This Week in Bank Failures

Reorganizing: Deutsche Bank said it wanted to focus on corporate finance and global transaction processing, and this week we learned the restructuring will cut deeper than the statements of two weeks ago suggested. The bank will sell off all retail banking operations and make an additional 15,000 job cuts on top of that. It will shut down all operations in ten countries: Argentina, Chile, Denmark, Finland, Malta, Mexico, New Zealand, Norway, Peru, and Uruguay. Russia did not make this list, but the bank said previously it would drastically scale back its operations in that country. Aside from everything that is closing, the bank says it will trim its customer list by half in the core businesses that remain. Deutsche Bank plans to complete these changes within five years.

Raising capital: Standard Chartered Bank plans a $4 billion stock issue. General Electric is said to have at least three bidders for its French bank. Lloyds wants to sell £2 billion in new shares in the spring to replace the government’s remaining post-bailout ownership share, but plans might not be realistic. Most Wall Street banks will need to raise capital, an estimated $200 billion in total, to meet proposed rules covering margin requirements for credit default swaps not cleared through exchanges and capital requirements for systemically important banks. 

Rescued: In one of the strangest buyouts in the post-recession era, First Niagara in 2010 bought out the holding company of Harleysville National Bank, which had spent itself into insolvency with ill-timed acquisitions in mortgage lending and weath management. It seemed a bit much for First Niagara to take on, but the deal was ultimately approved. Now it is First Niagara’s turn to be rescued. The acquiring bank this time is KeyBank. The deal values First Niagara at $11.40 per share or about 25 percent less than the stock was worth before the Harleysville National Bank acquisition. Ratings agency Moody’s has placed KeyCorp on review for downgrade because of the added credit risk the bank takes on from the deal.

Shell Cancels Oilsands Project

Shell is canceling another major oil project, this one the Carmon Creek oilsands project near Peace River in western Alberta. Shell announced the project in 2013 when oil prices were much higher, then slowed it down when oil prices fell last year. Now it is dropping the project from its investment list and taking a $2 billion accounting charge as a result of the canceled project. At CBC News:

Shell scraps Carmon Creek oilsands project over pipeline uncertainty

It is surely the right decision for Shell. With no sign of an oil price rebound in the near term, and facing higher costs than originally expected in the oilsands extraction, Shell would be taking a big risk if it went forward with such a large dig. It is also good news for Alberta, providing some assurance that will still be some recoverable oil in the ground 25 years from now when rising prices for oil make the asset actually mean something.

The move also makes sense in terms of pipeline capacity. Existing pipelines can pump oil out of Alberta over the next century or so, and that is better management than the proposed expansions that could pump the region dry in 35 years or less.

There are new signs of softness in oil prices, with petroleum vessels taking the long route around the Cape of Good Hope because all available petroleum storage in Europe is already filled. The lack of storage for oil products suggests that prices of gasoline and diesel will have to decline between now and December, possibly setting up a new decline in crude oil.

Closed on Black Friday

I think it now qualifies as a countertrend: REI is joining a short list of U.S. retail chains that will be closing not just on Thanksgiving, but on Black Friday too. That major retailers are willing to forego Black Friday shows that the biggest shopping day of the year at U.S. retail, coming at the peak of the Christmas shopping season, isn’t all it’s cracked up to be. If the intense foot traffic is so bargain-focused, how can it translate into the kind of markup that can keep a retailer going? Best Buy is one retailer that has admitted to losing money on Black Friday, but just getting potential customers in the door one time each year is a win for the consumer electronics giant — maybe then it will be remembered and make its money the day the microwave or television breaks down. But not every retailer is so desperate to remind customers it still exists. REI stands as one of the most reliable sources for the outdoor recreation equipment it sells. Its customers won’t forget it’s there just because it takes a day off.

In a way, REI is showing off by closing on Black Friday. Its Black Friday strategy shows that it’s in a strong position in almost the same way that Best Buy shows that it is barely holding on. If closing on Black Friday works, other retailers might try the same thing. Those who want to make the same point on a smaller scale might postpone opening on Black Friday till noon, which is a sharp enough contrast to the stores that open at midnight or earlier. However, not just any retailer can try this. A day off has to be earned. Sears, for example, wouldn’t dare take Black Friday off. Shoppers who arrived to find a store like Sears closed would just assume the struggling department store had finally gone under, and that’s an impression no business wants to make.

WHO Finds Link Between Meat and Cancer

In a report published today, an expert panel at the World Health Organization made two findings about meat:

Red meat

After thoroughly reviewing the accumulated scientific literature, a Working Group of 22 experts from 10 countries convened by the IARC Monographs Programme classified the consumption of red meat as probably carcinogenic to humans (Group 2A), based on limited evidence that the consumption of red meat causes cancer in humans and strong mechanistic evidence supporting a carcinogenic effect.

This association was observed mainly for colorectal cancer, but associations were also seen for pancreatic cancer and prostate cancer.

Processed meat

Processed meat was classified as carcinogenic to humans (Group 1), based on sufficient evidence in humans that the consumption of processed meat causes colorectal cancer.

[IARC Monographs evaluate consumption of red meat and processed meat (PDF)]

These findings probably surprised no one, since anyone who did a similar review of the science would come to similar conclusions. The magnitude of the effect of processed meat on intestinal illness became clear in a study published two years ago. Indeed, meat industry lobbying groups around the world were expecting the WHO announcement and had their rebuttals prepared in advance. With the huge amount of money spent advertising meat every week, it is hardly surprising that newspaper stories gave more space to the point of view of the meat industry than to that of nutritionists and cancer researchers.

I am not sure many people will be convinced by the p.r. blitz, though. When a butcher says meat is good for you, the conflict of interest is pretty obvious. When cancer researchers say at least half of cancer in and around the intestine appears to be caused by eating meat, there is no comparable conflict of interest.

The WHO report will have little immediate effect on consumers but will eventually lead to changes in institutional food. I am not about to tell people to stop eating meat any more than I would tell them not to eat Halloween candy. Just don’t try to live on that kind of food. All indications are, that’s an approach to food that won’t end well.

Harleys, Leather Jackets, and Grandpas

I was in a thrift shop. Most of the shoppers were there to look for Halloween costumes. Two men in their thirties were shopping for more practical items. One commented that he wanted to take a minute to look for a leather jacket.

The other man chuckled at the stylistic choice. “Why? Are you a grandpa?” The way he saw it, a leather jacket was something you would wear if you wanted people to think of you as an old man.

Of course, this is probably not the way most people who wear leather jackets think of their look. The protective qualities of leather mean you’re ready for what happens when things start flying. That can translate to a sense of adventure. But that connotation doesn’t come across when you are just standing around, or worse, sitting on the sofa.

As a rock musician, I wear leather jackets sometimes, not just for their historical association with rock, but also because it’s a style I can easily afford. Most of my leather jackets cost me between $3 and $8 in places like the thrift shop where I was, even if it didn’t have any on the racks on this particular day. I feel sure I look a little more natural in a cotton fleece sweat jacket, but those cost more and don’t last nearly as long.

The price I pay for a leather jacket ought to tell me something. Something that costs more than $50 to make and sells for $6 is something that has fallen out of favor, even if it is something as durable as a leather jacket. You won’t see much leather on today’s rock musicians. When you do see a rocker wearing leather, the wearer is likely to be a heavy metal musician, an actual motorcycle rider, or a musician old enough to be working on his 15th album. In my case, I fall into that last group.

Leather sneaked into heavy metal mainly because Judas Priest singer Rob Halford saw an opportunity to introduce elements of S&M fashion into the band’s look, but it was also helped by the Easy Rider film from a decade before, which featured Harley-Davidson motorcycles, leather jackets, and the Steppenwolf song “Born to Be Wild.” Of course, the black leather jacket was a staple of rock ’n’ roll style from a decade before that. This jacket in turn was based on the bomber jacket pilots wore in the early decades of aviation. While the links are easy to trace, it is easy to see how the leather jacket has come to mean so many different things to different people.

If leather is out of fashion these days, Harley-Davidson, the motorcycle manufacturer, is dealing with the same issue. Benjamin Preston quotes Kelley Blue Book analyst Michelle Krebs in The Guardian:

The younger generation has no interest in Harley-Davidson as far as I can tell. Unless you ride a motorcycle or scooter in a city as your transportation, motorcycles are a splurge millennials can’t afford and have no interest in – especially Harley-Davidson, which seems like a old white-guy brand.

The “old white guy” is almost the same as the “grandpa” I started out with. The rest of the story in The Guardian’s business section is worth a look:

Harley-Davidson's reputation as an 'old, white-guy brand' may be its downfall; Amid revenue losses and expected job cuts, the famous motorcycle manufacturer must face facts: its all-American bad boy image is no longer cool

Leather jackets and Harley-Davidson are caught up in the inherent impracticality of the aging rebel persona. In the eastern United States in particular, they tie into stereotypes we’ve seen too much of. We have all seen people who seem to sincerely believe that ratty clothes, the “rebel flag,” dodging responsibility, beer, firearms, being ready to fight, and being as loud as humanly possible are the solutions to the world’s problems. That point of view might be laughable, but it is just common enough to be taken seriously. If you want to be cool, you can’t be seen as buying in to that point of view. The impractical side of the aging rebel is especially uncool these days.

Impracticality is, I must admit, a drawback of leather jackets. They’re good only in a narrow range of weather. I don’t like the sweaty, clammy feeling that goes with a leather jacket in warm weather, like September. I look foolish shivering in a leather jacket in freezing weather in December. Leather won’t last long if I wear it out in the rain. That leaves only about 30 days in the fall season on which a leather jacket makes any sense, basically in November. That’s too restrictive a season to allow a garment to be a staple of a wardrobe.

If leather jackets are not so practical, Harley-Davidson has worse problems. A Harley-Davidson motorcycle burns through just as much fossil fuel as a Toyota Prius. That’s not because it’s designed badly, but more an inherent limitation of the technology. The internal combustion engine loses efficiency when you scale it down to the level needed for a car or a motorcycle. That in itself is a hard sell to those of us who may be young enough to see the coastlines submerged by the sea level rise caused by burning fossil fuels. What makes it embarrassing is that the Harley costs about the same as the Prius. Seriously? You could have bought a car, but it wasn’t loud enough for you?

Adding to the practical difficulties, there are the stylistic difficulties, which also are hard to get around. Motorcycle safety requires the kind of leather jacket that is no longer cool as soon as you’re parked.

Harley-Davidson, I think, will have to come up with a new, more practical story to win over the under-45 crowd. As for the leather jacket, its run might be over. With modern materials that offer more design flexibility, it’s hard to make a case for making clothing out of leather except as a nod to another era.