Long, winding capital road finally coming to an end for banks – AFR


APRA chairman Wayne Byres has used his speeches to three Australian Financial Review Banking & Wealth Summits to set out ...

APRA chairman Wayne Byres has used his speeches to three Australian Financial Review Banking & Wealth Summits to set out his expectations for bank capital. Christopher Pearce

While the sharemarket’s stunning reaction to the new capital benchmarks could be read as an indication the banks got off lightly, it actually reflects their ability to read the tea leaves and accumulate capital well ahead of the Australian Prudential Regulation Authority’s regulatory minimums as it gently and consistently flagged its rising expectations.

When the major banks hit their new common equity capital (CET1) ratio of 10.5 per cent, they will have raised an additional $40 billion of equity since the financial system inquiry delivered its report. This has savaged returns on equity.

So it is remarkable that in statements to the Australian Securities Exchange on Wednesday, the banks went out of their way to applaud APRA’s direction on capital. National Australia Bank declared the higher equity buffers would “ensure the strength and stability of the Australian banks at what is an important time for the Australian economy”.

But it hasn’t always been this way.

When then Treasurer Joe Hockey commissioned former Commonwealth Bank boss David Murray to conduct the Financial System Inquiry, the banks thought it might help unwind the burden of regulation. They argued in their submissions that increased capital, particularly equity, was unnecessary because they were already highly capitalised relative to global peers and managed to escape the global financial crisis relatively unscathed. ANZ Banking Group’s former chief executive, Mike Smith, declared higher capital would threaten the flow of credit to the economy.

But Murray’s trip to the United States and Europe in mid-2014 ensured such arguments would not only fall on deaf ears but be comprehensively rejected. He saw first-hand the respect with which Australian regulation was held, and the heavy costs imposed on the world’s biggest economies when their financial firms failed in the GFC.

His final report was unequivocal in its direction: the implicit guarantee that taxpayers would bail out failing banks, which create moral hazard, needed to be minimised while the confidence of foreign investors in Australia’s banks needed to be maintained, given the economy relies on them to fund the $400 billion gap between domestic deposits and demand for lending.

Within months of the FSI’s release, it was clear Byres was ready to embrace it all the way.

At The Australian Financial Review Banking and Wealth Summit in April 2015, he said Murray’s report and reforms advocated by the Basel Committee on Banking Supervision “are undoubtedly going in the same direction, which will be leading to higher, tougher capital requirements”.

“The direction is clear…and the easiest way to deal with any change is to work at it gradually and get started early, and that is the sensible approach we will adopt,” Byres said.

For the banks, there were several bumps along the capital road. They were surprised by APRA’s announcement in July 2015 that the average risk weight on Australian residential mortgages would increase from 16 per cent to at least 25 per cent. That triggered multibillion- dollar capital raisings to lift equity levels quickly.

But since then their capital build has been constant, as Byres continued his jaw-boning the banks throughout 2016 and the first half of this year, leaving them with a clear impression the work on capital was not done.

Hence the relief for the banks and for investors on Wednesday when they finally realised the long and winding capital road was coming to an end. “The capital bears were unquestionably wrong,” said Credit Suisse analysts Jarrod Martin and James Ellis. Indeed, they said APRA’s new benchmarks highlight “a shift from capital raising risk to scope for capital management”. How the tide has turned.

APRA’s work, of course, is never done. A discussion paper on the capital framework for risk weightings is due later this year. Meanwhile, Byres said on Wednesday, “a strong capital position still needs to be complemented by sound governance and risk management within [banks], and ongoing proactive supervision by APRA.”

Read more: http://www.afr.com/business/banking-and-finance/financial-services/long-winding-capital-road-finally-coming-to-an-end-for-banks-20170719-gxe849#ixzz4nGmWCLYW
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The Aussie at US80 cents is a problem for the RBA – AFR

The Aussie at US80 cents is a problem for the RBA


The rise of the Australian dollar won’t make the RBA happy.



by Philip Baker

The last thing the Reserve Bank would want right now is a run in the Australian dollar to US80¢, but that’s exactly what might happen in the next few months.

Of course, forecasting currency moves is a mugs game. Alan Greenspan the former chairman of the Federal Reserve told currency traders that years ago but it doesn’t stop everyone from trying.

The Australian dollar at US80¢ would have seemed ludicrous just seven weeks ago when it was changing hands at a fraction under US74¢, and some would say it still does, but a change in rhetoric about higher interest rates from global central banks has changed that line of thinking for others.

On Monday morning the local unit was changing hands at US78.17¢, aided in part by selling in the US dollar by currency speculators.

According to the latest data from the US Commodity Futures Trading Commission, hedge funds have now been net sellers of the greenback for eight straight weeks and have halved their holdings of US dollars to around $US1.3 billion

Not since May 2016 have these types of traders held such a small amount of US dollars.

Indeed, as well as ditching the greenback they are now loading up on the commodity currencies, like the Australian dollar , the New Zealand dollar and of course the Canadian dollar after the Bank of Canada backed up their talk on higher interest rates with a move last week.

All this talk of higher global interest rates and a global economy in good shape has sparked a bid tone for currencies like the Australian dollar.

Interest rates here are still high when compared to the rest of the world.

Helping that whole line of positive thinking when it comes to the global economy was the latest batch of Chinese economic data that came in better than expected on Monday.

China’s GDP grew at 6.9 per cent in the year through the second quarter, the same pace as the previous quarter and slightly better than the 6.8 per cent growth rate predicted by most experts.

At the same time, however, the world’s most influential central bank, the US Federal Reserve, that was first out of the blocks when it came to higher rates, is now taking a more modest line, according to traders.

That’s in part due to some of the weaker economic data, such as Friday’s disappointing inflation and retail sales figures, that has, all of a sudden raised concerns about the strength in the US economy.

It’s worth noting that one reason why so many economists were bearish on the Australian dollar at the start of this year was the “realistic” chance that some time this year interest rates in the United States would be higher than in Australia for the first time in 15 years.

The last time it happened, the Australian dollar slumped to as low as US48¢.

But now the US economy doesn’t feel so strong.

Who knows how long it can all last but while it does it makes the Australian dollar vulnerable to a round of buying against the US dollar.

At 66, the Australian trade weighted index is also at elevated levels.

With so many expecting the Australian dollar to fall, forecasts from most economists see it reaching US72¢ in three months and US70¢ by the end of the year, there’s never been a better time to be a contrarian trader to take on the local dollar and push it higher.

Call it Murphy’s Law.

And as the the summer holidays in the Northern Hemisphere get into full swing, trading volumes will probably drop away which means the local currency, like a lot of other securities, will be easier to push around.

By and large, there are two major reasons why experts think the next major move in the Australian dollar is down

First is commodity prices that are tipped to remain subdued, but the second is all about the difference in interest rates between the US and Australia, which was tipped to narrow as the Fed hikes and the RBA stays on hold.

But will the Fed maintain it’s tightening path if the inflation data continues to be on the low side ?

History says “yes” to that question, most of the time, which will make it hard for the Australian dollar to get to US80¢.

As long as the unemployment keeps falling then the Fed will be more inclined to ¢hike rates even if the inflation readings are benign.

That scenario played out in 1994-95 and 1999-2000 when the Fed tightened monetary policy and inflation was low, although in 2004 the Fed was behind the curve and inflation was already on the rise when they started to hike rates.

Australia on watch-list as China billions pour into property – Michael West



Richard Roxburgh and Hugo Weaving in Waiting for Godot. Sydney Theatre Company

As billions in black money from China continues to flood into property markets, the global Financial Action Task Force has put Australia on a watch-list for failing to comply with money laundering and terrorism financing reforms. Canberra has been dragging the chain for nine years while the powerful lawyers, accountants and real estate lobby groups keep successive governments mired in a consultation process.

The Samuel Beckett classic, Waiting for Godot, features a couple of weary old guys Vladimir and Estragon waiting for another guy called Godot to arrive. Godot never arrives. The play finishes as the two protagonists contemplate hanging themselves.

As we contacted the Department of Justice again last week we were struck by the parallels with the always-impending though never-arriving Anti-Money Laundering and Counter-Terrorism Financing legislation (AML-CTF).

These are laws which were to have been introduced nine years ago but instead have been bogged down in a marathon of “reviews”, “stakeholder engagement”, “industry consultation”, “papers”, “studies” and “submissions”

Banks, bullion dealers and casinos were captured by the first tranche of the legislation way back in 2006 but as any self-respecting money-launder knows, if you are keen to launder some money, or perhaps finance a spot of terror, you can still do it through lawyers, accountants or real estate agents. These sectors are yet to be captured by the Godotesque second tranche of the legislation.

Besides tightening the screws on launderers and financiers of terrorism, the importance of these laws are that they could take steam out of the property market and address, albeit only in part, the crisis in affordability for first home buyers.

When asked last week how the process was coming along, since the laws were supposed to have been enacted in 2008, the response from the office of the Minister for Justice, Michael Keenan, was:

“A cost/benefit analysis of extending AML/CTF regulation to certain non-financial business (lawyers, conveyancers, accountants, real estate agents, trust and company service providers and high-value dealers) is well progressed and will be completed by July this year.

“The outcome of the cost-benefit analysis will inform the Government’s decision on the regulation of tranche two entities under the AML/CTF Act.”

In Waiting for Godot, Vladimir has to keep shuffling off to urinate when he starts laughing at his own jokes. This play however only runs for two acts. If Vladimir were a player in Australia’s money-laundering tragicomedy – assuming a constant rate of two urinations per hour – he would have urinated at least 153,792 times by now.

It would not only be Vladimir, and money laundering authority AUSTRAC, holding on either. When asked how Australia’s compliance with international standards was coming along, the communications officer for the Financial Action Task Force (FATF), Alexandra Wijmenga-Daniel, told michaelwest.com.au:

“Following its mutual evaluation, Australia was placed on enhanced follow-up and is reporting back to the FATF on an annual basis concerning the progress it has made to address the deficiencies identified in its mutual evaluation report.”

In the classroom of international compliance, this is the equivalent of nose-in-the-corner-at-the-back-of-the-classroom status. “Enhanced follow-up” and “deficiencies”.

The reason the process has meandered on for so long is clearly because the stakeholders involved: the accountants, lawyers and real estate lobbies, don’t want it to happen.

And now government is in a bind. If it stems the flow of Chinese capital it might prick the property bubble.

Chinese money is not alone in driving up prices but it is a factor. On Credit Suisse numbers, some $50 billion of Chinese capital has flooded the Australian property markets, mostly in Melbourne and Sydney, over the past eight years.

How much is black money? We don’t know but the Chinese are only permitted to take $US50,000 out of the country, so the rest, probably the majority of money landing here, is black money.

Introducing the second tranche of the AML-CTF legislation is no silver bullet which will suddenly make houses affordable for first home buyers. Though, along with reform to negative gearing on established homes, it would certainly help.

It is also important because the more the property bubble inflates, the more damaging will be the economic aftermath.

Meanwhile, other measures to address the first-home-buyer crisis, such as stamp duty relief (and a stamp duty surcharge for foreign buyers) are a step in the right direction though tinkering around the edges and arguably incentivising young buyers to hop into an overheated market.

In NSW, the measures run so close to the price threshold that they constitute an incentive to leave the city and go elsewhere to buy a house. The stamp duty measures are far better than cash hand-outs though, which only serve to drive up prices and put cash into the arms of agents and property developers.

Apprehensive of political reprisal, the money laundering agency AUSTRAC has been reliably mute on the failure of governments to comply with international standards. And even though the latest timeframe for action is the completion of a cost-benefit analysis by next month, the commitment to do anything about it remains up in the air, as usual. We remain waiting.

As the second and final act of Waiting for Godot closes, Vladimir and Estragon talk about hanging themselves. But when they conduct a strategic analysis of the strength of Estragon’s belt, which they intend to use as a noose, it breaks and Estragon’s trousers fall down.


Following its mutual evaluation, Australia was placed on enhanced follow-up and is reporting back to the FATF on an annual basis concerning the progress it has made to address the deficiencies identified in its mutual evaluation report. Follow-up reports are not published unless the country has made sufficient progress to justify a re-rating of its compliance with FATF Standards.

 The FATF expects countries to have satisfactorily addressed most, if not all, of their technical compliance deficiencies by the end of the 3rd year after their mutual evaluation report has been adopted. Australia would be expected to have reached this stage by June 2018.

 In addition to the follow up reports each country is subject to, that consider changes to laws and regulations (technical compliance), five years after the mutual evaluation report, all countries are assessed against the actions they have taken to improve the effectiveness of their measures to combat money laundering and terrorist financing.  This 5-year follow up assessment looks specifically at actions taken by a country to address the high-risk areas and priority actions identified in the mutual evaluation report. 

For more information, see the Procedures for the FATF Fourth Round of AML/CFT Mutual Evaluations : www.fatf-gafi.org/publications/mutualevaluations/documents/4th-round-procedures.html

German Bond Open Interest Jumps, Pointing to Large New Shorts – Bloomberg

By Stephen Spratt

(Bloomberg) —

Date shows open interest jumped across German bond futures Tuesday, suggesting heavy new shorts added; the market sold off Tuesday after Draghi’s speech, with yields ending the day 6-12.5bps higher across the curve.

  • Combined increase in open interest totals almost EU11m/bp of new risk
    • Schatz +63,908 (EU1.4m/bp)
    • Bobl +61,691 (EU3.9m/bp)
    • Bund +32,500 (EU4.8m/bp)
    • Buxl +2,184 (EU690k/bp)
  • Worst performing country was Italy, which despite a 15bps rise in 10y yield saw open interest little changed, possibly reflecting a rise in short positioning being offset by a flush-out of popular carry trades
  • France 10y yield rose 13.5bps, while open interest in futures jumped 4,626, equivalent to around EU550k/bp in risk terms

Moody’s downgrades Australian bank credit ratings – SMH

  • Mathew Dunckley
  • Clancy Yeates

Credit rating agency Moody’s has downgraded a dozen Australian banks, including the big four, citing increased risks in the nation’s increasingly indebted households.

Moody’s stripped the big four banks – the Australia and New Zealand Banking Group (ANZ), Commonwealth Bank of Australia (CBA), National Australia Bank (NAB), and Westpac Banking Corporation (Westpac) – of their Aa2 long-term rating and placed them on the next level down at Aa3, although it did not alter their short term ratings.

“In Moody’s view, elevated risks within the household sector heighten the sensitivity of Australian banks’ credit profiles to an adverse shock, notwithstanding improvements in their capital and liquidity in recent years,” the statement said.

Moody’s did not think a “sharp housing downturn” was a “core scenario” the risk posed by increasing household debt had to be considered when weighing the ratings of Australian banks.

“In Moody’s assessment, risks associated with the housing market have risen sharply in recent years. Latent risks in the housing market have been rising in recent years, because significant house price appreciation in the core housing markets of Sydney and Melbourne has led to very high and rising household indebtedness,” the statement said.

“The rise in household indebtedness comes against the backdrop of low wage growth and structural changes in the labour market, which have led to rising levels of underemployment.

“Whilst mortgage affordability for most borrowers remains good at current interest rates, the reduction in the savings rate, the rise in household leverage and the rising prevalence of interest-only and investment loans are all indicators of rising risks.”

It comes after Standard & Poor’s recently left overall the big four Australian banks’ credit ratings untouched as it downgraded smaller lenders. However Standard & Poor’s did cut the underlying ratings for the big banks but left the headline ratings intact based on its assessment of the value of government guarantees.

In a similar way Moody’s cut the underlying ratings but it did not apply as much value to the government guarantees thus producing a drop in the headline rating.

Regal Funds Management senior analyst Omkar Joshi said the Moody’s downgrade may lead to a marginal increase in the banks’ funding costs.

“Even if S&P downgrades the banks, it’s likely to drive a 10 to 15 basis point increase in their wholesale funding, which is not hugely significant for their net interest margin,” Mr Joshi said.

Risks associated with the housing market have risen sharply in recent years

Moody’s statement

Wholesale funding accounts for about a third of the banks’ funding. But as the debt typically rolls over every four to five years, wholesale debt costs only have a gradual impact on the total costs facing banks.

Sean Keane of Triple T Consulting said the cut did not appear likely to affect the federal government’s credit rating, at least in the short term. He noted that it was not a “blanket Australia downgrade,” as several smaller banks had not suffered a ratings cut.

“We don’t see this announcement as having an immediate impact on the sovereign rating given that the recent government Budget was accepted by the rating agencies and the market as recently as May, and little has changed since that time,” Mr Keane said.

ANZ Bank and Westpac noted the Moody’s decision in notices to the stock exchange on Monday night.

Moody’s noted that Australia exhibited “very high levels of household debt”, with the ratio of household debt to disposable income rising to 188.7 per cent at the end of last year.

“This situation is particularly concerning, against the backdrop of low nominal income growth experienced in Australia over the past few years,” it said.

“Whilst unemployment remains low — at 5.5 per cent as at May 2017 — rising levels of underemployment indicate spare capacity within the labor market, which could constrain wage growth over the medium term.

“The household sector’s resilience to weaker employment levels and/or rising interest rates has materially reduced. Any increase in household sector stress would have the potential to weaken consumer confidence and consumption, creating negative second and third order impacts on overall economic activity and, accordingly, bank balance sheets.”

Moody’s noted that the banks were taking steps to strengthen their balance sheets but “the very high level of household sector indebtedness will take a considerable period of time to unwind.”

“The resilience of household balance sheets and, consequently, bank portfolios to a serious economic downturn has not been tested at these levels of private sector indebtedness,” it said.


Altair Asset Management hands back cash to clients citing looming correction – AFR


Australian housing affordability worsens


by Patrick Commins


Australian asset manager Altair Asset Management has made the extraordinary decision to liquidate its Australian shares funds and return “hundreds of millions” of dollars back to its clients, citing an impending property market “calamity” and the “overvalued and dangerous time in this cycle”.

“Giving up management and performance fees and handing back cash from investments managed by us is a seminal decision, however preserving client’s assets is what all fund managers should put before their own interests,” Philip Parker, who serves as Altair’s chairman and chief investment officer, said in a statement on Monday.

The 30-year veteran of funds management said that he had on May 15 advised all Altair clients that he planned to “sell all the underlying shares in the Altair unit trusts and to then hand back the cash to those same managed fund investors”.

Mr Parker said he had “disbanded the team for time being”, including his investment committee of chief economist Steve Roberts, senior healthcare analyst Sally Warneford and independent strategist Gerard Minack.

“I would like to make clear this is not a winding up of Altair, but a decision to hand back client monies out of equities which I deem to be far too risky at this point,” Mr Parker’s statement said.

“We think that there is too much risk in this market at the moment, we think it’s crazy,” Mr Parker said more candidly.

“Valuations are stretched, property is massively overstretched and most of the companies that we follow are at our one-year rolling returns targets – and that’s after we’ve ticked them up over the past year.”

“Now we are asking ‘is there any more juice in these companies valuations?’ and the answer is stridently, and with very few exceptions, ‘no there isn’t’.”

Mr Parker outlined a roll call of “the more obvious reasons to exit the riskier asset markets of shares and property”.

They included: the Australian east-coast property market “bubble” and its “impending correction”; worries that issues around China’s hot property sector and escalating debt levels will blow up “later this year”; “oversized” geopolitical risks and an “unpredictable” US political environment; and the “overvalued” Aussie equity market.

But it was the overheated local property market that was the clearest and most present danger, Mr Parker said.

“When you speak to people candidly in the banks, they’ll tell you very specifically that they are extraordinarily worried about the over-leverage of the Australian population in general,” he said.

He flagged how exposed the country’s lenders were to a correction.

“If they get a property downturn anything similar to 1989 to 1991 then they are going to have all sorts of issues,” Mr Parker said.

Altair’s investment committee included former Morgan Stanley chief economist and noted bear Gerard Minack and former UBS economist Stephen Roberts.

The finance industry is not short of dire warnings.

One Melbourne fund manager recently warned that interest-only loans had the potential to be “Australia’s sub-prime”. More notoriously, in early 2016 a Royal Bank of Scotland strategist urged clients to “sell everything” at what fatefully proved to be a low point in the cycle in January 2016.

But Mr Parker’s decision comes after a robust year of double-digit gains on the ASX. Not only that, but he is acting on his convictions by returning money to clients and abandoning the fees attached to a $2 billion advisory agreement.

However Mr Parker, displayed little nervousness about making such a significant decision.

“Let me tell you I’ve never been more certain of anything in my life,” Mr Parker said. “I am absolutely certain we are in a bubble in this property market.”

“Mortgage fraud is endemic, it’s systemic, it’s just terrible what’s going on. When you’ve got 30-year-olds, who have never seen a property downturn before, borrowing up to 80 per cent to buy three and four apartments, it’s a bubble.”

Using the benchmark S&P/ASX 200 index as a proxy, he outlined a situation where the measure could fall as low as 5200 points in the coming months, depending on the confluence of his identified risk factors.

“Australia hasn’t had its GFC event, we’ve been living in this fool’s paradise. But if China slows down the way the guys think it will towards the end of this year, then that’s 70 per cent of our exports [affected]. You can see already that the commodity market is turning down.”

Mr Parker stridently denied any suggestion that there were other factors at play other than a pure investment decision. No personal issues, no position that has blown up and forced his hand.

“No, God no,” he said. “We’ve sold out all of our positions at huge profits for our clients.”

“This game is all about reputation. I feel that we are right.”

For now, Mr Parker said he was happy to take some time off.

“I’ve never had more than five weeks off in a row. I’m probably going to have four months in a row, and if something happens in between, I’ll think about it. Otherwise I’ll enjoy the time off.”

Moody’s Cuts Its China Rating, Citing Risks From Rising Debt – WSJ

Rating falls to A1 from Aa3

A Chinese flag outside a residential compound in Beijing. Moody’s Investors Service cut its rating on China’s debt.

A Chinese flag outside a residential compound in Beijing. Moody’s Investors Service cut its rating on China’s debt. PHOTO: AGENCE FRANCE-PRESSE/GETTY IMAGES

SHANGHAI—Moody’s Investors Service has cut China’s sovereign credit rating, citing expectations that the country’s financial strength will deteriorate in coming years as debt keeps rising and the economy slows.

In a statement Wednesday, Moody’s said it downgraded China’s rating to A1 from Aa3. It changed its outlook to stable from negative.

The rating agency’s move comes as Beijing has intensified a campaign in recent months to rein in risky investment and financing practices that pose a serious threat to the stability of the world’s second-largest economy. The People’s Bank of China has raised a suite of key short-term interest rates twice since early February, while the banking regulator cracked down on investment products with highly leveraged bets in capital markets.

“The downgrade reflects Moody’s expectation that China’s financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows,” Moody’s said in the statement.

“While ongoing progress on reforms is likely to transform the economy and financial system over time, it is not likely to prevent a further material rise in economy-wide debt, and the consequent increase in contingent liabilities for the government,” it added.

China’s total debt reached 253% of its gross domestic product last year, up from 213% in 2013 and 149% in 2008, according to J.P. Morgan.

Explaining the upward change in China’s ratings outlook to stable from negative, Moody’s said the move reflects its assessment that, at the new, lower A1 rating level, “risks are balanced.”

“The erosion in China’s credit profile will be gradual and, we expect, eventually contained as reforms deepen,” Moody’s said.

In the freely traded offshore market, the U.S. dollar was recently at 6.8843 against the yuan, up slightly from 6.8808 at Tuesday’s close.

Write to Shen Hong at hong.shen@wsj.com

Our deliverable Fx partners Godi. Case study

GlassTech Recycling

GlassTech: a window into foreign exchange with Godi


GlassTech Recycling Ltd is the only Welsh-owned glass recycler in Wales, but its unique process means its output is in demand all over the world.

Glass is the perfect material for recycling. While plastic can only be recycled two or three times before losing quality, glass can be recycled literally millions of times. It is practically infinite. At a time of rising concern about the environmental impact of landfill, GlassTech uses yesterday’s waste for tomorrow’s future.

The company was launched in June 2011, with a business model based on collecting waste glass – mostly from local authorities – to be recycled. Even impure or contaminated glass can be processed to be used as insulation or in construction. But GlassTech has developed a unique, bespoke process to remove contaminants, so the glass is of a quality that can be re-melted into new glassware.

Consequently, business is booming. And this dynamic and growing business is based in a custom-built plant in the Swansea docks, perfectly situated to export to the world.


New glass is in high demand, and GlassTech exports to EU countries like Portugal, Spain, Italy and the Netherlands. But it has also begun to export beyond Europe, with enquiries from as far afield as Dubai, Chile, India and China. All this is great news, but exporting also means dealing with foreign exchange, and the higher the volumes, the greater the risks. If the value of the pound should rise, or the other currency fall, between the price being agreed and the goods delivered, GlassTech could take a major hit, with potentially frightening implications for the fledgling company.

Managing Director Karen John knew this was not something to take lightly. “I know all there is to know about glass,” she says, “but foreign exchange is a different matter. Completely alien to me.” There was no way she was willing to gamble the future of GlassTech on an uncertain foreign exchange market. “I would never take on the FX Market – ever,” Karen says.

Like other British exporters, GlassTech actually benefitted from the fall in the value of the pound after the Brexit vote, but that was also a reminder of the potentially negative impact of other unexpected fluctuations. That’s why Karen sought expert help.


Naturally enough, Karen’s first port of call for help with foreign exchange issues was GlassTech’s bank. As she says, “People just assume their bank will offer them the best rate”. But she soon realised that’s not necessarily the case, and that “the bank was not as forthcoming as it might have been!

She approached Godi, then trading as OSTCFX, for a ‘second opinion’ and was delighted to find they could offer much better rates. And this was no sweetheart deal to get GlassTech’s business. Karen soon realised it was Godi’s expertise in foreign exchange that made them different, because they were also able to help her understand which products and strategies would be most beneficial for her business.

Unlike a bank, which deals with one transaction at a time, Godi consider clients’ long-term interests. Karen will sometimes get a call from Brett, her account manager at Godi, to provide her with an update on what’s happening in the markets so she can think strategically and align her plans accordingly. Indeed, the fact that she can get hold of Brett easily is another advantage Godi has over the bank. She describes their customer service as second to none.

Working with Godi has also been an educational experience for Karen, because they take the time to explain how foreign exchange works, to share their expertise. Looking back, Karen says, “I dread to think what decisions I would have made without them!”

Now, when Karen is exporting her product, she knows she can call Brett for advice about how to ‘lock in’ the cost of shipping in the most cost effective way, and then proceed with complete peace of mind. It’s a relationship that works brilliantly – and profitably, because Godi’s expertise makes them competitive when it comes to the bottom line. Time after time, Karen says, it’s Godi who offer the best service and rates.


Now GlassTech is planning to expand by duplicating its unique recycling line in areas where glass is still going to landfill. Karen is looking for sites in North Wales so that GlassTech can service the whole of Wales, but her ambitions do not end there. Now that the business is exporting globally, the possibilities are endless, and Karen hopes at some stage to set up an American arm. Happily, Godi is also part of a worldwide group, so the relationship looks set to continue.


“Like all exporters, GlassTech faces a degree of foreign exchange exposure in the window between taking an order from abroad, manufacturing the goods and actually shipping them. That’s why a robust foreign exchange strategy is advisable to hedge against the risk of fluctuation. For example, we advised Karen to use a time-option forward, which secures the current exchange rate for a future date, but with the flexibility to draw down any value up to the settlement date. That gave her the ability to budget with certainty.” – Brett Thomas – Head of Dealing

China banking regulator tightens rules on WMPs, flags more curbs – Reuters

China’s banking regulator is tightening disclosure rules on lenders’ wealth management products (WMP) as it tries to track risky lending practices in the shadow banking sector, the latest in a series of steps by Beijing aimed at defusing financial risks.

The China Banking Regulatory Commission (CBRC) said in a notice late on Monday it plans to launch 46 new or revised rules this year, part of which targets risks related to shadowbanking activities.

Authorities are trying to better regulate 30 trillion yuan ($4.35 trillion) of WMPs, much of it sitting off-balance sheet in the shadowbanking sector. The WMPS have been used to channel deposits into risky investments, often via many layers of asset management schemes to skirt lending and capital rules.

The CBRC will now require that banks report the underlying assets and liabilities of their WMPs, as well as all layers of investment schemes, on a weekly basis. Previously, banks were required to hand in less detailed information, and on a monthly basis.

The new rules – published by a WMP management platform under CBRC – reflect regulators’ desire to have a full picture of banks’ activities, and could slow the growth of WMPs.

In March, China’s newly appointment banking regulator Guo Shuqing, vowed to strengthen supervision of the lending sector, underscoring Beijing’s determination to fend off financial risks and push reforms this year.

Separately, CBRC unveiled a long list of rules it aims to publish this year, many of these related to risk-management.

The rules are to “ensure that (risk) does not become systemic,” CBRC said.

The new and revised rules cover a variety of financial institutions from trust firms to banks including regulations covering bankruptcy for commercial lenders and trust management.

They will also scrutinize how banks handle debt-for-equity swaps and microfinance management, according to the statement.

The stepped up efforts to crack down on risky lending practices come as policy makers and analysts worry about systemic risks.

Chinese leaders have pledged to shift the emphasis to addressing financial risks and asset bubbles which analysts say may pose a threat to the world’s second-largest economy if not handed well.

($1 = 6.8934 Chinese yuan renminbi)

(Reporting by Samuel Shen and Engen Tham; Editing by Shri Navaratnam)

Robots Aren’t Destroying Enough Jobs – Greg Ip WSJ

Economic predictions of massive job losses to automation are missing indicators that show just the opposite

Robots, like the welders at a Nissan Motor Co. plant in Mississippi, are growing increasingly sophisticated, but productivity data suggest automation isn’t displacing human workers fast enough.

Robots, like the welders at a Nissan Motor Co. plant in Mississippi, are growing increasingly sophisticated, but productivity data suggest automation isn’t displacing human workers fast enough. PHOTO: DANIEL ACKER/BLOOMBERG NEWS

From Silicon Valley to Davos, pundits have been warning that millions of individuals will be thrown out of work by the rapid advance of automation and artificial intelligence. As economic forecasts go, this idea of a robot apocalypse is certainly chilling. It’s also baffling and misguided.

Baffling because it’s starkly at odds with the evidence, and misguided because it completely misses the problem: robots aren’t destroying enough jobs. Too many sectors, such as health care or personal services, are so resistant to automation that they are holding back the entire country’s standard of living.

“Robot” is shorthand for any device or algorithm that does what humans once did, from mechanical combines and thermostats to dishwashers and airfare search sites. In the long run these advancements are good. By enabling society to produce more with the same workers, automation is a major driver of rising standards of living.

The doomsayers say this time is different, that technological change is so profound and so fast that millions of workers will end up on the dole or consigned to menial, minimum-wage mobs.

The pessimism would be more plausible if the evidence weren’t moving in exactly the opposite direction. The U.S. has many problems, but job creation isn’t one of them. In April, nonfarm private employment rose for the 86th straight month, the longest such streak on record.

Monthly job creation has averaged 185,000 this year, more than double what the U.S. can sustain given its demographics. This has driven unemployment down to 4.4%, a 10-year low and below most estimates of “full employment.” Growing labor shortages have boosted the typical worker’s annual wage gain to more than 3% now from 2% in 2012, according to the Federal Reserve Bank of Atlanta.

If automation were rapidly displacing workers, the productivity of the remaining workers ought to be growing rapidly. Instead, growth in productivity—worker output per hour—has been dismal in almost every sector, including manufacturing.

In a compelling study released this week, the Information Technology and Innovation Foundation demonstrates that the supposed gale of technology-driven job destruction is a myth.

Rob Atkinson, president of the industry-supported think tank, and researcher John Wu examined government data back to 1850 to measure jobs lost in slow-growing occupations and jobs created in fast-growing occupations, their proxy for job creation and destruction driven by technology and other forces. By this measure, churn relative to total employment is the lowest on record.

How can this be? An era that includes the shock of trade with China and the financial crisis ought to have rapidly shuffled workers throughout the employment deck. But we’ve forgotten how convulsive the past was. The authors note how in the 1800s and 1900s, agriculture, at the time the largest employer, was radically transformed by the end of slavery, the opening of the West, mechanization, and consolidation of small family-owned farms. In the 1960s, the expansion of office work created 885,000 janitor jobs, rising health-care consumption created 700,000 nursing aides and the baby boom led to the hiring of 600,000 more high-school teachers.

Technology is still destroying jobs—just more slowly. In part that’s because American consumption is gravitating toward goods and services whose production isn’t easily automated. William Baumol, an economist who died last week at the age of 95, long ago observed that societies would devote a growing share of their income to consumption in sectors where productivity was stagnant. Think of a Mozart string quartet. Four musicians must still be paid to perform it, implying a two-century productivity growth rate of zero. As the share of output grew in stagnant sectors, overall productivity growth would slow.

Dietrich Vollrath, an economist specializing in growth at the University of Houston, estimates “Baumol’s cost disease” has stripped half a percentage point off U.S. productivity growth since the 1980s.

“Robots can replace a lot fewer things that go into GDP than we think,” he says. Medical breakthroughs have mostly gone toward new and more expensive treatments, not to making existing treatments less expensive. Children may sit in front of better screens than they did in the 1950s, but working parents won’t leave their children in the care of a robot, so child-care workers doubled to almost 2 million between 1990 and 2010, according to the ITIF study.

Since 2007, low productivity sectors such as education, health care, social assistance, leisure and hospitality have added nearly 7 million jobs. Meantime, information and finance, where value added per worker is five to 10 times higher, have cut or barely added jobs.

This calls for a change in priorities. Instead of worrying about robots destroying jobs, business leaders need to figure out how to use them more, especially in low-productivity sectors. Someday robots may replace truck drivers, but it’s much more urgent to make existing drivers, who are in short supply, more efficient. Clean energy advocates boast about how many people work in solar power when they should be trying to reduce the labor, and thus cost, involved.

The alternative is a tightening labor market that forces companies to pay ever higher wages that must be passed on as inflation, which usually ends with recession.

That is a more imminent threat than an army of androids.

Write to Greg Ip at greg.ip@wsj.com

Appeared in the May. 11, 2017, print edition as ‘Robots Aren’t Killing Our Jobs Fast Enough.’