China demands more disclosure on spare parts, repairs from automakers

China will require automakers to publish technical information on vehicle repair and spare parts from next year, a government statement said on Thursday, a move aimed at curbing anti-trust behaviour by car dealers in the world's largest auto market. 

PHOTO: REUTERS

OCT 8, 20156:06 PM

[BEIJING] China will require automakers to publish technical information on vehicle repair and spare parts from next year, a government statement said on Thursday, a move aimed at curbing anti-trust behaviour by car dealers in the world's largest auto market.

The information, which would include repair manuals and spare part catalogues, would make it easier for consumers and independent repair shops to fix cars, analysts said, putting pressure on official car dealerships to cut prices on repairs and parts at a time when sales of new cars have come to a standstill. "This is a countermeasure to try to make original dealership prices more affordable to the consumers," said Yale Zhang, Shanghai-based managing director at Automotive Foresight.

Such detailed information would make it easier for third-party repair shops to identify suppliers and source parts directly, MR Zhang added.

The new policy, announced in a joint statement from eight government ministries and departments, is the latest in a series of measures China has taken to crack down on price fixing in spare parts and repairs after fining several automakers since 2014 including Daimler AG and Nissan Motor.

The monopoly crackdown is one of the key factors putting pressure on profits from repairs, at a time when companies like BMW AG are looking to after-sales to supplement slumping profits from new cars.

Prices of spare parts and repairs in China can often be several times more expensive than other markets.

Auto sales in China were flat in the first eight months of the year and could drop this year for the first time since the market took off in the late 1990s.

Average per customer revenue from after-sales services dipped to 3,480 yuan (S$773.77) this year from 4,288 yuan last year for luxury car brands and to 1,558 yuan from 1,710 yuan for the mass market segment, according to a study by JD Power & Associates released in July.

REUTERS

    
 

New rules drive life insurers to hedge pension risk outside Europe

OCT 8, 20159:12 PM

[LONDON] Life insurers selling higher-risk products like annuities are moving to reinsure or hedge this business outside Europe to soften the impact of new capital rules which could add hundreds of millions of pounds to their costs.

The new European rules, known as Solvency II, which come into force in January, will require European insurers to set aside more capital against annuities, which give pensioners a fixed income for life and are considered higher risk because they are long-term products and people are living longer.

But insurers can cut the amount of capital they are required to hold against annuities by reinsuring or hedging the risk. Some companies, such as Legal & General, have already done such reinsurance deals and more are expected.

This is expected to benefit insurers in the United States and other countries outside Europe that sell the reinsurance. But it is likely to hit European insurers, given the cost of the reinsurance and, also, when life insurers offload risk via reinsurance this can dent their share of any profits. "The capital charges are high and that's driven by the credit risk that comes with annuity transactions, as well as by the longevity risk," Michel Abbink, partner in the actuarial services practice at PwC, said. "That has led some insurers to say 'if we want to be competitive in this market, we need to transfer that risk'."

Annuities are a major source of income for British insurers such as Legal & General and Prudential, with margins for individual annuities as much as 10 times higher than for more flexible drawdown pensions. Other European countries offering annuities include Germany and the Netherlands.

The threat to profits from Solvency II's higher capital requirements has spurred companies to hedge via reinsurance in the United States or Bermuda, which are not subject to the new European rules.

Legal & General has already moved to what it calls a"capital-lite" model using reinsurance deals. Analysts say Prudential and others are doing the same, with several more reinsurance deals expected in the next few months.

L&G said in its half-year results it had reinsured £5.4 billion of longevity risk and "selectively used asset reinsurance" in bulk annuity deals it completed in the last 18 months. Insurers do bulk annuities deals to take on the risk of defined benefit, or final salary, pension schemes.

The winners from this are non-European insurers such as US firm Prudential Financial, which recently reinsured the longevity of retirees insured by L&G's bulk annuity business in a US$3 billion deal.

Around half the US$260 billion in bulk annuity and longevity swap deals completed since 2007 in Britain, the US and Canada was reinsured, Amy Kessler, head of longevity reinsurance in the retirement division of Prudential Financial, said. "We expect to see this trend continue to grow because this is sensible profitable business for life companies to write."

The new strategy has also been a boon for the banking and legal firms which advise insurers. "We are working on several very high value transactions involving EU life insurers reinsuring annuity business to reinsurers outside Europe," Martin Membery, partner at law firm Sidley Austin, said.

Europe's new capital rules have even pushed Prudential to consider moving its headquarters from Britain, according to a Sunday Times report this week. Prudential said it regularly looked at the structure of its business, when contacted by Reuters.

Britain's largest insurer said in its annual report that a 10 per cent increase in capital requirements for its UK annuity business would cut its capital surplus by £600 million (US$916.20 million).

REUTERS

   
 

China encourages insurance firms to invest in major projects 

OCT 8, 20158:30 PM

[BEIJING] China's top economic planner on Thursday encouraged insurance companies to invest in major construction projects, adding to government efforts to channel funds into infrastructure and boost economic growth.

A general lack of funding, falling company profitability and weakening fund-raising ability by local government has curbed investment growth this year, according to the guidance jointly issued by the National Development and Reform Commission (NDRC) and the China Insurance Regulatory Commission.

Insurance institutions are encouraged to invest in key infrastructure projects via bonds and investment funds, the NDRC said on its website, adding it will accelerate the process for implementing key construction projects.

The NDRC said the guidelines will open a channel for funds to flow into the real economy from the financial sector and ease investment capital shortages.

Earlier on Thursday the country's top auditor said major Chinese construction projects worth about 286.9 billion yuan (US$45.17 billion) are facing delays due to lack of funding.

REUTERS

      

Deutsche Bank may swell US$14b selloff in China Bank stakes 

Deutsche Bank AG's signal that it may sell a US$3.5 billion stake in Huaxia Bank Co shows the fading appetite among global lenders for tie-ups with their Chinese counterparts. 

PHOTO: AFP

OCT 8, 20156:05 PM

[BEIJING] Deutsche Bank AG's signal that it may sell a US$3.5 billion stake in Huaxia Bank Co shows the fading appetite among global lenders for tie-ups with their Chinese counterparts.

That's a turnaround from before the global financial crisis, when Deutsche Bank, Goldman Sachs Group Inc and Bank of America Corp were among those buying in, often ahead of firms' listings.

Global banks' sales of the stakes are being driven by their need to free up capital and the Chinese banks' diminished prospects for earnings growth. China's caps on foreign ownership are another concern, since they limit the potential for a shareholder to increase its sway.

"Global banks are cutting their non-essential holdings or those in which they don't have much control to focus limited resources on their core businesses," said Richard Cao, a Shenzhen-based analyst at Guotai Junan Securities Co. "It's not a bad move to sell because they've reaped the best years of China banks." Deutsche Bank announced Wednesday it will take charges on the carrying value of a 20 per cent holding in Huaxia Bank as it "no longer considers this stake to be strategic." Speculation that a sale was imminent led to questions from analysts as early as April.

See who is talking about DEUTSCHE BANK

Last 30 days:

• 10564
• 465
• 3446

30 days avg

HOT COMPANIES

SABMiller +326% messages

• Tesco +247%
• Experian +173%
• Royal Mail +116%
• Mondi +111%
• Glencore +76%
• Diageo +55%
• Lloyds Bank +52%
• Antofagasta +48%
• Vodafone +46%

• Tesco +247%
• Experian +173%
• Royal Mail +116%
• Mondi +111%
• Glencore +76%
• Diageo +55%
• Lloyds Bank +52%
• Antofagasta +48%
• Vodafone +46%

Global lenders including Bank of America and Goldman Sachs Group have raised at least US$14 billion divesting shares in Chinese lenders since the start of 2012, data compiled by Bloomberg show. Hang Seng Bank Ltd., controlled by HSBC Holdings Plc, is getting out of Industrial Bank Co, while Spain's Banco Bilbao Vizcaya Argentaria SA is exiting from China Citic Bank Corp.

The diminished prospects for earnings come from a slowing economy and rising bad loans. In the most recent quarterly results, some of the nation's biggest lenders reported zero profit growth. Chinese banks are trading at 0.89 times estimated book value for 2015, compared with an average 1.3 times for global banks, based on comparisons among those with a market value of more than US$10 billion.

China currently limits foreign ownership in a Chinese bank at 25 per cent, with a single foreign investor to hold no more than 20 per cent. Rules that have required lenders to hold extra capital against such investments have added to global banks' burdens.

Deutsche Bank and an affiliate bought 14 per cent of Beijing-based Huaxia Bank, one of the smallest listed national lenders, in 2005 for 272 million euros (US$329 million at the time). It boosted the holding in later years and at Thursday's market price it was worth about US$3.5 billion.

Not every foreign bank is getting out.

HSBC has a strategic stake in a major listed Chinese lender, a holding of about 19 per cent of Bank of Communications Co. That tie-up is unusual because of the depth of cooperation and seems to be "unbreakable," said Ma Kunpeng, a Shanghai-based analyst at Sinolink Securities Co. No comment was immediately available from HSBC.

Bank of Communications plans to let HSBC name a vice chairman to its board as the Chinese lender restructures its ownership to give private capital a bigger role, people with knowledge of the matter said in August.

In addition, Citigroup Inc. owns about 20 per cent of the unlisted Guangfa Bank Co.

UBS Group AG is seeking to invest about US$2.5 billion in Postal Savings Bank of China Co, ahead of a planned initial public offering, people familiar with the matter said last month. UBS may syndicate a significant portion of that stock to other investors, the people said.

BLOOMBERG

      

Association of Banks in Singapore issues guidelines on responsible financing

By

Jamie Lee leejamie@sph.com.sg@JamieLeeBT    

The Association of Banks in Singapore on Thursday issued its guidelines on responsible financing. 

ST PHOTO: KUA CHEE SIONG

OCT 8, 20152:19 PM

THE Association of Banks in Singapore on Thursday issued its guidelines on responsible financing.

Banks are to disclose senior management's commitment to responsible financing, and the policy framework that supports this.

They should also allocate resources to support the implementation of responsible financing, and raise staff awareness on responsible financing. This is typically built around environmental, social, and governance (ESG) issues.

Banks will publish their ESG policy framework in 12-18 months' time. Banks are also expected to implement "robust governance systems" through policies and procedures by 2017.

      

Moody's upgrades German bank system to stable on government role

Picture taken on Apr 28, 2015, shows the logo of German bank Commerzbank in front of the company's headquarters in Frankfurt am Main, western Germany. 

PHOTO: AFP

OCT 8, 20151:44 PM

[BERLIN] Moody's Investors Service upgraded Germany's banking system to stable from negative after the introduction of a banking-resolution framework removed uncertainty surrounding government support for lenders.

Banks are also benefiting from increasingly stable operating conditions and high-quality loans on their books, the ratings service said in a statement on Thursday. Lenders have also "significantly reduced" their exposure to volatile assets such as global shipping, commercial real estate and structured credit, Moody's said.

BLOOMBERG