Top financial market stories of the week
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Monday 14th December 2020-Friday 18th December 2020
UK
1. JD to acquire Shoe Palace for $325 million — Tuesday
JD Sports has added US footwear retailer Shoe Palace to its stable of retail brands after completing a takeover deal worth $325 million (£240 million).
The UK sportswear retailer confirmed on Tuesday morning that its existing wholly-owned intermediate holding company in the US, Genesis Holdings, acquired 100% of both the issued shares in the Shoe Palace Corporation and the members’ interests in Nice Kicks.
Based in San Jose, California, Shoe Palace was established in 1993 by the Mersho family and currently has 167 stores, the vast majority of which trade under the Shoe Palace banner. More than half of the stores are located in California, although there is also an established retail presence in Texas, Nevada, Arizona, Florida, Colorado, New Mexico and Hawaii, with the store network supported by a developing e-commerce platform. In the year to December 31, 2019, Shoe Palace generated profit before tax of $52 million (£38.4 million) on the back of revenues of $435 million (£321 million).
2. Barclays fined £26 million for poor treatment of credit customers in financial difficulties — Thursday
Barclays has been fined £26 million after its poor treatment of some consumer credit customers who fell into arrears or experienced financial difficulties risked making their problems worse. The FCA said Barclays has pro-actively redressed these customers, paying over £273 million to at least 1,530,000 customer accounts since 2017 and the redress programme is close to completion.
Between April 2014 and December 2018 some retail and small business customers who had been offered consumer credit were treated poorly when they fell into arrears, the regulator said. The FCA found that Barclays failed to treat customers fairly or to act with due skill, care and diligence. It said Barclays failed to follow its customer contact policies for those who fell into arrears, or have appropriate conversations with them to help understand the reasons for the arrears. It also failed to properly understand customers’ circumstances leading it to offer unaffordable, or unsustainable, forbearance solutions. The FCA took the redress programme into account when setting its fine. Barclays did not dispute the FCA’s findings and agreed to settle the case. As a result, it qualified for a 30% discount and the financial penalty would otherwise have been £37,223,500.
3. Pound continues to rally on hopes of a Brexit deal — Thursday
The pound rallied for a fourth day in a row on Thursday as investors rushed to bet on a Brexit trade deal, putting the currency on course for its best week since March, according to the Financial Times. Sterling surged above $1.36 by late afternoon in London to its highest level against the US dollar since May 2018 and up from just above $1.32 at the end of last week. The gains have been driven by signs that the impasse in UK-EU trade talks is thawing, with the EU’s chief negotiator Michel Barnier saying on Thursday talks were in their “final stretch”.
However, analysts said the pound’s almost 3% rise this week — which is partly a side-effect of a broader decline in the dollar — is likely to leave little room for further gains once a deal is struck, while a last-minute failure in talks could trigger a sharp dive. The PM acknowledged on Friday that “things were looking difficult”. Mr Johnson was speaking after the EU’s chief negotiator said there were “just a few hours” remaining for London and Brussels to reach an agreement.
4. Rishi Sunak extends furlough scheme — Friday
Chancellor Rishi Sunak has extended the furlough scheme for one month until the end of April next year. This means the government will continue to pay up to 80% of the wages of workers who have been furloughed.
CBI chief economist Rain Newton-Smith said the package would “bring some much-needed certainty and respite” for businesses. “Stable employer contributions and an extension to the Job Retention Scheme until the end of April will mean the scheme continues to protect people’s livelihoods,” she added. And with cashflow difficulties still at the forefront of the minds of many business owners, continued access to government-backed loans through to spring will bring great comfort.”
The chancellor also confirmed plans to extend the UK’s £68 billion coronavirus emergency loan schemes until the end of March. The programme, which includes the government’s £43.5 billion coronavirus bounce-back loans scheme aimed at smaller businesses, was due to end in January. He also extended the £19.6 billion Coronavirus Business Interruption Loan Scheme and the £5 billion Coronavirus Large Business Interruption Loan Scheme. The extension will also provide timely support for companies through a potentially chaotic end to the Brexit transition period on December 31.
US
- Tesla shares set new high — Friday
Tesla shares set a record high on Friday ahead of their inclusion in the S&P 500 at the end of the day. Tesla stock was up another 2% to $670 in early afternoon trading on Friday. Its strong valuation means it will enter the blue-chip index with a weighting of 1.57% and rank as the sixth-largest company according to Howard Silverblatt, senior index analyst at S&P Dow Jones indices.
The addition of Elon Musk’s electric car maker will necessitate $85.2bn of trades from investors that track the S&P 500, according to Howard Silverblatt. Tesla shares have climbed more than 60% from mid-November, when the index provider announced the company would be joining the index. Since the start of the year, they are up more than 650%, giving a market capitalisation of $621 billion that dwarfs rival carmakers. The firm is set to join the index on Monday.
2. The Federal Reserve holds last meeting of the year — Wednesday
The Federal Reserve concluded its final meeting of a tumultuous year on Wednesday. The Fed held its benchmark interest rates at near zero, and also opted to purchase at least $120 billion in bonds each month “until substantial further progress has been made toward the Committee’s maximum employment and price stability goals,” according to a statement from the Federal Open Market Committee, the Fed’s rate-setting group.
Warren Buffett on Tuesday praised the central bank’s unprecedented intervention to shore up borrowing facilities that were in danger of seizing up in the early days of the pandemic. Without these actions, companies who needed to access debt in order to ride out the economic shutdown would have had nowhere else to turn, Buffett told CNBC.
2. AstraZeneca shares dip 6% after concern over $39 billion acquisition — Monday
AstraZeneca shares fell almost 6% as investors worried about the Anglo-Swedish drugmaker’s $39bn acquisition of Alexion, the biggest pharmaceutical deal since the start of the coronavirus pandemic. Concerns over the 45% premium offered on the Boston-based rare-disease specialist’s $121 Friday closing price, alongside usual major takeover jitters, saw Astra’s shares plunge to an eight-month low at opening, before recovering down 500p, or 6%, at 7664p. The move is seen as a way for Astra to take Alexion’s specialist treatments into untapped countries, especially China.
Global
- China suspends top credit rating agency amid defaults scandal — Monday
State-owned Golden Credit Rating will be suspended from issuing new securities ratings for three months, according to regulators, after it generated 263 million yuan ($40.2 million) in revenue last year. This follows a slew of bond defaults at highly rated mainland companies
Earlier this month, Chinese regulators called out the mainland credit ratings for excessive upgrades in the midst of ongoing economic turmoil and bond defaults. According to China’s National Association of Financial Market Institutional Investors (NAFMII), a self-regulatory industry body under the central bank, there were 90 rating adjustments during the last quarter of which there were 54 upgrades and only 35 downgrades.
One of the companies which defaulted on Monday was the Chinese clothing maker that controls brands including The Lycra Company and Gieves & Hawkes. It revealed that it had failed to pay back investors on a $153m bond. It has joined a growing list of defaults among troubled companies that have sent tremors through China’s $4tn corporate bond market since November.
2. Switzerland charges Credit Suisse in money laundering case — Thursday
Credit Suisse Group was charged by Swiss prosecutors Thursday for allegedly failing to prevent money laundering through the bank by clients and an employee, in a case stretching back more than a decade. The Swiss attorney general’s office said Credit Suisse in Zurich didn’t comply with provisions against money laundering or the bank’s own internal rules between 2004 and 2008 in opening and monitoring customer accounts.
The former Credit Suisse executive, who wasn’t named, was charged with aggravated money laundering for allegedly assisting the Bulgarian organization and concealing the criminal origin of assets in transactions at Credit Suisse. Two more unnamed individuals, who prosecutors said were members of the Bulgarian organization, also were charged. Switzerland had started criminal proceedings in 2008.
Where did markets finish this week?
- The FTSE closed at 6,529.18, losing 0.27% this week.
- The FTSE 250 closed at 20,116.29, gaining 2.52%.
- The Nasdaq closed at 12,755.64, gaining 3.05%.
- The S&P 500 closed at 3,709.41, gaining 1.25%.
- Japan’s Nikkei 225 closed at 26,763.39, gaining 0.42%.
- The Shanghai Composite closed at 3,394.90, gaining 1.43%.
