Posts in category Business and finance


ApprovedBusinessBusiness and finance

The battle for territory in digital cartography

IN THE 1940s Jorge Luis Borges, an Argentine writer, wrote a short story about mapping. It imagines an empire which surveys itself in such exhaustive detail that when unfolded, the perfectly complete 1:1 paper map covers the entire kingdom. Because it is unwieldy and thus largely useless, subsequent generations allow it to decay into tatters. Great scraps are left carpeting the deserts.

In their capacity for up-to-the-minute detail, modern maps surpass even Borges’s creation. By using networks of sensors, computing power and data-crunching expertise, digital cartographers can produce what are in effect real-time simulations of the physical world, on which both humans and machines can base decisions. These maps show where roadworks are blocking traffic or which street corners are the most polluted. Innovative products will make new demands of them. Drones need to know how to fly through cities; an augmented-reality game might need to know the exact position in London of Nelson’s…Continue reading

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ApprovedBusinessBusiness and finance

Chinese companies’ weak record on foreign deals

CONSIDERING the size of China’s economy, it seems inevitable that its firms will eventually play a huge role on the world stage. Yet China Inc’s adventures abroad in the past 15 years have been a mixed bag. Thousands of small deals have taken place, some of which will succeed. But of the mergers and acquisitions that have been worth $1bn or more, it is a different story. There have been 56 abandoned deals, 39 state-backed acquisitions of commodities firms at frothy prices, and, lately, wild sprees by tycoons scooping up trophies such as hotels and football clubs.

Some deals defy any conventional logic. Last month HNA, an airlines-and-tourism conglomerate from Hainan, said it had bought a 10% stake in Deutsche Bank, having earlier considered buying a Landesbank. The Chinese firm, which runs a beach-volleyball tournament in Beijing, appears to think it can consolidate Germany’s fragmented banking industry—the financial equivalent of bringing peace to the Middle East. If China Inc is…Continue reading

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ApprovedBusinessBusiness and finance

How sham food became big business in Japan

GUESTS to the factory of Tsuyoshi Iwasaki are presented with a rasher of bacon. The succulent marbled sliver is branded with his name, title and e-mail address—an apt introduction to the owner of Japan’s biggest manufacturer of replica food. At the headquarters of Iwasaki Co on the outskirts of Tokyo, racks of golden-brown gyoza jostle for attention with boat-shaped dishes of lustrous raw tuna, bowls of creamy ramen and a dozen pinkish scallops in iridescent shells. The acrid smell of resin and paints is the only hint that everything on show is utterly tasteless.

Most of these Japanese sampuru, from the word “sample”, will go on display in restaurant windows, from fast-food outlets to izakaya (bars), throughout the east of the country, in the hope of luring hungry customers. A sister company, managed by Mr Iwasaki’s brother, covers the western half of Japan. Together they make over ¥5bn ($46m) in annual…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

To err is human; so is the failure to admit it

A NEWSPAPER cannot publish for 174 years without some mistakes. This one has made its share. We thought Britain was safe in the European exchange-rate mechanism just weeks before it crashed out; we opined, in 1997, that Indonesia was well placed to avoid financial crisis; we noted in 1999 that oil, at $10 per barrel, might well reach $5, almost perfectly timing the bottom of the market; and in 2003 we supported the invasion of Iraq. For individuals, like publications, errors are painful—particularly now, when the digital evidence of failure is both accessible and indelible. But they are also inevitable. The trick, then, is to err well: to recognise mistakes and learn from them. Worryingly, humanity may be getting worse at owning up to its goofs.

Few enjoy the feeling of being caught out in an error. But real trouble starts when the desire to avoid a reckoning leads to a refusal to grapple with contrary evidence. Economists often assume that people are rational. Faced with a new fact,…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

Why government-bond yields have been falling again

EVERY year it seems that analysts and investors play a ritual game. They begin by asserting that government bonds are terrible value and that, accordingly, this must be the year when yields will rise (and prices fall). And then they get mugged by reality.

The same pattern seems to be playing out in 2017. Back in December, a poll of fund managers by Bank of America Merrill Lynch (BAML) found that pessimists on global bonds outnumbered optimists by 58 percentage points. Investors believed in a “reflation trade”, with tax cuts from Donald Trump’s administration leading to faster American growth, to which the Federal Reserve would respond with higher interest rates.

For a while, such forecasts seemed to be on the money. The yield on the ten-year Treasury bond picked up to 2.63% by March 13th (see chart). But since then the trend has changed. The Treasury-bond yield recorded a low for the year of 2.13% on June 6th. In Britain the yield on the ten-year gilt dipped below 1% on June 6th…Continue reading

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Business and financeGulliver

Don’t trust an airline with your instrument

B.B. KING was famous for being inseparable from Lucille, his Gibson guitar. So much so that when taking a plane, he would book his six-string its own seat, often under the unimaginative nom de guerre of “Mr Guitar”. It is understandable that musicians prefer not to check their precious instruments into the hold. Airlines do not have a history of treating them so gently. Even a steel guitar can be made to weep.

Perhaps the most infamous horror story resulted in “United Breaks Guitars” a series of revenge songs recorded by Dave Caroll that went viral in 2009. Mr Carroll watched aghast from his plane window as ground handlers tossed about his $3,500 axe, after retrieving it from the hold. Though the neck of his guitar was plainly broken, it took nine months and the release of three mocking songs before the airline coughed up $1,200 for the repairs.

That incident may have been on…Continue reading

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Business and financeFree exchange

Why the Fed is likely to raise rates, despite low inflation

CREDIBILITY is a thing you have to worry about with toddlers. You cannot reason with them. The best you can hope to do is respond consistently to undesirable behaviour. Get this wrong and your work becomes harder. If your correspondent doesn’t actually go and hide the box of Legos every time he has to count to three, for example, his child will not find his threats to be credible, and will fail to respond to them. 

This is the problem the Federal Reserve has now with financial markets. For six months the Federal Open Market Committee (FOMC) has been carefully managing its speeches, meeting minutes and economic projections to one end: convince debt markets that it will raise the benchmark interest rate by a quarter of a percentage point at its June meeting. It has succeeded. FedWatch, a tool that estimates how markets think monetary policy will go, pegs the probability of a June rate hike at 91%. This leaves the committee with a familiar…Continue reading

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Business and financeGulliver

Political ostracism means more woe for Qatar Airways

AFTER years of ascension, the three Gulf superconnectors, Emirates, Etihad and Qatar Airways, have recently suffered a bad spell. The low price of oil—usually a boon for airlines—has reduced spending power in oil-rich states, which has dampened demand for flights from the region. Terrorist attacks throughout the Middle East, too, have proved a deterrent. Then came Donald Trump. The president’s attempts to ban travel from some Muslim-majority countries put many off flying to America, which is a big market for these long-haul carriers. American restrictions on electronic devices on flights from the three carriers’ home airports to America made things even worse.

Qatar Airways must have hoped that the only way from here on in was upwards. Those hopes were dashed on July 5th when Qatar’s neighbours, Saudi Arabia, the UAE and Bahrain, decided to sever diplomatic relations with the country, followed swiftly by others, including Egypt. The Continue reading

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Business and financeButtonwood's notebook

What will the markets do if Labour wins?

WHEN the British election started, a victory for Theresa May looked a nailed-on certainty. The Conservative lead was as high as 20 percentage points and the party was 1/20 on to claim the most seats. But a poorly run campaign means that the gap has narrowed; the latest from Survation had the Conservatives with just a one-point lead

The betting markets still assume that the Tories will win, albeit with a majority of 70 or so rather than the 100 plus that was assumed earlier in the campaign. But what if the gambling markets are wrong, as they were about Brexit and Trump? Nate Silver, the American polling guru, argues that Continue reading

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Business and financeGulliver

Britain needs a second flag-carrier

AIRLINES, like all firms, have a duty to shareholders to cut costs, if it makes them more competitive and more profitable in the long term. British Airways has been zealous in this regard. Over the past few years, the airline, under the stewardship of Willie Walsh and Alex Cruz, has cut staff, outsourced IT, and removed complimentary goodies from passengers.

They have their reasons. Not so long ago, some questioned whether British Airways could survive the combination of low-cost carriers devouring its short-haul route and upscale Middle Eastern rivals dominating the long-haul connecting market. Both of those challenges remain real (indeed a third previously unforeseen threat has arisen in the form of low-cost long-haul competitors such as Norwegian Air). Still, no one now questions British Airways’ immediate future. Partly as a result of cost-cutting, and a bit of luck in the form of low oil prices, the airline’s finances are rosy. In 2016, IAG, the carrier’s parent firm, reported a profit of €2.36bn…Continue reading

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Business and financeFree exchange

Europe inches closer to a plan for fixing its financial flaws

DONALD TRUMP and Theresa May may have done more to push Europeans together, and open up an opportunity for reform of its institutions, than any pro-European American president or British prime minister could ever have dreamt. The Commission’s “Reflection paper on the deepening of the Economic and Monetary Union”, issued on May 31st, points the way towards a package deal that could be acceptable to Northern and Southern euro area countries. But some key elements are still missing.

Encouragingly, the Commission sets out a tight calendar for completing the banking union, with the creation of a common deposit insurance scheme and a common backstop for the European Resolution fund intended to be in place by 2019. These two elements are crucial if we are to stop the banks posing an existential risk to the states where they operate.

But avoiding the “diabolic loop” between banks and states also requires cutting the…Continue reading

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ApprovedBusinessBusiness and finance

China’s new cyber-security law is worryingly vague

“IF YOU want to stay in China, you have to go all in.” So says James Fitzsimmons of Control Risks, a consultancy, of the impact China’s new cyber-security law will have on multinational companies (MNCs). These firms have moaned for months about the law’s intrusive and vague provisions and asked for a delay in its implementation, but to no avail. It came into force on June 1st, and foreign firms are now scrambling to figure out its implications. Mr Fitzsimmons, for one, is convinced that they must take the costly step of separating their local IT systems from their global networks.

At first blush, the law seems a reasonable effort at tackling two areas of policy in need of reform. The first is cyber-security. Companies in industries deemed to be critical must now ensure that their technology systems are “secure and controllable.” They must store important data locally, and will be subject to audits by official inspectors. Susan Ning of King & Wood Mallesons, a Chinese law…Continue reading

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ApprovedBusinessBusiness and finance

A Turkish maker of white goods is looking outwards

FORGIVE a maker of washing machines a fondness for spin. Hakan Bulgurlu, who manages Arcelik, the biggest producer and seller of white goods in Turkey, claims a “strong mood” has returned to his domestic market. Sales there leapt by 35% in the first quarter compared with the same time last year. His forecast is upbeat. “Turkey is more resilient than it looks from the outside,” he says, citing cheery reports from dealers who run his 3,000 own-brand shops.

Reality is less whiter than white. Many investors and traders remain spooked by political dramas, a coup plot last year and by an authoritarian president, Recep Tayyip Erdogan. The IMF gave warning in February that low business profits, a lack of credit and political uncertainty all bode ill for Turkey’s economy. A splurge of public spending and stimulus measures—a special tax on appliances has been suspended for a few months—have brought forward sales of appliances to before the usual, summer, shopping season….Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

Will President Trump rescue failing pension funds?

TO THE exasperation of budget hawks, Donald Trump has long made clear that he will not reform Social Security (public pensions). But maintaining these entitlements does not fully protect workers’ retirement income. For many, pension promises from their employers are more important. These can shrink or vanish when firms fail. And, like Social Security, the programme that protects retirees against such losses—the Pension Benefit Guaranty Corporation—is going bust.

The PBGC levies premiums on defined-benefit pension plans in order to bail out those that fail (up to a maximum payout per worker). On current trends, one of its insurance schemes will probably run dry by 2025. The problem is so-called “multi-employer” funds (see chart). These involve multiple firms, usually under an agreement with an industry-wide union. They cover about 10m Americans, roughly 1m of whom are in a plan that admits it is probably broke. The biggest struggler is the Central States fund, which covers about 400,000…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

The race to become Islamic banking’s fintech hub

FOR all the sophistication of some of its financial centres, and despite the ubiquity of smartphones, the Middle East has been a late adopter of financial technology, or fintech. Of more than $50bn in fintech investment globally since 2010, according to Accenture, a consultancy, only 1% has gone to the Middle East and north Africa.

Khalid Al Rumaihi, head of Bahrain’s Economic Development Board, blames institutional foot-dragging and a lack of infrastructure and venture capital. Yet he insists innovation is inherent to Islamic financial tradition. The modern cheque derives from an Arabic instrument, a written vow to pay for goods on delivery, to avoid carrying money on dangerous journeys. “In the 9th century”, he says, “a Muslim businessman could cash a cheque in China drawn on his bank in Baghdad.”

Several cities are now jockeying to establish themselves as fintech hubs. Last year Cairo launched two “accelerators”—schools to nurture startups. Abu…Continue reading

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ApprovedBusinessBusiness and finance

British Airways botches its response to its latest technical woes

IT IS easy to blame infrastructure when things go wrong, as they did on May 27th when British Airways (BA) grounded planes across the globe after a global IT systems crash. More than 1,200 flights, booked to carry over 75,000 passengers, were cancelled over three days; hundreds of thousands more miserable travellers had their trips ruined by delays, lost luggage and missed connections. Analysts estimate that the total cost to BA of refunds, plus compensation of up to €600 ($675) for each delayed passenger, could climb as high as £150m ($192m).

But such calamities are also man-made, and a trail of incompetence led to this one. Alex Cruz, the chief executive, is better known as a cost-cutter than a communicator, and it showed. Though he was quick to apologise in public, in private he muzzled his employees and offered vague explanations, linking the computer failure to a “power-supply issue”. Others pour scorn on this interpretation.

His staff, though often trying their best, were ill-prepared. They had no clear plan to deal with passengers caught up in the chaos. For flight delays and cancellations, the television bulletins broadcast at London’s Heathrow and Gatwick airports, BA’s two main hubs, were more helpful than its stewards on the ground. Without working backup systems, airline representatives were unable to prioritise customers in most…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

The super-rich are different: they pay less tax

OF LIFE’s two certainties, death cannot be dodged even by the well-to-do. Taxes are another matter. Quantifying quite how much they manage to keep from the taxman, however, has always been tricky. One common approach governments take is to conduct randomised audits of tax returns. This methodology can give regulators a rough sense of overall tax revenues lost. But it is far from ideal. For instance, studies based on randomised tax audits are usually both too small and too crude to reflect accurately the financial shenanigans of the most egregious tax-dodgers: the super-rich.

A new study by Annette Alstadsæter, Niels Johannesen and Gabriel Zucman, three economists, tackles this problem by investigating two recent financial-data hoards: the “Swiss leaks”, a record of bank accounts held at HSBC in Switzerland; and the “Panama papers”, files that document the use of offshore accounts and shell companies by clients of Mossack Fonseca, a law firm in Panama. By matching the leaked information with wealth data from Denmark, Norway and Sweden, the authors are able to construct the most detailed estimate to date of the extent of tax evasion.

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ApprovedBusiness and financeFINANCEFinance and economics

America’s community banks hope for lighter regulation

A FEW weeks ago Standard Financial, a bank with assets of just $488m and a mere nine branches, merged with Allegheny Valley Bancorp, a slightly smaller neighbour in the suburbs of Pittsburgh. The main reason for the deal, says Tim Zimmerman, Standard’s chief executive, was the rising cost of regulation—though competition from PNC, a $371bn colossus based in the city, also played a part. “Without the regulatory overreach…since the crisis,” Mr Zimmerman says, “we’d probably both have gone along on our own, I think.”

Standard is one of America’s 5,400 community banks: local lenders, funded chiefly by deposits, who pride themselves on knowing their turf by the inch and their customers by name. Their size can range up to $10bn in assets, but most are much smaller: over 5,000 banks and savings institutions have less than $1bn and more than 1,500 under $100m. They account for 92% of federally insured banks. Though they make only 16% of all loans, they provide 43% of…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

Eastern Bank: a 199-year-old lender becomes a tech pioneer

LIKE other local bankers, Bob Rivers is counting the cost of red tape. At the end of 2015 and 2016 Eastern Bank, a Boston lender of which he is the chief executive, held its balance-sheet below $10bn by briefly parking some deposits elsewhere. Now Eastern—America’s oldest and largest mutual bank, founded in 1818—has crossed the threshold. It will thus become subject to a limit on the debit-card fees retailers pay to bigger banks, and lose $9m of revenue, Mr Rivers says. Other rules will also kick in, costing $6m. The $15m total is one-sixth of Eastern’s pre-tax earnings.

At least, unlike America’s many much smaller lenders, Eastern has the wherewithal to tackle another costly burden: information technology. It is just small enough to be called a “community bank”, but also just big enough to invest in IT. Being a mutual is essential too, Mr Rivers says: he does not have to answer to shareholders about quarterly profits.

In 2014 Eastern set up an…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

Goldman Sachs is criticised for buying Venezuelan bonds

BONDS are bought and sold every second of every day without attracting attention. But it is not often that the seller is the central bank of a brutal, cash-strapped regime faced with protests; the buyer, a bulge-bracket American investment bank; and the size of the deal in the billions of dollars. A report in the Wall Street Journal on May 28th that Goldman Sachs had bought bonds with a face value of $2.8bn issued by Venezuela’s state-owned oil company, PDVSA, for 31 cents on the dollar (ie, for $865m) caused a stink.

Julio Borges, an opposition politician and president of the National Assembly, lambasted Goldman on May 29th in an open letter to its chief executive, Lloyd Blankfein, for its decision to “aid and abet Venezuela’s dictatorial regime”. For all its sins, that regime has met its obligations to bondholders. Mr Borges vowed to advise future Venezuelan governments not to repay the bonds in question. Protesters gathered outside Goldman’s…Continue reading

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ApprovedBusinessBusiness and finance

Film piracy is changing. Pirates now want ransoms

RIPPING off films still reaps riches: the business model holds even in the internet age. Someone makes a digital file of a film, either with a camera in a theatre or by copying a DVD, then sells the file to operators of dodgy websites, many of whom make millions a year from online advertising and customer subscriptions—illegal versions of Netflix.

This year pirates introduced an entrepreneurial plot twist. They have begun asking Hollywood studios for ransoms. In several cases the rogues have told leading makers of films or television programmes that if they do not pay up, digital copies will appear online before the official release date. It is Hollywood’s version of WannaCry, the ransom malware.

No one has been seen to pay up so far, but the threats are not all idle. Netflix, one victim, saw certain episodes of its new season of the show “Orange is the New Black” released by a pirate who goes by the alias “thedarkoverlord” (who had demanded payment in…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

Sweden’s economy is thriving, so why is monetary policy so loose?

ON A recent balmy day, people thronged the parks and promenades of central Stockholm. Swedes have much to feel sunny about. Real economic growth, at a heady 3.2% in 2016, has averaged 2.8% annually since 2009, compared with the euro area’s 1.1% per year. In April, Swedish inflation was close to the target of 2% aimed at by the Riksbank, Sweden’s central bank. Yet it decided not only to maintain the main policy rate at -0.50%, where it has been since February 2016, but to increase the amount of asset purchases under quantitative easing (QE) by a further SKr15bn ($1.7bn) during the second half of 2017.

One explanation for keeping policy so loose is that the inflation figure is deceptive. Johan Javeus of SEB, a bank, points out that some of the increase was driven by one-off factors, such as rises in air fares and energy prices. After raising rates prematurely in 2010 and 2011, the Riksbank is loth to do so again.

But also, it is hemmed in by the European Central Bank (ECB). The…Continue reading

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Business and financeGulliver

Why flying in the summer is so hellish

HERE in America, we recently celebrated Memorial Day, when barbecues and pool openings mark the beginning of summer, astronomers be damned. For leisure travellers, that means sun, surf and spritzes. For business travellers, it can mean headaches, as airport lines grow ever longer and flight delays more common.

Who is to blame for the annoyances of flying in the summer? Partly, it is those aforementioned leisure travellers. Longer waits in security lines are largely a question of volume. Airlines for America (A4A), an industry group, forecasts that more than 234m passengers will use America’s carriers from June through to August. That would represent a new record, topping last year’s number by 4%. A4A attributes the expected increase to a growing economy and “historically low airfares”. But really, this is a familiar pattern. In 2016 the group also predicted a record-high number of summer…Continue reading

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