Financial job losses
So Saudi Arabia has invested $3.5bn in Uber, the ride-hailing app, making it the largest single investment ever made in a private company. Talk of war chests and global expansion abounds. But perhaps what the above really implies is that Uber’s famous capital-light model is about to get much more capital intensive — especially as it moves towards rolling out the much hyped self-driving fleet. If that’s the case, investors need to pay attention. Along with capital intensity come limitations to the exponential growth rates investors have come to expect.
City AM has announced plans to turn the commercial model upside down by no longer relying just on journalists to report the news but also articles from a raft of other contributors – including corporate brand and advertising PR people — who would have direct access to the publication’s content management system. Here’s City AM owner Jens Thorpe’s rationale for the move, as reported by media consultant Ian Burrell in his column for The Drum:
M&S full-year profits are down 18 per cent, Dixons Carphone has raised its guidance, Royal Mail has avoided new price controls. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can sign up for the full newsletter here.
LandSec is cautious ahead of the Brexit vote, Vodafone expects earnings to blossom from Project Spring, Premier Foods is back in the black. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can sign up for the full newsletter here.
Morgan Stanley is a backer of the bank-led chat project, Symphony, crafted to woo trader talk back to a channel the banks can control. And here’s a Morgan Stanley built theory of the terminal business: We view the evolution of the industry in three stages: Phase 1 (now to 2018): High-Cost, Bundled Products Prevalent: Historically, the network effect has been a gating factor that led participants in the market data terminals industry to keep their existing high-cost terminals. Legacy terminals have comprehensive functionality, so customers only need to purchase one main product. Counterparties purchase the same product, so that business can transact through the terminals (i.e. through chat). Learning of specific shortcuts enhances stickiness. Changes to workflow is typically disruptive, which leads to high retention rates. Examples include Bloomberg and TRI’s Eikon product. Some current products in the market contain full-functionality, but do not have the network effect (FDS, CapIQ). Customers requiring less frequent interaction with outside parties (i.e. trading) may choose to use these products. The cost of the products is often lower than the premium legacy products with network effects, but remains high given switching costs and bundling of the underlying products. Phase 2 (2017 – 2019): Facilitating Escape:
This guest post from Manmohan Singh warns that while QE created excess reserves, removing those reserves from the system will have an important impact on the markets’ financial plumbing – and that will need to be incorporated in monetary policy decision making. Singh is the author of Collateral and Financial Plumbing and a senior economist at the IMF. Views expressed are his own and not of the IMF. ____ Expanded central bank balance sheets that silo sizeable holdings of US Treasuries, UK Gilts, Japanese Government Bonds (JGBs), German Bunds and other AAA eurozone collateral have placed central bankers in the midst of market plumbing. It’s now going to be very difficult for them to walk away from that role.
Arm profits are up 14 per cent, Moneysupermarket’s sales have increased 12 per cent, the FCA is warning fund managers against playing golf with financial advisors. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can sign up for the full newsletter here.
Back when the Basel III regulations were being debated in the wake of the crisis, it was common to hear dire warnings that rules limiting how much banks can borrow would constrict lending and lower real output. Even some who ostensibly support higher equity capital requirements think there are “trade-offs” between a safer financial system and economic growth. New research from Leonardo Gambacorta and Hyun Song Shin of the Bank for International Settlements suggests this thinking is backwards: “both the macro objective of unlocking bank lending and the supervisory objective of sound banks are better served when bank equity is high.”
Chip designer Arm has etched out a 24 per cent rise in profits, Tullow Oil has shrunk losses, Janet Yellen is to testify to Congress. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can sign up for the full newsletter here.
Stocks and corporate bonds haven’t been doing so well lately, while the market-implied probability of four Fed rate hikes by the end of this year — the median expectation of policymakers as of December — has plunged below 1 per cent (according to Bloomberg’s WIRP function, anyway). Reasonable people are now starting to wonder whether another downturn is imminent. Changes in prices could be signalling weakness yet to be captured by the official statistics on employment, output, and incomes. Even if you don’t believe asset prices contain useful information, it’s possible the hit to net wealth could encourage households and businesses to cut spending, thereby leading to recession and job losses.
Pearson is restructuring again as its education business continues to struggle, Royal Mail says it had a great Christmas delivering presents. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can sign up for the full newsletter here.
Amec Foster Wheeler’s chief executive is stepping down amid the oil rout, Wolseley’s CEO is retiring, Home Retail Group has knocked up a deal to sell DIY business Homebase for £340m. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can sign up for the full newsletter here.
Banks have been pulling out of direct dealings in physical commodity markets ever since the Senate Report on Wall Street Bank involvement in the market outed a spree of systemic risks, competitive advantages and general concerns last November. The question is, has this had any impact on commodity prices or even the ability of major commodity traders to get financing?
Securitisation has gotten a bad rap thanks to its association with dodgy underwriting during the bubble. Yet bundling loans originated by banks and selling them to investors in the capital markets could be just what is needed to boost the flagging euro area economy. This helps explains the European Central Bank’s recent announcement that it will be shopping for asset-backed securities (including mortgage bonds) and covered bonds starting in October.
Polled in March 2012, top academic economists overwhelmingly agreed that “freer trade improves productive efficiency and offers consumers better choices, and in the long run these gains are much larger than any effects on employment.” This academic consensus has penetrated popular opinion to the extent that some people believe increasing cross-border trade flows is unambiguously good for everyone. Likewise, there is a relatively common — and wrong — belief that the Hawley-Smoot tariffs were a significant factor in the severity of the Great Depression. We don’t want to suggest that trade is bad, but it is worth highlighting that the actual views of the experts who study these issues are much more nuanced than what the “pop internationalists” often spew out. For example, a new paper by Daron Acemoglu, David Autor, David Dorn, Gordon H Hanson, and Brendan Price estimates that the sharp increase in bilateral trade between China and the US cost somewhere between 2 and 2.4 million jobs between 1999 and 2011 — about 1 percent of the entire civilian population in 2011. Less than half of those jobs were in manufacturing sectors that directly competed with Chinese businesses.
Janet Yellen to see Jackson Hole return to wonky roots || StanChart’s NY anti-money laundering settlement draws UAE ire || Activist Edward Bramson steps up pressure to join Electra board || Co-op Bank slashes first-half losses || Markets
“Money,” we were once told, “is whatever you can use to pay your debts.” That definition is both precise and slippery, since much of what can be used as “money” during good times is prone to losing its money-ness precisely when the need to repay debt is greatest. Think of someone in the days before deposit insurance trying to pull cash from a failed bank to cover expenses after losing a job — or, for a more recent example, a hedge fund attempting to cover redemptions from panicked investors only to find that the prime broker responsible for holding its cash had blown up and the collateral it had provided was worthless. The only kinds of money that reliably hold their value are the ones explicitly backed by a strong government*. Unfortunately, there isn’t nearly enough available to satiate the total demand for cash. Financial firms fill the gap by creating products that often offer many of the conveniences of money but that lack government guarantees, thereby rendering them inherently unstable and prone to crises. These products are “mostly money” in the way that Westley was only “mostly dead.” They were also the topic of the “Workshop on the Risks of Wholesale Funding,” which we attended last week at the Federal Reserve Bank of New York.
Banco Espirito Santo has recently, and spectacularly, shown how many sins of the past lie beneath Portuguese corporate life. Also recently, readers of the Independent (and Matt Levine) would have come across what must be one of the most pointlessly complicated derivatives transactions ever — and also involving a Portuguese company.
Markets || Argentina defaults as last-minute talks fail || Sierra Leone declares Ebola virus public health emergency || SFO pays £1.5m to Robert Tchenguiz || Lloyds takes fresh £600m PPI hit || House price growth slows in July || Former Banco Espírito Santo board face legal action after losses || Balfour Beatty ends merger talks with Carillion:
RBS shares jump on better-than-expected trading update || BSkyB to pay up to £7.4bn to acquire European sister companies || Pearson sticks to profit targets || Lloyds to pay up to £300m Libor fines || Air Algerie airliner wreckage found in Mali || Heathrow records growth and looks for more via a third runway || Goldman bankers to Babble on their own chatroom || Amazon dives after losses blow out || Markets
Markets: Asian equity markets were in day two of a rebound as investors took an optimistic view that problems in Portugal’s banking sector won’t cause anything like the contagion seen in 2011. Mainland China markets pared losses after central bank data showed that all sorts of money was being thrown around to prop up growth. The M2 measure of money supply rose at an annual pace of 14.7 per cent – its quickest since August – versus forecasts at just 13.6 per cent. (FT’s Global Markets Overview)