Over-regulation and cyber risk top list of banking & capital markets CEO concerns

BY Fraser Tennant

Over-regulation and cyber risk are the two major threats to banking & capital markets (BCM), according to a new PwC report 'Achieving Success While Managing Disruption'.

The report, which showcases the views of 175 BCM CEOs across 54 countries, contends that over-regulation concerns have increased from 80 percent in 2014 to 89 percent in 2015 with CEOs particularly fearful over the impact of regulatory change.

“The ability to meet current and future regulation is hampered by lingering uncertainty over regulatory details and the potential for reactive and piecemeal implementation,” said Kevin Burrowes, PwC’s UK financial services leader. “It is vital for organisations to develop a proactive approach to regulation, headed by a regulatory leader responsible for liaising with regulators, assessing the strategic impact and co-ordinating the response.”

In terms of the risk of cyber attack, 79 percent of CEOs consider this to be likely and a potential barrier to business growth, although 92 percent still felt optimistic as to the prospects for growth of their own organisations.

Further survey findings include: (i) 86 percent of BCM CEOs recognise the importance of the CEO being the champion of digital technologies in helping to make the most of their bank’s digital investments; (ii) 93 percent of BCM CEOs see mobile technologies as being critical; (iii) 89 percent view data mining and analysis as important not only to gaining a better understanding of customer needs, but also in driving operational efficiency and effectiveness throughout the organisation; (iv) more than 40 percent of BCM CEOs see joint ventures, strategic alliances and informal collaborations as an opportunity to strengthen innovation and gain access to new customers and new/emerging technologies; and (v) 63 percent of BCM CEOs have a strategy to broaden talent diversity and inclusiveness or plan to promote one.

Report: A marketplace without boundaries?: Responding to disruption

Chinese FDI jumps in January

BY Richard Summerfield

According to the United Nations economic agency UNCTAD, China overtook the US in 2014 to become the most popular destination for foreign direct investment (FDI). Despite this, for many commentators, last year was disappointing for Chinese inbound FDI, which increased by only 1.7 percent to $119.6bn - the lowest growth since 2012.

As economic growth slows, more and more Chinese firms have begun to look overseas for viable investment opportunities. Accordingly, Chinese outgoing investment appears set to overtake inbound FDI in the coming years.

But there is hope that 2015 may prove more successful in terms of FDI. In January, FDI into China increased by 29.4 percent compared to the same period a year ago, recording its strongest monthly pace in over four years.  China attracted $13.92bn, up from $13.32bn in December 2014. The top 10 investors by region were led by Hong Kong, South Korea, Singapore, Taiwan and Japan, which accounted for 96.5 percent of total FDI into the country.

According to the data supplied by China’s commerce ministry, the services industry was the primary beneficiary of capital inflows. FDI into the services sector climbed to $9.2bn - a 45.1 percent increase from a year earlier and around 66 percent of total FDI. By contrast, manufacturing activity in the country is slowing down.

The commerce ministry, while encouraged by the influx of FDI already recorded in 2015, says it's still too early to suggest that China will remain the leading FDI target this year.

Some analysts have urged caution, noting that January alone may not be the strongest indicator of the likely annual FDI intake. Much of the scepticism is based on the strong seasonal distortions which have been caused by the timing of the Lunar New Year holidays, which began on 31 January 2014 but start on 13 February this year.

News: China January FDI grows at strongest pace in four years

HSBC in tax dodging scandal

BY Richard Summerfield

British banking group HSBC Bank plc is facing potential legal action in both the US and the UK over claims that the bank conspired with clients of its Swiss subsidiary, helping them avoid paying tax in the run up to the financial crisis.

According to a number of leaked bank account files, HSBC helped over 100,000 clients across 203 countries to hide around $118bn worth of assets. The documentation, which was leaked to a number of global media outlets, has sparked an outpouring of outrage across Europe, the US and elsewhere. Though the relevant tax authorities have had access to the leaked files since 2010, HSBC’s misconduct is only now being made public.

Prosecutors in the US have begun to intensify their investigations into HSBC’s conduct given the revelations, and are now looking into allegations that the bank may also have manipulated currency rates as part of its wider malfeasance. The US Department of Justice may also choose to re-evaluate the $1.9bn deferred prosecution agreement reached with the bank in 2012 as a result of the leak. In the UK, the bank may face possible criminal charges.

In many respects, the HSBC revelations are indicative of a dubious culture permeating the banking sector, and the latest revelations will do little to convince the public that banking and financial institutions can be trusted. With many of the wounds from the financial crisis still raw, HSBC’s alleged collusion with tax dodging clients will undoubtedly provide a significant setback for those attempting to clean up the industry’s image. As the UK’s general election is mere months away, the issues of tax avoidance and corporate misconduct are likely to remain high on the political agenda in the short term.

Given the potentially damaging nature of the revelations, HSBC has moved swiftly to calm the quickening storm. In a statement the bank said, “We acknowledge that the compliance culture and standards of due diligence in HSBC’s Swiss private bank, as well as the industry in general, were significantly lower than they are today. At the same time, HSBC was run in a more federated way than it is today and decisions were frequently taken at a country level.”

News: HSBC could face U.S. legal action over Swiss accounts

UK financial services “optimistic” as business takes an upward trajectory

BY Fraser Tennant

The UK financial services sector is on upward trajectory with rising business volumes being reported, according to the latest CBI/PwC Financial Services Survey.

The Survey, which draws on data from the three months to December, shows that, overall, business volumes rose at the fastest pace since the mid-1990s, with demand from UK households and corporates being underpinned by solid growth across many sectors and industries.

“The upswing in growth among financial services firms continues on a solid footing, with overall optimism, business volumes and profits up," said Rain Newton-Smith, Director of Economics at the CBI.

The Survey’s key findings show that: (i) 64 percent of financial services firms said that business volumes were up, while 7 percent said they were down, giving a balance of +57 percent - the strongest growth since December 1996 (+79 percent); (ii) 65 percent of firms expect business volumes to increase, while 6% said they will fall, giving a balance of +59 percent; and (iii) 49 percent of financial services firms said they felt more optimistic about the overall business situation compared with three months ago, while 12 percent  said they felt less optimistic, giving a balance of +37 percent.

However, it was also found that building societies were the exception. “Building societies have struggled this quarter, likely as a result of the impact of the Mortgage Market Review, constrained buyer affordability in London and the South East, and stronger competition in the mortgage lending market," confirms Mr Newton-Smith.  

Elsewhere, financial services firms reported strong income growth from fees, commissions and premiums in particular. Investment opportunities are also at a premium.

Kevin Burrowes, UK financial services leader at PwC, said “Financial services firms continue to be optimistic, but we will see them investing more to stay ahead of new entrants, deal with technology challenges, meet increasing regulatory and structural reform costs and deliver better results for customers.” 

Mr Newton-Smith added “It’s encouraging to see the majority of companies planning to increase their investment spend, especially on IT and marketing, to increase efficiency and to reach new customers as competition and technology change the nature of the sector.”

Report: CBI/PwC Financial Services Survey

European real estate industry “awash with capital” and set for busy 2015

BY Fraser Tennant

A busy and profitable 2105 is the outlook for the European real estate industry, according to the new 'Emerging Trends in Real Estate' Europe 2015 report published by PwC and the Urban land Institute (ULI).

The report, which features the views of 500 industry experts (investors, fund managers, developers, property companies, lenders, brokers, advisers and consultants), lists a number of cities which are considered to offer significant real estate investment opportunities this year. The cities, many of which were badly affected by the economic downturn, include Madrid, Athens, Birmingham, Amsterdam, and Lisbon.

According to the report, 70 percent of investors expect to see more equity and debt flowing into their markets in 2015, while 82 percent are of the opinion that “the availability of suitable assets will have a moderate or significant impact on their business this year".

However, despite such optimism, the report makes clear that major concerns remain with fragile economic conditions, weak fundamentals, and volatile geopolitical scenarios cited as the reasons for such uncertainty.

“Real estate investors will face a tricky balancing act in 2015," said Simon Hardwick, real estate partner at PwC Legal and one of the authors of the report. “The market is awash with capital surging into Europe from around the world. On the face of it, this is a nice problem to have, but we expect to see prices continuing to rise due to a shortage of assets. And despite an uncertain economic climate across Europe, investors will have to look beyond the major markets to secondary cities and assets they may not have considered before. This presents both an opportunity and a challenge.”

Lisette Van Doorn, chief executive of the ULI Europe, added “As confidence has returned to global real estate markets over recent years, there has been a progressive movement up the risk curve. Investors have found prime assets expensive and hard to source, and have in turn looked to find new opportunities in recovering secondary cities, secondary assets and development opportunities, as well as new or alternative real estate classes."

Now in its 12th edition, the 'Emerging Trends in Real Estate' Europe report forecasts real estate investment and development trends, cities, property sectors, and real estate finance and capital markets trends.

Report: Emerging Trends in Real Estate Europe 2015