10 ★ FINANCIAL TIMES Friday21 February 2020
Restaurants, hotels and offices stand
empty across China. Tens of millions
are confined at home as coronavirus
spreads. China’s central bank has cut
its benchmark lending rate. Big lenders
are expected to loosen credit too, even
as they face a surge of up to$1.1tnin
questionable loans.
S&P predicts non-performing loans
will rise to four times the figure for last
year on the balance sheets of
commercial banks. The total will rise if
the epidemic is worse than forecast.
Before the outbreak, NPLs hovered
at less than 2 per cent of total loans at
the six biggest state-owned lenders,
which includeICBCand BoCom. As a
group they trade at about half of book
value, near record lows. Low pricing
and state ownership gave their shares
an aura of safety, even as lower rates
eroded returns.
State control now presents the
biggest risk. Regulators want banks to
tolerate bad loans even as they extend
fresh credit. The easures can go onlym
so far in propping up faltering
businesses. More than 30m smaller
businesses, which account for almost a
third of China’s gross domestic
product, run on tight margins and rely
heavily on bank funding. Many would
run out of cashin a couple of months if
closures continued.
The recent jump in number of
infections implies that a quick recovery
is unlikely. Almost 4,000 small lenders
service these businesses. They were
already in poor financial shape. The
People’s Bank of China deemed 13 per
cent to be at “high risk” last year.
China’s big lenders, next in line to
bail them out, will not be able to avoid
a dent in profits and balance sheets.
Rescuing a single regional bank in
August cost ICBC, China’s largest
lender, a 5 per cent drop in its shares.
An 8 per cent drop in the stock since
the start of the outbreak is just the start
of declines in the sector. HSBC values
its 20 per cent BoCom stake at moreChina banks/coronavirus:
worse to comethan twice the current share price.
Time for brokerage bulls to recognise
the growing downside.Get money calm, murmurs the
Moneysupermarket logan. If only. Thes
UK price comparison website has lost
nearly a fifth of its market value since
July. Tuesday’s news that the boss plans
to leave,two years after launching a
new strategy, strained nerves further.
The sharesbounced back n bettero
than expected 2019 resultsyesterday.
“Money calm”, whatever that is,
remains unwarranted.
Moneysupermarket was able toMoneysupermarket:
compare the mark-uptrumpet a return to profit growth. But
its gross margin fell two percentage
points to 69 per cent.It pioneered
online shopping for insurance and the
like in the UK hen rivals were stillw
distributing printed lists. In recent
years, Moneysupermarket has been
coping with the challenges of maturity.
One ironic problem is that
Moneysupermarket’s insurance service
sli d downsearch rankings when Google
changed its algorithms last year. The
public’s growing reliance on mobile
phones was unhelpful, too, pushing
gross margins down1 percentage point.
Desktop computer users are more
likely to seal a deal and less likely to
arrive on the site through paid search.
Self-help measures are making a
difference. Cost control is tight.
Personalised dashboards, with alertsand credit scores, are making the site
stickier. An automated service for
switching energy suppliers, which is
about to be launched, could boost
profits, too. But it may face
competition from banking apps with
an integrated switching function.
Evenwith a 13 per cent jump
yesterday, the shares, priced at 18
times forward earnings, are in line with
the 10-year average and rival
GoCompare. Over 10 years, the shares
have produced annual returns of some
23 per cent. They have gone sideways
since 2016. Outgoing bossMark Lewis
insists that Moneysupermarket is in
great shape. But his decision to pursue
his career “in a new direction” is
unsettling. Investors should heed what
the company preaches to consumers:
loyalty does not always pay.Morgan Stanley shocked Wall Street in
1997 by buyingDean Witter. Branches
of the retail brokerage could even be
found inSears, a downmarket
department store chain. The company
proved an awkward fit withMorgan
Stanley, a smart “white shoe” business.
Whatever the prestige involved,
there are only so many mergers to
structure and flotations to lead.
Yesterday organ StanleyM ent evenw
more downscale, acquiring online
brokerETradefor $13bn. The
investment bank has long been a
premier brand. But institutional
banking has matured and is hamstrung
by regulation. The mass market has
become the main growth avenue for
legacy investment banks.
According to Morgan Stanley, nearly
60 per cent of its profit will come from
its wealth and fund management units
after the deal. That is up from a quarter
a decade ago and reflects the previous
acquisition of brokerSmith Barney nda
now the ETrade business.
The recurring cash flows generated
by wealth management are not as
glamorous as swashbuckling bond
trading or big-ticket M&A work. They,
too, have drawbacks. ETrade’s future as
a standalone company looked perilous.
Trading commissions have steadily
been approaching zero. In November,
rivalTD Ameritrade as snapped upw
by Charles Schwab.
In the hands of Morgan Stanley,
ETrade looks more compelling. The
brokerage has more than 5m retail
clients. Its foray into administering
corporate stock plans bulks up a
similar push by Morgan Stanley.
Importantly, ETrade’s cash balance
gives the Wall Street bank a source of
cheaper funding. It estimates that
adding ETrade will lower its cost of
funds from 105 basis points to 89bp,
$150m of annual savings in aggregate.
The deal is expensive, unlike
ETrade’s client services.But for chief
Jamie Gorman t is a strategic gamble:i
the only way to expand is to chase
customers who were once below
Morgan Stanley’s notice.Morgan Stanley/ETrade:
hoi polloi ahoyThere are misfortunes worse than
losing a popular chief. INGshares
bounced on newsRalph Hamers si
leaving to runUBS. Thebiggest Dutch
bank had cancelled a bond launch on
Wednesday pending a statement, but
not, as it transpired,on more money-
laundering issues. Though ING
investors were relieved by the real
story,the appointment will bemuse
some UBS shareholders and worry
someexecutives.
ING is primarily a retail lender. UBS
is a universal bank that has pivoted
from investment banking to wealth
management. A switch that nce wono
applause recently lost momentum.
ChiefSergio Ermotti’s loyal lieutenants
can expect a shake-up, particularly if
he does not become chairman, a move
some investors would resent.
Since the tough, urbane Swiss
national took full charge in November
2011, UBS has generated a shareholder
return of more than 51 per cent, well
ahead of the MSCI European Banks
index. The market rewarded UBS with
a valuation premium. Its price to
tangible book ratio surged from a
quarter below par to 1.4 times by early
2018, well aboveEuropean peers. But
wealth management has become a
crowded trade, even as the prospects of
the Chinese economy that drives the
sector have weakened.
The task of Mr Hamers will be to
reclaim UBS’s status as a bank resistant
to Europe’smalaise. An attack on high
costs is inevitable. Net profit margins
in its ultra and high net worth wealth
management units have declined
steadily over the past eight quarters,
says Barclays. Worse, investment
banking net profits halved last year.
Mr Hamers has a reputation for
eschewing such perks as private jets.
Austerity — even for environmental
reasons — may play badly with well-
heeled UBS bankers, including
recently-hiredIqbal Khan romf Credit
Suisse. Mr Hamers has been a ritic ofc
his country’s strict pay policies, having
once had a rise blocked by the prime
minister. He is likely to be paidmore at
UBS, in return for slimming hefty
overheads, banker salaries included.
Mr Hamers needs to arrest the drift
afflicting Switzerland’s biggest bank.
UBS does not need a new strategy —
UBS/Ralph Hamers:
the surprise party
just to pursue the old one more crisply.
A full turnround is meant to take three
years. Give Mr Hamers a year and six
months from his November
commencement date to show results.CROSSWORD
No. 16,406 Set by ARTEXLEN
JOTTER PAD
ACROSS
1 Preserving expert’s hard
evidence (7,3)
6 Bathe disheartened tramp (4)
9 Film about an independent dog
beautician (10)
10 Prompt for start of debate (4)
12 Media people ordered best cars
to cover route (12)
15 Pressure on fragile candidate
(9)
17 Lodge in middle of America
unopened (5)
18 Greek character half-cut with
another (5)
19 One perusing books and article
about Italy’s theatres (9)
20 Ability to ride’s hard with
leaderless Viking boat (12)
24 Chilly swimmer crossing lake (4)
25 Phone to receive idea of part of
company (10)
26 Oddly shady use for reports (4)
27 Isolated drunk staggered
around Spain (10)
DOWN
1 Considerable problem discussed
(4)
2 Reason pen’s useless making
pig cry (4)
3 Put away cider near cat going
wild (12)
4 Copper overseas turned up a
haul (5)
5 Iffy going round city centre of
Cardiff without protection (9)7 They annoy and upset rubbish
teachers (10)
8 Uninspired novel read in Sept
(10)
11 Working out and working out,
neglecting runs after poor races
(12)
13 Unannounced reviews of
location Europeans reported (4-
6)
14 Using intelligence from faith
teaching, bishop in church
meeting (10)
16 Tots gathering at one end of
house play up (9)
21 Maybe sportsman’s captain not
very quiet (5)
22 One place to study temperature
(4)
23 Lost claret in part of Wimbledon
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For notes on today’s breaking
stories go to http://www.ft.com/lexTwitter: FTLex@
Tech is not a union town. Well-paid
engineers nourished by free health
food andAyn Rand havehad little
interest in collective bargaining. A
new union at crowdfunding business
Kickstarter nd a walkout ata Oracle
will not change that.
According to online database
Collective Actions in Tech,
Kickstarter workers are the first
group of full-time tech employeesto
vote to unionise. Their colleagues at
online food delivery serviceInstacart
voted in favour this month. Cafeteria
workers atGoogle id so in 2019.d
Tech workers are growingactive.
Google no longer provides artificial
intelligence for aPentagondrone
programmeafter 3,100 workers
signed an open letter against it. OnWednesday, more than 2,000 Oracle
workers signed a petition against
founderLarry Ellison’s campaign
fundraiser for Donald Trump.
Microsoft, Amazon nda Salesforce
employees have all spoken out against
contracts they believe are unethical.
If tech unionises, employers will have
to pay workers more. Economists at
Columbia University found that union
workers earn about 20 per cent more
than non-union workers in similar
jobs, the lowest-paid gaining the most.
Yet Kickstarter’s outlier status means
it is unlikely to herald an industrywide
change. It is small, based in New York
and a public benefitcorporationthat
has vowed never to go public. It pays
executives less than five times the
average employee salary. The averageacross US companies is 70 times,
according to salary information
website PayScale.
As tech has ballooned, union
membership has shrunk in parallel
with heavy industry. The unionised
private sector workforcehas fallen
from more than a third of the total in
1979 to 10 per cent, according to the
Department of Labor.
“Right-to-work” laws that enable
workers to opt out of uniondues have
been passed in 28 states. Worker
interests are divided between highly
paid employees who want companies
to mirror their ethics and those who
want better pay and benefits. Unless
the two sides align, unions will
remain at the margins of America’s
fastest-growing sector.FT graphic Sources: OECD; BLSWorkers’ rights
lowestUS Canada UK Japan Korea Spain MexicoGermanyProtection of permanent workers temporary workersUS union membership
As of wage and salary employeesHourly earnings by occupation
per hour, medianAll occupationsSoftware
developers
Tech/trade unions: in need of a Kickstart
US tech workers are unionising and staging walkouts. The US has some of the lowest levels of protection for
workers, and union membership has fallen sharply in recent decades, butworkers in tech re some of thea
best paid on average. Hourly earnings in the sector are almost three times that of the average US employee.FEBRUARY 21 2020 Section:FrontBack Time: 20/2/2020- 18:56 User:joe.russ Page Name:1BACK, Part,Page,Edition:EUR, 10, 1