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#Amex reputation at stake due to a controversial Russian partner

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By any standards, Russian billionaire Roustam Tariko needs a stiff drink – no doubt a double vodka – if he is to ward off accusations of being a “fraudster”.
For the second time, the man who gave the world “Russian Standard Vodka” is accused of serving up a short measure. Once again, he’s defaulted on Eurobond payments.

And that could lead to his empire losing one of its best customers – American Express.

It was Tariko, 58, who brought the ubiquitous card to all Russians.
At the height of his pomp he told Forbes Magazine:
"I have one of the best vodka brands in the world and one of the biggest retail banks in Russia.
"If I just maintain what I have and grow it, that will already be enough to be proud of myself."
But pride goes before a fall…

Roustam Tariko

Roustam Tariko

Tariko’s problems started when his Russian Standard Bank (RSB) did not cough up $400 million in 2017.
RSB was the collateral on the loan.
Now, international bondholders are planning to claim a 49% stake in the bank.
They called in the Center for Financial Investigations and Forensic Expertise (CFIFE) to go through the RSB books.
Although confidential, the analysis was later shown in documents lodged with the Moscow Arbitration Court.
And it makes for uncomfortable reading for Tariko.
Investigators say the full sum of Tariko’s debts are more than $800 million.
And, they are convinced that cash and assets are being stripped from the bank.
According to the CFIFE these fears are “not unfounded”.
Last month (July) the creditors started an action to collect its collateral.
The Center reports more than $300 million has been withdrawn from the bank.
It added: “Since 2017, the value of the bank's assets has been constantly and sharply decreasing, while the share of illiquid assets, on the contrary, is growing just as rapidly.”
David Nitlispakh, head of the Swiss fund Pala Assets, represents the creditors of Russian Standard Ltd.
Pala Assets is a Switzerland-based investment company focusing on emerging market bonds.
Mr Nitlispakh said: “We have stated for a long time that the shareholder of Russian Standard organized a massive withdrawal of money from the bank.
“We are convinced he should bear full responsibility for unlawful actions to inflict such large damage on the bank.
“We are confident that it will not be possible to break the law with impunity.”

Russian Standard Bank

Russian Standard Bank

Pala Assets is considering filing an application to start a criminal prosecution.
A spokesman said: "What is happening is a clear malicious violation of the law, and we believe that the criminal activity of depriving the bank of its liquid assets must be stopped."
One creditor said: “The shareholder of Russian Standard Bank has been playing with his bondholders for three years, every time promising repayment of debt and then breaking the promise.
“This is done to squeeze all valuable assets from the bank before it is taken by bondholders as a collateral.
“This scandal can seriously tarnish the reputation of Amex whose exclusive partner in Russia is Tariko.”
Commenting on RSB’s future, Alexey Sanaev, of the Russian brokerage company Finam, told Cards International:
“The bad thing is that if the transactions are what they appear to be, then it would put the reputation of Tariko at significant risk.
“He may be labelled as a fraudster, which is bad.
“What will most likely happen is that the international bondholders will become the primary shareholders of the bank.
“Ultimately, that would help to make sure the bank’s reputation continues to grow in a positive direction. “
And, in a world where reputation is everything, global banking giant American Express finds itself caught up in the financial farrago.
Amex ran a famous advertising campaign in the 70s and 80s with the catchphrase “that’ll do nicely, sir”.
It was aimed at promoting how its credit card was welcomed worldwide and loved by all.
An Amex card carried cache. It was for the aspirational. It appealed to the new entrepreneurial Russian.
Amex and RSB have been close trading partners since the turn of the 2000s.
It was an alliance that saw Amex cards issued in Russia.
But as the worldwide reputation of RSB diminishes, there is a fear Amex may well be looking to distance itself from its partner.
Mr Sanaev said: “Russian Standard Bank was the first – and is still the only – bank to issue American Express cards in Russia.
“When the two companies first collaborated, the market was booming, and consumer spending was growing.
“The bank was a pioneer and one of the greatest beneficiaries of this market.
“I don’t think it is a surprise that American Express chose RSB as its exclusive partner.
“Back then it was the right thing to do, and a good name in the prospective market for Amex to be associated with.
“But the question remains as to whether that is the right thing to do now.
“Amex’s exclusive partner is suffering in terms of its reputation.

“I am not sure if Amex will continue to operate with RSB.
“It isn’t a question of the reputation of Amex in Russia, but the reputation of Amex in America, and globally that may be affected by the activities of its Russian partner.”

Mr Sanaev believes Amex will soon drop the damaged RBS.

He said: “Amex will choose a different partner in Russia, one with a cleaner reputation.
“I think that is an obvious thing to do.
“Amex is no longer gaining from the partnership with Russian Standard Bank – financially and in terms of reputation.”
In the early days Tariko embodied what Amex is all about.

He made his fortune from scratch – unlike many other oligarchs who helped themselves to a considerable slice of the nation’s industrial assets during the 1990s.

After graduating in 1989 with an economics degree from the Moscow Institute of Railway Engineering, he turned his hand to importing luxury items into Russia.

His money was made in chocolates and Italian sparkling wines.

It was a stepping stone to bringing more big-name drink brands to Russians – and then offering vodka to the world.

In the early days Tariko embodied what Amex is all about.
He made his fortune from scratch – unlike many other oligarchs who helped themselves to a considerable slice of the nation’s industrial assets during the 1990s.

"I made a fortune selling vodka to the Russians and now I am making a fortune selling it to the British.”, said Tariko to Forbes magazine.

However, some believe Roustam Tariko is now drinking in the last chance saloon as he fights to keep his business empire and – more importantly – his good name.

Business

Has the shine worn off activist investment?

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A few recent cases suggest that the tide may finally be turning on activist investment, which until recently seemed as if it was becoming an entrenched part of the business world. Although the value of activist investor-held assets may have been climbing in recent years (in the UK, this figure grew 43% between 2017 and 2019 to reach $5.8 billion), the number of campaigns fell by 30% in the year leading up to September 2020. Of course, that drop-off can partly be explained by the fallout from the ongoing coronavirus pandemic, but the fact that more and more plays appear to be falling on deaf ears could signal a bleaker long-term outlook for activist agitators going forwards.

The latest case in point comes from England, where wealth management fund St James’s Place (SJP) were the subject of an attempted activist intervention on the part of PrimeStone Capital last month. After purchasing a 1.2% stake in the company, the fund sent an open letter to the SJP board of directors challenging their recent track record and calling for targeted improvements. However, the lack of incision or originality in the PrimeStone manifesto meant that it was brushed off with relative ease by SJP, with little impact being felt on its share price. The underwhelming nature and outcome of the campaign is indicative of a growing trend in recent years – and one that could be set to become more pronounced in a post-Covid-19 society.

PrimeStone unable to inspire

The PrimeStone play took the traditional form favoured by activist investors; after acquiring a minority stake in SJP, the fund tried to flex its muscles by highlighting the perceived shortcomings of the current board in an 11-page missive. Among other issues, the letter identified the company’s bloated corporate structure (over 120 head of department on the payroll), flagging Asian interests and tumbling share price (stocks have fallen 7% since 2016). They also identified a “high-cost culture” in SJP’s backroom and made unfavorable comparisons with other prosperous platform businesses like AJ Bell and Integrafin.

While some of the criticisms had elements of validity, none of them were especially novel—and they didn’t paint a complete picture. In fact, several third parties have come to the defence of SJP’s board, pointing out that equating the company’s downturn with the rise of interests such as AJ Bell is unfair and overly simplistic, and that when set against more reasonable touchstones such as Brewin Dolphin or Rathbones, SJP holds its own remarkably well.

PrimeStone’s admonishments over SJP’s high spending may hold some water, but they fail to recognize that much of that outlay was unavoidable, since the firm was forced to comply with regulatory changes and succumb to revenue headwinds beyond its control. Its impressive performance against its competitors confirms that the company has been dealing with sector-wide issues exacerbated by the pandemic, something which PrimeStone singularly failed to fully acknowledge or address.

Momentous vote imminent for URW

It’s a similar story across the Channel, where French billionaire Xavier Niel & businessman Léon Bressler have collected a 5% stake in international shopping mall operator Unibail-Rodamco-Westfield (URW) and are adopting Anglo-Saxon activist investor tactics to try and secure URW board seats for themselves and push URW into a risky strategy to drive up its share price in the short term.

It’s clear that, like most companies in the retail sector, URW needs a fresh strategy to help weather the pandemic-induced recession, particularly given its relatively high level of debt (more than €27 billion). To that end, URW’s board of directors are hopeful of launching project RESET, which targets a capital raise of €3.5 billion in order to maintain the company’s good investment-grade credit rating and ensure continued access to all important credit markets, while gradually deleveraging the shopping mall business.

Niel and Bressler, however, want to forego the €3.5bn capital increase in favour of selling off the firm’s US portfolio—a collection of prestigious shopping centres which have by and large proven resistant to the changing retail environment—to pay down debt. The activist investors’ plan is being opposed by a number of third party advisory firms such as Proxinvest and Glass Lewis, with the latter calling it “an excessively risky gambit”. Given that credit rating agency Moody’s have predicted an 18-month slump in rental income that is likely to hit shopping centres – and have even gone as far as to warn that failure to implement the capital raise underpinning RESET could result in a downgrading of URW’s rating – it seems likely that Niel and Bressler’s ambitions will be rebuffed at the November 10th shareholder meeting, in the same way that PrimeStone’s have been.

Long-term growth over short-term gains

Elsewhere, Twitter CEO Jack Dorsey appears to have also overcome an attempt by high-profile activist investor Elliott Management to oust him from his role. Although a recent committee meeting did cede to some of Elliott’s demands, such as reducing board terms from three years to one, it chose to declare its allegiance to a chief executive who had overseen total shareholder returns of 19% prior to Elliott’s involvement with the social media behemoth earlier this year.

Alongside the atypically uninspiring campaigns conducted elsewhere in the market, and the retrogression of the sector as a whole, could it be that activist investors are losing their clout? For a long time, they have drawn attention to their ventures through flashy antics and bold prognoses, but it seems that companies and shareholders alike are catching on to the fact that behind their bluster, their approaches often contain fatal flaws. Namely, a focus on short-term inflation of the share price to the detriment of long-term stability is being exposed as the irresponsible gamble that it is – and in a shaky post-Covid economy, judicious prudence is likely to be prized above immediate profit with increasing regularity.

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coronavirus

Russia has launched a propaganda campaign to smear the coronavirus vaccine being developed by Oxford University scientists

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The Kremlin is accused of spreading fear about the serum, claiming it will turn people into monkeys. The Russians base the suggestion on the fact the vaccine is using a chimpanzee virus. The Russians have disseminated pictures and memes of Prime Minister Boris Johnson looking like “a yeti”. It’s captioned: “I like my bigfoot vaccine”.

And other shows a “monkey” scientist holding a syringe and working on the treatment.

The monkey is wearing an AstraZeneca lab coat.

The pharmaceutical giant is at the forefront of developing a vaccine.

Last month the London Globe and the EU Reporter carried stories about the Russian campaign.

Both publications have since removed two articles from their online sites.

Publisher Colin Stevens said:

“We were given the story by a freelance journalist in Brussels.

“However, after an investigation by The Times we now know the story has no basis.

“When I heard the stories were false, they were taken down straightaway.

“Sadly, we have been the unwilling victims of a Russian campaign to discredit the excellent work being done by Oxford University scientists.

“Even the very best get caught out now and again. Indeed even the Times was fooled into publishing the fake "Hitler Diaries" some years ago.”

AstraZeneca's chief executive Pascal Soriot condemned attempts to undermine their work.

He said: “Scientists at AstraZeneca and at many other companies and institutions around the world are working tirelessly to develop a vaccine and therapeutic treatments to defeat this virus.

“But it is independent experts and regulatory agencies across the world that ultimately decide if a vaccine is safe and effective before it is approved for use.

“Misinformation is a clear risk to public health.

“This is especially true during the current pandemic which continues to claim tens of thousands of lives, significantly disrupt the way we live and damage the economy.”

Professor Pollard, who is professor of Paediatric Infection and Immunity at the University of Oxford, told BBC Radio Four's Today programme:

“The type vaccine we have is very very similar to a number of other vaccines, including the Russian vaccine, all of which use the common cold virus from humans or from chimpanzees.

“To our bodies, the viruses look the same.

“We don't actually have any chimpanzees involved at all in the process of making the vaccine, because it is all about the virus, rather than animals it might more commonly

Meanwhile, Doctor Hilary Jones told Good Morning Britain the attempts at disinformation were “utterly ridiculous and shameful”.

He added:

“Oxford have a fantastic reputation; they are doing this thoroughly and are looking at thousands of people from all different groups and ages.

“They are doing this safely and effectively and for the Russians to try to besmirch what they are trying to do because parts of the vaccine comes from chimpanzee material is utterly ridiculous and shameful.

“I would put my money on Oxford every time.”

A Russian Embassy spokesman in London said: “The suggestion that the Russian state may conduct any kind of propaganda against the AstraZeneca vaccine is itself an example of disinformation.

“It is obviously aimed at discrediting Russia's efforts in combating the pandemic, including the good co-operation we have established with the UK in this field.”

 

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Could the digital Renminbi address China’s vulnerability to the global financial system?

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The international financial system is dominated by the US. Washington has often used its clout in the international financial system to further its economic and geopolitical interests through financial sanctions. As antagonism between the US and China moves beyond trade and technology, how the US-China rivalry will play out in the new stage of international finance is a matter of great concern to the world.

China has been working on a Central Bank Digital Currency (CBDC) since 2014, and is intensifying its efforts to internationalise the Renminbi.

On the surface it appears the CBDC will be for domestic use, but a CBDC will simplify cross border transactions. For a long time, the country has been dissatisfied with the U.S. Dollar’s (USD) ongoing role as the global reserve currency and is committed to extending its currency’s reach.

It even has an initiative to denominate international trade credit in Renminbi (RMB) rather than dollars. And the Belt and Road Initiative has seen China extend more than $1 trillion in foreign loans.

At a recent online global seminar organised by the Pangoal Institution China and the Centre for New Inclusive Asia Malaysia, experts from China, Russia, Europe and the US deliberated and disussed the issue.

One of the key speakers was Mr Ali Amirliravi, CEO and Founder of LGR Crypto Bank of Switzerland. and creator of the Silk Road Coin digital currency.

Mr Ali Amirliravi, CEO and Founder of LGR Crypto Bank

Mr Ali Amirliravi, CEO and Founder of LGR Crypto Bank

He addressed China’s vulnerability to the global financial system, and said:

“This is a very interesting question as there are a lot of factors to consider. To begin, I think it might be helpful to define China’s vulnerabilities specifically. We are speaking about international finance here (it’s a very complex and politically charged system) and since the second world war, the space has been more or less dominated by the interests of the US. We see this in the global dominance that the US dollar has held for the last 70 years. We see that in the steps that Washington has taken to ensure that the dollar acts as the global reserve currency - particularly in industries like the global oil trade. Up until quite recently, it was probably difficult to even imagine a global financial system that was not directly supported by the US dollar.

By virtue of this global reliance, the American political machine was given significant power to wield in international finance. The best evidence of this can probably be found in the history of crippling economic sanctions that the US has enacted against specific states - the impacts of which can be devastating. In a nutshell, it’s an asymmetrical power dynamic wherein the US has carved out a significant negotiating  advantage over other countries.

LGR Crypto Bank of Switzerland

LGR Crypto Bank of Switzerland

Put it this way: when the global economic system is built to fit the domestic currency of a specific state, it is easy to see how that state would be able to tailor certain policies and promote behaviours that would further their own geopolitical interests - this has been the American reality for the last few decades.

But things change. Technology advances, political relationships evolve, and international trade and money flows continue to expand and grow - now incorporating more people, countries and businesses than ever before. All of these factors (economic, political, technological, societal) work to shape the reality of the international order, and we are now at a place where a serious discussion about a replacement for the US dollar is warranted - that’s why I am excited to be here speaking about this issue today, it’s really time to have the conversation.

So, now that we have set the scene, let’s tackle the question: could the creation of a digital Renminbi address the vulnerability and asymmetry that China is dealing with in international finance? I really don’t think this is a simple yes or no answer here, in fact I think it is valuable to consider the question with a broad outlook on development over the next few years.

 

SHORT-TERM

Starting with the short term, let’s put the question like this: will the digital renminbi have significant impact internationally immediately following launch. The answer here I think is no, and there are a few reasons for that. First of all, let’s consider the intention of the issuer, the Chinese central bank. Reports show that the initial focus of the DRMB project is domestic, the Chinese government is looking to challenge private sector digital payment methods like AliPay etc., and getting the broader population used to the idea of Central Bank-issued digital currencies powering the majority of economic transactions in the country. To put it simply, the scope of the first stage of the DRMB launch is too small and domestically focused to directly impact the international system - there just won’t be enough DRMB in circulation globally.

There is another point to consider in the short-term: voluntary acceptance. Even if stage one of the DRMB project did have an international focus and was committed to minting huge amounts of digital currency, international impact requires international use - meaning that other countries would have to voluntarily accept and support the project in the early stages. How likely is this to happen? Well it’s a bit of a mixed bag, we’ve seen a few agreements start to pop-up between China and some countries in Central Asia as well as South Korea and Russia, which outline future frameworks for DRMB acceptance and trade, however there isn’t too much in place yet. And that’s just it: before the DRMB can have international impact, there needs to be widespread international access and acceptance, and I don’t see that happening in the short-term.

 

MID-TERM

Let’s move to a mid-term analysis. So imagine that phase 1 of the DRMB is complete and we have individuals and corporations in China accepting, transacting and trading it. What will phase 2 look like? I think we will start to see China expanding the scope of the DRMB project and incorporating it into their international development and infrastructure projects. If we consider the scope of the Belt and Road Initiative and China’s commitments and focus on development and investment across central Asia, Europe and parts of Africa, it is clear that there are many opportunities to promote and incentivize use of the DRMB internationally.

A great example to consider is the group of countries that make up the Silk Road area (about 70 countries). China is participating in infrastructure projects here, but it is also promoting increased trade in the area - and that means a lot of money moving cross-border. This is actually an area that my company LGR Crypto Bank is focused on - our goal is to make cross-border payments and trade finance transparent, fast and secure - and in an area with over 70 different currencies and incredibly disparate compliance requirements, this is not always an easy task.

Here is precisely where I think the DRMB could add a lot of value - in clearing up the confusion and opacity that comes with cross-border money movement and complex trade finance transactions. I believe that one way the DRMB will be marketed to China’s trade and development partners is a way to bring transparency and speed in complicated transactions and international transfers. These are real problems, especially in the multi-commodity trade business, and they can cause serious delays and business interruptions- If the Chinese government can prove that adoption of the DRMB will address these issues, then I think we will see real eagerness in the market.

At LGR Crypto Bank, we are already researching, modelling and designing our own money movement and trade finance platforms to work in harmony with digital currencies, particularly our own Silk Road Coin and the Digital Renminbi - we are ready to offer customers the best in class finance options as soon as they are made available.

When it comes to the international stage, I think that China will use its BRI as a proving ground for the DRMB in real-world commerce. By doing this, they will start to develop a network of DRMB acceptance across the Silk Road Countries and will be able to point to successful infrastructure projects as proof of the success of the Digital Renminbi. If this phase is carried out properly, I think it will create a very good foundation of DRMB acceptance that can be built on and expanded globally. The next step would likely be Europe - this is something of a natural extension of the Silk Road Area, and also ties in to the reality of increased trade between the EU and China. It’s important to note that if we consider all of the domestic economies that make up the Euro block together, it is the largest importer/exporter in the world- it would be an incredible opportunity for China to bring international attention to the DRMB and prove its capabilities in the West.

 

Long-term

In the long-term, I do think that it is possible for the DRMB to gain high levels of international traction and achieve some level of global acceptance. Again, it will all depend on the success of the Chinese government in making the case for adoption throughout the earlier phases. The value propositions of central bank digital currencies are very clear (increased transaction speed, improved transparency, fewer middlemen, less delays, etc.), and China is certainly not the only one developing such an asset. Currently, however, China is a leader and if they can execute an expansion plan without too many issues along the way, this head-start could make it difficult for other state offerings to catch-up. Maybe not, though.

It could be that in the long-term, all states will have a sovereign digital currency - and this begs the question: in the age of digital currencies, is there still a need for a global reserve currency? I’m not sure. What would the value add be of a reserve currency when central bank digital currencies could be traded effortlessly with immediate settlement times? Maybe reserve currencies will simply become a relic of an outdated financial system.

Looking forward to the long-term, I can imagine 2 scenarios where the DRMB could alleviate China’s vulnerabilities in the international financial system:

  • The DRMB becomes the new world reserve currency
  • The notion of a world reserve currency becomes obsolete and the new economic order runs on state-backed digital currencies operating without a hierarchy.

Whatever happens, I do believe we are on the cusp of a major change in global finance. There is no doubt that digital currencies, specifically central bank digital currencies, will play a massive role in defining the new economic paradigm. I believe that China is making great moves in leading the pack on this, and I know that at LGR Crypto Bank we look forward to adopting the DRMB where we can to further optimize and expedite the money movement and trade finance solutions that we offer to our customers.

 

 

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