Financial Times Europe - 31.07.2019

(Axel Boer) #1
12 ★ FINANCIAL TIMES Wednesday31 July 2019

COMPANIES


D


utch insurerAegon ecently decided to pullr
out of its joint venture in Japan after conclud-
ing that it was impossible to earn enough on
investmentsinthecountrytosupportit.
Meanwhile, the heads of Japan’s big three
lenders,MUFG, Mizuho nda Sumitomo Mitsui, regularly
cite the gap between what they pay out on deposits and
what they can earn on loans in explaining their struggle to
turnaprofit.
And a few weeks ago, a band of pensioners demon-
strated in Tokyo over their inability to earn a return on
their savings. The country’s big pension funds, including
GPIFand JapanPostalSavings,faceasimilardilemma.
All are reactions to the Bank of Japan’s unconventional
policies. Yesterday, the central bank left its main interest
rateat minus 0.1 per cent, kept its pace of government
bond-buying at¥$80tn ($736bn) a year, and maintained a
cap on 10-year bond yields at roughly zero. The BoJ also
intervenes in the country’s equity market, via exchange-
tradedfunds,andinrealestateinvestmenttrusts.
In the wake of the stepping up of easing policies by the
European Central Bank and their expected return from
the US Federal Reserve, speculation is intensifying over
the BoJ’s next step. So is the debate over the implementa-
tionandcostsoftheBoJ’sprogramme.
As Izumi Devalier at Bank of America in Tokyo says:
“The renewed dovish turn by major central banks —
including the Fed and ECB — has... resulted in a much
moreactivedebatewithintheBoJpolicyboardonwhether
pre-emptiveeasingmeasuresareneeded.”
The beneficiaries of these zero-to-negative rate policies
are now far outweighed by their victims, especially among
those who need to earn income onsavings — a group that
includes anks,insurers,pensionfundsandpensioners.b
While not openly acknowledged, one of the purposes in
introducing these policies, now in their sixth year, was to
put downward pressure on the yen in a country that has
always depended on exportsrather than domestic
demandasthemaincatalystforgrowth.
The effect was dramatic when the policy was adopted in
April 2013, with the yen weakening almost 5 per cent, and
when the programme was
expanded in October 2014,
prompting a fall of more
than 4 per cent, according to
JPMorgandata.
The currencyrisks rising
relativetoEuropeandtheUS
without a deepening of the
BoJ’s unconventional meas-
ures.With inflation, which is
BoJ governor Haruhiko Kuroda’s obsession, nowhere near
the central bank’s 2 per cent target and the BoJ holding
assets equivalent to 100 per cent of GDP, there is little
roomforfurtherassetpurchasesorratereductions.
Hiroshi Ugai, JPMorgan’s Japan economist, recently
noted that “the BoJ can lower the long-term yield target,
but not much, because it would weigh on the profits and
capital of life insurance companies and pension funds,
whichwoulddampenhouseholdsentiment”.
The actions of Aegon, the protests of the banks nd thea
predicamentofordinarypensionerstestifytothis.
That leaves the focus on ETFs at a targeted annual pur-
chaserateof¥6tnandJ-Reitsat¥90bn.
The BoJ holds¥27tn ($250bn) in ETFs alone. In the
financial community, asset managers and brokerage firms
aretheonlygainersfromthesepolicies.
Rather than placing orders with the cheapest providers,
the BoJ pays out lucrative commissions on securities pur-
chases to arms of the big three —Daiwa, Nomura nda
Nikko usingaformulabasedonmarketshare,astrategy—
critics say reinforces the oligarchy. The three hold
$237.2bn,ofwhichNomuracountsforroughlyhalf.
Income from the BoJ accounts for 35 per cent of
Nomura’soperatingprofitsand47percentofNikko’s.
In any case, these BoJ purchases are losing their efficacy
and seem to have become counter-productive. Tokyo
shares appreciated 8.6 per cent from January 1 to July 17 —
far less not only than US equities butalso those of weak
European nations such as Greece and Italy, as well as Ger-
many,whichisup13.2percent.
Foreign investors are among those to have lost faith in
BoJ share-buying. Last year hey withdrew from Japan att
thefastestratesince1987andtheyhaveremainednetsell-
ersthisyear.MrUgaisaysthereislimitedroomtoincrease
ETF purchases because the valuation losses in a downturn
could leave the central bank undercapitalised. That could
becomeahugepoliticalissue.
When the next recession comes, the BoJ will have little
ammunitionleft.

henny.sender@ft.com

INSIDE BUSINESS


ASIA


Henny


Sender


The victims of zero to


negative rate policy far


outweigh beneficiaries


Foreign investors


are among those
to have lost faith

in Bank of Japan
share-buying

SA M J O N E S— ZURICH
L AU R E N C E F L E TC H E R —LONDON

Swiss investment companyGAMhas
hired formerBlackRock xecutivee
Peter Sanderson s CEO and ended itsa
stand-off withsacked star fund man-
ager,Tim Haywood, as it seeks to draw
alineunderabruisingyear.

Thebusiness unveiled further declines
in assets under managementyesterday,
and a hit to its profits, as it struggled to
regain investor confidence following its
decision to part ways with r HaywoodM
in February for alleged gross miscon-
duct.
GAM was last year forced to suspend
and then liquidate Mr Haywood’s Abso-

lute Return bond funds. utgoing chiefO
executiveDavidJacob,whoistobecome
GAM’schairmaninSeptemberwhenMr
Sanderson takes over, said the company
now had a solid foundation from which
to rebuild following the crisis. However,
he declined to rule out the prospect of a
saleofthebusinessinthenearfuture.
“I think the brand as a whole has
remainedhealthy,”hetoldtheFinancial
Times.“I’mnotsayingitwasinthesame
place as it was two years ago, but I think
as a brand we have delivered to clients
the best outcome in a bad situation.”
GAM’sboardwasstillexploringapoten-
tial strategic sale of the business, but
this was not the focus of management,
hesaid.

GAM’s deal with Mr Haywood comes
almost a year to the day since his us-s
pension, and marks a dramatic climb-
downinitsbattleoverhisdismissal.The
deal also means both parties avoid the
prospectofanemploymenttribunal.
“While[GAM] stands by its finding of
gross misconduct, it has agreed with
Tim Haywood that neither party will
pursue the other based on current
facts,”GAMsaidinastatement.
Mr Haywood saidthat he “still
believes in the merit of his case for
unfairdismissal”butwouldnotproceed
with legal action because the costs
would far exceed the maximum possi-
blepayout.
See Lex

Financials


GAM hires new chief and ends Haywood fight


S I D DA RT H S H R I K A N T H
A N D M E R C E D E S R U E H L

OneofHongKong’sfirstunicorns,Tink
Labs, which provided free-to-use
smartphones in hotel rooms around
the world, has quietly laid off nearly all
itsemployeesandissettoshutdown.

The company, whose backers include
SoftBank Corp nda Foxconn, joins the
ranks of Chinese start-ups that grew
rapidly and attracted large investments
before scaling back or folding in the face
of fierce competition and unsustainable
cashburn.
Tink Labs, which was founded in
2012, was one of Hong Kong'sbest
funded start-ups. Investors include Fox-

connsubsidiaryFIHMobile;CaiWensh-
eng, chairman of popular Chinese selfie
appMeitu; andSinovation Ventures, an
investment fund headed by former
Google hina chiefC Kai-Fu Lee. Soft-
Bank’s mobile unit invested via a joint
venturewithTinkinJapan.
According to several current and
former employees, Tink Labs has said it
will closetomorrow, fter mass lay-offsa
in recent weeks. The company did not
respondtorequestsforcomment.
At its height, Tink Labs was valued at
as much as $1.5bn, and its “Handy”
smartphones service had handsets in
more than 600,000 hotel rooms across
82 countries, via relationships with big
hotel chains includingHyatt Hotels,

InterContinental Hotels Group nda
Shangri-LaHotelsandResorts.
The closure will see Tink Labs join a
lengthening list of Chinese start-ups
thathavecollapsed.
Bicycle-sharing companyofo entw
from world-leading “sharing economy”
start-up and tech darling to theverge of
bankruptcy n just four years. Rivali
Bluegogo as folded, whileh Aiwujiwu, a
Chinese online property listings plat-
form, reportedly went into liquidation
earlierthisyear.
Meanwhile, the flow of capital into
China’s tech sector as begun drying up,h
while due diligence on prospective
investments has increasedas investors
growwisertopotentialrisks.

Technology


Hotel phone supplier Tink Labs set to close


H A N N A H M U R P H Y —SAN FRANCISCO

The New York attorney-general has
launched an investigation into the mas-
sive security breach atCapital One
Financial, after the US bank revealed
that the personal information of more
than 100m credit card holders and
applicantshadbeenstolen.
The theft was one of the largest suf-
fered by a financial services, sending
Capital One shares down as much as
7 per centyesterday. The bank said on
Monday that about 100m individuals in
the US and 6m in Canada had their data
compromised.

The alleged hacker, a computer sys-
tems engineer called Paige Thompson,
was arrested on Monday and appeared
in court in Seattle charged with one
count of computer fraud and abuse,
accordingtocourtrecords.
MsThompsonhadpreviouslyworked
at Amazon Web Services, the cloud
computing service where the Capital
Onedatawerestored.
New York attorney-general Letitia
James saidyesterday that her office
would begin a probe immediately and
would work to ensure that any New
Yorkersaffectedareprovidedrelief.
“Though Capital One’s breach was
internal, the fact still remains that safe-
guardsweremissingthatallowedforthe
illegal access of consumers’ names,
social security numbers, dates of birth,
addresses and other highly sensitive

personal information,” Ms James said.
“We cannot allow hacks of this nature to
becomeeverydayoccurrences.”
About1.1mCanadiansocialinsurance
and US social security numbers and
80,000 linked bank account numbers
were accessed in the hack, which took
placeinlateMarch,CapitalOnesaid.
The bank said on Monday that it
expected the incident to generate
“incremental costs of approximately
$100m to $150m in 2019” to cover the
notification of customers, credit moni-
toringandtechnologyandlegalcosts.
Amazon sells cloud computing serv-
ices including data storage to corporate
customers including Capital One. The
bank used its own web application to
access its data, however, and it was that
application that Ms Thompson
breached due to a “firewall misconfigu-

ration”, according to an FBI affidavit
filedinthecase.
Amazon says customers control their
own web applications and that no Ama-
zonWebServicesinfrastructureorserv-
iceswerecompromised.
Capital One aid that it “immediatelys
fixed the configuration vulnera-
bility” and began working with law
enforcement.
“Based on our analysis to date, we
believe it is unlikely that the informa-
tion was used for fraud or disseminated
bythisindividual.However,wewillcon-
tinue to investigate,” Capital One said.It
added it would notify those affected and
make “free credit monitoring and iden-
tityprotection”availabletothem.
Additional reporting by Shannon Bond in
San Francisco and Kadhim Shubber in
Washington DC

Banks


Capital One hit by data breach probe


NY attorney-general


acts after more than
100m people fall victim

N AT H A L I E T H O M A S— EDINBURGH
DAV I D S H E P PA R D— LONDON

Centricachief executiveIain Conn ash
rarely been accused of lacking self-
belief. Even with shares down more
than 70 per cent since he took the helm
four-and-a-half years ago and its biggest
dividend cut announcedyesterday —
alongside his own departure — Mr Conn
doubled down on the view that his
strategywascorrect.
“I have been convinced and am con-
vinced that the strategy is the right one
for this company,” Mr Conn said. “The
board just spent six months kicking the
tyres and has come to the same conclu-
sion,again.”
The problem is investors do not just
lackhisconfidencebuthavelostfaith.
The parentof British Gas saw almost
£1bn wiped off its market capitalisation
yesterday withshares posting their big-
gestone-dayfall,losing19percent.
The stock isone of the smallest on
London’s blue-chip FTSE 100 and is at
risk of facing a humiliating demotion
outoftheindex.
But the shareholder exodus has not
just been driven byweak results or even
the near 60 per cent dividend cut but by
astrategythathasleftinvestorsponder-
ing wheregrowthisgoingtocomefrom.
Some are even questioning whether
the company has a future at all, or if it
might be snapped up or broken up by
those ready to pounce on a wounded
giant. One investor said: “What is the
strategy? What are we trying to work
towards?That’snotcleartome.”
Utility companies across Europe have
been locked in abattle for survival sa
they try to cope withchanges in the
energy system with more countries
adopting targets to end their contribu-
tiontoglobalwarming.
Under Mr Conn, Centrica tried to
reshape itself as a consumer-focused
energy company, reducing its exposure
to oil and gas production and thermal
power plants, and shifting towards
smartmetersandhomeservices.
But these growth prospects were once
again called into question as the com-
pany backtracked on a target to gener-
ate £2bn in revenue by 2022 from two
divisions Mr Conn had repeatedly held
up as key to its future: Connected Home
andDistributedEnergyandPower.
The former sells gadgets such as
smart thermostats, security cameras
and plugs that can be controlled
remotely. The latter helps businesses
becomemoreenergyefficient.
Mr Conn said Centrica now only
expected revenue of £150m-£200m by

2022 from the Connected Home divi-
sion andhad decided to stop selling its
devices in North America and Italy to
concentrate on the UK. The departing
chief executive said the company real-
ised it did not have the same brand rec-
ognition and fleet of engineers able to
installdeviceselsewhere.
“It did show a little naivety in what
they thought the growth areas of the
company could be,” said John Musk,
analyst at RBC Capital Markets. “If I was
a shareholder, I’d be asking how we’re
goingtogetvalueoutofthis.”
Investors acknowledge that Mr Conn
took the top job at time ofstructural
change in power markets and some fac-

tors have been outsidehis control — for
instance the introduction this year of a
price cap n the majority of UK house-o
holdenergybills.
Yet Centrica’s performance compared
withitspeershasremainedpoor.Shares
in rival FTSE 100 utilitySSE ave fallenh
byaroundathirdoverthesameperiod.
Mr Conn expressed regret for slashing
the dividend, which came aftersix
months marred by unplanned outages
at UK nuclearplants in which Centrica
holds stakes, volatile commodity prices,
andtheimpactofthepricecap.
Centrica has been sheddingassets
since 2015, including stakes inwind
farms nd biga ower stationsp. Four

years of cost-cutting and asset sales
mean hereisnotmuchleftover.t
Mr Conn announced yesterdaythat it
was selling itsSpirit Energy il and gaso
production joint business. Its 20 per
cent holding in the UK’s operational
nuclearplantsisalreadyontheblock.
But the proceeds from those busi-
nesses will go towards rebuilding the
balance sheet to ensure Centrica main-
tainsitsinvestmentgradecreditratings.
Oncetheyaregone,Centricawillhave
an even smaller selection of options
fromwhichtoincreaserevenues.
The group said this smaller, simpler
portfolio would allow it to concentrate
on stabilising and growing customer
numbers in core areas such as energy
supply and becoming the lowest cost
provider. Mr Conn insisted there was
alreadysomecauseforoptimism.
The number of UK energy supply
accounts increased in May and June,
although they fell by 178,000 as a whole
inthefirstsixmonthsoftheyear.
But if investors cannot see where the
growth is going to come from, analysts
said it was hard to see a quick recovery
initsshares,leavingitvulnerable.
“It shows that, with this kind of
growth strategies, what may look
good on PowerPoint might not be so
easy to implement,” said Deepa
Venkateswaran,analystatBernstein.
Additional reporting by Attracta Mooney
See Lex

Utilities. urvival battleS


Centrica’s strategy sparks investor exodus


Talk is of a possible takeover


or break-up by groups ready


to pounce on a wounded giant


The parentof
British Gas has
seen almost
£1bn wiped off
its market
capitalisation,
withthe stock
posting its
steepest
one-day fall
Nigel Roddis/Reuters

‘Safeguards


were
missing that

allowed for
the illegal

access of


highly
sensitive

personal
information’

Centrica’s plunge under Iain Conn
Share price (pence)

Sources: Refinitiv; company

US UK & Ireland















      

Centrica’s recent performance
Adjusted operating profit (bn)













    

Cuts  jobs
as it focuses on
energy supply

Loses 
UK customers in
first six months
of 

Government pledges
crackdown on taris

Sheds 
jobs as profits
fall 

Profit warning after
energy prices capped

Group

JULY 31 2019 Section:Companies Time: 30/7/2019- 18:52 User:jon.wright Page Name:CONEWS1, Part,Page,Edition:USA, 12, 1


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