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BUSINESS DAY
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NATIONAL NEWS
FT Germany heads for political dogfight...
JPMorgan issues bleak warning on Brexit damage
Continued from page A3 will have to replicate is the ability to carry and deploy US nuclear weapons — one of the core capabilities still provided by the Tornado and its most contentious by far. Defence officials agree there is no time to develop a new plane, meaning the lucrative contract will go to the maker of one of four existing aircraft: the Eurofighter, which is built by a consortium of German, British and Italian groups; or one of three US-made plans — the ultra-modern F-35A (Lightning II), the F-15E (Strike Eagle) or the F/A-18E/F (Super Hornet). The size of the order has yet to be determined but is likely to be worth billions of euros. “This is a real fork in the road,” said François Heisbourg, a French defence analyst. “The decision will impact the future of the nuclear mission, the long-term future of the aerospace industry in Europe as well as defence relations between Germany and America on the one side and Germany and the rest of the Europe on the other.” The politics of the looming decision are delicate in the extreme. At a time when Germany is under attack from President Donald Trump over the level of its defence spending and yawning trade surplus with the US, handing the order to a US company would deliver obvious political rewards. “It would be a sign of goodwill at a very difficult moment in the German-US relationship,” said Christian Mölling, a defence expert at the German Council on Foreign Relations in Berlin. “It would be a symbol for Trump. We could say: ‘Look! We are buying from you!’” Claudia Major, a defence analyst at the German Institute for International and Security Affairs in Berlin, said: “Buying American means hoping for American security guarantees — and it would strengthen the transatlantic relationship.” But the downsides are also clear: buying a US aircraft would make Germany more reliant on the US at a time when doubts over Washington’s commitment to its European allies are on the rise. It would also deliver a severe blow to Europe’s — and Germany’s — defence industry, with potentially grave long-term consequences. Only last year, the French and German governments agreed to build a new fighter plane from scratch, a landmark project dubbed the Future Combat Air System. However, the new aircraft would go into service no earlier than 2035. Without the Eurofighter to keep factories humming in the meantime, the continent’s aerospace industry could end up badly weakened. “A possible order of the Eurofighter would secure the preservation of expertise in military aviation in Germany and Europe. It would also keep value added at home,” a spokesman for the defence ministry in Berlin said. Opting for the Eurofighter, however, has one obvious drawback. One of the pillars of Nato’s nuclear deterrence doctrine is known as “nuclear sharing”. Under this, countries that do not have nuclear weapons provide pilots and aircraft to carry US warheads stationed in their own territory.
Wednesday 11 July 2018
Jamie Dimon says departure has potential to ‘hurt everybody a bit’ MARTIN ARNOLD
J Warren Buffett, founder of PacifiCorp’s parent company Berkshire Hathaway, which could also be excluded by Norway’s $1tn oil fund © Reuters
Norway’s oil fund sells out of Warren Buffett-owned utility Wealth fund pulls investment because of PacifiCorp’s use of coal RICHARD MILNE
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he world’s largest sovereign wealth fund has taken aim at Warren Buffett’s energy companies, excluding one from its portfolio and putting two others under observation because of their use of coal. Norway’s $1tn oil fund has sold out of the bonds of US utility PacifiCorp while it has placed its parent company Berkshire Hathaway Energy and fellow electricity group MidAmerican Energy under observation, meaning that it could exclude them from its portfolio in the future. The actions mark the latest in the oil fund’s ethical investment process that has seen it sell out of more than 100 companies due either to product exclusions — such as from makers of tobacco and nuclear weapons — or those related to conduct such as environmental damage or child labour. The fund is on its fourth round of exclusions for companies that derive more than 30 per cent of their business from coal and the three companies were part of its examination of its fixed-income portfolio
whereas previous exclusions focused on shareholdings. That review also led to the exclusion of Tri-State Generation and Transmission, a US electricity seller. The oil fund owned $164m in bonds in Berkshire Hathaway Energy as of the end of last year, $129m in PacifiCorp, $43m in Tri-State, and $33m in MidAmerican. Among other notable actions announced on Tuesday, the fund also excluded JBS, the world’s largest meatpacker that has been engulfed in corruption allegations in Brazil. It owned $143m worth of shares in JBS at the end of 2017, the last date for which it had disclosed its position. Former JBS chairman Joesley Batista and his brother Wesley, the company’s chief executive, signed plea bargains last year admitting to corruption, including bribing more than 1,800 politicians over several years. The brothers almost brought down President Michel Temer in May 2018 after Joesley submitted a tape to prosecutors in which he allegedly discussed bribes with the Brazilian leader. The oil fund also decided to ex-
clude Luthai Textile, a Chinese owner of clothes factories, for systematic human rights violations while it placed Nien Hsing Textile, a Taiwanese company, under observation for the same reason. Finally, it said it would follow the efforts of Indian chemicals group UPL to rid itself of child labour through its active ownership process for the next five years. The oil fund owns 2.3 per cent of UPL, shares worth $137m at the end of 2017. The fund’s ownership approach is followed closely by many other investors. Among the companies excluded are groups such as Airbus, Boeing, Japan Tobacco, Rio Tinto and Wal Mart. The fund recently laid out the results of its exclusions, saying it had lost out on just under NKr30bn ($3.7bn) in returns since 2006 because of the product exclusions on the likes of coal and nuclear weapons, equivalent to lowering the return by 0.1 percentage points a year for the past decade. But exclusions for bad conduct — such as Duke Energy and Posco for severe environmental damage — had boosted returns by an average of 0.04 percentage points each year.
Deutsche Bank to pay activist shareholder for advice German bank says Cerberus will bring in expertise to boost profitability OLAF STORBECK
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eutsche Bank will pay one of its largest shareholders, the US activist investor Cerberus, for advice on restructuring its operations. A person familiar with the matter told the Financial Times that Cerberus will be restricted in buying or selling Deutsche’s shares while advising the management board. The person stressed, however, that the lender does not see a conflict of interest between the dual role of Cerberus as a shareholder and an adviser to the lender, arguing that the commissioning was similar to “hiring McKinsey”. Deutsche said in a statement on Tuesday: “Bringing in the acknowledged expertise of Cerberus Operations Advisory Company will support us on the path to achieve attractive returns for our investors.” According to a person familiar with the internal deci-
sions at Deutsche, Cerberus had approached Christian Sewing, the bank’s chief executive, and offered its consulting expertise. “Christian thought that’s a good idea,” the person said. Cerberus could not immediately be reached for comment. Cerberus’s advisory role was first reported by the Wall Street Journal. The US activist has made a series of investments in the German banking sector in recent years. It bought its stake of about 3 per cent in Deutsche in November, after taking a 5 per cent stake in Commerzbank, G ermany’s second-largest listed lender, in July last year. Earlier this year, the buyout group teamed up with a consortium of investors including JC Flowers to acquire German lender HSH Nordbank. Discussions between Cerberus and Deutsche about a potential consulting commission
started when John Cryan was still chief executive. The formal decision was taken a few weeks ago by the management board. The lender’s supervisory board was not involved in the matter, according to a person familiar with the internal proceedings. The contract was approved by the lender’s internal legal and compliance department. The Cerberus team that is advising Deutsche will be headed by former JPMorgan banker Matt Zames, who was named president of Cerberus in April and, according to a statement by the investment group then, “will lead a number of strategic investing and operating initiatives, including overseeing all investments in the financial services industry”. Jorg Eigendorf, Deutsche’s head of communications, wrote on Twitter that “by definition, Cerberus hasn’t been activist with us. And for the time being they cannot be — even if they wanted to.”
PMorgan Chase’s chief executive has added to the pressure on UK prime minister Theresa May by warning that Brexit could be “tough for the British people”. Jamie Dimon said the UK economy could suffer such a significant downturn after it leaves the EU that it “will have an impact on global growth, and so Brexit could hurt everybody a bit”. Coming a day after two senior cabinet ministers resigned in protest at Mrs May’s Brexit negotiating plan, Mr Dimon’s comments underline how business leaders are losing patience with the lack of progress in deciding the terms of the UK’s exit from the EU. “We still do not fully understand what Brexit is, its economic effects and how its effects will play out: these are huge question marks that will stay for a long time,” Mr Dimon told the Italian newspaper Il Sole 24 Ore. “I do think that, because of Brexit, some businesses across the financial and manufacturing sectors will be relocating from the UK to other parts of Europe, including Italy,” he said. JPMorgan last week became the latest big bank to begin moving staff out of London ahead of Brexit, telling its UK employees that “several dozen” of them had been “asked to consider relocation from the UK” around the end of this year. Mr Dimon had a message for the new populist Italian government, warning of the dire consequences of attempting to withdraw the country from the eurozone. “Because of the way it has been designed, the European Monetary Union would be hard to reverse without causing catastrophic events,” he said. “This does not mean that Europe should not fix itself. There are many regulatory issues that remain to be solved, and the fact that Brexit happened should make the dialogue between European countries easier.” The JPMorgan boss also had stern words about the potential “bad outcome” of US president Donald Trump’s threats to impose tariffs on imports. “President Trump has been warned about this by the business community in the US,” he said. “The impact of tariffs on trade can offset the benefits that US growth is having from tax reform, but we do not yet know to what extent.” Mr Dimon has previously warned that JPMorgan’s 16,000-strong UK workforce could be reduced by 4,000 after the UK quits the EU. JPMorgan had banking licences in Frankfurt, Dublin and Luxembourg and was adding staff in other locations including Paris, Madrid and Milan, it said in a memo to UK staff last week.