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It's no surprise Berlin is telling Deutsche Bank it's on its own It's no surprise Berlin is telling Deutsche Bank it's on its own
(35 minutes later)
Deutsche Bank cannot be surprised that we’ve reached the point where its share price can fall 7.5% in a day, seemingly on something as innocuous as a magazine report stating that chancellor Angela Merkel doesn’t fancy the idea of state-sponsored bailout.Deutsche Bank cannot be surprised that we’ve reached the point where its share price can fall 7.5% in a day, seemingly on something as innocuous as a magazine report stating that chancellor Angela Merkel doesn’t fancy the idea of state-sponsored bailout.
Merkel’s reported stance should surprise nobody. There are elections in Germany next year and there are no votes in saying you would be prepared to bail out bonus-hungry bankers or wire state funds to the US to satisfy the demands of the Department of Justice. Nor is it sensible for a German politician to lobby US counterparts for soft treatment for a pet bank; any attempt is likely to backfire.Merkel’s reported stance should surprise nobody. There are elections in Germany next year and there are no votes in saying you would be prepared to bail out bonus-hungry bankers or wire state funds to the US to satisfy the demands of the Department of Justice. Nor is it sensible for a German politician to lobby US counterparts for soft treatment for a pet bank; any attempt is likely to backfire.
Thus it is hardly a revelation that Berlin is telling Deutsche that it is on its own as it attempts to reduce the DoJ’s initial demand for $14bn to settle allegations of mis-selling mortgage securities. If a true crisis arrived – meaning Deutsche was unable to raise funds from shareholders – it is still safe to assume Merkel would act. She would choose the humiliating, but pragmatic, option of a bail-out. Thus it is hardly a revelation that Berlin is telling Deutsche that it is on its own as it attempts to reduce the DoJ’s initial demand for $14bn to settle allegations of mis-selling mortgage securities. If a true crisis arrived – meaning Deutsche was unable to raise funds from shareholders – it is still safe to assume Merkel would act. She would choose the humiliating, but pragmatic, option of a bailout.
The cause of Monday’s mini-panic, therefore, may simply be the market’s deepening realisation of the size of the hole Deutsche is in. A final demand from the DoJ for $4bn would probably be tolerable, but $8bn-plus would require fresh capital, analysts roughly agree. Deutsche, after all, is worth only $18bn these days.The cause of Monday’s mini-panic, therefore, may simply be the market’s deepening realisation of the size of the hole Deutsche is in. A final demand from the DoJ for $4bn would probably be tolerable, but $8bn-plus would require fresh capital, analysts roughly agree. Deutsche, after all, is worth only $18bn these days.
But an equal uncertainty is the time it will take to reach a settlement. This saga could still run for months, and Deutsche’s negotiating position is weak as it appeals for “fair” treatment. A sum of $5bn could be the difference between relative relief and full-blown crisis. Put like that, it’s a wonder Deutsche’s share price doesn’t rise or fall 7.5% on most days of the week. And, it hardly needs saying, it is disgraceful that one of the world’s most important banks wasn’t ordered to iron-clad its balance sheet years ago.But an equal uncertainty is the time it will take to reach a settlement. This saga could still run for months, and Deutsche’s negotiating position is weak as it appeals for “fair” treatment. A sum of $5bn could be the difference between relative relief and full-blown crisis. Put like that, it’s a wonder Deutsche’s share price doesn’t rise or fall 7.5% on most days of the week. And, it hardly needs saying, it is disgraceful that one of the world’s most important banks wasn’t ordered to iron-clad its balance sheet years ago.
Lesson for Monarch and Greybull: move fasterLesson for Monarch and Greybull: move faster
Blame Twitter. Or, at least, blame those plane-spotters who announced on social media that someone had lined up aircraft to make incoming flights to the UK at the same time that Monarch flights were due to depart from holiday destinations. Cue speculation that Monarch could be in financial trouble. Blame Twitter. Or, at least, blame those planespotters who announced on social media that someone had lined up aircraft to make incoming flights to the UK at the same time that Monarch flights were due to depart from holiday destinations. Cue speculation that Monarch could be in financial trouble.
As it happens, the plane-spotters were onto something, just not the whole story. It seems the Civil Aviation Authority had indeed arranged for planes to recover stranded passengers should Monarch be unable to renew its operating licence by the end of this month. But Monarch’s owner, Greybull Capital, was working on a refinancing to secure the licence and make the regulator’s efforts redundant. As it happens, the planespotters were onto something, just not the whole story. It seems the Civil Aviation Authority had indeed arranged for planes to recover stranded passengers should Monarch be unable to renew its operating licence by the end of this month. But Monarch’s owner, Greybull Capital, was working on a refinancing to secure the licence and make the regulator’s efforts redundant.
One can understand, of course, why Monarch is miffed that the CAA’s contingency planning became public knowledge. It says its business is “trading well” and will report £40m of top-line profit this year. Eleventh-hour panic could be unhelpful to the attempt to raise a “significant” investment.One can understand, of course, why Monarch is miffed that the CAA’s contingency planning became public knowledge. It says its business is “trading well” and will report £40m of top-line profit this year. Eleventh-hour panic could be unhelpful to the attempt to raise a “significant” investment.
One wishes Greybull and Monarch success, but there’s no point in trying to shift blame onto the CAA, which seems only to have done its job. In the age of Twitter, the moral of the tale is to get your deal done in good time.One wishes Greybull and Monarch success, but there’s no point in trying to shift blame onto the CAA, which seems only to have done its job. In the age of Twitter, the moral of the tale is to get your deal done in good time.
Aldi is down but far from outAldi is down but far from out
Have the old-school supermarkets finally halted the Aldi train? Well, they’ve slowed it, albeit only by deploying price-cutting tactics that have impoverished their own shareholders.Have the old-school supermarkets finally halted the Aldi train? Well, they’ve slowed it, albeit only by deploying price-cutting tactics that have impoverished their own shareholders.
Aldi’s operating profits last year fell 1.8% to £256m but that masks a steeper decline in the German chain’s profit margins in the UK over the past three years. That figure was 5.2% in 2013, slipped to 3.8% in 2014 and was 3.3% last year.Aldi’s operating profits last year fell 1.8% to £256m but that masks a steeper decline in the German chain’s profit margins in the UK over the past three years. That figure was 5.2% in 2013, slipped to 3.8% in 2014 and was 3.3% last year.
The bad news for the likes of Tesco, Sainsbury and Morrisons is that even forcing Aldi back to 3% would not overthrow the economics of discounting. The German owners, one suspects, would be happy to feast on 3% for eternity.The bad news for the likes of Tesco, Sainsbury and Morrisons is that even forcing Aldi back to 3% would not overthrow the economics of discounting. The German owners, one suspects, would be happy to feast on 3% for eternity.
The old guard can claim a moral victory in the sense that Aldi is planning a £300m re-fit of its stores to make them less tatty. Yet the sheer number of Aldis is the problem – and, on that front, the official ambition is still 1,000 by 2022, an increase from 659 today. Only if that target is abandoned, which might require Aldi’s margins to slip towards 1%, can the big boys claim real success. The old guard can claim a moral victory in the sense that Aldi is planning a £300m refit of its stores to make them less tatty. Yet the sheer number of Aldis is the problem – and, on that front, the official ambition is still 1,000 by 2022, an increase from 659 today. Only if that target is abandoned, which might require Aldi’s margins to slip towards 1%, can the big boys claim real success.
In the meantime, expect the refrain from Tesco et al to be familiar: we’re “investing” in our customers by giving them lower prices but we can’t tell you, dear shareholder, when you will harvest the returns. Aldi has not gone away.In the meantime, expect the refrain from Tesco et al to be familiar: we’re “investing” in our customers by giving them lower prices but we can’t tell you, dear shareholder, when you will harvest the returns. Aldi has not gone away.