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Japan’s bloated retail banks need to downsize

SWEEP past the cash machines at the Sumitomo Mitsui bank in Tokyo’s Sangenjaya shopping district and instead enjoy the personal service. Uniformed concierges welcome every customer with a bow. A dozen tellers are watched over by a manager who leaps up to meet elderly patrons. Transactions are concluded with carved signature seals stamped on paper contracts, and another round of bows.

Japan’s high-street banks are not just overstaffed. They are also overbranched. According to the World Bank, high-income countries have on average 17.3 commercial-bank branches per 100,000 adults. Japan has 34.1. If you include branches of the post office, a popular place for people to save, the Bank of Japan (BoJ) reckons the country is the world’s most overbanked.

Retail banks across most rich countries struggled to make money after the financial crisis. But Japan has been close to or in deflation for most of the past two decades. The result, according to a report last year by the BoJ, is...Continue reading

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A bondholder finds a sneaky way to trigger insurance against default

IN 2013 Codere, a Spanish gaming firm, owed money it could not repay. Its bonds were trading at just over half face value. Blackstone, a private-equity firm, offered it a cheap $100m loan. But there was a catch. Blackstone had bought credit derivatives on Codere’s debt that would pay out about €14m ($19m) if Codere missed a bond payment. So Codere delayed a payment by a couple of days to prompt a “technical default”. Blackstone got its payout; Codere got its loan and stayed afloat.

On the satirical “Daily Show”, Jon Stewart, the then host, likened the scheme to the insurance fraud in “Goodfellas”, in which mobsters insure a restaurant before blowing it up. But that missed an important point. Blackstone did not blow Codere up—quite the opposite. As it said at the time, it “provided capital when no one else would, which allowed the company to live and fight another day”. The investors who sold Blackstone credit-derivative contracts had in effect bet that Codere would...Continue reading

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The world’s first neighbourhood built “from the internet up”

QUAYSIDE, a 12-acre (4.8-hectare) stretch of flood-prone land on Toronto’s eastern waterfront, is home to a vast, pothole-filled parking lot, low-slung buildings and huge soyabean silos—a crumbling vestige of the area’s bygone days as an industrial port. Many consider it an eyesore but for Sidewalk Labs, an “urban innovation” subsidiary of Google’s parent company, Alphabet, it is an ideal location for the world’s “first neighbourhood built from the internet up”.

Sidewalk Labs is working in partnership with Waterfront Toronto, an agency representing the federal, provincial and municipal governments that is responsible for developing the area, on a $50m project to overhaul Quayside. It aims to make it a “platform” for testing how emerging technologies might ameliorate urban problems such as pollution, traffic jams and a lack of affordable housing. If things go well, its innovations could eventually be rolled out across an 800-acre expanse of the waterfront—an area as...Continue reading

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The great foreign exchange rip-off is coming to an end

SOME years ago, when Gulliver was a wide-eyed reporter on his first business trip, he sidled up to a bureau de change in London’s Heathrow Airport to buy some foreign currency. His nervous excitement quickly turned to dismay when the teller gouged 12% from the transaction, justifying the theft by tapping on a display-screen of ruinous exchange rates. Today, Gulliver knows better than to buy foreign currency at an airport. But many do not: in 2016 Heathrow raked in £50m ($68m) by renting retail space to bureaux de change. New technology and startups could soon change that.

Savvier travellers have, until now, bought their foreign currency in advance from bureaux de change outside the airport. Higher competition and lower costs mean that these firms trade closer to the interbank exchange rate–the price at which two currencies are actually swapped by financial institutions. Yet all middlemen need a mark up, so they still add a margin of 2-5% to their “commission-free” quotes.

A new breed of “challenger banks” wants to...Continue reading

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Where will the next crisis occur?

INTEREST rates are heading higher and that is likely to put financial markets under strain. Investors and regulators would both dearly love to know where the next crisis will come from. What is the most likely culprit?

Financial crises tend to involve one or more of these three ingredients: excessive borrowing, concentrated bets, and a mismatch between assets and liabilities. The crisis of 2008 was so serious because it involved all three—big bets on structured products linked to the housing market, and bank-balance sheets that were both overstretched and dependent on short-term funding. The Asian crisis of the late 1990s was the result of companies borrowing too much in dollars when their revenues were in local currency. The dotcom bubble had less serious consequences than either of these because the concentrated bets were in equities; debt did not play a significant part.

It may seem surprising to assert that the genesis of the next crisis is probably lurking in corporate debt....Continue reading

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The flaws of finance

BUSINESS school graduates do not all want to work in investment banking these days. The industry does not have the same kind of cachet it did before Lehman Brothers went bust. Still, 31% of those who left Harvard Business School last year went into financial services. That made it easily the most popular sector, as it has been in each of the lprevious four years. And it is hardly surprising; in London, for example, the average pay for a finance worker is around £72,000 - twice the level earned by other workers in the UK capital.

But is this high pay justified? The finance sector has four key functions. The first is to operate the payments system, without which the economy could not function. The second is to channel money from savers to those who need capital either through the banking system or through pooled savings vehicles like mutual funds. Third, it provides liquidity to the system by making markets, and thus establishing prices for financial assets. Fourth, it...Continue reading

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Hope I save before I get old

IF YOU reach the age of 65 in the OECD, you can expect to live for another 19 years  or so (more if you are a woman, less if you are a man). If you stop work earlier than 65, and live a bit longer than average, you could easily be retired for 25-30 years, almost as long as you were in work. But people find it very hard to get interested in pensions (even Mrs Buttonwood), even though their financial future depends on them; retirement is too distant a prospect and the issue seems too complicated.

This blog has written a lot on the subject so it is time to summon some farewell thoughts. The executive summary: pensions are more expensive to fund, employers are less willing to do so, so you will need to save more (a lot more) and/or retire later. 

All pensions are paid for by the next generation. This may seem counter-intuitive; aren't we contributing money every month? State pensions are paid for by current taxpayers (yes, there is a...Continue reading

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One of France’s best-known tycoons is arrested

“THIS port is for the Togolese,” says Sherif Tchedre, a mechanic standing among containers that line the shorefront in Lomé, Togo’s capital. “But it is Bolloré who runs everything.” He thinks little of the port’s French operator, Bolloré Group, or the conglomerate’s eponymous owner-boss, Vincent Bolloré. They do “nothing for Togo”, he says, adding that the Frenchman is too cosy with African presidents.

The French police seem to think so, too. On April 24th they arrested Mr Bolloré and some of his firm’s senior staff in Paris on suspicion of paying bribes a decade ago to win bids to run the Lomé port and one in Conakry, in Guinea. The next day he and two others were placed under formal investigation, one step short of being charged. The authorities suspect that Havas, a communications firm that Bolloré then owned, gave African politicians heavily discounted help in their election campaigns. Mr Bolloré and Bolloré Group deny the allegations.

Bolloré is bigger...Continue reading

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Antitrust with Chinese characteristics

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GLOBAL deals may be growing at a rapid clip, but they seldom offer instant gratification. Qualcomm, an American chipmaker, first bid for NXP Semiconductors, a Dutch company, in October 2016. The union has since been blessed by eight regulators worldwide, but one hurdle remains: China. With no decision yet from its regulator, the companies, which were expecting to have closed the $44bn deal this week, now hope to conclude it by July. The purchase of the chip unit of Toshiba, a troubled Japanese company, by a consortium led by Bain Capital, an American private-equity firm, is similarly awaiting sign-off from China.

Some suspect the delays stem from the threat of a trade war with America. Holding back regulatory approval, particularly on sensitive high-tech deals, could be part of the arsenal in any trade conflict. Organisational change may also be to blame. Fay Zhou, who works in Beijing for Linklaters, a law firm, points out that a recent reshuffle, which took merger reviews away from the commerce ministry...Continue reading

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China’s holy sites list on the stockmarket

BENEATH a lustrous 33-metre bronze statue of Guanyin, the Buddhist bodhisattva of mercy, a young monk on Mount Putuo tallies the cash donated by visiting faithful: “Daily, anywhere between tens of thousands and hundreds of thousands of yuan,” he says (100,000 yuan is a little under $16,000). Over 8m trips are made yearly to the tiny islet in Zhoushan city, about a four-hour drive from Shanghai (11m visited Shanghai Disneyland in its first year, after it opened in 2016). When it comes to temple fundraising, the monk is resolute. “The traditional way is the best way,” he says.

The Putuoshan Tourism Development Company has other ideas. A state-owned enterprise whose biggest shareholder is controlled by the government of Zhoushan and some state asset-management firms, it manages tourist facilities in the location, such as ferries, cable cars and joss-stick shops. Since 2012 it has mulled an initial public offering (IPO) of these services on Shanghai’s stock exchange; last year it...Continue reading

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