Brexit Opinion articles of the week:
Many analysts argue that Brexit will not change London’s status as a global city. Click here for the debate.
Should the City be worried about the Brexit negotiator? Click here for the debate.
Brexit won’t kill the EU: It’s more likely to be a long-term blessing. Click here for more information.
Opinion Article of the Week:
Charities must think more like business to stay ahead in a tough new environment. Click here for more information.
1. BANKS STRESS TESTS
The Royal Bank of Scotland has suffered the biggest blow to its financial strength of any UK bank in Europe-wide checks. The bank’s capital ratios fell by more than seven percentage points in tests to assess how large financial institutions would perform in another major crisis.
The European Banking Authority tests suggested RBS would be left with just an 8% capital ratio buffer. The minimum considered acceptable is 4.5%.
Barclays would see its capital ratios fall by less than RBS – four percentage points – but would be left with a lower capital ratio buffer of 7.3%. The world’s oldest bank – Banca Monte dei Paschi di Si – was the worst performer
A bank’s capital ratio measures the funds it has in reserve against the riskier assets it holds that could be vulnerable in the event of a crisis. The tests showed that RBS and Barclays would both be among the 15 weakest banks of 51 assessed across the continent. (Sky News)
For more on the stress tests and what the tests involve, click here. (BBC News)
For the Financial Times’ analysis of the stress tests click here.
2. HILARY CLINTON
Hillary Clinton has cemented her position as the presumptive Democratic nominee, seizing her place in history as the first woman to contest a US presidential election at the head of a major political party.
For a short extract from her speech, click here. (The Independent)
3. HINKLEY POINT
Plans to build the UK’s first new nuclear plant in decades, Hinkley Point in Somerset, received an unexpected setback when the government said it wanted to delay its final decision on the project.
French utility EDF, which is financing most of the £18bn project, approved the investment required at a board meeting on Thursday evening.
That was taken as a signal that construction would get underway and contracts were due to be signed on Friday. But late on Thursday the UK Energy Secretary, Greg Clark, said the government needed to review the project before making a decision in “early autumn”.
For more on the project and the controversy and issues surrounding it, click here. (BBC News)
The boss of EDF in the UK says he is “confident” a new nuclear power station will be built at Hinkley Point, despite the government delaying its decision. (BBC News)
4. GSK TO INVEST IN UK DESPITE BREXIT
GlaxoSmithKline (GSK), the UK’s largest drug company, is to invest £275 million across three of its British factories, insisting the country remains an attractive place to invest despite UK’s vote to leave the EU.
The investment is to boost production and delivery of the company’s latest respiratory and biological medicine across three UK sites in Barnard Castle, Montrose and Ware.
Sir Andrew Witty, GSK chief executive, previously argued that Britain should remain a member of the EU saying, “It’s better to be in and improving it [EU] than to be on the outside and trying to plot a new course.”But on Tuesday he said the new investment is a testament to the UK’s leading position in life sciences.
GSK employs 16,000 people across the UK of which 6,000 work in manufacturing across nine sites. The company said the new investment is expected to create more jobs but did not give a specific number. Uncertainty surrounding UK’s vote to leave the EU has raised concerns that corporate investment in Britain would fall. (The Independent)
5. POLLUTION AND ELECTRIC CARS
Deaths linked to air pollution are set to increase significantly in the coming decades unless the energy sector takes greater action to curb emissions, according to the International Energy Agency (IEA).
Each year an estimated 6.5 million deaths are linked to air pollution. Around 3.5 million of these are linked to energy poverty due to the use of biomass for cooking and kerosene for lighting, while three million deaths are linked to outdoor air pollution, mostly in cities. According to IEA’s World Energy Outlook (WEO), the majority of air pollutant emissions come from energy production and use – mostly from unregulated, poorly regulated or inefficient fuel combustion. (Business Reporter)
Electric cars however, are zooming ahead in China. Last year the number of registrations of new electric vehicles overtook that in America, making China the world’s biggest market. Analysts expect the market to grow by nearly 50% a year for the rest of this decade.
The Chinese government does however, subsidise local makers of electric vehicles. Last year alone China shovelled over 90 billion yuan in subsidies into the industry, which it calls “strategic”.
Despite this China only has a 1.2% share of the electric car market, behind Norway who have a 23.4% of the market. (The Economist)
6. SHELL PROFITS FALL
Shell reported a 72 per cent decline in second-quarter earnings, missing estimates as lower crude prices continued to hurt income, while refining margins narrowed.
Profit adjusted for one-time items and inventory changes fell to £800m from £2.9bn a year earlier, Europe’s biggest oil company said on Thursday. Analysts had been expecting a £1.64bn profit.
Brent crude’s 25 per cent increase during the quarter provided some prospect of relief to oil companies after a two-year slump forced project delays and job cuts. Yet the subsequent price dip shows the recovery is likely to be lengthy. Shell’s loss from oil and gas production widened to £1bn in the quarter from £355m a year earlier.
Shell completed the acquisition of BG for £46bn on 15 February. The purchase gave it a 20 per cent share of the global liquefied natural gas market, with production facilities from Australia to the US, as well as high-margin oil fields in Brazil.
Shell’s B shares in London, the most widely traded, have increased 37 per cent since the deal was completed. BP has risen 30 per cent in the period and Total is up 11 per cent. BP reported a 45 per cent decline in profit on 26 July, while Total posted a 30 per cent drop in earnings on Thursday.
The biggest oil producers also run refineries, which have benefited from low crude prices over the past two years and provided a safety net as earnings from exploration and production dwindled. (The Independent)
7. DEUTSCHE BANK PROFITS FALL
Deutsche Bank, Germany’s largest lender, posted second quarter net income of €20 million (£17 million), down from more than €800 million (£669 million) a year earlier. Pre-tax profit declined 67% to €408 million (£341.2 million) in the period April to June.
The investment bank’s trading, markets, and corporate finance revenue all dropped while restructuring costs, including €67 million (£56 million) in severance payouts, increased. Despite the profit hit, Deutsche Bank outperformed expectations. Analysts surveyed by Bloomberg estimated a loss of €22 million (£18.4 million).
Deutsche Bank has tried to simplify its business, cut costs and reduce litigation and fines from poor conduct, as part of a plan started in October last year by new CEO John Cryan. The firm has scaled back on businesses that use a lot of regulatory capital, such as trading and markets, to free up resources. (Business Insider)
8. LLOYDS CUTS 3,000 JOBS
Lloyds Banking Group is axing 3,000 jobs and closing 200 branches as customers desert the high street for digital channels in a move that allows it to save costs at a time when interest rates are expected to be cut after the Brexit vote.
The job cuts come on top of 54,000 announced since the rescue of HBOS in 2008 and sparked an angry reaction from unions, which warned about the impact on customers.
The latest cutbacks to the remaining 75,000-strong workforce were revealed as the 9% taxpayer-owned bank reported a doubling in pre-tax profits and admitted it was being investigated by the Financial Conduct Authority over the way it handled customers having difficulty paying their mortgages.
The UK’s biggest mortgage lender and savings institution was unable to say whether it faced a penalty from the City regulator, but it has set aside £350m to cover the costs of mishandling customers in arrears not only with their home loans but also with unsecured debts. (The Guardian)
9. CORAL LADBROKES MERGER
Bookmakers Ladbrokes and Gala Coral must sell about 350-400 shops in order for their £2.3bn merger to be cleared, the competition regulator has said. The Competition and Markets Authority identified 642 local areas where it said the merger would hit competition.
Ladbrokes and Gala Coral are the UK’s second and third largest retail bookmakers, behind William Hill. Ladbrokes has about 2,150 outlets in Britain and 77 in Northern Ireland. Coral runs 1,850 shops in Britain.
A merger between Ladbrokes and Gala Coral would make it the UK’s largest bookmaker. However, on Monday, the current market leader, William Hill, was approached by rival gambling companies 888 and Rank Group about a merger. (BBC News)
10. BRITISH GAS LOSES 400,000 CUSTOMERS
Almost 400,000 customers deserted British Gas in the first half of the year as its parent firm, Centrica, saw profits take a dive. Centrica said 399,000 UK homes no longer get their energy from British Gas as a “competitive environment” saw more households switch to rival suppliers.
Chief executive Iain Conn said the first six months of the year had been “demanding”.
Operating profit for Centrica’s UK Home division dropped 7% to £516 million in the period, while the firm’s total revenue fell 13% to £13.3 billion. Adjusted earnings fell 14% to £507 million.
Claire Osborne, energy analyst at uSwitch.com, said British Gas has benefited from low wholesale energy prices but is still failing to pass on the savings to customers. (Business Reporter)