In the news this week

Author: John Crabb, Karry Lai, Olly Jackson | Published: 28 Sep 2018
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Americas: past and present


Productivity was at an all-time low across the US yesterday as the latest reality television show to grip the country came took a dramatic turn. Millions tuned in to watch Christine Blasey Ford, an American psychology professor, testify in the Senate against Judge Brett Kavanaugh, President Donald Trump’s Supreme Court nominee, on sexual harassment allegations when the pair were in high school. 

The ongoing North American Free Trade Association saga continued this week, taking another nasty step towards an uncertain future. President Trump rejected a one-on-one talk with Canadian Prime Minister Justin Trudeau, as the country refused to cave to American pressure. The Democratic side of Congress meanwhile suggested they would not accept a deal that did not include Canada, as the decade-old agreement looks on the brink of collapse. 

Some transactional news as Philadelphia-based multimedia company Comcast announced the acquisition of UK cable and internet company Sky for $38.8 billion. The company fought of bids from 21st Century Fox to secure the purchase, which will see the 38% that Fox owns be sold.

In Brazil, oil and gas company Petrobras was charged $933 million in disgorgement and prejudgment interest and an $853 million penalty by the US Securities and Exchange Commission (SEC) for the massive bribery and bid rigging scheme it was complicit in in 2010. The company 'fraudulently raised billions of dollars from US investors while its senior executives operated a massive, undisclosed bribery and corruption scheme,’ said the SEC.


Asia Pacific: making inroads


MSCI is consulting on whether to increase the weighting of Chinese A-shares in its indices from an initial five percent to 20% in two stages in 2019. The index provider indicated that it is increasing the proportion of A-shares because of Stock Connect robustness as well as market accessibility improvements. The consultation ends February 15 2019.

The China Securities Regulatory Commission has released a notice indicating that underwrite kickbacks for bonds are not allowed. Information regarding those involved, including the underwriters, issuers and anyone with an interest in the transaction, will be published. Although there are regulations targeting the manipulation of bond prices, illicit payments such as kickbacks are not specifically banned.

The Indian government is consolidating regional rural banks and public sector lenders from an existing 56 to 36 to improve the financial health of banks, increase efficiency and allow for better credit flow to rural areas. Meanwhile, India’s public sector banks Bank of Baroda, Vijaya Bank and Dena Bank are also merging to become the country’s third largest bank. Finance Minister Arun Jaitley said the goal of the merger is make the banks stronger and to increase their lending ability.

The Hong Kong Green Finance Association has officially launched. The goal of the association is to mobilise private sector resources to fund green finance initiatives and to promote the adoption of green finance and responsible investment principles. 


EMEA: trouble ahead?


Equivalence will be one way for the UK to avoid the Brexit cliff-edge including in the clearing sector. This has become even more important given ongoing concerns that the UK and EU will be unable to reach a deal in time, and that the EU is yet to come up with a reciprocal scheme to the temporary recognition regime (TRR) proposed by the Bank of England. "The equivalence model is the best outcome so that both sides are aligned," said a source at a UK-based clearing house. "The UK needs independence rather than simply being a rule taker, whereas on the other hand regulatory alignment is necessary; equivalence best complements this balance."

The ongoing US trade war is having a limited impact on the European IPO market at present, although investors are becoming more selective than previously. Professor Michael Schlitt, partner and head of capital markets Germany at Hogan Lovells said:, "If you speak to the German regulator, they have never been as busy as now. I’m sure that we will be seeing a few transactions soon and others will follow suit; it will be a very active second half of the year." Certain industries, like car manufacturing for example, will be more affected; as seen by Volvo’s decision to drop their planned IPO. But generally, the tariffs implemented by the US and reciprocated by the EU have yet to deter the majority of companies already planning to launch their IPO.    

Phoenix Group has issued its first ever euro-denominated bond, a €500 million ($587 million) tier 2 capital bond in a rarely used bullet structure. The deal is the latest in the increasingly active insurance sector and part of an increasing trend of companies refinancing ahead of Brexit. "As a tier 2 instrument, this issuance will provide the group with solvency as opposed to a senior instrument," said Alison Stevens, deputy group treasurer at Phoenix. "We chose the maturity date for that time because it fitted in well with the maturity profile of our existing debt, as we don’t have any other debt instruments maturing in that year." 

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