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Santander will Sell Part of its Custody Business in Spain, Mexico and Brazil

Santander venderá parte de su negocio de custodia en España, México y Brasil — Photo: Ardfern. Santander will Sell Part of its Custody Business in Spain, Mexico and Brazil

Spain’s major bank will not restrict itself to selling part of its asset management business, as it did last year when it sold 50% of the business to Warburg Pincus and General Atlantic funds for US$1.3 billion.

Furthermore, according to the daily publication “Expansion”, the bank plans to dispose of half its custodial and depository business. Once again, one of the buyers is the equity fund Warburg Pincus, which, together with other partners, is apparently close to grabbing a 50% share of that business. According to the Spanish newspaper, the sale will initially affect the Global Custody & Securities Services business in Spain, Mexico and Brazil, but could later be extended to other countries. Besides those three markets, Santander has custody and depository business in Chile, Argentina and Portugal.

According to market sources consulted by Expansion, Santander’s division responsible for providing securities’ settlement, custody, and administration services, could be valued at between €0.5 and €1 billion.

Gaining muscle at the global level

Although the sale of 50% of Global Custody & Securities could be considered the first step out of the asset custody business, Expansion points out, citing market sources, that the bank’s intention could be quite the opposite, since the bank could be looking for partners which allow it to grow, especially outside Spanish borders, to become a strong player globally.

Following the sale, the bank could guarantee its partners liquidity over the medium term through an IPO, the same formula which the bank has used with Santander Consumer, Santander Consumer USA went public earlier this year, and which it also used with its asset management division. According to Expansion, the other option would be for the bank to sell the other half of its custody business to other international groups such as BNP Paribas, BNY Mellon or State Street.

The impact of regulation

One of the reasons why some companies are planning to sell their custody and depository businesses is the new regulation: UCITS V will increase the depositories’ costs and responsibilities. In this regard, UCITS V regulates three issues: the depositary liability regime; the content of the custody function in respect of the different types of financial instruments and of the function of supervision; and the requirements to act as depositary and the conditions under which this role may be delegated to sub-custodians.

As Ramiro Martinez, director of Gomarq Consulting, explained to Funds Society, the proposal introduces a new harmonized system of “quasi-strict liability” which deems the depositary liable if the assets are lost in custody (including assets transferred to a third party in sub-custody), replacing them with others of the same type or value. For the expert, this new liability regime “significantly increases the risk of the depository role and forces depositors to increase their control and will therefore increase their costs (and will probably involve additional capital requirements for the provision of this service). This will require specialization and the pursuit of economies of scale to absorb cost increases,” says Martinez.

That is why the experts are referring to a certain activity of sales of this business amongst those institutions which do not consider it core business, and its concentration among institutions which have enough financial muscle globally to meet the new requirements.

FIFA Seeks to Regulate Mutual Funds in the World of Soccer

| By Fórmate a Fondo | 0 Comentarios

A few days ago, FIFA spoke out about investment funds in the soccer world, as it intends to regulate them as another vehicle at the service of clubs and players. The web site Iusport.com reports that FIFA approved a circular dated May 12, declaring itself in favor of regulating mutual funds, rather than banning them.

Despite FIFA’s approval, UEFA continues to disapprove of investment funds in the world of soccer. By means of this circular, FIFA seeks a solution to the conflict and the regulation of investment funds in order to provide legal assurance, transparency and clarity as a means of alternative funding for clubs, and to eliminate the current irregularities.

In the circular, signed by Jerome Valcke, FIFA’s general secretary, the sporting association explained that they have commissioned two studies to CIES and CDES in order to develop a final proposal. The aim is to raise the issue during the next FIFA Congress in Sao Paulo in mid-June.

Titled “Summaries & Comments of the Study on the Ownership of the Economic Rights of Players by Third-parties”, the circular begins by admitting that the matter of the ownership of the economic rights of players by third-parties has occupied an important place in discussions led by FIFA within the international soccer community, and that its competent committees have included it in their agendas in order to find an effective formula for addressing the issue.

FIFA also maintains that discussions about it have shown that so far, the soccer community has not established a common front to tackle the problem effectively, though apparently most stakeholders recognized that such practices may pose a threat to the integrity of soccer tournaments.

Given the complexity of this phenomenon and the strategies employed in various regions to regulate it, FIFA, as it had notified, commissioned two studies with the general purpose of gathering information on the ownership of the economic rights of players by third parties and about various aspects of this practice, which, in turn, would provide more data to support discussions and initiatives. The two studies have brought together a number of views on the subject from stakeholders in the soccer world, as well as its impact on the soccer sector in general.

FIFA’s primary objective is to tackle this problem from a solid foundation which takes into account all aspects related to this practice, so that it is possible to provide adequate and fair solutions within the framework of a well documented participatory process which includes the stakeholders within FIFA’s competent bodies.

Should you wish to learn more about it you can consult the circular, which is attached in a document.

Citi Private Bank Announces New Family Office Leadership

| By Alicia Miguel | 0 Comentarios

Citi Private Bank announced on Tuesday that William Woodson will join the firm in June as Managing Director and Head of the North America Family Office Group. Mr. Woodson will be based in West Palm Beach, FL and report jointly to Peter Charrington, CEO, Citi Private Bank, North America, and Catherine Weir, Global Head of Family Office Group, Citi Private Bank.

Stephen Campbell, formerly head of the group, has been named Chairman for the North America Family Office Group. In this role, Mr. Campbell will focus on advising the firm’s largest family office and foundation clients in North America and globally.

Mr. Campbell joined Citi in 2011 to build out the Private Bank’s North America family office platform. Since that time the business has grown its AUMs exponentially, becoming a significant part of the firm’s overall offering. Mr. Campbell has more than 25 years of diverse financial industry experience prior to joining Citi, having led investment management and technology organizations for Fidelity Investments in the U.S, Europe and Asia; founding as well as investing in early stage venture companies; and as Chief investment Officer of a family office.

Mr. Woodson joins Citi from Credit Suisse where he was Head of the Ultra High Net Worth and Family Office Business for the North American Private Bank. A tax professional by training, Mr. Woodson spent a decade in public accounting with both Coopers & Lybrand and Arthur Andersen before leaving to run the family office for one of his largest clients. Mr. Woodson was a founding member and Managing Director of myCFO and worked as a private banker with the Merrill Lynch Private Banking and Investment Group before joining Credit Suisse in 2007 to lead the firm’s Multi-family Office Practice and Wealth Planning Group.

Mr. Woodson holds a BS degree in Economics from the University of California and a MS degree in Accounting from New York University. “In Steve and Bill we have two exceptional family office resources for our clients. Steve has done a remarkable job leading this key business unit in the past three years and we look forward to its continued growth with Bill at the helm. We recognize that Family offices are as unique as the families they serve and our team’s mission is to help ensure the success of each individual family office we serve,” said Peter Charrington, Citi Private Bank.

“I look forward to helping address the evolving needs of Citi’s family office clients by providing the tailored investment, lending, banking and advisory services they need, and to building lasting relationships with new family office clients who can benefit from Citi’s vast global network of expertise, strategies and services,” said Woodson.

Buying Something You Don’t Understand

| By Elena Santiso | 0 Comentarios

El inversor compra cosas que no entiende — . Buying Something You Don't Understand

People are not great at assessing relative risk. Most of us know people who are afraid to fly but have no issue with driving long distances. While both have risks, it is generally understood that driving is far more dangerous than flying.

Investing is no different. You can’t avoid risks, but you should at least know what risks you’re taking.

According to one of the recent surveys by MFS Investing Sentiment Insights, many investors have very interesting ideas about the risks of passive investing.

The first finding that jumped out was that 64% of investors thought an index fund was safer than the market. This is a pretty clear example of someone not knowing what they’re buying or how it is designed.

The second finding was even more scarier. When asked why they purchased passive investments, 48% said a major factor in the purchase was “minimal risk.” Imagine how an investor who purchased an equity index fund because of minimal risks will react during the next downturn?

There is a role for both active and passive investments in a portfolio. However, it rarely ends well when we buy something we don’t understand.

India’s Review of Depositary Receipts Could Open the Door to Increased Foreign Investment

| By Alicia Miguel | 0 Comentarios

Many global investors are welcoming recommendations contained in the M.S. Sahoo Committee report, announced last week by India’s Ministry of Finance. The report recommends allowing over-the-counter (OTC) non-capital-raising American depositary receipt (ADR) programmes on any kind of securities, not only equity. Neil Atkinson, Asia-Pacific head of depositary receipts at BNY Mellon, discusses the case for DRs and why he believes this is positive news both for India and those investing in Indian securities.

“The M.S. Sahoo Committee’s ground-breaking recommendations are terrific news for India and the global investment community. The introduction of the new scheme for DRs will provide global investors with convenient access to Indian companies, who in turn can attract foreign investment through this flexible and cost-efficient securities product. In permitting OTC non-capital-raising DRs, India would join more than 60 countries worldwide whose companies have established non-capital raising DR programs for secondary market investors.

The case for India’s DR reform

“The M.S. Sahoo report is a remarkable study which acknowledges current regulatory constraints that inhibit foreign investment in India. There is significant international demand for Indian equity and greater access to DRs may meet some of the demand not satisfied through routes previously available. Conversations with global investors indicate they warmly welcome this news and look forward to exploring greater investment in India in the near future.

“While DRs remain a valuable source of capital-raising from overseas investors, today they are much more than that. DRs play an essential role in cross-border trading and are a preferred instrument for companies listing their shares on global markets and for investors seeking international portfolio diversification. Not only do they broaden and diversify the range of investors who participate in capital markets, but adding a DR programme can also provide greater visibility for issuers.

“For investors, DRs are an attractive route to entry in a market because they offer a combination of convenience, simplicity and flexibility when compared to direct investment in a foreign market. In our research report from March 2013, ‘India: Easing Conditions for Investors’, we found nearly half of all global funds that invest in India using DRs chose not to invest directly through local shares. Many indicated a preference for the familiarity and convenience of DRs and were unable or unwilling to invest directly or use derivatives.

“While it could be argued that the importance of DRs has subsided since India’s onshore market has developed, DRs remain an attractive route for foreign investment into India. At BNY Mellon, we commend these ground-breaking developments which should promote greater integration of the Indian financial system with international capital markets.”

Since the 1920’s, investors, companies, and traders have used DRs to meet their needs. According to BNY Mellon data as of 31 December 2013, there are more than 3,750 DR programmes available to investors, representing issuers from 75 countries. More than 4,400 institutions invest over $800 billion in DRs globally.

Institutional Use of ETFs Has Transformed in Five Years

| By Alicia Miguel | 0 Comentarios

ETFs have become a standard tool in institutions’ investment toolkit, according to a study released today by Greenwich Associates. Nearly half (46%) of institutional ETF investors surveyed allocate 10% or more of total assets to ETFs and 47% say they expect to expand their use in the next year.

The study, “ETFs: An Evolving Toolset for U.S. Institutions,” conducted by Greenwich Associates and sponsored by BlackRock, presents the ETF usage trends of institutions, including corporate and public pensions funds, foundations and endowments, asset managers, investment consultants, insurance companies, and Registered Investment Advisors (RIAs).

Key findings include: all institutions are increasing their allocations to ETFs, ETFs have become critical long-term investment tools, the most common ETF application is core portfolio exposure and there has been a dramatic increase in adding fixed income ETFs to portfolios.

1. ETF allocations are growing across all types of institutional investors. Nearly half (46%) of institutional ETF users allocate 10% or more of total assets to ETFs. About 30% of institutional ETF investors report ETF allocations in the 10% to 25% range. RIAs, who are the largest users of ETFs by assets, have the largest ETF allocations with 41% of RIAs investing more than 25% of total assets in ETFs.

All institutional investor types expect to increase their ETF allocations in the coming year. 45% of insurance companies, who currently invest in ETFs, plan to increase their allocations in the 1-10% range. More than 50% of investment consultants expect their clients to boost allocations this year. In comparison, in 2010, the first year of the study, 33% said they would not change their ETF allocations over a three-year period.

2. ETFs have become critical strategic tools held for the long-term, particularly among pension plans. 63%of all survey respondents describe their ETF usage as strategic, up from 58% in 2013. This is remarkably different than in 2010, when approximately 20% of institutional ETF investors said they employed ETFs to implement strategic or long-term investment decisions.

Today, 49% of participants report average holding periods of two years or more, which is a jump from 36% in 2013. Among institutional investor types, 66% of pension plans’ strategic usage is up sharply from 47% in 2013.

While institutions are expanding their strategic usage, at the same time they continue to implement tactical allocations with ETFs. 81% of asset managers list tactical adjustments as one of the most common applications for ETFs.

Daniel Gamba, Head of iShares Americas Institutional Business at BlackRock, said: “We’re seeing the evolution of institutional investors’ usage of ETFs. Many institutions once confined ETFs to only cash equitization or transitions. Over the last few years, they’ve discovered their usefulness and broadened usage to many other portfolio applications including core portfolio exposure and liquidity and risk management.”

3. Most common ETF application is core portfolio exposure by all types of institutions. Approximately 80% of participating institutions are employing ETFs as a means of obtaining core portfolio exposures, up from 74% in 2013. This is in stark contrast to 2010 when only 19% of asset managers and 28% of pension plans used ETFs as a core/satellite application.

Core exposure is the most common ETF application by pension plans, RIAs and insurance companies. Regarding the latter, ETFs have been gaining significant traction among insurance companies as an efficient vehicle for surplus asset investment, which is considered a core exposure application. From 2013 to 2014 the share of insurers in the study using ETFs to invest surplus assets nearly doubled, from approximately 30% to almost 60%.

It appears that insurance companies are also becoming more comfortable using ETFs when investing reserve assets. In 2013, only 6% of participating insurers reported using ETFs to invest reserve assets. That share climbed to more than 25% in 2014.

4. Dramatic increase in use of fixed income ETFs. One of the drivers of ETF growth over the past few years has occurred with fixed income ETFs. Until recently, most institutions viewed ETFs as equity products. This year, 66% of institutional ETF investors are employing ETFs in domestic fixed income portfolios, up from 55% in 2013.

Over the past 12 months, the share of asset manager ETF investors employing fixed income ETFs significantly increased. The biggest and potentially most important increase occurred in domestic fixed income, where the share of asset managers jumped to 72% in 2014 from 30% in 2013. For international fixed income, in 2013, asset managers reported virtually nothing in the way of ETF. In 2014, nearly half of asset manager ETF investors are employing the vehicles in that asset class.

Daniel Gamba concluded: “The role that ETFs play in institutions’ portfolios has quickly transformed in five years. Today ETFs play an important role in institutions’ portfolios in multiple ways strategically and tactically. And all signs point to continued acceptance and usage by institutional investors.”

Federal Reserve Board Announces Civil Money Penalty and Issues Cease and Desist Order Against Credit Suisse

| By Fórmate a Fondo | 0 Comentarios

Credit Suisse se declara culpable de fraude fiscal en EE.UU. y pagará una multa de 2.500 millones — Photo: Varnent. Federal Reserve Board Announces Civil Money Penalty and Issues Cease and Desist Order Against Credit Suisse

The Federal Reserve Board on Monday announced that Credit Suisse will pay a $100 million penalty for unsafe and unsound practices and failure to comply with the federal banking laws governing its activities in the United States. The Federal Reserve also issued a cease and desist order requiring Credit Suisse promptly to address deficiencies in its oversight, management, and controls governing compliance with U.S. laws. This action is taken in conjunction with actions by the Department of Justice and the New York State Department of Financial Services for violations of the federal income tax laws and various New York State laws. The penalties issued by the agencies total $2.6 billion.

The Board’s cease and desist order and assessment of civil money penalty against Credit Suisse, a foreign bank that is subject to the International Banking Act and other U.S. federal banking laws, are based on the institution’s inadequate risk-management and compliance program, and its failure to conduct and accurately report to the Federal Reserve the operations of its New York representative office in compliance with U.S. banking laws. These failures contributed to the violation of the International Banking Act, the U.S. income tax laws, and the U.S. securities laws. Credit Suisse’s New York representative office was closed in 2009. Credit Suisse continues to operate a branch office in New York, which is covered by the enhanced policies and procedures required by the order.

The order requires Credit Suisse to complete its ongoing efforts to implement programs and policies to ensure that Credit Suisse conducts its operations in the United States and worldwide in full compliance with U.S. banking laws and the contemporaneous orders of the Department of Justice and the New York State Department of Financial Services.

As part of the order, Credit Suisse has agreed to terminate its relationship with, and not re-employ or otherwise engage, nine individuals who were involved in the actions that resulted in the violation of U.S. laws. Apart from the actions with regard to the institution, the Federal Reserve is investigating whether other specific individuals that may have been involved in the actions that resulted in violations of U.S. banking laws during the relevant period should separately be subject to actions by the Federal Reserve. These actions could include fines and orders prohibiting specific individuals from participating in the business of banking, including working for any institution subject to the jurisdiction of U.S. federal banking supervisors. Credit Suisse has agreed to cooperate in these investigations, but is not the subject of these investigations.

At a press conference, Deputy Attorney General James M. Coleannounced the guilty plea in Credit Suisse offshore tax evasion case, an historic guilty plea by the bank and the largest monetary penalty of any criminal tax case ever. “Today’s guilty plea is an appropriate resolution, given the duration and breadth of Credit Suisse’s conduct. Credit Suisse engaged in serious wrongdoing, first, when it aided and abetted U.S. tax evasion, and then when it failed to take immediate steps to remedy this conduct and cooperate in our investigation. Today Credit Suisse has admitted that conduct and faces significant consequences for it. Its agreement to pay fines and restitution in excess of 2 and a half billion dollars reflects both the significance of the problem at the bank and the bank’s acceptance of responsibility for it”.

Credit Suisse is taking the appropriate steps to put its criminal conduct behind it and move toward a new era of compliance. Through this guilty plea and Credit Suisse’s civil resolutions with the Securities and Exchange Commission, the Federal Reserve, and the New York Department of Financial Services, Credit Suisse has committed to working with U.S. law enforcement and banking regulators in order to ensure that its wrongdoing remains in the past. “We acknowledge Credit Suisse’s efforts in this regard, and I expect that as the Bank moves forward, it will continue on its new path of compliance with U.S. tax laws”.

More Swiss banks

“In several public statements, I have promised additional public developments with respect to the Department’s investigations into the use of secret offshore bank accounts in Switzerland and elsewhere, and one of those developments has come to pass with today’s plea. But there have been many other notable actions in the past few months in our ongoing efforts to combat the use of foreign bank accounts to evade U.S. taxes. Eight individuals affiliated with Credit Suisse have been indicted by the United States Attorney’s office for the Eastern District of Virginia for their role in conspiring to assist U.S. clients in concealing their income and assets from the IRS. Two of them have pleaded guilty in recent weeks. In January 2013, Wegelin Bank, another Swiss bank, pled guilty to conspiracy to evade taxes. We have targeted 13 other Swiss banks for similar conduct”, adds.

Just recently, a Swiss asset management firm, Swisspartners Group, entered into a multi-million-dollar settlement with the U.S. Attorney’s Office for the Southern District of New York, and produced account files of its clients. “We have also had over 100 Swiss banks come forward as part of a program we put in place with the support of the Swiss government. Under this program, these banks, which were not under investigation, will pay penalties for the violations of US law that were committed at their institutions, and provide us with information that will lead to the identification of their US clients who evaded paying their taxes. We also have had over 43,000 US taxpayers enter into the IRS voluntary disclosure program and pay over $6 billion in back taxes and penalties to the United States Treasury”.

The Department is committed to robust enforcement in the offshore area, not just in Switzerland, but wherever in the world it is found. “We have taken public actions in India, Israel, Luxembourg, the Cayman Islands and several other Caribbean countries. And we are engaged in law enforcement actions around the world that are not yet public”.

Financial Advisors Overlook or Misread Fundamental Client Behavior

| By Alicia Miguel | 0 Comentarios

Financial advisors (FAs) and their clients in the Americas do not always see eye to eye when it comes to identifying key elements driving their relationship, according to EY’s third annual Wealth Management Survey. The survey identifies three key themes that will help wealth management firms and their financial advisors improve client acquisition, service and retention.

“Often, wealth management firms listen only to financial advisors when they seek to understand client preferences and the important trends, issues and challenges facing their industry. Unfortunately, this provides an incomplete view of the needs and desires of wealth management clients,” said Juan Carlos Lopez, Executive Director, Wealth Management at Ernst & Young LLP. “This year, we elicited comprehensive feedback from both advisors and their clients to compare and contrast views on key trends driving the industry and identify gaps and opportunities to improve relationships across the client lifecycle.”

The survey identifies three key areas of opportunity for wealth managers to improve and grow their businesses.

Advisors overestimate the importance of their role

Financial advisors tend to overvalue the importance of their relationships with clients, while misreading the relevance of factors like firm reputation, fees, segment specific strategies and product access.

In fact, after years of focusing on liquidity and wealth preservation post-2008, portfolio performance regains the top spot on clients’ minds, ranking well above the relationship with their advisor among the factors keeping clients with their wealth managers. Furthermore, clients value a firm’s reputation over that of the individual advisor when choosing a new wealth manager, which emphasizes a need for advisors to have a strong brand backing them to help attract new clients.

Additionally, clients indicated that while competitive fees are less important when choosing a new wealth manager, they become more important later in the relationship and they are the top reason they choose to switch to a new advisor. Clients ranked competitive fees second only to poor portfolio performance when it comes to reasons they switched wealth managers.

Trends in holistic goal-based planning and generational wealth transfer

Advisors and clients agree that holistic goal-based planning and generational wealth transfer are two of the most relevant trends but wealth managers are yet to implement effective strategies to capitalize on these areas of opportunity.

While holistic goal-based planning is cited as the most important factor driving clients’ assets to wealth managers, clients see little differentiation across the industry when it comes to an individual firm’s approach to goal-based planning. Furthermore, clients perceive low value from their current firm’s goal-based planning offering. This represents a tremendous opportunity for wealth management firms to provide not only a differentiated offering, but one that delivers value across the lifecycle to improve retention and wallet share.

Generational wealth transfer is also top of mind for clients, and it is the number one factor ranked by advisors as driving the future of their businesses. Wealth transfers are particularly timely as the last of the Baby Boomer generation enters retirement. Compounding this is the fact that a large percentage of Baby Boomer advisors are preparing to retire as well, with little thought to client transition strategies. Therefore, wealth transfers pose a tremendous risk as well as an opportunity for wealth management firms to retain assets. Acquiring and training the next generation of FAs and giving them the tools to acquire the next generation of clients will keep risk of flight assets in check. Firms need to better prepare their advisors on wealth transition execution strategies to capitalize on this critical trend.

Traditional channels are here to stay

Traditional channels are and will continue to be the primary medium though which clients interact with advisors over the next three to five years. Digital channels – such as social media and tablets – will play a complementary role. Still, both clients and advisors rank face-to-face communication, whether in or outside of a branch, as the highest and most relevant interaction.

Furthermore, clients and advisors agree that telephone and email correspondence will continue to be key channels, especially for convenience. While digital channels rank lower for both clients and advisors, opportunities for technology to expand and improve client-advisor interaction exist. However, this will not replace traditional interaction options for clients. Neither clients nor advisors find digital communication to be a key factor in the acquisition, servicing or retention stages of the relationship lifecycle, and social media has yet to gain ground.

Channel preferences do, however, vary across wealth segments, illustrating the need for wealth management firms to invest in segmented channel offerings:

Ultra-high net worth clients (defined as those with investable assets of $25 million and over) see the branch as their preferred channel for interacting with an advisor.
High net worth clients (defined as those with investible assets of between $1 million and $25 million) expect more out-of-branch interactions to become their primary channel in the future, but they will continue making significant use of in-branch meetings.
Mass affluent clients (defined as those with investible assets between $250K and $1 million) prefer the telephone and e-mail over face-to-face interactions. They are, and will continue to be, the heaviest users of smartphones.

“Changing economic conditions and a burgeoning retirement demographic are putting the wealth management industry through a period of great change and great opportunity,” said Nalika Nanayakkara, Principal at Ernst & Young LLP. “Wealth management firms that truly understand client and advisor needs, and the gaps in advisors’ understanding of their clients, will be in a prime position to optimize their go-to-market strategy and capitalize on these opportunities.”

EY’s 2014 Wealth Management Survey contains data based on the responses to 19 questions from advisors and clients from varying geographies, wealth segments and demographics. The questions were designed to measure the importance of a broad set of wealth management industry topics such as client service and retention, communication, marketing, investing strategies, satisfaction and asset allocation.

Why ‘Abenomics’ is Running out of Steam

| By Elena Santiso | 0 Comentarios

Razones por las que el Abenomics se queda sin gas — Photo: Bantosh. Why ‘Abenomics’ is Running out of Steam

Japan’s trillion-dollar experiment with ‘Abenomics’ is now running out of steam, and more monetary stimulus may be inevitable if the economy is to avoid recession.

That is the warning from Robeco’s chief economist, Léon Cornelissen, as the all-important ‘third arrow’ of economic stimulus by Japanese Prime Minister Shinzo Abe – structural reform to a deeply entrenched economy – appears to falter.

Following the VAT hike last month which was designed to stimulate spending in the first quarter, Abe is now running out of options, says Léon Cornelissen. This raises fears that Japan could fall back again into deflation, which was a key factor in Japan’s ‘lost decade’ in the 1990s. Deflation means goods become cheaper in the future, so people defer spending, triggering recession.

Cornelissen cites Japan’s recent failure to strike a bilateral trade agreement with the US as an example of how hard it is to reform Japan. A deal was necessary to rekindle negotiations that would enable Japan to join the 12-nation Trans-Pacific Partnership, which promotes tariff-free trade between members. However, Abe wanted to retain import tariffs on farm products, which hurt US producers, as he didn’t dare to put too-heavy burdens on Japan’s highly protected farmers.

Third arrow misses target for structural reform

“This failure to strike a deal is symptomatic for the lack of progress on the so-called third arrow of ‘Abenomics’ – supply side reform to increase Japan’s structural growth rate,” says Cornelissen. “It could be argued that the third arrow of ‘Abenomics’ is a long-term issue and therefore not relevant for the short-term growth prospects of the Japanese economy.”

“But lack of reform could mean that the world would have much more difficulty in accepting a further weakening of the yen. Japan’s position has been dubbed by the International Monetary Fund as an ‘over-reliance on monetary stimulus’ which could hinder a rebound of investment by Japanese companies in their country. This in itself is a necessary condition for self-sustaining growth and the ultimate success of Abenomics.”

“Lack of reform means more difficulty in accepting further yen weakening”

Cornelissen says few concrete measures have been announced to support the third arrow, including the legislation needed to create special economic zones. Tax reforms, labor market deregulation and corporate governance reform could all support investments. An increase in the female labor participation rate and a relaxation of immigration requirements would also be welcome, but progress has so far been limited, he says.

Abenomics was launched in 2012 on the back of stronger exports, due to the weaker yen, and strong private consumption growth that was caused mainly by the boost to national wealth from higher equity prices. However, share prices have weakened this year (the Nikkei is down 8%) and the yen is stabilizing at around 102 to the US dollar.

IMF and central bank downsize growth forecasts

The IMF in April lowered its growth forecast for Japan for 2014 from 1.7% to 1.4%. The Bank of Japan (BoJ) also cut its growth forecast for the current fiscal year in its semi-annual report in April, now predicting that GDP will grow by 1.1 per cent in the fiscal year to March 2015 instead of the 1.4% forecast in January. The central bank blamed “sluggishness” in emerging economies for Japan’s muted export performance, though it admitted that the steady shift in production overseas has also been a factor.

“The VAT hike from 5% to 8% on 1 April is an important step towards fiscal consolidation,” says Cornelissen. “That is why it is supported by the BoJ, despite its negative impact on growth. Abenomics has so far been very successful in raising inflation and inflationary expectations, due to the dramatic monetary loosening by the central bank.”

“But inflation expectations now seem to have leveled off. This could be a reflection of continuing doubts that Abenomics will not be more than a temporary stimulus to the Japanese economy.”

“Inflation expectations now seem to have leveled off”

Wage developments are key

Cornelissen points out that in contrast to recent price developments, wage rises have been disappointing. Average monthly cash earnings rose only a meagre 0.7% on a yearly basis in March, and in real terms they are declining.

“The sluggish wage growth is partly due to structural developments, such as the shift from full-time to part-time workers,” he says. “However, it also suggests caution by employers who in general apparently remain unconvinced that Abenomics is having more than a temporary impact, and are therefore reluctant to raise fixed personnel costs. The outcome of the current wage bargaining round is of critical importance.”

“And so the eventual success of Abenomics at this stage remains in doubt. Key variables to watch are wage developments and investments. I believe that the overly optimistic Bank of Japan will be forced into additional monetary stimulus, probably in July, leading to a weaker yen vis-à-vis the US dollar.”

ETF Securities Hires Caspar Robson as Head of Marketing & Communications

| By Alicia Miguel | 0 Comentarios

Caspar Robson, nuevo director de Comunicación y Marketing en ETF Securities — . ETF Securities Hires Caspar Robson as Head of Marketing & Communications

ETF Securities, one of the world’s leading, independent providers of exchange traded products (ETPs), has hired former Head of EMEA Marketing at the CME Group, Caspar Robson, as Head of Marketing and Communications. Based in London, Mr Robson will report to ETF Securities’ Chief Executive Officer, Mark Weeks.

In his new role, Caspar Robson will be responsible for the development and implementation of marketing and communications strategies across the group globally. He will work closely with business lines and regional leadership teams to further strengthen the company’s brand and presence to deliver accelerated growth.

Mr Robson brings more than 20 years of experience to this role and was most recently at the CME Group where he built the international marketing team and developed targeted marketing strategies in the EMEA region and Asia as a key part of its globalisation strategy. He previously spent 6 years at the London Stock Exchange where he held a number of marketing functions, including Group Marketing Strategy Manager. He played an instrumental role in developing the LSE’s centralised group marketing unit and created the marketing strategy team. Prior to this he worked as a marketing strategy consultant, after completing an MBA at Warwick Business School, and for Investec Bank.

Commenting on the appointment, Mark Weeks, Chief Executive Officer, ETF Securities said: “This is an important time for ETF Securities as our aim is to intelligently diversify the business beyond commodities. Caspar is a skilled marketing professional with an extensive experience in implementing global marketing strategies. His appointment is key to ensuring that we develop our marketing capabilities to meet the needs of our clients, business units and distribution teams internationally as the business continues to grow.”