- In FINANCIALS NEWS, Deutsche Bank takes drastic action, digital banks grow up and fintech evolution continues
- In CAR-RELATED NEWS, SUVs “pile up” on the sales lot, energy suppliers pledge to get EV fleets and JLR’s chief says batteries are key to UK car manufacturing’s future
- In INDIVIDUAL COMPANY NEWS, Boeing loses a chunky order to Airbus and Tesco experiments with Amazon Go-style shopping
- In OTHER NEWS, I bring you Mariah Carey’s bottle cap challenge attempt…
So Deutsche Bank cuts deep, digital banks aim higher and fintech gets crowded…
Deutsche Bank to exit equities trading in radical overhaul (Financial Times, Stephen Morris and Olaf Storbeck) heralds some sobering news for Deutsche Bank employees as the company announced it is to cut 18,000 jobs and siphon off €74bn of its riskiest assets into a “bad bank”, effectively canning its ambitions to be a Wall Street-beater. This will involve the shutting down of its loss-making equities trading business and the downsizing of its bonds and rates trading operations. Job cuts are to kick off this morning in London and New York and will trim numbers from the current 91,500 to around 74,000. The company said that it won’t be raising any additional capital, won’t be paying a dividend for the next two years and concluded that these actions “are designed to allow Deutsche to focus on and invest in its core, market-leading business of corporate banking, financing, foreign exchange, origination and advisory, private banking and asset management”. * SO WHAT? * This has been a while in coming, but should go some way to address critics who have been saying that reforms of the troubled German lender have not gone deep enough. Only time will tell whether this has been sufficient, but it should at least buy management some breathing space. No doubt employees of other banks will be feeling more nervous as they fear getting replaced by “better” and/or now cheaper Deutsche bank casualties – or because competitors will use Deutsche’s example to make more culls of their own.
Digital banks seek to turn popularity into profits (Financial Times, Nicolas Megaw) looks at the evolution of the “digital disruptors” in the banking space like Monzo, Revolut and N26 as they strive to move towards profitability – although they’ll be making more losses in the meantime. Interestingly, these three banks have a higher valuation than the “challenger banks” who launched in the wake of the 2008 financial crisis but they now need to morph their popularity seamlessly into doing the boring “banky”-type stuff – i.e. providing a service to its customers whilst actually making some money. One of the ways they are
diversifying their revenues is by providing different services via premium subscription like travel insurance, savings accounts, insurance or mortgage broking from third party providers. * SO WHAT? * All this extra service stuff looks to me like fiddling around the edges, but it does seem that the digital banks are getting better at convincing customers to use them as their “main” bank (which is no mean feat) and broadening their appeal from the early adopters. I’m sure that, over time, this will only get better – but it won’t happen overnight. The main key here, though, is to make sure that they make enough progress towards profitability in order to survive a downturn.
Are we at peak fintech, or is this actually just the start (Daily Telegraph, James Cook and Matthew Field) poses the question as we start London Fintech Week today. Fintech has become an increasingly crowded area in the last few years and the number of related advertising campaigns have served to increase customer awareness. Having said that, customers in the challenger banking space still seem to be slow to switch everything over and as Accenture fintech expert Julian Skan observed, “We’re probably at peak interest. They are attracting a very high percentage of people opening bank accounts and the question is how long that continues”. British fintechs have so far raised $1.3bn in funding, according to PitchBook data – a record year – but the number of deals has actually slowed. * SO WHAT? * I completely disagree with the Accenture guy – I think that we are nowhere near “peak interest” at all! I think that interest in digital banks etc. is growing all the time. Let’s face it, there was some statistic way back when saying that people are more likely to get divorced than change their bank account (in the UK, anyway) – so it’s pretty impressive that these banks have managed to make any dent at all in the incumbent banks’ business. Although it’s probably a bit of a slow burn, once customers get the hang of the way these things work, the trust will build and build and more customers will get sucked in. In the meantime, I think that there will be a LOT of consolidation either among the disruptors themselves or by the big banks wanting to accelerate their game. I would have thought that big banks would do better to preserve the branding of their more exciting acquisitions so they could have the best of both worlds – a forward-thinking digital offering backed by a “boring” bank that everyone knows.
SUVs “pile up”, energy suppliers commit to an EV fleet and car batteries are the future…
SUVs are bumper-to-bumper on dealer lots, with more on the way (Wall Street Journal, Ben Foldy) highlights the opinion that we are reaching SUV saturation as customers are faced by more and more models from all the manufacturers who have been keen to tap into the current penchant for big vehicles. Sales of crossovers and SUVs are losing momentum and are taking longer to sell, meaning that there are more deals around for savvy buyers. And it’s not going to end there – manufacturers are lining up even more new SUV models as they focus in on this more profitable segment. Putting this all in numbers, 70 individual models of SUVs were available in the US in 2014, versus 96 now that will, according to a Bank of America report, rise to 149 by 2023. * SO WHAT? * The problem with all this is that if there are too many SUVs going on sale, the competition amongst manufacturers to sell them will be so fierce that prices will have to fall, making them less profitable – which is why they built them in the first place! Crossovers and SUVs currently make up over 47% of the new vehicle market in the US, with sales of sedans and hatchbacks only representing 30% of the market (versus 50% in 2012). It’ll be interesting to see how this plays out, but you do get the feeling that SUVs are becoming the norm these days!
You may recall that last week I said that big companies need to switch their fleets to EVs to encourage wider adoption – well, in Energy suppliers vow to switch all of their vehicles to electric (Daily Telegraph, Julia Bradshaw) we see that two of the UK’s biggest energy suppliers – Centrica and SSE – have said that they will convert their entire fleet of commercial vehicles to electric by 2030. Centrica has the UK’s third largest commercial fleet in the
UK and SSE has the seventh – and they both said that they’d install charging services for employees and customers. Services company Mitie is also aiming to go down the same road and by the end of 2019, it will have switched 20% of its vehicles to electric and installed 800 new charging points. * SO WHAT? * This is a big deal, no? If more companies decide to do this – and, importantly, sort out the charging network – the EV thing could really take off. Still, it’s not going to be overnight. Like I’ve said before, if I were to buy a car now, I’d buy petrol (because I don’t want to do diesel, don’t do high mileage and think that the current charging network is useless) – but I think that the one after that would probably be a hybrid (not electric – although let’s see how the charging network develops!).
UK car industry future hinges ‘not on Brexit, but on batteries’ (The Guardian, Jasper Jolly) highlights the belief of JLR boss Ralph Speth that “if batteries go out of the UK, then also the automotive production will go out of the UK”. * SO WHAT? * Manufacturers are scrambling amongst themselves to increase their EV model line-ups and these new cars will need lithium ion batteries. Interestingly, the UK has already come close to leading the world in battery technology as the lithium ion battery was actually invented at Oxford University in the late 70s – but then Sony took the baton and commercialised it. We have some battery capacity in the UK at the moment – AESC in Sunderland and Hyperbat, a JV between Williams (the F1 lot) and Unipart – but this needs to be upped considerably. The scale of the task is huge – but with China having already poured billions in to this area, the need to improve our capabilities is growing all the time. I would have thought that the government has to step up big time to give this area the boost it needs – although I do wonder whether we should hedge our bets and possibly invest more in solid state tech, which is more stable (won’t blow up on you) and which is currently pretty expensive. Surely we can add more to that area than the rather crowded field of lithium ion batteries…
INDIVIDUAL COMPANY NEWS
Boeing loses MAX deal to Airbus (Wall Street Journal, Robert Wall) highlights Boeing’s latest chunky loss in the wake of the 737 MAX disaster. The discount airline arm of Saudi Arabian Airlines Corp, Flyadeal, switched from its original Boeing order to buying up to 50 Airbus A320neo planes, as Boeing’s 737 MAX planes continue to have problems following two terrible crashes. The deal was thought to be worth over $5.5bn – so not an insignificant amount. * SO WHAT? * I expect this to continue. No doubt when Boeing sorts its problems, it’s going to have to offer big discounts to entice customers back, which will also affect profitability for a while. The tough times continue for Boeing while Airbus gets an unexpected tailwind.
Spurred by Amazon, supermarkets try swapping cashiers for cameras (Wall Street Journal, Parmy Olson) shows us that Tesco is experimenting with Amazon Go-like technology that lets customers walk in, pick up their goods and go without faffing around with a cashier. It’s using the same idea as Amazon in its cashierless shops – using loads of cameras – and any developments in this area will be monitored with interest by American counterparts. Tesco says that it plans to offer “frictionless shopping” to the public next year, after testing with employees, with a view to rolling the system out to its smaller stores. It says that the tech it is using differs from Amazon’s in that it only uses cameras, whereas Amazon Go stores use cameras and sensors. French retailer Carrefour is also running similar trials. * SO WHAT? * This all sounds great but I think it will take quite some time for it to become normal. Still, it sounds fun though – no? This could be quite an interesting way for Tesco to differentiate itself from its rivals.
And finally, in other news…
Last week, I alerted your attention to the bottle cap challenge where various stars of a martial arts-persuasion unscrewed bottle caps via a spinning kick. Well diva-in-chief Mariah Carey had a go in Mariah Carey hilariously masters the bottle cap challenge using just her voice (Yahoo! Rachel DeSantis https://tinyurl.com/y48njgjw). Nice 👍
Some of today’s market, commodity & currency moves (as at 0832hrs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!
|FTSE 100 *
|Dow Jones **
|S&P 500 **
|Oil (WTI) p/b
|Oil (Brent) p/b
|Gold Per t/oz
(markets with an * are at yesterday’s close and ** are at today’s close)