Copper and oil are sending conflicting signals about the economy

Copper refinery in Peru

The industrial metal is benefiting from great demand from China.

(Foto: Bloomberg via Getty Images)

Frankfurt Anyone looking at the price of copper at the moment might think that the global economy is running at full steam. The industrial metal has risen by around 13 percent since the beginning of the year. The copper price recovered quickly from a slump in March, at times it was quoted at over 7,000 dollars per ton – this is the highest value since 2018.

The situation on the energy market is very different: Oil from the North Sea Brent currently costs around 42 dollars per barrel (around 159 liters) – and thus still 35 percent less than at the beginning of the year. The highs of over $ 80 from October 2018, when the hunger for oil was high and supply low, seem unreachable at the moment.

It is historically extremely unusual that both raw materials develop so differently. Because both oil and copper are considered cyclical raw materials, the price of which rises when the global economy is booming. Michael Salden, Head of Raw Materials at Vontobel Asset Management, confirms: “It is very rare for copper and oil prices to diverge so widely.”

The discrepancy between copper and oil prices reveals a lot about the winners and losers of the corona crisis – and how far it is until the global economy has recovered from the consequences of the pandemic.

China on course for growth

Copper is benefiting from the strong demand in China. The country has recovered almost completely from the corona crisis, says Vontobel analyst Salden. The recently published figures on economic growth were still cautious.

In the third quarter, the Chinese economy grew by 4.9 percent, significantly less than before the corona crisis. But things started to pick up slightly in the second quarter.

China was the first large economy in the world to regain growth during the corona crisis. In addition, the Chinese government is pushing growth with extensive fiscal packages and investments in infrastructure.

The conductive metal copper is used extensively in the construction industry, but also in the electronics industry and mechanical engineering. These copper-intensive industries particularly benefited from Chinese investments, said Salden. “China, for example, is greatly expanding the country’s power grid.”

In addition, the copper price benefits from a strong yuan, adds Ole Hansen, head of raw materials strategy at broker Saxobank. The Chinese currency has recently appreciated significantly against the dollar. This lowers the price of copper in China – and also has a positive effect on demand.

In addition, the copper supply is rather scarce, as the supply chains are still disrupted during the pandemic. The industry association International Copper and Study Group expects global mine production to decrease by 1.5 percent in 2020.

Even in the long term, there is no improvement in sight. Vontobel expert Salden says: “It is already foreseeable that the market for important industrial metals such as copper and nickel will show a supply deficit in the coming years.” The times when large deposits were regularly discovered were long ago. “It’s getting harder and harder to open up new mines.”

Oil rig in the gold of Mexico

The oil industry has not yet recovered from the corona crisis.

(Foto: plainpicture/Design Pics)

On the oil market, the signs are exactly the opposite: Balances expects that the risk of excess supply will prevail until at least the beginning of 2021. “The Covid-19 crisis hit the oil demand much harder,” he says.

In the meantime, oil demand collapsed by 20 percent. It is still around five to six percent below the pre-crisis level. “The decline in air traffic is the most important explanation why there is still demand for three to four million barrels less per day.”

A development that the Organization of Petroleum Exporting Countries (OPEC) and the allied states of the OPEC Plus Alliance are closely monitoring. At the height of the oil price slump in April, they had taken around ten percent of the world’s oil supply from the market by cutting production. The expanded oil cartel is still reducing the oil supply by almost eight percent.

Hesitant Opec

Actually, Opec Plus wanted to slowly open the oil taps a little further from January. But the OPEC officials are also watching the rising number of virus cases with concern.

Opec General Secretary Mohammed Barkindo recently said: “We are on the path to recovery, but this is not happening as quickly as we expected.” Russian President Putin was therefore open to granting the strict funding quotas beyond January extend.

Giovanni Staunovo, analyst and OPEC expert at the Swiss bank UBS, also expects this. He expects that Opec Plus will extend the current production quotas by several months at their meeting at the end of November. According to his estimates, the price of oil should not exceed $ 45 a barrel by the end of the year. He does not expect a noticeable recovery in prices to up to $ 55 per barrel until mid-2021.

Still, time is of the essence for OPEC. Vontobel manager Salden expects the cartel to regain market share. “The US shale oil industry is shrinking,” he is convinced. This has weakened Opec’s most important competitor. Especially since the US oil industry is likely to have a difficult position under a possible US President Biden.

Salden does not expect any impulses for the oil supply from Shell, BP or Total either. “The major European oil companies are facing great pressure from shareholders to reduce their dependence on oil.”

The deals are meanwhile secured by the OPEC countries: the world’s largest oil consumers China and India have recently concluded numerous long-term supply contracts with state-owned companies in the OPEC countries, according to Salden. He assumes that by 2025 at the latest, the Opec-Plus states will combine all reserve capacities. The cartel is likely to use the regained power to drive the oil price up.

The oil price should therefore catch up with copper by the middle of next year at the latest. However, both raw materials are suitable as long-term investments. The electrification of mobility is likely to further fuel demand for copper.

At the same time, the hunger for oil in emerging countries such as China or India is far from being satisfied. And if the loose monetary policy and the growing national debt should actually result in higher inflation worldwide, both commodities protect the portfolio from inflation.

More: China is the last hope for the troubled oil market.

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Sergio Ermotti joins the Spac hype

Sergio Ermotti

The outgoing UBS boss takes over the chairmanship of Investindustrial Acquisition Corp., as reported by Bloomberg.

(Photo: Reuters)

Frankfurt The outgoing UBS boss Sergio Ermotti is breaking new ground. As Chairman of the London-based Investindustrial Acquisition, Bloomberg reports. Investindustrial Acquisition is a so-called special purpose acquisition company, or Spac for short. That emerges from a prospectus that was submitted on Tuesday.

Spacs are shell companies that initially raise capital through an IPO in order to later invest the money in the takeover of a company that has not yet been identified.

In the US, Spacs have become a popular IPO alternative this year because they offer an opportunity to go public with less regulation. This is how the controversial fuel cell truck developer Nikola managed its new issue.

Investindustrial applied to the US Securities and Exchange Commission (SEC) for permission to list shares with a volume of $ 350 million on the New York Stock Exchange, Bloomberg reported.

Ermotti, who has headed the Swiss bank UBS since 2011, will act as chairman of Spac from January 1st, according to the prospectus. His tenure at UBS is slated to end next month when Ralph Hamers takes over.

Spacs are currently a real hype on Wall Street. The empty wallet case is not new, but it has won numerous prominent followers in recent months. Star investor Bill Ackman of the Pershing Square hedge fund floated the largest ever Spac in July, with a volume of four billion dollars.

Gary Cohn, former economic advisor to US President Donald Trump, previously number two at Goldman, is planning his own shell company. Michael Klein, formerly a top man at Citigroup, is also pursuing plans for his fifth Spac.

So far this year there have been more Spac IPOs than regular initial listings. In Europe too, Spacs have gained traction among companies and investors. Avanti Acquisition Corp., a Spac backed by French entrepreneur Ian Gallienne and Egyptian billionaire Nassef Sawiris, raised $ 600 million this month to focus on European goals.

Investindustrial will probably look to the consumer, healthcare, industrial and technology sectors for takeover candidates. They should have an enterprise value of $ 1 billion to $ 5 billion, the prospectus shows.

The company’s directors include Michael Karangelen, a former executive director at Tower Brook Capital Partners, Harvard Business School professor Dante Roscini, and Tensie Whelan, director of the Center for Sustainable Business at New York University’s Stern School of Business.

According to Bloomberg, Deutsche Bank and Goldman Sachs are advising Investindustrial on the listing.

More: Bets on shell companies are not suitable for investment.

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This is how rich people invest money in the corona crisis

Couple on a yacht

Specialized professional advisors are available for wealthy customers.

(Foto: DigitalVision/Getty Images)

Frankfurt The really rich families in Germany know what is important: The basic direction of an asset – the so-called “strategic asset allocation” – is responsible for the majority of the success or failure.

It is more important than the selection of individual papers. And because complete asset areas can now be easily mapped using exchange-traded funds (ETFs), investors with manageable capital can easily imitate them.

Professional advisors such as those from Finvia Family Office are available for wealthy customers. You currently have to bring assets of at least five million euros with you, but this entry barrier should drop to one million euros in the coming years.

However, co-founder Torsten Murke and his team have opened a sample portfolio for Handelsblatt, which gives a detailed insight into the depot modules in the corona crisis and can also be reproduced to a large extent with smaller amounts.

First of all, the decisive rough structure: At the beginning of October, a good 40 percent of total assets were in stocks, 17 percent in real estate; Because of the low interest rates in other areas, these are preferred investments by many professionals. At twelve percent, the share of gold is relatively high.

The metal is seen as protection against inflation or even a collapse of the financial system, and the price also benefits from the fact that interest-bearing securities hardly bring any interest. A small but important share is three percent company investments – referred to in technical jargon as private equity.

They are usually only available to investors who want to set larger sums for a longer period of time, but offer the chance of a higher return than other forms of wealth. At Finvia, around 27 percent went into liquidity management: a high proportion that is typical of times of crisis. A marginal remainder is reserved for art and collectibles, in the example a Rolex Oyster Perpetual wristwatch.

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UBS doubles profits and exceeds expectations

Frankfurt Sergio Ermotti couldn’t hide his satisfaction on Tuesday. “The numbers speak for themselves,” said the outgoing head of the major Swiss bank UBS several times when presenting the nine-month balance sheet. In the third quarter, the bank posted net income of $ 2.1 billion, almost twice as much as a year ago. The revenue was $ 8.9 billion.

UBS thus significantly exceeded the analysts’ expectations. UBS shares rose by more than four percent. There is “not much to complain about,” commented Amit Goel from Barclays, who is one of the more skeptical observers at UBS.

The Swiss are picking up on the trend set by the major American banks: the market turmoil in the corona crisis gave investment banking, and especially the retail business, a boom. At the same time, central banks and states with massive support programs cushioned the economic consequences of the pandemic and took on default risks in the lending business.

The result: higher income and fewer costs from bad loans than feared. Most experts assume that this will also show in the results of the other major European banks. Next week, among others, Deutsche Bank, Commerzbank and Credit Suisse will present figures.

But that’s not more than a snapshot, because the uncertainty remains high. The second corona wave has long since arrived in Europe. The number of infections is rising rapidly again – and with it the concern about a second lockdown. That should then hit the national economies even harder than the first one in spring, with corresponding consequences for the banks as well.

Nevertheless, Ermotti was confident that UBS is robust enough. On November 1st, he hands over the helm to his successor Ralph Hamers, who has come from the Dutch ING. “UBS has every opportunity to open a successful new chapter in its history under Ralph,” said Ermotti. The major Swiss bank even wants to start again with distributions to shareholders. This could bring both European and US competition under pressure.

UBS’s core capital ratio (CET1) improved to 13.5 from 13.2 percent compared to the second quarter. The rating agency Moody’s also certified the bank’s “robust performance”. UBS could even have built up a much more comfortable capital buffer of 14 percent. But she put aside $ 1.5 billion for a share buyback program that could start next year. The prerequisite for this is the approval of the Swiss banking regulator Finma.

This was made possible because UBS has grown significantly across all business areas. In the bank’s most important division, the business with wealthy customers, it posted the strongest result since 2011. The pre-tax profit rose by 18 percent. In investment banking, UBS was able to more than double its pre-tax profit. Neither in business with Swiss private and corporate customers nor in business with rich customers worldwide have there been any major corona-related loan defaults. Sales added extra cash to the cash register.

The investment bankers celebrate

The US banks had already set the bar high last week: Morgan Stanley recently reported the second-highest profit the bank could ever generate in the third quarter of a year – around $ 2.6 billion, an increase of more than 25 Percent compared to the same period last year. Goldman Sachs even increased its profits from July to September by 94 percent year-on-year to $ 3.5 billion – the highest profit in a quarter since 2010.

Wall Street giant JP Morgan was also surprisingly resilient in the corona crisis with a four percent higher quarterly profit of 9.4 billion dollars. Institutions that are more strongly influenced by private customer business such as Citi or Bank of America, on the other hand, suffered from the consequences of the pandemic.

Overall, the income of the major US financial institutions in investment banking rose on average in the third quarter by 19 percent. This adds up to the increase since the beginning of the year to around 35 percent. The analysts at Hamburger Bank Berenberg are now assuming that 2020 could be the most successful year for investment bankers in a decade.

The analysts expect the same for the other European banks. The Berenberg experts assume that the income of European banks in investment banking will only grow by twelve percent, mainly because the US institutes have their home market, which is more lucrative. But the greatest profiteers in investment banking are likely to include UBS, Deutsche Bank and Credit Suisse.

UBS-Logo

Fee income in Equity Capital Markets (ECM) increased 340 percent.

(Photo: Reuters)

According to an analysis by RBC Capital Markets, UBS, Credit Suisse and Deutsche Bank grew faster than any other competitor in the thriving business with IPOs and share placements, called Equity Capital Markets (ECM). Accordingly, UBS was able to increase its fee income in this sub-area of ​​investment banking by 340 percent. Deutsche Bank grew by 280 percent, Credit Suisse by 228 percent.

Therefore, both institutes should also report significant earnings contributions from investment banking when they present their quarterly figures in the coming week. Deutsche Bank has already prepared the market for this: In a conference call with analysts, the largest domestic financial institution recently announced that it did as well or better than its American rivals in the third quarter in the trading business. The analysts of Morgan Stanley predict for the investment banking of Deutsche Bank in the third quarter revenues of 1.9 billion euros. That would be 17 percent more than a year ago.

The experts even consider an increase of a good 60 percent to over 500 million euros for the division’s pre-tax profit. For the corporate bank, actually the core of the new strategy of CEO Christian Sewing, the analysts forecast stagnating revenues of 1.4 billion euros and a likewise stagnating pre-tax profit of 248 million euros.

Growing differences

Overall, Morgan Stanley expects Deutsche Bank to generate pre-tax profits of EUR 387 million on revenues of EUR 5.6 billion. This makes the American analysts more optimistic than the rest of their colleagues. On average, the experts expect a small quarterly loss at Deutsche Bank. At CS, analysts expect the financial data provider Bloomberg, according to an average of revenues of 5.2 billion francs and a net profit of 530 million francs.

The examples from UBS, CS and Deutsche Bank show that in a crisis it is easier for broad-based universal banks than institutions that have focused on private and corporate customer business. Therefore, the expectations for Commerzbank, for example, are significantly lower. The quarterly result is likely to be burdened not only by the provisions for loans at risk of default, but also by restructuring expenses for the dismantling of around 200 branches, which the institute did not reopen after its closure due to Corona.

Commerzbank made a loss of 96 million euros in the first half of the year and is also expecting red figures for the year as a whole. According to Bloomberg, analysts assume an average of EUR 143 million in 2020. The experts calculate with a small profit of 18 million euros in the third quarter and then with a minus of almost 100 million euros in the final quarter. “We’re not over the mountain yet – the crisis is ongoing,” warned CFO Bettina Orlopp at a finance conference at the end of September.

graphic

The large differences in bank profits are likely to spark a debate about how solid banks can let their shareholders share in the success. For example, the US Federal Reserve banned the major US banks from distributing capital through dividends or share buyback programs by the end of the year. The ECB has also strongly recommended the institutions it supervises not to distribute any capital to shareholders. So far, there has been too great a concern that a wave of corporate bankruptcies would also put the banks under pressure and necessitate new state rescue packages.

But UBS boss Ermotti has made it clear that he wants to put pressure on the issue of distributions. “We will not withhold excess capital,” he clarified. “We have no plans to reduce our distributions.” The Board of Directors of UBS therefore announced that it would continue its dividend payments in the fourth quarter and distribute around 0.37 US dollars per share. An extraordinary general meeting on November 19 will decide on this.

Ermotti also defended the planned share buybacks and criticized the “demonization” of buyback programs in parts of the public. These are a very efficient way of managing distributions to shareholders and at the same time maintaining the flexibility to react to new crisis situations.

Overseers are concerned

The supervisors are also worried that the corona crisis is far from over. Andrea Enria, the ECB’s chief bank controller, fears that many banks are still too carelessly about their credit risks. A few have already started to reclassify their customers’ bankruptcy risk. Other banks would, at least as a precaution, form a general risk provision for their loan portfolio, Enria said recently in an interview with the Handelsblatt. But there are also optimists. “They prefer not to do anything as long as they have no concrete evidence that one of their customers is going bankrupt.”

A special Swiss route for distributions to bank shareholders could increase the pressure on Deutsche Bank and Co. to be optimistic about their credit risks in order to be able to keep up with the competition for investor capital.

More: Swiss bank Julius Baer earns more thanks to its austerity program and trading boom

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UBS achieves highest Q3 profit in five years

KGroup boss Sergio Ermotti says goodbye to UBS with a jump in profits. The largest Swiss bank doubled its surplus in the third quarter of 2020 to 2.1 billion dollars – the highest figure in a third quarter in five years. According to a survey by the bank, analysts had expected a profit of 1.56 billion. Proceeds from the sale of the fund distribution platform Fondscenter to Deutsche Börse inflated the result. But day-to-day business also went better than expected, mainly because many customers continued to be very active and thus gave the bank commission fees.

After the round of American institutes, UBS was the first major European bank to report on the summer quarter on Tuesday. Things went particularly well in asset management, in business with professional investors such as pension funds and in investment banking. Only in business with Swiss private and corporate customers did the institute earn less than a year ago. The allowance was down from the previous quarter to $ 89 million. At $ 2.6 billion, UBS achieved the highest pre-tax profit in a third quarter in ten years.

American investment banks such as Morgan Stanley, JP Morgan and Goldman Sachs also benefited from the boom on the stock markets in the summer. Business with bonds and stocks was particularly booming. Deutsche Bank, which will present its quarterly figures on October 28th, has also announced growth in investment banking.

No security was found!

Ermotti leaves the bank much more weatherproof than he found it in 2011. The institute also demonstrated this during the corona pandemic. The worst economic crisis in decades has so far only scratched business. During his time as CEO, Ermotti reduced the risky trading business and focused primarily on the less volatile business with the rich and the super-rich. Chairman of the Board of Directors Axel Weber is now expecting a renewal of the bank from Ermotti’s successor Ralph Hamers. The Dutchman has made a name for himself at ING above all with the digitization of mass business. Skeptics, however, point out that restructuring the business with wealthy private customers based on personal relationships will be more difficult than with small customers.

Hamers cannot count on much tailwind from the market for the time being. The renewed rise in the number of coronavirus cases and growing geopolitical tensions could cloud the growth prospects and dampen investor sentiment, the institute warned.

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Private real estate investors face competition

Restored houses

The reason for the continued price increase is the low supply. Some experts therefore warn of price bubbles.

(Foto: E+/Getty Images)

Frankfurt Investors looking for a rental house these days have little to smile about: the right property is difficult to find, and the price for the property is rising and rising.

Not even the corona crisis will stop it – on the contrary: Covid-19 had no negative impact on the housing markets, says Felix von Saucken, the manager responsible for the asset class at the real estate consultancy Colliers International. “On the contrary: investors are even more interested in investing in residential real estate.”

This no longer only applies to wealthy private customers who have always liked to buy so-called apartment buildings, but also to institutional investors such as insurers, pension funds or fund companies.

Since March, Colliers has been asking real estate investors who manage at least 500 billion euros in assets over the phone about their investment preferences. Accordingly, more and more are flirting with the purchase of residential property: While around 40 percent of the investors surveyed were interested in this usage class in the time before Covid-19, it is now 47 percent.

Less return, but more security

“Residential real estate is becoming increasingly important as an addition to a fund,” says von Saucken. A few years ago, many would have expected more returns from other asset classes without great expense – albeit at a higher risk.

“I may still be able to rent out a house built in 1950, even if it is no longer the most beautiful,” explains von Saucken. “An office property from the same year is more difficult to sell.”

However, the management of residential properties is more complex because, for example, not just one tenant has to be looked after, as is the case with an office property, but several. “Ultimately, however, income from residential property is more stable,” he explains. In phases in which prices in the market are generally rising, this aspect may not be the focus of investor interest. “When times become uncertain, that is exactly what is needed.”

Smaller cities in view

The real estate expert is convinced that the prices for residential property will continue to rise. In a report that is exclusively available to the Handelsblatt, Colliers International has analyzed and assessed developments in 42 German cities.

“There was no city where we are really skeptical,” says von Saucken now. “Although we do not expect the price jumps as large as in the past five years, we do expect a continuous, moderate increase in both purchase prices and rents.”

In 2019, 9,230 residential and commercial buildings with a transaction volume of 20.6 billion euros were sold in the cities examined – after 19.8 billion euros in the previous year, this corresponds to an increase of 4.1 percent compared to 2018. The cities of Berlin, Hamburg, Munich, Cologne and Frankfurt alone accounted for 11.3 billion euros – more than half. As in the previous year, Berlin had by far the highest turnover with 4.8 billion euros.

You can read more on the topic exclusively in Handelsblatt Inside Real Estate, the specialist briefing on the future of the real estate industry. Sign up here.

The cities of Aachen (plus 132 percent to 414.6 million euros), Fürth (plus 79 percent to 119.2 million euros) and Munich (plus 77 percent to 1.9 billion euros) recorded the strongest increase in sales volume From Collier’s point of view, this is a clear indication that secondary locations such as Aachen and Fürth are becoming increasingly attractive for investments due to the more attractive returns and greater development potential and are becoming the focus of investors.

Other locations apart from the seven major cities with significant growth in investment volume compared to the previous year were Offenbach (fourth place), Mainz (fifth), Wiesbaden (sixth) and Darmstadt (seventh), especially in the Rhine-Main area.

Too little new building

The reason for the continued price increase is the low supply. Even if a stroll through many German cities currently gives the impression that construction is going on everywhere: in 2019, around 293,000 apartments were completed, two percent more than in the previous year. However, around 400,000 apartments are needed annually to meet demand. A fact that many in the real estate industry criticize.

But according to the experts, a significant increase in the number of new buildings is also unlikely in the coming years, even if almost four percent more building permits were issued in 2019 than in the previous year. “You just have to look at how much is being built – and then how many people are moving to the cities,” says von Saucken. For Germany as a whole, experts forecast an increase in households by 2.8 percent by 2035. “The demand for living space will continue to be high, especially in the cities,” concludes Colliers.

Some experts therefore warn of price bubbles. The investment bank UBS recently published a study in which it saw clear signs of overheating in Munich and Frankfurt. “No other city in the world is as exposed to the risk of a real estate bubble as Munich and Frankfurt,” explained Maximilian Kunkel, UBS chief investment strategist in Germany.

25 metropolises around the world were considered for the analysis. For their “Global Real Estate Bubble Index 2020”, the experts calculated index values ​​of 2.4 and 2.3 for Munich and Frankfurt – at more than 1.5 points, the experts recognize the risk of a price bubble.

This puts them ahead of world cities like Paris and London. With the economic boom and a doubling of housing prices in a decade, Frankfurt is a “victim of its own success”. The corona crisis is now becoming the litmus test of whether the high prices are justified. In Munich, the strong local economy and solid population growth continued to fuel the real estate markets, while too little new living space was being created.

Bubble – or not?

Colliers manager von Saucken does not see the risk of price bubbles forming. Conversely, however, there are practically no more properties at prices below the market level. What looks like a bargain usually has a catch – such as poor transport links. “Then the question is: Do you want that?”

Colliers is not alone in his optimistic assessment of the German market. “Living is the winner of the corona crisis”, says Peter Schürrer, who as managing director of the Deutsche Anlage-Immobilien Verbund (Dave) represents twelve real estate consulting companies. “It has just become clear how important your own four walls are, whether owned or rented.”

More: Attractive cities, best location: Where residential real estate is worthwhile despite Corona.

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8 points that are important for banks in Brexit

Frankfurt, London Once again, an ultimatum from Boris Johnson turns out to be a bluff. If you cannot agree on a free trade agreement with the EU by October 15, the talks should be broken off, the British Prime Minister had declared in September.

Now he wants to continue negotiating. However, the deadline set by the EU is also approaching: An agreement that is ready to be signed should be ready by the end of October at the latest so that it can be ratified in good time. Because on December 31st, Great Britain leaves the European single market and the customs union – with or without a deal.

One industry has been preparing for Day X for years: the financial world. She anticipated the worst early on and took precautions by setting up EU units and relocating jobs and assets.

But the escape from the City of London could accelerate further depending on how the future relationship is structured. An overview of the status quo and the most important open questions:

1. What Brexit scenario do the banks expect?

In Frankfurt, the majority of decision-makers expect the free trade talks to fail. In that case, the higher tariffs of the World Trade Organization (WTO) and other hurdles in trade across the English Channel will apply from January.

Heinz Hilger, Germany boss of the British major bank Standard Startered, considers this hard break to be the most likely scenario: “The only remaining hope comes from looking into the past, because we have already faced a hard Brexit several times, each of which is short-term was averted. However, there is no legal basis for this in this situation. ”

The Association of Foreign Banks in Frankfurt also considers the disorderly Brexit “unfortunately very likely”: “Our members are preparing accordingly.”

2. What would a no-deal mean for the banks?

The British government decided early on to largely exclude the financial sector from the trade talks because it wants to deviate from EU rules in the future. The agreement mainly revolves around the trade in goods. So it doesn’t make much difference to the banks whether there is a deal or not.

“One way or another, the financial sector will be severely affected by Brexit,” says Tobias Vogel, head of European investment banking at the major Swiss bank UBS. “Even if there was still an agreement on free trade, it would be very unusual in comparison with other free trade agreements if this also included financial services.”

However, there remains a residual uncertainty about the consequences of a no-deal. Commerzbank, for example, fears “distortions” on the capital markets. These would primarily affect EU banks: “We hope for a political agreement that allows financial institutions from the EU to continue doing business in the British markets.”

3. What will change at the turn of the year?

Regardless of whether a deal or no deal: In January all financial service providers based in London will lose their “passporting rights”, which allow them to do business throughout the EU. In future, the EU’s equivalence regime for third countries will apply to them. This means that Brussels must first recognize the British regulations as equivalent in up to 40 different financial areas before British companies can serve their EU customers from London.

The City of London hopes that the equivalency decisions will be taken as soon as possible once the free trade agreement is agreed. If it fails, it is feared that the EU’s approval process will drag on. The EU Commission has already signaled that investment companies, for example, cannot expect an equivalence decision until mid-2021.

4. Where is there already relief?

There has recently been good news for the London clearing houses: The EU Commission approved access to the single market for a further 18 months from January. During this transition period, European market participants should reduce their dependence on British houses and clearing houses in the EU should build up their own capacities.

Clearing houses take care of the settlement and settlement of securities transactions and stand between seller and buyer. You are at high risk if one party fails in trading and are therefore considered risky to the financial system. Supervisory authorities therefore closely monitor such clearing houses and urge that securities settlement with EU customers must also take place within the EU.

LCH, a subsidiary of the London Stock Exchange LSE, dominates the processing of financial derivatives denominated in euros. Deutsche Börse hopes that it can steal a large part of the business from its rival. According to its own information, the Deutsche Börse subsidiary Eurex currently has a market share of 19 percent in euro clearing.

5. What happens next with clearing?

Brussels is already working on a “Plan B” for securities clearers after Brexit: Should there be problems during the 18-month transition period, clearing tasks must be transferred to institutions within the EU, the European supervisory authority ESMA said on Wednesday.

“With our Plan A we want to support the global capital markets, but we need a Plan B and must be able to refer to it if a clearing house is systemically important or if the cooperation does not work as expected,” said ESMA CEO Steven Maijoor to Reuters.

6. Do European customers have to prepare for problems?

The big banks and fund companies reassure: interruptions in transactions and payment flows are not to be expected. All of them have founded EU subsidiaries in order to be able to continue serving their EU customers.

“We believe we are well positioned for a ‘hard’ Brexit and can support our customers throughout the Brexit process,” says the UK’s largest bank, HSBC. “The banks have long had to adjust to the worst case, a no-deal Brexit,” says UBS board member Vogel. “Should this actually happen in the end, it will not hit the industry unprepared.”

“However, there are still a number of practical questions to be clarified in the implementation, not all regulatory requirements seem to be clear in detail so far,” warns the Association of Foreign Banks in Frankfurt.

7. How are job relocations going?

Most banks have chosen Frankfurt as their new European headquarters. Paris and Amsterdam also experienced significant growth, the fund industry is concentrated in Dublin and Luxembourg.

According to the consulting firm EY, 7,500 jobs and customer funds totaling £ 1.2 trillion have been relocated from the UK to the EU so far. EY expects that the process will accelerate towards the end of the year if financial firms implement their Brexit plans.

Many banks do not look into their cards as to how many employees are being relocated. With the strengthening of the European unit in Frankfurt, the Swiss UBS has already relocated a low three-digit number of employees. Most recently, the US bank JP Morgan had transferred 200 billion euros in assets from London to Frankfurt.

8. What will change for the City of London?

UK banks are getting ready to lose some of their EU business. The major banks Lloyds and Barclays have already notified tens of thousands of customers in the EU that their accounts and credit cards will be closed by the end of the year. In order to continue, the banks would have to apply for up to 27 national licenses in the individual EU countries. That is too expensive for them.

Some London fund managers are also worried about their business model: Should the EU Commission no longer allow them to manage their EU funds from London in the future, they would have to move to Luxembourg or Dublin – or forego the business.

Lawyers, management consultants and auditors, who are closely interwoven with the financial sector, also have great worries. They still hope that they will be taken into account in the free trade agreement and that they will also have reasonably smooth access to the internal market in the future. Otherwise there is a threat of a relocation of economic activity from the Kingdom, warned the British House of Lords this week.

The clock is ticking. “We have very clear ideas about what still needs to be done between today and the end of the year,” says Standard Chartered Germany boss Hilger. “However, a lot still depends on the cooperation of some of our customers, without whom we cannot take the last steps.”

More: Brexit endangers British service providers.

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Banks call for the fight against racism

The initiative is supported by the “General Counsels”, the chief legal officers of the banks. In an open letter, you call on the “global legal community” to do more for more diversity in the world of work and more ethnically mixed management levels – in short: for diversity and equal opportunities.

The signatories include Karen Kuder, Group General Counsel of Deutsche Bank, Markus Diethelm from the Swiss UBS and Karen Seymour from the US company Goldman Sachs. The chief legal counsel from Credit Suisse, BNP, HSBC, JP Morgan and other British and US companies have also signed – major American banks.

“Violence against black people has dramatically drawn our attention to racial and social injustices in all of our societies. As heads of the legal departments of financial companies, we have come together to denounce all forms of discrimination and to express our support for those who have been exposed to the experience, ”the letter reads.

As a result, the chief legal officers demand a “more inclusive culture in the workplace”, the fight against racism and the promotion of ethnic minorities.

“The latest events are causing us to intensify our efforts,” explains Diethelm, one of the initiators. Instead of focusing on mediocrity, individuality should be at the center of corporate culture. “How can a society that still believes that individuals are judged on an established mean ever create conditions that promote understanding and benefits of otherness?” He warns.

External law firms also need to rethink

Specifically, the chief legal officers call for action in three areas. First, there must be more internal initiatives to promote non-white employees, for example via platforms that support them on their way to management positions – especially in the “core business”, ie not only in the downstream departments. These “talent programs” would have to be driven by top management, for example through mentoring partnerships.

Non-white employees and representatives of other minorities should be more represented in the decision-making bodies that decide on promotions. In addition, they would have to be sufficiently taken into account when hiring new employees. Regular inclusion training for the legal departments is also recommended.

Secondly, external service providers must also be encouraged to rely more on ethnically mixed teams: the financial sector must clearly formulate its expectations here. For example, when external law firms are commissioned, the number of non-white employees or the composition of the partners could also play a role in future. If you don’t keep up with the times, you won’t be hired anymore.

Third, their own legal experts should extend their feelers to “underrepresented communities”. Networks that have been built up and maintained over the long term are intended to ensure that there are enough non-white applicants for new jobs and that these are also promoted during their careers. For this purpose, employees are encouraged to volunteer and to address employees with ethnically diverse backgrounds more intensively.

“In summary, our corporate culture must recognize and take into account the entire range of talents, lifestyles and perspectives,” conclude the chief legal officers of the major banks. “Our profession will be better and stronger when we have done this.”

The number of women in management positions already shows how much the banking world has to catch up in terms of a mixed work environment. Studies show that the financial industry has made little progress in terms of diversity since 2015: women continue to have a difficult time getting up and earn significantly less, as the personnel consultancy Willis Towers Watson (WTW) has broken down. Corresponding evaluations of the success of non-white employees have so far often failed due to the lack of a database.

More: Companies must now act on the issue of racism.

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This is how investors can join the rally

Stock exchange prices in Shanghai

Rising courses are displayed in red in China.

(Foto: Bloomberg)

Frankfurt China is attracting more and more attention: The world’s second largest stock market on the Chinese mainland has reached a new record volume. The roughly 4,000 stocks listed on the mainland stock exchanges in Shanghai and Shenzhen climbed to a record market volume of 10.08 trillion US dollars in the middle of the week, according to figures from financial data provider Bloomberg. The market passed the $ 10.05 trillion mark five years ago.

The Chinese stock market has recently attracted more and more international investor money. This smooths out the sometimes erratic fluctuations that were caused by a high proportion of private Chinese investors and speculators.

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Vaccine could boost the price of oil

Frankfurt When OPEC talks about the development of the crude oil market, there is usually a good deal of optimism. By 2022, the merger of 13 oil-producing countries expects oil demand to have returned to the level from before the outbreak of the corona crisis. Opec expects a growth market for the next 20 years, and the peak of oil demand will not be reached until the 2040s.

But even if the optimistic scenario of Opec becomes reality: For investors, that doesn’t mean the all-clear. Anyone who invested in oil at the beginning of the year, for example via exchange-traded oil index products (ETPs) or oil stocks, has not only lost a lot of money. The opportunities to benefit from a recovery in the oil markets were also limited.

Many products popular with private investors lag behind crude oil prices in terms of performance over the year. The strategy of staying invested and sitting out phases of losses, which is often promising on the stock market, has so far not worked for oil investments this year.

While tech stocks have sometimes far surpassed pre-Covid-19 levels, the oil market is still a long way from recovering from the pandemic shock. The most important reference price for Europe, the North Sea variety Brent, is currently quoted at around 42 dollars per barrel (around 159 liters). Since the beginning of the year, the minus is almost 36 percent.

It doesn’t look much better in the USA. WTI Texan oil is trading at around $ 40 per barrel, around 34 percent lower than at the beginning of the year.

High hurdles for OPEC

Oil prices were able to recover from their lows. Brent oil had meanwhile fallen to just under eleven dollars per barrel, WTI oil even to minus 37 dollars. The 23-nation Opec-plus alliance around Saudi Arabia and Russia responded with historic market intervention and suddenly took more than ten percent of global oil demand from the market. But since May the oil price has remained in a comparatively narrow corridor between 38 and 46 dollars per barrel. There are no signs that the oil price could break out of this range in any significant way anytime soon.

Giovanni Staunovo, oil analyst at the Swiss bank UBS, wrote in a recent study: “The recovery in demand continues, but the simplest gains are behind us.” He expects the price of Brent oil to reach the mark of 45 dollars Unlikely to exceed the end of the year.

Warren Patterson, chief raw materials strategist at the Dutch bank ING, comes to a similar conclusion. “The ongoing concerns about demand as well as a possible return of the oil supply from Libya are an obstacle for Opec-plus in balancing the market.”

This is bad news for investors, because the sideways movement of the oil markets is the most important reason why many investment products have performed even worse than the market. The best example is the US Oil Fund, a multi-billion dollar exchange-traded index fund (ETF) on the US oil price WTI. The ETF is actually supposed to map the price of crude oil one-to-one – but the US Oil Fund is around 70 percent in the red over the year, so the loss is twice as high as the collapse in the price of crude oil.

It looks less extreme, but tends to be similar, for investment products widespread in Europe. The minus of the index product on Brent oil from US asset manager Wisdom Tree is around 43 percent. This ETC also does worse than the market price. The competitor product of the Deutsche Bank fund subsidiary DWS Xtrackers also lagged slightly behind the market.

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Index products on the price of crude oil suffer from so-called roll effects. They are based on futures, i.e. delivery contracts that are traded on the commodity exchanges. Whoever buys a future secures the right to a delivery of crude oil on a certain date, but is usually also obliged to purchase the physical oil. The oil funds are never interested in a physical oil delivery, however. Therefore, you have to sell an expiring future in good time and replace it with a longer-term futures contract.

This so-called “rolling” is largely automated, but costs are incurred. Because longer-term futures contracts are usually more expensive than oil for immediate delivery. These costs are not taken into account in the oil prices that investors can see on their smartphones, on handelsblatt.com or on financial portals. They usually show the price of the future with the shortest remaining term.

Artificial scarcity

Rolling costs are always high when there is enough oil on the market in the short term, especially since storage causes long-term costs. And that is exactly what is currently the case, as UBS strategist Staunovo writes. There is a slight supply shortage. “But the market is artificially tight, not structural.”

The OPEC states still produced significantly less oil than they could. In doing so, they secured the oil price from falling further. But the OPEC states also had extremely large reserve capacities, explains Staunovo.

The oil exporting countries can therefore ramp up their oil production within a short period of time if prices recover slightly in order to at least reduce the losses this year somewhat. The reserve capacities of OPEC therefore limit the oil price upwards: “In order to see sustained higher prices, the oil market would have to slide from an artificial to a structural deficit. For this, the reserve capacity would have to decrease, ”writes Staunovo.

For this, however, a further significant increase in the demand for oil is necessary – and that could only be triggered by a vaccine that ensures broad immunization of the population and thus normalization of economic activity, including increasing demand for raw materials.

The commodity experts at Commerzbank see it similarly: a recovery in oil demand can be observed in China. In the long run, however, this is unlikely to be sufficient to compensate for other negative factors such as the overcapacities of the oil exporting countries – especially since if Joe Biden wins the US presidential elections, Iran could also return to the world market as a producer, says Commerzbank analyst Carsten Fritsch: ” We therefore expect a further decline in oil prices. “

The sideways movement of the oil markets is not only depressing the performance of exchange-traded index products. It also weighs on the stocks of major oil companies. Typically, oil stocks are less volatile than the market price. This was evident in the great oil market crash in March and April. While Brent oil fell by more than 60 percent between January and March, the index for European oil and gas stocks, the Stoxx Europe 600 Oil & Gas, fell by around 50 percent.

In the meantime, however, the oil producers have realized that the oil price is likely to remain for a long time at a level that is too low for many of these corporations. The prospects for growth are now gone. Shell, BP and Co. have cut massive investments and cut their dividends.

As a result, oil stocks are currently trading only around 25 percent above their March lows, while the price of crude oil has almost quadrupled. A quick rebound in oil stocks in April turned out to be a flash in the pan. Since then, the European sector index has been developing more or less sideways, after some massive fluctuations, and has lost a good third in the past twelve months. Only in the USA is the situation even dreamer: the most important industry barometer, the S&P 500 Energy Index, is around 45 percent in the red for the year.

“An efficient and widely available vaccine should act as a catalyst for higher prices,” says UBS strategist Staunovo. ” notoriously difficult undertaking. And as long as no protection against Corona has been found, both index products on crude oil and oil stocks are likely to perform below average.

More: Stagnating oil prices put producers in need.

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