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Week in Review, August 27

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Week in Review

A round-up of some of the week’s most significant corporate events and news stories.

UBS leads dash to develop new form of digital cash

Four of the world’s biggest banks this week announced that they had teamed up to develop a new form of digital cash that they believe will become an industry standard to clear and settle financial trades over blockchain, the technology underpinning bitcoin, writes Martin Arnold.

Golden coin with Bitcoin symbol in electronic cyberspace. 3D rendered image. Dreamstime©Dreamstime

UBS, the Swiss bank, pioneered the “utility settlement coin” and has now joined with Deutsche Bank, Santander and BNY Mellon — as well as the broker ICAP — to pitch the idea to central banks, aiming for its commercial launch by 2018.

The move is a concrete example of banks co-operating on a specific blockchain technology to harness the power of decentralised computer networks.

“Today trading between banks and institutions is difficult, time-consuming and costly, which is why we all have big back offices,” said Julio Faura, head of R&D and innovation at Santander. “This is about making it more efficient.”

Blockchain technology is a complex set of algorithms that allows so-called cryptocurrencies — including bitcoin — to be traded and verified electronically over a network of computers without a central ledger.

Having initially been sceptical because of worries over fraud, banks are now exploring how they can exploit the technology to speed up back-office settlement systems and free billions in capital tied up supporting trades on global markets.

The total cost to the fina­nce industry of clearing and settling trades is estimated at $65bn-$80bn a year, according to a report last year by consultants Oliver Wyman.

Jawbone falls at legal hurdle in fight against rival Fitbit

In the early days of the wearable-technology market — which is to say, three or four years ago — Fitbit and Jawbone were arch rivals, writes Tim Bradshaw. But while Fitbit has gone on to become the market leader in fitness trackers after listing on the New York Stock Exchange last year, Jawbone has struggled to keep up even as competition grew from Apple and Samsung as well as traditional watch makers such as Fossil.

Jawbone UP24 for Business Life

Jawbone, which saw its valuation cut in half in a financing round in January, argues that Fitbit’s success is ill-gotten. The maker of UP wristbands and Jambox wireless speakers sued Fitbit last year for poaching employees, who it alleges took Jawbone’s trade secrets with them when they left, and for infringing its patents.

It has taken its case to both the US International Trade Commission, which has the power to ban offending products from sale, and to the California courts, where it hopes a jury might hand over “hundreds of millions of dollars” in damages.

Jawbone’s offensive has not had a great start. First, the ITC threw out both Jawbone’s patent case and Fitbit’s countersuit. Then this week, an ITC judge ruled that “no party has been shown to have misappropriated any trade secret”.

Fitbit chief James Park said the ruling showed the allegations were “nothing more than a desperate attempt by Jawbone to disrupt Fitbit’s momentum to compensate for their own lack of success in the market”. Jawbone said it would appeal for a review at the ITC and will press ahead with its California case.

Related Lex note: Fitbit — bearable wearable

VW pays CarTrim €13m after suppliers join forces

Volkswagen has resolved a bitter dispute with two small suppliers that had brought production of Golfs and Passats to a halt by withholding deliveries of parts, writes Patrick McGee.

An employee polishes the bodywork of a Volkswagen e-Golf electric automobile inside the Volkswagen AG (VW) factory in Wolfsburg, Germany, on Friday, May 20, 2016. Volkswagen AG agreed to raise German workers' pay after labor leaders vowed that employees wont foot the multi-billion-euro bill to resolve its diesel-emissions scandal. Photographer: Krisztian Bocsi/Bloomberg©Bloomberg

The dispute comes as VW tries to slash costs and lift profitability following a €1.6bn net loss last year from the diesel emissions scandal.

CarTrim and ES Automobilguss halted deliveries of seat parts and gearbox components this month over a cancelled project.

In June VW pulled out of a €500m order for parts from CarTrim, which demanded €58m in compensation.

After weeks of negotiations VW was still refusing to pay the desired amount, so CarTrim and its sister supplier stopped sending their products.

Interruptions followed at six German plants and after intense negotiations, according to a person briefed on the issue, VW agreed to pay CarTrim €13m.

On Thursday a US judge ordered VW’s lawyers to negotiate a “plan B” in case 85,000 3-litre cars in the US could not be brought up to environmental standards.

Last month Judge Charles Breyer gave preliminary approval to a $15bn settlement involving 0.5m 2-litre cars, which VW agreed to buy back or fix.

VW has always said fixing the bigger cars will be straightforward.

Progress with environmental regulators has been slow, however, so the judge wants a contingency plan ready.

VW also reached an agreement-in-principle — to be presented to the court next month — with US dealers that had sued it for fraud.

Miners promote prudence as China’s economy slows

The world’s biggest mining companies have embraced an age of austerity. That was the message from results this week, as executives lined up to renounce their debt-fuelled expansions of the previous decade and instead laud their ability to cut costs, raise funds and pay down loans, writes David Sheppard.

With China’s economy slowing just as hundreds of billions of mining investments started churning out more copper, coal and iron ore it was not surprising
Glencore, South 32 and Fortescue all wanted to present leaner, more disciplined companies.

For Glencore’s Ivan Glasenberg the conversion has been particularly stark.

Mr Glasenberg said this week he did not even know what mines were up for sale, such was his dedication to reduce a debt pile that had swung Glencore close to the precipice last year.

The miner was now trying to reduce net debt to as low as $16.5bn by the end of the year from almost $30bn 12 months ago, having sold assets, raised capital and cut dividends. Its underlying earnings slipped 13 per cent to $4bn for the first six months but it generated strong cash flows.

Next year the dividend may be reinstated.

For South32, the manganese and coal miner spun out of BHP Billiton last year, there was a similar message even as chief executive Graham Kerr said it may consider smaller deals.

By cutting headcount, the company had preserved cash and was considering a bid for Anglo American’s 40 per cent stake in their manganese joint venture.

“[But] we’re not talking about large-scale M&A where we’re going to lose our credit rating and blow out our balance sheet,” Mr Kerr said.

Australian iron ore miner Fortescue demonstrated why austerity was in fashion. Having cut net debt by more than a quarter to $5.2bn and squeezed costs, it reported full-year net post-tax profits more than doubled to $985m.

Nev Power, chief executive, said they had managed to “more than offset the impact of falling iron ore prices”.

Related Lex note: Glencore — feather in his cap
Lex note: South32 — low roller

Sports Direct faces call to launch independent review

Pressure mounted on Sports Direct this week to launch an independent review of its business and overhaul its board as investors criticised Mike Ashley, the founder of the scandal-hit UK retailer, writes David Oakley.

Sports Direct agency worker conditions...Staff in the warehouse during a tour of the Sports Direct headquarters in Shirebrook, Derbyshire. PRESS ASSOCIATION Photo. Picture date: Monday March 21, 2016. See PA story INDUSTRY SportsDirect. Photo credit should read: Joe Giddens/PA Wire©PA

The FTSE 250 group was urged to launch the review at its annual meeting in Derbyshire next month by the Investor Forum, a corporate governance body that represents asset managers controlling £14.5tn worldwide.

The intervention came in the week the Financial Times revealed that Sports Direct is paying some takings from website customers outside the UK to Barlin, a little-known delivery broker owned by John Ashley. He is the brother of Mike Ashley, who owns 55 per cent of Sports Direct and is deputy executive chairman.

Sports Direct said it had wanted a company outside the group to manage the “complexity” of its international delivery operations and it chose Barlin to take charge of organising deliveries and assume responsibility for certain risks.

Mike Ashley©PA

Mike Ashley

The leading critics of the company and Mike Ashley include four UK asset management groups that together own 8.7 per cent of Sports Direct’s shares.

Standard Life, Aviva Investors, Fidelity International and Legal & General are among Sports Direct’s 12 biggest shareholders, according to Bloomberg.

Sacha Sadan, director of corporate governance at L&G’s asset management arm, said: “We will be voting against the re-election of all non-executive directors to ensure the business is run in the interest of shareholders.”

Related Lombard column: Sports Direct’s choice — reform or a red card.

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