Monday 07/10/19

  1. In MACRO & MARKETS NEWS, French pension reforms get a rough ride and the IPO market takes stock after the WeWork debacle
  2. In BANKS NEWS, HSBC plans to cut 10,000 jobs and digital banks fight to compete
  3. In MISCELLANEOUS NEWS, Unilever vows to cut new plastic usage, the Thomas Cook aftershock continues and vaping’s black market complicates oversight
  4. In OTHER NEWS, I bring you hangover hacks and Brussels sprouts crisps…



So Macron’s pension reforms prove to be unpopular and the IPO market takes a breath after the WeWork wobble…

Emmanuel Macron’s pensions reform meets chorus of disapproval (Financial Times, Victor Mallet) shows that French president Macron is meeting with resistance to his attempts at merging 42 pension schemes into one points-based national pension scheme that makes it easier to switch professions. This is an incredibly complex undertaking and some say that it will be tough to win people over to what Macron feels will be his legacy. * SO WHAT? * Sceptics say that even Macron won’t be able to push his major reforms through as resistance builds, but TBH no-one was expecting an easy ride. He originally promised to complete this reform much earlier in his presidency but he is clearly trying the “slowly, slowly catchy monkey” approach given the lengthy national consultation he has embarked on in order to calm public opinion. I think this was always going to be one of the most difficult reforms to make, but if he can get through this unscathed and with his support intact, it really will be a significant achievement. In the meantime, he faces a boatload of strikes.

In Fear overtakes greed in IPO market after WeWork debacle (Wall Street Journal, Maureen Farrell) we see that confidence in the until-recently red-hot IPO market has taken a bit of a dent as investors increasingly give the cold shoulder to flotations of start-ups with massive losses and inflated valuations. Despite all the hype and some initial success from the likes of Pinterest and Zoom Video Communications, IPO stock performance has been the worst it’s been since at least 1995, according to a report by Goldman Sachs, and tricky markets have meant that we are heading into what it usually a busy time of year for flotations with not that much to get excited about. Potential candidates for flotation are happy at the moment to remain on the sidelines, waiting for market conditions and sentiment to improve. * SO WHAT? * After a strong start, many had predicted 2019 to be a bumper year for market flotations but the subsequent performance of companies such as Uber and Lyft and the shelving of WeWork’s IPO has brought into focus the perils of investing in something that is massively loss-making. According to Dealogic, 2019 will have been the fourth busiest year for IPOs behind 1999, 2000 and 2014 and if current sluggish momentum continues, it could get worse. All of this will be bad news for investment banks who earn fat advisory fees on these deals – and the nascent trend for well-known names such as Spotify and Slack floating via the “direct listing” method, which is expected to continue with Airbnb next year (and which negates the need for a large chunk of these fees), may also limit advisors’ fee bonanza.



HSBC gets the axe out and digital banks fight for supremacy…

HSBC to axe 10,000 jobs in cost-cutting drive (Financial Times, David Crow) signals an intent by the bank to reduce headcount (it currently employs around 238,000) as it continues to up its efforts on cost-cutting. It sounds like Europe – and those in senior positions – are going to suffer most and will come on top of the 4,700 redundancies already announced. More detail could be forthcoming in the company’s third-quarter results later this month. * SO WHAT? * Given that the company makes 80% of its profits in Asia and the tough business environment for banks generally, this is hardly surprising. The previous CEO was criticised for avoiding deep staff cuts, but it seems that his interim successor Noel Quinn doesn’t have the same qualms.

Race to become UK digital banking leader hots up (Financial Times, Nicholas Megaw) is an interesting article that takes a look at how digital banks are doing at the moment as they continue to take the fight to traditional

banks and other challenger banks alike. Revolut competes in the same bracket as Monzo and Starling which offer app-based current accounts while Atom and Tandem focus on mortgages and credit cards. However, the digital banks, along with challengers such as Tesco and Metro Bank, have had a tough time breaking the dominance of the established players and many are starting to think that there just isn’t enough business to go around. The good news is that the digital banks named above have said that they no longer subsidise individual customers, meaning that they now make more revenue from servicing the accounts than running them, but investment and marketing costs are expected to continue rising. This means that they will need to raise more money from investors. * SO WHAT? * Let’s not forget that these digital banks are less than five years old, so they’ve done remarkably well to get this far. However, it would seem that they need cash to shore up their respective balance sheets to fund further expansion and I would argue that they are up against the clock to do so before sentiment turns against them for whatever reason (remember Revolut suffering from allegations of links to Russia?). I still think that there could be scope for consolidation in a very fragmented sector either between the challengers themselves or with the established banks looking for a tech boost and a different client base. 



Unilever pledges to cut new plastic use, Thomas Cook fallout continues and vaping’s black market causes a headache…

Unilever pledges to halve use of new plastics (The Guardian, Zoe Wood) signals intentions by consumer goods giant Unilever to cut its use of virgin plastics by making more environmentally friendly versions of its products which could involve making shampoo refill stations, cardboard deodorant sticks and toothpaste tablets a common sight at the supermarket. It said that it will switch to reusable packs, concentrated refills and using alternative materials. * SO WHAT? * This sounds great from an environmental point of view but I suspect that this could have quite a nice side effect for Unilever as refill stations etc. will take up quite a lot of shelf space in your average supermarket, leading to potentially better sales and possibly less room for competitors’ products. It’s great that such a company is pledging to do its bit for the environment, though, and maybe it will lead others to think about what they can do.

In Thomas Cook bosses were warned of £10bn claims (Daily Telegraph, Oliver Gill and Jack Torrance) we see that Thomas Cook’s bosses were warned before it collapsed that creditor claims could rise above an eye-watering £10bn with huge debts owed to hoteliers, intermediaries and other suppliers. It is, however, thought that many suppliers and bond holders will only actually be able to recover around 2-3% of what they are owed while German, Spanish and Portuguese governments have allocated around €830m so far to help Thomas Cook subsidiaries

and stop the rot from spreading. * SO WHAT? * The company will probably be able to get some money from the sale of its valuable UK airport landing slots (the number of interested buyers seems to be growing by the day), but it’s thought that slots outside Britain will be worthless. Unions are obviously saying the UK government should have done more to save Thomas Cook, but a spokesman for the Department for Transport said that “Unfortunately airlines and tour operators do fail. It is not the Government’s role to prop them up, and any financial assistance risks setting a precedent. We believe anyone looking at the details of this collapse will conclude a rescue deal would have been a poor use of taxpayers money, with no guarantee the company would have remained solvent”.

Vaping’s black market complicates efforts to combat crises (Wall Street Journal, Jennifer Maloney and Daniela Hernandez) shows that the current crackdown on vaping is fueling a black market as authorities try to suppress the alleged cause of mysterious lung illnesses and a surge in teen vaping. All sorts of vapes are available online and offline and “legit” companies are suffering from copycats trying to cash in with unapproved products. Juul, the vaping giant in America, has had thousands of listing of counterfeit Juul-compatible products taken down, including ones with child-friendly flavours such as rainbow drops and grape soda. * SO WHAT? * Given the popularity and the subsequent crackdown, it’s unsurprising that the black market is flourishing. You do wonder, however, whether this will potentially help companies like Juul’s argument that the mysterious lung conditions that vapers have been going down with aren’t their fault – and that it’s actually the fault of online counterfeiters manufacturing and distributing inferior product. Still, this isn’t great and will be another thing that the authorities will need to deal with.



And finally, in other news…

I thought I’d kick this week off with Steps to follow before, during and after a drinking session to avoid a hangover (The Mirror, Luke Matthews – I know it’s the beginning of the week, but it could be something worth trying towards the end of it – and the rather intriguing Walkers’ Brussels sprouts crisps are back following ‘requests all year round’ (The Mirror, Luke Matthews BTW, they are brussels sprouts flavoured crisps – so don’t worry if you thought that you would be missing out on your potato quotient. Phew!

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Some of today’s market, commodity & currency moves (as at 0900hrs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!

FTSE 100 *Dow Jones *S&P 500 *Nasdaq**DAX *CAC-40 *Nikkei **Shanghai **
7,155 (+1.10%)26,574 (+1.42%)2,952 (+1.42%)7,98212,013 (+0.73%)5,488 (+0.91%)21,375 (-0.16%)Holiday
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

(markets with an * are at yesterday’s close, ** are at today’s close)