10 ★ FINANCIAL TIMES Tuesday10 March 2020
Northern Italy’s bankers have holed up
in their summer retreats early. Many
are working remotely to reduce
coronavirus contagion risks. But the
damage to Italy’s strongest regional
economy has already been done.
Travel is restricted and public
gatherings banned. Two steps forward
and one step back for Italian banks:
books of bad loans, painfully whittled
down, are set to bulge again.
The media term “lockdown”
exaggerates government curbs,
according to some Italians. Disruption
is still severe. Early forecasts of only
marginal economic shrinkage look too
optimistic. The north will take a heavy
hit from a manufacturing slowdown
and reduced tourism revenues.
Italian banks’ pain is worsenedby
thegovernment’s weak position. This
will struggle to deliver stimulus. State
debts are130 per cent of gross domestic
product, more than twiceGermany’s
figure. Italian 10-year bonds bore a risk
premium of more than 1 percentage
point over Bunds until February. That
spread has almost doubled.
Investors are selling off Italian bank
stocks partly as proxies for the
sovereign debt that lenders hold. The
securities are deemed risk-free only in
the fantasy world of central bankers.
The governmenthas decreed that
banks extend payment terms for
struggling businesses. Bad loans are set
to balloon again. Never mind that
UniCredit as halved non-performingh
exposures to 5 per cent across its
business since 2015.Intesa Sanpaolo,
Italy’s largest bank, has reduced non-
performing loans to just 3.6 per cent.
That difference is not the main
reason that UniCredit shares are down
40 per cent since their February peak,
compared with a 31 per cent drop in
Intesa’s. Milan’s Unicredit gets little
credit for geographic diversification.
Its Turin-based rival Intesa gets a
boost from broader activities. Neither
is a buy at 0.3 times and 0.6 times bookItaly/bad debts:
the unlucky countryvalue respectively. The only comfort in
this crisis is that it may allow them to
acquire smaller lenders at lower cost.Data is not the new crude oil. Think of
data as water, precious yet imperfectly
valued. Big tech groups such as
Facebook rab the headlines forg
aggregating so much of it. Yet those
purveying financial markets dataare
amassing equivalent clout. Regulators
worry investors are being ripped off.
Britain’s Financial Conduct Authority
launched review yesterday.a
The probe should prompt heart-
searching atLondon Stock ExchangeFCA/LSE:
blithe spigotsGroup. Shrewd acquisitions are turning
Gorgonzola Hall, as the bourse was
known in Victorian times, into a
vertically integrated data power house.
The $27bn proposed purchase of
Refinitiv s the latest flourish. It shouldi
add a raft of analytics and trading
statistics to an already strong hand in
indices and equity prices. The
transaction is already the subject of
automatic antitrust scrutiny.
One can see why the exchanges likes
the data business. Revenues are high
and rising, especially from the FTSE
Russell indices business. This should
benefit from the unstopabble growth of
passive investment. In contrast,
commissions from securities trading
are dropping. Combining data groups
can bring cost benefits, too.
The LSE thinks it can save more than£100m annually on technology alone
by combining with Refinitiv.
Brussels, for its part, worries its
regulations, such as the Mifid II assault
on equity research, have not brought
down data prices as much as expected.
Watchdogs, donning the periwig of
Adam Smith, expect these to reflect the
cost of production plus a “reasonable”
margin. LSE’s ebitda margins are
anything but reasonable: 56 per cent in
the past 12 months, only a tad down on
2016’s figure 59 per cent.
Financial data pour forth from the
markets every second. The spigots are
controlled by fewer companies. If the
FCA has questioned thehigh margins
of asset managers — forcing them to
declare their research costs — it is right
totakea tough stance on data providers
with sometimes twice the profitability.Jack Dorsey ill keep his job. Thew
question is how long will he want to.
Yesterday,Twitter nnounced that itsa
chief executive had struck a settlement
withElliott Management hat willt
avoid a forthcomingproxy fight.
Jesse Cohn, star technology investor
at the activist hedge fund, will join the
board. The biggest surprise is that Mr
Dorsey will have another minder.Silver
Lake, the pre-eminent technology
private equity firm, will buy a$1bn
stake n ti he social network. Its own
luminary,Egon Durban, will occupy a
seat in the boardroom.
Twitter agreed to a series of
governance changes, opening itself to
sharper oversight. It will create a
“management structure” committee
with five independent directors. A CEO
succession plan will be drawn up.
Other governance changes include
electingthe entire Twitter boardyearly.
Elliott has agreed not to run a proxy
fight this year. As per the arrangement,
it is free to do so in 2021. Mr Dorsey is
getting a way to bow out gracefully
before— especially if anyturnround
attempt oes notd take hold quickly.
Twitter has promiseda $2bn
buyback. Lex is gainst these. But thea
pain in the equity markets may allow
for an xception. Twitter will also sell ae
$1bn convertible bond to Silver Lake.
This comes with a slight coupon and
will offer the shares at a premium, so
far undisclosed.
Silver Lake kicked around the idea of
buying all of Twitter last year when its
fortunesslid. Such a deal could be even
more appetising now, amid the market
rout. Twitter’s current enterprise value
is just over $20bn.
Silver Lake has firepower. Plenty of
other big ticket investors have dry
powder of their own. It would not be
too onerous to put a buyout together.
For all the brevity of users’ messages,
Twitter has struggled for years to
articulate a snappy business mission.
In the current ugly bear market, public
market investors could welcome a bid
offer at an appropriate premium —
albeit in more than 280 characters.Twitter/Elliott:
peace in our timeThe energy markets are playing out
a war game. Russia and Saudi Arabia
are letting coronavirus drag down the
oil price unimpeded by output cuts.
The aim is to maim overleveraged US
shale producers. Brent crude prices
plunged 21 per cent yesterday. The
showdown foreshadows the scramble
for market share a low-carbon
economy will bring.
The bromance between Mohammed
bin Salman al-Saud, the kingdom’s
crown prince, and Russian peer
Vladimir Putin is on the rocks. Russia
fears ceding more business to US
producers. It rejected Saudi demands
for an Opec+ production cut of 1.1m
barrels per day. Instead, both are
expected to pump more.
reviously oil strategists predicted aP
1m-plus barrel-per-day gain in
consumption this year. Thanks to
coronavirus, that could now be zero.
Russia has more to lose in this
punch-up. It cannot easily offset any oil
price declines with more volume;
production is at peak levels. The Saudis
have capacity to increase by up to 1.3m
barrels per day. The kingdom’s oilfields
make money even with prices as low as
$13 per barrel, says Rystad Energy.
ussian drillers, such asR Rosneft,
have triple those costs. In its favour,
Russia assumes a low oil price of $
for its budget. A floating rouble, down
nearly a fifth this year, absorbs some of
the pain. Russia and Saudi Arabia
assume US shale crude producers will
drop tools soon. Understandably this
group of indebted drillers, less able to
source capital than five years ago, look
vulnerable. So do UK-listed explorers,
such asPremier Oil. Its shares
collapsed 54 per cent yesterday. It
looks deeply challenged.
ntegrated producers such asI Royal
Dutch Shell, whose shares yield 9 per
cent, should have an easier time. But
already investors have turned a cold
shoulder to the sector. Energy as a
proportion of the all-country MSCI
index has slid towards 20-year lows.
A wrestling match between two oil-
dependent economies previews the era
when demand collapses under pressure
from rising renewable energy output.
Russia will lose this game too. Saudi
Arabia’s production even has low costs
in emissions as well as money. Much of
Coronavirus/oil price:
endgame rehearsal
Russia’s oil is in inhospitable Siberia.
Without investment, supply will drop
and prices will rebound.
But each bounce will be smaller the
further the world has moved down the
track to phasing out hydrocarbons.CROSSWORD
No. 16,421 Set by MOO
JOTTER PAD
ACROSS
1 Woman in Congress almost
completely mad (6)
4 Philosopher makes old actress
sad (8)
10 Her Majesty feeding groups of
crows? They’ve got a taste for
blood (9)
11 Rudeness of reporter’s
informant (5)
12 Put phone back (4)
13 Water pipe repair ultimately
botched. Bugger! (10)
15 Horribly fizzy wine left in New
York (7)
16 Mistakes in Cicero’s writings?
(6)
19 Slippery Boris adopts American
line (6)
21 Punishment for article
skewering vice president (7)
23 Bloody Tory set up! (10)
25 Went to get some dope (4)
27 Model that’s drunk shows a bit
of leg (5)
28 Jam is better outside! (9)
29 A violent outburst on the way?
(4,4)
30 Judge’s son enthralled by
clowns (6)DOWN
1 Amateurish jewellery you wear
on your bottom? (8)
2 He fancied himself a handsome
chap in bed (9)
3 Garden delighted English
nurses (4)5 Boob half glimpsed, you say?
That’s awfully rude (7)
6 Aren’t rats dreadful round
university cafe? (10)
7 Time to get behind the
President (5)
8 Mountain range in South Africa?
I’m mistaken (6)
9 Cheerfulness of Italian put in
charge (6)
14 Huge fuss about Russian leader.
He’s got his eye on you! (3,7)
17 Argentine bananas, or some
other fruit? (9)
18 Hostility on ship’s uncalled for
(8)
20 Order German crime writer to
appear first (7)
21 Champion swimmer’s assistants
coming under pressure (6)
22 Zippy vehicle leaving behind
one old duck (6)
24 Nigerian coins new word for
song on journey north (5)
26 A bitter constituent (4))$,5*5281' %($ 5
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0 (66 ($575803(Solution 16,Lex on the web
For notes on today’s breaking
stories go towww.ft.com/lexTwitter: FTLex@
Aon s in the business of connectingi
companies with insurers to find the
best deals. The insurance broker
thinks it has landed its own bargain
with a $30bn all-share swoop on rival
Willis Towers Watson. Aon has
offered 1.08 of its shares for each of
its target. Shareholders in the two
companies should step back
sceptically from a deal launched
amid a market rout.
The deal comes nearly a year after
Aon abandoned plans to bid for
Willis. The transaction would bring
together the industry’s number two
and three to create the world’s
biggest insurance brokerage by
revenue. As such, the tie-up faces
antitrust challenges.
You cannot fault the opportunismof Aon bossGreg Case. The insurance
industry is under pressure from low
interest rates that are heading ever
lower. Brokers depend on
commissions, but are also feeling the
squeeze. Scaling up lets them pool
resources.Marsh & McLennan
cemented its position as the world’s
largest insurance broker last year when
it boughtJardine Lloyd Thompson
Group for £4.3bn. Willis was itself
formed from the 2015 merger between
Willis and Towers Watson.
Before yesterday’s collapse, a 30 per
cent rally in its share price over the
previous year had given Aon more deal
currency. Based on Friday’s closing
price, Aon was offering a 16 per cent
premium for Willis, or about half the
premium that Marsh paid to acquireJardine. That figure falls to just 6 per
cent after yesterday’s global market
rout wiped more than 17 per cent off
Aon shares.
The $800m of annual cost savings
that Aon is forecasting, worth over
$6bn taxed and capitalised, will easily
cover the premium.
As such, Aon is not paying much to
take 67 per cent of the new combined
company. Instead the challenge will
come in the form of integration.
Marsh has suffered a series of high-
profile staff losses at JLT since its
takeover.
Investors need to feel happy with
the deal, as well as top sales people.
They would be right to ask whether
terms should be revised to reflect the
crash in world markets.FT graphic Sources: Refinitiv; companiesFinancials
bn, Total revenueOperating incomeFree cash flow
Aon Willis Towers WatsonValuations
Price to forward earnings ratio AonWillis Towers WatsonShare prices
Rebased AonWillis Towers
WatsonS&P Financials indexAon/Willis: a bad day for a big deal
Insurer Aon has agreed to buy rival Willis Towers Watson. Combining the world’s second and third-largest
insurance brokers will create a business with sales of over $20bn. Aon’s paper is more highly valued, though
both companies’ shares have been hit hard by the market downturn.MARCH 10 2020 Section:FrontBack Time: 3/20209/ - 18:47 User: joe.russ Page Name:1BACK, Part,Page,Edition:EUR , 10, 1