Aurelia Butler

Some of the world’s biggest companies are facing multibillion-dollar writedowns on recent acquisitions as a wave of dealmaking gives way to a new era of economic uncertainty and higher interest rates.With a third of the global economy forecast to be in recession this year, world leaders will this week gather in Davos, Switzerland, to discuss what the World Economic Forum has called a “polycrisis” as business leaders engage in a painful reckoning over their empire building.US media and healthcare companies are among those to have slashed the value of business units in the past few months and accountants are warning that more cuts could be imminent as the annual reporting season gets under way.Companies are required to assess the carrying value of intangible assets at least once a year, using assumptions about future cash flows and comparisons to stock market valuations, which fell sharply in 2022.With higher costs owing to inflation and a weaker outlook for demand, many recently acquired businesses may struggle to justify their valuations, even before factoring in higher interest rates, which further reduce the present value of future cash flows.“It’s a pretty deadly combination,” said Jasmeet Singh Marwah, managing director at Stout, a valuation services company. “For many businesses . . . they made the acquisition and the performance has not been at par with what they expected or budgeted for.”Global dealmaking hit a record $5.7tn in 2021, but slowed sharply as 2022 progressed. According to Refinitiv, $1.4tn of transactions were agreed in the second half of last year compared with $2.2tn in the first, marking the biggest swing from one six-month period to the next since records began in 1980.The premium paid for an acquisition over the value of its net assets is called goodwill and is recorded on the acquirer’s balance sheet. Goodwill writedowns grew in size in the US last year, to the point where they were occasionally big enough to wipe out a company’s profits in the quarter in which they were recorded.The 10 largest goodwill writedowns at S&P 500 companies in 2022 totalled $35.4bn, according to data gathered by consultancy Kroll, compared with $6.1bn in 2021.Launching a bid to join the Disney board this week, investor Nelson Peltz highlighted the around $50bn in goodwill on Disney’s balance sheet attributable to the acquisition of Fox, which he predicted would have to be largely written down.Business and political leaders in Davos for the WEF’s first winter meeting since before the coronavirus pandemic confront a vastly different landscape to three years ago.Ahead of the meeting, the WEF’s annual risk report warned of a “polycrisis” as the soaring cost of living and an economic downturn combine with continued failures to tackle inequality and climate change.Kristalina Georgieva, the IMF’s managing director, who will be in Davos to present the fund’s latest economic outlook, predicted earlier this month that one-third of the world economy will be in recession this year, including half the EU.The size of goodwill writedowns in Europe has not so far risen. The 10 largest in the Stoxx 600 totalled €6.4bn last year, according to Kroll, down from €17bn in 2021.European companies have later financial year-ends and less frequent reporting, said Carla Nunes, a Kroll managing director, suggesting that more goodwill impairments could come in the spring.Dan Langlois, partner at KPMG, said recent acquisitions could be vulnerable to writedowns even if they are currently performing to plan.“When you factor in cost inflation that maybe wasn’t anticipated, when you factor in higher interest rates, which drive up the rate you might use in a discounted cash flow analysis, and then factor in some of the uncertainties associated with a potential recession, those things in totality will influence fair value,” he said.In October, Comcast reported a more-than-$8bn writedown of the broadcaster Sky, which it acquired in 2018, citing challenging economic conditions in the UK and other European markets and plunging the media group into a $4.6bn quarterly loss.Earlier last year, Teladoc Health, which acquired virtual care provider Livongo for $13.9bn in 2020, recorded two consecutive quarters of writedowns totalling close to $10bn.While companies are required to subtract goodwill writedowns from their profit, many exclude them from the “adjusted” numbers they highlight in earnings reports.

That does not mean investors should ignore them, said David Zion, founder of Zion Research.When a company cuts the value of its assets, its debt to equity ratio goes up, which in turn increases the risk of breaching covenants on its debt, he said. It can also flatter future returns.“Management will tell you it’s non-cash, it’s one-time, don’t worry about it. Don’t forget that, when return on assets is so good two years down the line, that is because they took a giant impairment.”Kroll’s Nunes added that goodwill impairments provide a readout on the quality of a company’s dealmaking. “You can tell if you are getting a return on your investment,” she said, “or if the buyer may be overpaying for these businesses.” More

Hello and welcome to the working week.How are feeling? Are you ready for Blue Monday, the day that falls this year at the start of this week, calculated by former Cardiff University psychologist Cliff Arnall in 2005 to be the most depressing 24 hours in the calendar? Arnall’s damning conclusion about the third Monday in the first month (which he has since tried to counter) was based on analysis of data, such as consumer surveys, divorce filings and weather reports. The main conclusion many of us draw from this analysis is that not all academic research is useful to society.If you are a world leader or senior executive at least you have the World Economic Forum in Davos to distract you from the January blues. The FT Live team will also be at the Swiss resort town, hosting several in-person and digital events in which leaders in policy, business and finance will share insights into the big issues being debated. You can view the events and register for free here.For the rest of us, we will just have to live with the grim economic news going into 2023 and hope things can only get better.If you’re in the UK, the dominant reality is mass strike action. This might not yet be near to being a second “winter of discontent”, at least according to my colleague Jonathan Guthrie, but another strike ballot among ambulance workers is due this week while the University and College Union will announce a wave of 18 strike days covering 150 British universities in February and March after its members voted last week to reject their latest pay offer. More details of this week’s walkouts below.The Gordian knot of a problem that is the Northern Ireland Protocol will rear its head again with Thursday’s deadline for the restoration of power-sharing at Stormont. Do not expect this to make you feel better about life or cross-border politics.Sunday is the 50th anniversary of the Roe vs Wade ruling by the US Supreme Court that enshrined Americans’ constitutional right to an abortion. This is of course a very live debate — stretching even into the boardroom — in the wake of last year’s Supreme Court decision to strike down the 1973 decision. Pro-life campaigners will march in Washington on Friday, sparking further commentary on a fundamental US political faultline.The week will end with another man-made day, this time based on astronomy: the lunar new year celebration. This year’s mass movement of people to visit families and friends celebrating the occasion will take place under the shadow of rising Covid-19 levels in China. Concerns about the impact on the spread of illness are high.Something to look forward to a bit further ahead is an evening with Financial Times columnist Martin Wolf. Join Martin and other leading economic thinkers online for a subscriber-exclusive event on January 31, debating the big changes required at this time of great global uncertainty. The discussion coincides with the publication of Martin’s new book, The Crisis of Democratic Capitalism. Register for freeThank you for your ongoing encouragements and suggestions about this newsletter. Email me at [email protected] or (if you have received this in your inbox) hit reply.Economic dataIt will be a busy run of data from China, the UK and the US this week including inflation figures, retail sales and the Fed’s Beige Book on the economic outlook. The European Central Bank will publish the minutes of its December meeting on Thursday and various central bankers will be discussing regional and global economics at Davos.The UK inflation rate will be updated on Wednesday. The outlook is not good, particularly after recent comments by Bank of England chief economist Huw Pill. Ken Murphy, chief executive of the UK’s largest food retailer Tesco, even warned that UK inflation could climb further. Last month’s release showed that the cost of living as defined by the consumer price index (CPI) was 10.7 per cent in November, down from 11.1 per cent in October.CompaniesWe are in the thick of the first earnings season of 2023 and it’s a smorgasbord of companies, particularly from Europe and (when Wall Street returns from the Martin Luther King Day break) the US.Online food ordering services Just Eat Takeaway and Deliveroo will update investors on their festive sales on Wednesday and Thursday respectively. Both are under pressure to deliver improved profitability. The end of lockdown was not good for the food ordering apps as customers chose to return to restaurants. The question now is whether recession will help these companies — as more people get takeaways instead of eating out — or hit them further as customers return reluctantly to their own kitchens. Efforts to increase sales of groceries, through partnerships with supermarkets and convenience apps such as Getir, may give Deliveroo and JET a slice of the home-cooking market too. Last year was one to forget for Ocado Retail. The online supermarket, jointly owned by Ocado — which reports numbers on Tuesday — and Marks and Spencer, parted company with chief executive Melanie Smith and warned on profits several times. Its sales are expected to fall for the first time in its history. At its last update in September, Ocado said it expected strong growth in customers and sales growth of about 5 per cent for the fourth quarter. That would be similar to the growth posted last week by Tesco and J Sainsbury, after British shoppers splashed out for the first Christmas in two years not to be disrupted by Covid-19.US airlines are reporting fourth-quarter and full-year earnings as public attention focuses on technical glitches at low-cost carrier Southwest Airlines and the country’s top aviation regulator that caused high-profile meltdowns. But for most airlines the news is still likely to be rosy, as (despite the increased interest in private jets post Covid) demand for commercial air travel drives profits. United Airlines will report on Wednesday. Expect chief executive officer Scott Kirby to have a few tart words for the US Federal Aviation Administration, which grounded planes for two hours on Wednesday when a damaged database file caused a safety system to fail. He said over the summer that the agency needed more air traffic controllers.Key economic and company reportsHere is a more complete list of what to expect in terms of company reports and economic data this week.MondayIndia, December wholesale price index (WPI) inflation rate dataResults: Ashmore Q2 trading update, Rio Tinto Q4 operations review (Tuesday AM local time in Sydney, Australia), UMC 4QTuesdayCanada, December consumer price index (CPI) inflation rate dataChina, December retail sales and industrial production figuresChina, Q4 GDP figuresEU, Ecofin meetingsGermany, December harmonised index of consumer prices (HICP) and CPI inflation rate dataGermany, ZEW economic sentiment surveyUK, monthly labour market statisticsUK, December insolvency statisticsDominic Paul becomes Whitbread chief executive, succeeding Alison Brittain, who leaves after seven years in the top jobResults: Alliance Pharma FY trading update, Citizens Financial Group Q4, Crest Nicholson FY, Experian Q3 trading update, Goldman Sachs Q4, Hays Q2 trading update, Morgan Stanley Q4, Lindt & Sprungli sales update, Ocado Q4 trading statement, THG Q4 trading update, Wise Q3 trading updateWednesdayEU, final core December HICP inflation rate dataInternational Energy Agency monthly oil market reportJapan, Bank of Japan rate-setting meeting announcementUK, December CPI and producer price index (PPI) inflation rate dataUK, November house price inflation indexUS, December retail sales figuresUS, December PPI inflation rate dataUS, Federal Reserve issues its Beige Book on economic conditionsUS, December industrial production figuresResults: Barry Callebaut Q1 sales figures, Burberry Q3 trading update, Charles Schwab Q4, Currys trading update, Galliford Try trading update, JB Hunt Transport Services Q4, Just Eat Takeaway Q4 trading update, Liontrust Asset Management Q3 trading update, Pearson trading update, Qinetiq Q3 trading update, PNC Financial Services Group Q4, Prologis Q4, Rathbones Q4 trading update, Richemont Q3 trading update, United Airlines Q4, Vistry Group trading update, WHSmith Christmas trading statementThursdayEU, ECB’s December monetary policy committee meeting minutes publishedUK, RICS house price surveyResults: Boohoo trading statement, Centamin Q4, Deliveroo Q4 trading update, Discover Financial Services Q4, Kier trading update, Netflix Q4, Northern Trust Q4, Premier Foods Q3 trading update, Procter & Gamble Q3, Sage Q1 trading update, Workspace Group Q3 trading updateFridayChina, monetary policy rate-setting announcementGermany, December PPI inflation rate dataJapan, December CPI inflation rate data (AM local time)UK, GfK consumer confidence surveyUK, December trade dataResults: Close Brothers trading update, Schlumberger Q4, State Street Q4World eventsFinally, here is a rundown of other events and milestones this week. MondayAustralia, the annual tennis grand slam begins with the Australian Open tournament in MelbourneBelarus, Belarus and Russia begin joint aviation drills of air divisions as part of the two countries’ regional grouping of troopsSwitzerland, World Economic Forum opens in Davos, bringing together world leaders and business heads to discuss pressing geopolitical issuesUS, Martin Luther King Day national holidayTuesdayFrance, Paris Men’s Fashion Week beginsWednesdayBelgium, Nato military chiefs of defence gather in Brussels for a two-day meeting, including counterparts invited from membership applicants Finland and Sweden.UK, members of the Royal College of Nursing begin a 48-hour walkout, the latest strike in ongoing industrial action over pay. Also, Unison members at the Environment Agency are staging a one-day strike in a separate pay dispute.ThursdayFrance, Billionaire Kostyantyn Zhevago, who controls London-listed iron pellet producer Ferrexpo, is due to appear at the court of appeals in Chambéry, in south-east France, following Ukraine’s request to extradite him. The businessman is wanted on suspicion of embezzlement and money-laundering.UK, deadline for restoring power-sharing in Northern Ireland, after a second six-week extension by the Westminster government last monthFridayTunisia, parliamentary run-off elections due to be heldUS, anti-abortion demonstrators plan to march on Washington for the first time since the Supreme Court overturned Roe vs Wade. Sunday is the 50th anniversary of the case being first settled by the Supreme Court.SaturdayChina, new year’s eve markets closedUK, former Labour party leader Jeremy Corbyn speaks at the Stop the War Coalition Trade Union Conference in LondonSundayChina, celebrations mark the start of the Year of the Rabbit. This year’s holiday season is overshadowed by a surge of Covid-19 infections across the country. More

Republicans now in control of the House have threatened to use the debt ceiling as leverage to demand spending cuts from Biden’s Democrats, who control the U.S. Senate.This has raised concerns in Washington and on Wall Street about a bruising fight that could be at least as disruptive as the protracted battle of 2011, which prompted a brief downgrade of the U.S. credit rating and years of forced domestic and military spending cuts.”I want to sit down with him now so there is no problem,” McCarthy said in an interview with Fox News, referring to Biden. “I’m sure he knows there’s places that we can change that put America on a trajectory that we save these entitlements instead of putting it into bankruptcy the way they have been spending.” McCarthy pointed to the Trump-era agreement by U.S. lawmakers’ in 2019 to suspend the statutory debt limit on Treasury Department borrowing until a later date as evidence that such compromise is possible.”I believe we can sit down with anybody who wants to work together. I believe this president could be that person,” he said.House Oversight Committee Chairman James Comer said on Sunday he hoped debt default could be avoided but put the onus on Democrats to agree to spending cuts.”Republicans were elected with a mandate from the American people in the midterm elections. We campaigned on the fact that we were going to be serious about spending cuts,” Comer said in an interview with CNN’s “State of the Union.” “So the Senate is going to have to recognize the fact that we’re not going to budge until we see meaningful reform with respect to spending.”U.S. Treasury Secretary Janet Yellen said on Friday the United States will likely hit the $31.4 trillion statutory debt limit on Jan. 19, forcing the Treasury to start extraordinary cash management measures that can likely prevent default until early June.Congress created the debt ceiling in 1917 to give the government greater borrowing flexibility, and must approve each increase to ensure that the United States meets its debt obligations and avoids a catastrophic default. More

Health unions in England are threatening an escalation of strike action if there is no move from the government to improve on this year’s NHS pay offer, as nurses prepare for fresh walkouts this week.The Royal College of Nursing said it would announce new strike dates for February before Wednesday, when “tens of thousands” of its members are set to strike at 55 NHS trusts across England that were not part of its previous action in December.If there was no progress in pay talks by the end of the month, February’s strikes would be more than twice as big, involving all eligible members in England, the RCN said.Health secretary Steve Barclay is considering a one-off payment to nurses to help with cost-of-living pressures, but has been told by the UK Treasury it must be paid from within his existing departmental budget.Barclay has told nursing leaders to help identify efficiency savings to find cash to fund a lump-sum payment and future pay rise. His allies said they “totally rejected” suggestions of a cabinet split on the issue.More talks are expected this week, but the Treasury’s focus is on addressing pay concerns in the NHS, primarily through the independent pay review process for the 2023-24 pay round.In contrast, the RCN has paused planned strikes in Scotland after the Scottish government said it would accelerate talks on a pay deal for 2023-24 that could then be backdated to January, effectively giving staff a pay rise for part of the current financial year as well.“The prime minister gave nursing staff a little optimism that he was beginning to move, but seven days later he appears entirely uninterested in finding a way to stop this,” said Pat Cullen, RCN’s general secretary, accusing Rishi Sunak of “baffling, reckless and politically ill-considered” intransigence.The GMB union has also said it could announce dates next week for a series of further strikes by ambulance staff.Meanwhile, strike action could spread to state education, with the National Education Union set to announce on Monday the result of a ballot covering about 250,000 teachers and 50,000 support staff across England and Wales.The NAHT headteachers’ union is also set to announce its ballot result. NAHT general secretary Paul Whiteman told the Observer newspaper that even if ballots failed to clear thresholds for turnout — as happened last week with the teachers’ union NASUWT — unions might ask their members to vote again should disputes remained unresolved.Hopes of progress on one front are rising, however, with rail employers edging towards a deal with the RMT union, whose members were among the first to strike in the wave of industrial action now sweeping the UK.Train company bosses and unions are set to resume talks this week, amid growing optimism that a deal could be within reach to end at least some of the strikes that have hobbled the railway for more than six months.Transport secretary Mark Harper said on Sunday that he was optimistic that the two sides could reach an agreement. “I hope there will be a deal, I am not going to put an artificial timetable on it . . . but I think both the companies and the rail unions are keen to reach an agreement,” he told the BBC.The RMT and TSSA unions said last week they were “working jointly” with train companies towards a new offer, after ministers allowed the industry to table a higher pay deal of 9 per cent over two years, tied to reforms to working practices.

Industry bosses are also optimistic that the RMT will look again at a similar pay offer from Network Rail, which was rejected late last year.But even as hope rises over one part of the tangle of industrial disputes on the railways, Aslef, the union representing train drivers, is on Monday set to reject a separate pay offer of 8 per cent over two years from train companies, raising the prospect of further industrial action.Aslef’s executive committee, made up of eight serving train drivers, will meet on Monday to discuss the offer from the Rail Delivery Group industry body, but its boss has warned “there is not one line” in the offer he could support. More

Will the UK’s December inflation data show the BoE’s tightening policy is paying off?UK inflation is expected to have eased again in December, following the trend in the eurozone and US.Economists polled by Reuters forecast the annual rate of the UK consumer price index, due to be released on Wednesday, to have declined to 10.6 per cent in December. That is a touch lower than the 10.7 per cent in November and would mark the second consecutive slowdown from a 41-year peak of 11.1 per cent in October. Samuel Tombs, economist at Pantheon Macroeconomics, expects the decline in the headline figure to be partially driven by a drop in motor fuel inflation, but also by some further easing in core inflation, which strips out the more volatile energy and food prices. These trends would “would encourage the monetary policy committee to end its tightening cycle soon”, he said.In the US, December’s consumer inflation slowed to its lowest level in more than a year and dropped more than expected in the eurozone on the back of lower energy price growth.Susannah Streeter, markets analyst at Hargreaves Lansdown, said she hoped that UK inflation would mirror those movements but warned that “the tight jobs market and relentless rise in food prices are likely to mean it stays stickier for longer”.Wage growth is still rising at a steady pace and is expected to continue, according to a closely watched survey by the Bank of England. As a result, markets are pricing in a half percentage point rate increase when the Monetary Policy Committee meets on February 2.The bank rate rose from a historic low of 0.1 per cent in November 2021 to the current 3.5 per cent, with a peak expected at just above 4 per cent this year. Valentina RomeiWhat will China’s GDP reading reveal about the health of the economy? Recent weeks have seen a flurry of “reopening rallies” for commodities on the back of expectations that the recent end of China’s zero-Covid policy will herald a massive boost for economic activity. But high-profile data released this week, including gross domestic product figures out on Tuesday, could give investors pause.Economists at Goldman Sachs have forecast year-on-year growth for China of just 1.7 per cent in the fourth quarter of last year, implying full-year growth of only 2.6 per cent. This reflects both the continued drag from Covid-19 curbs early in the period, as well as the negative impact of ending those measures, which led to hundreds of millions of infections in a matter of weeks.But an earlier signal on the current state of China’s economic health will arrive on Monday, when the country’s central bank announces its monthly decision on the one-year medium-term lending facility rate, which acts as the floor for the country’s benchmark rate. With most economists expecting the People’s Bank of China to stand pat, any move to ease by the bank could catch markets by surprise.Some analysts have already slashed their China growth estimates for the first quarter. Oxford Economics recently cut its forecast to 2 per cent, down from 3.5 per cent, owing to concerns about domestic demand.“Confidence and incomes are too frail for a quick recovery,” said Louise Loo, senior economist at Oxford Economics. “And though authorities have turned encouragingly pro-growth, there are meaningful constraints to further policy easing.” Hudson LockettWhat are the chances of an oil rally this year?Oil is at something of a crossroads. After starting the year on the back foot, with Brent crude falling below $80 a barrel in the early days of the new year to hit lows not seen since the invasion of Ukraine, crude has risen to finish this week close to $85 a barrel.There is a clear divide in the market. Some see signs of a demand-sapping recession capping crude’s ability to rally this year. Russian crude oil export volumes have also broadly held up, despite western sanctions getting tougher in December, so there’s not yet a significant deficit in the market. But there are clearly those who see oil’s recent pullback as a buying opportunity, with the market at risk of becoming complacent following a volatile 12 months.Further EU-imposed sanctions are going to bar the import of Russian refined fuels in February. Opec — which publishes its monthly oil market report on Tuesday — and its allies have indicated their willingness to stop prices falling too far.China’s reopening and the end of its strict zero-Covid policy should eventually provide a boost to demand growth this year. US releases of strategic oil reserves, which helped calm the market following Russia’s invasion, have ended. Even the world economy could be stronger than once anticipated in 2023, with the natural-gas crisis in Europe calming slightly, thanks to a mild winter. Analysts at Redburn have said the largest oil companies could be a buy.“We remain reluctant to jump on the supercycles bandwagon, but flatlining Opec output, stalling shale activity and resilient demand have combined to make us incrementally more positive on oil,” Redburn said. “With the [oil] majors still trading on close to all-time low multiples, the risk-reward continues to look attractive.” David Sheppard More

DUBAI (Reuters) – Residential property prices in Dubai are expected to rise at a slower pace in 2023 after a record year that saw a more than 60% increase in total units sold, according to one of the city’s biggest real estate consultancies.Prices are seen rising by about 5% this year, after climbing 11% in 2022, which itself was a slowdown from a 21% increase in 2021, Richard Waind, group managing director of Betterhomes, told Reuters.”(Higher) interest rates haven’t removed the underlying demand. But they are certainly having an impact on people’s willingness and ability to pay more for properties,” Waind said, though he said the market has taken rising rates and a strong dollar “in their stride so far”.”We’re obviously less exposed to interest rates here through the prevalence of cash purchases. So, in the UK, U.S., cash purchases are somewhere between 20 and 40% of all transactions. Over here, it’s roughly 70%,” he added.Dubai’s property sector surged in 2020 as it opened up again during the pandemic before most major cities and as rich buyers snapped up luxury units, boosting a sector that had been sluggish since the 2014-15 oil price crash.Russians were Betterhomes’ top non-resident buyers in 2022, accounting for 15% of transactions, followed by Britons taking 12%, Indians with 11%, Italians 7% and French 4%. Buyers from Pakistan were sixth, Lebanon seventh, China eighth, the United States and Canada ninth and Kyrgyzstan 10th, Betterhomes said in a report.Russians poured in after the war in Ukraine and snapped up properties in some of Dubai’s most sought-after areas, like Palm Jumeirah and Downtown.Among residents of Dubai, Indians were the top buyers, followed by Britons, Russians, Italians and Canadians. Foreigners make up a majority of the United Arab Emirates population.Sales of apartments surged 73% last year in volume terms, while villas – which led the start of the recovery in 2020 – saw just a 3% rise in volumes, “mainly due to a lack of supply, both in the ready and off-plan markets”, Betterhomes said in the report.Concerns of oversupply have long plagued the sector which saw a property bubble burst in 2009-2010, causing prices to plunge by more than half. Last year, 34,000 new units were added, according to Betterhomes. Waind expects 30,000-35,000 new units in 2023, which he viewed as “a lack of supply in this market with population growth”. More