TheChek News Flow

Big banks are expected to get the green light from the Federal Reserve this week to shower their shareholders with increased dividends and share repurchases.

Announcements of capital returns could provide a needed lift to bank stocks. Held back by slowing loan growth, trade tensions, and a narrowing of the gap between short- and long-term interest rates, banks have generally lagged behind the S&P 500 index this year.

Among the biggest banks, JPMorgan Chase (ticker: JPM) may raise its dividend by about 50%, boosting its yield to 3%. Citigroup (C) could be cleared to repurchase 10% of its stock, one of the largest percentage buybacks ever by a major bank. Overall, banks are expected to return an average of 100% of their earnings to shareholders over the next 12 months, the highest capital return of any major industry group.

The Fed puts 35U.S. banks and American subsidiaries of foreign banks through annual tests to measure their ability to withstand adverse economic and financial conditions. The first round of tests, released last week, showed all were strong enough to withstand a severe downturn. But two banks— Goldman Sachs (GS) and Morgan Stanley (MS)—just barely cleared one key threshold.

The second round of tests is of greater interest to investors; its results will be announced after the markets close Thursday. The tests take into account capital adequacy in stressed environments after planned distributions to shareholders. If the Fed, as expected, doesn’t object to those plans, banks will be announcing rich buybacks and dividend increases.

The relatively low scores by Goldman and Morgan Stanley have raised some worries; they may make use of what is known as a mulligan clause and reduce their requested capital distributions ahead of the Fed decision next week. Both firms sought to ease concerns, with Goldman saying the results “may not represent our firm’s actual capital-return capacity,” and Morgan Stanley noting they “may not be indicative of the capital distributions that we will be permitted to make.”

Another caveat is that the Fed’s stress scenario is more severe than the one used last year. For instance, the Fed assumes a 65% drop in the U.S. stock market, compared with a 50% decline in last year’s test. This may cause some banks to be more cautious about how much capital they return.

Still, Barclays analyst Jason Goldberg estimates 22 banks in his coverage—the vast majority of the U.S. banks covered in the Fed stress test—will return $168 billion to shareholders in the year beginning July 1, up 24% from an $136 billion in the current year. That translates into a roughly 8% total yield—buybacks and dividends as a percentage of the banks’ market value.

That would be beneficial to stock investors. As measured by the KBW Bank Index of 24 institutions, bank stocks are unchanged year to date, compared with a 3% rise in the S&P 500. The index can be traded through the Invesco KBW Bank exchange-traded fund (KBWB).

That would be beneficial to stock investors. As measured by the KBW Bank Index of 24 institutions, bank stocks are unchanged year to date, compared with a 3% rise in the S&P 500. The index can be traded through the Invesco KBW Bank exchange-traded fund (KBWB).

Goldberg has JPMorgan and Citigroup as top picks, with price targets of $135 for JPMorgan and $93 for Citi.

“JPMorgan has a leading market share in all its major businesses and still has an ability to grow its earnings,” Goldberg says. JPMorgan trades for 12 times projected 2018 earnings of $8.95 a share. Its current yield is 2.1%, but analysts expect the bank to raise its dividend by about 50%, lifting its yield to 3%. The bank is expected to seek about $30 billion in total capital returns, the most in the industry.

Citigroup stock has been hurt because the bank has the highest global exposure among its peers, with more than half its profits coming from outside the U.S. It owns Citibanamex, one of the largest Mexican banks, and would be exposed to adverse changes in the North American Free Trade Agreement. Citi has the lowest valuation among major banks at 1.1 times tangible book value—JPMorgan trades for nearly twice that. Citi has one of the lower price/earnings ratios in the group, fetching 10.5 times estimated 2018 profits of $6.46 a share.

There’s some uncertainty about Wells Fargo’s capital return because the Fed can penalize banks for qualitative lapses as well as quantitative issues. Wells Fargo (WFC) has had self-inflicted problems, including opening more than three million unauthorized accounts and engaging in dubious sales of insurance products.

KBW analyst Brian Kleinhanzl doubts Wells Fargo will be stung by the Fed, noting it came through the 2017 tests without incident. Backed by an ample capital cushion, Wells Fargo is expected to sharply increase its stock buybacks to $17 billion in the coming 12 months, from $11.5 billion in the year-earlier.

Goldman Sachs may have one of the lowest capital returns among its brethren, at about 70% of its earnings. Goldman surprised Wall Street in April, when it said it wouldn’t repurchase stock in the second quarter. It’s expected to resume buybacks in the third quarter.

Bank of America (BAC) may increase its dividend by more than 50%, one of the highest increases. That would raise the yield on the stock to 2.7% from 1.6%.

Q hits at ‘woefully inadequate’ attempts to turn round oilfield services group

Weatherford International, one of the world’s largest oilfield services groups, is being targeted by an activist investor after a decade of underperformance. 

Q Investments, a Texas-based hedge fund, has taken a small stake in Weatherford and urged the board to sell its assets or the entire company, before its “over-levered capital structure” destroyed “what remaining value the shareholders have left”.

Weatherford was often described as one of the “big four” international oilfield services companies, along with Schlumberger, Halliburton and Baker Hughes, but its performance has lagged far behind its peers since then.

In 2008 Weatherford’s net income was about $1.4bn, close to that of Baker Hughes at $1.6bn. Today its market capitalisation is about $3.3bn, while the equity in Baker Hughes, which last year merged with the oil and gas division of General Electric, is worth about $40bn.

Weatherford’s shares have continued to underperform the leading companies in the sector as crude prices have rebounded. Over the past 12 months, Halliburton’s shares have risen 10 per cent, while Schlumberger’s have risen 2 per cent. Weatherford’s have fallen by 16 per cent. 

Mark McCollum, a former chief financial officer of Halliburton, was appointed chief executive of Weatherford last year to turn the company round. In November he launched a “transformation programme” intended to improve operating earnings by $1bn a year, but analysts say investors have yet to be convinced that Mr McCollum can succeed.

Kurt Hallead of RBC Capital Markets in a note this month described the shares as “a special situations stock”, that investors would buy only if they believed the company could achieve the $1bn improvement in earnings, generate free cash flow and reduce net debt, which stood at $7.3bn at the end of March.

Brad Handler of Jefferies said: “Mark McCollum has a good track record, and is well respected in the industry. But it’s going to take a while to achieve the results he wants to see.”

Q, which specialises in distressed debt as well as activism, has previously targeted companies including Jones Energy, Citadel Broadcasting, Quorum Health and Houghton Mifflin Harcourt, pushing for moves including share buybacks, board changes and a takeover. 

Its stake in Weatherford is just 0.02 per cent, but the fund believes that other investors are also unhappy about the company’s performance and will join its campaign for change. It has invested in a mix of equity and debt as a hedge against a possible restructuring. 

In a letter to Weatherford’s board, the fund criticised the efforts by Mr McCollum to turn round the company’s performance as “woefully inadequate”.

Q wrote in its letter that if Mr McCollum failed to deliver his projected improvements in performance, “we believe the status quo would be unsustainable”.

In that case, the fund said, it would call for “a process to explore all strategic alternatives, including a focus on selling the company through an equity transaction”. It added: “We believe the most viable path would be to sell the entire company; however, we would be open to any and all alternatives”.

Weatherford declined to comment.

Investors’ faith in the company took a blow at the end of last year, when it announced that a promising-looking joint venture with Schlumberger in hydraulic fracturing in the US had been abandoned. Instead Weatherford sold its operations in that business to Schlumberger for $430m. 

Q argued in its letter that what it called “the current dilapidated financial condition of the company” masked its “underlying strong portfolio of businesses and technologies”. It pointed to the company’s pumps and other services as “crown jewel assets” that could fetch buyers. 

The fund is not calling for new board members yet, but said it was “incomprehensible” that six directors who were in place during the tenure of the previous chief executive Bernard Duroc-Danner were still on the board. 

Andrew Tinkler wanted group to merge with logistics arm it spun off four years earlier

The businessman at the centre of the attempted boardroom coup at the Stobart Group proposed reuniting that business with the logistics division it spun off four years earlier.

In April 2018, Andrew Tinkler, a former Stobart Group chief executive who has been trying to unseat chairman Iain Ferguson, devised Project Park, to merge the Stobart Group and Eddie Stobart Logistics into one company with an enterprise value of £1.7bn in 2019.

In his proposal, he noted: “It is likely some in the market will look at this plan with scepticism as the two businesses were only separated four years ago, and Stobart Group has continued to divest its shareholding in ESL.”

Mr Tinkler sent his proposal to Philip Day, the retail billionaire who he has proposed installing as chairman of Stobart Group. In emails the Financial Times has seen, Mr Day said Project Park “looks very interesting, can see why you would want to combine! Win\Win”.

It is understood that neither Mr Ferguson nor Warwick Brady, chief executive of Stobart Group, were aware of Mr Tinkler’s plan at the time.

The proposal was made by Mr Tinkler as part of his role at Stobart Capital, a separate company devised to generate ideas for the Stobart Group.

A spokesman for Mr Tinkler said: “In fulfilling his board-appointed role Andrew generated numerous ideas at Stobart Capital to enhance shareholder value for the group.”

A spokesman for Mr Day said: “Mr Day regards this as an interesting idea and understands the rationale. But, as Mr Tinkler approached him for informal advice and a high-level view, Mr Day does not hold a settled or final opinion on the matter.”

In his proposal, Mr Tinkler said that “63 per cent of the Stobart Group shares are held by investors that also hold shares in ESL or are private investors that we know would be convinced of the deal”.

The boardroom fight has drawn in senior City figures, including fund manager Neil Woodford, who supports Mr Tinkler and whose Woodford Investment Management has a 20 per cent stake in the company.

Earlier in June, Stobart fired Mr Tinkler after he started his campaign to replace Mr Ferguson.

Stobart, which has been trying to improve its corporate governance following a spate of boardroom coups in 2013, has said it is issuing legal proceedings against Mr Tinkler alleging “breach of contract and breach of fiduciary duty”, while Mr Tinkler launched defamation proceedings against Stobart’s board this month.

Invesco Asset Management, the largest shareholder with a 25.3 per cent stake, is backing Mr Ferguson and the board.

Bulgari scion snaps up stakes in high-end pizzeria and a gelato maker

Francesco Trapani, scion of the Bulgari jewellery dynasty and Tiffany investor, has acquired stakes in a high-end Italian pizzeria chain and a gelato maker, the latest luxury tycoon to move into the “Made in Italy” food business.

The investments by Mr Trapani, 61, who sold his family’s stake in Bulgari in 2011 in deal worth €4.8bn, follows buyouts in Milanese coffee house Cova by LVMH and Pasticceria Marchesi by Prada.

“Today having someone buy an unbranded product is rare and becoming more rare, and this also applies to food.”

“We basically wanted to create a concept in the accessible luxury space with an outstanding product in a full service restaurant,” he said.

Mr Trapani made the comments as he opened a fourth restaurant in the Briscola pizzeria chain in Milan. He owns 53 per cent of the company behind Briscola and said he next intends to open in London.

The restaurant business was “a colossal market” with an estimated value in Italy alone of €70bn, he added.

Meanwhile, Mr Trapani said he has also taken a 51 per cent stake in Geloso, a company making ice creams using only natural ingredients, whose other backers include Allegra Antinori, heiress of the Antinori wine dynasty. He declined to say how much the investment had cost him.

Sales of high-end food and wine rose 6 per cent in 2017 to €49bn, according to data from consultancy Bain & Co. The growth is part of a surge in demand for so-called luxury experience, a trend driven by millennials.

Mr Trapani, who also owns 5 per cent of Tiffany and was formerly head of the watches and jewellery division at LVMH, said millennials were the “core clientele” for both the pizza and gelato investments because of demand for “niche brands”.

Bankers have made a comparison between the potential of Italy’s food industry today and Milan’s fashion industry in the 1980s before it became a global phenomenon. Marco Samaja, head of Lazard in Italy, told a conference in Milan earlier this year that food was the most fertile area for Italy to create a new multinational.

Bankers have made a comparison between the potential of Italy’s food industry today and Milan’s fashion industry in the 1980s before it went global

“The difference is that we Italians have always been eating,” Mr Trapani said. “But there is an opportunity to upgrade what we eat and sell it to the rest of the world.”

He also jokingly compared a taste test for the ice cream to blind perfume tests he used to do with fragrances.

Luigi Consiglio, founder of consultants GEA and a food industry expert, said pizza and gelato are two of the most profitable retail operations involving low food cost, low labour cost and relatively high perceived value from a special manufacturing process.

He added they are “both icons of Italy best practices that although well known all over the world are very little represented in the original” outside of Italy.

“If you asked me to buy shares in those companies, I’d say buy.”

Mr Trapani’s latest move is part of a broader trend that is seeing heirs of European industrial dynasties expand into new industries.

Mr Trapani said his holding company, which owns the stakes in the food start ups, is based in Luxembourg. He declined to give a value for the holdingbut said the bulk of its investments by value were in securities such as Apple and Google. He said only 5 per cent of his assets were in Italy, citing country risk as behind the decision to keep his financial exposure to his home country limited.

The second strand of his investments is in Tiffany, worth $840m at today’s prices. He considers his investment in Tiffany “semi operative” and was involved with finding a new chief executive for the jeweller in Alessandro Bogliolo, who previously worked for Mr Trapani at Bulgari for 16 years.

Tiffany reported that worldwide sales rose 11 per cent at constant currency in the first quarter, triggering a surge in its shares price, after Mr Bogliolo refreshed its products to lure younger shoppers.

Tiffany [[The US jeweller]] has embraced the food trend too. It opened a restaurant “Blue Box Café” at its Fifth Avenue flagship in the autumn last year.

“I have invested quite a big chunk of my liquidity [in Tiffany] and I am helping to change what they are doing with apparently good results.”

Italian bond ructions show governments have little space to fill void left by stimulus

The “disciplining force” of financial markets will leave debt-laden governments with limited room to boost growth as central banks ditch their crisis-era stimulus, the head of the Bank for International Settlements has warned.

Agustín Carstens, general manager of the central bankers’ bank, told the Financial Times: “Some markets are overstretched and so investors will be very jittery. There is less space for taking adventurous steps. Markets will be more volatile and more sensitive to adjustments in interest rates.”

Mr Carstens also said investors had become “a disciplining force”, citing the recent rise in Italian government borrowing costs after a now-rejected plan by Rome’s new coalition government for the European Central Bank to write off all their holdings of Italian debt — a move which the general manager said “sent all the wrong signals”.

Italian borrowing costs have since fallen back to 2.68 per cent after signals from new finance minister Giovanni Tria that Rome remains committed to membership of the euro.

Mr Carstens’ remarks highlight the difficulty facing economic policymakers who need to ensure growth remains on track, while taking onboard markets’ concerns about high debt levels in a world where central bank borrowing is no longer so cheap and plentiful.

Central banks across advanced economies are continuing to remove the support that they have provided following the worst crisis since the Great Depression, despite mounting threats to the global economic outlook. But there is little space for governments to fill the void even if those threats, such as a prolonged period of trade tension — and its possible escalation — materialise without triggering market turmoil.

With investors having to prepare for higher rates, governments would be unable to offset a slowdown in growth through boosting their spending due to high levels of debt. The BIS said in its closely watched annual report, published on Sunday, that public debt had risen to new peacetime highs and that small, open emerging markets where businesses had borrowed heavily in US dollars were particularly exposed to higher borrowing costs in the US. There had been an “excessive reliance” on easy monetary policy to boost growth, the BIS said.

“Emerging markets don’t really have space for poor fundamentals,” Mr Carstens said. “There is a risk of volatility in emerging markets, especially among companies with high amounts of debt.”

The Federal Reserve last week raised its benchmark federal funds range by another 25 basis points to between 1.75 per cent and 2 per cent. Rates are expected to rise by another 50bp before the end of this year, followed by an additional 100bp over the course of 2019, according to projections by US monetary policymakers.

Mr Carstens said the Fed needed to continue raising rates despite the risk of turmoil. “If the US leaves it too long, then there is a risk that inflation will return and that this will warrant a series of steep rate hikes over a short period of time,” Mr Carstens said. “The more moderate approach the Fed is taking to hiking rates will still come with volatility, but there is more hope that this volatility can be contained than if the hikes were steeper and quicker.”

The BIS, the Basel-based bank where several of the world’s central banks hold accounts, said in its report that after a “vintage” year in 2017, officials faced a difficult time in keeping the expansion on track.

The global economic outlook was under threat from various risks, among them a global trade war. Tensions over trade have escalated in recent weeks as the US administration has fallen out with most of the rest of the G7.

Mr Carstens signalled that the US was taking the wrong course by going it alone in imposing tariffs on other countries.

“Tariffs should only be adjusted in an orderly and collegial fashion. We have global, regional and bilateral processes and that is the way to do it,” Mr Carstens said, citing the World Trade Organization.

Mr Carstens, who before taking the job in Basel was the head of the Bank of Mexico, said the uncertainty caused by the US’s stance on trade had led to a dip in investment in the US’s southern and northern neighbours.

“Doubt has been cast on the rules of the game, and so we have seen investment dip in Mexico and Canada. That might now happen in the rest of the G7 and China. Most of the trade that takes place is through value chains, built on the assumption the rules would remain the same,” he said. “It is difficult to know exactly what would happen to the economy if the rules changed.”

France and Germany agree on a budget proposal for eurozone as continent’s challenges grow

MESEBERG, Germany— Angela Merkel bowed to French President Emmanuel Macron’s demands for a eurozone budget on Tuesday as part of a package of measures to overhaul the European Union, which the two will now put to their neighbors in a bid to overcome the continent’s deepening divisions.

While the size of the budget has yet to be determined, the German leader’s concession means Berlin and Paris—the eurozone's two largest economies—will face the bloc’s other member states with a joint line when they meet in Brussels to discuss the changes at the end of next week.

“We have found a good solution,” Ms. Merkel said, adding she was convinced that lawmakers from her coalition government would back the idea of a budget designed to spur investments and convergence among the 19 EU member states who share the euro as their currency.

The agreement came as EU unity faces challenges on several fronts. President Donald Trump’s open hostility to the EU and punitive trade measures have raised the urgency of a French-German agreement, as the two countries seek to find common ground on reforms before they try to present a united front toward the U.S. in a growing series of disputes.

On the continent, recent elections have emboldened anti-European parties opposed to Mr. Macron’s call for greater integration. Tensions flared between European capitals last week when Italy’s new antiestablishment government refused to take in a boat of migrants stranded in the Mediterranean.

Ms. Merkel’s green light to Mr. Macron came after several hours of talks at a government guesthouse north of Berlin, during which the leaders sought to bridge their remaining differences on foreign and economic policies. Close aides to the leaders had paved the way over several days and nights of preparatory meetings in recent weeks.

“This summit comes at a moment of truth for Europe, in each state and for the continent,” Mr. Macron said.

In a win for Ms. Merkel, whose liberal stance on refugees is under mounting pressure at home, Mr. Macron pledged to support her call for an EU-wide plan to manage migration, and said France would do its part to help the German chancellor by taking back refugees that first registered in France but later sought asylum in Germany.

Horst Seehofer, Ms. Merkel’s interior minister and coalition partner, said on Monday he would unilaterally instruct border police to start turning back more migrants at Germany’s borders, a measure Ms. Merkel opposes, if she hadn’t struck similar agreements with neighboring countries within two weeks.

Mr. Macron backed Ms. Merkel’s push for a European resolution to the migration challenge.

“Unilateral, uncoordinated action will split Europe,” the two leaders said in a joint statement.

Mr. Macron and Ms. Merkel had set Tuesday’s meeting as a deadline to seal an agreement on demands Mr. Macron set out nearly nine months ago for EU changes and a pooling of resources among the 19 countries in the eurozone.

Prolonged political instability since Germany’s September elections has delayed and complicated the negotiations between Berlin and Paris, leaving the two sides with only a few days to rally other European nations behind their plans before a summit of EU leaders next week.

But Ms. Merkel’s domestic difficulties, especially last week’s bruising clash with her own interior minister, might have played in the French president’s hands by increasing Ms. Merkel’s interest in a positive outcome.

Ms. Merkel and Mr. Macron struck a compromise at the summit to close longstanding divisions over the French leader’s proposed eurozone overhauls for a meatier backstop for the banking system and an embryonic joint budget for the currency bloc.

In their statement, the leaders said they would establish a eurozone budget starting in 2021 to promote “competitiveness, convergence and stabilization.” They also said they would transform the eurozone’s €500 billion rescue fund—the European Stability Mechanism known as ESM—into a permanent fund that could offer long-term loans to financially stressed governments as well as short-term credit lines.

Mr. Macron had argued that the eurozone couldn’t survive without greater sharing of resources and burdens, while Ms. Merkel’s government had long been skeptical of committing taxpayer money to propping up its neighbors.

The resources of the budget would come annually from contributions from member states, allocating tax resources—possibly including a European financial transaction tax—and other European resources. But the details were left deliberately vague, Mr. Macron said, to allow the 19 eurozone members to define the budget together.

“Today France and Germany are clearly saying we want a eurozone budget, while before there was nothing,” Mr. Macron said.

Even as France and Germany agreed on the principle of a budget, they may struggle to convince the 17 other countries in the eurozone.

“Nobody has been able to tell me which problem can be solved with this,” Dutch Finance Minister Wopke Hoekstra said in an interview Tuesday with German daily Frankfurter Allgemeine Zeitung.

Eira Thomas turns to blockchain to shake-up $14bn precious stones sector

When Eira Thomas was 26 she helped her Welsh father discover one of the world’s largest diamond mines. Now, as chief executive of Lucara Diamond, she hopes to change the way the precious stones are traded and shake up a $14bn-a-year industry that has long been dominated by companies such as De Beers and Alrosa.

Ms Thomas, who took over as chief executive of Vancouver-based miner Lucara Diamond in February, is talking with some of the largest jewellery manufacturers about selling diamonds directly via a digital platform backed by secure blockchain technology, which would cut out the middlemen in the industry.

“We’ve all been selling our diamonds the same way for over hundred years,” Ms Thomas, 49, said. “Technology has now positioned us to change this.”

Ms Thomas, who is called the “Queen of Diamonds” in Canada, said the industry was “inefficient and entrenched and really right for disruption”.

She believes the miner’s Clara digital platform can increase transparency and reassure consumers about where their diamonds come from. That’s especially key for millennial consumers “who are more concerned about ethical sourcing than their parents”.

The matching algorithm behind Clara was developed by members of a Canadian diamond manufacturing family and after being introduced to the company, Ms Thomas pitched it to Lukas Lundin, the Swedish-Canadian billionaire who is Lucara’s main shareholder.

Lucara snapped up Clara for 13.1m of its shares in February, worth $29m at the time. Ms Thomas personally invested $3m in the company.

Lucara’s acquisition comes as the diamond industry grapples with some of its biggest challenges since De Beers cemented the idea of the diamond engagement ring in the minds of consumers after the second world war.

There are two key threats: a new generation of millennial consumers are marrying later or not at all, while diamonds identical to their natural counterparts can now be produced in a laboratory at a fraction of the cost.

Because every diamond is unique and not traded on any exchange, the market and pricing of diamonds is shrouded in secrecy. Diamonds can change hands many times before ending up in a jewellery engagement ring — passing through trading hubs such as Antwerp or Hong Kong.

De Beers sells 90 per cent of its diamonds at events dubbed “sights”, which are held 10 times a year in Botswana. Buyers are allocated batches of rough diamonds and sell on the ones they do not want.

Ms Thomas likens the process to selling boxes of Smarties, chocolates with multicoloured shells.

“You take it home and open it up and you don’t know exactly what you’ve got,” she said. “Sometimes you get five pinks, sometimes you get two. Ultimately what we’re saying is you don’t have to buy Smartie boxes any more — you can buy individual smarties.”

Clara will enable immediate tagging of the diamond at the mine site, allowing manufacturers to search for the exact individual stone they want. The use of blockchain, the distributed ledger technology behind bitcoin, will also help keep information confidential and secure.

“This is the first time ever that manufacturers will be able to buy the diamonds that they need,” Ms Thomas said. “They don’t have unwanted inventory.”

That should boost margins for jewellery manufacturers such as Signet or Chow Tai Fook and increase prices for miners, she said. It should also avoid diamonds being sold on to the secondary market by middlemen, or being wasted, she added.

“Some diamonds never actually make it to their rightful home,” she said. “But there’s no such thing as an undesirable diamond.”

Lucara hopes to make money from the spread between the buying and selling prices of diamonds on the platform and it will also sell some of its own diamonds. Longer-term, Lucara could consider spinning off the business, Ms Thomas said.

Still, Ms Thomas faces an uphill battle: Lucara is a small producer of diamonds with one mine in Botswana that accounts for less than 1 per cent of the global market compared to two-thirds for Alrosa and De Beers. Its shares have fallen 24 per cent so far this year. That compares to a 31 per cent rise for Russia’s Alrosa and 70 per cent for London-listed Gem Diamonds.

Last year, De Beers also launched its own blockchain-based platform to trace diamonds from mine to consumer, called Tracr.

“Lucara seems too small a company to really move the needle in that area,” said Paul Zimnisky of Diamond Analytics in New York.

“She’s good, she could do it, but the problem is the stock is at a multiyear low. The company from a shareholder standpoint is not doing so good right now.”

Lucara has discovered eight diamonds greater than 100 carats from its Karowe mine since the beginning of the year, including a 472-carat diamond in April.

However, it fell to a net loss of $7m in the first quarter, in part due to higher production costs. The company, which has $43m of cash on hand and no debt, is looking to extend Karowe deeper underground to extend its life to 2036.

A geology graduate, Ms Thomas is one of a few women in the global mining industry. She is also among a minority who has actually helped discover a new mine.

Braving the isolated conditions of Canada’s Northwest Territories, in 1992 Ms Thomas helped her father, who had begun his career working in a Swansea coal mine at the age of 16, discover the deposits that would turn into the giant Diavik mine.

Since taking over as head of Lucara, Ms Thomas has boosted the number of women in the senior leadership team, hiring Zara Boldt as chief financial officer. This month she appointed Ayesha Hira, a Canadian geologist, as Lucara’s vice-president of corporate strategy.

Ms Thomas said the industry needed to cultivate professional women who can afford their own purchases rather than focus on engagement rings and marriage — the main driver of diamond demand since De Beers launched its “a diamond is forever” campaign in 1948.

“I buy all my own diamonds,” she said.

The outlook for carmakers has worsened dramatically since the UK’s EU referendum

Some events intrude. And some fail to intrude. The promised reassertion of parliamentary control over Brexit was one of the latter. The House of Commons has rejected a cunning mechanism that might have procured a Brexit reversal.

Then there is the category of events that did manage to intrude, but not in an obvious way. An example would be Donald Trump’s threat to impose tariffs on car imports. But what has that got to with Brexit? The anticipation of the US president’s tariffs has the potential to change the way the EU will look at its future trading relationship with the UK.

To understand this, let us imagine that the Brexit talks were to break down. The UK would crash out of the EU in March next year with no transitional deal in place. British goods entering the EU would be subject to EU tariffs, and vice versa. The EU levies a 10 per cent tax on car imports. The UK could levy reciprocal tariffs.

Now consider the position of German carmakers. According to the German association of the automotive industry, the country last year exported 769,000 cars to the UK, its single largest export market. The US came second with 494,000 cars. German carmakers also export 258,000 German-made vehicles to China, plus those produced in US and Chinese factories.

If the UK were forced into a cliff-edge Brexit in March, the German car industry would face tariffs in its two largest export markets within a few months of each other. Daimler-Benz issued a profit warning last week, and this only in relationship to the expected rise in Chinese tariffs on Mercedes cars made in the US.

Just imagine what might happen once the US levies tariffs on European cars sometime in 2019, and possibly only a few months after Brexit. If the UK were to join in a tariff war, the industry would suffer the commercial equivalent of a cardiac arrest.

This would come on top of an escalating diesel emission scandal. Mercedes may need to recall 774,000 cars to remove software-cheating devices. Add to this the long-term commercial impact of diesel bans in cities, the surge in sales of electric cars and the complex impact of artificial intelligence, and the outlook for the German industry has worsened dramatically since the Brexit referendum.

Of course, the EU is not negotiating Brexit for the benefit of German industry. Nor should it. Angela Merkel said after the 2016 Brexit referendum that she does not want industry bosses to intervene in these delicate negotiations. But the German chancellor does not have the political room for manoeuvre she needs to persevere with a stance that could risk the loss of hundreds of thousands of jobs. The last thing she needs is an intra-European trade war.

Geopolitics have also changed since the Brexit referendum. Mr Trump poses a dual challenge for Germany and the EU — both on trade and foreign policy. His withdrawal of the US from the Iran nuclear deal and the Paris climate agreement have brought the EU and the UK closer together. Meanwhile, UK prime minister Theresa May has turned out to be a reliable ally for the EU. The interests of the UK and the EU are more aligned now than they were two years ago.

A customs union with a single market access for goods only would go a long way to serve the mutual interest, more than any of the other Brexit blueprints that carry the names of the countries with whom they were negotiated: Norway, Switzerland or Canada. It would minimise the economic effects on both sides, respect the commitments on the Irish border, and maintain the integrity of the single market.

For a deep customs union to work, manufactured goods would remain subject to the rules of the EU’s internal market. The UK would formally become a member of the single market. That said, the EU is in a position to offer a tailor-made customs union agreement, for goods but not services, with the various rights and obligations that come with this arrangement.

Would this turn the UK into a vassal state as some of the Brexiters are claiming? Of course not. The UK would not be subject to the European treaties. The customs union would set clear but finite limitations on sovereignty: no third-country trade agreements in respect of manufactured goods; acceptance of the EU’s product standards; and a minimum commitment on freedom of movement but well short of the obligations that apply today.

This is no comparison to the constraints on sovereignty that come with full EU membership. And these concessions are trivial compared to the crippling economic, social and political costs of a cliff-edge, no-deal Brexit.

The decisive argument in favour of a customs union is that important events have intruded since the referendum, for the UK and the EU too.

Annual reviews of resilience are still a check on bank activity

US banks are experiencing “so much winning”, as their country’s president might put it. Corporate tax cuts, rising interest rates and a lighter regulatory touch from Washington have all been big scores for Wall Street in the past 18 months. But the Federal Reserve’s stress test regime — borne of the financial crisis — remains mostly intact. The first set of results released at the end of last week showed that banks still answer to a powerful, independent authority.

All 35 banks participating demonstrated that they had enough equity capital to absorb huge losses during a “severely adverse scenario”: unemployment spiking to 10 per cent, stock values falling by 65 per cent and bond spreads ripping apart.

On the core common equity capital ratio, each firm was well ahead of the 4.5 per cent minimum. However, on another measure, the “supplementary leverage ratio” (SLR), Morgan Stanley and Goldman Sachs barely exceeded the minimum 3 per cent required.

The supplementary leverage ratio has been a continued source of controversy. It is supposed to be a simple calculation that avoids the complexity of risk-weighting bank balance sheet assets. But in years past it has tripped up the two former investment banks along with custodian banks.

Goldman Sachs and Morgan Stanley have already cautioned against drawing conclusions about how their capital return policies could be affected.

Earlier this year, the Fed modified the SLR rule in a way that would benefit a particular set of institutions, so-called trust banks. Trust banks believed that simply holding securities and cash for asset managers did not add to systemic risk and the change allowed the SLR calculation to account for that feature.

Still, the overall results showed that even after adding $800bn in capital since 2009, some banks are skating close to the edge. There is little doubt that banks at the margin are benefiting from a more benign regulatory environment — particularly smaller, regional and community banks. However, between higher capital standards and the accountability from stress testing, these institutions remain on notice. Winning a lot does not mean being undefeated.

* Cover story: Focuses on the quote from the BlackRock annual letter, “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.” Notes growing belief backed by research that investors and companies who take into account social and environmental governance generally outperform the market over the longer term and reduce short term risks.

* Features:

1. Does sustainable investing (ESG) lead to lower returns? Cites 2 experts in the field one taking each side of the position.

2. Does an ESG roundtable with various CEOs and COIs who explore social and environmental governance

3. Trade wars: Investors should prepare. Stock market doesn't appear to have priced in the potential impact of a trade war. Positive mentions on: NextEra Energy (NEE), Xcel Energy (XEL), and American Electric Power (AEP), General Mills (GIS), Kroger (KR), Andeavor (ANDV), Valero (VLO)

4. Fed expected to approve big bank dividend increases and buyback plans this week. Expected to return avg of 100% of earnings to shareholders over next 12-months

5. Investing interviews David King who runs Columbia Flexible Capital Income Fund. Sees some opportunity in equities and convertible bonds. Positive on Six Flags Entertainment (SIX) and Microsoft (MSFT)

- Supports GE being kicked from Dow but should have been replaced by Facebook (FB)or another tech company, not Walgreens (WBA). Also thinks Berkshire Hathaway (BRK.B), AbbVie (ABBV), Abbott Laboratories (ABT), Nvidia (NVDA), and Salesforce.com (CRM) should all be considered for the Dow.

- Cautious On: MD, Mednax shares trade near the valuation at which competitor Envision (EVHC) agreed to be bought, and any buyer would inherit its disputes

- The amount of money flowing into sustainable mutual and exchange-traded funds every month has tripled since Donald Trump was elected

- Explores different styles of sustainable investing.

- Barron's names the 20 most influential people in ESG investing. Names Jeremy Grantham #7, comments on his ideas of the future.

- Panelists on Impact Investing Summit see big fund flows into ESG strategies, driven by millennials and women who will make up 75% of workforce by 2025.