- Pound jumps on reports a Brexit deal may be close – overall volatility is highest since referendum
- FTSE 250 jumps to highest level in a year as investors pile into domestically-exposed stocks
- Thomas Cook bosses grilled by MPs over company’s collapse
- Neil Wood sacked from his flagship fund
- IMF warns over global growth and says Brexit could damage UK economy
- UK employment falls for first time since 2017
- RBS sought Monzo takeover before deciding to launch standalone rival
- Questor: Why did Woodford fail? Because he broke these two key investment principles
Wrap-up: Traders buoyed by Brexit hopes
Let’s wrap up there while things are still fairly neat. Traders are clearly gasping for positive Brexit news, and any whisper coming from the EU side right now is sending domestically-focused stocks soaring, not to mention to the pound.
The sentiment was positive enough to maybe European bourses up by over a percentage point, with even the FTSE 100 ending the session in the green.
Could tomorrow be the big day? Reports suggest we may see a draft Brexit treaty, including a major compromise by the UK side.
That’s all from me for now. Please join me again tomorrow morning for the latest on business, news and economics, as well as tech and money. Have a good evening!
FTSE 250 closes at highest level in a year
It was a close-run thing, but the FTSE 250 has closed at 20,196.97 – its highest closing price since October 3 last year. Sterling reached a five-month closing bell price against the euro, and four-month record against the dollar.
Round-up: Harrods’ owners pocket £125m dividend, Northern irish farmers warn of raw milk flood, Carney defends Facebook’s Libra coin
While we wait for the markets fix their closing prices, here after some of the afternoon’s top stories:
- Harrods’ Qatari owners pocket £125m dividend despite dip in profits: The Qatari owners of Harrods paid themselves a £125m dividend last year despite a dip in profits.
- Northern Ireland faces raw milk flood under no deal Brexit: Northern Ireland risks being swamped by thousands of litres of raw milk after a no-deal Brexit, farmers have claimed.
- Carney defends Facebook’s Libra in call for digital payments revolution: Mark Carney has leapt to the defence of Facebook’s digital currency as he warned that the UK’s “slow and expensive” payments system is “not good enough in this day and age”.
Guardian: Draft Brexit treaty could be published tomorrow morning
In the dying minutes of trading, the Guardian reports:
Boris Johnson appears to be on the brink of reaching a Brexit deal after making major concessions to EU demands over the Irish border.
A draft treaty could now be published on Wednesday morning, according to senior British and EU sources.
It is understood that the negotiating teams have agreed in principle that there will be a customs border down the Irish Sea. The arrangement was rejected by Theresa May as a deal that no British prime minister could accept.
- Read their full piece here.
Domestically-exposed stocks jump
It’s a pretty happy scene for domestically-exposed stocks currently, with housebuilders, retailers, banks and landlords all performing strongly.
Barclays and Lloyds’ are putting the biggest upwards pull on the blue-chip FTSE 100.
The numbers aren’t quite like what we saw on Friday, but these are some healthy gains.
Sentiment may have blunted slightly in recent minutes, however: Irish PM Leo Varadkar is currently speaking to reporters, and has said there are still some snags. He said:
- It’s too early to say if an extension will be needed
- As of a few hours ago, the gap between the UK and EU on customs was “quite wide”...
- ...but the state of the talks may have shifted since then
BREAKING: Taoiseach says gap is "still quite wide," particularly on the issue of customs.— Tony Connelly (@tconnellyRTE) October 15, 2019
Royal Mail ‘very disappointed’ by strike action
Royal Mail has said it is “very disappointed” to learn its workers have voted for strike action (see 3:50pm update). In a statement, it said:
A ballot result for industrial action does not necessarily mean there will be industrial action. We are still in mediation with the CWU. Under our Dispute Resolution Procedure, set out in the Agenda for Growth, we are committed to reaching a resolution. No industrial action can be taken, and formal notification of industrial action cannot be given, before the conclusion of the Dispute Resolution Procedure.
We want to reach agreement. There are no grounds for industrial action. Industrial action – or the threat of it – is damaging for our business and undermines the trust of our customers.
DAX hits one-year high
The relief isn’t constrained to the UK apparently: in Germany, the DAX has jumped as much as 1.6pc, also hitting a one-year high.
The FTSE 100, which has spent most of the day in the doldrums, is now flat. Miners are still holding the blue-chip index down as trade worries worries and the IMF’s warning dampen sentiment.
Markets.com’s Neil Wilson says the excitement is palpable, but suggest foreign exchange traders may be getting overexcited based on a single report:
Sterling jumped to its strongest in four months against the US dollar and cleared a big technical level as reports said UK and EU negotiators are closing in on a draft Brexit deal...
...These kind of reports expose just how vulnerable sterling is to headline risk. At present these are unconfirmed reports and need to be verified – we just have BBG citing two people with knowledge of the talks.
If a draft deal can be achieved we would expect another spike north to $1.30 on cable in very short order, and potentially $1.3170 could be targeted. It could get very choppy now.
However, as we consistently stress, there is yet a lot to overcome even if a deal is agreed - most importantly Parliament would need to back the agreement and this is far from assured.
FTSE 250 heads for second-best day since April
The FTSE 250 is absolutely loving reports that the UK and EU may be near a Brexit deal, rising further to stand 1.79pc up on the day currently. Putting aside its monster 4.19pc jump on Friday, that puts the index on course of its best daily gains since April 1. That’s put it at a one-year high.
Brexit hopes spill over markets
UK banks, house builders and domestic stocks getting a bid on Brexit deal hopes.— Michael Hewson ���� (@mhewson_CMC) October 15, 2019
RBS, Lloyds, Barclays, Persimmon, Barratt Developments all leading gainers n FTSE100
Clear risk-on moves seen on the back of this spike higher in GBP with the Dax hitting its highest level since August 2018. S&P500 back near 3000 handle and Gold below 1480 pic.twitter.com/gw5IyBE3Kd— David Cheetham, CFA (@DavidCheetham3) October 15, 2019
Royal Mail workers vote for strike action
Royal Mail workers have voted for strike action, according to the Communication Workers Union.
A yes vote of 97.1pc was recorded on a ballot of about 110,000 workers, with turnout at 75.9pc. Royal Mail shares are up (though they are probably feeling a Brexit-hope boost).
The vote set the stage for the first postal strike in a decade. The CWU accuses the delivery company of not honouring an agreement on working conditions.
FTSE 250 leaps on hopes of a deal
The FTSE 250, which has been solidly in the green all day, is now up more than 1.3pc following that Bloomberg report.
The index, which consists of 250 mid-cap companies, is seen as a Brexit sentiment bellwether because many of its constituents are heavily domestically-exposed.
US banks wrap: Wells Fargo profits slump
Here’s a very quick wrap on US banks (several of which reported results today) before we get back to the Brexit excitement:
- JP Morgan performed strongly, with revenues increasing 7.3pc to $29.3bn and profits up 8.4pc to $9.1bn.
- Goldman Sachs was in line with expectations , posting a 5.6pc revenue fall to hit $8.3bn. Profits were $1.8bn, down 26.9pc.
- Wells Fargo revenues edged up to $22bn, but profits fell 23.3pc to $4.6bn.
- Citigroup revenues rose 1pc to $18.6bn.
Pound spikes on report sides edging closer to deal
The pound has leaped to a new three-month high against the dollar of just under $1.276 after Bloomberg reported the two sides are drawing closer to a deal. That’s the best level since June 25. Here’s the report that is moving markets:
UK and European Union negotiators in Brussels are closing in on a draft Brexit deal with optimism that there will be a breakthrough before the end of Tuesday, two EU officials said.
Any draft legal text will hinge on whether Prime Minister Boris Johnson believes he has the support of the UK Parliament, with the backing of the Northern Irish Democratic Unionist Party crucial.
Analysis: Six ways the government could boost the economy after Brexit
With the IMF warning over the potential impact of an unruly Brexit in its latest outlook, politicians might soon be looking for ways to stimulate growth.
Handily, my colleague Tim Wallace reports, the National Institutute of Economic and Social Research has come up with a series of proposals to address just that. Tim writes:
Brexit has numbed our brains. It has taken over our political, economic and business discourse to an extent scarcely imaginable when David Cameron promised to renegotiate Britain’s relationship with the EU and to hold a referendum on the outcome.
Other pressing national issues have had precious little attention in the past three years, with serious proposals to fix problems including housing, infrastructure, the climate and international trade barely getting a look in.
He’s put together half a dozen of NIESR’s ideas, and looked at how they might work.
- Read more here: Six radical ideas to boost the economy after Brexit
Pound hits a five-month high against the euro
Among generally-upbeat sentiment today, the pound touched a five-month high against the euro at around 1pm, and is back near that level again now. As a reminder, you can use the selector on the top right of our Markets Hub tool (below) to view different date ranges:
Proposed Sophos merger lifts UK private equity activity to 12-year high
Just in from my colleague Vinjeru Mkandawire:
The proposed $4bn (£3.2bn) bid by a US buyout firm for Sophos Group has pushed private equity activity in the UK market to a 12-year high.
UK private equity deals have surged to $40bn, a 57pc jump on the amount invested by private equity firms for the whole of 2018. This is despite there being fewer deals compared to the same period last year.
Thoma Bravo this week announced its acquisition of the cybersecurity company four years after it went public. The deal is the second largest announced private equity transaction in the global technology sector so far this year.
Nearly a quarter of all private equity acquisitions of UK companies in 2019 have been in the technology sector.
Here’s how those figures look:
FTSE falls as Europe advances
In among all the excitement today, I realise I have neglected to comment much on the markets.
Allow me to quickly rectify that: the FTSE 100 is underperforming its European peers, with a rising pound putting extra pressure on the exporter-heavy index.
Miners are suffering amid a joint exposure to trade war worries and currency movements, while heavyweights HSBC, GlaxoSmithKline and AstraZeneca are all falling.
Across the rest of Europe, most stock indices are up about half a percentage point.
Futures trading is currently pointing towards an upbeat open on Wall Street (in just over 20 minutes). It’s a busy day in the US, where bank earnings are the day’s big story.
A slew of major lenders are reporting today, with JP Morgan delivering strong results to start things off earlier. Goldman Sachs has met expectations. Markets.com’s Neil WIlson says:
The Dow Jones is being called to open about 100 points or so higher, though we would imagine that the market is already anticipating Q3 numbers to beat quite low bottom-up expectations. Whisper numbers are higher and the market seems more likely to move on trade expectations – we will need considerably stronger beats than these to really drive the market.
Analysts have compared the day’s reporting to a fire hose, so I’ll try to bring you a wrap-up once things are a bit more calm.
IMF warns over global growth amid trade tensions
Just out: the International Monetary Fund has blamed bitter trade tensions and a manufacturing slump for a global downturn as it slashed growth forecasts to the lowest level since the financial crisis, Russell Lynch reports. He writes:
The global lender’s latest World Economic Outlook added that prospects are “precarious".
And in an apparent dig at the White House’s crackdown on trade with China, the fund warned central bankers are running out of ammunition to fix policy “mistakes”.
Compared to its July update, the IMF cut growth estimates from 3.2pc to 3pc for this year – the lowest for a decade - although it expects a slight bounceback to growth of 3.4pc in 2020. UK growth estimates meanwhile were cut to 1.2pc from 1.3pc three months ago.
Round-up: Car finance crackdown to save motorists millions, Renishaw profits collapse, WeWork plans to axe 2,000 jobs
Here are more headlines from the worlds of business, tech and money today:
- Motorists to save £165m in crackdown on car finance kick-backs: Drivers could pay less for their vehicles under plans set out today by the City watchdog to ban unfair commissions on car finance loans.
- Renishaw profit collapse fuels fears of global slowdown: Profits at engineering bellwether Renishaw have collapsed, raising fears about the prospects for the wider industry in the face of Brexit and a potential global trade war.
- WeWork to axe 2,000 jobs this week as new bosses battle to save it from collapse: The office space rental company is preparing to announce global layoffs as soon as this week which are likely to affect employees in the UK.
Questor special: Why Woodford failed
The verdict is in. Questor, the Telegraph’s investment column, says Neil Woodford failed by breaking two key rules:
- Have a clear, readily intelligible investment process and stick to it
- Governance always matter
Questor editor Richards Evans writes:
Neil Woodford built his reputation as an equity income fund manager. The essence of the equity income style is to spot when a company’s dividend is sustainable when the rest of the market has doubts and reap the rewards from both the dividend and the share price when you are proved right.
Stocks that pay no dividend clearly have no place in an equity income portfolio but Mr Woodford’s reputation blinded us from making this simple observation in relation to his own fund for too long. The fact that some holdings were even unlisted should have been an even louder warning.
- Read more here: Questor: Why did Woodford fail? Because he broke these two key investment principles
- Sign up to the Telegraph's Questor WhatsApp group for daily alerts and exclusive audio updates
Meanwhile, interim Treasury Select Committee chair Catherine McKinnell MP has said of the latest twist in the Woodford saga:
This appears to the beginning of the end of a sorry state of affairs. This will have been a troubling time for investors in the Woodford Fund, who may not get any money back until at least January.
If it hasn’t doesn’t so already, surely now the fund should waive its fees.
There is still some time to go in this uncomfortable episode, which has raised important questions about the functioning of the funds industry. I’m sure the Committee will want to examine what lessons can be learned from this saga.
- Telegraph Money has been speaking to readers, who have reacted to Link’s decision to sack Mr Woodford.
You can read their reactions (and contribute your own) here: ‘Why did it take so long to get rid of him?’ Telegraph readers react to the dramatic sacking of Neil Woodford
In charts: Why the time might be right for Johnson to call an election
With Brexit at the forefront of everybody’s minds, one of the biggest question marks is over what might happen if a snap election is called.
That’s the focus of today’s Think Tank, by Economics Editor Russell Lynch. He writes:
Polls at the beginning of October suggested a failure to leave potentially costing BoJo nine points and an overall majority. That’s why he’s busy pinning blame on dastardly Europeans and Remoaner MPs for preventing the UK from leaving if he doesn’t get his deal over the line and is forced by the Benn Act to ask for more time.
But Boris enjoys a double-digit poll lead over a deeply unpopular Labour leader. On top of that, if you cut through the Westminster bubble and Brexit noise, the PM can also take heart from some wider economic factors in the general election that most expect this autumn.
Russell has pointed to three economic factors that favour the PM:
- A low ‘misery index’ of inflation and unemployment
- Real-terms pay growth rising
- Disposable income increasing
Here’s how the former looks:
- You can read his full piece here: Three charts that give Boris Johnson a boost for a Brexit general election
Pound volatility hits highest level since EU referendum
Let’s bring it back back to Brexit.
The pound is still up sharply on the day, with its wild gyrations over recent session meaning its overall one-week volatility against the dollar has hit its highest level in three years:
The foreign exchange market can be carried on a whisper currently, and is proving particularly sensitive to pronouncements from the EU. Here’s the latest from our political team:
Ireland’s deputy prime minister Simon Coveney has said that it is "possible" for Brexit negotiations to carry into next week.
He said that there had been “slow progress” and “a big step forward needs to happen today”.
It echoes comments from Michel Barnier, who reportedly told EU 27 ambassadors that an agreement would need to be reached tonight in order to come to a deal at this week's EU Summit.
Earlier, the EU’s chief negotiator said a deal “is still possible this week”, as the Government claimed a “great deal” of progress has been made.
As technical talks continue in Brussels, the EU’s chief negotiator said it would be “difficult” but not impossible to come to an agreement.
- You can follow live Brexit updates here: Brexit latest news: Simon Coveney says negotiations may continue next week, unless there is ‘big step forward’ today
Here’s the theoretical timeline for this week:
Round-up: Jobs market wobbles, Barnardo’s defends charity shops, Northern Irish business leaders warn of Brexit risks
Here are some of the biggest stories from so far today:
- Jobs market wobbles amid global slowdown and Brexit paralysis: Britain’s jobs miracle could finally have run out of steam as the slowing global economy combined with Brexit paralysis pushed employment down and slowed down pay growth in the three months to August.
- Barnardo’s says charity shops are saving the high street, not hurting it: Think about the usual fare on offer from Britain’s armada of charity shops, and an £800 designer suit does not immediately come to mind.
- Northern Irish business leaders fear collateral damage from a ‘kamikaze’ Brexit deal: Northern Irish business leaders fear they will become “collateral damage” if Boris Johnson’s Government strikes a “kamikaze” Brexit deal without consulting them.
Marston’s warning on profit spills onto shares
Shares in Marston’s are down about 6.5pc currently, after the pub group warned it anticipated a fall in profits this year after a food sales fall.
The group, which is based in Wolverhampton, said labour costs and higher investment would also weigh, pushing profits lower than last year.
The company said it was continuing to focus on paying down its debts, which ended the year to September at £1.4bn.
Reaction from the City has been neutral to poor, with Jefferies analysts saying:
Despite commentary around debt reduction, we argue leverage will remain too high and funding the dividend out of asset disposals is not sustainable.
Whitbread: the price is right
Let’s catch up with what’s happening on the markets. First of all: Whitbread.
The Premier Inn-owner is up around 1.7pc currently, having risen as much as 3.2pc earlier in the day, buoyed by an analyst upgrade. The company, which operates hotels and pub restaurants, has struggled on the markets recently as it pursues aggressive expansion plans in Germany.
Analysts at UBS gave its shares a ‘buy’ rating, saying a 15pc slump in the company’s share price over the past three months is overblown, and presents a good opportunity for investors. Labelling it the “dominant branded UK hotelier”, with a “proven model”, UBS added Whitbread “remains a quality business”.
MPs wrap up Thomas Cook session
Things are finishing up at Portcullis House, with BEIS Select Committee chair Rachel Reeves offering comments in summary.
She has accused the executives arrayed in front of her of a series of failures, including strategic missteps, poor production of accounts, and of denying the reality of the situation of emergency funding that occurred.
Ms Reeves said former chief executive Peter Fankhauser should do more to “reflect” on his own salary, and what he can do to support staff who have lost their jobs as a result of the travel company’s collapse.
She accused the bosses of a failure to “do the basics”, adding “apologies are the easy bit” and extolling them (and bosses more widely) to take responsibility when they see things going wrong.
Here are some of the key points we heard today:
- Thomas Cook bosses only had one meeting with a Government minister in the build-up to last month’s collapse.
- Former chief executive Peter Fankhauser says that if the Government had provided £200m to secure the bailout from Chinese lender Fosun, then the tour company would have been saved.
- Mr Fankhauser says he will consider whether to return some salary to support victims of the collapse.
The inquiry will hear further witnesses in the coming weeks, including Mr Fankhauser’s predecessor Harriet Green.
BBC: Johnson just spoke to Macron
A quick Brexit injection: BBC Political Editor Laura Kuenssberg says Boris Johnson had a conversation with French President Emmanuel Macron earlier this morning, in which the two men acknowledged their was positive momentum.
Like last time, sounds like France less keen on extending the process again compared to some other member states - in theory, that might be helpful to UK, altho last time round, Macron agreed with the others to extend again— Laura Kuenssberg (@bbclaurak) October 15, 2019
The pound has lost some of its shine from earlier, but is up about four-fifths of a cent, at $1.264.
Woodford: What happens now?
Here are two things to read right away if you’re a Woodford Equity Income Fund investor:
- Woodford crisis: what the winding up of the Equity Income fund means for investors
- Three managers who could take over Neil Woodford’s fund
Back to bonuses...
MP Peter Kyle is asking questions .
Q: You knew collapse was likely. Did you consider cutting your own pay to support employees?
Mr Fankhauser says they were following guidance from advisors on their duties as executives. He says he will not try to defend his pay, but says he worked “exhaustively and extremely hard” for his salary. He repeats that he will decide (“not today”) about the possibility of giving some money back to staff.
Q: (To former chair) Did you provide value for money?
Former chair Mr Meysman says that is for others to judge, but says he personally invested into Thomas Cook and insists that he worked hard.
Q: (To remuneration committee chair) Was failure rewarded?
Former remuneration committee chair Warren Tucker says he can’t argue with that perception, but says the failure only occurred at the end.
Mr Kyle contests that the failure only manifested itself at the end, but had occurred over a longer period of time. He asks if Mr Tucker would behave the same way if he were put in the same situation again (Mr Tucker is now a non executive director of the Foreign and Commonwealth Office).
Mr Tucker says he thinks “if we had out time again”, he would have probably tied pay more to actual cash generation rather than underlying profit, and the 2pc pay rises might not have occurred.
Mr Meysman and Ms Verluyten says that they both offered to quit the other board they sit on in the wake of the collapse, but both said their resignations were rejected.
Full report: Neil Woodford sacked by his own flagship fund
My colleague Harriet Russell has a full report on this morning’s other bid story: Neil Woodford being chucked off his own flagship fund. She reports:
Neil Woodford has been sacked from his frozen flagship income fund and it will be wound down, leaving the legacy of one of Britain’s most famous money managers in tatters.
Supervisor Link, which has managed the Woodford Equity Income Fund since it was closed to investors earlier this year, said liquidation is in the “best interests” of investors. It remains unclear how much of their cash will be returned – sparking fears they could face heavy losses.
Mr Woodford immediately opposed the move. He said: “This was Link’s decision and one I cannot accept, nor believe is in the long-term interests of LF Woodford Equity Income Fund investors.”
Thomas Cook never spoke to ministers again after first meeting
Mr Fankhauser says that after an initial conversation with Transport Secretary Grant Shapps, they only spoke to Department for Transport officials in the lead-up to the collapse.
The MPs have reacted with shock to this disclosure, asking why the company didn’t push harder for a political intervention.
Peter Fankhauser is saying that five ministers in other countries spoke to Thomas Cook bosses in the lead up to the collapse, and chair Frank Meysman notes that its conversations with Chinese investor Fosun were via its chairman.
Q: Did you speak to anyone in the business department?
Mr Fankhauser says they communicated via official bodies, primarily the Department for Transport. He says they followed the Government’s guidance on how they should communicate, so did not speak to anyone in the Department for Business, Energy and Industrial Strategy.
Mr Fankhauser says he was “told not to” speak to BEIS directly.
(NB, it worth remembering the BEIS department and BEIS Select Committee are distinct things – the latter in a cross-party group of MPs, led by Labour’s Rachel Reeves)
Here’s our blow-by-blow account of how the company collapsed: Why Thomas Cook collapsed: How debt, heatwaves and the internet sent travel giant into a spin
Fankhauser: Government could have saved Thomas Cook
More from Chair Rachel Reeves on the decision by Fosun, a major shareholder, to no bail out Thomas Cook. The questions are over an extra £200m that was being sought by Fosun, which the tour group ultimately tried, and failed, to get from the government.
Q: Isn’t Fosun’s refusal to give the extra £200m itself a sign of its lack of faith in Thomas Cook?
Mr Meysman basically swerves this question, but claims he had received assurances from the Government that it was closely following the situation.
Q: Did the Government fail taxpayers by not bailing out Thomas Cook?
Mr Meysman says he can only reflect that interventions elsewhere (such as Germany’s bailout of German Thomas Cook airline wing Condor) were successful.
Q: When did you ask for bailout?
Former chief executive Peter Fankhauser says he met a high official from the Ministry for Transport on September 9, and that a formal proposal for a bailout was submitted on September 17 (the company collapsed in the early hours of September 23).
Q: Would bailout have saved Thomas Cook?
Mr Fankhauser says yes. He adds Thomas Cook would have been the “best funded” tour operator in Europe if its had received the extra £200m from the Government (which they are referring to, somewhat chillingly for Brexit news followers, as a “backstop”).
He says that if the arrangement has passed, the company would have had a “new start”, with enough money to operate through the winter and have had the opportunity to develop further without a debt burden.
Why did collapse occur?
More questions from Antoinette Sandbach currently.
Q: Why didn’t lenders save Thomas Cook?
“I can’t answer that,” says Mr Fankhauser. He claims lenders told him they would support the company’s plans. When push came to shove, however, it appears they didn’t.
Frank Meysman, former chair: Says they received “indications” from other creditors including “Spanish hoteliers” that they would be given some relief on their debts. Again, it doesn’t seem that came to fruition in practice. Mr Meysman says companies said they would “step up”.
Rachel Reeves says that any commitments made by creditors were palpably untrue, given the company subsequently collapsed. She asks Mr Meysman, in a tone of irony, whether Thomas Cook is still trading. He says it is not (of course), and Ms Reeves says that is proof that the promises made by creditors were therefore not to be relied upon.
Mr Meysman is suggesting that the creditors wanted there to be a confirmation of support from the government. Things heating up a bit...
Tweet: Are Thomas Cook bosses avoiding criticism of former chief executive?
The Guardian’s Rob Davies tweets:
Interestingly none of the Thomas Cook directors have pointed the finger directly at previous CEO's aggressive expansionism and how that built up debt. Are they avoiding that on advice? https://t.co/7bDIkZ9ioa— Rob Davies (@ByRobDavies) October 15, 2019
As a reminder, Peter Fankhauser took over as chief executive in 2014.
Did Thomas Cook downplay challenges?
Questions from MP Drew Hendry.
Q: How did Thomas Cook investors respond to what management told them?
Peter Fankhauser says investors supported the company’s strategy, including saying one particular investor was very active.
Q: Didn’t you sense you were losing control?
Mr Fankhauser says he was “convinced” that the plans Thomas Cook devised with banks and lenders could work. He says that management checked every day at 4pm that their plan could work.
Q: So you were wrong at 4pm every day?
Mr Fankhauser says they were right based on the information they had at the time.
UK employment: Some snap reactions
Here’s some reaction from Twitter to those UK employment figures (see 9:41am update):
Don't jump to assuming today's weaker UK labour market report opens the door to rate cuts from the MPC. The 3.9% unemployment rate still is below the MPC's estimate of its equilibrium rate 4.25%. And wage growth of 3.8% is still inflationary, when productivity is flat.— Samuel Tombs (@samueltombs) October 15, 2019
(MPC is the Bank of England Monetary Policy Committee, which sets target interest rates)
The real change in the path of UK wages growth came in July which was originally reported as 4.2% but now has been revised to 3.9%. So still good but quite a revision posing questions for @ONS— Shaun Richards (@notayesmansecon) October 15, 2019
The UK's regional employment divides. Approximately 10 percentage points separates top from bottom in the UKregional employment rate tables. The South & the East have distinctly higher then average rates, N. Ireland & N. East distinctly lower. pic.twitter.com/Xao5opaD2r— Rupert Seggins (@Rupert_Seggins) October 15, 2019
Hopes for Hays
Questioned about Hays Travel’s takeover of Thomas Cook’s 555 bricks-and-mortar stores, Mr Fankhauser has said “I wish them all the luck”, saying that the company’s “lean” structure and lack of debt should make it viable.
Chair Rachel Reeves says Hays Travel’s financial situation shows how Thomas Cook could have succeeded if it had been better run.
Mr Fankhauser says “I fully agree with you. It is fully out of my limits, the debt build-up”. He says he did he best to address it, however.
Q: If retail stores were such a problem, how come the Insolvency service was able to so quickly sell your retail stores once Thomas Cook collapsed?
Mr Fankhauser says “we were focused on saving the whole business”, and notes that he does not know how much Hays Travel paid for the high street store business. He says “we were bound to achieve something for the whole”. he said Thomas Cook had received offers for parts of the business, but none of the proposals were strong enough to support the wider company.
Q: Was it a mistake to hold out for a bigger saviour?
Mr Fankhauser says he believes it was correct to try and find a way to protect the entire business. Pressed by Ms Reeves, he accepts he was ultimately correct, and apologises again.
Airline wing sale
Questions by MP Albert Owen are focused on Thomas Cook’s decision to put its airline wing up for sale earlier this year.
Q: Why did it take you so long to decide to sell Thomas Cook airline business?
Peter Fankhauser: We had decided to put the airline “on its own feet” in 2017, by introducing an agreement between the airline and tour operator. This gave “the opportunity” to consider a future sale.
Q: So why wait until February this year to begin sale?
Mr Fankhauser says conditions were not right. He says they had talks with major airlines, but they didn’t receive sufficient interest.
Q: Was not selling sooner a mistake?
Mr Fankhauser concedes that it may have been.
...back to Portcullis House
Thing are getting fairly heated. MPs and Thomas Cook bosses are offering very different perspectives on why the company collapsed.
Martine Verluyten, the former audit committee chair, has said the bosses never hid from investors or the public that the company’s accounts were “not healthy”.
Q: Were bonuses based on underlying profits, or actual profits?
Warren Tucker, former Chair of Remuneration Committee: Underlying profits were used.
Q: So that is the only part of the profit and loss sheet used to determine profits?
Mr Tucker says that is correct.
MP Stephen Kerr has branded that answer “ridiculous”, saying “this board was rewarded for failure”.
Thomas Cook’s debt problem dates back to the acquisitions made by previous CEO Manny Fontenla-Novoa (who is not here today). As you can see from this chart, the group’s debt level at year end remained stubbornly above £1 billion at year-end for a decade. (Source: Berenberg) pic.twitter.com/IHqLZBNmzg— Joel Hills (@ITVJoel) October 15, 2019
Newsflash: UK employment falls for first time since 2017
Quickly pulling out of Portcullis House for a moment – the Office for National Statistics says UK employment fell by 56,000 in the three months to August. Analysts had been expecting a 26,000 jobs added, so that is a notable drop.
The ONS said:
- The UK labour market showed signs of slowing, with the level of employment falling by 56,000 to 32.69 million and the level of unemployment increasing by 22,000 to 1.31m, in the three months to August 2019.
- Over the same period, the employment rate for men remained unchanged (80.2pc) and that for women declined to 71.6pc.
#UK labour market looking markedly softer with #employment falling 56k (most for over 4 years) & vacancies down again. #unemployment up 22k taking jobless rate up to 3.9%. Annual #earnings growth dipped to 3.8% in 3 months to August from 11-year high of 3.9% in 3 months to July— Howard Archer (@HowardArcherUK) October 15, 2019
Former audit committee chair: ‘We felt that it was OK to leave the goodwill as it was’
We’re into the financial weeds already. Committee member Antoinette Sandbach is pushing the attendees over Thomas Cook’s debt levels.
She has focused on the company’s decision to say it had £2.5bn of goodwill (intangible assets usually related to a purchase, such as staff skills or brand value), a figures which was subsequently significantly written-down this year.
Q: How did you justify the levels of goodwill that Thomas Cook claimed to have?
Martine Verluyten, former audit committee chair: “We felt that it was OK to leave the goodwill as it was”.
Frank Meysman, former chair: We came up with thew numbers in discussions with our auditors.
Sten Daugaard, former CFO: We had to recalculate goodwill based on trading conditions and our projection of profit. The situation was so bad in 2019 that we had to revisit numbers.
Q: So was goodwill based on business plan, rather that intangible asset?
Sten Daugaard, former CFO: Yes, that is what the accounting standards say. He says Thomas Cook followed IFRS audit standards.
Former CFO: Debt and competition brought down Thomas Cook
Q: Why did Thomas Cook collapse?
Sten Daugaard, former CFO: Arrived as CFO this year, large debts and competition within sector were big challenges.
Peter Fankfauser: “My primary focus was to pay down the debt [but] we were not fast enough”. The former CEO said some events outside of management’s control led to the collapse, including (he says) debts restricting the ability of Thomas Cook to react to opportunities and challenges.
Side note: Several Thomas Cook staff have arrived (in their uniforms) and are sat behind the bosses. Here are some pictures of them turning up:
Thomas Cook inquiry begins
The Business, Energy and Industrial Strategy Select Committee inquiry into the collapse of Thomas Cook has begun. Here are paraphrased summaries of the opening questions:
Q: Would you have done anything differently?
CEO Peter Fankhauser: “If I could start from scratch, I would have probably pushed even harder on the pace of restructuring the company.”
Q: Did you deserve the bonuses you were paid?
Mr Fankhauser says he is a “reflective” person and accepts pay was “enormous”, but does not directly answer question.
Former Thomas Cook boss Peter kicks off evidence to MPs by declaring he is “deeply sorry” for collapse and admits his base pay was “enormous.”— Graham Hiscott (@Grahamhiscott) October 15, 2019
Q: Can any of your bonuses be clawed back?
Mr Fankhauser said he recieved no bonus in 2018/19, £750,000 in 2017 (30pc of which he says was in shares). He says he worked hard to keep company together, and says that his pay was not his decision. Pressed by chair Rachel Reeves, he says he will reconsider whether he should act differently – but will not decide today.
The three golden rules for business leaders appearing before MPs: apologise, apologise, apologise.— Ben Wright (@_BenWright_) October 15, 2019
What you need to know about Hays Travel, who have taken over Thomas Cook’s stores
Here’s more on the husband/wife team behind Hays Travel, the independent firm that has taken over the high street stores left empty after Thomas Cook’s collapse:
- Here’s their story: Economy flights, staff bonuses and balking at a £40 Dover sole: meet the husband and wife team who saved Thomas Cook
- And here’s why they say the acquisition makes sense: ‘If you look at our advantage, the sums are very nice’ – why Hays Travel’s owners bought Thomas Cook’s stores
Coming up: Thomas Cook bosses to face MPs’ questions over company collapse
In what is ramping up to be an increasingly busy day, MPs are about to question Thomas Cook bosses about the tour operator’s collapse.
Members of the Business, Energy and Industrial Strategy Parliamentary Select Committee will question bosses including former chief executive officer Peter Fankhauser as they begin an inquiry into the collapse.
The first session of our inquiry into the collapse of Thomas Cook starts at 9.00am. You can watch live here https://t.co/0UbiwwSeWi— Business, Energy and Industrial Strategy Committee (@CommonsBEIS) October 15, 2019
- You can watch live here.
Here’s our key reporting on the saga:
ITV yesterday revealed the letter sent by the Government to Thomas Cook last month, when it rejected bailing out the firm, hours before the travel group collapsed.
This is the letter the government sent to Thomas Cook, informing the company that it had decided not to support the rescue plan. “Significant precedent risk” is the reason given for rejecting the request for financial help. Hours after the letter was sent Thomas Cook went bust. pic.twitter.com/aRtrlR9hsb— Joel Hills (@ITVJoel) October 14, 2019
Mr Fankhauser has faced questions from the press outside Parliament:
Do you understand the public anger? "I can fully understand," former CEO Fankhauser says.— Alex Daniel (@alexmdaniel) October 15, 2019
"And that's why we are here ... millions of customers, the 22,000 colleagues, as well as the UK taxpayer - you have a lot of questions"#ThomasCook
“We understand that the collapse of Thomas Cook caused a lot of stress, disruption and anxiety— Joel Hills (@ITVJoel) October 15, 2019
Me and my colleagues are still devastated about the outcome and deeply regret that we were not able to secure the business.” - former CEO arrives for the select committee hearing. pic.twitter.com/FN9PXGyo1n
These are the Thomas Cook staff members who will be taking questions:
- Peter Fankhauser, former CEO
- Frank Meysman, former Chairman
- Sten Daugaard, former CFO
- Martine Verluyten, former Chair of Audit Committee
- Warren Tucker, former Chair of Remuneration Committee,
Snap wrap: Links shuts down Neil Woodford fund
Here’s what you need to know about this morning’s big investment story:
Former star trader Neil Woodford has been thrown off his £3.5bn flagship Woodford Equity Income Fund, which now faces liquidation.
Link Fund Solutions, which had been managing the fund since it was suspended earlier in the year, said WEIF will be split into two parcels that will be sold.
What has been said
Link said: “Whilst progress has been made in relation to re-positioning the Fund’s portfolio, this has unfortunately not been sufficient to allow reasonable certainty as to when the repositioning would be fully achieved and the Fund could be re-opened.”
Mr Woodford said: “This was Link’s decision and one I cannot accept, nor believe is in the long-term interests of LF Woodford Equity Income Fund investors.”
The Financial Conduct Authority said it “welcomes the removal of uncertainty that LFS’s decision provides”.
What happens now
WEIF’s assets will be divided between two parcels, consisting respectively of listed assets (portfolio A) and “certain highly illiquid assets” (portfolio B). BlackRock will be responsible for selling the former, while specialist PJT Partners will sell the latter. Investors will be paid out based on how much it made in the sale.
The name of the fund will change from “LF Woodford Equity Income Fund” to “LF Equity Income Fund” to reflect Mr Woodford’s exit.
Woodford: ‘I cannot accept’ decision
Mr Woodford has commented, saying:
This was Link’s decision and one I cannot accept, nor believe is in the long-term interests of LF Woodford Equity Income fund investors.
Woodford: Key questions
Here are some extracts from the FCA’s Woodford Equity Income Fund FAQ (full answers here), following the decision to shut down the stock picker’s increasingly-stricken equity fund:
Why did the fund suspension happen?
On 3 June 2019, Link Fund Solutions decided to suspend dealings in the WEIF in order to protect all investors in the fund following an increased level of redemptions.
Why is the WEIF being wound up?
Whilst progress has been made in relation to repositioning the WEIF and disposing of its less easily sold assets, this has not been sufficient to provide reasonable assurance that the repositioning would be fully achieved and the WEIF could be re-opened in December. Because sufficient progress was not made, LFS has decided it is in the best interests of all investors to seek to wind-up the WEIF rather than continue to reopen the fund.
What does this mean if I’m an investor in the WEIF?
A fund winding-up means it will close and money will be returned to you. Returning money takes place in instalments as the assets in the fund are sold. LFS expects to make these as soon as possible once the formal winding-up begins, which is expected to commence in mid-January, because three months’ notice needs to be given to investors under the rules implementing the applicable European Directive.
What are the arrangements for the management of the fund’s assets?
LFS remains the authorised corporate director of the WEIF. This means it will be responsible for the orderly winding-up of the fund.
Who will return my money to me?
You should receive money from any intermediary through which you invested in the fund (e.g. a platform provider or an adviser), or LFS directly.
How much of my money will I get back?
The amount you will receive will depend on the fund’s value and the amount raised by selling the fund’s assets. The fund’s value fluctuates in line with the market values of its underlying assets. If assets are sold for lower prices, you will receive less from the winding-up process and this also may be less than you originally invested.
FCA on Woodford: We welcome ‘the removal of uncertainty’
The Financial Conduct Authority, the City watchdog, has also responded to Link’s decision, which it is welcomed. The regulator said:
The FCA welcomes the removal of uncertainty that LFS’s decision provides. We recognise that investors have been concerned about the state of their investment since the beginning of June. Winding-up the fund will allow the return of money to investors through a number of distributions, likely to begin in January 2020. This means investors should receive some of their money back sooner than had the fund remained suspended for a longer period.
- The FCA has released a Q&A for investors on its website, which be be read here.
Woodford Patient Capital Trust board: Further announcement ‘in due course’
The board of Woodford Patient Capital Trust has released a statement following Link’s decision to wind down Woodford Equity Income, formerly the fallen star trader’s flagship fund. They say:
The Board of Woodford Patient Capital Trust plc notes the statement by Link Fund Solutions Limited, the Authorised Corporate Director of the LF Woodford Equity Income Fund, that: (i) the decision has been taken by LFS not to re-open WEIF and instead to wind it up as soon as practicable; and (ii) Woodford Investment Management Limited will, with immediate effect, cease to be the investment manager of WEIF.
As previously announced, the Board has been undertaking a review of the Company's management arrangements and will make a further announcement in due course.
Here’s how Woodford Equity Income, the fund being wrapped up today, was performing as of July:
Pound leaps after Michael Barnier says Brexit deal is ‘possible’
The pound jumped this morning after EU Chief Brexit Negotiator said an agreement over Brexit could be possible this week. Before a meeting of European ministers, he said:
Even if an agreement has been difficult, more and more difficult, it’s still possible this week.
Reaching an agreement is still possible. Obviously, any agreement must work for all. The whole of the UK and the whole of the EU. Let me add also that it is high time to turn good intentions in a legal text.
Woodford fund ‘to be wound up’
The suspended Woodford Equity Income Fund will be closed by its administrator, according to an emailed statement on Tuesday.
Following the decision to wind up the fund, founder Neil Woodford will cease to be the investment manager with immediate effect, according to Link Fund Solutions. The administrator has hired Blackrock Advisers.
The fund’s administrator Link Fund Solutions hired BlackRock Advisers to prepare the portfolio for the winding down process, according to an emailed statement on Tuesday. The former star stock picker ceases to be the fund manager with immediate effect.
“After careful review of the fund and its holdings we have decided not to re-open the fund and instead to wind it up,” Link wrote in a letter to investors. “We recognize that this will come as a disappointment to some investors.”
The move marks the latest chapter in what’s been a dramatic reversal for the former U.K fund manager. Woodford built up a reputation by correctly calling major swings in technology, tobacco and other stocks over decades. Plagued by years of poor performance and mounting redemption requests, his fund administrator froze redemptions in the LF Woodford Equity Income Fund in June.
Since the suspension, Woodford has been offloading small stakes in the fund in to a cohort of investors in a series of fire sales.
Agenda: Markets febrile after day of wobbles
Yesterday, stock markets across Europe closed in the red, though what temporarily appeared to a session of steep losses improved somewhat after signals from Beijing were judged to be more favourable than had first been thought.
Nonetheless, the mood was risk-off, with miners suffering in particular, while safe-haven assets such as gold and the US dollar strengthened. All eyes will now turn to whether there will be a Brexit deal for leaders to sign at Thursday's EU Summit.
5 things to start your day
1) The bailed-out Royal Bank of Scotland was forced to develop its own digital bank after the failure of an audacious attempt to buy online lender Monzo. Senior executives from the taxpayer-controlled lender approached Monzo for talks before baulking at the price tag.
2) Think Tank: three charts that give BoJo a boost for a Brexit general election. One of these is the misery index which is running at less than 6pc, less than half the level seen in the early austerity years of the decade and around the same as 2015 when the Conservatives won a shock overall majority under David Cameron.
3) Barnardo's boss:Charity shops are saving the high street, not hurting it. At Barnardo's most exclusive outlet in Marylebone, high fashion hand-me-downs are the norm - and a few wealthy donors help to deliver a healthy £200,000 annual profit.
4) The official launch of Facebook's new cryptocurrency alliance was overshadowed on Monday by the abrupt departure of Booking.com, leaving the project with just 21 of its original 28 backers. Booking Holdings, which controls 41pc of the online travel market through services including Kayak and Agoda, confirmed on Monday that it had dropped out on the very same day that it was supposed officially sign up to the project at a meeting in Geneva.
5) The founder of Hargreaves Lansdown has accused the firm of failing in its duty to shareholders amid a row about political donations. Peter Hargreaves fell out with the investment platform last week over a planned shareholder vote on making donations to political parties. The 73-year-old billionaire made it clear he would use his 32pc stake to oppose the motion, so Hargreaves Lansdown cancelled the ballot at the last minute before its annual meeting.
What happened overnight
Asian stocks and Wall Street futures inched higher on Tuesday as some investors held out hope that Britain still had a chance to avoid a messy exit from the European Union at key negotiations this week.
MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.1%. South Korean shares rose 0.21pc, while Japan's Nikkei stock index was up 1.74pc.
In Hong Kong, the Hang Seng index dipped 0.06pc, or 15.67 points, to 26,506.18.
Capping broader gains, however, was a perceived lack of progress coming out of US-China trade negotiations.
Reports of a “Phase One” trade deal between the United States and China last week had earlier cheered markets but the dearth of details around the agreement has since curbed this enthusiasm with oil prices extending declines, Chinese stocks weaker and the safe-haven yen holding gains versus dollar.
The focus has now shifted to Europe where officials from Britain and the EU will meet at a make-or-break summit on Thursday and Friday that will determine whether or not Britain is headed for a so-called no-deal Brexit.
U.S. stock futures rose 0.23pc on Tuesday in Asia after the S&P 500 ended 0.14pc lower.
Coming up today
Hays investors have reason to be nervous heading towards today’s trading statement. The FTSE 250 recruiter’s peers PageGroup and Robert Walters both saw their share prices slip last week after unveiling disappointing results, with the same widespread pressures likely to have weighed on Hays. Like its sector rivals, Hays has seen net fee income slip as companies delay full-time hires, with Brexit a particular issue.
Interim results: Lidco Group, Schroders
Preliminary results: Bellway
Full-year results: Dotdigital
Trading statement: Hays Plc, Ixico, Marston’s, Merlin Entertainments, RWS Holdings
Economics: Employment and wage growth (UK), ZEW economic confidence (Germany), housebuilder confidence (US)