Posts Tagged ‘Goldman Sachs Group’

iPhones and Children Are a Toxic Pair, Say Two Big Apple Investors

January 8, 2018

Two activist shareholders want Apple to develop tools and research effects on young people of smartphone overuse and addiction

Teens took a group selfie with a smartphone in New York’s Times Square on Dec. 1.
Teens took a group selfie with a smartphone in New York’s Times Square on Dec. 1. PHOTO: DREW ANGERER/GETTY IMAGES

The iPhone has made Apple Inc. and Wall Street hundreds of billions of dollars. Now some big shareholders are asking at what cost, in an unusual campaign to make the company more socially responsible.

A leading activist investor and a pension fund are saying the smartphone maker needs to respond to what some see as a growing public-health crisis of youth phone addiction.

Jana Partners LLC and the California State Teachers’ Retirement System, or Calstrs, which control about $2 billion of Apple shares, sent a letter to Apple on Saturday urging it to develop new software tools that would help parents control and limit phone use more easily and to study the impact of overuse on mental health.

The Apple push is a preamble to a new several-billion-dollar fund Jana is seeking to raise this year to target companies it believes can be better corporate citizens. It is the first instance of a big Wall Street activist seeking to profit from the kind of social-responsibility campaign typically associated with a small fringe of investors.

Adding splash, rock star Sting and his wife, Trudie Styler, will be on an advisory board along with Sister Patricia A. Daly, a nun who successfully fought Exxon Mobil Corp. over environmental disclosures, and Robert Eccles, an expert on sustainable investing.

The Apple campaign would be unusual for an activist like Jana, which normally urges companies to make financial changes. But the investors believe that Apple’s highflying stock could be hurt in coming decades if it faces a backlash and that proactive moves could generate goodwill and keep consumers loyal to Apple brands.

“Apple can play a defining role in signaling to the industry that paying special attention to the health and development of the next generation is both good business and the right thing to do,” the shareholders wrote in the letter, a copy of which was reviewed by The Wall Street Journal. “There is a developing consensus around the world including Silicon Valley that the potential long-term consequences of new technologies need to be factored in at the outset, and no company can outsource that responsibility.”

Obsessive teenage smartphone usage has sparked a debate among academics, parents and even the people who helped create the iPhone.

Two teenage boys use smartphones in Vail, Colo., in June 2017.
Two teenage boys use smartphones in Vail, Colo., in June 2017. PHOTO: ROBERT ALEXANDER/GETTY IMAGES

Some have raised concerns about increased rates in teen depression and suicide and worry that phones are replacing old-fashioned human interaction. It is part of a broader re-evaluation of the effects on society of technology companies such as Google and Amazon.com Inc. and social-media companies like Facebook Inc. and Snap chat owner Snap Inc., which are facing questions about their reach into everyday life.

Apple hasn’t offered any public guidance to parents on how to manage children’s smartphone use or taken a position on at what age they should begin using iPhones.

Apple and its rivals point to features that give parents some measure of control. Apple, for instance, gives parents the ability to choose which apps, content and services their children can access.

The basic idea behind socially responsible investing is that good corporate citizenship can also be good business. Big investors and banks, including TPG, UBS Group AG and Goldman Sachs Group Inc. are making bets on socially responsible companies, boosting what they see as good actors and avoiding bad ones.

Big-name activists increasingly view bad environmental, social or governance policies as red flags. Jana plans to go further, putting its typical tools to work to drive change that may not immediately pay off.

Apple is an ambitious first target: The combined Jana-Calstrs stake is relatively small given Apple’s nearly $900 billion market value. Still, in recent years Apple has twice faced activists demanding it pare its cash holdings, and both times the company ceded some ground.

Chief Executive Tim Cook has led Apple’s efforts to be a more socially responsible company, for instance on environmental and immigration issues, and said in an interview with the New York Times last year that Apple has a “moral responsibility” to help the U.S. economy.

Apple has shown willingness to use software to address potentially negative consequences of phone usage. Amid rising concerns about distracted driving, the company last year updated its software with a “do not disturb while driving” feature, which enables the iPhone to detect when someone is behind the wheel and automatically silence notifications.

The iPhone is the backbone of a business that generated $48.35 billion in profit in fiscal 2017. It helped turn Apple into the world’s largest publicly listed company by market value, and anticipation of strong sales of its latest model, the iPhone X, helped its stock rise 50% in the past year. Apple phones made up 43% of U.S. smartphones in use in 2016, according to comScore , and an estimated 86 million Americans over age 13 own an iPhone.

Jana and Calstrs are working with Jean M. Twenge of San Diego State University, who chronicled the problem of what she has dubbed the “iGen” in a book that was previewed in a widely discussed article in the Atlantic magazine last fall, and with Michael Rich of Harvard Medical School and Boston Children’s Hospital, known as “the mediatrician” for his work on the impact of media on children.

The investors believe both the content and the amount of time spent on phones need to be tailored to youths, and they are raising concern about the public-health effects of failing to act. They point to research from Ms. Twenge and others about a “growing body of evidence” of “unintentional negative side effects,” including studies showing concerns from teachers. That is one reason Calstrs was eager to support the campaign, according to the letter.

The group wants Apple to help find solutions to questions like what is optimal usage and to be at the forefront of the industry’s response—before regulators or consumers potentially force it to act.

The investors say Apple should make it easier and more intuitive for parents to set up usage limits, which could head off any future moves to proscribe smartphones.

The question is “How can we apply the same kind of public-health science to this that we do to, say, nutrition?” Dr. Rich said in an interview. “We aren’t going to tell you never go to Mickey D’s, but we are going to tell you what a Big Mac will do and what broccoli will do.”

Write to David Benoit at david.benoit@wsj.com

Appeared in the January 8, 2018, print edition as ‘Investors Prod Apple On Child iPhone Use.’

https://www.wsj.com/articles/iphones-and-children-are-a-toxic-pair-say-two-big-apple-investors-1515358834

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Bitcoin Tumbles Below $13,000 as Investors Face ‘Reality Check’ — “Unsophisticated investors holding the bag at the top.”

December 22, 2017

Bloomberg

By Richard Frost and Eric Lam

 Updated on 

Bitcoin sank as much as 21 percent on Friday, extending its loss from its intraday high this month toward 40 percent, as the crypto-world was swamped by a wave of selling.

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The digital currency dropped to as low as $12,191.80 before trading at $12,975.50 as of 3:47 p.m. in Hong Kong. Bitcoin, which fell as much as 38 percent from its peak of $19,511, is still up more than 1,100 percent this year. Other cryptocurrencies also plunged, with bitcoin cash crashing 38 percent and ethereum losing 26 percent over the past 24 hours, according to coinmarketcap.com.

Investors are having a “reality check,” said Stephen Innes, head of trading for Asia Pacific at Oanda Corp. “At the heart of the matter was a frenzied demand for coins with limited supply has now led to unsophisticated investors holding the bag at the top.”

The plunge comes amid growing signs of mania for anything cryptocurrency related.

Long Island Iced Tea Corp. shares rose as much as 289 percent after the unprofitable Hicksville, New York-based company rebranded itself Long Blockchain Corp. Bank of Japan Governor Haruhiko Kuroda said on Thursday bitcoin isn’t functioning like a normal means of payment and is being used for speculation.

Bitcoin also fell as concern grew that an offshoot could become a stronger rival to the more well-known cryptocurrency. Bitcoin cash, which emerged earlier this year amid a split between factions over proposed software upgrades, was added to Coinbase Inc.’s offerings this week.

Still, cryptocurrencies are attracting established players. Goldman Sachs Group Inc. is setting up a trading desk to make markets in digital currencies such as bitcoin, according to people with knowledge of the strategy. The bank aims to get the business running by the end of June, if not earlier, two of the people said.

— With assistance by Sarah McDonald

https://www.bloomberg.com/news/articles/2017-12-22/bitcoin-plummets-toward-13-000-down-more-than-30-from-record

‘Project Scalpel’: Behind Big Banks’ Plan to Save $2 Billion

March 27, 2017

Wall Street firms discuss joint venture to process transactions

Banks’ hope is that ‘Project Scalpel’ eventually would trim at least $2 billion from their annual spending.
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Big banks have cut more than $40 billion of costs since the financial crisis.

They aren’t done.

While prospects for revenue growth at banks have brightened since the election, a handful of the biggest firms are considering ways to slash still more from their back-office budgets. One effort, dubbed “Project Scalpel,” is aimed at cutting the administrative and operational costs involved with processing stock and bond transactions after a trade is struck, according to people familiar with the discussions.

Talks around this effort are at an early stage but so far have included a number of banks, such as Goldman Sachs Group Inc., Morgan Stanley and Bank of America Corp., the people said. If the idea materializes, it could create a joint venture that allows banks to share trade processes and technology.

The hope is this would be widely used by the industry and eventually trim at least $2 billion from the banks’ annual spending, the people said. In the past, banks viewed their ability to efficiently process trades, and handle transfers of ownership and associated activities like dividend and interest payments, as a competitive advantage.

Now, the processes and systems around these functions have become commoditized. Competing banks have redundant systems handling the same functions.

A joint system would eliminate the duplication, spread the cost burden and make it simpler to upgrade technology, according to the people familiar with the discussions. It also would free up resources for revenue-generating investments, they said.

There are plenty of obstacles. These include questions around data privacy and ownership stakes in the venture, and whether to use existing technology systems or build a new one. Some bankers also fear a for-profit service provider could eventually grow too powerful and boost fees.

Despite the hurdles, banks for decades have cooperated in other areas such as creating transaction venues and building clearinghouses. The recent discussions represent a possible extension of that cooperation and underscore that banks remain obsessively focused on keeping expenses in check.

The six biggest U.S. banks have eliminated more than 100,000 jobs since 2009, while shedding less-profitable business lines and trimming compensation.

This is the result of a relatively fallow period on Wall Street in which banks’ returns on equity have been held down by a combination of more-stringent capital requirements, lackluster economic growth, superlow interest rates, and more subdued trading.

On cost-cutting, “much of the easy stuff is done,” said Mark Alexander, a former senior technology and operations executive at Bank of America. “Banks now need to think about doing something different and transformational.”

European banks including Barclays PLC and Société Générale SA have said they are working with technology providers to outsource and share some trading back-office operations in Europe.

Financial-services firms spend as much as $24 billion annually on post-trade operations, or what is known in the industry as activity that occurs “south of the trade blotter,” according to a study by technology firm Broadridge Financial Solutions Inc.

A shared-processing venture would potentially allow banks to cut or reassign thousands of back-office workers. Each firm would keep scores of risk managers, programmers and traders focused on making trades happen.

Joint ventures involving rival banks are complex, though. A couple of years ago, about 10 banks tried to create just such a post-trade with clearinghouses including the Depository Trust & Clearing Corp. Those talks foundered because there were too many different views about what the finished product would do and the technology that would underpin it.

The latest idea is to narrow the group. The Scalpel discussions also involve a recently formed investment firm called Motive Partners, the people familiar with the matter said. Motive is led by bank-technology veterans including Morgan Stanley and Goldman alum Stephen Daffron,  and former Fidelity National Information Services Inc. executives Rob Heyvaert and Michael Hayford.

Banks have previously collaborated on combining back-office functions. In the 1970s, securities firms created a clearinghouse to reduce and then computerize mountains of paper trading tickets. The result was the DTCC, which handles trillions of dollars of securities transactions daily.

Over the past two years, collaboration has accelerated again. Banks recently created joint utilities for things like anti-money-laundering compliance procedures and sharing basic underlying information about stocks and bonds.

“The banking industry must find ways to structurally lower costs,” UBS Group AG Chief Executive Sergio Ermotti told analysts last year. He says the way to achieve it is “closer collaboration between financial institutions.”

https://www.wsj.com/articles/project-scalpel-behind-big-banks-plan-to-save-2-billion-1490607000

Yuan Pares Record Rally as Goldman Says Now’s the Time to Sell — The yuan is likely to weaken this year as capital outflows continue

January 6, 2017
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January 5, 2017, 8:32 PM EST January 6, 2017, 3:53 AM EST
  • Offshore rate tumbles as much as 1.1%, most in a year
  • PBOC strengthens fixing less than forecasts from Mizuho, ANZ

What’s Triggering the Rally in the Yuan?

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The offshore yuan pared its record weekly rally as China’s central bank raised its fixing less than projected and some analysts reiterated their bearish views on the currency.

The exchange rate fell as much as 1.1 percent to 6.8623 a dollar in Hong Kong, the most since this day last year, after a 2.5 percent surge over the past two sessions. Goldman Sachs Group Inc. advised clients that the best times to bet against the yuan have tended to be after interventions that flushed out bearish positions, or when China concerns were off traders’ radar screens.

Yuan short sellers were squeezed in Hong Kong this week after interbank borrowing rates soared, the dollar weakened and Bloomberg News reported that Chinese policy makers are preparing contingency plans to support the exchange rate. The move widened the offshore yuan’s premium over the onshore rate to 1.6 percent, the most since February last year. While borrowing rates in Hong Kong remained elevated on Friday, a broad recovery in the U.S. currency eased some of the pressure on bears.

“The offshore yuan is sinking because there is some recovery in the dollar, perhaps the unwinding of short-yuan positions has mostly been done, and it’s closing the gap with the onshore currency,” said Roy Teo, senior currency strategist at ABN Amro Bank NV in Singapore. The yuan is likely to weaken this year as capital outflows continue and the U.S. Federal Reserve increases interest rates, Teo said.

China’s central bank raised its daily reference rate by 0.92 percent to 6.8668 per dollar on Friday, following a 1 percent drop in a gauge of the greenback’s strength overnight. The offshore yuan was trading 0.9 percent weaker at 6.8537 per dollar as of 4:51 p.m. in Hong Kong, while the onshore rate slumped 0.6 percent. Friday’s fixing was weaker than Mizuho Bank Ltd.’s prediction of 6.8447 and Australia & New Zealand Banking Group Ltd.’s estimate of 6.8456.

The three-month yuan interbank rate in Hong Kong, known as Hibor, surged to a record high, while the overnight rate jumped 23 percentage points to 61 percent, the highest since last January’s cash crunch. Rising interbank rates can make some short positions prohibitively expensive.

The yuan is giving back some of its gains after a week that echoed the short squeeze in January of last year. That abrupt reversal marked the beginning of a nearly 5 percent rally lasting two months.

Chinese policy makers have several reasons to engineer a stronger or stable yuan in the short term. U.S. President-elect Donald Trump has pledged to label the country a currency manipulator on his first day in office, while the exchange rate came close to breaking through the psychologically-important level of 7 per dollar earlier this week. Policy makers also want to avoid a flood of capital outflows as citizens’ annual foreign-exchange quotas reset for the new year.

Goldman Forecast

Still, the analyst consensus suggests China will eventually let the yuan continue its descent. The exchange rate will fall to 7.16 per dollar by year-end before sliding to 7.3 the following year, according to the median of projections compiled by Bloomberg.

Goldman researchers see an even quicker retreat. The Chinese currency will probably drop to 7.3 per dollar by December, emerging-market strategists led by Kamakshya Trivedi in London predicted in a note dated Thursday.

Benjamin Fuchs, chief investment officer at the $2 billion hedge fund BFAM Partners (Hong Kong), said China’s moves to repeatedly tighten capital controls risk eroding confidence in its currency. The dollar’s advance against the yen and other currencies has also increased competitive pressure on China to let the yuan depreciate, he said.“We’re starting to see more and more of a negative cycle being created,” Fuchs said. China’s attempts to curb outflows are “just making people want to take money out quicker, and make companies change their behavior.”

— With assistance by Robin Ganguly, Justina Lee, and Tian Chen

https://www.bloomberg.com/news/articles/2017-01-06/china-strengthens-yuan-fixing-by-most-since-2005-as-dollar-sinks

Related:

 (Wall Street Journal)

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The Good News: U.S. Stocks Steady as Dow Nears 20000 — The Bad News: Will Trump Bring Back Jobs From China? In Shenzhen, They Aren’t That Worried

December 21, 2016

Blue-chip index closed at a record in previous session

Updated Dec. 21, 2016 9:50 a.m. ET

U.S. stocks were little changed Wednesday, leaving the Dow Jones Industrial Average within striking distance of 20000.

The blue-chip index edged up 6 points, or less than 0.1%, at 19980. The S&P 500 rose less than 0.1% and the Nasdaq Composite added less than 0.1%.

The Dow industrials have gained 9% since Election Day, buoyed by investors’ bets that President-elect Donald Trump’s administration will pursue policies such as tax cuts, regulatory rollbacks and infrastructure spending that could improve the outlook for U.S. companies. That has spurred a flood of money into stocks, particularly banks and industrial companies, pushing Goldman Sachs Group up 34% and Caterpillar up 11% since Nov. 8.

If the Dow gets to 20000 before Christmas, it will be the shortest amount of time between 1,000-point thresholds in the index’s history, according to Bespoke Investment Group. The Dow first settled above 19000 less than a month ago.

The total value of the global equity market has climbed by roughly $3 trillion since the Nov. 8 election, while the value of global bond markets has declined by roughly the same amount, according to Deutsche Bank research.

“We’ve ticked through everybody’s worries this year—Brexit, the U.S. election, the Italian referendum—and all the while, here we are higher,” said Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management Company.

While hopes that Mr. Trump will reduce regulation and bring about tax reform have contributed to the rally in U.S. stocks, Mr. Trump’s election was largely a catalyst for the market to realize a fundamental improvement in the global economy, some analysts and investors said.

Federal Reserve Chairwoman Janet Yellen noted recent improvements in the U.S. economy on Monday, while the Bank of Japan raised its own assessment of the domestic economy.

The yield on the 10-year U.S. Treasury note was slightly lower at 2.549%, according to Tradeweb, from 2.566% Tuesday. Yields move inversely to prices.

Yields on long-dated U.S. government bonds have risen for eight of the past nine sessions amid expectations for stronger growth and inflation and tighter monetary policy in the U.S., Europe and Japan.

For most of 2016, “we worried about deflation and would the Fed tighten at all, and now we’ve moved from that pessimistic narrative to one of worrying about how high inflation does go and will the Fed tighten more than expected,” said Mr. Schutte.

In currency markets, the WSJ Dollar Index fell 0.3% after settling at a 14-year high on Tuesday. The euro rose 0.5% against the dollar to $1.0439, while the dollar fell 0.5% against the yen to ¥117.2690.

Some investors have been skeptical of the recent rally, however, pointing to uncertainty over which policies will be implemented next year under the new U.S. administration and the risks of a more protectionist stance on trade.

“We’re going to start 2017 on a very cautious note, because the way the market seems to be only discounting the good things Trump might do and pretending as though none of the bad is going to come to pass is rather worrying,” said Edward Smith, asset allocation strategist at Rathbones, who is reducing exposure to U.S. stocks and holding more in cash.

The outlook for European stocks is also cloudy, he said. Despite an improving economy, “to bet on European outperformance, you’d need to bet on a solution to the Italian banking crisis, and really I think it’s too early to call that,” he said.

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Markets in Europe and Japan have largely climbed back from a bruising start to 2016. The Stoxx Europe 600 inched down 0.3% on Wednesday amid losses in Southern European banks, after settling at its highest since 2015.

The stronger yen helped send Japanese stocks down 0.3% Wednesday, but the Nikkei Stock Average remained near its best level since 2015.

Markets elsewhere in Asia mostly closed with gains, boosted by the strong finish on Wall Street. Hong Kong’s Hang Seng added 0.4%, while Shanghai stocks rose 1.1%. Markets in Australia added 0.4%, with the basic-resources sector gaining as metals prices strengthened.

U.S. crude oil was up 0.4% at $53.50 a barrel after data showed a bigger-than-expected drop in U.S. crude stockpiles.

Write to Riva Gold at riva.gold@wsj.com

http://www.wsj.com/articles/european-stocks-steady-as-pre-christmas-lull-descends-1482309798

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Bring Back Jobs From China? In Shenzhen, They Aren’t That Worried

As Donald Trump presses companies on U.S. manufacturing, city that became poster child for globalization has learned to adapt to economic shifts

Image may contain: skyscraper, sky and outdoor

Dec. 21, 2016 5:30 a.m. ET

SHENZHEN, China—U.S. President-elect Donald Trump’s threat to compel Apple Inc. and others to manufacture more at home should strike fear into this Chinese megacity where many of the world’s high-tech gadgets are made.

Once a sleepy village, Shenzhen today is the sprawling epicenter of China’s consumer-electronics industry, the country’s top export. At two Foxconn Technology Group factories here, some 230,000 workers make gear for Apple and global rivals, including Chinese communications giant Huawei Technologies Co., which has its base in Shenzhen.

Yet many executives here say they aren’t worried by Mr. Trump. The economic forces that transformed this once-poor backwater in Guangdong province into a sea of skyscrapers are too massive to be rolled back, their thinking goes. Even if Mr. Trump imposes tariffs on Chinese-made goods, as he has threatened to do, it’s now so efficient to engineer, produce and ship electronics from this region of southern China that it could still outcompete the U.S., they say.

“We are very relaxed about all the talk of tariffs, although the noise it creates is not good,” said a senior executive at a global consumer-electronics firm with operations in Shenzhen, who spoke anonymously to avoid entering the debate over Mr. Trump’s proposals.

Sources: China Customs (high-tech exports); National Bureau of Statistics
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More than Mr. Trump, what worries businesses here is simply surviving the Darwinian competition of global commerce. While Shenzhen is mostly a winner in globalization, it is buffeted by the same competitive forces Mr. Trump is seeking to reverse in the U.S.—forces the president-elect has blamed for hollowing out American industry and jobs.

As wages rose since 2010, many of Shenzhen’s once-thriving clothing and toy factories moved to lower-cost regions of China and countries such as Vietnam. Now, some consumer-electronics makers are moving, too. Others are cutting labor costs by using robots instead of people.

“There is too much competition, too many low-price offerings on Amazon,” says Emily Wu, who is struggling to keep her Shenzhen Wonda Tech Co. Ltd. operation afloat. Wonda makes 40,000 cameras a month for brands sold on Amazon.com Inc. and elsewhere. Rising labor costs mean she is producing some orders at a loss.

Mr. Trump is using coercion and enticement to get firms to manufacture in the U.S. During the campaign, he vowed to get Apple to “build their damn computers and things” in America. This month, Apple supplier Foxconn said it may expand operations in the U.S.

But it remains unclear what operations or how many jobs such a move would generate. The other trend under way at Foxconn is a shift to more-automated factories using cost-saving robots. Foxconn declined to comment on its specific customers and plans.

“If these jobs come back to the U.S. they are going to be for people who manage 1,000 robots in an automated factory,” said Christopher Balding, a finance professor at Peking University in Shenzhen. “It will be jobs for computer nerds, not the people who voted for Trump.”

Shenzhen’s global competitiveness has limits. China restricts the internet, meaning innovators have less access to open-source software and ideas. China’s weak intellectual-property protections mean entrepreneurs are constantly at risk of having their ideas stolen.

But the city has weathered economic shifts before. Former Chinese leader Deng Xiaoping in 1979 named Shenzhen as a special economic zone where market forces would have freer rein, sparking more than a decade of 40% annual growth as a low-cost manufacturer. Concerned textiles were becoming a dead end, Shenzhen brought in national universities to produce a higher-skilled workforce. In recent years, the city’s economy averaged 13% growth, according to official data—more than the national rate.

China's then-leader Deng Xiaoping, center, during a visit to Shenzhen in 1992. Years earlier, Mr. Deng had declared Shenzhen a special economic zone, setting the stage for its blockbuster growth.
China’s then-leader Deng Xiaoping, center, during a visit to Shenzhen in 1992. Years earlier, Mr. Deng had declared Shenzhen a special economic zone, setting the stage for its blockbuster growth. PHOTO: AFP/GETTY IMAGES
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The city found its comparative advantage assembling smartphones and devices from a supply chain of specialized parts made in Japan, Taiwan and South Korea. Shenzhen’s army of university-trained engineers made it a global center for product prototyping.

Mock-ups that take weeks to produce in the U.S. can be done in a day for a fraction of the cost in Shenzhen, according to Duncan Turner, a venture capitalist who helps run Hax Accelerator, a workspace that sponsors inventors from around the world here.

“Shenzhen was known for making things cheap, then it was known for making things well,” says Mr. Turner, whose firm sits above a giant bazaar of electronics parts serving local engineers and factories. “Now, anyone who wants to prototype anything does it here.”

If these jobs come back to the U.S. they are going to be for people who manage 1,000 robots in an automated factory.

—Peking University finance professor Christopher Balding

The growth rate of Shenzhen’s manufacturing has slowed while sectors like software and scientific research are surging ahead. Industry grew at 8% annually between 2012 and 2014, the latest year available, while research averaged 16%.

The proportion of Shenzhen’s economy related to industries such as manufacturing fell 7 percentage points in that period, while that related to information technology and research grew by 3 percentage points, according to the 2015 Shenzhen Statistical Yearbook.

The shift is easy to see. On the city’s manufacturing outskirts, more concrete factory bays are going vacant. Meantime, neighborhoods of gleaming office buildings are sprouting up in the high-tech districts.

Globally competitive firms relying on design and branding are taking root. Da-Jiang Innovations Science and Technology Co., among the world’s biggest makers of drones, is based in Shenzhen to take advantage of “access to the suppliers, raw materials, and young, creative talent pool necessary for sustained success,” according to its website.

A view of the Shenzhen skyline as seen from Tencent's new headquarters in the city.
A view of the Shenzhen skyline as seen from Tencent’s new headquarters in the city. PHOTO: BLOOMBERG
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Daimler AG joined Chinese car maker BYD Co. Ltd. in 2011 to develop an electric car in Shenzhen. Apple is opening a research and development center in the city, where some 100,000 programmers produce software for Apple’s operating system. In a nod to Shenzhen’s rise as an innovation center, Chinese internet giants Baidu Inc. and Alibaba Group Holding Ltd. opened large offices.

Some small manufacturers are shifting to design and branding. In two years, Qiwo Smartlink Technology Ltd. has gone from a maker of cheap cameras and gizmos for others to a design house with $100 million in annual sales. “All the supply chains and related companies are here, I don’t think you can move this to the U.S.,” said James Guo, Qiwo’s head of exports.

If anything, higher U.S. tariffs would accelerate economic trends already under way, Shenzhen business owners say. Shenzhen’s factories may leave—but for low-wage provinces in China, not the U.S. Meanwhile, the city will add jobs in design, engineering and marketing.

That process is already under way. On a recent Thursday night at the Hax inventors’ workspace in Shenzhen, 26-year-old Junyi Song was working a robot arm he hopes to sell as cheaply as $7,000 a pop. At that price, even small factories could replace labor with automation.

“It’s the future,” said Mr. Song.

Write to John Lyons at john.lyons@wsj.com

http://www.wsj.com/articles/bring-back-jobs-from-china-in-shenzhen-they-arent-that-worried-1482316231

U.S. Stocks Rise, Bonds Sell Off After Fed Move — “Trump Business Optimism”

December 15, 2016

Dollar hits multi-year highs

Image may contain: 1 person

Updated Dec. 15, 2016 11:28 a.m. ET

U.S. stocks roared back Thursday as a rally in financial shares pushed the Dow Jones Industrial Average toward 20000, a day after the Federal Reserve said it was raising interest rates.

The dollar strengthened, while investors sold bonds and gold, as the Fed’s latest signals on monetary policy rippled through global markets.

The Dow Jones Industrial Average rose 152 points, or 0.8%, to 19945 and the S&P 500 gained 0.8%, after the indexes posted their largest daily declines since October following the Fed decision. The Nasdaq Composite added 0.9%.

Financial shares were among the biggest beneficiaries of the Fed’s Wednesday decision to raise interest rates. American Express, Goldman Sachs Group and  led the Dow industrials higher, while the S&P 500’s financials sector added 1.7% as investors bet that rising rates would boost profits at those companies by widening the gap between what they pay on deposits and charge on loans.

The Dow’s March Toward 20K

Investors have flooded into stocks of financial firms since the election, in a wager that a Republican-led government will pursue policies promoting growth and inflation.

Since Nov. 8, the S&P 500 financials sector has only posted five days of declines. On Wednesday, the group dropped 0.6% as part of a broad selloff in stocks after the Fed signaled it expected to raise rates three times in 2017.

If there are extra rate hikes, “that is going to be best expressed in the financial sector,” said Michael Antonelli, an equity sales trader at brokerage Robert W. Baird & Co. Wednesday’s decline may have been the opening some investors needed to step in and scoop up some shares at a bit of a discount, he said.

“People are looking to buy any chance they get,” said Mr. Antonelli.

The 10-year U.S. Treasury yield continued to rise Thursday to 2.607%, according to Tradeweb, after climbing to 2.523% Wednesday—the highest yield since September 2014—as higher interest rates typically erode the value of outstanding bonds. Yields rise as prices fall.

The Fed’s decision also accelerated a recent rally in the dollar, which had already risen sharply this month on expectations for stronger U.S. growth and inflation. The WSJ Dollar Index was recently up 1% after the Fed’s hint at tighter monetary policy lifted the greenback to a 14-year high on Wednesday.

The dollar rose 0.6% against the yen to ¥118.4760 while the euro was recently down 0.6% against the dollar at $1.0413.

“There is room for disappointment on this trade, especially as people close their books,” said Ali Chughtai, portfolio manager at London-based hedge fund WHARD Stewart.

“A lot of this move has been built upon expectations of a very aggressive fiscal policy from the Trump administration, and he hasn’t even taken office yet, let alone set into motion the policy initiatives that would force one to become aggressive on the Fed hiking cycle next year,” he said.

Gold fell 3.1% to $1,128.30 an ounce. Higher rates tend to drag down non-interest paying assets such as gold, while dollar-denominated commodities tend to suffer as the greenback strengthens.

U.S. crude oil fell 0.8% to $50.63 a barrel after shedding more than 3% on Wednesday.

Gains in banks also helped lift the Stoxx Europe 600, which rose 0.9%. The Euro Stoxx Banks Index has climbed over 10% from a month ago, but remains down nearly 7% so far this year.

Stuart Mitchell, chief investment officer at S.W. Mitchell Capital, said he is holding number of European banks in his portfolios. The sector “has been absolutely hammered,” in 2016, but has the potential to take off in 2017 if the European economy recovers, he said.

Meanwhile, real estate and utilities shares fell sharply in Europe as income-providing holdings tend to suffer when rates rise, falling alongside bond prices.

Earlier, markets in Asia mostly declined, echoing Wednesday’s drop on Wall Street. Australia’s S&P ASX 200 ended down 0.8%. Hong Kong stocks fell 1.8%, led lower by the property sector, with the Hong Kong dollar pegged to its U.S. counterpart, making Hong Kong mortgages more expensive.

Japan’s export-heavy Nikkei Stock Average eked out small gains however, benefiting from a weaker currency. The index has risen for eight consecutive trading days to its highest in nearly a year.

Federal Reserve Chair Janet Yellen held a news conference in Washington on Wednesday to discuss the central bank’s decision. ENLARGE
Federal Reserve Chair Janet Yellen held a news conference in Washington on Wednesday to discuss the central bank’s decision. PHOTO: REUTERS

Write to Riva Gold at riva.gold@wsj.com and Aaron Kuriloff at aaron.kuriloff@wsj.com

http://www.wsj.com/articles/european-bank-shares-climb-bonds-sell-off-after-fed-move-1481792086

Singapore to Ban Former Goldman Banker in Connection With 1MDB Scandal

December 2, 2016

Executive allegedly wrote unauthorized reference letter for Malaysian U.S. authorities say is at the center of fraud at state investment fund

The Monetary Authority of Singapore.
The Monetary Authority of Singapore. PHOTO: BLOOMBERG NEWS

Singapore’s probe into a multibillion-dollar financial scandal touched Goldman Sachs Group Inc. for the first time on Friday as its central bank said it was planning to ban the Wall Street firm’s former top executive in Southeast Asia from operating in the city-state’s financial system for 10 years.

The executive, Tim Leissner, was Goldman’s point man on deals involving Malaysian state investment fund 1Malaysia Development Bhd., or 1MDB. The Monetary Authority of Singapore, the central bank, announced the proposed ban on Mr. Leissner after it found he had written a recommendation letter for a Malaysian financier, Jho Low, in June 2015. In it, Mr. Leissner claimed that Goldman had performed due diligence on Mr. Low.

Tim Leissner

“These statements were untrue and were made by Mr. Leissner without Goldman Sachs’ knowledge or consent,” the MAS statement said.

Goldman Sachs said in a statement Friday that it had discovered the matter in January 2016 and reported it to Singapore authorities. Mr. Leissner left Goldman in February after Goldman put him on leave.

Jho Low

Attempts to reach Mr. Leissner, who is living in Los Angeles, weren’t immediately successful. He has previously denied wrongdoing. A lawyer for Mr. Leissner on Friday said his client had not been aware of any planned regulatory action by Singapore against him. Mr. Leissner has now been invited by Singapore authorities to respond and looks forward to doing so, the lawyer added.

U.S. investigators claim Mr. Low was a mastermind of a massive alleged fraud at 1MDB that spread world-wide. Some investigators have described it as one of the world’s largest-ever financial swindles.

Attempts to reach Mr. Low, who has denied wrongdoing, were unsuccessful. He’s also being sought by authorities in Singapore, said a person with knowledge of the matter.

Goldman made around $600 million in fees in 2012 and 2013 selling a total of $6.5 billion in bonds for 1MDB, its largest payday anywhere in the world in those years. Much of the proceeds of the bonds were siphoned off immediately into offshore accounts and used to buy luxury real estate in the U.S., finance Hollywood movies and acquire other assets, the U.S. Department of Justice alleged in a lawsuit this summer.

The 1MDB fund and Goldman have denied wrongdoing. Malaysian authorities have also cleared 1MDB of wrongdoing.

The letter cited by the Singaporean announcement was written by Mr. Leissner to a Luxembourg bank to help Mr. Low open an account there, although he never did so, according to people familiar with the matter. The young Malaysian and his associates opened hundreds of accounts around the world, especially in Switzerland and Singapore, and used them to funnel money taken from 1MDB, according to investigations that are ongoing in the U.S., Singapore, Switzerland and elsewhere.

The use of Singapore’s banking system to funnel hundreds of millions of dollars in allegedly stolen funds has embarrassed authorities here, who in the past few months have taken action to penalize banks involved in allegedly moving 1MDB money, including shuttering branches of two Swiss private banks.

Mr. Leissner, a German national who had been doing deals for Goldman in Malaysia since 2002, got to know Mr. Low a few years later, say people familiar with the matter. Mr. Low had been bringing Middle Eastern investment to Malaysia, and, in 2009, he persuaded the sultan of a Malaysian state to set up an oil-wealth fund, which Goldman was appointed to advise, according to those people. The state oil-wealth fund was soon taken over by Malaysia’s federal government and named 1MDB. Mr. Low took no formal role at 1MDB but ran the fund behind the scenes, say people who worked there.

The fund was supposed to boost growth in Malaysia and its first deal was to invest $1 billion in an offshore oil venture. But $700 million was immediately stolen and sent into an account controlled by Mr. Low at Swiss bank Coutts & Co. in Zurich, the U.S. Justice Department suit alleges. From there the money flowed to numerous other accounts in Singapore and elsewhere, the first drips of at least $3.5 billion that the Justice Department claims was siphoned from 1MDB between 2009 and 2013.

Some of the 1MDB money ended up in accounts owned by Malaysian Prime Minister Najib Razak and was used for political spending, according to the U.S. Justice Department and Malaysian investigation documents. The prime minister has denied wrongdoing. Malaysia’s Attorney General has said the money Mr. Najib received was a gift from Saudi Arabia and most was returned. Mr. Najib has been cleared of any wrongdoing by Malaysian authorities.

On Friday, the Monetary Authority of Singapore also levied financial penalties of 5.2 million Singapore dollars ($3.65 million) on Standard Chartered Ltd. and 2.4 million Singapore dollars on Coutts for failures in their anti-money-laundering controls. The authority didn’t mention 1MDB in relation to these fines, but both banks played a role in moving money taken from the Malaysian fund, according to the U.S. Justice Department lawsuit.

A request to Coutts for comment was referred to a spokesman at the Royal Bank of Scotland PLC., which owned Coutts during the period of alleged control failures and is winding down the remaining Coutts Singapore operations it still controls.

The RBS spokesman said the company regrets any failings and has sought to strengthen its policies. Standard Chartered said in a statement Friday it regrets that 1MDB-related transactions passed through the bank. It said it had reported the suspicious transactions, cooperated with authorities and had taken action to strengthen its controls.

In 2012, hundreds of millions of dollars in money originating with 1MDB was transferred to an account with Standard Chartered in Singapore controlled by an associate of Mr. Low, according to the U.S. Justice Department suit.

The money that ended up in Standard Chartered in Singapore came from billions in bonds that Goldman had sold for 1MDB in 2012 to finance the acquisition of power plants, the U.S. Justice Department said. The bonds were backed by an Abu Dhabi sovereign-wealth fund on the suggestion of Mr. Low, said a person involved with the deal.

Earlier this year, Singapore also fined UBS Group AG’s local unit and the city-state’s largest local bank DBS Bank Ltd. for money-laundering control failures related to 1MDB. UBS and DBS said they had voluntarily reported suspicious transactions and are committed to improving their own approaches to stopping money laundering.

Write to Tom Wright at tom.wright@wsj.com and Jake Maxwell Watts at jake.watts@wsj.com

http://www.wsj.com/articles/singapore-to-ban-former-goldman-banker-in-connection-with-1mdb-scandal-1480645048

Behind the 1MDB Scandal: Banks That Missed Clues and Bowed to Pressure

September 6, 2016

Suspected ringleaders allegedly cultivated finance executives, pressed compliance officers and obsessed about secrecy

AmBank in Kuala Lumpur handled private bank accounts for Malaysian Prime Minister Najib Razak.
AmBank in Kuala Lumpur handled private bank accounts for Malaysian Prime Minister Najib Razak. PHOTO: SHCHERBAK ALEXANDER/TASS/ZUMA PRESS
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Updated Sept. 6, 2016 1:31 a.m. ET

Financier Jho Low, who investigators believe is at the center of one of the largest-ever financial scandals, kept up a stream of messages to an official at AmBank Bhd. Mr. Low was obsessed about how the bank handled the peculiar accounts of Malaysian Prime Minister Najib Razak.

Don’t let people outside the bank or more than a few people inside know about the accounts, he instructed. Use Gmail, not the bank’s email system, for communication. Whatever you do, don’t send credit-card statements to the prime minister’s house.

“No no no,” Mr. Low wrote, according to transcripts of BlackBerry messages reviewed by The Wall Street Journal. “Super sensitive.” He instead had someone collect the statements by hand.

Between 2009 and 2013, Mr. Low, a family friend of the prime minister, and his associates helped embezzle at least $3.5 billion from 1Malaysia Development Bhd., a state investment fund created by Mr. Najib, the U.S. Justice Department alleged in a lawsuit filed in July.

It couldn’t have happened without the cooperation of a handful of bankers and the failure of a host of financial institutions and regulators to detect the alleged fraud, investigators believe. Mr. Low and his cohorts for years eluded detection or interference by at least eight banks, big accounting firms, a central bank and various government regulators, according to the Justice Department, investigative documents from other countries and people familiar with the affair. The banks included Goldman Sachs Group Inc. and Standard Chartered PLC.

Mr. Low, who had no official position at 1MDB, employed trickery, setting up offshore shell companies with misleading names, misidentifying money transfers as “gifts” and putting money into art and real estate to conceal its origins, according to the Justice Department. His cohorts inside and outside the fund pressured bank compliance officers, relied on close relationships with others and got help from people inside governments, according to the complaint and other documents. When some accountants raised questions, they were fired.

That the alleged fraud could roll on for so long without detection suggests weaknesses in a global system designed to clamp down on money laundering, a problem U.S. and other Western leaders have pledged to fix.

Financier Jho Low set up offshore shell companies with misleading names, misidentified money transfers as ‘gifts’ and put money into art and real estate to conceal its origins, the Justice Department says.

https://scontent-iad3-1.xx.fbcdn.net/v/t1.0-9/14238184_890173247755634_7611569474610464236_n.jpg?oh=57ec38bd1594789f5c03bf19af6b4395&oe=583EC36A
Financier Jho Low set up offshore shell companies with misleading names, misidentified money transfers as ‘gifts’ and put money into art and real estate to conceal its origins, the Justice Department says. PHOTO: J. COUNTESS/GETTY IMAGES

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Investigators in at least seven countries are still trying to figure out what happened to all the money. 1MDB was supposed to invest in energy and property businesses to create jobs, but funds instead moved to secret offshore havens and later were distributed among various participants, the Justice Department alleges. Bank-transfer records reviewed by the Journal show that large sums wound up in the prime minister’s personal accounts at AmBank, which is based in Kuala Lumpur. So far, U.S. investigators have traced more than $1 billion to the purchase of luxury real estate in Beverly Hills, New York and London, as well as the financing of a Hollywood movie, “The Wolf of Wall Street,” the Justice Department says.

The U.S. has moved to seize assets and is conducting a criminal investigation of some of those involved, according to people involved with the matter.


The U.S. Justice Department has filed a civil complaint seeking to seize more than $1 billion in assets tied to the Malaysian state investment fund 1MDB, which was set up by Prime Minister Najib Razak. Photo: Reuters (Originally published July 2, 2016)
Mr. Najib has denied any wrongdoing and said the money received came from a Saudi donor, much of which was returned. The Malaysian attorney general agreed and cleared him of any crime. 1MDB has denied wrongdoing and said it would cooperate with any lawful international investigation. A lawyer for Mr. Low declined to comment. Goldman Sachs and Standard Chartered have said they did nothing wrong.

Saudi connection

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The alleged plot began just after Mr. Najib, the prime minister, founded 1MDB in mid-2009.

That August, a group of Malaysians, including the prime minister and Mr. Low, met in France with Turki bin Abdullah al Saud, a son of the late King Abdullah of Saudi Arabia and co-owner of a private Saudi oil company called PetroSaudi International Ltd., according to documents reviewed by the Journal.

Weeks later, 1MDB signed a joint venture with PetroSaudi toward which the Malaysian fund pledged to contribute $1 billion. Only $300 million of 1MDB’s money reached the Saudi joint venture, the Justice Department says. Officials at the fund ordered the rest—$700 million—to go to a Seychelles-based shell company called Good Star Ltd., which the Justice Department says was owned by Mr. Low. Later, 1MDB sent another $330 million to Good Star.

Employees at 1MDB’s banker, Deutsche Bank AG, wanted to know why the money wasn’t going to the joint venture and asked questions about Good Star, according to the Justice Department complaint.

 

1MDB’s executive director at the time told a Deutsche Bank officer in a phone conversation to push through the payment or face blame if the “deal goes off,” according to a transcript cited by the Justice Department. The transcript didn’t name the executive director, but someone with direct knowledge of the matter said it was Casey Tang.

“I’m under tremendous pressure” to get the deal done, the executive director added, according to the transcript.

“Let me just convince my compliance person,” said the banker, who wasn’t named. “It’s a little bit sticky.”

When the banker kept asking for details, 1MDB’s executive director said the money was going directly to PetroSaudi to settle debts, even though there had been no discussion of that in 1MDB’s agreement with the Saudi company, according to the Justice Department.

Deutsche Bank processed the transfer. Bank Negara Malaysia, the central bank, which monitors large transfers into and out of the country, added its imprimatur, according to the Justice Department complaint.

PetroSaudi has denied wrongdoing and “rejects any claims that it is involved in the misappropriation of funds from 1MDB,” its lawyer said. Mr. Tang couldn’t be reached for comment. Deutsche Bank declined to comment.

Months later, 1MDB’s auditing firm, Ernst & Young, asked questions about how the fund was classifying the Saudi joint venture investment on its books. 1MDB management tried to portray the payments as government-to-government business, even though PetroSaudi was a private company, according to minutes of the fund’s board meetings.

Unsatisfied with the answer, the audit firm declined to sign off on 1MDB’s financial accounts for the 2010 financial year.

Mr. Najib, who headed 1MDB’s board of advisers, intervened, firing the auditor, according to a 1MDB document reviewed by the Journal. When the new auditor, KPMG, raised questions about the same investment a few years later, he fired that company, too, according to 1MDB board minutes.

Ernst & Young and KPMG declined to comment.

In early 2011, Good Star sent $24.5 million to a Riyadh bank account held by Prince Turki, the PetroSaudi co-owner, according to the Justice Department complaint. The prince then sent $20 million via an intermediary to Mr. Najib’s private accounts at AmBank in Kuala Lumpur, according to the complaint and someone familiar with the probe. The prince couldn’t be reached for comment, and a lawyer for PetroSaudi didn’t respond to requests for comment on the transfer.

The transfer represented the first drip of what would become a flood of cash—about $1 billion—that flowed into Mr. Najib’s personal bank accounts over the next two years, according to the bank-transfer records. Nearly all originated with 1MDB, according to the Justice Department and the transfer records.

The prime minister gave Mr. Low access to the accounts, according to investigative documents. His primary contact at AmBank was Joanna Yu, the banker he had warned via BlackBerry to communicate discreetly. Cheah Tek Kuang, a senior AmBank executive and adviser to the chairman, handled the account personally, the BlackBerry messages indicate.

Mr. Low messaged that if Malaysia’s central-bank governor, Zeti Akhtar Aziz, raised concerns about 1MDB-related transfers, Mr. Cheah was to see her and “let her know this is boss request,” an apparent reference to Mr. Najib.

An AmBank spokesman declined to comment, as did Ms. Zeti. Ms. Yu and Mr. Cheah didn’t respond to requests for comment.

Mr. Low sent hampers of food to Ms. Yu and lunched with her at noodle shops, according to the phone messages. He kept reinforcing the need for secrecy: “v v important no one should know in ambank besides u or cheah or get hold of statement,” one message said. “Cause if it gets on internet where funds were from then headache.”

Bank-transfer records reviewed by The Wall Street Journal show that large sums wound up in Prime Minister Najib’s personal accounts at AmBank.ENLARGE
Bank-transfer records reviewed by The Wall Street Journal show that large sums wound up in Prime Minister Najib’s personal accounts at AmBank. PHOTO: OLIVIA HARRIS/REUTERS

Investigators believe someone in Mr. Low’s entourage created letters vouching for the origin of the funds, according to people familiar with probes in two countries.

A letter dated Feb. 1, 2011, which was reviewed by the Journal, said Mr. Najib was being given $100 million as a reward for Malaysia’s “good work to promote Islam around the world.” It said the gift “should not in any event be construed as an act of corruption.”

It was signed Saud Abdulaziz Majid al Saud, who is a minor Saudi royal. But he donated no money and wasn’t the instigator of the letter, according to a person involved in the matter. The prince didn’t respond to requests for comment.

AmBank’s Mr. Cheah sent the letter to the central bank.

More such letters followed, some using nearly identical language, describing purported gifts of hundreds of millions of dollars.

In March 2013, a transfer of $681 million arrived, according to the Justice Department. AmBank’s Ms. Yu messaged Mr. Low that the bank needed more documentation, according to transcripts of BlackBerry messages. A new letter, dated March 1, 2013, vouched for an $800 million donation to Mr. Najib from the same Saudi prince.

Ms. Yu and Mr. Low also discussed how to transfer the money. Such transfers involving dollars require the involvement of a U.S. bank, called a correspondent bank. The two discussed whether to use Wells Fargo & Co. or J.P. Morgan Chase & Co.

“Can do JP, but may raise ques too…suspect better keep to wachovia,” Ms. Yu wrote, referring to a unit of Wells Fargo.

“Okay, wachovia then,” he replied. The transfer went through the Wells Fargo unit.

At various points, J.P. Morgan, Citigroup Inc. and other banks also acted as correspondent banks for other transactions involving funds from 1MDB, documents detailing the transfers indicate.

Under U.S. law, banks dealing in dollar transactions are required to implement anti-money-laundering provisions, including knowing the source and recipient of funds, and to report suspicious transactions. Wells Fargo, Citigroup and J.P. Morgan declined to comment.

As a tight general election approached, Mr. Najib sent hundreds of checks to ruling party politicians to help fund his campaign, the Journal reported last year. He narrowly retained power.

After the election, Mr. Najib closed his main account at AmBank and sent about $620 million back to the offshore company it came from, according to transfer documents. It isn’t clear what happened to that money.

The 1MDB fund, meanwhile, was running into financial trouble as money flowed out and no major revenue-generating investments were there to replace it.

In 2012, Goldman Sachs sold $3.5 billion in 1MDB bonds in two offerings, which were cleared by committees that included some of the firm’s most senior officials, people involved in the transactions said. Goldman earned hundreds of millions of dollars in fees on the bonds, which carried a safe, sovereign-risk profile and were bought by foreign institutional investors.

Some of the money was used for the stated purposes—to buy power plants—but almost half was sent into offshore shell companies overseen by Mr. Low and his associates, according to the Justice Department.

Mr. Low turned to contacts in Abu Dhabi in the United Arab Emirates to help raise money. He knew Khadem Al Qubaisi, then managing director of International Petroleum Investment Co., or IPIC, an $80 billion Abu Dhabi sovereign-wealth fund.

IPIC announced it would participate with 1MDB to develop power plants. The Malaysian fund told its auditors and bankers it was sending $1.4 billion to IPIC as a “refundable deposit.”

The money never arrived. The Justice Department complaint says it was diverted to a company with a name similar to an IPIC subsidiary, which was registered in the British Virgin Islands and controlled by Mr. Al Qubaisi. Then more than $1 billion went into a Standard Chartered account in Singapore controlled by an associate of Mr. Low, the complaint says, and Standard Chartered and Citigroup acted as correspondent banks. Money eventually was sent to other participants in the alleged fraud, the complaint says.

In July, the Monetary Authority of Singapore, the nation’s central bank, found Standard Chartered and two other non-U.S. banks had failed to report suspicious transactions related to 1MDB and would face “firm regulatory actions.”

A Standard Chartered spokesman said the bank was cooperating with “all relevant investigations” and has enhanced anti-money-laundering controls. Citigroup declined to comment.

Mr. Al Qubaisi wound up with more than $470 million of the money, $100 million of which was used to buy three luxury properties in New York and Los Angeles, the complaint says.

ENLARGE

He also helped funnel $238 million of 1MDB money to Riza Aziz, the prime minister’s stepson, the complaint adds. Mr. Aziz used the money to buy real estate and fund his Hollywood film company, Red Granite Pictures, which made “The Wolf of Wall Street,” according to the complaint. Mr. Aziz has denied wrongdoing.

The 1MDB fund approached Goldman again in 2013 to sell $3 billion of bonds, asking for the money to be deposited in an account at BSI AG, a small private bank based in an Italian-speaking region of Switzerland. BSI was looking to build its business in Asia through a new office in Singapore.

Clients involved with 1MDB had around 100 accounts at BSI, Swiss regulators say. They include Mr. Low, who opened 18 accounts in Singapore in one day in October 2014. Hundreds of millions of dollars of 1MDB money moved through BSI accounts controlled by Mr. Low and others, according to the Justice Department and banking documents reviewed by the Journal.

Mr. Low’s main contact at BSI was Singapore banker Yak Yew Chee, who brought in the 1MDB-related business, according to a person who worked at the bank. Singapore’s central bank in May asked state prosecutors to investigate six former BSI executives, including Mr. Yak, for possible criminal offenses. A lawyer for Mr. Yak, who has left the bank, declined to comment, citing the investigation.

One former BSI banker, Yeo Jiawei, has been charged in Singapore with money laundering in relation to the 1MDB affair. His lawyer says he intends to contest the charges.

About half the Goldman bond proceeds wound up in offshore companies controlled byEric Tan, an associate of Mr. Low, according to the Justice Department. He used the money to buy more than $100 million of art on Mr. Low’s behalf, including a Vincent van Gogh pen-and-ink drawing, the complaint says.

He told the auctioneer, Christie’s International PLC “please do not have Mr. Low in any document,” according to emails cited in the U.S. filings. When Mr. Tan later transferred ownership of works to Mr. Low, there were letters that described them as gifts, the complaint says.

The art works “should not in any event be construed as an act of corruption,” the letters said, echoing phrasing from earlier letters. Mr. Tan couldn’t be reached for comment.

Christie’s has said it has a rigorous anti-money-laundering program and stopped doing business with Mr. Low after learning he was under investigation.

By the spring of 2014, Mr. Low valued his art collection at $350 million and wanted to use that as collateral for a loan, according to emails cited by the Justice Department.

In emails to an employee of SNS Fine Arts, a New York dealer, he asked for advice on possible lenders. He said he was searching for one that wouldn’t follow know-your-customer rules too closely. “Speed is the most important and one with a fairly quick and relaxed kyc process,” he wrote. SNS declined to comment.

Sotheby’s Financial Services, part of the Sotheby’s auction house, agreed to lend $107 million to a Cayman Islands company owned by Mr. Low. Sotheby’s said it is cooperating with government investigations. A spokeswoman said: “Sotheby’s, like many other entities, including prominent law firms, major banks, real-estate companies and corporations in other industries, fell victim to ‘a complex web of transactions’ designed to hide and disguise the alleged illegal source of funds.”

Financial trouble

After Mr. Najib’s 2013 election victory, 1MDB had only about $20 million in cash and more than $10 billion in liabilities. It was having trouble making interest payments, board minutes show.

Malaysian newspapers began to criticize the fund, effectively scotching an initial public offering that 1MDB had planned for its power assets that would have brought in much-needed funds.

Around that time, Mr. Najib opened three new AmBank accounts, which caught the attention of AmBank’s then-chief executive, Ashok Ramamurthy, investigative documents show. He was on assignment from Australia & New Zealand Banking GroupLtd., or ANZ, which has a 23.8% stake in AmBank. ANZ declined to comment.

Swiss regulators say clients involved with 1MDB had around 100 accounts at BSI, a small private bank in Switzerland with an office in Singapore.
Swiss regulators say clients involved with 1MDB had around 100 accounts at BSI, a small private bank in Switzerland with an office in Singapore. PHOTO: EDGAR SU/REUTERS

In 2014 Mr. Najib and his wife, Rosmah Mansor, visited the Italian resort island of Sardinia and he used a credit card linked to one of the accounts to buy jewelry worth €750,000, bank records show. A few months later, he drew on the accounts to spend $130,000 when visiting a Chanel store in Honolulu with his wife, the records show.

AmBank’s Ms. Yu messaged Mr. Low: “We can’t maintain the accounts…Ashok reporting the status at monthly board meeting.”

“They shouldn’t disclose contents of account. Later leak,” Mr. Low replied.

Mr. Cheah, who had overseen Mr. Najib’s accounts at AmBank, had resigned. “It’s difficult as Mr Cheah no longer around,” Ms. Yu messaged, urging Mr. Low to close the accounts. He replied the prime minister wanted to keep them open. All three were eventually closed in March 2015.

In all, Mr. Najib wrote more than 500 checks totaling about $400 million from the 1MDB-funded accounts, according to bank documents.

At one point, Mr. Najib’s account ran short of funds, prompting fears that a bounced check would attract regulatory attention. Mr. Low arranged for more than $4 million in cash to be deposited at AmBank, according to instant phone messages and bank-transfer information reviewed by the Journal.

In early 2014, Deloitte Touche Tohmatsu Ltd. became 1MDB’s third auditor. It approved the fund’s books for its 2014 fiscal year, the latest available. Deloitte declined to comment.

In 2015, after the Journal reported the $681 million transfer into Mr. Najib’s accounts, investigators around the globe stepped up their inquiries.

Last summer, Malaysia’s attorney general drew up an arrest warrant for Mr. Najib, people involved with the matter said. Mr. Najib fired him and appointed a new one. The new one declined to act on advice from the central bank to open a criminal case against 1MDB over the missing PetroSaudi investments, saying there was insufficient evidence.

Abu Dhabi’s rulers have fired Mr. Al Qubaisi from the sovereign-wealth fund, frozen his assets and arrested him, according to people familiar with the action. Mr. Low’s whereabouts is unknown.

Singapore revoked BSI’s banking license and said in June it was setting up an anti-money-laundering department.

Switzerland’s attorney general has opened criminal proceedings against BSI. The Justice Department is looking into whether Goldman Sachs violated a U.S. law requiring banks to report suspicious transactions, according to people familiar with the probe. Goldman has said it had “no visibility” into what 1MDB did with the money it raised.

In late July, 1MDB said Deloitte, its auditor, had resigned earlier this year. The fund said its financial statements for 2013 and 2014 should no longer be relied on.

Write to Tom Wright at tom.wright@wsj.com and Bradley Hope atbradley.hope@wsj.com

http://www.wsj.com/articles/behind-the-1mdb-scandal-banks-that-missed-clues-and-bowed-to-pressure-1473109548

Related:

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Goldman Probed Over Malaysia Fund 1MDB

June 7, 2016

Focus is on whether bank didn’t alert authorities to unusual funds movement

Updated June 7, 2016 1:03 a.m. ET

U.S. investigators are trying to determine whether Goldman Sachs Group Inc. broke the law when it didn’t sound an alarm about a suspicious transaction in Malaysia, people familiar with the investigation said.

At issue is $3 billion Goldman raised via a bond issue for Malaysian state investment fund 1Malaysia Development Bhd., or 1MDB. Days after Goldman sent the proceeds into a Swiss bank account controlled by the fund, half of the money disappeared offshore, with some later ending up in the prime minister’s bank account, according to people familiar with the matter and bank-transfer information viewed by The Wall Street Journal.

The cash was supposed to fund a major real-estate project in the nation’s capital that was intended to boost the country’s economy.

U.S. law-enforcement officials have sought to schedule interviews with Goldman executives, people familiar with the matter said. Goldman hasn’t been accused of wrongdoing. The bank says it had no way of knowing how 1MDB would use the money it raised.

Investigators are focusing on whether the bank failed to comply with the U.S. Bank Secrecy Act, which requires financial institutions to report suspicious transactions to regulators. The law has been used against banks for failing to report money laundering in Mexico and ignoring red flags about the operations of Ponzi scheme operator Bernard Madoff.

The investigators believe the bank may have had reason to suspect the money it raised wasn’t being used for its intended purpose, according to people familiar with the probe.

One red flag, they believe, is that Goldman wired the $3 billion in proceeds to a Singapore branch of a small Swiss private bank instead of to a large global bank, as would be typical for a transfer of that size, the people said.

Another is the timing of the bond sale and why it was rushed. The deal took place in March 2013, two months after Malaysia’s prime minister, Najib Razak, approached Goldman Sachs bankers during the annual meeting of the World Economic Forum in Davos, Switzerland. And it occurred two months before voting in a tough election campaign for Mr. Najib, who used some of the cash from his personal bank account on election spending, the Journal has reported, citing bank-transfer information and people familiar with the matter.

Mr. Najib and Malaysia’s attorney general say the money the prime minister received in his personal accounts was a legal political donation from Saudi Arabia and most was returned.

RELATED

The fund says proceeds from the bond offering were moved offshore, because they weren’t needed immediately. The fund denies sending money to Mr. Najib and says it is cooperating with probes. In January, Malaysia’s attorney general cleared the prime minister of any wrongdoing.

Goldman had deep ties with 1MDB and Malaysia. Its top regional banker at the time, Tim Leissner, was present at a meeting to launch a predecessor of the fund in 2009 and Goldman later made hundreds of millions of dollars underwriting three bond deals worth a total of $6.5 billion and advising on two acquisitions for 1MDB.


Investment banker Tim Leissner (right) with Kimora Lee Simmons
Mr. Leissner was closely involved in a series of lucrative, but controversial, deals Goldman did with 1MDB, including a $3 billion bond sale it arranged for the fund in early 2013.
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Over that same period, Goldman also underwrote bonds for an important province in Malaysia and worked on IPOs for a Malaysian port operator and a major hospital operator.

Goldman has said it did proper due diligence on 1MDB. But several current and former Goldman executives said in interviews soon after the bond deal that because this was a government-owned fund run by the prime minister, the bank could largely rely on their word that the money was being used as intended. The executives also said that corruption was common in many developing markets and the bank couldn’t do business there without interacting with people and organizations that were potentially corrupt.

The 1MDB fund is the focus of probes into alleged corruption in at least seven countries. Investigators believe more than $6 billion of 1MDB’s money is unaccounted for. Mr. Najib and his family used hundreds of millions of dollars originating with the fund on the election campaign, to buy real estate, clothing and jewelry, as well as to help finance a Hollywood film, according to people familiar with the matter and bank-transfer information.

The episode involving Goldman and 1MDB comes at a time when regulators are closely watching banks’ behavior and cracking down on money laundering.
After Mr. Najib asked Goldman to handle the bond offering, the bank effectively bought the entire $3 billion issue, gave 1MDB the proceeds and then held the bonds on its balance sheet until it could sell them off to investors. For its efforts, Goldman was paid about $300 million, far above fees for similar offerings and one of the bank’s biggest paychecks of the year. Goldman has defended the fees as commensurate with the risk it assumed by buying the entire bond issue.

Later, though, 1MDB claimed Goldman overcharged it and sought a partial refund. Mr. Leissner took the request to his Goldman colleagues, who rejected it, people familiar with the matter said. Mr. Leissner resigned from Goldman earlier this year after bank investigators found he allegedly violated company policies by sending an unauthorized reference letter to another financial firm on behalf of a person involved with 1MDB.

One question investigators are asking is why 1MDB needed the cash so quickly for a property-development project that would take years to complete. Investigators also are looking into questions raised by Goldman’s lawyer on the deal, Kevin Wong, a Singapore-based partner with Linklaters, who sent a note to Goldman bankers alerting them to the fact the money was to be sent to a private bank, according to a person familiar with the matter.

Goldman checked the credentials of the bank, Switzerland’s BSI SA, and found no reason not to send money there, the person added. Mr. Wong declined to comment. A BSI spokeswoman didn’t respond to a request for comment.

From BSI, half the $3 billion bond issue was funneled into offshore investment funds because it wasn’t needed immediately, 1MDB said.

Some of the money ended up in Devonshire Funds, run by a Bangkok-based financial firm, according to bank-transfer information reviewed by the Journal. Devonshire in turn sent $210 million to Tanore Finance, a now-defunct British Virgin Islands shell company. An employee of Devonshire declined to comment.

Tanore also received other money that originated with 1MDB, according to investigators and bank-transfer documents.

In March 2013—the same month Goldman had sold the $3 billion bond—Tanore transferred $681 million into Mr. Najib’s private bank account, according to investigative documents.

The U.S. Bank Secrecy Act was used against HSBC Holdings PLC, which agreed to pay $1.9 billion in late 2012 to settle charges involving money laundering in the U.S. and Mexico. In its settlement, HSBC admitted to violating the Bank Secrecy Act and other laws designed to prohibit money laundering.

The law was also used in the Madoff case by prosecutors examining why J.P. Morgan Chase & Co. didn’t alert regulators about Mr. Madoff’s activities despite red flags. J.P. Morgan settled the Madoff case to head off a criminal case. The bank didn’t admit to any criminal liability, but did agree to a statement of facts that highlighted the red flags its employees missed. The bank agreed to pay $2.6 billion in 2014 to settle the case.

Write to Justin Baer at justin.baer@wsj.com, Tom Wright at tom.wright@wsj.com and Bradley Hope at bradley.hope@wsj.com

http://www.wsj.com/articles/goldman-probed-over-malaysia-fund-1465257383

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 (Contains links to many previous 1MDB articles)

Goldman Sachs Hire Came as Bank Pitched 1MDB in Malaysia — Wall Street firm hired daughter of close ally to Malaysian Prime Minister Najib Razak

March 10, 2016

Wall Street firm hired daughter of close ally to Malaysian Prime Minister Najib Razak

Updated March 10, 2016 1:07 a.m. ET

Goldman Sachs Group Inc. hired the daughter of a close ally to Malaysia’s prime minister around the time the firm’s bankers were pitching business to the country’s government investment fund , people familiar with the matter said.

Goldman is looking into the hire as part of its investigation into the firms actions…..

Read the rest:

http://www.wsj.com/articles/goldman-hire-came-as-bank-pitched-1mdb-1457589602

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Below from Malaysia Chronicle

Goldman Sachs Group Inc. hired the daughter of a close ally to Malaysia’s prime minister around the time the firm’s bankers were pitching business to the country’s government investment fund, people familiar with the matter said.

Goldman is looking into the hiring as part of its investigation into the firm’s actions related to the Malaysia fund and into the Wall Street firm’s former Southeast Asia chairman, Tim Leissner, said one of the people.

The probe is also part of its broader investigation into the hiring of relatives of government officials or other well-connected people, the person said. Goldman is among several international banks under investigation by U.S. authorities to determine whether their hiring practices violated antibribery laws, The Wall Street Journal has previously reported. The Foreign Corrupt Practices Act bans U.S. companies from giving anything of value to a foreign official to gain an unfair advantage or business favors. Goldman has declined to comment on the U.S. probe.

Neither Goldman nor Mr. Leissner have been accused of wrongdoing.

Mr. Leissner was put on leave in January and resigned the next day after a review of his email showed he had allegedly sent an unauthorized reference letter on behalf of an individual to another financial firm, the Journal reported this week, citing people familiar with the matter. That letter allegedly sent by Mr. Leissner also contained inaccuracies, but it wasn’t connected to business Goldman did for the Malaysia fund, the Journal reported.

Goldman has since found that Mr. Leissner separately recommended that the firm hire the daughter of Jamaludin Jarjis, a senior politician and close aide to Malaysia’s prime minister, Najib Razak, as a bank analyst in Singapore in 2010, the person familiar with the matter said. Mr. Jamaludin died last year in a helicopter crash.

The daughter, Anis Jamaludin, worked at the bank for three months, the person said. A LinkedIn account in her name said she was at Goldman from July to November 2010. It was unclear why the time periods differed between the two accounts.

Mr. Leissner’s lawyer is negotiating with Goldman over his access to deferred pay, including restricted shares he was awarded in past years, people familiar with the matter said.

Tim Leissner and his wife, Kimora Lee Simmons. Mr. Leissner was put on leave in January and resigned the next day

Najib’s powerful wife Rosmah with Kimora

Ms. Anis was hired at Goldman as its bankers were looking for business from 1Malaysia Development Bhd., a government investment fund. The board of 1MDB approved the hiring of Goldman in August 2010 to review the possible purchase of a hydroelectric dam in the Malaysian state of Sarawak, according to 1MDB board minutes. The fund set aside 5 million ringgit (about $1.2 million) for Goldman’s advice, the minutes show.


Investment banker Tim Leissner (right) with Kimora Lee Simmons
Mr. Leissner was closely involved in a ​series of ​lucrative, but controversial, deals ​Goldman did with 1MDB, including a $3 billion bond sale it arranged for the fund in early 2013.
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Ms. Anis went through the same interview process as other candidates and was cleared by Goldman’s legal and compliance departments, people familiar with the matter said. Mr. Leissner wasn’t the main relationship banker with the fund at the time Ms. Anis was hired, one of the people said.

Ms. Anis couldn’t be reached for comment. Real-estate records show Mr. Jamaludin purchased a condominium in 2011 in Boston for $1.9 million that matches an address listed on Ms. Anis’s resume.

Mr. Jamaludin attended college in the U.K. at the same time as Mr. Najib, who heads 1MDB’s board of advisers. At the time of his daughter’s appointment at Goldman, Mr. Jamaludin was a ruling-party politician and Malaysia’s envoy to the U.S. He later returned to Malaysia and was a key strategist for Mr. Najib during elections in 2013, according to a former ruling-coalition politician involved in the campaign. It is unclear if he had any direct role in 1MDB.

The 1MDB fund was used to finance hundreds of millions of dollars of political spending during those elections, which Mr. Najib’s party won, the Journal reported in December, citing a person involved with setting up the fund and 1MDB board minutes. The fund is under scrutiny for its alleged connection to transfers of more than $1 billion into the personal accounts of Mr. Najib.

Malaysia’s attorney general said $681 million of that amount was a legal donation to Mr. Najib by a member of Saudi Arabia’s royal family and most of it was ultimately returned. The attorney general also concluded that there was nothing improper about the donation. Investigators, however, believe the money originated with 1MDB and before much of it was returned moved through a complex web of transactions in several countries, people familiar with the investigations previously told The Wall Street Journal.

Mr. Jamaludin also headed a government affordable-housing program that Mr. Najib launched. The program worked with 1MDB to develop a new residential area in Kuala Lumpur, the capital. Mr. Jamaludin died in a helicopter crash while returning home from a wedding reception for Mr. Najib’s daughter.

The fund didn’t respond to a request for comment. 1MDB has denied wrongdoing and said it would cooperate with corruption probes into the fund that are continuing in at least five countries. Attempts to reach Mr. Najib’s office weren’t successful. He has denied wrongdoing or taking money for personal gain.

Goldman played a key role in raising money for 1MDB. The bank sold a total of $6.5 billion in bonds for the fund in 2012 and 2013, including a $3 billion issuance just two months ahead of the elections. That bond was supposed to finance 1MDB’s plans to develop real estate in Kuala Lumpur, but little construction has occurred.

The bond sales earned Goldman hundreds of millions of dollars in revenue. The bank has defended the unusually high fees, saying it took on large risks by buying all the bonds before selling them to investors.

Apart from concerns over the unauthorized reference letter, Goldman investigators also found Mr. Leissner had offered an internship to the child of someone involved in an Indonesian mining deal that the firm was advising on earlier this year. Goldman was helping a group of investors secure financing to take over an Indonesian copper-mining operation but later resigned due to concerns over the involvement of the individual, the person said. – WSJ

Full article: http://www.malaysia-chronicle.com/index.php?option=com_k2&view=item&id=612155:bombshell-najibs-banker-buddy-hired-jamaludin-jarjiss-daughter-around-the-time-goldman-pitched-for-1mdb-deal&Itemid=2#ixzz42UBzVMfk
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