Investec: “Our Preferred Asset Class Is High Yielding Equities, Which We Think Are Reasonably Valued”

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Investec: "Our Preferred Asset Class Is High Yielding Equities, Which We Think Are Reasonably Valued"
Photo: Investec. Investec: "Our Preferred Asset Class Is High Yielding Equities, Which We Think Are Reasonably Valued"

How will the potential move away from zero interest rates influence markets? John Stopford, Co-Head of Multi-Asset at Investec Asset Management, gives his view on this interview about the implications for high yield equities, income investors, emerging markets and more.

What has surprised you most in 2014?

One of the things that surprised me most is how much pessimism around the global economy has affected people’s expectations of US interest rate pricing. To our minds, the US economy is diverging, to some extent, from other economies and is creating room for the US to raise interest rates at some point in 2015. However, this has been largely priced out of markets, as markets worry about slowdowns in Europe, China and elsewhere. This has obviously had quite a big impact on bond markets and, to some extent, other asset prices as well.

Should we be concerned about US interest rates in 2015?

We think interest rate developments in the next 12 months are going to be very important. Clearly one of the key drivers of asset markets in recent years has been the very low level of interest rates and the promise by central banks to keep interest rates at low levels for a considerable period. If this driver is beginning to change then investors need to factor that into their investment thinking. We think it is highly likely that the US Federal Reserve will raise rates next year. We also think that this is a fairly significant development that will lead to a pick-up in volatility. It will cause more divergence between US assets and other markets, particularly the dollar, but also bond markets. It will create some noise in equities, although we think that equities should be able to ride through the noise and will be more focused on whether the global economy as a whole is going to expand.

How are you going to be managing your income portfolios?

The best way, we believe, to manage income asset exposure is to take a broad diversified approach. The world of income generation has widened out and it is no longer just a bond story. There are other assets – such as high yielding equities, property and infrastructure – that can provide part of an income solution. All income generating assets these days bring risks with them because all of the safe assets are pretty expensive: cash rates are very low, government bond rates are very low, so if you want to generate more income you have to take more risk. Therefore, to manage that we think you need to strike a balance between opportunity and risk management. One of the easiest ways of managing risk is to diversify and to actively manage the exposure that you take.

What are the biggest risks to these views?

We think there are both upside and downside risks. The main downside risk is the global economy is struggling to grow at a rate that will close output gaps and allow a more normal recovery. This is putting downward pressure on inflation. We may have reached a limit in terms of what monetary policy can do to offset this. There is also the risk that we might be in an uncomfortable economic environment. Asset prices may react badly to this risk, particularly some of the more growth-oriented assets.

But it is also possible that the world is already priced for a pessimistic outcome and potentially there are some upside risks in places like the US where we think growth may turn out to be stronger than people currently think, interest rates may rise somewhat faster than the market is pricing in and this will also potentially have an impact on the absolute relative pricing of assets, such as the dollar, equities, bond yi elds and so on.

How are you positioning your portfolio in terms of strategy?

At the moment our preferred asset class is high yielding equities, which we think are reasonably valued and which we think should benefit from a global expansion that could continue for some years given there are not many pressures on central banks to tighten monetary policy aggressively. We think that against that background earnings can come through, dividends can continue to rise and so equity income should do relatively well.

We are more cautious about high yield and credit in general, as we think this asset class has been the major beneficiary of low interest rates and is now a very crowded trade. It also tends to do less well towards the latter part of an economic cycle and looks reasonably expensive to us. We are underweighting high yield and are more neutral towards some of the other income-generating assets, such as emerging market debt and property, where we think having some exposure makes sense, but perhaps not too much.

Old Mutual Global Investors Launches European Small Cap Fund

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Old Mutual Global Investors lanza una estrategia de small caps europeas
Photo: Ian Ormiston, portfolio manager of the Old Mutual Europe (excluding the UK) Smaller Companies fund. Old Mutual Global Investors Launches European Small Cap Fund

Old Mutual Global Investors has announced the launch of the Old Mutual Europe (excluding the UK) Smaller Companies Fund, a sub fund of the Old Mutual Global Investors Series Plc, a Dublin domiciled umbrella fund.

The fund, which is managed by Ian Ormiston who joined Old Mutual Global Investors in October 2014, aims to achieve long-term capital growth through investing in smaller companies in Europe (excluding the UK). The portfolio will hold between 40 and 55 stocks, each with an equal weighting in the portfolio.

The fund will focus on finding companies with less than €1bn market cap, with the team researching the most inefficient part of the market in order to find cheap growth opportunities.

By investing in businesses achieving high and consistent profitability whilst avoiding illiquid stocks and turn-around companies, the fund aims to reduce inherent risks that are sometimes associated with the small cap market.

The European small cap sector offers a breath of opportunities for investors, benefiting from economic clustering and diversity that offers attractive investments in most market conditions.

Ian Ormiston commented: “The European small cap market is a diverse universe offering great opportunities for investors. As an under-researched sector, it is naturally inefficient and so by focusing on high quality, true small cap companies, with a good level of liquidity we aim to create a portfolio that can add real value to investors.”

The Birth of Verax, a Multi-Family Office Created by José Luis Llamas

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Nace Verax, el multi family office creado por José Luis Llamas
Jose Luis Llamas, Verax Wealth Management CEO/Courtesy photo. The Birth of Verax, a Multi-Family Office Created by José Luis Llamas

José Luis Llamas is yet another example of those professionals who opt for leaving large companies to launch independent projects. After 25 years of private banking experience and 13 years at Deutsche Bank, this Mexican professional has created Verax Wealth Management, a Multi-Family Office oriented to UHNW clients in Latin America, which aims to become the largest Family Office in the country. “We are not the largest in Mexico, but we are close. We hope to be so in the short term, as we have started with already a significant amount of assets.”

To this end, he has left New York to return to his roots in Mexico City, where the company will have its headquarters. “Although our headquarters will be in Mexico, our goal is to open another office in the US, probably in Miami or Houston.”

With this new project, Llamas aims to offer his services to a small number of high income households (over $25 million), with a focus on “pure family office”, covering their financial and non-financial needs, estate planning, and tax advice. “The idea of a family office is to cover all the needs of the family. I do not believe in the model which focuses exclusively on the financial side, ignoring family planning and the fiscal situation. Our big advantage is to be able to purely represent the client’s interests and to avoid conflicts of interest. We don’t need to make a decision because we represent a certain institution. This allows us to offer many more options to our customers, in a market that is becoming increasingly complex.”

As regards portfolio management, they will use an open architecture approach that aligns with the interests of the families they represent. “We will provide tailor-made solutions for each of our customers,” said the expert. “The fact of starting from scratch with a large volume of assets allows me to have a greatly talented team of investment professionals. We are about to close the recruitment of Chief Investment Officer and two other portfolio managers. “The objective of the company is to initially have a team consisting of eight or nine people, three of which will be bankers.

In late November, Verax will launch its first open fund, with medium risk, which will invest in liquid share certificates, fixed income and commodities. “With this fund we want to give access to smaller customers who have requested our services.”

On the other hand, the expert says that they are investing in less traditional assets, both in private equity and real estate, “Smaller products that are difficult to access and in which we are having the good fortune of participating.”

“We will have many short term corporate surprises, both by the corporate deals in which we are involved, and for the important recruitments we are making,” he concludes.

Allianz GI Shares its Wish List for Santa

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Cuatro motivos para estar agradecido y una lista para Papá Noel
Photo: Ruocaled. Allianz GI Shares its Wish List for Santa

Having just celebrated Thanksgiving, says Kristina Hooper, the US investment strategist and head of US Capital Markets Research & Strategy for Allianz Global Investors, we have so much to be thankful for as Americans—and as investors:

  1. The employment situation has improved substantially in the past year – Unemployment has dropped to 5.8% in October 2014 from 7.2% in October 2013. Even U-6, the broadest measure of unemployment, has fallen to 11.5% from 13.7%.
  2. Lower oil prices have put money back in consumers’ pockets – On June 6, oil closed at $102.66 per barrel. Last Friday, it closed at $76.1 per barrel. A roughly 25% drop in a few short months, helps compensate, at least indirectly, for the lack of wage growth many Americans continue to experience.
  3. Global monetary policy remains very accommodative – Last week, the Bank of China lowered interest rates and the ECB president Mario Draghi suggested the probability of sovereign QE is rising. Even the Fed is looking at a broader set of economic data in assessing when to begin tightening. Policy makers want to ensure the economy is on solid footing before it acts. Even after the Fed’s initial move, the environment will remain relatively accommodative, especially given that the Fed expects to maintain its balance sheet at its existing size through re-investment of its maturing assets.
  4. Most importantly, our veterans, who have made great sacrifices for our freedom – Thanks to our men and women in uniform, we live in a free society and enjoy all the rights and privileges that come with it, including a capitalist system.

But there are some items on our wish list for Santa:

  1. Higher-quality jobs and higher wages – There has been very little wage growth in the past few years, a result of the substantial slack in the labor market. In general, many Americans have lower-quality jobs— ones they’re overqualified for, ones that don’t pay as much, ones that don’t include benefits—that are far worse than the ones they had before the global financial crisis. We are hopeful that will change as labor-market slack diminishes, although we expect it will vary by region and industry in the US.
  2. Less conflict in the world – Some of our greatest risks right now are geopolitical ones. Let’s hope many of the troubling flare-ups we’ve seen recently begin to moderate. “The euro zone and Japan are concerned primarily about deflation while China is concerned with decelerating growth.”
  3. Stronger economic growth and a healthy level of inflation globally – It’s clear based on recent monetary policy that Japan, China and the euro zone are worried about their economies. The euro zone and Japan are concerned primarily about deflation while China is concerned with decelerating growth. The International Monetary Fund downgraded global growth expectations for 2015 to 3.8% from 4% earlier this year. And while the United States is enjoying improving economic growth, it’s not immune to what’s happening on other shores. In fact, the October FOMC minutes show that the Fed is concerned about a global deceleration and the impact it would have on the United States. Let’s hope that greater deceleration can be halted, and that economies can actually see stronger growth in the coming year.
  4. Investors who put emotions aside and invest with a plan – Investors, particularly younger ones, are far too risk averse right now. That’s cause for concern especially since we expect more volatility going forward. A recent Bankrate survey showed that 39% of millennials—those ages 18 to 29 years old—felt that the best place to invest money they “didn’t need for 10 years or more” was cash. While that’s largely due to the kind of investing environment they lived through as young adults, it doesn’t bode well for their financial security. Looking ahead, the investing environment will be more challenging with a lot of twists and turns. Still, investors should stick to a long-term financial plan and broadly diversify their portfolios, including an adequate allocation to stocks. It’s risky not to be in risk assets.

Leadership Change at Pioneer Investments

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Pierri deja el liderazgo de Pioneer Investments a Giordano Lombardo
Wikimedia CommonsFoto: Giordano Lombardo, new CEO Pioneer. Leadership Change at Pioneer Investments

UniCredit and Pioneer Investments today announced that Sandro Pierri will be stepping down from his post as CEO of Pioneer Investments effective January 31, 2015. Giordano Lombardo will ensure continuity of leadership for Pioneer’s business during this phase. Mr. Lombardo has been with Pioneer for over 17 years, during which time he has been responsible for developing and leading Pioneer’s global investment management platform, currently serving as Deputy CEO and Group Chief Investment Officer.

Federico Ghizzoni, CEO of UniCredit, said, “I would like to thank Sandro for his many contributions to Pioneer over the last eleven years, and especially during his two and a half years as CEO. Pioneer produced excellent investment results and robust net inflows owing to Sandro’s strategic focus and disciplined execution. The past two years have seen Pioneer’s standing as a leading global asset manager reaffirmed, supported by outstanding investment performance and approximately €24 billion of cumulative net inflows. I wish him the very best in his future endeavors, and am confident that he leaves Pioneer extremely well positioned.”

Mr. Ghizzoni continued, “I am fully confident that Giordano and the rest of Pioneer’s management team will continue to effectively manage the business and support Pioneer’s clients and associates around the world. They have my full support.”

Sandro Pierri commented: “I want to thank Federico and UniCredit, as well as the Board of Pioneer Global Asset Management, for giving me the opportunity to lead Pioneer for the past two and a half years. We have, thanks to a fantastic team effort, outperformed our initial goals and helped Pioneer to produce strong investment performance and record levels of net inflows, and Pioneer is now in an incredibly strong position. I will always think very fondly of my time at Pioneer and wish nothing but the best for Pioneer and its people going forward.”

Banco Santander said on September that it was in talks to potentially combine its asset management arm in a joint venture with Pioneer Global Asset Management. The deal, if consumated, would create an asset manager with 347 billion euros, or about $568.2 billion, in assets under management and operations in the Americas, Europe and Asia. The leadership change announced today by Pioneer Investments could well be related with these conversations.

In 2013 Santander entered into an alliance that gave the private equity firms Warburg Pincus and General Atlantic a 50 percent stake in its asset management operations.

 

“With The Economic Downturn in Europe, in 2015 We Could See Debt Yields Even Lower Than The Current Ones”

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“Con la contracción económica en Europa, podríamos ver en 2015 rentabilidades en la deuda aún por debajo de las actuales”
Harald Preissler, CIO, Chief Economist and Head of Asset Management at the Swiss Management company, Bantleon . "With The Economic Downturn in Europe, in 2015 We Could See Debt Yields Even Lower Than The Current Ones"

Interest rates and bond yields are both at historic lows, to the point that one may think that there is no scope for further reductions. But Harald Preissler, Chief Investment Officer, Chief Economist, and Head of Asset Management at the Swiss management company, Bantleon, does not think so: he believes that low asset yields will remain for a while, “they will remain low over the next five years, and will not rise too high,” he explained during this interview with Funds Society, and he argues that there may still be scope for further reductions in the coming months.

“With the economic downturn in Europe, in 2015 we could see yields even lower than the current ones,” he says; although he acknowledges that the margin is not large. Preissler explains that bonds need not again have high returns, or undergo high volatility, in order to generate returns in the portfolios, but they are able to generate alpha if yields move in around 1% -2%.

Their management is based primarily on analyzing the economic cycle: whereas, in periods of greater strength, they opt for high yield, credit, emerging market debt, or convertibles, if the situation worsens, as has happened this year, they go back to gaining exposure to public debt, which currently represents most of the portfolios of the Bantleon Opportunities funds. It’s currently overweight in German government bonds while recognizing that if the situation improves in 2015, as expected, they will opt more heavily towards credit and high yield debt. These strategies, which can invest in European bonds, currently avoid peripheral debt because they want highly liquid assets, although it does have this asset in other portfolios.

They have two sources for profitability: duration management and the incorporation, or not, of equity. As for duration, it now stands at about four years (Opportunities funds’ conservative strategy can range from 0 to 7 and the aggressive ones between 0 and 9). “If the situation becomes complicated, we are long in duration, in order to benefit from the transfer of capital from risky assets to safer assets”; and if the situation changes, they do the opposite.

The weak economic environment not only explains their opting for German government bonds, but also their current lack of exposure to equities in flexible strategies which allow it. “The economic data is weak and the technical data indicates caution, so we prefer to be out of the stock market,” he explains, although if the situation stabilizes they will invest once more. The funds include this asset in a binary way through DAX futures (i.e. they are either invested, or not invested): for the conservative strategy they have either 0% or 20%, and for the aggressive one, either nothing or 40%.

This combination can be explained by the desire to have, at least, one source of alpha in the portfolio. “When the situation improves and fixed income yields go up, should there be exposure only to bonds, there would be no source of alpha, unless they opt for negative duration, which is somewhat more complicated from the technical point of view than exposure to the stock market. In that case, the stock market provides a source of alpha.”

QE towards late 2015?

Preissler envisions a difficult economic outlook for Europe, with growth declining but without recession, although he believes that, with the help of a weaker euro, the situation will improve next year. Should the economy fail to recover, however, he believes that the ECB could act with a real QE. For now, it would suffice with a QE in the private market, and Germany would stop at that, but should the situation worsen, purchases of public debt will come at the end of next year or in early 2016. “In the end, Draghi has no other means of improving things than to buy government debt, there is not much else he can do if another period of economic weakness comes along,” he says.

European banks will not help the recovery because, in his opinion, there is no demand for credit and companies have cash to undertake investments outside Europe; therefore approved stress tests do not involve a change in the situation.

Across the Atlantic, the Fed could start raising rates in the second quarter of next year and the management company is positioned for that movement, although they rule out sharp rises which may endanger a recovery which is still weak, and taking into account the real estate industry’s sensitivity to those increases. “US cannot afford it,” he says.

Opportunities in emerging markets

For the Bantleon Opportunities strategy, the manager believes that there is value in other fixed income assets in addition to European public debt. In their multi-asset strategy, Bantleon Family and Friends, they have, also with a duration of four years in debt assets, positions in credit, although he has cut down somewhat in high yield. As well as in European government debt, although peripheral this time, including Spanish debt, these positions were built in early 2012 and are still overweight.

15% is in equities, some US but especially in emerging countries, in which it’s overweight, as he considers that the weakness of last year, which resulted from the end of QE in the US, has faded and the situation will improve. It also has 7% in gold as a hedge against potential crises.

Bantleon manages over 10 billion Euros. Capital Strategies Partners, specializing in mutual funds brokerage, represents Bantleon in Latin America and Spain.

SEC Charges HSBC’s Swiss Private Banking Unit With Providing Unregistered Services to U.S. Clients

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HSBC Private Bank Suiza pagará una multa para resolver las acusaciones de EE.UU.
Wikimedia CommonsPhoto: Mys 721tx. SEC Charges HSBC’s Swiss Private Banking Unit With Providing Unregistered Services to U.S. Clients

The Securities and Exchange Commission today charged HSBC’s Swiss-based private banking arm with violating federal securities laws by failing to register with the SEC before providing cross-border brokerage and investment advisory services to U.S. clients. HSBC Private Bank (Suisse) agreed to admit wrongdoing and pay $12.5 million to settle the SEC’s charges.

“HSBC’s Swiss private banking unit illegally conducted advisory or brokerage business with U.S. customers,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “HSBC Private Bank’s efforts to prevent registration violations ultimately failed because their compliance initiatives were not effectively implemented or monitored.”

According to the SEC’s order instituting settled administrative proceedings, HSBC Private Bank and its predecessors began providing cross-border advisory and brokerage services in the U.S. more than 10 years ago, amassing as many as 368 U.S. client accounts and collecting fees totaling approximately $5.7 million.  Personnel traveled to the U.S. on at least 40 occasions to solicit clients, provide investment advice, and induce securities transactions.  These relationship managers were not registered to provide such services nor were they affiliated with a registered investment adviser or broker-dealer.  The relationship managers also communicated directly with clients in the U.S. through overseas mail and e-mails.  In 2010, HSBC Private Bank decided to exit the U.S. cross-border business, and nearly all of its U.S. client accounts were closed or transferred by the end of 2011.

According to the SEC’s order, HSBC Private Bank understood there was a risk of violating the federal securities laws by providing unregistered broker-dealer and investment advisory services to U.S. clients, and the firm undertook certain compliance initiatives in an effort to manage and mitigate the risk.  The firm created a dedicated North American desk to consolidate U.S. client accounts among a smaller number of relationship managers and service them in a compliant manner that would not violate U.S. registration requirements.  However, relationship managers were reluctant to lose clients by transferring them to the North American desk.  HSBC Private Bank’s internal reviews revealed multiple occasions when U.S. accounts that were expected to be closed under certain compliance initiatives remained open.

The SEC’s order finds that HSBC Private Bank willfully violated Section 15(a) of the Securities Exchange Act of 1934 and Section 203(a) of the Investment Advisers Act of 1940.  HSBC Private Bank agreed to admit the facts in the SEC’s order, acknowledge that its conduct violated the federal securities laws, and accept a censure and a cease-and-desist order.  The firm agreed to pay $5,723,193 in disgorgement, $4,215,543 in prejudgment interest, and a $2.6 million penalty.

The SEC’s investigation was conducted by Matthew R. Estabrook and David S. Karp, and the case was supervised by Laura B. Josephs.  The SEC appreciates the assistance of the Swiss Financial Market Supervisory Authority.

Investec: “The General Growth Backdrop Will be Supportive for Equity Markets”

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Investec: “Las perspectivas son constructivas para la renta variable"
CC-BY-SA-2.0, FlickrFoto: Jônatas Cunha. La renta variable de los mercados emergentes ya acusa la salida de capitales

Looking into 2015, it’s a good moment to review both the most important issues of 2014 and the challenges we face for next year. Philip Saunders, Co-Head of Multi-Asset at Investec Asset Management highlights the outlook for 2015, which will come marked by a deflationist environment and the strength of equity markets.

What has surprised you the most in 2014?

I think what has surprised me the most was the market’s resilience to macro negatives throughout most of 2014 until October. We saw a long period when we did not see any meaningful correction despite some fairly serious threats in the form of ISIS and energy, lacklustre European growth and the weakness of the Chinese economy. In the autumn we saw a more conventional correction and that, I think, is generally healthy for the markets.

What is your outlook for global growth for 2015?

Our outlook for global growth in 2015 is relatively constructive. We think some of the concerns about economic weakness in the short term are overdone. Although we are not expecting a blisteringly strong global economy in 2015 it should continue to register positive growth in the vicinity of just over 3% internationally, which is very similar to the experience we have had over a number of years. The composition of that growth has shifted. It has moved away from emerging economies, where we have seen weaker growth, towards a stronger US economy, which seems to be firing on a lot of domestic cylinders, including energy. Weakness in China will probably continue, but it is a growth recession and we think that expectations for Europe are excessively negative. We think the general growth backdrop will be supportive for equity markets. The global economy is not going to race away and we think that interest rates are likely to remain low. Inflation prints around the world are likely come in at pretty low levels allowing central banks to pursue easy monetary policies, which should support growth.

What type of growth are we currently seeing and how does this affect market cycles?

The kind of growth we are currently seeing is pretty anaemic and unbalanced. Many economies are at different points in cycles, which we call asynchronous growth, i.e. it is not synchronised and therefore it is still positive, but it is not as dynamic as we have seen in periods in the past when all economies have tended to strengthen on a coordinated basis. That is quite good for investors because overly strong growth tends to result in inflation, which tends to encourage central banks to tighten policy. We are not seeing that and we do not think that we will see that for some time. Low inflation, low interest rates and a long economic cycle are constructive for equity markets in particular and also means that real long-term interest rates do not have to rise as much as would otherwise have to be the case.

What are the biggest risks to these views?

We think that the biggest risk is on the deflationary side rather than the inflationary side. We think that inflation is unlikely to be a problem because we are in a fundamentally disinflationary environment. Global growth is unbalanced at the moment because it is overly dependent on the performance of the US economy. We think the US economy is going to perform just fine and that will help to underpin growth internationally at a time when other economies are having to adapt. However, if the US economy were to weaken significantly that would compromise our global growth outlook, which will raise risks and affect corporate earnings. Our equity view depends on constructive corporate earnings. In practice, the corporate sector is performing better than national economies and we expect that to continue.

How are you positioning your portfolios?

Our portfolios currently reflect a strategic bias towards equities. We think that equity markets are fairly valued at current levels and we think that they are supported generally by an improving earnings dynamic. We also prefer equities within the growth space to other growth assets, such as high yield bonds or emerging market debt. The skew towards equities is less than in the post summer of 2012 period, but is still positive. That is balanced by defensive assets. We continue to be happy to hold bonds, even though yields are relatively low at the moment, simply because we see the principal risk to our primary scenario as being a deflationary one. This would result in undermining the prospects of earnings and it would mean that yields would fall even lower than they are at currently.

Ana Botín Appoints José Antonio Álvarez as CEO of Banco Santander, Replacing Javier Marín

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Ana Patricia Botín destituye a Javier Marín como consejero delegado de Santander
Ana Botín, Group Executive Chairman, with the new CEO, José Antonio Álvarez. Ana Botín Appoints José Antonio Álvarez as CEO of Banco Santander, Replacing Javier Marín

The Board of Banco Santander today announced the appointment of José Antonio Álvarez as Chief Executive Officer replacing Javier Marín.

It also announced the appointments of:

  1. Bruce Carnegie-Brown, as first Vice Chairman and lead independent director of the Board;
  2. Sol Daurella and Carlos Fernández as independent Board directors;
  3. Rodrigo Echenique, a current non executive Board Member, as Vice Chairman. 
The three new independent directors will fill the vacancies left by the death of Emilio Botín and the resignation of Fernando de Asúa and Abel Matutes.

José Antonio Álvarez, prior to his appointment as CEO, served 10 highly successful years as Chief Financial Officer at Banco Santander. His tenure has received wide external recognition for best industry practices specifically in the areas of Investor Relations and transparency. As a result of Mr. Álvarez’ move, several other senior management changes have been made, each by promotion of internal executives.

José García Cantera will assume the responsibilities of Banco Santander CFO. Mr. García Cantera was a top-ranked bank analyst at Citi before serving as CEO of Banesto, a leading bank in efficiency, balance sheet strength and customer satisfaction that was integrated with Santander Spain in 2013. Replacing Mr. Cantera as the global head of Santander Global Banking and Markets (SGBM) will be Jacques Ripoll, previously the head of SGBM in Santander UK.

These appointments will take effect from 1 January 2015 and are subject to regulatory approvals.

Ana Botín, Group Executive Chairman, said: “On behalf of the Board, I would like to express our gratitude to Javier Marín, for his great work for Banco Santander for 23 years and especially for his service as CEO. During his two years in this role, he has led the commercial transformation of our bank, bringing innovative management to lead our customer segmentation and service improvement initiatives, while also improving our profitability and efficiency”. “We would also like to acknowledge the contributions to our Board of Fernando de Asúa and Abel Matutes, whose work has been crucial to our success”.

“The financial services industry today faces many important challenges. But Banco Santander is uniquely well-positioned to succeed, thanks to our strong local retail and comercialbanking presence in 10 European and American markets. Our leadership team’s vision is to create a bank that is “Simple, Personal and Fair” for our teams, our customers, our shareholders and communities”, Ana Botin said.

The Banco Santander Board will now have 15 members, of which nine are independent, with highly relevant and current management experience in diverse business sectors with strong customer-focused expertise. Five members — 33 percent — are women, and represent a wide diversity of international perspectives, including the US, the UK, Mexico and Spain.

Pouring Oil on Troubled Waters

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El high yield seguirá sufriendo con los precios de petróleo bajos
CC-BY-SA-2.0, FlickrFoto: Sten Dueland. El high yield seguirá sufriendo con los precios de petróleo bajos

Brent crude, the benchmark world oil price, has tumbled by 22% in the year to date, sending a barrel of oil down to $84 in early November, its lowest level in over five years and below the cost of producing it for many countries.

However the ability of the world’s leading oil cartel, OPEC, to cut production levels in order to artificially raise the oil price is quite limited, says Léon Cornelissen. In fact, the leading Middle Eastern producers have been strangely quiet on the issue, partly because they could wage a price war with the US, he says.

The US shale oil revolution has been partly responsible for massively raising supply, as it cuts its dependence on Arab oil, while at the same time demand for oil is falling as cash-strapped consumers use less fuel, and as countries resort to using greener power.

“The oil market has experienced a perfect storm from supply and demand side developments in recent months,” says Cornelissen. “On the one hand, the oil market is currently experiencing a supply boom – the strong production volumes generated by the continuing oil revolution in the US has surprised everyone. US oil output is now running at the fastest pace since measurement began in 1983.”

“At the same time the macroeconomic growth momentum of the global economy has slowed, leading to a less bright demand outlook for oil. The International Energy Authority cut its estimates for global oil demand growth by 250,000 barrels a day for 2014 and by 90,000 barrels a day for 2015.”

“So the question that is now prevalent is whether the oil market is going to rebalance next year and if so, in which way this rebalancing process is going to take shape.”

Benefits of low oil price

Cornelissen says the low oil price is mostly beneficial to the West, with research showing that a drop of more than 20% in oil prices typically generates an additional 0.4% in real GDP growth. This is mainly caused by consumers getting more spending power as fuel prices drop.

Investors should also remember that OPEC, a collective of 12 highly diverse and often troubled countries from Angola to Venezuela, is not always unified, Cornelissen says. “The reluctance to cut production by Saudi Arabia could also be aimed at bringing more alignment and discipline among OPEC producers for a more meaningful production cut later on,” he says.

“History (and game theory) has shown OPEC members to have an incentive to ‘cheat’ on production levels that were agreed at OPEC meetings, and the Saudis could use the recent price drop to increase their leverage over non-abiding members. It means the discussion at the forthcoming OPEC meeting on 27 November will be as tense as it will be crucial, as Venezuela has been calling for a production cut.”

‘History has shown OPEC members to cheat on production levels’

No ‘game of chicken’ with the West

Cornelissen says that OPEC may contemplate a ‘game of chicken’ with the US, given that many US oil producers are also suffering from the low oil price, and therefore they may be tempted to cut production themselves. However, this is countered by the scale of the US shale oil revolution and American political resolve to stop being reliant on the Middle East following the Iraq wars and continuing tension with Iran. And such a policy might also backfire within OPEC members, he says.

In the US, Cornelissen believes that the dominant strategy is likely to be a continuing increase in production. “The lack of OPEC-like coordination mechanisms in the US industry and its history of maximizing output instead of cashflow leaves us with the view that the US oil revolution will continue,” he says.

Headwinds against oil price hikes

Further out, Cornelissen believes that headwinds for a rebound in oil prices will remain strong due to the impact of non-OPEC members such as Russia, which is one of the world’s largest producers. “Even if there is a production cut by OPEC, non-OPEC supply will be encouraged to rise even further in reaction,” he says. “Struggling emerging economies like Russia, Mexico and Brazil are clearly in need of additional oil revenues and will react with higher output if prices are propped up by OPEC.”

Another impediment is the steadily appreciating dollar, he says. “A stronger dollar, as we expect for 2015, will be troublesome for the oil market as well because this makes the oil bill for importers outside the US more expensive.”

“Therefore, our view is that oil prices are going to stabilize, but a significant rebound back to the USD 100-115 per barrel bracket will not happen next year. Prices will likely drift higher, but remain below USD 90 for Brent.”