Tuesday 14/03/23

1. In SVB NEWS, we take another look at what happened over the weekend and the potential impact
2. In AUTOMOTIVE-RELATED NEWS, VW chooses Canada for its battery plant, Porsche gets a boost, Amazon and Rivian look to end exclusivity and Direct Line gets hit by car insurance claims
3. In TECH NEWS, the UK  commits £2.5bn to quantum computing and Sunak hints at a TikTok ban
4. In MISCELLANEOUS NEWS, insurers face a “mega trial” over planes stuck in Russia, Pfizer announces a huge deal, Chick-fil-A wants to expand into Asia and Europe, John Lewis experiments and EY’s boss struggles with the vote
5. AND FINALLY, I bring you a kids’ toy and another optical illusion…

So the SVB drama rolls on…

📢 I’ll shortly be publishing my annual P/Review where I roundup the news of the year in 2022 and then outline predictions for themes in 2023. Because it’s such a big report 😱, I will be publishing it in stages. There is nothing like this anywhere else, and it will help your understanding of what’s going on enormously so keep an eye out for it! In the meantime, I’ve recorded a special podcast where Ralph Hebgen and I talk through some key themes to watch out for this year. You can listen to it HERE or watch it HERE.

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:

Biden talks tough after SVB collapse but fails to calm the markets (The Times, Callum Jones) shows that Biden talked a good game before the markets, saying that “Americans can have confidence…that the banking system is safe” after putting together an emergency package of measures. However, it seems that no-one took any notice and trading in regional and specialist banks was suspended a number of times as investors sprinted to the exits. The fact that Signature Bank, another lender, was shut down on Sunday night spooked investors into thinking that widespread bank contagion was on the cards.

Recriminations fly as venture capitalists contemplate Silicon Valley Bank’s collapse (Financial Times, George Hammond, Tim Bradshaw and Antoine Gara) shows that VCs are being blamed for making the collapse worse by advising clients (by varying degrees) to withdraw their money from a bank that had been a solid partner for years. As one more strident VC said, it was less about prompting a run on the banks and more about not being the last one out while another said “If you’re going to panic, panic first”.

In the UK, How ‘Project Yeti’ rescued UK tech from a Monday morning bloodbath (Daily Telegraph, James Titcomb and Gareth Corfield) goes through how SVB’s UK arm got saved. Jezza was alerted to the impending disaster on Friday afternoon, at 11.50pm that night the Bank of England took control, then Jezza and Bailey boy chatted on Saturday morning then talks were held with people from the start-up and VC world to assess the impact. Tech companies subsequently leaned on Jezza to take action and not to let the bank fail, potential bidders threw their hats into the ring and then HSBC (which was, fortuitously looking to expand its start-up business!) emerged as a late bidder. Sunak had calls from his plane (he was in the US to take part in defence talks) with Jezza and Bailey, A hastily assembled WhatsApp group, then relief: UK tech firms react to SVB (The Guardian, Dan Milmo and Joanna Patridge) shows that tech companies got themselves into a bit of a panic at this stage but then, two hours before the market open, the deal for HSBC buying SVB UK was finalised.

HSBC to inject £2bn into collapsed UK tech bank (Daily Telegraph, James Titcomb and Simon Foy) heralds HSBC’s overall plan to get SVB back on track while HSBC has finally done something for Britain rather than China (Daily Telegraph, Ben Marlow) praises HSBC’s actions while also observing that this will probably give HSBC brownie points (much-needed as it has been facing criticism recently for making its business more Asia-centric) that they will probably need to cash in at some point down the line!

In terms of impact, Silicon Valley Bank: global banking shares slide as fallout spreads (The Guardian, Richard Partington, Kalyeena Makortoff and Edward Helmore) talks about the sell-off of US regional banks in the wake of SVB’s collapse and hedge fund investor Bill Ackman said that although the government had acted swiftly, there would be some banks that would inevitably fail as nervy depositors withdrew their money. Asian Startups Lose Confidence in U.S. Banking After SVB Panic (Wall Street Journal, Raffaele Huang, Newley Purnell and Clarence Leong) shows that the impact could be felt further afield if Asian start-ups get freaked out by this while Silicon Valley Bank collapse ‘could force central banks to stop interest rate rises’ (The Guardian, Richard Partington) shows that central banks could potentially pause any interest rate rises for the moment to give everyone a chance to catch their breath – which just goes to show how big an impact this has had since Jay Powell said only last week that the market should expect interest rate raises in larger increments! Silicon Valley Bank’s collapse reveals regulatory flaws (Financial Times, The editorial board) shows that banks were getting increasingly pressured with the effect of rising interest rates (this has a negative impact on the banks’ bond portfolios – and the shortfall that this caused for SVB was what prompted them to sell off a large chunk of its investment portfolio to plug the gap, which led to concerns, which led to panic – and ultimately SVB’s failure) and although banks are now better capitalised than they were in 2008, central banks also need to shoulder some of the blame for this collapse because rapid interest rate increases have partly caused all this. * SO WHAT? * It feels like a massive crisis has been averted but there will be some aftershocks that could easily take us on another rollercoaster ride again. On the other hand, when the dust settles, I suspect that there will be consolidation among tech companies and an inflow of deposits to tech-focused banks and bigger banks alike (if First Republic Bank and Keycorp survive the aftermath, they could potentially benefit from SVB customers switching to them – and in the UK, Revolut has seen a notable uptick in deposits) as companies look to hold their money in different accounts “just in case”. In addition, it may well be that Biden uses this incident as an excuse to roll back some of the Trump reforms that themselves rolled back some of the Dodd-Frank reforms passed in the aftermath of the financial crisis that had been made to prevent another one!

Cryptocurrency prices soar on support for Silicon Valley Bank depositors (Financial Times, Scott Chipolina) shows that crypo prices have shot up by around 20% since their lows on Friday as investors made a collective sigh of relief at the actions taken by the US authorities in the wake of SVB’s failure. Crypto exchange Coinbase got a 10% boost and crypto miner Marathon Digital saw its share price rise by 20% when it said that its $142m in cash at Signature was fine. I would have thought this is just a relief rally, though, as there’s not really much else to get particularly excited about in crypto at the moment IMO.

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!

VW chooses Canada, Porsche accerates, Amazon and Rivian look to end exclusivity while Direct Line takes car insurance hits…

In Volkswagen picks Canada for battery plant after being lured by US green incentives (Financial Times, Patricia Nilsson) we see that VW has decided to build its first North American battery plant in Canada. It recently put its intended European battery plant plans on hold because it reckoned it could get up to €10bn in US incentives under the Inflation Reduction Act – but it looks like a Canada plant could also benefit from funds because the “made in North America” actually benefits Canada and Mexico as well. The company said that this new move does not mean they won’t invest in Europe. * SO WHAT? * Although they’re not saying it, VW is putting a lot of pressure on the EU by doing this. Even though it may have been intending to unveil a Canada plant all along, it is useful timing for them to turn the screws to squeeze more money out of the Europeans.

Porsche boosted by ultra-rich demand for sports cars (Daily Telegraph, Howard Mustoe) shows that Porsche announced record sales in its first year as a quoted company! Despite production only rising by 3% in 2022, sales actually climbed by 14% as buyers opted for higher-end cars. Porsche expects the rising trend to continue, global economics permitting! Sales of its SUVs were particularly strong, accounting for almost a third of sales – but Porsche 911s also sold well. The company is on track to unveil an electric Macan next year. * SO WHAT? * Porsche joins Aston Martin and Ferrari in their upbeat assessment for sales prospects this year. Their customers base is clearly cost-of-living-proof!

Meanwhile, Amazon, Rivian in Talks to End Exclusivity Part of Delivery-Van Pact (Wall Street Journal, Sean McLain, Dana Mattioli and Nora Eckert) shows that the exclusive deal for electric vans may end as Amazon’s order for 2023 came in at the bottom end of a previously-touted range. The 2019 agreement said that Rivian had to sell all of its vans to Amazon and Amazon says that it remains committed to buying 100,000 from Rivian by 2030 although this year the order is for 10,000 units. Amazon is Rivian’s biggest shareholder with a 17% holding! * SO WHAT? * Going non-exclusive makes a lot of sense IMO. This will give Rivian the best of both worlds – an “anchor” customer in the form of Amazon and the freedom to seek out other customers to boost sales numbers. No doubt Amazon’s involvement has a halo effect for Rivian and will mean that sales will be easier to come by as Amazon is effectively endorsing them!

Then in Direct Line feels the chill from winter home and car insurance claims (The Times, Helen Cahill) we see that the home and motor insurer has reported an annual loss thanks to freezing weather related claims (home insurance) and a rise in the price of car repairs (car insurance). * SO WHAT? * I feel that the company is in a tricky spot at the moment as its CEO just recently stepped down (so there’s a management vacuum) and that the usual thing of just whacking up premiums may be trickier than usual given the cost-of-living crisis. I would have thought thought things will go sideways at best until someone with a vision takes the helm.

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!

UK invests in quantum computing and Sunak considers a TikTok ban…

moment, China and the US dominate this space but the UK is actually some way ahead of the rest of Europe in terms of the number of quantum start-ups.

Rishi Sunak hints at TikTok ban from UK government devices (The Guardian, Dan Milmo and Pippa Crerar) shows the way Rishi Sunak is thinking at the moment as he looks increasingly likely to ban it on government devices, following similar moves in the US and Europe. TikTok continues to maintain this is all based on “misplaced fears” and said yesterday that it would be “disappointed” if the ban went ahead. * SO WHAT? * Banning government employees is one thing – but the risk here is if it spreads, particularly if it does so to the private sector. This could be very bad news for owner ByteDance.

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!

Insurers face a mega-trial, Pfizer buys Seagen, Chick-fil-A has overseas ambitions, John Lewis considers new things and the EY boss faces concerns about splitting the business…

In a quick scoot around some other interesting stories from today’s newspapers, Insurers face ‘mega trial’ over planes stranded in Russia (Financial Times, Jane Croft and Ian Smith) shows that insurers are pushing for a “mega trial” at the High Court next year as they have refused to pay out claims for planes stuck in Russia after the Ukraine war broke out. The world’s largest commercial aircraft owner, AerCap wants to get to trial now to get its money earlier but the insurers are pushing for one mega trial where all claimants can get a settlement at the same time. * SO WHAT? * I guess that the insurers want a big trial because this boots the case into the long grass, during which time anything could happen, but the claimants want to go to court individually because they can probably get a faster resolution and it means that they may get more bites at the cherry. You do wonder what happens if/when the war ends whether insurers will try to argue that the payout will be much less because they will once more have full access to their asset. Whether the leasing companies will want access to assets that have not been maintained in the proper way during the course of the Ukraine war is another issue! I also wonder whether aircraft leasing companies will perhaps claim for lost earnings as it seems that airlines are ordering a lot of aircraft from the Boeing and Airbus at the moment – perhaps planes that they would not have bought if they didn’t get jittery about the pitfalls of leasing.

Pfizer Agrees to Buy Seagen for $43 Billion (Wall Street Journal, Jared S. Hopkins and Jonathan D.Rockoff) heralds a very large acquisition where pharma giant Pfizer has agreed to buy biotech company Seagen for $43bn in cash in a deal that is expected to complete either at the end of this year or beginning of next. It will have to get past the regulators though! * SO WHAT? * Could this be the breaking of the seal that M&A bankers are waiting for after a dry period of dealmaking?? Separately, another deal was announced by Sanofi which said it would buy Provention Bio for $2.9bn. I would have thought that there are plenty of pharmaceutical companies, still fat from the cash they raked in over Covid, wanting to boost their drug pipelines so I would expect that whole sector to benefit from moves like this.

Meanwhile, Chick-fil-A Wants to Serve Its Chicken Sandwiches in Asia and Europe (Wall Street Journal, Heather Haddon) shows that the restaurant chain has ambitions to expand overseas and have presence in five international markets by 2030. Although the company still sees domestic growth opportunities, it wants to look at Asia and Europe as well. * SO WHAT? * The company has attempted overseas expansion in the past, but it has had mixed results. It sunk without a trace in South Africa in 2001 after five years as there just wasn’t enough brand awareness and a London outlet, launched in 2091, closed down after pressure from activists who protested at the company’s donation to organisations that discriminated against gay people. On the plus side, Canada and Puerto Rico seem to be going well. Yum Brands-owned KFC will clearly have a fight on its hands!

John Lewis Partnership fashions new look in the battle for profit (The Times, Isabella Fish) talks about John Lewis experimenting with new formats in its non-food outlets that offer things like home design, fashion, beauty and personal styling under one roof, new children’s areas and they’ve got neuroscientists in looking at touchy-feely things like store design, fragrance and colours. * SO WHAT? * At the risk of sounding repetitive, it seems to me that chairwoman Dame Sharon White continues to doing everything else BUT concentrate on addressing the real problems – bringing in the punters and sorting out Waitrose. The clock is ticking…

Then in EY US boss signalled wide-ranging concerns over split (Financial Times, Stephen Foley and Michael O’Dwyer) we see that the in-fighting at EY regarding whether or not to split the business into auditing and consulting hasn’t been helped by a US boss who said she was concerned about the “health” of its audit business in the event of a split. It looks at the moment like the move to split the business – codenamed “Project Everest” – has failed at Base Camp 🤣. No doubt EY will send in the Sherpas to sort everyone out! The drama continues…

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…

Both my kids had one of these (they are classic toys) but I never had the courage to do this: Doctor’s horror as she cuts kids’ toy open to discover huge mould build-up (The Mirror, Amber O’Connor) 🤢. It makes me gag just thinking about it! Then I thought I’d show you this: Only 1% of people can spot this hidden frog in the forest in 5 seconds (The Mirror, Freddie Bennett). You go months without any optical illusions – and then they all come at once 🤷‍♂️!