Late last night we learnt of developments in two potential bank mergers as financial institutions seek to gain an edge in an increasingly competitive sector.
The news that Italian bank UniCredit is plotting to merge with French rival Société Générale - albeit with discussions in their infancy - grabbed the attention of many in the industry given its audacious objective, the consequences of such a move, and the prevailing political environment.
A merger of two of Europe’s largest banks would create a cross-border European institution that could better compete with its thriving rivals in the US. The development comes hot on the heels of the news that Barclays has also been debating the idea of a big deal, potentially a £60bn-plus combination with Standard Chartered.
Large-scale bank M&A was high on the agenda of last week’s Institute of International Finance summit in Brussels as European bank bosses seek ways to close the growing gulf between banks either side of the Atlantic. UniCredit’s CEO, Jean-Pierre Mustier, was most vocal on the need for more pan-European banks, a sentiment echoed by the European Central Bank, which sees cross-border deals as key to efforts to champion the pan-eurozone banking union.
However, any potential deal will be fraught with challenges and snags, not least the perennial tumult that is Italian politics, a situation that has already caused the timetable to be pushed back from the planned 18 months.
As one deal came onto the radar, another took a possible step towards fruition. CYBG increased its offer for rival Virgin Money in a deal that would give Virgin shareholders a greater stake. A recent fall in the CYBG’s stock meant the revised offer had a lower monetary value than the initial offer but Virgin shareholders will now receive 38% of what would become the UK’s sixth-largest lender, compared to the previous offer of 36.5%.
Like the big banks, we can perhaps expect to see more merger activity among small and mid-sized lenders as they wrestle with their competition, increasing funding costs, and a sector that is becoming ever more global and borderless.
The Treasury is taking “an active role” in shaping new EU value added tax regulations for the 2020s in the biggest hint yet that Britain is planning to remain in the European VAT area after Brexit. By doing so, the country would continue to be ultimately bound by rules set by the European Court of Justice, breaking one of Theresa May’s negotiating red lines. (£)
Israel has shared secret files that appear to show Iran’s determination to build a bomb, increasing the pressure on Britain and its European partners to rip up the nuclear deal. In January 100,000 files were taken from a Tehran warehouse by agents of Mossad, the Israeli intelligence agency, and it is expected that some of the documents will be shared with UK, French and German security services ahead of this week’s trip to Europe by Binyamin Netanyahu, the Israeli prime minister. (£)
One of the most violent volcanic eruptions in Guatemala has experienced in decades has caused the death of 25 people and injured hundreds more. President Jimmy Morales is considering declaring a state of emergency after the eruption of the Fuego volcano, considered the biggest eruption since 1974.
Business & Economy
Accountancy firm BDO is calling for an overhaul of the way in which auditors compete for contracts at Britain’s biggest companies, after claiming the cost of tendering for contracts is the biggest barrier to competition. The ‘Big Four’ hold up to 98% of audit contracts among the top 350 London-listed companies, with BDO – the fifth biggest player on the market – having only one FTSE 100 member. The proposals have attracted some support from the four market leaders, PWC, KPMG, Deloitte and EY. (£)
BT chief executive, Gavin Patterson, has been warned that investors are running out of patience with his stewardship as a series of setbacks have seen the telecom group’s shares languish at a six-year low. Shareholders have requested a meeting with the company’s chairman in order to voice their displeasure and discuss Patterson’s tenure as the telecoms giant undergoes a major restructure. (£)
China and the US appeared to be heading towards a $100bn trade war againlast night after a third round of trade negotiations ended in Beijing on Sunday without a breakthrough. The talks came after China promised to reciprocate any moves by Donald Trump to impose extra tariffs on $50bn worth of Chinese industrial exports later this month.
The week ahead
The week kicks off with the second biggest event on Apple’s calender: the developer conference. As well as providing a place for developers to preview the next iteration of the phone’s operating system, it allows investors and analysts a window into the company’s thinking over its future direction. Early guesses include artificial intelligence, augmented reality and the “smart home” as Apple looks to compete with Google and Amazon.
On Tuesday, the latest services purchasing managers' index figures are published, with the promise of further intelligence for analysts trying to fathom the depths of the UK’s first quarter slowdown.
On Wednesday, WH Smith posts its third-quarter results on the back of being voted worst retailer on the high street by Which? magazine.
Finally, on Friday, leaders of the seven leading advanced economies head to Quebec for the G7 summit, where trade is bound to take centre stage this year given Donald Trump’s decision to impose steep tariffs on European nations as well as the host country.
CityFibre Infrastructure Holdings
The Gym Group
Vietnam Enterprise Investments (DI)
UK Economic Announcements
(09:30) PMI Construction
Int. Economic Announcements
(10:00) Producer Price Index (EU)
(15:00) Factory Orders (US)
Columns of Note
Following last Friday’s launch of the Generation Equal campaign by Nicola Sturgeon’s Advisory Council on Women and Girls, Kevin Pringle argues that a society which is gender equal doesn’t have to be fantasy. Writing in The Sunday Times, Pringle mentions how Disney’s female characters have become more active forces for change in recent times and expresses his wish that Meghan Markle pioneers this trait in the UK’s royal family. (£)
The retailer Lush got it badly wrong with their new anti-police marketing campaign, according to Paul Blanchard in City AM over the weekend . Blanchard, a reputation consultant, said the cosmetics company is facing the consequences of putting an attention grabbing stunt above the subtler art of a carefully crafted long-term strategic engagement plan.
Did you know?
In Finland, doctoral candidates who receive a Ph.D. also receive a top hat and a sword. The Doctor's Sword is considered a symbol for the scientist's fight for what he or she, in rigorous research, has found to be good, right and true.
House of Commons
Home Office (including Topical Questions)
House of Lords
Outcome of the review of police officers’ use of firearms - Lord Hogan-Howe
Impact of education, health and care plans on children with special educational needs. - Lord Storey
Impact of removing visa requirements for visitors to the UK from Peru - Baroness Coussins
Banning the sale of new (1) diesel, (2) petrol, (3) hybrid, and (4) electric, cars over the next 25 years - Lord Naseby
No business scheduled
House of Commons
Justice (including Topical Questions)
Ten Minute Rule Motion
DiGeorge Syndrome (Review and National Health Service Duty) - David Duguid
House of Lords
Purpose of small clubs and charities having to comply with the General Data Protection Regulation - Lord Brabazon of Tara
Implications for human rights of the environmentally sound management and disposal of hazardous substances and wastes in relation to the Ffos-y-Fran opencast coalmine - Baroness Humphreys
Ensuring documents sent to the Home Office are not lost and plans the department has to refer itself to the Information Commissioner’s Office when data breeches occur - Lord Kennedy of Southwark
Levels of funding for science and research if the UK withdraws from the EU
Automated and Electric Vehicles Bill - Report - Baroness Sugg
Scottish Government Debate: Celebrating Scotland's Volunteers
Legislative Consent Motion: Parking (Code of Practice) Bill - UK Legislation