Online edition 20 July 2020

Setting the agenda for the City +5pt

+10 pt

+15 pt

£9.50 | €11 20 July 2020 Issue 1200 Barry Norris: What No virus vaccine until Will investment banks’ led me to short late 2021, top health trading gold rush collapsed Wirecard execs tell Lazard anger the politicians? Page 4 Page 5 Page 12

Setting the agenda for the City Swiss boss: Only three Don’t trim 650 trading day top bankers Senior Shruti Tripathi Chopra investment bankers Opposition to ambitious plans to slash market hours is mounting, after the boss of a leading European exchange rejected claims that a shorter trading day can boost diver- are Black sity and work-life balance. Jos Dijsselhof, chief execu- tive of Zurich-based Six Exchange Less than 0.5% of senior dealmakers in the City are — Europe’s third largest stock Black, data compiled for FN reveal. By Paul Clarke exchange by revenues, told Finan- cial News that trimming stock market Just three out of more than 650 BAME professionals are well-repre- hours will not help attract women senior investment bankers in Lon- sented, the number of Black deal- to what has historically been a don are Black, Financial News can makers at the top is so low,” said one. male-dominated profession. reveal, laying bare the finance sec- Mike Corbat, chief executive of “To me shortening trading hours tor’s poor track record on racial Citigroup, said the lack of role mod- is more treating the symptom and diversity within its upper ranks. els is a key problem. not the cause,” Dijsselhof said. “You Out of London’s top 11 invest- “Black talent wants to see other just need to make sure you have a ment banks, only Bank of America Black talent,” he said at Citi’s Emea diverse labour force and enough and Deutsche Bank have Black senior media summit on 2 July. “They want women in your business. What the executives leading their City deal- to know that in the firms they are trading hours are will not make a making units, according to exclu- working in that they are treated fairly big difference.” sive analysis of the top echelons of and equally. That they have mentors, Dijsselhof’s views are in stark finance giants in the City by specialist and people to look up to. contrast to results of a consultation headhunters for FN. “In many ways, bringing people by the London Stock Exchange, pub- The number of senior Black in is the easy part. And the real chal- dealmakers, who make up less than lenge is around retention and how Continued on page 2 0.5% of those heading up investment we manage people’s careers.” banking teams in London, contrasts The data included the leaders with a 13% proportion once Asian of banks’ European arms, and the and other minority ethnic groups are heads of M&A, equity and debt cap- included to make up the BAME cate- ital markets, leveraged finance and Car perk will gory, the data showed. financial sponsors in the region, as The numbers came from top well as the managing directors that banking headhunters who declined lead coverage of specific industries drive spike to be named because of client sensi- from London. tivity. They spoke of the enormous The banks included in the sam- in pollution lack of Black role models in the ple were Bank of America, Barclays, upper ranks of the sector. “It’s a poor BNP Paribas, Citi, Credit Suisse, Lucy McNulty reflection on the banks that while Deutsche Bank, Goldman Sachs, HSBC, JPMorgan, Morgan Stanley Pollution levels in London’s finan- and UBS, as well as a handful of top cial districts are set to spike as the boutique advisers. All banks were world’s biggest finance firms offer contacted for comment. car perks to workers to commute to Inside The most high-profile Black the office amid the coronavirus cri- executive in the list was Bernard sis, according to the government’s Mensah, who leads Bank of Ameri- ‘clean air’ tsar and the Square Mile’s ca’s business in Europe, the Middle governing body. East and Africa. Meanwhile, others Professor Martin Williams, one include Sambacor N’Diaye, head of of the UK’s ‘clean air champions’, corporate equity solutions for Emea told Financial News that a growing at Bank of America and Deutsche reliance on cars and taxis among Bank’s head of leveraged finance for City workers during the pandemic Emea, Hoby Buvat. would be a “double whammy” for Quant managers routed Racial diversity has been thrust London’s air quality and congestion at troubled Bridgewater into the spotlight following the Black in the capital. Page 7 Lives Matter movement that swept Pollution levels had been across the world in the wake of the “steadily increasing” in the Canary HSBC’s Pulse takes a pause death of George Floyd at police 650 Wharf area since the beginning of hands in the US. Senior financial ser- 3 July, added the head of science policy Page 11 vices executives have come out in Black senior Senior at Imperial College London. EU judges give banks a support, with many promising to do “The more vehicles you have on more to tackle racial diversity. investment bankers investment bankers the road, the more congestion you data-sharing headache Page 19 Continued on page 2 Continued on page 2 2 News 20 July 2020

Continued from page 1 Continued from page 1 No need to trim Pollution spike trading hours from car perk lished in June, which found that a have and the more [traffic- related majority of UK investors want to cut pollutant] Nitrogen Dioxide gener- the trading day by 90 minutes. ated,” he said. However, the LSE also said that UK Prime Minister Boris Johnson any changes to stock market hours said last week that from 1 August the would need to be “broadly aligned” country’s home-workers can return to European exchanges. The LSE to their offices, if their employers is awaiting responses from other decide that they should and that it European bourses before it makes is safe to do so. This formed part of any changes. government efforts to help city-cen- The decision to slash trading tre economies recover from the hours rests with stock exchanges. Covid-19 crisis. European trading hours are the Williams’ comments were longest in the world, starting at 8am echoed by the City of London Cor- and ending at 4.30pm. Plans to trim poration, the local body that runs the trading day may never come to the Square Mile. Alastair Moss, the fruition if there is a lack of harmon- chair of the Corporation’s plan- isation between the LSE and other ning and transportation commit- European exchanges. tee, said “increased use of cars and “I have a couple of simple rules taxis” in the City “would lead to of business, and one of them is ‘if it’s increased congestion, air pollution not broken, don’t try to fix it’,” the and road danger”. Swiss Stock Exchange boss added. “I Banking giants in London are don’t see anything broken in the cur- reimbursing car costs in order to rent trading hours. So I would sup- address staff fears over the possible port keeping it ‘as is’.” risk of contagion on public transport. The Federation of European Canary Wharf-based Morgan Securities Exchanges, a lobby group Stanley offers staff free parking that represents 36 stock exchanges in spaces and permission to expense Europe including Six Exchange, said Ubers and parking fees during the earlier this month that shortening pandemic. At Goldman Sachs, based the trading day “would be a move in in the City, one trader said London the wrong direction and detrimental staff are allowed to expense cars to to European markets”. get to work. Meanwhile at Barclays FESE added that the move would certain staff are also offered a cov- have “no impact on employee well- Getty Images eted parking space in Canary Wharf, being”, because some trading ven- an employee told FN. ues, such as OTC markets, already Continued from page 1 the sector in 1996 and experienced sub-Saharan Africa region from Lon- An increasing number of firms operate outside of normal stock first-hand both unconscious and don, while Bank of America also has have either partially reopened their exchange hours. conscious bias, I am very sad that Yvonne Ike as head of sub-Saharan offices, or are planning to allow lim- Bolsas y Mercados Españoles, Only three the diversity dial has failed to shift in Africa and Natalie Mordi Hillaert as ited numbers of staff back in phases the Spanish stock market operator the financial sector,” said Gina Miller, head of Emea ESG capital markets. in the coming weeks. that was acquired by Six last month, Black bankers a prominent City campaigner and At UBS, the vice chair of DCM, Vinod Taxi companies are already said that “the negative impact on the co-founder of SCM Direct, the bou- Vasan, is Black. seeing a rush in demand from City interplay of markets and the econ- in top City jobs tique asset manager. Miller grew up “You just need to walk around workers. Uber has seen a more than omy in Europe has been left aside in Guyana and was named the UK’s the Square Mile to see the demo- 250% spike in business from corpo- in this debate”. However, when FN asked top most influential Black person in 2017 graphics, but no one seems to ques- rate accounts since early March. This Stéphane Boujnah, CEO of one investment banks and fund man- by Power Media. tion why the people actually making did not include individuals ordering of Europe’s biggest stock exchange agers to provide details on the pro- “There’s a huge glass ceiling,” decisions are very similar, whether Ubers through their own account operators Euronext, pointed out in portion of Black employees in their said one mid-ranking Black banker it is a common gender, ethnicity, and later expensing it. April that shortening trading hours ranks, the majority declined to dis- who requested anonymity. “There’s socio-economic profile or school- Christophe Peymirat, Emea could end up harming liquidity. close the numbers. a sea of brown faces at analyst, asso- ing,” said Bev Shah, chief executive head of Uber for Business, said that Euronext is due to release the find- Last month, almost a dozen ciate and VP and director level, but of City Hive, a network for City work- financial services firms were asking ings of its consultation on trimming large investment banks and the vast they seem to disappear among the ers that promotes diversity. Uber “about sustainability”, adding the trading day later this month. majority of big fund managers in the managing director group.” In response to Black Lives Mat- that a “the vast part” of Uber’s fleet The radical proposal of slashing City came under fire for their failure Another Black City banker added ter, Goldman Sachs created a new of cars in London were either electric trading hours was first revealed by to sign up to a two-year-old govern- that while there are few bankers of group of senior executives who will vehicles or hybrids. Financial News in August 2019. The ment programme aimed at increas- his race in very senior roles, repre- meet bi-weekly in a bid to come up Meanwhile, Addison Lee, Association for Financial Markets ing racial diversity in the workplace. sentation is “better at director and with plans by the autumn to increase another taxi company, said it was in in Europe and the Investment Asso- Also, FN revealed last week that managing director”, which he put racial diversity in its investment talks with “a number of major busi- ciation argued that cutting hours no Black candidates applied to be down to more conscious efforts to bank. Credit Suisse started a Lon- nesses”, including those in financial will give traders a better work-life the head of the Financial Conduct increase diversity in recent years. don-based recruitment working services, to make cars more widely balance and attract more women Authority, the City regulator. At Goldman, Aziz Ndiaye leads group this year to recruit and retain available to City workers as they are to the profession. “Bearing in mind I started in the bank’s structured equity for the more Black professionals. phased back to office life.

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simply wasn’t time for that to become clear. All it can Banks going into stocks in other sectors on the basis of David Wighton mean is that investors assumed that those with high attacked for the “backward-looking, blunt instrument” of high ESG scores would perform better in due course, just coal financing ESG scores. “Everyone is investing in the same Environmental, social and as they assumed that fossil fuel companies would despite their names which does stretch their valuations beyond perform worse thanks to the oil price slump. green pledges fundamentals. That is a risk and it is happening.” governance-themed investing This suggests that ESG investing is starting to have Page10 And it is likely to get worse. James Mackintosh a serious impact on the market and that makes some from the Wall Street Journal has pointed out that may produce better returns. investors worry about a possible bubble in ESG stocks. while some ESG indices have outperformed since Most experts concede that the growth in ESG the pandemic, others, such as the Russell 1000 ESG, But if lots of investors pile in investing could ultimately lead to stocks with high have not. That is because there can be wild variations ESG ratings being pushed beyond the level justified in the ESG ratings given to particular companies by at once, they could end up by their better ESG credentials. But many reckon any different providers. such risk is still some way out. “That is probably an His point was that it actually makes no sense to say getting ahead of themselves issue for tomorrow rather than today,” says Huw van that ESG stocks have outperformed because it depends Steenis, chair of UBS’s sustainable finance committee. which measure you look at. But if the cheerleaders Cheerleaders for ESG investing Hortense Bioy, director of passive funds and are right this suggests that the risk of an ESG bubble could not resist trumpeting the sustainability research at Morningstar, points out is going to increase because there is growing pressure strong performance of stocks with that ESG funds still represent only 9% of total passive for more consistency among ESG rating firms. high sustainability ratings in the funds in Europe, up from 5%, four years ago. And ESG The weight of money is also building, with inflows early weeks of the coronavirus funds have many different approaches. into passive ESG funds far outweighing those into crisis. The outperformance was a But some investors say the signs of a bubble are active funds in the US this year. vindication of their focus on environmental, social already there. Edward Lees, the manager of BNP Why does this matter? The worry is that if and governance factors they said. Paribas’ new Environmental Absolute Return fund, a bubble in ESG stocks is inflating then at some They may or may not be right to claim credit says it is important to distinguish between two types stage it will pop and there will then be a period of for the outperformance. But either way they should of stocks. There are companies that are directly underperformance of ESG stocks. not overdo the self-congratulation. addressing environmental challenges (which are the “There is a danger of this noble cause being One obvious risk is that the outperformance ones he is interested in) and there are those in other tarnished a bit if we get a setback because things got doesn’t last. And some of the gains have indeed sectors which have high ESG scores. stretched too much,” says Lees. been reversed. MSCI’s index of ESG leaders has Many of the former have soared as investors For the noble cause of combating climate change, lagged its full world index over the last three months search for winners from energy transition. While this would probably be little more than a bump in for example, though it has still beaten it for the year some now have valuations that look pretty bubbly the road. But for firms selling ESG index funds it could to date. Lees says that in many cases they are justified by the be very unhelpful, particularly in the US where the Another worry is what the initial outperformance long-term growth prospects. industry is battling government moves to prevent actually tells us. Some ESG sceptics suggest it was More of a problem is the weight of money pension funds from using an ESG approach unless largely thanks to the slump in the oil price and a shift it is expected to make more money. towards more defensive sectors. But many fund firms, “Most experts concede that the growth in In recent years, the industry has shifted from from BlackRock down, have crunched the data and Environmental, Social and Governance marketing ESG investing as the right thing to do, to concluded that much of it was due to outperformance promoting it as the right thing to do for improved of more highly rated ESG stocks within sectors. investing could ultimately lead to stocks with performance. Which is all very well. As long as it If so, what does this mean? What it doesn’t mean high ESG ratings being pushed beyond the does actually improve performance. is that companies with higher ESG ratings actually performed better in terms of their businesses. There level justified by their better ESG credentials” David Wighton is a columnist at Financial News 4 An audience with… 20 July 2020

ited from shorting are united by a common thread: “I was putting together a presentation on Wirecard and NMC Hospitals recently and my bullet points were almost ex- actly the same: complete lack of cashflow and transpar- ency, claims of net cash balances that don’t exist, reliance on increase in debt funding — despite the business mod- el claiming to be cash generative — and question marks about corporate governance and whether management trousered the shareholders’ assets.” This has been exacerbated by the market turbulence caused by Covid-19. “In periods of financial distress, you always see the pressure on dishonest companies build up because they cannot hide things anymore,” he says. Norris, 46, is engaging company on the phone, po- lite but no-nonsense. Take his views on hedge funds. “My valuable interactions are with other hedge fund managers that are peers,” he notes. But while he might like some of his peers, he is speaks witheringly about the industry. “The closer you get to it, the more disappointed you are,” he says. “The only bit that qualifies as being a hedge fund for many of them is something that charges a per- formance fee, rather than something that is uncorrelated to the market. “I think in this very long bull market, essentially most investors in a hedge fund are just paying high-perfor- mance fees for market beta that they could just buy more cheaply with a passive fund. “The level of short alpha is pretty negligible, the level of contrarian thinking equally so and therefore the hedge fund has just become a remuneration structure.” Prior to founding Argonaut in 2005, he was a fund manager at Neptune Investment Management and Bail- lie Gifford. Norris, who lives in South-west London with his wife, who is expecting, and three children, manages three funds at Argonaut — Absolute Return, European In- come Opportunities and European Alpha. “Our short book is a third stocks we think are in sun- set industries, that no amount of economic recovery is going to save, like shopping malls [Argonaut recently shorted UK property developer Hammerson]. A third are stocks we think are dishonest and haven’t yet gone bust. And a third are where we think the market has over-ex- trapolated current trading.” Four years ago, the going wasn’t so good for Argo- naut. The Absolute Return fund fell 25% in 2016, and while it rebounded nearly 20% the next year, it dived a further 11.7% in 2018.

Danilo FN Agutoli for Norris attributes its recovery to better portfolio management and also to structural changes. In 2016 he assumed full ownership of Argonaut and he insists more Barry Norris, founder and chief executive of equi- freedom has paid off during the pandemic. ty asset manager Argonaut Capital Partners, says that “I’m not part of a big organisation and have been able Barry Norris there are two key rules to successful investing: “A high- to basically say what I thought,” he says. “If I had working ly sensitive bulls--t antenna. And the ability to see for a bigger company, maybe I would have been told to through groupthink.” tone it down or been advised to seek employment else- Wirecard collided with both of his commandments. where. You only know what you are when you know ‘There was Norris shorted the German payments firm through the what you’re not.” Argonaut Absolute Return fund, his long-short equi- Senior Argonaut lieutenants, such as Norris’s erst- ty fund, which is up 23% in 2020. Part of this success is while business partner Oliver Russ and former Middlesex due to Wirecard, which has netted Norris £1.28m after cricket captain Ben Hutton, who was head of sales, de- something the German payments firm filed for insolvency following parted Argonaut after he took full ownership. an accounting scandal. “I deliver better returns when the ideas in the portfo- Norris’s antenna was set on high alert followed Wire- lio are my own ideas and they’re researched and execut- card’s response to being scrutinised. “There was some- ed by me,” he says. clearly wrong thing clearly wrong with a company that couldn’t explain Norris has little time for the connect-and-collaborate what activities it derived its revenues from and why it was management theories. “You often see in our industry that issuing such a lot of debt when it supposedly had a lot of the more successful people get, then somehow they have cash on its balance sheet,” he says. a business model where they hire other people to do the with Wirecard’ The herd instinct was to blame, he reckons: “The job that made them successful in the first place,” he says. investment industry is awash with groupthink and this “My experience is that is the most dangerous drift in any sheepish herd mentality, which is why so many people business model... really good fund managers are not nec- ended up being bullish on Wirecard — it was in a high- essarily consensus-builders or collaborators. growth industry and could get away with the investment “I was always told that the more successful I got, the equivalent of murder.” more I needed to institutionalise my process and I needed It’s not just Wirecard that has to hire more and more people; that caused Argonaut to be up 38% in CV 2005- would tick a lot of boxes of institu- the past 12 months. The £100m Founder, CEO, tional investors and therefore the firm also shorted NMC Health, the CIO and Fund business would be more successful. FTSE-listed hospital operator, which Born Manager, “You had this virtuous circle. I in February suspended trading in 18 March 1974 Argonaut have actually found that although in its shares following an accounting Education Capital many ways it would be attractive if I scandal, and subsequently went 1996 Partners could hire other people to do my job, into administration. MA History, 2002-2005 I don’t think I can! The asset man- The founder and chief executive of Argonaut has also taken short Cambridge Fund Manager, agement industry has just become positions against beleaguered travel University Neptune this whole race to build scale and de- Argonaut Capital on his shorting strategy companies Norwegian Air and TUI 1997 Investment fensive mergers because they know while going long on video conferenc- MPhil Management their products are crap and they and why he prefers to go it alone. ing company Zoom whose stock has International 2002-2205 know they’re mediocre,” he adds. soared during lockdown. Relations, Equity Analyst, “You must at least have a shot at Interview by Tom Teodorczuk Companies that Norris has prof- Career Baillie Gifford glory, even if you fail.” 20 July 2020 News 5

Boris Johnson Health execs say don’t expect says working from home can virus vaccine until late 2021 end next month

The poll dents hopes of a swift recovery from the crisis that has battered the world economy, writes Paul Clarke Lucy McNulty

More than two-thirds of the world’s June, that 63% of managers said that — partnering with Pfizer — have also employees back in the office — Yba- Boris Johnson, the UK’s prime min- most senior executives in the health- an effective vaccine was the most been working on vaccine candidates. rra said that 60% of Citi’s employees ister, announced on 17 July that the care industry say a Covid-19 vaccine important driver of life returning to In the financial sector, the pan- will remain at home until a vaccine country’s home-workers can return will not be available until the second normal. demic has forced firms to keep their was found. to their offices from August 1. half of next year at the earliest. The lack of a vaccine was the top employees working from home Around 60% of healthcare Johnson said in a press con- A survey of nearly 200 C-suite concern of healthcare execs over because of safety concerns. This is executives surveyed by Lazard said ference that from next month UK managers by independent invest- Covid-19, with 71% of respondents cit- despite senior executives including that they expected flexible working employers would be allowed to ment bank Lazard suggests that a ing this followed by the impact of the Goldman Sachs CEO David Solomon arrangements to remain in place, decide themselves whether or not vaccine is still some way off — some virus on the economy (56%). and the head of Citigroup’s institu- while a third said that “routine pub- their staff should continue to work 73% of respondents predict a Covid- While new cases of Covid-19 tional client group, Paco Ybarra, lic health measures” would increase. from home or return to their offices. 19 inoculation will come between in the UK have declined in recent saying that having employees in the Banks in Hong Kong have asked “It is important to give people later next year and the first six weeks, other countries still face an office was preferable longer term. a greater proportion of employees to hope… It is right we give employers months of 2022. And nearly two- uphill battle. The number of infec- While City investment banks return to the office as Covid-19 cases more discretion,” he said, adding thirds, or 64%, said that the pan- tions in the US hit 3.45 million last have started bringing employees eased, but fear of a second wave that the UK’s business heads should demic will continue over that period. week, with over 15,000 cases in one back — both Goldman Sachs and of the virus has prompted some to “consult closely with their employ- “The clear message from health- day registered in Florida, while Bra- JPMorgan have 15% of their London unwind these plans. BNP Paribas, ees” and ask people to return to their care leaders is that we need to pre- zil and South Africa have struggled to Citi, HSBC and Standard Chartered place of work only if it is safe to do so. pare for the long haul,” said Dale get a handle on cases of the virus. “The message from have all asked some staff to return “If employers think it would be Raine, co-head of Lazard’s European Markets rallied this week on home in recent weeks, Bloomberg better, more productive for their healthcare group. developments in the hunt for a vac- healthcare leaders is: reported. employees to come into the office The poll dents hopes of a swift cine. A 1,000-person trial by the we need to prepare Financial News reported in May and can work in a Covid-secure way recovery from the crisis that has University of Oxford showed some that fears of a second wave in the UK [then] we want to encourage people battered the world economy. The encouraging results, The Times for the long haul” were stopping banks from making to think it is safe to come into work,” bank also found in the survey, which reported on 16 June, adding that bio- wholesale moves back to their Lon- he said. His comments form part of a was conducted between May and tech firms Moderna and BioNTech Dale Raine, Lazard don offices. government drive to encourage more people to return to their workplaces in an effort to help city-centre econo- mies recover from the crisis. His comments are, however, at odds with those made by Sir Patrick Vallance, the UK government’s chief scientific adviser on 16 July. Vallance told the UK parliament’s science and technology committee that he saw “absolutely no reason” to stop companies from instructing their employees to work from home. Home-working, he said, “remains a perfectly good option” in light of the continued need to main- tain physical distancing to stem the spread of the virus. Johnson said that he “totally” agreed with Vallance’s comments, but he added “it is not for the government to make that deci- sion” around returning UK employ- ees to their workplace. A Financial News survey of over 100 senior City executives, con- ducted last month, found just 15% said they wanted to work in the office full time once the lockdown lifts. A large majority — around 66% — said that they want to continue to

Mark Felix/AFP/Getty Images Mark Felix/AFP/Getty work from home part time, with two to three days in the office the pre- A Covid-19 patient at United Memorial Medical Center in Houston, Texas. Health experts are longing for a vaccine as bio-tech firms seek solutions ferred option.

FRC fails to reach a third of its strategic targets to improve the quality of auditing

Emily Horton tor and improve audit quality, while reviews during the year-long period, the case and the length of settlement fessional body and insolvency issues. investigations allow the FRC to hold the report said, compared to 160 for discussion. Ninety-two complaints were referred The UK’s auditing watchdog has firms and individuals to account for the year ending March 2019. Of the However, this was an improve- to the relevant department within failed to meet two of the six strategic their misconducts. 130 reviews, 88 probed the work ment on the 2018-2019 review, which the FRC for further review, while 264 priorities it set to improve the quality Audit quality has come under of the Big Four firms: PwC, KPMG, reported that 35% of investigations were outside its remit. of audit and monitor misconduct. fire yet again following EY’s work for Deloitte and EY. The regulator said were completed within the time- Of the complaints directly relat- The Financial Reporting Coun- the collapsed payment firm Wire- they had carried out fewer reviews as frame. “Improving the timeliness of ing to the FRC, 43 were sent to the cil, in its 17 July annual report for the card, adding to the series of recent a result of “resourcing constraints”. our investigations and enforcement professional oversight department, year end 31 March 2020, said it had high-profile corporate failures, The FRC also said only 44% of action remains a priority. Our contin- 29 to the corporate reporting review carried out fewer audit reviews than including Carillion, Patisserie Valerie enforcement investigations closed in uing actions to address this are yield- team, 15 went to the enforcement intended for the 2019-20 tax year and Thomas Cook. In its latest 2019 were completed within the two- ing results with a significant improve- team, and 10 were sent to the whis- and that over half of the investiga- inspection the FRC found that audit year timeframe the watchdog had ment this year,” the FRC said. tleblowing team. Five complaints tions it completed did not fall within quality had declined in comparison set itself in 2016. The FRC said there The FRC received 356 com- were about the FRC’s conduct. It said its self-imposed 2-year deadline. to the previous year, with 10% more were a “number of reasons why the plaints about the behaviour of indi- all of these “have been reviewed, The reviews are an essential pro- audits requiring vast improvements. target had not been met”, which vidual accountants or auditors, investigated and responded to, with cess used by the watchdog to moni- The FRC carried out 130 audits included the size and complexity of financial reporting, actions of a pro- none being upheld”. 6 News 20 July 2020

Barclays’ hedge-fund risks made it ‘beyond saving’, Abu Dhabi wealth fund exec says

Ryan Weeks the Abu Dhabi group until 2010, was it to Forbes that he and former MD of despite Forbes’ reservations, concerned about Barclays’ “massive IPIC, Khadem Al-Qubaisi, had con- Al-Qubaisi ­— under the instructions The Abu Dhabi sovereign wealth hedge-fund exposure” and informed cluded that Barclays was a lost cause of Sheikh Mansour — told him to fund was advised against investing in Staveley that IPIC would not be pur- because of its hedge-fund exposure. proceed with an assessment of the Barclays at the height of the financial suing an investment in the bank. “It was a major concern, yes,” Barclays opportunity. “This was crisis due to the bank’s hedge-fund At the heart of the trial is Stave- said Forbes. “I thought it was quite an example of Mr Al-Qubaisi being liabilities. ley’s claim that her firm PCP Capital likely that it was beyond saving.” asked to advise Sheikh Mansour The stance against the bank Partners, and clients including Abu Weekes appeared to try to dis- in relation to a potential personal came from a former director at the Dhabi’s Sheikh Mansour bin Zayed credit Forbes, a Barclays’ witness, investment?” asked Weekes. International Petroleum Investment Al-Nahyan, got substantially worse as a credible source of information “I don’t believe that is the case. Company, which used to run Abu terms than the bank’s Qatari inves- on the negotiations that took place But there was interest in the bank Dhabi’s sovereign wealth fund, the tors when both invested in 2008. between Staveley and Sheikh Man- from the very top,” Forbes said. “The High Court learned on 15 July in the Forbes was cross-examined sour. The barrister drew attention Crown Prince is an Anglophile and latest twist in Amanda Staveley’s on 15 July by PCP’s lawyers on the to a chain of command that meant saw a prestige opportunity in this £1.5bn case against the lender. Midnight oil: IPIC studied IPIC’s dealings with Staveley. Robert Forbes rarely spoke with Mansour. investment. So they wanted it to be

Getty Images David Forbes, who worked at Barclays deal ‘very thoroughly’ Weekes, acting on behalf of PCP, put Weekes also pointed out that analysed very thoroughly.”

Getty Images Private equity Virus volatility firms increase scrutiny on helps to power legal spend LMAX earnings Elisângela Mendonça The pandemic is increasingly erod- ing the trust of private equity groups The volume of cryptocurrencies traded through LMAX in their external legal teams, a study by legal tech services provider Digital more than doubled in the first half of 2020, Apperio has found. reaching a total of $36bn, writes Ryan Weeks As the decline in deal activity and fundraising tightens budgets, the Volatility stemming from the Covid- Alternatives to cash continue to vast majority of PE legal departments 19 outbreak has contributed to an gain appeal among market partici- — 74% in the UK and 98% in the US — earnings increase at LMAX Group, pants. Earlier last week, new Bank are being pressured to find a way to an operator of foreign exchange and of England governor Andrew Bailey reduce their external legal spend in cryptocurrency trading venues. indicated that the Bank was open to 2020, Apperio said. The group’s earnings before the development of an official digital In 2019, PE firms in the US and interest, taxes, depreciation, and currency (see page 11). UK on average spent $10.5m and amortisation rose 13% to $13.5m in But FX markets remain by far $8.6m respectively. But more than the first six months of the year, while LMAX’s largest source of revenue. half the respondents from the UK gross profits grew to $28.9m for the The company saw FX trading vol- and almost eight in 10 in the US, said six months to 30 June, up 10% from umes of $2.3tn in the first six months their legal spend is not transparent, the same period the previous year. of 2020, an increase of 33% from the and they often receive legal bills David Mercer, LMAX’s chief exec- same period in 2019. charging them more than they had utive, told Financial News that March The company’s exchange in New been expecting. Only a third of US was an “exceptional” month for the York, which it launched roughly four and 45% of UK respondents said they group. “If you’re an exchange busi- years ago, notched a 165% increase in trust their external legal counsel to ness, volatility helps… If you can’t trading volumes compared with the bill them accurately. print tickets when the market is mov- first half of 2019. Rocketing scrutiny, eroding trust ing, you never will,” he said. FN recently revealed that LMAX — the changing PE legal spend land- Financial markets experienced had launched a weekend trading scape surveyed 100 senior in-house a period of pronounced fluctuation service for foreign exchange. Mer- legal stakeholders in May, at US and at the start of the Covid-19 crisis in cer said it was too early to gauge the British PE firms with an average of Europe. The outbreak of the virus success of the new service, but added $10bn under management. Executed also sent the price of cryptocurren- that he is certain that within the next by research firm Coleman Parkes, it cies into freefall. The value of bit- decade there will be a seven-day for- highlights how the lack of transpar- coin, the original cryptocurrency, eign exchange market. “It’s just a ency in legal services billing has been halved overnight in mid-March, but matter of time before that becomes a persistent problem industry-wide. has since recovered to roughly the de rigueur,” he added. The research found that billing same price it was at pre-crisis. Europe’s major exchange oper- promptness and accuracy are also Mercer said LMAX reaped the ators are currently consulting on key issues for buyout groups. In the benefits of the volatility in crypto whether or not to shorten trading UK, only 55% of respondents are markets. The total value of crypto- hours to promote staff wellbeing. confident their law firms will invoice currencies traded through LMAX The proposals seemed to be gaining them on time and 45% trust them Digital, its crypto arm, more than momentum until The Federation of to bill them “accurately”. “Lack of doubled in the first half of 2020, European Securities Exchanges said faith in timeliness and accuracy of reaching a total of $36bn, and up in a statement on 1 July that shorten- invoices causes damaging friction 106% from the same period last year. ing the trading day “would be a move between in-house and outside coun- “It is just a proof of concept that in the wrong direction and detrimen- sel. The client’s growing frustration this is now a real asset class. Every tal to European markets”. with unpredictable billing practices month we on-board another six to 10 “That’s an equities debate. All of erodes the trust that binds client and institutional players,” said Mercer. us die-hard fixed income and foreign legal advisor,” Apperio said. exchange people have always worked Nicholas d’Adhemar, founder “If you can’t print longer hours than the equities guys,” and CEO of Apperio, said that trust Mercer said of the proposals. between a PE house and their legal tickets when the “My belief is that if you look for- counsel is “paramount for the rela- market is moving, ward a decade or two it will be the tionship to work”. norm to rebalance your portfolio to He added that law firms should you never will” trade your investment to manage provide their buyout clients crucial your risk 24 hours a day, seven days David Mercer, chief executive of LMAX, said that March was an information to keep budgets and David Mercer, CEO of LMAX a week.” ‘exceptional’ month for the group, helped by volatile markets commercial partnerships on track. 20 July 2020 News 7 Just 15% of Goldman Sachs’ UK employees are back in the office

Paul Clarke

Goldman Sachs has just 900 people working in its London headquar- ters, showing that investment banks remain cautious about bringing employees back to the office even as the UK lockdown eases. The US bank has brought back 15% of its 6,000 London staff so far, its chief executive David Solomon said during a call accompanying the

bank’s second quarter results on 15 Getty Images July. The “vast majority” of Gold- man’s employees are still working Goldman Sachs’ London office in from home, he added, as the lender Plumtree Court, Holborn posted record investment banking revenues and its best quarter for said that there would be a “gradual fixed income trading since 2011. and careful return to office” in the Solomon has joined the growing UK. The bank’s staff are expected to number of senior investment bank- wear face masks when they are not ing leaders to say that a return to the sitting at their desks, but Goldman office is preferable for large financial has also transformed its office in services organisations. He said that other ways. the bank benefits from an “appren- As Financial News reported, its ticeship model” and from “being bustling canteen on the first floor will and working together”, but is still now encourage employees to use a unlikely to rush staff back until it is click and collect service, the seating safe to do so. area is closed and staff will be served Around 35% of Goldman’s staff by cafeteria employees behind plas- in Continental Europe are back in the tic screens, while staff numbers will

Getty Images office, and 50% working across split be limited in elevators to maintain teams in Hong Kong. social distancing. Below the line: Many big-name quantitative hedge funds have not fared well through 2020’s turbulence Goldman reopened its London Goldman’s rival JPMorgan began office to employees on 15 June after bringing staff back to its London keeping a skeleton crew of around offices earlier this month, having 200 staff throughout the UK lock- revamped its headquarters with down period from mid-March. The 38,000 stickers designed to direct Top Bridgewater fund bank’s 6,000 UK staff work from its staff and instruct them on safety office in Plumtree Court, Holborn, measures. which opened last year. Headcount will remain below The bank’s new £1bn UK head- 50% for the foreseeable future. tanks as quants slump quarters boasts features such as a Meanwhile, Citigroup’s head of roof garden, an in-house climbing institutional client services, Paco wall and artisan coffee shops on mul- Ybarra, said that it was unlikely Tom Teodorczuk the March market meltdown, par- haven’t revived in performance this tiple floors. that the bank’s headcount would go ticularly caught off guard by a spike year. “When the March meltdown In June, Goldman’s head of inter- above 40% in its offices until a coro- Machines are continuing to feel the in fixed-income volatility. Data from happened, a lot of risk got taken off national business Richard Gnodde navirus vaccine was found. pain. Morgan Stanley’s latest Quant Morgan Stanley shows many leading the table, which proved to be bad Trends report lays bare that quantita- quants have failed to improve their news when the market rallied,” said tive hedge funds — systematic macro performance subsequently. a quant fund manager speaking on and commodity trading advisers, The Morgan Stanley report also condition of anonymity. which trade futures, securities and found that quantitative equity mar- Jared Broad, CEO of QuantCon- Axa Investment Managers names currencies — are still lagging after ket neutral assets decreased by $3bn nect, an algorithmic trading platform failing to capitalise on the volatility in Q1 2020. Global quant equity for quantitative traders and hedge Marco Morelli as executive chair caused by the Covid-19 induced mar- market neutral assets also suffered, funds, cited logistical pressures ket turmoil. decreasing by $786m in Q1 2020. It for quant funds caused by the rise David Ricketts where he stood down from the top Quant Trends, a 69-page report marked the first Q1 outflows in any in remote working due to the pan- job in May. He has held senior lead- seen by Financial News, found that year in that sector since Q1 2009. demic. He said: “As everyone moved Axa Investment Managers, the fund ership positions at Bank of American Bridgewater Associates, the world’s CTAs, which are designed to out- towards working remote, quant management arm of the Paris-head- and JPMorgan over his career, which biggest hedge fund, also continues to perform the market in times of eco- shops, with their large engineering quartered insurance group, has spans nearly 36 years. struggle in 2020. Bridgewater’s Pure nomic turbulence, are also failing to teams and established ways of doing appointed Marco Morelli as its exec- He will report to Thomas Buberl, Alpha strategy was down 20.6% this thrive. Global asset outflows in CTAs research, had to shift to a new way of utive chair, replacing Gérald Harlin chief executive of Axa, and will be year to the end of May. But accord- in Q1 2020 were $21.6bn, $19bn of doing things. I wouldn’t be surprised who will retire in September. based in Paris. ing to a source close to the situation, which were in Systematic Diversified if there were delays or inefficiencies Harlin has been in the post since Buberl said: “I am very happy Bridgewater’s All Weather fund — its Strategies. Winton’s eponymous flag- caused by that.” December, following the depar- that Marco is joining AXA. His 36 risk parity strategy — is faring rela- ship hedge fund is down 14.5% in the Marshall Wace’s famed Market ture of former Axa IM chief execu- years of experience in banking and tively better, down only 2.8%. year to date until the end of May. Neutral TOPS Fund, though, is up tive Andrea Rossi, who had been in financial services, extensive knowl- It found Quant hedge fund heav- All the hedge funds were con- 6.4% in 2020 until 31 May. Within its charge since 2013. Harlin delayed edge of European markets and yweight Renaissance Technologies’ tacted for comment. UCITS Equity Quant Assets section, his retirement to take on the execu- proven leadership will be key assets Renaissance Institutional Equities Theories vary as to why quants the report states: “Assets within the tive chair role, and was tasked with to further develop Axa IM.” Fund is down 10.9% in 2020 until the strategy continue to be concentrated implementing the next phase of He added: “I would also like to end of May. AHL Dimension, the mul- “I wouldn’t be amongst the largest players such as Axa IM’s strategy and accelerating thank [Harlin] for postponing his ti-strategy hedge fund run by listed Merian and Marshall Wace.” But it development. retirement last year to take over the hedge fund Man Group, fell 5.6% surprised if there warned about the future of quant He will remain a member of Axa leadership of our asset management for the year ending May 2020. Man were delays caused by firms: “While advances in technol- IM’s board of directors when he steps entity Axa IM, to which he and his Group’s AHL Alpha quant fund is up ogy have levelled the playing field, down from his role. teams have given a new impetus by 2.9% over the same period, a person remote working” the rising costs of data, talent and Morelli was most recently chief putting in place a new organisation familiar with the matter told FN. business set-up have made it more executive at 396-year-old Italian that is better adapted to its future Quant firms were hit badly by Jared Broad, QuantConnect challenging to launch a quant fund.” bank, Monte dei Paschi di Siena, development.”

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Congratulations to the nominees Contact us for information on our awards logos Sponsored by [email protected] 20 July 2020 News 9 City calls for UK Covid debt corporation UK Recovery Corporation mooted by lobby group’s report would oversee the vast sums paid out in support schemes, writes Bérengère Sim

A government-backed entity is report as the government investi- in the “early days” of what kind of of the recovery, so that will have an said that there were “reputational needed to manage the £35bn in gates easing the economy off the resources it would need, Sir Adrian impact on the sustainability of debt, concerns” for both the banks and unsustainable corporate debt that loan support schemes and other Montague, the chair of TheCityUK’s depending on how rapid and steep a the government as they move to exit has resulted from loans and sup- programmes that have helped keep Leadership Council, said during a recovery we have,” Chancellor Rishi the loan schemes. port measures given during the businesses and individuals afloat press webinar on 15 July. Sunak told the Treasury Committee “There’s a point there about Covid-19 crisis, a group of senior City during the pandemic. The latest government statistics, during a 15 July evidence session. recovery, about how swiftly we can officials have said. According to the report, up to 3 released on 12 July, show that lenders “I’ve seen the report from move to get businesses who cannot TheCityUK’s Recapitalisation million jobs across the country and have approved £11.85bn of loans for CityUK and others, and, as with repay their debt through that recov- Group called for “urgent action” in a 780,000 small and medium-sized small and medium-sized enterprises everything, we’re happy to hear ery process so that we minimise drag 16 July report and suggested the crea- businesses are at risk. through the Coronavirus Business ideas if they think that there are in that respect,” Braddick said. tion of a “UK Recovery Corporation” The UK Recovery Corporation Interruption Loan Scheme, which is things we can do,” he added. “The debt pile companies have to issue, hold, oversee and manage would have the government as its 80% backed by the government. In a 10 July webinar, Katharine built up during lockdown is a threat the unsustainable debt. principal investor. The private sector The scheme for large businesses Braddick, the director-general of to the recovery, not just for the busi- The move would be in line with could later invest in it over time, the has seen banks hand out £2.73bn of financial services at HM Treasury, nesses themselves, but for the econ- input from accounting firm EY and report said. Depending on the size loans to 412 companies; the Bounce omy as a whole,” said Edwin Mor- over 50 financial services firms such of the loan, companies could either Back Loan scheme, which is 100% “We don’t know the gan, the director of policy at the as asset manager Schroders, law convert outstanding loans into a tax backed by the government, has dis- Institute of Directors, in reaction to firm Herbert Smith Freehills and obligation, subordinated debt or pre- bursed £31.7bn of loans to more than exact shape of the the report. “A student loan-style sys- US bank Citigroup. ferred share capital. a million firms. The Job Retention recovery, so that tem, with companies repaying based The lobby group, which was However, the planning of the Scheme has supported 9.4 million on their profits, could help firms get formed to consider how private corporation — modelled on examples people — £28.7bn in wages — since it will have an impact” back on their feet. Otherwise, coro- capital can address recapitalisation like private equity firm 3i or German was introduced in March. navirus debt could act as a millstone and support businesses, issued its development bank the KfW — is still “We don’t know the exact shape Chancellor Rishi Sunak around their necks for some time.” Anthony Upton/GettyAnthony Images

Rishi Sunak, Chancellor of the Exchequer, has prescribed a hefty dose of debt to rescue the ailing economy; City experts now want a new debt corporation to tackle the side-effects

Investment firms of wealthy families take bullish view

Penny Sukhraj with the average wealth of the market dislocations. We expect to see from the coronavirus crisis, UBS said. tions to cash and precious metals. families totalling $1.6bn. big moves in the coming months.” Only around half of family offices About a quarter of family offices Rich families aren’t letting volatile The firms also plan to increase Many family offices focus on pri- said they expected private equity said they plan to lower cash reserves stock markets dim their investing their allocations to real estate as vate equity, but expectations for the to outperform public investments, within the next three years. outlook during the pandemic. they seek new opportunities, the asset class fell because of the impact down from almost three quarters “In some senses, we saw them More than a third of family Swiss bank said in its Global Family prior to the pandemic. take an institutional approach, offices ­­— the private investment firms Office Report 2020. “This is why they are More than two thirds of fam- applying meticulous asset allocation of the wealthy — ­plan to boost their “It is missing an opportunity that ily offices identify private equity strategies and rigorous investment allocations to developed and devel- gives these clients the biggest head- looking to deploy cash as a major driver of their returns, processes,” Stadler said on family oping equity markets, according ache,” Josef Stadler, head of UBS’s to take advantage of the report said. offices’ reactions to the virus. to a survey released on 16 July from Global Family Office unit, said in More than half have rebalanced “However uncomforta- UBS Group. a news release. market dislocations” their portfolios this year in response ble it may have been at times, UBS surveyed around 120 “This is why they are looking to the economic pain of the pan- they stuck to their plans and family offices for its report, to deploy cash to take advantage of Josef Stadler, UBS demic, including boosting alloca- remained disciplined.” 10 News 20 July 2020

BlackRock puts Banks still ploughing billions 191 companies ‘on watch’ over into coal despite green pledges climate failures

European banks are singled out for level of their investments by Beyond Coal report, writes Ryan Weeks David Ricketts

A group of European banks are keep- BlackRock, the world’s largest asset ing coal companies afloat by channel- manager, has put almost 200 compa- ling €8bn into the sector, a climate nies “on watch” due to their failure to change lobby group has found. fully take into account climate risks. UniCredit, BNP Paribas, Bar- The New York-headquartered clays and Societe Generale were all fund group told 191 companies that singled out in a new report unveiling they could face consequences at next investments in eight coal companies, year’s round of shareholder meet- which together contribute half of all ings if they fail to make progress on Europe’s coal-based CO2 emissions. reducing carbon emissions and mov- UniCredit ranked worst, having ing towards a more sustainable busi- provided €2.8bn in loans and under- ness model. writing services to energy companies The warning comes after Black- such as RWE, PGE and Fortum Cor- Rock wrote to investors in January, poration at the end of 2019. promising to take a tougher stance BNP Paribas is responsible for on companies that were not making €2.1bn, while Barclays and Societe sufficient progress on sustainability Generale have each extended €1.3bn. related disclosures. The report, published by lobby It is the first time BlackRock has group Europe Beyond Coal, notes gone public with its “on watch” num- that coal is considered the dirtiest ber, which was disclosed in a report among fossil fuels. issued to clients on 14 July. Its pro- The findings spotlighting the nouncements on corporate govern- banks’ investments in coal compa- ance matter more than most rivals; nies come amid resolutions by some with $6.5tn in assets under manage- of the lenders in question to cut ment, it owns significant stakes in carbon emissions. many blue-chip stocks. Barclays, for example, published “Those that do not make a new coal policy earlier this year in significant progress risk voting which it committed to reaching net against management in 2021,” zero emissions by 2050. said BlackRock. “Today’s report is further proof Companies placed on Black- that Barclays is miles off aligning its Rock’s watchlist typically have fossil fuel financing with the climate between 12 to 18 months to meet the imperatives of the Paris agreement, asset manager’s expectations, but despite recently setting an ambi- in some cases companies had “legit- tion to be a net zero bank by 2050,” imate concerns” that had delayed said Jeanne Martin, senior campaign their progress on climate related manager at ShareAction, which is a issues, such as responding to the member of Europe Beyond Coal. Covid-19 pandemic. The group’s findings, accurate According to BlackRock, this as of the end of 2019, are a result of year it singled out 244 companies it

tracking financial flows since 2018 Lukas Schulze/Getty Images considered were not making good from shareholding, bonds, lending enough progress on addressing and underwriting for the eight larg- Sooted and booted: pressure cess of significantly reducing them,” ment to reduce exposure to fossil climate risk. est coal companies in Europe. groups want banks to stop they continued. energies and our increased support Of those companies, BlackRock The companies, which include financing coal plants like the RWE The report found that Europe’s for renewable energies, Societe Gen- said it took voting action at 53. This WE, PGE, EPH, ČEZ, Enel/Endesa Weisweiler station in Germany most coal-exposed investor is the erale is accelerating its exit from included voting against the re-elec- and Fortum/Uniper, were deemed Norwegian Government Pension the coal sector. tion of one or more members of a the most significant because of their icy came into effect, and refers to Fund, which has ploughed €1.5bn “As part of its latest thermal company’s board; voting against the annual coal-based emissions. “general purpose corporate financ- into shares and bonds issued by firms coal policy, the Group will no longer discharge of directors or the entire Commencement of the track- ing and/or bonds to companies who in the sector. BlackRock, the world’s offer products and services to com- board in certain European markets; ing coincides with the stark warn- already fulfilled the criteria we later largest asset manager, is Europe’s panies generating over 25% of their or voting for one or more climate- ing issued by UN scientists that just set in the policy”. largest international coal investor, revenues in the thermal coal sector related shareholder proposals. 12 years remained to avert the worst The spokesperson added that with €7bn invested in the eight coal and that do not have a credible exit ExxonMobil is one company consequences of climate change. UniCredit is “strongly committed to companies as of the end of 2019. strategy from the coal sector, and where BlackRock used its voting A Barclays spokesperson decarbonisation and we are actively Barclays’ coal policy prevents those companies developing new muscle this year, voting against the called the claim made in the supporting clients in their shift to it from financing clients that derive mining, power plant or infrastruc- re-election of public issues and con- report “out of date and based on renewable energy”. more than 50% of their revenues ture projects related to thermal tributions committee chair Angela flawed assumptions”. A spokesperson for BNP Pari- from thermal coal as of 2020, a per- coal,” they added. Braly and board lead independent “We are committed to the reduc- bas said the bank’s alleged exposure centage that will fall to 30% in 2025 In BlackRock’s recent steward- director Kenneth Frazier. tion of any thermal coal financing is comprised of financing granted and then 10% in 2030. However, ship report, published 14 July, the It also voted in favour of a share- in line with the Paris Goals and will before the adoption of its new “coal- ShareAction says the unprofita- company noted its voting action holder motion to split the chair and not support project finance for the fired power generation” policy bility of coal in Europe means the “against those companies where chief executive role, saying the com- development of greenfield thermal in July 2020. policy lacks impact. we found corporate leadership pany’s failure to set carbon emission coal mines, nor the construction “That said, the large majority “As a minimum, Barclays needs unresponsive to investors’ con- targets was in part due to the board’s or expansion of coal-fired power of the financing relates to general- to close the loophole in its coal pol- cerns about climate risk or assessed lack of independence. stations anywhere in the world,” purpose loans to electricity compa- icy — far from its only shortcom- their disclosures to be insufficient BlackRock said its engagement they added. nies whose commitments to coal are ing — which allows finance to flow given the importance to inves- with companies on environmental A spokesperson for UniCredit already low and who are in the pro- freely to coal utility giants, or its tors of detailed information on cli- issues during 2019-2020 increased pointed out that the bank launched ambition could prove merely a pipe mate risk and the transition to a 289% on the previous year. “a new, reinforced policy” on green “As a minimum, dream,” continued Martin. low-carbon economy”. The report comes after Black- investing on 26 November 2019. A direct action protest was These actions included votes Rock hired former Bank of England “First of all, the figures in the Barclays needs to staged on July 15 outside a Bar- against management at the coal com- heavyweight Sandy Boss to lead its Europe Beyond Coal report are close the loophole in clays branch in Piccadilly Cir- panies Uniper, Fortum, CEZ and global stewardship team, taking over incorrect and based on erroneous cus in response to the findings PGE, according to a spokesperson. from Barbara Novick. Boss had spent assumptions,” they said. its coal policy” of the report. The Norwegian Government the previous six years at the BoE The €2.8bn figure applies to a A Societe Generale spokesper- Pension Fund was contacted serving as an external member of the period before the bank’s new pol- Jeanne Martin, ShareAction son said: “In line with our commit- for comment. prudential regulation committee. 20 July 2020 News/Fintech 11

Ryan Weeks The Fintech Files

HSBC quietly pauses open banking project Pulse to tackle Covid-19 problems

HSBC has quietly put a two-year The Pulse project was signed fintech project that was signed off by CEO Quinn when he off by chief executive Noel Quinn ran HSBC’s commercial bank, on hold, because of the pressure according to a person familiar brought on by the Covid-19 crisis. with the matter. Quinn became Pulse, which has been under group chief executive in March development since late 2018, is 2020, after taking the role on an an open banking proposition, interim basis in August 2019. which the group hoped would But it is not all bad news. deliver insights, such as cash flow Another of HSBC’s fintech management tips, to its business projects, meanwhile, is nearing customers. But the project was launch. A spokesperson for the paused in late April at the height bank said it will begin a staged of the lockdown. launch of Kinetic, its digital The team of 17 people who bank for small businesses, in had been working on Pulse out September. The technology of HSBC’s WeWork offices in behind Kinetic is already being Waterloo have been reassigned used to help HSBC dish out loans internally, according to people under the government’s various familiar with the matter. emergency lending schemes. “Our priority is to help The bank began testing our customers navigate the Kinetic in November 2019, challenges they face in these claiming to have done so with uncertain times. We have more than 2,400 businesses, rebalanced our priorities and hoping it would open the app to

Pete Summers/GettyPete Images Project Pulse has been put on all business customers in 2020. hold,” said a bank spokesperson. In a recent report on M&A in Andrew Bailey, named Bank of England Governor in March, confirms the Bank’s openness to digital cash Ameet Benegal, HSBC’s the fintech sector, the law firm former head of open banking White & Case warned that banks innovation in commercial are tightening their belts when banking, was leading the it comes to fintech investments Pulse project. On his LinkedIn and “de-risking digitalisation Digital currency is on profile, he describes Pulse as “a strategies through rationalising small business financial health fintech portfolios”. platform, an operating system This would appear to be what for any small business (not just we see playing out at HSBC. But BoE agenda says Bailey HSBC clients)”. Benegal was the lawyers also noted that some contacted for comment. banks are “holding their nerve News of the closure comes on digitalisation strategies in Emily Horton agenda in “a few years’ time” and that to the challenges of lockdown and just a few months after RBS shut the Covid-19 environment”, and it will be a “very big issue for society” new ways of working, there have down its digital bank Bo. That understandably are favouring The Bank of England is considering — once the economic hit from the been calls to step back from the Libor venture was launched only in the in-house offerings they have whether it should create a digital cur- coronavirus crisis is no longer con- transition as a priority,” he said. “But November, in an attempt to take developed, citing Nationwide’s rency, the bank’s governor Andrew suming the BoE’s time and resources. what we saw in financial markets in on high-profile digital banks ongoing support for the building Bailey has said. However, he also rebuffed calls March in response to Covid only rein- such as Monzo and Revolut, but society’s mortgage-adviser Andrew Bailey, speaking at a for the City to be given more time to forces the importance of removing fell victim to the hit of Covid-19, chatbot Arti, for example. Speakers for Schools webinar for stu- dump the scandal-tainted London the financial system’s dependence on which has upset the plans of so So it may well be that dents on 13 July, said the Bank was Interbank Offered Rate, or Libor, Libor in a timely way.” many businesses. The bank’s CEO Pulse re-emerges after a “looking at the question of, should which is still in widespread use eight Consumer organisations have Alison Rose suggested at the time period of coronavirus-induced we create a BoE digital currency”. years after it was discredited by also supported the idea of digi- that the impact of the pandemic hibernation, but for now, HSBC “We’ll go on looking at it, as it does price-fixing among banks. Speaking tal money backed by the Bank of had forced its hand. simply has bigger fish to fry. have huge implications on the nature at a separate webinar event on 13 England. In a report published in of payments and society,” he added. July, Bailey argued that the devastat- April, the pressure group Positive The comments from Bailey, who ing effects of the pandemic had rein- Money envisaged “an electronic ver- took over as governor in March, align forced the importance of “removing sion of cash accessible to the general Sign up for The Fintech Files with the BoE’s previous position on the financial system’s dependence on population through accounts at the the creation of a digital currency. Libor in a timely way”. central bank... and argued this would At the start of the year, the BoE The governor reiterated the cen- protect faith in the monetary system. joined an international working tral bank’s existing 2021 deadline for Economist Konstantin Bikas, group of central banks exploring the phasing out the interest-rate bench- who authored the report, said at the potential of state-administered digi- mark, which still underpins an esti- time: “Policymakers must introduce tal currencies in their home markets. mated $400tn of adjustable-rate a digital version of cash as soon as The BoE signed up to the initiative financial contracts, from corporate possible if we are to avoid the priva- alongside the Bank of Canada, Bank loans to home mortgages. tisation of money itself... the need of Japan, European Central Bank, “With the authorities, businesses for a digital form of public money Sveriges Riksbank of Sweden, Swiss and households all having to adapt is heightened in times of crisis like National Bank and the Bank for Inter- today, as it would open the door for national Settlements. In March, the new ways to support the economy. BoE outlined its position on digital “A CBDC would make it much currency in a report titled “Central $400tn easier to help households through Bank Digital Currency: opportunities, the pandemic directly with ‘QE for challenges and design”. The value of adjustable- people’ or ‘helicopter money’ and Bailey said he hoped a digital cur- rate financial contracts still would provide an effective means of rency will be on the central bank’s underpinned by Libor combating the looming recession.” Subscribe to FN’s weekly email on tinyurl.com/fintechfiles 12 The long read 20 July 2020

Wall Street’s trading desks deliver a blowout quarter as firms tap capital markets, but there are warnings the stellar results could have political ramifications as the overall economy slumps. By Paul Clarke and Trista Kelley Goldman trading bonanza sends revenues to ‘almost indecent’ $13bn…

Goldman Sachs’ second-quarter earnings blew bank, thanks to a huge uptick in equity and debt analysts’ expectations away. Investment banking fees underwriting. hit record highs, while its hulking fixed income unit All of this was done with 98% of its 39,000 posted its best three-month period in nine years. Sales employees working from home. in Goldman’s markets division almost doubled, surging Goldman’s total revenues were $13.3bn — a 41% 93% to rake in $7.2bn. increase on 2019. Such a performance led analysts to note the “Goldman’s earnings this quarter were too good — widening gap between Wall Street and Main Street as almost indecent, in fact,” said Marenzi. investment banking benefited while retail divisions “You are really seeing the divergence here from suffered. Octavio Marenzi, CEO of capital markets real economy,” said Neil Wilson, chief market analyst management consultancy Opimas, said politicians at Markets.com. He noted the differing performance of might intervene after earnings season. Wells Fargo, a bank more focused on retail consumers Wall Street’s stellar investment banking revenues that reported a $2.4bn loss in the second quarter. gained as the coronavirus crisis prompted companies “[Goldman has] no retail offset to worry about,” to tap capital markets for vital liquidity in record Wilson said, which added to the bank’s “better than volumes, while huge market swings proved a bonanza expected” performance. for banks’ sales and trading operations. Goldman Sachs has not been weighed down a Goldman’s fixed income unit made $4.2bn in significant consumer banking division, which forced the second quarter of 2020 — a 149% increase on the rivals Citigroup, JPMorgan and Wells Fargo to put aside same period last year. Meanwhile, its equities traders a collective $28bn for potential soured loans because brought in $2.9bn, a gain of 46%. In investment of Covid-19 in the second quarter. Goldman put aside banking, revenues of $2.7bn were a record for the $1.6bn. For Goldman, that’s a huge uptick on previous years, but a comparative drop in the ocean. This weighed on profits at the universal banks, despite positive quarters within their investment Boom times amid bust banks. Citigroup’s profits of $1.32bn were down 73% on the previous year even with a surge in trading and As the real economy has been sledgehammered by investment banking revenues, while JPMorgan’s record Covid-19, banks’ markets businesses are flying quarter for its corporate and investment bank failed to stop a 51% slide in earnings. Markets revenues Percentage increase (YoY) Marenzi said that Goldman’s results were likely to have “political ramifications”. “The Fed has been able to engineer a huge bounce JP Morgan back in the markets by injecting trillions of dollars, benefiting investment banks primarily. This will lead to calls for the government to do more to help Main Street rather than Wall Street,” he said. $9.7bn 79% “The investment banking arms at JPMorgan and Citigroup also did phenomenally well this quarter, but Citigroup and JPMorgan have large retail and Citigroup commercial banking activities that dragged their results way down, masking the stellar performance of ... as Wall Street’s $33bn gold rush proves its crushing their investment businesses,” he said. While Goldman chief executive David Solomon has $6.4bn 55% sought to diversify the bank away from its traditional When Goldman Sachs’ earnings report landed on 15 strengths in trading and investment banking towards July, analysts were amazed. The bond trading unit areas including cash management, retail banking and posted its best quarter in nine years. The markets Goldman Sachs credit cards, the US banking giant has become more division almost doubled its revenues since last year, reliant on revenues from its core units. surging to $7.2bn. Collectively, Goldman’s trading and investment Goldman wasn’t alone. All across Wall Street, banking revenues accounted for 74% of total earnings earnings reports showed a similar theme — traders $7.2bn 98% during the second quarter — up from 61% in 2019. absolutely killed it during the quarter, and trading The investment banking boon is also unlikely to units made up bigger-than-ever chunks of bank profits. support deflating revenues across these firms longer At JPMorgan, trading brought in $9.7bn, a 79% Bank of America term. Daniel Pinto, chief executive of JPMorgan’s gain. At Citigroup: $6.4bn, or a 55% increase. At corporate and investment bank, told staff on 14 July Morgan Stanley, the highest trading revenues in a that he expects revenues to “return to more normal decade: $5.6bn, or a 68% gain. At Bank of America a activity levels” in the second half, echoing comments more modest rise of 28%, or $4.2bn. It all adds up to a $4.2bn 28% from Citigroup’s institutional clients group boss Paco whopping $33bn. Ybarra, who said the bank did not anticipate “a lot of Don’t expect the same trend to play out in growth” over the coming two years. European banks’ earnings later this month. Morgan Stanley Jamie Dimon, chair and chief executive of “Goldman and co were off-the-charts good,” said JPMorgan, said in a statement that “we still face Neil Wilson, chief market analyst at Markets.com. “I much uncertainty regarding the future path of the just can’t see European banks delivering as much. Q1 economy”, cautioning on a call with analysts that saw European banks’ share of global trading revenues

Wall Street bank trading revenues Street Wall $5.5bn 68% “things can get worse”. fall to a five-year low — about a third.” 12 The long read 20 July 2020 20 July 2020 The long read 13

Wall Street’s trading desks deliver a blowout quarter as firms tap capital markets, but there are warnings the stellar results could have political ramifications as the overall economy slumps. By Paul Clarke and Trista Kelley

Getty Images ... as Wall Street’s $33bn gold rush proves its crushing

“We expect European banks’ Q2 results to be in credit, US rates trading and commodities that has All that glitters meanwhile, took around 45% during the period, their slightly weaker compared to Americans due to their propelled US banks in the second quarter,” said a may not prove highest ever cut. product mix and regional footprint in global markets,” consultant who works with the top investment banks. acceptable Wall Street banks have taken 72% of the M&A fee said George Kuznetsov, a partner at McKinsey CIB “This has worked to the US banks’ advantage.” to politicians pool globally since March. Said Wilson: “Wall Street Insights. It’s yet another example of how US banks have facing cash- beasts continue to gain share. The US banks have the The Covid-19 crisis has sped up a trend toward steadily come to overtake European peers not just strapped ability to offer all products while European banks have US dominance. Wall Street made big bets early on in trading, but in the industry overall — a trend that voters taken a step back in some areas.” that they needed to be present in all products to European banks have been warning about for years. Deutsche Bank’s move to pull out of equities take advantage of different market conditions. The Barclays chief executive Jes Staley told policymakers sales and trading is the latest example of European pandemic vindicated that view. European banks, in Brussels back in 2016 that European banks suffered investment banks retreating from certain business which have closed units, scaled down and focused on from tight regulations and negative interest rates. lines — cutbacks that have cost tens of thousands of home markets will not see the same surge. “We’re about to tip over into American jobs over the past decade. UK lender HSBC is also “The European banks will be weaker — we don’t dominance, and if this trend continues, we risk a cutting around 35,000 positions and pulling back from expect more than a 50% increase at most firms, very near future in which Europe’s capital markets equities in Europe. because of their product mix — they lack the scale are almost entirely dependent on firms domiciled Swiss banks were ahead of the current wave elsewhere,” Staley said at the time. of changes. In 2012, under the leadership of then “Goldman and co were off-the- A key turning point came this year. According to investment banking boss Andrea Orcel, UBS shed data provider Dealogic, European lenders brought in around 5,600 jobs as it closed around 7,000 trading charts good. I can’t see European just less than half — 49.2% — of the total investment books, while former Credit Suisse CEO Tidjane Thiam banks delivering as much” banking fee pool from March to May. That’s their orchestrated a retreat from its markets business lowest share since at least 2001. That share has steadily towards its more profitable wealth management Neil Wilson, Markets.com shrunk since a peak of around 65% in 2010. US banks, business in 2016. 14 Special advertising feature 20 July 2020 Thriving in a new world: the future of asset management Asset management is at a crucial juncture. With average trading volumes soaring in recent months, record outflows from funds and unprecedented volatility, Kimberly LaPointe, Head of PGIM Investments International: we need true partnerships with our vendors the time for incremental change has gone. How can asset managers propel their transformation to ensure that they survive and thrive in this new world? Future partnerships in The Panel asset management

As the industry evolves, partnerships are moving on from simple vendor arrangements

With the asset management explained LaPointe. “Ultimately, it’s into a more hybrid model where you industry becoming increasingly the marriage between what we work can combine the two,” said Aalders. competitive, due in part to a with partners on and what we do as “We are seeing more of this in the Francesco Bastiaan Emma Kimberly greater focus on costs, the role a core asset manager that we believe cloud… and there will be a few fin- Guerrera Aalders Crabtree LaPointe partnerships play within it is also will lead to a superior service and techs involved here and there. In the Moderator Director Head of Sales Executive Vice expected to transform. better results for our clients.” end it will be very much a shared Head of Alpha FMC EMEA President With a continued squeeze on Such partnerships have also platform.” International, BNP Paribas Head of PGIM margins, the perceived value of been disrupted (and, in places, en- This is exactly the experience Barron’s Group Securities Investments these relationships is set to attract hanced) by developments in tech- Crabtree has had with the BlackRock and Publisher, Services International more scrutiny, but therein lies an nology with cloud technology in Aladdin platform, who have entered Financial News opportunity for reinvigoration ac- particular playing a key role. This into an agreement with BNP Pari- cording to Emma Crabtree, head of use of technology has the potential bas Securities Services to provide sales EMEA, BNP Paribas Securities to erode traditional distinctions integrated front-to-back services for Advertisement Services. between partnerships and outsourc- asset managers. “Partnership is a well-worn ing, says Bastiaan Aalders, director And this isn’t the only such word,” said Crabtree. “But in order and chief executive of The Nether- partnership, as she explained: “We to deliver true partnership, it is lands for consultancy Alpha FMC. have many fintech relationships that about someone proactively taking “About 10 years ago you could provide mutual benefit because their the time to talk about what the issues either buy a system or outsource proposition is smarter and quicker are, rather than getting engrossed in something, that has now evolved to implement than building it from business as usual.” scratch ourselves.” This need for proactivity ties “The marriage Overall, it is important these into the long-running theme that, new arrangements remain efficient over recent years, asset management between what we and beneficial for the end client, has increasingly moved towards work with partners who is primarily interested in service providing solutions and away from and cost efficiency. simply manufacturing products. For on and what we “At the end of the day the end Kimberly LaPointe, head of PGIM do as a core asset client is experiencing all of these Investments International, this rep- services and this operating model resents a need for asset managers manager will lead increasingly needs to be seamless to move on from traditional vendor to better results for right across the value chain,” said relationships. LaPointe. “The ability in how we “It is about more of a co-creation our clients.” operate collectively to meet the [of solutions] and a true partnership, client has always been important, and we look to work with partners Kimberly LaPointe, Head of PGIM but it’s only gaining in importance that can complement our expertise,” Investments International as we move forward.” Webcast

Go to fnlondon.com/studio/futureofam to watch now Asset managers are investigating Smaller managers, on the other Data helps how a long-overdue upgrade their hand focus on monitoring and data capability could help them minimising risk to their business capture new opportunities and put and supporting compliance. asset them ahead of competition — and Emma Crabtree, head of sales there is no shortage of ideas. EMEA, BNP Paribas Securities “Very large asset managers, Services, sees asset managers at managers who are very offensive on data, different stages of the journey, but use it in a different way to smaller she said they all must start at the firms,” said Bastiaan Aalders, same place. get ahead director and chief executive of “Their biggest challenge is the Netherlands, Alpha FMC. bringing data together from a “For them, data drives core number of sources, be it external or Garbage in, garbage business objectives, and revenue internal platforms and normalising out no longer viable drives identifying inefficiencies, and standardising the data,” she supporting the strategic decision- said. “Whether it’s the front office for margin-squeezed making process, and maybe even or the customer experience, the businesses predictive analytics to be used.” cleanliness and accuracy of the 14 Special advertising feature 20 July 2020 20 July 2020 Special advertising feature 15 Asset managers face up to post- Covid-19 structural questions

Cost-pressured firms were already assessing where they add value for investors, but volatile markets and home-working call for still more flexibility

Traditional asset managers can be added for the business, were already facing several argues LaPointe. cost pressures going into 2020, “There are different arguably the most noticeable being jurisdictions for which we need the increased competition from to register all of our products, low cost passive products. and it’s really in that regard that However, in the past few we are working with different months these businesses have service providers to help us deliver been further challenged by the and package our asset management Covid-19 pandemic and the offering,” said LaPointe. industry now faces an even more “Our ability to partner with uncertain future. our various vendors or solution Change is now required and providers that help us package Bastiaan Aalders, director and and administer vehicles to meet chief executive of the Netherlands these objectives becomes critical,” for Alpha FMC, an asset she added. management consultancy, says For asset managers reviewing companies must get on top of how their operating models, and vital bottom line statistics dictate exploring potential new ongoing business strategy. areas of efficiency, this could “The cost/income ratio is mean dramatic overhauls and increasingly on the agenda in the restructures. boardroom,” said Aalders. “It is In such an increasingly the cost side that is more difficult competitive and cost-conscious to understand… because what market, there is a newfound need you really want to know is what for them to justify charges and be the impact of your growth plans structurally prepared for further and your revenue is on the cost/ disruptions (for instance, in the income ratio.” Emma Crabtree, Head of clear point at which to have a look “Asset managers form of new Covid-19 outbreaks). However, this goes further Sales EMEA, BNP Paribas at your operating model and see if The overall aim should now than simply cutting expense Securities Services: Covid-19 has you can create efficiencies.” are asking — what do be to champion flexibility, says budgets and instead extends to increased the focus on cost Based on Aalder’s logic, it I need? Where can Crabtree, which could allow how asset managers can structure makes sense for cost-pressured some challenged businesses to themselves for the long term. looking at their operating model asset managers to strip back I partner with find their competitive edge again. Faced with such uncertainty, and taking a long, hard look at expenses wherever they can. In the someone to bring my As a result, more asset managers they should simplify their task, as what is essential to retain in- pursuit of scalability over the long are now re-evaluating their value Aalders said: “You need to really house,” she said. term though, this means reviewing costs down? How proposition and asking what now understand what the problems are Headcount is already operating models as a whole and can I co-create with needs to be different. you are trying to resolve.” something Alpha FMC has evaluating the ongoing need of “For me, a lot of our recent The ongoing threat of identified as a target for reducing outsourcing relationships. a provider to fulfil conversations are around how Covid-19 means asset managers outgoings, as this is estimated to This has already happened some future needs?” asset managers can do things around the world are faced with account for around 70% of an asset at global asset manager PGIM, differently. Asset managers are an increasingly unpredictable manager’s cost. And while cutting where management have decided Emma Crabtree, Head of asking themselves — what do I operating environment. To jobs will of course result in savings not to extensively outsource Sales EMEA, BNP Paribas need? Where can I partner with safeguard against further — and is something that many large business functions. Instead for Securities Services someone to bring my costs down? volatility, these businesses should institutions have already started PGIM, which has a broad range of How can I co-create with a provider look to embrace flexibility, exploring — Aalders argues it would clients to look after, the strategy is Investments International. to fulfil some of the needs of the according to Emma Crabtree, also benefit asset managers from to establish close-knit relationships In a move away from simply future?” said Crabtree. head of sales EMEA, BNP Paribas another perspective: flexibility. with third parties that more closely outsourcing middle and back office The reality is, she explained, Securities Services. “You don’t want to create resemble partnerships. administrations to numerous third that asset managers need servicers “When March hit us, obviously a scalable operating model by “For us, we have not gone parties, LaPointe said PGIM wanted who can act more as a partner who that brought an even bigger focus just throwing more people at for the one outsourcing provider bespoke partnership arrangements can come on the journey, whether on cost due to the huge volatility it,” said Aalders. “You need to given the mass client base that that could help it extend its core they are transforming a customer in the market,” said Crabtree. look at processes and, obviously, we serve, in terms of breadth, capabilities into the various proposition, changing their “Where we see this going is systems. That indicator of ‘I grow depth and jurisdiction,” explained markets it serves. operating model or bringing a new clients and prospective clients by throwing more people at it’ is a Kimberly LaPointe, head of PGIM This is where the real value proposition to the market.

“For large firms, data is the starting point, and current situation in which PGIM’s pieces of collateral, different everything else must be driven content can be “one of 50 or pieces of information, tailor data drives core from there.” 60 ‘spam emails’”, and instead user experiences to where business objectives, For Kimberly LaPointe, head target what is relevant to where we believe, or what they have of PGIM Investments International, their interests lie or their asset expressed to us is their area of and revenue better data can quickly improve a class expertise, “I think the interest, said LaPointe. “I think drives identifying manager’s client servicing element. industry is starting down this it can be a real differentiator for “We can continue to evolve our journey,” she said. those that get it right.” inefficiencies, data to be very targeted around PGIM itself has already However, the stumbling block supporting the how we can serve up our website begun and is migrating from a for all is the distance to make up. experience based on the user,” “distribution model that was “The financial industry, as a strategic decision- said LaPointe. She highlighted the driven by sales to a distribution whole, is behind other industries making process.” distribution of market insights and and service model”, a collective in terms of data,” said Aalders, portfolio updates, “using data to effort between marketing, sales “and asset management is even ensure that we are only delivering and service — but accurate data is Bastiaan Aalders, Netherlands behind other elements like Bastiaan Aalders, director the most relevant information to critical to be able to deliver on that. CEO at Alpha FMC, points out insurance or banking. We are still and chief executive of clients and prospects”. “Once we have that we larger fund managers are going working on getting the right basic the Netherlands, Alpha FMC This would improve the can very much target different on the offensive on big data architecture in place.” 16 News 20 July 2020

Coronavirus pandemic has brought ‘social’ to the forefront of ESG investment decisions

Ryan Weeks Corporate Governance investing to financial markets. Since the start E to S in the last couple of months.” tance of environmental factors, and more of a focus than they did in the of April, the issuance of so-called Meanwhile, the global protests a four percentage point gain in the Fund managers are paying more first quarter. But the importance of “social bonds”, chiefly from inter- that followed the killing of George field of governance. attention to social considerations, ‘social’ investing has risen signifi- national and government agencies Floyd has led to pronouncements of The survey showed that the such as labour rights and diversity, cantly since the crisis began, closing using the proceeds to finance health- solidarity in support of equality and most important social elements in than they were prior to the outbreak the gap on environmental and gov- care and job-preservation schemes, human rights from many in the busi- the minds of investors are labour of coronavirus, according to a new ernance issues as a key factor in guid- has surged 43% to €66bn. ness and finance world. standards (38%), excluding harm- survey commissioned by BNP Pari- ing investment decisions. NN Investment Partners, which In the survey, half of investors ful investments (31%), human capi- bas Asset Management. The profile of issues such as manages green and social bond said social factors were important to tal management (23%) and gender The survey, which canvassed labour rights and public health funds, said in a report on 30 June: “A them before, but 70% said they were equality (22%), while 31% think a the views of 129 investment firms, has risen in an age of workplace heightened focus on the wide-rang- now a focal point. That 20 percent- lack of clarity over what constitutes found that 23% of respondents now social-distancing and virus control, ing social implications of the pan- age point increase compares to an 11 a socially responsible investment will consider Environmental, Social and and the effects are feeding through demic has shifted the emphasis from percentage point gain in the impor- hold firms back. A third of UK audits are ‘unacceptable’, says the Financial Reporting Council Of the 88 audits completed by seven of the UK’s top firms 33% were highlighted as needing improvement, writes Emily Horton

There are 10% more audits that need vast improvements compared to last year, the Financial Reporting Council said of its latest audit inspection find- ings, published on 14 July. Further, a third of the 88 reviewed are “unacceptable” said the FRC, which scrutinised audits by the UK’s top seven firms between 2019 and 2020 included KPMG’s audit of Ted Baker, PwC’s audit of Nationwide, Deloitte’s audit of Wil- liam Hill, EY’s audit of Aveva and Grant Thornton’s audit of Iceland. The audits were inadequate because of insufficient work areas relating to challenging loan provi- sions, insufficient assessment or challenge of companies’ cash flow projections, and a lack of evidence in how revenues were verified. The annual inspections by the accounting watchdog are a measure of the quality of audit work for listed companies, conducted by the UK’s top auditors. “We are concerned that firms

are still not consistently achieving Getty Images the necessary level of audit qual- ity. While firms have made some improvements and we have observed EY’s offices in More London. FRC’s feedback. This year, we are formed the worst. Seven out of the ters or other internationally based instances of good practice, it is clear The Big Four firm, like its rivals, launching a redesigned audit qual- 18 audits were marked as in need of facilities. Physical visits are an essen- that further progress is required,” faced criticism over multiple ity strategy”, including investments improvement. The regulator said “as tial part of the auditing process, par- the FRC’s executive director of super- audits undertaken in 2019-2020 in data-driven audit processes, addi- a matter of urgency” KPMG needed ticularly for inventory reviews. vision David Rule said. tional training and “a culture of pro- to improve the quality of its audit Four of EY’s audits, out of 14 Audit quality has come under managing partner of audit and assur- fessional scepticism”. work for banks, with a particular probed, did not meet its quality fire yet again following EY’s work ance at Deloitte UK, said the firm Meanwhile, Hemione Hudson, focus on expected credit losses and standards. In three cases, the audit for the collapsed payment company acknowledges that “we must con- head of audit at PwC, said: “We set financial contracts. KPMG was con- teams did not challenge manage- Wirecard, adding to the series of tinue to improve to ensure we con- high standards for our audit qual- tacted for comment. ment’s growth forecasts sufficiently. recent high-profile corporate fail- sistently deliver the highest quality ity and are disappointed with these In the case of one audit, the FRC In one audit of a group company, ures, including Carillion, Patisserie audits”. He said improvement of results, which we are committed to uncovered insufficient testing of there was insufficient evidence that Valerie and Thomas Cook. technology and processes would be a improving.” management’s methods for valuing EY’s group team had communicated The leadership at the accounting key element of this. Hudson argued the FRC’s results derivatives. On the same audit, the well with the team auditing a busi- firms was also a point of focus. “The Griggs added the firm was related to audits completed before regulator identified a series of prob- ness component. tone from the top at the firms needs “pleased that 90% of our FTSE 350 PwC had launched a three-year lems relating to KPMG’s assessment The report also highlighted a to support a culture of challenge and audits were assessed as good or improvement programme in June of the bank’s allowances for losses case where a partner who was given to back auditors making tough deci- needing limited improvement”. 2019, and said the firm was “pleased on customer loans under the IFRS9 oversight of the audit of a company sions,” Rule added. Andrew Walton, EY’s UK head the FRC recognises improvements accounting standard. was “not sufficiently involved” in the To help tackle these shortfalls, of audit, said: “We are disappointed we have made”. Of the 17 PwC audits reviewed by review process of the audit. the regulator plans to increase the our overall results are not higher and The regulator added that its the FRC more than a third required Over 20% of Deloitte’s audits watchdog’s proactive supervision we have plans in place to address the recently announced four-year dead- some improvements. On three of needed some improvement. Two of the larger audit firms, enhance line for the Big Four to separate the audits there was “insufficient evi- audits did not retain enough evi- sector transparency by publishing “Firms are still not their audit businesses from the rest dence” that PwC’s accountants had dence to assess the models used to key findings of their individual audit of their advisory work would also assessed whether company manage- calculate credit losses and capital inspections and strengthen its Audit consistently achieving help firms to achieve the high audit ment had appropriately estimated provisioning effectively. Quality Review team so that it can the necessary level quality it expects. However, crit- their costs and profit margins. Four of the audits failed to chal- increase the number of inspections it ics branded the announcement as On another of PwC’s audits the lenge management’s cash flow fore- completes each year. of audit quality” “utterly inadequate” and incapable FRC found that UK partners and sen- casts and were criticised for not Responding to the FRC’s report, of creating effective change. ior staff didn’t spend enough time going into the granular detail needed Stephen Griggs, deputy CEO and David Rule, FRC Out of the Big Four KPMG per- visiting the firm’s overseas headquar- to evaluate cash flow predictions. 20 July 2020 News 17 Neil Woodford’s return would ‘gall’ investors

Woodford will not be managing any client money at Juno Capital, but the fact that he has been approached for advice has still raised some eyebrows, writes David Ricketts

Any comeback staged by fund man- suspension of Woodford’s Equity paid for their initial discussions. ager Neil Woodford in the wake Income fund, which at its peak in Juno did not respond to a request for of his downfall last year would be 2017 managed more than £10bn in further comment. “galling” for the thousands of inves- assets, prompted the Financial Con- Ros Altmann, the former pen- tors in his now defunct flagship duct Authority to launch a probe sion minister, said that if Woodford Equity Income fund, according to into the circumstances leading up were to return to the industry so industry commentators. to the decision. soon after his investment empire col- Reports emerged over the week- “We’ve still not had any indi- lapsed, investors in his fund would end of 11-12 July that the former star cation from the FCA as to when its find it hard to stomach. stock-picker, once known as Britain’s review of the Woodford fiasco will “He has severely damaged the answer to Warren Buffett, was advis- be made public, if indeed it ever wealth and confidence of thousands ing a boutique alternatives outfit. will,” said Powell. of small investors, who were led to Woodford, whose investment “Many Woodford investors are believe they were giving their money empire spectacularly collapsed in already in retirement and must be to a manager who would look after it October last year, was approached wondering whether they’ll ever see in a low-risk strategy,” said Altmann. for advice by Juno Capital, which is justice done. To them, watching Investors in Woodford’s col- considering acquiring some of his Woodford continue to prosper must lapsed fund have so far received defunct fund’s former assets, accord- be very galling.” repayments totalling more than £2bn ing to a 13 July statement from Juno. According to figures from Wood- after its administrator appointed His former colleague Craig New- ford Investment Management’s BlackRock and PJT Park Hill to sell man was also involved. accounts, Woodford and Newman remaining holdings. Woodford will not be managing earned more than £111m from the In December, it emerged that any client money at Juno, nor will business between its foundation in Woodford and Newman had flown to he join the company in an official 2014 and the end of its 2019 financial China to meet investors interested in capacity. But the fact he has been year. A spokesman for the firm has early-stage assets. approached for advice has still raised previously said some of this money Adrian Lowcock, head of per- eyebrows. He came unstuck because was reinvested in Woodford’s own sonal investing at Willis Owen, said: of investments he made in unquoted funds, and some was given to charity. “Woodford didn’t waste much time companies, including some in A statement from Juno said that looking for new opportunities, hav- the healthcare sector. Woodford and Newman are not ing gone to China last year shortly Robin Powell, a campaigner on being employed as retained advisers after the collapse of his business, and investment management fees, said to the company. he seems keen to move on and con- it was “only a matter of time” before “Juno has been considering tinue with investing. Woodford resurfaced following the whether any of the ex-Woodford “Although he had an interest in demise of his firm last year. assets could be of interest to its fam- biotechnology, he has yet to have “Such was the hagiography sur- ily office connections and has spo- proven his worth in this space,” said rounding Woodford for much of his ken to Neil and Craig for their per- Lowcock. He added that given there career that there are bound to be spective as previous managers of were “many experienced profes- investors out there who still think these assets,” the statement from sionals in the sector”, taking advice he’s worth a gamble,” said Pow- Juno Capital said. from Woodford looked “curious” ell. “Judging by its website, Juno “The entire process is at a very for a business that “supports family Capital appears to specialise in early stage and no decisions have offices and [high-net-worth] individ- niche asset management products yet been made about whether to uals — most of whom tend to prefer for very wealthy clients. Typically, proceed beyond preliminary due some discretion”. these are the sort of investors who diligence.” Gina Miller, founding partner of are most susceptible to the lure of However, it remains unclear SCM Direct, has been a vocal critic active management.” whether Woodford or Newman were of the FCA for the way it handled the Woodford’s fall from grace Woodford fund collapse. accelerated last year after Kent “He has severely She said: “Whilst Woodford County Council made a request didn’t break any rules, he did stretch to pull £240m from his flagship damaged the wealth them to the limit and my position is Equity Income fund. of thousands of that the rules need to be changed The move prompted the £2.9bn urgently to protect retail clients.

Alamy fund to be suspended, trapping small investors” “Presumably, Juno’s clients thousands of investors who were are classed as institutional — so Neil Woodford, whose investment firm collapsed last year unable to access their savings. The Ros Altmann, former minister ‘caveat emptor’.”

Jenkins pushed on attempts to ‘diminish’ Staveley role

Ryan Weeks importance in the press — in part Barclays on the basis that she got he used 12 years ago — including ref- “I was going through a very dif- to appease the jealousy of his then materially much worse terms than its erences to her as a “tart” and a “dolly ficult divorce and... I am perfectly Roger Jenkins, the former head of wife Diana Jenkins. Qatari investors in 2008. bird”. Stephen Jones, former head of prepared to accept that I exaggerated Barclays’ Middle Eastern business, “Isn’t it true that right from the Jenkins denied the assertion and the banking lobby group UK Finance, her [his wife’s] role in an effort to has been grilled about whether he start, certainly from 14 October, you apologised to Staveley for the words resigned his post in June ahead of the save my marriage,” he told the court. tried to belittle Amanda Staveley were seeking to disparage Ms Stave- court publication of sexist comments But although pressed by Col- and her role in the bank’s emergency ley within the bank and diminish her “I accept that I he had made at the time. lins, who referred to contemporary cash call in 2008. significance?” said James Collins QC, After Collins pressed Jenkins on emails in which Jenkins appeared Lawyers for Staveley’s pri- acting on behalf of PCP. exaggerated her role his attempts to manage the way Bar- enraged by Staveley’s prominence in vate equity firm PCP Capital Part- The exchanges on 14 July are in an effort to save clays’ cash call was portrayed in the various newspapers, Jenkins denied ners, which participated in the the latest in a £1.5bn trial that has media, he admitted that his ex-wife, trying to diminish her significance. fundraising, used email exchanges brought to light numerous embar- my marriage” who also had a role in the Barclays “Ms Staveley fulfilled a very good from the time to suggest that Jen- rassing incidents involving former deal, had been jealous of the way job with the advisers and adviser to kins had sought to play down her Barclays executives. Staveley is suing Roger Jenkins, in court Staveley was presented in the press. Sheikh Mansour,” he said. 18 View 20 July 2020 View Setting the agenda for the City

Patrick Ghali Can you invest without meeting a hedge fund manager? We say no Face-to-face meetings may be difficult right now, but there is no substitute

With travel currently all but impossible, physical meetings severely restricted, and video conferencing tools ubiquitous, the question arises as to whether in-per- son meetings are still needed or even desirable. Will the current situation mean an end face-to-face meetings, and an end to the need for business travel? operational part, understanding both is an integral part Experience has taught us that in many instances, the Clearly that isn’t the case. While telephone and video of a well-structured investment process, and the current most crucial bit of information is not found in a docu- conferencing are great ways to communicate, and have period should not warrant process adjustments. ment, nor is the result of a calculation, but is rather the led to incredible increases in productivity, they are still If anything, additional risks abound that necessitate consequence of a personal interaction. On paper a propo- limited substitutes to in-person meetings. While it is true closer scrutiny at present, and ongoing due diligence. sition may look very attractive, but its flaws can often only that a lot can be done remotely, especially gathering raw In the current situation it seems tempting to rewrite the be found once time has been spent on site. data, in our experience there always comes a point where rulebook, and to rationalise not having to stick to an exist- An understanding, for example, of the environment only physical presence can provide the last, and often ing way of doing things. in which investment managers operate physically, their most important part of the equation. After all, the traditional approach is both time con- team dynamics, interactions, and existence within an It is extremely difficult to establish deep, trusting suming and expensive, so why not find ways to cut down ecosystem of peers and competitors are often key deter- relationships, without being able to really look your coun- on both? Interpersonal relationships could taint one’s minants in our decision-making process. Many of these terpart in the eyes. Non-verbal cues are very important view of a situation or person, so why not eliminate this factors are now more important than ever. and can easily be missed if one is limited to electronic altogether and in the process save both time and money, Personal meetings provide a much richer data set. means of communication. and what better time to do this than now? Wouldn’t solely Alcohol on the breath of a trader fresh back from lunch, When it comes to investing, where understanding relying on cold hard data be a better approach? discrepancies between written risk policies and a physi- opportunities as well as clients’ needs in detail are para- We vehemently disagree with this view. In our experi- cal office set up, and interactions between team members mount, not being able to have face to face meetings would ence numbers can, and often do, hide all kinds of “sins”, cannot be judged via electronic means. There is no sub- be a major hindrance. This is particularly acute when it and what may look like a setup that “ticks every box” is no stitute to spending time getting to know a firm and its key comes to due diligence. Split into an investment and an guarantee that all is as it seems. risk takers on a more personal basis. A counter-party’s true character and motivation takes time and effort to fully understand but are often key determinants in coming to a final decision. Neither haste nor distance are helpful bedfellows in this process. Dilbert By Scott Adams Arrogance for example, not to be mistaken with confidence, is a serious red flag, as arrogance often pre- vents the admission of mistakes, and can therefore lead to excessive risk taking, or in the worst case attempts to hide losses. Being able to spend time in a manager’s office can often provide vital clues and shine a bright light on a firm’s culture as well as key people’s management styles. What are the physical reactions to a risk or compli- ance manager voicing an opinion, and are answers to investor questions preceded by a shy glance at a manager as if to look for approval to speak first? Seeing where func- tions, considered to be key in managing risk, are physi- cally located can also be telling and in jarring contrast to an impression given purely by a policy document. The style of an office, the contrast between the work- ing conditions of management and support staff, as well as decoration choices can offer insights into what is being valued by an organisation (scale models of private jets, aquaria filled with sharks, art collections on display, uni- formed waiters serving the latest fad drink, and rows upon rows of pictures with celebrities, or perhaps of the owner’s own image on magazine covers, all tell a story). The same holds true of the general attitude that perme- ates an office environment, starting with the receptionist. Face-to-face interactions and physical site visits pro- 18 View 20 July 2020 20 July 2020 View 19

vide a much richer canvas. This is not the time to look for short cuts. With lockdowns easing, but travel restrictions still largely in place, investors with a global footprint will be in a better position to continue to implement, and even enhance, their existing processes. For those with smaller-scale operations, it may be wiser to hold off on making decisions than to make allow- ances that may be very costly in the long-run.

Patrick Ghali is managing partner and co-founder at Sussex Partners, which advises large investors on allocating to hedge funds

Rob Masson Judges’ move to restrict EU-US data sharing will

put burdens on banks Getty Images The striking down of the rules means It’s safe to say the next decade of innovation will another huge operational burden for Charlotte Crosswell be driven by the behaviour of businesses and consum- firms, on top of Covid-19 and Brexit ers themselves. That’s why it’s imperative we embrace It’s time for a hard reset the digital revolution and strengthen our financial ser- The decision on 16 July by the EU’s top vices sector through wholesale change - with diversity court to restrict personal-data transfers of the UK’s financial and social change at its core, and financial inclusion and to the US has been billed as a blow to the well-being at the centre of our response. likes of Facebook. But it also has big services sector Thousands of businesses are in debt for the first implications for banks and other finan- time, and the recent CityUK report has estimated that cial services firms. Advances such as machine learning and £35bn of unsustainable debt from Covid-19 loans has The EU-US “privacy shield framework” was estab- been taken on by SMEs — which will not be repaid without lished by the European Commission and the US Depart- AI can identify those in need and offer urgent action. ment of Commerce in 2016, to legitimise transfers of per- solutions — it is time to embrace them This may paint a bleak picture, but there is no run- sonal data from the European Economic Arena to the US, ning away from it — the reality is that personal and com- and act as a limited adequacy agreement. Only transfers The years that immediately followed the mercial debt will present exceptional challenges in the to companies in the US that self-certify under the Privacy Great Depression were transformative months and years ahead. Shield framework are covered. for business. The 1930s saw widespread More so than ever before, our approach to financial But a complaint filed by an Austrian privacy activ- investment by the likes of IBM into the services needs to evolve to the changing circumstances — ist and lawyer, Max Schrems, in 2015 now threatens to first automation systems, with machines or risk being overrun by the crisis. upend this transnational agreement. This case, known developed that were capable of handling There is an urgent need for greater collaboration, to as ‘Schrems II’ because it followed an earlier complaint time-consuming tasks, such as accounting. unite the worlds of finance and technology, and adjust in 2013, was referred to the European Court of Justice in They say that history has a habit of repeating itself, regulation to ensure they are able to work together in tan- 2017, and judgement was pronounced last week. and the global financial crisis of 2007-08 was similarly sig- dem. This will be crucial if the sector is to meet the needs In 2013, Schrems questioned the transfer of his per- nificant for the world of finance. At the time, banking was of customers and provide them with the solutions needed sonal data by Facebook Ireland to its parent company defined by its complexity, innovation was stagnant, and to overcome a period of financial turmoil. Facebook US, using what was the EU-US Safe Harbor there was little choice beyond centuries-old incumbents. Advances such as machine learning and AI tools cre- Framework, saying that it was incompatible with the With publicly funded bailouts rescuing the world’s ate systems that can respond, identify those in need and Charter of Fundamental Rights of the European Union. banks from implosion, the crisis instigated a wave of inno- offer solutions, and it’s time to embrace them and make Due to this case, the Safe Harbor Framework was inval- vation and technology and what followed became the our sector fairer for all. We are facing a new reality, and idated in 2016, and led to the creation of the EU-US Pri- fastest growing part of the economy. financial services must evolve to reflect it. vacy Shield Framework. Coupled with a growing demand from consumers for In the Budget in March 2020, the Chancellor But in his second complaint, Schrems amended his quicker and more convenient services, the fintech sector announced his commissioning of an independent review argument against Facebook by challenging their transfer that emerged created a wave of new businesses. Prod- for the fintech sector, the outcomes of which would help of his personal data to the US on the basis of EU Stand- ucts and services were built that focused on the chang- create a comprehensive blueprint for future growth and ard Contractual Clauses (SCCs). So under the new case ing needs of consumers and businesses, while banks innovation in financial services. What seemed important (Schrems II), the CJEU assessed the validity of both EU searched for efficiencies and partnerships to advance then is critical now. SCCs and the EU-US Privacy Shield Framework. their own transformation. We simply no longer have the option to maintain the Though the legal case was triggered by concerns over Together this created a perfect storm, which over the status quo. The sector needs rebuilding, and by using the Facebook in particular, it will have far-reaching implica- last decade brought more choice, transparency and effi- best in class innovation that we have built to service the tions not only for tech companies but many other organi- ciency into core financial services. entire country we can do exactly that. sations, especially those in financial services. Today, however, the Covid-19 crisis is putting the There is an opportunity here to break the mould. Banking, fund management and insurance firms all financial world under incredible strain, and in the UK By recognising the consumers most at risk, and the have complex dataflows that generally involve multiple we are in the early stages of what will likely be the worst business in need of the most support, we can get ahead international data transfers with likely several different recession in a generation. More than a quarter of the UK’s of the curve. organisations based in the US. For those currently rely- workforce is now being supported by the government’s A hard reset on the sector would also enable us to ing on the Privacy Shield mechanism, they will need to furlough scheme. Reports suggest we will have the high- align the industry with the movement driving change in review their transfer mechanism and implement an alter- est unemployment rate in more than 25 years. climate, in diversity, in meeting sustainable development native safeguard to continue the exchange of personal The harsh reality is that businesses and consum- goals, and ensure every management team’s goals across data with the US lawfully. ers will need to make their money work much harder in financial services commits to the same standards. The striking down of the Privacy Shield framework the months to come. They will need help and access to To achieve that, we must strengthen the position of creates further operational burdens for the many thou- wide-ranging products that are different to anything they UK technology as a core part of financial services, making sands of EU organisations that rely upon the self-certifi- have used before. As was the case in the Great Depression sure it is accessible to all and taking full advantage of the cation mechanism to legitimise their EU/US personal data and the global financial crisis, technology has a major innovation we have built. transfers. Until such time as a new mechanism can be role to play. And it doesn’t stop there. For long-term change, we introduced, alternative transfer safeguards will need to Accelerating this is the change in digital behaviour need to embrace creativity. The financial industry must be rapidly implemented, representing another huge dis- we’ve seen through the crisis. It’s estimated that six mil- step back and take an honest look at what it can do to help traction for EU organisations that are already focused on lion people across the UK have downloaded a banking the customer better, and recognise where it needs help their Covid-19 response and Brexit preparations. app for the first time, equating to 12% of working adults. from the tech world. Never before has data protection been elevated to The UK has all the talent, capability and know-how such a high level of priority within organisations, but “We must strengthen the position to spark change across financial services and create a bet- momentous events such as the 16 July decision mean that ter system that works harder for business and consumers from now on, even more focus is going to be required. of UK technology as a core part alike. Let’s grasp the nettle and seize the opportunity.

Rob Masson is CEO of the DPO Centre, a provider of of financial services, making sure Charlotte Crosswell is CEO of Innovate Finance, a trade data protection resources and consultancy it is accessible to all” body for London’s fintech sector 20 International 20 July 2020 Wirecard boasted of hundreds of tie-ups that proved hollow Insolvent payments firm was a prolific issuer of news releases about partnerships struck with retailers and blue-chip names, writes Caitlin Ostroff

Before it unravelled in an accounting a linkup with a German videogame scandal, Wirecard built up an image company. “‘Partnering’ is not quite as a fast-growing financial technol- accurate. We are a customer of Wire- ogy company. It spewed out news card. They are one of our payment releases publicising partnerships service providers,” said a Gameforge with blue-chip names such as SAP, spokesman earlier this month. Zurich Insurance and SoftBank. Michael Hoffmann, co-founder The Wall Street Journal found and CEO of German email market- that some of those partnership ing company kajomi, said he had announcements were misleading or never heard of Wirecard before one were promoted without the agree- of its sales representatives asked to ment of the companies involved. meet him in 2017. The representative The Journal reached out to more boasted of the company’s huge size than 300 companies with which and offered to put kajomi on its pay- Wirecard said it had entered partner- ment platform for SMEs. ships or collaborations. German soft- Shortly after, Wirecard issued ware company SAP was surprised to a release naming kajomi as a part- see a news release in February from ner, despite no formal agreement Wirecard saying it had become an being signed and no money chang- “official development partner”. ing hands, Hoffmann said. He didn’t “Wirecard announced a partner- object to the press release at the time ship with SAP that was never signed because he figured it might bring in by us nor was [it] approved from us new clients without any work from to publish a press release,” accord- his own company. ing to spokesman Marcus Winkler. Wirecard said in a November The release listed no contact for SAP. 2019 press release that it would He said SAP didn’t contact Wirecard shape the “future of mobility with about the discrepancy at the time. renowned partners,” including Swiss Wirecard is now insolvent and is concept car maker Rinspeed, SAP, being sold for parts after it revealed vehicle-inspection company Dekra, a more than $2bn hole in its balance Zurich Insurance and Osram Licht. sheet in June. Wirecard declined to However, spokespeople for comment. Zurich, Osram, SAP and Dekra said A key question facing investi- they had joined with Rinspeed, gators and investors: What was the but not with Wirecard. A Rinspeed extent of Wirecard’s business of help- spokesman declined to comment. ing retailers to process credit-card Partnerships are an important transactions? The prolific number of news releases gave investors the “Wirecard announced impression of a far-reaching business with many potential customers. a partnership with Wirecard’s former CEO Markus SAP that was never Braun put a high priority on issu- ing news releases, according to for- signed by us” mer employees. Business unit lead- ers would get regular calls from the Marcus Winkler, SAP investor relations team demanding things to announce, according to metric of a firm’s growth and poten- one employee. Some joked internally tial, said Sanjay Sakhrani, an analyst that these releases were Wirecard’s with Keefe, Bruyette & Woods who real product. has covered Wirecard since 2017. In 2019, Wirecard issued over “On the surface, when you look 100 news releases, while competi- at the nature of the announcements tors such as Dutch payments proces- and the results, they suggested the sor Adyen issued 21 releases and the company has significant momentum American firm Discover Financial and wind as its back,” Sakhrani said. Services put out 80. “What’s difficult to do is the forensic “If you’re just scratching the analysis and determine what is real surface and you look at headlines, and what is not.” you’ll say ‘oh that’s pretty impres- Since June, companies have sive’,” said Neil Campling, head of sought to distance themselves from telecoms, media and technology Wirecard, with the likes of Allianz, research at Mirabaud Securities. “If German retailer Käfer, and SoftBank you looked at the details, you’d real- saying they were looking to end their ise it was absolutely meaningless.” partnerships with Wirecard. More than 90 companies identi- In July 2019, Wirecard said it had fied in Wirecard’s releases responded started a partnership with AUTO1, to The Journal’s inquiries. Many a European car-selling platform declined to comment. Others con- backed by SoftBank’s Vision Fund. firmed that they had legitimate busi- An AUTO1 spokesman said there was ness with Wirecard. Some said they “no cooperation with Wirecard. We were customers, but that the releases had a phase of brainstorming, but it overplayed their relationship. never went forward.” “Wirecard partners with world- wide successful gaming company Additional reporting by Paul J. Davies Gameforge,” said the headline of a and Will Horner

Gisela Schober/Getty Images 2018 Wirecard press release about Markus Braun, the former CEO of Wirecard, arrives for a charity dinner in January 2020 From The Wall Street Journal 20 July 2020 International 21

London banks urged to pay reparations for slavery links

Simon Clark

The Black Lives Matter movement is reinvigorating a years-long campaign to push some of London’s oldest financial institutions to pay repara- tions to the descendants of slaves. City of London companies played an important role for cen- turies in organising and funding the transatlantic passage of African slaves and the Caribbean and Amer- ican plantations where they were forced to work. Directors of the com- panies earned fortunes from the trade. The Bank of England, Barclays PLC and Lloyd’s of London insurance market are among those to apologise

Getty Images for or acknowledge links to slavery. “Britain was the most efficient Roger Altman, 74-year-old senior chair at Evercore, is taking another step back from the firm he founded in 1995 and profitable slave trader in terms of return on capital largely because of the role of the City of London in providing cheaper finance, better insurance rates, better reinsurance Evercore founder prepares the rates and, critically, funding the con- struction of the shipping industry,” Hilary Beckles, chairman of a rep- arations commission representing way for his eventual departure Jamaica, Barbados and 10 other Car- ibbean nations, said in an interview. The killing of George Floyd Roger Altman’s firm has outgrown its boutique tag and is preparing for the future, writes Liz Hoffman in May has sparked renewed calls from Caribbean governments and Roger Altman founded Evercore in corporate advice and pitch them- asset management, where Evercore to him for advice on economic issues from Black British campaigners in 1995 after a long career on Wall selves as consiglieres rather than maintains a small business but has should he win in November. descended from slaves for British Street and Washington. He’s now lay- financial superstores. Evercore is scaled back broader ambitions. Now Altman is taking steps to companies to pay reparations. Com- ing the groundwork to make sure it one of the oldest and by far the big- Weinberg, 63, belongs to one institutionalise Evercore. Other panies so far are resisting those calls, thrives after he exits. gest, with 1,900 people and $2bn of the last Wall Street dynasties. His boutiques, such as Greenhill, have choosing to focus on improving Evercore will elevate Ralph in annual revenue, most of it from grandfather, Sidney Weinberg, and struggled after their founders faded, workplace diversity. Schlosstein and John S. Weinberg, advising on mergers and corporate later his father, John L. Weinberg, relied too heavily on poaching from On 6 July, the Caricom Repara- to be co-CEOs and co-chairs of the bankruptcies. ran Goldman for much of the 20th big banks, or struggled to break tions Commission, chaired by Beck- board, allowing the 74-year-old Alt- Schlosstein bristles at the bou- century. A cousin, Peter Weinberg, out of industry niches. Weinberg les, called for British firms to partici- man, Evercore’s senior chair, to take tique label, saying it “speaks to a is a founding partner and CEO of said 40% of Evercore’s partners are pate in a summit to discuss how they another step back from the firm he scale we’ve outgrown”. Evercore was Perella Weinberg, a rival boutique. homegrown. “What really struck me can contribute to the Caribbean. built into a small but notable player No 4 last year on Wall Street in advi- Altman started his career at when I joined was this extraordinar- “The City of London as we know it on Wall Street. The moves essen- sory revenue, trailing only Goldman, Lehman Brothers and joined Black- ily talented generation of bankers in now would not have been without tially mutualise what had been split Morgan Stanley and JPMorgan Chase stone in the late 1980s. He served in their 40s, coming up,” he added. the slave trade,” Beckles said. “We responsibilities: Schlosstein had — all global firms with dozens of busi- two White Houses, first in the Carter The new co-CEOs face a likely are calling for a dialogue in which been the firm’s sole CEO, while the ness lines. He joined Evercore as CEO administration, where he helped contraction in mergers as corporate we say from our point of view this is younger Weinberg, recruited from in 2009, when Altman took his first save Chrysler from bankruptcy, and clients wait out the Covid crisis. They what we think would be an appropri- Goldman Sachs four years ago, had steps back. A co-founder of Black- later as Bill Clinton’s deputy Treasury said Evercore’s restructuring busi- ate attempt at remedy. We are look- tended to the board alone. Rock, he was seen as strongest in secretary. He left the White House in ness, plus a smaller business advis- ing for a development strategy.” “We found we were operating as 1994 after bruising testimony during ing firms on how and where to raise Beckles said commitments to equal partners for two to three years, “What struck me was the Whitewater investigation. money, would help compensate. improve diversity are a PR stunt. and this formalises that,” Schloss- He launched Evercore a year Schlosstein added there is “That is not a sincere effort to par- tein, who is 69, said in an interview. this extraordinarily later and has remained a player in “plenty of white space” to chase cli- ticipate in reparatory justice. We are Wall Street’s boutiques — smaller talented generation of Democratic politics, advising Hillary ents in new sectors and take on rivals talking about the damage and the firms, many founded and bulked up Clinton on her 2008 presidential such as Lazard and Rothschild on harm done to millions of people and during the talent exodus that fol- bankers coming up” bid and appearing on the shortlist to their home turf in Europe. the death of millions of people.” lowed the 2008 financial crisis — are be Barack Obama’s chief economic growing up. These firms specialise John S. Weinberg, Evercore counsellor. Joe Biden may well turn From The Wall Street Journal From Dow Jones NEWSPLUS

SoftBank mulls over sale or IPO of chip designer Arm four years after $32bn purchase

Dana Cimilluca interest financial or industry players struggling portfolio and buy back its 2016. At the time it was SoftBank’s the past considered transferring the and Cara Lombardo might have in Arm. own shares, which trade at a steep largest-ever acquisition. CEO Masay- stake back to SoftBank because fund SoftBank has previously indi- discount relative to net asset value. oshi Son hailed the acquisition as a executives believe the tech compa- SoftBank is exploring alternatives cated it could return Arm to public It has a grab bag of assets to choose “paradigm shift” at the company, ny’s lacklustre revenue growth has including a full or partial sale or pub- markets at some point. Such a move from; in addition to Arm and roughly enabling it to take advantage of the been a drag on the overall valuation lic offering of British chip designer has gained urgency, however, as $20bn worth of T-Mobile US shares potential of the Internet of Things. of its portfolio. Arm which the Japanese conglom- SoftBank seeks to raise cash from it recently sold, SoftBank also owns But sales of the software that Arm SoftBank’s earnings have erate bought four years ago for its varied stable of assets to mollify large stakes in Chinese e-commerce developed for managing connected been battered recently by huge $32bn, according to people familiar activist investor Elliott Management, giant Alibaba and a leading Japanese devices have been relatively flat, losses at the Vision Fund, under- with the matter. which has been agitating for changes cellphone provider. excluding a boost from acquisitions. mining plans to raise a second big The review, on which Goldman at the company. SoftBank bought Arm, which SoftBank’s $100bn Vision Fund, investment vehicle. Sachs is advising, is at an early stage SoftBank has said it plans to sell designs microprocessors that power which invests in tech companies and it is not yet known how much up to $41bn in assets to prop up its most of the world’s smartphones, in and holds a 25% stake in Arm, has in From Dow Jones NEWSPLUS 22 People 20 July 2020

HSBC’s Adrian Lewis, More MD roles for women top equity banker in and millennials Europe, to step down at JPMorgan Paul Clarke Paul Clarke making roles at UBS. HSBC made $46m in fees related to equity trans- JPMorgan promoted 320 people to HSBC’s head of equity capital mar- actions in the first half of 2020 in the coveted rank of managing direc- kets in Europe is stepping down after Emea, according to data provider tor — matching the numbers from more than 30 years in investment Dealogic, putting it in ninth spot in 2019 despite delaying the process by banking, the latest senior departure the league tables — up from 16th at over a month because of the corona- at the UK lender as it continues to the same point last year. virus pandemic. restructure its business. HSBC restarted its job cuts in The US bank promoted a record Adrian Lewis, head of equity June after the pandemic triggered number of women — and millennials capital markets for Europe, the Mid- a three-month hiatus. Already cuts — in the latest round of promotions, dle East and Africa and a seven-year have started to take place, with the which were announced in early July. veteran of HSBC, is set to retire, bank set to axe 38% of the 678 peo- The usual cycle of promotions at according to two people familiar ple it employs in its French global JPMorgan is in late April, but the cur- with the matter. banking and markets business by rent crisis has upended recruitment His role will be taken on by 2021, according to a statement by its across the banking sector. Andrew Robinson, who currently union on 7 July. However, JPMorgan promoted leads the UK lender’s equity syndi- However, the bank has contin- 116 people to managing director in cate desk for Emea. ued to bring in senior dealmakers its corporate and investment bank, He will retain his current respon- in recent months in the UK, which according to a person familiar with sibilities, and Robinson’s head Guyett has previously highlighted the matter, just one person less than of Emea syndicate position will as being a key region for HSBC’s it did last year. not be replaced. investment bank. Of this number, around 30% Lewis’s departure comes amid It hired Adam Bagshaw as global were based in Europe, the Middle a radical overhaul of HSBC’s busi- co-head of advisory and investment East and Africa. ness that includes slashing 35,000 banking coverage in June. He is set to Of the overall cohort of promo- jobs and a likely restructure of its join HSBC in September. tions, 36% are women — up 6% from investment bank. Bagshaw has spent the past 14 its record last year. Meanwhile, 44% Within its ECM business, the UK years at Deutsche Bank, latterly as are millennials, a huge increase on lender took on Edward Sankey in co-head of corporate finance for the 23% who made managing direc- September last year from Deutsche Europe, the Middle East and Africa. tor in 2019. Bank as global head of the unit. He was a replacement for Mat- Within its investment bank, 25% His hire was part of what its thew Wallace, who left the bank of new promotions were women, co-head of global banking and mar- abruptly in January after more than matching last year, which was a kets, Greg Guyett described as a eight years in top investment bank- record for JPMorgan. desire to hire “better bankers” in a ing roles at HSBC. The rank of managing director bid to gain more prestigious roles on The UK lender also brought in is in the upper echelons at JPMorgan prominent equity and mergers and Macquarie banker Jacques Callaghan and highly sought after, particularly acquisitions deals. to lead its new mid-market M&A at a bank that prides itself on the Lewis joined HSBC in July 2013, team in May. The unit will eventually long-tenure of its employees. after around 20 years in senior deal- comprise 20 investment bankers. This year’s batch of promotions An HSBC spokesman con- follows an usual amount of churn firmed Lewis’s departure and at the top of JPMorgan’s investment Robinson’s promotion. bank, which created a new team of 35,000 HSBC, which has a vast 45-sto- senior dealmakers called vice chair- rey tower in Canary Wharf, has been man in February. The number of jobs set to operating with a skeleton crew of It promoted a number of be slashed in HSBC’s ongoing 200 employees and has yet to set a long-serving dealmakers including overhaul of its business timetable for shifting more staff back. Despite its restructuring, HSBC continues to bring in dealmakers promoting its head of Europe, the Middle East and Africa, Vis Ragha- van, to co-head of global investment banking alongside Jim Casey, its head of debt capital markets. PwC creates a new regional role Zurich to offer 4,500 employees It then followed this with a management shake-up in May, as staff move out of the capital coronavirus antibody testing naming new regional heads of its advisory business. Emily Horton services team after holding a number Bérengère Sim be interested in receiving the test. On 14 July JPMorgan posted high-ranking positions at PwC with The company said that the anti- record profits of $5.5bn in the second PwC has appointed Gavin Phillips a focus on insurance. He also took a Insurance firm Zurich is offering body test is not linked to a return to quarter, as both trading and deal- as its first regional head of financial two-year secondment as chief finan- 4,500 employees and their families the office, and that employees will making surged, but the COO Dan- services, reflecting a move to expand cial officer of Prudential, one of the one-off Covid-19 antibody testing in not be required to disclose their test iel Pinto warned staff that the good outside of London as clients and UK’s largest insurers. offices around the world. results. The tests will be adminis- times are unlikely to continue into staff move out of capital as a result Phillips said PwC was “respond- The announcement comes as tered at Bupa healthcare clinics. the second half of 2020. of the pandemic. ing to the changing market land- companies grapple with when and “In the short-term, Zurich isn’t In this newly created role, Phil- scape”, which he said “will likely how to return to the office as govern- committing to any levels of return to lips will work closely with the Big see a greater proportion of financial ment lockdowns ease, and after the office occupancy, instead choosing to Four firm’s UK head of financial ser- services business conducted out- UK government U-turned on taxing align to government guidelines and vices Andrew Kail and the group’s side of London”. employees who are given coronavi- industry best practice,” said John head of regions Carl Sizer, PwC “I want to ensure we bring the rus tests by their employers. Keppel, chief operations officer at announced on 13 July. best of our financial services capa- In a 13 July statement, Zurich Zurich UK, in a statement. The position was designed “to bility, wherever the client is based,” said it was rolling out the benefit “As social distancing restrictions support the firm’s clients across the Phillips said. following a “successful pilot” pro- are reduced, we will in turn, ensure UK and address the growing impor- “Now is a good time for organi- gramme carried out in its headquar- our customer needs are incorpo- tance of the sector outside of Lon- sations to start to look beyond the ters in Switzerland. The optional test rated in our office occupancy lev- “Pullquote 3 or 5 decks don”, the group said. Almost half crisis, and to do this they will need will be extended to partners and fam- els. At this point, we remain largely of PwC’s 22,000 staff are also based to continue to service the needs ily members in the household who home based as a workforce.” for features with outside the capital. of their key customers and stake- are over 18 years old. Credit Suisse tried out a coro- hanging quote marks Phillips, who is currently the holders through refreshed, digitally In a survey carried out in May, navirus antibody test scheme in interim senior partner for PwC’s enhanced and cost-effective business to which half of the UK’s 4,500 staff May for staff in the bank’s offices in JPMorgan promoted a record for features with” Gatwick office, will join the financial models,” Kail added. responded, 95% said that they would Switzerland. number of women this year 22 People 20 July 2020 20 July 2020 People 23 CBI warns working from home Clifford Chance sets could destroy the high street seven new targets for Emily Horton “pretty hard” to find out the precise would make a submission to the gov- employee diversity details of their plan for organisations ernment ahead of Chancellor Rishi The director-general of the Confed- to return physically. Sunak’s autumn budget. Although eration of British Industry (CBI) has She said if employees remained much of the mini-budget on 8 July Emily Horton called for the government to give a at home this could lead to “mass was welcomed by the influential clear deadline on when businesses business failures” across the UK’s trade group, in its eyes it is “almost Clifford Chance has committed to can return to the office, so that high-streets, as workers support the certainly not” enough to support seven targets for gender, ethnicity employees can help support the UK’s local economy. jobs and the economy from the dev- and LGBTQ+ representation across struggling high streets. “If offices continue to stay away, astating impact of the coronavirus. the firm’s global workforce, making Dame Carolyn Fairbairn urged we will have very, very stressed As the UK government contin- it the first Magic Circle law firm to the government to clarify exactly high streets and local communi- ues to relax lockdown restrictions, update its measurable targets follow- when companies will be given the ties. And if there isn’t further sup- finance firms have started gradually ing the emergence of the Black Lives green light to return to the office, port for those, they will die, they to reopen their doors. However, the Matter movement. during a CBI webinar on 13 July. Fair- will fail. You will have mass business City and the shops that used to serve The announcement from Clifford bairn described the detail of this failures,” she said. its workers are still operating with Chance comes after the firm revealed policy area as “fuzzy” and said that Fairbairn said the CBI, which just a fraction of the working popula- that only 1.2% of its 177 UK partners the CBI will push the government represents 190,000 UK businesses, tion they previously dealt with. self-identify as Black, while 4.3% cat- egorise themselves as Asian, accord- Matthew Layton, global managing Matthew Horwood/Getty Images ing to its 2019 ethnicity review. Glob- partner at Clifford Chance ally the firm has almost 600 partners and a workforce of 6,600. downs or ethnic diversity or commit Of the seven new goals published to a percentage of representations. on 14 July, one was to increase the Before it expanded its commit- number of ethnically diverse part- ments, Clifford Chance had two exist- ners and senior business associates ing targets that only covered its UK in the US and the UK. The firm aims operation. These were to increase to appoint 15% of new partners and the number of women at partner 30% of senior associates and senior level by 30% by 2025 and to increase business professionals from minority the number of new UK partners ethnic groups by 2025. Senior man- from ethnic minority backgrounds agement will be held accountable for to 15% by 2025. reaching these targets. As well as a commitment to Currently, in the UK 7.5% of its ethnic diversity, the law firm also 177 partners identify as an ethnic expanded its gender diversity goals. minority, while in the US it is only 3 The firm has set a target for female partners out of 75. partnership representation to “While we are making pro- 40% by 2030. gress, and are proud of doing so, I The goal of 40% female repre- recognise that today, inclusion and sentatives has also been extended equality of opportunity isn’t the across all levels at the law firm, lived experience for many of our including lawyers and business ser- people and we have to do much bet- vices. The firm also introduced its ter,” said global managing partner first LGBT global partner level target Matthew Layton. of 3% by 2025. The proposal from Clifford In the UK, Clifford Chance said Chance comes after the launch of a all data used to review its diversity new initiative called the Race Fair- progress is collected internally and ness Commitment, earlier in July. then analysed by Pirical, a specialist All five of the UK’s Magic Circle people analytics firm. law firms — Allen & Overy, Clifford The law firm’s move follows a Chance, Freshfields, Linklaters and similar recent initiative by account- Slaughter and May — signed up to ants Deloitte UK to increase its cur- the programme. rent proportion of Black partners The initiative asks signatories six-fold by 2025. UK chief executive to compile data sets to help iden- Richard Houston announced the tify where the firm could be unfairly commitment as part of its five-point holding back BAME lawyers. How- ‘Black Action Plan’ via a firm-wide ever, the programme does not webinar broadcast to Deloitte’s require the firms to publish break- 20,000 staff on 8 July.

With office workers still largely homebound, many high street businesses in the UK are feeling the pinch Sudoku 48637 171 75494 6 Jefferies appoints Barclays executive as new CFO Fill all empty squares so that 81832 Nina Trentmann services business, who stepped in “He [Larson] is joining Jefferies the numbers on March 29 to assume the emer- during a period of strength for our 1 to 9 appear 5395 6 2 Investment bank Jefferies has hired gency interim role. company as we just recorded our exactly once in Matthew Larson, the finance chief Larson joined Barclays in 2014, best first half ever, but also a time each row, column 784 of Barclays’ Americas and Global and became the bank’s Americas with uncertainty and volatility due to and 3x3 box 346 Markets businesses, as its chief finance chief in June 2017, according the pandemic,” Handler said. financial officer. to his LinkedIn profile. Jefferies reported revenue of 7431 4 13 The former CFO of Jefferies, Peg Before that, Larson, a certified $2.53bn for the six months to May Broadbent, died from complications public accountant, worked in various 31, up from $1.93bn during the pri- 15324 related to Covid-19 in late March . positions at Goldman Sachs. or-year period. Income before tax Larson will assume his new role Jefferies chief executive Rich and other provisions rose to $308m, 8428 67 at Jefferies, effective from August Handler said the company searched up from $183m. Sudoku is 24. He will be replacing Teresa Gen- for an experienced and competent compiled for FN dron, the CFO of the firm’s financial finance professional to fill the role. From Dow Jones NEWSPLUS by Puzzler Media 83231 716

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