TheChek News Flow

Supervisor cautions on push for more competitive banking regime

The UK’s top banking supervisor has warned against a “bonfire of the regulations” after Brexit, despite Eurosceptics calling for a more competitive regime when Britain leaves the EU.

Sam Woods, deputy governor of the Bank of England, defended UK regulation in an interview with the Financial Times, pledging to “maintain standards of resilience in the financial sector at least as high as those we have today”.

His comments come as relations between those fighting for a hard and soft Brexit become increasingly hostile. Eurosceptic backbenchers were reported over the weekend to be preparing a coup to remove Mrs May from office if she were to push for a customs union. The prime minister faces a tough week as her fractured cabinet meets twice to discuss the next step in Brexit talks.

Brexiters also led an attack on the Treasury at the weekend, claiming it was “fiddling the figures” to persuade Theresa May to stay in an EU customs union. Lord Gus O’Donnell, former head of the civil service, said the suggestion they were manipulating Brexit figures was “completely crazy” and accused Brexiters of “selling snake oil”.

The EU last week pledged to penalise the UK if it watered down financial services rules to undercut the bloc after Brexit, as some prominent Brexiters have advocated.

Mr Woods said: “It is obvious that our EU colleagues, or some of them, have a fear that somehow we will loosen regulation.”

Citing the UK’s “ringfencing” reforms that force lenders to separate their retail businesses from investment banks, and a tough accountability regime for executives, he added: “I think the idea that we would want to be sub-EU standard doesn’t bear scrutiny. If you look at ringfencing, if you look at the Senior Managers Regime: in areas where there is scope to go further [than EU rules], we have often done so.”

Brexit poses key questions as to the future of regulation in the UK. Some see it as an opportunity to cast off overly burdensome Brussels rules, while others argue it is important to tack closely to those rules in order to be deemed “equivalent” and retain access to the single market in the absence of the so-called passport that enables financial companies to sell products and services seamlessly across the bloc.

With no clarity yet on whether a transition deal might be secured, the City is having to plan for the worst, moving jobs and operations to the continent in order to retain the passport. That exodus could start as early as March, the BoE has previously predicted, amid estimates that 10,000 jobs could migrate on day one of a hard Brexit.

But Mr Woods said the central bank would back a deal during a Brexit transition period through a “regulatory underpinning”, even if an agreement was not legally finalised, to give breathing space to thousands of companies in the UK and the EU27.

“It would be a bit absurd if the governments agreed a transition period and that got then frustrated by firms feeling they had to move faster because they were worried about what the regulators were going to do,” Mr Woods said.

There are many accusations against Apple, Facebook, Google, Amazon and others for their addictive effects on our brains and culture. Most of the discourse is about how evil tech companies are (covertly) peddling addictive products/services that are destroying our minds, our society and our relationships. I’ve been frequently quoted in this dialogue as an example of someone who used to focus on increasing addiction (through gamification) to a “changed man” who now believes things have gone too far — with a startup to prove it.

I know intimately that if we want to achieve tech-life balance, people must start taking responsibility for their choices. No one is forcing consumers to buy an iPhone, use Facebook, stare at Twitch, masturbate to porn or any of the other millions of things you can do with technology. Every single one of those actions is a choice we make, and if there is one lesson from addiction treatment that everyone should hear it is that it is nearly impossible to help someone who doesn’t want help.

My company, Onward, has helped nearly 50,000 people conquer their tech addictions — and there’s plenty more work to be done. But what we see very clearly in the data is a lot of half-hearted effort. Users reach out to us for help with their tech overuse (a spouse catches them using porn, their bank account is drained by Rent the Runway, a news article about depression and social media, etc.), but within a day or two they’re back to their old habits. Their likelihood of successfully changing behavior is not correlated to either their stated desire or amount of time they spend in unwanted screen time.

What does this tell you about people? Perhaps, as with environmentalism and anti-racism, many people care more about virtue-signaling than actually solving the underlying problem. For example, those friends and celebrities who take a Facebook “detox” and are right back only days later.

More likely, it’s that most of us are ambivalent about our tech overuse. On one hand, we know that something about Facebook’s software is getting us to keep scrolling. But on the other hand, we also acknowledge that the platform can be used to get and stay connected with each other. On one hand, we know that binge-watching Netflix for 8 hours when we should be studying is excessive. On the other hand, it’s a cold day, you’re tired and need a mental health break from the real world.

This is largely why tech companies cannot and must not be the arbiters of designing for anti-addiction. They must not be entrusted to do this because experience tells us addiction peddlers will water down any good idea to its bare essence (e.g. Please Drink Responsibly). They can’t be trusted because they are hamstrung by their own user experience needs and their business models, which depend on our attention.

And those business models are also our collective responsibility. Free Facebook is an outgrowth of our “Tragedy of the Commons” desire to never pay for online content and investors’ preference for growth over sustainability. Major tech companies wouldn’t care much about engineering for addiction if we paid for their services. But we won’t, and for that we are at least somewhat responsible. If tech giants try to block our overuse, they risk major user backlash and will have to backdoor everything anyway, much as Waze has for distracted driving.

This isn’t to diminish anyone’s problems or to try to water down people’s real addictions. It’s also not carte blanche for the tech industry to do as it pleases. I care passionately about this issue (enough to start a company and invest a lot of my own time and money into solving it), but I’m frustrated by the tone and tenor of the discourse. As long as we’re filled with nothing but outrage, histrionic accusations and ridiculously misplaced anger, we will continue to experience a gradual decline in our collective sociability and IQ driven by technology. Unfortunately, much of the media coverage of this topic glosses over the important nuance that we live in an addiction economy of our own making.

If we want to change things — and I believe the solution is within our grasp — we need to start by treating people as though they have agency, giving them tools and guidance for how to create their own rules and limits. We must enlist the tech, porn, gambling, gaming and e-commerce industries to be our partners, not demonize them. We must stop solely blaming tech companies for this problem and take a hard look at our choices — both individually and as a society.

How a former waitress conquered the handbag industry

Higher prices, increased production and lower costs drive revenue turnround

North Sea oil will bring in about £1bn in tax this financial year, a startling reverse from the previous 12 months when it failed to generate any revenues for the Treasury.

A rise in the price of Brent crude, the international benchmark, coupled with higher production and lower costs are the main drivers behind the turnround.

New projections from Oil & Gas UK, the industry trade body, show that it is on course to deliver about £1bn for the fiscal year 2017-18.

“We’ve seen an uptick in production and an increase in the oil price. That, combined with a lower cost base will boost the industry’s contribution,” said Adam Davey, market intelligence manager at the association.

“Today, we can expect to make a contribution in the hundreds of millions of pounds, if not £1bn, for the tax year 2017-18,” he added.

The industry already generated just over £800m of revenues (net of tax rebates paid on decommissioning and other expenses) in the first three quarters of the year to the end of December, according to figures from HM Revenue & Customs. A £1bn boost to the Treasury will be good news for the Philip Hammond, the chancellor, who will give an update on the government’s budget in the spring statement in mid-March. HMRC declined to comment.

The positive tax contribution from oil and gas production is the latest sign of a bounceback by the industry, buoyed by a Brent crude price that in January broke through the $71-a-barrel mark for the first time since 2015. Across the industry costs have come down since the crash as companies have focused on operational efficiencies. Development costs of new projects are averaging half of those approved in 2013.

Production in the North Sea is also bucking the recent decline. Wood Mackenzie, the energy consultancy, expects it to average 1.9 million barrels of oil equivalent a day in 2018, its highest since 2010. BP last week announced two new discoveries in the North Sea and reiterated its ambition to double production from the region to 200,000 barrels a day by 2020.

“Future tax receipts will critically depend on oil price, the pace at which new developments come on stream and the industry’s ability to manage operating costs on the large, declining fields,” said Graham Kellas, of the consultancy’s global fiscal research team. “So, while North Sea profitability is currently very much improved, operators continue to face significant challenges going forward.”

The expected £1bn contribution comes after the government’s revenues from the industry last year dropped to their lowest level since records began in the late 1960s.

Revenues fell to minus £316m in the financial year 2016-17, according to figures from HMRC, underlining the damage wrought by the downturn. It was the first time that tax rebates issued to companies as relief on the costs of decommissioning and other expenditure outweighed the tax paid. The industry generated £151m the year before, in 2015-16.

The positive forecasts are a still big drop from previous years, notably from a chunky contribution of £10.9bn in 2011-12. The Office for Budget Responsibility forecast last year that the oil and gas industry would make a net tax contribution of £700m in 2017-18. At the time it said it expected that number to drop to £500m in 2018-19 and £400m in 2020-21.

Advice could have encouraged bidder to move quickly to declare offer unconditional

The UK takeover regulator has withdrawn advice that could have shortened the timeframe for GKN to make its case against Melrose’s hostile £7bn takeover bid.

Melrose revealed in its offer document last week that the Takeover Panel had reversed an earlier decision to allow the bidder extra time to fulfil conditions concerning regulatory approval. Melrose appeared to be looking to accelerate the bid process by publishing its offer document on the earliest day allowed under the panel’s rules, the regulator indicated. 

The panel’s advance concession could have encouraged the bidder to move quickly to declare its offer unconditional, without worrying about the deadline for regulatory approval. Such a tactic would have reduced the time for GKN to make its defence, three people with knowledge of the situation said. 

“As this offer document has been published on an expedited basis, the panel executive has withdrawn the guidance communicated to Melrose at the time of the announcement,” the company’s offer document said. The panel will now take a view at the end of the normal timetable as to whether to extend the deadline.

One M&A banker familiar with the Takeover Panel process said: “The original announcement was somewhat pushy by Melrose. The natural reason is that they want to give the target less time to develop their defence before shareholders have to make a decision.” 

Speed could be important if Melrose wants to avoid having to increase its offer, which at Friday’s close valued each GKN share at 409p. GKN shares closed above the offer at 415p. 

The Takeover Panel’s previous guidance at the beginning of January, published in documents supporting Melrose’s firm offer on January 12, had been that the bidder would receive an extension. 

Under normal rules and without the extension, Melrose’s bid would have to lapse three weeks after going unconditional if it had not yet won regulatory approval, or else it would have to waive the conditions. The offer is conditional on approval of authorities in the US, where it supplies military programmes, as well as in Europe. 

Melrose dismissed the suggestion that it had sought the panel’s prior approval for an extension to step up pressure on GKN. It had requested guidance to ensure there would be flexibility if the protracted regulatory process could not be resolved in time. 

“Without that we would not have gone ahead with the bid,” a spokesman said.

Since then, however, the regulatory approval process appeared to be proceeding in line with the UK timetable, he said. “We don’t need [the extension] . . . because our process going in a timely manner. We are aware that the panel does have a mechanism to extend the timetable if needed and as far as we are aware always done so if needed.” 

GKN declined to comment. 

Melrose has surprised many UK takeover experts with the speed of its approach for GKN. Having had its first offer rejected in early January, Melrose returned days later with a formal hostile bid without any negotiations or price increase — a rare event in recent years.

Analysts said Melrose was moving with haste to prevent rivals and because it was confident it could secure enough shareholder support if it pressed ahead quickly. 

GKN is preparing a detailed defence plan, which must be published by February 16. The aerospace and automotive supplier’s management is fighting to win credibility against Melrose’s established record of buying, turning round and selling on unloved industrial companies. Investors have criticised the company’s record of sluggish margin growth and cash generation. 

Although many investors believe GKN’s management has a challenge to fend Melrose off, some do want a higher offer. That meant GKN needed time to explain to shareholders what the current financial state of the company was, one leading investor said. 

“What has come across [in meetings] was that their recovery plan was being worked on quite hard in the last two three months of last year,” he said. “Right now there is slight sense of inevitability that GKN will go to Melrose at a level just a little higher. But I suspect the core mature bit of GKN is already a better business than it looks from headline numbers.”

Weekly Performance

Dow -4.12% S&P -3.85% NAsdaq -3.53% Russell -3.78% CanadCSI -2.51%a -3.90% Mexico -1.31% Brazil -1.74% Nikkei -1.51% Hang Seng -1.67% Shanghai -2.70% Shenzen -6.60% EuroStoxx -3.40% FTSE -2.90% CAC -2.97% Dax -4.16% Ibex -3.63% MIB -2.74% SMI -3.10%

Sunday Performance

Egypt -1.36% Kuwait -0.36% Tel Aviv -1.78% Qatar -2.69% UAE -0.78%

Macro :

- Fed’s Kaplan Says He Feels More Conviction in Three 2018 Hikes

- Goldman Says Investors ‘Largely Agreed’ With Bullish Oil View

- May Under Attack Over Brexit With Momentum Behind Rees-Mogg

- Yellen Says Prices ‘High’ for Stocks, Commercial Real Estate

- Iran Can Boost Output Fast If OPEC Ends Cuts, Oil Minister Says

Keep an eye on :

- AZA IM : Delta to Join Air France-Easyjet in Alitalia Bid: Corriere

- AF FP : Air France, British Airways, Lufthansa Eying XL Airways: JDD

- AF FP : Delta to Join Air France-Easyjet in Alitalia Bid: Corriere

- AAPL US : Apple Music U.S. User Growth Is Said to Outpace Spotify’s: WSJ

- ASH LN : Ashland Gains 5% as S&P Drops 1.8%, Dow Falls 568 Points

- BPOST BB : Bpost to Raise Domestic Mail Prices by About 4.7% on Average

- CPI LN : Capita May Draw Takeover Interest on Low Valuation: Woodford

- CRG IM : Carige Board Confirms Targets of Industrial Plan 2017-2020

- CLLN LN : Greybull Is Said to Study Bids for Carillion Assets: FT

- DAI GY : Daimler attracts interest of Geely; aims for up to 5% stake - FAZ

- DPB GY : Deutsche Bank Postbank Suit Delayed as Ex-CFO Called as Witness

- EDF FP : EDF CEO Says Flamanville Schedule Tight But on Track: AFP

- ENGI FP : Engie to Name New Independent Board Member as Future Chairman

- ECP FP : EuropaCorp Says All Discussions in Preliminary Stage

- FCA IM : Fiat Said to Get U.S. Demand for Fine, Recall to Settle Suit

- GKN LN : GKN in talks with Onex amid attempt to escape Melrose bid

- HMB SS : H&M’s Billionaire Owners Seen Tightening Grip With Share Plan

- ICE US : ICE Is Said to Boost Stake in Settlement Giant Euroclear to 10%

- IFX GY : Infineon CEO Sees No Need for Spinoffs, Euro Am Sonntag Reports

- INGA NA : ING Polish Unit to Wind Up Part of Brokerage Arm: Parkiet

- LEG GY : LEG Immobilien to Adhere to Strict Acquisition Criteria: BZ

- NESN VX : Nestle Is Said to Pull Back From Merck KGaA Unit Buy: Reuters

- SAP GY : SAP CFO Confident of 2018 Profitability Boost: Euro Am Sonntag

- SPOTIFY IPO : Apple Music U.S. User Growth Is Said to Outpace Spotify’s: WSJ

- TSCO US : Tesco Plans to Close 18 Loss-Making Stores in Poland

- VWS DC : Vestas Agrees to Buy Energy Analytics Provider Utopus Insights

- VOD LN : A Vodafone/Liberty Global Asset Swap Would Make Sense: Jefferies

- XRX US : Icahn Reports Sale of 1.16M Xerox Shares From Jan. 31 - Feb. 2