Thursday 06/04/23

1. In FINANCIALS NEWS, the Swiss government cuts CS bonuses, hedge funds rake it in on bank turmoil, BlackRock gets called in to manage asset disposals, a new European defence ETF launches, Vanguard looks to exit China and VC funding for start-ups halves
2. In TECH NEWS, Microsoft and Amazon face a cloud probe, European AI start-ups rush to improve chatbot language skills, the UK launches a national emergency alert network, Savvy Games buys Scopely and an online marketplace of stolen identities is cracked
3. In CAR NEWS, record car sales highlight charger shortfalls, UBS reckons there’ll be a car price war and Ram’s new electric pick-up aims for a 500 mile range
4. In MISCELLANEOUS NEWS, US jobs data implies a slow-down, UK services’ PMI looks promising, Inditex nears a sale of its Russia business, Co-Op sets a new target, Franco Manca’s owner is bought by a Japanese group and Kirkland & Ellis hits $6.5bn in revenues
5. AND FINALLY, I bring you a weird Easter egg and how to make the perfect poached egg with no vinegar…

So winners and losers emerge from the bank crisis, a European defence ETF launches, Vanguard gives up on China and VC funding for start-ups dries up…

Did you know that there is a podcast to go with Watson’s Daily? In this podcast, I discuss two stories from the day’s edition in a bit more depth with a Watson’s Daily Ambassador, my mate Ralph (on the Weekly podcast) or a special guest. The idea of this is to help to give you more of an idea of what talking about this stuff could sound like 👍 You can find the podcasts on the buttons below:

Swiss government cuts bonuses for 1,000 senior Credit Suisse bankers (Financial Times, Owen Walker) highlights the Swiss government’s decision to cut 100% of the bonuses of those on the Credit Suisse’s executive board, those on the level below will get a 50% cut and those below that will get a 25% cut. The government had suspended bonuses for Credit Suisse execs on March 21st, but now the federal council has decided to implement the cuts above. * SO WHAT? * This has GOT to be a reaction to the angry shareholder meeting earlier this week and although the amounts involved will be a drop in the ocean compared to losses incurred overall to Credit Suisse, it’s the principle that counts. 

As with all things in life, there are always winners and losers no matter what the scenario! Hedge funds make $7bn from betting against banks during turmoil (Financial Times, Laurence Fletcher) shows that hedge funds were a big winner from the recent turmoil as they bet big against banks. Short sellers made an estimated $1.3bn in profits from taking short positions against SVB, $848m from betting against First republic and $684m from Credit Suisse with the rest coming from the European and US banking sector as a whole, according to data firm Ortex. Perhaps somewhat unsurprisingly, it is thought to have been the most profitable month for short sellers of the banking sector since the crash of 2008!

In BlackRock to manage $114bn of asset disposals after US bank failures (Financial Times, Jennifer Hughes and Brooke Masters) we see that US Federal Deposit Insurance Corporation has brought in BlackRock to help dispose of $114bn worth of securities that the government inherited when it took over SVB and Signature Bank last month. * SO WHAT? * There had been fears that the FDIC would just dump the whole lot, which freaked out investors because prices would have fallen through the floor as a result but BlackRock’s Financial Markets Advisory division has a lot of experience with selling off tricky assets that have come about from financial rescues without disturbing the markets too much.

First European defence ETF launches in the face of controversy (Financial Times, Emma Boyde) heralds the advent of Europe’s first mainstream opportunity to invest in defence stocks via the VanEck Defence Ucits ETF that started trading yesterday on the London Stock Exchange and Germany’s Xetra, with plans to extend this to Switzerland’s SIX and Borsa Italiana. Over 50% of the companies in the ETF supply hardware, IT, operations and communications services but excludes companies involved with cluster weapons, anti-personnel mines and chemical weapons. * SO WHAT? * This has been a long time in coming as European investors have had no

📢 It’s Thursday, so it’s time for the one hour weekly Zoom call for SILVER and GOLD subscribers! Click HERE to access the joining details. *** THIS CALL WILL RUN FROM 6PM TILL 7PM ***. As usual, during this call, I will do a round-up of the week’s news and then open it up to questions from you. After that, depending on how much time we have, we will also debate the following:

• If you could get any City job right now, what/where would it be and why?
• Which industries would you expect M&A activity to pick up first and why?

You can just listen into the debate if you want to, but I thought I’d give you the heads up on topics for if you would like to engage. You will definitely get more out of this call if you take part in the debate, though 😜!

way of investing in the defence sector via ETFs while those wanting exposure to American defence stocks have been able to put money into BlackRock’s iShares US Aerospace and Defence ETF, which is the world’s biggest defence ETF. ESG investors in particular have got left behind thanks to the Ukraine war and subsequent massive increases in defence spending by governments around the world – so now there is something that they can buy that gets them some exposure, with some kind of filter from the REALLY bad stuff. When you consider that the assets in ETFs with over 40% exposure to globally-listed defence and aerospace stocks shot up by 65% between the end of January 2022 and the end of March that year, you can see why having something funds can legitimately invest should be a real boon (although you do wonder how much more upside there is to go).

Vanguard plans exit from China joint venture (Financial Times, Thomas Hale and Cheng Leng) highlights a rare defeat for the world’s second biggest asset manager as it looks like it’s going to exit from its much-vaunted venture with local finance giant, Ant Group, although that has yet to be confirmed officially. * SO WHAT? * Some say that there may be a cultural difference at play here as Vanguard’s specialism in passive funds does contrast somewhat with Chinese consumers’ desire for high returns via speculative involvement. One analyst at Forrester said that a recent survey showed that around 90% of Chinese retail investors would rather make their own investment decisions than leave things to passive funds or advice from third parties. There’s probably also an element of Vanguard being reluctant to change what it’s good at and Ant Group being relatively inactive in its promotion of Vanguard’s products. It doesn’t sound too promising… 

Meanwhile, Venture capital funding in start-ups halves as tech downturn bites (Financial Times, George Hammond and Tabby Kinder) cites data provider Crunchbase’s findings about Venture Capital trends, with the collapse of SVB likely to make things even bleaker. In the five years to 2021, investment volumes pretty much quadrupled but valuations since then have taken a massive pasting (for example, Stripe’s valuation is now about half what it was at its peak in 2021) which has forced some VCs to downwardly adjust the value of the companies in their portfolios. This has made the funding environment very difficult for the moment, so high-growth disruptors are going to have a tough time of it until things start to recover.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

Microsoft and Amazon face a probe, European start-ups aim to improve AI language skills, the UK launches a new network, Savvy Games buys Scopely and a marketplace for stolen identities is cracked…

Microsoft and Amazon face UK probe on cloud computing (Financial Times, Arjun Neil Alim, Ian Johnston and Sarah Provan) shows that the two giants have caught the eye of Ofcom due of their dominance in the UK’s cloud computing market. Amazon Web Services and Microsoft’s Azure control 60-70% of the UK’s cloud market and Ofcom is considering referring this matter to the Competition and Markets Authority for deeper scrutiny. * SO WHAT? * Regulators around the world are investigating big tech companies like Microsoft and Amazon for multiple reasons but in this case, Ofcom is particularly concerned about how cloud computing supply is so concentrated, leaving consumers open to anti-competitive pricing and the exclusion of competition. Even Google, which is currently at #3, in the UK has a measly market share of between 5% and 10%! Ofcom hasn’t finalised a report but it is due to make its final decision on whether to refer the case to the CMA by October 2023. Surely this is ripe for a bit of CMA action, no? The problem is, what are the alternatives??

European AI start-ups race to improve chatbots’ language skills (Financial Times, Madhumita Murgia, Mehul Srivastava and Silvia Sciorilli Borelli) highlights a number of European start-ups who are trying to address a problem with AI – that responses in anything other than English is not great. Companies like Silo AI are working to help generative products answer in languages including Swedish, Icelandic, Norwegian and Danish. Google’s Bard only does English – and while OpenAI’s ChatGPT supports many other language, the quality across all languages is variable. * SO WHAT? * Sounds good, no? Clearly this is another element of AI that needs work…

UK to launch mobile phone-based national emergency alert network (Financial Times, John Paul Rathbone) shows that the government is planning on setting up a new “Emergency Alerts”

system that will alert people to imminent life-threatening events, including extreme floods or wildfires – as well as things like terrorist threats – via their 4G and 5G phones. A message will pop up on screens and the device will emit a “loud siren-like sound, even if it is set in silent” and vibrate for up to 10 seconds! Users can then press OK and there will be no need for them to register their numbers. Pretty amazing, eh?

Meanwhile, Savvy Games buys Scopely for $4.9bn (Financial Times, Samer Al-Atrush) shows that Savvy, which is owned by Saudi Arabia’s Public Investment Fund sovereign wealth fund, is buying US-based games developer Scopely, subject to regulatory approval. This is all part of Saudi Arabia’s efforts to wean itself off oil revenues and it wants to become one of the world’s biggest gamin hubs. This would be Savvy’s third big investment this year, following the acquitisions of Vindex and VSPO. * SO WHAT? * The PIF has been building up stakes in companies such as Ubisoft, EA, Take Two, Nintendo and Activision over the years but this acquisition heralds its first major foray into mobile gaming. It sounds like this makes a lot of sense as gaming is very popular in the Middle East and buying into it will mean that they will be able to benefit from this!

International sting takes down online marketplace of stolen identities (The Guardian, Jamie Grierson) is a really interesting article which shows that a criminal online marketplace selling online identities sometimes for as little as 56p, called Genesis Market, has been taken down via a combined effort led by the FBI and involving law enforcement agencies across 18 countries. The marketplace had 80m sets of personal details for sale which covered two million people using details from data sources including online banking, Amazon, PayPal and Netflix. The marketplace was pretty blatant as it could have been found via normal internet search engines and users were shown how to buy stolen details and how to use them! Prices started at 56p but went into the hundreds of dollars depending on the type of information. * SO WHAT? * Given the current environment where regulators are cracking down on data ownership and data usage this serves as a stark reminder as to just how important data safety is.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

Car sales rise and Ram aims for distance…

Record electric car sales fuel fears over charging point crunch (Daily Telegraph, Howard Mustoe) shows that concerns are increasing about the provision of chargers as the latest figures from the SMMT showed that battery car sales went 19% higher in March versus the previous year. Tesla’s Model Y was the most popular vehicle, no doubt helped by Tesla’s price cuts, but now experts are worried that charger network expansion just isn’t keeping up with vehicle uptake. Overall new car sales (which includes petrol and diesel models) increased by 18% over the same time period but despite all this, vehicle sales are still below pre-pandemic levels. * SO WHAT? * Obviously, this is going to become an increasingly pressing issue. It’d be interesting to see if there were any stats that showed owners’ charging habits (home, public and variations in between) to see how urgent the situation really is because if people are buying who are predominantly relying on home charging then the charging issue may not be quite as bad as everyone is assuming. I’m thinking that early adopters are much more likely to be predominantly home charging because they’ve got more money and would potentially be more likely to have access to off-road home charging.

Meanwhile, Oversupply of cars to trigger price war, says UBS (Daily Telegraph, Howard Mustoe) shows that analysts at UBS reckon that global car production will outpace sales this year, which means that there could be over five million vehicles to sell. * SO WHAT? * As things stand, many carmakers are playing catch-up with orders that had been delayed by supply chain problems but it seems that the situation is less clear for the second half of this year, particularly given that there are ongoing concerns about pressure on household budgets delaying the purchase of big ticket items like cars. It is thought that luxury cars won’t be too impacted although sales of family cars are expected to suffer. When you consider this along with increased competition from China marques keen to get market share it looks like it could be a buyers’ market later this year!

In Ram’s New Electric Pickup Truck Aims for Battery Range of 500 Miles (Wall Street Journal, Ryan Felton) we see that Stellantis’s Ram truck brand announced that its upcoming electric pickup, the Ram 1500 REV, will offer a battery option that has a 500 mile range! This would be about the same as the promised range of Tesla’s upcoming (and many times delayed!) Cybertruck. The Ram 1500 REV is expected to go on sale late on next year while the Cybertruck is expected to come to market later on this year. Range anxiety? What range anxiety??

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

US jobs data implies slowdown, UK services PMI looks good, Inditex moves to exit Russia, Co-Up targets new members, Franco Manca’s owner gets bought and Kirkland & Ellis rake it in…

In a quick scoot around some of today’s other interesting stories, US jobs data hints economy is slowing (The Times, Callum Jones) cites the latest data from the ADP national employment report which shows that employers in the private sector took on fewer workers than expected last month, which is being interpreted by some as a potential sign that the economy is cooling. In the UK, Services PMI: New orders deliver boost to sector (The Times, Mehreen Khan) heralds potentially positive news as the latest S&P Global PMI survey reflected rising business confidence among the UK’s all-important (because it accounts for the majority of our GDP) services sector.

In retail, Zara-owner Inditex obtains approval to sell business in Russia (Financial Times, Anastasia Stognei and Barney Jopson) shows that Inditex just got permission from Russia to sell its business in the country – and it will be selling it to Daher Group of the UAE. Russia used to be Inditex’s second biggest market by number of stores and it had to seek approval from Russia’s commission on foreign investments to sell its assets in the country. * SO WHAT? * Since Russia invaded Ukraine, “unfriendly” countries had to meet certain criteria to exit – and this included selling the business at a minimum 50% discount and paying a “voluntary contribution” to the Russian state. Inditex hasn’t ruled out a return in the future but clearly this is going to be tricky for quite some time.

Co-op sets target of million new members (The Times, Dominic Walsh) highlights Co-Op’s target of getting a million new members within the next five years whilst dealing with a tricky economic backdrop. It said that it had achieved its first growth in active members for five years, with half of the new joiners being under 35. Although the outlook isn’t looking all that great, its funeral care and legal businesses put in a particularly strong performance.

In Franco Manca owner agrees to £93m buyout by Japanese group (The Guardian, Sarah Butler) we see that Fulham Shore, which owns Franco Manca and The Real Greek, has been bought by Japanese chain restaurant operator Toridoll and restaurant sector specialist fund Capdesia for £93.4m. * SO WHAT? * This sounds pretty good and Fulham Shore has been a rare success story in a very tough landscape for chain restaurants across the UK. I guess they are going out on a high, but it remains to be seen what Toridoll can do with it!

Further to news that the firm was axing large numbers of its associates, Kirkland & Ellis defies dealmaking slump as revenues reach $6.5bn (Financial Times, Kate Beioley) shows that the US law firm saw an 8% increase in revenues last year – which is particularly impressive given that rivals have been reporting big declines in profit and revenues. That said, growth was more impressive the previous year – when revenues were up by 25% – as its corporate advisory business knocked it out of the park! Interestingly, Kirkland managed to survive the dwindling M&A markets by pivoting to advise on crypto bankruptcies (it is advising on Voyager, Celsius Network and BlockFi)! No doubt when M&A activity cranks back up again, they’ll be back on it!

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

…in other news…

Continuing on from the egg theme of yesterday’s Watson’s Daily, here’s something a bit different for you: First-ever Southern fried chocolate Easter egg launches – but you’ll have to be quick (The Mirror, Zahna Eklund). This is weird! I did wonder whether this was some kind of late April Fool joke but it doesn’t seem to be…

Then I thought this looked good – I’ve never heard about the sieve bit so I will be trying this myself the next time I make poached eggs: Michelin star chef shares perfect poached egg hack – and slams using vinegar (The Mirror, Zahna Eklund).

AND FINALLY, wherever you are, whatever you’re doing, I hope that you manage to enjoy the long Easter weekend! See you again next Tuesday!