More money, more problems

BY Richard Summerfield

Barely a week goes by without a major cyber attack making global headlines. Indeed, in recent weeks, the ‘WannaCry’ and ‘Petya’ ransomware attacks have caused chaos across a spectrum of organisations the world over. And, although many companies are beginning to respond to the threat, often the response is misguided, according to a new report from KPMG and BT.

The report, 'Securing the digital enterprise: The cyber security journey – from denial to opportunity', notes that too many companies are treating cyber security as a siloed issue, which can be dealt with simply by “throwing money” at the problem. While companies must ensure they have, for example, adequate and updated firewalls and antivirus protection, it is equally as important to pool shared resources and treat cyber security as a conventional operational risk issue. This requires greater ‘buy-in’ on cyber issues from the board and a better integration of cyber issues into overall business strategy.

David Ferbrache, Technical Director in KPMG’s cyber security practice, said: “The recent spate of cyber-attacks is keeping cyber risk at the top of the business agenda, and as such investments are being made. The business community needs to avoid knee-jerk reactions as cyber security is a journey – not a one size fits all issue, and getting the basics like patching and back-ups right matters. It’s important to build a security culture, raise awareness amongst staff, and remember that security needs to enable business, not prevent it.”

There must be a better acknowledgement, at board level, of the threat posed by cyber attacks. As such, organisations must have the right security provisions in place. These include, companies making sure they know where they are on their journey to cyber security, which, according to the report, involves five key stages: denial, worry, false confidence, hard lessons and true leadership.

Mark Hughes, CEO of BT Security, said: “The global scale of the recent ransomware attacks showed the astonishing speed at which even the most unsophisticated of attacks can spread around the world. Many organisations could have avoided these attacks by maintaining better standards of cyber hygiene and getting the basics right. These global incidents remind us that every business today - from the smallest sole trader through to SMEs and large multinational corporations - needs to get to grips with managing the security of their IT estate, as well as their people and processes.”

Report: Securing the digital enterprise - The cyber security journey – from denial to opportunity

Outlook for global economies more buoyant than downbeat claims new survey

BY Fraser Tennant

More buoyant than downbeat is the assessment of executives as to the outlook for both global and domestic economies over the next 12 months, according to McKinsey's latest economic conditions survey.

In its ‘Economic Conditions Snapshot, June 2017’, McKinsey notes that executives view geopolitical instability and terrorism as steadily growing threats to the global economy. Furthermore, they consider geopolitical instability to be the risk most often identified as a threat to near-term global growth in every region.

According to the McKinsey survey, the top five ‘potential risks to global economic growth over the next 10 years’ are: (i) geopolitical instability in the Middle East and North Africa; (ii) threat of terrorist attacks: (iii) slowdown in China’s economic activity; (iv) rising income inequality; and (v) volatility across global financial markets.

Additional concerns expressed by executives include transitions of political leadership and changes to trade policy, as well as social unrest (the survey found that respondents in developed Asia, India and North America were the most likely to cite this). Moreover, the number of executives in Asia that identified social unrest as a global risk has more than doubled since March 2017 (up from 14 percent to 32 today) – a figure that has tripled in other developing markets (up from 4 percent to 12 percent).

Despite these continuing threats and uncertainties, executives stated that they remain buoyant about economic conditions in their home countries, with those in Europe more likely to expect improvements. Executives in North America, in comparison, were less confident. At the same time, respondents in emerging markets and developed markets have reported new divergences in their views on trade, company profits and customer demand.

“Respondents are as bullish on the global economy as they were three months ago, with nearly half saying that global economic conditions have improved in the past six months,” states the McKinsey survey. “On the global economy’s prospects, too, respondents are more positive than negative. Nearly equal shares of executives say global conditions have improved and expect conditions will continue improving in the next six months”.

Looking ahead, 39 percent of executives say they are optimistic about the long-term prospects for the world economy, basing their belief on “pockets of growth” scenarios – characterised by high but uneven and volatile global growth. That said, the survey still makes clear that respondents are equally divided on whether or not global conditions will improve during the next few months.

Report: Economic Conditions Snapshot, June 2017: McKinsey Global Survey results

Mega deals boost H1 global M&A activity, reveals new report

BY Fraser Tennant

Mega deals across the globe boosted the value of mergers & acquisitions (M&A) activity to bumper levels in H1 2017, with Europe a particular hotspot, according to a report released by Mergermarket this week.

The report, ‘Global and regional M&A: H1 2017’, reveals that although deal volume has remained low, aggregate deal value so far this year has been the opposite – due largely to the significant number of mega deals struck.

The key data in the Mergermarket report shows that: (i) 17 mega deals have been announced since the beginning of the year (including Amazon’s recent takeover of Whole Foods), as companies look to ‘future-proof’ in the wake of rapid change to technology and politics to keep ahead of rivals; (ii) the consumer sector has seen six megadeals in H1 2017, in comparison to just one during the entirety of 2016; (iii) European M&A has surged ahead, securing 32.3 percent share of global value, while both the US and Asia Pacific have seen their share drop; and (iv) the energy, mining & utilities sector has been the most targeted industry, partially fuelled by some stabilisation of oil prices.

 “The first six months of 2017, and particularly the second quarter, has seen a clear resurgence in European M&A activity,” said Jonathan Klonowski, Europe, the Middle East and Africa (EMEA) research editor at Mergermarket. “The year started with worry over potential populist shocks but there now appears to be greater confidence in the market.

“M&A activity in the first six months of 2017 has seen firms look to adapt to changes, both in terms of politics and technology. The result has seen values increase to $1.49 trillion, an increase of 8.4 percent despite there being 1117 fewer deals in comparison to H1 2016. A key driver of this has been the increase in megadeals (with a value of $10bn) – with 17 in the first half of this year in comparison to 14 in H1 2016.”

Additional findings in the report are that the US and Asia have stagnated slightly, and despite the year starting with worry over potential populist shocks, there now appears to be greater confidence in the market following elections in France and the Netherlands.

Mr Klonowski concluded: “While volumes remain relatively low, values have continued to soar and there is no obvious reason why this should not continue for the rest of the year.”

Report: Global and regional M&A: H1 2017

Out of the shadows

BY Richard Summerfield

The ‘shadow banking’ system, which sees unregulated financial institutions offering lending and other financial activities under unregulated conditions, has been a major issue in the financial services space for many years, and is believed to have been a key catalyst for the financial crisis which began a decade ago.

However, according to Mark Carney, governor of the Bank of England and outgoing chairman of the Financial Stability Board (FSB), shadow banking, which has remained a key threat to global financial stability, has finally been tamed thanks to a series of fundamental reforms across the financial services space. Mr Carney suggests the world’s biggest banks are stronger, misconduct is being tackled, and the toxic forms of shadow banking are no longer a threat to the global economy. Though the shadow banking system has grown in recent years, according to Mr Carney, the industry’s more toxic elements have been marginalised by increased regulation in areas such as money markets and securitisation.

At a press conference on Monday, Mr Carney said that though shadow banking has been largely tamed it will continue to represent an ever present and changing threat. “Toxic forms of shadow banking at the centre of the crisis no longer represent a global financial stability risk. The remaining shadow banking activities are now subject to policy measures to reduce their risk and reinforce their benefit allowing for more diverse and resilient forms of market based finance. Shadow banking activities will inevitably evolve, so FSB member authorities must continue to strengthen their surveillance, data sharing and analysis in order to support the risk assessments and any future regulatory response that may be required,” he said.

Indeed, regulators must remain vigilant in the coming years if the threats posed by shadow banking are to be kept in check. The spectre of ‘reform fatigue’ must be fought off, says Mr Carney, as the next round of banking reform, including increased transparency regarding the over-the-counter derivatives markets, kicks in. Mr Carney also called for the next-step Basel III banking reforms to be completed “urgently and then implemented faithfully”.

Though there is more work to be done, significant steps have been taken to reform global banking in the 10 years since the crisis began. Banks are stronger, have better liquidity and are subject to greater and more stringent regulation. Shadow banking is still an issue but its influence has waned.

News: Toxic forms of shadow banking' no longer represent a global financial stability risk, says international watchdog

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‘Petya’ cyber attack affects thousands

by Richard Summerfield

Fresh off the heels of the ‘WannaCry’ ransomware attack, a fresh global cyber attack disrupted computers across the world on Tuesday and Wednesday. Russia's biggest oil company, Ukrainian banks and multinational firms across Europe, the US and the Asia-Pacific region were affected.

The latest attack, known as ‘Petya’ or ‘GoldenEye’, included code known as 'Eternal Blue', which cyber security experts believe was stolen from the US National Security Agency in April and was also used in WannaCry. It is the Eternal Blue code which facilitated the speed of the assault. Indeed, the attack spread rapidly, affecting machines running Microsoft’s Windows operating systems, encrypting hard drives and overwriting files before demanding $300 in bitcoin payments to restore access. "We are continuing to investigate and will take appropriate action to protect customers," a spokesman for Microsoft said.

Globally, Russia and Ukraine were most affected by the thousands of attacks, according to Kaspersky Lab. In Ukraine, government systems as well as banks, state power utilities and Kiev’s airport and metro system were all affected. Elsewhere, advertising giant WPP, French construction materials company Saint-Gobain, Danish shipping giant Maersk, US pharmaceutical company Merck, Russian steel and oil firms Evraz and Rosneft, and the Australian manufacturing facilities of the Mondelez owned Cadbury’s chocolate factory, along with many others, were all affected. In total, more than 2000 organisations are believed to have been hit.

The effectiveness of this latest attack, and the speed at which it has spread, so soon after the WannaCry attack, is cause for alarm among companies, cyber security professionals and the general public.

After the WannaCry incident, governments, security firms and industrial groups advised businesses and consumers to make sure all their computers were updated with Microsoft patches to defend against the threat. This latest attack, believed to be smaller than WannaCry, could be more harmful than its predecessor as it renders computers unresponsive and unable to reboot. The resourcefulness of the attackers is also a concern for cyber security professionals, particularly as Petya does not appear to have the same ‘kill switch’ which was used to neutralise the WannaCry attack.

Though they are not a new development, ransomware attacks are becoming more frequent. The Petya attack is yet another reminder that many organisations are neglecting to patch their systems, allowing malicious actors to exploit weaknesses. Companies must do more to protect their networks, their data and, ultimately, their cash.

News: New computer virus spreads from Ukraine to disrupt world business