The Big Winner From London’s Brexit Exodus Isn’t Even in Europe – Bloomberg

New York capital, expertise, regulation key to luring talent

Banks may move non-essential staff to U.S., says one executive

The ultimate winner if Brexit forces banks to flee London may lie 3,500 miles away, far beyond the borders of Europe.

New York, even more than Frankfurt or Paris, is emerging as a top candidate to lure banking talent if London’s finance industry is damaged by Britain’s divorce from the European Union, according to politicians and industry executives.

That’s because the largest U.S. city, rather than European finance hubs, is the place that rivals the depth of markets, breadth of expertise or regulatory appeal boasted by London. Continental Europe will win some bank operations to satisfy regional rules ensure time-zone-friendly access to its market, but more may eventually shift across the Atlantic to the only other one-stop shop for business.

“There is no way in the EU there is a center with the infrastructure or regulatory infrastructure to take the role London has,” particularly in capital markets, John Nelson, chairman of Lloyd’s of London, said in an interview. “There is only one city in the world that can, and that is New York.”

For many global investment banks, London is their largest or second-biggest headquarters. If the benefits of scale are diminished by having to move roles to Europe, banks may look to shrink their London operations even further by moving any workers able to do their job just as well from a different time zone, including global-facing roles in merger advisory, trading and back-office technology and finance.

Clearing Business

Additional jobs may move as specific trading activities seek a new epicenter. London Stock Exchange Group Plc Chief Executive Officer Xavier Rolet was blunt, saying that if Brexit strips London of the ability to clear euro derivatives trades, the entire business would move to the only other city able to clear all 17 major currencies: New York.

“The big winner from Brexit is going to be New York and the U.S.,” said Morgan Stanley CEO James Gorman said at a conference in Washington this month. “You’ll see more business moving to New York.”

One major Wall Street bank has already begun reallocating U.K. headcount, and probably will end up moving many non-essential staff out of Europe altogether to the U.S. or Asia, said a senior banker at the firm, who asked not to be identified because the plan is private. New York, now mainly a hub for dollar-denominated securities, could lure trading desks that had used London as a base for macro trading, speculating on currencies, bonds and economic trends around the world, the executive said.

Lost Hope

Bank bosses have given up hope that British Prime Minister Theresa May will be able to strike a post-Brexit deal that preserves the right to sell goods and services freely around the EU, according to three people with knowledge of their contingency plans.

The problem they face is that it’s hard to match London’s advantages. Most local EU regulators are unlikely to be able to cope with an influx of investment-bank license applications, and many locations lack the necessary real estate, infrastructure or quality of life. When London this year topped the Z/Yen Group’s index for financial centers based on their attractiveness to workers in the sector, New York came second, ahead of 19th-place Frankfurt and Paris ranking 29th.

If the finance industry does leave London for elsewhere in the EU, it’s likely to fragment. That’s a particular problem for U.S. banks, which spent more than two decades centralizing European operations within the so-called Square Mile. The U.K. is home to 87 percent of U.S. investment banks’ EU staff and 78 percent of the region’s capital-markets activity, according to research firm New Financial.

Liquidity Trap

“The minute you move some businesses somewhere — create a legal entity someplace — you trap capital, you trap liquidity,” said Viswas Raghavan, JPMorgan Chase & Co.’s deputy CEO for Europe, the Middle East and Africa, said last month at Bloomberg Markets Most Influential Summit in London. “That brings inefficiencies. That drags down” profitability.

There are limits to a wholesale transplant of London’s finance industry. A big one is the need to be inside the European Economic Area to sell goods and services to its more than 450 million citizens. Another is time. It’s 3 a.m. on the Eastern seaboard when European markets open, and 9 p.m. in London when the New York Stock Exchange rings the closing bell.

Transplant Challenges

Culture also matters. A foreign bank may struggle to convince regional companies that it understands their businesses better than a domestic firm. Some companies would have little reason to raise capital or issue debt in dollars. And Asian financial hubs like Singapore and Hong Kong will also try to attract business at London’s expense.

Not all firms want to start spreading the news. One U.S. bank says it won’t be moving people back to the U.S. after Brexit, with an executive there saying it can win more business by maintaining its European presence as other lenders pull back.

Chancellor of the Exchequer Philip Hammond has cautioned European governments that attacking London’s financial heft in the Brexit talks could end up costing them by driving financial services elsewhere. Bank of England Deputy Governor Jon Cunliffe also last week listed New York as an attractive place to do business outside of Europe.

Open Europe’s Vincenzo Scarpetta echoed such warnings. In a report released today, he and colleagues urge the government to give banks maximum certainty about the future and show EU governments how they benefit from the City of London. 

“It’s not certain if banks move, they will move to another European hub,” said Scarpetta, a senior policy analyst at the London-based think tank. “New York, in particular, is a much bigger hub than Paris. If this happens Europe is worse off as a whole. This should be in everyone’s interest to avoid in the upcoming negotiations.”

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U.S. Oil Export Shift Prompts Fresh Look at Shipments

Condensate is a product and therefore can be exported. This is not a change in US Export Policy which prohibits Domestic Crude Exports.

By Zain Shauk and Dan Murtaugh Jun 26, 2014 12:53 AM ET Bloomberg

The U.S. could allow about 750,000 barrels a day of light crude oil to be exported, based on a new government stance defining what qualifies for overseas shipments.

Producers, refiners and pipeline companies are questioning exactly how much the Obama administration has relaxed its position on crude exports after the Commerce Department said June 24 it had categorized some lightly processed oil as exportable. The U.S. has prohibited most crude exports for four decades.

About 750,000 barrels a day of oil produced from U.S. shale plays is an ultra-light variety known as condensate, said Michael Wojciechowski, head of Americas downstream research for Wood Mackenzie Ltd. More than 70 percent of U.S. condensate comes from the Eagle Ford shale formation in Texas, where the majority of it goes through a heating process to burn off certain gases, Amrita Sen, chief oil economist for Energy Aspects Ltd. in London, said by phone.

The Commerce Department gave permission for condensates to be exported after going through the process, known as stabilizing, because then it can be considered a refined product. Though most raw crude oil exports are banned, refined products can be shipped abroad without limits.

Stabilizers at oil fields along the U.S. Gulf Coast may have a combined capacity of more than 200,000 barrels a day, according to Eric Lee, a commodities strategist for Citi Research.

August Exports?

“Processed condensate exports could begin as early as August,” Lee said in a research note. The U.S. could export 300,000 barrels of condensate per day by the end of the year, according to another Citi note.

Oil producers and refiners were unsure whether other types of crude might also qualify. Far more crude might be eligible for overseas shipments if any type of stabilized oil can qualify as a refined product, since the practice is widespread in the industry, said Charles Blanchard, an analyst for Bloomberg New Energy Finance.

West Texas Intermediate rose as much as 1.4 percent yesterday before paring gains to settle 0.4 percent higher at $106.50 a barrel. WTI for August delivery was up 19 cents at $106.69 on the New York Mercantile Exchange at 12:30 p.m. Singapore time today.

Oil producer BHP Billiton Ltd. said it welcomed the approval of condensate exports “under limited circumstances. BHP Billiton will consider marketing opportunities that may apply to our condensate production in the Eagle Ford and Permian Basin,” Jaryl Strong, a BHP spokesman, said in an emailed statement.

Additional Markets

As the industry figures out how to define the new rule, “that’ll really help companies on the downstream side better understand business opportunities and business impacts,” Dean Acosta, a spokesman for refiner Phillips 66 (PSX), said by phone.

Producers are keen to find additional markets for crude as output from U.S. shale formations has surged, causing bottlenecks in some regions. Refiners that have benefited from access to oil at prices below the international benchmark saw their shares drop yesterday after the Commerce Department change was announced.

The U.S. produced almost 8.4 million barrels a day in May and annual output is forecast to reach 9.3 million barrels a day in 2015, the highest since 1972, according to the Energy Information Administration.

Simple Equipment

More than 80 percent of the Eagle Ford’s output goes through stabilizers, Energy Aspects’ Sen said. Pioneer Natural Resources Co. (PXD), one of the companies that asked the government for permission to export stabilized condensate, said this week that a large portion of its 43,000 barrels a day of Eagle Ford production is condensate that already undergoes the processing.

Stabilizers are relatively simple pieces of oilfield equipment sometimes positioned near wellheads. They heat oil enough to boil off some gases, separating those products from the rest of the crude mix, Blanchard said.

“A caveman could do it,” Blanchard said, comparing the process to heating oil in an oven.

The process is commonly performed before putting oil and condensate into pipelines. Stabilizing oil is far less complex than the process of splitting or refining crude, which involve more sophisticated devices that heat and separate fuels from oil. Stabilizers that qualify crude for export can cost as little as one-tenth that of more complex processing units, said Wojciechowski at Wood Mackenzie.

To contact the reporters on this story: Zain Shauk in Houston at zshauk@bloomberg.net; Dan Murtaugh in Houston at dmurtaugh@bloomberg.net

To contact the editors responsible for this story: Susan Warren at susanwarren@bloomberg.net Pratish Narayanan

 

JP Morgan fined $920m and admits wrongdoing over ‘London Whale’

US’s biggest bank to pay penalties to US and UK regulators for ‘unsound practices’ relating to $6.2bn losses last year

JP Morgan has agreed to pay about $920m in penalties to US and UK regulators over the “unsafe and unsound practices” that led to its $6.2bn London Whale losses last year.

The US’s biggest bank will pay $300m to the US office of the comptroller of the currency, $200m to Federal Reserve, $200m to the securities and exchange commission (SEC) and £137.6m ($219.74m) to the UK’s financial conduct authority.

JP Morgan admitted wrongdoing as part of the settlement, an unusual step for a finance firm in the crosshairs of multiple legal actions.

“JP Morgan failed to keep watch over its traders as they overvalued a very complex portfolio to hide massive losses,” co-director of the SEC’s division of enforcement, George Canellos, said.

“While grappling with how to fix its internal control breakdowns, JP Morgan’s senior management broke a cardinal rule of corporate governance and deprived its board of critical information it needed to fully assess the company’s problems and determine whether accurate and reliable information was being disclosed to investors and regulators.”

In a statement the OCC blamed “unsafe and unsound practices related to derivatives trading activities conducted on behalf of the bank by the chief investment office (CIO)”, for the fine.

The OCC said its inquiries had found inadequate oversight and governance to protect the bank from material risk, inadequate risk management, inadequate control over pricing of trades, inadequate development and implementation of models used by the bank, and inadequate internal audit processes.

The US authorities are still pursuing JP Morgan. The Justice Department is pursuing criminal charges against some of the bankers responsible for the massive loss. In an indictment unsealed in federal court this week Javier Martin-Artajo, who oversaw trading strategy at the bank’s London office, and Julien Grout, a trader who worked for him, were charged with securities fraud, conspiracy, filing false books and records, wire fraud and making false filings to the SEC.

Grout’s lawyer said this week that his client was being “unjustly played as a pawn in the government’s attempt to settle its highly politicized case against JP Morgan Chase”.

The bank also faces another fine from the commodity futures trading commission which is still investigating whether the bank is guilty of market manipulation.

Jamie Dimon, the bank’s chairman and chief executive, initially dismissed the mounting losses at the bank’s London offices as a “tempest in a teapot”. In a statement Dimon said: “We have accepted responsibility and acknowledged our mistakes from the start, and we have learned from them and worked to fix them. Since these losses occurred, we have made numerous changes that have made us a stronger, smarter, better company.”

This week in a letter to staff he warned: “Unfortunately, we are all well aware of the news around the legal and regulatory issues facing our company, and in the coming weeks and months we need to be braced for more to come.”

The admission of wrongdoing is a major victory for the SEC. US judges in recent years have questioned fines where banks were allowed to neither admit nor deny wrongdoing. Judge Jed Rakoff blocked a 2011 SEC settlement with Citigroup because he said the lack of an admission of wrongdoing made it impossible for him to determine whether the fine was “fair, reasonable, adequate and in the public interest”.

 

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Coal at Risk as Global Lenders Drop Financing

Coal at Risk as Global Lenders Drop Financing on Climate

By Mark Drajem – Aug 6, 2013 10:56 AM ET

Tomohiro Ohsumi/Bloomberg

An employee stands in front of stockpiles of coal inside a storage yard at the Joban Joint Power Co. coal-fired power station in Iwaki City, Japan.

The world’s richest nations, moving to combat global warming, are cutting government support for new coal-burning power plants in developing countries, dealing a blow to the world’s dominant source of electricity.

Obama Unveils Climate Plan Focused on Power Plants 48:10

June 25 (Bloomberg) — U.S. President Barack Obama speaks about his plan to address climate change. Obama, speaking at Georgetown University in Washington, proposed a sweeping plan that sets goals to reduce carbon emissions and bolster renewable energy while also preparing the country for the impacts of a warming planet. (Source: Bloomberg)

Enlarge image Coal at Risk as Global Lenders Drop Financing on Climate

A coal-fired power station stands in the distance behind a disused coal dredger in the town center in Morwell, Australia, on July 25, 2013. Photographer: Carla

Gottgens/Bloomberg

First it was President Barack Obama pledging in June that the government would no longer finance overseas coal plants through the U.S. Export-Import Bank. Next it was the World Bank, then the European Investment Bank, dropping support for coal projects. Those banks have pumped more than $10 billion into such initiatives in the past five years.

“Drawing back means there is less capital for these projects,” Richard Caperton, managing director for energy at the Center for American Progress in Washington, said in an interview. “I don’t expect private capital to move in and fill the void, either, because there is a real risk that these plants will be turned off early.”

Demand for coal in developing nations has taken on increasing importance as the combination of stricter environmental regulations in the U.S., increasing deployment of subsidized renewable resources and a drop in the price of natural gas have pushed utilities to shutter coal plants.

Among the three government-backed lenders, the World Bank has provided $6.26 billion for coal-related projects over the past five years, according to data from Oil Change International. The Ex-Im bank provided more than $1.4 billion to two coal projects, one in South Africa and another in India.

Curb Investments

While the pull back is unlikely to have a direct impact on China, the world’s top user of coal, it could curb construction of new plants in countries such as South Africa and Vietnam and dampen new export markets for coal mined in the U.S., Indonesia or Australia by companies such as Peabody Energy Corp. (BTU) and Alpha Natural Resources Inc. (ANR)

“We’ve never seen a cascading sentiment that coal is not acceptable like we’re seeing happen right now,” Justin Guay, the head of the Sierra Club’s international climate program, said in an interview. “It’s a snowball running downhill.”

Environmental groups such as the Sierra Club are fighting coal plants and coal mines, because coal releases the most carbon dioxide per unit of energy of any major fuel source. Scientists say carbon emissions are to blame for warming Earth’s temperatures, increasing the number and severity of storms and melting polar ice.

Supporters of the fuel source say it’s a low-cost way for poor nations to provide light, refrigeration and air conditioning to their people.

‘Our Backs’

The move by lenders against coal turns “our backs on millions without electricity and chooses not to help them achieve a better standard of living,” said Nancy Gravatt, a spokeswoman for the National Mining Association in Washington, which represents producers such as Alpha and

Arch Coal Inc. (ACI)

Analysts are divided about long-term global coal demand.

The U.S. Energy Information Administration, in a July 25 report, projected world coal use would increase by a third — to more than 200 quadrillion British thermal units a year — by 2040 as developing nations boost its use.

The cut-back in the financing isn’t causing a reassessment of that outlook, said Greg Adams, the team leader for coal at EIA. “The capacity that is going to be affected is going to be limited,” he said.

Gregory Boyce, chief executive officer of Peabody, the largest U.S. coal producer, noted that German and Japanese coal use is climbing as they cut nuclear-power generation.

China, India

“China and India imports have risen year-to-date and are on a pace to increase 15 percent this year to new record levels as the trends to urbanize, industrialize and electrify continue,” Boyce said in a conference call with analysts on July 23.

Goldman Sachs Group Inc. offers a less buoyant outlook.

“We believe that thermal coal’s current position atop the fuel mix for global power generation will be gradually eroded,” Christian Lelong, an analyst at Goldman Sachs in Australia, said in a report on July 24. “Most thermal coal growth projects will struggle to earn a positive return.”

Coal is now used to generate 40 percent of the world’s electricity, and its use has grown more than 50 percent in the past decade, according to EIA. The U.S. is the world’s second-largest producer of coal, after China, followed by India, Australia and Indonesia. China is the world’s top importer of coal as well, followed by Japan, according to the World Coal Association.

1,200 Plants

According to an analysis by the World Resources Institute in Washington, 1,200 coal-fired plants are proposed globally, with more than three-quarters of those planned for India and China alone. If all are built, which WRI says is unlikely, that would add more than 80 percent to existing capacity.

China can finance its projects on its own, and India has only relied on export financing in a few cases. As a result, the recent changes are likely to impact other nations in Africa and Asia, which don’t have the same access to credit. Each group said in some instances it would still finance coal, and activists are worried about those exceptions.

“The implementation of all three of those initiatives is yet to be fleshed out,” Doug Norlen, the policy director of Pacific Environment, which is fighting these kinds of fossil-fuel projects, said in an interview. “These will be huge steps, if properly implemented.”

That implementation is still an open question.

Project Rejected

For example, as part of Obama’s climate action plan released on June 25, the U.S. pledged to end support of foreign coal-fired power plants, unless they are in the poorest nations or have expensive carbon-capture technology. The U.S. Export-Import Bank is only now developing the procedures to implement that policy, and its board will consider those changes in the coming weeks. The lender shot down a bid to finance a coal plant in Vietnam, its only pending application for coal, just three weeks after Obama’s announcement.

Norlen’s group and other environmentalists filed a lawsuit against the Export-Import Bank last week to try to block its financing of coal exports. That support is separate from the policy change Obama announced.

The European Investment Bank set an emission performance standard that would prevent lending to new coal-fired plants unless they also burn biomass. The European Bank for Reconstruction and Development is also under pressure to limit support.

Japan Support

Even after the World Bank said it would help nations transition from coal to natural gas or renewables, it’s still considering support for a coal project in Kosovo.

There’s also the possibility that other lenders, especially export-credit agencies from Japan or China, could step in and replace the World Bank, U.S. and Europe. Japan’s Bank for International Cooperation, its export financing body, has provided more than $10 billion in financing for overseas coal projects, more than any other individual nation, according to the WRI report.

And now China, which wants to export coal-plant technology, may ramp up support as well, said Ailun Yang, the author of the WRI report.

“It is a real concern” that “some of the funding gap for coal-fired plants would simply be filled by the Chinese banks,” she said.

To contact the reporter on this story: Mark Drajem in Washington at mdrajem@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net