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UK's Thomas Cook Collapses After Rescue Talks Fail; 650,000 Travelers Stranded
Becoming the latest European travel company to fail and leave its customers stranded (who can forget about the collapse of Iceland's Wow Air back in March?), 178-year-old Thomas Cook collapsed after failing to secure a deal with its creditors, leaving the British government to step in and rescue the as many as 600,000 customers who are reportedly now looking for a ride home.
Thomas Cook CEO Peter Fankhauser apologized to customers "following a decision of the board late last night, a British government receiver has been appointed early this morning...we have not been able to secure a deal to save our business...I know that this outcome will cause a lot of anxiety, stress and disruption."
Fankhauser explained that while a "deal had been largely agreed, an additional facility requested in the last few days of negotiations presented a challenge that ultimately proved insurmountable." The company, weighed down by debt, said Friday that it was looking for $369 million in financing over the weekend to avoid going under on Monday.
At the time, the company had a debt burden of £1.25 billion and warned that Brexit-related uncertainties had hurt bookings for summer holiday travel. The firm has also struggled with increased competition from online travel-booking websites like Expedia.
Chinese conglomerate Fosun, Thomas Cook's biggest shareholder, had considered contributing $560 million to bail out the company earlier this year, but ultimately demurred for reasons that aren't clear.
All bookings made through the company have been invalidated, the company said. It typically runs hotels, resorts, airlines and cruises for 19 million customers a year in 16 countries.
BREAKING: "We have not been able to secure a deal to save our business" - Chief executive of Thomas Cook Group, Peter Fankhauser apologises to the company's 'heartbroken' staff and customers. Get the latest on the #ThomasCook collapse here: https://t.co/ZV1DhQ8LZJ pic.twitter.com/VlaT4Uoejf— Sky News (@SkyNews) September 23, 2019 https://platform.twitter.com/widgets.js
Shares in European airlines and tourism-related companies climbed on the news, with the Stoxx 600 Travel & Leisure Index becoming one of 3 sectors gaining as the broader European share gauge declined.
The UK government is now scrambling to get all of its citizens home safely in what some have called "the largest peacetime repatriation effort in British history," according to the Sydney Morning Herald. The UK Civil Aviation Authority said Monday that it would be working with the government to bring more than 150,000 British customers home over the next couple of weeks. The UK government runs an insurance program that ensures travelers can return home if a British tour operator goes under while they're traveling, which is exactly what's happening with Thomas Cook.
CAA Chief Richard Moriarty told the FT that it had launched "what is effectively one of the UK’s largest airlines, involving a fleet of aircraft secured from around the world."
"The nature and scale of the operation means that unfortunately some disruption will be inevitable."
Though the company was reportedly still selling vacation packages late last night and assuring its customers that all flights would continue as normal, passengers waiting at the airport were the first to learn that all operations would be cancelled.
Set to depart from Gatwick Airport, Thomas Cook flight 508 to Dalaman, Turkey was abruptly cancelled early Monday, the first in a string of cancellations at UK and global airports that will ultimately impact one million vacationers, according to the Independent.
Thomas Cook's collapse resembles that of UK carrier Monarch two years ago. but Thomas Cook is a much bigger firm, and cleaning up this mess will be a much bigger headache for the CAA. Meanwhile, analysts at Bernstein suspect other tour operators could collapse, which would put the market into a bind.
The modern Thomas Cook Group formed in 2007 when the UK's MyTravel merged with the privately-held Germany-based Thomas Cook to create a tour-company behemoth and promising to hasten consolidation in the tour operating industry.Tyler Durden Mon, 09/23/2019 - 06:07 Tags Business Finance
Is There Something Seriously Wrong With Danske Bank?
Last week, Denmark’s central bank cut its deposit rate to -0.75%. Banks will pass this on to large customers.
Please consider Denmark's Jyske Bank Lowers its Negative Rates on Deposits.
Jyske Bank said on Friday people with more than $111,100 in their bank accounts will be charged more for their deposits as it seeks to pass on some of the costs of recent rate cuts by the European and Danish central bank.
Jyske Bank, Denmark’s second-largest bank, said it would introduce a negative interest rate of 0.75% for all corporate deposits and for private clients depositing more than 750,000 Danish crowns ($111,100) from Dec 1.
Last week, Denmark’s central bank cut its key deposit rate to minus 0.75%, a record low among developed economies. “It is a lot of money and we have to pass on part of this bill to our customers,” he said. “I don’t hope that we will have to go lower but I don’t dare to promise it.”.
Denmark’s largest bank, Danske Bank has said it has no plans to introduce negative interest rates on deposits. Switzerland’s UBS has said it will impose a negative rate of 0.75% on clients who deposit more than 2 million Swiss francs ($2 million). ($1 = 6.7559 Danish crowns)Simple Question
If you live in Denmark and have a bank account in excess of $100,000 or so, why would you have it at Jyske Bank which charges 0.75% while Danske Bank, the country's largest bank doesn't?Possibilities
There is something seriously wrong at Danske Bank and people don't trust it.
Danske Bank welcomes deposits and can do something with the money. But if so, at what risk?
Any Danish readers care to answer?
Perhaps we have an answer from Bloomberg in the following discussion.Jyske Shares Jump on Interest Rate Charge
Bloomberg reports Negative Rates Just Got Real for a Record Group of Bank Clients
Shares in Jyske closed more than 5% higher marking their best performance since December 2017, as investors calculated the impact that the new policy will have on the bank’s net interest income.
Jyske has “set the ball rolling,” said Per Hansen, an investment economist at broker Nordnet.Other Bank Comments
A Danske Bank spokesman said, “We cannot comment on competitors’ prices and have nothing new to add on the matter.” The bank has previously promised to protect retail depositors from negative rates.
Nordea Bank Abp spokeswoman Tenna Schoer said the Danish unit is “monitoring the situation closely.” The bank’s CEO Frank Vang-Jensen has previously said Nordea can’t rule out imposing negative rates on retail depositors.
Sydbank, which has already said it will impose negative rates on retail depositors with over 7.5 million kroner, is monitoring the situation. “We have taken note of developments in the market and have seen that interest rates have fallen further,” said Jan Svarre, deputy CEO at the bank. “We’ll investigate our options and where the limit should be, and then we will return and notify our customers directly.”
Per Hansen commented "imposing such a policy is politically difficult for Danske, given its recent history of financial scandals. The bank is being investigated for a $220 billion money-laundering affair, and has been reported to the police for a separate case in which it overcharged retail investors."Bonus Questions
What happens to Danske if all the Danish money flees to Jyske?
What happens if everybody takes their money and runs?
Regardless of the answers, I expect to see an increased demand for gold, the US dollar, US treasuries, and safes as these pass-through policies escalate.
Please recall what happened in Japan on far less negative rates: Safes Sold Out in Japan: Customers Hoard Cash in Response to Negative Rates
A week ago I commented on the ECB's Counterproductive QE: Whatever It Takes Morphs Into "As Long As It Takes"
European banks are getting killed on these policies.Ball is Rolling
Jyske has “set the ball rolling,” said Per Hansen.
Yes, and if Central Banks stick with their "as long as it takes" approach, the results are likely to be disastrous.Tyler Durden Mon, 09/23/2019 - 05:00 Tags Business Finance
Chinese Firms Dump $40 Billion In Global Assets, Turn Net Seller For First Time In Decades
At the behest of the Communist Party leadership, Chinese conglomerates and investor groups have this year transformed from sometimes overeager spree buyers of foreign companies, real estate, and art, into net sellers of global assets for the first time since Chinese companies became big-time players on the global stage about a decade ago, the FT reports.
The shift comes as the Communist Party tries to tamp down on capital outflows as China's economy weakens with reports suggesting that Beijing could report economic growth below 6% for 2019 and 2020.
Chinese companies have agreed to sell about $40 billion in overseas assets so far this year, up from $32 billion for the whole of last year, according to data from Dealogic. At the same time, Chinese groups have bought just $35 billion of overseas assets this year, making the country a global net seller.
Divestments in the US, where Chinese corporate buyers are now viewed with increased scrutiny, have soared to over $26 billion this year, up from just $8 billion for all of 2018.
The data from Dealogic goes back to 2015, when Chinese companies bought about $100 billion in overseas assets while selling only $10 billion to foreign buyers. However, an FT analysis of Dealogic’s data indicates that China has been a net buyer of overseas assets since at least 2009.
Many of the Chinese-owned assets hitting the market this year were purchased in 2016, the peak of Chinese firms' off-shore shopping spree. That year, Chinese companies struck more than $200 billion in overseas deals, while taking on extremely high levels of debt.
"There was a crescendo of outbound Chinese deals - a few that lacked industrial logic," said Raghu Narain, Asia Pacific head of investment banking at Natixis. "The deals that were either funded by too much debt, lacking logic or subsequent actual synergies are unwinding now."
Two of the most high-profile Chinese acquirers during the boom have become the biggest sellers at the behest of their overlords in Beijing.
Airlines-to-finance group HNA, for example, which bought multibillion-dollar stakes in Hilton and Deutsche Bank in 2016 and 2017, has offloaded at least $20 billion in assets since late 2017 after facing a liquidity crunch in China. HNA sold Swiss air services company Gategroup to RRJ Capital for $1.4 billion earlier this year.
Serial acquirer Anbang Insurance, which was taken over by the government in 2017, has sold off much of its global portfolio, including a group of hotels sold last week to Korea’s Mirae Asset for $5.8 billion.
The decision to divest foreign assets was handed down from the party leadership a few years back as the PBOC and China's other economic authorities scrambled to shore up their dollar reserves and lower corporate debt. Now is a particularly precarious time for Beijing, which recently recorded the first default of a local government financing company, adding to concerns that the Chinese economy could crumble like a house of cards as it pumps credit back into the economy.Tyler Durden Mon, 09/23/2019 - 04:15 Tags Business Finance
Negative Interest Rates Are The Price We Pay For De-Civilization
Do central bankers really think negative interest rates are rational?
"Calculation Error," which Bloomberg terminals sometimes display, is an apt metaphor for the current state of central bank policy. Both Europe and Asia are now awash in $17 trillion worth of negative-yielding sovereign and corporate bonds, and Alan Greenspan suggests negative interest rates soon will arrive in the US. Despite claims by both Mr. Trump and Fed Chair Jerome Powell concerning the health of the American economy, the Fed's Open Market Committee moved closer to negative territory today — with another quarter-point cut in the Fed Funds rate, below even a measly 2%.
Negative interest rates are just the latest front in the post-2008 era of "extraordinary" monetary policy. They represent a Hail Mary pass from central bankers to stimulate more borrowing and more debt, though there is far more global debt today than in 2007. Stimulus is the assumed goal of all economic policy, both fiscal and monetary. Demand-side stimulus is the mania bequeathed to us by Keynes, or more accurately by his followers. It is the absurd idea, that an economy prospers by consuming and borrowing instead of producing and saving. Negative interest rates turn everything we know about economics upside down.
Under what scenario would anyone lend $1,000 to receive $900 in return at some point in the future? Only when the alternative is to receive $800 back instead, due to the predicted interventions of central banks and governments. Only then would locking in a set rate of capital loss make sense. By "capital loss" I mean just that; when there is no positive interest paid, the principal itself must be consumed. There is no "market" for negative rates. The future is uncertain, and there is always counterparty risk. The borrower might abscond, or default, or declare bankruptcy. Market conditions might change during the course of the loan, driving interest rates higher to the lender's detriment. Inflation could rise higher and faster than the agreed-upon nominal interest rate. The lender might even die prior to repayment.
Positive interest rates compensate lenders for all of this risk and uncertainty. Interest, like all economics, ultimately can be explained by human nature and human action.
If in fact negative interest rates can occur naturally, without central bank or state interventions, then economics textbooks need to be revised on the quick. Every theory of interest contemplates positive interest paid on borrowed capital. Classical economists and their "Real" theory say interest represents a "return" on capital, not a penalty. Capital available for lending, like any other good, is subject to real forces of supply and demand. But nobody would "sell" their capital by giving the buyer interest payments as well, they would simply hold onto it and avoid the risk of lending.
Marxists think interest payments represent exploitation by capital owners lending to needful workers. The amount of interest paid in addition to the capital returned was stolen from the debtor, because the lender did not work for it (ignoring, of course, the capitalist lender's risk). But how could a borrower be exploited by receiving interest payments for borrowing, i.e., repaying less than they borrowed? I suppose Marxists may in fact cheer the development of negative rates, and perversely see them as a transfer of wealth from lenders to borrowers (when, in fact, we know cheap money and credit overwhelmingly benefit wealthy elites, per the Cantillon Effect). So negative rates require Marxists to drastically rethink their theory of interest.
Austrians stress the time element of interest rates, comparing the lender's willingness to forego present consumption against the borrower's desire to pay a premium for present consumption. In Austrian theory interest rates represent the price at which the relative time preferences of lenders and borrowers meet. But once again, negative interest rates cannot explain how or why anyone would ever defer consumption without payment — or in fact pay to do so!
It should be noted that rational purchasers of negative-yield bonds hope to sell them before maturity, i.e., they hope bond prices rise as interest rates drop even lower. They hope to sell their bonds to a greater fool and generate a capital gain. They are not "buying" the obligation to pay interest, but the chance of reselling for a profit. So purchasing a negative-yield bond might make sense as an investment (vs.institutional and central bank bond buyers, which frequently hold bonds to maturity and thereby literally pay to lend money). But if and when interest rates rise, the losses to those left holding those $13 trillion of bonds could be staggering.
In the meantime, a huge artificial market for at least nominally positive US Treasury debt grows, strengthening the dollar and suppressing interest rates here at home. Once again, the dollar represents the least dirty shirt in the laundry. Congress loves this, of course, because even 5% rates would blow the federal budget to smithereens. Rising rates would cause debt service to be the largest annual line item in that budget, ahead of Social Security, Medicare, and defense. So we might say Congress and the Fed are in a symbiotic relationship at this point. The rest of the world might call it America's "exorbitant privilege."
Negative interest rates are the price we pay for central banks. The destruction of capital, economic and otherwise, is contrary to every human impulse. Civilization requires accumulation and production; de-civilization happens when too many people in a society borrow, spend, and consume more than they produce. No society in human history previously entertained the idea of negative interest rates, so like central bankers we are all in uncharted territory now.
Our job, among many, is to bring the insights of Austrian economics on money and banking to widespread attention before something truly calamitous happens.Tyler Durden Mon, 09/23/2019 - 03:30 Tags Business Finance
And The Best University In The World Is...
You will find more infographics at Statista
Institutions are ranked based on five indicators: teaching, research, citations, international outlook and industry income.
On this basis, the UK and United States completely dominate the top ten, and indeed the top 15, with only one other country represented - Switzerland with ETH Zurich in 13th place.Tyler Durden Mon, 09/23/2019 - 02:45 Tags Education
Dr Hao Li, a computer scientist at the University of Southern California, revealed the manipulated and false videos could soon be common all over the internet.
A probe comes amid accusations bosses such as CEO Peter Fankhauser (pictured) failed to 'future-proof' a firm that 'operated in brochures while the world had moved onto barcodes'.
The Boeing 747,carrying the travel company's famous livery but operated by US-based Atlas Air, took off from New York's JFK at around midnight local time and will land in Manchester at 5pm.
Epstein became furious after a photo of him with the Duke of York in New York (pictured) was published under the title 'Prince and Perv' in February 2011, it has been claimed.
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