245.58 0.00 (0.00%)
After hours: 4:55PM EST
|Bid||245.31 x 1000|
|Ask||245.57 x 900|
|Day's range||242.88 - 247.00|
|52-week range||180.73 - 250.46|
|Beta (5Y monthly)||1.37|
|PE ratio (TTM)||11.68|
|Forward dividend & yield||5.00 (2.02%)|
|Ex-dividend date||26 Feb 2020|
|1y target est||N/A|
(Bloomberg) -- Oil is heading for the longest run of weekly losses since May on fears China’s coronavirus outbreak may dent demand amid plentiful global supplies, even as U.S. crude inventories unexpectedly declined.Futures in New York are down 5.1% this week as officials widened their travel ban beyond the epicenter of the outbreak. S&P Global Ratings warned that the virus could hit Chinese consumption following a prediction from Goldman Sachs Group Inc. earlier in the week that oil demand may drop. Broader market sentiment was mixed, with mainland China shut for Lunar New Year holidays.That fast-spreading virus is the latest challenge for a market that’s been buffeted this year by geopolitical turmoil in the Middle East and North Africa, as well as the phase-one trade deal between Beijing and Washington. While the International Energy Agency says the world is “awash with oil,” a surprise 405,000-barrel decrease in U.S. crude stockpiles offered some relief.“The coronavirus has clearly taken many of the more fundamental issues off the market and is clearly impacting sentiment,” said Daniel Hynes, senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Sydney. “Issues that could negatively impact demand seem to have a greater sort of sensitivity.”West Texas Intermediate futures for March delivery lost 2 cents to $55.57 a barrel on the New York Mercantile Exchange as of 10:09 a.m. in Singapore. It’s poised for a third weekly drop after closing at the lowest level since Nov. 29 on Thursday. Brent crude fell 4 cents to $62, also set for a third weekly decline.More deaths were reported in China from the SARS-like disease, even as the World Health Organization stopped short of calling the infection a global health emergency. Goldman predicts the virus may crimp global demand by 260,000 barrels a day this year, if the SARS epidemic in 2003 is any guide.\--With assistance from James Thornhill.To contact the reporter on this story: Saket Sundria in Singapore at firstname.lastname@example.orgTo contact the editors responsible for this story: Serene Cheong at email@example.com, Ben Sharples, Andrew JanesFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- The era of the white, all-male board is coming to an end.Goldman Sachs Group Inc. Chief Executive Officer David Solomon issued the latest ultimatum Thursday from Davos. Wall Street's biggest underwriter of initial public offerings in the U.S. will no longer do business with a company lacking a director who is either female or diverse.The mandate is the latest in a series of signals that non-diverse boards and management are unacceptable. BlackRock Inc. and State Street Global Advisors are voting against directors at companies without a female director. Public companies with all-male boards based in California now face a $100,000 fine under a new state law. “It’s pretty amazing,” said Fred Foulkes, a management professor at the Boston University Questrom School of Business. “It's a seismic change. I was quite amazed and I wonder what's going to happen at JPMorgan and Morgan Stanley.”The corporate board has become a rare bright spot for gender and racial diversity at the highest echelons of corporate America. Almost half of the open spots at S&P 500 companies went to women last year, and for the first time they made up more than a quarter of all directors. In July, the last all-male board in the S&P 500 appointed a woman. Still, new boards are less diverse: Among the top 25 IPOs by value each year from 2014 through 2018, 10 companies had no female directors, said Malli Gero, co-founder and senior adviser to 2020 Women on Boards, an organization that pushes for the Russell 3000 index to have at least 20% women directors on its boards. Last year, Goldman Sachs was hired to underwrite WeWork’s IPO, which only added a female director after its initial prospectus prompted criticism of its all-male board.After July, Goldman Sachs won’t work on a company’s IPO unless the board has at least one person who is not white, male or straight. Next year, the bank will raise the threshold to two diverse directors, Goldman said in a statement. The bank said the decision came after it learned more than 60 U.S. and European companies in the last two years went public without a woman or person of color on the board. Goldman Sachs has four women on its 11-member board.Among the IPOs where Goldman Sachs was an underwriter over the last two years in the U.S. and Europe, fewer than 10% currently have a board lacking a diverse candidate, the company said. Data was not available for the composition of those boards at the time of the IPO, the company said. “We realize that this is a small step, but it’s a step in a direction of saying, ‘You know what, we think this is right, we think it’s the right advice and we’re in a position also, because of our network, to help our clients if they need help placing women on boards,’” Solomon told CNBC Thursday. “So this is an example of us saying, ‘How can we do something that we think is right and help moves the market forward?’”JPMorgan Chase & Co. doesn’t have a similar policy to the Goldman Sachs rule, but since 2016 has had a director advisory service that works to help companies find diverse candidates for their board, the company said in a statement. Morgan Stanley did not respond to requests for comment. “It’s what big investors are looking for these says,” said Boston University’s Foulkes, who was previously a director at Panera Bread Co. and Bright Horizons Family Solutions. “If the board has all white males, that’s a big negative.”To contact the author of this story: Jeff Green in Southfield at firstname.lastname@example.orgTo contact the editor responsible for this story: Rebecca Greenfield at email@example.comFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
From June 30, Goldman Sachs Group Inc will only help take a company public if it has at least one diverse board member, as such companies perform better after listing, Chief Executive David Solomon said on CNBC on Thursday. The policy will apply to U.S. and European companies and will increase over time, with the bank requiring two diverse board members starting in June 2021, Goldman Chief Executive David Solomon said on CNBC. "We're not going to take a company public unless there's one diverse board candidate with a focus on women," he said.
(Bloomberg Opinion) -- Have we finally reached the point where we automatically assume that every new retail disaster has been caused by a private equity firm? Yes, I believe we have. When the New York Post published a report on Tuesday contending that New York’s Fairway Market grocery chain was going to liquidate — a claim denied by the company, which subsequently filed for Chapter 11 bankruptcy protection on Thursday — I began exploring whether private equity was indeed responsible for its problems.It was.The year was 2007. Fairway, a treasured New York institution that was founded in 1933, had grown from one store on Manhattan’s Upper West Side to four stores, three in New York City and one on Long Island. The stores were supermarket size, but they didn’t much resemble a Safeway or a Kroger. They were eclectic, with 50 brands of olive oil, dozens of varieties of olives, cheese, smoked salmon, imported beer and who knows what else. It was quintessential New York. On a per-square-foot basis, the four Fairways were among the highest grossing grocery stores in the country.Howie Glickberg, the grandson of the founder, was one of three partners who owned Fairway Market. The other two were ready to cash out, and others in management who held small equity stakes were looking for a payday. Glickberg needed to find a source of liquidity. Unfortunately for him, he found Sterling Investment Partners, a private equity firm based in Westport, Connecticut, that focuses on mid-market companies.“I was looking to expand the business,” Glickberg told me when I caught up with him on Wednesday afternoon. In the ensuing buyout, Sterling put $150 million into the company in return for an 80% ownership stake. The majority of that was debt. Needless to say, the debt landed on Fairway’s books, not Sterling’s. Three Sterling partners, including co-founder Charles Santoro, joined the board. None of them had any grocery experience.Sterling had enormous ambitions for the company. Glickberg had envisioned expanding slowly, a store at a time. Santoro talked about turning Fairway into a national chain with hundreds of stores that would compete with Whole Foods and Trader Joe’s. Santoro did not respond to an email request for an interview.By 2012, Fairway was up to 12 stores, including some in suburban New Jersey, where the company’s urban cachet didn’t necessarily translate. Most of this expansion was fueled by yet more debt. Not surprisingly, the expansion eviscerated the company’s profits while adding millions more in debt to its balance sheet. By 2012, its debt burden had grown to more than $200 million, and it was losing more than $10 million a year.Badly in need of cash, Sterling turned to the public markets. In April 2013, Fairway Group Holdings Corp., as the company was now called, went public at $13 a share, raising $177 million. Its prospectus said that the money would go toward “new store growth and other general corporate purposes.” But that wasn’t quite accurate; the prospectus showed that more than $80 million went to pay “dividends” to preferred shareholders — i.e. Sterling Investment Partners. An additional $7.3 million went to management.Around the same time as the IPO, Glickberg was pushed aside and a new chief executive officer was brought in, an accountant who had been an executive at Grand Union, a grocery chain that failed in 2013. Glickberg did stay on the board, however, where he was the only person with either grocery or retail experience.By 2014, Fairway was up to 15 stores. Its directors — a number of them Sterling executives — were paying themselves absurd amounts of money: $12.1 million in 2013, according to the company’s 2014 proxy. Santoro alone took down $5.4 million that year — at a company with a market cap below $170 million.And that wasn’t the only problem with how Fairway was being run. Hannah Howard, Fairway’s former director of communications, would later describe what it looked like from the inside:[T]he place was kind of a mess: It took months to get paid, with leadership claiming paychecks had been lost on the truck to Red Hook. As expansion scaled, finding talented, knowledgeable staff became more difficult, so quality at new locations began to suffer. It became increasingly apparent that Fairway’s corporate leaders were good at running two or three stores, but they didn’t make the right preparations to run a dozen. “There were not processes or systems in place that were scalable,” says one erstwhile executive. “The leadership was completely incompetent.”Meanwhile, Whole Foods and Trader Joe’s were expanding methodically. When Amazon Inc. bought Whole Foods, it meant that Fairway had a competitor with limitless cash. Fairway’s vaunted revenue-per-square-foot numbers dropped by a third. Cash flow was consistently negative. The stores looking increasingly shabby because the company couldn’t afford to keep them up. By 2016, saddled with $267 million in debt, Fairway filed for Chapter 11 bankruptcy protection. It hadn’t turned a quarterly profit the entire time it was a public company.Here perhaps is the strangest part of the story: Although Fairway managed to reduce its debt by $140 million through the bankruptcy process, it didn’t use bankruptcy to close stores or break any of its expensive leases ($6 million alone for the flagship store on the Upper West Side). It didn’t try to go back to what it was, a small chain of groceries that were part of New York’s central nervous system. Meanwhile, Sterling Investment Partners, having milked Fairway for nine years, walked away. Another private equity firm, the Blackstone Group Inc., took over. Glickberg retired.By August 2018, Blackstone had exited and the company had been bought by two other private equity firms: Brigade Capital Management LP and Goldman Sachs Group Inc. In November, they hired a new CEO, a turnaround specialist named Abel Porter, who actually did have grocery experience. He was the company’s fourth CEO in six years.“We’re not burning cash, we’re accumulating cash,” Porter told Bloomberg News at the time. He added that there was “no risk of running out of capital” despite a debt level that exceeded $300 million. In that same article, however, a credit analyst for Moody’s Investment Service, Mickey Chadha, predicted that Fairway would need to be restructured again within 18 months. More money was going out the door than was coming in.Chadha’s prediction was off, but not by much. It’s been 14 months since that article ran, and Fairway is once again in deep trouble. When I asked him how he saw it coming, he laughed. “That’s my job,” he said. “You could see it when you looked at their liquidity. They just weren’t generating enough cash. No free cash flow, and lots of debt. It was highly predictable.”A few months ago, Chadha updated his analysis of Fairway’s bonds. He said that, as of June, the company’s remaining cash was down to $10 million and he predicted that it would continue to dwindle through 2020. “The company,” he concluded, “has limited alternative sources of liquidity as virtually all tangible and intangible assets are pledged to the credit facilities.”As part of its bankruptcy plan, Fairway agreed to sell five stores and a distribution facility to Village Supermarket Inc. for $70 million. Village Supermarket is another grocery chain owned by a family, the Sumas family of New Jersey. It seems to have done what Sterling Investment Partners could not: expand sensibly. The company now has 30 stores. If a handful of Fairway stores end up being run by the Sumas family, it will have saved an institution that private equity nearly destroyed.“I’m upset about what happened,” Glickberg told me. “They made a lot of bad decisions. They brought in people who knew nothing about the business and nothing about New York. My grandfather started the company, so it was more than a business to me.”I guess one moral of this story is that if you run a family company, don’t sell it to a private equity firm unless you don’t care what happens afterward. But mainly, it reaffirms what we are all coming to realize: private equity firms like Sterling Investment Partners aren’t on the side of the companies they buy. Not really. They’re out for themselves.To contact the author of this story: Joe Nocera at firstname.lastname@example.orgTo contact the editor responsible for this story: Daniel Niemi at email@example.comThis column does not necessarily reflect the opinion of Bloomberg LP and its owners.Joe Nocera is a Bloomberg Opinion columnist covering business. He has written business columns for Esquire, GQ and the New York Times, and is the former editorial director of Fortune. His latest project is the Bloomberg-Wondery podcast "The Shrink Next Door."For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
The Zacks Analyst Blog Highlights: JPMorgan Chase, Bank of America, Citigroup, Morgan Stanley and Goldman Sachs
MEXICO CITY/NEW YORK, Jan 23 (Reuters) - Mexico is playing a risky game of hide and seek with the oil market. To frustrate speculators and contain an annual bill of more than $1 billion, Mexico is going to new lengths to mask its attempts to insure its revenue from oil sales against falling prices - no mean feat for a hedging program known as Wall Street's biggest oil trade. Getting the hedge right is crucial for Mexico as it offers stability at a time the government is planning to boost social welfare and security spending, the economy is stagnating and the country's credit-worthiness is under intense scrutiny.
(Bloomberg) -- Sign up for Next China, a weekly email on where the nation stands now and where it's going next.China is strengthening efforts to encourage direct financing of companies in a financial system that’s long been dominated by banks, as the private sector struggles with access to credit.Regulators in recent months relaxed rules for companies seeking listings on China’s stock markets, moving toward a registration-based system that in theory automatically green-lights applicants provided they meet set criteria. While regulators still demand case-by-case reviews for bond sales, a legal amendment to be rolled out March 1 calls for “sharply simplifying” the requirements.The moves are part of a broader initiative to raise the sophistication of the nation’s capital markets. The campaign includes letting overseas asset managers apply for mutual-fund licenses from April, and new legal guidance on bondholders’ rights. At stake for the private sector is broadening access to credit beyond banks, which tend to favor state-owned enterprises.“China has been pushing for more direct financing for years but we’ve noticed a stronger tone on that front lately,” said Gao Ting, head of research at Nomura Orient International Securities Co. in Shanghai. “China’s economy is still faced with big downward pressures so regulators sense the urgency.”Economic growth in China has been squeezed the past couple years both by the trade war with the U.S. and policy makers’ moves to shrink the shadow financing sector. The clampdown on leverage has particularly hit private enterprises, which had tapped into China’s swelling wealth management products to fund growth. A clean-up of regional banks has also put the squeeze on smaller private firms.Why Even Xi Can’t Get Funding to Small Firms in China: QuickTakeNoise from Washington about potentially making it tougher for Chinese firms to raise capital in the U.S. have only added to the impetus to develop China’s own stock markets. The latest developments came in late December, when China’s legislature approved revisions to the nation’s Securities Law, easing up on rules for companies to list on stock exchanges.Issuance SurgeThis year could see 260 to 320 new listings, raising as much as 380 billion yuan ($55 billion) across four different domestic venues, according to projections by Deloitte LLP. That would mark a surge from 201 initial public offerings raising about $38 billion last year, according to data compiled by Bloomberg.The shift to a registration-based system has been years in the making. The China Securities Regulatory Commission previously served as the gatekeeper for offerings, with a seven-person listing-review committee examining each application. Under a registration system, questions of IPO supply and timing are left to companies and the market, rather than regulators.Relaxed controls were also announced late last year for secondary share sales, at least for those on ChiNext, a market focused on small-cap stocks. That could help stoke a rebound since squeeze on share placements was enacted in 2017 to help reduce pressure on the equity market at the time.Foreign CapOn the demand side, China is now looking at letting foreign investors buy bigger shares of the nation’s domestic equities. Fang Xinghai, vice chairman of the CSRC, said this week. There’s potential to lift the limit beyond 30%.“While not immune from the vagaries or highly sentiment-reliant equity behavior often present in emerging markets, China’s equity market has expanded rapidly and China is working to professionalize its investor base,” said Hannah Anderson, Global Market Strategist at JPMorgan Asset Management. “Efforts are further along on the equity side than they are on the bond side,” she said.When it comes to bonds, issuance is still on a case-by-case approval basis for much of China’s market. After the national legislature’s Dec. 28 announcement, all eyes will be on the scheduled March 1 roll-out of the Securities Law amendments -- which called for streamlining pre-requisites for bond sales and eliminating “approval committees” at the regulatory agencies that oversee them.Demand BaseA bigger challenge is encouraging a diversified ownership base for China’s corporate bonds, including the budding domestic mutual-fund industry along with overseas investors.“We’ve had a build-up of debt in the past decade, and that has lumbered the banks with some burden on their balance sheets,” said Timothy Moe, chief Asia-Pacific strategist at Goldman Sachs Group Inc. That “suggests that China’s financing model of banks financing the majority of capital needs to shift to include a greater focus on capital markets,” he said at a conference earlier this week.Many borrowers, such as property developers, faced with limited options at home have been raising dollar debt offshore. But China has been working to develop its domestic bond market, the world’s second-largest at $13 trillion. Along with reforms to open up foreign buyers, regulators in the past year moved to welcome overseas ratings agencies and underwriters.David Chin, China country head for UBS Group AG, highlights two stark differences between China and developed markets.“One is the size of direct financing (equities and bonds) is dwarfed by the size of bank lending, and the other is the retail portion of the stock market, which is about 80% versus 20% institutional,” he says. “Both of these two, over decades, will become more like mature markets overseas. But it will take a long time.”(Updates with Goldman analyst’s comment in second paragraph after ‘Demand Base’ subheadline.)\--With assistance from Irene Huang, Shen Hong and Annie Lee.To contact Bloomberg News staff for this story: Amanda Wang in Shanghai at firstname.lastname@example.org;Lucille Liu in Beijing at email@example.comTo contact the editors responsible for this story: Sofia Horta e Costa at firstname.lastname@example.org, Christopher Anstey, David WatkinsFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- The world’s largest car market is cratering and there are few signs of a recovery. It was never supposed to get this bad — and even if it got close, a helping hand from Beijing would steer things out of any prolonged trouble. Or so people thought... Instead, passenger car sales in China fell 9.5% last year, more steeply than the 4.3% in 2018, which was the first annual sales decline in over a decade. The drop has dragged down the global automobile industry and its deep supply chain. That leaves automakers in limbo. After years of relying on the Chinese market for its double-digit volume growth, they don't seem too sure about whom to build cars for, or what kind. Beijing’s lackluster stimulus last year included a grab-bag of measures: removal of car-purchase limits, support for buying electric cars and incentives to build infrastructure like rural gas stations. They haven't done much to revive demand. Consumers were waiting for more, which simply led to a steeper slide in sales. With no new sweeteners and the distortions of past stimuli fading, a real picture of demand is emerging. It’s nuanced. There are fewer first-time buyers, and more who are purchasing replacement vehicles. They’re increasingly looking to upgrade, and also buying more used cars. In a word, consumers are being more discriminating.Luxury carmakers account for around 15% of the market and are doing better than the rest. Porsche Automobil Holding SE, for instance, delivered 86,752 vehicles to customers in China last year, up 8% from 2018. In December, BMW Brilliance Automotive Ltd.’s average daily vehicles sales rose 21% on the year, up from 5% in November. Down the food chain, buyers of family-friendly cars are upgrading. Demand for sports utility vehicles and sedans remains depressed but is shifting toward higher-end, in-between cars, according to analysts at Goldman Sachs Group Inc. Buyers of these so-called multi-purpose vehicles, or MPVs, have long bought the same few basic models, priced between 40,000 yuan ($5,800) to less than 100,000 yuan. As the market was flooded with SUVs, aspirational buyers stayed away. Now, manufacturers are improving design and comfort, and raising prices.A slew of MPV models will be released this year. Going by low discounts compared to the rest of the market, demand remains sturdy. Goldman’s analysts estimate that in every 1% of demand that moves to the higher-end MPVs lies an annual revenue opportunity of almost 50 billion yuan ($7.25 billion). Here’s the hard reality: The double-digit growth days of selling nearly 25 million cars a year are vanishing in the rearview mirror. So are outsize profits from China. Much like the U.S. market, the type of demand will evolve and how people get around will change. Younger Chinese are more inclined to use ride-hailing services. The older people get, the less likely they’ll obtain driving licenses. China’s population is aging rapidly. This is a structural slowdown.In theory, China has plenty of room to sell more cars. Penetration rates are low and so is the national percentage of licensed drivers. The carmakers are banking on semi-urban China, ostensibly the most upwardly mobile consumers. But sales are unlikely to top 20-some million a year, even with the push toward electric vehicles (only 5% of cars sold now) and regulations that will eventually force buyers to go green. For now, higher technology only raises the cost of car ownership out of reach.The market is oversupplied, no doubt. The good news is that inventories are coming down as automakers try to stay in the black. Toyota Motor Corp. has increased the types of models it sells in China and gained market share. As weaker players drop out and the industry consolidates, the likes of Honda Motor Co. and Volkswagen AG are taking a bigger piece. Failure to rigorously manage output will mean a pile of clunkers. Changan Ford Automobile Co. is sitting on some of the highest levels of inventory, as is SAIC General Motors Corp.’s Baojun. GM continues to lose market share. Ford Motor Co. said last week that its sales in China dropped 26% in 2019. European carmakers have also struggled. Making money by churning the assembly lines won’t cut it anymore. The China Road to success is a lot narrower. Only the companies that drive it smarter will survive. To contact the author of this story: Anjani Trivedi at email@example.comTo contact the editor responsible for this story: Patrick McDowell at firstname.lastname@example.orgThis column does not necessarily reflect the opinion of 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/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- WeWork has sold its minority stake in the female-focused co-working startup the Wing, part of parent company We Co.’s efforts to re-focus on its main office-sharing business.The company had been exploring the sale since last year, Bloomberg previously reported, following the theatrical dissolution of its plans for an initial public offering and the ouster of its chief executive officer, Adam Neumann.“Last quarter, we articulated a long-term plan for disciplined growth and a clear path to profitability, and we continue to execute on this plan each day,” Co-CEO Artie Minson said in a statement.A group of investors purchased WeWork’s stake in the Wing. The group included GV, formerly Google Ventures, as well as existing investors Sequoia Capital and NEA. The Wing also said it had added actress Mindy Kaling as an investor, adding her to a list of backers that also includes athletes Serena Williams and Megan Rapinoe. Fortune earlier reported some details of the sale.“In three years, the Wing has grown from a single location to a global community of women,” co-founder and CEO Audrey Gelman said in a statement.In addition to divesting its stake in the Wing, WeWork said it would sell Teem, a cloud services developer, to iOFFICE, a facility management software company. It also said it was in the process of selling Meetup, a website used to create online groups for in-person events, and Managed by Q, a workplace management platform.On Wednesday, the company also said it is expecting a $1.75 billion credit line from Goldman Sachs Group Inc. that it secured in December to become available within the coming weeks.(Adds investor details in the fourth paragraph.)To contact the reporter on this story: Nikitha Sattiraju in New York at email@example.comTo contact the editors responsible for this story: Molly Schuetz at firstname.lastname@example.org, Anne VanderMey, Jillian WardFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- The prospect of a comeback for the populist Italian firebrand Matteo Salvini was hanging over markets on Wednesday after a key political rival stepped down, raising the chances of an early election that could pave the way for him to pursue his euroskeptic agenda.The resignation of Luigi Di Maio as leader of the Five Star Movement has unsettled investors wary of another standoff between Italy and the European Union. Bonds fell as much as eight basis points on fears about the government’s stability but then recovered as the fragile coalition held together.For now investors see a weaker government whose key members are compelled to cling to power and avoid a snap election that they would be likely to lose.“Our economists’ base case is that the coalition government survives through 2020,” George Cole, managing director at Goldman Sachs International in London, said in a client note. He expects the Italian bond yield premium to narrow against Spanish and Portuguese peers as data stabilizes and the European Central Bank continues to snap up assets in the region.Bank stocks in the country bore the brunt of selling, and the FTSE Italia All-Share Banks Index dropped 1.6% as of 3.39 p.m. in London.The key focus now will be local elections this weekend: Gains for the League party could send the spread between benchmark Italian bonds and their German peers to beyond 200 basis points, predicts Peter McCallum, rates strategist at Mizuho International Plc in London. The gap is steady at 162 basis points.“Even a benign election result at the weekend would likely still leave an uncertain political situation,” McCallum said.The developments threaten to add pressure to the nation’s bonds, which have been drifting lower in recent months after a stellar run in 2019. The yield on the benchmark posted the biggest annual drop in five years as the ECB, a key buyer of Italian debt, resumed its stimulus measures.Despite the apprehension there are some who think the market could live with a Salvini government. A general election campaign would likely herald higher volatility and wider spreads, but these could re-tighten even if Salvini wins, according to Antoine Bouvet, a senior rates strategist at ING Groep NV in London.“Historically the League has been seen as a more pro-business party,” he said. “Some of their planned tax cuts would threaten the deficit but it could also boost growth. Once the election is out of the way, with presumably a League victory, I think markets will come to terms with a Salvini-led government.”Here’s what other strategists are saying:MUFG Bank Ltd. (League government could be negative for the euro)Lee Hardman, currency strategist.“It is a more euro-negative threat with respect to the Italian government’s commitment to at least bring public finances in line with euro-zone ideals. If the League were to take over, then at face value there is more risk of confrontation between the EU and the Italian government further down the line, and that is something that could be destabilizing and euro negative. At this stage it is all ifs, buts and maybes.”Societe Generale SA (Politics for now will have little impact on credit)Juan Valencia, credit strategist.“If BTPs really underperform, some Italian credit would widen in sympathy. For the overall market, it won’t matter much, unless things deteriorate badly. There is big demand for credit and people keep buying.”“If you start seeing weakness in BTPs, then the banks are going to come under pressure and some corporates but I would see this as a temporary setback, probably an opportunity to buy.”Rabobank (Sell-off is a buying opportunity)Lyn Graham-Taylor, senior rates strategist.“I would fade today’s sell-off” as the Democratic Party and Five Star are lagging in the polls and have little incentive to call a snap election.Colombo Wealth SA (League win in Sunday’s elections could create opportunities)Alberto Tocchio, chief investment officer.“Of course it could create some unwanted political instability in Italy and Europe and to me the best trade is to go long the widening of the BTP-bund spread.”“If there is an over-reaction on Monday with a substantial sell-off of Italian equities, it could be a nice entry opportunity in a unloved market with some decent stocks that are offering an high dividend yield.”ING Bank NV (Spreads could tighten on a Salvini government)Antoine Bouvet, rates strategist.“There is a more technical reason why spreads will re-tighten even if Salvini is elected: investors cannot stay underweight/short Italian bonds for too long. They offer a much better carry than other government bonds and represent too large a portion of the market for investors to ignore them.”(Adds comment from Goldman Sachs in fourth paragraph and new chart.)\--With assistance from Anooja Debnath, Tasos Vossos and Ksenia Galouchko.To contact the reporters on this story: William Shaw in London at email@example.com;James Hirai in London at firstname.lastname@example.orgTo contact the editors responsible for this story: Dana El Baltaji at email@example.com, Cecile Gutscher, Sam PotterFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Will this finally be the year European companies deliver profit growth?It’s the question that’s been on investors’ lips for a long time. While earnings in the U.S. have steadily risen in the decade since the global financial crisis, European figures have stagnated. Time after time, bullish predictions have given away to a disappointing reality. Now, with equities already at a record high and monetary policy more likely to normalize than ease further, profit growth might be the key factor to make or break the rally.Bottom-up analysts expect profits for Stoxx Europe 600 Index members to grow 8.2%, up from last year’s tepid 1% increase. That’s close to the 8.6% expansion expected for the U.S. However, many strategists are skeptical, calling the consensus too optimistic, and analysts typically tend to slash estimates as the year goes on, neither of which bodes well for a dramatic comeback.“With Europe on a relatively low valuation compared to the United States, investors can be more patient for earnings to develop as we continue into 2020,” said Edward Park, deputy chief investment officer at Brooks Macdonald Asset Management. “That said, for European equities to continue to rally from here we would need to see earnings come through.”What could help is an economic recovery, with recent releases showing tentative signs of stabilization. While political crises in Europe have played a part in keeping investors at bay, the region has also been plagued with weak macro data and corresponding lack of earnings growth in recent years. Banks, once the heavyweights for profits, have seen their might dwindle amid a lower-for-longer rates environment.So despite higher dividends and a near record-low valuation discount, the Stoxx 600 has underperformed the S&P 500 Index.Deutsche Bank AG strategists noted last month that European equities have lagged U.S. peers in the past eight years, after 40 years of keeping pace. Excluding the period around the European financial crisis and adjusting for the impact of U.S. corporate-tax cuts, they say earnings growth has been identical. Their baseline view, which assumes a pickup in European and global growth, is for the region’s earnings-per-share growth to match that of the U.S. in 2020.Not everyone is as bullish. The reporting season, which kicked into full gear on Tuesday with UBS Group AG’s annual release, is likely to bring mixed results, according to Morgan Stanley strategists. They say consensus expectations for 2020 are “optimistic but not implausible,” and note that European equities have been increasingly resilient to earnings downgrades in the past year.Goldman Sachs Group Inc. strategists led by Guillaume Jaisson say that analysts have been reluctant to slash earnings forecasts because of the stock market rally and cyclicals’ outperformance, which explains why fourth-quarter profit downgrades have been limited to just 1%. The current level of economic activity would suggest a 6% negative earnings revision, according to Goldman.The Stoxx 600 surged 23% last year in its best performance in a decade, even as a Citigroup Inc. index shows profit downgrades have mostly outnumbered upgrades since May. The dissonance shows that equity gains were driven purely by an expansion in valuations, which presents a risk to further stock gains, according to Alain Bokobza, Societe Generale SA’s head of global asset allocation.“We do not expect earnings growth to deliver any significant good news in 2020, under our assumption of a slowing global economy,” said Bokobza by email. “A valuation expansion process can’t continue forever.”While overall earnings growth has disappointed, digging deeper into sectors shows that most defensives have reported “solid growth” in recent years, according to Christian Stocker, a strategist at UniCredit SpA. The trend is likely to continue, he said.Among European sectors, telecoms, technology, retail, utilities and oil firms are projected to show double-digit growth this year, according to Bloomberg data. The slowest pace of expansion -- less than 7% -- is seen in financials, basic resources and media companies.Energy and mining sectors, which saw double-digit earnings contraction in 2019, remain vulnerable to weaker global manufacturing and commodity price swings, according to Brooks Macdonald’s Park. Oil has had a particularly volatile start to 2020 following the spike in U.S.-Iran tensions.Forecasts are most bullish for tech earnings, even as a gauge tracking shares in the sector is near levels last seen in the dot-com bubble days. That’s driven by increased automation and corporate investments into the sector that will enhance margins, says Park.Global GrowthFor the exporter-heavy Stoxx 600, global growth and the strength of the euro will be key factors for corporate profits.The single currency has been on the rise since September, when it reached its lowest since 2017, while the International Monetary Fund this week trimmed its outlook for world economic expansion to 3.3%. Although that’s slower than the 3.4% projected in October, it’s still the first pickup in three years.The Stoxx Europe 600 advanced 0.2% on Wednesday following two days of declines. Gains were limited by declines in Italian banking stocks after the resignation of the leader of the anti-establishment Five Star Movement raised political risk.“Europe is traditionally more cyclical and globally exposed in many ways, so if and when a firm global recovery develops, this side of the pond has room to step up,” said Tim Craighead, a European strategist at Bloomberg Intelligence.(Updates with today’s market move in penultimate paragraph.)\--With assistance from Namitha Jagadeesh, Michael Msika and Jan-Patrick Barnert.To contact the reporter on this story: Ksenia Galouchko in London at firstname.lastname@example.orgTo contact the editors responsible for this story: Blaise Robinson at email@example.com, Namitha Jagadeesh, Morwenna ConiamFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Oil erased some earlier declines as concern mounted about supply disruptions in Libya and Iraq despite ample output from other major producers.Futures trimmed losses to settle little changed near $58 a barrel in New York on Tuesday. The Libyan port crisis that strangled exports from North Africa’s biggest oil supplier extended into a fourth day. Meanwhile, spreading unrest in Iraq threatened shipments from OPEC’s No. 2 producer.The Libyan disruption is significant because “there is a lot demand for light, sweet crude” among refiners working to comply with stricter fuel rules, said Phil Flynn, an analyst at Price Futures Group Inc.Oil prices also were pressured as a deadly virus from China spread to the U.S.“There’s obviously a lot of concern with this virus in China,” said Josh Graves, senior market strategist at RJ O’Brien & Associates LLC.West Texas Intermediate futures for February declined 20 cents to settle at $58.34 a barrel on the New York Mercantile Exchange. The contract expires Tuesday.Brent crude for March settlement dropped 61 cents to $64.59 on the ICE Futures Europe exchange in London.Libyan militia leader Khalifa Haftar has blocked ports in a show of defiance after world leaders failed to persuade him to sign a peace deal. In Iraq, protests halted production at one oil field and rockets reportedly hit the Green Zone in Baghdad after a weekend of unrest.\--With assistance from James Thornhill, Sharon Cho, Saket Sundria and Grant Smith.To contact the reporters on this story: Sheela Tobben in New York at firstname.lastname@example.org;Jackie Davalos in New York at email@example.comTo contact the editors responsible for this story: David Marino at firstname.lastname@example.org, Joe Carroll, Catherine TraywickFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Former FDIC chair Sheila Bair said Elizabeth Warren is "absolutely the best candidate" on policies related to the banking industry.
(Bloomberg) -- As Visa Inc., Mastercard Inc. and American Express Co. prepare to enter China for the first time, one of their biggest competitive threats will come from a company that doesn’t issue credit cards.Jack Ma’s Ant Financial, already the biggest player in China’s $27 trillion payments market, is leveraging its ubiquitous Alipay mobile app to mount a rapid expansion into consumer lending.Instead of issuing cards, Ant allows customers to borrow with a few taps on their smartphones. The loans are wildly popular among China’s army of mobile-savvy shoppers, who often lack formal credit histories but generate enough financial data via Alipay for Ant to make informed decisions on whether they’ll default. The company’s outstanding consumer loans may swell to nearly 2 trillion yuan ($290 billion) by 2021, according to Goldman Sachs Group Inc. analysts, more than triple the level two years ago.“The consumer loans business has been growing at breakneck speed, but there are so many untapped users,” Huang Hao, president of Ant’s digital finance operations, said in a phone interview outlining the company’s strategy.Ant’s push into China’s 10 trillion yuan market for short-term consumer loans will make it an even more formidable challenger to U.S. card companies, which are counting on the world’s second-largest economy as a source of long-term growth.Many Chinese consumers and businesses are ditching credit cards as Ant and its main competitor Tencent Holdings Ltd. make app-based spending, borrowing and investing increasingly user-friendly. In a Nielsen survey of more than 3,000 Chinese people born after 1990, nearly 61% said they use online consumer credit while only 45.5% had a credit card.“For credit card companies coming to China, the biggest challenge is how to attract people,” said Zennon Kapron, managing director of Singapore-based consulting firm Kapronasia. “A lot of Chinese millennials are digital first, used to using Alipay as their first platform for payments, loans and wealth management.”The card giants appear to be moving forward with their China plans despite the headwinds. AmEx’s application to start a bank card clearing business has been accepted by the country’s central bank, while Mastercard has called China a “vital” market and Visa has said it’s working closely with regulators for a license.As part of its phase-one trade agreement with the U.S., China said it won’t take longer than 90 days to consider applications from providers of electronic-payments services. Regulators are opening the industry to foreign competition amid an unprecedented push to give international firms access to the country’s financial sector.Read more: Visa, Mastercard, AmEx Win Easier Access to China MarketIn response to questions from Bloomberg on the threat posed by Ant, Visa said it sees significant potential to support the growth and evolution of digital payments in China and is approaching the market with a long-term focus. Mastercard said it would continue to work with regulators to advance its application and is committed for the long haul. AmEx declined to comment.Ant, an affiliate of Alibaba Group Holding Ltd. that’s widely expected to pursue an initial public offering in coming years, started its consumer-credit business in 2015. Its loans tend to be small: half the users of Ant’s Huabei (translation: “just spend”) service borrow less than $290 and usually pay it back within months.The Hangzhou-based company, which declined to disclose the value of its outstanding loans, keeps delinquencies in check by tapping into a trove of data amassed by Alipay and Alibaba.Many customers have been using the payments and e-commerce platforms for years -- handing over details from ID cards to addresses and spending habits. Once Ant extends a loan, it can track how the money is spent via Alipay. The result is a bad-debt ratio stands at about 1%, below the 1.24% national average for credit cards.Read more: China’s Gen Z, With Little Income, Gets Hooked on Easy CreditAnt keeps some of the loans on its own balance sheet, charging interest rates that range from about 5% to 18%, according to Huang. But most are passed on for a fee to banks and other financial institutions.“We’re set to continue to work with more banks and finance companies,” Huang said. “We are, at the end of the day, a platform.”The risk for Visa, Mastercard and AmEx is that a swathe of Chinese consumers and businesses will view credit cards as obsolete. About 60% of borrowers on Ant’s Huabei platform don’t have one, and many smaller merchants don’t accept cards because they find it’s cheaper and easier to use Alipay or Tencent’s WePay. The former, with more than 900 million users, is Alibaba’s preferred payments provider.“The competitive landscape is full of local players,” said Hang Qian, a partner at Oliver Wyman, a consultancy. “The key challenges are how to promote small merchants to accept credit cards and how to get e-wallet users to switch.”\--With assistance from Alfred Liu.To contact the reporter on this story: Lulu Yilun Chen in Hong Kong at email@example.comTo contact the editors responsible for this story: Michael Patterson at firstname.lastname@example.org, Jodi SchneiderFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.