TheChek News Flow

Britain’s Nuclear Decommissioning Authority is in the High Court this week for the final ruling in a long-running damages claim on a £7bn deal to clean up Britain’s oldest nuclear power plants.

Energy Solutions, a US-based company, filed a high court writ in 2014 after losing the contract to engineering company Babcock and Texas-based Fluor.

It had been managing the nuclear sites for 14 years and in documents filed to the court alleged that the NDA did not follow its own procedures when the new contract was awarded and that its point scoring system was flawed.

It is trying to recoup the bid costs as well as the projected loss in profits over the life of the new 14-year deal.

At the heart of the dispute is one of the largest contracts ever put out to tender by the government, which involves about 3,000 workers cleaning 12 of Britain’s 25 nuclear sites. These include Sizewell, Hinkley and Dungeness — built in the 1960s to produce plutonium to make nuclear weapons but now at the end of their lives.

If the NDA loses the case it could cost the government hundreds of millions of pounds and will again raise questions over the way large and sensitive public-sector contracts are awarded.

The judgment is expected on July 29 and will rule whether the NDA made serious errors in awarding the contract. If so, there will be further hearings, which could stretch into 2017, to decide any payment for damages.

Although Energy Solutions competed for the contract in partnership with the US company Bechtel, Energy Solutions is taking legal action alone.

Energy Solutions, which has since been taken over by the construction and support services company Atkins, declined to comment. Atkins said it had “no economic interest in or any control over the resolution of the . . . claim, which has been retained by the remaining part of the Energy Solutions business”.

A series of botched contracts has raised concerns over the government’s procurement processes. The referral of G4S and Serco to the Serious Fraud Office for overcharging on electronic tagging contracts for offenders and the West Coast main line rail franchising debacle two years ago are among examples.

In 2012, FirstGroup won a 13-year deal to manage the rail network linking London to Scotland, only for Virgin Trains to challenge the decision in court and eventually force a government U-turn.

An NDA spokesperson said: “We continue to await the judgment being handed down and cannot comment before this time.”

Surge in rig count with production growth blended less productive older rigs with more efficient newer ones

We are at the bottom. That was the message of Paal Kibsgaard, Schlumberger’s chief executive, presenting the oil services group’s results last week. The rig count figures bear him out; Baker Hughes’ survey of rigs active in the US has risen from 404 at the end of May to 447. Rising rig numbers are a sign that it is once again profitable to drill for oil and gas. But oil traders keep an eye on them to gauge the potential for new supply.

When US onshore oil production was declining, the US rig count did not matter much. The arrival of shale oil, fracked from onshore fields, has changed that. US oil production nearly doubled in the decade to 2015, driven by the success of onshore drilling. Yet the surge in the rig count that accompanied this production growth blended less productive older rigs with more efficient newer ones.

As the oil price fell two years ago, explorers quickly began to shed less effective equipment. Rig counts fell sharply last year (from 1,800 to 700) partly for this reason: the quickest way to cut costs was to eliminate lesser quality equipment. The result is that productivity, in terms of barrels per rig, from each new well there has doubled in the past couple of years. If this improvement is permanent, then one would expect a sharp pick up in oil output as the rig count increases

Shale wells tend to produce a lot of oil quickly, but decline rapidly thereafter. Production can often halve in the first year before stabilising. One reason that onshore oil production has fallen is this natural decline from “legacy” wells. But that decline rate has stabilised as fewer new wells come on stream; meaning less of a drag on overall production. Another plus for supply, and potential negative for prices. Mr Kibsgaard’s optimism may prove premature.

Geopolitical concerns allow Beijing to return to role it prefers—showcasing its growing clout

CHENGDU, China—A few short months ago, China’s economic problems were fueling global panic in markets and drawing unwanted attention and rebuke by the world’s largest economies.

Now, China’s economic challenges have taken a back seat to more pressing geopolitical concerns among finance ministers and central bankers from the Group of 20 largest economies, allowing Beijing to return to the role it prefers: showcasing its growing clout on the world stage.

At the conclusion of two days of talks Sunday, the G-20 redoubled calls to use all available policy tools to boost output, wary of mounting headwinds that threaten to tilt the global economy into a low-growth rut. Finance leaders also repeated a commitment to avoid using exchange rates to gain a competitive advantage and vowed to consult closely on exchange-rate policy.

International Monetary Fund economists and many G-20 finance chiefs expressed concern that policy makers are relying too heavily on monetary policy to goose growth, calling for more economic restructuring to boost productivity and additional budget stimulus where possible. “Monetary policy alone cannot lead to balanced growth,” the G-20 said.

Britain’s surprise vote to leave the European Union, Turkey’s recent coup attempt, a series of horrific terror attacks, souring global growth prospects and threats of an Italian banking crisis dominated the weekend gathering of the world’s finance chiefs. July’s meeting in Chengdu stands in contrast to the last G-20 finance leaders’ meeting, held in February in Shanghai.

Then, fears of a China-induced currency war and an economic meltdown in the world’s second-largest economy left the host nation on the defensive. The Chengdu meeting was the last major G-20 event before the financial group’s September summit in Hangzhou.

“The Chinese economy is a ‘stability anchor’ for the global economy,” Premier Li Keqiang said Friday ahead of the meeting of the G-20, which acts as the world’s economic executive board. “Prophecy of China’s economy heading for a hard landing is rarely heard now.”

China continues to face questions about its currency policy and its steel exports, amid concern that overcapacity could become a global flashpoint in much the way that currency policy has been over the past decade. Another worry: China’s rising metal exports could worsen the weak inflation problem that central banks are grappling with around the world.

Foreign industries and their governments accuse the country of undercutting their markets unfairly by selling goods at prices below the cost of production. But those worries currently pale against much hotter fires elsewhere in the world.

“Brexit, the Turkish coup, and the U.S. elections have certainly helped redirect attention away from China,” said Standard Life Investments Ltd. economist Alexander Wolf, adding that markets often have a “limited attention span.”

The U.K. vote to leave the EU has cast a pall over the global economy, prompting the IMF to downgrade its outlook and warn that growth could slip dangerously lower if U.K. and EU leaders don’t quickly address investor concerns about their future together. The coup against Ankara’s leadership revived political-risk worries in many emerging markets. And Republican presidential candidate Donald Trump’s talk of hiking tariffs is spurring worries the U.S. could pull the world into a global trade war.

Meanwhile, G-20 officials say Chinese management of the economy has risen to the challenge. Beijing has recalibrated its communication on exchange-rate policy and monetary and fiscal policies after global markets shuddered under what many said last year were management missteps.

“China is undergoing an important structural transformation,” said Italian Finance Minister Pier Carlo Padoan. Unlike earlier this year and last, no officials at the Chengdu G-20 mentioned China’s economy as a fundamental vulnerability to the global economy, Mr. Padoan said.

“Any transition has bumps here and there, but the overall direction of the change has been positive,” he said.

Beijing has taken active steps to restore confidence, repeatedly pledging since February not to depreciate the currency for competitive advantage. That helped allay fears of an imminent currency war.

The Asian powerhouse has also benefited from the Federal Reserve’s decision to delay an interest-rate increase, allowing authorities here to gradually depreciate the yuan, also known as the renminbi or RMB, without alarming investors.

“China has committed to moving in an orderly way toward a more market-oriented exchange rate,” a senior U.S. Treasury official said. “I’ve observed over the last months…a willingness to actually intervene to support the RMB to keep the RMB from depreciating more.”

China in recent months addressed fears of a financial crisis sparked by a flood of capital leaving its shores by tightening bank supervision, cracking down on unauthorized foreign-exchange traders and making it more difficult for customers to exchange funds. Foreign-exchange reserves have declined by $30 billion to $40 billion a month recently, compared with a $514 billion decline in 2015 and nearly $100 billion in January.

Also fueling the world’s more sanguine view of China, economists say: policy makers’ view that more fiscal spending, greater stability of capital outflows and other moves to curtail volatility are important as global growth slows, issues that play to China’s strength.

Beijing answered global concerns that its economy was slowing faster than it acknowledged by injecting a flood of money into the financial system, frontloading infrastructure spending and easing restrictions on its massive property sector. That saw second-quarter growth match the 6.7% rate in the first quarter, which was the economy’s slowest pace since the global financial crisis.

The stimulus keeps China’s economy humming along, allowing Beijing to claim economic stability and put growth on track to hit the government’s annual target of 6.5% to 7%.

But, many economists caution, China may be buying growth now at the expense of output later.

The return to credit-fueled growth pushes up already-high corporate debt levels, fuels the problem of industrial overcapacity, blunts reform efforts and sets back efforts to shift the economy from state-directed growth.

“There is already a big problem of impaired loans which are on banks’ books which have not really been dealt with,” said IMF chief economist Maurice Obstfeld. “There needs to be a re-intensification of efforts in that area.”

Economists warn medium-term risks in China are rising. Standard & Poor’s Financial Services says corporate-credit quality is deteriorating faster than at any time since 2009. Corporate debt levels are estimated at 145% of gross domestic product, up from less than 100% of GDP in 2007.

Those levels, the IMF says, “are high by any measure.”

The assets of the largest funds tracking the Italian markets have fallen sharply since the beginning of the year as the country prepares for a referendum on its constitution and its banking sector flirts with collapse.

Investors have fled funds as a stand-off over contentious bank “bail-in” rules — disliked by Italy’s centre-right government — intensifies ahead of the publication of stress-test results on Friday.

The iShares MSCI Italy Capped exchange traded fund, run by BlackRock, the world’s largest asset manager, has lost half its assets since January, falling to $543.2m. The iShares Currency Hedged MSCI Italy ETF has also shrunk to half its size and now has $19.2m worth of assets under management.

Two exchange traded funds that focus on Italian stocks run by Deutsche Asset Management are also down since the start of the year — by 18 per cent to $1.79m and 12 per cent to $1.87m respectively.

Arne Noack, director of passive product development at Deutsche Asset Management, said that the funds had not received much interest since their launch in August last year, partly because investors are choosing more diversified investments in an environment of uncertainty. “We are certainly optimistic that demand will come,” he said.

Investor concern about the future of the eurozone has heightened significantly since the UK’s vote to leave the EU. Many cite Italy as the biggest threat to the shared-currency area.

A third of fund managers predict that another EU country will break away from the union in the next three years, according to a survey by Bank of America Merrill Lynch. It also found that 42 per cent of managers have an underweight exposure to Italy compared with benchmarks, in contrast to just over 20 per cent a month ago.

Nicholette MacDonald-Brown, fund manager for a pan-European equity fund at Schroders, Europe’s second-largest listed fund company, said that she only holds three Italian stocks in a portfolio of 50 because very few outside the energy and financial sectors are liquid enough.

“We think the probability of a bail-in is materially lower than that bail-in is not happening,” she said, referring to EU rules that small Italian investors should be held accountable before a bailout from taxpayers.

“But the Italian market is by far the worst-performing country in Europe and the banking sector is the worst-performing sector,” she added.

Data from EPFR, the research house, shows that funds with a mandate to invest in Italian equities have experienced $4.1bn of outflows since the beginning of the year.

The chairman of Assogestioni, the Italian fund association, said that investors were waiting for a “whatever it takes” moment on banks. “The view is clearly gloomy,” said chairman Tommaso Corcos. “But it is not a specific Italian problem, it is a global issue. Banks around the wold are priced, on average, well below book value.”

But Michel Leblanc, manager of the eurozone small and mid-cap fund at Lombard Odier, the Swiss fund house, said his fund is 11 per cent invested in Italy, compared with a benchmark of 8 per cent. He said he avoids banks almost entirely and chooses companies that make most of their revenues abroad.

Several household-name British companies have been targeted, says Owen Walker

Throughout the morning of June 24, the currency and equity markets went haywire as investors around the world tried to capitalise on the chaos created by the UK’s shock decision to leave the EU. But one niche category of hedge funds, activist investors, could turn out to be the long-term winners from Brexit.

Several household-name British companies have been targeted by activists since last month’s vote. While these moves are not directly related to the referendum result, the Brexit fallout will make UK companies more vulnerable to activist attacks in the coming years.

Activist hedge funds — which focused not only on investing in companies where they expect significant change, but also on being the agent of that disruption — will be on the lookout for ways to profit from the disquiet the UK is set to endure as its relationship with the rest of Europe and the world is redefined. British companies dealing with these seismic changes would do well to prepare for an activist on their shareholder register.

The fall of the pound to the dollar and euro since the referendum has meant that British companies are now much cheaper for foreign investors.

At the same time, the FTSE 250 — whose constituents are mostly domestically focused, which means the index is a better indicator of the resilience of the UK economy than the more international FTSE 100 — has experienced considerable volatility. There is little to suggest these market forces will lessen in the coming years, resulting in plenty of UK buying opportunities for overseas investors.

Foreign activists have already started taking advantage of the increased vulnerability of UK companies. Shareholder Value Management, a German investor, announced a 7 per cent stake in John Menzies, the Edinburgh-based logistics company, soon after the Brexit vote. SVM joined another foreign activist, Lakestreet Capital Partners of Switzerland, in calling for John Menzies to split its aviation services from its newspaper distribution business.

Through its UK offshoot, Elliott Advisors, US hedge fund Elliott Management has revealed positions in SABMiller, the brewer, and Poundland, the discount retailer. In both cases, the target company is in the process of being bought and Elliott is pushing for better terms — a strategy common among activists and dubbed “bumpitrage”. Last year Elliott’s successful campaign against Alliance Trust in Dundee resulted in the hedge fund gaining two board seats and the departure of the investment trust’s chairman and chief executive.

In the medium term, the response of policymakers to market uncertainty could unintentionally make British companies more attractive to activist investors. A Bank of England decision to cut to interest rates could further weaken the pound, thereby making UK companies cheaper still.

Should Philip Hammond, the new chancellor, follow his predecessor’s lead and cut corporation tax in an attempt to incentivise companies to stay, the lower tax rate would make UK companies even more alluring to overseas activists.

But perhaps the most attractive feature of post-Brexit Britain for activist investors is the widespread instability UK companies will face and the tough choices their boards and executives will be forced to make. Activists thrive in such conditions.

Corporate leaders will have to decide whether to sell overseas operations, relocate teams or close underperforming business lines altogether. These will be hard and uncomfortable decisions to make, especially where large-scale job losses are involved. But where a long-term executive or director may feel ill at ease forcing through such changes, an activist investor would have no such sentimentality. The activist would also have an easier job of convincing the company’s other shareholders that clinical restructuring was needed.

For the UK’s boards and executives, life looks set to become a little bit harder.

Be Safe: Update Your iPhone, iPad and Other Apple Devices Now

Apple patched a hole, but you need to make sure you’re running the latest OS

Apple issued updates for iOS, OS X, WatchOS and tvOS on Monday that patched a security hole that could allow hackers to steal login and password data as you type it.

The exploit, which so far hasn’t led to any known hacks, was made public by Cisco Systems Inc.’s security research team, Talos. The malware, which disguises itself as a TIFF-formatted image, can be sent to Apple devices by way of messaging and email apps and web browsers.

“This vulnerability is especially concerning as it can be triggered in any application that makes use of the Apple ImageIO API when rendering tiled TIFF images,” said Tyler Bohan, a Talos researcher, in a blog post. Many apps on Apple devices use this specific API to render images, including Apple’s own Messages, Mail and Safari apps.

A similar security vulnerability, known as “Stagefright,” was found in Alphabet Inc.’s Android mobile operating system last year and was eventually patched.

If you have an Apple device, like an iPhone, you'll want to make sure you're running the latest operating system, which patched a significant security hole this week. PHOTO: THE WALL STREET JOURNAL

Here’s how to check if your device’s operating system is up-to-date, and safe from the exploit. (Also: Consider opting into automatic OS updates that you can do in the settings below.)

iPhone, iPad and iPod Touch

Open your iOS device’s settings app and look for the General menu. Tap Software Update and you’ll see if you’re on the latest version of iOS—9.3.3—or not.

iOS 9.3.3 is compatible with the iPhone 4s and newer, the fifth and sixth generation iPod Touch, the iPad 2 and newer, all iPad Mini tablets and the iPad Pro.

Mac Computer

Open up the Mac App Store app and click Updates in the menu bar up top. Any OS X update will show up here if you need to install one. The latest version of OS X is El Capitan 10.11.6, and it is compatible with most Mac laptops and desktops dating back to mid-2007.

Apple Watch

To update your Apple Watch software, go to your iPhone and open the Apple Watch app. Tap General and select Software Update. The latest version of WatchOS is 2.2.2.

Apple TV

Open your Apple TV’s settings app and use your remote to select System, then Software Updates. Then hit Update Software. The latest version of tvOS is 9.2.2.

(JP) Japan Fin Min Aso: excess forex volatility and disorderly moves in currency are harmful

- G20 to use all tools available individually and collectively to promote growth

- No change in Japan stance on achieving fiscal consolidation

- Closely watching China economy; agreed with US Treasury Secretary Lew on the need for structural reform in China and transparency in the yuan; did not discuss currency issues with Lew in bilateral talks

Salesforce CEO told LinkedIn he would have paid much more than Microsoft

A LinkedIn board committee met earlier this month to discuss the email from Marc Benioff.

It was already known that LinkedIn chose a potentially lower all-cash acquisition offer from Microsoft rather than take on the uncertainties of a stock-and-cash deal from Salesforce.

But now it has been revealed that Salesforce might have been willing to go “much higher” than Microsoft’s $26.2 billion, or change other terms of its bid, had it been given the chance.

In a filing with regulators on Friday, LinkedIn said a board committee met on July 7 to discuss an email from Salesforce CEO Marc Benioff.

“The email indicated that Party A would have bid much higher and made changes to the stock/cash components of its offers, but it was acting without communications from LinkedIn,” LinkedIn said in the updated filing with the Securities and Exchange Commission.

In addition to preferring the all-cash nature of Microsoft’s $196-per-share bid, LinkedIn has said its board was concerned about other issues with a Salesforce bid, including the fact that a deal would have required approval from its shareholders.

LinkedIn could still go with another bid if one comes in, but its deal with Microsoft contains a $725 million breakup fee provision.

Salesforce was the only serious rival to Microsoft, but LinkedIn also held talks with Google and Facebook, among others.