Hedge funds burned as Kier defies the doom-mongers to boost profits

Hedge funds burned as Kier defies the doom-mongers to boost profits

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Builder Kier turned the tables on the short-sellers amassing a £100 million bet against the firm today as it unveiled rising profits and a record order book.

The construction and property firm has been targeted by a clutch of short-sellers lately as 10 hedge funds — including big names like Marshall Wace, Och-Ziff and GLG — bet on the shares going down.

Since the collapse of Carillion in January speculators scouring the market for fresh targets have alighted on Kier amid worries over its debt pile and exposure to uncertain construction markets, making it the fifth most-shorted stock on the market with 10.3% of its shares on loan.

But on Thursday it produced a 9% rise in pre-tax profits to £137 million in the year to June and record orders of £10.2 billion. That was in part boosted by Carillion’s demise as Kier took on bigger shares of HS2 and “smart motorways” joint ventures with the company.

The results drove shares 6%, or 41p, higher to 1081p today, a classic “short squeeze” as those betting against Kier rushed to cover their positions. Chief executive Haydn Mursell said: “We are very proud to be Kier and we are definitely not Carillion. We are pleased with our balance sheet and our progress.”

Mursell is “future proofing” Kier, aiming to cut net debt to an average £250 million by 2021 and targeting up to £50 million through sell-offs. But the firm also hopes to benefit from Theresa May’s £20 billion windfall for the NHS. “Health is certainly on its heels in terms of growth,” he added. 

Numis said: “Kier has demonstrated consistent and robust earnings performance when peers have suffered in UK construction. However, we see scope for accelerated debt reduction.”

Source Article from https://www.standard.co.uk/business/hedge-funds-burned-as-kier-defies-the-doommongers-a3941526.html

September 20, 2018 |

Anthony Hilton: Marsh swoop betrays anxieties of a risky business

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When the number one insurance broker Marsh & McLellan decides to buy the number three broker in London, Jardine Lloyd Thompson, you know they are hurting.

It is not that JLT always said it was not for sale, though that was the message. Nor is it that Marsh Mac sees conventional opportunities in the  business that JLT itself could not spot or could not capitalise on, though that is one supposed rationale. 

It is certainly not that JLT has an army of dedicated staff who will slot in happily in Marsh Mac, because there are bound to be redundancies. 

Rather it is that insurance is more competitive and the brokers are struggling — even the biggest of them — to seem relevant.

The nature of insurance is changing. The biggest corporate risks, the multinational corporations, used to think they could and should cover 90% of their assets. 

But that was in the days when they did their manufacturing in-house, and fire and flood were natural hazards. People knew what the risks were, even if they did not know where they would strike. 

These days it is different. Risk is much more abstract. Firms have to contend with cyber, with reputation, with rogue traders, with supply chains, with terrorism, with intellectual property. 

They don’t know what the risk is, and underwriters don’t really know either. As a result underwriters fight shy of taking these risks on, and multinationals struggle to cover 30% of their exposures. Insurance has also been assailed by hedge funds and catastrophe bond providers, who cherry-pick.

 Pension funds buy cat bonds which give a good return day to day but have to pay out if there is a disaster, just like insurance. Hedge funds have been adept at moving in when markets look like they are turning up and riding the upside. 

Again, insurance provides a better yield than conventional assets — in the good times.

Then there are emerging risks, like driverless cars. Whereas now everybody has a car policy and the claims are manageable in the sense that they require straightening a bit a metal, or putting a person through rehab, it will be different in future.

There will be no accidents with driverless cars until some day when a software engineer screws up and the whole of London has a crash. An era of small steady claims suddenly becomes highly unlikely but potentially catastrophic.

Insurance is also bothered by fintech, or insure tech. There are several interesting models — like Lemonade in the United States which rebates premiums — and others where people only need cover if they are actually driving. In China at the airport you can bet on flight delays and with another app you take a selfie and that is enough information for life assurance. 

So insurance is a business which is starved of premium, plagued with over- capacity, and unable or unwilling to provide the range and extent of products which customers want. This puts the brokers in a dilemma — and trying to take additional fees off underwriters, as they are, to compensate for strains elsewhere is not the way to solve it.

But some corporates have responded. The oil market for example, is exploring in ever more dangerous places. 

Wells are sunk 30,000 feet deep — think of an aircraft at 30,000 feet and imagine what that is like underground —  where the drill has only an eighth of an inch of free movement. Insurance brokers say these kinds of risk are just too complex — like BP’s Deepwater Horizon Gulf spill — so rather than be confrontational, client and broker should collaborate. Both sides should agree what the risks are, rather than seek to get an edge over the other. 

Broker expertise would be shared with the client and they would become customer-led rather than producer-led, meaning the client, not the insurance underwriter, would hold sway. 

Brokers would seek to minimise what the risks were and use their expertise to help the client to make sure they were not made real.

They would stop taking on whatever risks the client identified in the hope that a gullible underwriter would sign up, because in reality those exposures are utterly catastrophic if they do materialise — in which case the underwriter is out of business.

The broker would get a fee from the client for his consultancy rather than brokerage from the underwriters for placing the business. 

That is the rationale of this merger — both sides working together as consultants to reflect the mutual interest of client and broker. But whether Marsh Mac pulls it off is another matter.

Source Article from https://www.standard.co.uk/business/anthony-hilton-marsh-swoop-betrays-anxieties-of-a-risky-business-a3941511.html

September 20, 2018 |

Top City bankers get behind £9 million fundraise for brainy drinks maker

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A start-up company selling drinks claimed to boost brainpower has raised £9 million from some of the City’s top investment bankers.

Anthony Gutman of Goldman Sachs and Rothschild’s Akeel Sach are among bankers who have invested in serial entrepreneur David Spencer-Percival’s No1 Rosemary Water brand. Other backers include ex-Capita boss Paul Pindar.

Spencer-Percival, who made millions from his recruitment businesses Huntress and Spencer Ogden, claims extract of rosemary improves brain function.

He said a forthcoming peer-reviewed study from scientists at Northumbria University to be published shortly confirms his claims.

The brand is already shifting 70,000 bottles a month through Marks & Spencer, Waitrose and other stores but its new funding will fund the launch of a range of new drinks developed with Kew Gardens featuring other healthgiving herbs including basil and fennel.

Spencer-Percival told the Standard in November 2017 he got the idea for his posh drinks business after reading an article about Acciaroli, a village in south-west Italy, famed for its rosemary-chewing centenarians. 

Source Article from https://www.standard.co.uk/business/top-city-bankers-back-9-million-fundraise-for-brainy-drinks-maker-a3941491.html

September 20, 2018 |

Carl Mortished: Brexit doomsaying can't beat British nostalgia for gloom

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This week brought more warnings from the top table telling us that Brexit will be bloody tough; house prices will collapse if we don’t keep the EU in a tight embrace. The IMF says that all Brexit deals will make us poorer but to leave without a deal would be very costly, indeed. We have heard it many times before.

I wonder why they bother because it makes no difference. For a very large group of people, tough times, hardship, that feeling of marching down a long dark tunnel towards a dim light is exactly what they miss and why they voted to leave the European Union.

It’s no good telling the British they will be worse off: prices higher and jobs lost, petrol more costly and holidays unaffordable. Above all, don’t say it will be like going back to the 1970s. Astonishing though it is, there is a big constituency of people who look back at that era of struggle — coin-operated electricity meters, the stink of damp wool, unheated homes and dreary food — with fondness. 

It’s not a question of Left or Right. The rose-tinted spectacles are just as common among the older Labour voters in the North (who remember those glorious days when the TUC mattered) as they are among older Tories in the shires (who miss doorstep milk and deferential tradesmen).

The French have a phrase for hankering after squalor, la nostalgie de la boue, which is literally translated as nostalgia for mud. In Britain, we do this too: think of the romanticising of nasty criminals such as the Kray twins, or even the absurd fantasy of Downton Abbey: dare we imagine what it would really be like to be a Downton servant?  

But in this country, people also feel another nostalgia — they hanker after a hardscrabble world of endurance, triumph over impossible odds — and over the past few years, the popular media has served up abundant fare to satisfy anyone’s craving for nostalgic pain and suffering: Call the Midwife and Victoria on television as well as films about Churchill and Dunkirk.

If Brussels notices this weird obsession, they dismiss it as nostalgie de la guerre (nostalgia for war).  It’s true that war doesn’t quite do it as a nostalgia trip across the Channel or across the Irish Sea. Perhaps in places which have experienced invasion there is a common understanding that such dramas can never end well and therefore cannot inspire nostalgic yearning.

Whatever you might call it — nostalgie de guerre or a sentimental journey to Churchill’s sunlit uplands — there is a yawning gap in understanding of what is driving Brexit. 

It is utterly futile for Remainers to sound the alarm about job cuts, thumping losses at John Lewis and House of Fraser, negative equity in the housing market and capital flight to New York, Paris, Frankfurt and beyond. Such commentary only excites Brexiteers. Bring it on, they cry. We have been there before. We will triumph again!

This isn’t just populist rhetoric or the stale xenophobia of a comic-strip view of history; it is Britain’s national mythology, and unless the country is administered a very cold shower soon, events next year could cause real harm to a great many people. 

More alarming is the cynicism of those investors who expect to profit from the long period of chaos that may lie ahead. The words of one hedge fund employee, who I encountered while canvassing for Remain in 2016, still ring in my ears. “It  could mean three or even five years of recession if we leave. But it will be worth it,” she said.

Your pain might mean profit to a hedgie; volatility creates opportunities for the short-term investments that are bread and butter for City traders. However, volatility is a curse for any long-term investor, such as a car manufacturer who must take a 10-year view on a new engine. 

Why, then, is the Labour leader loathe to condemn Brexit and all its works? Surely a stable prosperous economy is good for the British working man?

The answer is quite simple. Britain is enslaved by a mythological beast and it has devoured both the Left and the Right of British politics. There is precious little to choose between Jacob Rees-Mogg’s 50-year march to the sunlit uplands and Jeremy Corbyn’s socialist fantasies. The Labour leader believes in revolution. He wants to bring down the capitalist order and what better opportunity than in the turmoil of a post-Brexit Britain? Bring it on, comrades.

Source Article from https://www.standard.co.uk/business/carl-mortished-brexit-doomsaying-can-t-beat-british-nostalgia-for-gloom-a3940411.html

September 19, 2018 |

KPMG admits falling 'significantly short' of standards when monitoring bank

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Accounting firm KPMG was back on the naughty step with the industry watchdog on Wednesday as it admitted to falling “significantly short” of standards in its monitoring of custodian bank BNY Mellon.

The Financial Reporting Council has been investigating the firm’s work with BNY Mellon — which looks after trillions in assets for companies — since June 2015.

on Wednesday KPMG, which is also being investigated for its auditing of firms including Carillion and Conviviality, admitted misconduct over its handling of BNY under so-called Client Asset Sourcebook (Cass) regulations.

It is understood the firm failed to flag up with the Financial Conduct Authority that the bank had not kept separate asset records for its group and its London branch as required under the rules, which changed in 2011.

Partner Richard Hinton also admitted misconduct. KPMG’s fine will be set by tribunal, but PwC were fined £1.4 million in a similar case relating to JP Morgan in January 2012.

 KPMG said no clients lost money and added: “We accept and regret that our work did not fully reflect all aspects of this new guidance.”

Source Article from https://www.standard.co.uk/business/kpmg-falling-significantly-short-of-standards-when-monitoring-bank-a3940266.html

September 19, 2018 |

Danske Bank chief steps down amid €200 billion money laundering probe

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The chief executive of Denmark’s largest bank Danske Bank resigned on Wednesday amid allegations of a money laundering scandal at the lender’s Estonian unit. 

Thomas Borgen, who has headed the bank since 2013, resigned following the publication of an internal investigation covering around €200 billion of payments made through its Estonian branch between 2007 and 2015.

The bank said “major deficiencies” in oversight at the branch opened the door for suspicious payments by non-resident customers from places like Russia, the UK and the British Virgin Islands. 

Although it does not imply illegal activity, the payments should have been flagged up to the authorities as suspicious.

“The bank has clearly failed to live up to its responsibility in this matter,” said chairman Ole Andersen

“The findings of the investigations point to some very unacceptable and unpleasant matters at our Estonian branch, and they also point to the fact that a number of controls at the Group level were inadequate in relation to Estonia.”

Shares shed 8% on Wednesday and are down by a third so far this year. 

Danske’s Estonian branch had 15,000 customers, who carried out €200 billion worth of payments. 

The riskiest 6,200 customers were assessed and the “vast majority have been found to be suspicious,” the report found. 

Source Article from https://www.standard.co.uk/business/danske-bank-chief-steps-down-amid-200-billion-money-laundering-probe-a3940236.html

September 19, 2018 |

Jim Armitage: Fear and greed descend from a clear blue sky as JLT is snapped up

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For an industry supposedly good at predicting major events, the London insurance market woefully failed to see this one coming.

The New York behemoth Marsh & McLennan’s swoop on Jardine Lloyd Thompson, the last quoted British broker on the London Stock Exchange, struck land like a hurricane from a clear blue sky. It sent the City’s broking community huddling in corners to take cover. What does it mean for staff? What does it mean for London? And, most importantly for clients, what does it mean for prices?

Fear and doubt for employees, greed and opportunity for rivals. 

You can’t blame the market for its surprise. JLT’s tough-talking chief Dominic Burke had long expounded on the joys of independence. Besides, broking mega-deals were a thing of the Nineties. Plenty of insurance deals have been happening lately, but they’ve been between underwriters, not giant brokerages.

Smaller brokers have been getting gobbled up, but in the big league — the kinds of deals that get Goldman Sachs’ Mark Sorrell out of bed — the deal market’s been quiet.

If anything, rather than buying each other, megabrokers have been buying businesses that diversify them into other consultancy areas; witness Willis’s $18 billion (£14 billion) tie-up with consultancy Towers Watson.

So why does Marsh want to spend £5 billion effectively adding to what it does already? Chief executive Dan Glaser says he wants to profit from JLT’s expertise in broking areas where Marsh doesn’t rule the roost. 

But it’s hardly the most creative of deals. It won’t take Marsh — or JLT for that matter — into new, future-proof ways of servicing clients like a consultancy deal might do. Furthermore, Marsh will struggle to prevent an exodus of JLT staff. The difference in cultures will be vast, and many JLT staff will find their broker partners — particularly in the States — will no longer want to collaborate now they’re part of such a vast American player. Many more will find themselves getting squeezed out in the integration. 

Marsh has set aside £100 million to persuade people to stay, but rival firms will also be waving their chequebooks.

Some in London mutter that JLT could have defended itself better had it not diverted capital in recent years trying to compete in the US, where it was never going to beat the giants. In fairness, JLT has been a solid if not spectacular share to own since the financial crisis. Today’s 34% premium, to be paid in cash, is decent, and probably a knockout bid. 

Insurance companies, the underwriters whose policies JLT and Marsh are selling, are already squealing about the likely impact on commissions, but it’s hard to see monopoly regulators blocking the deal. The FCA, with its probe into insurance brokers in the UK, may express some concerns, but is unlikely to overturn a global merger of this size. The deal will go through, but the only winners will be JLT’s shareholders.

Source Article from https://www.standard.co.uk/business/jim-armitage-fear-and-greed-descend-from-a-clear-blue-sky-as-jlt-is-snapped-up-a3939086.html

September 18, 2018 |

Shares shrug off President Donald Trump's $200 billion tariff hit to China

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WORLD stock markets took Donald Trump’s $200 billion trade attack in their stride today amid relief that the full force of the latest measures will not be felt for months.

The escalation of the row had long been expected from the President, who slapped 10% tariffs on a fresh round of Chinese imports today. The tariffs will not be hiked to 25% until January although Trump has threatened further action on another $267 billion in imports if China retaliates. 

Asian markets pulled back earlier losses — with China’s Shanghai Composite Index up 2% — while European shares made modest progress. In London gains for heavyweight mining stocks limited the FTSE 100’s losses. 

CMC Markets analyst Michael Hewson said the market reaction was based on “sell the rumour, buy the fact” although he doubted the US was ready and willing to strike a deal, He said: “It seems quite clear that President Trump is uninterested in arriving at a quick resolution to this dispute. If, as most suspect, this is a ploy to play to his base ahead of the US mid-terms, it doesn’t leave much time between the timing of these elections, and the end of this year to arrive at a deal and prevent a move to 25% tariffs.” Reports overnight suggested Beijing was reviewing its decision to send a trade delegation to Washington next week.

ING Bank’s China economist Iris Pang said: “China is unlikely to return to the negotiating table given the threats. There is little sign yet that Chinese authorities are willing to acquiesce and that more monetary and fiscal stimulus is likely to be used to try and offset the negative impact of trade protectionism. However, a new round of trade tariffs on US imports into China is clearly being readied with aerospace and car companies most likely in the firing line.” Products including Apple watches and Fitbits were spared in Trump’s latest move.

Source Article from https://www.standard.co.uk/business/shares-shrug-off-president-donald-trump-s-200-billion-tariff-hit-to-china-a3939071.html

September 18, 2018 |

Anthony Hilton: Is employment really full in our shocking gig economy?

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The Bank of England economist Andy Haldane said in one of his speeches that the economy was looking great.

Inflation, growth and employment all look good. In fact it was probably the best for 100 years. What could possibly go wrong?

Well, he thought of one caveat. The economy was also one of the worst he had seen.

Productivity was dire, 90% of households had seen no increase in their incomes for more than a decade, and there was no surge of investment.

It was no exaggeration to say that, on these measures at least, this was the worst economy for 100 years.

That was a few years ago, but the point is well made. The economy can be thought to be reasonably good if you look at some metrics. But looked at another way, it is indeed dire.

Indeed that was one reason for the Brexit vote. To most of the country London and the South-East is a bubble which bears no relation to their own lives.

So when asked by David Cameron not to screw up the economy with a Brexit vote, they did the exact opposite. As far as they were concerned, the economy was already screwed up. Whether it was the EU or something else was beside the point. They had had no increase of wages for 10 years. It was the worst period of non-growth since the 1920s. 

This country has a flexible labour force. It is one of the major reforms of the Thatcher years. Companies claim it helps them and helps to deliver full employment. They would be more circumspect about taking on a worker if it was then found to be impossible to get rid of him. 

But I wonder. One of the reasons productivity is so poor is that when wages are low, workers suffer psychological stress. This is well documented — indeed Andy Haldane did another speech on that topic a few years ago. 

Such an environment is not conducive to making processes more efficient, stamping out waste or trying out a new machine because the workers are instead just trying to make ends meet. Flexible labour, at least the type we have in this country, is arguably one of the things holding us back.

Be that as it may, John McDonnell, the shadow chancellor, has recently suggested how he might improve things, taking aim particularly at the gig economy. But he would appear not to have got anywhere. The people running companies do say the economy has to be rebalanced; they do think work has to be meaningful; they do worry about the spread of artificial intelligence and what it means; but then they say they want flexible working.  

No matter that the Germans and the French, to mention just two, have much more restrictive labour laws than the British. Their bosses react by looking for innovations and raising productivity, rather than sacking people. 

Some people like the gig economy, but it is in many ways shocking. There were 1.8 million zero-hour contracts that did not guarantee a minimum number of hours in 2017, four times the number of 10 years ago. And according to a study by Zurich, the insurance giant, one in three gig economy workers juggles at least two jobs at the same time.

As well as the 32% who hold two jobs, one in 14 — or 7% — holds three or more jobs. One in 10 takes up temporary work to help make ends meet in the holiday season.

Even Carolyn Fairbairn, the CBI director-general who is normally quite sensible, went gunning for McDonnell. She said we were at full employment, but what does that actually mean? It might mean employment, but it is hardly full. It may increase growth, but lower growth per capita.

Jobs used to mean holiday entitlement, sick pay, maternity and paternity leave, voluntary overtime and pension. The maintenance man who has been sacked and invited to tender for work as self-employed does not seem to have that.

Perhaps rather than thinking of everyone as full-employed, there should be a star system. The person with the maternity rights, pension and so on would be a five; the self-employed maintenance man would only score a one. 

We would then be less cavalier about saying we were at full employment, and we might even start to think about the real challenges facing our workforce.

Source Article from https://www.standard.co.uk/business/anthony-hilton-is-employment-really-full-in-our-shocking-gig-economy-a3938961.html

September 18, 2018 |

Tech billionaire Marc Benioff buys Time for $190 million following in Jeff Bezos footsteps

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Iconic US magazine Time has been sold for the second time in under a year, snapped up by technology billionaire Marc Benioff. 

Benioff, co-founder of software firm Salesforce.com, and his wife are personally buying Time for $190 million (£145 million) from US media group Meredith Corporation. Meredith completed its purchase of Time in January.

Benioff tweeted: “The power of Time has always been in its unique storytelling of the people & issues that affect us all & connect us all. A treasure trove of our history & culture.” The deal could close within a month but must first get regulatory approval.

It is understood the Benioffs will not be involved in the day-to-day operations or journalistic decisions, though Marc Benioff openly supported Hillary Clinton over Donald Trump in the 2016 presidential election.

Benioff, who according to Forbes is worth $6.7 billion, becomes the latest tech billionaire to buy a struggling media publication. In 2013, Amazon founder Jeff Bezos purchased the Washington Post for $250 million, which was experiencing declining advertising revenue and readership, while earlier this year pharma billionaire Patrick Soon-Shiong purchased the Los Angeles Times for $500 million.

Source Article from https://www.standard.co.uk/business/tech-billionaire-marc-benioff-buys-time-for-190-million-following-in-jeff-bezos-footsteps-a3938076.html

September 17, 2018 |
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