Year: 2017

Bitcoin strikes gold

Posted on by Max Tomlin

Just eight years ago, bitcoin was launched as a bold new experiment in digital currency. But, on March 2, the price of a bitcoin exceeded that of a troy ounce of gold for the first time, marking a symbolic moment for the cryptocurrency.

While gold has been a trusted store of value for thousands of years, many parallels have been drawn between the two assets. For one, both owe their value to inherent restrictions on supply. Indeed, the process of creating new bitcoins is even known as ‘mining’, with only a limited supply of new coins built into their design.

Bitcoin has witnessed an impressive surge in recent months, rising in value by 200 percent over the past year

Further, both assets thrive in uncertain times, as investors flee financial markets looking for an alternative store of value. This was evident in 2016, with destabilising political events such as Brexit and the election of Donald Trump resulting in a boost to both assets.

Bitcoin has witnessed an impressive surge in recent months, with its value rising by 200 percent over the past year. Speculators are eagerly anticipating a key decision from the US Securities and Exchange Commission, which will determine whether plans for a bitcoin exchange traded fund can go ahead. An endorsement from the regulator would allow the cryptocurrency to be officially listed, and formally establish bitcoin in financial markets. According to a report by Bloomberg, the final decision is due to be announced on March 11.

The rising value of bitcoin has also been attributed to heightened capital controls in China. Chinese authorities have struggled to support the dwindling value of the renminbi, and have resorted to enforcing measures to control capital outflows. Despite a state crackdown on Chinese bitcoin traders, many see bitcoin’s recent success as a direct result of traders circumventing said measures.

The price of bitcoin is famously volatile, but overtaking gold is symbolic. Many believed a digital currency that lacked official government backing would never be taken seriously in financial markets – but a lot has changed in eight years.

US growth slumps

Posted on by Max Tomlin

The US Commerce Department’s latest data – released the same day as President Donald Trump’s address to Congress ­– paints an underwhelming picture of the US economy. Economic growth slowed in the final quarter of 2016, rising at an annualised rate of just 1.9 percent, compared to 3.5 percent in the third quarter.

The figures put the growth rate for the full year at 1.6 percent; the slowest growth since 2011, and a substantial dip from the 2.6 percent achieved in 2015. Further, the advanced indicator of the trade surplus for January was greater than expected, up to $69.2bn from the $64.4bn posted in December.

Trump’s policy promises have included a large scale stimulus package, which aims to boost infrastructure funding while implementing steep tax cuts

According to the Commerce Department, the dwindling growth in the fourth quarter was largely a result of a downturn in exports, coupled with accelerating imports. It was also put down to a slump in federal government spending.

Counteracting this was an uptick in residential investment, private inventory investment and government spending at a local level.

In an interview with Fox News, Trump claimed his leadership would bring a “revved-up economy”. Trump further emphasised his commitment to achieving significant economic growth: “I mean you look at the kind of numbers we’re doing, we were probably GDP of a little more than one percent and if I can get that up to three or maybe more, we have a whole different ball game… and that’s what we’re looking to do.”

Trump’s policy promises have included a large scale stimulus package which aims to boost infrastructure funding while implementing steep tax cuts. However, raising economic growth to over three percent is a grand claim, and, with little slack in the economy, it is looking increasingly unfeasible.

Further, Trump’s much anticipated address to Congress did little to shine light on the specifics of his proposals. Instead, his speech reiterated a commitment to channelling more spending towards defence, after it recently emerged the administration plans to propose a $54bn boost to military funding.

Australia sidesteps recession

Posted on by Max Tomlin

Australia’s economy has once again turned itself around, with the country posting positive GDP figures and avoiding what could have been the first technical recession in a quarter of a century. The result marks 101 quarters without consecutive declines, just shy of the Netherlands’ record of 103.

Figures released by the Australian Bureau of Statistics show Australia’s GDP grew a seasonally adjusted 1.1 percent in the final quarter of 2016, beating the expectations of many Australian banks. The result lifts Australia’s annual economic growth to 2.4 percent; a figure slightly below the country’s long term average of 2.75 percent and the Reserve Bank of Australia’s stated target of three percent.

Australia has now posted 101 quarters without consecutive declines, just shy of the Netherlands’ record of 103

The figures are largely the result of a surge in household spending, which contributed 0.5 percent of total GDP growth. However, this was contrasted by a 0.5 percent fall in wages, with Australians funding the growth by dipping into their savings.

The country’s household savings ratio fell from 6.3 percent to 5.2 percent, marking the lowest level since 2008. This suggests current growth in consumer spending may not be sustainable unless wages increase. Trade grew by 9.1 percent, largely thanks to rises in the price of coal and iron ore.

The results are a turnaround from the figures posted in September, in which Australia’s GDP contracted 0.5 percent – the first negative quarter in half a decade. The surprise result caught many off guard and prompted fears that Australia’s remarkable streak of consistent growth would soon be ending.

However, in light of these new results, Bloomberg reports the country is widely expected to surpass the Netherlands’ record.

For a detailed look at how Australia has avoided recession for 25 years, read World Finance’s special report on the country’s economic history.

Blockchain poses a threat to your confidentiality

Posted on by Max Tomlin

On February 27, the Bank for International Settlements released a report illustrating the new risks posed by distributed ledger technology (DLT) – the technology behind bitcoin. DLT has hit headlines with its potential to revolutionise the financial landscape by creating huge efficiencies in payment, clearing and settlement activities.

The report noted the disruptive potential of DLT, stating it could “radically change how assets are maintained and stored, obligations are discharged, contracts are enforced, and risks are managed”. However, it also emphasised the operational and security risks the technology brings.

The synchronised system is central to many of the
benefits that can be derived from distributed ledger technology, but could also trigger additional risk

At the heart of the new technology is a system where ledgers are distributed across multiple nodes that can be updated from separate sites. The nature of this synchronised system is central to many of the benefits that can be derived from DLT, but could also trigger additional risks.

According to the report: “Having many nodes in an arrangement creates additional points of entry for malicious actors to compromise the confidentiality, integrity and availability of the ledger.”

As it stands, cryptographic tools underpin the security of current financial architecture and are broadly considered effective. Such tools, like public key cryptography, are widely used today and would be vital in a future involving DLT arrangements. However, according to the report, technological advancements could dent the security of existing cryptographic tools.

The technology could also pose wider risks if implemented on a broader scale, due to the interconnected nature of the financial system. The report investigates possible future configurations and warns a scenario could arise whereby macroeconomic conditions have the potential to trigger a “systemic event”, with severe liquidity demand across the financial system.

Benoît Cœuré, Chairman of the Committee on Payments and Market Infrastructures, said while the technology bears promise, “there is still a long way to go before that promise may be fully realised”.

Cœuré further emphasised: “Much work is needed to ensure that the legal underpinnings of DLT arrangements are sound, governance structures are robust, technology solutions meet industry needs, and that appropriate data controls are in place and satisfy regulatory requirements.”

LSEG unlikely to win approval for €29bn merger

Posted on by Max Tomlin

A proposed €29bn ($30.7bn) merger between the London Stock Exchange Group (LSEG) and Deutsche Börse is under threat after the LSEG warned it was unlikely to receive approval from the European Commission.

As part of their conditions for approving the merger, Brussels-based antitrust regulators have ordered the LSEG to sell its 60 percent stake in the electronic trading platform MTS. However, the LSEG has said this demand is “disproportionate”, and confirmed it cannot commit to selling the Italy-based unit.

[The proposed merger] has come under particular
scrutiny following the UK’s vote to leave the EU

In January, the LSEG agreed to sell part of its clearing business, LCH, to a European rival; addressing EU concerns over competition in the market. While the LSEG said the LCH sale was an “effective and capable” way of managing competition concerns, the group has warned it is “highly unlikely” it will be able to meet the latest EU demands over MTS.

“Taking all relevant factors into account, and acting in the best interests of shareholders, the LSEG board today concluded that it could not commit to the divestment of MTS”, the exchange group said in a statement. “Based on the commission’s current position, LSEG believes that the commission is unlikely to provide clearance for the merger.”

The proposed merger, first announced in February 2016, would create Europe’s largest exchange and provide effective competition to US and Asian rivals in trading stocks and bonds. The UK exchange has attempted to merge with its German counterpart on two previous occasions.

The deal has drawn intense criticism from European politicians and financiers alike, and has come under particular scrutiny following the UK’s vote to leave the EU in June 2016.

On February 26, The Times published an open letter signed by more than three-dozen high-profile financiers, asking Prime Minister Theresa May and Bank of England Governor Mark Carney to delay the merger. The 40 signatories argued the merger could potentially interfere with crucial Brexit negotiations, creating a destabilising effect on the UK economy at a time when strong performance is key.

RBS cuts costs amid £7bn losses

Posted on by Max Tomlin

The Royal Bank of Scotland (RBS) has reported a £7bn ($8.8bn) loss for 2016, prompting a new cost cutting plan that it is hoped will return the bank to profit in 2018. The figure is well above the £2bn ($2.5bn) loss posted by the bank in 2015, and has exceeded analysts’ expectations. This marks the ninth year in a row the bank has failed to post a profit.

“The bottom-line loss we have reported today is, of course, disappointing but, given the scale of the legacy issues we worked through in 2016, it should not come as a surprise”, said RBS Chief Executive Ross McEwan in a statement. “These costs are a stark reminder of what happens to a bank when things go wrong and you lose focus on the customer, as this bank did before the financial crisis.”

The plan will mean a series of cost cutting measures over the next four years and is expected to include branch closures and job losses

Last year’s loss has been attributed, in part, to the bank putting aside funds to deal with penalties for the mis-sale of toxic mortgages in the US. In 2016, the costs associated with the mis-selling scandal totalled £5.9bn ($7.4bn).

Despite this, the bank is still awaiting further punishment, with US regulators expected to hand down the largest penalties associated with the scandal to date. The Financial Times reported the bank has set aside £3.1bn ($3.9bn) to cover the impending fine.

RBS’ recent announcement to restructure its Williams & Glyn business also contributed £750m ($941m) to the loss. Over the years, RBS has invested a substantial amount in efforts to divest itself from this portion of its business, only for it now to be abandoned.

In response, McEwan has laid out a plan to return the bank to profit by 2018. The plan will mean a series of cost cutting measures over the next four years and is expected to include branch closures and job losses. Speaking to the BBC, McEwan emphasised the core businesses of the bank are profitable once one-off charges are stripped out.

RBS’ total losses have now eclipsed the £45.5bn ($57.1bn) it received as a taxpayer bailout during the global financial crisis.

Barclays sees annual profits almost triple to £3.2bn

Posted on by Helen

Barclays has reported a jump in its full-year profits for 2016, with pre-tax profits almost trebling to £3.2bn ($3.99bn). The British bank also confirmed it is now producing positive earnings, swinging from a net loss of £349m ($435m) in 2015 to a net profit of £1.6bn ($1.99bn) for 2016.

Last year proved to be pivotal for Barclays, with the bank engaging in one of the largest restructuring initiatives in its history. In order to focus on its core UK and US markets, Barclays has been steadily selling off overseas assets and scaling back other parts of its business. As part of this ongoing reorganisation, the bank has decided to pull out of Africa, and it still negotiating the sale of its Johannesburg-listed African subsidiary.

Although the bank’s full-year profits look promising, Barclays is also facing a number of costly settlements

CEO of Barclays Jes Staley said: “We are now just months away from completing the restructuring of Barclays, and I am more optimistic than ever for our prospects in 2017, and beyond.”

Since taking over as CEO in December 2015, Staley has set out a new strategic agenda for the bank, focusing on repositioning Barclays as a transatlantic consumer, corporate and investment bank. Under Staley’s leadership, the bank has been reorganised into two major units, with Barclays International dealing with corporate and investment banking, and Barclays UK specialising in local consumers and small businesses. This ambitious business restructuring is due to be completed in 2017, and may allow the bank to return to a more stable financial performance in the near future.

Although the bank’s full-year profits look promising, Barclays is also facing a number of costly settlements. The firm has agreed to pay its African offshoot, Barclays Africa, ZAR 12.8bn ($972m) as part of its separation agreement, as negotiations prove more expensive and time consuming that previously anticipated.

Meanwhile, Barclays is also facing fraud charges in the US, relating to its involvement in the sale of mortgage-backed securities in the lead up to the 2008 financial crash. The US Department of Justice has formally filed a civil lawsuit against Barclays, after the group rejected a settlement offer late last year. While still ongoing, these negotiations are likely to prove costly for the banking giant.

Despite such challenges, the bank struck an optimistic tone in its annual report for 2016, insisting that exiting from non-core markets is the right step for the firm.

In the report, Barclays Chairman John McFarlane said: “Today the group is smaller, safer, more focused, less leveraged, better capitalised and highly liquid, with the customer at the centre of the business. The sale of Africa, the settlement of legacy conduct matters and the exit of non-Core will improve this significantly going forward.”

Restaurant Brands International to buy Popeyes for $1.8bn

Posted on by Helen

After weeks of speculation, Restaurant Brands International (RBI) confirmed on February 21 that it will be purchasing multinational fried chicken chain Popeyes Louisiana Kitchen for $1.8bn, or $79 per share.

According to a press release published on RBI’s website, the offer marks a 27 percent premium of the “30-trading day volume weighted average price” on February 10, the last day of trading before talks of the merger emerged.

The acquisition of Popeyes marks the latest in a string of mammoth takeovers by 3G Capital, a private equity firm that acquired Burger King for $3.3bn in 2010

RBI will finance the deal with $600m cash on hand, together with a commitment from Wells Fargo and JP Morgan for the remaining $1.3bn. Subject to closing conditions and regulatory approvals, the deal is expected to close as early as April 2017.

RBI CEO Daniel Schwartz said in the press release: “Popeyes is a powerful brand with a rich Louisiana heritage that resonates with guests around the world. With this transaction, RBI is adding a brand that has a distinctive position within a compelling segment and strong US and international prospects for growth.”

RBI was formed in late 2014 when Burger King purchased Canadian doughnut and coffee chain Tim Hortons for $11bn. The key motivator behind the merger was Tim Hortons’ potential to expand in the US and further afield. In the short time since the takeover, Tim Hortons has pressed ahead with store expansions, having opened new sites, signed development deals and struck new partnerships in several US states.

Given that fried chicken accounts for 10 percent of the fast food sector, and that Popeyes’ own market share continues to grow, the Louisiana chain also boasts massive potential for serial expansionists RBI.

The acquisition of Popeyes marks the latest in a string of mammoth takeovers by 3G Capital, a private equity firm controlled by wildly successful Brazilian entrepreneur Jorge Paulo Lemann, which acquired Burger King for $3.3bn in 2010. With the likes of Anheuser-Busch InBev and Kraft Foods also under its belt, in a relatively short period of time 3G Capital has marked itself as a force to be reckoned with in the cut-throat world of M&As.

Find out more about 3G Capital and the incredible success of Jorge Paulo Lemann in World Finance’s special report

Alibaba’s Ant Financial invests $200m in Kakao Pay

Posted on by Helen

Alibaba’s digital payments affiliate, Ant Financial, is set to further expand its global presence through a deal with South Korea’s fledgling Kakao Pay. The soon-to-launch service is a mobile finance subsidiary of the hugely popular messaging app, Kakao Talk, and will allow users to make cashless payments from their smartphones.

First launched in 2010, Kakao Talk has fast become South Korea’s dominant instant messaging app, installed on around 97 percent of all of the nation’s smartphones and boasting an impressive 48 million users.

Through  strategic investments, Ant Financial is increasingly looking to position itself alongside PayPal, Visa and MasterCard as a global payments network

While Kakao Talk has long offered certain mobile payment options on its app, last month the firm decided to consolidate its financial services arm into a new company. In addition to supporting digital payments, the upcoming Kakao Pay will also offer more traditional financial services, such as loans, bill payments and financing.

The deal will give China’s Ant Financial a strong foothold in South Korea, and will make it easier for Chinese tourists to use Alibaba’s Alipay app while visiting the nation. With more than 7.5 million Chinese citizens taking a trip to South Korea every year, Alipay usage is set to surge in the east Asian nation.

Ant Financial has been pressing ahead with its overseas expansion of late. The fintech giant is in the process of raising $3bn in debt financing in order to fund an ambitious programme of international investments and acquisitions. Although the group is yet to close on this debt funding round, it has already made a series of significant business moves.

In January, the digital finance firm confirmed it had agreed to buy the US money transfer group MoneyGram for $880m, marking a significant milestone in the company’s international growth plan. The Chinese firm has also recently snapped up a substantial stake in India’s leading mobile payments service, Paytm, and has also invested in Ascend Money, a major Thai fintech company.

Through such strategic investments, Alibaba’s Ant Financial is increasingly looking to position itself alongside PayPal, Visa and MasterCard as a global payments network.

Historically, Ant Financial has been used almost exclusively in China, and has fast become the nation’s leading financial technology company. In its latest round of funding, the company was valued at $60bn, while its digital payments platform, Alipay, has over 450 million active users. The firm is now gearing up to make its stock market debut, with industry experts anticipating an IPO within the next two years.

If Ant Financial begins to enjoy the same success overseas that it has experienced in China, the group could be well on its way to becoming an international payments powerhouse.

Kraft Heinz abandons its $143bn Unilever takeover plan

Posted on by Helen

US food giant Kraft Heinz has abandoned its $143bn pursuit of Unilever, just two days after confirming its interest in the brand. On February 17, Unilever rejected the US firm’s initial offer, insisting that there was “no merit, either financial or strategic” to a deal with Kraft Heinz.

The merger would have been one of the largest in corporate history, creating the world’s second largest consumer goods group and combining a host of popular household brands. Unilever, whose brands include Marmite, Dove soap and Magnum ice cream, is the UK’s third-largest listed company, employing more than 7,000 workers across the country.

The Kraft Heinz-Unilever merger would have been one of the largest in corporate history, creating the world’s second largest consumer goods group

The withdrawal came after UK Prime Minister Theresa May asked senior officials to scrutinise the proposed merger in order to assess whether the foreign takeover bid warranted government intervention. Rumours of the merger were met with anger among UK trade union groups, who expressed fears that the Kraft Heinz megadeal would trigger large-scale job losses at the two companies.

In June 2016, May promised to implement a “proper industrial strategy” to prevent predatory foreign takeovers of UK companies, particularly targeting acquirers that fail to maintain or establish factories in the UK. In 2010, Kraft Heinz’ takeover of UK chocolatier Cadbury prompted a government reassessment of takeover procedures. Shortly after the controversial acquisition, Kraft Heinz backtracked on its promises to maintain Cadbury’s Somerdale factory, announcing that it would instead close the plant.

In the face of brewing political opposition, Kraft Heinz’s billionaire owners retreated from the deal on February 19 – just 55 hours after announcing its ambitious bid. Shares in Unilever initially soared after Kraft Heinz confirmed its interest, but fell by eight percent in the wake of the withdrawal.

Despite Unilever’s firm rejection of the deal, on February 19 the two companies released a joint statement, insisting “Unilever and Kraft Heinz hold each other in high regard”. The statement added: “Kraft Heinz has the utmost respect for the culture, strategy and leadership of Unilever.”

While the two companies cater to the same market, they differ greatly in their approach to business. The Brazilian private equity group that jointly manages Kraft Heinz is dedicated to cost-cutting initiatives, and has gathered an industry reputation for slashing factory jobs. Unilever, on the other hand, stands by its principles of corporate responsibility and environmental protectionism, even when this eats into costs at the company.

Norway plans to chase riskier assets with $900bn oil fund

Posted on by Helen

Norway’s $900bn sovereign wealth fund, which amounts to $171,000 for each Norwegian citizen, has long followed a strict investment strategy wherein overseas investments are restricted to 60 percent stocks, 35 percent bonds and five percent real estate. On February 16, the Norwegian Government proposed a rethink of this approach, putting forward a plan to channel investments towards stocks and away from bonds, which have recently seen dwindling returns.

The proposed change would raise the limit for spending on stocks from 60 to 70 percent, which would amount to a shift of $90bn into equity markets.

The Norwegian Government has put forward a plan to channel investments towards stocks and away from bonds, which have recently seen dwindling returns

According to a government statement: “The expected return on equities exceeds that of bonds, thus supporting the aim of increasing the fund’s purchasing power. At the same time, equities carry higher risks. The proposal to increase the equity share is based on a comprehensive assessment of the recommendations received.”

The Norwegian Government’s plan is based upon a report issued by a government-appointed commission, which warned that if no action is taken, returns on the fund could slump to just above two percent a year over the coming 30 years: “A higher share of equities increases the expected return, and the contribution to the fiscal budget, but also entails more volatility in the value of the fund and a higher risk of a decline in its long-run value.”

The extra risk would have knock on effects for fiscal policy, which would have to adapt to a more unpredictable income.

The government also put forward a proposal to cut the long-running four percent rule that currently restricts the proportion of the fund that is allocated for government spending each year. The governor of the central bank, Oeystein Olsen, welcomed this move. As reported by Reuters, he said: “Fiscal policy must be decoupled from financial assets subject to considerable volatility… The period of rising government spending of petroleum revenues should now be over.”

The plans are still subject to parliamentary approval, and the government would need cross-party support in order to pass the changes. In an interview with Reuters, Finance Minister Siv Jensen appeared positive that the proposals would pass: “My impression is that there is broad agreement for setting a good framework for the management of the fund.”

According to Business Insider, the fund currently owns 2.3 percent of all equity in listed European companies. This could now be pushed up further if proposed changes come into force, resulting in substantial ripple effects for European markets.

Furthermore, the fund owns 1.3 percent of total listed equity worldwide, again demonstrating the impact of Norway’s investment decisions.

EU-Canada trade deal passed by European Parliament

Posted on by Helen

On February 15, the European Parliament approved the EU-Canada Comprehensive Economic and Trade Agreement (CETA) by 408 votes against 254, marking a key milestone for a deal that has been seven years in the making.

The agreement promises one of the most comprehensive tariff reduction packages that the EU has ever achieved in the context of a free trade deal.

In light of CETA’s parliamentary approval, many of the measures – most notably, tariff reductions – will come into force on a provisional basis. However, the national governments of all 28 member states still need to ratify the agreement in order for it to be finalised and implemented in full.

The national governments of all 28 member states still need to ratify CETA in order for it to be finalised and implemented in full

More specifically, the full process of ratification will be necessary for some of the more controversial aspects of the agreement to come into effect. This could present a major stumbling block for CETA, with opposition to the deal holding the potential to dissuade governments from granting their final approval.

In particular, the deal has sparked controversy for its changes to the court system, with protesters arguing it could empower large corporations to write the rules of trade. Concerns have also been raised that it would erode the EU’s commitment to environmental, labour and consumer standards.

Canadian Prime Minister Justin Trudeau has long been a staunch defender of the deal. Upon signing the agreement in October, he argued that people will start to see the deal in a more positive light when the benefits kick in: “Small businesses [and] consumers will start to feel the benefits of this immediately, even before all the 28 different parliaments proceed with their ratification steps.”

However, the process of full ratification could be drawn out for years to come as those opposing the deal turn their efforts toward fighting it on a national level.

If fully enforced, it will eliminate approximately 98 percent of tariffs and save EU exporters an estimated €500m a year in duties. The volume of trade between both sides currently stands at €60bn a year, a sum that could be boosted by 20 percent as a result of the deal, according to EU experts.

Many in the EU celebrated the parliamentary vote as a triumph in promoting openness against a tide of protectionism. Marietje Schaake of the Alliance of Liberals and Democrats said: “With President Trump in the White House, we see a clear change in US policy… Leadership for open economies and societies must come from us in Europe.”

SoftBank strengthens with Fortress acquisition

Posted on by Max Tomlin

On February 15, Japanese tech giant SoftBank announced an agreement to acquire Fortress; marking a drastic shift away from the company’s traditional focus on technology and communications holdings.

Fortress is a prominent private equity firm managing a highly diversified range of assets including private equity, credit and real estate. The acquisition will cost SoftBank approximately $3.3bn, a mark above the private equity firm’s $2.3bn stock market valuation.

The SoftBank Group boasts a global portfolio of companies spanning telecommunications, internet services, artificial intelligence, smart robotics and clean energy technology

The SoftBank Group, led by founder Masayoshi Son, boasts a global portfolio of companies spanning telecommunications, internet services, artificial intelligence, smart robotics and clean energy technology. Son, one of Japan’s richest men, has earned a reputation for his ambitious and unconventional business moves.

The group has a self-proclaimed aim of driving the information revolution, and last year announced the establishment of a $100bn technology investment fund. The vast SoftBank Vision Fund will work in partnership with Saudi Arabia’s sovereign wealth fund, and is expected to invest at least $25bn over the coming five years. The decision to buy Fortress can thus be seen as part of a wider pivot towards asset management.

Son said: “This opportunity will immediately help expand our group capabilities, and, alongside our soon-to-be-established SoftBank Vision Fund platform, will accelerate our SoftBank 2.0 transformation strategy of bold, disciplined investment and world class execution to drive sustainable long term growth.”

Under the agreement, each Fortress Class A shareholder will receive $8.08 per share and may still receive up to two regular quarterly dividends before the deal closes at the end of this year.

SoftBank has affirmed its commitment to maintaining the business model, personnel and culture of the firm. The current leadership of Fortress consists of three “Fortress principals” – Pete Briger, Wes Edens and Randy Nardone – who are set to retain their roles as the deal goes forward.

Son said: “Fortress’ excellent track record speaks for itself, and we look forward to benefitting from its leadership, broad-based expertise and world class investment platform.”

Kuwait’s Islamic banks thrive despite continued economic uncertainty

Posted on by Max Tomlin

Over the course of 2016, we witnessed a major upheaval of the global economic environment. With the UK’s shock decision to leave the EU, the equally unforeseen outcome of the US presidential election, and Chinese growth at its lowest rate in more than two decades, the global economy is facing a challenging and uncertain future.

As the banking industry looks to effectively respond to this ongoing economic and geopolitical turbulence, the challenge of ensuring stability is perhaps most important for the oil-rich Arab states of the Arabian Gulf. The global drop in oil prices poses a significant threat to the Gulf Cooperation Council’s (GCC) crude-driven economies, and so GCC nations have seen a marked change in government spending, foreign investment and implementation of development plans.

Islamic banks are now exploring innovative solutions to enhance their position and deliver the best possible service to a growing pool
of customers

In light of this ongoing oil-related instability, the IMF has dramatically cut its annual economic forecast for the region, reporting GDP growth in the Gulf states slowed to just 1.8 percent in 2016.

Despite such challenges facing the region, one vital element of the Gulf states’ banking industry has continued to thrive: Islamic finance, a system of banking based exclusively on the principles of Sharia law, has been expanding rapidly in recent years. According to the consultancy and accounting firm EY, Sharia-compliant banking grew at an annual rate of 17.6 percent between 2009 and 2013, and is now projected to grow by an estimated 19.7 percent annually by 2018.

This rate of growth far outpaces that of conventional banks, putting pressure on traditional financial institutions to diversify their operations by including Sharia-compliant services. With the Islamic financial market becoming evermore competitive, leading Islamic banks are now exploring innovative solutions to enhance their position and deliver the best possible service to a growing pool of customers.

Staying competitive
As new competitors flood the Islamic finance market, established Islamic banks must reassess their strategies in order to remain at the top of the industry. At Kuwait International Bank (KIB), which became an exclusively Islamic bank in 2007, maintaining a competitive edge has become a major priority, and is set to shape the future direction of the bank.

“The Islamic banking sector is in a constant state of growth and development, and competition is only getting fiercer”, Sheikh Mohammed Al-Jarrah Al-Sabah, Chairman of KIB, told World Finance. “Not only are we seeing an increase in the number of Islamic banking institutions, but there is a definite push among conventional banks to diversify their offerings and enhance their competitiveness by entering the Islamic banking market, with some of them establishing an Islamic banking arm to their business.”

kuwait-bank-fig-1Over the course of its 45-year history in Kuwait, KIB has developed a strong presence in the nation, firstly as the only real estate dedicated bank in the country and more recently as a full-service Islamic bank. Since converting to exclusively Sharia-compliant services in 2007, the bank has paved the way for Islamic finance in Kuwait, establishing a strong presence for the industry in the nation’s financial landscape.

According to EY’s calculations, Islamic banking assets now account for 45.2 percent of Kuwait’s total banking assets (see Fig 1), and this figure is only expected to rise as the industry continues to grow. Yet despite this increasingly competitive market, KIB is confident it can be the Islamic bank of choice in Kuwait for both customers and employees.

In order to reach this ambitious goal, KIB has recently been implementing a comprehensive transformation strategy, designed to revolutionise operations at every level of the bank.

“The changing economic climate and the evolving state of the Islamic banking sector have prompted KIB to adopt a more aggressive approach”, said Al-Jarrah. “With a new, focused strategic outlook, we hope to elevate our presence within the industry and augment our competitiveness.”

This innovative transformation plan is currently being rolled out throughout the bank in three distinct phases. Launched in 2015, the first stage of the new strategy focused specifically on enhancing the bank’s organisational structure. This brought about a significant change in both KIB’s franchise operations and its day-to-day activities. The second phase of the transformation, which was implemented during 2016, aims to develop and enhance the bank’s product and service offerings.

In addition to reviewing the services currently on offer to customers and boosting the KIB product portfolio, this vital stage of the strategy also looks to reinvigorate all internal operations at the bank, in order to maximise effectiveness and efficiency. The final stage of the plan, which is scheduled to take place during 2017, will focus on boosting KIB’s competitive edge within the Islamic banking sector and the wider banking industry as a whole.

By dividing this ambitious transformation plan into three manageable phases, the bank has successfully adapted to the changes to its organisational structure and has, in turn, enjoyed a boost in performance.

“The cornerstone of our strategic plan is our vision of becoming the fastest growing bank in Kuwait”, said Al-Jarrah. “Now, thanks to our transformation strategy, we are well on our way to achieving this goal.”

Strategic success
Since launching its transformation plan in 2015, KIB has gone from strength to strength, reporting impressive growth in a range of key areas. In addition to restructuring its core departments, establishing new business units and divisions, and bringing fresh talent to the executive management team, the bank has also focused on developing its digital banking experience. Recognising the growing importance of an efficient, on-demand banking service, KIB has invested heavily in upgrading its IT infrastructure and its portfolio of Sharia-compliant digital services. This is an investment that appears to be paying off, with the bank reporting a strong overall performance for 2016.

KIB has invested heavily in upgrading its IT infrastructure and its portfolio of Sharia-compliant digital services

“Since the launch of our transformation strategy, we have seen significant growth across a number of crucial areas”, Al-Jarrah explained. “Overall in 2016, we achieved a net profit of KWD 13.5m ($44.3m) at the end of the third quarter, up 15 percent from the same period last year, when profits totalled KWD 11.8m ($38.7m).” The bank also reported strong growth in specific areas such as financing revenues, which rose by 21 percent compared to the same quarter in 2015.

Similarly, KIB’s total assets rose by five percent, to reach a total of KWD 1.83bn ($6bn), compared with KWD 1.74bn ($5.71bn) by the end of the same period the previous year. This impressive performance is also reflected in the bank’s asset quality, with its non-performing loans remarkably decreasing to reach a low of 1.39 percent – down from 4.39 percent for the same period in 2015.

“In addition to our strong and stable financial core, our growth strategy has played a key role in boosting our performance across all sectors”, said Al-Jarrah. “Furthermore, our new, experienced and focused management team has significantly bolstered our continued growth and success.”

Weathering the storm
While the Gulf states have been rocked by a period of economic instability, KIB has enjoyed success against the odds. Indeed, the Kuwaiti bank has fared so well the international credit agency Fitch Ratings recently upgraded KIB’s viability rating, while also reaffirming a stable outlook for its long-term issuer default rating of A+.

By maintaining prudent policies and implementing strategies that minimise risk and promote stability, the bank has managed to achieve strong results despite an uncertain economic climate. With KIB looking towards a promising future, the bank’s continued success reflects the strong overall performance of Kuwait’s thriving baking sector. “Despite the challenging economic circumstances affecting the region, the Kuwaiti banking sector continues to be one of the most important pillars of the country’s economy”, explained Al-Jarrah.

Kuwait’s banks are fortunate to receive ample support and regulatory insight from the government, and in particular from the Central Bank of Kuwait. The country’s central bank has long been a vocal champion of the country’s banking sector at large, providing banks with the support they need to prosper and remain strong in the face of testing economic conditions.

Furthermore, while the slump in crude prices has seen many oil-dependent Arab nations tighten their fiscal policies and resort to debt capital markets to address their budget deficits, the Kuwaiti Government has responded somewhat positively to the sharp fall in prices. Remarkably, decreased oil revenues appear to have motivated the government to diversify its GDP and boost the nation’s market performance by launching a number of innovative development projects.

“This approach to the sharp fall in oil prices not only reflects the government’s commitment to moving ahead with its development plans, but it also signals that capital spending – the main driver of the Kuwaiti economy – will not be affected by the drop in oil revenues”, said Al-Jarrah.

Bolstered by an evolving economy, along with generous government support, Kuwait’s Islamic banks are well positioned to weather the economic storm currently facing the oil-rich Gulf states. With a successful transformation plan now in place, KIB is adapting to this rapidly changing market, forging a competitive edge and solidifying its commitment to become a global leader in Islamic finance.

Political uncertainty sparks 21st century gold rush

Posted on by Max Tomlin

It’s a trend we’ve seen throughout the last decade; political restlessness and financial turmoil has consistently sent investors scurrying for cover under a gold pile. The sub-prime crash in the US housing market in 2008 – and the subsequent financial crises across Europe and Asia – pushed demand for low-risk investments, and the price of gold soared from $850 per ounce in 2008 to a whopping $1,850 in 2011.

By 2013, the EU sovereign debt crisis was in full swing, and investors opted for gold over bonds; pushing the metal over $1600 for the first two quarters of 2013. As the euro continued to plummet against its rivals, the Swiss National Bank reacted by halting the subsidisation of the CHF currency peg to the euro. Again, investors put their faith in gold, driving the price up by $90 in just one day. Scepticism around China’s GDP growth added to market jitters, and the Federal Reserve’s delay in raising interest rates in the US was the icing on the cake. Gold prices stayed high through the end of 2016, as the asset remained a popular choice for traders.

The golden age of trading
Investors looking to mitigate risk over the past few years have created a 21st century gold rush, and as 2017 gains traction, traders are still panning for the precious metal. Uncertainties over President Trump’s fiscal policies and concerns surrounding his protectionist stance have made charting the greenback as much of an art as a science of late, and prudent traders have driven the demand for gold even higher. The Trump inauguration saw the spot metal trading bullish, with the price topping $1220 before falling slightly once Trump had a few days in the Oval under his belt.

With further political uncertainty on the
horizon], markets are likely
to become even more
volatile as the stability of
the eurozone wavers

America isn’t the only economy to experience a change of power this year; France, Holland and Germany all have elections on the horizon. With nationalist parties gaining momentum in France and Holland in particular – and the risk of further referendums on EU membership dawning – the markets are likely to become even more volatile as faith in the stability of the eurozone wavers.

Brexit too, will kick off properly in 2017. Despite the Supreme Court ruling MPs and peers must give their consent before the government can formally roll out Brexit, it is anticipated that the Article 50 deadline will be met at the end of March. While the outcome is not expected to be any different from the referendum, the uncertainty and delay will further unsettle the markets.

Striking gold with forex
It might be measured in dollars, but gold is intrinsically linked to the money supply of countries all over the world. It is the benchmark of the market; deficit spending at a national level will inevitably harm the value of a currency, but gold is a finite resource and it will hold its value regardless. As such, our favourite yellow metal is a permanent fixture of the forex markets.

Many forex investors view gold as the answer to tumultuous trading environments: a reliable asset protected from political and economic uncertainty, and widely accepted as collateral. This safe haven investment is a welcome solution to 2017’s potentially volatile currency markets.

It makes sense, then, that award-winning forex broker FXTM would be among the first to offer its traders the opportunity to invest and store funds in physical gold. The broker is now using London-based BullionVault to deliver a market-leading service to investors throughout the world. This expansion of its services – partnered with the world’s largest online gold investment service – will not only allow traders to buy gold quickly and easily from their MyFXTM account, but will also enable them to utilise that gold as collateral to trade.

This timely addition to an award-winning platform has been well received by FXTM traders. The opportunity to confidently hedge against 2017’s potentially volatile market risks gives them a distinct advantage over competing traders.