Crude awakening: oil price falls following failure of OPEC talks

BY Fraser Tennant

The price of oil has fallen after a meeting of the world’s major oil producers – the Organisation of the Petroleum Exporting Countries (OPEC) – ended in failure. 

The meeting, held in Doha, Qatar on 17 April with most (but not all) OPEC members present, had intended to sign a deal to cap oil output. However, it concluded with no agreement being made – an outcome which is being largely attributed to tensions between Saudi Arabia and Iran.

Prior to Doha, Saudi Arabia had demanded that Iran sign up to the deal to freeze oil productions, but Iran (a non-attendee) is unwilling to do so and has stated that it will continue to increase output following the lifting of a number of sanctions.    

In a statement, the Iranian government said that as it was “not going to sign anything” and was "not part of the decision to freeze output”, it had decided not to send a representative to the OPEC meeting.

“It doesn’t come as a huge surprise to me that the talks could not reach a conclusion, given Iran and Saudi Arabia’s previously stated positions, which they stuck to," said Clare Munro, a partner at Brodies LLP and head of the firm’s oil and gas team in Aberdeen, Scotland. “However, it does demonstrate the pressure on the various countries involved, which leads me to believe that at some point a deal will be achieved."

Just a few days prior to the aborted talks, Brent crude had climbed to a four-month high of just under $45 per barrel – an increase that reflected global market hopes that a deal to cap oil output would hold crude oil production at the January 2016 level and slow the oversupply.

Ms Munro continued: “Although the oil price did suffer a set-back, Brent remains above $40, which is better than where we have been for most of the year so far.”

Addressing the failure of the OPEC meeting, Dr Mohammed Bin Saleh Al-Sada, Qatar’s minister of Energy and Industry, said his administration respected the Iranian position and that the freeze “could be more effective if major producers, be it from OPEC members like Iran and others, as well as non-OPEC members, are included".

Ultimately, the major oil producers concerned required “more time” to agree a deal, admitted Dr Al-Sada.  

News: Oil Plunges After Output Talks Fail Amid Saudi Demands Over Iran

US online alternative finance market jumps 200 percent in 12 months confirms new report

BY Fraser Tennant

The US online alternative finance market generated more than $36bn in funding in 2015 - an increase of more than 200 percent - according to a report published this week by KPMG, the Cambridge Centre for Alternative Finance and the Polsky Center at the Chicago Booth School of Business.

In ‘Breaking New Ground: The Americas Alternative Finance Benchmarking Report’, researchers have analysed online alternative finance activity across the Americas, exploring the impact of online alternative finance activity on the marketplace lending space and how online unsecured lending has rattled the banking world.

Among the report’s key findings is that financial technology (FinTech) has exploded in just two years, from a total market size of $4.5bn in 2013 to $36.5bn in 2015 – with the US making up 99 percent of this total. US businesses are also increasingly getting involved in alternative finance, to the extent of $6.8bn in 2015 alone, as compared to the 2013/2014 total of $10bn.

Furthermore, this level of growth is only expected to accelerate as disruptive new FinTech companies emerge to transform the landscape of the banking industry.

"The emergence of new FinTech companies will continue to transform the financial services sector," said Fiona Grandi, national leader for FinTech at KPMG LLP. "The pace of disruption is sure to accelerate, forging the need and appetite for collaboration among incumbents and non-bank innovators."

The report also points to several game-changing drivers of transformation that are impacting the banking industry, including: (i) speed: the use of algorithmic technology, credit decisions and underwriting now takes minutes, not days; (ii) transparency: investors and borrowers alike gain visibility into the loan portfolios, including risks and rewards; (iii) customer-centric: platforms bring the ‘brick and mortar’ branch into the on-demand and mobile application generation; and (iv) data: platforms have re-engineered the definition of credit worthiness, with FICO still being a factor, but no longer the only factor.

“These changes are permanent benchmarks that banks must now rise up to meet,” added Ms Grandi. “You may argue whether today’s unicorns will be here tomorrow; however, the shift towards the digital bank is indisputable.”

Report: Breaking New Ground - The Americas Alternative Finance Benchmarking Report

Mind the gap

BY Richard Summerfield

One need only pick up a newspaper to see the importance of developing a robust and comprehensive cyber security programme. Data breaches have, in recent years, emerged as one of the most pressing corporate issues of our time. In light of this rising threat,  many companies are pouring millions of dollars and thousands of manpower hours into shoring up their cyber defences.

However, an ‘accountability gap’ is opening up in the world of cyber security, suggests Tanium and NASDAQ in a new report. According to the study, which surveyed 1530 non-executive directors, c-level executives, chief information officers and chief information security officers across the US, the UK, Germany, Japan, Denmark, Norway, Sweden and Finland, 40 percent of executives believe that they feel no responsibility for the impact any cyber attack might have.

Furthermore the Tanium/NASDAQ survey suggests that among the most vulnerable companies, 98 percent of business leaders are not confident in their organisation’s ability to monitor all devices and users at all times. More than 90 percent of respondents said that they are unable to read a cyber security report and are not prepared to handle a major attack. Further, only 10 percent of those surveyed agreed that they are regularly updated with information about the types of cyber security threats to their business.

Worryingly, only 9 percent of executives claimed that their systems were updated regularly in response to new cyber threats. Given the speed, agility and inventiveness demonstrated by cyber criminals in recent years, this inability or unwillingness to adapt is an alarming revelation in a business landscape pockmarked with risk.

Cyber crime, as the scandal around the ‘Panama Papers’ has recently reiterated, is a looming, ever present threat. Companies must do more to address their yawning accountability gap, before they find themselves in the headlines.

Report: The Accountability Gap: Cybersecurity & Building a Culture of Responsibility

Tax changes scupper record deal

BY Richard Summerfield

After several years of bluster and two rounds of legislative measures, the Obama administration had, until very recently, failed wholly to put a stop to tax ‘inversions’. Indeed, the number of US companies inverting has been rising, with 2015 bearing witness to a record number of corporate inversions.

A typical inversion sees US companies acquiring an overseas rival, redomiciling to that company's country and adopting its lower-tax level. The practice has drawn the ire of both sides of the aisle in Washington and has been decried as one of the “most insidious tax loopholes out there” by President Obama.

However, this week the US Treasury finally announced a third tranche of measures which may actually curb inversion transactions. To that end, the new measures have already claimed a major scalp, causing the cancellation of the $160bn merger between US pharmaceutical manufacturer Pfizer Inc and Irish firm Allergan Plc.

“Pfizer approached this transaction from a position of strength and viewed the potential combination as an accelerator of existing strategies,” said Ian Read, chairman and chief executive of Pfizer. “We remain focused on continuing to enhance the value of our innovative and established businesses. Our most recent product launches, including Prevnar 13 in Adults, Ibrance, Eliquis and Xeljanz, have been well-received in the market, and we believe our late stage pipeline has several attractive commercial opportunities with high potential across several therapeutic areas. We also maintain the financial strength and flexibility to pursue attractive business development and other shareholder friendly capital allocation opportunities.”

Pfizer would have stood to cut its tax bill by around $1bn annually by redomiciling in Ireland; however, now that the controversial merger has collapsed it will be required to pay Allergan $150m to reimburse the firm for expenses incurred during the transaction.

The Treasury hopes its measures tackle what it calls “serial inverters”, or foreign companies that have rapidly acquired multiple US companies. It will do this by limiting companies’ ability to participate in an inversion deal if they have taken part in one in the previous three years. Allergan, for the record, has been party to a number of inversion deals in that time period. The Treasury has also set out to reduce the tax advantages of inversions by curbing 'earnings stripping' — the use of intercompany loans to reduce US tax bills.

Now that the Allergan deal is dead in the water, Pfizer said 2016 will be a year of reflection. The company is contemplating spinning off its multitude of generic medicines into a separate businesses. Though the Allergan deal was due to delay that decision until 2019, the collapse of the merger will hasten Pfizer.

“We plan to make a decision about whether to pursue a potential separation of our innovative and established businesses by no later than the end of 2016, consistent with our original timeframe for the decision prior to the announcement of the potential Allergan transaction,” added Mr Read. “As always, we remain committed to enhancing shareholder value.”

News: Pfizer Announces Termination Of Proposed Combination With Allergan

Optimism has fallen: new survey highlights sharp slump in financial services sentiment

BY Fraser Tennant

Optimism in the financial services sector has slumped alarmingly in the past five years, with firms citing market instability, sector competition and macroeconomic uncertainty as their top three challenges, according to the new CBI/PwC Financial Services Survey published this week.

The survey, a quarterly analysis of 104 financial services firms, reveals that banking and investment management respondents in particular had seen the sharpest slump in sentiment, while optimism across building societies and in the insurance sector was found to be broadly flat.

Drilling down, the survey shows that optimism in the financial services sector has fallen at its fastest pace for over four years, with 14 percent of firms more optimistic, but 35 percent less so, giving a balance of minus 21 percent. In comparison, the balance was 24 percent in December 2011.

“Concerns over China and a volatile start to the year for markets, alongside uncertainty about a possible Brexit, have created a perfect storm to dampen optimism in financial services,” said Rain Newton-Smith, the director for economics at the CBI. “As we know from talking to CBI members, now that the referendum date has been set some investment decisions have been put on hold by some firms, though this is not widespread.

“Investment intentions for IT remain resilient, but spending plans are being scaled back in other areas. Investments are increasingly motivated by the need to promote efficiency, while uncertainty about demand appears to be holding additional investment spending back.”

However, despite the findings, the survey does indicate that business volumes have continued to expand at a solid pace, and profitability has improved, albeit at the slowest pace for two years. Overall, business volumes rose at a decent pace, with 44 percent of firms stating that volumes were up, 18 percent saying they were down, giving a balance of +26 percent.

The survey also notes an increase in staffing levels in financial services during the last quarter, though this uptick is expected to flatline in the next three months, with insurance and building society sector staff increases being offset by losses within the banking fraternity.

“The lack of opportunities to generate revenue has shifted the focus of financial services companies to how they make their business models more efficient or effective - no easy task in such an unpredictable climate,” said Kevin Burrowes, UK financial services leader at PwC. “Despite the pessimistic mood in the sector, it is very encouraging to see that many financial services organisations are planning to up their game around talent attraction and diversity."

News: ‘Perfect storm’ of events dampens optimism among financial services firms