Year: 2013

Reyes Reinoso, Felipe Laverde, Ana Choucair on the Cartagena refinery | Reficar | Video

Posted on by World Finance

Rising exploration and a favourable environment has made Colombia an attractive destination for oil and gas investment. As the Cartagena refinery expansion draws closer to completion, Reyes Reinoso, CEO and President; Felipe Laverde, Vice President of legal and corporate affairs; and Ana Choucair, Director of Financing; for Refinera de Cartagena, discuss the country’s burgeoning oil industry.

World Finance: So what’s the economic outlook in Colombia today?

Reyes Reinoso: The Colombian economy is actually the third largest economy in Latin America, after Brazil and Mexico. The GDP has been growing steadily from four to five percent. We also have a lot of opportunities in the oil and gas business, both onshore and offshore, for oil exploration and production and that interest is actually the result of the government strategy to make the contractual and fiscal terms the most competitive in Latin America.

“We’ve gone from 640,000 barrels a day six years ago, to over a million barrels a day now”

World Finance: And how has Colombia’s oil industry changed in recent years?

Reyes Reinoso: Well, with that government strategy of making the contractual and fiscal terms more flexible, the interest on investing in the oil and gas in Colombia has really gone exponential. Our last round of business has brought up to 80 major or medium oil companies. We have companies such as ExxonMobil, Shell, and ConocoPhillips, who are currently with other medium and smaller private companies in Colombia, both onshore and offshore. So the production rate also has obviously increased with all that effort. We’ve gone from 640,000 barrels a day only six years ago, up to over a million barrels a day now, during this year, and still increasing. Our target is by 2015 we will have 1.3mn barrels a day in production.

World Finance: With the new refinery Colombia is moving into a new age. Which historical limitations are being overcome with this project?

Reyes Reinoso: This is the most important project currently in Colombia. The investment is over $6.5bn. This is a project that will allow Colombia to stop being a net importer of products and actually be exporting at the highest level. But beyond that, this project has brought several things in its favour. Not only the independence, energy-wise, for Colombia, but it’s a project that has brought the refining business onto a different level. This is a very modern refinery, highly complex, with the top technology, a fully automated refinery. So that brings not only the hardware of a refinery on a competitive level, a highly heat integrated design where saving energy is a must for being a competitive player in the market, but also has opened the possibilities for future expansions into the petrochemical side too.

“The Cartagena refinery is the most important project currently in Colombia”

World Finance: What have been the main environmental and social impacts of the refinery expansion?

Reyes Reinoso: There are a lot of advantages to this refinery. To do any construction, we had to eliminate some trees, for example, and we are reforesting. We are planting tress at a ten-to-one ratio. The other has to do with the fuels. The quality of the fuels are top-notch and environmentally competitive anywhere in the world. For the social part, being the biggest project in Colombia, this has had a very important impact in the community, in the city of Cartagena. 70 percent of the workers, we’re talking currently around 12,000 workers, come from Cartagena. We didn’t originally have the skills, so we had to prepare a $6mn project to train the people for the construction site, bringing jobs to so many people and increasing their income level to three to four times their previous jobs’.

World Finance: So how has the project set new milestones in Latin American project finance?

Reyes Reinoso: You can see that the time we went out to look for funds, it was actually around 2011, was in the middle of the banking crisis in Europe, so it was not an easy task. However, we have a wonderful, very talented group on the financial side, and their strategy was based on looking into the private and public sector, joining forces, so we have state oil companies backing us up. But initially we went to the credit agencies, which are the most difficult ones to obtain resources from, and after we complied with their requirements we went out to look for funds at that time with commercial banking communities. We ended up with over $3.5bn of funds for the project, and it proves that in Latin America we do have the capability of raising resources for mega-infrastructure projects.

“The industrial facilities in Cartagena are bound to be a future hub of business for the oil industry”

World Finance: Finally, as Reficar’s refinery expansion draws to conclusion, which is slated for 2015, what new opportunities are there for investors here?

Reyes Reinoso: Once you have a refinery with such technology, a lot of companies who have provided us with goods, technology, parts, and equipment will be interested in steady growth of their business in Colombia. The industrial facilities in Cartagena are bound to be a future hub of business for the oil industry. The future also holds a lot for the petrochemical industry. Downstream of the refining, a lot of the raw material is produced at the refinery.

World Finance: Reyes, thank you.

Reyes Reinoso: My pleasure.

Volcker rule approved despite opposition from Wall Street

Posted on by Ashton Wenborn

American regulators voted the Volcker rule in yesterday after years of contention. The new law will make it much harder for American financial institutions to indulge in risky speculation.

The rule, named after Paul Volcker, former Chairman of the Federal Reserve, actively bans banks from using their own funds for trading activity, and is the cornerstone of the Dodd-Frank act. Though the Volcker Rule was part of the original act passed in 2010, it faced fierce opposition from Wall Street and had to be amended and changed before being approved in its own right.

Effectively, Volcker rules out proprietary trading, that is, banks will not longer be able to bet using their own accounts, and their CEOs and executives will be subjected to greater regulatory scrutiny and be held more accountable.

Though some banks have suggested the rule is too comprehensive, others have pointed out that it does not sufficiently distinguish between trades made for profit and trades made to hedge against risk, leaving a lot of room for interpretation by regulators. “This is the era of ‘big brother’ banking, where the fortunes of banks are tied to the government like never before,” Credit Agricole banking analyst Mike Mayo told the BBC.

Though the rule was passed, Wall Street won a big concession at the last minute. The rule was passed without any provisions that explicitly prohibit banks from making trades to hedge risks in certain circumstances. For months before yesterday’s vote, banks had been worrying that the rule would be more stringent on that matter, especially since JP Morgan announced losses of $6bn in derivatives trading in 2012. Treasury Secretary Jack Lew had suggested the Volcker Rule would address that type of trading to prevent another such incident occurring in the future.

“Big brother was asleep on the couch before the financial crisis and now big brother seeks to micromanage the banks as a means to prevent future crises, [but] how can anyone in mid-level management really understand a proprietary trade?”

In a statement Barack Obama said: “The Volcker Rule will make it illegal for firms to use government-insured money to make speculative bets that threaten the entire financial system, and demand a new era of accountability from CEOs who must sign off on their firm’s practices.

“Our financial system will be safer and the American people are more secure because we fought to include this protection in the law.”

Volcker, the key advocate of the rule, has said the new provisions is another step in the “larger on-going effort to rebuild a strong banking system fully capable of, and attentive to, meeting the critical financial needs of businesses and individuals.”

“I look forward to a process, called for by the new regulation, in which the boards of directors and the top management of our leading commercial banks will cooperate closely in implementing the new rules within the institutions for which they are responsible,” he added in a statement.

Banks have until July 2015 to make arrangements to comply. The rule, which is stricter than banks had been lobbying for, will likely hurt profits in the short term, while institutions adapt to the new provisions. Critics have insisted that the rule will damage Wall Street’s ability to compete internationally. According to Standard & Poor’s, limiting proprietary trading could cost the eight main players in the market between $2-3bn a year in foreign earnings.

“We are disappointed that regulators may have sacrificed an effective process that could have avoided adverse consequences for Main Street businesses,” said the US Chamber of Commerce’s David Hirschmann in a statement.

“The Chamber asked regulators to re-propose the Volcker Rule in order to identify and fix unintended consequences before the Rule goes into effect.”

Safak Herdem and Altug Atilkan on Turkey | Herdem and Co

Posted on by World Finance

Having weathered the global financial crisis better than most, Turkey is now seen as a promising emerging market with large scope for investment. Safak Herdem and Altug Atilkan from Herdem and Co Attorneys at Law, an Istanbul-based corporate law firm which deals with multinational transactions, discuss the role Turkey plays in the global economy, its approach to foreign direct investment, and the country’s economic and political outlook.

World Finance: Safak, what role does Turkey play within the global economy?

Safak Herdem: I think Turkey put a new face on the attractiveness of investments. They changed the laws very quickly, and they are very well arranged for the economic infrastructure, both on the legal and operational side. There are many companies who are interested in Turkey just for the locations and using it as a hub, but nowadays, beyond the fact that it’s geographically a well located country, it’s much more important for them how they can develop their business to the regions. Turkey today is of value in the region, and it’s time to benefit, to penetrate the market as quickly as possible, as long as the sustainability continues.

Turkey has put a new face on the attractiveness of investments

World Finance: How does Herdem and Co fit into this?

Safak Herdem: We are actually a combination of business skills and legal practices. We are mostly a transactional law firm and focus on the sectors and industries that affect the economy in Turkey. Together with the financial aspect and the legal aspect, we advise the client on how to manage, how to structure, and how to exit their policies in their business.

World Finance: And how does Turkey approach foreign direct investment?

Safak Herdem: When you set up your company in Turkey, it’s a Turkish company and you can benefit from the incentives if the laws and all the infrastructure are ready, and you can join all the tenders, there is no legal obstacle to run your business as a foreign direct investor.

World Finance: Altug, a third of Turkey’s top 500 companies have already been approached by international investors. What makes Turkey such an attractive point?

Altug Atilkan: When you look at the last decade, the Turkish government have changed a lot of legislation and presented new incentives in the scope of foreign direct investments. As an example, since January 1 2012, the new foreign direct investment laws have been revealed, and after these regulations the ministry of the economy has separated foreign direct investments into four parts. In the scope of these parts, they are looking for the largest scale incentives, the strategic incentives, regional incentives and general incentives. Now the foreign investors are usually interested in the strategic and regional incentives, because when you look into the tax incentive benefits of Turkey, they can benefit from the custom due to tax exemptions, corporate tax reliefs, and also VAT exemptions. Another part I would like to emphasise is from 2013 the Turkish government will try to focus on angel investments in Turkey, and after February 2013 the Turkish government made a new regulation to encourage angel investments in Turkey. I predict that this will mainly provide and encourage the stocked up projects in Turkey and that new potential investment opportunities will arise after these regulations.

The Turkish government have changed a lot of legislation and presented new incentives in foreign direct investments

World Finance: Which sectors have the greatest opportunity for investors and why?

Altug Atilkan: When we analyse the Turkish economy in the last years, the Turkish government will mainly focus on some industries and sectors because they are looking for the near privatisation and liberalisation opportunities in this market. As an example, if you ask me the sectors, I would give you the energy infrastructure and the cost reduction industries. Energy is one of the most important issues in Turkey, because generally Turkey is an import-dependent country in terms of energy, and after that they have decided to change the policies and try to provide new opportunities for energy investors. They are mainly focusing on electricity, renewables, and oil and gas markets. Another circumstance about Turkey is the new stock exchange will be established next year, and after that investors will find some potential to get good pricing opportunities on the electricity market.

World Finance: And finally, there is an election looming in 2014. Tell me a bit more about how this will reflect on the stability?

Altug Atilkan: When you look into the 2014 election, I don’t predict any change in the scope of the government and I strongly believe that the political and economic stability will continue in Turkish markets.

Safak Herdem: Considering the way that investment grew up to it, because especially after 2002 the same one party government followed and the projects followed, and they dominated. Today the FDI in Turkey is about $12.5bn, but last week the Prime Minister announced that there are projects values at $250bn within 10 years, so this shows how the government stability is going to be vital to the market and how the government is eager for this. So this is quite important for the foreign investors.

World Finance: Safak, Altug, thank you very much.

Safak Herdem: Thank you.

Altug Atilkan: Thank you.

Tim Harford on why economists can’t predict | Video

Posted on by World Finance

The financial crisis has put global economics into the spotlight. Undercover economist Tim Harford explains how experts’ forecasts can be so unreliable (but despite this, why a handful of specific economists did point to problems before the global financial crisis), discusses the difficulties with trial and error in macroeconomics, and explains his concerns about economic growth in the UK.

World Finance: So Tim, probably a question you’re a little bit sick of being asked, but I think it’s interesting anyway; why did economists fail to warn us about the financial crisis?

Tim Harford: Well I think the big picture answer to that is, no experts ever successfully warn us about anything! Or certainly any social science problem.

There’s a wonderful investigation carried out by the psychologist Philip Tetlock. Over 50 years when he quizzed different experts. Some were academics, some were more practical people like diplomats or even spies. Journalists. Some were economists, some were psychologists, some were historians, some were regional specialists. All of these experts. And he just asked them to make specific forecasts about real world events. He made all his forecasts quantifiable. And he waited. He waited nearly two decades. And having collected nearly 30,000 forecasts from about 300 experts, he came to the conclusion that basically, no expert can forecast anything! We’re all just terrible.

So this is not specifically a problem about economics and the crisis. This is really a problem about being humble in the face of what’s a very complex world.

“Specific economists looking at some detail were pointing to trouble, but the big picture stuff is always really tricky”

That said, I do think there were certain economists who were able to point to specific things that were of concern. So, you can think of, for example, Raghuram Rajan, who was chief economist at the IMF – hardly a minor figure – who was pointing to the perverse incentive structures of the way that mutual fund managers were being paid.

There was Robert Shiller, who was looking at price earnings ratios, and then price-rent ratios in the housing market. He pointed to the dot.com bubble, called it a bubble, and did the same for the housing market in 2005. I could list others. There were specific economists who were pointing to trouble. And I think what they had in common was an interest in some detail. Rather than just saying, ‘Right, I’ve got a simple model of the entire economic system, and nothing’s problematic,’ they were detail-oriented. They would look at a particular thing. ‘I’m worried about the contracts that investment managers are paid under,’ or ‘I’m worried about the way the housing market in Boston is performing.’ And those specific real-world focuses produced results. But the big picture stuff is always really tricky.

World Finance: Well since the financial crisis then, do you think the perception of economists has been changed?

Tim Harford: Oh no, I think people always knew we couldn’t forecast anything, to be honest. There’s a slightly ironic situation, because on the one hand, clearly economists deserve some blame for – I wouldn’t say so much for not seeing the crisis coming, but for not understanding that there were certain structures in place that seemed likely to cause damage. That was partly due to us. Not solely due to us. There were lawyers involved! There were accountants involved, there were politicians involved, but it’s partly our fault.

And people blame us for that, and they’re right to blame us for that. But at the same time, people want to know what’s going on. And when you want to know what’s going on, who do you turn to at this point? Well, quite often you turn to an economist. So, people love us but they hate us. I guess I’ll have to deal with that.

“The longer we go without a recession, the less people think about risks”

World Finance: Well a lot is said about boom and bust, so is it not just another time for a recession?

Tim Harford: No no, I completely disagree with that. It’s just not true that we’re due recessions from time to time, and there’s due chastisement, and we just have to take our medicine and purge the rottenness from the system. I think that’s just medieval thinking, to be honest.

The one thing I will say is, the longer we go without a recession, the less people think about risks. And you can actually track this across generations. So, you can see the years in which people were born, the economic environment they experienced as teenagers and in their 20s, when they were forming strong impressions about how financial markets work. You can track that throughout their investment careers, and people who grew up during the Great Depression see stock markets very differently. People who grew up during the 1970s see stock markets very differently from people who grew up during the 1980s. You can track it. And people who have experienced these traumatic economic events are very conservative. They don’t like leverage, they don’t like to take a lot of risks, because they’ve seen how bad things can get. And so, there is this self-correcting thing going on.

If the market is working brilliantly, the stock market is booming, there hasn’t been a recession for years and years and years and it wasn’t very serious last time, people are going to get careless. So, that is the only way in which I agree with you, that sooner or later we just relax too much.

World Finance: Based on your theory of trial and error, we know that Keynesian economics has worked in the past, so, five years on, why are we still suffering from a recession?

Tim Harford: It’s never as easy as that though, is it? I mean, I’m a believer in Keynesian economics, within reason. I think that Western governments should have spent money, particularly channelled into investment, long-term investment projects. But even though I believe that that’s true, I do not think you can say ‘We proved that conclusively in the past, and therefore it will always be true.’

“The long-term questions about the structure of the British economy haven’t been answered yet”

The wonderful thing about the trial and error that I espouse is that you can do it on a small scale, you can run randomised control trials, you can learn very specific lessons, you can scale them up. That’s much harder in macroeconomics. It’s always possible to say, ‘Well, this time it’s a bit different, the structure of the economy is different, the structure of the shock was different, banking was very different in 2008 compared to 1929…’

So, even if we could agree what happened in the 1930s – and we don’t! – that still doesn’t tell us what would work now. So, that’s the challenge for anybody who is interested in macroeconomic problems. Trial and error is the way we understand the world, but trial and error is just a very difficult thing to do when it comes to macroeconomic affairs.

World Finance: Finally, the question I think we all want answering: is the British economy now growing, and where do you see the next bubble coming from?

Tim Harford: Well if I could answer that question, I’d be arguing that economists can forecast, and I think I’ve argued very strongly that economists can’t forecast!

It is growing, we don’t know whether it will continue to grow. The things that concern me are basically just the quality of the growth. To what extent is the growth just dependent on inflation in house prices? It doesn’t mean there’s a housing bubble – although it might. But it does mean that it isn’t coming from production, it’s basically coming from consumption.

I’ll take it, for now. It’s better than no growth at all. But the long-term questions about the structure of the British economy haven’t been answered yet.

World Finance: Tim, thank you.

Tim Harford: My pleasure.

Indian state elections see markets jump

Posted on by Ashton Wenborn

This weekend saw India’s ruling Congress party suffer bruising defeats in many state elections, hinting that it may be in for a tricky general election at the beginning of next year. The news was welcomed by investors in the country, who pushed the stock market up to a record high in early Monday trading.

India’s leading opposition party, the Hindu nationalist Bharatiya Janata Party (BJP), enjoyed three significant state victories, and it appears investors hope that this will translate on the national stage next year. The more business friendly BJP, led by Narendra Modi, has performed well in opinion polls over the last few months, although the result of 2014’s national election is expected to be close.

India’s benchmark Sensex index reached 21,387 in early morning trading, surpassing November’s previous high mark. Investors appear keen on a change in government after years of Prime Minister Manmohan Singh’s Congress Party ruling with indecision, heightened bureaucracy and stagnating growth.

Despite investors hoping that India would see the sort of double-digit economic growth seen in China over the last decade, the country has slumped somewhat in recent years. Businesses have been turned off the country by its notoriously complex bureaucracy, as well as relatively high levels of corruption.

Speaking to the FT this morning, KPMG India’s deputy chairman, Dinesh Kanabar, said that the country’s economy is ready to take off; it just needs a decisive government to kick-start growth. “I strongly feel that the fundamentals of India’s economy are very much in place, that the growth story which was evident three years back is just as relevant today.

“A decisive government, of whichever party, will put this period of policy paralysis behind us…I am not making light of some of the structural issues, but am convinced that a stable government can deal with them and put India back on track for eight percent growth or more.”

Tim Harford on insider trading and incentives | Video

Posted on by World Finance

Insider trading: is it the scourge of the market, or completely harmless? Tim Harford, author of The Undercover Economist Strikes Back, explains how the problem with insider trading isn’t about individual traders winning or losing because of inside information: it’s what people with power within a corporation might do if they’re allowed to trade.

World Finance: Tim, insider trading: is it as bad as it’s made out to be?

Tim Harford: Insider trading is one of those things that has a real appeal to financial journalists like me, and to regulators, and to anyone who wants to get cross about the City, or Wall Street, because it’s a financial crime that seems to be really easy to understand. And to be honest, there aren’t very many financial crimes that are easy to understand.

Insider trading: these guys knew something, and they took advantage of that secret information to make money, and took advantage of other people. And it just seems so straight forward! So that’s why I think it’s very appealing to write about it and talk about it and engage in these big whodunnits.

There’s just one problem, which is that it’s actually quite hard to figure out what harm insider trading causes. And I think one can make a case that it causes harm, but it turns out to be not as straightforward as you might initially think.

“The real worry is not the insider trading; it’s the way insider trading might generate a profit opportunity, that might itself then be damaging”

World Finance: Following on from your article on this, what were your initial thoughts when you went into this article, and did they sort of change, following research?

Tim Harford: Well I discovered new ways in which insider trading could be harmful, which is interesting. But I also had my initial view confirmed, which is that the reason people think it’s harmful is not the reason they think it’s harmful.

So, the reason you think insider trading is harmful, before you really think deeply about it, is… well. You want to buy shares, I own shares in a particular company, and I know that the profit report is just about to come out, and profits are bad, and the shares are about to fall. And I sell those shares to you, and then the next day the results come out, and the shares fall in value, you’ve lost money, and I’ve taken advantage of you. That seems to be straightforward.

But when you think about it you go, well hang on. You were going to buy those shares anyway. If you didn’t buy them from me, you’d have bought them from someone else.

I didn’t lie to you, I didn’t commit any fraud, I didn’t tell you the profits were going to be good. I didn’t phone you up and solicit your customer. It was just, you tried to buy shares – and you actually got a better price for the shares you were going to buy anyway because I was in the market selling them. So what’s the harm?

And in fact, that’s where you initially start. You go, gosh, this is quite tricky. So, what might the harm be? I think one form of harm that there is potentially in insider trading is the incentives to management. So, if you are an insider in a corporation, you know whether the shares are going to go up or down. If you were able to just constantly trade on that basis, well, there may be no harm in that. But then you actively acquire an incentive to make the shares of the company fluctuate up and down.

“You were going to buy those shares anyway. If you didn’t buy them from me, you’d have bought them from someone else”

You need to create surprises. Good surprises and bad surprises all the time. Because every time you create a surprise, there’s a new opportunity to make money from your insider trading. So it turns out that the real harm, I think, the real worry, is not the insider trading; it’s the way insider trading might generate a profit opportunity, that might itself then be damaging. And I think that’s a broader lesson for the way that we think about the city, and regulating financial activity, the way we think about regulating investment banks.

Often it’s not the superficial headline problem that is actually the problem. So, for instance, with performance related pay. The problem with performance related pay was not that people were being paid too much money, or that people were being paid money and they didn’t deserve it. The problem was – and economists knew this beforehand – performance related pay creates certain incentives to take all sorts of the wrong risks. So we’re actually paying people to cause damage. That’s the issue. So, there’s a broader lesson here, it’s not just about insider trading.

World Finance: All things considered then, do you think that maybe insider trading should be legalised to a greater extent? Because then I think other people could almost take advantage of this as well.

Tim Harford: Well, I think there are no simple answers. There is certainly a case to say that insider trading is really a civil matter. It’s a matter for an individual company’s corporate governance policies. And individual companies should take a view as to whether insider trading should be allowed or not by their directors, because that’s fundamentally the issue: what their directors and their managers go on and do if insider trading is allowed. And to be honest, I suspect that most large companies would ban it.

“Half of all insider trades are the trades that don’t happen rather than the trades that do. I simply fail to take action”

So I think there is a good case for that, that it’s an internal corporate governance matter. I think the main case for keeping it illegal is just to save trouble, and to say, just assume that all companies would ban it anyway, so who cares? But that case is not as strong as we might think. When you think about it actually, there are all kinds of insider trades that take place every day that never get punished. They’re the insider not-trades.

So, if I own shares and I’m about to sell those shares because I would like to buy a yacht, because I run a company, and buying yachts is what I do. And I happen to know that profits are good, and the shares are about to jump in value. I simply… fail to take action. I would have sold the shares, I don’t sell the shares. Then the shares go up in value, then I sell them. That’s insider trading. No one can find it, no one can punish it, no one can prove you were ever planning to do anything else. So it can’t be regulated. But half of all insider trades have got – by pure logical argument – have got to be the trades that don’t happen rather than the trades that do. And they’re legal because there’s nothing you can do to spot them.

“I think the main case for keeping insider trading illegal is just to save trouble”

World Finance: People are more savvy now when it comes to financial markets, so is the line being blurred between insider trading and people now just doing more research, or being more aware?

Tim Harford: Certainly there’s a less straight-forward line between amateur traders and professional traders, but I still think the professionals are always going to have an advantage. And I always advocate just a very simple, humble strategy.

I’m struck by the investment performance of the great John Maynard Keynes, the guy who invented macroeconomics. He had an absolutely terrible trading record for years. When he was trying to use his macroeconomic expertise, when he was trying to time the market and get in, and get out, and be very clever and forecast when the market was going to fall. If anybody could have done it in the world it would have been John Maynard Keynes, and he just couldn’t do it! And after about eight years of this he changed his strategy, and just went for a much more Benjamin Graham, Warren Buffett, almost passive investment. But value investing, just looking to buy and hold stocks that you understand, whose management you trust, really simple, no frills stuff. And just as Benjamin Graham did, just as Warren Buffett has done, achieved tremendous rewards.

So, if John Maynard Keynes cannot make macroeconomic forecasting deliver investment performance, then, you know. You can’t, I can’t, I don’t think anybody can. So maybe we all just need to… calm down, and show a bit of humility.

HSBC considers floating in London

Posted on by Ashton Wenborn

It has been reported that HSBC has been approaching investors about potentially floating its UK arm on the London Stock Exchange. The move would cash in on its position as Britain’s largest bank, and address new regulations that demand retail banking operations are ring-fenced from investment banking.

The Financial Times has reported that over the last few weeks the bank has been asking investors if they would be in favour of a potential sale of a considerable stake in the UK arm of HSBC. The newspaper also suggested that the matter had been raised informally at board level.

It has been estimated that a floatation of the UK arm of the bank could be worth up to £20bn. It has been speculated that the potential floatation, which is said to be in its early stages, could be of up to 30 percent of the total UK retail and commercial operation.

New EU state aid penalties imposed after the series of government bailouts have led to a series of banks, including Lloyds and RBS, to announce upcoming floatations of their subsidiaries. The so-called Vickers Rule demands that banks ring-fence their retail operations, including customer deposits and small business loans, from any sort of investment banking activity.

Though formal separation is not compulsory under the rule, the many large banking institutions are taking it one step further and floating their retail businesses. There have been suggestions that Virgin Money and Santander could float part of their retail operations soon.

“Given the trouble you have to go to to establish a self-contained operation, with its own capital and governance, you might as well go the whole hog and spin it off,” one executive who knows HSBC well told The Daily Telegraph.

HSBC has been vocal about its distaste for the ever-increasing costs of being a regulated bank in the UK. Because of the sheer volume of its UK operations, it is expected that HSBC will contribute up to 40 percent of the industry bank levy imposed by the Treasury – a figure to the tune of £900m this year. Recently the bank has even suggested moving its headquarters from London to Hong Kong, though that seems to be largely off the table for now.

The FT suggests that executives believe that a UK floatation would also make sense in terms of upcoming valuations as it would mean the bank could capitalise on the investor interest in its shares, which could in turn be converted into better ratings for the whole group.

Autumn Statement 2013: Sensible or stagnant?

Posted on by Ashton Wenborn

Just six months ago, economic growth in the UK was stalling. At the budget announcement in March, Chancellor George Osborne was forced to strike a somewhat sheepish tone when he announced that the Office for Budget Responsibility – a group he helped set up – predicted that growth for 2013 would be a measly 0.6 percent – just half the previously forecast 1.2 percent. Osborne was ridiculed for his insistence on making severe cuts to the UK’s budget, stifling any signs of economic growth and prolonging the stagnation of the economy.

However, when Osborne rose from his seat at December’s delayed Autumn Statement, he did so with renewed confidence and a sense of justification. Britain’s economy appears to be back on track, with growth forecasts being raised to 1.4 percent this year. Although many expected him to crow about how he was right all along to pursue austerity – while also handing out a few pre-election gifts to get the electorate back on side – Osborne in fact struck a more cautious tone.

Budget cuts to continue
Dampening the mood, he announced that budgets would continue to be cut over the next three years, signalling a continuation of the austerity measures that got him criticised in the first place. However, this time Osborne has been praised for sticking the course and taking a more responsible attitude towards ensuring the UK economy is balanced and sustainable. How sustainable the recovery is remains to be seen.

Critics have said that a boom in consumer spending and soaring London property prices has buffeted growth. While that may be part of the story, the insistence on streamlining government departmental budgets is certainly helping to create a more sustainable recovery.

Other initiatives announced in the Autumn Statement are also sensible strategies for the country. The bringing forward of the rise in pension age is needed and fair, in light of improving health standards and the ageing population. Bringing foreign property owners into the capital gains tax net is also a welcome move, helping to stem the rampant flow of foreign money into London’s vastly inflated property market.

Signs of life, but there’s still room for improvement
Although Osborne should be applauded for getting the UK’s deficit under control, there is much more than can be done. Ever since the coalition government came to power in 2010 it has promised to invest in the country’s creaking infrastructure. Each year, eye-watering budgets have been announced for projects that include motorways, high speed rail, high speed broadband, and airport expansion. However, each year little progress has been made on any of these projects.

High speed rail has suffered protests and delays, only recently getting parliamentary approval. Funding is yet to be raised – although the Chinese government has signalled it might be willing to invest – and is unlikely to be finished before the mid-2030s. The government should either fully commit to building it – and paying for it – or divert the money towards improving the existing rail network.

Similarly, the woefully inadequate amount of airport capacity in the southeast of England has seen no progress, instead being kicked into the long-grass in the form of Sir Howard Davies’ Airport Commission. Instead of giving the green light to improving Gatwick Airport’s train station and conducting a ‘feasibility study’ into improving links to Heathrow, Osborne should make firmer commitments to expanding capacity at one of the airports.

An idea mooted by London Mayor Boris Johnson to build a hub airport in the Thames Estuary may seem fanciful and expensive, but it is the sort of transformative investment that would attract global investors, and radically improve the UK’s connections to the rest of the world. Constant delaying of a decision on airport expansion is only allowing Britain’s European rivals to storm ahead in connecting to lucrative markets in Asia.

Encouraging signs and sensible decisions have underpinned Osborne’s delayed Autumn Statement, but he must make bolder attempts at building a new infrastructure network in the UK, helping to create a country fit for the 21st century.

Anthony Browne on restoring banks’ reputations | British Bankers’ Association | Video

Posted on by World Finance

Anthony Browne is the man tasked with cleaning up British banks. He explains what has been achieved in reforming the UK’s banking sector since the financial crisis and the Libor scandal, and what’s next in terms of embracing Islamic finance at a national level, supporting SMEs, and growing the economy.

World Finance: A tall order, so, over a year on and what do you think you’ve achieved?

Anthony Browne: Well it’s been an interesting year, both for the BBA and for the industry as a whole. A difficult year in many ways, but I do think we end it in a far better position than we started it. The beginning of this year was just after the wake of the Libor scandal, which caused a complete political storm.

The government set up the parliamentary commission on banking standards, which was like a public enquiry for the industry, investigating everything. We’re now at the tail end of that, Libor is largely restored, and I think confidence in the industry is being restored as well.

It’s helped by economic recovery. It’s helped by the fact that one of the publicly-owned banks is being returned to the private sector. Taxpayers are getting their money back. And it’s also helped by the fact that there’s real recognition that banks are reforming themselves, and doing the sort of things that the rest of the country want them to do. Putting the customer at the centre of what they do, and helping promote economic growth.

World Finance: Since 2008, banks have been widely criticised, and public sentiment has been at rock bottom. So do you think all this criticism was justified?

We need to make sure, in the wake of the crisis, that the regulation is right, that banks’ business models are right, that such a financial crisis can never happen again

Anthony Browne: Well I’m sure a lot of criticism wasn’t justified, but I’m also sure a lot of the criticism was justified. I mean, clearly the banks – or many of the banks, certainly not all of them, but some of them – completely lost the plot. On a number of different fronts.

I mean, clearly there was a major global financial crisis. Banks weren’t the only ones responsible, but they were definitely part of that. We need to make sure, in the wake of the crisis, that the regulation is right, that banks’ business models are right, that such a financial crisis can never happen again.

Banks also – some of them, not all of them – lost sight of their customer. We’ve had a lot of mis-selling scandals. PPI is the most high-profile one, but there’ve been others. And the industry as a whole needs to make sure that it’s more customer-focused, that the number of complaints come down. They are coming down now, latest figures are down 20 percent, year on year. And if the banks can restore their stability, and make sure that the crisis doesn’t happen again. If they put the customer back at the centre of what they do, and they can help play their role of promoting economic growth, then I’m sure confidence in the industry will be restored.

But there was a lot that was wrong in the industry; it’s now being put right.

World Finance: Banking standards have led to widespread reform; how are banks coping with these restrictions?

Anthony Browne: What the banks need now is a period of stability. There has been a huge number of reforms since 2007, implementing the G20 agenda, which is under the Financial Stability Board, a whole series of reforms to make sure that the crisis doesn’t happen again. On top of that there have been national reforms, both in the UK – we’ve got things like the ring-fencing of the retail banks from the wholesale banks, which we support. There’s a whole load of other reforms coming through in the UK through the parliamentary commission on banking standards, things like criminal sanctions for reckless banking.

What we need now, after these various different reforms, is a period of stability. So we can let the reforms bed down, so the banks can fully implement them, and then in a couple of years’ time, it can review them and say, well, what else needs doing? Is there anything else that needs doing, or have we now fixed the system?

World Finance: How important is a successful banking industry for the UK economy?

Having a healthy banking sector is essential for a healthy economy

Anthony Browne: Incredibly important. It’s not just that banks are – you can argue about the precise figure, but roughly 10 percent of GDP. They are the UK’s biggest export industry. It isn’t just serving the UK economy, it’s also serving the global economy.

The banks are also incredibly important for serving the rest of the wider UK economy, from SME lending, which is the subject of a big political debate; but also servicing the mid-sized companies, the big corporate companies, doing, if they want to raise money to invest, if they want to pay for mergers with other companies oversize, when they want to issue bonds, raise money. All banks do all that, and having a healthy banking sector is essential for a healthy economy.

World Finance: We’ve been hearing an awful lot about Islamic finance, so do you think the UK should sit up and listen?

Anthony Browne: Well absolutely, and indeed, I think a lot of them are. I think pretty much all the UK banks have got departments that deal with Islamic finance, as well as the international banks that are based in London.

It is a growing area, I mean it’s clearly not the biggest sector, but there is a lot of interest in it, because people realise the demand that there is for it. London as a global financial centre doesn’t just serve the non-Islamic countries, it also serves Islamic countries, Islamic governments, companies based in Islamic countries, and they have demands for certain types of finance.

Recently, just last week, the government announced it was doing the first sukuk, which is a bond which is compliant with Islamic finance. There are discussions with the Bank of England about making sure that its processes and the services that it offers are also compliant with Islamic finance, so that Islamic banks can then use the bank and interact with the Bank of England in the way that non-Islamic banks can.

World Finance: And finally, looking to the future now. What do you think are the biggest challenges facing the UK banking industry?

Anthony Browne: The biggest challenge for the industry now is to restore trust and confidence, to rehabilitate itself in the eyes of the customers, in the eyes of politicians, in the eyes of international regulators, and really get back on the front foot again.

Clearly, major financial crisis, major reforms needed; those reforms have been happening, the banks have also been changed in the way they work internally, and we now need to get back to a period of normality, as it were, with all those reforms in place, the changes in place, so that the banks can play the role that people want them to play, which is helping customers, helping businesses, and promoting economic growth.

China bans banks from handling Bitcoin transactions

Posted on by Ashton Wenborn

Bitcoins have been the talk of the town over the past few months, and have seen their value surge since a US banking commission heard the virtual currency can be useful as a mainstream financial tool. But Chinese officials have now issued a notice banning financial institutions in the country from handling any sort of transaction in which Bitcoins are involved. The value of the digital currency has since taken a stumble after months on the increase.

The People’s Bank of China (PBC) issued a notice this week stating that the virtual currency has no legal status in the country and should therefore, never be used as currency. The notice stopped just short of outlawing the Bitcoin in China, and said that though individuals had the right to buy and sell it, they were doing so at their own risk. The Bank also sought to underline the connections between Bitcoins and money laundering, fraud and criminality.

The PBC said it was banning the virtual currency because it is not subjected to any regulation and is not backed by any government and central authority.

“Although there are people calling it a ‘currency’, it is not issued by the monetary authority, it does not possess the attributes of a currency such as legal repayment and enforcement ability,” the bank said in a statement.

“Judged by its nature, Bitcoin is one particular kind of a virtual product. It does not have the legal status of a currency, and it cannot and moreover should not be allowed to circulate in the market as a currency.

“We have clearly stipulated that at the present moment all financial institutions and payment institutions cannot develop any business related to Bitcoin.”

This position by the PBC puts China at odds with many central banks around the world, which are slowly moving to embrace the Bitcoin. Last month a US Senate hearing was told of the concrete benefits the virtual currency can offer the financial system, despite its link to money laundering and criminal activity. After the hearing, a number of retailers and online merchants started accepting Bitcoins, and its value soared to over $1,100.

However, the Chinese policy reflects the views of many commentators. At the end of November, Alan Greenspan, former US Federal Reserve Chairman, described the soaring value of the Bitcoin as “a bubble” adding that the exchange rate was at an “unsustainable high”, in an interview with Bloomberg.

“There is no fundamental issue of capabilities of repaying it in anything which is universally acceptable, which is either intrinsic value of the currency or the credit or trust of the individual who is issuing the money, whether it’s a government or an individual.”

The PBC said that it would continue to monitor the development of the Bitcoin and it’s trends and risks but that for now, its main focus is to “guide people to correctly understand the concept of a currency as well as investment theory”.

Vicente Sevhila on Brazilian Law | Sevilha Contabilidade

Posted on by World Finance

Sevilha Contabilidade has been working over 25 years to help companies and entrepreneurs settle their businesses in Brazil. Its tax expert, founder and CEO Vicente Sevilha talks about the challenges for international businesses entering Brazil, the tax implications for foreign investors, and his recommended strategy for companies with branches in Brazil.

World Finance: So introduce us to the firm, what type of service do you offer clients?

Vicente Sevhila: We work with accountant services, and our service starts at the very first moment in the company. We help anybody who wants to set up business in Brazil. From the setup of the company, we help you to understand how the Brazilian laws treat the establishment of a company in Brazil. After you have your company already established, we help you to control it, providing accountant services like balance sheets and PNL, and also to provide new managements reports and financial reports, so you can control your branch in Brazil, the internal taxation and international taxation questions. We also provide to our clients services relating to payroll and employees’ control.

World Finance: What type of challenges do you face within the jurisdiction, and how do you overcome those?

Vicente Sevhila: It starts from the first moment, to understand how Brazilian laws work. So everyone who wants to do business in Brazil can use our company to help them understand the Brazilian regulations, and to understand how to start doing business in Brazil, because this is the main point. After you understand how things work in Brazil, those challenges become daily work, and you can do it easily.

World Finance: And tell us more about the tax implications affecting foreign companies in Brazil.

Vicente Sevhila: If you think about any company in any place in the world, they start thinking of doing business in Brazil by comparing their products with the Brazilian market. So they look to the products that they have, and think “we have a good product with a good price, let’s introduce this in the Brazilian market.” At this very first moment, you can make some mistakes, because when you bring your goods here from Europe, for instance, at the moment those goods arrive at the port, you have to pay a lot of taxes. You pay in advance, and this will increase the cost of operations, so you cannot use the same price you use here in the Brazilian market. So what we do is help you to understand what kind of impact it will have when you deliver those goods within Brazil and how it will cost after that.

World Finance: So how can companies go about establishing a branch in Brazil?

Vicente Sevhila: Well, I see different strategies for different companies. For instance, if you think about a great company, who will manufacture things in Brazil, in this case the challenge will be to find a good place, and you will need to think about logistics. Because Brazil is a very wide country, it’s a very big country, and logistics are a main question. At the same time, when you think about logistics, and you choose a place to establish your plant, you need to think about taxations because, depending which state you put your business, you have different taxation impacts. So we help you to understand the different laws and different taxations between one state and another within Brazil. But if you ware talking about small to medium businesses, you can start doing business just offsea, and with this you start to explore the Brazilian market, making sales and contact and delivering your goods from your base in Europe, or any other place in the world to Brazil, distributing it within Brazil, and after a while you can then think about having your own plant in Brazil.

World Finance: And finally, what type of strategy would you recommend to companies who have branches within Brazil?

Vicente Sevhila: The first thing you need to think is, who will be the Brazilian resident people who will be the administrator of our business there? This is a very important point, because those men or women will be the last responsible for all operations in Brazil, so it needs to be someone you trust, someone that is capable to run the business in Brazil. Another question is the place you want to be established. You need to find an address, and dependent on each state you want to put that address, you have different impacts on your company. So these are the first two steps you need to think about. Where, and who will run the company back in Brazil?

World Finance: Vincente, thank you.

Vicente Sevhila: Thank you Eleni, it’s very good to be here with you again.

Anthony Browne on the EU banker bonus cap | British Bankers’ Association | Video

Posted on by World Finance

UK banks are bracing themselves for contentious European rules that will take effect in 2014 to limit bonus payments. Anthony Browne, CEO of the British Bankers’ Association, talks about the impact such legislation would have on the UK’s banking industry, as well as on remuneration practices worldwide.

World Finance: Anthony, these new European Union rules: what effect will they have on bonuses?

Anthony Browne: The trouble with the bonus cap is two-fold. One is that it impacts the financial stability of the system. It goes against the financial stability board guidelines that actually, remuneration regulation should be counter-cyclical rather than pro-cyclical. So, what I mean by that is that the bonuses are a way that banks control their pay bills, their wage bills, overall. In the downturn, they don’t have to cut jobs, they just reduce peoples’ pay by reducing the bonuses. If you have very strict bonus regulation like the bonus cap, then they can’t do that, and the only way they can then cut costs in the downturn is by cutting jobs. And that means those people aren’t there when the business comes back again. You have to start going out and trying to hire new people, but they’ve all gone off and done other things. So it’s actually pro-cyclical, it makes the swings and roundabouts of the financial cycle more extreme, which is why it goes against global international regulation, and why most of the global regulators do not support this at all.

“The owners of the banks didn’t have as much control over pay as they should have had. But the answer to that is not to have pay set by international regulation”

The second thing is that it doesn’t encourage the sort of behaviour that you want. There was a big problem with pay, absolutely. People were paid too high amounts, often they were rewarded for taking excessive short-term risks with other people’s money, and when they blew up, they didn’t get the money back. The danger with capping bonuses is, you limit the ability of banks to actually reward the sort of behaviour that they want to encourage. And all the previous regulation on bonuses had been encouraging more of it to be paid in shares, in longer-term instruments, having claw-back so that if things go wrong then you can claw the money back. And this goes against all that.

And the other fundamental principle that it goes against, which the UK and other governments have been trying to encourage, is that the shareholders of banks, the people who own the banks, should ultimately be the ones that determine the pay of the banks. And actually, the bonus cap again goes against that.

It’s obviously true that the shareholders, the owners of the banks, didn’t have as much control over the pay in the banks as they should have had. The answer to that though is not to have pay set by international regulation, but rather to give the owners of the banks, the shareholders, the powers that they need in order to make sure that they have remuneration policies that they want in the banks they own.

World Finance: It has been discussed that bankers are being paid too much, so do you think the argument that banks are just trying to retain the best talent really stands up?

Anthony Browne: There clearly has been an issue of excessive pay in the banking sector. The pay levels were too high for what people were actually doing, the incentives were wrong. People were being paid for taking very big short-term risks that then blew up, and they kept the bonus.

“It affects banks wherever they operate around the world. So an EU bank operating in New York will be constrained by the bonus cap”

But banking is a globally competitive industry. On the international banking, not necessarily the retail banking, but there is a pool of talent that moves around the world. London is competing with New York, with Hong Kong, with Singapore, with Tokyo, and there are global levels of pay there. And one of the things that’s happened is that the average pay in wholesale banking is actually far less now in London at almost all levels of an organisation than it is in New York or Hong Kong. And the banks are increasingly finding it difficult to recruit the talent to London, because of concerns about pay levels here and things like the bonus cap.

The other thing is that it’s international in scope. So it affects UK banks wherever they operate around the world. So an EU bank operating in New York will be constrained by the bonus cap in trying to attract talent, but any other bank – whether it’s an Asian bank or an American bank – working in New York, doesn’t have the same constraints. And it is already making it difficult for European banks to attract new talent operating in New York, because people don’t want to go there because they see this legislation coming down the line.

World Finance: You did touch on this, but these EU rules will probably affect London more, because this is where the majority of the big bonus-paying banks are based. So, how different is the banking industry here compared to Europe?

Anthony Browne: The overwhelming majority of those affected by the incoming bonus cap operate in London. Not just UK banks but actually international banks operating in London, often EU banks who have their wholesale operations here as well as American banks and Asian banks. And the reason for that is that London is a global financial centre, the likes of which Europe doesn’t really have elsewhere. The banks in London, the business deals being done in London, are on a global basis for global corporations operating in global wholesale financial markets.

“Badly thought-out regulation and legislation can really affect the status of financial centres”

The other financial centres in Europe tend to just be local or regional financial centres, that don’t operate globally in quite the same way. And the impact on that is on pay levels, because you’re then competing in a global financial market. And that’s why, actually, if you’re an ambitious banker from Germany or France or Italy, then more likely than not you’ll come and work in London and work in the banks here, because you’ll be operating at a higher global level than you would be if you were working in your home financial markets.

World Finance: So how do you see the future of the banking industry in the UK?

Anthony Browne: I think the danger of the future of London as a financial centre is regulatory over-reaction. I’m not saying we’re there yet, I don’t think anyone thinks the bonus cap itself signals the end of London at all. But if there is a lot more different things like this that damage competitiveness, then as we’ve learned from mistakes made in other countries, not least the US, that actually, badly thought-out regulation, legislation, can really affect the status of financial centres. We’re not there yet with London, but there are elements that are definitely unhelpful.

World Finance: Anthony, thank you.

Anthony Browne: Thank you.

Fed approves revised capital plans for JP Morgan and Goldman Sachs

Posted on by Ashton Wenborn

The US Federal Reserve has announced it has approved the revised capital plans submitted by JP Morgan Chase and Goldman Sachs, in a surprise move. The two banks have been pursuing approval for share buybacks and dividend payments, since March, when the Fed declared there were “weaknesses” in their buyback and dividend provisions. Since then JP Morgan Chase and Goldman Sachs have seen their ability to continue with buyback and dividend plans made conditional on the improvement of their processes.

Since the financial crisis, the Fed has developed a system of stress testing banks in order to determine their ability to resist a shock but remain able to distribute capital. The Fed has finally approved plans by the two banks, after reviewed processes passed these stress tests. In March, the Fed made it clear that it was not blocking plans by the two banks, but only pointing out that there were “significant enough to require immediate attention, even though those weaknesses do not undermine the quantitative results of the stress tests for that firm or the overall reliability of the firm’s capital-planning process,” it said in March.

JP Morgan has gained approval to raise its dividend to 38 cents per share, up from 30 cents in 2013. It has also gained approval to buy back up to $6bn in common stock, though it remains unclear if it will be exercising it.

JP Morgan CEO Jamie Dimon told reporters yesterday that he was “very pleased that the Fed has determined that our process improvements met their expectations. We are grateful to the hundreds of employees who worked tirelessly on our resubmission.”

Goldman Sachs has also acknowledged the Fed’s decision in a statement, but has not commented any further.

With the belated approval of JP Morgan’s and Goldman Sachs’ capital plans, the 2013 Comprehensive Capital Analysis and Review has now given the go-ahead to all 18 banks in preparation for next year’s submissions, due in January. JP Morgan and Goldman Sachs were among four firms forced to revisit their plans before being granted approval.

Alejandro Garza, Sergio Ramirez Lomelin, and Luis Castilla, on the Atotonilco Wastewater Treatment plant | ATVM | Video

Posted on by World Finance

Said to be the largest wastewater treatment plant in the world, the Atotonilco Wastewater Treatment facility is revolutionising Mexico’s ailing water supply and sanitation system. Alejandro Garza, President of Atlatec; Sergio Ramirez Lomelin, Water and Energy Director for IDEAL; and Luis Castilla, Chairman of Acciona Aqua; together the consortium for the project; disuss the importance of water sanitation on economic growth, the objectives of the Atotonilco plant, and the impact it will have on the lives of the local population.

World Finance: Alejandro, how does water sanitation affect economic growth?

Alejandro Garza: Water is one of the most precious resources that we can have. Unfortunately in Mexico, we have two main problems to solve. One is an imbalance in the water availability into the country, because the most important cities population and industry are located in places where we don’t have enough water.

For instance, Mexico City is in a place 2,000m above sea level, in the centre of the country, far from shores, where there’s little availability of water. Same with other important cities in Mexico.

So, we don’t have the level of water that we need in those cities in order to continue their growth. But at the same time we have a problem. In the last few years, we have not had enough wastewater treatment from the municipalities, creating an additional problem, of lack of quality of the available water in reservoirs or water basins.

Fortunately in the last years, supported by the National Water Commission, there has been a plan to improve the water treatment in the country with a very successful growth, like this project, for instance.

“Before the Atotonilco project, Mexico City only treated five percent of its water. Now it is going to treat 60 percent”

World Finance: How does limited water supply and sanitation affect people at a grass-roots level?

Alejandro Garza: The main problem is a health problem, of course. The other one is, in several cases, the untreated water used for low value crop irrigation, like corn, for instance. With all of these proposals we are improving the quality of the water, it is possible to have better health for the people, but at the same time to have better possibilities to crop better value, like broccoli or oil-value crops, that creates a better way of living for people around the areas.

World Finance: Sergio, tell me about the Atotonilco project. How has it revolutionised Mexico’s sanitation?

Sergio Ramirez Lomelin: Before the Atotonilco project, Mexico City only treated around five percent of its water. Right now with this project, Mexico City’s going to treat around 60 percent of its water. So with this, all the sanitation problems right now in Mexico will be solved in a large scale.

Around the plant there are around 300 people, so with clean water they are going to have a better way of living, and a better way of having their crops and irrigation: with clean water. So all the sanitation problems are going to be solved.

“We’re going to create more than 3,000 jobs, and more than 10,000 indirect jobs, during the construction period”

World Finance: What are the primary objectives of the plant? And what does it mean for Mexico?

Sergio Ramirez Lomelin: With this we’re going to treat more than 65 percent of the water of the whole country. We’re going to create more than 3,000 jobs during construction, more than 10,000 indirect jobs during the construction period.

After that, when the plant goes into commercial operation, we will have clean water for the irrigation system in the Tula Valley of Mexico. With that, more than 350,000 people there are going to have better crops and better quality of life.

World Finance: Luis, how will the plant control greenhouse emissions?

Luis Castilla: When we clean the water, we remove contamination, organic material, and we produce a side-product, and this is sludge. In fact, we are going to produce more than 2,300 tonnes per day of this sludge. In order to remove the environmental impact of the disposal of this sludge, we need to remove the organic material of the sludge, using a technology that is called anaerobic digestion.

Using the process of anaerobic digestion, we are going to produce a biogas. The biogas has more than 65 percent methane, and we will burn this methane to produce energy, using 12 cogeneration units with a total capacity of 32 megawatts. This energy will cover more than 75 percent of the total energy consumption of the plant.

“This is the start of a new generation of water treatment in our country”

World Finance: And finally Sergio, looking to the future, what are the priorities now?

Sergio Ramirez Lomelin: With these kind of projects, we can introduce new technologies to treat water, clean water, and reuse water. Save water for the future. And if we keep constructing and operating new plants, we will have the ability to have water, reusable water, both in industry, and maybe to a third level: for human consumption.

So, this is the start of a new generation of water treatment in our country.

World Finance: Gentlemen, thank you.

Alejandro Garza, Sergio Ramirez Lomelin, Luis Castilla: Thank you very much.

Matthias Kröner on social media | Fidor Bank | Video

Posted on by World Finance

New methods of communicating are appearing online all the time. Fidor Bank believes that banks need to tap into this, and move with their client in order to regain trust. Matthias Kröner, CEO of Fidor Bank, talks about the innovative work Fidor has been doing on social media communications to get closer to its customers, and the technology solutions Fidor TecS is developing to improve its processes.

World Finance: Tell us about Fidor, and some of the work you’ve been doing.

Matthias Kröner: Well, Fidor Bank actually is following the mega-trends which we can see in the internet. So, Fidor Bank has a high target of integrating the customers, interacting with the customers, and delivering a lot of transparency.

One of the examples for integration of the customer, for instance, is our ‘Like’ interest rate, which you maybe know. The Like interest rate is driven by the Likes which we have on Facebook, so this is the first product and offer actually which integrates the customer, even within the pricing.

“The ‘Like’ interest rate is driven by the Likes we have on Facebook, it’s the first product that integrates the customer in the pricing”

World Finance: You plan to expand in the future, what’s your strategy around this?

Matthias Kröner: The technology of Fidor Bank is a technology made for an international approach, actually. So yes, we are thinking about expanding into other countries, and we’re in talks there already with some partners, or we do it on our own.

World Finance: And what are you doing in the UK? What are your operations here?

Matthias Kröner: The UK will be a part of our international strategy, that’s for sure. It’s a super-interesting market, with a very high range of online customers, so this seems to be absolutely interesting to us, and I hope I can surprise you within the next 12 months.

World Finance: You mentioned your international expansion, and you’ve worked with a number of partners; how do you select these?

Matthias Kröner: Well we’ve got two kinds of partners actually. One kind of partners are our innovative partners, which we integrate into our Fidor account technology, kind of as an app, actually. And the customer can use those partners via the app infrastructure. And the other partners we have are B2B partners, which use our banking technology, our payment technology, maybe in a white label or maybe the way it is. So, we are happy to have those partners as well.

“Other bankers talk about the risk of talking within social media platforms. I see the risk as not talking there”

World Finance: Innovation in banking technology is on the rise. Tell us more about Fidor TecS: What solutions does it offer?

Matthias Kröner: Well actually it’s the company, Fidor TecS, that’s providing this kind of technology. It’s the heart of our research and development within Fidor Group. It’s developing the technology, it’s maintaining, hosting, whatever you can assume coming with it. And Fidor Bank, for instance, is a customer to Fidor TecS, like some other companies as well.

World Finance: How easy is it for people to use your services?

Matthias Kröner: It always was the objective to be as easy as possible to access us. So, we have a community on the one side: if you want to register for the community you can use a Facebook connect process. I think we’re the only bank in Europe doing something like that. And even if you want to do your full KYC, we are the first bank in Germany offering you a digital, full KYC process. So there’s no bank which can be more easily addressed than Fidor Bank.

World Finance: What advice would you give to other banks who want to use these social media strategies?

Matthias Kröner: Well first of all I think it’s absolutely important to deal with it, not to try to avoid it. Most times I’m talking to other bankers, they talk about the risk of talking within social and communicating within social media platforms. I see the risk as not being there. Second advice would be, if you’re interested in more of our experience, I’m happy to have you as a guest in Munich, you can address me via email or Facebook, or twitter. Whatever way. And I’m happy to answer all your questions.

World Finance: Matthias, thank you.

Matthias Kröner: Nick, thank you.