Bloomberg News - Deutsche Bank Sees Merger by Mid-Year If All Else Fails

By Steven Arons and Birgit Jennen

Deutsche Bank AG’s top ranks are bracing for a potential government-brokered merger with rival Commerzbank AG by mid-year as they run out of time to turn Germany’s largest bank around.

Executives, preparing to announce results for a difficult fourth quarter on Friday, are concerned such a deal may become their only option if there’s no clear improvement in the first three months of 2019, people briefed on their thinking say. The bank has already warned that the final months of last year were impacted by the dramatic images of a police raid in November, which compounded a challenging market environment.

A spokesman for Deutsche Bank declined to comment.

Chief Executive Officer Christian Sewing has pleaded for patience with his current plan, which is centered on cost cuts and efforts to stabilize market share, but talks between the lender and the government have recently intensified. Years of unsuccessful restructurings left the lender with a slump in revenue it has been unable to reverse. That’s fanned speculation it will ultimately be forced to merge with Commerzbank in a bid to add scale and slash expenses in a notoriously competitive domestic market.

Deutsche Bank CEO Christian Sewing, left, and chairman Paul Achleitner

Photographer: Krisztian Bocsi/Bloomberg

Although the bank’s largest investors continue to support Sewing, they’re unhappy with the losses they’ve sustained, according to people familiar with the matter. The stock lost more than half of its value last year, before recovering some of those declines this year.

Deutsche Bank fell 3 percent at 11:05 a.m. in Frankfurt trading, reversing earlier gains. Commerzbank declined 1.9 percent.

“If this is true, the economic situation at Deutsche Bank must be worse than seen by the outside,” said Andreas Plaesier, an analyst with M.M. Warburg. “A merger with Commerzbank at this point doesn’t make sense because it offers few possibilities to achieve client growth.”

While a deal is viewed by some as an imperfect solution, the German government thinks it will be impossible for Sewing to turn around Deutsche Bank before a potential economic slowdown exacerbates the situation, people familiar with the government’s thinking said. Berlin on Wednesday slashed its economic growth forecast for this year to just 1 percent, which would be the weakest pace in six years.

The Finance Ministry declined to comment.

The country still owns a large stake in Commerzbank after a bailout. It doesn’t own a stake in Deutsche Bank, but Finance Minister Olaf Scholz has said repeatedly that he wants strong international banks to support Germany’s export-oriented companies.

Representatives of Germany’s largest bank had 23 discussions with officials in Berlin since the new government was formed in March, most of them with Deputy Finance Minister Jorg Kukies. Sewing and supervisory board Chairman Paul Achleitner each had six exchanges, according to a Finance Ministry letter seen by Bloomberg.

Sewing has ruled out any mergers before 2020, but he’s also said in private that he will have to change his strategy before that if his plan fails. Many officials at Deutsche Bank and the German government favor a merger with Commerzbank as the best option available to Sewing, people familiar with the matter have said.

Analysts polled by the bank now anticipate an eighth consecutive decline in group revenue for the fourth quarter. Chief Financial Officer James von Moltke recently told Bloomberg News that December was a difficult month for the bank.

Still, at least one large shareholder appears ready to double down on the company. Deutsche Bank won a commitment for new investment from Qatar, which already has two vehicles with stakes in the lender, people familiar with the matter have told Bloomberg. The new investment is likely to be made through the the country’s sovereign wealth fund.

— With assistance by Abigail Moses, and Thomas Beardsworth

Reuters News - U.S., China launch high level trade talks amid deep differences

by David Lawder
WASHINGTON (Reuters) - The United States and China were set to try again on Wednesday to dig out from a damaging trade war with a new round of high-level talks aimed at bridging deep differences over China’s intellectual property and technology transfer policies.

Cabinet-level officials, led by Chinese Vice Premier Liu He and U.S. Trade Representative Robert Lighthizer, are due to begin two days of talks at 9 a.m. EST (1400 GMT) next door to the White House. They come with about a month left in a 90-day trade truce agreed in December by President Donald Trump and Chinese President Xi Jinping.

People familiar with the talks and trade experts watching them say that, so far, there has been little indication that Chinese officials are willing to address core U.S. demands to protect American intellectual property rights and end policies that Washington says force U.S. companies to transfer technology to Chinese firms.

The U.S. complaints, along with accusations of Chinese cyber theft of U.S. trade secrets and a systematic campaign to acquire U.S. technology firms, were used by the Trump administration to justify punitive U.S. tariffs on $250 billion worth of Chinese imports.

Trump has threatened to raise tariffs on $200 billion of goods to 25 percent from 10 percent on March 2 if an agreement cannot be reached. He has also threatened new tariffs on the remainder of Chinese goods shipped to the United States. China has retaliated with tariffs of its own, but has suspended some and is allowing some purchases of U.S. soybeans during the talks.

“Clearly on the structural concerns, on forced technology transfer, there remains a significant gap if not a wide chasm between the two sides,” a person familiar with the talks told Reuters.

Chinese officials deny that their policies coerce technology transfers.

They have emphasized steps already taken, including reduced automotive tariffs and a draft foreign investment law that improves access for foreign firms and promises to outlaw “administrative means to force the transfer of technology.”

China is fast-tracking that new law, with the country’s largely rubber-stamp parliament likely to approve it in March.

A crucial component of any progress in the talks, according to top administration officials, is agreement on a mechanism to verify and “enforce” China’s follow-through on any reform pledges that it makes. This could maintain the threat of U.S. tariffs on Chinese goods for the long term.

TEMPERED EXPECTATIONS

Some business groups watching the talks were tempering expectations for a breakthrough.

With a month to go before the deadline, it was unlikely that either side would put their best offers on the table in the next two days, said Erin Ennis, senior vice president of the U.S.-China Business Council.

“I don’t think there’s going to be any big outcome,” Ennis said of the talks scheduled for Wednesday and Thursday. “Hopefully they make some good progress that will set them up to be able to get to completion at the end of the 90 days.”

But the Chinese side, led by Vice Premier Liu He, would likely have to bring to the table a new offer that goes significantly beyond its previous offers to significantly increase purchases of U.S. goods, including soybeans, energy and manufactured goods.

People familiar with the talks said manufactured goods, a key priority for the Trump administration, were among the largest components of Chinese purchase pledges aimed at significantly reducing the U.S. trade deficit with China. But here, too, there are “no guarantees” that Beijing would follow through on these pledges, one of the people said.

Also hanging over the talks are U.S. indictments against Chinese top telecommunications equipment maker Huawei Technologies Co, accusing it of bank and wire fraud to evade Iran sanctions and conspiring to steal trade secrets from T-Mobile US Inc.

Reporting by David Lawder and Chris Prentice; Additional reporting by Yawen Chen and Ben Blanchard in Beijing; Editing by Leslie Adler & Kim Coghill

Our Standards:The Thomson Reuters Trust Principles.

BBC News - Insolvencies 'highest for seven years'

By Kevin Peachey

Image copyrightPA

The number of people in England and Wales going insolvent due to unmanageable debt hit a seven-year high in 2018, figures show.

Personal insolvencies totalled 115,299, a 16.2% rise on 2017, the Insolvency Service said.

The rise was driven by the use of Individual Voluntary Arrangements (IVAs), which hit a record level.

IVAs are a way to avoid full-blown bankruptcy and the measure means an individual's main assets are protected.

There were 71,034 IVAs last year, an increase of 19.9% on 2017.

There has been concern among debt charities and others that people have been taking out IVAs who do not need them.

"The market for IVAs is dominated by a small number of service providers who are very market savvy and do not wait for people in debt to come to them - they advertise widely and have relationships with other debt advisors who feed them 'hot leads'," said Mark Sands, partner at advisory firm Quantuma.

There were also increases in Debt Relief Orders last year (up 11.2% compared with 2017), and bankruptcies (up 9.8%).

As a result one in 401 adults in England and Wales became insolvent in 2018, compared with one in 466 during 2017.

Types of insolvency

Bankruptcy: This is the most serious option, which involves an official receiver being appointed to sell off your assets to pay your debts. If you own a house or a car you may lose them.

The bankruptcy will affect your credit record for at least six years. But after one year all your debts will be written off. The procedure currently costs £680, but you can pay in instalments.

Individual Voluntary Arrangement: Under an IVA, an insolvency practitioner will help you strike a deal with your creditors, which allows you to pay off your debts over a fixed period - say five years. Once approved, all interest on unsecured debt is frozen.

There is less stigma with an IVA, and a greater chance of you keeping your home.

Debt Relief Order: This form of insolvency, introduced in 2009, is the easiest of all. Your debts must not exceed £20,000. If your application is accepted, your debts will be frozen for one year, then written off. A DRO costs £90.

BBC News - Why China is under pressure to make a trade deal

by Karishma Vaswani

Image copyrightGETTY IMAGES

In Washington this week, the US and China are due to hold their highest level talks since the two sides struck a temporary truce to their trade war.

They have until 1 March to come up with some sort of compromise or tariffs will be hiked again, and we march back into a trade fight that affects us all.

China watchers tell me Beijing is under increasing pressure to make a deal.

Here's why:

A slowing economy

The trade war may not have caused China's slowdown, but it is definitely making things worse.

Growth data released last week showed China posted the slowest growth rate since 1990 but that in itself is not as worrying as other data points, including that consumer sentiment and retail sales are flatlining or weakening fast.

Small and medium-sized companies in China are feeling the chill with lower orders and inventories.

Just how much pressure the Communist Party is facing because of a weakening economy was reflected in a rare acknowledgement by President Xi Jinping, whose legitimacy is based in part in keeping China strong.

Losing its factory lustre?

There is also evidence to show that foreign firms are diversifying their sourcing, production and supply chains away from China, if not pulling out altogether.

This recent survey conducted by QIMA, a leading Asian supply chain auditor, shows that 30% of more than 100 global businesses are diverting their sourcing from China to other countries.

Image copyrightGETTY IMAGES

As many as three-quarters of these companies have started sourcing suppliers in new countries.

If this trend continues then jobs in Chinese factories are at risk - a recent report looking at China's economy by JP Morgan points to rising unemployment as a major near-term risks.

Social stability is predicated on China's economic stability, and the Communist Party is well aware that its credibility lies in delivering the Chinese dream to its people.

The Huawei factor

The fate of Huawei also hangs in the balance, both from a business and diplomatic standpoint.

China is big on symbolism and "doesn't believe in coincidences" Einar Tangen, an advisor on economic affairs for the Chinese government, told me on the line from Beijing.

Mr Tangen pointed to the arrest of Meng Wanzhou, the daughter of Huawei founder, which took place on the day President Xi and US President Donald Trump met at the G20 summit and declared the temporary truce between the two sides, setting the 90 day deadline for talks.

Another date looms next week, with the latest round of talks taking place on the day the US has to file the extradition treaty for Ms Meng.

"Both of these dates are seen as attempts by the US to use Huawei as leverage in the trade talks," says Mr Tangen.

The US is also reportedly preparing an investigation into Huawei which could see it banned from buying American chips, a move that crippled China's ZTE last year.

Image copyrightGETTY IMAGES

Mr Tangen warns that pushing Beijing will backfire.

"The Chinese see this as the US trying to push China down," he says.

"This is not about right or wrong. They view this in context of the 100 years of humiliation they suffered at the hands of the West and they don't want that repeated."

American firms want a deal

But the US is also under pressure to make a deal.

American firms in China have complained about the impact of Trump's tariffs on their business but want the US to make a good deal.

"This administration has been willing to risk the health of the US economy with tariffs," says Stephen Kho, international trade partner at law firm Akin Gump in Washington DC.

"So now that we've come this far, businesses want to take advantage of this moment and walk away from these talks with something significant. They will want to see China's offer to buy more American goods along with promises of systemic changes."

A solution to the US-China trade war is good for us all.

The longer these two superpowers slap tariffs on each other's goods, the more expensive products will be for us, companies will report lower profits, and global growth will slow.

Both sides are under pressure to make a deal. But this is ultimately, as Mr Kho also points out, "a game of chicken." Whoever blinks first could also be the biggest loser.

Reuters News - Senate seeks solution to open government, Trump insists on wall

WASHINGTON (Reuters) - U.S. senators made a new try at ending a partial month-long government shutdown through a temporary funding bill on Thursday, but President Donald Trump demanded a “down payment” for a border wall that Democrats reject.

After the Republican-led Senate failed to advance two measures to reopen shuttered agencies, Democratic and Republican lawmakers spoke on the Senate floor and urged quick passage of a three-week, stopgap funding bill to create time for talks on border security.

White House spokeswoman Sarah Sanders said such a measure would only work “if there is a large down payment on the wall.”

But a spokesman for Senate Democratic leader Chuck Schumer said Senate Democrats had made clear to Republicans that “they will not support funding for the wall.”

Trump, who sparked the shutdown, now in its 34th day, with his demand for $5.7 billion in funding for the U.S.-Mexico border wall, told reporters after the votes in the Senate: “We have no choice but to have a wall or a barrier, and if we don’t have that, it’s just not going to work,” referring to border security.

Trump said that if Schumer and Republican Senate Majority Leader Mitch McConnell come to a “reasonable” agreement to end the partial government shutdown, “I would support it, yes.”

McConnell said late on Thursday that talks were ongoing. “At least we’re talking. I think that’s better than it was before,” he said.

Democratic House of Representatives Speaker Nancy Pelosi said Trump’s demand for a large down payment on a border wall “is not a reasonable agreement.”

The shutdown has left 800,000 federal workers without pay and struggling to make ends meet, as the effects on government services and the economy reverberate nationwide.

Republican Senator Lindsey Graham said he had spoken to Trump about a short-term funding bill.

“All of us believe if we have three weeks with the government open that we could find a way forward to produce a bill that he would sign, that would be good for everybody in the country,” Graham said on the Senate floor. “To my Democratic friends, money for a barrier is required to get this deal done.”

Earlier, a bill backed by Trump to end the shutdown by funding the wall and a separate bill supported by Democrats to reopen shuttered agencies without such funding did not get the votes required to advance in the 100-member chamber.

Trump has touted Republican unity during the longest shutdown in U.S. history, but in a sign of cracks in that resolve, or just a desire for compromise, six Republican senators voted with Democrats on their measure to reopen government agencies temporarily without money for a wall.

They included freshman Senator Mitt Romney, the Republican Party’s 2012 presidential nominee.

“Democrats have said they’re not willing to negotiate unless the government’s open. Well they tried their effort. I voted for it. It didn’t happen. Now they’ve got to negotiate,” Romney said.

‘LET THEM EAT CAKE?’

Pelosi told reporters earlier she was willing to meet with Trump to discuss the shutdown.

Her comments came one day after she essentially withdrew an invitation for Trump to give his State of the Union in the House chamber next Tuesday, saying that would not happen until the shutdown ended. Trump, who had planned to come despite the shutdown and considered giving the speech at another venue, conceded late on Wednesday and said he would deliver the speech in the House in the “near future.”

U.S. Commerce Secretary Wilbur Ross on Thursday urged furloughed federal workers to seek loans to pay their bills while adding in a CNBC interview that he could not understand why they were having trouble getting by.

Pelosi denounced the comments.

“Is this the ‘Let them eat cake’ kind of attitude or ‘Call your father for money?’ or ‘This is character building for you?’” Pelosi asked at a news conference.

She said she did not understand why Ross would make the comment “as hundreds of thousands of men and women are about to miss a second paycheck tomorrow.”

Trump responded to Pelosi, without mentioning Ross.

“Nancy just said she ‘just doesn’t understand why?’ Very simply, without a Wall it all doesn’t work. Our Country has a chance to greatly reduce Crime, Human Trafficking, Gangs and Drugs. Should have been done for decades. We will not Cave!” he said in a tweet.

A Reuters/Ipsos poll last week found more than half of Americans blamed Trump for the shutdown even as he has sought to shift blame to Democrats after saying last month he would be “proud” to close the government for border security.

Reporting by Richard Cowan, Susan Cornwell and Steve Holland; Writing by Jeff Mason; Editing by Bill Trott and Peter Cooney

Our Standards:The Thomson Reuters Trust Principles.

BBC News - Brexit: George Osborne warns of economic Russian Roulette

by Simon Jack

The UK will still be in the European Union after 29 March. That's the most likely outcome, according to former UK Chancellor George Osborne.

Speaking to the BBC at the World Economic Forum, in Davos, he said that his successor Philip Hammond had "sensibly" told British business leaders that leaving with no deal at the end of March was not a possibility.

That would require the government requesting an extension of Article 50 - the process through which the UK leaves the European Union.

He acknowledged, however, that the prime minister had not - and will not - send the same message.

In normal times, a straight shoot out between the PM and the chancellor would very rarely happen - and if it did, the PM would usually win.

But these are not normal times.

Mr Osborne is convinced that after a devastating parliamentary defeat for her own Brexit deal, Prime Minister Theresa May has lost control of a Parliament that will step in to prevent the UK leaving the EU without a deal.

But that is not straightforward.

Russian Roulette

Mr Osborne acknowledged that if MPs do nothing, a no-deal Brexit - which the majority of MPs don't want - would happen.

"It's not enough for there to be a parliamentary majority against no deal - the law of the land says that unless we come up with an alternative, MPs can coalesce around, no deal happens."

Since there is no consensus in the country, the House of Commons, nor the cabinet, about what that looks like, no deal is still a possibility. It's a situation Mr Osborne likens to Russian Roulette.

"Russian Roulette is a game you should never play because there is a one-in-six chance of shooting yourself in the head - and the gun is held to the head of the UK economy," he says.

Mr Osborne is now the editor of the London daily newspaper the Evening Standard.

In recent editorials he has been highly critical of what he sees as Mrs May's instincts to put Conservative Party unity before the national interest.

"When confronted with the fork in the road between no deal and no Brexit, Mrs May knows in her heart which path she will take. She will put party before country."

Different story

Many would argue that Mr Osborne did precisely the same thing as a minister in a government that felt compelled to call a referendum to fend off a UKIP that was attracting increasing numbers of grass roots Tory voters.

In the minds of the foreign political and business leaders in Davos there is still a significant doubt that Brexit will ever happen.

Trade Secretary Liam Fox will arrive in Davos on Wednesday, and he will be telling a very different story.

He will tell global business leaders that the UK is champing at the bit to leave the EU and pursue ambitious and independent free trade deals with the rest of the world.

Mr Osborne insists that leaving the EU is precisely the opposite of free trade.

"There is a very large poster here in Davos - paid for by the British taxpayer - which says that Britain is the home of free trade.

"But we are about to engage in the biggest act of protectionism and anti-free trade in our history by erecting trade barriers with countries like Germany, France and Italy."

Mr Osborne speaks the same language as some members of the cabinet, but not the approved language of the government which insists we leave at the end of March come what may.

He is pretty convinced that won't happen, and he points to the financial markets as evidence he might be right.

According to Mr Osborne, the value of the pound has proved a reasonable barometer of Brexit sentiment.

Perceptions of an increased chance of soft, delayed or even cancelled Brexit usually sees sterling rise. A greater likelihood of leaving without a deal, and it goes down.

Markets have read the politics of the last two-and-a half-years poorly, but lately the pound has been going up.

Bloomberg News - For Black South Africans, Land Seizure Is a Question of Justice

By Antony Sguazzin and Amogelang Mbatha

As the land-seizure debate divides South Africa and threatens to spook investors, for many black citizens the issue isn’t about farming -- it’s about justice.

President Cyril Ramaphosa says his ruling party plans to amend the constitution to permit seizing land without compensation to address the inequities of laws during white-minority rule that at one time put 87 percent of South Africa’s land in the hands of whites. The goal is also to give more black citizens an opportunity to earn a livelihood. Yet, with more than three-fifths of the nation’s 57.7 million people living in cities, many have no desire to farm.

“Land expropriation is important because the land was taken from our forefathers by force,” said Nhlanhla Mahlangu, an unemployed 28-year-old in the Zandspruit slum on the northern outskirts of Johannesburg who plans to stay in the commercial capital. “Some people may prefer money and others, like myself, would prefer a piece of land on which to build our own houses rather than to be living in shacks."

The governing African National Congress says now, 24 years after the end of apartheid, is the time to tackle the land issue. But critics say earlier reform programs it oversaw failed dismally and its renewed focus is a bid to counter the populist Economic Freedom Fighters party before elections scheduled for May. Instead, more should be done to provide adequate housing in rapidly expanding cities, many South Africans say.

Financial Compensation

“People living in urban areas prefer to keep their lives and livelihoods” in cities, said Phumla Kunene, a 32-year-old who works in the freight industry in the southeastern port city of Durban. “Some of them don’t want anything to do with rural areas. Then the best option is financial compensation.”

While some previous attempts to restore land to descendants of its original owners have included the option of payments instead of land, the ANC hasn’t mentioned that possibility in its new drive.

The EFF, which advocates placing all land in state hands, has captured the imagination of many of South Africa’s young people with its demands that everything from land to banks be nationalized to help speed up the transfer of wealth to the black majority.

Rapper Cassper Nyovest had a hit last year with Ksazobalit, a song about black citizens getting back land seized by white colonialists. The music video ends with an initially skeptical Afrikaans-speaking farmer dancing and sharing a meal with fashionably dressed black youths.

One-liners such as “we’ve got the land back” are often used on social media as an expression of approval.

Yet research by the South African Institute of Race Relations showed that only 4 percent of the black South Africans it surveyed placed land reform among the top two issues that government should attend to.

“We are an urbanizing society, and we are a society where opportunities correlate very strongly with skills,” said Terence Corrigan, a researcher at the institute. “Most South Africans see their future secured by a job in a city and a good education for their children.”

Jobs, drug abuse and crime were the top ranking concerns in the survey, and to many observers, the ANC’s land drive presents a threat to the economy. Unemployment is near a record high at 27 percent.

Historical Injustices

“There certainly were historical injustices, but land reform in the agrarian sense is not going to be transformative in solving South Africa’s problems,” said Corrigan. “You need exceptional expertise, funds and goodwill. I see very little of any of that. It has very little to do with socioeconomic problems and far more to do with ideology and politics.”

There’s still little clarity on what most people would do if they were allocated land away from the cities.

“We do need the land, that’s what I know for sure, but we don’t know what we need it for,” said David Makgata, a 24-year-old satellite television technician who lives in Johannesburg’s Alexandra township. “Even if I do get the land, what am I going to do with it.”