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New post on Financial Post | Business
as Heartbleed bug exposes serious flaws in online security
by John Greenwood
Canada’s tax authority is so worried about a newly discovered Internet vulnerability that it has shut down its tax filing website in the middle of tax filing season, raising questions about whether the personal data of millions of Canadians has been put at risk.
[np_storybar title="Why the Heartbleed bug's security impact may not be fully known for years" link="http://business.financialpost.com/2014/04/09/heartbleed-bugs-security-impact-may-not-be-fully-known-for-years/"]
After the discovery of a serious flaw in the technology used to safeguard information travelling to and from millions of servers made headlines around the world, security researchers are grappling with the long term implications of the Heartbleed bug.
Technicians at some of the world’s largest Websites are scrambling to plug the leaks left behind by Heartbleed, but security researchers are are advising users to assume they may have been affected. While the risk may be lower for some users, with the possibility that attackers could have used this flaw to gain access to bank records, passwords or social insurance numbers, there could be serious and damaging consequences for others.
The bug — which was discovered earlier this week — was found to exist in software known as OpenSSL, one of the most common technologies used to secure Web data, and lets attackers not only eavesdrop on “secure” communications, but also potentially gain access to the very encryption keys being used to establish secure online connections.
But because Heartbleed went undiscovered for two years and — according to one of the organizations which helped identify it — leaves behind virtually no trace when it is exploited, it may be years before the full extent of this security breach are fully known.
Read more …
The Canada Revenue Agency said in a statement Wednesday that it’s working to fix the problem known as the Heartbleed bug and hopes to have the system back in operation “over the weekend.”
The CRA said that individual Canadians won’t be penalized for delays resulting from the outage, however it was far less clear about how it will respond to any theft of information that might have resulted from the vulnerability, which has been in existence for as long as two years before being discovered by sleuths at Codenomicon and Google Security earlier this week.
Potential losses for any business are obviously a major concern but observers say the risks are even greater for government organizations such as the CRA, as it is their explicit responsibility to safeguard the personal data of Canadians.
In a worst-case scenario, miscreants could have broken into the tax authority’s website and made off with complete work history and income, social security numbers and addresses of millions of Canadians. So far no one has said that anything like this has occurred.
Taking the tax filing service down “was absolutely the right response, the only one that actively closed the risk of user data and sensitive information being stolen,” said Seth Hardy, senior security researcher at The Citizen Lab at the University of Toronto’s Munk School of Global Affairs.
At the end of March the CRA said that so far this year it has received about 6.7-million income tax returns, with 84% coming through its online service.
“Electronic filing is quickly becoming the norm, as tax filers discover how convenient, easy, and secure online filing is,” it said.
According to the CRA, that works out to 1,763 a minute. So at the very least, the website outage will result in frustration for several million Canadians by the time the problem is fixed.
Heartbleed is only the latest in a string of viruses and flaws that have caused havoc with Internet security, including an intrusion in December at the retail giant Target Corp. affecting more than 70 million credit and debit card users, and another more recent one affecting Apple that enabled hackers to access private data of millions of iPhone and laptop owners.
But Heartbleed is potentially worse than the others. “This vulnerability is huge,” said David Skillicorn, a professor at the Queen’s School of Computing in Kingston, Ont.
It’s particularly worrisome because it affects a very widely used technology called OpenSSL, providing hackers with an open door on an enormous amount of personal data. OpenSSL is an encryption tool that allows for the transfer of private information between a website and a visitor.
[np_storybar title="How to protect yourself" link=""]
Assume that your accounts may be compromised. Since the vulnerability has been in the encryption software OpenSSL for about two years and using it leaves no trace, it’s best to assume you may be affected. The researchers who discovered the flaw let the developers behind OpenSSL knew several days before announcing the vulnerability, so it was fixed before word got out. Most major service providers should already be updating their sites.
Wait for afflicted sites to fix the problem before logging in. Reach out to a company or organization’s customer service teams to find out if a patch has been implemented. If you have any suspicions that sites may still be vulnerable, steer clear for now, suggests CNet.
Resist the urge to change passwords immediately. “Security experts suggest waiting for confirmation of a fix because further activity on a vulnerable site could exacerbate the problem,” CNet reports.
Once security fixes are confirmed, then go ahead and change your passwords. CNet suggests starting with your bank and email accounts first. “Even if you’ve implemented two-factor authentication — which, in addition to a password asks for another piece of identifying information, like a code that’s been texted to you — changing that password is recommended.”
Examine your bank and credit card statements. “Because attackers can access a server’s memory for credit card information, it wouldn’t hurt to be on the lookout for unfamiliar charges on your bank statements,” says CNet.
With files from Business Insider
“The frustrating thing is we don’t know whether anyone has exploited this or not,” said Professor Skillicorn. “It could be that nobody noticed it until last week, but it could be that some criminal organization or government has been using it over the whole period [before it was uncovered], though it leaves no trace so we can’t tell.”
Given the speed with which both business and government have moved onto the Internet in recent years it’s not surprising that the discovery of Heartbleed has set off a shockwave as players scramble to assess the damage and fix the flaw.
“The challenge is that if the SSL [technology] is compromised, all the information you thought was private in fact wasn’t,” said Andre Boysen, executive vice president of marketing at SecureKey Technologies Inc., a Toronto-based Internet security firm. “What isn’t known is how much of the conversation was intercepted and, to the extent that it was intercepted, how much was acted upon.”
A key issue is that the flaw gives miscreants not only access to private conversations between websites and users, but also a view inside the computers on both sides of the conversation.
“They can see whatever’s in memory, the programs that are running at the time, so if you happen to be running your email or an other web browser or you happen to be running your company’s accounting package, then that’s all potentially vulnerable,” said Professor Skillicorn. “This is a really big deal.”
Outdated Margin Agreements are one way banks like Bank of America, JP Morgan, and Citigroup are not capturing accurate prime brokerage revenues.
As Hedge Funds begin to grow assets under management, the need for renewed prime brokerage margin agreements on the sell-side are imperative to capture future and higher revenues.
Renewed margin agreements could lift securities and prime brokerage revenues between 15% and 20%.
I’ve been a longtime reader and follower of Seeking Alpha articles and have found the materials absolutely enriching for an investor like myself. Most articles discuss valuation, multiples, projections, and industry comps when explaining their thesis on banks, however, not a lot of articles discuss more operational topics like the fundamental management of a business. This article is about the Financial Sector and will assist an investor in understanding how a bank generates revenue from their Securities and Prime Brokerage operations.
In the last 12 months, the Financial sector has roared back, returning 72% to investors of Direxion Daily Financial Bull 3X Shares (FAS) and 43% to investors of Bank of America (BAC), beating the SPDR S&P 500 (SPY) by 60% and 13%, respectively (SPY returned 20.66% in the same period). Most investors seem very convinced that the Financial sector is a solid bet for 2014, and the strong views on Financials is synonymous on and off Wall Street based on the trading price appreciation of various banks, asset managers, and private equity/investment management firms. So if everything is roaring back, why are there still investors like myself still not sold on these explosive returns? In this article I will be addressing what Prime Brokerage Margin Agreements are and why they are curtailing revenue growth for banks and other sell-side institutions (the sell-side includes banks, research firms, and should be known as the party that offers products/services to the buy-side firms, which include hedge funds, investment managers, sovereign wealth funds, etc.). My article/study focuses on one specific revenue generating business on bank income statements: the Securities and Prime Brokerage revenue. To put this into perspective, I will be using Bank of America as an example to better understand the basis of my publication, however, I want to disclose that this is only an example and I have no tangible nor definite evidence of any outdated margin agreements at Bank of America.
Based on BAC’s most recent filings, it is clear there is a decline in Securities revenue. However, before this is taken out of context, business expenses moved in proportion to this decline in Securities revenue, and for the record, the industry has gone through a variety of revenue constricting developments, including regulatory reform (Dodd Frank, Volcker Rule, etc…), lower trading volumes, fines off of fraudulent activities, and tighter profits in especially the securities sales & trading businesses in the last five years. So, how can a functioning operation like a bank with fundamentally reasonable business mandates experience sliding securities revenues simply based on regulation, economic activity slowdowns, and other catchy news headlines explaining the underperformance quarter on quarter? Well, I came across articles on Hedge Week and Risk Net (Hedge Week article here, Risk Net article here) that cover all the various aspects of a prime services or prime brokerage operation and it was obvious that the margin agreements could be outdated at almost all sell side investment banks to better explain the declines in Securities revenue during a time of increased prime brokerage client assets (increased hedge fund client assets, more on this later). Here is a Prime Brokerage Agreement from 1994 (form found here), by SIFMA, to better understand my basis. The basis for my article is to explain the underperformance of a couple of divisions within a bank to build a better understanding of what is slowing down banks operatively from a Securities revenue perspective. Two more sources that led to my conclusion that Margin Agreements are outdated is a Davis Polk & Wardwell publication covering Prime Brokerages and the Lehman Collapse (publication found here) and a Forbes article covering the basics of Prime Brokerage (article found here).
Before diving into the details, let’s discuss why the bank’s prime brokerage businesses are very important with something that is very topical: huge asset inflows into the Hedge Fund, or Alternatives, industry. Based on a recent article by Reuters (article found here), hedge fund assets are expected to reach a record $3 trillion by the end of 2014 as investors (family offices, ultra high net worth individuals, sovereign wealth funds, other types of high asset management clientele) plan to add fresh money into various hedge funds without the expectation of gigantic returns for 2014 since 2013 provided reasonable satisfaction (even though hedge funds underperformed the S&P 500 in the same period). The new view in the hedge fund industry is “lose less money in a down market, and it’s okay to make less than the market in an up market.” Based on the most recent Hedge Fund Review report (report found here) on global Hedge Fund Assets Under Management (AUM), the hedge fund industry grew 9.8% in 2013 by AUM across all hedge fund strategies. Basically, large amounts of cash inflows into the hedge fund industry are imminent and are expected to grow overtime, given the specialty of fund management tailored to institutional investors. This is an important data point because the majority of clients in a bank’s prime brokerage business are hedge funds and alternative asset managers.
So, in theory, the prime brokerage and securities business should be in the upswing for investment banks like Bank of America , Citigroup (C), Goldman Sachs (GS) and JP Morgan (JPM), however, that doesn’t really seem to be the case based on the 2013 10K filings for the Securities industry from a revenues perspective. Now, it turns out, and this is not specific to any bank but a general theme across prime brokerage firms, that prime brokerage margin agreements that were signed with clients from the pre-2000 era remain the same and have not undergone the needed updates to reflect the current market environment or changes in bank balance sheet elasticity (which has tightened). Many readers might be confused by that, so here is another way of explaining it: when a client, say Hedge Fund X, signed on with a bank’s prime brokerage business in say 1998, that client had some favorable margin terms on their agreement since prime services was a bit more inefficient and balance sheets were significantly more levered back in those days. Nowadays, getting away with the margin agreements signed by hedge funds and banks are significantly different and include sophisticated funding models to manage both the bank’s risk against the client’s market exposure and the rate at which clients can borrow funds for outstanding leveraged market positions (including both fixed income and equity securities). If this is still confusing, let’s run through an example. Let’s say Prime Brokerage XYZ (usually a sell-side bank) signed a margin agreement with Hedge Fund X in 1998, the Prime Broker probably gave the client a margin agreement that allowed the client to leverage over 6.0x, with cost effective borrowing rates at various borrowing levels when on margin, and freedom to trade with virtually anything that had an instrument ID or CUSIP (without consideration to instrument processing across different global exchanges; like OTC clearing in Europe vs. OTC clearing in the U.S.). The key detail that shocked me was that the prime brokerage margin agreement’s borrowing levels when Hedge Fund X went on margin, and how much cheaper it was to do so, was significantly more favorable for a hedge fund than a new client signing on in 2013 (in brief, the hedge fund costs of doing business with a prime broker have increased due to the economic and business environment).
Now, this may seem a bit unusual to most readers and investors since many people are under the impression that margin accounts borrow at the market rate when they go on margin. The answer to that is Yes, there is a market rate at which margin accounts borrow funds from, however, those rates differ on the institutional level and are more favorable to prime broker clients that signed margin agreements back in the pre-2000 era. The next question most readers and investors might have is why don’t they renegotiate the agreements? Well, each major prime brokerage firm has about 2,000 active global clients and those clients usually have a private equity arm, sub funds, different portfolio managers, and further levels of separate entities with their own margin agreements. It would take an army of lawyers and consultants to go through every single margin agreement that was signed years ago and to settle on more current and favorable margin agreements for the bank’s prime brokerage business and hedge fund client (which would be consuming the more unfavorable end of the new margin agreement). Another reason why a prime brokerage business may not renew their margin agreements with institutional clients is because various prime brokerage firms can offer different products and services to clients at different rates, which may possibly drive clients to switch prime brokerage firms. With all the regulatory implications and economic conditions, a bulge bracket bank is in no position to hire an army of lawyers or personnel to increase the profitability or the revenues of one of their core businesses since the up-front expenses could be colossal for several years, and that is without the guarantee that clients will remain clients with the prime brokerage firm due to the new unfavorable terms. Let’s not forget, the prime brokerage business is extremely competitive, consider yourself as an investor who is choosing between Fidelity and E-Trade as your personal brokerage provider.
Over the course of my research (Hedge Week, Hedge Fund Review, Forbes, Davis Polk & Wardwell articles and publications), there were notes that various bank prime brokerage businesses on-board clients differently, some with and some without favorable methods of margin agreement renewals, however, planning for a margin agreement renewal ten years in advance is very not Wall Street-like (or Corporate-like), and that is why this has become an issue during a time of tight balance sheets and very high securities regulation globally. The last thing banks really need are lost sales from margin agreements to erode their bottom lines more.
For an idea on the current situation, another Reuters article (article found here) covers the current ranks of the top prime brokers and some of the challenges they face with even their biggest clients. Here is an excerpt from the article touching on the point my article is trying to address: “While a share of business from the biggest traders, for instance Brevan Howard or Moore Capital, can deliver tens of millions of dollars in commissions [per year], brokers are finding some clients unprofitable and are sometimes demanding higher fees, a greater share of business or even telling them to look elsewhere.” The article highlights Goldman Sachs , JP Morgan, Bank of America , Citigroup and other large investment banks in the United States with sizable market-shares of the industry.
To give prime brokerage margin agreements revenues more perspective, a bank like Bank of America could benefit between 15% and 20% more fees/commissions revenue for prime brokerage business with clients. BAC currently manages around $60 billion in prime brokerage assets and as hedge funds continue to realize high net investment inflows, prime brokerage businesses across the Street should experience a lift in business revenue. It would make sense for that growth in business to reflect favorable margin agreements for both the bank and their clients.
Finally, the issue of outdated margin agreements may not seem like a large issue now, when hedge funds manage about ~3% of the world’s global investable assets, but what if assets continue to grow at current rates (roughly 10% per year based on Hedge Fund Review), offering investors stable returns and wealth preservation overtime? What if hedge funds end up managing 30% of the world’s investable global assets? The bank prime brokers will be sitting on the short end of the deal all because of the complex management of prime brokerage margin agreements that stand outdated and favorable to hedge fund clients. For prime brokerage banks that were mentioned earlier, the revenues may slightly increase, but not at the levels they should be growing at.
Quiznos sandwich chain files for bankruptcy protection as crowded fast-food market ‘weeds out the weak
Originally posted on Common Sense Republicans:
As a conservative, I have mixed thoughts and emotions on this subject. All business should rise and fall on it’s own merits. However, when large chains emerge and flood the market they do little to help or serve the public’s best needs or wants. Perfect example, is Walmart. Their products are sub-par and cheep. The cheep is what people seem to want today. The only issue is large companies drop prices so low that they put the smaller ones or weaker ones out of business. Sounds great but the quality goes way down. Think about that the next time you buy a crappy pair of shoes at Walmart and you need to get another in six months , and not because you just want to, but you’ll have to. Well, like always, you decide, Is it…
View original 314 more words
(CNN) — The closest thing to a clue in the search for a missing commercial jetliner is traces of oil found in the ocean in the same area where contact was lost with the Malaysia Airlines flight.
A Vietnamese search plane spotted the oil while flying over the search area. The oil slicks are between 6 and 9 miles long and are suspected to be from the missing plane, the Vietnam government’s official news agency reported. The traces of oil were found about 90 miles south of Tho Chu Island, the report said.
In the meantime, the search area is being expanded and efforts to locate the plane will continue overnight, said Azharuddin Abdul Rahman, director general of civil aviation in Malaysia.
Nobody knows what happened to Malaysia Airlines Flight MH370, other than air traffic controllers lost track of it not long after it left Kuala Lumpur, the capital of Malaysia, on its way to Beijing.
The families and loved ones of the 239 passengers and crew aboard expected the worst as they awaited any significant development.
Photos: Malaysia airliner loses contact Photos: Malaysia airliner loses contact
Map: Malaysia airliner lost contact Map: Malaysia airliner lost contact
Traces of oil may be clue in search Somber scene as families await news Quest: Odd to lose contact while cruising
The area of focus has been in the South China Sea, where the Malaysian airspace and Vietnamese airspace meet.
“We have no idea where this aircraft is right now,” Malaysia Airlines Vice President of Operations Control Fuad Sharuji said on CNN’s “AC360.”
Bits and pieces of information have begun to form, but it remains unclear how they fit into the bigger picture, if at all.
For instance, after the airline released a manifest, Austria denied that one of its citizens was on board the flight as the list stated. The Austrian citizen was safe and sound, and his passport had been stolen two years ago, Austrian Foreign Ministry spokesman Martin Weiss told CNN.
Similarly, Italy’s foreign ministry confirmed that no Italians were on board MH370, even though an Italian was listed on the manifest.
Police in Italy said the man’s passport was stolen last year.
A U.S. intelligence official said authorities are aware of reporting about lost or stolen passports used by passengers on the missing flight.
“No nexus to terrorism yet,” the official said, “although that’s by no means definitive. We’re still tracking.”
Malaysian authorities reiterated during a news conference that they are not ruling anything out regarding the missing aircraft.
China, Vietnam, Singapore and Malaysia were conducting search and rescue operations south of Tho Chu island in the South China Sea, reported Xinhua, China’s official news agency. Ships, helicopters and airplanes are being utilized.
Officials appeared resigned to accepting the worst outcome.
“I’d just like to say our thoughts and prayers are with the bereaved families,” Malaysian Prime Minister Najib Razak said during a news conference.
Grief, especially in China
More than half the passengers were Chinese nationals.
Relatives of the 154 Chinese nationals on board gathered Saturday at a hotel complex in the Lido district of Beijing as a large crowd of reporters gathered outside.
“My son was only 40 years old,” one woman wailed as she was led inside. “My son, my son. What am I going to do?”
Family members were kept in a hotel conference room, where media outlets had no access. Most of the family members have so far refused to talk to reporters.
The Boeing 777-200 ER departed Kuala Lumpur International Airport at 12:41 a.m. and was expected to land in Beijing at 6:30 a.m., a 2,300-mile (3,700 kilometer) trip. It never arrived.
The plane carried 227 passengers, including five children under five years old, and 12 crew members, the airline said. Air traffic control in Subang, in Malaysia, had last contact with the plane.
At the time of its disappearance, the Malaysia Airlines plane was carrying about 7.5 hours of fuel, an airline official said.
The passengers are of 14 nationalities, the airline said.
Among the passengers there were 154 people from China or Taiwan; 38 Malaysians, and three U.S. citizens.
The airline’s website said the flight was piloted by a veteran.
Cap. Zaharie Ahmad Shah, a 53-year-old Malaysian, has 18,365 total flying hours and joined Malaysia Airlines in 1981, the website said. The first officer is Fariq Ab.Hamid, 27, a Malaysian with a total of 2,763 flying hours. He joined Malaysia Airlines in 2007.
Aviation experts weren’t optimistic.
“It doesn’t sound very good,” retired American Airlines Capt. Jim Tilmon told CNN’s “AC360.” He noted that the route is mostly overland, which means that there would be plenty of antennae, radar and radios to contact the plane.
“I’ve been trying to come up with every scenario that I could just to explain this away, but I haven’t been very successful.”
He said the plane is “about as sophisticated as any commercial airplane could possibly be,” with an excellent safety record.
“The lack of communications suggests to me that something most unfortunate has happened,” said Mary Schiavo, former inspector general of the U.S. Department of Transportation, in an interview with CNN International.
“But that, of course, does not mean that there are not many persons that need to be rescued and secured. There’s still a very urgent need to find that plane and to render aid,” she said.
An Asiana Airlines Boeing 777 carrying 291 passengers struck a seawall at San Francisco International Airport in July 2013, killing three people and wounding dozens more. It’s unknown if mechanical failure was involved.
Search under way
Several nations launched search and rescue efforts.
The Malaysian Maritime Enforcement Agency (MMEA) has deployed one aircraft and three ships in a search-and-rescue operation following the disappearance of the plane. The Malaysian government says its navy is cooperating with the Vietnamese navy.
The USS Pinckney, a U.S. destroyer, was conducting training in the South China Sea and is being routed to the southern Vietnamese coast to aid in the search, the Navy said. The ship carries two helicopters that can be used for search and rescue purposes.
The United States is also sending a P-3C Orion aircraft from Japan to provide long-range search, radar and communications capabilities, the Navy said.
China’s Xinhua news agency says the Chinese Coast Guard is sending orders to its on-duty vessels nearby to set out to the water where the plane incident likely occurred.
China sent a diving and salvaging team to the area where the airplane is suspected to have gone down, as well as a Coast Guard vessel.
Malaysia Airlines said it was working with the authorities who have activated their search and rescue team to locate the aircraft. The airline said the public can call +603 7884 1234 for further information.
Malaysia Airlines operates in Southeast Asia, East Asia, South Asia, the Middle East and on the route between Europe and Australasia.
It has 15 of the Boeing 777-200 ER planes in its fleet, CNN’s Richard Quest reported. The missing airplane was delivered to Malaysia Airlines in 2002.
Part of the company is in the private sector, but the government owns most of it.
Malayan Airways Limited began flying in 1937 as an air service between Penang and Singapore. A decade later, it began flying commercially as the national airline.
In 1963, when Malaysia was formed, the airline was renamed Malaysian Airlines Limited.
Within 20 years, it had grown from a single aircraft operator into a company with 2,400 employees and a fleet operator.
If this aircraft has crashed with a total loss, it would the deadliest aviation incident since November 2001 when an American Airlines Airbus A300 crashed in Belle Harbor, Queens, shortly after takeoff from JFK Airport. Killed were 265 people, including five people on the ground.
Corporate China is about to experience a historic default — and here’s why that’s a good thing
by Business Insider
Chinese solar company, Shanghai Chaori Solar Energy Science and Technology Company, announced that it can not pay interests in the amount of 89.8 million yuan (approx $14.6 million) on its 11 Chaori bond, that are due on March 7.
Instead, the company said it can only pay bondholders 4 million yuan.
The 11 Chaori bond was first issued in March 2012 with a coupon of 8.98%, with annual interest due on March 7 every year. But the solar company became another victim of China’s excess capacity problem.
The first signs of trouble began to emerge in January 2013 when the company nearly became the first domestic company to have a bond default.
At the time though Shanghai’s Fengxian district stepped in and asked Chaori’s banks to defer claims in the amount of 380 million. And to top it off there were reports that the Chairman had taken off with the company money.
The new announcement makes Chaori the first default of an onshore bond, Bank of America’s Ting Lu writes in a note to clients.
But the bond default might actually be a good thing. “A normal economy needs defaults to better price bonds and other debt products,” writes Ting.
We have previously pointed out that this can actually help investors have more information to better price risk.
“If you talk to anyone in China, if you talk to them about the prospect of a financial crisis, the first thing out of their mouths will be that the government will never let that happen,” Patrick Chovanec at Silvercrest Asset Management told Business Insider in January. “And until you shake that belief you won’t have efficient allocation of resources.”
“At some point the financial system does have to turn the corner, where there’s real risk and there’s real pricing of risk,” Chovanec added.
Ting also say investors needn’t be anxious for other reasons.
“Defaults of some debt products are not on a similar scale to a collapse of a major financial institution. As we think corporate bonds and incoming trust loan defaults will not lead to a credit crunch, and we are reasonably confident with our 7.6% GDP growth forecast for this year.”
That being said, the news has caused corporate bonds to fall, and is “a negative for riskier debt products,” writes Ting.
With China’s corporate bond market sitting at 8.7 trillion yuan outstanding, up from 800 billion yuan at the end of 2007, Beijing needs to step up the game on its bankruptcy law.
Societe Generale’s Wei Yao has previously warned that as local governments struggle with their own financial needs and burdens they could let go of troubled corporates and that stress will emerge in bond markets and trust products.
As Beijing moves to curb local government debt, clean up its financial market, and push through reforms, Ting warns that we should expect bond and trust loan defaults to rise “significantly” this year.
Business Insider | March 5, 2014 at 9:26 am | Tags: breaking, China | Categories: Business Insider | URL: http://wp.me/pMyQt-1L2J
by Special to Financial Post
Kinross Gold Corp., one of the biggest foreign investors in Russia, is shrugging off the potential threat to the Russian economy posed by the upheavals in Ukraine.
Kinross expects its mines in Russia’s Far East to continue to provide great returns for the company, said Andrea Mandel-Campbell, director of corporate communications at Kinro
“Our strong, co-operative commercial relations with the Russian government have served us well for over a decade and are a key strength for Kinross in the region,” she added in an email.
Russia faces possible expulsion from the G8, and economists have predicted the devaluation of the rouble could pull the country’s economy into a recession.
Despite those issues, Lou Naumovski, vice president and general director of Kinross’ Moscow office, believes mining companies can continue to make it work in Russia. He presented a series of tips on how to succeed there. Staying for the long haul and stakeholder engagement are part of its recipe for success, he said.
Kinross is the only Canadian member of Russia’s Foreign Investment Advisory Council, a responsibility it takes very seriously, says Mr. Naumovski. To that end, it commissioned two white papers on foreign investment. The first, which was released in 2011, outlined how the Russian government could promote more foreign investment in mining exploration and development. And the second, published in October 2013, discussed regulations and other factors that shape the investment climate in the country’s far East.
Kinross’ efforts appear to have borne some fruit. The 2011 white paper helped focus a discussion between industry and the Russian government that led the government to ease its restrictions on foreign ownership of strategic deposits, said Mr. Nauvmovski.
Further change is likely to be slow. “The process is a marathon and not a sprint,” he said.
While the company has faced serious challenges since it first ventured into Russia in 1995, the “fact that it didn’t withdraw from Russia is another important factor in the company’s success,” he said.