The illuminated euro sign at the European Central Bank's (ECB) headquarter.
The illuminated euro sign at the European Central Bank's (ECB) headquarter.

EU proposes ?100,000 deposit guarantee



BRUSSELS // Bank deposits in the European Union should be guaranteed up to a minimum of ?50,000 euros (Dh250,000), rising to ?100,000 by the end of 2009, the European Commission proposed today in a bid to reassure investors. The reform was sparked by a string of bank rescues such as Northern Rock in Britain where there were long queues of depositors worried they would not get their money back. Germany and Ireland also rushed to issue blanket guarantees to depositors amid the worst financial market turmoil in 80 years.

EU governments have already agreed in principle to raise the minimum guarantee required under the bloc's rules to ?50,000 from ?20,000. Many will up it straight away to ?100,000 to soothe depositors facing the worst financial turmoil since the 1930s. "Increasing the minimum protection will strengthen Europeans' confidence in the safety of their deposits," the EU Internal Market Commissioner Charlie McCreevy said in a statement. The maximum amount of time for payouts if a bank fails would be three days compared with three to nine months at present.

EU finance ministers and the European Parliament, which has the final say, are committed to a speedy adoption of the measures. Mr McCreevy's spokesman told a news briefing that once adopted, it would be applied retroactively from Oct 15, 2008 so the ?100,000 guarantee would come into force by the end of 2009. The Commission said lifting the minimum guarantee to ?50,000 would cover 80 per cent of deposits, rising to 90 per cent with a guarantee of ?100,000.

The EU executive also proposes scrapping so-called co-insurance, a provision in the existing rules where a country has the option of deciding that a guarantee only covers 90 per cent of savings. EU leaders will meet in Brussels just days after stumping up ?2.2 trillion to rescue European banks and jolt frozen money markets - at the heart worst financial crisis since the Great Depression - into life. *Reuters

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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Rating: 4 stars

 


 

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