China’s growth obsession fosters collateral fraud 1 Jun 2017 A Reuters report lays bare how loans are often backed by fake holdings of land or metals. It’s not surprising: the system deliberately enables corner-cutting to boost economic activity. But a lack of trust in asset values could prove traumatic if prices start to fall.
Bain’s bad debt foray into China will tempt others 1 Jun 2017 The U.S. private equity firm bought $200 mln of bad loans. That's a drop in an ocean of distressed Chinese debt, but it signals Beijing’s willingness to open up the market. As regulators push banks to clean up balance sheets, expect more overseas investors sniffing around.
The Exchange: Festival season 31 May 2017 The first episode of our "Summer Reading" series kicks off on a musical note. Governors Ball co-founder Jordan Wolowitz discusses the economics of putting on a music festival, the business of live music and life as part of Live Nation, the world's largest concert-promotion company.
Trump climate exit has bright silver lining 31 May 2017 U.S. support for anti-warming measures will be missed, if its withdrawal from the Paris accord is confirmed. But states, cities and businesses remain on board. And for nearly 200 other countries, including top polluter China, progress may be smoother free of D.C. foot-dragging.
Three Mile Island signals nuclear climate change 31 May 2017 Nearly 40 years after the worst meltdown in U.S. history, nuclear energy’s dire economics are leading Exelon to pull the plug on the plant. Its carbon-free power is a valuable asset, but one that lacks political support as President Trump threatens to abandon the Paris accord.
Barclays has honourable Africa retreat in sight 31 May 2017 The UK lender is offloading a $2 bln stake in its Johannesburg-listed unit as part of its exit from the continent. Political turmoil in South Africa may have interfered with a sale. But a supportive local fund and the robust rand have allowed Barclays to effect an elegant escape.
NXP activists have a good shot at a sweeter offer 31 May 2017 Qualcomm is short of support for the purchase of its Dutch rival for $47 bln including debt. A rally in the chip sector has eroded the premium, and Qualcomm is desperate for diversification. A price hike looks needed to get NXP's owners – including agitator Elliott – on side.
Exxon climate vote puts sector on notice 31 May 2017 Over 60 pct of shareholders backed a move that forces the $340 bln energy giant to ramp up global-warming disclosure, up from under 40 pct in 2016. Exxon already embraces the climate debate more than many in the industry. Holdout peers will have to follow or risk investor ire.
Mark Zuckerberg listening tour could start at home 31 May 2017 Activists want the Facebook CEO to give up his role as chairman. The quixotic proposal doesn’t stand a chance as Zuckerberg controls the vote. Yet the idea holds merit. The $440 bln firm would benefit from an independent board boss and a patina of good corporate governance.
Euro zone “safe” bonds would be anything but 31 May 2017 The European Commission has suggested creating low-risk securities by pooling sovereign bonds. The idea is to reduce banks’ exposure to governments. But risks would still be interconnected. Without a common tax base and joint liability, no pan-euro zone debt can be truly secure.
Hadas: Ending the hyperbole over pension savings 31 May 2017 The World Economic Forum wants all workers to put more aside for retirement. That may be conventional wisdom, but it is economic nonsense. For a nation, current savings cannot reduce the burdens of future pensions: if anything such reliance risks worsening the social challenge.
Activist adds teeth to Ericsson’s turnaround 31 May 2017 Cevian has taken a 5 pct stake in the Swedish telecoms-kit maker. Boss Borje Ekholm’s strategy of slimming down and boosting margins is sound, but lacks credibility as he was on the board when things turned sour. It can’t hurt to have a big investor breathing down his neck.
AIB’s IPO must balance politics and pragmatism 31 May 2017 Ireland plans to float 25 pct of the nationalised bank. A good result for the government would be a valuation similar to UK lender Lloyds. Similarities include low costs and strong market share. But AIB also has some things Lloyds doesn’t, like a bad loan ratio of 14 percent.
Car debt adds horns to UK’s Brexit vulnerability 31 May 2017 Britons’ non-mortgage debt has been growing at a 10 pct annual clip, of which half the growth is car financing. The risk for that lies not with banks or borrowers but car companies. If they pull back, a post-Brexit Britain could end up with less consumption – and less employment.
Ant Financial hands Chinese banks an easy win 31 May 2017 The fintech group has capped account sizes for its $167 bln money market fund, seen as a response to regulatory concern. The move won't stem shadow banking risk much, but banks will benefit from less competition in wealth management. Financial disruption in China has its limits.
Samsung gambles on an heirless future 31 May 2017 The South Korean giant will keep a structure that lets Jay Y. Lee keep control with a small stake. But a new left-leaning government might make it harder for the de facto leader to rule this way. Samsung looks unprepared for a future without its scion.
Trump uses carrot and stick with wrong countries 30 May 2017 The U.S. president berated NATO for not spending more on defense, putting the tally at $119 bln. In Saudi Arabia, he praised leaders and facilitated a $110 bln arms sale. Trump needs more from Europe while Riyadh is dependent on D.C. He may be better served reversing tactics.
Writing by numbers is wrong route to right message 30 May 2017 World Bank Chief Economist Paul Romer wants staff to write more clearly. His rules include a strict limit on the frequency with which they can use “and”. The quest for simplicity is welcome. But as economists know, the pursuit of numerical targets can lead to perverse outcomes.
Goldman steps in avoidable $2.8 bln Venezuela mess 30 May 2017 Money managers at the firm bought oil giant PDVSA’s debt at a big discount, indirectly handing the central bank needed dollars. Investments aren’t necessarily moral choices, but can hit reputations. After trouble in Greece and Malaysia, Goldman ought to have a better nose for it.
U.S.-EU trade talks could yet be chalk and cheese 30 May 2017 Trump officials hope a transatlantic deal will be easier to forge because barriers are already low. T-TIP has its own special problems, though, including local rules for white-collar workers and protections on products like feta. Such issues can be just as tricky as tariffs.
Shareholders are best judges of PPG’s Akzo bid 30 May 2017 A Dutch court threw out activist Elliott’s attempt to force talks between the paint maker and U.S. suitor PPG. That still leaves the other option: for PPG to appeal directly to shareholders. The 25 bln euro price looks attractive, and there is little downside in going hostile.
IAG can weather turbulence at BA 30 May 2017 The owner of Britain’s flag carrier is reeling from an IT glitch that grounded hundreds of flights. While unions blame cost cutting, the airline has little choice but to bear down on expenses. The impact will fade: customers have short memories and focus on prices in the end.
Italian early election is least bad option 30 May 2017 Growing political backing for a voting law makes a 2017 election more likely. The new system may produce a weak coalition that would struggle to reform. But it would allow elections to be held before a tough budget stirs up anti-EU sentiment or ECB policy tightening hits growth.
RBS pays prudent price to bury Goodwin-era shame 30 May 2017 The UK bank is close to settling with investors who say they were misled in the run-up to its 2008 bailout. Doubling their payout will cost an extra 100 mln pounds. But it spares RBS the risk of losing in court and the embarrassment of revisiting ex-CEO Fred Goodwin’s decisions.
Ambani dials up the pain in sibling rivalry 30 May 2017 An upstart telecom operator led by India's richest man, Mukesh Ambani, has hammered the industry. Younger brother Anil's RCom has been hit especially hard. Even after two planned deals, the group’s finances may still look rickety. New Delhi might offer a little relief.
Trump’s Paris accord call will be anticlimactic 26 May 2017 Even if the president pulls the U.S. out of the 2015 agreement, the impact should be limited. Cities, states, companies, investors and other countries will keep the anti-climate-warming momentum going. The bigger hit will be to America’s soft power and, potentially, its economy.
Jared Kushner conflicts hang on White House wall 26 May 2017 Donald Trump's son-in-law is under FBI scrutiny over Russian contacts. He and Ivanka Trump also didn't disclose their art collection. And the Kushner family used Jared's name to drum up Chinese business. The entanglements undercut his role in the administration, and its agenda.
Ravenous investors wolf down fintech IPO scraps 26 May 2017 Financial software group Alfa Financial is floating in the biggest UK offering this year by company value. The pricing looked rich to start with, but investors have since bid it up even higher. Blame a general lack of big listings of late, especially for the fintech-enthused.
UK Labour Party’s soft Brexit would still be hard 26 May 2017 The opposition is gaining in polls ahead of Britain’s June 8 vote. Leader Jeremy Corbyn is more pro-immigration than Tory Theresa May. Yet he is less pro-EU than he looks, and is less likely to be business-friendly – which could allow European negotiators to be tougher.
China puts currency market forces on notice 26 May 2017 It may tweak the way the yuan is priced each day, effectively giving policymakers more control over its value. In reality, the daily price-fixing is only a small part of how China manages its currency. It’s another step back from reform and suggests mounting economic worries.