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EU lobbying by fund groups fuels fears over vested interest



When BlackRock was awarded prestigious consulting work by the US Federal Reserve and the European Commission last year, the win represented much more than a financial coup for the world’s largest asset manager.

Its appointment to run the Fed’s coronavirus-induced bond-buying programme and its contract to produce a report on EU sustainability rules helped cement the $7.8tn fund group’s close ties with global policymakers.

BlackRock’s growing influence on the public stage is a sign of the times. After long being overshadowed by banks, asset managers are increasingly in the spotlight due to the sector’s huge growth since the 2008 financial crisis. This has prompted them to forge closer links with important decision makers and ramp up lobbying.

“The prestige and respect that Goldman Sachs used to enjoy has been taken over by BlackRock, which is now given the red carpet treatment and shown into the corridors of powers,” said Kenneth Haar, a researcher at Brussels-based campaign group Corporate Europe Observatory. “This comes on the back of asset managers increasing their presence on the lobbying front.”

BlackRock met 31 European Commission officials between 2014 and the end of 2020, according to EU figures that capture both private meetings and roundtables organised on Brussels’ initiative. In addition, over the six-year period to the end of 2019, its estimated EU lobbying spend increased more than 300 per cent, filings analysed by EU LobbyFacts show.

Vanguard, the world’s second-largest investment manager, boosted its lobbying spend by 400 per cent over the period, according to its maximum estimate, while Capital Group and Fidelity International have also increased their resources.

Stepped up lobbying is explained by a desire to provide input into the wave of new rules that have come the sector’s way over the past decade on everything from systemic risk to environmental, social and governance investing.

“In the past the sellside was more dominant in policy debates,” said Victor van Hoorn, a Brussels-based lobbyist. “But now asset managers recognise that they are the best ones to defend their interests.”

Tanguy van de Werve, director-general of the European Fund and Asset Management Association, the sector’s European lobby group, said being part of the policy conversation helped shape good rulemaking. “[Our role] is to raise questions around the practicability and market impacts of some of the detailed rules being proposed,” he said.

However, the growing presence of fund groups in Brussels is fuelling concerns that a handful of powerful companies may be exerting outsized influence on rulemaking.

These concerns came to the surface when politicians and green campaigners decried BlackRock’s appointment to advise on EU sustainability rules in light of its holdings in European banks and fossil fuel companies. The EU’s independent ombudsman subsequently instructed Brussels to review its conflicts of interest rules.

BlackRock’s work for the commission was carried out by its Financial Markets Advisory arm, a distinct consultancy unit within the company that advises central banks and governments. BlackRock says its public policy activity, housed in a separate part of its business, is aimed at “publishing and sharing data to support well-functioning capital markets”.

The commission says it applied EU procurement rules “fully and fairly”, adding that it selected BlackRock due to the technical quality of its offer. It published the first part of BlackRock’s work in December to ensure transparency.

Mr Haar, who was part of the coalition that asked the EU ombudsman to investigate the BlackRock contract, says the case highlights the danger of policymakers basing their decisions on the views of private companies that have their own financial interests at heart.

“Technical expertise is not always neutral,” he said. “It’s risky for the commission to rely on expertise from a sector they are supposed to regulate.”

Adrienne Buller of think-tank Common Wealth says the increasingly concentrated nature of the asset management industry is another reason for vigilance around the sector’s sway over policymakers. “When there are a few extremely dominant players that have a loud voice in terms of lobbying, it becomes problematic,” she said.

The BlackRock controversy also underlines the sensitivity around asset managers’ influence over ESG rulemaking. The EU has sought to position itself as a leader in this area and is rolling out a swath of new regulations aimed at tackling climate change and transitioning to a more sustainable economy.

While most asset managers have voiced support for the initiative, which includes a classification system for green investments and rules on fund groups’ disclosure of ESG risks, recent research by environmental non-profit group InfluenceMap paints a different picture.

InfluenceMap found that groups including UBS, BlackRock, Invesco and BNY Mellon had either responded cautiously to elements of the proposed rules or sought to weaken them. It cited attempts to water down the application of the rules or block proposals such as extending asset managers’ fiduciary duty to cover ESG.

In response to the report, UBS, BlackRock, Invesco and BNY Mellon said they welcomed policy action on sustainable finance. UBS added that the research “[did] not reflect the full breadth” of its activities, while Invesco said it believed sustainable finance rules should balance ambition and reality in order to “crowd in investors rather than crowding them out of the market”.

“In many cases it seems that the financial sector is taking less ambitious positions,” said Rebecca Vaughan, analyst at InfluenceMap. “By attempting to weaken the regulations in little bits, [asset managers] are playing into the hands of the energy sector, which has a much more oppositional stance.”

InfluenceMap also identified asset managers that are using their voice to push for more progressive ESG rules. It singled out BNP Paribas Asset Management, Aviva Investors and French co-operative bank BPCE — which owns Natixis Asset Management and Mirova — as being positively engaged on the issues.

Mr van de Werve said asset managers’ contribution to the debate on ESG rules did not diminish the industry’s commitment to sustainability. “Being on the receiving end of many new sustainable finance regulations and having to implement them, it is legitimate to make our views known.”

Environmental campaign groups also exert influence over policymakers and are represented on the expert group established by the commission to advise on the next stage of its sustainable finance strategy.

The commission says it makes policy choices independently, taking into account exchanges with and feedback from all relevant stakeholders. “[We] always seek to ensure a balance between different stakeholder groups” when bringing together expert panels, it said.

However, Mr Haar said that how the EU approaches the next batch of ESG rules would be a test of its commitment to fair rulemaking. “We can either end up with a set of rules everyone has to follow or have a voluntary approach with standards developed by the financial sector itself,” he said.

Given the growing influence of asset managers in Brussels, he is concerned that the EU may be about to go down the second route. “The jury is still out on whether the regulatory process is captured. [But] in the past investment fund managers have been extremely successful in setting the agenda.”

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FC Barcelona and Real Madrid will be forced to pay back illegal state aid




FC Barcelona and Real Madrid will be forced to pay back millions of euros in illegal state aid after the EU’s highest court ruled Brussels was right to declare that beneficial tax arrangements they enjoyed for a quarter of a century were illegal.

The decision by the European Court of Justice upholds previous rulings by the European Commission and comes as Barcelona, the world’s highest-earning football club, is enduring one of the biggest crises in its history. 

This week police arrested the club’s former president, its current chief executive and its general counsel, in connection with a separate legal case ahead of a vote on Sunday to decide its next president. Barcelona, which recorded a loss of €100m last year, also has to contend with a debt pile of more than €1bn.

In 2016 Margrethe Vestager, the EU’s competition chief supremo, ordered four Spanish football clubs to pay back tens of millions of euros received since the 1990s in the form of sweetheart property deals, tax breaks and soft loans.

FC Barcelona subsequently contested the decision before the General Court, the EU’s second-highest tribunal, which annulled the commission’s judgment. However, after a final appeal from Brussels the ECJ ruled in favour of the EU.

In its decision on Thursday — which is final — the ECJ deemed the tax scheme “liable to favour clubs operating as non-profit entities over clubs operating in the form of public limited sports companies”, holding that it could therefore qualify as illegal state aid under EU rules.

The General Court had previously annulled Brussels’ decision over what it said was lack of sufficient evidence that the tax arrangements offered to the four football clubs, which also include CA Osasuna and Athletic Bilbao, were illegal.

But the commission had questioned the court’s “heavy burden of proof” on regulators in its appeal, arguing that a lower tax rate was obviously more favourable than a higher one.

The ECJ argued that the difficulty in assessing the extent of state aid — because of the complexity of tax deductions — did not preclude the commission from banning government practices that it considered gave sports clubs unfair advantages. 

It said: “The impossibility of determining, at the time of the adoption of an aid scheme, the exact amount, per tax year, of the advantage actually conferred on each of its beneficiaries, cannot prevent the commission from finding that scheme was capable, from that moment, of conferring an advantage on those beneficiaries.”

The Spanish government said on Thursday it had “absolute respect” for the court’s decision. FC Barcelona and Real Madrid did not immediately respond to requests for comment.

The judgment will be seen as a big win for regulators in Brussels who have for years been trying to stop highly successful commercial clubs from freeriding on the back of taxpayers.

The European Commission said on Thursday it noted “the judgment by the Court of Justice to follow the Commission’s arguments”.

Thursday’s ruling is the second time Brussels has won an appeal of its state aid decisions in recent weeks. Last month judges at the General Court rejected a legal challenge by budget airline Ryanair to state aid given to rivals on discriminatory grounds.

At present Barcelona is dealing with the fallout of what the Spanish media dubs Barçagate — allegations, denied by the club, that it corruptly hired outside groups to defame former president Josep Maria Bartomeu’s adversaries on Facebook.

Bartomeu was temporarily detained by the Catalan police earlier this week. He, the club, and other individuals in the case, which is being investigated by a Barcelona court, have all denied any wrongdoing.

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Italy raises €8.5bn in Europe’s biggest-ever green bond debut




Investors flocked to Italy’s inaugural environment-focused government bond offering on Wednesday, allowing the country to raise more than €8bn.

The banks running the issuance chalked up around €80bn in orders for €8.5bn of debt. It was the biggest debut sovereign green bond from a European issuer to date, according to Intesa Sanpaolo, which worked on the deal.

Other recent Italian bond sales have also attracted strong demand, after former European Central Bank president Mario Draghi became prime minister last month.

Demand for the debt highlights the popularity of green bonds, which provide funding for environmental projects and require borrowers to report to investors on how the funds are used. 

Tanguy Claquin, head of sustainable banking at Crédit Agricole, which was a co-manager on the transaction, said the sale was met with “very strong support” from investors, particularly those that are required to consider environmental factors in their portfolios.

The bond, which matures in 2045, was issued with a yield of 1.547 per cent. The underwriters were able to reduce the premium against a normal Italian government bond maturing in 2041 to 0.12 percentage points, a slimmer premium than the 0.15 points initially mooted.

Italy follows several European countries, including Poland, Ireland, Sweden and the Netherlands, into the green debt market. France has issued 11 green bonds since 2017, totalling $30.6bn according to Moody’s Investors Service. Germany joined the market last year with two green Bunds. In its budget on Wednesday, the UK announced plans to sell at least £15bn of green bonds in two offerings this year. 

Italy is the first riskier southern-European government to tap the green market. The spreads on Italian debt relative to the eurozone benchmark German bonds fell to a six-year low of less than 0.9 percentage points in early February in a sign of investors confidence in Draghi’s leadership of the EU’s third-largest economy. The spread widened during last week’s volatile bond market trading but remains low by recent standards.

Spain plans to follow Italy with a green bond offering in the second half of 2021. Analysts expect an initial €5-10bn sale at a 20-year maturity. Johann Plé, senior portfolio manager at AXA Investment Managers said the demand for Italy’s sale “should reinforce the willingness of Spain and others to follow suit.”

Plé said the price investors paid for the Italian green bond “remained fair” and that this “highlights that strong demand does not necessarily mean investors have to pay a larger premium”.

Green bonds often command higher prices, and therefore lower yields, than their conventional equivalents from the same issuer. The German green Bund currently trades with a “greenium” around 0.04 to 0.05 percentage points, roughly double the gap when it was initially issued, according to UniCredit analysis, while French government green debt is roughly 0.01 percentage points lower in yield than conventional bonds.

Italy’s pitch on the environmental impact and reporting of its green projects drew positive reactions from some investors. Saida Eggerstedt, head of sustainable credit at Schroders, which invested in the bond, said the details provided on projects including low-carbon transport, power generation, and biodiversity were “really impressive”.

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German regulator steps in as Greensill warns of threat to 50,000 jobs




Germany’s financial watchdog has taken direct oversight of day-to-day operations at Greensill Bank, as the lender’s ailing parent company warned that its loss of $4.6bn of credit insurance could cause a wave of defaults and 50,000 job losses.

BaFin appointed a special representative to oversee Greensill Bank’s activities in recent weeks, according to three people familiar with the matter, as concern mounted about the state of the lender’s balance sheet.

The German-based lender is one part of a group — advised by former UK prime minister David Cameron and backed by SoftBank — that extends from Australia to the UK and is now fighting for its survival.

On Monday night Greensill was denied an injunction by an Australian court after the finance group tried to prevent its insurers pulling coverage.

Greensill’s lawyers said that if the policies covering loans to 40 companies were not renewed, Greensill Bank would be “unable to provide further funding for working capital of Greensill’s clients”, some of whom were “likely to become insolvent, defaulting on their existing facilities”.

In turn that may “trigger further adverse consequences”, putting over 50,000 jobs around the world at risk, including more than 7,000 in Australia, the company’s lawyers told the court.

A judge ruled Greensill had delayed its application “despite the fact that the underwriters’ position was made clear eight months ago” and denied the injunction.

Greensill Capital is locked in talks with Apollo about a potential rescue deal, involving the sale of certain assets and operations. It has also sought protection from Australia’s insolvency regime.

Greensill was dealt a severe blow on Monday when Credit Suisse suspended $10bn of funds linked to the supply-chain finance firm, citing “considerable uncertainties” about the valuation of the funds’ assets. A second Swiss fund manager, GAM, also severed ties on Tuesday. Credit Suisse’s decision came after credit insurance expired, according to people familiar with the matter.

While the bulk of Greensill’s business is based in London, its parent company is registered in the Australian city of Bundaberg, the hometown of its founder Lex Greensill.

In Germany, where Greensill has owned a bank since 2014, BaFin, the financial watchdog, is drawing on a section of the German banking act that entitles the regulator to parachute in a special representative entrusted “with the performance of activities at an institution and assign [them] the requisite powers”.

The regulator has been conducting a special audit of Greensill Bank for the past six months and may soon impose a moratorium on the lender’s operations, these people said.

Concern is growing among regulators about the quality of some of the receivables that Greensill Bank is holding on its balance sheet, two people said. Regulators are also scrutinising the insurance that the lender has said is in place for its receivables.

Greensill Bank has provided much of the funding to GFG Alliance, a sprawling empire controlled by industrialist Sanjeev Gupta.

“There has been an ongoing regulatory audit of the bank since autumn,” said a spokesman for Greensill. “This regulatory audit report has specifically not revealed any malfeasance at the bank. We have constructive ongoing dialogue with all regulators in all jurisdictions where we operate.”

The spokesman added that all of the banks assets are “unequivocally” covered by insurance.

Greensill, a 44-year-old former investment banker, has said that the idea for his company was shaped by his experiences growing up on a watermelon farm in Bundaberg, where his family endured financial hardships when large corporations delayed payments.

Greensill Capital’s main financial product — supply-chain finance — is controversial, however, as critics have said it can be used to disguise mounting corporate borrowings.

Even if an agreement is struck with Apollo, it could still effectively wipe out shareholders such as SoftBank’s Vision Fund, which poured $1.5bn into the firm in 2019. SoftBank’s $100bn technology fund has already substantially written down the value of its stake.

Gupta, a British industrialist who is one of Greensill’s main clients, separately saw an attempt to borrow hundreds of millions of dollars from Canadian asset manager Brookfield collapse.

Executives at Credit Suisse are particularly nervous about the supply-chain finance funds’ exposure to Gupta’s opaque web of ageing industrial assets, said people familiar with the matter.

The FT reported earlier on Tuesday that Credit Suisse has larger and broader exposure to Greensill Capital than previously known, with a $160m loan, according to two people familiar with the matter.

Additional reporting by Laurence Fletcher and Kaye Wiggins in London

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