Closing summary: Rees-Mogg's investment firm to close
The investment fund co-founded by Tory politicians Jacob Rees-Mogg and Dominic Johnson is to close after losing one of its biggest clients.
It is unclear whether Rees-Mogg, who co-founded the fund in 2007 and remains a minority shareholder, will have effectively made a loss on his stake as a result, reports the Guardian’s Kalyeena Makortoff.
The Tory MP is reported to have pocketed at least £7.5m in dividends from Somerset since the EU referendum in 2016, including £500,000 in 2022. He also received about £15,000 a month from the firm on top of his MP’s pay until 2019, when he became a minister under Boris Johnson.
Here are some of the other business news highlights from today:
Spanish economy minister Nadia Calviño is likely to be the next president of the European Investment Bank, one of the most important jobs in the EU, it has emerged.
One of Spotify’s top executives cashed in more than $9m (£7.2m) in shares as the value of the world’s biggest music streaming service surged after it announced it was laying off almost a fifth of its workforce to cut costs.
McDonald’s is launching a new kind of restaurant, CosMc’s, a retro-style store with treats and customisable drinks including “s’mores cold brew”, “churro frappes” and “turmeric latte” that could rival chains such as Starbucks.
The BBC licence fee will rise by £10.50 to £169.50 a year, the culture secretary, Lucy Frazer, has confirmed.
UK house prices rose by 0.5% in November, according to data from lender Halifax.
South East Water, which left thousands of customers without running water this summer, has paid out dividends of £2.25m over six months while overseeing increased losses of £18.1m before tax.
The billionaire British hedge fund manager Sir Chris Hohn paid himself $346m (£276m) this year – more than £1m for every working day.
You can continue to follow our live coverage from around the world:
In the UK, Rishi Sunak defends Rwanda asylum policy as Tory split deepens
In our coverage of the UK coronavirus inquiry, Boris Johnson says no scientists attended meetings about “eat out to help out” scheme before it launched
In our Europe coverage, Greece and Turkey sign 15 deals during ‘groundbreaking’ Erdoğan visit to Athens
In the US, the DNC chair calls Republican debate ‘chaotic, petty and pathetic’
In our coverage of the Israel-Hamas war, 350 Palestinians killed in last 24 hours, Gaza health ministry says
In our coverage of the Russia-Ukraine war, nearly 20,000 children deported to Russia, Ukraine’s human rights commissioner says
Thank you for following our live coverage of business, economics and financial markets. Please do join us tomorrow for more. JJ
Spain's economy minister frontrunner for European Investment Bank say diplomats
Spanish economy minister Nadia Calviño is likely to be the next president of the European Investment Bank, one of the most important jobs in the EU, it has emerged.
Despite a late decision by Italy to back Denmark’s Margrethe Vestager, who left her job as a European commissioner to join the contest, Calviño remains the favourite in the impending selection involving votes by each member state, diplomats say.
The role will be discussed by finance ministers who are meeting in Brussels tomorrow. “It looks quite good for her, she is the frontrunner,” said one diplomat. The person added:
Italy alone will not be able to blow this up.
Either way it will mean that three of the top four international banking jobs will be held by women. The European Central Bank is headed by Christine Lagarde and Kristalina Georgieva is in situ as managing director of the International Monetary Fund.
The bulk of Elon Musk’s wealth is tied up in his share in Tesla, the electric car company he took over and grew into the world’s most valuable. But he has other irons in the fire.
Bloomberg reports that one of those, rocket company SpaceX, is to be valued at $175bn (£139bn) in its latest investment round.
It said the company could sell shares worth between $500m and $750m. That would be a premium to the previous valuation of $150bn in a fundraising during the summer.
SpaceX has upended the global space industry, pushing down the cost of rocket launches dramatically and building a pioneering low-earth-orbit constellation of satellites.
Musk is also the owner of X, the social network formerly known as Twitter, and the foudner of xAI, a company aiming to rival the likes of OpenAI and Meta in building artificial intelligence.
SpaceX did not respond to requests for comment, Bloomberg reported.
McDonald’s is launching a new kind of restaurant, CosMc’s, a retro-style store with treats and customisable drinks including “s’mores cold brew”, “churro frappes” and “turmeric latte” that could rival chains such as Starbucks.
The fast food company said it would open its first pilot site in a Chicago suburb near its headquarters this month, as part of efforts to “solve the 3pm slump”, when it gets fewer customers between the lunch and dinner rush.
The proposed menu features of a range of speciality lemonades, blended drinks and teas, with flavours such as “popping pear slush” and “tropical spiceade” that can be customised with tapioca pearls, flavoured syrups and energy or vitamin C shots.
You can read the full report here:
Sadly it appears that our prediction of wildly spraying champagne English sparkling wine did not come true at the listing of Chapel Down this morning.
But the company – occasionally described as a purveyor of “Brexit juice” – did at least have a moment in the London Stock Exchange lobby this morning, according to these pictures:
It was an honour for us to open the market at @LSEplc this morning, marking Chapel Down plc’s admission to the AIM market. pic.twitter.com/fejwYrBrLF
— Chapel Down (@ChapelDownWines) December 7, 2023
(It should be noted at this point that Jacob Rees-Mogg has claimed the mantle of “Brexit juice” for his Somerset-grown cider, rather than English sparkling wine.)
Somerset Capital Management’s funds had bet more money on Chinese companies than some of their rivals, the Financial Times reported. That hurt its performance as the world’s second-largest economy faltered.
The below graph shows the performance of the MI Somerset Global Emerging Markets fund collated by Trustnet. It shows how the Somerset fund (in blue) has been below a benchmark comprising other emerging markets funds (in green).
Underperforming a benchmark is a sure-fire way to have clients ask why they are paying expensive fees.
Jacob Rees-Mogg is not the only Tory politician involved with Somerset Capital: his co-founder Dominic Johnson stepped down as chief executive last year to serve as a minister under Liz Truss. He is now Rishi Sunak’s minister for investment.
Somerset Capital specialised in investing in so-called emerging markets – poorer countries. Investors have to balance the opportunities for economic growth with potential issues such as a shaky rule of law.
The firm was able to attract major clients, garnering assets under management of as much as $10bn (£8bn) at its peak. However, that had fallen to $3.5bn by November.
That left St James’s Place as its key client. When it withdrew $2.5bn it reportedly left Somerset with relatively high costs compared with its assets under management. Hedge funds or investment funds tend to take a percentage of assets as a management fee each year, so big outflows can be very financially damaging.
The Financial Times reports that: “SJP’s exit unsettled remaining clients, which include the State Board of Administration of Florida and the Civil Service Superannuation Board of Manitoba in Canada.”
Updated
Somerset Capital Management came under closer scrutiny than most investment funds because of Jacob Rees-Mogg’s part-ownership.
Sometimes the right-wing Conservative MP’s views appeared at odds with the views of the company. In 2018 Somerset described Brexit as a financial risk in a prospectus to a new fund it launched, at a time when Rees-Mogg was among the most prominent proponents of a “hard” Brexit in which the UK left the EU’s single market – a path that the Conservative government eventually chose.
The Guardian has previously reported that Somerset Capital Management was an investor in oil and coal mining. Rees-Mogg has been an advocate of continued extraction of fossil fuels.
Updated
Hedge fund co-founded by Jacob Rees-Mogg to close
The hedge fund co-founded by Conservative MP Jacob Rees-Mogg is set to wind down after its biggest client left.
Somerset Capital Management lost about £2bn in assets from its largest client, St James’s Place, leaving it managing only about £1bn, a level that is generally considered small in institutional hedge fund terms.
The firm said it was “closing its wider institutional business in London”.
Rees-Mogg co-founded the firm in 2007, and was actively involved for several years. He stopped receiving wages in 2019 when he became a minister under then prime minister Boris Johnson, but continued to receive dividends as an equity partner, including an estimated £500,000 for 2022.
Somerset had held talks about a potential sale of the firm valued at between £70m and £100m, but those fell through at the end of 2022.
Somerset’s UK funds and their managers were trying to find a new home that would allow them to retain the existing fund and third-party infrastructure, the firm said.
Oliver Crawley, a partner at Somerset, said:
It has been a privilege to manage capital for world-leading institutions and clients for over 16 years. I am incredibly proud of all we have achieved in that time through the hard work and skill of our dedicated team.
The current teams have delivered strong performance for their investors and continue to do so. We hope a transition can be secured which we believe will give the funds a bright future.
The Financial Conduct Authority is getting the wheels in motion to ensure there is “reasonable access to cash” for personal and business customers across the UK.
The consultation comes months after the government promise in August that it would introduce rules that would guarantee cash access within three miles of customers’ local communities.
While the new rules won’t prevent bank branch closures, the proposals will force high street banks and building societies to:
Launch cash access “assessments” when they make any changes or closures, to understand whether new services are needed to fill local gaps.
Respond to requests from local residents, community organisations and representatives to consider, assess and plug those gaps.
Deliver “reasonable additional cash services” if gaps are left by those changes.
Ensure they do not close cash facilities, including bank branches, until those gaps are closed.
Sheldon Mills, the FCA’s director in charge of consumers and competition said:
We know that, while there is an increasing shift to digital payments, over 3m consumers still rely on cash – particularly people who may be vulnerable – as well as many small businesses. It’s important that we support consumers impacted by recent innovations.
These proposals set out how banks and building societies will need to assess and plug gaps in local cash provision. This will help manage the pace of change and ensure that people can continue to access cash if they need it.
The consultation will run until 8 February.
Australian oil and gas companies in talks over £42bn merger
Two of Australia’s biggest fossil fuel producers are in talks to merge, in a potential A$80bn (£42bn) deal.
Woodside Energy and Santos are worth A$57bn, while Santos is valued at A$22bn.
In a stock market announcement in response to “media speculation” (it’s hardly “speculation” if it’s accurate), Woodside said:
Discussions remain confidential and incomplete, and there is no certainty that the discussions will lead to a transaction.
It would not be the first oil mega-merger in the last few years, as companies try to get as big as possible to stay profitable as the world tries to cut oil and gas use.
ExxonMobil bought US driller Pioneer in October, while Chevron bought smaller rival Hess.
The UK’s big three financial regulators are consulting on new powers to oversee so-called critical third parties because of the potential risks to financial stability.
The Bank of England, its Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) said that managing the risks from third parties was “beyond the ability of any individual firm” or infrastructure provider to solve.
Sam Woods, the Bank of England’s deputy governor for prudential regulation and chief executive of the PRA, said:
Third-party service providers often play a vital role in the delivery of important services by banks and insurers. These arrangements bring benefits, but also potential risks. We are consulting today on proposals to implement new powers given to us by parliament to manage these risks for those providers who could present risks to financial stability, in an effective and proportionate way.
Halifax has said the UK’s chronic housing shortage is the reason for the increase in prices in November. For an insight into why this is the case, looking at bricks is a handy trick.
Noble Francis, economics director at the Construction Products Association, highlighted government data on brick deliveries that suggest that housebuilding is well below the pre-pandemic average.
UK brick deliveries are a useful proxy for house building starts in the absence of monthly starts data. UK brick deliveries in October 2023 were 1.5% higher than September & 27.6% lower than a year ago according to the Department for Business & Trade. (1/n)#ukhousing #housing pic.twitter.com/7YCIZcSHiM
— Noble Francis (@NobleFrancis) December 7, 2023
He said that the decline in brick deliveries “is in line with the negative views of housebuilders, who stated that summer was poor, September did not have the usual pick up and October was only a marginal improvement.”
Britain’s houses are ageing, and the UK is not building anywhere near the numbers government has said it wants to.
Hedge fund boss pays himself £276m
The billionaire British hedge fund manager Sir Chris Hohn paid himself $346m (£276m) this year – more than £1m for every working day.
However, the payout from his TCI hedge fund, where Rishi Sunak worked between 2006 and 2009, is half the £574m Hohn collected a year earlier.
The dividend payment was reduced to reflect a 48% decline in pre-tax profits at TCI Fund Management to $371m in the year to February 2023 but is still 8,000 times the average UK salary and about 1,700 times that collected by Sunak as prime minister.
The £276m payment works out at £1.1m for every working day of the year. Accounts filed at Companies House on Thursday show the money was paid to another company controlled by Hohn. It is understood that Hohn reinvested the windfall in the Children’s Investment (TCI).
You can read the full report on “the UK’s most generous man” here:
Accountant KPMG is planning to merge its UK and Swiss units in a move it hopes would allow it to grow faster.
KPMG UK had started talks with the Swiss unit to explore working together closely to benefit clients and partners, Jon Holt, CEO of KPMG UK, told Reuters in an emailed statement. It confirmed a report in the Financial Times.
Together, we would grow faster, be more profitable and do so in a sustainable way.
All night summits on key policies are one of the weirder EU traditions: there are not many walks of life where it is generally agreed that the only way to get things done is to trap people in a room for hours until they compromise in the small hours.
The wrangle going on at the moment is on the issue du jour: artificial intelligence.
Reuters has some reported some good details from the talks, which have gone on for more than 17 hours without getting to meaty topics such as the use of AI in biometric surveillance, and who can access source code for models.
There is a broken drinks machine, and food and coffee ran out at 2am, Reuters reported. There is, however, “a provisional deal on how to regulate fast-growing generative AI systems such as ChatGPT”.
A press conference has been rescheduled from 7am to 2pm CET, so maybe we will hear more later.
South East Water pays investors £2.3m despite losses increasing
South East Water has paid out £2.3m in dividends to investors even as losses for its half year increased to £18m.
The company, which serves about 2.2m households and businesses in Surrey, Kent, Sussex, Hampshire and Berkshire, is under investigation by Ofwat, the regulator, over poor service to customers.
South East Water’s dividend was lower than the £4.5m paid out a year earlier and the company said it was “lower than Ofwat’s view of what is a reasonable nominal dividend yield”.
At the same time, increased financing costs pushed South East Water’s losses to £18m in the six months to the end of September, up from £13m last year. Customers paid £15m in higher tariffs.
Ofwat last month announced an investigation into South East Water’s possible failures in maintaining the supply to households, after the company blamed increased working from home in the south-east of England for a hosepipe ban.
In a statement reported by PA Media, South East Water’s bosses said:
Unprecedented extreme weather events were the cause of the majority of supply interruptions, but we appreciate that problems experienced by our customers will result in lower levels of customer satisfaction.
We are deeply sorry to customers who have been affected by supply interruptions and continue to work tirelessly to recover. We have 52 teams actively repairing leaks, and 40 technicians proactively looking for them.
The disruption brought extra costs. The company paid £700,000 for bottled water to help customers with no tap water.
Corks are undoubtedly popping* this morning at the London Stock Exchange as English sparkling winemaker Chapel Down – the UK’s largest – lists its shares there.
The company has benefited in recent years from increased interest in wines from the British Isles – not least from the UK government, which has been keen to promote “Brexit juice” as an alternative to European vintages.
Chapel Down already had its shares listed on Acquis, a smaller rival exchange. However, Andrew Carter, the company’s chief executive, said the shift to the LSE’s Alternative Investment Market (Aim) “reflects the maturity of the business and the ambitious growth plan we are committed to delivering in the years ahead.”
Chapel Down says it owns, leases and sources from 1,023 acres of vineyards in south east England, of which 750 acres are fully productive, making it the largest wine producer in the UK. The company sold 1.4m bottles of wine in 2022.
Carter said:
We believe that a move to AIM will attract a wider pool of investors to participate in Chapel Down’s growth as the leading producer in the world’s newest global wine region and as we continue to pursue our well progressed and fully funded plan to double the size of the business in the five years to 2026.
In November we confirmed a record 2023 harvest, with tonnage 86% higher than 2022 and 75% higher than the previous record posted in 2018.
*Thanks to a colleague for this one
Updated
Frasers warns over up-market sales, but Sports Direct boosts profits
Frasers Group has warned of “softening in the global luxury market” as underlying sales at its up-market division, which includes House of Fraser department stores and the Flannels chain, dived more than 11%.
Michael Murray, the chief executive of Frasers, which also includes Sports Direct, Evans Cycles and gaming retailer Game UK, said sales of luxury goods had been partly affected by the cost of living crisis but said the group would “continue to invest with confidence in our unique proposition, although it is likely that progress will remain subdued for the short to medium term in the face of a softer luxury market.”
Frasers, which is controlled by former Newcastle United owner Mike Ashley who owns more than 72% of its stock, opened 20 more of its Flannels stores, which sell designer casualwear, taking the total to 76. However, it closed five House of Fraser stores, taking the total to 29, half the number the group bought out of administration in 2018.
Murray, the former club promoter and property adviser who took the reins from father-in-law Ashley in May last year, said he was gaining further experience of working in retail by spending time serving at Sports Direct’s Oxford Street flagship in London – which is opposite the group’s base in the capital.
Total sales for the group’s luxury division rose 3.1%, helped by the acquisition of 37 stores and a suite of 15 brands, including former Oasis frontman Liam Gallagher’s Pretty Green and 1980s brand Tessuti, from JD Sports a year ago. The group said it had seen “positive demand due to our unique proposition” despite the softer luxury market.
Total retail sales rose 4% to almost £2.7bn, behind inflation, but pre-tax profits rose 8% as the company boosted profit margins at its Sports Direct chain as a result of better relationships with brands such as Nike, which are now providing the chain with more of their most sought after products.
Updated
Europe’s main stock indices have dropped back, following Wall Street and Asian declines.
London’s FTSE 100 is down by 0.4% in the first few minutes of trading, while Germany’s Dax and France’s Cac 40 are both down by 0.2%.
Here are the opening snaps from Reuters:
EUROPE’S STOXX 600 DOWN 0.2%
BRITAIN’S FTSE 100 DOWN 0.3%
FRANCE’S CAC 40 DOWN 0.2%, SPAIN’S IBEX DOWN 0.2%
EURO STOXX INDEX DOWN 0.2%; EURO ZONE BLUE CHIPS DOWN 0.2%
GERMANY’S DAX DOWN 0.2%
UK house prices up 0.5% in November; Aldi raises minimum rate to £12 per hour
Good morning, and welcome to our live, rolling coverage of business, economics and financial markets.
First up this morning: UK house prices rose for the second consecutive month in November, defying a limping economy because of a shortage of homes, according to the latest data from lender Halifax.
The average price of houses tracked by the lender increased by 0.5% in November – or £1,394 in cash terms – to £283,615.
That means that the average is still lower than a year ago, but only by 1%. The chart shows that the pace of annual price drops is slowing:
Kim Kinnaird, director at Halifax Mortgages, said:
Over the last year, despite the wider economic headwinds, property prices have held up better than expected, falling by a relatively modest -1.0% on an annual basis, and still some £40,000 above pre-pandemic levels.
The resilience seen in house prices during 2023 continues to be underpinned by a shortage of properties available, rather than any significant strengthening of buyer demand. That said, recent figures for mortgage approvals suggest a slight uptick in activity levels, which is likely as a result of an improving picture on affordability for homebuyers. With mortgage rates starting to ease slightly, this may be leading to increased buyer confidence, seeing people more inclined to push ahead with their home purchases.
However, the economic conditions remain uncertain, making it hard to assess the extent to which market activity will be maintained. Other pressures – like inflation, the broader cost of living, overall employment rates and affordability – mean we expect to see downward pressure on house prices into next year.
Aldi raises pay for workers to £12 minimum
Aldi has raised the minimum pay for workers in its shops and warehouses to £12 per hour, in a sign of the competition for workers in the UK amid low unemployment.
The new minimum rate increases to £13.55 within the M25 to account for a higher cost of living in London. Store assistants’ pay will rise to £12.95 nationally, and £13.85 within the M25, according to length of service.
Aldi said the change means it is the first supermarket to offer rates in line with the real living wage that was set by the Living Wage Foundation in October this year. The changes will cost £67m annually, Aldi said.
Aldi is the UK’s fourth-largest supermarket after overtaking Morrisons last year for the first time. It has more than 1,000 stores, 11 regional distribution centres and 40,000 workers across Britain.
Giles Hurley, chief executive of Aldi UK and Ireland, said the company was “committed to being the highest-paying supermarket in the sector.”
The agenda
10am BST: Eurozone GDP third estimate (Q3; previous: 0.2%; consensus: -0.1%)
1:30pm BST: US initial jobless claims (December; prev.: 218,000; cons.: 222,000)
