BusinessDay 09 Feb 2018

Friday 09 February 2018
FINANCIAL TIMES
COMPANIES & MARKETS
@ FINANCIAL TIMES LIMITED 2015
Wall Street and
European stocks back
under pressure
Germany’s Dax and FTSE 100 both down 1%
as New York opens lower
C002D5556
BUSINESS DAY
A3
MICHAEL HUNTER AND ADAM SAMSON
European stocks were back
under pressure on Thursday,
as the bout of volatility
this week that brought
an end to a lengthy period
of calm across world markets continued
to reverberate.
Germany was hit hardest as the
selling took hold across the region,
although the declines did not match
the intensity seen earlier the week,
when losses were at their steepest
since the aftermath of the UK’s 2016
vote to leave the EU.
In the European afternoon,
Frankfurt’s Xetra Dax fell 1.4 per
cent, eroding a recovery of 1.6
per cent made over the previous
session. Its decline over the week
stood at more than 2 per cent.
London’s FTSE 100 fell 1 per cent,
with financial stocks failing to hold
gains from an intraday rally. The
Europe-wide Stoxx 600 was down
0.2 per cent.
The jittery feel to trading came
after a rebound over the previous
session proved shortlived,
although the regions indices were
all above session lows. Meanwhile,
opening trade in the US added to
the sense of uncertainty as S&P
500 slipped by 0.1 per cent. On
Wednesday, a late sell-off wiped
out an intraday rally and took the
index down 0.5 per cent overall.
The Vix volatility index re-
HANNAH MURPHY
A
senior German central banker
has urged UK banks to
hasten their Brexit plans
and apply for EU banking licences,
warning they could be left “high
and dry” if they wait on hopes for
an EU-UK agreement for financial
services.
Andreas Dombret, a Bundesbank
executive board member, said
on Thursday that he was “sceptical”
whether a proposal from Britain’s
banking industry for “mutual recognition”
would be possible.
The model would allow crossborder
trade in financial services
between the UK and EU to continue
on the condition that each side preserve
regulatory standards in line
with best international practice. But
Mr Dombret warned that this could
undermine national sovereignty by
lending too much power to technical
committees of supervisors.
Speaking at an event hosted by
banking trade association UK Finance,
he said that a “no deal” on financial
services was now “a realistic
outcome”, adding that institutions
should also not bank on a potential
transition phase being agreed. The
UK and the EU are seeking to draw
up a status quo transition that could
run until the end of 2020.
Against this backdrop, he called
mained shy of its 3-year peak over
50, touched at the height of the
selling earlier in the week, to read
24.72. It started 2018 just under 11.
“Corrections like this can be
shortlived but painful since both
the start and the end are difficult
to call in the absence of clear triggers,”
said Pierre Blanchet, head of
multi-asset strategy at HSBC.
“However, we do not believe
anything has fundamentally
changed or that the correction
represents a shift to a new market
paradigm.”
Earlier, Asian stocks had
notched up modest gains, with
Japan’s Topix up 0.9 per cent and
the Hang Seng gaining 0.4 per cent.
Over the week, the broad Euro
Stoxx 600 fall amounted to 2.1 per
cent. Meanwhile, the FTSE 100
added to its status as one of the worst
performing major markets, down 4.1
per cent.
Analysts remained braced for
further uncertainty.
Celia Dallas, chief investment
strategist at Cambridge Associates,
warned of “continued pressure”,
adding: “Panic selling among retail
investors would also increase if declines
persist. Indeed, large S&P 500
exchange traded funds have seen
outflows in recent days.
“But as companies exit earningsdriven
blackout periods and are again
eligible to repurchase stock, this may
provide a countervailing force.”
Bundesbank’s Dombret urges UK
banks to hasten Brexit plans
for “timely preparation” from lenders,
cautioning that a last-minute
flurry of applications for banking
licences could slow application
processes.
“Financial institutions should not
fall prey to a false sense of certainty
that, come what may, there will be
an agreement and that they will
have sufficient time left to adapt to
the new framework,” he said. “Those
who do not complete their plans and
start implementing them by March
this year risk being left high and dry
by Brexit one year later.”
The comments come just a day
after the Single Supervisory Mechanism,
the eurozone’s banking
watchdog, warned that lenders
should apply for licences to continue
operations within the EU
within the next five months. The
SSM said that eight UK-based banks
had taken formal steps to seek a
new licence and four others were
planning to expand their activities
substantially in the currency area.
Mr Dombret, who also sits on the
board of the SSM, said on Thursday
that in the context of Brexit, more
than 100 financial institutions
would need a new or modified
licence.
“The economic consequences of
insufficient preparation in the event
of a hard Brexit would far exceed
the costs of proper preparation,” Mr
Dombret said.
Debenhams has been tackling weak consumer spending and people’s shift towards online shopping © Bloomberg
Debenhams adds to retail woes by axing 320 shop manager jobs
Department store echoes similar moves across UK high street amid challenging conditions
NAOMI ROVNICK
Struggling department store group
Debenhams will cut a quarter of
its in-store managers in the latest
example of a UK retailer battling challenging
conditions on the high street
by shaking up staff and cutting jobs.
Debenhams, which warned
on profits after Christmas and has
pledged to cut tens of millions of
pounds in costs in a reorganisation
led by chief executive Sergio Bucher, is
axing 320 shop manager roles, echoing
similar moves by other store chains.
“We are reviewing our retail structure,”
Debenhams said on Thursday in
a brief, emailed statement. “The review
looks to identify how we can reduce
cost and complexity in store processes
so that we can focus our resources on
serving customers better.”
The affected staff will be redeployed
across the business if possible,
the company said.
Debenhams has been tackling
weak consumer spending and people’s
shift towards online shopping,
and in response Mr Bucher launched
a turnround focused on revamping
stores and expanding digital revenues.
But the strategy has shown little success
so far. The chain’s UK sales fell 2.6
per cent in the 17 weeks to December
30 on a same-store basis, as its Christmas
ranges failed to lure shoppers.
Clive Black, an analyst at Shore
Capital, welcomed the changes, saying:
“Store-based retailers are coming
to terms with variable demand levels,
intense competition, the rise of online
and often bloated and out-of-date cost
structures.
“Right-sizing organisations is
therefore focusing on management
at the moment as the cost savings are
greater than front-end staff. Also, good
shopkeeping means good service in
many cases, certainly in Debenhams’.”
He cautioned, however, that Debenhams
faced other structural challenges,
“most notably material overextraction
of resources by its private
Social network sees rise in ad revenues as marketers respond to new formats
equity owners, which leave it with
an unenviable real estate structure.
As such to sustain profitability and
keep the wolves from the door, it
must maintain cost-reduction programmes.”
The shake-up at Debenhams adds
to a slew of similar announcements
from UK retailers.
Tesco said last month it would
eliminate 800 managerial roles in
the UK, while rival grocer J Sainsbury
unveiled a similar restructuring of its
store management that it admitted
could affect thousands of staff and
lead to job losses. Wm Morrison and
Asda have also announced job cuts.
Meanwhile, Australian chain Wesfarmers
said this week it was reviewing
the future of its UK retail business
after its high-profile acquisition of
DIY group Homebase did not work
out as expected. It employs roughly
12,000 people in the UK. Rival home
improvement chain B&Q said last
month it was cutting head office roles
as it sought to trim costs.
Twitter posts first profit sending shares up almost 30%
ALIYA RAM
Twitter has swung to profitability
for the first time, after
the social network unveiled
a series of changes designed to
help it better compete for advertising
dollars, sending shares in the
company up 29 per cent when
markets opened on Thursday.
The company disclosed net
income of $91m in the fourth
quarter, compared with $167m of
losses in the same period the year
before, as advertisers responded
enthusiastically to new ad formats
in online videos and tweets.
Ad sales, which comprise the
bulk of Twitter’s revenues, grew
1 per cent year on year to $644m.
Twitter also beat Wall Street
estimates on revenue growth of 2
per cent to $731.6m, when most
analysts had expected a decline.
Jack Dorsey, the Twitter cofounder
who returned to the
company as chief executive in
2015 to implement a turnround
plan, said the business would
continue to invest heavily in making
the service more attractive to
advertisers.
Twitter has struggled to build
its userbase and match the advertising
revenues of its larger
tech rivals Facebook and Google
— which together account for the
lion’s share of online advertising
revenue. Last year it unveiled a
range of changes to attract new
users which included products
such as a live video streaming
function for sports and news, and
a doubling of the character limit
for tweets to 280 in a bid to attract
more advertisers.
In a call with investors, Ned
Segal, chief financial officer said
the company would continue to
invest. “We’re looking at investing
to grow. We will invest in products
. . . and we will invest in sales.”
Mr Dorsey added that the
company was “confident about
the road ahead”, even as user
monthly active user numbers
were flat at 330m in the quarter.
Walter Price, head of global
technology at Allianz Global
Investors, said financial performance
was of most importance.
“User numbers are distorted by
bots anyway so I’m more interested
in revenue growth,” he said.
“They have focused the company
on the things that are working and
that are their strengths, rather than
something they’re not.”
Scott Kessler, head of equity
research at CFRA, said the challenge
would be to maintain momentum.
“There is clearly a lot of
enthusiasm [about Twitter’s results]
and maybe that’s warranted
given that expectations for this
company have been depressed
over the last number of quarters,”
he said. “With a company like
this, however, people are a lot
less concerned about users than
profitability and revenue and will
want that to continue.”
The company said in a letter to
shareholders that it expected to be
profitable next year.
Social media companies including
Twitter have come under
the spotlight in recent months over
fake accounts and disinformation,
and have moved to improve the
quality of information and interactions
on their platforms.
Mr Dorsey said that Twitter
would focus on improving the
curation of its newsfeeds over the
next year “One of things we don’t
do well today is match [users]
with their interests very quickly,”
he said.