|Bid||19.77 x 0|
|Ask||18.04 x 0|
|Day's range||19.50 - 19.80|
|52-week range||14.10 - 28.10|
|Beta (5Y monthly)||0.89|
|PE ratio (TTM)||13.59|
|Earnings date||29 Oct 2020|
|Forward dividend & yield||1.05 (5.31%)|
|Ex-dividend date||24 Aug 2020|
|1y target est||28.83|
(Bloomberg Opinion) -- If everyone across global financial markets is prepared for a “big bang,” will it truly be a big bang?That, in a nutshell, is what banks and other institutions exposed to interest-rate swaps on more than $80 trillion in notional debt are about to find out starting this weekend. The secured overnight financing rate, or SOFR, will suddenly replace the effective federal funds rate in valuing these derivatives in what’s seen as a big step forward to leading the financial system away from the London interbank offered rate benchmark that has dominated the lending world for about five decades.I’m not sure when Wall Street as a whole agreed to dub this transition the “big bang.” I found research from as far back as February from ANZ Research flagging the adoption of SOFR discounting this month as a “big bang for the benchmark rate reform process,” with further commentary from BMO Capital Markets in June and Barclays Plc in July. Regardless, the nickname makes the switch sound rather ominous. Just before Europe made the shift to its own new benchmark in July, a Bloomberg News headline said “Banks Scramble to Cut Derivatives Losses on Eve of Market Reset.” In hindsight, that switch had little market impact. There are many reasons to expect the same will happen this time around, starting with preparations made by clearinghouses that stand between the two sides of a swap. Bloomberg’s William Shaw, Liz Capo McCormick and Tasos Vossos reported that LCH Ltd. and CME Group Inc. aim to effectively neutralize changes in swap values by shifting any compensation from clients whose position values go up to those whose values decline.“For about six months our members and clients have been able to look on their screens and see a forecast for the compensating cash payments and compensating swaps they will receive, so they are familiar with what’s about to happen,” David Horner, head of risk at SwapClear, which is part of LCH, told Bloomberg. “It’s important for the market that it runs smoothly.”Bloomberg Intelligence analysts Ira Jersey and Angelo Manolatos attempted to put some hard numbers on exactly what might happen. They estimated in late August that for a $10 million notional 10-year swap with a coupon of 0.52%, the net present value would decline by about $400 simply because of the switch to SOFR discounting. In theory, that should be manageable for clearinghouses to adjust.If there’s one element that could cause chaos, it’s that clearinghouses are not just settling these losses with cash but are also distributing fed funds/SOFR basis swaps to compensate for swings in value — something that didn’t happen during Europe’s transition. Both CME and LCH are then holding auctions to allow clients to close those out.Again, as Horner said, banks have seen forecasts for both the cash and swaps they’ll be getting for months now. There shouldn’t be any major surprises. But if there are, here’s Shaw, McCormick and Vossos on what that might look like:Clients have agreed to a maximum loss, said Sunil Cutinho, president of CME Clearing, and “if their positions cannot be auctioned off then they are fully protected and they can use their own private means to dispose of their positions.”However, there are concerns about price swings in the market amid a surge in supply as some banks ditch basis swaps they received as compensation.The big question is how well the auctions go. Clearinghouses are not guaranteeing the minimum prices for the basis swaps, which could fall below the maximum that firms are prepared to tolerate, said Joshua Younger, a strategist at JPMorgan Chase & Co.“Many would then likely unwind them in the open market and the price action could get very disorderly,” he said.Maybe I have too much faith in markets and in arbitrage, but I have a hard time seeing how an event so telegraphed could lead to any serious long-lasting disaster. It stands to reason that there are hedge funds or other sophisticated investors out there who have calculated at what price they’d step in and purchase basis swaps if there truly is a glut and a need for some firms to get them off their books.In any event, even if there’s short-term volatility from the big bang, it will almost certainly be worth it, simply because of how much it moves the ball forward on the global shift from Libor, which is scheduled to happen at the end of 2021. When I wrote about SOFR soon after its introduction in 2018, it was a big deal that the World Bank issued $1 billion of two-year floating-rate notes tied to the new rate. Fast-forward to today, and more than $100 billion in notional volume of SOFR-linked swaps traded in September. Analysts fully credit the impending shift for this development, which they say will create a more liquid swap curve and make SOFR a more formidable alternative to Libor.In this context, the “big bang” isn’t so much a scary market-moving event as it is a necessary one-time jolt to get global markets ready for the reality of a post-Libor world, with a benchmark based on actual transactions rather than banks’ guesswork. SOFR has long been called the future for U.S. rate markets without nearly enough to show for it — a truly frightening proposition. In just a few days, the new benchmark may finally live up to the hype.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) -- As export orders started plummeting in March amid the coronavirus’s global spread, Chinese toothbrush maker Tommy Tu turned to the domestic market. With the help of Alibaba Group’s huge trove of data on what Chinese consumers are searching for, his factory shifted to making products that became local hits, like a battery-operated electric toothbrush for 9.9 yuan ($1.5).The strategy helped Tu recover most of the lost foreign sales and reduce his Jiangsu-based firm’s dependence on exports to 60% of revenue, down from 90% earlier.Spurred by the economic devastation unleashed by the pandemic, hundreds of thousands of Chinese factories like this -- some of which had exported almost everything they made -- are re-focusing on the domestic market of 1.4 billion people. They are turning to e-commerce giants like Alibaba, Pinduoduo Inc. and JD.com Inc. with deep pockets and years of observing consumer behavior, in what could be a long-term pivot.“We have to focus more on domestic sales,” said Tu, who doesn’t anticipate a “return to the old days” of robust overseas demand. “We have to move away from just blindly sticking labels on products to actively researching, designing and building our own brand.”Chinese factories are having trouble in overseas markets not just because of the global economic contraction caused by the pandemic. Political tensions are flaring between China and the U.S., Australia and Canada, while rising labor and material costs are propelling foreign clients to turn to more affordable exporters such as those in Southeast Asia.With China’s status as the factory to the world -- an economic model that powered its growth in the past two decades -- coming under pressure, President Xi Jinping is ambitiously seeking to boost domestic consumption in a revamp of the world’s second-largest economy.Though China’s exports demonstrated strength in feeding global demand recently-- rising 9.5% in dollar terms in August from a year earlier -- exports will be pressured in the long term as other nations increase output, according to Nomura Holdings Inc.“Amid the global weakness, domestic demand is where the market is,” said Raymond Yeung, chief greater China economist at ANZ Bank. “China has already become more of a domestically driven economy even before Covid-19.”Many exporters had already been seeking to expand domestic sales, and the pandemic accelerated that, said Wang Hai, a vice president at Alibaba overseeing consumer-to-manufacturer e-commerce. In just three months, Alibaba gathered more than 300,000 Chinese export factories to tap local demand directly.Alibaba’s app, Taobao Deals, is a business-to-consumer platform mainly for Chinese manufacturers that went online in March. By June, it had 40 million monthly active users, according to a company earnings call. Besides analyzing demand trends, Alibaba’s logistics arm Cainiao handles centralized shipping and customer services for the factories.Survival PivotStill, only about 10%-20% of Chinese exporters have taken action to extend their domestic reach, according to Bai Ming, deputy director of the Ministry of Commerce’s International Market Research Institute, based on a small survey. Challenges include switching standards, marketing unfamiliar brands amid local competition and the longer periods of credit payment allowed in China.Domestic demand is also not yet big enough to prop up China’s $2.5 trillion export sector which employs close to 200 million people. And without the premium commanded by global brand names attached to their goods, Chinese factories will be forced into a race to the bottom on price.“Most consumers will probably make their choices based on price or how the product functions are demonstrated, if there’s no brand identification,” said Jason Yu, managing director at Kantar Worldpanel Greater China. “So this won’t be a sustainable business model for most of those factories.”Bruce Zhu, manager of a high-end luggage manufacturer in Zhejiang province that focuses on exports, initially tried to crack the domestic market as the outlook for his sector has soured. However, the factory couldn’t withstand slashing its prices to compete with other local makers. “The domestic market is too fierce,” he said.For companies that can endure the price war, consumer data supplied by Alibaba and others help steer an adjustment to Chinese preferences. Informed by search data, a Zhejiang-based cushion maker pivoted to red, embroidered cushions, and started making a product that can be converted into a blanket.The revamp helped his firm’s sale hold steady amid a plunge in overseas orders, said Chief Executive Jin Zehua.Glass BottlesExperts say if China’s exports continue to demonstrate strength as seen in recent months, the inward push could help local makers become more diversified and resilient.“Turning to the domestic market adds one more option for Chinese exporters,” said Bai, the commerce ministry researcher. “In the future, exporters can sell to the market that’s most favorable, which reduces risks.”Some Chinese exporters are learning how to develop both inward and outward channels. In February, Alibaba contacted Guangdong Haoshun Odis Technology Co., an exporter of automobile cleansers and lubricants, to design an alcohol disinfectant after analyzing tens of millions of searches for such a product.Alibaba found that most alcohol disinfectants in China were sold in glass bottles, which were too fragile and dispensed too much liquid at a time. Haoshun Odis hence started making disinfectant spray in metal bottles, said director Qu Weihao.Sales have climbed 66% between January and July, Qu said, both from domestic demand and overseas markets like Japan. “Without big data, this could have been very difficult to achieve,” Qu said.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 Opinion) -- Pandemics shouldn't make small banks adventurous. Tell that to Japan's lenders.Shinsei Bank Ltd. is making its biggest overseas acquisition, buying a consumer-finance unit from Australia & New Zealand Banking Group Ltd. for the equivalent of about $480 million, according to a statement Tuesday from the Tokyo-based lender. Aozora Bank Ltd., also based in Tokyo, said in January it would purchase a 15% stake in Vietnam’s Orient Commercial Joint Stock Bank Ltd. for an undisclosed sum, its first foreign foray in more than a decade.Like the rest of Japan’s banking sector, the lenders are struggling with low interest rates and aging demographics that have depressed returns in their home market. It’s questionable whether seeking better growth opportunities overseas offers a path out of their troubles, though, especially when coronavirus lockdowns have devastated economies across the globe. Focusing on their domestic challenges may be a more sensible path.For Shinsei, there’s the added concern that it may be overpaying. The price Shinsei has agreed for UDC Finance Ltd., New Zealand’s largest non-bank lender, is more than the $461 million that HNA Group offered in 2017, before the country’s regulators rejected the bid because of the Chinese conglomerate’s opaque ownership structure. Before its debt-fueled buying spree attracted the ire of Beijing, HNA had acquired a reputation for paying over the odds.The UDC price equates to 1.2 times net tangible assets. Anything above 1 gives rise to goodwill, exposing Shinsei to the risk of writedowns if anything goes wrong. That’s a prospect that the lender, which itself trades at about 0.32 times forward book, can ill afford. Bad loan costs are set to surge for Japanese banks, and Shinsei estimates the acquisition will pare its capital adequacy ratio by 0.4 percentage point. At 10.8% post-deal, the ratio will be well below that of Japan’s biggest banks, according to Bloomberg Intelligence analyst Shin Tamura.Mitsubishi UFJ Financial Group Inc. booked a $1.9 billion one-time charge for the quarter ended Dec. 31 because of a drop in the share price of an Indonesian subsidiary. The megabank is far bigger than Shinsei and a savvier international investor.The ANZ unit purchase threatens to distract Shinsei from its strong consumer leasing franchise in Japan, where it’s one of the four big players alongside MUFG’s Acom, Sumitomo Mitsui Financial Group Inc.’s Promise, and Aiful Corp.Aozora’s strategy is open to similar objections. The bank plans to help Vietnam’s Orient Commercial with risk management and compliance systems based on international standards, and they will work together on digital banking and investment banking services, the Nikkei Asian Review reported in January. While the report valued the deal at only about $139 million, the investment will suck attention from its main business. Aozora has significant exposure to U.S. nonrecourse real estate lending, according to Michael Makdad, an analyst at Morningstar Inc. in Tokyo. Both Japanese banks have been reconstituted by overseas investors after earlier failures. Shinsei, formerly known as Long-term Credit Bank of Japan Ltd., was the first to be taken over by foreign private-equity firms when a consortium including Ripplewood Holdings LLC and J.C. Flowers & Co. bought the lender in 2000. Aozora was known as Nippon Credit Bank Ltd. before being taken over by Cerberus Partners LP.If the pair must do deals, perhaps they should consider reviving their merger that collapsed in 2010. At least that would keep their focus where it belongs. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Nisha Gopalan is a Bloomberg Opinion columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.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.