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☆ Putin’s Russia will look more like North Korea
▼ + stars: | 2022-12-22 | by ( Pierre Briancon | ) www.reuters.com time to read: +3 min

LONDON, Dec 22 (Reuters Breakingviews) - The Western sanctions that followed the invasion of Ukraine have made it impossible for Russia to import what it needs. Foreign investors are staying away, thousands of the country’s elite have emigrated, and the price of its main export has sunk. The great shut-off of its economy will accelerate in 2023, as Moscow moves closer to the North Korean economic model. The invasion of Ukraine has inflicted damage on Russia, which depends heavily on the export of oil and gas. As a result, the Russian economy will take a hit.

☆ Bowling Green, Kentucky is the next big U.S. city
▼ + stars: | 2022-12-22 | by ( Lauren Silva Laughlin | ) www.reuters.com time to read: +3 min

Biden solidified his push to reverse the tide of globalization in August 2022 with two major pieces of legislation. The CHIPS and Science Act provided $53 billion to bring semiconductor manufacturing and development to the United States. But Rust Belt states - once manufacturing powerhouses that slumped in the era of deindustrialization - also stand to win big. Hourly wages in the United States are 12 times higher than those in India, according to data from NationMaster. For the United States, though, Biden’s actions will be a boon to parts of the country left behind by the rapid economic growth of high-flier states on the coasts.

☆ UAE gets ducks in a row with chemicals reshuffle
▼ + stars: | 2022-12-21 | by ( ) www.reuters.com time to read: +2 min

LONDON, Dec 21 (Reuters Breakingviews) - The United Arab Emirates seems to have done a $4 billion deal with itself. The Abu Dhabi National Oil Company on Wednesday acquired a 25% stake in $16 billion Austrian oil group OMV (OMVV.VI) from Mubadala, the UAE’s wealth fund. The UAE wants to pump more oil and list its gas business. But it also wants to sharpen its focus on petrochemicals, which forecasters have long singled out for its growth potential. At some point, ADNOC might consider using this clout to consolidate these various chemicals businesses even more closely together.

HONG KONG, Dec 21 (Reuters Breakingviews) - China has become a headache for Western executives. The good news is that the dilemma need not require drastic action from U.S. and European chief executives, since local Chinese partners could solve the problem by relocating themselves. Foreign executives have had a hard time dealing with China’s zero-Covid policy, rising labour costs and U.S. tariffs. On the other hand, existing economic interests plus Beijing’s renewed push to attract foreign investment both argue for staying put. But if Chinese suppliers now start boosting foreign investment to keep hold of key customers, the government may have little choice but to give its blessing.

☆ Brenntag M&A gambit may prompt its own breakup
▼ + stars: | 2022-12-20 | by ( ) www.reuters.com time to read: +2 min

LONDON, Dec 20 (Reuters Breakingviews) - Chemicals group Brenntag’s (BNRGn.DE) bold dealmaking foray has attracted the attentions of an activist. PrimeStone Capital is calling on the 9 billion euro German group to scrap a potential merger with U.S. peer Univar Solutions (UNVR.N). Brenntag’s other shareholders hardly seem enamoured of the deal: its shares lost some 10% on the day it was announced. The problem is that PrimeStone’s other idea, a breakup of Brenntag, also looks viable. Brenntag meshes together the humdrum business of transporting chemicals with one that serves customers in more specialised sectors like pharmaceuticals and nutrition.

☆ Big Pharma will find right formula for M&A binge
▼ + stars: | 2022-12-20 | by ( Aimee Donnellan | ) www.reuters.com time to read: +3 min

The year 2022 was relatively thin for pharma M&A, with deals worth nearly $66 billion being announced by early December – 60% below the 9-year average, according to Refinitiv data; 2023 will be better. It helps that drug companies are relatively healthy, with debt around just 1.6 times forecast EBITDA in 2023, according to Berenberg analysts. Seagen (SGEN.O), for example, worth $22 billion in early December, has fought off Merck & Co (MRK.N). That puts Big Pharma in an ideal negotiating position. CONTEXT NEWSGlobal pharmaceutical companies spent nearly $66 billion on takeovers in 2022, according to data from Refinitiv as of Dec. 7.

☆ Traders will anxiously watch the Bank of Japan
▼ + stars: | 2022-12-19 | by ( Pete Sweeney | Thomson Reuters | Asia Economics Editor Pete Sweeney Joined Reuters Breakingviews In Hong Kong In September Previously He Served As Reuters' Chief Correspondent For China Economy | ) www.reuters.com time to read: +4 min

HONG KONG, Dec 19 (Reuters Breakingviews) - Shorting the Bank of Japan (8301.T) is the trade of 2023. Gyrations in Japanese bond yields resulting from an abrupt increase in benchmark interest rates could force indebted domestic entities to dump overseas assets, roiling global markets. The question on traders’ collective mind is what happens when the central bank finally adjusts its “yield-curve control” policy, or YCC, which has held down government bond yields for more than six years. A higher-than-expected wage hike resulting from springtime negotiations could persuade officials that salaries are offsetting higher prices, bolstering the case for normalising interest rates. Meanwhile higher interest rates would allow Japanese companies to earn better returns on their 325 trillion yen ($2.4 trillion) cash hoard.

☆ Polycrisis may lead to polycentric world order
▼ + stars: | 2022-12-19 | by ( Hugo Dixon | ) www.reuters.com time to read: +7 min

Another scenario is possible: a “polycentric order” with multiple centres of authority, where the United States is the leading power but not the hegemonic one. Indeed, the outlines of such an order may already be emerging out of the conflagration of economic, political and other shocks often labelled the polycrisis. A polycentric order would be different from what is often called a “multipolar” system - a dog-eats-dog world where big powers have a licence to dominate their neighbours. The United States is not nearly as powerful as it was. President Joe Biden realises the United States needs allies, says Peter Engelke of the Atlantic Council think tank.

☆ Central bankers will shift inflation goalposts
▼ + stars: | 2022-12-19 | by ( Peter Thal Larsen | ) www.reuters.com time to read: +3 min

The Federal Reserve, European Central Bank and others are determined to limit annual price increases to around 2%, in line with their targets. In 2010 International Monetary Fund economists argued a higher target would give central banks more firepower when battling a slump. Take the Fed: During the 1990s, PCE inflation was at or below 2% in just 49 out of 120 months. A revised target would also allow central banks to accommodate longer-term inflationary pressures, such as trade frictions, shrinking working-age populations, and climate change. The so-called core PCE index, which excludes volatile food and energy components, rose 5.0% on a year-on-year basis.

☆ EU greenlights only half of global tax deal
▼ + stars: | 2022-12-16 | by ( ) www.reuters.com time to read: +2 min

BRUSSELS, Dec 16 (Reuters Breakingviews) - The European Union has at last found unanimity on the global minimum tax, half of an almost 140-nation pact to clamp down on global tax avoidance. Hungary finally dropped its veto this week, only for Poland to provide last-minute drama before finally allowing the EU to proceed. Whack-a-mole objections have become EU routine on tax matters, which require the unanimity of the 27 member states. The other half of the global deal, struck under the Organisation for Economic Co-operation and Development auspices in 2021, concerned big digital services companies. In the meantime, trade wars over a hodgepodge of national digital services taxes are likely to continue.

☆ Danske slap confirms pay-what-you-can principle
▼ + stars: | 2022-12-14 | by ( ) www.reuters.com time to read: +2 min

That’s one takeaway from the $2 billion slap it delivered late on Tuesday to Denmark’s Danske Bank (DANSKE.CO), which pleaded guilty to conspiracy to commit bank fraud. Danske’s Estonian unit processed $160 billion of potentially illicit payments through U.S. banks on behalf of foreign customers, including Russians, the DOJ said. BNP Paribas (BNPP.PA) in 2014, by contrast, agreed to pay roughly $9 billion for moving $8.8 billion for sanctioned clients. In Danske’s case, the bill is roughly 1% of suspicious flows, whereas BNP’s was around 100% of illicit payments. Danske will be able to keep using U.S. correspondent banks for dollar payments, according to a person familiar with the matter.

☆ EU angst over “Buy American” reopens old wounds
▼ + stars: | 2022-12-14 | by ( Rebecca Christie | ) www.reuters.com time to read: +4 min

The European Commission is the main gatekeeper on state aid, which the EU limits to protect fair competition in the single market. Von der Leyen’s plan might let it decide which champions are deserving in the first place. The free spending has sparked concerns of a handout war with other European countries, particularly given the EU’s recent focus on fiscal discipline. Von der Leyen wants to create a central pot of money to provide catch-up funds to smaller countries. Relaxing EU state aid rules fairly won’t be easy, and Europe will need a clearer industrial policy beyond handing out cash.

☆ Ukraine’s Nestlé boost is as important as EU aid
▼ + stars: | 2022-12-13 | by ( ) www.reuters.com time to read: +2 min

Consumer group Nestlé (NESN.S) on Monday announced a small war-time investment in Ukraine which may be as important for the country’s future as an 18 billion euro European Union aid package agreed on the same day. Nestlé will invest 40 million Swiss francs (41 million euros) in a new facility that will help to produce cold sauces, seasonings, soups and instant food. The Swiss consumer group, which already has 5,800 employees in the country, will add 1,500 new jobs in the process. Meanwhile the EU struck a deal with holdout Hungary that will allow it to disburse aid to Ukraine next year. While still at war with Russia, Ukraine needs Western aid to help the government pay its teachers, doctors and soldiers, and start rebuilding railroads and power plants.

☆ Banks’ buyout-debt machine defies quick jumpstart
▼ + stars: | 2022-12-08 | by ( Neil Unmack | ) www.reuters.com time to read: +4 min

Asset managers like Blackstone (BX.N) or Axa (AXAF.PA) pick the underlying loans, while investment banks underwrite the CLO securities and place them with credit investors. Many of the bonds that come out the other side get an ultra-safe AAA credit rating. The combination of higher funding costs and slower private-equity dealmaking has pushed sales of European CLO securities down 67% year-on-year, according to JPMorgan analysts. So, for example, 70% of the whole portfolio would have to default, with the creditors recovering just half of their money, before AAA tranches see a loss. That means banks’ biggest CLO risk is an even sharper slowdown, not a blowup.

Buying out the Turquoise Hill minority shareholders is Stausholm’s other initiative. Imagine minority shareholders vote down the offer, but Rio then has Turquoise Hill issue fresh equity. With minimal net debt, the miner had enough cash to buy more Turquoise Hill equity. Rio shareholders soon will see just how well Stausholm plays. Pentwater Capital Management and SailingStone Capital Partners, which own respective 15.2% and 2.2% stakes in Canada-based Turquoise Hill, have resisted the offers.

☆ Friendshoring makes sense if done in the right way
▼ + stars: | 2022-12-05 | by ( Hugo Dixon | ) www.reuters.com time to read: +7 min

These examples explain the enthusiasm for “friendshoring”, an idea U.S. Treasury Secretary Janet Yellen is pushing. First, it could provoke an all-out trade war – causing the kinds of disruptions that friendshoring is intended to prevent. Things would be different if China was the West’s implacable enemy in the way that Putin’s Russia is. Using friendshoring in a defensive rather than aggressive way means focusing on strategic products. While it makes sense to cut its dependency on China, that doesn’t mean going all the way to zero.

☆ The bubble in predicting the end of the world
▼ + stars: | 2022-12-01 | by ( Edward Chancellor | ) www.reuters.com time to read: +7 min

Former U.S. Treasury Secretary Larry Summers says the world faces the “most complex, disparate and cross-cutting set of challenges” he’s ever encountered. In his wittily titled “The End of the World is Just the Beginning”, the geopolitical strategist suggests that a number of countries from Germany to China face insuperable demographic challenges. The threat to America’s global hegemony from China is the subject of Ray Dalio’s “The Changing World Order”. The U.S. stock market bubble has only partially deflated, bond yields around the world trail below inflation, and global property markets are exposed to rising interest rates. The Assyrian who forecast the world would end in 2800 BC was wrong.

☆ Eni’s $6 bln Neptune swoop will be a haggle-fest
▼ + stars: | 2022-12-01 | by ( George Hay | ) www.reuters.com time to read: +3 min

LONDON, Dec 1 (Reuters Breakingviews) - Eni (ENI.MI) is hunting for a bargain in the North Sea. Italy’s $52 billion oil major is mulling a bid for oil and gas producer Neptune Energy, Reuters reported on Wednesday, for an equity value of around $5 billion to $6 billion. Given Neptune’s owners CVC Capital Partners, Carlyle (CG.O) and China Investment Corporation last year wanted to list the business for $10 billion, Eni may have to haggle a bit. The UK government recently extended its windfall tax on North Sea drillers to 2028. And the Italian group’s own North Sea expertise may help it argue that the mooted offer price is generous.

☆ Ireland picks cheeky moment to lift bank bonus cap
▼ + stars: | 2022-11-30 | by ( ) www.reuters.com time to read: +2 min

LONDON, Nov 30 (Reuters Breakingviews) - Ireland’s plan to lift a cap on bankers’ bonuses looks ill-timed. On Tuesday, Finance Minister Paschal Donohoe said Dublin will lift a 500,000 euro crisis-era cap on annual executive salaries and allow bonuses of up to 20,000 euros for bank workers. However, Irish bank bosses have long argued salary constraints made it difficult to retain top talent. The remaining big bank duopoly of AIB (AIBG.I) and Bank of Ireland (BIRG.I) means a customer backlash is unlikely as there is little alternative. Still, championing higher pay for bankers is a gutsy move in the middle of a cost-of-living crisis.

☆ UK banks’ Big Bang thankfully looks like big flop
▼ + stars: | 2022-11-30 | by ( Liam Proud | ) www.reuters.com time to read: +4 min

Yet, the mooted changes would probably only benefit middling lenders like Santander UK, Virgin Money (VMUK.L) and Banco Sabadell’s (SABE.MC) TSB Bank, according to the FT. And on Wednesday, the BoE’s supervisory body said it planned largely to stick to international bank-capital rules, dubbed Basel 3.1. But the big flop might not be such a bad thing for the country’s financial sector. Separately, the government’s City minister Andrew Griffith said on Nov. 29 that he wanted to relax the so-called ringfencing regime that forces large British lenders to separate their retail and investment banking arms. According to the Financial Times, the ringfencing regime would still apply to the biggest UK banks but there could be exemptions for lenders with limited trading operations including Santander UK, Virgin Money and TSB Bank.

☆ Nestlé U-turn is refreshing example of M&A candour
▼ + stars: | 2022-11-29 | by ( ) www.reuters.com time to read: +2 min

It’s less common for them to admit as much and reverse tack after just two years. Nestlé originally touted potential annual sales of $1 billion for the drug, which had received U.S. Food and Drug Administration approval. Nestlé Chief Executive Mark Schneider can arguably afford to be honest, rather than trying to bury the M&A flop within his $330 billion behemoth. That’s because his overall acquisition strategy seems to be working. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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☆ Crypto winter highlights gold’s warming qualities
▼ + stars: | 2022-11-25 | by ( Edward Chancellor | ) www.reuters.com time to read: +7 min

That’s why crypto pioneers developed stablecoins, which peg their market price to old-fashioned fiat currencies. The FTX founder agreed that digital tokens were impossible to value since they generated no cash flow. In other words, the entire crypto world has the mechanics of a Ponzi scheme. In such a nightmare scenario, access to a decentralised, anonymised type of digital money could prove indispensable. In this world bitcoin serves as the lifeboat for civilisation, offering protection against both anarchy and the surveillance state.

☆ Breakingviews: Crypto winter highlights gold’s warming qualities
▼ + stars: | 2022-11-25 | by ( Edward Chancellor | ) www.reuters.com time to read: +7 min

LONDON, Nov 25 (Reuters Breakingviews) - The crypto winter is bitterly cold. The FTX founder agreed that digital tokens were impossible to value since they generated no cash flow. In other words, the entire crypto world has the mechanics of a Ponzi scheme. In such a nightmare scenario, access to a decentralised, anonymised type of digital money could prove indispensable. In this world bitcoin serves as the lifeboat for civilisation, offering protection against both anarchy and the surveillance state.

☆ Dr. Martens exposes fashion’s squeezed middle
▼ + stars: | 2022-11-24 | by ( ) www.reuters.com time to read: +2 min

LONDON, Nov 24 (Reuters Breakingviews) - Dr. Martens (DOCS.L) revealed a weak spot in Britain’s already ailing retail sector. It also warned that it will have to spend more to hit its existing revenue target of “high teens” percent growth for the full year. That means its EBITDA margin will be 1 percentage point to 2.5 percentage points lower than last year’s 29%. Dr. Martens straddles the high street and luxury retail sectors. Chief Executive Kenny Wilson revealed growth in its direct-to-consumer offering was also slower than expected in the first half.

☆ Gucci designer’s exit boosts Kering’s M&A urgency
▼ + stars: | 2022-11-24 | by ( Lisa Jucca | ) www.reuters.com time to read: +3 min

MILAN, Nov 24 (Reuters Breakingviews) - The abrupt departure of star Gucci designer Alessandro Michele on Wednesday is putting French luxury boss François-Henri Pinault on the spot. The Italian brand, Kering’s (PRTP.PA) largest, has been a money-spinner for the 68 billion euro French conglomerate. Gucci revenue nearly trebled to 9.6 billion euros between 2014 and 2019. Reuters GraphicsFollow @LJucca on TwitterCONTEXT NEWSKering’s top brand Gucci said on Nov. 23 Creative Director Alessandro Michele had stepped down. Under Michele’s creative leadership, Gucci sales grew nearly three times from 2014 to 9.6 billion euros in 2019, one of the best performing brands in the luxury world.

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