Month: December 2021

Posted on

City or real economy: who are the financial markets for?

The indirect benefits that effective financial markets can create by improving overall economic performance vastly exceed any direct benefits that the financial services sector produces through its revenue and employment. The primary goal of financial regulation should therefore be to bring about effective financial markets. But there is now no regulator responsible for the overall effectiveness of the UK’s financial services sector. Kevin R. James suggests a way for the Treasury to correct this market effectiveness underlap. 

 

After the last financial crisis, the Treasury directed the Financial Conduct Authority to “Make financial markets work well”. But it neglected to specify who exactly the markets should work well for. This is the issue that the Treasury’s ongoing Future Framework Review of financial regulation must now resolve to ensure that the UK has the financial system it needs to thrive in the post-Brexit world.

The Treasury has two options. It can define “working well” from the perspective of the City and aim to make London the world’s leading international financial centre. Or it can define “working well” from the perspective of the people and firms in the real economy and focus on making financial markets effective from that perspective.

A City strategy could realistically achieve its goal (the CityUK has a plan), and making London the world’s leading IFC would indeed be fantastic for the financial services sector. If finance was a typical industry, then a City strategy would definitely make sense.

But finance is not a typical industry. Financial markets create benefits primarily through their impact on overall economic performance rather than by creating profits and jobs in the financial services sector. For example, economic research finds that effective financial markets enable non-financial firms to pursue productivity improving strategies and also contribute to financial stability. The benefits of improving the performance of the 93{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} of the economy not in the financial services sector vastly exceed any benefits that increasing London’s share of global financial business would create. It follows that making financial markets work well from the perspective of the real economy should be the principal goal of the financial regulatory system.

Yet no regulator is responsible for the effectiveness of the financial system as a whole, as is easily seen from the fact that no regulator produces anything even remotely comparable to the FPC’s Financial Stability Report for the subject of market effectiveness. So, just as the UK had a financial stability underlap in its regulatory architecture before the last financial crisis, it now has a market effectiveness underlap.

The FCA is the natural institution to take the lead on market effectiveness. The Treasury is therefore proposing to take a few small steps to address the market effectiveness underlap problem by giving the FCA a secondary objective to promote growth. But this is not sufficient. This secondary objective will in practice do little more than require the poor person tasked with showing that Policy X passes the CBA test to tack on a pro forma paragraph indicating that Policy X is also good for growth.

To enhance market effectiveness, the Treasury must design a regulatory architecture that forces the FCA to actively seek out opportunities to improve market performance. The FCA is not now geared up to do this as it aims to deal (at pace) with risks to markets as they are. But no amount of data about risks to markets as they are will enable the FCA to identify and exploit opportunities to make markets work better.

Eliminating the regulatory system’s market effectiveness underlap therefore demands a more radical approach. I propose that the Treasury create a Financial Policy Committee for Effectiveness (FPCEff) based at the FCA to complement the FPC for Stability based at the Bank (with the FPC for Stability having the final say in event of a conflict).

FPCEff will be chaired by the FCA’s CEO and will consist of inside members, representatives from other financial regulators and the government (the PRA, the Pension Regulator, the Financial Reporting Council, HMT, and BEIS), and outside members to bring in broader financial market expertise. FPCEff’s mandate will be to think strategically about how to improve financial market effectiveness from the perspective of the real economy. To equip the committee to do its job, FPCEff will have a staff drawn from the regulatory community to provide the analytical depth and research capabilities needed to drive the effectiveness agenda forward. While FPCEff’s exact legal powers will need to be worked out, an institution along these lines will have the mandate, incentives, and capabilities required to give the UK the effective financial markets it needs to support a successful post-Brexit economy.

Creating a regulatory body tasked with taking a strategic approach to improving financial market effectiveness is precisely the sort of bold reform that Brexit both makes possible and demands (if it is to be an economic success). The Future Framework Review is the perfect opportunity to pursue it.

Carpe diem, HMT!

♣♣♣

Notes:

  • This blog post expresses the views of its authors, not the position of LSE Business Review or the London School of Economics.
  • Featured image by Lachlan Gowen on Unsplash  
  • When you leave a comment, you’re agreeing to our Comment Policy.
Posted on

Food is more expensive than it has been in decades

Restaurant prices spiked 5.8{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} over the 12 months ending in November without seasonal adjustments, the Bureau of Labor Statistics said Friday. That’s the largest 12-month increase since the year ended January 1982.

And unfortunately for those hoping to curb spending by turning to home cooking, grocery prices are also at record highs: They jumped 6.4{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}, the largest 12-month increase since December 2008. Beef had the most dramatic increase with a 20.9{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} spike in prices.

The sharp increases underscore the fact that restaurants and food makers are not immune to supply chain and labor pressures contributing to pricing increases across the board.

Yet they’ve found customers are willing to spend more. In fact, restaurants have been raising prices as their own food and labor costs rise, and so far, they say, consumers have accepted the hikes.

McDonald’s (MCD) said in October that it expects menu prices to be about 6{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} higher this year compared to last. The increase “has been pretty well received by customers,” CEO Chris Kempczinski said during an October analyst call. Chipotle also raised prices this year, yet it has seen its same-store restaurant sales grow.

Beyond restaurants, food manufacturers and grocers have faced higher costs for commodities, labor and transportation. Those costs have escalated further in recent months, leading manufacturers to pass some of them on to their retail customers — who in turn charge consumers a portion of those increases.

Higher prices at the grocery store will likely stick around into next year. Major manufacturers like Kraft Heinz (KHC) and Mondelez (MDLZ) have said that they plan to hike prices for their retail customers in early 2022.

That’s all allowed companies to pull back on or eliminate discounts, because demand is strong and they don’t want to run out of their limited supplies.

What got more expensive in November

While some food prices stayed flat or even fell from October to November, other items got more expensive in the period, according to the consumer price index.

Lettuce prices climbed 6.9{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} and fresh fruit went up 2.2{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} on a seasonally adjusted basis. Oranges, including tangerines, rose 2.4{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}. At the opposite end of the spectrum, treats like fresh coffeecakes and donuts jumped 3.5{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} in price.

Meat prices also continued to tick up: Pork prices grew 2.2{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}, with breakfast sausages up 2.7{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} and hot dogs 2.8{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}. Pork roasts, steaks and ribs rose 3.7{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}.

Some of these items could get even pricier. Hot dog, sausage and burger makers have warned retailers that they plan to increase prices for some frozen and refrigerated meats in January.
The hikes in food are part of a trend of increasing prices overall. Consumer price inflation, which includes gas prices and other categories, rose by 6.8{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} in the 12-month period ending in November, hitting its highest level in 39 years.

— CNN Business’ Nathaniel Meyersohn and Anneken Tappe contributed to this report.

Posted on

Private equity pursues investment advisers for returns and fresh capital

Private equity pursues investment advisers for returns and fresh capital

Private equity firms, among the world’s largest custodians of institutional money, have been buying up companies that advise individuals on their wealth, Art Of Landscaping.

The number of private equity deals for registered investment advisers has surged to a record 223 so far in 2021, according to data from investment bank Echelon Partners. The sum is up almost two-thirds from 2020 and more than three times the number of deals five years ago.

The latest came this month, when Apollo agreed to buy the US wealth distribution and asset management arm of Los Angeles-based Griffin Capital, which has more than $5bn in actively managed closed-end funds, including a credit and real estate fund and dozens of staff who distribute investment strategies.

Other private equity firms such as KKR, Hellman & Friedman and TA Associates have been acquiring investment adviser groups.

Wealth management typically has a high degree of recurring revenue, with customer “stickiness” that’s similar to a software company, said Daniel Seivert, chief executive of Echelon Partners.

And in September, the Securities and Exchange Commission’s asset management committee recommended allowing retail investors to invest in private fund strategies, Seivert said — potentially enabling wealth management clients to invest with the firms that back their advisers.

In the Griffin deal, Apollo will not only pick up an asset management company that it can scale, but Griffin also distributes funds to registered investment advisers and brokers, who are a potentially huge new source of private equity assets.

Apollo wants to raise at least $50bn in capital from individual investors within the next five years, the firm said in a presentation in October. This segment accounted for 5 per cent of the capital that Apollo raised on average between 2018 to 2020, and the firm hopes to grow that to at least 30 per cent, Stephanie Drescher, Apollo’s chief client and product development officer, said during the presentation.

“Scaling global wealth is our key bet,” she said. “It’s a market that is two times the size of the institutional market, yet they’re under-allocated by two-to-five times to alternatives.”

Private equity firms are targeting the wealth management industry in part because technology has made it easier for individual investors to access “alternatives,” or more specialised investments than ordinary stock and bond markets.

Column chart of Number of deals showing Private equity investments in registered investment advisers

“Private equity sponsors continue to recognise that solutions exist to help capture what has evolved from a more fractured and less transparent marketplace to one that can deliver more value across broader investor segments,” said Georges Archibald, head of the Americas for financial services provider Apex Group.

Other wealth management deals by private equity this year have included TA Associates’ investment in the advisory group Caprock and KKR buying half of $20bn Beacon Pointe Advisors from Abry Partners last month.

KKR wants to support growth plans for Beacon Pointe, a female-led registered investment adviser, and sees its Women’s Advisory Institute as important to serving women, Chris Harrington, a KKR partner, said. The investment in Beacon Pointe follows KKR’s exit this year from wealth management firm Focus Financial, which it took public in 2018.

Some US-based private equity firms are looking to less competitive markets overseas. This summer, Lightyear Capital funds bought UK-based Wren Sterling Financial Planning, and Flexpoint Ford acquired UK-based AFH Financial Group.

Aside from direct investments, most wealth deals were executed by portfolio companies owned by private equity, such as Leonard Green-backed serial acquirer Mariner Wealth and Oak Hill-backed Mercer Advisors. Mariner Wealth announced its ninth acquisition of the year last month, while Mercer Advisors scooped up 15 RIAs this year.

“Nearly all the most active strategic acquirers in today’s market are backed by prominent private equity firms and are often backed by more than one sponsor,” Seivert said.

Visit : https://ilandscapin.com/

Posted on

Brokerages Anticipate SVB Financial Group (NASDAQ:SIVB) Will Post Quarterly Sales of $1.44 Billion

Equities analysts predict that SVB Financial Group (NASDAQ:SIVB) will post sales of $1.44 billion for the current quarter, according to Zacks. Six analysts have issued estimates for SVB Financial Group’s earnings, with the highest sales estimate coming in at $1.56 billion and the lowest estimate coming in at $1.35 billion. SVB Financial Group posted sales of $1.21 billion during the same quarter last year, which would indicate a positive year over year growth rate of 19{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}. The business is scheduled to report its next quarterly earnings results on Thursday, January 20th.

On average, analysts expect that SVB Financial Group will report full year sales of $5.88 billion for the current financial year, with estimates ranging from $5.79 billion to $6.00 billion. For the next fiscal year, analysts expect that the business will report sales of $6.51 billion, with estimates ranging from $6.17 billion to $7.04 billion. Zacks’ sales calculations are an average based on a survey of sell-side research analysts that cover SVB Financial Group.

SVB Financial Group (NASDAQ:SIVB) last posted its earnings results on Wednesday, October 20th. The bank reported $6.24 earnings per share for the quarter, topping the consensus estimate of $5.04 by $1.20. The firm had revenue of $1.53 billion during the quarter, compared to analysts’ expectations of $1.31 billion. SVB Financial Group had a return on equity of 18.95{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} and a net margin of 31.79{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}. During the same quarter in the previous year, the business earned $8.47 earnings per share.

A number of brokerages have weighed in on SIVB. Morgan Stanley upgraded SVB Financial Group from an “equal weight” rating to an “overweight” rating and boosted their price objective for the company from $775.00 to $985.00 in a research note on Monday, December 6th. Royal Bank of Canada reiterated an “outperform” rating and issued a $780.00 price objective (up previously from $743.00) on shares of SVB Financial Group in a research note on Friday, October 22nd. Truist boosted their price objective on SVB Financial Group from $700.00 to $850.00 and gave the company a “buy” rating in a research note on Monday, October 25th. Stephens boosted their price objective on SVB Financial Group from $700.00 to $790.00 and gave the company an “equal weight” rating in a research note on Thursday, October 28th. Finally, Keefe, Bruyette & Woods raised SVB Financial Group from a “market perform” rating to an “outperform” rating and set a $700.00 target price on the stock in a report on Tuesday, September 7th. One investment analyst has rated the stock with a sell rating, four have assigned a hold rating and fourteen have assigned a buy rating to the stock. Based on data from MarketBeat.com, the company currently has an average rating of “Buy” and a consensus target price of $769.95.

(Ad)

“Options Basics” is the new traders complete toolbelt, full of plain English instructions, real life  examples, and simple, reliable tactics to get you started!

In related news, insider Michael Descheneaux sold 2,200 shares of the stock in a transaction dated Tuesday, November 9th. The stock was sold at an average price of $736.09, for a total transaction of $1,619,398.00. The transaction was disclosed in a filing with the SEC, which can be accessed through the SEC website. Also, insider Laura Izurieta sold 6,062 shares of the stock in a transaction dated Monday, December 6th. The stock was sold at an average price of $688.94, for a total value of $4,176,354.28. The disclosure for this sale can be found here. Over the last quarter, insiders have sold 21,620 shares of company stock worth $15,133,863. 0.68{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} of the stock is owned by company insiders.

A number of large investors have recently made changes to their positions in SIVB. JPMorgan Chase & Co. increased its stake in SVB Financial Group by 103.6{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} during the second quarter. JPMorgan Chase & Co. now owns 2,428,967 shares of the bank’s stock worth $1,351,549,000 after acquiring an additional 1,235,927 shares during the last quarter. BlackRock Inc. increased its stake in SVB Financial Group by 9.5{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} during the third quarter. BlackRock Inc. now owns 5,059,688 shares of the bank’s stock worth $3,273,011,000 after acquiring an additional 439,970 shares during the last quarter. Invesco Ltd. increased its stake in SVB Financial Group by 42.9{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} during the third quarter. Invesco Ltd. now owns 1,238,752 shares of the bank’s stock worth $801,323,000 after acquiring an additional 372,184 shares during the last quarter. Amundi acquired a new stake in shares of SVB Financial Group in the second quarter valued at about $199,823,000. Finally, Macquarie Group Ltd. grew its stake in shares of SVB Financial Group by 1,057.8{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} in the second quarter. Macquarie Group Ltd. now owns 349,276 shares of the bank’s stock valued at $194,347,000 after buying an additional 319,110 shares in the last quarter. Institutional investors own 86.77{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} of the company’s stock.

SIVB stock opened at $703.92 on Friday. The business has a 50 day moving average price of $714.23 and a 200 day moving average price of $625.56. The stock has a market cap of $41.31 billion, a price-to-earnings ratio of 21.49, a PEG ratio of 2.69 and a beta of 1.90. SVB Financial Group has a fifty-two week low of $348.36 and a fifty-two week high of $763.22. The company has a quick ratio of 0.48, a current ratio of 0.48 and a debt-to-equity ratio of 0.15.

About SVB Financial Group

SVB Financial Group is a holding company, which engages in the provision of banking and financial services. It operates through the following segments: Global Commercial Bank, SVB Private Bank, SVB Capital, and SVB Leerink. The Global Commercial Bank segment comprises of results from the commercial bank, private equity division, SVB wine, SVB analytics, and debt fund investments.

Further Reading: What does a neutral rating on stocks mean?

Get a free copy of the Zacks research report on SVB Financial Group (SIVB)

For more information about research offerings from Zacks Investment Research, visit Zacks.com

Earnings History and Estimates for SVB Financial Group (NASDAQ:SIVB)

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest and most accurate reporting. This story was reviewed by MarketBeat’s editorial team prior to publication. Please send any questions or comments about this story to [email protected]

Should you invest $1,000 in SVB Financial Group right now?

Before you consider SVB Financial Group, you’ll want to hear this.

MarketBeat keeps track of Wall Street’s top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on… and SVB Financial Group wasn’t on the list.

While SVB Financial Group currently has a “Buy” rating among analysts, top-rated analysts believe these five stocks are better buys.

View The 5 Stocks Here

 

Posted on

Why we have exactly the fuel we need for a year-end rally

Market participants are trying to make sense of the recent stock market volatility. They want to know why it happened, why was there a significant drop in so many growth stocks, and was this recent sharp pullback just a shakeout before a year-end rally or the start of a bigger correction? Of course, no one knows the answer to the last question, but I’m leaning towards a year-end rally for the following reasons.

Technicals – During the recent drop, the S&P 500 and Nasdaq Composite found support around their 50-day moving averages. Since this is traditionally an area of institutional support, it is important to note that the large institutions were buying near these levels. 

Chart is provided by MarketSmith.

Chart is provided by MarketSmith.

Strong Seasonality — November, December, and January are historically three of the stronger months of the year. Specifically, the second half of December tends to be strong, as seen in the chart below (courtesy of @RyanDetrick) 

Stock Leadership — It’s hard to get bearish when many Mega Cap growth leaders such as Microsoft (MSFT), Alphabet (GOOG, GOOGL) and Tesla (TSLA) continue to hold logical support levels. In addition, Apple (AAPL) is the most widely held stock and it surged to an all-time high this week. Finally, I consider Semiconductors as a true indicator of the economy, and many stocks in this sector are approaching or already at new highs.

Sentiment — Many sentiment measures reached extreme bearish levels last week. A casual observer might not understand why this happened with the major indexes near all-time highs, but beneath the surface, it has been a bloodbath. Most people don’t just own the index. They own growth stocks, and especially get married to the ones that have greatly appreciated in price over the past year or two. When these stocks become “too crowded,” the market conveniently destroys these names, and that kills the morale of many traders.

This leads me to the first two questions I posed at the beginning of this article. The selloff was partially related to uncertainty fears around the new Omicron variant, and it was also a normal pullback to shake out some of the excess created in the prior six weeks. However, the main reason had to do with Fed Chair Powell changing his tune from dovish to more hawkish.

Since early April 2020, I’ve been writing articles to stay bullish because of the insane amount of liquidity the Fed was pumping into the system. In the spring of 2020, the Fed made more Treasury purchases in the six weeks following the pandemic than they did in the nine years combined between 2009-2018. They continued with $120 billion in monthly bond purchases, but now need to reduce or “taper” these purchases. In last week’s testimony to Congress, Fed Chair Powell discussed speeding up the taper and the market interpreted his language as hawkish and started to price in two to three rate hikes in 2022. There’s a reason why Wall Street legend Martin Zweig created the phrase “Don’t fight the Fed.”

Many people are concerned that we might see a all of 2018 scenario. In October 2018, Fed Chair Powell said he planned on raising rates 3 to 4 times in the upcoming year. The market clearly could not handle this and then proceeded to drop 20{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} in the following few months. In January 2019, Powell took back his words and that ended the market correction. I don’t see this scenario happening now because even if the Fed tapers more quickly than people expect, they are still providing a low-interest rate and equity-friendly environment. In fact, Powell never really has to raise rates. He can just say that he will, watch the market drop, and then retract his words.

Bottom line, the strong technicals combined with the favorable seasonality and extremely negative sentiment could be the fuel needed for a year-end rally. As far as 2022 goes, we’ll worry about that next year.

I can be reached at: jfahmy@zorcapital.com

Disclaimer: This information is issued solely for informational and educational purposes and does not constitute an offer to sell or a solicitation of an offer to buy securities. None of the information contained on this site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. From time to time, the content creator or its affiliates may hold positions or other interests in securities mentioned on this site. The stocks presented are not to be considered a recommendation to buy any stock. This material does not take into account your particular investment objectives. Investors should consult their own financial or investment adviser before trading or acting upon any information provided. Past performance is not indicative of future results.

Posted on

UK finance firms implement ‘challenging’ new COVID-19 rules

UK finance firms implement ‘challenging’ new COVID-19 rules

LONDON, Dec 9 (Reuters) – Britain’s finance firms have began issuing an array of updated work from home guidance to staff after the government toughened up rules, Benefit Group.

But following stricter government COVID-19 guidance to work from home will be a “challenge” for accountants as they head for their busiest time of the year, auditor PwC said on Thursday.

Britain announced tougher restrictions on Wednesday, ordering people to work from home to slow the spread of the Omicron coronavirus variant. read more

Register now for FREE unlimited access to reuters.com

 

Register

 

Employees in Britain’s huge financial services sector had begun returning to the office in large numbers in recent months, with financial districts in the City of London and Canary Wharf busy in the run up to Christmas.

“As always we will follow government guidelines, but there’s no denying this will be a challenge for some sectors,” said Kevin Ellis, PwC’s chairman and senior partner.

“The majority of our people had returned to the office two to three days a week. It’s the busy season for audit and there’s also lots of deal activity that benefits from some in person meetings,” Ellis said.

PwC offices will remain open for people who have a “business or personal need to use them”, he said.

PwC, along with EY, Deloitte and KPMG are dubbed the “Big Four” and dominate auditing of blue-chip companies globally, with the year end period their busiest as accountants make checks for annual company reports ahead of publication.

EY and Deloitte said they have asked staff to comply with the government guidance, though their offices are still open for employees who need them.

“We ask anyone who comes into our offices to wear a face mask and to have taken a lateral flow test within 48 hours of coming in,” a Deloitte spokesperson said.

The City of London Corporation said the fresh restrictions will be a disappointment to business in the historic “square mile” financial district it governs.

“We will urge City businesses, workers and residents to follow the new rules,” said Catherine McGuinness, the City’s policy chair.

“But we also ask the government to set out a clear roadmap to normality early in the new year and base all decisions on data. We need to find ways to live with the virus which allows the economy to prosper,” she said.

Banks also started to issue revised guidance to staff including Deutsche Bank (DBKGn.DE), which told its nearly 8,000 staff in Britain it was discouraging work social gatherings in what would usually be a busy time for Christmas parties, a source at the bank said.

Staff numbers at Deutsche Bank London offices will be significantly reduced from Monday, though employees with certain roles such as traders or those with personal reasons can still go in.

The shift also comes a day after U.S. investment bank Jefferies Financial Group (JEF.N) told staff to work from home again and cancelled all client parties after a spate of COVID-19 cases. read more

Register now for FREE unlimited access to reuters.com

 

Register

 

Reporting by Huw Jones and Iain Withers; editing by David Evans

Our Standards: The Thomson Reuters Trust Principles.

Visit : https://benefitgroupltd.com/