2010 | World Finance

EU exec says no 20bn euro aid plan for Greece

Posted on February 22, 2010 by

They were reacting to a report in German weekly Der Spiegel that Germany’s finance ministry had sketched out a plan in which countries using the euro currency would provide aid worth 20-25 billion euros ($27-$33.7bn).

“There is no such plan because Greece has not requested a single euro in financial aid,” European Commission spokesman Amadeu Altafaj told a news conference in Brussels.

In Berlin, a finance ministry spokesman told a news conference Germany had not made a decision on aid for Greece but expected the debt-ridden country to be able to refinance in April.

Greece’s central bank governor meanwhile said the country was prepared to take extra fiscal steps to make sure it meets its deficit-cutting targets though he said financial markets were over-reacting to the country’s financial woes..

“Even if some risks materialise – like [poor] growth – the government is prepared to take immediate corrective action,” George Provopoulos, also a member of the ECB’s Governing Council, told Bloomberg in an interview.

“The government has said already on several occasions that it will take any additional measures required in order to achieve its goal,” Provopoulos was quoted as saying.

Der Spiegel had reported that “initial considerations” by the German finance ministry were for financial aid for Greece to be calculated according to the proportion of capital each country holds in the ECB.

Greece has pledged to reduce its budget deficit by four percentage points to 8.7 percent of GDP in 2010. Spreads of Greek government-bond yields over German bunds have surged since October.

In another Der Spiegel report, Greek Prime Minister George Papandreou told Germany he was not seeking aid, and criticised the Commission for failing to ensure Member States adhered to the EU’s Stability and Growth Pact that limits budget deficits.

“The union could in the past have more rigorously policed whether the stability pact was being observed – with us too,” he said. “In future we should allow the European statistics office direct access to individual Member States’ data.”

“We suggested that, but not all countries wanted to have so much transparency,” Papandreou said.

Bond offer
Financial markets have given Athens a hammering this year over worries it will not be able to refinance debt coming due this year, and the fallout has seen other highly-indebted EU states suffer, along with the euro itself.

The 10-year Greek/German government bond yield spread narrowed by three basis points on the day to 314 bps, the narrowest since February 17.

In his comments to Bloomberg on the way financial markets were reacting, Provopoulos was quoted as saying: “They take advantage of the weak link to make profits.”

“It’s clear that there is a certain degree of overshooting. Given the high degree of uncertainty in the markets, one should not expect that the situation will normalise overnight.”

Greece’s deficit swelled to 12.7 percent of GDP in 2009, way above the EU’s cap of three percent, and Athens needs to sell some 53 billion euros of debt this year, including at least 20 billion euros in April and May.

In another report, Germany’s Handelsblatt business daily on Monday said German Finance Minister Wolfgang Schaeuble favours using bilateral aid to help Greece in the event that Athens defaults on its debt commitments.

Finance Minister George Papaconstantinou told reporters that Greece would decide on the next bond issuance soon but confirmed no details.

Bernanke has some explaining to do

Posted on February 22, 2010 by

The head of the central bank heads to Capitol Hill on Wednesday and Thursday for twice-yearly testimony, fulfilling a long-time practice.

Normally, the main topic is the state of the economy.

This time, Bernanke will also have to answer why he decided to spring a surprise on financial markets last week by raising the interest rate the Fed charges on emergency loans to banks – and whether that signals the days of easy money are over.

Higher borrowing costs would be unwelcome news to Congress, where the majority of lawmakers are up for re-election and want low rates to foster economic growth and keep voters happy.

Bernanke was already under pressure from some lawmakers who thought he failed to see the financial crisis coming and mishandled the fallout. Thirty senators voted against him serving a second term as chairman, the stiffest opposition in the nearly 32 years the Senate has voted on the position.

He can expect to hear more of that criticism this week as lawmakers debate how best to reform financial regulation, and how large a role the Fed ought to play.

When the Fed announced the hike in the so-called discount rate on Thursday, it went out of its way to say this would not raise borrowing costs for households or consumers.

The numbers back that up. The rate hike affects only the Fed’s “discount window” for emergency loans, and borrowing there averaged $87.73bn a day in the week ended February 17. Paying an extra 0.25 percent interest on that amount works out to just $219m – a drop in the bucket for multitrillion-dollar global credit markets.

Why now?
That the central bank was planning to raise the discount rate was well known. Bernanke himself had said on February 10 a move would probably come soon as the Fed tries to encourage banks to resume borrowing from the private sector.

But the timing raised questions. Why did the Fed deem it necessary to raise the rate last week? Couldn’t it wait until its next scheduled policy meeting on March 16? And if not, why didn’t the Fed make this move at its January 27 meeting?

The result was a new wave of speculation that the Fed was closer to raising its benchmark interest rate, which governs lending between banks, than markets had assumed, said Brian Bethune, an economist with IHS Global Insight in Lexington, Massachusetts.

“Hopefully, Bernanke’s testimony to Congress … will shed some important new light on the Fed’s policy intentions,” he said.

Jack Ablin, chief investment officer at Harris Private Bank in Chicago, said he expected Bernanke to reassure both lawmakers and investors that borrowing costs are not heading higher any time soon.

In fact, by taking smaller steps such as raising the discount rate and talking about the need to normalise policy, Bernanke can buy himself some more time to keep rates low.

Financial market players tend to react to tightening talk by pushing up the dollar, which eases inflation pressure and gives the Fed some breathing room.

“In his heart, I don’t think he has any intention of raising rates this year,” Ablin said. “In order to do that, he has to jawbone. The more they can talk and flap their arms, the less they have to raise rates.”

To make matters even more complicated for Bernanke, his testimony comes in the midst of debate over how to reform financial regulation to ward off the next crisis.

Senator Christopher Dodd, chairman of the Senate Banking Committee where Bernanke will be testifying on Thursday, and Republican Senator Bob Corker are expected to unveil a bipartisan financial reform bill this week.

The Fed’s role in that remains to be seen. Bernanke thinks the central bank is best placed to serve as systemic risk regulator, overseeing the largest financial firms to ensure they don’t take on too much risk.

Dodd opposes putting the Fed at the centre of systemic risk regulation, and will probably seek to curb its powers.

Between the drama over the discount rate hike and the debate over regulation, Bernanke’s view of the economy may be a bit overshadowed. Look for him to give a brighter view of growth prospects, if anyone is still listening.

Brokering the mould

Posted on February 22, 2010 by

Keeping it people-focused, maintaining integrity at all times and innovating along with the changes in the market – these are the ingredients that make Al Ramz Securities, LLC or RAMZ one of the strongest independent brokerage companies in the UAE since its inception in the late 90s. RAMZ has matured along with the growth of the UAE as an economy and as an international investment hub.

The UAE has witnessed profound and in some ways, unprecedented changes over the last few years. Perhaps this is best underscored by the fact that, notwithstanding the spike in oil prices, oil now contributes less than 30 percent of the country’s domestic economy. The rise in the non-oil sectors’ contribution to UAE’s GDP reflects the aggressive diversification of the economy through legislative reforms, encouragement and empowerment of the private sector, and active support of the government for industrial growth.

Both the Abu Dhabi Stock Exchange (ADX) and Dubai Financial Market (DFM) have grown considerably in terms of listings, trading volumes, trade turnovers and market capitalisations. In 2005, what is now known as NASDAQ Dubai (re-branded from its former name of Dubai International Financial Exchange) opened as the international exchange serving the region between Western Europe and East Asia. Through out all these advancements, RAMZ has been an integral part of the UAE financial markets providing reliable access for investors to participate in one of the world’s fastest growing markets.

From its humble beginning in 1998, RAMZ has to date become an independent powerhouse. Even before the ADX and DFM were formally established in 2000, RAMZ has been trading equities in the over-the-counter (OTC) market. With the establishment of the country’s two stock exchanges, RAMZ immediately saw a strong position among the competitors for market share. RAMZ has consistently maintained a significant portion of traded volume on both the ADX and DFM ranking amongst the top five brokers in the UAE in terms of volume. Such achievements would not have been possible and would not have been maintained had it not been for the company’s unfailing focus to better serve its customers and continuously evolving to suit market developments.

RAMZ offers its clients a more personalised approach to their brokerage needs, which has distinguished it in the region as a leader in brokerage services. From customer service to execution, the client is provided with an up-to-date look of the UAE markets, keeping the client informed on their investment portfolios by a range of brokers spread out through a network of branches across the UAE. RAMZ’s highly professional team works within a strict ethical framework – ensuring that clients’ interests are safeguarded at all times. RAMZ also recognises that these concepts are not enough to maintain success. Markets are dynamic and changes are inevitable. The company perceives change as a challenge that presents great opportunities – and so RAMZ moves forward with transformation.

Through the years, RAMZ has expanded both geographically as it established branches all over the country and organically as it developed more service offerings. The company has set up six strategically placed branches across the emirates to cater to the investment community and provide a network of highly trained brokers and an online trading platform for its retail client base. Clients can execute their own trades from the comfort of their own homes or offices while always being able to contact their local broker for a quick summary of the day’s news and events that are affecting their portfolios.

In early 2009, apart from securing membership from NASDAQ Dubai, RAMZ formally established its Institutional Desk. More recently RAMZ, aware of the growing participation of institutional investors both locally and regionally, further expanded its institutional reach by pursuing a merger with National Financial Brokerage Company, the brokerage arm of Invest AD, combining the institutional and retail markets to build a brokerage powerhouse. The transaction brings together two leading complementary brokerage firms in the region each being a leader in their respective fields. This has given RAMZ an edge in the institutional market of the UAE in exchange for Invest AD becoming a strategic shareholder in the expanded RAMZ Group.

Invest AD joins a distinguished and influential roster of RAMZ shareholders, which include established and reputable institutions in various sectors such as finance, investments, insurance and property. RAMZ is also in a unique position to count among its owners members of the ruling Al Nahyan Family of Abu Dhabi, Invest Abu Dhabi (formerly known as Abu Dhabi Investment Company) and Oman Insurance as well as regional business leaders with decades of professional experience and expertise in diverse fields.

RAMZ has made significant strides since its inception, maintaining its premier market position even in the face of growing competition and extreme market environments. This would not have been possible without the firm’s deep and unique understanding of its markets and customers and leveraging its competencies in terms of its service offerings, branch network and technological innovations. Going forward, RAMZ sees diversification in terms of geography and, in terms of product suite, as it actively pursues expanding into asset management.

With its unrivaled ambitions and strong continued growth, Al Ramz has established itself as a unique and independent brokerage aimed at helping its clients reach financial independence on their own, by bringing a wealth of experience to better serve the investor.

Powering infrastructures

Posted on February 22, 2010 by

The world economy is in a very delicate phase and the effects of the financial crisis will continue to be seen for some time to come. Despite the high degree of uncertainty, the most recent forecasts offer hope that the worst has passed and that the conditions for recovery are strengthening, partly thanks to the large economic stimulus programmes put in place by the governments of leading industrialised countries. Infrastructure investment (transport, energy, telecommunications and construction) is central to such initiatives.

Atlantia has a key role to play in responding to the crisis, providing a boost for the economy thanks to its planned investment in the Italian motorway network through its subsidiary, Autostrade per l’Italia. This will see the group once again drive the kind of renewed economic growth that helped to rebuild the Italian economy after the Second World War.

Autostrade-Concessioni e Costruzioni Autostrade SpA − now Atlantia SpA − was established in 1950 as a publicly owned company tasked with building the backbone of the Italian motorway system. The company began operating in 1956, entering into an agreement with ANAS (Italy’s Highways Agency). On the basis of this Autostrade was committed to co-financing, building and operating the Autostrada del Sole between Milan and Naples, which opened in 1964.

The business has grown into the present group, which today operates a network of over 3,400km, accounting for 52 percent of Italy’s motorway system and used by four million travellers a day.

Autostrade was privatised in 1999, before a restructuring in 2003 led to the creation of Autostrade per l’Italia SpA, a wholly owned subsidiary of Autostrade SpA, which, in May 2007, changed its name to Atlantia SpA.
With a stock market capitalisation of approximately Ä10bn at the end of 2009, Atlantia is one of Italy’s leading companies with turnover of Ä3,477m and an EBITDA margin of 60.8 percent in 2008.

Autostrade per l’Italia and its motorway subsidiaries are committed to upgrading and modernising around 900km of network, involving a total investment of almost Ä22bn. The programme aims to bring the capacity of the motorways operated under concession into line with growing traffic volumes and the need for greater safety and service quality, and makes Autostrade per l’Italia the country’s biggest private investor.

In carrying out its core business, the Atlantia Group is fully aware of the importance of its role in a sector that is crucial to the socio-economic development of the areas crossed by its motorways. It is also conscious of the significant environmental impact of its activities, requiring it to work with and reach agreement with local authorities and communities. In addition, the group is faced with the complexities of raising the necessary financing and ensuring an adequate return on invested capital. The complexity of the business requires a prudent and balanced approach to managing relations with the various stakeholders involved in the group’s business model.

For a listed company that was once under public control, operating in a business with a large number of very different stakeholders, it is crucial to have a corporate governance system capable of balancing the interests of the various stakeholders (customers, government, environment and communities, investors, capital providers and staff) and ensuring a correct and transparent approach to doing business.

Moreover, corporate governance is, more than ever before, seen as a critical factor in the success or failure of a company: the collapse of some of the world’s leading companies during the recent financial crisis, as a result of poor management, has reinforced the need for an exemplary corporate governance strategy.

Atlantia SpA’s corporate governance system is based on the concept of balance in the representativeness and roles of corporate bodies, on ongoing dialogue with the wider stakeholder community and on transparency, in terms of both market disclosures and internal procedures.

Atlantia’s corporate governance system is based on a set of rules in line with the latest standards defined by the market and regulators, with the aim of ensuring that stakeholders engage with the strategies followed by the group. This system has been implemented and updated over time by the introduction of rules of conduct in line with development of the business and the requirements of Borsa Italiana SpA, as set out in the Guidelines to the Corporate Governance Code for Listed Companies.

The ability to guarantee the different interests of the various parties depends on a series of bodies and tools designed to protect the interests of each stakeholder category and implement the related controls:
– Customers: the “Consultative Safety and Service Quality Committee”, set up in collaboration with the highway police and consumers’ associations with the aim of identifying, agreeing and checking on initiatives and programmes designed to improve motorway services and road safety.
– Environment and communities: the “Sustainability Committee”, set up to promote sustainable development principles and values within the group and propose social and environmental responsibility objectives, programmes and initiatives.
– Government: the “Supervisory Board”, responsible for drawing up the organisational, management and control model for all group companies in order to prevent the company being liable for administrative crimes, via identification of the areas of the business at risk and the definition of control procedures.
– Investors: the Internal Control and Corporate Governance Committee, which provides advice, recommendations and assistance relating to checks on the correct functioning of the internal control system, with particular reference to compliance with international standards, the various codes of conduct and declared principles.
– Staff: “Consultative Workplace Safety Committee”, consisting of union representatives, representatives of Autostrade per l’Italia and external experts in workplace safety.

The group also has a “Stakeholder Committee”, which is responsible for assessing corporate advertising initiatives aimed at stakeholders, ensuring the consistency of objectives, content and approach and verifying implementation.

Atlantia’s corporate governance system also includes a number of key elements that reflect the group’s commitment to going beyond the requirements of current legislation, by adopting additional measures to protect minority interests and ensure correct governance. This regards the use of voting lists, enabling shareholders to appoint three out of 15 members of the board of directors, which is more than required by existing regulations.

The group is committed to complying with the highest self-regulatory standards set by the authorities that oversee the regulated markets on which the shares of group companies are listed, and to maintaining high levels of transparency and correctness in the management of group companies.

The results achieved with regard to the categories of stakeholder offers are proof of the progress made since privatisation and provide an incentive to achieve even more ambitious objectives, including in terms of recognition and visibility:
– Efforts designed to bring about ongoing improvements in motorway infrastructure and service quality have resulted in a 73 percent reduction in the death rate since privatisation, outperforming both the reductions reported by other road networks and the European Community’s ten-year goal of halving road deaths by 2009;
– In September 2009 Atlantia was included in the Dow Jones Sustainability World Index, the prestigious global corporate social responsibility index that selects the best enterprises from the 2,500 international companies in the Dow Jones Global indexes, based on economic, environmental and social criteria;
– The group’s ability to raise new funding is proof of its stronger financial credibility in the markets: even during a year when access to credit was at its most difficult, Atlantia has raised approximately Ä5bn in new borrowing to finance capital expenditure.

For this reason, it is of particular significance to Atlantia to have won the World Finance Corporate Governance Award for 2009, reflecting both the high profile of the jury that chose the winner and the quality of the competition. We are firmly convinced that corporate governance is a key factor in the success and survival of a business. The World Finance award is proof that we are on the right track and will spur us on to reinforce our commitment to establishing a benchmark for our market.

Gian Maria Gros-Pietro is Chairman of Atlantia

Irish “bad bank” transfers delayed until end March

Posted on February 22, 2010 by

Ireland will transfer the first loans to the National Asset Management Agency (NAMA) “bad bank” by the end of March, missing its latest deadline of late February, as it waits on European approval to begin the scheme.

Finance Minister Brian Lenihan has said work valuing the total loans initially worth 80 billion euros ($109bn) was also still ongoing on the scheme charged with cleansing its troubled banking sector.

The transfer of loans to NAMA which the government estimates it will pay 54 billion euros for was originally meant to start in December and the head of the country’s debt agency had said earlier this month that it would make its February target.

“It will take until the end of March but it is very important we get the valuations right. We also have to get our EU approvals and they are going very well,” Lenihan told Ireland’s Newstalk radio station.

The write-downs caused by asset transfers to NAMA will require banks to raise additional capital and the central bank said recently that the government would have to provide more capital to them as a result.

Ireland was forced to take nearly 16 percent ownership of Bank of Ireland this week – its first direct stake, in lieu of a payment due on the 25 percent indirect stake it took last year.

The bank said recently that it would transfer nearly 200 million ordinary shares in lieu of a due 250 million euro payment that could not be repaid until a European Commission verdict on its restructuring plans for state aid.

The Commission had told Bank Of Ireland and rival Allied Irish Banks, which the government also holds a 25 percent indirect stake in, to stop paying dividends on shares and interest on some debt pending the restructuring decision.

Lenihan said he expected that verdict in a matter of weeks, adding that it was possible the taxpayer would have to inject further capital into the banks but restated his preference that the lenders meet their capital needs privately.

“I believe there is scope for asset disposals within the banks themselves. There is also scope for the realisation of other assets they have overseas,” Lenihan earlier told national broadcaster RTE.

Allied Irish’s first payment is due in May and Lenihan said there would be a “far clearer picture” regarding its restructuring plan by then.

Fed seeks to calm markets after discount rate rise

Posted on February 19, 2010 by

US Federal Reserve officials moved to calm speculation that a surprise rise in its emergency lending rate could bring forward broader policy tightening, saying borrowing costs in the economy would stay low.

Fed Chairman Ben Bernanke flagged the move last week, saying the US central bank aimed to widen the spread between its main policy rate that remains pegged near zero and the discount rate at which banks can borrow from the Fed.

However, no one in markets expected it to act so soon and the timing of the move – well ahead of the March 16 policy meeting – prompted investors to price in a greater likelihood of a rise in the benchmark fed funds rate late this year.

The dollar jumped and government bonds and bank stocks fell after the Fed raised the discount rate by 25 basis points to 0.75 percent even as it cast it as a response to improved financial market conditions and not a change in monetary policy.

“This is a significant and likely symbolic move that will impact on market sentiment,” Robert Rennie, a strategist at Westpac in Sydney said in The Dealing Room, a Reuters Messaging chat room.

“The emergency easing cycle began with discount rate cuts – it was all about easing liquidity to banks. So the move to raise the discount rate means the long journey towards normalisation has begun.”

Thursday’s move is the first increase in any of the Fed’s lending rates since the financial crisis blew up in 2007 and the first rate change since December 2008.

“The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy,” the Fed said in a statement.

Overblown expectations
While investors initially brushed aside the Fed’s assurances that no tightening for the broad economy was on the cards, warnings from a senior Fed official that markets have gone too far in their tightening bets finally did sink in.

St. Louis Federal Reserve Bank President James Bullard said investors belief in high probability of a rise in the Fed’s benchmark rate this year was “overblown” and that the discount rate rise should not be seen as a policy signal.

“The discount rate move is part of a normalisation process which is akin to our discontinuing many of our liquidity programs,” Bullard, who votes on the Fed’s interest rate-setting panel this year, told reporters in Memphis. “It does not indicate anything one way or the other about what we might eventually do with the federal funds rate,” he added.

The dollar pared gains and treasury futures trimmed losses, after Bullard’s comments and reminders from fellow Fed officials that cheap credit was still the order of the day.

“Monetary policy – as evidenced by the fed funds rate target – remains accommodative,” Dennis Lockhart, Atlanta Fed president, said in a speech. “This stance is necessary to support a recovery that is in an early stage and, in my view, still fragile.”

Still, share markets in Asia were on the defensive as the Fed’s action, which follows China’s moves to curb lending, served as a reminder that the period of cheap cash that fuelled last year’s stock market rally may be slowly drawing to an end.

Return to normal
Before the financial crisis, the discount rate was typically a full percentage point above the federal funds rate. Thursday’s decision begins to move it back nearer to its traditional premium and it said it would assess over time whether it needed to further widen the spread between the two rates.

The central bank’s view of the economy has brightened in recent months as job losses eased, consumer spending strengthened and businesses stepped up purchases of equipment and software. The Fed has warned, however, that recovery from the deepest US recession since the 1930s will probably be sluggish and has said it expects to keep the federal funds rate near zero, where it has been since December 2008, for “an extended period.”

In its statement on Thursday, it said the economic and policy outlook remained broadly unchanged from late January, when its policy committee reiterated that low-rate pledge.

Some other central banks around the world have begun to tighten policy. Australia led the way last year and its central bank chief signalled on Friday more rate increases in months ahead while China surprised markets twice in the past two months by lifting banks’ mandatory reserves.

In the US, however, the Fed has said record low interest rates are still warranted with the unemployment rate near 10 percent.

“I don’t think the Fed dares (to) increase the fed funds or policy rate in the face of unemployment at double-digit type of levels,” Bill Gross, the manager of Pimco, the world’s biggest bond fund, told reporters after the Fed announcement.

Other changes announced on Thursday included shortening the typical maximum maturity for primary credit loans to overnight from 28 days, effective March 18, and raising the minimum bid rate for the Fed’s Term Auction Facility, another scheme put in place to foster market liquidity.

MTFs look to new markets for growth

Posted on February 18, 2010 by

On the face of it Europe’s new exchanges had a pretty good year in 2009. Aggressive fee cuts helped these new trading venues, known as multilateral trading facilities, take business from traditional exchanges, which all lost market share.

However, following early success some in the business are now pondering what MTF 2.0 might look like, as they fight to prove to shareholders that they can translate gains in market share into profits.

A year ago Europe’s four main entrants – Chi-X Europe, Bats Europe, Turquoise and Nasdaq OMX Europe – shared 14 percent of the European market, according to data from Thomson Reuters. In January, they had more than 20 percent.

Their growth was partly down to a price war instigated by the various platforms as they sought to undercut the incumbent exchanges with lower tariffs.

The strategy paid off in pure market share terms but the cuts meant the firms’ modest revenues were under pressure and by the end of the year questions were being asked about their commercial viability. These concerns were realised late in December when Turquoise, the most high-profile of the MTFs, agreed to sell up to its main exchange rival, the London Stock Exchange.

Turquoise’s market share may have fluctuated last year but it was the top-performing MTF after Chi-X Europe until it was overtaken by Bats Europe in November, according to Thomson Reuters.

The withdrawal of Turquoise, despite its decent market share, has focused attention on these platforms and their plans to move into sustained profitability.

Only Chi-X Europe, which has averaged a European market share of 13.5 percent over the past three months, can lay any serious claim to having broken even.

MTF sources said the break-even point, depending on overheads, is estimated to be about 14 percent market share.

Geographic expansion is an option and one that Nasdaq OMX Europe is pursuing. Its chief executive Charlotte Crosswell said last week the system would offer eastern European equities as soon as the necessary changes are made at clearing houses. However, regional expansion is complicated.

Of the four main MTFs, only Turquoise is not part of a larger, international group – at least until the LSE deal goes through, subject to an Office of Fair Trading inquiry.

Chi-X Europe is twinned with Chi-X Global, which has interests in Canada and Australia among other markets. Bats Europe is part of the highly successful US franchise Bats Exchange and Nasdaq OMX Europe is owned by the transatlantic exchange giant.

Furthermore, expansion outside Europe is risky given the absence of regulation equivalent to the November 2007 Mifid trading reforms that allowed the MTFs’ proliferation in Europe. Diversification by product is another alternative, according to exchange professionals.

The US equity market, where the Bats Exchange plans to launch before the end of this quarter its first equity derivatives trading platform, may offer a precedent.

But new asset classes pose a different set of challenges to those the MTFs faced when they were setting up in the relatively standardised European cash equities market.

Herbie Skeete, the managing director of specialist trading consultancy Mondo Visione, believes new products represent “an opportunity and a risk for the MTFs”.

He said: “There is potential for them to expand into other asset classes but they need to do this with their eyes open. For them to be successful in new products, such as derivatives, they are going to invest heavily in research, product development and marketing – functions they have not focused on historically.”

The MTFs have been successful in equities largely because they have been able to undercut the exchanges by charging fees in line with their relatively low overheads.

However, derivatives on those equities are traded in a different way and the relative lack of standardisation places the onus on the trading venue to develop and market these contracts, which requires up-front investment the MTFs did not need to break into cash equities.

Skeete said: “The MTFs have grown up keeping their costs to a minimum but to move into new asset classes they must invest in a range of products knowing not all of them will be a success. They will have to take on additional staff and their costs will inevitably rise.”

Constantinos Antoniades, a former Goldman Sachs bond trader who has launched Vega-Chi, the first convertible bond MTF, said: “In equities there are relatively simple and low-cost off-the-shelf solutions whereas in more specialised products, such as convertible bonds, we had to use our knowledge of the market and work together with our clients to develop the specific solutions that suit their requirements.

“This applied to everything from technology to the post-trade services structure. These are some of the issues that MTFs need to face when entering new asset classes.”

Vega-Chi is outsourcing the clearing and settlement function to BNP Paribas Securities Services, the custody arm of the French bank that has built the post-trade infrastructure for the fledgling bond platform.

The lack of post-trade standardisation in non-cash equity asset classes is the main barrier to product diversification for Bats Europe, according to its chief executive Mark Hemsley.

He said: “We have thought about other asset classes among other things, but the truth is the US market is very different to Europe. In the US there is a single established clearing mechanism and the contracts are fungible but this is simply not the case in Europe.

“Our platform is well suited to options trading but we’d need to see a clear path towards a resolution of the clearing issue for European equity options before we would start to consider seriously expanding into this asset class.”

Another challenge, according to Antoniades, is to understand the commercial dynamics at play between the buyside and the brokers, which are often different to those in share trading.

He said: “Outside equities, MTFs have to be more specific about their target client base, without of course being discriminatory. You will find that sometimes the interests of the buyside and the sellside operating on an MTF could be in conflict given that sellside firms also often operate closed and opaque crossing networks relating to such asset classes without any pre-trade or post-trade price transparency.

“Also, will the benefits of better pricing be passed to the end-clients or will the MTF be used as a tool for broker-dealers to enjoy higher margins with little of the benefit being passed to the end-clients?”

Bats Europe and Nasdaq OMX Europe said they were watching the market for signs of demand for new asset classes but planned to stick with equities for the foreseeable future. Chi-X Europe and Turquoise declined to comment.

The challenges of expanding into new asset classes are great but it is likely only to be a matter of time before one of the MTFs seeks to appease frustrated shareholders by moving into newer, higher margin markets.

Global M&A: Back from the brink?

Posted on February 18, 2010August 6, 2019 by

The decade started promisingly enough. The $164bn merger unveiled in January 2000 between rising internet giant AOL and media behemoth Time Warner was thought to be a good indicator that mergermania was on the horizon and that companies that might not be too similar in shape and outlook could get together and be profitable. But despite then AOL’s chief executive Steve Case declaring the deal as an historic moment, just ten years later the “deal of the century” is being unwound. Not only that, the Time Warner-AOL merger – valued at $360bn – is derided as one of the worst thought out deals ever made.

The scale of the disastrous union becomes apparent when one considers their former values. At the time of the official split last December, AOL had a market value of less than $2.5bn. When the two companies announced their merger, AOL was worth almost $200bn, and Time Warner some $160bn, now whittled down to around $36bn. This means that over a decade, the company has lost over $320bn of its initial value. As Daniel Stillit, mergers and acquisitions analyst at UBS, says: “The decade opened at the high point of a merger wave. It’s ending at the low point”.

Indeed, 2009 was a low-point in the recent history of dealmaking. M&A totalled $1.968trn in 2009, down 32 percent from full-year 2008 and down 53 percent from the record high in 2007, according to data from Thomson Reuters. The worst performing sectors were consumer staples and consumer products and services.

The US, which suffered a six-year low, still squeaked ahead of Europe for the first time in three years. US-targeted M&A volume totalled $783.4bn – down 24 percent on 2008 levels, with the largest US-targeted deal being Pfizer Inc’s $64.8bn acquisition of Wyeth in the healthcare and pharmaceuticals sector.

A global lacking
The dive in deal activity was not limited to the US and Europe. The Middle East has seen M&A activity in its investment banking market slip by 40 percent in the last year and by a hefty 67.5 oercent from its 2007 high. Latin America saw a drop of nearly a third in its deal volume last year, and India’s deal volume fell by over half on the previous year. Of the larger economies, only China managed to match its deal volume from 2008.

Through the first eleven months of 2009, there were 6,772 deals worth a total of $614bn, compared with 8,890 transactions worth a total of $1trn during the same period last year. Of that, government-backed mergers and acquisitions accounted for $354bn, or 15 percent of the total global volume, and M&A activity generated by bankruptcy or distressed situations reached a record $320bn. The biggest government-backed transaction was the UK’s $41.8bn share placement in the Royal Bank of Scotland.

According to Thomson Reuters, the credit freeze has impacted transactions across the board, including private equity and middle market transactions. The number of private equity acquirers in year-to-date November 2009 was down by 32.7 percent to 1,171, while value dropped by 21 percent to $146bn from $184bn over the same period in 2008. In the middle market, deal volume declined by 45 percent to 261 from 480 in 2008.

While the gloomy figures speak for themselves, there may be some salvation on the horizon as corporate financiers predict a resurgence in deal activity in 2010. M&A intelligence service The Mergermarket Group says that the last quarter of 2009 was the best quarter in value terms since the third quarter of 2008. It also points out that despite frozen debt markets and reluctance by corporations to make deals, 2009 saw more “mega deals” than 2008, with seven deals valued at more than $40bn compared to three in 2008. “Though there is still uncertainty in the markets, there are signs that the momentum will carry into 2010,” Mergermarket says. “A resurgence in financial sponsor activity, corporates sitting on record levels of cash, and a thawing credit market could signal a good year for M&A deal-makers.”

Conscious confidence
Senior bankers believe that a return in confidence among chief executives, along with an increased lending appetite at the banks, should boost corporate takeovers this year. Anthony Parsons, head of the UK mergers and acquisitions team at Deutsche Bank, says: “I think we saw the lowest ebb of this M&A cycle in 2009 and conditions are right for a pick-up in activity in 2010.” Zac Brech, head of UK M&A at Credit Suisse, adds: “We are optimistic for 2010, though it is more likely to be a year of recovery rather than anything approaching a peak.”

Already there appear to be some major targets in investors’ sights. The energy, finance, technology and healthcare industries are expected to be the hottest areas in a dealmaking market (energy and healthcare were the only two industries that showed gains in deal volume last year, according to Thomson Reuters). Analysts believe that moves by oil giant Exxon Mobil to buy XTO Energy for $30bn in stock may be a harbinger of activity to come in 2010 as companies flex their stronger share prices and release pent-up deal demand. The XTO takeover is hot on the heels of other corporate mega-deals, such as the $26bn cash-and-stock deal for Burlington Northern Santa Fe by Warren Buffett’s Berkshire Hathaway, and Comcast Corp’s $30bn planned purchase of NBC Universal.

There is also plenty of talk about other major firms making bid offers. International Power, which has a market value of £4.7bn, is believed to be in the sights of GDF Suez and dealmakers think it is only a matter of time before the French energy giant makes its move. The media business Aegis, worth £1.4bn, looks vulnerable to a bid in the absence of a chief executive and analysts believe France’s Havas could pounce. The oil majors are sizing up Tullow Oil, the £10.5bn explorer, due to its impressive success in West Africa where it has had some big finds.

Airline experts predict that Aer Lingus will be on the end of a third takeover attempt from Ryanair as losses worsen. Consolidation is also expected to continue in aerospace, with the well-regarded Meggitt a top target. Also identified by bankers as potential takeover targets are Standard Chartered, the bank that specialises in emerging markets; Smith & Nephew, the medical devices group; Informa, the media group; Peugeot, the French carmaker; and Misys, the software group.

“I think we’ll continue to see the M&A market driven by the big three sectors: financial institutions, natural resources and consumer,” says Parsons at Deutsche. However, Jeffrey Kaplan, global head of mergers, acquisitions, financial sponsors and corporate finance at Bank of America Merrill Lynch, warns that people should not become over confident. “You need a sustainable economic recovery,” says Kaplan. “You cannot expect the M&A market to flourish without favourable economic conditions. The best deals often are done at the beginning of a recovery. Post-bubbles create opportunities to get great values but are not always the best times for sustained M&A activity.”

Rough but robust predictions
While there may be some disagreement about the speed of the recovery in the M&A market, most experts agree that 2010 will see an upturn in deal activity. According to PwC’s Transaction Services practice, strategic buyers with strong balance sheets and robust cash reserves will be well-positioned for strategic M&A opportunities. As these strategic buyers take advantage of their ability to manoeuvre in the face of a challenging deal environment, PwC predicts they will pursue deals with a focus on synergies, including enhancing productivity, providing cost-savings and adding revenue volume to their businesses.

“Those who have built their balance sheets for a rainy day might come out of last year’s storm to find the rainbow, and at the end of it, nicely-valued acquisition targets that provide opportunities for revenue growth and enhanced productivity,” says Bob Filek, a partner at the firm. “As a result, M&A activity in 2010 will be driven by strategic buyers who have access to capital and the strategic vision to capitalise on some of the best values we have seen in recent times.”

“Companies have taken aggressive actions on costs; the low hanging fruit is gone, and to drive further efficiency they will look to combine with similar players to drive scale and enhance productivity. The ‘merger of productivity’ will be a driving force in 2010 as companies look to drive revenue growth and enhance margins,” he adds.

Despite the credit crunch and the reluctance of banks and other lenders to dole out cash as generously and with as few questions as before, PwC believes that there is still plenty of money available to fund deals. “There is still in excess of $1trn of capital committed to alternative investment funds sitting on the sidelines, waiting for the appropriate opportunities,” says Greg Peterson, partner with PwC’s Transaction Services team. “The diversified private equity players have been bulking up their debt, hedge and distressed funds to take advantage of opportunities in distressed markets, reflecting their ability to evolve and successfully navigate choppy waters,” he says.

According to rival Big Four accounting firm Ernst & Young, private equity is sitting on $400bn in dry powder, or cash, while Fortune 1000 companies have more than US$1.8trn of cash on hand, an increase of $271bn over last year. As debt markets become more open, with banks willing to lend money for deals with higher leverage, private equity firms and corporations will begin to compete again on deals.

The divestitures market will also be a factor in fuelling deals, as more companies decide to rid themselves of holdings they don’t consider to be part of their core business. A recent PwC Transaction Services survey, Doing Divestitures in Difficult Times, concluded divestiture activity was poised for a higher level of activity in the next twelve months, especially among corporate buyers. Of the survey respondents, 69 percent anticipate similar or increased divestiture activity in the coming year. The percentage of M&A activity contributed by divestiture transactions has begun to increase in recent months, suggesting this is already taking place as 2010 quickly approaches.

Furthermore, bankers believe that extra cash on balance sheets, buoyed stock prices and rising corporate boardroom confidence points to an increase in hostile deal activity over the next year. Kraft Foods initial £10.5bn hostile offer (increased to £11.5bn and accepted) for UK confectioner Cadbury is typical of the move toward hostile deals, according to data from Thomson Reuters. Hostile bids represented only 0.9 percent of the M&A market last year, but that was still the highest rate of the past five years, the data showed.

While it is unlikely that deal volume will get to the pre-crunch levels this year, there are indications that momentum is picking up, even though the number of deals being concluded might be lower than hoped. Yet the number of megadeals concluded in the last quarter of 2009 shows signs that companies can get the cash if they want to, and the size of the deals already being done at the start of 2010, such as Kraft’s purchase of Cadbury, shows promise.

The dirty dozen

Posted on February 18, 2010August 6, 2019 by

For most business leaders, the best thing about 2009 is that it ended. With cash hard to come by and investors baying for boardroom blood and profits, more ambitious corporate strategies were mothballed in favour of just staying in the game. But for some chief executives, the time has been spent considering how to improve their positions in the long-term and analysts are confident that 2010 will herald some bold business strategies. Below are the 12 key people that are rumoured to shake up their sectors and financial markets in the coming year. See if you agree with our list.

1 Rupert Murdoch, CEO, chairman and founder, News Corporation
Needing little biographical introduction, Rupert Murdoch has demonstrated shrewd commercial acumen on his way to assembling an empire that includes media properties such as 20th Century Fox, BSkyB, The Wall St Journal, The Times and The New York Post. Yet, Murdoch has been unable to turn his financial nous to the internet. For well over a decade Murdoch has publicly stated that he has not rushed to invest in the web as a marketing tool, complaining that he has no sense of how to realistically turn a sustainable profit from it, or stop people and other businesses from ripping off the content that his media outlets generate. That may be about to change, though analysts are sceptical. This year, Murdoch is attempting to move away from a dependence on advertising towards an online business model reliant on content charging, though he is coming up against the same brick wall as other publishers – how do you persuade people to pay for something they are used to getting for free? The answer may be to act as aggressively as possible. This January, News International changed its search engine settings to stop NewsNow.co.uk from linking to Times Online content. News International has told the aggregator that it may no longer link to any content on Times Online, and imposed a technical block by altering its robots.txt, the file through which a website can ask search engines not to index its pages. Another online cuttings service, Meltwater, is currently taking the Newspaper Licensing Agency (NLA) to a copyright tribunal over whether or not newspapers can control the use of their links.

2 Irene Rosenfeld, CEO Kraft Foods Inc
This one has just sneaked in given the interest in the recent deal she has managed to pull off (on paper, at least). Irene Rosenfeld has staked her legacy at Northfield-based Kraft on a £11.5bn purchase price for Cadbury. Kraft believes that the British confectionary giant will be a welcome addition, juicing sales growth and giving it a bigger international footprint. But Rosenfeld’s Cadbury play is fraught with risk – when big deals go bad, they become big failures. And not all of Kraft’s shareholders are on side with the strategy. The company’s largest shareholder with a 9.4 percent stake, billionaire investor Warren Buffett, has come out against the takeover, telling reporters that: “I’ve got a lot of doubts about the deal…If I had the chance to vote on this, I’d vote no.” Before the Cadbury deal was agreed he had urged Kraft not to overpay for the UK firm. He also said he questioned Kraft’s decision to sell its North American pizza business for $3.7bn to help raise the funds to pay for the Cadbury deal. “I feel poorer,” said Buffett. Analysts will be monitoring the share price carefully to see if they will be poorer by the end of the year.

3 Marc Bolland, CEO, Marks & Spencer
The UK’s major retailers have had a hard time of it over the past couple of years, and the store that is held up as being the bellweather of the UK’s high streets is still Marks & Spencer. Its current chief executive Sir Stuart Rose steps down in January to make way for Marc Bolland, who cut his teeth flogging beer for Dutch brewery giant Heineken and then made the move into supermarkets by heading up Morrisons. Bolland already has a lot to live up to. The business press have dubbed him “The £720m man” since news of his departure from Morrisons saw £380m sliced off the company’s value, while news of his appointment at M&S added £340m, which means that the large institutional investors like the appointment. While Bolland has no experience selling clothes, it is his experience of international sales and marketing with Heineken that the company is pinning its hopes on as M&S looks to take its quintessential Englishness to the middle-classes of the BRIC countries of Brazil, Russia, India and China.

4 Daniel Vasella, CEO and chairman, Novartis
Daniel Vasella, CEO and chairman of pharmaceutical giant Novartis, is combining an aggressive merger strategy while also trying to ensure that long-term research objectives are kept as separate as possible from the company’s bottom line. To do this, he has created an open channel between himself and the company’s head of research. Like the rest of the pharmaceutical and healthcare sector, Novartis is gearing up to take advantage of healthcare reform in the US, but also in the emerging economies such as China and India. In late 2009, Novartis agreed to acquire an 85 percent stake in a Zhejiang-based private vaccine producer. But analysts expect Big Pharma to clean up in the aftermath and snap up smaller rivals. Yet large acquisitions are also on the radar. On January 4, Novartis agreed to take full control of eyecare company Alcon in a deal worth nearly $40bn. Novartis will spend $28.1bn on raising its stake in the company to 77 percent, up from the 25 percent stake it bought from Nestle in 2008. It then plans to spend a further $11.2bn on buying the remaining 23 percent stake it does not own. The acquisition is expected to help Novartis diversify its business away from prescription drugs and it is hoped that the two companies will be able to combine research and development operations, potentially saving them $200m over three years.

5 Martin Winterkorn, CEO and chairman, Volkswagen
Hold the press – Volkswagen is a car manufacturer that turns a profit. However, there’s still time for that to change as the company’s CEO Martin Winterkorn looks to be heading for a frantic 2010. Last year, Volkswagen successfully completed a reverse takeover with long-time suitor Porsche, and this year will be spent on trying to integrate the two companies. On top of that, the company wants to break into emerging markets, notably Russia and China. The company also intends to announce the roll-out of its electric car that promises zero emissions, called the E-Up!, billed to be the “Beetle of the 21st century”. A hard act to follow – can Winterkorn pull it off?

6 Peter Voser, CEO, Shell
It is a brave company that decides to switch its production to such an extent that it will take up half of its new business. While Royal Dutch Shell is primarily an oil and petrol business, by 2012 half the company’s production will be natural gas. Shell still wants to tap the world’s oil reserves, but the company’s CEO Peter Voser has seen the future and, for the mid-term at least, it is natural gas-fired power plants. On average, these plants emit half the carbon dioxide of a coal-burning plant to produce the same amount of electricity. Furthermore, the ability to power up and down gas-fired power stations relatively quickly makes them ideal partners for Shell’s renewable energy investments such as wind farms and solar panels.

But, at the time of writing, 2010 has not been kind to Shell. Rival oil major BP overtook Royal Dutch Shell in market capitalisation for the first time in more than three years, reflecting the contrasting fortunes of the two rivals for the title of Europe’s biggest oil company. In the past year, BP has benefited from rising production, cost cuts and success finding oil in the Gulf of Mexico, while Shell has been burdened by heavy capital spending and seven consecutive years of falling oil and gas output.

Added to that, the company has come under attack from a hoard of investors demanding greater clarification surrounding its investment in Canada’s controversial tar sands. The Anglo-Dutch group has been called upon to include a special review of the risks associated with its Alberta oil sands operations in its upcoming May annual general meeting, after mounting pressure from a coalition of investors. The FTSE 100 major will face a barrage of questions regarding environmental and human rights problems, and will be asked to justify the financial wisdom behind the investment. At present, tar sands account for less than 2.5 percent of the group’s total oil and gas production but have proved a costly investment. Last year Voser was forced to defend his tar sands investment after it was revealed that they lost the company $42m within the first three months of the year. Voser may have his work cut out.

7 Indra Nooyi, CEO and chairman, PepsiCo
One of the few women to head up a Fortune Global 500 company, Indra Nooyi has made a big impression since her appointment as PepsiCo CEO in 2006. Having led internal restructuring and reshaping of the management team, Nooyi was instrumental in shifting direction towards healthier products and cutting procurement costs. Cost control and tight market focus are likely to figure highly. Last summer, PepsiCo announced it was buying the rest of the stock in its two US bottlers that it didn’t already own for $7.8bn. While it was a lot of money, the benefits to its distribution system in the US will be numerous. First off, the acquisition eliminates the duplication that exists because Pepsi distributes Gatorade into the same places as the bottlers do with soda pop. Now the bottlers can take over this job. Second, in the past, if Pepsi wanted to buy a smaller regional player, it was effectively competing with itself on price. This made no sense. This deal eliminates the conflict. Finally, corporate functions that each bottler handled previously are now done from the head office. This promotes greater efficiencies and lower costs, generating bigger profits. Analysts see Pepsi doing well in 2010, especially in the US, where streamlined operations will make a difference.

8 Lloyd Blankfein, CEO and chairman, Goldman Sachs
Any head of a bank that can post a profit instead of a loss in the worst financial crisis in history evidently deserves a mention. Goldman Sachs, led by CEO Lloyd Blankfein, switched from investment banking to a more traditional bank holding company that can take deposits, evading major losses in the process and posting a record $3.44bn second quarter 2009 profit and $3.19bn in the third quarter. Some analysts believe that Blankfein’s success is down to a more prudent approach to risk management than some of his competitors, but not many have dared write off the strategy.

However, public relations may not be Blankfein’s strong point. Despite the furore over bankers’ bonuses and remuneration policies, Goldman Sachs’ bankers are forecast to enjoy an 81 percent rise in their pay and bonuses for 2009. Goldman’s top executives have already tried to respond to public anger over pay by promising to take their bonuses in shares rather than cash and are also forcing their best-paid employees to make charity donations. The bank has traditionally reserved 45 percent of its revenues to pay staff. But analysts note the reductions being expected in the bonus pool in the fourth quarter of the year still give Goldman a competitive advantage in hiring staff: average pay levels remain relatively high.

9 Mark Zukerberg, CEO and founder, Facebook
Last year, social networking phenomenon Facebook hit the 350-million user mark. But the main problem for Mark Zukerberg, like Murdoch, is turning that audience into money. Its vehicle to revenue seems to be highly targeted and personalised advertising. Zukerberg is already doing that with a final revenue number of $550m for 2009. But in terms of hard currency, that’s not very much, given the site’s popularity. Users, analysts and IT experts have also criticised how Facebook appears to be flippant about how it handles user data. Furthermore, the growth in popularity of Twitter may be a potential threat.

10 Karl-Johan Persson, CEO, Hennes & Mauritz (H&M)
The new, 34-year-old chief executive of fast-fashion giant H&M is planning an aggressive expansion into new markets, new products and online in 2010 and, so far, the economic downturn has not dampened his spirits or the company’s underlying financials. The $14.5bn company will debut a 30,000-sq.-ft. Paris flagship this year as it continues to focus on Europe, North America, Japan and China, while also tapping into new markets like South Korea and Israel. Following in the footsteps of his grandfather who founded the chain in 1947 and his father who acted as CEO between 1982 and 1988, Persson is committed to the core brand and has made it clear that H&M’s namesake brand is essential to its success. But this does not mean that he is not open to new ideas, or new brand names. He was instrumental in H&M’s move into home furnishings and the launch of its more upscale COS chain. Analysts will be keeping a close eye as to how these ventures pan out over the year.

11 Steve Jobs, CEO and co-founder, Apple
Although a bad year for the majority of the corporate world, 2009 turned out well for Steve Jobs and California-based Apple. After a six-month leave of absence, during which he had a liver transplant, Jobs returned to the helm of the company he co-founded as it defied global economic trends by increasing its sales. Inspired by Job’s product and design vision, the company has shifted over 30 million iPhones and announced record breaking profits in October. Rumours are rife that Apple intends to launch a range of products early in the year. The company is famous for its secrecy regarding new products and upgrades, but that does not stop the masses from at least attempting to predict what the company may or may not do over the next 12 months and beyond – to varying degrees of success. One word that is certainly doing the rounds at the moment is “iPad”, a mobile tablet browsing device that is a cross between the iPhone and a MacBook laptop.

12 Microsoft CEO Steve Ballmer
Microsoft’s dome-headed CEO may not be one to watch in 2010, but one to take bets on whether he will remain in post by 2011, given a recent run of bad press. Influential US magazine Newsweek seems to think that his run as CEO is soon to draw to a close. In its Tech Predictions for 2010, number nine is Ballmer being pushed out in favour of another show-runner. “If Microsoft were any other company,” the magazine wrote, “this guy would be in trouble. But the catch is, Ballmer was put into the job by Microsoft founder Bill Gates, and the two have been pals since their undergraduate days at Harvard. If Gates wants to get rid of Ballmer, he’ll have to craft some kind of graceful exit that lets his buddy save face.”

But 2010 seems to have gone well for Microsoft. Its roll-out of Windows 7 went off better than most expected, with one report estimating that US sales of Windows 7 boxed software were 234 percent higher than sales of Vista. Meanwhile, statistics company Net Applications suggested that Windows 7 had gained over four percent of the operating system within a few months of its launch, putting it on track to outpace Vista’s rate of adoption.

However, it hasn’t all been so good. Microsoft has been flailing in the smartphone operating system market, with its hopes pinned on next year’s Windows Mobile 7. Its mobile application storefront, Marketplace, lags behind its competitors in the number of apps on offer, and Google Android seems to be swallowing up more and more consumer mindshare by the day. Microsoft has been making gains in the search-engine space with Bing, which nonetheless occupies just under 10 percent of that particular market. Experts say that time, and the partnership deal with Yahoo, will ultimately determine whether Bing can be a truly effective challenger to Google, which continues to handily dominate search. Analysts have suggested that, even with the forces of Microsoft and Yahoo combined, it may not be quite enough to present Google with a survival threat at this stage in the game. If you put these issues squarely on Ballmer’s shoulders – and he is CEO, which means the buck stops with him – then one could make an argument for his dismissal. Critics argue that Ballmer seems to catch onto trends too late, directing Microsoft to follow them only after another company has established a working model. For example, the Zune HD is a great product, but following on the heels of the iPod Touch basically doomed it to (at least so far) a relatively tiny market share.

A case for corporate governance

Posted on February 18, 2010 by

The corporate governance agenda has received great prominence during the past two decades. Many think of this as the next best thing after international accounting standards. But why is good governance so important?

Share ownership structures and management structures have changed dramatically over time. Moving from family owned businesses to public companies, and the separation of ownership from management, we are now more familiar with the model of large and dispersed shareholder bases (dispersed ownership) working with accountable management teams. The need of safeguarding shareholder rights is greater than ever before and this is where corporate governance applies.

Taking this a step further, corporate governance principles and practices can affect a company’s shareholder structure, as they can either attract or repel investors and shareholders. The investment community is cautious when it comes to the protection of shareholder rights and they will most certainly opt for the friendliest habitat.

Moreover, the case of Enron showed us how the lack of good corporate governance can bring down a mighty company. Compliance to the letter of the law will ultimately protect us from ourselves. Man needs guidance and control by those who know best, as Hobbes would argue.

One should not ignore companies’ desire to improve efficiency. Institutional guidelines and reforms are known for enhancing performance, so sticking to the rules and following best practices will ultimately take businesses forward.

Good corporate governance draws on corporate responsibility: does this mean that companies embracing corporate governance principles are just committed to being good? Is it possible that good governance practices are the making of feelings of responsibility and business ethics?

Corporate governance map
Depending on background/geography, business genre (family owned vs public company, small cap vs large cap), different economies, societies or mentalities, it’s getting hard to even come up with one definition of corporate governance these days.

Moreover, in many cases companies are publicly listed in more than one country and are, by default, required to operate in compliance with more than one set of rules and standards. By standards one refers to key areas of focus (some corporate governance issues featuring more than others), practices and procedures, levels of transparency, accountability etc.

Yes, there are variations of every form. And any transition from one model to the other in most cases involves substantial reform in the systems. The interaction, however, of different corporate goverance systems and sets of rules, provided they don’t work to undermine or contradict each other, ultimately drives companies forward. Bilingual kids: they tend to outsmart their peers in activities.

OTE
OTE SA (Hellenic Telecommunications Organisation SA) is Greece’s telecom’s incumbent and a large capitalisation company listed on the Athens, New York and London Stock Exchanges. Consisting of the parent company OTE SA and its subsidiaries, the OTE Group offers fixed-line (voice, broadband, data and leased lines) and mobile telephony services in Greece and Romania, as well as mobile telephony services in Albania and Bulgaria. The Group is also present in Serbia through its 20 percent stake in the country’s incumbent operator, Telekom Srbija. OTE Group is also involved in a range of activities in Greece, notably in real-estate, satellite telecommunications and professional training.

Due to the fact that the company is listed on the Greek as well as on the USA and UK stock exchanges, OTE operates in compliance with applicable domestic and international capital markets and corporate governance rules.

Against this background and with a dispersed shareholder base comprising of more than 100,000 shareholders, the Greek incumbent has always had more than enough to chew on in terms of compliance and adaptability.
Compliance to Greek law is by default top priority and requirement as a result of OTE SA’s country of establishment. Greek legal requirements must be met first, and this means that OTE has to comply with a body of national corporate law which determines the framework of operation of societe anonymes, as well as a number of acts that have been introduced over the last decade, demonstrating regulatory authorities’ commitment for best corporate governance practices by all businesses.

Following its listing on NYSE and LSE, OTE was required to adhere to further sets of laws, rules and regulations. As a result, the company proceeded with the incorporation, within its operations, of all necessary practices that would enable the company to comply with applicable legislation, placing special emphasis on three key objectives: the protection of its shareholder rights; the setting up of consistent control mechanisms over its operations; and its management and disclosure of information to all stakeholders. One of the first company initiatives was to implement procedures that would address matters of control over management as a means to safeguard shareholder rights.

Applicable national and international legislation provide rules with regards to the board of directors. They address areas such as the designation of board members, their capacities (executive, non-executive and independent non-executive) and define criteria of independence. OTE implements procedures for the assessment of board members’ independence.

OTE’s Audit Committee supports the company’s board in the exercise of the latter’s supervisory authority and in its obligations towards shareholders, the investment community and third parties, especially with regards to the financial reporting processes. The committee also supervises the operation of the company’s Internal Audit team.

The Compensation and Human Resources Committee of OTE sets the principles of the company’s human resources policy and defines the company’s compensation and remuneration policy.

Both committees work closely with the board, and in essence act as partners as well as control agents for the company’s top administrative body.

With regards to the entire management team, a series of acts that were introduced in the context of capital markets legislation between 2005 and 2007 work jointly to ensure management control and transparency over their practices. These Acts address issues of inside information abuse and market manipulation, and require that OTE implements procedures such as the disclosure of inside information and the prevention from inside information abuse, the disclosure of financial transactions and the examination of cases of financial activity between OTE managers/directors and any of the company’s main suppliers/contractors or customers. Since 2005 when the specific acts were introduced and through well-set-up procedures, the company’s knowledge of persons with access to inside information, and the list of these persons created thereby, has increased tenfold.

Moving from management control mechanisms to operations’ control, the Internal Audit team at OTE assists the company’s management team with decision-making related to the optimisation of the various auditing mechanisms. These mechanisms aim to ensure the efficiency of operations and activities as part of OTE’s business plans. This is an independent business unit which reports directly to the board, is supervised by the Audit Committee and operates under a strict code of conduct. The internal audit operation is considered a key control mechanism aimed not only to enhance efficiency but also protect shareholder rights.

Having also established a code of ethics and business conduct, the company abides by a set of rules (and practices) which aim to achieve the smooth operation of the company and the appropriate business conduct of its employees. The code is in line with applicable legislation and defines the manner in which the company should interact with employees, suppliers, shareholders, competitors and other third parties as a means to enhance performance and protect stakeholder rights.

Legal requirements also provided the platform for the adoption of an Internal Operations Regulation (IOR), which sets out the applicable procedures in OTE across all operations. An extremely efficient enhancement tool, the IOR covers issues relating, amongst others, to the company’s decision-making bodies, its organisational structure and responsibilities, the recruitment and evaluation of executives, the internal committees and the regulatory framework. In essence, the IOR works as a GPS, identifying the company’s bodies and tasks, describing procedures and how they all coexist.

Since 2007, Greek law, via a specific act, requires the disclosure of information relating to changes in companies’ shareholder structure and share holdings. This information was referred to as regulated information. In compliance with this law OTE established a regulated-information disclosure process which aims to inform the investment community and all interested parties of any significant changes in the company’s participations (whether acquisitions or disposals) in a timely and accurate manner. The law and its requirements apply both for the legal entities/companies that buy/dispose of stakes in companies and for companies whose shares are being acquired or sold; enhancing disclosure of info and interaction between parties. As a result of this law, in the case of OTE which experienced significant shareholder changes over the last two years, disclosure of information has increased tremendously.

Apart from institutionally derived procedures that ensure transparency, OTE adopts a number of other practices that enhance the disclosure of information to all interested parties, such as:
– Consistent posting of company-related information on the OTE investor relations website as well as the OTE corporate home page, so that all interested parties can have fair and timely access to that information
– Regular release of corporate publications (presentations, annual reports) thereby enhancing the continuous flow of information on issues relating to the company’s strategy, targets, operation and performance
– Enhancement of AGM (Annual General Meetings of Shareholders) related literature (releasing agenda clarifications for shareholders prior to the event)
– Establishment of a two-way communication channel between company representatives and the investment community through meetings, conference calls, roadshows
– Codification of internal bylaws and consistent reporting on corporate governance issues (via the IR website, the corporate governance report and a quick response system to corporate governance info requests)

OTE has come a long way with regards to corporate governance. The company’s understanding of corporate governance principles and practices grew within the Greek and international institutional context. This journey has been a significant learning experience as it involved compliance with basic legal requirements as well as exposure to international best practices; a mix of responses to external stimuli and personal commitment and effort. For OTE, today, this all translates into a solid understanding of corporate goverance concepts which trickle down to all company operations.

By reinforcing its procedures and organisational make-up over the years, in adherence to corporate governance rules and practices, OTE operates in compliance with the regulatory framework and enjoys a special corporate culture, founded on business ethics and committed to protect the rights of the company’s shareholders and all stakeholders.

For more information tel: +30 210 611 1121/7880/7236; e-mail: nkozanoglou@ote.gr, eagoglossak@ote.gr

Advancing the FX platform

Posted on February 18, 2010 by

The majority of transactions have traditionally been made by phone, but the development of the internet and sophisticated trading software means that more and more people now have access to the world of forex trading from the comfort of their own homes. World Finance spoke to Nick Bang of ACM about the challenge of redefining traditional financial markets

As one of the world’s leading brokerage companies, how has ACM challenged and redefined the industry and how have you maintained your competitive edge?
ACM was built, quite literally, by traders for traders. From the beginning the firm has focused on quality and timely execution. From this starting point, the company focal point has been the wants and needs of our FX traders. By continually updating our software, we have been able to remain at the forefront of retail trading technology. If it’s a good idea and our clients want it, we make it happen.

In the future, how does ACM plan to keep evolving as a company in order to keep ahead of the competition?
Simply stated: growth, technology and service. ACM has grown from a Geneva-based brokerage to one of the largest FX brokerages worldwide. We will continue to nurture growth, new products and markets as the demand for our services increase globally. Further, ACM is committed to working with regulators to ensure a safe and fair market for all participants.

What can a trader expect in terms of certainty of execution?
An ACM client can expect that we will do our best to provide them the execution they deserve. No market is perfect, but ACM’s execution system is unmatched in the retail FX market. Our clients trade with instant execution, one-click dealing, expanded intraday margins and guaranteed fills on limit and stop orders. By removing much of the uncertainty from financial trade execution, our clients can focus on the directions of the assets, not the market for them.

How do you ensure that the client is getting the best execution conditions?
To our knowledge, our firm connects to more FX liquidity than any other European brokerage. Our relationship with liquidity providers and our streamlined execution through them is actively managed by ACM during market hours.

Why is it so important for ACM to be transparent in everything you do?
Transparency is important for credibility and serves as an honest check for our clients. By remaining open to scrutiny, ACM clients know that their brokerage is sincere and forthright about how the firm generates revenue and how client’s trades are processed and executed. Total transparency is the financial model of the future – after the 2008 equity market burn due to a lack of transparency and oversight – it’s my opinion that few investors in the future will tolerate secrecy and vagueness from their financial institutions.

ACM is in the process of becoming a Swiss bank, in accordance with new regulations. How long will this process take to be completed and is this process something that you feel will benefit the company and its clients?
The ACM family will most definitively benefit by our transition to an online Swiss bank. From the company’s standpoint, becoming a bank allows us to offer a vast new array of products and services. ACM was built around spot FX trading, but the future license provides the ability to offer new investment vehicles and Swiss banking services. Our clients will continue to benefit as ACM grows larger financially. As we become larger, the rates we secure will become more completive and ultimately the savings and benefits will be passed on to the clients.

As a company, what technology do you offer?
ACM provides access to the world FX market for investors of all sizes. Our software was developed in house and provides direct access to the market via the internet. We currently offer two desktop applications, Advanced Trader and MetaTrader 4. Access is further available through any internet browser with Web Trader. We provide a telephone dealing desk for investors unable to access the internet and a mobile application compatible with all Smartphones. We actually just rolled out a new iPhone app, which I have here on my phone. It allows individuals to sign up for a practice trading account directly from their iPhones and provides real-time market data and execution.

Can you explain the advantages of working within the FX market?
The FX market is the global market. The capital volume, liquidity, market hours and online access make the forex market available to all investors and speculators. With equal access to information and no entities holding power to outright set prices, the market itself determines pricing and approaches perfect market conditions in economic theory. For these reasons, there has been a steady influx of investors from traditional markets like equities and fixed income into the realm of FX. Unlike in the past, currencies are now widely accepted as a separate asset class and therefore necessary for portfolio diversification.

What does the future hold for ACM and how do you see the company moving forward?
One year from today, I believe ACM will only be bigger and better. The firm will continue to grow financially and offer new and improved investment products and services. Hopefully the company will acquire its Swiss banking license in the near future and this will help catapult ACM forward as an online Swiss bank and brokerage.

Nick Bang is managing director of ACM. For more information: www.ac-markets.com

Engineering growth

Posted on February 18, 2010 by

Change and innovation has been Walmart de México’s trademark since 1958 when it opened its first discount store, then known as Aurrera. It was the first company to introduce the concept of one-stop shopping, barcode scanning, low prices and many other innovations in Mexico.

Today, the company has operations in six countries, with four different retail formats, membership warehouse clubs, an apparel chain, a restaurant chain, a commercial bank, an agribusiness operation, an efficient logistic network and annual sales above $25bn.

More than 200,000 associates work in 2,000 stores and units throughout Costa Rica, El Salvador, Guatemala, Honduras, Mexico and Nicaragua.

Three tier growth
Walmart de México’s remarkable growth stems from its strict commitment to three strategic pillars: continuous profitable growth, talent development and engagement, and corporate social responsibility.

While growth has been constant since 1958, the last five years have been remarkable: the number of units in Mexico went from 694 in 2004 to more than 1472 in 2009. With units in all 31 states of Mexico, in addition to Mexico City, it has established a presence in over 265 cities and towns.

More importantly, Walmart de México has developed a successful multiple format structure of discount stores, supermarkets, hypermarkets, warehouses and membership clubs. In addition, its Suburbia apparel stores, Vips restaurant chain and Walmart Bank – present only in Mexico – address new population targets and provide a wide array of services to its customers, enhancing the overall experience and increasing the acceptance of the company.

During 2009 Walmart de México served 1,219 million Mexican customers, 13.8 percent more than during 2008. Customer count in comparable stores increased 3.3 percent, meaning that every Mexican visits its units at least ten times a year.

Talent development is a significant element of Walmart de México’s value proposition. Growth is linked to its ability to find talent that excels in customer service. With 175,000 associates in México, the company is the largest private-sector employer in the country and allocates millions of hours a year to training.

Social responsibility is a comprehensive part of Walmart de Mexico’s business. Families that have the most need to save – primarily in rural areas – end up paying the highest prices. Consequently, Walmart de México considers its activities of providing goods and services at low prices not just a business strategy, but also part of its corporate social responsibility to these same families. Moreover, the Walmart de México Foundation supports assistance programmes for communities with severe nutrition needs, either through food banks, self-help agricultural and manufacturing projects, or volunteer work. Over 3.4 million Mexicans and more than 200 NGOs benefit from this support.

Walmart de México has also placed special interest in sustainable projects to eliminate wastes, reduce water and energy consumption, and integrate more environmentally-friendly products to its catalogue. Some 390 water treatment plants have allowed for the saving of more than 300 million litres of water in a single year. It has stores using solar energy produced by placing cells on the roof tops, and in 2010 over 300 units will operate with wind energy from a facility located in southern Mexico.

Innovation
After opening its first store, the company sought to continuously grow with new markets and services. Its Vips restaurant chain and Superama Supermarket date back to the 60s, the Suburbia apparel stores and Bodega Aurrerá austere discount store to the 70s, and the 90s included the launch of Walmart hypermarkets and Sam’s Clubs throughout the Mexican market.

More recently, Bodega Aurrera has developed new business concepts for mid-size cities through smaller-sized Mi Bodega Aurrera units and for heavily populated urban areas with the much smaller but rapidly growing Bodega Aurrera Express convenience stores.

Walmart de México became the first Walmart business in the world to offer banking services, via Banco Walmart. The bank provides services through more than 200 branches located in stores and Clubs, and 20,000 POS in all its businesses throughout the country, by means of the recently enacted banking correspondent legislation in Mexico.

This infrastructure turns the bank into one of Mexico’s most widely available financial institutions, offering services to Mexico’s largely unbanked population.

It is this drive to move into new markets and cities, adapt its formats to new customer needs, and develop new venues of business that have characterised Walmart de México’s continuous growth.

Central America
In November 2009, Walmart de México integrated Walmart’s operations in Central America to its business, creating new growth opportunities for its shareholders. This is a historical transaction for Walmart de México, not only because it will become an international retailer with operations beyond Mexico, but more importantly because it is the first time that Walmart Stores Inc, entrusts a subsidiary with the responsibility of running the operation of the business in another region. This strategic alliance will allow the company to focus on addressing the needs of 138 million people with demographic similarities – a largely young and dynamic population – many of whom still lack access to modern retail services at low prices.

By integrating Central America, Walmart de México increased its installed capacity by 19 percent, sales by 17 percent, EBITDA by 11.6 percent, and net income by 7.6 percent (as of September 2009).

Walmart Central America has 519 discount stores, supermarkets, warehouse stores, hypermarkets and membership clubs targeting specific consumer groups.

With a structure similar to that of Mexico, there are opportunities for synergies regarding the operations and growth of the company’s presence in the region. There are 310 cities and towns from Mexico to Costa Rica where Walmart currently has no presence. The market size amounts to $241bn dollars and an estimated 33 million new consumers will be added during the next 15 years.

Financial conservatism
Just as Walmart de México has been successful in its commercial value proposition, it has been relentless in pursuing a conservative financial policy.

From the beginning, Walmart de México has had a sound financial position, a matter of special relevance when considering credit and liquidity restrictions that have often prevailed in the Mexican market. The company has no debt and, in accordance with its corporate governance standards, it does not deal in derivatives. Its cash represents more than 10 percent of its assets and is wisely and carefully invested following highly conservative standards, always based on the security, liquidity, and yield criteria established by the Finance Committee.

Its board of directors oversees the management of the business, with all members appointed on a yearly basis by the shareholders at the annual meeting. The board appoints and works actively with the CEO to develop general corporate strategies for the company. It also approves all information policies and communication with shareholders. Independent directors must comprise a minimum of 25 percent of the total number of board directors.

The board of directors, with the support of the Executive, Audit and Corporate Practices Committees, periodically reviews company results and keeps a close watch on control mechanisms and sound practices, including the proper use of assets, thus further strengthening the confidence of its shareholders.

Walmart de México operates with the highest quality standards and is seeking to become more competitive through innovation and process improvements. Walmart de México’s financial and administrative processes obtained ISO 9001:2000 certification from the British Standards Institution (BSI). Its policies of transparency and operating efficiency have a positive effect on its relationships with customers, suppliers, shareholders and government agencies.

A new beginning
As 2010 marks a new beginning in Walmart de México’s history – now an international company – it maintains the same vision: to contribute towards improving the quality of life of its customers’ families. As its operations have transformed over time, its foundations of retail innovation, solid finances and commitment to help people save money and live better, remain unchanged.

Lisbon firm achieves top billing

Posted on February 18, 2010 by

What were the firm’s beginnings and how has it grown since?
Since 1962 Mateus Andrade Dias has acted in and outside court for a large range of clients related to shipping matters, such as: P&I Clubs; ship-owners; insurance companies; cargo owners and worked as a consultant to banks involved in ship finance, mainly representing foreign clients especially Anglo-Saxon based clients. The firm also represented Portuguese clients in all shipping matters. In 1982 António Labisa joined this office and so did, in 1991, Teresa Andrade Dias. In January 1994 the law firm Mateus Andrade Dias & Associados was founded by Mateus Andrade Dias and by two other partners, António Labisa and Teresa Andrade Dias. Despite Mateus Andrade Dias’ death in 1994, the firm maintained the same high level of quality of service rendered to clients which continue to request the services of the firm. The firm subsequently changed its name to Andrade Dias & Associados − Sociedade de Advogados. Maria Andrade Dias then joined in 1998 and became a partner in 1999. In the same year António Labisa left the firm and Pedro Andrade Dias joined, and became a partner in 2004. The lawyer Mateus Andrade Dias (Jr) joined and became a partner in 2004.

In 2006 the law firm changed its legal structure to a limited liability partnership changing its name to Andrade Dias & Associados − Sociedade de Advogados, RL.

Despite of all the changes and transformations that have happened throughout the years the soul of the firm did not change and the essential principles of work, professionalism and full dedication to clients’ interest were maintained.

Through the years the firm tried to keep principles of organisation based upon the responsibility of each lawyer to contribute to the firm as a whole but at the same time amenable to change whether economical, legal or social.
The different features and background experiences of the actual four partners contributes to team work in the most complex and complicated matters leading normally to good results for the client because the group’s vision is widened and enriched by the contribution of each lawyer.

What makes Andrade Dias & Associados different from other law firms − what qualities does the company possess and what practices do you follow?
The actual partners belong to the same family. This fact allows a strong level of communication and cooperation between all partners which usually work as a team in the most urgent and complex client matters. It is a principle of this organisation to keep the client fully informed in due time about its pending matters in order to decide what are the best options for their protection. The aspect of communication between the lawyer and the client is a key factor of this organisation. The client is involved in the strategic decisions of its protection because he is informed in advance about what are his chances and the eventual outcome of his matters. The firm tries to adapt itself to the economical and social global evolution. As an example, in term of fees, the firm works on hourly time basis rates which have been adapted taking into consideration the economical situations. The firm has different rates, each rate is applied according with the difficulty of the matter, time spent, value of the claim, and economic capacity of the client but, in several occasions, the partners have the freedom to reduce their fee rate or their invoices. This flexibility and client orientated billing structure is only possible because we are a small firm where the costs are not as high as in larger law firms. The lawyers seek to increase their individual skills, knowledge and efficiency. The firm has an annual budget to invest in knowledge (technical books; magazines; conferences etc.) which is one of the most important factors in the development of the organisation because society and the law are constantly changing and the only way to be updated is through the improvement of each lawyer and the firm’s staff. This task can only be done trough continued investment in knowledge.

You cover many areas of law. What would you say are you main areas of expertise and why are they important?
The firm’s main area of practice is maritime law. It renders legal assistance in all types of shipping maters, acting in court and out of court, in any type of disputes or negotiation of contracts connected with vessels’ interests or the maritime activity. The firm advocates in cases related to: arrest of vessels and other injunctions over cargo or bunkers; enforcement of maritime claims; labour, criminal and administrative offences related to the maritime activity; Protection and Indemnity (P&I Clubs); marine insurance; limitation of liability; collisions and all types of navigation accidents or incidents; salvage; pollution; wreck removal; ship sale and purchase; ship registration; ship finance; ship’s mortgages; charter-parties; carriage of goods by sea; general average; multimodal transport; freight forwarders; ship’s agency; harbour and customs law; seaman labour law and social security law; non judicial detention of vessels at Portuguese harbours; port state control and all maritime administrative proceedings related to the maritime safety. The firm is also involved in disputes related to road carriage contracts (CMR), contractual liability, liability in tort, vicarious liability and in the negotiation of contracts and representation of clients in disputes related to other areas of law, mainly commercial law.

Why should people invest in the Portuguese shipping market and do you think now is a good time for that investment?
A report with findings about the hyper cluster of the sea has been recently presented by a well known economist where a careful assessment was done to the present status of the sea-related economic activities and where several measures were implemented by the Government in order to enhance sea carriage, ship building and many other sea related economic activities. Inter alia it was detected that the present income tax system in force within the Conventional Registry impedes the growth of the Portuguese merchant fleet and therefore it should be replaced by a tonnage based tax system. The findings noted that this should be done in alternative to the present annual discretionary state aids that are given to Portuguese owners that operate their vessels within the legal frame work of the Conventional Registry.

Under this sea-related momentum Decree-law no. 8/2009 changed in favour of mortgages the ranking of priorities of claims over ships sailing under the Portuguese flag. The legislator’s aim is also to enhance the competitive positioning of the Portuguese merchant fleet and to increase the crewing of ships with Portuguese nationals. A new wording of article 578 of the Commercial Code was published moving the mortgagee claim from position 15 (below, inter alia, court costs; salvage awards; wages; repairs; cargo damage) up to position no. 3 (below only court costs and salvage rewards). A mortgagee will be then inclined to allow registration of ships in Portugal where it had a financing intervention.

Under the same token a draft navigation law has been prepared by Government and sent to Parliament for consultation, modification and approval. The draft navigation law is yet to be voted in Parliament and published and hence it is merely a sketch of what can be expected. The draft navigation law revokes however several old provisions of the Commercial Code and compiles the dispersed and separated extensive legislation applied to the shipping sector in one combined and unique law being therefore generally speaking not something new to what already existed but a codification of what existed in a dispersed form. It does however inter alia widens the list of claims that can base an arrest application under the Portuguese Civil Procedure Code (e.g. insurance claims) and releases the creditor of the burden of proof of the existence of the well grounded fear of losing security for its claim. This will facilitate the arrest of a ship in Portugal and will put the Portuguese internal regime in line with the 1952 Arrest Convention.

The Port Unique Window which is implemented in most of the main Portuguese shipping ports allows the entire process of ship and custom clearance of goods to be done online in a state of the art online platform where authorities and ship agents can upload and download information and / or requests and / or permissions in respect of the ship and her cargo. This was aimed at facilitating trade and vessel traffic within Portuguese territory.

The International Shipping Register of Madeira is a competitive ship register offering safe, swift and attractive conditions to ship owners, charterers and / or mortgages. The ship-owner operating within the International Shipping Register of Madeira will be exempt of corporate income tax and social security dues in respect of seafarers income (if the latter’s and the ship-owners agree on a voluntary social security protection regime). The seafarers will also be exempt of income tax. The International Shipping Register of Madeira is Port State Control white listed and is managed by a competent technical commission.

It has been reported that you refuse to follow the path of mass production; why is it important to you that your company supports smaller production methods?
In the area of maritime law each client and his pending legal problem is unique with his particular circumstances deserving adequate legal advice. Usually, in these matters the client needs a lawyer’s full availability to reply in quick time. The success of the firm is based upon the trust relation that was constructed along the years with the clients in this field of legal services. The mass production method is only possible with a team of junior lawyers working by goals supervised by senior lawyers that are mainly focused on the quantity of work instead of the quality of work. Generally, clients communicate and are assisted by junior lawyers overbooked by cases. At Andrade Dias & Associados we are of the view that the full availability and full concentration on the client’s problem is only possible with the personal relation of a lawyer who is not concentrating on the quantity of the work but the quality of the work achieved for his client.

As a maritime law firm, who would you say your main clients are?
The firm’s leading clients are the major Protection and Indemnity Clubs (P&I Clubs or Mutual Insurance Associations), most of them Members of the International Group of P&I Clubs that provide liability cover for approximately 90 percent of the world’s ocean going tonnage. The firm also acts on behalf of banks and other ship finance institutions; insurance companies; recovery agents; shipyards; ship-owners; ship-operators; charterers; ship-managers; ship-chandlers; foreign maritime authorities; port operators; ship-agents; freight forwarding agents; carriers and maritime constructions companies.

In what respects to the remaining areas of practice, Andrade Dias & Associados acts on behalf of foreign or national companies (or investors) in their corporate or commercial matters. The road, rail and insurance areas are dealt mainly by representing insurance companies or underwriters. In what relates to the aviation practice, the firm has represented start ups undertaking passenger and / or cargo air carriage.

To date, what has been your biggest achievement as a firm?
To be recognised as a leading shipping law player both locally and internationally for more than forty years and to be able to run a family based firm in an utmost professional manner.

What has been the feedback from clients about your work?
Andrade Dias & Associados’ base clients have praised the professional nature of the firms work. The aspect of the quality of our advice and of our results has also been highly recognised by clients.

In terms of reporting we have been highly regarded, especially by foreign clients. Indeed, to have an internal translator allows Andrade Dias & Associados to report in full all developments in the client’s case and also allows the latter to take full informed decisions and instructions.

A full breakdown of the time spent with matters, that is being prepared and sent to clients since the outset of the practice, was seen as breakthrough in the law practice market when adopted but is still highly appreciated.
Andrade Dias & Associados pre dispute opinions have been seen as truthful, professional and accurate by clients even when they represent the dropping of a claim by clients and the taking of no further instructions with the matter at hand.

What is the current state of the Portuguese shipping market?
The Portuguese shipping market suffered the impact of the international economic crisis. We noticed that in 2009 the clients procured to reduce their expenses and exposures so clients preferred mainly to negotiate and settle their legal disputes at an early stage of the dispute instead of maintaining court litigations. According to official data already available, the evolution of the number of ships that called Portuguese mainland ports (Lisbon, Sines, Setúbal, Leixões, Aveiro, Viana do Castelo and Figueira da Foz) was globally positive for the period between 2004 / 2006, in 2007 it was stationary but in 2008 there was a slight global reduction of -1 percent but with an increase of the gross tonnage 5.9 percent. This reduction in 2008 is not uniform in the movement of the type of vessels: it was noticed a growth of cruise ships (24.3 percent); container ships (19.8 percent) and a reduction of general cargo ships (-4.3 percent), liquid bulk carriers (-3.8 percent) and solid bulk carriers (-13 percent) calling the Portuguese ports. Between 2004 and 2008 the movement of container vessels calling Portuguese mainland ports increased by 49 percent (global accumulated values) and in gross tonnage by 101.4 percent. The movement of cargo in the main mainland Portuguese ports, after an annual consecutive growth from 2004 to 2007, recorded a negative variation of –2.4 percent in 2008 before 2007 which is not uniform: container traffic by 10.7 percent and the roll on /roll off by 1.4 percent that minimises the effect of the reduction of movement of other cargos (solid bulk cargos (-8 percent) liquid cargo (-2.6 percent) and general cargo – 6.6 percent). The container movements recorded a positive growth of + 9 percent in 2008 before 2007. In our opinion, although subject to confirmation by official data, the tendency of the reduction verified in 2008 was aggravated in 2009.

When it comes to the future, what plans do you have for your firm and do you plan to expand your business?
We have recently received several proposals of cooperation from important Portuguese and international shipping players that are currently being evaluated and if accepted will for sure expand the business. We are studying the possibility to expand into other specialised areas of law due to our client’s requests for assistance in other areas of legal services but for such purpose we need to invest in other lawyers specialist knowledge in those areas and we are currently searching the market.

Upwardly mobile

Posted on February 18, 2010 by

What are Magyar Telekom’s strategic priorities and why are they the company’s main concern?
Our strategy is composed of five key elements. In response to intensifying competition, our goal is to position Magyar Telekom as the only ‘3Screen’ company among residential customers with the ability to offer services across three infrastructure platforms. We currently offer voice, internet and TV services on our fibre/copper, cable and mobile networks. With our business customers we put strong emphasis on our integrated IT–telecommunications products. Our goal is to further strengthen our ICT leadership by extending both our product range and client base. Concerning our regional presence, we are strongly committed to our current operations as well as looking for future acquisition opportunities. At our subsidiaries in Macedonia and Montenegro, our primary focus is on growth areas such as fixed line broadband expansion, customer acquisition and retention in the mobile markets.

We believe it is important to focus on service innovation to offer our subscribers enhanced customer experience. Finally, let me mention our ‘one company’ corporate approach. Despite the number of subsidiaries we operate and the wide range of services we provide, we always look at the group as a whole. This is how we want to be seen by our partners and how our internal operations are structured in terms of IT and management approach.

What major industry-related strengths does Magyar Telekom possess, compared to its competitors?
At Magyar Telekom we are proud of our market leadership in all three core Hungarian markets we operate in. These positions, coupled with the strategy supporting their achievement, are the primary foundations of our strong competitive position.

In the Hungarian mobile market we have maintained our clear market leadership in both voice and broadband markets thanks to our high-quality 3G network and attractive customer propositions.

In the Hungarian fixed line market we aim to position Magyar Telekom as the fully integrated service provider. In addition to being the primary fixed voice telephony provider, we also have the highest market share in the broadband internet market. Furthermore, as TV service is the most attractive customer proposition in the fixed line product portfolio, at the end of 2008 we launched a nationwide satellite TV service to complement our existing cable and IPTV offerings. As a result, we were able to almost double our share of the TV market within one year. Exploiting this unique position as the only provider of internet, TV and telephone services nationwide, we aim to position ourselves as the leading triple play company in Hungary.

Finally, we became the leading IT and system integration service provider in 2008 by capitalising on acquisition opportunities and our in-house capabilities. Our full-scale service offering allows us to provide bundled IT−telecommunications products creating additional synergies for the group and further strengthening our leading position in the market.

What opportunities does Magyar Telekom offer its customers and shareholders?
We are the only provider in Hungary offering “double triple-play” services, i.e. television, internet and telephone on both fixed and mobile networks. Besides, we also provide full range of ICT services to our corporate clients. We put great emphasis on customer satisfaction and providing superior customer service. Through our call centre, website or T-Pont shops, customers can obtain information about our products and services, have their enquiries answered or request modifications to their service. In addition, we regularly conduct customer satisfaction surveys, which are an important indicator of corporate performance in different customer segments.

At the same time, we put strong emphasis on shareholder remuneration, a key consideration among our investors. We plan to maintain our focus on free cash flow generation going forward to be able to offer investors attractive dividend yields.

We also plan to further strengthen our position in the key areas of corporate social responsibility, including sustainability, environmental protection, closing the digital gap, sponsorship of culture and arts, and charitable donations.

What are Magyar Telekom’s corporate governance principles and to what extent are those principles implemented?
The professional sphere and investors require public companies listed on the stock exchange to state clearly what governance model they use and how this is applied in practice. Being a company listed both on the Budapest Stock Exchange and the New York Stock Exchange it is highly important for us to meet this requirement and the relevant statutory and stock exchange requirements. Magyar Telekom is governed by four separate bodies: the General Meetings of Shareholders, the Board of Directors, the Supervisory Board and the Audit Committee. Their roles are defined by law and by the company’s memorandum and articles of association.

The General Meeting is the highest decision-making body of Magyar Telekom, comprised of all of the shareholders. The Board of Directors is responsible for managing the company. Among other measures, it approves the Company’s strategy and business plan, organisational restructuring actions of major impact, as well as the conclusion of major transactions, decides on the employment and remuneration of the CEO and other Chief Officers. The Board of Directors is also required to ensure appropriate risk management within the corporation and to establish an adequate internal control system. Our Board of Directors, however, is not a management body; day-to-day operations are conducted by the CEO and other Chief Officers.

The Supervisory Board oversees the activities of the management for the General Meeting. It acts as an independent body, elects a chairman, and passes its resolutions by simple majority.

Certain tasks are assigned to the Audit Committee which oversees the work of the company’s independent auditor and the Group Compliance Director, who evaluates the operation of the financial reporting system and the efficiency of the internal audit function. Magyar Telekom has also established two other committees. The Disclosure Committee ensures that our disclosures are made in a timely manner and in line with the requirements of the laws, while the Remuneration Committee performs compensation functions and certain functions of a nomination committee.

It is Magyar Telekom’s policy that all disclosures made to our security holders or the investment community should be accurate and complete, and fairly present our financial condition and results of operations in all material respects. The controls and procedures currently used are designed to ensure that information required by regulatory bodies as well as all other written information that we disclose to the investment community is recorded, processed, summarised, and reported accurately and on a timely basis, as well as that the information is collected and transferred to the management to ensure that timely decisions are made on the disclosure.

As the telecommunications industry undergoes a major change globally, the Hungarian Telecom sector is beginning to get more competitive.
– How does Magyar Telekom intend to compete?
– How is Magyar Telekom adapting to these changes?
Our strategy is aimed at addressing competitive challenges and while our leading market positions make us well placed to fight the competition, we have implemented a number of changes in the past few years to further strengthen our long-term competitiveness.

Reflecting the significant structural changes underway in the telecommunications industry, Magyar Telekom realigned its operational structure in 2008, supporting an even greater focus on customer needs. Consequently, we now have leaner and more efficient business units serving our residential and corporate clients. Following the implementation of the new operational structure, we also rebranded our fixed line services to T-Home, bringing all of our residential fixed line services under one brand name. With these steps Magyar Telekom’s objective was to better meet future customer needs, making our company more attractive to our clients and investors.

With telecommunications being a technology-driven industry we are continuously improving our network quality and introducing new state-of-the-art technologies. Our 3G mobile network was named the best quality network among 268 mobile operators worldwide in a survey published by ARCChart in 2009. In the fixed line segment we have commenced a five-year new generation network rollout programme aimed at covering one third of households with ultramodern fiber-to-the-home or upgraded hybrid-fiber-coax networks by the end of 2013. These networks offer bandwidths of up to 100Mbit/s, allowing customers to enjoy multiple bandwidth-demanding services.

What impact has the credit crisis had on the company overall?
Thanks to our balanced financing structure, the credit crisis did not jeopardise either our short term liquidity or the long term financing needs of the company. The low liquidity and elevated interbank rates and credit spreads had only a limited negative impact on our financing conditions, thanks to the quality of our debt portfolio remaining unchanged.

In your opinion, what could the future hold for Magyar Telekom?
We are committed to further strengthening our operations both in Hungary and the region by providing our customers with state-of-the-art services through the best available telecommunication network at home or on the move. Our goal is to deliver real broadband access with attractive services and content through TV, computer and mobile screens. As such, we are strongly committed to new generation network rollouts and upgrades. In addition, we consider customer care and product innovation among our highest priorities. Our strategic goal is to leverage our existing competences whilst investing for the future to safeguard our market positions and enhance customer experience.

Christopher Mattheisen is Chairman and CEO of Magyar Telekom

Fund manager rides out the crisis

Posted on February 18, 2010 by

Last year was pretty dicey for many businesses. For some it was even an out-and-out nightmare. Not so for NCB Insurance. Pension fee income climbed almost 50 percent and overall profits soared almost 140 percent from JM$711m to JM$1.692bn. While the Jamaican pension market looks set to consolidate further, 2010 gives every sign it could be another bumper year for NCBIC. Strong cost management is keeping overheads down – good for operational profitability and lower client fees. And considerably beefed-up market regulation is also positive reinforcement, supplying much-needed confidence in this very competitive market. NCB’s own underlying assets are robust and clearly transparent.

How long have you been established, how many people do you employ and what makes you different?
NCB Insurance Company Limited (NCBIC), formerly OMNI Insurance Services Limited is a subsidiary of the financial giant, National Commercial Bank Jamaica Limited: a company that has maintained roots in Jamaica for over 170 years starting as the Colonial Bank of London in 1837.

2010 will mark 21 years since NCB Insurance Company opened its doors. Under our original name, OMNI Insurance Services Limited, the first bancassurance product was introduced to the Jamaican market in 1989 with the launch of our flagship long term savings and investment insurance product – OMNI.

NCBIC entered the pension funds management business in 2007 through the transfer of the pension portfolio from our sister company, West Indies Trust Company Limited (WITCO) who up to this point had provided this service to the Jamaican market for over 40 years. We are the largest segregated pension funds manager in Jamaica with pension funds under management of approximately JM$42.5bn at the end of our last financial year, September 30, 2009.

In addition to pensions and bancassurance products, NCBIC offers annuities, creditor life insurance, group life insurance and other individual life insurance products.

We currently have 122 employees including sales representatives.

We are different from our main competitors in that we primarily offer a premium service through our focus on segregated funds management (both on a credited interest rate and unitised funds bases). The main competition offers mostly pooled pension funds management.

NCBIC also offers a personalised service to our pension funds clients through dedicated client relationship officers who are highly knowledgeable on pension regulations and pension administration in general.

How has your pension portfolio and company profit growth performed in the last year, and why?
NCBIC’s pension portfolio performed well in the last financial year. Our fee income increased by 46 percent from the year before and was 26 percent better than budget. The pension business line (including annuities) contributed approximately 23 percent to the company’s overall profit of JM$1.7bn for the year.

Overall company profits grew by 138 percent from JM$711m at the end of September 2008 to JM$1.692bn at September 30, 2009. This performance was largely driven by:
»    significantly improved interest income from our bancassurance business
»   significantly improved pension fee income
»   strong cost management

Tell us about the pensions market in Jamaica generally – how developed is it?
Based on recent data from our regulators, assets under management for superannuation funds (both Defined Benefit and Defined Contribution) currently stands at approximately JM$215.5bn (this represents pension funds that fall under the Pensions Act 2004). Unfortunately this represents pension benefits for less than 10 percent of the workforce. This means that most of the employed labour force in Jamaica has no formal retirement plan in place.

Having said that, with the introduction of Approved Retirement Schemes (ARS) early in 2009 we expect this to change gradually, as more persons will have the opportunity to take advantage of a formal retirement plan. Under the new regulations, individuals can now save up to 20 percent of their income in an ARS. This has created a flurry of activities including launch of several new products from a number new entrants to the pensions planning market, to public education programmes sponsored both by providers and the regulators. This has raised the level of awareness to a much higher level than existed a mere 12 months ago.

For Jamaicans, what brand values does NCB Insurance communicate to them?
NCBIC is the company that helps you to meet your needs. We help our clients to prepare for life by providing sure money at the right time; whether this be to satisfy a long term investment need; for a child’s education; for retirement income; financial support for critical illness or life insurance coverage.

How competitive a market place is it?
The market has always been highly competitive as all the main life insurance companies offer pension funds administration and investment management services. In addition, prior to 2006 when the Financial Services Commission (FSC) introduced regulations to govern the pension funds industry there were many self managed funds. Convincing sponsor companies that we (professional, pension fund managers) could do a better job of administering the business for them was always extremely difficult as they preferred to retain control.

In early 2009 the FSC started to approve individual retirement plans (an alternative to superannuation funds) and this has made the market even more competitive still, allowing a much wider range of institutions to take part in the pensions business. With the introduction of ARS, not only are we competing with other insurance companies but securities dealers and credit unions can now obtain licenses to offer both pension administration services for superannuation funds and ARS.

Of course, from the client’s perspective this is a good thing as they now have a wide range of options to choose from.

Typically what is a good example of a product from your own pension portfolio? How popular is it proving?
Currently superannuation funds are the main products available and Defined Contribution (DC) plans are now the preferred option. Sponsor companies have moved aggressively away from defined benefit plans in recent years with the industry seeing several windups in favour of conversion to DC plans.

Though early days, we expect that ARS products will become more popular even for companies, as many smaller firms are likely to take this more cost effective less complex approach to providing pension benefits for their employees.

What about fees – how are you keeping these down for clients?
For NCBIC our fee structure is generally based on fund size, contribution levels and activity levels. We believe that we provide a premium service at a very competitive price and we review our fees every two years.

Of course we practise strong cost management which ultimately means less cost to pass on to our customers.

Do you employ a network of IFAs to support you – or is commission/sales- based?
Currently we rely on a small team of salaried business development and client relations officers to seek out new business and maintain relations with our clients. We constantly monitor the market for opportunities to tender for new business. These sometimes come to us through direct requests from employers, newspaper invitations to bid and we also leverage our NCB Group network for referral opportunities.

With the upcoming introduction of our ARS we will be utilising our insurance advisor sales team located in approx. 40 locations island-wide (in conjunction with our business bankers from our parent company) to identify opportunities for new business from individuals and small companies.

What about legal or regulation hurdles or challenges for the pension fund industry in Jamaica. How evolved are these? Do you envisage more legislation en route?
Prior to 2004 the pensions industry was largely unregulated. However with the introduction of the Pensions Act in 2004 and the Pensions Regulations in 2006 the entire landscape has changed. The industry is now highly regulated requiring licensing of pension administrators and investment managers as well as registration of superannuation funds, retirements schemes, trustees, appointment of actuaries and auditors etc.

This was a welcomed change and while there have been teething pains in implementation the overall governance has improved dramatically.

Yes, additional regulation is anticipated particularly in relation to locking in contributions in superannuation funds and vesting. As well, further synchronisation between the Pensions Act, the Income Tax Act and the Banking Act is expected in respect of tax exempt income and limits for foreign currency investments for pension funds, respectively.

How do your clients ensure they choose the right product for their own circumstances?
In our context the client’s choice would be mainly applicable to an ARS. We expect that once we enter this market a client’s choice of what type of fund to invest their pension contributions in and in what proportion will be based on their risk profile, planning horizon and retirement income needs. Our sales team has been trained to advise customers based on these factors, providing illustrations on projected returns for a proposed portfolio mix and therefore will guide customers through these decisions.

In case of superannuation funds in Jamaica, product type (DB/DC) and investment portfolio mix are purely determined by the trustees and investment managers, hence the plan member has no real discretion in this regard.

You must be aware of the pension mis-selling scandals that have tainted other countries – what safeguards do you put in place to ensure your customers are not mis-sold a pension?
Well, we feel strongly that the marketing collateral which regulations require must be provided to prospective clients will guard against this. Also the threat of penalties which can be imposed by our regulators, including revocation of license, dictates that we must constantly monitor marketing/sales conduct of our sales team to ensure that customers are sold according to their real needs.

In addition our offerings and the possible underlying assets are a lot less complex than some of those offered in other territories and this alone makes this potential less likely.

What new products are you introducing in the next 12 months?
All systems are in gear for the launch of a new ARS in the coming weeks. This product will be targeted at persons who do not have the option of a superannuation scheme. We also anticipate that small companies will find this a more affordable option as the administration costs associated with employer sponsored superannuation funds can be quite high and the regulatory reporting quite onerous.

We also plan to develop at least one other insurance product targeted at the employee benefits market. This will be good for bundling employee benefits. Since the 1990s the Jamaican market for insurance products (especially for employee benefits products) has become very focused around two main insurance companies. Employers are now actively looking for options.

Where do most of your assets tend to be invested? Europe? Asia? Property? Blue chip stocks? Growth or value stocks?
We operate on a segregated fund basis therefore each pension portfolio is tailored to the particular client’s risk appetite and their pension liability profile. In determining the recommended asset profile for each pension fund we would examine the historic and projected membership data and test for an appropriate yield/term tradeoff. Our clients mainly consist of local companies which are governed by the Jamaican pension regulations and this limits the investment arena for those clients.

In general, most of our clients opt for a mix of risk-free bonds (40-60 percent), local blue chip stocks (20-40 percent) and local real estate (15-25 percent). Overall, our aggregate portfolios reflect a larger than 70 percent holding in long-term government bonds and other fixed income instruments (mortgages, leases) with real estate and quoted stocks more or less evenly sharing the remainder.

How financially strong is NCB Insurance?
We would say that NCBIC is very strong financially. From a regulatory solvency point of view, NCBIC has for the past five years maintained solvency ratios in excess of two times the regulatory requirement. We have also maintained a high level of earnings growth and high profitability ratios. We would say that, while we are a fairly small insurance company we are also one of the most profitable.

What opportunities do you envisage seeing in the next year?
We see increasing opportunities in extending our service delivery to our pension clients, we have been working very hard at improving our internal efficiencies and we see significant potential still untapped in several areas related to that line of business. On the insurance side we are looking at more vigorous marketing of our annuities and credit insurance products, we also see market potential in our “instant issue” life products which are attractive to persons seeking lower coverage without the time delay that traditional underwriting presents for the customer.

Further we expect to launch our new ARS product targeted at the self employed, professionals and others who are not members of superannuation schemes.

What about your corporate governance structures – how robust are they?
As an insurance company regulated by the Financial Services Commission and being a subsidiary of a commercial bank governed by the Banking Act, supervised by the central bank and publicly traded, NCB Insurance is compelled to practise strong corporate governance. This means we have in place a number of regulation mandated Board Committees including:
– Conduct Review and Corporate Governance Committee
– Audit Committee
– Investment and Loan Committee

These are constituted in accordance with regulatory requirements (e.g. a specific number of external vs. internal directors) and supported by management committees (e.g. Asset Liability Committee, Investment Management Committee). All committees operate in accordance with documented policies and procedures and terms of reference, and are required to report to the board on a quarterly basis.

NCB insurance is further supported by a strong parent company (NCB Group) structure with oversight from different areas including risk management, group treasury, group compliance, general legal counsel etc.
The conduct review and corporate covernance plays a strong role in monitoring issues like related party transactions to ensure that these are in accordance with regulations and can stand the test of sound corporate governance.

How many assets do you have under management?
As of September 2009 our pension assets portfolio was approximately JM$ 42,557bn. At the same date our corporate investment portfolio was approximately JM$22,435bn.

Where will NCB Insurance be in five years time?
NCB Insurance’s bancassurance products (OMNI and OMNI Educator) are household names. In five years we expect to achieve this same dominance for our individual retirement product which will be launched shortly and in fact for all products offered by NCBIC.

We also expect to continue our profit trajectory year on year, continuing to build a company known for its strength, expertise and innovation.