Asia Pacific investment: PwC presents executives’ 10 year perspective on growth

BY Fraser Tennant

Senior business executives’ views on the opportunities for growth and business investment in the Asia Pacific region over the next 10 years form the basis of PwC’s 2014 APEC CEO Survey.

The Survey – ‘New vision for Asia Pacific: Connectivity creating new platforms for growth’ – shows that business leaders believe that a more connected, more balanced APEC region is the way forward.   

The 600 senior executives surveyed as to their perspectives on investment, trade and connectivity, were unanimous on what they believed the region had to do to drive investment over the next decade – 'be bold and break down barriers to growth'.

The Survey also reveals that the senior executives see the momentum swinging toward free trade across the APEC region and goes on to speculate as to where businesses are likely to be building their platforms for growth.

Key findings in the report include: (i) investments are set to rise across the region; (ii) confidence in revenue growth continues to improve; (iii) process barriers to trade can be as material as tariffs; (iv) executives aspire to do more with business partnerships; and (v) confidence lags on returns from social network investments.

Dennis Nally, PwC’s global chairman, said “As more of the world’s economic activity shifts to the APEC region, confidence and revenue growth continues to improve. Our survey revealed that 46 percent of executives are very confident as to near-term revenue growth over the next 12 months.

“Businesses are acting on opportunities across the APEC region and a majority of CEOs plan to increase investment over the next year. Supporting much of this confidence is a vision of a more connected Asia Pacific region.

“As the world becomes more inter-connected, there is no choice for businesses to not only adapt, but to innovate.”

While the survey makes clear that many barriers to business growth in the Asia Pacific region have receded, others remain firmly in place. What business leaders say they are looking for is greater clarity and transparency around regulations and other 'soft barriers'.

Whether they get their wish remains to be seen.

Report: New vision for Asia Pacific: Connectivity creating new platforms for growth

Regulators hit banks with £2.7bn fine following FOREX investigation

BY Fraser Tennant

Six banks have been hit with fines totalling £2.7bn for their part in failing to stop traders who were manipulating the financial system by rigging the £3.5 trillion-a-day foreign exchange (FOREX) markets.

The penalties were handed out to Royal Bank of Scotland (RBS), HSBC, JPMorgan, UBS, Citibank and Bank of America Merrill Lynch following an 18-month investigation by the Financial Conduct Authority (FCA) and its counterparts in Switzerland and the US.

The FCA’s portion of the fines represents the biggest financial punishment ever levied by the British regulator. 

Yet another British bank, Barclays, has been told to expect similar punitive action for its part in the scandal.

The regulators’ investigation discovered that some traders, who referred to themselves as ‘the A-team’, ‘the Players’ and ‘the 3 musketeers’, made millions for their banks while pocketing bonuses worth hundreds of thousands of pounds – often in just a single afternoon.

Evidence collected showed that traders posted messages on forums bragging about making 'free money' and collecting eye-watering profits – the very same forums where, over a five-year period, they colluded to share privileged client information. 

The regulators have also warned that anyone found guilty of manipulating the FOREX market could face jail but although it’s believed that 30 traders have been sacked or suspended, not one has faced charges.

Martin Wheatley, chief executive of the FCA, said “The FCA does not tolerate conduct which imperils market integrity or the wider UK financial system. These record fines mark the gravity of the failings we found and firms need to take responsibility for putting it right. They must make sure their traders do not game the system to boost profits or leave the ethics of their conduct to compliance to worry about. Senior management commitments to change need to become a reality in every area of their business.

“But this is not just about enforcement action. It is about a combination of actions aimed at driving up market standards across the industry. All firms need to work with us to deliver real and lasting change to the culture of the trading floor. This is essential to restoring the public’s trust in financial services and London maintaining its position as a strong and competitive financial centre.”

News: Six Banks to Pay $4.3 Billion in First Wave of Currency-Rigging Penalties

Lloyds hit with new mis-selling charge

Merely days after squeezing through a European banking health check, Lloyds Banking Group has been hit with another sizeable mis-selling charge.

Relating to the bank’s handling of the payment protection insurance (PPI) scandal, which came to light in the wake of the financial crisis, the £900m charge confirmed on 28 October brings the total cost required to cover Lloyds mis-selling of PPI to £11.3bn. The latest charge means that Lloyds has paid out more than any other affected bank, as well as close to half the total bill for the entire British banking industry. The PPI bill for Britain’s five biggest banks now stands at more than £22bn.

Further, it appears that the bank is still not out of the woods. Analysts have predicted that Lloyds will be required to set aside an additional £1bn to cover potential PPC compensation claims made in 2015. According to Lloyds' finance director George Culmer, PPC complaints in the third quarter of 2014 rose by around 2 or 3 percent compared with Q2, however new complaints are down by 18 percent on the year. The group also noted that should there be a similar level of complaints registered in the fourth quarter, as in Q3 the required provision would increase by around £600m.

Lloyds’ most recent PPI charge overshadowed a raft of other news released by the bank. In a statement Lloyds confirmed a 41 percent rise in underlying profits for the third quarter, with profits rising to £2.2bn following an improvement in bad debts. However, the bank also confirmed its previously reported plan to dispense of 9000 jobs over the next three years. The job losses will be the result of around 200 branch closures as the bank attempts to digitise its business.

Despite its recent tribulations, Lloyds is still confident that it will be able to pass the Bank of England’s stress test in December. The BoE’s test will assess whether Lloyds, the worst performing British bank in European testing, would be able to withstand a new financial crisis. Should Lloyds fail the test, it would be forbidden from paying its first shareholder dividend since it was bailed out by the British government.

News: Lloyds Takes $1.4 Billion PPI Charge, Shares Decline

Big banks cut lending

BY Richard Summerfield

Consumer and business lending by the UK’s largest banks has fallen by $595bn over the last five years, according to a new report from KPMG.

Total lending at Barclays, Royal Bank of Scotland, HSBC, Lloyds and Standard Chartered dropped 14 percent to £2.33 trillion in the first half of 2014, compared with five years earlier. The dramatic decline in lending is the result of the enormous fines and compensation packages which banks have had to accept in order to make amends for their recent chequered past. Since 2011, remediation payments made by the big six British banks have totalled £31bn, although the year on year remediation figure in H1 2014 was down 44 percent to £2.4bn.

The overall reduction in lending since 2009 is also a result of a new risk-averse mentality permeating the big UK banks. KPMG believes that major banking groups in the UK have lost sight of the risk-taking required in the sector. That said, it appears that a number of banks are beginning to take steps which will help the sector return to sustainable growth. Profits have begun to recover , thanks to a new tone at the top. The big six banks reported a combined profit of £15.2bn in H1 2014, continuing the return to profitability first recorded in the second half of 2013.

However, KPMG also notes that the UK’s wider banking sector is approaching “crunch time” due to the rise of pay day lenders and other shadow banking groups. Bill Michael, EMA head of financial services at KPMG, noted that “Shadow banking initiatives are increasingly penetrating under-served areas of the market. These initiatives are creating a challenging environment that traditional banks are unfamiliar with. Equally, if banks get to grip with technology quickly, there is a unique opportunity for banks to capitalise upon. While competitors entering the market do not have the same legacy-based obstacles preventing them from pursing new opportunities, banks can offer the scale, reach and experience many players cannot.”

Report: KPMG’s report analyses the published 2014 half-yearly results of Barclays, HSBC, Lloyds Banking Group, RBS and Standard Chartered

Goldman Sachs agrees $3.15bn mortgage settlement

BY  Richard Summerfield

Goldman Sachs has agreed to settle its biggest financial crisis bill to date, agreeing a $1.2bn settlement with the Federal Housing Finance Agency (FHFA).

Under the terms of the deal, the bank has arranged to buy back $3.15bn in mortgage bonds from Fannie Mae and Freddie Mac, paying around $1bn to Fannie and $2.15bn to Freddie respectively. The move will bring about an end a lawsuit filed in 2011 by the FHFA in which the agency alleged that Goldman misled the two mortgage finance groups regarding the sale of over $11.1bn in mortgage-backed securities between 2005 and 2007. Although Goldman agreed to the settlement, the bank has continued to deny any allegations of wrongdoing; the bank’s settlement deal did not contain any admission of wrongdoing on Goldman’s behalf. The FHFA, which valued the settlement at $1.2bn, said the deal "effectively makes Fannie Mae and Freddie Mac whole on their investments in the securities at issue".

Goldman’s settlement is the latest in a string of deals related to the financial crisis, and is the largest legal penalty that the bank has paid in its 140-year history. The deal easily eclipsed the $550m settlement that the firm agreed in 2010 to conclude a complaint from the Securities and Exchange Commission regarding the bank’s handling of a complex mortgage-linked deal. The settlement with the FHFA comes shortly after Bank of America Corp agreed a separate mortgage deal with the Justice Department and a number of other government offices which totalled around $16.65bn. “We are pleased to have resolved these matters," said Gregory Palm, Goldman's general counsel, in a statement.

By reaching a settlement with the FHFA in August, Goldman has avoided the ignominy of a trial on 29 September. The trial would have been in relation to a pair of lawsuits that the FHFA filed against Goldman in 2011. The agency filed the suits hoping to recover damages from a number of financial institutions behind some $200bn in mortgage bonds bought by Fannie and Freddie that later experienced difficulty. The FHFA has concluded all but three of the 18 lawsuits it filed; to date the agency has recovered approximately $17.3bn from a cadre of banks including Bank of America Corp, Deutsche Bank AG and Morgan Stanley.

The Department of Justice will continue to investigate Goldman’s marketing of mortgage-backed securities. The FHFA is continuing to press ahead with its litigation against three other banks: HSBC Holdings Plc, Nomura Holdings Inc and Royal Bank of Scotland Group Plc.

News: http://www.bloomberg.com/news/2014-08-22/goldman-to-buy-mortgage-debt-for-3-15-billion-to-end-fhfa-probe.html