor and targets absolute returns.

The Fund has returned an annualised 6.0% in the last three years compared to 0.7% for three-month sterling Libor, with a one year return of 6.3% vs. 0.5% for three-month sterling Libor. These returns have been produced with exceptionally low volatility with a Sharpe ratio of 2.4 vs. 1.6 for the Credit Suisse Institutional Western European Leveraged Loan Index (“CS Loan Index”) over the three-years to 31 December 2013 proving the strong risk-adjusted performance of the fund.

Ride a White Swan
BankingTransactional and Investment Banking

Ride a White Swan

Kevin Lilley from Old Mutual European Equities argues that equity markets reaching new highs should be considered a normal event.

Instead of obsessing on the unpredictable, investors should look to the positive environment they see in front of them.

In 1970 Marc Bolan wrote the lyrics to Ride a White Swan, the song that would become the first hit for his glam rock band, T. Rex. It might be pertinent to today’s equity markets.

Today, we live in an environment where investors are constantly looking for ‘black swans’, the name famously given by Nassim Nicholas Taleb to events that could not possibly have been foreseen. But such events are by definition extremely rare. It is normal to be in a white swan environment and, while not ignoring the risk of setback, this is surely the path for which we should plan.

Market commentators are also fixated on the term ‘bubble’, using it to describe equity indices hitting new highs. I would argue that equity markets reaching new highs is a fairly normal event. It is the last 13 years that has not been normal, with markets remaining below peak due to the extreme overvaluation at the beginning of the millennium, the height of the dot-com boom.

If markets traded on a constant fair multiple of profits or cash-flow, the norm would be for new market highs more often than not. Profits and cash-flows will normally follow the direction of nominal economic growth, which incidentally has risen in most of the past 13 years.

Due to the specific impact of the successive eurozone crises since 2010, there appears to be substantial potential for European equities to catch up with other equity markets. Not only is the European economy emerging from recession, the impact of self-imposed austerity measures is diminishing, removing a significant economic drag.

Unlike their global peers, European company profits and stock markets remain well below peak. With attractive multiples, a recovering economy, a return of international investors and an unlimited European Central Bank (ECB) backstop in place, Europe would appear to have significant potential for 2014. We don’t expect plain sailing, but in my experience of over 20 years, this has never been the case, even in the big up years.

There remains a strong political will for the eurozone to keep together, supported both by the ECB and Germany, so long as measures continue to be taken to make peripheral Europe more competitive. This appears to be slowly working, with many of these nations returning to current account surplus and having achieved lower and more flexible unit labour costs, which is leading to some examples of inward investment.

The threat of a Eurozone breakup now seems unlikely, apart from in the eyes of the loudest Europhobes, and the euro has returned to trend versus the US dollar. Political resolve remains strong, as the alternative of a fragmented Europe would mean a significantly reduced influence in global political affairs, encompassing both trade and security and defence issues, particularly as the Chinese and other faster growing economies demand more influence.

With market multiples of current year profits not looking stretched, and nominal economic growth forecast to rise over the next two years at least, surely we should be embracing these markets and ‘riding the white swan’, anticipating returns at least in line with profit growth plus dividends?

Tristan Nagler Joins Aurelius Investments
BankingTransactional and Investment Banking

Tristan Nagler Joins Aurelius Investments

Tristan Nagler joined Aurelius Investments, London, on 2 January 2014 as Managing Director.

He will lead Aurelius’ London office and be responsible for sourcing, identifying and executing equity investments across the UK and Ireland. Aurelius´ focus remains on companies and corporate spin-offs with development potential generating revenues of between 30 – 750 million euros across all industries.

Tristan started his career with KPMG in 1998, transferring into KPMG Corporate Finance in 2001 where he became a director in the London-based M&A team. In 2010 he joined Investec Growth & Acquisition Finance as a senior banker originating and executing a number of UK mid-market debt facilities including company refinances, MBOs and acquisition finance transactions.

Dr. Dirk Markus, CEO of Aurelius AG says: “We’re delighted to welcome Tristan to Aurelius. We have ambitious plans for targeting investment opportunities in the UK market and expect this appointment to be followed by further new hires to our London based team in 2014, augmenting our presence and enhancing our position in London”

Tristan Nagler, Managing Director of Aurelius Investments comments: “The Aurelius Group’s financial strength coupled with its investment and operational track record means now is an exciting time to be joining Aurelius in London. There is already strong momentum in the business and with the benefit of improving market conditions, I am confident Aurelius’ offering will be increasingly sought after in the UK market”