The week’s news included; Wirecard scandal explained, Intu falls into administration, Corporations boycott Facebook wiping $56bn off market value, Nestle pulls KitKat out of fairtrade
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:
- FT – Ruling the roost: how chicken shops conquered the high street.
- City AM – Beyond Petroleum: Is BP finally moving from rhetoric to reality?
- The Fashion Law – As Companies Continue to Cancel Orders, Withhold Payment, Are Force Majeure Claims Really a Safe Haven?
- E Financial Careers – Mid-ranking bankers foresee nightmares with remote interns
1. WIRECARD SCANDAL
Germany payments firm Wirecard has filed for insolvency after a €1.9 billion blackhole was found in its books. Last week, it transpired that not only was €1.9 billion missing, the likelihood is that the money never existed to begin with. The CEO was arrested on suspicion of fraud and released on €5m bail. The payments company is currently owing creditors a huge $4 billion. In the UK, the FCA ordered Wirecard to halt all regulated activities due to the scandal and prohibited it from disposing of any assets. Understandably, Wirecard’s share price has collapsed by over 90% in the past week.
The hole was exposed after its auditor EY refused to sign off Wirecard’s 2019 accounts due to irregularities regarding the location of funds. EY claims that this was an “elaborate and sophisticated” case of fraud. It transpired however, that EY had also failed to carry out a proper audit or even ask Wirecard for bank statements for over 3 years. Softbank said it may sue EY over its role in this enormous scandal. The fallout from this scandal will be significant as the investigation begins and more details come to light. This could be the impetus for huge changes to the audit sector which has been plagued by high profile scandals.
2. INTU COLLAPSE
Shopping centre owner, Intu, has fallen into administration as tenants fail to pay during coronavirus lockdowns. Shares of Intu have been suspended but their sites will remain open. The coronavirus lockdown has exacerbated the already severe struggles of Intu. The landlord is sitting on £4.5 billion of debt amidst a declining retail sector. Last year, Intu posted a £2 billion loss with 2020 likely to be significantly worse. Before lockdown, large retailers such as Debenhams and John Lewis had requested rent reductions due to wider struggles. During lockdown, numerous retailers such as Burger King and Yo! Sushi have openly said they would not be paying rent at all. New data shows less than 15% of rent was paid by retailers to landlords in the latest quarter.
With working from home becoming the new normal for the remainder of the year, this poses a huge existential risk for both retailers and landlords. Furthermore, customers may have become accustomed to online shopping so sales may never fully recover. Intu is one of the largest retail landlords and own sites such as the Trafford Centre and Lakeside Shopping centre.
3. J&J TALC LAWSUIT
Johnson and Johnson’s $4.69 billion damages pay out in its Missouri talc lawsuit has been reduced to $2.12 billion. J&J appealed against the initial jury verdict and sought to have it dismissed entirely. The Missouri Court of Appeals rejected this motion and instead dismissed just 22 of the claims. Thousands of women launched lawsuits against J&J claiming their talc products caused ovarian cancer. The case forms part of nearly 20,000 lawsuits against the giant over its talc body powders. Historic internal records also show that for over 30 years, J&J powders did test positive for minute amounts of asbestos. The plaintiffs had shown that J&J attempted to cover this up for decades. J&J assert that their products do not cause cancer. The consumer goods giant will now appeal the decision to the Missouri Supreme Court.
4. SOCIAL MEDIA BOYCOTT
A number of huge corporations have halted advertising on social media over tech firms’ failure to crack down on hate speech. Coca-Cola, Unilever and Verizon are amongst over 90 companies which have halted advertising on Facebook in support of the movement #StopHateforProfit. This boycott is centred on Facebook who has been notorious for failing to takedown fake news and hate speech. The companies boycotting Facebook advertising are calling for great accountability and transparency. On Friday alone, Facebook shares fell 8.3% due to this boycott, wiping $56 billion off its market value. Mark Zuckerberg lost $7.2 billion in net wealth due to this decline.
Facebook announced on Friday that it will tag all “harmful” but “newsworthy” posts that are not removed from its site. Falling in this category will be adverts from politicians, even if they are found to be untrue, unless they incite violence. Facebook faced backlash last year for defending its decision to keep untruthful adverts up. Twitter on the other hand, banned all political ads. These latest measures announced by Facebook, though a step in the right direction, may not be enough to secure the trust of the people.
5. HSBC DISNEY LAWSUIT
HSBC is being sued for £1.3 billion over its role in an alleged “sham investment opportunity” involving Disney. The bank developed and marketed, Eclipse Partnership which offered a number of Disney film investment schemes. The investment opportunities were open to investors between 2006 and 2008 and many investors were not high net worth. Investors would then receive return on their investment through film rights from popular Disney movies such as the Pirates of the Caribbean’s series. It transpired however that no Disney film rights were exploited by Eclipse and the investment just formed a source of funding for Disney. Therefore, claimants made no return on their investment and lost out heavily. They are suing HSBC for fraudulently developing and promoting the scheme as HSBC allegedly received £25 million in fees. Furthermore, in 2013 HMRC stated that the Eclipse Partnership was in fact a tax avoidance scheme and investors have faced huge tax bills as a result of their involvement. 371 investors are seeking £1.3 billion in damages from HSBC.
6. JD SPORTS
JD Sports has announced it will buy Go Outdoors out of administration. The sports retailer put Go Outdoors into administration just two weeks ago after poor sales were exacerbated by covid-19. JD will buy the firm out of administration through another subsidiary entity for £56.5 million and will seek to restructure the business. The business will now be fully subsumed into JD’s group and existing staff will be transferred. This will save most of the 2400 jobs at Go Outdoors. Go Outdoors posted a loss of roughly £40 million in the half year to August 2019. Rising overheads and low footfall meant its business was unsustainable in its current form.
7. NESTLE PULLS KITKAT OUT OF FAIRTRADE
The cocoa for KitKats will no longer be Fairtrade, and instead will be sourced from Nestle’s sustainability programme “Cocoa Plan”. Sugar will now be sourced from the UK and France. Over 27000 cocoa and sugar farmers will be affected and will lose out on a total of £1.6 million. Fairtrade farmers receive a minimum of £1900 per tonne of cocoa beans. An additional premium of £190 per tonne goes to farming cooperatives to be invested in community projects. Farmers under the Cocoa Plan, which is Rainforest Alliance certified, will receive premiums of £47.90 per tonne. These premiums however, will go directly to farmers.
There will be questions of the fairness for farmers considering Nestle made global profits of £10 billion last year. Nestle has said it will try and mitigate the impact on farmers. Cocoa farmers typically earn just 5% of the price of a chocolate bar. The lion share of the cost goes to the brands such as Nestle. Around 6% of the world’s cocoa is produced on Fairtrade terms. In 2016, Mondelez also removed the Fairtrade Logo from Cadbury’s Dairy Milk in favour of its own sustainability programme.
8. CROSSFIT BOSS STEPS DOWN OVER GEORGE FLOYD COMMENTS
CrossFit has been sold for an undisclosed sum amid controversy around the current owner’s comments about George Floyd. Gregg Glassman was founder and CEO of fitness brand CrossFit. Glassman made offensive comments about George Floyd who was brutally killed by police, sparking backlash from major partners and affiliates. Rebook, its official outfitter, announced it would end its partnership with CrossFit while over 1000 affiliated gyms announced plans to cut ties. While Glassman later apologised for his comments, this was not accepted and plans to cut ties remained in place. To save the brand, Glassman announced he would step down as CEO and has sold the business. Eric Roza, a tech boss and owner of a CrossFit gym will take over at the helm. Crossfit is estimated to be worth $4 billion.
9. SHELL RESTRUCTURING
Shell has announced it will restructure its business as part of a drive towards zero-carbon emission fuels. The oil supermajor will now seek to invest heavily in its new energies business. Shell revealed plans in 2016 to invest as much as $6 billion over four years. It even aims to become a net-zero emissions energy business by 2050. Shell will now slash jobs and undertake a “comprehensive review of the company”.
Oil companies are seeking to shift focus as the world’s dependency on fossil fuels begins to dwindle. BP has also announced 10,000 job cuts as the coronavirus outbreak saw a collapse in oil demand and prices.
10. WHATSAPP PAY BLOCKED
WhatsApp Pay has been suspended by authorities in Brazil just days after its launch. The payment system was introduced by Facebook into WhatsApp for its 120 million Brazilian users. Users could send money or purchase goods and services from small businesses. Brazil’s central bank however said it was blocking WhatsApp Pay to maintain “an adequate” and “competitive” mobile payments market. It will now launch a deep investigation into the system. WhatsApp Pay’s partners, Visa and Mastercard, were ordered to immediately halt all payments via WhatsApp.
This rejection is symptomatic of a wider reluctance to give Facebook a foothold in the world of payments. Facebook’s planned cryptocurrency, Libra, has been wholly rejected by governments globally. They fear Facebook gaining control over payments would make the tech giant untameable. Central banks however, while widely opposed to Facebook’s moves into cryptocurrencies, the Bank of England along with the central banks of the Eurozone, Canada, Japan and others, are drawing up plans to launch a joint cryptocurrency. The world of payments is changing but central banks are determined not to be dethroned.