Posts in category Business and finance


ApprovedBusiness and financeFINANCEFinance and economics

European financial centres after Brexit

“WHEN the vote took place,” says Valérie Pécresse, “it was an opportunity for us to promote Île de France”, the region around Paris of which she is the elected head. Two advertising campaigns were prepared, depending on the result of Britain’s referendum last June on leaving the European Union. The unused copy ran: “You made one good decision. Make another. Choose Paris region.”

Brexit has made Paris bolder. Once Britain leaves Europe’s single market, the many international banks and other firms that have made London their EU home will lose the “passports” that allow them to serve clients in the other 27 states. Possibly, mutual recognition by Britain and the EU of each other’s regulatory regimes will persist. But no one can rely on the transition to Brexit being smooth, rather than a feared “cliff edge”. Best to assume the worst.

Britain is expected to start the two-year process of withdrawal next month. Given the time needed to get approval from regulators, find offices and move (or hire) staff, financial firms have long been weighing their options. London will remain Europe’s leading centre, but other cities…Continue reading

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Business and financeGulliver

International visitors are already turning their back on Trump-era America

WHEN President Donald Trump announced his travel ban last month, affecting people from seven majority-Muslim countries, this blog wondered what effect it would have on tourism and business travel to America. “The direct impact to tourism of a travel ban from these countries will be small,” a fellow Gulliver noted, since “each sends a piddling number of visitors to America.” But there was a bigger concern: “Will the decree—easily interpreted as a deep hostility to the world beyond America’s shores—put off global travellers?”

Two weeks later, it has become clear that the answer is yes.

Last week, the travel ban was blocked temporarily by a federal judge and the suspension upheld by a panel of appeals court judges. But that hasn’t stopped Mr Trump’s executive order from having an effect on travel to the United States.

Hopper, a market research firm, looked at online searches for flights into America, comparing the final weeks of the Obama administration with the…Continue reading

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ApprovedBusinessBusiness and finance

Investors flock to buy a piece of Mexico’s leading tequila-maker

OVER the course of more than 200 years in the tequila business, Jose Cuervo will have been responsible for a fair few moments of giddy pleasure. Last week, it got one of its own thanks to a successful initial public offering (IPO). It was eight times oversubscribed and raised 18.6bn pesos ($920m) in exchange for 15% of the company.

Jose Cuervo, which is based in the western state of Jalisco, is one of the country’s best-known brands, and has been run by the same family for 11 generations. It dominates the Mexican tequila industry; sales in 2015 came to 18.5bn pesos. It also holds an assured place in the history of mixology: the original margarita cocktails were purportedly made with Jose Cuervo tequila.

Long considered a candidate for flotation, it eventually published a prospectus in September 2016. The IPO was delayed, though, seemingly to allow the company to take stock of the impact of Donald Trump’s election victory in November. Since then the peso has dropped over 10% against the dollar, and Mr Trump’s desire to rework, even to rip up, the North Atlantic Free-Trade Agreement, and perhaps impose a border tax on Mexican exports to America has sent…Continue reading

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Business and financeGulliver

Business travellers are keener on the sharing economy than their employers

RIDE-HAILING apps and home-rental sites are fast becoming mainstays of the corporate travel world—but perhaps not quite as fast as many business travellers would like.

Two recent reports shed light on the rapid changes taking place within the industry. One comes from the Global Business Travel Association (GBTA), which represents corporate travel managers. Its latest survey found that the number of businesses allowing their employees to use ride-hailing services such as Uber and Lyft has increased by nearly 15% since June. Over the same period, the share permitting workers to book lodging through Airbnb and similar services increased 20%. Yet despite that growth, half of corporate travel policies still don’t allow employees to use ride-hailing apps, and 70% prohibit home-rental services in favour of traditional hotels.

At first glance, those figures appear at odds with a survey released by Certify, which makes software that tracks business-travel expenses. It found…Continue reading

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Business and financeButtonwood's notebook

The problem that links business, finance and politics

THE problem is as old as mankind. The Roman author Juvenal encapsulated it into a phrase “Quis custodiet ipsos custodes” or “Who guards the guards themselves?” It was neatly illustrated in the classic BBC series “I, Claudius”. The infirm Claudius wants the return of the Republic. But the Praetorian guard, set up by his relatives, needed an Emperor to ensure their special status. So on the murder of Caligula, they drag Claudius from his hiding place behind a curtain, and make him Emperor.

Throughout history, dictators have faced this problem. They can surround themselves with men with swords or guns. But it only takes one guard with a sword or gun to turn into an assassin or to seize power for himself. The Shah of Iran had a huge army in 1979 but it did him no good; the soldiers had more sympathy with the revolutionaries than with the Shah himself. 

In business and finance, this is known as the “principal-agent” problem. Shareholders employ managers to run a company; investors use fund managers to look after their savings. That makes sense. It allows us to take advantage of the expertise of others, and of…Continue reading

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Business and financeGulliver

Passengers like flying on planes not made by Boeing or Airbus

ONE statistic that never fails to amaze is the claim by Boeing that one of its 737-model planes lands or takes off somewhere in the world every two seconds. Airbus, the American planemaker’s bitter European rival, makes a similar assertion about its A320 series (although fewer have been built). So ubiquitous are these mid-sized, short-haul aircraft that if you are sat on a modern plane with 120-200 seats you are all but guaranteed to be on an A320 or a 737. That duopoly is nice for Boeing and Airbus, which have collectively delivered 16,800 of the two models. But, in Europe at least, passengers are getting a taste of what else might be.

Last July, Swiss International Air Lines became the first carrier in the world to fly the Bombardier CSeries on scheduled commercial operations. It currently deploys five CS100s (pictured) from Zurich to two dozen European cities. The 125-seat jets are borrowed from parent company Lufthansa, Germany’s flag-carrier, which has ordered 30 CSeries and expects to receive another 12 of the planes this year. More recently, Air Baltic, the flag-carrier of Latvia, became the first to fly the CS300, a larger variant which it has configured with 145…Continue reading

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ApprovedBusinessBusiness and finance

Tata’s governance is still faulty

Chandra in, Cyrus out

PROFIT is to good corporate governance what tides are to swimming trunks: when the former is high, absence of the latter tends to go unnoticed. The ebbing of profits at Tata, India’s largest conglomerate, in recent years has prompted a power struggle that in turn has exposed the often dysfunctional relationship between several dozen businesses, holding companies, people and charities that use the Tata name. The struggle is now over: on February 6th, Cyrus Mistry, Tata’s boss until last October (pictured on next page, on the right) was finally booted out of the company. Natarajan Chandrasekaran (on the left), the boss of one of the group’s key operating firms, Tata Consultancy Services, takes over as chairman on February 21st.

Executives at the 149-year-old group hope that will close a grim chapter in its history. Mr Mistry, whose family owns an 18% stake in Tata Sons, the main holding company, which is unlisted, reacted badly to being evicted as its chairman last year. The move to oust him was set in motion by Ratan Tata, the group’s 79-year old patriarch (and Mr Mistry’s interim successor)….Continue reading

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ApprovedBusinessBusiness and finance

Ralph Lauren and Macy’s tell a similar tale of woe

NEW YORK’s fashion week, which will start on February 9th, promises the usual show of glamour, but a more fascinating industry display came a week earlier. On February 2nd Ralph Lauren, a well-known brand, said that the executive it had hired in 2015 to overhaul its business would leave. On February 3rd the Wall Street Journal reported that Macy’s, America’s biggest department store, might be bought by Hudson’s Bay, a smaller Canadian rival. Each is an institution of American retailing. Each is a reminder of how hard it is to keep pace.

Consumer habits have changed especially rapidly in their world. Frocks, bags and shoes are now disproportionately bought online compared with other goods. Last year clothes and accessories accounted for a fifth of e-commerce, estimates Cowen, a financial-services firm; far higher than their 8% share of total retail spending. Cowen expects Amazon to surpass Macy’s as America’s top clothing seller this year.

For manufacturers, such as Ralph Lauren, the picture is more mixed. For some clothing firms, particularly small ones, Amazon offers a new way to reach…Continue reading

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ApprovedBusinessBusiness and finance

Internet firms’ legal immunity is under threat

GOOGLE, Facebook and other online giants like to see their rapid rise as the product of their founders’ brilliance. Others argue that their success is more a result of lucky timing and network effects—the economic forces that tend to make bigger firms even bigger. Often forgotten is a third reason for their triumph: in America and, to some extent, in Europe, online platforms have been inhabiting a parallel legal universe. Broadly speaking, they are not legally responsible, either for what their users do or for the harm that their services can cause in the real world.

It is becoming ever clearer, however, that this era of digital exceptionalism cannot last for ever. Governments and courts are chipping away at the sovereignty of internet firms, and public opinion is pushing them to police themselves better. Given their growing heft, this shift is likely not just to continue but to accelerate.

When the internet went mainstream in the mid-1990s, online firms feared being held liable if their services were used in illegal ways—for instance, when subscribers posted copyrighted content or defamatory information. The danger was underlined in…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

Remaking American financial regulation

AT FIRST blush, there is little to be excited about. The eighth executive order of Donald Trump’s infant presidency, signed on February 3rd, lists seven “core principles” for regulating America’s financial system. These include the prevention of bail-outs by taxpayers; advancing the American interest in international negotiations; and tidying the unruly thatch of federal regulation. The treasury secretary and regulators must report by early June on how well existing laws fit the bill. “There is little in the actual executive order that the Obama administration would have disagreed with,” says Doug Elliott of Oliver Wyman, a consulting firm. 

And yet. Although the edict does not mention the Dodd-Frank act of 2010, which redefined financial regulation after the crisis of 2008, it is chiefly aimed at that law. (Another presidential memorandum paves the way to aborting a rule tightening financial advisers’ obligations to Americans saving for retirement.) Many banks, especially smaller ones, loathe the 848-page act and its reams of ensuing rules. According to Davis Polk, a law firm, 111 of its 390 “rule-making requirements” have not yet…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

Explaining euro-zone market jitters

IT was not an ideal way to mark a silver jubilee. The 25th anniversary of the signing of the Maastricht treaty, which gave life to the idea of a single European currency, fell on February 7th, the same day that the IMF published its annual health-check on the Greek economy. It said most (but not all) of its board favoured more debt relief to get Greece’s public finances in order—an idea quickly trashed by euro-zone officials.

A day earlier the spread between ten-year government bonds in France and Germany had reached its widest level in four years. The proximate cause seemed to be a growing concern about political risks to the euro. François Fillon, once the front-runner in the race for the French presidency, is embroiled in a scandal and losing ground. A fear is that his fall from grace might boost support for Marine Le Pen, leader of the National Front, who wants France to leave the euro and the EU.

Shorter odds on a Le Pen victory would certainly justify a higher risk premium on French bonds. Yet there is more to the latest bout of euro-area bond jitters than a sharper focus on politics. After all, bond markets…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

China tightens monetary policy (discreetly)

IF ASKED before the start of 2017 to bet on which important central bank would be the first to raise interest rates this year, the safe choice would have been the Federal Reserve. Some gamblers, relishing the long odds, might have gone for the Bank of England or even taken a flutter on the European Central Bank. All these guesses would have been wrong. The first to budge this year? The People’s Bank of China.

On February 3rd the Chinese central bank raised a series of short-term rates. The decision received scant attention. The increases were, after all, small: one-tenth of a percentage point for the main rates. It also seemed quite technical, primarily affecting liquidity tools that lenders can tap if short of cash. And there was no fanfare: the central bank did not publish an explanation.

But China’s move is important for two reasons. First, it highlights the government’s dilemma in managing the economy. Growth is expected to slow from last year’s pace of 6.7%, and recent surveys suggest that momentum is already ebbing. Sentiment is fragile: investment by private companies last year increased at its slowest pace in more than a…Continue reading

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ApprovedBusinessBusiness and finance

Snow-making companies in a warming world

Better than mud

THE creamy glide of fresh powder sends skiing enthusiasts into ecstasies. Scraping over brown patches and dodging lumpen rocks inspires far less enthusiasm. Thousands of families will hit Europe’s slopes this month, hoping that snow conditions will be more favourable than at the start of the season in December. A warming world is changing precisely how, when and where snow falls. For the winter-sports industry, such shifts could hit profits harder than a springtime avalanche.

The snowfall season has become shorter in places such as the Alps, says David Robinson of Rutgers University in New Jersey, as snow arrives later and melts earlier than it once did. Resorts at lower altitudes are among the most vulnerable. Since the 1970s the duration of the snow season, averaged over the northern hemisphere, has declined by five days a decade, according to the European Environment Agency. Huge regional variation exists, however, both in Europe and elsewhere. Californian slopes that were unable to open in recent years because of snow shortages had to close at the start of 2017 because too much of the stuff had…Continue reading

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