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The Guardian - UK
The Guardian - UK
Business

Wells Fargo CEO grilled again; Deutsche Bank shares drop – business live

House Financial Services Committee member Rep. Carolyn Maloney asks Wells Fargo CEO John Stumpf why he sold shares in 2013, after learning of mis-selling scandal
House Financial Services Committee member Rep. Carolyn Maloney asks Wells Fargo CEO John Stumpf why he sold shares in 2013, after learning of mis-selling scandal Photograph: Cliff Owen/AP

And finally.. the Dow Jones industrial average has closed with triple-figure losses, as worries over Deutsche Bank mount.

The Dow lost 195 points or 1.07% to finish at 18,143.

Deutsche itself hit new lows, and was down 6.7% at €11.48 in late trading. Reports that some hedge funds have been reducing ties with the bank have caused jitters, although the company insists that it has a stable financial position.

CNBC took the mood on Wall Street:

“When you look at what’s going on in the Deutsche Bank options, you’re seeing a lot of puts being bought,” said Daniel Deming, managing director at KKM Financial. “So you’re getting some concerns that this could turn into something bigger.”

So, why are any hedge funds taking money out of Deutsche Bank, when the bank insists it doesn’t need government support, and is adequately capitalised?

Chris Wheeler, a financial analyst with Atlantic Equities LLP in London, has told Bloomberg that “The issue here is now one of confidence,”

“That’s what’s going on here.

The thinking is ‘Deutsche Bank is fine, but there’s a slim chance it might not be, so why leave my money in there?’”

So that’s why New York-listed shares in DB are down over 7%, and the Dow Jones industrial average has shed 177 points or 1%.

Government bonds are rallying too, which is usually a sign of anxiety as investors look for a safe place to put their money.

The selloff is getting worse:

Deutsche Bank shares fall

Over on Wall Street, Deutsche Bank’s shares have just tumbled by 5%.

This is triggered by a Bloomberg report that around 10 hedge funds who clear derivatives trades with Deutsche Bank have cut their exposure by withdrawing some excess cash, and cutting positions held at the bank.

This is a sign of counterparties’ “mounting concerns about doing business with Europe’s largest investment bank”, the Bloomberg report says.

However, the “vast majority” of the 200 clients who clear their derivatives through Deutsche have made no changes.

In a statement, Deutsche Bank insisted that it was in a ‘stable financial position’, and making progress:

“Our trading clients are amongst the world’s most sophisticated investors.

“We are confident that the vast majority of them have a full understanding of our stable financial position, the current macroeconomic environment, the litigation process in the U.S. and the progress we are making with our strategy.”

The report has also sent the New York stock market into the red; the Dow is now down by 162 points, or almost 1%.

Updated

Opec deal drives London stock market to 6-week high

Back in the markets, the London stock market has closed at its highest level since mid-August.

The blue-chip FTSE 100 index gained 70 points, or 1%, to close at 6919.

It’s being driven by hopes that Opec members will follow through on their pledge to cut production by up to 700,000 barrels per day in November.

Oil companies led the rally, with Royal Dutch Shell jumping 6.6%, BP up 4.3%, and Tullow Oil gaining almost 10%.

Capita slumped by 26%, though, following this morning’s profits warning.

The FTSE 100 tonight
The FTSE 100 tonight Photograph: Thomson Reuters

Although analysts have warned that the deal will be hard to agree and enforce, the oil price is now rising this afternoon.

Brent crude has now gained almost 2% to $49.55, up 90 cents today. And US crude has gained 2.3% to $48.13.

Joshua Mahony, Market Analyst at IG, says the Opec deal shows that Saudi Arabia has changed its approach to the oil market. But will it work?....

While the news of a production cut is a welcome surprise, the deal will be treated with a degree of scepticism owing to the notoriously unreliable nature of OPEC discussions.

Most notably, the meeting goes to show that Saudi Arabia and Iran can work together, despite public spats between the two nations. Arguably despite this deal, supply will continue to outstrip demand, while US production will likely fill the gap with increased output as price rises. However, the key takeaway is that by ditching the market-based pricing mechanism of recent years, Saudi Arabia have re-established the relevance of OPEC, with the price of oil once more being manipulated by the world’s biggest cartel.

The House Committee now hear reports that Wells Fargo staff targeted African-American churches for false cross-selling, and referred to sub-prime loans as ghetto loans.

Stumpf says this would be totally unacceptable.

Could a dairy farmer find that he can’t get credit because his credit score has been ‘dinged’ by his bank opening accounts?

Stumpf confirms that this is how credit scores work.

So, two million people have been dinged?

No, says Stumpf. There were 565,000 credit cards involved - we’ve contacted 20,000 people, and only 25% say they were mis-sold.

My instruction is ‘make it right’, he insists.

This is a quality company that made some mistakes, pleads Stumpf as he faces more sustained criticism.

Both sides of the House committee are united in criticising Stumpf:

Stumpf is asked about reports that staff were fired for whistleblowing about the problems at Wells Fargo.

We’re taking that very seriously, he replies. We have a ‘non-retaliation’ policy.

Quote of the day:

That’s a reference to last week’s session, where Elizabeth Warren told Stumpf he should resign and be criminally investigated.

Incidentally, Public Citizen have produced a detailed guide into Wells Fargo’s cross-selling practices:

The “King of Cross-Sell” and the Race to Eight

Here’s a flavour:

Cross-selling amounts to selling a new product to an existing customer. For example, if a customer only has a savings account with Wells Fargo, an employee may try to “cross-sell” that customer a checking, credit card, or other type of account.

According to Wells Fargo’s Chairman and CEO, John G. Stumpf, cross-selling “is the result of serving our customers extraordinarily well, understanding their financial needs and goals over their lifetimes, and ensuring we innovate our products, services, and channels so that we earn more of their business and help them succeed financially.”

The Consumer Financial Protection Bureau (CFPB), the Office of the Comptroller of the Currency (OCC), and the Los Angeles (LA) City Attorney found the exact opposite – fining Wells Fargo $185 million for engaging in fraudulent cross-selling practices.

The CFPB described these as “Improper Sales Practices;” the OCC described these as “unsafe or unsound practices in the Bank’s risk management and oversight of the Bank’s sales practices;” and the Los Angeles City Attorney wrote in its complaint that Wells Fargo imposed “an ambitious and strictly enforced sales quota system” in which “those failing to meet sales quotas are approached by management, and often reprimanded and/or told to ‘do whatever it takes’ to meet their individual sales quotas.” The Los Angeles City Attorney also wrote: “Managers constantly hound, berate, demean and threaten employees to meet these unreachable quotas.”

Stumpf says there is no evidence that any ethnic group was disproportionately affected by the practice of creating fake accounts.

Asked if seniors were targeted, Stumpf says that young people actually suffered more.

Stumpf told to resign

John Stumpf is told to submit his resignation, rather than hang on because he has the board’s support.

Congressman Steve Pearce tells Stumpf that he failed to tackle the problems at Wells Fargo back in 2011 or 2013.

You have proved that you did not show leadership… I think you should submit a resignation.

Stumpf replies that “we did take accountability”, and invested in things to address the problems with cross-selling financial products.

What you did didn’t work, Pearce shoots back.

Democratic congressman David Scott says he’s never seen such dreadful behaviour by a bank boss, misselling accounts to customers.

Stumpf insists he didn’t mis-sell these accounts personally, and is cleaning the affair up.

This won’t satisfy Scott, who tells Stumpf:

You should be downright ashamed of yourself, and you should apologies.... for the rancid example that you are setting, and the damage that you have done to the banking industry.

Stumpf says that he is “deeply sorry”, and committed to resolving the problems.

Q: Do you think what you did was criminal?

I’m not a lawyer, I led the company with courage, Stumpf replies.

Updated

Stumpf is asked whether he understands the damage that Wells Fargo has done to the industry.

Stumpf replies that he grew up on a small farm, and understands proper values.

I stand with the people who are doing the right thing, he pledges.

Congressman: Wells Fargo has given industry a black eye

John Stumpf, House Financial Services Committee member Rep. Gregory Meeks.
House Financial Services Committee member Rep. Gregory Meeks. Photograph: Cliff Owen/AP

Democratic member Gregory Meeks spoke for many critics, telling John Stumpf that Wells Fargo was a “criminal enterprise”, that has “given the entire financial services industry a black eye.”

He also suggested that the entire board may have to go.

Updated

Wells Fargo CEO Stumpf testifies before the House Financial Services Committee on Capitol Hill
Wells Fargo CEO John Stumpf Photograph: Gary Cameron/Reuters

And now, the House committee moves onto exactly why Wells Fargo urged its staff to cross-sell eight financial products to each customer.

It was a rallying cry, John Stumpf says. The average American family has 14 financial products...

But Congressman Ed Royce isn’t convinced. He points out that Wells Fargo’s share price rose steadily as the cross-selling gathered pace [partly because some workers were creating fraudulent sales]

Updated

Democratic member Mike Capuano compares Stumpf and his board to a bank robber who recently stole from a Wells branch.

At the least, you’re guilty of conspiracy to commit fraud, conspiracy to commit identity theft.....and at least another dozen crimes, Capuano declares.

He also tells Stumpf that his problems will really start when prosecutors get hold of him.

Republican Sean Duffy then lays into Stumpf, for not stopping the account mis-selling scandal earlier.

Duffy says Wells Fargo fired 1000 people in one year, another thousand the next, without the problem being stopped.

And all the time you’re stealing from people.

If any bank in my community were stealing from people, then we’d fire and fix the problem.

Stumpf agrees that “in some cases” Wells Fargo staff had stolen from customers.

Duffy accuses Stumpf of allowing the scandal to rumble on:

I think Wells Fargo was making a lot of money out of what you were doing, and you were hoping you wouldn’t get caught.

Stumpf denies this, saying that fraudulent accounts cost $10m to fix. Wells Fargo loses out if a customer doesn’t actually use a new product, he promises

John Stumpf is now accused of putting unsustainable pressure on workers, by “bragging” about the amount of new bank accounts, credit cards, etc that Wells Fargo was “cross-selling” to customers.

Congressman Brad Sherman says:

“You fired 5,300 people, you took 5,300 good Americans and turned them into felons with a system that you created, benefited from and drove your stock price up by bragging about your levels of new accounts.”

And while thousands of staff were fired for misconduct, nothing was done to fix the underlying problems, Sherman adds.

Blaine Luetkemeyer, Republican representative, then slams Stumpf for saying that Wells has sacked 1,000 staff each year for misconduct.

That only happens if there is a culture that allows that to happen, Luetkemeyer insists. He also blames regulators for not spotting problems.

Stumpf denies that there is a cultural problem at Wells, but he’s facing more calls to step aside over this scandal.

Updated

John Stumpf also tells the House committee that Wells Fargo is working on a new sales incentive scheme, and fully reviewing its control practices, going back several years.

But the politicians aren’t impressed.

Nydia Velázquez, Democratic member, challenges Stumpf over the lot salaries paid to its staff:

I know you’re not aware of this, but it’s very hard for someone to live in this country with a $25,000 salary.

Wells Fargo boss grilled again

John Stumpf at

The CEO of Wells Fargo, John Stumpf, has returned to Capitol Hill for a second grilling.

He’s being quizzed by the House Financial Services Committee over the mis-selling scandal that saw 2 million unauthorized credit card and deposit accounts ordered for customers without permission.

Republican member Carolyn Maloney has challenged Stumpf for selling $13m of Wells Fargo stock in 2013, immediately after he heard about the fake account scandal.

Maloney says it’s “very suspicious that your largest stock sale was after your $1.8 trillion bank was turned into a school for scoundrels.”

Stumpf says he owns much more stock than he is legally obliged to. He doesn’t deny selling the stock, but insists it wasn’t triggered by problems at the bank.

He’s also been challenged for not resigning over the scandal.

Republican Patrick McHenry tells Stumpf that his bank has broken the law, and hurt customers. So what ethical standards is he holding himself up to?

Stumpf insists that Wells Fargo is committed to fully investigating the issue, and whether any staff were fired for missing sales targets.

Updated

Back in Frankfurt, Commerzbank’s shares have fallen by over 2% after it announced 9,600 job cuts and a dividend freeze.

But the flurry around Deutsche Bank has calmed a little. Its shares are up 0.7% today, after the Berlin government insisted yesterday that it isn’t drawing up a rescue plan.

Mujtaba Rahman, managing director at Eurasia Group, argues that Berlin is unlikely to bail out Deutsche Bank, for a couple of reasons.

First, it might drive more voters towards the populist Alternative for Deutschland party.

Secondly - EU rules insist that bond-holders are ‘bailed in’, before taxpayers are tapped up. And that should provide enough fresh capital if needed.

He says:

According to reports, Deutsche has set aside €5.5bn for potential fines and legal costs related to its ongoing discussions with the US Department of Justice.

Given leaks the DoJ is seeking a much higher fine – in the order of €14bn – that means the banks maximum capital loss would be around €8.5bn. But Deutsche has approximately €12bn of “Cocos” – financial instruments that are designed to be converted to shares if the bank were to enter a formal resolution procedure or undergo a precautionary recapitalisation. As such, these should easily cover any capital shortfall and obviate the need for taxpayer money from Berlin.

More American data just hit the wires, but this is less positive than the growth figures.

The number of contracts signed to buy a US home dipped by 2.4% last month, down to the lowest level since January.

That implies that US consumer demand/confidence is weak. But analysts also blame a lack of supply; there simply aren’t enough homes coming onto the market.

Lawrence Yun, chief economist at the National Association of Realtors, explains:

In most other areas, an increased number of prospective buyers appear to be either wavering at the steeper home prices pushed up by inventory shortages or disheartened by the competition for the miniscule number of affordable listings.”

Energy analyst Joe McMonigle of The Abraham Group suggests Opec’s deal is looking less impressive, now the various hurdles have been examined:

Updated

This muted reaction on Wall Street shows that Opec’s deal isn’t a major shift for global oil market (yet, anyway).

But it’s still a start. as Sebastien Marlier, commodities analyst at the Economist Intelligence Unit, explains:

Given how divided OPEC members appeared only a few days ago, this joint agreement is a victory for the group. The pain caused by two years of low oil prices has prompted the cartel’s members to look past their differences.

But uncertainties abound and a much clearer message will be needed in November if prices are to move decisively higher.

He also sees several hurdles:

  • OPEC still needs to decide how the production cuts will be shared; the Saudi-Iran rivalry could re-emerge as a hurdle here.
  • OPEC also needs to determine for how long it wants these quotas to stay in place; only a lasting cut will have a significant impact on the global supply-demand balance.
  • Even if OPEC agrees on these details, implementation and compliance issues are likely to arise; Iran, Libya, Nigeria, Venezuela and Iraq, which could all make a case for being exempt from the cut, could be tempted to cheat. It is also worth noting that Saudi Arabia’s output usually ebbs after the domestic peak in demand in the summer, so a production cut may have little impact on the country’s exports.
  • A final risk for OPEC is that higher prices, if sustained, risk incentivising production outside OPEC, notably in the US. This would defeat the whole purpose of yesterday’s agreement.

Over in New York, Wall Street has just opened for business with the usual bell-ringing and confetti.

Shares are dipping a little, with the Dow Jones down 0.1% or 17 points at 18,321.

But the US oil price is picking up, a little - gaining 20 cents per barrel to $47.25.

That shows the markets haven’t completely lost faith in Opec’s pledge to cut production by up to 700,000 barrels per day (to as low as 32.5m)

The opening bell of Wall Street
The opening bell of Wall Street today Photograph: Bloomberg TV

Updated

The skyline of Canary Wharf.

The London stock market hasn’t been moved by the flurry of data from the US and Germany.

The FTSE 100 is still up 1% at 6916, which would be a six-week closing high. Oil and energy stocks continue to power ahead, with Shell up 5.7% and BP up 4%.

But outsourcing group Capita remains on track for its biggest one-day slump ever, down 26%.

That follows this morning’s profit warning, from a company which runs the London congestion charge and provides service to the NHS and many private businesses.

Fellow outsourcing group Mitie issued its own profits warning 10 day ago, blaming the EU referendum vote.

Gary Paulin, Head of Global Equities for Northern Trust Capital Markets, sees a clear pattern:

“Check out post-referendum performance of Mitie (warned), Capita (warned) and Babcock. Different underlying businesses and Babcock is well run we think, but similar in that they all depend on customers renewing long term contracts.

And on that front, the common theme emerging from the two warnings is that amidst Brexit uncertainty UK businesses are delaying decision-making on long term spending. That could have a meaningful impact on earnings momentum for support services companies with a mostly UK client base. And Babcock may be experiencing the same.”

The number of Americans filing new unemployment benefit claims rose by 3,000 last month, to 254,000.

That’s still comfortably below the 300,000 mark, which denotes a healthy economy.

And the wider labour market looks solid too; the number of ‘continuing claims’ has dropped to 2.062m, from 2.108m.

Updated

US economy beats forecasts with 1.4% growth

An American Flag flying in the wind.

Another newsflash: America’s economy grew faster than first thought in the second quarter of 2016.

US GDP increased at an annualised rate of 1.4%, new figures show, up from 1.1%. That’s the equivalent of a quarterly rate of 0.35%.

Wall Street had expected the annualised rate to inch up to 1.2%.

This is the final estimate of US GDP, and it shows that business spending and exports were better than thought, helping the economy pick up pace.

Highlights include:

  • Business investment grew by 1.0%, compared with an earlier estimate of a 0.9% decline.
  • Business spending on structures shank by 2.1%, not by 8.4%
  • Business spending on equipment fell by 2.9%, not by 3.7%
  • Business spending on intellectual property and software jumped by 9%, up from 8.6%
  • Exports rose by 1.8%, not 1.2% as first thought.
  • Imports rose by 0.2%, down from 0.3%
  • Consumer spending grew by 4.3%, down from a first estimate of 4.4%

This suggests the US economy was stronger than we thought in the spring, and may have picked up pace over the summer.

Updated

German inflation rate hits 16-month high

Just in.. Prices in Germany have risen at the fastest pace since May 2015.

The annual Consumer Prices index has risen to 0.7% this month, up from 0.4% in August. Energy prices were less of a drag on inflation, while food, services and rental costs all rose.

This should please the European Central Bank, as it keeps interest rates on record lows and pumps tens of billions of new euros into the system each month to ward off deflation.

The BP ETAP (Eastern Trough Area Project) oil platform in the North Sea, around 100 miles east of Aberdeen, Scotland.

Brent crude is still declining to rally today, having surged last when the Opec deal came.

Having inched over the $49/barrel point in early trading, it is now down by 0.5% at $48.45.

Ranko Beric of foreign exchange firm Monex Europe says that shows how the markets aren’t convinced by Opec:

“OPEC’s agreement to cut production came as a complete surprise to markets last night, but it’s interesting that Brent has failed to breach the $50/barrel level that has acted as resistance in recent months...

It appears that market participants remain sceptical of OPEC’s mettle, and if the cuts announced will be sufficient to clear the current supply glut in crude.”

Capital Economics are also in the sceptical camp.

They have issued a note called “OPEC deal not a game-changer for oil markets”, which questions whether output will really be cut at all.

Here’s why:

  • Iran, Libya and Nigeria will be allowed to increase production to “maximum levels that make sense”. Given that these three countries are aiming to increase cumulative output by about 1.5m bpd by the end of the year this implies that either the “real” OPEC output quota is closer to 34.5m bpd or that the rest of OPEC are willing to cut output by enough to offset these increases. In practice, most of the burden of cuts would fall on Saudi Arabia, which we doubt will be altruistic enough to substantially cut its own output to benefit the rest of the group. As such, we suspect that the actual OPEC production ceiling will turn out to be considerably higher than 32.5m - 33m bpd.
  • Even assuming no increase in output from Libya and Nigeria, the seasonal decline in Saudi Arabia’s production from summer to winter (about 350,000 bpd last year) would be enough to bring the group’s output within its target range. As a result, supply would be no lower than it otherwise would have been.

Updated

The Financial Times explains how disagreements between Iran and Saudi Arabia could knock the Opec deal off course:

Delegates from Iran say they have secured a production number close to 4m barrels a day — their stated post-sanctions target — and representatives from Gulf countries say there is an expectation that Iran caps production at this level.

However, that is not yet set in stone and negotiations are still ongoing. With Saudi and Iran still fighting proxy battles from Yemen to Syria, renewed disagreement before Vienna cannot be ruled out.

Other hurdles includes:

  • Getting every Opec member to commit to the deal. That could be crucial in getting production down by the full 700,000 barrels per day, to 32.5m per day. Otherwise, Opec might only achieve the high end of its target, 33m, which is more of a freeze than a cut (see earlier chart)
  • Persuading Russia (not an Opec member) to make a contribution.
  • The long-term threat from US shale. Companies which survived the last couple of years are now pretty competitive, and can probably make a profit at a lower oil price than before.

More here: FT: Opec agreement faces array of hurdles

Updated

Energy journalist Ben Winkley has been tracking analyst reaction to the Opec deal, and found plenty of scepticism.

Here’s a flavour:

All very valid points. On the other hand, few analysts expected anything to be agreed in Algiers yesterday. So Opec could still deliver in November.

Updated

The logo of the Swiss banking giant UBS seen above its headquarters in downtown Zurich.

The boss of Swiss bank UBS has warned it could start charging more customers for banking services, due to the impact of negative rates.

The headline Swiss deposit rate is currently minus 0.75%, and chief executive Sergio Ermotti says UBS - the world’s largest money manager – can’t absorb this indefinitely.

The problem is that negative rates eat into a bank’s profitability, by narrowing the gap between the cost of its liabilities (ie, deposits) and what it can earn from lending.

Reuters has the details:

UBS has already upped fees for corporate and institutional clients as well as raising mortgage rates by 50 basis points and accepting a smaller share of the market, but Ermotti cautioned this might not be enough if negative rates persisted.

“We may need to start to think about how to pass more negative rates to a broader client base than being able to reprice the asset side of the equation,” Ermotti said at a Bank of America Merrill Lynch conference in London.

Should people worry that the oil price is going to spike, pushing up transport and heating costs?

Marino Valensise, head of multi-asset at Barings, says not, and sees a ceiling at around $60 per barrel.

He explains that the global oil industry is producing an extra 1.5 million barrels more than needed each day, partly due to the US shale gas industry. A 700,000 bpd cut won’t eliminate that glut.

Shale producers also suffered from low oil prices over the last couple of years, but Valensise is confident they can boost production if needed.

Low prices mean budgetary challenges for a lot of oil producers, hence the cuts we’ve seen today. Once confirmed, one might expect that the oil price could go higher, but the cap that we see on the price of oil is between USD $55 and USD $60.

At those levels, share producers in the States will inevitably increase production and there will be no potential through that price level. That price level is coming down by the day because the cost of extraction in the US is going down a couple of dollars per year as technology improves.

Updated

This graph, from energy analyst John Kemp, puts Opec’s production cut into context:

If Opec manages the full 700,000 barrels-per-day cut, then output would be higher than in spring.

And a smaller cut, from 33.2m to 33.0m per day, is more like a freeze at this summer’s levels.

Updated

Britain’s financial watchdog, the FCA, has charged a former portfolio manager at asset management group Blackrock with insider trading.

Mark Alexander Lyttleton faces three counts of insider dealing, relating to “trading in equities and a call option between 2 October 2011 and 16 December 2011.” More here.

European flags are reflected at the entrance of the Berlaymont building in Brussels.

Optimism within the eurozone has risen this month, according to the European Commission’s latest data.

The EC’s economic sentiment measure rose to 104.9 in September, from 103.5 in August. That’s the highest since January, with retailers and industrial firms both less pessimistic.

And the consumer sentiment index remained negative, but improved to -8.2 from -8.5 last month.

It looks like another sign that anxiety following the EU referendum three months ago has eased.

Updated

Energy companies are still rallying strongly in London, thanks to the Opec news.

Royal Dutch Shell (the largest company on the Footsie) and BT (5th largest) have driven the market up.

The FTSE 100 is currently up by 77 points to 6926, a gain of 1.1%, despite Capita tumbling following its profits warning.

FTSE 100 top risers and fallers
FTSE 100 top risers and fallers Photograph: Thomson Reuters

Chris Beauchamp of City firm IG says energy stocks suddenly look good value, if Opec delivers on its promises.

Expectations of a bigger cut to oil output later on in the year, ideally with Saudi Arabia and Russia, the two biggest players, doing their bit, could see oil reverse its traditionally weak performance in the fourth quarter and push higher.

It turns out that OPEC members can agree, and no doubt oil companies and their investors will be hoping that this outbreak of amity continues into the end of 2016.

The oil price continues to dip as traders wonder if Opec will really cut production in November.

Brent crude is now down 1.1% at $48.15 per barrel, so still clinging onto most of last night’s 6% jump.

Arnaud Masset, market analyst at Swissquote Bank, explains why the City may still be sceptical:

Even if it is a good news for oil prices, this is just a pre-agreement in which OPEC members agree to trim production without actually specifying who will take the cut or how it will be divided.

Therefore, we remain cautious concerning the effects of an actual trim in production, especially in view of the OPEC’s history of consistently failing to reach a consensus.

And this charts hows how oil demand (light blue) hasn’t taken off this year, helping to force Opec’s hand.

Commerzbank to cut 9,600 jobs in restructuring

The logo of Germany’s second-largest lender, Commerzbank, in front of its headquarters in Frankfurt am Main, western Germany.
The logo of Germany’s second-largest lender, Commerzbank, in front of its headquarters in Frankfurt. Photograph: Daniel Roland/AFP/Getty Images

Commerzbank, Germany’s second largest bank, has announced plans to cut 9,600 jobs in a restructuring plan.

The cuts represent around a fifth of Commerzbank’s total workforce, and will probably include forced layoffs.

Commerzbank is also suspending its dividend payments for this year, as it tries to protect its profitability.

The cuts are part of a new strategy drawn up by chief executive Martin Zielke, called “Commerzbank 4.0”, which has just been announced.

This includes focusing on two areas - ‘private and small business customers’ and ‘corporate clients’, and “digitalising around 80% of relevent processes” (Reuters reports). It also hopes to create 2,300 new jobs.

There were rumours this week that Zielke was planning a deep overhaul of the bank’s operations, after reporting a drop in earnings back in August.

Like most banks, Commerszbank has suffered from record low interest rates - which restrict its ability to make profits.

Updated

For Sale signs.

Newsflash: The number of mortgage loans granted in the UK has hit its lowest level in 21 months, down by almost 900 to 60,058 in August.

But consumers credit is growing, with the public borrowing £1.574bn last month, up from £1.191bn in July.

Reuters has the details:

British mortgage approvals fell to their lowest level since November 2014 last month as the housing market continued to slow after June’s vote to leave the European Union, Bank of England data showed on Thursday.

But the BoE figures also showed lending to consumers continued to grow rapidly, expanding at a rate close to the 10-year highs seen in previous months.

Mortgage approvals for house purchases numbered 60,058 in August, down from 60,925 in July. Analysts in a Reuters poll had forecast 60,150 mortgage approvals for August.

Updated

More City reaction to the Opec agreement:

Updated

Bloomberg have a good explanation about Saudi Arabia’s decision to cut output to push prices higher.

They point out that the kingdom’s oil minister, Khalid Al-Falih, has reversed his predecessor’s policy of letting the market set the oil without interference.

Here’s why:

In 2014, when Saudi Arabia led OPEC’s pump-at-will policy, Riyadh calculated that if it reduced output, prices wouldn’t rise enough to compensate. This time is different.

“Saudi Arabia is betting that a small cut will pay for itself through higher oil prices and hence higher revenues,” said Jamie Webster, a fellow at the Center on Global Energy Policy at Columbia University in New York.

It’s not as if the pump-at-will policy hasn’t had its moments. Saudi Arabia has achieved some of its objectives. Low prices tossed water on the U.S. oil boom, and energy companies have cut as much as $1 trillion in new projects, creating a possible supply hole in the next decade. The kingdom has also scared investors who are now more likely to think twice before plunging money into risky oil ventures. And from the U.S. to China, sales of gas-guzzling cars have soared, bolstering demand.

For all the justifications, the last two years haven’t panned out as Riyadh thought they would. At home, the kingdom has burned through more than $150 billion of foreign-exchange reserves, government contractors have gone unpaid, and this week the king announced unprecedented pay cuts for civil servants.

More here: In U-Turn, Saudis Choose Higher Prices Over Free Oil Markets

Another interesting chart, from Morgan Stanley, showing how Opec can struggle to stick to its production targets (the blue line):

Updated

Goldman Sachs aren’t terribly impressed with the Opec deal either, and aren’t changing their oil price forecasts.

Goldman analysts still expect US crude oil (or West Texas Intermediate (WTI) ) to hover around $43 a barrel for the end of this year and $53 a barrel in 2017.

They told clients that:

“If this proposed cut is strictly enforced and supports prices, we would expect it to prove self-defeating medium term with a large drilling response around the world.”

But there’s also no guarantee that Opec members will stick to the script, as:

“Compliance to quotas is historically poor, especially when oil demand is not weak.”

CNBC has more details:

The national flag of Germany

Just in... Germany’s unemployment rate remains at a healthy 6.1% this month.

The Federal Labour Office reports that the seasonally adjusted jobless total rose by 1,000 to 2.680 million in September. Analysts had expected a fall of 5,000.

But strip out seasonal adjustments, and the unemployment total actually fell to 2.608m, from 2.684m, underlining the health of the eurozone’s largest economy.

Separate data shows that German industrial orders rose by 2% in August, having been weak earlier in the summer. Domestic demand was strong.

This chart shows how many Opec members are pumping at almost maximum capacity, as they try to pull in as much revenue as possible.

For last night’s deal to work, at least some members have to agree to cut - and we don’t know who.

Plus, other producers will surely turn their taps back up if Opec succeed in pushing the oil price higher.

Jeremy Cook, chief economist at World First, says:

There is also no guarantee that a cut triggers a meaningful increase in price of course. Nigeria is looking to bring on around a million barrels per day soon – roughly what analysts expect will be the sum total of these cuts – whilst you had better believe that shale operators in the US and elsewhere will be looking forward to getting their wild cat operations.

Marc Ostwald, analyst at ADM Investor Services, is also a little sceptical, telling clients:

There is of course the OPEC ‘production deal’ to digest, which it has to be said looks to be of the ‘we must agree something, however vague and lacking in specific detail’, with the fear that downward seasonal pressures would send oil prices into a renewed downward spiral the clear motivating factor.

Oil prices are dipping

An oil rig in the North Sea.

Interestingly, the oil price is now dipping a little, having surged late last night.

Brent crude has dropped by 0.4%, or 20 cents per barrel, to $48.50. That’s still almost three dollars higher than yesterday’s lows.

But it suggests the markets are looking for more details about this Opec deal to cut production by 700,000 barrels per day.

As explained earlier, we simply don’t have the full details - except that apparently Iran won’t have to freeze production.

Michael Hewson of CMC Markets explains

A committee has been set up to deal with that [who freezes production] and is likely to be a tall order if history is any guide. Ultimately the proof of the pudding will be in the eating and if history is any judge, the detail will fall short.

If anything this looks like another attempt to keep a floor under prices without actually having to do anything. For now it seems to be working, the ultimate in jaw-jaw.

In addition the full details won’t be known until the full OPEC meeting at the end of November, which means another two months of capacity output, of over 33m barrels per day.

There is also the not insignificant matter of persuading non OPEC members like Russia, who are not party to the deal, to come on board. Good luck with that one!

Setting Capita’s woes aside, European stock markets are all rallying as investors move money into riskier assets.

European stock markets today
European stock markets today Photograph: Thomson Reuters

It’s all thanks to the oil production deal, say Mike van Dulken & Henry Croft at Accendo Markets:

The positive open come almost entirely courtesy of last night’s surprise OPEC production cut agreement.

The news sent oil prices sharply higher and has helped Energy names overnight while buoying sentiment in the general commodity space.

Capita shares tumble after profit warning

Shares in Capita, the outsourcing and professional services group, have plunged by 22% at the start of trading.

The company has issued a profits warning this morning, saying that clients have been delaying spending decisions following the UK’s vote to leave the EU in June.

Capita cut its profit forecast for this year to between £535m and £555m, compared to analyst forecasts of a £614m profit.

It told the City that:

Our performance in the second half of the year to date has been below expectations, as a result of a slow-down in specific trading businesses, one-off costs incurred on the Transport for London (TfL) congestion charging contract and continued delays in client decision making.

That sent its shares sliding to their lowest level since November 2012, and on track for their worst daily fall ever.

Capita’s share price over the last five years
Capita’s share price over the last five years Photograph: Thomson Reuters

Updated

FTSE 100 jumps over 6,900 points

Shares in major oil producers have jumped at the start of trading in London.

Royal Dutch Shell are up 5%, with BP gaining 4.3%.

Mining groups Anglo American and BHP Billiton are also in the top risers, gaining almost 5%.

That has sent the FTSE 100 index of leading blue-chip shares up 75 points, or 1.1%, to 6925. That’s a one-week high; and would be its highest closing level since mid-August.

Smaller producers are gaining too. Hunting, which supplies equipment to the oil industry, has leapt by 13%. Tullow Oil, which finds oil in Africa and the margins of the Atlantic, has gained 11%.

Analysts: It's a u-turn by Saudi Arabia

Pie chart showing Opec's producers

The big surprise is that Saudi Arabia has reversed its approach to managing the oil market.

Saudi is the biggest producer in Opec, and had appeared happy to push the oil price down to hurt rival producers (particularly the new shale industry).

But a lower oil price has hurt Saudi’s economy too; it is expected to run a deficit of 13.5% of GDP this year, and is imposing wage cuts as part of an austerity drive.

So the ‘pump-at-will’ policy appears to have been scrapped.

As Bill Blain of Mint Partners puts it on Bloomberg TV:

“They are hoping to turn around a world where they were trying to work the price down and keep new producers out, to a new world where they can wok the price up again.”

But that’s a tricky task - if the oil price jumps, American producers will return to the market.

John Kilduff, founding partner at Again Capital, told CNBC that Saudi Arabia’s old policy of letting the market set the oil price had backfired.

“The big takeaway is how into a corner the Saudis have backed themselves.

This whole plan has backfired on them. They’re going to be bearing most of the cutback if they pull it off, and they’ve had to really kowtow to the Iranians in this whole thing.”

It appears that Iran won’t actually cut production itself, but will rein in its ambitions.

Associated Press reports:

According to Wednesday’s deal, Iran will be allowed to increase production to 3.7 million barrels a day, according to Algerian participants at the meeting. It is currently estimated to be pumping around 3.6 million but had been aiming for 4 million per day.

Sanctions on Iran’s oil industry were lifted in January, and it has been aiming to boost production.

Stock markets in Asia have jumped on the back of Opec’s surprise deal to cut output, even though details are limited.

Japan’s Nikkei led the way, jumping by nearly 1.4%. A higher oil price would please Japanese policymakers, as they strive for higher inflation.

The other major indices are all up too, as energy stocks benefit:

Asian stock markets today
Asian stock markets today Photograph: Thomson Reuters

FXTM chief market strategist Hussein Sayed says traders had thought an Opec deal was “mission impossible”. But he also wants to see more details...

Battered finances of major oil producing countries forced the leaders to put their differences to one side and end a 2-year unofficial war on shale. Crude prices surged by 6% following yesterday’s news and sent Asian equities higher with energy stocks leading the rally.

Such a deal should have had a stronger impact on oil, I would say at least a 10-15% rally, but the limited details of the agreement put a limit on the upside and we will now have to wait until November 30 to see whether the agreement will translate into actions, and whether non-OPEC oil producers will follow suit.

Introduction: Surprise Opec cut boosts markets.

Algerian Energy Minister Noureddine Boutarfa, left, Bin Saleh Al-Sada, Minister of Energy and Industry of Qatar, center, and acting Secretary General of OPEC Mohammed Barkindo, right, shake hands at the end of yesterday’s Opec meeting in Algiers, Algeria.
Algerian Energy Minister Noureddine Boutarfa, left, Bin Saleh Al-Sada, Minister of Energy and Industry of Qatar, center, and acting Secretary General of OPEC Mohammed Barkindo, right, shake hands at the end of yesterday’s Opec meeting in Algiers, Algeria. Photograph: Sidali Djarboub/AP

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Global stock markets are heading higher today, after the Opec cartel pulled a big surprise, and agreed to cut oil production, for the first time in eight years.

The deal was hammered out at informal talks in Algiers last night. It will see global production cut by up to 700,000 barrels per day, from 33.24m to 32.5-33m.

That effectively takes Opec back to the levels in play before the cartel abandoned its targets last December, triggering a glut in production.

News of the deal sent the oil price soaring late last night, up around 6%. Brent crude is now worth $48.76 per barrel, up from $45.70 yesterday.

US crude oil
US crude oil Photograph: Bloomberg TV

Traders had seen little chance of a deal at the Algiers talks, given the tensions between Saudi Arabia and Iran.

But instead, Saudi appear to have abandoned its policy of keeping the oil price low to drive rivals, such as shale producers, out of the markets.

Iran’s oil minister, Bijan Zanganeh, broke the news, saying:

“We have decided to decrease production by around 700,000 barrels per day.

Opec officials say that production levels for each member country will be agreed at its next formal meeting, on 30 November in Vienna.

Reuters has more details:

After reaching its group target, it will seek support from non-member oil producers to further ease the global glut.

Brent crude settled up $2.72, or 5.9%, at $48.69 a barrel, hitting a more than two-week high of $48.96. US West Texas Intermediate (WTI) crude rose by $2.38, or 5.3%, to settle at $47.05, after a peak $47.45, its highest since 8 September.

The oil rally spilled over into the stock market, with Wall Street’s index of energy shares rising 4% for its best one-day gain since January.

Some analysts are hailing the deal as a breakthrough.

For example, Phil Flynn, analyst at Chicago-based brokerage Price Futures Group, says:

“This is a historic deal. This is the first time Opec and non-Opec will agree together in over a decade. This should put a floor on oil and should see oil move back toward the $60s.”

But other experts aren’t convinced; will this cut really be enforced? Which countries will actually cut production? And if the oil price goes up, won’t shale producers simply start pumping more too?

For now, though, the markets are happy. Asian markets rallied overnight, and we’re expecting European indices to jump by around 1% this morning.

Also coming up today:

We get new economic data from German, the eurozone, the UK and the US:

  • 8.55am BST: German unemployment figures for September
  • 9.30am BST: UK consumer credit and mortgage approvals for August.
  • 10am BST: Eurozone economic confidence figures for September
  • 1pm BST: German inflation
  • 1.30pm BST: Second estimate of US GDP in the second quarter of 2016
  • 1.30pm BST: UK weekly jobless figures (for last week)

And we’ll also be watching Deutsche Bank, as Germany’s largest lender continues to trouble the markets:

Updated

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