Aurelia Butler

FRANKFURT (Reuters) -German insurer and asset manager Allianz (DE:ALVG) on Thursday said it would set aside 3.7 billion euros ($4.20 billion) to deal with investigations and lawsuits resulting from the collapse of a multi-billion-euro set of investment funds.The provision resulted in a net loss attributable to shareholders of 292 million euros in the fourth quarter, the company said. Analysts had expected a profit.Allianz said that the outcome of various investigations and lawsuits “cannot be reliably estimated” and that it “expects to incur additional expenses before these matters are finally resolved”.The issue centres around Allianz funds that used complex options strategies to generate returns but racked up massive losses when the spread of COVID-19 triggered wild stock market swings in February and March 2020.Investors in the so-called Structured Alpha set of funds have claimed some $6 billion euros in damages from the losses in a slew of cases filed in the United States. The U.S. Department of Justice and the Securities and Exchange commission have also been investigating the case.The matter has cast a shadow over Allianz, one of Germany’s most valuable companies. It is also one of the world’s biggest money managers with 2.5 trillion euros in assets under management through bond giant Pimco and its Allianz Global Investors, which managed the funds at the centre of the probes.Allianz said that it expects a settlement with major investors “shortly” but discussions with other investors, the DOJ and SEC “remain ongoing”. The quarterly loss compares with a profit of 1.8 billion euros a year ago. Profit for the full year at 6.6 billion euros was the lowest since 2013.”In spite of challenges in 2021, Allianz proved its resilience and adaptability,” Chief Executive Officer Oliver Baete said. The $15 billion Structured Alpha funds catered in particular to normally conservative U.S. pension funds, from those for labourers in Alaska to teachers in Arkansas to subway workers in New York.After the coronavirus sent markets into a tailspin early in 2020, the Allianz funds plummeted in value, in some cases by 80% or more. Investors alleged Allianz strayed from its stated strategy in their lawsuits. Allianz has publicly disclosed the SEC and DOJ investigations. It previously said it intended to defend itself “vigorously” against the investors’ allegations. Baete has said “not everything was perfect in the fund management”.($1 = 0.8804 euro) More

Philip Lane, chief economist of the European Central Bank, has shifted his position on eurozone inflation by saying it looks unlikely to drop below its 2 per cent target in the next two years.“Inflation is expected to settle around 2 per cent,” Lane said on Thursday, citing higher expectations of investors, analysts and consumers, and structural changes in the economy. “In terms of asset purchases it is a different path than if it was going to spend a period below 2 per cent.” The shift in Lane’s position matters because the expected level of inflation in 2023 and 2024 is the main factor governing whether the ECB will accelerate plans for removing the vast stimulus it has provided via bond purchases and negative interest rates during the pandemic.His comments mark a change from only three weeks ago when Lane said inflation was equally likely to drop below the ECB’s target and to stabilise at that level in the medium term. Since then, record eurozone inflation of 5.1 per cent prompted its president Christine Lagarde to say inflation risks were “tilted to the upside” while refusing to rule out raising rates this year.Lane is one of the most important influences over ECB monetary policy and his comments underline how a consensus is forming on its governing council about the need to withdraw its stimulus faster than planned when it meets in three weeks’ time.If policymakers judge that inflation is on track to hit its target over the next two years it clears a path for them to end net purchases in the ECB’s €4.8tn bond-buying programme and to prepare the ground for raising interest rates for the first time since 2011. Lane told a webinar organised by market news and data provider MNI that he did not want to prejudge next month’s meeting. He said the change in inflation expectations was not “staggeringly huge” so any change in policy would still be gradual. He also drew a distinction between a likely “normalisation of policy” — widely interpreted as ending asset purchases and raising its deposit rate to zero — and a more drastic “monetary tightening” to push up financing costs and slow growth that would be required if inflation was likely to remain well above its target for several years. “That is not what we see in front of us,” he said.“Impressive to see how fast a consensus at the ECB could be built on normalisation,” Carsten Brzeski, head of macro research at ING, said on Twitter. “Only unsolved questions are: when to hike the deposit rate and what to do when once the deposit rate is back at zero.”The ECB in December forecasted inflation would fall back below its 2 per cent target by the fourth quarter of this year and remain at 1.8 per cent for the next two years, justifying continued stimulus. But it is widely expected to raise these forecasts next month.Lane said: “There are several factors indicating that the excessively low-inflation environment that prevailed from 2014 to 2019 — a period over which inflation averaged just 0.9 per cent — might not re-emerge even after the pandemic cycle is over.”He said the factors lifting inflation expectations included the ECB’s massive fiscal and monetary stimulus in response to the pandemic and last year’s simplification of its inflation target from “below but close to 2 per cent”. Although Lane said digitalisation could reduce prices, he also cited structural shifts that may increase them including higher wages in emerging markets, China’s move from focusing on exports to domestic demand, a push to lower carbon emissions and ageing populations. More

British pubgoers have been put on notice that they face sharp increases in the price of a pint as mounting inflationary pressures in the brewing industry combine with rising staff and utility costs and the looming end of coronavirus tax relief.Beer industry executives and analysts warned that drinkers had yet to feel the full impact of brewers’ rising costs, which Dolf van den Brink, Heineken’s chief executive, this week described as “off the charts”.Prices of malting barley, the most important ingredient for lager, have more than doubled in the past year, while the industry also has to contend with the shipping logjams that are clogging other global supply chains.The situation reflects the unrelenting broader inflationary pressures in the UK economy. Prices rose at an annual rate of 5.5 per cent in January, the fastest in 30 years, according to official statistics published on Wednesday, and the Bank of England has forecast that inflation will peak above 7 per cent in April. Office for National Statistics figures show that input prices for UK makers of alcoholic drinks rose at an annual rate of 7.9 per cent in January, the fastest pace in a decade.Given that contracts between British pubs and brewers tend to last a year or more, however, producers are only just beginning to pass on surging costs to consumers.Tim Martin, founder of pub chain JD Wetherspoon, said: “Those costs are going to come through. They’re only part of the cost borne by the pub, but they will be extremely painful on top of everything else.”Pubs nevertheless face a dilemma in how much of the additional expenses to pass on at the bar, given that more expensive drinks threaten to deter customers from visiting just as the industry tries to move on from the pandemic.Emma McClarkin, chief executive of the British Beer and Pub Association, said price increases in pubs would give consumers who were still nervous about Covid another reason to avoid going out again. “It’s difficult when you want to win back consumers,” she said.Household budgets are being squeezed by more expensive food and other essentials, reducing their discretionary spending.Martin noted how much cheaper alcohol was in supermarkets. “With real incomes falling, people have to be careful,” he said.Pub groups said that, although price rises were inevitable, they would vary from region to region and site to site.Clive Watson, executive chair of City Pub Group, said: “We need to encourage customers to come back so will probably only put up prices by 3 per cent — which will hit our margins.” So far, he added, brewers had increased the price of beer for pubs by about 7 per cent.

Emma McClarkin: ‘It’s difficult when you want to win back consumers’ © Jon Super/FT

The chief executive of one national chain said that determining with any accuracy how much a pint will cost in the months ahead was “nigh on impossible”.Most operators have been talking about 5 per cent price rises, the executive said. This would add 25p to the price of a £5 pint. Yet many are waiting to see how competitors respond to the pressures before setting a firm pricing strategy.“We don’t want to be first mover,” said Phil Urban, chief executive of pub and restaurant group Mitchells & Butlers, whose brands include Harvester and All Bar One. For now, he said, the company was “holding its nerve and not taking price” [an industry term for putting up prices] even though “all the cost headwinds are challenging”.Andrew Andrea, chief executive of pub chain Marston’s, said the company had so far increased prices “just above mid-single digits” this year. “We haven’t pushed it too far thus far,” he said.

Several executives said a crunch point on pricing was less than two months away. Value added tax, which the government had reduced for hospitality businesses to 12.5 per cent to give them much needed relief during the pandemic, is due to return to the full 20 per cent rate in April. Marston’s might be compelled to increase prices in response, Andrea said.Ultimately it would be difficult for pubs to avoid passing on a “triple whammy” from “rampantly rising” utility bills, labour inflation and the rising cost of raw materials, said Greg Johnson, leisure analyst at Shore Capital.The industry would be “looking to pass on what I assume will be pretty high rises”, he added. “We’re all going to have to pay more for a steak and chips and a pint of ale down the Dog & Duck.” More

ROME (Reuters) – Italy is working on a reform to make it easier for workers to retire early without bloating what is already Europe’s second highest pensions bill, as rising borrowing costs fuel concerns over the country’s mammoth public debt.Mario Draghi’s government wants to inject more flexibility into the system, officials said, while avoiding the fate of an unpopular 2011 reform which sharply raised the retirement age but was suspended in 2018 after a backlash.A temporary replacement expires at the end of the year, and finding a permanent fix has been given added urgency as a period of low borrowing costs for Italy looks to be ending.Draghi aims to clinch a deal with national unions over the reform by the end of March, with a key meeting between top ministers and the unions due next week. He will also need to get the backing of his multi-party coalition, meaning the former European Central Bank chief has tough negotiating ahead.Labour Minister Andrea Orlando told Reuters the reform would not be one-size-fits-all.”It will take account of different life expectancies, of the situation of domestic workers and women, and the fact that working lives are often not continuous,” he said.With one of the world’s oldest populations, Italy spends more than any other European country on pensions except Greece, Eurostat data shows. According to the Treasury, Rome’s pension bill reached a record 17% of national output in 2020.The new reform will be the seventh pensions overhaul in recent decades as Rome has tried to grapple with the economic effects of its steadily ageing population.The high pensions outlay crimps the resources available for more productive expenditure on things like schools and infrastructure investments, and makes it hard to reduce a public debt of around 150% of gross domestic product.RISING BOND YIELDSThe debt, proportionally the second largest in the euro zone, is gradually becoming harder to service. Yields on Italy’s 10-year government bonds have spiked to almost 2%, from below 1% two months ago, due to the prospect of the European Central Bank ending its asset purchases and raising interest rates.In essence, people wishing to retire early will be able to do so on the understanding that their pensions are limited by the amount they have paid into the system, the officials said.This approach has the backing of the unions. What will be harder to agree is how much pensions will be reduced for those who get to leave work early.Rome plans to expand mechanisms already in place which allow the unemployed, the disabled, carers and people with “strenuous” jobs to get an early pension. This is something the unions have called for.Roberto Ghiselli, a national coordinator of the country’s main union, the CGIL, praised the decision to explore ways to allow early retirement, but said Rome should also set aside enough resources to ensure pensioners have an adequate income.The Treasury, which has targeted a steep fall in borrowing this year, has a difficult circle to square. It is opposing pressure from coalition parties to hike the deficit, meaning any extra pension outlay must be offset with taxes or spending cuts. A 2018 scheme, known as “quota 100”, allowed people to draw a pension at age 62 if they had paid in 38 years of contributions – the sum of the two figures giving the “100” of the scheme’s name.After fraught negotiations in the autumn triggered a one-day national strike by the CGIL, Draghi introduced “quota 102”, raising the minimum retirement age by two years to 64, but for this year alone.The CGIL’s Ghiselli said the government had rejected the unions’ proposal to allow people to draw a pension after 41 years of contributions regardless of their age. More

UAE de facto ruler Mohamed bin Zayed Al Nahyan and Indian Prime Minister Narendra Modi will witness the signing of the UAE-India Comprehensive Economic Partnership Agreement (CEPA), UAE state news agency WAM and several Indian newspapers reported. India’s foreign ministry spokesperson Arindam Bagchi told a news conference on Thursday he did not want to prejudge the outcome of the meeting between the two leaders, adding the ministry would make more information available on Friday.”Relations with the United Arab Emirates have really seen a deepening and a transformation over the last few years,” he said. The agreement will “usher in a new era of economic cooperation and unlock greater avenues for trade and investment,” WAM said late on Wednesday. More

Emerging markets financing conditions are on a tightening streak with countries outside Asia bearing the brunt. Turkey, Brazil and Colombia are the countries that have seen the biggest increases in local bond yields since end-2020. S&P said it now expects the Fed to raise interest rates six times in 2022 compared to a previous forecast last month of three or more rate hikes. Some investment banks like BoFA expect as many as seven rate hikes this year. And while most emerging markets seem to be better positioned to face the upcoming rate hike cycle, some pressure on exchange rates and bond yields is likely. S&P expects current account dynamics to be the main channel of transmission of a faster-than-expected Fed tightening cycle for Argentina, Chile, Colombia and Turkey. Fiscal imbalances would be the main channel for Brazil, India and South Africa. More