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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Dear reader,
Here in London, the mornings are perceptibly lighter on the slow trudge to the office and there is sometimes daylight in evidence on leaving. Rejoice.
There are plenty of companies looking for brighter days, with several strategy days, deals and announcements for the Lex column to analyse. Many involve struggling European banks, whose beaten-down valuations have long been a bugbear for shareholders but are now attracting political attention. The promised green shoots of dealmaking are also starting to poke through.
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Not fast enough for Barclays, however. The UK bank held its long-awaited strategy day this week, aiming to lay to rest the endless questions about the low returns of its investment bank. The lender is, to some extent, reliant on the cycle: the investment bank looked more attractive amid the flurry of equity issuance in 2020. Barclays chief executive CS Venkatakrishnan said the bank would put money into higher-returning areas, particularly its UK business. Lex pondered whether the UK really offered the growth Barclays needs and doubted that starving the investment bank of capital would solve the problem of its low returns. Read more here.
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The biggest deal of the year to date did hit this week, however. Capital One Financial agreed to buy Discover Financial Services for $35bn in stock. This is partly just a socking great combination in consumer-facing financial services, the likes of which are likely to get a stern look from antitrust watchdogs. Lex noted that the proliferation of online commerce also makes being a digital tollkeeper, clipping a fee as a credit card payments network, more lucrative. And Capital One is paying a steep price to move in that direction — for a business that has a troubled history in terms of its integration with other financial services operations. You can see the Lex column here.
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China’s lunar new year offers reasons to hope for a fresh start for the global economy, argued Lex. Even given an uncertain outlook and a faltering property sector, Chinese spending and retail sales figures looked promising over a holiday that can offer a leading indicator for consumer sentiment in the year to come. Tourism revenues surged, entertainment spending hit a high and the growing demand for premium products is encouraging for luxury goods and services providers. A good start for the year of the dragon.
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For fans of the idea of finding rebirth from failure (a theme of last year’s FT business book of the year, after all), how about this: an online retailer, which listed in the frenzy of the pandemic and shortly after soared to $18bn in market value, last week sold itself for just $173mn to a Singaporean ecommerce company. Fear not, however. There is a second act. The company, under a changed name, will survive as a shell company housing $2.7bn in net operating losses. This quasi-Spac, the blank cheque vehicles listed with a mandate to go out and find acquisitions, will be looking for a merger partner that needs those losses to offset its tax liability. Find out more here.
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It seems perverse for an industry as enormous as private equity to be experiencing growing pains. But the change in the interest rate environment, plus some blockages after years of go-go growth, are certainly causing the buyout business some angst. With 4,000 funds on the road looking to raise an aggregate $1.2tn, according to Preqin, there is a need to get creative. The FT has reported that funds are increasingly seeking to raise money on a deal-by-deal basis. Lex looked at another route, whereby private equity is reshaping itself to be suitable for smaller cheques from individual and non-institutional investors. Making big buyouts work for the little guys requires substantial restructuring efforts. Lex has more here.
Quick links
Why does everyone want to buy struggling electricals retailer Currys?
How to democratise the UK stock market, one research note at a time
Jeff Bezos is selling. Should you?
Have a great week,
Helen Thomas
Head of Lex
[email protected]
Read the full article here