WSJ : JPMorgan Weighs Changes to Emerging-Market Bond Indexes

JPMorgan Weighs Changes to Emerging-Market Bond Indexes
Firm considers blending different types of debt, potentially allowing investors to spread risk

JPMorgan Chase JPM -0.05% & Co. is considering changes to its emerging-markets bond-index franchise that would blend different types of debt in the rapidly growing $5 trillion market, potentially cushioning investors against further selloffs, people familiar with the overhaul said.

The indexes under development would combine government and corporate bonds as well as dollar and euro-denominated, or “hard currency,” debt and bonds issued in local currencies. JPMorgan has a virtual monopoly on indexing in emerging-market bonds, and the change would affect holdings for most mutual funds and many institutional investors that buy the debt, the people said.

The move, which some fund managers call long overdue, would make it easier for investors to buy a diverse portfolio of bonds that more accurately reflects the rapid growth of new types of emerging-market debt. It would be a sharp departure from the bank’s current practice of separately indexing the different types of debt, which often deliver wildly different performances. The firm will keep its existing indexes.

“As an investor, your opportunity set should be the full investable universe, and the index should reflect that,” said Phillip Nelson, head of asset allocation at NEPC, which advises pension funds, endowments and foundations on $1 trillion of investments. NEPC has been recommending its clients take a blended approach to emerging markets for about five years, and “if JPMorgan is going down that road, we’d be fully supportive,” he said.

The push to diversify the indexes comes as investors in emerging-markets debt face their heaviest losses in five years and as a blended index run by a JPMorgan competitor has outperformed the bank’s two most popular indexes.

A relatively arcane field of finance, index construction has grown more important as the asset-management industry shifts toward passive portfolios that closely track benchmark indexes and away from active stock and bond picking.

“JPMorgan is the bellwether,” said Niall O’Leary, head of fixed-income portfolio strategy for asset-management giant State Street Global Advisors, which specializes in index-tracking funds.”When we speak to institutional clients, almost 100% use their indexes.”

That has cost investors who tracked the firm’s most popular indexes this year as debt crises in Argentina and Turkey, as well as fears about global trade disputes, sent emerging-market bonds and currencies tumbling. JPMorgan’s local-currency government-bond index has lost about 9.2% this year counting price changes and interest payments, and its hard-currency government-debt index has lost about 3.7%; its corporate index has declined 2%.

In contrast, a little-tracked index that combines local-currency bonds, hard-currency bonds and corporate debt offered by Bloomberg has lost about 2.8% this year.

Because JPMorgan is the market standard, few investors are willing to use competing benchmarks, fund managers say. A blended index from the firm would better reflect the rapid growth of local-currency and corporate debt in emerging markets in recent years and make investing across that universe easier, smoothing returns out over time.


Emerging-market debt has taken off as an asset class for institutional investors over the past decade. More than half of NEPC’s clients hold core positions in the bonds, up from less than 10% 10 years ago, and positions range from about 2.5% to 5% of total assets, Mr. Nelson said.

Individual investors have also bought in looking for bond yields that have been scarce in developed markets since central banks in those countries dropped interest rates after the financial crisis. Emerging-market-debt mutual funds and exchange-traded funds, or ETFs, managed $85 billion in August, about five times the amount they controlled ten years ago, according to data from Morningstar Inc.

Sophisticated institutional investors can tailor their own blends by tracking multiple indexes within one portfolio, but having a single blended index to manage against would cut management expenses and standardize the market, fund managers said.

Individual investors would have the most to gain from change because managers of most benchmarked mutual funds and ETFs must pick a single index to track, State Street’s Mr. O’Leary said.

“Creating a more standard blend will encourage people to have one benchmark, and ultimately that will help grow the market,” said Shamaila Khan, head of emerging-market-debt portfolio management at AllianceBernstein.

JPMorgan started indexing emerging-market bonds in the 1990s when it was a leading underwriter of new emerging-market debt and expanded its business to selling indexes to portfolio managers, as well. The bank was the lone provider of sophisticated index data at the time and has been the dominant player in the market since but has sometimes been slow to adapt its offerings to the changing marketplace, fund managers said.

This year, the firm is moving more aggressively by preparing to include Persian Gulf debt and local-currency Chinese bonds in its indexes. It is also working on four possible blended emerging-market indexes.

The first and most popular variant will be divided equally in thirds consisting of hard-currency government bonds, hard-currency corporate bonds and local-currency government bonds, the people familiar with the changes said. A second option would have half made up of local-currency bonds, one quarter corporate debt and one quarter hard-currency government bonds, while the third would be evenly split between hard-currency and local-currency bonds. The last would be half hard-currency government bonds and half hard-currency corporate bonds.

TechCrunch : FCC cracks the whip on 5G deployment against protests of local gove

FCC cracks the whip on 5G deployment against protests of local governments
Feds limit city-level review of new infrastructure
The FCC is pushing for speedy deployment of 5G networks nationwide with an order adopted today that streamlines what it perceives as a patchwork of obstacles, needless costs and contradictory regulations at the state level. But local governments say the federal agency is taking things too far.
5G networks will consist of thousands of wireless installations, smaller and more numerous than cell towers. This means that wireless companies can’t use existing facilities, for all of it at least, and will have to apply for access to lots of new buildings, utility poles and so on. It’s a lot of red tape, which of course impedes deployment.
To address this, the agency this morning voted 3 to 1 along party lines to adopt the order (PDF) entitled “Accelerating Wireline Broadband Deployment by Removing Barriers to Infrastructure Investment.” What it essentially does is exert FCC authority over state wireless regulators and subject them to a set of new rules superseding their own.
First the order aims to literally speed up deployment by standardizing new, shorter “shot clocks” for local governments to respond to applications. They’ll have 90 days for new locations and 60 days for existing ones — consistent with many existing municipal time frames but now to be enforced as a wider standard. This could be good, as the longer time limits were designed for consideration of larger, more expensive equipment.

On the other hand, some cities argue, it’s just not enough time — especially considering the increased volume they’ll be expected to process.
Cathy Murillo, mayor of Santa Barbara, writes in a submitted comment:
The proposed ‘shot clocks’ would unfairly and unreasonably reduce the time needed for proper application review in regard to safety, aesthetics, and other considerations. By cutting short the necessary review period, the proposals effectively shift oversight authority from the community and our elected officials to for-profit corporations for wireless equipment installations that can have significant health, safety, and aesthetic impacts when those companies have little, if any, interest to respect these concerns.
Next, and even less popular, is the FCC’s take on fees for applications and right-of-way paperwork. These fees currently vary widely, because as you might guess it is far more complicated and expensive — often by an order of magnitude or more — to approve and process an application for (not to mention install and maintain) an antenna on 5th Avenue in Manhattan than it is in outer Queens. These are, to a certain extent anyway, natural cost differences.
The order limits these fees to “a reasonable approximation of their costs for processing,” which the FCC estimated at about $500 for one application for up to five installations or facilities, $100 for additional facilities, and $270 per facility per year, all-inclusive.
For some places, to be sure, that may be perfectly reasonable. But as Catherine Pugh, mayor of Baltimore, put it in a letter (PDF) to the FCC protesting the proposed rules, it sure isn’t for her city:
An annual fee of $270 per attachment, as established in the above document, is unconscionable when the facility may yield profits, in some cases, many times that much in a given month. The public has invested and installed these assets [i.e. utility poles and other public infrastructure], not the industry. The industry does not own these assets; the public does. Under these circumstances, it is entirely reasonable that the public should be able to charge what it believes to be a fair price.
There’s no doubt that excessive fees can curtail deployment and it would be praiseworthy of the FCC to tackle that. But the governments they are hemming in don’t seem to appreciate being told what is reasonable and what isn’t.
“It comes down to this: three unelected officials on this dais are telling state and local leaders all across the country what they can and cannot do in their own backyards,” said FCC Commissioner Jessica Rosenworcel in a statement presented at the vote. “This is extraordinary federal overreach.”

New York City’s commissioner of information technology told Bloombergthat his office is “shocked” by the order, calling it “an unnecessary and unauthorized gift to the telecommunications industry and its lobbyists.”
The new rules may undermine deployment deals that already exist or are under development. After all, if you were a wireless company, would you still commit to paying $2,000 per facility when the feds just gave you a coupon for 80 percent off? And if you were a city looking at a budget shortfall of millions because of this, wouldn’t you look for a way around it?
Chairman Ajit Pai argued in a statement that “When you raise the cost of deploying wireless infrastructure, it is those who live in areas where the investment case is the most marginal—rural areas or lower-income urban areas—who are most at risk of losing out.”
But the basic market economics of this don’t seem to work out. Big cities cost more and are more profitable; rural areas cost less and are less profitable. Under the new rules, big cities and rural areas will cost the same, but the former will be even more profitable. Where would you focus your investments?
The FCC also unwisely attempts to take on the aesthetic considerations of installations. Cities have their own requirements for wireless infrastructure, such as how it’s painted, where it can be located and what size it can be when in this or that location. But the FCC seems (as it does so often these days) to want to accommodate the needs of wireless providers rather than the public.
Wireless companies complain that the rules are overly restrictive or subjective, and differ too greatly from one place to another. Municipalities contend that the restrictions are justified and, at any rate, their prerogative to design and enforce.
“Given these differing perspectives and the significant impact of aesthetic requirements on the ability to deploy infrastructure and provide service, we provide guidance on whether and in what circumstances aesthetic requirements violate the [Communications] Act,” the FCC’s order reads. In other words, wireless industry gripes about having to paint their antennas or not hang giant microwave arrays in parks are being federally codified.
“We conclude that aesthetics requirements are not preempted if they are (1) reasonable, (2) no more burdensome than those applied to other types of infrastructure deployments, and (3) published in advance,” the order continues. Does that sound kind of vague to you? Whether a city’s aesthetic requirement is “reasonable” is hardly the jurisdiction of a communications regulator.
For instance, Hudson, Ohio city manager Jane Howington writes in a comment on the order that the city has 40-foot limits on pole heights, to which the industry has already agreed, but which would be increased to 50 under the revisions proposed in the rule. Why should a federal authority be involved in something so clearly under local jurisdiction and expertise?

This isn’t just an annoyance. As with the net neutrality ruling, legal threats from states can present serious delays and costs.
“Every major state and municipal organization has expressed concern about how Washington is seeking to assert national control over local infrastructure choices and stripping local elected officials and the citizens they represent of a voice in the process,” said Rosenworcel. “I do not believe the law permits Washington to run roughshod over state and local authority like this and I worry the litigation that follows will only slow our 5G future.”
She also points out that the predicted cost savings of $2 billion — by telecoms, not the public — may be theorized to spur further wireless deployment, but there is no requirement for companies to use it for that, and in fact no company has said it will.
In other words, there’s every reason to believe that this order will sow discord among state and federal regulators, letting wireless companies save money and sticking cities with the bill. There’s certainly a need to harmonize regulations and incentivize wireless investment (especially outside city centers), but this doesn’t appear to be the way to go about it.

Tech Crucnh : Payments startup Stripe has changed the landscape for how business

Payments startup Stripe has changed the landscape for how businesses can collect funds online by using a few lines of code, and today the company is announcing that it’s picked up more funding of its own. Stripe has raised $245 million, valuing the company at $20 billion.

This is a big jump on its previous round, two years ago, that valued it at $9 billion.

Led by Tiger Global Management, other new backers included DST Global and Sequoia, along with existing investors Andreessen Horowitz, Kleiner Perkins, Khosla Ventures, General Catalyst and Thrive Capital.

The company says it plans to use the funding to hire more people for what it describes as its “distributed global engineering team.” It now has hubs in San Francisco, Seattle and Dublin (its co-founders, John and Patrick Collison, hail from Ireland), and it’s also going to launch a new hub in Singapore.

Engineering has been at the heart of the company’s growth from the start, up to now. Recall the famous essay by Paul Graham about Stripe that served as a mantra of sorts for how startups should grow. Fast forward to today, and Stripe boasts that “all told, the company deployed more than 3,200 new versions of its core API over the past year.”

The funding underscores the continuing strong climate for raising money from private backers at increasingly staggering valuations. VCs and private equity firms have raised billions, and they are looking for fast-growing, promising startups where they can invest that money. A number of startups are foregoing, or delaying, going public in favor of staying private for longer, financed by them.

“We have no plans to go public,” said John Collison in an interview. “We’re fortunate to be in the position that the Stripe business is performing very well and the long-term opportunity is that we’re very optimistic to providing the richer stack to businesses. Strong businesses do not always tend to be dependent on outside funding.”

(Not all are following this route: a key competitor of Stripe’s, Adyen, had a very strong IPO debut earlier this year.)

Stripe itself is a prime target for VCs looking to park their money in fast-growing, outsized startups. The company says it now has “millions” of customers, including Google, Didi, Mindbody, Spotify and Uber. It is live in 130 markets for acceptance and 25 countries for originating the charges.

Carving a place out for itself as a faster, easier way to integrate payments infrastructure into websites and apps, by way of a few lines of code, Stripe’s pitch is that it replaces the more laborious, and often more expensive route, of working with banks and other payment providers in a complicated chain of players that includes gateway providers, credit card processors, merchant acquirers, specialized payment methods, wallets and more.

And although Amazon is one of the world’s biggest companies, and most retailers have a digital presence, e-commerce is still a relatively nascent area, with only about three percent of all transactions occurring online at a global average. That means a big opportunity for companies like Stripe, but also competitors like Adyen, PayPal and others.

“We believe in the contingency of progress,” said Stripe CEO and co-founder Patrick Collison, in a statement. “Better global payments infrastructure will increase economic output, encourage entrepreneurship and help upstarts compete with incumbents. By bringing Stripe into more markets and building out our capabilities for companies of all sizes, we hope to accelerate innovation around the world.” Stripe estimates there will be $4 trillion in online sales by 2020 globally.

While payments is Stripe’s bread and butter, the company has also been diversifying and now also includes Stripe Issuing, Stripe Terminal, fraud detection and potentially cash advances, among its various offerings. These help the company develop stronger ties with its customers, and also potentially increase its margins.

“No one else is going as deep as us on software and the technology stack as we are,” said co-founder and president John Collison.

WSJ : Petrobras to Pay $853.2 Million to Settle Corruption Investigations in U.S

Petrobras to Pay $853.2 Million to Settle Corruption Investigations in U.S., Brazil
Payments will be split among Brazil fund and U.S. authorities; scheme was among the biggest ever uncovered

Petrobras PBR 1.55% said Thursday it had agreed to an $853.2 million settlement with U.S. and Brazilian law-enforcement authorities to end yearslong investigations into one of the biggest corruption schemes ever uncovered.

The payments include a tentative deal to pay $682.6 million to a Brazil fund, and an additional $170.6 million equally split between the U.S. Justice Department and the U.S. Securities and Exchange Commission.

The Justice Department agreed not to prosecute the company in exchange for an $85.3 million payment, three years of compliance reports, and an admission that the scheme amounted to criminal violations of laws that require public companies to maintain accurate books and records, Petrobras said.

The deal follows the 2016 accord in which Odebrecht S/A agreed to pay billions of dollars to resolve charges in the U.S., Brazil and Switzerland that it was the ringleader in a cartel of construction companies that conspired to overbill state oil company Petrobras and paid bribes to high-level Brazilian politicians and Petrobras executives along the way.

Under Thursday’s agreement, U.S. prosecutors in part viewed Petrobras as a victim of the conduct of its executives and managers who were embezzling the company. The law at issue, the Foreign Corrupt Practices Act, bars U.S.-listed companies, of which Petrobras is one, from paying bribes to foreign government officials, and also requires public companies to maintain accurate financial records.

“Executives at the highest levels of Petrobras—including members of its Executive Board and Board of Directors—facilitated the payment of hundreds of millions of dollars in bribes to Brazilian politicians and political parties and then cooked the books to conceal the bribe payments from investors and regulators,” the head of the Justice Department’s criminal division, Brian Benczkowski, said.

Petrobras also reached a related $930 million deal with the SEC, but the agency said it would credit everything but an $85 million penalty to a settlement Petrobras reached earlier this year with investors who had sued the company over the corruption scheme.

WP : U.S., Japan open direct trade talks, in move that could reshape global auto

U.S., Japan open direct trade talks, in move that could reshape global auto industry

President Trump and Japanese Prime Minister Shinzo Abe agreed Wednesday to begin direct trade negotiations, in a move that could reshape two of the world’s largest auto industries and offer American farmers better access to Japanese consumers.

Japan had resisted bilateral talks with the United States for nearly two years, preferring that its closest ally return to the 12-nation Trans-Pacific Partnership, a trade deal that Trump quit in one of his first acts as president.

Wednesday’s decision followed Trump’s announcement this summer that he was considering imposing tariffs on imported automobiles, including from Japan.

Negotiations will begin soon on a deal that would fall short of the comprehensive free-trade agreement that Trump had initially promised, governing goods trade and some services transactions, according to a joint statement by the two governments.

The United States and Japan also said they would work together — and with the European Union — to curb unfair trading practices by China.

“I think it will be something very exciting,” Trump said in New York, where he was attending the United Nations General Assembly. “It can only be better for the United States . . . I think it’s going to be better, really, for both countries.”

The United States said it agreed to “refrain from taking measures against the spirit’’ of the joint statement, an indication that Trump will hold off on imposing auto tariffs until the talks run their course.

The president made a similar deal with the European Union in July, agreeing to defer any auto tariffs while talks proceed. The Commerce Department is not expected for several months to complete a study that is required before the president can impose the tariffs.

U.S. Trade Representative Robert E. Lighthizer is scheduled to brief lawmakers Thursday on the administration’s trade policies, including a request for negotiating authority to pursue a deal with Japan.

The Japan talks will proceed in two phases: a blitz to reap quick gains, followed by a second set of negotiations on additional, unspecified “trade and investment items,” the statement said.

U.S. automakers have struggled to gain a foothold in Japan. Ford Motor Co. pulled out of the country in 2016 after years of dismal results, citing Japanese import barriers. Last year, the United States exported just $2.2 billion worth of autos and auto parts — less than in 2012 — while importing more than $55 billion of Japanese vehicles and components, according to the Commerce Department.

“The history of U.S. efforts to open the Japanese market to U.S. car exports is one that is utterly littered with failure,” said Edward Alden, a trade expert at the Council on Foreign Relations.

The American Automotive Policy Council, representing Detroit’s Big Three carmakers, said any deal should result in “truly reciprocal market access” and eliminate regulations that inhibit sales of foreign cars in Japan.

The United States and Japan are approaching the negotiations with different objectives in mind. The Trump administration wants American carmakers to enjoy better access to the Japanese market “to increase production and jobs in the United States.”

Abe’s government said it would offer American farmers the same benefits they had won in the TPP agreement that Trump quit but no better terms, according to the joint statement.

Today, farmers from countries in the renamed Comprehensive and Progressive Agreement for Trans-Pacific Partnership enjoy much lower Japanese tariffs than their American competitors. So a new U.S.-Japan accord will be aimed at eliminating that disadvantage and regaining the benefits that the United States lost by leaving the TPP.

“The U.S. agricultural community must be breathing a sigh of relief, particularly in light of the hardships farmers are experiencing with the China tariffs,” Wendy Cutler, who negotiated the Pacific trade deal for the Obama administration, said via email. “Japan is now offering the U.S. agriculture market access in line with what it has already given to the ten other TPP countries, as well as to the E.U.”

Lighthizer, without providing specifics, said there would be “an awful lot of differences between what was negotiated in TPP and the kind of agreement we expect with Japan.”

One of Trump’s main objectives is narrowing the persistent gap between the amount of goods that the United States buys from Japan and its lower volume of sales to Japanese customers.

The United States incurred a $70 billion deficit on its goods trade with Japan last year, which the president says is a mark of unfair trade that is weakening the American economy. Few mainstream economists regard bilateral trade gaps as significant.

In April 2017, the two countries began an economic dialogue headed by Vice President Pence and Deputy Prime Minister Taro Aso, which has produced few tangible results.

FT : Marcus by Goldman Sachs: the primrose path

Marcus by Goldman Sachs: the primrose path
Getting closer to consumers via a digital bank is a sensible step

Goldman Sachs has arrived on the UK high street, offering instant-access online savings accounts for as little as £1 down. The website offers a delightul view of London from Primrose Hill: soon there’ll be billboards at Waterloo and ads in tube carriages. The real question is “what took you so long?”

Just over a decade ago, Goldman converted from a securities firm to a bank holding company, so it could access emergency facilities at the Federal Reserve and avoid the wipeouts suffered by Bear Stearns or Merrill Lynch. That new status came with drawbacks: close supervision by national regulators and new capital requirements, among them. It was not until a gathering at the house of Goldman president Gary Cohn in the Hamptons in the summer of 2014 that bigwigs came alive to the opportunities.

By then, Goldman’s brand needed burnishing. It had paid a record fine to the Securities and Exchange Commission, chief executive Lloyd Blankfein had undergone grillings on Capitol Hill, and a hatchet job in the magazine Rolling Stone. Goldman had struck back by promoting women and small businesses. Getting closer to the consumer through a digital bank seemed a sensible next step.

The real imperative was — and remains — to bring down the cost of funding. If Goldman can reshuffle its cast of creditors, replacing institutional investors with simpler folk such as you and me, it could make huge savings over time.

That work has begun in the US and in the UK. Goldman is offering savers a top-of-the-market interest rate of 1.5 per cent for the first 12 months. That is still much less than the bank’s wholesale cost of funding. Goldman is paying a weighted average fixed coupon of 3.86 per cent on the roughly 2,500 bonds tracked by Bloomberg, for example. Meanwhile, rising base rates are squeezing the bank’s margins. Over the first six months Goldman’s interest expenses were up 55 per cent, climbing faster than the 53 per cent increase in interest income.

New chief executive David Solomon would be wise to continue what Mr Blankfein set in motion. Giant wholesale-funded securities firms died in the 2008 crisis; Fed-backed universal banks such as JPMorgan Chase and Citigroup are the models to aspire to. If you want to make plenty of money while enjoying state protections, retail banking makes it possible.