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Seven days: 31 March 2017

Seven days: 31 March 2017

LSE/Deutsche no more

Megamerger collapsed

As expected, the merger between the London Stock Exchange (LSE) and Deutsche Börse has collapsed. The deal failed to secure approval from the European Commission on competition grounds. Shares in LSE rose 2 per cent on the news. In February LSE refused to comply with the regulator's request to sell its majority stake in bond and repo trading house MTS, calling it a "disproportionate" remedy. LSE had agreed to sell the French arm of clearing house LCH SA to Euronext in order to allay antitrust fears. This will also no longer take place.

 

Banks stressed

New test introduced

The UK's mainstream banks will undergo more stringent stress tests from this year. The Bank of England announced a new biennial test to assess how UK banks might evolve if recent pressures on profits persist. These include low interest rates, increased competition from smaller banks and stagnant global trade. This will be on top of the annual test of how banks' capital levels would withstand certain economic shocks. The results for the seven "systemically important" banks, which include Lloyds (LLOY) and Royal Bank of Scotland (RBS) will be revealed during the fourth quarter.

 

 

BT fined

Customers compensated

There have been few weeks in 2017 that BT (BT.A) hasn't been in the news. This time the telecoms giant has been hit with a £42m fine from Ofcom and been forced to pay out £300m of compensation to its customers following delays to the installation of lines between 2013 and 2014. This is the biggest fine Ofcom has ever imposed, although BT says it won't impact its forecasts for the year. The shares dropped 1.5 per cent on the day, a relatively modest fall, which perhaps indicates that BT is already priced for disappointment.

 

Toshiba limits losses

Takes nuclear option

Toshiba has gone deeper into damage limitation mode. Nuclear business Westinghouse has filed for bankruptcy protection in the US, while management warned the writedown could mean that 2016 losses exceed ¥1 trillion (£7.3bn). This is almost triple its previous estimate of ¥390bn in February. Management indicated that the business was in trouble in December 2016, stating assets acquired by Westinghouse might be worth less than originally thought. It has also overrun on costs for projects in South Carolina and Georgia. The nuclear business accounts for around a third of the conglomerate's revenue.

 

Brexit begins

May triggers Article 50

The UK has officially triggered Brexit. Theresa May wrote to the Brussels office of European Council president Donald Tusk, notifying him of the UK's intention to leave the EU. The 27 EU member states and the UK will now have to negotiate to disentangle relations. Top of the list for discussions will probably be trade agreements with the single market and the rights of EU nationals in the UK and UK expats in Europe. Article 50 of the Lisbon treaty gives both sides two years to reach agreement on terms. Unless both agree to extend the deadline, the UK will leave in March 2019.

 

 

Trump's defeat

Healthcare reform bill scuppered

Donald Trump was forced to withdraw his healthcare reform bill, after it failed to gain enough support in Congress. The decision was taken after it became clear the bill would not gain the 231 Republican votes required to pass. The Dow Jones closed 46 points lower on the day the bill was withdrawn. However, shares in global pharmaceutical companies, including AstraZeneca (AZN), rose slightly. Replacing Barack Obama's Affordable Healthcare Act was one of the main pledges of Trump's election campaign, but has faced protests in the US. The president now plans to turn his attention to tax reform.

 

EasyJet seeks reassurance

Plans to establish EU entity

EasyJet has called for the UK government to make a bilateral agreement with the EU to enable it to continue flights from the UK. Management previously said it was close to announcing its application for an EU air operator's certificate. This would allow it to operate intra-EU flights. An EU operating company would need to be majority-owned by EU shareholders. However, the company said the latter already make up 49 per cent of its shareholders.

 

Investor confidence appears to be making a comeback. According to research from State Street, which measures investor confidence quantitatively through the actual buying and selling conducted by institutional investors, global investor confidence rose by 4.2 points to 95.4 in March, although this remains below the neutral 100 level.

There are clear regional disparities, with North American investors now the least confident globally after the runaway performance of US indices of late, and the start of interest rate ‘normalisation’. This prompted little change in buying activity from the subdued levels of the past few months. Asia Pacific investors remain the most confident, with their confidence reading well into positive territory. European investor confidence also saw a sharp rebound over the past month.

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By Emma Powell,
04 April 2017

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