Capital Markets Corporate

October 19, 2018

Our Weekly Newsletter

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Across Instinctif Partners’ Financial Services team, we are always keeping an eye on the key developments taking place across the sector to evaluate their impact on the many businesses we work with. Here we share our picks of the week’s most interesting news, and our expert views.

Corporate Debt Ready to Explode?

An in-depth report by Bloomberg has found that many US-based corporates are heavily leveraged after years of M&A fuelled by debt. The report examines the credit ratings of blue chip firms and suggests they may be closer to junk status than previously thought. Could over-leveraged corporates be the powder keg that leads to the next downturn? (From Bloomberg BusinessWeek, 11 October 2018)

Mortgage Illiteracy

A recent survey by Which? has found that only one in five homeowners knows precisely what their mortgage rate is. The consumer watchdog also found that Welsh homeowners have the least knowledge when it came to the details of their home loan, with fewer than 40% able to estimate their current interest rate (From Mortgage Introducer, 15 October 2018)

An Own Goal For ICO FC

Football has become the top destination for crypto funds and ICO advertising and corporate partnerships. Top Premier League and European teams have signed endorsements with various crypto entities; former Brazil superstar Ronaldinho has gone one step further and launched his own cryptocurrency. Critics note that the meteoric rise of crypto-football partnerships may be a recipe for disaster as clubs push crypto brands in front of unsuspecting fans, who may not have the knowledge or sophistication to understand the risks of investing in this new asset category. (From Financial Times, 12 October 2018)

Data Leak Firms Shunned by Ethically-Minded Investors

Data is now considered the ‘new oil’ by many industries. As such, many investors are taking a dim view towards those big tech companies that have allowed huge amounts of private user data to ‘spill’ out into the wider world, causing social and political upheaval. Ethically minded investors are now calling on the FAANG firms in particular to tighten up privacy controls or risk being dropped from portfolios and funds around the world. (From Financial Times, 15 October 2018)

Computer Says No To Good Investors

Savers keen to move money into the stock market face being blocked by companies using ‘robo-advisers’ that automatically rule them unfit to invest. Though many rejections are for good reasons, fit and proper candidates can also be sifted out because of seemingly arbitrary questions. These can include how often they plan to check their account and how they would feel about poor investment performance. (From Business Telegraph, 18 October 2018)

 

Weathering the Storm

As temperatures dropped and summer turned into autumn, the Bank of England (BoE) turbo-charged its initiative to bring financial institutions in line with its climate change plans by publishing a report into its impact on the UK banking sector.

Fast forward a couple of weeks, and the BoE has urged banks and insurers to come up with credible plansto protect themselves from financial risks associated with climate change.

The central bank said board-level engagement was key, adding that “scenario analysis” for the industry’s businesses should form part of firms’ strategic planning to determine financial risks.

However, the Bank stopped short of forcing financial players to disclose the risks they’d face from climate change – meaning that financial companies can continue their operations without making public the emerging threats that some of their investments or corporate strategies might face.

Pressure groups have urged the government to introduce measures to make the publication of these findings compulsory, but so far no mandatory regulation has been passed.

Given consumers’ acute awareness – and interest in – green issues, those banks and insurers that take the BoE’s guidance to the core of their operations have a chance to lead by example.

In an age when digital media, social networks and 24-hour news cycles make it harder for businesses to hide bad news, openness and transparency will go a long way to enhancing a firm’s image.

From a reputational and customer service experience perspective, those who embrace change and communicate their plans to safeguard against the financial risks posed by global warming will likely see brighter days ahead.

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