Business review 2015: Ebullient start gave way to scandal, slump and disaster

Those who expected the stock market to surge in 2015 did not predict the bursting of China’s shares bubble and an oil price collapse, among many of the year’s surprising events

The two biggest beer makers agreed to combine (AP)

View from the UK

Captains of business tucking peacefully into their turkey sandwiches will be in a mood at odds with their position over the rest of 2015. It was a year when the central bank-fuelled bull market was challenged by stronger forces, from the impact of China’s slowdown to the flood of cheap oil.

Bosses were forced to fight fires this year – exemplified by the emissions scandal at VW, which crept out of nowhere to take the scalp of chief executive Martin Winterkorn and the pride of Germany’s industrial jewel.

Around 11 million cars are thought to have been designed to cheat emission tests, but they were sussed out by US regulators. VW reported its first loss for 15 years after setting aside £4.8bn to cope with the fall-out.

The scandal cast a pall of the corporate world, but a year earlier the mood had been ebullient. The FTSE 100 had been expected to surge in 2015, with forecasts as high as 7,700 points. It did hit a record high of 7,122.73 on 27 April – but fell back to earth with a bump, and is down nearly 5 per cent on the year with three more trading sessions to go.

The turning point was 24 August, or Black Monday, when stock markets in Shanghai plunged 8.4 per cent. By the end of the week they were 40 per cent off their June peak.

Chinese shares slumped (EPA)

China’s stock market had been rising for 18 months, aided by support from the government. A surprise move by the People’s Bank of China to devalue its currency – coming a day before explosions at a storage site in the port of Tianjin killed hundreds – cast a dark spell over the markets, helping to burst the bubble.

The spiral triggered panic, with the FTSE 100 falling to a low of 5,768 points. It intensified fears over China’s real economy. Growth had fallen below 7 per cent for the first time since 2009 in the third quarter, dampened by a slowdown in the country’s huge consumption of commodities such as copper and iron ore.

Miners in London felt the brunt. Anglo American, BHP Billiton and Rio Tinto look set to end the year down 73 per cent, 40 per and 33 per cent respectively.

BHP’s woes were worsened by a mining disaster at a joint venture in Brazil when a burst dam caused toxic iron waste to flood towns and villages, killing at least 13.

Miners were not alone in the turmoil. The Swiss-based trading group Glencore was forced to go cap-in-hand to investors for $2.5bn (£1.7bn) after shares dived to a fifth of the value they floated at in 2011. Fears that Glencore would be sunk by its $30bn debt pile sparked a wave of selling from investors, but it survived.

The great fall of China proved an uncomfortable backdrop for President Xi Jinping’s state visit to the UK in November. A steady flow of P45s dished out to UK steel workers also soured the visits. Chinese producers had dumped unwanted cheap steel on global markets throughout the year, and repercussions were felt in the UK. Sahaviriya Steel Industries (SSI) mothballed its plant at Redcar, with the loss of 2,200 jobs. Tata Steel closed sites in Scunthorpe and Lanarkshire, effectively ending steel production north of the border and throwing 1,200 out of work. The downstream steel company Caparo went into administration, putting 1,700 jobs at risk, although some parts were saved.

Pain was mirrored in the oil and gas industry, where falling oil prices. due to an Opec-led production glut, hit jobs in the North Sea. Scotland lost 6,000 oil industry jobs and incomes were slashed.

George Osborne had three Budgets (Getty)

Shell tried to stave off the headwinds by pulling out of drilling in Alaska and unveiling a $70bn takeover of the exploration firm BG Group, but the takeover is still being questioned, with oil down to $36 a barrel from $50 when the deal was agreed.

The combination was one of several big mergers which took M&A activity in the UK to its highest level since 2007.

The world’s biggest brewer, AB Inbev, bought rival SAB Miller for £71bn to build a powerhouse brewing one in every three beers globally.

Meanwhile the battle to lure consumers with combined broadband, mobile, TV and wireless packages sparked a wave of tie-ups in the telecoms sector. BT snapped up mobile phone network EE for £12.5bn, and Hutchison Whampoa’s 02 network bought phone rival Three.

Consolidation was also on the cards in the betting sector, with Ladbrokes announcing a £2.3bn takeover of Coral in June and Betfair merging with Paddy Power in a £7.5bn deal.

While the business environment was dominated by events beyond London’s control, events closer to home triggered a new mood. The general election campaign put the brakes on corporative activity as bosses waited to see if Labour leader Ed Miliband’s sceptical rhetoric on business would prevail.

The Tory victory in May gave the Chancellor, George Osborne, a mandate to push a Conservative business agenda. Not only did he in effect deliver three Budgets this year – keeping accountants busy with one pre-election, one post-election and an Autumn Statement – he also revived his Thatcherite impulse with a spate of privatisations. The sale of the Government’s 80 per cent stake in RBS, a plan to sell off the rest of Lloyds Banking Group through a retail share sale next year, and the sale of the vestiges of Royal Mail all helped to restore a semblance of confidence in the banking sector.

This was mirrored in a new approach from Mr Osborne. Gone was the banker-bashing of the Coalition, and in its place a new, warmer tone, marked by the Chancellor’s decision to amend a new bank levy when HSBC threatened to pull out of the UK. The mood music was not lost on the boards of Britain’s biggest banks. Barclays’ axeman, chairman John McFarlane, fired saintly retail banker Antony Jenkins and picked a former US investment banker called Jes Staley as his successor. Standard Chartered chose JP Morgan alumni Bill Winters to try to reverse the emerging market specialist’s fortunes.

Hand-wringing about whether the banks would return to the swaggering era of Bob Diamond was soothed by Mr Osborne’s less confrontational approach, marked by the removal of tough-talking Martin Wheatley as head of the Financial Conduct Authority – a move cheered by many in the City.

VW’s Matthias Muller faces the press (AFP/Getty)

Housing, a centrepiece Tory policy, also featured heavily, with Mr Osborne moving to try to rein in buy-to-let mortgages after the Bank of England expressed concerns about its growth.

Housebuilding stocks such as Berkeley and Taylor Wimpey – up 46 per cent and 49 per cent respectively so farthis year – continued to surge due to a plethora of government policies to build more houses.

The dying embers of this year saw Tom Hayes, the trader implicated in the Libor scandal, win a reduction in his 14-year jail term (to 11 years).

Hayes was the poster boy for financial impropriety in 2015, but the most curious tale of financial shenanigans occurred in a quiet suburban street in Hounslow. Navinder Sarao, dubbed flash Nav or the Hound of Hounslow, was accused of sparking the US flash crash in 2014 – while trading from his parents’ bedroom. Mr Sarao is fighting extradition to face charges in the US.

In a year of unpredictability – from VW to Glencore – Mr Sarao’s strange tale was probably the most unpredictable of all.

Michael Bow

View from the US: Sometimes zero can be a very good result​

Americans might think that they had little to cheer in 2015, but there is no denying it: the US economy is still a model of consistency. So consistent, in fact, that taking inflation into account, year-on-year growth across the three major market indices – the Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite – is almost zero.

As it happens there are times when no growth isn’t such a bad thing. The growth in American stock values was approaching bubble territory, and it is far better to take a breather rather than to burst. At the same time, economic growth might be anaemic, but at least it’s growth.

The Federal Reserve did its best to dull equity prices, although it took all year for Janet Yellen and her central bank colleagues to actually pull the trigger and raise interest rates after a year of threats. The 25 basis point increase in the cost of borrowing, announced following the Fed meeting on 16 December, was largely priced into the market. Most economists believe that more increases will come in 2016, but with super-cautious Fed leadership and an economy that is at best a mixed bag, a year of aggressive interest rate increases is about as likely as a Rolf Harris comeback.

Marissa Mayer’s time could be up at Yahoo (Getty)

It was a record year for buying, selling and merging corporations. It is rare to have record years back to back, so maybe 2016 will see a little less enthusiasm for mergers & acquisitions. A final fling using leverage created by virtually free money and a brief moment of the good old days for investment bankers perhaps, for once not overshadowed by wide-boy trading desks.

The pharmaceutical sector led the way, following 2014 when a handful of mega-deals fell through. Pfizer spent pretty much all the petty cash arranging a “merger” with Allergan, uniting Viagra and Botox and becoming Irish in the process. That raised the ire of American politicians, incensed that a company would take tax avoidance to its logical conclusion.

In an investment banker’s dream, Allergan’s genetics business was bought by Teva for $40bn (£27bn), just months before Pfizer’s deal ended Allergan’s independence.

Big deals were in vogue: 2015 saw nine worth more than $50bn, including Dell’s $67bn bid for EMC and Du Pont’s merger with Dow Chemical, valued at $130bn. There were also 58 deals valued at more than $10bn, another record, including a handful in the health insurance market as it continues to find ever more inventive ways to profit from ill Americans.

Perhaps they won’t all go through – 2015 was also a year that saw regulators put the kibosh on a handful of deals, putting consumers first for a change.

Another trend was the return of the demerger. Fiat Chrysler demerged and listed Ferrari, while in tech, HP split itself into the catchily named HP Inc and Hewlett Packard Enterprise.

There is one more demerger in the pipeline, and along with it the likely end of Marissa Meyer’s tenure at Yahoo. One of several female CEOs targeted by activist investors (Du Pont’s Ellen Kullman won her proxy battle with Nelson Peltz, but lost the war and fell on her sword in October), Ms Meyer, hired to turn the tech dinosaur around, is finding it harder and harder to justify her $40m-ish annual compensation. The board has just agreed to sell the core Yahoo business rather than follow her plan to spin off its stake in Chinese online retail giant Alibaba. When you are CEO and the board rejects your idea in favour of that proposed by an external investor, you know your time is up.

All this M&A action must presumably have been a boon to hedge fund managers? Not quite. Some of the best-known managers cannot wait for 2015 to end, most notably Bill Ackman of Pershing Square. Arguably the most influential hedge fund manager of 2014 endured an annus horribilis, mainly thanks to his huge holding in the Canadian pharmaceutical giant Valeant. Revelations and accusations about Valeant’s questionable business practices saw the stock tank, and by November Pershing had lost 24.5 per cent of its value.

Other so-called Masters of the Universe showed their mortality, and as usual most would have done far better tracking the Dow or Nasdaq instead. Maybe 2016 will be the year the myth of hedge fund superiority will finally be put to rest.

Meanwhile Martin Shkreli, the “pharma bro” and hedge fund manager, started the year as an unknown and ended it as the internet’s most hated person, by buying the licence to an important anti-malarial drug and hiking its price from $13.50 to $750 a tablet. Perhaps security fraud charges against him – which he calls “baseless”– will stick and his name will disappear in 2016 as fast as it appeared in 2015.

Andrew Dewson