Business this week
China’s stockmarkets had another turbulent week, with the Shanghai Composite index falling by 6.4% over one day to its lowest point in more than a year. The central bank injected $67 billion into the financial system to boost liquidity. It also continued to prop up the yuan, which is under pressure partly because of the large amount of capital that is flowing out of the country. Meanwhile, the government decided to reduce capacity in steelmaking, which could result in 400,000 job losses.
Italy, which has one of the highest rates of non-performing loans in Europe, struck a deal with the European Commission to help its banks sell off their bad debt. The government will provide guarantees to investors who buy the loans. The agreement comes after a dramatic fall in the share prices of Italian banks in recent weeks. See article.
Andrew Bailey, who oversees financial stability for the Bank of England, was selected by the government to head Britain’s Financial Conduct Authority, which regulates banks’ behaviour and integrity. His appointment comes after a six-month search for someone to replace Martin Wheatley, who was ousted by the Treasury last summer, in part because of his uncompromising approach towards wrongdoing in the City. Senior bankers generally welcomed Mr Bailey as someone who is tough but fair.
A jury in London found five former brokers not guilty of conspiring with Tom Hayes to manipulate LIBOR, the benchmark inter-bank interest rate. Mr Hayes was sentenced to prison last August.
American International Group said it would return $25 billion to shareholders, a move it hopes will rally shareholder support in the face of calls from activist investors, led by Carl Icahn, to split the insurance company in three.
Johnson Controls, a maker of car parts, agreed to merge with Tyco, which builds electronic security-systems. The $20 billion merger will allow Johnson to move its headquarters to Ireland, where Tyco has relocated its base, in order to lower its tax bill. The American Treasury had introduced rules last year to make such “inversion” deals harder after a political backlash. Tyco, which became entangled in a high-profile corporate scandal in 2002, will lose its name after the acquisition.
In Britain, where the generous tax arrangements enjoyed by multinationals has created a political kerfuffle, Google reached an agreement with British tax authorities in which it will pay £130m ($186m) in back taxes. This came after a lengthy investigation into whether the internet giant had coughed up all the taxes it should have over the past decade. The inquiry found that Google had not evaded tax, but critics allege that the deal was still too generous to the tech firm. See here and here.
Facebook posted a quarterly profit of over $1 billion for the first time on the back of strong revenues from its ads on mobile devices.
DeepMind, a secretive artificial-intelligence company acquired by Google for $400m in 2014, announced that it had hit an AI milestone by developing a computer that can beat the best humans at Go, a complicated board game of East Asian origin. Such a feat had not been expected for years.