Friday 26/06/20

1. In MACROECONOMIC NEWS, the US puts pressure on the UK on Huawei and there’s back-pedalling on the digital tax
2. In FINANCIALS NEWS, Wirecard files for insolvency, WhatsApp Pay has a Brazil shocker
3. In RETAIL-RELATED NEWS, the Albertson’s IPO dents confidence, Macy’s cuts jobs, Nike falls short overall and UK rent disasters continue
4. In INDIVIDUAL COMPANY NEWS, Royal Mail announces management job losses and BA’s cabin crew get a 20% pay cut
5. AND FINALLY, I bring you a fascinating woman…

So America puts pressure on us over Huawei – and it seems to have worked on the digital tax…

US warns UK over Huawei plan to spend £1bn on chip facility (Financial Times, Nic Fildes, George Parker and Katrina Manson) shows that the Americans aren’t letting it lie as they again issued a warning about the security risks of using Huawei after the company was cleared to build a new £1bn chip facility just outside Cambridge. Huawei has committed to spend £1bn over the next five years to

establish the new facility – an investment that is much higher than had originally been forecast.

UK back-pedals on global digital tax after US threats (Daily Telegraph, Hannah Boland) shows that the UK is one of the countries offering to relax its intentions to impose a digital tax after the US threatened to slap tariffs on countries that went ahead with such plans. US Treasury Secretary Steven Mnuchin sent finance ministers of the UK, France, Italy and Spain a letter saying that a broader agreement was made more likely within the year following the climbdown. * SO WHAT? * This is all posturing and noise IMO. I would have thought that nothing will get concluded on this until at LEAST after the US presidential election as all energies go into Trump staying in office.

Wirecard goes under, WhatsApp Pay has a tough time in Brazil…

Wirecard collapses into insolvency (Financial Times, Dan McCrum, Olaf Storbeck, Stefania Palma and John Reed) shows how a company can go from hero to zero in double-quick time when it reports a $1.9bn hole in its balance sheet! It’s the first failure of a company on Germany’s Dax index and is bound to heap enormous pressure on the regulator, BaFin and the company’s auditors, EY. It is worth noting that the insolvency filing only applies (at the moment) to the holding company, which employs 200 of the overall 5,700 headcount. Hedge funds reap €1bn in a week from Wirecard collapse (Financial Times, Laurence Fletcher) shows that UK and US hedge funds like TCI and Marshall Wace have benefitted handsomely from Wirecard’s demise by shorting it. * SO WHAT? * The collapse of such a high profile company is a big deal and, as well as obviously being disastrous for Wirecard, it is also particularly bad for the auditors EY (the scale of their incompetence here is impressive) and the regulators, BaFin (who not only banned shorting of the stock last year, citing the company’s “importance for the economy”, it also filed a

criminal complaint against two FT journalists and a group of short-sellers, alleging potential market manipulation). What a mess!

In Brazil’s banks face pincer threat from big tech and fintech (Financial Times, Bryan Harris) we see that Facebook’s WhatsApp Pay has had an absolute shocker in Brazil only one week after launch! A rollout in Latin America’s biggest economy made a lot of sense as WhatsApp already has 120m users and loads of small retailers who could potentially benefit from the convenience of the payment system. However, what Facebook didn’t bank on was the banks – they complained and, only days later, the central bank surprised everyone by suspending the rollout saying that it could adversely affect “competition, efficiency and data privacy”. * SO WHAT? * When you consider that Brazil’s Itaú, Bradesco and Santander banks have a very cosy market enjoying rising profits, you can understand why they don’t want fintechs to crash the party and chip away at their margins. They are particularly nervous about fintech systems and amount of data they have on customers. At the moment, this is a temporary suspension but it has surprised everyone because the central bank has generally been supportive of “open banking” and encouraging fintechs. Frustrating for Facebook, but I don’t think it’s insurmountable.

The Albertson’s IPO disappoints, Macy’s announces cuts, Nike falls short and UK retailers fail to pay landlords..

Albertsons prices IPO below expectations in downsized deal (Wall Street Journal, Corrie Driesbusch and Jaewon Kang) marks a stumble in the feel-good US IPO market as America’s #2 grocery store (Kroger is #1) in terms of store numbers failed to ignite investor passion. This meant that it priced its IPO below expectations, so it’ll be interesting to see how it behaves when it floats on the New York Stock Exchange later today. The pressure will be on as, since the beginning of April, shares of newly-listed companies have gone up by 25% on average on their first day of trading, according to Dealogic.

The tough times continue in Macy’s to cut 3,900 corporate jobs (Wall Street Journal, Suzanne Kapner) as the struggling department store chain announced cuts of 3% of the workforce. This is in addition to the 2,000 cuts announced in February. It did say, however, that it would hire people back depending on how sales fare on the lifting of lockdown. Nike sales dragged down by store closures (Wall Street Journal, Khadeeja Safdar and Kimberly Chin) shows that Nike experienced a sales drop of 38% in the most recent quarter. Although online demand surged it

wasn’t enough to make up for sales lost by the closure of physical stores. As things stand, Nike says that about 85% of its stores were open in the US, 90% in the EMEA region and 65% in the Asia-Pac and LatAm regions – so you would have thought that things stand a decent chance of recovering over the next quarter.

Following on from recent threats by many high street retailers, Pret A Manger slashes rent payments to landlords (Financial Times, Alice Hancock) shows one outlet’s unattractive proposal to only pay 30% of its next rent bill, but the picture’s worse overall as UK retailers pay only 14% of £2.5bn rent due this week (The Guardian, Zoe Wood) shows that UK retailers as a whole are piling the pressure on their landlords by not paying rent. This appears to have been the last straw for one particularly indebted landlord in Shopping centre owner Intu on verge of collapse (Financial Times, George Hammond) which says that the company, which runs the Trafford Centre in Manchester and Lakeside in Essex, is set to enter administration as it failed to reach an agreement with lenders. * SO WHAT? * I suspect that the problem is going to get worse before it gets better. The problem is, it looks likely that landlords are going to have to sell off properties – but who is going to buy them? Physical shops were already doing badly before the coronavirus hit – and consumption isn’t exactly red-hot at the moment. A fire sale of retail property assets will abound for the cash-rich and very brave/ambitious IMO. One for the sovereign wealth funds, perhaps?

Royal Mail cuts jobs and BA’s cabin crew see a fall in wages…

It’s difficult to keep things light, given the news today and Royal Mail to cut 2,000 management roles (The Guardian, Kalyeena Makortoff) is unlikely to improve the mood. The company announced that 20% of its management roles will go between now and March 2021 in IT, finance, marketing and sales. Postal workers, however, will not be affected by the cuts. * SO WHAT? * The latest cuts follow years of falling profits and an overall failure to make up the fall in letter volumes with rising parcel sales as more people shop online. The coronavirus has accelerated those trends and the company will be making more cost cuts in order to

survive for the long term. One interesting thing to come out of this was that although frontline workers won’t be affected this time around, it is thought that increased future automation of parcel and letter processing will gradually reduce numbers in future. Tough times ahead.

BA staff have really been through the mill over the last few months and it seems that the prospects for those who have managed to hang onto their jobs isn’t great as BA cabin crew face losing fifth of pay (The Times, Graeme Paton) shows that the company told its 14,000 cabin crew that pay could be cut by up to 20%. Interestingly, about 40% of them on post-2010 contracts will actually get a pay rise, but others will see cuts. * SO WHAT? * Final numbers of job cuts are still being discussed but the future is not looking good. This is all just another example of how pretty much everyone and everything involved with the air travel industry is suffering because of the coronavirus.

…in other news…

I thought I’d end today on with a fascinating story about a South Korean lady in She kept her scissors going in South Korea’s postwar years. The coronavirus hasn’t stopped her (Los Angeles Times, Victoria Kim https://tinyurl.com/y9xwxpyt). I must admit, I probably chose this story to end on because I really really need a haircut 😂. I am booked in for July 7th 😁 YESSSSS