Commercial Awareness - April 2018

[taneshS]

Sure. In short, demand stopped exceeding supply.

Developments in technology allowed US companies to access underground oil reserves that were previously irretrievable. The US began pumping lots of oil to take advantage of high oil prices. Soon, the US produced more oil than Saudi Arabia and Russia. With oil flooding the market, prices started to fall.

Historically, when oil prices fell, Saudi Arabia would cut production, along with the rest of OPEC (a collection of the big oil producing countries). But they didn't this time. Many think that Saudi Arabia didn't want to lose their market share and wanted to drive out the new US competition (OPEC can survive on lower prices of oil, the US and Russia can't).

Whilst supply was increasing, demand for oil was falling. China, one of the world's largest oil importers, faced a slowdown in growth and cut back on oil imports. Europe was also on the brink of a recession. Reduced demand led to an excess of oil and depressed prices further.

Thank you! That was so much clearer than what I was reading before.

 

[KS94]

I've really enjoyed the commercial awareness updates.

Aside from the usual sources (FT. Economist, etc.). Are there any other particular sources which can give a strong foundation for understanding macroeconomics to the level required for firms? Or is this something you pick up through wider reading and research?

 

[Jaysen]

I've really enjoyed the commercial awareness updates.

Aside from the usual sources (FT. Economist, etc.). Are there any other particular sources which can give a strong foundation for understanding macroeconomics to the level required for firms? Or is this something you pick up through wider reading and research?

I had the same question when applying for law firms because I wanted to start from the basics and work my way up. I'm a big fan of Khan Academy: https://www.khanacademy.org/economics-finance-domain/macroeconomics/gdp-topic. This guy is also pretty good:

.

Would be interested to hear what other people use (if any).

 

[Coralin96]

I pretty much just youtube topics that I'm not sure about. I found this really helpful as an intro to the economy:

Interest rates (and just the crash course series in general is good)

Shares/stock exchange

Inflation (I love this video!)

For the financial crisis I pretty much just watched all the related films. There are some really good ones out there.

 

[Nicole]

Hey guys - just been chatting with Coralin and we came up with an idea that might be helpful. We're going to be collating and summarising her posts and putting together the main news stories of March and April 2018. We'll send out an email tomorrow so keep an eye out!

 

[Salma]

I've really enjoyed the commercial awareness updates.

Aside from the usual sources (FT. Economist, etc.). Are there any other particular sources which can give a strong foundation for understanding macroeconomics to the level required for firms? Or is this something you pick up through wider reading and research?

Have you tried Finimize?

 

[Nick]

Hey guys,

I know that Jaysen's made a case study guide on M&A transactions. However, I just came across this article on private mergers and acquisitions in the US. Though its private M&A and tailored to the US legal/regulatory framework, many of the fundamental principles are universal. Two of Shearman & Sterling's M&A partners wrote the article - so its quite detailed.

https://uk.practicallaw.thomsonreut...ontextData=(sc.Default)&firstPage=true&bhcp=1

 

[Jaysen]

Hey guys,

I know that Jaysen's made a case study guide on M&A transactions. However, I just came across this article on private mergers and acquisitions in the US. Though its private M&A and tailored to the US legal/regulatory framework, many of the fundamental principles are universal. Two of Shearman & Sterling's M&A partners wrote the article - so its quite detailed.

https://uk.practicallaw.thomsonreut...ontextData=(sc.Default)&firstPage=true&bhcp=1

Practical law is really handy for trainees! You should actually be able to access the UK version without the paywall: https://uk.practicallaw.thomsonreut...nowHowItem&contextData=(sc.Default)&comp=pluk

 

[Nick]

Practical law is really handy for trainees! You should actually be able to access the UK version without the paywall: https://uk.practicallaw.thomsonreuters.com/3-552-5708?originationContext=knowHow&transitionType=KnowHowItem&contextData=(sc.Default)&comp=pluk

Even better!

 

[KS94]

Thanks for the responses above guys - appreciate them!

Quick question in respect of the GDPR. Do these changes affect the business acceptance teams at all? I'm thinking in terms of compliance? I was wondering if the changes could affect issues where conflicts may arise etc? This may seem a jump because it is, it's because I've been interested in conflicts/AML roles for a while and I'm trying to keep on top of anything which may affect compliance specifically.

 

[Jaysen]

Thanks for the responses above guys - appreciate them!

Quick question in respect of the GDPR. Do these changes effect the business acceptance teams at all? I'm thinking in terms of compliance? I was wondering if the changes could affect issues where conflicts may arise etc? This may seem a jump because it is, it's because I've been interested in conflicts/AML roles for a while and I'm trying to keep on top of anything which may affect compliance specifically.

Hey KS,

Interesting question. I can't say I'm an expert on this, but yes, I would imagine it does. Law firms store personal data so they can run conflict checks when new clients come in. Law firms, and more specifically the compliance staff, may need to review whether they get appropriate consent for storing and processing this data. If they aren't compliant, they may have to update documents for potential clients. They may also need to maintain clear records about how data is collected and used so they can easily provide it if clients or regulators ask for the information.

 

[KS94]

Hey KS,

Interesting question. I can't say I'm an expert on this, but yes, I would imagine does. Law firms store personal data so they can run conflict checks when new clients come in. Law firms, and more specifically the compliance staff, may need to review how they get and record consent for storing and processing this data to make sure they comply with the GDPR, and update documents for potential clients if it falls short. They may also need to maintain clear records about how data is collected and used so they can easily provide it if clients or regulators ask for the information.

Awesome! Just what I was looking for - thanks!

 

[Coralin96]

Next update

22/04/2018

New UK Corporate Governance Rules

• The Story: The UK is introducing new corporate governance reforms in May in an attempt to tackle some of the unacceptable practices of businesses during the financial crisis and the collapse of large private companies. It will require: companies to publish the ratio of CEO pay v average employee pay, large private companies to state whether they've complied with the corporate governance code and for directors of public and private companies to show that they have acted in the best interests of all stakeholders (employees/suppliers etc) and not just shareholders.
• Impact on law firms and clients: This is big news for large private companies who were not required to follow the Corporate Governance Code or disclose the information before. The public requirements could shame businesses and cause great media criticism, for example, if their CEO's were paid significantly high sums compared to the average employee and force them to justify it. Whilst it won't be legally binding to follow the code, it could force companies to re-assess their policies and see if they need to improve.

Trump's criticism of OPEC

• The Story: Trump has criticised OPEC for artificially inflating oil prices in an early morning tweet. He said it will not be accepted in what is seen as a charge against Saudi Arabia for cutting oil production so oil prices rise.
• Impact on law firms and clients: This comes as Saudi Arabia is planning to modernise the economy through reforms. The country needs high oil prices to pass large-scale reforms as it depends on the export of oil for its revenue. High oil prices will also increase the value of Saudi Aramco, which it plans to list on the stock exchange. The news demonstrates the extent to which the oil industry is influenced by politics.

Russian sanctions at risk of hurting European companies

• The Story: France is leading the way in a European push to persuade the US to ease sanctions against Russia. There are concerns that the sanctions are so tough that the impact will spread across the continent.
• Impact on law firms and clients: The Countering America's Adversaries Through Sanctions Act prevents Europeans from trading with targeted Russian companies. This has led to fears that the Russian sanctions will impact EU industries. For example, alumina, an aluminium raw material supplied by Russian company Rusal has risen by 80% after sanctions were announced. Rusal is one of the world's largest producers of aluminium outside China. Some European plants are also at risk of closure and the price rises could affect companies that import metal such as BMW and Airbus.

Warran Buffet leaving the board of Kraft Heinz

• The story: Buffet, the world's third-richest person, is retiring from the board of Kraft Heinz. His company, Berkshire Hathaway, owns 27% of Kraft Heinz. His move comes after a rocky period for Kraft as it failed a bid to acquire Unilever. Since then its earnings have disappointed and its shares have fallen.
• The impact on law firms and clients: Many analysts expect Kraft Heinz need another M&A deal for growth. But Warren Buffet has long opposed hostile takeovers, and his retirement may pave way for that to happen. Companies similar to Unilever have implemented large programs to prevent against the risk of unsolicited takeover bids.

Brexit's argument over space

• The story: The EU has been pushing to lock Britain out a €10bn satellite project after Brexit. The European Commission said to the UK that it would be inappropriate to share sensitive information about its satellite project, Galileo, after 2019. The project offers a navigation system for governments and rivals the US's GPS. The UK is discussing whether to launch its own satellite system so it does not have to be dependent on the US.
• The impact on law firms and clients: If the UK is excluded, French companies are expected to benefit when the next round of contracts are awarded. This affects a number of British companies that want to build applications using the service. The UK aims to capture 10% of the space market by 2030 and the UK government has invested heavily to ensure it stays ahead of the competition. This is a sign of the unexpected fallouts after Brexit and suggests the EU is resistant to a close security relationship after Brexit. Airbus could be forced to move work out of the UK if rules are not changed.

 

[NAremu]

I've just found this thread but thank you so much it's really really helpful. I've got an interview next week and have been a bit overwhelmed trying to 'update' my commercial awareness (I haven't been following the news as much as I should have been). It helps to follow the stories you post so I can see how things develop

 

[Coralin96]

I've just found this thread but thank you so much it's really really helpful. I've got an interview next week and have been a bit overwhelmed trying to 'update' my commercial awareness (I haven't been following the news as much as I should have been). It helps to follow the stories you post so I can see how things develop

Thank you I'm glad you found it helpful! Good luck inyour interview!

 

[FreddyS]

Better get there in time:
http://www.legalweek.com/sites/lega...ligence-technology-will-lead-to-job-cutbacks/

 

[Nicole]

Better get there in time:
http://www.legalweek.com/sites/lega...ligence-technology-will-lead-to-job-cutbacks/

Thanks for sharing, can't say I'm surprised! Interesting that law firms are increasingly allowing people to work from home. Maybe not so much trainees but definitely mid to senior associates/partners.

 

[Coralin96]

Deutsche Bank scaling back in the US

• The Story: According to the FT, 300 US investment bank staff were fired from Deutsche Bank and another 100 are set to follow before the end of this week. The company is refocusing on corporate finance in Europe. It noted that it lacks a long-term competitive advantage in investment banking and in the US and Asia. The company saw a 74% fall in pre-tax income in the first quarter of 2018 and is currently on a cost-cutting programme.
• Impact on law firms and clients: Deutsche Bank are being careful not to trigger any employment regulations. They have made a point to avoid many job cuts in Germany where there are strict employment laws, especially compared to the US.

Barclays hit by costs of scandal

• The Story: Barclays reported a £764m loss in the first quarter of 2018 after settling an investigation into the mis-selling of mortgages in the US and PPI in the UK.
• Impact on law firm and clients: The bank paid US authorities $2bn to settle a claim that it misled investors in $31bn worth of mortgage backed securities deals. This follows fines paid by US rivals including Deutsche Bank and Credit Suisse Regulators showing the importance of compliance. Recently, the CEO of Barclays also faced a fine from the UK regulator under new FCA rules. The Senior Management Regime gives the Financial Conduct Authority and the Bank of England the power to fine or ban senior management for problems under this watch. These rules focus on personal accountability and come after the financial crash saw many directors protected under limited liability. In this case, twice the CEO tried to uncover the identity of a whistleblower even though his compliance team warned that he should stop. This is the first time a senior figure has been fined over whistleblowing and the first time a sitting CEO has been fined.

Oil companies do well under higher oil prices

• The Story: Shell and Total have posted increases in earnings for the first quarter of 2018 thanks to higher oil prices. Shell's profits increased by 41% and Total's increased by 13%.
• Impact on law firms and clients: Oil prices were on average $67 a barrel in the first quarter of 2018, a 25% increase on 2017. The energy sector is doing very well and this could mean more activity for M&A and finance departments as they seek to expand following a long period of slow profits.

Incoming GDPR, businesses unprepared

• The Story: A survey by EY of 1,100 executives based in the EU found that almost 40% did not know the GDPR 'fairly well' despite it coming into force on May 25. This comes as the UK information commissioner has said there will be no grace period.
• Impact on law firms and clients: The GDPR is quite onerous and companies should begin preparing soon. Individuals will have the right to access information held about them within 30 days and companies have 72 hours to tell regulators about cyber attacks. At the moment data protection offices are in high demand but there is a current shortage of supply. Many large companies will need to hire a DPO if they handle a lot of data on a large scale and these DPO's report to the top of management.

 

[Coralin96]

Last one before the end of the month

Former CFO of Autonomy guilty of fraud

• The Story: First some background - Back in 2011, Hewlett Packard paid over $11.1bn to acquire Autonomy. The year after that, three quarters of Autonomy's value was written down as HP alleged Autonomy had inflated its earnings during the due diligence process. It finally went to court this week and the former CFO of Autonomy was accused of creating fake transactions to increase the company's earnings - and he was convinced of fraud. Next year, HP is suing the former CEO of Autonomy, Mike Lynch along with its CEO, for $5.1bn in damages. Lynch is countersuing claiming it ruined his reputation.
• Impact on law firms and clients: In 2012, the HP write-off shocked the markets. 15 firms were involved as advisors and none saw it coming. Its legal advisors included Slaughter and May, Freshfields, Skadden and Gibson, Dunn & Crutcher. The deal showed the importance of in-depth due diligence. But if it's proven that Autonomy fudged earnings, they may have no fault after all. Travers Smith is acting for HP in this suit, whilst Clifford Chance is representing Lynch, and Simmons & Simmons is representing the CFO. It's the second-largest case brought in Britain against an individual.

Sainsbury's and Asda merger

• The Story: Sainsbury's is taking over Asda, which is a subsidiary of Walmart. It will be paying Walmart £3bn for a 58% stake in the business. Walmart will also have no more than 29.9% of the voting rights. If it goes through, it'll be the UK's biggest grocer by market share at 31.4% and both brands will continue to be used. Together they will have 2,800 stores and 330,000 staff.
• Impact on law firms and clients: The big UK supermarket chains have suffered from discount chains like Aldi and Lidl as well as e-commerce platforms like Amazon. It's a big move to revolutionise the UK retail market and shows a shift in strategy of Asda's owner Walmart. The question is whether this will go through as MP's have called for the UK regulator, the Competition and Markets Authority, to urgently review the deal. There are risks that suppliers will be squeezed, jobs will be lost and supermarkets will be closed. Slaughter and May is advising Walmart with Asda being a longstanding client. Gibson Dunn is also advising Walmart and Asda on competition issues. Linklaters is advising Sainsbury's.

$120bn worth of takeovers in one day

• The Story: On Monday, over $120bn in takeover deals announced despite political issues and uncertainty over regulations.
• Impact on law firms and clients: This is continuing the trend of a record year in mergers, as a result of economic growth and low interest rates. This includes the Sainsbury's-Asda deal, the T-Mobile acquisition of Sprint to form the second-largest US wireless group, and Marathon Petroleum to buy Andeavor in the biggest energy sector acquisition since 2016. The high value of shares have also contributed to this as currently share deals are very common.

China opening its market

• The Story: It was announced this week that the global benchmark index, MSCI, will be including 235 Chinese companies to its benchmark from next year - for the first time ever. This sent shares in the Chinese companies up and a series of Chinese asset managers rushing to set up funds ahead of the expected inflow of money.
• The impact on law firms and clients: This is part of a broader trend that China is opening up its market to investors. The inclusion into the benchmark is expected to lead to a surge of foreign money into China's stock markets and it's a sign of renewed interest in the big established Chinese companies. Soon Bond Connect will also come into place, which links Hong Kong and Chinese debt markets for the first time. This will allow international investors to trade local equity and bonds without needing regulatory approval. As foreign investment in Chinese shares rise, some law firms may have to rethink entering the region, which has been a difficult market to break into. Many are playing the long game and expect to see significant return when it does open up.

 

[Jaysen]

Great post Coralin!

Good article in the FT yesterday explaining why oil prices are rising: https://www.ft.com/content/112d1342-488f-11e8-8ee8-cae73aab7ccb