Brexit Bank Heist: France Pushing to Beat Germany
French Finance Minister Bruno Le Maire says Paris will beat Frankfurt to become the European Union’s main financial center after Brexit.
Since the U.K. voted last year to abandon the EU, France has been fighting with Germany to grab the financial industry that plans to relocate out of London.
“Clearly, the prospect of Brexit presents an opportunity for Paris and Frankfurt to vie for the title of ‘Europe’s Financial Capital.’ Whether or not either city can supplant London in the long run is a moot point; however, there is little doubt that there will be some leakage of business from London to the Continent,” says Wilhelm Hammel, Managing Director, Head of Distressed Solutions, at Situs in Germany. “Angela Merkel may well win the next election as Chancellor of Germany and so would then continue as one of the key voices in European politics. This may bode well for the prospects of Frankfurt to further its claims as the Continent’s financial center.”
France announced late last month that it will scrap a tax on financial transactions next year, saying it was a deterrent to banks considering a move to Paris. President Emmanuel Macron has also pledged to gradually cut the corporate tax rate to 25 percent by the end of his term in 2022 from its current level of 33 percent.
Paris is hoping to lure 20,000 jobs from the U.K. as firms seek EU locations to secure continued market access to the bloc, according to Paris Europlace, France’s main financial lobby group. France is also bidding to make Paris the new home of the European Banking Authority, arguing that it can offer greater stability and continuity.
HSBC, which has a French retail bank, has said it may relocate as many as 1,000 traders to the French capital, while banks including Standard Chartered and Nomura Holdings have picked Frankfurt, according to Bloomberg. Deutsche Bank is also preparing to move large parts of its trading and investment-banking assets it currently books in London to Frankfurt, its hometown.
Still, says Situs’ Hammel, “The city of London has always been about finance. Don’t count it out, even after Brexit.”
Faced With Brexit Questions, Firms Hold Off on U.K. Investment
As the clock ticks toward Britain’s exit from the European Union, evidence is mounting that companies are postponing investment plans in the U.K.
After investment fell last year for the first time since 2009, according to government figures, a series of national surveys is finding that Brexit is weighing on business leaders’ decision-making. Britain has been gripped by political turmoil, as an electoral setback for Prime Minister Theresa May in June added further uncertainty about Britain’s path out of the bloc as negotiations began over the terms of Britain’s departure. Ministers have suggested the U.K. will seek a transition agreement to give businesses time to adapt, but have sent mixed signals on the shape of such a deal — keeping companies on edge.
Chancellor of the Exchequer Philip Hammond says uncertainty is giving companies pause. “It is absolutely clear businesses — where they have discretion over investment, where they can hold off — are doing so,” he told the British Broadcasting Corp. in July.
“They are waiting for more clarity about what the future relationship with Europe will look like,” he said.
Backers say it’s too soon to gauge the impact of Britain’s impending departure on business investment.
“The plural of anecdote is not data,” said Andrew Lilico, a Brexit backer and the executive director of London-based consultancy Europe Economics. He acknowledged a drop in investment is likely to come but said new trade deals will eventually pay off.
The Bank of England on Thursday cut its previous forecast for 2017 business investment growth by 0.75 percentage points, to 1%, with next year’s forecast revised down by half a percentage point, to 2.75%.
read more: Wall St Journal
U.K. Housing Market In the Basement
Home prices in the U.K. rose at their slowest rate in over four years in July, hurt by lingering political uncertainty, recent tax changes and a limited number of homes for sale.
The Royal Institution of Chartered Surveyors said that headline price growth across Britain slid to 1% from 7% in June, marking the softest reading since early 2013.
The outlook for the next 12 months also remains weak, with 28% of the respondents predicting a rise in prices.
That was the least positive reading since July 2016 in the aftermath of the Brexit result. London was among hardest-hit regions, with prices continuing to fall in the British capital, according to the RICS survey.
read more: MarketWatch
Blackstone Buys Billions in Spanish Real-Estate Assets
Blackstone Group says it has agreed to acquire a majority stake in rescued Spanish lender Banco Popular Español SA’s real-estate portfolio, a vote of confidence by the U.S. asset manager in Spain’s robustly recovering economy.
Blackstone said it will take a 51% stake in a newly created company that will include approximately €30 billion ($35.2 billion) worth of real-estate assets transferred from Banco Popular and will also include the bank’s real-estate management company, called Aliseda.
Banco Popular was rescued by European Union and Spanish authorities in June after a bank run earlier this summer and sold to Banco Santander for a token €1.
Banco Popular had been a weak link in the Spanish banking system since the country’s property boom went bust starting in 2008. The lender had been unable to make enough headway shedding its mountain of foreclosures, undeveloped land and bad loans.
Santander’s stake sale to Blackstone is an additional and important step as the bank seeks to clean up Banco Popular and focus on its core business of selling loans and other products to individuals and businesses, rather than managing billions in troubled real-estate assets.
Banco Popular’s €30 billion in real-estate assets had been written down to approximately €10 billion, Blackstone and Santander said in statements. Blackstone will manage the new company and Banco Popular will own the remaining 49% stake. The deal is the largest real-estate portfolio sold in Spain and among the largest in Europe, a Santander spokesman said.
“This significant investment reflects our continued confidence in the robust recovery of the Spanish economy,” Jonathan Gray, Blackstone’s global head of real estate, said in a statement.
read more: Wall St Journal
Home Equity Fuels Businesses
Homeownership not only benefits the mortgage and housing industries — it also benefits the economy perhaps in a way you haven’t considered before.
Equity in a home was used as a source of capital to start 284,618 businesses — 7.3% of all businesses — according to a new source of data released recently by the U.S. Census Bureau.
The new data source is the Annual Survey of Entrepreneurs (ACE), which collects economic and demographic information on businesses and business ownership in all major U.S. industries. The ASE collects data on an annual basis for three years beginning with reference year 2014:
“These numbers reinforce housing’s meaningful contributions to GDP, and policymakers need to be sure that that the first rule of housing reform is to do no harm to the housing market,” says The Collingwood Group Chairman Tim Rood. “It’s more important now than ever to get the rate of people owning homes above the anemic 63 percent. Rules and regulations need to be modified to make home construction, especially for entry-level properties, easier and more profitable for builders so the American Dream can be realized by more people.”
Six NAICS industries use home equity at higher than 7.3 percent, notably Accommodation and Food Services, Other Services, Retail Trade and Manufacturing. These industries similarly experience lower rates of profitability, are often not home-based businesses, and on average assemble $50,000 to $99,999 worth of funding as startup capital.
Investors Take On Mortgage Risk From Fannie Mae, Freddie Mac
Investors are snapping up securities sold by Fannie Mae and Freddie Mac that shift mortgage default risk away from taxpayers, powering a quiet transformation of the housing giants after almost a decade of government control.
Fannie and Freddie have sold roughly $48 billion of the securities since 2013, transferring a large measure of risk on roughly one-third of the single-family mortgages they guarantee. Sales are expected to reach a fresh high of $15 billion this year, up from the previous record $13 billion last year, according to J.P. Morgan Securities.
The sales mark an early step toward reducing the government’s role in the $14.4 trillion U.S. mortgage market. The amount of mortgage debt funneled through Fannie and Freddie and other taxpayer-backed entities roughly doubled after the financial crisis, to around 70%.
The progress has come despite a long-running stalemate in Congress, which has stumbled in its effort to design a replacement for the decades-old housing-finance system that centers on Fannie and Freddie.
It may not be happening as people anticipated, but “the government’s footprint in the mortgage market is receding quickly and significantly,” said Mark Zandi, chief economist at Moody’s Analytics.
The market for the so-called credit-risk transfers has boomed even as the one for privately issued mortgage-backed securities has remained mostly dormant, a sign that investors have greater comfort in the standards and transparency of these deals than in those issued by Wall Street banks that performed so poorly after the housing bust.
Fannie and Freddie don’t make loans, but buy them from lenders and bundle them into securities. Those bonds typically carry a guarantee that Fannie and Freddie will pay investors if the underlying mortgages default, leaving investors with only the risk that the bonds will lose value if interest rates rise.
The credit-risk transfers don’t carry that guarantee. Nevertheless, they have proved popular with investors, who have concluded that the yields they offer are worth the added risk. As the market has developed, banks have been willing to trade them, easing concerns that they would need to offer premium yields because they would be difficult for buyers to unload.
Reflecting the strong interest, the average yield that investors have demanded to hold one version of the instrument has fallen by more than half in just two years, to roughly 1.5 percentage points on top of a benchmark floating interest rate, according to J.P. Morgan Securities.
The pool of investors buying the securities is also widening to what many consider more stable sources of capital, a sign of their changing status. While hedge funds made up the largest group of early investors, that distinction now belongs to more traditional money managers, according to J.P. Morgan Securities. Though still small players in the market, insurance companies and real-estate investment trusts have also increased their buying in some recent deals.
The securities aren’t without controversy. Some observers have expressed concerns that Fannie and Freddie are paying investors too much for the risk they are shedding. Investors could also demand sharply higher yields in a market downturn, forcing Fannie and Freddie to either stop selling the securities, increasing their exposure to future defaults, or raise fees they charge lenders, potentially making home loans more expensive.
read more: Wall St Journal
Big Travel Deal
In one of Midtown’s biggest new leases so far this year, Travel Leaders Group Elite Division is moving its headquarters to Paramount Group’s 1633 Broadway at West 51st Street.
Travel Leaders’ component companies, Tzell Travel Group and Protravel International, have signed a 16.5-year lease for 106,000 square feet.
Travel Leaders Group is the country’s largest travel agency company. It will move from 119 W. 40th St. and 515 Madison Ave. The tenant was represented by Colliers International’s Robert Tunis and Eric Ferriello. Paramount Group was repped in-house by Doug Neye and by CBRE’s Stephen B. Siegel, Paul Amrich, Patrice Meagher, Rob Hill, Howard Fiddle and Emily Jones.
Terms were not released, but the space was listed at $85 per square foot. The deal for the 35th and 36th floors leaves about 175,000 square feet of direct space available in the 2.6 million-square-foot tower.
read more: NY Post
Construction-Worker Shortage Worsens in June
A shortage of construction labor that has squeezed property developers across the U.S. got worse in June after showing signs of improvement a month earlier.
The number of open construction jobs increased to a seasonally adjusted 225,000 in June from 163,000 in May, according to the Labor Department.
That is the most open jobs since September 2016 and significantly more than the 171,000 open jobs reported a year ago, according to Robert Dietz, chief economist at the National Association of Home Builders.
Job openings as a percentage of total employment increased to 3.2% in June from 2.3% a month earlier, according to the Labor Department.
The number of open construction jobs, a measure that can be volatile from month to month, has increased throughout the economic expansion but more recently has shown signs of leveling off.
The lack of available workers has been a critical issue for the housing market, delaying the construction of new homes and causing a supply shortage that is forcing prices higher. Many workers left the industry during the recession and have never returned and young people appear reluctant to pursue careers in construction. A boom in remodeling also has put a strain on the availability of workers.
U.S. housing starts rose 8.3% in June from the previous month, but the pace of construction in the previous few months was sluggish.
read more: Wall St Journal
Rich SF Residents Shocker: Someone Bought Their Street
Thanks to a little-noticed auction sale, a South Bay couple are the proud owners of one of the most exclusive streets in San Francisco — and they’re looking for ways to make their purchase pay.
Tina Lam and Michael Cheng snatched up Presidio Terrace — the block-long, private oval street lined by 35 megamillion-dollar mansions — for $90,000 and change in a city-run auction stemming from an unpaid tax bill. They outlasted several other bidders.
Now they’re looking to cash in — maybe by charging the residents of those mansions to park on their own private street.
So imagine the residents’ surprise when San Jose residents Cheng and Lam wound up with the street, its sidewalks and every other bit of “common ground” in the private development that has been managed by the homeowners since at least 1905. That includes a string of well-coiffed garden islands, palm trees and other greenery that enhance the gated and guarded community at the end of Washington Street, just off Arguello Boulevard and down the hill from the Presidio.
“We just got lucky,” said Cheng, a real estate investor.
The homeowners, however, are crying foul and want the Board of Supervisors to negate the sale.
The couple’s purchase appears to be the culmination of a comedy of errors involving a $14-a-year property tax bill that the homeowners association failed to pay for three decades. It’s something that the owners of all 181 private streets in San Francisco are obliged to do.
read more: SF Chronicle
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