FT : Yuriko Koike questions Japan’s excessive economic stimulus

Yuriko Koike questions Japan’s excessive economic stimulus

Tokyo governor unveils ‘Yurinomics’ in challenge to prime minister’s ‘Abenomics’

Tokyo governor Yuriko Koike has launched a platform of “Yurinomics” to challenge the “Abenomics” of prime minister Shinzo Abe and questioned Japan’s heavy reliance on fiscal and monetary stimulus.

Launching the general election manifesto for her new Party of Hope, Ms Koike pledged to tax corporate cash reserves, introduce a basic income guarantee and freeze an increase in consumption tax scheduled for 2019.

Her party’s lukewarm stance on stimulus opens up a clear gulf with Mr Abe and the ruling Liberal Democratic party, whose use of fiscal and monetary stimulus has led to Japan’s tightest labour market since 1990.

Ms Koike has become de facto leader of the opposition since launching her new party on the day Mr Abe called a general election for October 22. But she insists she will not stand for parliament herself, hobbling the Party of Hope’s electoral challenge.

“In order to make the economic recovery more real, we would like to see changes in economic policy and society that stick into the nation’s heart,” said Ms Koike, claiming her policies would boost the vitality of the private sector.

At the heart of the manifesto, which was not made available in full on the party’s website, were a set of populist pledges Ms Koike called the “12 zeros”.

Her party promises to eliminate nuclear power, corporate cover-ups, corporate political donations, waiting lists for day care, passive smoking, packed commuter trains, the putting down of unwanted pets, food waste, violation of labour laws, hay fever, lack of transport for elderly people and power pylons.

Ms Koike did not explain how she would end hay fever.

The party’s economic platform mixes ideas. Its doubts about monetary stimulus suggest Ms Koike might oppose Haruhiko Kuroda’s reappointment as Bank of Japan governor next year. However, delaying the rise in consumption tax could mean easier fiscal policy.

The proposal to tax corporate balance sheets reflects global frustration at companies piling up cash instead of using it for dividends, pay or investment. South Korea has adopted a punitive tax regime for companies with large cash piles.

Universal basic income — where the state pays all citizens a certain unconditional sum — has become a fashionable proposal for social security reform, partly because of concerns that automation could lead to widespread unemployment. However, the enormous cost means it has not been tried beyond a few experiments.

“This is not something we would introduce today or tomorrow, but with the acceleration of AI, we think it’s necessary to start thinking about a basic income now. From AI to BI — artificial intelligence to basic income,” said Ms Koike.

In keeping with Ms Koike’s conservative politics — she defected from the LDP last year in order to run for the Tokyo governorship — the Party of Hope’s platform calls for a reform of Japan’s constitution. Ms Koike said debate on a revision should be wide-ranging and include the war-renouncing Article 9.

Mr Abe is seeking a modest change to Article 9 that would confirm the legality of Japan’s Self-Defence Forces. With Ms Koike as the main opposition, the election could deliver a huge parliamentary majority for constitutional change, giving Mr Abe a mandate to go ahead.

Recode.net : Here’s how a tender offer like Uber’s would unfold

Here’s how a tender offer like Uber’s would unfold
There’s no guarantee that the transaction with Japan’s SoftBank will get done, given how complex and massive this deal is.

SoftBank plans to invest up to $10 billion in Uber. It would be the largest-ever purchase of existing stock in a Silicon Valley startup.

But there’s no guarantee that it’ll get done, given how complex and massive this transaction is proving to be. If successful, the deal will both reshape how Uber is structured and be the biggest sign yet that the Japanese conglomerate has reshaped Silicon Valley finance in 2017.

Here's how these deals typically unfold, and how the whole shebang could still fail.

Broadcasting the deal
SoftBank agreed this week to buy shares of Uber, most of them from current investors, and a smaller amount of new shares the company plans to issue.

Since SoftBank is buying shares from existing investors, it needs to broadcast that it is on the market through newspaper ads — and will soon do so, as Recode first reported. It’s perhaps an anachronistic formality, but one that is meant to make sure all existing shareholders are given equal information about the sale process.

The share price will value initially Uber at around $50 billion, we've reported. That may sound like a large haircut for a company that was last valued by private investors at $68 billion, but the 26 percent savings is a within-the-ballpark discount for a deal of this type.

To be clear, despite Uber being private, the process here is still regulated by the Securities and Exchange Commission, and in this case, the deal would fall under what might be called an “SEC-lite” offering — subject to some, but not all, SEC regulations explained attorney Jeffrey Selman, who has extensive experience in preparing these offerings. Selman said he typically recommends that private companies prepare documents similar to those that a public company would.

Once the tender is launched, shareholders would have somewhere around 20 to 30 business days to mull over whether they want to sell their positions. Remember that while Uber has big venture capital investors, it also doled out options to employees, and for some individuals, this is a chance to realize and cash in on an historic investment that could turn them into millionaires (or, for some institutional investors, billionaires!).

Selling the shares
Here's where things get tricky. SoftBank is eyeing a minimum of a 14 percent ownership stake. If SoftBank’s offer doesn’t elicit enough sellers to amass that stake, then the tender offer fails and there's no transaction. By the way, that means that the proposed governance changes, which reduces voting rights of early investors and founders — including and especially former CEO Travis Kalanick — falls through, too, and we're back to square one.

In recent months, several investors have balked at offers lower than the $50 billion valuation SoftBank is offering — some buyers are still holding out hope that it will drop. But the valuation at sale could be considered a clear uptick from the $40 billion to $45 billion initially proffered.

A lot of the attention will now focus on some of the biggest shareholders of Uber, such as Menlo Ventures, Lowercase Capital and Google Ventures. And, of course, on Benchmark Capital, the venture firm that seems placated by the governance changes that restrict Kalanick, and could now be comfortable with selling some of its holdings. Benchmark wanted to limit Kalanick’s power, and was therefore reluctant to sell any of its position, but now the aggressive CEO may now be constrained by the reforms to Uber’s board.

Another group of potential sellers: Early employees, who are fully vested at Uber but have options that can be costly to exercise. Employees typically have to front cash in order to make use of their options, and then might have to pay hefty taxes on it — which could lead to a wash, at least on their initial stock sales, explained Larry Albukerk, who runs a secondary market liquidity provider called EB Exchange. (Here’s more on that from The Information.)

Not every employee will be able to participate in the tender offer. Employees who arrived after around November 2014 instead received restricted stock units, or RSUs — common stock that eventually vests, but that the company can buy back. Uber employees that hold RSU are free from the fees that hit their colleagues when they exercise their options — but RSU-holders are not eligible to sell their positions in this SoftBank deal.

What if SoftBank doesn’t find enough sellers?
Presumably SoftBank would be prepared to raise the price and try the process again, gradually increasing its purchase price until dollar signs flash in the eyes of an eager venture capitalist. But that means preparing new tender documents.

A company could also extend the life of the tender process beyond 30 days to negotiate and find more sellers, said Selman. At the same time, SoftBank could lower its threshold and agree to take a lower stake in the company, meaning not as many sellers are needed.

But Uber could also find more sellers than it needs. In an oversubscribed tender, Selman said, there could be an across-the-board cut in the amount that each shareholder is allowed to sell.

WSJ : Nordstrom Family Scrambles to Save Buyout Plans

Nordstrom Family Scrambles to Save Buyout Plans
Family and private-equity partner explore new structure after struggling to raise debt

The Nordstrom family is scrambling to salvage its plan to take the high-end retailer private after running into trouble raising financing for a leveraged buyout that could be worth $10 billion, people familiar with the situation said.

The founding family, whose members still run Nordstrom Inc., JWN 1.24% and private-equity firm Leonard Green & Partners are considering a new structure for the buyout that would include less debt, the people said.

The family is trying to come up with more equity but it is unclear where it might come from, the people said. The partners could also try to find buyers for the unsecured portion of the debt at lower interest rates than the double-digit rates that banks have said they could guarantee, they added.


Under the original terms, the Nordstrom family was to contribute its 31% stake in the company, which had been valued at $2.5 billion as recently as Aug. 1. Leonard Green was to contribute $1 billion in equity, leaving the banks to sell about $6.5 billion in debt.

The banks are concerned they won’t be able to sell the debt before the holiday shopping season, an important bellwether for retailers, and would have to hold it until next year, exposing them to the risk that Nordstrom’s business, or the broader market, deteriorates, the people said. If a deal is going to be struck this year, it likely has to happen in the next two weeks, one of the people said.

Nordstrom shares, which initially traded up in June after the family said it was considering taking it private, have fallen sharply this week after the New York Post reported the family was struggling to line up the necessary financing. The shares closed up 55 cents to $44.80 on Thursday. The family’s stake is now worth $2.3 billion.

Investors have shown little faith in department stores, as fewer shoppers visit malls and online rivals squeeze the profit margins of traditional retailers. Macy’s Inc., J.C. Penney Co. and Sears Holdings Corp. are closing hundreds of locations.

Nordstrom, with a smaller footprint and stores mainly located in high-end malls, has escaped the worst of the shake out. But it is not immune to the changes reshaping the industry. Net income for its most recent fiscal year fell by nearly half to $354 million, on asset impairment charges and higher technology and fulfillment costs. Sales rose nearly 3% to $14.5 billion.

The department store chain is struggling to raise debt at a time when Wall Street is churning out loans to heavily indebted companies at a record pace. Its challenge in funding the deal is a bad sign for retailers, suggesting it has become increasingly difficult for them to access the debt market.

Retailers PetSmart Inc. and Staples Inc. issued billions of dollars of debt to fund transactions earlier in the year. But their bonds have lost value since, making it harder for others to follow suit. The decline has been especially steep for PetSmart’s unsecured bonds due in 2025, which were sold at par in May with an 8.875% coupon and traded Thursday at 81.5 cents to yield around 12.7%, according to MarketAxess.

“The banks are saying the risk of lending to retailers is higher, because the landscape is changing so quickly and there are increased unknowns in a world dominated by Amazon,” said William Susman, a managing director with Threadstone Advisors, an investment firm specializing in the consumer and retail sectors.

Toys ‘R’ Us Inc. filed for chapter 11 bankruptcy protection last month, felled by $5 billion in debt from a 2005 leveraged buyout, underscoring the risks of piling on debt to companies that are struggling to grow.

The cost of servicing the debt from a buyout could further squeeze Nordstrom’s bottom line, said Barbara Miller, a stock portfolio manager at Federated Investors Inc. who doesn’t own Nordstrom shares. “If you layer debt onto a company when growth is already constrained it can further impair the company’s ability to effectively compete,” she said.

>>> SeaWorld attracts interest from potential bidders other than Merlin Entertai

SeaWorld attracts interest from potential bidders other than Merlin Entertainment - report
06 OCT 2017
SeaWorld Entertainment Inc [NYSE:SEAS], an Orlando, Florida-based theme park and entertainment company, has attracted interest from potential bidders other than UK-based rival Merlin Entertainment [LON:MERL], according to a report in The Times.
The newspaper did not name the other interested parties or cite a source for the information, which appeared in a report about an approach by Merlin to SeaWorld regarding a potential USD 1bn (EUR 855m) offer for SeaWorld’s Busch Gardens businesses in Virginia and Florida.
SeaWorld is not thought to be interested in a break-up however, the item said.
Merlin owns several Sea Life centres, but does not as a matter of policy keep captive dolphins and whales, the report continued. Merlin’s policy means that it would not make an offer to buy SeaWorld outright, as some of SeaWorld’s parks hold captive killer whales, a source of controversy for the company in the past.
SeaWorld’s market capitalisation stood at USD 1.19bn at the close of trading in New York on Thursday, 5 October.
Acuris Group publications in July reported that SeaWorld had hired Evercore Partners to strengthen its advisory team amid ongoing pressure from activist investor Hill Path Capital, working alongside the company’s other financial advisor, JPMorgan.

>>> Digital wealth manager Moneyfarm acquires tech behind fintech chatbot Ernest

Moneyfarm, the U.K.-headquartered “digital wealth manager” has acquired the technology behind personal finance chatbot Ernest. Terms of the deal aren’t being disclosed, though I understand that, along with the tech, this is an acqui-hire of sorts, seeing London-based Ernest’s CTO Lorenzo Sicilia join Moneyfarm to oversee technology integration.

Founded in 2015 by Niall Bellabarba, Cristoforo Mione and Sicilia, Ernest was developing a personal finance manager powered by artificial intelligence and designed to run on top of Facebook messenger. After connecting to your bank accounts, the chatbot used natural language processing to answer questions on your financial well-being and transactions, but also to give you proactive notifications to help you manage your money better.

In this way it played in the same space as a number of other fintech chatbots, such as LocalGlobe-backed Cleo, Plum, and Chip. However, in comparison to competitors, Ernest had raised a very modest amount of funding: just £165,000 in a pre-seed round, whilst a Crowdcube equity-funding campaign was unsuccessful earlier this year.

Moneyfarm says it will combine the technology behind Ernest with its existing services. In a call, Giovanni Daprà, co-founder and CEO of Moneyfarm, he described two potential examples.

Firstly, an AI-powered chatbot can be used to on-board or acquire customers in a more scalable way than is currently in operation. Namely, Moneyfarm currently uses humans via chat or phone for this puropse.

Secondly — and quite interestingly — when EU legislation in the form of PSD2 forces banks to open up their data, Moneyfarm plans to use the Ernest technology to make sense of a customer’s transactional data to offer them more informed advice to help them financially plan for the future.

“Artificial intelligence and a conversational user interface will help us to improve our algorithms and ultimately offer a better solution to our customers,” he says. “As we work to integrate the Ernest technology across our product offering we’ll be able to assist over an individual’s full wealth lifecycle, from the first pay cheque through to retirement”.

Meanwhile, Ernest’s Bellabarba, whom I’ve enjoyed many fintech focussed conversations with over the past 6 months, told me that, although the entrepreneurial journey for the startup has taken many different turns, he is pleased to see the tech find a home and that all of the team’s hard work can live on.

“Moneyfarm’s acquihire of the Ernest technology provides a fantastic opportunity to take the vision for Ernest to a new level, and create a more advanced artificial intelligence based adviser for consumers,” he adds in a statement.

(DBK) Q3 earnings season - banks could surprise on the upside

Deutsche Bank - Equity Research - Europe

European Q3 earnings season - muted expectations, but banks could surprise on the upside
06 October 2017 (12 pages/ 413 kb)

European Q3 earnings season: muted expectations, but banks could surprise on the upside

  • Muted expectations for Q3 earnings: Following double-digit year-on-year EPS growth in Q1 (25%) and Q2 (18%), consensus expects EPS growth in Q3 to slow to between 5% and 10%. Our beats model suggests that results are unlikely to surprise meaningfully to the upside, given the drag from a strong euro during the quarter.
  • EPS growth set to slow further: While headline growth was still strong in Q2, underlying growth (excluding energy and financials) had already dropped from ~15% in Q1 to ~3%. Companies started to feel the impact from a stronger euro, (e.g. Siemens and Munich Re citing FX as headwind in Q2) and the support from sharply accelerating global growth momentum, which had buoyed Q1 results, was diminishing. Given that the euro has risen by 10% between April and August and FX moves typically affect results with a 2-3 month lag, we expect currency headwinds to weigh more heavily on Q3 results. This drag is likely to be only partly offset by the improvement in global macro surprises (a proxy for economic momentum) since June, given that they remain significantly below the 7-year high reached in Q1. Our gross beat model – based on the EUR trade-weighted index (TWI), global macro surprises and commodity prices – suggests Q3 earnings surprises are likely to come in slightly below their post-2010 average of 54% and close to the Q2 level of 52%.
  • Banks earnings projections look cautious: Consensus expectations for banks’ Q3 earnings have been revised down by around 5% since the beginning of the quarter and now imply a quarter-over-quarter earnings decline of around 7%. The relationship between quarterly banks earnings and the German 10-year Bund yield, which has risen from an average of 30bps in Q2 to an average of 40bps in Q3, suggests upside relative to these forecasts. Thus, while our top-down model implies limited scope for earnings surprises in general, banks’ earnings might be the exception. This could make the Q3 season similar to Q2: soft underlying growth and a low beat ratio at the index level, masked by a strong headline growth figure, powered by financials. That said, energy earnings, the second driver of strong index-level growth in Q2, are less likely to surprise to the upside, given that they are already in line with the level suggested by the average oil price in Q3 ($52 for Brent).