Financial Times Europe - 19.08.2019

6 ★ FINANCIAL TIMES Monday 19 August 2019

PH I L I P G E O R G I A D I S— LONDON

Global dividend payments grew at

their slowest pace in more than two-

and-a-half years in the second quarter,

as trade tensions and the spluttering

world economy began to take their toll.

Dividends hit a high of $513.8bn in the

three months to the end of June, accord-

ing to the Janus Henderson Global Divi-

dendIndex.

Butthatheadlinefiguremasksaslow-

down in the growth rate: payouts were

1.1 per cent higher year on year, the low-

est quarterly growth since the end of

2016. On an underlying basis, which
      strips out special dividends and adjusts
      for other factors including currency
      fluctuations, the 4.6 per cent growth
      ratewasalsotheslowestsince2016.
      “The deceleration in the world econ-
      omy, and its associated impact on cor-
      porate profits, has begun to make an
      impact on dividends,” said the US asset

manager that compiles the figures.

Shareholders have had good returns

in recent years, thanks to strong corpo-

rate profits and US tax cuts that made it

easier for companies to return cash to

investors.Japanesecompanieshavealso

started to pay dividends, with growth

there consequently outperforming the

restoftheworldforthepastfouryears.

But as the global economy contracted

and a trade war erupted between the US

and China, dividend growth has begun

toslow.

“At this stage in the economic cycle,

we are seeing a moderation of dividend

increases across a broad range of com-

panies, and the number of cuts is on

the rise too,” said Ben Lofthouse, head

ofglobalequityincomeatJanusHender-

son.

UK dividends rose 8.6 per cent to

$35bn, but this record total was boosted

by some large special payouts including

thosefromRioTinto,theminer.

The rate of growth in the rest of

Europe suffered amid global trade ten-

sions. In the US, payouts rose by 3.9 per

cent to $121.7bn, their slowest pace in

two years, with a dividend cut byGen-

eralElectrichavingasignificantimpact.

Shareholder

returns feel

chill of slower

global growth

A R A S H M A S S O U D I— LONDON

K A N A I N AG A K I— TOKYO

SoftBankisplanningtopourupto$15bn

intoitsnewtechnologyinvestmentfund

on behalf of its own employees, topping

up the contributions promised from

outside investors such asAppleand

Microsoft.

People familiar with the matter said a

largepartoftheemployeecontributions

would be funded personally byMasay-

oshi Son, the billionaire founder of the

Japanesegroup.

The exact size of employee participa-

tion has not been finalised but it will

come on top of the $38bn SoftBank has

committed to investing in its second

VisionFund,whichhasaheadlinevalue

of $108bn but few confirmed outside

investors.

Industry experts said it was not unu-

sual for executives managing a fund to

put their “skin in the game” but typi-

cally the amount of employee contribu-

tion would be less than 5 per cent of the

totalfundsraised.

The outsized SoftBank participation

could mean that employees take a

14 per cent position while the group’s

overall contribution, which is likely to

be financed by debt, accounts for more

thanhalftheheadlineamount.

The move comes as the Japanese

group is trying to persuade the sover-

eign wealth funds of Saudi Arabia and

Abu Dhabi to invest tens of billions of

dollars on top of the $108bn that has

been promised by Apple, Microsoft and

a number of unidentified Taiwanese

financialgroups,thesepeoplesaid.

SoftBank executives suggest the final

figure when the fund launches could be

“a lot bigger” if it can successfully com-

plete negotiations that are under way

withotherinvestors.

Central to SoftBank’s bullish projec-

tion is Saudi Arabia’sPublic Investment

Fund, which put $45bn in the first fund

and was noticeably absent among the

investorsidentifiedlastmonth.PIFmay

contribute $20bn to $30bn in the sec-

ond fund, according to people familiar

with the talks. Others close to the situa-

tion urged caution, saying that nothing

hadbeenagreed.

“It all comes down to Saudi Arabia,”

onepersonclosetothediscussionssaid.

The company will also provide loans

to executives such as Rajeev Misra and

Katsunori Sago, Mr Son’s top lieuten-

ants, and other employees who will

invest in the second Vision Fund,

accordingtoonepersonwithknowledge

ofthearrangement.

The $108bn figure for the latest fund

solely reflects contributions promised

by SoftBank and a slate of companies

whose names it disclosed in late July.

These companies have signed non-

binding memorandums of understand-

ingtoputmoneyintothenewfund.

SoftBank is aiming to announce a first

close of its latest Vision Fund by Octo-

ber. Abu Dhabi’sMubadala, which put

$15bn in the first fund, may look to

make a similar sized commitment, oth-

erssaid.

SoftBank had been hoping to attract

blue-chip international investors but

the reliance on Saudi Arabia and Abu

Dhabi highlights its inability to break

throughwithmainstreaminvestors.

SoftBank’s new

Vision Fund to

receive $15bn

staff injection

3 Few outside investors confirmed

3 Group’s overall input more than half

Thecompany will also

provide loans to executives

and other employees to

invest in the fund

Rana Foroohar‘For President Trump, the summer of fear may turn into a winter of political discontent’ yOPINION

E VA SZ A L AY A N D A DA M SA M S O N

LONDON

Having been starved of excitement

for much of the year, currency mar-

kets are finally back in business.

Anxious foreign exchange traders

have spent months scanning their

screens, worrying over a collapse

in volatility that deprived them of

money-makingopportunities.

Equity markets have been whip-

sawing and bond yields tumbling —

but currency markets were largely

unmoved, forcing investors to pile

intoriskier,idiosyncraticthemes.

Now something like normal service

hasbeenresumed.Thethreatoftrade

wars spilling over to currency mar-

kets spurred traders into action this

month, as the dollar strengthened

above Rmb7. The move caused a

broadsell-offinemergingmarketcur-

rencies, and renewed demand for

haven assets, such as the Swiss franc

and the Japanese yen. The Argentine

peso, meanwhile, plunged after an

election shock against the broader

risk-offbackdrop.

“We expect this environment to

deliver higher market volatility and

greater macro uncertainty,” said

Athanasios Vamvakidis, an FX strate-

gistatBankofAmericaMerrillLynch.

But the flare-up in trading activity

may prove fleeting as investors strug-

gle to get away from the fact that

interest rate differentials barely exist

any more. The core problem: a lack of

policy divergence. As the US pivots

back to interest rate cuts and the

European Central Bank considers a

return to policy stimulus, a race to the

bottom in rates and yields is feeding

through to exchange rates, muting

priceswings.

Even Norway’s central bank, the

“sole hawk in town” after rate

increases earlier this year, relented

last week, keeping rates on hold and

strikingsomepessimisticnotes.

While some cracks in the surface

are showing as Brexit, competitive

devaluations and trade wars dent risk

appetite, volatility is still not far off

the historically low levels it hit in the

firstquarteroftheyear.

“The food of low volatility is low

rates,” said Kit Juckes, global head of

FXstrategyatSociétéGénérale.

Normal service resumesThreat of trade war

spurs surge of volatility on currency markets

Volatility has jumped

G volatility index ()

Sources: Commerzbank research; Bloomberg









Jan   Jul

Argentine peso pummelled

Best and worst returns against US dollar* ()

- - -  

Turkish lira

Thai baht

Indonesian rupiah

Brazilian real

Hong Kong dollar

Mexican peso

Russian ruble

Colombian peso

South African rand

Argentine peso

* Past three months

Eva Hambach/AFP

R O B E RT A R M ST R O N G— NEW YORK

Turbulent global markets and fears

about global growth are having a posi-

tive side-effect for US consumers and

banks:awaveofmortgagerefinancing.

Investors have sought out the relative

safety of US Treasuries in recent weeks,

driving down yields and pulling mort-

gage rates down with them. As of last

week, the average interest rate on a

30-year fixed rate mortgage was 3.6 per

cent, according to Freddie Mac, the gov-

ernment-sponsored mortgage guaran-

tor. That is the lowest level since

November 2016 and close to the record

lowof3.3percentsetinlate2012.

US homeowners are rushing to take

advantage.TheMortgageBankersAsso-

ciation index of mortgage refinance

activity rose by 12 and 37 per cent,

respectively, in the first two weeks of

August, hitting its highest level in three

years.Theindexisbasedonabroadsur-

veyofmortgageoriginators.

Analysts say, however, that fees

earned on refinancing transactions will

not be enough to offset the lower lend-

ing margins that result from a lower

interest rate environment. “Big banks’

mortgage businesses are a lot smaller

than they used to be,” said Jeffrey Harte

of Sandler O’Neill. “I’m thinking of [the

refi wave] more like a partial offset to

[lending margin] pressure, as opposed

toameaningfulearningsboost.”

Many systemically important banks

cut their exposure to mortgages after

the financial crisis as the capital

required to be held against housing debt

increased. Non-bank lenders such as

Quicken Loanshave taken share. Non-

banks lenders now originate 60 per cent

of the mortgages guaranteed by Freddie

Mac and its peer Fannie Mae, up from

47 per cent five years ago, according to

InsideMortgageFinance.

Regional banks have also cut their

mortgage exposure. Mortgage has fallen

to just 2 per cent of revenue for the

regionals, said Brian Foran of Autono-

mous Research. “Any little bit helps, but

the fees made from mortgage refi are far

outweighed by the net interest income

lostamidlowerrates,”hesaid.

Even banks that are concentrated in

mortgages,andhavegrownrecentlyasa

result, are receiving little credit from

the markets.First Republicis a Califor-

nia-based bank with more than $100bn

in assets, about half in residential lend-

ing. Its loan book grew 18 per cent in the

second quarter from the year before,

drivenbyhomeloans.

“Refinance activity allows First

Republic to grab market share... so

therenewedrefiboomisabigpositivein

its growth trajectory,” said Aaron Deer

of Sandler O’Neill. Yet shares in First

Republic have fallen a tenth in the past

sixmonths,inlinewiththebankingsec-

torandwellbehindthewidermarket.

There is an upside for homeowners,

said Todd Johnson, a division manager

in Wells Fargo’s mortgage business, the

largest of any US bank. “We... have

had strong employment, wage growth,

and a strong housing market — and

customers can take advantage of that,”

hesaid.

Financials

Rush by US homeowners to

remortgage bolsters banks

SY LV I A P F E I F E R A N D M I C H A E L P O O L E R

LONDON

TheTurkishinvestorsettoacquireBrit-

ishSteelisplanningaproductivitydrive

that could lead to several hundred job

losses. Toker Ozcan, head of the mining

metallurgy group atOyak, the Turkish

military pension fund, whose invest-

ment vehicle was selected on Friday as

the preferred bidder, said the priority

wastoboostoutput.

MrOzcandeclinedtocommentonthe

scale of job cuts but said productivity at

the company’s main plant in

Scunthorpe in Lincolnshire was “very

low”comparedwithEuropeanrivals.

“I am not focused on headcount but

on productivity,” he said. “We will take

productivitytowhereitneedstobe.”

The plans could result in several hun-

dred job losses among more than 4,

workers, said two people familiar with

the talks. Oyak’s investment vehicle,

Ataer Holding, aims to complete its

takeoverwithintwomonths.

The first stage, he said, would be to

boost output of primary production at

Scunthorpe to 3m tonnes a year, with a

longer-term annual target of 3.2m

tonnes. Last year the plant produced

2.8m tonnes. Ataer is also seeking UK

taxpayer support for investment in

“green” steelmaking to reduce the car-

bon footprint from production. It

intends to convert the Scunthorpe site

torunongasratherthancoal,hesaid.

Mr Ozcan said the company was in

talks with the government about a

“financial contribution” to help convert

itsplantsrunultimatelyonhydrogen.

“We would like to convert at least

50 per cent of the capacity to gas-based

steel,” Mr Ozcan said. Then, “with the

efforts of the UK government, we want

toconvertfromgastohydrogen”.

MrOzcandeclinedtocommentonthe

sizeofanyco-investmentbythegovern-

ment but one person close to the matter

said it would probably be more than

£300m for the hydrogen initiative. Any

government support would have to be

on commercial terms to avoid breaking

EUstateaidrules.

The Department for Business, Energy

andIndustrialStrategydeclinedtocom-

mentonthetalkswithAtaer.

Ataer emerged as the preferred bid-

der after it committed itself to keeping

together British Steel’s operations,

which include plants in north-east Eng-

land,FranceandtheNetherlands.

Oyak, which has investments in

industries including cement, agricul-

tureandautomotive,owns49.3percent

ofErdemir,Turkey’smainsteelmaker.

Unions reacted with caution to the

development. Roy Rickhuss, general

secretary of Community, the steelwork-

ers’ trade union, said it would engage

with Ataer to “understand and scruti-

nisetheirplansforthebusiness”.

Industrials

British Steel buyer flags job

cuts in push to raise output

‘Fees made from mortgage

refi are far outweighed by

the net interest income

lost amid lower rates’

Ataer aims to complete its takeover

of British Steel within two months

‘At this stage we are seeing

a moderation of dividend

increases across a broad

range of companies’

AUGUST 19 2019 Section:Companies Time: 18/8/2019 - 18: 52 User: karen.crawcour Page Name: CONEWS1, Part,Page,Edition: USA, 6, 1

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