Mar.01 -- Former French President Nicolas Sarkozy faces a one-year prison sentence after being found guilty of corruption by a Paris court. Bloomberg’s Caroline Connan has the details.
Mar.01 -- Former French President Nicolas Sarkozy faces a one-year prison sentence after being found guilty of corruption by a Paris court. Bloomberg’s Caroline Connan has the details.
The longer-term uptrend is likely to remain intact as long as prices can hold above the major 50% level at $1788.50.
(Bloomberg) -- Zambia said a lack of capital halted production at a copper mine it seized from Indian billionaire Anil Agarwal’s Vedanta Resources Ltd., a development the operator disputed.The standstill at Konkola Deep, a high-grade underground pit that also contains cobalt, was triggered by a shortage of funds to develop new mining areas, said Barnaby Mulenga, permanent secretary in the Ministry of Mines. The lack of capital is also curbing output at other operations of Konkola Copper Mines Plc, which was placed under provisional liquidation in 2019 after the government alleged Vedanta lied about expansion plans and paid too little tax.KCM said on Thursday that Konkola Deep is still operating. Higher copper prices will also make it economical to open up new mining areas, it said in a statement.The developments at KCM come as copper surged back above $10,000 a ton, with the reopening of major industrial economies sparking a commodities rally. Africa’s No. 2 copper producer is reliant on exports of the metal, but production at Konkola Deep may only resume after the resolution of a legal arbitration with Vedanta opens the way for new investment, Mulenga said.“This demand for copper will only get higher and the sooner these issues are resolved there is still an opportunity to exploit this resource,” Mulenga said. “This is a giant which is sleeping and we remain positive that it will be mined at some point.”Zambia Plan to Sell Billionaire’s Mines Stuck in Legal Mire Mulenga said KCM’s current challenges result from Vedanta failing to complete underground works that would have allowed more ore to be extracted from Konkola Deep. The flagship mine in Zambia’s Copperbelt requires most of the $1.2 billion needed to turn KCM around, he said.Vedanta, which has denied the government’s allegations, said it was “saddened” to hear about the production halt at Konkola Deep. The company said it had invested more than $1.7 billion in KCM and had planned to spend a further $1.5 billion to make the operations profitable.Last month, employees of more than 30 contractors at KCM stopped work and staged protests over workers’ grievances.The mounting problems at KCM highlight the political risks as President Edgar Lungu’s government seeks a greater share of mining revenues ahead of elections this year. While Zambia’s copper production rose to a record last year, that didn’t prevent the nation from defaulting on its external debt.Zambia also plans to sell a majority stake in Mopani Copper Mines Plc after acquiring the operations from Glencore Plc, Mulenga said earlier this year. The government wants to raise about $300 million to expand output and pay off the $1.5 billion it owes the commodities giant.A Copper Mining Lesson From Zambia: History Repeats Itself (Updates with comment from KCM in third 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) -- The husband-and-wife duo that ran private lender Bridging Finance Inc. has been fired by a court-appointed receiver as Canada’s main securities regulator investigates the firm over alleged mismanagement and self-dealing.PricewaterhouseCoopers, which took control of Bridging at the request of the Ontario Securities Commission, fired David and Natasha Sharpe from the firm they co-founded almost a decade ago. The move came less than a week after the regulator said it was investigating the executives at the firm, which had about C$2 billion ($1.7 billion) in assets under management as of December.“The decision of the receiver is regrettable but not surprising,“ David Sharpe said in an emailed message. “Notwithstanding our termination, we will cooperate with the receiver to the extent possible in the interests of investors while we address the OSC’s misguided allegations.”The Toronto-based firm lends to small and mid-sized companies involved in everything from milling flour to delivering groceries. It attracted a following in particular among high-net-worth individuals with promises of steady gains from its loan portfolio. Those investments are now frozen, and it’s unclear how much will be recouped after the company emerges from receivership.In court documents made public last weekend, the OSC alleged the firm and senior executives mismanaged funds and failed to disclose conflicts of interest.Among the alleged conflicts, David Sharpe received C$19.5 million in undisclosed payments into his personal checking account from a company controlled by entrepreneur Sean McCoshen, the commission says in documents. During that same period, Bridging’s funds had lent more than C$100 million to other companies of McCoshen’s, the commission said in the documents.According to an affidavit by OSC forensic accountant Daniel Tourangeau, much of the undisclosed money was moved into David Sharpe’s personal investment accounts.The OSC said Friday that Bridging and some of its directors and officers, including David Sharpe, may have taken actions “which they knew or reasonably ought to have known perpetrated a fraud on unitholders” of the funds. They may have made statements that were “misleading or untrue” to the regulator, according to an OSC document. Bridging may have also “failed to deal fairly, honestly and in good faith with its clients.”Another central accusation is that Bridging misappropriated about C$35 million “to complete an acquisition for its own benefit” -- a deal with investment manager Ninepoint Partners LP for an interest in an income fund the two firms had been jointly operating.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.
LONDON (Reuters) -Europe's consumers will feel the hit from price rises this year as companies seek to recoup revenues and cover pandemic-related costs. Over the past year, the fallout from COVID-19 has contorted both the demand and supply sides of the global economy, creating bottlenecks in supply chains, havoc in freight markets and a rally in raw materials from corn to copper. Lockdowns, meanwhile, have deprived well-off consumers in Europe and elsewhere of the opportunities to spend their cash, creating record levels of savings and a window of opportunity for companies to push through price increases.
(Bloomberg) -- One of the biggest Brexit battlegrounds between the European Union and the U.K. now has a price tag: at least $2.4 million a day.That’s how much any move by the European Union to cut off access to London’s dominant clearinghouses for derivatives could cost traders in euro interest rate swaps, net of buying, according to an estimate from Albert Menkveld, professor of finance at Vrije Universiteit Amsterdam, who has sat on advisory panels to European regulatory authorities.Fragmenting cross-Channel clearing would result in additional costs because global dealers would need more collateral for their positions in multiple clearinghouses in the U.K. and in the EU, Menkveld said. They wouldn’t be able to offset, or net, the positions as easily and that would require dealers to raise extra funds.Those additional costs would likely be passed on to pensions, money managers and other users of derivatives in the local jurisdiction, Menkveld said, who compares the burden on financial markets to traffic jams caused by passport controls.“This is the price we all paid for control by national authorities,” Menkveld wrote in a blog post. “As a European citizen I can now zip onto the Autobahn at 100-plus kilometers per hour, but my pension fund might soon pay for crossing the border with the U.K. to diversify risk.”His tally is one of the first to show the immediate fallout if authorities stop the seamless, cross-Channel settlement of trillions in euro interest rate swap contracts, which currently takes place largely in London. The actual cost could be far greater if it weakens London’s attractiveness as a global financial center. The business is widely viewed as a core pillar of London’s standing and the EU’s desire to pull more of that business away has prompted sabre-rattling from politicians, financiers and even the governor of the Bank of England.The U.K. and major lobby groups for the biggest banks and money managers in the world are calling for the EU to maintain easy access to London clearinghouses, including the London Stock Exchange Group Plc’s LCH unit which is the world’s biggest for euro interest rate swaps. The European Commission in Brussels wants the bloc’s traders to move more of their euro-denominated business inside the EU and not rely so heavily on London. A ruling last year extended access to London through June 2022.Clearinghouses serve as a key hub in the global financial system, settling hundreds of trillions of dollars in deals between banks, hedge funds, pensions and a wide range of corporations. The firms collect collateral, or margin, from buyers and sellers to reduce the risk that the default of one side spreads panic to the other and, in turn, across the broader system.If the temporary decision isn’t renewed, Bank of England Governor Andrew Bailey has said a quarter of euro-derivatives clearing business would need to shift to the EU. The rest would likely stay in London because it is currently the most efficient place for it, he said.Additional CostsThe estimated net price impact probably understates the total additional costs to traders in the market from the disruption that would ensue, Menkveld said.Costs could mount because traders would probably have a harder time offsetting positions in euros, pounds and other currencies as well as the increased compliance burden. In more stressed markets, traders could face much higher costs from the split and difficulty using clearinghouses in both the U.K. and the EU, he said.“There is a trade-off here between the benefits of local control by regulators, and the additional costs that fragmented clearing imposes,” Menkveld said. “The benefit is hard to quantify but the costs are non-trivial.”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) -- China’s exports rose more than expected in April, suggesting its trade out-performance could last longer than expected this year, fueled by global fiscal stimulus.Exports grew 32.3% in dollar terms in April from a year earlier, the customs administration said Friday, exceeding the 24.1% median estimate in a Bloomberg survey of economists. Imports climbed 43.1%, a sign of strong domestic demand and soaring commodity prices, resulting in a bigger-than-expected trade surplus of $42.85 billion for the month.Global appetite for Chinese goods remained strong in the month, thanks to stimulus packages introduced by developed economies that’s helped to fuel demand for household goods, furniture and electronic devices. With vaccine rollouts accelerating and more economies opening up, China’s export growth was widely expected to moderate this year as consumers start to spend more on services. But April’s data shows that hasn’t happened yet.“The export figure clearly reflects a recovering and expanding global economy,” said Hao Zhou, an economist at Commerzbank AG in Singapore. “Robust imports and exports also mean that China’s manufacturing industry is still outperforming the services sector to lead the economic rebound.”The low base from a year ago also helped to underpin the strong results, but even on a two-year average growth basis which strips out those effects, April’s export growth was 16.8%, much stronger than pre-pandemic levels, according to analysis by Bloomberg Economics.What Bloomberg Economics Says...“Imports were lifted mainly by higher commodity prices, but also due to a recovery in domestic demand. These factors that supported China trade look set to continue in the near term.”-- David Qu, China economistFor the full note click hereThe U.S. was the biggest export market last month, accounting for 15.9% of Chinese goods sold abroad. Southeast Asian nations bought 15.6% of exports while the European Union purchased 15.1%.“We expect China’s export growth will stay strong into the second half of this year,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management Ltd, citing strong growth in U.S. demand and continued coronavirus outbreaks in developing countries such as India causing production to shift to China. Those trends are likely to support China’s currency, he added.Exports were also likely boosted because of a resurgence in coronavirus cases in several developing countries, including India and in Southeast Asia, Lu Ting, chief China economist at Nomura Holdings Inc., wrote in a note. That new wave of infections had a two-fold effect: reducing the competitiveness of these countries and forcing them to buy more medical goods like personal protective equipment. Exports to India surged 144% in April from a year earlier with the monthly value hitting a record $7.8 billion. Liu Peiqian, an economist at Natwest Group Plc, cited increased global demand for microchips, where Chinese companies are a key part of the supply chain, as another reason why “exports outperformance will likely remain a key theme” in China’s recovery. In volume terms, imports of industrial metals and energy products softened slightly in April, she added, suggesting that the domestic demand recovery could still be relatively weak.At the Communist Party’s Politburo meeting last week, China’s top leaders pledged to accelerate the recovery in domestic demand and reiterated there would be “no sharp turn” on economic policy. But the government is focused on raising consumer spending on goods and services, while taking a cautious stance on property and infrastructure investment, which tends to be more import-intensive.Read More: Chinese Copper Imports Drop With Scorching Rally Taking TollA strengthening recovery in Chinese consumer spending was indicated by the April services purchasing managers’ index compiled by Caixin Media and IHS Markit, which rose to 56.3 from 54.3 the previous month, well above the 50 reading that marks an expansion from the previous month. However, data from a recent five-day public holiday in China showed spending below pre-pandemic levels, suggesting China will remain dependent on overseas demand for much of its growth this year.Other details:For a breakdown of commodity imports, click here. While the volume of iron ore imports rose 6.7% in January-April compared with the same period in 2020, the value of shipments surged 82.1%Imports were also boosted by the delivery of 24 aircraft in April; on a year-to-date basis, the value of aircraft imports surged 247% from the same period in 2020In yuan terms, exports rose 22.2% in April from a year earlier, higher than the 12.5% forecast by economists in a Bloomberg survey; imports grew 32.2%, below the 33.6% predicted(Updates with record exports to India.)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.
LONDON (Reuters) -The Bank of England slowed the pace of its trillion dollar stimulus program and forecast a faster recovery for Britain from the coronavirus slump on Thursday, but stressed it was not tightening monetary policy. Governor Andrew Bailey said it was good news that the economy looked set for a stronger recovery than previously forecast, with less unemployment.
Investors appear unwilling to give up until there is definitive proof that the Fed is getting ready to begin tapering its bond purchases.
(Bloomberg) -- The European Central Bank is set to reward some of the region’s biggest financial institutions with more than 1 billion euros ($1.2 billion) this year in return for keeping up the flow of credit during the pandemic.Six lenders including ING Groep NV and Deutsche Bank AG have disclosed their expected benefit from the central bank’s targeted longer-term loan programs. Together, the banks said they earned about 416 million euros in the first quarter while other lenders said they intend to book gains later in the year.Seven years after turning banking on its head with the introduction of negative interest rates, the ECB is dangling enhanced subsidies to get banks to pump cheap cash into an economy lurching from one crisis to another. The benefits help offset some of the pressure from the ECB’s other policies which have eaten into lending profits and introduced costs for client deposits.An ECB spokesman declined to comment on the payments. ECB President Christine Lagarde said in April that the program plays a “crucial role” in supporting bank lending to firms and households.The ECB has offered several rounds of such targeted long-term loans. The latest allotment was in March when it made 330.5 billion euros available to banks. The favorable rates are paid subject to conditions on the banks reaching specific targets regarding the amount of loans they make to the broader economy.The lenders benefit even more now than with similar operations in the past because the conditions were sweetened during the pandemic so that that they can borrow at an even lower rate than the ECB’s negative deposit rate. While the deposit rate acts as a charge on reserves, that’s more than outweighed by the generosity of the rate on the long-term loans.“We don’t earn the money for free,” Deutsche Bank finance chief James von Moltke told analysts on a conference call last week. “The business is executing on lending, supporting clients, that allows us to achieve those thresholds.”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) -- Sanjeev Gupta’s U.K. steelmaking business has reached terms on a 200 million-pound ($278 million) loan from White Oak Global Advisors LLC.The loan will be subject to due diligence and the approval of Credit Suisse Group AG, according to a person familiar with the matter. The Swiss bank has a claim on the business through financing provided by Greensill Capital and repackaged into its funds.The working capital facility would allow Gupta’s steel businesses to increase production and take advantage of record steel prices, the person said, asking not to be identified because the matter is private.The loan would be a potential lifeline for Gupta’s GFG Alliance, which is fighting for survival after the collapse of its biggest lender Greensill Capital. Earlier this week, Gupta agreed another loan for his primary steel business in Australia, which includes the Whyalla mill.White Oak declined to comment.Gupta’s U.K. steel business owes Greensill $769 million, according to a March 2021 GFG presentation seen by Bloomberg. The loan from White Oak would not be used to refinance that debt, the person familiar said.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.
Stocks traded mixed Friday as investors digested a disappointing April jobs report, which showed the U.S. economy added back far fewer jobs than expected last month despite easing stay-in-place restrictions.
NEW DELHI (Reuters) -India's airlines are under renewed pressure to raise cash or face the risk of having to downsize, consolidate or have their planes repossessed by lessors as a surge of COVID-19 infections roils travel. Passenger traffic fell by nearly 30% in April from a month before and has halved again so far in May, forcing even the country's biggest and most cashed-up carrier, IndiGo, to act. IndiGo's parent, Interglobe Aviation, met on Friday to consider an equity raising, just months after it abandoned plans to raise up to 40 billion rupees ($543 million) in January in response to a speedy recovery in travel.
As U.S. stocks head into a seasonally rocky stretch, investors are gauging to what extent markets have anticipated a number of factors that could sway asset prices, from massive government stimulus to looming inflation. Though equities remain near all-time highs, some sectors have gotten off to an uneven start this month, with the tech-heavy Nasdaq Composite down more than 2% so far this week while the Dow Jones Industrial Average rose to a record on Thursday. While retail investors have been net buyers of stocks for 10 straight weeks, hedge funds have been sellers, client data from BofA Global Research showed, with the four-week average of net sales of equities by hedge funds hitting their highest levels since the firm began tracking the data in 2008.
The stage is set for an explosion in the amount of stock buybacks, says Goldman Sachs.
Booking Holdings CEO Glenn Fogel shares his outlook on the travel industry as it looks to recover from COVID-19 pandemic.
It's been a long time since inflation posed a potential problem for investors, and some strategists have some ideas how to defend a portfolio against it.
(Bloomberg) -- The dust hadn’t yet settled on Archegos Capital Management’s implosion, when hedge funds started shifting their bets toward banks that avoided getting hurt, hoping to keep leveraging up just like before. Good luck with that.For weeks behind the scenes, Wall Street’s giants have been autopsying failures at rivals including Credit Suisse Group AG and Nomura Holdings Inc., identifying risks that they plan to address by more thoroughly vetting hedge funds or imposing more onerous terms on their trades, according to people close to the discussions. No one wants to be the next to tell shareholders and regulators how they failed to heed the lessons of Archegos.Inside Bank of America Corp., which refused to do business with Archegos, Chief Executive Officer Brian Moynihan has been quizzing subordinates on what more is needed to protect the firm. The episode has hardened the resolve of Wells Fargo & Co. executives that low-risk margin lending is wiser, even if less profitable. UBS Group AG CEO Ralph Hamers has signaled that clients will have to hand over more information when borrowing.And in New York, managers of small hedge funds who lack the negotiating clout of trading whales are grousing. For the little guy especially, the saga will make it harder to borrow money from banks to finance bets.While specific measures will vary by bank and client -- and in many cases are still being ironed out -- the talks and tensions point to greater pressure on clients to reveal their biggest wagers, stricter margin limits on those positions, more frequent collateral adjustments and more rigorous audits. The deliberations were described by executives close to prime brokerage desks and money managers.“There will be more calories expended, both in terms of those desks doing due diligence in the market as well as in some cases they may outright ask clients about that,” Mike Edwards, deputy chief investment officer at Weiss Multi-Strategy Advisers, a $3 billion hedge fund. Previously, it was “not a requirement at most places that you would disclose to a swap counterparty that you have the same position on at multiple places.”Such concerns have risen to the top of the regulatory world. Fed Governor Lael Brainard, the head of the Board’s financial stability committee, called for “more granular, higher-frequency disclosures” on Thursday.“The Archegos event illustrates the limited visibility into hedge-fund exposures and serves as a reminder that available measures of hedge-fund leverage may not be capturing important risks,” she said.The Securities and Exchange Commission will consider adjusting some of its rules that require investors to publicly report large stock holdings so they will also cover swaps, Gary Gensler, the regulator’s new chairman, told lawmakers on Thursday.Two Sigma’s MoveThe thirst from banks to boost business with clients like Bill Hwang’s Archegos allowed him to shop for the most generous terms and amplify his wagers. He was able to parlay over $20 billion of his fortune into total bets that exceeded $100 billion, built on the back of banks tripping over each other to fuel his leveraged empire. Hwang used that to to make aggressive asks, demanding strikingly off-market margin terms -- such as $8.50 in leverage for every $1 he put in -- for building his book in Chinese stocks. Some banks demurred, others played ball.In the wake of his fund’s collapse, it’s less likely that other hedge funds will be able to win such terms. Bank officials declined to be interviewed.No bank got hit harder than Credit Suisse when Archegos was unable to meet margin calls from prime brokers in March. The Swiss bank lost more than $5.5 billion after losing a race with peers to sell off the family office’s unusually concentrated and leveraged bets on stocks, in a portfolio that swelled to more than $100 billion.Not too long after, Two Sigma heard from contacts at Credit Suisse, according to people with knowledge of the exchange: Could the investment firm please trim its exposure and move a few billion dollars somewhere else?It wasn’t a hardship; investment firms as big as the $58 billion quant money manager are used to shifting between brokerages. But it adds to a broader outflow, as Credit Suisse adjusts risk tolerances and practices, slashing lending to hedge funds by a third. Hedge fund manager Marshall Wace, with more than $50 billion in assets, also shifted business from Credit Suisse to some U.S. banks, a person familiar with the matter said last month.Unusual ReviewWithin days of the Archegos blowup in March, Deutsche Bank AG and BNP Paribas SA alone had received more than $10 billion in inflows from a number of clients pulling away from Credit Suisse, according to a person with knowledge of the moves. The investors included D.E. Shaw, Two Sigma and Marshall Wace. Representatives for the firms declined to comment.Additional inflow recipients include Goldman Sachs Group Inc. and Bank of America, according to people with knowledge of their businesses, both of which are working on measures to keep risks in check.Inside Bank of America, executives fielding that money have been conducting an unusual review: Examining what went right in the lender’s decision to refuse Archegos as a client this year. That could help the firm avoid potential headaches. Discussions there have revolved, in part, around boosting collateral for certain types of swaps, depending on the situation.When Archegos came up at the bank’s annual meeting last month, Moynihan lauded senior executives for paying close attention to the amount of risk the board is willing to take.Archegos had around $3 billion at the start of 2020 before it lost roughly half within a few months, according to a bank executive that worked with the investment firm. By March of this year its portfolio had soared to $23 billion -- making it a prized customer at a handful of banks around the world.Warning SignsReviews by prime brokers have pointed to an array of warning signs that not everyone heeded, such as the dramatic month-to-month swings in the value of its portfolio. There also was its heavy preference for swaps -- rather than direct stakes -- that hid its concentration of bets on a handful of companies. And it used an accounting firm not normally associated with money managers commanding so much firepower.As Archegos swelled, the reaction among prime brokerage managers was split: At one bank, they expressed amazement to colleagues, at another executives saw it as radioactive and steered clear. Employees at that firm have since been examining other hedge fund clients for similar patterns and expect to have conversations with some about adjusting the terms of their business.Many big hedge funds set up multiple prime brokerage relationships, sometimes using a few of the industry’s giants -- JPMorgan Chase & Co., Goldman Sachs and Morgan Stanley -- as well as a few others such as Credit Suisse for supplementary leverage on their bets.But managers overseeing smaller mounts of money typically find they don’t have as many options. Though some banks such as Morgan Stanley make a point of serving fledgling funds, smaller money managers say they generally face more-onerous terms on trades.Worsening TermsThe Archegos blowup is going to make that situation all the worse, two veteran managers atop smaller firms said. Deeper due diligence costs prime brokerages time and money. Fewer mid-sized prime brokerages will offer as much margin or the breaks on trading terms that were available just months ago. The money managers worry that they face a more take-it-or-leave-it environment than interest in doing business.The frustrations over Archegos are shared by bigger firms too.In a letter to investors, Marshall Wace co-founder Paul Marshall raged over how Archegos caught prime brokers by surprise using opaque swaps.“The prime brokers have paid the price for extending so much risk,” he wrote last month, chiding them for not asking enough questions. “PBs will improve.”(Updates with comment from SEC chairman in ninth 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.
LONDON (Reuters) -BMW remains on course to meet its profit targets for 2021 despite rising raw material costs, the German carmaker said on Friday, having largely steered clear of the semiconductor chip shortage battering rivals like Volkswagen. Volkswagen boss Herbert Diess had said on Thursday that Europe's top carmaker was in "crisis mode" over the chip shortage, which would hit profits in the second quarter, while Ford Motor Co last week said the lack of chips could halve its second-quarter vehicle production. BMW is known for its strong relations with suppliers and has been working with them to avoid disruptions.
(Bloomberg) -- As U.S. retailers celebrate a boom lifting one of the pandemic’s hardest-hit sectors, scars left by a year of bankruptcies and delayed vendor payments could threaten to undermine their recovery -- just as the crucial back-to-school shopping season begins.After watching their receivables mount last year, vendors of apparel and other goods demanded change. In order to ship, many began requiring payment upon delivery of the goods or even in advance, according to people with knowledge of the demands, which were made of distressed and healthy clients alike. For merchants, that’s a big cash drain at a time of great uncertainty.The shift comes after retailers spent much of last year delaying payments to preserve cash. Such maneuvers have long been used by struggling chains, but amid the pandemic, even more stable merchants like Macy’s Inc. and Gap Inc. followed suit. An analysis of company financial data showed such buyers took at least two weeks longer to pay their suppliers than the same period the prior year.Vendors are “shell-shocked” after a string of Covid-era bankruptcies left them with large losses, and more concerned about guaranteeing they’ll be paid, said Perry Mandarino, head of restructuring and investment banking at B. Riley. “Late payments are not being tolerated,” Mandarino said.Contributing to their hard-line approach is the knowledge that one traditional safety net has become less available and more expensive. Credit insurance and factoring companies -- the financial support systems for many suppliers -- scaled back last year after suffering their own Covid losses from unpaid vendor bills they were forced to cover. Many are waiting to see how retailers recover and are only selectively writing policies tied to the healthiest merchants now.Manufacturers need to protect themselves, but they still need to sell goods. Vendors don’t have the capability to manage the risk on their own, said Michael McGrail, chief operating officer at Tiger Capital Group, which conducts services including inventory appraisals. Without a backstop, “it becomes a real leap of faith,” to supply goods and wait for payment.Some see the pullback inviting nontraditional entrants into the market for vendor financing. New York-based Angelo Gordon is one investment firm wading into the space; it’s begun offering put options on accounts receivable claims, another form of trade credit insurance for vendors.Refinancing WaveOne other bright spot for retailers is that many have the benefit of red-hot debt markets to refinance other obligations. In March, Nordstrom Inc. issued bonds to buy back pricey debt it borrowed in mid-2020. Kohl’s Corp. followed soon after, slashing its interest costs.Those savings may help retailers plug the hole created by accelerating vendor payments, said Lynn Whitmore, corporate origination leader for Wells Fargo Commercial Capital’s origination team.“On one hand, smart companies like Nordstrom and Kohl’s are raising money to maximize liquidity, reduce interest expense, and extend looming debt maturities,” Whitmore said. “On the other, even though many retailers are flush with cash, they are still facing vendor pressures and supply chain challenges more than they have before.”Vendors have also been taking action to recoup payment when clients delay checks or enter Chapter 11, which freezes ordinary payments and leaves creditors at risk of losses. After stationery chain Paper Source Inc. filed for bankruptcy in March, suppliers complained publicly that the company had placed large orders in the previous weeks only to seek bankruptcy protection without paying for them.Vendors to Sycamore-backed Belk Inc. last year consulted lawyers about missed or months-delayed payments, and at least a dozen suppliers to Eddie Lampert’s Sears chain filed lawsuits in 2020 over unpaid bills, according to court filings.Belk filed for bankruptcy in February with a plan to fully repay vendors, and Sears has confidentially settled the majority of its vendor suits. Both companies declined to comment. A representative for Paper Source said the company is “confident” many suppliers will be reimbursed for a majority of their claims. Stretched SchedulesSuppliers to distressed retailers have always had to fret whether their last check before a bankruptcy would leave them short. But amid the pandemic, the concern extended to healthier chains. Merchants across the credit spectrum have strategically deferred rent and other bills to preserve cash, and that’s meant that even healthy buyers with previously sterling records have startled vendors.Gap, for example, took about 68 days to pay in the quarter through October, more than three weeks longer than in the same period the previous year. It stretched fourth-quarter payments by more than two weeks, to 57 days. Ross Stores Inc. had a similar jump, taking 75 and 68 days to pay in its most recent third and fourth quarters, or about a month longer than last year.Typically, retailers pay within 45 days, though many doubled that time during the pandemic, according to a person familiar with the situation. At Macy’s, payment times jumped about a month, to 111 and 93 days in the third and fourth quarters.A Macy’s representative referred to a March 2020 statement saying the retailer would extend payment times to boost liquidity, and added that the department store chain is starting to shorten its payment schedule as operations normalize. Representatives for Ross and Gap didn’t respond to requests for comment.“There has been and there continues to be a significant amount of disruption in the marketplace,” said Michael Stanley, managing director and head of factoring at leading industry firm Rosenthal & Rosenthal.(Corrects spelling of Wells in ninth paragraph of story published May 4.)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) -- Copper soared this week to an all-time high, continuing a sizzling rally that’s seen prices double in the past year.The previous copper record was set in 2011, around the peak of the commodities supercycle sparked by China’s rise to economic heavyweight status — fueled by massive amounts of raw materials. This time, investors are betting that copper’s vital role in the world’s shift to green energy will mean surging demand and even higher prices. Copper futures rose as high as $10,440 a ton in London on Friday. What’s the big deal about copper?Through human history, copper has played a critical role in many of civilization’s greatest advances: from early monetary systems to municipal plumbing, from the rise of trains, planes and cars to the devices and networks that underpin the information age.The reddish brown metal is mostly unrivaled as an electrical and thermal conductor, while also being durable and easy to work with. Today, a vast array of uses in all corners of heavy industry, construction and manufacturing mean it’s a famously reliable indicator for trends in the global economy.The copper market was one of the first to react as the Covid-19 coronavirus emerged in Wuhan, with prices slumping by more than a quarter between January and March last year. Then as China’s unprecedented steps to control the domestic spread of the virus started to yield results, copper rapidly rebounded -- and it hasn’t looked back since.But it’s not just China driving the rally. While the country accounts for half of the world’s copper consumption and has played an integral part in copper’s surge, demand there has actually softened this year. Yet prices continue to drive higher.Why is copper surging now?It’s partly due to evidence of recoveries in other major industrial economies, with manufacturing output surging in places like the U.S., Germany and Japan. But investors have also been piling into copper on a bet that global efforts to cut carbon emissions are going to mean the world needs a lot more of the metal, putting a strain on supply. New mine production may be slow to arrive, as mines are hard to find and expensive to develop.Electric vehicles contain about four times as much copper as a conventional car, and vast amounts of copper wiring will be needed in roadside chargers to keep them running. Bringing electricity from offshore wind farms to national power grids is also a copper-intensive exercise.Governments around the world have announced ambitious infrastructure investment plans, much of which involves construction, green energy, or both.Are things that use copper getting more expensive?Increasingly, yes. Major manufacturers have been hiking prices for air-conditioning units and fridges over the past few months, and they’re warning there may be more to come.Still, copper is often used in small quantities in complex consumer goods, and so the doubling in prices over the past year won’t be nearly as painful for consumers as an equivalent jump in food or fuel prices would be. Similarly, governments rolling out big spending programs might not be too worried about a rise in copper alone.But with other raw materials rising too, there are growing signs that they’ll get less bang for their buck as the cost of big-ticket items like wind turbines rise.What does it mean for the economy?There are mounting concerns that the broad rally in everything from lumber to steel will force central bankers to step in to stop inflation in raw-materials markets spiralling out of control.In turn, the stellar economic rebound that’s driving the commodities rally may start to stall as businesses are hit by higher interest rates, compressed margins, and waning demand from consumers. The key question for policymakers at the Federal Reserve — and traders on Wall Street — is whether the broad spike in commodities prices will be temporary.Could the rally fizzle out?In the case of copper, there are some signs that spot demand is starting to cool, particularly in China, and some analysts and traders say the record prices aren’t justified by today’s fundamentals.The view among policymakers is that the rise in commodities prices will prove short-lived, as consumers will focus their spending on services and experiences as economies open up, easing the strain on demand for commodities-intensive items such as second homes, electronics and appliances seen during lockdown.For copper though, it’s not just about strong demand today. In fact, a lot of expected spending on renewables and electric-vehicle infrastructure is yet to really materialize. When it does, it could transform the outlook for copper usage in countries such as Germany and the U.S.How high could copper go?Trafigura Group, the world’s top copper trader, and Goldman Sachs Group Inc. both say prices could hit $15,000 a ton in the coming years, on the back of a global surge in demand due to the shift to green energy. Bank of America says $20,000 could even be possible if drastic issues arise on the supply side.The copper market itself may also be facing a big shift. Trafigura predicts that demand growth in China will be eclipsed by rising consumption in the rest of the world over the coming decade, in a dramatic reversal of the recent trend. That could help underpin a new “supercycle” in the copper market, driving prices higher for years on the back of a step-change in global demand.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.