– Mixed results from Wall Street earlier in January have raised the ante on European lenders limbering up to report earnings next week, a week in which the European Central Bank’s (ECB) Governing Council also meets to set policy for the first time in 2023, reported Bloomberg (paywall).
A hawkish ECB bodes well for net interest income metrics, as last year’s deal-making drought left banks clambering for advisory fees. Underwhelming fourth-quarter equities trading by Goldman Sachs and Morgan Stanley may be an omen for UBS Group, fueling concern that Switzerland’s biggest bank could also fall short on that front. On the fixed-income side, Deutsche Bank and Nordea Bank are expected to post strong year-on-year revenue growth, following the 28 percent surge by their five biggest US rivals.
– Shareholder activism is poised to grow in Canada this year, as investors turn up the pressure on management teams for better returns after a tumultuous year in markets, according to a top corporate lawyer interviewed by the Financial Post. ‘Shareholders are seeing a significant amount of red on their screens and now they have had time to try to figure out which of these companies should be a target and which of [them] they can actually effect change at,’ said Walied Soliman, chairman of Norton Rose Fulbright in Canada. The country saw 26 new activist campaigns in 2022, down from 30 a year earlier, according to the Bloomberg global activism league tables.
– British companies are no longer ‘must-own’ assets, some of the world’s biggest institutional investors warned in The Times (paywall). The Investor Forum, an investor group speaking for £26 tn ($32.1 tn) of assets worldwide, including £680 bn of UK-listed shares, highlighted the ‘diminishing importance’ of British firms. In a partial riposte to a group of FTSE 100 chairmen who officially complained last year about the box-ticking nature of investors’ governance processes, the Investor Forum said bosses needed to recognize that international investors had no need of them.
‘The declining relevance of UK equity markets over the last 25 years has been breathtaking,’ said Andy Griffiths, the forum’s executive director. Highlighting frustrations such as Brexit and the mini-budget last September, he added: ‘A recognition of the UK’s diminished importance as an investment destination and the economy’s dependence on international investment is essential if reforms are to yield benefits... Money moves globally, competition is intense and the UK is no longer regarded as a ‘must-own’ market.’
– Research from Kepler Trust Intelligence analyst Nicholas Todd showed annualized performance for UK small caps has typically been superior compared with larger peers over the long term, Investment Week reported. For investors in closed-ended funds there are arguably some interesting opportunities in the sector as a result, which have been compounded by widening discounts. For example, Invesco Perpetual UK Smaller Companies (IPU) Investment Trust is trading at a nearly 15 percent discount as of January 20. Discounts seem to have widened across the small-cap space due to fears of a recession and the likelihood this will have a more severe impact on smaller businesses. But IPU’s managers were already starting to factor in the potential for inflation and a recession prior to the end of 2021 – and trying to ensure their holdings had the quality to still perform well in that environment.
– Capricorn Energy’s chair, chief executive and three other directors quit the board after weeks of shareholder pressure, led by activist investor Palliser Capital, to overhaul the British oil and gas producer’s leadership, according to Reuters (paywall). Palliser and some of Capricorn’s biggest shareholders had also publicly opposed a planned merger with Israeli gas producer NewMed, with major proxy advisers recommending votes against the merger plan and Capricorn’s board.
Chair Nicoletta Giadrossi, CEO Simon Thomson and three other directors stepped down from the board with immediate effect, Capricorn said on Tuesday. NewMed said in a statement following Capricorn’s board shake-up that it saw a significantly smaller chance of finalizing the merger.
- Jeff Ubben founded ValueAct Capital, one of the best-known activist investors on Wall Street, reported the Financial Times. When he left it in 2020 he declared that ‘finance is, like, done’.
Yet he has now returned to activism in a big way. Earlier in January he disclosed a €400 mn ($435 mn) stake in Germany’s Bayer and called for a new chief executive from outside the company. It is the biggest investment to date for Inclusive Capital Partners, the fund Ubben set up on his exit from ValueAct with an aim of pushing companies to make environmental and social improvements to drive returns higher. The results at Bayer will test his thesis. At a time when environmental, social and governance principles have swept fund management, Ubben views his firm as different.
‘The ESG thing is happening away from me,’ he said. ‘I like what ESG has done in changing the agenda of boards. But I don’t see what ESG has otherwise done to generate real change.’