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Warner Music to pay artists after selling Spotify stake

NEW YORK — Major music label Warner said Tuesday it would give back $126 million to artists after it sold its stake in streaming leader Spotify. The Warner Music Group said the share sale from Spotify, which successfully listed on the New York Stock Exchange earlier this year, earned the company $504 million, or $317 million after paying taxes. Announcing its latest earnings, Warner said it would share the spoils of Spotify with artists on its labels — whose most famous names include Coldplay, Ed Sheeran and Neil Young. Warner CEO Steve Cooper said that artists would find the Spotify proceeds on their latest royalty statements being distributed this month and in September, without details on how the sum would be divided. — AFP

Hungry for growth, food makers seek new flavor of CEO

LONDON/CHICAGO — PepsiCo Inc’s incoming chief executive Ramon Laguarta is the latest of a new generation of leaders tasked with reigniting growth at the world’s best-known food and drink brands as they fight back against media-savvy independent rivals.
Six of the world’s ten biggest food firms, including Nestle, Mondelez International Inc and Kellogg Co, have replaced their CEOs in the past three years.
Campbell Soup Co, and Hain Celestial are also on the hunt, with more in the broader consumer industry expected to follow.
Traditional titans that dominated their sectors have lost ground to smaller brands that have done a better job selling online and connecting with millennials on social media, while facing pressure from outside investors to become more efficient.
In response, boards are looking for relatively young CEOs who can crunch data like technology executives and cut costs like private equity investors.
“Fundamentally, this new generation of CEOs has a remit for change,” said EY’s lead analyst for consumer products and retail, Andrew Cosgrove. “Boards are realizing that we need new thinking.”
That means introducing new skills into the C-Suite.
“I’m hearing people saying for the very first time things like ‘We’re going to recruit a head of marketing with a background in analytics’,” said Oliver Wright, global lead for consumer goods and services at Accenture Strategy.
Last year Mark Schneider became the first outsider in nearly a century to take the reins at Nestle, the world’s largest food company. The 52-year-old healthcare veteran, nearly a decade younger than his predecessor, has stepped up acquisitions and divestitures and restructured parts of the business as he contends with activist shareholder Third Point.
Sean Connolly, 53, took over the helm at Conagra Brands in 2015 and has already moved the group’s headquarters, announced sweeping cost cuts, launched new products aimed at millennials and agreed to buy rival Pinnacle Foods.
By top management standards, early-50s is still relatively young, given that the average age of CEOs in the S&P 500 was 57.4 last year, according to executive recruiter Spencer Stuart.
FRESH PERSPECTIVE
Just over half of the 39 consumer packaged goods companies in the Fortune 500 have changed their CEO in the last two and a half years, according to executive search firm Russell Reynolds Associates.
That represents 15 percent of all CEO changes in that group of companies in that period, even though the sector only makes up 8 % of the Fortune 500.
Analysts are speculating whether the latest new appointment Laguarta, a 54-year-old Spaniard who speaks four languages, will be more open to strategic options like separating PepsiCo’s U.S. bottling business or breaking up the company.
Laguarta is a PepsiCo veteran with 22 years at the company, but others have looked elsewhere for new leaders.
About half of the new CEOs hired in the sector hired in the past five years have been internal candidates, down from roughly three quarters over the past 20 years, said David Cooper, head of Bain’s consumer packaged goods practice.
The growing acceptance of input from outside the industry comes as the consumer goods sector has been aggressively targeted by private equity firms and activist investors looking to shake things up.
Private equity firm 3G, known for engineering mergers and slashing costs, shocked the industry in 2015 when it combined Kraft Foods with its H.J. Heinz, keeping partner Bernardo Hees in charge. Nelson Peltz’s Trian Fund Management recently won a board seat after a proxy fight with Procter & Gamble Co (PG.N).
“A lot of companies have been spinning and reacting, trying to figure out how they can essentially ‘3G’ themselves to preempt being taken over, being the next victim,” said Andrew Hayes, a Russell Reynolds consultant who has helped several major consumer companies find top managers.
More CEO turnover is expected as the last generation of leaders run out of room to grow using the established playbook of consolidation and focusing on emerging markets.
“Indra Nooyi’s done a great job, she wants to go out close to on-top,” said Bernstein analyst Ali Dibadj of PepsiCo’s departing leader. “I think you’ll see that from many other CEOs as well.” — Reuters

CIC’s Q2 earnings rise on double-digit sales growth

CONCEPCION Industrial Corp. (CIC) posted a 14% growth in its attributable profit during the second quarter of 2018, fueled by a double-digit increase in sales of its products.
In a regulatory filing, the listed maker of air-conditioners and refrigerators reported a net income attributable to the parent of P402 million, versus the P352 million it booked in the same period a year ago. Net sales likewise jumped 14% to P4.62 billion for the quarter.
“We are pleased with the strong results coming out of the second quarter of 2018 as our team focused on delivering results based on cost reductions, precise strategic execution, and clear messaging across the organization in the midst of fluctuating exchange rates and high commodity prices,” CIC Chairman and Chief Executive Officer Raul Joseph A. Concepcion.
This brought the company’s six-month attributable profit to P566 million, relatively unchanged from the P570 million it generated in the first half of 2017. Net sales meanwhile went up by seven percent to P7.69 billion.
The company has been implementing initiatives to reduce its costs in the face of challenges in foreign exchange and commodity prices. CIC expects headwinds for the rest of the year which may affect profitability, but is confident it will be able to adapt in the short term.
CIC has recently formed a unit called Cortex, which will explore opportunities in technology and business model innovations. This includes manufacturing smart appliances that can monitor energy consumption to alert owners of their usage.
“The next six to twelve months are going to be exciting for CIC as we launch new products and services particularly in internet-of-things. These will be our initial foray into offering practical smart appliances and solutions to Filipino Consumers,” Mr. Concepcion said.
Shares in CIC were unchanged at P50 apiece at the Philippine Stock Exchange on Thursday. — Arra B. Francia

TV-for-phone start-up raises $1 billion

NEW YORK — Former Walt Disney Studios chairman Jeffrey Katzenberg has raised $1 billion in initial funding for his NewTV start-up seeking to tailor television to smartphone lifestyles, pulling in Hollywood’s biggest studios. Disney, 21st Century Fox, MGM, Sony Pictures and Warner are among the investors in NewTV, a working name for the new company, Katzenberg’s WndrCo company announced Tuesday. NewTV, being nurtured into existence at WndrCo, envisions high-quality shows being custom-designed to be consumed in “bite-sized” formats of 10 minutes or less on people’s mobile phones. No other platform has so far managed to monetize the format, other than through advertising, with the market flooded by free content dominated by the likes of Facebook and YouTube. To develop a platform optimized for cell-phone use, NewTV has partnered with China’s online sales giant, Alibaba. NewTV’s target launch is Christmas 2019, Whitman told CNBC. — AFP

PSBank books higher net profit in first half on interest earnings

PSBank
PHILIPPINE Savings Bank booked higher profit in the first semester.

PHILIPPINE SAVINGS Bank (PSBank) reported higher net earnings in the first half of the year on the back of strong net interest income and service fees.
In a disclosure to the local bourse on Thursday, the consumer lending arm of Metropolitan Bank & Trust Co. (Metrobank) saw its net profit climb to P1.35 billion in the January-June period, up 14.7% from P1.18 billion in the same period last year.
PSBank attributed the result to “robust revenues driven by net interest income and service fees.”
The bank’s net interest income grew 8.8% to P5.85 billion from last year’s P5.38 billion.
Meanwhile, its total loan portfolio expanded by 10.7% to P151.62 billion from the P137.01 billion booked in the previous year.
Deposits likewise stood at P200.09 billion, 9% higher from the year-ago period.
PSBank’s earnings translated to a return on equity of 11.83%, it said.
Its common equity Tier 1 ratio stood at 11%, while its capital adequacy ratio was at 13.7%, above the regulatory minimum.
Overall, the bank’s total assets stood at P234.76 billion, up 7.4% from the same period last year.
In the statement, PSBank President Jose Vicente L. Alde said the lender’s first half performance is a result of its institutional strategy by providing end-to-end customer experience.
“We have likewise tapped on the latest available digital technology to improve on process efficiencies to bring the cost of operations down while maximizing the full potential of our sales distribution channels in generating more business for the bank,” Mr. Alde was quoted as saying in the regulatory filing.
LTNCD
Meanwhile, PSBank raised P5 billion from the first tranche of its long-term negotiable certificates of deposit (LTNCD) program, which it wants to use to expand its consumer banking segment.
According to a document posted on the Philippine Dealing System Web site, the Ty-led savings bank raised P5.0845 billion from the peso-denominated issue, higher than the initial plan of P3 billion. The notes will mature in five years and six months and carry an interest rate of 5% to be paid quarterly.
PSBank said in a previous disclosure that its board of directors approved the issuance of up to P15 billion worth of LTNCDs. The offerings will be conducted over a year in two or more tranches.
LTNCDs are similar to regular time deposits which offer higher interest rates but cannot be pre-terminated.
In a previous interview, PSBank’s chief executive said the proceeds of the fund-raising activity will be used to expand its consumer banking segment brought about by its “robust” growth.
“[Proceeds of the fund will go to the] expansion of the consumer business,” Mr. Alde said in June. “We have been growing our consumer business for past years, and we still expect the consumer business to be robust in the next years, so we’re preparing for that expansion.”
ING Bank, N.V. and Standard Chartered Bank served as joint lead arrangers and bookrunners of the issue, while First Metro Investment Corp., Metrobank and PSBank served as selling agents.
Apart from PSBank, Robinsons Bank Corp., China Banking Corp. and East West Banking Corp. have recently issued LTNCDs to support its funding needs. — Karl Angelo N. Vidal

PHL hopes to expand nursing education ties with Indonesia

THE Department of Trade and Industry (DTI) said it hopes to expand cooperation with Indonesia to upgrade standards for nursing education.
The DTI said representatives from the Philippines participated in a two-day nursing education fair in Medan, Indonesia, which concluded on July 31. It was attended by over 300 Indonesian students, faculty, and school administrators from Medan and North Sumatra.
“The event provided an opportunity for Philippine nursing schools to assess the Indonesian space for expansion as well as forge academic partnerships, student exchange, and capacity building for faculties,” the DTI said in a statement Thursday.
Through its Philippine Trade and Investment Center in Jakarta, the DTI and the Philippine embassies were joined by leading Philippine nursing schools, like the University of Santo Tomas, Centro Escolar University, Far Eastern University, San Pedro College-Davao, University of Perpetual Help Dalta, and Saint Louis University.
UST and CEU forged partnerships with Indonesian counterparts, the DTI said, without providing details.
“The fair aims to further the cooperation between the Indonesian and Philippine nursing educational institutions,” PTIC Jakarta Commercial Attache Jeremiah Reyes said in the statement.
“By promoting the educational services sector, we hope to provide more opportunities in the country that will eventually lead to job generation.” — Janina C. Lim

D&L recurring profit jumps 14% in Q2

D&L Industries, Inc. (DNL) expanded its recurring income by 14% to P784 million in the three months ending June, driven by higher volumes for the high margin specialty product (HMSP) segment of its food business.
The listed manufacturer of customized food ingredients and specialty raw materials said in a statement on Thursday that this pushed the first-half recurring income 13% higher to P1.53 billion. Revenues, meanwhile, stood at P13.2 billion, four percent higher year-on-year.
The earnings for the first half translate to an earnings per share of 21 centavos.
DNL attributed the profit growth to the 14% increase in volumes from the food unit’s HMSPs, which accounted for 63% of total revenues. The company noted the segment’s growth for the period is twice its historical average increase of seven percent.
“The pick-up in HMSP is encouraging as it represents the side of the business that is recurring and sticky,” the company said. This allowed a two percent year-on-year increase for the food ingredients segment.
The commodity business meanwhile contributed 37% of total revenues. Blended commodity margins climbed to 9.7% for the second quarter alone, versus four percent in the previous quarter, pushing overall gross profit margin to 18% in the first half, one percentage point higher year-on-year.
Exports accounted for 21% of DNL’s revenues, indicating a five percent drop due to the higher base it recorded in the same period a year ago. Oleochemical products — which are chemicals processed from coconut oil — were the top contributor to exports at 35%, as the company saw strong demand for high margin coconut-derived oleochemicals from developed countries.
The company earlier said it targets to have its export business contribute half of its total revenues by 2025, as it prepares to enter new markets in the Asia-Pacific region.
Shares in DNL rose 20 centavos or 1.89% to close at P10.76 each at the stock exchange on Thursday. — Arra B. Francia

Lady Gaga heads to Vegas with dual shows

NEW YORK — Pop star Lady Gaga on Tuesday announced a residency in Las Vegas with twin shows to display her two sides — extravagant and glitzy, and stripped back and jazzy. Lady Gaga said her shows would begin on Dec. 28 at the newly rebranded Park MGM, a giant complex on the Las Vegas Strip which was initially built as the Monte Carlo Resort and Casino in the style of the Mediterranean gambling hub. The star plans two shows, with one, entitled Lady Gaga Enigma, promising more of her theatrics. The other show, Lady Gaga Jazz and Piano, will star her singing minimalist versions of her songs as well as pop standards. Lady Gaga announced Enigma shows through November 2019 with only a handful of the stripped-back concerts. — AFP

Delivering a thoroughly stunning experience


By Anthony L. Cuaycong
THERE was a time when fighting games were little more than button-mashing exercises. Perhaps the relative lack of complexity was due to the genre being in its infancy stage. Perhaps it was borne of the publishers’ intent to be as inclusive as possible. In any case, gamers still found them irresistible for the most part, if for no other reason than because they afforded the opportunity for instant gratification. In comparison to, say, sports titles, fights involved short matches and rematches. Bragging rights were passed on quickly and often, and the speed with which they were earned, lost, regained, and desired anew served only to ramp up the intensity of the competition.
That said, it was inevitable for developers to build on their products, and the sheer number of alternatives vying for gamers’ time and money led to continuous improvement. These days, fighting games are much more complex, and with rapid advances in technology have come challenges from practically anywhere in the globe. Those standing in the way of ultimate success are no longer in the same room, and, in all probability, not even in the same country. Which is why the most serious gamers invest no small measure of effort in mastering the intricacies of a given title, taking pains to get to know their character(s) as best they can and thereby mastering the pace, speed, combinations, and strategies required to prevail.
Needless to say, the commanding level of commitment is secured only by the best fighting games. And, in this regard, it’s no wonder that few titles boasting of diverse sets of characters with compelling story lines, of engaging game play that requires hours upon hours to navigate, and of competitive balance have built a cachet of goodwill. For Arc System Works, BlazBlue is thankfully such a title, in the last decade claiming a loyal following that expects each subsequent release in the franchise to be bigger and better.
In this regard, Nintendo Switch owners are fortunate to get an outstanding port of BlazBlue: Cross Tag Battle. Visually and aurally, it’s a feast for the senses. The two-dimensional sprites retain their familiar flair, propped up by intricate backgrounds that convey spatial depth. At the same time, the anime-inspired sound track succeeds in highlighting the action, with the option to choose between English and Japanese language tracks a decided plus. Summarily, the release for the hybrid console holds its own vis-a-vis those for the PlayStation 4 and the PC in terms of presentation.
Given BlazBlue: Cross Tag Battle’s pedigree, it is, not surprisingly, deep and engrossing. It isn’t just that 20 characters are available at the outset; it’s that they include venerable names from the Persona, Under Night In-Birth, and RWBY lines. Arc System Works has pulled out all the stops, leveraging its productive relationships with Atlus, French Bread, and Rooster Teeth to secure appropriate rights on the use of such notables as Yu Narukami, Yosuke Hanamura, Hyde Kido, Linne, Ruby Rose, and Weiss Schnee. Significantly, another 20 are available as downloadable content, with more planned, giving substance to its positioning as a fan-friendly crossover fighter.
Gameplay-wise, BlazBlue: Cross Tag Battle performs admirably on the Switch. Whether docked or on the go, controls are tight, and combos can be executed with relative ease; the Joy-Cons do the job well, but the Pro Controller is especially responsive and, absent a third-party arcade stick, should be the default choice in competition. Certainly, it helps that gamers need only concentrate presses on the A, B, C, D, and P buttons, with tag-ins made between teammates, properties utilized, and attacks done via the right sequences. In this regard, the capacity to map two-button presses serves gamers well, allowing for the buildup of in-game gauges and the subsequent execution of special moves unique to character choices. Be forewarned, though: Astral Heat finishes are difficult to pull off given their conditional hurdles.
Significantly, BlazBlue: Cross Tag Battle offers a satisfying “Episode Mode” that has gamers run through just about the whole gamut of character combinations, in the process enabling them to settle into one that suits their playing style. And there is substantial exposition between fights, a boon for those deep into character development. On the flip side, the omission of any quick-play, arcade-type mode will nag at those who prefer to go straight to the meat of the game.
All the same, the comfort level will eventually be such that progression to rewarding multiplayer challenges is assured. And this is where BlazBlue: Cross Tag Battle truly shines. Whether across the couch from a friend or across continents against a total stranger, it delivers a thoroughly stunning experience. Apart from character introductions, online lag is virtually nonexistent, and at no time does it give the impression of uneven competition; regardless of the choices made, gamers know they’re part of fair fights, with the outcome dependent on the right mix of skill and good fortune.
In the final analysis, BlazBlue is a superb offering from Arc System Works, providing a dream lineup of 20 popular characters off the rack (and at least 20 more behind a paywall) through spectacularly polished game play. As a gift slated to keep on giving, it’s the best fighting game on the Switch by far. At $49.99, it’s filled to the brim and a decided bargain for casual fans and hard core gamers alike.

DoLE bans employers from profiting from wage deduction schemes

THE LABOR department has banned employers deducting wages from workers for payment plans from profiting as a result of their participation in the scheme.
The Department of Labor and Employment (DoLE) made the changes in Department Order (DO) 195, “Rules Amending Section 10 of Rule VIII of the Implementing Rules and regulations of the Labor Code on Wage Reduction” which was signed by labor secretary Silvestre H. Bello on July 27.
Section 10(b) was amended as follows: “When the deductions are with written authorization of the employees for payment to the employer or a third person and the employer agrees to do so… the latter (must) not receive any pecuniary benefit directly or indirectly, from the transaction.”
The amendment is consistent with Article 113(c) of the Labor Code of the Philippines which states that employers can deduct from wages “In cases where the employer is authorized by law or regulations issued by the Secretary of Labor and Employment.”
Article 113 also prohibits deductions from wages except “in cases where the worker is insured with his consent by the employer, and the deduction is to recompense the employer for the amount paid by him as premium on the insurance” and “For union dues, in cases where the right of the worker or his union to check-off has been recognized by the employer or authorized in writing by the individual worker concerned.”
DO 195 added that the issuance should not be used as a reason to cause “diminution or substitution of any benefits and privileges” of the employee. — Gillian M. Cortez

Mother’s ghosts

By Noel Vera
Movie Review
Mamang
Directed by Denise O’Hara
MARIO O’HARA passed on in 2012. His niece Janice O’Hara chose one of his scripts (rewritten extensively by her father Jerry O’Hara) to be her debut feature (Sundalong Kanin [Rice Soldiers, 2014]), arguably one of the best of 2014. Janice died two years later, leaving us that one film, compelling us to ask: is there some kind of curse on this family that blesses them with filmmaking and storytelling talent, but relatively fragile lives?
Now Janice’s twin sister Denise — who helped produce Sundalong Kanin — has dared that so-called curse by writing and directing her own feature.
Where Janice’s feature was an ambitious drama set in a small town during the Japanese Occupation, Denise’s is an intimate character study of essentially one person. Mamang (Mama, 2018) is the story of Celeste Legaspi’s eponymous character, confined mostly to her darkly gorgeous 19th century house, an aging wife and mother left by her job-seeking son Ferdie (Ketchup Eusebio) to dwell on her memories.
Only her memories turn out to be more than just vague daydreams. She smashes garlic, fries them in hot oil (you hear — and can almost smell — the sizzling garlic), adds the old cold rice (the best kind for frying). Crisps dried fish and eggs, transfers them to a plate, lays them on the kitchen table. Gently shoves the hot rice on a plate, turns, lays the plate on the table — and only then realizes there’s a uniformed man (Paolo O’Hara, the director’s brother) sitting there, starting on the fish and eggs.
Who is he? Frightened, she wakes Ferdie, but when her son finally gets up to take a look (Mamang following close behind with hacksaw in hand ready to swing) the soldier is gone. Ferdie is now faced with the possibility that his mother is suffering from dementia — from hallucinations caused by degenerating functions of the brain, due to her age.
Right away you think of Michael Haneke’s Amour, but where Haneke’s stripped-down horror film — his, in my book, most unsettling and finest work to date — is a relentless descent into madness, Denise O’Hara takes a different approach: Mamang not only learns to deal with her “phantoms” but gives back as good as she gets. She realizes they are figures of her past (Except for that soldier — who is he? He never speaks, never explains himself). There’s her husband Heme (Alex Vincent Medina), handsome and amorous (he first appears to her naked and wanting sex while she is taking a shower); when she rejects him he takes to bringing young (presumably just as ghostly/imaginary) girls to the house. There’s the mysterious Amado (Gio Gahol) — from hints dropped here and there a Huk rebel who emerges from his hideout to serenade her. And there’s others — the point being that rather than random supernatural visitations, Mamang seems to be reliving her past, remembering old loves and quarrels, trying to take advantage of an apparent second chance to resolve a long, complicated life.
Interesting concept but god — or the devil — is in the details, and if anything O’Hara has equaled if not bettered her twin in overall execution. Not that the earlier film is necessarily weaker but that production felt hurried and awkward, the cinematography necessarily (and appropriately) plainspoken to better accommodate the powerful script. This debut has a sumptuous distinctive look thanks in large part to cinematographer Lee Meily (who supervised the camerawork in visually striking films like K’Na the Dreamweaver; Santa Santita (Magdalena); American Adobo; cut her teeth on the even smaller-scaled if still lovely Sana Pag-ibig Na). Her fluid camerawork is used to good effect — following, for example, as Mamang moves from one room to another, indicating passage from the normal to the paranormal world (or alternately, from objective reality to the intricate passages of her own mind); the subtly tinted lights accentuating the beauty of the old house, all rich narra flooring, high airy ceilings, bright capiz-shell windows.
I have to mention the earthquake that might or might not have occurred in Mamang’s imagination. O’Hara sells us the reality of what the elderly woman experiences (as opposed to just shaking the camera — a tired convention — or resorting to digital effects) through brilliant use of two simple details: a terrifying deep bass rumble and a violently shaking lamp and bedstand.
Speaking of accentuated beauty… it is difficult to dispute Ms. Legaspi’s; she was lovely back in the 1970s, is remarkably handsome still, especially when she fixes her hair in a wavy ‘do, tilts her head just so, and flashes that thousand-watt smile. She’s done some theater work, done some film work, has not really focused on either (she’s best known as a singer). One wonders why — possibly she was never inclined to the medium, or felt lightweight compared to the likes of Gina Alajar or Nora Aunor and didn’t feel the need to compete. Not necessarily that she’s incapable but she has a light touch, a gift not for heavy drama but for light comedy.
I’m guessing Denise O’Hara had seen her uncle Mario’s rare comedy film Tatlong Ina, Isang Anak starring both Nora and Celeste, and while the premise (three women trying to raise a foundling child) sounds funny enough, the film itself is (unsurprisingly) dark and noirish, with Nora playing straight arrow and Celeste playing eccentric. At one point she decides to commit suicide and Mario plays the scene out matter-of-factly, with Celeste making repeated attempts and the child with its endless needs frustrating her every time.
Presumably taking her cue from the scene in that particular film, Denise has Celeste’s character confronted with everything from the unusual to the supernatural to the grotesque-to-the-point-of-funny situations; the actress earns comic mileage by facing them (after being initially spooked) with the same deadpan pragmatism — if she ever cracked a smile or winked at us as if to say “Isn’t this hilarious?” the film would immediately deflate. She’s so good I submit (helps to have a director who perfectly understands her wayward appeal) that she manages to achieve a surprising poignancy. Mamang in the end cedes no territory to the claustrophobic pathos of Haneke’s masterpiece, but does so in its own sweet natured yet clear-eyed yet roundabout way, an achievement all its own. I am suitably impressed, and not a little enchanted.
The movie is showing in select Ayala cinemas.

Japan bond exodus fears overblown, regional banks say

GLOBAL BOND markets may have less to worry about from an all-out Japanese exodus. The yields on Japan’s benchmark bond are still too low to tempt regional lenders to switch investments back home, even after the central bank permitted a higher trading range, according to managers and traders at the companies.
Regional lenders want to see 0.5% on the 10-year bond before considering a pivot back from overseas markets, according to bankers who asked not to be identified in discussing strategies. Still, the Bank of Japan’s (BoJ) new guidance, tolerating a yield of as high as 0.2%, has spurred volatility and is boosting trading profits, they said.
The BoJ’s policy tweaks, made partly to ease the pain of its stimulus for local banks, have spurred speculation that Japanese funds could shift some of the $2.4 trillion invested in overseas debt back home. Regional banks account for about a fifth of foreign securities held by the whole banking sector, or the equivalent of $80 billion, according to data from the central bank.
“A slight yield steepening is welcome but it’s too marginal to hope for a dramatic change to banks’ profitability,” said Ayako Sera, a strategist at Sumitomo Mitsui Trust Bank Ltd. in Tokyo. “A steepening by a mere few basis point after the BoJ’s decision isn’t sufficient to ease the severe situation facing them.”
Years of BoJ monetary easing have squeezed lending margins at Japanese banks and lowered income from domestic securities, with Governor Haruhiko Kuroda acknowledging the pain on July 31 when he said the BoJ would allow a wider swing in bond yields.
Regional bank holdings of government debt fell in May to their lowest since March 2008 to 20.6 trillion yen, according to BoJ data.
YIELD SPIKE
Yields for the benchmark bond spiked to as high as 0.145% last Thursday before pulling back to the 0.11% level on Thursday at 2:20 p.m. in Tokyo. The 20-year was at 0.62%.
“In terms of helping banks make money, rising volatility is better than nothing, and as more players come and boost volatility, that will also help improve liquidity,” said Nana Otsuki, chief analyst at Monex Inc. in Tokyo. “Banks may see it easier to profit from trading when markets stabilize with a clearer vision of where yields are settling down.”
The comments by the regional bankers highlight the difference in strategies among Japanese investors and the complexities involved from any policy adjustments. While the regional lenders are more focused on shorter-duration bonds, investors are also paying attention to the trigger points for Japan’s life insurers.
Two of the nation’s largest insurers, Japan Post Insurance Co. and Nippon Life Insurance Co., said in April they will consider buying more Japanese government bonds once 30-year yields climb above 1%.
ILL AFFORD
Although regional lenders want yields to rise, they don’t want it to happen too quickly. Any significant increase would send bonds plummeting and boost unrealized losses on their holdings which they can ill afford to withstand.
According to an estimate by Japan’s Financial Service Agency, the group’s risk exposure to yen interest rates relative to capital is nearly triple that for major banks. If yields on both yen and foreign securities were to rise 50 basis points from levels as of the end of March, more than a quarter of the lenders would suffer valuation losses that exceed profits, it said.
Yields on the 10-year bond may not climb further, according to Morgan Stanley MUFG Securities Co. The benchmark will probably settle closer to 0.1% once market volatility settles down, partly because the BoJ owns so much of the five-to-10 year debt.
The central bank’s relentless buying of bonds has resulted in it owning about 65% of all outstanding five-to-10 year securities — the highest among all the maturity zones — squeezing supply of the notes in the market. — Bloomberg