Tag: Business and finance

AFTER just 18 days as Deutsche Bank’s chief executive, Christian Sewing had two tasks to perform on April 26th. The easy one, inherited from his ousted predecessor, John Cryan, was to report predictably glum first-quarter results. Net profit dropped by 79%, year on year, to only €120m ($147m). Harder was indicating where he might lead Germany’s troubled leading lender. The rough answer is: back towards Europe, and away from any aspiration to be a global investment bank.

Mr Sewing intends to concentrate more on raising finance and managing payments and currencies for big European companies, and less on America and Asia. He plans to cut the small swaps-repurchasing business in America and to focus the buying and selling of shares for hedge funds and other investors on the most profitable clients. By 2021 corporate and investment banking’s share of total revenues will be trimmed to 50%, from 54% last year. As a result, Mr Sewing said, earnings should become more…Continue reading

IT WAS not the sort of do-it-yourself activity that Castorama, a French home-improvement chain, usually promoted. The search engine on the firm’s website started offering customers puerile responses to their inquiries. Its auto-complete text function suggested such intriguing products as a “bollock hammer” or “cock sander”. It also returned offensive anti-Semitic phrases. The firm blamed manipulation by unnamed actors and had to briefly scrap its search function.

That incident, two years ago, was a reminder that much online search occurs within websites. Internet giants such as Google excel at bringing users to sites but once there customers often rely on websites’ own search functions to find products or services. Some firms build their own engines; others use open-source software, such as Elasticsearch, to supply them. The results can sometimes be painfully slow and undiscerning.

As e-commerce grows, so does demand for search systems that are fast, accurate and…Continue reading

POPULAR concern about free trade with China has focused on the loss of manufacturing jobs in America and Europe. Policymakers have an additional worry: that China’s rise is hurting innovation in the West. This fear is among the small set of issues that unites American Democrats and Republicans. In 2016 Barack Obama’s commerce secretary said that China’s state-driven economy would weaken the world’s innovation ecosystem. Donald Trump’s advisers allege that China makes it harder for foreign firms to invest in innovation by squeezing their returns. Mr Trump’s trade team was expected to raise this complaint, among others, with Chinese officials during talks in Beijing on May 3rd and 4th, as The Economist went to press. There is one problem. Data suggest that competition with China has coincided with more innovation in America, not less.

The relationship between competition and innovation is complex, even before considering trade with China. Economists agree that the…Continue reading

JOHN LEGERE, the lion-maned boss of T-Mobile, made his wireless firm the fastest-growing carrier in America by cutting prices and giving customers better deals than AT&T and Verizon, which he relentlessly mocked on Twitter as retrograde behemoths. His personal brand as an industry maverick may have helped too. On April 29th he put that image to the test, agreeing to a combination with Sprint, the next largest carrier after T-Mobile, and creating a behemoth under his leadership.

The deal, all in shares, values the combined entity at $146bn including debt. If approved by regulators, it would squeeze the number of providers in the wireless market in America from four to three. That is a big “if”—twice earlier this decade, antitrust authorities have either stepped in to prevent such an outcome or indicated that they would do so, for fear of higher prices for consumers.

Mr Legere presumably knows the challenge, so he appealed to the political priorities of President Donald Trump….Continue reading

WHICH has provided a better return in recent decades: America’s stockmarket or education? The latter, according to a research review by George Psacharopoulos and Harry Patrinos for the World Bank. The two economists looked at 1,120 studies, across 139 countries, and came up with an annual average “rate of return”—actually a pay premium, the increase in hourly earnings from an extra year of schooling—of 8.8%. The analogy is inexact, but for comparison America’s stockmarket returned an annual 5.6% over the past 50 years.

Their figure excludes social gains, such as lower mortality rates associated with greater education. The premium is higher for girls and for primary education. It is also higher in poor countries, presumably because the smaller the share of educated people, the higher the pay they can command. The same reasoning suggests that the return should have dwindled as educational attainment rose. Instead, it has stayed strong, especially for higher education (see…Continue reading

IN THE skyscraper that is Bank of America’s New York headquarters, the chief executive, Brian Moynihan, looks relaxed. The bank has just announced record first-quarter earnings. Its return on equity is comfortably in double digits. Its share price has been on a roll. The revival of America’s second-largest bank, he avers, was inevitable. Any dark moments? None, except perhaps when America’s sovereign debt was downgraded in 2011 and all the country’s banks suffered. Early hints at the current prosperity? On his first day in the job, in 2010, he says. Vast losses from bad debt and litigation merely obscured billions of dollars in operating profits. “We just had to get rid of what was dragging us down.”

In fact, this renaissance was anything but predictable. Over little more than half a century Mr Moynihan’s two predecessors, Hugh McColl and Ken Lewis, had transformed the tiny North Carolina National Bank into an institution that could claim a business relationship with half of all American…Continue reading

QUAYSIDE, a 12-acre (4.8-hectare) stretch of flood-prone land on Toronto’s eastern waterfront, is home to a vast, pothole-filled parking lot, low-slung buildings and huge soyabean silos—a crumbling vestige of the area’s bygone days as an industrial port. Many consider it an eyesore but for Sidewalk Labs, an “urban innovation” subsidiary of Google’s parent company, Alphabet, it is an ideal location for the world’s “first neighbourhood built from the internet up”.

Sidewalk Labs is working in partnership with Waterfront Toronto, an agency representing the federal, provincial and municipal governments that is responsible for developing the area, on a $50m project to overhaul Quayside. It aims to make it a “platform” for testing how emerging technologies might ameliorate urban problems such as pollution, traffic jams and a lack of affordable housing. If things go well, its innovations could eventually be rolled out across an 800-acre expanse of the waterfront—an area…Continue reading

SOME years ago, when Gulliver was a wide-eyed reporter on his first business trip, he sidled up to a bureau de change in London’s Heathrow Airport to buy some foreign currency. His nervous excitement quickly turned to dismay when the teller gouged 12% from the transaction, justifying the theft by tapping on a display-screen of ruinous exchange rates. Today, Gulliver knows better than to buy foreign currency at an airport. But many do not: in 2016 Heathrow raked in £50m ($68m) by renting retail space to bureaux de change. New technology and startups could soon change that.

Savvier travellers have, until now, bought their foreign currency in advance from bureaux de change outside the airport. Higher competition and lower costs mean that these firms trade closer to the interbank exchange rate–the price at which two currencies are actually swapped by financial institutions. Yet all middlemen need a mark up, so they still add a margin of 2-5% to their “commission-free” quotes.

A new breed of “challenger banks” wants to…Continue reading

INTEREST rates are heading higher and that is likely to put financial markets under strain. Investors and regulators would both dearly love to know where the next crisis will come from. What is the most likely culprit?

Financial crises tend to involve one or more of these three ingredients: excessive borrowing, concentrated bets, and a mismatch between assets and liabilities. The crisis of 2008 was so serious because it involved all three—big bets on structured products linked to the housing market, and bank-balance sheets that were both overstretched and dependent on short-term funding. The Asian crisis of the late 1990s was the result of companies borrowing too much in dollars when their revenues were in local currency. The dotcom bubble had less serious consequences than either of these because the concentrated bets were in equities; debt did not play a significant part.

It may seem surprising to assert that the genesis of the next crisis is probably lurking in corporate debt….Continue reading

BUSINESS school graduates do not all want to work in investment banking these days. The industry does not have the same kind of cachet it did before Lehman Brothers went bust. Still, 31% of those who left Harvard Business School last year went into financial services. That made it easily the most popular sector, as it has been in each of the lprevious four years. And it is hardly surprising; in London, for example, the average pay for a finance worker is around £72,000 – twice the level earned by other workers in the UK capital.

But is this high pay justified? The finance sector has four key functions. The first is to operate the payments system, without which the economy could not function. The second is to channel money from savers to those who need capital either through the banking system or through pooled savings vehicles like mutual funds. Third, it provides liquidity to the system by making markets, and thus establishing prices for financial assets. Fourth, it…Continue reading