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In this week’s Commercial Awareness update, we discuss driverless cars being developed for ride sharing, Goldman Sachs’ retail bank, Saudi Aramco’s IPO, Wonga on the brink of collapse, Venezuela’s new currency and more.
Companies to watch
Carmaker Toyota has announced it’s set to invest $500 million in Uber and will work together to developing driverless cars for ride sharing. The technology that both companies have will be used to manufacture new cars, which will become available on Uber’s app. The aim is to deploy the safest cars onto the roads for 2021. Uber has recently stated that it plans to shift away from cars and develop their electric bikes and scooters, which they believe would be ideal for short journeys in big cities. In the last five years, congestion in London is rising and ride-hailing apps like Uber appear to be a major contributor to this.
Toyota’s investment values Uber at $7.2 billion, despite the company losing $4.5 billion in 2017. In recent months Uber halted trials of their autonomous vehicles after a crash in Arizona is being investigated.
Last week, Goldman Sachs opened a retail bank in the UK called Marcus as they expand their consumer banking arm internationally. Called Marcus, the bank’s 6,000 employees are able to open accounts with as little as £1 and it is expected to be open to the public within weeks. Marcus is currently offering savers a 1.5% interest rate, which is a lot higher than most other savings accounts available in the UK. It is thought that Goldmans are aiming to draw in customers with a high introductory rates, but they have stated that rates “may be subject to change for the nationwide launch, depending on market conditions”.
Marcus was launched in the US in 2016 and currently holds $22 billion in deposits - this move to the UK is the first launch of the retail arm outside of America, and they hope to expand into Germany in the near future. Goldman Sachs is traditionally a trading and M&A business, but this move highlights it’s thirst for innovation in the market that is utilise technology to offer ever-better services for customers.
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In April, you may remember Sainsbury’s announced plans to merge with Asda in a deal which would create a market-leading supermarket chain (in terms of market share). This week, Sainsbury’s third biggest shareholder, Invesco Perpetual’s UK equities fund manager Martin Walker has backed the planned merger, making them the first significant investor to publicly give the deal the thumbs up. However, there are still major obstacles to the merger actually happening. A recent survey revealed around 300 stores could close as a result of the deal and the competition watchdog, the Competition and Markets Authority (CMA) has launched a formal investigation. They will undertake a Phase 1 probe on the merger to assess whether it could lead to less choice for the customer, higher prices and/or poorer service. If the deal was to go ahead, the combined revenue of the stores would top £51 billion a year.
Saudi Arabia’s plans to list its state-owned oil company on the market appear to have been abandoned. Plans for the IPO have been ongoing since 2016 and if it was to go ahead, it has the potential to be the largest in history, valuing the company at around $2 trillion.
The plan was to complete part of the float on an international stock exchange, with London being one of the front runners. The Financial Conduct Authority (FCA) had relaxed listing rules and created a new category for sovereign-controlled companies in an attempt to encourage Saudi Aramco to list on the London Stock Exchange. Many thought this loosening of standards sent out the wrong message, and it ultimately hasn’t succeed with the oil company believed to have pulled budget for financial advisers working on the listing plans. Saudi Arabia has denied it has cancelled plans to go ahead with the IPO, but for now it appears the deal has stalled.
Reports suggest that Wonga is on the verge to collapse after the payday lender was forced to take a £10 million injection from shareholders. Despite the new funding, commentators believe that the company is beyond saving and is expected to go into administration. Founded in 2007, Wonga offered payday loans, designed to help people struggling to make ends meet for the few days before pay. Charging more than 4,000% interest rates, they quickly became profitable, making £84 million profit in 2012. At this point the company was considering a floatation which would have valued it at around £750 million.
However, there was vocal opposition growing to payday loans and Wonga in particular. They were forced to abandon their TV ads with puppets and much of their advertising messaging was being banned. When the FCA capped how much customers could be charged for payday loans and created new rules, Wonga was to write off £220 million in debts and interest. Since 2014, the company has been making a loss and even with their aim to offer longer term loan solutions, they have been unable to turn it around.
Questions to ask yourself… Should the FCA have put restrictions on what Wonga could charge? How could the customer benefit from a Sainsbury’s-Asda merger? What challenges do Goldman Sachs face breaking into retail banking the UK?
Venezuela’s new currency
The Venezuelan government issued a brand new currency last week in attempt to shore up their economy amid a time of economic turmoil and hyperinflation. The International Monetary Fund (IMF) predicts that inflation could reach 1,000,000% by the end of the year. Many Venezuelans have fled the country as fears of food and medicine shortages, as well as increased crime rates, continue. The new currency, Bolivar Soberano, has five zeros less than the outgoing Bolivares and is underpinned by the petro (the Venezuela state cryptocurrency).
There are a number of reasons Venezuela has ended up in these economic problems, with many pinning a large about of blame on their previous (Hugo Chavez) and current leaders’ (Nicolas Maduro) policies and a fall in global oil prices. Chavez used the country’s affluence from oil to fund social policy, which ultimately caused problems when the oil price collapsed. Furthermore, Chavez’s policy reform of price fixing for food and other essential drove local businesses and innovation into the ground.
Questions to ask yourself… What should the government do to solve the problem of hyperinflation? Can price fixing benefit an economy?
New research from Citizen Advice found that Britons owe a total of £19 billion in taxes, unpaid utility bills and charges for late payment. The charity believes the government isn’t doing enough to tackle what they call hidden debt. They suggest that falling behind on these bills could be more problematic than falling behind on a credit card bill for instance, as it runs the risk of people having their electricity, heating or water cut off. For unpaid taxes, like council tax, people can face criminal charges. Amongst the people in household bill debt, 34% have mental health problems and are significantly more likely to be out of work.