Pixabay CC0 Public DomainAlexas_Foto. Emerging Markets: Have they Ceased to be Attractive for Investors?
Following the volatility of the foreign exchange market in Turkey and Argentina, the uncertainty about future elections in Brazil, and trade tensions in China, which were motivated by the escalation of US protectionist measures, many investors have decided to limit their exposure to emerging markets. Is it time to exit emerging markets?
According to management companies, keeping emerging market assets in the portfolios remains a good option in order to diversify risks and to capture some more profitability with some types of assets, but they also emphasize that it must be done with caution after thoroughly analyzing both the countries and the assets.
For example, Luca Paoilini, Chief Strategist at Pictet AM, admits that they continue to overweight emerging markets. “In this state of affairs we maintain a neutral position in stocks and bonds. The world economy remains resilient, but caution is justified and it is too early to overweight. However, we continue to overweight emerging stocks, as the risks are compensated with attractive valuations and solid fundamental,” he says.
At Julius Baer they don’t rule out that in the short term there may be more sales in local debt from emerging markets, driven especially by the decisions that the Fed may take this week on interest rates. They are optimistic however, “Looking beyond the next Fed meeting, we note that fundamentals continue to support both local and strong currency emerging market debt on an equal basis. Valuations have returned from high risk levels to quite normal. Most importantly, global growth remains well supported by US consumer activity and housing resilience in China. Therefore, global growth is unlikely to decline to levels historically linked to emerging market bond crises,” explains Markus Allenspach, Head of Fixed Income Analysis at Julius Baer, and Eirini Tsekeridou, Fixed Income Analyst at Julius. Baer.
According to Legg Mason, despite asset management companies’ valuations, investors are beginning to show their fear of exposing themselves to the emerging universe. “Real yield spreads between emerging and developed markets are at 10-year highs, reflecting the backdrop of fear that continues to spread across the developing world, when one country after another is sold and then repurchased with yields high enough to tempt value and produce hungry investors,” say Legg Mason’s fixed income experts.
CC-BY-SA-2.0, FlickrCourtesy photo. ESG: Will It Become A Competitive Advantage?
A few months ago, a great manager and friend, a faithful follower of the philosophy of value investing, told me that he had introduced ESG criteria into his analysis, and that he considered them a source of competitive advantage for certain companies. He even gave an example. It is the typical comment that you interpret as a justification to support a new trend, but as it came from this person, it made me think. Not only for listed companies where to invest, but for the very business of asset management.
There is no self-respecting conference on investments that does not discuss ESG, no institutional investor that does not show interest in adopting these criteria in new investments and no slide in strategic presentations of companies that does not mention it. They have started to create certificates in “ESG investing” and, of course, the regulator is surely not far behind wanting to define and assign universal ratings…
Obviously, it would be an unsustainable competitive advantage as it does not create a lasting entry barrier, but the speed of implementation may condition the feasibility of the business in the short term.
From the asset management perspective, it should go from being a specific type of asset to be part of the corporate investment philosophy. It will be a new risk factor to control. However, and still being an unstoppable trend, in the short term it faces certain difficulties:
It is currently in direct conflict with passive management, where there is no type of ESG filter in most indexes, and therefore in the funds that replicate them.
Most capital allocation decisions are made within the companies themselves, which makes it especially difficult to analyse the decisions and the impact on different factors such as supply chains or trade policies.
It definitely means a great risk for asset managers, not being able to access a growing client base with clients who are looking for it, or ultimately, lose them (a great French institutional manager recently mentioned in a conference that 50% of its new business is coming with ESG criteria). And it is also a great risk for listed companies to see reduced access to capital markets, which may (it has not happened yet) increase their cost of capital. In certain cases, if a case of corruption by a senior executive of a company comes out, it could trigger a wave of indiscriminate sales from these funds. And if corporate governance does not work well, it may compromise its cost of financing in a much more aggressive way than we are seeing recently. And the client will eventually demand a report where their manager’s performance is analysed and the impact achieved in certain cases.
Pixabay CC0 Public DomainPhoto: Alexas_Fotos. October Spooked Market Participants Universally But The U.S. Economy is Still on a Roll
October spooked market participants universally with US stocks enduring their worst month since the financial crisis. Issues at hand circle around concerns about peak earnings and growth, tighter financial conditions, fears of a Fed policy mistake, a potential credit bubble and selling pressure in crowded trades. Tensions have been further compounded by geopolitical worries, including ongoing trade tensions with China and deteriorating Chinese/US relations; Italy’s budget chaos and fears of a recession; uncertainty regarding the upcoming US congressional elections; and Brazil’s election of Jair Bolsonaro, joining the growing ranks of populists across the world.
The U.S. economy is still on a roll and this is reflected by the outperformance of U.S. equities versus foreign stock markets. More broadly, payrolls are increasing, wages are growing at the fastest rate since 2009, and unemployment is at a 49 year low. Consumer spending is doing well and should get a boost from falling oil prices while global investors continue to be attracted by America’s low tax rate, economic strength, corporate profit growth, and ongoing efforts to achieve less regulation.
There are undoubtedly countless factors that could go wrong with the equity market. With that in mind, much could still go right. Earnings growth rates may be peaking, but earnings are still strong; outcomes in the US midterm elections will be known November 6th, removing the angst over potential outcomes; and the world could be pleasantly surprised following a meeting between Presidents Trump and Xi at the upcoming G-20 summit, easing concerns over escalating challenges between two of the world’s superpowers. With no compass to turn to, we continue to orient ourselves by looking at valuations, which for global stocks look to be at attractive levels not seen for over two years.
One specific investment dynamic I would like to highlight is in regards to the music industry, which are changing fast with Sony continuing to strategically position itself to the benefit of shareholders. After gaining European Commission approval in late October, Sony will acquire EMI Music Publishing in a $2.3 billion deal without conditions. The EMI acquisition will make Sony the global industry leader with a market share of about 26 percent. Universal Music Group and Warner Music Group are the major competitors in an industry that has now been revitalized by digital streaming services. As a copyright manager, Sony can earn revenues from direct deals with Spottily, Apple Music, Google Play, SoundCloud and YouTube. At the end of October, returning to the creative roots of its original Sony Walkman TPS-L2 in 1979 and as a logical extension of the music business, Sony audio announced that it aimed to regain its leadership position in headphones.
Column by Gabelli Funds, written by Michael Gabelli
To access our proprietary value investment methodology, and dedicated merger arbitrage portfolio we offer the following UCITS Funds in each discipline:
GAMCO MERGER ARBITRAGE
GAMCO Merger Arbitrage UCITS Fund, launched in October 2011, is an open-end fund incorporated in Luxembourg and compliant with UCITS regulation. The team, dedicated strategy, and record dates back to 1985. The objective of the GAMCO Merger Arbitrage Fund is to achieve long-term capital growth by investing primarily in announced equity merger and acquisition transactions while maintaining a diversified portfolio. The Fund utilizes a highly specialized investment approach designed principally to profit from the successful completion of proposed mergers, takeovers, tender offers, leveraged buyouts and other types of corporate reorganizations. Analyzes and continuously monitors each pending transaction for potential risk, including: regulatory, terms, financing, and shareholder approval.
Merger investments are a highly liquid, non-market correlated, proven and consistent alternative to traditional fixed income and equity securities. Merger returns are dependent on deal spreads. Deal spreads are a function of time, deal risk premium, and interest rates. Returns are thus correlated to interest rate changes over the medium term and not the broader equity market. The prospect of rising rates would imply higher returns on mergers as spreads widen to compensate arbitrageurs. As bond markets decline (interest rates rise), merger returns should improve as capital allocation decisions adjust to the changes in the costs of capital.
Broad Market volatility can lead to widening of spreads in merger positions, coupled with our well-researched merger portfolios, offer the potential for enhanced IRRs through dynamic position sizing. Daily price volatility fluctuations coupled with less proprietary capital (the Volcker rule) in the U.S. have contributed to improving merger spreads and thus, overall returns. Thus our fund is well positioned as a cash substitute or fixed income alternative.
Our objectives are to compound and preserve wealth over time, while remaining non-correlated to the broad global markets. We created our first dedicated merger fund 32 years ago. Since then, our merger performance has grown client assets at an annualized rate of approximately 10.7% gross and 7.6% net since 1985. Today, we manage assets on behalf of institutional and high net worth clients globally in a variety of fund structures and mandates.
Class I USD – LU0687944552
Class I EUR – LU0687944396
Class A USD – LU0687943745
Class A EUR – LU0687943661
Class R USD – LU1453360825
Class R EUR – LU1453361476
GAMCO ALL CAP VALUE
The GAMCO All Cap Value UCITS Fund launched in May, 2015 utilizes Gabelli’s its proprietary PMV with a Catalyst™ investment methodology, which has been in place since 1977. The Fund seeks absolute returns through event driven value investing. Our methodology centers around fundamental, research-driven, value based investing with a focus on asset values, cash flows and identifiable catalysts to maximize returns independent of market direction. The fund draws on the experience of its global portfolio team and 35+ value research analysts.
GAMCO is an active, bottom-up, value investor, and seeks to achieve real capital appreciation (relative to inflation) over the long term regardless of market cycles. Our value-oriented stock selection process is based on the fundamental investment principles first articulated in 1934 by Graham and Dodd, the founders of modern security analysis, and further augmented by Mario Gabelli in 1977 with his introduction of the concepts of Private Market Value (PMV) with a Catalyst™ into equity analysis. PMV with a Catalyst™ is our unique research methodology that focuses on individual stock selection by identifying firms selling below intrinsic value with a reasonable probability of realizing their PMV’s which we define as the price a strategic or financial acquirer would be willing to pay for the entire enterprise. The fundamental valuation factors utilized to evaluate securities prior to inclusion/exclusion into the portfolio, our research driven approach views fundamental analysis as a three pronged approach: free cash flow (earnings before, interest, taxes, depreciation and amortization, or EBITDA, minus the capital expenditures necessary to grow/maintain the business); earnings per share trends; and private market value (PMV), which encompasses on and off balance sheet assets and liabilities. Our team arrives at a PMV valuation by a rigorous assessment of fundamentals from publicly available information and judgement gained from meeting management, covering all size companies globally and our comprehensive, accumulated knowledge of a variety of sectors. We then identify businesses for the portfolio possessing the proper margin of safety and research variables from our deep research universe.
Class I USD – LU1216601648
Class I EUR – LU1216601564
Class A USD – LU1216600913
Class A EUR – LU1216600673
Class R USD – LU1453359900
Class R EUR – LU1453360155
Disclaimer:
The information and any opinions have been obtained from or are based on sources believed to be reliable but accuracy cannot be guaranteed. No responsibility can be accepted for any consequential loss arising from the use of this information. The information is expressed at its date and is issued only to and directed only at those individuals who are permitted to receive such information in accordance with the applicable statutes. In some countries the distribution of this publication may be restricted. It is your responsibility to find out what those restrictions are and observe them.
Some of the statements in this presentation may contain or be based on forward looking statements, forecasts, estimates, projections, targets, or prognosis (“forward looking statements”), which reflect the manager’s current view of future events, economic developments and financial performance. Such forward looking statements are typically indicated by the use of words which express an estimate, expectation, belief, target or forecast. Such forward looking statements are based on an assessment of historical economic data, on the experience and current plans of the investment manager and/or certain advisors of the manager, and on the indicated sources. These forward looking statements contain no representation or warranty of whatever kind that such future events will occur or that they will occur as described herein, or that such results will be achieved by the fund or the investments of the fund, as the occurrence of these events and the results of the fund are subject to various risks and uncertainties. The actual portfolio, and thus results, of the fund may differ substantially from those assumed in the forward looking statements. The manager and its affiliates will not undertake to update or review the forward looking statements contained in this presentation, whether as result of new information or any future event or otherwise.
Wikimedia CommonsCourtesy photo. High Yield: The End Of The American Dream?
Traditional fixed income investors do not usually like interest rate hikes. As rates go up, the prices of their bonds go down and they reap negative returns in their portfolios. This is where the poorly advised investor learns that fixed income is far from fixed. Only those who maintained liquidity in a large portion of their portfolios will welcome the new opportunities arising from investing at higher rates. But is this anxiety surrounding the rate hikes shared across all asset classes in fixed income? In the case of high yield bonds the higher rates could be a positive thing (if the increases reflect an expanding economy) or a negative thing (if there is a fear that these rate hikes may end up causing a recession).
To date, despite episodes of volatility in the markets, high yield has generally benefitted from the strength of the US economy, the growth in corporate earnings and the low default rate. In spite of the downturn that we have seen so far in October, the high yield indices are still in the black since the beginning of the year, in contrast to the losses seen in the investment grade indices. Without indulging in a simplified generalisation that blurs the distinctions between the many subgroups and components that make up the high yield class, of all the sectors with a weighting of over 3% in the benchmarks, only Homebuilders are wider (note that at the beginning of the year, it was trading very tight).
The high internal cash-flow generation within this asset class has brought a slower rate of new issue origination, which has also been a determining factor in the good performance of high yield. Most new issues this year have been assigned to refinancing the existing debt. There has also been an improvement in credit ratings for new issues, leaning more towards BB bonds and with fewer CCC issues. Credit fundamentals remain strong. Rating upgrades surpass downgrades in the highest ratio since 2011. The rate of defaults within the high yield class is around 2%, compared with a historical average of 5%.
Furthermore, we must not underestimate the increasingly frequent demand from investors who were traditionally focused only on investment grade bonds, such as pension funds or wealth managers, who are incorporating BB tier issues into their portfolios. These investors are not merely “opportunistic tourists”, but rather they are investing in a systematic manner with a view to improving the diversification of their portfolios.
The NAFTA is no longer one of the risks weighing down this asset class. We are left with China, oil, a possible acceleration in inflation and the deficits. So, does this mean the end of the American dream enjoyed by high yield? Historically speaking, high yield bonds have had a negative correlation with Treasury bonds. History also teaches us that credit spreads can remain below average for long periods of time, particularly during periods of positive economic growth and low default rates.
Given the current outlook, in the short term, we do not believe the economic situation will take a turn for the worse towards a recession, which would create a negative credit environment. Although the credit spreads for high yield indices are at low levels from a historical perspective and, in our opinion, there is limited potential for capital appreciation, the coupon offered is sufficiently attractive relative to other assets to justify waiting patiently with a portion of the portfolio invested in high yield bonds. Of course, we cannot rule out a widening of spreads in the short term, caused by a defensive movement and the profit taking in a volatile market if stocks sell off. But this would not be the result of panic selling due to a continuous deterioration of fundamentals.
CC-BY-SA-2.0, FlickrPhoto: CASCAID Americas. Asset and Wealth Management Firms Join Forces With CASCAID Americas
CASCAID Americas is another example of the industry turning its attention to supporting others. It’s an initiative set up in 2017 in UK that brings the asset and wealth management community together to raise money for charities.
What is CASCAID Americas all about?
It’s really about bringing people together to support great causes whilst enjoying networking. It’s led by 30-40 Ambassadors – people from around the industry. Ambassadors range from CEOs of asset and wealth management firms to new graduates and Investment 2020 trainees.
On a practical level, Funds Society, with the help of MiP in the UK, sits at the heart of it, helping to organize events and with all the logistics (on a pro bono basis of course).
How do you raise money?
In any way we can think of! We will have one gala at the end of the fund raising period (June 2019), which is supported by investment firms. This can raise significant sums. Then we have other group events such as a darts evening, fun runs, wine tastings and sporting tournaments. And Ambassadors (and others) also do their own challenges – these are wide-ranging, from running marathons, to swimming lakes, to walking thousands of miles. Anything goes!
What charities do you support?
In 2017, CASCAID UK raised money for Cancer Research UK. The target was £1 million but it managed to exceed £2.35 million. For CASCAID Americas, based on the much smaller size of the offshore industry, we are setting an initial goal of US$150k, though we actually hope to beat our British counterparts, at least on a relative basis. For the 2018-2019 campaign CACSCAID Americas is raising funds for The SEED School of Miami. It’s important to remember that all monies go direct to SEED Miami – CASCAID Americas isn’t a charity itself, it’s just a brand name that acts as an “umbrella” to bring all our activities together.
Why The SEED School of Miami?
We want to help local charities with a strong social impact in our community. The SEED School of Miami definitely fits that bill – as South Florida’s only public, college-preparatory boarding school, it impacts on the lives of the 210 young under-resourced students that are currently enrolled in the program, who spend 24 hours a day in a safe, structured and predictable environment from Monday to Friday —three healthy meals a day; consistent relationships with excellent role models; daily academic challenge and support; and extensive programs in athletics, visual and performing arts, and service. The national results for the SEED schools program speak for themselves. 90% of the students enrolled in 9th grade graduate high school; 93% of these student attend college with full scholarships, and 80% of these students are first generation college-bound students in their families
Pixabay CC0 Public DomainPhoto: James Ross (right) Tim Stevenson (left) . Tim Stevenson, To Retire From Janus Henderson
After 32 years with Janus Henderson Investors, Tim Stevenson, Director of Pan European Equities, has decided to retire from the industry. According to the company, Tim will remain with the team on a transitional basis through the first quarter of 2019.
James Ross, his co-manager on the Janus Henderson Horizon Pan European Equity Fund will continue to manage the fund. “The fund will follow the proven strategy that has delivered success over the long term by investing in high quality European companies. The investment process and objective will not change.”
James has worked directly with Tim co-managing Pan European Equity portfolios since August 2016 and has worked alongside him as a member of the European Equity Team for many more years in an earlier role as a UK equity fund manager. James Ross has 11 years of financial industry experience and holds the Chartered Financial Analyst designation.
Stevenson says: “James has impressive enthusiasm for, and knowledge of, the companies and the opportunities that exist from investing in Europe. The job of the European fund manager requires energy, brains, determination and skill. James has all of these and I am so pleased that he is taking on the full responsibility of looking after clients’ money in the complex but exciting area of Europe. I want to take this opportunity to wish him the very best of luck, and to thank clients for their support and patience over so many years. Finally, I would like to also thank all the great colleagues with whom I have worked in my career at Janus Henderson.”
Ross says: “I have thoroughly enjoyed working alongside Tim for the last few years; I am excited at the prospect of taking over sole responsibility for our mandates after his retirement. Tim will leave behind a legacy of consistent value-creation for clients; a record that I will seek to emulate.”
“We wish Tim well with his retirement and look to James and the wider European equity team to help build on his long-term success. If you have any questions about this announcement or any other investment-related queries please speak to your usual Janus Henderson representative.” The company concluded
CC-BY-SA-2.0, FlickrPhoto: Nicolas de Camaret. No More Samba in Brazil
Jair Bolsonaro has come out in the lead in the Brazilian presidential elections with 46%. Looking beyond his very divisive views on certain issues in Brazilian society (status for women, LGBT), on the Paris Agreement and the corruption of previous governments, along with his aim to end Brazil’s endemic violence by allowing Brazilians to take up arms, are there any economic foundations for his likely victory? (see here the Brazilian context of these elections) This victory has very clear economic explanations. The Brazilian economy has been suffering since 2014 and the collapse in commodities prices. The recession over 2014-2015 and 2016 lasted a very long time, and was followed by a lackluster recovery, which was more of a stabilization than a real rebound. GDP in the second quarter of 2018 still fell 6% short of the 1Q 2014 figure.
This drastic situation can be attributed to two factors. The first is the country’s high dependency on commodities. Brazil enjoyed a very comfortable situation at the start of the current decade when China became its primary trading partner. Opportunities increased and commodities prices soared, so revenues were buoyant and did not encourage investment, creating a phenomenon known as Dutch disease, whereby commodities revenues were such that there was no incentive to invest in alternative businesses. But when Chinese growth began to slow and commodities prices took a nosedive, the Brazilian economy was unable to adapt, so it seized up and plunged into a severe recession.
The other factor is that Brazil devoted hefty financial resources to financing the football World Cup in 2014 and then the Olympic Games in 2016, so in a country with a massive current account deficit, this put a lot of pressure on financing. Funding for public infrastructure replaced investment in production, thereby making the country’s Dutch disease even worse. The Brazilian population has paid a high price for the country’s brief moment of glory.
Yes – the job market contracted and inflation stepped up, and if we look at the Markit survey indicator, employment has not returned to 2015 levels, especially in for services, while jobs have stabilized in the manufacturing sector over the past year, albeit at a low level. So Brazilians are still paying for the recession
What can we expect for the Brazilian economy in the short term?
The Brazilian economy is still very shaky and the latest surveys suggest that recessionary risk remains high. More broadly speaking, the slowdown in the world economy will not help drive economic momentum, while in the commodities sector, only oil prices are on an upward trend. The new president has a tough job ahead as the country has very high expectations, but Brazil is not the US: it is no longer a powerful economy and must first rebuild, which will be a long drawn-out process. There is a risk that change will not be fast enough to keep Brazilian voters happy at a time when the authorities are also taking a tougher line to maintain law and order.
Pixabay CC0 Public DomainNunu_Lopes. Is the Market Satisfied with Bolsonaro's Victory in the First Round?
Despite the possible risks and populisms, the market’s hopes and expectations were fulfilled and Jair Bolsonaro (PSL) moves to the second round of the presidential elections in Brazil; where he will be tested in both support and popularity against Fernando Haddad, the Worker’s party (PT) candidate. The result, while reassuring for the market, does not dispel all risks.
Although final election results will not be revealed until next October 28th, this is a clear indication of in which direction the political winds are blowing in Brazil.
“Losing the presidency is really in Bolsonaro’s hands. Today there will be a strong rebound of Brazilian assets, as financial markets assume that Bolsonaro will become the next President of Brazil in the second round of elections later this month. More than anything, it’s a sigh of relief for the market that leftist candidate Haddad, whose policies would not have helped Brazil out of its current economic hole, will almost certainly not become President,” says Edwin Gutierrez, Head of Emerging Markets Sovereign Debt at Aberdeen Standard Investments.
The reason is simple: much of Bolsonaro’s appeal is the fact that he is not part of the political establishment, which has completely lost its credibility in recent years. “He also has a credible plan of how to deal with two of Brazil’s most pressing economic problems: the cost of its pension system and its debt stock. Addressing these issues has probably become more difficult as a result of these elections. His party has won a larger bloc in Congress than what it had previously and the unfortunate results of other parties could lead to some defections, which should help him,” adds Gutierrez.
This result has allowed Brazilian markets to continue with their recent rally, as they were worried that the Workers’ Party could return to occupy the presidency. However, Paul Greer, Portfolio Manager at Fidelity International, observed that Brazil has challenges that go beyond achieving a new government. In his opinion, if Bolsonaro wins in the second round, the post-electoral euphoria would soon disappear. “Bolsonaro’s controversial far-right opinions will make it difficult for his administration to approve legislative measures given the limited presence of his party, the PSL, in the Senate (5% of seats) and in the lower house (10%).”
According to the analysis carried out by the Fidelity International portfolio manager, elections aside, “we believe that Brazil’s fiscal balances will continue to deteriorate and that the sovereign rating will continue its decline towards a B rating over the next 12 to 18 months. The country’s growth is still below its potential level and we expect it to continue at that slow pace in the near future.”
The main concern for Renta 4 Banco is that, regardless of the final result on October 28th, no party has a clearly reformist plan. It would be necessary to control public accounts and reform social security and pensions. “Even so, and as we have seen in Mexico, where the new government seems to be orthodox in its economic decisions, we do not rule out that something similar happens in Brazil, which in turn could translate into a recovery of the Brazilian Real and be positive for securities with high interests in the area,” the financial institution points out in its latest report.
Pixabay CC0 Public DomainOadtz. Julius Baer Group and Nomura Holdings Join Forces to Tackle the Japanese Market
Julius Baer Group and Nomura Holdings have announced a strategic partnership, with Nomura acquiring a 40 per cent shareholding in Julius Baer Wealth Management. As a result, Julius Baer will introduce JBWM’s bespoke discretionary mandate services to Nomura’s high net worth client base in Japan. In doing so, Nomura will complement its comprehensive domestic product offering with JBWM’s tailor-made international mandate services.
JBWM specialises in the provision of discretionary investment services for Japan-based clients with a successful 20-year track record. The portfolio management team, based in Zurich, provides discretionary mandate services via its senior relationship management professionals in the Tokyo office. The investment process pays particular attention to currency risks, and the team has been adept at navigating market cycles, aiming to preserve client capital during times of financial market distress.
Upon completion of the transaction, JBWM’s name will be changed to Julius Baer Nomura Wealth Management Ltd. to underscore the strategic partnership.
Bernhard Hodler, CEO of Julius Baer Group, commented: “The strategic partnership with Japan’s premier securities firm represents a major milestone in our business strategy for Japan. Global financial markets are becoming increasingly complex, requiring skilful risk management, which is at the core of our offering in Japan. Working together with Nomura and its comprehensive domestic network and knowledge, we can best share our internationally diversified offering with a new audience and maximise the value of our presence in Japan.”
Foto cedidaAndrea Orcel, Ana Patricia Botín and José Antonio Álvarez . Andrea Orcel Appointed Santander Group CEO
Further to the announcement of 25 June 2018 which confirmed Rodrigo Echenique’s decision to retire from his role as Executive Vice Chairman of the Group and Chairman of Banco Santander Spain at the end of 2018, the Board of Directors of Banco Santander announced that José Antonio Álvarez will succeed Echenique as Vice Chairman of the Group and Chairman of Santander Spain. Following this appointment Álvarez and Bruce Carnegie-Brown will be the Group’s two Vice Chairmen, with Álvarez being the only one with an executive role.
Furthermore, following an intensive selection process carried out with the support of external advisers, the Board of Directors has decided that José Antonio Álvarez will be succeeded as CEO of the Group by Andrea Orcel, subject to regulatory approval. Orcel is currently member of UBS Group’s executive committee and brings a wealth of experience and expertise, having worked closely with Santander for almost two decades.
These appointments are expected to take effect in early 2019 following regulatory approvals.
Ana Botín, Executive Chairman of Banco Santander, said: “Rodrigo Echenique has been my most trusted advisor and played a fundamental role within the Board and as an Executive Chairman of Santander Spain. I now look forward to José Antonio Álvarez assuming these key strategic and executive responsibilities. The Board and I want to express our thanks and deep appreciation for Rodrigo´s commitment and great added value to Santander over the past 30 years and look forward to his continued support from his non-executive board role. We wish him and his family the best in his retirement from his executive roles. I very much look forward to continuing to work with José Antonio as a trusted partner, as we have done over the past four years. He has been critical to the successful execution and delivery of our plans and is a great role model for everything we want the Santander culture to be. As Executive Chairman of Santander Spain, he will complete the Banco Popular integration, as well as support and represent the bank and me personally on strategic decisions through his executive committee and board roles. Andrea Orcel’s international experience and strategic expertise further strengthen our existing team, helping ensure we continue delivering on our current strategy as we have for the past four years. He brings a deep understanding of retail and commercial banking, as well as a strong track record in managing diverse teams across Europe and the Americas in a collaborative way. This will help us achieve our ambition to build the best retail and commercial bank, as well as a global digital platform, whilst preserving our proven subsidiary model.
During the last four years, Santander has put in place a new management team both at the Group level and in the main markets, and launched a strategy based on growing loyal customers and embedding a common culture with its 200,000 employees. This has allowed the bank to become one of the best-rated in the industry for customer service in the majority of its core markets.
Santander launched its strategic plan in October 2015, and expects to deliver on all the objectives it set. By the end of 2018, the bank expects to have almost doubled the number of digital customers it serves, from 16 million in 2016 to 30 million, while the number of loyal customers has increased by 40% to 19.1 million. During the same period, Santander has strengthened its capital base significantly – adding over €16 billion euros to its CET1 to 10.8% at Q2 2018, while also increasing the cash dividend per share by 132%.
In early 2019, Banco Santander will publish its new medium-term strategic plan. The updated plan will be based on the same pillars which have guided the bank over the past three years: a relentless focus on customer loyalty, and a goal to become the best retail and commercial bank in the markets in which we operate, whilst building an integrated digital platform across the Group.
Botin continued, “We have a unique and strong base of 140 million customers across both developed and high-growth markets. We are building upon this solid foundation by creating an open financial services platform that brings the best products, services and technology to our customers. We are now strengthening the top team, with a goal of accelerating the execution of these plans, sharing the best practises and innovations across the Group for the benefit of all of our businesses and countries.”
José Antonio Álvarez said: “I am very excited to take over the Chairmanship of the best bank in Spain. We face many important challenges including the integration of Santander and Popular networks, and especially to make Santander in Spain, the best in the entire Group.”
Andrea Orcel said: “I am exceptionally proud and excited to be joining Santander as CEO and working with Ana, José Antonio and all of the organisation as we continue to ensure Santander excels. My immediate priority is to meet as many of my new colleagues as possible, and gain a new perspective on Santander from them. The financial services’ sector cultural and business transformation continues at an accelerated pace with increasing headwinds and disruption. Rather than fight those challenges, winning organizations embrace them, are energized by them and turn them to their advantage to catapult themselves forward building long lasting competitive advantage. I have no doubt that with us all working together to make the most of Santander’s strong culture, brand and global franchise, we will continue to be one of those winning organizations.”
These changes continue the trend of the last few years of building a more diverse and international team and Board. With new CEOs in our key markets of Mexico, Brazil, the UK, US and Spain, the Group´s management today better reflects the diversity of its footprint. In the Corporate Centre, similarly, the leadership team includes almost fifty percent internationally-experienced executives, including talent from Germany, Italy, the UK and the US.
The Board of Directors of Banco Santander will be composed of 15 members, of which the majority, eight, are independent. Santander’s board has gender diversity (more than a third are women), multiple nationalities (American, Brazilian, British, Italian, Mexican and Spanish) and broad sector representation (financial, distribution, technology, infrastructure or the university).
Andrea Orcel has been appointed by the Board of Directors by co-option to replace Juan Miguel Villar Mir’s seat on the Board of Directors. Villar Mir has presented his desire to leave the Board as his tenure expires. The Board wishes to express its appreciation for his contribution and dedication during his years as a director.
