This week’s news includes; Carillion’s collapse, Open banking delays, wild week for cryptos and Shell gets back into solar.
Below are our top 10 stories that you need to know about. Be sure to check our twitter page and Facebook page for regular posts of important headlines. Get all the important stories and insights straight into your inbox by subscribing to our mailing list here.
Opinion articles of the week;
- Lawyer2b asks whether Byron Burger’s woes mean trouble for the retail sector?
- City A.M questions whether China’s ambitious growth is sustainable.
- The Atlantic posts 8 Overly Confident, Mostly Pessimistic Predictions About Tech in 2018.
- LawCareers.net writes “Amazon Alexa – A breakthrough opportunity for computer-driven assistance’s & home automation or a cause for concern in relation to the invasion of privacy?”
1. CARILLION COLLAPSE
The government contractor Carillion went in liquidation last week after it became unable to meet its financial obligation. The main reason for the collapse was becuase it consistently had insufficient profit margins and project costs frequently exceeded expectation. Carillion has major service & infrastructure contracts including work on HS2, 200 prison contracts and the construction of hospitals.
It owed creditor banks over £900 million but these banks are expected to take a £2 billion hit. There is substantial concern regarding Carillion’s former suppliers. Carillion had thousands of suppliers with an estimate 30,000 SME’s. Many firms are owed substantial amounts of money and whether they will recover any of it remains unclear. For many, Carillion was their largest client and without payment they will be unable to stay afloat. Lloyds, RBS and HSBC have created a fund to provide support for small business customers and other supportive measures are set to be implemented. (BBC News)
Carillion had issued a number of profit warnings throughout the year yet it was still awarded numerous government contracts. This raised significant questions over the due diligence carried out prior to awarding the contract.
The company employs over 20,000 people in the UK and had 450 UK government contracts. The government has insisted that all necessary due diligence was undertaken and contingency plans are in place. Jeremy Corbyn described the collapse as a “a watershed moment” for privatisation.
The government has now ordered a fast-track investigation into the directors to establish what went wrong. Former CEO Richard Howson resigned last July after issuing a profit warning, despite receiving over £1.5 million total compensation. His contract also entitles him to receive a salary until October 2018.
City A.M asks whether smarter tech practices could have saved them.
Sky News explains how the collapse could affect the wider public.
2. APPLE FACES $38 BILLION US TAX BILL
Following changes to US tax rules; Apple faces a $38 billion tax payment. This is based on the $250 billion in cash its holds outside of the US. Corporation tax in the US has been cut by 14% , now standing at only 21%. The US corporate tax rate will no longer be paid on profits made outside of the US. A one-off payment will now replace the corporate tax for foreign profits.
Apple claims it will contribute over $350 billion to the US economy by 2023. It currently employs 84,000 people in the US and hopes to add 20,000 new ones once its new campus is complete. The location for the new campus will be announced later this year.
BBC News looks further at the US corporation tax changes.
3. OPEN BANKING
Nationwide has become the latest bank delay its launch of its open banking regime. Open Banking implementation deadline was 13th of January and was imposed upon nine of the UK’s largest current account providers. Out of the nine, five have already been given an extension by the CMA. Barclays, Bank of Ireland, HSBC and RBS all obtained six additional weeks to prepare with Nationwide as the latest addition. Only Allied Irish Bank, Lloyds and Danske were prepared to start on time. Cater Allen requires an IT system overhaul so will not be ready for another year.
Open Banking is a system providing regulated businesses access to customer’s financial data but only with the customers’ permission. This will allow consumers to better analyse their spending and obtain better retail & banking deals. Once permission has been given, banks can only block access to businesses if misuse of information or fraud is suspected.
Check out BBC News report for more on open banking.
4. FERRERO GROUP BUYS NESTLE CONFECTIONARY
Ferrero Group has revealed it will buy Nestle’s confectionary business in the US for $2.8 billion. The deal will see them acquiring 20 US brands such as Laffy Taffy and Wonka. This is the second major acquisition in recent years for Ferrero. In 2015, they bought Thorntons for £112 million.
Ferrero Group, the makers of Ferrero Rocher, is the third largest confectionary company in the world. The group has an annual turnover over 10.3 billion euros. City A.M looks closer at the deal.
It has been another tumultuous week in the world of crypto. Bitcoin made the headlines again as it fell below $10,000 for the first time since December. Altcoins also took a hammering in the markets as the markets turned bearish.
This was primarily triggered by further regulatory announcements from South Korea and China. South Korea reiterated the shutting down all cryptocurrency exchanges was still on the table, while China revealed it would also clamp down on mining. South Korea makes up 20% of the global cryptocurrency market. (Bloomberg)
It has now emerged that a probe has commenced into South Korean officials accused of insider trading. They may have been manipulating the market to benefit from these depreciations. Ironically, because cryptocurrencies are not regulated securities, there is no legislation prohibiting this conduct. The officials however, can be prosecuted on general grounds of “misuse of internal information”. (International Business Times)
Bitcoin recovered quickly though and currently trades at roughly $11,200 (21/01/2018). This is still over $2,000 higher than it was at the start of December, barely 7 weeks ago. The meteoric rise may have been a result of overzealous speculation and this modest level of growth may be its natural course.
These significant drops across cryptocurrencies can be considered a healthy market correction. Bitcoin rose by 1300%, Ethereum was up by 8500% and Ripple’s XRP rose by over 41,000%. These rates of growth are not consistently sustainable over a long term basis without fluctuation. Check out our article Bitcoin: When Will the Bubble Burst?
6. UK INFLATION RATE
UK inflation has fallen for the first time since June 2017. Inflation fell by 0.1 down to 3% in the last quarter of 2017. It is too early to claim this marks the beginning of falling inflation. Even with this minor drop, the UK is still 1% above the Bank of England’s target rate of 2%.
The cost of living has soared since the Brexit vote in 2016, following the deprecetion in the sterling. Import costs have increased as a result and retailers have been strained to absorb these costs. Wages have failed to keep up with inflation and many households face diminishing disposable income. This was reflected in the Christmas sales figures as high-street retailers struggle. (Sky News)
7. SHELL BACKS SOLAR (again)
Royal Dutch Shell is to buy a stake in Silicon Ranch Corporation, a solar firm. It will acquire a 44% in the firm for $217 million. The company has solar plants across the US with a total capacity of 880 megawatts.
This is the latest move in Shells re-entry into the solar industry. Shell sold its Siemens Solar in 2008 and sold off the majority of its solar businesses in 2016. With the huge depreciation in oil prices over the past 3 years, renewable energies are becoming increasingly prominent and profitable. In November, it doubled planned investment into new energies to $2 billion. Shell also acquired electric car maker NewMotion late last year.
Oil prices have recovered up to their highest levels since 2015 and this is certainly sparking a renewed spending spree in the oil sector. Reuters looks closer at Shells move into renewable energy.
8. DYSON LEGAL BATTLE
Dyson has sued its US rival Shark over who’s vacuums have the greatest suction. Shark claims that it has the most powerful vacuum cleaner and emphasises this in its adverts. Dyson however, claims that this constitutes misleading advertising. Shark performed tests comparing its IF2 Cleaner to Dysons V8, both on a setting lower than the maximum power. They claimed this would be more appropriate but Dyson firmly disagrees.
The case was filed in the UK High Court and Shark has pulled its adverts with these claims. (City A.M)
9. DEUTSCHE TO MOVE HUNDREDS NOT THOUSANDS
Deutsche Bank has announced that it will be moving only a few hundred jobs out of London. The decision to move jobs was in response to Brexit. The German bank deemed it necessary for business to place more staff within the EU, particularly as the possibility for financial services passporting rights for the UK dwindled. Deutsche had initially stated that it could move up to 4000 jobs to from London to its headquarters in Frankfurt.
A senior official has told reports that “not thousands will move from London, but rather hundreds.”
This comes as welcome news for the city of London but plans for banking Brexit exodus are still largely in place. A number of major banks have all announced plans to move jobs out of London after Brexit, with Frankfurt as the main destination. Some of the banks include; Bank of America, Barclays, Goldman Sachs and JP Morgan.
Sky News reports on Deutsche Bank’s announcement.
10. H&M TRIES TO REPAIR DAMAGE
H&M is attempting to resurrect its public image after being embroiled in a PR disaster. The “coolest monkey in the jungle” hoodie modelled by a black child caused huge social media backlash and significant damage to its image. H&M quickly pulled the hoodie from all stores and issued a public apology. This did not stop mass protests and even the ransacking of a store in South Africa.
They have now hired a global head of diversity and inclusion. This has been deemed by H&M as significant first step to mitigate the reputational damage and prevent future blunders. Bloomberg reports here.