In this week’s Commercial Awareness update, we discuss the biggest US bank acquisition since 2008, the continuing impact of the Coronavirus, whether Japan is skirting a recession and Virgin Galactic's skyrocketing shares.
Morgan Stanley's big acquisiton
Investment bank, Morgan Stanley, have announced that they are looking to acquire e-trading platform, E*TRADE financial Corporation, for $13 billion, marking it the biggest acquisition by a US bank since the financial crisis in 2008. If the deal goes through, Morgan Stanley is set to become a leader in the Wealth Management industry, which now accounts for 57% of its revenue.
The acquisition of E*TRADE allows it to diversify its offering, with over five million new customers and $360 billion worth of assets, Morgan Stanley can now appeal to a broader audience.
This means that Morgan Stanley will soon manage over €3.1 trillion for wealth management clients. Moody’s Investor Service expects the deal to increase Morgan Stanley’s wealth management service by 30% and boost revenue.
The size of this acquisition by Morgan Stanley is significant and highlights a confidence in the bank and also a further strength in the economy.
Coronavirus' economic impact
Coronavirus continues to dominate the news and is affecting economies across the world as it continues to spread. China still has a number of regions under lockdown and with some companies still advising employees to stay home, they’re starting to feel the pinch from loss of productivity. Small and medium sized firms are looking at the prospect of struggling to repay loans and workers with only 60% of companies at this scale being able to cover payments for one or two months before running out of cash.
Fears surrounding the virus has also changed investment behaviour with the price of gold, a traditionally safe, low risk investment, hitting a seven-year high. However oil has continued to fall, along with stocks based within the travel and luxury goods sectors.
Stocks initially fell in January when the virus first hit the headlines but recovered when it seemed containable. New outbreaks across the world seem to be leading investors to reconsider and causing a depression within the markets
The Sun's falling sales
The owner of The Sun newspaper, News Group Newspapers announced they lost £68m last year as they dealt with falling newspaper sales and the fallout of the phone hacking scandal.
Sales of The Sun dropped 8% YOY moving an average of 1.38 million papers daily. The company is also still being affected by the phone hacking scandal from the News of the World for which News Group Newspapers is liable to pay compensation. In the last year settlement payments and legal fees associated with this totaled £54m and contributed to the group’s loss.
Despite this news, The Sun is still the highest selling physical newspaper in the UK, and the group has also reported a 10% growth in visitors to The Sun’s website. The shift from physical to digital media mirrors industry trends across the world with more and more people getting their news online, and physical newspapers sales falling. To combat this, many newspapers such as The Times have moved towards a paid online model, with other papers such as the guardian offering premium paid options.
Where do you get your news from, and do you feel that physical papers are outdated?
UK's inflation at a six month high
UK inflation rose to a six month high of 1.8% in January, a substantial increase from December’s 1.3% rate - a surprise to economists who anticipated a rise to 1.6%. This result was largely due to price increases of motor fuel, air travel and energy costs. Economists have welcomed this as good news as this means consumer confidence is high, and the economy is growing faster than expected.
When interest rates are low, the economy grows as people are spending more and consequently inflation increases. Inversely, when interest rates are high, less people are spending and inflation tends to decrease. The Bank of England was expected to cut interest rates due to December’s interest rate of 1.3% hitting the lowest level for more than three years. However, the recovery to 1.8% has meant they’ve held off this course of action.
The bank has said they are confident the UK would meet its 2% inflation target within the next three years.
Is Japan skirting a recession?
Japan, currently the world's third largest economy, appears to be heading for recession after figures slumped by an annual rate of 6.3% in the last quarter of 2019, the fastest drop in five years. It was suspected that Japan’s economy was in a poor state due to weak global demand, a major typhoon and a sales tax rise, however the GDP figures were far below economists’ predictions of a 3.7% decline. Consequently, Japan is now skirting a technical recession which is defined as a decrease in GDP over two consecutive quarters.
There are now concerns that the coronavirus outbreak, which has hit tourism and industrial supply chains, means that the slump will continue. Japan’s economy minister, Yasutoshi Nishimura, said the government is ready to take all necessary steps and was closely watching the impact the coronavirus outbreak could have on the economy. Things could turn around for Japanese economy with a boost from the Tokyo Olympic Games later this year.
What could the ripple effect of Japan’s economy around the world markets be?
Virgin Galactic skyrocketing shares
Virgin Galactic shares took off earlier last week, rising as much as 21% last Tuesday. The company, founded by Sir Richard Branson, is now worth an estimated $5 billion after shares have risen by nearly 200% following their IPO last October. Virgin Galactic has promised a commercial offering of transporting passengers into space - a seat on one of their rockets costing $250,000.
Last week, the space start-up announced that it had relocated its first commercial product, SpaceShipTwo, to its new commercial headquarters in New Mexcio, meaning the company is now a step closer to launching its passengers into space.
Investors are clearly excited by the prospect of Virgin Galactic as shares continue to rise despite no obvious news. Will Branson’s competitors in this space race, Jeff Bezos with Blue Origin and Elon Musk with SpaceX be able to keep up?