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AIX-EN-PROVENCE, France—--More than 18 months after French President François Hollande unveiled tax incentives to help the country's struggling businesses, Jérôme Frantz is still waiting to reap the benefits.

The French entrepreneur needs the money to help restore the fortunes of his metal coating company, Frantz Electrolyse. Since demand from car makers collapsed five years ago, revenue has failed to rebound sustainably, margins have shrunk and Mr. Frantz has cut staff numbers from 300 in 2009 to around 100 today.

"As far as the tax credit is concerned, we haven't got anything yet," Mr. Frantz said.

The tax incentive–which is paid in two tranches this year and will cost the state €20 billion annually from 2015–isn't the only thing Mr. Frantz is waiting for. At the start of this year, Mr. Hollande made further promises to switch from raising taxes to cutting taxes on business, but his so-called Responsibility Pact won't come into force until next year.

"The government hasn't changed policy; it's announced that it will change policy," Mr. Frantz said.

The delays and uncertainty over Mr. Hollande's attempts to stimulate growth have eroded the confidence of French business leaders at a time when the euro zone's second-largest economy desperately needs it. That confidence crisis was front and center at an annual meeting of French business leaders and policy makers in Aix-en-Provence this weekend.

"France is the country in the world where there is the least confidence and the most pessimism," said Louis Gallois, former head of European plane maker Airbus who authored a report that laid the groundwork for Mr. Hollande's tax credit initiative.

The European Commission's measure of economic sentiment, which covers sectors from industry to consumers, shows French confidence has been stuck below the long term average throughout Mr. Hollande's two years in office, and the reading dropped to a nine month low in June. Meanwhile, comparable levels in Germany have been rising above the long-term average for almost a year.

Lacking in confidence, French businesses have held back on investment, dealing a blow to the economy. Economic growth registered no improvement in 2013 from a meager 0.4% in 2012. And in the first quarter of this year, growth ground to a halt as consumer spending fell and businesses reduced their investment back below the level when Mr. Hollande was elected.

France is beginning to stand out as the weak point in the euro-zone's recovery, analysts say. While business activity in the currency bloc as a whole expanded in June, French activity contracted, according to a Market survey of manufacturing and services last week.

Sluggish economic growth has taken a hefty toll: figures at the end of June showed there are 3.39 million fully unemployed job seekers in France, the highest number on record.

Mr. Hollande's government says things will turn around when it convinces entrepreneurs it will deliver on tax cuts. To that end, the tax cuts for next year will be voted into law this month to send an early signal.

"It's a crucial subject: if people go on saying 'I don't believe you so I won't do anything', nothing will happen in France and there won't be the necessary acceleration in growth," said Finance Minister Michel Sapin, speaking at the conference in Aix-en-Provence.

But entrepreneurs also have reasons to be wary. Mr. Hollande's plans have already run into opposition from fringes of his Socialist Party, who object to the public spending cuts needed to finance future tax cuts for business.

Business leaders are also concerned about tensions between labor unions and employer groups, which threaten new talks on government policy due to begin Monday.

"I'm worried about this," said Stéphane Richard, chief executive of French telecommunications group Orange SA ORA.FR -0.78% . "All that is going as if there was no crisis, as if unions and business leaders can continue talking for months. But all sides have to realize the situation is urgent,"

Mr. Frantz is frustrated by the to-and-fro by the government and criticism from unions that the tax cuts are a gift for business. "Nobody understands anything anymore," he said.

Even if Mr. Frantz gets the €100,000 he's due this year under Mr. Hollande's tax credit plan, it will only have a marginal impact on a wage bill of between €2.5 million and €3 million, he says. That won't be enough for him to start making permanent new hires.

"We've been keeping a spare machine in storage," he said. "But after three years it's clear that we won't be needing it so I'm selling it to a Spanish competitor."

Appetite for Europe’s buyout listings wanes

European private equity-backed companies that floated in the second quarter have slid 1.8 per cent below their debut prices, cooling investors’ enthusiasm as the pipeline of new listings continues to grow.

At the end of June, buyout-backed new issues, which accounted for nearly half of the flotations in Europe, underperformed other types of listings, which have risen 3 per cent since the first day of trading, according to weighted average returns compiled by EY, the professional services firm.

The underperformance during the second quarter contrasts with stronger returns for the private equity-backed IPOs in the first quarter, which were up 13.8 per cent on average at the end of June.

By comparison, other company listing in the first quarter rose 44 per cent. However, this was largely due to the 80 per cent increase of Altice, the European cable group which in january raised €1.3bn on Amsterdam’s Euro­next exchange. Excluding Altice, which accounted for half the volume of new issues in the first quarter, private equity floats during that period have overperformed by 12 percentage points.

The poorer performance in the second quarter brings highlights a shift in market sentiment as investors’ appetite for new stocks has abated. Fund managers have more choices and have gone beyond the phase of significantly lifting their exposure to Europe, which had been reduced during the eurozone crisis.

“The attitude to pricing has changed because at the beginning of the year there was a lot of money coming into UK equities, and there was a real demand for new ideas,” said Richard Bullas, a UK Portfolio Manager at Franklin. “What was a sellers’ market at the start of the year has become a buyers’ market now,” he added.

In the US, however, the data shows little difference in performance between private equity-backed floats and other types of flotations, with both types advancing around 20 per cent since first day of trading

Alasdair Warren, head of European financial sponsors at Goldman Sachs said the valuations of IPOs during the second quarter had fallen 10-15 per cent compared with the first quarter, in part because investors had become more price sensitive, as well as having a greater selection of new issues to choose from.

“The IPOs of good companies with differentiated stories are still getting done, albeit in some cases at slightly lower valuations, but some of the less differentiated companies are struggling,” Mr Warren said. “Private equity owners are having to be more thoughtful about positioning and pricing IPOs now.”

Disappointing flotations during the second quarter have included The Card Factory, the UK greeting cards retailer owned by Charterhouse, which has fallen 9 per cent since floating in May.

The share price of eDreams Odigeo, the online travel agent backed by Permira and Ardian which operates under the Opodo brand, has more than halved since its €10.25 debut price and Braas Monier, the German roof tile maker owned by Apollo and TowerBrook, has slid 5 per cent since listing in June.

However, Carlyle-backed Applus, a Spanish certification group, is up 6 per cent, UK road recovery specialist AA has advanced 2 per cent and Com Hem, a Swedish cable company owned by BC, is up 8 per cent.

Ex-JPMorgan trader challenges ‘whale’ findings

A former JPMorgan Chase trader who faces US criminal charges in the wake of the $6bn “London whale” debacle is challenging civil findings made against the bank by the UK financial watchdog.

Julien Grout, a French national who worked as a junior credit-derivatives trader at the time of the $6bn loss that rocked the bank in 2012, has filed an appeal with a London tribunal taking issue with the UK Financial Conduct Authority’s findings against JPMorgan that were part of the bank’s $1bn settlement with US and UK authorities last year, according to tribunal records.

While the substance of his challenge is not public, people familiar with the situation told the Financial Times that Mr Grout is alleging that he is readily identifiable in findings that are meant to be anonymous.

His tribunal challenge follows similar ones made by his former colleagues Achilles Macris and Javier Martin-Artajo. Mr Macris succeded in securing a hearing on the matter next year, while the tribunal is still deliberating over whether Mr Martin-Artajo should be allowed to have more time to challenge the findings.

Mr Martin-Artajo managed Bruno Iksil, the trader dubbed the whale; Mr Grout was a junior trader in the same team. Mr Macris ran the London office of the bank’s chief investment office.

If Mr Grout succeeds persuading the tribunal to hear his challenge – the FCA would have to turn over to him all the evidence it relied upon in fining JPMorgan £138m.

As Mr Grout, who remains in France, is alleged to be a fugitive from justice by US authorities in his parallel criminal case, the US authorities have argued that they should be able to limit the amount of documents they turn over to him as part of the pre-trial disclosure process, court documents show.

Mr Grout denies he is a fugitive, arguing he was already in France when the US accused him of falsifying bank records by artificially inflating the value of derivative trades to avoid losses. He is charged with conspiracy, keeping false books and records, wire fraud and making false filings with the US Securities and Exchange Commission. He denies wrongdoing and has not had an opportunity to formally enter a plea.

Mr Iksil avoided criminal charges by striking an immunity deal with US prosecutors last year in exchange for his co-operation.

Mr Grout is also attempting to challenge the FCA through judicial-review proceedings over its decision to stay regulatory findings against him personally in the wake of the US investigation. A hearing to determine whether the challenge can take place is expected to take place later this summer.

Graham Huntley, a London-based solicitor for Mr Grout, and the FCA declined to comment.

European stocks are no longer in the bargain bin, but mutual-fund managers are still finding a lot to like -- especially companies focused on emerging markets and the consumer.

Two years ago, there seemed to be no end to the bad news coming out of Europe. While Greece teetered on the edge of collapse, rates on Spanish 10-year government bonds were nearly 8%, and fear of financial contagion rippled through the Continent.

Yet, bargain-hungry investors have come back to the Old World -- and in no small way. In the past 18 months, investors have poured more than $38 billion into European-region mutual and exchange-traded funds, according to Lipper, while many global and international managers have bumped up their allocations to the region. This influx of capital has spawned a virtuous cycle. The Stoxx 600 index -- which tracks 600 companies in 18 countries -- is up 22% since the beginning of 2013. Those Spanish 10-year government bonds now yield roughly the same as their U.S. equivalents.

"When people were calling them Piigs, they should have been investing in them," says David Herro, co-manager of the $33 billion Oakmark International fund (ticker: OAKIX), referring to Portugal, Ireland, Italy, Greece, and Spain. At the end of 2012, Herro began shifting assets into Europe, which now accounts for more than 76% of his portfolio; his fund is closed to new investors.

What now? While naysayers warn of high unemployment, slow growth, and pricey valuations for some of the biggest blue chips -- Nestlé (NESN.Switzerland) and Unilever (UL) trade at 20 times forward earnings, for instance -- proponents say the story is far more nuanced. They point to Europe's close ties to emerging markets, relatively healthy consumer balance sheets, pent-up demand for capital spending, more-streamlined business models, and shareholder-friendly practices.

THE FIRE-SALE DEALS may be gone, but many managers say Europe has plenty to offer as it moves from recovery to growth mode. "It's still a very good hunting grounds," says Nigel Hart, co-manager of the $1.8 billion BlackRock International Opportunities fund (BREAX), which has 70% of its assets in Europe.

A big knock against Europe is that average gross domestic product is expected, at best, to increase about 1% this year and 2% in 2015, according to the latest European Commission forecasts. But as some countries still grapple with negative growth, others are progressing at a decent clip. Inflation-adjusted GDP in Ireland, Poland, and Sweden, for instance, is on track to rise at least 3% this year. "The 'European economy' is a huge generalization," adds Herro. "You can't even begin to compare Germany with Portugal, or Sweden with France."

At the same time, Europe's largest firms aren't hamstrung by what's happening within their borders. "These companies tend to be far more global than their U.S. counterparts," says Roger Morley, co-manager of MFS Global Equity (MWEFX), which has 43% of its $2 billion in assets in Europe. "If you sit in a small domestic market, you get driven overseas pretty quickly in the expansion."

Morley and other global and international managers say that growth in emerging markets will continue to benefit Europe's multinationals, including luxury brands such as Compagnie Financière Richemont (CFR.Switzerland) and LVMH Moët Hennessy Louis Vuitton (MC.France), and food outfits such as Danone (BN.France) and Nestlé, pricey as they may be. These goliaths generate roughly half of their revenue in emerging markets, he says, but don't carry the same political, liquidity, or corporate-governance risk of investing directly in those nations.

Growth in emerging markets has slowed from its once double-digit pace, but 8% average increases are nothing to sneeze at, he says, especially considering that emerging markets account for half of the world's GDP. Likewise, a strong euro, combined with weak emerging-market currencies, has put a damper on emerging-market sales, says Herro, though "at some point, that head wind will turn into a tail wind," as these currencies strengthen against the euro. This could bode well for big-ticket purchases from the likes of German auto makers Bayerische Motoren Werke (BMW.Germany), and Daimler (DAI.Germany), both in Oakmark's fund.

At the same time, investors shouldn't overlook what's going well in Europe. Although household debt in many of its countries is higher than before, Europeans tend to have stronger personal balance sheets. "Italy has some of the lowest private-sector debt of any nation in the world," says Herro. As confidence returns, "retail and consumer growth is a real possibility."

The European Central Bank's decision in June to impose negative interest rates also bodes well for Europe's recovery, says Philippe Brugere-Trelat, co-manager of the $3.2 billion Franklin Mutual European fund (MEURX). "By offering this incentive for banks to lend, it's priming the pump," he adds. "Companies that had curtailed capital-expenditure plans are now dusting them off."

Meanwhile, many firms are undergoing a sea change, weeding out weak management, streamlining operations, and implementing more shareholder-friendly practices.

"To some extent, you've seen companies take actions you wouldn't have seen absent the financial crisis," says Jerry Senser, co-manager of the MainStay ICAP International fund (ICEVX), which has 70% of its $2.4 billion in assets in Europe. "Restructuring has added another element to the story."

One notable turnaround in his own portfolio is Lloyds Banking Group (LLOY.UK), which Senser picked up in the middle of 2012, a little more than a year after the British bank brought in new CEO António Horta-Osório. In June, Lloyds sold nearly 40% of its TSB retail-banking unit in an initial public offering that created the United Kingdom's seventh-largest retail lender.

There has been a flurry of mergers and acquisitions throughout Europe. While the news has focused on such high-profile unions as that of France's Lafarge (LG.France) and Switzerland's Holcim (HOLN.Switzerland), many smaller deals have taken place, reshaping everything from banking and hospitality to television and telecom. "One of the natural consequences of such a dramatic recession is consolidation," says BlackRock's Hart. "The bad companies go out of business, and what's left should be able to garner higher profits."

REGARDLESS OF WHAT HAPPENS in Europe in the next few years, U.S. fund investors stand to benefit from investing across the pond, says David Waddell, chief investment strategist at Waddell & Associates. Two years ago, he increased his European allocation, and "I got some client push back because the popular opinion was that the euro would collapse," he says. "Even the hardest-hit places aren't just going to disappear."

Investors can get the bulk of their European exposure via global or international funds that have above-average allocations to the Continent. "If your objective is to get exposure around the world, this is a good way to go," says Steven Hefter, managing director of wealth-management firm Hefter, Leshem, Margolis Capital Management Group, in Deerfield, Ill.

Fund investors wanting to bump up their allocation to Europe can shift an additional 5% to 10% of their equity portfolios to one or two funds dedicated to the region.

For broad and inexpensive exposure, there's the Vanguard FTSE Europe exchange-traded fund (VGK). While the average market value for the companies it holds is a giant $48 billion, it tracks more than 500 stocks of all sizes.

Some financial advisors also advocate smaller companies with more direct ties to Europe's economy. "If you believe monetary stimulus efforts will work, small-caps are a good place to make a bet," says Waddell. Most global or international funds own megasize European multinationals and fly over the smaller names, but investors can tap smaller firms via a broad index fund or exchange-traded fund, such as the Wisdom Tree Europe SmallCap Dividend (DFE) or iShares MSCI EAFE Small-Cap (SCZ).

For investors looking for an active manager to call the shots, Waddell is a fan of the $2.5 billion Henderson European Focus fund (HFEAX), which he describes as an "eclectic but concentrated portfolio," with top holdings including U.K. banking giant Barclays (BCS) and German TV company ProSieben (PSM.Germany). Manager Stephen Peak has delivered 13% average annual returns over the past decade, better than 93% of his peers. Short-term performance isn't too shabby, either; the fund is up 38% over 12 months, thanks to a strong showing from such holdings as Renault (RNO.France) and German utility RWE (RWE.Germany). These days, Peak is taking a multifaceted approach that includes finding well-run growth companies that get hit as investors overreact to any hint of bad news. In May, he bought Italian fiber-optic-cable company Prysmian (PRY.Italy) after its stock fell 20% on news of a glitch with one of its projects.

Franklin Mutual's Brugere-Trelat and his co-manager, Katrina Dudley, are also eschewing some of the big multinationals in favor of well-priced stocks with closer ties to Europe. "At the same time the environment is improving, these companies have increased their traction," says Brugere-Trelat, whose fund has risen, on average, 9.7% a year over the past decade.

He thinks that Paris-based hotel company Accor (AC.France) will see a dual benefit: increased demand for its moderately priced rooms and improving margins as it shifts from company-owned hotels to managed and franchised lodgings. The same should also be true for U.K.-based home-improvement chain Kingfisher (KGF.UK). "Over the past five years, it's improved its private-label [products], supply-chain management, and sales per square foot at a time when things are tough," says Brugere-Trelat. "Now it's starting to benefit from improving housing markets in the U.K. and in France."

Tyler Durden's pictureSubmitted by Tyler Durden on 07/05/2014 13:43 -0400

A few days ago we reported that the blitz surge of the "cool", social network-friendly faction of Al-Qaeda known as ISIS, which over the past week went so far as to declare the formation of its own sovereign state, the Islamic State on the territory of Iraq and Syria, has so irked not only the conventional enemies of extremist fundamentalist Islam but also none other than al-Qaeda itself, which as we explained before may be forced to go to war against ISIS in order to preserve its waning relevance, status and credibility.

At the center of this rapid and dramatic ascent by a group virtually nobody had heard of as recently as a month ago is a man called Aby Bakr al-Baghdadi, who unlike the leaders of al-Qaeda, has kept an extremely low profile despite his recent appointment as "caliph" by the jihadists.

Until now.

As BBC reports, Abu Bakr al-Baghdadi, the leader of Islamist militant group Isis, has called on Muslims to obey him, in his first video sermon. The video appears to have been filmed on Friday during a sermon at the al-Nouri Mosque in Mosul, northern Iraq. It surfaced on Saturday amid reports that he had been killed or wounded in an Iraqi air raid.

The release is notable because the reclusive militant leader has never appeared on video before, although there are photographs of him.

From BBC:

In the sermon, at Mosul's most famous landmark, Baghdadi praised the establishment of the "Islamic state", which was declared by Isis last Sunday.

"Appointing a leader is an obligation on Muslims, and one that has been neglected for decades," he said.

He also said that he did not seek out the position of being the caliph, or leader, calling it a "burden". "I am your leader, though I am not the best of you, so if you see that I am right, support me, and if you see that I am wrong, advise me," he told worshippers.

In other words, his first video was merely an ideological and emotional appeal to Muslims everywhere to side with him. It remains to be seen if Baghdadi will transform into just another typical Muslim blaming the sorry economic state of his country on Bush, something al Qaeda and others have done before him.

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For those curious to see Baghdadi's complete video appearance, it is shown below in its entirety