In this week’s Commercial Awareness update, we discuss profitable banks, a new record in the American markets, Google’s sexism row and why the car insurance sector might be “dysfunctional”. Read on for all this and more.
The markets – three things this week
RBS is showing signs of turning a corner after it announced £939 million half-year profits last week. This the first time in three years the bank - which is 72% owned by the taxpayer after it received a £45 billion state bailout during the financial crisis - reported a profit. This latest announcement is positive news as the results beats analysts’ predictions, especially in their Investment Banking arm NatWest Markets – plus it’s a stark contrast to the £2 billion of losses it made in the previous year. However, the bank is still cautious about its future outlook and doesn’t forecast to make profit this year. This is largely due to an expected fine from the US Department of Justice over its role in selling subprime mortgages before the financial crisis, which experts believe could amount to £5 billion.
It was also a good week for HSBC who announced pre-tax profits of $10.2 billion (£7.8 billion) for the half-year to 30th June. The bank aimed to turn around its fortunes by cutting costs and improving profitability after the financial crisis – these plans appear to be taking effect. The results were welcomed by the markets, as HSBC’s shares on the FTSE 100 rose 3%. Aside from the profits, the bank will use its own cash to buy back nearly $2 billion worth of its own shares, returning around $5.5 billion to its shareholders.
In general, there was an upbeat tone to the results announcement, highlighting positives in the global economy, including strong investment in the US, prosperity in the Eurozone and a brighter outlook for China.
3. Dow Jones
One of America’s most influential markets, the Dow Jones industrial average, closed above 22,000 for the first time on Wednesday, as its remarkable run this year continues. The continued success is largely due to recent strong performance across the large public companies listed on the market, as well as many developing countries showing improved health. The Dow has risen 23% since Donald Trump was elected as President and last week Trump took credit for the market’s performance. However, analysis suggests the markets grew sceptical of Trump’s planned infrastructure spend back in Spring – many commentators look towards the performance of American companies overseas and a weakening dollar, as key indicators for its recent performance.
The dollar was down 2.9% last month against other global currencies, as it appears the political upheaval in the US is having an impact on economic confidence. Whilst this could be viewed negatively, it has made American goods cheaper abroad, increasing profits of the big corporations listed on the Dow Jones. In Britain, the pound continues to make a recovery and rose 1.5% against the dollar last month.
Questions to ask yourself… What key factors impact banks’ profitability? How does a weaker dollar affect the global economy? Should the Government be looking to offload its stake in RBS?
Google’s sexism row
American tech giant Google has become embroiled in a sexism row, after it appears one of its software engineers circulated a memo claiming the gender gap is in part down to biological difference, rather than bias or discrimination. The leaked document entitled “Google’s Ideological Echo Chamber” was published in full by tech website Gizmodo. The unnamed author claimed in the memo that women “prefer jobs in social or artistic areas”, while “more men may like coding” – offering this as an explanation for gender inequality in pay and seniority at the firm.
The author has claimed he’s received messages of support from colleagues. However, Google’s newly hired head of diversity, Danielle Brown, said there was “heated debate’ surrounding the issue and it was “not the viewpoint that I or this company promotes or encourages”. She goes onto to say diversity and inclusion is a fundamental part of Google’s values and culture.
The tech industry as a whole has recently faced a number of challenges regarding gender diversity. Earlier this year, Uber launched an investigation after a female engineer claimed misogyny was widespread within the firm. These incidents are highly damaging at a time where so many tech firms are encouraging diversity and ensuring women get equal opportunities in the sector.
At Bright Network, we have first-hand experience of female graduates thriving in the technology sector. If you’re keen to find out more and follow in their footsteps, our Women in Technology, Engineering and Consulting event takes place this September.
Questions to ask yourself… Should one employee’s opinion be global news? What can the tech sector do to encourage more diversity at a senior level?
The ‘dysfunctional’ sector
The UK’s personal car insurance market is “dysfunctional” and punishes loyal customers, according to the boss of insurer Aviva, Mark Wilson. He claims insurers are putting premiums too low for new customers, encouraging them to switch provider, which is detrimentally impacting on the price for existing customers. Car premiums across the industry rose an average of 11% in the last 12 months – this hike is also partly due to new rules forcing firms to pay higher compensation to accident victims.
This does raise the question of whether firms are better off rewarding their loyal customers, but having less attractive introductory deals. Customer loyalty is usually a key factor in a company’s prosperity – think of pretty much every app in the market today. Apps are reliant not just on downloads, but building loyalty and keeping customers who continue to use the app (rather than just deleting it). For car insurance firms, the model has been to encourage new customers to join with big discounts and hope to retain them despite price hikes after their first year.
New businesses are aiming to disrupt the car insurance sector, which some commentators have referred to as a “dinosaur”. New businesses, like Cuvva, offer a pay-as-you-go insurance service to cover people for a short time, rather than paying for a full year. The Edinburgh-based app aims to take market share from the existing major players in the industry.
Questions to ask yourself… If you were a consultant for a big insurer, what pricing model would you suggest for the firm? Can a pay-as-you-go model for insurance challenge the established annual premiums?