Commercial Awareness Update 21/02/19
1. UK pens trade deals
While parliament and the country remains at a loggerheads over Brexit, British Trade Secretary Liam Fox has been looking to secure trade deals ahead of Brexit. The UK is automatically a part of 40 free trade agreements (FTAs), which include 70 countries, as a result of its membership of the European Union. A Lords Committee report recently claimed that only 11% of the UK’s export trade relies on the EU’s FTAs, but this could rise to 36% once its agreements with Canada, the US, and Japan are concluded.
Of the six FTAs signed by Fox since January (at the time of publication), the UK-Switzerland trade deal has been the most celebrated: trade between the two countries was valued at £32 billion in 2017 by the Department for International Trade. Five more FTAs have been signed: with Chile, Eastern and Southern Africa, The Faroe Islands, the Palestinian Authority, and Israel. The UK will immediately lose the 40 deals it is a part of in the event of a no-deal Brexit on 29 March.
Why are FTAs so important? What are the benefits?
2. UBS found guilty of tax fraud
Swiss bank UBS was yesterday fined €3.7 billion by a court in Paris after being found guilty of tax fraud. French prosecutors claimed that the bank helped French clients hide billions from tax authorities between 2004 and 2012, and that the proceeds from tax evasion were systematically laundered on an ‘industrial’ scale. UBS has already lost similar cases in Germany and the US. The case is testament to the increased pressure European banks have faced to comply with anti-money laundering regulations since the financial crisis. UBS has said that the claims are false allegations, and that it will appeal due to the lack of evidence.
Should banks be more transparent? Is there sufficient evidence for the allegations? Should banks be regulated less or more?
3. Honda to close Swindon car plant
Japanese car manufacturer Honda has announced that it will close its only EU factory, in Swindon, in 2021. 3,500 jobs will be lost and the UK Business Secretary Greg Clark has called the news ‘devastating’ for Swindon and the UK. Honda’s announcement has sparked the debate of why so many companies are pulling out of investing in the UK recently. Many point to the closure of factories and job cuts in the car industry as an example for Brexit forcing companies to relocate.
But Honda’s senior vice-president for Europe, Ian Howells, claimed that ‘[t]his is not a Brexit-related issue for [Honda]’, citing the global changes in the car industry and the need to launch electric vehicles. And falling demand for diesel vehicles due to stricter emission regulations is another reason for which the car industry has suffered as of late. Dyson also denied that the relocation of its headquarters from Britain to Singapore was Brexit related: sales in Asia drove up its core profits by 41% last year, largely thanks to the continent’s vibrant middle-classes.
Is Brexit a factor despite Honda’s statement claiming otherwise? How does it weigh up against the other factors? Why are so many Japanese companies relocating from Britain? Is Brexit obscuring greater, underlying economic concerns?
4. Lloyds' PPI bill swells
Lloyds Banking Group has set aside another £750 million to account for compensation it must pay to claimants of PPI. Payment protection insurance (PPI), was notoriously mis-sold to millions of customers who did not need it, and insurance companies in the UK have already paid out a total of £31.9 billion in compensation. Lloyds’ total bill now stands at £19.4 billion, and accounts for 53% of the 16 million PPI policies it has sold since 2000. With the 29 August deadline for making PPI claims looming, Lloyds has been making fewer additions to its bill, helping its profits rise by 24%.
Will Lloyds be damaged by the amount it will have to pay in compensation? How was PPI mis-sold to so many customers?
5. Siemens and Alstom merger derailed
The success of Gregg’s latest vegan sausage rolls have caused a surge in sales with profit expectations increasing for the third time in three months and sales climbing nearly 10% in the seven weeks leading up to 16 February. Only last month, the bakery was struggling to keep up with demand for the £1 vegan rolls after selling hundreds of thousands of them in the first week of its release. Greggs said that the publicity surrounding the new meat-free savoury had boosted the number of shoppers visiting its bakeries, boosting sales of both ‘the vegan-friendly sausage roll and our other iconic sausage rolls and bakes’.
What other factors, other than the product itself, contributed to its success? To what extent do you think it was the sales of the actual product rather than the publicity associated with the launch?
6. Asda sales growth slows amid merger uncertainty
The supermarket chain, owned by US grocery giant Walmart, posted only a 1% rise in sales in the fourth quarter. Although this growth marks Asda’s seventh consecutive year quarter of sales growth, it is slower than the 2% recorded in the previous quarter. The slowdown has happened whilst Asda is waiting for approval from The Competition and Markets Authority (CMA) over its £12 bn planned merger with Sainsbury’s. However, Asda’s Chief Executive Roger Burnley says ‘the year ahead looks no less turbulent than the last, with uncertainties around Brexit playing on our customer’s minds.’
How can Asda remain focused on ensuring the long term sustainable success of Asda for their customers? In what other ways are the potential implications of a hard Brexit increasingly on the mind of consumers?
7. Walmart shares surge
Walmart has reported that their earnings and revenue for the holiday quarter has surpassed analysts’ expectations because of the 43% increase in e-commerce sales. Despite the Commerce Department last week putting a damper on the retail industry, CEO Doug McMillon said ‘a favourable economic environment’ has been helping Walmart grow sales and take market share from rivals. This unexpected growth demonstrates the strong health of the US consumer as spending remains robust due to the strong labour market and lower gasoline prices. As a result, shares of the largest retailer have jumped 2.2% on Tuesday putting them up 9.7%.
How do gasoline prices affect consumer spending? What reasons are there for the slowdown in US consumer spending? How can the Walmart business model accommodate the rising popularity of e-commerce?
London law firm announces cannabis department open for business
London law firm Mackrell Turner Garrett is looking to take advantage of the recent legalisation of cannabis by launching the UK’s first dedicated cannabis law department. The firm is following in the footsteps of law firms in the US who are reportedly already making business by focusing on consumer needs regarding the rapidly growing cannabis industry. Whilst recreational use in the UK is still illegal, a recent change in the law allows doctors to prescribe cannabis-derived medicinal products and cannabis oil (CBD).
Lord Chief Justice calls out ‘sexism’ on the bench
Lord Burnett of Maldon said that the recent rise in reports of inappropriate conduct towards women calls for ‘further investigation and consideration, both by the professions and the judiciary’.
QC appointments dips to a 3-year low
The number of Queen’s Counsels (QCs) appointed this year has fallen to 108 from 119 last year. For the second year running fewer solicitor advocates have been appointed, with only four taking silk this year. Of the four, two are White & Case partners and another an Allen & Overy partner. Chair of the QC Appointments selection panel, Sir Alex Allan, however, voiced his concerns about the low number of female applicants. Last year’s record appointment of 18 QCs from ethnic minority background also fell.
Latham hire proves US firms are on the hunt for real estate PE talent
Latham & Watkins has this week added Jones Day partner Neil Ferguson to its private equity practice. Among Ferguson’s clients were Goldman Sachs and Bain Capital Credit. Jones Day has over the last year already lost another private equity partner, a disputes partner and a real estate partner. For Latham, Ferguson is one of many lateral hires, after the firm already picked up partners from Allen & Overy and Clifford Chance.