Below are our top 10 stories that you need to know about. Be sure to check our twitter page and Facebook page for regular posts of important headlines. Click on the links for full stories. This week’s news includes; The Flash crash of the Pound, PwC fully integrates its legal arm, small businesses to launch £1bn class action lawsuit against RBS and Twitter takeover rumours dissipate.
Opinion articles of the week:
- Both Francois Holland and Angela Merkel have now stated Britain cannot have access to the single market without freedom of movement. The loss of single market access is one of the key characteristics of a hard Brexit. Analysts believe that a hard Brexit could cost UK financial services industry up to £38bn. Click here for more
- The Economist explains here the difference between a hard and soft Brexit.
- Is the crisis of globalization the cause of Deutsche Bank’s troubles? Click here for more information.
- HSBC predicts Brexit will cause the pound to fall to €1 and $1.10 by end of 2017. Click here for more.
1. THE FLASH CRASH OF THE POUND
What actually happened? The pound plummeted in Asian trading early on Friday. And no-one really seems to know why. Overnight the value of the pound fell dramatically. It was briefly down 6%, hitting a value of $1.18 against the dollar at 7:09am in Hong Kong (00:09 in the UK).
The British currency has been on a downward trend since the Brexit vote, but this was the biggest move since the referendum on 23 June. The pound recovered to $1.24, which was still down 1.5% on Thursday’s value.
What caused the crash? No-one knows for definite. Market watchers quickly pointed to computer algorithms, which could have been reacting to a news story about French President Francois Hollande saying he wants to see tough negotiations with the UK over Brexit.
But it could also have been human error, as simple as a trader adding an extra zero to a number by mistake when making an order. It could also have been exacerbated by the time. It was after 7pm in New York, so financial markets there had closed. It was the middle of the night in Europe, so markets here were also closed.
Both these regions are major players in the foreign exchange market. As the strife began for sterling, there were fewer buyers active in the market. Extreme movements are more likely at times of lower trading volumes as there are fewer trades to calm any market panic.
Will we ever know what happened? It’s unlikely. The foreign exchange market is not one single market as it were, there are several platforms based in different countries.
A central clearing house, which records information on trades, as you have with stock market trading, would allow for an investigation into where a rogue trade came from.
Where will the pound go from here? The good news is that the value of the pound recovered slightly, after the initial plunge. But the gradual decrease is expected to continue as the UK’s economy struggles to cope with Brexit uncertainty.
What does this mean for me? In the short term, we will pay more for our holiday money, receiving less foreign currency for our pounds when we exchange them.
In the longer term, it is possible we will see prices in shops rise as companies importing goods into the UK pass on the higher cost they will see as a result of paying for things in currencies other than the pound. (BBC News)
The Financial Times provides an in-depth analysis of the crash and offers potential theories. Click here to view the article.
The biggest losers from this flash crash included AB Inbev who are set to acquire SAB Miller in a £100 billion deal. The crash cost AB Inbev a whopping $13 billion. Click here for more.
The crash also knocked £15 million of Sports Direct’s expected profits. Click here for more.
2. UK CYBER SECURITY
UK organisations have more than doubled their cyber security spending over the last year, but many still lack proper visibility.
According to research by PwC, spending by UK firms has increased from an average of £3 million in 2015 to £6.2 million in 2016, far exceeding the global average of £3.9 million.
However, 18 per cent still do not know how many cyber attacks they experienced last year, and 17 per cent of those surveyed do not know the likely source of incidents. (Business Reporter)
Despite all the spending a new report from BAE Systems shows that one in ten businesses lose more than £1 million due to cyber attacks. In a poll of 100 business executives, 57 per cent said their organisations had suffered cyber attacks in the last year, with 10 per cent losing £1 million as a result.
The average cost of a successful attack was £330,000, the figures revealed, even though 79 per cent of firms said they had measures in place to defend against them. However, one in five was not sure if they had the right security controls in place, and “many” had not tested their incident response plans in the last six months.
“The research confirms that cyber security is no longer merely a technical issue, but a challenge for the board,” said Julian Cracknell, managing director for UK services at BAE Systems Applied Intelligence, commenting on the report.
“Around a fifth of the businesses we talked to said they didn’t know or weren’t confident that they could return to business as usual within 48 hours of a serious cyber attack.
“Businesses need to ensure they have the right people, process and tools in place, so when a major incident occurs they are equipped to understand, contain and remediate.
Cyber security experts said the results showed a lack of preparation by businesses. (Business Reporter)
3. TALKTALK FINED
TalkTalk has been fined a record £400,000 for poor website security which led to the theft of the personal data of nearly 157,000 customers. The cyber attack on its website took place in October last year.
The Information Commissioner’s Office, which imposed the fine, said security was so poor that the attack succeeded “with ease”. The fine is the largest yet imposed by the ICO, which under its powers could have imposed a maximum fine of £500,000.
The Information Commissioner, Elizabeth Denham, said: “TalkTalk’s failure to implement the most basic cyber security measures allowed hackers to penetrate TalkTalk’s systems with ease.”
“Yes hacking is wrong, but that is not an excuse for companies to abdicate their security obligations.
“TalkTalk should and could have done more to safeguard its customer information. It did not and we have taken action,” she added.
In nearly 16,000 cases, the attacker was able to steal bank account details. The ICO explained that TalkTalk had been very lax in enforcing proper security on its own website. In May, TalkTalk revealed that the attack had cost it £42m and that 101,000 subscribers had left in the aftermath of the attack. (BBC News)
4. PWC FULLY INTEGRATES PWC LEGAL AS PROFITS RISE
PwC Legal LLP has been fully integrated into PricewaterhouseCoopers (PwC) UK, transforming the accountancy firm into a multi-disciplinary practice. The move follows the Big Four accountant posting global revenue up 1.5 per cent to $35.9bn (£27.9bn) for last year. PwC’s global revenue growth has slowed compared to the 10 per cent rise it reported in the previous year.
The integration of its UK legal and accountancy entities completed on 1 October following a two-year process. PwC Legal obtained an alternative business structure (ABS) in 2014, and has recently obtained the approval from the Solicitors Regulation Authority (SRA) to allow PwC to become the owner of PwC Legal.
PwC’s UK legal arm has been growing strongly and contributed £59.9m of revenue last year, up 24 per cent from the £48.5m recorded in the previous year. It currently has 16 partners, 26 directors and a total of 350 staff based in London, Birmingham, Newcastle, Manchester and Belfast.
According to Shirley Brookes, PwC’s head of legal in the UK, the integration will result in two major differences.
“Our lawyers will be physically embedded with PwC colleagues in the same team and will work together as one true team on transactions and projects,” Brookes explained. Prior to the shift, PwC Legal was in a segregated area of the building and had different engagement terms and invoice teams from the rest of PwC’s practices.
“We’ve always worked with PwC and been as integrated as possible. By breaking down the regulatory and legal hurdles, it really plays to our strength as a fully integrated practice,” Brookes added.
Rival Big Four accountancy firm EY is also a multi-disciplinary practice, a status it has had since December 2014 when the legal practice was incorporated with an ABS licence.
It currently has around 60 lawyers and consultants sitting in two different groups and offices. The domestic businesses team is headed by Philip Goodstone, who joined EY in 2014 from Addleshaw Goddard, and the financial services organisations practice is led by Matthew Kellett, former head of finance at Berwin Leighton Paisner. (The Lawyer)
5. SMALL BUSINESSES TO LAUNCH £1BN LEGAL ACTION AGAINST RBS IN EARLY 2017
Legal action on behalf of over 100 small businesses claiming RBS drove them into the ground for its own gain is set to launch early next year.
RGL Management Limited was formed in March to coordinate action against the bank’s now defunct turnaround division, Global Restructuring Group (GRG). It is now fully funded to issue a claim and has told City A.M. it is ready to launch legal action in early 2017.
There are now roughly 140 parties signed up and, with claims the averaging between £6m to £7m, the total claim could potentially pass the £1bn mark.
The announcement comes roughly three years after former government adviser Lawrence Tomlinson published a report alleging the RBS division drove small businesses into financial difficulties so they could be pushed into the GRG. This would in turn benefit the bank through further fees, increased margins and allowing it to purchase properties at knockdown prices through property division, West Register.
The announcement also may well place pressure on the Financial Conduct Authority (FCA), which is overdue to publish a report examining the allegations Tomlinson made about the GRG unit. The watchdog’s report was initially due out before the end of 2015, but the publication date has since been pushed back.
Solicitors firm Humphries Kerstetter along with barristers from 3 Hare Court Chambers have been secured to represent the claim. (City A.M)
6. FRACKING IN LANCASHIRE GIVEN THE ALL CLEAR
Horizontal fracking can go ahead, the government has said, in a landmark ruling for the UK shale gas industry. Communities Secretary Sajid Javid has approved plans for fracking at Cuadrilla’s Preston New Road site at Little Plumpton in Lancashire.
Environmentalists and local campaign groups reacted angrily, saying it was a denial of local democracy.
It means, for the first time, UK shale rock will be fracked horizontally, which is expected to yield more gas. A second site, Roseacre Wood, has not yet been given the green light amid concerns over the impact on the area.
Lancashire County Council (LCC) refused permission to extract shale gas at both sites last year on the grounds of noise and traffic impact, but Cuadrilla appealed.
In response to the decision, LCC has called on the government to do more to address people’s concerns about fracking.
“It is clear the government supports the development of a shale gas industry, but I would ask them to do more to address the concerns of local communities and the councillors who represent them by supporting the best environmental controls,” it said.
Mr Javid said the shale gas industry would support thousands of jobs and reduce the UK’s reliance on energy imports. (BBC News)
7. FACEBOOK LAUNCHES MARKET PLACE
Facebook has launched a Marketplace feature to let people buy and sell items locally, in a move that could rival sites like eBay and Craigslist. The new feature will debut in the US, the UK, Australia and New Zealand, the firm said in a blog post.
A smartphone app will be made available in the next few days with a desktop version due in the coming months. The new feature puts Facebook in direct competition with increasingly popular local online selling platforms.
The social media site is already being used for selling and buying via Facebook groups. Facebook will not be involved in the payment process and will not charge for putting items up for sale at the moment.
It is not the first time the social media giant has tried to expand into the second-hand market. It originally launched a desktop-only classifieds marketplace in 2007
Facebook shares traded marginally higher on Monday in the US while shares in eBay fell by more than 1%. (BBC News)
8. GOOGLE REVEALS NEW “PIXEL” PHONE TO CHALLENGE IPHONE
Google is embarking on a wholesale revamp of its mobile phone strategy, debuting a pair of slick and powerful handsets that for the first time will go head-to-head with Apple Inc.’s iconic iPhone.
Alphabet Inc.’s Google on Tuesday unveiled the Pixel and larger Pixel XL, the first phones that were conceptualized, designed, engineered and tested in-house. The Pixel handsets feature a Siri-like virtual assistant, flashy camera features and are the first to boast Android’s new Nougat 7.1 operating system. Their debut signals Google’s push into the $400 billion smartphone hardware business and shows that the company is willing to risk alienating partners like Samsung Electronics Co. and LG Electronics Inc. that sell Android-based phones.
Until now, Google had satisfied itself with dipping a toe into the smartphone hardware business with the six-year-old Nexus program, a co-branding effort that outsourced the vast majority of development to other smartphone makers. While well regarded, Nexus handsets were mostly a way for Google to experiment. But along the way, executives began to see the benefit of the Apple approach: a unified portfolio of consumer electronics products that show off its services better than partners can. A Home speaker device, a virtual reality headset, a Wi-Fi router system and an updated video streaming stick were also unveiled on Tuesday at an event in San Francisco.
Getting into the hardware business is a big, risky financial and operational commitment. But Google needed its own handset to ensure distribution for its web services, and more complex offerings like virtual and augmented reality.
Google declined to say how much it’s spending on the effort. However, Jason Bremner, a former Qualcomm Inc. executive who works on Google’s hardware products, put it in context. “Part of being the seller of record means that inventory, that supply chain risk — you know, hundreds of millions of dollars on the line on any given day — that’s on Google now,” he said. (Bloomberg)
9. TESCO SALES UP
Shares in the supermarket giant Tesco closed 10% higher after it reported another rise in sales, and said it would hit its full-year profit target. Like-for-like sales, which strip out the impact of new store openings, grew 1% in the half-year to 27 August, and in the UK they rose by 0.6%.
The firm said it had made “significant progress” in stabilising the business. The retailer is still recovering from an accounting scandal as well as reporting a record loss last year.
Sales have now risen for three quarters in a row since its nadir last year, when it struggled with stiff competition from discount retailers, as well as rebuilding trust after the accounting scandal.
Tesco said profit before tax fell 28% to £71m for the half year, mainly due to one-off costs, but the group said it was on track to make £1.2bn in full-year annual operating profit.
Mr Lewis also unveiled a new target for the group’s operating margins to be between 3.5% and 4% by the end of its 2019-20 financial year. In the first half of the year margins stood at 2.18%.
It plans to achieve that in part through another £1.5bn of cost reductions through increasing investment in its stores and network distribution. (BBC News)
10. TWITTER SHARE PRICE PLUNGES AS TAKEOVER RUMOURS DISSIPATE
Shares in social media website Twitter plunged by a fifth on Thursday amid worries about a lack of takeover interest. Technology website Recode reported that Google, Apple and Walt Disney were unlikely to bid for the company.
Cloud software company Salesforce.com is now thought to be the most likely buyer of the business. Twitter shares rose 5.74% on Wednesday on reports that it was expected to receive takeover bids this week.
Last month, the company’s shares shot up by 20% after a report said it had received takeover approaches, and that its directors were open to a deal which could come by the end of the year. Twitter had been the subject of takeover rumours prior to that, but was getting closer to a sale, according to US business news channel CNBC.
Twitter has suffered because its user figures have plateaued at about 300 million and it has not “been able to figure out a way to make money on those 300 million people, so they’ve had lots of swings at it and it hasn’t worked,” Douglas McIntyre, from 24/7 Wall Street in New York, said. (BBC News)