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52 Week Range12.24 - 12.48
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  • Financial Times13 hours ago

    Ken Costa looks to Saudi Arabia for next big deal 

    When UK chancellor Philip Hammond flew to Saudi Arabia this month to discuss business relations between the two nations, he was accompanied by one of the City’s long-standing veterans, Ken Costa. Describing himself as a “M&A junkie”, Mr Costa has become involved in what could be one of the biggest deals of the century. “If there is an international branch of the listing, the UK will be the place of choice for a global offering,” he said.

  • Singapore's $520 Billion Market Looks Past Recession Risk
    Bloomberg21 hours ago

    Singapore's $520 Billion Market Looks Past Recession Risk

    (Bloomberg) -- Investors are sanguine about Singapore’s equity market even as the nation faces the risk of a technical recession, as a positive outlook for dividends and earnings overshadows threats from the U.S.-China trade spat.Singapore’s trade-reliant economy unexpectedly contracted by 3.4% in the June quarter from previous three months, reflecting sluggish global trade and electronics cycles. Following the data release, the International Monetary Fund on Monday cut Singapore’s 2019 growth forecast to 2% from 2.3%.The benchmark Straits Times Index, on the other hand, has surged 9.8% this year. The gauge is among the best performers in Southeast Asia and is expected to rise further. The reason behind such optimism is more than half of the 30-member gauge generate 50% or more of their revenues outside the city-state, hence less influenced by the domestic economy, data compiled by Bloomberg show.While the economy is important, “with more companies deriving a bigger percentage of their earnings from outside of Singapore, the impact on the stock market is now less acute than two to three decades ago,” said Carmen Lee, head of investment research at Oversea-Chinese Banking Corp. “The stock market is decoupled from the economy because many of the companies on the stock market are more defensive.”Here are three charts showing the divergence of Singapore’s economy from its $520 billion stock market:Breaking Economic CorrelationA major producer of electronics and semiconductors, Singapore’s trade value is more than double its $364 billion economy. Amid trade tensions, not only did the economy contract unexpectedly, exports slumped dramatically in June, making it the second-worst month since the global financial crisis.“The stock market and domestic economy are two different animals, and have been for some time now,” said Daryl Liew, head of portfolio management at Reyl & Cie. in Singapore. “Most Singapore-listed companies such as the banks and Singapore Telecommunications are pan-Asian plays.”Higher ReturnsWhat’s more, cash is king for equity investors in Singapore, who expect the market to cough up a dividend yield of 4% amid low valuations this year, compared with 2.9% on the MSCI Asia Pacific Index. The benchmark is trading at a price-to-earnings multiple of 12.8 times on one-year forward earnings, lower than its 10-year average of 13.5, according to data compiled by Bloomberg.“Singapore is one of the few markets in Asia to be trading below its mean historical price-to-earnings ratio yet paying out one of the highest yields,” said Soek Ching Kum, head of Southeast Asia research at Credit Suisse Group AG’s private banking unit.Positive Profit OutlookAnd while earnings estimates fell at the start of the year, they have risen from their lows in February. Looking ahead, corporate profits are expected to grow by 4% for 2019 compared to 21% decline in the previous year, based on data compiled by Bloomberg.“Focus going forward remains on the outcome of U.S.-China trade negotiations,” said DBS Bank Ltd.’s analyst Kee Yan Yeo. Singapore’s equity gauge may rise to 3,450, implying 2.6% gain from Thursday’s close, as the world’s biggest economies work toward a deal, he said.(Updates STI performance in third paragraph.)\--With assistance from Michelle Jamrisko.To contact the reporters on this story: Ishika Mookerjee in Singapore at imookerjee@bloomberg.net;Yongchang Chin in Singapore at ychin22@bloomberg.net;Abhishek Vishnoi in Singapore at avishnoi4@bloomberg.netTo contact the editors responsible for this story: Lianting Tu at ltu4@bloomberg.net, Divya BaljiFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Rhinos Come to the Bond Market, and Other Species May Follow

    Rhinos Come to the Bond Market, and Other Species May Follow

    (Bloomberg) -- The planned sale of a rhino impact bond, aimed at growing the population of the endangered black rhino, is seen by its backers as a test for the creation of a conservation debt market that could be used for everything from protecting species facing extinction to preserving wildlife areas.The sale next year of the $50 million bond, the first financial instrument for species conservation, is being run by the Zoological Society of London and Conservation Capital. The company was founded in Kenya about 15 years ago seeking to create business and investment finance tools for conservation.Under the program, the five-year bond will cover conservation efforts at five sites in South Africa and Kenya where about 700 black rhinos, or about 12% of the world’s population of the animals, live. Investors will be paid back their capital and a yield if the number of animals increases. The target is to boost the world’s black rhino population by 10%.“We see this as a shift in the conservation-funding model,” said Oliver Withers, head of conservation finance and enterprise at the Zoological Society of London. “There is huge scope for this to be used for other species. We started out with the framework of ‘can we build an impact bond for conservation’.”Countable, CharismaticWhile the rhino security is a first, so-called “impact bonds” have been used to finance a variety of outcomes from girls education in rural India to sustainable marine and fisheries projects in the Seychelles.The bond will give investors a chance to “recycle” their capital and buyers are likely to be high net worth individuals with an interest in conservation, as well as impact investment funds, so called ESG - environmental, social and governance -- funds and foundations, Glen Jeffries of Conservation Capital said.Black rhinos were chosen because they are “countable, critically endangered and charismatic,” he said.There are about 5,500 black rhinos in the wild in Africa, where they are in indigenous species and mostly live in just four countries, down from 65,000 in 1970. That compares with about 20,000 of the larger white rhinos that mostly live in South Africa. They weigh as much as 1.4 metric tons compared with the 2.5 ton white rhino.Avoiding PoachersRhinos in Africa are under threat from poaching, mostly because of demand in Vietnam and China for powder from their horns that is believed to cure cancer and improve virility. In 2018, 769 mainly white rhinos were killed in South Africa. The sites covered by the bond are confidential to avoid attracting poachers.“Given that we’ve lost so much of our biodiversity already we desperately need to consider new ways of valuing. funding and implementing conservation,” said Dominic Jermey, director general of the Zoological Society of London. “The rhino impact bond model offers a huge opportunity to open up conservation funding and to share the risk of restoring financial diversity.”The backers of the bond see considerable scope for growth. In just one of the sites there were more than 5,000 black rhinos several decades ago, Withers said. Recipients of the funds will be able to use the money how they choose, provided it’s for conservation.“What we are really doing is buying into a management team on the ground that can deliver,” Withers said. Those “providing the grants, are not aware of the realities” on the ground, he said.The project’s funders include the Global Environment Facility and the U.K. government. It is also receiving assistance from Credit Suisse Group AG and DLA Piper LLP. The plans for the Rhino bond were first reported by the Financial Times.“The first goal is to get this one right,” Jeffries said. “If all goes well this will open up the market place.”(Adds location of black rhinos in eighth paragraph.)To contact the reporter on this story: Antony Sguazzin in Johannesburg at asguazzin@bloomberg.netTo contact the editors responsible for this story: John McCorry at jmccorry@bloomberg.net, Gordon Bell, Rene VollgraaffFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Zacks2 days ago

    Near-Term Prospects for Foreign Bank Stocks Appear Gloomy

    Near-Term Prospects for Foreign Bank Stocks Appear Gloomy

  • Facebook Moves Closer to WhatsApp Payment Service Debut in India
    Bloomberg3 days ago

    Facebook Moves Closer to WhatsApp Payment Service Debut in India

    (Bloomberg) -- Facebook Inc. is moving a step closer to launching its long-delayed WhatsApp payments service in India after wrapping up an audit of related data practices, according to people familiar with the matter.The payments offering has been in beta mode in India since early 2018 for a million users, but the nationwide debut has been delayed, in part because of government regulations. WhatsApp is required to show a third-party auditor that all data involved in payments will be stored on servers only in India. WhatsApp is preparing to submit the report for approval to India’s banking regulator, the Reserve Bank of India, said one of the people, asking not to be named as the matter is confidential.WhatsApp is moving into a crowded and competitive field, where local startups and global players are already slugging it out. Amazon Pay and Paytm, the country’s most popular digital payments service, have already complied with the Reserve Bank’s data localization guidelines. India’s digital payments market is projected to grow five-fold and hit $1 trillion by 2023, according to a report by investment bank Credit Suisse Group AG.WhatsApp has substantial strengths including an India user base that’s estimated at more than 300 million. The Facebook unit could grab market share from rivals and shake up the industry, said Arnav Gupta, an analyst who tracks digital payments at Forrester Research.“Everybody from eight to 80 years old in India are clued into WhatsApp, giving it phenomenal reach,” said Gupta. “Besides, peer-to-peer businesses like MakeMyTrip and BookMyShow, which are already using WhatsApp, will find it very easy to route payment transactions through the messaging app.”WhatsApp declined to comment on whether or not an audit is underway. "WhatsApp looks forward to providing WhatsApp Payments based on the UPI standard to all users in India and we continue to work with our local partners towards a shared goal of supporting a more Digital India," spokesman Carl Woog said in an email.The India initiative comes after Facebook unveiled plans to introduce its own cryptocurrency, called Libra, next year with multiple partners. That project will face hurdles in India, as it does in the U.S., since the country’s central bank has banned all regulated entities from dealing in virtual currencies. But Libra is conceived as a means to let people easily send money around the world, including through its own WhatsApp payment service. Mark Zuckerberg, Facebook chief executive officer, has said that “it should be as easy to send money to someone as it is to send a photo”.The India payments audit currently underway meets the regulator’s stipulation which asks that all data be stored in India including “full end-to-end transaction details / information collected / carried / processed as part of the message / payment instruction.” India’s central bank gave foreign and Indian payments services time to comply. “For the foreign leg of the transaction, if any, the data can also be stored in the foreign country, if required,” the Reserve Bank stipulated.The messaging app’s entry into India’s digital payments market has been likened to that of WeChat, given that it has a massive user base, and is also expected to reshape payments like the Chinese player did when it expanded beyond messaging. The pilot version was praised as user-friendly and threatens other players like Paytm and Google Pay which lack the vital messaging component. But it’s drawn criticism too. Vijay Shekhar Sharma, founder of rival Paytm Payments Bank, had claimed that WhatsApp bypassed security requirements and parent Facebook was attempting to build a walled payments garden.Separate from payments and regulation, WhatsApp has faced criticism in India. Its messaging service has been used to spread fake news and rumors, including some that said to fuel nearly two dozen lynchings in the country.To contact the reporter on this story: Saritha Rai in Bangalore at srai33@bloomberg.netTo contact the editors responsible for this story: Edwin Chan at echan273@bloomberg.net, Peter Elstrom, Molly SchuetzFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Financial Times3 days ago

    ‘Rhino bond’ breaks new ground in conservation finance

    Conservationists have started marketing a five-year “rhino bond” which bankers say is the world’s first financial instrument dedicated to protecting a species. Investors in the $50m bond will be paid back their capital and a coupon if African black rhino populations in five sites across Kenya and South Africa increase over five years. The yield will vary depending on changes in the rhino population, which has sharply declined since the 1970s.

  • Why Is India Trying to Kill Off Hedge Funds?
    Bloomberg3 days ago

    Why Is India Trying to Kill Off Hedge Funds?

    (Bloomberg Opinion) -- India is killing off the one industry that can bring badly behaving tycoons into line while nudging savers away from an unproductive lust for gold. That industry is domestic hedge funds, which have taken seven years to reach $6 billion in investment commitments from nothing. By contrast, equity investment in India by overseas financial investors is upward of $400 billion.Even that measly $6 billion figure for so-called Category 3 Alternative Investment Funds overstates the industry’s development. Some managers of vanilla mutual funds now seek the AiF registration to avoid regulatory restrictions on what they can pay distributors for selling to mom-and-pop investors. Alternatives that are meant for the rich don’t have such restraints. But leave aside the pretenders. Rather than encourage a community of investment vigilantes who target firms falsifying accounts or stealing from investors, the Indian taxman is threatening to disband it.The increase to 42.7% from 35.9% in the tax rate on annual earnings over 50 million rupees ($730,000), announced in the first annual budget after Prime Minister Narendra Modi’s reelection, has a more vocal victim: overseas funds investing in India. These are seeing red. Often structured as trusts or associations, they too will have to pay the higher levy that applies on all non-corporate income. The head of the tax authority in New Delhi has told them they’re “collateral damage.” Offshore investors can always find other markets. What will onshore hedge fund managers do, except leave the country perhaps? Singapore doesn’t tax capital gains; in India profits on cash equities bought and sold within a year will be charged at 21%, up from 18%. It gets even more draconian. Alternative funds now have to withhold 42.7% of all income on derivatives trading before they pass on the returns to investors. This is bread and butter business for long-short hedge funds, which frequently use derivatives to mount leveraged bets. Worse, the ultimate investors won’t be able to set off that tax against any other business losses.The Securities and Exchange Board of India, or SEBI, has always been suspicious of the source of capital for hedge funds investing in India from Singapore or Hong Kong. It believes dirty money – proceeds of crime, corruption or tax evasion – comes back home from offshore financial centers after being laundered. Whatever the rational basis of those fears, the regulator’s efforts to set up from scratch a domestic industry in alternative assets is being torpedoed by the taxman. “They may be unwittingly about to kill off the onshore hedge fund industry that SEBI created, even before it has begun to crawl,” Vijay Krishna-Kumar, head of IDFC Asset Management’s liquid alternatives investment, told me.That would be a shame. Stamping out short sellers will tilt an already-skewed playing field even more toward long-only investors. Those who profit only when share prices rise will happily overlook corporate skulduggery, especially if the tycoons riding roughshod over minority shareholders make the fund managers feel important by giving them access. At this rate, India’s abysmal governance standards will never improve.At $6 trillion, India’s household wealth is a fraction of China’s $52 trillion. Even so, the country had 343,000 dollar millionaires this time last year, according to Credit Suisse Group AG. For them, it’s important to have access to assets uncorrelated with stock market returns that they can replicate with index funds. If hedge funds die because of taxation, the rich in India will be left with two sub-optimal options. “Offshore tax centers can breathe easy now,” says Krishna-Kumar. “India will remain an underdeveloped market where only gold and property would be your alternatives.”So much of India’s private wealth is trapped in gold that any more will be a colossal social waste. For a country that aims to elevate GDP to $5 trillion by the end of Modi’s second term in 2024, from $2.8 trillion now, India needs risk capital to go into productive assets. Yet policy makers are jacking up tax rates on the one avenue for risk-taking they should be nourishing. The money they collect will be chump change compared with the cost of the hedge fund industry’s arrested development. Cronyism thrives on finance – and only finance can stop it. Without an industry that has their back, which analyst will pore over obscure company filings; meet suppliers, customers, and regulators; and use LinkedIn and Google Maps to verify whether employees and facilities exist? In India, taking on important people means risking one’s livelihood – and even liberty. If nothing else, the domestic alternatives business is worth saving because it can speak truth to power and put its money where its mouth is. To contact the author of this story: Andy Mukherjee at amukherjee@bloomberg.netTo contact the editor responsible for this story: Matthew Brooker at mbrooker1@bloomberg.netThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.

  • Financial Times4 days ago

    Jefferies hires former CLSA chief Jonathan Slone as Asia chairman

    US investment bank Jefferies said on Monday that it had appointed Jonathan Slone, the former chief executive of beleaguered Asian securities house CLSA, as its new chairman for Asia. “The hiring of Jonathan represents a significant step in our continued expansion of our Asia footprint, including meaningful additions to our teams in Japan and Hong Kong, as well the addition of equities research, sales and trading in Australia,” said Peter Forlenza, Jefferies’ global head of equities.

  • Financial Times5 days ago

    Tech crunch could herald US ‘earnings recession’

    Equity investors are bracing for a second successive drop in US quarterly profits, led by the technology and materials sectors, that could undermine a record-breaking run in the stock market. Blue-chip companies across America are expected to reveal a 2.8 per cent drop in earnings per share for April to June, following a first-quarter contraction of 0.3 per cent, according to FactSet data. — a phenomenon equity investors have not witnessed since mid-2016.

  • A $152 Billion Contrarian Says 10-Year Treasuries May Hit 3%
    Bloomberg7 days ago

    A $152 Billion Contrarian Says 10-Year Treasuries May Hit 3%

    (Bloomberg) -- Sonal Desai, chief investment officer of Franklin Templeton’s $152 billion fixed-income group, has an upbeat view of the U.S. economy that’s persuaded her to go against the grain in the Treasury market.While much of the Wall Street crowd sees a decline in yields, she believes Treasury 10-year rates could jump toward 3% by year-end from just above 2% now. That should happen as a stream of solid reports prompts a swift reappraisal by investors of the economy’s health, she said.“We should not underestimate the speed with which the market can reprice,” Desai said in an interview. Recent history shows rapid moves are possible: 10-year yields were at 3.25% in November, plunged as low as 1.94% this month and have since climbed to 2.13%.“Can the 10-year yield get to 2.50%, 2.60%, 2.75% this year? Why not?” she said. The economy is in “incredibly good health,” she added, pointing to the better-than-estimated 224,000 jump in U.S. payrolls in June. Desai is finding “select” opportunities in U.S. corporate debt rated triple B that will do well under a scenario of rising yields.OvershootingWhen speaking before Congress this week, Federal Reserve Chairman Jerome Powell signaled that the central bank is preparing to cut interest rates. His testimony made Desai more confident that a 3% benchmark U.S. yield is “achievable” because “both the markets and the Fed are overshooting in pushing yields lower, setting the stage for a rebound,” she said. Desai expects Fed officials to deliver a 25-basis-point reduction on July 31, when the more “sensible” approach would be to remain on hold.This is not the first time this year that Desai is forecasting higher Treasury yields, a call she’s made as the bonds rallied through the months. She said in February that the 10-year yield could reach 3.5% in the medium term, and made a 3% or more prediction in April. Other market participants including Credit Suisse Group AG and JPMorgan Chase & Co. have also warned that bonds are at risk of a sell-off.“The Fed is continuing to cave to markets pressure by not looking at the data,” said Desai, a former assistant university professor and economist for the International Monetary Fund, who fears the central bank is heading into “dangerous” territory.The U.S. labor market should remain solid through the summer, boosting consumption, and manufacturing and investment will gradually pick up once inventories clear. “Markets will realize that the economy is as strong as it was last November, when 10-year yields were above 3%,” only this time there will be Fed stimulus, still-easy fiscal policy, and rising wages and inflation expectations, Desai said.Sudden Shift“It will then not take long for investors’ views to suddenly turn around and push yields back up,” she said.For now, asset prices appear to be based on little more than the size of the Fed’s next move. The stock market’s sell-off last week in response to the strong June jobs report was “a really bad sign” that investors are “trading on moral hazard,” the Indian-born money manager said from her offices in San Mateo, California, a suburb outside San Francisco.The odds are growing that a financial-asset bubble will trigger the next recession, but not before Treasury yields surge, according to Desai. In her mind, “the real debate” is whether the next U.S. downturn looks more like the 2001 recession that lasted eight months or the deeper 2007-2009 contraction that was the worst since the Great Depression.“A rate cut at this stage will just cause more froth and exacerbate distortions in asset markets,” she said. “It pushes valuations of risky assets even further away from fundamental values. For our investment strategy, that means it is even more important to be very selective.”While not yet seeing signs of broad-based bubbles, Desai said she’s watching the corporate-credit sector closely. Desai sees a “remote” risk of widespread downgrades for most issuers of U.S. corporate bonds rated triple B, the lowest investment-grade rating. In addition, certain emerging-market corporate bonds, which have lagged behind U.S. credit in returns this year, also offer opportunities because fundamentals “have generally been improving” in some regions.“Right now, you’re choosing from among assets you dislike the least,” she said with a laugh. The challenge is to “not play into the Fed’s attempts to move investors into greater risk,” she said. At the same time, “now is not the time to be sitting on cash, but it is a time to get very cautious.”(Updates current yield in 3rd paragraph.)\--With assistance from Ruth Carson.To contact the reporter on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.netTo contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, Nick Baker, Mark TannenbaumFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Snap’s Gender-Swap Filter Went Viral -- and So Did the Stock
    Bloomberg7 days ago

    Snap’s Gender-Swap Filter Went Viral -- and So Did the Stock

    (Bloomberg) -- It only took six months and a basket of disguises for Wall Street to love Snap Inc. again.Snap has seen a dramatic recovery over the past several months, with shares more than tripling off a record low in December to trade at their highest level in more than a year. While there have been a number of tailwinds supporting the social-media company, one key ingredient behind the turnaround is this: it now allows users to “swap faces” with others in photographs, with “lenses” or filters that can, for example, make men look like women or babies.Those who are unfamiliar with the latest viral sensations may view such a feature as an unusual foundation to build an investment on. But Wall Street sees the early-May launch of the filters as a key factor behind improving user trends at the Snapchat app, which is in turn leading to more optimistic projections for Snap’s top- and bottom-lines.“The timing of the filter appears to have driven a notable increase in engagement,” said Mark Kelley, an analyst at Nomura Instinet.Snap rose as much as 4.3% on Friday, extending a four-day winning streak, after Goldman upgraded the stock to buy from neutral. The new Android app, games and viral lenses drove record user adoption in May, reversing prior trends, analyst Heath Terry wrote in a research note.Wall Street’s expectations have been getting rosier, with MoffettNathanson writing that Snap was “on the verge of writing their own ‘Cinderella Story’.” Compared with six months ago, the consensus for Snap’s adjusted full-year loss has improved by about 25% while revenue expectations are up 5.4% over that period.Bank of America on Thursday raised its revenue estimates on Snap for 2019 through 2021 and lifted its price target to $17 from $12. The firm expects user upside in the quarter. The comments came just two days after Credit Suisse lifted its own target for similar reasons. The shares are now trading at their highest level since March 2018, having more than tripled since December.In a report dated July 10, Nomura’s Kelly cited data from Sensor Tower that showed 67% growth in Snapchat app downloads in the second quarter. That represents a dramatic turnaround from the first quarter, when downloads fell 5% on a year-over-year basis. According to SimilarWeb data cited by Nomura, traffic to Snapchat.com was up 4% in the second quarter, compared with the first-quarter’s 24% decline.“The jump is a positive nod to Snap’s efforts to spur engagement and demonstrates the platform’s scale and sway, particularly with millennials,” wrote Jitendra Waral, an analyst at Bloomberg Intelligence.Snap will report second-quarter results on July 23. Analysts expect it to report an adjusted loss of 10 cents a share on revenue of $359.6 million. That represents revenue growth of 37% from a year ago. Analysts are also looking for 191 million daily active users in the quarter, compared with 190 million in the first quarter, according to data compiled by Bloomberg.Beyond the engagement driven by the filter, Snap’s 2019 rally accelerated in February when its fourth-quarter results beat expectations and it pointed to a stabilizing user base. Additional gains came in April, when it announced a suite of new products and services, including a video-game business.The gains have far outpaced Snap’s social-media rivals. Twitter Inc. is up more than 40% from its own December low, while Facebook Inc. -- which dwarfs Snap in size and user base -- is up more than 60% from December.(Adds Goldman upgrade and Friday’s trading in fifth paragraph.)\--With assistance from Courtney Dentch.To contact the reporter on this story: Ryan Vlastelica in New York at rvlastelica1@bloomberg.netTo contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Scott SchnipperFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Financial Times7 days ago

    US second-quarter earnings poised to reveal profit recession

    Wall Street analysts expect corporate reporting season — which kicks off next week — will confirm that America’s biggest public companies have entered a profit recession as they contend with slowing growth and mounting trade woes. Banks are set to take centre stage next week, with the pace of earnings reports hitting full speed over the following fortnight. With analysts predicting an earnings recession — defined as two consecutive quarters of year-on-year earnings declines — for the first time since 2016, the bottom line grabs the limelight once again.

  • Financial Times7 days ago

    Lagarde’s IMF departure leaves door open for Thiam

    Tidjane Thiam: IMF bail-out Credit Suisse boss Tidjane Thiam has been the talk of the town again, after Christine Lagarde’s likely departure from the IMF to head the ECB leaves vacant one of the roles ...

  • How China Can Create Its Own Goldman Sachs
    Bloomberg7 days ago

    How China Can Create Its Own Goldman Sachs

    (Bloomberg Opinion) -- An age-old question has reared its head again: Why can’t China create a globally competitive investment bank in the mold of Goldman Sachs Group Inc. or Morgan Stanley?It’s not like the country hasn’t tried. China International Capital Corp., a venture formed in 1995 with New York-based Morgan Stanley, foundered amid disputes between the local and U.S. partners and slipped behind newer rivals without ever becoming a global heavyweight.(1) Citic Securities Co. made an unsuccessful attempt to buy into Bear Stearns Cos. in 2007 (which was probably a lucky escape). Now add CLSA Ltd. to the list of failures.A common theme running through the exodus of foreign executives from Citic’s CLSA, detailed by Cathy Chan of Bloomberg News this week, and the earlier strains at CICC is the clash of cultures between Wall Street’s freewheeling practices and the more staid, hierarchical approach of Chinese state-controlled financial institutions. U.S. investment banks are highly competitive and individualistic, studded with rainmakers, big-hitting traders and star analysts who may earn vast pay packages and hold power that’s disproportionate to their place in the management structure. It’s a way of working that doesn’t gel easily with China’s top-down state industrial model.When one senior CLSA executive had concerns about the direction of his unit, “colleagues from Citic advised him to steer clear of conversations with the boss that didn’t involve flattery,” Chan wrote. Compare that with this profile of CICC from 2005: “Morgan Stanley's Western bankers were used to disagreeing openly with colleagues. CICC's Chinese employees preferred to resolve differences without confrontation, and in private.” Not much seems to have changed.These tensions took a toll on CLSA, a Hong Kong-based outfit with a reputation for independent-minded research that was acquired in 2013 by Citic Securities. The Chinese brokerage is an arm of Citic Group, a state-owned pioneer of the country’s economic reforms set up under the direction of Deng Xiaoping in the late 1970s. Before the takeover, CLSA was ranked in the top three for Asian research by institutional investors, along with Morgan Stanley and Deutsche Bank AG. By last year, it had dropped out of the top six, according to Greenwich Associates.As a group, Chinese investment banks and securities firms have failed to make much impact on international markets. The combined overseas revenue of the country’s 11 largest brokerages was just $3.5 billion last year, according to Bloomberg Intelligence analyst Sharnie Wong. That’s roughly on a par with the Asian revenue of BNP Paribas SA, which doesn’t rank among the biggest global investment banks. Chinese brokerages are relatively unsophisticated beside their Wall Street rivals, focusing mostly on equities trading – a business that Deutsche Bank AG said this week it’s exiting amid increased automation and low margins. Mainland firms have less of a presence in bond trading and structured products, which remain driven by humans and are the bread and butter of international banks. It could be argued that China doesn’t need a world-class investment bank, given the dominance of local firms in its increasingly important domestic market. The inclusion of the country’s shares in the MSCI Emerging Markets Index and its bonds in the Bloomberg Barclays index has driven billions of dollars of foreign money into Chinese capital markets. Chinese firms have also made headway in IPO underwriting in Hong Kong, dislodging Wall Street rivals in the league tables.Besides, global investment banking revenues have been sliding since the financial crisis, amid low interest rates and the trend toward automated trading. That would be a short-sighted view, though. If China is serious about modernizing its capital markets, it needs the expertise developed by leading international investment banks to provide better fundraising options for its companies. It may be no coincidence that Beijing has finally relented and allowed overseas banks to control their Chinese ventures, among them UBS Group AG, Nomura Holdings Inc., JPMorgan Chase & Co., Morgan Stanley and Credit Suisse Group AG. A slowing economy means efficient allocation of capital has become more more important than ever. Exposing local brokerages to overseas competition may spur them to raise their game.Chinese firms operating in Hong Kong are already moving up the curve in research as they try to make their way in the city’s more robust environment. An example is CGS-CIMB Securities, a venture between China Galaxy Securities Co. and Malaysia’s CIMB Group Holdings Bhd.A world-class investment banking operation needs more than research, though. Much of the competitive advantage for bulge-bracket firms derives from networks of relationships with companies and investors that have been cultivated over decades. Building such capabilities will take time.It’s hard to see this happening until China stops using financial firms as tools of the state. In 2015, the government leaned on brokerages to rescue a crashing stock market. Last month, it asked large securities firms to take over the role of providing financing to small and medium-size enterprises. If China is to produce its own Goldman Sachs, it’s unlikely to come from the sclerotic state economy. Look instead to the wellspring of Chinese innovation: the private sector. For that to happen, though, the state has to get out of the way.Ultimately, the biggest block to Beijing’s ambitions is Beijing itself.  (Updates the eighth paragraph with Chinese firms dislodging rivals in Hong Kong IPO underwriting. An earlier version of this column corrected the spelling of Bear Stearns in the second paragraph.)(1) Morgan Stanley sold its CICC stake in 2010.To contact the author of this story: Nisha Gopalan at ngopalan3@bloomberg.netTo contact the editor responsible for this story: Matthew Brooker at mbrooker1@bloomberg.netThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Nisha Gopalan is a Bloomberg Opinion columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.

  • Hedge Fund Up 33% Riding Bond Rally Preps for a 2020 Downturn
    Bloomberg8 days ago

    Hedge Fund Up 33% Riding Bond Rally Preps for a 2020 Downturn

    (Bloomberg) -- A macro hedge-fund manager who netted 33% riding the wild bull market in bonds is tuning out warnings that it’s running out of steam.Said Haidar is bidding up short- to medium-term government bonds in a bet that the Federal Reserve will likely acquiesce to market demands for up to three rate cuts this year. The stimulus may deliver a sugar high to stocks and credit before the risk rally and business cycle falters in 2020, according to the CEO of Haidar Capital Management. That’s why he’s sticking with fixed income.“If the Fed is starting to cut because we’re entering into a material slowdown, that isn’t enough to support the equity market in a big slowdown,” said Haidar who manages $550 million in assets from New York. “Which one do you want to be long: The one that pays you the fixed coupon or the one with the uncertain cash flows that are getting marked lower over time?”The winning formula for the 58-year old has been timing the global monetary pivot. Taking long exposures from the U.S., southern Europe to Australia, Haidar’s Jupiter Fund returned an estimated 33% this year, according to a person familiar with the matter who declined to be identified as the information is private. Haidar declined to comment on fund performance.Hedge funds that bet on macroeconomic shifts around the world are up an average 5.5% in 2019, according to Eurekahedge Pte Ltd, lagging behind the 10.6% gain for equity-long funds, as well as event-driven funds and trend-followers.Fed Chairman Jerome Powell signaled Wednesday that rates are headed lower by at least a quarter-point in July, but stronger-than-expected data on U.S. jobs and inflation have clouded the case for prolonged monetary easing.Everything RallyWall Street has struggled to make peace with the twin rally in bonds and risk assets as global stocks add $10 trillion in value and the U.S. yield curve signals a looming downturn. Credit Suisse Group AG and UBS Asset Management have recently sounded the alarm on the dovish herd in markets, given the margin for disappointment on the U.S. rate path.Many of Haidar’s fast-money peers have been caught off-guard by the extended Treasury rally, with non-commercial traders consistently bearish on the 10-year note, according to Commodity Futures Trading Commission data.By rights, the Fed has little case to ease with America’s unemployment rate near a 50-year low, Haidar says. But the ex-quant at Lehman Brothers expects U.S. policy makers to follow developed peers on a prolonged easing trajectory, spooked by fears of global deflation.“The Fed is terribly afraid of what’s happened already in Japan and Europe,” he said.All told, Haidar expects the Treasury curve to steepen as front-end rates plunge with the two-year yield potentially dropping below 1% from 1.83% currently, he says. In Europe, he’s still bullish on longer-dated securities, and wagering on an ever-flatter curve in the region, Australia and New Zealand.The firm is broadly neutral on equities since the May breakdown in U.S.-China trade talks. Haidar sees the S&P rising to as high as 3,200 by the end of the year, before potentially snapping along with credit in 2020.“All throughout the post-global financial crisis period, we’ve seen that monetary policy has trumped economic data weakness -- but the monetary policy response is getting more and more muted,” he said. “People are still trading like it’s going to be enough to levitate all these asset markets.”To contact the reporter on this story: Justina Lee in London at jlee1489@bloomberg.netTo contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, Sid Verma, Cecile GutscherFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Walmart Got a $10 Billion Surprise After Buying Flipkart
    Bloomberg10 days ago

    Walmart Got a $10 Billion Surprise After Buying Flipkart

    (Bloomberg) -- When Walmart Inc. paid $16 billion for control of India’s e-commerce pioneer Flipkart Online Services Pvt. last year, the American retail giant got a little-noticed digital payments subsidiary as part of the deal. Now the business is emerging as one of the country’s top startups, a surprise benefit for Walmart from its largest-ever acquisition.Flipkart’s board recently authorized the PhonePe Pvt Ltd. unit to become a new entity and explore raising $1 billion from outside investors at a valuation of as much as $10 billion, according to people familiar with the matter, asking not to be named because the discussions are private. The funding may close in the next couple of months, although the talks are not finalized and terms could still change, they said. The unit would then become independent with a distinct investor base, although Walmart-owned Flipkart would remain a shareholder. Walmart and Flipkart didn’t respond to emails seeking comment.PhonePe -- which means “on the phone” in Hindi and is pronounced “phone pay” -- has grown into one of India’s leading digital payments companies. Its volume and value of transactions have roughly quadrupled over the past year as the country’s consumers adopt the technology to transfer money digitally to businesses and each other. PhonePe is gaining ground on Paytm, which leads the field and is backed by Warren Buffett.PhonePe is an “underappreciated asset,” Edward Yruma, an analyst from KeyBanc Capital Markets, wrote in a recent research note. He estimated the business may be worth $14 billion to $15 billion, separate from Flipkart’s e-commerce operation.The startup was founded in December 2015 by three friends who left Flipkart to get it off the ground. Within a year, Flipkart founders Binny Bansal and Sachin Bansal decided to acquire PhonePe, realizing that solving payments friction would make it easier for consumers to buy online. Less than a year later, the Indian government made the unprecedented move to ban large banknotes to curb corruption and boost digital transactions. With this “demonetization,” Paytm, PhonePe and other fledgling services flourished.Cheap smartphones and cut-rate wireless data plans have brought millions of Indians online in the years since, boosting the whole industry. In June, the PhonePe app reached 290 million transactions with an aggregate value of $85 billion, compared with 71 million transactions at $22 billion a year earlier, according to the company.The service gained momentum by offering an array of services, including mutual funds, movie tickets and airline bookings. Earlier this year, it began using Bollywood star Aamir Khan in its advertising.“Globally, hardly any privately held fintech company has reached PhonePe’s scale on both sides of the network so rapidly,” Sameer Nigam, PhonePe’s co-founder and chief executive officer, said in a statement, pointing to its 150 million plus customers and more than 5 million merchants. “That’s why the strong investor interest.”Walmart debated for months whether to keep funding the payments business internally or whether to separate the operation so it could raise outside funds. After plowing nearly $300 million into PhonePe, the U.S. retailer opted for the latter course. Alibaba Group Holding Ltd. made a similar decision when it split off its Alipay business, helping growth by allowing it to work with a broader range of merchants.Walmart is still grappling with whether to bring in strategic or financial investors, according to one of the people familiar. While a strategic investor would likely be better for growth, senior Walmart executives are concerned that such backers typically want more voting rights, the person said. Walmart wants to use the lessons from PhonePe in other operations around the globe.Also unresolved are the future roles for Flipkart’s outside investors. Tiger Global Management and Tencent Holdings Ltd. each hold board seats and equity stakes of about 5%, while Walmart holds about 80%. The board will have to navigate the companies’ varied interests before any deal can be finalized.The new funding is aimed at helping PhonePe’s growth. The company plans to delve deep into the country’s heartland, where rivals have yet to expand, with the goal of reaching profitability, one person said.The market has vast potential. Digital payments in India are projected to reach $1 trillion by 2023 from about $200 billion now, said Credit Suisse Group AG. Beyond PhonePe and Paytm, Google Pay, Amazon Pay and the soon-to-launch WhatsApp payments service will compete for customers. They’re taking advantage of India’s Unified Payment Interface, a technology backbone that includes 140 of the country’s banks and digital payments companies.“The market is getting bigger and fintech startups are becoming innovative,” said Kunal Pande, partner, advisory services at KPMG. “The accelerated growth in many fintech areas is attracting investor interest.”To contact the reporter on this story: Saritha Rai in Bangalore at srai33@bloomberg.netTo contact the editors responsible for this story: Peter Elstrom at pelstrom@bloomberg.net, Colum MurphyFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Financial Times10 days ago

    Federal Reserve stress test regime to be simplified

    The head of banking supervision at the Federal Reserve declared that the post-crisis era of banks building up their capital reserves was now “complete”, opening the door to a simplification of the stress testing regime. Speaking at a Fed conference in Boston on Tuesday, Randal Quarles said the largest US banks had built enough capital to withstand a severe recession, and partly as a result he was proposing a series of moves to ease their regulatory burden. to banking supervision that have relaxed obligations, especially for smaller banks, but which some have criticised as rolling back the Dodd-Frank rules put in place after the financial crisis.

  • Zacks11 days ago

    Deutsche Bank (DB) Announces Radical Restructuring Plans

    Deutsche Bank (DB) aims to improve profitability by undertaking major restructuring plans, improve shareholder returns and drive long-term growth.

  • Did You Manage To Avoid Credit Suisse Group's (VTX:CSGN) Painful 52% Share Price Drop?
    Simply Wall St.11 days ago

    Did You Manage To Avoid Credit Suisse Group's (VTX:CSGN) Painful 52% Share Price Drop?

    For many, the main point of investing is to generate higher returns than the overall market. But even the best stock...

  • Wall Street Banks Struggle to Hire Local Talent in China
    Bloomberg11 days ago

    Wall Street Banks Struggle to Hire Local Talent in China

    (Bloomberg) -- In the U.S., Wall Street’s biggest investment banks have been known to reject about 95% of job applicants. In China, it’s often the other way around.Although international securities firms are stepping up efforts to expand in Asia’s largest economy, experienced local recruits tend to prefer state-backed companies such as China International Capital Corp. and Citic Securities Co. Even the promise of higher salaries doesn’t always work because local rivals offer the prospect of big one-time commissions.The talent crunch complicates efforts by overseas banks to take advantage of China’s financial opening, which has continued apace amid the country’s trade war with America. It’s another hurdle for international firms already facing stiff competition from domestic players as they battle for a slice of the $44 trillion industry.“Many candidates have limited interest in joining what they view as third-tier institutions in China,” said Christian Brun, chief executive officer of search firm Wellesley Partners, who has hired bankers in Asia for two decades.Foreign firms have a limited pool to hire from because they require language capabilities and an understanding of international compliance standards, Brun said. And the reticence of bankers from the top Chinese institutions to join them only adds to those pressures.Brun and his team have tried to interview more than 120 candidates for positions at foreign banks in China since October. Less than a fifth were willing to even talk, he said, while those who did were often not the top-rated talent.That’s a marked difference from the U.S. or U.K., where jobs at big name international banks, including Goldman Sachs Group Inc., UBS Group AG and Morgan Stanley, are among the most sought after by financial professionals.Foreign banks are still hiring and expanding in China, but the limited options are forcing them to make piecemeal hires by doing some recruiting locally, hiring on campus, growing talent internally or even relocating staff from other Greater China teams.UBS has moved 54 employees to China from Hong Kong since 2016, including 20 investment bankers, a person familiar with the matter said. HSBC Holdings Plc said that headcount at its local securities joint venture, HSBC Qianhai Securities, has grown to over 170 in its Shenzhen, Beijing and Shanghai locations since it was set up in December 2017 with a team of 100. Morgan Stanley, Goldman Sachs, JPMorgan Chase & Co., UBS and Credit Suisse Group AG didn’t comment.One second-year associate at a Chinese brokerage was approached by a global investment banking firm for an opening in Beijing in the middle of 2018, according to the headhunter who handled the case and asked not to be identified because the matter was private.After an interview and screening process that lasted six months, the candidate lost interest even though the new position would have raised his pretax compensation by 30%. It was almost bonus time at his own firm and he felt it would be easier to get deals done in a local outfit.The profits of foreign banks are still dwarfed by the largest Chinese firms. UBS China reported a loss of 66 million yuan ($9.6 million) last year, while Citigroup China had a profit of 2.6 billion yuan. The biggest Chinese brokerage, Citic Securities, meanwhile generated profit of 9.4 billion yuan in 2018.Among China’s more than 90 securities firms, foreign banks’ local ventures ranked near the bottom when measured by assets, revenue, and profits in 2018, according to the Securities Association of China.In recent weeks, the vulnerabilities of the international banks have been on particularly sharp display as UBS found itself fending off a backlash in China -- including a lost bond deal -- over a quip by its chief economist relating to pork prices.Eric Zhu, a Shanghai-based manager at global recruiter Morgan McKinley, said he’s concerned about whether the joint ventures can make money because the cost of running a China business is high.The international firms are often willing to given potential hires increases of about 30%, Zhu said. “There’s a big question mark over the sustainability of their China investment.”The hiring challenges extend beyond investment banking. Jason Tan, director at recruitment agency Kelly Services in Shanghai, pointed to a China-based wealth management banker, who had worked at CICC for more than 10 years and received an offer from a foreign bank late last year.Although the offer came with a 60% rise in basic salary, Tan said the banker didn’t take it because she wasn’t sure if her total compensation would be higher than the 2 million yuan she made annually at CICC after her bonus as an executive director.While foreign banks may offer higher salaries, local firms, which normally have a bigger pool of product offerings, can sometimes allow bankers to earn more by sharing one-time commissions from other departments via so-called cross-selling. For instance, a private banker might be entitled to share a commission by introducing a client to a colleague for an initial public offering subscription.“Compared to foreign firms, local firms can offer a resourceful platform with more room for maneuvering,” said Viviana Wu, a senior partner at executive search firm CGL Consulting, who has two decades of recruiting experience in the region. “Incentives are flexible, working environment is dynamic, decision making channels are relatively effective, and there are more paths for career development.”(Updates with added information on China’s financial sector.)\--With assistance from Lucille Liu.To contact Bloomberg News staff for this story: Cathy Chan in Hong Kong at kchan14@bloomberg.net;Jun Luo in Shanghai at jluo6@bloomberg.net;Alfred Liu in Hong Kong at aliu226@bloomberg.netTo contact the editors responsible for this story: Sam Mamudi at smamudi@bloomberg.net, Anjali CordeiroFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • A Leaner Deutsche Bank May Not Be Fitter in Asia
    Bloomberg11 days ago

    A Leaner Deutsche Bank May Not Be Fitter in Asia

    (Bloomberg Opinion) -- It makes sense for investment banks to cut businesses where they’re too small to be competitive and staying in is costly. So Deutsche Bank AG’s exit from equities trading is overdue. That doesn’t mean life is going to get any easier, in Asia at least.The German lender is counting on its strength in fixed-income and currencies trading to pivot into becoming primarily a corporate bank that serves multinationals’ needs for transactions and cash management. That will put it head to head with the dominant players in Asia: HSBC Holdings Plc, Citigroup Inc. and Standard Chartered Plc. They won’t be an easy nut to crack.At least this approach has a better chance of succeeding than building up Deutsche Bank’s private-banking business, where leaders UBS Group AG and Credit Suisse AG are trying to beat back the challenge of Chinese and Singaporean firms. No bank has exited the equities business on this scale before, as my colleague Elisa Martinuzzi has noted, and it’s unclear what effect this may have on private-banking customers.Deutsche Bank’s stronghold in fixed income and currencies will count for something.(1)It was the region's fourth biggest fixed-income bank by revenue last year, according to Coalition Development Ltd., a London-based analytics company. Within that business, the German lender ranked first in credit, which includes trading corporate bonds and structured products, while it was second in foreign exchange. That’s a crucial calling card for any firm that wants to make it as a corporate bank in Asia.Contrast that with equities trading, where Deutsche Bank ranked 11th by revenue last year, down from sixth in 2015, according to Coalition. In cash equities (which comprises research, sales and trading), it was 10th. Equities increasingly is a business requiring scale, and high salaries for bankers and traders have become harder to support at a time of shrinking commissions and rising automation. Stiffer competition from Indian and Chinese banks has compounded the difficulties.Job cuts in Asia will fall disproportionately on the Hong Kong operation, which is focused on equities, while Singapore should be more resilient, as the bank’s primary fixed-income hub. The question is whether Deutsche Bank’s edge in bonds and foreign exchange will be enough to attract local corporate customers or U.S. multinationals away from the likes of HSBC and Citigroup.Deutsche Bank will also need to keep European corporate clients loyal and manage the high technology costs that come with a push into transaction banking. Luckily, transaction banking and cash management is a humdrum business that tends to have sticky clients in the shape of industrial corporations, unlike institutional investors and hedge funds, which are quick to switch banks. The reason the German government was keen on the since-abandoned merger between Deutsche Bank and Commerzbank AG was that it didn’t want local companies to be left without a national bank overseas at a time when Wall Street firms already dominate European banking.A bigger challenge may be maintaining its heft in fixed income. Morale is far from high, and star traders can be expected to defect as they worry that this restructuring – the bank’s third in four years – won’t be the last. Deutsche Bank plans to cut its 91,000-person workforce by a fifth. At the end of 2018, Asia accounted for 19,700 out of 92,000 global employees, of which more than 10,000 were support staff. The pressure isn’t going away. (1) Deutsche Bank largely exited commodities in 2013, prompted by the high capital requirements of the business and low margins.To contact the author of this story: Nisha Gopalan at ngopalan3@bloomberg.netTo contact the editor responsible for this story: Matthew Brooker at mbrooker1@bloomberg.netThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Nisha Gopalan is a Bloomberg Opinion columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.

  • Australian Bank ‘Rally to Fade’ as Rate Cuts Crimp Margins
    Bloomberg11 days ago

    Australian Bank ‘Rally to Fade’ as Rate Cuts Crimp Margins

    (Bloomberg) -- Back-to-back interest-rate cuts -- and the possibility of more to come -- have Credit Suisse AG feeling gloomy about Australia’s banking sector.With interest rates at a record low of 1%, banks are reaching the limit on how much they can reduce rates on deposits, which they rely on to fund their loan books. Australia & New Zealand Banking Group Ltd. was the only bank among the nation’s big-four lenders to pass on in full the Reserve Bank of Australia’s latest quarter-point cut.Earnings forecasts for Australian banks were lowered by as much as 5% after the RBA decision because of the likely impact on margins, Credit Suisse analysts wrote in a note dated July 8.“The ability of the banks to pass through the majority of the cut is severely hampered in our view unless further material earnings impacts are felt or the impact of each subsequent cut is dampened,” according to the firm. The market is pricing in another cut within the next six months.Shares of Australia’s banks have gained this year -- albeit at a slower pace than the country’s equity benchmark -- after an inquiry into decades of wrongdoing stopped short of demanding a structural overhaul in the industry. The incumbent center-right government’s surprise election victory in May also gave bank shares a boost. Credit Suisse doesn’t expect that performance to continue as the June and July rate cuts begin to impact profits.“With earnings downgrades to come in the next six months, we expect the rally to fade as the reality of historically low interest rates hits the bottom line,” Credit Suisse said.To contact the reporter on this story: Jackie Edwards in Sydney at jedwards160@bloomberg.netTo contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Tim Smith, Lianting TuFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Rate-Cut Bets Are On the Line as Traders Tune In to Fed Speakers
    Bloomberg13 days ago

    Rate-Cut Bets Are On the Line as Traders Tune In to Fed Speakers

    (Bloomberg) -- If Federal Reserve officials are thinking of dashing bond investors’ expectations for lower rates, they have have plenty of airtime in the days ahead to deliver that message.Traders have already absorbed a significant blow to their rate-cut bets, after Friday’s payrolls report showed a steeper-than-expected rebound in hiring. Futures still indicate a quarter-point cut in July, although about 6 basis points more easing had been priced in before the jobs data, and it may not take much to shake traders’ conviction even further. The U.S. and China are still in talks to resolve their trade dispute, while America’s manufacturing and services industries continue to expand, even though the pace has slowed.A Fed on hold past July could derail more than futures positions. The yield-curve flattening of the past two weeks could gain momentum, shaking off steepening bets that thrived last month as the Fed opened the door to a cut. Investors who have poured money into Treasury exchange-traded funds this year may also be blindsided. The jobs report catapulted the 10-year yield by 8 basis points from close to its lowest level since 2016, to 2.03%. It was the benchmark’s biggest jump since April, though thin turnover in a holiday-shortened week may have exaggerated the move.“No cut at all in July would likely require some talking down of market pricing by the Fed,” said Jonathan Cohn, head of rates strategy at Credit Suisse.That’s not his base case, as he expects the Fed would be unwilling to risk undermining stocks. Economists at Goldman Sachs Group Inc. agree, putting the probability of a quarter-point drop this month at 60%, with a 15% chance of a larger move, according to a note published after Friday’s data.Powell AheadBut if policy makers are inclined to hold off, they’ll have ample opportunity to explain that. Most notably there’s Fed Chairman Jerome Powell’s semi-annual testimony to Congress on Wednesday and Thursday. The minutes of last month’s policy deliberations are set for release as a reminder that, even before these stronger employment data, a slim majority of officials wasn’t expecting to lower rates this year.Jim Vogel at FTN Financial says positioning for Fed action beyond July is most at risk in the coming week. He says traders may have to rethink their conviction in interest rates falling at least a half-point this year from its current range of 2.25-2.5%.“The question really moves beyond, ‘What about July?’ to, ‘Is there really a chance now of 2% by the end of the year?”’He’s looking for guidance from the Fed this week rather than the data. In his view, the subdued trend in consumer prices -- due Thursday -- is unlikely to shift for now, and he hasn’t seen any alarm among Fed officials recently over the prevailing sub-2% readings.What to WatchBond traders will also be looking at a Bank of Canada decision July 10, with no change in rates expected. As for the U.S., here’s the economic calendar next week:July 8: Consumer creditJuly 9: NFIB small business optimism; JOLTS job openingsJuly 10: MBA mortgage applications; wholesale trade sales and inventoriesJuly 11: Consumer price index; initial jobless claims; real average hourly and weekly earnings; Bloomberg consumer comfort survey; monthly budget statementJuly 12: Producer price index; Bloomberg July economic surveyFedspeak goes on a tear:July 9: St. Louis Fed’s James Bullard speaks locally; Atlanta Fed’s Raphael Bostic is also in St. Louis July 10: Powell testifies before House Financial Services Panel; Bullard speaks again in St. Louis; Fed releases minutes from June meetingJuly 11: Powell testifies before Senate Banking Committee; New York Fed’s John Williams speaks in Albany, New York; Bostic at Fiscal Conference; Richmond Fed’s Thomas Barkin at Rocky Mountain Economic Summit; Minneapolis Fed’s Neel Kashkari in South DakotaChicago Fed’s Charles Evans in ChicagoThe auction calendar:July 8: $36 billion 3-month bills; $36 billion 6-month billsJuly 9: $38 billion 3-year notesJuly 10: $24 billion 10-year notes reopeningJuly 11: 4-, 8-week bills; $16 billion 30-year bond reopeningTo contact the reporter on this story: Emily Barrett in New York at ebarrett25@bloomberg.netTo contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, Mark TannenbaumFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Osram Accepts $3.8 Billion Offer From Bain and Carlyle
    Bloomberg14 days ago

    Osram Accepts $3.8 Billion Offer From Bain and Carlyle

    (Bloomberg) -- Osram Licht AG’s supervisory and managing boards accepted a 3.4 billion euro ($3.8 billion) takeover bid from Bain Capital and Carlyle Group LP, ending the German lighting company’s relatively brief and at times contentious period as a standalone company.Bain and Carlyle are offering 35 euros a share, 21% more than the stock’s close on Tuesday, amid reports about the latest offer. The price is still 15% lower than its peak this year in February. They’ve put a minimum acceptance level of 70% on the deal, excluding shares owned by Osram, and the acceptance period will run until early September. The stock rose 1.4% to 32.94 euros at the open of trading in Frankfurt.“Bain and Carlyle bring a lot of experience and have a deep knowledge of the industry,” Ingo Bank, Osram’s chief financial officer, said in a Bloomberg TV interview on Friday. “They will help us build the portfolio.”Bloomberg reported earlier Thursday that Osram’s supervisory board was poised to accept the offer.After Siemens AG spun off the light bulb-making division in 2013, Osram Chief Executive Officer Olaf Berlien began to refocus on higher technology, sparking a bitter and public dispute over strategy. Bain and Carlyle’s purchase of Osram would add to the $51.6 billion in private equity buyouts of European companies announced this year, according to data compiled by Bloomberg.Negotiations to buy Osram have moved slowly since they were first revealed in February. Funding has been a challenge as potential lenders raised concerns about future earnings forecasts for the company after Osram issued a string of profit warnings.Osram’s earnings deterioration during negotiations had a big impact on the deal, and the bidders also had concerns about the impact of the U.S.-China trade war on business. Bain and Carlyle were able to push down the offer price, but also struggled to raise a significant amount of debt, people familiar with the matter said. In the end about 70% of the acquisition cost -- an unusually high proportion -- comes from equity, or cash contributed by the buyers, while the remainder will be borrowed money, the people said.The offer is unlikely to include a so-called material adverse change clause, one of the people said, a provision that would allow the buyer to withdraw from the transaction if certain negative events like a fresh profit warning arise. The buyout firms declined to comment.Osram suffered from a downturn in the automotive industry, yet there remain growth opportunities in that sector, including with autonomous vehicles and continued digital lighting, Bank said in the interview. Bain and Carlyle will be focused on margin improvement as well as growing the business, he added.What Bloomberg Opinion Says“It would require real guts to turn down what Bain and Carlyle are dangling. Osram was already in a weak state when news about the potential bid first emerged in November.”--Bloomberg Opinion columnist Chris HughesThe German company has struggled since it was spun off from Siemens. Berlien shifted Osram’s focus to high-tech specialized lighting and LED chips, although he’s failed to get a handle on weakening market demand as European car sales drop. He has also tried to branch out into new areas to attract revenue such as through the purchase of horticultural lighting maker Fluence.Bain and Carlyle support the company’s strategy, and the bid is “attractive to employees as a lot of the labor provisions will stay intact so, yes, we support the offer,” Bank said.Osram now has the task of getting shareholders on board. Given the board’s acceptance of the offer came just last night, Bank said the company “doesn’t have much feedback” from shareholders yet, but expects the bid to receive “very good support” from investors.The company is hoping to avoid the fate of other take-privates in Germany such as online classifieds operator Scout24 AG, where Blackstone Group LP and Hellman & Friedman in May failed to convince sufficient shareholders to sell amid pressure from hedge funds to boost the offer price.AMS InterestDuring negotiations with Bain and Carlyle, Austrian sensor manufacturer AMS AG made an informal approach about a potential takeover of Osram, according to people familiar with the matter. While there was some strategic fit to a deal, Osram decided against pursuing talks because of concerns about the feasibility of AMS to fund the transaction due to its size and debt levels, said the people.A representative for AMS, which has a market value of $3.4 billion and counts Apple Inc. among its key clients, declined to comment.Credit Suisse Group AG, Goldman Sachs Group Inc., JPMorgan Chase & Co., Macquarie Group Ltd. as well as Nomura Holdings Inc. were financial advisers to Bain and Carlyle. Perella Weinberg Partners LP worked with Osram.(Adds info on offer, AMS interest and advisers from seventh paragraph.)\--With assistance from Andrew Noël.To contact the reporters on this story: Eyk Henning in Frankfurt at ehenning1@bloomberg.net;Aaron Kirchfeld in London at akirchfeld@bloomberg.net;Sarah Syed in London at ssyed35@bloomberg.netTo contact the editors responsible for this story: Matthew G. Miller at mmiller144@bloomberg.net, Amy Thomson, Ben ScentFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Chinese Outbound M&A Plummets as Trade War Keeps Companies at Home
    Bloomberg15 days ago

    Chinese Outbound M&A Plummets as Trade War Keeps Companies at Home

    (Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. Closing Chinese outbound deals already was a difficult task. Growing trade tensions globally has made it even tougher.At $35 billion, the volume of Chinese outbound mergers and acquisitions is the lowest tally for the first six months of the year since 2013, according to data compiled by Bloomberg. The total represents a 75% drop from the peak of such M&A activity in the first half of 2016, when China National Chemical Corp. agreed to buy Swiss agrochemical maker Syngenta AG for $43 billion.Of the first-half total, only $6.8 billion was from U.S. acquisitions, representing a 17% drop from a year earlier. Among those deals, Chinese buyout firm Hony Capital Ltd. was part of a consortium that invested $700 million in U.S. filmmaker STX Entertainment, the data show.Dealmakers say that trade tensions between the U.S. and China, which have led to rising tariffs on both countries’ goods, have clearly affected the pace of acquisitions.“The trade war sentiment continues to weigh on overall outbound China M&A activity, and we expect this to particularly impact China-U.S. deals in the near future,” said Joseph Gallagher, head of Asia Pacific mergers and acquisitions at Credit Suisse Group AG.And even though deal volumes have been falling for several years, “the recent escalation of trade tensions has probably accelerated the slowdown,” said Iain Drayton, Goldman Sachs Group Inc.’s co-chief operating officer for investment banking in Asia excluding Japan.Expanding TensionsGlobal uncertainty goes beyond the U.S.-China trade war. Regulators including the Committee on Foreign Investment in the U.S., or CFIUS, and the European Commission have adopted a tougher stance in reviewing such sectors as technology and infrastructure, making it more difficult to complete transactions.In April, one of the biggest deals ever collapsed as China Three Gorges Corp. ended its 9.1 billion-euro ($10.2 billion) takeover offer for Portuguese utility EDP-Energias de Portugal SA following concerns about regulatory approvals. Chinese companies have started focusing more on M&A within the Asia-Pacific region, Gallagher said.More than 40% of the China outbound transactions in the first half of the year took place within the region, the Bloomberg-compiled data show. The biggest occurred in April, when a China-backed group agreed to invest $5.4 billion in Mindanao Islamic Telephone Co., or Mislatel, the Philippines’ third telecommunications provider.Steady DeclineThe volume of Chinese cross-border deals has steadily fallen since 2016, not only as a consequence of tighter scrutiny from the U.S. and Europe. The splashy acquisitions by Chinese groups such as Dalian Wanda Group Co., Anbang Insurance Group Co. and HNA Group Co. were followed by a Chinese government crackdown on foreign investments.Companies have also faced setbacks when investing in certain sectors in Australia, according to Rohit Chatterji, co-head of Asia Pacific M&A at JPMorgan Chase & Co. That said, they are still looking for acquisitions both domestically and in some overseas markets, Chatterji said.“Japan, Korea, India and Southeast Asia have been very busy in M&A and are poised to remain active in the coming months,” he said.Yet the Asia Pacific region has seen a sharp decline in deal activity in the first half of the year, with volumes dropping more than 30% from a year earlier, Bloomberg-compiled data show.Southeast Asia has been one of the few bright spots for M&A as companies not only from China but globally seek to tap into the economic growth potential of Vietnam, Indonesia and the Philippines, according to Paul DiGiacomo, senior managing director at financial advisory firm BDA Partners.Looking to AsiaThe biggest deal in the region so far this year is Blackstone Group’s $18.7 billion purchase of U.S. logistics properties from Singapore’s GLP Pte. Others include Telenor ASA’s talks with Axiata Group Bhd. to combine their Asian telecommunication operations.Another source of deals has come from global companies reviewing their Asian footprint. France’s Carrefour SA agreed to sell an 80% stake in its China unit for 4.8 billion yuan ($698 million) in cash to local retailer Suning.com Co. German retailer Metro AG has been considering a sale of a majority stake in its Chinese business, people familiar with the matter have said. And Anheuser-Busch InBev NV, the world’s largest brewer, this week started taking orders for an initial public offering of its Asian operations, in what could be the biggest listing this year.That’s not enough to offset the drop in volumes, however. The Chinese M&A market must materially recover for the region to show continued growth, said Mayooran Elalingam, head of Asia Pacific M&A at Deutsche Bank AG.“China will continue to be challenged due to a multitude of factors, including the trade war, SOE reorganization, capital controls and general tightness in financing from local institutions,” he said.\--With assistance from Crystal Tse.To contact the reporters on this story: Manuel Baigorri in Hong Kong at mbaigorri@bloomberg.net;Vinicy Chan in Hong Kong at vchan91@bloomberg.netTo contact the editors responsible for this story: Fion Li at fli59@bloomberg.net, Jodi Schneider, Ben ScentFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.