|Bid||196.76 x 1100|
|Ask||196.83 x 1100|
|Day's range||195.00 - 202.50|
|52-week range||130.85 - 250.46|
|Beta (5Y monthly)||1.47|
|PE ratio (TTM)||10.63|
|Earnings date||15 Jul 2020|
|Forward dividend & yield||5.00 (2.47%)|
|Ex-dividend date||29 May 2020|
|1y target est||231.43|
(Bloomberg Opinion) -- Rishi Sunak, Britain’s chancellor of the exchequer, delivered another steroidal burst of government spending on Wednesday. As the man writing fat checks at a time of disruption and uncertainty, Sunak has become so popular that it’s now obligatory to include the words “potential future prime minister” whenever his name is mentioned. He enjoys a 92% approval rating among Conservative Party members, which is more what you’d expect in Belarus than in Britain’s rough-and-tumble political world.He has a pedigree to rival any other front-rank Tory. His platinum-plated CV includes stops at Oxford University, Stanford and Goldman Sachs. The son of immigrants, he’s married to the daughter of a billionaire. A policy wonk in sharply tailored suits, he also has an encyclopaedic knowledge of Star Wars trivia and is considered a nice guy. He’s exhibited both the right temperament for the moment (unflappable, focused, collegial) and a flair for the fiscal splurge that is unconstrained by his previous hawkish orthodoxies.“We entered this crisis unencumbered by dogma and we will continue in this spirit,” he said on Wednesday.Yet winning acclaim for chucking cash at anyone who asks for it is the easy part. At some point, possibly around the time of the autumn budget, people will want to know how he means to pay for his largess. Boris Johnson’s Conservatives can sound almost identical to Keir Starmer’s Labour Party in their determination to protect working people’s interests, but will that remain the case if Sunak wants to hike taxes at some point? His slew of spending pledges is a bet that the government can put a floor under the economic damage done by the coronavirus, without creating structural deficits that burden future generations or fostering a dependency culture that Conservatives deplore. Sunak is trying to soothe Tory fears by presenting his blowout as a series of time-limited targeted interventions.Naturally enough, his immediate priority is jobs. Britain’s furlough scheme, which props up 9 million jobs, is due to do be wound down from August, when employers will have to shoulder more of the burden. That’s expected to result in a great shedding of jobs, particularly in sectors such as hospitality and travel.Wednesday’s “summer economic update” included as much as 30 billion pounds ($38 billion) of new spending, on top of the previous 160 billion pounds of direct support for the Covid-hit economy and 123 billion pounds of subsidized state loans and deferred taxes. It was directed especially at younger people, who are disproportionately affected by the shutdowns: The beleaguered hospitality industry, which accounts for about 10% of total employment, gets special support. Value-added tax for the sector was cut to 5% from 20% and Brits have even been given government-funded discounts to dine out Monday through Wednesday. There was also a nod to the problem of getting furloughed staff back to work: Across the economy, employers who bring these workers back onto the payroll will receive a 1,000-pound bonus. While Sunak says Britain has implemented one of the most generous pandemic responses in the world, its fiscal interventions were equivalent to about 4.8% of GDP before Wednesday’s announcement, according to the Bruegel think tank, putting it behind Germany and the U.S. and on a par with France.Still, a different stripe of Tory government might have accepted the inevitability of widescale unemployment, as President Donald Trump has in the U.S., and used fiscal policy to provide welfare relief. Sunak insists that his policies are driven by values, not economics.Sunakism — if indeed this is a pitch for future power — claims to have at its core the sanctity and nobility of work. “I will never accept unemployment as an unavoidable outcome,” he told Parliament on Wednesday. At the same time, the chancellor doesn’t want to “leave people trapped in a job that can only exist because of a government subsidy.” His policies are predicated on the idea that government can protect some jobs and stimulate the creation of others, while supporting those who fall through the cracks. But these are largely blunt instruments. For example, many people are avoiding restaurants for safety reasons, and others may find it hard to get a table. A VAT cut doesn't solve either problem.At each turn, Sunak has been careful to underscore the extraordinary nature of the circumstances. Like the furlough scheme, all of the other new measures are meant to be temporary and have an immediate effect. But few people who get a steroid injection stop after just one. When so many people are dependent on the state for their livelihoods, there is powerful pressure to maintain the flows of cash.Given the blow to the economy, some of the forecasts on joblessness post-Covid are dire, and Johnson has promised to look after those former Labour voters who delivered him victory in December’s general election. It won’t be easy to turn off the taps.The Sunak approach raises three important questions. First, will his carefully targeted measures limit the Covid damage and revive the British economy? Second, how will they be paid for? And third, what are the long-term consequences for Britain’s political landscape and the shape of its economy?For now, only the first question matters. Sunak has put off the financing conundrum until the autumn budget. It’s hard to see how some tax increases can be avoided, although this is a government that has committed itself to reducing the tax burden where it thinks that might stimulate the economy.As for the third question, a new doctrine of conservatism appears to be emerging that accepts the state as a prime actor during a crisis but tries to avoid the perils of chronic French-style interventionism. Sunak has called on the British people to have the “patience to lie with the uncertainty of the moment” so they could find “a new balance between safety and normality.” That balance may be more elusive than he thinks.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Therese Raphael is a columnist for Bloomberg Opinion. She was editorial page editor of the Wall Street Journal Europe.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.
Goldman (GS) possesses the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.
(Bloomberg Opinion) -- The Berkeley Center for Law and Business held its annual “fraud fest” a few weeks ago — virtually, of course — and there was a new item on the agenda. Along with the usual panels about whistle-blowers and short sellers, the organizers added a panel titled “Fraud and Covid-19.” “The pandemic is the perfect storm for fraud,” one of the panelists said, and who can doubt it? The federal government hastily pushed hundreds of billions of dollars out the door in the largest bailout in U.S. history with only the most vague requirements for recipients; bankers working from home doled out those billions to small businesses; regulators loosened rules to help institutions get through the crisis. As my colleagues Timothy L. O’Brien and Nir Kaissar noted recently, “the White House has made it easier for government insiders to obtain bailout loans from the Small Business Administration, creating a raft of conflicts of interest.”That certainly sounds like a recipe for financial fraud. “A crisis is like the fog of war,” said Thomas Curry, the former comptroller of the currency during President Barack Obama’s administration. “Banks redirect resources to critical areas and neglect other risks that bite you down the road.”Before becoming comptroller, Curry was on the board of the Federal Deposit Insurance Corporation. It was from that perch that he watched the financial crisis unfold — and became one of the financial regulators frantically trying to keep the U.S. financial system from melting down. The government ultimately gave the big banks billions in bailout loans and other forms of support, such as buying their toxic securities. But once the crisis was averted, Congress, regulators, and the press all began to dig into scandals that were previously unnoticed: the abuse of subprime mortgages by the big financial players; the craven behavior of the credit-rating companies; the willingness to mislead investors who bought those toxic securities, and so on. According to the boutique investment bank Keefe, Bruyette & Woods, banks were fined a staggering $243 billion for their misdeeds during the financial crisis. (Bank of America leads the pack with $76.1 billion in fines.)Those fines inflicted some pain, but they weren’t the most consequential result of the financial misdeeds that were exposed. The larger issue was the enormous resentment and anger they generated in a broad swath of the country. People on both sides of the political divide were furious that the big banks were being saved despite bad behavior that helped create the financial crisis. Meanwhile, millions of bank customers lost their homes to foreclosure. The financial crisis and its aftermath helped bring about the Tea Party and Occupy Wall Street movements and helped pave the way for Donald Trump’s presidency.So here we are again, in the middle of another crisis, only this one is being overseen by an administration that doesn’t seem to care much about corruption or fraud. Early on, Trump removed Glenn Fine, the acting Pentagon inspector general, from taking charge of a group that was supposed to monitor the pandemic relief effort, replacing him with someone more to his liking. Nobody is monitoring the White House’s involvement in procuring N-95 masks and other scarce personal protective equipment. And only on Monday did the Treasury Department finally release the names of companies that received PPP funds. Guess what? One recipient was the law firm of Kasowitz Benson Torres, where one of the name partners, Marc Kasowitz, has represented Trump for years. The firm received between $5 million and $10 million, according to the New York Times.As for the banks, the SBA has put them in a terrible spot, giving them the responsibility of hastily vetting the hundreds of thousands of businesses seeking PPP funds. Even with the best of intentions, it is inevitable that scam artists found ways to bilk the banks out of PPP loans. Indeed, prosecutors have already arrested a handful of executives for doing so.The larger issue is that, just like in 2008, regulators aren’t focused on preventing misconduct. Instead, their focus is on making sure banks have the ability to lend — even if it means loosening rules that were designed to make banks safer. In late March, for instance, the Federal Reserve relaxed several lending rules, including one that measured counterparty credit risk. And in early April it loosened capital requirements. “The Fed has been trying to say to the banking community that in this crisis environment we don’t want the constraints we normally put on you. We don’t want to hamper your ability to lend to clients,” said Gary Cohn, the former Goldman Sachs executive who served as Trump’s first chief economic adviser.What’s more, Cohn said, banking is not a business that is meant to be conducted from home. “Banks need people to be working together in a cooperative fashion and watching and listening to each other,” he told me. “That is what the Fed would call a first line of defense: Overhearing conversations, looking at presentations, or looking at the way you talk to a client. Or calling a compliance officer – ‘Can you guys look at this?’ When people are sitting in their bedrooms,” he added, “there is no one there to look over their shoulder.” Bankers operating on their own is a recipe for trouble.When the pandemic finally ends, there are going to congressional investigations, newspaper exposes and special commissions all taking a look back at what happened to the trillions of dollars the federal government spent to keep the economy from collapsing. Indeed, if the Democrats sweep the White House and Congress, the reckoning could well begin even before the virus has been conquered. (Can you just imagine Elizabeth Warren as chair of the Senate Banking Committee?)For starters, they’ll want to know whether bankers siphoned off money to their friends, whether they threw people who should have been granted mortgage forbearance out of their homes and whether money meant for small businesses wound up helping any of the president’s businesses. Banks will be especially vulnerable because they were the villains during the last crisis. If significant bank misconduct is uncovered during a Covid-19 post-mortem, said Stephen Scott, the founder of Starling Trust Sciences, a risk-management company, “there will be pitchforks.” The country is much more polarized than it was in 2008, and much angrier, too. If it turns out that the billions of dollars intended to help out-of-work Americans was diverted by fraud, it will make the aftermath of the financial crisis look like a picnic.This column does not necessarily reflect the opinion of the editorial board or 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.
Top Chinese energy firms have mandated investment banks Morgan Stanley and Goldman Sachs to act as advisors for multi-billion dollar deals transferring key oil and gas pipeline assets into a national energy infrastructure giant, four sources said. Overseen by a government vice premier, underlining the project's importance for Beijing, Beijing aims to complete the asset transfers and start operation of the new entity - valued by industry analysts at more than $40 billion - by the end of September, oil industry officials said. The mandates come after China announced in late 2019 that it would establish an entity known as National Oil and Gas Pipeline Company by combining pipelines, storage facilities and natural gas receiving terminals operated by China National Petroleum Corp (CNPC), China Petrochemical Corp (Sinopec Group) and China National Offshore Oil Company (CNOOC).
(Bloomberg Opinion) -- As the U.S. deals with social unrest and the focus on fairness and equality grows, many public and private leaders have asked a simple question: “How can we do better?” It’s a fair question, one which got me thinking about the public finance sector, long considered among the most diverse and inclusive areas in investment banking. While this sector has seen many positive developments over the 30-plus years since I started my career on Wall Street, there is clearly much work to do.As of late, my phone has been ringing off the hook with calls from other chief executives wanting to know what they can do better when it comes to promoting diversity and inclusion. We have heard this narrative before, yet never with this great a sense of urgency. Some major banking institutions have gone beyond simple lip service and begun to hold leaders directly accountable for diversity goals and objectives. Major cities such as New York, Chicago, Atlanta and Washington have been consistent leaders in not just a broad commitment to inclusion, but have gone the extra mile to ensure equality as well. They have made the deliberate choice of involving minority- and women-owned business enterprise banking firms, and other diverse professional-services firms, in leading and meaningful roles. This is not just about offering small monetary compensation to appear inclusive. These cities further a broader mission of building trust, respect and reputation in these firms — in an industry where those characteristics mean everything. It has been through the responsibility shown by many entities in the public sector that we have started to see real change trickle into other areas of finance, such as corporate banking and the buy-side of the industry. Institutions and organizations in other areas should be commended as well. They include sub-sectors such as transportation, water and sewer, housing and K-12 education. However, one sector has had a poor and often erratic record with regard to inclusion and diversity: higher education. It is a disappointing irony that an industry whose institutions have often been the most vocal promoters of tolerance, inclusion and diversity, should be one so lacking in the tangible promotion of those values within the financial industry.The higher education sector has issued a record volume of debt since the Covid-19 shock began in March — over $12 billion. While some major universities and colleges have an open-door policy in terms of inclusion and equity for professional-services providers, others have been shockingly closed, seemingly inconsistent with their core mission. For example, in the mighty Ivy League, only Penn, Princeton, Columbia and Cornell regularly have minority- and women-owned firms in their bond underwriting syndicates, along with other professional-services providers for bond transactions. Harvard, Yale, Brown and Dartmouth rarely, if ever, have such companies. Almost none have included minority law firms. We’ve seen much the same disappointment at other prestigious institutions, including the Massachusetts Institute of Technology, Johns Hopkins, the California Institute of Technology, Notre Dame and Boston College, to name a few.Harvard says its mission is to educate its citizens into leaders of our society. Yale takes it one step further: Its mission is to educate leaders who serve "all sectors of society." I suspect Yale didn’t apply that principle to its $1.5 billion transaction priced in early June, one in which the school used no minority-led law firms and just three major firms — Barclays Plc., Goldman Sachs Group Inc. and JPMorgan Chase & Co. — for its underwriting syndicate. And remember, Yale is located in New Haven, Connecticut, a city where almost two-thirds of the residents are people of color.But this is not just about the Ivy League or private schools. Ohio State has beaten Michigan eight straight years in football, and it appears that the Buckeyes beat the Wolverines in the inclusion area as well. Michigan issued almost $1 billion in debt recently and failed to include a single minority-owned law firm or underwriter. Whereas Ohio State recently executed a $187 million transaction that did include a minority underwriter — it joins fellow Big Ten members Northwestern and Purdue, which have also recently completed deals with minority- and women-owned businesses in their transaction teams. Unfortunately, Michigan State, Indiana, Nebraska and Penn State have not, and each executed transactions that exceeded $500 million. We have seen similar inconsistencies out west. The University of Southern California, the University of California Regents, the Cal State System and the Universities of Washington and Colorado have been very inclusive. On the other hand, Stanford, Arizona, Arizona State, Oregon and Oregon State have lacked minority participation. Elsewhere, major systems that should be commended for their inclusion policies include the University of Texas, Texas A&M and the Universities of Massachusetts and Connecticut. Institutions such as Temple, the University of Chicago and Kent State deserve solid marks as well. Some of the least inclusive schools have been in southern states. Georgia Tech, Emory, Duke, North Carolina, North Carolina State, Vanderbilt and Wake Forest have not used minority firms. These are institutions which have never failed to be inclusive on the gridiron or hardwood, but this “inclusivity” would seemingly stop at professional services.More broadly, in the municipal and not-for-profit sectors — which in many respects are not dissimilar from the nation as a whole — there has been much progress, but much work remains. Many of our municipal issuers understand this and have been inclusive and equitable, with positive results. New York City’s first deal after the onset of Covid-19 was senior-managed by a minority firm, to spectacular results. The State of Ohio recently did the same for an $800 million taxable and tax-exempt transaction that generated over $360 million in much-needed budgetary and cash-flow savings. Finally, many minority- and women-owned business enterprise firms have formed partnerships with large banks to provide additional liquidity to universities. The argument that an institution only uses so-called “credit banks” is no longer valid. Minority- and women-owned firms have time and again shown the capability to provide outstanding execution on some of the largest and most complex financial transactions in the country. It is time that grand American institutions such as Harvard, Yale, Stanford, Duke, Michigan and the like give their coveted stamps of responsibility and trust to minority firms that can help universities build a capital structure worthy of their academic prowess.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Jim Reynolds is the chairman and chief executive of Loop Capital.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 Opinion) -- Transparency and public trust are essential to effective bank regulation. These guiding principles were severely compromised in the years leading up to the 2008 financial crisis. Instead of simple, straightforward metrics of bank solvency, capital requirements became an exercise in gamesmanship. Regulators deferred to banks’ own opaque and incomprehensible models of risk to determine how much capital they needed, deeming them “well-capitalized” when the banks were anything but. Reforms adopted after the crisis wisely added simpler, objective capital standards, complemented by stress tests that publicize whether large banks have sufficient capacity to weather severe economic conditions.Unfortunately, last month’s confusing and vague pronouncements by the Federal Reserve of this year’s stress test results undermined those principles. Instead of reassuring the public, they have created more uncertainty as to the strength of the banking system.Much criticism has centered on the failure of the Fed to publish bank-specific results under its “enhanced sensitivity analysis,” which took into account worsening economic scenarios caused by the Covid-19 pandemic. The stress scenarios the Fed had announced in February were not as severe as the path the economy is on now. But the Fed only published bank-specific results under February’s now essentially irrelevant assumptions.Less noticed, but we feel equally important, was the failure of the Fed to publish an enhanced sensitivity analysis using a simpler, more reliable measure of financial strength called the leverage ratio. Instead, the Fed relied solely on banks’ “risk-based ratios,” which seek to measure capital adequacy in relation to judgments about the riskiness of banks’ assets. Risk-based ratios failed spectacularly in the lead up to the financial crisis as large banks took huge, highly leveraged stakes in securities and derivatives tied to mortgages because they and their regulators deemed those assets low risk.After the crisis, global consensus emerged that regulators should backstop risk-based capital rules with leverage ratios, which proved to be more reliable indicators of solvency during the financial crisis. For the largest banks, these supplemental leverage ratios require a minimum of 5% equity funding for the banking organization, and 6% for subsidiaries insured by the Federal Deposit Insurance Corp.A review of the bank-specific results published by the Fed using February’s pre-pandemic assumptions shows that some large banks would be operating with thin capital margins even under those more benign scenarios. For instance, Goldman Sachs’s supplemental leverage ratio dipped as low as 3.5%; Morgan Stanley, 4.5%; JPMorgan Chase, 5.1%. Unfortunately, we don’t know how these and other large banks will fare under the more-distressed conditions caused by the pandemic. The Fed’s enhanced sensitivity assessment only disclosed aggregate risk-based ratios. These ranged from 9.5% for a “V-shaped” recovery to 7.7% for a more severe “W,” with the bottom 25th percentile of banks going as low as 4.8% in a “W” scenario. Leverage ratios are typically less than half of banks’ risk-based measures. Indeed, a major concern about risk-based ratios is that they imply capital levels greater than they actually are. Thus, it is likely there were a number of banks with stress leverage ratios below 3% in the Fed’s sensitivity analysis, far too thin to keep them lending and solvent without government support.The failure to disclose leverage ratios in the pandemic sensitivity analysis is consistent with the Fed’s rulemaking in March to eliminate leverage requirements from their stress tests. Unfortunately, it is not the only step regulators have taken to marginalize leverage ratios. They have also allowed large banks to remove “safe assets” such as Treasury securities and reserve deposits from the supplemental leverage ratios calculation. But the relatively low requirements were calibrated based on the assumption that they would apply to all of a banks’ assets, including safe assets as well as risky exposures such as uncleared derivatives and leveraged loans. Removing safe assets without raising the required ratio will eventually lead to significant reductions in capital minimums, according to regulators’ estimates: $76 billion for banking organizations and more than $55 billion for their insured subsidiaries.Regulators have said this step was necessary to “support credit to households and businesses.” But this is hard to reconcile with their refusal to request suspension of bank dividend payments. (They did finally impose a modest cap, which will still permit most banks to continue paying dividends at their first quarter levels.) Retaining that capital would give banks the ability to expand support for the real economy without weakening their capital position. FDIC-insured banks paid $30 billion in dividends to their holding companies in the first quarter. If that $30 billion had stayed on banks’ balance sheets, it could have supported nearly a half trillion dollars in additional capacity to take new deposits and make loans.Moreover, we challenge whether this change will further its stated goal to increase Main Street lending. It will instead create incentives to reduce lending. A number of banks will most likely need to improve their capital ratios as a result of the Fed’s continued stress assessments. But to do so, they can simply cut back on loans, which have relatively high risk-based capital requirements, and shift into U.S. Treasuries, which now have no capital requirements. They will be able to boost their risk-based ratios without having to curb dividends or issue new equity.Regulators have said removing Treasury securities and reserve deposits from the leverage ratio calculation is temporary, but bank lobbyists are expected to seek legislation making it permanent as part of the next stimulus package. Banking advocates are also pushing regulators to finalize pending changes to the supplemental leverage ratios which would reduce required capital at the eight largest FDIC-insured banks by $121 billion, or 20% on average. If the banking lobby is successful, we fear there won’t be much left of meaningful leverage restrictions.Bank capital funding requirements are not unnecessary red tape as bank lobbyists try to portray them. They are essential to financial stability. Studies show that highly capitalized banks do a better job of lending than highly leveraged ones, especially during economic stress. The previous financial crisis demonstrated how unreliable risk-based ratios can be and the need to backstop them with overarching leverage constraints on large financial institutions. Greater reliance on simpler, transparent leverage ratios was central to regaining public trust in the solvency and resilience of the banking system. Their demise will force the public to rely on the Fed’s and big banks’ complex and nontransparent risk models. Bank capital levels will once again become an insiders’ game.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Sheila Bair was chair of the Federal Deposit Insurance Corp. from 2006 to 2011.Thomas Hoenig was vice chair of the Federal Deposit Insurance Corp. from 2012 to 2018.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 Opinion) -- It doesn’t take much imagination to see the Federal Reserve supporting the stock price of Apple Inc.The central bank’s Secondary Market Corporate Credit Facility recently released details about its “Broad Market Index,” which is a roadmap for which individual bonds it will buy for its portfolio after changing the rules to avoid forcing issuers to certify they’re in compliance with the Coronavirus Aid, Relief, and Economic Security Act. Just looking at the 13 companies with weightings of at least 1%,(2)which collectively make up almost one-fifth of the index, a few things stand out. First, there are six automobile companies, with subsidiaries of Japan’s Toyota Motor Corp. and Germany’s Volkswagen AG and Daimler AG as the three largest issuers overall. In fourth is AT&T Inc., the largest nonfinancial borrower due in no small part to its $85.4 billion takeover of Time Warner Inc. Then there’s Apple. As a reminder, it’s the largest U.S. company by market capitalization at $1.57 trillion, edging out Microsoft Corp. and Amazon.com Inc. Its shares have easily rebounded from the selloff caused by the coronavirus pandemic, rallying 24% so far in 2020. Yes, Apple has about $100 billion of debt outstanding, but it’s also known for having one of the largest cash piles in the world. It’s so big, in fact, that the company could repay all its obligations and still have roughly $83 billion left over.With so much cash, that naturally raises the question: Why does Apple take on debt in the first place?In each of Apple’s past three dollar-bond sales, in November 2017, September 2019 and May, the company said it would use proceeds at least in part to repurchase common stock and pay dividends under its program to return capital to shareholders. In total, the company has doled out more than $200 billion since the start of 2018. It’s easy to see why company leadership would see it as too cheap not to borrow. Apple has the second-highest investment-grade credit ratings from Moody’s Investors Service and S&P Global Ratings, allowing it to issue $2.5 billion of 30-year bonds in May that yielded just 2.72%. Its $2 billion of three-year debt, within the Fed’s maturity range, priced to yield less than 0.85%.Luca Maestri, Apple’s chief financial officer, said during the last quarter’s earnings call that the company has more than $90 billion in stock buyback authorization left, adding that it plans to continue the same capital allocation policy going forward.Obviously, cash is mostly fungible for large enterprises, and any number of American companies in recent years surely issued bonds for reasons other than buybacks and also repurchased shares. Goldman Sachs Group Inc. estimated some $700 billion of shares were acquired by U.S. companies in 2019, which would make them the biggest net buyer of equities.Still, Apple openly using debt sales to help finance share repurchases puts the Fed in a somewhat awkward position. Chair Jerome Powell has consistently framed questions about its secondary-market facility in the context of supporting the central bank’s full employment mandate. Workers are “the intended beneficiaries of all of our programs,” he said in a hearing last month. It’s possible Americans “are able to keep their jobs because companies can finance themselves.”And yet, the Fed’s secondary-market facility comes with no strings attached. In fact, as I noted last month, its maneuver to create Broad Market Index Bonds circumvented the CARES Act requirement that any company must have “significant operations in and a majority of its employees based in the United States.” Rather than focus on the American worker, the stated goal is to “support market liquidity for corporate debt,” and, by extension, keep borrowing costs down for creditworthy firms. So there’s every reason to expect that Apple can and will issue bonds again in the near future, at an even cheaper rate, to fund stock buybacks and dividends. That, in turn, would most likely support share prices.That shouldn’t sit well with many people. Even President Donald Trump, who has used the stock market as a barometer of his economic policies, has signaled a preference for capital projects over buybacks. On March 20, just before the S&P 500 Index fell to its lowest level of the Covid-19 selloff, he lamented that companies used the money saved from his 2017 tax cut to repurchase shares rather than build factories. He said at the time that he would support a prohibition on buybacks for companies that receive government aid.“When we did a big tax cut and when they took the money and did buybacks, that’s not building a hangar, that’s not buying aircraft, that’s not doing the kind of things that I want them to do,” Trump said. “We didn’t think we would have had to restrict it because we thought they would have known better. But they didn’t know better, in some cases.” The Fed’s strategy for buying corporate bonds is passive enough that few would equate it to receiving direct assistance from the federal government. The same can’t be said about the central bank’s Primary Market Corporate Credit Facility, which as of last week is open for business. Companies that want to place bonds directly with the Fed must certify that they have “not received specific support pursuant to the CARES Act or any subsequent federal legislation” and “satisfy the conflicts-of-interest requirements of section 4019 of the CARES Act.” As my Bloomberg Opinion colleague Matt Levine described in detail last week, there’s a huge amount of paperwork for issuers, and the Fed has the right to demand its money back if the forms are wrong and companies use funds for unapproved reasons.In all likelihood, these constraints will turn almost every company away from the Fed’s primary-market facility. Instead, finance officers will reap the benefits of the central bank’s broad secondary-market interventions to issue new debt to private investors at rock-bottom rates and with no such rules, as they have for the past three months. And Wall Streeters will be happy with business-as-usual in the credit markets.To put it plainly one more time: The Fed didn’t have to loosely interpret the law to create this index of corporate debt. It was already following through on its pledge to buy exchange-traded funds and had a system in place for companies to become eligible for individual purchases. It chose this third route, encouraging headlines like “Buying Corporate Bonds Is Almost Easy Money, Strategists Say.” What could go wrong?Now that it’s scooping up individual bonds issued for share buybacks without any stipulations, policy makers should be asked again why this program is the right way to go about supporting the recovery. The truth is likely that corporate America needs low-cost debt to survive. Apple and its shareholders are more than happy to tag along for the ride.(1) The Fed's facility has not yet purchased debt from all the companies in the index, at least according to its disclosure, which only covers the$429 million in bonds it bought on June 16 and 17. Its largest purchases were Comcast Corp., AbbVie Inc. and AT&T Inc.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.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) -- During a Grand Prix competition on an Azerbaijan track in June, Alexander Albon, a Formula One driver on the Red Bull Racing team, downshifted along a steep curve then accelerated into a straightaway. But something was wrong: His internet was lagging. “I can’t race like this,” he said to his engineer.Albon took off his headphones. The 24-year-old driver stood up from the black gaming chair in his house and tried to fix the glitchy internet connection that was hurting his time. Earlier this year, with the coronavirus pandemic spreading around the planet, Formula One canceled 10 races and moved the action online, launching an esports series called the Virtual Grand Prix. The pro drivers who chose to participate raced against each other on F1 2019, a popular video game made by the British publisher Codemasters, and streamed their gaming exploits live on Twitch, a video platform owned by Amazon.com Inc. More than half the F1 grid took part in the series. Beginning on Friday, July 3, the popular motorsport will return to the actual racetrack, kicking off its delayed 2020 season with the Austrian Grand Prix, the first of eight confirmed races. According to Frank Arthofer, F1’s global head of digital media and licensing, the 2019 season had the youngest grid in the sport’s history. This year’s roster will likewise feature several young drivers, such as Albon, who are as comfortable live-chatting with fans on Twitch as they are blazing down roads in Monte Carlo. All of which is by design. At a time of declining TV ratings, the virtual races are part of Formula One’s broader efforts to lure in a new generation of fans. “You’ve really seen the driver’s personality show through virtual racing,” said Arthofer. “That’s one of the really exciting elements of it. You get a feel for the characters behind the visor that you don’t get when they’re in Formula One cars necessarily.”When billionaire John Malone’s Liberty Media Corp. acquired F1 for $4.4 billion in 2017, the sport’s TV viewership was already in decline. According to Goldman Sachs, Formula One’s overall TV audience shrank by two-fifths between 2008 and 2017. Last year, total viewers decreased by a further 3.9%, according to a study by Statista researcher Christina Gough.To try to reverse the trend, Formula One is ramping up its outreach to fans on social-media networks and streaming services. Pivotal Research Group analyst Jeffrey Wlodarczak said that young, digitally savvy racers—such as Charles Leclerc, a 22-year-old driver for Scuderia Ferrari, who has 3.2 million followers on Instagram and 489,000 on Twitch—can attract new fans to the sport. Wlodarczak said the Netflix documentary series “Formula 1: Drive to Survive,” which gives viewers behind-the-scenes access to all 10 F1 teams, has also helped the sport connect with a younger audience. The online charm offensive appears to be gaining traction. Since March 16, the Virtual Grand Prix has generated some 94 million video views, including 22 million on live streams, according to F1. The sport’s overall social-media engagement is up 30% year over year. Back on the virtual roads of Azerbaijan, after fighting through the technical difficulties, Albon finished in second place. On Twitch, fans sprinkled the chat zone with green “GG” stickers. Translation: “good game.”Afterward, Albon jumped on Discord, an online platform popular with gamers, and spoke to George Russell, a 22-year-old British racer with team Williams, who would go on to win the entire Virtual Grand Prix. Last year, during his rookie season, Russell had finished in last place in the actual 2019 Formula One season.Now, he is the motorsport’s virtual champion. “I mean, I got more publicity from winning an esports race than I got from any single Formula One race last year by coming around at the back of the grid,” Russell later told Sky Sports F1. As the streaming session wound down, Albon proposed that he and the other drivers play another video game just for fun, even if had nothing to do with racing. But the virtual crowd wasn’t ready to give up the racetrack action just yet. Their suggestion: time for some Nintendo Mario Kart. For 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) -- Lemonade Inc., the online home insurance provider backed by SoftBank Group Corp., is set to raise $319 million in its U.S. initial public offering.The company will sell 11 million shares at $29 apiece, Lemonade said in a filing, confirming an earlier Bloomberg News report. It was marketing 11 million shares at $26 to $28 each after boosting the range from $23 to $26, according to filings with the U.S. Securities and Exchange Commission.At $29, Lemonade would have a market value of $1.6 billion, based on the number of shares outstanding listed on its IPO filings.SoftBank led a $300 million funding round in Lemonade last year, valuing the company at $2.1 billion at the time, Bloomberg News previously reported. SoftBank will own a 21.8% stake in the company upon the IPO, the filing shows. Sequoia Capital Israel and General Catalyst are also among backers.Lemonade has yet to turn profitable since its inception in 2015, it said in its prospectus. It reported a $36.5 million net loss in the three months ended March compared to a net loss of $21.6 million during the same period last year. Its sales have more than doubled in that period.The company allows customers to buy insurance policies on a mobile app after answering several questions. It also pledges to donate the leftover funds, after expenses, to a charity in order to discourage fraudulent claims.While the company is headquartered in New York, it has roots in Israel and it has 123 full-time employees there, its filing showed.Goldman Sachs Group Inc., Morgan Stanley, Allen & Co. and Barclays Plc are leading the offering. Citadel Securities is the designated market maker for the listing.Lemonade will list on the New York Stock Exchange Thursday under the symbol LMND.(Updates with details from statement in second paragraph)For 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.
The case related to the multibillion-dollar 1Malaysia Development Bhd (1MDB) scandal which involved Goldman (GS) might be resolved soon post-decision of pleading guilty by the bank.
(Bloomberg Opinion) -- A few weeks ago, the expectation was that the onset of the third quarter would mark the close of a highly damaging and uncertain second quarter for the U.S. economy and, importantly, herald a sharp and durable reversal. Instead, with health concerns forcing a growing number of states to either stop or reverse their reopenings, and with some businesses and households withdrawing from active economic re-engagements, a cloud is now forming over the third quarter, threatening the depth and breadth of the economic recovery.With an initial phase of seemingly healthy reopenings, and with government relief measures in full force, high-frequency indicators of economic well-being (household confidence, new jobs and retail sales) started improving in May or deteriorated at a slower rate (jobless claims). Such absolute and relative improvements were countering what was shaping up to be a brutal set of economic data for the second quarter as a whole, including the largest contraction in gross domestic product on record. But with a continuing uptick in economic data that repeatedly beat consensus expectations, the thinking was the hit to this year’s GDP could be contained to 5% to 8%, with the prospects of recovering the entire loss of output in 2021.Since then, however, confidence in improving high-frequency data has been dented by indications that the “R-naught” of Covid-19 — the average number of people who catch the virus from a single infected person — has increased above 1 once again in a majority of states. Even though hospitalizations and deaths have not surged at the same rate as the sharp increase in positive cases because of the much lower average age of the newly infected, there is little confidence that this will continue given the material risk of younger people, especially those who are asymptomatic, turning into super-spreaders — a concern accentuated by evidence that this group has shown little inclination to modify its behavior yet. Policy makers are reacting, including either halting or reversing economic reopenings in about 40 states, according to Goldman Sachs, but many health experts view the cumulative response by local, state and federal officials as too incremental and overly hesitant.Consistent with these developments, the highest-frequency indicators of household economic activity, such as mobility and restaurant bookings, have already flattened or started to head back down in a growing number of states. Some businesses, such as Apple, have decided to reclose stores in certain places. And this process has been accelerated in recent days with some states and cities closing bars and barring in-restaurant dining.Over the next few weeks, this will lead economists and Wall Street analysts to revise down growth projections for the third quarter and to push out the process of recovery. Both will be less consistent with a sharp and lasting V-shaped recovery and more likely will align with my previous characterization of a square-root-shaped recovery. And with certain relief measures scheduled to sunset soon, including the Paycheck Protection Program and the supplementary unemployment benefits, the U.S. economy would be exposed to a bigger risk of short-term problems becoming structurally embedded. This would include a significantly larger number of corporate bankruptcies and greater risk of long-term unemployment in which jobless workers run a high risk of becoming unemployable.Absent any policy and behavioral changes, the overall impact of these measures would most likely be an overall GDP contraction for 2020 in the 8% to 12% range, assuming no second round of infections in improving states such as New York. Moreover, the recovery of lost output would not be completed in 2021. And the uncertainty surrounding these predictions would notably increase, with the balance of risk tilted to the downside.Such a diminished outlook would worsen the already-concerning inequality trifecta of income, wealth and opportunity at a time of greater recognition and heightened sensitivity to long-standing social injustices. It would also undermine the type of synchronized global recovery in which external demand reinforces domestic economic improvements. It would increase the likelihood of more protectionism and faster deglobalization. And it would risk pulling down longer-term economic growth and prosperity.The answer is not to roll back health measures aimed at regaining control of what is a worrisome acceleration of infections. Rather, it is to ensure changes in behavior and policy that allow for healthier and sustainable economic reopenings during this tricky period of living with Covid-19.A necessary component of the answer is to combine policy relief measures with greater emphasis on steps to reduce the risk of infection and deal better with the ill, as well as to counter more quickly a post-virus world of low productivity and high household insecurity. But it is imperative the private sector joins in — whether through individuals and companies better adopting health safeguards or by working harder to protect the most vulnerable segments of the population.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Mohamed A. El-Erian is a Bloomberg Opinion columnist. He is the chief economic adviser at Allianz SE, the parent company of Pimco, where he served as CEO and co-CIO. He is president-elect of Queens' College, Cambridge, senior adviser at Gramercy and professor of practice at Wharton. His books include "The Only Game in Town" and "When Markets Collide." 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) -- Goldman Sachs Group Inc. is in the final stages of resolving its biggest legal threat in a decade after tussling with the government on one critical issue: a potential guilty plea for the first time in Goldman’s history.To avert such a penalty over its work for a Malaysian sovereign fund, Goldman has appealed to the Justice Department’s highest ranks. Attorney General William Barr began overseeing the case after obtaining a waiver because his former law firm represents Goldman. The department’s No. 2 official has also been directly involved.Now, a deal may be near. Prosecutors were emboldened to press Goldman for a guilty plea after a high-ranking Goldman banker pleaded guilty in 2018 and described a secretive corporate culture that sidelined compliance staff, people familiar with the case said. Since then, Goldman has pushed back on that narrative and elevated its case to the nation’s top law enforcement officers.Goldman’s defense is led by Karen Seymour. She was brought in two years ago as general counsel with a mandate to end the years-long U.S. criminal investigation over the billions of dollars Goldman raised for the Malaysia fund, known as 1MDB. Much of that money was allegedly siphoned by people connected to the country’s former prime minister.If Goldman escapes without a guilty plea, it will be a big victory for the bank. If not, Seymour may still be able to soften the blow by bartering over what details are included -- and not included -- in a statement of facts outlining Goldman’s conduct in Malaysia.Jake Siewert, a Goldman Sachs spokesman, wouldn’t comment on the status of the negotiations. “We are trying to resolve this matter as expeditiously as possible,” he said.John Marzulli, a spokesman for the U.S. attorney’s office in Brooklyn, New York, that’s handling the case, declined to comment.Abacus DealSeymour, 59, knows from her experience representing Goldman as an outside lawyer that an all-out battle could backfire. The bank tried that approach a decade ago after the Securities and Exchange Commission accused it of fraudulently marketing a mortgage investment known as Abacus that was secretly meant to fail.Whereas banks typically respond to new investigations with deference and promises to cooperate, Goldman pushed back hard against the SEC action, vowing to defend itself and describing the SEC’s allegations as “completely unfounded in law and fact.” Over several months, the legal exposure and bad publicity lopped almost 25% from the firm’s market value.At the time, Seymour was a partner at Sullivan & Cromwell, Goldman’s outside law firm, and was dispatched to clean up the mess generated by Goldman’s fighting words. Ultimately, she negotiated a pact with the SEC that included a hefty $550 million fine but no admission of wrongdoing.In the 1MDB case, the bank is awaiting word from Justice Department leaders about whether they agree with their prosecutors in Brooklyn that any deal must include a guilty plea by a subsidiary in Asia, according to a person familiar with the matter. (Prosecutors’ insistence on an admission of guilt was reported earlier by the New York Times and the Wall Street Journal.) A decision would clear the way for a settlement, the person said.Once the Justice Department renders its decision about a guilty plea, a resolution could follow quickly, including a penalty as high as $2 billion.Darkest DaysThe sprawling investigation into 1MDB, known formally as 1Malaysia Development Bhd., is the biggest threat to Goldman Sachs since the darkest days of the 2008 financial crisis.In September of that year, following the collapse of Lehman Brothers and the sale of Merrill Lynch to Bank of America Corp., the Federal Reserve allowed Goldman and Morgan Stanley to convert themselves into bank holding companies, giving them access to the Fed’s discount window and allaying concerns about their viability. The Abacus case grew out of the mortgage meltdown at the center of the crisis.In Malaysia, Goldman helped the government raise $6.5 billion for the 1MDB fund, collecting an unusually high $600 million in fees from bond sales in 2012 and 2013, according to court filings in the case. Prosecutors allege that roughly $2.7 billion of that money was diverted to 1MDB officials and their associates.Prosecutors have received help from Tim Leissner, a former Goldman banker who led the fund-raising for 1MDB. He pleaded guilty to conspiracy to bribe foreign government officials and money laundering. Goldman says Leissner was a rogue actor who deceived his superiors at the bank. Prosecutors appear to have taken a different view, that Leissner was acting in his capacity as an agent of the bank.S.D.N.Y. VeteranSeymour is probably best known for her work as a federal prosecutor in winning the 2004 conviction of Martha Stewart, who made false statements to prosecutors conducting an investigation of her stock trading.A Texas native, Seymour served as a federal prosecutor in Manhattan the 1990s before moving to Sullivan & Cromwell. She returned to the office, known as the Southern District of New York, in 2002 to serve as head of its criminal division under then-U.S. Attorney James Comey.Friends and former colleagues say Seymour’s biggest asset in her current role is her history negotiating with the government on behalf of global banks including Goldman and BNP Paribas SA.“She is the picture of credibility and integrity,” said Michael Schachter of Willkie, Farr & Gallagher, who was Seymour’s co-prosecutor in the Martha Stewart case. “When you are trying to represent a financial institution in a government negotiation, nothing is more important than making sure the government is able to trust what they’re hearing, and nobody inspires trust in their word like Karen Seymour.”With Seymour fully engaged in the 1MDB settlement negotiations, Goldman’s chief executive officer, David Solomon, bolstered the firm’s oversight functions in April, naming former Obama White House Counsel Kathryn Ruemmler as global head of regulatory affairs, overseeing the bank’s compliance department.The bank is separately negotiating a settlement with Malaysian authorities, who recently said they would reject offers of as much as $3 billion in contrast to the previous administration that had floated lower figures.MORE:U.S. Said to Discuss Goldman 1MDB Penalty Below $2 BillionGoldman Sachs Is in Talks for Asia Unit to Admit Guilt in 1MDBHow Malaysia’s 1MDB Scandal Shook the Financial WorldLeissner Was a Classic Goldman Power Player Before His FallFor 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.
JPMorgan Chase, Bank of America, Citigroup, Morgan Stanley, and Goldman Sachs all say they plan to maintain dividends in Q3, despite the Fed's restrictions.
(Bloomberg Opinion) -- China is attempting to create its own JPMorgan Chase & Co. The ambitions could prove hard to satisfy.Regulatory authorities may allow some of the largest commercial lenders into the brokerage industry to perform services that include investment banking, underwriting initial public offerings, retail brokering, and proprietary trading, local media outlet Caixin reported. With capital markets flailing and direct financing struggling to take hold as debt rises across the economy, what better way than to bring in its trillion-dollar whales to boost the financial sector?There is logic to this. Size matters, and the volumes could lead to success. China’s banks have more than $40 trillion in assets; the securities industry’s amount to around 3% of that. The largest lender, Industrial & Commercial Bank of China Ltd., had 32.1 trillion yuan ($4.5 trillion) in assets and 650 million retail customers as of March, according to Goldman Sachs Group Inc. The biggest broker, CITIC Securities Co., had 922 billion yuan and 8.7 million retail clients. Banks have thousands of branches with deeper distribution channels.But banks are the load-bearing pillars of China’s financial system. Regulators have asked lenders to show leniency with hard-up borrowers and to forego profits in the name of national service, in both tough and normal times. Granting brokerage licenses could help them create another channel of (small) profits.Banks stepping in where brokers have failed could help the broader capital markets. In theory, commercial lenders know how to deal with different types of risk, like with the ups and downs in the value of a security and market movements. They’re already big participants in bond markets and have access. Bringing banks into mainstream brokering could help reduce the intensity of risk associated with the trillions of dollars of credit being created in China every month. It may also help solve a persistent problem: the inefficient allocation of credit that has led to mispriced assets.All of this is contingent upon the banks pulling their weight. Going by past experiments, they haven’t brought the heft that Beijing had hoped. Consider China’s life insurance industry. It took bank-backed players in this sector a decade to build a foothold. Their market share grew to 9.2% last year from 2.5% in 2010. The brokerage arms of Chinese banks in Hong Kong have fared little better. Bank of China International Securities, set up in 2002 by Bank of China Ltd., remains a mid-size broker by assets and revenue, Goldman Sachs says. Top executives come from the bank; related-party transactions with the parent account for just about 14% for underwriting business and around 39% for income from asset management fees.Catapulting ICBC to the same stature as JPMorgan — a full service bank with a 200-year history — may take a while. The American financial giant has hired big, and opportunistically built out businesses. It bought and merged with firms like Banc One Corp. and Bear Stearns Cos. and is in consumer banking, prime brokerage and cash clearing. The services it offers run the gamut of credit cards, retail branches, investment banking, and asset management. Shareholders have mostly rewarded the efforts.For China’s biggest lenders, conflicting and competing priorities will make this challenging. They’re already being required to take on more balance sheet risk, lend to weak companies and roll over loans while maintaining capital buffers, keeping depositors happy and essentially martyring themselves. Now, they’ll be adding brokering at a time when traditional revenue sources are shrinking in that business. And it won’t happen overnight, or even in the next two years. As for brokers? Their stock prices dropped on the news that banks would be wading into their territory.Beijing’s efforts to shore up its capital markets may look OK on paper, but they’re increasingly muddled and interests aren’t aligned. As China attempts to make its financial sector more institutional and less fragmented while it’s also letting in foreign banks and brokers, allowing the big homegrown institutions to do more, with additional leeway, doesn’t necessarily make for a stronger system. As I’ve written, experiments like these can have unexpected results.Over time, it won’t be surprising to see China’s large brokers and banks start looking very similar; for instance, big securities firms becoming bank holding-type companies, as one investor suggested. That may be a laudable goal for Beijing, but is it realistic? And does it take into account the problems on the financing side, such as misallocation and transmission? Ultimately, none of this really gets at one big problem: unproductive credit.All the while, regulators are inviting in the likes of the actual JPMorgan Chase and Nomura Holdings Inc. and giving them bigger roles. China won’t be ready. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal. For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Not everyone in the market is buying hand over fist. Interactive Brokers founder and chairman Thomas Peterffy joins Yahoo Finance to discuss markets.
(Bloomberg) -- Billionaire Jack Ma’s newest chieftain is accelerating Alipay’s evolution into an online mall for everything from loans and travel services to food delivery, in a bid to claw back shoppers lost to Tencent Holdings Ltd.Ant Group Chief Executive Simon Hu is aggressively pitching digital payment and cloud offerings to the local arms of KFC Holding Co. and Marriott International Inc., expanding the firm’s focus from banks and fund managers on its ubiquitous app.The Alibaba Group Holding Ltd. affiliate’s strategy is two-pronged. It halts Tencent and food delivery giant Meituan Dianping’s run-away success in attracting local merchants to their platforms, eroding Ant’s dominance of China’s $29 trillion mobile payments space. It also diversifies Ant’s business into less-sensitive areas after the firm drew regulatory scrutiny for its blistering expansion in financial services with in-house products.“We want to help digitize the services industry,” said Hu in his first interview with foreign media since taking on the CEO role in December. “We’ve been pursuing the strategy to evolve Ant into a tech company, with an open-platform strategy for many years.”Hu wants users to think of Alipay not as a niche provider of financial services and the payments gateway for the world’s biggest e-commerce platform, but as the go-to app for a wide array of needs from groceries to wealth management, and hotel booking to loan applications. He aims to simultaneously peddle technology solutions like artificial intelligence, blockchain and risk control to the businesses that use the platform.His goal is for more than 80% of Ant’s revenue to come from local merchants and finance firms in five years, up from about half at the end of 2019. The contribution from proprietary services, such as Ant’s own money market fund and loans, would shrink as a result.“We want to share the technology and resources we’ve developed as an online financial platform with more companies in finance, local services, public services and other countries,” he said. The shift doesn’t hinder any initial public offering plans and the company is still open to listing, he said, declining to provide a time frame.To mark the transformation, Ant changed its registered name to Ant Group Co. from Ant Financial Services Group at the end of May. Alibaba owns a 33% stake in Ant.Unusual PositionThe focus on everyday consumer services puts Ant in the unusual position of underdog, despite its reach into the spending patterns of 900 million users. While Alipay still controls more than half of all mobile transactions in China, it’s been late to so-called mini programs, an innovation championed by Tencent three years ago.The lite apps have allowed the gaming and social media giant to host more than a million service providers in its WeChat environment, with 400 million users a day tapping in to rent bicycles, order food, pick cinema seats and even buy apartments through a single interface. Their popularity has swelled Tencent’s share of mobile payments and ad revenue.Hu’s most important task has been to fend off competition from players like Tencent. But companies like Meituan and live-streaming site Kuaishou have added to the challenge, encroaching on the greater Alibaba ecosystem, chipping away at e-commerce and payments.“Ant and Alibaba are battling companies traditionally not even operating in their fields of payments and e-commerce,” said Mark Tanner, founder of Shanghai-based research and marketing company China Skinny.Personalized ContentThe Alipay platform offers some natural advantages to make up lost ground, Hu said. Its interface lets users personalize and pin frequently-used services and the company plans to use algorithms to further customize Alipay’s landing page.Ant currently has about 600 million monthly users for its 2 million mini programs after two years. Hu didn’t provide a forecast for its expansion.For the first time, the app has elevated local neighborhood services to the same level as its finance vertical. Its moved services such as Ele.me and Fliggy, Alibaba’s food delivery and travel units, to Alipay’s front page. Alipay will also enhance the importance of its search function, so people can find the mini programs of local services more easily, Hu said.“Alipay is weaving the advantages of a super app with that of mini programs, users can have faster access to services via our platform compared with WeChat,” he said.Such efforts are showing results. Alipay’s share of mobile payments has increased for three consecutive quarters, rising to 55.1% in the fourth quarter, according research consultant iResearch. Tencent has 38.9% of the market.Hu, who joined Alibaba in 2005 after working at China’s second-largest lender China Construction Bank, has built a reputation for rolling out new innovations such as using data analytics to offer collateral-free financing services to small businesses and helping Alibaba beat Amazon.com Inc. to build Asia’s largest cloud business.His experience will help Ant target small companies in the consumer services sector looking to digitize, said Michael Norris, research and strategy manager at Shanghai-based consultancy AgencyChina.Hu must also navigate Ant through a coronavirus-induced economic downturn, which will test the resilience of the lending portfolio it has built in the past decade along with about 200 partner banks in China.Its Huabei, which means “just spend,” is on track to help banks issue 2 trillion yuan ($283 billion) of consumer loans by 2021, according to Goldman Sachs Group Inc. analysts. Online lender MYbank, where Ant is the largest shareholder, has helped banks issue 600 billion yuan of credit to 10 million small and medium businesses as of end May.So far, the company’s risk controls have held up, Hu said. The bad loan ratio for Huabei and MYbank rose to about 2% compared with about 1.5% before the virus outbreak, the company said. By comparison, Fitch Ratings estimates that the non-performing loan ratio for Chinese banks may rise 2 percentage points to 3.5% compared with the first half of last year.“We’ve seen a slight up-tick in non-performing loans among our SME and young credit borrowers after Covid,” said Hu, adding that he expects the bad loan ratio to drop to pre-Covid levels by March next year.Wealth ManagementAlongside easy loans, Ant is also keen to introduce the 600 million users of its money market fund platform Yu’e Bao to wealth management options.It will cross-sell products such as equity and bond-backed investments offered by banks as well as work with more foreign asset managers to provide advisory services, similar to a venture established with Vanguard Group. The robo adviser with Vanguard has attracted 100,000 people since its April launch.“An open platform strategy is what we’ve always pursued, so we will definitely work with more partners in the future,” Hu said.(Adds final three paragraphs on wealth management services)For 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) -- Wall Street banks will soon be able to boost investments in venture capital funds and pocket billions of dollars they’ve had to set aside to backstop derivatives trades as U.S. regulators continue their push to roll back post-crisis constraints.The Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. approved changes to the Volcker Rule Thursday that let banks increase their dealings with certain funds by providing more clarity on what’s allowed. The regulators also scrapped a requirement that lenders hold margin when trading derivatives with their affiliates.Read More: Wall Street’s Win Streak With Trump Regulators Dangles by ThreadThe revisions will complete what watchdogs appointed by President Donald Trump have referred to as Volcker 2.0 -- a softening of one of the most controversial regulations included in the 2010 Dodd-Frank Act. Last year, the Fed, FDIC, OCC and other agencies eased the better-known aspect of Volcker that restricts lenders from engaging in proprietary trading -- the practice of making market bets for themselves instead of on behalf of clients.Thursday’s separate reversal of the interaffiliate margin requirement for swaps trades could free up an estimated $40 billion for Wall Street banks, though regulators added a new threshold that limits the scale of margin that can be forgiven.The KBW Bank Index rose 3.4% Thursday, with Bank of America Corp. and JPMorgan Chase & Co. among the gainers.Key DetailsVolcker 2.0 allows banks to take stakes in venture-capital funds that were previously banned in an effort to provide “greater flexibility in sponsoring funds that provide loans to companies.” The change is mostly similar to what regulators proposed last year.The Volcker Rule changes were also approved by the Securities and Exchange Commission and Commodity Futures Trading Commission.The FDIC board passed the new rule in a 3-1 vote, with Chairman Jelena McWilliams saying the changes “should improve both compliance and supervision.” Democratic board member Martin Gruenberg opposed the move, saying it leaves Volcker “severely weakened” and “risks repeating the mistakes” of the 2008 financial crisis.Volcker 2.0 didn’t include all of the industry’s demands for relief. In a March comment letter, Goldman Sachs Group Inc. had urged regulators to eliminate certain Volcker interpretations that have “restricted our ability to invest in certain incubator companies that provide capital and ‘know-how’ to startup companies and entrepreneurs.” The agencies didn’t act on that request.In scrapping the requirement that banks post margin for trades between affiliates, regulators did add a new threshold to prevent banks from abusing the relief: If a firm operating under the old rule would have had to set aside initial margin exceeding more than 15% of its so-called “Tier 1” capital, then it still has to set aside margin that surpasses that amount. The demand, which is meant to boost the safety and soundness of the new approach, will force banks to continue calculating on a daily basis what their margin requirements would have been under the rule that’s been eliminated.The industry and regulators argued that requiring margin for interaffiliate transactions made it difficult banks to manage their risks. But critics say forcing banks to maintain an extra cushion against losses helped protect subsidiaries that are backed by the federal government, including through deposit insurance.The FDIC’s Gruenberg opposed the change to swaps rules, arguing that it removes a critical protection for banks. Fed Governor Lael Brainard reiterated that concern, saying in a statement that she dissented from the Fed’s approval because she fears the deregulatory move “could again leave banks exposed to the buildup of risky derivatives.”Read MoreWall Street’s Win Streak With Trump Regulators Dangles by ThreadTrump Regulators Hand Wall Street Banks a Big Win on Swaps Rule(Updates with index price in fifth paragraph.)For 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.
The Fed will bar big banks from increasing their dividend payments, following the central bank’s annual stress tests that included a “sensitivity” analysis incorporating the impact of the COVID-19 crisis.