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Seven days: 29 June 2018

Our take on the biggest business stories of the past week
June 28, 2018

Stevenson for HSBC

If Ewen Stevenson could manage four years as finance director sorting out Royal Bank of Scotland’s (RBS) chaotic balance sheet – shedding risky assets, improving capital levels and helping it report its first attributable profit in a decade – then getting costs under control at HSBC (HSBA) will be a cinch, right? Mr Stevenson will replace Iain Mackay as finance director of the Asia-focused banking group, alongside recently appointed chief executive John Flint. Mr Mackay will serve a 12-month notice period, while Mr Stevenson said last month that he would stay at RBS to “oversee an orderly handover” of his responsibilities.     

 

Banking on inertia

Retail reforms

There is little doubt that competition within the UK retail banking sector isn’t working. In its latest update on the review into retail banking business models, the Financial Conduct Authority said the UK’s banking giants benefited from a “captive audience” that is reluctant to switch and can be cross-sold other products, even though it could find better rates elsewhere. That allowed them to make as much as half their profits from current accounts from just 10 per cent of customers, while 2 per cent of accounts pay more than half of all overdraft charges.

 

 

Department store death?

John Lewis warns

It’s not been a good year for UK department stores, with House of Fraser recently announcing plans to shut 31 of its stores and Debenhams (DEB) issuing multiple profit warnings. John Lewis Partnership this week warned that it expects its first-half profits to be “close to zero”, from £26.6m the year before. It blamed increased investment in services and technology and said it planned to raise £500m by increasing profitability at Waitrose, raising money from property and reviewing its pension scheme. It also plans to rebrand its two chains as ‘John Lewis and Partners’ and ‘Waitrose and Partners’.

 

GE unravels 

Cash constrained 

The conglomerate has become an increasingly unfashionable business model in recent years – DS Smith (SMDS) remains a rare UK-listed example. GE, one of the largest industrial conglomerates, has begun unravelling its behemothic structure by announcing plans to spin off two of its largest divisions. The sale of its healthcare division and stake in oil services company Baker Hughes are part of management efforts to simplify the group’s structure and raise cash to strengthen the balance sheet. The divisions accounted for almost a third of group revenue last year.

 

Risers and fallers (%)

CAIRN ENERGY12.98
MEARS GROUP12.42
ENQUEST11.33
RPC GROUP11.22
TELECOM PLUS10.13
  
COUNTRYWIDE-46.45
CARPETRIGHT-9.87
XAAR-9.85
DEBENHAMS-9.77
BERKELEY GROUP HDG.-9.04
Week to 26 June 2018

 

Stobart bickering    

Calls for re-merger

The infighting at Stobart Group (STOB) continued this week. The infrastructure and support services specialist will hold an extraordinary general meeting on 18 July to vote on the re-election of Iain Ferguson as non-executive director. A circular has been sent to shareholders with details about why the board believes Mr Ferguson is the best fit for the role. Stobart group’s former chief executive, Andrew Tinkler, was fired from his position as a director earlier this month after he wrote to shareholders encouraging them to vote against Mr Ferguson’s re-election. Mr Tinkler also argued for remerging Stobart with Eddie Stobart Logistics (ERL), which was spun out and floated on the main market last year.  

 

IWG warns 

Terra joins bidding

Shareholders in IWG (IWG) might become increasingly eager to seal a takeover deal. Management warned a combination of operating losses and incremental overhead costs stemming from high network growth, as well as weak performance in the UK business, would mean this year’s operating profits would come in £15m-£20m below previous expectations. The news came just four days after management revealed it had received an approach for a potential cash offer from private equity group Terra Firma. The Regus office-owner had already received interest from three other potential bidders, one of which – Lone Star – has since walked away.

 

House prices sluggish

London downturn

UK house price growth hit a five-year low in June, with London continuing to lag the rest of the country, according to the Nationwide Building Society. Prices were up 2 per cent year on year over the whole country, down on 2.4 per cent in May. The deterioration in London prices also accelerated during the second quarter at 1.9 per cent, compared with a 1 per cent decline during the first three months of the year. While borrowing costs should remain low, subdued economic activity and a squeeze on household budgets are likely to continue to drag on housing market activity, Nationwide said.