Opening Quote: It’s a merger of annuities

Two annuity specialists are joining forces, the Pru posts its first numbers since Tidjane Thiam’s departure and Ladbrokes has made a dire loss writes City Editor Jonathan Guthrie in this morning’s FT Opening Quote briefing. You can sign up for it here

Also today: Pru’s numbers after Tidjane Thiam’s departure, Ladbrokes’ dire loss

Annuity specialists Just Retirement and Partnership have announced an all-share merger to create a business worth around GBP1.6bn. This looks like a defensive transaction, as the business models of both companies have been disrupted by “pensions liberation”. The chancellor used his 2014 budget to abolish penal taxes on savers taking money out of their pensions, forcing them to buy annuities instead.

Just Retirement is bigger than Partnership, so the deal may smack of a takeover. It has been forged in part through discussions involving Permira, which owns 52 per cent of Just Retirement and Cinven, which controls a similar shareholding in Partnership.

Both companies have specialised underwriting expertise and the announcement says the deal will give them more scale and a better covenant. It comes at a time of consolidation in insurance. Aviva has bought closed book insurer Friends Life and Zurich is circling RSA Insurance, which it aspires to own. Issues related to capital are never far away as the EU institutes its Solvency II adequacy regime.

Mike Wells, the new chief executive of Prudential, will front his first set of (half-year) results later this morning. Mr Wells, previously head of the North American division, was the continuity candidate to take over from Tidjane Thiam. He therefore faces the exacting task of putting his own stamp on the business without rattling investors or staff. The easy-going American joins at a time when growth in Asia, the engine of Pru’s recent success is slowing.

Ladbrokes, which is itself combining with Gala Coral, has recorded a dire £51.4m half year loss compared with £28m last time. Serco, the outsourcing group that ex-Aggreko boss Rupert Soames is trying to turn around, has made an operating loss of £25m, again over six months. Mr Soames describes this as “a respectable start to what will be a long and no doubt occasionally bumpy road to recovery.”

The peril of bidding with your own shares as currency has been illustrated by Shire. Ludwig Hantson, chief executive of US pharma group Baxalta, has pointed to the weakening of the stock in his rejection of a $30bn approach from the London-listed orphan drugs group.

Greece has agreed the terms of a third bailout with creditors more than a week before interest payments fall due, according to Reuters. It just shows how chummy everyone is now that ex-finance minister Yanis Varoufakis has roared off on his motorbike. The agreement should reassure markets, which moreover, were a lot less fussed about Grexit than economists and some financial commentators thought they should be.

So Greece is set to be hamstrung by a disadvantageous exchange rate for decades to come. And this is a cause for rejoicing? Sorry if I’m missing something here…

Beyond the Square Mile

China surprised markets by weakening the daily rate around which it allows its currency to trade by the biggest amount on record. The People’s Bank of China sets a so-called renminbi daily reference rate, or “currency fix” every day, and allows trade within 2 per cent either side of the mid-point. In an effort to help its exporters, it cut the fix by 1.9 per cent – a significant move, with the previous record cut just 0.16 per cent. It followed a series of lacklustre economic data from China, and deepening concern about an economic slowdown there.

After the move, the Australian dollar, commonly viewed as a proxy for Chinese growth, tumbled as much as 1.3 per cent to US$0.7320. The New Zealand dollar fell 1.1 per cent and the South Korean won fell 0.9 per cent.

On Wall Street, a rally in oil prices – its biggest jump in a month – and hopes of new efforts from Beijing to boost the economy buoyed the energy and materials sectors on Monday, sending the overall S&P 500 1.3 per cent higher to 2,104.18 by market close. The energy index was the best performing sector, rising 3.1 per cent, while materials were up 2.5 per cent.

Shares of Shake Shack soared 12 per cent in after-hours trading following the company’s announcement that it would ramp up store openings, as it reported better-than-expected second-quarter profits and sales. Another, more old school food company did not fare quite as well: investors sent shares in Kraft Heinz down 2.3 per cent after the combined company reported its first ever results.

Warren Buffett, who helped orchestrate that mega merger, was back at it Monday, with the $32.5bn acquisition of engineering group Precision Castparts.

Another corporate giant unveiled its own radical move, with Google announcing restructuring plans that will see the namesake search engine become a subsidiary of a new entity known as Alphabet.

Closing Quotes

The Big Read Aluminium: Meltdown fears“A flood of aluminium pouring out of China and depressing world markets has focused attention on Zhongwang and other Chinese metals processors, whose success threatens to spur new trade tensions with the US.“

Janan Ganesh How the left tired of liberal London life “Modern London is liberalism — or “neoliberalism”, to use the mot du jour of every bluffing teenage radical — in excelsis. It has taken the free movement of people, goods, services, capital and ideas to anarchic extremes that might have no precedent.“

Lex Warren Buffett: with precision “The Berkshire Hathaway buyout gives some relief to the sting that shareholders have felt in recent months. But the deal smacks of the classic Buffett arbitrage — a buyer with a decades-long horizon exploiting a short-term dislocation.