(TechCrunch) Here and Microsoft extend mapping deal, expanding into connected ca

Here and Microsoft extend mapping deal, expanding into connected car data

Here — the mapping business that was sold by Nokia to a consortium of automakers including Audi, BMW and Daimler for $2.8 billion in 2015 — today announced that it has extended a mapping deal with Microsoft. Microsoft was already using Here data in Bing Maps (used in Bing.com, Cortana and other services) and the Bing Maps API. Now, it plans to expand that to use Here mapping data also in its future connected car services.
The deal comes on the same day that Microsoft also inked a deal with TomTom, in which TomTom will integrate its “enterprise-grade” location services, based on TomTom’s maps, traffic and navigation software, into Microsoft Azure, for developers to use them in applications where locations services are needed. (Things have definitely cooled down between the two companies since their patent-disputing days.)
The financial terms of the deal are not being shared, a spokesperson from Here told me, but the agreement is being described as a “multi-year strategic commercial agreement.” Recall that earlier this year, Daimler confirmed that Microsoft (along with Amazon) was in talks to take a minority shareholding in Here. However, we have confirmed with the Here spokesperson that “Microsoft does not have a minority stake in Here” at this time.
The deal between Microsoft and Here is the latest chapter in a multi-year relationship between the two businesses.
Microsoft was once a close strategic partner of Nokia, as the two worked together on making mobile handsets that could compete against the collective might of Apple’s iPhone and a vast sea of smartphones powered by Google’s Android.
Using Here was very much a cornerstone of that effort. Eventually, however, when Microsoft acquired Nokia’s handset business outright in 2014 for $7.2 billion, it left Here behind, keeping the relationship intact only as part of a mapping and location data deal.
In the interim, that relationship has not been completely perfect. While the Here Maps app made an appearance in Microsoft’s Windows 8.1 — the first of the ‘new generation’ of its operating system — by 2016 Here seemed to be dropping app support for Windows 10 and Windows Phone.
At the same time, though, Here’s mapping data seems to have gained prominence in Microsoft’s backend. As Microsoft has moved deeper into new areas like AI, with Cortana, it has embedded Here location and mapping data into that, along with Bing Maps and other services; and it’s playing a significant role in Microsoft’s developer play powering the Bing Maps API in the Azure Marketplace.
“Bringing the highest quality maps and geographical services to our consumers and developers is of paramount importance to Microsoft,” said Jordi Ribas, Corporate Vice President, Bing Program Management, Microsoft, in a statement.

The expansion into doing more in automotive plays into that. Here says the deal will include not just maps, but real-time traffic flow and public transit data.
Today, Microsoft is not necessarily the most prominent tech name in the rapidly accelerating world of automotive technology, but it’s clear that it wants to have a place in that race. Both the TomTom deal, and the expanded deal with Here, could be signs of what it wants to be doing (naturally, more with in-car maps and location services, and providing those tools to developers to build their own apps) but also possibly a sign that we may be hearing some more engine revs from that part of its business soon.
For Here — which at its lowest point was a loss-making business that cost $1 billion a year for Nokia to run — this will give it another route to revenues and profit.
“Our goal is to enable global access to the best mapping and location services for consumers and businesses, and we are delighted to extend our partnership with Microsoft, supporting its product innovation into the future,” said Bruno Bourguet, SVP of Sales and Business Development at HERE, in a statement.

WSJ : Iraq Is Raising, Not Cutting, Oil Exports, Shipping Document Shows

Iraq Is Raising, Not Cutting, Oil Exports, Shipping Document Shows
National oil company has plans to increase deliveries of its Basra oil grades by about 7%

Iraq plans to increase crude-oil exports in January, government records show, immediately raising questions about its commitment to slashing production in line with OPEC’s landmark production agreement last month.

Iraq’s national oil company, the State Organization for Marketing of Oil, or SOMO, has plans to increase deliveries of its Basra oil grades by about 7% to 3.53 million barrels a day compared with October levels, according to a detailed oil-shipment program viewed by The Wall Street Journal. Those oil shipments represent about 85% of Iraq’s exports.

The oil shipment plan was dated Dec. 8, nine days after Iraq agreed to cut its output by more than 4% along with other members of the oil cartel, the Organization of the Petroleum Exporting Countries. OPEC, which controls over a third of global crude-oil production, said Nov. 30 that its collective output would fall by 1.2 million barrels a day beginning Jan. 1, with specific agreements from member countries.


The list of planned tanker loadings has been circulated among potential buyers so they can gauge its availability.

SOMO chief Falah al-Amri declined to comment about the company’s January export levels. Iraq’s oil minister, Jabbar Ali al-Luaibi, has said he would instruct SOMO to act on the OPEC output-cut agreement.

On Wednesday, several hours after a Wall Street Journal article on Iraq’s oil-export plans, OPEC Secretary General Mohammad Barkindo said he planned to ask members in writing on Thursday to announce their future oil-export programs. While OPEC asks members to disclose their production, it would be unprecedented for the cartel to ask countries to announce the levels they export.

“I just thought I should write the ministers to avoid complacency,” Mr. Barkindo said in an interview.

OPEC has a spotty record of complying with its production-cut agreements. A Goldman Sachs report said that, over 17 production cuts since 1982, the cartel’s members reduced output by an average of 60% of the amount committed to.

Iraq agreed to cut its output by 210,000 barrels a day from October levels of 4.561 million barrels a day. The country’s oil officials were among the most reluctant to go along, disputing OPEC’s statistics and threatening to pull out of the agreement until the last minute because it needs the oil revenue to fight its war against Islamic State.

Iraq says it has increased its output to 4.8 million barrels a day in 2016, from less than 3 million barrels a day a few years ago, using Western and Chinese oil companies to tap into its deep crude reserves.

A country’s oil exports and its crude-production levels don’t always rise and fall together because some oil production is consumed locally and other output is stored in tanks.

In Iraq’s case, though, the country consumes only about 15% of its oil production, an amount that doesn’t vary much month to month. Its maximum storage capacity is just over 10 million barrels, which isn’t enough to account for the increase in Basra exports.

Iraqi Oil Minister Jabbar Ali al-Luaibi, right, pictured in the Iraqi city of Basra last August. ENLARGE
Iraqi Oil Minister Jabbar Ali al-Luaibi, right, pictured in the Iraqi city of Basra last August. PHOTO: REUTERS
Those numbers suggest that Iraq couldn’t cut its production if it wants to meet its stated goals for export shipments in January.

The planned deliveries to mostly Indian and Chinese refiners also represent a rise of 390,000 barrels a day compared with December shipments, according the records viewed by the Journal.

Iraq’s plan to increase exports comes as other OPEC members are informing their buyers that less oil—not more—is coming.

Speaking to reporters this weekend, Saudi Arabian energy minister Falih al-Khalid said state-run Saudi Aramco had notified customers that it will reduce deliveries despite high demand for its oil in January. OPEC members Qatar, Angola and Algeria have also told crude-oil buyers like refineries that they will be reducing deliveries.


In Russia, a non-OPEC producer that joined the cartel’s efforts to pull back output, Energy Minister Alexander Novak said on Wednesday that 12 companies that produce about 90% of the country’s oil have pledged to uphold a production cut, according to Interfax news agency. Russia is among 11 non-OPEC producers that agreed to cuts along with OPEC.

“They will lower [output] proportionally to production volume,” he said.

OPEC has set up a five-member committee to monitor countries’ compliance with their pledges to cut. The committee will include OPEC members Kuwait, Algeria and Venezuela and Russia and Oman from outside the cartel representing the 11 non-OPEC producers that also promised output cuts.

>>> US Early pre-market gappers:

Early pre-market gappers:

Gapping up: CBIO +48.7%, PPHM +45.8%, BOSC +30.2%, PIR +26.5%, ACUR +11.0%, ARWR +9.5%, ONVO +5.7%, SAFM +5.3%, NMM +4.9%, MDLZ +4.9%, HBI +3.7%, LLY +3.7%, OMAM +2.5%, FRO +2.3%, RYAAY +2.2%, ERIC +1.9%, WTW +1.9%, XLNX +1.8%, BCS +1.5%, CS +1.5%, PPC +1.2%, COF +1.2%, SQ +1.2%, FEYE +1.2%, MA +1.1%

Gapping down: SGY -25%, FOLD -12.0%, KCAP -8.0%, CDE -6.0%, GFI -5.6%, EGO -5.3%, MPEL -5.3%, HMY -5.0%, AU -4.8%, AG -4.5%, GOLD -4.3%, SLV -4.3%, FSM -4.1%, SSRI -4.1%, HL -3.7%, SLW -3.6%, FANG -4.0%, RIO -3.5%, DNR -3.5%, YHOO -3.4%, NEM -3.2%, FCX -3.1%, GPOR -3.1%, SAND -3.1%, AEM -3.0%, GG -3.1%, ABX -2.9%, AUY -2.9%, PAAS -2.7%, CLF -2.7%, BTG -2.7%, TSU -2.6%, TECK -2.6%, PBR -2.5%, MUX -2.5%, RGLD -2.4%, UGP -2.4%, CABO -2.4%, GDX -2.4%, SBGL -2.3%, AKG -2.2%, BBL -2.2%, KGC -2.2%, MT -2.1%, X -2.0%, IAG -2.0%, GLD -1.3%  

WSJ : How a Monte dei Paschi Rescue Is Unlikely to Solve Italy’s Banking Problem

How a Monte dei Paschi Rescue Is Unlikely to Solve Italy’s Banking Problems
The industry is hamstrung by a sluggish economy and an ultratraditional business model

ROME—A nationalization of troubled Banca Monte dei Paschi di Siena SpA appears increasingly likely. But a rescue of the Tuscan lender—expected as soon as next week—will do little to resolve broader woes of Italian banks.
Some are urging Rome to seize the moment to initiate a broader cleanup of a banking system that has €360 billion in bad loans and is among Europe’s least-profitable. “The problems of certain specific banks may be solved,” said Giovanni Bossi, chief executive of Banca Ifis SpA. “But a complete overhaul of Italian banks’ business model is needed.”
But with the exception of some possible support for a clutch of small, critically ill lenders, broad sector-wide intervention is unlikely. To stay afloat, Monte dei Paschi is making a last-ditch attempt to raise €5 billion by the end of the year. To this end, it plans to launch a debt-to-equity swap and a share sale this week. according to people familiar with the situation. Both transactions are likely to last no more than a few days, the people said.

If the bank fails to raise the money it needs from private investors, the Italian government will step in and bail out the bank, a Treasury official said earlier this week.
But according to European rules, this rescue or any broader such effort to shore up the local banking system can’t happen without imposing losses on shareholders and some bondholders. This choice is unpalatable for any government in Italy, where around €30 billion of banks’ junior, or riskier bonds, are in the hands of mom-and-pop investors.
ENLARGE

The prospect of elections in Italy next year and a surge in populist parties ready to oppose any government attempt to help the banks leaves little chance of bold action beyond Monte dei Paschi at this stage, including by Italy’s new caretaker government. It took over after a failed constitutional referendum backed by the prime minister.
Meanwhile, a raft of policies promulgated by the last Italian government to bolster the sector have yet to gain much traction.
Italian banks face troubles on multiple fronts. An economy that is at a near standstill—Italy’s economy isn’t expected to grow by more than 1% in the coming years—and Italian banks’ ultratraditional business model offers little escape from the pain inflicted by low rates on much of Europe’s financial sector.
In Italy, most rates have remained fairly stable despite the recent rise in U.S. rates.
That stasis has squeezed the banks’ net interest margin, or the difference between what they pay on deposits and receive on loans. Fierce competition for healthy borrowers is pushing down lending rates. Meanwhile, moribund business investment is sapping an overall weak demand for loans, totals of which haven’t budged in more than two years. Italian banks have seen revenue from lending activity fall by a third from 2008, according to consultancy Prometeia SpA.

At the same time, deposit rates in Italy don’t change much, with banks paying a full percentage point on top of the one-year benchmark rate, according to Barclays.
Last year, customers at Banco Popolare SpA began receiving letters from other banks offering them loans at as little as 1% interest—effectively cutting in half the spread the banks charged to lend. Meanwhile, other rivals were offering to pay as much as 2% on deposits, a rich return for depositors who had been receiving nothing on their accounts. As a result, Banco Popolare’s net interest margin declined to 1.6%, from 1.92% over the last two years.
Banco Popolare tried to offset declining revenue from lending by pushing asset management and insurance products to customers, tapping the country’s private wealth. But while such a strategy has worked for a select few healthy lenders, it didn’t for most. Banco Popolare’s fees and commissions revenue have dropped 7% in the last two years.
“The market has been hit by a landslide,” Banco Popolare Chief Executive Pier Francesco Saviotti said this summer.
Meanwhile, costs remain high. Italian banks—which employ 350,000 people—spend 64% of their revenue on operational expenses, compared with 50% for Spanish banks and 60% for Greek banks. Costly severance packages and rigid employment contracts slow efforts to reduce banks’ costs, which are down 2% in the past year.
The result: Italian banks’ return on equity, a measure of profitability of banks, was 4.8% last year, compared with 14% for Irish banks and 8.3% for French banks.
Meanwhile, bad loans have continued to pile up, as Italy’s protracted economic problems send more companies to default. But the banks’ paper-thin profits are too little to cover the losses that write-downs would create.
That has meant that banks have been reluctant to unload the loans to investors willing to buy them at cut-rate prices. While €20 billion in sales of bad loans have occurred this year, that represented just 6% of all problematic loans.
According to the European Banking Authority, more than 16% of all loans in Italy are nonperforming, triple the EU average.
Efforts by UniCredit SpA, Italy’s largest bank and holder of more bad loans than any bank in Europe, to draw a line under its problems expose the capital shortfall Italian banks are suffering. On Tuesday, the bank—which has €77 billion in bad loans—said it would write down its worst loans by 75% and those classified as “unlikely to pay” by 40%. The bank now must raise €13 billion in part to cover the losses created by the write-downs.

FT : Val Thorens: the great white hope

Val Thorens: the great white hope
Once known as a place for cheap student ski breaks, the French resort is enjoying a flurry of five-star openings and a surge of investment — thanks, in part, to climate change

My biggest regret about spending an afternoon in Val Thorens learning how to monoski is forgetting my 30 year-old Degré 7 onesie. Had I been authentically dressed, I might just have embraced the hip-swinging, knee-clenching glory of the experience more.

As it was, I struggled to get past the bizarre feeling of my feet being clamped together on a single ski and having to grip, toes cramping, on to the piste with just one edge. In the 1980s, monoskiing — using one wide ski with both feet together and facing forwards, and with poles in hand — was the height of alpine cool, a short-cut to the knees-together style that was the sport’s gold standard. But then came snowboarding, its sideways stance and fluid motions borrowed from surfing, and monoskis were abandoned more or less overnight.
Now, in the French Alps at least, they are threatening a comeback. The French Monoski Association has planned a series of meetups for enthusiasts through the winter, culminating in a “Mondial de Monoski” in March, while in Val Thorens, the Ski Cool ski school is launching monoski lessons.
Val Thorens, Europe’s highest ski resort, is a fitting place for a resurgence. The resort opened in 1971, the same year in which the first feature about the “Single-ski” appeared in Ski Magazine, with the title: “Dude, I can hardly ski with two skis. How am I supposed to ski with one?” The next two decades saw the golden age of “le monoski” and of the egalitarian purpose-built French ski resort: Tignes, Flaine, Avoriaz and above them, all Val Thorens, perched 2,300m up at the top of the Belleville valley.
In its infancy, Val Thorens attracted free spirits to what was viewed as the frontier of alpine development. “The locals [from towns lower down the valley] would warn my parents: ‘Don’t stay up there, the birds will peck the wool off your back!’” says Cédric Gorini, a hotelier in the resort whose parents were recruited in 1972 to help set up the ski school. He was one of the first children to grow up here.
“In winter, the storms were so bad we’d be snowed in for days and in summer we couldn’t afford the petrol to go elsewhere. As kids, we’d sledge to school, run the ski lifts ourselves and ski all year round on the Péclet [glacier]. Nobody knew if Val Thorens would work: we were living an adventure without a future.”
Offering entirely ski-in/ski-out accommodation, car-free tranquillity and snow-sure skiing, Val Thorens flourished in the 1980s. Its architecture, relying heavily on concrete, seemed modern (if not as self-consciously futuristic as Flaine) and its lifts were strikingly fast and efficient. When it launched in 1982, the 150-person Cime de Caron cable car was the world’s largest.
However, there were downsides too. Here, high above the tree-line, vicious winds and snowstorms can batter the village. Visitors tended to hunker down in their cramped apartments rather than roam the streets enjoying restaurants and après ski. Like many other French “ski factories” — and like monoskiing — Val Thorens lost momentum in the 1990s. While Courchevel, in a neighbouring valley but 500 metres lower, blossomed into the ski world’s undisputed leader for luxury hotels and Michelin-starred restaurants, Val Thorens evolved into a place for cheap packages, students and families.
An instructor from Ski Cool leads a monoski lesson
But then the effects of climate change began to become increasingly hard to ignore. Glaciers were retreating faster, while a string of reports suggested diminishing snowfalls and warmer temperatures threatened the viability of low-altitude resorts. Suddenly Val Thoren’s bitter weather seemed more reassurance than inconvenience.
When I visited in late November for La Grande Première, the resort’s 2016/17 winter opening weekend, conditions were ideal: cold and sunny with two metres of snow up top. No wonder record numbers of visitors — 30,000 of them — showed up over the weekend.
A bedroom in Altapura, the property that kick-started Val Thorens’s transformation
Lower resorts have not been so lucky. Warm weather and rain means that, with Christmas only a week away,
many are surrounded by hillsides that are green and brown rather than
white, a situation that is becoming worryingly familiar.
“The seasons are changing, without doubt,” says Grégory Guzzo, director of the Val Thorens tourist office. “Guests certainly come to Val Thorens because they want a holiday guarantee.”
And while reliable snow attracts skiers, it has also become a magnet for investors growing increasingly anxious about climactic trends: Val Thorens now looks a far better long-term bet than many more famous, but lower, resorts. The result is that luxury has rapidly arrived in the once utilitarian resort. Four five-star hotels have opened in as many years — there were none before — bringing a new type of client to this remote valley. The first, Altapura, launched with four stars in 2011 and gained a fifth the following year. The 39-year-old Fitz Roy emerged from an extensive refurbishment with five stars in 2013, followed by the launch of Koh-I Nor in 2014 and Pashmina in 2015. “We don’t want to become Courchevel,” insists Guzzo. “We’re still the same at heart but wanted to offer old and new guests something different.”
The dining room at La Datcha, a new chalet that costs up to €98,000 per week
Despite Guzzo’s professed reservations, one of this winter’s most anticipated openings is La Datcha, a luxury chalet for up to 12 that couldn’t underline more clearly the resort’s move towards Courchevel’s rarefied orbit. Val Thorens has traditionally had apartment blocks rather than private chalets, and it has never had anything like this — a chalet that sells for up to €98,000 per week. It has a spa, indoor swimming pool, a games room with golf simulator, and a wine list that runs to 1969 Dom Pérignon. And like many of Courchevel’s “uber-chalets”, La Datcha is Russian-backed — in this case being co-owned by Oleg Tinkoff, the credit-card tycoon and IT entrepreneur. In fact, the new chalet is the latest in Tinkoff’s collection of rental properties, joining La Datchas in Tuscany, Astrakhan in Russia and in Courchevel itself.
As I walked and skied around the streets of Val Thorens, it was clear that the number of smart shops is increasing fast, although they’re mostly selling swanky ski kit rather than furs or jewels. The dining scene has also glammed up. Among openings this winter is the restaurant at the new four-star Fahrenheit 7 hotel, which serves oysters and tuna tataki to rival Courchevel’s finest. So far, there are few signs of a burgeoning bar and club scene, but they will surely follow the snow here, along with more spas and boutiques.
The Altapura, the property that kick-started the five-star transformation, was developed by Maisons et Hôtels Sibuet, a renowned family-owned group based in the historic and upmarket — but at 1,100m relatively low-lying — resort of Megève. “After 30 years spent creating hotels and restaurants in Megève focused on lifestyle and gastronomy, we wanted to find a resort with guaranteed snow November to May,” says Marie Sibuet, the group’s managing director. “Our regular guests will always come to Megève for Christmas and Easter but they book into Altapura when they really want to ski. It’s the same clientele but a different philosophy.”
Altapura brought fresh, money-spending blood to Val Thorens that was particularly welcome to Cédric Gorini. As well as helping his parents run the Hotel 3 Vallées and a local real estate business, he had launched an upmarket mountain restaurant, Chalet de la Marine, with his brother in 2010. Altapura’s guests rescued it from straightened times; the subsequent five-star launches sealed its resounding success.
The lobby at the Pashmina
Having added a fourth star to the family hotel, and seeing the success of Altapura, Fitz Roy and Koh-I Nor, the Gorinis realised a long-held dream to launch their own luxury hotel, the Pashmina, with Cédric at the helm. He was initially nervous: “I was not from that world — is luxury gold taps and marble walls? These five-star people, they have demands from Mars.” But the family realised that, in Val Thorens, luxury is space, so the Pashmina, set on the highest plot in town, has just 52 bedrooms in a building that could fit double that.
With Tibetan prayer wheels, handwoven Peruvian rugs, sleeping bags swagged around the windows and snowshoe imprints on the carpets, Pashmina reflects Gorini’s deep affinity for the mountains. Every Tuesday, the former ski racer takes guests and staff ski-touring up the mountain and his current dream is to get the climber Reinhold Messner to speak at his annual Winter Camps, which combine accommodation, free ski tuition and evening talks from celebrated alpinists. Sporting a dapper boiled wool jacket when we meet, Gorini seems reconciled to being part of the five-star world he once found daunting, but he also points to the emergence of a new type of Val Thorens clientele — ski-mad and obsessive about snow conditions at the same time as appreciating fine food and stylish decor.
“Today wellness and adventure, sports and luxury go hand in hand, “he says. “We’re beginning to get guests who look like us now.”
Whether they will return to monoskiing remains to be seen.
Details
Gabriella Le Breton was a guest of the hotel Pashmina Le Refuge and Val Thorens. Double rooms at the hotel cost from €155 per night half-board. The ski season at Val Thorens continues until 1 May

Reuters - Brexit trade deal with EU could take 10 years, UK envoy to EU says: BB

Brexit trade deal with EU could take 10 years, UK envoy to EU says: BBC

A post-Brexit trade deal between Britain and the European Union might take 10 years to finalize and could still fail, the United Kingdom's ambassador to the bloc has told Prime Minister Theresa May's government, the BBC reported on Thursday.

Ivan Rogers, Britain's envoy to the EU, warned ministers that the European consensus was that a deal might not be done until the early to mid-2020s and that national parliaments could ultimately reject it, the BBC said.

PM May's office said it did not recognize the views expressed by the diplomat, the BBC said.

May has said she will invoke Article 50, the two-year divorce process for leaving the EU, by the end of March.

(GS) Steinhoff / Shoprite : First Take: Steinhoff, Shoprite enter discussions on

First Take: Steinhoff, Shoprite enter discussions on African assets

News 
Steinhoff and Shoprite (SHP) have announced today that the Boards of the two companies have agreed to enter into formal discussions regarding a potential combination of their respective African retail businesses, to form a new entity to be called Retail Africa. The discussions were “initiated and facilitated” by Titan (controlled by Christo Wiese) and PIC, who are the two largest shareholders of Steinhoff and SHP respectively. Proposed structure: SHP will acquire Steinhoff’s African retail operations in return for new SHP shares to be issued for a value that will be negotiated between the two parties. In addition, Steinhoff will acquire the stakes held in SHP by Titan and PIC (c.27% in aggregate), and issue Steinhoff shares in return, subject to an exchange ratio to be agreed. The announcement notes that this “may ultimately result in Steinhoff acquiring control of Retail Africa”, while also noting that Steinhoff “may be required to extend a mandatory offer” to other SHP shareholders (who will then have the right to either retain their stake in Retail Africa, or opt for a stake in Steinhoff). 
Analysis 
We take no view on the likelihood of the deal closing. If, as noted in Steinhoff’s announcement, the transaction results in Steinhoff acquiring control of Retail Africa, this would effectively mean that Steinhoff gains control of and consolidates Shoprite. For illustrative purposes, we lay out a pro-forma scenario analysis, that suggests potential dilution to Steinhoff’s FY17E EPS of 2%-8% (see exhibit inside). If fully completed, on pro forma basis the transaction would increase Steinhoff’s exposure to Africa from c.22% of FY19E EBIT to c.40%, while also introducing exposure to food retail. We acknowledge that a range of outcomes exist outside what we present here. 
Implications
We are Buy rated on Steinhoff. Our 12 month price target of €5.80 is based on a SOTP methodology. Key downside risks include M&A discipline, execution at acquired businesses, currency, low tax rate.

WSJ : The Risky Business of the Bank of England’s Brexit Warnings

The Risky Business of the Bank of England’s Brexit Warnings
In recent weeks, the BOE has at times sounded like an arm of the Treasury, if not a branch of the British Bankers' Association, Simon Nixon writes.

It is nearly 20 years since the Bank of England was relieved of its responsibility for the “sponsorship of the City.” When the central bank was handed its independence from political control in 1997, the government took the view that the BOE should focus solely on maintaining monetary and financial stability, leaving others to cheerlead for the U.K.’s financial-services industry. Yet in recent weeks, the BOE has at times sounded again like an arm of the Treasury, if not a branch of the British Bankers' Association.

In a series of interventions, BOE officials have warned of risks to European financial stability from a so-called hard Brexit, arguing for transition periods to allow banks to adjust to any new settlement between the U.K. and the EU.

“The U.K. is effectively the investment banker for Europe”, BOE Gov. Mark Carney said earlier this month. “More than half the investment and debt is raised in the U.K. by firms based in the U.K., quite often to investors based in the U.K. And these activities are crucial for firms in the European real economy…and it’s absolutely in the interests of the EU that there is continual access to those services.”

To hear the BOE warn of risks of a sudden stop in funding for Europe is music to the ears of London-based bankers, some of whom have made this a central plank of their Brexit lobbying efforts. It is also music to the ears of officials at the Treasury, which has been engaged in a battle with other Whitehall departments over the need for a transition period. Earlier this week, Chancellor of the Exchequer Philip Hammond cited financial-stability concerns when he said this week that “thoughtful politicians” on both sides of the Channel recognized the need for a transition period. This narrative is also popular with Brexiters, who regard it as confirmation that the U.K. has significant leverage over the EU.

The problem is that this argument—“Fog in the Channel; Continent Cut Off”—doesn’t really stand up to scrutiny. It is hard to find any Europe-based banker or policy maker who recognizes any serious risk to European financial stability from Brexit—so long as bank supervisors do their jobs properly. No one doubts that if the U.K. quits the EU’s single market—depriving London-based banks of financial passports that allow them to offer financial services across the EU—that this will create operational and regulatory challenges for many firms. But these obstacles are hardly insurmountable.

True, some firms will need to establish an onshore EU-based subsidiary and relocate some senior management and customer-facing staff. But most banks engaged in European business already have EU-based legal entities. Nor will everyone who needs to move be relocated to one place. More likely, some staff who are currently based in London but spend half the week visiting clients in their home markets may have to base themselves in their domestic market and spend half the week in London.

Nor should the regulatory obstacles—notably the need for banks to gain regulatory approvals for the models they use to calculate capital requirements—be overstated. Since taking over responsibility for eurozone banking supervision in 2015, the European Central Bank has been obliged to rely on models previously approved by 19 different national regulators.

“If we can accept model approved by the Bank of France and BaFin (the German regulator), we’re very unlikely to reject a model that has already been approved by the Bank of England,” says one senior eurozone banking official.

Of course, changes to business models will come with costs that any bank would prefer to avoid until the Brexit outcome is known. It is also true that these costs could push up the cost of finance for borrowers. Similarly, any fragmentation of the European financial system could unwind some of the agglomeration benefits that arise from London’s status as Europe’s financial center. Some firms may even decide to quit certain activities altogether.

But these risks need to be set in the context of banking industry in a constant state of regulatory-driven change over the past eight years. No one doubts that London will still remain Europe’s financial center, even if the way that borrowers access those markets change.

So why is the BOE talking up risks that at best seem marginal? One reason may be that it finds itself in an invidious position. If it really sees risks to financial stability, then it has an obligation as the U.K.’s bank supervisor to insist that firms activate their Brexit contingency plans in sufficient time to be ready for any outcome.


But any suggestion that it is actively pushing banks out of London would be politically explosive. It would also conflict with the BOE’s lesser-known, secondary objective to “support the government’s economic policy.” The government’s policy is to make a success of Brexit, which means preserving London’s role as Europe’s financial center and the tax revenues that brings.

Yet the BOE’s approach to these conflicting objectives carries risks. The first is that in reinforcing the notion that “they need us more than we need them,” it risks contributing to a distorted sense of the U.K.’s leverage, with the risk that London overplays its hand. The second is that by focusing attention on the importance of a transition plan, the BOE may be diverting attention from the very real risk that the divorce negotiations collapse in a disorderly way.

A prudent regulator should be focused on ensuring that firms under its supervision are prepared for the worst-case scenario. That would minimize any risks to European financial stability—which is still the only objective that really matters.