Author: Helen

World Finance Digital Banking Awards 2016

Posted on by Helen

The banking sector has long been accused of being too slow to adapt to the world around it. Indeed, until recently it was seen as perfectly adequate for a bank’s digital offering to comprise only basic internet banking and hastily flung together mobile services. These products are now widely available and are not in keeping with the increasing digitalisation we see across the globe. And, perhaps more significantly, they are not engaging with the changing technological interests of the consumer.

The Millennials are here, as if anyone needed further reminding, and this demanding, tech-savvy bunch will make up 72 percent of the global workforce by 2025, according to an EY report. This generation, we are told, want to pay for their lattes via Apple Pay and grab a slice of pizza with bitcoins. There are no doubt elements of hyperbole when it comes to the Millennial discussion, but nonetheless it is clear the world’s digital appetite is expanding. Banks need to acclimatise now, or face being left out in the cold.

Over the past 12 months, this rapid digitalisation has presented both challenges and opportunities for those within the banking sector. Those capable of exploiting these circumstances and avoiding the pitfalls have and will gain enormous benefits. These are the firms we are celebrating in this year’s World Finance Digital Banking Awards.

The 2016 Digital Banking Awards highlight those banks and other organisations that have altered their strategies and perfected the balance between technology, finance and customer service. We now briefly examine the trends and upheavals these companies have had to navigate in what has been (to say the least) an unpredictable financial year.

A new banking platform
The consumer demand for all things digital, combined with less stringent regulations and a general public scepticism of bankers, have all contributed to one of the most significant digital banking trends in recent years – the emergence of digital-only banks. Strategy& described these new firms in its European Banking Outlook 2016: “These banks distinguish themselves by extensive digitisation [sic] of customer service as well as all downstream and back-office processes.” Essentially, these new entrants have no bricks-and-mortar premises, with all activity conducted through a dedicated mobile app.

These start-ups are plugging a digital void and challenging traditional banking systems. According to Strategy&: “End-to-end digitisation [sic] is essential as banks compete against agile and disruptive market players.” Existing firms should take note of their progress.

A shift in regulation following the 2008 financial crisis has made this trend particularly apparent in the UK. At the time, the Bank of England recognised “vicious circles” were making it near impossible for new entrants to establish themselves in the banking sector. As a result, it developed new authorisation processes in April 2013 to remove “excessive barriers”.

In 2015, Martin Stewart, a Bank of England Director, said there were “no magic ingredients for success”, but recognised a change in those applying for banking licences. He explained: “We expect this trend to continue over the next few years, particularly where there is a gap in the market – whether it be the service they provide, the customers they target, the products they sell or the technology they use.”

Digital-only banks seemed to tick these boxes, and soon enough, in April 2016, Atom Bank became the first of these exclusively app-based banks to gain a licence in the UK. This Durham-based start-up said it was building a bank with “lots of heart and plenty of soul” – perhaps a dig at traditional banks tarnished by the financial crisis – and claimed to be “the future of banking, available today”. It boasts features such as the ability to name your own bank and access the app via facial recognition, as well as better interest rates, which it can offer due to the reduced overheads from not having any physical branches. Another digital-only player, Monzo, gives the user intelligent notifications, such as information on exchange rates and fees when their smartphone recognises they have travelled abroad.

Obviously it is still early days for these new entrants, and there are doubts as to whether these features will be enough to make disillusioned customers flock from their existing, traditional banks. Nevertheless, the innovative approach of such start-ups has certainly been enough for existing industry players to take notice, and acts as a reminder to all banks of the need to expand digitally.

The role of fintech
Spanish banking giant BBVA has gone down the route of ‘if you can’t beat them, join them’ – or rather, if you can’t beat them, acquire a 29.5 percent stake in them, as it did with Atom before it had even launched last year. The Financial Times valued Atom at £150m ($185m) following the move and reported of rumoured interest in Monzo from industry stalwart Lloyds.

The increasing number of partnerships or acquisitions between traditional banks and fintech firms represents another big trend of 2016. According to a 2016 KPMG survey, over $12bn has been invested in the fintech market in the past five years, while the number of fintech firms valued at more than $1bn has tripled in the past 12 months alone. By joining forces with start-ups, traditional banks can release themselves from the burden to improve their own dated IT systems and utilise digital systems set up especially for that purpose.

KPMG identified consumer lending as a particularly active area for partnerships in this regard, with 51 percent of banks in its survey having already partnered with a firm for creating consumer or business loans. “Banks should continue to invest in, align or partner with these innovative tech start-ups that offer banks immediate agility, flexibility and speed to the market”, the report advised. “Such coupling gives banks the advantage of both digitising the experience while leveraging their own legendary ability to foster personalised relationships.”

However, despite these positives, it may not all be smooth sailing. As a recent McKinsey report pointed out, banks and fintech companies will “have to reconcile differences in corporate culture that can limit the upside from such mergers”. Trust in financial firms dwindled in 2008, and while fintech firms and new entrants will certainly have different values, getting the balance right will be vital.

Transformative approach
This is not to say firms must team up with other companies in order to succeed. Australian bank Westpac has taken on the challenges of the digital age, and transformed its focus to great success. “We speak internally about the concept of being a digital sixth sense for our customers”, Travis Tyler, General Manager of Consumer Digital at Westpac told The Guardian.

Meanwhile, Bank of America has seen a gradual increase in usage of its digital channels, with its Q3 2016 results showing an increase to 33.7 million online banking accounts and 21.3 million mobile users. This increase has seen it ranked as the best American firm for online and mobile banking functionality by Forrester and Keynote respectively.

In 2016, President of the World Bank Group, Jim Yong Kim, said: “We find ourselves in the midst of the greatest information and communications revolution in human history.” This is something our 2016 Digital Banking Award winners have recognised. They have adjusted their strategies to adopt and accept technological change while dealing with challenges from new entrants and avoiding the security issues and uncertainty that have plagued the digital sphere of late. This has endeared them to the digital consumer and gives them a distinct advantage heading into the future.

World Finance Digital Banking Awards 2016

Europe
UK
Best Digital Bank: Citi
Best Mobile Banking App: Citi Mobile UK

France
Best Digital Bank: Credit Mutuel
Best Mobile Banking App: Credit Mutuel Mobile

Italy
Best Digital Bank: Fineco
Best Mobile Banking App: Fineco

Spain
Best Digital Bank: Caixa
Best Mobile Banking App: La Caixa

Portugal
Best Digital Bank: Activobank
Best Mobile Banking App: AB

Germany
Best Digital Bank: Fidor Bank
Best Mobile Banking App: Fidor Bank

Middle East
Jordan
Best Digital Bank: Arab Bank
Best Mobile Banking App: Arabi Mobile

Oman
Best Digital Bank: BankDhofar
Best Mobile Banking App: BankDhofar Mobile Banking

Kuwait
Best Digital Bank: Gulf Bank
Best Mobile Banking App: Gulf Bank Mobile Banking

Qatar
Best Digital Bank: Qatar International Islamic Bank
Best Mobile Banking App: QIIB Mobile

Saudi Arabia
Best Digital Bank: Saudi Hollandi Bank
Best Mobile Banking App: SHB Mobile App

UAE
Best Digital Bank: Mashreq Bank
Best Mobile Banking App: Snapp

Asia
China
Best Digital Bank: Standard Chartered Bank
Best Mobile Banking App: SC Mobile

Myanmar
Best Digital Bank: CB Bank
Best Mobile Banking App: CB Bank Mobile Banking

Singapore
Best Digital Bank: Standard Chartered Bank
Best Mobile Banking App: SC Mobile

Hong Kong
Best Digital Bank: HSBC
Best Mobile Banking App: HSBC Mobile Banking

Malaysia
Best Digital Bank: CIMB
Best Mobile Banking App: CIMB Malaysia

Thailand
Best Digital Bank: Bangkok Bank
Best Mobile Banking App: Bualuang iBanking

Indonesia
Best Digital Bank: Bank Danamon Indonesia
Best Mobile Banking App: D-Mobile App

India
Best Digital Bank: Axis Bank
Best Mobile Banking App: Axis Bank 2.0

Philippines
Best Digital Bank: BDO Unibank
Best Mobile Banking App: BDO Mobile Banking

North America
US
Best Digital Bank: Wells Fargo
Best Mobile Banking App: Wells Fargo Mobile

Canada
Best Digital Bank: Scotiabank
Best Mobile Banking App: Scotiabank Mobile Banking

Latin America
Mexico
Best Digital Bank: Grupo Financiero Imbursa
Best Mobile Banking App: Banco Imbursa

Brazil
Best Digital Bank: Banco Itau
Best Mobile Banking App: Itau 30 Horas

Colombia
Best Digital Bank: Banco Popular
Best Mobile Banking App: APK

Peru
Best Digital Bank: BCP
Best Mobile Banking App: Banca Móvil BCP

Argentina
Best Digital Bank: BBVA Banco Frances
Best Mobile Banking App: Banca Móvil AR

Chile
Best Digital Bank: Banco de Chile
Best Mobile Banking App: Mi Banco de Chile

Africa
Nigeria
Best Digital Bank: Standard Chartered Bank
Best Mobile Banking App: Breeze

World Finance Wealth Management Awards 2016

Posted on by Helen

In the past 12 months, financial markets across the world have been plagued by uncertainty. Whether we have been facing seismic political activity, the threat (or freedoms) bequeathed by technology, or the changing demographics of the high net worth market, we currently find ourselves in a position few would have predicted this time last year.

Unfortunately, uncertainty does not sit well with investors or those within the wealth management sector. This is something recognised by Ken Fisher, Chairman of US wealth management firm Fisher Investments, which itself has $71bn in assets under management. He once wrote in Forbes: “Hundreds of investors ask me questions each year about the dilemmas they confront. Their worst problem? Uncertainty. They are traumatised and become emotional or confused to the state of inaction. Even worse, they try to solve a short-term problem in a way that hurts them financially in the long run.”

The ability to deal with uncertainty and the resulting nervous investors, therefore, are vital characteristics for any wealth management firm. Indeed, these are traits that World Finance’s 2016 Wealth Management Award winners have perfected, having shown an ability to seamlessly adjust to changes in the market, no matter how unpredictable. Amid the trials and tribulations of the past year, just some of which we examine here, these companies have seen opportunity, and put themselves and their clients in a better position as a result.

Political earthquakes
The financial markets suffered not one but two political earthquakes in 2016, both of which had – and will continue to have – massive implications for wealth management worldwide. These were, of course, Britain’s decision to leave the EU and Donald Trump defeating Hillary Clinton in the race to become the next US president.

Following June’s unexpected Brexit result, the stock market was plunged into chaos and the outlook, for many, seemed bleak. Markets then recovered somewhat, offering glimmers of hope for future growth, but a recent report has thrown the cat among the pigeons once more.

Credit Suisse described the UK as “the main loser” of the year in its Global Wealth Report 2016, revealing household wealth fell by $1.5trn as a direct consequence of the referendum result. “The impact of the Brexit vote is widely thought of in terms of GDP, but the impact on household wealth bears watching”, said Michael O’Sullivan, Chief Investment Officer of International Wealth Management at Credit Suisse. “Wealth per adult has already dropped by $33,000 to $289,000 since the end of June. In fact, in US dollar terms, 406,000 people in the UK are no longer millionaires.”

These revelations will do nothing to comfort investors – or Prime Minister Theresa May, for that matter, as she battles to initiate the two-year process to leave the EU. For now, with Brexit plans up in the air, markets in the UK will continue to be unsettled, which means wealth managers should prepare for more turbulence and must consider multiple outcomes.

Across the Atlantic, Donald Trump’s victory was hailed as ‘Brexit Part II’ by some observers, and they can perhaps be forgiven for such suppositions: the odds of a Trump win were 3:1, as with the Brexit vote; global markets saw an initial slump following the election, as with the Brexit vote; and former UKIP leader Nigel Farage was found gallivanting around with a smug look on his face, as with the Brexit vote. Markets in the US, however, recovered rapidly, and today American wealth managers see cause for optimism.

“Trump was the outsider who represents uncertainty, which always creates volatility in the markets”, said CEO of deVere Group, Nigel Green, following the election. “Savvy investors will know and capitalise on the fact the shock result will, despite the recovery of the markets, still create some key buying opportunities due to Trump’s protectionist rhetoric during his campaigning.”

Green went on to explain how some sectors, such as mining and oil, would be set for a boon, assuming Trump follows through on his promises to limit environmental laws. In addition, potential tax cuts for high net worth individuals and corporations could help boost investment. And so, rather than celebrating into the night, the shrewd wealth manager should already have been planning their next step.

The rise and fall of robo-advisors
One thing that was predicted in 2016 was the continued rise of robo-advisors in the wealth management sector. These are firms that utilise client survey data and complex algorithms in order to provide asset allocations and customised financial services for clients. Early signs were positive for such companies: industry heavyweight BlackRock had set the pace in 2015 by acquiring digital-based FutureAdvisor, and Atlanta’s Invesco followed suit by acquiring automated Jemstep in January 2016. Allianz then purchased a stake in Italian robo-advisor MoneyFarm in September. Meanwhile, in the past two years, Vanguard, Fidelity and UBS have all began to roll out their own digital services inspired by the rise of robo-advisors.

Nonetheless, a large number of robo-advisors have struggled to make an impact this year, casting doubt on Citigroups’s 2015 estimate that they could manage assets of $5trn in the next decade. London-based Nutmeg, an online service designed to ‘democratise wealth management’, epitomises this struggle – it is still making a loss, despite receiving a further £30m ($38m) of investment in November 2016. “Disrupting an exclusive industry was always going to be a tough challenge, but it is one that we relish”, Nutmeg CEO Martin Stead said while announcing the latest round of investment.

Arguably, the fact investors have shown such faith in Nutmeg, regardless of its lack of joy thus far, is a positive for the robo-industry going forward. But not all UK firms can be as positive as Stead. Wealth manager SCM Direct estimated that an average robo account would need 11 years to break even. “UK robo-advisors are wired to lose money, and most will go bust before acquiring the sizeable assets under management to ensure their sustainability”, SCM claimed in a report entitled The Sense and Sensibilities of UK Robo Advice.

Changing the face of wealth
SCM’s findings fuel the debate as to whether these new firms are capable of penetrating the high net worth market at all. “We see the advent of robo-advice as an example of automation improving the productivity of traditional investment advisors, and not a situation where there is significant risk of job substitution”, Citigroup stated in its Digital Disruption report. “Higher net worth or more sophisticated investors will, in our view, always demand face-to-face advice.”

While this may be the case now, the make-up of the high net worth is changing, and wealth managers will need to adapt to the new demographics eventually. One hugely influential factor in this regard will be the retirement of Baby Boomers, who will likely transfer their wealth to their children. Deloitte identified this as one of its ‘10 disruptive trends in wealth management’ and said it will initiate the largest wealth transfer in history.

“Over the 55-year period from 2007-2061, $58.1trn is expected to move from one adult population to another”, Deloitte’s report revealed. “Historically, wealth transfers from one generation to the next have resulted in 90 percent of heirs changing advisors, presenting both an opportunity and a major threat for WM firms.” Assuming wealth does transfer in this way, the new breed of high net worth individuals may demand more than just face-to-face services, and so those to embrace technology and adjust their offering could benefit later on.

There has been a great number of obstacles for wealth managers to navigate in 2016, and with a shroud of uncertainty still looming over the global markets, there will evidently be further challenges to come in the next few years. Our Wealth Management Award winners are well placed to deal with unpredictability and can look forward into the unknown full of confidence.

World Finance Wealth Management Awards 2016

Europe
Germany
Deutsche Bank

UK
Barclays Wealth Management

France
BNP Paribas Banque Privée

Portugal
Santander

Spain
Santander

Italy
BNL Gruppo BNP Paribas

The Netherlands
Handelsbanken/Optimix

Belgium
KBC

Luxembourg
UBS

Austria
Erste Private Bank

Switzerland
BMC & Partners

Poland
BGZ BNP Paribas

Czech Republic
SOB Private Bank

Estonia
Zenith Capital Management

Africa
Nigeria
Standard Bank Wealth

Ghana
The Royal Bank

Mauritius
Warwyck Private Bank

North America
US
Merrill Lynch Wealth Management

Canada
BMO Wealth Management

Bermuda
Clarien Bank

Latin America
Argentina
Puente

Brazil
BTG Pactual

Mexico
BBVA Bancomer

Bahamas
CIBC FirstCaribbean

Middle East
Saudi Arabia
Riyad Capital

Kuwait
KFH Investment

Qatar
Qinvest

UAE
FGB Wealth

Asia-Pacific
Russia
UBS

Armenia
Unibank Prive

Hong Kong
Citibank

Singapore
Maybank Private Wealth

Philippines
Metrobank

Thailand
Kasikornbank Private Bank

Taiwan
King’s Town Bank

China
China Merchants Bank

Malaysia
Maybank

India
Kotak Wealth Management

South Korea
Woori Bank

Australia
Westpac Private Bank

Finance industry takes its first major step towards embracing blockchain

Posted on by Helen

On January 9, the Depository Trust and Clearing Corporation (DTCC) announced it will move its database to a new distributed ledger framework, marking the first major rollout of blockchain technology in the finance industry. The move could signal a turning point in the industry, for which blockchain technology has long been hyped as holding transformative potential.

Work on DTCC’s new system is to begin later in January, and is anticipated to go live as soon as 2018. The project is a large-scale collaborative effort, and has received input and guidance from a broad range of market participants, including Barclays, Citi, Credit Suisse, Deutsche Bank, JP Morgan, UBS and Wells Fargo.

Blockchain has never before seen a practical implementation to such a critical part of the financial industry’s infrastructure

IBM has been selected to lead the initiative, and will carry out the move in partnership with two start-ups specialising in blockchain technology: Axoni and R3. Greg Schvey, CEO of Axoni, said: “Deploying distributed ledger technology in production at this scale is a watershed moment for the industry.”

The collaboration will transform the DTCC platform that currently processes credit default swaps. According to Schvey: “The combination of technology and business expertise being contributed to this project from across the participating firms is unparalleled, and the benefits are clear.

Blockchain’s unique technology creates a database that keeps a record of all past transactions. It can reduce the complexity of managing securities by cutting out the need for various processing capabilities and the related reconciliation costs. In particular, it means eliminating outdated processes where information is entered into numerous databases in different ways.

According to a press release from DTCC: “The solution will enable DTCC and its clients to further streamline, automate and reduce the cost of derivatives processing across the industry.”

While it is largely undisputed that blockchain has the potential to be a revolutionary technology, it has never before seen a practical implementation to such a critical part of the financial industry’s infrastructure. The database in question is the DTCC’s massive Trade Information Warehouse, which handles a total of $11trn worth of credit default swaps, according to Reuters.

The project is thus a key move in testing the waters for blockchain technology, which looks set to become an increasingly prominent feature of the finance industry in the future.

World Finance Legal Awards 2016

Posted on by Helen

The global law sector is facing a period of transition. Traditional bricks-and-mortar firms are struggling to cope with an incoming wave of alternative business models, and top fee-earners are either sinking or swimming based upon their ability to embrace technological advances in the field. The demand for law services isn’t expanding as quickly as supply in many international markets, and, as a result, many firms are finding it increasingly difficult to retain talent.

The UK’s 50 largest law firms achieved a sixth consecutive year of revenue growth in 2015-16. According to Legal Week: “Together, the 50 firms brought in a total of £18.24bn [$23bn], up from £17.45bn [$22bn] in 2014-15 – an increase of 4.5 percent.” While the UK market is not the be-all-and-end-all for the legal industry, it does suggest resilience worldwide. The UK is currently at the forefront of political and economic uncertainty following its vote to leave the EU in June. From Austria to Italy, the US to the Philippines, similar electoral upsets have caused disruption to the way companies are conducting business. If the UK’s legal industry can weather the storm, other regions should also be optimistic.

As Legal Week noted: “[In the UK], total lawyer numbers climbed to 48,176, with partner numbers nudging up 1.3 percent to 13,795. Driven in part by moves to bring more partners into the equity to meet recent [HM Revenue and Customs] tax changes, equity partner numbers soared 15 percent, with Taylor Wessing and Shoosmiths converting to all-equity partnerships during the period.”

While many smaller firms have crumbled under the weight of big-name paralegal debutantes, it was the dynamic firms – the ones that addressed the key issues facing the industry head-on – that achieved undeniable success. Firms are finally capturing a degree of scale through consolidation, and they are embracing new, cutting-edge IT systems, which are in turn revolutionising an industry that has largely gone unchanged for two centuries. If the sector continues to respond favourably to such changes, it will be a tremendously exciting time for the global law industry.

Despite economic uncertainty and financial anxiety, the world economy is broadly performing well. The US has maintained strong growth, driving the wider economy. As a result, global firms – particularly those in the US – have witnessed a considerable spike in business. But because of the intensive financial constraints and activity restrictions being placed upon international businesses, in-house legal teams have taken a major beating. General counsels have been forced to shed jobs left, right and centre, opening up the door for professional law firms to take on contractual work that companies no longer have the time or resources to complete.

The post-recession era is one of tightening regulation, particularly for financial services. Increasing regulation and compliance oversight surrounding life-or-death facilities, such as financial reporting, has meant European firms need more legal advice than ever before. And for this, they are willing to pay.

Paralegal presence
One way firms successfully trimmed costs in 2016 was by developing a lower and more variable cost base aligned to the activity levels of various clients. Yet by and large, global firms have mostly been able to drive profitability through an increased reliance on paralegals. So-called ‘non-solicitor lawyers’ are taking on more work than ever before, and over the course of the last year their role in the sector has continued to evolve. Paralegal firms cost less, and the typical billing rates prove an invaluable saving against the valuable time of costly fee earners.

In cases where more stringent legal credentials are required, European firms have begun subcontracting an unprecedented amount of work to regional bases. Legal process outsourcing companies have also exploded across southeast Asia, and have earned a sterling reputation over the past couple of years for their ability to take on commoditised matters more efficiently than many domestic firms because of their highly systemised (and often automated) frameworks.

Going lateral
Lateral hires have continued to increase in the legal industry. According to the Legal Executive Institute: “Since 2010, lateral partner moves have increased by 36 percent, and in 2014 — the biggest year for partner hiring since the recession — more than 50 lateral partners were hired each week by AmLaw 200 firms.” In particular, US firms are carrying out lateral hires in London.

According to Legal Week: “Research into recent recruitment trends by international firms in London has found the group brought in over 20 percent more partners in 2015 than the year before, with total partner numbers climbing by six percent across the group year-on-year.”

Recent research seems to confirm this enormous cost for lateral hires. Again according to the Legal Executive Institute: “ALM Legal Intelligence estimates these hires cost those firms an estimated $1.3bn in compensation alone. Lateral hiring of partners may be sexy, but it’s also extremely costly.”

Meanwhile, firms are investing more than ever in traineeships in order to foster young talent and capitalise on a degree of corporate allegiance. A vast majority of opportunities are still created at international partner firms and regional bases in a bid to cater to young hires keen on habitual changes of scenery. In order to make those traineeship programmes bear fruit, global firms have become utterly reliant upon establishing new relationships.

New business models
In recent times, dozens of non-sector firms have taken their first sorties into the global law sector. Using alternative business models, insurance giants, TV loan companies and even high street banks have introduced a range of new legal services to compete with old-fashioned, bricks-and-mortar law firms. Some smaller firms are experiencing huge losses in ordinarily reliable revenue streams like conveyancing services as a result.

Other law firms, however, have responded in kind by finally choosing to invest in infrastructural upgrades capable of competing with those alternative models. Particular emphasis is being placed on IT. Firms are continuing to push for infrastructure upgrades that ensure all staff members have secure access to case-critical information even when off company premises. Furthermore, new metadata technology is providing firms with higher predictability on costs, which means they have a more controlled grip on outgoing expenditures. As cultural shifts continue to press demand for IT-savvy services, law firms are finally battling to stay relevant. That’s bringing in more business, and it’s also cutting costs.

Overall, the global law sector has enjoyed a profitable, albeit tough, 12 months. The World Finance Legal Awards celebrates the firms that successfully navigated this uncertain industry to achieve greater highs than ever.

World Finance Legal Awards 2016

Best Law Firm
Clifford Chance

Best Tax Lawyer
Prof Dr Alexander Hemmelrath

Best Litigator
Al-Twaijri Law Firm

Best Arbitration Law Firm
Al-Twaijri Law Firm

Best Infrastructure Legal Advisor
Erdem&Erdem

Best Insolvency and Restructuring Firm
Deloitte Brazil

Best Transfer Pricing Firm
Deloitte Brazil

Best Project Finance Law Firm
Herguner Bikgen Ozeke

Best Banking & Capital Markets Law Firm
Esin Attorney Partnership

Best Boutique Law Firm
Litwak & Partners

Best Cross-Border Firm
Ernst & Young, Mozambique

Best Private Equity Law Firm
Bonn & Schmitt

Best Corporate and Commercial Law Firm
Andrioli, Giacomini Porto E Bandeira De Mello Sociedade

Best Lawyer
Gregory P Joseph

Manufacturing in Mexico a no-go for US automobile companies

Posted on by Helen

The US arm of automobile manufacturer Fiat Chrysler announced on 8 January a $1bn investment into the “retooling and modernisation” of two of its manufacturing plants in the US Midwest. The factory upgrades of the plants in Michigan and Ohio aim to create 2,000 new US jobs by 2020, and will focus on the production of three new Jeep SUV and pickup truck models. The production of the Ram pickup truck will also be moved from Mexico to the US.

Fiat’s CEO and architect of the company’s merger with Chrysler, Sergio Marchionne, announced in 2014 his intentions to step down in 2018 following the completion of the company’s five-year strategic plan. This latest billion-dollar investment forms part of the design, and fits into the latest series of factory changes that were announced by Fiat Chrysler back in July 2016.

Donald Trump’s pro-growth policies are an additional consideration for companies in the US automobile market

The move comes in response to decreasing demand for small and medium-sized cars. With gas prices remaining relatively low in recent years, US consumers’ preference has shifted away from sedans and hatchbacks, prompting Fiat Chrysler to focus on the expansion of its truck and SUV production.

The migration to bigger vehicles is a positive consumer shift for automakers, according to Adrienne Roberts of the Wall Street Journal. She said that SUVs and pickup trucks “command higher price tags and deliver bigger profits in the US”, particularly “at a time when several other global markets are under pressure and development costs are rising due to regulations and a move to more autonomous vehicles”.

Donald Trump’s pro-growth policies, including his proposed ‘border tax’, are an additional consideration for companies in the US automobile market. Ford Motors, who in January this year scrapped a $1.6bn plan to build a factory in Mexico in favour of investing in a plant in Michigan, has referred to ‘market conditions’ as a key motivating factor behind the decision.

Ford’s CEO Mark Fields described the move as “a vote of confidence in what we think the president-elect is going to pursue”. He also said: “It’s right for our business.”

Vehicle production has become a thorny political issue between Mexico and the US following the presidential election in 2016, with Trump vocalising his opposition to companies producing cars in Mexico for export to the US. Trump publicly condemned companies, including General Motors and Toyota, for continuing the practice, while also announcing an impending border tax on companies. In January 2017, he tweeted:

Though Fiat Chrysler’s move will be a blow to Mexico’s already struggling economy, it does not signal the end to the country’s automobile manufacturing. Companies such as Volkswagen, Ford and indeed Fiat Chrysler will continue to produce smaller numbers of small and medium-sized cars in manufacturing plants across Mexico.

Additionally, on 9 January – in stark opposition to Fiat Chrysler – BMW announced a $1bn investment plan into one of its manufacturing plants in Mexico.

The impact that shrinking manufacturing options in Mexico will have on competition does nevertheless raise a number of questions. As a recent report from the Mexican Ministry of Economy highlighted: “Compared with the United States, Mexico offered [in 2016] reductions of 12.3 percent in manufacturing costs of auto parts, 16.3 percent in metal components, 9.8 percent in precision components and 15.2 percent in plastics supplies for the industry.”

With Mexico’s strong involvement in free trade agreements and low duties, it is in a highly competitive position globally. Should US gas prices rise or the Trump administration reconsider its free trade agreement participation, even despite a burdensome ‘border tax’, companies may no longer consider the US to be the economic haven it is currently perceived as.

Venezuela raises minimum wage by 50 percent amid spiralling inflation

Posted on by Helen

Nicolas Maduro, President of Venezuela, has announced a 50 percent hike in the country’s minimum wage. The oil-rich country currently faces the worst inflation rates in the world, with the IMF forecasting that it will reach 1,600 percent in 2017.

The latest official figures were released in 2015, judging inflation at 181 percent. No official data has been released for 2016, but the political opposition has claimed it was above 500 percent.

The IMF has forecast that Venezuela’s inflation rate will reach 1,600 percent in 2017

Maduro, successor to Hugo Chavez, made the announcement on his weekly TV and radio programme. He said: “To start the year, I have decided to raise salaries and pensions.”

The hike in minimum wage marks the fifth rise over the course of the past year, bringing the total cumulative increase to 322 percent since February 2016. The minimum monthly salary has now reached 40,683 bolivars, which is approximately $12 at the black market rate, according to Reuters.

The low price of oil – Venezuela’s key export – have hurt the country’s finances over recent years. The economy is now facing a third consecutive year of steep recession, and has seen severe shortages of basic goods including food and medicine. While Maduro’s critics blame his policies for the spiraling crisis, he continues to point the finger elsewhere. In the same announcement, Maduro said: “In times of economic war and mafia attacks… we must protect employment and workers’ income.”

The decision to increase minimum wage will do nothing to target the underlying problems behind Venezuela’s inflation crisis, however. José Guerra, opposition politician and member of the National Assembly Finance Committee, criticised the move, claiming that it would ultimately trigger even higher inflation. He said that, in response to the rise, the Central Bank would simply print more money. He claimed via Twitter: “This has already been studied.”

Chaos ensues following gas and diesel price hikes in Mexico

Posted on by Helen

Citizens have taken to violent protests in the streets of Mexico following days of unrest caused by gas and diesel price hikes in the country. The announcement of the price deregulation, which would lead to an increase in the price of diesel by 16.5 percent and gasoline by 20 percent, came on 1 January 2017. With high inflation and a weak peso, a gallon of gasoline now costs Mexicans the same as a day’s wage on minimum pay.

The country faced fuel shortages and panic fuel stockpiling in December. Hostilities then escalated in the New Year with demonstrators looting shops, blockading highways and forcing service stations to close. Since the price surge was announced, more than 600 people have reportedly been arrested and 170 stores have closed.

A gallon of gasoline now costs Mexicans the same as a day’s wage on minimum pay

The deregulation strategy involves the government ending subsidies and letting the market dictate prices. It is part of the energy reform passed two years ago by President Enrique Pena Nieto, which established 90 different tariff zones where prices are allowed to fluctuate. Officials have said the approach is necessary to cover shortfalls in the federal budget, which traditionally relies on oil revenues.

With economists forecasting Mexico’s GDP to expand a meagre 1.7 percent this year, the government faces a tough year of policy decision-making for a restless population.

The Mexican President, in a television address to the nation, admitted the energy price decision was an unpopular measure, and that he empathised with the angered public. He nevertheless defended the move as necessary and responsible for the long-term wellbeing of the nation. He claimed that the move is “a responsible measure consistent with what I have decided is a priority for our government to preserve our economic stability”.

However, economic stability won’t come easily for the nation, with infrastructure presenting a major hurdle for progress. The national oil company, Petroléos Mexicanos (Pemex), has struggled with supply issues, pricing and maintenance concerns for years. According to Reuters, Pemex will face further budgetary cuts of around $5.36bn, while its refineries are currently only running at around 60 percent of their 1.576 million barrels-per-day capacity.

Corruption also remains a persistent disruption to development: fuel theft due to illegal taps in the pipelines that carry gas to central parts of the country is big business for organised crime groups. Estimates put the value of losses caused by criminal behaviour at $1.4bn a year.

Nevertheless, there is a silver lining to this dark gas cloud: as the 11th biggest consumer of gas globally, deregulation in Mexico will result in an opening in the market to foreign companies for importation, asset ownership and competition. It is a renaissance for the industry and a big opportunity for international investment.

For the Mexican economy, raising fuel prices will also mean filling the gaps in the budget with previously lost opportunity costs. Selling a commodity at below market price to the populace has been common practice among many oil-producing states. Mexico’s decision to move away from this practice will allow the government to halt these losses, albeit at the dismay of those who can no longer afford the goods.

Economically, the move will create a boost to the struggling economy – politically, however, the effects may be short lived. Given the growing dissent expressed towards Nieto, the ramifications of his decision-making may result in rising prospects for populist opposition leader Andrés Manuel López Obrado in the 2018 presidential elections.

Coca-Cola sued for alleged misleading advertising

Posted on by Helen

On January 4, a lawsuit was filed against the world’s largest beverage company, Coca-Cola, claiming it made misleading claims to consumers. Non-profit organisation Praxis Project has accused both the beverage giant and the American Beverage Association of downplaying the health risks of sugary soft drinks in order to bolster sales.

Such marketing has continued apace in spite of scientific evidence that proves the link between high-sugar beverages and various afflictions, including type 2 diabetes, obesity and cardiovascular diseases.

Coca-Cola has been accused of promoting the idea that obesity is caused by a lack of exercise, as opposed to what we consume

Coca-Cola has also been accused of promoting the idea that obesity is caused by a lack of exercise, as opposed to what we consume, through the use of ambiguous phrases such as “calories in, calories out” and “balance”, which are allegedly promoted to children in particular.

It is this point Praxis Project has focused on in its lawsuit, claiming Coca-Cola lures in customers from a young age in order to encourage them to develop a lifelong habit. The organisation stated in its complaint: “Coca-Cola needs to replenish the ranks of its customers, and it tries to recruit them young.”

In the lawsuit filed in an Oakland, California federal court, Praxis Project likened Coca-Cola’s marketing strategy to that of the tobacco industry in days gone by. Not only does Praxis Project accuse Coca-Cola of promoting products to children, it also argues that, like tobacco corporations, the firm seeks to undermine scientific evidence that has revealed the harmful consequences of consuming its products.

This is but the latest blow to Coca-Cola and the industry as a whole, as regulatory hurdles against soft drink producers continue to increase around the globe. Most recently, the UK enforced a sugar tax that is intended to put off customers, joining a growing list of countries including Mexico, Hungary and France.

The trend is also gaining ground in the US, with cities including San Francisco and Chicago also implementing a similar taxation based on the grounds that soft drinks have a disproportionate impact on residents’ health.

Morocco launches Islamic banking services

Posted on by Helen

Morocco has become the latest Muslim-majority country to authorise Islamic banking. The central bank announced on 2 January 2017 the approval of five banks to provide Sharia-compliant products and services.

The new legislation uses the wording ‘participatory’ banking, rather than ‘Islamic’ banking, in a bid to encourage private firms to operate independently from the question of religion.

So far, 2017 has seen the approval of five requests to open Islamic banks in Morocco

Three of the five newly authorised institutions are leading national banks: Attijariwafa, which is linked to the royal family; state-owned Banque Centrale Populaire; and private-owned BMCE Bank of Africa. CIH Bank and Credit Agricole du Maroc were also given approval to begin operating Islamic financial services.

The Bank Al-Maghrib, Morocco’s central bank, has also given approval for the subsidiaries of three leading French banks – Societe Generale, BNP Paribas and Credit Agricole’s Islamic Development Bank – to sell Islamic products.

The central bank’s decision fulfils a longstanding promise by the Islamic party-led coalition, which had been delayed due to reticence over engaging in the politically sensitive issue. Four years after the Rabat campaign made its initial promises in 2011, the legislation was finally passed, authorising independent Islamic institutions. In addition, 2015 saw the creation of a board within Morocco’s Supreme Council of Islamic Scholars to oversee the conformity of financial products and services to Sharia law.

So far, 2017 has seen the approval of five requests to open Islamic banks in Morocco, while further proposals directed to the central bank are likely over the coming months. It is also expected that 2017 will see the issuance of the first ever Islamic bond in the domestic market

Key features of Islamic banking include a prohibition on interest, an emphasis on ethical standards that embrace moral and social values, and the overarching principle of fairness when handling liability and business risk. The system’s popularity in many North African and Middle Eastern countries stems from the less speculative nature of its products.

During the past few decades, the Islamic banking industry witnessed sustained growth that resulted in its total asset size exceeding $2trn. Islamic finance is operational in over 75 countries worldwide, and its robust performance has attracted a wide range of major multinational financial institutions.

At present, Morocco’s financial market lacks liquidity and foreign investment. The introduction of Islamic banking should therefore help increase financial inclusion, investment stability and accelerate economic development for the nation. It has also been predicted that there will be a rise in the use of contactless payments and Sharia-compliant credit cards.

These efforts to facilitate access and harmonise finance signposts Morocco’s path toward becoming an important economic crossroad between Africa and the rest of the world. It is also an important development for the global Islamic finance industry, as its rapid expansion over the past decade has seen a surge in interest from both Muslim and non-Muslim countries.

Value of Bitcoin soars to three-year high

Posted on by Helen

The price of Bitcoin reached a three-year high of $1,000 on the first day of trading in 2017, marking a strong start to the year for the digital currency. Bitcoin’s value rose by 125 percent in 2016, outpacing its central bank-issued counterparts to become the best performing currency of the year.

Increased demand for Bitcoin in China – where the majority of global Bitcoin trading takes place – is thought to have bolstered the currency’s value. While its price rose impressively in 2016, the Chinese renminbi fell by seven percent during the same year, marking the Chinese currency’s worst annual performance in more than two decades.

Increased demand for Bitcoin in China is thought to have bolstered the currency’s value

Bitcoin, which is used exclusively in web-based transactions, provides customers with a way to move money across the globe quickly and anonymously. The surge in Bitcoin usage in China has led experts to speculate that Chinese customers could be using the cryptocurrency to get around capital controls and strict government regulations that restrict money from leaving the country.

There are currently around 15 million Bitcoins in online circulation, with 12.5 new Bitcoins added to the system every 10 minutes. The total value of all Bitcoins in circulation is now at a record high of more than $16m.

The value of Bitcoin has been somewhat volatile since its launch in 2009. In 2013, the digital currency was trading at a high of $1,000 until the Tokyo-based Mt Gox Bitcoin exchange was hacked, sending its value plunging to less than $400.

While the present price remains just shy of Bitcoin’s all-time high of $1,216.70, which was set in 2013, the currency’s soaring value could see its strong run continue long into the New Year.

Bank of Japan releases optimistic outlook

Posted on by Helen

On December 20, the Bank of Japan announced that policy rates would stay put, in addition to releasing forecasts for a rosier future for the economy. The bank’s statement predicted a “moderate expansion” of the economy and that domestic demand would continue its positive trend, with “a virtuous cycle from income to spending being maintained in both the corporate and household sectors”.

While an improved outlook could signal an end to Japan’s era of expansive monetary policy, commentators
remain hesitant

Despite administering a large-scale monetary stimulus, the bank continues to grapple with extremely low inflation, which is currently around zero percent. This struggle appears to be coming to an end, however, with new forecasts predicting that inflation will reach its target of two percent in the medium to long term.

The bank will continue to apply its negative policy rate of -0.1 percent, with long-term interest rates remaining at “around zero” percent. Furthermore, the scale of monetary stimulus is to remain steady, with government purchases of government bonds, equities and corporate bonds to continue at a yearly pace of JPY 80trn ($679bn), JPY 6trn ($50m) and JPY 3.2trn ($30m) respectively.

The improved outlook has been attributed in part to expectations that exports will increase in response to healthy overseas economies. Domestic demand is also expected to receive a further boost due to the continued effects of the government’s fiscal stimulus, as well as positive financial conditions. The bank appeared optimistic about the nation’s business outlook, noting that business fixed investment is on an upward trend due to high corporate profits and improved business sentiment.

While this improved outlook could signal an end to Japan’s era of expansive monetary policy, commentators remain hesitant. According to the Financial Times, Bill Adams, Senior International Economist at PNC in Pittsburgh, said: “Until Japan shows signs of a sustained and self-reinforcing cycle of rising wages and consumer prices, the Bank of Japan will leave policy in its current, highly expansionary stance.”

It is therefore unsurprising that the bank did not hint at any future tightening of policy, with its statement claiming that the monetary stimulus would continue “as long as it is necessary for maintaining that target in a stable manner”.

Ukraine nationalises largest bank

Posted on by Helen

PrivatBank, Ukraine’s largest deposit holder, has been nationalised in full after being declared insolvent by the National Bank of Ukraine. On December 18, the Cabinet of Ministers of Ukraine approved the takeover, leading the government to acquire 100 percent of the bank’s shares.

The state is to contribute to the recapitalisation of Privatbank and take on full control of its operations, with Ukraine’s former finance minister Oleksandr Shlapak taking over as president of the bank.

Privatbank currently holds the deposits of 20 million Ukrainian citizens, making up almost half of the Ukrainian population

A joint statement by the Ministry of Finance of Ukraine and the National Bank of Ukraine claimed: “This move will ensure the security of funds and savings deposits placed with this bank, help avert systemic risks to the banking system, and will pave the way for preserving financial stability in the country.”

The bank currently holds the deposits of 20 million Ukrainian citizens, making up almost half of the Ukrainian population. Notably, this includes the deposits of 3.2 million pensioners, all of which will remain fully protected. “They all will have unrestricted access to their accounts”, the statement explained.

Privatbank is the most systemically important bank in Ukraine, and has been widely regarded as being too big to fail. Ukraine has experienced ongoing struggles relating to the health of its banking sector, which threaten to further exacerbate the nation’s fragile economic state. The Ukrainian economy remains unstable amid the nation’s ongoing conflict, and was recently hit by a sharp recession, wiping out 17 percent of GDP over the course of just two years.

The decision to nationalise PrivatBank was made in response to a worsening in the state of its balance sheet, which has seen ongoing solvency issues. The bank’s precarious position was brought on by irresponsible lending and related capital losses. It is reportedly struggling under the weight of billions of dollars of unpaid insider loans, which have burned a $3.39bn hole in its finances.

Addressing the fragility of the nation’s financial sector has been a key target of a $17.5bn loan programme from the International Monetary Fund. Over the past two years, the Ukrainian Government has been undergoing a major cleanup operation, and has shut down more than 80 banks that were allegedly involved in illegal activities.

Ukrainian Finance Minister Oleksandr Danyliuk said: “The government will allocate funds to stabilise the bank, and the required amount of financing for the recapitalisation of the bank have been earmarked in the budget… The budget parameters will remain within the targets set by the IMF programme.”

The takeover of the nation’s largest bank marks a crucial move in ensuring stability for the country’s future, as a crisis in PrivatBank would have had far-reaching implications to Ukraine’s already struggling economy.

US launches trade complaint against China

Posted on by Helen

On December 15, the office of the United States Trade Representative (USTR) filed a new complaint with the World Trade Organisation (WTO), claiming Chinese trade management of rice, wheat and corn is creating an uneven playing field for US exporters.

This marks the 15th time in seven years that the Obama administration has filed a challenge against China to the WTO, and comes at a time when trade relations between the two countries are fraught with tension and trepidation for the future.

According to a USTR press release, US Agriculture Secretary, Tom Vilsack, said: “When China joined the WTO, it committed to implementing an agriculture regime that would facilitate market access consistent with international obligations. However, China has frustrated exporters through generous price support and unjustified market restrictions.”

The US claims that Chinese management of its tariff rate quotas (TRQ), is “opaque and unpredictable”, thus limiting access to Chinese markets for exporters.

TRQs are a type of trade measure that, if properly enforced, should provide lower duties on a certain volume of imported grains every year. However, according to the same USTR press release: “China’s application criteria and procedures are unclear, and China does not provide meaningful information on how it actually administers the tariff-rate quotas.”

According to the US, this unreliable method of administration has resulted in an unfair trade barrier, without which China would have imported an extra $3.5bn-worth of crops during 2015 alone.

United States Trade Representative Michael Froman said: “Today’s new challenge… demonstrates again the Obama administration’s strong and continued commitment to enforcing the rules of global trade, and protecting the interests and livelihoods of American farmers.”

Also on December 15, the US put extra pressure on a previous challenge against China. This complaint, which was launched in September, accused China of creating artificial incentives for Chinese farmers to increase production of wheat, rice and corn. The US requested that the WTO establish a dispute settlement panel, in a move that will take the challenge to the next stage after initial consultations failed to resolve the issue.

The USTR has so far won every trade dispute it has raised with the WTO, implying that this latest claim is likely to succeed. Nevertheless, what remains uncertain is how the trade landscape will unfold in the future as US President-elect Donald Trump takes the reins. Such disputes such may rise in frequency, particularly after Trump’s campaign rhetoric hit out at China for allegedly creating an unfair advantage in trade.

Amid speculation about an impending trade war between the US and China, the WTO will be forced to mediate between the two countries, putting its role further into the global spotlight.

Proposed EU financial regulations raise questions of protectionism

Posted on by Helen

While the international spotlight remains focused on a shift towards protectionism in trade policies, new EU proposals – which will be unveiled in full on November 23 – are likely to further rein in globalisation in the financial sector.

Some details of the proposals have been addressed in a speech by Valdis Dombrovskis, Vice President of the European Commission. If implemented, the changes would see tougher capital and liquidity requirements for the subsidiaries of banks operating in the EU, leading to raised costs for overseas banks.

If implemented, the changes would see tougher capital and liquidity requirements for the subsidiaries of banks operating in the EU

Arguably, this move comes in retaliation against the protectionism of similar policies in the US. These policies were revealed in 2014 and have the similar effect of increasing costs for foreign lenders. According to the Financial Times, at the time of the US’ announcement, the EU commissioner warned the move could prompt a protectionist reaction.

When announcing the EU proposals on November 15, Dombrovskis suggested this had played a part in the decision: “Banks operate in global markets. It makes sense to implement international standards to encourage a level playing field and sound regulation internationally.”

There is good reason behind claims that such proposals create a protectionist barrier: should the EU policies be put in place, overseas banks will have to set up a separately capitalised holding company in order to operate in the EU. This could make foreign banks more reluctant to hold their operations in Europe, due to the extra costs that will arise from meeting this requirement.

An adviser to an investment bank that is to be affected by the rules told the Financial Times: “If you must create an EU holding company that acts as your hub, the question becomes: how many European hubs do you want?” Increased capital and liquidity requirements for operations in the EU were included in the proposals, which would further increase costs.

New capital requirements in the proposal include the fact that banks must hold a minimum total loss-absorbing capacity, aimed at creating greater resilience in the case of a crisis.

The proposals are also to introduce a binding leverage ratio of three percent, which will prevent excessive leverage from building up in the financial system. This would act as a backstop to banks’ internal model-based capital requirements.

While the proposals could be interpreted as nothing more than a form of protectionist retaliation, Dombrovskis stressed that the regulations are focused on maintaining confidence and stability in the banking sector, while not forgetting the mistakes that led to the crisis of 2008. In response to recent challenges, he said: “Some might be tempted to reverse the reforms we undertook during the crisis, to lower requirements, and give up on following international standards and the single rulebook.” The new requirements, according to Dombrovskis, should help “to avoid repeating past mistakes”.

Similarly, when Dan Tarullo, Chairman of the US Federal Financial Institutions Examination Council, discussed the regulation in the US, he emphasised protecting taxpayers against bank collapses: “Our regulatory system must recognise that while internationally active banks live globally, they may well die locally.”

The proposals are yet to receive the backing of EU states and European lawmakers. If successful, they would present a step away from globalisation in the financial sector. However, the regulations would be costly for many banks and will inevitably create opposition.

Nonetheless, in the case of a trade-off between stability and reducing costs, an emphasis must be placed on protecting taxpayers and economies through sensible regulation.

Former senior director of Valeant charged over fraudulent kickback scheme

Posted on by Helen

On November 17, Andy Davenport, CEO of Philidor, and Gary Tanner, a former senior Valeant director, were arrested and charged for their participation in an illegal scheme. The arrangement involved a covert kickback payment, through which they each hoped to receive millions of dollars in personal profits.

Valeant Pharmaceuticals International has been embroiled in a scandal for the past year regarding its involvement with Philidor, an online pharmacy that was kept secret from investors. The online pharmacy purportedly used fraudulent tactics to drive increases in drug sales for Valeant.

Valeant’s stock has dipped by over 90 percent since August 2015, as details of its drug pricing and business practices have come to light

Valeant’s stock has dipped by over 90 percent since August 2015, as details of its drug pricing and business practices have come to light.

These high-profile arrests come as another blow to Valeant amid ongoing investigations into the company’s business practices. Allegedly, the scheme concluded with Davenport earning $40m after Valeant agreed to pay $100m for the right to buy Philidor. Davenport then kicked back $10m to Tanner.

According to a statement given by the prosecutors: “The kickback payments were made in secret and laundered through a series of shell companies and transactions designed to conceal the illicit source, nature, ownership and control of the funds.”

The charges further allege that Tanner, who at the time was a Valeant executive, was covertly working with Davenport towards the ultimate goal of accomplishing a purchase option agreement between Valeant and Philidor. This involved efforts by Tanner to boost business for Philidor through various methods, including by resisting business relationships with Philidor’s competitors.

Valeant released a statement on the morning of the arrest emphasising that there have been no charges against the company, former CEO, former CFO or current executives. It further stated: “Gary Tanner ceased to be a Valeant employee on September 13, 2015, and Andrew Davenport has never been an employee of the company. The counts issued today include allegations that the charged parties engaged in actions to defraud Valeant as a company.”

As investigations into Valeant and its business partners continue, the firm and its investors are set to face more hurdles well into the new year.