19 October/20 October 2019 ★ FTWeekend 11
COMPANIES. WEEK IN REVIEW
When it went public 20 years ago,
Goldman Sachs touted itself as “a
leading global investment banking and
securities firm”.
Results this week showed how much
has changed. In addition to its
traditional roles advising on mergers
and trading debt and equities,
Goldman is now venture capitalista
investing in the likes of Uber and
WeWork, a retail bank offering
accounts and short-term loans to
ordinary consumers, a credit card
issuer in partnership with Apple nd aa
software developer with a suite of
applications.
Some of Goldman’s investment
bankers fear this diffuse range of
activities dilutes the firm’s special
sauce. This week’s mediocre earnings
— hurt by WeWork’s plunging
valuation — bolster that argument.
But Goldman is not alone. Finance is
full of companies uncomfortable intheir own skins and trying to adopt
more fluid identities.
Blackstone, notionally a private
equity firm, today makes more money
from property. BlackRock, famous as
one of the world’s biggest owners of
public equities, is nowgetting into
private equity buyouts. Elliott
Management, an activist hedge fund,
has ended up owning afootball club,
AC Milan, and two bookstore chains,
Barnes & Noble and Waterstones.
Barriers are breaking down and
labels are fraying. This does not have to
mean disaster, though that can be the
result. The fateful decision of insurance
group AIG to plunge into repo
financing and credit derivatives led to
the biggest US government bailout of
the 2008 financial crisis.
Today, the key corrupted term is
“high yield” — a perverse description of
risky corporate debt that now might
yield only 3 or 4 per centas a result ofultra-loose monetary policy. It is this
yield-starved world that sends financial
companies roaming far and wide in a
hunt for returns.
The problems for Neil Woodford, the
UK’s best-known fund manager whose
business collapsed this week, began
after he loaded up his flagship £3bn
“equity income” fund with investments
that provided no income. About a fifth
of the portfolio was composed not of
the dividend-paying public stocks that
one would expect, but a rash of exotic
private businesses such as Industrial
Heat, a company whose nuclear cold
fusion dreams attracted actor Brad Pitt
— and the scepticism of physicists.
These instruments cannot be sold in
a hurry and, in June, when Woodford’s
customers wanted their money back,
the fund’s administrators suspended
withdrawals and then, this week,
decided to liquidate the assets, bringing
the end of the firm.This week’sGlobal Financial Stability
Report rom the IMF pointed tof
renewed risks from pension funds’
headlong rush into alternative assets.
The allocation to alternatives such as
property and private equity has risen
from just over 5 per cent in 2007 to
more than 20 per cent today.
The IMF warns of Woodford-like
runs on a grand scale when investors
rush to withdraw assets from such
“open-ended funds”, yet another
misnomer.
“Such runs could force fund
managers to engage in fire sales,
further depressing asset prices,
inflicting losses on other market
participants nd, in the extreme case,a
increasing the risk for the financial
system,” the economists warned.
Always read the label, but never
depend on it.[email protected]Finance groups face
risk of spreading
themselves too thin
Barriers are
breakingdown and
labels arefraying.
This doesnot have to
meandisaster,
though thatcan be the
resultThe Top Line
Tom
Braithwaite
Saudi Arabia’s oil minister Khalid Al
Falih tried to remove Amin Nasser
from his post at the head of the state
oil company earlier this year.
Since he was appointed chief
executive of Saudi Aramco in 2015,
Mr Nasser had played second fiddle
to Mr Falih, a high-profile technocrat
and theseemingly untouchable chief
of Saudi energy policy at home and
abroad.
Yet Mr Nasser had started to prove
an obstacle to Mr Falih’s attempts to
make use ofSaudi Aramco’s funds
and staff, prompting the attempt to
oust him.
Unexpectedly, though, it was Mr
Falih who wasfired as minister and
chairman of the company, and the
60-year-old Mr Nasser who survived.
Those survival skills are important.
Mr Nasser now has the nerve-racking
task of achieving the long-awaited
stock market flotation of Saudi
Aramco, sought by crown prince
Mohammed bin Salman. Prince
Mohammed wants a $2tn valuation,
which would make it the world’s
biggest public company.
After months of delays, the IPO
was due to be formally announced
this weekend — only to be postponed
once more.
Even without the pressure of
launching the IPO, Mr Nasser is
leading the kingdom’s largest revenue
generator at a time of unprecedented
change. It is expanding abroad,
investingin refining and chemicals
and, after decades of secrecy, this
year it revealed its earnings, disclosed
the state of the kingdom’s oilreserves, and raised $12bn in its first
international bond issue.
Even though Mr Nasser has seen off
Mr Falih,putting his own stamp on
Saudi Aramco will remain a struggle.
“Is Amin Nasser the intellectual
architect of everything they are doing
at Saudi Aramco or is he just a
steward, a safe pair of hands, being
asked to execute these things by
someone else?” said Jim Krane, at Rice
University’s Baker Institute.
At a time of greater public scrutiny,
Mr Nasser is caught between running
the world’s most profitable company
so it can rival international energy
majors, while shielding it from the
intrusions of the government,
including the whims of an
unpredictable young prince.
Mr Nasser — who joined Saudi
Aramco 38 years ago — rose to the
helm of the company after heading
the exploration and production
business and following a series of
operational roles. He is a petroleumengineer by training and from Khobar,
in the oil rich eastern province where
Saudi Aramco is headquartered.
The bespectacled and genial chief
executive is well-likedin the company
and respected by his peers abroad.
“He doesn’t project on a wide stage.
But when it comes to the running of
the company, he is a very good
manager,” said one person close to
Saudi Aramco.
He has championed the ush beyondp
oil exploration and production, sought
to create a performance-based culture
and developed a narrative about how
the company can thrive under
pressure to act on climate change.
When Prince Mohammed’s flotation
ambitions were first disclosed in 2016,
company executives including Mr
Nasser were caught by surprise. For a
long time, they opposed the exposure
any listing might bring. Ultimately,
they followed orders and used the
listing as a means to clean up the
company. They overhauledaccounts,streamlined operations and tried to
separate Saudi Aramco from the state
as much as possible, contributing to
soured relations with Mr Falih.
Saudi Aramco declined to comment
on the relationship between Mr Falih
and Mr Nasser. Mr Falih could not be
reached for comment.
Mr Nasser’s allies say theaftermath
of last month’s attacks on oil
infrastructurethat halved the
country’s production showcased his
talents. He quickly redirected
resources and instructed teams to
tackle all repair work at the same time,
rather than in sequence.
Others believe he is still in the
passenger seat, withYasir Al
Rumayyan, Saudi Aramco’s new
chairman and head of the Public
Investment Fund, now taking charge.
A close ally of Prince Mohammed, Mr
Rumayyan’s appointment only
underlined the PIF’s growingclout
over the company.
There are concerns that Saudi
Aramco will become acash cow or thef
sovereign wealth fund that is charged
with developing a string of
megaprojects, establishing new
industries and investing in
international companies such as Uber,
the car hailing app.
In his April pitch to investors ahead
of the bond issue, which was one of the
most oversubscribed offerings ever, Mr
Nasser said Saudi Aramco always
aspired to be “predictable, reliable and
consistent”. That might not always be
in his control.
“He is a technocrat and the ultimate
professional,” said a second person
close to the company. “But will he be
able to survive in a highly politicised
Aramco?”Anjli RavalSaudi Aramco survivor navigates choppy IPO waters
Nasser’s
allies saythe attacks
that halvedSaudi
productionshowcased
his talentsAmin Nasser: unexpectedly
weathered a shake-up that saw the
exit of high-profile chairman
Khalid Al Falih —Waleed Ali/ReutersUnder the hoodPressures mount but lenders are holding up
PwC windfall
3 ore than 1,000 former partners ofM PwC, the Big
Four accounting firm, shared a windfall of £100m
after a record year for profits. The payout, which was
more than 10 per cent of PwC UK’s total profit last
year, was made through the firm’s annuities system.
PwC does not disclose how much each ex-partner
receives. The average payment to the scheme’s 1,
memberswas£90,000intheyeartoJune30.3 Netflix issed itsm
forecast for subscrib-
ers for the second
quarter in a row, just
before new competi-
torsAppleandDisney
launch in the video-
streaming market.
Thecompany added
6.8m subscribers in
the three months
endinginSeptember,belowitsguidanceof7m.3 Juul Labs ill cease US online sales of its fruity-w
flavoured e-cigarette pods as it battles a “lack of
trust” and pressure from regulators over the health
effects of vaping. The move comes amid rising con-
cerns that e-cigarettes, nda n particulari their fla-
vouredversions,havefuelledunderagevaping.3 Lego s looking at whether it could offer a rentali
service to fans of itsplastic building bricks s con-a
sumers press for more environmentally friendly
products.TimBrooks,vice-presidentresponsiblefor
sustainability at thegroup, told an FT conference in
London on the future of manufacturing that the oy-t
makerwas“totallyopen”totheidea.Scottish distilleries have
taken to flying their whiskyinto the US before Trump’s
25% tariffs take effectA favourable factor for US banks is that they are in total control of their costs
As rates go down, the challenges
for banks rise.Of the big six US
banks to report this week,
JPMorganwas the only one that
increased revenues in any
significance this quarter.
Lower rates do not just hurt the
business of taking deposits and
making loans. Ithurts, for example,
Morgan Stanley’swealthdivision.
With another Fed ate cutr
expected before the year end, the
pressure is only going to increase.
How to offset it?
One way is to have a goodcard
business.Americans keep spending:
sales oncards were up 5 per cent or
more across the sector.Another
way is to get busy underwriting
new bond offerings. Consumers
should be refinancing specifically—
their mortgages. But it’s a mixed
bag. Fees on new mortgages are
offset by losses when borrowers
pre-pay on the mortgages that sit
on bank balance sheets.
The volatile rate environment is
an opportunity for bond traders,
and both JPMorgan and Morgan
Stanley had muscular quarters.
WeWork as put a scare into theh
industry. Banks fought hard to offer
financing and secure pole position
on what was expected to be a
banner IPO.Investment banking
revenues re in for a slowdown.a
Where is the good news? Well,
banks are in total control of one
thing: their costs.The costs keep
coming out, which explains why net
income growth at four of the six big
banks ismuch better than revenue
growth. The banks continue to buy
back stock, too.Robert Armstrong3 Nestlé, thebiggest food and drinks maker, pledged
to return $20bn to investors over the next three
years after completing the sale of its skincare busi-
ness. The share buyback, announced alongside posi-
tive third-quarter earnings, is the latest sign that the
turnroundeffortatthegroupisgatheringpace.3 Carlyle as instructed advisers to sell Addison Leeh
by early next year as the private equity firm seeks to
avoid a debt restructuring or extension at the taxi
business.Carlyle bought thegroup for about £300m
in 2013, just as ride-hailing apps such as Uber were
gaininginpopularity.3 MGM Resorts ivested $5bn of property, strikingd
two deals that will see landmark Las Vegas proper-
ties pass to the Blackstone Group and a business
partner of Donald Trump.Circus Circus is to be sold
for $825m to an affiliate oftycoon Phil Ruffin, who
helped the US president develop the Trump Interna-
tional hotel in Las Vegas. Meanwhile, Blackstone isleading a $4.25bn deal to acquire real estate assets of
theBellagioHotelandCasino.3 A French commercial court demanded that media
mogul Arnaud Lagardère publish the past decade of
annual accounts for his private holding company,
Lagardère Capital & Management, handing a victory
to activist hedge fund Amber Capital that has been
tryingtoforcehimtodoso.3 Scottish distilleries have taken to flying their
whiskyacrosstheAtlanticinarushtogetbottlesinto
the US before Donald Trump’s 25 per cent trade tar-
iffs take effect.Kilchoman, a distilleryin Islay, sent
3,000 bottles his month. While blended Scotch ist
exempt, single malts accounted for £344m worth, or
about a third, of whisky exportsto the US last year,
accordingtotheScotchWhiskyAssociation.Amin Nasser
Chief executive, Saudi AramcoBEST OF
BUSINESS
Sources: company reports; companies; Refinitivn a managed basis, which strips out tax benefits for some business linesNot
disclosedNot
disclosedCitigroupJPMorgan**Wells FargoGoldman SachsBank of AmericaMorgan StanleyNet income* FICCInvestment
bankingDivisional revenuesEquities RevenuePosts highest
third-quarter
revenues in
a decadeBest-ever third quarter for
investment banking feesMuted merger and trading
activity but better than
the bank had expected
last monthCaused in part from
losses from investments
in Uber, Avantor and
Tradeweb. It alsoon its WeWork stake.
But it remains top of the
global M&A league
tablesMade more than twice as much
revenue this quarter than as theNet income
misses expections£90,
Average payout
for 1,100 former
PwC partners
after record year$20bn
Investor return
pledged byNestlé
after sale of its
skincare businessCorporate
person in
the newsOCTOBER 19 2019 Section:Companies Time: 18/10/2019- 18:36 User:alistair.fraser Page Name:CONEWS2, Part,Page,Edition:USA, 11, 1