Weighing on Brexit: foreign exchange markets enter UK political fray

The British opposition warned that Boris Johnson’s supporters could be pressing the prime minister for a no-deal Brexit in order to benefit their currency market positions. (AFP)
Updated 06 October 2019

Weighing on Brexit: foreign exchange markets enter UK political fray

  • John McDonnell, the Labour Party’s finance spokesman, earlier said some traders were ‘gambling on the country’s failure’
  • Foreign exchange markets have always been highly speculative

LONDON: Britain’s opposition parties are hitting out at currency speculators betting against the pound while also bankrolling the leadership campaign of pro-Brexit Prime Minister Boris Johnson.
However, allegations of conflicts of interest are difficult to prove in the highly globalized and largely unregulated foreign exchange (FX) markets.
John McDonnell, the main opposition Labour Party’s finance spokesman, warned that Johnson’s supporters could be pressing the prime minister for a no-deal Brexit in order to benefit their currency market positions.
He told MPs on Monday that some traders were “gambling on the country’s failure” and accused Johnson’s ruling Conservatives of receiving hundreds of thousands of pounds “from individuals who back a no-deal Brexit, many involved in hedge funds.”
Backed by the Liberal Democrats, McDonnell has demanded an inquiry and wrote to Cabinet Secretary Mark Sedwill, Britain’s top civil servant, to outline his concerns.
Former finance minister Philip Hammond, a staunch opponent of Britain leaving the European Union without a divorce agreement, has also expressed his concerns over potential currency trades related to no deal.
The government has dismissed the concerns as “myths” and refused to open an investigation or comment on individual Tory donors.
“We do not accept there is any prospect of a conflict of interest,” Simon Clarke, a finance minister, told the House of Commons in response to McDonnell.
Among those implicated in the allegations is Crispin Odey, a wealthy hedge fund manager who is a leading backer of a no-deal Brexit and Johnson.
He donated £10,000 to Johnson’s Conservative leadership campaign and has given almost £900,000 to pro-Brexit campaigns in the past, according to British media reports.
Odey told The Guardian on Monday that claims his support was motivated by an opportunity to make millions from short-selling British companies and the pound was “absolute rubbish.”
“We are trading currencies all the time, long and short,” he said.
The pound has lost around 15 percent of its value since the Brexit vote more than three years ago.
At the beginning of September, it fell back to levels not seen since 1985, aside from its dramatic post-referendum drop in 2016.
The accusations in Westminster center on “short-selling” of the currency.
This sees traders borrow and sell assets in the hope of then buying them back at a lower price and pocketing the difference between the old price and the new one.
Foreign exchange markets have always been highly speculative: US billionaire George Soros made his fortune by betting against the pound in the early 1990s, and has recently funded efforts to bring about another referendum on Britain’s EU membership.
And anti-EU populist Nigel Farage, a former commodities trader, was accused of using the 2016 referendum to fuel speculation on the pound — something he has denied.
Before the official announcement of the results, he sent the pound spiking by conceding the likely defeat of his pro-Brexit camp.
Hours later, the “Leave” side’s victory sent the British currency crashing.
However, experts say the sheer weight of the foreign exchange market — where more than $5 trillion is traded daily — makes it hard for individuals to have a big impact.
“It’s going to be super difficult to move the market,” Yuval Millo, an accounting professor at Warwick Business School, said.
Marcin Kacperczyk, at Imperial College London, agreed, noting it was “a different time” when Soros was able to speculate so successfully on the pound in the 1990s.
Millo said critics of currency speculators could struggle to prove any conflicts of interest.
“It is using my influence because I’m a donor to improve my market position,” he said of their likely motives.
The myriad influences on modern foreign exchange mean it is also hard to pinpoint one event or action as the sole cause of currency fluctuations.
Meanwhile, Odey and other speculators are not the only ones betting against the pound in the event of a no-deal Brexit.
Craig Erlam, an analyst at Oanda, is among those predicting an additional 20 percent drop in the currency’s value in such a scenario.
Short positions are also being taken in other trading areas, such as shares in British companies, according to Millo.


HP rejects Xerox takeover bid, says open to acquiring Xerox instead

Updated 18 November 2019

HP rejects Xerox takeover bid, says open to acquiring Xerox instead

  • In rejecting Xerox's $33.5 billion cash-and-stock acquisition offer, HP said the offer “significantly” undervalued the personal computer maker
  • Xerox made the offer for HP on Nov. 5 after resolving its dispute with its joint venture partner Fujifilm Holdings Corp.
NEW YORK: HP Inc. said on Sunday it was open to exploring a bid for US printer maker Xerox Corp. after rebuffing a $33.5 billion cash-and-stock acquisition offer from the latter as “significantly” undervaluing the personal computer maker.
Xerox made the offer for HP, a company more than three times its size, on Nov. 5, after it resolved a dispute with its joint venture partner Fujifilm Holdings Corp. that represented billions of dollars in potential liabilities.
Responding to Xerox’s offer on Sunday, HP said in a statement that it would saddle the combined company with “outsized debt” and was not in the best interest of its shareholders.
However, HP left the door open for a deal that would involve it becoming the acquirer of Xerox, stating that it recognized the potential benefits of consolidation.
“With substantive engagement from Xerox management and access to diligence information on Xerox, we believe that we can quickly evaluate the merits of a potential transaction,” HP said in its statement.
The move puts pressure on Xerox to open its books to HP. Xerox did not immediately respond on Sunday to a request for comment on whether it will engage with HP in negotiations as the potential acquisition target, rather than the acquirer.
HP on Sunday published Xerox CEO John Visentin’s Nov. 5 offer letter to HP, in which he stated that his company was “prepared to devote all necessary resources to finalize our due diligence on an accelerated basis.”
Activist investor Carl Icahn, who took over Xerox’s board last year together with fellow billionaire businessman Darwin Deason, said in an interview with the Wall Street Journal last week that he was not set on a particular structure for a deal with HP, as long as a combination is achieved. Icahn has also amassed a 4% stake in HP.
Xerox had offered HP shareholders $22 per share that included $17 in cash and 0.137 Xerox shares for each HP share, according to the Nov. 5 letter. The offer would have resulted in HP shareholders owning about 48% of the combined company. HP shares ended trading on Friday at $20.18.
Many analysts have said there is merit in the companies combining to better cope with a stagnating printing market, but some cited challenges to integration, given their different offerings and pricing models.
Xerox scrapped its $6.1 billion deal to merge with Fujifilm last year under pressure from Icahn and Deason.
Xerox announced earlier this month it would sell its 25% stake in the joint venture for $2.3 billion. Fujifilm also agreed to drop a lawsuit against Xerox, which it was pursuing following their failed merger.

Test for new HP CEO
In 2011 as the centerpiece of its unsuccessful pivot to software. Little over a year later, it wrote off $8.8 billion, $5 billion of which it put down to accounting improprieties, misrepresentation and disclosure failures.
More recently, HP has been struggling with its printer business segment recently, with the division’s third-quarter revenue dropping 5% on-year. It has announced a cost-saving program worth more than $1 billion that could result in its shedding about 16% of its workforce, or about 9,000 employees, over the next few years.
Xerox’s stock has rallied under Visentin, who took over last year as CEO. However, HP said on Sunday that a decline in Xerox’s revenue since June 2018 from $10.2 billion to $9.2 “raises significant questions” regarding the trajectory of Xerox’s business and future prospects.