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Commercial Awareness Update 07/03/19

1. Money laundering a Countrywide issue

Countrywide has been fined £215,000 by HM Revenue & Customs for failing to comply with money laundering regulations. The estate agent has been targeted as part of a wider effort by HMRC this week to tackle money laundering in the real estate sector. 50 estate agents in the UK, most of them in London, are suspected of trading without being registered, which is in breach of regulations. Minister for national security and economic crime, Ben Wallace, has said that ‘estate agents are a crucial line of defence’ against criminals trying to launder money through the UK economy. Earlier this week, MEPs also called for a new EU anti-money laundering watchdog to be created.

How does money laundering work? Why has HMRC targeted estate agents? How has Countrywide responded?

2. Ghosn at last

Former Nissan boss Carlos Ghosn has been released from detention in Japan after paying his £6.8 million (1 billion yen) bail. Accusations that Ghosn under-reported his pay led to his arrest in November, which was said to have been expected by Nissan. The company had already launched an internal investigation and alerted prosecutors to concerns. This prompted Ghosn to claim that his arrest was a ‘clinically planned hatchet job’ to change the balance of power in the Nissan/Renault/Mitsubishi alliance. Nissan and Mitsubishi immediately sacked Ghosn, and Renault has now also changed its governance structure to separate the roles of chairman and chief executive. The strict terms of Ghosn’s bail include video surveillance and restricted mobile phone and computer access. Japan’s criminal justice system has subsequently received international criticism for its lengthy detention periods.

Is Ghosn’s punishment too harsh? Was his arrest a ‘clinically planned hatchet job’?

3. Giraffe bows its head

The owner of Giraffe and Ed’s Easy Diner, Boparan Restaurant Group (BRG), has announced that it is to close 27 stores, putting 340 jobs at risk. Both brands will enter into a company voluntary agreement (CVA), which can involve store closures for the purpose of cutting property costs. Stationery chain Paperchase also announced on Monday that it is entering into a CVA, adding to the long list of insolvencies the UK has seen over the past year. In the retail sector, Maplin and HMV were also affected, while Byron, Jamie’s Italian, Gaucho and Prezzo were among those involved in insolvency proceedings within the restaurant business.

What is a CVA? Why have there been so many insolvencies in the past year? Why has the restaurant business been particularly affected?

4. AT&T in Hollywood restructure

Texan telecoms company AT&T has unveiled a new restructuring programme which will see its WarnerEntertainment division come under the control of a new ‘television chief’. Robert Greenblatt, formerly NBC chairman, has assumed the role and is looking to take on Netflix. AT&T created the WarnerEntertainment division after acquiring Time Warner for $85 billion last year, which was then rebranded as WarnerMedia. That it plans to merge Time Warner’s networks with those of its own is proof of the culture clash that was feared before the merger becoming reality. AT&T is also still shouldering a large amount of debt after the acquisition, and after having bought plenty of cheap debt during the financial crisis. It has since come under pressure from investors to balance its books.

Are investors increasingly concerned about debt and, if so, why? Why is culture so important in a merger? Why did AT&T take advantage of the opportunity to buy cheap debt?

5. Barclays to merge bPay, pingit products

Following its struggle to attract users, Barclays is preparing to merge its wearable mobile payments products bPay with its more popular Pingit app. bPay was launched in 2014, and allows its users to top up prepaid credit onto wearable accessories to make contactless payments. However, whilst Pingit currently has 3.6 millions users, Barclays has only ‘tens of thousands’ of users.

Device-makers are also paying attention to the trend too. Last May, Apple and Goldman Sachs Group Inc. were developing a co-branded credit card as a way for the investment bank to deepen its push into consumer finance, and for the tech giant to play a bigger role in how its consumers manage their finances.

In what other ways are retail banks responding to the needs of consumers’ increasing use of their smartphones?

6. Can Amazon save shopping centers?

Several shopping centres have suffered with numerous retailers going out of business due to Amazon driving 80% of growth in ecommerce. However, with Amazon planning to open a new kind of retail store in partnership with Good Housekeeping Magazine, there is the potential to strengthen shopping centres as a viable place to shop. Amazon’s new experimental pop-up store, GH Lab, carries merchandise recommended by Good Housekeeping. Each item has a special Amazon SmileCode  which a customer can scan using the camera function on their smartphones.

So how can the latest retail innovation help revive the shopping centre? Amazon now gives chains a reason to expand and open up more stores. Retailers have been partnering with Amazon in several ways; some have opened storefronts on the site, some have boutiques with Alexa devices displayed in certain stores and also functions as a return centre for purchases made on Amazon.

Why is GH Lab a radical concept? How far can these partnerships actually help the shopping centre?

7. Bankers are circling Europe's cannabis market

In effect, investment banks are laying the foundations for an expected increase in stock sales, as well as mergers and acquisitions. This is an effort by companies seeking to capitalise on Europe’s growing acceptance of cannabis, specifically for medical uses. Canaccord Genuity Inc. is currently the biggest underwriter of stock offerings for cannabis-related companies. They appointed Tristan Gervais as Head of European cannabis investment banking in July to lead the firm’s push in the region.

On the legal side of things, Nick Davis, chief executive of London-based law firm Memery Crystal LLP, has said that advising firms in the CBD and medical cannabis sectors on raising capital is his ‘full-time job at the moment’. Davis says that their work covers some significant fundraisings and involves companies seeking to list on the junior AIM market and the Main Market of the London Stock Exchange. However, at the moment, the EU market still remains uninvestable for managers of institutional equity funds.

What kind of issues are arising in winning the hearts and minds of the investment community?

Legal News

Objections to super-exam

A group of junior lawyers have spoken out against the Legal Services Board’s (LSB) recent decision to approve the centralised super-exam, which is now set to come into force in autumn 2021 and likely to add thousands onto the final training bill. The Junior Lawyers Division (JLD) claim that this approval would be ‘contrary to the public interest’ and ‘protecting and promoting the interests of consumers’.

Flexible working at Clifford Chance

Selected lawyers at Clifford Chance will be offered the chance to apply for two months’ unpaid leave as part of a new commitment to flexible working. Three groups in London - finance practice, capital markets and TMT - will be able to take the sabbatical in the 2019/20 financial year. The magic circle law firm is the latest firm to embrace flexible working hours in recent years.

Legal consultancy at KPMG

Following the Big Four accountancy firms moving into the legal sector, KPMG is the latest to launch a UK branch of its legal consultancy service for in-house lawyers. The new Legal Operations & Transformation Services (LOTS) will be headed by Nicola Brooks, who joins from Travers Smith and worked as marketing manager at KPMG earlier on her career.

New approach to legal practice model

The traditional partnership model of legal practice has declined dramatically with almost half of all firms now setting themselves up as limited liability partnerships, according to a long-running survey of the sector published last month. The 9th annual UK Legal Services Market Report by IRN Research also notes that 1,300 of England and Wales 10,000 law firms are now operating as later alternative business structures.

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