Talks extended
US stocks rose after President Trump floated the idea of an extension to trade talks with China beyond the 1 March deadline currently set. Mr Trump said: “If we’re close to a deal where we think we can make a real deal and it’s going to get done, I could see myself letting that slide for a little while.” Tariffs on around $200bn of Chinese imports into the US are set to increase from 10 per cent to 25 per cent from March if representatives from the two countries cannot agree terms, including over China’s forced transfer of technology from US companies.
Shale ascends
Opec overtaken
Oil output from producers outside the Organization of Petroleum Exporting Countries (Opec) is expected to rise ahead of expectations for 2019, according to the International Energy Agency, thanks to the rapid rise in US shale production. Non-Opec output will rise to 1.8m barrels of oil per day (bopd) this year, taking total output from these countries to 64.4m bopd, 300,000 bopd higher than expected. This will reduce the oil required from countries inside the cartel, which should stand at 30.7m bopd for the year, compared with 30.8m bopd in January.
Sol ups ante
Hostile bid
Ecuador-focused exploration group SolGold (SOLG) upped the pressure on Cornerstone Capital Resources (CA:CGP), a week on from its all-share bid for the owner of a 15 per cent stake in the Cascabel project. SolGold – in which BHP (BHP) has an 11.2 per cent stake – said its directors were “surprised and disappointed” at Cornerstone’s swift rejection of the offer, and questioned how Cornerstone could have properly engaged with its shareholders before doing so. The offer represents a 20 per cent premium to the undisturbed price of Cornerstone’s Toronto-listed shares.
Special relationship
Getting defensive
The Ministry of Defence (MoD) has secured a £500m deal with the US Department of Defense to provide support services to its fleet of F-35 jets. The work will be carried out in north Wales by Sealand Support Services, an existing joint venture between the MoD, BAE Systems (BA) and Northrop Grumman (USD:NOC). Sealand will provide maintenance, repair, overhaul and upgrade services to the F-35s from 2020 onwards. The announcement follows a deal agreed in 2016 to make the UK the global centre of F-35 component repair.
BoA's Brexit plans
Heading west
Bank of America revealed that it had spent $400m on moving staff and operations in preparation for Brexit. Speaking at the European Financial Forum in Dublin, vice-chair of the New York-based banking group Anne Finucane said: "Dublin is our headquarters for our European bank now full stop." Brexit plans have so far included moving $50bn of banking assets to a Dublin base with a workforce of 800 people, and establishing a 500-person strong trading operation in Paris.
Risers and fallers (%)
| DEBENHAMS | +17.05 |
| CAPITAL & REGIONAL | +12.11 |
| AA | +11.39 |
| STHREE | +9.73 |
| PURECIRCLE (DI) | +9.25 |
| PETROFAC | -31.41 |
| PLUS500 | -28.52 |
| TUI (LON) | -26.77 |
| NOSTRUM OIL & GAS | -23.11 |
| GULF MARINE SERVICES | -16.74 |
Week to 12 February 2019
Santander shocks
No call on debt
Santander surprised markets by deciding against early repayment of its €1.5bn capital bond – the first such instance in the additional tier one (AT1) bond market, the riskiest form of bank debt. The Spanish lender said AT1 bonds – which were introduced in the wake of the 2008 financial crisis to shore up banks’ balance sheets – have a perpetual maturity, which means they never have to be repaid. However, there is typically ‘a gentlemen’s agreement’ that banks will repay the bonds at the first opportunity, typically after five years or so. However, European regulators have previously said they do not believe financial groups must always honour this if the bank may have to replace the bonds with more expensive debt.
City M&A continues
Strength in numbers
Consolidation activity among the City of London’s brokerages continued as Shore Capital bought rival Stockdale Securities for £9m. The combined company will be London’s fourth-largest corporate broking and advisory business by number of retained main market Alternative Investment Market-traded companies, advising around 125 corporate clients and providing research on around 300 equities. The Markets in Financial Instruments Directive II has hampered a key source of revenue for brokerages, requiring asset managers to pay for research and trading separately. That has forced fund managers to be more selective in the research they use, and pulled down the price of that research.
