TheChek News Flow

- A trade deal should be based on equality, mutual benefit

- Foreign investors still enthusiastic about China

NORSK - Resumes full production at Alunorte.Prodn to ramp up to 75-85%(35)+4-5%

UDG - Revs $656.6m. Net operating margins increased from 11.8% to 12.5%(675)+3%

CECONOMY - Small beat w/ EBITDA €113m v €98m cons. Cash flow detoriating (5)+3%

T.ITALIA - Domestic revs inline, org EBITDA +1%, capex lower, 11% ahead(0.5)+3%

HALFORDS - Relief. Update very much inline with full yr expecatations (244).+2%

WH SMITH - Travel LfL +3% & high st only -1% w/ margin improvement (2060).+1-2%

ELECTROCOMPONENTS - Profit GBP214.5 v 211.1m. FY divi per share 14.8p(616)+1-2%

SONOVA - '19/20 guide inline with EBITDA growth of +9-13% cFX v +10%e (782).+1%

HSV - Topline 70bps beat v cons.Adj op profit in the US of $88m, +37% (1102)+1%

SHAFTESBURY - 1H NAV/shr 995p v cons for FY 10.1.1H dvd/shr 8.7p,inline(861)+1%

MERLIN ENT - Reiterate rsch buy after 7% fall in the stock yesterday (353.5)+1%

THYSSEN - Supervisory board meets to approve ipo plans for elevator biz (12)+1%

MINERS - Copper +0.5%, IO fut +1.22% with BHP OZ -0.72% and RIO OZ -1.38%.+0.5%

BIG YELLOW - Consistent perf w/ occupancy up to 82.5% & target of 90% (1055)u/c

D.BANK - Top investors focus their discontent on Chairman, bbg reports (6.7)u/c

TOBACCO - Add. negative. Mitch McConnell introduced bipartisan legislation..-1%

GALLIFORD TRY - Linden homes this yr,sales rate fallen to 0.68 from 0.71(35)-1%

House Democrats have requested records from Mazars, the president’s longtime accounting firm

WASHINGTON—A federal judge ruled that President Trump can’t block a subpoena from a House committee seeking financial records from his longtime accounting firm, a blow to his efforts to head off Democratic congressional investigators.

U.S. District Judge Amit Mehta, an appointee of President Obama, on Monday ruled House Oversight Committee Chairman Elijah Cummings (D., Md.) was on solid legal footing when he issued a subpoena to Mazars USA LLP. The subpoena sought eight years of financial statements and other records related to Mr. Trump, his real-estate company, his foundation and other entities belonging to the president.

Mr. Trump, speaking to reporters on Monday as he left Washington for Pennsylvania, criticized the ruling as “crazy” and “totally the wrong decision by obviously an Obama-appointed judge.”

Jay Sekulow, an attorney for Mr. Trump, said the president’s lawyers would file a “timely” notice of appeal.

The Mazars case represents the first of Trump’s attempts to thwart congressional subpoenas to be decided in court.

Judge Mehta ruled Congress had broad authority to conduct investigations.

“It is not unreasonable to think that the Mazars records might assist Congress in determining whether ethics statutes or regulations need updating to strengthen Executive Branch accountability, promote transparency, and protect against Executive Branch officials operating under conflicts of interest,” Judge Mehta wrote.

The judge also said the House Oversight Committee was acting with “facially valid legislative purposes, and it is not for the court to question whether the committee’s actions are truly motivated by political considerations.”

Mr. Cummings, the House oversight panel chair, in a statement Monday called the ruling a “resounding victory for the rule of law and our Constitutional system of checks and balances.”

“Congress must have access to the information we need to do our job effectively and efficiently, and we urge the President to stop engaging in this unprecedented cover-up and start complying with the law,” he said.

The judge’s ruling gives a victory to House Democrats, who have battled with the White House to obtain documents and testimony on several fronts. On Monday, Mr. Trump directed his former White House counsel Don McGahnto rebuff a congressional subpoena for his testimony. The Treasury Department has declined to turn over the president’s tax returns in response to a subpoena from a congressional committee. And the White House has refused to turn over documents in response to an expansive request from the House Judiciary Committee, which is investigating possible corruption, abuse of power and obstruction of justice by the president.

In their lawsuit, filed last month, lawyers for the Trump Organization said the committee’s subpoena threatened to expose the president’s “confidential information” and lacked “a legitimate legislative purpose.” They accused Democrats of using subpoenas as a political weapon against a president they don’t like, a claim Democrats denied.

Judge Mehta made clear in a hearing last week that he was skeptical of the president’s position, noting that no Supreme Court case or major lower-court ruling since 1880 has found Congress had overstepped its bounds in issuing subpoenas.

Mr. Cummings, explaining the need for the subpoena, cited the testimony of former Trump lawyer Michael Cohen, who told the committee in February that Mr. Trump had altered financial statements for his own benefit, at various times inflating or deflating his assets. Mr. Cohen turned over to the committee financial statements from 2011, 2012 and 2013, several of which were prepared by Mazars.

The committee had previously sought documents from Mazars on a voluntary basis, but was advised by an attorney for the company in March that it couldn’t turn over the documents without a subpoena.

Another lawsuit filed by the president’s lawyers to block a different congressional subpoena is pending. Mr. Trump, three of his children and his real-estate businesses last month filed a federal lawsuit to block Deutsche Bank AG and Capital One Financial Corp. from complying with a subpoena from two House committees for documents related to him and his family.

After Commerzbank talks collapse, pressure intensifies on the bank’s leaders to take more drastic action

Deutsche Bank chairman Paul Achleitner knows only too well how it feels to be on the receiving end of a full-throated German shareholder revolt.

As a supervisory board member at Bayer, the 62-year-old witnessed the unprecedented vote of no confidence that investors delivered to the leadership of the aspirin-to-weedkiller group at its annual meeting last month.

The rebuke came a day after Deutsche abandoned merger talks with Commerzbank — an outcome that makes a similar shareholder backlash even more likely against Germany’s biggest bank at its own annual meeting on Thursday.

With analysts expressing frustration at the bank’s poor performance, and its share price hitting a new record low this week, proxy advisers ISS and Glass Lewis are recommending shareholders deliver a similar stinging rebuke to Deutsche.

“We had initially assumed Deutsche would draw some strategic conclusions ahead of the shareholder meeting,” says Stuart Graham, head of Autonomous research, who believes Deutsche’s management “could well lose” the same confidence vote that Bayer’s did.

Deutsche’s bosses are facing calls to take more drastic action, especially as its revenues keep shrinking, its profits remain stuck far below rivals and it is being investigated for alleged money laundering abuses by authorities around the world.

Whatever the result of Thursday’s vote, the gathering in Frankfurt’s Messe festival hall will concentrate the minds of investors on the many challenges facing Mr Achleitner and his chief executive Christian Sewing.

Fixing the investment bank

The biggest strategic hurdle is to turn round its ailing investment bank, a daunting task underpinning the question of whether Deutsche can hold on to a decades-long ambition to compete with Wall Street’s top banks.

Although Mr Sewing, who has led the bank for just over a year, has started overhauling the business, it still ties up two-thirds of the bank’s capital.

Deutsche’s corporate and investment banking division made a return on equity of less than 1 per cent in 2018, compared with 16 per cent cranked out by the equivalent divisions of rivals JPMorgan Chase or UBS.

Sveral members of the German lender’s supervisory board and four large shareholders have been pressing management to shrink the division. Those calls are set to grow louder as analysts predict the unit will this year suffer its fourth consecutive annual decline in revenues, while its profitability remains razor-thin.

“[Further] investment banking cuts are going to happen, but Christian can’t admit it yet,” says one large investor.

Immediately after the collapse of the talks with Commerzbank, Mr Achleitner told the Financial Times there was no need for a fundamental strategic overhaul.

The potential benefits of closing some of the division’s worst performers are underlined by JPMorgan analyst Kian Abouhossein, who estimates that losses from Deutsche’s US equity trading operation alone are €200m to €300m a year.

Yet analysts at UBS, who this week downgraded Deutsche shares to a “sell” rating, worry about its “muddle through” approach and warn they “don’t expect operating conditions to improve anytime soon”.

Overhauling the top team

The contracts of four of the bank’s nine management board members expire next year and the bank is expected to replace several members of its top team.

Deutsche’s supervisory board is likely to replace Sylvie Matherat, its chief regulatory officer, according to two people familiar with the board.

The former French central bank official has a contract until 2023 but she has been under pressure since September when regulator BaFin ordered Deutsche to do more to prevent money laundering and terrorism financing.

Replacing Ms Matherat “is just a question of when, rather than if”, according to one person close to the supervisory board.

The future of investment banking chief Garth Ritchie is also under scrutiny. He received a new five-year contract and a €3m pay rise last year, but influential shareholders have called for his removal.

In 2018, Mr Ritchie was the worst performer among Deutsche’s top executives, according to the lender’s compensation report, which showed that he only achieved 80 per cent of his individual goals set for the year.

Reversing years of decline

The strategy laid out by Mr Sewing hinges on the bank generating more revenue and profits from key areas such as retail banking, asset management and transaction banking.

In retail banking, Deutsche needs to reap benefits from its decade-old acquisition of domestic rival Postbank. Frank Strauss, Deutsche’s head of private and commercial banking, told the FT last week that the integration of Postbank was ahead of schedule and he was confident of trebling his unit’s return on tangible equity by 2021.

For asset management, much depends on Asoka Wöhrmann, who was parachuted in as new head of Deutsche’s money managing arm DWS last October. He managed to reverse a decline in assets in the first quarter and is pushing a merger with UBS’s asset management arm to create a new European power house.

However, talks with UBS have stalled as both sides quarrel over valuations and who would control a combined entity with about €1.4tn of assets. “The odds of a successful deal are just 50/50,” says a person familiar with the discussions.

In transaction banking — which encompasses cash management, trade finance and payments — Deutsche aims to double pre-tax profits to €2bn by 2022 while boosting revenue by a quarter, partly by improving links to the currency trading operation.

We want to invest quite a bit,” Stefan Hoops, a protégé of Mr Sewing who has run the business since October, told the FT in March.

Shedding unwanted assets

Although some progress has been made in cleaning up the bank’s balance sheet, it still has derivatives exposure of more than €300bn. Some are long-running positions that tie up a lot of capital but generate no revenue.

About 90 per cent of the long-running derivatives with maturities of more than five years — roughly half of the total exposure — are interest rate products which, according to a person familiar with them, are less risky than currency related ones as they have a predefined runoff profile over time.

Deutsche also sits on €25bn of illiquid and difficult-to-price assets classed as “level 3” by regulators. A person briefed on the matter said there was a high turnover among these assets, with the “large majority” having an average lifespan of two to three years.

While the absolute size of these illiquid assets might look small compared with its €1.3tn of total assets, investors are uneasy because they cannot assess the riskiness of these positions. “They represent 53 per cent of Deutsche’s common equity tier 1”, warns the chief investment officer of a large German asset manager.

To address these concerns, the bank is exploring ways of shedding as much as €50bn in risk weighted assets, or 14 per cent of its balance sheet, says a person familiar with Deutsche’s internal discussions. However, a bank insider said that figure seemed high and no decision had been made.

Chinese telecoms company says 3-month grace period ‘doesn’t mean much’

The Trump administration has issued a licence that will allow US companies to keep doing business with Huawei for the next three months in a bid to contain the fallout from the export restrictions on the Chinese telecoms equipment maker. 

The licence would enable operations to continue for existing Huawei mobile phone users and rural broadband networks in the US, the commerce secretary, Wilbur Ross, said in a statement on Monday.

“The temporary general licence grants operators time to make other arrangements and the [commerce] department space to determine the appropriate long term measures for Americans and foreign telecommunications providers that currently rely on Huawei equipment for critical services,” Mr Ross said.

Ren Zhengfei, Huawei’s founder, said the reprieve “doesn’t mean much” to the company as it had already prepared for a potential blacklisting, and warned that the US was underestimating Huawei.

“We will not easily and narrowly exclude US chips …but if there is a supply shortage, we have a backup,” Mr Ren said in an interview with Chinese state media on Tuesday. “The current practice of American politicians underestimates our strength.”

Earlier on Monday, Google said it would stop providing Huawei with its Android software in order to comply with the export restrictions imposed by President Donald Trump. One industry source said the reprieve meant that Google could now resume providing the software. Google and Huawei declined to comment.

Last week, as US-China trade tensions flared, the Trump administration abruptly announced that it was placing Huawei on the commerce department’s export blacklist — known as the entity list. This requires US companies wanting to sell to Huawei to obtain a special licence from the US government under a “presumption of denial”, meaning that Washington’s default position would be that any application would be rejected. 

As well as dealing a blow to Huawei in the US and around the world, the move by the Trump administration triggered a sell-off in shares of US technology companies, including chipmakers, who are big suppliers to Huawei. 

John Neuffer, president and chief executive of the Semiconductor Industry Association, which represents nearly 95 per cent of the US semiconductor industry, said: “We hope to work with the administration to broaden the scope of the license so it advances US security goals in a manner that does not undermine the ability of the . . . industry to compete globally and ensures [its] economic security.”

In a notice in the US government’s federal register on Monday afternoon, the commerce department’s bureau of industry and security said it was authorising “engagement in transactions” with Huawei and its affiliates under certain conditions.

Those included deals “necessary to maintain and support existing and currently fully operational networks and equipment, including software updates and patches” as well as those contracts “necessary to provide service and support, including software updates or patches to existing Huawei handsets”.

Michael Allen, managing director at Beacon Global Strategies, a Washington-based national security consultancy, said the significance of the temporary licence was that it gave companies affected by the order a “stay of execution”.

“This gives time to US business to adapt or consult with the US government and, if convincing, possibly win changes to a final order,” Mr Allen said. “The Chinese may also view this move as an opening to win changes in the trade talks, if they are resuscitated.”

In its statement, the US commerce department said that after three months it would evaluate whether to extend the temporary licence any further, but it reiterated the reasons why Huawei had been placed on the export blacklist in the first place. 

“The department concluded that the company is engaged in activities that are contrary to US national security or foreign policy interests, including . . . providing prohibited financial services to Iran, and obstruction of justice in connection with the investigation of those alleged violations of US sanctions, among other illicit activities,” it said. 

The move by Mr Trump to slap Huawei with such wide-ranging and damaging restrictions in its ability to engage in business with US companies further dented hopes that the US and China could patch up their negotiations on trade. 

Those talks broke down earlier this month after Mr Trump accused Chinese officials of reneging on key aspects of the proposed agreement, particularly US demands that it codify structural reforms, including protections for American intellectual property, into Chinese law.

The US then proceeded to increase tariffs on $200bn of Chinese imports from 10 per cent to 25 per cent — and to threaten to impose levies of 25 per cent on a further $300bn of Chinese imports as early as the end of June, dramatically raising the stakes in the trade war.

Steven Mnuchin, the US Treasury secretary, said last week that plans were under way for a trip to Beijing to engage in further discussions with Chinese officials, but none had been planned as of early this week.

Mr Trump is expected, however, to meet Xi Jinping, the Chinese president, at the G20 summit in Japan next month, which could offer a window for a new detente.