CATEGORY / In the News

UBS Under Investigation in Hong Kong Over IPOs


UBS is currently being investigated by regulators in Hong Kong in connection with its role in some initial public offerings there that later turned awry, putting it at risks of fines or suspensions.

The revelation was made by the Swiss bank on Friday.

It disclosed that Hong Kong’s Securities and Futures Commission informed it this month of possible penalties, both against the bank and some of its employees, for sponsoring the affected IPOs.

The specific IPOs for which UBS was been probed were not specified.

But the New York Times reports that IPOs of China Forestry and China Metal Recycling were two of the offerings the bank had worked on and later turned problematic. Both companies have entered liquidation.

The shares of another company, Tianhe Chemicals, whose IPO UBS helped with in 2014, have been pulled from trading since last year. The stock was suspended pending investigation on potential accounting issues.

In a one-paragraph statement in its latest quarterly report, the Swiss bank shed more light on the possible consequences of the investigation by Hong Kong regulators.

“If such action is taken, there may be financial ramifications for UBS, including fines and restitution orders,” the statement read. “Such action could also result in suspension of UBS’s ability to provide corporate finance advisory services in Hong Kong for a period of time.”

The city has been one of the world’s leading IPO markets in the past 10 or so years. The market has been particularly boosted by many big listings by companies in mainland China. However, a number of these offerings often end up being fraudulent transactions.

Regulators in Hong Kong have stepped up efforts to guard against IPO frauds in recent years to preserve the status and integrity of the major Chinese financial center’s market. They have been targeting both company representatives and banks that are suspected of providing fraudulent or misleading information for stock market listings.

In 2012, the Securities and Futures Commission revoked the license of an IPO underwriter owned by Taiwan after securing a court injunction compelling the company to re-purchase all shares sold in the offering.

The regulators also made legislation guiding the roles of banks in an IPO tougher three years ago. They made it the duty of the banks to prepare documents for offerings and ensuring due diligence is done to guard against misleading information. Threat of criminal liability was issued to the banks and their employees who sponsor intentionally misleading listings.

The commission has confirmed the ongoing investigation, but refused to comment any further.

UBS said it earned 827 million Swiss francs ($835 million) in the third quarter, tumbling from 2.1 billion francs during the same quarter a year ago. Profits in the same period last year was significantly boosted by 1.3 billion francs in one-time tax benefits.

The Swiss bank also said it saved 1.5 billion francs in annual costs. It has set a new target of saving another 2.1 billion francs by the end of next year.

Long Overdue: Ericsson Gets New Chief Executive


Telecommunications equipment company Ericsson has taken what could be considered a decisive step towards improving its fortune by finally announcing a new chief executive.

Investors and analysts alike had complained about the lack of a permanent CEO being one of the major stumbling block standing in the way of achieving a major turnaround in the affairs of the company.

Ericsson has only had an interim chief executive since former holder Hans Vestberg was ousted in July as a result of his style of leadership and failure to improve on the company’s deteriorating performance.

The European telecom equipment maker has now moved to resolve its CEO challenge by announcing on Wednesday that long-time board member Borje Ekholm will fill the vacant seat on a permanent basis.

“Having served on Ericsson’s board of directors for the past 10 years, Borje Ekholm has full understanding of the challenges and the opportunities Ericsson currently faces,” Board Chairman Leif Johansson said in a statement.

Johansson noted that the 53-year-old has “a solid understanding of both the technology and business implications of the ongoing convergence of telecoms, IT and media.”

Ekholm, a holder of engineering and business degrees, served as the chief executive of the investment company Investor AB, one of Ericsson’s major shareholders, for about a decade. He is at the moment the CEO of Patricia Industries, an Investor AB subsidiary.

Ericsson has been on a search for new chief executive for a while following Vestberg’s ouster. Some analysts thought the vacant CEO seat has not been helpful to the company in improving on weakening sales amid growing competition.

Following the new CEO announcement, the company’s shares were trading around 3 percent higher Wednesday morning in Stockholm.

The Swedish telecom equipment provider reported a loss in the third quarter of the year last week. Its results were significantly impacted by fall in spending by mobile-service providers on 4G networks.

The company is also facing increasing competition from China’s Huawei Technologies Co. Ltd, which is extending its reach to more countries across the globe. Rivalry is also becoming fiercer from Finland’s Nokia Corp., following its acquisition of fellow telecom equipment supplier Alcatel-Lucent SA.

Ericsson has announced a global restructuring program that is expected to help it reduce annual operating expenses by 10 billion kronor (1.12 billion) in the second half of next year, compared to the level in 2014. About 3,000 of employees in its home country are to lose their jobs as part of the restructuring efforts.

The company expects that the introduction of the next-generation wireless networks (5G) will spark significant improvement in its financial results.

“As the networks and applications become even more important in a 5G connected world, our customers, and the industry, look for continuous innovation,” Ekholm said.

Analysts think massive rollout of 5G networks is unlikely to happen before 2020.

For now, Ericsson will have to make do with cost-cutting measures for several more years to boost profitability. Thousands of job cuts are also still likely.

Acting Chief Executive Jan Frykhammar will remain at the helm of the company until Jan. 16 when Ekholm will take over.

Visa CEO Scharf Being Replaced by Alfred Kelly Later This Year

Visa Logo

Charles Scharf is set to step down from his position as Visa Inc’s chief executive to be replaced by a former American Express president, the company said on Monday.

Visa said in a statement that Scharf’s retirement as its CEO will become effective on Dec. 1. He will be replaced by former American Express Co. President Alfred Kelly, who is already a member of the company’s board of directors.

“We’re in a very unique position where we have someone who has over two decades of experience in payments and is also very, very knowledgeable about Visa,” Scharf said of Kelly in a phone interview, as reported by Bloomberg.

The Visa CEO, who will serve as adviser to his successor for several months, believes the transition will be smooth-sailing given the experience Kelly brings to the table.

On his part, Kelly, a former White House officials, told Reuters that he was already familiar with the opportunities and issues facing Visa, having been a board member since 2014.

“I don’t come in here expecting to make a lot of big changes,” the new Visa CEO said.

He told analysts via a conference call that it would be a “colossal mistake” on his part to come in and begin wholesale changes considering how “extremely well” the company has been doing under his predecessor.

Scharf, who became Visa CEO in November 2012 after Joe Saunders, said his resignation was based on the fact that he could no longer afford spending significant amount of his time in San Francisco, as required by his position. The 51-year-old wanted to be closer to his family.

Over the years, Scharf has had to spend more time at the headquarters of the world’s leading payments network in San Francisco. His family was based in New York.

The value of Visa has more than doubled since he became chief executive. The 137 percent rise recorded under his watch was the second-highest in the Dow Jones Industrial Average, according to Bloomberg. He successfully oversaw the re-establishment of link between the global payments technology company and its European affiliate Visa Europe in June.

Scharf worked in the retail banking division of JPMorgan Chase & Co. and at its private equity arm before moving to Visa. He may be considered for compensation of about $20 million if his complaint about location and travel issues is considered good enough to justify his request for retirement.

Kelly will look to continue where Scharf left off by maintaining and building on Visa’s standing as the world’s biggest payments network in the face of rising competition from online payment processors, such as PayPal. He will also have to deal with mounting challenges facing the company.

During his tenure, Scharf has had to deal with multiple challenges over fees Visa charges on transactions. This include a federal appeals court ruling in June to reject a settlement with retailers accusing both the company and rival MasterCard of improper fixing of fees on credit and debit card payments. The San Francisco-based firm is also locked in legal tussle with Wal-Mart as regard use of PINs for verification of purchases.

The new Visa CEO has expressed readiness to spend more time in the city where the company’s headquarters are located. He said he was ready to be at “anywhere I’m needed.”

Kelly joined American Express in 1987 and became the president of its consumer unit in 2007. The 58-year-old left the company in 2009.

U.K. Consumer Prices Rise By Near Two-Year High


The rise in consumer prices seen in the U.K. last month was the highest in almost two years, according to official data released on Tuesday.

The U.K. Office for National Statistics (chart above curtsy of ONS Gov UK) said seasonally-adjusted consumer price inflation (CPI) in the country rose to 1 percent in the year to September, up from 0.6 percent in the month before. The rise in consumer prices exceeded analysts’ expectations and was the highest seen since November 2014.

The CPI was slightly above the 0.9 percent that had been forecast.

Prices also rose beyond expectations month-on-month. The CPI gained 0.2 percent last month, higher than a 0.1 percent gain forecast but lower than 0.3 percent rise recorded in August.

The higher inflation figures were driven by rising prices for clothing, motor fuels and temporary hotel accommodations. The ONS report showed prices of clothes jumped 6 percent in September from the month before.

The data appear to suggest the slump in the value of the sterling in the aftermath of the June referendum may be contributing to rising costs of domestic manufacturers. The rising costs are being passed on through the supply chain.

The ONS has, however, dismissed the possibility of weakening currency telling on prices of common goods.

“CPI inflation has risen to its highest for nearly two years, though it remains low by historic standards,” Mike Prestwood, ONS’ head of inflation, said. “The prices paid by manufacturers for raw materials were unchanged over the month and there is no explicit evidence the lower pound is pushing up the prices of everyday consumer goods.”

Seasonally-adjusted core CPI gained 1.5 percent, slightly more than forecast gain of 1.4 percent. The reading for the measure of inflation, which excludes food, alcohol, tobacco and energy costs, rose 1.3 percent in August.

The retail price index (RPI), a measure of inflation that excludes housing costs, gained 2 percent in September as predicted, up from 1.8 percent in the month before.

In spite of inflation hitting its highest level in almost two years, it is still a percentage point below the 2 percent official target set by the Bank of England.

Richard Lim, chief executive at Retail Economics, told The Independent that he expects inflation in the UK to reach 3 percent next year as living costs rise at the fastest rate in two years. He said the latest official data give a slight idea of how British households are going to be impacted by the country’s decision to leave the European Union.

BOE Governor Mark Carney has said that it is likely that inflation will overshoot the 2 percent target the central bank has set in the next year or thereabout. He disclosed the monetary regulator was ready to put with such possibility so as to safeguard jobs in the economy.

This will certainly come as no good news to savers, considering the very low interest rates on offer.

Carney admitted on Friday that the most vulnerable people in the U.K. have tough times lying ahead in the coming months as a result of Brexit and the slumping pound value.

Thunder Bay City Councilor Wants New Payday Loan Regulations

Shelby Ch'ng

You can add Thunder Bay as another Canadian jurisdiction looking to rein in the payday loan industry.

Shelby Ch’ng, a Northwood member of the Thunder Bay city council, is urging the city to pass legislation that would mandate current and future payday loan companies make it clear as to how they came up with the interest rate they charge.

Later this month, Ch’ng will introduction legislation that would target businesses who offer the best payday loans online guaranteed to hang signs that show the equivalent annual interest rate for the fees they charge for payday loans. Ch’ng makes the case that the paucity of financial literacy is one of the biggest issues for people in her ward. She stated that her constituents consistently remark how they are confused by the interest rates.

“People will frequently say that they only get a two per cent raise at their jobs, and yet taxes are going up by three per cent,” she said. “Well, three per cent on the average residential home is a lot lower than a two per cent increase on the average income.”

Ch’ng further added that by “not doing the math,” 12 percent of Thunder Bay residents living in poverty may not actually understand how much the payday loan really costs them. The city councilor alluded to a relative of hers who had became poor and actually took out a payday loan. She said it was a hellacious experience for her family member because everything was complicated, confusing and difficult.

In addition to signage and financial literacy, Ch’ng also wants to put forward legislation that regulates where payday loan stores are permitted to operate. Like other jurisdictions across North America, the Thunder Bay official wants to ensure that payday loan stores are not placed in areas “where vulnerable people are known to frequent, citing casinos, schools and shelters.

Although she notes that she is aware that the provincial government actually regulates payday lenders, Ch’ng averred that municipalities can also participate in the new regulations being put on payday loan stores.

It is expected that Ch’ng will bring forward a resolution on October 31. Afterwards, she will seek out a report on the matter from city administration.

In the province of Ontario alone, the municipalities of Toronto, Hamilton and Ottawa have all attempted to rein in the payday loan niche. Local officials have all looked at implementing the same kind of rules and regulations: financial literacy, city ordinance laws, signage and so on.

Thus far, the process has been slow, but councilors are adamant that new rules are necessary to prevent the impoverished and most vulnerable from getting sucked into the payday loan debt trap.

Payday loan critics say that these businesses prey on the impecunious in order to make more money through the means of usury rates. Proponents say that these companies actually help the poor because they do not have access to traditional forms of credit from financial institutions.

Netflix Records Jump in Subscribers, Revenue


Netflix posted expectation-exceeding surge in the number of its subscribers and total revenue during the July-September quarter, rebounding strongly from poor showing in the previous quarter.

The subscription video service reported on Monday that it was able to add 3.2 million international users and 370,000 American users to its platform during the last quarter. Those figures represent significant improvement over what the company and analysts had predicted.

Netflix had forecast growth of around 2.3 million in its total subscribers, with 300,000 expected in the U.S. and a combined 2 million in other countries where its service is available. Although the company is known to often be moderate in its forecasts, not many analysts expected new additions to its user base to exceed 3 million in the past quarter.

The strong surge in subscriber count during the last quarter was driven by increased interest in the service’s new original series, including Stranger Things, Luke Cage and the second season of the Latin American drug drama Narcos. It also came despite an increase of $2 in ongoing monthly price for its long-term members.

Recent expansion into more countries across the world also contributed to boost the number of subscribers in the face of considerable service cancellations by service users in the U.S. Netflix has expanded into more than 130 countries, with this significantly boosting its growth potential.

The Los Gatos, California-based online streaming video service said in a letter to its shareholders that the impact the premieres of its original shows had in international markets was “greater than expected.”

The news sent Netflix shares soaring by 20 percent to $119.78 in after-hours trading on Monday. They had closed at $99.80 (1.65 percent down) during regular trading.

The latest results represent marked improvement over the showing in the April-June quarter. The streaming video giant’s shares went tumbling down by about 13 percent after the announcement that only around 1.7 million subscribers were added during the period – the lowest in two years. Chief Executive Reed Hastings apologized to investors for the stock’s volatility afterwards.

“We can all see it’s time for me to apologize for the volatility again,” Hastings jokingly said, after seeing his company’s shares surge Monday.

The reported surge in count last quarter brings Netflix’s total streaming subscribers to roughly 86.7 million around the globe.

The jump in user count and hike in price helped the American streaming video company to $2.3 billion in total revenue during the quarter, a significant improvement on the $1.7 billion reported a year ago. The figure exceeded both company and analyst forecasts of $2.16 billion and $2.28 billion respectively.

Netflix also exceeded expectations in terms of earnings. It posted $51.5 million or 12 cents a share in profit, up from 7 cents a share in the year before. The earnings were more than double the 5 cents per share predicted by analysts in a poll by S&P Global Intelligence.

The latest quarter results will no doubt raise investors’ optimism that the 5.2 million new subscribers Netflix expects during the final quarter of the year is achievable.

Coty Acquires British Hair Straightener Company GHD


American group Coty has reached an agreement to buy hair styling appliances maker Good Hair Day – better known as GHD – for $510 million.

The British company becomes the latest to be acquired by Coty, which has been on a spending spree of sort since last year. The American cosmetics and fragrances group has spent at least $14 billion on acquisitions since June last year, as reported by the Financial Times.

Coty, which owns some of the best-known global brands such as Calvin Klein, Rimmel and Davidoff, became the third-largest beauty in the world with acquisition of the hair care, perfume and makeup businesses of Procter & Gamble in a $12.5 billion deal, which was concluded weeks ago.

The takeover of GHD by the U.S. beauty company will see the UK firm join popular brands such as Wella and Clairol.

Founded in 2001, GHD deals in electrical hair treatment tools, including hairdryers, curling thongs and ceramic straightening irons. Its products have grown to become quite popular with celebrities and stylists. The hair appliances maker does business in the UK, US, Australia and some countries in Europe, with its headquarters in London.

GHD, which was started by three entrepreneurs in Bradford with £15,000, was sold for £300 million three years ago to Lion Capital. The hair appliance maker was bought by Coty from the private equity company.

“We are pleased to be selling GHD to Coty, a global leader in the beauty category, where it can take its rightful place among Coty’s unique family of beauty brands” said Lyndon Lea, partner at Lion Capital.

Lea disclosed that sales of the hair straightening iron maker increased by 30 percent since Lion Capital acquired it from rival equity firm Montagu Private Equity three years ago.

Coty bought the British firm with a combination of cash and debt. The American beauty company’s chief executive, Camillo Pane, said the GHD takeover would bolster its “professional business through the addition of innovative market-leading brands.”

GHD reported £178 million in revenues last year. It is believed to have raked in about £33 million in pre-tax profits.

The raft of acquisitions Coty has made since last year has increased its annual revenues by more than double to $9 billion, according to the Financial Times. This will make the company the biggest fragrances seller in the world and the second-largest maker of color cosmetics.

Coty’s share value has increased by 34 percent since 2013 when it raised $1 billion in its IPO on the New York Stock Exchange. The company’s market value currently stands at $17 billion. Controlling stake in the company is held by JAB Holding, which is majority-owned by the German billionaire family Reimann.

GHD Chief Executive Anthony Davey will continue in his role by running the company as a standalone business within the professional beauty division of Coty.

The U.S. beauty company still remains far behind the world No. 1 cosmetics group L’Oreal. The French group boasts about €25 billion in annual revenues and €93 billion in market value.

Coty shares, which have slumped by roughly 18 percent over the past one year, inched up 0.5 percent on Monday.