China’s consumers show early signs of a debt wish 4 Sep 2014 It’s time to retire the idea that Chinese shoppers don’t borrow. Companies have racked up most of the country’s debt mountain. But credit card debt, which delivers generous fees for banks, is rising fast. Though the numbers are small, bad incentives could store up future trouble.
Airlines find hidden value in miles 4 Sep 2014 Loyalty schemes are reliable money spinners in a cyclical and fiercely competitive industry. In times of financial strain, carriers can also sell stakes to outside investors to raise cash. But the potential opportunity isn’t equal for all. A big home market helps.
China index: Don’t bank on a rapid recovery 4 Sep 2014 Our index showed China’s economy enjoying a slight uptick in July after the summer’s historic lows. Exports grew at the strongest pace in over a year, while thickening smog hinted at more active industrials. But a steep slide in bank lending kept the brakes on.
E-book: Alibaba and the twelve digits 3 Sep 2014 China’s e-commerce colossus is hitting the road for a $100-billion-plus IPO. But a spectacular growth story comes with quirks, including bizarre governance and founder Jack Ma’s penchant for offbeat deals. Breakingviews offers a punchy primer on the risks and rewards.
McDonald’s needs some time on Burger King’s grill 3 Sep 2014 The $91 bln giant isn’t growing. And the stock lags its rival’s. Winning burger lovers alienated by BK’s planned move to Canada would add little special sauce to McDonald’s sales. But a serving from the smaller company’s fat-trimming menu would please shareholders more.
Home Depot hack scarier than Hollywood breach 3 Sep 2014 Maybe Apple et al can make the cloud more secure, but celebrities like Jennifer Lawrence also probably need to be extra careful. Violations that expose millions of people to financial loss are in a different league. Investors should punish companies that skimp on security.
Emerging market euro debt is illiquid honey trap 3 Sep 2014 A growing portion of emerging market debt is being denominated in euros. Borrowers like the alternative to a rising dollar. Euro zone investors get higher yields and lose currency risk. But the euro-EM market is still relatively small and illiquid. That could become a problem.
Blackstone solar IPO to test Elon Musk star power 3 Sep 2014 The buyout firm’s Vivint Solar has filed to go public. That will provide a listed rival for richly valued SolarCity, chaired by Musk. Vivint is growing faster and has favored access to new customers. How the two trade will shed light on the Silicon Valley whiz-kid’s worth.
Wall Street’s canary sings another off-key tune 3 Sep 2014 Strong investment banking helped Jefferies to an $82 mln third-quarter profit. That business has mostly slowed of late so the firm may have gained most in June, which bigger rivals already booked. Even so, an RoE under 10 pct shows that a decent quarter still isn’t good enough.
Edward Hadas: Economic determinism versus reality 3 Sep 2014 Politics is sometimes seen as the branch of something bigger – economics. The conflicts in Ukraine and Iraq show the redundancy of such thinking. In more peaceful countries, economic issues may have greater political weight. But not as much as leaders tend to believe.
LVMH, Hermes in five-year handbag peace 3 Sep 2014 The French luxury leader will distribute to its shareholders the stake it stealthily built up in the Birkin bags maker. The founding family remains in control of Hermes. But Groupe Arnault will retain 8.5 pct of its capital, suggesting it is keeping its long-term options open.
Danone shows France SA how to plan successions 3 Sep 2014 Franck Riboud, the food giant’s long-serving boss, is becoming non-executive chairman. COO Emmanuel Faber is stepping into the chief executive role. Riboud is 58, so the planning for succession comes early. These are unusual developments in the French corporate world.
Tianhe fraud claims hit at China free-rider effect 3 Sep 2014 An anonymous group says the chemical group cooked its books. Yet the allegations would have been easy to verify by pre-IPO backers like Morgan Stanley. If proven, the charges will undermine the notion that big-name investors can provide insurance against China’s opaque practices.
Modinomics has many promises to keep 3 Sep 2014 India’s new leader has spent his first 100 days in office oiling the creaky wheels of bureaucracy. But while Narendra Modi may have been tardy in pushing reforms, the economy has nonetheless steadied. That gives him a chance to drive bolder changes. Here’s a handy checklist.
Uber can steer round German roadblock 2 Sep 2014 The U.S. taxi app says it will defy a ban issued by a Frankfurt court, risking fines of 250,000 euros per journey. This looks like Silicon Valley arrogance. But Germany’s taxi rules are outdated and flawed. Uber is sticking up for consumers and will probably prevail in the end.
Dollar General heads to front of M&A checkout line 2 Sep 2014 The discounter’s sweetened $9.1 bln bid for Family Dollar includes a big break fee and extra assurances on antitrust. The offer bests its rival’s agreed $8.5 bln tie-up with Dollar Tree - and General still has some bucks to spare. Family’s directors should start negotiating.
Mexico’s loose purse strings could blunt reforms 2 Sep 2014 President Peña Nieto’s state of the nation address came with big spending plans. The economy gained just 1.6 pct over last year almost entirely thanks to a wider budget deficit. Producing the wealthier Mexico he wants will take more than building new bridges and tunnels.
Rob Cox: Why Citigroup would be better in bits 2 Sep 2014 Nine years ago, Breakingviews proposed slicing the giant New York bank into smaller pieces to benefit shareholders. Post-crisis, the advantages of the idea extend beyond the stock market to global regulators and even taxpayers. It’s time to revisit breaking up Citi.
Markets start to wake up to Scots secession risk 2 Sep 2014 Sterling currency options have jumped after poll gains for the pro-independence lobby. If Scots vote Yes, wholly unresolved issues surrounding currency and the division of spoils will burst out into the open. They won’t be quickly resolved. Investors should brace themselves.
U.S. bankers should add Ros Stephenson to contacts 2 Sep 2014 In her new role at UBS, the ex-Barclays investment banking chairman will need to replenish the depleted ranks of dealmakers. It’ll be one of the few shops on Wall Street hiring with any gusto. Stephenson probably won’t accept all calls, though, and her pitch may have limited appeal.
Washington’s revolving door has new Wall St exit 2 Sep 2014 The old path led from Congress and regulatory agencies to bulge-bracket banks like Citi and Goldman. But Republican exile Eric Cantor’s new job with Moelis confirms boutiques and other investment firms are now a better choice for a fat paycheck with a less pejorative headline.
Banks risk provoking EU with bonus get-arounds 2 Sep 2014 Firms are paying top staff extra “allowances” in response to European bonus caps. That avoids raising base salaries and keeps costs flexible. The risk is that successful avoidance of the rules will prompt policymakers to shift the attack to pay quantum rather than pay structure.
Luxottica’s new governance plan is short-sighted 2 Sep 2014 The Italian eyewear company has replaced its single chief executive with two co-heads. The model is complex and relies heavily on 79-year-old founder Chairman Leonardo Del Vecchio. Like the clunky Google Glass smart specs Luxottica is partnering on, it needs further work.
London’s island airport may yet fly 2 Sep 2014 Opponents of the plan to build a brand new airport in the Thames estuary have won support from a government-appointed arbiter. The four-runway project is hard to square financially. But Boris Island has a champion who may yet win the power needed to push the proposal through.
Six steps to Alibaba’s twelve-figure valuation 2 Sep 2014 As the Chinese e-commerce giant launches its IPO, investors must decide what the shares are worth. Growth, profitability and stock market multiples are a factor. So are potential new businesses, though shaky governance merits a discount. Breakingviews spells out the key numbers.
Don’t cry for China’s pay-capped corporate chiefs 2 Sep 2014 Plans to cut cash salaries for state sector bosses by up to half may sting. But top executives in effect get another currency – political stock. If China’s ruling party had a share price, it would be rising. The trouble is, outsiders can’t easily see what that stock is worth.
Japan’s $34 bln pledge unmasks Modi’s growth ploy 2 Sep 2014 The new Indian leader has bagged a fat five-year investment commitment from his Japanese counterpart. India will buy foreign-made equipment in return for creating local jobs. Japan’s promise will embolden Narendra Modi to look for similar deals with China and others.
Markets overestimate Draghi’s economic powers 1 Sep 2014 Investors show a touching faith in the ECB president’s ability to boost near-zero inflation. The trust may be misplaced. Mario Draghi’s success in defusing the euro zone crisis relied on his sway over markets. He has less influence over the euro zone economy and governments.
Investors decide not to worry about the world 1 Sep 2014 The demise of the post-Cold War vision of Europe? Not a big problem, markets say. Nor do investors see the rise of Islamic State, arguably the biggest threat to Middle East peace in decades, as their issue. The financial indifference is defensible, but increasingly precarious.
Credit Suisse/Baer tie-up would have weak logic 1 Sep 2014 Zurich’s latest parlour game envisages Credit Suisse buying wealth manager Julius Baer. Such a combination would be risky, meshing different banking cultures and systems. It is not clear that the benefits would outweigh the costs. And regulators remain twitchy about big bank M&A.