Tag: Approved

IT IS fashionable to say that the city of Detroit is on the up after decades of decline. Amid the derelict buildings there are signs of revival; art shops and trendy food trucks abound. But for a truer augury of the city’s possible future, consider the rock-bottom stockmarket valuations of Ford and General Motors (GM), Motor City’s two big domestic car firms. (A third, Chrysler, is owned by Fiat Chrysler Automobiles, whose chairman is a director of The Economist’s parent company.) If you put the members of the S&P 500 index in order of their price-earnings ratios, Ford and GM are at the bottom, among the walking dead.

For their investors, creditors and 426,000 staff, about 18% of whom are in Detroit, it is a terrifying signal. A low price-earnings ratio is the stockmarket’s way of telling you that business as you know it is over. GM and Ford together made $18bn of underlying profit last year but have a market value of $98bn. That ratio implies that their…Continue reading

THE story of the European Union is in part that of the steady accretion of power by its central bodies. But until now the politically touchy business of running pensions has, like taxation, been zealously guarded by national governments. No longer: on June 29th the European Commission presented a long-awaited proposal for a pan-European personal-pension product, the snazzily named “Pepp”.

Any attempt to encourage Europeans to make adequate provision for their old age is welcome. The combination of ageing populations, falling birth rates and generous state pensions could leave future generations footing the bill, unless people work for longer. Especially in countries such as Italy and Greece, where the state is the main pension provider, encouraging people to make personal savings for their retirement would be sensible (see this week’s Continue reading

OVER a year has passed since Britons voted to leave the European Union. More than three months have gone by since Britain gave formal notice to quit. Less than 21 months remain until March 29th 2019, the scheduled date of Brexit. Yet banks, insurers, asset managers and other financial firms that use London as a base from which to serve the entire EU are little wiser than they were on referendum day about what Brexit will entail. They must plan for it nonetheless.

The Prudential Regulation Authority (PRA), Britain’s financial supervisor, wants to see their contingency plans by July 14th. The European Central Bank (ECB) has also asked the banks it watches to lay out their post-Brexit strategies. This is probably not demanding for big banks, which are in constant touch with their overseers and already operate both in London and elsewhere in the EU. But some smaller lenders, especially, have work to do. “I think it is fair to say that most banks are not where they should be,” said…Continue reading

ALMOST anything can be bought and sold online. Even so, sales of ordinary banknotes at a big premium are puzzling. On a newish e-commerce site in Japan called Mercari, ¥10,000 ($90) notes were on sale earlier this year for as much as ¥13,000. So bizarre was the phenomenon that it created a furore, leading the firm to ban such deals in April. A rival site, Yahoo Auctions, soon followed suit. The buyers were not indulging a passion for rare banknotes. They simply wanted the money. In need of emergency finance, and having used up all their bank limits, they resorted to buying cash with their credit cards.

The ban has prompted some crafty work-arounds. “Valuable portraits” of Yukichi Fukuzawa, a thinker revered as a guiding light of Japan’s 19th-century modernisation, have been on sale for as much as ¥15,000. That is a hefty premium to the highest-denominated banknote, ¥10,000, which happens to be adorned with Fukuzawa’s likeness. Or take the bottles of water claiming…Continue reading

FREE-TRADE agreements have seemed out of fashion as President Donald Trump has set about scotching some of America’s. But on July 5th Cecilia Malmström, the EU trade commissioner, and Fumio Kishida, the Japanese foreign minister, announced they had achieved consensus on a Japan-EU Economic Partnership Agreement (JEEPA). In front of the cameras, they swapped Japanese Daruma dolls, talismans of perseverance and good luck, and, they hope, of a win-win agreement.

The timing of JEEPA was just as carefully co-ordinated. When negotiations started in 2013, it was neither side’s main priority. But now both want to show that they can fill the vacuum left by America’s withdrawal under Mr Trump from its role as the world’s trade leader. To highlight its political importance, they note that this is the first trade agreement to mention the Paris climate accord, another deal Mr Trump has spurned. Haste is handy: the EU wanted success before Brexit negotiations and…Continue reading

BNP PARIBAS, France’s biggest bank, pleaded guilty in America three years ago to assisting a monstrous regime in east Africa. In 2006, it had helped to finance Sudan’s government, which in turn supported militias that massacred tens of thousands of civilians in Darfur. The firm thereby abetted in genocide and circumvented American sanctions on Sudan. It agreed to pay a fine of $9bn for breaking that embargo, as well as ones on Cuba and Iran.

The bank, naturally, hopes to put that grim episode behind it. These days it makes much of its social-responsibility efforts. Its 2015 annual report, for example, trumpeted the financing of a big supermarket in Côte d’Ivoire as typical of its contribution to African development. On July 3rd it named a new head of compliance plus a new “company engagement department”, responsible, among other things, for setting strategy on human rights.

Yet the past is hard to banish. The bank now faces scrutiny over an even uglier…Continue reading

In Apple we trust

APPLE has a new hit device, so popular that it has sold out across most of America and Britain. If you order it online it takes six weeks to arrive. “Best Apple product in a long time,” sings one online review. Useful and (of course) slickly designed, it enjoys the highest consumer satisfaction of any Apple product in history, according to a study by two firms, Creative Strategies and Experian.

Such enthusiasm must be bittersweet for Apple’s bosses. The gadget in question is AirPods, a set of wireless headphones that look a lot like Apple’s traditional ear buds, just without a wire. Priced at $159, AirPods could become a business worth billions of dollars, like the Apple Watch, a wearable device that Apple started selling in 2015. But headphones are hardly the transformative, vastly profitable innovation that many have been waiting for.

That wait started only a few years after its biggest blockbuster launched. On June…Continue reading

NESTLÉ is not easily rattled, to some investors’ chagrin. The world’s biggest food company accounts for about half of all sales of instant coffee, not to mention one quarter of grub for babies, dogs and cats. Thirty-four of its brands, including KitKat and Nespresso, earn over $1bn each. Yet many investors complain that Nestlé is falling behind, and this week Daniel Loeb, an American activist investor who runs Third Point, a hedge fund, gave voice to their concerns. On June 25th, in a letter, he attacked Nestlé’s “staid culture and tendency towards incrementalism”.

Third Point has acquired a small stake in Nestlé, less than 2% of the company. But it was enough to spark a jump of over 4% in the company’s share price on hopes that its bosses would respond. On June 27th Nestlé announced its own menu of changes—all unrelated, the company claimed, to the urging of any individual investor. Third Point will keep pushing for more.

The skirmish points to a basic question facing not just Nestlé but many of its peers: how should a consumer-goods giant operate? Big brands can no longer assert their dominance by securing spots on store shelves and spending millions on television ads. Now they must also succeed online and meet demand for “healthy” and “natural” fare. In rich countries, in particular, large companies are squeezed on one side…Continue reading

Turning on the loan pipe

CONGLOMERATES sometimes sell their least promising units, thereby ginning up returns for the remaining empire. But groups saddled with huge debts do not have that luxury; only by disposing of the most profitable parts can they raise enough funds to satisfy creditors. Such is the story of the Essar Group, which is in the final stages of selling its crown jewel, India’s second-biggest private oil refinery, to a consortium led by Rosneft, a Russian oil titan. The slimming of what was once the country’s third-largest diversified corporate group is a welcome signal that an era of powerful industrialists running rings round their creditors is ending.

The purchase by Rosneft (along with a Russian investment fund and Trafigura, a trading firm) of the giant Vadinar refinery in the state of Gujarat for $12.9bn will be the largest-ever foreign investment in India. It has been a long time coming. It was first mooted over two years ago and…Continue reading

SHE was born to Lutheran ministers known to be both tough and principled. As a child, she thought it unfair that pupils were not allowed to sell fruit and milk in school and successfully lobbied for change. In her office in Brussels she keeps a statue of a raised middle finger, a gift from a trade union when she was deputy prime minister of Denmark, as a reminder that there will always be critics.

It shouldn’t have come as a surprise that Margrethe Vestager, the European Union’s competition commissioner, took a tough line against Google this week. The size of the fine the tech giant will have to pay for abusing its monopoly in online search, €2.4bn ($2.7bn), sets a record for European antitrust penalties (see chart). Yet more important than the amount is that she provided a rough guide to how the European Commission plans to deal with online firms which not only dominate a market, but essentially are the market.