Unicredit unit sold to Amundi

BY Richard Summerfield

Italy’s biggest bank, UniCredit SpA, has announced that it is to sell asset manager Pioneer to French fund management firm Amundi in a deal worth $3.75bn.

According to the terms of the deal, Amundi will finance the acquisition through a combination of a €1.4bn capital increase, around €600m of senior subordinated debt and about €1.5bn in existing capital. UniCredit will also receive an extraordinary dividend of €315m from Pioneer before the deal is completed. The dividend will take the total value of the transaction to around $4.10bn. The deal is expected to close in the first half of 2017.

"Thanks to a long term distribution agreement, UniCredit's customers will have access to an extended range of quality products and services whilst the Group will reap the benefit of additional fee income from expected increased sales," UniCredit chief executive Jean Pierre Mustier said in a statement. "The transaction means Italy becomes Amundi's second largest domestic market and Amundi will turn Milan into one of its core investment hubs, creating new jobs and ensuring close proximity to UniCredit, our teams and clients."

The sale of the Amundi unit is the latest in a series of moves by UniCredit to divest some of its holdings, and to shore up its balance sheet.  In July, the company agreed to sell its 32.8 percent stake in Pekao bank in Poland to state-owned insurance group PZU for around $2.6bn. UniCredit also sold a 30 percent stake in FinecoBank SpA in October for around £2bn.

UniCredit, under the leadership of the new chief executive Jean Pierre Mustier, is expected to launch a new share sale this week, with the hope of raising around €13bn. UniCredit’s recent financial difficulties are allegorical of the wider Italian banking sector, which has been experiencing considerable difficulty for some time.

Through the acquisition of Pioneer, which manages around £186bn worth of assets, Amundi expects to generate around €150m in full-year cost synergies within three years as it merges investment platforms and streamlines support functions. The company also expects the acquisition to boost its revenue by €30m.

News: France's Amundi to buy Pioneer from UniCredit for 3.6 billion euros

Digital disruption driving deals

BY Richard Summerfield

2017 is likely to see increased mergers and acquisitions (M&A) activity in the media and entertainment (M&E) sector, according to EY’s latest Media & Entertainment Capital Confidence Barometer, released earlier this week.

Much of the dealmaking activity in the M&E space in the coming year will be likely be driven, in part, by digital disruption and convergence. The emergence of digital disruption and sector blurring in particular has proved a key driver of recent dealmaking in the M&E space, with 31 percent of the executives surveyed by EY citing convergence as the biggest disrupter in the industry of late. Increasingly, companies are expanding into previously uncharted territory. Sixty-seven percent saw digital disruption as the main catalyst for deal aking in the coming year.

In a statement announcing the report, John Harrison, EY's Global Media & Entertainment Leader, Transaction Advisory Services, said, “Unprecedented, unrelenting advances in technology and the swift emergence of new platforms and services are driving change in consumer behaviours, upending long-standing media ecosystems and blurring sector lines. Companies are aggressively seeking the innovation needed to position for future success and are looking to acquisitions, alliances and joint ventures to catalyse transformation.”

Despite the political and economic uncertainty permeating the globe, there is an underlying confidence in the M&E industry, particularly when it comes to dealmaking. In spite of persistent macroeconomic challenges, 73 percent of respondents perceived the global economy as stable or improving.

From a dealmaking perspective, 85 percent of respondents expressed confidence in the quality of acquisition opportunities available to M&E companies in the year to come. Furthermore, 94 percent of respondents claimed they had stable to positive confidence in the likelihood of closing a deal in 2017. More than half of respondents (56 percent) claimed that they expect their company to actively pursue an acquisition in the next 12 months, up from 46 percent in July 2016. Forty-eight percent said they have five or more deals in the pipeline.

Cross-border dealmaking is likely to be particularly prevalent in 2017, with 42 percent of executives claiming that their companies will be targeting a cross-border acquisition in the coming year. The US, France, the UK, Germany and China are the top five most likely destinations. The UK was the most sought after investment destination in EY’s previous report.

Report: Media & Entertainment Capital Confidence Barometer

New ‘Basel IV’ capital requirements proposed for banking sector

BY Fraser Tennant

In what is a crucial period for the European economy, new proposals for setting the capital requirements for the banking sector have been officially unveiled by the Basel Committee on Banking Supervision (BCBS).

The proposals, supposedly the final set of revisions being made to the Basel III Framework (part of the BCBS’s continuous effort to enhance the banking regulatory framework), clarify rules on combating money laundering and terrorist financing in correspondent banking. Many commentators have dubbed the latest modifications, ‘Basel IV'.

The first accord, Basel I, had three objectives: (i) to make sure banks held sufficient capital to cover their risks; (ii) to level the playing field among international banks competing cross-border; and (iii) to facilitate comparability of the capital positions of banks.

The BCBS’s revised proposals are intended to ensure that banks conduct correspondent banking business with the best possible understanding of the applicable rules on anti-money laundering and countering the financing of terrorism. According to the BCBS, the draft proposals reflect growing concerns in the international community about banks avoiding these risks by withdrawing from correspondent banking, which may, in turn, affect the ability to send and receive international payments in entire regions.

"The proposed revisions develop the application of the risk-based approach for correspondent banking relationships, recognising that not all correspondent banking relationships bear the same level of risk," says the report.

The proposals follow the publication by the Financial Action Task Force (FATF) of its guidance on correspondent banking services (October 2016). The BCBS seeks to clarify the expectations of banking supervisors, consistent with the FATF standards and guidance.

In response to the BCBS’s proposed revisions (as well as those already globally agreed), the European Commission has published its first proposals for calibrating capital and liquidity requirements in the form of a Capital Requirements Directive and Resolution (CRD V and CRR II) – proposals which address the market risks inherent in banks’ trading activities, as well as introducing the concept of “proportionality".

“Europe’s move to implement ‘proportionality’ is an important step," said Colin Brereton, PwC’s EMEA FS advisory services leader. “As in the US, the largest EU banks will remain subject to the full scope of regulation; ultimately, this should improve the ability of smaller banks to compete, to the benefit of bank customers.”

The consultation on the BCBS’s proposals is open until 22 February 2017.

Report: Basel Committee on Banking Supervision - Consultative Document

Executive pay crackdown announced by May

BY Fraser Tennant

Tighter controls on executive pay designed to curb the excesses of the “privileged few” have been proposed by UK prime minister Theresa May this week as part of an anti-elitism drive to regulate company behaviour and create a more equal country.

The proposals contained in the ‘Corporate Governance Reform’ Green paper are part of Ms May’s attempt to restore public trust in business practices and close the gap between those at either end of the corporate ladder (an increase in inequality being one of the main reasons for Brexit).  

In a statement outlining its intent, the UK government stated that it would bring to an end the behaviour of "an irresponsible minority of privately-held companies acting carelessly – which left employees, customers and pension fund beneficiaries to suffer when things go wrong".

Ms May’s drive to tackle unsavoury corporate behaviour focuses on five specific areas: shareholder voting and other rights; shareholder engagement on pay; the role of remuneration committees; pay disclosure; and long-term pay incentives. One of the main components of the prime minister’s plans is the question of whether a new pay ratio requirement should be introduced.

However, a proposal to have workers represented on company boards has already been sidelined. Business minister Greg Clark indicating that the government was unlikely to change the unitary boards system currently in place.

Providing a stark illustration of the disparity between pay in the boardroom as opposed to the shop floor, is a TUC study (September 2016) which found that, in 2015, the average FTSE 100 boss earned 123 times the average full-time salary. Furthermore, the median total pay (excluding pensions) of top FTSE 100 directors increased by 47 percent between 2010 and 2015, to £3.4m. In contrast, the average wages for workers were found to have risen by only 7 percent over the same period.

The TUC research also found that those companies with high pay inequality between bosses and workers tended to perform less well overall.

“Two thirds of people think executive pay is too high, so we support the Government’s intent to help rebuild trust and strengthen accountability in this area,” said Fiona Camenzuli, a partner in PwC’s Reward & Employment team. “Enhanced shareholder powers and engagement, greater focus by boards on pay fairness, appropriate employee and stakeholder voice in the boardroom, and making pay plans simpler and longer term can all contribute to making pay work better to support the long-term performance of UK companies. The Green Paper presents a wide range of sensible options and we encourage a robust debate, based on evidence, to determine the right policy proposals.”

Following consultations on the Green Paper, a White paper is expected in early 2017. “It will be a consultation that will deliver results,” said Ms May.

News: ‘Corporate Governance Reform’ Green paper

Global growth bolstered by US

BY Richard Summerfield

Donald’s Trump ascent to the presidency in the US caught many off guard, and though a number of the president-elect’s policies caused concern during the bruising race to the White House, his planned tax cuts and public spending increases will see global growth pick up faster than previously expected in the coming months, according to the Organisation for Economic Co-operation and Development’s (OECD) twice yearly Economic Outlook.

The OECD’s outlook suggests that the US is expected to be the best performing large advanced economy in 2017, growing 2.3 percent, with the eurozone growing 1.6 percent, and the UK just 1.2 percent. Only 1 percent growth is predicted in Japan. Furthermore, US growth is forecast to improve to 3 percent in 2018, the highest rate since 2005, as tax cuts on businesses and households come into effect and the administration’s infrastructure investment programme begins in earnest.

During his presidential campaign, Mr Trump pledged to boost infrastructure investment in the US by as much as $1 trillion. Though the new administration’s willingness to invest in infrastructure development has won the approval of the Paris-based think-tank, the OECD has distanced itself from another of Mr Trump’s often repeated policy positions: withdrawing from international trade agreements. It is these agreements, the OECD argues, that will help return strong growth to the global economy.

Fiscal initiatives, though, will play a key role in delivering greater global growth. “The global economy has the prospect of modestly higher growth, after five years of disappointingly weak outcomes,” said OECD secretary-general Angel Gurría, while launching the Outlook. “In light of the current context of low interest rates, policymakers have a unique window of opportunity to make more active use of fiscal levers to boost growth and reduce inequality without compromising debt levels. We urge them to do so.”

An extraordinarily accommodating monetary policy, will, according to the OECD, be the primary means by which the global economy will be boosted, although the think-tanks’s endorsement does not provide governments with a “blank cheque”, said Mr Gurria. Amid persistently low interest rates, policymakers have the opportunity to boost growth by utilising expansionary fiscal initiatives. According to the OECD, fiscal measures such as “high-quality infrastructure investment, innovation, education and skills” may lead to higher growth by 2018.

Report: Economic Outlook