Thursday, October 13, 2016

Brexit, Trump not concerns in Henderson Janus funds merger negotiations, says Andrew Formica

Henderson Group chief executive Andrew Formica has shrugged off concerns about Brexit and Donald Trump as he sells a multibillion dollar merger with the US funds giant Janus to investors.

Speaking in Sydney, Mr Formica told The World Today he is more concerned about tighter regulation of funds in the wake of the global financial crisis than Britain leaving the European Union, the rise of Donald Trump and the falling British pound.

The merger, which is subject to investor and regulatory approval, will create a US$6 billion company and between them Henderson and Janus will have US$320 billion of assets under management.

"The discussion on Brexit is not really relevant to this deal in the sense that conversations (about the merger) started back in February and carried on prior to the vote," Mr Formica said.

"They weren't influenced by Brexit, they weren't accelerated or decelerated by Brexit. We're looking at something that you judge on a ten to 15 year view and discussions around the EU and the UK really will be a drop in the ocean."

Mr Formica is in Australia with proposed co-chief executive Dick Weil from Janus to promote the proposed deal to investors and institutions.

Both will head Janus Henderson Global Investors in a deal billed as "a merger of equals".

Mr Formica also said he was unconcerned about the falling value of the British pound against the US dollar and that the Brexit fallout did change the terms or rationale of the merger.

"Regardless of what form the UK takes in Europe going forward, the UK market will be a large market for us as a firm as will Europe," Mr Formica said.

"What's happening with the pound, what's happening with the UK economy was less relevant to this. So being a truly global business helps us diversify against any one market or risk."

While Janus has deep exposure in the United States, Mr Formica is similarly unconcerned about Donald Trump tilt for the White House and that his threat to unwind trade agreements could destabilise financial markets.

"Yeah, that was a concern but at the end of the day, again we see on the longer view that it won't have much of an impact."

Despite the relaxed comments about Brexit and Donald Trump, the merger is important for both Henderson and Janus given anticipated cost savings of US$110 million per year.

The Henderson Janus merger is seen as a possible prelude to similar marriages in a world of low interest rates and slowing growth.

However, Mr Formica says while it makes sense for Henderson and Janus, it might not necessarily work for competitors.

"The industrial logic of doing this makes a lot of sense and you could argue that other firms should do the same," Mr Formica said.

"But their ability to actually do it and bring it to fruition would be challenged."

Fed minutes show division but point towards December rate rise

The likelihood of the first US interest rate rise in a year has slightly strengthened after a number of Federal Reserve voting members said a hike would be justified "relatively soon".

With markets factoring in as much as a 70 percent chance of a December rate hike, several members noted higher rates would be warranted if the US economy continues to strengthen.

"Several members judged that it would be appropriate to increase the target range for the federal funds rate relatively soon if economic developments unfolded .. as expected," according to the minutes from the Fed's September policy meeting.

Despite signs of a stronger appetite for a rate rise, the minutes also signal caution and division among members about the actual timing on a rates move.

"It was noted that a reasonable argument could be made either for an increase at this meeting or for waiting for some additional information on the labor market and inflation," the minutes say.
"A couple of members emphasized that a cautious approach to removing accommodation was warranted."

The minutes show that three voting members on the Fed's rate-setting committee dissented on the September policy in favor of an immediate hike when rates were left at between 0.25 and 0.5 percent.
There is concern that "without gradual increases in the target range" a tighter labour market could result in "a subsequent sharp tightening .. that could shorten the economic expansion."
There also appears to be jitters that inflation remains below the Fed's two percent target with voting members noting that "there were few signs of emerging inflationary pressures."
Wall Street stocks ended 0.1 percent higher after the Fed minutes were released despite initial analysis showing little new information in the Fed's rates thinking.
The US dollar was slightly higher on the continued speculation that the Fed will push the rates button in December.

The Federal Reserve board next meets on November 1 but a rate rise is seen unlikely a week out from the US presidential election.

Wednesday, October 12, 2016

ASIC launches crackdown on life insurance industry as CommInsure probe continues

The Australian Securities & Investments Commission has announced a major crackdown on the life insurance sector after identifying what it calls "significant shortcomings" in the way claims are handled.

Read the review here

While ASIC has not found evidence of system misconduct, it has revealed the highest level of rejected claims relate to total and disability and trauma.

ASIC's crackdown comes as it continues to investigate claims of unethical behaviour at the Commonwealth Bank's insurance arm, CommInsure.