6 November 2018

Scott Reid

6 November 2018

Good morning,

It is an odd sort of success when your company announces a near doubling of profits, while a furore about the murder of an international journalist affects your biggest client.

Yet here stood Masayoshi Son, chief executive of SoftBank, which yesterday announced glittering quarterly results for the tech-to-telecoms investment conglomerate, alongside his company’s intention to stand by the Saudi Arabian government-backed $100 billion Vision Fund, despite Riyadh’s involvement in the killing of Jamal Khashoggi. 

In the three months to the end of September, Japanese-based SoftBank posted operating profit of 706 billion yen (£4.8 billion), compared to 396 billion yen last year, and streets ahead of analyst forecasts for 373 billion yen. What’s more, the largest portion of SoftBank’s profit during this period came from Saudi’s Vision Fund – some 45% no less - contributing income of around 393 billion yen.

So despite the international corporate, diplomatic and media backlash to the Khashoggi affair, it would seem that the old truism of “business is business” holds fast.

Speaking in Tokyo yesterday, Mr Son said they had accepted the funds from Saudi “that will be critical to diversifying the economy so that it will not be dependent only on oil. It is true that this was a tragic case, but we also have a responsibility that we must uphold for the people of Saudi Arabia instead of turning our back against them.”

A more fickle commentator might point out that the fallout from the affair is far from over, and if yesterday’s results showed anything, it is how fragile SoftBank’s position is as a result of its links with Riyadh.

There is cause for concern. Between the close of business of 4 October, when Mr Khashoggi was first reported missing, and 1 November, when the Turkish government revealed details surrounding his death in Istanbul’s Saudi consulate, shares in SoftBank fell by 26% with little else to blame for the fall. 

Yesterday’s results may have shown that there is a strong underlying investment case in SoftBank. But whichever way you spin it, standing by the Saudi regime is not a good look at present.


Americans are set to vote in the mid-term elections today with a split congress the most-widely predicted result. Polls have shown Democrats on track to pick up at least 23 seats in order to retake the House of Representatives, although – barring a significant upset – are set to fall short of winning the two seats required to take back the Senate. President Trump’s campaign has deployed inflammatory language around immigration to energise his conservative base in a contest that is being treated as a referendum on his term in office. 

Irish Taoiseach Leo Varadkar has warned thatthe UK would not be granted the authority to unilaterally walk away from a guarantee against a hard border in Ireland under any Brexit agreement with the EU. Varadkar spoke in response to comments made by the UK Brexit secretary Dominic Raab that the UK would retain the ability to pull out of a backstop with only thirty days’ notice. In a perceived gesture of her willingness to do a deal with Brussels, the prime minister has since rebuffed the claim. (£)

Theresa May also played down suggestions that Britain would remain part of a customs union with the EU whilst a future ‘Canada-style’ trade deal was agreed. Her stance counteracts a report published in The Sunday Times that talks over a final deal were far more advanced than previously indicated. Plans are now though to include the imminent publication of a 50-page document, rather than a five-page political declaration that many were expecting following an agreement.

Business & Economy

Michelin’s Dundee-based manufacturing plan is to close leading to 845 job losses, the company has announced. In a statement published on the company website yesterday, Michelin attributed the decision to modernisation challenges and the unsuitability of the plant for conversion. The tyre manufacturer’s Tayside plant will close by the mid-2020s, which the Scottish government has described as “devastating”. 

Lloyds Banking Group is to deliver 2,000 net new jobs as part of £3 billion transformation strategy over the next three years. According to Sky News, around 6,000 existing jobs are to be cut, with 8,000 new positions created to focus on digitising the bank’s infrastructure across its banking, insurance and pensions operations. 

The news broadcaster also reported yesterday that Co-op Group is in advanced stage talks to agree a £300 million sale of its insurance arm to Markerstudy Group. The latter is a privately-owned company which underwrites more than five per cent of the UK’s motor insurance policies. Neither company’s board is thought to have reached a decision, with AA, Aviva, RSA Insurance and Saga all understood to have expressed interest in an acquisition.


What happened yesterday?

Disappointing forecasts for the UK services sector released yesterday weighed the FTSE 250 down 1.36%, while gains across resource and defence stocks allowed the FTSE100 to eke out a rise of 0.14%, closing at 7103.84 points.

On the currency markets, the dollar was weakened by uncertainty ahead of today’s mid-term elections, which compounded gains for the pound on rumours that a Brexit deal is imminent. By close of play, the pound was up by 0.61% at $1.30, and by 0.38% on the euro at €1.14.

The day’s most sobering news came on the back of an IHS Markit survey of the UK’s services sector, which showed a sharp slowing of growth during October – its worst reading in seven months. The survey also suggested quarterly UK GDP growth of just 0.2%, where previous forecasts have suggested 0.6% growth.

In corporate news, equipment rental firm Ashtead fell (down 4.40%) following a sharp reduction in its price target on the stock to 2,200p from 2,580p. Babcock (down 6.21%) suffered following a downgrade to ‘sector perform’ by RBC Capital Markets.

Packaging supplier RPC Group (down 6.00%) also fell on news that the deadline for private equity firms Apollo Global Management and Bain Capital to make an offer for the company was extended.

Associated British Foods          
Connect Group
Imperial Brands
Up Global Sourcing Holdings

Castleton Technology
First Derivatives

AIQ Limited (DI)
GCP Student Living
Mid Wynd International Inv Trust         
Pacific Horizon Inv Trust
Supermarket Income Reit 

Q3 Results
Randgold Resources Ltd.
Verona Pharma

Trading Announcements
Georgia Capital
Direct Line Insurance Group    
Morrison (Wm) Supermarkets  
Purplebricks Group     
Smith (DS)       
Weir Group     
William Hill
Intl. Economic Announcements
(07:00) Factory Orders (GER)
08:55) PMI Composite (GER)
(08:55) PMI Services (GER)
(09:00) PMI Composite (EU)
(09:00) PMI Services (EU)
(10:00) Producer Price Index (EU)

Columns of Note

Hamish Macrae speculates in the Evening Standard that political gridlock coming out of today’s US midterm elections could be good for the country’s economic growth. Although more frequent government shutdowns could be an effect of the Democrats’ widely-predicted retaking of the House, Macrae notes that the underlying profitability of US companies remains solid. Given a wider share of power between American political, financial and corporate institutions, he concludes that the American economy is better prepared than most for instability.

James Kirkup argues in The Times Thunderer column that Britain cannot afford to adopt a restrictive immigration system. He compares the manner of Britain’s demographic change to Japan’s, where the government has latterly accepted the need for more low-skilled workers in areas such as health and social care. If immigration is to become a vote winner, Kirkup suggests that British MPs whose constituents are disproportionately older and wealthier than the norm should communicate its relative benefits – namely, better quality social care. (£)

Did you know?

37% of American voters think Joe Biden would win a fistfight with Donald Trump, while 32% think Trump would win. The remaining 31% are undecided.

Parliamentary highlights

House of Commons
Oral questions
HM Treasury (including Topical Questions)
Ten Minute Rule Motion
Child Maintenance - Marion Fellows
General debate
Centenary of the Armistice
Potential effect of a VAT reduction on the tourism industry - Mr Alistair Carmichael

House of Lords
Oral questions
Promoting shared ownership amongst prospective house buyers - Lord Naseby
Ensuring fewer decisions on immigration matters are reversed on appeal - Lord Roberts of Llandudno
Representations to the government of India about the continuance of manual scavenging - Lord Harries of Pentregarth
Ending the famine caused by the war in Yemen - The Earl of Sandwich
Orders and regulations
Freedom of Information (Designation as Public Authority and Amendment) Order 2018 - Motion to approve - Baroness Williams of Trafford
International Road Transport Permits (EU Exit) Regulations 2018; Road Safety (Financial Penalty Deposit) (Appropriate Amount) (Amendment) Order 2018; Trailer Registration Regulations 2018 - Motion to approve - Baroness Sugg
Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations 2018; Credit Transfers and Direct Debits in Euro (Amendment) (EU Exit) Regulations 2018 - Motion to approve - Lord Bates
Deposit Guarantee Scheme and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 - Motion to approve - Lord Bates
Tax Collection and Management (Wales) Act 2016 and the Land Transaction Tax and Anti-avoidance of Devolved Taxes (Wales) Act 2017 (Consequential Amendments) Order 2018 - Motion to approve - Viscount Younger of Leckie
Scottish Parliament
Topical  Questions
Scottish Government Debate
Impact of the Uk Government Welfare Cuts and Universal Credit on Poveryt
Legislative Consent Motion
Ivory Bill – UK Legislation
Committee Announcement
Public Petitions Committee – Inquiry into Mental Health Support for Young People in Scotland
Members’ Business
The Maybole Bypass and South Scotland Road Infrastructure – Emma Harper

House of Commons
In recess until Monday 12 November

House of Lords
In recess until Monday 12 November
Scottish Parliament
Portfolio Questions
Finance, Economy and Fair Work
Scottish Government Debate
Safeguarding Scotland’s International Research Collaborations and Reputation for Scientific Excellence from the Threat of Brexit
Members’ Business
Emergency Service Workers – Liam Kerr