Commercial Awareness Update - June 2019

[Alice G]

Hi everyone!

Welcome to the first commercial news update for June! We are still trying to keep our stories a little bit shorter and snappier for you all but do let us know what you think!

Happy reading!

Commercial News Update – 5th June 2019

Topics covered this week:

1. Trump’s ‘Substantial Trade Deal’ with the UK @Jaysen
2. The Google Antitrust Investigation @Moni
3. Trump’s Tariffs on Mexico @Alice G
4. Italy’s Debt @Sara Moon

Trump’s “Substantial Trade Deal” with the UK @Jaysen

The Story:

President Trump called the UK-US special relationship the “greatest alliance the world has ever known” on day two of his state visit to the UK. The US president’s comments came during a joint press conference with Theresa May in which both leaders speculated on a trade deal between the UK and the US post-Brexit.

Impact on Businesses and Law Firms:

Ahead of his arrival to the UK, Trump weighed in on Brexit, suggesting the UK should just “walk away” from the EU. His comments didn’t help the financial markets, which dread the prospect of a no-deal Brexit. Uncertainty scares investors because it’s hard to price in risk and predict future earnings. It’s why last month the pound fell against the euro for 11 consecutive days, matching the record it set just before the financial crisis

However, Trump’s promise to strike a “very, very substantial trade deal” with the UK could offer new opportunities for businesses. Lower tariffs, as well as looser trading rules and investment restrictions, may increase imports and exports (especially for key UK-US exports in chemicals, machinery and vehicles) and lead to more investment.

Suppose, as a result of a UK-US trade deal, US businesses find it easier to acquire UK firms or that UK investors have an easier time raising finance from US lenders. Commercial law firms that are positioned on both sides of the Atlantic will be well prepared to deal with a rise in transactional work. Those that are not may struggle to break into the very competitive legal markets.

Yet, despite all the promise, there are also many doubts and concerns over a UK-US trade deal. The UK prime minister won’t be leader for much longer, both countries are arguing over Huawei and there is no guarantee a trade deal will be agreed -- will Donald Trump be re-elected? What if we don’t have a hard Brexit? Do we prefer regulatory alignment with the US or the EU?

The Google Antitrust Investigation @Moni

The Story:

On Monday 3rd June, several of the world’s largest technology companies, including Google, Facebook and Apple, saw their stocks tumble as reports circulated that the Justice Department, Federal Trade Commission and US House of Representatives were preparing sweeping antitrust investigations into large tech companies.

Alphabet Inc stocks tumbled 6% following the report that the Justice Department would investigate Google’s search practices and its other businesses. While the Justice Department has yet to provide confirmation, the report stated that the department’s antitrust division has been laying the groundwork for the probe. Alphabet is one of the world’s five largest companies by market capitalization and is a major player in the advertising market. In addition to Google, the Justice Department and Federal Trade Commission will also be investigating Facebook, Amazon and Apple. Investor concerns were further stoked when, less than a day later, it was reported that House Democrats will be launching a separate “top-to-bottom” antitrust investigation of the tech industry.

The investigations mark a turning point in a longstanding antitrust conversation regarding tech companies within the US, and it comes at a point where tech companies are under the spotlight regarding their role in the economy, politics and society more broadly. Depending on their outcomes, these antitrust investigations could leave the companies open to new regulatory scrutiny and lawsuits.

Impact on Businesses and Law Firms:

By investigating these tech giants, the federal government is taking on some of the world’s most popular companies which have spent the last decade building up their relationships in Washington. Google survived a previous investigation by the Federal Trade Commission who said that while they had concerns about anti-competitive behaviour, the company also had strong pro-competitive justifications for its actions. However, the investigations are being instigated on the back of several successful investigations by the European Union and at a particularly heated time in the political cycle. The decline in stock prices is an indicator that investors are not willing to shrug off the possibility of regulatory and legal scrutiny. The outcomes and nature of these investigations, especially the DoJ and FTC investigations, will largely shape the relationship between big tech and Washington for several years to come.

 

[Alice G]

Trump’s Tariffs on Mexico @Alice G

The Story:

On 30th May, President Trump announced his intentions to impose a 5% tariff on Mexican imports into the USA effective from 10th June. He has also declared that he will increase the tariffs by 5% each month until 31st October, when the tariffs would reach 25%, unless Mexico halts the movement of migrants across the Southern border of the USA.

Impact on Businesses and Law Firms:

In a recent article, ‘The Economist’ reported that two-thirds of Mexican imports into the USA ‘are between related parties, where one partner owns at least 10% of the other’. This means that tariffs will be especially damaging to closely integrated supply chains. The exact impact of this for law firms is still too early to tell. Unlike the US-China Trade War which has been raging for many months now, it is unclear how long tariffs might be imposed for. If this begins to look like a long-term issue between the two nations, then businesses may look to reorganise their supply chains which corporate lawyers would oversee to ensure that contracts reflect the changes made and that businesses are making tax efficient decisions.

Analysts have also expressed concern about the impact this might have on the ratification of the United States-Mexico-Canada Agreement (USMCA), a trade deal between the three nations. Trump was actually supposed to stop threatening Mexico with tariffs upon agreeing to the USMCA. This not only shows another example of untrustworthiness but marks a potentially huge step backwards for free trade between the nations. The agreement had hoped to increase growth in the automotive sector and made provisions for the trade of intellectual property too. All this now hangs in the balance which will have negative impacts across many industries. Lawyers would be drafted in to navigate new and more effective deals between companies in order to guarantee growth and development, should the trade deal falter.

Italy’s Debt @Sara Moon

The Story:

Last Wednesday, Brussels wrote a letter to Rome expressing concerns over Italy’s failure to reduce debt since 2018. The European Commission is obliged to write warnings to eurozone governments if the level of debt rises above 60% of GDP. Italy’s debt has continuously risen since 2017: it rose from 131.4% of GDP in 2017 to 132.2% of GDP in 2018, and this level is expected to rise to 133.7% this year and to 135.2% in 2020 according to the European Commission. Italy is currently recording the lowest growth rate within the eurozone and is second to Greece for national debt.

However, the right-wing League party’s victory in the recent European parliamentary elections seems to have triggered anti-Brussels rhetoric. Matteo Salvini, the country’s deputy prime minister and leader of the party, has promised to cut taxes to boost the economy instead of cutting expenditure and raising taxes to reduce debt. Such measures are expected to cause Brussels to initiate a disciplinary procedure, or to impose economic sanctions if necessary, to require Italy to raise taxes and cut expenditure.

Impact on Businesses and Law Firms:

Italy’s policy of increasing government borrowing and spending has not led to greater economic growth, as the government expected, and has only produced huge public debt. Italy’s economic stagnation has meant that business conditions in the country have deteriorated. For example, the Italian manufacturing industry has been shrinking for eight months in a row. Moreover, if the EU proceeds with disciplinary procedures to force Italy to increase taxes, this will increase the financial burden on companies by increasing the cost of borrowing. This may cause greater business restructurings and insolvencies, although it will help the government reduce public debts. This potential increase in business restructurings and insolvencies within the country will increase the volume of work for the corporate departments within law firms

 

[Deleted member 970]

Really like the shorter commercial awareness updates - brilliant read, thank you!

 

[Alice G]

Really like the shorter commercial awareness updates - brilliant read, thank you!

That’s so wonderful to hear and thank you for sharing with us, we really appreciate it! So glad you enjoyed this week’s pieces

 

[Jaysen]

Hi All,

Welcome to the next commercial news update.

Happy reading!

Commercial News Update – 12th June 2019

Topics covered this week:

1. Beyond Meat’s Share Price (by @bugsy malone)
2. US-Mexico Tariffs (by @Moni)
3. India’s Slow Economic Growth (by @Sara Moon)
4. Philip Green and Arcadia (by @Alice G)
5. YouTube’s Crackdown on Hate Speech (by @Jaysen)

Beyond Meat’s Share Price (by @bugsy malone )

The story

This year Beyond Meat was the first plant-based meat company to publicly list. Its share price has been unbelievably strong, up 21% since its first day listing (starting at $25 and now around $114). It is one of the best performing IPOs of 2019 so far. With analysts projecting a $100 billion plant-based market over the next 15 years, it is no wonder the IPO has caught so much investor attention.

Impact on businesses and law firms

Beyond Meat’s IPO raised $240 million. This financial power has allowed Beyond Meat to expand its retail and restaurant partnerships, as well as its plans for production in Europe. This will help them to compete with rivals such as Impossible Foods, which have agreed a distribution deal with Burger King. Additionally, Tyson Foods (one of the US’s largest meat producers) recently sold its 6.5% stake in Beyond Meat to partner with Nestle and produce their own plant-based meats.

A legal movement against companies using terms such as ‘meat’ and ‘burger’ to describe plant-based products is growing. The US have passed bills in Missouri, Arkansas and elsewhere against such terms being used. In April the European Parliament’s agriculture committee passed a measure to prohibit makers of vegetarian meat alternatives from using marketing terms such as “burger” and “steak”. This is a win for farmers and established meat producers but presents challenges for companies, as mentioned above. Beyond Meat now sees the movement as a legitimate threat to how it does business and have appointed new General Counsel. It is unclear whether such laws could affect Beyond Meat’s own name. Alternatively, Impossible Foods’ CEO has argued its plant-based products are actually meat because “it is more about the experience people have when eating it, than how the product is made”.

Plant-based meat companies will need assistance from commercial law firms to negotiate deals, such as the distribution agreement between Impossible Foods and Burger King, and to help navigate through regulation. It will be interesting to see whether global authorities continue to adopt such regulation in favour of conventional meat producers.

US-Mexico Tariffs (by @Moni)

The story

Last Month, Donald Trump threatened 5% tariffs on Mexican goods that would go into effect on June 10th unless Mexico “stopped sending” undocumented migrants to the United States. The threats brought Mexico back to the table and on Friday both countries announced that a deal had been struck and the tariffs had been suspended indefinitely. This was celebrated as a win in Mexico, even before the content of the deal was revealed. Following the announcement Trump tweeted that he was pleased that Mexico would take “strong measures” towards stemming the inflow of migrants from Central America. These measures include the expansion of “Remain in Mexico” a scheme that forces migrants to wait in Mexico while their claims for asylum In the US are processed and an agreement from Mexico to deploy 6,000 troops of its newly national guard to two states to stop migrants and people-smugglers.

Impact on businesses and law firms

Trump’s threat of tariffs was a novel threat that came at an interesting time for the United States, Mexico and markets globally. President Trump is in the middle of a heated battle over his border wall in the US and in some ways, he is attempting to use Mexico as the wall he has so far failed to build. Although the deal presents a small win for Trump, many argue that it is simply an acceleration of plans that were already in motion. For Andrés Manuel Lòpez Obrador. the President of Mexico, Trump’s threats were a difficult and unwelcome challenge that threatened to cast a shadow on the early stages of his presidency.

The peso tumbled following Trump’s initial tweets and is yet to recover completely following the announcement of the deal. US stocks also tumbled following the announcement of potential tariffs and rallied slightly when they were called off. The market reaction suggests that investors are expecting a return to conflict, which is unsurprising given that Donald Trump has shown significant willingness to impose tariffs on key trading partners despite the potential damage to US companies. Given that Mexico is a key trading partner for the US, any potential tariffs could have significant ramifications for companies in the region. Moreover, it could have significant ramifications for the USMCA, the trade deal that is expected to replace NAFTA and affect some of the world’s largest companies.

India’s Slow Economic Growth (by @Sara Moon)

The story

India lost its ‘world’s fastest-growing economy’ title after recording a GDP growth of 5.8% in the first quarter of 2019, the slowest growth in two years. The growth rate declined from 6.6% in the previous quarter and is lower than the 6.4% growth recorded by China in the same period. The reasons for the slow economic growth were a fall in domestic demand, which the Indian economy heavily relies on, and a fall in investment. In response to the unsatisfactory economic growth, the Reserve Bank of India (RBI) cut the interest rate from 6% to 5.75%.

Impact on businesses and law firms:

India has been heavily relying on its domestic market for economic growth and it has been the recently re-elected Prime Minister Narendra Modi’s policy to protect this market. Domestic demand is indeed crucial especially in the current economic situation, where the US-China trade war is creating uncertainties in global trade. However, with India’s domestic demand falling, it seems necessary for the country to increase foreign investments and exports to cushion poor domestic market outlook. With government recently admitting that the mistaken economic policy has led to the economic crisis, it seems like there may be greater attempt by the country to connect with the world market in the near future. This will include, among other things, establishing transparent regulations and dispute settlement mechanisms. This then may attract greater foreign investment and bring cases to law firms with departments specialising in emerging markets. This is because foreign companies attempting to invest in, merge with, or acquire Indian companies must comply with necessary domestic regulations.

 

[Jaysen]

Philip Green and Arcadia (by @Alice G)

The story

Sir Philip Green, Chairman of the Arcadia Group, is desperately trying to salvage his retail empire with a complex restructuring that includes seven interlinked insolvency procedures known as Company Voluntary Arrangements (CVAs). CVAs allow businesses to reach agreements with their creditors to pay off part or all of their debt.

The proposal by Green is to close 50 of his 570 stores in the UK and for the landlords of his stores to take rent cuts, which has caused a great deal of controversy. Green has had to revise the percentage of the rent cuts he originally demanded in the hope of securing approval in a vote on 12th June. The Pensions Regulator and Pensions Protection Fund have already backed Green’s restructuring plans after the Greens committed to adding a further £100 million to Arcadia’s pension fund to protect their employees.

Impact on businesses and law firms:

The landlords involved in the restructuring are hesitant largely due to fears that if they accept the rent cuts proposed in the Arcadia CVA then other retail tenants will start demanding the same treatment. The retail industry as a whole is under significant strain, especially since online retailing began to boom; Landlords can hardly afford to accommodate all of the demands and are also anxious of setting a dangerous precedent.

Law firms are integral to the restructuring process involved in businesses. Lawyers acting for the Arcadia Group will be there to ensure the CVA is a success and that all the relevant documents are in order for the revised terms that may result from CVA approvals.

Law firms are also heavily involved when it comes to pensions and employment. Lawyers will have been drafted in to to ensure that employees are protected and to ensure compliance with the rules of the UK’s Pensions Regulator.

YouTube’s Crackdown on Hate Speech (by @Jaysen)

The story

Last Wednesday, YouTube said it was updating its hate speech policy by banning videos that promote one group as superior to another to “justify discrimination, segregation or exclusion based on qualities like age, gender, race, caste, religion, sexual orientation or veteran status”.

The video-sharing website, which is owned by Google, will also remove videos that deny “well-documented violent events” such as the Holocaust.

Impact on businesses and law firms:

For many years, Facebook and Google have evaded the law, arguing they are neutral platforms to deflect responsibility for the content posted on their sites. However, recent privacy scandals, and the spread of fake news and violent content, has led to a global push to regulate social media companies.

Earlier this year, Australia passed laws that could lead to fines and prison sentences for social media companies if they do not quickly remove “abhorrent violent material”. In addition, Singapore introduced legislation designed to tackle fake news, while new rules in India allows the government to order platforms to remove posts within 24 hours. Both the UK and French governments also proposed establishing an independent body with powers to regulate social media companies.

The recent crackdowns on hateful content may be attempts by Facebook, Google and Twitter to get ahead before more onerous regulations are imposed. However, as these companies take a more active role in banning content, they have also been heavily criticised for censoring free speech. As the law tries to catch up with the rise of Big Tech, it will be up to commercial law firms to help social media companies navigate this grey area.

 

[Angel]

Hi everyone!

Welcome to this week's commercial news update!

Commercial News Update – 19th June 2019

The topics for this week are:

1. Monzo’s US Launch (by @Sairah)
2. Deustche's bad bank report (@Moni)
3. London-Shanghai Stock Connect (@Jaysen)
4. Hong Kong’s Protest (@Angel)
________________________________________________________________________________________________________________________________________________________________

Monzo’s US Launch (@Sairah)

The Story:

Last Thursday, Monzo (one of the UK’s most well-known fintech start-ups) announced its expansion in the United States. The digital online-banking app which currently holds two million customers in the UK, will initially start up by holding sign-up events in Los Angeles for its couple thousand debit cards. To help with the US launch, Monzo has partnered with Ohio-based domestic lender, Sutton Bank.

Despite its success in the UK, Monzo’s launch in the US will be a slow one. This is because the “lighter version” of the US mobile-banking app will not support popular features like Apple Pay or cash or check deposits. Also, American customers may not be able to fully trust Monzo at first if their banking services are not officially licensed and regulated in the US.

Impact on Businesses and Law Firms:

Monzo will be entering a $7 trillion financial services sector meaning its expansion in the US will be a challenging venture. It will be up against America’s “big four” banks:

JP Morgan Chase, Citigroup, Wells Fargo and Bank of America. In addition, Monzo will need to comply with both federal and state laws in the US. However, a new entrant like Monzo could prove a success in the long-term by promising customers a better ‘digital’ customer experience, shifting away from the US retail-banking market’s traditional practices.

Since 2015, Monzo has caught the interest of many venture capital investors. It has raised over £200 million from investors including Accel, Thrive Capital and General Catalyst. Recently, Monzo reached its unicorn status (a start-up company valued at over £1 billion) following its recent round of funding last year. Due to the demand of neo-banks like Monzo, traditional banks are becoming under pressure to invest in FinTech solutions. This will provide more opportunities for law firms, as they will be placed to act for financial institutions such as advising on shared licenses with FinTech start-ups or even theacquisitions of start-ups This would expand the services provided by law firms in not only FinTech, but also IP and M&A.
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Deustche's bad bank report (@Moni)

The Story

This week Deutsche Bank announced plans for a major restructuring including an overhaul of its trading operations by creating a ‘bad bank’ to hold ~ €50 billion euros of non-core assets, comprising mainly of long-dated derivatives. The restructuring will also include shrinking or shutting equity and rates trading businesses. Deutsche has struggled to generate profits since the financial crisis and its recent attempt at a merger with Commerzbank failed in April. The most recent plan appears to be part of the ‘tough cutbacks” CEO Christian Sewing recently promised shareholders. Deutsche has already made shifts to focus on more stable forms of revenue, and the cuts to its trading businesses are a further step in that direction. Moreover, the bank said that the measures are aimed improving its “sustainable profitability”. The CEO is expected to announce further measures in July, likely around the next earnings announcement.

Impact on Business and Law Firms

Investors appear to view the report as a positive step forward, as Deutsche shares which have recently traded at record lows, were up 2% following the announcement. Overall it represents a shift away from more risky investment banking to mainstream banking management. Although Deutsche’s largest presence is in Germany, the shift could entail job losses in the UK and the US, where the bank has almost 20,000 employees in total. Deutsche previously slashed 7,000 jobs, many of which were located in London. If the measures are successful, they could be the turning point for a major financial institution who has suffered from a drastic fall from grace since 2008. However, despite the positive stock market response, some bank analysts argue that the plan is not enough and that it leaves Germany’s largest lender exposed to material losses that could ultimately lead to intervention by the ECB.

 

[Angel]

London-Shanghai Stock Connect (@Jaysen)

The story

After four years of preparations, the Shanghai-London Stock Connect launched on Monday.

Foreign companies can now list in mainland China for the first time.

The programme allows Chinese companies to raise money via the London Stock Exchange, while companies listed in Britain can sell existing shares to Chinese investors*.

Impact on businesses and law firms

The London-Shanghai Stock Connect is a message from Britain that London will not lose its place as a leading financial centre post-Brexit.

It’s also a message from China that its markets will continue to open up despite its trade war with the US and slowing economic growth. The country has sought to demonstrate this commitment by increasing investor protections and opening up more sectors for investment.

It’s not easy for law firms to break into China. There are cultural differences, strict government regulations and pressures on fees. It’s also very competitive; there were 174 international law firms in China in 2012. Guess how many Chinese law firms were registered in China in 2012? 19,361.

But a presence in China benefits a firm's brand and prestige. It sends a signal to the market that they are trulya global law firm. The move also attracts foreign clients looking to invest in China; they’ll need a law firm to walk them through the process, negotiate with Chinese counsel, comply with tough regulatory restrictions and protect their intellectual property.

There’s also promise for the foreign law firms that are able to form relationships with Chinese companies early. Over the coming decades, China’s outbound investment will rise as it moves away from an economy driven by cheap manufacturing towards technology and innovation. Foreign law firms have a competitive advantage here. They are global and they understand how deals are done in Western markets. They know deal structures and how to negotiate M&A documents. That’s attractive to Chinese businesses that want to go global.

*This is through trading depositary receipts, which represent shares in a company. You can read more about how this works here: https://www.thecorporatelawacademy....-nowhere-a-guide-to-chinas-financial-markets/
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Hong Kong’s Protest (@Angel)

The Story

Last week, Hong Kong were swarmed by one of the largest demonstrations the country has ever experienced. The chief purpose of the protest is to demand the HK government to withdraw a controversial extradition bill that allows criminal suspects to be extradited to mainland China, Taiwan or Macau. This puts Hong Kong residents at the risk of being entrapped in China’s legal system. This is a concern because, to say the least, China is a country whose commitments to human rights are notexactly transparent or globally popular.

Impact on businesses and law firms

Protests (especially one as significant as this) can be classed as a form of geopolitical risk to businesses and investors. It is the risk that the calculated returns of an investment may be affected by some unforeseen instability or political changes in the country invested.

The commercial consequences of the protests included the instant plummeting of share prices on the Hang Seng Index, the need for businesses to close stores temporarily while the demonstrations took place, and the fact that workers from all industries were encouraged by trade unions to miss work. Taken together, these consequences can add up to gravely retard the country’s economy- which further exacerbates the tension between the protestors and the government. This is a threat to HK’s reputation as an international financial hub because investors will refrain themselves from getting involved with the country’s business affairs until they are confident that matters are sufficiently stable and predictable.

At the time of writing, the protests did convey sufficient pressure on the government to decide suspending the controversial bill. Such news immediately lifted commercial confidence, and the HSI rose. However, the matter is likely to be far from being settled. What the HK citizens want is not just for the bill to be suspended, but to abolished completely. Perhaps, the only certain thing for now is that commercial lawyers will be busy analysing possible legal measures to protect their clients’ businesses.

 

[Sara Moon]

Hi everyone!

Welcome to this week's commercial news update!

Commercial News Update – 26th June 2019

The topics for this week are:

1. Facebook’s Global Cryptocurrency (by @Sairah)
2. US-Iran Tensions (@Moni)
3. Slack’s Unconventional Listing (@Jaysen)
4. The Federal Reserve and Interest Rates (@Alice G)
5. European Central Bank's Effort to Stimulate the European Economy (@Sara Moon)

1. Facebook’s Global Cryptocurrency (by @Sairah)

The story:

Last Tuesday, Facebook announced plans to launch a new digital cryptocurrency, called Libra – which is set to be introduced in 2020. By way of background, Libra will be a global currency and would work on the blockchain (the distributed ledger technology). However, unlike other cryptocurrencies like bitcoin, the value of the Libra coin would be linked to a ‘basket’ of bank deposits and short-term government securities. Also, it will be tied to established currencies, such as the US dollar and pound, to reduce volatility. This means, unlike bitcoin which can be worth more today and then less tomorrow, the value of Libra will be relatively stable.

To facilitate the Libra transactions, Facebook has set up a subsidiary called Calibra. Calibra will be a digital wallet to allow users to send, receive and store their Libra coins. It will be available in Facebook Messenger, WhatsApp, and as a standalone app.

Impact on businesses and law firms:

Since the news emerged of Facebook’s new cryptocurrency, lawmakers instantly criticised the company’s bold plans to reach into the financial lives of its potential 2.4 billion users. Many feared on money laundering and privacy issues, given Facebook’s prior breaches of trust. However, to avoid a repeat of the Cambridge Analytica-Scandal, Facebook stressed it will not solely develop Libra. Instead, it has set up an independent not-for-profit organisation called Libra Association. Facebook will be one of its founding members, alongside 27 other companies and organisations, including Uber, Mastercard and PayPal. Despite these measures, many argue the companies involved in the Libra Association – which have each contributed $10 million to the project, would be able to “disrupt and weaken” nation states. Essentially, causing a ‘systematic risk’ to the financial system. If Libra is successful, and has enough users in emerging economies trading their local currencies for Libra, this could potentially threaten the ability of governments to manage their fiscal policies.

To understand the potential risks involving Libra, law firms will be needed to advise regulators on existing tax laws to cryptocurrencies in the jurisdictions in which Libra will operate in. Also, it is possible that Facebook would hold undue power on the development of ‘global technology’. This could force laws on matters such as privacy, data protection and cybercrime to be re-considered to tighten Libra’s regulations.

2. US-Iran Tensions (@Moni)

The story:

Tensions between the US and Iran have been on the rise since President Trump pulled out of the 2015 nuclear deal in May 2018. The Trump administration has since increased economic sanctions on Iran’s oil exports, industrial metals, and petrochemical companies. The US hopes increased economic pressure will drive Iran to accept a stricter agreement. However, Iran has pushed back and last week Tehran shot down a US drone after announcing it would exceed the limits on its nuclear program outlined in the 2015 deal. The US’ European allies are looking to negotiate a new deal with Iran and have cautioned the US against increasing economic pressure. Iran hopes that an aversion to direct war will cause President Trump to ease economic sanctions. Although, President Trump did call of a planned military strike against Iran last week, the US has launched cyber operations against Iranian intelligence and maintains that the decision to call of the military strike should not be interpreted as a sign of weakness. Moreover, President Trump has said that economic pressure will remain unless the Iranian government changed course.

Impact on businesses and law firms:

One of the most direct consequences of US-Iran tensions are its effects on oil prices which have risen over the past few weeks. Sanctions on Iran’s oil exports reduce the supply of oil and drive oil prices upwards. In addition, several companies have seen their operations impacted by increasing tensions. Exxon Mobil has been forced to temporarily halt a $53B deal intended to boost Iraq’s oil output as a result of US tension with neighboring Iran. In addition, several airlines including British Airways were forced to reroute flights to avoid the Strait of Hormuz (which lies between the Persian Gulf and the Gulf of Oman) after Iran shot down the US drones and American airlines banned American carries from flying area as a result of “heightened military activities”. Although any further the impacts are likely to remain concentrated in the oil sector, businesses, especially those that use oil as an input or those that have significant business in the region, will be monitoring tensions especially if they continue to escalate.

3. Slack’s Unconventional Listing (@Jaysen)

The story:

A second major tech company successfully joined the public markets last week through an unconventional listing. Slack, which provides workplace instant messaging software, followed Spotify in opting for a direct listing instead of a traditional IPO. The company’s shares soared on its first day of trading on the New York Stock Exchange.

Impact on businesses and law firms:

Slack’s successful stock market debut is further validation that a direct public offering is a viable option for tech companies. It’s a process that cuts out the middlemen - the underwriters that set the price and allocate shares to investors in a traditional IPO – allowing Slack to avoid expensive underwriting fees.

But direct listings aren’t suitable for all companies. Unlike traditional IPOs, companies that choose this route don’t raise new money; instead it’s an opportunity for investors and employees to immediately sell their shares to the market thanks to no lock-up period. However, with it comes the added financial risk of leaving the market to determine the price.

While Slack may not have needed as many financial advisers to follow the IPO process, they will certainly have needed lawyers, and this is a great example of the innovative role that lawyers can play in the financial markets. In Spotify’s high-profile debut, Latham & Watkins were crucial in liaising with the SEC, setting precedent for which rules applied to a direct listing, and ensuring investors had the relevant information they needed to make an investment. In fact, Latham’s successful involvement led to a case study that was published by Harvard.

 

[Sara Moon]

4. The Federal Reserve and Interest Rates (@Alice G)

The story:

Donald Trump has continued his assault upon the Federal Reserve (The Fed) this week by criticising its decisions to increase interest rates several times since 2015, despite the US economy being set to achieve its longest expansion in history on 1 July 2019.

Rates were raised four times in 2018 and Trump has stated that he believes the stock markets would have been much stronger and that the US economy would be more buoyant had the Fed not done so and, instead, lowered interest rates.

His remarks do come at a time when the US economy is doing very well indeed with first quarter growth in 2019 at 3.1% and with the unemployment rate at its lowest in fifty years.

The Fed opted to increase interest rates in order to slow the economy and ensure its stability. It aimed to curtail an economic boom with resulting high inflation, while trying to also fend off a job-costing bust. However, it is now widely speculated that the Fed will look to modestly cut interest rates in order to facilitate further economic growth.

Impact on businesses and law firms:

By lowering interest rates, the Fed will expand the money supply in the US increasing the amount of money circulating in the economy. People are then able to borrow more cheaply and spend more money. Lower interest rates also mean depositing money in a bank becomes less attractive and so people become more likely to invest in stock markets, hence why they become stronger.

The US dollar will generally also weaken relative to other currencies which means that US exports will be more attractive to the international market, which should hopefully help the US economy and industry amid the tensions with China and the escalating trade war. Though a weaker dollar does mean that foreign investment US stock will be less attractive.

Law firms will hopefully see more M&A activity if the Fed were to lower interest rates because businesses are more likely to borrow and spend while debt is cheap.

5. European Central Bank's Effort to Stimulate the European Economy (@Sara Moon)

The story:

Last Tuesday, Mario Draghi, the current President of the European Central Bank (ECB), stated that the ECB is considering cutting interest rates or buying more eurozone government bonds to stimulate the eurozone economy. Eurozone inflation dropped from 1.7 percent in April to 1.2 percent in May, the weakest rate for the year. This shows a clear struggle to meet the 2% inflation target set by the ECB. The US-China trade war has led Germany, Europe’s largest economy, to suffer fall in economic growth, with its industrial production falling 1.9 percent in April compared to the 0.5 percent expected by analysts.

Impact on businesses and law firms:

Policies to stimulate the economy could improve business conditions and offset the impacts of fears of no-deal Brexit and ongoing US-China trade war. Lower interest rates will encourage borrowing money, which will stimulate the economy by increasing spending and raise inflation rate. Buying up of government bonds and corporate debt will also provide greater fund and increase business activities. Greater economic activities means there will be greater cases for law firms to advise on, such as expanding business or making new investments.

 

[Angel]

London-Shanghai Stock Connect (@Jaysen)

The story

After four years of preparations, the Shanghai-London Stock Connect launched on Monday.

Foreign companies can now list in mainland China for the first time.

The programme allows Chinese companies to raise money via the London Stock Exchange, while companies listed in Britain can sell existing shares to Chinese investors*.

Impact on businesses and law firms

The London-Shanghai Stock Connect is a message from Britain that London will not lose its place as a leading financial centre post-Brexit.

It’s also a message from China that its markets will continue to open up despite its trade war with the US and slowing economic growth. The country has sought to demonstrate this commitment by increasing investor protections and opening up more sectors for investment.

It’s not easy for law firms to break into China. There are cultural differences, strict government regulations and pressures on fees. It’s also very competitive; there were 174 international law firms in China in 2012. Guess how many Chinese law firms were registered in China in 2012? 19,361.

But a presence in China benefits a firm's brand and prestige. It sends a signal to the market that they are trulya global law firm. The move also attracts foreign clients looking to invest in China; they’ll need a law firm to walk them through the process, negotiate with Chinese counsel, comply with tough regulatory restrictions and protect their intellectual property.

There’s also promise for the foreign law firms that are able to form relationships with Chinese companies early. Over the coming decades, China’s outbound investment will rise as it moves away from an economy driven by cheap manufacturing towards technology and innovation. Foreign law firms have a competitive advantage here. They are global and they understand how deals are done in Western markets. They know deal structures and how to negotiate M&A documents. That’s attractive to Chinese businesses that want to go global.

*This is through trading depositary receipts, which represent shares in a company. You can read more about how this works here: https://www.thecorporatelawacademy....-nowhere-a-guide-to-chinas-financial-markets/
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Hong Kong’s Protest (@Angel)

The Story

Last week, Hong Kong were swarmed by one of the largest demonstrations the country has ever experienced. The chief purpose of the protest is to demand the HK government to withdraw a controversial extradition bill that allows criminal suspects to be extradited to mainland China, Taiwan or Macau. This puts Hong Kong residents at the risk of being entrapped in China’s legal system. This is a concern because, to say the least, China is a country whose commitments to human rights are notexactly transparent or globally popular.

Impact on businesses and law firms

Protests (especially one as significant as this) can be classed as a form of geopolitical risk to businesses and investors. It is the risk that the calculated returns of an investment may be affected by some unforeseen instability or political changes in the country invested.

The commercial consequences of the protests included the instant plummeting of share prices on the Hang Seng Index, the need for businesses to close stores temporarily while the demonstrations took place, and the fact that workers from all industries were encouraged by trade unions to miss work. Taken together, these consequences can add up to gravely retard the country’s economy- which further exacerbates the tension between the protestors and the government. This is a threat to HK’s reputation as an international financial hub because investors will refrain themselves from getting involved with the country’s business affairs until they are confident that matters are sufficiently stable and predictable.

At the time of writing, the protests did convey sufficient pressure on the government to decide suspending the controversial bill. Such news immediately lifted commercial confidence, and the HSI rose. However, the matter is likely to be far from being settled. What the HK citizens want is not just for the bill to be suspended, but to abolished completely. Perhaps, the only certain thing for now is that commercial lawyers will be busy analysing possible legal measures to protect their clients’ businesses.

Hi, guys!

I came across this recent article by BBC on how the 'dead' HK extradition bill can still affect businesses. Just to recapitulate the article, the seemingly 'withdrawn' bill for the time-being may still potentially affect businesses in the following ways:

1. Private banking clients are already considering moving their funds away from HK in order to gain more stability;
2. The risk premium to operate businesses in HK have increased;
3. Tourism to HK have decreased;
4. Retail business plunged;
5. Companies with HQs in HK are actively exploring places outside of HK to move to. Lawyers will play an active role in assisting clients to move should they really decide to do so.

This is the link to the article - https://www.bbc.co.uk/news/business-48946246

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