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Cisco Chairman Chuck Robbins discusses his company’s strong earnings and what the technology giant plans to do with the money that was repatriated from overseas.
Cisco Chairman Chuck Robbins discusses his company’s strong earnings and what the technology giant plans to do with the money that was repatriated from overseas.
(Bloomberg) -- Joe Biden’s tax hike proposals will deal a blow to corporate earnings growth next year, Goldman Sachs Group Inc. strategists warned, highlighting a headwind for U.S. equities following a rally that has pushed prices to record highs.The U.S. president wants to raise corporate income tax to 28% and set a 21% minimum levy on global corporate earnings. The ambitious package is set to face resistance in Congress, before a potentially revised version goes into effect next year.Goldman strategists including David J. Kostin write in a note that in the unlikely scenario that no tax reforms are adopted, the S&P 500’s annual earnings per share will grow by 12% to $203 next year. However, full adoption of the Biden proposals would cut growth to just 5% or $190.“Legislation will be heavily negotiated,” the strategists wrote, adding their current estimate for a 9% earnings per share growth assumes that taxes will rise. The strategists predict that a statutory rate hike to 28% would shave off $8 from EPS growth next year, the foreign income rate hike would cost $5, while a minimum corporate rate of 15% would erase $1.The president plans to meet with a bipartisan group of centrist lawmakers on Monday as part of his pitch to support initiatives that he said would address inequality, strengthen the U.S. economy and rebuild the country’s infrastructure. Centrist Democrats like West Virginia’s senator Joe Manchin have said that the current tax proposal goes too far.U.S. equity futures retreated on Monday, following a third straight week of gains and fresh records for the S&P 500 Index.While global stocks have rallied on the expectation that economies will rebound as vaccinations against the coronavirus progress, cash-starved governments are under pressure to raise corporate taxes following an unprecedented spending spree to cushion the blow from the steepest recession in living memory.The Biden administration has floated a proposal for a new international tax code that would hit as many as 100 global corporate giants with a levy on their revenue. A push by European Union members to tax more of the income on the countries where tech giants do business had been stalled, amid a pushback from Donald Trump’s administration.(Updates with breakdown of EPS cost in fourth paragraph, U.S futures update in 6th)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
China has imposed a sweeping restructuring on Jack Ma's Ant Group, the fintech conglomerate whose record $37 billion IPO was derailed by regulators in November, underscoring Beijing's determination to rein in its internet giants. The overhaul, in the works for several months, includes Ant turning itself into a financial holding firm, a move expected to curb its profitability and valuation by curtailing some of its freewheeling businesses. It comes two days after Ma's Alibaba Group Holding Ltd, of which Ant is an affiliate, was hit with a record $2.75 billion antitrust penalty as China tightens controls on the booming "platform economy".
Gold traders may have priced in higher inflation, so the market could actually bounce higher even if the CPI numbers beat the forecast.
Further, core inflation too accelerated to more than a 2-year high, at close to 6.0% which does not offer comfort. Continued comfort on food and goods inflation as production continues to normalize should prove supportive. "Upside from crude oil prices, if any, could be offset by a likely hold or reduction in duties on petroleum products, softening of demand due to a resurgence in COVID-19 infections, and likelihood of a normal monsoon outturn (as per private weather forecasting firm AccuWeather) in 2021."
Gold prices rebounded on Tuesday from their lowest levels in more than a week after data showing a sharp rise in U.S. inflation bolstered bullion's appeal as an inflation hedge and weighed on the dollar. Spot gold was 0.7% higher at $1,744.33 per ounce by 12:20 p.m. EDT (1620 GMT), after earlier dipping to $1,722.67, its lowest mark since April 5. U.S. gold futures rose 0.7% to $1,743.90.
(Bloomberg) -- The Bank of England’s Chief Economist Andy Haldane will step down in June, removing the the Monetary Policy Committee’s most outspoken contrarian and inflation hawk.Haldane, 53, will leave after career spanning more than three decades at the central bank to become chief executive officer at the Royal Society for Arts, Manufactures and Commerce starting in September. He will remain in place through the bank’s rate decision on June 24. He’s departing as the U.K. emerges from its worst recession in three centuries, which pushed the central bank to unleash unprecedented stimulus including 150 billion pounds ($206 billion) of bond purchases this year. Haldane alone on the nine-member policy panel voiced concerns about inflation accelerating with a rapid bounce-back in growth as Prime Minister Boris Johnson winds back restrictions to contain the Covid-19.“The most interesting element to me is that he is probably the arch-hawk on the MPC, and his removal will certainly see a more dovish tone seep into meetings,” said Stuart Cole, chief macro strategist at Equiti Capital and a former BOE economist.Bank of England Governor Andrew Bailey will appoint a successor after the bank advertises the position. While the chief economist traditionally also sits on the MPC, it’s the Treasury’s decision to name members to that panel.In recent months, Haldane has warned about the risk of excessive pessimism about the economic outlook as the pandemic winds down, terming it “Chicken Licken” economics that could undermine the recovery.While many of his colleagues point out concerns about rising unemployment and signs of sluggishness in the economy, he said he expects a “rip-roaring recovery” and on inflation said a “tiger has been stirred” that may “prove difficult to tame.”Several economists said the improving outlook for the U.K. economy has already shifted debate on the MPC away from extra stimulus and toward whether the pace of bond purchases need to slow -- or even an eventual tightening in policy.“In 2022 the BOE is likely to set out an exit strategy from its ultra-easy policy stance before hiking the bank rate in 2023,” said Kallum Pickering, senior economist at Berenberg.Haldane joined the BOE in 1989 after gaining a masters in economics from Warwick University.He logged experience at the central bank in international finance, market infrastructure and financial stability during the financial crisis before clinching his current role under previous Governor Mark Carney in 2014. That year, “Time” magazine named him one of the world’s 100 most influential people.Haldane is known for his occasionally quirky speeches. He once used Dr. Seuss to bemoan the reading age needed to understand the central bank’s communications.His words sometimes raised eyebrows, notably when he compared pre-crisis economic projections to a famously inaccurate forecast by BBC weatherman Michael Fish before a 1987 storm that killed 18 people.In 2012, he drew the ire of his future boss with a speech -- titled “The Dog and the Frisbee” -- which called for simplicity in banking regulation. Carney, who was then the Bank of Canada governor and head of the global Financial Stability Board, said the speech was “uneven” and the conclusion “not supported by the proper understanding of the facts.”Haldane has also led the government’s Industrial Strategy Council until it was dissolved a few weeks ago and is the co-founder of charity Pro-Bono Economics.“If your business is trying to predict rates and quantitative easing, it will be a bit easier without Andy’s speeches somewhat clouding the issue,” said Tony Yates, a former BOE official who worked with Haldane. “If you’re trying to get up to speed on the latest things in monetary economics and finance, then it’s less good because there won’t be Andy picking up new things and explaining them.”(Updates with context and comment from the first paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- Follow Bloomberg on LINE messenger for all the business news and analysis you need.Indonesia’s central bank says the rupiah is “very undervalued” following a two-month slide. Investment banks and money managers are predicting further losses.Goldman Sachs Group Inc. says climbing U.S. yields and a potentially firmer dollar will keep hurting Indonesian assets in the near term, while PineBridge Investments Asia Ltd. says the rupiah will keep sliding due to the global risk-off trade and as overseas funds take home dividends. Loomis Sayles Investment Asia Pte. is bearish due to the Covid-19 situation.The rupiah has dropped 3.8% this year, the worst performer in emerging Asia after the Thai baht, as surging U.S. Treasury yields led to an outflow of funds from emerging-market assets. The currency fell as low as 14,635 per dollar on Tuesday, the weakest level since November.“The rupiah is among the most vulnerable among high-yield emerging-market currencies under risk-off sentiment,” said Arthur Lau, head of Asia ex-Japan fixed income at PineBridge in Hong Kong. “In the coming months, we expect the weakness of the rupiah to remain due to seasonal dividend and coupon repatriation in April-May and higher seasonal imports in the second quarter.”Indonesia’s currency is seen as a bellwether of risk in emerging Asia due to the relatively high foreign ownership of local assets and its generally open economy. The rupiah’s prolonged slide suggests there is a deeper shift away from developing nations than just a pullback from last year’s liquidity-fueled surge.Emerging-market stocks, bonds and currencies have all declined over the past three months with the biggest foreign-exchange losses in Brazil, Argentina and Turkey.“One of the most frequently asked investor questions in recent weeks has been whether it is time to buy the dip in Indonesia local markets?” Goldman Sachs analysts led by Zach Pandl in New York wrote in a research note this month. “The answer is ‘not yet’, in our view.”Goldman says its analysis indicates Indonesian bonds are not yet in cheap territory, and strong U.S. data suggests there’s the potential for even higher Treasury yields, which would be a further negative for the Asian nation’s assets.Bank Indonesia sees the rupiah rebounding due to the country’s low inflation and improving economic growth. Meanwhile, policy makers will seek to stabilize the currency in line with its fundamentals, Deputy Governor Dody Budi Waluyo said last week.Amundi Singapore Ltd. is also positive over a longer horizon.“Over the medium term, Indonesia will benefit from structural tailwinds, such as further finalization and implementation of the omnibus law, and from the relatively quicker economic recovery post-Covid,” said Joevin Teo, head of investment in Singapore. “This should continue to bolster investor interest and inflows in both the bond and currency markets.”Back among the bears, Loomis Sayles believes there’s little reason to be positive about the rupiah at present, especially with the country struggling to bring the coronavirus under control.“The fundamental reason for being bullish rupiah right now isn’t there,” said Thu Ha Chow, a portfolio manager at the firm in Singapore. In addition to the risk of a rising dollar and U.S. yields, “there’s no massive turnaround story in terms of what’s going on with the Covid situation,” she said.(Updates rupiah return in third paragraph, adds EM asset performance in sixth)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- Air Canada shares fell after the company reached a deal with the federal government for loans and equity worth nearly C$5.9 billion ($4.7 billion), making the state a shareholder of the country’s largest airline for the first time since the 1980s.Air Canada declined 2.6% to C$26.29 as of 12:39 p.m. in Toronto. Earlier it dropped more than 6.6% as the market absorbed the news that Prime Minister Justin Trudeau’s government is buying C$500 million of shares at a discount. The government will also receive warrants as part of a financing agreement that makes Air Canada eligible for five new credit facilities, according to a company statement.The dilution for shareholders “was greater than we had anticipated,” Kevin Chiang, an analyst at Canadian Imperial Bank of Commerce, said in a note. If all the warrants were exercised, the government would own 9.7%, Chiang said.In return for the money, Air Canada agreed to restrict share buybacks and dividends, keep employment at April 1 levels and follow through on a deal to buy 33 Airbus SE A220s made at a factory in Quebec. Executives won’t be allowed to earn more than C$1 million. And the airline will resume service on routes its suspended to distant locations such as Gander, Newfoundland and Yellowknife, in the country’s far north.The long-anticipated announcement will ease tensions between the industry and Trudeau’s government, which since last March has barred most foreign travelers from entering the country and recently made the rules even tougher.Air Canada repeatedly complained that its home country was the only Group of Seven member without an aid plan specifically for the aviation sector -- although the company has used federal wage subsidies available to all industries hit by the pandemic.“We wanted a good deal, not just any deal. And getting a good deal can sometimes take a little time,” Finance Minister Chrystia Freeland said at a news conference Monday evening.Air Canada also committed to paying back customers who didn’t take flights they had booked because of Covid-19. One of the credit facilities, a C$1.4 billion line, is dedicated to financing refunds.‘Solid Guarantees’“At first glance, the Canadian government’s aid package to Air Canada looks somewhat onerous,” Citigroup analysts said in a note. “On one hand, the aid certainly helps provide a more stable financial situation for the carrier. On the other, some of the requirements seem difficult.”While the equity component is “somewhat surprising,” the package is “the money that’s needed,” said Robert Kokonis, managing director of Toronto-based aviation consulting firm AirTrav Inc.“It’s going to take a lot of aid for carriers. We’ve been through a lot. We’ve been on standby while airlines in countries around the world have received one or more aid packages,” Kokonis said.Freeland said talks are ongoing with other airlines, including WestJet Airlines Ltd., controlled by Toronto-based investment firm Onex Corp. Tour operator Transat AT Inc. also needs money and has said it’s talking to the government after a deal to be taken over by Air Canada fell apart.“Wherever and whenever the federal government provides public aid, the supported company will have to give solid guarantees, as Air Canada did, that the public interest will be respected, workers protected, and travelers’ interest defended,” Freeland said.As of March 18, government financing for the airline industry globally -- including loans and equity stakes in exchange for cash -- has totaled more than $183 billion, according to Ishka Ltd., an aviation finance and investment consultancy.Before Monday’s agreement, Canada’s most visible lifeline to the industry was a combined C$375 million in emergency loans to Sunwing Airlines Inc. and Sunwing Vacations Inc., a small vacation operator.Air Canada said it will only draw down the new credit facilities “as required”. The package includes C$2.48 billion in unsecured loans.“This program provides additional liquidity, if required, to rebuild our business to the benefit of all stakeholders and to remain a significant contributor to the Canadian economy through its recovery and for the long term,” Chief Executive Officer Michael Rousseau said in a statement.(Updates share move in second paragraph and comments from Citigroup analysts)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- Less than two months after launching, the first North American Bitcoin ETF already reached $1 billion (C$1.25 billion) in assets, according to a statement from its issuer. The product from Toronto-based Purpose Investments, ticker BTCC, has seen massive interest as investors clamor for crypto exposure, especially in an exchange-traded fund wrapper. Although Europe has several crypto funds that effectively work like an ETF, this is the first anywhere to carry the ETF label.In its first trading day in February, more than $165 million worth of shares were exchanged, a huge start for a fund in the much smaller Canadian ETF market.Its quick cash accumulation underscores the intense demand for Bitcoin products, as U.S. issuers line up to win approval for the first Bitcoin ETF in the U.S. At least eight firms including VanEck Associates Corp. and WisdomTree Investments now have live applications for with the Securities and Exchange Commission, despite regulator reluctance to approve the strategies.Bitcoin rallied to an all-time high of around $63,246 on Tuesday, ahead of Coinbase Global Inc.’s listing later this week.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- Gap Inc. and Synchrony Financial are parting ways after they couldn’t reach an agreement to renew their longstanding card partnership.The clothing retailer has decided to shift the portfolio to Barclays Plc beginning in May 2022, it said in a statement Tuesday. Synchrony said in a regulatory filing that it expects to recognize a gain on the sale of the portfolio when it unloads it next April.“Synchrony was unable to reach contractual and economic terms with Gap that made sense for our company and our shareholders,” the Stamford, Connecticut-based firm said in the filing.Synchrony shares dropped 3.7% to $41.55 at 2:34 p.m. in New York, the second-worst performance in the 65-company S&P 500 Financials Index. The lender plans to use about $1 billion of the proceeds from the sale of the portfolio to buy back shares and invest in “higher growth programs,” according to the filing.Gap and Synchrony have offered cards together for more than two decades, and the lender counts the retailer as one of its five largest partners. The portfolio represents about 5% of the bank’s roughly $80 billion in receivables.It’s the second time Synchrony has opted not to renew a partnership with a major retailer after Walmart Inc. shifted its portfolio to Capital One Financial Corp., a move that was first announced in 2018. The decision comes just a few weeks after the lender installed Brian Doubles as its new chief executive officer, replacing its longtime leader, Margaret Keane.“This is a speed bump,” Jon Arfstrom, an analyst at RBC Capital Markets, said in a note to clients. “We do not believe this loss (and Walmart in 2018) are due to any uncompetitive positioning for Synchrony, and we believe it comes down to preferences and negotiations and bottom-line profitability.”Gap, like most of its mall-based peers, has struggled to attract customers during the coronavirus pandemic. “We faced one of the most difficult years in our company’s history,” Chief Executive Officer Sonia Syngal said last month as Gap capped its fiscal year with fourth-quarter sales that fell short of Wall Street’s expectations.What Bloomberg Intelligence Says:“Revenue and earnings from the Gap partnership have been steadily shrinking, so the retailer’s move to Barclays should reduce Synchrony’s costs and shift resources to new, high-potential cards with Venmo and Verizon.”-- David Ritter, BI fintech analystClick here to read the research.Its Banana Republic brand, which primarily sells work clothes, has been particularly weak. One bright spot for the retailer is its Athleta activewear brand, which passed $1 billion in sales in 2020.Gap said the new credit-card program will be a key component of the revamped rewards program it launched in September. Barclays will issue both private label and co-brand credit cards for Gap, with the latter using Mastercard Inc.’s payment network.“With our shared values and focus on inclusion, we look forward to working with Gap Inc. and Barclays to deliver an enhanced card program to their customers,” Linda Kirkpatrick, president of Mastercard’s North America business, said in an emailed statement.It will be Barclays’s first private-label card, and the bank has already begun investing in the systems it will need to provide the program, said Denny Nealon, CEO of the U.S. consumer bank at Barclays. The bank has also recently been investing in data and analytics and other efforts to improve technology.Barclays has been looking to diversify its card partnerships, which have long focused on airlines, cruises and hotel chains. The firm recently debuted a new card with the nonprofit AARP.“We’re absolutely thrilled to join forces with Gap, it’s an iconic American brand, its got a huge customer base,” Nealon said. “We think we can help them drive growth and success.”(Updates with executive commentary beginning in 11th paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- Bond traders searching for an opportunity to challenge central banks are starting to look Down Under, where a likely showdown over yield-curve control is set to test the power of policy makers to contain the next wave of reflation bets.The global trading day for bonds begins in earnest in Sydney each morning, giving developments in Australia’s $600 billion sovereign debt market an out-sized impact on sentiment. It was the scene of a dramatic “flash crash” last year when the yield program was announced, illustrating the potential for turmoil.While the Reserve Bank of Australia has largely tamed markets since then, as the economy’s recovery strengthens, wagers against the RBA’s ability to keep yields lower look poised to rise.“If inflation expectations do start to un-anchor, then I think the RBA will be one of the first central banks to be tested by bond traders,” said Shaun Roache, an economist at S&P Global Ratings in Singapore. “The RBA is a canary in the coal mine for central banks as it is ahead in its labor market recovery.”The RBA brought short-sellers quickly to heel when the global bond rout emboldened them to test its grip on yield control in February. After weeks of aggressive positioning by traders, the bank nudged up the cost of speculating on rising rates and the yield on benchmark three-year bonds fell neatly back into line with its 0.1% target.But keeping the market at bay next time may prove more difficult, as vaccination campaigns gather pace in major economies and the U.S. recovery nears an “inflection point,” emboldening traders. Pressure is already apparent in Australia’s three-year swap rate, which is increasing the costs of managing interest-rate risks for corporate borrowers.Read More: BOJ Seeks Only Tweaks to Stay Aligned with Fed, ECBIf yield control fails in Australia, it may fade away as a potential option for other monetary authorities in need of more policy ammunition. Especially because yield control’s record in Japan -- the only other country to officially employ it -- is patchy.Pinning the rate of one key bond maturity has helped the Bank of Japan reduce borrowing costs in general and also allowed it to slow the pace of bond purchases. But it has come at a cost. The nation’s debt market is lambasted as dysfunctional and an economic recovery strong enough to revive inflation looks as far away as ever.Widening GapBeneath the surface, problems are building Down Under too. While the RBA has its thumb on one specific bond line, there is a large gulf between the yield on this security and those maturing slightly later. There’s also a widening gap to rates on the suite of derivatives linked to three-year yields that flow through into borrowing costs for companies and consumers.The three-year swap rate surged through February and March, rising to four times the RBA’s target for three-year bonds amid pressure from higher U.S. yields and a rebounding economy at home.Australia’s bond futures tell a similar story. The yield implied by three-year futures doubled in the two weeks to Feb. 26 and remains elevated, even after retreating from its high point.“Lack of liquidity, a central bank that’s digging its heels in -- all that, for us, means there’s going to be more volatility in Aussie rates,” said Kellie Wood, a fixed-income portfolio manager at Schroders Plc’s Australian unit. “The RBA has succeeded in terms of round one. But we are starting to see cracks,” said Wood, who expects the market to challenge the 0.1% target again.Stephen Miller, an investment consultant at GSFM, an arm of Canada’s CI Financial Corp., agrees that higher yields may arrive in Australia sooner than the RBA thinks. “It will be powerless if the U.S. curve shifts upwards and other rates markets follow,” said Miller.Read More: Debate Over Next Move in Bonds Has Never Been FiercerNot everyone is prepared to bet against the RBA.For Fidelity International’s Anthony Doyle, taking on the RBA may be a recipe for steep losses if past lessons from the European Central Bank and U.S. Federal Reserve are anything to go by.Nine years ago, then ECB President Mario Draghi vowed to do “whatever it takes” to save the euro, leading to quantitative easing and bond purchases that are still in place. The Fed said more than a year ago that it would buy unlimited amounts of Treasuries to keep borrowing costs at rock-bottom levels, and it’s still holding firm.Holding the Cards“I don’t think it’s ever wise to fight anyone that has a printing press,” said Doyle, a cross-asset investment specialist at Fidelity in Sydney. “The RBA as a house holds all the cards. If they want yields lower, they’ll get it.”This caution is shared by JPMorgan Asset Management’s Kerry Craig.For now, the central bank “definitely has enough dry powder,” said Craig, a strategist in Melbourne. But he is concerned that with monetary policy and markets around the world moving in sync, “you can only fight so much if U.S. rates or global rates go higher -- it’s going to drag Australian ones up.”Yet Governor Philip Lowe isn’t doing everything he could to damp doubts over the RBA’s resolve. His reluctance to make an early switch in the yield target to bonds maturing in November 2024, from ones due in April 2024, is fueling debate about how soon the policy could be wound back.Lowe said at the conclusion of the latest board meeting on April 6 that a decision would be made later this year, without being more specific. He also indicated that the RBA expected to maintain “highly supportive monetary conditions” until at least 2024, even though the number of Australians with a job has returned to pre-pandemic levels.“We don’t think they’ll extend yield-curve control” beyond the current April 2024 bond, said Wood, who warned of potential taper tantrums.Lowe’s February win against short sellers, and a slide in yields at home and abroad over recent weeks, has given the RBA space to breathe. But it’s likely only a matter of time before bond traders come back for round two.“Everybody’s watching how this is going to unfold,” said S&P’s Roache. “The RBA may not want this role, but it is taking quite a starring role I think among global central banks.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- U.S. regulators are throwing another wrench into Wall Street’s SPAC machine by cracking down on how accounting rules apply to a key element of blank-check companies.The Securities and Exchange Commission is setting forth new guidance that warrants, which are issued to early investors in the deals, might not be considered equity instruments and may instead be liabilities for accounting purposes. The move, reported earlier by Bloomberg News, threatens to disrupt filings for new special purpose acquisition companies until the issue is resolved.The accounting considerations mark the latest effort by the SEC to clamp down on the white-hot SPAC market. For months, the regulator has been raising red flags that investors aren’t being fully informed of potential risks associated with blank-check companies, which list on public stock exchanges to raise money for the purpose of buying other entities.The SEC began reaching out to accountants last week with the guidance on warrants, according to people familiar with the matter. A pipeline of hundreds of filings for new SPACs could be affected, said the people, who asked not to be identified because the conversations were private.“The SEC indicated that they will not declare any registration statements effective unless the warrant issue is addressed,” according to a client note sent by accounting firm Marcum that was reviewed by Bloomberg.In a SPAC, early investors buy units, which typically includes a share of common stock and a fraction of a warrant to purchase more stock at a later date. They’re considered a sweetener for backers and have thus far been considered equity instruments for accounting purposes. Sponsor teams -- the management of a SPAC -- are also typically given warrants as part of their reward to find a deal, on top of the founder shares.In a statement late Monday, SEC officials urged those involved in SPACs to pay attention to the accounting implications of their transactions. They said that a recent analysis of the market had shown a fact pattern in transactions in which “warrants should be classified as a liability measured at fair value, with changes in fair value each period reported in earnings.”“The evaluation of the accounting for contracts in an entity’s own equity, such as warrants issued by a SPAC, requires careful consideration of the specific facts and circumstances for each entity and each contract,” the officials said in the statement.The SEC issued its guidance after a firm asked the agency how certain accounting rules applied to SPACs, according to another person familiar with the matter. It’s unclear how many companies will be impacted by the move and not all warrants will be affected. Still, regulators consider it likely to be a widespread issue. Firms will be expected to review their statements and correct any material errors, said the person.The shift would spell a massive nuisance for accountants and lawyers, who are hired to ensure blank-check companies are in compliance with the agency. SPACs that are already public and that have struck mergers with targets may have to restate their financial results, the people familiar with the matter said.More than 550 SPACs have filed to go public on U.S. exchanges in the year to date, seeking to raise a combined $162 billion, according to data compiled by Bloomberg. That exceeds the total for all of 2020, during which SPACs raised more than every prior year combined.In an April 8 statement, John Coates, the SEC’s top official for corporate filings, warned Wall Street against viewing SPACs as a way to avoid securities laws. Claims that promoters face less legal liability than a traditional public offering are “uncertain at best,” Coates, who was one of the officials issuing Monday’s statement on accounting, said at the time.The deluge has overwhelmed those responsible for reviewing filings at the SEC, triggered a surge in liability insurance rates for blank-check companies and fueled market anxieties that the bubble is about to burst.(Updates with SEC official’s previous comment in penultimate paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
The overhaul will force the Alibaba-backed group to become a financial holding firm.
SINGAPORE (Reuters) -Grab Holdings, the largest ride-hailing and food delivery firm in Southeast Asia, clinched a merger on Tuesday with special-purpose acquisition company Altimeter Growth Corp securing a valuation of nearly $40 billion and paving the way for a coveted U.S. listing. As part of Singapore-based Grab's agreement with the SPAC backed by Altimeter Capital, investors such as Temasek Holdings, BlackRock, Fidelity International, Abu Dhabi's Mubadala and Malaysia's Permodalan Nasional Bhd will participate in a $4 billion private investment in public equity offering. Funds managed by Altimeter Capital will lead the investment with $750 million.
The British pound has initially pulled back against yen but continues to find interest near the ¥150 level for buyers to come back and push it higher.
(Bloomberg) -- Grab Holdings Inc., Southeast Asia’s most valuable startup, is going public in the U.S. through the largest-ever merger with a blank-check company.The Singapore-based startup is set to have a market value of about $39.6 billion after the combination with Altimeter Growth Corp., the special purpose acquisition company of Brad Gerstner’s Altimeter Capital Management, the firms said in a statement Tuesday. Grab is raising more than $4 billion from investors including BlackRock Inc., Fidelity International and T. Rowe Price Group Inc. as part of the biggest U.S. equity offering by a Southeast Asian company.The deal would make the ride-hailing and food-delivery giant the first Southeast Asian tech unicorn to go public through a SPAC and give it funds to expand. Grab is trying to take advantage of a U.S.-led SPAC listing boom even though it’s showing signs of slowing amid increased scrutiny by regulators.“This is definitely one of the best internet companies,” Gerstner said in an interview. “The runway ahead is very long and very wide for Grab if they continue to execute.”The combined entity’s stock will trade on the Nasdaq in the coming months under the ticker GRAB. Altimeter Capital, which orchestrated the initial public offering of Altimeter Growth in September, is putting $750 million into the company, about a fifth of the fresh funds raised.That, together with a three-year lockup period for its sponsor shares, indicates Altimeter’s long-term commitment to the company, Grab Chief Executive Officer Anthony Tan said. Altimeter, which manages $15 billion of assets, has also committed as much as $500 million to a contingent investment to be equal to the total amount of redemptions by Altimeter Growth’s shareholders.“From sovereign wealth funds to mutual funds, it is world-class investors who are investing in us,” Tan said in an interview. “The world is seeing the potential of Southeast Asia and how exciting this region is.”Shares in Altimeter Growth surged about 10% Tuesday in New York.Grab, the market leader in Southeast Asia for so-called super apps for consumer services, expects its addressable market to expand to more than $180 billion by 2025 from $52 billion in 2020. Its total gross merchandise volume last year was $12.5 billion, more than doubling from 2018 even as competition from arch rival Gojek intensified and the coronavirus pandemic restricted people’s movements.The deal marks a remarkable turn for Grab. Under pressure from SoftBank Group Corp. and other investors, the company had been negotiating a possible merger with Indonesia’s Gojek for most of 2020. But the talks ultimately collapsed around December and Gojek began talks with Tokopedia, another local internet giant.Tan and Gerstner, both Harvard Business School graduates, began talking about a deal early this year after being introduced by common friends. Only about three months later, they reached an agreement for the record transaction.Gerstner is no stranger to Southeast Asia, having invested in Singapore-based gaming and e-commerce leader Sea Ltd. The Tencent Holdings Ltd.-backed company has emerged as a stock-market sensation since going public in New York in 2017. Among companies valued at $100 billion or more, the stock is the No. 1 Asian performer since the start of last year and trails only Tesla Inc. globally.“The U.S. and China have been big investment markets for 20 years and before Sea, Southeast Asia wasn’t really on many investors’ radar screens,” said Gerstner, who has been following Grab since its 2018 acquisition of the regional business of Uber Technologies Inc., another company he’s backed. “Now you have a second business with a $40 billion market cap which is going to be listed on the Nasdaq. This is a huge moment for global investors realizing the renaissance that’s occurring in Southeast Asia technology market.”Tan founded Grab in his native Malaysia as a taxi-hailing app in 2012 with Hooi Ling Tan, a Harvard classmate. They kicked off operations in Kuala Lumpur as what was then known as MyTeksi, allowing users to book cabs.Grab later relocated to Singapore before expanding as a ride-hailing app from Indonesia to Vietnam, the Philippines, Cambodia and Myanmar. With more than $10 billion raised from investors led by SoftBank over eight funding rounds, Grab became Southeast Asia’s largest ride-hailing provider before expanding into food delivery, digital payments and financial services across eight countries in the region.Working toward profitability, Grab lost about $800 million last year, on an Ebitda basis, on adjusted sales of $1.6 billion. It’s predicting earnings before interest, taxes, depreciation and amortization to become positive in 2023, reaching $500 million that year. The company is forecasting average annual sales growth of 42% for the next three years, with adjusted revenue hitting $4.5 billion in 2023.Grab said its mobility-services business is already making money in all its markets, while food delivery is in the black in five of six markets. The company said it had about 72% of Southeast Asia’s ride-hailing market, 50% of online food delivery and 23% of digital wallet payments last year. Grab was previously valued at about $16 billion, a person with knowledge of the matter said.Among companies participating in the cash injection, a so-called private investment in public equity, or PIPE, are Singapore’s state-owned investor Temasek Holdings Pte, Janus Henderson Group Plc and Nuveen LLC. The expected market value also reflects the PIPE and SPAC proceeds of $4.5 billion as well as a $2 billion term loan, according to Grab.Evercore Inc., JPMorgan Chase & Co. and Morgan Stanley advised Grab in the deal.(Updates with sales, earnings forecasts in 16th paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- Europe’s top financial watchdog has asked some of the bloc’s largest banks for additional information on their exposure to hedge funds after the recent collapse of Archegos Capital Management.The checks by the European Central Bank on lenders such as Deutsche Bank AG and BNP Paribas SA are standard practice after such a disruptive event for the industry, according to people familiar with the matter. All banks supervised by the ECB that have a significant hedge fund business are likely to face these questions, they said, asking not to be identified discussing the private information.Representatives for the ECB, Deutsche Bank and BNP declined to comment.The collapse of Archegos, a secretive family office that had made highly leveraged bets on stocks, could cause as much as $10 billion of losses for banks, analysts at JPMorgan Chase & Co. estimate. Swiss lender Credit Suisse Group AG alone has put the expected hit at 4.4 billion Swiss francs ($4.7 billion) in the first quarter.Euro-region banks, by contrast, have come away largely unscathed. Deutsche Bank had several billion dollars of exposure to Archegos when it started unraveling but the German lender quickly sold its holdings, Bloomberg News has reported. It said it won’t incur a loss as a result of the firm’s collapse.Archegos put on its trades with the help of so-called prime brokerage units at a number of investment banks, effectively borrowing large amounts to amplify returns. When the investments declined and lenders asked for more collateral, the firm collapsed and banks raced to unwind the positions with prices plummeting.Prime brokerage units make money by lending cash and securities to hedge funds and executing their trades. The business is risky but lucrative, earning European banks Barclays Plc, BNP Paribas, Credit Suisse, Societe Generale SA and UBS Group AG a combined $4 billion in 2019, according to a report from JPMorgan.“There is a need to scrutinize the reasons why the banks enabled the fund to leverage up to such an extent,” ECB executive board member Isabel Schnabel said in an interview with Der Spiegel last week. “It is a warning signal that there are considerable systemic risks that need to be better regulated.”(Adds previous comments from ECB executive in final paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- U.S. stocks climbed to record highs and bond yields fell as investors bet that a higher-than-forecast rise in inflation won’t be enough to slow economic stimulus measures.The S&P 500 closed at an all-time high even after the U.S. recommended pausing Johnson & Johnson vaccines amid health concerns. The tech-heavy Nasdaq 100 also set a record while the Dow Jones Industrial Average finished in the red. Consumer prices rose more than expected last month but investors speculated the acceleration was not fast enough to warrant any Federal Reserve policy change. The drop in yields weighed on bank shares.“The market has been skittish about rates for some time,” said Mike Loewengart, managing director of investment strategy at E*Trade Financial. “While this may cause some short-term volatility, investors have been pretty steadfast in their faith in a full economic recovery.”J&J shares fell as officials agreed to the pause and started an investigation into a link from its shot to rare and severe blood clots, while rivals Moderna Inc. and Pfizer Inc. advanced. The U.S. anticipates having enough other vaccines during the period.Fund managers across the world now see inflation, a taper tantrum and higher taxes as bigger risks than Covid-19, according to the latest Bank of America Corp. survey.“A lot of growth and inflation have already been priced into the market,” said Emily Roland, co-chief investment strategist at John Hancock Investment Management. “It’s almost as if you need to exceed those expectations in order to see a more pronounced reaction from markets.”Although policymakers at the Federal Reserve expect a bump in consumer prices to be short-lived, many traders disagree, with fears of faster CPI playing out across duration-heavy assets from bonds to tech stocks.Treasuries extended gains after the government’s auction of 30-year bonds was greeted with strong demand.Meanwhile, Bitcoin jumped to an all-time high as the mood in cryptocurrencies turned bullish before Coinbase Global Inc. goes public. Oil traded near $60 a barrel.Some key events to watch this week:Banks and financial firms begin reporting first-quarter earnings, including JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp., Morgan Stanley, Goldman Sachs Group Inc.Economic Club of Washington hosts Fed Chair Jerome Powell for a moderated Q&A on Wednesday.U.S. Federal Reserve releases Beige Book on Wednesday.U.S. data including initial jobless claims, industrial production and retail sales come Thursday.China economic growth, industrial production and retail sales figures are on Friday.These are some of the main moves in financial markets:For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
The listing could spur newbie investors to try cryptocurrencies.
The S&P 500 and the Dow Jones indexes retreated from record levels on Monday, as investors geared up for the start of the corporate reporting season and a key inflation report later this week. A pullback in the benchmark 10-year bond yield from 14-month highs in April eased worries about higher borrowing costs, helping richly valued technology stocks gain ground and drive the S&P 500 and the Dow to record levels. Among the 11 major S&P 500 sectors, technology and communication services shares were the top decliners, after the Russell 1000 Growth index outperformed the Russell 1000 Value index for the last two consecutive weeks.