Corporate
Europe Observatory has decoded the list of beneficiaries of the
European Central Bank’s corporate bond purchasing scheme. The
results are disturbing, unless you think oil, fancy cars, motorways,
champagne, and gambling are good places to put public money.
Corporate
Europe Observatory
In June 2016
the European Central Bank (ECB) activated another programme intended
to boost the Eurozone economy. In recent years large sums have been
spent in an attempt to spur growth – so-called ‘quantitative
easing’ – with cheap loans made available to banks, and the
buying of sovereign bonds, among other measures. So far, banks have
been the primary recipients. This time around, the ECB has taken it a
step further and started buying corporate bonds – essentially,
making cheap loans to corporations, which is fundamentally a kind of
subsidy to some of the biggest players in the European marketplace.
So who are
the beneficiaries? Which corporations are enjoying the goodwill of
the big bank?
Only a few
names have surfaced over the past months, as the ECB does not reveal
the names of the companies, only the codes of the bonds. Now,
Corporate Europe Observatory has looked them all up, and the picture
that emerges is disturbing. Notably, it seems the ECB in its own way
is helping fuel climate change, providing financial support to both
oil and gas companies, and car-makers, including, Shell, Repsol,
Volkswagen, and BMW.
The
programme
The
Corporate Securities Purchasing Programme (CSPP) was decided in March
and took off in June. Since then, the ECB has spent €46 billion on
corporate bonds (as of 25 November 2016). According to one estimate,
it is set to reach €125 billion by September 2017. No small sum.
Bonds are
basically a form of loan. The buyer lends the issuer money, interest
is paid at regular intervals, and face value is then paid back at a
fixed date, the date of maturity. When bonds of a particular kind get
popular on the market, corporations have to pay less interest. “It
feels good to CSPP’d”, the Financial Times reported on 20 July
2016, citing research that showed how bonds actually bought by the
ECB fared better than other bonds.
To issue a
bond is not straightforward, it requires expertise in financial
markets. Many corporations have banks of their own that manage the
complicated transactions. It is a world that is not accessible to
SMEs, that would go to a bank for credit, not sell bonds. For that
reason, the CSPP is a helping hand to big corporations, not to SMEs.
The bonds
are not bought directly by the ECB. The ECB coordinates the effort,
but the actual buying takes place in a decentralized manner, with six
central banks – the German, Spanish, Italian, Belgian, Finnish, and
French – doing the work. They have all been assigned tasks to
identify and buy attractive bonds in not just their own country, but
in others as well, so the effect can be spread in a more or less even
manner.
All six
central banks regularly update information on their holdings on the
ECB website. Unfortunately, except for Deutsche Bundesbank, they do
not reveal the names of the companies, only the codes used to
designate a particular bond, the so-called International Securities
Identification Number (ISIN). But finding the names via the ISIN code
is a simple job. Corporate Europe Observatory has looked them all up
to see what investments the ECB has found worthy of public money.
Unfortunately,
a lack of transparency at the ECB means the amounts held in bonds of
individual corporations are not revealed. While many pension funds do
release this information, it seems that the common national bank for
hundreds of millions of European citizens is unable to! Nevertheless,
a lot can be learned from the lists.
Dirty
energy and cars
From the
lists produced by Corporate Europe Observatory, it seems there is a
consistent strategy in terms of sectors. High priority is given to
infrastructure, including motorways, trains, and even airports.
However, by no means is the programme simply focused on utilities.
The bond purchases as a whole tell a story; the CSPP as it stands, is
about climate change. There is a distinct smell of fossil fuels in
the holdings list, with some of the biggest oil companies enjoying
remarkable attention from Frankfurt. The ECB has bought no less than
11 times from Shell, 16 times from Italian oil company Eni, 6 times
from Repsol, 6 times from Austrian OMV, and 7 times from Total.
The clear
number one sector, though, is electricity and gas utilities. When
counting the purchase of bonds for example in Spain, 53 per cent are
from companies involved in gas, and the corresponding number in Italy
is an astounding 68 per cent.
Though the
amounts – the total the ECB holds in these companies – are not
available, the high number of trades indicates a strong interest in
companies that are contributing the most to climate change.
The bias
towards dirty energy companies is strong. Unless Siemens intends to
invest in wind turbine production with the money received from the
ECB, the only ‘alternative’ energy form present on the list is
nuclear, with enriched uranium producer URENCO and Finnish nuclear
power company Teollisuuden Voima on the list.
The ECB bond
purchases also show a strong preference for the car industry. This is
most clearly seen in the list of purchases by the German Bundesbank.
The most frequent investment by the ECB is tied between Daimler AG
(producer of Mercedes) and BMW with 15 purchases apiece. Volkswagen
bonds come in at 7, whereas French carmaker Renault is at 3. Finally,
it must be assumed that the presence of the Agnelli family’s
investment holding company Exor is to make sure Italian cars Fiat and
Ferrari also feel the Christmas spirit.
Bizarre
investments and scandals
The
inclusion of some corporations in the ECB bond-purchasing programme
will raise eyebrows, particularly Volkswagen, involved in the ongoing
dieselgate scandal over fraudulent reporting of emissions. Other
corporations on the list currently beset by scandal include:
- Estonian Eesti Energia, involved in the first tar sands mine in the US4 – the dirtiest energy imaginable – and facing strong local resistance;
- Ryanair, infamous for its contempt for labour rights;
- Spanish company Gas Natural renown for mercilessly cutting off electricity and gas supplies, which recently led to the death in a fire of an elderly Spanish woman forced to use candles;
- ENEL, an Italian energy utilities giant, involved in building of dams in South America that will seriously harm local communities – human rights abuses have been recorded in the face of local resistance;
- and Thales, producer of missiles, rifles, armoured vehicles and military drones, which has been enmeshed in many corruption scandals over the years, including one in South Africa which led to an indictment of then Deputy President, now President, Jacob Zuma.
In addition,
the three big private water corporations, Suèz, Vivendi, and Veolia
have a strong showing on the French list of purchases. This might
stir up angry sentiments among those who oppose the privatization of
water, which has been spearheaded by these French companies.
Other
investments simply appear bizarre. Why, for instance, would public
entities invest in and hence subsidize a gambling company like
Novomatic, owned by billionaire Johan Graf and headquartered in
Austria? And why should public funds flow into the coffers of
producers of luxury goods, including LVMH, producer of Moët &
Chandon champagne, Hennessy cognac, and classy Louis Vuitton women’s
handbags, some of which carry price-tags in the thousands of euros?
What is a
good investment?
All this
begs the question: how are the official ECB investments picked? There
appear to be few criteria, and none of them are qualitative in
nature. The corporation must be incorporated in the Eurozone, it
cannot be a financial corporation (or a credit institution supervised
by the ECB), it cannot be a public entity, and the bond in question
to be backed up by a positive credit rating. Other than this, there
are no official guidelines in the public domain.
The
investments of the ECB are about 'quantitative easing' – making
money cheap and available to shore up the Eurozone economy.
Corporations can in some cases wait up to 31 years before they pay
back (maximum “maturity” is up to 31 years), but in no other
sense is the CSPP a long term development programme. And its effect
on the real economy is yet to be seen; whether the billions of euros
pumped into giant corporations actually lead to growth, jobs, or any
other positive for the Eurozone economy. Imagine if this €46
billion euro had been spent on, say, insulating homes. A rough
estimate shows that this eminently practical effort against climate
change could have paid for the insulation of 66 million houses and
led to tens of thousands of jobs.
Instead,
what is certain is that the large sums being spent are in effect a
public subsidy for corporations making climate change worse, while in
no discernible way helping ordinary people recover from the economic
crisis that still stalks Europe.
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