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BNY Mellon Appoints Kimberly Mustin Head of North American Distribution

BNY Mellon Investment Management has announced that Kimberly Mustin has joined the firm as Head of North American Distribution, responsible for leading new business strategy and driving sales, client management and consultant relations efforts across institutional, retirement and retail markets throughout North America.

“Kim has significant leadership experience in all three North American markets and has succeeded within a multi-boutique investment management structure,” said PeterPaul Pardi, BNY Mellon’s Global Head of Distribution. “We are delighted to have Kim lead our North American efforts, and are confident she will further enhance our ability to build a market-leading organization focused on delivering outstanding investment solutions to our clients from across our specialist boutiques.”

In North America, Mustin will oversee centralized distribution and consultant relations across Dreyfus, BNY Mellon Retirement, and Institutional markets. Working closely with BNY Mellon’s investment boutiques, as well as Investment Management’s product and marketing leadership, she will lead the strategic plan for the North American distribution business. She will be based in New York and report to Pardi.

Mustin joins BNY Mellon most recently from Oppenheimer Funds where she was Head of Global Strategic Accounts since 2010, leading all institutional buyer groups including institutional, retail home offices, third party and global private banking platforms. Prior to Oppenheimer, Mustin was with Legg Mason, serving as both Head of Institutional and Co-Head of Americas Distribution for Legg Mason affiliates. Throughout her career of consistently progressive sales leadership positions, Mustin headed the Financial Institutions Group at Deutsche Bank, led Consulting and Relationship Management for Retirement at Scudder Investments, was a Principal at State Street Global Advisors and a Senior Consultant at Putnam Investments. She began her career as an Agent with the US Treasury Department.

“We are working continuously to explore, develop and implement enhancements to our distribution efforts globally,” Pardi continued. “These initiatives have enabled us to achieve top 10 sales performance in both the U.K. and Europe in 2013, as well as a top 10 position in the U.S. Retirement market. It’s a thoughtful approach to strategic planning and investment in our platform that will serve Kim well as she leads us forward in North America.”

SEC Charges Brokerage Firm Executives in Kickback Scheme to Secure Business of Venezuelan Bank

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Dos traders de Nueva York, los nuevos acusados en un caso de soborno a funcionarios venezolanos — Wikimedia CommonsPhoto: Popejon2 . SEC Charges Brokerage Firm Executives in Kickback Scheme to Secure Business of Venezuelan Bank

The Securities and Exchange Commission has announced another round of charges in its ongoing case against several individuals involved in a massive kickback scheme to secure the bond trading business of a state-owned Venezuelan bank.

The SEC alleges that two executives at New York City-based brokerage firm Direct Access Partners (DAP) were integral participants in the wide-ranging fraud. Benito Chinea, who was a co-founder and CEO of the firm, and Joseph DeMeneses, who was DAP’s managing partner of global strategy, devised and facilitated sham arrangements to conceal multi-million dollar kickback payments to a high-ranking Venezuelan finance official of the bank. In one instance, DeMeneses made kickback payments from funds he controlled to a shell entity controlled by the Venezuelan official, and Chinea arranged for the firm to reimburse DeMeneses. The allegations were made in a second amended complaint that the SEC submitted in federal court in Manhattan as part of its pending action against four individuals with ties to DAP as well as the head of DAP’s Miami office, who were charged last year for their roles in the scheme.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York and the U.S. Department of Justice’s Criminal Division today announced criminal charges against Chinea and DeMeneses.

“The corruption at Direct Access Partners reached the very top,” said Andrew M. Calamari, director of the SEC’s New York Regional Office. “The schemers depended on Chinea as CEO to authorize outsized payments from the firm to be funneled as kickbacks to Venezuela.”

The filing of the SEC’s second amended complaint is subject to court approval. The SEC seeks disgorgement of ill-gotten gains plus interest and financial penalties against Chinea, who lives in Manalapan, N.J., and DeMeneses, who lives in Fairfield, Conn., as well as the five previously named defendants with ties to DAP, which has filed for bankruptcy.

The SEC’s investigation, which is continuing, has been conducted by Wendy Tepperman, Amanda Straub, and Michael Osnato of the New York Regional Office, and supervised by Amelia Cottrell. Howard Fischer is leading the SEC’s litigation. An SEC examination of DAP that that led to the investigation was conducted by members of the New York office’s broker-dealer examination staff. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, the Department of Justice’s Criminal Division, and the Federal Bureau of Investigation.

Six Reasons Why US Capital Expenditure is on The Rise

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Seis razones por las que el gasto de capital aumenta en Estados Unidos — Foto: Jerry Gunner . Six Reasons Why US Capital Expenditure is on The Rise

In the United States, capital expenditure is lagging the economy as a whole. Some think this is the ‘new normal’. But Robeco’s strategist Peter van der Welle believes there is a strong case for a rebound in investments later this year.

Why investment activity in the US has been subdued

Capital expenditure has been disappointing in recent years. Corporates drastically reduced investments to cut costs following the sharp economic contraction in 2008. On the political front, gridlock on the fiscal situation and ‘Obamacare’ eroded confidence.

The decline in stock prices in 2007-2009 meant that firms that wanted to expand could buy up other companies cheaply and did not need to invest directly in capital goods. In terms of funding, tighter bank lending standards on commercial and industrial loans have also made it more difficult for companies to borrow.

Why investment activity in the US may rebound later this year

It will probably come as no surprise that US investment as a percentage of GDP is still well below historical levels. This situation has spurred an investor debate. Is what we are now facing the ‘new normal’ or just a cyclical trough?

“No”, says Robeco’s strategist Peter van der Welle. “Recent developments in the US economy suggest the tide for capital spending will turn. However, last year, more favorable conditions failed to spur investment growth and market analysts forecasting a pick-up in capital expenditure in 2013 were proven wrong.”

“A combination of pull and push variables could turn the tide for capex”

According to Van der Welle this demonstrates that improvements in one area alone are not enough to trigger the ‘capex call’. A broad-based momentum in the key factors that determine the investment case is required. “We identify a combination of pull and push variables that could turn the tide for capital spending”, says Van der Welle.

Business outlook has gained momentum to spur investments. Economic uncertainty surrounding the US recovery has decreased. Leading indicators have been positive for investment activity for quite a while now. Consumers have deleveraged, US banks have relaxed their lending standards and there is now stronger demand for loans from the industrial sector.
US industrial renaissance could ignite multiplier effects for investment. Growth in strong economic sectors could start a ripple effect, leading to better free cash flow and earnings profiles for related sectors. A good example is shale gas, where abundant supply has caused domestic gas prices to decline and has strongly improved the business case for gas-related industries. The current ongoing industrial renaissance in the US will pave the way for innovation, spurring investment.
Political and economic uncertainty has abated. The gridlock in Congress is over with the Republicans receiving the lion’s share of the blame for the partial government shutdown last November. The hardline Republican stance on fiscal tightening and attacks on ‘Obamacare’ will soften ahead of Congressional elections later this year.
Aging capital stock creates pressure for replacement investments. A push factor for heightened investment activity is aging capital stock. Equipment has not been this old since 1995 and some intellectual-property products date back to the eighties. The delay in replacing buildings and machines will be reversed as higher output levels will become increasingly difficult to achieve with the existing capital stock.
Efficiency gains from existing capital stock are diminishing. The increased efficiency achieved by squeezing the remaining potential out of existing capital stock is diminishing. Businesses will probably need to engage in productivity enhancing capital expenditure, if they are to maintain efficiency advantages. Besides the need to upgrade quality, more capital stock is also required, given that industrial capacity utilization rates in the US have risen above their cyclical average.
More investor pressure for capex. Investors are increasingly encouraging corporate management to pursue growth opportunities. This could encourage firms to increase M&A or stimulate organic growth through direct capital spending on equipment, software and intellectual property rights.

Van der Welle: “Although political developments and healthy corporate balance sheets are important, a broader range of positive conditions are required to trigger a ‘capex call’. Based on these six arguments, we think a rebound later this year is likely and that the lackluster US capital expenditure of the last five years is not a prelude to the ‘new normal’.”

Rotation Into More Defensive Stocks and Sectors May be Imminent as Investors Favor Value vs Growth

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Investor confidence in global economic growth remains high even as expectations of higher short-term rates increase, according to the BofA Merrill Lynch Fund Manager Survey for April.

The survey, taken between April 4 and April 10, 2014 with an overall total of 239 panelists with US$674 billion of assets under management, showed that the number of investors believing the global economy will grow over the next 12 months was steady at a bullish net 62 percent, unchanged from March and higher than the 56 percent in February. That view supports expectations for profits – a net 44 percent of investors believe profits will improve over the next 12 months, up from 40 percent in March and the same as in February.

However, expectations of higher short-term rates are growing with a net 66 percent believing short rates will rise over the next 12 months, up from 55 percent in both March and February and the highest in three years. This expectation of normalizing monetary policies, though, hasn’t changed sentiment on long-term rates much – a net 72 percent believes they’ll be higher in 12 months, down slightly from 74 percent in March and 73 percent in February. Taken together, expectations for a steeper yield curve are falling away. A net 22 percent of investors are expecting a steepening compared with 39 percent in March and 42 percent in February.

There was a big change in sentiment among investors when choosing between value and growth stocks. In April, a net 40 percent believed value stocks will outperform growth stocks over the next 12 months, more than triple the level in March and an all-time high.

The preference for value might offer one clue to the recent sell-off in technology and biotech stocks. “Recent market volatility has led investors to ‘taper’ their extreme bullishness on U.S. growth-plays and extreme bearishness on emerging markets,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.

Seeking alternative markets

Regionally, a net 66 percent of global fund managers believe the U.S. is still the most over-valued equity market, little changed from March and February. That has many looking again at emerging markets – a net 55 percent think these are undervalued, up from 49 percent in March and the highest reading ever. In addition, only a net 2 percent would like to underweight emerging markets, down sharply from 21 percent in March.

Crowded trades

Fund managers are taking a more guarded view of assets favored in recent years. Topping the list of crowded trades are Long U.S. High-Yield bonds at 22 percent, a notable jump on the 13 percent in March. Also, long peripheral debt was cited as a crowded trade by 19 percent of respondents, up from 16 percent in March.

“After two years of cyclical outperformance in Europe, some of the exuberance we see in investor sentiment and positioning suggests a rotation into more defensive stocks and sectors may be imminent,” said Obe Ejikeme, European Equity and Quantitative strategist.

Abenomics effect wanes

In Japan, the boost provided by the launch of “Abenomics” over a year ago continues to wane. Only a net 13 percent of investors are still overweight Japanese equities, down from 16 percent in March and 30 percent in February. Similarly, a net 16 percent have a favorable outlook for Japanese profits, down from 18 percent in March and 28 percent in February while perceptions of their quality and volatility turn for the worse.

TIAA-CREF to Purchase Nuveen Investments

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TIAA-CREF, a leading financial services provider, announced today an agreement to acquire Nuveen Investments, a diversified investment management company with approximately $221 billion in assets under management. The acquisition further strengthens TIAA-CREF as a leading provider of retirement and financial services and significantly expands the products and services available to help customers achieve financial well-being at all stages of their lives. Additionally, the transaction adds diversification to TIAA-CREF’s investment and distribution platform while bolstering its award-winning mutual fund offerings.

Nuveen, a trusted industry leader, will benefit from the enhanced resources, scale and strength that the transaction will add to its platform. Nuveen’s clients and the advisors and consultants who serve them will continue to benefit from the firm’s and its affiliates’ commitment to high quality performance, integrity and client service.

TIAA-CREF is acquiring Nuveen from an investor group led by Madison Dearborn Partners, a private equity investment firm, for an enterprise value of $6.25 billion, inclusive of Nuveen’s outstanding debt. Nuveen will operate as a separate subsidiary within TIAA-CREF’s Asset Management business, retaining its current multi-boutique business model and continuing to support its investment affiliates through scaled distribution, marketing and administrative services. John Amboian will remain the chief executive officer of Nuveen, and Nuveen’s current leadership and key investment team will stay in place.

The transaction enhances TIAA-CREF’s position as a world-class financial services organization with broad market presence. TIAA-CREF and Nuveen have highly complementary investment capabilities and distribution reach across a wide range of retail and institutional client segments. The addition of Nuveen brings TIAA-CREF’s total assets under management to approximately $800 billion.

“For nearly a hundred years, we have been wise financial stewards for those who make a difference in the world in the academic and non-profit communities,” said Roger W. Ferguson Jr., president and chief executive officer, TIAA-CREF. “The acquisition of Nuveen can generate greater returns that will benefit our customers. This transaction “reinforces our position as a leading diversified financial services organization with a broad mix of product offerings to serve clients today and those in retirement for decades to come.”

“We are pleased to bring our clients around the globe access to new investments and strategies through our partnership with an experienced, market-tested investment firm like Nuveen,” said Robert Leary, executive vice president, TIAA-CREF, and president, TIAA-CREF Asset Management. “In addition, Nuveen’s strong distribution network will give us growth and scaled presence in several important channels through relationships built around experienced investment managers with strong track records.”

“We are delighted to partner with TIAA-CREF, which stands among the most highly respected financial institutions and possesses an unparalleled pedigree in retirement services and investment management,” said John Amboian, chief executive officer, Nuveen Investments. “The clients of Nuveen, and each of our investment affiliates, will benefit from TIAA-CREF’s support of our multi-boutique approach and from the continuity of our client services, our brands and our professionals, whose interests will remain strongly aligned with our long-term success. Nuveen and TIAA-CREF share similar values and the same high standards of service and we are excited about the opportunity to further serve our clients.” Mr. Amboian continued: “The Nuveen team and I also would like to thank Madison Dearborn for their support and guidance in helping us advance our strategy and grow our business even in the midst of a very challenging and competitive market environment.”

“We are proud of the accomplishments Nuveen has made in recent years and its status as a provider of top performing investment funds,” said Sam Mencoff, co-chief executive officer, Madison Dearborn Partners. “TIAA-CREF is the right home for Nuveen and its investment affiliates moving forward. We thank John and his team for their partnership and we wish them well as Nuveen enters this exciting new chapter.

“The transaction will provide clients with additional investment choices and access to new products. Enhanced investment capabilities from the combination of TIAA-CREF and Nuveen will span both traditional and alternative investments comprising a diversified range of assets including equities, taxable and tax-exempt fixed income and credit strategies, commodities, real estate and real assets.

The transaction gives TIAA-CREF two award-winning mutual fund complexes with $181 billion of aggregate AUM. This year, for the second year in a row, TIAA-CREF was named by Lipper as the Best Overall Large Fund Company, a distinction separately awarded to Nuveen in 2012. Additionally, ninety-eight percent of TIAA-CREF’s mutual funds receive an overall Morningstar rating of three or more stars across all asset classes (As of March 31, 2014, 41% have 3 stars, 42% have 4 stars, and 15% have 5 stars). Ninety percent of Nuveen’s funds have an overall Morningstar rating of three or more stars across all asset classes as of March 31, 2014.

The boards of directors at both TIAA-CREF and Nuveen each have unanimously approved the transaction. The acquisition is expected to be complete by year-end 2014, subject to customary closing conditions.

Lazard acted as lead financial advisor to TIAA-CREF and J.P. Morgan Securities LLC also acted as financial advisor to TIAA-CREF. BofA Merrill Lynch, Wells Fargo Securities, LLC and Citigroup Global Markets acted as financial advisors to Nuveen Investments. UBS Investment Bank, Goldman Sachs & Co. and Moelis & Company acted as financial advisors to the Nuveen management team. Morgan Stanley, Deutsche Bank and RBC Capital Markets acted as financial advisors to Madison Dearborn Partners.

Roque Calleja Moves to BlackRock’s Mexico Office to Develop Relationships with Afores

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Roque Calleja has recently moved to BlackRock’s Mexico office as a Vice President, responsible for developing and maintaining relationships with institutional investors in Mexico and Central America.

In this role Mr. Calleja works with clients to provide insight about BlackRock’s active strategies and how these products can deliver desired investment outcomes.

Mr. Calleja’s joins BlackRock’s Mexico office from New York, where he supported BlackRock’s Latin America and Iberia business and was responsible for managing the retail offshore wealth business in the Northeast region, based in New York.

Mr. Calleja’s joined BlackRock in 2009 as a member of BlackRock’s iShares business in Iberia. Mr. Calleja earned a BA degree in business administration and a Master’s degree in Business Strategy from the Francisco de Vitoria university in Madrid, Spain. Mr. Calleja also holds a master’s degree in alternative investments and Hedge Funds by the Instituto de Estudios Bursatiles (IEB) university in Madrid.

Spring in Emerging Markets

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Emerging market (EM) equities and bonds have performed remarkably well in the past months. A lot of bad news seems priced in and with lower immediate risk, investors dare to step in again. In this enviroment, ING Investment Management have closed most of the underweight positions in EM but remain cautious for the medium to longer term.

In last week’s Marketexpress we wrote about the surprisingly resilient EM currencies. Despite the seemingly hawkish comments of Fed Chairwoman Yellen and the increasing worries about Chinese growth and its financial system, EM currencies as a whole have appreciated since the second half of March.

EM bonds and currencies perform well since end of January

Enlarge

Policy response China after accumulation of bad news

The asset manager mentioned that one likely explanation for the EM resilience was that the reports from China had become so bad that markets interpreted them as good news: every disappointing figure was one step closer to a policy response. And indeed, last week the Chinese authorities announced a number of stimulus measures which are quite similar to the ‘mini stimulus’ package that was announced last year. The measures include accelerated spending on rail projects and public housing and extended tax relief for small businesses. Although the magnitude and effectiveness of the stimulus should not be overestimated, it should help to underpin the sentiment towards China and emerging markets.

A lot of negative news about EM is priced in

Next to that, after more than a year of strong capital outflows, markets have priced in a lot of negative news. The increasing evidence of financial system stress in China and the aggressive intervention of Russia in Ukraine have been important negative news items in the past months, but failed to push EM currencies significantly lower. This suggests that the downside risk for EM assets is lower than it has been for a while.

You can read the entire article on the attached document.

BNY Mellon Appointed as AIFMD Depositary by Dutch Pension Fund Administrator PGGM

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BNY Mellon, a global leader in investment management and investment services, has been appointed by PGGM Vermogensbeheer B.V., the investment management arm of Dutch pension fund administrator PGGM, to provide depositary services under the Alternative Investment Fund Managers Directive (AIFMD) for assets valued at EUR14 billion.

In addition to safekeeping the funds’ assets, which are held within five fixed income investment funds, BNY Mellon will provide oversight functions and perform cash monitoring as required by AIFMD.

Based in Zeist in the Netherlands, PGGM provides pension management, integrated asset management, management support and policy advice for pension funds. PGGM manages about EUR160 billion assets (as at March 2014) on behalf of more than 2.5 million Dutch participants.

Leonique van Houwelingen, Country Executive for the Netherlands at BNY Mellon, said: “BNY Mellon’s local presence and expertise in the Netherlands, our proven depositary and trust capabilities in Europe, and the flexibility we can offer were all key factors in PGGM’s decision to appoint us as their AIFMD depositary.

“We are well-placed to provide comprehensive support for our clients as they prepare for the far-reaching changes that AIFMD will bring. In addition to new requirements around reporting, operational, technology and control infrastructures, the Directive mandates the segregation of risk management and valuation functions from portfolio management. Through our fully licensed Amsterdam branch, we are able to provide comprehensive depositary bank services in The Netherlands to ensure compliance before the final deadlines of each respective regulation.”

Van Houwelingen added: “BNY Mellon has maintained a substantial operational presence in the Netherlands over the years. We are committed to leading the way when it comes to supporting Dutch fund managers impacted by AIFMD. The depository bank function is already a key element of our regional offering, and we have a well-established and robust track record in this space in Belgium, Germany, Ireland and Luxembourg.”

The new mandate extends BNY Mellon’s long-standing custodian relationship with PGGM. BNY Mellon currently services fund assets valued at EUR1 trillion and over 1,600 funds across the region.

Article 21 of AIFMD requires that an AIFM must ensure a single depositary is appointed for each alternative investment fund it manages. The depositary will handle the safekeeping of financial instruments and other assets; ensure proper and effective monitoring of the fund’s cash flows; carry out various monitoring and oversight tasks; and implement client reporting and escalation procedures to the manager and regulators in the event of breaches.

The Carlyle Group Names Jeff Holland Head of Private Client Group

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Global alternative asset manager The Carlyle Group has announced that Jeffrey C. Holland has joined the firm as Managing Director and Head of the Private Client Group. Mr. Holland comes to this newly-created position from Cole Real Estate Investments, Inc. where he was President and Chief Operating Officer, overseeing the Private Capital and Real Estate groups. Mr. Holland joined the firm on March 17^th and is based in New York.

Mr. Holland will oversee the group responsible for the development of Carlyle’s relationships with individual investors and intermediaries serving these investors. The group led by Mr. Holland will focus on arrangements with bank feeder funds and other financial advisors through which high net worth and other qualified individuals may gain access to an array of Carlyle alternative asset products. Mr. Holland will also be responsible for the development and marketing of additional registered and non-registered products that may become more broadly available, including hedge funds, credit-oriented funds and other trading strategies offered through Carlyle’s Global Market Strategies and Solutions business segments.

David M. Rubenstein, Co-Founder and Co-Chief Executive Officer, said, “Individual investors – private clients who have a broad range of investment capacity – seek the same access to our fund strategies that institutional clients have had for decades. Providing qualified individuals greater access to alternative assets and developing new products and platforms that are accessible to retail investors and mutual funds is a priority for Carlyle, and Jeff brings to this effort extensive experience in designing, developing and launching innovative products.”

Mr. Holland said, “This is a great opportunity to bring Carlyle’s institutional brand and record of excellence into the private client arena, through a variety of products, from retail mutual funds to private placements. I look forward to working with the Carlyle team to further build on their early successes.”

Prior to his work at Cole Real Estate Investments, Inc., Mr. Holland was a Managing Director and Chief Operating Officer for US Retail at BlackRock, Inc. Earlier he was a Vice President of Consulting Services at Raymond James & Associates and held positions with Capital Resource Advisors and McKinsey & Company Inc. Mr. Holland holds a Chartered Financial Analyst designation and is a member of the CFA Institute.

Mr. Holland, 42, earned his B.A. from the University of Puget Sound and his J.D. from Harvard Law School.

Euro-Zone Deflation: Making Sure ‘It’ Happens Here?

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Deflación: haciendo lo posible por que sí se instale aquí — Wikimedia CommonsPhoto: World Economic Forum. Euro-Zone Deflation: Making Sure ‘It’ Happens Here?

In one of his most famous speeches, recently retired Chairman of the US Federal Reserve, Ben Bernanke, set out how he would ensure deflation did not take hold in the US economy. The remarks to the National Economists Club in Washington DC were titled ‘Deflation: Making sure ‘it’ doesn’t happen here’.

The speech, which compared the remedy of sweeping tax cuts and open market purchases of assets to Milton Friedman’s helicopter drop of money, led him to be dubbed ‘Helicopter Ben’. The speech, which at the time was addressing the low rates of inflation in the US at the time, actually proved to be prescient and many of the policies set out were implemented in the aftermath of the global financial crisis.

Nearly twelve years after this landmark speech and five and half years after ‘Lehman Day’ is the European Central Bank (ECB) both ignoring Bernanke’s sage words and risking a debilitating debt deflation in the euro area?

Inflation in the euro zone is close to the bottom of the range of historic outcomes available from Eurostat. What then were the factors behind such a sharp and sudden change in euro-zone inflation relative to forecast just a few months previously? According to the report by Investec Asset Management, it is energy that has been driving inflation lower in recent months and, in particular, the base effect from 2012’s large increases, when energy prices were increasing at between 8% and 9%.

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However, this is not the entire story. When disaggregating the data into the underlying countries that make up the euro zone, it becomes immediately clear that the peripheral euro-zone countries are flirting with outright deflation, whereas the more solid core countries are comfortably within historical norms.

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This, of course, is a direct result of the structural adjustments the stressed euro-zone countries are undertaking without the traditional remedy of currency devaluation. This so-called internal devaluation has seen wages, consumption and government spending slashed. Ben Bernanke would not have been surprised by the flirtation with deflation in the periphery as he made clear in his 2002 speech: “deflation is in almost all cases a side effect of a collapse in aggregate demand – a drop in spending so severe that producers must cut prices on an ongoing basis in order to find buyers.”

What would Dr Bernanke prescribe?

ECB President Draghi believes Europe will not slip into sustained deflation and has only adopted one of Bernanke’s five measures to avoid deflation.

In his 2002 speech, Bernanke noted that, in the first instance, it was necessary for central banks to preserve a buffer zone, which reduces the risk that “a large, unanticipated drop in aggregate demand will drive the economy far enough into deflationary territory.” There can be little doubt the euro-zone crisis qualifies as large and unanticipated and so it’s too late for buffer maintenance. The table sets out the ex-Chairman’s other recommendations and Investec’s view of whether or not they have been adopted by the ECB.

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Investec is concerned that the euro zone is in a fundamentally dis-inflationary environment. At present deflation is concentrated in a limited number of periphery euro-zone countries rather than the core. If it spreads, deflationary alarm bells will start to ring more loudly.

In this environment, Investec prefers German bunds and is underweight in Italy and Spain, and it has a preference for European equities over US equities on valuation grounds.

You may access the full report through this link.