Issue 129:2017 11 16:Lens on the Week

16 November 2017

A Lens on the Week



Jeremy Corbyn walks on water

BREXIT: There is gang warfare in the Cabinet.  Foreign Secretary Johnson and Environment Secretary Gove have got over the animosity caused by Gove undermining Johnson’s leadership bid and now stand back-to-back in their shared concern that the Government is not putting sufficient energy into the possibility of a “no deal” Brexit.  They have written to Mrs May about it.  Johnson is said to have referred to David Davis, Secretary of State for exiting the European Union, as a “fuckwit”.  It is rumoured that Mr Davis does not care very much for Mr Johnson either.

Behind all this lies a genuine concern.  The Johnson/Gove axis is concerned that a failure to develop a “new deal” exit leaves us vulnerable to an unfavourable “take it or leave it” from Mr Barnier.  As a matter of negotiating strategy you can see the point.  Mr Hammond, of course, is reluctant to see money spent on something which is unlikely to happen, but if he leaves expenditure on this too late we do risk falling into the negotiating trap.  We will see what happens when the budget is revealed later this month.

The concerns of the Prime Minister are more immediate.  How can she move the talks on to the all important issue of “future trading relationship” without putting more cash on the table?  The next meeting of the EU is in December, and if no progress is made then, businesses will begin to run up against deadlines for moving functions and committing expenditure.  One consequence of the emergence of the Johnson/Gove axis is that it sends the message that the Prime Minister does not have the power to put money on the table.  That leaves the EU with the decision on whether to loosen their red line or to go for a “no deal” exit.

Meanwhile, back in the House of Commons, the EU Withdrawal Bill is now in Committee.  The Government has conceded a final vote on the terms of Brexit, although it doesn’t mean much; by the time the vote is held the only alternative to the Government’s proposal will be “no deal”.  Other contentious areas include the level of delegated legislation, whether we will continue to observe the EU Charter of Fundamental Human Rights, and whether our courts should continue to respect the right to damages for breach of European law.

MESS IN IRAN: Mrs Zaghari-Ratcliffe has become a political football.  Actually that isn’t quite right, she already was one, serving five years in prison and facing further charges before Mr Johnson’s gaffe.  His inaccurate comment that she was just teaching journalism was intended to be helpful but undermined her defence that when arrested she was on holiday in Iran.  Now, although Mr Johnson has acknowledged his mistake, she is to be tried again.

The effect of this is to wrong foot the Foreign Office.  No one makes their best decisions when they themselves have got things into a mess and there can be little chance of the Foreign Secretary approaching this dispassionately.  It is hard to know how they feel in Tehran.  Do they genuinely believe that Mr Johnson’s remarks confirm their previous suspicions or are they just delighted at the leverage they have achieved?  Perhaps different factions see it different ways.  Either way Mr Johnson has a difficult path to walk: on the one hand he must do enough to assuage public annoyance at his error.  On the other, he must not be seen to make concessions to Teheran to cover his personal position.

Just when things are at their most difficult up steps his new ally Michael Gove to intervene.  Gove has a fine brain and could be a great political reformer.  Still, his judgement has proved faulty in the past and it is judgement which is needed now.



ZIMBABWE: The general is right – this is no coup d’etat, no overthrow of a legitimate, democratic government by the military; how could it be, when Zimbabwe isn’t a legitimate democracy but a one-party state?  No, this is a good old-fashioned Game of Thrones power struggle within the ruling Zanu-PF party, between two potential successors to the 93 year old President Mugabe.  The military supports Emmerson “The Crocodile” Mnangagwa (who was ousted as vice-president last week and fled the country in fear of his life) against rival Grace Mugabe, the president’s wife.  Of course, the general could surprise us all by announcing free and fair elections to be held in six months time, open to all parties, not just Zanu-PF.  But then again, world peace could break out this Christmas.

TRUMP IN THE EAST: The US president completed his twelve day tour of five far-eastern countries; Japan, South Korea, China, Vietnam and the Philippines.

He was allowed to carry on tweeting in China even though Twitter is banned in that country; a three-thousand year old civilization is wise enough to recognise the value of the saying “If your competitors insist on self-harming, don’t try to stop them” (which no doubt appears somewhere in Sun Tzu’s The Art Of War).

In the Philippines, Trump declared that he had “a great relationship” with President Duterte who’d prepared the ground a few days earlier by boasting about a murder he’d committed as a teenager (“I already killed someone.  A real person, a rumble, a stabbing.  I was just 16 years old.  It was just over a look”) and criticising Barack Obama (“so black and arrogant”).

SAUDI ARABIA v IRAN: Having sent Qatar to Coventry earlier this year for its alleged pro-Iran tendencies, Saudi Arabia turned its anti-Iran attention this week to Lebanon and Palestine.

The Lebanese prime minister Saad Hariri announced his resignation, saying that the pro-Iran Hezbollah (the Tehran-sponsored Shia militia and terror group with which his own pro-Saudi faction shares power) is trying to take over the country.  Mr Hariri made his announcement in Saudi Arabia and has not yet returned to the Lebanon, fuelling suspicions that his hand was forced by Riyadh and that he is being held there against his will.

The Palestinian president Mahmoud Abbas was summoned to Riyadh and, according to Israeli reports, was given an ultimatum by the Crown Prince: accept the proposals for an Israeli-Palestinian peace deal which is forthcoming from Washington, or resign.  It’s thought that Riyadh hopes that a peace deal will clear the way for co-operation between Saudi Arabia and Israel against Iran, and stop Hezbollah from forming an alliance with the Palestinian group Hammas.

This week saw an escalation in the war in neighbouring Yemen between the Saudi-led coalition and the Iranian-backed Houthi rebels.  The rebels launched a missile attack on Riyadh airport (it was intercepted by Saudi’s armed forces).  In retaliation, the coalition forced the closure of all ports, airports and borders in Yemen and carried out two airstrikes on the Yemen capital Sanaa.



MUSHROOM SHAPED ACCOUNTING:  The financial troubles of a French energy company may seem of minor concern to the British public; but when that company is EDF, Electricite de France, they could become a major problem indeed.  EDF is one of those peculiar companies not uncommon in Europe, a public company also significantly owned (85% in this case) by the state.  It is the largest electricity company in France, and bigger than any in the UK, in terms of both generation and retail customer service.  EDF is profitable but it has been for some time cash flow negative, not a situation which it can sustain for ever, and various measures to cut costs – and a €4bn rights issue earlier this year – were intended to get income positive by early 2018.  But EDF has now announced that this target remains elusive and that anticipated earnings are likely to be down on earlier forecasts for 2017.  Its problems are partly weaker demand for electricity which it sells, but, much more significantly, enormous costs relating to its nuclear energy business.  Top of the problem list is Britain’s Hinkley Point nuclear reactor, a super reactor which will, when (or if) built, supply around 13% of Britain’s electricity.  The project is owned jointly with China National Nuclear Corporation.  Although construction has finally started on site, the costs of the project remain somewhat hazy but may be approaching £25bn.  Even with British government guaranteed prices for the output there could be further strain on EDF’s finances while the reactor is built (no income of course if the project does not get finished).  EDF has problems in France too – a number of its reactors are currently closed pending safety and regulatory checks, a further potential hazard should Britain suffer a severe winter and need to import further supplies of power by the two cross channel cables.  Log burning stove, anyone?

HOT HOT HOT…COLD:  If you are buying a log burning stove, check if you can really afford one.  House prices are continuing to rise, doubts about the economy and the hint of rising interest rates not withstanding – except for one location.  That exception is the pricey flat market in Central London, now suffering from that classic trap – an enormously increased supply of new luxury residences, priced at exceptionally high levels, £2,000 per square foot plus (£3m to £4m for a two or three bedroomed flat), coinciding with a steep downturn in demand, and a steep decline in prices – 40% say some agents (off the record).  The downturn is partly satiation – everybody who wants and can afford a luxury central London flat has already got one, and a nervousness to commit by foreign buyers until the terms of Brexit are settled.  But over the rest of the country prices are still on the up, an average of 5% over the last year says the Office for National Statistics, reflecting what mortgage providers official surveys and estate agent’s unofficial commentaries are saying. That makes the average home price now £226,000 (double that in Greater London).

There are variations within this – some desirable seaside retirement areas are seeing rapid growth with competition from London retirees to buy retirement (or second) homes from very limited stock.  Another area seeing strong growth is anything that can be afforded by first time buyers, where Help to Buy schemes are driving buyer’s ability to get on the ladder.  Not so hot are Scotland and some areas of older stock around regional cities.  Whether these are good or bad trends might depend on whether you are buying or selling; but in a time when affordability may come under pressure from slow earnings and rising interest rates (to say nothing of energy and food costs) it certainly has the potential for trouble in the future.


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Issue 128:2017 11 09:A lens on the week

9 November 2017

A Lens on the Week


SEX SCANDAL: Just six MPs and one official!  The list of Labour activists subject to sexual allegations is much shorter than the list of Tories.  Goodness knows why.  Perhaps they haven’t got to the bottom of it all yet or perhaps Labour members are too busy reading socialist texts to misbehave.  Or is the wine served at Labour functions just not good enough to make you want to drink too much of it?  Those who read the lists will have their theories but the interesting question is why there are separate lists at all.  Take the Tory list as an example.  Someone took the trouble to pull together a list of largely unverified allegations against MPs and officials and they can hardly have done so without stumbling across allegations about members of other parties.  Those, however, they decided to leave out.  Why?  It makes you wonder why they decided to publish the list in the first place.

One possibility is that the purpose of publishing was to protect women.  That would be laudable, typical of the public spirit which runs through the veins of the political class, in tune with statements made by some of the victims who have bravely if tardily spoken out.  But if that is so, why the focus on a single political party?  Surely everybody who has been indulging in sexual bullying would be on the list.  It is not that then.

The alternative is that there is a political motive.  If the list had been published by the Labour party or the Lib Dems that would be the obvious answer but we are told that it was compiled by Conservative researchers.  What did they stand to gain?  Did they have a burning grudge against their own party?  Had they themselves had some unpleasant experience in the loos?  Were they paid by the press?  By the Russians?  It is all very odd but there is a story there and in the febrile state of Westminster that story will eventually come out.

OFFSHORE MONEY: The press must be having a wonderful week. There is another scandal in the offing with the suggestion that the Duchy of Lancaster which funds the Queen invested money in companies set up in offshore tax havens.  The report in The Times is careful to say that the Duchy obeyed the law and acted properly, and without the Queen’s knowledge.  What it doesn’t say, however, is that many forms of investment fund have to be set up offshore on the basis that UK investors in those funds pay full UK tax on any profits they make.  There the usual reason for investing is to take an interest in the assets of the fund, not to steal a march on HMRC.  Of course the muddling up of participation in investment funds with tax avoidance arrangements may just reflect the difficulty journalists have in grappling with the technicalities.  On the other hand the press would do anything to push up circulation at the moment and mixing the truth with flashy but misleading allegations is the sort of stunt we have come to expect.  Maybe they and those Panorama people ought to be regulated?



CATALUÑA/CATALUNYA: Señor Rajoy in Madrid and Senyor Puigdemont in Brussels continue to play their game of tactical blunders.  Coincidentally, the match between the UK’s Michael Adams and Poland’s Radoslaw Wojtaszek in the European Team Chess Championship currently taking place in Crete featured the Catalan Opening, described by The Times’ chess correspondent Raymond Keene as “a variation that is problematic for both sides.  The advantages and disadvantages are so subtly nuanced that the slightest inaccuracy by White can lead to the instant dissolution of White’s natural advantage from the opening phase, resulting in sterile equality.  Conversely, any almost imperceptible slip by Black can convert a slight inferiority into a nagging permanent disadvantage.”  Thus, hidden away on the MindGames page of Times2 last Tuesday, Mr Keene inadvertently made the week’s best political comment (outside of Shaw Sheet), and probably the best comment on the whole Catalan saga so far.

SAUDI ARABIA: How Señor Rajoy must wish that he was Crown Prince of Saudi Arabia rather than prime minister of Spain.  While Mariano Rajoy sits and frets, waiting for Belgium to decide what to do with Carles Puigdemont and the four other Catalan ministers wanted in Spain on charges of rebellion, sedition and embezzlement (they were spared custody by a Belgian court last Monday), Crown Prince Muhammad bin Salman of Saudi Arabia launched an anti-corruption campaign which immediately led to the imprisonment of 38 of the country’s richest and most powerful figures – princes, businessmen and ministers.  (Two more princes have reportedly died, allegedly while resisting arrest.)  True, the Spanish authorities have at least managed to imprison eight Catalan ministers, and the Saudi accused are being detained in a luxury hotel rather than in a dank dungeon, but the Crown Prince is still way ahead of the game, especially if those accused of corruption are also political rivals and opponents of reform, as some critics claim.

FOOT-IN-MOUTH DISEASE: President Trump’s calls for severe punishment for Sergeant Bowe Bergdahl (on trial in a military court for desertion in Afghanistan) backfired when Bergdahl was given a dishonourable discharge instead of a long prison sentence.  The judge considered the president’s comments to be a mitigating factor in the sentencing, and the defence called them “an unprincipled effort to stoke a lynch mob atmosphere” which “cast a dark cloud over the case”. Similarly, Trump’s tweets demanding the death penalty for Sayfullo Saipov, the man accused of last week’s New York terrorist attack, will make it harder for a court to pass such a sentence, according to a number of former federal prosecutors and other legal experts who say that such attempts to prejudge the case make it more difficult to ensure that justice is done.

At a parliamentary foreign affairs select committee meeting last week, Boris Johnson suggested that Nazanin Zaghari-Ratcliffe, the British Iranian woman arrested and imprisoned in Iran last year, may have been training journalists in that country.  However, Mrs Zaghari-Ratcliffe, who was arrested on mysterious spying charges and tried in a closed court, has always insisted that she was simply on holiday in Iran, visiting her parents with her child. She lived and worked in the UK as a charity project manager at Thomson Reuters Foundation, and neither her job nor the organisation is involved in training journalists.  But it seems that the authorities in Iran have seized on Boris Johnson’s comment, however ignorant or misinformed or simply careless it may have been: three days later, a court hearing informed her that a new case against her has been opened, as training journalists could amount to “propaganda against the regime”, a charge which could add another five years in prison on top of the five years she is currently serving.  Ironically, Boris Johnson was replying to a question asking what the government was doing to help her.




BIGGER – BUT BETTER?  The era of challenger banks – those specialist banks that arose post crash, with much encouragement from the Treasury and regulators alike, seems to be moving into a new phase; possibly the end game.  The concept seemed a good one – new specialist banks with no baggage from banking disasters who would be real competition in terms of service and products to the big old banks – and small enough to be allowed to fail.  Several made good progress – particularly Aldermore and Metro Bank, and TSB, spun out of Lloyds, but others faced serious competition, especially on the business finance side from non-bank funders – insurers, debt funds, and peer to peer lenders.  Royal Bank of Scotland tried to spin its Williams and Glyn’s business out as a specialist regional challenger bank (a big one) but when that failed it established a fund to help other challenger banks with liquidity and funding.  That apparently has had no great success; not least because the challengers have become prey for others.  TSB went to the Spanish bank Sabadell who wanted a beachhead in the UK, Shawbrook to a couple of hedge funds, and now Aldermore is to be sold to the largest South African bank, FirstRand, also looking to diversify into the UK.  The price agreed is £1.1bn, based on a share price which has risen 75% this year, no doubt tempting the shareholders to take an attractive profit.  Aldermore will continue to expand with the benefit of FirstRand’s systems and capital – and FirstRand’s existing business, MotoNovo, a car leasing financier, will come under Aldermore’s wing and utilise deposits from Aldermore’s sterling base.

OIL SWINGS HIGH: The oil price has moved into a new range over the last few days.  The market has in recent years seen short sharp price movements and then periods of stability, trading within new ranges.  So we have seen the $100 a barrel plus era, followed by a rout as the price descended a staircase to the $20 era; and back up again in steps to a range around the mid $50’s. Now the price over the last two weeks has breached $60 and is still rising – $64 at the time of writing.  The immediate cause is plain to see – potential turmoil in Saudi Arabia as the reforming Crown Prince cracks down on corruption in the kingdom and, more dangerously, has to deal with political dissent to his reforms.  That is worrying the oil market which thinks that there may be disruptions to the Kingdom’s oil supplying role – and also that the Crown Prince may be looking at the strategy of OPEC, the oil supply semi-cartel in which the Saudi’s play a leading role.  OPEC has been cutting supply (in cooperation with Russia whilst it does it) but economic growth around the world means that demand for oil has grown.  The question, as always, is can the price be pushed up further if supply is held down?  In the long run, certainly not – alternative power supplies and western shale and fracking will put a cap on that, but if it can be done in the shorter term, then there will be a big boost to the Kingdom’s finances (and Mr Putin’s).  The oil analysts are in two minds as to what happens next – the American market could very quickly pump more oil from Texas and from the shale fields, as could the Norwegians; and the US has large coal reserves for power generation; but OPEC members are now seeing the benefits of supply restrictions and the cartel may hold this time.  In which case the next barrier is $70; maybe fill your central heating oil tank now…



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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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Issue 126:2017 10 26: News Highlights

26 October 2017

A Lens On The Week


BREXIT: Something somewhere seems to be moving but what it is and in which direction it is really very hard to say.  The rumour mill whirls in Brussels.  Did Mrs May plead with Juncker for help over the dinner table or didn’t she?  If she did, who leaked it?  If she did not, why did they make it up? None of us really knows and a febrile press with the difficult job of reporting on things “seen through a glass darkly” rushes off with the latest rumour like a terrier with a bone.

Still, there is the occasional encouraging sign.  In an open letter to EU embassies and to those EU citizens who have contacted the Home Office, Mrs May has said that EU citizens who are currently living lawfully in the UK will be allowed to stay here even if there is no agreement with the EU.  That must make sense and gives away nothing as it is obviously where we will end up.  The discussions on the budget, too, seem to be becoming more specific with the dispute focusing on the UK’s contribution to pensions payable to retired EU officials.  Is it the €3.5 billion we suggest, or the €11 billion demanded by Brussels?  And behind all this there seems to be a drift towards a discussion of future trading relationships.  Despite the EU position that there has been insufficient progress on financial matters to justify trade talks, the 27 are at least beginning to talk about it amongst themselves.  It would not be surprising if the next meeting of the European Council saw progress here.

All this, little as it is, must strengthen the hand of Mrs May.  Her strategy is to balance the pressures to which she is subject against each other.  She can tell the EU that certain things are off the table because she could not sell them to the Tory right.  As trade talks develop she will be able to tell the nuttier Brexiteers that certain things are part of the price for a deal for which business is crying out.  It is a difficult act but one thing keeps the balls in the air: the public are unlikely to forgive any politician who pulls this particular house down to promote his or her career.

RULES OF REDEMPTION: Foreign Office Minister, Rory Stewart needs to be more careful with his language.  His comment that “unfortunately the only way of dealing with [returning Jihadis] will be, in almost every case, to kill them” came over oddly in a country which has renounced capital punishment.  It now seems that he didn’t quite mean it like that, so it remains to be decided how exactly the 800 or so people who fall into this category should be treated.  The obvious answer is that they have to be looked at one by one.  Some will be harmless enough having, perhaps, renounced Isis when they saw how it operated.  Others are very dangerous indeed.  Trying to impose rules will simply obstruct the vision of those who need to make the necessary judgements.

The fatuity of rules was well illustrated on Monday’s Newsnight.  Labour MP Jared O’Mara has resigned from the Women and Equalities Select Committee because of misogynistic and homophobic posts in 2002 and 2004.  Mr O’Mara is now 36 so he was in his early 20s when he made the comments, which he says no longer reflect his views.  The depth of his contrition is hard for those of us who have not met him to measure, although subsequent revelations would seem to impel a good dose of scepticism, but the right approach cannot possibly be that adopted by someone called Marie Le Conte on Newsnight who tried to set guidelines under which unfortunate comments made in early teens were okay (unless very offensive indeed), comments in or after one’s late twenties had to be taken seriously but those made in the early 20s were a grey area.  What a load of artificial drivel.


SPAIN: Tension mounts as rival gunslingers prime minister Mariano Rajoy and Catalan leader Carles Puigdemont continue to face each other across the dusty, sun-drenched plaza mayor of Spanish politics.  They’re both motionless, each waiting for the other to make the first move.  Senyor Puigdemont’s right hand is poised above the weapon holstered on his hip – a declaration of Catalan independence.  At the first sign of movement Señor Rajoy will draw his own weapon – the constitution’s article 155, imposing direct rule.

The stand-off can’t last for much longer, and indeed it looks as if they’re about to start blazing at each other; today (Thursday 26 October) the Catalan parliament is due to respond to the central government’s declaration last Saturday that it will impose direct rule as Senyor Puigdemont ignored Madrid’s demand that he clarify his position.  The next day – Friday 27 October – the central government is due to vote on invoking article 155.

The partisans of Catalan independence have vowed to undertake massive civil disobedience if Señor Rajoy’s weapon is fired.  Meanwhile the townsfolk are diving for cover – 1302 companies have moved their headquarters out of Catalonia since the referendum.

ELECTIONS: In the Czech Republic, Andrej Babis is due to become the new prime minister as his Action of Dissatisfied People party came first in last week’s elections, with 29.7% of the vote (the ODS party came second with 11.3%).  Andrej Babis is the country’s second richest man and has been described as “the Czech Donald Trump”.  He has been finance minister but was sacked over tax irregularities and is facing charges of fraud about the alleged misuse of EU funds.  His government is likely to join other central and eastern European governments in opposition to the EU’s migrant and refugee policies.

In Japan, prime minister Shinzo Abe won last week’s elections.  His party (LDP) won 281 of the lower house’s 465 seats which, with the 29 seats won by his coalition partner (the Komeito party), gives him a two thirds super majority.   But there was a very low turnout (54%) and the opposition was split; its leader had told his members to stand with a new party, the Party Of Hope, but many of them formed their own new party instead.

In Kenya, confusion continues over the re-run of recent elections due to take place this week.  Opposition leader Raila Odinga, whose accusations of irregularities and faults in the election commission triggered the re-run, has said that he will not take part in it as the faults and irregularities still have not been fixed and has urged his followers to boycott it.  His sister Ruth Odinga was arrested for allegedly trying to disrupt election preparations.  The election commission is in disarray: one of its seven commissioners has fled to New York, following alleged death threats; its chairman has said that it’s hamstrung by political interference from all sides; and its chief executive and other officials have taken leave of absence.

ISIS: In the Philippines, President Duterte declared that Marawi has been liberated from Isis-linked Islamic militants (an alliance of the abu Sayyaf and Maute groups) who seized the city in an uprising five months ago.  In Syria, the western-backed SDF, who last week declared victory over Isis in Raqqa, has followed on by moving into Deir Ezzor province and driving Isis from the al-Omar oilfield, the country’s biggest.  Regime forces are also moving into Deir Ezzor province, so it is likely that the victors in the struggle against Isis will soon be fighting each other over the liberated territory.  This is already happening in Iraq, where government forces and allied Shia militias are driving Kurdish forces from territory the Kurds liberated from Isis but which are outside the boundaries of what Baghdad recognised as Iraqi Kurdistan.

Business and Financial

SPACED OUT Night-time central London is a surreal picture, forests of redlights glowing in abstract shapes.  The lights are on cranes that evidence the great building boom that is going on in the London office sector.  Reading the newspapers, one might sense a disconnect; many big office occupiers – bankers, lawyers, accountants, are cutting back on space and delaying taking any new, the entwined fears of economic downturn and Brexit testing commercial nerves.  Goldman Sachs mutter about relocating to Frankfurt, PriceWaterhouseCoopers are going to cheaper provincial offices; even those firms which are recruiting are packing their teams tighter on the same floorplates.  Bad news for those office developers building without a pre-let to a good tenant; the lettings market is slowing and although rents are not yet falling, prospective tenants are getting increasingly attractive incentive packages if they will sign up.

We have been here before, although this time a lot of the space under construction is pre-let.  But there is one part of the market causing concern, the newly fashionably market for co-working, or as it was called, serviced offices.  Much of the new space is let to co-working firms who then will sub-let space to small occupiers on short rental agreements; a year, a month, a week; a desk, a room, a floor.  Most are not sensitive to what they pay per foot; they want convenience, flexibility and all the services.  But in more difficult times, will those occupants stick around?  The two big co-worker providers are Regus and WeWork, but many more are appearing.  British Land has started its own brand, Storey; Fora, owned by property fund Brockton, offers hip space, offpitch but close to prime addresses, at value rents.  This week Regus announced occupancy levels were dipping in its London book; its share price fell a third as investors wondered if this could be the beginning of the end of the co-working space boom.

COPPER CAPPED: Barclays Bank must be one of the key marketing targets for any legal practice at the moment.  Litigation is flowering on all sides of the banks business, what with the bank facing law suits relating to its tie up with Qatar during the 2008 financial crisis, the related actions against three of its most senior executives, actions from regulators and shareholders in the USA for market abuse and manipulation of LIBOR, alleged breach of whistleblowing legislation by chief executive Jes Staley…  and now claims by Red Kite.  No; Barclays has not been abusing rare birds; Red Kite is the world’s largest metals hedge fund, size circa US$2bn, and is run by Michael Farmer, former Tory Party Treasurer.  One of the main metals traded by the fund is copper, which has been through a pretty tumultuous time price-wise over the last ten years as supply expanded, then rapidly contracted, with a huge price crash and now a significant recovery.  The fund is claiming that Barclay’s traders on the London Metal Exchange were aware, through internal staff discussions regarding Red Kite’s activities with the bank, of market positions that Red Kite was taking in copper, and used that knowledge to adjust its own trading accordingly.  As a result Red Kite claims it lost some $850m over three years from 2010 to 2013.  Barclays denies all this, and the case may be a while before it comes to court, but it is another headache for Mr Staley whose strategy for the future growth of Barclays in significantly based on the investment banking division where many of these issues begun.


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