TheChek News Flow

Sales are plunging, sending an economic warning signal

Chinese consumers, who have for years driven the growth of global cosmetics makers, have tightened their purse strings as the country’s economy slows. Their shifting tastes toward domestic rivals add another wrinkle to the industry’s woes and bode poorly for other foreign brands that have pinned their growth hopes on China.

The share price performances of global cosmetics companies in the past couple of years are anything but pretty. Estée Lauder EL -2.49%decrease; red down pointing triangle, which owns brands such as Clinique and La Mer, has lost three-quarters of its market value since early 2022. Japan’s Shiseido 4911 -0.22%decrease; red down pointing triangle is down nearly two-thirds since 2019. L’Oréal OR -1.20%decrease; red down pointing triangle, the world’s largest cosmetics company, has done relatively better, but its shares have also fallen 16% in the past four months.

China’s sluggish economy is the main reason. For the fiscal year ended June, Estée Lauder’s organic net sales dropped 2% year on year, driven by a 3% decrease in the Asia-Pacific region, which includes China. Shiseido’s organic net sales in China fell 7% from the previous year in the six months ended June. Retail sales of cosmetics only grew 0.3% year on year in China in the first eight months of the year, according to official statistics.

Apart from weaker sales in the country, beauty companies are also suffering from a plunge in revenue from so-called travel retail, which includes selling at duty-free shops in airports. That in turn also was driven by less spending from Chinese tourists. China’s outbound tourism has yet to return to the prepandemic norm. Arrivals of Chinese visitors in Japan in the first seven months this year are still 31% lower than the same period in 2019 and have almost halved for the U.S. Shiseido’s net sales from travel retail last quarter plunged 15% from a year earlier.

And as Chinese consumers become more price conscious, local brands have popped up offering value-for-money products to grab market share from foreign giants. They are also more adept at marketing and designing products that appeal to younger Chinese consumers.

China’s imports of beauty and skin-care products in the first eight months of 2024 dropped 11% from a year earlier and 31% from their 2021 level. Among the top 10 brands of China’s mass beauty and personal care market, the share of domestic brands has risen from 15% in 2018 to 22% last year, according to Euromonitor International.

Shanghai-listed Proya Cosmetics is one of the domestic beauty companies that has been growing fast: Its revenue rose 38% year over year in the first half of this year. But even its stock isn’t immune to the economic downturn—it has dropped 25% since the end of 2022.

The Chinese market had been a driving force for the industry’s growth. For example, China accounted for 34% of Estée Lauder’s net sales for the fiscal year ended June 2022, up from 13% four years earlier. In the latest fiscal year it was down to 26%. China’s economy, and its consumers, have long been gold mines or the great future hope for global brands. But the economic slowdown and the rise of competent domestic competitors have dented the hopes from automakers to coffee chains.

Beauty companies may just be the latest example.

The bank lent loosely on some credit cards, contributing to a big loss as it tries to sell the General Motors card business

Behind Goldman Sachs’ GS -3.55%decrease; red down pointing triangle messy departure from credit-card lending: lax underwriting standards.

The bank is facing mounting losses — including a roughly $400 million pre-tax hit disclosed Monday — as it tries to offload the remaining pieces of its Main Street lending business.

Goldman Chief Executive David Solomon said Monday the bank expects to incur the loss on the eventual sale of its General Motors GM -4.80%decrease; red down pointing triangle credit-card business and a smaller, unrelated business.

Goldman has been in talks for months with GM and Barclays about transferring the carmaker’s credit-card business to the British bank, The Wall Street Journal reported in April.

Barclays has been unwilling to pay the price Goldman originally expected, in large part because of high charge-off rates in the program, according to people familiar with the matter. Charge-off rates refer to the portion of the balances the issuer has to write off because borrowers are unlikely to pay them back.

People familiar with the talks say Goldman will likely receive less than the outstanding balances after having paid a premium to buy them.

The GM cards are largely targeted towards people who own and lease GM cars. Cardholders earn points they can put toward car payments or servicing, among other things. The partnership has roughly $2 billion in balances.

The problematic accounts were primarily originated by Goldman after it took over the program from Capital One and began opening new accounts in 2022. Average charge-offs on the Goldman-originated accounts, which make up roughly one-third of the GM portfolio, surpass 10%, the people said.

In contrast, the annualized credit-card charge-off rate for commercial banks in the U.S. was about 4.5% in the second quarter of the year, according to Federal Reserve data.

Goldman struggled to grow the number of GM credit-card accounts, partly because travel-rewards cards have been all the rage. To boost demand, it turned to third-party websites including Credit Karma to find new cardholders. But that attracted people with lower credit scores.

As Goldman’s top executives tout a more streamlined institution focused on investment banking, markets and asset and wealth management, its missteps in the consumer business continue to weigh on its earnings.

Goldman Sachs has lost more than $6 billion on a pre-tax basis since the beginning of 2020 through the second quarter of this year on a big chunk of its consumer-lending businesses, including its credit cards. Goldman also finalized a deal last year to sell specialty lender GreenSky at a steep loss.

The far more challenging deal to offload will be the Apple partnership, where credit-card balances total around $17 billion. Apple sent Goldman a proposal late last year to exit the contract within 12 to 15 months, the Journal reported, which called for an end to the credit-card partnership the companies launched in 2019 and the savings account they rolled out in 2023.

Goldman could be facing a bigger loss when it sells this credit-card program to a new issuer than what it’s now expecting to incur with the GM sale.

The UK’s financial regulator has charged a man with unlawfully running a network of crypto ATMs, its first criminal prosecution for an activity that is widely used for money laundering. 

The Financial Conduct Authority said on Tuesday that it had charged Olumide Osunkoya, a 45-year-old living in London, with running multiple crypto ATMs that had allegedly not been registered with the watchdog.

Crypto ATMs are machines that allow users to exchange standard money for cryptocurrency, working in a similar way to a typical bank ATM. They can take in cash, convert it to a cryptocurrency such as bitcoin, and send the digital money to a customer’s crypto wallet address.

Authorities around the world have sought to shut the machines down because they are deemed an ideal way to launder money, with little traceability on where funds come from and to where they are sent. Operators typically earn fees on transactions.

The machines run by Osunkoya processed £2.6mn worth of crypto transactions across multiple locations between December 2021 and September 2023, the FCA said.

Therese Chambers, FCA joint executive director of enforcement and market oversight, said using a crypto ATM meant “handing your money directly to criminals”. The watchdog’s move showed that “if you’re illegally operating a crypto ATM, we will stop you”, she added.

No legal crypto ATM operators exist in the UK, the FCA said, adding that its prosecution of Osunkoya marked the first such criminal case it has brought under money laundering regulations.

The price of bitcoin hit a record high of $73,000 in March this year but has since fallen to trade at about $57,000.

Nevertheless, the number of crypto ATMs continues to grow. According to data provider AltIndex, more than 37,500 existed worldwide as of May this year as users seek to access crypto by bypassing the traditional, regulated banking system.

Crypto companies operating in the UK must register with the FCA, which assesses them under anti-money laundering rules and other regulations.

In its latest annual report published this month, the FCA said it had rejected 87 per cent of the applications it received from crypto asset companies seeking clearance for their money laundering defences.

It also issued 450 consumer alerts against crypto asset promoters only three months after tightening rules against misleading marketing.

The FCA said Osunkoya had been the director of Gidiplus Ltd before acting independently. Gidiplus Ltd’s registration application had been rejected by the regulator in 2021.

The watchdog said Osunkoya was being charged with two offences under money laundering and terrorist financing regulations, two offences related to fake documents “created and used” for his activities, and one offence of possession of criminal property “relating to the suspected proceeds of his crypto ATM business”.

Osunkoya will appear at Westminster Magistrates’ Court at the end of the month. He did not immediately respond to a request for comment via LinkedIn.

The UK’s financial regulator has charged a man with unlawfully running a network of crypto ATMs, its first criminal prosecution for an activity that is widely used for money laundering. 

The Financial Conduct Authority said on Tuesday that it had charged Olumide Osunkoya, a 45-year-old living in London, with running multiple crypto ATMs that had allegedly not been registered with the watchdog.

Crypto ATMs are machines that allow users to exchange standard money for cryptocurrency, working in a similar way to a typical bank ATM. They can take in cash, convert it to a cryptocurrency such as bitcoin, and send the digital money to a customer’s crypto wallet address.

Authorities around the world have sought to shut the machines down because they are deemed an ideal way to launder money, with little traceability on where funds come from and to where they are sent. Operators typically earn fees on transactions.

The machines run by Osunkoya processed £2.6mn worth of crypto transactions across multiple locations between December 2021 and September 2023, the FCA said.

Therese Chambers, FCA joint executive director of enforcement and market oversight, said using a crypto ATM meant “handing your money directly to criminals”. The watchdog’s move showed that “if you’re illegally operating a crypto ATM, we will stop you”, she added.

No legal crypto ATM operators exist in the UK, the FCA said, adding that its prosecution of Osunkoya marked the first such criminal case it has brought under money laundering regulations.

The price of bitcoin hit a record high of $73,000 in March this year but has since fallen to trade at about $57,000.

Nevertheless, the number of crypto ATMs continues to grow. According to data provider AltIndex, more than 37,500 existed worldwide as of May this year as users seek to access crypto by bypassing the traditional, regulated banking system.

Crypto companies operating in the UK must register with the FCA, which assesses them under anti-money laundering rules and other regulations.

In its latest annual report published this month, the FCA said it had rejected 87 per cent of the applications it received from crypto asset companies seeking clearance for their money laundering defences.

It also issued 450 consumer alerts against crypto asset promoters only three months after tightening rules against misleading marketing.

The FCA said Osunkoya had been the director of Gidiplus Ltd before acting independently. Gidiplus Ltd’s registration application had been rejected by the regulator in 2021.

The watchdog said Osunkoya was being charged with two offences under money laundering and terrorist financing regulations, two offences related to fake documents “created and used” for his activities, and one offence of possession of criminal property “relating to the suspected proceeds of his crypto ATM business”.

Osunkoya will appear at Westminster Magistrates’ Court at the end of the month. He did not immediately respond to a request for comment via LinkedIn.

Car designer stands to make more than most drivers on the grid with a pay package exceeding £20mn a year

Renowned Formula One designer Adrian Newey is joining the Aston Martin racing team from Red Bull, in a coup for Canadian tycoon Lawrence Stroll who is targeting the world championships.

The British aerodynamics expert’s pay package will be more than £20mn a year, according to people familiar with the situation. He will become a shareholder in the Aston Martin racing team and take on the title of managing technical partner.

Newey stands to make more than many drivers on the grid, underlining how F1 is a sport where technical expertise is valued as much or more as those who turn the wheel.

Newey’s departure, which Red Bull confirmed earlier this year, is a blow to the team, where the 65-year-old had worked for the reigning world champions since 2006. He played a critical role in creating cars that drove the team to seven F1 drivers’ and six constructors’ championships.

Red Bull has been mired in controversy this season, with a female employee having accused team boss Christian Horner of inappropriate behaviour. Horner denied the allegations and Red Bull cleared him of wrongdoing following a barrister-led probe.

Aston Martin is fifth in the constructor standings in this season’s championship, well behind Mercedes in the place above. Stroll is betting that Newey’s involvement can transform Aston Martin’s fortunes in F1. The team finished fifth last year and seventh in 2022.

Building a championship-winning team would boost Aston Martin’s profile in a sport that has surged in popularity under the ownership of US group Liberty Media. Boosted by Netflix series Drive to Survive and the addition of new races in Jeddah, Miami and Las Vegas, F1 has reinforced its status as a marketing platform for sellers of luxury cars such as Stroll, who is also executive chair of Aston Martin Lagonda.

Stroll brought the Aston Martin brand back to F1 for the first time in more than 60 years in 2021. It follows major investment in infrastructure and facilities, to equip the team with the foundations required to win world titles.

Newey is the latest high-profile figure to join the Aston Martin F1 group, following the appointment of former Mercedes engine boss Andy Cowell as chief executive.

While Red Bull and Mercedes have dominated the competition for years, F1 is set to introduce new, lighter cars from 2026, with changes to aerodynamic rules, creating new puzzles of air flow for Newey to solve.

“Adrian is the best in the world at what he does — he is at the top of his game,” Stroll said.

Newey said that Stroll’s commitment was evident from the development of the racing team’s new “state of the art” technology campus and wind tunnel at Silverstone.

“Together with great partners like Honda and Aramco, they have all the key pieces of infrastructure needed to make Aston Martin a world championship-winning team and I am very much looking forward to helping reach that goal,” Newey added.

Fernando Alonso, the double world champion, and Stroll’s son Lance are the drivers for the F1 team.