Back on the ECB, here’s a bit more detail on those building financial stability risks.
Low interest rates – designed by central bankers to stimulate spending – have had the knock-on effect of making it more difficult for investors to make returns on their money. That has pushed investors outside the heavily regulated banking sector to look for returns, or yield, elsewhere.
The ECB said:
The ongoing search for yield across non-banks may exacerbate the build-up of vulnerabilities, not least by lowering financing costs for riskier borrowers.
If markets do fall significantly investment funds, including hedge funds, could exacerbate any instability if they rush to sell assets that are difficult to sell, the ECB said.
Funds invested in illiquid assets can face severe difficulties in dealing with large-scale outflows. Higher leverage, for example in hedge funds, can add to procyclical investor behaviour and accelerate outflows.
The following chart shows the build-up in riskier bets. In the left-hand chart the two rings represent the credit ratings of companies in 2007 and 2018. The growth in high-yield debt (the yellow portion) is particularly striking; “high yield” is another way of saying riskier, in comparison to debt given safer A or B ratings.
The right-hand side of the chart shows the growth in house prices across the euro area – another tell-tale sign of a growing bubble.
An interesting story from the Financial Times (£) this morning for watchers of the UK’s most systemically important bank: HSBC is reportedly set to replace its investment banking head.
Interim head Noel Quinn took over in August with a remit to cut thousands of staff, after his predecessor John Flint was ejected after barely 18 months in the job – reportedly for moving too slowly on improving returns. Now the shake-up could extend to the top of the bank.
The FT said that Samir Assaf, head of global banking and markets, is expected to be moved to a non-executive role to allow a successor in who could shrink the unit serving the fundraising needs of large companies, citing people briefed on the matter.
The top riser anywhere on the FTSE 350 is Mitchells and Butlers, the restaurant owners bucking the struggles of many other consumer-facing companies (cf. Kingfisher today).
The owner of brands such as Harvester, Toby Carvery and Nicholson’s pubs reported like-for-like sales growth of 3.5% for the year ending 28 September. It increased adjusted operating profits by £14m, or 4%, and revenues and profits before tax also rose.
It even managed to cut net debt (although it is still 3.6 times earnings before interest, tax, depreciation and amortisation).
Phil Urban, the company’s chief executive, said:
These strong results reflect the work we have done over the last few years, first to build sustained sales growth and then to convert that into profit growth. It has been extremely encouraging to see an improvement in like-for-like sales growth across the portfolio during the year, fuelled by our Ignite programme of work.
This puts us in a stronger position as we move forward into the next financial year, in what we expect to remain challenging market conditions.
Just Eat has published the offer documents from Takeaway.com, meaning that the British tech firm will be acquired by the Dutch firm by 31 January if 75% of shareholders back the bid.
The Takeaway.com offer, worth £4.7bn, is up against an unsolicited bid by Prosus, an arm of South African firm Naspers.
Jitse Groen, chief executive of Takeaway.com, said:
Today we are taking an important step towards the creation of what we believe will be the world’s leading online food delivery company.
However, Just Eat’s shares are trading at a premium to the offer, indicating that investors are hoping for a better bid.