TheChek News Flow

Disposal is part of retailer’s plan to cut debt burden

French retailer Casino Group has announced the sale of a portfolio of real estate assets for €565m, the latest move by the group to shore up its financial position.

Casino said on Monday that it has signed an agreement with an unnamed major institutional investor for 55 Monoprix real estate assets. Monoprix is the group’s upmarket urban brand that accounts for around half of its profits in France. The net amount of the transaction is €565m for an annual rent of €27m.

Casino’s share price has slumped almost a third this year, reflecting investor concerns about its debt levels and the structural complexity with which its chief executive and controlling shareholder Jean-Charles Naouri has built the group over the past three decades.

Two weeks ago Casino’s parent company Rallye temporarily assuaged some investor concerns when it said that the group had locked in €500m in bank funding to strengthen its financial position.

The sale of Monoprix real estate is part of a €1.5bn disposal plan of non-core assets that Casino unveiled in June to help reduce the debt pile of the group. It said at the time that it expects the asset disposals to help reduce its net debt in France by around €1bn by the end of 2018.

Casino said on Monday that the deleveraging plan has realised €778m to date, and added that it has already received offers on some others assets that are included in the disposal plan and could materialise before the end of the year.

French retailers such as Casino and its rival Carrefour, the world’s second-largest retailer by revenues, have come under pressure from a multiyear price war that has eaten into their margins, and are grappling with the growing threat posed by e-commerce players such as Amazon.

A week ago Casino and Carrefour confirmed that they had been in merger talks in September. However the project hit a wall after Carrefour chief executive Alexandre Bompard refused to sign the six-month “standstill” clause demanded by Mr Naouri.

Wall Street’s Biggest Business Braces for Lackluster Third-Quarter Results

The volatility that has boosted banks’ stock-trading business is hampering their fixed-income, commodities and currencies desks

The same volatility that has boosted banks’ stock-trading business is hampering their fixed-income, commodities and currencies desks, setting Wall Street up for another tepid quarter.

The two biggest U.S. trading banks, JPMorgan Chase JPM -1.47% & Co. and Citigroup Inc., C -1.66% expect to report lukewarm results in their markets businesses for the third quarter. JPMorgan said this summer it anticipated a small decline from the year-ago period, while Citigroup said it might record a small uptick.

The threat of a trade war and increasing uncertainty about the inflation outlook have roiled stocks at times this year, giving a lift to traders dealing in stocks and derivatives tied to volatility. Yet the uncertainty has crimped some corporate activity, such as cross-border investment and debt issuance—major drivers of trading in interest rates, currencies and bonds.

Analysts expect that strong performances in stock-trading units will be erased by declines elsewhere. Susan Roth Katzke, an analyst at Credit Suisse Group AG, forecasts that fixed-income trading will log a year-over-year revenue decline of around 5% to 10% for the third quarter, even as equities revenue rises by as much as 5%.

Wall Street’s fixed-income, currencies, and commodities businesses are still a shadow of what they were before the financial crisis. In 2009, the dozen biggest banks globally generated some $140 billion in revenue from those desks, versus less than $70 billion last year, according to industry data tracker Coalition.

Until this year, revenues stemming from interest-rates and currencies trading had been a rare bright spot, rising from a low point in 2014. Banks have sought to reorient the business around corporate customers, which provide a steady stream of activity related to financing and trade.

Through the first half of this year, revenues in rates and foreign-exchange trading for U.S. banks fell 12% from 2017, according to figures from the Office of the Comptroller of the Currency. Rates and currencies make up more than 40% of banks’ total trading revenue.

By contrast, stock-trading desks at big banks have been enjoying their best year in a decade. Across all banks, stock-trading revenue is up 21% so far this year, according to the OCC.

Wall Street doesn’t appear ready to bet that the slowdown in rates and currencies trading will be an extended lull, as it was for years with stocks.

While the Federal Reserve said it expects to raise rates one more time this year, uncertainty over the longer-term outlook could drive trading activity. Additionally, a slowdown in central banks’ buying of government bonds and an increase in U.S. debt issuance could spur bank clients to step up their purchasing of Treasurys and related derivatives.

Banks also are hesitant to scale back any services they provide to corporate clients of their trading desks, who can supply lucrative business to their investment and commercial banks.

“Banks are committed to the [trading] business because their clients are committed to the business,” Credit Suisse’s Ms. Katzke.

Assets on the balances sheets of the five biggest trading banks —JPMorgan, Citigroup, Bank of America Corp. BAC -1.60% , Goldman Sachs Group Inc. GS -1.54% and Morgan Stanley MS -2.51% —related to the rates business at the end of June collectively stood at their highest level since the first quarter of 2014, according to figures compiled by Credit Suisse.

Another key measure, the value of derivative contracts held by U.S. banks tied to interest rates, also was up 13% from a year ago as of the end of the second quarter, according to the OCC.

“For the U.S. banks, we are back in an investment phase in the [trading] business, with the belief that these businesses have passed their trough,” Ms. Katzke said.

A big risk, however, is that an unexpected change in inflation expectations or in forecasts of central banks’ behavior could spark a rush to exit investments tied to rates, including U.S. Treasurys.

In that case, banks may find themselves exposed, according to Moody’s Corp. A disorderly sale of Treasurys or a hiccup in global growth could impact banks’ revenues through “market or credit losses and reduced client activity,” the ratings firm said in a recent report.

Giovanni Tria expects higher growth to offset increased spending

Italy’s finance minister sought to head off a confrontation between Brussels and Rome that has unnerved markets by insisting that the country will reduce public debt despite its plans to increase spending.

Speaking after the European Commission accused the populist government’s fiscal plans of breaking commitments to the EU, Giovanni Tria argued that Italy would still be able to reduce debt by 1 per cent of gross domestic product over the next three years — because of higher growth.

His position contrasted with that of deputy prime minister Matteo Salvini, who responded to Brussels’ objections to the plans to run a deficit of 2.4 per cent of GDP by vowing that the interest of the Italian people came ahead of “bureaucrats”.

“I am fully aware of the European concerns, and of the fact that the planned deficit levels are not in line with the EU agreements,” Mr Tria said in an interview with Il Sole 24 Ore newspaper.

But he argued that growth of 1.6 per cent next year and 1.7 per cent in 2020 would help keep public finances under control.

He also denied Italian press reports that he had threatened to resign over the budget deficit target, which was much larger than had been expected.

Italy’s government bond yields jumped last week as investors took fright at the fiscal plans of the coalition, which is made up of Luigi Di Maio’s anti-establishment Five Star Movement and Mr Salvini’s anti-migration League party. Bond yields move inversely to the price.

Italy has the second-largest debt as a percentage of GDP in the eurozone.

Rome must submit a draft budget proposal to the European Commission for review by the middle of October. While several commission figures have publicly raised concerns about the plan, it remains unclear whether it will risk an outright confrontation with the Italian government ahead of sensitive European elections next year.

Mr Tria must face his fellow European finance ministers in Luxembourg at a meeting of the eurogroup on Monday.

Valdis Dombrovskis, the commission’s vice-president responsible for financial services policy, said Rome’s deficit plan was in breach of its commitments to cut its debt.

“It is clear that the fiscal strategy presented [last Thursday] — foreseeing substantial increase in structural deficit, instead of reducing it — is in contradiction with Italy’s commitments, which have been agreed by all EU countries,” Mr Dombrovskis said in an interview with Corriere della Sera over the weekend.

“At first this strategy may appear to bring immediate benefits. However, in reality it can turn out to be an illusion because it is already resulting in higher interest costs for the state and for Italian businesses and households”.

Mr Dombrovskis added that the commission would give its formal opinion on Rome’s plans once it submitted its draft budget.

The approach is part of an ambitious transformation plan to wean the kingdom’s economy away from oil

Saudi Arabia said Sunday it intends to significantly increase spending next year as it benefits from higher oil prices, a plan that will help boost sluggish growth and create more jobs in the Middle East’s biggest economy.

The government’s budget spending is expected to reach more than 1.1 trillion Saudi riyals ($295 billion) in 2019, about 7% higher than projected expenditure for this fiscal year, the Saudi ministry of finance said in a brief pre-budget statement. It usually issues a more detailed annual budget statement in December.

The kingdom, under Crown Prince Mohammed bin Salman, is carrying out an ambitious transformation plan to wean its economy away from oil by boosting the private sector. But growth slowed as it cut back on spending, including on subsidies, to cope with the sharp fall in the price of oil since 2014. Energy sales account for more than 70% of Saudi Arabia’s budget revenue.

It isn’t clear if Saudi Arabia will roll back some of its reform plans with oil prices now back up. An increase in spending will help boost growth, which will make it easier for the government to roll out the tough economic changes needed in the longer term, some analysts say.

Saudi Arabia is reluctant to see a significant fall in the price of oil as such a scenario would drive down revenues, expand its budget deficit and constrain its ability to implement reforms that it hopes will diversify the economy.

The finance ministry said it expects the kingdom’s gross domestic product, which contracted in 2017, to expand by 2.3% next year and improve gradually to reach 2.4% in 2021 as a result of the country’s economic reforms. The International Monetary Fund expects the economy to grow 1.9% this year, with the non-oil sector forecast to strengthen 2.3%.

Finance Minister Mohammed Al-Jadaan said the main thrust of the government in the 2019 budget is the continued implementation of the kingdom’s transformation plan, called Vision 2030, which includes diversification of the economy, boosting non-oil revenue and achieving fiscal balance by 2023.

The government expects revenues to increase by 11% to 978 billion riyals next year, the finance ministry said, which means it would again run a fiscal deficit to implement spending. It plans to finance that budget deficit with debt issuances in the capital markets, after raising more than $50 billion in the past three years. The government expects debt to reach about 22% of GDP in 2019 and grow to about 25% in 2021.

“Government spending has the biggest impact on GDP,” said Mazen al-Sudairi, head of research at Riyadh-based Al Rajhi Capital. “It will create more investments and therefore more jobs for Saudis.”

Unemployment among Saudis stands at nearly 13% according to latest government issued statistics. Saudi Arabia is attempting to reduce this unemployment rate through initiatives such as levies on firms that employ expatriate workers and by enforcing stricter nationalization quotas in the private sector. But the efforts have so far had mixed success.

Saudi Arabia’s finances are being closely watched in Washington. President Donald Trump has repeatedly called on Saudi Arabia, as the de facto leader of the OPEC oil cartel, to lower prices so that Americans see cheaper fuel costs. The issue has become particularly acute for the Republican White House ahead of crucial midterm elections in November when the Democrats are expected to make gains in Congress.

The U.S. leader on Saturday spoke with Saudi Arabia’s King Salman, discussing the oil market and the need to maintain supplies to ensure global economic growth, according to a statement from the official Saudi Press Agency.

Oil prices crashed in 2014 but have since recovered to trade at about $80 a barrel after Riyadh-led OPEC and other nations agreed last year to limit supply.

At a meeting last week in Algiers, OPEC decided not to increase supply, even as Iranian oil shipments are expected to fall, as the cartel members fear a glut would again drag prices down.

The government in December announced a record fiscal stimulus to boost the economy after a period of austerity in the wake of the 2014 oil-price collapse. It had used cuts to infrastructure projects and government employee benefits to tighten a budget deficit that mushroomed to about 15% of gross domestic product in 2015.

The S&P 500 pulled away from record highs this week, losing 0.5% in total, as investors digested a flurry of political headlines and the latest policy statement from the Federal Reserve, which included another rate hike -- the third one this year. The Dow also fell, losing 1.1%, but the tech-heavy Nasdaq outperformed, rallying 0.7%. OPEC was also in focus on Monday after it and several non-OPEC nations ended a weekend meeting without an agreement to increase output in order to counter falling supply from Iran due to U.S. sanctions. President Trump criticized OPEC in front of the UN General Assembly on Tuesday, saying the oil cartel is "ripping off the rest of the world" by colluding to limit supply and prop up prices. As for the sector standings, they were pretty mixed between red and green. The heavily-weighted financials sector was the second-worst performer, losing 4.1% in total, with materials (-4.5%) being the only group with a more substantial loss. Conversely, the newly-added communications services sector was the top performer with a weekly gain of 1.1%.

Macro :

- Citi Warns S&P 500 ‘Stretched’ While Targeting 3,100 For 2019

- China Publishes List of Items Subject to Import Tariff Cuts

- Italy to Target 2019 GDP Growth of at Least 1.5%: Sole

- Point72 Bias Suit Dropped in Court, to Remain With Arbitrator

Keep an eye on :

- ALV GY : Allianz CFO Says Plans to Cut Property Insurance Cost Ratio: BZ

- BAYN GY : Bayer CEO Sees Solid Year, Glyphosat Risk Overblown, Bild Says

- CFT SW : CFTC Charges TFS-ICAP With Fraud Over Trading Manipulation

- CMCSA US : Comcast, Charter Struggling to Sell Stakes in Mets: NYP

- DIA SM : DIA shareholder Mikhail Fridman ups stake to 29%, close to launching takeover bid

- EIFF FP : Societe de La Tour Eiffel, Affine Announce Plan to Merge

- UG FP : Peugeot Goes High Style to Counter Brand Apathy in Robo-Car Era

- REE SM : Red Electrica Puts Hispasat Purchase Plan on Hold: Expansion

- ROG SW : Genentech’s Xolair Prefilled Syringe Formulation Gets FDA OK

- SAN FP : Regeneron, Sanofi Win Approval for First Immuno-Oncology Drug

- SBMO NA : SBM Offshore Former CEO Sentenced to Prison in Bribery Probe

- SON PL : Sonae to Buy 60% Stake in Arenal Perfumerias Parent Tomenider

- TKA GY : Thyssenkrupp Board Names Bernhard Pellens as Chairman

- VOW3 GY : Audi Already Has 15,000 Orders for Electric E-Tron Car: Report

A draft executive order circulating around the White House “is not the result of an official White House policymaking process,” according to deputy White House press secretary, Lindsay Walters.

According to a report in The Washington Post, Walters denied that White House staff had worked on a draft executive order that would require every federal agency to study how social media platforms moderate user behavior and refer any instances of perceived bias to the Justice Department for further study and potential legal action.

Bloomberg first reported the draft executive order and a copy of the document was acquired and published by Business Insider.

Here’s the relevant text of the draft (from Business Insider):

Section 2. Agency Responsibilities. (a) Executive departments and agencies with authorities that could be used to enhance competition among online platforms (agencies) shall, where consistent with other laws, use those authorities to promote competition and ensure that no online platform exercises market power in a way that harms consumers, including through the exercise of bias.

(b) Agencies with authority to investigate anticompetitive conduct shall thoroughly investigate whether any online platform has acted in violation of the antitrust laws, as defined in subsection (a) of the first section of the Clayton Act, 15 U.S.C. § 12, or any other law intended to protect competition.

(c) Should an agency learn of possible or actual anticompetitive conduct by a platform that the agency lacks the authority to investigate and/or prosecute, the matter should be referred to the Antitrust Division of the Department of Justice and the Bureau of Competition of the Federal Trade Commission.

While there are several reasonable arguments to be made for and against the regulation of social media platforms, “bias” is probably the least among them.

That hasn’t stopped the steady drumbeat of accusations of bias under the guise of “anticompetitive regulation” against platforms like Facebook, Google, YouTube, and Twitter from increasing in volume and tempo in recent months.

Bias was the key concern Republican lawmakers brought up when Mark Zuckerberg was called to testify before Congress earlier this year. And bias was front and center in Republican lawmakers’ questioning of Jack Dorsey, Sheryl Sandberg, and Google’s empty chair when they were called before Congress earlier this month to testify in front of the Senate Intelligence Committee.

The Justice Department has even called in the attorneys general of several states to review the legality of the moderation policies of social media platforms later this month (spoiler alert: they’re totally legal).

With all of this activity focused on tech companies, it’s no surprise that the administration would turn to the Executive Order — a preferred weapon of choice for Presidents who find their agenda stalled in the face of an uncooperative legislature (or prevailing rule of law).

However, as the Post reported, aides in the White House said there’s little chance of this becoming actual policy.

… three White House aides soon insisted they didn’t write the draft order, didn’t know where it came from, and generally found it to be unworkable policy anyway. One senior White House official confirmed the document had been floating around the White House but had not gone through the formal process, which is controlled by the staff secretary.

Banks and asset managers steer their EU operations from London to French capital

Paris is emerging as the favoured financial trading hub for continental Europe, as some of the world’s biggest banks and asset managers prepare for life after Brexit by steering their EU operations away from London to the French capital.

BlackRock and JPMorgan Chase are poised to join Bank of America and Citigroup in the vanguard, according to people familiar with their thinking.

Over the summer BofA accelerated its preparations for Brexit by announcing details of a new Paris trading floor with room for 1,000 staff. Wall Street rival JPMorgan Chase is also increasingly attracted by Paris, bankers said, though it has yet to declare officially how big a trading operation it will put in the city.

“Over time, and depending on if a place becomes the new financial centre in Europe, we may do what we did in London 20 years ago, and consolidate,” Daniel Pinto, JPMorgan investment bank chief, told the Financial Times.

Until recently, attention had focused on which eurozone financial centre would attract the new formal subsidiary registrations, as banks, insurers and asset managers have raced to ensure they have the legal and regulatory structures in place to continue doing business across the EU27 once they are barred from “passporting” out of London.

Frankfurt and Dublin dominated that battle. But Paris seems set to triumph in trading — a more valuable prize due to the jobs and taxes that go with it — as banks and asset managers realise the merits of establishing a dominant hub to concentrate market liquidity and expertise for the trading of securities.

“If you ask most people in the industry, the number one choice is Paris,” said the boss of a large investment bank, adding that labour costs are now as low as the UK.

Another big factor in banks choosing Paris has been the sophistication of French regulators, which have long overseen the complex trading and derivative operations of BNP Paribas and Société Générale, financiers said.

Banks’ plans are tracking those of their clients, with 70 asset managers — from large groups to small hedge funds — in the process of securing licences to operate in Paris, according to officials. BlackRock is chief among them, and is even considering designating Paris as its pan-European headquarters, according to two people close to the $6.3tn money manager. That could see its office there expand more than six-fold to between 200 and 300 staff within a year or so.

“This is contentious because London would continue to be the bigger office,” one of the people said. “But it makes perfect sense structurally.”

BlackRock had already said Paris, not London, would be its new base to provide “alternative” investment services across Europe and Asia, relating to hedge funds, real estate and commodities.

BlackRock has been courted hard by the French authorities, including through a meeting between French president Emmanuel Macron and its chief executive, Larry Fink. Mr Macron also helped persuade Citigroup to add as many as 100 staff to the 160 it already has in the country.

Christian Noyer, the former French central bank governor who is coordinating the Paris charm offensive, told the FT: “I think banks and asset managers will try to concentrate trading operations in one EU location. That doesn’t mean London won’t remain the biggest financial centre. [But] Paris could become the big trading hub in continental Europe.”

The election of Mr Macron, and the restoration of a business-friendly attitude evident in tax and labour policies, had been key, he said.

“This government is really problem solving,” he said. “I collect remarks in the financial industry. They tell me: ‘We have a problem there that we don’t know how to solve.’ I go to the government and they say: ‘Let’s find a solution’. It comes from Macron himself.”

Among other financial groups to redirect business to Paris, Morgan Stanley plans to add about 80 jobs in the city and Goldman Sachs has said France is a priority in its plans to double its workforce in continental Europe.

HSBC, which already has a big French operation, is moving as many as 1,000 jobs there from London. Paris Europlace, a lobby group, has forecast that 3,500 finance jobs will be created in the French capital because of Brexit.

Rising concern among executives about access to clearing houses after Brexit

European banks are weighing up whether to begin closing out their trillions of pounds’ worth of derivatives positions in London in the coming months as the UK struggles to finalise a political agreement to exit the EU.

Concern is rising among senior executives that they will lose access to UK clearing houses, which sit at the heart of global market stability. The companies process thousands of securities and derivatives deals a day, standing between parties in a deal and managing the risk to the market if one side defaults on payment.

London’s clearing houses, in particular LCH, process most of Europe’s swaps business. The Bank of England estimates that around £38tn of deals are affected by Brexit, including 90 per cent of euro-denominated interest rate swaps.

The deliberations come as the UK and EU step up their contingency plans for the UK’s departure from the bloc in March without a political agreement. Brussels has been working for months to screen its financial services regulations and find rules that need to be changed because of Brexit.

“The financial markets are usually ahead of the political debate. If there is no transition period agreed in December, you will see the derivative market reacting already . . . it does not happen on April 1,” said the chief executive of a major European bank with positions in London.

EU institutions make up around 15 per cent of the total $332tn in interest rate swaps transacted at LCH.

The clearing house, which is majority-owned by the London Stock Exchange Group, has told customers that in the event of a no-deal Brexit, it will have to issue 90 days’ notice that EU customer positions would have to be closed, according to four people who have had conversations with LCH.

It is likely that those notices would be issued in November or early December. LCH declined to comment.

Esma, the European regulator, has told UK clearing houses — LCH, ICE Clear Europe and the London Metal Exchange — that they may not be able to submit applications to be recognised until after the UK has left the EU, thus preventing them from continuing to do business with their members based in the European Economic Area after the end of March.

At a derivatives conference in London last week, an audience survey overwhelmingly found it would be “highly disruptive” if there was no coordinated action from the UK and EU regulators to avoid a situation in which UK clearing houses are forced to offload their EU members.

Senior derivatives executives and lawyers worry that there are limited options available for them if access to UK clearing houses is cut off. Some have privately said that their business may have to transfer out of Europe, to the US or Asia, or be negotiated between banks.

“There’s no easy mechanism for moving a trade from one clearing house to another. Both counterparties must move at the same time. Re-executing trades is a big problem,” Laura Muir, head of strategy and bank structure at Barclays, told the conference.

Transferring derivatives business would mean closing out thousands of swaps and futures deals and opening new positions elsewhere. That would potentially cost banks and other holders of swaps millions of dollars in extra margin payments and in associated capital costs.