Join our community of smart investors

Seven days 4 October 2019

A round-up of the biggest business stories of the past week
October 3, 2019

Irish customs checks

Weeks to go

Prime minister Boris Johnson told BBC Radio 4's Today programme that customs checks on the island of Ireland are a Brexit “reality”, as pressure mounts on the leader to find an alternative to the Irish backstop. Mr Johnson was adamant that "a sovereign united country must have a single customs territory", but declined to outline his government’s proposed solution. As a way of avoiding an immediate hard border between Northern Ireland and the Republic of Ireland, the backstop would have kept Northern Ireland in a temporary customs union with the European Union following the UK’s scheduled departure on 31 October, but it has been roundly rejected by leading Brexiteers. 

 

John Lewis exodus

Two becomes one

The John Lewis Partnership announced that 75 members of its 225-strong senior management cohort, including chairman Charlie Mayfield, will leave the group as it bids to cut costs by around £100m. The company, which announced its first ever first-half loss last month, will combine the management of its John Lewis and Waitrose brands. Along with its outgoing chairman, the partnership will also shed its executive finance director, three elected directors and at least two non-executive directors, which the company says may include deputy chairman Keith Williams. The changes will take effect in February 2020.

 

Cook'd books?

Audit reputation at stake

The Financial Reporting Council (FRC) has launched an investigation into EY’s audit of Thomas Cook’s accounts for its year ended 30 September 2018. Travel company Thomas Cook collapsed last week after talks between the group, shareholders and the government failed to find a way to keep the stricken business afloat. The FRC’s enforcement division will conduct the investigation, and the watchdog has said that in addition to this undertaking it will consider “whether to open any other investigation in relation to Thomas Cook, liaising with other relevant regulators”.

FCA seeks liquidity reforms

Woodford lessons sought

The Financial Conduct Authority (FCA) has issued new rules regarding investment in illiquid assets by various types of open-ended funds. Non-Ucits retail schemes will be required to provide investors with greater information regarding liquidity risk and the scenarios under which these funds may become restricted. The rules, which will not apply to Ucits funds, are intended to reduce the risk of runs on funds and “the potential for some investors to gain at the expense of others”. They have arisen as the watchdog has “assessed whether there were any lessons that might be relevant” to the suspension of the LF Woodford Equity Income Fund, which is a Ucits fund.

 

Credit Suisse COO leaves

Corporate espionage

Credit Suisse chief operating officer Pierre-Olivier Bouée resigned his position after it was revealed that he had approved an investigation into the bank’s former head of wealth management, Iqbal Khan, who joined rival UBS in August 2019. Credit Suisse disclosed that its head of global security services, Remo Boccali, has also stepped down. The bank said that Mr Bouée had ordered the tracking of Mr Khan without having discussed the operation with its board or chief executive. No evidence was uncovered to suggest that Mr Khan had attempted to poach employees or clients from Credit Suisse. “The mandate for the observation of Iqbal Khan was wrong and disproportionate,” Credit Suisse said, “and has resulted in severe reputational damage to the bank.”

 

Construction plummets

Weak commercial building

In September, the UK construction sector saw its second-sharpest fall in activity since April 2009, according to the IHS Markit/CIPS UK Construction Total Activity Index. Commercial activity was particularly weak, which highlighted “the damaging effects of project delays and belt-tightening”, according to IHS Markit economist Joe Hayes. Civil engineering activity fell at its fastest rate in nearly a decade, while a fourth consecutive monthly drop in residential building was also recognised. Experts pointed to hesitancy among clients brought by Brexit uncertainty, as well as “a general underlying weakness in demand”. The index recorded a score of 43.3 in September, down from 45 in August.

 

Aramco dangles dividend

$75bn for 2020

Saudi Arabia has sought to ramp up investor interest in its listing of Saudi Aramco with the announcement of an intended $75bn (£60bn) annual base dividend for 2020. The oil company, which was attacked last month, is preparing for an imminent listing on the Riyadh stock exchange, having abandoned a previous attempt to take the business public last year. In a corporate overview posted on Aramco’s website, the company said that non-government shareholders will be prioritised between 2020 and 2024 in the event that annual dividends do not reach $75bn, so that they receive their pro-rata share of the payout.

 

Chart of the week: UCITS reach 18-month high

The European Fund and Asset Management Association (EFAMA) revealed that rising demand for bond funds has fuelled a surge in UCITS net sales. UCITS saw net inflows of €86bn (£77bn) in July 2019, up from €7bn in the previous month. Net sales of bond funds increased to €39bn, up from €27bn in June. Bernard Delbecque, EFAMA’s senior director for economics and research, said that the rise in demand for bond funds came “as investors continue to anticipate further monetary stimulus; and for money market funds, which offer investors a good place to invest cash holdings in times of uncertainty”.

 

The European Fund and Asset Management Association (EFAMA) revealed that rising demand for bond funds has fuelled a surge in net sales of Undertakings for the Collective Investment in Transferable Securities (Ucits) saw net inflows of €86bn (£77bn) in July 2019, up from €7bn in the previous month. Net sales of bond funds increased to €39bn, up from €27bn in June. Bernard Delbecque, EFAMA’s senior director for economics and research, said that the rise in demand for bond funds came “as investors continue to anticipate further monetary stimulus; and for money market funds, which offer investors a good place to invest cash holdings in times of uncertainty”.