Flash Briefing: Eskom bailout in world headlines; UBS hit with record fine; Glencore caves to activists

By Alec Hogg

In today’s business headlines:

  • The Minutes of last month’s US Federal Reserve interest rate meeting, released yesterday, disclose that members agreed to pause the tightening phase until there is more clarity on emerging risks to economic growth. Analysts picked up that the word “patient” or derivatives thereof appears 14 times in the Minutes. In December, the Fed raised US interest rates by a quarter of a percentage point and indicated that another two increases were likely in 2019. Last month’s meeting was a complete reversal influenced by US/China trade tensions and slowing global economic growth.

 

  • Swiss bank UBS has been fined a record $4.2bn for encouraging wealthy French citizens to evade tax by helping them launder undeclared money. In justifying France’s largest ever fine, the judges described UBS’s crime as “exceptionally serious”. In addition to the fine, the bank has also been ordered to pay $900m to the French government in lieu of lost tax revenue. UBS intends appealing the decision maintaining “the conviction is not supported by any concrete evidence.” The bank added that “the verdict also lacks proof and a credible methodology for the calculation of the fine and damaged.”

 

  • Global miner Glencore, the last major group to swim against an anti-carbon-energy tide, has caved in to pressure from environmental activists. The group said yesterday it would cap coal production at 150m tons a year, up from last year’s 130m tons, but well below the potential capacity. This is a major turnaround for the Swiss-headquartered company run by South African Ivan Glasenberg, as it has been accumulating coal assets while rivals had been exiting. Among recent investments was last year’s acquisition of Rio Tinto’s Australian coal mines for $1.7bn. The announcement brings Glencore into line with evolving views on global warming. In December Royal Dutch Shell became the first major energy company to set targets to reduce the emissions from its products and is aggressively shifting its portfolio from a high carbon footprint of crude oil to natural gas.

 

  • In South African related news, global business publications are giving prominence this morning to the Ramaphosa government’s $5bn Eskom bailout in yesterday’s Budget. Both the Wall Street Journal and London’s Financial Times quoted finance minister Tito Mboweni’s assertion that pouring money into Eskom in its current form is like pouring water into a sieve – emphasising that the biggest ever SA government bailout comes with strict conditions. The publications also pointed out that Moody’s has warned that it would downgrade the country’s debt to junk if Eskom were bailed out without a credible turnaround plan. Moody’s is the last of the big three credit ratings agencies to still rate South African debt at investment grade.