EU stalls merger of equals
AMONG all the Brusselsbased bureaucracies, the EU’s anti-trust team stands alone as a fearless defender of competition and free markets.
The Danish Competition Commissioner Margrethe Vestager is not fazed by corporate bullies – be they the mighty Apple, recently fined £12bn over alleged tax avoidance, or Europe’s two biggest stock markets Deutsche Boerse and the London Stock Exchange.
Over the next four months the EU will examine whether the unwanted £21bn ‘merger of equals’ between Deutsche and the LSE can be of benefit to anyone other than the shareholders and the option-laden executives in the two exchanges. The concerns of the competition regulators could change the whole economics of the transaction.
The regulator fears that the deal will sharply reduce competition in Germany’s equity trading and create a monopoly in stock futures and options based on Italian shares. But the most central objection raised is the reduced competition in the largest clearing market in the world, worth £115bn.
Both Deutsche and the LSE have said the clearing operations will be run separately and in parallel in Frankfurt and London. Maybe, but they will be under common ownership and will certainly be using a compatible IT platform, so will be separate only in name.
There is also the equally troubling question of whether concentrating such a large amount of risk in one institution can be sensible in prudential terms when it could be very capital hungry. The Bank of England, the Bundesbank and the European Central Bank might well be cautious about that.
The EU also notes that financial markets are an essential feature of the infrastructure of Europe’s economy, and it is in the interest of the region they operate on competitive terms. We can expect the LSE and Deutsche to come up with remedies designed to meet Vestager’s concerns.
Deal proponents worry that the adjustments might be inadequate or undermine the premise of the deal, which is to create a European champion to take on the Americans. Advisers and executives should not be heading to the Ferrari showrooms just yet. Casino royal AMID denials from the German authorities that they have drawn up contingency plan to take a 25pc stake in Germany’s largest bank, one was reminded of Humphrey Bogart chucking a Deutsche Bank employee out of his casino in the film Casablanca.
It is hard to be very confident about the future of the bank on the basis of the £935m of cash it will get from the sale of posh insurer Abbey Life to Britain’s Phoenix Group.
The deal will lead to a pre-tax loss of £672m as a result of a write-down.
Nor can the German lender draw much comfort from the Royal Bank of Scotland’s payment of £850m or so to America’s credit unions over sub-prime mortgage sales as a guide to its eventual settlement with US regulators after they demanded a £14bn fine for similar activities. The RBS penalty is only a partial settlement and the big battle with the Department of Justice over Fred Goodwin’s toxic legacy is still to come.
DB needs a rich fairy godfather. It is unlikely to be Jamie Dimon of JPMorgan Chase, who has his hands more than full supplying rescue funds for the Italian banks. Swallows and amazons IT MAy not be the best of times to be one of Britain’s top shopkeepers, as many on the High Street – not least Mike Ashley and Sir Philip Green, could testify.
Nevertheless, J Sainsbury’s chief executive Mike Coupe maintains a cheery demeanour. He may lack the showbiz factor of his perma-tanned predecessor Justin King but he is not letting Sainsbury stand still. Admittedly, same store sales in the quarter to September 24 fell 1.1pc but mostly Sainsbury is holding its market share.
Indeed, Coupe goes as far to argue that despite some unpleasant comparisons on price made by upstart Aldi, his own company could come up with a basket of selected goodies of equally low cost.
As for Brexit and the threat of higher food prices, Coupe is clear it is largely a non-event. At any one time wheat prices might be low and that would, for instance, offset the higher price for imported avocados. It is a case of swings and roundabouts.
Usefully, for Sainsbury the bits of the enterprise that look to the future – convenience stores, online, non-food and especially its stylish Tu brand, are still growing.
It is too soon to know how its biggest bet on the future, the £1.4bn purchase of Home Retail Group, the owner of Argos, is going. But the sales numbers are looking healthy.
Sainsbury is implementing plans to make online more cost-effective by using computerised route planning maps for staff doing the picking for online baskets. Digital click and collect counters at many of its stores, together with Argos outlets in superstores, are also on the agenda.
Sainsbury is not going to become another Amazon any time soon. But it is taking the initiative and parking its distinctive vans on the American giant’s lawn.