WSJ : Apple’s Home Court Disadvantage

Apple’s Home Court Disadvantage
Investing more domestically doesn’t change the fundamental structure of iPhone maker’s busines

For Apple Inc., AAPL +0.21% bringing billions of overseas earnings home is one thing. Keeping it there is quite another.

Such is the conundrum facing the world’s most valuable company, which also happens to the world’s largest design studio. Apple makes nothing in the most traditional sense. The company farms out the labor-intensive manufacturing of its best-selling devices to production partners worldwide—though mostly in China. This still isn’t cheap. Apple had nearly $15 billion in capital expenditures in the fiscal year ended September, with its top use stated as “product tooling” and other gear used by its manufacturers.

That dynamic won’t be changing soon, despite the company’s latest effort to tout its work at home. Apple issued a lengthy statement Wednesday boasting that it will contribute $350 billion to the U.S. economy over the next five years. Much of this is indirect, though, reflecting what the company believes it can drive through its ecosystem and the so-called “app economy.”


More directly, Apple plans to have more than $30 billion in capital expenditures and create 20,000 new jobs domestically over the next five years. It also added $4 billion to a fund created last year to support local manufacturing partners. The company credited this plan to the recently passed tax reform package, which effectively frees up more than $250 billion that Apple has stashed offshore.

That is a considerable slug of liquidity, but Apple’s announcement Wednesday doesn’t actually suggest a significant shift in its business operations. Based on its recent trajectory, the iPhone maker already appeared on pace to spend at least $75 billion globally on capital expenditures over the next five years while its total workforce has risen by more than 30,000 over the past three. The company’s most notable new disclosure is a plan to open a new campus somewhere in the U.S. to provide technical support services for its products. That will give the many U.S. cities clamoring for Amazon.com Inc.’s new headquarters a new prize to chase.

The current political climate under President Trump has created a big incentive for globalized U.S. tech companies to wave their flag. As one of the world’s largest outsourcers, Apple has a stronger reason to do so than most. Still, there is no escaping the fact that making the iPhone will be a long-distance call for long time to come.

>>> Safeguard Scientifics to consider initiatives such as partner company stake

Safeguard Scientifics to consider initiatives such as partner company stake or full sales
18 JAN 2018
Safeguard Scientifics [NYSE: SFE], a Radnor, Pennsylvania-based provider of growth capital and operational support to technology and healthcare companies, announced change in strategy and operations.
The Company will consider initiatives including, among others: the sale of individual Partner Companies, the sale of certain Partner Company interests in secondary market transactions, or a combination thereof, as well as other opportunities to maximize shareholder value.
Under the new strategy, Safeguard will focus on supporting its existing partner companies and maximizing monetization opportunities. A focused set of actions to maximize the realization of value from assets is in the best interest of the shareholders.
Press release:
Safeguard Scientifics, Inc. (NYSE: SFE) ("Safeguard" or "the Company") today announced that Safeguard's Board of Directors and management have determined to implement a change in the Company's business strategy and operations. This decision follows an extensive review and assessment of options to increase shareholder value that was undertaken in consultation with financial and legal advisors. Under the new strategy, Safeguard will not deploy any capital into new Partner Company opportunities and will focus on supporting its existing Partner Companies and maximizing monetization opportunities for Partner Company interests to enable distributions of net proceeds to shareholders. The Company will consider initiatives including, among others: the sale of individual Partner Companies, the sale of certain Partner Company interests in secondary market transactions, or a combination thereof, as well as other opportunities to maximize shareholder value. Safeguard anticipates distributing to shareholders net proceeds from the sale of Partner Companies or Partner Company interests, as applicable, after satisfying the Company's debt obligations and working capital needs.
Robert J. Rosenthal, Ph.D., Chairman of the Safeguard Board, said, "The Board and management team are focused on creating value for and returning capital to Safeguard shareholders. Safeguard's Partner Companies continue to achieve strong growth and financial results. We believe that we are well positioned to realize the full potential of our interests in our Partner Companies, and will evaluate a variety of opportunities to monetize these interests in a timely manner while focusing on the most profitable outcomes. We are committed to maximizing shareholder value and will take actions that we believe are in the best interest of the Company and all shareholders."
The Company also announced it is implementing an immediate initiative to generate annual cost savings of between USD 5m and USD 6m, which reflect changes in the Company's personnel and operating cost requirements under the new strategy. Corporate expenses, excluding interest, depreciation and stock-based compensation were approximately USD 16m in 2017.
Stephen T. Zarrilli, Safeguard's President and CEO, said, "As we evaluated the best path forward for Safeguard, we concluded that a focused set of actions to maximize the realization of value from our assets is in the best interest of our shareholders. With this new strategy in place, we will immediately create a more streamlined organizational structure that will better position us to focus our resources on the highest-return opportunities while generating immediate cost savings. We also expect to realize additional savings over time as assets are monetized and resource needs are further decreased."
The Company has not set a timetable for completion of the monetization and distribution process. However, the Board and management team recognize the value and benefit in achieving well-timed risk adjusted returns for the benefit of shareholders under an appropriate cost structure.
Link to statement

FT : Prospects for lagging European equities look rosier

Prospects for lagging European equities look rosier
Strong earnings and economy plus cheap valuations cheer bulls but beware bond tantrum

Eurozone stocks have started the year charging to 2½-year highs on Europe’s Stoxx 600 but remain a good investor test of “glass half-full or half-empty”.

Gains of more than 3 per cent on Europe’s benchmark this year don’t look quite as impressive when compared with the near-5 per cent on the S&P 500 and the more than 7 per cent on Hong Kong’s Hang Seng index.

These are a repeat of 2017 trends when the Stoxx 600 gained almost 8 per cent over the year but trailed the S&P 500’s 19 per cent and the Hang Seng’s blockbuster 35 per cent.

The eurozone lag is most commonly blamed by analysts on a buoyant euro, given the highest proportion of European company sales outside the currency area are in the US and getting paid in depreciating dollars.

But Nick Nelson, UBS head of European equity strategy, forecasts 11 per cent gains for eurozone stocks this year, with strength in cyclicals such as autos, commodity stocks and banks making those sectors the top three performers in 2018.

Earnings momentum remains strong, economic indicators such as the composite PMI are at seven-year highs and forward p/e valuations look cheap. Mr Nelson sees under-geared balance sheets providing good prospects for an upsurge in M&A.


But there are risks. A precipitant rise in US yields, he notes, could repeat the 2013 taper tantrum that produced only a 3 per cent move down for the S&P but a 10 per cent correction for the “high beta role” (more volatile, riskier) played by European stocks.

FT : XRP cryptocurrency throws up awkward questions for Ripple

XRP cryptocurrency throws up awkward questions for Ripple
Volatility of payment settlement group’s digital coin unnerves banking sector


In October, a five-year-old company called Ripple boasted that it was one of America’s “most valuable start-ups . . . after Uber, Airbnb, Palantir and WeWork”.

Although its core finance technology business has not done much disrupting yet, cryptocurrency mania was growing the value of XRP, the digital coin Ripple had created and whose supply it still controlled. XRP’s price rose 36,000 per cent during 2017, challenging bitcoin’s market value, giving Ripple an XRP hoard worth $200bn by Christmas.

XRP is a cryptocurrency outlier. Unlike decentralised, rebellious bitcoin, created post-financial crisis amid distrust of banks, XRP is supposed to grease creaking banking infrastructure, part of the back-office finance technology offered by San Francisco-based Ripple. Brad Garlinghouse, its chief executive, called XRP “the global liquidity solution for payment providers and banks”.

But Ripple’s golden goose cryptocurrency, whose price has now sagged, raises awkward questions. While its separate technology solutions for fast payment settlement impresses some financiers, XRP’s volatility, and Ripple’s ownership of more than half the 100bn XRP ever created, has unnerved banks that evangelists hoped would adopt the asset as a bridge currency.

Ripple wants to supplant the international Swift network, which is owned by and connects about 11,000 banks. It promises to accelerate cross-border payments using distributed-ledger, or blockchain, technology that sends messages between banks, while offering XRP as a cheap and universal bridge currency, to short-circuit the expensive nostro and vostro accounts of traditional correspondent banking.

Think of XRP “like the oil you put in [a car] engine”, says Greg Kidd, Ripple’s former chief risk officer who runs Synthetic Liquidity, a liquidity provider that is trialling XRP by moving small amounts. Banks “really shouldn’t need that much”, he adds.

But some speculators are betting that banks will need a lot of XRP oil as a reserve currency, which, if correct, would see XRP loom large in the global financial system. But if banks are unconvinced that they need to own substantial amounts of XRP — which Ripple’s systems for sending and processing payments do not require — the now $40bn total market value of circulating XRP coins looks highly speculative.

The enterprise software start-up says more than 100 financial institutions have adopted at least one Ripple product.

Ripple recently announced another pilot project with money transfer group MoneyGram, which will involve XRP. But while it has touted live projects with Santander, a Ripple investor, and American Express, others have hesitated to move beyond tests.

The Financial Times spoke to 16 banks and financial services companies publicly linked to Ripple (two more declined to comment). Most had not yet gone beyond testing, but some were using Ripple’s systems for moving real money. For instance, Sweden’s SEB bank says it used Ripple software for fast cross-border payments between accounts held by some of its corporate clients; soon, Santander is expected to launch a cross-border payments app using Ripple’s technology to clients in Europe and America.

But none of the banks who spoke to the FT had used XRP.

Kansas-based CBW Bank was one of the first partner banks announced by Ripple in 2014. But Suresh Ramamurthi, CBW’s chairman, says it has shelved plans to use Ripple’s systems until regulatory guidance is clearer.

Some banks shy away from cryptocurrencies such as XRP for fear of being “the first casualty”, Mr Ramamurthi adds.

Hank Uberoi, chief executive of cross-border payments specialist Earthport, works with Ripple to jointly offer their services to financial institutions. “Banks are hesitant to use XRP because they are unsure of the regulatory aspects of it. If money is in transition and the price of XRP collapses in that time, what happens then?” he says.

Ripple’s other problem, Mr Uberoi adds, was signing up enough banks to have the scale to seriously challenge Swift. “It is only of value if everyone is connected to the network — like a fax machine, if others don’t have one, then it is not much use,” he says.

Ripple says: “Enabling the Internet of Value is not something we can do alone and it’s not something that happens overnight.”

A former staffer, who left last year, says Ripple was sometimes hasty to announce that banks were using its technology even if they were testing several blockchain solutions. The former employee describes this as a “survival tactic”.

A “vibrant and growing ecosystem of people and businesses . . . are interested in XRP”, says Ripple. It says Mexican bank Cuallix uses XRP.

The anxiety of bankers that Ripple might cash in its XRP hoard recently prompted it to lock up 55bn XRP and promise to regulate supply by releasing no more than 1bn XRP every month.

Regardless of whether banks use it, Ripple has benefited handsomely from XRP’s rise. Ripple sells XRP to institutions and through exchanges — $52.2m worth in last year’s third quarter, up 67 per cent from $31.3m the previous quarter. It advertises discounts for market makers who adopt early, to increase the pool of institutional buyers and sellers.

Some staff take XRP as part of their salaries, and Ripple’s founders are enjoying a boost. Forbes reported that Chris Larsen, co-founder and former chief executive, personally owns 5.19bn XRP. According to cryptocurrency tracker Coinmarketcap, Mr Larsen’s holding is at present worth more than $5.4bn.

Since Ripple compared itself to Uber and Airbnb, XRP’s price has hit $3.80 highs but also fallen to just above $1, the volatility reflecting speculative cryptocurrency markets.

When Coinmarketcap removed Korean exchanges from its market capitalisation calculations last Monday, Ripple’s market cap crashed from $124bn to $101bn, revealing South Korea’s upward influence on XRP and triggering a panicked sell-off.

XRP’s volatile price responded enthusiastically to dubiously sourced news, climbing in December amid later debunked rumours that XRP would be listed on a key cryptocurrency trading platform, and recently rising 20 per cent after an unsubstantiated, anonymous report suggested that Western Union might adopt Ripple technology.

XRP’s speculative price rollercoaster “seems to represent the perfect blend of cryptocurrency hype and optimism”, writes Eric Turner, S&P Global Market Intelligence analyst.

FT : Switzerland sets up working group on ICOs, blockchain

Switzerland wants to remain an “attractive location” for initial coin offerings, its international finance ministry has said as it announced the setting up a working group to assess the need for action by the country’s lawmakers or regulators.

The affluent Alpine state has accounted for four of the 10 largest ICOs, according to PwC, with investors attracted by the country’s business-friendly regulations and digital expertise, which have led to it the creation of a so-called “crypto valley”.

China and South Korea have banned ICOs, while the EU and US have warned investors about the risks – moves that digital pioneers in Switzerland argue have given the country an opportunity to take a global lead in the sector.

On Tuesday, the international finance secretariat in Bern said blockchain technology gave rise to “fundamental legal issues” in financial market and general law.

It said the “blockchain/ICO working group” would “review the legal framework and identify any need for action with the involvement of the Federal Office of Justice, the Swiss Financial Market Supervisory Authority and in close consultation with the sector.”

The ministry added: “The aim of this work is to increase legal certainty, maintain the integrity of the financial centre and ensure technology-neutral regulation. This clarification of the regulatory framework should help to ensure that Switzerland remains an attractive location in this area.”

The working group would report to the government by the end of the year.

FT : Asset managers fear delegation changes post-Brexit

Asset managers fear delegation changes post-Brexit
Ministers, BofE and executives are worried about Paris-led efforts to tighten rules

Britain’s £8tn asset management industry is no stranger to the problems thrown up by Brexit. In common with the wider financial services sector, the industry is fretting over the loss of talent to rival financial hubs, London’s diminished appeal as a European gateway for non-EU investors and lower inward investment as foreign companies abandon or delay spending plans.

But UK-based asset managers face a particular threat — a possible overhaul to the EU’s so-called “delegation” regime that allows funds to be domiciled and regulated in another EU country, typically Dublin or Luxembourg, while being actively managed and marketed from London. Close to £1tn is managed from the UK on behalf of funds domiciled in those two EU centres, while more than a third of nearly €22tn of European client money is managed from the UK.

Government ministers, Bank of England officials and company executives are worried about Paris-led efforts to tighten delegation rules, in a move that would limit access for British-based fund managers to Dublin and Luxembourg.

Europe has already signalled the rules will be stricter. The European Securities and Markets Authority (Esma), the pan-EU financial watchdog based in Paris, warned last year that fund managers would need so-called substance — or boots on the ground — in the offices where funds were domiciled if they wanted to continue to use delegation rules.

Sean Tuffy, Citigroup’s head of market and regulatory intelligence for Emea, believes possible changes to delegation is the “number one issue” for UK and global asset managers. That’s because any EU efforts to penalise post-Brexit Britain would also be likely to hit other third-party financial centres, notably New York, which rely on EU delegation arrangements.

Changes too would be fought from within the EU by Dublin and Luxembourg, which are keen to preserve their homegrown industries.

Chris Cummings, chief executive of the Investment Association, the UK trade body, says “unpicking of delegation rules” will have reverberations. “The EU could cut itself off from UK portfolio management expertise but also from other international financial centres, from the US to Japan,” he says.

But Mr Cummings’ US counterpart, Paul Schott Stevens of the Investment Company Institute, believes that changes to the delegation rules are already under way.

“My experience with these kinds of things is when they break into public notice there has already been considerable work done behind the scenes,” Mr Schott Stevens says. “This naturally leads to concern that it is a political decision masquerading as regulatory policy.”

Not everyone believes delegation changes are afoot. One industry veteran says: “I am less worried than most although not complacent — I think it will be hard to avoid discrimination against the UK if the EU tries to limit our delegation.”

But all agree that uncertainty over Brexit is causing problems for the asset management industry, playing into the hands of rival financial centres.

“There are so many permutations [that arise because of Brexit], all of which require very different thoughts about how you might run your business and you have no clue where you will end up,” says Jamie Carter, a fund manager who heads the New City Initiative, an association for independent asset managers.