The Week - UK (2020-09-12)

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12 September 2020 THE WEEK

Marketsstabilisedmidweekfollowing

theworstsell-offforUStechstockssince

March.Thetech-weightedNasdaqindex

fellmorethan10%fromitsrecenthigh,

takingitinto“correctionterritory”.

Tesla,theelectriccarmakerfell21%on

Tuesday–itsworsttradingdayever–

wipingmorethan$82bnfromits

marketcap.Buttraderstookheartthat

theresilienceofEuropeanequities,and

continuedcalminbondmarkets,was

apositivesignthatthepanichadn’t

spread.InBritain,attentionwas

focusedonsterling,whichfellsharply

onrenewedBrexitfearsthattheUK

couldendthetransitionperiodon

unfavourableWTOterms,throwing

$1trnoftradewiththeEUintodoubt.

There were encouraging signs of

recovery in China,which reported a

9.5% rise in exports in August–the

biggest monthly rise in almost 18

months. Beijing announced an initiative

to establish global standards on data

security, inabid to prevent “individual

countries” from “bullying” others and

“hunting” companies.

The Bank of England’s chief economist,

Andy Haldane, warned against

extending the Chancellor’sfurlough

scheme.But business leaders urged

Rishi Sunak to createasuccessor to the

scheme to protect jobs. HMRC reported

that as much as £3.5bn of furlough

funds could have been stolen by

fraudsters or paid in error. The

supermarketAsda,which is currently

owned by Walmart, seemed likely to fall

into private equity hands:Apollo Global

Managementand Lone Star Fundsare

reportedly preparing takeover offers.

CITY

Companies in the news

...and how they were assessed

Barclays/NatWest:mortgagemisery
Thestampdutyholiday,whichhashelped
sendUKhousepricestoarecordhigh,has
alsointensifieddemandformortgages.But
affordabledealsareinincreasinglyshort
supply,saidSamanthaPartingtoninthe
DailyMail.Homebuyerswerethisweek
“dealtanotherblow”whenbothBarclays
andNatWestintroducednewcapsonloan
sizes,heavilyrestrictinghowmuchtheywill
lend.Barclayshasreducedthemaximum
amountcustomerscanborrowfrom5.5
timesincometo4.49times;NatWest,meanwhile,hasquietlyslashedlendinglimitsfor
theself-employedtojust4.25timesearnings.Lendersareclearlyconcernedabout“the
futureoftheeconomy,theendoffurlough”and“thedirectionofhouseprices”,said
brokerRachelDixonofRHDixon.Sheexpectsmoretofollowsuit,hampering
customersalreadyfacingahostof“stringentnewrules”.Barclayswasforcedtoact
after“comingclosetobreachingaregulatorylimitonlendingtohigher-riskborrowers”,
saidtheFT.It’sameasureofhow“inundated”withapplicationsUKbankshavebeen
inrecentweeks.Brokerswereshockedtofindthenewrulesalsoapplytodealsalready
inthepipeline–puttingsomepurchases“at riskofcollapse”. Itwas,as AdrianAnderson
of Anderson Harrisnoted, an“unusuallybrutal”crackdown.

RoyalMail:welcomedelivery
Theboominonlineshoppingduringthe pandemic hasprovided amuch-neededtonic
forBritain’sformerpostalmonopoly,saidEmilyNicolleonCityAM.Shares inRoyal
Mailshotup bymorethan12% afteritsparcelbusinessesreported abonanzafirsthalf.
Revenueforthewholefiscal year couldbe£75m-£150m upyear-on-year,comparedwith
earlier predictionsof a“declineof£200m- £250m”.Theimprovement wassomarked
thatinvestorswere happy toignorethefactthatRoyal Mailisstillon schedule todeliver
a“materialloss”in 2020 – weighed downbyCovid-relatedcostsand“thechanging
natureof its business”. RoyalMaildelivered177 millionmoreparcelsin thefivemonths
to 3^0 August–up34%on the previousyear,saidJuliaKollewein The Guardian.At
thesametime,itdelivered 1.1 billion fewer letters.Theshiftisin linewiththe five-year
plan,laidoutbyformerCEORicoBack,tocreate“aninternationalparcel-ledbusiness”.
Butprogre sshasbeenhampered bydisputeswithunions.AnalystNicholasHyettof
Hargreaves Lansdownreckonsfurtherconfrontationis“probablyinevitable”, saidBBC
Business.It’sadiff icultcourse tosteer –madeeventrickierbecauseRoyalMailhasbeen
“operating withaninterimchairmanand CEO”sinceBack’ssurpriseexitin May.

Reliance/FutureGroup: bigplans
Thinktheretail sceneisconcentratedinBritain? Take alookat India,saidManishSingh
on TechCrunch.Thecountry’sbiggestshoppingchain,RelianceRetail,hasfound a
simplewayto buildonitsalrea dy-dominant position: acquiremost ofthesecond-largest.
Ifthe$3.4bndealtoac quire FutureGroupgoes through,Reliancewillcommand “one-
third” ofIndia’sbricks-and-mortar stores. It’s quiteacoupforIndia’srichestman,
Mukesh Ambani, whose wider Reliance Industriesgroupsellseverything frompetrol
to mobile phones–particularlyas Amazon also had itseye onFuture asaway into the
subcontinent’sretail market, whichispredicted toballoon in valuefrom $700bn last
year to $1.3trn by 2025,and where “e-commerce still accountsforjust3%of allsales”.
The defeat of the US “e-empire”is hardly surprising,said The Economist. The Indian
governmenthasbeenmaking it “harderfor foreignerstoown warehouses anddelivery
fleets” and hastightened restrictions during thepandemic.Reliance,which has emerged
as IndiaInc’s undisputedchampion, “facesnosuchobstacles”. Nowonder Western
companies–includingFacebook–are queuing upto invest initsJio digital platform.

CreditSuisse: spy scandal
Ayear ago,Switzerland’s second-largest bank wasrockedby acorporate espionage
scandal thatsawitsformerwealth-managementboss Iqbal Khan being “chased through
the streets of Zurich” byprivate detectives,said Lucy Burton inTheDaily Telegraph. It
was an “unwelcomedistraction” forabankthatoperates inaworldwhere “discretion
is everything”–and Credit Suissehoped CEOTidjaneThiam’sresignationwould draw
alineunder the affai r. Nosuch luck. Lastweek,the Swissregulator, Finma, openedan
enforcementcase to“dig deeper”intothe affair, saying it wouldinvestigatethe extent to
which management failuresfacilitated the snooping.Skeletons arealready falling out of
cupboards. According to theSwisspaper SonntagsZeitung, two further instances of staff
surveillance have now cometolight, said Reuters.This saga hasmuch further torun.

Sugar high

“People will eat horseshit if it has

enough icing on it,” observed the

founder of Associated British Foods,

George Weston, 130 years ago. His great

grandson and namesake–the current

CEO –has every reason to be grateful

for the observation, says Patrick Hosking

in The Times. ABF’s “unsung sugar

division” is on course to triple profits to

£100m this year–sweet eningthe pill of

a“big cashflow hit” to more exciting

parts of the business, such as the

“Covid-battered” clothing chain Primark.

Family businesses often get stick for

their “reluctance to part with legacy

assets”. But that conservatism partly

explains why, “four generations later”,

the Westons remain firmly in charge.

Sevendaysin the

SquareMile