Tag: Business and finance

The Pony Express, British style

IT MAY be hard to imagine a world without cheap postal services, but 200 years ago sending mail was a luxury. Posting a letter from London to Edinburgh cost an average daily wage. In 1840, after a proposal by Rowland Hill, an inventor, Britain launched the Penny Post, the world’s first universal mail service. The state-run post office was given a mail monopoly in return for delivering letters to any address in the country at the same rate. Cheaper postage proved wildly popular and the flows of information it enabled boosted economic growth. But the scheme’s finances proved controversial. The low cost of the service hit profits and the government introduced income tax to fill the fiscal hole.

That did not stop the idea of a “universal service obligation” for post spreading across the entire rich world over the next century. At the industry’s peak, post offices worldwide delivered nearly 350bn items of mail in 2007. But over the past…Continue reading

WHEN flag carriers such as British Airways (BA) ruled the skies, only the rich could afford to fly across the Atlantic. That was until Freddie Laker, a British entrepreneur, came along. His dream was to open long-haul travel to the masses. In 1977 he launched Skytrain, the first low-cost long-haul flights between London and New York. “Thanks to Freddie Laker you can cross the Atlantic for so much less,” declared Margaret Thatcher in 1981. “Competition works.” But within a year of her speech Laker Airways had gone bust, amid accusations of predatory pricing.

Since 2013 Norwegian, another low-cost carrier, has been trying to make Laker’s dream a reality. Last year it painted his face onto one of its jets to show it is serious about disrupting transatlantic air travel. But just like Laker Airways, it has run into financial headwinds. And BA is once again a potential beneficiary. On April 12th IAG, a group of flag carriers including BA, said that it had bought 4.6% of its budget rival as a precursor…Continue reading

THE first week for ESPN+, a sports streaming service that Disney, owner of ESPN, launched in America on April 12th, had none of the razzmatazz associated with a firm known for blockbuster openings. Forget marquee matchups from the National Basketball Association. The games come from lesser-known football (ie, soccer) leagues, minor college sports and international fixtures with limited American audiences, like rugby and cricket.

This was tactical, says Kevin Mayer, the boss of Disney’s first shot at streaming in America. At $5 a month, the aim is to create a sort of mini-Netflix for sports. But Disney is loth to take customers away from the company’s lucrative ESPN networks on pay-TV. It wants to avoid the own goal of disrupting itself.

The delicate positioning of ESPN+ reflects an industry in flux. Cable networks are losing millions of subscribers to “cord-cutting”, whereby customers drop expensive pay-TV packages in favour of much cheaper internet services like Netflix. In response to this threat Disney decided to pull its films from Netflix and to develop its own internet-only entertainment service, which is scheduled to debut next year. In December the company agreed a $66bn deal to buy much of the entertainment business of 21st Century Fox, in order to gain the heft to compete with Netflix. Disney is betting that streaming is the…Continue reading

Hipster Hells Angel

“WHEN you enter [the marketplace] with that level of hubris and arrogance, you don’t create trust.” So declared a member of San Francisco’s Board of Supervisors this week. He was upset about the sudden appearance of dockless electric scooters, rented via smartphone, all over the city. Several American startups are battling each other and the authorities to promote them. They are clean, cheap and convenient. The snag is that some users ride them wildly or dump them willy-nilly after use. On April 17th the city passed an ordinance requiring a permit to park scooters on its pavements.

Similar clashes have taken place elsewhere. Bird, a Californian startup that raised $100m in venture-capital funding last month, launched its rental service for electrified scooters in September at its home base of Santa Monica. Since then, the beach town’s hipsters have completed over half a million rides on its scooters. Rather less keen were city officials, who…Continue reading

TALK of restricting the use of Chinese telecoms equipment in the West is growing. This week the curbs went the other way, when America banned its companies from selling hardware and software for seven years to one of China’s state-owned tech champions, ZTE. On April 16th America’s Department of Commerce said that China’s second-largest telecoms firm had trampled on a settlement reached in March 2017 over ZTE’s illegal shipments since 2010 of American-made technology—telecommunications equipment to Iran, and routers, servers and microprocessors to North Korea—in known violation of trade sanctions.

The one at risk of being crippled by an embargo is now ZTE. In 2016 UBS, a bank, estimated that 80-90% of its products relied on American parts. Jean Baptiste Su of Atherton Research, an American technology-research outfit, described the ban as “devastating” for ZTE, especially the loss of chips made by America’s Qualcomm used in about 70% of ZTE’s smartphones. Although ZTE…Continue reading

ENRIQUE IGLESIAS, a Spanish pop singer, plays an unlikely part in the story of Indian capitalism. His presence at a party to mark Vijay Mallya’s 60th birthday, in December 2015, was, literally, a showstopper. A flamboyant booze heir, Mr Mallya was then best known for founding Kingfisher Airlines, which had earlier imploded because of its debts. Given that he had personally guaranteed some of these loans, the self-proclaimed “king of good times” was assumed to have been chastened. Upon hearing of Mr Iglesias’s performance, bankers—and politicians—started asking how Mr Mallya had continued to live so large. The party had lasted for three days.

Mr Mallya is hardly the only embattled Indian tycoon to have cocked a snook at his bankers. Some “promoters” of companies, as founding shareholders of Indian companies are known, have long made full use of a loophole of local corporate law that thwarted banks’ attempts to seize companies in default on their loans. A bunged-up court system made…Continue reading

The Economist is looking for a business correspondent to work at its headquarters in London. An ability to write informatively, succinctly and wittily, combined with numeracy and curiosity, matter more than prior experience. Applicants should send a CV and an article which they think would be suitable for publication in the Business section to businessjob@economist.com. The closing date for applications is May 18th 2018.

SO THIS is how normality feels. Between April 13th and April 18th America’s biggest banks reported a strong set of first-quarter earnings, with a helping hand from the taxman. Some are more profitable than they have been for years. They are paying billions to shareholders; regulatory reins are being loosened. Yet the stockmarket shrugged. On April 18th the S&P 500 index of banks’ share prices was 4.1% lower than at the start of reporting season.

Banks expected three main effects from the corporate-tax cut signed into law by President Donald Trump in December. The first was a write-down of deferred tax assets—past losses that could be set against future bills—which clobbered most lenders’ bottom lines in the fourth quarter but did no real damage. (Some, including Wells Fargo, carried deferred liabilities and hence recorded a gain.) The second was a permanent reduction in their tax bills. The third was a boost to business from a more lightly taxed America Inc.

The direct benefits of lower taxes are plain. Although pre-tax profits at the six biggest banks rose by $4.3bn, compared with the first quarter of 2017, taxes fell at five of them. (At the sixth, Goldman Sachs, the bill was unusually low a year ago because of a change in the treatment of employees’ shares and options.) Of a total increase in net profit of $5.4bn at those five, lower…Continue reading

MOST governments are happy when foreigners want their bonds, especially when those foreigners are long-term holders, like central banks. But America is different. It worries that some foreign governments buy its debt to keep the dollar pricey and their own currencies cheap. This “currency manipulation” gives other countries a competitive edge, raising their own trade surpluses and America’s deficit.

Brad Setser of the Council on Foreign Relations, a think-tank, sees an “arc of intervention” across Thailand, Singapore, Taiwan and South Korea that has slowed the dollar’s decline over the past nine months. America has reportedly persuaded South Korea to forswear currency manipulation in a “side-agreement” to their revised trade deal. And on April 16th President Donald Trump tweeted that “Russia and China are playing the Currency Devaluation game…Not acceptable!”

Mr Trump’s tweet was at odds with his Treasury Department’s assessment. Every six months it must tell…Continue reading

DURING the financial crisis, Western governments poured hundreds of billions of dollars into their banks to avert collapse. The search for ways to avoid future bail-outs started before the turmoil ended. One of the niftiest proposals was the “contingent convertible” (coco) bond, which turns into equity when the ratio of a bank’s equity to risk-weighted assets falls below a predetermined danger point (since set at a minimum of 5.125% for cocos, although it can be up to around 7%). The ambition was grand. As the Squam Lake Group, composed of mostly American academics, put it in 2009, the automatic conversion of cocos would “transform an undercapitalised or insolvent bank into a well-capitalised bank at no cost to taxpayers”.

At first, regulators were keen. In 2010 Mervyn King, then the governor of the Bank of England, said he wanted contingent capital to be a “major part of the liability structure of the banking system”. Swiss regulators, too, pushed for coco issuance. The hybrid nature of cocos seemed a way to satisfy both regulators, who wanted banks to have bigger safety buffers, and bankers, who were reluctant to issue new shares because of the high cost of capital. The hope was that investors, too, might see the appeal of an asset that offered a higher yield than bank bonds but lower risk than bank shares.

Nine years after the first cocos…Continue reading