Loss of London Clearing May Cost £63Bn: LSE's Rolet
Stripping euro clearing from London as a result of the U.K.’s Brexit vote could cost banks £63 billion in additional collateral, almost doubling what they post now, said London Stock Exchange Group Chief Executive Officer Xavier Rolet.
Clearing has emerged as a battleground since Britain’s vote to exit the European Union, with French and German leaders arguing that euro operations shouldn’t remain in London once the U.K. leaves. But compelling lenders to clear those trades elsewhere would impose a "prohibitive cost on European banks," Rolet said at an event at the U.K.’s House of Commons.
“It will never come back to London,” if the clearing operations are removed, Rolet said. “What is most likely is that it will be New York” that will benefit the most, he said.
As British and EU leaders establish battle lines for what will be years of negotiations, Rolet is among leaders making the case that hurting the City of London would also hurt EU companies that rely on it as a vital centre for financing. They’ve argued that New York would be the ultimate beneficiary of Brexit.
Clearinghouses collect collateral and stand between traders to prevent a default from spiraling out of control, and their role in global finance has become far more entrenched since the 2008 financial crisis. Rolet has estimated about 100,000 clearing-related jobs in the U.K. could be lost post-Brexit.
LSE is the majority owner of LCH, which dominates the clearing of interest-rate swaps, handling more than 90 percent of cleared trades in major currencies.
“The notion that this would be casually offered up as part of some grand bargain because second-tier financial centres elsewhere in Europe stake a claim on that business would not service the interest of business, would not service the interest of issuers,” Rolet said.
U.K. Stocks Could Plummet 80%, Says Odey
Crispin Odey, whose main hedge fund has lost about 43 percent this year, says U.K. stocks could slump 80 percent as the economy is roiled by a recession and higher inflation following the vote to leave the European Union.
Shares will come under pressure after the FTSE 100 share index climbed 30 percent over five years even as earnings fell by 80 percent, the money manager said in a letter to investors last week seen by Bloomberg News. Odey Asset Management has short positions — bets the stocks will fall — in companies including Tullow Oil, Intu Properties, and ITV.
“We are now destined to have a recession in the U.K. as well as inflation,” Odey wrote. “It will be difficult for the stock market to remain above all of this.” An official at the $8.8 billion (£7.19 billion) London-based investment firm didn’t respond to a call and e-mails seeking comment.
Odey, who spoke in favour of Brexit before the vote in June, hasn’t made money at his main Odey European fund since 2014, when it gained 5.5 percent. He was down almost 13 percent last year. Business Insider reported the news from Odey’s newsletter earlier.
Talking Points
Piccadilly Line to Start Night Service: London Mayor Sadiq Khan said the capital’s Piccadilly Line will run a night service on Friday and Saturday nights starting on 16 December, bringing to five the number of underground lines running 24-hour services at weekends. Night tube services are projected to boost London’s economy by £77 million a year and support 2,000 permanent jobs, Khan’s office said in an e-mailed statement today. The night service finally got under way in August, almost a year later than planned, with 24-hour services on the Central and Victoria lines.
Brexit to Hit New Home Supply — JLL: Developers will start building fewer new homes in London next year as economic uncertainty created by the Brexit vote discourages buyers, according to broker Jones Lang LaSalle. Housing starts in the capital will fall about 11 percent to 16,000, the company said today. Transaction levels across the country will drop from about 1.2 million this year to 1.1 million in 2017, the broker said in an e-mailed statement.
U.K. Targets Cyber Security: Businesses and homes are increasingly vulnerable to cyber attacks as people install Internet-connected appliances and companies rely on outdated systems, Chancellor of the Exchequer Philip Hammond warned. Hammond used a speech in London today to set out the government’s Cyber-Security Strategy, pledging to “strike back” against malicious activity. It came as the U.K.’s spy chief warned Russia is using the same online tools to target Britain. In an interview with the Guardian newspaper, MI5 Director General Andrew Parker said Russia is an increasing threat to the U.K. and is employing cyber attacks to threaten its industry and military capability.
Politics
Carney's BOE Stay Won't See Britain Out of the Woods
Source: Chris Ratcliffe/Bloomberg
Theresa May might find the benefits of Mark Carney’s new personal Brexit strategy are rather short-lived.
By choosing to leave the Bank of England in mid-2019 rather than his initial plan of 2018, Carney is giving the economy a helping hand through the end of the U.K.’s split with the European Union. Yet by still declining to serve a full 8-year term through 2021, he’s forcing the prime minister to search for a skilled successor just as those talks reach their climax and executives and investors are coming to terms with what the post-Brexit economy looks like.
The BOE governor has been aggressive in providing stimulus to the British economy since the June referendum and his decision, after months of speculation over his future, provides a continuity that investors have welcomed. The key risk now is that with talks on the departure from the EU scheduled to begin by the end of March and last for two years, the economy will be struggling to find its feet outside the trading bloc before he leaves.
“It’s a critical point, 2018 to 2019,” said Philip Shaw, an economist at Investec Securities in London. “It was tricky enough getting Carney into the job in the first place. In 2019 the challenge will be just as great.”
That year will be a test for Europe as a whole, with Brexit and Carney’s departure set to take place just before the European Central Bank changes its own leadership. Mario Draghi is due to step down as president in October 2019 at a time when his institution might be tentatively trying to work out how to exit its own massive stimulus programme.
“This is the ultimate compromise,” said James Rossiter, senior global strategist at TD Securities in London, and a former Bank of England official. “If they are not quite done by then, hopefully negotiations are well underway and his departure is maybe not quite as negative for the economy.”
U.K. Must Find Best Ways of Taxing the Richest: Auditor
A unit set up to claim unpaid tax from the richest people in Britain raised £416 million in the past financial year but must do more to improve its enforcement activities, the National Audit Office said.
By concentrating on the 6,500 taxpayers with assets of more than £20 million, Her Majesty’s Revenue and Customs High Net Worth Unit exceeded its 2015-16 target of £250 million, the NAO said in a report published in London today. To raise more revenue, it must identify what techniques have worked best since it was set up in 2009, the spending watchdog said.
“The tax affairs of the wealthiest in society are complex, making it harder for HMRC to ensure that they are paying the right amount of tax,” NAO head Amyas Morse said in an e-mailed statement. “While the yields from HMRC’s work in this area have increased, it needs to evaluate what approaches are the most effective.”
Individuals with wealth of more than £20 million contributed £4.3 billion in tax in 2014-15 and formal investigations are being carried out into the liabilities of more than 2,000 of them, the NAO said. An initial estimate suggests £1.9 billion in unpaid tax over a number of years may be due as a result of the probes, of which avoidance schemes account for £1.1 billion.
The definition of “high net worth” has been extended to include people with assets of more than £10 million for the financial year that started in April, extending the reach of the unit, which has a staff of 380, to include a further 1,000 taxpayers, the NAO said.
In a move uncommon elsewhere in the world, the U.K. assigns one of 40 “customer relationship managers” to each wealthy individual and they “are responsible for understanding the risks and behaviours of the people assigned to them,” usually through working with their representatives, the audit office said.
Around Westminster
Tories Extend Poll Lead: Prime Minister Theresa May's Conservative Party extended its poll lead over the main opposition Labour Party to 14 percentage points, three points higher than a month ago, BMG Research said today. BMG polled 1,546 adults online on 19 to 24 October.
Around the World
Clinton, Trump Prepare for Election Overtime: Hillary Clinton and Donald Trump are arming up for a possible post-Election Day battle. Clinton is assembling a voter protection programme that has drawn thousands of lawyers agreeing to lend their time and expertise in battleground states, though the campaign isn’t saying exactly how many or where. It is readying election observers in Florida, North Carolina, Pennsylvania, Ohio, New Hampshire, Iowa, Nevada and Arizona to assess any concerns — including the potential for voter intimidation — and to verify normal procedures. The Republican National Lawyers Association aims to assemble 1,000 lawyers ready to monitor polls and possibly challenge election results across the country.
Pentagon to Ask for More MidEast Funding: The Pentagon will request about $6 billion (£4.9 billion) more for the current fiscal year to pay for troop increases in Iraq, a slower draw-down of troops from Afghanistan and more intense air operations, according to Pentagon Comptroller Mike McCord. The “budget amendment” also will respond to an urgent request from field commanders for additional systems to counter Islamic State drones, McCord said in an interview.
Zuma Lawyers Ask to Halt Graft Report: Lawyers representing South African President Jacob Zuma urged the High Court to halt the release of a report of the nation’s graft ombudsman into allegations that the Gupta family, who are friends with the president, exercised undue influence over the government.
Business
Factories Hail Pound Exports Boost, Fret About Costs
U.K. manufacturers are continuing to benefit as the pound’s depreciation helps exports, though many are also taking a cost hit from the currency.
IHS Markit’s Purchasing Managers Index showed that export orders rose at a “robust” pace in October, with increased sales to the European Union, the U.S. and China. Measures of input and output prices surged to the highest in more than five years.
Sterling has dropped 18 percent since the U.K. voted in June to leave the EU, and the survey results show the double-edged impact of the currency’s weakness. Around 90 percent of companies offering a reason for higher costs made some reference to the exchange rate.
“On the positive side, the boost to competitiveness drove new export order inflows higher, providing a key support to output volumes,” said Rob Dobson, an economist at Markit. “The downside of the weaker currency is becoming increasingly evident, however.”
The increase in purchasing costs was one of the steepest in the PMI’s near 25-year history. The headline factory gauge was at 54.3 last month, down from a two-year high of 55.5 in September, but still well above the key 50 line that divides growth from contraction. Dobson said that puts manufacturing back on a “firm footing” after its sharp contraction in the third quarter.
StanChart PE Unit Loses More Money, CEO Mulls Sale
Standard Chartered took more losses from a private-equity unit that Chief Executive Officer Bill Winters is looking to sell.
The division that houses Standard Chartered Private Equity posted losses of $30 million (£24.5 million) in the third-quarter amid “continued weakness in equity markets,” the London-based lender said today in a statement. The business had negative revenue of $197 million for the nine months through September, compared with $142 million of gains for the same period last year.
CEO Winters is weighing a sale of the SCPE business to its managers as he overhauls risk-taking at a lender that’s written down billions of dollars of loans and investments since commodities prices crashed, Bloomberg reported in September. The unit’s performance contributed to total revenue sliding across the bank, producing a third-quarter profit that fell short of analysts’ estimates.
“We are consistently looking at all of our businesses, both in terms of their outright performance but also how they fit with our portfolio,” Winters said on a call with reporters today, declining to comment on a potential sale of the private-equity unit. “And in the context of evolving regulatory capital rules and our risk tolerances.”
SCPE, run by CEO Joseph Stevens, has about 80 investments across Asia, the Middle East and Africa, including closely-held and publicly traded companies. The unit manages about $5 billion, including $2 billion of Standard Chartered’s cash and a further $3 billion for external investors including Goldman Sachs Group, people familiar with the operations have said.
Standard Charted cited declines in value at its publicly traded investments for the performance during the quarter. SCPE is one of the biggest investors in Union Bank of Nigeria, a Lagos-based lender that’s lost more than one-third of its value this year.
Around the City
Shell Smashes Estimates: Royal Dutch Shell reported third-quarter profit that beat analyst estimates after its acquisition of BG Group boosted oil production, helping to counter a slump in prices. Profit adjusted for one-time items and inventory changes advanced 17 percent from a year earlier to $2.79 billion (£2.28 billion), Shell said today. That exceeded the $1.79 billion average estimate of analysts surveyed by Bloomberg, and the earnings of U.S. giant Exxon Mobil. U.K. competitor BP reported a 49 percent slump in profit.
Shire Drops Most Since January: Drug company Shire fell the most in more than nine months after reporting third-quarter sales that missed analysts’ estimates and saying administrative costs almost doubled. Revenue was $3.45 billion, the Dublin-based company said in a statement today, falling short of analysts’ estimates of $3.56 billion. Selling, general and administrative costs rose 98 percent following the takeover of Baxalta and the introduction of the Xiidra eye treatment. The stock dropped as much as 7.3 percent, the biggest intraday decline since 11 January.
Markets
Source: Bloomberg. Change since previous close.
QUARTER PAGE AD Hi-Resolution files for PDF
720px files for Desktop and Mobile
..
..
FULL WIDTH AD HI-Resolution file for PDF
720px file for Desktop and Mobile
Out of Office
Your Guide to the Best Seats at London’s Counter Revolution
Sometimes the best table in the house is a seat at the counter. That's the case at London's a hottest new restaurant, Kiln. The Thai establishment that opened this month in Soho is one of several restaurants where counters may be the best choice. They are great if you are eating alone or want to dine without a reservation, or closely watch the chefs at work. Below are some of the leaders of London's counter revolution. A longer list of restaurants is available on the web.
Source: Fraser Communications
Kiln
This small restaurant won't take reservations, unless you want to come in a group and sit in the basement. The rest of us are happy to queue to watch chef and owner Ben Chapman and his team cooking. The short menu is based on Thai regional cuisine, with influences from Myanmar and Yunnan. Most dishes are cooked on a wood-burning kiln oven and grills. Chapman, who previously opened Smoking Goat, works closely with growers and farmers.
The prices are small and the flavours big. Wild ginger and short rib curry from Burma, with deep, rich flavours, is £8.50. A wonderful clay pot of baked glass noodles with Tamworth belly and brown crab meat is a steal at £5.75. Skewers include aged lamb (£2.90) grilled over wood embers and served simply with chili, cumin, and Sichuan pepper. Yes, there is chili heat in some of the dishes, but it's more of a warm embrace than a stinging slap. I love Kiln. 58 Brewer Street, Soho, W1F 9TL. No phone.
Blanchette East
This East London restaurant serves French food with a North African twist, or vice versa. Dishes such as saffron couscous with tabbouleh and pomegranate yoghurt (£5.50) and warm smoked haddock with peas, potato, bacon, and grated egg (£7.50) taste good wherever you sit. But there is nowhere finer than to perch at the counter and watch life on Brick Lane. 204 Brick Lane, E1 6SA; 020-7729-7939.
Padella
This casual restaurant at Borough is one of the most important and exciting of the year. There's a short menu of eight pasta dishes with different sauces, from tagliatelle with nduja, mascarpone and parsley (£5.50) to taglierini with Dorset crab, chilli and lemon (£12). Each is distinct and pretty much irresistible. The counter is a good place to sit. The tables are OK. Either way, you will probably queue. I couldn't get in the last time I tried. 6 Southwark Street, Borough, SE1 1TQ. No phone.
Palomar
This restaurant serving the food of modern Jerusalem is from the same team as Barbary. You are likely to keep going back for the umami-rich flavours of dishes such as Shakshukit, a deconstructed kebab where the pitta bread is served atop a mixture of fried minced beef and lamb with paprika, harissa and tahini (£13). For desserts, try malabi, a rose-scented milk pudding, with raspberry coulis, coconut meringue, pistachio crunch, fresh raspberries and kataifi pastry (£7). Avoid the tables at the back. 34 Rupert Street, Soho, W1D 6DN; 0207 439 8777
Palomar
This restaurant serving the food of modern Jerusalem is from the
same team as Barbary. You are likely to keep going back for the umami-rich flavours of dishes such as Shakshukit, a deconstructed kebab where the pitta bread is served atop a mixture of fried minced beef and lamb with paprika, harissa and tahini (£13). For desserts, try malabi, a rose-scented milk pudding, with raspberry coulis, coconut meringue, pistachio crunch, fresh raspberries and kataifi pastry (£7). Avoid the tables at the back. 34 Rupert Street, Soho, W1D 6DN; 0207 439 8777
Source: Richard Vines/Bloomberg
Margot
Margot
This new Italian restaurant is glamorous, with beautiful designs and a level of service you would be happy to find in Italy. The counter isn't the only good place to eat here — the corner tables are fine, too — but it's very convenient if you show up without a reservation or without a dining companion. Margot is the creation of two maitre d's: Paolo di Tarso (Bar Boulud) and Nicolas Jaouën (La Petite Maison) who became friends while working at Scott's. 45 Great Queen Street, Covent Garden, WC2B 5AA; 020-3409-4777.
Barbary
This counter-only restaurant is inspired by the cuisine of the Barbary Coast: Morocco, Algeria, Tunisia, and Libya. The menu should probably come with a translation service. The guys on the other side of the counter are happy to explain dishes such as chicken msachen — marinated in yogurt and sumac before being cooked over coals. Even something as simple as Tbecha roasted tomatoes (£4) pop and burst with flavours. The flatbreads (such as the naan e barbari at £3.50) are the perfect launchpad for dips that tickle your taste buds in so many ways. 16 Neal's Yard, Covent Garden, WC2H 9DP. No phone.
Bloomberg Briefs: London
©2016 Bloomberg LP. All rights reserved.