EIF’s established reputation in the European VC market is substantiated by its significant role in European investment and fundraising activity. In this paper we estimate that the investment activity backed by EIF represented 41% of total investments in Europe in 2014 (29% in 2007). The share directly attributable to EIF amounts to 10% (5% in 2007), hinting to the significant leverage that characterises EIF-backed investments. Moreover we estimate that fundraising volumes backed by EIF in 2014 amount to 45% of the overall volumes collected by European VC investors (36% in 2007), against a share directly attributable to EIF totalling 12% (5% in 2007). That’s from a European Investment Fund research paper published at the start of June and it shows the extent to which dynamic European venture capital relies on the munificence of sluggish European government — as told by said government, of course.
Depending on who you ask, a vote for Brexit on Thursday will unleash the apocalypse/freedom/a long period of uncertainty about the meaning of life more generally. Which means it’s probably best to get your house in order before the deluge — for Funding Circle that means securing £100m worth of leverage for its listed fund from the European Investment Bank, aka the cheap financing nonprofit for make benefit glorious nation of the EU. The deal will apparently resist the hurricane winds of Brexit, which wouldn’t constitute a material adverse event under the terms of the deal, according to the Funding Circle’s director of capital markets, Phil Hyett. But longer term, a hypothetical vote to Leave would eventually shut off what has been an important source of state welfare for the online lender.
Ryanair’s profits growth is set to slow, Bayer has offered $62bn for Monsanto, MPs are looking into what happened at BHS. 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.
During the financial crisis, the real-time, practical manifestation of the liquidity v. solvency debate was about what financial institutions were worth saving. It went something like, if a bank was merely short of funding needed to meet near-term obligations but otherwise had assets worth more than its liabilities, then it was worth rescuing. Matt Klein discussed this here in 2014. The liquidity/solvency debate also has an important implication for corporate governance.
While many in the financial advice industry admirably try to help regular folks figure out how much to save and how to allocate their assets, a stubbornly large group is in the business of systematically ripping people off. At first, this might seems strange. Financial advice is a competitive industry and FINRA — the government-sanctioned regulatory organisation — makes it easy to search the records of individual advisers and firms. So, in theory, fraudsters shouldn’t have much staying power. But according to an important new paper from Mark Egan, Gregor Matvos, and Amit Seru, these parasites survive simply because a subset of firms prey on customers, mainly the elderly and less-educated, who don’t know to check their brokers for a history of past misconduct.
Pearson is restructuring again as its education business continues to struggle, Royal Mail says it had a great Christmas delivering presents. 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.
This guest post is from Lutfey Siddiqi, managing director at UBS Investment Bank, and Simon Smiles, chief investment officer for ultra high net worth at UBS Wealth Management. It’s on the back of a UBS white paper for Davos, which you can read here. __________
Students of the Roman Empire will know all about Pax Romana. (Though, mind you, so will readers of Isaac Asimov’s Foundation series.). The concept can be summed up as follows: peacetime makes people and economies lazy. So much so that governments take their eye off the ball. The state grows lax with its defences. The bureaucrats forget their purpose. Overt tolerance leads to unmanageable internal dissidence, dismissed as unimportant until its too late. Borders become threatened. Et cetera, et cetera. It is, in other words, the paradox of peace. In its new Global Political Risk report, Citi analyst Tina Fordham and team draw on how the post-Second World War period created a Pax Americana equilibrium for much of the world. Within the US protection framework (the vast array of international agreements and organisations that guard the system), those economies which subscribed to the American value system were able to flourish. A period of great wealth and prosperity followed.
You probably heard on Friday that China took some steps towards liberalising lending rates. Although this was reported so widely that it sounded like a very big deal, most reports also pointed out that’s really because of what it might signify about the new leadership’s intentions. In themselves, the changes announced on Friday are expected to have very limited effects. Or… will they?
Turmoil in Portugal || Egypt’s Morsi defies army || The Fed plans to introduce capital requirements that go beyond Basel III II Investors pulled a record $9.9bn from Pimco in June || China’s services sector PMIs improved slightly in June || Bolivian plane diverted amid Snowden hunt || Standard & Poor’s has downgraded Barclays, Deutsche Bank and Credit Suisse || Former FBI head to lead BP compensation probe || China will probably miss its modest 2015 target for shale gas production || Markets wrap || FTAV’s latest
The European Commission has been investigating goings-on in the CDS world since Deutsche Borse and CME tried to enter between 2006 and 2009. The commission today said it’s reached a preliminary conclusion that — deep breath — ISDA, Markit, Bank of America Merrill Lynch, Barclays, Bear Stearns, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley, Royal Bank of Scotland, and UBS all infringed EU antitrust rules. Deutsche and CME tried to get in and were denied exchange trading licences by ISDA, Markit, and the banks, says the commission. From the statement (our emphasis): Brussels, 1 July 2013 Antitrust: Commission sends statement of objections to 13 investment banks, ISDA and Markit in credit default swaps investigation
Asian shares were muted. The Nikkei rose 1 per cent following Monday’s weak ISM manufacturing number in the US. (Reuters) Topix fact du jour: analysts expect its earnings to rise 57 per cent this year, compared to a global average of 19 per cent. (Bloomberg) Japan’s public pension funds are to be recruited to buy stocks and real assets in the Abe government’s latest move to mobilise the country’s savings for growth. A panel will be set up to review investment guidelines for the public funds, which have previously piled into Japanese sovereign bonds, including the mighty Government Pension Investment Fund. The guidelines would come into force by April 2015 under the draft plan. (Reuters)
Goldman Sachs has hired 350 investment banking summer interns out of 17,000 applications, claiming it has “no problem” attracting talent six years after the financial crisis sparked a series of deep cuts to Wall Street jobs and bonuses. That’s from the FT’s Tracy Alloway.
Asian markets rise || China services PMI fall sharply || Brussels to clamp down on tax avoidance by individuals and funds || Obama signals support for more US gas exports || Study finds banks benefit from forex flow information || Berkshire Hathaway meeting || Don’t expect austerity shift in Europe
Asian stocks set for highest close since 2008: The MSCI Asia Pacific Index was 0.7% higher at 3am UK time, with almost three shares rising for each that fell. The measure has advanced 4.4% this month, poised for the biggest monthly gain since June. Japanese shares were mixed after Honda shares fell 3.4% when a profit forecast missed analysts’ estimates. Earlier, the S&P 500 closed at a fresh all-time high. (Bloomberg)(Financial Times) Luxembourg to share company bank details: Luc Frieden, finance minister, said Luxembourg was willing to expand the number of accounts covered by new information-sharing agreements with the US and the EU to include global companies. The accords, agreed this month, currently only cover individual taxpayers. (Financial Times)
How to write a AP tweet hacking story || On the virtuous circle of exporting deflation || The gold-Barca bubble || Barclays pre-tax profit falls || Apple tries to appease || Credit Suisse beats || ENRC chairman resigns || Australian central bank to invest in China || IT outsourcing companies to face toughened visa regime || Shell warns of shale delays outside US || Market update
Mr. Hagan had never previously designed a VaR model. According to JP Morgan Chase, having an employee from a business unit design the unit’s risk model was somewhat unusual, but it did not violate bank policy… Mr. Hagan told the Subcommittee that he was told the objective of his research was to design VaR models that, when fed into the RWA model, would produce lower RWA results for the CIO, since both he and the CIO traders viewed the bank’s standard RWA model as overstating CIO risk.948 Apologies for all the jargon there. The above is from the Senate Permanent Subcommittee on Investigations staff report on the JPMorgan “Whale trades” that lost the bank over $6bn in 2012. While the portfolio that lost all those billions was comprised of outsized credit derivatives trades, building up such positions wouldn’t have been possible without a significant change in a key risk model that the bank was using — the Value-at-Risk (VaR) that predicts possible losses over a given time horizon.
There were some pretty massive collateral disputes with counterparties that should have set alarm bells ringing around JPMorgan’s chief investment office. The biggest disputes in absolute dollar terms were with a Morgan Stanley entity (MSCS) and Bank of America (BOA), with several other counterparties out by tens of millions.
Asian stocks mixed, Nikkei slightly higher || Brussels to climb down on data privacy rules || BoJ holds policy in final Shirakawa meeting || Time Warner to spin off magazines || S&P raises Portugal outlook || Gavyn Davies on financial risk
We’re developing a soft spot for that Keith Horowitz at Citi. Ne’er did a man express so much joy at an interest rate sensitivity disclosure. That’s our kinda cute. This time Horowitz has gone to meet Matt Zames, JPMorgan’s new co-chief operating officer and operating committee member. They talked pendulums:
Here’s the statement: Credit Suisse announces organizational changes and appointments to the Executive Board; divisional and regional alignment is designed to accelerate execution of strategy and sharpen client focus New structure creates one of the world’s leading integrated wealth management businesses and one of the first global investment banks that is in alignment with the new regulatory reality