Year: 2017

Asia-Pacific nations hope to salvage TPP

Posted on by Max Tomlin

On March 14, China and South Korea met with the 11 remaining nations of the proposed Trans Pacific Partnership (TPP) at a conference in Chile. The talks reflected efforts by the likes of Japan, Mexico, Australia and Chile to salvage economic integration in the region following the US’ withdrawal from the TPP agreement in January. With China now stepping in, a new deal appears more likely, although it remains unclear exactly what form it may take.

Chinese representatives were quick to deny the talks were intended to salvage the TPP. Rather, foreign ministry spokesperson Hua Chunying claimed they were simply a means “to exchange broad ideas”.

The balance of power is shifting away from the US… [with] China increasingly portraying itself as a
champion of free trade

Without the US, the TPP cannot be revived. Signed in February 2016, the deal stipulated signatories must ratify the agreement in their own countries before it could come into effect. If two years elapsed without all 12 signatories on board, the deal could only be saved if six representatives – with an 85 percent share of the total combined GDP – had ratified it. Without the US, whose GDP represents 61 percent of the total, the target is unreachable.

Nonetheless, the TPP could provide a framework for future negotiations. Mexican Economy Minister Ildefonso Guajardo said: “It would be up to China to decide, within its strategy, whether it can adopt the regulatory discipline of TPP.”

Likely outcomes include either the expansion of an existing trading bloc, such as the Pacific Alliance, or the creation of a new one, such as the proposed China-centric Regional Comprehensive Economic Partnership (RCEP). Meanwhile, analysts believe TPP nations without an existing bilateral agreement with the US may be deterred by the prospect of negotiating access to US markets with an isolationist President at the helm.

Whatever the case, the balance of power is shifting away from the US, with its grip on the global economy arguably loosening. China, on the other hand, has increasingly portrayed itself as a champion of free trade, pointing to an isolationist US for comparison.

As it stands, China looks set to be the biggest winner. As the world’s second largest economy, privileged access to Chinese markets is a tantalising lure. Moreover, with the political future of the EU still in some doubt, China seemingly caters to the Chilean Foreign Minister’s desire to “generate more certainty” in the context of “protectionist tendencies in some parts of the world”.

US Federal Reserve raises interest rate

Posted on by Max Tomlin

The recovery of the US economy has finally begun to materialise, with the US Federal Reserve raising its benchmark interest rate by 0.25 percent for the second time in three months. Its key rate target is now 0.75 percent to one percent, with the decision marking only the third rate increase since the global financial crisis. The Fed’s committee approved the increase by a majority of nine to one, with Minneapolis representative Neel Kashkari the only objector.

Commenting on the increase, Fed chair Janet Yellen said the committee had decided a modest increase was necessary to reflect the solid progress the economy had posted. Yellen also emphasised the committee still plans to move slowly, reflecting the pace of the economic recovery.

The decision to raise the interest rate follows a series of strong results across a number of economic measures

“The data have not notably strengthened”, Yellen said at a news conference following the announcement. “We haven’t changed the outlook. We think we’re moving on the same course we’ve been on.” Yellen also reiterated achieving two percent inflation remains the Fed’s primary goal, and this is not changing anytime soon.

The decision comes following a series of strong results across a number of economic measures. In February, the US unemployment rate fell to 4.7 percent and the labour participation rate rose to 63 percent, with annual wage growth reaching 2.8 percent. After nine years of economic stagnation following the 2008 crash, the US is finally showing tangible signs of growth and resilience.

Despite Yellen’s subdued comments, stock markets jumped at the announcement. At the end of trading on Wednesday, the Dow Jones Industrial Average closed up 0.5 percent.

The Fed is expected to raise rates again later this year, following predictions in December that 2017 would see three increases. According to a survey conducted by The Wall Street Journal, almost seven in 10 economists expect the next rate rise to occur in June, allowing time for the Fed to take the final form of President Donald Trump’s economic programme into consideration.

Trump, meanwhile, has set a target of four percent growth, putting faith in his policies to out achieve the estimates put forward by the Fed. However, Yellen doesn’t believe this to be a point of conflict, and added the Fed would ultimately welcome economic growth in the context of price stability.

Apple found guilty of price-fixing

Posted on by Max Tomlin

On March 14, Russia’s Federal Antimonopoly Service (FAS) declared Apple to be guilty of price-fixing. The ruling followed a seven-month investigation, which eventually concluded Apple’s Russian subsidiary had ordered resellers to abide by a certain price-structure for its smartphones.

According to a statement from the FAS, Apple instructed numerous sellers to set prices at a certain level, and subsequently contacted those that didn’t comply to request they reconsider. The price-fixing allegedly goes back several years and spans the majority of recent smartphone models.

The watchdog stated: “The investigation revealed that since the start of official sales in Russia of the Apple iPhone 5s, iPhone 5c, iPhone 6, iPhone 6 Plus, iPhone 6s and iPhone 6s Plus, most resellers installed the same prices on them as recommended by Apple Rus and supported them for about three months.”

Apple has a short time to appeal the ruling, but could face a fine of up to 15 percent of its Russian sales

The statement further suggested Apple ensured compliance by threatening to terminate contracts with resellers that deviated from the set price-structure.

As reported by Reuters, Apple’s press office immediately refuted the claims after they surfaced in August: “Resellers set their own prices for the Apple products they sell in Russia and around the world.”

Apple has yet to officially comment on the ruling, but the FAS Deputy Head stated the company had “actively co-operated” with authorities throughout the investigation. He said: “The company has adopted the necessary measures to eliminate violations of the law and is pursuing a policy to prevent similar violations in the future.”

The company now has a short time to build a defence and appeal the ruling, but could face a fine of up to 15 percent of its Russian sales.

A recent FAS ruling against Google proves ominous for Apple. Last year, the competition watchdog fined Google $6.8m for illegally suppressing rival apps on its devices. According to the FAS, this sum was somewhere between one and 15 per cent of Google’s Russian earnings from mobile sales in 2014.

Maybank Ageas CEO: Etiqa well positioned in ASEAN insurance industry

Posted on by World Finance

With a footing in nine of the 10 ASEAN nations, Maybank and its insurance and takaful arm Etiqa are well positioned to benefit from the AEC’s standardised financial framework. Kamaludin Ahmad, CEO of Maybank Ageas Holdings, explains the challenges that Etiqa currently faces expanding overseas, and how ASEAN integration ought to improve matters – if it ever actually happens. He also discusses Maybank’s mission to humanise financial services across Asia, and the advantages to Etiqa of being part of such a sizeable banking group.

World Finance: Kamaludin, what challenges does Etiqa currently face expanding overseas?

Kamaludin Ahmad: The challenges that we are facing are mainly finding the right partner.

For the most part, all the countries’ regulators won’t allow you to come in and have a 100 percent stake in local operations. And most of the countries are not issuing new licences.

But really when you talk about ASEAN, there are five countries that are the most significant, which is Singapore, Malaysia, Thailand, Indonesia and the Philippines. Vietnam is there, but there’s still some challenges.

There’s a bit of challenge going into Indonesia. The Philippines is relatively open. Thailand is quite open, but you cannot have a majority stake.

World Finance: How will the ASEAN Economic Community’s simplification of financial services improve things, and what’s the timeline?

Kamaludin Ahmad: That will definitely improve things, but the only set back that I’m seeing is, it has not been progressing as fast as we had hoped for. Especially in the financial services industry.

All the countries are pretty cautious about opening up. And when that happens it will make things a lot easier. In terms of timeline, I’m not seeing that happening in the next two years, at least. Maybe three to five years.

World Finance: Your parent company Maybank already operates across the ASEAN region – what advantage does this give you over competitors?

Kamaludin Ahmad: I think the main advantage of being part of this pretty sizeable banking group is that they have a lot of presence everywhere, and we always have the first right of refusal.

But that doesn’t mean that everything’s to our advantage, in the sense that we get everything inexpensively. It’s more: having the access to discussion, access to distribution, and so on.

In Malaysia we believe insurance and takaful is about helping people. We try to inculcate that in every employee in the organisation.

And by having that message, the staff start to do things that they see – if I do this, will it be helpful to the public? An example is, in our claims department, they look on social media and media feeds to check for accident cases. And if they find out there are casualties, they start checking if these are our customers or not. And if they’re our customers, they reach out to the family members and deliver the compensation. We make sure that we’re as proactive as possible.

World Finance: What challenges and what growth can we expect in the Asian insurance industry in 2017?

Kamaludin Ahmad: The growth in demand has really been in medical and retirement. But the challenge has always been, how do you price this side? How do you cope with inflation – medical inflation – and so on. But the demand is going to be there, and you don’t see that slowing down.

On the general, property and casualty side, there’s a lot of infrastructure-driven demand. So we see that will continue for at least the next two years. Interest in Malaysia, Indonesia, the Philippines, even Vietnam, they’re building infrastructure. So we see a lot of growth on the general side because of that.

On the life side the challenge is more the return that we can give back to the customer. So that’s been the challenge, and we foresee that to be even more challenging in the coming years.

World Finance: Kamaludin, thank you very much.

 

Puerto Rico agrees debt-restructuring plan

Posted on by Max Tomlin

On March 13, Puerto Rico’s federal oversight board – created by Congress to oversee the territory’s finances – unanimously approved a new debt-restructuring plan. The island, which is an unincorporated territory of the US, has built up a vast public debt totalling $70bn. In 2015, the then-Governor asserted the debt was “unpayable”, prompting a series of defaults amounting to millions of dollars. The island of 3.5 million people faced $35bn in interest and payments over the coming 10 years, a scenario threatening to plunge the territory into a spiral of ever-deepening debt.

Puerto Rico faced $35bn in payments over the coming 10 years, a scenario threatening to plunge the territory into a spiral of ever-deepening debt

The federal oversight board – which is independent and bipartisan – was tasked with creating a 10-year fiscal plan in collaboration with the Puerto Rican Government. In early March, the island’s newly elected Governor, Ricardo Rosselló, presented a fiscal plan to the board for approval. Despite certain disagreements, the new plan has emerged with a fairly clear picture of future finances.

The plan sets aside $800m per year for debt payments and involves various belt-tightening measures – including several tax hikes. Further, it will freeze salaries until 2020, as well as scrapping certain infrastructure projects.

There were several points of contention, however. The board’s recommendation to cut the government’s public pension scheme, abolish Christmas bonuses and furlough thousands of workers was met with hostility. But, the final plan stipulates these measures must go ahead if the government cannot find savings elsewhere.

Despite this, an interview with the Associated Press suggested Rosselló is pleased with the plan and is confident such savings can be found: “It’s essentially the same plan I submitted, except for the economic baseline numbers. The board approved our plan, conditioned on us meeting some milestones.”

The passing of the plan marks a key breakthrough for the island that can now present a credible schedule for turning around its budget – a crucial step if any meaningful debt restructuring is to take place. While the Puerto Rican economy has avoided collapse, it still faces a long battle ahead, and the island’s financial suffering has just begun.

Financial inclusion and CSR are central to Sharia – Jordan Islamic Bank

Posted on by World Finance

“Inclusive growth is the world’s best hope.” This was a key message coming out of Davos, with financial inclusion continuing at the top of the World Economic Forum’s agenda. HE Mr Musa Shihadeh, CEO and General Manager of Jordan Islamic Bank, discusses how his bank is furthering this mission in the country. Improving the lives for all people is central to Sharia principles, he explains, which his bank is proud to promote. One particularly forward-looking aspect of Jordan Islamic Bank’s work is providing finance for solar energy – both to help businesses grow and for individuals.

World Finance: “Inclusive growth is the world’s best hope.” This was a key message coming out of Davos, with financial inclusion continuing at the top of the World Economic Forum’s agenda. Joining me is HE Mr Musa Shihadeh.

How important is improving financial inclusion for Jordan, and what is Jordan Islamic Bank doing around this?

HE Mr Musa Shihadeh: Financial inclusion in Jordan is considered a pillar, as it is in the international agenda. It improves poverty, improves unemployment, and increases productivity. And it leads to stable financials in the country.

Jordan Islamic Bank is doing this in the literacy of the people – SMEs and individuals – by offering services and products that meet their needs and help their businesses.

We try in our bank to be very near to those people who need our activities, through our branches and cash offices and ATMs.

World Finance: Jordan as you say does need to work to improve its employment figures; supporting employment means supporting businesses – which particular industries are you supporting through finance?

HE Mr Musa Shihadeh: We do finance SMEs. Giving financing easy and transparent, and low income sometimes, in financing special persons who have their practices and need financing. We finance SMEs, we finance goods, we finance the jobs of the people who make some personal activities that improve their income. And we go to finance, you know, solar systems…

World Finance: Tell me more about the work you’re doing in the renewable energy sector; why is this important?

HE Mr Musa Shihadeh: Yeah: energy sector, we put a plan for in our bank, a five year plan, in order to enhance the solar system. Jordan has 300 sunny days, and the problem of Jordan is importing oil – it’s not an oil country.

We at the bank, for example, started our 18 branches now out of 70 branches on solar system. We have two stations, in order to furnish our branches. We offer to our customers financing for the solar system for their machinery in order to help them. And this will help the environment as well as help the government in not importing oil, which is a burden on our budget in Jordan.

World Finance: Jordan Islamic Bank is a pioneer in corporate social responsibility in the country; what are you doing in this area?

HE Mr Musa Shihadeh: Jordan Islamic Bank you know, applies Sharia. And Sharia takes care of not only Jordanian people – Muslims or non-Muslims – it takes care of every human being. Part of our mission is to help those people who need it.

For example, we give free loans for people who want to marry, or pay tuitions, or even to go to hospital.

We have our own collective scheme for people who deal with our bank, in case they have insolvency, or in case of death or disability. This fund which we raised through those people and through the bank help them pay their debt and not to destroy their family.

That’s what we do on social responsibility.

World Finance: Jordan of course is in quite a difficult neighbourhood – how is that impacting the economy, and your bank?

HE Mr Musa Shihadeh: The economy now is troubled, with the Syrian problem, Iraqi problem, Yemeni problem – which surrounds Jordan. And it gives us in Jordan volatility in enhancing our business.

Therefore the government, the banking system, as well as our bank, try always to stop the effects that could happen in the country, as well as the Jordan Islamic banking sector. And of course trying by our governance and the rules we apply. The regulations the government help in furthering their business to comply with this volatility we are living in.

World Finance: Finally, what are your aspirations for Jordan Islamic Bank’s future?

HE Mr Musa Shihadeh: We look onward, always, for our customers. We hope that we render them that facilities and services, that meet their aspiration. And high technological application, in order to let them feel that they are working in the western countries or another place. That’s part of our mission. Relying on our staff, our people, and our management as well.

World Finance: Musa Shihadeh, thank you very much.

HE Mr Musa Shihadeh: Thank you very much.

Azerbaijan withdraws from EITI

Posted on by Max Tomlin

On March 10, Azerbaijan withdrew from the global transparency group Extractive Industries Transparency Initiative (EITI) – jeopardising potential investments in infrastructure and the country’s wider economic recovery. The EITI is a highly respected international body incorporating 50 countries that export oil, gas and minerals.

After issuing an ultimatum in October, the EITI suspended Azerbaijan’s membership on March 9, citing concerns over the freedom of civil society groups and NGOs in the country. Azerbaijan rescinded its membership the following day, calling the suspension “unfair” and claiming it still abided by the ideals of the EITI.

“We are leaving an organisation, not the principles”, said Shahmar Movsumov, Executive Chair of the country’s State Oil Fund. “Azerbaijan did not withdraw from the principles of transparency and accountability in the extractive industries. We are committed to those principles and will continue to disclose every material information on our revenues.”

Azerbaijan’s exit has
prompted fears European banks could pull the plug on a €4.5bn loan being used
to fund the country’s infrastructure support

Both the European Investment Bank and the European Bank for Reconstruction and Development use the EITI as a barometer when determining which loans to issue. Azerbaijan’s exit – which ends a 14-year association with the group – has prompted fears the European banks could pull the plug on a €4.5bn ($4.8bn) loan being used to fund the country’s infrastructure support.

The loan is intended for the construction of Azerbaijan’s contribution to the 3,500km Southern Gas Corridor – a huge infrastructure project running from the Caspian Sea to the southernmost tip of Italy. Azerbaijan plans to construct two pipelines allowing it to send 16 billion cubic metres of gas to Turkey and central Europe from 2019. Given Italy and Germany are by far Azerbaijan’s biggest export markets – having purchased $6.52bn and $2.37bn of its produce in 2014, respectively – scrapping the pipeline would mean a significant opportunity is missed.

Azerbaijan is heavily dependent on its copious reserves of natural resources, with oil and gas comprising 45 percent of GDP and 75 percent of tax revenues in the country. Consequently, the fall in world oil prices had a substantial impact on Azerbaijan’s economy. Last year, the country experienced its most dramatic contraction since 1995, before recovering somewhat in January and February. Growth in non-oil sectors – which arose largely from government investment in industry and agriculture – spurred this rally.

The World Bank maintains that low public spending has been a major inhibitor of the country’s growth. Nonetheless, it is now doubtful Azerbaijan’s upturn can be supported without a solid grounding in key natural resource industries. The break with EITI therefore poses a grave threat to Azerbaijan’s future economic security.

Iceland lifts capital controls

Posted on by Max Tomlin

Iceland will soon be returning to the global financial market after it was announced the remaining capital controls in the country would be lifted. The controls have been in place since 2008, when the global financial crisis devastated the country’s economy and prompted the closure of its three largest banks.

“The removal of the capital controls, which stabilised the currency and economy during the country’s unprecedented financial crash, represents the completion of Iceland’s return to international financial markets”, said Iceland’s finance ministry in a statement. The controls being lifted affect companies, pension funds and individuals.

Iceland’s economy has posted a remarkably fast recovery thanks to the development of its tourism industry

Iceland’s economy was all but obliterated in the 2008 crash. After positioning itself as a low-tax base destination to attract foreign companies in the 1990s, the finance industry flourished and its currency increased in value by 900 percent between 1994 and 2008.

However with the 2008 crisis, money rapidly began moving offshore and the country’s three biggest banks collapsed. The government, unable to bail them out, allowed them to fail and adopted a strict regulatory system implemented with the support of the International Monetary Fund.

Iceland’s economy has posted a remarkably fast recovery thanks to the development of its tourism industry. Approximately 1.8 million people visited the country in 2016, an increase of 40 percent over the previous year. Tourism has also become the country’s biggest industry, surpassing the traditional aluminium and fishing sectors. In 2016, Iceland’s economy grew by 7.2 percent. In addition to selling government bonds, the Financial Times reported one of the banks that emerged from the crisis is also likely to be listed on the stock exchange soon.

Despite this, some concerns remain about the future of the country’s economy. While tourism has created a foundation for growth, there is debate whether the industry can be successfully managed for the long term.

For more on Iceland’s economic recovery, read World Finance’s special report on the topic.

Shell sheds $7.25bn of oil sands assets

Posted on by Max Tomlin

On March 9, oil giant Royal Dutch Shell unveiled plans to sell numerous oil sands assets to fellow energy giant Canadian Natural for $7.25bn. The divestments are part of a renewed cost cutting effort after Shell saw profits fall to £1bn ($1.21bn) at the end of 2016 – a continuation of a longer slide rooted in the collapse of the global oil price in 2014.

In a statement, Shell explained the company’s 60 percent stake in the Athabasca Oil Sands Project would be reduced six-fold, while its hold on the Peace River Complex and various undeveloped Alberta sites would also be relinquished.

RBC Capital Markets analyst Biraj Borkhataria said: “[The sell-off] should help de-gear Shell’s balance sheet over 2017 and help remove concerns around the dividend.”

The divestments come as a response to Shell’s increasingly tight earnings, which narrowed further last year

The divestments come as a response to Shell’s increasingly tight earnings, which narrowed by a further eight percent last year to $3.5bn. The company cut 2,200 jobs in 2016 as a result.

Shell has been squeezed since its mammoth acquisition of UK oil and gas company BG in February last year. The deal created the world’s largest trader of liquefied natural gas, but hit the company hard with a hefty price tag of $52bn. At the same time, CEO Ben van Beurden asked observers to “bare with us as we integrate two companies… 2016 was the transition year, 2017 needs to be the delivery year”.

Cutting ventures in oil sands is a wise move by Shell, especially considering associated extraction methods are more expensive and polluting than conventional techniques. This, coupled with the continued weakness of global oil prices – which fell below $50 a barrel on Thursday – has placed oil sands ventures high on the company’s list of disposable assets.

The move hasn’t been without contention, however. Despite a growing number of job cuts, van Beurden’s overall pay package has grown by 60 percent in the last year, totalling £7.2m ($8.75m). However, this bump was largely a result of a €4.4m ($4.67m) long term incentive scheme coming to fruition. In fact, shareholders recently agreed to cut van Beurden’s annual bonus by 33 percent to £2.1m ($2.55m).

While the struggling Shell was not best suited to the oil sands of Alberta, its successor, Canadian Natural, may well be. Alongside a diverse balance sheet, board chairman Murray Edwards has a history of turning struggling assets around. Edwards’ expertise could spell a more cheery development for the Canadian ventures moving forward.

Tesla powers on with green energy solutions

Posted on by Max Tomlin

On March 8, electric car manufacturer Tesla took another significant step towards developing its own viable means of supplying green energy to electricity grids. In what CEO Elon Musk hopes will be an important proof-of-concept for the company’s Powerpack-2 battery units, Tesla unveiled a huge power plant on the Hawaiian island of Kauai that could revolutionise the local electricity supply. If successful, such solar-plus-storage initiatives could be exported to other, more populous areas – representing a huge step forward in the company’s global sustainability project.

The Kauai plant is comprised of almost 55,000 solar panels that funnel energy into 272 Powerpack-2 units – where it can be stored en masse for extended periods of time. Powerpacks, which Tesla claimed “house the world’s most sophisticated batteries”, have long been in development by the Californian company. The Powerpack-2 builds on the momentum generated over the past two years by sales of the first generation to US businesses.

Offering round-the-clock access to solar power, the Tesla plant could save an estimated 1.6 million gallons of fossil fuels each year

Many of Kauai’s 30,000 residents already have solar panels installed. But, come nightfall, they stop generating power, prompting residents to fire up generators or turn to the island’s conventional electricity grid. In lieu of an oil or gas pipeline, the latter requires the burning of diesel fuels brought to the island via boat. By offering round-the-clock access to solar power, the Tesla plant could save an estimated 1.6 million gallons of fossil fuels each year.

According to Business Insider, Tesla worked alongside the Kauai Island Utility Cooperative (KIUC) to bring the 13MWh host of panels to fruition. It has been agreed that Tesla will sell power to the KIUC for 20 years, charging only 13.9 cents per kWh. As Elektrek reported, that makes Tesla’s offering roughly one-third the cost of burning diesel fuel.

The panels are manufactured by SolarCity, a company Tesla bought last year for $2bn. The Kauai project builds upon a number of similar Tesla projects, including a solar-plus-storage site, opened at California Edison in 2016, with enough capacity to power 15,000 homes for four hours. Indeed, the Kauai facility most strikingly resembles Tesla’s American Samoa micro-grid, which, having been funded by the numerous government departments, is presently powering the entire island of Ta’u.

Meanwhile, Musk himself could have grander designs for the company’s solar-plus-storage programme. Considering the upward trajectory of his other company SpaceX – which Musk asserted will take humans to Mars by 2022 – it would be no surprise if the billionaire businessman has indeed been pondering the notion of creating a parent corporation to unite the two entities as a means to apply cheap, renewable power to the colonisation of outer space. For now, the potential of Powerpack technology seems huge. But, in the future, it could well be astronomical.

 

State Street votes to bridge gender gap

Posted on by Max Tomlin

Asset management giant State Street has announced a bold push towards improving gender balance in the corporate world. According to a report in The Wall Street Journal, State Street Global Advisors – the company’s investment management division – will vote against companies failing to promote more women to their management boards.

State Street is one of the largest asset managers in the world, managing a staggering $2.4trn of assets. According to the report, the asset manager will allow companies with a lack of gender balance up to a year to add women to their boards before taking action. If no improvements are made, State Street will then use its voting rights to oppose the re-election of the committees nominating new board members.

State Street will allow companies with a lack of gender balance up to a year to add women to their boards before taking action

Rakhi Kumar, the money manager’s head of corporate governance, said: “Some companies may say you’re wrong and we agree to disagree. In those cases we have no choice but to use our vote.”

A recent study by McKinsey & Co surveyed more than 34,000 employees throughout the US to investigate the stubborn issue of gender imbalance. The report emphasised that while companies’ commitment to gender diversity is at an all-time high, there is still disconnect between commitment and concrete results. It further found women made up just 19 percent of the C-suite positions surveyed.

The study concludes: “To level the playing field, companies need to treat gender diversity like the business imperative it is, and that starts with better communication, more training, and a clearer focus on results.”

Many will hope State Street’s decision can provide a foundation for a greater commitment to diversity in the near future. However, this approach is not only moral, but strategic as well. A growing body of evidence has established a link between gender balance and higher profits, sales and innovation.

Standard Life to acquire Aberdeen in £3.8bn deal

Posted on by Max Tomlin

On March 6, Standard Life confirmed a deal to acquire Aberdeen Asset Management for £3.8bn ($4.7bn). The combined firm – worth a total of £660bn ($809.4bn) – will be the largest asset manager in the UK and the second largest in Europe.

Established in 1825 as an insurance company, Standard Life currently boasts 4.5 million customers and clients worldwide. More recently, the company has shifted its focus toward asset management. The acquisition of Aberdeen underscores this shift, cashing in on the company’s complementary research expertise and substantial synergies.

Standard Life has shifted
its focus toward asset management… The
acquisition of Aberdeen underscores this shift

BBC Scotland’s business and economy editor, Douglas Fraser, commented: “Scale counts when you are talking information technology and computing, back-office, where there will be some duplication and they can cut costs there.”

The new company is yet to be branded, but its name will incorporate both Standard Life and Aberdeen. Keith Skeoch, CEO of Standard Life, and Martin Gilbert, CEO of Aberdeen, will share leadership responsibilities as co-CEOs. The board will also be split equally, and the company will be headquartered in Scotland.

Keith Skeoch, CEO of Standard Life, commented: “The combination of our businesses will create a formidable player in the active asset management industry globally. We strongly believe that we can build on the strength of the existing Standard Life business by combining with Aberdeen to create one of the largest active investment managers in the world and deliver significant value for all of our stakeholders.”

The announcement comes amid stiff competition from US asset-management giants like Blackrock. Building on Skeoch’s comments, Martin Gilbert emphasised the significance of enabling the combined group to compete at a global level: “This merger brings financial strength, diversity of customer base and global reach to ensure that the enlarged business can compete effectively on the global stage.”

However, Fraser believes: “What they are not spelling out so much is that they are under competitive pressure because they are in the business of active management of funds. Money is pouring into passive management without the expensive research teams.”

Zurich Turkey launches first retail cyber protection insurance product

Posted on by World Finance

In 2016 there were a number of huge leaks of personal data of Turkish citizens online. It’s created a massive demand for products to insure individuals and businesses from losses caused by cyber crime. Yılmaz Yıldız, CEO of Zurich Turkey, outlines the first product they’ve brought to market to address this demand. Combining anti-virus software, an active web radar that searches for criminals using customers’ data, and compensation for losses, it’s been highly successful so far. If you’re starting here, you can view the other parts of our conversation with Yılmaz Yıldız, which cover the global trends likely to affect Turkey’s economy, and the Turkish insurance sector’s potential for even stronger growth.

World Finance: In 2016, there were a number of huge leaks of personal data of Turkish citizens online. I’m with Yılmaz Yıldız, CEO of Zurich Turkey.

What are the biggest cyber-risk concerns for consumers, and how are you addressing these?

Yılmaz Yıldız: We have launched the first retail cyber protection products. And what that does in fact is, first, we have to prevent cyber attack from happening in the first place. So we provide the customer an anti-virus program; and secondly what we call a web radar.

When you register, you also input the data that you want protected. Let’s assume that you ask it to check your ID information. Once it’s input and activated, it checks the entire cyber world. And if anybody’s trying to use your ID number for any purpose, anywhere in the entire cyberspace, it will let you know.

On top of that, your passwords. If anybody steals your passwords and does a transaction, you will be compensated if you have our product. And then if your physical IDs are lost for any reason, that is covered too. Whether your identity is on your ID card or in cyberspace, it has to be protected.

So we launched that a couple of months ago, and there’s just incredible demand for it, because clearly individuals feel vulnerable. SMEs even more so. In fact, Zurich Insurance group does SME surveys each year to understand what concerns SMEs have. And 85 percent say cybersecurity is one of their top concerns.

World Finance: What security risks are SMEs seeing, specifically?

Yılmaz Yıldız: The most common one is ransomware. What it does is, you have your data stored somewhere. Ransomware basically prevents you from accessing your company information; and they ask for a ransom.

If you can prevent that through anti-virus programs, that’s a big one. So it’s first a preventative tool, and secondly it compensates you for any of the losses that will happen, within the limits.

And there are other reasons – ransomware is one, loss of data, passwords, customer data loss. So these are the things that we know now. But surely cyber attackers will be more creative, and we’ll need to be even more creative to protect our customers from such attacks.

World Finance: Yılmaz Yıldız; thank you very much.

Yılmaz Yıldız: Thank you.

Turkey’s insurance industry has $150bn potential – Zurich Turkey CEO

Posted on by World Finance

Yılmaz Yıldız, CEO of Zurich Turkey, breaks down the country’s $30bn insurance industry. Turkey has quite low insurance penetration compared with EU nations, so its potential is huge – which is why it’s been attracting so much investment from Europe, Asia, and the US, and grown roughly 10-15 percent per annum over the last decade. He also explains how the number of young people in Turkey is putting the industry ahead of the digital transformation curve. If you’re starting here, you should go back to find out how global economic trends will be affecting Turkey’s overall economy – and hence the P&C insurance segment. And watch the rest of our conversation with Yılmaz Yıldız, on insuring against cyber-risks.

World Finance: Let’s move on to Turkey’s insurance industry. Currently worth $30bn; how does that break down?

Yılmaz Yıldız: Yes, it’s a $30bn market that has grown roughly 10-15 percent per annum in the last decade. And it has three segments: life, pensions, and non-life – property and casualty.

The life part is mostly credit life, and it’s relatively small, about $1.5bn. Private pension part is the big part: more than six million citizens are in, and the funds under management is around $17bn now, and it’s growing around 30-35 percent per annum.

The third big segment is the non-life property and casualty. Again, very high growth rates; but that part is very much related to what happens on the economy, investments, exports, imports. So as the economy grows, the P&C part is very much sensitive to that. And when the growth slows down – again, it is impacted.

World Finance: So where in that breakdown is Zurich operating, and what’s been your strategy so far?

Yılmaz Yıldız: Zurich is mainly a non-life property and casualty player in Turkey; entered Turkey in 2008 through an acquisition, and since then we have invested over $500m to the Turkish non-life property and casualty market.

Our focus is on personal lines and SMEs. Those two make up roughly 80 percent of our base.

We’re one of the leaders in bancassurance and also on the commercial corporate side; and one of the most profitable as well.

World Finance: Turkey has quite low insurance penetration compared with EU nations, for example. How much more potential is there?

Yılmaz Yıldız: If you take Turkey’s average – one, 1.5 percent of GDP – in terms of premiums. If you look at EU averages, it could increase five-fold. It’s huge. So we’re talking about from $30bn to $150bn. That’s just to reach the average. And that’s one of the reasons why there’s been so much investment in the Turkish insurance sector from Europe, Asia, and the US.

World Finance: Let’s skip back to the number of young people in Turkey. Is that putting you ahead of the curve on the digital transformation journey?

Yılmaz Yıldız: Absolutely. There are 45 million internet banking users, 20 million mobile banking users, three million SMEs conducting their business online. So it’s a huge market: the physical and the digital – you cannot separate it anymore, it is one.

So you have to kind of reinvent how your company operates. We have to make it work seamlessly and completely integrated. That requires omni-channel approach, in terms of how you sell your products. It requires omni-channel customer services.

So it’s a big opportunity. It’s happening everywhere. The speed may be faster or slower, depending on what your customers and distribution channel demands. We talk about Turkey – the demand is there! So we have to move very fast, and that’s exactly what we’re doing.

Yılmaz Yıldız: What Trump’s wall means for emerging economies

Posted on by World Finance

It’s the bridge between Europe and Asia, enjoying one of the highest average growth rates in the OECD over the last few years. Despite domestic and international political issues, Turkey’s economic performance is still promising. Yılmaz Yıldız, CEO of Zurich Turkey, discusses the big global developments that may disrupt Turkey’s growth – and the growth of other emerging economies. Politics in the US and EU, US interest rates, and rising commodity prices are the key issues to look out for. Click through to watch the rest of our conversation with Yılmaz Yıldız, where we dive deeper into Turkey’s insurance industry, and find out how Zurich Turkey is tackling cyber risks for consumers and businesses alike.

World Finance: It’s the bridge between Europe and Asia, enjoying one of the highest average growth rates in the OECD over the last few years. Despite domestic and international political issues, Turkey’s economic performance is still promising. Joining me to explore Turkey further: Yılmaz Yıldız.

Let’s talk about some of those big, global developments that you’re seeing.

Yılmaz Yıldız: Many things! 2016 has been a very difficult year, and 2017 seems that it will be a very, very difficult year.

Especially important and relevant for the emerging markets are three major trends. That’s one: politics. And interestingly, politics in the developed world, more than the emerging world.

Secondly: Fed and what will happen in the US. And third: oil and commodity prices.

Politics will determine what will happen on the economic front. What Trump will do, especially vis a vis Russia, China, Iran, NATO, all of the global institutions; will have major impact. And on the other side, which is very, very important for emerging markets, is what Trump will do on the economics. Now what we hear is fiscal stimulus: basically heavy investment in infrastructure to generate employment. That will create roughly $4tr of new investments, which will mean the budget deficit will increase, Fed will need to take action, interest rates in the US will go up.

What that means is higher dollars, the currencies in emerging markets will depreciate. And it’s a major negative development for all of the emerging markets, including Turkey.

World Finance: What’s the outlook for Turkey specifically?

Yılmaz Yıldız: Turkey has a lot of advantages. The difficulty about Turkey is being in a rough neighbourhood. So what happens in Syria, what happens with the refugee problems, will have an impact. And that will kind of determine the context.

On the economic front, Turkey has a lot of strengths. It’s a very resilient economy, first of all. Demographics: very healthy. Very strong, very diversified economy. And if you look at the past decade, income per head quadrupled.

The biggest strength I think is the fiscal strength. Debt to GDP is around 30, 35 percent; and budget deficit is around one percent. One of the lowest within Europe and emerging markets. That gives the government room to manoeuvre for fiscal stimulus, and to increase investments if and when necessary.

On the negative side, the main point is the current account deficit. Turkey has a sizeable current account deficit, being a net oil and commodity importer. And when the interest rates in the US go up, and dollar strengthens; plus the increase in oil and natural gas prices, creates problems for current account deficit.

And EU developments – what happens with Brexit, and what happens with all those elections – will have a major impact. Because Turkey’s biggest trading partner is the EU. And related to that, the foreign direct investment will be very much shaped by the global environment.

So, Turkey overall has a very resilient, very strong position. The current account deficit and foreign direct investment to finance the growth is something that will need to be watched very carefully, very closely.