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ApprovedBusinessBusiness and finance

Cargill, an intensely private firm, sheds light on the food chain

ANGLERS love a record catch. Fish farmers, too. So when a salmon bred and raised near this village at the head of a Norwegian fjord was pulled out of captivity earlier this year weighing a sumo-sized 17kg, it was cause for jubilation. “It was fantastic,” says Einar Wathne, head of aquaculture at Cargill, the world’s biggest food-trading firm. Not only was it produced in 15 months, one-fifth faster than usual, it also looked and tasted good. Mr Wathne’s Norwegian colleagues celebrated by eating it sashimi-style shortly after its slaughter.

Cargill is a company usually associated with big boots rather than waders. America’s largest private company has built a reputation after 152 years of existence as middleman to the world, connecting farmers with buyers of human and animal food everywhere. Through a trading network that spans 70 countries (and that includes scores of ports, terminals, grain and meat-processing plants and cargo ships), it supplies information and finance to…Continue reading

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ApprovedBusinessBusiness and finance

Naspers comes under fire for free-riding on Tencent

SOUTH AFRICA’S stockmarket has Naspers largely to thank for its recent record highs. Shares in the media and internet group have soared by 45% this year; even before then it was Africa’s most valuable firm. So recent unrest among shareholders in Naspers might seem unwarranted. But in the days before its annual general meeting in Cape Town on August 25th, noisy debate erupted, chiefly about executive pay. Many investors reckon that Bob van Dijk, its boss, is being rewarded for success that he did little to create.

The source of good fortune for Naspers lies about 7,000 miles (11,265km) away. In 2001 Koos Bekker, Mr van Dijk’s predecessor, made a brilliant investment of $32m in a little-known Chinese technology firm called Tencent. Today its 33% stake is worth $130bn, as measured by Tencent’s value on the Hong Kong stock exchange; that dwarfs the $100bn valuation of Naspers itself on the Johannesburg stock exchange. Shares in the latter rise and fall on news from Hong Kong. In its…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

Russia’s largest private bank is rescued by the central bank

VADIM BELYAEV’S start in business in the mid-1980s was to sell foreign watches on the black market in the Soviet Union. He became a financier, and by 2015 had transformed his bank, Otkritie, into post-Soviet Russia’s largest private lender. Named “Businessman of the Year” by a Russian magazine, he used an English term to describe himself: “Risk-taker”. The risks have caught up with Otkritie. A run on its deposits led this week to its takeover by the central bank (CBR). The rescue is likely to be the largest in modern Russian history.

Russian banking has been plagued by lenders with bad loans and inadequate capital, and “pocket” banks that function as money-laundering hubs for influential businessmen. The CBR has embarked on a campaign to clean up the sector, taking on formerly untouchable banks with powerful shareholders and clients. Since 2013 it has shut down more than 300 banks.

Otkritie rose rapidly, out of a small predecessor bank acquired in 2006. It has…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

On NAFTA, Donald Trump’s most dangerous opponents are at home

EVER game for a fight, President Donald Trump is picking one again with Canada and Mexico, America’s partners in the North American Free-Trade Agreement (NAFTA). On August 27th he tweeted that both were being “very difficult”, adding: “May have to terminate?” His strategy, of getting a better deal by threatening to pull out altogether, is odd. It worsens relations with America’s negotiating partners, at a time when Mr Trump’s plans face just as much opposition at home.

Before April American business was quietly hoping that a Trump presidency would lead to more tax cuts than trade tensions. That changed when news leaked that Mr Trump was poised to withdraw from NAFTA. Suddenly the deal had louder champions in American business, including the energy and technology industries.

Knowing this, Canada and Mexico seem unruffled by Mr Trump’s latest threats as they go into the second round of NAFTA renegotiations on September 1st. Earlier ones prompted panicky phone…Continue reading

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ApprovedBusinessBusiness and finance

The parable of St Paul

PAUL POLMAN runs Europe’s seventh-most valuable company, Unilever, worth $176bn, but he is not a typical big cheese. A Dutchman who once considered becoming a priest, he believes that selling shampoo around the world can be a higher calling and detests the Anglo-Saxon doctrine of shareholder primacy, which holds that a firm’s chief purpose is to enrich its owners. Instead Mr Polman preaches that companies should be run “sustainably”—by investing, paying staff fairly, and by making healthy products with as little damage as possible to the environment. This is actually better for profits in the long run, he argues: society and shareholders need not be in conflict.

Mr Polman’s beliefs were tested in February when Unilever received a bid from Kraft-Heinz, a ketchup-to-hot dog gorilla controlled by Warren Buffett and 3G Capital, a fund known for ripping costs out of multinationals. If, in its own mind, Unilever is a good corporate citizen, then it sees Kraft as an angry American…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

Analysts struggle to make accurate long-term market forecasts

WHAT is the right way to invest for the long term? Too many people rely on past performance, picking fund managers with a “hot” reputation or backing those asset classes that have recently done well. Just as fund managers cannot be relied on to be consistent, returns from asset classes are highly variable. The higher the initial valuation of the asset, the lower the future returns are likely to be.

That is pretty clear with government bonds. Anyone buying a bond with a yield of 2% and holding it until maturity can expect, at best, that level of return (before inflation) and no more. (There is a small chance the government might default.) With equities, the calculations are not quite so hard-and-fast. Nevertheless, it is a good rule-of-thumb that buying shares with a low dividend yield, or on a high multiple of profits, is likely to lead to lower-than-normal returns.

So a sensible approach to long-term investing would assess the potential returns from asset classes, given their…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

Market concentration can benefit consumers, but needs scrutiny

WHEN Amazon announced in June that it would buy Whole Foods, an upmarket grocer, for $13.7bn, other firms shuddered. The spread of Amazonian tentacles is worrying to those wary of concentrated corporate power. But shoppers entering their local Whole Foods these days find oddly low prices alongside the new stacks of Echoes, Amazon’s voice-activated digital helpmate. This raises a question. Is Amazon hellbent on building a world-straddling monopoly, or merely injecting innovation and competition into yet another new market? For antitrust regulators, the welfare of the consumer is the priority. Yet working out how to protect it is harder than ever.

Competitiveness in most industries is a matter of degree. In the idealised marketplace of economics textbooks, the price people pay for goods equals the cost of producing an additional unit. Any higher, the theory goes, a competitor could cut the price a smidgen, sell another unit and profit. Yet outside commodity markets, most firms can charge…Continue reading

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ApprovedBusiness and financeFinance and economics

The gap between India’s richer and poorer states is widening

COUNTRIES find it easier to get rich once their neighbours already are. East Asia’s growth pattern has for decades been likened to a skein of geese, from Japan at the vanguard to laggards such as Myanmar at the rear. The same pattern can often be seen within big countries: over the past decade, for example, China’s poorer provinces have grown faster than their wealthier peers. India is different. Far from converging, its states are getting ever more unequal. A recent shake-up in the tax system might even make matters worse.

Bar a few Mumbai penthouses and Bangalore startup offices, all parts of India are relatively poor by global standards. Taken together, its 1.3bn people make up roughly the third and fourth decile of the world’s population, with an income per head (adjusted for purchasing power) of $6,600 dollars. But that average conceals a vast gap. In Kerala, a southern state, the average resident has an annual income per head of $9,300, higher than Ukraine, and not…Continue reading

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Business and financeButtonwood’s notebook

The bond market defies the doomsters

THE yield on the ten-year Treasury bond fell to 2.13% on August 28th, after North Korea fired a missile over Japanese territory. Investors tend to buy government bonds when they feel risk-averse. That will have come as a surprise to those commentators who have called the bond market a “bubble” that is sure to burst; one British magazine made this a cover story back in September 2001. Every time the ten-year yield falls close to 2%, press references to a bond bubble seem to increase (see chart; the yield is inverted).

It is not just the press. Investors have been cautious about bonds for a while; the vast…Continue reading

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ApprovedBusinessBusiness and finance

Uber picks Dara Khosrowshahi as its new boss

“A LEADER is a dealer in hope,” said Napoleon Bonaparte. For much of this year Uber, the ride-hailing firm, has lacked both leadership and optimism. But on August 27th news leaked that Uber had poached as its new chief executive Dara Khosrowshahi, the boss of Expedia, an online-travel company. Mr Khosrowshahi is seen as both an astute dealmaker and a canny manager. In his 12 years at the helm of Expedia, the gross value of its hotel and other travel bookings more than quadrupled and its pre-tax earnings more than doubled.

Can he rally the troops? Uber is a fast-growing company that was last year valued privately by investors at around $68bn, but it has suffered a host of setbacks, which led to the ousting of Travis Kalanick, its co-founder and boss, in June. The firm faces a criminal probe by America’s Department of Justice into a covert software feature that tracked regulators, as well as allegations of incubating a sexist culture. It must also contend with multiple…Continue reading

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Business and financeGulliver

Less lost luggage at the airport

WAITING to see if your checked bag will bump down the carousel and join you at your destination is one of the enduring anxieties of air travel. Though the number of “mishandled” bags—an industry term meaning lost or misplaced—is at an all-time low, six out of every 1,000 passengers can expect to be separated from their luggage for longer than they expected, or possibly even forever. These mishaps cost the airline industry $2.1bn a year and cause untold stress and inconvenience to passengers. 

From June 2018, however, travellers’ frustrations should ease when the International Air Transport Association’s Resolution 753 comes into effect. It will require mandatory tracking at four stages of a checked bag’s journey: when it is first handed to the airline, when it is loaded onto the aircraft, when it is delivered to the transfer area and when it is returned to the passenger. The resolution, which was devised in conjunction with Airlines for America, an industry…Continue reading

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ApprovedBusinessBusiness and finance

Samsung’s boss is sentenced to prison

SAMSUNG’S founding family, the Lees, have good reason to dislike room 417 of Seoul’s Central District Court. In 2008 it was where Lee Kun-hee, the chairman of the sprawling South Korean conglomerate, was found guilty of tax evasion. On August 25th his son, Lee Jae-yong, the vice-chairman of Samsung Electronics, stood in the same room and was sentenced to five years in prison on charges including bribery, embezzlement and perjury. The elder Mr Lee has been in hospital since suffering a heart attack in 2014. Samsung now lacks both its official and de facto bosses.

The younger Mr Lee, who plans to appeal against the verdict, was accused of paying bribes to Choi Soon-sil, a confidante of the country’s former president, Park Guen-hye. Prosecutors had argued that he hoped the payments would secure government support for an $8bn merger of two Samsung affiliates, Cheil Industries, the group’s unofficial holding company, and Samsung C&T, a construction firm. The state-run National Pension Service, the single biggest shareholder in C&T, voted for the plan in July 2015. The deal was controversial, but it helped Mr Lee consolidate his control over the group and clear the way for his succession.

The decision is a milestone in a broader influence-peddling scandal that brought down Ms Park. She was impeached in March and arrested soon after; she now…Continue reading

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Business and financeGulliver

Appalling behaviour on London’s Tube

WITH 1.4bn passengers annually, the London Underground is one of the world’s busiest transport systems. It is also one of the most crowded, sometimes producing an element of friction among commuters over small acts of inconsideration. This week YouGov released the results of a survey of the things that most wind up passengers as they scurry around the Tube. Impatient commuters pushing to get into the carriage without letting riders off first are what drives people mad the most.

The survey also revealed some interesting differences when broken down by gender: “manspreading” (unfurling one’s legs wide enough to take up unnecessary room) and…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

Does ageing explain America’s disappointing wage growth?

WHEN America’s unemployment was last as low as it has been recently, in early 2007, wages were growing by about 3.5% a year. Today wage growth seems stuck at about 2.5%. This puzzles economists. Some say the labour market is less healthy than the jobless rate suggests; others point to weak productivity growth or low inflation expectations. The latest idea is to blame retiring baby-boomers.

The thinking goes as follows. The average worker gains skills and seniority, and hence higher pay, over time. When he retires, his high-paying job will vanish unless a similarly-seasoned worker is waiting in the wings. A flurry of retirements could therefore put downward pressure on average wages, however well the economy does. The first baby-boomers began to hit retirement age around 2007, just as the financial crisis started. And since 2010, the first full year of the recovery, the number of middle-aged workers has shrunk considerably. They have been replaced partly by lower-earning youngsters (see…Continue reading

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ApprovedBusinessBusiness and finance

American bosses continue to lobby, more quietly

IN CORPORATE America, “Trump” seems to be a dirty word, at least in public. After President Donald Trump seemed to equate the actions of white supremacists and their opponents in Charlottesville earlier this month, dozens of chief executives abandoned his advisory councils. Several organisations cancelled fundraising galas booked at Mr Trump’s Mar-a-Lago resort in Florida. Lloyd Blankfein, the boss of Goldman Sachs, an investment bank, compared Mr Trump to the dark shadow cast over parts of America by a solar eclipse: “We got through one, we’ll get through the other.”

Look past the public repudiation, though, and the schism is less stark. As Jason Furman of Harvard University’s Kennedy School, who led the White House Council of Economic Advisers during Barack Obama’s presidency, points out, the bosses’ public rejection of Mr Trump has done nothing to sap their appetite to guide policy. Lower-ranking executives from large firms continue to serve on informal…Continue reading

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ApprovedBusinessBusiness and finance

Investor activism is surging in continental Europe

LEAVE it to the Americans to besiege European companies in August, when the entire continent is on holiday. It emerged this month that Corvex Management, an American hedge fund, had built up a $400m position in Danone, a French food giant. AkzoNobel, a Dutch paints-and-chemicals firm which has been under heavy fire from Elliott Advisors, a subsidiary of another American activist fund, agreed to appoint three new directors to its board. An even bigger skirmish is under way in Switzerland, where Third Point, an American fund run by Daniel Loeb, is seeking to shake up Nestlé, the world’s biggest food company. Ulf Mark Schneider, Nestlé’s new boss, is under pressure to present bold plans to investors in September.

Such tussles used to be relatively rare in Europe. But shareholder activism is on the rise, with restive investors demanding corporate overhauls. Armand Grumberg, a mergers lawyer in Paris, last year counted 70 such campaigns in continental Europe. He expects this year to be…Continue reading

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ApprovedBusinessBusiness and finance

Artificial intelligence will create new kinds of work

WHEN the first printed books with illustrations started to appear in the 1470s in the German city of Augsburg, wood engravers rose up in protest. Worried about their jobs, they literally stopped the presses. In fact, their skills turned out to be in higher demand than before: somebody had to illustrate the growing number of books.

Fears about the impact of technology on jobs have resurfaced periodically ever since. The latest bout of anxiety concerns the arrival of artificial intelligence (AI). Once again, however, technology is creating demand for work. To take one example, more and more people are supplying digital services online via what is sometimes dubbed the “human cloud”. Counter-intuitively, many are doing so in response to AI.

According to the World Bank, more than 5m people already offer to work remotely on online marketplaces such as Freelancer.com and UpWork. Jobs range from designing websites to writing legal briefs, and typically bring in at least a few…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

Financial-market index-makers are growing in power

IT WAS in 1896 that Charles Dow, co-founder of Dow Jones & Company, created the index that still bears his name. Today, indices such as the Dow Jones Industrial Average and the S&P 500 (for shares listed in New York), or the FTSE 100 (for London), are among the best-known brands in financial markets. The role they play has expanded massively in recent years. Index-makers have become finance’s new kingmakers: arbiters of how investors should allocate their money.

Stockmarket indices were devised as a measure of the overall market, against which those trading in shares could compare their performance. At first they were concocted by the press or by exchanges themselves. For bonds, indices were compiled by the banks that traded them. Except for a few of the very earliest indices, such as the Dow, which is weighted by share price, nearly all are weighted by market capitalisation or, in the case of bond indices, by the volume of debt outstanding.

Three large firms—FTSE…Continue reading

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ApprovedBusinessBusiness and finance

Management turmoil at Infosys is particularly ill-timed

Less than thrilled

THE quickest way to start a Mexican wave in India is to head to the campus of Infosys, an IT outsourcing firm based in Bangalore, and ask all those who think they should be in charge to raise their hands. On August 18th the company’s chief executive, Vishal Sikka (pictured), resigned unexpectedly. But he still serves as executive vice-chairman. Now a chairman, a co-chairman, the interim chief executive who succeeded Mr Sikka, the board of directors and a retired founder all seem to think they should be running the show. The stalemate risks leaving the firm without a leader just as it had started the urgent work of overhauling its business.

The company’s management crisis is surprising. As one of only a few Indian IT firms that multinational companies trust to build and maintain their computer systems, Infosys has long sought to exude an aura of professionalism bordering on the dull. But clashing egos at the top now make it seem anything…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

Are men more irrationally exuberant than women?

Tiger investor?

WOULD more women on the trading floor inject a dose of sanity into the world’s financial markets? This question gained prominence after the 2007-08 crisis. As Christine Lagarde, then France’s finance minister and now head of the IMF, quipped, had Lehman Brothers been Lehman Sisters, history would have been different. Many studies support this idea, showing that testosterone-laden men are prone to overconfidence in trading. Women are more cautious.

But things may not be so simple. Previous research has mostly used evidence from the West. To test if the conclusions apply universally, Wang Jianxin of China’s Central South University, Daniel Houser of George Mason University and Xu Hui of Beijing Normal University looked at both America and China. And they found that in China’s markets, women can be just as manic as men.

The economists arranged for 342 students to form experimental markets. They were allocated dividend-paying…Continue reading

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ApprovedBusinessBusiness and finance

Facebook, Twitter and Apple get into the television business

ON AUGUST 27th the season finale of HBO’s “Game of Thrones”, one of the most expensively produced series in television history, will air to an audience of more than 10m Americans. When it ends, viewers can switch to one of the most inexpensively produced shows in the industry, “Talk the Thrones”, in which boffins sit around and discuss HBO’s show. Hundreds of thousands are expected to watch.

Besides the obvious gap in entertainment value (one has dragons, the other has people talking about them), there is another distinction between the series. “Game of Thrones” is available only for a subscription on pay TV. “Talk the Thrones” is free on Twitter, produced by a digital site called The Ringer and sponsored by Verizon, a telecommunications giant. Although the HBO series is more popular, “Talk the Thrones” may be a better sign of how the TV industry might evolve.

A new generation of TV shows is being made for…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

Private-equity returns can be replicated with public shares

IT IS hard for individual investors to match the returns achieved by private-equity funds. But what if their success in outperforming the public markets could be tracked and replicated? A few pioneering firms claim to have done just that. DSC Quantitative Group, a Chicago-based fund, and State Street, an asset manager, both offer “investable” indices, launched in 2014 and 2015 respectively, that allow investors to mimic the performance of American private equity.

Both firms needed a measure of the industry’s returns. DSC teamed up with Thomson Reuters, a data firm, to compile an index; State Street had been making one since 2004, using data it gleans as a custodian of private-equity assets.

They then match the private-equity risk-and-return profile with a basket of public assets. DSC’s index first matches the sector weights of the private portfolio with equivalent public companies, and adds a modest amount of debt (around 25%) unevenly across the sectors—all using…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

How the shape of global banking has turned upside down

IN THE 1980s, when Citicorp was America’s largest bank and pursuing every avenue for international expansion, John Reed, the bank’s boss, would muse about moving its headquarters to a neutral location, notably the moon. Such sentiments are inconceivable today. Jamie Dimon, boss of JPMorgan Chase, Citi’s successor atop the league tables, recently said he is an American “patriot” first, head of a bank second. His strategy, though hardly shunning international markets, reflects this.

Mr Dimon turned down several big foreign acquisitions before and during the financial crisis. His stellar reputation may rest as much on those undone deals as on those completed. Citi, meanwhile, has been lopping off foreign affiliates. It has retail operations in just 19 countries, down from 50 in 2007. Further contraction may be in the offing. Bank of America has long chosen to live down to its name, as an almost entirely domestic bank.

The same process is under way in western Europe. Visible…Continue reading

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