EC consultation brings calls to ease tougher banking rules

FEB 2, 201612:03 AM

[LONDON] Banks, fund managers and company treasurers have called on the European Union to relax new capital and transparency rules imposed on banks and financial market players following the 2008 financial crisis in order to try and get more cash flowing into the still sluggish economy.

The financial industry, along with some policymakers, have said rules forged in the heat of the crisis has led to unintended consequences that need fixing, prompting the European Commission to launch a public consultation which has just closed.

A focus is a complex set of requirements for banks to hold far more capital to cover loans and trades, which they say has made trading and services uneconomic in some cases.

The European Banking Federation (EBF) a trade body, said it was a good time for the EU to revise the bloc's rules and offered "concrete and proactive solutions" to 55 issues in its 72-page submission. "Unnecessary regulatory burdens exist. Now, more than seven years after the crisis, we feel it is a natural moment to calibrate and to fine-tune the new regulatory framework," EBF Chief Executive Wim Mijs said. "Addressing these is necessary for the competitiveness of our financial system and for our businesses, growth and prosperity in Europe," Mijs said.

It stops short of calling for sensitive rules like the bloc's cap on banker bonuses to be ditched, but says requirements to defer portions of a bonus over several years should be softened in some cases.

But banks were not alone in wanting some changes to the regulatory regime.

The European Fund and Asset Management Association (EFAMA) said in its submission it wanted "regulatory stability" - while presenting 40 examples of "existing barriers, inconsistencies and duplications" that needed tackling. "There are currently many examples of fundamental directives affecting our industry where it is extremely difficult to be prepared within the prescribed timetables," EFAMA President, Alexander Schindler, said.

The Alternative Investment Management Association, which represents hedge funds, also said changes were needed to encourage more market-based financing for companies.

And the European Association of Corporate Treasurers said some of the new rules make it harder for banks to help companies fund themselves and manage risks.

Banks were choosier about who they do business with, leaving companies with "unequal access" to banking services, EACT said.

A number of companies find their access to credit facilities or loans reduced or subject to tighter conditions due to the tougher capital and liquidity rules imposed on banks, it said.

Also, new rules requiring companies to report derivatives transactions are costly and not justified in terms of aiding financial stability, EACT added. "We therefore call upon the Commission to assess the appropriateness and proportionality of some of these measures and to relax the provisions that are harmful to the real economy," EACT Chair Jean-Marc Servat said.

EU financial services chief Jonathan Hill launched the"better regulation" consultation and has powers to propose changes to the rules, which would require approval from EU states and the European Parliament and could take several years. "We'll now go through the hundreds of detailed pieces of evidence we have received," Hill said on Monday.

REUTERS

    
 

US dollar slips after dim US, China data

The dollar weakened on Monday after disappointing China and US economic data added to worries about slowing global growth. 

PHOTO: BLOOMBERG

FEB 2, 20166:56 AM

[NEW YORK] The dollar weakened on Monday after disappointing China and US economic data added to worries about slowing global growth.

Sliding down from gains on Friday, the dollar traded at US$1.0893 per euro and 120.96 yen.

China set off new alarm bells over global growth. Official data showed Chinese manufacturing shrank at its fastest pace in more than three years in January, the sixth straight month of contraction in the world's number-two economy.

In the United States, consumer spending, the main driver of the US economy, was flat in December, the Commerce Department reported, and manufacturing contracted for the fourth straight month in January, according to the Institute for Supply Management's purchasing managers index.

"While these (US) reports only serve to solidify our view that the Fed will forgo raising interest rates in March, for the time being the focus is on easier monetary policies and weakness abroad," said Kathy Lien of BK Asset Management.

The Federal Reserve has indicated it would raise its benchmark interest rate by a quarter percentage point four times this year, but futures markets are pricing in only one or two hikes after January's financial market turbulence.

Federal Reserve Vice Chair Stanley Fischer, in a speech Monday, warned the market turmoil could hit the US economy.

"If these developments lead to a persistent tightening of financial conditions, they could signal a slowing in the global economy that could affect growth and inflation in the United States," Mr Fischer said.

"Fischer subtly backed off his prior estimation that four rate hikes this year were in the ballpark," said Ryan Sweet of Moody's Analytics.

AFP

    

Global market turmoil could hit US growth: Fed's Fischer

FEB 2, 20167:00 AM

[WASHINGTON] Global market turmoil has the potential to weaken US economic growth and inflation, Federal Reserve Vice Chair Stanley Fischer said on Monday.

Mr Fischer said in a speech that the ingredients for a global slowdown exist, though he stressed that it was still hardly clear how they will evolve and affect the Fed's interest rate policy.

He said that increased concern about the global outlook - including China's slowdown and the crash in commodity prices - appears to have sparked the volatility in global asset markets.

"At this point, it is difficult to judge the likely implications of this volatility," he said, according to his prepared remarks.

"If these developments lead to a persistent tightening of financial conditions, they could signal a slowing in the global economy that could affect growth and inflation in the United States."

AFP

Investigation shows ease of laundering money in US

FEB 2, 20166:54 AM

[WASHINGTON] An investigation involving secret video recordings of lawyers meeting the representative of a supposed corrupt African minister shows how easy it is to launder ill-gotten gains through the United States.

Global Witness, an independent anti-corruption organization, recorded meetings between the ostensible minister's representative and 13 New York lawyers to discuss how the minister could move money out of his West African country through front companies.

The representative, actually a member of Global Witness, told the lawyers the minister had raised millions of dollars in exchange for mining rights and wanted to bring the money secretly into the United States to buy a private jet, housing and a yacht.

"We deliberately posed as someone designed to raise red flags for money laundering," Global Witness explained on its website Monday.

"We said we needed to get the money into the US without detection." The result? Only one of the 13 lawyers was not willing to help. The others, Global Witness said, were receptive and suggested to the fake official that he create anonymous front companies in the United States to move his funds.

"Well, you'd set up a Delaware corporation that owns the real estate," said one of the lawyers.

Delaware is one of a number of US states that allow people to set up front and shell companies that hide the identity of the ultimate beneficiary of the company.

"It is one of the easiest places in the world to do this legally," Global Witness said.

Some members of Congress and non-governmental organisations are fighting to close this channel which has been used by drug and arms traffickers to launder dirty money.

During the taped meetings, several of the lawyers suggested that the fake minister's money could be passed through bank accounts of their law firms to avoid the suspicions of the authorities.

While none of them actually signed up the minister as a client, only one dismissed the overture of the fake representative.

"This ain't for me, my standards are higher," said Jeffrey Herrmann, who also refused to recommend someone else that the minister could work with.

"Those persons would be insulted," he told the representative.

AF
P

Google parent Alphabet says profit rises to US$4.9b

Google parent Alphabet on Monday reported its quarterly profit rose five per cent to US$4.92 billion on the back on strong online ad revenue. 

PHOTO: REUTERS

FEB 2, 20166:52 AM

[SAN FRANCISCO] Google parent Alphabet on Monday reported its quarterly profit rose five per cent to US$4.92 billion on the back on strong online ad revenue.

The California-based Internet colossus said its revenue topped US$21.3 billion in the final three months of last year.

Alphabet shares jumped more than five per cent to US$794 on earnings figures that beat expectations.

"Our very strong revenue growth in Q4 reflects the vibrancy of our business, driven by mobile search as well as YouTube and programmatic advertising, all areas in which we've been investing for many years," Alphabet chief financial officer Ruth Porat said in the earnings release.

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"We're excited about the opportunities we have across Google and Other Bets to use technology to improve the lives of billions of people." The earnings report was the first in which recently formed parent corporation Alphabet separated money made by Google from "other bets" such as its work on self-driving cars or delivering Internet using high-altitude balloons.

Alphabet's earnings listed a loss of about US$3.6 billion last year in a consolidated "other bets" category that brought in US$448 million in revenue.

Alphabet reported that is overall revenue for last year rose to US$74.5 billion from US$65.7 billion in 2014.

AFP

    
 

China's top macro fund wagers against consumption-driven growth

FEB 2, 201612:24 AM

[BEIJING] China's top-performing macro fund is betting against one of the primary drivers of the nation's economy: Consumption.

Lu Jun, whose Congrong Allweather Fund returned 91 per cent last year, says wage gains will slow abruptly as early as the second quarter as companies struggle with falling profits. That's going to hit consumption and may result in retail-sales growth more than halving to 5 per cent by the end of 2016, he said, citing his company's own calculations.

Lu's bearish outlook is at odds with President Xi Jinping's effort to shift the world's second-largest economy into one powered by consumers, and it's a contrarian wager against the mainstream view that retail spending will remain a major pillar for growth. The money manager's conviction has prompted him to shift more of his fund assets into cash and short-term bonds, while paring stock holdings.

The disparity between China's rising wages and the slowing economy "certainly has a limit. It will shrink," Lu said in an interview from Shanghai, on the sidelines of a hedge fund conference organized by Shanghai Suntime Information & Technology Co. "Our macro view for this year is how to make money by taking advantage of this shrinkage." Lu said he's keeping stock exposure low and has "fully hedged" all such holdings with short positions in equity-index futures, while declining to mention any specific securities. He's also holding "a lot of cash" and money-market securities as he's bracing for further declines in the stock market amid slowing growth. The Congrong fund returned a cumulative 243 per cent over the past three years, ranking as the best of 50 Chinese funds that bet on macroeconomic trends, according to Shanghai Suntime.

High Valuations Lu started Shanghai Congrong Investment Management Co in 2007 and formerly was chief investment officer of JPMorgan Chase & Co.'s local asset-management venture. Lu, who manages more than 8 billion yuan (US$1.2 billion), said stock valuations are still high, even after a summer rout wiped out US$5 trillion in market value and the benchmark Shanghai Composite Index has tumbled 24 per cent this year.

Congrong Allweather Fund beat rivals last year on stock and bond bets based on Lu's judgment that China would lower interest rates, he said. That compared with an average 49 per cent return among all macro funds in the country that have been operating for more than a year, according to Shenzhen Rongzhi Investment Consultant Co.

Some money managers have gotten increasingly dour on China, whose economy expanded last year at the slowest pace in a quarter century. Huang Weimin, China's top futures trader after scoring a 6,200 per cent return in 2015, is advising investors to stick to cash because he expects the Shanghai gauge to drop further as slowing growth fuels outflows. Billionaire investor George Soros has said China's economy is headed for a hard landing, which will drag down stocks.

China is in the throes of a transition from an old economy dependent on manufacturing and investment into one driven by services and innovation, as its leaders have been seeking to boost consumption and wages to get away from a reliance on exports after the global financial crisis exposed the risks of such a path.

Those efforts have gained traction - consumption contributed 66.4 per cent of China's economic expansion last year, while the pace of increases in disposable income surpassed the rate of growth in gross domestic product.

The services sector, which hires hairdressers, couriers, bankers and computer engineers, has also bolstered China's economy by contributing to more than half of the nation's total output last year. Movie cinemas across the nation saw a 49 per cent jump in box office sales in 2015 from a year earlier.

The government is facing fresh headwinds this year, as wage gains slow and uncertainties mount over the pace of employment growth. Policy makers have prioritized cutting excess industrial capacity, which will lead to a loss of jobs. Per capita disposable income rose 7.4 per cent in 2015 from a year earlier, according to inflation-adjusted data from the National Bureau of Statistics, compared with an 8 per cent increase in 2014.

As the gap between wage growth and economic expansion narrows, economies depending on Chinese consumption will suffer but China's overall growth may be fine as businesses have been "preparing for the winter" by hoarding cash, Lu said.

Congrong Allweather's bearish index-futures positions are now equivalent to its stock holdings, the maximum allowed by the exchange after the government tightened rules on shorting last year in a bid to stem a market rout, he said.

"We'll just wait and see, till the storm passes," Lu said.

BLOOMBERG

    
 

WHO declares international health emergency over Zika

WHO chief Margaret Chan said a meeting of health experts who make up the agency's emergency committee had agreed "a causal relationship between the Zika infection during pregnancy and microcephaly is strongly suspected, though not scientifically proven."

PHOTO: EPA

FEB 2, 20166:47 AM

[Geneva] The World Health Organization on Monday said a surge in serious birth defects in South America was "strongly suspected" of being caused by the Zika virus and constituted an international health emergency.

The UN health body said that a surge in cases of microcephaly - a devastating condition in which a baby is born with an abnormally small head and brain - was likely caused by the mosquito-borne Zika virus and declared the situation a "public health emergency of international concern."

The WHO is under pressure to move swiftly to tackle Zika, after admitting it was slow to respond to the recent Ebola outbreak that ravaged parts of west Africa.

WHO chief Margaret Chan said a meeting of health experts who make up the agency's emergency committee had agreed "a causal relationship between the Zika infection during pregnancy and microcephaly is strongly suspected, though not scientifically proven."

"The clusters of microcephaly and other neurological complications constitute an extraordinary event and a public health threat to other parts of the world," she said.

WHO warned last week that the mosquito-borne virus was "spreading explosively" in the Americas, and said the region could see up to four million Zika cases this year alone.

For decades after Zika was first discovered in Uganda in 1947 the mosquito-borne virus was of little concern, sporadically causing "mild" illness in human populations.

But although the symptoms of virus have until now appeared benign, growing indications of a link to microcephaly and a rare neurological disorder called Guillain-Barre syndrome have stirred growing alarm.

"Zika alone would not be a public health emergency of international concern," explained David Heymann, who chaired Monday's WHO emergency committee meeting.

He stressed the urgent need to scientifically establish whether the clusters of microcephaly and Guillain Barre are caused by Zika, but acknowledged that "it will take time." In the meantime, Ms Chan said, the world could not put off coordinating measures to protect against the spread of Zika, in the affected region and beyond.

Brazil was the first to sound the alarm in the current crisis, warning in October that a rash of microcephaly cases had emerged in the northeast.

It has since become the worst affected country, with some 4,000 suspected cases of microcephaly, of which 270 have been confirmed, up from 147 in 2014.

WHO said Monday that French Polynesia had also seen a spike in microcephaly cases during a Zika outbreak there two years ago.

As alarm grows over the surge in number of cases, Colombia, Ecuador, El Salvador, Jamaica and Puerto Rico have warned women to delay conceiving until the Zika outbreak is brought under control.

Colombia, which has reported more than 20,000 Zika infections, including 2,100 in pregnant women, meanwhile warned Monday it was expecting an "explosion" of cases of Guillain-Barre syndrome, a serious condition affecting the nervous system.

"We are currently talking about a rate of 2.3 cases of Guillain-Barre for every 1,000 patients with Zika. That is quite a lot," Health Minister Alejandro Gaviria said on Colombian radio.

Since Colombia is forecasting about 657,000 cases of Zika during the epidemic, it expects over 1,500 cases of Guillain-Barre, he said.

Panama meanwhile said Monday it had registered 50 Zika cases, and jitters over the virus have spread far beyond the affected areas to Europe and North America, where dozens of cases have been identified among people returning from holiday or business trips.

WHO is looking to take resolute action on Zika after coming in for stinging criticism over its initially sluggish response to the devastating west Africa Ebola outbreak.

Ebola, which has killed more than 11,000 people in west Africa since late 2013, was declared a global health emergency in August 2014 and continues to carry that label.

WHO on Monday stressed to need up work to improve diagnostics and develop a vaccine for Zika - for which there is currently no treatment.

The virus is transmitted by the Aedes aegypti mosquito, which also spreads dengue fever, and which is found everywhere in the Americas except Canada and Chile.

Ms Chan said efforts to ward off Zika infections, including getting rid of stagnant water where mosquitos easily breed, and using personal protection against mosquito bites such as using repellant and sleeping under mosquito nets, could not wait.

WHO meanwhile refrained from issuing travel warnings, although Ms Chan hinted that pregnant women might want to avoid travel to Zika-affected areas, if possible.

AFP