TheChek News Flow

Federal data protection rules would be good for consumers, not just the industry

For years, the world’s biggest technology companies lobbied politicians to leave them alone. In a striking change of approach, executives from Google, Amazon, Twitter and others asked a Senate committee last week for regulation. After the EU’s General Data Protection Regulation and, more significantly, new California privacy rules that establish broad definitions for personal information, impose restrictions on selling data to third parties, and fine companies for data breaches, big tech has decided it wants US politicians to impose a national privacy law.

One motive is to avoid internet regulation splintering along US state lines. Regulatory fragmentation and arbitrage is already happening internationally, as the US, Europe and China move in different directions on issues such as privacy, personal data rights and competition. In an ideal world, there would be a single international regulatory regime for technology, given that no industry is more borderless than big tech. We do not live in that world.

Another reason the tech sector is pushing for a single national policy in lieu of state rules is a concern that stricter states will end up setting the de facto regulations for the rest of the country — in the same way that the EU’s GDPR is now becoming a global standard for many multinational companies. The California rules, set to go into effect in 2020, are in some ways even tougher than the EU’s. Customers can, for example, explicitly ask firms not to share a broad range of data, rather than a more blanket “opt in” and “opt out” clause. Massachusetts has passed a bill strengthening protections for consumers suffering data breaches. Illinois has a law restricting collection of biometric data that Google and Facebook are pushing back against.

Certainly, the US should try to avoid fragmentation of regulation at the state level. But it should also avoid watering down regulation in order to come up with a national standard. As recent Senate commerce committee hearings made clear, there is still plenty of opacity in how the largest platform tech companies define data, and sell it to third parties. Provisions for what happens to users whose data are compromised, meanwhile, are not strict enough. At the moment, the burden of proof is on users themselves. If the California regulation is copied, it will be on the companies to prove that they have taken the right steps to avoid hacking.

What is clear is that the current model of “self-regulation” is not working. The technology sector, like the financial sector before it, has long argued that the complexity of its business model could not be well understood by politicians or the public at large; protecting the public from the downside of technology should therefore be left to technologists. If the past few years have shown us anything, it is the folly of that argument.

The complexity and systemic importance of technology in fact argues for a tougher approach to regulation. Ideally, Congress would convene a diverse body of experts to look at the economic, political, and social ramifications of the rise of platform tech companies. Policy could then be shaped to ensure the transition to the digital economy is both safe for users, and not a zero-sum economic game. Co-ordination is essential, since many of the tech-related policies adopted by the administration so far — from the rollback of net neutrality to increased interest in antitrust regulation — are being crafted in silos. Sadly, co-ordination is not a strength of this administration. It is up to Congress to err on the side of regulatory safety with a national data privacy policy that is good for the public, as well as the industry.

Washington aims to disrupt global financial infrastructure of criminal organisation

The US Treasury has imposed sanctions on companies and individuals associated with the most powerful yakuza crime syndicate in Japan, accusing the group of “acting globally” in concert with criminal affiliates around the world.

The department’s Office of Foreign Assets Control announced on Tuesday that it had taken action against four individuals associated with the Yamaguchi-gumi syndicate and, for the first time, against two companies owned by the yakuza.

“By exposing this broad network of front companies and individuals supporting the Yamaguchi-gumi yakuza syndicate we intend to disrupt the global financial infrastructure of this illicit transnational criminal organisation,” said Sigal Mandelker, under secretary for terrorism and financial intelligence.

Despite their dwindling numbers, the yakuza have long been viewed by experts in international organised crime as offering key facilities to networks used for global money laundering and circulation of terrorist funds. The Treasury also identified the yakuza’s ability to profit “from nearly all aspects of sexual exploitation”.

The Treasury said the action targeted two real estate companies — Yamaki and Toyo Shinyo Jitsugyo — the first of which owns the land on which the crime group’s headquarters in Kobe stands, while the other manages the building. Both companies are involved in real estate leasing, art sales and the management of golf driving ranges: the shareholders of Yamaki, said the Treasury, are serving leaders of the Yamaguchi gang and its subsidiaries.

Consultants who specialise in protecting foreign companies from the yakuza said that the Treasury’s selection of those companies was far from a coincidence. Both companies were raided by police last year and remain at the centre of high-profile efforts by local residents in Kobe and the Japanese authorities to prevent a bloody escalation of gang warfare following a split between rival branches of the Yamaguchi-gumi in 2015.

In 2017, residents living near the headquarters obtained a court order prohibiting members of the Kobe Yamaguchi-gumi from entering the building and from displaying their gang symbols on its walls. When this was ignored, the Kobe District Court said in July this year that the crime syndicate must pay a daily fine of ¥1m if members did not vacate the premises.

The ranks of yakuza, including the Yamaguchi-gumi, have thinned visibly in recent years, according to official figures from Japan’s National Police Agency. In 2017 total members and affiliates fell for a 12th straight year to a record low of 34,500.

Although part of the decline is in line with Japan’s broader demographic issues of ageing and population shrinkage, the police are keen to link it with a crackdown on activities that began in 2011. Last week, the National Police Agency ordered regional headquarters across the country to intensify its attack on yakuza-run fraud schemes. These schemes include the notoriously successful “it’s me!” telephone scam in which fraudsters call elderly people and pretend to be grandchildren in need of urgent money transfers.

David Suzuki, the Japan head of risk advisory group Blackpeak said that the Japanese government had begun to regulate yakuza groups more efficiently, but did not actually intend to “crush” them completely as the various front companies they ran were often significant sources of local employment.

Washington’s drive to crack down on yakuza and other related groups began in 2011 under President Barack Obama. The four men named by Ofac on Tuesday as being associated with such crime syndicates brings the total to 21, along with five syndicates and two subsidiary gangs.

03 OCT 2018

Nokia, the Finnish telecom network equipment company, has not ruled out a possible acquisition of HMD, the Finland–based maker of mobile phones, according to Talouselama.

The Finnish-language piece cited Risto Sillasmaa, the Chairman of Nokia, who said that anything is possible when asked whether Nokia would want to return to making handsets by acquiring HMD. However, he added that the company has no such current plan.

HMD's sales were EUR 1.8bn last year.

Casino’s Jean-Charles Naouri hits back against the hedge funds

Chief of French supermarket group says his critics act ‘at their risk and peril’

Jean-Charles Naouri, the chief executive and controlling shareholder of Casino, is assailed by short sellers, in the middle of a bizarre non-takeover battle and alleging market manipulation.

“We have 18 hedge funds shorting us, which makes us probably the most shorted stock in Europe,” said Mr Naouri in a rare interview in his office in Paris. “Some funds are only six months old; some have only one short position, which is us; one has only five employees. And so it’s quite unusual.” He added: “They do it at their risk and peril.”

The intense and private French businessman was speaking to the Financial Times after his retail group announced a €565m sale and leaseback of a property portfolio, the latest move to shore up its financial position after its share price dropped by almost a third this year. It followed last month’s war of words when Casino said it had turned down a takeover approach that rival Carrefour denied making.

Short interest has risen recently to about 37 per cent of the company’s free float, according to IHS Markit, including prominent US short seller Muddy Waters, run by hedge fund manager Carson Block. Investors betting against the group point to the highly competitive environment in France and macroeconomic concerns in Brazil, as well as Casino’s complex group structure and high levels of debt in the holding company.

For his part, Mr Naouri claimed to have identified “a strange pattern” where the number of Casino’s shares on loan increases dramatically one day and then a few days later a negative analyst note is published, pushing the share price down. Then the hedge funds that have recently instigated short positions sell out for a profit. He said that this pattern had occurred at least four times in the past three months of trading. “This is something which is quite abnormal,” he said. “It raises questions.”

Deliberate in his language and precise in his numbers, Mr Naouri professed not to recall a famous story about his racing through a university entrance exam in mathematics and then playing with a yo-yo to the astonishment of his fellow students.

“I don’t want to be a prisoner of images,” he said. “Sometimes people describe me as a mathematician; for many years I had to defend myself against the fact that I had a lot of diplomas. Afterwards I was criticised for many years because I was civil servant and civil servants are supposed to have no common sense.”

“Carson Block says I’m a mathematician. If you’re supposed to be a genius at mathematics it becomes a handicap. I’m trying to do the best I can do for my job, which is to develop Casino, so all the other images are really simplistic and I try to go away from this.”

It is not just short sellers questioning Casino’s business model. Several research analysts have recently cut their price targets. In early September S&P cut Casino’s credit rating further into junk territory. And behind the scenes, credit analysts at banks including BNP Paribas and Goldman Sachs have held private conversations with investors in which they outline their bearish views on Casino. “We don’t have access to what they say,” Mr Naouri said. “And they talk about ethics! They are allowed to criticise us, which is normal, but what they write is secret.”

The roots of Casino’s current structure stretch back three decades to 1987 when Mr Naouri, a former civil servant and managing partner of Rothschild & Cie bank, established his own investment fund, Euris. In 1991 he used Euris to acquire Brittany-based retailer Rallye and then engineered a merger with another French retailer, Casino. Mr Naouri saw off a hostile takeover bid from retailer Promodès in 1997 to ensure Casino’s independence. Today Euris owns 59 per cent of Casino.

Mr Naouri controls Casino through three publicly listed investment holding companies, each with their own debts. The structure means that each company must send dividends up the chain to support the layer of debt above, a set-up that has been a cause for concern among some investors.

Casino has sought to address this, and the €565m real estate sale that Casino flagged on Monday is part of its plan to cut debt through a €1.5bn asset disposal plan that it announced in June, amid mounting pressure in the debt markets.

“We are on track with our programme,” said Mr Naouri. “We already have achieved half of this target,” adding that other non-core assets are under offer and could materialise before the end of the year. Its Brazilian subsidiary, Via Varejo, is also in negotiations with two potential buyers.

However, asset disposals will not include any of Casino’s core businesses in France that “we’ve worked on for many years”, said Mr Naouri, such as Monoprix, its upmarket urban brand; Franprix, its network of convenience stores; or Naturalia, its organic banner. “We know that if we wanted to sell these assets it would be quite easy but we don’t want to sell the crown jewels.”

Casino grew net profit 10.3 per cent in the first half of the year to €439m and confirmed its full-year earnings guidance. Mr Naouri pointed to this operating performance, Casino’s asset-disposal plan, and an announcement by its parent company Rallye in September that it had locked in €500m funding to strengthen its financial position as evidence that “we are doing all of our homework one by one in an orderly fashion”.

Regarding the complex group structure, he said: “We can easily merge all the different structures. It’s not a problem. I have heard the comments from the market on complexity and anything we can do to make it more simple we are quite open.”

In March Casino unveiled an alliance with Amazon to make Monoprix’s groceries available to customers of Prime Now, Amazon’s high-speed delivery service. Mr Naouri said the first sales were “much higher than we expected” and it allowed Monoprix to address the 97 per cent of Amazon’s French customers who are not already Monoprix clients. “It’s profitable for us and there is no cannibalisation,” he said. “Monoprix’s commercial margin is such that it is possible to take out part of it in order to pay for delivery and still stay profitable.”

Might Mr Naouri envisage one day selling all or part of Casino to Seattle-based Amazon? “None of this is on the table.” He said he intended for Casino to stay independent but was equally aware of his fiduciary duty to shareholders in the event of a lucrative takeover offer.

Nor is a Carrefour takeover on the cards. Mr Naouri said he stood by Casino’s original statement regarding Carrefour and declined to comment further. Both groups confirmed that Mr Naouri and his counterpart at Carrefour, Alexandre Bompard, met on September 12 at the offices of Alain Minc, a French businessmen who is both an old friend of Mr Naouri and a mentor to Mr Bompard. Following this meeting, Carrefour drew up a four-week action plan to explore synergies between the two retailers. But Mr Bompard refused to sign a six-month “standstill” clause demanded by Mr Naouri, and so Casino went public shortly afterwards with news of the talks, fearing that Mr Bompard’s refusal to sign the standstill clause meant he might launch a hostile bid.

Looking ahead, 69-year-old Mr Naouri revealed that “the succession will be internal”, pointing to a handful of strong candidates who are heading individual business lines including Monoprix and Franprix. “Among these people will be one person who will be able to succeed me,” said Mr Naouri, “not today, in the next few years.”

He added: “At the present time I think it’s important I’m at the helm. The battle has been quite tough for the past few months. I think it’s a plus for the company that I can manage it through all the challenges that we have been facing.”

Asian stocks dropped as investors weighed continuing concerns in Indonesia and India and strength in commodity prices. The euro climbed on reports the Italian government trimmed its budget-deficit plans.

The regional Asia Pacific share index fell for a third day, with Japan leading declines. The rupiah and the rupee both remained under pressure on surging oil prices. The Australian dollar fell briefly as weak building data fanned concerns of a slowdown. Italian bonds may recover from four days of selling after the government signaled it’s bowing to pressure from the European Union to trim a budget-deficit target. Crude oil futures steadied in New York above $75 a barrel, near the highest level in almost four years.

US After Hours ELGX +28.5% following guidance, JCP +10% on CEO news

Nikkei -0.69% Hang Seng -0.34% CSI +1.04% Shanghai +1.06% Shenzen +0.83%

Eur$ 1.1585 CNH 6.8824 CNY 6.8688 JPY 113.77 GBP 1.3007 CHF 0.9844 TRY 5.9991 RUB 65.4627 WTI$ 75.29 +0.095

S&P +0.12%EuroStoxx +0.24% FTSE -0.03% Dax Closed SMI +0.31%

Macro :

--> DAX IS CLOSED TODAY

- Marijuana Executives See European Market Booming in a Few Years

- Italy to Bow to EU and Cut Deficit Targets, Corriere Says

- Pictet ‘Very Bullish’ on Japan, Also Favors EM Bonds and Stocks

Keep an eye on :

- ABI BB : AB InBev India Unit Accused of Avoiding Taxes Since 2011: Nikkei

- ADS GY : College-Hoops Bribe Plot Defrauded Top Schools, Jury Is Told

- ALV GY : Pimco to Buy Gurtin Municipal Bond Management, No Terms

- AST IM : Consob Extends Short-selling Ban on Astaldi

- EN FP : Arcep: 4 Operators Filed Application for Mobile Frequencies

- CO FP : Casino CEO Tells FT It’d Be Easy to Simplify Group Structure

- CSGN SW : Credit Suisse’s Thiam Says He Feels Nervousness Across Markets

- CTEC LN : Buy ConvaTec as Shares to Re-Rate After Setbacks, Jefferies Says

- CONN BB : Huub Baren’s IPTE Plans EU1.60/Shr Offer for Rest Connect Group

- DAI GY : Mercedes-Benz to Offer up to EU10,000 for Diesel Vehicle Swap

- DBK GY : *DEUTSCHE BANK ENDED USD CLEARING FOR DANSKE ESTONIA IN '15: FT

- DBK GY : Sewing Says Deutsche Bank Needs U.S. Unit to Be German Champion

- GWI1 GY : Gerry Weber CEO Ralf Weber to Resign; Managing Board Reorganizes

- ICPT US : NASH Players Underperform Biotech After Liver Meeting Updates

- ILD FP : Italy Is Said to Fetch About $7.5 Billion in 5G Airwaves Auction

- IMB LN : Imperial’s Fontem, Reynolds Settle Vaping-Patent Fights (1)

- IMMO BB : Immobel to Sell Up to EU100m 5-Year, 7-Year Notes in Retail Deal

- LIN GY : S. Korea Orders Linde-Praxair to Sell Assets for Deal: Yonhap

- MC FP : LVMH Watch Brands to Exit Baselworld If No Solutions Found: CNN

- MIPS SS : Bell Technology Retains ABG Sundal for Possible MIPS Share Sale

- NHH SM : Spain Regulator Authorizes MHG Offer for NH Hotel Shares

- NOVN SW : Novartis Licenses Three Drug Candidates to Boston Pharma

- NOVOB DC : Novo Considers Brain Disease Treatments With Partner: Berlingske

- ALNOX FP : Noxxon Says Nox-A12 Penetrates Pancreatic, Colorectal Tumors

- ORA FP : Arcep: 4 Operators Filed Application for Mobile Frequencies

- SNH GY : Mattress Firm Plans Bankruptcy Filing as Soon as This Week: Rtrs

- SPD LN : JD Sports Fashion, Sports Direct Bidding for Evans Cycles: Sky

- TESB BB : Tessenderlo Completes Purchase of T-Power for EU313m Incl. Debt

- TIT IM : Italy Is Said to Fetch About $7.5 Billion in 5G Airwaves Auction

- TIT IM : Telecom Italia Says It Invested EU2.4B in Italy’s 5G Auction

- VITR SS : Vitrolife Sees 10% Revenue Boost Next Year From Illumina Deal

- VOD LN : Watch the Bidders in Italy’s Record $7.6b 5G Airwaves Auction

- VOW3 GY : Stadler Gets Less Than EU10m Severance, But Only if Cleared: SZ

- WMH LN : Golden Entertainment Expands Agreement With William Hill

- ZKAN SW : Zuercher Kantonalbank to Close 7 Branches Until Mid-2020