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Deloitte restructures amid dealmaking drought – Industry roundup: 19 March

Deloitte begins internal restructure to cut costs

Deloitte has begun a major internal restructure to cut costs in response to a sluggish market for major consultancy businesses.

In what the Financial Times reports is its biggest reorganisation in a decade the Big Four accountancy firm will reduce its five main business lines to four: audit and assurance; strategy, risk and transactions; technology and transformation; and tax and legal.

“We recently completed a thoughtful process to modernise and simplify Deloitte’s storefront and go-to market strategy,” said a group spokesperson.We are confident this will further enhance the exceptional quality and value we deliver to our clients and communities, as well as the vibrant career paths we provide our people.”

The reorganisation will take a year to implement and is aimed at cutting costs, according to reports.

The shake-up follows the decision by the firm’s global chief executive Joe Ucuzoglu not to follow rival EY in attempting to separate its consulting and audit businesses.

“History is littered with multiple examples of grand aspirations around these types of transactions that I’m sure sounded great and had pretty slide decks, lots of big promises,” Ucuzoglu said last year. “It is easy to get swept up in deal fever but this has actually never once played out as intended.”

Deloitte UK has launched job cuts affecting around 900 staff in recent months in a response to slow demand in areas such as deals and consulting.

The changes come as the £16 billion (US$20.3 billion) UK consulting market faces a year of stagnation for the first time since the outbreak of Covid pandemic in 2020. Sectors including retail, telecoms, pharmaceuticals and manufacturing are all expected to slash spending on consultants, Source Global Research reports.

On the global stage, Deloitte and its Big Four rivals – PwC, KPMG and EY – are also bracing for a slowdown and are cutting jobs in response, following a surge in hiring during the post-pandemic deal boom.

Source Global warns that falling inflation will not be enough to get clients spending again, particularly as the upcoming UK general election creates uncertainty around public spending.

“With clients continuing to adopt a wait-and-see approach to understand where to act if the economy begins to recover, we expect similar levels of hesitancy in 2024,” it notes.

 

Bank of Japan confirms first rate hike since 2007

Japan’s central bank has raised interest rates for the first time since 2007, ending the world’s only negative rates regime and other unconventional policy easing measures enacted since the late 1980s to combat deflation.

The changes mark a historic shift and represent the sharpest pull back in one of the most aggressive monetary easing exercises in the world, which was aimed at reflating prices in the Japanese economy. The move had been predicted by analysts, although some believed that the Bank of Japan (BOJ) might hold off taking action until April. The BOJ announcement comes ahead of the US Federal Reserve’s own interest rate decision later this week.

“The likelihood of inflation stably achieving our target has been heightening ... the likelihood reached a certain threshold that resulted in today’s decision,” BOJ Governor Kazuo Ueda said at a press conference after the central bank’s decision, according to a translation provided by Reuters.

The Bank also stressed that it is not about to embark on aggressive rate hikes, saying that it “anticipates that accommodative financial conditions will be maintained for the time being,” given the fragile growth in the world’s fourth-largest economy.

“If the likelihood heightens further and trend inflation accelerates a bit more, that will lead to a further increase in short-term rates,” Ueda said. He added though there is still “some distance for inflation expectations to reach 2%.”

The BOJ raised its short-term interest rates to around 0% to 0.1% from -0.1% at the end of its two-day March policy meeting. Japan’s negative rates regime had been in place since 2016.

It also abolished its radical yield curve control policy for Japanese sovereign bonds, which the central bank has employed to target longer-term interest rates by buying and selling bonds as necessary.

The central bank though will, however, continue purchasing government bonds worth “broadly the same amount” as before — currently about yen (JPY) 6 trillion (US$39.9 billion) per month.

It would resort to “nimble responses” in the form of increased JGB purchases and fixed-rate purchases of JGBs, among other things, if there is a rapid rise in long-term interest rates.

Scaling back its asset purchases and quantitative easing, the BOJ said it would stop buying exchange-traded funds and Japan real estate investment trusts (J-REITS). It also pledged to slowly reduce its purchases of commercial paper and corporate bonds and intends to end this practice in about a year.

“As for the future, we will at some point eye shrinking our balance sheet given we’ve ended our extraordinary monetary easing. But we can’t specify now when that will happen,” Ueda told reporters.

He described the BOJ’s JGB and exchange-traded funds (ETF) holdings as “remnants of the extraordinary monetary easing scheme,” but deferred questions on the impact of the central bank’s unorthodox policies until an ongoing review is completed.

 

Unilever loses appetite for ice cream

Unilever announced that it will separate its ice cream business in a bid to create a leaner business The group’s near-US$8 billion turnover ice cream division includes the Magnum, Wall’s and Ben and Jerry’s brands.

The UK-based consumer goods multinational plans for the separation of the business from the rest of Unilever to be completed by the end of 2025. Around 7,500 jobs will be affected by the ‘growth plan

The decision comes as Unilever, one of the world’s largest fast-moving consumer goods (FMCGs) companies, is ramping up what it calls its growth action plan in a bid to streamline operations and focus on its core strengths. It has also launched a major productivity programme.

Chief executive Hein Schumacher has been under pressure since taking the job last July to turn around a business largely felt to be underperforming, with a share price slump to match. The news announcement saw the stock rising over 5% when the market opened on Tuesday.

In an update, the company said: “The Unilever Board is confident that the future growth potential of Ice Cream will be better delivered under a different ownership structure.

“Ice Cream has distinct characteristics compared with Unilever’s other operating businesses. These include a supply chain and point of sale that support frozen goods, a different channel landscape, more seasonality, and greater capital intensity.”

The separation of the ice cream business will allow Unilever, it said, to become a more focused company, operating across four main business groups: Beauty & Wellbeing; Personal Care; Home Care; and Nutrition. The productivity programme is expected to drive €800 million (US$867 million) in total cost savings over the next three years through investment in technology, and offset any operational disruptions resulting from the separation of the ice cream business.

Although the company has hinted at a demerger, all separation routes are still possible according to Matt Britzman, equity analyst at financial services company Hargreaves Lansdown. “The company has hinted at a demerger, but all separation routes remain on the table at this stage as it looks to maximise shareholder value. At the same time, there’ll be a new cost-cutting programme over the next three years that aims to more than offset the impact of losing Ice Cream,” he commented.

“Action is what shareholders wanted to see from the new team at the top, and that’s what’s been delivered today. Ice Cream always looked like the odd one out when you compare it to other product lines, and performance has struggled of late. It’s not a huge shock to see this move, but it’s something prior management wasn’t able to deliver. Unilever’s not an overly expensive name at the minute so expect markets to react positively to the news, perhaps more due to the decisive action than anything else.”

 

Marks & Spencer and HSBC plan to create banking and loyalty ‘superapp’

UK retailing multinational Marks & Spencer and HSBC are drawing up plans to announce a new seven-year deal within weeks of supermarket chains Sainsbury’s and Tesco announcing plans to exit the banking sector, according to recent reports.

M&S is thought to be close to a deal with the UK ‘Big Four’ bank to overhaul its banking arm as a financial services and loyalty ‘superapp’. HSBC’s UK arm owns M&S Bank and the new long-term relationship agreement that will pave the way for an overhaul of the business.

M&S Bank has more than three million customers, offering personal loans, travel insurance, store payment cards and a buy now pay later (BNPL) credit product. Reports suggest that the long-running talks between M&S and HSBC had focused on concluding a deal before the expiry of their current contract in the coming weeks.

According to one inside source, a public announcement is expected to be made about elements of the revised partnership next month.

M&S's long-term aim, they said, was to establish a 'superapp' encompassing payments, financial services and the retailer's Sparks loyalty programme.

One possibility could involve it taking an ownership position in due course, although the likelihood of that is not yet clear.

 

EU backs law against forced labour in supply chains

European Union (EU) countries have reached a consensus on a law mandating companies to ensure that their supply chains do not contribute to environmental degradation or exploit forced labour.

Seventeen of the EU’s 27 member states confirmed their support for the legislation last Friday, with no votes cast in opposition. although the agreement was only achieved after significant alterations were made to the original proposal.

Critics contend that the legislation has been watered down to the extent that its effectiveness is now doubtful.

The Corporate Sustainability Due Diligence Directive (CSDDD) will require European businesses to furnish documentation proving that the products they import adhere to environmental and human rights standards, including the prohibition of child labour. They will also be required to mitigate or prevent potential harm and communicate their findings.

However, concessions made during weeks of negotiations have resulted in only larger enterprises, those with 1,000 employees or more and a net turnover of at least €450 million (US$489 million), being impacted. Initially, the proposal aimed at firms with 500 employees or more and a revenue of €150 million.

The draft legislation must secure approval from the European Parliament to pass into law, a step widely anticipated to receive endorsement from Members of the European Parliament (MEPs). Subsequently, businesses will be allotted time to integrate the new protocols.

The green light for the draft legislation follows two unsuccessful attempts in February to garner approval within the bloc. Countries that objected to the original text included Germany and Italy, apprehensive of its potential adverse effects on their sizable populations of small and medium-sized enterprises (SMEs). There were also apprehensions that companies might relocate from the EU due to bureaucratic hurdles and legal risks.

Markus Beyrer, Director General of the lobby group BusinessEurope, expressed concerns that the new regulations would impose unprecedented obligations, harsh penalties, and expose companies unilaterally to litigation worldwide. He added that European companies with extensive global operations would be disadvantaged compared to their international counterparts.

 

Future of Equator Principles initiative uncertain

The future of the Equator Principles Project - one of the longest-standing environmental and social market-based frameworks – remains in doubt after four of the world’s biggest banks confirmed their exit earlier this month.

According to the Equator Principles’ website, Citi, Bank of America, Wells Fargo and JPMorgan Chase have voluntarily left as signatories to the principles this year. The four US banks say that recent changes to the project’s governance model and a desire to make independent business decisions not bound by “third-party dictates or approvals” had guided their decisions. 

Four other banks — Sumitomo-Mitsui Corporation, Bank of Chongqing, Chongqing Rural Commercial Bank, Bank of Jiangsu — have also exited.

Set up by the banking industry in 2003, the Equator Principles is a set of global standards to help firms identify, assess and manage potentially adverse impacts created by large infrastructure and industrial projects. They ensure that projects financed by member banks are developed in a socially responsible way with sound environmental management— after changes to the organisation’s governance structure and signatory rules.

The recent departures raise questions not only about the future of the group as a global standard, but about whether US. banks will continue to uphold the policies from outside. It also comes as many US financial institutions face political pressure from Republicans around their environmental, social, and governance (ESG) financing. The names of the departing banks have been removed from the Equator Principles list, which includes 10 standards for aspects of projects ranging from initial due diligence to grievance mechanisms.

 

Klarna offers open banking to UK customers

Sweden’s payments fintech Klarna has begun offering open banking-powered settlements in the UK as part of efforts to reduce its reliance on Visa and Mastercard.

According to an inside source, initially the move will help Klarna cut costs because bank payments are cheaper than accepting Visa and Mastercard’s products. Longer term, the product will help the fintech create a stronger alternative to the payment giants’ networks.

“The launch means consumers can now pay Klarna directly from their bank account instead of using a debit card, bypassing card networks and marking a major milestone in Klarna’s ambition to build a payments network of the future,” the company said..

A news release claimed that the launch gives open banking a major boost in the UK, where Klarna has 18 million customers in a country where around five million consumers make open banking payments per month.

“Open banking offers a huge opportunity for Klarna to reduce the cost of payments to society by cutting out the established card payment networks, and using up-to-date bank account data to make ever better lending decisions,” said Wilko Klaassen, Klarna’s vice president for open banking. “This new launch builds on the success we have seen in 10 countries across Europe and will give UK open banking a major boost.” 

To make payments, Klarna users click “Pay by bank” which takes them to their mobile banking app to complete the payment. The company said linking bank accounts to its platform offers consumers insights into their spending and other budgeting tools.

“Plus, sharing bank data can help Klarna lend money more wisely, using the consumer’s real spending habits, to ensure that Klarna’s lending decisions are an exact fit with the consumer’s budget,” the company said.

 

EU pledges €7.4 billion in aid to Egypt

The European Union (EU) has announced a €7.4 billion (US$8.02  billion) funding package and an upgraded relationship with Egypt as part of moves to stem migrant flows to Europe criticised by rights groups.

The agreement lifts the EU’s relationship with Egypt to a “strategic partnership” and was unveiled as a delegation of leaders visited Cairo. It is designed to boost cooperation in areas including renewable energy, trade and security, while delivering grants, loans and other funding over the next three years to revive Egypt’s economy. 

The proposed funding includes €5 billion in concessional loans and €1.8 billion of investments, according to a summary published by the EU. Another €600 million would be provided in grants, including €200 million for managing migration.

Such deals were “the best way to address migratory flows”, said Italian Prime MinisterGiorgia Meloni, who travelled to Cairo alongside EU Commission President Ursula von der Leyen, the Greek, Austrian and Belgian prime ministers, and the Cypriot president.

European governments have long been worried about the risk of instability in Egypt, a country of 106 million people that has been struggling to raise foreign currency and where economic adversity has pushed increasing numbers to migrate.

Annual Inflation rose to 35.7% in February and many Egyptians say they struggle to get by. Over the past month, however, financial pressure has eased as Egypt struck a record deal for Emirati investment, expanded its programme with the International Monetary Fund (IMF) and sharply devalued its currency.

 

Broadridge rolls out futures and options SaaS platform

Broadridge Financial Solutions has launched a global futures and options software-as-a-service (SaaS) platform, designed to transform order and execution management capabilities for sell-side institutions and expand its existing derivatives trading capabilities. 

According to a press release from the fintech, the new platform will enable the delivery of new functionalities for global institutions operating in the futures and options agency execution business and offers a “distributed architecture that enables operations from any jurisdiction and benefitting from Broadridge’s broader multi-asset class trading and operations offering”.

The platform aims to address the “fragmented experiences for buy-side clients and challenges for sell-side firms in gaining a comprehensive view of trading activity and risk management” by enabling the latter to customise each workflow channel while ensuring a consistent experience for the former. It also integrates workflows and data with automation with the aim of facilitating regulatory changes and enabling greater transparency and utilisation of analytics.

In a statement, Ray Tierney, who is responsible for the management and growth of Broadridge’s trading and connectivity solutions, said: “While existing systems often lack the flexibility required, Broadridge’s Futures and Options platform stands out for its modular and flexible deployment capability, addressing industry demands head-on.

“We strongly believe this fully hosted solution is a significant step change in order and execution management for the derivatives markets, helping firms simplify and optimise trading.”

 

Chile’s Andean Wide chooses Bitso Business for cross-border payments

International payments technology platform Andean Wide has chosen Bitso Business — the Bitso B2B segment supporting cross-border payments technology — as its infrastructure solutions provider “to apply blockchain technology and expand its cross-border offerings with greater efficiency.”

Andean Wide is a Chilean company that mainly “serves other businesses, import-export companies and freelancers in the southern cone, offering them collection and payment services to support their international expansion and enable them to send and receive money to or from other territories.”

The project with Bitso will enable Andean Wide’s operation to “have an impact on companies and retailers in Argentina, Brazil, Colombia, Mexico, among other markets, and it plans to continue expanding its services progressively to other countries.”

José Chávez, CEO of Andean Wide, said: “We chose Bitso because of the level of its services, reputation and, above all, the innovation in the technological solutions they have provided us with. The work we have done together allows us to offer Andean Wide clients new technological tools that optimise their operations and drive their expansion, which is key to boosting business development in Latin America.”

Gabriele Zuliani, Director of Bitso Business added: “The case of Andean Wide is the perfect example of a company that demonstrates how blockchain technologies are useful and can help facilitate cross-border digital payments.”

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