The City View: Analysing the G7 plan to phase out Russian oil
Today Andy Silvester talks to City A.M. reporters Nicholas Earl and Leah Montebello. They go through the G7’s decision to phase out Russian oil, historically elevated gas prices, unpick Snapchat owner Snap Inc.’s plan to compete with the likes of TikTok, and break down Uber’s CEO Dara Khosrowshahi’s recent letter to employees.
And in the news: Morrisons owner CD&R has taken over McColl’s, a Bank of England rate setter has warned that inflation could rise above the BoE’s predictions, and crypto exchange Bitstamp has rushed to appoint a new CEO following the resignation of now ex-CEO Julian Sawyer.
Episode transcript (auto-generated)
Andy Silvester 0:00 Good afternoon and welcome to the City View podcast with me Andy Silvester, Editor here at City A.M. In a few minutes I’ll be joined by two of our start reporters Nick Earl and Leah Montebello as we take a deep dive into the worlds of energy prices and social media competition. For now it’s the corporate headlines and once you we hope we’re enjoying a relaxing weekend, a retail battle was very much in full swing. It now appears today that Morrison’s own a CD and R won a very brief bidding war for the Colts the convenience store operator which peered as of Thursday last week, to be heading for administration. They were joined in battle by the ESA brothers the soon to be owners of anston. Still just about owners of EG group perpetual for courts and restaurants business Morrison’s looks set to preserve all the 16,000 jobs at McCall’s, and I’ve agreed at least according to reports to take on pensions liabilities, as well as of our recording around 330. We’re still awaiting formal confirmation, but the working expectation is of a pre pack administration overseen by PwC announced this evening is the deal it makes sense to Morrison’s which already has its partnership with McCalls through Morrison’s direct Express stores. Elsewhere, a member of the Bank of England’s group of rate setters. Today Warren inflation could surge above even that body’s worst expectations. Michael Saunders, an external member of the Monetary Policy Committee, said unless interest rates keep rising inflation pressures will probably be greater and more persistent and the bank expects that alert shines as separate comments today from the bank’s former chief economist Andy Haldane, but its inflation will climb well above 10% This year, speaking to LBC Haldane so the elevated cost of living is certainly going to be the duration of the year and I think prospectively well into next or even the year beyond. Threadneedle Street alone said should have lifted rates much sooner as a tamp down on what it now expects to be the quickest inflation since the 80s. Other former rate setters have also weighed in accusing Andrew Bailey and Kate of being too slow to rein in inflation second half of last year. Meanwhile, crypto exchange Bitstamp, one of the 10 largest in the world has rushed to appoint a new chief exec after Julian Sawyer walked out over a boardroom disagreement. John Baptist craftier, who led Bitstamp syrup division since 2021, has taken the reigns as the company’s new global chief. In announcement Bitstamp said Sawyer, who is leaving the company after just 18 months quit to pursue other opportunities. However, in comments the city I am today so struck a very different tone in daily reading that he left the exchange over a boardroom disagreement. I’ve been working with the board and we have a difference of opinion over the strategy of the business or told us today without elaborating any more on the dispute. He first signalled his exit in a very 21st century style from the firm over the weekend when his Twitter and LinkedIn BIOS were updated to include the title ex CEO of Bitstamp. So who co founded the Challenger bank Starling and was briefly director at a rival crypto exchange Gemini. Tell city M is looking for new opportunities, and BA Systems and Rolls Royce have been granted defence contracts worth more than 2 billion pounds to boost the country’s submarine based nuclear deterrent. The two companies will begin the third major phase of the country’s future nuclear deterrent programme, which will include the largest subs ever built for the Royal Navy the latest financial commitment between the mid B and Rolls Royce something of a virtuous triangle. Speaking of that can be the three of us, Nick Earl Lear Montebello, joining me now, Nick, we’ll start with you. Why don’t we talk about something that we’ve talked about for a long time and then stop talking about because we will get bored of it. And it was all depressing us too much. But that is energy prices and the state of the global energy market. Late last night g7 statement at the White House, saying that all g7 members are much the West would be looking to phase out Russian oil. It was just about mealy mouthed enough to give them many years. But what’s the current state of play because my understanding outside everybody wants to move in this direction. The EU perhaps a little hamstrung by some of its member states and the rest of the world a little more hamstrung by the fact that they don’t know where to get anything else if they don’t go to Russia?Nicholas Earl 3:56 Yes, it’s a situation where in the long term, there’s a pretty established consensus that the West and the wider world has to move away from hydrocarbons and particularly from Kremlin backed fossil fuels. However, the energy crisis this winter is looming and the reality remains that as a consequence of long term mismanagement, four European member states are highly dependent on Russian, Russian gas and Russian oil in the case of Russian oil. There’s three countries Czech Republic, Slovakia and and Hungary who are pushing for exemptions, in his case more time to catch up with other European countries and cutting down their reliance on Russian Russian oil in their case they want till 2024 while the rest of the EU is phasing out of in next six months. You also have a situation where Japan will make statements such as we intend to move away from Russian oil without really specifying and in our situation with very little natural resources or raw materials. They’re highly dependent on global markets. Yeah. And including Russian oil investments. Andy Silvester 5:02 So it might be a while for oil to be to be boycotted, by which time who knows what state the war in Ukraine will be. But let’s talk about the other sort of economic food stuff that Russia provides in such in such quantities. And that’s that’s obviously liquid natural gas and gas prices. A bit of, it’s sort of odd to call it a roller coaster because it seems to keep going up. And we await the downward downward shift. But it does seem that perhaps there’s been an element of demand destruction. because gas prices, you tell me where are they over the past couple of weeks still shooting up or flattening out or what? Nicholas Earl 5:38 So gas prices are historically elevated above deposition last year, they’re just under two pounds per firm in the United Kingdom. Of course, that’s way below what they worked in early March to eight pounds per firm, but for context are 47 Pence prior to this crisis. It’s also worth noting that stifle US investment bank have just put a note out saying that they expect high gas prices to be priced into the market UK until at least 2025. why that matters, of course, is it means when Sunak considers any kind of economic help or supports gift to households, he has to bear in mind that spreading out the cost is going to be a much more longer term plan than he perhaps initially envisaged. Andy Silvester 6:15 Yeah, that’s the interesting thing about gas prices, if there was a drop down to that 47 p per therm tomorrow, actually, consumers would probably end up still having to pay a higher price because all the energy companies have bought their gas early or have hedged at certain higher prices. So once the watching no immediate relief on the way, just very, very quickly, we’ve got the Queen’s speech tomorrow, in Parliament, the Queen opening this session of parliament, Chancellor Boris Johnson sort of put a bit of a line in the sand, I suppose about what this next phase of his premiership might be an NG build likely to be part of that we think. Nicholas Earl 6:50 Yes, and there have been public calls from the UK is leading trade body energy UK, to both include an energy bill and also what they’d like to see in it. And, of course, the usual commitments about boosting you know, UK, renewables and transforming our energy sector for the future, but also an increasingly urgent tone among with energy UK and also other groups that are calling for immediate help for households, which is notable not just because of their calling for their calling for in the spring, when there’s supposedly demands go drop off significantly of next three to six months. It shows that if the call is already less intense now, it’s not hard to see how much pressure will be on Downing Street by August, September when the price caps updated again. Andy Silvester 7:31 Certainly well, yeah, we will. We’ll get that announcement sort of late August, so that’ll be a nice summer holiday for us all. Thanks very much, Nicholas Earl there on the energy microphone. From energy to social media, one might say both things full of hot air. Leah, you’ve been talking to a company that some years ago was very much predicted as being the next big thing and social media and communication snap and I when they floated way back in 2017. And in the US, a $24 per share IPO was oversubscribed. 12 times five years later shares pretty much still around 24 bucks. I think it’s fair to say new competitors, et cetera, have come in and slightly disrupted. What they were trying to do the disruptive disrupted, you suppose there UK lead here? How are they looking to catch up with some of their rivals, or perhaps go in a slightly different direction? Leah Montebello 8:26 Yeah, so I think it was really interesting. When I spoke to snap there was definitely that acknowledgement that they needed to pivot. And their solution to that compared to kind of messes. Metaverse is augmented reality. So what that is, is basically enhancing the world we have around us so with virtual shopping or scanning products and being able to order them from amazon so just basically really developing their model beyond that classic kind of messaging sending videos and and photographs. So yeah, they still have those functions but they’re kind of going full speed ahead on that that innovation Andy Silvester 8:57 Yeah, it seemed to me reading through your your interview right up today that for all the messaging history of the company in our sadness, remind everybody it’s basically started out as a messaging service, but one in which all of your messages which particularly video I mean, I think they’re always all videos, right? Yes, videos and photos essentially disappeared after 10 seconds or so. And you got told off if you screen grabbed it too often. So to keep it for posterity that to a certain degree that innovation at the time has now been caught up with by whatsapp over sort of disappearing or one time message policy and other things. And then the kind of the Snapchat making videos sending them to friends has almost been taken up by tick tock so they are really having to move to this this discover feed or it’s actually really interesting for advertisers and possibly a sign of things to come for other social media companies. So it’s a bit about that discover feed and how it how it’s useful for revenue generation, right because when all these companies are supposed to At least in theory make money rather than just Leah Montebello 10:03 think. Yes. So the Discover feed is basically a feed which feeds news and fun videos onto people’s apps. So brands can kind of pay to have their content on there that also kind of have snapchat originals. So it’s a way for Snapchat to make money in that way. What’s interesting about that is it does kind of have this similar Tik Tok copycat kind of style. So just to put them in kind of relation to each other. Tick tock has about a billion monthly users while Snapchat has about 600 million. So despite being the kind of younger rival tic TOCs doing very well, and they also share the same demographic of 13 to 24 year olds, which is obviously definitely playing on the minds of SNAP execs Andy Silvester 10:46 Yeah, no, it must be because certainly things look slightly different and I did five years ago for that IPA. Let’s talk about one other company who’s had an interesting few years Uber earnings last week, as per usual very impressive if you look at one number very concerning if you look at another it’s always been a bit all over the place as they as they expand into into myriad new new fields. But it sounds like from an email that you know, as soon as it was sent by the CEO to staff ended up in journalists inbox pretty rapidly that Uber arm pivoting slightly or perhaps just thinking maybe we’re moving into a new phase of the company and and being a bit more I guess a bit more like a normal company. Leah Montebello 11:31 I think they’re more conscious of their rivals as much as they say they’re not something that the chief kind of brought out was that they need to provide more value for investors so even quoted Jerry Maguire in the staff email which was quite amusing. Show them show me the money to the investors which I think is completely fair the share prices has gone down consistently despite you know like you say them posting pretty good results. They have their AGM this afternoon so we’ll see what comes out of that but I think it will be very much this kind of pivoting but we’re not sure how and cost cutting but again, we’re not sure how that space Andy Silvester 12:09 so that was interesting for a company that has been on a hiring spree right across the world. There was a line there said hiring is a privilege and we’ll be adding to headcount only really when we need to when it’s the right fit, which is a bit of a shift from the kind of language of the founder a few years back Travis Kalanick. He was very much of the view that I got he seemed to be confused waiting on will work for anyone but Uber so definitely want to watch a company that’s doing you know, some really interesting things with with UberEATS partnering up with Tesco etc on the one hand but also clearly trying to shake off maybe a bit of a reputation as a place where cash went to get spent rather than earned. Leah thanks very much. That is all from us at City View podcasts city I am a little whizzed through two specific sectors as well as the corporate news as ever. We’ll be back in your inbox tomorrow afternoon about 5pm And I’ll tomorrow be joined by Victoria scholar from interactive investor or from me for now.