FT : ‘Hard Brexit’ or no Brexit, Donald Tusk warns UK

‘Hard Brexit’ or no Brexit, Donald Tusk warns UK

Idea that Britain can retain benefits after leaving is ‘pure illusion’, says European Council chief

The president of the European Council has told the UK that the only real alternative to a “hard Brexit” or clean break from the EU is to remain a full member of the bloc.

Speaking at a conference in Brussels, Donald Tusk dashed the hopes of those hoping Britain could remain inside the EU’s single market or negotiate some special form of association. The tenor of the UK’s referendum campaign had been to “radically loosen relations with the EU, something that goes by the name of ‘hard Brexit’,” he said.

“In my opinion, the only real alternative to a hard Brexit is no Brexit,” Mr Tusk said. “Even if today hardly anyone believes in such a possibility.”

Since Theresa May, UK prime minister, suggested London would opt for a clean break from membership of the single market in her party conference speech this month, the pound has taken a battering on foreign exchange markets as investors worry about the economic implications.

In remarks that are likely to infuriate prominent Brexiters in the British government, Mr Tusk set out a bleak picture for the negotiations to come between the UK and the rest of the EU, saying that there would be no winners, only losers. “This scenario will in the first instance be painful for Britons,” he said.

Paraphrasing UK foreign secretary Boris Johnson’s campaign trail claim that a post-Brexit Britain would “have the EU cake and eat it too”, Mr Tusk said: “The brutal truth is that Brexit will be a loss for all of us. There will be no cakes on the table for anyone. There will only be salt and vinegar … The words uttered by one of the leading campaigners for Brexit …[were] pure illusion.”

Taking questions after the speech, Mr Tusk extended an olive branch to London, saying that he had not encountered a single leader on the continent “who is happy with this result of the British referendum”.

He said he was “absolutely sure” that “in the future, if we have a chance to reverse this negative process, we will find allies, I have no doubt”.

Turning to the exit talks, Mr Tusk said that the promises of the Leave campaign in the referendum to “take back control” by rejecting “freedom of movement” for workers and ending contributions to the EU budget meant that there was no realistic chance to negotiate a “soft Brexit” where Britain retained substantial ties to Europe.

In stark terms, Mr Tusk said that it was “useless to speculate about soft Brexit”.

Mr Tusk also said he expected the exit talks to last considerably longer than the two years foreseen under the so-called Article 50 procedure in the EU’s treaties. “I think the process will be much longer than two years,” he said.

>>> Street Pre-Market Indications

CS
Ashmore M/P AuM $54.6b CSe $54.7b, Net flows were flat
Cap Gem -1% Peer Infosys Ltd cut its annual sales forecast
Edenred +2% Q3 revs €278m cons €273m, maintain FY guidance
Faurecia -2% Sales 3.5% miss, confirms forecast for FY
Galp +1-2% Raised output in Q3 and processed less raw materials
Man Group +3-5% AuM $80.7b CSe 78.4b, Net inflows in the quarter
Miners UNCH Copper +0.30%, Brent +0.65%, Iron Ore +2.00%, China -0.42%
Prudential +2% Peer AIA beat driven by volume growth
Provident Fin +1% Q3 profit performance in line
Repsol -0.5% Production 669kbd vs cs est of 697kbd
Software -4-5% Pre-announce revenues 6.5% light
SHB +1% CS UPGRADE to Neutral (Valuation)
Shire +1% Vyvanse fares better than ADHD helped by new indication
Swedbank -0.5% CS DOWNGRADE to NEUTRAL (Valuation)
Tesco +1-2% Settled a Brexit-inspired pricing dispute
Unicredit -3% May raise capital, hike max amount to EU13B, Repubblica
Unilever +1% Settled a Brexit-inspired pricing dispute
Vedanta +2% CS UPGRADE to NEUTRAL (Higher Zinc prices)

MF
*DBK-Says Wealth Mgmt outflows not significant- Reuters.............U/C
*UNILEVER-Tesco supply issue in UK & Ireland resolved(Thank God)....+1%
*FAURECIA-Q3 Rev €4.24b(4.39),FY Guidance confirmed,Margins ok......-1%
*EDENRED-Q3 Rev 278m(273),I/Vols 4.38b(4.87),Vol Grth 10.2%(8.5)....+2%
*MAERSK-Hanjin contacts Maersk for Asia-US operation sale...........+1%
*VIVENDI-Canal+ wants to double subscribers to more than 10m-Echos..+0.5%
*LAFARGEHOLCIM-To focus on retailers in Emerging Markets - CEO......+0.5%
*ALTICE-Boosts stake in SFR Grp,buys 5.21% of SFR,holds 82.94%......-1%
*UNICREDIT-May raise Cap Hike amount to €13bln says Repubblica......-1%
*SOFTWARE-Q3 Sales 198.3m(212),Ebita 766.8m,1-Off charge 5.4m.......-7%
*VIRBAC-Q3 Organic Growth 2.2%(4.2%),Rev €216m(€222m),FDA ongoing...-1%

Investec
ASHMORE trading statement, AUM up by $2bn, $54.6bn as at end Sep...........-1%
CONSORT MEDICAL Syrina in development agreement with Bespak, big +ve.......+2%
MAN GROUP Q2 statement, AUM $80.7bn, to buy Aalto, wants $100m buy-back....+3%
PROVIDENT FINANCIAL Q3 trading statement in line with f'csts.............+0.5%
ROYAL DUTCH SHELL looking at sale of $1bn Malaysian LNG plant, oil +ve...+0.5%
SAGE - Infosys warning again, cuts sales f'csts for 2nd time in 3 months...-1% ?
SHANKS gets VGG shareholder approval.....................................+0.5%
SVG GROUP extension of offer and gets 27.7% acceptances...................unch
UNILEVER resolves marmite war with Tesco - SKY.............................+1%
WILLIAM HILL Parvus opposes Amaya merger - owns 15%.......................unch

FT : Brexit inspires Salvini dream of Italy ditching the euro

Brexit inspires Salvini dream of Italy ditching the euro
Bolstered by UK’s ‘beautiful’ vote, the Northern League leader seeks to exploit Euroscepticism

Matteo Salvini enthusiastically holds up a pamphlet calling for Italy to abandon the euro that is lying on the coffee table in front of him in the Northern League's parliamentary offices in central Rome. The booklet, published by his party before the 2014 European elections, will be updated and released again in thousands of copies, he says.

“Three years ago they thought we were crazy — they looked at us like Martians,” the party leader said, in an interview with the Financial Times. “Now it’s part of the debate."

Emboldened by the Brexit vote in the UK and rising Euroscepticism in the eurozone’s third-largest economy, Mr Salvini is ramping up his push for Italy to leave the single currency. He wants a euro exit to be the main pillar of the Northern League’s platform in national elections set for 2018, at the latest.

“Everyone who votes for us will know that a Northern League government would get rid of the euro and move back to a national currency,” he said, adding that such a move would ideally be done in agreement with other eurozone countries.

But if necessary, Italy might have to take the step unilaterally: “Whatever risk we take will be an improvement compared to certain death [of remaining in the eurozone].”

Mr Salvini is credited with reviving the Northern League, which was almost defunct before he became leader in 2013 and is now challenging Silvio Berlusconi’s Forza Italia party for dominance of Italy’s right.

Under his watch, the party has morphed from a focus on the secession of the wealthy north of Italy from the rest of the country, to adopting hardline Eurosceptic and anti-immigrant positions designed to appeal to a rightwing audience across the country.

But the party’s vote share has stalled at 12 per cent to 15 per cent as much of Italy’s disaffected electorate has flocked to the Five Star Movement, which has adopted softer positions on immigration and the euro.

Although Italians have grown increasingly disenchanted with both the EU and the euro in recent years, polls still show strong support for remaining in both.

Nonetheless, Mr Salvini has no qualms about identifying with other rightwing Eurosceptic leaders, such as Marine Le Pen in France, Geert Wilders in the Netherlands and Frauke Petry in Germany.

The British vote in June to exit the EU was “a beautiful breath of oxygen,” he said, adding: “There’s water on Mars and there’s life beyond Brussels.”

The dominant issue in Italian politics, however, is the December 4 referendum on constitutional reform, which could determine the fate of Matteo Renzi, the centre-left prime minister. Polls show the No camp — supported by Mr Salvini — has a slight edge, although many are undecided. Mr Renzi has signalled he will quit if he loses.

“We think we’ll win. The more people talk about it, the more people read about it, the more Renzi goes on television, the more No advances,” Mr Salvini said.

The purpose of the constitutional overhaul, according to Mr Renzi, is to make Italy more stable and easier to govern, since it would strip the Senate of many of its powers and give the central government more control compared with the regions. Mr Salvini does not buy the argument.

“We’re not saying you cannot touch the constitution but you have to touch it well,” he said. “Everything is centralised under the reform and the history of Italy tells you that when you centralise everything nothing works.”

Mr Salvini also dismisses widespread concerns that a No vote would plunge Italy back into political instability, dealing a huge blow to the economy and possibly triggering a financial market crisis. “There will be no catastrophe. On December 5, Italy will be more credible, no matter what Renzi says,” Mr Salvini said.

In order to mount a credible bid to govern Italy, Mr Salvini has been in a seemingly endless cycle of on-and-off talks with Mr Berlusconi about an alliance. But Forza Italia is split between moderates who see a pact with Mr Salvini as unacceptable and conservatives who see it as appealing. “We have waited, we have dialogued, but months have passed without clarification,” he said.

On the domestic economic front, Mr Salvini’s flagship policy is to introduce a 15 per cent flat tax to cut the fiscal burden on Italian households and businesses. He insists he would cover the estimated €63bn cost by stamping out tax evasion and producing more growth. On foreign policy, he believes Italy should cut ties with African nations that do not co-operate on limiting migration, which he has described as an “invasion” threatening European values.

And he has a strong pro-Russian tilt, calling sanctions against Moscow “suicidal” and questioning “demented” Nato deployments in eastern Europe. Mr Salvini also backs Donald Trump for US president, despite the recent tape revealing the Republican candidate’s sexually aggressive comments about women. “Certainly it was not in good taste but it’s bizarre to take morality lessons from Hillary Clinton,” he said.

His main gripe remains with Brussels, however, and he does not rule out leaving the bloc altogether, with the British example firmly in mind. “Let’s take back our currency, then we can discuss at what conditions we can stay in the EU.”

FT : US modifies plans to crack down on inversions

US modifies plans to crack down on inversions

Final regulations will be focused more on aggressive tax avoidance tactics after business outcry

The Obama administration has revised a proposed crackdown on US companies moving overseas to cut their tax bills in an effort to stop other businesses from suffering collateral damage.

Jack Lew, the US Treasury secretary, announced on Thursday that he was modifying the plans designed to deter deals known as inversions, which scuppered Pfizer’s $160bn takeover of Allergan when they were unveiled in April.

The administration had been struggling to stop US companies merging with smaller foreign rivals to shift their domicile to low-tax jurisdictions — often in Europe — and therefore reduce their American tax bills.

The aggressive measures announced in April triggered an outcry from businesses that had nothing to do with inversions and which complained that their ability to manage their finances via internal loans would be impaired.

Mr Lew told reporters on Thursday that the Treasury had been told by companies that its proposals “could unduly constrain ordinary business practices”.

“After carefully considering this feedback, we have addressed stakeholder concerns by more narrowly focusing the final regulations on aggressive tax avoidance tactics and providing certain limited exemptions,” he said.

At issue is the way companies lend money between their subsidiaries using what are known as intra-company loans or related-party debt.

The Treasury wanted to make inversions less profitable by stopping companies from making loans from foreign subsidiaries to the US and deducting the interest payments from their US tax bills, a practice known as earnings stripping.

But American businesses and foreign companies with US subsidiaries said the proposed rules — which restricted the types of financial instruments that could be classified as debt — would interfere with their day-to-day financial management.

One corporate lobbyist recently told the Financial Times that some companies feared that their subsidiaries in emerging markets would have to resort to borrowing from local banks because access to intra-company loans would be cut off.

There were signs that corporate America was not entirely happy with the Treasury’s revisions on Thursday.

The American Chemistry Council, which represents chemical companies, said: “We are deeply concerned by [the] rushed review of Treasury’s debt-equity regulations. The proposed rules touched many segments of the American economy, and we are disappointed that the administration moved too quickly to conduct a meaningful review of the rules’ impacts.”

The Treasury’s revisions include exempting from its crackdown the “cash pools” that companies use to manage cash. It is also exempting transactions where it deems the risk of earnings stripping is low and transactions between banks that use related-party loans in their roles as financial intermediaries.

Kevin Brady, the Republican chairman of the House Ways and Means committee, which oversees tax issues, said: “It appears that the Obama administration has ignored the real concerns of people who will be most impacted by these far-reaching rules.”

Fast FT : Man Group to buy Aalto Invest; announces share buyback

Man Group is to buy Aalto Invest Holding, the property manager, as the world’s largest listed hedge fund continues to try and reduce it reliance on the performance fees of AHL, its flagship fund.

The hedge fund, which posted net inflows of $1.3bn in the three months to the end September to halt a year of declining assets, said the deal will complete in January 2017 and will add a further $1.7bn of assets for the company.

Luke Ellis, chief executive officer of Man, said:

In a difficult market environment, we are pleased to report a $4.3bn increase in funds under management in the quarter driven by a positive investment movement of $2.5bn and net flows of $1.3bn.
Man Group also said it would buy back up to $100m-worth of shares and will “continue to execute share repurchases when advantageous”.

Citigroup downgraded Man from “buy” to “sell” in May on concerns about AHL, the trend-chasing funds that make up about a quarter of its assets under management and are estimated to provide more than half of the group’s earnings.

Man’s share price has fallen from 175p to 110p since the start of the year, and fell almost 3 per cent in yesterday’s trading.

>>> Bayer may sell radiology unit to PE for EUR 4bn; dermatology business could

Bayer may sell radiology unit to PE for EUR 4bn; dermatology business could fetch EUR 1bn - report (translated)

Bayer, the German medical company, may get EUR 4bn for its radiology business, which interests private equity firms,Boersen-Zeitung reported.
The unattributed report also said Bayer may sell its dermatology business for EUR 1bn.
The report said a possible sale of the business dealing with diagnostic imaging equipment and contrast agents is likely to be managed by Goldman Sachs, but nothing is decided yet.
JPMorgan is advising on a sale of the dermatology products unit, the unsourced article claimed.

>>> What to look at today - 14th of October 2016

Dow -0.25% S&P -0.31% Nasdaq -0.49% Russell -0.93% VIX 16.61 (+4.40%) VXX 35.41 (+3.03%)
US Market closed lower but off from lows. China trade balance is weighting on market, report featured a 10.0% year-over-year decline in exports (expected: -3.3%) and a 1.9% year-over-year decline in imports (expected: +0.7%), It also led to speculation that China may tacitly embrace a competitive devaluation of the yuan to bolster beleaguered export demand. The higher-yielding sectors -- utilities (+1.3%), real estate (+0.5%), telecom services (UNCH), and consumer staples (UNCH)-- led the rebound effort. Energy sector (-0.7%) finished off its low amid an uptick in crude oil. WTI crude settled higher by 0.5% ($50.40/bbl; +$0.25) despite some mixed inventory data. Volume were below average with 879mil shares. US After Hours ENZ +7% on earnings, HON +1% presentation update/CEO MadMoney appearance... SMSI -21%, HIVE -17%, NHTC -15% following guidance, HPQ -2% on guidance/restructuring news. China CPI inflation rises on higher food prices; Wholesale PPI turns positive for the first time since 2012. China state planner NDRC warns the recently announced debt to equity swap may increase banks' risks. GBP falls on FT comments from European Council president Tusk; Says UK's only alternative to "hard Brexit" is no Brexit.

Nikkei +0.49% Hang Seng +0.55% CSI -0.29% Shanghai -0.36%

Eur$ 1.1025 CNH 6.7350 CNY 6.7247 JPY 104.05 GBP 1.2204 CHF 0.9878 RUB 62.9743 WTI$ 50.79 +0.69%

S&P +0.04% EuroStoxx +0.61% Dax +0.53% FTSE +0.40% SMI +0.60%

Macro :
- Goldman’s Marcus ‘Outflanks’ Banks, Fintech Cos.: Evercore ISI
- NY Pension Fund Said to Demand 10% Return From Hedge Funds: NYP
- SoftBank to Form Technology Fund That May Reach $100b in Size
- Number of Life Insurers to Drop by a Third, Handelsblatt Says

Keep an eye on :
- ATC NA : Altice Increases Stake in SFR Group to About 83%
- DBK GY : Deutsche Bank Says Wealth Mgmt Outflows Not Significant: Reuters
- DOW US : Dow, DuPont Said Nearing DOJ Approval, StreetInsider Says
- EDEN FP : Edenred 3Q LFL Issue Vol. Growth Beats Ests., Confirms Targets
- FB US : Snapchat Becoming More Relevant Than Facebook: Piper Jaffray
- EO FP : Faurecia 3Q Total Sales Miss Estimate; FY Guidance Confirmed
- RACE IM : Ferrari Can’t Go the Distance on Luxe Handbag Comparison: SocGen
- HSY LN : Hershey CEO Bilbrey Said to Prepare to Step Down: Reuters
- Hyperloop IPO : Hyperloop One Raises $50m, Hires Ex-Uber CFO Callinicos: FT
- ILD FP : To invest €100M in overseas territories 3G/4G project
- LHN VX : LafargeHolcim Considering Name Change, CEO Tells Les Echos
- OR FP : L'Oreal Raised to Buy at Deutsche Bank, PT EU185
- EGP PL : Mota-Engil Sees Africa Business Improving, Recovering Late Bills
- ORA FP : Orange Names Jeremie Dutray Deputy CFO
- PEP US : PepsiCo Said to Near Deal to Buy KeVita: Reuters
- UG FP : PSA May Reduce Sochaux to a Single Production Line: Echos
- RDSA NA : Shell Said to Weigh Sale of Over $1 Billion Malaysia LNG Stake
- RCO FP : Remy Cointreau, Lucas Bols Create JV for Passoa Brand
- SFR FP : Altice Increases Stake in SFR Group to About 83%
- SOW GY : Software AG 3Q Non-IFRS EBITA EU66.8m, Confirms 2016 Forecast
- SYNN VX : China Said to Plan Merger of Sinochem, ChemChina
- SCMN VX : Swisscom Says It Must Diversify to Halt Revenue Slide: Le Temps
- TSLA US : German Ministry Warns Tesla Owners on Autopilot System: Bild
- TLW LN : Tullow Seeks Road Truckers for Kenyan Early Oil Pilot Scheme
- VAC FP : Pierre & Vacances Says Revenue From Tourism Set to Grow in 1Q
- VALE US : Vale May Get >$3b From Selling Its Fertilizer Assets: HSBC
- VIV FP : Canal Plus Aims to Double Subscribers to More Than 10M: Echos
- WEIR LN : Weir Cut to Neutral at UBS as Oil & Gas Growth Priced In
- WHL LN : William Hill merger plan hits serious hurdle, Bookmaker’s largest investor opposes £4.6bn tie-up with Canada’s Amaya - FT
- YARA NO : Yara CEO Holsether Says Potential in Africa Enormous: FA
- YHOO US : Verizon Counsel Says Breach Could Trigger MAC: Reuters

>>> Europe : Brokers Upgrades & Downgrades - 14th of October 2016

>>> Up
*CCC RAISED TO BUY VS NEUTRAL AT GOLDMAN
*KOMERCNI BANKA RAISED TO BUY AT HSBC
*LPP RAISED TO NEUTRAL VS SELL AT GOLDMAN
*ORION RAISED TO HOLD AT NORDEA
*SCHINDLER RAISED TO OUTPERFORM AT RBC CAPITAL
*SVENSKA HANDELSBANKEN RAISED FROM UNDERPERFORM TO NEUTRAL AT CREDIT SUISSE
*VEDANTA RAISED TO NEUTRAL VS UNDERPERFORM AT CREDIT SUISSE

>>> Down
*ACCOR CUT TO SELL AT BERENBERG
*BEIERSDORF CUT TO HOLD AT DEUTSCHE BANK
*BMW CUT TO REDUCE AT HSBC
*CONTINENTAL CUT TO EQUALWEIGHT AT BARCLAYS, PT€184
*MONDI CUT TO NEUTRAL VS OVERWEIGHT AT JPMORGAN
*SWEDBANK CUT TO NEUTRAL VS OUTPERFORM AT CREDIT SUISSE
*TELENOR CUT TO HOLD AT JEFFERIES

>>> PT Change


>>> Initiation
*FERRARI RATED NEW SELL AT SOCGEN PT $45

>>> Call
>> Stock
*TDC REMOVED FROM CONVICTION BUY LIST AT GOLDMAN; STILL BUY