Tuesday 09/07/19

  1. In BANKS NEWS, Deutsche suffers after the cull and banks are slow to endorse Facebook’s Libra
  2. In CONSUMER/RETAILER NEWS, spending hits the skids, online shopping is expected to overtake high street shopping in ten years, Jack Wills brings in KPMG and Matalan falls under the weather
  3. In INDIVIDUAL COMPANY NEWS, BA gets a hefty fine and Virgin Galactic aims to float
  4. In OTHER NEWS, I bring you a dancing cockatoo…



So Deutsche sinks after the cuts and banks are slow to get involved in Libra…

Deutsche falls 5% on fears global restructuring is not enough (Financial Times, Olaf Storbeck) shows the initial reaction to yesterday’s dramatic announcements, reflecting doubts that its revenues may fall faster than its costs given that it is likely to lose customers. Deutsche’s CFO, James von Moltke, didn’t pump up the feelgood factor by saying that after sinking into loss this year, the bank could well continue to lose money in 2020, citing “significant uncertainty” about profit forecasts. On the other hand, life goes on in Deutsche commits to the City after cuts (The Times, Katherine Griffiths) as the embattled bank stated that it would continue to press ahead with moving into its new London HQ at 21 Moorfields in the City in 2023. Before yesterday’s cuts, it had 7,000 staff in London and 1,000 in Birmingham – but the new building has space for 5,000 (so I guess any Deutsche employees who knew this would have seen the writing on the wall). * SO WHAT? * Obviously, it’s early days in terms of determining whether the cuts that were made will be enough to satisfy investors who had long been baying for blood, but it would seem that the initial reaction, at least, would be scepticism. Mind you, given Deutsche’s recent track record, you can forgive investors for not really giving them the benefit of the doubt.

In Banks in no rush to join Facebook’s crypto project (Financial Times, Laura Noonan, Robert Armstrong, Nicholas Megaw and Stephen Morris) we see that banks are, unsurprisingly, not keen on endorsing Facebook’s new cryptocurrency. This is unsurprising because they don’t want to rub the regulators up the wrong way (regulators really don’t like Libra at the moment, so banks will feel that they might be collateral damage if they jump on the Libra bandwagon too joyfully), Libra is viable competition to their own cryptocurrency projects and it could also harm their position in the financial “food chain” as “the gatekeepers of the global financial system”. Having said that the leader of Facebook’s Libra project, David Marcus, said that “We have had conversations with banks. We still have conversations with banks. And my expectation is that by the time this thing launches next year you will have banks that are going to be members of this”. * SO WHAT? * I think that traditional banks are going to find this a tough one because of all the baggage of previous financial crises – but given that it’s “only” a $10m buy-in to get into the Libra Association, surely some challenger/digital banks will be all over this. And if THAT happens, I would have thought it will only be a matter of time before other “traditional” banks join the Libra party. There’s a long way to go yet, though, and Facebook will face very intense scrutiny given its track record thus far in trustworthiness!



Consumer spending hits new lows, online shopping is expected to overtake high street shopping while Jack Wills and Matalan have problems…

Consumer spending at weakest since mid-90s amid Brexit chaos (The Guardian, Larry Elliott) cites the latest figures from the British Retail Consortium (BRC) which show that annual consumer spending is at its weakest level since records began in the mid-90s. Surprise, surprise – Brexit uncertainty is being blamed for this one. Helen Dickinson, chief exec of the BRC, said that “June sales could not compete with last year’s scorching weather and World Cup, leading to the worst June on record…the picture is bleak: rising real wages have failed to translate into higher spending as ongoing Brexit uncertainty led consumers to put off non-essential purchases”. The report also showed that online shopping continues to rise and Shopping online to overtake high street in next decade (Daily Telegraph, Tim Wallace) mentions a report by Retail Economics that

takes it a step further by saying that by 2028 over half of all shopping will take place online. * SO WHAT? * This just shows how important it will be for retailers to get the balance of their online and offline offerings right ASAP – otherwise they will be toast. In the short-term, though, Brexit clarity is obviously sorely needed.

The high street gloom continues in Jack Wills appoints advisers to assess all options – including sale (The Guardian, Sarah Butler) which shows that the preppy apparel retailer continues to be problematic and has brought in KPMG to look at options, including selling itself. It is currently owned by private equity company Bluegem Capital, who bought it in 2016, but trading isn’t looking great. Then Matalan warns that profits could be hit by discounting (Daily Telegraph, Laura Onita) shows that Matalan is having to use big discounts to lure customers into its shops, which will put pressure on profits in the second quarter. Matalan is often compared to Primark, but as Sofie Willmott of research firm GlobalData puts it, “Unlike Primark, Matalan is also able to capitalise on retail spend shifting online with its digital channel significantly boosting overall performance”. Still, not great…



BA gets a massive fine and Virgin Galactic aims for the stars a listing…

BA to appeal against £183m fine over customer data hack (Daily Telegraph, Oliver Gill) highlights the handing down of a massive fine against the company for a customer data breach last year which resulted in the details of 500,000 customers being accessed by hackers. The fine was larger than everyone had been expecting and BA will appeal. * SO WHAT? * Airlines are having a tough old time at the moment, so the timing of this fine isn’t great. BA will presumably want to string this out for as long as it can in an effort to pay less, but Information Commissioner Elizabeth Denham said that “People’s personal data is just that – personal. When an organisation fails to protect it

from loss, damage or theft it is more than an inconvenience. When you are entrusted with data you must look after it”.

Richard Branson’s space unit to go public (Wall Street Journal, Maureen Farrell) heralds The Bearded One’s latest PR opportunity as Virgin Galactic is preparing for a public listing. Social Capital Hedosophia Holdings Corp, a special-purpose acquisition company, is going to invest about $800m for a 49% stake which Virgin Galactic reckons will give it enough money to play with until spaceship operations become commercially viable. Virgin Atlantic is currently engaged in a space race with the likes of Jeff Bezos’ Blue Origin and Elon Musk’s SpaceX. * SO WHAT? * Sorry, but I think this sounds like a humungous money pit. I expect delays, massive expense and, ultimately, failure. Branson has a chequered history with listing his companies, so success is most definitely not guaranteed!



And finally, in other news…

After all this rather downbeat news, I thought I’d leave you with Snowball: Cockatoo who can pull off 14 different moves is first non-human animal known to dance to a beat (The Independent, Phoebe Weston https://tinyurl.com/y5wf2al4). Man, this cockatoo has some moves!

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Some of today’s market, commodity & currency moves (as at hrs 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 **
7,549 (-0.05%)26,806 (-0.43%)2,976 (-0.48%)8,09812,544 (-0.20%)5,589 (-0.08%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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