News Article | February 24, 2017
Waterman Group is delighted to celebrate the completion of Angel Court, the prestigious 300,000 sq ft prime office building in the heart of London's financial district next to the Bank of England. The 24-storey building is the newest addition to the evolving city skyline and delivers unique panoramic views across the Bank conservation areas and uninterrupted 360-degree views of London. Our team worked closely with Mitsui Fudosan UK ('Mitsui Fudosan') and development partner Stanhope Plc, in our role as the multidiscipline engineer providing MEP, structures, civil and environmental consultancy services. Waterman's Director Mark Terndrup said; "We are very proud to have been involved in this prestigious scheme right from its inception in 2010. The completion and opening is a tremendous milestone for our multidisciplinary engineering and environmental teams. We worked closely with Fletcher Priest Architects throughout to provide sustainable and innovative solutions which have made this an exemplary project, one of the first London City commercial offices to secure a BREEAM 2014 Excellent Design Stage Assessment. Angel Court offers great flexibility for tenants and can accommodate a variety of technical requirements." The Grade A office space offers large floor plates throughout and benefits from a number of terraces and outdoor spaces. Sustainability has been the key priority for the design of Angel Court with high performance standards reducing both energy and water consumption. These initiatives resulted in predicted carbon emissions being 35% less than building regulations, achieving an EPC A rating and a 50% reduction in anticipated water use through grey and rain water harvesting. In addition, approximately 60% of the existing foundations have been recycled which reduced the overall programme delivery and carbon footprint of the development. Angel Court is the latest addition to Waterman's broad portfolio of commercial landmark buildings. Waterman Group is a multidisciplinary consultancy providing sustainable solutions to meet the planning, engineering design and project delivery needs of the property, infrastructure, environment and energy markets. Founded in 1952 and listed on the London Stock Exchange since 1988, Waterman has grown into a leading engineering and environmental consultancy with offices throughout the UK, Australia and Europe. Waterman works with government agencies, local authorities, government-regulated industries and private sector clients to provide innovative, sustainable and economic solutions across a wide spectrum of business activities. The firm has extensive experience in property and buildings, environmental consultancy, power and energy, roads, highways and rail infrastructure, urban and regional planning. Award winning teams provide professional consultancy services throughout the complete life cycle of the asset starting from initial surveys and concept planning, through to design, delivery, project management, supervision and on-going maintenance. See more information on http://www.watermangroup.com
News Article | August 6, 2016
Mark Carney has just made Sir Philip Green’s life even more difficult. The retail tycoon’s bid to bail out the BHS pension scheme, and hold on to his knighthood, could have soared to more than £700m after the Bank of England governor presided over a cut in interest rates last week. Adding to the pressure, the Bank also pumped more cash into the UK economy in a move that hit gilt yields – the return on government debt. The cut in borrowing costs to 0.25%, combined with a new round of quantitative easing, sent gilt yields crashing to a new low. This could add another 7% to pension scheme deficits, according to consultancy Hymans Robertson, which would add nearly £50m to the BHS bill. In order to ensure that members of BHS’s schemes receive full pension benefits, Green’s total bill could now be about £717m, valued by the most pessimistic measure which includes the cost of an insurance company taking on the scheme’s liabilities. The last official measure of the deficit showed it was £571m. Green, who sold BHS for £1 to the formerly bankrupt Dominic Chappell about a year before the retailer went into administration, remains on the hook for bailing out the collapsed chain’s pension deficit because regulators have powers to pursue former owners. The fiery entrepreneur is also battling to rescue his reputation, as he has been widely criticised for selling on the business with a huge pension deficit and leaving the incomes of more than 20,000 pensioners at risk. When BHS went into administration, the pension scheme automatically fell under the auspices of the Pension Protection Fund (PPF), which is funded by levies on company pension schemes. A plunge in the value of gilt yields after the EU referendum contributed to a near-19% rise in the average value of pension deficits controlled by the PPF between February and June. That suggests a rise of about £100m for the BHS scheme’s maximum deficit, taking it to £670m. Last week’s action by the Bank of England has sent it soaring again. However, Green is unlikely to have to stump up the new total of £717m. Appearing before a parliamentary inquiry into the demise of BHS last month, Green said he would “sort” the pension deficit. He expressed a determination to offer BHS pensioners more than they would have got under the PPF’s lifeboat scheme, which trims future benefits by 10%. Offering the same as the PPF would cost Green about £350m at present gilt yield returns, and this is likely to be his starting point. He is expected to try to offset this bill by offering to buy out those BHS pensioners who have pension pots of £18,000 or less – about 17,000 people. They would get the benefit of cash in their hands which they can invest elsewhere, and the cost to Green would be less than the long-term cost of servicing their pension terms. It’s not clear how much offering these so-called “wind-up lump sums” might cut the total bill by, but it could be at least £100m. Buying out some of the company’s pensioners would still leave the question of how to serve those wishing to remain in a scheme. Green’s advisers are thought to have proposed the bulk transfer of members to a new scheme linked to a shell company, a financial vehicle that would underpin future pension payments. However, the PPF has previously signalled its distaste for such structures and is unlikely to support such a proposal. In a response to a public consultation on handling of the pension schemes linked to ailing firm Tata Steel, the PPF said it was concerned that “in the absence of a genuine sponsoring employer, PPF levy-payers would be directly underwriting the risk of the existing or new scheme’s investment strategy failing”. Green’s Arcadia group, which owns Topshop and Dorothy Perkins, could potentially be lined up as a sponsor. But this is problematic because the company is already dealing with its own pension deficit, last valued at nearly £190m. It is difficult to see how Arcadia’s board would approve such a move. Topshop, Arcadia’s most prized asset, is also 25%-owned by private equity firm Leonard Green, further complicating the group’s involvement. A spokesman for Arcadia has previously said: “The Arcadia pension fund is well funded and well run. The deficit has widened in the past two years, as it has in almost all occupational schemes, but is still modest in the context of a company that makes £240m a year and has no debt at the operating level.” Arcadia pays about £25m a year into the scheme, which the company’s spokesman said was “ample given the size of the deficit”. Ultimately, a settlement is likely to hinge on Green securing a pragmatic deal with the Pensions Regulator. The watchdog has powers to pursue interested parties for money which it deems have been extracted from a company to the detriment of a pension fund. It is not just the Green family that could be pursued as the former controlling party of BHS. Their Arcadia group and the directors of Dominic Chappell’s Retail Acquisitions, the group that bought BHS for £1 just over a year before it went bust, could also come under pressure. The regulator will want to avoid lengthy and costly legal battles as it seeks a solution. But the size of the problem, for all concerned, just got bigger. Sir Philip Green has said he is making “real progress” in talks with regulators about a bailout for the BHS pension scheme. However, even if the tycoon does reach a deal with the Pensions Regulator to resolve the shortfall in BHS pensions, which now could be as much as £717m, there are questions about how he will raise the cash. Even for a billionaire, raising hundreds of millions in cash quickly is not straightforward. Green and his family are estimated to be worth £3.5bn, according to the latest Sunday Times Rich List. However, Green may have to sell assets to raise the money for the pension scheme. Here is a list of main assets in the family empire and where the tycoon might turn to solve the BHS pensions scandal. Green’s main retail business – Arcadia – owns Burton, Dorothy Perkins, Evans, Miss Selfridge, Wallis, Outfit and 75% of Topshop and Topman. The latest accounts for Taveta Investments, Green’s main investment company and the ultimate parent of Arcadia, show that in the year to 29 August 2015 it generated sales of £2.4bn and pre-tax profits of £151m, up from £118m the previous year. If you value Arcadia at the same price-to-earnings ratio as its listed high street rivals, such as Marks & Spencer, then it is worth around £1.75bn. However, some of the company’s brands, such as Burton, appear in desperate need of significant investment. The BHS saga may also have dampened the appetite of others in the retail industry to do business with Green. One senior retail source said: “Who is going to buy anything off PG at the moment given the scrutiny that Dominic Chappell came under? ... The guys who have the money to do this are not going to give him the price he needs to get out of trouble.” The US private equity firm Leonard Green & Partners bought a 25% stake in Topshop for £350m in 2012, giving the brand a value of £1.4bn. Green could further sell down his stake in Topshop, although some analysts believe it could now be worth less. Analysing the strength of Topshop is difficult because its operations are closely linked with the rest of the Arcadia empire. Topshop/Topman Ltd increased sales marginally from £999m to £1bn last year, with pre-tax profits rising £108m to £113m. However, the accounts for Arcadia Group (USA) suggest that Topshop’s expansion in the US has not been straightforward: it recorded a loss of £13m in the last financial year. Nonetheless, Topshop appears to remain extremely valuable to Arcadia and Green. As part of the Leonard Green deal and the movement of Topshop’s assets and brand outside Arcadia, Topshop issued a £600m loan note to Arcadia. In the last financial year Topshop paid Arcadia £52.5m in relation to the loan note, including £27.5m in interest. Green’s wife Lady (Tina) Green, pictured, collected a £1.2bn dividend from Arcadia in 2005, the biggest in corporate history, as well as the majority of the £586m that was paid out of BHS in dividends, interest and rent when the family owned the retailer between 2000 and 2015. The family received another £53m windfall last year when Arcadia bought BHS’s headquarters from Lady Green, as well as £70m from selling BHS store sites back to BHS as part of Dominic Chappell’s controversial takeover. Furthermore, the parliamentary report in the collapse of BHS claims Lady Green receives payments from a loan that Taveta used to buy BHS in 2009 as part of a group restructuring. Last year Lady Green collected £8.3m in interest and £20m from an annual repayment of the loan. Taveta owns freehold, long leasehold and short leasehold property worth £552m, according to its 2015 accounts. However, this now looks a conservative estimate. Sources believe that Topshop’s flagship store on Oxford Street in London – the jewel in the crown of Green’s property portfolio – could be worth £500m on its own. There have been rumours for years in the gossipy world of West End property that Green – who owns the building through a company called Redcastle (214 Oxford Street) Ltd – could sell it. Any sale could allow the tycoon to raise the funds to deal with the BHS pension without any impact on his day-to-day business. In the words of the MPs who investigated the demise of the BHS, Green operates behind a “complex web of companies, many registered offshore”. Thus, it is difficult to establish how many other foreign vehicles are owned by Green and Lady Green. However, other assets include Shelton Capital, which owns 22% of online fashion retailer MySale, which is worth almost £30m, as well as an apartment in Monaco worth an estimated £20m and the family’s new yacht, Lionheart, which cost as much as £100m.
News Article | February 20, 2017
Prior to President Donald Trump taking office, there was a push to require oil and gas companies to inform their investors about the risks of climate change. As governments step up efforts to regulate carbon emissions, the thinking goes, fossil fuel companies’ assets could depreciate in value over time. The Securities and Exchange Commission, for example, was probing how ExxonMobil discloses the impact of that risk on the value of its reserves. And disclosure advocates have been pressing the agency to take more decisive action. Now that Republicans control Congress and the White House, will the SEC reverse course? And should it? The Trump administration’s apparent skepticism regarding climate change may portend such a change in direction. And Congress’ decision to roll back transparency rules for U.S. energy companies in the Dodd-Frank Act suggests transparency policy more broadly is being loosened. The terms of this debate, however, remain premised on the notion that investors don’t have enough information to accurately assess the impact of climate change on company value. A growing body of academic research, including our own, suggests they already do and that a compromise path that improves the terms and conditions for voluntary disclosure might be optimal. Such a change in direction would be good news for ExxonMobil in its fight with the SEC over climate change disclosure. Last year, ExxonMobil announced that 4.6 billion barrels of oil and gas assets — 20 percent of its current inventory of future prospects — may be too expensive to tap. That would be the largest asset write-down in its history. So far, the company has written down US$2 billion in expensive, above-market cost natural gas assets. More write-downs — this time possibly oil sands — may be forthcoming. It’s not clear how much of that are tied to the risks of climate change, but some took it as evidence that the fossil fuel industry is not doing enough to inform investors about those risks. Disclosure advocates in the United States and Europe have been urging oil and gas companies to say more about the potential for their booked assets to become “stranded” over time. Stranded assets are mainly oil and gas reserves that might have to stay in the ground as a result of a combination of new efficiency technologies and policy actions that seek to limit greenhouse gas emissions. The collapse in coal equities last year highlighted that concern. Intensifying price competition from cleaner energy sources such as natural gas and solar energy and the increasing cost of developing cleaner coal overwhelmed the industry’s already declining revenue. Whatever policy direction the SEC takes on climate risk, it is unlikely to deter those investors who believe the present system of voluntary and mandatory disclosure has failed to provide them with sufficient information on the risks of climate change. And some market participants, such as Bank of England Governor Mark Carney, worry that the underreporting of climate change information is creating a big risk for financial markets — a carbon bubble — that could lead to a major market failure. Currently, the SEC requires mandatory disclosure of all “material” information, while everything else is voluntary. This system has created a vast amount of publicly available information on the costs and risks of climate change. But as the recent ExxonMobil revelations highlight, the market clearly does not have all information. There are good reasons for this. For competitive reasons and business survival, certain company information is kept confidential and private. The courts and the SEC have always acknowledged a company’s right to privacy regarding certain information. Companies, moreover, argue it could be harmful to shareholders if disclosed prematurely. An appropriate balance is required. Our own research confirms that financial markets already price climate risk into oil and gas company stocks based on company reports and other data available from public and proprietary sources. These data allow investors to estimate reasonably accurately the effects of climate change on companies, including the expectation of write-downs. For example, our work suggests that investors first began pricing in this kind of data as early as 2009, when the scientific climate change evidence about stranded assets first became known. Our latest research, soon to be published in Contemporary Accounting Research, shows that the share price of the median company in the Standard & Poor’s 500 reflects a penalty of about $79 per ton of carbon emissions (based on data through 2012). This penalty considers all S&P 500 companies, not just oil and gas firms. Importantly, this research also shows that investors are able to assess this penalty from company disclosures and the noncompany information available on climate change risk. This penalty comprises the expected cost of carbon mitigation and the possible loss of revenue from cheaper energy sources. Exxon, for its part, says it prices the cost of long-term carbon internally at $80 a ton, matching our market model. All this begs the question of what level of additional mandatory disclosure is needed to improve the “total mix of information available” for investors on which to base decisions. With climate change a pressing concern, investors certainly have a right to demand more disclosure, and we agree with that. But at what cost? Indeed, the cost of disclosure can be significant, and it’s not just the direct out-of-pocket costs that policymakers should consider when drawing up new regulations. Indirect costs, such as forcing oil and gas companies to disclose vital confidential information to rivals, could be particularly burdensome to particular companies. And society could pay a heavy price if new rules lead companies to make unwise operating or investment decisions or postpone investment unnecessarily. Energy costs could increase or supplies decrease because of miscalculations. Additionally, the private sector is trying to fill the gap on its own. Moody’s Investor Service, for example, announced in June that it will now independently assess carbon transition risk as part of its credit rating for companies in 13 sectors, including oil and gas. Given these and other factors, rather than mandate any new disclosures now, we urge the SEC to first implement a voluntary program along the lines of its successful 1976 program for the disclosure of sensitive foreign payments (like bribes). The SEC’s report on this program showed no harm to the stock prices of participants after they disclosed payments. In fact, it is often the lack of participation that invites a negative stock price response, as markets often view nondisclosing businesses as those with something to hide. This voluntary program also helped pave the way for the Foreign Corrupt Practices Act of 1977, which formalized the accounting requirements for bribery payments to foreign officials. We would hope that a voluntary disclosure program for climate change would achieve a similar goal: that is, formal SEC disclosure requirements that consider the interests of all parties. Such a program could initially target a defined group, such as the 50 largest SEC-registered oil and gas firms. That would give the SEC and private organizations like Moody’s the additional hard data and experience needed to examine the costs, benefits and financial market impacts of climate change risk disclosures. Doing this would pave the way for more permanent rule-making to better serve the needs of investors, companies and, ultimately, the public. Paul Griffin is Professor of Management at the University of California, Davis and Amy Myers Jaffe is Executive Director for Energy and Sustainability, University of California, Davis. This article was originally published on The Conversation. Read the original article.
Haldane A.G.,Bank of England |
May R.M.,University of Oxford
Nature | Year: 2011
In the run-up to the recent financial crisis, an increasingly elaborate set of financial instruments emerged, intended to optimize returns to individual institutions with seemingly minimal risk. Essentially no attention was given to their possible effects on the stability of the system as a whole. Drawing analogies with the dynamics of ecological food webs and with networks within which infectious diseases spread, we explore the interplay between complexity and stability in deliberately simplified models of financial networks. We suggest some policy lessons that can be drawn from such models, with the explicit aim of minimizing systemic risk. © 2011 Macmillan Publishers Limited. All rights reserved.
News Article | February 21, 2017
The Bank of England is unlikely to predict the next financial crisis, according to one of the central bank’s leading policymakers, who said economic models were unable to provide flawless forecasts for the UK economy. Monetary policy committee member Gertjan Vlieghe said it was impossible for the Bank to forecast a recession, let alone the next crash, and no amount of fine-tuning models of the way the modern economy operates would change that harsh reality. Appearing before MPs, Vlieghe warned it was inevitable there would be forecasting errors, which could include missing a cataclysmic event such as the 2008 banking crisis. He said: “We are probably not going to forecast the next financial crisis, or forecast the next recession. Our models are just not that good.” The Bank should continue trying to improve and refine its forecasting models, he said, but it was misguided for MPs to demand that economic forecasts offer a high degree of certainty about events that could happen several years from now. Vlieghe, a former City economist, was answering criticisms from MPs on the Treasury select committee over a series of forecasting errors in the run-up to the Brexit vote. Like the Treasury, the International Monetary Fund and the Organisation for Economic Cooperation and Development (OECD), Threadneedle Street predicted a sharp slowdown in the event of a vote to leave the EU. Official figures have shown that, far from slowing, the UK became one of the best-performing economies in the developed world and the fastest growing in the G7 in the second half of 2016. Governor Mark Carney said actions by the Bank itself, which cut interest rates weeks after the Brexit vote, and Chancellor Philip Hammond, who lifted constraints on public spending in November’s autumn statement, had helped to boost the economy in the wake of the Brexit vote. Carney admitted the MPC had misjudged the resilience of consumer spending following a wobble after the referendum, but it could not include in its forecasts actions that policymakers might take to offset weaker confidence among consumers and businesses. MP Jacob Rees-Mogg suggested the Bank should be more circumspect about its forecasts, rather than presenting them as “holy writ”, and then revising them six months later. Andy Haldane, the Bank of England’s chief economist, said fan charts showed the probability of the future path of growth and inflation and in most cases the predictions were within a narrow range of the central forecast. However, he conceded that the economics industry and the Bank found it difficult to convey a sense of uncertainty to the wider world. He said: “We know that people find risk hard to understand; I find risk hard to understand.”
News Article | January 17, 2017
Inflation is about to do at home what currency movements have done to your holiday money abroad – devalue the pound in your pocket. Rising air fares, more expensive food and a bump in the cost of fuel at the pumps pushed inflation to 1.6% in December, effectively ending a brief two-year period when wages outstripped price rises by a wide margin. The last time prices began to rocket, the UK was on its way to an inflation rate of 5.2% and the biggest fall in real incomes in modern times. It was 2011 and William Windsor had married Kate Middleton, adding some colour to a country still in shock from the financial crash. But the year was also characterised by public spending cuts, wage freezes, a crisis in Europe and riots across most of Britain’s major cities. Could the same happen again? According to the National Institute for Economic & Social Research inflation is heading towards 4% as the effect of Brexit uncertainty keeps the pound low and imports expensive. Such a sharp spike in prices will strain household finances, especially when wages growth is expected to remain at around 2.5%. Bank of England policymaker Michael Saunders said last week that developments in the labour market such as zero-hour contracts and agency working meant wages were unlikely to take off any time soon. The government has pledged to double down on austerity from April, with cuts to tax credits and other benefits as well as the savings made over the last five years. Europe is about to enter a critical year, with elections in France, Germany and the Netherlands threatening a lurch to the right. There is also the prospect of an ugly fight with the UK over Brexit. That leaves one last thing from the list of woes that beset 2011 – civil unrest. Could there be riots? Who knows. But the government is certainly putting all the ingredients together with a blatant disregard for the social fabric of the nation. For the time being shoppers have shut their ears to Cassandras who warn of trouble ahead. In the run-up to Christmas they reached for their credit cards instead.
News Article | February 28, 2017
WASHINGTON, 28. Februar 2017 /PRNewswire/ -- Am 27. Februar 2017 wandte sich der Systemic Risk Council (SRC) mit einer Grundsatzerklärung an die Finanzminister, Staatsoberhäupter, Finanzchefs und Vorsitzende der Legislativausschüsse der G20-Staaten. „Der SRC hat unsere Ansicht zu den wichtigsten Komponenten für ein sicheres Finanzsystem auf Papier festgehalten", erklärte Sir Paul Tucker, Vorsitzender des SRC. Er sagte weiter: „Angesichts der fortdauernden Debatten auf globaler Ebene, der potentiellen Veränderungen in der US-Politik bei der Systemstabilität und der anhaltenden Probleme in Europa, steht der SRC bereit, um konkrete Kommentare und Empfehlungen zu geben, damit sich politische Entscheidungsträger weiterhin für ein starkes Finanzsystem einsetzen." Der Systemic Risk Council wurde vom CFA Institute gegründet, einer weltweiten Organisation mit über 147.000 Investmentexperten, die sich für die Interessen von Investoren einsetzen und Maßstäbe für die professionelle Exzellenz im Finanzsektor setzen. In ihrer Grundsatzerklärung hob der SRC die enorme Bedeutung der fünf Grundpfeiler des globalen Reformprogramms hervor: 1. Anordnung einer deutlich höheren Common Tangible Equity für Banken, um das Bankrottrisiko zu senken, wobei einzelne Unternehmen mehr Eigenkapital beisteuern müssen, damit die sozialen und ökonomischen Folgen eines Bankenbankrotts für sie schwerer wiegen; 3. Befähigung für Behörden, eine systemweite Ansicht zu vertreten, über die sie die Belastbarkeit aller Mittelsmänner und Marktaktivitäten unabhängig von deren formellen Art gewährleisten können, die materiell für die Belastbarkeit des Systems in ihrer Gesamtheit relevant sind; 4. Vereinfachung des Netzwerks der Erkennung unter den Mittelsmännern über ein Mandat, über das soweit wie möglich eine zentrale Abwicklung von Derivattransaktionen vonseiten zentraler Gegenparteien erfolgt, die über alle Maßen belastbar sind; und 5. Umsetzung von erweiterten Regelwerken zur Klärung von Finanzmittlern jeglicher Form, Größe und Nationalität, damit selbst in einer Krisenzeit wichtige Dienste für Privatpersonen und Unternehmen ohne Solvenzhilfe für Steuerzahler aufrechterhalten werden – ein System, bei dem Anleihegläubiger angelockt werden, anstatt dass eine Bank in den Notverkauf flüchtet. Der SRC mahnt an, dass sich derzeit angesichts der Schuldenkrise und der makroökonomischen Ungleichgewichte nicht ausgeruht werden oder das globale Reformprogramm gelockert werden darf, um Krisensituationen auf dem Weg zur Erholung abzudämpfen. Es sollte sich weiterhin vorrangig um die Stabilität des Finanzsystems gekümmert werden. Die ungekürzte Version der Grundsatzerklärung finden Sie hier: http://www.systemicriskcouncil.org/wp-content/uploads/2017/02/Systemic-Risk-Council-Policy-Statement-to-G20-Leaders.pdf. Der unabhängige, überparteiliche Systemic Risk Council (www.systemicriskcouncil.org) wurde gegründet, um die ordnungspolitische Reform in den USA und an den globalen Kapitalmärkten hinsichtlich des Systemrisikos zu überwachen und anzutreiben. Der SRC wird vom CFA Institute finanziert, ein globaler Verbund von mehr als 147.000 Investmentexperten, die sich für die Interessen von Investoren einsetzen und Maßstäbe für die professionelle Exzellenz im Finanzsektor setzen. Der SRC arbeitet auf gemeinschaftliche Weise und einigt sich gemeinsam auf Empfehlungen. Die Erklärungen, Dokumente und Empfehlungen des privaten, ehrenamtlichen SRC entsprechen nicht in allen Fällen den Ansichten des CFA Institute. Chair (Vorsitzender): Sir Paul Tucker – Akademiker an der Harvard Kennedy School und ehemaliger Deputy Governor der Bank of England Chair Emeritus: Sheila Bair – Hochschulpräsidentin am Washington College und ehemalige Vorsitzende der FDIC Baroness Sharon Bowles – ehemalige Abgeordnete des Europäischen Parlaments und ehemalige Vorsitzende des Ausschusses für Wirtschaft und Währung vom Europaparlament Jan Pieter Krahnen – Professor für Kreditwirtschaft und Finanzierung an der Goethe-Universität in Frankfurt und Direktor des Centres for Financial Studies Ira Millstein – Senior Partner von Weil Gotshal & Manges LLP John Reed – ehemaliger Vorsitzender und Geschäftsführer von Citicorp und Citibank Lord Adair Turner – ehemaliger Vorsitzender der britischen Financial Services Authority und ehemaliger Vorsitzender des Financial Stability Boards vom Standing Committee on Supervisory and Regulatory Cooperation Nout Wellink – ehemaliger Präsident der niederländischen Zentralbank und ehemaliger Vorsitzender des Basel Committee on Banking Supervision * Die Zugehörigkeiten werden nur zu Erkennungszwecken angegeben. SRC-Mitglieder vertreten ihre Ansichten als unabhängige Personen. Die Aussagen in diesem Brief beruhen auf ihren persönlichen Ansichten und nicht den Ansichten der Organisationen, für die sie tätig sind.
News Article | February 20, 2017
Reform of the regulatory framework and banking supervision in Angola A delegation of the National Bank of Angola (BNA) headed by Governor Valter Duarte da Silva was in Paris for meetings with the Bank of France and other French banking system institutions, to strength institutional relations and raise awareness in the French financial sector for the reform of the regulatory and banking supervision framework in Angola. Through the BNA, Angola has developed a very strong effort to quickly adapt its financial system to international prudential standards and good practices with the objective of restoring international credibility and confidence in the Angolan financial system, aiming its recognition abroad by their counterparts. BNA has been imposing on Angolan commercial banks the adoption of best practices in financial regulation and supervision, and as a result of this effort seven of the largest banks operating in Angola have already adopted International Accounting and Reporting Financial Statements Standards. "Our expectation is that the European Central Bank and the United States Federal Reserve will recognize the National Bank of Angola as an entity of equivalence in banking regulation and supervision in the first half of this year," said Valter Duarte Silva. The Angolan visit to the French capital is part of a program of contacts and visits of the BNA to the world's financial centers. The BNA has developed several contacts with international institutions and counterparts such as the World Bank and the International Monetary Fund, the Federal Reserve of the United States, the Bank of England, the Bank of France, the Bank of Italy, the Bank of Portugal And the Reserve Bank of South Africa in order to adapt to good banking supervision practices in Europe and the United States, and to show what has already been done in Angola, as well as to train its technicians and senior management. "Our work has been developed in partnership with the International Monetary Fund and the World Bank and in close collaboration with the central banks of Portugal, South Africa, Italy, the United Kingdom, France and the United States of America, with which we have already established protocols for training human resources and for technical assistance," said the governor of the BNA. The Angolan delegation has held meetings at the highest level with the Governor of the Bank of France, Mr. François Villeroy Galhau, and with representatives of French banks such as BNP Paribas, Crédit Agricole and Natixis, as well as institutions such as the French Banking Federation, MEDEF International, The International Financial Action Task Force (FATF) and the Paris Club.
News Article | February 17, 2017
Nearly three-quarters of small companies in London say business rates are the most important issue they face, piling further pressure on the government over the controversial tax. The Federation of Small Businesses (FSB) warned that London was in “serious danger of losing its vital support system of micro and small businesses”. The average micro business, which employs fewer than 10 people, will have to pay £17,000 to cover business rates from April, it added. The trade body’s warning comes a day after the government accused critics of “scaremongering”, saying that three-quarters of firms would see either no change in their business rates or would see them reduced. Other influential trade bodies, including the Institute of Directors and the British Chambers of Commerce, have already called on the government to overhaul the tax. The change in business rates payments from April is down to the revaluation of property in Britain. This is supposed to take place every five years but the previous revaluation was controversially delayed by the government in 2015 for two years, making the revised bills more pronounced. The revaluation is likely to benefit struggling high streets in northern England. London, however, will record an increase of around £9bn over the next five years. A survey by the FSB and trade body Camden Town Unlimited, found that rates were the biggest issue for 74% of small businesses in London, ahead of economic uncertainty and problems in recruiting staff. Four in 10 businesses that are paying rates said they expected a rise of more than 20%, while three in 10 said they were unsure what the changes from April would mean. The FSB and Camden Town Unlimited called for the rates threshold in London to be increased, allowing more small firms to avoid the tax. Sue Terpilowski, the FSB London chair, said: “London is in serious danger of losing its vital support system of micro and small businesses. “The business attraction of London is that it has a strong ecosystem of support services from the micro and small business community. Some of these businesses are the ones that become high-growth companies from a standing start, often in the hi-tech sectors. “We must ensure that this support system remains in place to keep the UK economy and the London economy thriving. We need to realise that the hard costs of operating a business in the capital are starting to outweigh the benefits, which simply does not make economic sense – and so tackling these burdens at the spring budget is critical.” The government defended business rates on Thursday. David Gauke, chief secretary to the Treasury, said: “Far from the picture painted by scaremongering ratings agents, nearly three-quarters of businesses will see no change, or even a fall, in their business rates bills. “The fact is that the generous reliefs we are introducing mean that 600,000 small businesses are paying no business rates at all – something we’re making permanent so they never pay these bills again. “Whether on a town’s high street or in a rural community, we’ve also introduced £3.6bn in support for companies affected by the business rates revaluation – a process that is making the system accurate and fair for everyone.” However, accountants urged the government to reconsider the rates system because of the uncertainty caused. Chas Roy-Chowdhury, head of tax at the Association of Chartered Certified Accountants (ACCA), said: “The government should ensure that this is not introduced at the expense of the competitiveness of UK plc as a place to work and to locate a business. “The system also needs to take account of fairness when some high-street shops will be hit by hikes of over 400% on current rates, while online retailers will see rates cut in many instances. “For many of the productivity-boosting[small to medium enterprises] up and down the country, increases will eat into disposable income which could better be spent on investment, recruitment or research and development. “This is particularly important given the low levels of confidence following the result of the referendum on the UK’s membership of the European Union and looking ahead to the longer-term effect of the devaluation of sterling in increasing supplier costs. “The government should revisit these proposals and carefully consider if the revaluation is the best way to raise revenue from the UK’s thriving small and medium-sized businesses in an era of high uncertainty.” Queen Elizabeth hospital in Birmingham Hospitals face a £322m or 21% increase in their business rates bill over the next five years. The worst affected is the Queen Elizabeth in Birmingham, where the rates bill will more than double to £6.9m a year. Bank of England A £1.4bn, or 33%, rise in business rates for offices in the City of London is threatening to undermine the Square Mile’s drive to remain a key financial centre in Europe after Brexit. For example, the Bank of England faces an increase of more than £1.5m a year on its Threadneedle Street headquarters. Sport Direct warehouse Mike Ashley’s Sports Direct will save almost £900,000 in business rates over the next five years on its warehouse in Shirebrook, Derbyshire, which has been compared to a Victorian workhouse. This saving will almost cover the £1m the company owes in back pay to thousands of workers after admitting it had paid them less than the minimum wage. Nuffield Health hospitals Private hospitals have fared better than NHS hospitals in the government’s revaluation. Their rateable value has increased by 9.6% compared with an extra 19.8% for NHS hospitals. In addition, some private healthcare providers, such as Nuffield Health, also enjoy an 80% discount because they are registered charities. Blackpool high street Struggling town centres with a high proportion of empty shops will benefit. Rates bills for shops on Blackpool high street will fall by around half. The O2 London will suffer an increase in its business rates of more than £9bn over the next five years. The capital’s landmarks are among the buildings most affected, with the O2 set for a 142% rise. Business rates are a tax on non-domestic or commercial properties in Britain. The principles behind the levy originated in the 1601 Poor Relief Act, which charged property owners a tax to help support the poor. It has become one of the Treasury’s biggest sources of income, bringing in nearly £29bn last year. The tax is calculated via the rental value of commercial property and the annual rate of inflation. The overall tax take for the Treasury is supposed to remain flat in real terms, but a revaluation of property every five years is designed to ensure the tax burden moves in line with the economy.
News Article | February 23, 2017
Early last month, Andy Haldane, chief economist at the Bank of England, blamed“irrational behaviour” for the failure of the BoE’s recent forecasting models. The failure to spot this irrationality had led policymakers to forecast that the British economy would slow after last June’s Brexit referendum. Instead, British consumers have been on a heedless spending spree since the vote to leave the European Union; and, no less illogically, construction, manufacturing, and services have recovered. Haldane offers no explanation for this burst of irrational behaviour. Nor can he: to him, irrationality simply means behaviour that is inconsistent with the forecasts derived from the BoE’s model. It’s not just Haldane or the BoE. What mainstream economists mean by rational behaviour is not what you or I mean. In ordinary language, rational behaviour is that which is reasonable under the circumstances. But in the rarefied world of neoclassical forecasting models, it means that people, equipped with detailed knowledge of themselves, their surroundings, and the future they face, act optimally to achieve their goals. That is, to act rationally is to act in a manner consistent with economists’ models of rational behaviour. Faced with contrary behaviour, the economist reacts like the tailor who blames the customer for not fitting their newly tailored suit. Yet the curious fact is that forecasts based on wildly unrealistic premises and assumptions may be perfectly serviceable in many situations. The reason is that most people are creatures of habit. Because their preferences and circumstances don’t in fact shift from day to day, and because they do try to get the best bargain when they shop around, their behaviour will exhibit a high degree of regularity. This makes it predictable. You don’t need much economics to know that if the price of your preferred brand of toothpaste goes up, you are more likely to switch to a cheaper brand. Central banks’ forecasting models essentially use the same logic. For example, the BoE (correctly) predicted a fall in the sterling exchange rate following the Brexit vote. This would cause prices to rise – and therefore consumer spending to slow. Haldane still believes this will happen; the BoE’s mistake was more a matter of “timing” than of logic. This is equivalent to saying that the Brexit vote changed nothing fundamental. People would go on behaving exactly as the model assumed, only with a different set of prices. But any prediction based on recurring patterns of behaviour will fail when something genuinely new happens. Non-routine change causes behaviour to become non-routine. But non-routine does not mean irrational. It means, in economics-speak, that the parameters have shifted. The assurance that tomorrow will be much like today has vanished. Our models of quantifiable risk fail when faced with radical uncertainty. The BoE conceded that Brexit would create a period of uncertainty, which would be bad for business. But the new situation created by Brexit was actually very different from what policymakers, their ears attuned almost entirely to the City of London, expected. Instead of feeling worse off (as “rationally” they should), most leave voters believe they will be better off. Justified or not, the important fact about such sentiment is that it exists. In 1940, immediately after the fall of France to the Germans, the economist John Maynard Keynes wrote to a correspondent: “Speaking for myself I now feel completely confident for the first time that we will win the war.” Likewise, many Brits are now more confident about the future. This, then, is the problem – which Haldane glimpsed but could not admit – with the BoE’s forecasting models. The important things affecting economies take place outside the self-contained limits of economic models. That is why macroeconomic forecasts end up on the rocks when the sea is not completely flat. The challenge is to develop macroeconomic models that can work in stormy conditions: models that incorporate radical uncertainty and therefore a high degree of unpredictability in human behaviour. Keynes’s economics was about the logic of choice under uncertainty. He wanted to extend the idea of economic rationality to include behaviour in the face of radical uncertainty, when we face not just unknowns, but unknowable unknowns. This of course has much severer implications for policy than a world in which we can reasonably expect the future to be much like the past. There have been a few scattered attempts to meet the challenge. In their 2011 book Beyond Mechanical Markets, the economists Roman Frydman of New York University and Michael Goldberg of the University of New Hampshire argued powerfully that economists’ models should try to “incorporate psychological factors without presuming that market participants behave irrationally.” Proposing an alternative approach to economic modelling that they call “imperfect knowledge economics,” they urge their colleagues to refrain from offering “sharp predictions” and argue that policymakers should rely on “guidance ranges,” based on historical benchmarks, to counter “excessive” swings in asset prices. The Russian mathematician Vladimir Masch has produced an ingenious scheme of “risk-constrained optimisation,” which makes explicit allowance for the existence of a “zone of uncertainty”. Economics should offer “very approximate guesstimates”, requiring “only modest amounts of modelling and computational effort”. But such efforts to incorporate radical uncertainty into economic models, valiant though they are, suffer from the impossible dream of taming ambiguity with maths and (in Masch’s case) with computer science. Haldane, too, seems to put his faith in larger data sets. Keynes, for his part, didn’t think this way at all. He wanted an economics that would give full scope for judgment, enriched not only by mathematics and statistics, but also by ethics, philosophy, politics, and history – subjects dropped from contemporary economists’ training, leaving a mathematical and computational skeleton. To offer meaningful descriptions of the world, economists, he often said, must be well educated.