Political pain
Equity markets were roiled mid-week by a political double whammy for leaders either side of the Atlantic. Firstly the UK Supreme Court ruled that prime minister Boris Johnson’s suspension, or prorogation of parliament was unlawful, sending politicians scuttling back to Westminster and providing further fuel to the political uncertainty around Brexit. Meanwhile, in the US the Democratic Party announced it was launching an impeachment inquiry into allegations that Donald Trump acted improperly in pressuring the Ukraine to investigate the activities of potential Democratic 2020 presidential candidate Joe Biden’s son in the country with leading Democrat Nancy Pelosi describing this as "a breach of his constitutional responsibilities".
Carbon neutral pledge
Utilities in the crosshairs
A future Labour government would break ranks with most other industrialised nations in accelerating plans to make the UK economy carbon neutral. With most countries setting 2050 as a date to achieve this goal, Labour pledged to bring this target in to 2030 when it launched its Green New Deal at this week’s party conference, a major step towards it being included in any future manifesto. Being carbon neutral entails an economy that makes net zero emissions and Labour would move towards this through a package including taxation, retrofitting social and council property with carbon neutral technologies and, more significantly for businesses, renationalising energy companies and public transport operators in a bid to encourage free or affordable alternatives to car travel.
Banking concerns
Santander hit
The UK arm of Spanish banking giant Santander is to take a E1.5bn (£1.3bn) hit to the value of its business as concerns grow for the health of the sector in the face of rising regulatory costs and an increasingly cautious consumer outlook. Profits in the UK business fell by 39 per cent in the first half of this year as costs relating to ring-fencing rules for banks started to bite. Meanwhile, competition for business is fierce in a slowing market. The mortgage market is proving particularly tough, with record low rates being introduced to buy market share with the lowest two-year fixed rate dipping to 1.21 per cent this week and Tesco Bank this month announcing its exit from the market following a deal to shift 23,000 mortgages to Halifax. Sentiment towards retail banking took a further hit this week when Metro Bank's shares plunged after it pulled a fund raising plan due to a lack of support.
WeWork boss ousted
Follows failed IPO
The meteoric rise of office rental business WeWork is in danger of unravelling almost as quickly. The company was forced to abandon a multi-billion initial public offering last month after investors rejected the eye-watering valuation placed on its shares despite last minute proposals to slash the offer price. Now co-founder and chief executive Adam Neumann has stepped down from his role to become non-executive chairman citing the ‘distraction’ caused to the business of press focus on him. Meanwhile, management and key investors, including Japan’s Softbank, are said to be considering drastic action to cut costs and fast track a move to profitability at a company that has posted losses of almost $3bn (£2.4bn) over the past three years.
Debt boom
Highest in peacetime
The world’s major economies are in hock for record levels previously unseen in peacetime. According to a report by Deutsche Bank, the world’s major economies are, on average, running debts of around 70 per cent of their gross domestic product. Apart from a surge in debt to support the Second World War effort, this is the highest average debt seen in the past 150 years, raising serious questions about its sustainability, especially with global GDP growth at its current modest levels, with Deutsche suggesting current debt levels mean central banks will likely have to print yet more money.
Cooked
Travel giant collapses
The ongoing pressure on the travel industry finally claimed one of its oldest operators this week when Thomas Cook entered insolvency, leaving hundreds of thousands of customers stranded in limbo abroad. The scale of Thomas Cook’s cash crunch became a little clearer this week when it was revealed that the company had less than £1m in cash and £31m in other bank deposits when it crumbled under the weight of debts totalling more than £1.7bn after refinancing efforts failed. The Financial Reporting Council this week suggested it is considering an investigation into the collapse while the Insolvency Service has been tasked by the government to examine the company’s failure while wider questions are being asked of its directors and auditors.
Ocado sues cofounder
Alleges he obtained confidential documents
Ocado has filed a suit against one of its cofounders. The online grocery retailer’s chairman, Lord Rose of Monewden, told The Times the group has been the victim of “corporate espionage” after Today Development Partners (TDP) – a rival venture set up by Ocado cofounder Jonathan Faiman – hired former Ocado executive Johnathan Hillary. A spokesperson for TDP said the accusation was “ludicrous”. Broker Peel Hunt said the outcome of the deal would have little effect on Ocado’s success, given the size of its addressable market. “It isn’t necessitated on a winner taking all”.
