MONDAY MARKETS MAIL - Kathrein Privatbank
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KATHREIN.AT
MONDAY
MARKETS
MAIL
Key topics at a glance.
ESG RATINGS AS A WARNING NOTE
FOR (BALANCE SHEET) SCANDALS?
CASE STUDY: WIRECARD
Kathrein statement
• The integration of ESG ratings in corporate analysis processes makes sense
• Wirecard was and is not included in any in-house fund
• The problems in the area of governance had been known at Wirecard for some
time
What is an ESG rating?
In addition to the classic exclusion criteria, sustainable funds often use ESG ratings from
ESG research providers. To create an ESG rating, companies are analysed for dubious
business practices in the environmental, social and governance areas. This procedure is
also called controversy screening. The results of this screening are used to create a rating.
On the basis of many controversies, the result is a worse rating. In the area of
governance, for example, the screening refers to areas such as business ethics, accounting
or the management structures in the company.
Since ESG research companies do not have any internal information about the companies
analysed, only public information such as media reports can be used for analysis. This
means that if no information was published before a scandal became public, it cannot be
included in the ratings.
However, if controversies have already been reported in the media, this information is
included in the rating. This means that, although it is obviously not possible to ensure that
all scandals are taken into account in an ESG rating in advance, it does show that it makes
sense to integrate ESG ratings as one of several variables in corporate analysis processes.
Especially if they are based on financial mathematical models and not every company is
fundamentally analysed.
The Wirecard case
Wirecard was not and is not included in any of Kathrein Privatbank's in-house funds (both
bond and equity funds). In our sustainable equity fund, KCM Aktien Global SRI, this was
mainly due to the poor ESG rating. This means that the company does not meet our strict
best-in-class approach. The problems in the area of governance had been known for some
time. The Financial Times, for example, reported for the first time at the beginning of 2019
on possible falsified contracts and suspected money laundering. But even then, the
company had a poor ESG rating, partly due to inadequate internal control mechanisms
(compliance).
In the meantime, the company has filed for insolvency and the share price has lost more
than 90% since the last high. In such cases, the differences between actively managed
funds and passive ETFs become apparent. As long as the share is included in the DAX
index, a DAX ETF also remains invested in the shares. An actively managed fund at least
has the opportunity to react and sell the share.
The investment strategy of KCM Aktien Global SRI
FINANCIAL MARKET AUTHORITY
INVESTIGATES AGAINST AMS &
FED PROHIBITS SHARE
PURCHASES
Financial Market Authority Fed prohibits banks from buying
investigates against ams peak, back shares for the moment
but ams denies
• Fed imposes strict conditions on
• Investigations against ams
financial institutions in the country
management for allegedly dubious
• Investors are not happy
share transactions
• Banks would have to pursue their
• Spokesperson of the Financial
capital plans later in 2020
Market Authority (FMA) confirms
ongoing investigations
Washington (APA) - In view of the corona
• ams share falls 16 % on Thursday
crisis, the US Federal Reserve (Fed) has
Graz/Vienna (APA) - The Styrian chip and
imposed strict conditions on the country's
sensor manufacturer ams denied media
financial institutions to protect their capital
reports on Friday that investigations were
resources. According to the Fed, share
underway against the top management of
buybacks and dividend increases are taboo
the company. ams had "no knowledge of
for the largest banks at least until the end
any investigation or inquiry by a
of the third quarter.
supervisory authority or similar authorities
regarding employees, members of the
The Fed said that the institutions had
management or supervisory board, the
performed well in the annual stress test.
company or its subsidiaries".
However, an analysis of the burdens of the
corona pandemic has revealed risks. The
The German "Handelsblatt" had reported
Fed would now take further measures to
on Thursday that the Austrian Financial
examine the banks' resilience to the crisis
Market Authority (FMA) was investigating
more closely.
the ams leadership because of alleged
dubious share transactions in the ongoing
The news was not well received by
takeover of the German lighting company
investors; bank stocks initially reacted with
Osram. In response to an APA inquiry, an
price losses after the market. In the first
FMA spokesperson confirmed once again on
round of the regular annual stress test, the
Friday: "As a matter of principle, we will
certificates for the financial institutions
follow up any indication of a violation of the
were consistently positive. "The banking
law and investigate the facts of the case.
system remains well capitalized, even
However, the FMA spokesperson did not
under the worst-case scenario," Fed Vice
wish to comment on the proceedings
President Randal Quarles said in the
themselves, referring to official secrecy.
release.
"The banking system has been a source ofAccording to the Handelsblatt, since strength in this crisis so far," continued
autumn 2019, the economic and corruption Quarles. Nevertheless, the Fed wants to
prosecution for alleged insider trading keep a close eye on financial institutions
against the top management of the sensor for the time being because of the difficult
technology group. to assess consequences of the Corona
A spokesman for the Economic and pandemic. High corporate debt and credit
Corruption Prosecution Office did not want defaults are considered a particular risk.
to tell the newspaper which managers of The Fed wants to play it safe: The banks
ams were under investigation. He also did will have to resubmit their capital plans -
not want to comment on the question of which include dividends and share
when the investigations could be buybacks - later this year.
completed.
Confirmed once again on Friday: "As a The central bank's strict conditions for the
matter of principle, we will follow up any financial sector show how seriously the Fed
indication of a violation of the law and continues to take the risks of the
investigate the facts of the case. However, pandemic.
the FMA spokesperson did not wish to The Corona crisis had already paralysed
comment on the proceedings themselves, the US economy to a large extent for a
referring to official secrecy. time and caused unemployment to rise
rapidly.
ECONOMIC SENTIMENT IN THE
EURO ZONE RECOVERS STRONGLY• Economic Sentiment Indicator (ESI) increased by 8.2 points
• March and April slumps have been made up by 30 percent
• Employment outlook indicator still below pre-crisis level
Brussels (APA) - Economic sentiment in the eurozone recovered significantly in June from
its slump in the Corona crisis. The Economic Sentiment Indicator (ESI) surveyed by the EU
Commission rose by 8.2 points to 75.7 points in June. This is the strongest rise ever
measured, the authority explained. However, the expectations of analysts were missed,
they had expected an average of 80 points. The indicator also improved considerably in the
European Union.
With the latest increases, the slumps of March and April had been made up for by about 30
percent, the Commission announced. The mood had already brightened somewhat in May.
The ESI is a broad-based indicator that measures the mood of companies and private
households. The employment outlook indicator, which is shown separately, also rose
sharply in June after it had collapsed during the crisis. However, it is still clearly below the
pre-crisis level.
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first district was founded by Carl Kathrein in 1924 and is Wipplingerstraße 25
one of the leading private banks in the German-speaking 1010 Wien, Österreich
region. Our core competence is the management of
personal, corporate and institutional assets as well as +43 1 53451-0
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Bank International AG, Kathrein Privatbank offers the
benefits of an agile, independent and service-oriented
institution combined with the security of a robust,
international banking group.
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and shall only serve for information purposes. The content provided is therefore not subject to the rules of the WAG which govern the dissemination
of financial analyses.
The content of this publication represents the investment opinion of the Kathrein Privatbank Aktiengesellschaft and shall not be considered a
solicitation, recommendation or an offer to buy or sell any type of investment instrument under Austrian capital market laws or under capital
market laws of other jurisdictions. All concrete investment decisions should be appointed with an advisor and not only based on this marketing
information.
Although Kathrein believes that the sources used for this communication are reliable, no liability is assumed for the completeness, accuracy and
timeliness of the information presented here. The information and analyses made herein are general in nature and do not take into account the
individual needs of our investors in terms of earnings, tax-situation or risk appetite.You can also read
