As well as being the year that Brexit stood still, 2018 may be remembered for its steady stream of corporate takeovers. Take your pick - J Sainsburys-Asda; CYBG-Virgin Money; Vodafone-Liberty Global. Each has headed the front pages within the past month alone suggesting that the pace of M&A shows no sign of slowing down. All of which begs the question:- who’s next?
The answer, it seems, could be the big banks. The FT led yesterday with news that Barclays has been exploring a possible merger with rival international banks in response to pressure from activist investor, Edward Bramson, who recently became one of the bank’s biggest shareholders by acquiring 5.4% voting rights.
Sure, M&A is touted as only one line of contingency planning recently discussed by directors at Barclays (albeit reportedly gaining the key support of their international chair, Sir Gerry Grimstone). Other options include expanding the bank’s ringfenced UK business, and “hypothetical combinations” with a range of other banks, including Deutsche Bank, Credit Suisse and DBS in Singapore.
That Barclay’s international rival Standard Chartered was mentioned as a direct takeover, however, should make investors pay attention. On paper, the mooted plan makes sense; a StanChart tie-up would clear the way for Barclays to grow in its under-served Asia market, whilst also offering the prospect of turning the tables on Mr Bramson through its estimated £25billion market cap.
But there are always downsides. Little regional overlap means cost-cutting might not be so easy in a deal speculated to be worth near £70 billion. The Lex FT column asks why Barclays would take on StanChart’s reported need for £1billion in cuts to annual overheads only to disadvantage 95% of shareholders.
Still, the potential for another takeover in the banking sector deserves closer attention going forward. Dwarfing the CYBG-Virgin Money tie-up reported earlier this month, this latest maneuvering by Barclays suggests the Big Four are gearing up for a fight. Barclays already commands in excess of £1 trillion in assets, and bringing a competitor into its fold will only make it harder for smaller banks to break through, both at home and abroad.
Guiseppe Conte has been approved by President Sergio Mattarella as the incoming prime minister of Italy, paving the way for a populist coalition to begin governing. The anti-establishment Five Star Movement and right-wing Lega chose law professor Conte in a bid to end 11 weeks of political deadlock. Emerging from talks with the president yesterday, Conte said “What is about to be born is the government of change”. Five Star and Lega are now expected to unveil their governing programme in full by the end of the week.
The Institute for Fiscal Studies has estimated that income tax will need to be increased by 10p in the pound within 15 years to pay for necessary improvements to the NHS. According to the IFS, health spending must increase from £154billion today to £249billion in 2034, or 3.3% a year, in order to maintain present service standards. (£)
Yulia Skripal, the daughter of an ex-Russian spy poisoned by Russian nerve agent in Salisbury, has made her first public appearance since the attack on 4 March. Speaking via online video, Skripal refused the services of the Russian embassy for assistance, reiterating earlier comments that “no-one speaks for me, or for my father, but ourselves”. She expressed her wish to return to Russia at some time in the future.
President Trump’s personal lawyer, Michael Cohen, received at least $400,000 to organise talks with the president of Ukraine in Washington last June, according to sources in Kiev close to those involved. Cohen reportedly arranged the payment through intermediaries acting for president Petro Poroshenko, despite not being registered as a representative of Ukraine as required by US law. Cohen has denied the allegations.
Business & Economy
The head of HM Revenue and Customs has told MPs that the post-Brexit “max fac” customs option could cost businesses up to £20billion a year. Jon Thompson, who is chief executive of HMRC, warned that firms would have to pay £32.50 for each customs declaration, amounting to a total annual bill of around £13billion more than the UK’s recent annual contributions to the EU. The “maximum facilitation” proposal is favoured by Michael Gove and Boris Johnson, and works by streamlining customs checks at the border through new technology.
Deutsche Bank is reported to be cutting up to 10,000 jobs focused on its investment banking division in the UK and US as part of global restructuring plans. According to a source reported by the FT, the figure was at the “upper end of the scenarios being discussed”, but was the “most likely outcome” of a supervisory board due to have taken place on Wednesday evening. If the plan is taken forward it is expected to be announced at an annual shareholder meeting today in Frankfurt. (£)
Comcast has said it is in “advanced stages of preparing” a rival takeover bid to Walt Disney’s proposed $66 billion takeover of 21st Century Fox. The US cable provider said it would lodge an all-cash offer for all of Fox’s assets except its news chancel and sports and business network, and divisions already agreed for takeover by Disney. The comments mark the first time Comcast has openly acknowledged reports of a takeover. (£)
What happened yesterday?
Miners and the oil & gas sector led the fallers on a poor day for the London markets, pulling back from a record high earlier in the week with its biggest daily fall in two months. By close of trading, the FTSE 100 stood at 7788.44 points or 1.13% lower.
Shares at Rio Tinto (down 3.17%) saw some of the day’s worst losses, following reports that it is in talks to sell its interest in Freeport’s Grasberg copper mine in Indonesia to a state-owned enterprise for $3.5billion. HSBC said the mooted price would be disappointing and promptly cut Rio off its “buy” list, citing growing geopolitical risks across the sector. Vedanta Resources (down 11.52%) also dropped after in-line results from the metals group were overshadowed by news that police had shot dead protesters at its smelting plant in southern India.
Elsewhere, reports that Barclays (down 1.09%) is mulling a possible merger with its peers in the sector, lifted shares in Standard Chartered higher (up 0.44%), which has been touted as a possible target. Marks & Spencer (up 5.17%) was the standout gainer as its radical plan to accelerate its store closures buoyed investors, despite also reporting a 5.4% fall in annual profits including £514million of exceptional costs.
On the currency markets, the dollar benefitted from heightened risk aversion resulting from President Trump’s comments that a proposed US-China trade was not making suitable progress and that there is a “very substantial chance” a historic summit with North Korea’s Kim Jong-Un next month may not happen. It was up 0.62% against the pound at £0.75, whilst the pound was 0.01% higher against the euro at €1.14.
TalkTalk Telecom Group
Tate & Lyle
United Utilities Group
Wizz Air Holdings
Young & Co's Brewery 'A' Shares
Daily Mail and General Trust A (Non.V)
Paragon Banking Group
Int. Economic Announcements
(07.00) GFK Consumer Confidence (GER)
(07.00) Gross Domestic Product (GER)
(13.30) Continuing Claims (US)
(13.30) Initial Jobless Claims (US)
(14.00) House Price Index (US)
(15.00) Existing Home Sales (US)
Arena Events Group
Cambridge Cognition Holdings
Dunedin Income Growth Inv Trust
DP Eurasia N.V. (DI)
F&C Private Equity Trust
Hastings Group Holdings
Jersey Oil And Gas
Lloyds Banking Group
Learning Technologies Group
Manx Financial Group
Sabre Insurance Group
Spire Healthcare Group
Tissue Regenix Group
UK Economic Announcements
(09.30) Retail Sales
Columns of Note
Chris Giles uses his column in the FT to direct blame for the UK’s productivity gap at some of its biggest companies. Pointing to a lack of investment in finance, utilities, pharma, computing and professional services, Giles suggests the Bank of England and government should be granting business less slack in order to boost R&D and wage growth as a potential solution. (£)
Jenni Russell comments in The Times in support of a plastic tax. Russell cites research that a penny tax invested into a global fund would raise $6 billion a year or enough to meet the estimated costs of more advanced collection systems for recycling plastics. Pointing out that just five countries (China, India, the Philippines, Thailand and Vietnam) contributed more than half of global plastic pollution in the sea during 2015, Russell suggests more coordinated international effort is now needed. (£)
Did you know?
President Reagan was a noted patron of the Jelly Belly Bean Co. Blueberry flavour was created for his 1981 inauguration when over three tonnes of Jelly Belly beans were consumed during the festivities. A portrait of President Reagan made from 10,000 Jelly Belly beans also hangs in the Ronald Reagan President library in Simi Valley, California.
House of Commons
Transport (including Topical Questions)
Business Questions to the Leader of the House – Andrea Leadsom
Select Committee Statement
41st Report of the Public Accounts Committee, Government risk assessments relating to Carillion plc, HC 1045
Debate on a Motion on the Persecution of the Ahmadiyya Muslim Community - Siobhain McDonagh
Northern Rail timetable changes - Mr William Wragg
House of Lords
The Lord Bishop of London
Ensuring the Commonwealth Communiqué’s commitment to eradicate forced marriage is realised and assessing its inter-relationship with forced conversion - Baroness Berridge
Supporting the Palestinian Authority in its complaint against Israel to the Committee on the Elimination of Racial Discrimination - Baroness Tonge
Report of the independent review of the application of sharia law in England and Wales - Baroness Cox
Compliance with the Equality Act 2010 by train operating companies with regard to disabled passengers - Baroness Brinton
Refugees (Family Reunion) Bill [HL] – Report - Baroness Hamwee
European Union Committee report: 'Brexit: competition and State aid' - Lord Whitty
International Relations Committee report: 'The UK and the future of the Western Balkans' - Lord Howell of Guildford
First Minister’s Questions
Celebrating Scotland’s Gypsy/Traveller Community – Mary Fee
Northern Isles Ferry Procurement
Local Government and Communities Committee Debate
Consultation on the draft National Outcomes
House of Commons
No business scheduled
House of Lords
No business scheduled
No business scheduled