Fintech and banking risk; cognitive dissonance de semaine

Chancellor George Osborne, speaking on Wednesday at a Bank of England Open Forum event, once again declared his desire to turn the UK into the “fintech capital” of the world.

Which is weird, because the comment followed directly on from remarks praising regulatory efforts to de-risk and capitalise banks, as well as remarks acknowledging the role challenger banks played in risking-up the system in the first place. Read more

Markets Live: Thursday, 12th November, 2015

Live markets commentary from 

Towards global hyper fungibility

The euro may have been pointless, but it might have been a whole lot less pointless if there’d been political union from the onset. So implied Mario Draghi, ECB President, at the BoE Open Forum on Wednesday.

For the laissez faire radicals out there, here’s how he went on to define the nature of “truly free” markets in that context (our emphasis):

Consider the case of markets that are truly open – by which I mean, as open as the Single Market of the European Union, where internal frontiers have been abolished entirely, where passporting of services across the entire EU is a right, not a privilege.

In this situation, national governments, or national courts of law, cannot alone provide full protection to their citizens against abuse of property rights or any form of unfair competition that may arise from abroad. Nor can they alone protect the rights of their citizens to carry out business abroad unimpeded by protectionist restrictions. For the market to be truly free, there needs to exist a judiciary power that can enforce the Rule of Law on all, everywhere. It has to have jurisdiction across the entire market.

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The way we work now

The way we work now is changing rapidly: Self-employment is up, workers are putting their own money into what once would have been company purchases, and there’s endless chatter about the future of robot labour transforming the landscape.

On the first big shift, the Office for National Statistics data released Wednesday shows that self-employed people in the UK increased by 30,000 to 4.55m for July to September compared to the same period a year ago.

From ONS: Read more

Rupee do: what is Wirecard buying?

Wirecard, the German listed payments company, is to pay as much as €330m for a business which was barely involved in payments two years ago, according to Indian corporate filings.

Accounts for the largest subsidiary of the group to be acquired show qualified audit opinions due to concerns about revenue recognition and an inability to verify key financial totals, and recent resignations of directors and auditors.

Sales and profits claimed by Wirecard for the businesses it intends to buy also imply a dramatic transformation in financial performance during the last 18 months.

The question for shareholders, from whom Wirecard has raised €0.5bn in recent years to fund such dealmaking, is what exactly has it agreed to buy? Read more

FT Opening Quote – Rolls-Royce hit by spluttering demand

Rolls-Royce says the outlook for next year is negative, sending its shares down 22 per cent this morning. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can sign up for the full newsletter here. Read more

Further reading

Elsewhere on Thursday,

- Even famous female economists get no respect.

- Ackman v. Berkshire: Whose holdings are more immoral?

- Meet the City types publicly backing a UK departure from the EU.

- Six deals to watch for as Indian prime minister Narendra Modi starts his UK visit. Read more

FirstFT – Paris climate talks face enforcement debate, office anxiety and what next for Myanmar?

John Kerry has warned that the summit will not deliver a treaty that legally requires countries to cut their carbon emissions Read more

The euro was pointless

It’s easy to forget now, but the single currency wasn’t created purely as a political project.

Many economists in the 1980s and 1990s thought monetary union would encourage cross-border investment and trade by eliminating the risk premiums associated with the supposedly destabilising devaluations of the past. The net effect would be converging living standards, dampened business cycles, slower inflation, and faster productivity growth for everyone — the benign Germanisation of Europe.

This was a laudable goal, but unfortunately it’s not how things worked out. The policy mistakes that exacerbated the eurozone crisis, while deeply destructive, can’t be blamed. A stimulating conference recently hosted by the Centre for European Reform made it clear to us the euro had already failed to meet the expectations of its architects before the crisis. Sharing currencies was unnecessary for economic convergence, if not actively harmful. Read more

92, Piccadilly

The guy was coming at me, aggressively, so this is was a ‘snatch’ in snapper-parlance, rather than a carefully framed shot. Read more

Markets Live: Wednesday, 11th November, 2015

Live markets commentary from 

FT Opening Quote – Price war cuts Sainsbury profits

Sainsbury has Christmas pudding in its outlook and TalkTalk is offering free upgrades to customers after its data hack. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can sign up for the full newsletter here. Read more

Further reading

Elsewhere on Wednesday,

- Putin’s daughter has corporate holdings worth $2bn.

- Rounding up Neel Kashkari’s latest tweets on monetary policy.

- Happy Singles Day.

- The Republican presidential contenders clashed over how to prevent another financial crisis.

- “Let me emphasize that this is all in no way a ‘debunking’ of the Case and Deaton paper.” Read more

FirstFT – Cameron offers EU reform concession, Chinese retailers and the oil glut

The UK prime minister offers to scrap his contentious plan to impose a four-year ban on EU migrants Read more

A long day’s journey into Knightsbridge

This should’ve been easy. Read more

Markets Live: Tuesday, 10th November, 2015

Live markets commentary from 

Should banking be easy?

The Financial Stability Board wants banks to raise up to €1.1tn in so-called “total loss absorbing capital” (TLAC) to make the banking system less risky.

It’s their attempt to put skin back in the game for bank stakeholders and ease them off the notion that the government will always be around to rescue overly imprudent institutions.

The authors of “The end of banking”, however, see things somewhat differently. In a post last week they outlined how it’s the digital age which has rendered the limited liability corporate structure unfit for purpose and in the process made the world much more systemically risky. Read more

IPOs restarting in China, you say? Risk free returns as usual, you suggest?

Macquarie on Friday:

We should know by now that trying to anticipate results on margin flows is truly a mug’s game. However, we’re still playing.

Credit Suisse on Monday running with a very similar theme, even if they don’t quite say so explicitly:

The resumption of IPOs [which were suspended in July amidst a crashing market] has come a bit earlier than market’s expectations, and has got some investors worried about the market being caught in a cross-correction as the stock supply would increase. However, we believe the upcoming IPOs will be positive for a market rebound because it will introduce more funds from individual investors to the market. These individual investors believe the upcoming IPOs will bring them ‘risk-free’ returns as usual—they will move their money from the money market and WMPs (wealth management products) to the equity market to chase better opportunities.

Err… Read more

FT Opening Quote – Grid sale, Deutsche Zig Zag, bored whales

National Grid is selling stakes in gas distribution, Vodafone is in a slow bicycle race and Sea World is phasing out whale shows. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can sign up for the full newsletter here. Read more

Further reading

Elsewhere on Tuesday,

- “How can Mr. Ackman find comfort in Valeant’s management … while at the same time calling Herbalife’s chief executive “a predator” running a “a criminal enterprise”?”

- Ben Bernanke thinks the House’s plan to pay for highway construction by drawing on Fed capital is a bad idea.

- Satoshi Nakamoto for the Nobel? Read more

FirstFT – Brexit, the global economic slowdown and not so splendid isolation

Cameron will unveil a four-point reform plan intended to keep Britain in the EU Read more

On Lonmin, the full eye-watching detail

If you want to know how cash-strapped Lonmin is, go to the website of the world’s third largest platinum producer and try to download the freshly-pixelated prospectus for the company’s latest rescue rights.

Actually, don’t! The site’s clunky as hell and will probably crash. We’ll do our bit here and donate some bandwidth. The full prospectus — all 576 pages — is available after the jump. Read more

The ex-Safe harbor stimulus effect

Are people looking at the recent Safe Harbor strike-down the wrong way around?

With the European Court of Justice’s ruling last month declaring the Safe Harbor data sharing arrangement — a framework that facilitated the transfer of personal data from the EU, where rules are tighter, to the US — invalid, the European Commission has been racing to get a new agreement with the US, setting a three month timetable to hammer out a deal. Obviously, the court’s decision puts IT providers, companies that use big data tech and many cloud service providers, which relied on the framework to do business in Europe, in a major bind. But there’s one part of the tech sector that could seriously benefit from the new landscape: the hardware makers. Read more

Lonmin: a miner, plundered

Modern science keeps people alive longer, but it’s not always certain that extended human animation is necessarily a good thing.

A similar force seems to be at play in the corporate world — and it too comes with a fancy price tag. Read more

In which Chinese margin punters test the water

Observe their glorious return.

Of course, margin debt in China is still massively off the peaks we saw earlier in the year when it was at world beating nutty highs, particularly vs free float, which came crashing predictably down to earth. But this latest tick back up is all the more notable considering that crash, no? Here’s the five-year view of the Shanghai Comp as a reminder. Read more

Markets Live: Monday, 9th November, 2015

Live markets commentary from 

‘I’m no crook,’ declares MMM scamster, while claiming credit for the Bitcoin price spike

One of the ironies of the information age is how it’s turning out to obscure rather than improve our understanding of what’s really going on. The pressure to report quickly errs towards unverified reporting, or reporting based on facts distributed via unchecked sources or biased lobby groups intent on propagating causes, which in turn leads to an abundance of misinformation which confuses everyone.

A racketeer like Mr Sergey Mavrodi, the man behind the MMM “transparent” pyramid schemes we drew attention to last week, flourishes in such an environment. The more contradictory the information about him on the internet, the better for him. The same goes for other transparent pyramid schemes (such as all cryptocurrencies). Historically-tested logic about why pyramids are economically flawed is reduced to an opinion, much the same way that scientifically-verified proof about how carbon emissions are causing climate change also gets reduced to an opinion by certain special-interest groups.

Below we share a Q&A with Mavrodi. And he’s done us a little video to prove that we are communicating with the man himself…

 Read more

A reminder that, in China, today’s default is most often just tomorrow’s bailout

We’ve been harping on about the risk of a bubble building in China’s corporate bond market for a while now. The point being that the waves of cash which slosh around inside China’s borders looking for an investment to call home have flowed/ crashed into the corp bond market with increasing speed over the past few months — helped, rather obviously, by easing measures being taken to arrest China’s slowdown.

That corp debt ramp-up might start to slow now that the stock market, and margin debt, is staging a comeback but the question of whether a bubble might be about to pop still remains.

The short answer appears to be “no” if you assume that defaults are still a no-no in China. Read more

FT Opening Quote – Miners under pressure

More miners in trouble this morning, with Lonmin’s rights issue, BHP Billiton reviewing production targets and Nyrstar considering a complete exit. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can sign up for the full newsletter here. Read more

Further reading

Elsewhere on Monday,

- Behind-the-scenes of China’s delay in liberalizing the economy.

- Wal-Mart heir Christy Walton is $27bn poorer than everyone thought.

- The Uberization of Money.

- “Let me tell you a story of the battle between the ‘inflation targeters’ and the ‘accelerationists.’”

- Goldman has pulled the plug on its BRIC fund. Read more