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Seven days: 22 September 2017

Our take on the most important business stories of the past week
September 21, 2017

KPMG cleared

KPMG, one of the big four accountancy firms, has been cleared of misconduct regarding its audit of HBOS’s 2007 accounts, before the bank went belly-up. The Financial Reporting Council (FRC) said that the company’s work “did not fall significantly short of the standards reasonably to be expected of the audit”. It centred on whether there were material uncertainties about HBOS’s ability to continue as a going concern. KPMG had accepted the bank’s conclusion that it could fund itself, said the FRC, which was not unreasonable at the time. The following events, and the clamming up of interbank funding, were not anticipated.

 

Harvey’s destruction

Costs in

Specialist insurer Hiscox expects to receive net claims of $150m (£110m) relating to the impact of Hurricane Harvey, the first major hurricane to make landfall in the US in more than 12 years. Those claims, which were within the modelled range for such an event, are estimated as part of a wider insured market loss of $25bn, excluding what is covered by the National Flood Insurance Program. And investors await the further cost of Hurricane Irma, which should be announced when the impact of that storm is better known. 

 

 

Tata’s new steel deal

A Port Talbot reprieve? 

India’s Tata Steel has opened the way for a merger of its European operations with German steel manufacturer ThyssenKrupp, creating Europe’s second-largest steel group after ArcelorMittal. A major hurdle to the merger was removed recently when Tata reached an agreement over its £15bn pension scheme. Naturally, steel unions and politicians are already calling for the merged entity to safeguard Welsh jobs when they go ahead with the merger. But with returns shrinking across the industry, scaling-up operations is the only way to compete globally.

 

The great unwinding

The end of QE?

By the time this magazine has hit the newsstands we should know whether the US Federal Reserve is serious about unwinding quantitative easing (QE). It would represent an effective volte-face on what has been the greatest monetary experiment in US economic history. The efficacy of the QE programmes will be hotly debated by economists for decades, but equity investors probably aren’t in any doubt as to its benefits. The only problem is that shrinkage of the Fed’s balance sheet usually prefigures recession. Doubtless this will be uppermost in the mind of Janet Yellen.

 

Clock watching

Flights cancelled

Ryanair (RYA) is set to cancel between 40 and 50 flights every day for the next six weeks, with the aim of improving punctuality. This had fallen below 80 per cent in September due to a combination of more holiday allowance for its pilots, bad weather and strikes at air traffic control. This represents less than 2 per cent of the flights operated by the budget airline over the next six weeks and less than 0.5 per cent of passengers over the year. The cancellations are expected to cost Ryanair around €25m (£22.1m) and will be met in the second quarter.

 

Cancer breakthrough

NHS approval 

Bristol-Myers Squibb’s immunotherapy drug Opdivo has become the first of its kind to be recommended to treat NHS patients with lung cancer by the National Institute for Healthcare Excellence (NICE). The pharmaceutical group agreed a discounted price with the watchdog, meaning around 1,300 patients will receive the drug through the Cancer Drugs Fund. Both Merck (US:MRK) and AstraZeneca (AZN) have immunotherapy drugs approved in the US, but have yet to receive the go-ahead in the UK due to their high price. 

 

Streaming power

Hulu wins Emmy

The streaming revolution, which has been snatching viewers from traditional TV channels for the past few years, has now claimed its first big award. Hulu, a digital TV service owned by Walt Disney, 21st Century Fox, Comcast and Time Warner, won the coveted Outstanding Drama award at the Emmys for its version of The Handmaid’s Tale. Hulu’s victory on television’s biggest awards night reflects the rising competition for audiences between traditional pay-TV companies and online services such as Netflix or Amazon.