China cuts rates as economy slows; Credit Suisse chairman resigns over Covid-19 breaches – business live | Business

Back in China, new government data has shown its property market slump persisted in December — helping to spur the People’s Bank of China into today’s interest rate cut.

The downturn spanned developers’ sales, investments, land purchasing and financing activities, according to Bloomberg calculations based on full-year government figures released today.

It suggests that weaker demand from homebuyers, and the intensifying credit crunch facing developers, is hitting the sector.

Bloomberg explains:

The woes in December were particularly acute in property investment, which shrank 17% from November and 14% from a year earlier. Such spending directly contributed 13% of gross domestic product last year.

Home sales by value declined 19.6% from a year earlier, a sixth consecutive monthly drop, a signal that investors shouldn’t be cheered by figures released Saturday that showed a narrowing decline in new-home prices.

The FTSE 100 has hit a new two-year high this morning, as it benefits from hopes of an economic recovery from the pandemic.

The blue-chip index has risen by 53 points, or 0.7%, to 7596 points, levels last seen in late January 2020 just before Covid-19 struck.

GSK are still the top riser, after Unilever said its consumer arm would be a ‘strong strategic fit’ after seeing a £50bn deal rejected (see earlier post).

It’s followed by consumer goods company Reckitt Benckiser (+3%), mining company Antofagasta (2.6%), conference organiser Informa (+2.5%). Housebuilder Taylor Wimpey are also higher (+2.5%) after telling investors to expect a share buyback in the coming months after an “excellent” 2021.

Victoria Scholar, head of investment at interactive investor, says:

“European markets have opened on a stronger footing with the healthcare sector outperforming amid M&A speculation.

The FTSE 100 is in an upbeat mood, extending gains after Friday’s positive close with the index close to breaking above the next major resistance hurdle at 7,600 as it inches towards the January 2020 pre-covid peak.”

And a deal for GlaxoSmithKline’s consumer products vision is “very much still on the cards” despite GSK rejecting three offers including the latest £50 billion approach, she adds:

Unilever will have to raise its bid to somewhere around £55 billion and move fast in order to avoid a bidding war from rival private equity buyers who are likely to be eyeing up counter offers.

Large-cap UK stocks mostly missed out on the M&A boom last year. However, this deal would be one of the biggest ever London-listed deals and the largest globally since the start of Covid-19. It would create some attractive synergies between GSK’s consumer health brands and Unilever’s Beauty and Personal Care business, which has suffered a slowdown in sales during the pandemic.”

Shares in healthcare company GSK have jumped 5.5% in early trading after it rebuffed a £50bn takeover offer from Unilever for its consumer healthcare venture.

GSK is the top FTSE 100 riser, after it insisted Unilever’s proposals “fundamentally undervalued” the consumer business and its future prospects.

But Unilever is bookending the other end of the FTSE, falling nearly 6%, as analysts predict it would have to make a higher offer to secure the prize – which Unilever insists this morning would be a good fit with its business.

GSK’s consumer arm owns brands including Panadol painkillers, Sensodyne toothpaste, Tums digestive health products, Otrivin and Theraflu respiratory products and Nicorette nicotine replacement therapy

Over the weekend GSK released new, higher organic sales growth forecasts for its consumer health division, which is a joint venture with Pfizer. It is planning to spin it off, and float on the stock market.

GSK says:

The Board of GSK therefore remains focused on executing its proposed demerger of the Consumer Healthcare business, to create a new independent global category-leading consumer company which, subject to approval from shareholders, is on track to be achieved in mid-2022.

Unilever has confirmed that it approached GSK and Pfizer about a potential acquisition of the business, insisting that the deal would make sense, saying:

GSK Consumer Healthcare is a leader in the attractive consumer health space and would be a strong strategic fit as Unilever continues to re-shape its portfolio.

European stock markets have opened higher at the start of the week.

The FTSE 100, Germany’s DAX and France’s CAC are all up around 0.4%, as investors digest China’s decision to cut a lending rate to stimulate its economy, as growth slows.

Lee Hardman of MUFG Bank, Ltd explains:

The main development overnight has been the decision from the PBoC to provide further stimulus to support growth in China.

The PBoC decided to lower the one-year medium-term lending facility (MLF) rate by a larger than expected 0.10 point to 2.85%. It was the first cut since the initial negative COVID shock hit in April 2020. It follows last month’s decision to lower the one-year loan prime rate (LPR) by 0.05 point.

According to Bloomberg, the decision to lower the MLF rate suggests that the PBoC wants banks to increase lending providing a credit boost to the economy. It appears that the PBoC is now providing more front-loaded policy support to prevent growth from falling significantly below 5.0% this year.

Credit Suisse is proving to be “something of a graveyard” for the reputations of once high-flying international financiers, says Peter Thal Larsen of Breakingviews.

The Swiss bank announced on Monday that Chair António Horta-Osório had stepped down following a board investigation. It’s been less than a year since he arrived to stabilise the lender still reeling from the ousting of former chief executive Tidjane Thiam. New broom Axel Lehmann, a former UBS bigwig, has to hope his reputation is more durable.

Credit Suisse appeared to have scored a bit of a coup last year when it recruited Horta-Osório, who had led the turnaround of Britain’s Lloyds Banking Group following the financial crisis. The Portuguese banker made an immediate impact following his arrival in Zurich, settling a Mozambican scandal, drawing a line under the spying saga that toppled Tidjane, and unveiling a new strategy to shift capital from investment banking to wealth management.

Yet Horta-Osório’s personal conduct appears to have fallen short of the high standards he set for the bank. Early in December he admitted to “unintentionally” breaching Switzerland’s Covid-19 quarantine rules. An internal investigation subsequently found that he had also broken British rules when attending the Wimbledon tennis finals in July, Reuters reported last month. That was hard to square with his desire to improve Credit Suisse’s culture and focus on “personal responsibility and accountability”.

Antonio Horta-Osório, who is well-known in the UK following his time running Lloyds Banking Group, says:

“I have worked hard to return Credit Suisse to a successful course, and I am proud of what we have achieved together in my short time at the bank. Credit Suisse’s strategic realignment will provide for a clear focus on strengthening, simplifying and investing for growth. I am convinced that Credit Suisse is well positioned today and on the right track for the future.

I regret that a number of my personal actions have led to difficulties for the bank and compromised my ability to represent the bank internally and externally.

I therefore believe that my resignation is in the interest of the bank and its stakeholders at this crucial time. I wish my colleagues at Credit Suisse every success for the future.”

Big news in the banking sector this morning: Credit Suisse chairman Antonio Horta-Osório has quit following an internal probe into his personal conduct, following breaches of Covid-19 rules.

Credit Suisse announced that Horta-Osório had resigned after a board investigation, after it emerged he had broken British quarantine rules to attend the Wimbledon tennis finals in London last July.

The Portuguese banker had flown in from Switzerland, which had been on the UK government’s amber list of countries that required arrivals to isolate for 10 days.

Horta-Osório had also admitted breaching Covid rules in Switzerland at the end of November, having flown out of the country within three days of arriving on 28 November, despite being required to quarantine for 10 days.

It’s an embarrassing blow to the embattled lender, which had appointed Horta-Osório less than a year ago.

Credit Suisse incurred heavy losses from the implosion of the Archegos investment fund last year, and also provided funding to the now-collapsed supply chain finance firm Greensill Capital.

Credit Suisse has now appointed board member Axel Lehmann chair, as it tries to recover from this string of scandals.

Severin Schwan, Vice-Chairman and Lead Independent Director of the Board of Credit Suisse, said:

“We respect António’s decision and owe him considerable thanks for his leadership in defining the new strategy, which we will continue to implement over the coming months and years.

Axel Lehmann as the new Chairman, with his extensive international and Swiss industry experience, is ideally suited to drive forward the strategic and cultural transformation of the bank. We wish Axel every success in his new role and António all the best for the future.”

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

China’s economy slowed at the end of last year as the Covid-19 pandemic and the crisis in its property sector hit growth– prompting Beijing to cut a key interest rate.

China’s GDP expanded by 4% year-on-year in October-December, data from the National Bureau of Statistics shows – which is the weakest expansion in 18 months.

For 2021 as a whole, China’s economy expanded by 8.1% – the fastest in a decade – as it recovered from the slump in activity at the start of 2020.

But there are clear signs of a slowdown at the end of the year, as China’s government introduced new restrictions to combat the latest wave of Covid-19.

Retail sales growth slowing sharply to just 1.7% year-on-year in December, down from 3.9%.

Spillovers from the crisis at indebted property developer Evergrande also weighed on China’s economy.

And in response, China’s central bank has cut its key interest rate for the first time in almost two years to help bolster the economy.

The People’s Bank of China has lowered the rate at which it provides one-year loans to banks by 10 basis points — the first reduction since April 2020.

Louis Kuijs, head of Asia economics at Oxford Economics, says:

“Consumption remains the weakest link in China’s growth story at the moment and that will by and large continue for much of this year,” said

“We think Beijing has a bottom line of around 5%. As is the case at the moment, if growth is weaker than that, they’d feel strongly motivated to pursue more policy easing.”

China’s president Xi Jinping will be speaking later today, as part of the Davos Agenda series organised by the World Economic Forum (as the usual Annual Meeting has been postponed again due to the pandemic).

We’ll also get the results of Scotland’s largest-ever auction of permits to construct offshore windfarms, which could raise up to £860m.

The agenda:

• 10am GMT: Scottish auction for offshore windfarm permits results
• 10am GMT: Special Address by Xi Jinping, President of the People’s Republic of China, at Davos Agenda
• 11am GMT: ILO publishes new analysis of labour market and social trends, and impact of Covid-19
• 3pm GMT: Special Address by Narendra Modi, Prime Minister of India, at Davos Agenda
• 4.30pm GMT: Special Address by António Guterres, Secretary-General, United Nations, at Davos Agenda