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30 May 2022

Market Round-Up

Commodity trading giant Glencore is due to plead guilty to several counts of bribery and market manipulation and pay penalties to authorities in the United States, Britain, and Brazil to resolve corruption allegations. In Britain, the group’s subsidiary, Glencore Energy UK, was charged with seven cases of profit-driven bribery and corruption by the UK Serious Fraud Office on 24th May. This was in connection to its oil operations in Cameroon, Equatorial Guinea, Ivory Coast, Nigeria, and South Sudan in which the company’s agents and employees paid bribes worth over US$25m, approved by Glencore, for preferential access to oil.

In the US, the company will pay penalties of US$700m to resolve US bribery investigations and US$485m to resolve market manipulation investigations after pleading guilty in two separate criminal cases. The first case related to a decade-long bribery scheme while the second condemned Glencore’s US commodities trading arm for engaging in an eight-year scheme to manipulate US fuel oil price benchmarks. This has been recognised as the US Department of Justice’s most sizeable criminal retribution to commodity price manipulation conspiracy in oil markets. In total, the firm will pay approximately US$1.5bn in overall penalties: the US$1.1bn to US authorities, US$40m to Brazilian prosecutors and an additional amount to the UK which will be finalised at a sentencing hearing. Glencore set aside US$1.5bn in February for the settlement, and it does not expect the final figure to differ significantly.

Alongside the fines, the US Department of Justice will further appoint two independent compliance monitors at Glencore for three years to oversee its internal controls. The company is unlikely to suffer financially from these punishments, however, the fine, by anti-bribery standards, is large and it sends an important message to the industry. It has further drawn greater scrutiny to the culture of one of the world’s largest commodity traders, and others alike.

UK retailer, Marks and Spencer (M&S) has said its profit growth may fall this year as the cost-of-living crisis dulls consumer spending. Despite adjusted pre-tax profit being in line with forecasts at £522.9m in the year to April 2nd, up from just £41.6m during the pandemic-hit year, the company expects a decline in real incomes, thereby deepening financial pressures on customers in the near future. That said, there is some evidence that M&S shoppers are better placed to handle the squeeze owing to higher levels of savings.

The online grocery retailer Ocado, of which M&S owns half, is already experiencing a retraction in sales to pre-pandemic levels as customers return to stores and make fewer large online orders. It has also said that it expects sales growth to be lower than the 10% previously indicated as energy costs begin to take effect. The venture still remains confident in the future potential of Ocado, despite anticipating that it will make a minimal contribution to profits this year, and further noted that online grocery sales were still materially higher than before the COVID-19 pandemic. The loss of profits from Ocado will be compounded by the absence of business rates relief in the UK and its decision to withdraw from Russia, resulting in around £30m of one-off costs. This left M&S’s share price volatile in early trading on 25th May, while Ocado’s stock was down about 4%.

Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. The value of investments and any income derived from them may go down as well as up and you could get back less than you invested.
 
 
Market Round-Up
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