6 Aug 18

Scott Reid

6 Aug 18

Good morning, 

It is no secret that House of Fraser has seen better days. 
 
But judging by the verdict of business editor Oliver Shah’s long-read in the Sunday Times yesterday, you’d be well-advised to spend that credit voucher that was abandoned at your last birthday sooner rather later.
 
deal with a group of its landlords announced yesterday means House of Fraser can now go ahead with plans to close 31 of its 59 stores through a form of insolvency known as a company voluntary arrangement (CVA), and so putting up to 17,500 jobs at risk. House of Fraser’s suppliers are paid on 45-day terms and should the need arise for it to enter administration, the window for any savior to keep the doors open would be very short indeed.
 
One such savior, Sports Direct’s billionaire owner, Mike Ashley, was yesterday also reported by the Sunday Times as unlikely to go ahead with a rescue deal for House of Fraser because of its pensions funds.
 
But here’s a thought; as we read daily reports of Amazon’s latest attempt to disrupt the sector by taking the products of one ailing retailer or another online through M&A, you can’t help but wonder whether such a business model might also work for House of Fraser. 
 
An offer may not be on the table but the benefits are plenty. By taking more of its business online, the department store could shed an exorbitant tax regime and a millstone around its neck in the form of its property portfolio, often city centre listed buildings with huge upkeep costs. Consumers would be the big winners, considering John Lewis, Debenhams and the big supermarkets already cover much of the same ground as House of Fraser. Partnering with the likes of Amazon would simply cut out the eye watering supply chain costs involved in running a department store in the 21stcentury, and could give a new lease of life to an institution with 169 years of history in Britain’s retail market. What’s not to like?
 
Sure, it would be a bitter irony that the ‘House of Fraser’ might in the end benefit from shedding its physical presence on the high street. But if Shah’s report is anything to go by, House of Fraser needs all the helps it can get.

News

President Trump has claimed that a meeting his son had with a Russian lawyer in June 2016 “to get information on an opponent” was legal. In his most direct response to date concerning allegations that his family were involved in Russian conspiracies to influence the 2016 US presidential election, President Trump admitted that the meeting was related to Democratic nominee Hilary Clinton, but denied collusion. Donald Trump Jr met with Kremlin-linked lawyer Natalia Veselnitskaya on June 9, 2016 in Trump Tower, which the President also railed, “I did not know about it!”
 
The European Commission is reported to be re-considering the extent of its legal powers over Northern Ireland post-Brexit in order to “de-dramatise” a backstop plan which has yet to be agreed between the UK and the EU. According to a senior EU diplomat, the revised plan would give UK courts increased jurisdiction over customs checks and regulation in Northern Ireland where previous proposals gave Brussels and the European Court of Justice priority. (£)
 
Protests over collapsing living standards have erupted in Iran as further US economic sanctions resumed this morning. Protestors criticised the collapse of the Iranian rial, which has lost two thirds of its value against the dollar in a year, and has led to rising inflation. The rallies have targeted President Rouhani, with chants including “Death to the dictator” and have so far led to a death in the western city of Karaj.

 

Business & Economy 

Philip Hammond is reported to have urged senior City figures towards “alternative paths to growth” in order to prepare for French-led attempts by the EU to restrict the autonomy of the Britain’s financial services after Brexit. In a series of meetings, the UK Chancellor suggested Britain could lose access to key European markets, and that they should not expect the Treasury to cut business tax “for several years”. (£)
 
According to a senior City investor, the UK’s Big Four auditors have been prioritising commercial advantage ahead of making the best professional judgements. Euan Stirling, who is global head of stewardship at Standard Life Aberdeen, said his company was concerned by evidence that commercial interests were being put ahead of professional judgment. Standard Life Aberdeen is reported to have held a series of meetings with the boards of FTSE 100 and FTSE 250 companies in an effort to encourage auditing appointments outside of the Big Four. (£)
 
Higher operating costs have dented HSBC’s profits as the bank reported its first-half year earnings this morning. Adjusted pre-tax profits were at $12.1 billion, down by two per cent on the same period last year, whilst adjusted operating expenses stood at $16.4 billion, or eight per cent higher. The higher expenses were related to the bank’s investments in its retail and investment banking units, as part of its latest strategic plan. (£)

Markets 

 

The week ahead
With government announcements lessening their pace as August advances, this week will put corporate earnings back in the limelight. 
 
The exception is the swearing-in ceremony for Colombia’s new president, right-winger Iván Duque, who will take his office on Tuesday following an election win in May. A faltering peace deal agreed in 2016 between the leftist Farc geurilla group, community organisers, trade unionists and the country’s rightwing forces will be top of his in-tray – more than 300 high-ranking officials have been assassinated in Colombia since it was signed and Mr Duque has promised harsher punishments for the rebels.
 
In corporate news, UK insurers Standard Life Aberdeen, Prudential and Legal & General will all report corporate earnings this week, with analysts suggesting this year’s results will be seen as a bellwether of a recent industry-wide shift in focus from traditional life assurance towards fund management. Other headline grabbing results to look out for are H1 results at HSBC today, expected mixed Q3 results at Walt Disney on Tuesday, and Q3 results at German industrial conglomerate ThyssenKrupp on Thursday.
 
Tailing off the working week, Ryanair will face severe disruption to flights with pilots in Ireland, Sweden, Belgium and the Netherlands scheduled to take a day of industrial action on Friday. Late last week the airline agreed to use a third-party moderator in its discussion with its Irish pilots, which has been touted as an innovation that may break negotiating deadlocks across Europe.

Finals
Omega Diagnostics Group
 
Interims
HSBC Holdings
SDL      
Synthomer
Ultra Electronics Holdings

 

AGMS         
Solo Oil
 
Int. Economic Announcements
(07.00) Factory Orders (US)

Columns of Note 

Writing in the Sunday Times, Kevin Pringle calls for the office of the Secretary of State for Scotland to be abolished post-Brexit. Commenting on last week’s publication of an inquiry into the future of devolution by a House of Commons committee, he suggests that if the government is to live up to its ambition for “qualified sovereignty” in the UK, then Westminster must begin to prioritise its functional rather than territorial relationships with Edinburgh, Cardiff and Belfast. (£)
 
Oliver Kamms writes in the Times to argue that the Bank of England should consider targeting inflation rates of between four and five per cent. At up to three per cent higher than the current target rate of two per cent, Kamms suggests the move would help borrowers over savers, and so encourage spending in the economy given the greatest risk to the economy is of slowdown rather than overheating. (£)

 

Did you know? 

London Underground transports three million people a day but only three babies are known to have ever been born on the tube. The most famous person born in a London underground station is the US talk show host Jerry Springer. He was born at Highgate station on 13 February 1944 while his mother took shelter from a Luftwaffe bombing raid.

Parliamentary highlights 

House of Commons
In recess until September 4, 2018.
 
House of Lords
In recess until September 4, 2018.
 
Scottish Parliament
In recess until September 4, 2018.