Year: 2017

Commerzbank: Spearheading the digital revolution in banking

Posted on by World Finance

Commerzbank is the backbone of Germany’s mittelstand – and its digital transformation strategy, Commerzbank 4.0, is helping the bank develop its multi-channel approach to helping its customers. Edith Weymayr explains how the bank is updating and adapting all its processes, and creating new products and services to better serve Germany’s evolving small and medium enterprises.

World Finance: Commerzbank 4.0 is the German powerhouse’s digital transformation strategy. Joining me is Edith Weymayr.

First and foremost for Commerzbank are your clients, so how are you working with them – first of all to understand their needs, and then to fulfil those needs?

Edith Weymayr: The digitalisation of our business does not mean that we offer fancy products to our clients, and at the same time keep the old style manual processes in the back office. It’s about end-to-end, front-to-back, digital solutions, in order to significantly simplify and improve our internal processes.

Digital transformation is not a matter of digitalisation, automation of all relevant processes. We also aspire to be at the forefront of new developments. To follow the trend and to recognise permanent changes in the banking sector.

World Finance: Can you give me some examples of the changes you’re seeing, and the new products and services that you’re offering?

Edith Weymayr: First of all there is our treasury management system. This is a system that offers CFOs a powerful comprehensive platform to organise their cash concerns. And it is connected to our Commerzbank banking portal, where regular updates are provided so that this system is always up to date.

Another example is our photoTAN scanner app, where our customers are able to authenticate payment transactions from their smartphone. Or our FX LiveTrader platform, which is a digital online foreign exchange trading platform, where transactions can be concluded with one click, and in addition this system provides information and prices for more than 100 currency pairs.

World Finance: How are you transforming your own internal operations?

Edith Weymayr: We want to be more efficient. We want to digitalise our processes and our product offering. And we will do this by digitalising 80 percent of our processes.

The main pillar of this initiative is our digital campus, where we bring together dedicated teams from all segments of Commerzbank, which work together in agile projects in order to digitalise all processes.

World Finance: Tell me more about the way you manage those client relationships; because they are incredibly important to Commerzbank; what’s your strategy?

Edith Weymayr: It is very important to us that we remain a close partner; that we keep this close relationship with our clients.

We feel convinced that this is the right approach towards our clients, a multi-channel approach via digital solutions for every day processes and the personal relationship with our client.

The proof for this approach is that since 2011 we were able to increase the customer satisfaction by 27 percent.

World Finance: Commerzbank is the backbone of Germany’s mittelstand, so what challenges are these customers specifically facing?

Edith Weymayr: First of all, a growing organisation and demographic pressure, which may lead to skill shortage. And this skill shortage could affect growth patterns.

By conducting surveys among 2,000 corporate customers in Germany – which we call business owners view – with the result of these surveys we provide a platform for our customers to change their ideas, maybe solutions concerning these topics.

Another challenge is of course the climate change and resource scarcity, which could affect the supply chain of our customer.

We advise our clients on energy efficiency. We are one of the largest funders of renewable energy.

One of the challenges all companies are facing at the moment is of course digitalisation and industry 4.0. We are offering our clients an open dialogue, and our digital product offering is linked with the IT system of our clients. These technical solutions will be crucial for the future of our customers.

World Finance: And how does Commerzbank ensure a simple, reliable client experience outside of Germany’s borders?

Edith Weymayr: First of all, if we look across the border, we offer a pan-European network to our clients. We maintain about 200 branches in 14 European countries. But our international clients, they expect that we act and think on a global level. We maintain well-established relationships with our international clients. And they’re now about 60,000 clients around the world.

At the same time, we know that banking even internationally is people’s business, and that’s the reason why we exported our successful relationship model abroad.

In our foreign branches are multi-lingual relationship managers who accompany our clients locally. They have deep knowledge about what’s going on, about the advantages maybe about the risks, and they give advice: how to export, and how to move on the ground.

In addition, they coordinate the global client service team and if necessary they involve product specialists.

World Finance: Edith, thank you very much.

Edith Weymayr: It was a pleasure for me, thank you.

Colorado leads the way for advanced industries in US

Posted on by Ashton Wenborn

Not only are advanced industries (AIs) key drivers of the US economy, they are also the prime economic drivers for the state of Colorado. Comprising engineering and R&D-intensive companies, they deliver products and services in a wide range of markets, from aerospace to medical devices.

To ensure the progression of this vital aspect of Colorado’s economy, the AI Accelerator Programme was created in 2013. This initiative promotes growth and sustainability in these industries by driving innovation, commercialisation and public-private partnerships, while also increasing access to early-stage capital and creating a strong infrastructure that enhances the state’s capacity to be globally competitive.

Colorado’s AIs include aerospace, advanced manufacturing, bioscience, electronics, energy and natural resources (including cleantech), infrastructure engineering, and technology and information. Together, they account for nearly 30 percent of the state’s total wage earnings, around 30 percent of total sales revenue, and almost 35 percent of the state’s total exports.

Tech to market
As part of a statewide strategy to support these critical industries in their various phases of growth, four types of grants and two global business programmes have been made available. The four targeted grant types are proof of concept, early-stage capital and retention, infrastructure funding, and AI exports. A network of consultants and an export training programme are also available as part of the AI global business programme, to support these industries as they strive to reach worldwide markets.

“Colorado continues to set the standard for innovative programmes, which in turn accelerate key and growing industries in our economy,” said Stephanie Copeland, Executive Director of the Colorado Office of Economic Development and International Trade. “It’s exciting to see this programme working to bring pioneering ideas, from concept to development, to the global marketplace.”

Since the programme’s inception in 2013, approximately $49m has been granted from the AI fund. To date, the programme has created more than 490 new jobs, while also ensuring that some 590 jobs were retained. Additionally, the programme’s funds have helped companies acquire over $200m in grants and investments in order to further commercialise their advanced technologies.

“Colorado is a leader in innovation and business start-ups,” said Copeland. “The AI Accelerator Programme is a key initiative in encouraging such activity within the state, and we’re thrilled to fund so many innovative organisations.”

The programme helps to promote Colorado’s innovative business ecosystem, while also ensuring that the state’s innovators can compete in the global economy. Colorado’s technology industry is a sizeable and diverse economic sector; it has an inspirational and productive base that underpins the industry’s growth in a sustainable manner, much like the relationship between the state’s rocky granite peaks and fertile plains.

Talent pool
Colorado has the third-highest concentration of tech workers in the US, with nine percent of the state’s private sector workforce employed in technology firms, according to CompTIA’s Cyberstates 2016 report. IT software was the region’s fastest-growing cluster in 2016, having grown by 9.4 percent as a result of landmark company expansions and venture capital activity. A strong entrepreneurial spirit fuels this industry, which employs 54,580 workers at 5,180 companies throughout the nine-county region.

Of Colorado’s adult population, more than 39 percent has completed a bachelor’s or higher level degree, making Colorado the second-most highly educated state in the US, behind Massachusetts. Interestingly, IT services and software publishing were among Colorado’s top five leading tech industry sectors by employment in 2015, while the state’s average hi-tech wage ($106,350) was double that of the average private sector wage, according to the US Census Bureau.

5.54m

Population

39%

Proportion of degree-education adults

$63,909

Average salary

$106,350

Average hi-tech salary

Colorado also ranked third in the nation for small business innovation research grants per worker. According to the US Bureau of Labour Statistics, in 2016 the state received more than 200 grants, totalling nearly $82.1m, or $32.90 in grants per worker compared with the US average of $11.80.
What’s more, Colorado’s simplified corporate income tax structure is based on single-factor apportionment, which allows companies to pay taxes based solely on their sales in the state. Along with few regulatory burdens, Colorado’s corporate income tax rate of 4.63 percent is one of the lowest and most competitive tax structures in the nation.

Forget the next Silicon Valley – all tech eyes are turned to Colorado. From start-ups to major tech giants, nearly 11,000 technology companies are now located in Colorado, including global corporations AT&T, DISH Network and IBM.

And it’s not just major companies either: with a digital technology company launched every 72 hours in the state and the innate desire to collaborate, it’s easy to see why Colorado has become a centre of innovation and entrepreneurial activity.

With more than 146,000 jobs each year in the technology and information industry, Colorado tech workers make more money – 98 percent more, in fact – than the average private sector worker. These factors, alongside Colorado’s vibrant urban cores and affordable cost of living, see tech-minded entrepreneurs continuing to flock to Colorado.

This is prompted further by support from groups like the Colorado Technology Association, which promote the industry through collaborative programmes, events and initiatives. With four of the top 10 cities for tech start-ups located in Colorado, more and more individuals and companies are seeking to become part of the next tech revolution to sweep the nation.

Security hub
As the threat of cyberattacks continues to rise, Colorado’s cybersecurity industry is growing to meet the challenge. With the creation of the National Cybersecurity Centre (NCC) and several Colorado-based companies, the state’s cybersecurity sector is second only to those of Maryland and Virginia. Some 21 companies in the Rocky Mountains region are among the top 50 cybersecurity companies in the US, with 12 in Colorado. This includes the number one firm – root9B, a cybersecurity consulting and operational support company with headquarters in Colorado Springs and regional offices across the country.

“Cybersecurity is an essential element of our strong technology and information industry, which is providing well-paid jobs for Coloradans,” Copeland explained. “Colorado’s success in this booming industry is due, in part, to the vision of Colorado Governor John Hickenlooper, who led the creation of the NCC in Colorado Springs in 2016.”

The NCC’s training programmes are designed to educate different types of people and organisations – from students and entrepreneurs, to small businesses and large corporations, as well as politicians at local and state level – on how to protect themselves from an ever-expanding list of cyber threats. Moreover, the NCC is reaching out to cities and counties around Colorado, offering to provide officials and staff with the most effective tools to protect their information systems.

Cyber personnel
Today, there are approximately 85,000 people in Colorado working in the cybersecurity industry, and nearly 100 cyber-focused businesses operating in Colorado Springs and Denver alone. According to Burning Glass, a company that analyses the job market, Colorado is among the country’s leading states for cybersecurity jobs on a per capita basis, alongside Washington DC, Virginia and Maryland.

AIs account for nearly 30 percent of the state’s total wage earnings, around 30 percent of total sales revenue, and almost 35 percent of the state’s total exports.

Among these businesses, a few stand out in particular. Webroot, for example, is continuing to invest in the state’s rapidly growing cyber ecosystem. It currently employs 284 skilled individuals, and will be adding another 443 highly skilled positions with an average annual salary of $110,000 over the next eight years.

Colorado’s popularity as a cyber hub is rooted in its highly educated workforce and the market’s well-paid jobs. Entry-level workers with a relevant college degree, for example, can earn annual salaries between $55,000 and $65,000, while workers with five to 10 years of experience in the industry can earn between $80,000 and $100,000 a year. Add a security clearance to that level of education and experience, and salaries in the industry can easily approach $200,000.

Unsurprisingly, Colorado is in the process of further enhancing and supporting the workforce for this growing industry. As such, several Colorado institutions are now offering cybersecurity certificates and degree programmes. The University of Colorado, for example, offers a bachelor’s degree in cybersecurity engineering and graduate-level cybersecurity certificates in behavioural sciences. What’s more, four local institutions are National Security Agency certified Centres of Academic Excellence for Information Assurance – the University of Colorado at Colorado Springs, the Air Force Academy, Regis University and Colorado Technical University.

This level of support is expanding constantly. In 2016, Catalyst Campus, a private technology campus, announced plans to build a cyber lab that will help technology SMEs. Then there’s SecureSet, the nation’s first cybersecurity accelerator and academy, which gives people a direct path to a career in cybersecurity in around 20 weeks. SecureSet also serves as a way for start-up companies in the cybersecurity space to get funded, get noticed and improve their value.

Given such initiatives, the industry is now doing better than ever, with several of Colorado’s cybersecurity firms having received venture capital funding in the last year. For example, ProtectWise raised $25m in January, Red Canary raised $6.1m in August 2016 and now plans to double its staff to 30 in the next year, and CyberGRX received $20m in Q2 2017 to accelerate the adoption of its CyberGRX Exchange, the world’s first global third-party cyber risk management exchange.

Indeed, through its constant commitment to AI industries, the state of Colorado has become a hub for hi-tech industry and cybersecurity – one that is set to continue expanding, with no end in sight.

Catalan independence vote impacts Spanish markets

Posted on by Ashton Wenborn

Following a disputed referendum that took place on October 1, Carles Puigdemont, First Minister of the regional Catalan Government, announced that the region will declare independence from Spain in the coming days.

The region of Catalonia has long been the industrial powerhouse of Spain, making up 20 percent of the country’s economy and 16 percent of its population.

According to regional authorities, Catalans voted overwhelmingly to become independent from Spain, with two million casting votes in favour of independence. The ‘yes’ vote made up 90 percent of the total votes cast, while just nine percent voted against independence.

The referendum was characterised as illegal by the Spanish Government, and violent clashes have been reported as police attempted to prevent people from taking part in the vote. Despite violence, turnout in the referendum reached 42.3 percent.

On October 2 – the morning following the referendum – both the Spanish stock market and the euro dipped as markets responded to the result. In early trading, the euro dropped by 0.06 percent against the dollar while the IBEX 35 was down 0.75 percent. Spain’s price of borrowing also jumped as yields on the country’s benchmark 10-year debt rose from 1.608 to 1.682.

On the morning following the referendum, both the Spanish stock market and the euro dipped as markets responded to the result

Despite the overwhelming referendum result and Puigdemont’s claim that the region will declare independence, many market analysts do not expect the bid for independence to be successful.

Indeed, according to the Financial Times, regional bonds have started to recover, signalling confidence from markets.

Ratings agency S&P has also issued a press release expressing doubt over the prospect of an independent Catalonia.

On the evening of September 29 – the day before the referendum took place – the agency confirmed Spain’s credit rating, stating: “Despite the rising internal political risk, macroeconomic developments do not appear to have been affected by the conflict so far. At the same time, we anticipate that Catalonia will remain part of Spain. Therefore, we believe that the current situation does not affect our positive outlook on the long-term rating.”

Monarch becomes Europe’s third airline to fail in five months

Posted on by Ashton Wenborn

British low-cost carrier Monarch Airlines filed for insolvency on October 2, marking the biggest ever collapse in the UK’s aviation industry. The airline’s bankruptcy makes it the third European operator to fail in the last five months.

Monarch’s bankruptcy caused 300,000 flight cancellations and left around 110,000 customers stranded. The situation is now being managed by the UK Government.

Moreover, the cease of trading, which was forced by severe losses, has also affected around 2,100 staff members, whose employment status is now uncertain.

Monarch’s insolvency is the latest casualty in the fight to conquer European skies, and follows both Air Berlin and Alitalia’s collapse into administration.

Irish carrier Ryanair has also faced difficulties this autumn, with confusion over pilots’ holidays causing more than 2,000 flight cancellations and resulting in high costs for the company.

Monarch’s cease of trading, which was forced by severe losses, has also affected around 2,100 staff members, whose employment status is now uncertain

Now, with Monarch’s collapse, the price war in the short-haul European market claims a new victim.

Speaking to the BBC, British Transport Minister Chris Grayling said the airline’s workers could be resettled across the industry. He stated the he had “already spoken to other airlines who think they are a first-rate team of people working for Monarch and are looking to try and hire some of them”.

Monarch, the UK’s fifth-largest airline, had been a highly profitable business when the Swiss-Italian Mantegazza family owned it, the Financial Times reported. The family sold the airline to Greybull Capital in 2014 for £75m ($100m), but in recent years, as the sector has moved away from charter flying towards budget airlines, competition has increased dramatically – particularly in flights to Spain, which was Monarch’s core market.

Blair Nimmo, the KMPG partner of Monarch’s administration, said the sector’s overcapacity has caused the company to make losses. In 2016, Monarch reported a £291m ($387m) loss, according to the BBC.

In addition to a fierce competition, Monarch has seen its costs increase, partially due to the fall in the pound after last year’s Brexit vote.

Chancellor of the Exchequer Philip Hammond told BBC Radio that the UK Government was aware of Monarch’s risk, since it had opted for an unprofitable business model.

“The industry will restructure, that capacity will be absorbed and the competitive market will continue to operate,” he said.

Global Logistics Properties makes $2.8bn entry into European market

Posted on by Ashton Wenborn

Asia’s largest logistics firm will make its first foray into European markets, it announced on October 2nd. Global Logistics Properties (GLP) will acquire Gazeley, the owner of a range of logistic facilities in Europe, for approximately $2.8bn. The existing management team, as well as the Gazeley brand, are both expected to be retained.

In total, GLP will acquire 32 million square feet of property currently owned by Gazeley, with 57 percent of the portfolio based in the UK, 25 percent in Germany, 14 percent in France and four percent in the Netherlands. Perhaps the biggest coup for GLP is the fact that 85 percent of Gazeley’s development pipeline is situated in the UK, where property building can face restrictive legislation.

“We have been looking to expand to Europe and this portfolio presents an attractive entry point given the quality and location of the assets,” Ming Mei, co-founder and CEO of GLP, said. “This transaction adds a premier operational and development platform for us in Europe and is part of our long-term strategy to expand our fund management business.”

The mounting investment imbalance between China and Europe, the world’s two largest markets, has become a matter of growing concern, but shows little sign of abating

The Singapore-based GLP is currently being acquired by a Chinese private equity group, which includes Hillhouse Capital and the Hopu Investment Management Company. Although GLP’s entry into Europe is believed to have the support of its proposed buyers, the move will only heighten concerns about Chinese investment in the continent.

The mounting investment imbalance between China and Europe, the world’s two largest markets, has become a matter of growing concern, but shows little sign of abating. Back in June, it was announced that Blackstone had committed to selling its European logistics branch, Logicor, to the China Investment Corporation for a fee of $14.4bn.

South Korea follows China in ICO ban

Posted on by Ashton Wenborn

The South Korean Financial Services Commission (FSC) has announced a ban on all forms of initial coin offerings (ICO), joining a wave of regulatory pressure against the increasingly popular method of fundraising.

The new mechanism enables start-ups to raise money by issuing ‘tokens’ that can appreciate in value and later be used to buy the issuer’s products. They have been known to generate millions in capital in a matter of minutes, but have prompted concerns from regulatory authorities, which have cautioned over their speculative nature and lack of regulatory oversight.

Among others, authorities in both the UK and US have issued warnings against the new fundraising technology. The UK’s Financial Conduct Authority described virtual tokens as “very high” risk, while the US Securities and Exchange Commission cautioned that they could amount to ‘pump and dump’ schemes.

They have been known to generate millions in capital in a matter of minutes, but have prompted concern from regulatory authorities

Earlier this month, China became the first country to ban the token sales. Their enthusiasts paint them as a method of funding innovative projects that might struggle to do so through traditional means.

Following a meeting with the Finance Ministry and the Bank of Korea, the Financial Services Authority released a statement, according to Reuters: “Raising funds through ICOs seem to be on the rise globally, and our assessment is that ICOs are increasing in South Korea as well.”

The commission further stated that the ban would cover “all forms of initial coin offerings regardless of using a certain technology or a certain name”.

According to local news agency Yonhap, the Vice Chairman of the FSC, Kim Yong-beom, said: “There is a situation where money has been flooded into an unproductive and speculative direction.” The commission vowed that rule-breakers would face “stern penalties”.

China orders the closure of North Korean businesses following UN sanctions

Posted on by Helen

China has announced that all North Korean businesses and individuals operating within its borders must shut down by January. The Chinese Ministry of Commerce formally announced the move, which follows the latest round of UN sanctions, on September 28.

In total, the United Nations Security Council has issued nine sets of sanctions against North Korea since 2006, with the latest resolution being passed on September 12. China has now confirmed that North Korean firms will have 120 days to cease operating, starting from this date. Joint business projects between China and North Korea will be subject to the same ruling.

China’s decision to rein in North Korea will be viewed by some as long overdue, particularly with Pyongyang ramping up its missile programme in recent months

China’s decision to rein in its economic partner will be viewed by some as long overdue, particularly with Pyongyang ramping up its missile programme in recent months. US President Donald Trump, in particular, has been a fierce critic of Chinese inactivity, accusing the Beijing government of foregoing its responsibility as a peacekeeper in the region.

“I am very disappointed in China,” Trump said on Twitter. “Our foolish past leaders have allowed them to make hundreds of billions of dollars a year in trade, yet… they do NOTHING for us with North Korea, just talk.”

With more than 80 percent of North Korea’s trade estimated to take place with China, the latest sanctions could finally make leader Kim Jong-un take notice. The recent restrictions will further increase North Korea’s economic isolation, but they are not comprehensive. Non-commercial activities are exempt and China is still able to trade oil with the reclusive communist state, albeit in limited quantities.

Members of the US Government have welcomed China’s policy announcement, marking a clear shift in attitude away from some of Trump’s fiery rhetoric. It perhaps comes in recognition of the fact that, even as tensions rise on the Asian peninsula, neither party is keen for military action to begin.

Toshiba agrees to $17.7bn sale of its chip unit

Posted on by Helen

September 28 served as a milestone moment in Toshiba’s struggle to regain its financial footing, as it signed a legally binding agreement over the sale of its memory chip unit, Toshiba Memory Corporation (TMC), to a group led by Bain Capital.

The agreement acts to officially approve the sale of all shares of TMC to Pangea, a special purpose acquisition company that is controlled and led by Bain Capital. The final price tag for Toshiba’s prized chip unit is $17.7bn.

The deal comes after a protracted eight-month bidding war, which involved a string of legal disputes and complex network of rival contenders.

The deal between Toshiba and Pangea comes after a protracted eight-month bidding war, which involved a string of legal disputes

The Bain-led consortium includes US tech giants Apple and Dell, alongside South Korean chipmaker SK Hynix and lens manufacturer Hoya. Toshiba will also reinvest JPY 350.5bn ($3.1bn).

In total, US investors will contribute JPY ‎415.5bn ($3.69bn), but will not receive voting rights or common stock. After the transfer, more than half of stock in Pangea will be held by Japan-based companies, something that Toshiba said was set to continue into the future.

Once the shares are transferred, Bain Capital and the management at Toshiba’s chip unit will “lead TMC’s business operations to secure continuous growth”, according to a press release from Toshiba.

While the deal has now been confirmed, it will still be subject to approvals over competition and national security laws. It could also run into difficulties over Toshiba’s joint venture partner Western Digital, which is seeking an injunction to block the deal over a contract dispute.

If all goes to plan, however, the deal is expected to close officially by the end of March next year.

Trump slashes corporation tax in reform plan

Posted on by Ashton Wenborn

US President Donald Trump looks set to fulfil one of his longest-held campaign pledges after publishing a tax reform plan on September 27. The nine-page Republican framework is short on details, but it is still being viewed as a major step in the administration’s attempts to overhaul the US economy.

Among a host of changes to individual and business tax rates, the headline figure is a reduction in corporation tax from 35 percent to 20 percent. The average corporation tax rate currently stands at 22.5 percent in the industrialised world, and so the move would make US businesses more competitive internationally.

“The Trump Administration, the House Committee on Ways and Means, and the Senate Committee on Finance have developed a unified framework to achieve pro-American, fiscally responsible tax reform,” the document reads. “This framework will deliver a 21st-century tax code that is built for growth, supports middle-class families, defends our workers, protects our jobs, and puts America first.”

The average corporation tax rate currently stands at 22.5 percent in the industrialised world, and so the move would make US businesses more competitive internationally

The full report details a host of other tax reforms, including a new three-tier personal tax system and a one-time repatriation tax for all overseas assets owned by US companies. Difficult questions remain unanswered, however, primarily with regard to how the cuts will be financed.

Concerns also remain about the likelihood that the new framework will be passed. The president has already suffered a number of high-profile legislative setbacks during his time in office, with his failed attempts to repeal the Affordable Care Act, better known as Obamacare, proving particularly noteworthy.

There has been talk, however, that the Trump administration could use special budget rules to pass the new tax framework via a simple Congress majority, thereby avoiding another embarrassing defeat. For a presidency that has been short on political support, successful tax reform would provide a much-needed boost as Trump moves towards his second year in office.

 

Europe’s banks urgently need a regulatory rebalancing

Posted on by Helen

With the eurozone finally back on the recovery path across the whole bloc, EU policymakers should move to the next pressing item in their agenda: financial regulation.

In the wake of the financial crisis, authorities introduced a set of requirements – applicable indiscriminately to the whole banking sector – that occasionally overlap with one another, creating confusion and excessive burdens to lenders with no added benefits. European regulators should thus follow the approach taken by their US counterpart and focus on streamlining these norms, especially with regards to their one-size-fits-all implementation.

The need for balance
On June 12, the US Department of the Treasury published a report entitled A Financial System That Creates Economic Opportunities: Banks and Credit Unions. The paper was issued in response to the executive order signed by President Trump on February 3, which contained seven core principles aimed at improving banking and financial regulation and promoting economic growth.

This highly detailed report acknowledges the importance of adequate financial regulation in order to prevent further crises. However, it also condemns the complicated oversight structure currently in place, caused by the creation of multiple regulatory agencies with overlapping mandates. The authors of the papers therefore call for a “sensible rebalancing” and have put forth 106 detailed and specific recommendations aimed at improving and simplifying the regulatory framework.

Banking regulations often overlap with one another, creating confusion and excessive burdens to lenders with no added benefits

According to the report, this rebalancing is critically important. The report explains that the implementation of such banking and financial regulations “created a new set of obstacles to the recovery by imposing a series of costly regulatory requirements on banks and credit unions, most of which were either unrelated to addressing problems leading up to the financial crisis or applied in an overly prescriptive or broad manner”.

Furthermore, according to the report: “The sweeping scope of and excess costs imposed [by regulations] have resulted in a slow rate of bank asset and loan growth.” Moreover, “small business lending has been one of the most anemic sectors, barely recovering to 2008 levels. By comparison, origination rates for large business loans are at record levels… The lack of tailoring and imprecise calibration in both capital and liquidity standards have diminished the flow of credit to fulfill loan demand”.

Herd mentality
The authors dedicate an important part of the document to community banks and credit unions (the US equivalent to less significant institutions (LSIs) in Europe, Banche di Credito Cooperativo in Italy and Raiffeisenbanken in Germany and Austria), highlighting their importance with regards to financing and services for households and small and medium-sized enterprises (SMEs).

Now, the definition already indicates a different approach to and respect for the banking sector in general, and local and regional banks in particular, which are among the main lenders to SMEs in Europe, as in the US. But this is not enough: it is clear that each LSI does not pose any systemic risk and therefore could overall be subject to simpler rules. Nevertheless, recently the heads of the Single Supervisory Mechanism publicly stated that smaller banks are “systemic as a herd”.

Therefore, imagine the feelings of those who work in a small or medium European bank. Besides being considered ‘less significant’, they must also comply with almost all the rules applied to a large group because they are part of such a herd. At the same time, the report underlines that, in the US, the “Treasury strongly supports efforts to further enable our community bank and credit union sectors”. It also noted: “Treasury recommends that the overall regulatory burden be significantly adjusted. This is appropriate in light of the minor complexity and lack of systemic risk of such financial institutions.”

Banking rules should really be relevant to the size and complexity of banks

Following America’s lead
The very strong arguments for a sensible rebalancing of the regulatory framework are coherent with the frequent arguments by bankers in close contact with the real economy. Regulations themselves are not the cause of a restriction in lending to smaller counterparties – rather, their excess, overlaps, inadequate coordination and intention to heavily reduce banks’ risk-taking are. These factors curb the overall growth of the economy, as SMEs account for more than 99 percent of the total number of enterprises in Europe.

I am not, therefore, proposing the non-application of the Basel III standards and other rules for all banks with assets below $10bn, as indicated in the US Treasury report. I simply recommend the significant and concrete application of the principle of proportionality – namely, the rules should really be relevant to the size and complexity of banks.

Moreover, the US has a population slightly lower than that of the euro area, but twice as many lenders. Regardless of this situation, there is no mention in the report that the number of banks is excessive, assuming that the number of operators in any sector is determined by the market and not by the regulators.

So, it appears that Article 119 of the Lisbon Treaty is sometimes forgotten: EU member states’ economic policies are “conducted in accordance with the principle of an open market economy with free competition”.

I very much hope that European political authorities will undertake the same in-depth studies, rigorous analysis and engagement with the different views as their American counterparts did. This will allow them to assess the potential revision of European banking and financial industry regulations, giving appropriate recommendations to regulatory authorities based on concrete evidence.

Macron lays out hopes for a closer EU

Posted on by Ashton Wenborn

On September 26, French President Emmanuel Macron described his vision for sweeping reforms of the EU, in a speech that laid bare the extent of his ambition for the bloc. Packed full of far-reaching policy recommendations, the speech lasted almost two hours and pushed for the EU to work more closely on defence and immigration, as well as reiterating his call for deeper fiscal integration.

Outlining his proposal for far-reaching fiscal reforms, Macron said a joint European budget would be necessary to “finance joint investments and assure stability when confronted by economic shocks”. His proposed European budget would be funded by corporation tax receipts and supervised by the newly created role of Finance Minister: “A budget can only go hand in hand with strong political leadership led by a common minister and a strong parliamentary supervision at the European level.”

On the subject of taxes, he called for the establishment of a common corporate tax band as well as a reinvigoration of the debate surrounding a financial transaction tax. Further to this, he criticised the “inefficiency” of carbon prices, arguing that a carbon tax would be “indispensable”.

Addressing immigration, he pushed for a “European asylum office” that would act to accelerate and harmonise immigration procedures: “It is only with Europe that we can efficiently protect our borders and welcome those who need protection in a dignified manner, and at the same time send back those who are not eligible for asylum.”

Macron’s proposed European budget would be funded by corporation tax receipts and supervised by the newly created role of Finance Minister

On defence, he set out his vision for a joint civil protection force. “At the beginning of the next decade, Europe must have a joint intervention force, a common defence budget and a joint doctrine for action,” he said.

Other significant proposals included the creation of an “agency for creative disruption” and an overhaul of the common agricultural policy.

Macron’s speech came shortly after European Commission President Jean-Claude Juncker’s state of the union address, in which he said that he felt that the coming 12-18 months would provide a “window of opportunity” to push through reforms in Europe.

Italy’s EU Affairs Minister, Sandro Gozi, expressed optimism that the speech would inspire action on the part of European lawmakers. “An excellent speech by Emmanuel Macron on reviving the European Union. Let’s work on this together, starting tomorrow at the Lyon Summit,” he said, as quoted in Reuters.

However, the result of the German election two days ago has once again stoked fears over a surge in right-wing support. It has also pushed Angela Merkel into a new coalition that may limit her room for manoeuvre on Europe.

Siemens Alstom merger creates European giant

Posted on by Ashton Wenborn

On September 26, German industrial firm Siemens and French rail company Alstom announced plans to merge operations. The bringing together of the two competitors will create a new entity with a combined revenue of €15.3bn ($18bn) and will generate annual cost savings of €470m ($552m) in the four years after closing.

The merger also recognises the threat posed by Chinese competition, particularly the state-owned organisation CRRC. The newly combined company, which will be called Siemens Alstom, will be able to better target growth markets around the world, where the two firms already have a significant presence.

“We put the European idea to work and, together with our friends at Alstom, we are creating a new European champion in the rail industry for the long term,” explained Joe Kaeser, President and CEO of Siemens. “This will give our customers around the world a more innovative and more competitive portfolio.”

The newly combined company, which will be called Siemens Alstom, will be able to better target growth markets around the world, where the two firms already have a significant presence

Although the two companies are carrying out a merger of equals, Franco-German competition has not been completely quelled. Already there are anxieties that the formation of the new company could result in job cuts or the loss of French control of its iconic TGV brand, which relies heavily on Alstom technology.

Despite lingering concerns, the merger is viewed as a substantial coup for French President Emmanuel Macron, who has championed further EU integration as a way of remaining competitive in an increasingly global economy.

The merger also marks a sea change for the French Government, which has invested vast sums in its railway network in the past. Macron’s approval of asset sales that would once have been deemed strategic will help him make a clean break with the past, but will also open himself up to further criticism.

Eminem royalties to be made available to fans

Posted on by Helen

Royalty Flow, a new US company aimed at acquiring and managing royalty interests in the music industry, will make it possible for the public to invest in part of Eminem’s song catalogue, the firm announced on September 25.

The music start-up, which is owned by Royalty Exchange, the online marketplace for music royalties, is looking to raise between $11m and $50m in a public offering of some of the rapper’s copyrights, the Financial Times reported. The company agreed to acquire a 25 percent slice of the holdings of Jeff and Mark Bass, Eminem’s first producers, and will now allow music fans to take part in the business.

Royalty Flow is looking to raise between $11m and $50m in a public offering of some of Eminem’s copyrights

Assets will be put within the public’s reach through a ‘mini IPO’. Royalty Flow has filed for a Regulation A+ offering, a type of crowdsourcing aimed at allowing small firms to raise funds, which was introduced in 2012, Bloomberg said. The next step for Royalty Flow – if the offering performs as expected – is to be listed on Nasdaq.

“This is a unique opportunity for investors to earn dividends from one of the most iconic assets in the world,” wrote the parent company, Royal Exchange, in a statement published on its website.

The firm highlighted three main features of the opportunity: the fact that it constitutes a unique investment vehicle for ordinary investors in the industry; the promising future for revenues in the sector; and the additional “cherry-picked assets” that the company plans to offer in the future.

For now, its main asset – future royalty income from Eminem songs – looks promising. In 2016, the Bass brothers made approximately $5.1m from their Eminem copyrights.

The music industry has seen very few disruptions of a similar nature in the past, although one such example was introduced by David Bowie in the 1990s, when he sold asset-backed securities. The so-called ‘Bowie bonds’ allowed investors to share the singer’s future royalties for a decade.

EU rules Greek deficit is no longer excessive

Posted on by Ashton Wenborn

In a vote of confidence in the sustainability of Greece’s finances, the EU Commission has decided that the country should no longer be subject to disciplinary procedures over its fiscal position. According to the Stability and Growth Pact, the EU’s fiscal rulebook, budget deficits over three percent are excessive, and any member state that consistently exceeds this should be subject to disciplinary procedures.

Toomas Tõniste, President of the European Council, said: “After many years of severe difficulties, Greece’s finances are in much better shape. Today’s decision is therefore welcome.”

While Greece is currently undergoing its third macroeconomic adjustment programme, the country’s general fiscal position has steadily improved since the peak of its deficit in 2009 at 15.1 percent. Last year, its balance moved into the positive for the first time since the crisis, with a surplus of 0.7 percent.

The move is largely symbolic and was broadly expected following the commission’s recommendation in July.

Greece’s general fiscal position has steadily improved since the peak of its deficit in 2009 at 15.1 percent

According to Margaritis Schinas, Chief Spokesperson of the European Commission, it was made on the basis of the substantial efforts undertaken by Greece to consolidate its finances, coupled with the progress made in the Stability Support programme. “Today’s decision further demonstrates that Greece is delivering on its commitments and has returned to a sustainable path,” he said.

According to the commission, Greece’s deficit is expected to remain below three percent. Based on an assumption of policy continuity, the commission’s spring forecast projects a deficit of 1.2 percent for 2017 and a surplus of 0.6 for 2017.

However, Greece is not totally out of the woods. It will remain subject to the preventive arm of the Stability and Growth Pact, meaning monitoring is set to continue. What’s more, its macroeconomic adjustment programme will not be over until August 2018, beyond which post-programme monitoring is expected to follow.

The decision leaves just three member states – France, Spain and the UK – remaining subject to the corrective arm of the Stability and Growth Pact. This is a marked reduction from 2011, when 24 countries fell under the category. If countries do not take substantial action they can incur hefty fines, but as of yet no fines have been issued.

US and Caribbean insurance companies face a potential $145bn bill following hurricanes

Posted on by Helen

The financial toll of the three hurricanes that hit the US and the Caribbean in the past few months could reach as much as $145bn in insured losses, according to estimations by different catastrophe modelling companies.

The latest storm was Hurricane Maria, which made landfall on September 20 and has been called the worst storm to hit Puerto Rico in almost 90 years. The storm also hit Dominica with heavy rains and winds of up to 175mph, reaching category five – the highest on the Saffir-Simpson scale, which is used to measure the potential damage of hurricanes.

The ferocity of this storm alone resulted in estimated economic damage of between $40bn and $85bn in insured losses, according to catastrophe modelling company AIR Worldwide. The high end of this scale compares with the $82bn losses caused by Hurricane Katrina in 2005.

Hurricane Maria caused significant insured losses, but the figure would have been bigger if more Puerto Ricans had their goods protected

According to The Wall Street Journal, these figures include the estimated damage to vehicles, residential, commercial and industrial properties, opportunity costs for businesses, and additional living expenses. The cost of rebuilding infrastructure was another factor added to AIR Worldwide’s estimations.

Although Hurricane Maria caused greater insured losses in comparison with the almost simultaneous hurricanes Harvey and Irma, the figure would have been bigger if more Puerto Ricans had their goods protected. Roughly half of homes in the country are insured in some way, a figure below the average in the US, AIR Worldwide said.

Meanwhile, the economic toll for Hurricane Irma is estimated at between $25bn and $50bn in insured losses, according to Fitch Ratings. Although the firm said the damage caused by the storm in Florida was “substantial”, it added that Irma’s path tempered the impact. Fitch Ratings’ numbers were comparable with further calculations made by other companies operating in the sector.

In August, Harvey was the first of the three recent hurricanes to make landfall. Texas and Louisiana were the most affected areas at this time. Losses caused by flooding and high winds rose to $10bn in insured goods, according to AIR Worldwide data, although an estimation by analytics firm Corelogic gave lower figures for the damage, at $6.5-9.5bn.

With such significant losses – which are even bigger if uninsured properties and goods are taken into account – hurricanes have certainly impacted the wider US economy. Consumer spending and industrial production have seen slight declines, according to official estimates. However, the Fed left its forecast of 2.2 percent growth for the third quarter unchanged.

In Puerto Rico, it is still too early to see the full impact of Hurricane Maria on economic indicators. However, the hurricane is also expected to have damaged the country’s economy, which is already struggling with financial obligations and is suffering a population exodus.