Issue 127:2017 11 02: A lens on the week

02 November 2017

A lens on the week


SEX AND THE COMMONS: Political leaders are falling over each other to call for new standards in the Commons and for an end to sexual harassment.  May, Corbyn, Harman, Leadsom and even the Speaker himself, line up to condemn predatory practices – and of course they are right to do so.  The difficult thing, however, is going to be to identify them.  In the absence of a ready supply of minors, it is preying on the vulnerable, bullying and abusing power which need to be prevented.  How though to distinguish this from the normal sexual interplay between a lot of highly charged people who spend most of their time in each other’s company?

The House is full of self-obsessed men and women who, often wrongly, think themselves both important and attractive.  Then there are groupies aplenty, anxious for anything which will bump-start their careers, help them with that first move up the greasy pole.  Did she swap a leg up for a leg over?  Are his attentions quite uninfluenced by her role in selecting candidates?  An unwanted advance or an abuse of power?  There will be some obvious cases, no doubt, but it will require the judgement of Solomon to get to the bottom of many of them, and the malice and envy which stalk the corridors of power will make the job of those entrusted with judging even more difficult.

BREXIT TIMING: A tweet from Lloyd Blankfein, the chief executive of Goldman Sachs, on 19 October stating that he expected to spend more time in Frankfurt was reported with some dismay in the press.  Did it mean that Frankfurt would displace London as the great European financial centre?  Did it mean that Goldmans would abandon their new headquarters in London?  No, banks are cautious institutions and move more slowly than that.  Still, despite the confidence in London’s future as a financial services hub expressed by Goldman’s and HSBC, international banks do have to ensure that they will be able to service their EU business if it cannot be run out of London after Brexit.  That means contingency plans and before long they will need to build teams on the ground.  It isn’t just banks, either.  Other international firms will be taking similar steps to ensure that their EU business is not destroyed, by increasing their continental presence.

All this is very expensive and could turn out to be a waste of time.  That is why business would prefer to leave its decisions until the outcome of the Brexit debate is known.  A transitional period, under which the changes agreed at Brexit are not implemented for two years, would allow business to relax until the final deal is known.  Still, to limit unnecessary expenditure, a transitional period would need to be agreed around the turn of the year.   Better still, of course, would be to agree a trade deal by then, but that is clearly a pipedream.


INDEPENDENCE: Spain’s central government has sacked the Catalan government and imposed direct rule in Catalonia, following last Friday’s vote in Catalonia’s regional assembly to back the recent referendum result (many Catalan MPs boycotted the vote; there were only 82 votes – 70 in favour, 10 against and 2 abstentions – out of a possible 135).  Prime minister Mariano Rajoy has also ordered new elections for the regional assembly to be held on December 21.  The National Criminal Court has ordered Catalan leader Carles Puigdemont and 13 other members of his regional government to answer charges of rebellion, sedition and the illegal use of public funds.  But Senyor Puigdemont has fled to Brussels, where his intentions are, as ever, unclear.  Is he intending to claim political asylum in Flanders?  Is he planning to set up a Catalan government in exile?  Did he (or indeed the Catalan assembly) ever get round to actually declaring independence?

President Masoud Barzani of the Kurdish Autonomous Region in Iraq announced his resignation, as Iraqi government forces continue to take territory from his new state.  Having recovered Kirkuk, Baghdad is now launching attacks on Kurdish-held territory near the border with Syria.

TERRORISM: In the USA, eight people were killed when a pick-up truck was driven into a cycle lane in New York, hitting riders and pedestrians.  The driver, who was shot and arrested by the police, is from Uzbekistan and had apparently pledged allegiance to Isis.

Tough new anti-terrorism laws replaced the state of emergency imposed in France after the November 2015 Paris attacks.

At least 30 police officers and several militants were killed in a raid on a suspected militant base in Egypt’s western desert, where Islamic state in the Sinai peninsula is mounting an insurgency.  The Egyptian military retaliated with a strike by the airforce against a mountain hideout, claiming to have killed a large number of terrorists and destroyed vehicles and weapons.

ELECTIONS: In Iceland, amid political scandals, prime minister Bjarni Benediktsson’s government was voted out in the second general election this year.  The country’s president must now nominate a new prime minister and governing party (probably Katrin Jakobsdottir and her Left-Green Movement) to attempt to form a coalition.

225 days after the election, a new government has been formed in the Netherlands.  The new coalition under Mark Rutte (prime minister since 2010) represents a slight shift to the right, and will have a majority of one.

In Kenya, President Kenyatta won last week’s re-run of last August’s election with 98% of the votes.  But there was a low turn-out; opposition leader Raila Odinga boycotted the re-run, claiming that the “irregularities and illegalities” for which the Supreme Court dismissed August’s result have still not been corrected.  He rejected the latest result and called for strikes and protests.  At least ten people have been killed in violent protests since last week’s vote, and seventy since last August’s.  Conflict is escalating between the police and protesters and between different ethnic and political groups.

In China, the ruling Communist Party’s congress elected (behind closed doors) the party’s 204-member central committee, which then elected the 25-member politburo.  President Xi secured another five-year term as leader, and introduced the other 6 members of the Politburo standing committee, none of whom are below 60 years of age or appear to be likely successors of Mr Xi.  This apparent reluctance to nominate an heir, and the congress’s agreement to enshrine his name and political ideology in the party’s constitution (an exceptional honour granted only previously to Deng Xiaoping and Mao Zedong) seem to indicate that political power has been consolidated in the president and that he intends to set the course his country will steer for the next few decades rather than just the next few years.

Business and Financial

BUMPY FLYING:  Building large passenger jets is a ferociously competitive business.  There are only two significant makers in the world, Boeing of California, and the international consortium, Airbus.  Contracts are keenly fought; airlines like to have as many planes as possible from one manufacturer, often as many of one type as they can – it makes fleet management much easier, to say nothing of pilot training and route flexibility.  That means long runs for the builders with (mostly) reliable long term cash flows and not least, long term maintenance and parts supply business.  The most significant single market is the USA which is where Airbus’s problems begin.  Boeing has the politics of product control in the US nicely sewn up as the Trump administration enforces fierce tariff walls on planes for the American market not substantially built in the USA or by USA manufacturers.  Those walls are effectively insurmountable – 220% on makers not passing the substantial content test, another 80% if state aid is involved.  That has already led to big problems for Airbus – and threats to its Bombardier wing making factory in Belfast which has elements of British Government support in an employment sensitive area.  Bombardier is Canadian owned; it also gets some support from the government of Quebec.  Airbus thought it had found a way out when its US arm agreed to buy a stake in Bombardier’s own range of C class aircraft.

But not for long: Airbus has now admitted it has broken US arms export rules which will potentially lead to further penalties and restrictions on its activities in the USA.  The problem is not who it sold military aircraft equipment to, but in the use of undisclosed middlemen – which raises the possibility of bribes to win contracts or sanctions breaches hidden by obscure paper trails.  Boeing looks as though it could dominate at least American skies for a while yet.

GONE EAST, YOUNG MAN: The financial results of large banks gave fascinating insights into the health of the business world.  HSBC, bestraddling as it does western economies and the east, is particularly interesting.  The third quarter results are just out and they are indeed revealing.  The redtop headline maker first – the bank had to put an extra US$300m aside to meet performance related pay in the quarter.  That’s bonuses to you and me, a sign that business must be good. That was confirmed by overall revenues increasing about 5% – with currency and commodity trading falling only 2% – not great, but much better than most of its rivals.  The bank is investing more into its investment banking business as it expects increasing growth in corporate activities especially in the Far East.  Indeed, a lot of that improving performance across the bank is coming from the east, vindicating the decision of departing Chairman Flint and chief executive Gulliver to return to the bank’s traditional geographic roots.  The profit performance looks impressive – a turn in comparable periods from $600m loss to $3bn, but that is a bit misleading.  That loss was incurred by the bank’s exit from its Brazilian operations, given up after many years of trying to create a profitable business there.

All this improvement leaves the banking group with a problem – its return on capital is not good enough – because it has too much capital.  $10bn too much, say analysts.  It is always good to have bit put by for a rainy day – but that surplus is holding back the appeal of the business to investors.  The obvious thing is to give it back (not lose it, as cynics might claim) and HSBC is doing just that – $2bn this year and probably more next year.


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