Author: Max Tomlin

US Federal Reserve raises interest rate

Posted on by Max Tomlin

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

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

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

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

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

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

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

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

Apple found guilty of price-fixing

Posted on by Max Tomlin

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

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

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

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

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

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

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

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

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

Puerto Rico agrees debt-restructuring plan

Posted on by Max Tomlin

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

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

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

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

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

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

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

Azerbaijan withdraws from EITI

Posted on by Max Tomlin

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

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

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

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

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

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

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

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

Iceland lifts capital controls

Posted on by Max Tomlin

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

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

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

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

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

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

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

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

Shell sheds $7.25bn of oil sands assets

Posted on by Max Tomlin

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

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

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

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

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

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

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

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

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

Tesla powers on with green energy solutions

Posted on by Max Tomlin

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

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

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

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

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

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

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

 

State Street votes to bridge gender gap

Posted on by Max Tomlin

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

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

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

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

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

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

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

Standard Life to acquire Aberdeen in £3.8bn deal

Posted on by Max Tomlin

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

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

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

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

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

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

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

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

Bitcoin strikes gold

Posted on by Max Tomlin

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

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

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

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

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

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

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

US growth slumps

Posted on by Max Tomlin

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

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

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

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

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

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

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

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

Australia sidesteps recession

Posted on by Max Tomlin

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

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

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

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

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

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

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

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

Blockchain poses a threat to your confidentiality

Posted on by Max Tomlin

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

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

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

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

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

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

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

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

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

LSEG unlikely to win approval for €29bn merger

Posted on by Max Tomlin

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

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

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

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

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

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

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

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

RBS cuts costs amid £7bn losses

Posted on by Max Tomlin

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

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

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

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

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

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

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

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