Boost for Europe's EV makers after Portuguese lithium mine given environmental nod
Financial Times: Commodities / 2023-05-31 11:1611


Europe's electric car industry received a significant fillip in its efforts to secure raw material supplies after Portuguese authorities gave a green-light to what will be one of the continent's first large-scale lithium mines.

London-listed Savannah Resources said on Wednesday that the Portuguese regulator has issued a positive declaration of environmental impact for its Barroso lithium mine, which has a target of producing enough lithium for 500,000 electric cars a year.

Demand for lithium in Europe is predicted to surge fourfold to account for a quarter of global demand by 2030, but the region at present produces less than 1 per cent of the world's supply, according to Benchmark Mineral Intelligence.

Obtaining permits has been a key issue holding Europe back from developing a battery raw material supply chain. The Savannah project was viewed as a test of whether the region might be about to overcome its recent history of opposition to mining.

"This is an extremely important step forward, not only in the development of the project but also in the development of the lithium raw material industry in Portugal," said Dale Ferguson, chief executive of Savannah.

United in Defense of Covas do Barroso, a local community group that opposes the project, said it "condemns" the decision and was "baffled" by its acceptance given the potentially "devastating" ecological, environmental and socio-economic impacts.

Savannah's shares rose 22 per cent on Wednesday following the decision.

The company first submitted its environmental impact assessment three years ago. The regulator's decision allows it to proceed with economic studies and take the final licensing steps over the next year. It is aiming for first production before mid-2026.

Under the terms of the decision, it must meet certain conditions such as limiting the removal of vegetation to certain months of the year.

The Barroso mine is aiming to produce 200,000 tonnes of spodumene concentrate from lithium-containing rock, which will be upgraded to battery-grade lithium at a refinery that Savannah hopes will be located in Portugal.

The EU Critical Raw Materials Act, which was unveiled in March, set out the European Commission's aim to simplify permitting processes for mining companies and reduce the region's reliance on China and other nations for key EV and green power minerals such as lithium, cobalt and graphite.

China controls 56 per cent of lithium processing, with much of the rest taking place in Chile.

Europe is seeking to change that through local projects including two refinery developments led by a consortium of Swedish battery company Northvolt and Portuguese energy company Galp and another that includes Portugal's largest chemicals company Bondalti.

Last year, the Serbian government revoked Rio Tinto's licences to mine lithium at the $2.4bn Jadar mine in Serbia — the largest planned lithium mine in Europe — after months of widespread protests.

Separately on Wednesday, lithium start-up Vulcan announced it would supply one of Stellantis's French carmaking plants with geothermal energy in the hope of extracting lithium in the process. Vulcan's technology involves pumping lithium to the surface via geothermal wells.

Additional reporting by Patricia Nilsson

This article has been corrected to say that Northvolt is a Swedish rather than Norwegian battery company.

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Institutional allocations in the primary market for corporate bonds - ScienceDirect

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Journal of Financial Economics
Volume 137, Issue 2, August 2020, Pages 470-490
Institutional allocations in the primary market for corporate bonds☆
Author links open overlay panelStanislava Nikolova, Liying Wang, Juan (Julie) Wu
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https://doi.org/10.1016/j.jfineco.2020.02.007
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Abstract
Using 2002–2014 insurer transactions, we provide the first empirical evidence on underwriters' allocation practices in the primary market for corporate bonds. Since bonds are often underpriced, allocations generate for investors an estimated $41 billion of first-day profits. These profits increase with proxies for investors' information production during the bookbuilding process and, more strongly, with investors' prior trading with underwriters. Information production has a larger impact when asymmetric information is higher, while prior trading has a larger impact when the issuer-underwriter agency problem is more severe. When there is more competition for allocations, prior trading further increases an insurer's first-day profits.

Introduction
Following the 2007–2009 financial crisis, US corporate bond offerings have become increasingly oversubscribed yet remain underpriced. Although the average underpricing per offering is low, because bond offerings are frequent and large, the first-day profits to primary market investors can be substantial. During our 2002–2014 sample period, we estimate these profits to be $41 billion. Since newly issued bonds account for 17.5% of the corporate bond market's capitalization in this time period, access to first-day profits from underpriced offerings can significantly boost corporate bond investors' performance.2

While prior studies have documented the existence and determinants of underpricing in corporate bond offerings, there is surprisingly little research on how first-day profits from underpriced offerings are allocated among potential primary market investors.3 In contrast, a large body of literature examines underwriter allocation practices in the market for initial public offerings (IPOs) of equity.4 Researchers' focus on equity IPOs to the exclusion of bond offerings is surprising for at least three reasons. First, issuance activity in the corporate bond market is significantly larger than that in the equity market. During our 2002–2014 sample period, underwriters placed $8.757 trillion of corporate bond offerings compared to only $0.745 trillion of equity IPOs and $1.807 trillion of seasoned equity offerings.5 Second, investors have increasingly complained about limited access to the primary market for corporate bonds, claiming that "allocations always come down to favours," which has triggered a Securities and Exchange Commission (SEC) investigation into the allocation practices of some of the largest corporate bond underwriters.6 Finally, the lack of pre-offering public information about private firms and the fact that equity IPOs are a one-time event in a firm's history have made it difficult for equity IPO studies to empirically investigate the cross-sectional implications of theories of underwriter favoritism (e.g., Jenkinson, Ljungqvist, 2001, Lowry, Michaely, Volkova, 2017). The richness of corporate bond issuers' data and the differences between stock and bond markets present a unique opportunity to overcome these data limitations.

In this study we provide the first empirical evidence on corporate bond underwriters' allocation practices. Using 2002–2014 data from insurers' regulatory filings with the National Association of Insurance Commissioners (NAIC), we shed light on the determinants of profitable allocations in a long time-series and a broad cross-section of 5,341 investment-grade (IG) offerings brought to the market by 76 lead underwriters. Since regulations in the US do not require public disclosure of primary market allocations, prior studies of US equity IPOs either use small samples of proprietary data or infer allocations from institutional quarterly holdings disclosures.7 Instead, we use a novel approach that relies on the detailed information about each trade in the NAIC data to determine the primary market allocation of a corporate bond offering to an insurer. Specifically, we identify as an allocation an insurer's purchase of a bond on the offering date at the offering price from the offering's underwriters.8

We analyze insurers' corporate bond allocations to understand why underwriters favor certain investors with larger first-day profits. Equity IPO studies argue that this happens mainly for reasons related to asymmetric information, as in bookbuilding theories, and agency problems, as in the profit-sharing view.9 Under bookbuilding theories, underwriters collect pre-market demand information from investors during the bookbuilding process. Because underwriters both set the offering price and determine allocations, they can reward investors' information production with larger first-day profits (e.g., Benveniste, Spindt, 1989, Benveniste, Wilhelm, 1990, Spatt, Srivastava, 1991, Sherman, Titman, 2002). Under the profit-sharing view, underwriters underprice the offering more than necessary and then distribute the resultant first-day profits to their best clients (Loughran and Ritter, 2002).

Our analyses of corporate bond allocations to insurers produce several new findings. First, insurers purchase a significant amount of newly issued bonds in the secondary market and do so at a price higher than the price they could have paid had they been allocated the bonds in the primary market. On average, insurers acquire 18% of the par value of IG bonds through primary market allocations but then obtain an additional 12% (or 8% if we exclude insurers already allocated the bonds in the primary market) through secondary market purchases within 90 days of the offering. This comes at a significant cost, as the price paid by insurers in the secondary market is higher than that paid in the primary market. On average, the secondary market price within 90 days of the offering is 31 basis points (bps) higher than the offering price.

Second, we show that both information production and a trading relationship with an offering's underwriters are rewarded with more profitable allocations, though the economic impact of the latter is significantly larger. In particular, insurers with more expertise in bonds similar to the one being offered, measured as the percent of their prior-year holdings in the same industry, receive more of the offering's first-day profits. To the extent that an insurer's industry expertise is related to its information contribution during the bookbuilding process, this finding suggests a link between information production and profitable allocations. Even more importantly, insurers with a stronger trading relationship with an offering's underwriters, measured as the percent of the lead underwriters' prior-year trading volume that comes from the insurers, receive more profitable allocations. In terms of economic significance, a one standard deviation increase in an insurer's prior trading with the underwriters increases its average first-day profits by an estimated $0.8 million per year. This impact is five times that of a one standard deviation increase in our proxy for information production. Unobservable time-invariant insurer characteristics are not responsible for our findings, which are robust to the inclusion of insurer fixed effects. Excluding the most active insurer traders, the largest bond offerings, or offerings brought to the market on a compressed timeline also leaves our conclusions unchanged. Furthermore, underwriter-by-underwriter regressions reveal considerable consistency in the importance of prior trading for larger first-day profits across the biggest corporate bond underwriters.

Third, we provide evidence of cross-sectional variation in the association between investors' first-day profits and their information production and trading relationship with underwriters. This has been difficult to do for equity IPOs because finding convincing ex ante proxies for asymmetric information and agency problems in that setting has been challenging. Using corporate bond data, we are able to show that in offerings characterized by more asymmetric information between underwriters and investors, the importance of information production for obtaining more profitable allocations increases. When underwriters lack underwriting experience in the industry of the new offering, or when they are not core dealers in the secondary market, they allocate more of the first-day profits to investors who produce more information. The relation between information production and profitable allocations is also stronger when the issuer's existing bonds are less actively traded or are traded at widely divergent prices and when the issuer's equity is private. We also show that investors' trading relationship with an offering's underwriters contributes less to first-day profits when the agency problem between issuers and underwriters is less severe. When an offering is of a frequent corporate bond issuer, the association between investors' prior trading and profitable allocations is weaker. This suggests that underwriters' desire to win corporate bond issuers' repeated underwriting business may temper the severity of the issuer-underwriter agency problem.

Finally, we show that when competition for allocations is high, insurers can secure even larger first-day profits through a stronger trading relationship with the underwriters. We use two approaches to identify offerings with high competition for allocations. The first approach focuses on offerings that help insurers "reach for yield," which Becker and Ivashina (2015) show to be in high demand by insurers because of capital regulations. The second approach assumes that offerings characterized by larger secondary market purchases soon after issuance are more sought after by insurers in the primary market. We show that in offerings with high competition for allocations, an insurer's trading relationship with the underwriters further increases its first-day profits, while more information production does not. This suggests that, when competition for corporate bond allocations is high, underwriters prioritize even more the interests of their most important clients over those of other primary market investors.

Several reasons might explain why, in our setting, information production appears as a less important determinant of profitable allocations than a trading relationship with the underwriters. We focus on newly issued bonds that carry a credit rating, which is an independent third-party assessment of the bond's risk. In addition, 72% of bonds in our sample are issued by public firms with equity market information already available, and 96% are issued by repeat borrowers in the public debt markets. These features of the corporate bond offerings in our sample likely make information production by primary market investors less important to underwriters and less rewarded through profitable allocations. This contrasts with the importance of information production in the underwriting process for equity IPOs, which are characterized by high levels of information asymmetry (e.g., Lowry, Schwert, 2004, Hoberg, 2007, Hanley, Hoberg, 2010, Lowry, Officer, Schwert, 2010).

By providing the first large-sample evidence on institutional allocations in corporate bond offerings, our study contributes to the literature in two important ways. It adds to research on whether and why underwriters systematically favor some primary market investors. Equity IPO studies argue that underwriter favoritism is related to asymmetric information and agency problems. We show that the same two drivers are at play in the corporate bond market, though the latter appears to dominate. Furthermore, exploiting the richness of corporate bond issuers' data and the differences between equity and debt markets, we are able to overcome some of the data limitations of equity IPO studies and provide new evidence on the cross-sectional implications of the bookbuilding and profit-sharing theories of underwriter favoritism.

We also add to the literature on the benefits of a trading relationship in the corporate bond market. O'Hara et al. (2018) examine the execution quality of secondary market corporate bond trades and find that insurers receive better prices when they have a stronger trading relationship with bond dealers. Hendershott et al. (2017) show that large insurers have larger trading networks and thus pay lower transaction costs in the secondary bond market. We complement these studies by showing that the trading relationship between investors and underwriters benefits investors in the primary market as well through more profitable allocations.

Section snippets
Institutional background and hypothesis development
In this section, we first describe the underwriting process for corporate bonds. We then develop our two hypotheses as to why underwriters choose to allocate certain offerings to some investors and not others.

Data
In this section, we describe our data sources, main variable definitions, and sample construction. We then present sample summary statistics.

Primary market allocations versus secondary market purchases
To better understand insurers' buying activity in newly issued IG bonds, we begin our analysis with a univariate comparison of insurers' primary market allocations and secondary market purchases. To do so, we identify in the NAIC data any purchases that do not meet our definition of a primary market allocation and are made within 30, 60, or 90 days of a bond's offering date. For each offering, we then aggregate the par value bought and average the price paid, separately for primary market

Determinants of first-day profits
To shed light on why some insurers are able to access newly issued bonds through the primary market while others are not, in this section we investigate the drivers of corporate bond underwriters' allocation practices. In particular, we examine whether an insurer's first-day profits from an offering are related to that insurer's potential information production and trading relationship with the offering's underwriters by testing the hypotheses detailed in Section 2.25

First-day profits and underwriter-investor asymmetric information
Our results so far suggest that for the average corporate bond offering, the effect of investors' trading relationship on profitable allocations is empirically stronger than that of their information production. This may reflect the fact that the information investors provide during the bookbuilding process cannot be directly observed and as a result may be more problematic to measure than their trading relationship with the underwriters. However, if our proxy does reflect information

First-day profits and the issuer-underwriter agency problem
In this section we investigate the potential cross-sectional differences in the impact of trading relationship on first-day profits. While equity IPOs are a one-time event in a firm's history, many firms issue bonds repeatedly over time.36

First-day profits and competition for allocations
When an offering is oversubscribed and more investors compete for an allocation, underwriters have more discretion when distributing the first-day profits from the offering among primary market investors. We expect that our information production and trading relationship proxies should have an even stronger impact on investors' first-day profits when competition for allocations is high.

We use two approaches to classify offerings as characterized by high competition for allocations among

Individual underwriter analysis
In this section, we investigate whether our finding that an insurer's trading relationship with an offering's underwriters dominates its information production as a determinant of first-day profits is consistent across underwriters. We focus on the ten underwriters with the largest number of offerings in the sample for two reasons. First, for each of these ten underwriters, we have a sufficient number of observations to reliably estimate the marginal effect of InfoProd and TrdRel. Second, since

Conclusion
In this paper we provide the first empirical evidence on the allocation practices of corporate bond underwriters. We use a comprehensive data set of insurer trades to identify insurers' primary market allocations of investment-grade corporate bonds issued during the 2002–2014 period. Since these bonds are underpriced by an average of 32 bps, being allocated the bonds in the primary market provides insurers with large first-day profits. We explore the cross-sectional variation within insurers to

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View more references
Cited by (14)
Overallocation and secondary market outcomes in corporate bond offerings
2022, Journal of Financial Economics
Citation Excerpt :
Wang (2020) studies how underwriters use the information gained during the book building process to adjust offer prices. Using NAIC data that identifies those primary investors that are also insurance companies, Nagler and Ottonello (2021), Nikolova et al. (2020), and Flanagan et al. (2019) document that the syndicate is strategic in its primary market allocations. Nikolova and Wang (2022) also use the NAIC data, documenting that flipping by insurance companies is not only common, but is highly variable across offers.

Show abstract
Lifting the veil: The price formation of corporate bond offerings
2021, Journal of Financial Economics
Citation Excerpt :
Brugler et al. (2020) find underpricing decreases after mandated post-trade transparency in secondary markets. Nikolova et al. (2020) study the allocation of a sample of IG bonds to insurance companies. To proxy for investors' information production, they use insurers' percentage holding of CBs in the same industry as the new offering.

Show abstract
Underpricing in the euro area bond market: New evidence from post-crisis regulation and quantitative easing
2021, Journal of Financial Intermediation
Citation Excerpt :
Our results support the predictions obtained from bookbuilding-based theories of underpricing (e.g. Benveniste and Spindt, 1989) but are inconsistent with liquidity-based explanations. We thus confirm Cai et al. (2007), Brugler et al. (2018) and Nikolova et al. (2020) who also favor information-based explanations of bond IPO underpricing. Third, we document that the underpricing of euro area bonds has increased considerably during the financial crisis and has remained above the pre-crisis level since, thereby confirming the results Nagler and Ottonello (2019) obtained for the US market.

Show abstract
The Bond-Pricing Implications of Rating-Based Capital Requirements
2022, Journal of Financial and Quantitative Analysis
The perception of corporate innovation and credit spreads in emerging markets: evidence from China
2023, Technology Analysis and Strategic Management
Inventory-Constrained Underwriters and Corporate Bond Offerings
2022, Review of Asset Pricing Studies
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☆
We thank William Schwert (the editor), an anonymous referee, Vladimir Atanasov, Jennie Bai, Bo Becker, Allen Berger, Carole Comerton-Forde, Mark Flannery, Ioannis Floros, Carole Gresse, Kathleen Hanley, Jean Helwege, Jerry Hoberg, Jan Jindra, Alexander Ng, Christo Pirinsky, Jay Ritter, Michael Schwert, Pei Shao, Yoshiki Shimizu, Yuehua Tang, Donghang Zhang, and participants in the 2018 Fixed Income and Financial Institutions Conference, 2018 FMA Conference, 2019 Women in Microstructure Meeting, 2019 FMA European Conference, 2019 NFA Conference, and seminars at the Australian National University, American University, Babson College, Ludwig-Maximilians-Universität München, Securities and Exchange Commission, University of Florida, University of Melbourne, University of Nebraska-Lincoln, University of New South Wales, University of South Carolina, University of Wisconsin-Milwaukee, and Wichita State University for insightful feedback that has substantially improved this paper.

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Balfour Beatty - trading in line with 2022 levels

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Balfour Beatty - trading in line with 2022 levels
Aarin Chiekrie | 12 May 2023 | A A A
No recommendation
No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Balfour Beatty released its AGM trading update, with the group expecting full-year contributions to profit from its operating businesses to be broadly in line with 2022 levels.

In the first quarter, the group won several contracts but the order book declined from £17.4bn to £17bn.

The average monthly net cash balance was £740m in the first quarter, compared to £815m seen at the end of 2022.

The group expects to complete £150m worth of share buybacks this year, with £75m already completed as at 12 May.

The shares fell 1.7% following the announcement.

VIEW THE LATEST BALFOUR BEATTY SHARE PRICE AND HOW TO DEAL

Our view
Balfour Beatty's trading update didn't pack any surprises, with full-year profits from the group's Construction and Support services are expected to be broadly in line with 2022 levels.

Even in the good times margins in the construction sector are pitifully thin. That's why we were pleased to see the operating profit margin begin to creep back up towards 2% last year. Such low margins leave little room for error.

Some of the group's private sector property projects, which went wrong due to the pandemic, were a drag on profits. No one saw the shutdowns coming, but Balfour's now become a little choosier about its private-sector work. That's particularly true in the UK, where last we heard, the public sector made up more than 90% future orders - meaning revenues are more likely to hold up in an economic downturn.

Selecting contracts where the group has expert knowledge along with longer contracts reduces risk and increases earnings visibility. Infrastructure spend is a key priority in the US and UK, and there was some positive news out of the UK back in November. The government renewed its commitment to infrastructure investment, which should provide demand for large construction groups like Balfour for years to come.

Low margins mean inflation has the potential to upset progress moving forward. But while construction and support services need to mitigate the impacts, the investment portfolio is a benefactor. Both the UK and US portfolios are positively linked to inflation, which helps the wider group offset the challenges in other areas.

Looking back, the pandemic didn't leave behind much scarring on the balance sheet. But the net cash position did start to creep lower in this first quarter. Given there's plenty of competition for the group's cash resources, including a pledge to continue buying back shares, we'd like to see cash generation improve from current levels to help underpin the buybacks. Remember, there's no guarantee of investor returns.

If a government-led infrastructure boom fails to make it through to the bottom line, then shareholder returns will likely be back on the chopping block. This uncertainty is reflected in Balfour still trading below its longer-term average on a price/earnings basis.

Balfour Beatty key facts
Forward price/earnings ratio (next 12 months): 11.7
Ten year average forward price/earnings ratio: 13.7
Prospective dividend yield (next 12 months): 2.9%
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

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This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

  


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Carl Icahn's Icahn Enterprises stock falls 15% after company discloses federal probe
Yahoo! Finance: Top Stories / 2023-05-10 21:171


Carl Icahn's Icahn Enterprises (IEP) stock tanked on Wednesday after the company revealed in an SEC filing it's under investigation from federal prosecutors.

The U.S. Attorney's office for the Southern District of New York contacted Icahn the day after Hindenburg Research released a short-seller report accusing Icahn Enterprises of a "Ponzi-like" structure.

The federal prosecutors sought information about dividends and corporate governance, among other topics, according to an SEC filing released on Wednesday.

Icahn Enterprise shares closed down 15.1% on Wednesday in response to the news and are now down roughly 40% since the report.

Icahn and "affiliates" own approximately 84% of Icahn Enterprises, according to a release. The slump in IEP shares have sent Icahn's net worth down nearly 40%, according to Bloomberg's billionaires index.

Hindenburg highlighted IEP's 15.8% dividend yield, which it said is the largest of any U.S. large cap name. Hindenburg argued that achieving that yield isn't being done through legal means and Icahn is "taking on too much leverage."

Icahn hasn't spoken publicly since the accusations outside of prepared statements. Icahn released an updated statement on Wednesday.

"Hindenburg Research, founded by Nathan Anderson, would be more aptly named Blitzkrieg Research given its tactics of wantonly destroying property and harming innocent civilians," Icahn said in the statement. "Mr. Anderson's modus operandi is to launch disinformation campaigns to distort companies' images, damage their reputations and bleed the hard-earned savings of individual investors. But, unlike many of its victims, we will not stand by idly. We intend to take all appropriate steps to protect our unitholders and fight back."

Billionaire activist-investor Carl Icahn gives an interview on FOX Business Network's Neil Cavuto show in New York February 11, 2014. Icahn has backed off from his campaign urging Apple to increase its stock buybacks, citing the company's recent repurchases as well as an influential proxy adviser's call against his proposal. REUTERS/Brendan McDermid (UNITED STATES - Tags: BUSINESS MEDIA)
In Wednesday's filing, IEP said it's cooperating and providing documents to federal prosecutors.

"The U.S. Attorney's office has not made any claims or allegations against us or Mr. Icahn with respect to the foregoing inquiry," the filing read. "We believe that we maintain a strong compliance program and, while no assurances can be made and we are still evaluating the matter, we do not currently believe this inquiry will have a material impact on our business, financial condition, results of operations or cash flows."

Josh is a reporter for Yahoo Finance.

Click here for the latest stock market news and in-depth analysis, including events that move stocks

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Jeremy Siegel: Stocks Will Likely Stall Without Fed Rate Cut
por Dan Weil

The Street: Stock Market / 2023-05-10 22:24

Many analysts don't think the economy will get weak enough to force the Federal Reserve to cut interest rates this year.

That view was reinforced when the government reported Wednesday that year-over-year consumer prices dipped only to 4.9% in April from 5% in March. That's way above the Fed's target of 2%. And job gains have been solid in recent months.

DON'T MISS: Looks Like The Fed Is on Hold at Least Through June

But market guru Jeremy Siegel anticipates several months of job losses later this year. And he expects the banking crisis to put a crimp on lending. If the Fed doesn't answer with rate reductions, the stock market's rally may be done for the year, the Wharton School finance professor told CNBC.

The progress on inflation -- the year-over-year consumer-price increase was the smallest in two years – is enough to make the Fed pause at its June meeting, many economists say. That would follow 10 straight meetings with rate hikes.

Siegel Worries Fed Will Stay Tight
Siegel is concerned that the Fed will be reluctant to cut rates once it adopts that steady stance after June. "The worry I have is the Fed is going to say … 'we're going to stay tight,'" he said.

"If we see payrolls go negative, if we see GDP negative, and the Fed doesn't cut, then it's going to be tougher sledding for the markets." GDP growth slowed to 1.1% annualized in the first quarter.

As for the stock market, if the Fed "responds to the downside [of the economy/inflation] as rigorously as it responded to the upside," the S&P 500 could generate a 15% total return this year, Siegel said. But if Fed officials don't move fast in easing, Siegel anticipates a return of 5% to 10%.

The S&P 500 generated a total return of 7.9% year to date through May 9. 

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SEC pays whistleblower $279mn in largest-ever award
Financial Times: Markets / 2023-05-05 23:1826


The US Securities and Exchange Commission has paid out its largest-ever award to a whistleblower, almost $279mn, the regulator announced on Friday.

The award is more than double the previous record amount of $114mn, which was announced in October 2020.

In a heavily redacted SEC order dated May 5, the agency did not name the person who was paid the reward, nor did it say which enforcement actions resulted in the payment, a policy designed to protect whistleblowers who want to remain anonymous.

"The whistleblower's sustained assistance including multiple interviews and written submissions was critical to the success of these actions," said Nicole Creola Kelly, head of the SEC's whistleblower office. "While the whistleblower's information did not prompt the opening of the SEC's investigation, their information expanded the scope of misconduct charged."

The SEC's order said two other people came forward with tips related to the enforcement actions, but the agency did not pay them. One of those people's information "did not advance or impact the investigation", the SEC said. Another person's allegations were "vague" and "insubstantial".

Established as part of the 2010 Dodd-Frank act, the SEC's whistleblower office is designed to encourage people with information about financial misconduct to help the agency bring cases.

To get paid, whistleblowers must provide information that leads to an SEC enforcement case of more than $1mn. Whistleblowers can be paid between 10 per cent and 30 per cent of the total of the fines collected.

The SEC has said it has paid out more than $1bn since the start of the programme in 2011.

"The size of today's award — the highest in our programme's history — not only incentivises whistleblowers to come forward with accurate information about potential securities law violations, but also reflects the tremendous success of our whistleblower programme," said Gurbir Grewal, head of the SEC's enforcement division.

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Good afternoon, ladies and gentlemen, and welcome to the conference call of Intesa Sanpaolo for the presentation of the First Quarter 2020 Results, hosted today by Mr. Carlo Messina, Chief Executive Officer. My name is Raziel, and I will be your coordinator for today's conference. At the end of the presentation, there will be a question and answer session. [Operator Instructions].

I'll remind you all that today's conference is being recorded. At this time, I would like to hand the conference over to Mr. Carlo Messina, CEO. Sir, you may begin.

Carlo Messina

Thank you. Welcome to our first quarter 2023 results conference call. This is Carlo Messina, Chief Executive Officer; and I'm here with Stefan Del Punta, CFO; and Marco Delfrate and Andrea Tamagnini, Investor Relations Officers. Today, I'm going to walk you through a very high-quality set of results. We delivered the best ever start to the year. We are highly profitable, liquid and capital solid. Russia exposure is approaching 0, and we have further strengthened our 0 NPL status. Net income at €2 billion was the best quarter since 2007. Q1 was also the best-ever quarter for operating income, operating margin and gross income. Costs were stable with the lowest ever cost income ratio.

These strong results mean that we can raise our net income guidance for the year to €7 billion. Rewarding shareholders while maintaining a solid capital position is embedded in our DNA and remains a priority. In Q1, we already accrued cash dividends of €1.4 billion and executed the €1.7 billion buyback. Common equity ratio increased to 13.7% despite absorbing the vast majority of expected regulatory headwinds. Considering DTA, it stands at 15%. Asset quality is excellent with NPL inflows, stock and ratio at an historical low. The cost of risk is the lowest ever with no release of overlays and a further increase in NPA coverage. We are a European leader in terms of asset quality.

Our strong liquidity position remains sound, thanks to a very diversified and sticky deposit base and more than €100 billion in excess medium/long-term liquidity. Customer financial assets increased by €11 billion. Looking ahead to 2025, the final year of our business plan, we expect to comfortably exceed our €6.5 billion net income target. This is thanks to the boost from interest rates. Our resilience has a 0 NPL and 0 Russia exposure Bank, our flexibility in cost management and our leadership position in wealth management, protection and advisory. As we have proven again and again, we will over-deliver on our promises. Our common equity ratio is expected to be close to 14% post Basel IV in 2025 and 15% including DTA absorption. This does not take into account any additional capital distribution that will be evaluated year-by-year. We confirm our business plan target of a common equity ratio above 12%.

We clearly have significant excess capital. Execution of the business plan is proceeding at full speed. In particular, our technology evolution is moving quickly, and our digital bank, easybank, will be launched by the summer. Now, let me say a few words on the overall macro situation. The economy is already showing better-than-expected growth this year. I remain positive as lower energy and commodity prices are easing inflation, and this will let the Italian economy recovered quickly from the slowdown experienced in Q4 last year, as shown by the positive higher-than-expected growth registered in Q1. Of course, we are very sensitive to the fact that many families and businesses are struggling due to the inequalities and we remain committed to supporting.

We are providing €400 billion in lending to the real economy, not to mention our many social and climate initiatives, which are stepping up. All our stakeholders, not only shareholders, but also employees, the public sector, households and businesses benefit from our excellent performance. I'm proud of our results and thank our people for their hard work. Now, let me turn to the details of our Q1 results. Slide #1. We had the best-ever start to the year.

We delivered the best quarter for profitability since 2007. Our attrition is and will remain rock solid. We achieved the best-ever quarter for revenues, operating margin and gross income even without any contribution from TLTRO. Costs were stable despite inflation and strong investments in technology. NPL inflows remained at a historical low, driving the cost countries just 17 basis points. NPL coverage further increased and we reached one of the lowest NPL stock and ratios in Europe. Liquidity coverage ratio and net stable funding ratio are well above regulatory requirements and business plan targets. Please turn to Slide #2. In this slide, you can see the impressive and positive evolution of net income, up almost 19% on a yearly basis.

Slide 3. Capital ratios are and we remain well above the 12% business plan target, which we confirm not considering any additional distribution that will be evaluated year-by-year. As already said, we have significant excess capital in each year of the business plan versus the planned target of 12% . At the end of March, excess capital was €5 billion. But if you look at Basel IV, and especially better IV after DTAs, because our DTAs in that period will be transformed into reality in 3 years' time. So we will have possibility to be really at 15%. This means that we have significant structural medium, long-term excess capital. Please turn to Slide 4 to provide some color on our liquidity.

Slide 4. We have a best-in-class liquidity position with a very sticky and granular deposit base. Retail funding represents 83% of direct deposits, of which 70% is households. A very large portion of deposits is guaranteed by the Deposit Guarantee Scheme. The average size of deposits is only €14K for households and €69K corporates. Liquidity coverage ratio and net stable funding ratio are more than adequate, higher than peers. Liquid assets are more than €270 billion. In a nutshell, we are in a very comfortable position and ISP is considered a safe harbor by clients. Slide 5. The record start to the year means that we can improve our net income guidance for 2023 to €7 billion.

Let me take you to Slide 7 to provide some color on the P&L. Slide 7. In Q1, net interest income was up almost 70% yearly and 6% on a quarterly basis, but almost 20% and not considering the net contribution of TLTRO in Q4 and when adjusting for the different number of days in the two quarters. Insurance income, both on a yearly and quarterly basis, also thanks to double-digit growth in non-motor property and casualties revenues. The total contribution from net interest income, commissions and insurance income was up 25% on a yearly basis and 2% quarterly. Operating costs were stable on a yearly basis. We had the lowest ever cost of risk. Net income reached €2.2 billion when excluding the final contribution to the resolution fund.

Slide 8. Here, you can see the strong acceleration of net interest income, up almost €500 million compared to Q4 last year when excluding the net contribution from TLTRO. On a yearly basis, we recorded the highest growth among peers almost 70% versus a peer average of around 25%. Net interest income is expected at more €1 billion in 2023.

Slide 9. Net interest income growth on a quarterly and yearly basis was driven by the spread component, which is benefiting from the increase in market interest rates.

Slide 10. Customer financial assets increased by €11 billion in Q1 due to assets under management and administration. Wealth Management will continue to be an important driver for growth in the future and our well-balanced and inefficient business model gives us a clear competitive [indiscernible].

Slide 11. The slight decline in direct deposits [indiscernible] than the reduction in customer loans that was mainly related to the rationalization of position that were EVA negative or no long efficient capital-wise due to the unusually high liquidity of corporate clients who used their own resources for investments and at the same time, indirect deposits increased. It is important to note that the trend reversed in April with €4 billion growth in direct customer deposits. Customer loans, net of [indiscernible], continued to decrease in Q1, mainly due to the use of excess liquidity buffers by client, while the trend of corporate deposits became positive again in April. The Loan to Deposit ratio improved compared to the [indiscernible] of 2022.

Slide 12. We continue to be very effective at managing costs, which are down excluding depreciation. Administrative expenses were affected by an increase in energy cost of over €20 million and will be down net of these components. Depreciation is up, and we keep investing for growth, especially in technology.

Slide 13. Our cost/Income ratio is among the best in Europe. Now, please turn to Slide 14 to see how ISP asset quality continues to be strong and one of the best in Europe. The net NPA ratio is at 1%, already achieving the business plan target and NPL inflows are at a historical low. Keep in mind that we have reduced NPL stock by €54 billion since the peak in 2015.

Slide 15. NPL stock ratio are among the best in Europe. And believe me, it is impressive to look an Italian bank to be the best-in-class in terms of net non-performing loans in Europe.

Slide 16 now. Our cost of risk stood at 17 basis points, in line with being a 0 NPL and 0 Russia exposure bank. €0.9 billion in overlays is still available with no release in Q1. Slide 17. As you can see on this slide, NPL coverage continued to grow and reached 50%.

Slide 18. In Q1, we further reduced cross-border exposure and total Russia exposure is approaching 0. Let me take you to Slide 19 to give you some color on the capital position. The common equity Tier 1 ratio is up to 13.7% after a [indiscernible] point impact from regulatory headwinds and a €1.4 billion deduction of accrued dividends. As you can see, we clearly have significant excess capital even when taking into account the remaining close to 30 basis points of expected regulatory headwinds.

Slide 20. Our excellent performance allows us, once again, to create sustainable benefits for all stakeholders and not only for our shareholders. Our people, households, business in the public sector clearly benefit from our increasing profitability. For example, in Q1, we registered €1.4 billion in taxes, €300 million more than in Q1 last year as net interest income drove increase in net income. In 2022, we gave €80 million to ISP people to help with inflection. In Q1, semis businesses received €15 billion in new medium/long-term lending, of which 10 in Italy. Furthermore, in Q1, we helped more than 900 Italian companies to reforming status, preserving around 4,500 jobs. Since 2014, we have helped more than 138,000 Italian companies. Finally, let me remind you that almost 40% of cash dividends go directly to Italian households and two foundations to support their charitable programs for local communities. Increasing cash dividends will also favor an increase in tax revenues for the State.

Slide 22. The business plan. In addition to delivering excellent results, the people of Intesa Sanpaolo are working across all the industrial initiatives of the business plan. Technology is the key accelerator of our business plan and our technology evolution is moving quickly with significant investments. In particular, let me underline the strong progress of two key pillars. Isybank, our digital bank is already running its pilot phase of selected clients and we launched commercially by the summer. Our artificial intelligence program was launched with more than 60 dedicated IS people and a target of around 160 use cases to support the business plan initiatives. Thirty are already [indiscernible] and other 40 operational by the end of the year. Both Isybank and Artificial Intelligence solution will leverage the two cloud regions in Turin and Milano built as part of the Sky Rocket deal with Google and team. You can go through the details of the plan initiatives in the next 11 slide and on Slide 32, you can see our leading ESG position in sustainability indexes and rankings.

And on Slide 33, you can see what we are doing for our people. I want to highlight that diversity and inclusion is a priority for Intesa Sanpaolo. The largest private employer in Italy. The key international diversity inclusion rankings place our group in leading positions in Europe and worldwide. But for the sake of time, let's move to Slide 36 to see how ISP is well equipped to succeed in a challenging environment. Slide 36. The Italian economy is strong, thanks to solid fundamentals, world-leading outsold wealth, and very resilient SMEs. Growth for this year will be higher than previously forecast and lower-than-expected energy prices will help easy inflationary pressure. And as inflation slows, the economy is set to [indiscernible].

Slide 37. As you can see here, we are far better equipped than its European peers, thanks to our rock-solid capital base, strong liquidity position and a resilient, well diversified and efficient business model. Slide 38. Let me recap the key points demonstrating how ISP is well equipped to further succeed in the future. Our resilient, diversified and profitable business model is over delivering. Our capital position is and will remain strong. ZNPL bank status has already been achieved, and our Russia exposure is approaching zero.

Net interest income provides a strong tailwind. We remain a wealth management, protection and advisory leader with fully owned product factories and more than €1.2 trillion in customer financial assets. We are set to succeed in any interest rate environment. We have high strategic flexibility in managing costs. Our liquidity position is strong, and the execution of the business plan is proceeding at full speed.

To finish to Slide 39 for the outlook. The best ever start to the year means we can comfortably upgrade our full year net income guidance, allowing us to reward our shareholders in a generous way, always a priority for ISP, and me personally. This year, we will return at least €5.8 billion, taking into account the dividend we will pay in May, the second tranche of buyback completed in April and the interim dividend that as usual, will be paid in November based on the full year net income guidance. Additional capital distribution will be evaluated at the end of the year.

I want to highlight that all our stakeholders and not only shareholders will benefit from our performance. Thank you for your attention, and I'm now happy to answer your questions.

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