This week’s news includes; over 1 billion Deutsche Bank settles with US authorities, Uber loses more than $800m in 3rd quarter, Nokia sues Apple, Bitcoin price surges by over 79% in 2016.
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Opinion articles of the week:
- Are European banks headed for a bailout? Bloomberg takes a closer look at the issues facing European banks.
- The UK is ‘living on Fantasy Island’ over EU divorce demands according to a new report. Sky News looks into this.
- Are the regulators getting soft? FCA fines fall 97% and City A.M explores.
1. DEUTSCHE BANK SETTLES WITH DOJ
Germany’s Deutsche Bank says it has agreed a $7.2bn (£5.9bn) payment to US authorities over an investigation into mortgage-backed securities. The sum, which needs final approval, is far lower than the $14bn the US had asked the bank to pay in September.
That looming fine had caused concerns that a failure of the bank could pose a risk to the global financial system. Credit Suisse also announced a similar deal, while Barclays is now under investigation too. The sale of residential mortgage-backed securities played a significant role in the 2008 financial crisis.
Several banks in the US have been subject to investigations over allegations of giving mortgages to unqualified borrowers, then repackaging those loans as safe investments and selling the risk on to others. The inquiries related to deals done between 2005 and 2007.
Meanwhile, Credit Suisse has said it has agreed a $5.28bn deal to settle its own dispute with US authorities over mortgage-backed securities. The Swiss bank will pay US authorities $2.48bn, and will also give consumers $2.8bn in compensation over the next five years. (BBC news)
Deutsche Bank AG moved to reassure employees of its financial strength, Bloomberg looks into this.
2. BULK INTERNET DATA COLLECTION RULED ILLEGAL BY EU COURT
Theresa May’s attempt to introduce greater surveillance powers has suffered a major set back after an EU court ruled part of the UK’s new laws are illegal.
The highest court in Europe has ruled that electronic personal data from email and other online communications cannot be retained on a general and indiscriminate basis such as that required by the UK’s Investigatory Powers Bill (IP Bill), dubbed the snooper’s charter.
In a case initially brought by David Davis before being appointed Brexit minister, and Labour deputy leader Tom Watson with privacy group Liberty, the European Court of Justice today found that EU laws protecting privacy in electronic communications prohibit such national legislation.
The judgement found that a mass retention of data such as that required by the IP Bill “exceeds the limits of what is strictly necessary and cannot be considered to be justified within a democratic society”.
The IP Bill, which passed its last hurdle in the Lords last month, forces internet service providers to hold web history data on all users for 12 months, and had been expected to soon get royal assent making the law official.
The ECJ said such national laws were permitted if it was targeted, clear and precise for fighting serious crime and “must provide sufficient guarantees of the protection of data against risks of misuse”.
It also ruled that unless urgent, any access to collected data by authorities should be subject to prior review by a court or an independent body and that authorities should notify the person concerned that access to their data has been granted. (City A.M)
3. UBER LOSES MORE THAN $800m IN 3rd QUARTER
Even as Uber Technologies Inc. exited China, the company’s financial loss has remained eye-popping. In the first nine months of this year, the ride-hailing company lost significantly more than $2.2 billion, according to a person familiar with the matter. In the third quarter, Uber lost more than $800 million, not including its Chinese operation.
At the same time, the company’s revenue has continued to grow even after leaving the world’s most populous country. Uber generated about $3.76 billion in net revenue in the first nine months of 2016 and is on track to exceed $5.5 billion this year, said the person, who asked not to be identified because the information is private.
Uber, a closely held company based in San Francisco, has stayed mum about its financial performance even as its valuation has soared to $69 billion, making it more valuable on paper than General Motors Co. and Twitter Inc. combined. Uber’s bookings—the total combined value of the fares that riders pay—were $5.4 billion in the third quarter, an increase from $5 billion in the second quarter and $3.8 billion in the first, according to the person.
The slowdown in Uber’s bookings growth can at least partially be explained by the company’s decision to leave China. Uber said on Aug. 1 that it came to an agreement with Didi Chuxing to exit China in exchange for 17.5 percent of the Chinese company. As part of the deal, Didi invested $1 billion in Uber. Uber’s third-quarter financials don’t include the business in China, which were part of the previous quarterly results.
Net revenue—the amount of money Uber generates after it pays its drivers—was $1.7 billion in the third quarter, growing from $1.1 billion in the second quarter and $960 million in the first, according to the person.
Uber’s financials have leaked in dribs and drabs. The third-quarter numbers were reported earlier by the technology news site The Information. Bloomberg previously reported Uber’s financial performance in the first half of this year. A spokesman for Uber declined to comment.
The company is said to have lost at least $2 billion last year and is on track to pile up a loss of at least $3 billion this year. Those are rough figures that may underestimate how much money Uber is losing and don’t include interest, taxes or stock-based compensation. (Bloomberg)
4. NOKIA SUES APPLE IN PATENT DISPUTE
Finland’s Nokia says it is suing Apple for breaching 32 technology patents. Nokia’s law suits have been filed in three courts in Germany and one in Texas. The claims cover patents for displays, user interfaces, software, antennas, chipsets and video coding.
On Tuesday, Apple started legal action against Acacia Research and Conversant Intellectual Property Management, alleging they had conspired with Nokia to extort money from Apple. Between 2009 and 2011 the two companies were locked in a series of tit-for-tat legal battles over the patents for the technology they used in their mobile phones.
At the time Nokia was still the world’s leading mobile phone manufacturer, but was being rapidly undermined by the rise of Apple’s iPhone. In the end the two companies settled, with Apple making an undisclosed one-off payment, and making further royalty payments to use Nokia technology.
Nokia eventually sold its mobile phone business to Microsoft in 2014, though earlier this year it said it would re-enter the mobile phone business by licensing its technology and brand name to a new Finish firm called HMD, which is making Nokia-branded phones once more. (BBC News)
5. US IPO MARKETS
Here lies the IPO market of 2016, the quietest year for listings since the financial crisis.
Despite the S&P’s 11 percent gain, despite the average 18 percent return for successful IPOs, despite volatility that eased from 2015, the last 12 months have seemed as silent as a graveyard for deals. Going by the number of listings and the amount raised, it hasn’t been this dead for offerings since 2009.
Volatility deserves much of the blame. Even though the VIX has averaged 15.93 this year versus 16.68 in 2015, most of last year’s equity turbulence occurred in the final few months. It takes time for IPOs to return after volatility calms, and the VIX never provided a large enough windows for the IPO market to bounce back. Volatility spiked in each quarter of 2016, sapping the confidence of IPO investors.
New York Stock Exchange president Tom Farley warned in January that patience was needed before listings revived. This week, he said NYSE is doing more pitching and planning for 2017 IPOs than at any point this year. Farley touted a growing backlog of both public and secret IPO filings.
Other positive signs include heightened valuations and expectations for a business-friendly Trump administration, but volatility spikes can come from anywhere and will continue to dictate the listing window for many IPO candidates. (Bloomberg)
6. BARCLAYS REFUSES TO SETTLE WITH US DOJ OVER ‘CRAPTACULAR LOANS’
Barclays is refusing to settle with the US Department of Justice over allegations it deliberately sold mortgage bonds to investors that it knew contained “craptacular loans”. The DoJ’s legal filing outlines an array of colourful descriptions of the types of mortgages that it alleges were used by Barclays to package up in bonds – known as residential mortgage bond securities – which could be sold on to investors.
It accuses Barclays of selling investors RMBS “backed by loans it knew were made to borrowers who were not creditworthy and which were supported by house appraisals it knew were inflated”. The DoJ said Barclays was not lending to customers itself but using loans from mortgage lenders Fremont, New Century, WMC, Countrywide, and IndyMac as the basis of the bonds it was selling.
To support its case the DoJ published conversations between bankers which it claimed proved they knew they were selling poor investments. They included:
- One Barclays banker in charge of reviewing the deals observed that one loan pool was “about as bad as it can be”.
- On another occasion, the same banker said this “scares the shit out of me”. He also remarked about a package of loans from Wells Fargo that “we have to eat their shit loans”.
- A Barclays salesperson described “the deluge of Fremont garbage being put out there”, the DoJ said.
The filings do not contain any clues about the size of the settlement that the DoJ was hoping to reach with Barclays, although the bank is thought to have been prepared to pay up to $2bn (£1.6bn). There are reports the DoJ wanted double that amount. (The Guardian )
7. COURT FINDS IN FAVOUR OF RBS IN MIS-SELLING CLAIMS CASE
The High Court has today found in favour of Royal Bank of Scotland as the bank faced claims it had caused a real estate company losses from interest rates swaps mis-selling and Libor manipulation.
Manchester-based Property Alliance Group (PAG) was suing the bank for more than £30m, alleging it had been mis-sold four interest rate swap products and that it had wrongly been moved into the Global Restructuring Group.
The real estate company also claimed key managers at the lender knew Libor, which its interest rate swap products were pinned on, was being fixed.
However, in a judgment handed down today, Justice Asplin dismissed the claim on all of the grounds.
“We are pleased that the court has ruled in our favour in this case,” said an RBS spokesperson. “We believe the judgment provides helpful clarification of the law on issues relating to Libor, the sale of interest rate swaps and the treatment of customers in the bank’s GRG division.” (City A.M)
8. BITCOIN PRICE HITS 3 YEAR HIGH
The value of the Bitcoin virtual currency has hit a three-year high with each one now worth about $900 (£730). At the start of 2016, single coins were only worth around $435 but their value has climbed steadily all year.
The steady upward progress has continued despite regular hack attacks on virtual currency exchanges in which coins have been stolen. Experts said the rise in value was linked to the long-term depreciation of the Chinese Yuan.
The Chinese currency has dropped about 7% in value during 2016, said Reuters. The majority of Bitcoin currency trading takes place in China as it allows people to skirt restrictive local laws that limit how much money Chinese people can swap.
Charles Hayter, founder of the Cryptocompare website that watches virtual currencies, said global political uncertainty and Indian moves to control paper currency were also driving people to buy Bitcoins. If those trends continued, he told Reuters, many more people may be tempted to buy Bitcoins as they could be seen as a “flight to safety”.
Hackers have also been tempted by the rising value of the virtual coins. In August Hong Kong-based digital currency exchange Bitfinex suffered a major hack attack in which bitcoins worth $65m were thought to be taken. Bitcoin values dropped about 10% when the news of the hack attack was made public
The virtual currency has yet to reach the heights it managed in late 2013 when each coin was worth more than $1,000. The total value of all bitcoins in circulation has now surpassed $14bn. (BBC News)
9. SADIQ KHAN INTRODUCES MINIMUM WAGE FOR LONDON BUS DRIVERS
The mayor of London’s office announced today that a new ‘minimum professional London bus driver wage’ will be introduced to apply to all new Transport for London (TfL) contracts awarded to bus companies from April next year.
Sadiq Khan said he was taking the first step towards fulfilling his election manifesto promise to provide a new fairer deal for London’s 25,000 bus drivers by bringing in a minimum salary of £23,000.
TfL will apply this to all new contracts awarded from 1 April 2017, rising with inflation thereafter.
While £23,000 already represents the average starting salary of a bus driver today, there are variations locally and some drivers are paid less than this. The mayor’s office said the new professional driver wage will “prevent a race to the bottom where competition for bus routes leads to pay for new starters reducing over time”.
Khan made a number of manifesto pledges concerning transport, and since taking office has announced that fares will be frozen until 2020. He also introduced a new bus ‘Hopper’ fare in September, which allows passengers to change onto another bus or tram for free within one hour of touching in at the start of their journey. (City A.M)
10. UK THIRD QUARTER GDP GROWTH REVISED UP TO 0.6%
The UK economy grew by 0.6% in the third quarter, according to official figures, faster than previous estimates. Growth for the July-to-September period had originally been estimated at 0.5%.
New data from the Office for National Statistics (ONS) suggested that the business and financial sector was more active than previously estimated.
The ONS also said that growth in the third quarter of the year was helped by “robust consumer demand”.
However, the ONS trimmed its estimates of growth in the first and second quarter of the year. It now says the economy grew by 0.3% in the first quarter, compared with an earlier figure of 0.4%, and cut its estimate for second-quarter growth to 0.6% from 0.7%.
Ruth Gregory, UK economist at Capital Economics, said the figures suggested that June’s Brexit vote had had little impact on the economy and that growth in the final quarter of the year would be positive. (BBC News)