Freshfields, Google, stock markets: Business news in brief, Wednesday 8 March

Hard brexit will cause ‘leaching’ of banks to Europe says law firm; Open Internet Project accuses tech firm of anti-competitive practices; markets have become disconnected from economic reality, OECD says

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Hard Brexit ‘would trigger leaching of banks from UK’

A draft report on the impact of Brexit on Britain’s financial industry warns banks and staff would “leach” away, undermining the wider economy, if they do not have access to European Union markets, according to sources who have read the document.

The report has been written by law firm Freshfields Bruckhaus Deringer for TheCityUK, which lobbies on behalf of the financial sector, and may be published later this month, when Britain formally starts divorce talks with the EU.

Firms are already applying a “base case scenario” that when these talks end in two years’ time no access to EU markets will have been agreed, the sources cited the report as saying.

The report adds that even for financial services firms in Britain that do little direct business with the EU, damage from a hard Brexit to the “ecosystem” of financial, legal and accounting services in Britain would hit them too.

Eroding the financial services industry would weaken Britain’s wider “gravitational pull” and hit other parts of the economy, the report says, according to the sources.

The warning is starker than the public comments from bankers and Bank of England officials, who have said it would be hard for another financial centre in Europe to replicate Britain’s financial ecosystem.

TheCityUK said in a statement it had commissioned Freshfields to produce the report, but it was not yet complete, and it was too early to make assumptions about the conclusions.

Freshfields declined to comment.


EU to consider Google competition complaint

The Open Internet Project (OIP), a group that represents digital companies, has accused Google of imposing anti-competitive curbs on Android smartphone makers, its second complaint against the US tech giant.

The group, which lodged a complaint about Google’s comparison shopping service with the European Commission about three years ago, urged the EU competition authority to take action.

“Google once again, in breach of EU antitrust rules, abused its dominant position by imposing restrictions on Android device manufacturers and mobile network operators, aiming to preserve and strengthen its dominance in general internet search,” OIP said in a statement.

European Commission spokesman Ricardo Cardoso said the regulator would assess the complaint. Google has said Android boosts rather than hurts competition.

The world’s most popular internet search engine has been in the EU crosshairs since April 2016, accused of using its dominant Android mobile operating system to squeeze out rivals.

Regulators said such tactics include requiring smartphone makers to pre-install Google Search and the Google Chrome browser to get access to other Google apps.

The stakes are high for Google, which makes billions from advertising sales on Android phones through its apps such as Maps, Search and Gmail. It faces a fine of up to 10 percent of its global turnover and an order to end anti-competitive practices if found guilty of breaching EU rules.


Disconnect between stock market and economy, OECD warns

There appears to be a disconnect between the recent surge in stock markets and the global economy’s underlying strength, the Organisation for Economic Cooperation and Development has warned. 

Many indexes, particularly in the US, have rallied over the winter to hit record highs. The OECD noted, however, that expectations for company earnings in the US and Europe have not been revised up on the whole. And growth in consumption and investment is still lagging.

“In financial markets, there are apparent disconnects between the positive assessment of economic prospects reflected in market valuations and forecasts for the real economy,” the Paris-based organisation said in its latest economic outlook. 

The OECD predicts that global economic growth this year will be 3.3 per cent and rise to around 3.6 per cent in 2018. 

However, it warned that the “projected modest upturn” could be derailed by a number of factors, including the possibility of a downturn in markets, greater barriers to trade set up by governments, and uncertainties about the path of interest rates around the world. 

It said the global economy remains beset by sub-par growth and high inequality following the financial crisis. 

The organisation’s secretary-general, Angel Gurria, says governments “need to take actions that restore people’s confidence while at the same time resisting turning inwards or rolling back many of the advances that have been achieved through greater international cooperation.” 


Just Eat delivers 164% rise in profits

Online delivery firm Just Eat has served up a 164 per cent hike in annual profits and has said is looking to take a bigger slice of the international market as UK order growth slows.

Just Eat – which announced a deal to buy rival Hungryhouse in December – posted pre-tax profits of £91.3m, up from £34.6m in 2015, with group orders up 42 per cent at 136.4 million.

It said it also expects another year of “material” growth in 2017.

But it saw UK order growth slow to 31 per cent from 48 per cent in 2015 despite a move to hike the amount it charges restaurants in the UK by one percentage point last April.

The group said the slowdown was as expected, given its scale in the £6.1bn takeaway delivery market in Britain, and it hopes to offset this by focusing on expanding its reach with more branded restaurants chains and extra fees.

Chairman John Hughes said the firm is also setting it sights on tapping further into overseas markets, after its international businesses were profitable for the first time last year.

He said: “While the UK remains our largest market, we are excited by the growth we are seeing in our international businesses.

“The majority of these markets are much less penetrated than the UK and therefore represent significant opportunity for the group.”

Just Eat confirmed it has begun the hunt for a new chief executive after David Buttress announced plans last month to step down due to “urgent family matters”.

He will work full-time until the end of the first quarter, after which Mr Hughes will step up from chairman to executive chairman while a permanent replacement is sought.


Paddy Power Betfair hails ‘transformational’ year as revenues soar 18%

Bookmaker Paddy Power Betfair has revealed costs of last year’s merger left it nursing annual losses of £5.7m, but it saw revenues jump 18 per cent higher after a “transformational” year.

The group – formed after the merger of Paddy Power and online rival Betfair in February 2016 – said cost benefits of the tie-up were ahead of schedule, while the Brexit-hit pound had provided a boost to revenues.

It said that while the bottom line loss showed the merger costs, its underlying results “best reflects” its performance last year, with earnings up 35 per cent at £400m on revenues of £1.55bn.

Breon Corcoran, chief executive of Paddy Power Betfair, said: “2016 was a transformational year for Paddy Power Betfair with much of the integration of the businesses completed sooner and more efficiently than expected.”

The robust underlying performance comes despite a mixed year for bookies, starting with a run of favourites winning at last year’s Cheltenham Festival horse race and capped by a string of punter-friendly football results in December.

But Paddy Power said “unfancied” results at the Euro 2016 football tournament last summer helped offset these losses, leaving overall net revenues for the group’s sports book “marginally lower than normal expectations”.

Revenues were also helped by a £78m fillip from the pound’s plunge since the Brexit vote, which benefited sales from outside the UK when translated into sterling.

With the currency effect stripped out, revenues rose 11 per cent.


Challenger bank Shawbrook rejects £825m offer

Challenger bank Shawbrook has snubbed an £825m offer tabled by private equity firms Pollen Street Capital and BC Partners.

The specialist bank said the board has rejected the proposal, which would have handed shareholders 330p per share in cash.

The firms made an approach on Friday to buy the lender through a new company jointly owned by the two funds.

Shawbrook revealed its position on the proposed tie-up as it published annual results showing underlying pre-tax profits had risen 14 per cent to £91.4m in the year to the end of December.

Stripping out the costs of a controls breach in its business and finance arm, pre-tax profits climbed 29 per cent to £103.4m.

The bank had warned in June last year that profits would take a hit after discovering irregularities in its asset finance business.

Chief executive Steve Pateman said the firm had driven growth amid a backdrop of political uncertainty led by the Brexit vote and the US election of Donald Trump.

“We have achieved sustainable growth across all of our lending divisions and delivered strong risk adjusted returns.

“Notwithstanding the changes in the political environment and the subsequent uncertainty arising in the macroeconomic climate, we have continued to execute our plans through deep market knowledge, innovation and through close understanding and awareness of our customers’ needs.”


Ford’s European credit arm considers German banking license due to Brexit

Ford’s European credit arm FCE said on Tuesday it was considering applying for a German banking license alongside its current British one, because the future of passporting is uncertain after Britain leaves the European Union.

Passporting allows for any financial firm to serve the whole EU region from a single base, cutting costs and red tape.

“As the future of passporting is uncertain post-Brexit, FCE is conducting a detailed study with a view to potentially applying for a banking license in Germany in addition to the license we currently hold in the UK,” an FCE spokeswoman said.