FT Lex : Saudi/Blackstone/SoftBank: active threat Premium

Saudi/Blackstone/SoftBank: active threat Premium
A desire for a bigger say to match huge cheques would produce problems

In private equity, the rights of limited partners are usually defined by the adjective rather than the noun. Lawmakers complain that public investors such as Calpers are too quiescent, handing over vast sums and paying big fees for little oversight.

When the LP is the sovereign-wealth fund of Saudi Arabia, everything is bigger -- including the problems of a typically passive or more active role. The Saudi Public Investment Fund (PIF) announced on Saturday that it would invest $20bn in a new Blackstone infrastructure fund and closed a deal to invest $45bn in SoftBank’s new technology fund.

The Saudis have no desire to be the dumb money, in either sense. As people involved in both sets of negotiations attest, there was wrangling over the degree of influence on investing that the Saudis would have in the SoftBank fund (as the Wall Street Journal also reported). There also appears to be different ideas on this crucial question for the as-yet unsigned Blackstone deal.

Demanding more say in the infrastructure fund would be understandable for what is the single biggest commitment from an LP in Blackstone’s history. However, it would also be fraught with danger. A New York private equity firm encounters plenty of political strife investing in US schools, hospitals, bridges and roads. The Saudis becoming any more than a silent partner would raise the stakes much further, evoking the Dubai Ports World saga.

Technology is far less politically problematic. The PIF has gone as far as investing directly in Uber. Even under the Obama administration, whose relationship with Saudi Arabia was bad; even though the Saudis got a board seat in exchange for their $3.5bn investment; and even though the money came from a repressive regime that does not permit women to drive, there was little in the way of backlash.

Yet already there has been disagreement over the degree of decision-making in the SoftBank fund. The two sides have ultimately agreed that SoftBank will pick tech investments, but the PIF’s representatives can observe decisions and veto large commitments. 

That does not sound like a bright line. As part of its attempt to move from an oil-dominated economy, Saudi Arabia sees the tech sector as strategic. It is already going to be hard to deploy so much money in a five-year fund when asset prices are so elevated. The needs of an active partner, who wants more than just a financial return, are going to make life complicated.

FT : Saudi wealth fund to back $40bn Blackstone infrastructure vehicle

Saudi wealth fund to back $40bn Blackstone infrastructure vehicle
Venture predates Trump visit and will focus on upgrading ageing US support systems

The sovereign wealth fund of Saudi Arabia has unveiled plans to place $20bn with Blackstone, the alternative asset manager, becoming the anchor investor in a new $40bn infrastructure fund that will focus on mainly upgrading US assets.

The two sides announced the non-binding memorandum on Saturday, just hours after US president Donald Trump landed in Riyadh for his first foreign visit since inauguration.

However, both Saudi’s Public Investment Fund and Blackstone stated that the terms were not yet finalised and emphasised that the agreement was the culmination of talks that predated the US president’s election.

Stephen Schwarzman, chief executive of Blackstone, who also heads Mr Trump’s economic advisory group, has actively been courting the Saudis for sometime, said one person with knowledge of the deal, who added: “With the Saudis, the negotiation never ends.”

Under the arrangement, the PIF will become a passive investor in the new vehicle, while Blackstone will seek to raise at least $20bn from other potential investors.

“Overall, through the equity in this vehicle and additional debt financing, Blackstone expects to invest in more than $100 billion of infrastructure projects, principally in the United States,” the two groups said in a joint statement.

The investment with Blackstone marks the second major backing of a foreign money manager in less than year by the PIF, which is undergoing a dramatic transformation under the leadership of the powerful deputy crown prince Mohammed bin Salman.

Also this weekend, the PIF finalised its plans to commit $45bn to a new $90bn technology investment fund to be managed by SoftBank, the Japanese tech-to-telecom conglomerate led by its billionaire Masayoshi Son.

Yasir Al Rumayyan, the PIF’s managing director, said: “This potential investment reflects our positive views around the ambitious infrastructure initiatives being undertaken in the United States as announced by President Trump, and the strategic opportunity for the Public Investment Fund to achieve long-term returns given historical investment shortfalls.

Hamilton James, Blackstone president, said: “There is broad agreement that the US urgently needs to invest in its rapidly ageing infrastructure. This will create well-paying American jobs and will lay the foundation for stronger long-term economic growth.”

The announcement is one on several deals being unveiled, with dozens of US business leaders in Saudi Arabia at the same time as President Trump.

PIF was advised by M. Klein and Company, an advisory firm founded by former Citigroup dealmaker Michael Klein.

>>> Weekly Update

Weekly Market Update: Markets Acknowledge Embroiled Trump Administration Before Quickly Moving On

In most cases stock indices opened the week at or near recent all-time highs. A continuing run of decelerating US economic data and the steady beat of headlines coming out of Washington DC were largely offset by a move higher in oil prices. Crude was finding support in solidifying market expectations that OPEC would extend supply cuts through next spring when they meet next week. Volatility remained remarkably low, and stocks remained bid globally, helped in part by a speech from China’s President Xi that illustrated the importance his government intends to put on finding new drivers for growth in the wake of softer April economic data.

By mid-week the tone dramatically shifted. Headwinds from Washington freshened on a report former FBI Dir Comey had drafted a memo chronicling a meeting with President Trump where he was asked to drop the investigation into former National Sec Adviser Flynn. Within 24 hours, former FBI Dir Mueller was appointed special counsel to oversee the Russia investigation, while the President repeatedly denied the reports, calling the whole thing a ‘witch hunt.’ Markets finally buckled as investors became increasingly concerned the political fallout could ultimately be fatal for the Republican’s pro-growth agenda. The flight from risk assets sent the VIX +27%, ultimately filling the gap made into the French election. Gold prices rose along with global Treasury bonds, sending yields lower. The US 10-year yield fell just short of the April low of 2.18%. The Dollar index gave back all the post-US election/Trump reflation gains.

The move into safe have assets was short lived. Equity markets rebounded Thursday in the wake of better US economic readings and technically driven momentum buying after the significant reversal. Markets largely shrugged off the latest political crisis in Brazil, which brought a spat of elevated volatility to Brazilian assets and word the Trump administration was pushing ahead with the NAFTA renegotiation. Oil prices pressed higher on speculation OPEC was contemplating a scenario of deepening supply cuts, not just extending. WTI crude finished the week above the $50 mark, while the Dollar Index closed near $97 for the first time since before the Nov election. Dollar bulls were dismayed by notably.dovish commentary from the Fed's Bullard. The US 10-year yield rebounded back towards 2.25%, but the curve remained compressed. For the week the Dow, S&P and NASDAQ nearly did a round trip, all falling ~0.5%.

As earnings news this week slowed to a trickle, a few big names reported strong results. Home Depot bucked the trend of poor retailer reports by notching a solid beat on top and bottom line, as the home improvement giant remains buoyed by a stronger housing market and a boost in big-ticket transactions. Semis were up modestly in Friday trading after Applied Materials issued strong results and guidance as its chipmaker customers ramp up to bring more advanced production equipment online. Deere rebounded by beating expectations across the board and raising its outlook, with notable strength from international farm equipment sales and home construction equipment.

SUN 5/14
(CN) CHINA APR INDUSTRIAL PRODUCTION Y/Y: 6.5% V 7.0%E; YTD Y/Y 6.7% V 6.9%E
(CN) CHINA APR RETAIL SALES Y/Y: 10.7% V 10.8%E; YTD Y/Y: 10.2% V 10.2%E
(CN) CHINA APR FIXED ASSETS EX RURAL YTD Y/Y: 8.9% V 9.1%E
(SA) Saudi Oil Min Al-Falih: Russia and Saudi Arabia in favor of extending OPEC deal for 9-months to March 2018; decision to be made May 25th - financial press

MON 5/15
(US) MAY EMPIRE MANUFACTURING: -1.0 V +7.3E
(US) MAY NAHB HOUSING MARKET INDEX: 70 V 68E (second-highest reading since financial downturn)
(US) MAR TOTAL NET TIC FLOWS: -$0.7B V $13.2B PRIOR; LONG-TERM TIC FLOWS: $59.8B V $53.1B PRIOR
27.HK CEO Lui: Encouraged by recent improvements in VIP; will need a few mouths to see if recovery is sustainable

TUES 5/16
VOD.UK Reports FY16/17 Adj EBIT €3.97B v €3.70B y/y, adj EBITDA €14.1B v €14.2B y/y, Rev €47.6B v €49.8B y/y
*(UK) APR CPI M/M: 0.5% V 0.4%E; Y/Y: 2.7% V 2.6%E; CPI CORE Y/Y: 2.4% V 2.3%E
*(EU) EURO ZONE Q1 PRELIMINARY GDP Q/Q: 0.5% V 0.5%E; Y/Y: 1.7% V 1.7%E
*(DE) GERMANY MAY ZEW CURRENT SITUATION SURVEY: 83.9 V 82.0E; EXPECTATION SURVEY: 20.6 V 22.0E
HD Reports Q1 $ 1.67 v $1.62e, R$23.9B v $23.7Be
(US) APR HOUSING STARTS: 1.17M V 1.26ME; BUILDING PERMITS: 1.23M V 1.27ME
TATA.IN Reports Q4 (INR) Group loss 7.2B v profit 9.88Be, Rev 354.6B v 316.2Be
(US) APR INDUSTRIAL PRODUCTION M/M: 1.0% V 0.4%E; CAPACITY UTILIZATION: 76.7% V 76.3%E (largest total industrial production gain since Feb 2014)
(US) Atlanta Fed raises Q2 GDP to 4.1% from 3.6% on 5/12
(US) Weekly API Oil Inventories: Crude: +0.9M v -5.8M prior; first build in 3 weeks
(US) President Trump reportedly asked former FBI Director Comey to shut down investigation into National Sec Adviser Flynn, according to memo Comey wrote following a meeting with Trump - NY Times
(US) US House Chair of Oversight Committee Chaffetz (R): Has subpoena pen ready for Comey memo, oversight committee is going to get the memo

WEDS 5/17
(HK) Macau Gaming Regulator: No plans to set up online gaming; no plan to adj gaming tax
(UK) MAR AVERAGE WEEKLY EARNINGS 3M/Y/Y: 2.4% V 2.4%E; WEEKLY EARNINGS (EX BONUS) 3M/Y/Y: 2.1% V 2.1%E
*(UK) APR JOBLESS CLAIMS CHANGE: +19.4K V +33.5K PRIOR; CLAIMANT COUNT RATE: 2.3% V 2.2% PRIOR
(UK) MAR ILO UNEMPLOYMENT RATE 3M/3M: 4.6% V 4.7%E (lowest since 1975)
700.HK Reports Q1 (CNY) Net 14.5B v 13.0Be; Rev 49.6B v 46.4Be
(EU) EURO ZONE APR CPI M/M: 0.4% V 0.4%E; Y/Y (FINAL READING): 1.9% V 1.9%E; CPI CORE Y/Y(FINAL READING): 1.2% V 1.2%E
(DE) GERMANY SELLS €812M VS. €1.0B INDICATED IN 2.5% JULY 2044 BUNDS; AVG YIELD: 1.24% V 0.87% PRIOR; BID-TO-COVER: 2.3X V 1.2X PRIOR
*(PL) POLAND CENTRAL BANK (NBP) LEAVES BASE RATE UNCHANGED AT 1.50%; AS EXPECTED
TGT Reports Q1 $1.21 v $0.89e, R$16.0B v $15.6Be
F Confirms plan to cut 10% of Salaried workforce in North America and Asia as part of cost reduction program
(IR) Trump administration confirms will renew Iran sanctions waiver, as expected, related to nuclear agreement - press
(IE) Ireland PM Kenny confirms plan to resign; effective Thursday, May 18th; successor to be appointed June 2nd - Irish press
(US) Association of American Railroads weekly rail traffic report for week ending May 13th: 527.0K carloads and intermodal units, +5.7% y/y (18th straight week of gains)
CSCO Reports Q3 $0.60 v $0.58e, R$11.9B v $11.9Be; to cut 1.1K jobs (about 1.5% of total)
(US) Justice Dept names former FBI Director Mueller as special counsel to take over Russia probe - press
*(JP) JAPAN Q1 PRELIMINARY GDP Q/Q: 0.5% V 0.5%E; ANNUALIZED GDP: 2.2% V 1.7%E; 5th consecutive quarter of growth for the first time in 11 years
(CN) China developers expect their offshore dollar bond issuance to dramatically slow in the near term in an effort for govt to cool the sector - financial press
(HK) DICJ director Martins Chan: Macau gaming licenses will be not be renewed but open for bidding again when they expire; no plans for online gaming platforms
*(AU) AUSTRALIA APR EMPLOYMENT CHANGE: +37.4K (2nd straight increase; best 2-month rise since late 2015) V +5.0KE; UNEMPLOYMENT RATE: 5.7% (3-month low) V 5.9%E
*(CN) CHINA APR PROPERTY PRICES M/M: RISE IN 58 OUT OF 70 CITIES VS 62 PRIOR; Y/Y: RISE IN 69 OUT OF 70 CITIES V 68 PRIOR
(US) Democratic strategists said to begin poll-testing public opinions of impeaching Pres Trump - US press

THURS 5/18
BRBY.UK Reports FY16 Adj Pretax £462.4M v £457.1Me, Op Profit £458.7M v £417.8M y/y, Rev £2.77B v £2.77Be
*(ID) INDONESIA CENTRAL BANK (BI) LEAVES REVERSE REPO RATE UNCHANGED AT 4.75% (as expected)
(UK) APR RETAIL SALES (EX-AUTO/FUEL) M/M: 2.0% V 1.0%E; Y/Y: 4.5% V 2.6%E
(BR) Brazil govt allies said to seek resignation of President Temer - financial press
(US) Commerce Sec Ross: Do not see any reason for policy delay; calls special investigations a sideshow - CNBC
(EU) ECB ACCOUNT OF MONETARY POLICY MEETING (APR MINUTES): Broad agreement that monetary policy stance was appropriate; risk outlook has improved
(US) MAY PHILADELPHIA FED BUSINESS OUTLOOK: 38.8 V 18.5E
(US) APR LEADING INDEX: 0.3% V 0.4%E
(MX) US Trade Rep Lighthizer: confirms began 90-day consultation period to renegotiate NAFTA
(MX) MEXICO CENTRAL BANK (BANXICO) RAISES OVERNIGHT RATE BY 25BPS TO 6.75%; NOT EXPECTED
(BR) Brazil President Temer: I have nothing to hide; I will not resign; will prove innocence before Brazil's Supreme Court - comments in Brasilia
AMAT Reports Q2 $0.79 v $0.76e, R$3.55 v $3.54Be
CRM Reports Q1 $0.28 v $0.26e, R$2.39B v $2.35Be
*(CL) CHILE CENTRAL BANK (BCCH) CUTS OVERNIGHT RATE TARGET BY 25BPS TO 2.50%; NOT EXPECTED

FRIDAY 5/19
(UK) MAY CBI INDUSTRIAL TRENDS TOTAL ORDERS: 9 V 4E
DE Reports Q2 $2.49 v $1.70e, Net Equipment Rev $7.26B* v $7.24Be
(CN) China reportedly will lift at 2-year suspension of foreign funds raising money in China to invest overseas as early as June - financial press
(US) New York Fed Nowcast: raises Q2 GDP forecast to 2.3% from 1.9% from 5/12
(US) GOP healthcare bill CBO score scheduled for release on Weds afternoon (5/24) - press

Barron's : Vodafone Looks Beyond Red Ink to Better Times

Vodafone Looks Beyond Red Ink to Better Times
The big mobile provider took a bath in India. But its shareholder-friendly policies and ample cash flow have already helped the stock

British mobile phone operator Vodafone could finally be dialing up its performance after suffering for years from sharp competition and regulatory pressure.

That may not be obvious immediately from the headline figures in its full-year earnings report last week. Vodafone made a whopping loss of 6.1 billion euros ($6.79 billion)—19% wider than the previous year—after being hit by a huge write-down in its troubled Indian business.

Despite that red ink, its shares jumped 4% on the day the figures were released, helped largely by its upbeat earnings outlook and a 2% dividend increase. CEO Vittorio Colao said on the earnings call that Vodafone’s (ticker: VOD.UK) adjusted organic earnings should rise by 4% to 8% this year, to between €14 billion and €14.5 billion.

More encouraging was his free cash-flow forecast. Having more than tripled free cash flow last year to €4.1 billion, Colao expected it to rise to around €5 billion this year, spurring hopes the company will continue to deliver on its progressive dividend policy.

Vodafone has a reputation for looking after its investors. After making $130 billion from the sale of its Verizon Wireless stake in 2014, it handed shareholders $84 billion, confounding expectations that it would launch a massive acquisition spree. A strong dividend has helped cement shareholders’ loyalty, effectively paying them to sit out the difficult years.

At 5.73%, its current dividend yield is well above its major European rivals. French operator Orange (ORA.France) is a distant second at 4.28%, while Germany’s Deutsche Telekom (DTE.Germany) trails at 3.45%, just ahead of Spain’s Telefonica with 3.34% (TEF.Spain).

Still, it isn’t all about the shareholders. The company resisted big M&A but it has plowed money into improving its services, aiming to attract clients with its product quality. Its focus has been on spreading its high-speed mobile networks in Europe and the emerging telecom markets of India and Africa. Its biggest acquisitions have been of European cable operators, intended to help it offer users the four-in-one “quad play” package of mobile, fixed-line, cable, and internet.

Last year it combined its Dutch business with that of Liberty Global (LBTYB) to create a joint venture with combined annual revenue of around €3.5 billion, reigniting speculation that the two companies could one day forge deeper ties.

Those investments have also allowed Vodafone to offer more generous plans to its European mobile customers—steadying its average revenue per user last year—while tapping strong data growth in emerging markets.

“We continue to be Europe’s fastest-growing broadband provider, seizing the opportunities created by convergence and winning revenue market share,” Colao said.

Goldman Sachs analyst Andrew Lee has Vodafone at Buy and raised his price target to 280 pence from 270 pence following the results, giving it upside of around 27% from the current level. He says the results were in-line but guidance was better than expected, suggesting that with capital expenditures falling its free cash flow “should cover the dividend in fiscal 2018 for the first time in years.”

Price competition from upstart players has been a bugbear for incumbent telecoms companies worldwide. It has been a particular problem for Vodafone in India and became critical with the arrival of mobile operator Reliance Jio Infocomm, bankrolled by India’s richest man, Mukesh Ambani, which gained a foothold by offering free services. The company now charges ultralow rates.

That had a big impact on Vodafone’s finances, forcing it to write down its Indian business by €5 billion last November.

UNDETERRED, AND STILL DETERMINED to tap India’s enormous growth potential, Vodafone announced plans in March to merge its Indian business with local player Idea Cellular (532822.India) to create a joint venture valued at nearly $24 billion that will vault over Bharti Airtel (532454.India) as the country’s biggest operator.

Apart from generating synergies with an estimated net present value of $10 billion, the India deal relieves some of the debt burden on Vodafone’s balance sheet. It also gave rise to a partial reversal of the Indian impairment, reducing it to €3.7 billion, net of tax.

Morgan Stanley analyst Emmet B. Kelly has Vodafone at Overweight with a 260 pence price target, offering potential upside of over 18%. He says the India deal offers a number of important benefits aside from the promised synergies that includes the removal of around €8 billion worth of debt from Vodafone’s balance sheet. “Which is considerably more than our prior value for Vodafone India [at €4.6 billion],” he notes.

Vodafone shares closed at 220 pence on Friday, down by 4% over the past year but up 11% in the last three months, comfortably outperforming the Stoxx Europe 600 which has added a little over 5% over the same period.

Recode.net: Spotify has hired an M&A specialist to help it buy other companies

Spotify has hired an M&A specialist to help it buy other companies
WPP veteran Sheila Spence joins next week

Spotify has hired an executive tasked with helping it buy other companies. The music streaming service is bringing on Sheila Spence, a longtime M&A specialist at ad giant WPP, as its vice president of corporate development.

Spence, who will report to Spotify CFO Barry McCarthy, is a well-known figure in the digital media business, and has spent the last 10 years run corp dev at WPP.

A Spotify rep says Spence will start May 30; I’ve asked her for comment.

Spotify is preparing to go public via an unconventional public listing later this year or early next year, at a reported valuation of $13 billion. If it does, its stock will give it a new currency for Spence to play as she looks at acquisition targets.

Up until now Spotify has made relatively modest purchases, and has usually focused on bringing on engineering teams. Yesterday, for instance, the company said it had picked up Niland, a Paris-based A.I. startup. Spotify’s biggest acquisition to date appears to be The Echo Nest, a music data startup, for about $60 million.

(Vox.com) Donald Trump has committed the exact offense that forced Richard Nixon

Donald Trump has committed the exact offense that forced Richard Nixon to resign

We don’t actually know if Richard Nixon ordered the break-in to the Democratic National Committee headquarters in the Watergate complex on June 17, 1972.

That, to me, is still the most remarkable feature of the Watergate crisis. A president was forced out of office for the first time in American history by a scandal centering on a single crime, and we still don’t know if he actually ordered it.

In his memoirs, Nixon denies it, though he smugly adds, "I could not muster much moral outrage over a political bugging." Jeb Magruder, a dirty tricks operative for Nixon, revealed three decades later that he had overheard Nixon and his reelection chair John Mitchell planning the burglary. But as historian David Greenberg notes, “Mr. Magruder had [previously] discussed that same meeting without noting Nixon's participation.” Dirty tricks operatives aren’t the most reliable of sources.

We don’t even know why it happened — if the burglars were looking for evidence that the DNC was receiving money from the North Vietnamese or Cuban governments (as conspirator Howard Hunt insisted), or information embarrassing to White House counsel John Dean (as G. Gordon Liddy, who planned the break-in with Hunt, claimed), or, as another popular theory has it, trying to find out how much DNC chair Larry O'Brien knew about Nixon’s financial dealings with billionaire tycoon Howard Hughes.

But what we do know, the “smoking gun” that eventually forced Nixon out of office, was that Nixon ordered his chief of staff to get the CIA to force the FBI to abandon its investigation into the break-in.

That was enough.

Some Republicans had stood by Nixon through his firing of the independent counsel investigating the matter, through multiple aides and Cabinet officials resigning, through the White House’s effort to resist subpoenas for documents and tapes. But when the “smoking gun” White House tape was released on August 5, 1974, Nixon’s remaining support from Republicans evaporated. Two days later, Senate Minority Leader Hugh Scott (R-PA), House Minority Leader John Jacob Rhodes (R-AZ), and former presidential candidate Sen. Barry Goldwater (R-AZ) went to the White House and informed the president that he had no support left in Congress.

They were shocked and horrified that Nixon had personally participated in the cover-up; before then there was still a sliver of a chance that the president himself wasn’t part of the conspiracy. They told Nixon that, now that his role in the cover-up was known, the votes were there to impeach him and remove him from office. The day after that, the president announced his resignation.

Similarly, there’s a lot we don’t know about Trump and his campaign’s ties to Russia. We know that the FBI and other agencies have been looking into any contact Trump's campaign advisers Paul Manafort, Carter Page, and Roger Stone might have had with the Russian government during the election. We know that intelligence agencies suspect those three might have worked the Russian officials to coordinate the release of hacked emails. We know that disgraced former National Security Adviser Michael Flynn, White House senior adviser and Trump son-in-law Jared Kushner, and Attorney General Jeff Sessions all lied about or failed to disclose communications with Russian Ambassador Sergey Kislyak.

We don’t know how all these pieces fit together. We don’t know exactly what Donald Trump Sr.’s direct involvement is, or how aware he was of his advisers’ efforts, or the nature of his business relationship with Russia. That’s provoked a lot of very valuable investigative journalism, as well as a lot of outright conspiracy theorizing.

But focusing too granularly on the details of Trump’s personal involvement risks setting the bar too low for him. It risks suggesting that unless we find undeniable proof of collusion between Trump and the Russian government, he’s in the clear.

The fact of the matter is that without any more information than we already have, we already know Trump’s conduct is at least as outrageous as what Nixon acknowledged in the smoking gun tape.

In Nixon’s case, what crossed the line, moving top leaders from his own party to go to the White House and tell Nixon that his presidency was over, was Nixon’s attempt to hamper the FBI’s investigation into Watergate.

And we now know that before Trump fired FBI Director James Comey, he asked Comey to stop investigating former National Security Adviser Flynn. This is exactly the same kind of FBI investigation interference that forced Nixon out of the White House and shocked his Republican allies out of defending him.

As of this writing, Trump’s Republican allies in Congress are standing by him and not demanding a independent prosecutor, let alone impeachment.

But this is not a “where there’s smoke there’s fire” situation. We don’t need to know much more to know that the president has committed conduct that was once thought sufficient to warrant removal from office.

The Comey firing isn’t smoke. It’s fire.

FT : Japan eyes prize in regulating bitcoin

Japan eyes prize in regulating bitcoin
Efforts to regulate the crypto currency by the Japanese may sharpen its appeal

As speculative fever takes hold, cybercriminals taint the brand with ransom demands and prices whipsaw between record highs and cliff-edge stumbles, governments, investors and financial institutions are legitimately asking whether the world is ready for bitcoin.

A thornier question — soon to be answered in Japan — is whether bitcoin is ready for “Mrs Watanabe”, the notional holder of the nation’s household purse-strings.

Since April 1 this year, as the global market value of bitcoins and other cryptocurrencies has surpassed $50bn, a growing number of online exchanges, funds and remittance companies has been scrambling to make formal registrations with the Japan Financial Services Agency. The process is expensive, demanding, laced with invisible tripwires and not all applicants, by any means, will be successful.

The prize, though, could be spectacular. Japanese retail investors — a group that does include a lot of Mrs Watanabe housewives but is actually dominated by her day-trading children and their leveraged online accounts — are voracious. FX margin trading in Japan, the “Mrs Watanabe” favourite with volumes at about $10tn per quarter, is the largest in the world. A minute fraction of that channelled towards the bitcoin market, say the most excitable proponents, could be transformational.

Propelling the rush to register is new legislation that (perhaps counter-intuitively for a country whose financial services industry still routinely uses fax machines), puts Japan comfortably at the head of the global pack on crypto currency trading regulation. Some US states have their own regulation for local bitcoin exchanges, but so far, no central government has taken the plunge and attempted to regulate an asset that was invented to defy regulation. It is easy to see why the FSA is keen to move: Japan, by volume, is one of the largest centres of bitcoin trading on any given day and has been helped by China clamping down. The Japanese government — unexpectedly clear-headed on the issue — sees as much potential opportunity as threat in that.

Hence the stampede to register exchanges and other businesses with the FSA. The prospect of a market where the government has demystified an otherwise enigmatic asset and Mrs Watanabe has been soothed by seeing the stamp of a regulator known for its conservatism, is simply too lucrative a bet to pass up.

By October 1, any bitcoin or “alternative coin” exchange or money transfer business that wants to operate in Japan must come under the regulatory supervision of the FSA and be submitted to annual audits. Much of the regulation (some of it in the familiar language of anti-money laundering measures and “know-your-customer” protocols) represents an attempt by Japan to purge some of the anarchy from bitcoin’s image. Other parts are designed to ensure separation between the stashes of customers’ bitcoins from those belonging to the exchanges themselves — a measure that might have avoided some of the chaos that followed the 2014 collapse of what was at the time the world’s biggest bitcoin exchange, the Japan-based Mt Gox.

In a final regulatory flourish that gently mocks the first two-thirds of the phrase “digital crypto currency”, new customers will not be able to trade until they have received a hard-copy acknowledgment letter, delivered by registered post to their home address.

But for all the regulatory freight, this is a strangely light-footed moment for Japan and the FSA. To reach this point, a series of surprisingly un-Japanese breaches of natural conservatism have been necessary — not least, the formal recognition of bitcoins as a legal payment system.

There are several reasons for the leap. The first arises from the Mt Gox catastrophe, the high global visibility of what remains one of the biggest digital heists in history, an international cast of furious investors and the FSA’s fierce discomfort that all this happened on its turf. This is an assertion of control by Japan, but one driven by the desire to legitimise something that it knows, from long experience, that Mrs Watanabe may very well be interested in.

Just as important, though, is the extent to which fintech — a loosely-mapped Aladdin’s cave of blockchain technology, crypto currency trading, artificial intelligence data analysis and other envisaged innovation — lies at the heart of government plans to turbo-charge Japan’s comatose financial services industry. Everyone loves and talks up the idea of Japanese banks (only recently armed with the legal ability to do so) splurging investment towards bleeding-edge fintech; nobody, confides the president of one of Japan’s three megabanks, is going to invest a single yen until there is a regulatory framework in place.

The way regulation has been handled in Japan, say companies currently applying for the licence, is both curse and blessing. On the one hand, there are elements of the regulation that are heavy handed and could ultimately threaten a crypo-currency that has thrived on anonymity. Apart from bitcoin, for example, there are more than 800 alternative currencies on the market, but the FSA is effectively approving only one of them, ethereum.

“When you are talking about start-ups, which of course a lot of the bitcoin-related businesses are, you never really think of regulation as a good thing,” says Mike Kayamori, chief executive of the crypto currency exchange Quoine, who argues that Japan has a long history of using regulation to squash innovation and “undesirable” areas of industry as it famously did with consumer loan companies in the late 2000s. “But in this case, it just might be different. The retail investor — Mrs Watanabe — doesn’t want the wild, wild west, she wants something regulated and trustworthy.”

NY Post : Leon Cooperman pays $4.9 million to settle insider-trading suit

Leon Cooperman pays $4.9 million to settle insider-trading suit

Hedge-fund manager Leon Cooperman paid $4.9 million to settle insider-trading charges in an unusual deal with securities regulators in which he didn’t admit wrongdoing but agreed that his firm’s trades will be monitored for five years.

The settlement between the Securities and Exchange Commission and Cooperman’s firm Omega Advisors ends standoff in which 74-year-old Cooperman had remained defiant in TV interviews about the case, insisting that he was innocent and that he would never pay a fine the SEC.

“Millions for defense, not one cent for tribute,” Cooperman told Bloomberg TV last October, quoting the 19th Century US Sen. Robert Goodloe Harper.

Under the deal, a compliance monitor will be able to review any trade that Cooperman’s firm makes, and will also require monthly certifications that no trades were made using inside information.

Nevertheless, the SEC, which filed its suit against Cooperman last September after a five-year investigation, didn’t get what it wanted, either. That included the return of ill-gotten gains and barring Cooperman from being an officer or a director at a public company.

“I am looking forward to putting this behind me now, instead of years from now,” Cooperman said in a letter to his investors Thursday.

The SEC had alleged in its civil suit that funds managed by Cooperman made more than $4 million in illegal profits in 2010 off trading in shares of Atlas Pipeline Partners.

FT : Ban cryptocurrencies to tackle cyber attacks

Ban cryptocurrencies to tackle cyber attacks
From Misha Cohen, London, UK — This is Friday’s most read letter

Sir, An effective policy to curtail ransomware which has caused havoc in the UK’s National Health Service and elsewhere would be to ban the use of bitcoin and similar “cryptocurrencies”. Anonymity and fungibility have always made cash the favoured tool for illegal activities. Credit cards, cheques and bank transfers are too easily traceable. Bitcoin moves the criminal’s favoured financial tool online, with disastrous consequences.

The world now faces a historic choice: either allow cryptocurrencies to proliferate, until it is too late to ban them, or eliminate such tools and enjoy an era in which illegal activity online is circumscribed. Bitcoin was introduced in 2009. It has fulfilled no useful purpose in the financial system. Its only major effect has been to facilitate massive criminal activity. Yet with support from governments, such cryptocurrencies are thriving. The global value of bitcoins in circulation has increased from $3bn to about $29bn in the past two years. New currencies, such as Ethereum and Ripple, are growing even faster.

It is still possible to make all activity in cryptocurrencies an offence. Their worldwide value is $50bn — only 1.7 per cent of the value of the FTSE 100 stocks in London. Destroying this asset value would create few problems, and would strike a blow for justice as much of it is held by wrongdoers.

Absurdly, governments labour to bolster legality in anonymous physical cash, while encouraging unregulated use of its digital equivalent: the eurozone bans €500 bills, but allows criminals access to online bitcoin “notes” of unlimited value. India tries to uncover illegal funds held in banknotes, while leaving bitcoin stashes unchecked. The UK introduces high-tech pound coins to foil forgers, while allowing criminals use of higher-tech “pound bitcoins”. China attempts to control smuggling of cash, while letting bitcoin transfers flow freely.

Cryptocurrencies will soon become a large segment of the global financial system. Banning them would then threaten financial stability, but regulating them will be impossible. Meanwhile, life will become easier for people with the moral turpitude to destroy hospital IT systems. History will judge very harshly those who allowed this to happen.

The utility of a currency depends on confidence that it is accepted as a means of payment. If even one major economy banned cryptocurrencies, these would be hobbled. The UK should take the lead. Otherwise, the next time the NHS is crippled by an attack financed in bitcoin, the government will rightly be accused of complacency as sick people die.

Misha Cohen

REuters - Saudi Aramco CEO says to sign $50 billion of deals with U.S. companies

Saudi Aramco CEO says to sign $50 billion of deals with U.S. companies

National oil giant Saudi Aramco IPO-ARMO.SE expects to sign $50 billion of deals with U.S. companies on Saturday, part of a drive to diversify the kingdom's economy beyond oil exports, Aramco's chief executive Amin Nasser said.

Nasser was speaking to reporters at a conference of scores of senior U.S. and Saudi business executives, coinciding with the visit of U.S. President Donald Trump to Riyadh.

He said 16 agreements with 11 companies would be signed, including memorandums of understanding for joint ventures. Officials said earlier that many of the agreements would flesh out previously announced plans.

"We expect the deals signed today to provide a boost to bilateral trade between both countries," Nasser said, adding that Aramco currently spent $6.5 billion a year on goods and services from U.S. suppliers.

Among the deals, executives said, were a plan by Jacobs Engineering Group Inc (JEC.N) for a joint venture with Aramco to manage business projects in the kingdom, and a plan by McDermott International (MDR.N) to transfer some of its ship fabrication facilities from Dubai to a new shipbuilding complex which Aramco will build within Saudi Arabia.

Top Saudi economic policy makers, including the finance minister and head of the kingdom's main sovereign wealth fund, described ways in which they planned to attract U.S. capital and technology. Officials said they aimed to prepare new rules covering direct investment by foreign firms within 12 months.

"We want foreign companies to look at Saudi Arabia as a platform for exports to other markets," Energy Minister Khalid al-Falih told the conference.