This week’s news includes; Deutsche Bank’s woes continue, law firm mega-merger in progress, OPEC’s oil production agreement, Sainsbury’s launches a new delivery service to compete with Amazon.
Opinion articles of the week:
KPMG thinks that the motor insurance industry could shrink by as much as 60% by 2040 due to self-driving cars. Click here to find out more.
LinkedIn has warned that Brexit could affect Britain’s access to top talent & three key sectors are likely to be hit hardest. Click here for more.
Brexit isn’t a binary hard-or-soft decision, but shades of grey. Click here for more.
1. THERESA MAY ANNOUNCES PRELIMINARY BREXIT TIMETABLE
There is now a timetable for Brexit. Prime Minister Theresa May said on Sunday that the U.K. would begin the formal process of leaving the European Union by the end of March 2017. That means Brexit could happen in 2019. Britain would trigger Article 50 of the EU treaty in the first quarter of next year, she said. That act will start the clock on two years of exit negotiations with the other 27 members of the group.
This is the first time since the Brexit vote in June that the British government has set out a clear timetable for the hugely complex task of unwinding its 40-year relationship with the U.K.’s biggest trading partner.
May also said she would ask lawmakers to pass a bill incorporating all EU laws into British laws that would take effect the moment Britain leaves the union. That legislation would mean the U.K. can decide which European laws to keep. But she gave little away about the future relationship she wants with the EU — of critical importance to Europeans living in Britain, Brits living in Europe, banks, businesses and investors.
The big issue is to what extent Britain will have to sacrifice free trade with the rest of Europe in return for the ability to restrict immigration — an objective May said Sunday the British people had clearly voted for.
Japanese automaker Nissan said last week that it needed greater clarity about the kind of access Britain would have to the huge EU market before it could commit to future investment in the country. (CNN)
2. DEUTSCHE BANK
Shares of Deutsche Bank were leaping in New York trade Friday on a report that it was near a settlement with the U.S. Department of Justice, but there’s reason to be skeptical about the number being cited.
Shares of Deutsche Bank have extended their gains, up about 14 percent in afternoon trading, after an AFP report that Germany’s biggest bank is close to a $5.4-billion dollar settlement with the Justice Department over mortgage bonds. CNBC has not independently confirmed the report.
But if the number was correct, under German capital market rules Deutsche Bank would be required to confirm the amount by now. Its failure to do so indicates the number is not correct. Any eventual settlement, however, would almost certainly be well below the reported $14-billion opening bid by the Department of Justice in its talks with Deutsche.
Germany’s biggest bank fell under fresh scrutiny two weeks ago when it surfaced that the Department of Justice was demanding $14 billion to settle the bank’s mortgage lending activities during the housing bubble, before the recession. Its market value was below $17 billion as of Thursday’s close.
As of June 30, Deutsche Bank said it had 5.5 billion euros ($6.17 billion) in litigation reserves, according to a presentation the bank gave during quarterly earnings. Shares of Deutsche Bank plunged Thursday on reports that a handful of its big hedge fund clients were limiting their exposure to Deutsche Bank, though the bank has characterized those media reports as “unjustified concerns.”. (CNBC)
Many analysts find Deutsche Bank’s recent troubles “deeply concerning”. Click here for a more in-depth guide to these issues. (Sky News)
3. RBS TO PAY $1.1 BILLION IN MORTGAGE SETTLEMENT
The Royal Bank of Scotland will pay $1.1 billion to resolve claims that it sold toxic mortgage-backed securities to credit unions that later failed, the U.S. National Credit Union Administration (NCUA) said on Tuesday.
The settlement with RBS brings the U.S. regulator’s recoveries against various banks to $4.3 billion in lawsuits over their sale of mortgage-backed securities before the 2008 financial crisis.
NCUA Board Chairman Rick Metsger said the regulator was pleased with the settlement and plans to continue “to pursue recoveries against financial firms that we maintain contributed to the corporate crisis.”
The settlement resolves lawsuits filed in federal courts in California and Kansas in the NCUA’s role as the liquidating agent for Western Corporate Federal Credit Union and U.S. Central Federal Credit Union.
Under the settlement, RBS does not admit fault, the NCUA said in a statement. The settlement comes on top of a prior deal in 2015 in which RBS agreed to pay $129.6 million to resolve a similar federal lawsuit the NCUA filed in New York.
RBS in January said it had set aside 3.8 billion pounds ($4.95 billion) to resolve civil lawsuits over mortgage-backed securities, investment products packaged and sold before the U.S. housing meltdown and financial crisis in 2008.
The bank also continues to face a multi-billion dollar lawsuit by the U.S. Federal Housing Finance Agency, which has acted as the conservator for mortgage giants Fannie Mae and Freddie Mac since their government takeover in 2008. (CNBC)
4. OPEC AGREES TO LIMIT OIL PRODUCTION
OPEC agreed to the outline of a deal that will cut production for the first time in eight years, surprising traders who had expected a continuation of the pump-at-will policy the group adopted in 2014 at the instigation of Saudi Arabia.
Oil jumped more than 5 percent in New York after ministers said the group agreed to limit production to a range of 32.5 to 33 million barrels a day.
The deal will reverberate beyond the Organization of Petroleum Exporting Countries. It will brighten the prospects for the energy industry, from giants like Exxon Mobil Corp. to small U.S. shale firms, and boost the economies of oil-rich countries such as Russia and Saudi Arabia. For consumers, however, it will mean higher prices at the pump.
The agreement was possible because Iran will be exempt from capping production, a major concession by Saudi Arabia, the group’s dominant producer. Still, many of the details remain to be worked out and the group won’t decide on targets for each country until its next meeting at the end of November.
The lower end of the production target equates to a nearly 750,000 barrel-a-day drop from what OPEC said it pumped in August — more than half the forecast increase in global oil demand this year.
The agreement also signals a new phase in relations between Saudi Arabia and Iran, which have clashed on oil policy since 2014 and are backing opposite sides in civil wars in Syria and Yemen. The deal indicates that Riyadh and Tehran, with the mediation of Russia, Algeria and Qatar, were able to overcome the differences that sunk another proposal to cap production earlier this year. (Bloomberg)
5. GOOGLE REBRANDS CLOUD BUSINESS, ADDS MORE ARTIFICIAL INTELLIGENCE
Alphabet Inc’s Google said on Thursday it renamed its business-to-business cloud computing brand and enhanced some enterprise applications using artificial intelligence, the company’s latest gambit to better compete with Amazon.com and Microsoft Corp. in the lucrative cloud business.
Discussing the rebranded Google Cloud, Diane Greene, senior vice president of Google’s enterprise business, said the company has made good progress courting customers and improving its technology.
Cloud computing uses remote internet servers to store, manage and process data, and Google offers a range of apps like word processing and email, as well as the ability to host data and offer resources for developers. The new name replaces the Google for Work brand.
Analysts say Google trails Amazon and Microsoft in market share but is gaining under Greene. Although the business is not big enough to break out separately in its quarterly earnings statement, Google reported a 33 percent surge in “other revenue” in its most recent quarter, which analysts said was probably due largely to gains in cloud computing.
Greene has moved quickly to streamline engineering and appointed new leadership to beef up the company’s cloud business. This has helped improve sales, Google Chief Executive Officer Sundar Pichai said during the company’s latest earnings call.
Earlier this month, Google acquired cloud software company Apigee Corp in a deal valued at about $625 million. The company on Thursday also announced a partnership with consultant Accenture to develop cloud services for clients in industries such a retail, healthcare and finance. In addition, the company said it had woven more artificial intelligence into its apps to help employees work more efficiently. Using machine learning to crunch troves of data, Google says its apps will prompt users to, say, open files at certain times of day or propose meetings based on their habits.
Google recently added a U.S. data center in Oregon in order to speed up service and next year will open more in Virginia, Mumbai, Singapore, Sydney, São Paulo, London, Finland and Frankfurt. (Reuters)
One Hour Delivery service to launch
Sainsbury’s is to fight back against Amazon with a one-hour grocery delivery service in London. The supermarket, which recently bought Argos as part of its efforts to see off the American online retail specialist, has developed an app called Chop Chop, through which shoppers can order up to 20 items to be delivered from a local store within an hour.
Since June, Sainsbury’s has been testing the service in Wandsworth, south London, with groceries delivered Deliveroo-style using bicycles. It is now being extended across south-west and central London areas.
The supermarket first offered a delivery service by bicycle more than 130 years ago, but the latest effort is part of its bid to fight back against the encroachment of a very modern phenomenon.
Amazon began offering frozen and chilled foods via its Prime Now one-hour delivery service in Birmingham nearly a year ago, and now offers fruit and vegetables for one-hour delivery in a number of cities including London, Glasgow, Manchester and Liverpool.
In June, Amazon launched its Fresh grocery delivery service, which offers fresh fruit, vegetables and meat as well as other kitchen cupboard staples, in London and Surrey. It kicked off the service after Morrisons agreed to supply Amazon with groceries.
The arrival of Amazon has prompted the major supermarkets to up their game by trialling new delivery services. Sainsbury’s is also testing a same-day delivery service in Streatham and Richmond in London, and Brookwood in Surrey. Customers who order by 12 noon can get their shopping delivered within six hours. Tesco is also trialling same-day delivery in a few locations. (The Guardian)
Sainsbury’s is blaming falling food prices and tough market conditions for a second consecutive fall in quarterly sales. Like-for-like sales dropped 1.1%, excluding fuel, for the second quarter.
Britain’s second-biggest supermarket remains under pressure amid a fierce price war which has eroded margins at all the so-called ‘Big Four’ grocers. (Sky News)
7. ALDI ANNOUNCES £300m INVESTMENT IN UK STORES
The British arm of Aldi has said it will invest £300 million in store revamps after posting another year of record sales, although profits were again hit by the supermarket price war.
The cash will be used to spruce up its fixtures for beers, wines and spirits and fresh produce, as well as a new “food to go” feature, with more than 100 stores to be refurbished in 2017.
Chief executive Matthew Barnes said the move was the result of a “listening exercise” involving more than 50,000 shoppers. The German-owned firm added that it will open 70 new stores in the UK next year as part of plans to increase supermarket numbers from 659 to 1,000 by 2022.
Sales grew by 12% to £7.7 billion in 2015, with Aldi doubling its turnover in just three years. Operating profits dipped 1.8% to £255.6 million, which the firm put down to its “continued investment in prices”.
Aldi said 761,000 new customers walked through its doors last year, helping its market share grow to a record high of 6.2%. Aldi said its strongest-performing categories last year included fresh meat and fish and its Exquisite wine range, while sales of its Mamia nappies grew by 29%, making it the UK’s second biggest-selling brand. (Business Reporter)
8. CMS, NABARRO AND OLSWANG CONSIDER POTENTIAL MEGA-MERGER
The leadership teams of CMS, Olswang and Nabarro have confirmed they are in three-way merger talks, almost 24 hours after The Lawyer broke the news. The majority of partners at the three firms were kept in the dark until this morning, first reading about the proposed mega-merger on this website.
In a joint statement, the firms said:
“We can confirm that the leadership of CMS, Nabarro and Olswang are in discussions about a potential combination.
The leadership consider this combination would create a differentiated, modern firm that would combine scale with an exceptional depth of sector expertise.
The combined firm would provide clients with a stronger and more global platform served by 65 offices across 36 countries, underpinned by a 250 year City heritage.
There should be no assumption as to the outcome of these discussions and we will update in due course.”
All three firms held partner meetings this morning on the subject and are expected to hold votes on the merger today. (The Lawyer)
Lawyer2b considers what happens to a firm’s future trainee solicitors after a merger. Click here for the article.
9. ARGOS TO ADD 10,000 CHRISTMAS JOBS
Argos is looking to recruit 10,000 workers for the Christmas season.The retailer wants customer advisors and stock assistants to work in its 840 Argos stores during a period of high demand for its products.
Argos also wants to employ some “Fast Track” drivers for the festive season who will be responsible for distributing Argos’ goods door-to-door.
The contracts will be for three to four months, Argos said, and some of the festive workers may be able to stay on with the company if there are vacancies at the end of that period. The temporary employees will get 10 hours of work per week at a minimum. The work itself will be “fast-paced, varied, and rewarding” Argos said.
Department store John Lewis also announced as early as August that it would be recruiting 3,500 staff to help it through the Christmas season. (City A.M)
10. MAIL NEWSPAPER GROUP TO CUT 400 JOBS
The owner of the Daily Mail and The Mail on Sunday is axing 400 jobs as it battles against plunging advertising sales. Daily Mail and General Trust (DMGT) said the staff cuts were being made group-wide as part of an overhaul under new chief executive Paul Zwillenberg, who took over at the helm on June 1.
The group is also looking at closing some offices where it has a number of sites, such as in London and New York, to slash costs under the reorganisation. It said many of the job cuts have already been made among its 10,000-strong workforce.
DMGT said the move comes in the face of “challenging market conditions” as underlying advertising revenues across its newspaper division have come under further pressure. It saw dmg media underlying ad revenues fall by 4% over the 11 months of its financial year so far, but worsen in the five weeks since August 21, tumbling by 10% as print advertising plunged by nearly a fifth.
Mr Zwillenberg, who took over from Martin Morgan on June 1, is set to give more details on the overhaul and cost-cutting plans alongside full-year results on December 1. (Business Reporter)