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CEO behind Star Wars night-lights calls tariffs devastating and urges President Trump to back down
(Bloomberg) -- One of the most opaque areas of China’s credit markets involves the practice of companies buying their own bonds. That may soon get a lot tougher, contributing to financing difficulties that are already bedeviling the nation’s policy makers.At issue is a sharp increase in scrutiny by financial institutions of the collateral that their counterparties offer up in the repurchase market, a crucial channel for short-term funding. If the debt sold by issuers that indirectly purchased a portion of their own bonds -- which could account for as much as 8% of China’s corporate bonds, according to Citic Securities Co. -- is shunned, that will squeeze liquidity for a swathe of the nation’s businesses.Despite regulators’ actions to prevent any seizing up in the repo market and short-term collateralized lending between banks, some institutions still moved to avoid riskier securities. The moves have showcased the fragility of confidence toward borrowers that lack state backing in a financial system still dominated by state-sector banks.For firms that obtained funding via unorthodox methods, conditions may become particularly challenging. One of those practices is known as structured issuance, where a company will transfer cash to an asset manager to buy a slice of the bonds the company is itself selling. The manoeuvre helps give the appearance of greater demand for its securities and stronger ability to obtain funding. What could make the practice untenable is if asset managers can no longer use those securities held in custody as collateral for repos.“Since some repo transactions have defaulted recently, it is unclear whether companies can continue to borrow money from the structured issuance method, said Meng Xiangjuan, chief fixed-income analyst at SWS Research Co. in Shanghai. “If it stops, some issuers will certainly face difficulties operating their business normally, and their debt-repayment pressure will rise,” she said.CHINA DEFAULT WATCH: Three More Companies Missed PaymentsWhile the practice of self-financing a portion of bond issuance is well known among credit analysts and ratings companies, observers have been loath to name the firms involved, making this a particularly murky part of China’s debt market. Citic Securities, for its part, hazarded a total of about 1.5 trillion yuan ($218 billion) worth of securities outstanding that were sold in part via structured issuance.A shock takeover of Baoshang Bank Co., a city commercial lender linked with conglomerate Tomorrow Group, has had cascading effects. One of the readily quantifiable ramifications has been to raise the funding costs for lower-rated banks, as seen in the rates on their negotiable certificates of deposits.Another impact has been the shock to confidence after regulators warned that Baoshang’s interbank creditors might face losses. They have since had to fight a rearguard action to encourage banks to sustain their interbank and repo operations, and the People’s Bank of China has had to pump liquidity into money markets to avert any systemic upset.Concern became so great that the China Foreign Exchange Trading System, an arm of the PBOC, set up a procedure for the orderly resolution of defaulted repo transactions, pledging to conduct anonymous auctions of the bonds used as collateral -- a move that hides the name of the counterparty that defaulted.“The government has been taking measures proactively to avoid systemic risk” in the interbank market, Goldman Sachs Group Inc. economists including Zhennan Li, wrote in a note Tuesday. Even so, “in coming months, the macro environment looks set to remain complicated, and macro policy more challenging, and we think the probability of a rise of financial stress will remain relatively high,” they wrote.Regulators’ actions have averted a broader surge in premiums for lower-rated borrowers, such as local government financing vehicles that analysts say account for a portion of structured issuance. But strategists remain concerned that the days of such an unconventional fund-raising strategy may be numbered if the securities are no longer accepted as collateral for financial transactions.“In the short run, companies that rely on structured issuance definitely have to sell bonds at higher yields to attract investors,” said Brian Lou, portfolio manager from UBS Asset Management in Shanghai. “Everyone knows the funding chain is really fragile after the Baoshang Bank seizure, and the most important task for institutional investors right now is to allocate assets better and improve risk management.”(Adds Goldman comment in third-to-last paragraph.)To contact Bloomberg News staff for this story: Tongjian Dong in Shanghai at email@example.com;Qingqi She in Shanghai at firstname.lastname@example.orgTo contact the editors responsible for this story: Neha D'silva at email@example.com, Christopher Anstey, Lianting TuFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Walmart's Mexico unit has begun offering grocery delivery from its Superama stores via messaging service WhatsApp, the retailer said on Monday, in a new stab at attracting shoppers outside bricks-and-mortar supermarkets. WhatsApp, the free text-messaging service owned by social media platform Facebook, is ubiquitous throughout Mexico.
(Bloomberg) -- It’s official -- SoftBank Group Corp. is Japan’s most generous employer, at least when it comes to executive pay.Six of the country’s 10 biggest salary packages last fiscal year were offered by SoftBank, according to a report from Tokyo Shoko Research Ltd. SoftBank Group Vice Chairman Ronald Fisher topped the list with 3.27 billion yen ($31 million) in the period ended March 31. Toyota Motor Corp. director Didier Leroy, the highest-paid non-SoftBank executive, ranked No. 5, while Sony Corp. Chief Executive Officer Kenichiro Yoshida was 8th.SoftBank founder Masayoshi Son has a history of paying top dollar to attract high-profile executives. Former SoftBank President Nikesh Arora still holds Japan’s all-time record with the 10.3 billion yen package he received in fiscal 2016, according to the report. Since then, Son’s hunt for global talent accelerated as he launched a $100 billion Vision Fund to invest in the world’s biggest technology companies. SoftBank paid a total of 9.1 billion yen in compensation to six lieutenants last year.Key Insights:SoftBank Group Chief Operating Officer Marcelo Claure ranked second with 1.8 billion yen. Claure, who also heads Sprint Corp. in the U.S., was named EVP in July. He also heads SoftBank’s $5 billion technology fund focused on Latin America. Ken Miyauchi, head of SoftBank’s domestic telecom operation, was third with 1.23 billion yen, followed by Simon Segars, head of its ARM Holdings Plc chip unit, with 1.1 billion yen.Former Goldman Sachs Group Inc. executive and SoftBank Group Chief Strategy Officer Katsunori Sago earned 982 million yen in the sixth place. Rajeev Misra, who heads the Vision Fund, earned 752 million yen.Son’s own salary remained modest at 229 million yen, according to a company filing in May. The billionaire controls a roughly 22% stake in SoftBank, which alone is worth about 2.3 trillion yen.Toyota paid Leroy a little over 1 billion yen. Sony CEO Yoshida made 847 million yen, 6% less than his pay last year.Chip equipment maker Tokyo Electron Ltd. was the most frequent name on the list as nine of its executives made the top 30, earning a collective 5 billion yen. Chief Executive Officer Toshiki Kawai ranked 7th with 925 million yen.To contact the reporter on this story: Pavel Alpeyev in Tokyo at firstname.lastname@example.orgTo contact the editors responsible for this story: Edwin Chan at email@example.com, Colum MurphyFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Walnut Creek-based Mechanics Bank and Rabobank said Monday that it will create a co-CEO leadership structure and a new office of the chairman when the two banks complete a $2.1 billion combination that’s tripling the size of Mechanics Bank. Mechanics Bank (OTCBB: MCHB) President and CEO John DeCero and Roseville-based Rabobank N.A. CEO Mark Borrecco will become co-CEOs of the combined bank, which is expected to have about $18 billion in assets when the deal closes in August or September. Mechanics is buying Rabobank’s retail, business banking, commercial real estate, mortgage and wealth management businesses in California.
They proved they had enough capital to withstand a severe and prolonged economic downturn.
(Bloomberg Opinion) -- Dan Loeb wants to split up Sony Corp. to enhance its value. The company isn’t the only household name in Japanese electronics that might benefit from the treatment.Panasonic Corp. shares have dropped more than 40% over the past 12 months after a partnership with Tesla Inc. disappointed; the company forecast earnings will decline; and a restructuring plan put forward last month failed to convince investors. The firm is trading on a multiple of 3.8 times enterprise value to Ebitda, compared with a five-year average of 4.6 times.Loeb’s Third Point LLC has called for a spinoff of Sony’s semiconductor business, aiming to reduce the stock’s so-called conglomerate discount – the situation where a company is valued at less than the sum of the different businesses it owns. It’s an analysis that could equally be applied to Panasonic.Last month, the Osaka-based company released a mid-term plan that will increase its number of divisions to seven from four. Panasonic aims to shift its focus away from the automotive business, which is struggling under the shadow cast by the difficulties in its relationship with Tesla. The electronics maker also announced a series of partnerships and alliances, and estimated restructuring costs of about 90 billion yen ($840 million), according to Goldman Sachs Group Inc.Analysts say Panasonic still doesn’t have a coherent strategy, and investors clearly want more change. So could a breakup be the solution?The answer from a sum-of-the-parts analysis is a clear: maybe. If Panasonic listed all its business segments separately and they traded at the mid-point of their peer-group ranges of between 4 times and 9 times enterprise value to Ebitda, then the combined value would be 2% higher than the company’s current market capitalization of about $20 billion. At the high end of the ranges, Panasonic could increase its value by as much as 32%. At the low end, though, there’s a similar amount of downside.(1)Analysts in Japan have questioned Loeb’s proposal for Sony. While they lauded his effort to improve the company’s valuation, they also cast doubt on whether the activist investor’s proposals were feasible or made strategic sense. A Sony split may unlock value now but, as my Bloomberg Opinion colleague Tim Culpan asked, what’s the vision for the future? As Sony analysts have pointed out, Loeb has reversed course since 2013, when he recommended that the company sell part of its film unit.This uncertainty is precisely where a breakup proposal may make sense for Panasonic, though. Pulling apart its various businesses – grouped broadly under appliances, automotive and industrial systems, connected solutions and eco solutions – would enable investors to put their money where they see value and growth prospects, without being encumbered by laggard businesses.For instance, sales for the connected solutions segment rose 6.9%(2) in the 2019 fiscal year, helped by the Tokyo Olympics in 2020 and growing demand from businesses to help automate tasks. Itochu Techno-Solutions Corp., which competes in a similar business, is trading on a forward price-earnings ratio of 23 times.Panasonic thought the automotive business would drive its profitability over the past three years. Even here, running the unit separately could create more value. Panasonic has teamed up with Toyota Motor Corp. and already has partners other than Tesla. With demand for electric cars and the pace of adoption being reassessed, the company could take time to leverage its technology advantage. In the process, the segment’s rising fixed costs won’t weigh down other more profitable businesses. In fact, investors might give a standalone battery business a higher valuation, as they’ve done with South Korean battery-makers Samsung SDI Co. and LG Chem Ltd.Analysts at Credit Suisse AG downgraded the stock on Friday, noting that they see “no signs of a rebound in earnings in the near term,” and that it was unclear how the company and its profit would look after the restructuring. Earnings at the auto business, where the analysts earlier saw potential for sales growth, is unlikely to improve over the medium term, they said.There are additional reasons why a breakup should be considered. For one, the government is incentivizing spinoffs with tax breaks. Meanwhile, domestic institutional investors are becoming more activist: The rejection rate for takeover defense measures has risen over the past six years to 80.5% from 40%, according to Goldman Sachs. That’s close to the 85% rate for foreign investors.Panasonic has some thinking to do. Loeb, meanwhile, might just have a new target. --With assistance from Elaine He. (1) Sum-of-the-parts analysis for Panasonic is based on FY2019 operating profit for each segment and used the following assumptions:1. Average enterprise value to earnings before interest, taxes, depreciation and amortization for peer group of each segment.2. A range of two times above and below average multiple.(2) Includes exchange-rate effects.To contact the author of this story: Anjani Trivedi at firstname.lastname@example.orgTo contact the editor responsible for this story: Matthew Brooker at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal. For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
Retail giant Walmart Inc (NYSE: WMT )'s $16-billion acquisition of India's Flipkart included a majority stake in a payments app, PhonePe, thatcould be worth more than $14 billion in the medium-term, according ...
In a tale of two ETFs focused on retail stocks, one is up 16% this year and near new highs, while the other is up 2% and 20% off its high. Why the sharp divergence?
The Federal Reserve set up a "severely adverse" scenario to test 18 of the largest U.S. banks. That scenario included a global recession with the U.S. unemployment rate jumping to 10%.
(Bloomberg Opinion) -- FedEx Corp. may finally be waking up to the threat Amazon.com Inc. poses to its business model.The logistics company is offering big discounts to help fill the planes in its Express delivery network with more e-commerce shipments, according to the Wall Street Journal, which cited people familiar with the matter. The deals are being used to woo customers away from rival United Parcel Service Inc., or to convince them to switch from FedEx’s cheaper ground offerings, the newspaper said, citing people familiar with the matter. For some customers, shipping goods via FedEx’s two-day air service may now cost about the same as shipping them through the ground division.(1)A FedEx spokeswoman told the Wall Street Journal that the company hasn't changed its pricing strategy, adding that the two-day Express service “has been very successful and continues to deliver tremendous value to small and medium businesses competing in the e-commerce market.” Reports of the discounts come just weeks after FedEx said its domestic Express air-delivery unit was dropping Amazon as a customer to focus on "serving the broader e-commerce market." FedEx dropped Amazon as a customer for its Express air-delivery unit to focus on “serving the broader e-commerce market.” The charitable interpretation of that move is that FedEx had found a bit of backbone and was holding a firmer line on pricing with Amazon in an effort to bolster its profit margins. The other possibility is that FedEx recognized that Amazon’s efforts to bring more of its logistics operations in house were real, and that it may want to start the process of breaking up with Amazon before Amazon decides to break up with it. While FedEx CEO Fred Smith has repeatedly painted any notion of Amazon disrupting the logistics industry as “fantastical,” his actions increasingly suggest otherwise. The share of capacity devoted to the time-sensitive legal documents and medical supplies that the FedEx Express network was originally built for will likely continue to shrink. But it’s uneconomical for the division’s fleet – which numbered 670 leased and owned planes at the end of 2018 – to fly partially full or not at all. Meanwhile, FedEx expects U.S. e-commerce demand to grow to 100 million packages per day by 2026. It’s been adamant that Amazon only directly accounts for a small percentage of its overall sales. But Amazon has forever changed the world’s expectations around shopping and delivery. So whether or not its own sales are in the mix, FedEx will be forced to drink more deeply from the firehose of e-commerce shipments to keep its network humming along. And that will come at a cost to margins.FedEx’s decision to prioritize shipments from the likes of Walmart Inc., Target Corp. and Walgreens Boots Alliance Inc. gave some analysts hope that it would deliver a greater share of packages to higher-paying business customers and add more density to its delivery routes. But there’s some debate as to whether the Express air-delivery unit as currently constituted still makes sense. Amazon relies on a network of fulfillment and sorting centers close to metropolitan areas to rapidly complete and ship orders, a model that many rival retailers are mimicking in some shape or form as they try to stay competitive. If you’re only going to deliver a package 25 or 50 miles, you’re not going to use a plane to do that. Indeed, when FedEx’s decision to drop Amazon as a U.S. Express customer was first announced, Seaport Global Holdings analyst Kevin Sterling wondered to Bloomberg News whether it was a precursor to the Express unit eventually fading out.Planes still have a role to play: Amazon last week announced an agreement to lease 15 additional Boeing Co. 737-800 converted freighters from General Electric Co.’s jet-lessor arm, adding to an existing agreement for five planes. But FedEx’s reported need to offer discounts to keep the planes it has full calls into question the company’s decision to devote a significant amount of its capital expenditure budget to refreshing its airplane fleet. Management has been clear it’s not expanding capacity at the Express unit, but rather replacing its planes with more efficient options to improve productivity and costs. Downsizing the fleet and reallocating those resources could be a smarter move. The reported pricing cuts – coupled with FedEx’s recently announced plan to offer delivery seven days a week by 2020 and add a fleet of flexible, part-time drivers – reinforce a point both I and my colleague Shira Ovide have long argued: Amazon doesn’t need to steal customers away from FedEx and UPS en masse to be a threat. It’s already forcing both companies to rethink the way they operate. The revenue lost from removing Amazon as an Express customer is relatively minor, but the world the e-commerce giant has created isn’t a hospitable one for the package-delivery incumbents’ profit margins and capital-spending budgets. (1) News of the discounts weighed on shares Monday, as did a separate shipping issue: FedExhad to issue a second apology to Huawei Technologies over the misrouting of packages, and some reports indicate China is contemplating black-listing it.To contact the author of this story: Brooke Sutherland at firstname.lastname@example.orgTo contact the editor responsible for this story: Beth Williams at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Brooke Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
Walt Disney World's work on one of its newest resorts appears to be making headway as the rest of the Orlando tourism industry gears up for the Aug. 29 debut of Star Wars: Galaxy's Edge at Disney's Hollywood Studios theme park. A new permit filed June 16 with Orange County gives a peek at what crews are up to at the site of Disney's (NYSE: DIS) new 900-room resort — Reflections: A Disney Lakeside Lodge. The permit is for the demolition "associated with existing utilities and surrounding configuration" at 4420 Big Pines Road, which is near the construction site for the future resort slated to replace Disney's long-shuttered River Country water park.
After a quarter of a century selling groceries in China, Carrefour is beating a retreat. The deal leaves Carrefour with an interest in China without having to do any of the heavy lifting. Carrefour China currently operates 210 hypermarkets and 24 convenience stores, although its €4.1 billion (US$4.7 billion) in sales last year were down 5.9%.
(Bloomberg) -- Over the past several years, Shanghai entrepreneur Yung Lin has built a decent business selling wrenches, screwdrivers and other tools on Amazon.com. Then President Donald Trump imposed tariffs on thousands of goods made in China, and Lin faced a difficult choice: eat the additional cost or try and pass it onto his mostly American customers. He chose to raise prices and watched sales of some products dive by as much as one third in just two weeks. Amazon.com Inc. merchants around the world are scrambling to navigate an unpredictable trade war that’s upending their proven business model of buying inexpensive goods in China and selling them at a markup in the U.S. The problem is particularly acute now as Trump weighs another $300 billion worth of tariffs, many on consumer goods.Mom and pop sellers won’t be able to wait for Trump’s decision: They have to place factory orders now and figure out pricing if they want to get their goods made in time for the lucrative Christmas shopping season, when they make as much as half their annual revenue. The most obvious solutions—raising prices, shifting production to other countries, stockpiling inventory—all have costs and complications of their own.These businesses—many of them one-person shops—are especially vulnerable because they lack big companies’ wherewithal to ride out the uncertainty as well as the negotiating power to shift tariff costs onto their suppliers. “The smaller companies have a significant problem,” says Joel Sutherland, Managing Director of the Supply Chain Management Institute at the University of San Diego. “We have an administration that says one thing today and does something else tomorrow, which poses tremendous risks.”Amazon is more insulated than the merchants in the near term but it too could take a hit if sales slow and cut into the commissions and fees the company charges merchants to use its online store. The shares were down less than 1 percent at 12:08 p.m. in New York.Much depends on whether the U.S. and China can come to terms. Trump will meet Chinese President Xi Jinping for the G20 summit in Osaka, Japan, on June 28-29, and both sides have agreed to resume trade talks after a weeks-long stalemate. But even if they hammer out an agreement, the trading relationship between the world’s two largest economies probably will never be the same.“We’re going to assume the tariffs are here to stay,” says Chuck Gregorich, who sells China-made hammocks, patio furniture and 2,000 other products on Amazon. “We can’t have this happen in a year or two and get caught with our pants down again.”Like many other importers, Gregorich tried to move up orders early last year to beat a Jan. 1 tariff hike on Chinese imports from 10% to 25%. He wound up spending an extra $400,000 on shipping only to see the tariff hike delayed. Burned once by the guessing game, Gregorich is looking to shift about 30% of his production to factories in Vietnam and elsewhere. He’s not alone. Many other Amazon merchants are considering having their goods made in India, Southeast Asia and Central America. Michael Michelini relocated to China from New York in 2007 to make Italian coffee presses and upscale bar supplies for U.S shoppers. Eight months ago he decided to move with his wife and kids to Thailand, where he’s working with a new factory to develop a line of high-end kitchenware. “Now when I think of China, I think of risk,” he says.Moving isn’t easy, however. Merchants say finding the right factory, securing raw materials and conducting product quality testing can easily eat up a year. Jerry Kavesh sells cowboys boots and hats on Amazon and recently spent months locating a factory in India that could make his products. But Kavesh discovered he would still have to import raw materials from China, negating any advantage. So as a last resort, he’s cutting his holiday inventory by about 15% and raising prices by about 12%, which he figures will spook enough customers to hurt sales.“When I hear the [U.S.] administration say just move, that's just not realistic,” says Kavesh, the chief executive officer of 3P Marketplace Solutions. “You can’t just suddenly turn all of your production over to someone new.”Even as U.S. sellers try to diversify their manufacturing base, their Chinese counterparts are looking for new customers in Europe, Japan and Australia to offset the potential hit to their U.S. business. “If you are a Chinese seller, money is money,” says Eddie Deng, a former Alibaba Group Holding Ltd. strategist who now runs an online clothing brand called Urbanic that sells Chinese-made, Western-style clothing in India. “It doesn't matter if it's from the U.S., India or the Middle East.”Amazon has said little publicly about the trade war. It wasn’t among 600 businesses including Walmart and Target that wrote the Trump administration earlier this month seeking an end to the trade war because it’s bad for U.S. shoppers. Amazon is a member of the Internet Association trade group, which signed the letter.Behind the scenes, Amazon has agreed to pay some vendors up to 10% more for products affected by tariffs, according to two people familiar with the matter. “Companies of all sizes throughout the supply chain are adjusting to increased costs resulting from new tariffs,” Amazon said in an emailed statement. “We’re working closely with vendors to make this adjustment as smooth as possible.”But that help will apply only to products Amazon buys wholesale and resells itself. The mom and pops that sell directly to consumers on Amazon’s marketplace are on their own.The hardest part is the uncertainty—the temptation to parse Trump tweets in a mostly vain effort to divine the future. “This could all be a head fake,” says Steve Simonson, who sells Chinese-made home goods and electronics and has been scouting factories in India, Vietnam and Central America. “In two months, this could all go away and all of this time and work will be wasted.”(Updates with share price. A previous version of this story corrected name of university in the fourth paragraph.)To contact the authors of this story: Shelly Banjo in Hong Kong at firstname.lastname@example.orgSpencer Soper in Seattle at email@example.comTo contact the editor responsible for this story: Robin Ajello at firstname.lastname@example.org, Edwin ChanFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Walmart Inc.'s Sam's Club is now delivering alcohol, including wine, beer and spirits, via Instacart in select markets across states, including Florida, California and Missouri, the company said Monday. Consumers can get same-day delivery of alcohol alongside their groceries with plans to expand the service to additional locations in the coming months. Walmart shares were up 0.2% Monday, and hae gained 19.5% in 2019 to date, while the Dow Jones Industrial Average , which counts Walmart as a member, has gained 15% and the S&P 500 has gained 18%.
California Governor Gavin Newsom has proposed $24 billion in across-the-board transport spending for the state's 2019-20 fiscal year, a 6 percent increase. "If any retailer will win any logistics race it will be Walmart Inc (NYSE: WMT).
Amazon had been ”chipping away at Walmart’s pricing advantage” in groceries, but Walmart has started to reverse that, one analyst says.
JetBlue Airways Corp has sued Walmart Inc for trademark infringement, in an effort to stop the world's largest retailer from using the name Jetblack for its text-based personal shopping service. In a complaint filed on Friday night, JetBlue said Jetblack was a "transparent attempt" by Walmart to capitalize on the carrier's goodwill, and would likely cause "significant consumer confusion" as the service expands across the United States. JetBlue also said Walmart intended further infringements by using other "Jet+color" names such as Jetgold and Jetsilver, and moving closer to JetBlue's core business by offering travel services, including dining and entertainment recommendations.
Target (TGT) has taken steps that have improved prospects in a big way. The company's initiatives such as omni-channel capacities and emphasis on flexible format stores bode well.