Monday 11/03/19

1. In BANKS NEWS, Deutsche starts talks with Commerz while Revolut bolsters its governance
2. In HIGH STREET NEWS, footfall weakens and Debenhams continues its anti-Ashley efforts
3. In TECH NEWS, we see how big tech has powered ahead and that TikTok’s owner could be another candidate for flotation
4. In OTHER NEWS, I bring you the right way to eat a pineapple and a troubled running man. For more details, read on…

So Deutsche Bank and Commerzbank start talks while Revolut beefs up its governance…

In Deutsche Bank begins talks over merger with rival Commerzbank (The Guardian, Patrick Collinson) we see that the two German banks have begun merger talks which could lead to the creation of Europe’s second biggest bank behind HSBC. It is thought that both banks have been under political pressure to consider a merger in order to avoid a foreign takeover of the smaller Commerzbank in particular as Berlin is keen to create a bigger national champion. * SO WHAT? * Deutsche has had to deal with a lot of flak in the last few years what with money laundering issues, unstable leadership and being the biggest lender to Trump’s business empire – and although its chief exec Christian Sewing has been opposed to such a merger, pressure has been building from investors to reconsider given that the share price has fallen from €32 five years ago to the current €7.68. Commerz might not be all that keen to merge either given that it has slimmed down its investment banking activities to become a simpler – and less volatile – retail and corporate lender. Although I can see the political logic behind this, it just sounds like the two banks are going in opposite directions – and certainly for Commerz, I think it would be a strategic step backwards

given that it has made great efforts to distance itself from the rollercoaster world of investment banking. If the two banks don’t really want to merge, I just don’t think it’s going to work as it would just be a merger for size’s sake and to please politicians and shareholders.

Under-fire digital bank Revolut bolsters its governance (Financial Times, Nicholas Megaw) highlights the latest developments at the fast-growing challenger bank that has faced recent criticism for shortfalls in compliance and encouraging unhealthy working practices like long hours and unpaid work. It has just appointed Standard Life Aberdeen co-chief exec Martin Gilbert as an adviser in addition to a number of other senior hires in regulatory compliance and governance but the company said that it had actually initiated the search last year, before any of the recent criticisms came to light. * SO WHAT? * This is a positive development – but I guess that these new employees will have to put in a decent stint to counter Revolut’s reputation for being a tough working environment. I’m pretty relaxed on all this because I believe that this is part of the growth trajectory of a start-up as it transitions from fleet-footed disruptor to having more mainstream appeal. Let’s hope there aren’t any more unsavoury bits of news to come out (e.g. involvement with the Russians etc.) and that the bank can concentrate on growing for the future (it was valued at $1.7bn at its most recent funding round last year).

Footfall drops and Debenhams continues to try to fend off Ashley’s advances…

Little cheer on the high street as footfall drops to five-year low (Daily Telegraph, Vinjeru Mkandawire) is the latest kick in the teeth for Britain’s high street as the latest figures from Springboard show shopper footfall dropped by 2%, taking it down to its lowest level for five years and its 15th consecutive month of decline. High street footfall was down by 1.9% but shopping centre footfall dropped by 3.4%. Retail park visitor numbers also fell sharply. Helen Dickinson, chief exec of the British Retail Consortium said that “While real incomes have been rising over the last year, the uncertainty surrounding Brexit appears to be driving a needs-not-wants approach to shopping” and warned that a no-deal Brexit “would likely result in higher costs, higher prices and less choice for consumers – all of which would further harm struggling retailers”. * SO WHAT? * Lower shopper numbers implies lower spending – and this would seem to chime with the overall gloom in the lead-in to Brexit. This is just the latest piece of evidence to reflect that.

Debenhams eyes larger refinancing to fend off Mike Ashley (Financial Times, Jonathan Eley) shows that the ailing department store is continuing its attempts to fend off a takeover by Mike Ashley, the billionaire chief exec of Sports Direct, by trying to increase the size of its upcoming refinancing. It had originally said that it would need around £150m to cover it over the coming year and had secured £40m of this last month in an additional credit facility. However, following Mike Ashley’s dramatic move last week where he demanded an extraordinary meeting of shareholders to kick out all but one of the company’s directors and install himself as chief exec, it sounds like the management is looking at ways to structure the refinancing in a way that will scupper any of his advances –  including targeting a larger amount. * SO WHAT? * Given the calls for an EGM, Debenhams HAS to respond to Ashley’s request within 21 days and hold the meeting within 28 days of that response, which gives the department store until late April to sort something out. The clock is ticking, but I have to say that the amount the company asks for will have to strike a balance between being high enough to scupper Ashley’s chances but low enough that investors don’t just run off. I think that giving more money to Debenhams is just throwing good money after bad as it’s in terminal decline anyway. We’ll just have to see how the drama unfolds for now.

Big tech bounces back and TikTok looks like a potential flotation candidate…

How big tech has powered global stocks (Wall Street Journal, Akane Otani) highlights a recovery in global tech shares since the beginning of the year as companies including Facebook, Netflix, Alibaba and Rakuten have all risen by over 25% in 2019, marking a sharp change following the tech weakness we saw going into the end of 2018. * SO WHAT? * Some companies, including Facebook, Tencent and Dutch semiconductor firm ASML Holdings are trading below last year’s earnings multiples but brokers including RBC Capital Markets and Morgan Stanley have advised caution on tech stocks this year, citing the potential for disappointing growth and tighter regulation. This has been particularly true of Tencent, which has fallen foul of a government that’s trying to clamp down on video game and gambling addiction. Mind you, lthough tighter regulation is definitely a trend, investors will have to decide what’s more important – regulatory risk or missing out on further (untapped) growth potential.

Talking of China tech, Clock ticking as next big thing looks to float (The Times, Simon Duke) takes a look at the potential of popular video-sharing app TikTok’s owner ByteDance. TikTok is the international version of the original Douyin video app that came out in China in 2016 and has sky-rocketed in popularity, becoming the first ever Chinese app to cross over to the mainstream in developed economies including the US and UK. Bytedance was valued last November at a chunky $75bn and TikTok has given it international recognition as it now has over 200 million international users, including 3.7 million in the UK in addition to the 500 million users it has on Douyin. * SO WHAT? * TikTok offers huge potential for exposure to a teenage audience, but it is facing growing doubts over whether it is a safe place for young people online and how the company collects childrens’ personal information. Still, if it can sort this out, it could be even bigger than it is already. Definitely one to watch! 

And finally, in other news…

Today, I thought I’d let you in on something that may surprise you in Man reveals we’ve all been eating pineapples wrong – and our minds are blown (The Mirror, Courtney Pochin https://tinyurl.com/y3rpt5xo). Also, were any of you out in the strong winds yesterday? I was, and I can really identify with the protagonist in this story: Man running race dressed as Big Ben has absolute nightmare in the wind – with hilarious results (The Mirror, Zoe Forsey https://tinyurl.com/yy6wscu4).