Summit Notebook

More or less fun in a recession? It’s a tough call

Still unsure whether economic recession is good or bad for video-games sales, more than a year in? If so, you’re in good company — neither does the world’s biggest games publisher. Electronic Arts’ head of European publishing says the company still hasn’t figured out whether people cut spending on big items like housing and cars first, or whether those kinds of decisions are just too hard.

“We really wonder, hmm, in economically difficult times would people in order to have SOME fun actually play more games or less games, and then, would they spend more or less?  It’s really, it’s impossible to say,” Jens-Uwe Intat told the Reuters Global Technology Summit in Paris.

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Avoiding another financial crisis

The Global Exchanges & Trading Summit takes place as lawmakers and regulators craft new rules to avoid a repeat of the financial crisis. The rising chorus for more transparency in capital markets could drive a host of new derivatives to exchanges and clearinghouses, propelling them out of the recession, but growing calls for a clampdown on speculation and automated trading could hit some of the world’s most powerful dealers and investors, undercutting the exchanges that rely on them. High-frequency trading is behind much of the spike in volumes over the last year, but as volatility drops from crisis-era highs, traders of all kinds are forced to reevaluate strategies, and exchanges are maneuvering to attract that business. A couple years after a period of blockbuster mergers, investors wonder whether the heavyweight exchange operators are angling for another round. Join us March 29-31 as we ask some of the biggest players in the industry to share their insights and outlook for the industry at the Reuters Global Exchanges and Trading Summit which will take place in New York, London, Hong Kong.

Recession’s perfect storm speeds up change in ad industry

Why is it that the United States’ advertising as a proportion of marketing services is at its lowest point since 1977, maybe even lower than since the Second World War?

You may have guessed it it’s the recession.

But it will get better, Martin Sorrell, CEO of advertising giant WPP, said.

“The recession is less worse,” Sorrell said, repeating a favourite phrase of late, and while it’s the biggest recession since 1929 it is also “a perfect storm” that has brought forward change. 

“The recession has accelerated structural changes that were already happening,” Sorrell said at the Reuters Global Media Summit.

Will advertising ever go back to where it was? Yes, if you are looking at new media advertising on Kindles and mobile.

Will the United States rebound? Western Europe? Yes, to both.

“Rich, retired and gone”

Veteran insolvency expert Nick Hood gave the restructuring summit a sobering reminder of the shortcomings of corporate finance.

“Every time we have a recession I sit down with the head of workout for bank clients and ask what banks are going to learn,” said Hood, who first qualified as an accountant in 1970.

“Absolutely nothing” was their response when asked during the last recession in the early 1990s, Hood said.

“Within three years, they said, there will be high loan to value (ratios) on commercial property, covenants will be loosened and lo and behold it happened … the odds are against any learning,” he said.

He explained: “What happens is when the cycle turns, everybody’s gone — they are rich, retired and gone.”

To make things worse, Hood told the summit, there is a global shortage of turnaround specialists.

Welcome to the 2009 Reuters Paper and Packaging Summit

The global paper industry has struggled for more than six years to claw its way out of a slump, as soft demand and overcapacity have kept prices down, leading to poor earnings, production curtailments and layoffs.

The current global downturn has further eroded demand for basic materials, including paper, as print advertising has dropped steeply in the crisis. Companies have been forced to run just to stand still, temporarily or permanently shutting mills and axing staff.

The sector is now at a crossroads. Will businesses after the recession look roughly the same, only smaller? Will demand ever return when electronic books and newspapers are surging? With many forestry companies big producers of biomass, what role will green energy play in the future?

Retail in recession: bottoms, bananas and breeding

So, what did we learn from executives in the hard-hit luxury and main street retail sectors this week at the Reuters summits?

The idea of a “new normal” age of lower consumerism was in vogue, with many executives expecting consumers to continue to be thrifty for some time. Conspicuous consumption may be dead, they say.

Heck, even Tiffany’s is attracting hagglers.

Even the Saks CEO is “Staycationing” in the downturn. Of course, not everyone is cutting back, so Hermes still needs supplies of crocodile hides to make $35,000 handbags. The company’s solution? Breed its own.

The word “bottom” was also bandied about. Executives were hesitant to say the economy had definitely hit bottom. But many did see some leveling off. EBay CEO John Donahoe, for example, said he has seen some stabilization in demand, as did VF Corp CEO Eric Wiseman.

Taittinger chief Pierre-Emmanuel Taittinger isn’t even concerned about the bottom line. Just bottoms up.

And about those young American women with the word “Juicy” on their sweatpants bottom? We may not be seeing that as much, said Juicy Couture President Edgar Huber.

Corning CFO and the economist who predicted 8 of the past 4 recessions

When this is recession number seven for you, the state of the economy begins to drop into perspective — even if the pain is still real.

The chief financial officer of Corning glass, James Flaws, told the Reuters Global Technology Summit in New York that he read from the 158-year-old company’s official history and drew on his own experience to explain to younger managers what these downturns mean.

The first lesson is that economic predictions are hard.

“We don’t have an economist. We used to have one and he predicted eight out of the last four recessions,” Flaws said with dry humor.

The second lesson is that — at least at Corning — things have been tough before. This year, all merit increases were frozen.

“I actually worked here in the ’80s when we cut everybody’s pay,” he said. And during the recession of 1975, shortly after he joined the company, the company fired 25 percent of its management.

“Unfortunately they did that on a Friday night. It was really bad,” he said.

Islamic finance just one more crisis victim?

It’s not just traditional western banks that are hurting — the recession is hitting Islamic finance hard, too.

The industry, which operates according to Islamic law and hence has an in-built conservative investment strategy, is seen as relatively insulated from the financial crisis. But some executives at the Reuters Islamic Banking and Finance Summit are not so sure.

Islamic finance should still be able to combat the crisis better than conventional banks but big problems loom if liquidity remains tight. In fact Sohail Zubairi, head of consultancy Dar Al Sharia, reckons they’re facing up to a crisis scenario that could include forced consolidation and layoffs.

“There is a real threat to the business of Islamic banking,” Zubairi told Reuters reporters at the summit in Dubai. “If the liquidity does not return, we will not be able to continue doing our business.”

Yousif Khalaf, head of Ajman Bank, thinks the situation is so bad that growth and profitability are off the menu for this year.

“What is more important is survival and, to some extent, continuity,” he said. “People want to make sure they survive.”

PHOTO CREDIT: A labourer walks inside Sheikh Zayed mosque in Abu Dhabi April 7, 2009. The mosque, one of the world’s largest, is named after Sheikh Zayed bin Sultan al-Nahayan the founder and first president of the UAE who is also buried there. REUTERS/Ahmed Jadallah

from Shop Talk:

Let them eat steak

Tired of paying high prices for everything from soup to cereal? See your butcher.

While food makers like Kellogg and Campbell Soup have yet to take back price hikes on boxes of cereal and cans of soup spurred by last year's spike in commodity costs, beef companies have to move their premium, perishable product in a environment where restaurants aren't buying and consumers are pinching pennies. 

"You are seeing some of the best value in grocery stores for steaks than what you have seen in an awfully long time," Gregg Doud, the National Cattlemen's Beef Association's chief economist said at the Reuters Food and Agriculture Summit in Chicago.

"You are seeing a lot of features for rib-eyes and T-bones at below $5 a pound. That is some of the best featuring we have seen in many many years," Doud said.

In April 2008, the retail price for boneless rib-eye steaks averaged $9.49 per pound and T-bones averaged $6.88 a pound, according to data from the U.S. Department of Agriculture.

(Photo\Reuters)

Recession? Not at Reckitt, really

The recession has hit U.S. consumers, yet Reckitt Benckiser has not felt as much of a pinch.  The maker of Lysol disinfectants and Air Wick air fresheners said shoppers did not shy away from its products even as the overall household products industry felt the impact of pantry destocking, or consumers using up what they had at home rather than buying more products.     Rob De Groot, head of the group’s North America and Australia region, told the Reuters Food and Agriculture Summit in Chicago that he did not see a massive consumer destocking.  Click here to hear his comments. 

De Groot expects Reckitt’s U.S. market share to rise this year, even as the overall market remains flat.

He added that the group had not seen any effect of the U.S. recession hitting its results.  Click here for De Groot’s thoughts.