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Weekly Review: Loopholes, cuts and firms going bust

Ben Weiss, Friday, 26 June 2020

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It’s been a hot, hot few days, but economies are still feeling the cold bite of the coronavirus. And this week the markets have been busier than Bournemouth beach, with plenty of volatility occuring. Predictably, firms have continued to struggle and there have been some more big casualties this week. Here’s everything you might have missed from the markets.

Royal Mail cut 2,000 managerial jobs

It’s been a turbulent few months for Royal Mail, not least because of the pandemic. The trend of fewer letters, but more parcels being sent has been intensified by the current situation, causing a further strain on their operations. That has not been helped by Royal Mail’s now former boss departing unexpectedly last month.

Now, in an attempt to save a reported £130 million, it will lay off 2,000 employees in managerial positions (predominantly from roles in IT and finance), accounting for one fifth of all managers at the company.

There may be more hostility within to come as well, with the next battle said to be with those working on the frontline, delivering the packages and letters. However, the increase in demand for deliveries of parcels means a mass layoff of postmen and women is unlikely.

Tesco boss bonus loophole

In a similar situation, we’d probably all do the same thing. But we’re not millionaires receiving bonuses that are 50 times more than the average wage. We’re normal people, with normal jobs annoyed because we don’t sleep in an air-conditioned mansion and have to battle this heatwave with an open window and a £1 fan from Primark - so we have the right to criticise.

Criticise? Criticise what exactly? Last year’s pay for Tesco’s bosses was boosted as the executives at the supermarket chain moved the goalposts in their favour. Ocado is a huge challenger in the industry, and with its market share increasing, Tesco’s fell. This meant Tesco was deemed to have underperformed - thus impacting bonuses. This was bypassed, however, by simply removing Ocado’s rise from the equation, citing the online supermarket as a ‘technology business’ and therefore not a direct competitor. The loophole meant Tesco instead overperformed based on previous expectations as Ocado’s increasing market share was disregarded.

Regardless, the bonus which came in the form of millions of pounds worth of additional shares, is somewhat justified given the remarkable job boss Dave Lewis has done in turning the company around. He will depart this summer after six years at the helm, with Tesco’s share price currently at £2.28.

UK Car production plunges 95%

Cars are one of the UK’s most prosperous exports, but the coronavirus has badly impacted the industry. Despite a slight rise in production units in May, the total number of cars made in the UK fell 95% compared to the same month last year.

Showrooms have opened now in June, but it’s still expected that sales will be slow. Not only is there the threat of a second wave of the pandemic once again limiting production, but consumers are also expected to be overwhelmingly cautious with their spending for at least the rest of 2020. Many have been put out of work or have had to fall back on savings, meaning splashing out on a new car is down on the list of their priorities.

Given the emphasis on foreign consumption as well within the automobile industry, how other nations deal with the pandemic is also going to be relevant. China and the US in particular have been large purchasers of UK cars recently, and with a second wave prominent in both these areas, that could be something to consider when determining how the industry might recover in the UK.

First sitting DAX stock to ever go bust

Just a week after it ‘misplaced’ £1.7 billion, German and DAX company Wirecard has filed for insolvency. It’s the first time a firm listed on the country’s main index, Germany 30, has gone bust, doing so just two years after being added.

Unsurprisingly, the share price of the payments firm has not so much fallen, but more nosedived at 100 mph and is down nearly 98%. As of the 18 June this year, its price was over €101, but at the time of writing it’s now at a pitiful €1.86.
Wirecard

Even the most optimistic of bulls would admit there is little value in the stock even now. The end might be nigh.

UK’s biggest shopping-centre owner falls ‘Intu’ administration

Intu, owner of several shopping centres across the country such as Lakeside (Essex) and the Trafford Centre (Manchester), has fallen into administration. It comes as retail tenants of its centers paid considerably lower rent prices as shops shut during the pandemic.

The firm itself only employs fewer than 3,000 people, but there are over 100,000 people employed across its many sites in the UK. They will remain open and the firm has said operations will run as normal.

Its share-price fall has been colossal to say the least. A mere three years ago, Intu Properties was trading at £2.81. It’s now down to just 1.8p. 

US jobless claims

And finally, the latest report for the US unemployment rate was a rare piece of positive news that sent optimism through the markets. With multiple announcements and data releases reaffirming the negative impact of the pandemic, the fall in unemployment to 13.3% (significantly beating expectations) was a welcome relief.

However, similar economic salvation has not come from the past two US jobless claims figures. Yesterday, it was reported that an additional 1.48 million unemployment benefits were claimed, surpassing estimates by 160,000. These figures have brought markets back down to earth after a temporary boost, and going forward jobless claims should be followed closely as they provide a more accurate representation of economic performance - given they’re updated weekly.

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