14 ★ FINANCIAL TIMES Thursday8 August 2019COMPANIES
DAVID CROW— BANKING EDITORLarge European banks lined upyester-
day to warn that the low interest rate
environment would hurt their earnings,
wiping hundreds of millions of euros off
their market valuations.
UniCredit, Italy’s second-largest bank
by market capitalisation, cut its revenue
forecast for this year to €18.7bn from
€19bn due to what chief executiveJean
Pierre Mustierdescribed as the “pre-vailing environment, with rates
expected to be lower for much longer”.
Commerzbank, the German lender,
warned that its profit target for 2019
was now looking “significantly more
ambitious”, noting that leading central
banks had “tempered their interest
rate... expectations” because of a
darkening economic outlook.
Meanwhile,ABN Amro, the Dutch
bank, said that low interest rates would
hit its net interest income, the amount it
earns on lending minus its financing
costs, owing to lower deposit margins.
“The second-quarter earnings season
for European banks has been largely
disappointing,” said Ronit Ghose, ananalyst at Citi. “Many banks have
undershot revenue forecasts. Bearish
outlook guidance, especially on net
interest income, has reflected an
increasingly negative interest rate
environment.”
The warningsunderscored how glo-
bal banks are scrambling to position
their businesses for a “lower for longer”
interest rate environment.
Central banks in Europe, the US and
the UK have either cut or are poised to
cut interest ratesto support the global
economy at a time of escalating geopo-
litical turmoil, including trade tensions
between China and the West and the
growing prospect of a hard Brexit.Central bankers in India, Thailand
and New Zealand also cut interest rates
by more than markets had expected
yesterday in a bid to boost growth in
their economies.Shares in the trio of European lenders
— which all reported first-half results
yesterday — were hit, with UniCredit
and Commerzbank closing5 per centand 6 per cent lower respectively, while
ABN regained ground to close up 0.3 per
cent.
Record-low interest rates are already
weighing on banks’ profits as they have
been forced to lower borrowing charges
and in some cases pay to store money at
central banks, without a similar reduc-
tion in the rates they pay to savers.
Until recently, many eurozone lend-
ers had been hoping that the European
Central Bank would increaserates for
the first time in half a decade, leading
to a recovery in the income they gener-
ate by lending.
But now the ECB is expected to cut its
deposit rate from minus 0.4 per cent tominus 0.5 per cent next month — with
some economists predicting that the
central bank will go further in loosening
monetary policy.
“As client rates are close to zero, it will
be increasingly difficult to offset the
decline and over time margin pressure
will increase further,” warnedKees van
Dijkhuizen, the outgoing chief executive
of ABN.
The warnings from some of Europe’s
largest lenders echoedsimilar concerns
at banks in the US, where the Federal
Reserve cut interest rates last month. In
the UK, the Bank of England is expected
to do the same.
See LexBanks
Low interest rates weigh on trio of European lenders
UniCredit, Commerzbank
and ABN Amro flag up
weaker earnings outlookHENRY SANDERSON AND
DAVID SHEPPARDAsGlencore’s chief executiveIvan
Glasenbergscrambles to reassure inves-
tors that a poor first half set of results
will not be repeated, the spotlight has
fallen on a veteran coal miner to tame
the company’s once swashbuckling cul-
ture and put it back on track.
Peter Freyberg, a 60-year-old execu-
tive from South Africa who has spent
most of his career in coal, will be key to
reversing a drop in earnings to their low-
est level in three years and positioning
the miner to take advantage of growing
demand for metals from the shift to
electric cars.
It will not be an easy task. Glencore’s
prized mines in Africa, which it had
hoped would be a cash cow as the move
towards electrified transport and bat-
teries boost demand for cobalt, nickel
and copper, have stumbled, dragging
down the company’s results.
The miner and trading house posted
adjusted earnings before interest, tax,
depreciation and amortisation — the
measure most closely tracked by ana-
lysts — of $5.6bn in the half year to June,
downalmost a third on the same period
last year. Net income, which was hit by a
number of writedowns, fell 92 per cent
to $226m.
Mr Freyberg, who is known as a “min-ers’ miner” according to peers, has been
tasked with overseeing all of the com-
pany’s 150 industrial operations since
December, with a mandate to lower
costs and improve performance.
“He makes us all feel comfortable,”
said Mr Glasenberg, who has placed his
faith in Mr Freyberg at a time when
some of the close-knit band of traders,
who once surrounded the chief execu-
tive, have left the company.
Mr Freyberg’s immediate focus will
be turning round Glencore’s two key
copper and cobalt mines in the Demo-
cratic Republic of Congo, which have
struggled with lower metal prices, as
well as higher taxes under a new mining
code brought in by the Congo’s former
president Joseph Kabila, last year.
Analysts said the company would
need to move fast as the mines were
meant to be a key part of the company’s
pitch to investors rather than a drag on
results. “The market may start to lose
patience as the record at these assets has
been poor,” said Christopher LaFemina
at Jefferies.
Glencore said the company would
shutits Mutanda mine for at least two
years from the end of 2019 due to the
impact of lower cobalt prices as well as
the new mining code. At the same time
Glencore hopes to increase production
at its Katanga mine, which has suffered
from maintenance and operational
problems. More than 40 miners who
had invaded the sitediedin June follow-
ing the collapse of part of a pit they were
working on.
The company’s African copper busi-
ness, which also includes the Mopanicopper mine in Zambia, reported a loss
of $315m in the first half of the year.
Mr Freyberg said he wanted to turn
the division from one set to consume
more than $1bn in cash this year, to one
generating over $1.6bn in earnings by- He described his job at Glencore
as making sure the company could
“deliver what we say we were going to
deliver in a reliable fashion”.
Some analysts believe Mr Freyberg’s
elevation is partly designed to reassure
investors unnerved by regulatory inves-
tigations into the company, which tradi-
tionally has had a reputation for being
for being run by risk-hungry traders
rather than engineers. Last year Cana-
dian regulators accused Glencore’s
Katanga subsidiary of misstating its
results and failing to disclose the full
extent of its relationship with Dan Ger-
tler, a billionaire businessman sanc-
tioned by the US.
Telis Mistakidis, Glencore’s former
head of copper, was fined $1.8m by the
Ontario Securities Commission for issu-
ingmisleading financial statements,
shortly before he left the company.
Glencore also faces a US Department
of Justice investigation into its behav-
iour in numerous developing countries,
including the DRC.
Mr Freyberg said yesterday Katanga
would be restructured and corporate
governance improved and he had sent
some of the company’s top mining spe-
cialists to the DRC.
There are also plans to build a secureperimeter fence around the sprawling
mine to prevent further intrusions from
local miners. Glencore also wants to
improve its own safety performance
after 11 employee deaths at its opera-
tions so far in 2019.
“Our safety performance needs to be
addressed and addressed very quickly,”
said Mr Freyberg.
Paul Gait, an analyst at Bernstein, said
Mr Freyberg’s performance would now
be critical in proving Glencore had
grown beyond its sharp-elbowed trad-
ing roots. “He’s got the experience,” Mr
Gait said. “[But] if they don’t get this
right, those who say Glencore is a bunch
of traders who don’t know how to run
mining assets will be in the ascendancy.”
See LexMining.Industrial operations
Glencore puts faith
in coal veteran
Freyberg to restore
its fortunes
Executive is key to the group
benefiting from demand for
metals in shift to electric cars
Glencore has been hit hard
by the tumbling cobalt price
Standard grade ( /lb)Sources: Fastmarkets; company Aug AugFirst-half performance
bn - Adjusted
ebitdaNet
income‘As client rates are
close to zero, it will be
increasingly difficult tooffset the decline’
Freyberg
says his jobis making
sure thecompany
can ‘deliver
what we saywe were
going todeliver’
Glencore hopes
to increase
production at its
Katanga mine,
which has
suffered from
maintenance
and operational
problems
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