TheChek News Flow

Lender that seized Telegraph Media Group holds a guarantee over the retail and financial services business

Lloyds Banking Group is in talks with the Barclay family and private equity firm Carlyle over the future of the Very retail and financial services business months after seizing the Telegraph Media Group.

The UK lender holds a guarantee in the overseas holding companies controlling Very Group, that is linked to the distressed debt behind the Telegraph, according to people with knowledge of the discussions. Very is the former Littlewoods and Shop Direct business based in Liverpool owned by the Barclays.

This potentially puts the holding companies on the hook for the £1.1bn in debt owed by the Barclay family to Lloyds, which placed the Telegraph into receivership in June, according to two people close to the situation.

The discussions will spark fresh scrutiny over the remaining businesses owned by the Barclay family after they lost control of the Telegraph. The Barclay family are seeking offers for delivery business Yodel, which is backed by about £180mn of debt provided by HSBC.

The existence of the debt guarantee could further complicate the relationship between the Barclays and Lloyds.

The family and the lender have been in discussions over the debt and the guarantee, one person said. Carlyle, which holds debt in the loan structure that backs Very, is also involved in the talks, the people added.

“[There are] discussions — the bank hasn’t enforced the guarantee, but it could in theory. It has sorted the Telegraph side and now the question is the Very Group”, one person said.

The person added that the talks were “ongoing and productive” and Very was not in any distress. The business enjoyed a boom in ecommerce sales during the pandemic and whilst this has faded, it is still profitable.

The talks instead concern the complex financial structures that sit above the operating companies, some of which can be seen in Companies House filings and through charges registered against offshore-based groups.

The Very Group has more than £1.5bn in securitised loans, and bonds of £575mn in its operating companies. However, Carlyle is owed debts of more than £300mn, which sit in holding companies above these groups, according to a person familiar with the situation.

Companies House filings show that shares in The Very Group were pledged as collateral for this holding company loan in July 2021.

Carlyle lent this money to Very in 2021 to help repay outstanding commitments of £280mn to Greensill Capital, the supply chain financing group that was at the time in administration. People close to the deal at the time said that the family had hoped to list the Very group to help reimburse the debt. 

While the Carlyle debt is more senior in the overall corporate structure, the people close to the process said that Lloyds in theory could enforce its guarantee and take charge of the holding companies sitting above this debt.

A spokesperson for the Barclay family said other assets owned by the family including the Very Group “are unaffected and continue to operate as normal” by the Telegraph receivership.

The person added: “This is a matter between the shareholders and Lloyds Banking Group only, and The Very Group is materially removed from it. The businesses across the group are performing well, have strong liquidity and have their own distinct funding arrangements.”

A spokesperson for Carlyle said: “We have a good relationship with the Barclay family and remain fully supportive of The Very Group, which is performing strongly.”

Lloyds declined to comment. HSBC could not immediately comment.

The Very Group is an online retailer and financial services provider formed through merger of the former Littlewoods and Shop Direct companies, bringing together companies that have their roots in mail order and the football pools.

In results for the 39 week period ended 1 April 2023, revenue increased slightly to £1.7bn, with earnings before interest, tax, depreciation and amortisation of £190.1mn, down from £221mn the year before. Pre-tax profit was £11.7mn, down from £58.5mn.

Human rights groups accuse military of shooting civilians during unrest that left dozens of people dead

The UN said it was “extremely alarmed” after dozens of people were killed in the eastern Democratic Republic of Congo this week in protests against a longstanding peacekeeping mission in a region besieged by rebel groups.

Members of a religious group had gathered in the city of Goma to demonstrate against the UN peacekeeping mission known as Monusco and the East African Community organisation over escalating violence.

Human rights groups accused the DRC’s military of shooting civilians during Wednesday’s unrest in which at least 43 people were killed, including a policeman, and 56 injured.

Volker Türk, the UN human rights chief, on Friday said: “People have a right to express themselves freely and to assemble peacefully, even if in protest at the United Nations.” He said the UN had received information indicating that the death toll may be higher.

Monusco peacekeepers have been in the country since 1999, but have faced criticism over their failure to stop rebel violence, particularly the resurgence of the M23 armed group, which has been terrorising parts of the region.

Last year, amid claims that the UN had failed to protect civilians, anti-Monusco protests led to the deaths of several people, including peacekeepers.

On Thursday, the Congolese government said 158 people had been arrested and that a military investigation into the bloodshed had been opened.

The victims were reportedly killed in Goma, the capital of the province of North Kivu, after the army confronted a “mystic-religious sect”, called Natural Judaic and Messianic Faith Towards the Nations, which had gathered to protest.

Officials in the Congolese capital, Kinshasa, said the group “carried out actions which undermined public order, and which caused the death by stoning of a police officer,” leading to an intervention by the security forces.

In a statement on Thursday Monusco said the Congolese security forces had “in accordance with their primary responsibility for security in the country,” tried to prevent a demonstration that was expected to turn violent. Bintou Keita, head of Monusco, said she deeply regretted “the banned demonstration has caused the death of civilians, police and members of the Congolese armed forces”.

“Congolese military forces appear to have fired into a crowd to prevent a demonstration, an extremely callous as well as unlawful way to enforce a ban,” said Thomas Fessy, senior Congo researcher at Human Rights Watch. “For two years, the military authorities have used the ‘state of siege’ — martial law — in North Kivu province to brutally crack down on fundamental liberties.”

Violence in the region has been escalating in recent years, especially since M23 rebels resurfaced with renewed strength after a hiatus of almost 10 years.

John Banyene, a civil society leader in Goma who has joined protests against the peacekeepers in the past, said. “There’s a dissatisfaction from the population with regard to Monusco, which has had a presence here for more than two decades, but now the security situation is only deteriorating.”

In 2021, the government of President Felix Tshisekedi declared “a state of siege” in eastern DRC, with military officers taking over from civilian administrators in areas where government troops are fighting more than 100 rebel groups vying for resources and territorial control. 

The M23 — which Congolese officials, local people, the UN, US, and EU claim is backed by neighbouring Rwanda, something Rwanda’s government denies — resumed fighting in November 2021 and has since been waging a brutal offensive in eastern Congo. The group has been accused of mass killings and the rape of civilians. Almost 1mn people have been displaced by violence since the M23’s resurgence, the International Organization for Migration said in April.

The M23 on Friday released a statement condemning in “the strongest terms the brutal slaughtering of unarmed civilians”, claiming the death toll kept rising and it “provisionally stands at 97 dead, including women and children.”

The potential for fraud will not diminish given growing recycling requirements

Recycling offers a green alternative to disposal of unwanted goods. Free waste gets turned into green dollars in the reclamation of metals. Unfortunately, the buyers of scrap metals and products which contain these cannot be sure what they have purchased.

Tell that to Aurubis, the Frankfurt-listed metals smelter and one of the world’s largest metal recyclers. It has discovered “considerable discrepancies” in its expected metals inventories after paying for recyclable materials. These include items such as computer circuit boards. It had already reported missing metal worth €20mn earlier this year. Prosecutors are investigating possible links.

Issues with the provenance of higher value metals such as gold, copper and nickel have popped up before. Commodities trader Trafigura has accused Prateek Gupta and New Alloys Trading of defrauding it of half a billion dollars in a nickel transaction. Both deny any fraud. Bags of nickel in a London Metal Exchange warehouse actually contained stones and had come via another warehouse owned by rival trader Glencore. Other scandals involving metals have occurred in the west and China in recent years.

This “theft”, according to Aurubis, could be costly and worth €100mn-€200mn. Its share price plummeted 14 per cent on Friday, which suggests the problem could be larger than that. Analysts had estimated Aurubis would make an operating profit of €450mn this year, the equivalent of that decline. It has suspended profit guidance for this year.

Recycling non-ferrous metals, especially from used electronic equipment, requires time-consuming screening and extraction. Suppliers usually get paid first. Others, such as Swedish miner Boliden and Mitsubishi Materials, have European metals recycling facilities.

The potential for fraud, either from external suppliers or internal testers, will not diminish given growing recycling requirements.

Expectations grow that Fed will halt interest rate rises as unemployment hits 3.8% and wage raises slow

The US labour market showed signs of cooling in August, giving financial markets renewed hope that the Federal Reserve is orchestrating a soft landing for the world’s largest economy.

Investors hailed a possible Goldilocks scenario in which inflation comes under control without causing a recession, as Friday’s figures revealed an uptick in the unemployment rate, subdued jobs growth and wage rises back at pre-Covid rates.

“If the Fed could have put together their ideal employment report, it would look something like today,” said Andrew Hollenhorst, an economist at Citi, who described the combination as “ideal” for the central bank’s purposes.

But he added: “We should be careful about looking at one month of data and saying we’re all clear.”

The vast majority of investors already expected the central bank to keep rates steady at its next meeting in late September.

But, following Friday’s data release, futures markets cut the probability of a rate rise at the subsequent November meeting from just below 50 per cent to roughly 40 per cent. 

Investors and policymakers are watching closely for signs that the US labour market is cooling, since jobs and wage growth are key contributors to inflation.

The Bureau of Labor Statistics data showed that unemployment edged up to 3.8 per cent last month compared with economists’ predictions it would remain steady at near multi-decade lows at 3.5 per cent.

Monthly wage growth of 0.2 per cent was also lower than forecast, though the year-on-year growth rate of 4.3 per cent remained well above levels considered consistent with the Fed’s 2 per cent inflation target.

The economy created 187,000 new non-farm jobs in August — higher than forecasts of 170,000 but the third consecutive month below the 200,000 mark.

Totals for the previous two months were also revised to a cumulative 110,000 lower.

The wage and unemployment trends were helped by more people returning to the workforce, with the first increase in the labour force participation rate since February. Such an increase in labour supply may also serve to slow wage rises.

Natixis portfolio manager Jack Janasiewicz said that, as “getting people off the sidelines and into the jobs market” continued, it would “put downward pressure on wages in general”.

Friday’s numbers followed separate data published this week that also suggested labour demand is easing, with the number of job vacancies falling more than expected.

“The report shows the labour market is rebalancing in a good way — increases in labour force participation are what we want to see ,” said Sonal Desai, chief investment officer for Franklin Templeton Fixed Income.

“A rate hike in September is now very unlikely but it's too soon to say that all rate hikes are off the table.”

But other economists expressed fears the Fed would squeeze the economy too much.

“The odds of a hard landing keep growing as long as the Fed keeps talking about the potential for hikes,” said Priya Misra, a portfolio manager at JPMorgan Asset Management.

“Just keeping their options alive means that restrictive real rates remain,” she added, referring to the impact of expectations on real borrowing costs.

In his annual speech at the Fed’s economic symposium in Jackson Hole, Wyoming last week, Fed chair Jay Powell stressed that the central bank was “prepared to raise rates further if appropriate”, but said policymakers would be cautious as they try to balance controlling inflation with minimising damage to the broader economy.

Stock and bond prices rose after the data was released. US equities opened higher, with the S&P 500 up 0.3 per cent in mid-morning trade. 

The yield on the interest rate-sensitive two-year US Treasury fell initially before rebounding to trade 0.01 percentage points higher at 4.86 per cent. Yields fall when prices rise.

The benchmark 10-year Treasury yield dipped to 4.06 per cent, its lowest since August 10 but recovered to trade 0.09 percentage points higher at 4.18 per cent.

Finma lacks teeth compared with regulators in other countries, says panel following near-collapse of Credit Suisse

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Switzerland’s market regulator, Finma, is too weak to adequately handle banking crises, according to a government-appointed panel of financial experts tasked with analysing the near-collapse of Credit Suisse.

The Swiss government should urgently explore changes to the law to equip the watchdog with greater powers, the committee of eight academics, bankers and former regulators concluded in a 98-page report delivered to the Swiss finance ministry on Friday.

Finma lacks teeth in comparison with international peers and struggles to enforce its will on the country’s banking sector, the report said, in what is the first official, public analysis of the crisis that nearly sunk the country’s second-largest bank in March.

Even though Finma observed scandals, a share price plunge and an erosion of credit ratings at Credit Suisse, the bank’s management was “recalcitrant” in the face of regulatory scrutiny, the report stated.

Unless Finma declared the bank “non viable” — a designation considered to be a nuclear option — the authority had no power to compel management or strategic changes under its charter, it added.

With UBS’s takeover of its former rival — a deal that has created a banking behemoth that dominates the Swiss market — the need to bolster Finma’s authority is greater than ever, the report warned.

It recommended that several new powers be granted to the regulator.

These would include the ability to issue fines, a penalty it is currently unable to impose on banks.

Finma is the only regulator in a leading global financial centre that does not have the power to levy financial penalties. As a result, many banks do not take it seriously, the report said.

It also called for Finma to be able to “name and shame” banks and individuals subject to enforcement proceedings. Under Switzerland’s existing laws, which remain tilted heavily in favour of discretion, Finma is permitted only to publicise details of financial misdemeanours or infringements in the most egregious of circumstances.

Publicising financial abuse would have a positive “disciplining effect” on institutions, the report said, noting that regulators in the US and UK publish information on almost every enforcement decision they take. At present the Swiss public “can be unaware of a bank’s unsafe statue” as a result.

The report also recommended legal changes to make it harder for banks to challenge Finma when the regulator does order institutions to make changes. It notes that, at present, if a bank decides to contest a Finma order, the legal process means it can take years for Finma to obtain a ruling from the Supreme Court forcing compliance.

The committee held 27 interviews with senior figures involved in the Credit Suisse crisis. These included the top managers of Credit Suisse and UBS, politicians, the heads of central banks and Finma’s peer regulatory bodies in other countries.

The Swiss government is expected to recommend a package of financial market reforms in response to the crisis in the coming months.

A special parliamentary committee of inquiry is also about to begin a probe in picking apart the crisis, equipped with powers of subpoena.

Kering began taking its beauty business back in-house in February.

What will be next for Kering Beauté?

After months of speculation, the French luxury house in early February said it had begun taking its beauty activity back in-house, and that it appointed Raffaella Cornaggia chief executive officer of Kering Beauté — a new position in a new division.

She was charged with developing a team with expertise in the beauty category for Bottega Veneta, Balenciaga, Alexander McQueen, Pomellato and Qeelin.

At the time, Kering said: “The creation of Kering Beauté will enable the group to support these brands in the development of the beauty category, which is a natural extension of their universe.”

Up until then the buzz had been intensifying about whether Kering would make such a move and if so, what form that might take, especially in regard to jewels in the crown, Gucci and Yves Saint Laurent, whose beauty licenses are held by Coty Inc. and L’Oréal, respectively.

Kering Beauté wasted no time and in late June made the bold move of acquiring Creed, the oldest existing high-end niche fragrance house, in a deal reportedly worth 3.5 billion euros.

François-Henri Pinault, chairman and chief executive officer of Kering, said during a call regarding the group’s half-yearly 2023 results that Creed had revenues of around 250 million euros in 2022, with a very high EBITDA margin.

“We have strong growth opportunities for Creed,” he said, noting the brand has very limited exposure to the Asia Pacific region, little to no presence in travel retail, and room to expand its women’s lines.

The Creed deal came after Kering was in the chase to acquire Tom Ford International, which eventually was bought by that company’s existing beauty licensee, The Estée Lauder Cos. Inc., for $2.3 billion. Kering was also reportedly interested in acquiring luxury brand Byredo, which was snapped up by Puig for an estimated 1 billion euros.

Over the past two decades, luxury goods companies have been taking back full control of the brands they own. That can pack a powerful punch, giving them more consistency, synergies and power.

Today, among Kering’s other owned fashion and jewelry labels, Interparfums runs Boucheron’s business in perfume, while Lalique Group develops Brioni’s fragrance activity.

So what could be next for Kering’s beauty division?

Might Valentino beauty be in the scopes? Kering in late July said it had bought a 30 percent stake in the Italian luxury brand as part of a broader partnership with Qatari investment fund Mayhoola, with an option to buy 100 percent of Valentino by 2028.

Today, Valentino’s longterm fragrance license is held by L’Oréal, which became the licensee on Jan. 1, 2019.

Aside from other acquisitions, there remains huge opportunities for Kering Beauté to grow the brands it already has in-house by strengthening their fragrance businesses and stretching into other categories, such as color cosmetics and skin care.

Offering, likely on Riyadh exchange, would be largest in history of capital markets; similar previous plans have fallen through

Hong Kong draws down shutters as eye of supertyphoon Saola focuses on financial center

HONG KONG—As residents of Florida and South Carolina struggle with the aftermath of storm Idalia, southern China is being lashed by for an even more powerful cyclone.

In the Asian financial hub of Hong Kong, the government took no chances with supertyphoon Saola, raising the city’s storm alert in the early hours Friday, with all schools, the stock market and most public transport closing for the day. After a calm start, winds began to gust strongly by mid-afternoon and government meteorologists issued the highest storm alert at around 8 p.m. local time, the first level-10 typhoon in five years.

After gathering strength in the Pacific Ocean to become a typhoon about a week ago, Saola had left one person dead and forced hundreds of thousands from their homes in the Philippines before grinding toward southern China. Wind speeds topping 130 miles an hour on Friday make Saola a Category 4 cyclone by U.S. standards. Idalia briefly touched that category before battering northern Florida as a Category 3 hurricane.

Hurricanes and typhoons are different names for the same type of rotating storm, depending on where it occurs. Also known as tropical cyclones, they develop over warm ocean waters near the equator. Those that form in the North Atlantic or central and eastern North Pacific are called hurricanes. Those born over the western North Pacific are known to Asia as typhoons.

Saola becomes only the 17th storm to trigger the level-10, hurricane-force gale warning since 1946, according to the Hong Kong Observatory. While deaths are now rare in the city, that storm five years ago caused more than 120 fatalities in the Philippines. Another typhoon, Hanna, affected the main Philippines island of Luzon on Friday.

Warming ocean temperatures are expected to fuel more cyclones. Decades of climate warming and an El Niño pattern that releases heat from the Pacific into the atmosphere have brought Atlantic sea-surface temperatures to a record high this year, according to experts.

An earlier typhoon wreaked havoc in China’s northeast in August, causing torrential rain and widespread flooding in and around the capital, Beijing, that left dozens of people dead and millions more displaced. China’s government earlier warned that changing weather patterns would lead to more flooding in some regions, affecting agriculture.

Saola has a double-eyewall structure, the Hong Kong Observatory said, which was an indication of a particularly intense storm. “Remain where you are if protected and be prepared for destructive winds,” the observatory said, adding that the center of the storm would pass within 25 miles of the city over the next few hours.

As Hong Kong rides out the winds, the observatory warned of flooding caused by heavy rain and a storm surge that would push sea levels to record highs. It predicted the tide in one bay in northeast Hong Kong would be around 13 feet higher than normal.

China’s central government issued its highest typhoon warning on Thursday, ordering the deployment of emergency rescue vessels because of the rough seas.

In Hong Kong Friday, the stock exchange halted trading—a practice that sets it apart from other major bourses. More than 360 flights were canceled. All schools were closed on what would have been the first day of classes for many students.

Authorities in the neighboring tech and manufacturing hub of Shenzhen ordered work, business and market activity to stop late Friday afternoon. All flights from the city’s airport were grounded from midday, while schools were suspended a day earlier.

The world’s longest sea bridge, connecting Hong Kong, mainland China and Macau, closed on Friday afternoon.

The government in Macau, like Hong Kong a special administrative region of China, said it could raise the city’s storm signal to its highest category early Saturday. Officials in the gambling hub were accused of failing to raise alerts in time in 2017, when a typhoon killed 10 people in the city of fewer than 700,000 residents.

Regulators are concerned deal would consolidate US travel site’s market position and hurt rivals

EU regulators are set to block US online travel site Booking Holding’s €1.63bn purchase of Sweden’s Etraveli Group following concerns that it threatens competition, according to four people with direct knowledge of the decision.

The decision contrasts with the stance of the UK’s Competition and Markets Authority, which approved the deal a year ago.

Booking announced in November 2021 its intention to buy Etraveli, which runs brands such as Gotogate and Mytrip and is owned by private equity giant CVC.

EU regulators are concerned that Booking’s acquisition of the flights-only company will further consolidate its position in the travel market and hurt rivals, said people familiar with the discussions in Brussels.

The move comes weeks after the European Commission, the EU’s executive body, said it was concerned the deal would give Booking a market advantage by boosting its place in the hotel booking sector and help it move into other services such as car rentals and flights.

It also follows a closed hearing where the company sought to appease regulators’ concerns by offering concessions that included allowing rivals to have more visibility on its site as alternatives for hotel bookings.

The move by the EU also comes after a test of the remedies with market participants, who rejected the concessions as not being enough to guarantee free and fair competition, these people added.

Antitrust investigators said that following an in-depth probe they were worried the deal would “strengthen Booking’s dominant position in the hotel (online travel agent) market further, increasing its bargaining position towards hotels and diverting demand from cheaper alternative sales channels”.

Regulators said choice was “already limited” in the sector and that Booking seemed to have an “unconstrained” position.

Brussels is also concerned that the acquisition will lead to higher barriers to entry and expansion by making it harder for rivals to gain new customers.

Separately, regulators fear Booking would “significantly” boost its online traffic and raise costs for hotels — ultimately harming consumers.

An official decision is expected later this month but people with direct knowledge of the EU’s thinking said the merger would be vetoed.

The decision is a rare one by the commission which clears most deals and is likely to be the last one blocked under current competition supremo Margrethe Vestager before she takes unpaid leave to campaign for the top job at the European Investment Bank.

A change in commissioner is unlikely to affect the decision, they added.

The commission declined to comment. Booking did not immediately respond to a request for comment, but people with knowledge of Booking’s thinking expect it to appeal against any veto.

The company is also set to renew a four-year commercial deal it has had with Etraveli for another five years.

Other deals facing particular EU scrutiny include Orange’s proposed €19.6bn acquisition of mobile telco MasMovil because regulators are concerned the transaction may reduce the number of operators in the Spanish market and ultimately lead to higher prices and less innovation.