Raphael Stevens

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    Economists need new indicators of economic misery

    WHEN JIMMY Carter, the Democratic candidate for American president in 1976, wanted to criticise the record of the incumbent Gerald Ford, he reached for a number invented by the economist Arthur Okun. A rough-and-ready indicator of the state of the economy, what Okun called the economic discomfort index added together the unemployment rate with the level of inflation. Four years later Ronald Reagan, the Republican candidate, renamed the indicator to the pithier misery index and used it against Mr Carter, who had presided over rising inflation and unemployment. Reagan went on to win the election and the subsequent one, in 1984, as the index fell on his watch. More

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    Why financial markets are so oddly calm

    One thing nobody thinks of Donald Trump’s return to the White House is that it will herald four years of quiet, predictable government. Here, then, is a puzzle for readers interested in the more abstract bits of finance. Why was Mr Trump’s re-election greeted by resounding drops in volatility all across the world’s most important markets? More

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    How to pay for the poor world to go green

    The trickiest issue facing the climate negotiations at COP29, which began in Baku on November 11th, goes by the opaque name of the “new collective quantified goal” (NCQG), mainly because that is more dignified than “bigger pile of money”. The NCQG is meant to replace the longstanding goal of an annual $100bn a year in climate finance from richer countries to poorer ones. It is supposed to be in place by next year, when all countries are expected to say what they are going to do to cut emissions in the next ten years. More

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    China, Europe, Mexico: the biggest losers from Trumponomics

    ACROSS CABINET tables, boardrooms and diplomatic missions this week, one topic of discussion has overshadowed all others. The sweeping victory of Donald Trump and the Republican Party in America’s elections will give huge powers to an impulsive president with unorthodox economic beliefs and a belligerent approach to negotiation. Bigwigs in government and business all over are scrambling to analyse the consequences—for America and for the rest of the world. More

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    Britain’s car finance industry is in crisis – with banks bracing for billions in payouts

    Britain’s motor finance industry is in disarray, with analysts warning of worst-case scenarios similar in magnitude to the country’s costliest consumer banking scandal.
    The crisis stems back to a landmark judgement from the U.K.’s Court of Appeal in late October, when the court ruled it was unlawful for car dealers to receive bonuses from banks providing motor finance — without getting the customer’s informed consent.
    It has prompted comparisons to Britain’s payment protection insurance (PPI) scandal, which was estimated to have cost banks more than £50 billion ($63.8 billion).

    View looking towards the Royal Exchange and in the City of London where the glass architecture of the tower 22 Bishopsgate disappears into mist on 6th November 2024 in London, United Kingdom.
    Mike Kemp | In Pictures | Getty Images

    Britain’s motor finance industry is in disarray, with analysts warning of worst-case scenarios similar in magnitude to the country’s costliest consumer banking scandal.
    The burgeoning crisis stems back to a landmark judgement from the U.K.’s Court of Appeal in late October, when the court ruled it was unlawful for car dealers to receive bonuses from banks providing motor finance — without getting the customer’s informed consent.

    The decision caught many in the motor finance industry off guard and appears to have paved the way for a multi-billion-pound redress scheme to compensate consumers.
    It has prompted comparisons to Britain’s payment protection insurance (PPI) scandal, which was estimated to have cost banks more than £50 billion ($63.8 billion) and is regarded as the biggest mis-selling scandal in the country’s financial services history.
    Britain’s Financial Conduct Authority, the country’s financial watchdog, said on Wednesday that it will write to the Supreme Court to expedite a decision over whether to give lenders the green light to appeal the ruling.

    Banks left ‘in limbo’

    The FCA, which noted that car financing groups were likely to have received a surge in complaints in recent weeks, said that it would consider intervening “to share its expertise” if permission to appeal is granted.
    It urged motor finance groups to consider setting aside financial provisions to resolve the high volume of complaints.

    Niklas Kammer, equity analyst at Morningstar, said Britain’s banks have been left in “in limbo” since the Oct. 25 court ruling, with Lloyds thought to be the most at risk through its Black Horse business. Barclays also has some exposure, Kammer said, “but meaningfully less.”

    A Lloyds Banking Group Plc bank branch in London, UK, on Monday, Oct. 21, 2024.
    Bloomberg | Bloomberg | Getty Images

    “I think it is fair to say that the ruling by the Court of Appeal came as a surprise to the banks as well as the FCA. According to the banks, they followed the rules and guidelines set by the FCA, which are not aligned with the new Court of Appeal ruling,” Kammer told CNBC via email.
    “As such, there exists significant uncertainty which set of rules banks have to abide by. The FCA has said that it will await the outcome of a potential Supreme Court ruling before taking a decision on the matter,” Kammer said.
    “If the ruling stands, the FCA will have to change its rules on disclosures. Initially, the FCA pointed out that the matter should not take similar proportions to the PPI mis-selling, but should the new ruling stand, worst case scenarios do come close to the same magnitude in impact.”

    Lenders ‘likely to pull out of the market’

    Benjamin Toms, U.K. banks analyst at RBC Capital Markets, said that if the Supreme Court upholds the lower courts verdict, the downside impact for the motor finance sector, which includes both banks and non-banks, could be as much as £28 billion.
    “Some lenders are likely to pull out of the market, which will mean less choice and higher prices for those looking to buy a vehicle,” Toms said.
    “There is also the potential for legal creep, with other types of lending like premium finance also coming under the spotlight,” he added.

    London Taxis wait in a queue at a taxi rank outside Fenchurch Street Station on October 14, 2024 in London, United Kingdom.
    John Keeble | Getty Images News | Getty Images

    In January, the FCA launched a review into the motor finance industry to probe whether there was widespread misconduct related to discretionary commission arrangements, or DCAs, before they were banned in 2021.
    It said on Wednesday that it is currently considering the impact of the Court of Appeal’s judgement on its review.
    Fitch, an influential rating agency, warned earlier this month that it had placed the ratings of Close Brothers Group on “Rating Watch Negative” due to the lender’s “high exposure” to motor finance.
    Other lenders that have been “significantly involved” in motor finance lending include Barclays, Investec, Lloyds and Santander UK, Fitch said.
    Lloyds, Britain’s largest car finance business, has set aside £450 million in financial provisions. More

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    in Business

    Amazon Prime Video to stream Diamond regional sports networks

    Diamond Sports reached a deal with Amazon’s Prime Video that will see its 16 regional sports networks offered on the streaming platform.
    The newly rebranded FanDuel Sports Network will be available as an add-on subscription for Prime customers living within the team’s designated geographic area.
    This marks the latest development for Diamond Sports as it looks have its reorganization plan approved in court and exit bankruptcy.

    Sopa Images | Lightrocket | Getty Images

    Diamond Sports reached a deal with Amazon’s Prime Video that will allow its 16 regional sports networks to be made available on the streaming platform.
    As part of the deal, Diamond’s networks will be made available as an add-on subscription to Prime customers living within each team’s designated geographic area. Further details, such as pricing, will be announced at a later date. Financial terms of the multiyear agreement were not disclosed.

    The agreement is not exclusive, meaning Diamond can still pursue streaming rights deals with other partners, according to a person familiar with the matter. The company’s previously launched FanDuel Sports Network streaming options will still be available.
    This marks the latest development for Diamond Sports as it looks to exit bankruptcy protection with a revamped business model.
    In October, Diamond inked a naming rights deal with Flutter-owned FanDuel, rebranding its networks from Bally Sports to FanDuel Sports Network. The name change took place immediately during the National Hockey League season and ahead of the start of the 2024-25 National Basketball Association season.
    Earlier this week, Diamond also announced it would offer games on an a la carte basis at $6.99 per game beginning Dec. 5, which will not require a subscription. Both Prime Video and the FanDuel Sports Network app will offer the single games, according to the person familiar with the offering.
    On Thursday, Diamond will seek court approval for its reorganization plan, which has drawn criticism from Major League Baseball and the Atlanta Braves, who question the company’s future viability under the plan.

    Both the league and the Braves had requested further clarity on what the partnership with Amazon, which at the time was not solidified, would entail.
    Diamond sought bankruptcy protection last year, toppled by a heavy debt load and the effect of cord-cutting on its networks as consumers opt out of cable TV bundles for streaming services.
    Diamond has also inked deals with the NBA and NHL for TV and streaming rights for their teams. It has been negotiating with MLB teams on an individual basis.
    Various regional sports networks, including the New York Yankees’ YES Network, have launched streaming options in recent years. Amazon’s Prime Video already airs a selection of Yankees games each season since it is a stakeholder in the YES Network.
    Pricing has been on the higher end of the scale, as the networks have been careful when it comes to pricing their streaming options so as not to further disrupt the cable TV model and breach contracts with distributors. These contracts have long helped support the billions of dollars in fees that the networks pay professional sports teams to air games.

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    VW’s $5.8 billion investment in Rivian isn’t guaranteed. Here are the milestones the EV maker needs to hit

    VW increased its planned investment for a joint venture with EV startup Rivian to $5.8 billion as the companies have broader aspirations than initially announced for the operations.
    VW’s capital to Rivian isn’t guaranteed, and neither is the success of the joint venture. Major automotive tie-ups don’t necessarily result in long-term successes.
    Rivian is receiving $2.3 billion this year, followed by up to $3.5 billion by late 2027 or early 2028, based on negotiated milestones

    Workers assemble second-generation R1 vehicles at electric auto maker Rivian’s manufacturing facility in Normal, Illinois, U.S. June 21, 2024. 
    Joel Angel Juarez | Reuters

    DETROIT — Volkswagen Group increased its planned investment for a joint venture with electric vehicle startup Rivian Automotive to $5.8 billion as the companies have broader aspirations than they initially announced for the team-up.
    Investors were impressed with the details of the deal, sending shares of Rivian up 13% in trading Wednesday.

    The joint venture will provide VW with next-generation electrical architecture and software for EVs across the German automaker’s brands, while giving Rivian a needed influx of capital as well as the potential for new opportunities for future revenue and income growth.
    The capital is expected to carry Rivian through the production ramp-up of its smaller R2 SUVs at its plant in Normal, Illinois, starting in 2026, as well as production of the midsize EV platform at a plant in Georgia, where Rivian paused construction earlier this year.
    The companies said they expect roughly 1,000 people to work for the joint venture.
    But VW’s capital to Rivian isn’t guaranteed, and neither is the success of the deal. The EV maker will have to meet some goals first.
    The automotive industry has seen a number of major mergers and joint ventures that don’t result in long-term successes. Many fall apart before producing significant results.

    Both VW and Rivian have experienced such failures with Ford Motor in recent years. Rivian and the Detroit automaker canceled plans to codevelop EVs two years after Ford took a 12% stake in the startup in 2019. Around that time, VW also announced a $2.6 billion deal with Ford for autonomous vehicles that didn’t pan out.
    Volkswagen also is going through a restructuring that could impact the automaker’s future plans, including implementing widespread cuts and layoffs amid falling sales and profits.
    Both VW and Rivian have high expectations for the joint venture, which will be named Rivian and VW Group Technology LLC.
    VW’s investment will be distributed to Rivian though various forms, including convertible notes, equity and debt. Rivian is receiving $2.3 billion this year, followed by up to $3.5 billion by late 2027 or early 2028, based on negotiated milestones, which are detailed below.

    2024: $2.3 billion

    Rivian received $1 billion in June upon announcing the deal. That came in the form of a convertible note, which is expected to be converted to Rivian equity on Dec. 1.
    Of the $1 billion, $500 million will convert at a share price of $10.84. The other $500 million will convert based on the stock’s 45-day volume-weighted average price, or VWAP, ahead of the time of conversion.
    Rivian is set to receive $1.3 billion in cash this week following the close of the deal and formation of the joint venture, including “consideration for background [intellectual property] licenses and a 50% equity stake in the joint venture.”

    2025: $1 billion

    Rivian will receive $1 billion of investment in the form of equity at a 33% premium to the 30-day VWAP at the time of issuance if it reaches either two nonconsecutive quarters of $50 million of gross profit or two consecutive quarters of gross profit. This will not occur any earlier than June, according to the companies.
    Rivian has five years to achieve the milestone, which will be measured by its GAAP versus profit and excludes any impacts the joint venture has on Rivian’s financials.
    Rivian CFO Claire McDonough said the company will update the expected financial impacts of the joint venture when it releases its fourth-quarter results next year.

    2026: $2 billion, including loan

    Rivian will receive $1 billion of equity based on successfully testing the joint venture’s technology in winter testing in one or more vehicles. The equity investment will be determined by the 30-day VWAP leading up to investment.
    Rivian also has the option to draw a $1 billion loan in October 2026, which would be backed by its equity stake in the joint venture.
    The loan would need to be prepaid over a 10-year period, but it will not require principal repayment until 2029. The interest rate of the loan will be equal to VW’s cost of debt on a seven-year maturity, plus 25 basis points.

    2027/early 2028: $460 million

    Rivian will receive $460 million of equity for the first production of a saleable VW vehicle using the joint venture’s technology.
    The equity investment will be priced at an 84% premium to a 30-day VWAP leading up to milestone.
    VW Group CEO Oliver Blume during a news conference Tuesday said the German automaker expects to use Rivian’s technologies across a wide range of price points, international markets and brands.

    Other details

    Through 2028, Volkswagen said it will fund 75% of the shared platform costs within the joint venture, with Rivian funding 25%.
    Starting in 2029, VW will fund an incremental $100 million per year of the joint venture’s shared costs, which will reduce Rivian’s shared costs.
    Additionally, Rivian anticipates a material cost savings from sourcing shared parts such as electronic control units from suppliers.

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    Beverly Hills surgeon sues Medtronic for patent infringement

    A Beverly Hills surgeon is suing Medtronic claiming patent infringement of her hernia repair mesh product.
    It’s the latest in a series of patent challenges against Medtronic.
    In a statement to CNBC, a spokesperson for Medtronic said the company “has a long history of respecting the intellectual property rights of other innovators.”

    Michael Siluk | Education Images | Universal Images Group | Getty Images

    Dr. Shirin Towfigh thought she had designed a medical device that would revolutionize hernia care for women. Now, Towfigh is suing Medtronic, a global leader in medical devices, accusing the company of stealing her patented design. 
    A Beverly Hills surgeon with over 22 years of experience, Towfigh says she discovered that a significant number of her hernia patients experiencing post-surgery complications were women — and that most mesh designs on the market were primarily tailored to the male anatomy.

    In 2016, she filed for an international patent to protect a new design aimed at improving outcomes for patients.
    In a lawsuit filed in U.S. District Court in Delaware on Tuesday, the latest in a series of patent challenges against Medtronic, Towfigh accuses the medical device company of stealing her design after the parties met in 2015 and signed a mutual non-disclosure agreement. In 2016, Towfigh says she visited Medtronic’s manufacturing site in France to discuss a potential collaboration and her patent-pending product.
    In May 2017, Medtronic filed its own hernia mesh patent for a product that Towfigh says closely resembles her design.  
    “I expected a publicly traded company to have a more ethical approach about it, and that’s not what I experienced,” Towfigh said in an interview with CNBC.  

    Arrows pointing outwards

    Towfigh’s patented mesh designs.
    U.S. District Court in Delaware

    Towfigh is suing for damages of an undetermined amount.

    A spokesperson for Medtronic said in a statement to CNBC that the company is reviewing Towfigh’s complaint.
    “Medtronic believes in its innovation and has a long history of respecting the intellectual property rights of other innovators,” the spokesperson wrote.
    Towfigh says she followed up multiple times with Medtronic over the course of several years but made little progress. In a 2019 email exchange cited in the lawsuit, Towfigh expressed concern that Medtronic’s new mesh design “so exactly mirrored” her pending patent. A company representative responded to Towfigh saying Medtronic was “not going in the path of what you described to us in your patent.”
    Towfigh says upon raising her concerns further, Medtronic offered her a job as chief medical officer of the company’s hernia division, which she declined.
    In 2020, a local Medtronic sales representative approached her with a pre-market sample of the company’s new hernia mesh product. Towfigh described the product as nearly identical to her own patent-pending design. 
    “I couldn’t speak,” Towfigh told CNBC. “I saw the actual product in my hands for the very first time and I just went pale.” 

    The pre-market sample of Medtronic’s hernia mesh product.
    Source: U.S. District Court in Delaware

    In October 2019, Towfigh’s international patent was approved. In May 2020, Medtronic launched its new hernia mesh product, Dextile.
    The lawsuit is not the first time Medtronic has faced allegations of patent infringement. In 2014, the company was sued by Dr. Mark Barry, alleging that Medtronic violated two of his patents intended to correct spinal issues. A federal judge found that Medtronic “recklessly copied” Barry’s technology and awarded him $23.5 million. 
    The same year, Medtronic agreed to pay more than $1 billion to settle patent litigation with Edwards Lifesciences over allegations that Medtronic’s CoreValve product infringed on its transcatheter heart valve patent. 
    Most recently, in 2020, Colibri Heart Valve sued Medtronic, alleging the company’s devices violated its patent related to heart valve replacement for patients with cardiac conditions. Medtronic was ordered to pay $106.5 million. 
    — CNBC’s Scott Zamost and Agne Tolockaite contributed to this report. More