Resurgent US re-emerges as dominant global economic force

BY Fraser Tennant

The US has reclaimed its position as the dominant force in the global economy, according to leading economists.

Following 15 years of stagnant growth, influential figures at JPMorgan Chase & Co, Deutsche Bank AG and BNP Paribas SA, suggest that 2015 will see the US economy expand by 3.2 percent – its strongest rate of growth in a decade.

The resurgence of the US as a leading economic force is largely being credited to an improving jobs market – the unemployment rate has fallen to 5.6 percent (the lowest since 2008) and 2014 saw an additional three million people in work – which in turn has led to an increase in personal consumption expenditure ($11.5 trillion in 2013).

“The US is again the engine of global growth,” said Allen Sinai, chief executive of Decision Economics in New York. “The economy is looking stellar and is in its best shape since the 1990s.”

While sectors including construction, healthcare, manufacturing and business services are all benefiting from US economic growth, wages, however, have stagnated with average hourly earnings falling 0.2 percent last month.

“We are still waiting to see the kind of strengthening of wage numbers we would expect to be consistent with what we are seeing elsewhere in terms of growth and the absolute jobs numbers,” said Dennis Lockhart, president of the Federal Reserve Bank of Atlanta. “It’s just a matter of time before wage growth picks up.”

The surge in US growth has also been attributed to stringent policy-making – in particular the budget decisions which have navigated the US through the economic storm with far greater success than that of their European counterparts.

“Progress has been far greater in the US,” said Glenn Hubbard, dean of the Columbia Business School in New York and a former chief White House economist. “Looking across much of the rest of the world, the US continues to dominate.”

At the same time as US growth goes from strength to strength, the economies of Brazil, Russia, India and China – the BRIC nations – are flagging with debt, recession, US and European sanctions and plummeting oil prices all playing a part.

News: US Retakes Helm of Global Economy

2015 to bring uncertainty and optimism for largest UK companies suggests Deloitte survey

BY Fraser Tennant

Uncertainty over domestic policy as well as foreign economic and geopolitical risks are the biggest challenges facing the UK’s largest companies in 2015, according to a survey of chief financial officers (CFOs) carried out by Deloitte.

The survey, which features the views of 119 CFOs of FTSE 350 and other large private UK companies, also shows that, despite uncertainties, CFOs are confident as to the prospects for UK growth and business investment in 2015, with their businesses expected to see earnings rise by 2.9 percent. 

Carried out between 27 November and 15 December, Deloitte’s Q4 2014 CFO Survey highlights that: (i) 56 percent of CFOs say that now is a good time to take greater risk onto their balance sheets, down from a record reading of 71 percent in Q3 2014 but still well above the long-term average; (ii) 60 percent of CFOs enter 2015 with above normal, high or very high levels of uncertainty facing their businesses, up from a low of 49 percent in Q2 2014 but at the same level seen 12 months ago; and (iii) 88 percent of CFOs rate the UK as a “good” or “excellent” place to do business, with a quarter placing it in the top-tier of industrialised economies.

“The central challenges facing the UK’s largest companies as they enter 2015 are policy uncertainty at home and economic and geopolitical risks overseas," said Ian Stewart, chief economist at Deloitte. “Rising levels of uncertainty have caused a weakening of corporate risk appetite which, nonetheless, remains well above the long-term average.

“Concerns about policy change after May’s General Election have risen significantly and this is seen as the biggest risk facing UK business in 2015.  Deflation and weakness in the euro area is a growing concern and is now the second greatest business risk, followed by a UK referendum on EU membership and by emerging market weakness.

“This marks a big shift in thinking. Going into each year, from 2008 to 2013, CFOs’ main concern was the state of the UK economy. Now the risks are seen as lying elsewhere.” 

The Deloitte Q4 2014 CFO Survey is the 30th quarterly analysis of CFOs of major UK companies. It is the only survey concerning valuations, risk and financing which seeks the views of major financial players in the UK.

Report: The Deloitte CFO Survey: 2014 Q4

Telecoms tycoon Xavier Niel to acquire Orange Switzerland in $2.9bn deal

BY Fraser Tennant

French telecoms tycoon Xavier Niel has agreed to buy Swiss mobile phone operator Orange Switzerland SA in a $2.9bn deal.

Formerly under the ownership of London-based private equity firm Apax Partners (which bought Orange Switzerland for €1.6bn from France Telecom Orange in 2012), the mobile phone operator has since undergone a major modernisation of its IT systems, including launching its 4G commercial services (which now serves over 90 percent of the Swiss population), and expanding its store network with eight new stores opened last year alone.

In addition to his acquisition of Orange Switzerland, which will be rendered via his private holding company, NJJ Capital, Mr Niel is also the founder of Iliad, France's third-largest mobile operator. Often described as a serial entrepreneur, recent attempts by Mr Niel to expand have met with mixed success; Monaco telecom was successfully acquired in early 2014, but a move to buy T-Mobile US ended in failure due to a difference of opinion over valuation.

Mr Niel said ''Since 2012, when Orange Switzerland was acquired by the Apax Funds, my team and I have followed very closely all the developments at the company. We have witnessed the successful transformation at Orange Switzerland under Apax's leadership. As the new owner of Orange Switzerland, NJJ Capital will provide continuity to Orange Switzerland's customers, employees and management."

Orange Switzerland is the third-largest mobile operator in Switzerland with 871 employees, 2700 stores and 2.1 million customers. The company is considered to be a major challenger to Swisscom which currently dominates the telecommunications market in Switzerland.

''Orange Switzerland has been a major and very successful investment for the Apax Funds," said Gabriele Cipparrone, a partner at Apax Partners. “We have no doubt that NJJ Capital is the right new partner for the company as they embark on the next stage of the company's journey and continue as a major challenger in the Swiss mobile market."

Johan Andsjo, CEO of Orange Switzerland, added “Apax have been really instrumental in leading the company's modernisation efforts and its organisational transformation. The strategy is already generating significant benefits for the company and all of our customers. We now look forward to making further advances under NJJ Capital's ownership."

News: Apax Partners Sells Swiss Mobile Provider Orange for $2.9 Billion

$3.6bn M&A deal sees Thoma Bravo and TPC acquire Riverbed

BY Fraser Tennant

Private investors Thoma Bravo LLC and Canada’s Teachers' Private Capital (TPC) have announced the acquisition of Riverbed Technologies for $3.6bn.

The definitive agreement between leading private equity investment firm Thoma Bravo, network performance specialist Riverbed, and the pension administrator Teachers' Private Capital is expected to close in the first half of 2015.

The deal represents the largest undertaken in Thoma Bravo’s 30-year history.

"Riverbed’s strong product portfolio provides unmatched optimisation, visibility and control across the hybrid enterprise, which has positioned the Company extremely well in a rapidly-changing landscape,” said Orlando Bravo, a managing partner at Thoma Bravo. 

“We look forward to working with the talented team at Riverbed to strengthen their leadership position and the value they deliver to customers. All of us at Thoma Bravo are excited to help Riverbed reach its full potential."

According to Riverbed’s management team, the change in ownership will not have an overly noticeable impact on the company’s product range nor its relationship with its customers.

An enthused Jerry Kennelly, chairman and chief executive of Riverbed, who will remain with the company in the same capacity post-transaction, said “Having undertaken a thorough strategic review, during which we assessed a wide variety of options to maximise value, the Board unanimously concluded that partnering with Thoma Bravo was the best choice for Riverbed, as this transaction will provide our stockholders with significant and immediate cash value."

"We are extremely pleased with this transaction, which we believe will be a winning proposition for all of our stakeholders."

The transaction, which is subject to approval by Riverbed stockholders, regulatory approvals, including antitrust review in the US, Germany and Taiwan, and review and clearance by the Committee on Foreign Investment in the US, will, upon completion, see Riverbed stockholders receive $21 per share in cash.

Commenting on the deal, a forward-looking Karl Campbell, Riverbed’s recently appointed vice president for the UK and South Africa, said “I think it’s a very good thing for Riverbed, it gives us an opportunity to reset our strategy for the next ten years."

News: Riverbed sold to investors for $3.6bn

BoE health checks result in an unhealthy diagnosis for top UK banks

BY Fraser Tennant

The Bank of England’s opportune health checks on the UK’s top banks has delivered a resoundingly unhealthy diagnosis for three of the financial institutions tested.

The central bank’s ‘Stress testing the UK banking system: 2014 results’ report reveals that the Royal Bank of Scotland (RBS) only just passed the test, Co-operative Bank failed the test, and Lloyds Banking Group was in such bad shape at the end of 2013 that it required a significant injection of capital.  

The report also highlights the fact that all three would not have possessed sufficient amounts of capital in 2013 to have been able to deal with severe a financial difficulties, should they have occurred.

During the testing process, RBS submitted a revised capital plan announcing its intention to raise £2bn ($3.13bn) in debt capital to help bolster its position.

The Co-operative Bank, the only financial institution tested to have completely failed, was requested by the central bank to submit a new capital plan, which was approved, designed to reduce its risky assets by £5.5bn by the end of 2018.

And Lloyds was able to raise enough capital in 2014 to be deemed out of danger.

“This was a demanding test," said the governor of the Bank of England, Mark J. Carney. “The results show the core of the banking system is significantly more resilient, that it has the strength to continue to serve the real economy even in a severe stress."

The Bank of England’s health check tests were performed on the following: Co-Operative Bank, the Royal Bank of Scotland, Lloyds, Barclays, HSBC, Santander UK, Standard Chartered, and the Nationwide building society.  All bar the initial three were found to have no problems.

Coinciding with the results of the tests was the publication of the central bank’s Financial Stability Report, which gives a snapshot of the strength of the UK financial system. This report states that concerns over the global economy have risen, but suggests that “banks are in better shape to cope with any headwinds”.

Report: Stress testing the UK banking system: 2014 results