The week’s news included; Malaysia sues more banks over 1MDB, UK derivatives market loses £2.3 trillion in month due to Brexit, Amazon wins tax lawsuit against EU, Microchip shortage batters industries and forces production cuts
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:
- BBC News– Scottish independence: Could the Supreme Court rule on a referendum?
- City A.M – The GDPR is three years old this month – has it really disrupted the business of data?
- Wall Street Journal – The IRS Is Coming for Crypto Investors Who Haven’t Paid Their Taxes
1. MALAYSIA SUES BANKS OVER 1MDB
Malaysia’s sovereign wealth fund 1MDB is suing a cohort of banks and related individuals in relation to its extraordinary scandal. Deutsche Bank, Coutts, and JP Morgan and 20 individuals are all under fire including financier Jho Low and the former Malaysian prime minister, Najib Razak. They are being sued for fraudulent breach of duties, conspiracy, and breach of trust. 1MDB alleges all parties unlawfully enriched themselves during the scandal. Jho Low is still currently on the run and denies any wrongdoing. Razak has been sentenced to 12 years in prison over his involvement.
This latest legal action forms part of the government’s drive to recover the $23 billion in losses suffered by the fund. The money was siphoned away from intended development projects and spent on luxuries by Jho Low and associates. Some of the spending included private jets, Picasso artwork and even funding for the Wolf of Wall Street film. Goldman Sachs already struck a $3.9 billion settlement with Malaysia last year over its role in the scandal.
2. UK GOVERNMENT NATWEST SHARE SALE
The UK government has sold a £1.1 billion stake in Natwest, bringing the taxpayer closer to a minority stake in the bank. Natwest, formerly RBS, was bailed out by the UK government for £45 billion in 2008 during the financial crisis. Since 2015 however, the government began gradually selling off its 79% holding to return the bank to private ownership. The government currently holds a 54.8% stake, after selling off 5% last week. The share price of Natwest is still down over 50% from the price paid by the government in 2008. This sale will provide welcome windfall for the government as it clocks record borrowing figures. Last year, the UK faced a £303 billion deficit driven by the coronavirus response.
3. UK DERIVATIVES MARKET TANKS
The City of London is beginning to feel the effects of Brexit as the derivatives trading market tanked by £2.3 trillion in one month. US and EU platforms scooped up trading activity as the percentage of euro-based swaps carried out of British venues fell from 40% last year to just 10% in March. EU firms are currently blocked from using UK based platforms to trade derivatives. Experts predict a further exodus of derivatives trading as US and EU firms gain new business and expand. As of 2017, the London Clearing House, part of the London Stock Exchange, cleared €927 billion of Euro-denominated financial contracts every single day.
It has been a busy week for Amazon. It won a tax case against the EU, launched a $1 billion green bond and announced 85,000 new jobs across the US, Canada and the UK.
Amazon won a legal battle against the EU over alleged illegal state aid tax benefits in Luxembourg. The EU claimed that Amazon received a tax deal from Luxembourg in 2006. This deal meant that 75% of Amazon’s profits were not taxed while other local companies were subjected to full tax. In 2017, the EU Commission ordered Amazon to pay €250 million in back taxes to Luxembourg. The EU General Court, however, has found that there was insufficient evidence to prove this claim. Consequently, it overturned the EU Commission’s order.
Amazon also issued its first sustainability bond, raising money to invest in renewable energy, clean transport and green, affordable housing. The tech giant successfully raised $1 billion and has revealed plans for its investments. Amazon aims to run all operations using renewable energy by 2030 and reach net zero carbon emissions by 2040.
Last week, the tech giant also announced it would be hiring 75,000 workers across US and Canada while a further 10,000 would be hired in the UK. New warehouses will be built to deal with increased demand for online goods.
5. MICROCHIP SHORTAGE
A global shortage of microchips is battering industries across the world. Automakers are being forced to cut production as supply is far too low to meet demand. This shortage could cost the industry a huge $110 billion. The financial woe for automakers is compounded by the loss of revenue during the pandemic, where the sale and delivery of new cars ground to a halt. Other industries are facing the pinch too. Apple was forced to delay the launch of its latest iPhone due to the shortage. Prices of TVs, laptops and tablets are surging by up to 30% due to the shortage. Sony’s PlayStation 5 and Microsoft’s Xbox Series X are expected to be in short supply for another year.
Demand for microchips has far outstripped supply as now, all gadgets, appliances and vehicles are fitted with them. Furthermore, the pandemic has accelerated demand for home entertainment such as TV and gaming consoles meaning microchip supplies are further squeezed. IBM’s President has warned that the computer chip shortage could last two years. Many other analysts believe the crisis will get worse before it gets better.
75% of the world’s semiconductors are produced in East Asia. The US and European governments are pushing for local production of chips to be ramped up. Whether this can be achieved remains to be seen.
6. PREMIER LEAGUE BROADCASTING RIGHTS
The Premier League has renewed its broadcasting deals with the BBC, BT, Amazon and Sky Sports for 2022 to 2025. This will essentially be a rollover from the previous deal, given the damaging impact of COVID-19. None of the broadcasters need to go through the extended tender process and the costs of broadcasting rights will be largely the same.
Over recent years the value of Premier League broadcasting rights has skyrocketed. In 2018, Sky and BT paid £4.5 billion for the rights to show live matches. This has been fuelled by added competition from Amazon, who also secured rights to broadcast a handful of live matches. Sky will continue to the host the largest number of live matches under this latest deal.
7. TESLA STOPS ACCEPTING BITCOIN
Tesla will no longer accept Bitcoin as payment for its vehicles. In March, Tesla announced it would accept Bitcoin as payment for its vehicles. Last week however, founder Elon Musk cited the environmental impact of Bitcoin mining as the reason for the decision to stop accepting Bitcoin. Global Bitcoin mining uses more electricity than most sovereign nations and concerns are growing about the impact to the environment. Bitcoin miners are beginning to turn to renewable energy, but this is not currently widespread.
Bitcoin slumped 10% in response to the announcement. In February, Tesla bought $1.5 billion worth of Bitcoin. Musk has confirmed tesla will not sell its holding and will only transact once the industry becomes greener.
8. DELTA REQUIRES VACCINES
Delta Air Lines will require new employees to have been vaccinated against coronavirus. Current employees will be exempt from the requirement. Such employees who choose not to be vaccinated however, could be prohibited from working on international flights. The US airline has become one of the largest companies to introduce such a requirement.
This decision raises several legal and social issues. There is concern that such a policy could constitute discrimination and create stigma against those unable or unwilling to get the vaccine, for health reasons or otherwise. On the other hand, given the issue of new variants, widespread vaccination is touted to be the best way to protect against cross border infection.
Check out our insight article explaining the legal issues in the UK about obligatory vaccinations.
9. DEBENHAMS: END OF AN ERA
Last week, Debenhams closed its doors for the last time. Only 28 stores remained last week as it finished selling off stock. Debenhams has been one of the landmarks of our high streets for decades but after 242 years it was forced to shut up shop.
This may signify a watershed moment in the world of shopping. Shoppers have largely shifted away from brick-and-mortar shops in favour of fast online retailers. That being said, stores like Primark have been able to weather the storm, despite having no online presence. Once non-essential retail reopened in April, shoppers flocked to Primark in such large numbers that the store would return the £121 million it received in government furlough scheme cash. Brick-and-mortar shops do have a future on our high street, but they need limited overheads and a USP that can draw in enough footfall. Unfortunately, Debenhams did not have this formula.
Our insight article explores what is in store for the high street going forward.
10. WENDY’S RETURNS TO THE UK
American fast food chain Wendy’s has revealed plans to relaunch in the UK after pulling out two decades ago. Wendy’s will open its first UK store in Reading and could open up to 400 restaurants. The opening is expected to create 12,000 jobs. It will later operate using a franchise model. Wendy’s will compete with the likes of McDonald’s and Burger King. The chain will be available on UberEats but not Deliveroo. Wendy’s was founded in 1969 and is worth over $5 billion. The chain turned over $1.73 billion in 2020.