Week in Review, February 11

A round-up of some of the week’s most significant corporate events and news stories.

Moelis to be lead adviser on Saudi Aramco float

Moelis & Co notched up a significant coup this week by securing the role of lead independent adviser on the planned initial public offering of Saudi Aramco, the world’s largest oil producer, write FT reporters.

The boutique investment bank founded by Ken Moelis will oversee underwriters and other preparations for the flotation.

Saudi officials hope the IPO will value state-owned Saudi Aramco at $2tn, turning it into the world’s most valuable public company. The flotation is earmarked for 2018, with the company expected to sell 5 per cent of its shares to investors.

Moelis’s selection as lead adviser came as a surprise to some following the IPO process, partly because the firm was established only in 2007.

Moelis is expected to advise Saudi Aramco on where to take an overseas listing, with possible locations including London, Hong Kong and Tokyo.

New York had been seen as contentious given that US legislation allows families of the 9/11 terrorist attacks to sue Saudi Arabia. But the selection of New York-based Moelis as adviser may suggest that the US is back in favour.

Meanwhile, fourth-quarter results by BP and Total highlighted contrasting strategies by the two companies.

The recent rebound in oil prices enabled BP on Tuesday to report a doubling of profits in the last three months of 2016, although the figures fell short of analysts’ expectations.

BP’s shares fell after it said its cash flow break-even point — the oil price at which it can cover its dividend and capital spending — would rise from $55 per barrel at the end of 2016 to $60 at the end of this year. This reflects how it is increasing investment in new developments and assets to replenish its reserves.

But Total, whose results exceeded expectations, said it would continue cutting capital spending as it proposed raising its dividend for the first time since 2014.

The company has proved resilient through the downturn, with Patrick Pouyanne, chief executive, saying it had embarked on cost-cutting faster than peers.

● Lex: Boutique banks — at your discretion

Goldman says post-Brexit staffing plans not final

Goldman Sachs says it has yet to make any decisions about how to staff its European hub in London, following the UK’s vote to leave the EU last June, writes Ben McLannahan in New York.

But when the Wall Street bank confirmed this week that it was closing the London arm of Goldman Sachs Investment Partners, a hedge fund launched with great fanfare less than a decade ago, many were quick to connect some dots.

The bank said the decision to ask eight employees to relocate to New York, or find another job with Goldman, had nothing to do with Brexit. It pointed out that Nick Advani, the managing director who ran the fund from London, had told the bank in June that he wanted to retire; his co-manager, Raluca Ragab, also plans to leave.

But the uncertainty triggered by the vote last June may mean that more banks find themselves under the microscope, even when they make minor adjustments to staff in London.

In an interview with Bloomberg TV last month, Lloyd Blankfein, Goldman chairman and chief executive, said that the prospect of Brexit had already made the bank think differently about resources.

Before the vote, he said, “we were trying to get as much into the UK as we could”, largely because the European timezone was the best to serve the rest of the world.

“Now we’re moving there what we have to move there, because we want to preserve our optionality.”

So far, he said, New York “had already been a bit of a gainer”.

Sterling’s slide wrecks GM hopes of European profits

General Motors predicted this week that it will miss its goal of returning to profit in Europe for another year, because of the impact on sterling of Britain’s vote to leave the EU, write Patti Waldmeir in Chicago and Peter Campbell in London.

The news took the shine off the US carmaker’s announcement on Tuesday of better than expected global fourth-quarter earnings on the back of continuing strong North American sales, partly as the result of a “Trump bump” in consumer confidence after the US presidential election.

The Detroit-based group forecast that Brexit-related losses in Europe would cost $300m this year after similar losses last year, primarily because of the adverse movement of the pound against the dollar.

“Absent Brexit we would have broken even in Europe,” said Chuck Stevens, GM chief financial officer. “We expect flattish performance in Europe in 2017 versus 2016.”

GM aimed to reach European profitability in 2018, he said. For 2016, GM reported an adjusted loss before interest and tax of $300m in the region.

Mr Stevens said that the company would do more to improve profitability in Europe, but gave no details. “We need to take renewed action to get back on the path to a sustained business, and we will,” he told analysts.

GM recorded fourth-quarter 2016 earnings, adjusted for a one-off tax gain in the fourth quarter of 2015, of $1.28 per share, above market expectations of $1.17 per share. It stuck to its guidance for full-year earnings per share of $6-$6.50 for 2017, compared with $6 for 2016.

● Lex: GM sitting uncomfortably

BNP Paribas looks to spend €3bn on digital initiatives

BNP Paribas revealed this week that it plans to invest €3bn in digital technology over the next three years, write Michael Stothard in Paris and Martin Arnold in London.

Jean-Laurent Bonnafé, chief executive of France’s biggest lender by assets, told the Financial Times that it wanted to “transform its business” by boosting spending on digital initiatives by 50 per cent over the next three years.

The shift comes amid the closure of hundreds of traditional branches as it adapts to changing client behaviour and job losses in its investment banking division.

The bank this week reported lower than expected fourth-quarter net profit and a disappointing performance in its French and Italian retail units, where revenues and pre-tax profits fell in the fourth quarter.

However, the fall in retail profits was offset by a stronger performance in its corporate and institutional arm, where profits rose more than 50 per cent.

Analysts at Citigroup said that BNP had produced “overall a mixed set of results: weaker than expected retail business (especially in France), but better corporate and institutional banking”. They added that it had “showed ongoing capital progress”.

While many of its European peers are in the midst of painful restructurings, BNP has rebounded strongly, raising its dividend and boosting profits since being fined almost $9bn by US regulators more than two years ago. Its shares have risen 44 per cent in the past year.

Mr Bonnafé said that the bank aimed to generate €3.4bn of cost savings from its digital investments, of which €2.7bn would be recurring.

● Lex: BNP Paribas — more of the same

SoftBank founder gears up for year of acquisitions

Masayoshi Son, the billionaire founder of SoftBank, is again gearing up for a period of dealmaking, writes Kana Inagaki in Tokyo.

Investors are scrambling to find out Mr Son’s next target after he signalled that the Japanese internet and telecoms group was “open to all options” about the future of its US wireless carrier Sprint, including an acquisition of rival T-Mobile USA.

His comments highlight expectations that Donald Trump, the US president, will be receptive to consolidation in the industry.

With Mr Son saying that the company was open to offers from companies other than T-Mobile, Jefferies analyst Atul Goyal said that Sprint could combine not just with T-Mobile, but also with a cable operator such as Comcast.

“We have heard that various companies have started studying acquisitions and mergers,” Mr Son said. “We believe many business opportunities will arise as the relaxation of regulations moves forward.”

The search for a new deal for Sprint comes as narrowing losses at the US unit allowed SoftBank to report a 71 per cent jump in operating profit to ¥295.7bn ($2.6bn) for its third quarter to the end of December. Shares have risen 1.2 per cent since results were released on Wednesday.

Despite a £24.3bn acquisition of the British chip designer Arm last year, the group has financial leeway to carry out deals, as it nears the closure of a technology fund that will invest as much as $100bn around the world.

Mr Son has also promised Mr Trump that SoftBank will bring $50bn and 50,000 new jobs to the US over the next four years.

● Lex: SoftBank — much still to prove