MSCI releases market classification review

The Morgan Stanley Capital Index has released its MSCI 2015 Market Classification Review, which determines the inclusion of each country into the MSCI indexes and which market category it should occupy.

[I]nvestor concerns were cited as the reason for the continued exclusion of China [from the Emerging Market Index]

The research firm provides a series of indexes to measure the performance of stock markets around the world. It divides countries into different market categories, such as the World Index, which is composed of 23 developed economies, the Emerging Market Index and the Frontier Market Index. The total market capitalisation of each country’s listed companies are aggregated and then added to that of the rest of its peer group to work out a global benchmark. These benchmarks are used as a base by exchange-traded funds and as a means for comparison by managed mutual funds.

This year’s review was widely expected to announce that China’s A-shares would be included in the Emerging Market Index. However, according to the MSCI, “China A‐shares will remain on the 2016 review list for potential inclusion into Emerging Markets.” Chinese companies based in Hong Kong are already included, but Chinese A Shares, those listed domestically, have a number of restrictions upon purchase by foreigners.

While the MSCI praised Chinese stock regulators for their liberalisation efforts, investor concerns were cited as the reason for the continued exclusion of China. Investors, the report notes, were still apprehensive about China’s quota allocation process, restrictions on capital mobility and repatriation, as well as beneficial ownership of investments. MSCI is working with Chinese financial authorities and says that the country will be included once these concerns are adequately addressed.

Pakistan may see itself promoted from the Frontier Market Index to the Emerging Market Index, with the report noting that it has been added to the review list of 2016 Annual Market Classification Review. Pakistan’s stock market has seen a number of positive developments that satisfied the MSCI’s accessibility criteria and increased liquidity.

The report also recognises Saudi Arabia’s recent opening up of its stock market to foreign investment, noting that a standalone index of the Saudi stock market has been compiled, using its Emerging Markets Index methodology. However, the MSCI will first “monitor the effectiveness of the opening of the market and gather feedback from international investors,” before considering the country’s inclusion in the index.

HSBC to cut up to 25,000 jobs in favour of automation

One of Europe’s largest banks has announced a dramatic restructuring that could see as many as 25,000 members of staff lose their jobs.

HSBC, currently based in London but thought to be considering a move to Asia, has announced that it is planning to saving around $5bn a year as part of its restructuring effort.

CEO Stuart Gulliver has said that most of these jobs will be replaced by automation

Most of these jobs are likely to be in the bank’s UK businesses, with around 8,000 British employees likely to leave. CEO Stuart Gulliver has said that most of these jobs will be replaced by automation, with the bank determined to improve efficiency across its global operations. The bank’s current global workforce is around 257,000, although this figure is significantly lower than the 296,000 of 2011. HSBC is also axing some of its other global operations, including its subsidiaries in both Brazil and Turkey.

Earlier this year, the bank revealed that it was considering moving its headquarters – currently at London’s Canary Wharf, where it has been since 1992 – to Hong Kong. While this would be a substantial blow to the UK’s status as a global financial powerhouse, it is in Asia where HSBC sees much of its future revenue streams. Gulliver added, “The world is becoming increasingly connected, with Asia expected to show high growth and become the centre of global trade over the next decade.”

HSBC has suffered a difficult couple of years lately, with around $11.2bn worth of regulatory charges imposed on it since 2011. At the same time, the global banking industry has undergone a big shift in the aftermath of the financial crisis, and Gulliver believes that HSBC needs to adapt to these changes. “We recognise the world has changed and we need to change with it.

China Railway Construction Corporation opens

Following the recent union of China’s two biggest railway equipment manufacturers, CSR Corp Ltd and China CNR, China Railway Construction Corporation started trading in Shanghai and Hong Kong on June 8.

The debut caused a 12 percent increase in the dual-listed company’s Hong Kong share price.

CRRC has impressive economies of scale at its disposal, which will give it a highly competitive advantage in overseas markets

With a market capitalisation of $130bn, the CRRC is bigger than other giants Siemens, Alstom and Bombardier, coming second only to General Electric. The railway industry’s new titan has a total revenue stream of $32bn and a workforce of 118,000.

An aggressive global strategy is said to be in place as CRRC aims to compete in Africa, Latin America and South-East Asia. Given its mammoth size, CRRC has impressive economies of scale at its disposal, which will give it a highly competitive advantage in overseas markets. Within the international setting, this edge balances the superior quality and technology offered by global rivals, thereby giving CRRC time to catch up on this basis also.

“It used to be that CSR and CNR were competing against Bombardier and Alstom; now it has become China versus everybody else”, Alexious Lee, Head of Industrials Research for CLSA told Bloomberg. “China’s products may not boast high-end specifications, but they provide value for money.”

State-owned CNR already began an assertive push into new markets when it won a rolling stock contract with the Massachusetts Bay Transportation Authority last October. The $567m deal was the first of its kind in the US and a symbolic achievement for the Chinese market. CNR had won the contract to supply trains for the Boston railway system by offering the cheapest price in comparison to the other four bids on offer, indicating a sign of things to come in terms of CRRC’s approach.

The deal was backed by Chinese Premier Li Keqiang at the time, who will make overseas sales pitches on behalf of CRRC also, with a particular focus on emerging markets.

Given its business model and the proactive support of the Chinese head of state, it seems that a new era is underway for the industrial railway industry. If CRRC is successful in pushing traditional players aside and stepping up in their place, the global market is indeed headed in a new direction.

Deutsche Bank co-CEOs resign after fine trouble

Deutsche Bank co-CEOs Anshu Jain and Jürgen Fitschen have tendered their resignations after the bank was hit with a series of fines recently, and in response to mounting shareholder discontent with the bank’s consistently below par profit growth. The supervisory board of Deutsche Bank has appointed Chairman of the Audit Committee and member of the Risk Committee, John Cryan, to the position of co-CEO, alongside Fitschen, effective July 1.

The bank is already pursuing an aggressive cost-cutting plan

“On behalf of the Supervisory Board, I would like to express our gratitude and respect for the contributions that Jürgen and Anshu have made to our bank,” said Paul Achleitner, Chairman of the Supervisory Board of Deutsche Bank in a statement. “Due to their decades of commitment, Deutsche Bank attained its leadership position. Their decision to step down early demonstrates impressively their attitude of putting the bank’s interests ahead of their own.”

Fitschen will stay in the co-chief role until the bank’s next Annual General Meeting is done next May, in order to protect against any transition pains.

The 54-year old former UBS CFO and President for Europe at Singaporean investment firm Temasek is an experienced investment banker, and, according to Achleitner, has “extensive experience in financial matters but also espouses the professional and personal values required to advance Deutsche Bank and Strategy 2020. He knows the bank well, and we are convinced that he is the right person at the right time. We wish John and all of our employees success in this important next phase for the bank.”

Deutsche Bank is currently the only European bank still on Wall Street, though a changed regulatory environment together with a $2.5bn fine issued recently, in relation to the bank’s part in the libor scandal, have done much to slow its progress. Its net income for the first quarter was half that of the same period a year previous, and analysts have been critical of the bank’s overreliance on borrowed money.

The bank is already pursuing an aggressive cost-cutting plan, in which it intends to save €3.5bn on an annual basis and boost profits as a percentage of capital invested. The incoming co-CEO said in a statement: “Our future will be defined by how well we deliver on strategy, impress clients and reduce complexity.”

The legacy of Lee Kuan Yew

1959
The son of Chinese immigrants, Harry Kuan Yew (as he was known), became the first prime minister of Singapore in an overwhelming victory at the polls. He gave himself the hopeless task of reviving a battered country, as the trading economy of the newly independent nation had been destroyed during the Second World War. Communists were knocking on the proverbial door and civil unrest over the issue of self-rule was growing.

1965
Malaysia torpedoed Singapore’s best prospect of recovery when it expelled the fragile country from a barely two-year-old federation of nations that included Malaysia, Singapore, Sabah and Sarawa. Although deeply hurt by the snub, 32-year-old Lee Kuan Yew immediately demonstrated what would become a lifelong political skill: salvaging success from disaster. Singapore was admitted to the UN and became a member of the Commonwealth.

1967
In a bold step, Singapore took the decision to issue its own currency. Named the Singapore dollar, it was pegged to the sterling at a rate of SGD 60 per £7. The nation’s first sovereign issue was a daring gamble. The economy was weak at the time, and most of the old trade links hadn’t yet fully recovered from the conflict during the Second World War. On top of that, the fledgling nation had no experience of managing its own currency.

1973
The collapse of the sterling revealed once again the political adroitness of Lee Kuan Yew. He immediately linked the Singapore dollar to the US dollar. As the country’s commerce boomed in neighbouring countries and regions, he had the currency pegged against a trade-weighted basket of other currencies. Highly successful, the arrangement lasted for 12 years before the Singapore dollar was floated. Gross domestic product per head was just over $1,900.

1983
In the decade since the Singapore dollar was linked to the US’s, Singapore had turned into a poster nation for a tough-minded brand of economic management. Now branded a ‘benign dictator’, Lee Kuan Yew brooked little opposition, but it was hard to argue against the results. GDP per head of the growing population (now up to nearly 2.7 million) rocketed to nearly $6,700. Singapore was emerging as a global financial-sector powerhouse.

1990
After 31 years in power, the 67-year-old Lee Kuan Yew finally stepped down. He had steered Singapore through tumultuous decades, taking it from poverty to wealth. GDP per head had doubled in the last seven years to stand at $12,700 on a growing population, now over three million. But the autocratic leader didn’t let go entirely: the handpicked Goh Chok Tong replaced him as prime minister and Lee Kuan Yew hovered in the background in the new role of senior minister.

2014
As Lee Kuan Yew turned 90, Singapore was lauded as an undisputed economic triumph. GDP nudged $300bn, equivalent to nearly $37,000 per head. At $278bn, foreign reserves weren’t far behind. Astonishingly, net exports accounted for almost half of the 3.9 percent growth in GDP. A booming trade surplus had pushed up the current account of balance of payments to a whopping 8.3 percent. And the new prime minister? He was the founding father’s son, Lee Hsien Loong.

2015
On March 23, Lee Kuan Yew died at the age of 91. There followed a nationwide one-week period of mourning. As world leaders pointed out, in a single generation Lee Kuan Yew had managed to transform a disparate and multi-ethnic population, crowded into 63 islands with a total area of just over 690km sq, into a First World nation. And against the most unlikely odds, a country that never had its own currency until 1967 had become a financial centre in Asia, rivalled only by Hong Kong.

India’s railways need work. Fast

Indian-railways

Every February, the Indian Parliament performs a curious and unique ritual. The railway minister (a portfolio that exists in few democracies nowadays) presents the ‘railway budget’ to the lower house for its approval. A packed chamber hangs on the minister’s every word.

The practice began in the days of the British Raj, when the railway budget rivalled that of the rest of the Indian Government. Of course, railway revenues today, at $23bn, no longer dwarf the country’s budget, which now stands at some $268bn. But India’s railways still produce other mind-boggling figures: 23 million passengers are transported daily (over eight billion per year, more than the world’s entire population) on 12,617 trains connecting 7,172 stations across a 65,000km (40,000-mile) network. And, with 1.31 million employees, the railways are the country’s biggest enterprise.

In short, the railways are the lifeblood of India’s economy, touching the lives of every segment of society and playing a key role in moving people, freight, and dreams across a congested landscape. Yet much needs fixing.

India’s trains carry four times the number of passengers as China’s, despite covering only half as many kilometres, but still lose about $7bn annually. The problem is that a succession of railway ministers, viewing the trains as poor people’s only affordable means of transport, have refused to raise passenger fares, squeezing freight instead. This has proved popular with voters but disastrous for the country.

$23bn

Railway revenues in India

Aggravating factors
Though freight transport still accounts for 67 percent of railway revenues, with 2.65 million tons carried every day, the higher fares needed to subsidise passengers have deterred shippers. As a result, the share of freight carried across India by rail has declined from 89 percent in 1950-51 to 31 percent today.

Instead, an increasing volume of goods is shipped by road, choking India’s narrow highways and spewing toxic pollutants into the country’s increasingly unbreathable air. By contrast, China’s railways carry five times as much freight as India’s, even though China has a far better road network.

Making matters worse, politicians have continued to add trains to please various constituencies – but without adding track. Indeed, owing to land constraints, India has laid only 12,000km of rail track since independence in 1947, adding to the 53,000 left behind by the British. China added nearly 80,000km to its rail network over the same period.

Congested carriages
As a result, several lines are operating beyond their capacity, creating long delays. Exacerbating this inefficiency are slow train speeds, which rarely exceed 50km per hour (and 30km per hour for freight), partly owing to the need to stop at an ever-rising number of stations to appease political interests.

But perhaps the biggest problem is how dangerous the railways are. Ageing rails, tired coaches, old-fashioned signals, and level crossings dating back to the 19th century combine with human error to take dozens of lives every year.

Yet the railway ministers continue to insist on their populist approach. With the government losing $4.5bn every year by subsidising passenger fares, it has little money to spend on upgrading infrastructure, improving safety standards, or speeding up the trains. As a result, the railways run out of money before running out of plans. In the last 30 years, only 317 of 676 projects sanctioned by parliament have been completed, and it is difficult to imagine how the railways will acquire the estimated $30bn needed to complete the remaining 359 projects.

And if all of this were not bad enough, India’s leadership seems not to recognise the challenges that the railways present. In a country where rail passengers cannot even expect a clean toilet, let alone an on-time arrival, Prime Minister Narendra Modi has spoken of introducing bullet trains – the latest in a string of irrationally grandiose aspirations.

A technocratic new railway minister, Suresh Prabhu, has once again left passenger fares untouched and raised freight rates. Though, unlike his predecessors, he has resisted the temptation to announce any new trains, his plans for India’s railways remain inadequate.

Prabhu’s pledges
Prabhu’s pledges include improving and expanding rail lines, introducing wireless internet at railway stations, eliminating unmanned level crossings, creating a 24-hour toll-free number for users to phone in complaints, and installing security cameras to protect women passengers. These improvements seem to his critics to be marginal, at best, and have left his fellow MPs underwhelmed.

Prabhu’s most impressive promise – to raise $140bn from market lenders – is also his most problematic, as he has failed to clarify how exactly the railways would repay the loans. Given how high interest rates would have to be to attract investors, this will be no easy feat, especially because the railways currently have an operating surplus of just six percent, or about $100m annually – barely one percent of the amount needed to upgrade and modernise the network.

It is far from clear how Prabhu’s grand vision of a safer, cleaner, and speedier Indian railway system will be achieved in practice. The railway minister has created a dream budget – though ‘pipe dream’ might be a more accurate description.

In fact, this is in line with the Modi government’s approach thus far: lofty aspirations, soaring rhetoric, and quotable sound-bites have been accompanied by few specifics, no implementation plan, and no improvements in execution capacity. India’s overburdened trains cannot run on hot air, but that seems to be what they are being offered for now.

Shashi Tharoor is Chairman of the Parliamentary Standing Committee on External Affairs for India

© Project Syndicate, 2015

British banks shrink when probed

The UK’s Financial Conduct Authority (FCA) is in the process of investigating whether there are sufficient levels of competition in investment and corporate banking services. The main concern is that limited transparency on both price and quality may make it difficult for clients to accurately assess if they are getting the best value for money. The regulator has also raised concerns over the bundling and cross-selling of services, which it believes could make it difficult for new entrants or smaller, less established firms to challenge the bigger players.

“We have chosen this particular area because the benefits of effective competition in the market could be significant. The UK is a global hub for investment banking, and this sector plays a crucial role in our economy, helping companies raise capital for investment, expansion and funding ongoing operations”, said Christopher Woolard, Director of Strategy and Competition.

The investigation comes at a time when British banks are shrinking the size of their investment operations in the City. RBS has announced its plan to cut 14,000 of the 18,000 jobs it currently holds in its investment arm, while Barclays has said it is willing to make further cuts if performance doesn’t improve. Both banks have suffered at the hands of a much stricter regulatory environment, with regulators demanding they reduce their levels of risk.

The fight for fair play in investment banking, especially on new entrants entering into the market, will help fill the vacuum created by the larger
banks downsizing

FCA probe
On April 1, the FCA gained competition concurrency powers that will allow it to enforce against breaches of the Competition Act and to refer markets to the Competition and Markets Authority for in-depth investigation. However, investment banks will have to wait to see if the financial authority will deem it necessary to exercise those powers once its market study is completed.

The FCA believes investment banks may have incentives to allocate shares or debt to their prime brokerage, hedge fund clients or their own asset management business, in a way that is not optimal for the issuer, according to David Strachan, Co-Head of the EMEA Centre for Regulatory Strategy at Deloitte, and Rosalind Ferguson, the centre’s manager. “While it is too early to say what kind of remedies the FCA may wish to impose to address this, firms can already expect strengthened conflicts of interest requirements with respect to underwriting and placing under MiFID II”, they wrote in a blog post.

“According to a 2011 Office of Fair Trading… report, the average number of banks in IPO syndicates has been increasing over time and the FCA believes that this may have both positive and negative effects on competition that it plans to consider further,” Strachan and Ferguson added. “For instance, more banks involved in the syndicate may increase competition for the lead underwriter position as co-managers become competitors for future issuance, but could also result in an inefficient book building and allocation process.” The FCA will also be hoping the investigation will provide answers for how best to assist new and smaller, boutique investment banks in entering and competing in the market.

“Any changes that seek to address any imbalances of power, which are identified in the market study, are likely to bring opportunities for new entrants and boutique banks and service providers, and challenges for incumbents”, wrote Strachan and Ferguson. “We are only now beginning to find out just how significant this could be for parts of the financial services industry.”

Filling the void
The fight for fair play in investment banking, especially for new entrants entering the market, will help fill the vacuum created by the larger banks downsizing. The decision by RBS in particular to undertake such a large cull of its investment business is the result of huge amounts of pressure from the British Government, which, after bailing out the bank, became its largest shareholder.

In a recent interview with the Financial Times, the UK Chancellor of the Exchequer, George Osborne, expressed regret he had not commenced radical restructuring of the bank sooner. Osborne also said he would like to make the necessary changes as quickly as possible after the general election so the government could begin reprivatising the bank.

The shrinking of British investment banking, therefore, is just a consequence of the government wanting to downsize its sizeable stake in Lloyds and RBS. The government recently raised a further £500m ($745m) after it reduced its shares down to 22 percent, bringing the total amount recouped from the bailed out bank to £9bn ($13.32bn). The cutbacks in staff, although problematic for the market in terms of reduced liquidity, are necessary for the long-term success of both banks.

Such drastic restructuring of UK banks will naturally impact the market as a whole, but it appears the study by the FCA has come at precisely the right timeto mitigate any problems that may arise as a result of Barclays and RBS downsizing.

Investors crank up sustainability

The lasting impression that emerged from the global financial crisis of 2008 was one of arrogant bankers recklessly putting other people’s money into all manner of risky and dubious investments. That is, at least, what much of the public sees as the main cause of the financial meltdown. However, while the reality may be somewhat less controversial, the financial services industry has realised that it needs to improve its image if it is to regain the trust of the public.

Sustainable investment practices have suddenly become much more popular among investors in recent years, with more and more people thinking about the effects their financial portfolios are having on the wider world. Although, for many years, socially responsible investing (SRI) was seen as a bit of guilt-reducing window dressing on top of the serious profit-making investments in a portfolio, some reports are now suggesting that they are creating revenue in their own right.

[W]ith investors becoming more conscientious, the industry could be on the cusp of having a seriously positive impact on the rest of the world

Global sustainability
According to a study by the Global Sustainable Investment Alliance (GSIA) released in February, socially responsible and sustainable investments have seen a surge in value between 2012 and 2014 of 61 percent. This meant that total sustainable assets under management were $21.4trn by the end of last year, a staggering increase on the $13.3trn in 2012. They now account for 30.2 percent of professionally managed assets, compared to 21.5 percent two years previously (see Fig. 1).

The report was put together as a collaboration between a number of global institutions, including Europe’s leading sustainable investment body Eurosif and the Japan Social Investment Forum. According to the report, it is Europe where most of this sustainable investing is taking hold, with almost 64 percent of the investments looked at coming from the continent (see Fig. 2).

Announcing the report, Eurosif’s Executive Director, François Passant, said that the growing adoption of sustainable investments was an encouraging sign. “While the growth of European sustainable and responsible assets has been significant over the past few years”, he said, “we are very pleased to see that this growth is a global phenomenon even if most of these assets remain concentrated around few geographies. Just a few months away from the COP 21 Conference in Paris, this signals that more and more investors around the globe realise the materiality of environmental, social and governance factors and echoes some of the current public policy and industry-wide initiatives to foster long-termism and responsible investing.”

The sorts of investments that people are starting to make include renewable energy sources and technologies, as well as microfinance services for the poorest communities in the world. Eurosif’s report concludes that the increasing emphasis on socially responsible investing is spurring investors to be more confident in asking their fund managers to seek out similarly sustainable assets. “The growing visibility of sustainable investing produces a virtuous cycle, in which institutional and retail clients feel empowered to ask money managers for SRI options, and more traditional investment firms are motivated to develop products and services to serve a market that no longer can be characterised as niche.”

Another consequence the report highlights is that companies are recording their sustainable practices in far greater detail than before – highlighting their environmental, social and corporate governance impacts. “The growth in global SRI reflects the consensus among investors that accurate valuations and proper risk management require greater disclosure and consideration of ESG issues such as climate change, human rights, consumer protection and health and safety. Increasingly, managers are using ESG criteria to identify risks that are not adequately addressed by traditional investment analysis and to better predict financial performance. Managers are also using ESG criteria to identify opportunities to invest in sustainable businesses that are involved in energy efficiency, green infrastructure, clean fuels and other sectors that provide adaptive solutions to some of the most challenging issues of our time.”

Proportion of SRI relative to total managed assets

Morgan Stanley
While organisations like Eurosif have been set up to actively encourage the adoption of sustainable investing, large financial institutions may not look at it with the same enthusiasm. However, a recent study by one of the world’s leading banks suggests the same as the GSIA’s report. US banking giant Morgan Stanley published a report earlier this year that showed how much sustainable investing had grown in the last few years, and why it was now proving to be an attractive area for fund managers to invest money. “A growing number of investors are exploring sustainable investing. In 2012, $1 out of every $9 of US assets under professional management was invested in some form of sustainable investment, primarily in public equities. In 2014 that number increased to $1 out of every $6 – to a total of $6.57trn now invested”, it said.

In the report, which was published in February, Morgan Stanley shows how sustainable investing is becoming a serious proposition for portfolio managers seeking to maximise their profits. It points to a number of factors as being the reason for such investments, as well as the cause of better returns: “A number of drivers, including increasing natural resource scarcity, regulatory pressures, shareholder expectations and board accountability, among others, are likely contributing to some of the positive firm- and investment-level effects we observed.”

In some instances, sustainable investments are even outperforming traditional assets, says Morgan Stanley. It found that 64 percent of sustainable equity mutual funds were either matching or surpassing the average returns of traditional equity funds. They were also proving to be substantially less volatile than normal funds.

The report adds that instead of there being a trade-off between profit and the impact of an investment, investors are finding that they can get a good return while feeling good about themselves financially: “Ultimately, our comparison indicates that investing to create a positive impact does not necessarily require making a trade-off in investment performance; on the contrary, sustainable investments often exhibit favourable return and risk characteristics compared to their traditional peers. We expect that, over time, the fundamental drivers of these performance differences will only grow in importance to investors, both as a way to address important global challenges and to improve investment performance.”

Improving image
The reputation of the global investment community could not have been worse than in the aftermath of the financial crisis. In seeking profit above all else, the industry presented itself as being an uncaring behemoth that had the potential to leave serious damage in its wake. However, with investors becoming more conscientious, the industry could be on the cusp of having a seriously positive impact on the rest of the world.

Audrey Choi, the CEO of Morgan Stanley’s Institute for Sustainable Investing, said that sustainable investing could be an essential tool in solving many of the world’s biggest problems. “We believe sustainable investing will be a key in the mobilisation of private capital towards addressing global challenges, but the growth and development of this space remains hampered by a lingering perception that sustainable investments require a financial trade-off. Our review addresses the investment performance concern head-on, and the findings are very positive.”

In terms of the environment, the news of people’s newfound concern for the planet couldn’t come at a better time. Global energy markets are changing in a way unseen for decades, while renewable energy sources are becoming far more reliable than before. Given the increasingly efficient way environmentally sustainable technologies are operating, for example the solar power industry, investors could propel many of these previously niche assets into the mainstream.

Proportion of global SRI assets by region

While financial services have traditionally been more concerned with getting the best possible return on an investment, the shifting attitude towards sustainable investments means that now people can bring their values in line with how they use their money, according to Choi. “Sustainable investing presents the opportunity for individuals and institutions to align their investments with their values, but there are clearly many investors who have reservations over whether sustainable investing will require them to sacrifice investment performance. Ultimately, we believe that sustainable investing is simply a smart way to invest, and our review shows preconceptions regarding subpar performance are out of step with reality”, she said.

If this trend proves to be more than just a brief reaction to the wayward behaviour of the financial crisis, then the financial services industry may well be able to promote itself as an engine for good, rather than one of selfish opportunism.

Canadian tobacco firms ordered to pay record fines

Following a lengthy class-action lawsuit, the Quebec Superior Court has ordered that three major tobacco companies pay C$15bn in damages, for failing to adequately inform smokers about the risks associated with their products. Legal proceedings began in March 2012, 13 years after the lawsuit was initiated, and involves JTI-MacDonald, Imperial Tobacco and Rothmans Benson & Hedges, who have each stated they will appeal against the decision.

The case is widely believed to be the biggest class-action lawsuit in
Canadian history

The case is widely believed to be the biggest class-action lawsuit in Canadian history, and was credited by many as a victory for smokers. “It’s a big day for victims of tobacco, who have been waiting for about 17 years for this decision. It was a long process — but arrived at the destination and it’s a big victory”, said Mario Bujold, Executive Director of the Quebec Council on Tobacco and Health, to CBC News.

The fine comes in answer to two lawsuits lodged against the firms in 1998, which together sought C$27bn in damages. The first stems from individuals whose health suffered as a result of smoking, whereas the second was launched by a group who found themselves unable to quit. Both groups alleged that the companies in question failed to warn them about the dangers of smoking, while also underestimating studies into the repercussions and, in light of this information, marketing their products irresponsibly.

According to the ruling, the firms must pay CAD 90,000-100,000 to plaintiffs with related cancers, with the amount paid dictated by the date they started smoking, and CAD 130 to almost one million smokers who say they were unable to quit. Each of the three companies have stated that they will appeal against the court’s decision, though, irrespective of the outcome, they must pay out at least C$1bn to the affected individuals.