Having a look at some of the biggest winners and losers on the global financial markets in 2015, Jamaican stocks result to be among the top performers; the island nation’s index rose more than 80 percent. As for losers, the political issues and lower oil prices have hurt the Ukrainian equities index, which has tumbled 56 percent year-to-date.

luca 1

At the same time, on the developed Market, Eurozone equities enjoyed some rallies in 2015, buoyed by the ECB’s bond buying and the weak euro. In terms of local currencies, Europe’s benchmarks did well this year. Investors greeted Italy for finally dragging itself out of a triple-dip recession, but in Spain, fears of political impasse outweighed the excitement surrounding its economic recovery. The commodity rout hammered London’s FTSE 100 as it went down 4.8 per cent on the year.

Luca 2

Had it not been for a small group of nifty companies, 2015 would have entered the history books as a terrible year for the US stock market.

The consumer discretionary sector led the way this year, followed by healthcare. However, energy and materials companies were the biggest loosers due to the decline in price of many commodities. Yet there were some very positive numbers for a group of four companies that have come to be known as the “Fangs”(Facebook, Amazon, Netflix and Google) and for a wider group that included Microsoft, Salesforce, eBay, Starbucks and Priceline to create the “Nifty Nine”.

Both groups gained more than 60 per cent throughout the year.
Part of the reason for that was that profits were declining. This was in large part due to decreasing revenues at energy companies, driven by falling oil prices. But the strong dollar, which hit overseas earnings, was also a factor. In the same manner declining margins played a key role, as wages started a slight recovery. Therefore investments flow mainly to the enterprises that can show strong revenue growth. That is extremely worrying.
Dominance by a few big companies is a symptom of the end of a bull run, as it happened in the early 1970s (dominated by the “Nifty Fifty”) or the late 1990s (dominated by the dot-coms).

luca 4.png
The rise of tech startups with extremely high valuations, as well as the ‘FANG’ group of stocks, has generated much concern over whether or not we are in another tech bubble. According to Goldman Sachs, there is one important difference between the confirmed tech bubble we saw in the late 1990s, early 2000s and today. The big difference is earnings.

During the tech bubble, tech companies never accounted for more than 16 percent of the total index earnings. As January 2016, tech earnings contribute for over 20 percent. Regarding the market cap, tech companies’ accounts for a smaller portion of the S&P 500 in comparison with previous years. In fact, as today, the tech industry’s market cap represents only 21% of the S&P index as compared with previous peak figures of 32%. (smaller market cap of S&P 500, higher earning, hence it is less likely the bubble will repeat itself).

Luca 5.png


 The US stock market has vastly outperformed the rest of the world after the 2008 crisis, accommodative monetary policy helped this to happen. So did the strength of the US economy, while the strong dollar also amplified the outperformance. Yet a too strong dollar might hit the US companies’ overseas earnings while strengthening the rest of the world, and other central banks are now aggressively easing monetary policy while the US Federal Reserve has just started to raise rates.
The growth gap between the US and Europe is starting to narrow. At this point in time, we are expecting Europe to see GDP growth of roughly 1.75 per cent in 2016, against 2/2.5 per cent in the US. This was mainly caused by the rising dollar price that redistributed growth and corporate earnings from the US to Europe. It would be a surprise if in the second half of 2016, the European economic growth accelerates beyond the US growth. Such a result might produce a year of earnings growth for European listed companies, something which has failed to happen since 2010. Stronger Europe growth would challenge assumptions that very low interest rates have become normal.

The UK is expected to follow the US and raise rates by the end of the year, yet Europe is still cutting them. China’s economic wobble (which has deepened the commodities crisis and by doing so, dragged the FTSE 100 down with it) has depressed emerging markets.

Even the political landscape is shifting. A presidential election in the USA and the European referendum in the UK are creating speculations over what “Brexit” or a Trump presidency might mean for investors. The other main risks for this year are Fed’s mismanaging communication of its process, which could have a destabilising impact on financial markets and another round of deflationary pressure exported from China.

 Moreover the world’s major economies are beginning to diverge. The US was the first to begin the withdrawal process from rock bottom rates, but fears remain about its future growth prospects.

Businesses compete for investor money and also offer corporate debt (bonds) to fund operations. If the rates of Treasuries rise due to Fed action or a spread selloff in the bond market, then a company that wants to raise capital must offer higher rates of return on their bonds offerings. This higher rate of return is a larger burden on their balance sheets and decreases profitability therefore they will have lower EPS. Considering also the higher borrowing rates of businesses and consumers, a general slowdown in corporate profits could arise. This slowdown will result in the liquidation of share holdings in search of better investments.


For the commodites sector, 2015 was characterised by a strong downward trend.The worst performers were West Texas Intermediate and Brent Crude oil. Metals, such as platinum and palladium were down by roughly 30% along with gold losing up to 10%.

In agriculture, the coffee fell down by 25%, while it was an upward year for cotton and sugar. The collapse in oil prices during 2015 was determined by the slowdown in China’s economical growth and the unchanged Saudi Arabia’s oil production, which has not decreased in order to stop the business of fracking in America. If oil reserves reach the maximum of their production capacity and the oil demand decreases further down, the oil price will suffer further downward corrections.

The general consensus of the Brent’s price for 2016 is 50$ per barrel, compared to the 29$ per barrel at the moment. Furthermore, Iran, free from sanctions, will add to the current level of world production (95 million barrels per day) half a million barrels per day. Three major investment banks (Morgan Stanley, Citigroup and Goldman Sachs) warned that if oil storages continue to rise, the price might reach a minimum of 20$ in the short term.
However, the decline of oil production in the United States, will counterbalance the levels of world production, creating conditions of getting prices to reach the ones agreed in the consensus. Consequently US WTI crude oil is keeping its outlook at $45 a barrel, while for Brent crude oil at $50 a barrel in 2016. Finally major investment banks analysts forecast gold to remain around $1,100 per ounce for the next three months, $1,050 an ounce for the next six months and $1,000 an ounce for the next 12 months.

London, Jan 19th 2016

Luca Cartechini, Head of Asset Management
Fulvio Abbonato, Asset Management Associate

DELL & EMC -The Path to be Giants- M&A Reports

Computer technology giant Dell Inc. is an American privately owned multinational computer technology company based in Texas, United States. About 70 percent of Dell’s business is still tied to it’s core business of personal computers. Bearing the name of its founder, Michael Dell, the company is one of the largest technological corporations in the world, employing more than 103,300 people worldwide. Dell was listed at number 51 in the Fortune 500 list, until 2014. After going private in 2013, the newly confidential nature of its financial information prevents the company from being ranked by Fortune. In 2014 it was the third largest PC vendor in the world. Dell is currently the #1 shipper of PC monitors in the world. In the first half of 2015 Dell showed of 12.6 percent year-over-year growth and revenue of $2.3 billion which placed the company in the second spot with 18 percent market share this quarter. Dell hasn’t released earnings numbers since it went private in 2013, but back then its EBITDA was $4.5 billion. And there is some indication that Dell’s cash flow has slipped since then.



EMC Corporation is an American multinational corporation headquartered in Massachusetts, United States. EMC is a global leader in enabling businesses and service providers to transform their operations and deliver information technology as a service (ITaaS). Fundamental to this transformation is cloud computing. EMC has over 70,000 employees and is the world’s largest provider of data storage systems by market share. On October 12, 2015, Dell Inc. announced that it would acquire EMC in a cash-and-stock deal valued at $67 billion—the largest-ever acquisition in the technology industry. In the first quarter of 2015, EMC finished in the top position within the worldwide enterprise storage system market and ex, holding a market share of 17.4% and a total revenue of $1,531Million. EMC reported an increase in the 2 quarter 2015 by 1.99% year on year, while most of its competitors have experienced contraction in revenues by -4.36%.




The sector seems to be highly competitive as we can see many players on the market, with a strong presence worldwide. First of all, Dell Inc. mainly competes with Hewlett-Packard Company and Lenovo, but also with IBM Corporation, particurarly in the business hardware and software arenas. Apple is one other strong competitor for what concerns PCs. It is absolutely important the loan of $ 2 bn from Microsoft Corporation who let Dell improve his business in data analytics and cloud services.  Dell’s PCs compete as well with products from HP, Lenovo, Apple, Acer and Asus. However, unlike any of those rivals, Dell no longer offers smartphones. Although Dell continues to sell Windows-based tablets, it no longer competes in the Android tablet arena. At the same time, EMC Corporation has a strong presence in the Electronic Components Industry and his main competitors are Avnet Inc, NetApp, SanDisk Corporation, VOXX International Corporation and West Digital Corporation.

Analyzing the results of Dell and EMC compared with the industry, we can state what follows:

Dell Dell’s Competitors EMC Corp. EMC Corp.’s Competitors
Revenue Growth Y/Y 0.21% 0.89% 1.99% -4.36%
Revenue Growth Q/Q 3.13% -1.79% 6.84% 3.85%
Net Income Growth -72.13% 70.43% -16.56% -43.35%
Profitability – Net Margin 1.41% 15.38% 8.65% 9.48%

Table – Data analysis based on 2013 for Dell, on 2015 for EMC Corp.


Most of companies in this sector compete based on their market presence, wide range of products, service or price. Some of these companies also compete by offering information storage, information governance, security or virtualization-related products or services, together with other IT products or services, at minimal or no additional cost in order to preserve or gain in terms of market share.

The main advantages to have to over come next upcoming new challenges are quality, performance, functionality, scalability, availability, interoperability, connectivity, time-to-market enhancements and total value of ownership. It i also required a well-developed distribution channel in order to serve clients worldwide in an efficient way.

Last but no least, offering a full range of expertise before, during and after purchase is one service that, nowadays, this industry can’t miss.

Only the most client-oriented companies will grow and acquire other companies in order to ensure long-term growth and a strong presence.


  • 29. Oct 2015 Dell privatization Deal with Silver Lake Partners completed
  • Oct 2014 Hewlett-Packard announces its split
  • April 2015 Dells rolls out aggressive marketing campaign to redefine company
  • May 2015 EMC acquires Virtusstream (cloud computing software company)
  • July 2015 Silver Lake manager expresses admiration for EMC’s “federation model”. A report suggest that Dell wants to spin off its CyberWork security business in an IPO
  • Aug 2015 EMC endures continued pressure from investor Elliott Management
  • 08 Oct 2015 innital report suggests that EMC and Dell are making a deal. NYSE 27.18
  • 12 Oct 2015 Del-EMC deal is officially confirmed. NYSE: 28.35


 Looking at deal financials, we can immediately understand we are studying an huge deal, one of the biggest in the history: following data are in EUR million.

Implied Equity Value 55,987.19
Net Debt -283.53 (incl. ST investments: USD 1.939 bn)
Enterprise Value 55,703.66
Deal Value 55,703.66

We can now go over, analysing the share price, underlying that the Offer Price per Share was EUR 28.86, including the Premium paid to acquire each share.

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Moreover, market multiples implied are positive, as follows.

deal finan.png



What brought Michael Dell and the company’s management to acquiring EMC in a $67bn deal?

The combination of Dell and EMC will create the largest “privately-controlled, integrated technology company.”

Expensive or not, Dell, led by CEO Michael Dell, would be able to expand its business and gain entry into a key part of the data storage market. It would also get control of the software company VMware.

EMC’s investment in VMware (VMW) has been a success driving the Group’s growth. Out of $24.4bn in revenues, EMC last year generated $5.5bn in free cash flow, resulting in a 22.7% cash flow yield. Stable and solid free cash flow will help repay the new $50bn debt issued to finance the transaction.

Furthermore, relevant synergies are expected from the transaction, with revenue synergies expected to be $2bn, that is three times the cost synergies. Indeed, Dell is planning to sell EMC’s solutions to some of its customers, pointing to over $1bn in potential additional annual revenue. As a result, Dell will complete its product offering, thus recovering a competitive advantage relative to competitors like Hewlett-Packard and IBM.

Moreover, the transaction is in line with Dell’s strategy to widen its portfolio from a prior focus on personal computers to now also include data storage capabilities including servers, cloud computing and virtualization.

However, does this deal make any strategic sense? It does on paper. Dell and EMC overlap very little. Dell posts about $56 billion in annual revenue according to an estimate, most of which comes from PC sales and a little of which comes from enterprise storage. EMC is the world leader in storage gear, and for the most part its products do not overlap with Dell.

The two businesses are largely complementary: combining them could yield a company with about $80 billion in annual revenue and free cash flow of about $7.7 billion.

Both PCs and enterprise storage are declining or slow-growing markets. The argument for combining the two is to create a unified vendor for PCs, servers, software and storage.

[1] Source: Mergermarket.


Antonio Conte, Head of M&A

Thea Wrobbel, M&A Associate TMT

Riccardo Pizzino, Head of Treasury & Legal



On the Rollercoaster – Yearly Recap

The 2015 has been a very turbulent year for financial markets globally. Greece, the unpredictable oil rout and weak growth perspective in China repeatedly triggered waves of sell-offs during the last year. Here a closer look at the main characters or events that set the trends this year.

S&P 500 Yearly PerformanceSP500


The oil rout has started in the middle of last year, when it collapsed from the range $110/100 a barrel to levels close to the post Financial Crisis lows, $35/45 a barrel. Since the beginning of 2015, Oil has been very volatile, trading in a range between $35 and $65 a barrel. Its unpredictable trend affected financial markets on a global scale. The high-yield bond market is under strict observation after the low prices of oil have been pushing a large number of shale gas companies on the verge of bankruptcy. On December 10, Third Avenue Focused Credit Fund closed its $800m junk-bond portfolio due to the slump in bond prices. The energy sector has been dramatically hit by the rout, forcing layoffs, firm aggregation e.g. (Royal Dutch Shell and BG) and Capex reconsideration. Weaker demands from top-tier consumers as China and consistent OPEC plans to keep production high pushed prices down, weakening inflation expectations in developed countries and increasing risks of deflation. Emerging Markets heavily relying on oil exports have to cope with more than halved revenues from the primary source of inflow, currency depreciation and inflation. Brazil is reportedly in recession, Saudi Arabia disclosed a Balance Deficit of 15% of its GPD, envisaging austerity periods in public spending. Oil will still play a major role in 2016, when the ban on Iran oil exports will be lifted and new fresh oil will flood into the market.

WTI 5 Year PerformanceOilSource: Bloomberg


Being the second largest economy in the world, China has set the trend in many occasions this year. The Stock Market crash sparked fear and volatility all over the world. The Shanghai Composite, after a rapid ascent, it started to fall rapidly between June and August, losing almost 40% of its value. Weaker growth perspectives, decline in industrial production, and weaker demand for commodities, especially copper, dragged down global markets, spilling over other asset classes, especially Emerging Markets local currencies. In order to give China exporters a competitive edge People’s Bank of China devalued the renminbi several times during this year. In August, in the wake of the first devaluation, the Yuan reported the largest daily loss in over 20 years. Kazakhstan’s Central Bank, in order to cope with depreciating rival currencies, decided to shift to a free-floating rate. On August 15, the tenge tumbled 26%. These moves raised the risk of a potential currency war between August and September, which eventually fade away.

CNY/USD Yearly PerformanceYuan RenminbiSource: Bloomberg

In the first days of 2016 a dramatic sell-off in China that triggered the circuit breaker mechanism halting trading if losses greater than 7% materialize, produced a chain effect on the Financial System, resulting in the worst first week of trading in history. The S&P lost almost $1 trillion in market capitalization in the first week.

 Central Banks

The Fed and the ECB adopted divergent strategies in terms of Monetary Policy. Improved economic conditions and a more solid labor market in the US pushed the Federal Open Market Committee to unanimously raise interest rates up to 50 basis points for the first time in nine years. The December hike was broadly expected by all market makers, and paved the way for future hikes in the coming years. The ECB, in the opposite direction, eased the monetary policy in December, lowering the deposit rates at minus 30 basis point and prolonging the quantitative easing up to March 2017, with potential further extension. Draghi’s move disappointed market makers, who foresaw an increase in the monthly purchase of  securities, hammering down European Equities. Despite eased policies, inflation in both region is far from targets and the pressure on oil prices seems to further raise the risk of consistent low prices and deflation. Central Banks will still play a key role in the next year in their effort of improving economic conditions and reaching inflation target.

In the first days of the New Year, negative signals coming from the commodity market and China sparked uncertainty and fear over the stability of the financial system. Will the improved economic conditions in Europe and America be able to offset the downside risks coming from the Chinese transitioning economy?


Tancredi Viale, Master Student

Shadows at the horizon – Breaking through Shadow Banking

Shadow banking refers to the whole range of intermediaries that intermediate credit through complex funding techniques. Unlike the traditional banking system, which is shielded from runs because of insurance guarantees, the shadow banking system entails a very high level of risk. This very risk gathers momentum regarding the size of the system. Arguably, it is estimated in the US to be around 20 trillion $ whereas the bank credit running barely represents the half.

Thus, how do shadow banks serve a critical role in our financial system and how far should they come under regulators scrutiny?

First of all, let’s have a look at the process of credit intermediation in the shadow banking system. Credit intermediation can be divided in three parts: credit, maturity and liquidity transformation.

  • Credit transformation basically consists in lending to AA borrowers while issuing AAA liabilities
  • Maturity transformation is the use of short term deposits to fund long term loans
  • Liquidity transformation is the funding of illiquid assets like debts instruments using liquid instruments like stocks

It is well known that traditional banks perform credit intermediation as well. Nonetheless, the main differentiation consists in the process involved. The shadow banking intermediation is a daisy chain of non-bank financial intermediaries as shown here

China Shadow

As a result, this process transforms risky and long-term loans into money-like liabilities, reducing through a complex procedure the credit risk that can stem from them. What was once performed under one roof in the traditional banking system is now done over a broad array of specialized entities that are not vertically integrated.

The popularity of shadow banking has grown vividly: allowing more freedom in setting flexible lending rates, broadening access to credit and even funding the private sector.

These intermediaries (hedge-funds, private equity entities e.g) play a gap-filling role left by banks in the market and deliver important benefits for the economy: need of liquidity, risk transfer, and maturity transformation.

However, the shadow banking system remains outside the scope of regulators and has prompted serious concerns.

Because of its reliance on short-term funding, shadow banking is very likely to amplify financial shocks in case of liquidity mismatch. Reforms are highly needed to make shadow banking sounder and more resilient. The final objective is to implement incentives so that risk is properly allocated and managed. So as to bring securitization under the regulatory umbrella, finance specialists suggest the creation of NFB’s (Narrow Funding Banks) that would be the only entities allowed to purchase ABS and would benefit from government insurance just as depository banks. For this matter, NFB’s portfolios would be monitored to prevent runs and mitigate financial stability.

The urgent matter nowadays is to rethink the shadow banking system; to shape it into a strong market-based financing that will sustain economic growth without breaking the rules of regulation.

China struggles against the shadow banking system

In China, the shadow banking issue is very acute. The amount of leverage has grown tremendously and here is why. As a matter of fact, traditional banks rates are highly regulated, thus higher rates were generated through the shadow banking system so as to attract investors. Borrowers also went to shadow banks because banks would offer only unattractive short-term funding or turned down million of Chinese requests for loan. Shadow banks have not the capital requirements imposed by the People’s Bank of China.


Social FinancingSource: Brookings Institute, Shadow Banking in China: A Primer, March 2015

This being said, the shadow banking system lent banks billions of dollars to invest in stocks, expecting a high return. Nonetheless, the return on stocks wasn’t high enough to pay what was promised. The whole Chinese economy is deeply threatened by such mechanisms. A Chinese “Lehman moment” might loom ahead.


Soukaina Bouzri, Master Student

Islamic Finance: The Way Forward

In 2008, while western governments were claiming for a more sustainable and regulated financial system, their counterparts in the Middle East were working towards a long-term global expansion plan for their ancient but efficient model of capital distribution: Islamic Finance.

How is Islamic Finance doing better than capitalism? The answer lies in the sukuk-based financial model that prefers real economy over complex derivatives solutions. Sukuk refers to the most common Islamic form of debt, roughly comparable to a bond instrument that, however, does not provide a fixed interest rate of remuneration. In fact, the concept of interest rate is forbidden by the Shariah law (Riba principle), thus the capital raised through sukuk is remunerated with a floating rate based on the return of the underlying real asset.


The adoption of Shariah-complaint financial instruments might represent a tremendous opportunity for western countries to attract foreign investments. In fact, Sovereign Wealth Funds (SWFs), such as Kuwait Investment Authority ($548 Billion AUM 2014), despite their recent liquidity constraint due to bearish oil price (-43.4 % 1Y), still hold a key position in the global investment landscape and constantly seek for new shariah-compliant opportunities.

The UK is at the forefront of this new phenomenon, becoming the first country outside the Islamic world to issue sovereign Sukuk (£200 million, 2.036%, 25 June 2014). Focusing our sight on recent project financing trends, major projects and infrastuctures including but not limited to Europe’s tallest building, The Shard ($435 million), have been financed issuing Islamic financial instruments.

All in all, London has definitely the potential to become the 2020s global Islamic Finance hub and this might further strengthen the relationship between Europe and the Middle East, creating a more integrated EMEA Region.



Ludovico Buffo, Master Student

Turmoil and Hope -APAC, Japan & ASEAN Trends – Sept. 20th 2015

While the Asian financial storm is far from being over, the FED recently decided not to hike up the interest rates as the conditions in the global economy have changed dramatically since the last Federal Open Market Committee meeting.

 Federal Funds Rate vs. Bank of  England  Base RateRates

The Shanghai Stock Exchange Index (SSE) keeps maintaining its downward trend, losing up to 15% in the last 30 days, reaching the lowest value of 2927.25 in Aug 26. Following the strong financial measures adopted from the Chinese government along with a positive response from the US regarding the interest rates, analysts would have expected a slight upward change in the Chinese stock market that, however, did not happen, highlighting investors’ concerns about China slowdown and Yellen’s warnings about weaker global growth perspectives. A Fed interest rate hike would increase the attractiveness of US dollar denominated assets and thus generate capital outflows from the China and Emerging Markets towards Wall Street.

 Shanghai 1 M

Japanese counterparts seems to be reluctant to changes as Abe gets reelected and uncertainty regarding structural reforms (Abenomics’ third arrow) still persists. This position is shared by Standard & Poor’s who, on Sept 16, downgraded Japan from AA- to A+. The uncertainty is shown as well in the NIKKEI, where high volatility was registered  in the last weeks (+7,5% Sept 9). The USD/JPY pair, In the last month, traded in the ¥ 120-123 range and at the moment one dollar is worth  ¥ 120.07. The release of the Japanese National Consumption Index due the next week, might affect the exchange rate, and, if the preliminary results for inflation of 0,1% (against the 2,0% target) were to be confirmed, further stimulus from the BoJ might become reality. This scenario will involve a further weakening of the JPY.

 Tokyo, Nikkei  225 1Y PerformanceN225

Looking beyond those two giants, other Asian countries are on the rise. In fact, several experts strongly believe that the ASEAN (Association of Southeast Asian Nations) will be the new BRICS. While BRICS economies struggle, as Brazil was recently downgraded to junk bond (BB+) from S&P along with the Russian Ruble losing more than half of its value (USD/RUB +70% 1y), one of the most prominent ASEAN’s country, Malaysia, gained a + 6,02% (1M) in FTSE Bursa Malaysia KLCI Index. This negative correlation ( Shanghai Index 1 M -18.34%, KLCI Index 1 M +6%) shows how ASEAN economies are getting more and more independent from other emerging markets.

Kuala Lumpur, FTSE KLSE, 1Y PerformanceKLSE

Furthermore, recent political and economic reforms strongly support this view as well. In fact, ASEAN countries have recently established an “Asian Region Funds Passport” that will provide a multilaterally agreed framework to facilitate the cross border marketing of managed funds across participating economies in the Asia region. This partnership will enhance the expansion of the asset management industry in the region and further tighten the connections between these rising economies.


Ludovico Buffo, Master Student

FIG Coverage – Americas

With the quarterly earnings season already passed away, Financial Services companies have demonstrated to be the real winners in these turbulent times. The majority of the big banks, with some “excellent” exceptions, have outpaced analysts’ estimates. Cost-cutting and business optimization have been the main drivers for the rump-up in profitability.

Starting from Goldman Sachs, this bank is the main exception in the positive momentum banks earnings are experiencing. While major business lines have reported a solid growth pace, expenses have increased dramatically. Goldman Sachs earnings were deeply affected by litigation costs that the Company accounted in legal provisions, which amounted up to $2.77 per share, or $1.48bn. The Bank is in talks with authorities to settle the misconduct in the mortgage crisis. All the major business lines have shown solid growth. Investment Banking grew 13.4% YoY, with the Bank ranking in the top positions in all major Financial Advisors League Table, having topped, as of today, the $1 trillion threshold in Global announced M&A, according to Dealogic. Investment Management revenues increase reflect the effort of Management to focus in this business Area. The firm announced two acquisitions in asset management businesses since the start of the quarter, Imprint Capital, an impact investing firm, and Pacific Global Advisor Solutions from Pacific Life Insurance Company, a New-York based firm specialized in customized investment and risk Management solutions. Trading revenues have been mixed, with serious plunges in FICC, but good performances in Equity +24%. Overall, without legal charges accounted as provisions, the Bank outperformed market expectations.

 Goldman Sachs

Goldman Sachs

Morgan Stanley has been keeping a solid track record of economic performances. CEO James Gorman has been reshaping the Bank’s business focus and revitalized the Bank profitability. The Bank outpaced market consensus in Revenues reporting $9.8bn in Revenues vs. $9.1bn, and EPS excluding items at $0.79 vs. expectations at $0.74. Even if Investment Banking revenues fell almost 1%, Morgan Stanley, according to Thompson Reuters, ranked 2n globally in 1H 2015 in advising deals. MS Management is keeping on shifting from volatile businesses such as Bond Trading towards more stable and predictable ones such as Asset Management, which, as of today, accounts for 27% of its revenues. Trading Revenues shone, with great results in Equity, jumping 27% to $2.27bn. EPS on a YoY basis dropped almost 8% due to increased compensation costs. The Firm had a $609m tax benefit the year before.

Morgan Stanley

Morgan Stanley

Going forward to the biggest US banks by assets, J.P. Morgan beat profit analysts estimates, mainly due to reductions in litigation expenses, while other business lines remained flat. “Investment banking revenue was up 4% on higher advisory fees and higher debt underwriting fees, partially offset by lower equity underwriting fees compared to a strong quarter for equity underwriting in the prior year” (J.P. Morgan earnings release). J.P. Morgan continues to benefit from the prosperous M&A environment, being among the top three in the Financial Advisors League Tables. Corporate and Investment Banking unit instead reported a decline in Net Revenues of 6% from previous year, dragged by lower Lending revenues.Trading revenues are still mixed, while Equity trading soaring 27% and Fixed Income falling 21%. The Asset Management unit Net Revenues increased 6% up to $3.175bn, while “Assets under management were $1.8 trillion, an increase of 4% from the prior year, due to net inflows to long-term products and liquidity products.”

J.P. Morgan

JP Morgan

Bank of America Merrill Lynch surprised analysts reporting $0.45 EPS, vs. $0.36 consensus. “Solid core loan growth, higher mortgage originations and the lowest expenses since 2008 contributed to our strongest earnings in several years, as we continued to build broader and deeper relationships with our customers and clients. We also benefited from the improvement in the U.S. economy, where we are particularly well positioned,” CEO Brian Moynihan said. Bank of America has been one of the most affected banks in the mortgage crisis in terms of litigation expenses. Investment Banking fees amounted to $1.5bn, reporting slight decrease from the previous year, but still ranking 3rd globally, as of June 30, according to Dealogic. Trading Revenues were mixed as BofA’s peers, with uptrend in Equity S&T and downturn in FICC. Global Markets unit, on a YoY basis is down 7% from the previous year to $4.259bn. Asset Management fees increased 9% to $2.1bn, and Total Client Balances, which include Asset under Management, Asset under Custody, Client Brokerage Assets, and client deposits and loans totaled more than $2.5 trillion. The Bank efforts in expanding this particular area of business is reflected in the increased number of advisors, by 1077 workers. Litigation and operating expenses other than compensation and benefits dramatically decreased reflecting stronger effort in cost cutting and expense management.

Bank of America

Bank of America

Citigroup has been another bank who outperformed market consensus. Bank’s profits were hammered down last year by litigation expenses. The mortgage settlement with the US Department of Justice costs the bank more than $4bn. Quarterly profit saw a robust rebound. Institutional Client Group, the Corporate and Investment Banking arm of Citigroup, reported a 6% Increase in Revenues up to $8.9bn. “Investment Banking revenues of $1.3 billion decreased 4% versus the prior year period, as a 34% increase in advisory revenues to $258 million partially offset a 3% decrease in debt underwriting revenues to $729 million and a 25% decrease in equity underwriting revenues to $296 million”, Citigroup Press Release. Trading Revenue decreased mainly due to non recurring charge on the Equity segment for valuation adjustment. Fixed Income and Equity markets revenues totaled $3.7bn.



Some trends are identifiable. The majority of these Financial Institutions reported results that topped estimates due to improved conditions in the economic environment. Regarding the Investment Banking business the flat rate environment triggered an upticking volume in M&A, fueled by debt and equity financed transactions. Advisory business is experiencing a sprouting momentum. Most of the peers are investing in the Asset Management business, due to the safety and the predictability this business incorporates, and improved conditions in market confidence. Sales and Trading is experiencing weakness in the FICC, but strength in Equity. Overall, the sector was one of the most outperforming in this earning season. What the market will bring next?

For more references:

The Chinese Turmoil: Intervention or Resurrection?

China, the leading country of the BRICS , seems to be experiencing a slowdown.  Despite many experts claim that China’s GDP will rise by $7 trillion in the next decade (the equivalent of “two more Chinas”), Chinese manufacturing was dragged down by a weaker demand for Chinese exports down to the 12 months lowest level of 49.2 in April 2015. However, the main questions remains: how does this correlate with the recent Chinese stock market crash? Economists say it does not.

Shanghai and Shenzhen, the two Chinese stock markets, strongly differs from their global counterparts in terms of investors. In fact, Individual investors account for the 80% of the stock markets, as there is a weak presence of institutional investors. The rising Chinese middle class preferred to invest its savings into the bullish Chinese stock markets as stocks prices have constantly appreciated in the last years. (CSI 300 Index + 84,12% 5 yr). These peculiarities of the market along with the spread use of margin trades (Borrowing money to invest in the stock exchange), makes it clear that the Bubble had to burst soon.

With the Chinese stock markets losing up to $4 Trillion (15 times Greece’s GDP) and going down by 34% from its peak in June, a strategy was needed. After blaming US Investment Banks for bearish recommendations on Chinese stocks, China’s government, central bank and regulators have closely worked upon measures to prop up the stock prices in a very rapid way. On the first place, an unexpected interest-rate cut took place in order to stimulate the liquidity as well as an order for national brokers to pump up government-backed funds in the markets. These financial measures along with a freeze on new IPOs and a stricter regulation on margin trades, although, had only a marginal effect in the CSI 300 index that caught up only by 3,5% from its lowest peak of July 8, while reporting, last week on July 27, the biggest day drop since 2007, -8.43%.


At the moment, the problem regards the stock market only but there is a huge risk that it might turn into a new financial crisis. In fact, so many investors took out loans with financial brokers using stocks as collateral (margin trading) and this trend could affect their capability to pay off their loans. For this reason, 1400 companies were given permission to suspend trading in their shares in order to preserve their value.

Signals of a weakening momentum in the Chinese real economy came in the weekend from the Purchasing Manager Index, which measures the manufacturing activity. The PMI settled July at 50.0 below the consensus at 50.2 and on top of the benchmark at 50.0 that distinguish expansion from contraction. All those signals are driving down all the major global commodities, Copper and Oil on top of the list, while all the commodity currencies are experiencing a brutal depreciation against the dollar, threatening global growth projections.

Chinese PMI


Ludovico Buffo, Master Student


A bubble about to burst? – APAC Overview

The monetary expansion policy of the People’s Bank of China fueled the Shanghai, Shenzhen, and ChiNext indices of 95%, 198%, and 383%, respectively, since January 2013. Chinese stock-market capitalization grew from 44% of GDP at the end 2012 to 94% of GDP earlier this month[1], but at the same time the Chinese GDP growth, equal to 7,4%, has slightly slowed at the lowest level since the 1990 and the average ratio price to earnings is 26.

It seems clear that there are enough evidences that prove the presence of financial factors that are threatening the economical rebalance of Chinese economy: from export oriented economy to consumptions. This is the issue. At the beginning of financial crisis, the Chinese political establishment chose to fuel the economy by increasing the public spending and making easier to borrow money.

Therefore, the private debt raised from 100% in 2002 to 200% in 2014[2] and the PBOC tried to stop it by raising the refinancing interest rate until started the first bankruptcies and the slowdown of Chinese economy. The PBOC knows that the economy needs a monetary stimulus but the more the money supply increase the more grows the probability to create a financial bubble.

In order to minimize the possible negative effects of a hard slowdown, the Government is trying to boost the economy by cutting the refinancing interest rate (from 6.5% to 5.0%), deregulating the financial markets (e.g. exchange rate fluctuating) and privatizing most of public companies. The issue is that the more the money supply increase the more the financial bubble grow.

It is sure that the Government will have to face the dichotomy between autocracy and capitalist markets, but how it will face the issue will determine the feature of the Chinese economy slowdown[3]. Anybody should not underestimate the huge challenge to change the Chinese economy into a fully capitalist system, as the MSCI index committee decision to do not list the Shenzhen A shares (for some regulatory framework) show.

Last but not least, the main market mover it will be the dual listing between Shenzhen and Hong Kong stock exchange.


PBOC Interest Rate



Roberto Vacca, Master Student

[1] Cf. “Channeling China’s Animal Spirits”, by Xiao Geng and Andrew Sheng 26/05/2015, available on
[2] See “China’s debt-to-GDP level”, by S.R. 16/07/2014, available on
[3] See “Nouriel Roubini: China Slowdown May Be Sharp”, by Bloomberg 04/02/2015, available on

An insight into the CAC40 – Index Expert

The « CAC40 » (cotation assistée en continu) is the French stock market index. The market open at 9.00am till 17.35, following the pre-market hours from 7.15-9.00am. The CAC40 is undoubtedly and by a long chalk, the most followed up index of Paris Stock market.  So, let’s analyze what’s behind all this financial boiling and give a critical vision of this thermometer of the French economy as a whole.

As a matter of fact, the CAC40 progression reverberates investors’ expectations about the global performance of the French economy. The explanation is pretty simple: the CAC40 tracks the 40 listed French enterprises with the highest market capitalization. Some of the CAC40 companies are listed also in other stock exchanges like Amsterdam, or Italy (LVMH). Every companies’ stocks influence the Index proportionally to their weight over the market capitalization.

This principle enhances the height of the « BIG VALUES » of the CAC40. Thus, a variation of Total’s shares is way more impactful than another. In order to shrink from this pitfall, the biggest capitalizations aren’t allowed to weight more than 15% of the CAC 40. Nevertheless, several criticisms target the very composition of this index.  The CAC40 is said to be too concentrated, sector-specific and not so typical of the French economy. But another threat loom ahead. In 2009, the French economic magazine Alternatives Economiques denounced the fact that all of the CAC40 companies had ties with tax haven activities and that 16% of their subsidiaries were located in these same territories.

The CAC40 index underlies many financial products and in particular: SICAV, mutual fund trust, derivatives (warrants & options) and of course equity index funds (trackers). The very performance of these financial products goes along with the performance of the CAC 40.

The CAC40 doesn’t embed dividends, unlike the DAX.  At its current level, the CAC40 caps at 4815 points. Its all-time high was reached in the wake of the dotcom bubble, on September 2000 topping 6900 points. The CAC40 Total Return, which incorporates dividends reinvested, caps at 11368, above the actual level of German DAX30, 11040. French companies seem in great shape then.

The Index Value is calculated through this formula:

1000*(CAC40 Mkt Capt/(K*CAC40 Mkt Cap31 December 1987))

K is a coefficient of adjustment.

CAC40 Performance

CAC Composition



Soukaïna Bouziri, Master Student