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In this week’s Commercial Awareness update we discuss the performance of British banks, the LSE merger, by-election problems for Corbyn and the relaunch of the Nokia 3310.
1. London Stock Exchange merger on the rocks
The proposed £24.5 billion merger between the London Stock Exchange (LSE) and Deutsche Börse is looking unlikely to go ahead, after the LSE suggested the deal wouldn’t be approved by the European Commission. The LSE helps companies from the UK and around the world join the London equity market, enabling them to gain access to capital – the Deutsche Börse is its German counterpart. This is the third time the two have tried to merge since 2000, but the LSE have said it was ‘highly unlikely’ they would be able to meet the demands of the European Commission to enable the deal to be completed.
The Commission is demanding the LSE sell off its majority stake in the Italian division of the MTS – one of Europe’s leading electronic fixed income trading markets, which plays a key role in trading of Italian government bonds. Within the single market, Brussels controls competition laws and the Commission believed the merger would create a company with too large of a presence across European markets. The LSE concluded it could not commit to selling its stake in the MTS, as it would be too detrimental to its business interest. As trading opened this morning, shares in the Deutsche Börse were down approximately 5%, while LSE dropped 3%. There is a further assessment planned by European Commission in March, so the deal may not be completely dead as of yet.
Questions to ask yourself… What are the potential problems with a lack of competition in this market? Will Brexit have an impact on mergers like this?
2. Barclays’ and Lloyds report profit boosts
Last week, Lloyds Banking Group posted its best results for a decade, as the firm reported a pre-tax profit of £4.2 billion for 2016 – more than double the previous year. The bank is now almost all privately owned and is showing a strong recovery since the financial crisis nine year ago. The government acquired a 43% share in Lloyds during the crisis but now has less than a 5% stake. The reduction in Payment Protection Insurance (PPI) repayments has been seen as a crucial factor in the boosted profits.
Barclays’ also announced excellent results last week, as they tripled profits to £3.2 billion in 2016, compared to the previous year. The bank has strived to move past the 2012 Libor rate-fixing scandal and last year there was a fall in provisions for legal matters from £4.3 billion to £1.3 billion – a vital reason for the boost in profits.
It wasn’t a good week for all British banks as RBS reported a ninth year of losses. The bank, which is 73% owned by taxpayers, revealed a £7 billion loss and stated it would not return to profit until 2018. It also announced a £2 billion cost-cutting plan that will lead to more job losses and bank closures this year. RBS’ share price had been up earlier in the week on the back of positive hints that the government would be selling off some of its stake to the private sector. However, this latest performance announcement caused a 4% drop to 246p – the taxpayer paid 502p per share during the bail out.
Questions to ask yourself… What can RBS do to return to profitability? Should the government be aiming to sell off their share in banks as soon as possible?
3. Is Labour in irreversible decline?
A Labour MP has suggested the party is on course for a ‘catastrophic defeat’ at the next general election, after they lost the Copeland by-election to the Conservatives on Thursday. The surprise result is the first time in 35 years a governing party has gained a seat off the opposition in a by-election. Labour held Copeland in Cumbria for 80 years but were comfortably swept aside by Tory candidate Trudy Harrison on Thursday.
It wasn’t all bad news for the Labour Party, as they held the Stoke Central constituency from UKIP leader Paul Nuttall. In an area which voted heavily for Britain to leave the EU, the UKIP leader was tipped to have a strong chance of toppling Labour. However, after a scandal-hit campaign, Nuttall only managed a distant second, as Labour won with 37.1% of the vote.
Talking at the Scottish Labour Party Conference in Perth, Jeremy Corbyn called for unity within the party and reinforced his commitment to fighting the next general election – likely to be in 2020. However, many key figures in the party don't back his leadership and this has been hailed as a key factor in the Copeland loss. Many well-known politicians have refused to serve in Corbyn’s shadow cabinet since he replaced Ed Milliband in 2015, while others have resigned – including Hilary Benn, Jo Stevens and Owen Smith. Negative comments by ex-PM Tony Blair and Peter Mandleson in the past weeks have also highlighted the deep divisions in the party.
Questions to ask yourself… Can Corbyn be taken as a serious leader with so many key party figures speaking out against him? What makes for successful leadership?
4. Walmart beats expectations
On Tuesday, Asda’s owners Walmart reported a 1.8% like-for-like sales increase in the fourth quarter of 2016. In 2015, the American giant announced a turnaround plan, focusing investment on their online offering and improving stores. The encouraging news was a 29% increase in online sales, suggesting the turnaround was already producing desired results. However, the higher costs due to the investment did cause an 8% fall in gross profit margins. This wasn't enough to tarnish overall confidence in the future of Walmart and its share price rose 3.3% on the back of the report. In the UK, Asda have struggled to deal with increased competition from discounters Aldi and Lidl and are working through a turnaround plan themselves.
It wasn’t just Walmart that provided a boost for the US markets, with legendary investor Warren Buffett backing US businesses to create “mind-boggling” wealth. In an annual letter to shareholders of his multinational conglomerate Berkshire Hathaway describing the performance of the 90 companies they own, Buffett stated his high hopes for the American economy. Interestingly, the letter made no reference to the political situation in the US and didn’t mention Donald Trump.
Questions to ask yourself… Will the trend to do more grocery shopping online mean more grocery store closures? How can Asda turn around its fortunes?
5. And finally… The Nokia 3310 is back
The legendary Nokia 3310 is back. The updated version of the phone first released 17 years ago was unveiled at the Mobile World Congress in Barcelona. Nokia released the license to start up HMD Global last year, who have produced a model which is largely similar to the old version. Often described as indestructible, the Nokia 3310 was known for its simplicity, long battery life and the game Snake. HMD have confirmed that they have made efforts to extend the battery life even further and have also added a colour screen. And yes, Snake is back.
The phone will be released in the coming months and will cost around £40. Technology has advanced significantly since the original’s release, which leads to questions as to whether people will purchase a phone without 3G or a touchscreen. However, for those looking to be less connected, wanting increased ease of use or are just after a trip down memory lane, it could be very popular.
Question to ask yourself… Can a phone which lacks the features of modern smartphones have strong continuing sales?