6 ★ FINANCIAL TIMES Monday26 August 2019
MARTIN ARNOLD— FRANKFURT
German banks grappling with the
burden of negative interest rates are
fighting back against a proposal to ban
them from passing on the costs to their
They warnit could unleash “dangerous
instability” on financial markets.
Markus Söder, the minister-president
of Bavaria, proposed the ban last week
in response to fears that banks could
start charging their depositors if, as
expected, the European Central Bank
cuts interest rates further into negative
territory next month. The idea is gain-
ing political traction in Berlin.
The ECBdeposit rate of minus 0.4 per
centcosts German banks €2.4bn a year.
Somelenders, including Hamburger
Sparkasse, the country’s biggest savings
bank,have started passing on some of
this cost to their largest depositors.
Olaf Scholz, Germany’s finance minis-
ter, said last week that officials would
examine the legal implications of block-
ing banks from levying“penalty inter-
est” on retail deposits of up to €100,000.
TheAssociation of German Banks has
hit back at the idea. “Legal prohibitions
are alien to the system, do not help the
customer any further and can ulti-
mately lead to dangerous instability on
the financial markets,” it said.
“In a market economy, credit institu-
tions— like all other merchants —cal-
culate their prices and fees on the basis
of the market environment on their own
responsibility,” said the body.
The spat highlights how the uncon-
ventional monetary policies of the ECB
have stirred up controversy in Ger-
many,a nation of saverswho are out-
raged at the idea of being charged to
deposit their spare cash.
German banks are hit the hardest in
Europe by negative interest rates
because they hold about a third of the
total excess deposits on which the ECB
levies negative rates. Some banks have
passed the coston to companies and
other financial institutions that hold
deposits with them. But most have not
done so for households, fearing that
consumers could move their money to a
cheaper rival or withdraw it as cash.
This has squeezed banks’ profit mar-
gins,especially those that rely on retail
deposits—adding to the woes ofthe
eurozone banking sector.
See Editorial Comment
lenders hit at
ARASH MASSOUDI, LEILA ABBOUD
AND JAVIER ESPINOZA— LONDON
JAB Holdings, the investment company
behind brands such as drinks company
Keurig Dr Pepper and sandwich chain
Pret A Manger, aims to raise as much as
$8bn from investors to further its multi-
year acquisition spree in the consumer
The company, which manages the for-
tune of Germany’s billionaire Reimann
family,had begun contacting investors,
including family offices, university
endowments and sovereign wealth
funds, about its latest fundraising, three
people informed on the plans said.
The cash will go into the JAB Con-
sumer Fund, which was founded in
2014 to invest alongside the holding
company, adding firepower to the fam-
ily’s money. JAB declined to comment.
The fresh infusionwould be used to
expand JAB’s presence inpet care and
veterinary clinics, two of the people
said. The market is the latest focus of
JAB’s consolidation efforts in the con-
sumer sector, where it hasdeployed
more than $50bn to buy businesses in
coffee, beverages, cosmetics and quick-
service restaurants in the past decade.
Already this year, JAB has bought
Compassion-First Pet Hospitalsfor
$1.2bn and a majority stake in National
Veterinary Associates in a deal valuing
the business at around $3.5bn.
The fundraising effort is the latest
sign that JAB is attempting to move on
after a tumultuous period. In January,
Bart Becht, one of its three managing
partners,quit after disagreements
about the pace of dealmaking and the
way operations were overseen at busi-
nesses JAB owns.
The Luxembourg-based investment
company wasrocked in March when the
Reimann family was forced to admitits
businesses abused slave labour during
the second world war and that thepatri-
arch and his son were bothenthusiastic
supporters of the Nazi party.
In response to the fallout and ques-
tions from investors, the Reimanns
promised a €10m charity donation and
later repurposed and renamed the fam-
ily foundation to fund projects com-
memorating victims of the Holocaust
and promoting democracy.
Created to deploy the Reimanns’
wealth, JAB has been expanding rapidly
since 2014 when it began raising money
from outside investors. At that time,
managing partnerPeter Harf, who has
been a confidantof the Reimanns for
decades, decided more firepower was
needed as JAB sought to diversify and
expand into the coffee business.
Mr Harf brought in two partners: Mr
Becht, the former chief executive of
Reckitt Benckiser, and Olivier Goudet,
an experienced executive from Mars, to
lead JAB on its deal spree.
Since then, the JAB Consumer Fund
has raised a total of $11.4bn in three fun-
draising rounds, from outside investors
including Singapore’s sovereign funds
GIC and Temasek, as well as wealthy
families including tech tycoons, the
Hewletts and the Packards. The latest
fundraising is the fourth time JAB has
turned to outside investors to raise
money for consumer industry deals.
JAB recently recruited David
Kamenetzky, a former executive at
Anheuser-Busch InBev, to serve as
chairman and liaise between the Rei-
manns and JAB’s managing partners.
His wife Anna-Lena Kamenetzky is
also a partner at JAB.
3 Focus on pet care and vet clinics
3 Effort to move on after stormy year
The Reimanns admitted in
March that its businesses
abused slave labour during
the second world war
Edward Luce‘The president has left himself just one tool to stop a recession — bullying Jay Powell’ yOPINION
ROBERT SMITH— LONDON
Italian debt markets are holding
their nerve in the face of thelatest
politicalcrisis to hit Rome.
The country’s ruling coalition may
have fallen apart but its government
bondsrallied last week, pushing the
10-year bond yield to a three-year low
just above 1.30 per cent.
This relative tranquility in the sov-
ereign debt market — in contrast to
thescenes in Italy’s Senate — is largely
due to expectations of further easing
from the European Central Bank.
Italy’s banks have a big reason to
hope this calm continues.
New data published by the Bank of
Italy on Friday showed that domestic
banks’ holdings of Italy’s sovereign
debt passed€280bnin June, hitting
levels last seen nearly three years ago.
Despite the efforts of EU policy-
makers to break thedoom loop
between eurozone countries and their
banking systems, Italian banks’hold-
ingsof their government’s bonds are
The travails ofItalian banks are
often cited as one of the biggest sys-
temic risks to the eurozone. But the
country’s lenders have madeheadway
in cleaning upbalance sheets, clearing
more than €100bn of bad debt from
their books over the past four years.
Despite this, Italian banks’ large
holdings of government debt means
that their funding costs are at the
mercy of fluctuations in sovereign
bond yields. UniCredit, Italy’s biggest
bank, has a seemingly healthy €47bn
buffer of common equity tier one cap-
ital, yet its holding of Italian sovereign
bonds is even bigger, at €53bn.
It is not surprisingthat, whenyields
soared last year, UniCredit’s implied
cost of fundingsurged. UniCredit’s
five-year creditdefault swaps —
derivatives that measure the per-
ceived riskiness of debt — began 2018
around50 basis points. By October,
they had passed the 200bp mark.
Rome crisis shrugged offInvestors in Italian
paper hold out for further ECB easing
Italian bank holdings of sovereign debt
Value of Italian government debt held by domestic
UniCredit’s debt costs at the mercy of swings
in bond yields
Spread of UniCredit Bank
five-year credit default
bond yield ()
RICHARD WATERS— SAN FRANCISCO
Fresh from a powerful three-year surge,
the software industry is entering a new
period of uncertainty. But for compa-
nies that look like they can stay the
course, Wall Street’s enthusiasm is
Shares inSalesforce, the leadingcloud
software company, surged more than 6
per cent late on Thursday after a quar-
terly earnings report that dispelledwor-
ries about flagging growth. Meanwhile,
tax and small business software com-
panyIntuit, which has seen its stock
market value jump nearly threefold
over the past four yearsto $71bn, fore-
cast another solid year of growth, boost-
ing its shares by another 5 per cent.
On the same day, however, shares in
data centre software companyVMware
fell back by more than 5 per cent as it
reduced its key licence revenue forecast
and unveiled the two largest acquisi-
tions in its history, for a combined
$4.8bn. And data analytics company
Splunk, which reported earnings the
day before, dropped 8 per cent on a dis-
appointing cash flow forecast.
The divergence points to a growing
separation in the expected fortunes of
leading software companies, as Wall
Street searches for those best placed to
ride out what many fear will be broader
downturn in IT as big customers pull in
With valuations in the sector looking
highly stretched after the long rally,
recent slips have been punished
severely. Shares, however, inZoom—
the video conferencing company that
debuted on Wall Street earlier this year
— currently change hands for nearly 50
times this year’s expected revenue, a
symptom ofsky-high expectationsfor
many of the new cloud-based players.
The software industry has just been
through “a once-in-20-years infrastruc-
ture cycle”, said Brad Zelnick, software
analyst at Credit Suisse in New York.
That has been capped by a surge in
sales over the past 12 months, he added,
driven by a number of factors, including
a US tax cut, a shift to “hybrid cloud”
platformsthat has seen many compa-
nies overhaul their basic IT infrastruc-
ture to combine their existing facilities
with new cloud services, and a new
urgency to accelerate their “digital
transformation” to make their busi-
nesses more agile.
After that burst of growth, year-on-
year comparisons are starting to look
challenging. According to Mr Zelnick,
infrastructure software companies like
VMwareare losing momentum com-
pared with cloud services that are seen
as critical to how businesses are reposi-
tioning themselves in the digital age.
Along with Adobe, Salesforce is “one
of the first two cars on the digital trans-
formation freight train”, he said.
Two things are complicating the picture
as the software industry faces more
uncertain times. One involves the busi-
ness model changes that the sector has
been going through as it adjusts to a new
reality in which cloud-based subscrip-
tion services come to represent a bigger
share of sales.
Splunk, for instance, said its disap-
pointing cash flow forecast reflected a
move to a new way of charging which
will see more payments delayed into
VMware, meanwhile, blamed a disap-
pointing licence revenue forecast for the
rest of this year on an accelerating shift
to subscriptions in part of its business,
which also results in more revenue
being deferred until later periods.
Perhaps inevitably, however, Wall
Street chose to see the disappointing
forecasts as partly a sign of the dark eco-
nomic clouds that are starting to gather.
Pointing to the economic uncertainty,
Pat Gelsinger, VMware’s chief executive
officer, conceded: “There is uncertainty,
and nobody is immune from that.”
The second factor complicating the
picture has been a rise in mergers and
acquisitions, as software companies
look for new avenues of growth.
Last week, VMware — which is major-
ity owned by Dell — announced two pur-
chases for a total of $4.8bn: security
companyCarbon Black, for $2.1bn, and
cloud tools developerPivotal, which
had been majority owned by Dell, for
According to Mr Gelsinger, the deals
reflect a shift to “hybrid cloud”. But
VMware’s purchases received a mixed
reception from Wall Street analysts,
who questioned why it was acquiring
the minority in Pivotal when Dell
already controlled the company, and
whether Carbon Black was too small a
company to make VMware a real player
in the security market.
“The organic growth is starting to
slow downso they’re starting to turn to
acquisitions,” said Daniel Elman, an
analyst at IT research firm Nucleus
Growth in Salesforce’s original sales
software fell to 13 per cent this quarter,
compared with the 22 per cent growth in
its newer customer service business.
‘Organic growth is starting to slow’
Acquisitions have also weighed on
Salesforce’s profit margins — contribut-
ing to long-run unease on Wall Street
about the company’s failure to boost
margins more as its business has grown.
Central to Wall Street’s optimism
about Salesforce, along with other soft-
ware companies that continue to trade
close to all-time highs, is a belief that
they will weather harder economic
times better than most other parts of the
The question now is whether this sort
of spending will continue to hold up in a
slowing economy — and how many
other software companies will prove
resilient when broader IT spending
takes a dip.
Wall Street eyes cloud to weather IT uncertainty
Sector seen as well placed to
ride economic downturn as
big customers rein in spending
Salesforce’s quarterly earnings eased
worries about flagging growth
UniCredit’s buffer is a
seemingly healthy €47bn,
yet its holding of Italian
sovereign bonds is €53bn
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