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A round up of some of the week’s most significant corporate events and news stories.
Corporate person in the news: Thorsten Heins
Thorsten Heins knew he faced one of the toughest jobs in the technology industry the day he took over from Mike Lazaridis and Jim Balsillie as BlackBerry’s chief executive a year ago, writes Paul Taylor.
The Great Wall of China, the ancient pyramids of Egypt, and Chesapeake Bay Bridge-Tunnel in Virginia. Now the gas flares burning in the Bakken, North Dakota, and Eagle Ford, Texas, shale fields must be added to the objects seen from space. The flares burn enough gas to power all the homes in Washington DC and Chicago.
On stage this week in New York at the long-delayed launch of the first two handsets to run on the Canadian company’s new BlackBerry 10 operating system, the Germany-born executive admitted as much. “The last year has been both most challenging and most rewarding,” he said.
Mr Heins, 55, who has a master’s degree in science and physics from Hanover University and says he still loves playing with gadgets, spent the first 23 years of his career working his way up through the ranks of Siemens, the German engineering and electronics conglomerate. He joined the Ontario-based phonemaker, formerly called Research In Motion, in 2007.
He was put in charge of overseeing the BlackBerry smartphone portfolio worldwide before becoming chief operating officer in 2011, focused on hardware and software engineering. A year ago, as investor disquiet intensified over the company’s deteriorating financial performance, the board named Mr Heins as CEO, replacing Mr Lazaridis, its founder, and Mr Balsillie.
Mr Heins was relatively unknown outside BlackBerry when he took over. But the soft-spoken CEO, who still has a pronounced German accent, set out to change this with a cameo YouTube video appearance, discussing everything from his management philosophy to his hobbies – cycling, hiking with his wife and two children, motorcycling and skiing.
At the time some commentators criticised the BlackBerry board for not picking a more outspoken and visionary CEO from outside the company. The inevitable comparisons were drawn with Steve Jobs, who breathed new life into Apple after returning to the company in 1997.
Since then, however, Mr Heins has won the confidence and support of most analysts and investors – even though many still doubt whether BlackBerry can regain its former glory. Overall, its share of the global smartphone market has fallen from a peak of roughly 20 per cent in 2009 to about 6 per cent today.
“Although Thorsten might not be the inspirational leader that captures headlines and attention, he is a good operational CEO and since taking over he has created a good team of people who are facing up to challenges rather than living in the past,” says Carolina Milanesi, an analyst at Gartner, the research house.
In interviews, Mr Heins often jokes about his Germanic focus on engineering detail and execution. But he has not shied away from tough decisions, cutting 30 per cent of BlackBerry’s workforce, refocusing the company on sales and marketing, and expanding its cash reserves to $2.9bn.
However, it has not all been plain sailing for the lanky, youthful-looking German, who admits he still misses the Bavarian mountains.
In his first telephone conference with investors and analysts, he alarmed many by saying that he did not see the need for “seismic” changes, a statement he subsequently revised.
Most recently he has unsettled some investors by suggesting that BlackBerry will need to modify the monthly fees paid by its 78m subscribers who use the company’s secure network – something he has yet to elaborate on.
The board turned out in force to sit in the front row of the BlackBerry 10 launch this week. While the reaction to the new operating system and handsets has mostly been positive, BlackBerry shares lost almost a quarter of their value.
Mr Heins remains confident that he can engineer what would be a remarkable turnround.
Bramson sparks rumours that 3i is latest target
Edward Bramson, the activist investor, was at the centre of fresh speculation this week that he had lined up a new takeover target, writes David Oakley.
3i prompted rumours that the 61-year-old executive chairman of F&C Asset Management was looking to move on to other challenges when it said in a statement on Tuesday that his investment vehicle and broker were buying up shares in the private equity group.
The recall of about 10m cars by Toyota last year to fix two separate technical problems did not prevent the Japanese company from reclaiming its position as the world’s largest carmaker for the first time in two years. Toyota overtook its US rival General Motors by selling a record 9.75m vehicles globally last year.
Mr Bramson, who was born in London but moved to New York more than 30 years ago, may have lifted his investment vehicle Sherborne Investor’s stake to more than 3 per cent, a person with knowledge of the matter said. The unusual disclosure by 3i is partly aimed at seeking clarification on Mr Bramson’s intentions, another person said.
However, some investors and strategists responded to the 3i statement with puzzlement. They said Mr Bramson has more work to do at F&C, where he ousted the chairman in February 2011. One top 20 investor in F&C said: “Bramson has done well to cut costs at F&C, but he still needs to lift underlying growth at the company.”
F&C’s trading update for the last quarter of 2012 hardened views further that Mr Bramson was unlikely to move. Assets under management contracted and the company suffered net outflows.
Some investors stress that Mr Bramson would struggle to find buyers of his more than 20 per cent stake in F&C, as the shares have rallied sharply in the past two years.
Deutsche Bank move to raise capital ratio lifts investors
Deutsche Bank reported its biggest quarterly loss since 2008 this week. However, the €2.2bn net loss gave investors some comfort that Germany’s flagship bank was determined to clean up longstanding problems, writes James Wilson.
A €1bn charge for legal risks and €1.9bn of impairments, including on past acquisitions, heralded years of “uncomfortable change”, according to Deutsche, which said benign markets had helped push revenues 14 per cent higher than at the same stage last year.
Anshu Jain and Jürgen Fitschen, co-chief executives since last year, want to cut costs, reform investment bank pay and boost profits from Deutsche's smaller businesses such as asset management. However, Mr Jain’s biggest priority is to boost the lender’s capital base and so investors were cheered by the bank’s healthier than expected capital ratio. With €2tn of assets, Deutsche is one of the world’s largest banks and investors have been worried by its low levels of capital relative to peers. The quicker progress than expected in improving the capital ratio would soon put the bank “back in the pack”, Mr Jain said.
Capital is not entirely off the table as a concern. Deutsche has been determined not to raise capital from investors and is instead improving its ratios by ditching assets and changing the way it calculates the weighting of certain risks. The bank said German regulators are satisfied its risk modelling is valid, but some international regulators are less sanguine.
UK lenders embroiled in new mis-selling scandal
UK banks faced the prospect of another costly mis-selling scandal this week, after the City watchdog ordered the ‘big four’ to review their sales of interest-rate hedging products to small businesses, writes Jennifer Thompson.
On Thursday, the Financial Services Authority (FSA) instructed Barclays, HSBC, Royal Bank of Scotland and Lloyds to re-examine all interest-rate swap contracts, and other more complex interest hedging products, that were sold to customers “unlikely to understand the risks associated with those products”.
The products were supposed to protect business customers from increases in their loan repayments by fixing the rates on their loans.
However, when the UK base rate dropped to historic lows, businesses discovered that they faced huge penalties for cancelling the deals or refinancing their loans to pay lower rates.
Some customers said that buying a swap product was made a condition of securing a loan, while others complained of high-pressure sales tactics.
An FSA probe has since found that nine out of 10 products sold to small and medium-sized businesses failed to meet regulatory requirements – and a “significant” portion of customers should receive compensation.
So far, the banks have set aside about £700m for compensation for mis-selling complex derivative products, but analysts suggested that the final cost to the industry could be up to £2bn.
Board row sees McClendon retire from Chesapeake
Aubrey McClendon, who founded Chesapeake Energy 24 years ago and built it into the second-largest gas producer in the US, announced his retirement as chief executive on Tuesday after disagreements with the company’s board, writes Ed Crooks.
Revelations last year about Mr McClendon’s undisclosed personal borrowings, secured on stakes in the company’s wells, had crystallised doubts about his leadership, and the board announced in May that he would be replaced as chairman.
Chesapeake’s investors had already been concerned about Mr McClendon’s ambitious investment plans, the company’s high levels of debt, and the squeeze on its finances caused by weak US natural gas prices.
The shares, which reached $74 in July 2008, fell below $14 last May. In June the board was overhauled, with the appointment of four new directors nominated by the largest shareholders, as well as Archie Dunham, the new chairman.
Mr Dunham said the company remained focused on remaining a “a low-cost producer of oil and gas” and “strengthening its balance sheet” with prudent capital allocation. That suggested a very different management style from Mr McClendon’s debt-fuelled dash for growth.
The problem for the new CEO will be that his or her freedom to manoeuvre will be constrained by the need to stabilise Chesapeake’s finances in the face of persistent weak natural gas prices, which is likely to mean substantial disposals.
As Matt Portillo of Tudor Pickering Holt put it, “the die is already cast” for Chesapeake’s outlook, no matter what the board and new management might want.
US slowdown hits truckmakers
The US economic slowdown was visible this week in the fortunes of truckmakers as Daimler Trucks, North America’s biggest truckmaker by sales, announced it was warning 1,300 staff of possible lay-offs amid a sharp slowdown in growth. Paccar, the second-biggest manufacturer by sales, confirmed the gloomy outlook on Thursday when it projected commercial truck sales for 2013 at broadly the same level as 2012, writes Robert Wright.
North American truck sales grew 60 per cent year-on-year in 2011, as the market recovered from a near-collapse at the height of the financial crisis. They grew a further 15 per cent in 2012. However, Paccar projected that industry-wide sales this year in North America would be between 210,000 and 240,000 units – in line with the 225,000 achieved in 2012.
Trucking companies have faced a difficult five years, both because of slumping economic activity in North America and because high fuel prices have driven some of their traffic to cheaper rail. There had been optimism, however, that the market recovery might continue as truckers replaced ageing vehicles with new, more fuel-efficient ones.
Daimler Trucks North America, part of Germany’s Daimler, said that if the lay-offs went ahead, they would adapt current production rates to incoming orders.
“DTNA is cautiously optimistic that market conditions will improve throughout 2013,” DTNA said.
Daimler also said it was laying off 800 of its 27,000 workers in Germany.
● Machiavelli said: “Keep your friends close, but your enemies even closer.” Nestlé seems to have taken this to heart, having been found liable in a civil case over the secret infiltration of a non-governmental organisation. The maker of Kit Kat often works in partnerships with NGOs to address issues from child labour to saving water.
● Hoping to put an end to the horse jokes, Tesco plans to DNA test its beef burgers. The supermarket group aims to reassure British shoppers that no more horsemeat will turn up in its burgers after becoming embroiled in a food contamination scandal. Tesco also sacked its Irish burger producer, which itself blamed a Polish supplier.
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