Three-quarters of FIs hacked during last two years, claims new KPMG report

BY Fraser Tennant

A hard-hitting report released this week makes the startling claim that three-quarters (almost 8 in 10) of financial institutions (FIs) have experienced a cyber attack in the past two years, leading to many personal bank accounts being compromised.

The report, KPMG’s ‘Consumer Loss Barometer’, states that despite the financial services sector being proactive when it comes to matters of information security, more than one-third of consumers have said that their personal bank accounts have been compromised.

Furthermore, the report reveals that the vast majority of consumers would change banks if their provider of financial services did not take the proper steps to deal with the consequences of a cyber attack.  

“Financial institutions have a real opportunity to solidify trust with their customers by demonstrating that security is a strategic imperative, and that they are taking every possible precaution to protect consumers,” said Jitendra Sharma, KPMG’s advisory line of business leader, financial services. “Consumers have a lot of options in this environment, so companies must get it right as the battle for customers is fierce.”

Having surveyed 400 senior cyber security executives (including 100 operating in financial services) and 440 banking consumers, the report found that: (i) 66 percent of finance executives said their companies invested in information protection in the past year; (ii) 85 percent of executives confirmed that they have a person in their company whose sole role is to oversee matters pertaining to information security; and (iii) 37 percent of banking consumers made it known  that they would move to a new financial services provider if their bank refused to cover their losses.

In addition, consumers indicated that they would like their bank to guarantee to cover losses, issue frequent communications and updates and provide a free credit report in the event of a cyber security incident. KPMG also found that the financial services sector is the most proactive of all the sectors surveyed, with many FI’s investing heavily in information protection.  

“It is encouraging to see that financial institutions are clearly making the investment in information security and are ahead of their peers from other sectors,” said Charles Jacco, advisory principal, financial services at KPMG. “But in order to retain loyal customers and attract new ones, they will need to continue demonstrating their commitment and ability to protect their customer’s assets and to put their minds at ease.”

Report: Consumer Loss Barometer

Verizon to acquire Yahoo business for $4.83bn

BY Richard Summerfield

The future of one time internet giant Yahoo! Inc, has finally been settled with news that the company’s core operating business is to be sold to Verizon Communications Inc in a $4.83bn all-cash deal.

The acquisition of Yahoo is the latest deal for a major internet based brand to be completed by Verizon since it concluded a deal with AOL in 2015 for around $4.4bn. Under the terms of the deal, AOL will absorb a number of high profile Yahoo assets, including the company’s ad technology tools, BrightRoll and Flurry, as well as a number of other valuable assets: search, mail and messenger.

Since AOL came under the Verizon banner, the company has invested in and nurtured a number of other internet brands, notably The Huffington Post, TechCrunch, Engadget, MAKERS and AOL.com. The company hopes a revitalised Yahoo will help to develop the AOL portfolio moving forward. In a statement announcing the deal, Lowell McAdam, chairman and chief executive of Verizon, said, “Just over a year ago we acquired AOL to enhance our strategy of providing a cross-screen connection for consumers, creators and advertisers. The acquisition of Yahoo will put Verizon in a highly competitive position as a top global mobile media company, and help accelerate our revenue stream in digital advertising.”

Yahoo and its CEO Marissa Mayer have been under the magnifying glass for some time, and though Ms Mayer has claimed she would like to remain with Yahoo moving forward it, the makeup of Yahoo’s future leadership is yet to be decided.

“Yahoo is a company that has changed the world, and will continue to do so through this combination with Verizon and AOL,” Ms Mayer noted in a statement. “The sale of our operating business, which effectively separates our Asian asset equity stakes, is an important step in our plan to unlock shareholder value for Yahoo. This transaction also sets up a great opportunity for Yahoo to build further distribution and accelerate our work in mobile, video, native advertising and social.”

The sale of the company’s core business does not include Yahoo’s cash, its shares in Alibaba, its shares in Yahoo Japan, Yahoo’s convertible notes, certain minority investments and Yahoo’s non-core patents. These Asian assets will be held by Yahoo in a company currently known as RemainCo. Once the deal has been completed, the company will change its name and become a registered, publicly traded investment company.

The deal is expected to close in early 2017. In the meantime, Yahoo will continue to operate as an independent organisation until the deal receives the customary shareholder and regulatory approval.

News: Verizon to buy Yahoo's core business for $4.8 billion in digital ad push

Corporate bankruptcies on the up

BY Richard Summerfield

Following a period of relative calm in the corporate bankruptcy world, from 2010 onwards when corporate insolvencies flattened and then fell into decline, more and more companies now appear to be experiencing distress.

With the global economic crisis and recession of 2008 slowly disappearing from view, it seemed as if businesses were on better, more stable footing. However, there has been a recent resurgence in the number of corporate bankruptcies. Filings rose again in the second quarter of 2016, according to BankruptcyData.com's 'Q2 2016 Business Bankruptcy Filing Report'.

The report notes that the number of businesses filing for bankruptcy protection jumped 9 percent in the second quarter of the year compared to Q1. Equally, there was a 25 percent year-on-year climb compared to Q2 2015, up 7 percent compared to Q2 2014.

Up to June 2016, there has been an increase of 23 percent compared with the same period last year and a 4 percent jump on the same period in 2014. Furthermore, the average number of filings per day figure recorded in Q2 2016 is the highest since 2013.

Much of the financial difficulty experienced by public companies in the US can be attributed to the troubled and volatile energy sector. Energy focused companies accounted for the majority of public filings recorded in the first half of the year – 10 of the largest 15 bankruptcies came from the energy space. Over 80 percent of the $86bn in assets entering bankruptcy were from energy-related companies. In addition to a number of oil & gas companies filing for Chapter 11, every large publicly-traded pure-play coal company has now filed for bankruptcy.

The report suggests that the flow of companies applying for Chapter 11 protection is likely to continue, with more difficulty expected in the energy space. Elsewhere, the amount of high-yield debt raised during the 2009-2015 credit cycle was considerable. This could easily contribute to a new spike in bankruptcy filings in the future.

Report: Q2 2016 Business Bankruptcy Filing Report

SoftBank to acquire ARM in £24bn tech deal

BY Fraser Tennant

In a deal depicted as two companies with a shared vision coming together to push the limits of technology, Japanese multinational telecommunications and internet corporation SoftBank is to acquire UK technology firm ARM Holdings plc in a transaction worth £24bn.

Under the all-cash acquisition, SoftBank, one of the world's biggest technology companies, will pay £17 per ARM share – a 41.1 percent premium to its 15 July closing price. The deal is to be funded by Softbank's own cash reserves as well as a long-term loan from Japan's Mizuho Bank.

“We have long admired ARM as a world renowned and highly respected technology company that is by some distance the market-leader in its field,” said Masayoshi Son, chairman and CEO of SoftBank. “ARM will be an excellent strategic fit within the SoftBank group as we invest to capture the very significant opportunities provided by the “Internet of Things (IoT).”

The acquisition of ARM, which analysts consider to be central to the tech industry's move to the IoT, is a major step in fulfilling Mr Son’s intention to transform SoftBank into a “tech investment powerhouse".

For ARM, the transaction means that the firm will continue to be able to play a key role in developing new technology in future, in addition to being a great endorsement for the UK tech industry as a whole.

“It is the view of the Board that this is a compelling offer for ARM Shareholders, which secures the delivery of future value today and in cash,” said Stuart Chambers, chairman of ARM. “The Board believes that by accessing all the resources that SoftBank has to offer, ARM will be able to further accelerate the use of ARM-based technology wherever computing happens.”

SoftBank has also provided assurances that it will double ARM employee headcount in the UK (estimated to be over 1500 jobs) over the next five years, as well as increasing staff numbers outside the UK, again over five years.

Furthermore, the Japanese conglomerate has pledged that the successful partnership business model, culture and brand of Cambridge-based ARM - which employs more than 3000 people - will remain unchanged.

Mr Son concluded: “This is one of the most important acquisitions we have ever made, and I expect ARM to be a key pillar of SoftBank’s growth strategy going forward.”

News: SoftBank to buy UK chip designer ARM in $32bn cash deal

Global ETF AUM to top $7 trillion by 2021

BY Fraser Tennant

Exchange Traded Funds (ETFs) are expected to grow exponentially over the next five years, with global assets under management (AUM) set to top $7 trillion, according to a report released this week by PwC.

In ‘ETFs: A roadmap to growth’, PwC predicts that the ETF market will achieve further significant growth through entering new markets, expanding distribution channels and asset classes.

The report’s main findings show that: (i) the North American ETF market is expected to grow to $5.9 trillion by 2021 (a 23 percent cumulative annual growth); (ii) the European market is expected to grow 27 percent annually (reaching $1.6 trillion AUM by 2021); and (iii) Asian firms expect ETF AUM to reach $560bn by 2021 (an 18 percent annual growth rate over five years).

Furthermore, the top three segments that are driving this growth globally are financial advisoes, online platforms and retail investors (online platforms having overtaken wealth management platforms to take its place within the top three).

Also found to be a factor in the growth of ETF markets is the advances seen in technology and data analytics, which have encouraged new product creation and driven an evolution in distribution channels. In addition, says the PwC report, digital technology and Big Data will continue to enable successful firms to improve decision making processes, streamline costs and transform investor relationships.

“The global ETF market has a bright future ahead but the next few years will not be without their challenges," said Nigel Brashaw, global ETF leader at PwC. “The ETF market continues to be increasingly crowded, particularly in North America and Europe, where both maturity and momentum continues to dominate.

“Many firms are looking to expand their global footprint which presents challenges as well as opportunities with respect to local and global regulations, tax laws and establishing working relationships with distribution partners.”

Another key challenge and one cited as a major obstacle to growth by 47 percent of survey respondents is that of increased regulation.

Mr Brashaw continued: “Firms across the globe that wish to take advantage of the booming ETF industry will need to invest in investor education, differentiated products and strong distribution channels. There is plenty of competition in the sector and we expect the industry to grow at a healthy and accelerated rate.”

The PwC report surveyed executives (more than 70 percent of the participants were ETF managers or sponsors from approximately 60 firms around the world) during 2015 using a combination of structured questionnaires and in-depth interviews.

Report: ETFs: A roadmap to growth