International Postal Update – October 2008

DOWNTURN BRINGS TURBULENCE TO EUROPEAN POSTS

ROYAL MAIL’S LEADER STEPS DOWN

Royal Mail Chairman Allan Leighton announced that he would be stepping down from his role by March 2009. Leighton has been head of the British postal operator since March 2002. Leighton’s successor will face several challenges. Royal Mail is currently losing £4 million per week and is under pressure to cut its annual state subsidy from £150 million to £110 million. Whoever is chosen must be approved by the government.

Many Royal Mail customers are reporting long wait times for service thanks to a program aiming to close 2,500 of 14,000 branches. It is expected that further closures will be announced through the end of the year. These service reductions coincide with the dissolution of Postwatch, the watchdog group for British postal consumers. Postwatch will be absorbed into a new “Consumer Focus,” which also will take on the roles formerly filled by Energywatch and the National Consumer Council.

PART OF POSTBANK SOLD TO DEUTSCHE BANK

On September 12, German banking giant Deutsche Bank bought a 30 percent share of Deutsche Post’s Postbank in a deal worth nearly 2.8 billion euros. Deutsche Bank beat out a last-minute offer from Spain’s Banco Santander for Deutsche Post’s entire stake in Postbank. Deutsche Bank also obtained the option to buy a further 18 percent of Postbank within the next three years, while Deutsche Post received the option to sell another 20.25 percent of Postbank within the same time frame. The options would be exercised at different prices (55 euros per share for Deutsche Bank’s call option, and 42.80 euros a share for Deutsche Post’s put option).

WILL LA POSTE BE PRIVATIZED?

La Poste asked the French government to change its legal status, paving the way for partial privatization of the state-owned enterprise. La Poste plans to raise between 2.5 and 3 billion euros from a partial stock offering. The French government would remain a majority shareholder under the plan, as the French constitution prevents the government from owning less than 50 percent of the entity.

Thousands of French postal workers went on strike for one day on September 23 to protest the privatization plan. Critics of the privatization plan have cited turmoil in the financial markets, among other factors, as one reason why La Poste must remain state-owned.

CHINA POST CHARGED WITH EXPANDING INTO RURAL AREAS

China Post’s Savings Bank is shifting its focus from low-margin deposit-taking to small-scale commercial lending. The Chinese government has raised interest rates several times in the past year to fight inflation. This has put pressure on the Savings Bank to find new sources of revenue, as its investment vehicles for deposits are limited by law. China Post also faces political pressure from rural Chinese who are clamoring for credit opportunities in order to share in the relative prosperity of China’s coastal residents.

The China Post Life Insurance Company, a subsidiary of China Post with registered capital of US$69 million, is also expected to play a part in China’s rural development efforts. The life insurance venture may be up and running by summer 2009, according to observers.