11 June 2015
BUSINESS AND THE CITY
VANISHING BANKERS: Stuart Gulliver’s reshaping of HSBC has gathered pace. The long serving chief executive said that the bank will, over the next two years, cut 10% of its workforce – 25,000 jobs or more, of which around a third will be in the UK. Not only is Gulliver trying to cut costs in the banking giant’s operations, he is quietly repositioning the bank back to its C19th roots in the Far East. European operations are not profitable enough and are over –regulated, and some of the new jurisdictions that HSBC has entered in the last thirty years or so have also proved troublesome and will be sold – such as Brazil and Turkey. And costs are lower in India and the Far East.
This marks the end of the HSBC’s attempts to be a worldwide bank, which made it for a while the largest bank in the world. Now the emphasis is on the bottom line which means growing the business in areas which have underlying economic growth, such as India and China where government is pleased to see banking capacity, and also releasing capital from marginally profitable businesses. This could even mean the sale of the bank’s retail banking operations in the UK and Europe; and the well trailed likelihood of moving the bank’s world headquarters back to Hongkong, or at least some point east.
Deeper still is probably HSBC’s concern about regulation and government interference. Fines and penalties have leached capital out of the banks’ balance sheet; Gulliver suggests extra regulatory processes and charges account for US$11bn of costs over the last few years – at a time when HSBC and similarly affected banks were trying to rebuild their balance sheets. Given that the eastern sun shines ever warmer, it makes sense for the bank to move back that way.
ARRIVING BANKER: Deutsche Bank – the largest German bank, which merged with Bankers Trust of New York more than a decade ago – has appointed John Cryan as Chief Executive. He takes on the job from next month. Deutsche has long been run by high profile investment bankers – latterly the joint duo of Anshu Jain and Juergen Fitschen who are both departing after sustained shareholder criticism of the bank’s failure to restore profitability and continuing regulatory turmoil. Cryan also comes from that investment banking background – SG Warburg and UBS – but in contrast to most investment bankers he is said to be a quiet, modest man, fascinated, allegedly obsessed, by detail. Perhaps not obvious leadership material, but a man for the times at Deutsche, which has political issues in Germany – Cryan has worked in Germany and speaks the language – and which also needs close financial management to strengthen its capital base. Expect cost cutting and a fierce focus on the bottom line.
STEEL YOURSELVES: Tata Steel, part of the major Indian owned industrial conglomerate which owns Land Rover Jaguar in the UK, is facing strike action in its UK steel operations. Tata Steel is the largest steel company in Britain, a position largely achieved by buying the remains of British Steel, the former government owned steel monopoly. It employs 13,000 workers on several sites, mostly in the north of England. The dispute is over changes to Tata’s pension fund arrangements whereby the existing final salary scheme is being shut to new members and benefits to existing members are being reduced. A one day strike has been called for 22nd June and neither side seem inclined to talk more at the moment. This is an odd subject for a strike, given that most final salary schemes are under attack, but it is said to reflect workers deeper concerns about Tata’s intentions in regard to its UK based steel businesses, some of which are believed to be for sale.
FILL YOUR BOOTS: Boots the Chemist is the latest retail chain to announce that it is cutting head office and support jobs. The leading UK chemist, which merged with Walgreens, its American counterpart, last year, has announced that it is to end 700 functions, about 400 at its head office near Nottingham although some of the staff affected will be redeployed to other parts of the business. Like the supermarket chains, Boots is mostly cutting out layers of middle management to try to improve communication and efficiency – and to cut costs in an environment where, although clear market leader as standalone chemists, it is increasingly competing for market share on some key lines with the supermarket chains. Whether you can find a manned till in a Boots store will still be a conundrum though.
MORRISONS: Regarded for several years as the most troubled of the UK major supermarket chains, Morrisons is starting to see the long promised recovery in its trading position, albeit too late to save chief executive Dalton Philips, who was pushed out of the sliding doors earlier this year. His replacement is David Potts, who until joining Morrisons had spent his whole working life at Tesco. Potts has the advantage of the enthusiastic support of Morrison’s former chairman and founder, Sir Ken Morrison, and widespread shareholder support which enabled him to rapidly change most of the operating board of the Yorkshire based retailer and redeploy staff from behind the scenes to the shop floors. Already this seems to be paying off – sales were up 1% in the quarter ended May and customers are reporting cleaner stores and better service.
Now Potts is reviewing the range of goods sold by Morrisons to more closely align them to shopper requirement and to cut prices on key items, in line with Tesco Value and Sainsbury Basics, the value items getting the shoppers in the shop and hopefully spending on the more profitable items alongside.
Digging Deep: After several years of pressure from competition regulators on either side of the Channel, Eurotunnel has finally sold its stake in its cross channel ferry business MyFerryLink. Although the business was loss making, Eurotunnel firstly tried to persuade the authorities to let it hang on to it as an alternative route between France and England, then when that argument failed to convince, to let it sell to a workers cooperative formed by MyFerryLink workers and managers. In the end they could not raise the money and so Eurotunnel has sold to DFDS, a Danish ferry operator, which already operates ferries in the cross channel shuttle business. So it is unlikely that this resolution to a long running saga will have any effect on competition for cheap ways to France this summer.
KEY MARKET INDICES: (at 9 June 2015; comments refer to change on week; $ is US$)
Interest Rates:
UK£ Base rate: 0.5%, unchanged: 3 month 0.55% (unchanged); 5 year 1.49% (increase).
Europe€: 1 mth -0.09% (slight increase); 3 mth -0.45% (unchanged); 5 year 0.44% (increase)
US$: 1 mth 0.22% (steady); 3 mth 0.38% (steady); 5 year 1.79% (increase)
Longer term rates across the world have shown increase over the past 7 days. Whilst this has been predicted for some time, we have seen it occur several time over the last years only for rates to fall back after a week or two
Currency Exchanges:
£/Euro: 1.35, £ slightly weaker
£/$: 1.52, steady
Euro/$: 1.12, $ strengthening
Gold oz: $1172, falling back
Oil, Brent Crude: $62.69, weakening, but recent patterns
London Stock Exchange: FTSE 100: 6754. FTSE 350: 3743
Key indicators continue recent stable patterns. The Stock market continues to gently fall back after the surge late last month.
