Year: 2017

Japanese ad firm Dentsu fined for illegal overtime

Posted on by Ashton Wenborn

On October 6, Japanese advertising firm Dentsu announced it had been handed a JPY 500,000 ($4,426) fine for violating the country’s labour laws, after a Tokyo court found that the organisation had made employees work an excessive amount of overtime.

This is not the first time that Dentsu’s working practices have come under scrutiny. Back in 2015, employee Matsuri Takahashi took her own life after a relentless working schedule. Her death was later ruled as “karoshi”, which translates as “death by overwork”.

Following the recent court ruling, Dentsu admitted that it needed to do more to discourage overworking: “We take this ruling very seriously, and extend our deepest apologies to stakeholders and the general public for the concern we have caused. As a member of society, we deeply regret that we could not fulfil our responsibilities.”

Back in 2015, employee Matsuri Takahashi’s death was ruled as “karoshi”, which translates as “death by overwork”

Karoshi has returned to the spotlight this week, after it emerged that a member of staff at Yokohama-based firm NHK died after working 159 hours of overtime in a single month. The 31-year-old employee passed away in 2013 as a result of congestive heart failure, but authorities revealed this week that her death is being attributed to overwork.

Earlier this year, the Japanese Government unveiled its first-ever overtime limit, imposing 100-hour-a-month cap for all businesses. Although Prime Minister Shinzo Abe described the reform as a “historic step” for the country, labour unions have criticised the move for legitimising overwork.

The decision to fine Dentsu marks the first time that a major Japanese business has been prosecuted for its labour practices. Although financial punishments will help to tackle the issue of karoshi, a much deeper cultural change is required for long-term change to happen.

The image of the hardworking Japanese businessman emerged during the 1970s when the country was undergoing a period of low wages, but it has proven difficult to shake off.

Why ING Hungary refuses to follow in the footsteps of central banks

Posted on by Ashton Wenborn

Today, the most important challenge being faced by the global banking sector is the shift related to accommodative monetary policy. All players in the market have become accustomed to a new world characterised by extremely loose central banks and ample liquidity. It would seem, however, that this trend will come to an end in 2017-18. The Fed has changed its accommodative stance by hiking rates. The European Central Bank has also indicated that sooner or later it will finish its bond-buying programme and begin tightening monetary conditions.

In fact, a number of central banks around the world have recently joined this choir. At the same time, as is always the case, there are some leaning against the wind. However, this wind will be stronger than the one that swept away Dorothy in The Wizard of Oz. At present, the Polish National Bank and the National Bank of Hungary (NBH) are in competition to ascertain which can withstand an accommodative stance longer. Policymakers at both institutions insist that monetary policy will remain loose until the end of 2018, at the least. This is a bold statement indeed, especially as most major central banks are turning the opposite way at present.

Bucking the trend
Some may ask why it is so important for the NBH to keep its dovish stance. There are many reasons: from a long-term perspective, Hungary is facing a challenge it has never faced before. Our economy was built on a skilled, yet cheap and amply available labour force. Unfortunately, this is no longer the case. Hungarian labour is now expensive, with net real wages expected to increase further by double-digit figures in 2017 and 2018. The country is also slipping behind its regional peers in various competitiveness rankings in several areas, such as education.

Hungary – along with the whole Central and Eastern European region – has a labour shortage problem, with unemployment rates close to full employment rates. Against this backdrop, Hungary needs to change its economic culture and focus more on technological progress, as well as capital accumulation. This shift is no longer a luxury or an opportunity – it is now compulsory.

To support this effort, the NBH is keen to keep its accommodative monetary policy alive for as long as possible. This presents a golden opportunity for the banking sector, even within a low interest rate environment. We expect credit activity to pick up as we head towards our ultimate goal.

Hungary needs to change its economic culture and focus more on technological progress, as well as capital accumulation

Hungary is a small, open economy, which is particularly exposed to global external demand. One of the key sources of its competitiveness is its currency, as the relatively cheap Hungarian forint (HUF) helps export companies considerably. In this regard, the HUF is also a key element in monetary policy. If the NBH is opposed to any tightening bias which stems from a global shift, the HUF could weaken, all else being equal.

On the other hand, the fiscal stance of the country is favourable, external exposure of public debt is decreasing, and Hungary has been running a significant current account surplus. The country also has a positive net external financing capacity. These factors combined could help prevent the HUF from massive depreciation.

As such, all signs point towards the notion that a dovish NBH could do well even in a hawkish global environment, and that the HUF will remain stable, as it has done over the past two years, hovering around 310 versus the euro. We hope this performance will enable ING to keep receiving recognition as the world’s best FX forecaster, as was the case in 2015, when it was named Bloomberg’s World’s Best Forecaster, and in 2016, when it was named Best FX Provider by Global Finance.

Set focus
Following four years at ING Amsterdam, where I headed a client network across 20 countries in the European region, I have now taken over as Country Manager, as of January 1, 2017, in Budapest. In terms of the European market, ING Wholesale Banking is among the strongest in the region. That said, I believe the environment is as challenging as always for all players in the country, and in the regional and global scope too.

ING Wholesale Banking in Hungary is, and will continue to be, a strong and important niche player in the Hungarian financial services market, but we have to underline that our approach to the market is very different to that of most other players. First of all, operating as a branch of ING Bank in the Netherlands, we are an A-rated bank in a BBB- environment. What’s more, we work with a wide range of clients in the large corporate sector, focusing particularly on local corporations and international clients. We have also defined four simple promises that together form our ‘customer promise’, which is part of our strategy towards corporate clients.

HUF to EUR rate

August 2015

311.12

August 2016

310.04

August 2017

304.46

Our strategy aims to create a unique customer experience, which is enabled by simplifying and streamlining our organisation, striving further for operational excellence, enhancing performance culture within our company, and expanding our lending capabilities. Our focus is on becoming the primary bank for customers with anchor products, such as lending and transaction services in wholesale banking. We like to think of ourselves as a network bank with global reach for our clients across Europe.

Our pledge
The best way to convey what we are about at ING Bank is to talk about our customer promise. It involves five key phrases that we always strive to fulfil in every single product and service we provide. The first is ‘clear and easy’. Banking doesn’t have to be difficult and time consuming – less is more. We believe it’s all about clear products, plain language, fair prices and simple processes. This saves both time and money. For this purpose, we constantly simplify processes and procedures, and have already benefited from doing so.

Then there is ‘anytime, anywhere’. We work to get our services to where our customers are based. When we started in Hungary, ING was among just a few players in the sector, which meant that relationship managers reached out and visited their clients. At the time, this kind of relationship management was very new. Clients loved it, and it also allowed us to gain invaluable sector knowledge in every branch of the economy. Banking should be possible anytime and anywhere, so we are travelling towards digitalisation in order to deliver state-of-the-art, real-time solutions.

Next is ‘empower’. The best financial decisions are informed decisions. Customers want relevant, up-to-date information at their fingertips. They need to understand their choices, and the implications of those choices, both today and for the future. To this end, we have further developed sector expertise in our local sales teams. These teams serve as trusted advisors to our clients, and have the ING global network at their fingertips. For example, ING Wholesale Banking in Hungary is now a very strong player, with an excellent reputation in the energy sector.

Finally, we have ‘keep getting better’. Life and business are about moving forwards. As such, we keep looking for new ways to make things better and easier for our customers through new ideas, new solutions and new approaches. In this way, we can all stay a step ahead. A recent example of this is when we helped one of our clients – one of the largest companies in Hungary with a global network – to implement a centrally developed SWIFT solution to support their regional treasury operations, making them the first non-financial corporation to apply the most effective treasury solution. In recognition of this feat, the client won the Adam Smith Prize.

Looking ahead
ING recently launched a global and integrated brand campaign for its wholesale banking business, based on the insight that successful client solutions have achieved when combining hard and soft skills. In this age of rapid change and digitalisation, it’s still the versatility and creativity of people that is the real differentiator in the financial industry. The calculation we use is based on market research, whereby clients identify the soft skills of ING’s people, such as commitment, perseverance and dependability, as the key differentiators for doing business with us. Using relevant client issues, in the form of equations, hard and soft skills are combined, which leads to success; this is what we are most proud of.

The strength of our operations is also shown by the fact that we export some of our local talents to ING’s global organisation for short assignments in various countries, which allows them to develop a deeper knowledge of products and processes. This is made possible by free movement in the EU; it enables us to take international know-how back to the country. We are extremely proud of our colleagues who continue developing and, in doing so, help ING to grow further in Hungary.

Banking Awards 2017

Posted on by Ashton Wenborn

In keeping with a more-than-five-year trend in which those slow to change have fallen by the wayside, the banking sector has this year been awash with major regulatory and technological change. Virtually unrecognisable from that of a few years ago, this is a new era for banking: one in which the customer lies at the heart of every decision, and sustainability as opposed to profitability is key. Survival – it seems – rests on the ability of banks big and small to keep pace with the rate and scale of the transformation, and nowhere else is this more visible than among the banks featured in this year’s World Finance Banking Guide.

Banking Guide 2017

Trust in the banking sector has been restored, and customer-centricity has emerged as an absolute requirement if banks harbour any hopes of survival. People – not profitability – can make or break a business, and many a major name has committed to that sentiment in the hope of pushing ahead of its rivals. New operating strategies have emerged to put customers and employees at the centre of businesses, and technology has proven decisive in the sector’s transformation.

Aside from restoring faith in the sector, technology has paved the way for new and innovative names, and while they can hardly compete with industry stalwarts on scale, a technology-first mentality has opened the door to a range of new opportunities. Investment in IT is no longer an option but a requirement for any bank with aspirations of becoming a market leader. And as much as these investments have proven costly, the benefits to both bank and customer cannot be understated.

Elsewhere, a raft of regulatory reforms has done a great deal to redefine the operating environment. While the burden has, for some, proven too much to bear, others have treated this new regulatory system as an opportunity to stand out from the crowd. Of course, the debate over whether these reforms are beneficial at all will rage on, but the overhaul itself is proof of the fact that banking is a changed proposition.

As much as markets have regained a foothold this past year, stability rests in large part on the banking sector and its ability to push money into and around the economy. This is a banking sector that rests on a threefold commitment to customer service, compliance and innovation, without which this new economic landscape would not exist. The guide provided with this issue takes a look at how banking in all its various forms is spearheading these latest developments, and realising a more sustainable measure of prosperity.

As ever, we’ve scoured the globe for the names that have truly set their markets alight and the ones that have not only exceeded expectations, but also delivered where others have failed. Our research team, together with input from our readers, has delved into the markets to find out which individuals and institutions have pushed the envelope and provided the very best in leading financial services.

With our in-house judging panel, we have selected the finest performers of the year – a challenging task with many tightly contested categories. In the supplement, readers will find insight into each of the year’s leading institutions, as well as those individuals who have made a real difference on each continent. Once again, congratulations to our winners, who we hope to see much more of in the months and years to come.

 

World Finance Banking Awards 2017

Best Banking Groups

AntiguaBOI Bank

AzerbaijanPASHA Bank

BruneiBaiduri Bank

ChinaICBC

ArgentinaBanco Macro

BoliviaBanco Mercantil Santa Cruz

ChileBanco de Crédito e Inversiones

CuraçaoBanco del Orinoco

CyprusEurobank Cyprus

EgyptArab African International Bank

GhanaZenith Bank Ghana

JordanJordan Islamic Bank

Dominican RepublicBanco Popular Dominicano

FranceCrédit Mutuel Group

IndonesiaBank Rakyat Indonesia

LebanonBankmed

MacauICBC Macau

MalaysiaMaybank

MexicoBanorte

MyanmarCB Bank

NigeriaGuaranty Trust Bank

PeruBanco de Crédito del Perú

PhilippinesRizal Commercial Banking Corporation

QatarQatar National Bank

Saudi ArabiaSamba Financial Group

SingaporeOCBC

South KoreaWoori Bank

Sri LankaPeople’s Bank

TaiwanMega International Commercial Bank

ThailandBangkok Bank

TurkeyAkbank

UAEUnion National Bank

Best Investment Banks

Brazil BTG Pactual

Bahrain Securities and Investment Company

Canada RBC

Chile BTG Pactual Chile

Colombia BTG Pactual Colombia

Dominican Republic Banreservas

France BNP Paribas

Germany BNP Paribas Germany

Iceland Arion Bank

Italy Mediobanca

Kazakhstan JSC Kazkommerts Securities

Pakistan Habib Bank

Saudi Arabia SaudiMed

Spain Haitong

Sri Lanka CAL

UAE Abu Dhabi Commercial Bank

Best Private Banks

ArgentinaICBC Argentina

AustraliaWestpac

AustriaErste Private Banking

BelgiumVan Lanschot

CanadaBMO Private Banking

ChileBanco de Crédito e Inversiones

Czech RepublicČeská Spořitelna

DenmarkDanske Bank

FranceBNP Paribas Banque Privée

GermanyBerenberg

GreeceEurobank

IndiaKotak Mahindra Bank

ItalyBNL Gruppo BNP Paribas

KenyaStanbic Bank

LiechtensteinKaiser Partner

MalaysiaMaybank

MexicoBanco Ve por Más

NetherlandsING

NigeriaFirst Bank of Nigeria

PeruBBVA Continental

QatarInternational Bank of Qatar

RomaniaErste Private Banking

Saudi ArabiaSaudi British Bank

SingaporeMaybank Singapore

South AfricaInvestec

SpainBancaMarch

SwedenSEB

ThailandKasikorn Bank

UAENational Bank of Abu Dhabi

UkraineOTP Bank

US (East)Brown Brothers Harriman

US(West)Bank of the West

Best commercial banks

VietnamSaigon Commercial Bank

AzerbaijanPASHA Bank

ArgentinaBanco Macro

BrazilBanco Bradesco

ChinaICBC

AngolaBancoSol

BelgiumKBC Bank

CanadaBMO Bank of Montreal

ColombiaBancolombia

Dominican RepublicBanco de Reservas

GhanaAccess Bank Ghana

HungaryING Bank Hungary

ItalyBNL Gruppo BNP Paribas

GermanyCommerzbank

Hong KongHSBC

IndonesiaBank Central Asia

KenyaKenya Commercial Bank

MacauBanco Nacional Ultramarino

MalaysiaMaybank

MexicoBanca Mifel

MozambiqueBanco BCI

MyanmarAYA Bank

NigeriaDiamond Bank

PeruBanco de Crédito del Perú

PhilippinesRizal Commercial Banking Corporation

PortugalActivoBank

QatarAl Khalij Commercial Bank

Saudi ArabiaSaudi British Bank

South KoreaShinhan Bank

Sri LankaSampath Bank

ThailandSiam Commercial Bank

UAEEmirates NBD

USBank of the West

Best Retail Banks

PortugalSantander Totta

AngolaBanco de Fomento Angola

ChinaChina Merchants Bank

EgyptEgyptian Gulf Bank

LebanonBankmed

ArgentinaBanco Santander Río

Dominican RepublicBanreservas

GreeceEurobank

MyanmarAYA Bank

netherlandsABN AMRO

NordicsHandelsbanken

QatarCommercial Bank of Qatar

TurkeyGaranti Bank

NigeriaGuaranty Trust Bank

PolandBank Zachodni WBK

Sri LankaSampath Bank

UAEUnion National Bank

Best Sustainable Banks

BahrainEskan Bank

BrazilEmpresta Capital

EgyptArab African International Bank

MexicoCompartamos Banco

BoliviaBancoSol

ChileBanco de Crédito e Inversiones

KenyaEquity Bank Kenya

MongoliaXacBank

MozambiqueBanco BCI

PeruMiBanco

QatarQatar National Bank

Sri LankaPeople’s Bank

NigeriaAccess Bank

PhilippinesBank of the Philippine Islands

Saudi ArabiaBanque Saudi Fransi

UAENational Bank of Abu Dhabi

Most Innovative Banks

North AmericaCapital One

Latin AmericaBanco de Chile

AfricaGuaranty Trust Bank

AsiaDBS Bank

Middle EastGulf Bank

AustralasiaANZ Group

Indonesia lists first ever start-up IPO

Posted on by Ashton Wenborn

On October 5, an Indonesian e-commerce firm became the first start-up to file for a domestic IPO. Kioson Komersial Indonesia, which aims to build the largest retail network in the country, saw its shares rise in value by 50 percent after making its trading debut on the Indonesia Stock Exchange (IDX).

The highly anticipated IPO saw Kioson sell 150 million shares, 23.1 percent of the company’s total, raising a sum of $3.34m. The fact that the offering was 10 times oversubscribed could prompt other Indonesian tech firms to follow in the company’s footsteps.

“Kioson’s IPO is an important milestone for the Indonesian capital market because this is the first time retail investors can invest in a tech start-up,” said Kioson CEO Jasin Halim. “We thank all parties that have participated and helped Kioson during the IPO process. The success of this corporate action can set a precedent for other start-ups to consider IPOs as alternative fundraising.”

The fact that Kioson’s offering was 10 times oversubscribed could prompt other Indonesian tech firms to follow in the company’s footsteps

Kioson hopes to use most of the money raised by the IPO to acquire Narindo Solusi Komunikasi, an affiliated technology company. The acquisition should enable Kioson to break even by 2018, which will no doubt give the company’s new investors even greater cause for optimism in what is already South-East Asia’s largest economy.

Indonesia’s first start-up IPO has been long overdue, however, as the country’s business sector has been encouraging entrepreneurs to source alternative funding methods for some time now.

Last year, financial regulator OJK issued a new ruling that allowed start-ups to raise as much as $74.6m from IPOs. As a result, it is hoped that larger e-commerce firms like Tokopedia and Bukalapak could also find themselves listed on the IDX soon.

EU takes Ireland to court for failing to recover $15bn in Apple back taxes

Posted on by Helen

The European Commission has announced it will take Ireland to the European Court of Justice for failing to comply with an order to recover as much as €13bn ($15bn) from Apple in back taxes. The body adjudged the country had conceded the tech giant illegal benefits.

The decision to take the country to court was made on October 4, and comes at a time when various EU finance ministers are discussing ways to increase taxes and tighten rules for tech companies. This move was first promoted by France and has been backed in recent months by around 10 countries. It aims to impose heavier taxes on large tech companies, especially those with digital business, such as Google, Amazon and Apple.

The EU aims to impose heavier taxes on large tech companies, especially those with digital business, such as Google, Amazon and Apple

Now, the European Commission is taking a clear step towards tougher regulation by punishing Ireland for not following the bloc’s rules. In August 2016, the comission ordered Apple to pay €13bn ($15bn) in unpaid taxes, setting a deadline of January 3, 2017 for Ireland to recover the amount. But the country failed to take any action, and appealed the commission’s ruling to the European Court of Justice.

However, Commissioner Margrethe Vestager said in a statement released on October 4: “Such actions for annulment brought against [European] Commission decisions do not suspend a member state’s obligation to recover illegal aid… but it can, for example, place the recovered amount in an escrow account, pending the outcome of the EU court procedures.”

The dispute came to a climax last year following a three-year investigation. The probe concluded that “Ireland’s tax benefits to Apple were illegal under EU state aid rules, because it allowed Apple to pay substantially less tax than other businesses”. It continued: “As a matter of principle, EU state aid rules require that illegal state aid is recovered in order to remove the distortion of competition created by the aid.” With regards to this month’s escalation, the European Court of Justice will have the final word.

Real Estate Awards 2017

Posted on by Helen

Warren Buffett once quipped: “Risk comes from not knowing what you’re doing.” The erratic geopolitics of 2017 have established it as an unorthodox and unpredictable year for the real estate sector – one that will not end well for those who are naive and impulsive. Certainly, the unstable backdrop makes it more important than ever to pursue both shrewd and agile strategies. And yet, the broad rules of the game remain the same as ever: to succeed, it takes a calculated approach and a deep understanding of the full range of relevant economic, social, political and technological developments. Effectively, you need to know what you’re doing, and the best will be several steps ahead of the rest.

The winners of this year’s World Finance Real Estate Awards have been carefully selected to represent the leading players in the industry. We have chosen the most impressive companies from across the globe, looking for innovation and talent across all sectors. The winners have achieved outstanding results on the back of rigorous research and astute insights.

Moving on up
Above all, 2017 will be remembered for its rapidly shifting political landscape, as well as the prevalence of historically low interest rates. Against this backdrop, property is being utilised as a relative safe haven when compared with riskier asset classes. This said, the sector at large is also being supported by an increasingly convincing global recovery; at the time of print, the most up-to-date IMF forecast predicts that global output will grow 3.5 percent in 2017, and 3.6 percent in 2018.

From a very broad perspective, improving job markets, increases in wages and flourishing business are all good news for the real estate sector. Notable examples of progress on this front include US unemployment hitting a 16-year low, while Germany is witnessing its highest employment levels since reunification. Japan, meanwhile, has recently seen its job-to-applicant ratio reach an all-time high. Maury Obstfeld, the IMF’s Chief Economist, recently described global economic performance as a “broad-based” recovery, setting an optimistic tone for the sector worldwide.

Above all, 2017 will be remembered for its rapidly shifting political landscape, as well as the prevalence of historically low interest rates

Crucially, those working in real estate will be poised to react to any upcoming changes in interest rates, which in many countries have remained low for almost a decade. Indeed, it appears that central bankers worldwide are drawing up their game plans for a tightening of monetary policy. Such dynamics will have significant implications, and will prompt some important decisions in the real estate sector.

And yet, despite a somewhat turbulent market and the uncertain path ahead for interest rates, confidence in the sector remains relatively high. For instance, Inman’s industry outlook report for 2017 noted that the industry’s top executives were positive about the year. Respondents to Inman’s broader survey also expressed optimism for the future, with 27 percent stating that they were “extremely optimistic”, and 45 percent describing their outlook as “somewhat positive”.

Of course, memories of the 2008 real estate bubble and its subsequent fallout will continue to weigh heavily on the minds of investors. This said, some important lessons have been learnt. Most countries have held on to post-crisis legislation, and stricter bank regulations have gone some way to enforcing discipline on lending. Interestingly, PwC’s most recent trends report for the US speculated that what we are witnessing could be a “kinder, gentler real estate cycle”. It further noted: “In a real sense, the reverberations [from the crash] continue. Real estate transaction volume across the [US has] rebounded, but development remains below historical norms for most property types… Overall, there is a sense that real estate has learned painful but valuable lessons. This time, real estate will not likely be the trigger for a business cycle recession.” In addition, it is important to note that US macroeconomic data implies that there is little sign of overheating.

New disruption
Disruption in the real estate sector is usually restricted by the relatively unchanging rules of brick, steel and concrete. Yet, increasingly, technological advancements appear to be making their mark, and could be driving fundamental change in the sector. Indeed, technology is impacting everything from leasing efficiency to the ways in which spaces are used. For instance, respondents in PwC’s Emerging Trends Europe report noted that they have seen a shift towards shorter leases and flexible segmented leases.

At the same time, there has been a jump in the number of shared office providers who deliver office space as a service, such as WeWork and TOG. According to data from The Instant Group, the flexible office space market is worth $20bn, and it has seen a compound growth rate of 21 percent over the past five years. Summarising this trend, PwC’s report noted: “This is very much a human behavioural shift, the changing way people interact with real estate: it is the emergence of the sharing economy and with it, a focus on access over ownership.”

But this is just one of many ways that technological advances might prove disruptive. Another trend that has attracted a lot of attention recently is the idea of leveraging virtual reality technology to achieve greater efficiency within the real estate sector. More specifically, the technology could be used as a tool for agents to show potential leasers a space: people could be taken on 3D virtual tours of a property, while apps could be programmed to give customers a comprehensive insight into a living space. Such technological leaps will have a broad range of interesting implications for those working in the sector, many of which are difficult to predict.

Ultimately, those in the real estate sector will need to be agile in order to stay ahead of the curve. Not only must they have to carefully navigate sharp changes in the economic climate, but they must also grapple with fundamental shifts in the ways people interact with space. This involves a high level of skill, especially given that competition and disruption could come from all angles. The World Finance Real Estate Awards recognise those who stand out from the competition and are able to drive progress in the sector.

World Finance Real Estate Awards 2017

Europe
Most Sustainable Developer
Turkmall

Best Residential Developer
Aristo Developers

Middle East
Most Sustainable Developer
Diamond Developers

Best Residential Developer
Damac Properties

North America
Most Sustainable Developer
Cadillac Fairview

Best Residential Developer
Holland Partner Group

Latin America
Most Sustainable Developer
G&D Developers

Best Residential Developer
IRSA

Asia
Most Sustainable Developer
Paramount Land

Best Residential Developer
Paramount Land

GCC Investment and Development Awards 2017

Posted on by Helen

Since last year’s awards, an upswing in oil prices has provided some much-needed respite to the economies of the Gulf Cooperation Council (GCC). While oil prices are nowhere close to the highs seen during the commodity-boom of the 2000s, they were substantially boosted by the output cut instigated in December by the Organisation of Petroleum Exporting Countries (OPEC). Since the agreement, the crude price per barrel has hovered at around $50. And yet, the recent price slump has left its mark on the economies of the GCC, and according to the IMF, growth across the region is projected to reach just 0.9 percent this year.

A pick-up in economic momentum is expected to come into force in 2018, however, with aggregate growth forecast to surge to 2.5 percent. Individual growth projections for 2018 stand at 4.4 percent for the UAE, 3.8 percent for Oman, 3.5 percent for Kuwait and 1.3 percent for Saudi Arabia.

Encouragingly, the IMF’s Regional Economic Outlook noted that growth is being supported by a fundamentally strong financial sector, as well as an improvement in the non-oil private sector. Of course, the financial sector always constitutes an important foundation for economic development, but nowhere is this more apparent than across the Gulf economies, where a huge effort in diversification is crucial to securing future prosperity. Against a background of fast-paced change, there are numerous exciting developments in the investment space across all six kingdoms. The World Finance GCC Investment & Development Awards 2017 have carefully selected those that have been most successful in driving development.

The financial sector always constitutes an important foundation for economic development, but nowhere is this more apparent than across the Gulf economies

A taste of vulnerability
This economic momentum in the short term comes as welcome news, but there are still risks on the horizon. Firstly, while the OPEC agreement was a major breakthrough for oil producing countries, the support it has provided to oil prices could still be undermined by producers outside the agreement, such as those in the US. What’s more, geopolitical forces are creating an externally unstable environment, which could prove damaging for those who have investments outside the region, and could also pose a threat to domestic economic dynamics. Indeed, while an increasingly convincing global recovery appears to be materialising, there are countless uncertainties ahead, including numerous trade disputes and political insecurities. What’s more, the outcome of the Paris Agreement will also be a crucial factor in determining the future of finance for those in the Gulf region.

On the domestic front, it is universally acknowledged that the key to economic sustainability and stability in the area is a stringent diversification plan. As was concluded in the IMF’s outcome document for 2016’s annual meeting of Arab Ministers of Finance: “Greater economic diversification would unlock job-creating growth, increase resilience to oil price volatility and improve prospects for future generations. It would also broaden the base for government revenue, thereby reducing the reliance on oil and making the economy more resilient to oil price shocks.”

This vulnerability to price shocks came to a head during 2016, when a sharp dip in commodity prices led to a subdued year for all six economies of the GCC. Saudi Arabia was hit particularly hard, with growth for the year falling to 1.4 percent, down from 4.1 percent the previous year. Across the entire region, the drop in commodity prices not only acted to stifle government revenues, but also had indirect effects on economic conditions across the region due to fiscal retrenchment and lower liquidity levels in the banking sector.

Luckily, the financial sector was able to escape relatively unscathed and looks set to bounce back. According to the IMF’s Regional Economic Outlook: “For the most part, banks within the region are stable, liquid and adequately capitalised. However, given five consecutive years of subdued growth, along with an uncertain outlook, these banks face a challenging environment, particularly with relatively high levels of non-performing loan ratios.”

A vision for the future
While short-term vulnerabilities are being felt at present, it is the long-term prospects of GCC states that are perhaps the most pressing for investors in the region. From a wider perspective, it is vital to foster the growth of non-oil sectors in order to ensure an economic future for the GCC that will succeed even after oil reserves have been depleted. Crucially, a sustainable source of employment and growth must be generated, which will require continued support and financial backing from investors. It will also require a huge policy effort from governments, as the strengthening of institutional frameworks is a necessity in order to unlock the potential private sector.

As the first edition of the World Bank’s Gulf Economic Monitor report notes, a large-scale challenge for the GCC economies is to implement and sustain structural reforms. Over recent years, every country in the region has initiated ambitious visions for the future. Indeed, the UAE’s Vision 2021, the Saudi Vision 2030, Qatari National Vision 2030, Oman’s Ninth Five-Year Development Plan, the New Kuwait 2035 Strategy, and Bahrain’s Economic Vision 2030 all follow a similar thread, placing a heavy focus on the role of the private sector, diversification and targeted investment strategies. Such reforms will prove a vital foundation for the economic climate of the future.

The recent rise in oil prices has led to an improvement in the fiscal position of the GCC states, which appears to have opened up space for greater policy attention to be directed towards more substantive reforms. Several strategic reforms were highlighted by the World Bank’s special focus report: “Key fiscal and public sector reforms include improving the management of hydrocarbon wealth to insulate the budget from volatility in energy prices and to enhance fiscal sustainability, building more effective and inclusive public sector institutions, reconfiguring the way that oil wealth is shared with citizens to strengthen incentives for diversification, and building safety nets to alleviate the impact of reforms on citizens.”

If such reform agendas are credibly implemented, they will act to boost investor and market confidence. What’s more, the World Bank emphasised that a virtuous cycle could be set in motion, bringing a self-reinforcing combination of stronger investment, including FDI, and output growth.

The World Finance GCC Investment and Development Awards aim to celebrate those that are leading the diversification effort and contributing towards the creation of a virtuous cycle of investment and growth. With this in mind, the World Finance team of in-house experts has scoured the industry and consulted a number of indicators to draw up the final list of winners.

 

World Finance GCC Investment and Development Awards 2017

Individual Awards
Business Leadership & Outstanding Contribution to Islamic Finance
Sheikh Dr Khalid Thani A Al Thani
Chairperson & Managing Director of Qatar International Islamic Bank, Qatar

Excellence in Social Development
Sheikha Hanadi Nasser Bin Khaled Al Thani
Founder and Chairperson of Amwal, Qatar

Banker of the Year
Mohammad Nasr Abdeen
CEO of Union National Bank, UAE

Best Financial Lawyer
Sheikha Haya Al Khalifa
Principal Partner at Haya Rashed Al Khalifa Attorneys, Bahrain

Companies
Best Sovereign Wealth Fund
Qatar Investment Authority, Qatar

Best Integrated Solar Energy Company
Qatar Solar Technologies, Qatar

Best SME Finance Programme
Qatar Development Bank, Qatar

Best Private Equity Company
KFH Investment, Kuwait

Best Insurance Company
Tawuniya, Saudi Arabia

Best Transaction Advisory Company
KFH Investment, Kuwait

Best Investment Research Company, Kuwait
KAMCO Investment Company, Kuwait

Best Asset Management Company
KAMCO Investment Company, Kuwait

Best Sharia-Compliant Direct Investment Company
Mohammed Al Subeaei & Sons Investment Company, Saudi Arabia

Best Diversified Investment Company
Mohammed Al Subeaei & Sons Investment Company, Saudi Arabia

Best Socially Responsible Investment Company
Mohammed Al Subeaei & Sons Investment Company, Saudi Arabia

Best Islamic Bank
Kuwait International Bank, Kuwait

Best Customer Acquisition
Kuwait International Bank, Kuwait

Best Retail Bank
Union National Bank, UAE

Best Industrial Development Company
Industries Qatar, Qatar

Best Financial Legal Team
Haya Rashed Al Khalifa Attorneys at Law & Legal Consultants, Bahrain

Best Employee Development
Amwal Qatar, Qatar

Best Investor Relations
Qatar Investment Authority, Qatar

Best Fund Management Company
National Investments Company, Kuwait

Capital.com’s innovation: can artificial intelligence combat behavioural biases?

Posted on by Helen

In spite of the considerable funds that are at stake, trading is one of many domains of human activity to be affected by cognitive biases. What traders believe are valid judgements may in fact be the results of effort-saving mechanisms by the brain. Supposedly rational decisions may stem from mental shortcuts that ignore chunks of information, which can then have a significant impact on traders’ results.

Recent research in behavioural economics has identified dozens of common biases that can impact investment choices and practices. One of the most common is the disposition effect, where traders choose to sell and make profit on shares that have been going up in price for some time, while holding onto shares that are in steady decline, waiting for them to bounce back. Statistically, this does not make financial sense: the shares that are rising in price are more likely to continue to rise in price over the next six months than those in free-fall are to stage a recovery.

In a research paper entitled Do Losses Linger? Evidence from Proprietary Stock Traders, researchers Ryan Garvey, Anthony Murphy and Fei Wu examined how professional stock traders on the Nasdaq are influenced by their recent trading performance. They found that when the traders incur morning losses, their desire to recoup these losses before the close of trading leads them to trade more aggressively in the afternoon. According to the paper: “An analysis of individual trading performance shows that traders who are more influenced by their prior trading losses perform far worse than those who are less influenced.”

When the traders incur morning losses, their desire to recoup these losses before the close of trading leads them to trade more aggressively in the afternoon

Other widespread biases include overconfidence, which leads us to rely more on our own reasonings or feelings than on experts’ accurate investment forecasting, and the status quo bias, which sees investors prefer – sometimes irrationally – to stick to their established portfolio rather than make changes.

According to Viktor Prokopenya, a venture investor and founder of VP Capital: “Human beings are not specifically designed to trade on the financial markets. The evolutionary process has programmed us to strive for survival and nutrition. In comparison, global capital markets are a quite recent invention, and so our behavioural patterns are not adequate for the financial market habitat.”

AI for hedge funds and retail investors
It’s been some time since professional traders first started using computers to assist or even replace them in the increasingly complex global financial markets. Algorithmic trading now accounts for nearly 90 percent of the market, according to research by Morton Glantz and Robert Kissell. While high-frequency trading tools are designed to buy and sell financial instruments in fractions of a second, artificial intelligence (AI)-based models look for the best trades hours, days, weeks or even months into the future.

Many funds are now moving towards true machine learning. Just some of the pioneers in this field are Bridgewater Associates, Renaissance Technologies and the Medallion Fund at Renaissance. The latter has had an annualised return of roughly 35 percent for more than 20 years – one of the best records in investing history, according to investment forum Nanalyze.

Another hedge fund fully run by AI was launched by Babak Hodjat, a computer scientist who helped lay the groundwork for Apple’s Siri. “For me, it’s scarier to be relying on human-based intuitions and justifications than relying on purely what the data and statistics are telling you,” he said in an interview with Bloomberg.

Furthermore, a host of start-ups are also fuelling the AI trend. These include names such as Alpaca, Binatix, Sentient, Walnut Algorithms and Capital.com.

The latter, which launched this year after receiving a $25m injection from two major investors – Prokopenya being one of them – is one of the first to have made AI available to retail investors, whose operations are more influenced by cognitive biases than those of professional teams, according to the company’s COO, Anastasia Akula.

The Capital.com app is similar to the US’ Robinhood or Europe’s Trading212, but has a specific AI-powered function that provides investors with tailored content based on behavioural analysis. Dubbed SmartFeed, this function helps users identify common trading biases and behavioural patterns, and provides them with relevant educational content whenever these biases are detected.

Speaking to World Finance, Akula described the core functions of the app’s AI features: “SmartFeed monitors the user’s trading activity, providing all the necessary data, analytics and educational materials. Analysing this data, the application will identify the cognitive biases that seem to influence the trader’s behaviour, and alert the trader about them. The app can also make financial calculations based on available data and provide educational materials to fix the biases. Thus, users can avoid the mental traps that humans tend to fall into while trading, and make more rational investment decisions.”

Artificial intelligence-based models look for the best trades hours, days, weeks or even months into the future

Akula’s argument has recently been corroborated by Italian researchers who found that by reminding traders of the existence of behavioural biases, their performance on the trading floor tended to improve.

Furthermore, it is important to note that individual traders are often more exposed to the consequences of cognitive biases than professional trading teams. Akula said: “It is a fact that individual traders have approximately the same numbers of profitable and losing trades as professional teams. However, the amounts of lost money are much higher with individual investors as a rule. This is the result of the disposition effect, which is not the case for professional traders. Our technology helps traders to avoid these disproportions.”

Can AI be trusted?
AI can be efficient in trading because of the large volumes of well-structured data available. “Finance does have such data, in contrast with many other sectors where the benefits of AI are overhyped,” said Prokopenya.

However, the recent evolutions affecting social networks, the media, politics and other spheres have also taught us that AI itself can be biased. A study conducted by Tolga Bolukbasi, Kai-Wei Chang, James Zou, Venkatesh Saligrama and Adam Kalai in 2016 noted: “The blind application of machine learning runs the risk of amplifying biases present in data.”

This is not to mention cases of computer trading programs running amok, generating huge losses on the stock exchange, as has happened several times in the world’s largest exchanges.

When asked if she believes that one day AI could replace human brains to such an extent that traders will be able to earn money while sleeping, Akula replied: “I hope this will not happen soon and we will still have our jobs in the sector. But, honestly speaking, the technology is developing rapidly. There are already algorithms that trade autonomously and more efficiently than humans. Our team at Capital.com works effectively to provide our clients with the latest cutting-edge technologies and AI solutions.”

The lesson? To let AI help us make more conscious and informed decisions, without allowing computers to fully replace our brains. Artificial or not, this combination may be the definition of true intelligence.

European Union tightens trade rules to guard against Chinese dumping

Posted on by Ashton Wenborn

EU President Jean-Claude Juncker asserted that “[Europeans] are not naïve free traders” upon announcing a landmark change in EU anti-dumping law. The law will position regulators to guard against cheap Chinese imports should the country be granted market economy status.

Newly introduced legislation will change the way the EU calculates dumping margins for cases where there are “significant market distortions, or a pervasive state’s influence on the economy”.

To determine whether market distortions are taking place, the EU will consider factors such as state policies and influence, the independence of the financial sector, the presence of state-owned enterprises, and any discrimination in favour of domestic companies.

Under previous rules, it would have become much more difficult for the EU to accuse Beijing of illegal trade practices if China were granted market economy status

The rule change preempts a ruling by the World Trade Organisation over whether China should be granted market economy status, as was initially promised when the country signed up to the organisation in 2001.

Under previous rules, it would have been much more difficult for the EU to accuse Beijing of illegal trade practices if China were granted market economy status.

Cecilia Malmström, EU Commissioner for Trade, said: “We believe that the changes [to the legislation] agreed today… strengthen EU’s trade defence instruments and will ensure that our European industry will be well equipped to deal with the unfair competition they face from dumped and subsidised imports now and in the future… With today’s successful outcome, the EU will have an anti-dumping methodology in place which will deal head-on with the market distortions which may exist in exporting economies.”

While the rules are technically country-neutral, and Juncker has underscored that the legislation does not aim to target any particular country, the move could act to add fuel to tensions with China.

A report by Xinhua, China’s official news agency, has argued that the new market distortion principle amounts to underhand trade protectionism.

 

Uber changes board structure in a bid to strengthen its governance

Posted on by Helen

Uber’s board of directors has approved a series of changes in the company’s governance. The move comes after numerous scandals that have threatened the firm’s reputation, including a lawsuit by investors against its former CEO, Travis Kalanick.

The overhaul in Uber’s company structure, which was agreed on October 3, paves the way for an investment from Japan’s SoftBank, estimated by TechCrunch to be worth around $10bn.

As part of Uber’s transformation, six additional directors will be added to the current 11-member board: three independent, one new chair and two more from SoftBank.

The overhaul in Uber’s company structure paves the way for an investment from Japan’s SoftBank

According to The Wall Street Journal, SoftBank invested around $1.25bn in Uber last year, and now it could disburse an additional $9bn in shares from other investors and employees.

Furthermore, decisions taken in Uber’s latest board meeting included the withdrawal of ‘supervoting rights’ for some investors, meaning that from now on, all shareholders will have equal voting power. In practice, this means putting a limit on Kalanick’s influence over the company.

These changes came after Kalanick named two new directors without consulting any other members of the directive group. Kalanick was forced to resign as CEO in June after a series of missteps, including the controversy surrounding the company’s use of ‘Greyball’ software, which helped drivers avoid controls and accusations of sexual harassment.

In addition, the company’s new CEO, Dara Khosrowshahi, is facing trouble in London, where transport authorities recently decided to withdraw Uber’s licence. Furthermore, on October 2, the company’s London-based Regional General Manager for Northern Europe, Jo Bertram, stepped down from her position. According to the Financial Times, Khosrowshahi, who was appointed in August, is personally trying solve these issues.

In addition to these challenges, Uber’s board now faces a new trial: on October 3, the board set a deadline to make the company public by 2019.

Shell cancels sale of Thai gas subsidiaries

Posted on by Ashton Wenborn

On October 4, Royal Dutch Shell announced that it has cancelled the sale of its two subsidiaries in Thailand. Shell Integrated Gas Thailand (SIGT) and the Thai Energy Company (TEC) were due to be sold to the Kuwait Foreign Petroleum Exploration Company (KUFPEC) for $900m in the first quarter of this year.

The deal would have amounted to a sale of shares in the Bongkot gas field, located on an island in the Gulf of Thailand. Collectively, SIGT and TEC held 22.222 percent equity in the Bongkok field, with PTT Exploration and Production owning 44.445 percent and Total 33.333 percent.

Shell confirmed that the decision to cancel the sale was the result of an overly long negotiating process.

Shell confirmed that the company is satisfied with its current divestment programme, meaning that the motivation to sell shares in its Thai gas field was reduced

“Although Shell and the Thai Government have worked together closely and collaboratively on the matter, the different interpretations of the treatment of share sale transactions were not resolved within Shell and KUFPEC’s agreed timeframe,” a Shell spokeswoman told Reuters. “Therefore, both parties jointly decided to terminate the transaction.”

When the sale was initially announced, pressure had been mounting on Shell to reduce debt following the acquisition of multinational petrochemical firm BG Group in 2016.

However, Shell confirmed that the company is satisfied with its current divestment programme, meaning that the motivation to sell shares in its Thai gas field was reduced.

The British-Dutch organisation is aiming to make $30bn of divestments between 2016 and 2018, with $25bn already either in progress or complete.

Shell’s renewed commitment to its South-East Asia portfolio was confirmed after the company declared that SIGT would participate in the upcoming licensing round to expand the Bongkot concession.

The recent fall in oil prices  has perhaps led the firm to place greater emphasis on Thai subsidiaries, which continue to be a profitable part of its operations.

Bancomext: a trendsetter for Mexican banks

Posted on by Ashton Wenborn

This year marks two decades since Mexico transformed its pension system. In line with recommendations from the World Bank, the model was reformed from a pay-as-you-go, defined benefit system, whereby individuals were given lump sums at retirement to a fully funded, private and mandatory defined contribution scheme.

This change meant that both individuals and their employers could start making small and regular contributions, revolutionising retirement for the Mexican population while also creating a new and burgeoning market for the country.

Until this change was made, there were no institutional investors in Mexico, nor any asset managers. Two decades on, however, and the investment landscape in Mexico is incredibly different. Today, the country’s largest pension fund is Banco Nacional de Comercio Exterior – also known as Bancomext – a state-owned development bank with assets under management worth $35bn.

This year is a noteworthy one for the industry for another reason: Bancomext celebrates its 80th year of operations. During this time, Bancomext has led the way for Mexico’s pension market and pushed the economy into new international investments. Of its recent milestones, there is one that stands out in particular.

In a bid to strengthen its capital ratio and help improve the country’s trade prospects, on August 4 2016, Bancomext launched a historic issuance of subordinated capital notes. World Finance spoke with the CEO of Bancomext, Francisco González, about his company’s country-first bond issuance, and what this means for Mexico’s economy.

What was the motivation behind Bancomext’s recent decision to issue $700m of Tier 2 subordinated preferred capital notes?
Since 2012, Bancomext has experienced a strong and healthy growth in its loan portfolio. In order to preserve a healthy capital ratio, the management team at Bancomext decided to explore different plans of action to either reduce the loan portfolio through schemes such as securitisation structures, or to increase the capital ratio through the issuance of market and Basel III-compliant capital instruments.

Eventually, a decision was made to opt for the issuance of a Tier 2 capital instrument, which was denominated in US dollars. Hence, the issuance would not only strengthen the bank’s capital ratio, but also hedge it against movements in the peso/dollar exchange rate.

The bank’s capital was exclusively denominated in Mexican pesos, while the loan portfolio is primarily denominated in US dollars. Bancomext is proud to say that this deal won the World Finance Corporate Finance Award for Quasi-Sovereign Deal of the Year 2017.

How did the deal come about?
A contest was created among several potential banks based on their experience in arranging and selling these types of hybrid notes. The other two banks in the running were Credit Suisse and BBVA.

No Mexican development bank had ever issued a capital instrument before, therefore several meetings took place with Mexico’s banking authorities and the Ministry of Finance, before the structure and provisions of the subordinated notes were defined and ultimately authorised.

It took about six weeks to prepare the documentation, and then, on August 3 2016, five teams from Bancomext set off on a roadshow to New York, London, Boston, Los Angeles and Mexico City. The following day, Bancomext announced a $500m 10NC5 subordinated preferred capital notes offering (Tier 2). Given the high demand and excellent reception that it received, the deal was upsized to $700m.

What’s more, the price was tightened from the initial 337.5 basis points to 300 basis points over the five-year UST, for a final coupon of 3.80 percent and a yield of 4.032 percent.

Why did it prove to be such a big hit with investors?
In October 2015, the bank had issued a $1bn 10-year note, after being absent from the international markets for almost 11 years. This transaction put Bancomext’s name back in the minds of the most important institutional investors worldwide. It was because of this that the market was expecting a new issue from the bank.

Bancomext has led the way for Mexico’s pension market and pushed the economy into new international investments

Furthermore, the ambitious one-day roadshow at five of the world’s most important financial centres, which exposed our offering to key investors, proved to be a great marketing strategy. Investors were given so little time to decide that they rushed to place orders exceeding $3.7bn. This total came from just 230 investors. In other words, the transaction was oversubscribed by almost eight times the amount originally announced.

What did the deal and its success mean for Bancomext?
The positive effect for our bank was twofold. We were able to increase our capital from 11.4 percent to 19 percent. Additionally, considering that 70 percent of our assets are in dollars, the injection of capital in dollars enabled the bank to offset any devaluation or movement from the exchange rate.

In addition, the offering provided a natural FX hedge for the bank’s capital ratio, which was exposed to movements in the peso/dollar exchange rate. As a result, the capital notes denominated in US dollars helped to minimise such exposure.

The success of the deal confirmed Bancomext’s reputation in international capital markets as a solid credit. It also demonstrated its ability to reinforce its presence within the international investor community.

Why do Bancomext subordinated capital notes have strong demonstration value to quasi-sovereigns around the world?
State-owned development banks usually depend on the resources provided by their federal governments. Such resources may not be sufficient for the bank’s growth. Also, they may not comply with its mission of providing finance for the country’s continued development.

Therefore, by accessing capital markets to raise capital-related funds, development banks can reduce their dependence on federal funding, while increasing their capacity for providing financing support to the population.

What did this deal mean for the market in Mexico and the wider economy?
As mentioned before, Bancomext’s transaction represents the first subordinated note issued by a Mexican development bank. In addition, it attained the lowest ever coupon for any subordinated capital instrument by a financial institution in Latin America.

There are other Mexican development banks owned by the federal government, with different market niches. As the precedent has now been set, those Mexican banks, along with others in Latin America, could replicate Bancomext’s Tier 2 benchmark notes in order to enhance their own capital ratios.

What long-term opportunities does the deal present, both to Bancomext and the Mexican market?
With its 10-year $1bn senior note due in 2025 and its 10NC5 $700m subordinated note due in 2026, both of which were oversubscribed at issuance, Bancomext has demonstrated how well received it is in international markets. Given this success, the bank plans to maintain its presence in these markets through additional issuances of debt instruments in the future.

The Mexican long-term debt capital market has now become an important liquid source of funding for banks and corporations in the country. In fact, there is a well-developed investor base for local subordinated notes. Although only commercial banks have issued peso-denominated subordinated notes in the local market, other state-owned development banks could replicate Bancomext’s Tier 2 structure to raise capital in pesos.

What key lessons did Bancomext learn during the process? What advice would Bancomext give to other issuers?
For the issuance of its Tier 2 capital notes, Bancomext received the support of the Mexican banking authorities, as well as that of the Mexican central bank. Undoubtedly, such support was crucial during the design phase of the notes’ financial structure.

It is therefore extremely advisable for any banking institution in Mexico seeking to issue similar securities to work very closely with the Mexican authorities. It is vital to obtain their sponsorship and assistance throughout the process to ensure the bank’s ultimate success in such endeavours.

What can markets expect to see from Bancomext in the coming year?
Bancomext is planning to keep its presence in the local and international debt capital markets. In fact, in addition to the traditional dollar markets, the bank is also now exploring the possibilities of entering other regional markets, such as the Taiwan Formosa market, the China Panda market, the Norwegian NOK market, and the Suisse CHF market.

AIG sheds ‘too big to fail’ label

Posted on by Ashton Wenborn

Federal Reserve Chair Janet Yellen has released a statement defending the recent decision to remove American International Group’s (AIG’s) ‘too big to fail’ label. The judgement, which will lessen the regulatory burden on the company, was the outcome of a tight vote from the US Financial Stability Oversight Council. With a two thirds majority necessary to remove the label, six members of the council voted in favour of the ruling, while three voted against it.

The move comes almost a decade after the company was rescued from the brink of collapse by a taxpayer bailout worth $185bn, and has come under fire from those who believe that the company is still large enough to cause widespread damage should it collapse.

The size, scale and concentration of AIG present a threat to financial stability in the US

Council member Melvin Watt – who voted against the ruling – argued that it was “premature and unwise”, while Richard Cordray, who leads the Consumer Financial Protection Bureau, said the size, scale and concentration of the company presents a threat to financial stability in the US.

In the face of criticism over the decision, Yellen argued that the financial system would be able to handle any fire sales that might result from the company’s collapse: “Since the financial crisis, AIG has largely sold off or wound down its capital markets businesses, and has become a smaller firm that poses less of a threat to financial stability. For example, it has reduced its assets by more than $500bn, wound down its Financial Products division, and sold off its mortgage insurance company.”

She also implied that part of the justification for the move was to create an incentive for other systemically important institutions to downsize. “The possibility of de-designation provides an incentive for designated firms to significantly reduce their systemic footprint,” she said.

Exxon loses top spot in energy rankings to Russian Gazprom

Posted on by Ashton Wenborn

For the first time in 12 years, ExxonMobil is no longer the world’s top energy firm according to a list published on October 2. The 2017 S&P Global Platts Top 250 Global Energy Company Rankings confirmed that Russian business Gazprom is the new number one, knocking Exxon down to ninth place.

The changing of the guard is partly the result of volatile oil prices, which have hit producers like Exxon particularly hard. In contrast, utility firms have been able to record relatively stable profits, as have pipeline companies, which generally rely on more long-term revenue streams.

“The bigger story this year is not who is at number one, however,” explained Harry Weber, a senior natural gas writer at S&P Global Platts. “Germany’s E.ON shooting up 112 places to number two from number 114 for the last year is something that reveals the broader trend for utilities making further inroads due to stable cash flows and strong returns on invested capital.”

Utility firms have been able to record relatively stable profits, as have pipeline companies which generally rely on more long term revenue streams

As highlighted by the new rankings, the rise of E.ON makes for a particularly interesting reading, with the company spinning off its fossil fuel assets last year. As a result, E.ON’s revenue plummeted but its return on invested capital increased by 35 percent, resulting in a stronger ranking overall.

The list, which takes into account return on investment, asset worth, revenue and profit, also revealed a number of other worldwide trends. The natural gas sector in the US is performing strongly, for example, with the production of new gas-fired plants and increased pipeline capacity ensuring that current demand is being met.

When it comes to the new industry leader, the rise of Gazprom, which placed third last year, indicates that the state-controlled firm has been able to weather Russia’s recent economic troubles.

The company’s enhanced showing will raise further questions about whether sanctions, like those recently imposed by the US, are an effective way of applying pressure on the Kremlin.