Italy’s central bank governor urges Giorgia Meloni to heed investors’ debt fears
Ignazio Visco says concerns persist about country’s long-term growth prospects
Italy’s departing central bank governor has urged prime minister Giorgia Meloni’s government to soothe investors’ fears about the country’s debts by reducing its fiscal deficit and tackling reforms needed to boost growth.
Ignazio Visco, who steps down at the end of this month after 12 years leading the Bank of Italy, told the Financial Times that the recent surge in Rome’s borrowing costs showed investors were “insuring themselves” against a spiral of weak long-term growth prospects and high debt.
“Obviously you need to understand why markets may be worried,” Visco said. “I don’t think it is speculation against the country. I think it is basically a concern about . . . the long-term potential growth rate of the economy.”
Italy’s benchmark 10-year bond yield last week surged close to 5 per cent for the first time since Europe’s sovereign debt crisis raged 11 years ago. The move came amid mounting tensions in global bond markets, which sold off heavily over fears central banks will keep interest rates higher for longer to tame inflation.
Markets were also spooked when Italy last month raised the country’s planned fiscal deficit for this year from 4.5 per cent of gross domestic product to 5.3 per cent and for next year from 3.7 per cent to 4.3 per cent. It also cut the growth forecast for both years.
The knock-on effect is that Italy’s debt — one of the highest in Europe — is set to rise from 140 per cent of output, after two years of declines.
“The increase in the debt-to-GDP ratio has been mostly because of the dismal performance of GDP,” Visco said, warning that “even the service sector is slowing down” and a eurozone-wide recession was possible in the second half of this year.
Rather than blame weak growth, some of Meloni’s supporters have publicly suggested international investors — and her domestic political rivals — are collaborating to seize on market turbulence in an effort to unseat her government.
Silvio Berlusconi’s government was felled in 2011 after a crisis in which Italy’s bond yields soared to more than 570 basis points above Germany’s.
The closely watched spread between Italian and German 10-year bond yields is close to 200bp — a level that Visco said was “a concern that it is much higher than in Spain or Portugal”.
However, Visco said Meloni’s government had been “performing better than many had expected” on its budget, avoiding her former UK counterpart’s ill-judged tax cuts, which caused a bond market crisis. “Maybe Liz Truss was there to show the way not to make mistakes in communication,” he added.
But he urged Meloni’s government to recognise that international investors have legitimate concerns in a climate of rising interest rates, high energy costs, tensions in the global trading system and Italy’s rapidly ageing population.
“This is why you have to respond to the markets with two things: First, a view of the longer-term plan for growth and second, the action on the short and medium term as far as the fiscal imbalances are concerned,” Visco said.
For now, Rome is tapping support from Italians’ high domestic savings to meet its borrowing needs. This week, Italian households invested more than €17.2bn in a bond issue targeting local retail investors.
Visco has served seven different Italian prime ministers since taking over from Mario Draghi as head of the central bank, which he joined in 1972.
He remembers writing a paper 32 years ago recommending a freeing up of competition in the services sector, as well as measures to reduce divergence of the poorer south from the richer north and to bring down government debt. “It is no different now,” he said.
Yet Visco believes the outlook for Italy is not all gloomy.
Rome has various avenues through which it could bolster growth, including making the most of €200bn in funding from the EU and bringing more women into the labour market. “Italy can grow more and we should not ignore the low levels of private indebtedness and the positive net foreign position of the country,” he said.
Currently, Italy has the lowest female labour force participation rate of any major European economy.
“There are a number of things in Italy that are not on a par with what you have in the rest of Europe, like the ability to have children in school for the whole day,” Visco said, adding that Rome could also focus on better integrating immigrants into the workforce and improving training in digital skills.
He was critical of the costly Superbonus scheme designed by a previous government, which offered Italians tradable tax credits worth 110 per cent for home improvements that would cut energy use.
The scheme triggered an Italian home renovation frenzy now weighing heavily on public finances. Though the final cost of the programme — now phased out — remains unclear, Visco said the final tab is likely to exceed €100bn, or about 5 per cent of GDP.
He said it was “unfortunately a good lesson, a very good lesson” in the importance of “targeting and tailoring” in government programmes, and said Rome’s initiatives to assist poor households with high energy costs had been far better designed.
Visco said the Banca d’Italia was “not consulted” before Meloni’s government roiled markets with a windfall tax on commercial banks’ net interest margins. But after it was watered down last month — giving banks the option to bolster capital instead of paying the tax — he “welcomes the changes so far proposed”.
France urges swift deal on EU power reform to counter US subsidies
Energy minister says bloc will lose out to Biden’s IRA if Paris and Berlin fail to resolve differences over nuclear power
The US will be the main winner if a Franco-German divide over nuclear power prevents a long-awaited reform of Europe’s electricity market being finalised, France’s energy minister has warned.
Agnès Pannier-Runacher said in an interview with the Financial Times that the sweeping overhaul of EU rules was needed as soon as possible to give businesses visibility on power prices, at a time when the US was luring industry with President Joe Biden’s clean energy subsidy programme under the Inflation Reduction Act.
“The aim is to have an adequate and strong answer to the [IRA] and the fact that industrial investments in the US have been multiplied by three” since the law was enacted, Pannier-Runacher said. “We have a matter of weeks to act and find a solution.”
The call comes ahead of a bilateral conference in Hamburg, starting on Monday, between French president Emmanuel Macron and German chancellor Olaf Scholz, accompanied by their cabinet ministers.
Energy issues will be high on the agenda because Paris and Berlin have been arguing for months over the EU electricity market reform, specifically over how nuclear energy will be priced and the extent to which it can be subsidised.
The overhaul was triggered by the fallout from Russia’s full-scale invasion of Ukraine last year, when energy prices jumped, and is aimed at helping stabilise long-term prices.
The negotiations have been coloured not just by divergences over technology — Germany has shut its last nuclear reactors while France, which generates 70 per cent of its electricity from nuclear, has pledged to build new ones — but also by German fears of the competitive disparities the overhaul could create.
Behind the scenes in recent days, Paris and Berlin have been exchanging duelling policy papers and rewritten clauses for the draft law, while marshalling support from other EU member states.
On this reform and others, France has mounted a pro-nuclear campaign now joined by other countries that use the technology, including Poland and Hungary, in an effort to ensure the sector will be treated favourably.
But its drive has hit roadblocks, particularly in Germany, over concerns France will end up riding roughshod over state aid rules and benefit from lower prices for consumers and industry that other countries cannot match.
Pannier-Runacher said it was a misconception that electricity would be vastly less expensive in France than elsewhere and rejected claims that the country was wooing businesses to relocate to benefit.
France’s Le Point newspaper reported this week that some members of Scholz’s entourage harboured suspicions that French nuclear operator EDF was trying to lure German companies to France.
“This idea that we should be warring among ourselves, or the fantasy that [businesses] would relocate from one [European] country to another — I’m still waiting to know the name of any German business that has massively shifted to France,” Pannier-Runacher said.
“On the other hand, I know French and German businesses that are deciding on investments in the US, when they tell us they would have done them in France or Germany had they had visibility on the market.”
Berlin is so worried about the impact of high prices on its export-led economy that it has been weighing a proposal to subsidise electricity for energy-intensive companies, though the idea has yet to be formally adopted by the government. Such a move could pose competition issues, Brussels has warned.
Whether France and Germany will be able to square their differences in time for the next meeting of EU energy ministers on October 17 is unclear. The risk is that the reform will not be done by the end of the year and only become harder as EU parliament elections approach.
Berlin appeared to hold out an olive branch recently when Sven Giegold, state secretary at the German economy and climate ministry, told the FT he was seeking a “grand bargain” with France to resolve the stand-off.
Pannier-Runacher said she had not seen the compromise being floated by Giegold but that she hoped she would at the meetings in Hamburg.
“I hope the Germans will be ready in every sense of the word to allow us to find that compromise,” she said of the upcoming talks in Germany and at EU level.
The main thing still to be ironed out in the reform is the use of a mechanism known as “contracts for difference”, which guarantee a minimum price for energy produced, and whether they should be applied to existing nuclear plants or just new ones. The CFDs have typically been used to incentivise renewable energy projects by guaranteeing revenues for producers, and Berlin has argued they should only apply to new investments.
Pannier-Runacher said French reactors built decades ago required billions of euros in new investments for maintenance and to extend their lifespan and therefore should not be penalised with heavy restrictions around the application of CFDs.
As well as a minimum price, the CFD mechanism allows governments to recover excess revenues if prices jump past a set threshold, raising more questions about how governments then use those funds, especially if they were to be directed at providing further energy subsidies.
France had been happy with an original proposal on market reform put forward by the European Commission in March. But subsequent amendments with more restrictions on the uses of CFDs in a version presented by the European parliament have sparked the pushback.
“At a certain stage it amounts to a discrimination against nuclear. We would not be allowed to do in the French system what other countries can [with their energy assets],” Pannier-Runacher said.
Safra: a family at war over the will of the world’s richest banker
Joseph Safra helped build a $25bn global empire of banks, property and agribusiness based in Brazil. That inheritance is now the subject of a bitter court battle
UK biotech group raises £48mn for Alzheimer’s research
AstronauTx’s financing is step towards helping millions of people suffering from disease
A UK biotech company exploring new ways of treating Alzheimer’s and other neurodegenerative diseases has raised £48mn ($61mn) in its first big funding round.
Although AstronauTx does not expect any of its drugs to reach clinics for at least three or four years, the financing is a step towards helping millions of sufferers.
According to the World Health Organization, 55mn people worldwide have dementia and there are almost 10mn new cases every year, making it one of the most pressing global health problems.
The company was spun out of University College London in 2019, with seed funding from the £250mn Dementia Discovery Fund.
The fund was set up by the government in partnership with industry and the charity Alzheimer’s Research UK to invest in innovative approaches to tackling the disease.
Several international funds took part in the Series A round, which was led by Novartis Venture Fund and includes follow-on investment by the Dementia Discovery Fund. AstronauTx’s previous financing amounted to £11mn.
As its name suggests, the company was originally founded to reset the behaviour of astrocytes, support cells in the brain that play a vital role in keeping neurons healthy. Neurons are the fundamental units of the brain and nervous system.
By preventing the deterioration of astrocytes in neurodegenerative disease, AstronauTx scientists expect to keep neurons functioning well for longer.
While astrocytes were still an important part of the company’s research, the company had extended into a wider drive to fending off the symptoms of dementia in the face of neurodegeneration, said David Reynolds, chief executive of AstronauTx.
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“We focus on different areas of biology to keep the brain functioning well during the 24-hour cycle,” he said. “During the day, we want to improve the function of neural networks and boost the metabolism that makes the neurons talk to each other as efficiently as possible.”
Then, at night, the brain not only consolidates memories but also clears out waste products that build up during the day. AstronauTx aims to make the clearance process more efficient to reduce the accumulation of toxic proteins such as tau and amyloid that are implicated in neurodegeneration.
“Our treatments will be oral drugs, applicable across multiple neurodegenerative conditions with both acute and chronic benefits,” said Ruth McKernan, co-founder and chair of AstronauTx.
The company aimed to select its first lead compound for pre-clinical development in a year with clinical trials taking place between three to four years in the future, Reynolds said. It means AstronauTx’s first products are not likely to be on the market until the 2030s.
Within the past year, two antibody-based drugs, donanemab from Eli Lilly and lecanemab from Biogen and Eisai, have proven in clinical trials to slow memory loss and cognitive decline in Alzheimer’s disease, by removing amyloid protein from the brain. But both have to be administered by infusion and neither comes close to being a cure for dementia.
“Our products will be complementary to the amyloid-lowering therapies,” said Reynolds. “They will clear out not only amyloid but a whole range of toxins.”
AstronauTx is one of the Dementia Discovery Fund’s 17 active investments. “These companies are collectively pursuing drug discovery programmes against more than 40 different biological mechanisms across a range of neurodegenerative diseases that lead to dementia,” said Lawrence Barker, a partner in the fund.
Barron’s Weekend Summary: Four panelists on Barron’s 2023 healthcare roundtable see enticing opportunities
Cover:
Four panelists on Barron’s 2023 healthcare roundtable, who see enticing opportunities not only in the highflying shares of weight-loss giants, discuss some of their favorite healthcare stocks. The panelists, which include Ziad Bakri, a portfolio manager at T. Rowe Price; Asad Haider, head of U.S. healthcare research and sector strategist at Goldman Sachs; Jared Holz, healthcare equity strategist at Mizuho; and Debra Netschert, a managing director at Jennison Associates admit that healthcare stocks have been underperforming in 2023 due to reasons ranging from rising interest rates and regulatory pressures to the launch of revolutionary weight-loss treatments whose uptake could reduce demand for other drugs and medical procedures. Yet, they are optimistic even beyond the highflying shares of weight-loss giants Eli Lilly and Novo Nordisk (NVO) discussing some of the factors that will benefit other pharma, biotech, hospital, and medical-device subsectors that Wall Street has beaten down or ignored. Scientific breakthroughs, deal making, and a nimble response to regulation could brighten the industry’s financial prospects in the years ahead, these experts say, and reignite investor interest in one of the U.S. economy’s most important business drivers.
Interview:
-No interview this week
Tech Trader:
-Apple’s next earnings report is just a few weeks away, and it’s likely to post a fourth consecutive quarter of year-over-year revenue declines. To resume meaningful sales growth—and to reinvigorate the stock—Apple needs a big win and it could take two potential paths to get there: a clear strategy on generative artificial intelligence and building an internet search engine. Apple already makes use of machine learning and AI across multiple products, and it has been including a “neural engine” in its iPhone and Mac processors since 2017 for things like FaceID. But, so far, Apple has been mum on AI chatbots and large language models, even as the rest of tech has gone all in. Apple hasn’t lost the AI market, at least not yet. But it needs to get moving.
The Trader:
-It was a chaotic week for stocks, one that saw them verging on a meltdown as bond yields shot higher. Driving the volatility was the 10-year Treasury yield, which surged as high as 4.89% this past week, up from a March low of 3.23%. Gone are the fears of recession, replaced with worries that the economy remains too hot and the Federal Reserve, which in September said it wants to keep interest rates higher for longer, will have to do more to ensure that inflation gets back to its 2% target. Those worries hit a crescendo on Friday with the strong jobs report, and the stock market seems prepared to move on from bond yields as their primary driver.
-Consumer-staples stocks have gotten hit hard in recent weeks, and PepsiCo has been affected. The Consumer Staples Select Sector ETF has now dropped 13% from its May peak. Nor does it help that the 10-year Treasury yield has risen to its highest level in 16 years, making staples’ dividends far less attractive. Still Pepsi can still count on earnings to help propel Pepsi’s stock higher. Analysts are looking for sales to grow 6% to $23.4 billion of sales in the third quarter, according to FactSet. Operating margins could rise by about a tenth of a percentage point to 16.4%, helping earnings per share rise an expected 9%, to $2.15.
Features:
-Consumer staple stocks stumbled again Friday, extending their losses in the wake of Walmart’s warning about a dip in food purchases from consumers taking weight-loss drugs. The damage to the sector continued Friday. Walmart fell 1.7% to $156.41. The retailer didn’t immediately respond to a request for comment. Snack and beverage companies also saw their stocks fall. Shares of Mondelez International—maker of Oreos, Wheat Thins, and Chips Ahoy!—slid 2.6% to $63.36. J.M. Smucker stock was down 1.5% to $115.00.
-There’s good news for Type 2 diabetics. The introduction of powerful new weight-loss drugs could help millions escape the ravages of their disease. But the new drugs are expensive and if you stop taking them, you are likely to regain the weight; some people won’t tolerate their side effects; and diet and exercise will still be helpful even to people taking the drugs, doctors say. The new drugs “absolutely reduce insulin resistance and produce weight loss, exactly what you’re trying to do with lifestyle intervention,” Jordan Emily Perlman, an endocrinologist at Johns Hopkins.
Europe:
-Central banks are predicting that growth will be more sluggish in Europe over the next year. Momentum in the latest data shows inflation cooling much faster on the other side of the Atlantic, while the US economy has been surprisingly strong. As a result, and contrary to expectations just a few months ago, the European Central Bank and the Bank of England may actually be in a position to cut interest rates before the Fed. In many ways, the Fed, the Bank of England, and the European Central Bank are roughly in the same place. They’re near the top of the rate-hiking cycle. All are promising to keep rates higher for longer to ensure that inflation is quelled. Although the ECB’s only goal is inflation, that message has more resonance in the US.
Emerging Markets:
-Two regional names have come roaring back from the ashes of the tech sector of 2021-22 while Asian peers continue to struggle. Shares in Nu Holdings, parent company of Brazil-based financial-technology firm Nubank, have nearly doubled this year while MercadoLibre, the e-commerce titan that does most of its business in Brazil, is up 40%. Nubank is headed for its first full-year profit in 2023, says Malcolm Dorson, head of emerging markets strategy at GlobalX exchange-traded funds. MercadoLibre, in the black since 2021, more than doubled second-quarter profit year on year to $262 million. The Brazilian environment is helpful. The Latin American giant has added 50 million internet users since 2019. About 30% of the population never had a conventional bank account. The central bank has started to cut a crushing 13.75% interest rate, spurring expectations of more consumer spending.
Commodities:
-Far from finished, coal demand is rising. And shares of coal miners have been bullish. Shares of Alpha Metallurgical Resources, Warrior Met Coal, and Arch Resources, producers of metallurgical coal, which is primarily used for steel production, soared 28%, 29%, and 31%, respectively, in September. Consol Energy and Peabody Energy, producers of both met coal and thermal coal, used for electrical generation, saw shares gain 22% and 20% the same month. Most stocks didn’t fare nearly as well. The S&P 500 index dropped 4.9% in September, while the Nasdaq Composite fell 5.8%.
Streetwise:
-Rising rates have roughed up REITs. An MSCI index of US ones has fallen 7% this year, not counting dividends, versus an 11% rise for the S&P 500. Jack Hough evaluates whether it’s time to call it a rally, or to sound the caution alarm. Or maybe both? Investment bank Wedbush says the group looks cheap and poised to shine next year and beyond, despite risks. That case, plus picks, in a moment. Real estate investment trusts, signed into existence by President Eisenhower 63 years ago, give Joe and Sally Saver a shot at investing in commercial real estate. REITs buy property, collect rent, and pay out the bulk of income as dividends, while avoiding corporate taxes. The ones under consideration here trade like stocks. Their financial attributes depend on the category of property they deal in. Wedbush divides the group into tortoises and hares. There are two main casino REIT operators: VICI Properties and Gaming and Leisure Properties. Other favorite stocks include UDR, formerly United Dominion Realty, which specializes in luxury apartments on the East and West Coasts, plus Florida and Texas. The dividend yield is 4.8%, and payments have grown at a compounded 6.7% a year since 2010. Shares of Alexandria Real Estate Equities peaked in late 2021 and have since been cut in half by concerns over the increased supply of lab space for biopharma customers, the company’s key money-maker.
Laurent Chekroun Equity Sales
Makor Securities London Ltd. | Makor Group
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Weekend Papers Summary
FINANCIAL TIMES
-Israel declared a “state of alert for war” on Saturday after Hamas launched its biggest attack on the country for years, firing a barrage of rockets and sending militants across the border from the Gaza Strip.
-General Motors has agreed to include battery manufacturing plants in its overarching contract with the United Auto Workers, the union said, meeting a crucial demand for employees anxious over the industry’s shift to electric vehicles.
-The US added 336,000 new jobs in September, far more than expected, pushing bond yields to a new 16-year high and fueling investors’ anxieties that interest rates will stay higher for longer.
-Maroš Šefcovic, European Commission vice-president, told the Financial Times that Brussels would interpret “made in Europe” rules very loosely in 2024, giving carmakers more time to switch battery sourcing from Asia to Europe. “We want to solve it and we are also discussing this with UK partners,” Šefcovic said, adding that he would be “very happy” if a deal could be struck before the December 31 deadline.
-Donald Trump has claimed in a lawsuit filed in London that he suffered “reputational damage and distress” as a result of the controversial Russia dossier compiled by former MI6 spy Christopher Steele.
The former US president is suing Orbis Business Intelligence, co-founded by the former British intelligence officer, in the High Court over the dossier, which leaked to media website BuzzFeed in 2017.
-In an interview with the FT, Moldova’s President Maia Sandu claimed that Wagner’s late leader Yevgeny Prigozhin had planned the coup earlier this year and warned that Moscow is using various methods, including cash mules and bank cards issued in Dubai, to smuggle money into Moldova to bribe voters ahead of a string of elections.
-Japan’s prime minister Fumio Kishida has appealed to BlackRock founder Larry Fink and others controlling $18tn of assets to invest in Japan’s future, wrapping up a charm offensive to lure capital into the country.
-A lawsuit brought against Spain’s former king Juan Carlos by his ex-lover was thrown out by London’s High Court on Friday. Juan Carlos, 85, has been fighting a court battle against his ex-lover Corinna Zu Sayn-Wittgenstein since 2020. She has accused the former king and the Spanish secret service of harassment and putting her under illegal surveillance in the UK since 2012, and was seeking substantial damages and a restraining order.
-In the wake of falling sales, insolvencies and fast-disappearing financing, the plant-based meat sector is now on a mission to win back consumers by explaining its manufacturing processes and highlighting what it says are the health benefits of plant-based meat.
NEW YORK TIMES
-Israel was hit by rockets in surprise attack; Hamas announced the operation as heavily armed militants crossed into Israel from Gaza. Israel went into an official war footing.
The Israeli news media and witness accounts described a large-scale attack by militants, apparently including some who used hang gliders.
-From the fringe to the center of the GOP, Jim Jordan Remains a Hard-Liner.
Once a tormentor of Republican speakers, Representative Jim Jordan of Ohio, an unapologetic right-wing pugilist, has become a potential speaker himself.
-With a Republican leadership vacuum, Donald Trump’s influence has reached a post-presidency peak.
-President Biden’s promises to reverse trump’s immigration policies have crumbled. Biden has tried to contain a surge of migration by embracing, or at least tolerating, some of his predecessor’s approaches.
-The Biden administration’s decision to add to the border wall is a confusing one.
-The Hroza missile strike in Ukraine Killed a Family in Mourning. A missile strike on the Ukrainian village of Hroza killed at least 52 people, including every known member of one family in the area.
-Mr. Wang is one of three key witnesses who pleaded guilty and agreed to cooperate against Mr. Bankman-Fried, the onetime crypto mogul on trial for fraud.
-Since his FTX firm collapsed, Sam Bankman-Fried has become a symbol of the cryptocurrency industry’s excesses.
-For as long as many New Yorkers can remember, the transit system has needed more money. Now its budget is whole, and the pressure for good service is on.
-The fatal crash involving Nadine Menendez is under new investigation.
The scrutiny could create fresh legal and political peril for Senator Robert Menendez, a Democrat, who has been charged with accepting bribes.
NY POST
-House Majority Leader Steve Scalise pledged to back the eventual nominee for speaker – even if it’s not him – and called on his potential opponents to do the same. Scalise (R-La.) touted his ability to build coalitions and unite Republicans, in an interview with Politico Friday, and vowed to support whoever the House Republican conference decides to back for the speakership as part of his effort to bring the fractured conference together.
-Last week, the chairman of the Securities and Exchange Commission got a subpoena threat from US Rep. Patrick McHenry, chair of the House Financial Services Committee, who is demanding more information on the FTX collapse. “You refuse to be transparent with Congress regarding your interactions with FTX and Sam-Bankman Fried,” McHenry told Gensler at a Sept. 27 hearing. In response, Gensler has remained tight-lipped about his role in the crypto exchange’s downfall.
Metro Bank board to meet bondholders over refinancing package
The UK lender has rejected an offer from Shawbrook and seeks to raise as much as £600mn
Metro Bank’s board members are due to meet a group of bondholders who proposed a £600mn capital injection earlier in the week, in the hope of securing a refinancing package for the UK lender over the weekend.
The meeting with the consortium is expected to take place later on Saturday, according to a person familiar with the situation, and comes as the challenger bank works to shore up its balance sheet.
The group, represented by investment banking boutique PJT Partners, contacted the lender’s board on Monday with the offer of a £600mn injection, but the company had not accepted as of Friday, the Financial Times previously reported. The proposal came before the bank approached investors about a separate fundraising plan to raise a similar amount.
Metro has already rejected a bid from Shawbrook, the specialist lender, to take over the bank, according to a person close to the discussions. Financial regulators are keeping a close eye on developments at Metro after a challenging week in which its shares have ricocheted.
The lender, backed by BC Partners and Pollen Street Capital approached Metro a number of times over the past 12 months, according to a source close to the process. Robert Sharpe, Metro’s chair, is also the chair of Pollen Street.
Metro Bank, Pollen Street, Shawbrook, BC Partners, the Financial Conduct Authority and Prudential Regulation Authority all declined to comment.
Sky News first reported Saturday’s expected meeting between Metro’s board and the bondholder group, and the prior approach by Shawbrook.
Metro, which was launched in 2010 with the aim of disrupting the retail banking market, is looking to raise hundreds of millions of pounds after regulators last month failed to approve a request from Metro to lower the capital requirements attached to its mortgage business.
It also has to refinance £350mn of debt by October 2024, when the bond can no longer count towards the capital buffer known as MREL, a key regulatory measure. Earlier in the week, Metro said it was considering a range of options, including a combination of equity and debt issuance, as well as refinancing and asset sales.
It has also sounded out rivals, including high street lenders such as HSBC, Lloyds Banking Group and NatWest, about buying a third of its mortgage book, although analysts are sceptical that this would solve the lender’s problems in the longer term. Its decision to focus on building and maintaining a branch network has been a costly approach and runs contrary to the increasing digitisation of the banking sector.
The prospect that the bank might have to raise new funds caused Metro’s shares to fall 26 per cent on Thursday. The stock recovered some of those losses on Friday, ending up 21 per cent, but remained lower over the week.
ExxonMobil’s talks with Pioneer herald ‘new era’ of shale consolidation
Oil major’s possible takeover of $56bn independent driller ‘puts large companies into play’
ExxonMobil’s pursuit of Pioneer Natural Resources heralds an era of potential megadeals in the US shale oil industry, analysts say, in which the long-fragmented sector is controlled by a handful of larger operators.
The top western oil supermajor was in talks with Pioneer over a potential acquisition, people familiar with the matter said this week. A takeover of Pioneer, which has an enterprise value of $56bn, would be Exxon’s biggest since its landmark merger with Mobil in 1999.
A combined company would also be the undisputed leader in the Permian Basin, the vast field in western Texas and New Mexico that has powered America’s rise to become the world’s largest oil and gas producer. Analysts say a transaction could turbocharge merger and acquisition activity in the US shale patch as other companies seek to match Exxon’s unrivalled scale.
“This is a new era in the shale industry,” said Matthew Bernstein, senior shale analyst at Rystad Energy, a consultancy. “It’s hard to overstate the importance that this deal will have in terms of the Permian becoming consolidated.”
A flurry of big M&A deals in the late 1990s and early 2000s condensed control of US oil and gas production into the hands of fewer players as BP absorbed Amoco and Arco, Chevron swallowed Texaco and Exxon combined with Mobil.
Their dominance faded as wildcatting entrepreneurs, deploying horizontal drilling and hydraulic fracturing technology, bought up drilling rights from Texas to North Dakota and unleashed the shale revolution in the past decade and a half. Pioneer, led by chief executive Scott Sheffield, was among the challengers to the likes of Exxon.
Now, as drilling inventory dwindles, a new wave of mergers is under way in the shale patch. Companies prefer acquiring new acreage through M&A rather than undertaking expensive drilling.
But a deal between Exxon and Pioneer could spark a frenzy of activity as bigger companies become acquisition targets.
“Consolidation is going to happen, regardless of the outcome of Pioneer and Exxon — but a transaction of this size certainly puts large companies into play,” said Kevin MacCurdy, director of research at Pickering Energy Partners, a Houston-based financial advisory firm.
Other big players would likely be encouraged to pursue acquisitions more aggressively. Smaller groups could also seek to merge in pursuit of scale.
“A deal would increase the pressure on Chevron, which is competing with Exxon for US and global investors’ money,” said Ryan Todd, analyst at Piper Sandler. “It would increase the relative concerns in investors’ minds on the portfolio depth between the two companies.”
Darren Woods, Exxon chief executive, has told investors his goal is to ensure the company holds best-in-class positions in all sectors in which it operates. Woods and other Exxon executives told analysts during a visit to Goldman Sachs’ headquarters last month that the oil major preferred to buy assets in the Permian with “a large, contiguous acreage that was deeper in inventory”, according to a note published by the investment bank on Friday.
Exxon’s desire to expand its oil assets reflects its belief that fossil fuels will remain part of the global economy for years to come, despite warnings that demand must fall to protect the earth’s climate.
It said it could use its proprietary techniques and technology to improve its oil and gas recovery rate in the Permian. Exxon earned record profits in 2022, had about $30bn in cash on its balance sheet as of June, while its market capitalisation was $427bn on Friday.
Analysts said Permian-focused companies such as Diamondback Energy, Permian Resources and Matador Resources Company were now likely on the radar of larger operators hunting for deals. The shares of each of these companies jumped by about 4 per cent on Friday.
Exxon, Pioneer and Chevron all said they did not comment on market rumours or speculation. The talks between Exxon and Pioneer could still fall apart.
Much of Pioneer’s acreage in the Permian is situated next to Exxon’s and a merger could allow for significant cost savings, analysts said. Pioneer is the largest producer in the basin, with 9 per cent of gross production there, while Exxon is the fifth-largest at 6 per cent, according to RBC Capital markets. The Permian produces about 5.8mn barrels of oil a day, out of about 13mn b/d in total US oil production.
Jeffrey Oliver, an antitrust expert at Baker Botts, a law firm, said an Exxon-Pioneer deal would almost certainly prompt a telephone call and some questions from the Federal Trade Commission, the US competition regulator.
“Antitrust has almost become a religion, so there will be questions about whether a deal this size is destined to get really close scrutiny,” he said, although he predicted that a deal would eventually gain regulatory. approval.
News of the takeover talks between Exxon and Pioneer sent a frisson of excitement through the shale industry, although many executives declined to comment publicly on the speculation.
One shale executive told the Financial Times that if a deal went ahead — and gained a good reception from investors — it would likely spark a “feeding frenzy” with larger operators snapping up smaller rivals.
“Everyone has been a little worried about what would shareholders do and how would they respond to a big deal like this. Well, they’re about to see,” he said.
A European Carbon Tax Is Coming. What It Means for the World.
Until now, global climate policy has been symbolized by Davos parties and carbon pledges so far in the future that the bill may never come due. But starting this month, countries spewing harmful fumes will have to consider the cost, as Europe rolls out the first-ever carbon-based tariff. There’s also a good chance the fees will lead to inflation in products that are made with fossil fuels.
Imports to Europe will now face a tax based on carbon emissions caused by manufacturing. Initially, the tariff will hit industrial materials the hardest, but companies as varied as PepsiCo (ticker: PEP) and dialysis firm Davita (DVA) have told investors that the new rules could eventually affect their businesses.
“The consequences will be vast,” wrote Elena Belletti, head of carbon research at energy research firm Wood Mackenzie, in a recent report. She thinks the rules will “reconfigure international trade flows” over the next five years, and potentially result in new carbon fees going into effect in more countries.
European policy makers say the system, known as the Carbon Border Adjustment Mechanism, has two goals: encouraging more countries to write laws that reduce emissions, and making sure that European manufacturers stay competitive with rivals operating in “dirtier” jurisdictions.
Companies subject to the border tax won’t have to pay up immediately. For now, the European Union is just asking them to submit records of emissions used to make their goods. Taxes won’t be collected until 2026, and fees will go up gradually until they’re equal to EU carbon prices in 2034.
Industries affected in the first round include some of the largest carbon emitters: cement, iron and steel, aluminum, fertilizer, electricity, and hydrogen. Oil products aren’t yet included, though they’re expected to be added by 2030. By 2040, S&P Global Commodity Insights thinks the tax could bring in $80 billion per year.
Europe is known for far-reaching regulations in technology, privacy, health, and the environment. As with other European regulations, critics have argued that the carbon tariff stifles growth and unfairly targets foreign corporations. Chinese, Brazilian, and Indian officials have warned that it could upend free trade. The U.S. has reportedly asked for exemptions.
To economists, though, carbon taxes and border tariffs aren’t controversial. Dozens of Nobel Prize–winning economists, along with policy makers, signed a 2019 letter recommending that the U.S. impose them because they’re “the most cost-effective lever to reduce carbon emissions at the scale and speed that is necessary.” In economist-speak, carbon is an “externality” that most companies emit without considering—or covering—the costs that will come tomorrow. “What we’re doing by putting carbon in the atmosphere is we’re imposing costs on future generations, where the climate is going to be a lot worse,” says New York University’s Robert Engle, one of the Nobel economists who signed the letter.
Carbon taxes put a cost on emissions and give incentives to emitters to clean up. In countries that have their own carbon taxes—and the EU has them—a tariff is needed so domestic companies aren’t put at a disadvantage to foreign rivals, Engle says.
Since the 2015 Paris Climate Accords, countries have taken a range of approaches to meeting the goal of limiting global warming to 1.5 degrees Celsius. The U.S. has leaned heavily on subsidies for renewable energy and electric vehicles, including in last year’s Inflation Reduction Act. A few states like California impose a form of carbon tax or have announced targets that tend to be nonbinding from a legal perspective.
Similar to the U.S., the EU has used subsidies to spur development of clean energy. But unlike the U.S., the EU has also devised a legally binding regulatory regime to cut emissions. The European Parliament approved a law this year that will make the group reduce carbon emissions by 55% by 2030 from 1990 levels. The EU created a kind of carbon tax in 2005 that capped the total number of allowable carbon emissions from regulated companies and forced them to pay for any above those levels. The rules created a carbon-credit market, and costs have risen as the limits have gotten stricter.
Other countries also tax carbon for companies within their borders, but with rates that tend to be much lower. For most of 2023, EU carbon prices have been above $100 per metric ton, four times as high as the average country that imposes similar taxes, says Wood Mackenzie. For companies in countries with carbon taxes, those taxes will be discounted from the EU border tax. A Canadian steel maker exporting products to the EU could deduct taxes paid in Canada from their bill.
The countries that export the highest volume of steel and other affected products to Europe include Canada, Turkey, South Africa, Brazil, China, and India, according to S&P Global Commodity Insights. The U.S. ranks tenth, with relatively large iron, steel, and fertilizer exports to Europe.
Those countries are also expected to produce the most carbon emissions from the affected categories, according to S&P Global. That said, countries could reduce their bills significantly if they implement their own carbon taxes or if companies invest in cleaner methods of production. U.S. steel giant Nucor recently announced a partnership to produce steel using nuclear power.
Wood Mackenzie did the math on the tax using steel as an example. A metric ton of steel imported into the EU cost about $1,450 at the end of last year; the full border tariff could average $275 on that. Some countries could see higher bills, however. The tax could hike the cost of Chinese steel by 49% by 2034, and Indian steel by 56%, estimates Wood Mackenzie. That reflects the two countries’ heavy carbon emissions.
Those big bills aren’t coming due for years. The challenge now is to tabulate the emissions. “Like everything else, it starts with measurement,” says Roman Kramarchuk, who leads a group analyzing the impact of the transition on energy companies for S&P Global Commodity Insights.
Major metal and fertilizer makers have not spoken much about the new rules. Heavy industry is difficult to decarbonize, because making products like steel takes high and persistent heat that’s normally provided by burning coal or natural gas.
Fertilizer maker CF Industries (CF) warned in its latest annual report that clean ways of producing ammonia may not be fully developed for a decade or more. “The imposition of any carbon border-adjustment taxes may impact investment and trade flows, which could adversely impact our business,” the company said. Large metals companies, including
Vale, BHP, Nucor, Alcoa, and Reliance Steel & Aluminum, didn’t respond to requests for comment on estimated costs from the tariffs.
While some companies will be hurt by the tariff, others will benefit. One area that analysts cite as a beneficiary is clean hydrogen, a still-nascent industry unlikely to see mass adoption for several years. Among the companies developing it in the U.S. are Plug Power (PLUG) and Bloom Energy (BE).
Two important things could happen before the border tax gets collected. First, companies may shift exports, so their “cleanest” metal ends up in Europe and the rest is exported elsewhere, Kramarchuk says. Second, more countries may enact their own carbon taxes, protecting their manufacturers and speeding up decarbonization. In the U.S., Republicans have tended to oppose carbon taxes. But Sen. Bill Cassidy (R., La.), argued earlier this year for what he calls a “foreign pollution fee” aimed at Chinese chemicals, metals, and other products. Such a fee “curtails China‘s ability to undercut U.S. manufacturers,” he wrote.
Environmentalism and protectionism are potent forces. They’re coming together now in Europe. They may not end there.