FT : Banking bonuses set to disappoint in City and on Wall Street

Banking bonuses set to disappoint in City and on Wall Street

A Wall Street sign near the New York Stock Exchange©AFP
It is the time of year when most bankers are focused on one magic number: their annual bonus. But this time many look set to be disappointed, as banking executives and analysts predict a fall in overall payouts to staff in the City of London and Wall Street.
At US banks, several of which report results this week, traders and investment bankers are fighting over a diminished bonus pool, according to executives. In the UK, most investment banks expect to see bonuses fall after a tough year, but political sensitivities over bankers’ pay are higher than usual in an election year.

One finance officer at a large Wall Street bank said it had been difficult to satisfy the warring parties: mergers and acquisitions and equity underwriting enjoyed a good year but these bankers never suffered the same bonus cuts as traders so they should not expect a big rebound in payouts.
Traders, in contrast, expect another fall after a weak fourth quarter. Citigroup decided last week that the bonus pool for traders would fall about 5-10 per cent, according to people familiar with the matter, after earlier pledging to hold it flat. Citi’s investment bankers can expect a modest increase.
In London people close to big City investment banks such as Deutsche Bank and Barclays said their bonus pools had been hit by weaker fixed-income trading figures and the impact of a European bonus cap, limiting payouts to no more than twice a banker’s fixed pay.
Tom Gosling, head of PwC’s reward practice, said: “Bonuses in the UK banks will almost certainly be down, but the problem for the industry is that the public’s trust in banks has never really been rebuilt so, for some, any level of bonus will be too much.”
Some banks, such as HSBC and Royal Bank of Scotland, are expected to deduct from their bonus pools part of the record $4.3bn fines for foreign exchange manipulation that they and four other banks — UBS, JPMorgan Chase, Bank of America and Citi — paid to regulators in November.
Goldman Sachs, often the barometer for industry bonuses, is forecast to pay staff about 38 per cent of revenues in salaries and bonuses. That would be in line with last year’s payout, which was the second-lowest in Goldman’s 15 years as a public company. Before the financial crisis, Goldman typically paid staff more than 40 per cent of revenues.
Rather than political pressure, the current parsimony is enforced more by investors pushing banks to give them a bigger share of the pie via higher shareholder returns.
“The trend is that compensation is trending downwards rather than upwards,” said Mike Karp, chief executive of Options Group, a recruitment company. But US banks are being more generous than their European rivals, particularly by paying more in cash than stock.
Morgan Stanley announced late last year that it would pay a bigger proportion of bonuses in cash — in part to head off criticism that its larger-than-average deferred pay was adding too much cost to future years and in part to satisfy staff. “The Europeans are going to be behind the ball in paying out in cash,” Mr Karp said.
Mr Gosling at PwC, who estimates bankers’ bonuses have halved since the financial crisis, said: “The [other] problem that British banks have is that they aren’t the price setters in this market — that is the foreign investment banks.”
The top 121 UK bankers at Goldman Sachs were the best-paid among their peers in Britain in 2013, earning an average of £3m each, according to regulatory filings. But the Office for National Statistics said total UK financial sector bonuses last year were down about a quarter from their peak in 2007.
With trading revenues still under pressure, Mr Karp at Options Group predicted more competition for traders who could make money. “The pie is not getting bigger; everyone’s going for a bigger slice,” he said.
“The war for talent is going to heat up this year because everyone wants this 35-37 year-old who can make $200m in revenues, whether he’s in credit trading or rates trading.”

FT : Asset managers plan to raise standards

Asset managers plan to raise standards

Poorly managed asset management groups face censure as the UK steps up its campaign to give investors better value for money.
The Investment Association, which represents more than £5tn of investor money in the UK asset management business, will publish a statement of investment principles over the next few months in an industry-wide crackdown to raise standards.

Daniel Godfrey, chief executive of the Investment Association, said: “We need to look at the big picture, which is about making investment better and making sure investment managers are able to demonstrate how they give customers a fair deal and put their interests first.”
Customers have become more sceptical over the ability of active fund managers to offer a fair service since the financial crisis as performance has failed to live up to promises, while fees were often considered excessive and hidden in commissions.
Although the Investment Association is a trade body and unlikely to issue fines or take punitive action against its own members, it could name and shame poorly managed companies. This would then put pressure on those groups and possibly encourage investors to switch their money to companies that met the required standards.
The statement of principles, which is being drawn up by a group of lawyers and compliance experts, is likely to be made up of seven or eight key principles.
These are expected to include warnings to firms against favouring new clients with lower fees to win their business or by offering selected groups the most sought-after stocks, such as newly listed companies that are only on offer to a limited number of customers.
It will also demand high standards of transparency and warn groups that they must offer value for money and put the customer first.
To make sure firms comply, the Investment Association, which changed its name from the Investment Management Association this year, is likely to insist member firms set up an independent panel or draw up an independent report to show standards are being met. This aims to provide investors with a credible assurance that the principles are being adhered to.
The Investment Association plans to consult the UK regulator, the Financial Conduct Authority, and hopes to build on other UK initiatives such as the creation of an Investor Forum, which aims to strengthen the power of shareholders over issues such as executive pay, and the Retail Distribution Review, which has cracked down on hidden commissions and charges.
Leading investment groups have backed the move, saying that an industry-wide set of standards will help restore trust between clients and fund managers, which has been damaged by the traumas of the financial crisis and scandals such as the Madoff affair.
Elizabeth Corley, Allianz Global Investors chief executive who was awarded a CBE by the Queen in the new year honours, told a conference in London recently: “We have a trust deficit and we need to acknowledge it.”

(Barrons) Plunging Oil: What the Past Tells Us

Plunging Oil: What the Past Tells Us
Oil price plunges in the past haven’t been bad for stocks. Since 1984, oil has seen three similar drops, and each time stocks traded higher a year later.

In Ghostbusters, Bill Murray and his crew of paranormal investigators listed signs suggesting that the end of the world was near that included everything from fire and brimstone to cats and dogs living together. With a reboot of the hit film in the works, you have to wonder if they’ll now include $50 a barrel oil on that list.

Some in the market seem to believe they should. Last week, the price of a barrel of crude dropped below $50 for the first time since the financial crisis, and that caused all kinds of consternation, with the weakness in oil said to be pointing to a global economic collapse. As a result, the Standard & Poor’s 500 index fell each of the first three days of the year, the first time that’s happened since 2005.

The only problem: Just as there’s no proof that ghosts actually exist, there’s little evidence that tumbling oil is bad for the stock market—or for the U.S. economy. In fact, the very opposite might be true.

Now don’t get me wrong: The plunge in oil shouldn’t be taken lightly. At the end of last week, a barrel of crude changed hands at $48.36, less than half of what it had traded for six months ago, among the fastest drops of the past 30 years. In the U.S. alone, oil’s precipitous drop has had a sizable impact on expectations for corporate profits: Analysts have cut their fourth-quarter earnings forecasts for S&P 500 energy stocks by more than a quarter since the end of September, while total S&P 500 earnings forecasts have come down by more than 7%.

The good news, however, should outweigh the bad. Citigroup economist William Lee notes that the U.S. still gets about a quarter of its oil from overseas, so lower oil prices should benefit the economy to the tune of $140 billion, while every household should have an extra $1,400 or so to spend. No wonder, then, analysts expect consumer discretionary stocks—companies like Walt Disney (ticker: DIS) and Home Depot (HD) that benefit when Americans have extra cash to spend—to post record earnings in 2015.

But here’s the thing: Such plunges haven’t been bad for stocks—or the U.S. economy, for that matter. Since 1984, oil has experienced three similar drops, and each time the S&P 500 traded higher 12 months later. In 1986, for instance, oil plunged 46% as the oil embargo of the 1970s spurred conservation and new production, ultimately leading to a supply glut. Did the plunge in oil prices bring down the U.S.? Far from it. Real gross domestic product grew at a 2.9% clip, while the S&P 500 gained 15% that year. Evercore ISI’s Ed Hyman calls that year “a good road map for the U.S….We doubt [oil’s decline signals] the beginning of a major deterioration in the economy or equity markets.”

Don’t bet on a rapid rebound in oil prices, however. Many observers act as if it’s just a matter of time before oil trades at $100 again. But a look at history shows just how extreme that is. Consider: From 1982 to 2002 oil generally traded in a range between $20 a barrel and $40 a barrel, with the top end only being hit during the Gulf War in 1990, when the supply of oil from the Middle East was under a direct threat. In fact, that $40 oil was enough to send the U.S. spiraling into recession.

BUT SOMETHING HAPPENED IN 2002 that would change how the market thought of oil—and pushed the price of crude to previously unprecedented levels. That something was China. From 2001 through 2006, its rate of growth nearly doubled, from 6.6% to 12.4%, as China entered a so-called supercycle as it rapidly modernized its economy. Double-digit growth in the world’s second-largest economy, however, is now a thing of the past—and with it one of the forces that drove oil prices ever higher.

The price of oil also got a boost from its use as an “investment.” The easiest way to bet on rising oil prices is with futures contracts, and the number held by speculators increased 17-fold from 2002 through 2014’s peak in crude prices. And despite the rapid decline in oil, the number is still 10 times higher than it was at the start of the period, notes Gluskin Sheff economist David Rosenberg. “Those were the forces driving $100 oil,” Rosenberg says. “It was never going to be sustainable.” And it probably won’t get there again—at least not for a very long time. Rosenberg suspects that oil will eventually settle into a range between $40 and $60 a barrel.

With that in mind, and with many investors digging through the wreckage searching for bargains in a beaten-down energy sector, BMO strategist Brian Belski warns against moving too quickly. His reasons: Slowing profit growth and dwindling free cash flow makes the energy sector, he says, “a classic value trap. We recommend that investors proceed with extreme caution.”

Otherwise, a feel-good story could quickly morph into a horror show.

>>> Atlantia looks to sell 30%-40% stake in Autostrade per l'Italia

Atlantia looks to sell 30%-40% stake in Autostrade per l'Italia

Atlantia, the listed Italian infrastructure group, is looking to sell a 30%-40% stake in Autostrade per l'Italia (ASPI), its Italian motorway operating unit, Italian-language daily Il Sole 24 Ore reported.

The unsourced article said the operation was discussed informally and is now to be evaluated at a board of directors meeting.

The report noted the timing and structuring of any such operation still needs to be discussed. The timing is also likely to be determined by when Atlantia sells a 20%-30% stake in Aeroporti di Roman (AdR), the company that manages Rome's airports, the item noted.

Atlantia is valued by some analysts at EUR 18bn, of which EUR 13bn is accounted for by its motorway operations and EUR 3.5bn by its airport operations. The report added that Atlantia could receive EUR 5bn-EUR 6.5bn from the sale of the stakes in ASPI and AdR.

Atlantia has a market cap of EUR 16.4bn.

Il Sole 24 Ore

>>> Auchan may be interested in acquiring Tesco's Polish assets

Auchan may be interested in acquiring Tesco's Polish assets 

French retail group Auchan might be interested in acquiring the Polish assets of Tesco, the UK-listed supermarket group, reported Puls Biznesu, citing Jaroslaw Kosinski, a partner at OC&C Strategy Consultants.

In Kosinski’s view, Tesco’s Polish assets may also attract the interest of private equity funds, the Polish daily reported on 9 January.

Last Thursday, Tesco announced its sales for third quarter and December, and Poland was one of its worst markets, the paper said.

Experts do not expect any sudden movements in Poland by Tesco but they also cautioned that the aforementioned sale could not be ruled out, the report noted.

The Polish market is very competitive and the consolidation process is not over yet, while Tesco is not doing well locally, Kosinski said.

Tesco has more than 450 shops in Poland that generate about PLN 11bn (USD 3.05bn) in revenues, the item reported.

Puls Biznesu

(Barron's) No Way Out: ECB and QE

No Way Out: ECB and QE
Quantitative easing by the European Central Bank already seems to be priced in to euro-zone bond prices ahead of the central bank’s monetary-policy meeting on Jan. 22.

Dow Jones Global Indexes|Global Stock Markets

Euro-zone headline inflation turned negative in December, making it virtually inevitable that the European Central Bank will announce some sort of stimulus later this month.

All eyes will be on the bank’s monetary-policy meeting of the governing council on Jan. 22. Quantitative easing already seems to be priced in, and anything less will leave markets sorely disappointed. A 0.2% drop last month in annual consumer prices—the first decline in five years—was worse than feared and, thanks to the sharp drop in oil prices, more bad news could be coming.

It may not be the start of a long-term deflationary spiral. But, since inflation now seems so remote from the ECB’s target rate of close to—but below—2%, the data could spark the bank to act. Measures taken so far—asset-backed securities and covered-bond purchase programs, and long-term refinance operations—haven’t produced desired results. Markets seem to be waiting for large-scale bond purchases, which have been effectively deployed by other central banks.

The ECB has previously signaled its intention to expand its balance sheet to 2012 highs, which would increase liquidity by about one trillion euros ($1.18 trillion). But expectations have caught up with it. The situation may now require an injection of as much as €1.5 trillion to stimulate economic activity and to raise inflation expectations in the euro area.

Attention is now focused on the execution of large-scale bond purchases. Economists believe the responsibility for buying bonds could fall to the national central banks, based on their paid-in share of ECB capital. Germany’s Bundesbank has the largest share. Purchases may comprise a small amount of investment-grade corporate bonds, but the bulk will be sovereign debt.

In anticipation of the purchases, euro-zone bond prices rose and yields fell in recent weeks. The yield on Germany’s benchmark 10-year government bond is trading around lows of about 0.5%. U.S. Treasuries of similar maturities offer a coupon of about 2%. Bonds of euro periphery nations have benefited, too. Irish 10-year bonds yield 1.21%, and Portuguese 10-years, 2.6%.

The exception is Greece, where spreads have widened due to political uncertainties. A general election is scheduled for Jan. 25 and anti-austerity parties are ahead in opinion polls. That raises questions about Greece’s commitment to its international bailout. If a new government attempts to renegotiate the terms of the rescue, or if it defaults, there could be disastrous consequences for Greece. The yield on its 10-year sovereign debt has ballooned to about 10%, reflecting the unpredictable outlook. But the prospect of a reliable buyer has helped keep a lid on contagion.

For the ECB, doing nothing is no longer an option. Its role in defending price stability would come into question, and the euro, which has weakened 2.3% since Jan. 1, probably would jump. Jan. 22 is the ECB’s day of reckoning.

BANCO SANTANDER ’S €7.5 BILLION CAPITAL increase may not be enough, and its shares (ticker: SAN.Spain) could fall further. The bank’s 2015 pro forma Core Tier-1 equity ratio of 10% remains below peers, and high levels of debt in Spain and a deteriorating macro outlook in Brazil pose challenges. The stock, which fell 16% last week, could hit €5.40, according to Berenberg analyst Nick Anderson, a drop of more than 10% from Friday’s close of €6.06.

Fwd: GoldenTree, Marc Lasry Buy Just Under 50% of Seat PG: Sole

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GoldenTree, Marc Lasry Buy Just Under 50% of Seat PG: Sole 2015-01-10 11:25:20.419 GMT

By Daniele Lepido (Bloomberg) -- GoldenTree Asset Management purchased 26.128% of Seat Pagine Gialle, Marc Lasry 23.87%, Il Sole 24 Ore reports, citing a filing from Italian market authority Consob. * NOTE from Aug. 5: Seat Pagine Gialle Says 1H Results in Line With FY Targets Link

Link to Company News:PG IM <Equity> CN <GO> Link to Company News:0967057D US <Equity> CN <GO>

For Related News and Information: First Word scrolling panel: FIRST<GO> First Word newswire: NH BFW<GO>

To contact the editor responsible for this story: Daniele Lepido at +39-02-8064-4266 or dlepido1@bloomberg.net

>>> US Close Dow-0,95% S&P-0,84% Nasdaq-0,68% Russell-0,87%

Closing Market Summary: S&P 500 Ends Week Below 50-Day Average
The S&P 500 began the first full week of 2015 with a slide below its 50-day moving average (2045) and found itself fighting that level once again on Friday. The benchmark index settled just below the 50-day average, losing 0.8% to lock in a 0.6% decline for the week while the Nasdaq (-0.7%) outperformed slightly, falling 0.5% for the week. 

Friday's affair was a bit of a roller coaster with the first downswing coming in the early morning hours when futures retreated in reaction to a Bloomberg report indicating the European Central Bank remains unsure of a format for its QE program. The news rattled U.S. futures and markets in Europe considering a QE announcement in two weeks was all but priced in.

The early morning slip was followed by a swift recovery of the losses when the December Nonfarm Payrolls report beat expectations (252K; consensus 245K) on the headline level. The resulting rebound rally was short-lived, fading as soon as the cash market opened and, we would contend, as soon as participants finished reading the report.

Specifically, the lack of payroll growth took the shine off what would have been a decent report. Hourly wages declined 0.2% and November growth was slashed in half (to +0.2% from +0.4%). Once the realization that without payroll growth there can be no consumption growth sank in, equities retreated. In addition to pressuring stocks, dimming growth prospects weighed on crude oil ($48.40/bbl, -$0.41) while boosting Treasuries. The benchmark 10-yr yield fell four basis points to 1.97% after bouncing off the 1.95% level.

Cyclical sectors bore the brunt of today's losses with four of six growth-oriented groups ending in-line with or behind the broader market. Notably, the implications stemming from the absence of wage growth kept financials (-1.3%) and consumer discretionary shares (-1.1%) behind the broader market throughout the session.

The financial sector finished at the bottom of the barrel while the discretionary sector ended just above with retailers fueling the weakness. The SPDR S&P Retail ETF (XRT 95.25, -1.74) lost 1.8%. However, the widespread selling in retail stocks masked the relative strength among homebuilders. The iShares Dow Jones US Home Construction ETF (ITB 26.61, +0.07) gained 0.3%.

Elsewhere among cyclical sectors, industrials (-1.1%) finished among the laggards while energy (-0.8%), materials (-0.5%), and technology (-0.3%) outperformed.

The relative strength of the technology sector prevented the S&P 500 from revisiting its morning low. Several large cap names like Apple (AAPL 112.01, +0.12), Cisco Systems (CSCO 27.79, +0.28), IBM (IBM 159.11, +0.69), and Oracle (ORCL 43.39, -0.02) held their own while chipmakers eked out gains with the PHLX Semiconductor Index adding 0.1%.

Similar to chipmakers, the high-beta biotechnology group spent the day ahead of the broader market. The iShares Nasdaq Biotechnology ETF (IBB 313.32, -1.12) shed 0.4%, helping the Nasdaq Composite finish a bit ahead of the broader market.

Although biotechnology was able to underpin the Nasdaq, the group failed to lift the health care sector (-0.8%) ahead of the broader market as large cap components weighed.

Outside of healthcare, the remaining countercyclical groups ended near the broader market with consumer staples, telecom services, and utilities losing between 0.7% and 0.8%.

Today's participation was below average with roughly 713 million shares changing hands at the NYSE floor.

Economic data included Nonfarm Payrolls and Wholesale Inventories:
  • Nonfarm payrolls increased by 252,000 in December after adding an upwardly revised 353,000 (from 321,000) in November while the consensus expected an increase of 245,000 
    • The unemployment rate fell to 5.6% in December from 5.8% in November (consensus 5.7%), but that resulted from a large decline in labor force 
    • Average hourly wages in December contracted 0.2% after increasing a downwardly revised 0.2% (from 0.4%) in November 
  • Wholesale inventories increased 0.8% in November after increasing an upwardly revised 0.6% (from 0.4%) in October while the consensus expected an increase of 0.3% 
    • Durable wholesale inventories increased 0.8% in November, up from a 0.1% increase in October. Large gains in professional equipment (1.3%), machinery (0.9%), and automotive (0.6%) offset declines in lumber (-0.5%) and furniture (-0.3%) 
    • Nondurable wholesale inventories increased 0.7% in November, down from a 1.5% increase in October. Low oil prices pushed petroleum inventories down 3.7%. That loss was more-than-offset by a 5.7% increase in farm product inventories 
Monday's session will be free of economic data.
  • Dow Jones Industrial Average -0.5% YTD 
  • S&P 500 -0.7% YTD 
  • Nasdaq Composite -0.7% YTD 
  • Russell 2000 -1.6% YTD

>>> US Earnings Preview for the week of January 12 - 16

Earnings Preview for the week of January 12 - 16

January 12 - 16 some of the bigger names include:
*Monday:
After Hours - AA, SNX, LMNR
*Tuesday:
Pre Market - KBH, IHS
After Hours - CSX, LLTC, PRGS, DRWI
*Wednesday:
Pre Market - JPM, WFC, SJR, NORD
After Hours - GEF, CLC
*Thursday:
Pre Market - TSM, BAC, C, PPG, BLK, LEN, FAST, FRC, CBSH, WNS, IIIN, HOMB
After Hours - INTC, SLB, PBCT, WTFC, OZRK
*Friday:
Pre Market - WIT, GS, PNC, STI, CMA, PVTB

>>> Air Liquide : Announces a New Bond Issue in Chinese Renminbi, a First in the

Announces a New Bond Issue in Chinese Renminbi, a First in the Taiwanese Market 

Following its September 2011 bond issue in Hong Kong ("Dim Sum Bond"), Air Liquide Finance innovates yet again with the issue on January 9, 2015 of its first Chinese renminbi-denominated bond on the Taiwanese market ("Formosa Bond") for a total of 500 million Chinese renminbi, equivalent to 68 million euros. Air Liquide is thus the first non-Taiwanese corporate to issue bonds in Chinese renminbi on this market.

This issue, which benefits from favorable market conditions, will contribute to the financing of industrial projects in mainland China, in particular the one located in the province of Fujian announced in May 2013. The Group currently has more than 4,000 employees in China and operates 85 production plants in various industrial basins. With this issue, that will be listed on the Gre Tai Securities Market in Taiwan, the Group accesses a liquid capital market and diversifies its sources of financing in Asia. Air Liquide is therefore targeting a new investor base, that is looking for international issuers and longer maturities