November 29, 2016: Ireland has indicated to a number of large investment banks that it would be hesitant to host large trading operations. The Irish central bank has signalled in talks with banks that they would encounter serious hurdles to gain regulatory approval for these operations, which would involve large sums of money compared to the small size of Ireland’s economy.

The reasoning behind the stance

“A lack of specialised supervisors and the risk of sophisticated investment banking to the state make Irish regulators reluctant to host such banks in Dublin,” said a source who understands the line of thinking of the Irish central bank.

“Our sense is that the appetite in Ireland is not that high for balance sheet banks,” said a source at a global investment bank.

The reluctance is said to stem largely from the unfortunate experience of having gone through a severe banking crash in 2008, which was followed by an international bailout.

Speaking anonymously, a source at a large investment bank with a global presence commented, “Ireland is being very realistic about what it can and what it wants to do. If you’ve come from all the troubles Ireland has, you want to be very careful about taking on risks.”

Meanwhile, yet another banking source said, “Yes, Ireland wants insurers, asset managers, back office functions; but they don’t want big balance sheet risk. They just don’t want to take on that kind of risk and feel that they don’t have the regulatory bandwidth to do that.”

The news comes in spite of the country’s need to attract jobs in the financial sector from London after Brexit.

Likely fallout

What will most likely result from this stand is that Ireland will fail to become a destination of choice for what is considered to be some of the banking industry’s riskiest affairs. The investment banks involved are mostly American, Swiss and British, which are now figuring out how to gain access to the EU after Britain leaves.

The principal concern of these banks is where they can carry out trade which brings many risks and involves large balance sheets, such as the trading and clearance of European securities, euros and other market activities, which come under the purview of EU regulation. Carrying out such trade means the trading models employed must be carefully supervised. Coupled with the scale of such business, this has led to the cautious response from Dublin, say sources.

No blanket policy

However, a spokeswoman for the Irish central bank said that there is no blanket policy in place intended to turn away certain types of business. “The central bank is open to engagement with any firm wishing to obtain an authorisation,” she said.

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January 5, 2016: High net worth individuals’ top three financial resolutions for 2016 are to build funds for their retirement, to more regularly review their investment portfolios, and to save more to leave for their loved ones in their wills, reveals a poll by one of the world’s largest independent financial advisory organisations.

deVere Group carried out an international survey in the last two months of 2015 in which it was found that 41 per cent of those polled said their priority for the year ahead was to save more for their retirement.

About 27 per cent cited more regular reviews of their investments as their primary objective, whilst 23 per cent answered that their main goal was to build funds to leave as a legacy for their beneficiaries.  Nine per cent responded with a variety of different resolutions.

deVere CEO and founder, Nigel Green, observes:  “Against a concerning backdrop of dangerously large company pension deficits, low interest rates, changes to pension tax relief thresholds, the demographic pressures of an ageing population leading to the scrapping or reduction of some age-related benefits and public services, and soaring medical and care costs, amongst other factors, even the richest people in society are now worried about not having accumulated enough money to last throughout their retirement.

“If this section of society is concerned about such matters, it should be a red-flag to middle and lower income earners to ensure they are also saving enough and, crucially, as efficiently as possible, for their mature years.

“Life expectancy is a key factor here too.  As we are living longer the funds we generate need to last longer than ever.  Bearing all this in mind, it is sensible that the number one resolution is to save more for retirement in the year ahead.”

Green continues: “2016 is set to be a difficult year for the global economy; it will certainly be shaped by market volatility. Key drivers of this volatility include the fall of oil prices, China’s slowdown, the economic plight of emerging economies such as Brazil, the US presidential elections, and Greece’s trap of debt and austerity.

With so much turbulence on the horizon, it’s prudent to increase reviews, and where necessary, rebalance investment portfolios to ensure that they always remain ‘on track’ to reach their financial goals by mitigating the risks and taking advantage of the inevitable upsides.”

The deVere CEO goes on to say: “Leaving behind a decent legacy to loved ones is an honourable and very natural instinct for most people.  Hence why ensuring enough funds are accumulated, and in a way that allows them to pass on as much of their estate as possible, ranks as the third most important priority in the poll.”

Green concludes: “Whilst this poll highlights the 2016 resolutions of high-net-worth individuals, I believe there would be very similar results for a survey of middle-income earners.  This is because wealth enables people and their families to achieve the lifestyle they desire and, as such, there would be inevitable parallels across income brackets.”

To be noted:

655 deVere clients, between the ages of 25 and 70, with investable assets of more than 1million GBP were surveyed.  Respondents are residents of the UK, US, South Africa, Hong Kong, Spain, Germany, Switzerland, Qatar and the UAE.

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Peter Taberner

February 4,2015: The fall in oil prices has left holders of high yield bonds floundering, as the value of their investments has simultaneously plummeted.

Over the past three months, data from the First Trust High Yield Bond reveals that there has been a drop in price of around $1, reaching a nadir of below $14 in the middle of December last year.

In a culture of global low interest rates, many investors have turned to high yield portfolios. The greater risk being mitigated, by the prospect of a more favourable return than more safer investments, such as government bonds.

Figures from Dealogic, a platform used by investment banks to optimise their portfolios, highlights the popularity of high yield bonds since the 2008 financial crash.

Globally, the deal value of high yield bonds reached $67.5 million in 2008, this accelerated massively to $479.1 million in 2013.

The amount of oil and gas high yield bond holders climbed from 9% of the total high yield bonds held seven years ago, to 13% in 2012.

Alarmingly for investors, this year the trend for bond redemptions in oil and gas leaves just 2% of high yield bonds currently entrusted in those energy markets.

Mike Ingham, a market strategist at BGC Partners, said: “The effects of the fall in oil prices have been seismic. At this point, there has been a comprehensive capitulation by investors in high yield energy, with positioning probably the lightest we have seen since the post dot.com recession, and spreads here are now double the broader high yield market.”

“The final quarter of 2014 was particularly brutal. As high yield energy bonds lost over 11%, bringing full-year losses on the sector of over 7%. These losses have been sufficient to significantly impact performance of the entire asset class.”

As a result, selling pressure started early in the second half of the year, and accelerated rapidly into the fourth quarter as oil fell further.

Ingham also believes that Exchange Traded Fund trackers would have almost certainly got the “wooden spoon” due to their inability to alleviate the energy fallout, through greater-than-benchmark returns from an active underweight.

While Europe has been affected by the high yield bond price falls, the market is still dominated by the US, with a global share of around 75%, according to BCG.

The largest owners of the bonds are high yield mutual funds, insurance companies and pension funds.

The energy sector of the Standard and Poor’s US Issued High Yield Corporate Bond Index is currently 14% of market value, and had been as high as 17.6% as recently as October 2014.

Looking to the future, Kevin Horan, director of Fixed Income Indices at S&P Dow Jones Indices, reflected: “Past history, though not an indicator of future events, has shown through the performance of indices, that some investments over time have reached a valuation level, more in keeping with the markets’ forward views. The duration of market cycles can be either short or long, and will impact the time to recovery of certain assets.”

Predictions on the longevity of falling oil prices range from months to years. High yield bond holders will be yearning for a reverse from current trends.

Also Read:

Tough time ahead for oil companies

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