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BT shares plunge 19% as Italian accounting scandal deepens – business live BT shares plunge 19% as Italian accounting scandal deepens – business live
(35 minutes later)
3.13pm GMT
15:13
US home sales fall in December
But existing home sales in the US fell by more than expected in December, as the supply of houses on the market dropped to levels not seen since 1999.
The National Association of Realtors said existing home sales fell 2.8% to a seasonally adjusted annual rate of 5.49m units, compared to forecasts of a 1.1% decline to 5.52m. But overall sales for 2016 rose to 5.45m, the highest since 2006, from 5.25m the previous year. Lawrence Yun, the association’s chief economist, said the housing market’s best year since the Great Recession ended on a healthy but somewhat softer note:
Solid job creation throughout 2016 and exceptionally low mortgage rates translated into a good year for the housing market. However, higher mortgage rates and home prices combined with record low inventory levels stunted sales in much of the country in December.
While a lack of listings and fast rising home prices was a headwind all year, the surge in rates since early November ultimately caught some prospective buyers off guard and dimmed their appetite or ability to buy a home as 2016 came to an end.
3.04pm GMT
15:04
Better than forecast US manufacturing data adds to rate rise expectations
US manufacturing has got off to a good start in 2017, with overall conditions improving at the quickest pace for two years.
The initial Markit manufacturing purchasing managers index for January came in at 55.1, compared to expectations of a figure of 54.5 and a rise from December’s final figure of 54.3. Chris Williamson, Chief Business Economist at IHS Markit said:
US manufacturers are seeing a bumper start to 2017, with production surging higher in January on the back of rising inflows of new orders.
New work is growing at the fastest rate for over two years, thanks mainly to rising demand from customers in the home market. Export growth remains subdued, stymied by the strong dollar.
The survey results suggest that faster manufacturing growth and inventory rebuilding should help boost GDP in the first quarter if current trends persist in coming months. Rising factory employment should also help improve consumer morale and spending.
However, with such strong growth being signalled and price pressures rising, speculation around the next Fed rate hike will intensify.
Updated
at 3.06pm GMT
2.53pm GMT
14:53
Wall Street struggles into positive territory
With US investors awaiting more details of President Donald Trump’s tax and spending plans, the main impetus for the market has been his protectionist stance on trade, including pulling out of the Trans-Pacific Partnership.
So Wall Street is currently searching for direction, as the US reporting season gathers pace. The Dow Jones Industrial Average is up 13 points or 0.07% while the S&P 500 and Nasdaq Composite both opened marginally higher.
2.19pm GMT2.19pm GMT
14:1914:19
Shares in broadcaster ITV have jumped by over 5% today, on speculation that a bid battle could be coming.Shares in broadcaster ITV have jumped by over 5% today, on speculation that a bid battle could be coming.
The rally sparked by the Evening Standard’s Jamie Nimmo, who reported that several US companies are interested....The rally sparked by the Evening Standard’s Jamie Nimmo, who reported that several US companies are interested....
He writes:He writes:
Chatter in the Square Mile that Liberty Global could buy out ITV is nothing new, but rumour has it that the Virgin Media owner may face competition from some of the world’s largest companies.Chatter in the Square Mile that Liberty Global could buy out ITV is nothing new, but rumour has it that the Virgin Media owner may face competition from some of the world’s largest companies.
The word on the street is that major shareholders of ITV have been sounded out by tech giants Apple, Amazon and Netflix about a possible takeover.The word on the street is that major shareholders of ITV have been sounded out by tech giants Apple, Amazon and Netflix about a possible takeover.
They are thought to have been enticed by the cheap pound and ITV’s production arm — behind shows such as Mr Selfridge and which has been growing over the past few years through acquisitions.They are thought to have been enticed by the cheap pound and ITV’s production arm — behind shows such as Mr Selfridge and which has been growing over the past few years through acquisitions.
The gossip suggests the US giants are willing to pay 300p a share, valuing ITV at around £12 billion.The gossip suggests the US giants are willing to pay 300p a share, valuing ITV at around £12 billion.
More here:More here:
Market report: Buzz as US suitors rumoured to be eying ITV takeover https://t.co/GBz7on1UHMMarket report: Buzz as US suitors rumoured to be eying ITV takeover https://t.co/GBz7on1UHM
ITV’s shares are currently changing hands at around 210p - a long way from 300p, suggesting the City isn’t convinced a bid is coming. One to watch though....ITV’s shares are currently changing hands at around 210p - a long way from 300p, suggesting the City isn’t convinced a bid is coming. One to watch though....
2.05pm GMT2.05pm GMT
14:0514:05
Microsoft 'reaffirms' commitment to UK amid Brexit fearsMicrosoft 'reaffirms' commitment to UK amid Brexit fears
Software giant Microsoft has just released a statement, insisting that it remains committed to the UK following reports that Brexit might disrupt its operations.Software giant Microsoft has just released a statement, insisting that it remains committed to the UK following reports that Brexit might disrupt its operations.
The company says:The company says:
The comments reported today by a Microsoft employee were not reflective of the company’s view. As we have said both before and after the EU referendum vote, Microsoft’s commitment to the UK is unchanged. In particular, those customers in our UK data centres should continue to rely on Microsoft’s significant investment plans there.The comments reported today by a Microsoft employee were not reflective of the company’s view. As we have said both before and after the EU referendum vote, Microsoft’s commitment to the UK is unchanged. In particular, those customers in our UK data centres should continue to rely on Microsoft’s significant investment plans there.
Which employee, I hear you cry...Which employee, I hear you cry...
...well, it’s Microsoft’s UK government affairs manager Owen Larter. Yesterday, he told a webinar that importing hardware to the UK could become too pricey, if tariffs were imposed after Britain leave the EU....well, it’s Microsoft’s UK government affairs manager Owen Larter. Yesterday, he told a webinar that importing hardware to the UK could become too pricey, if tariffs were imposed after Britain leave the EU.
Larter said:Larter said:
“If all of a sudden there are huge import [tariffs] on server racks from China or from eastern Europe, where a lot of them are actually assembled, that might change our investment decisions and perhaps we build out our datacenters across other European countries.”“If all of a sudden there are huge import [tariffs] on server racks from China or from eastern Europe, where a lot of them are actually assembled, that might change our investment decisions and perhaps we build out our datacenters across other European countries.”
TechRepublic has the full story.TechRepublic has the full story.
1.41pm GMT1.41pm GMT
13:4113:41
Brexit pushes sterling downBrexit pushes sterling down
The pound is falling further as the UK government pushes on with its Brexit plans following today’s supreme court ruling.The pound is falling further as the UK government pushes on with its Brexit plans following today’s supreme court ruling.
Sterling is currently down 0.5% at $1.246. having hit $1.253 earlier in the day.Sterling is currently down 0.5% at $1.246. having hit $1.253 earlier in the day.
It fell as Brexit secretary David Davis told MPs that a bill seeking permission to trigger Article 50 will be introduced within days.It fell as Brexit secretary David Davis told MPs that a bill seeking permission to trigger Article 50 will be introduced within days.
FXTM research analyst Lukman Otunuga says ‘hard Brexit fears’ have been fuelled by the judges’ ruling that the devolved administrations needn’t give their approval for Article 50 to be triggered.FXTM research analyst Lukman Otunuga says ‘hard Brexit fears’ have been fuelled by the judges’ ruling that the devolved administrations needn’t give their approval for Article 50 to be triggered.
Although today’s ruling has provided some clarity in the short term on the steps needed for Brexit to happen; the pending Brexit fuelled debates with the Parliament and potential complications could create a new layer of uncertainty consequently weakening the Pound.Although today’s ruling has provided some clarity in the short term on the steps needed for Brexit to happen; the pending Brexit fuelled debates with the Parliament and potential complications could create a new layer of uncertainty consequently weakening the Pound.
12.25pm GMT12.25pm GMT
12:2512:25
Breaking: UK bank HSBC has announced plans to shut 62 branches across the UK.Breaking: UK bank HSBC has announced plans to shut 62 branches across the UK.
The move will cost 180 jobs, and is part of the bank’s cost-cutting programme.The move will cost 180 jobs, and is part of the bank’s cost-cutting programme.
With more customers using electronic banking services, HSBC argues that it needs fewer physical branches.With more customers using electronic banking services, HSBC argues that it needs fewer physical branches.
The BBC’s Simon Gompertz has got hold of a list; it includes branches in Blackpool, Chipping Norton, Newquay and Warwick.The BBC’s Simon Gompertz has got hold of a list; it includes branches in Blackpool, Chipping Norton, Newquay and Warwick.
Here's the list of the 62 new HSBC branch closures https://t.co/cnp2STK11vHere's the list of the 62 new HSBC branch closures https://t.co/cnp2STK11v
11.56am GMT11.56am GMT
11:5611:56
Today’s tumble makes BT’s shares rather more attractive to investors on a price/earnings basis.Today’s tumble makes BT’s shares rather more attractive to investors on a price/earnings basis.
The company still expects to grow its dividend by 10% per share this financial year, and in 2017-18.The company still expects to grow its dividend by 10% per share this financial year, and in 2017-18.
But the Italian accountancy scandal, and the warning that BT’s UK’s public sector business is slowing, are reasons to be cautious.But the Italian accountancy scandal, and the warning that BT’s UK’s public sector business is slowing, are reasons to be cautious.
Chris Beauchamp of IG says:Chris Beauchamp of IG says:
At ten times forward earnings, the shares are now the cheapest they have been since early 2013, but the fundamental case for investing, aside from the dividend, has still to be proved.At ten times forward earnings, the shares are now the cheapest they have been since early 2013, but the fundamental case for investing, aside from the dividend, has still to be proved.
11.23am GMT11.23am GMT
11:2311:23
Here’s Nick Fletcher’s news story on BT’s Italian problems:Here’s Nick Fletcher’s news story on BT’s Italian problems:
11.15am GMT11.15am GMT
11:1511:15
BBC: BT's European head to resign todayBBC: BT's European head to resign today
The BBC’s Simon Jack is reporting that the head of BT’s Continental Europe division, Corrado Sciolla, will resign today.The BBC’s Simon Jack is reporting that the head of BT’s Continental Europe division, Corrado Sciolla, will resign today.
Head of BT Europe, Corrado Sciolla will resign this pm over 530m accounting scandal at BT Italy. Serious internal & ext auditing errorsHead of BT Europe, Corrado Sciolla will resign this pm over 530m accounting scandal at BT Italy. Serious internal & ext auditing errors
Sciolla is a former boss of BT Italy, who was promoted to become president of Continental Europe four years ago.Sciolla is a former boss of BT Italy, who was promoted to become president of Continental Europe four years ago.
Here’s his biography, from BT’s website:Here’s his biography, from BT’s website:
Corrado is responsible for making sure we grow quickly and profitably across Europe - where we serve big brands like Fiat, ENI, Syngenta and The European Parliament.Corrado is responsible for making sure we grow quickly and profitably across Europe - where we serve big brands like Fiat, ENI, Syngenta and The European Parliament.
Corrado’s career started as a McKinsey consultant, then he had various directorships at Stream (an Italian pay-TV firm), Syntek Capital, and Wind Telecomunicazioni (Italy’s second-biggest fixed and mobile telecoms operator).Corrado’s career started as a McKinsey consultant, then he had various directorships at Stream (an Italian pay-TV firm), Syntek Capital, and Wind Telecomunicazioni (Italy’s second-biggest fixed and mobile telecoms operator).
In 2004, he became managing director of Albacom, a joint venture between BNL and BT. When BT bought Albacom outright in 2006, he became CEO of BT Italy and – in 2011 – president of BT France as well.In 2004, he became managing director of Albacom, a joint venture between BNL and BT. When BT bought Albacom outright in 2006, he became CEO of BT Italy and – in 2011 – president of BT France as well.
Corrado is Italian. He has an electronic engineering degree from the Polytechnic University of Turin and an MBA from the INSEAD business school.Corrado is Italian. He has an electronic engineering degree from the Polytechnic University of Turin and an MBA from the INSEAD business school.
Exclusive. Head of BT Europe to go. Corrado Sciolla most senior head to roll over BT accounting scandal. full story https://t.co/8Ts9Ig84hhExclusive. Head of BT Europe to go. Corrado Sciolla most senior head to roll over BT accounting scandal. full story https://t.co/8Ts9Ig84hh
UpdatedUpdated
at 11.16am GMTat 11.16am GMT
10.55am GMT10.55am GMT
10:5510:55
There’s no respite for BT’s share price this morning; it’s still down almost 18% at 314p, which knocks over £6bn off its value.There’s no respite for BT’s share price this morning; it’s still down almost 18% at 314p, which knocks over £6bn off its value.
The accounting scandal in Italy (details), and the news that BT’s UK business is slowing too, are alarming the City.The accounting scandal in Italy (details), and the news that BT’s UK business is slowing too, are alarming the City.
George Salmon, equity analyst at Hargreaves Lansdown, says there were already concerns about BT’s debt and its pension black hole:George Salmon, equity analyst at Hargreaves Lansdown, says there were already concerns about BT’s debt and its pension black hole:
“The revelation that accounting deficiencies in Italy are worse than previously thought is a bitter, and needless to say unwelcome, pill to swallow for BT investors. With news that its Business and Public Sector division is coming under pressure too, worries about the group’s ability to fund its generous dividend policy will surely grow.“The revelation that accounting deficiencies in Italy are worse than previously thought is a bitter, and needless to say unwelcome, pill to swallow for BT investors. With news that its Business and Public Sector division is coming under pressure too, worries about the group’s ability to fund its generous dividend policy will surely grow.
Full year profits are now expected to be around £300m lower than had been hoped, with around £500m of 2016/17 free cash flow disappearing. Just about the only guidance that was left unchanged is the dividend, where the group is still targeting at least 10% increases this year and next.Full year profits are now expected to be around £300m lower than had been hoped, with around £500m of 2016/17 free cash flow disappearing. Just about the only guidance that was left unchanged is the dividend, where the group is still targeting at least 10% increases this year and next.
With the group’s net debts pushing £9.6bn following the acquisition of EE, and a review of the how to fund the £9.5bn pension deficit coming up in June, there were already a few jitters around the stock so this was the last thing the group needed.”With the group’s net debts pushing £9.6bn following the acquisition of EE, and a review of the how to fund the £9.5bn pension deficit coming up in June, there were already a few jitters around the stock so this was the last thing the group needed.”
10.23am GMT
10:23
Boost for Philip Hammond in public finance figures
Katie Allen
On the surface, the latest figures on the UK’s public finances were worse than expected, with a marginally bigger deficit than predicted in December. But the release should still provide some cheer to chancellor Philip Hammond with revisions to November’s figures meaning he now looks more likely to hit his borrowing target for the full year.Public sector net borrowing decreased by £0.4bn to £6.9bn in December 2016, compared with December 2015, the Office for National Statistics said. The consensus forecast was for a bigger drop to 6.7bn in a Reuters poll of economists.
Public sector net borrowing (excl public sector banks) decreased by £0.4 bn to £6.9 bn Dec 16, compared with Dec 15 https://t.co/X7MMWsdcgw
In the current financial year-to-date (April to December 2016), the public sector borrowed £63.8bn. That was £10.6bn lower than in the previous financial year-to-date, helped by a smaller deficit than previously thought for November. The Office for Budget Responsibility (OBR) is forecasting full-year (April 2016-March 2017) public sector net borrowing of £68.2bn.
UK public sector #borrowing £63.8bn for financial year-to-date; £10.6bn down on last year; lowest y-t-d since 2007/8 https://t.co/NhzTvzUhKj pic.twitter.com/h5jbPhKaQX
Scott Bowman, UK economist at the consultancy Capital Economics said the fall in borrowing in December continued the recent trend of a gradual improvement in the public finances. Explaining the pattern, he said:
The improvement was mainly driven by a 5.6% annual rise in central government receipts, while spending actually fell slightly on a year earlier. And looking through some of the monthly volatility, receipts growth has been on a slight upward trend since May – adding to the evidence that the economy has held up well following the vote to leave the EU... We think borrowing should come in slightly below the OBR’s current £68bn forecast for the 2016/17 fiscal year.”
Suren Thiru, head of economics at the British Chambers of Commerce (BCC), sounds a cautious note about the future state of the public finances as the Brexit process unfolds.
The UK’s fiscal position, which was weakened significantly by the financial crisis, is likely to come under increasing pressure in the near-term if UK economic growth weakens as expected. A slowing economy would further restrict the UK’s capacity to collect enough tax revenue to consistently achieve deficit reduction in the coming years.
More needs to be done to boost business confidence, to help firms to deliver the sort of growth, investment and job creation needed to achieve a sustainable strengthening of the UK’s tax base.”
10.15am GMT
10:15
Pound volatile as supreme court gives Brexit verdict
As predicted in our agenda, the pound has flailed around as Britain’s top judges delivered their verdict on Britain’s exit from the EU.
The supreme court ruled by 8 votes to 3 that the government cannot trigger Article 50 without parliamentary approval. That sent the pound up to $1.2535, suggesting traders reckon this could slow the Brexit process.
But the pound then fell back as the judges announced that the devolved assemblies in Scotland and Northern Ireland do not need to give their own assent. That removes one possible hurdle to Britain’s exit from the EU.
Andy Sparrow’s politics liveblog has full details and rolling reaction.
Updated
at 10.22am GMT
10.00am GMT
10:00
In other news, Europe’s factories and service sector firms have made a solid start to 2017.
Data firm Markit’s monthly eurozone PMI has come in at 54.3, down slightly from 54.4. Any reading over 50 shows growth.
Firms added new jobs at the fastest rate in 9 years too, while factory growth hit a five-year high. Encouraging stuff.
Manufacturers in the eurozone have reported their best month since 2011 https://t.co/88VBa4QsOM pic.twitter.com/SNZU6cVLSq
9.48am GMT
09:48
BT’s shares are popular with small shareholders, some of whom will have held them since the company was privatised in 1984.
So today’s share plunge will have hit them in the pocket (although BT says it hopes to keep raising its dividend over the next couple of years)
The Share Centre, a retail stockbroker, have put their ‘buy’ recommendation on review.
Helal Miah, investment research analyst, says:
“On top of BT’s big pension deficit and grumbles amongst rivals and users of its infrastructure network, today’s news has further dented investors’ confidence in the group.
We too, have become more cautious and have placed our current ‘buy’ recommendation under review. However, this may be an attractive idea for investors taking a contrarian position and, provided the group maintains its dividend, then it could become a good income option.”
9.33am GMT
09:33
Here’s Mike van Dulken of Accendo Markets on BT shock warning:
This morning sees BT Group (BT/A) shares -16% to trade levels last seen in mid-2013. Just as brokers and investors were prepping for FY results on Friday, the company delivers a profits warning linked to an existing accounting scandal at its Italian business. Continued investigation since October (internal + external) has shown the extent of impropriety (sales, purchase, leasing) and overstatement of profits to be far greater than initially thought. Management has been forced to more than triple its expected write-down to £530m and admit that FY revenues, profits and cash flow will be lower than consensus. Last October’s suggestion of a £145m charge didn’t cause too many ripples as regulatory issues and a rising pension deficit hogged the headlines. Today’s admission adds this to these nasty headwinds, especially as it could weigh on profits for the next two years.
Even management isn’t sure what the final figure will be. The group still expects 10% dividend increases for the next two years but is this enough to appease disgruntled shareholders who had already been wearing a 20% downtrend since early 2016. The increases may, however, attract newbies via a 4% yield. Assuming this can be honoured….
Updated
at 9.34am GMT
9.00am GMT
09:00
We’ll get more colour on BT’s business on Friday, when it publishes its third-quarter financial results.
Today’s announcement was rushed out once the company had calculated the full cost of its Italian accounting problems.
Under City rules, a company can’t keep a problem of this magnitude to itself.
Updated
at 9.10am GMT
9.00am GMT
09:00
Q: Why were the accounting irregularities BT Italy not discovered a lot sooner?
BT says that it “needs to reflect” on why they were not spotted by BT Italy’s management, the wider Group, or by its auditors.
But it is “far too premature” to say anything about the auditors this morning
8.43am GMT
08:43
This is turning into a full-blow rout:
Make that down 19% for BT shares and on track for the biggest fall ever after "improper" accounting practices at its Italian unit. pic.twitter.com/rCRw2J1F7s
8.42am GMT
08:42
This is a “dark day” for BT, says city analyst Neil Wilson of ETX Capital.
He says investors are selling up, on fears that there are deeper problems at the telecoms firm.
The group’s own investigation of accounting malpractice in its Italian business shows the situation is far worse than it first thought – the bill is now thought to be around £530m, well above the £145m initially forecast.
According to BT, this will mean a reduction in Q3 adjusted revenue and adjusted EBITDA of around £120m. Free cash flow will be £100m worse off.
For 2016/17 as a whole the problems will have a negative revenue impact of around £200m, while denting normalised free cash flow by up to £500m. The impact on 2017/18 is expected to be just as bad and that is likely to have a material impact on its ability to return cash to shareholders, although BT says it still expects to grow dividend per share by 10% in each of those years. The problem is that investors will fear that this is not the end – what else will be uncovered? The costs could yet rise and that fear is driving the selling this morning.”
8.40am GMT
08:40
BT’s shares are now down 19%, which wipes £6bn off its market capitalisation.