Behind Your Business

THE first round of Japanese investment into America, during the 1980s and 1990s, was notable for being so emotive. Extraordinary prices were paid to buy up supposedly gilt-edged assets including golf courses, investment firms and a large part of New York’s Rockefeller Centre. Sellers were delighted; the public horrified. The real victims were the Japanese buyers themselves, who suffered huge losses.Not every deal flopped. In particular, a minority investment in Goldman Sachs by Sumitomo Bank that was initially seen as an embarrassment in Japan (Sumitomo thought the stake was to be a partnership rather than a spigot for cash) turned out to deliver good returns. The lessons of that approach—a discreet profile, a minority stake, a focus on finance—may characterise the next wave of Japanese investment.Western banks need to raise equity capital to meet new regulatory hurdles. Other financial assets are being sold off as part of post-crisis restructurings. Japanese banks are relatively healthy, have high capital ratios and are deeply sceptical about their own ability to grow in Japan. That has led them once again to look outward, and not just to the Asian backyard.On January 18th Sumitomo Mitsui Financial Group, Japan’s second-largest financial institution and the current incarnation of the old Sumitomo Bank, paid $93m for a 5% stake in Moelis & Company, a niche investment...

WEARING lots of layers and a decent waterproof coat is one way to guard against changeable weather. Firms facing losses because of a big freeze or baking sun do not have that option. Insurance companies have long offered cover against flooding, hurricanes and other catastrophes. For less calamitous changes in the weather, derivatives are a better option.This is still a “niche market”, says Tim Andriesen of CME Group, the exchange where most weather contracts are traded. According to the Weather Risk Management Association, an industry body, the value of trades in the year to March 2011 totalled $11.8 billion, nearly 20% up on the previous year, though far below the peak reached before the financial crisis took the steam out of the business. In 2005-06 the value of contracts had hit $45 billion.Weather derivatives had an inauspicious start: the first trade was done by Enron in 1997. The instruments were initially used by American energy companies to hedge against the effect that unseasonal temperatures could have on gas sales. But abundant shale gas...

“IT SUCKED,” says the head of investment banking at one of Europe’s biggest banks, reviewing the fourth quarter of 2011. That succinct assessment will take few by surprise. The sale and trading of bonds and shares slowed to a trickle last year. Analysts at Credit Suisse reckon that investment-banking revenues among the big American banks slumped by a quarter in 2011. Trading bonds, currencies and commodities (activities known as FICC) is the industry’s bread and butter: FICC revenues fell by about 15% in America. Things are even worse in Europe. Credit Suisse reckons that European investment banks will post a 43% drop in revenue for 2011. On February 2nd Deutsche Bank announced a fourth-quarter loss for its investment bank.The first few weeks of this year also look dire. Markets have recovered relative to December, but there has not been the usual January leap. Analysts at Citigroup gloomily predict a further 10% fall in FICC revenues in Europe this year.The question dogging the industry is whether these falls are temporary or permanent. “Trading goes up, trading goes down,” Jamie Dimon, the boss of JPMorgan Chase, told journalists in January. “When things come back these numbers will boom again and we’ll be geniuses, and it won’t be because we did anything, it will be because we stayed in the game.”

In "By hook or by crook" (January 14th 2012) we mistakenly said that write-downs had boosted BBVA's capital by €400 billion. We were a little out: the bank's capital rose by €400m. Sorry.

ALL that glisters is not gadolinium. Even so, that mineral and its 16 “rare earth” cousins—found in everything from batteries to catalytic converters—do help make the modern world go round. And, as the world’s manufacturers of such products have been reminded recently, China has a chokehold on their production.China’s grip on rare earths first made headlines in 2010, when it suddenly cut exports to Japan. But it had been squeezing the market for years. In 2000 it exported some 47,000 tonnes of the stuff; by 2010 it exported only about 30,000 tonnes. This decline appeared to be the result of unfair export taxes and quotas.

Western powers have threatened to take the case to the World Trade Organisation (WTO). This week they seemed to get a boost when that body ruled against China on a related case. On January 30th an appellate body of the WTO ruled that China’s policies to restrict exports of several metals, like bauxite and magnesium, violated its WTO obligations. American and European officials cheered, arguing that China’s rare-earth policy must now also be...