| By Julia Horowitz • Monday, October 28 | | | | Happy Monday. In today's newsletter: Trouble at HSBC, LVMH makes a bid for Tiffany and another high stakes day for Brexit.
Markets are mostly rising on optimism that the United States and China are close to finalizing parts of a "phase one" trade deal. US stock futures point higher, while markets in Europe opened mixed. Stocks in Asia kicked off the week to broad gains.
▸ Forwarded this newsletter? Want global markets news and analysis from CNN Business reporters every morning? You can sign up here. | | | What's happening now in markets: MARKET DATA AS OF 6:15 AM ET | | EARNINGS MONITOR HSBC forced to 'remodel' after profit plunges
Some of the world's biggest banks are coming under pressure. That's clear from earnings at HSBC, whose business took a hit last quarter.
The London-based bank said Monday that pre-tax profit between July and September came in at $4.8 billion, a drop of 18% compared to the same period last year, my CNN Business colleague Sherisse Pham reports. The bank cited "challenging market conditions" and "ongoing economic uncertainty." It pledged to take action to reform its European and American businesses.
"We ... need to remodel the organizational structure of HSBC to remove some of the complexity that has, I believe, been an obstacle to effective execution of our plans," interim CEO Noel Quinn told analysts.
Plenty of headwinds: HSBC is contending with falling interest rates, which squeeze lending margins. This makes it harder to overhaul struggling units. It also faces geopolitical uncertainty in top markets — though its business in Hong Kong looks surprisingly resilient, despite ongoing protests.
Shares in London are down more than 4%. | |
"Overall a poor set of results," Edward Firth, an analyst at Keefe, Bruyette & Woods, said in a note to clients.
But perhaps there's a silver lining. Per Firth: "The good news is that this performance looks set to finally goad the management into taking some of the actions to address underperforming businesses that we have been [waiting] for."
Remember: A recent report from McKinsey found that more than half of the world's banks could be in trouble when the next economic downturn hits. The consultancy definitely wasn't talking about HSBC when it pointed to banks that were below scale and operating in unfavorable markets. But HSBC's earnings are a reminder that even the biggest players have plenty of problems, especially in Europe.
On the radar: Deutsche Bank, another European bank with major issues, reports third quarter results later this week. | | VOICES On the strength of the US dollar "Emerging markets can help to 'save the world' in this downturn, but this requires a weaker US dollar and thus a much more dovish Fed."
DAVID HAUNER, BANK OF AMERICA MERRILL LYNCH STRATEGIST
Read more from CNN Business. | | DEAL WATCH LVMH could buy Tiffany in massive luxury deal | |
LVMH is in takeover talks with iconic jewelry company Tiffany & Co., the French luxury giant confirmed Monday, following a string of weekend reports.
It's not a done deal. "There can be no assurance that these discussions will result in any agreement," the company, which owns brands such as Louis Vuitton, Dior and Givenchy, said in a statement.
Any deal would likely come at a massive premium. Oliver Chen, an analyst at Cowen, predicts that LVMH would need to offer at least $160 per share. Tiffany's stock closed at $98.55 per share on Friday — though it's up nearly 30% in premarket trading on news of the discussions.
Chen thinks LVMH can afford it, and sees Tiffany as a solid takeover target. He pointed to the company's strong brand as a "diamond and bridal authority," as well as long-term growth potential in China.
But wild cards remain. One thing to watch other for is interest from other luxury players. Chen identifies Richemont, which owns Cartier, as one company that might be interested in Tiffany. | | UP NEXT
Another big week for earnings. AT&T, Spotify and Walgreens Boots Alliance report before US markets open Monday. Google parent Alphabet, Beyond Meat and XPO Logistics follow after the close.
Coming tomorrow: Investors will get a first look at the financial toll of the GM strike, which ended last week.
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WHAT WE'RE READING AND WATCHING
▸ Hong Kong is in a recession after five months of protests (CNN Business)
▸ H&M CEO sees 'terrible' fallout as consumer shaming spreads (Bloomberg)
▸ Hedge fund kings are facing a reckoning (Wall Street Journal)
▸ India's economy has lost steam, raising the stakes for Modi's second term (FT)
▸ The Model Y could be a game changer for Tesla (CNN Business)
▸ To balance its budget, Iran would need oil at $195 per barrel next year (Reuters)
▸ Argentina's Macri concedes defeat as Peronists return to power (CNN) | | | OKAY, SO... The Brexit deadline has been extended again
The European Union on Monday accepted the United Kingdom's request for a Brexit extension until January 31 — but the pound barely moved as a result.
Sterling is up just 0.1% to $1.284 on the news. That's because so much remains uncertain, including whether Prime Minister Boris Johnson will get his desired UK general election on December 12.
What's next? Only time will tell. In the meantime, the pound will await the next big headline.
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