HSBC - HSBC Holdings plc
| Previous close | 30.13 |
| Open | 28.82 |
| Bid | 28.56 x 1800 |
| Ask | 28.91 x 1800 |
| Day's range | 28.56 - 29.50 |
| 52-week range | 26.83 - 44.93 |
| Volume | 6,997,786 |
| Avg. volume | 5,022,756 |
| Market cap | 117.696B |
| Beta (5Y monthly) | 0.64 |
| PE ratio (TTM) | 19.51 |
| EPS (TTM) | 1.48 |
| Earnings date | N/A |
| Forward dividend & yield | 2.55 (8.46%) |
| Ex-dividend date | 26 Feb 2020 |
| 1y target est | 34.60 |
- Financial Times
HSBC to delay ‘vast majority’ of redundancies
HSBC’s new chief executive has announced that the impact of the coronavirus outbreak has forced it to delay most of the redundancies related to an overhaul of the bank. In a memo to all staff on Thursday, seen by the Financial Times, Noel Quinn wrote that the bank had decided to “pause, for the time being, the vast majority of redundancies associated with this [restructuring] programme”. The move comes just a month after Mr Quinn — who last week was named permanent chief executive of the lender — unveiled what he described as one of the “deepest restructurings” in HSBC’s history, including 35,000 job losses over the next three years, many of them via redundancy.
- Bloomberg
The Dollar Crunch Is Europe’s Gift to Asia
(Bloomberg Opinion) -- Banks in Asia are suddenly shy to part with dollars. And who can blame them? Many of their corporate clients are borrowing the U.S. currency and depositing it with the same banks — just in case they can’t get the funding when they need it. The caution amid the coronavirus outbreak isn’t all that different from Amazon.com Inc. trying to discourage vendors from cornering toilet paper supplies. “Corporate banks are becoming a bit more discretionary about permitting draws on credit lines where hoarding cash is the sole objective,” according to Greenwich Associates consultant Gaurav Arora. The dollar squeeze is evident, as one of us wrote Monday, in the hefty premiums South Korean banks must fork out to borrow the U.S. currency — a reliable indicator of trouble in the past. It also appears that China’s banks may be less eager or able than before to fund the dollar needs of their corporate borrowers, Bloomberg Opinion’s Anjani Trivedi noted Wednesday.For Asia, the crunch is an unwanted gift from European lenders, whose departure from the region post-2008, as well as regulations that reined in Wall Street firms, have led to a funding hole. Japan’s banks have expanded and lenders like BNP Paribas SA have scaled up trade finance, but they’re yet to fill the void, especially as troubled Deutsche Bank AG shrinks. The German lender was in the top five corporate banks in Asia in 2014; last year, it wasn’t even in the top 10, according to Greenwich. Some countries like Korea have felt the loss more keenly than others. U.K. banks’ exposure to Korea has dwindled to $77 billion from $104 billion in the first quarter of 2008. German lenders’ claims have fallen to $13 billion from $36 billion.Japan’s lenders have taken up part of the slack. Driven by negative interest rates and aging demographics at home, they have dished out funds aggressively in Southeast Asia as well as to global deal-chasing clients like SoftBank Group Corp. The large U.S. operations of megabanks like Mitsubishi UFJ Financial Group Inc. also provide them with liquidity, as does their stack of fully convertible, cheap yen deposits. But some Japanese lenders have piled into off-balance sheet products, which suck liquidity in times of stress. Japan's Norinchukin Bank, a lender to farmers and fisherman, was one of the world’s largest buyers last year of collateralized loan obligations, bundled U.S. leveraged loans.When the Fed extended emergency swap lines to South Korea, Australia, Singapore and New Zealand last week to ease the worldwide dollar shortage, a step that our colleague Shuli Ren called for here, it was a sign that the liquidity problem was serious enough. Overall, the Fed gave temporary access to nine authorities in addition to the five that it has permanent arrangements with for making dollars available.(2) Emerging economies like India, Indonesia, Chile and Peru, though, have seen their requests for swap lines rebuffed in the past. The U.S. only helps those it sees as important to the stability of its own banking system.So what can Asia do? Start with the most extreme case. Australia needs U.S. dollar funding not just for foreign-currency loans but also for Australian dollar mortgages. That’s because the domestic deposit base is small, compared with the size of the banking industry. The average loan-to-deposit ratio of Macquarie Bank Ltd. and other major Australian lenders was 126% versus 68% for the top Asian banks, namely DBS Group Holdings Ltd., Mizuho Financial Group Inc., MUFG, Standard Chartered Plc, and HSBC Holdings Plc, according to banking analyst Daniel Tabbush, founder of Tabbush Report.Offshore funding sustains around one-third of major Australian banks' total worldwide operations. While the International Monetary Fund and others have flagged the reliance on foreigners as problematic, the Australian regulators have so far refrained from discouraging lenders to borrow abroad. Yet, the fact that the country had to seek dollars from the Fed during the epidemic upheaval and auction them to its banks will call into question the sagacity of this relaxed approach. In rest of Asia, one lesson from the dollar squeeze is to shun protectionism. Well-capitalized regional banks like Singapore’s DBS could supplement the three traditionally entrenched foreign lenders: HSBC, StanChart, and Citigroup Inc., a big cash management bank for Western multinationals. DBS could emerge as an Asian global bank, though in good times its expansion has been stymied by regulators playing to nationalist political sentiment, as we saw when it wasn’t allowed to buy Indonesia’s PT Bank Danamon in 2013.The next step may be to seek more intermediaries with scale. JPMorgan Chase & Co. is pumping top dollar into serving corporate treasuries as a safeguard against the fickle fortunes of investment banking. Japan’s lenders could also do more: MUFG is already one of the region’s most aggressive lenders and has the historical advantage of having a dollar clearing license, like HSBC. Unlike 2008, this isn’t a credit contagion yet, though that could change if large, messy financial bankruptcies were to erupt. But beyond the current crisis, the regulators must plan for the next squeeze. Since not everyone can rely on the Fed, the dollar supply chain is each country’s responsibility. At least until a credible alternative to the U.S. currency comes along. (1) The standing facilities are with the Bank of Japan, the Bank of England, the Bank of Canada, the Swiss National Bank and the European Central Bank.This column does not necessarily reflect the opinion of 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.Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.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 Governments Tout Virus Aid, Companies Struggle to Tap It
(Bloomberg) -- In Canada’s Yukon, Paul McDonagh owns a hotel, tavern and lounge in Dawson City, the town at the heart of a late 19th century gold rush. With the coronavirus keeping tourists away and locals told to stay at home, revenue is down more than 50% and his business is hanging by a thread.“I am expecting the whole summer is pretty much done,” said McDonagh, who employs 17 people, rising to about 23 during the main tourist season. “That’s going to kill me. I’ll have to close my doors.”It shouldn’t have to be that way. Governments and central banks globally have pledged a dizzying $3 trillion -- and counting -- to offset the economic hit from the Covid-19 pandemic, including targeted aid for small to medium sized enterprises in the form of loans, direct payments and help covering salaries.But in the rush to reassure, administrations have stumbled in the rollout of measures, leaving companies from catering to construction confused and increasingly anxious about accessing aid. There are questions about when money may arrive, in what form it may come, and how to sign up to receive it. Delays put many at risk of getting into serious difficulty or bankruptcy, dealing a further blow to a world economy hurtling toward recession, perhaps even a depression.Scotch WhiskyTake Canada, where the federal government announced a virus relief program for small firms on March 13, with loans of up to C$2 million ($1.4 million) available via the Business Development Bank of Canada. McDonagh contacted the BDC, but can’t get an answer on whether he qualifies due to uncertainty over the status of businesses that get most of their revenue from alcohol sales, as his does.The lack of business clarity over government aid is a global phenomenon.In South Korea, limits placed on emergency borrowing are seen as pitifully strict, while Germany’s trade and industry chamber has warned of an “unimaginable” wave of bankruptcies unless more help is given. In the U.K., the Scotch Whisky Association said on Monday that it was seeking “urgent assurances” from Prime Minister Boris Johnson’s government on aspects of its support package related to relief on business rates.Even in Singapore, where many businesses say they are broadly happy at the delivery of help, there are grumblings over promised rebates on rents that have failed to materialize.“There are still some gaping holes in the policy approaches,” Erik Nielsen, group chief economist at UniCredit, said in a note, even while lauding the arrival of “big government like we have never seen it before in peacetime.” Those inadequate responses could impact companies and the wider economy, he said, especially in Italy, a virus epicenter.Italian BuildersGabriele Buia, chairman of Italian builders association Ance and a fourth generation builder from Parma, said his industry has always been overwhelmed by bureaucracy, but in the last few weeks there has been extra disarray.Most builders were unable to guarantee safety for their workers so stopped all activity awaiting government instructions. The government granted permission to keep operating for those working on public infrastructure only, without taking sufficient account of the impact of closure of suppliers, “creating disorientation.” Buia too is seeking clarification.Speed of delivery is another common complaint. One business owner in the U.K. has had no money coming in for a month and needs to meet payroll in April, but from what he has heard government money won’t be available until the end of next month.German restaurant chain Vapiano SE, with roughly 3,800 employees, began insolvency proceedings on Friday after it was forced to close its doors and revenue came to a halt. The company said it wasn’t able to access a special business loan facility for companies, and urged the government to hasten other measures.In the U.S., clothing stores and other small businesses that are the engine of the economy are in trouble, and while state help is coming, it’s too slow and insufficient for many.Stay-Home Decrees Crush Small Business, Erasing Millions of JobsJacqui Ma and Jack Wilson work 6,000 miles (9,660 km) apart, but they share confusion over accessing government aid to help them through the turmoil.Double WhammyLondon-based Ma, the founder of Goodordering, a designer of bags and cycling accessories, was hit by a twin supply and demand crisis as factory shutdowns in China left her with stock shortages and her sales declined 70%. She contacted her bank about a government-backed loan of £10,000 ($11,800) to cover her manufacturing and warehouse bills, but was unable to tap any funds. Her bank manager advised her to hold off for a week and see if further U.K. aid is announced.Help “is kind of fictional unless there’s a relatively easy way to access it,” she said.In Hong Kong, Wilson launched a sales consultancy business in February after more than 20 years working in financial services. He says the territory isn’t being proactive about engaging with business to offer help.“I would definitely like more support from the government and I don’t feel I am getting it,” he said.Hong Kong’s government used its recent budget to target support to smaller businesses through low-interest loans to a ceiling of HK$2 million ($258,000), and extended subsidies on electricity, water and sewage bills.Communication BlitzNot every small business in the finance hub is feeling that support. “The chat among fellow start ups is they are just not hearing about the application of that,” said Wilson.Still, governments are responding to unprecedented events in real time, and increasing the scope of help available as gaps become clear.Chancellor Angela Merkel’s government on Monday unveiled a 750 billion-euro ($813 billion) package to ameliorate the impact on the German economy, including a 50 billion-euro liquidity fund for self-employed workers. In contrast, U.K. Chancellor of the Exchequer Rishi Sunak played down the prospect of immediate help for the self-employed, saying on Tuesday that a targeted solution will take time to put in place.In France, meanwhile, President Emmanuel Macron’s government has eased the process of getting tax deferrals and made state support for loans available online. It has also sought to improve communication, with the budget minister taking questions from businesses in a live chat on Twitter, alongside a radio and TV blitz.In China’s eastern province of Zhejiang, where the private sector contributes 65% to economic output, a state system of local “grid management” has ensured that companies are contacted to inform them of government support. A Zhejiang-based packaging manufacturer was able to secure a 10 million yuan loan ($1.4 million) for one year at a rate lower than the benchmark, according to the company’s chairwoman.Unwilling to LendBut not everyone is so lucky. There are complaints that banks have been assigned loan targets and worry about the risks of lending money to smaller businesses. A Beijing-based owner of a toy rental and subscription service said the company has consulted several commercial banks but was told it is not possible to get loans based on credit records.In South Korea, which has been lauded for its handling of the virus outbreak, government measures targeting aid for businesses are woefully insufficient, according to Olive Lee, financial manager at Shinsung J&T Co. Ltd, a textile manufacturing company based in Seoul and with offices in China and New York. “None of them are helpful,” she said.Others are enduring endless paperwork or a deafening silence from those supposed to be in the know.“There’s no information anywhere,” said Mike Jessop, the co-founder of Moo Free Chocolates, a 40-employee firm in Devon, southwest England, which supplies products to major supermarkets like Tesco Plc. With revenues plunging, Jessop said his firm needs a £100,000 loan to keep it afloat for the next 3 months to cover costs like rent and wages, but it’s had no joy so far. “We’ve checked all the government websites,” he said. “Nobody can tell us how to access this money.”James Hart, director of IT support firm Purple Computing in the English city of Bristol, spent 7 hours queuing on the phone to apply for a business interruption loan with HSBC Holdings Plc, before eventually giving up.“I’ll be dreaming of the hold music tonight,” he 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
The Dollar Squeeze Is Coming for China Inc.
(Bloomberg Opinion) -- Pummeled by the coronavirus, China Inc. now faces another disruption: a global shortage of dollars. Chinese companies are looking at $120 billion of debt repayments this year on their U.S. dollar denominated debt. Real estate developers and industrial companies make up three-quarters of the outstanding $233 billion of junk-rated bonds. There’s another $563 billion of higher-rated debt. The question isn’t just whether they’ll be able to pay their debt. It’s worth wondering how they can access the needed dollars — and at what cost.Globally convulsing markets have put a strain on U.S. dollar funding. In China, signs of tightness in dollar liquidity are emerging, based on 3-month interbank overnight rates and other indicators. Banks are trying to beef up dollar cash positions. Meanwhile, yields on big chunks of Chinese debt have shot to over 15% as investors unload, increasing the cost of borrowing and refinancing. Hedge funds and other asset managers that bought up junk-rated Chinese dollar debt are unwinding those positions. In times like these, investors aren’t discriminating. The pain will persist: Credit markets don’t reprice risk as quickly as equity markets.Debtors need dollars now. These companies have typically resorted to raising more debt to refinance the old. They won’t be able to continue like this. Not only has it gotten prohibitively expensive, it’s hard to find buyers at this point. Take real estate developers. They make up around 60% of the outstanding bonds and primarily rely on onshore yuan revenue from advanced payments and deposits on purchases. With sales down sharply, that cash is waning and swapping it to dollars costs more. Further, regulations restrict raising debt for refinancing. This month, developers have around $4 billion coming due, with smaller repayments until November, when $6.7 billion must be repaid. That comes as companies across emerging markets are staring at $19 trillion in maturities of dollar and local currency loans and bonds over the course of 2020.Even with the People’s Bank of China willing to provide various lifelines, private enterprises’ funding costs remain elevated. Raising more debt in domestic capital markets to repay dollar obligations isn't easy or cheap. Onshore, state-backed borrowers are pushing out smaller ones and flooding the new issuance space.Defaults have been ticking up as Beijing goes into forbearance mode. Estimates from the Institute of International Finance suggest that companies with majority state ownership comprise over 35% of non-financial firms’ debt in China. Add in those with any government backing, and it’s more than 80%. Will Beijing step in for all? Unlikely, but it’s still on the hook for a significant chunk. While onshore investors are agreeing to extend payment terms and to exchange debt for equity, holders of foreign bonds are unlikely to be so forgiving.Tapping Chinese banks for funds isn’t straightforward. They don’t have dollars to hand out en masse. Of the $788 billion of total foreign currency deposits held by financial institutions, $377 billion are corporate deposits. That’s down from a peak two years ago. Banks have more than $800 billion of foreign currency loans on their books. Along with the lending for China’s Belt and Road Initiative, the virus-induced economic shock and rising bad debts mean banks will have to be selective. Investors usually find comfort in the PBOC’s war chest of $3.1 trillion in foreign exchange reserves. Sure, it could — and will — step in to ease the dollar-funding pressure on banks. But the moment the lender of last resort starts tapping reserves, sentiment will be hit, and then it's a question of resilience.In addition, these reserves are held in U.S. Treasuries, agency bonds and the like. Only about $18 billion, or 0.5%, are in cash deposits, mostly at commercial banks, according to HSBC Holdings Plc analysts. Selling those as the broader credit market tanks would only drive more market jitters. Unlike many central banks, China’s doesn’t have a swap line with the U.S. Federal Reserve. So how far will the central bank go?There are other pressure points. The dollar shortage will hit trade credit, crucial for China Inc.’s exports and underlying businesses. In periods of dollar strength and shortage, this leads to outflows as overseas financing to buy Chinese goods dries up. As Rhodium Group’s Logan Wright says, “In the 2008 crisis, this was very severe as trade-credit liabilities were paid down and credit lines were cut.” This time, he says, a dollar shortage in this type of credit would probably lead to “a sharper-than-expected decline in China’s exports” over the next few months. At some point, the credit risk becomes entrenched in balance sheets and coming back is hard. The longer these dislocations last, the worse they get. This 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
Global Banks Get Stressed Like Never Before
(Bloomberg Opinion) -- Banks are thankfully in much better shape to face the coronavirus pandemic than they were before the financial crisis. But as the economic challenge they face grows, regulatory measures to help them that looked overly forgiving just a few weeks ago may prove to be just the start.In 2008-2009, the financial sector’s woes dragged down the real economy. Now it is the other way round. Supervisors are looking to financial institutions to be part of the solution to a real-world shock. Lenders on the whole are far better capitalized and their balance sheets included a good portion of easy-to-sell assets going into 2020.As forecasts for the severity of the economic downturn are worsening, so are the prospects of banks coming through the crisis intact. Expectations for a sharp “V-shaped” recovery are fading amid the realization that social distancing – and economic activity – will lead to a slump that could last several quarters. There is no visibility as to when or how quickly economic activity will resume.Deutsche Bank AG analysts forecast an annualized GDP contraction of 24% in the euro area and 13% in the U.S. in the second quarter. At this rate, the decline would be more than one and a half times greater than the financial crisis.Even with considerably more equity than a decade ago, banks remain inherently levered institutions. Borrowings of banks from JPMorgan Chase & Co. to Deutsche Bank AG to HSBC Holdings Plc exceed their capital by more than 15 times. Stress tests show the biggest lenders have sufficient capital, but it’s debatable whether these assessments capture the magnitude of the downturn ahead. Nor do they model the implications of the synchronized shutdown that is paralyzing large, interconnected economies.In the U.S. stress tests last year, banks’ resilience was measured against a real GDP decline of 8% from the pre-recession peak and a surge in the CBOE Volatility Index, or VIX, to 70. The index, often referred to as the fear gauge, soared past 80 this week for the first time since 2008.The Institute of International Finance estimates that at $75 trillion non-financial corporate debt is worth around 93% of global gross domestic product, up from about 75% of GDP before the financial crisis, with some of the highest burdens in sectors with weak earnings, such as small and medium-sized companies.Analysts at Goldman Sachs Group Inc. estimate that if credit lines across travel, commodities and energy get fully drawn, the liquid assets held by the top U.S. banks to cover draw-downs would come close to regulatory minimums. Executives from UBS Group AG, Credit Suisse Group AG and Deutsche Bank told a virtual conference this week they’re seeing clients drawing on credit lines, regardless of whether the cash is needed now.To be sure, central banks and governments have raced to ramp up their stimulus and are taking steps to ensure credit keeps flowing to the economy. From cutting interest rates, to resurrecting a commercial paper backstop, in a matter of days the U.S. Federal Reserve has gone through the financial crisis catalog of fixes.Even against that backdrop, banking supervisors rightly see the need to be accommodating with lenders. Post-crisis measures, some of which were designed to be eased in times of economic slowdown, are being rolled back. Banks will be allowed to let capital ratios fall - an inevitable function of assets going bad - and in Europe stress tests have been postponed.Regulators in Europe are also reportedly considering giving banks more time to set aside provisions for loans that will undoubtedly sour.At first, such measures looked like potentially detrimental regulatory forbearance. Perhaps not now. Deutsche Bank warned on Friday it may be “materially adversely affected” by a protracted downturn. As the economic impact of radical steps to curb the coronavirus worsens, the challenge will be to keep the banking sector part of the solution rather than part of the problem.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Elisa Martinuzzi is a Bloomberg Opinion columnist covering finance. She is a former managing editor for European finance at Bloomberg News.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
Virus Crisis Makes Big Deal of M&A Small Print
(Bloomberg Opinion) -- The virus-induced fall in global stocks has suddenly called one of Europe’s biggest tech deals of 2019 into question.An 80% decline in AMS AG’s share price since February is undermining efforts to fund the final slice of its 4 billion-euro ($4.4 billion) takeover of German lighting group Osram Licht AG. It’s testing a seldom invoked deal-making provision buried in the small print.AMS, which makes laser components for the iPhone’s facial recognition system, is midway through an effort to sell 1.7 billion euros of new shares in a rights offer to pay for Osram. It will be tough to fund the whole deal ultimately with debt. When the terms of the share sale were announced a week ago, the price of the new stock was set at 9.20 Swiss francs.That was a 64% discount to the then share price, which had long been anticipating the fundraising. Coronavirus was no secret at the time and markets were already falling, and these wide terms seemed to acknowledge as much.Since then, however, AMS shares have continued their downward trajectory, and were trading below 9 francs on Wednesday. Investors are now being asked to buy AMS shares above the market price to clinch a risky takeover in challenging times. It’s hard to see them being keen. No wonder Osram shareholders are getting worried AMS will not fulfill its bid – the German firm’s shares have also fallen sharply.Normally, AMS would be able to count on the banks underwriting the share offer – HSBC Holdings Plc. and UBS Group AG – to buy any stock not taken by investors. The snag is that the underwriting agreement includes a so-called material adverse change clause, which allows the banks to walk away in the case of any “calamity or crisis or development involving a prospective change in national or international financial, political or economic conditions in any country”.The markets see that as a get-out. The virus could detrimentally affect demand for the smartphones for which AMS supplies components, and the automotive industry – Munich-based Osram’s key end market.It’s a highly uncertain situation. In a worst-case scenario the banks could be left holding roughly 70% of AMS, although they are likely to have passed on some of their commitment to hedge funds. Getting a controlling stake might even necessitate a mandatory takeover bid. The incentives for the banks to try wriggling off the hook are high.AMS can still fund the deal in the short term because it has bridge financing. But it will have to repay those loans before long. It’s not clear if AMS shareholders wouldn’t mind letting the deal fall apart. What’s not in doubt is that Osram and its shareholders would be furious if that happened, and would almost certainly chase AMS in the courts – there doesn’t seem to be a material adverse change clause in the actual takeover offer. Still, the bidder might prefer a legal battle to turning to the debt markets to pay for the transaction at considerably more cost.The takeover battle itself was a drawn-out, messy affair. Its closing risks becoming messier still.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.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
HSBC Falls Into a Safe Pair of Hands at Last
(Bloomberg Opinion) -- Noel Quinn’s appointment as chief executive officer of HSBC Holdings Plc was all but inevitable. Europe’s biggest bank did itself no favors by taking seven months to make the decision. It’s good that it has acted at last: No lender the size of HSBC should be comfortable heading into a financial crisis with a caretaker CEO.HSBC approached at least three outsiders for the CEO role after ousting John Flint in August, leaving Quinn in charge on an interim basis. Citigroup Inc. veterans Stephen Bird and James Forese, and Unicredit SpA’s Jean Pierre Mustier all ruled themselves out of contention. Flint was axed after only 18 months in the role, having failed to satisfy Chairman Mark Tucker that he was doing enough to revive growth at the London-based and Asia-focused bank.The frustrated CEO search led to the bizarre situation of having an interim chief present the bank’s most radical overhaul in years, a plan that includes as many as 35,000 job cuts and a $100 billion reduction in gross assets. No outsider would be scrambling to lead the bank after such big decisions had already been taken, leaving Quinn the likely pick, as I wrote at the time. Exactly one month later, HSBC has come to the same conclusion.As a 33-year veteran of HSBC, Quinn represents continuity and stability. Both are welcome. The landscape looks vastly different than when Tucker became the first outsider to helm the bank on on Oct 1, 2018. Former CEO Stuart Gulliver, Flint’s predecessor, had already started the tough work of trimming of one of the world’s most bloated banks. HSBC had cut tens of thousands of jobs, exited at least 80 businesses, and was back in analysts’ good books. Interest rates were rising in Hong Kong, its single largest market, as the U.S. Federal Reserve moved to normalize policy.Two-and-a-half years later, the coronavirus pandemic is making a mockery of forecasts of how the world would look. Interest rates are back at zero, credit markets are tightening and dollar funding is freezing up in an uncomfortable echo of the 2008 credit crisis. The Fed already began cutting borrowing cuts late last year as the U.S. economy weakened, hitting net interest margins of banks across the world.If the financial turmoil unleashed by the virus proves as severe as the crisis of 12 years ago, then experience will be at a premium. Quinn has the advantage of having been with HSBC through that period. Tucker’s banking experience, by contrast, is limited to a couple of years at HBOS Plc in the early 2000s, a non-executive role at the Bank of England and a period on the board of Goldman Sachs Group Inc.With the global economy heading into recession, no bank will be left unscathed. HSBC said last month it could see an additional $600 million losses if the virus outbreak extends to the second half of the year. It is at least in a stronger position to ride out the crunch than many banks. HSBC is liquid, with plenty of deposits, especially in its Hong Kong. Its mortgage loan book in Hong Kong looks secure, with the city’s real estate market having proved resilient so far. And its size and geographic spread ensure access to dollar funding.Amid these challenging conditions, Quinn’s appointment has come in less than ideal fashion, with his extended probation making clear that the board harbored doubts about his suitability. The next few months will be a test of his safe hands. He won’t be the only HSBC leader to be tested. After such a clumsy search for its next CEO, investors may feel that Tucker deserves scrutiny, too. This column does not necessarily reflect the opinion of 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.
- Financial Times
HSBC will be forced to delay radical restructuring if crisis deepens
HSBC will be forced to delay a plan to slash 35,000 jobs and drastically shrink its balance sheet in Europe and the US if the global coronavirus outbreak morphs into a long-term crisis. HSBC is one of several lenders that is partway through a major restructuring that could be derailed by the coronavirus emergency. Deutsche Bank is also in the throes of a downsizing that will involve shedding 18,000 jobs and selling or winding down hundreds of billions worth of unwanted assets.
- Financial Times
HSBC appoints Noel Quinn permanent chief executive
HSBC has appointed Noel Quinn as its permanent chief executive, drawing a line under a seven-month search to find a new leader for Europe’s largest bank. after just 18 months in the role because he had lost the confidence of the board of directors and chairman Mark Tucker. Mr Quinn, 57, is a company “lifer” who joined the lender in 1987 via a subsidiary of Midland Bank, which was subsequently taken over by HSBC.
- Business Wire
HSBC Bank USA, N.A. and Affiliates Lower Prime and Reference Rate
HSBC Bank USA lowers prime rate to 3.25%
- Bloomberg
China Adds Cash to Banking System, Keeps Interest Rate Unchanged
(Bloomberg) -- China’s central bank added to its growing list of measures aimed at countering the economic fallout from the spreading virus, injecting $14.3 billion into the financial system.The People’s Bank of China offered 100 billion yuan via the one-year medium-term lending facility, keeping the rate unchanged at 3.15%. There were no loans coming due Monday. The central bank refrained from injecting liquidity with short-term reverse repurchase agreements for a 20th straight day.The move follows the PBOC’s widely-expected announcement late Friday that it will trim the amount of cash some lenders must hold in reserve. The cut, which is also effective from Monday, will free up about 550 billion yuan of liquidity in the financial system.“Some investors are disappointed that the PBOC didn’t cut the interest rate,” said Xing Zhaopeng, a market economist at Australia and New Zealand Banking Group in Shanghai. “It could be taken as a signal from the authorities that they will not lower borrowing costs anytime soon. Beijing will only cut rates when more people are back to work, which may be after mid-April.”China’s 10-year government bond futures erased an earlier gain of as much as 0.32% to trade little changed after the PBOC move. The yield on sovereign notes due in a decade dropped 2 basis points to 2.67%, paring a decline of as much as 4 basis points.Policymakers around the world are taking steps to shore up confidence in financial markets, which are undergoing a sell-off in many ways unseen seen since the global financial crisis in 2008. In the U.S., the Federal Reserve slashed its main rate to zero on Sunday, matching a record low it was last at in 2015. Central banks in Asia and Europe have also stepped up measures in a bid to keep markets functioning and economies growing.The Chinese economy is under pressure from the fatal virus which forced a shutdown of many of its major cities -- data Monday showed economic activity contracted more than expected in the first two months of 2020. Measures deployed since early February had initially helped stabilize the country’s markets. But with the coronavirus outbreak spreading across continents, China has less control should it derail global growth.To contact the reporter on this story: Tian Chen in Hong Kong at tchen259@bloomberg.netTo contact the editor responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.netFor 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
EM Review: Flight From Risk Due to Virus Recalled Panic of 2008
(Bloomberg) -- Emerging-market stocks fell the most since the financial crisis last week amid concern the coronavirus epidemic will derail global growth, and that central banks and governments aren’t doing enough to contain it. Currencies from oil exporting countries such as Russia and Colombia tumbled after crude prices crashed.The following is a roundup of emerging-market news and highlights for the week ending March 13:Highlights:Oil dropped the most in almost 30 years after Saudi Arabia and Russia vowed to pump more in a battle for market share, just as the coronavirus spurs the first decline in demand since 2009Crash in crude prices prompts China’s government to consider buying more for state reserves, according to people with knowledge of the matterU.S. President Donald Trump declared a national emergency Friday over the coronavirus outbreak, opening the door to more federal aid for states and municipalities; the government will waive interest on student loans owed to federal agencies until further noticePresident had already said the U.S. would significantly restrict travel from Europe to the U.S. for the next 30 daysTrump said he would seek a payroll tax cut and very substantial relief for industries that have been hit by the virusTreasury Secretary Steven Mnuchin said he doesn’t expect the coronavirus to tip the U.S. economy into recession, even though growth will slowThe outbreak is now a pandemic, the World Health Organization said, urging governments to step up containment effortsGovernments of Italy, U.K. and Australia joined the ranks of those introducing stimulus measures to counter economic damage from the coronavirusFederal Reserve offered a huge injection of liquidity to the Treasury market Thursday to counter signs of dysfunction as investors panic over the coronavirusFed promised a cumulative total above $5 trillion, in a sign officials will do whatever it takes to keep short-term financing rates from spikingCentral banks from Australia to Canada joined the Fed in pumping cash into stressed markets, seeking to calm panicking companies and stem a surge in short-term financing ratesThe People’s Bank of China cut the amount of cash that banks have to set aside as reserves, releasing 550 billion yuan ($79 billion) of liquidityA Chinese foreign ministry official sent a tweet saying the U.S. army may have had a role in spreading the coronavirus, highlighting growing tensions between the world’s biggest economies as both governments seek to deflect blame for the outbreakNorth Korea fired what appeared to be three short-range ballistic missiles off its eastern coast, raising regional security concerns as world leaders battle the spread of the coronavirusAsia:Circuit breakers triggered trading halts from Bangkok to Manila and Jakarta as Asia’s developing markets struggled to cope with an exodus of foreign capitalChinese President Xi Jinping visited the coronavirus epicenter of Wuhan for the first time since the disease emerged, a trip intended to project confidence that his government has managed to stem its spreadChina’s economy is beginning to revive as the government signals progress in battling the coronavirus. The economy was likely running at 70% to 80% capacity last week, according to a Bloomberg Economics report, while China International Capital Corp. estimated it was at about 76% as of March 8The U.S. is willing to show China some flexibility on its pledges to boost American imports as long as Beijing ensures exports don’t surge when production returns to full strength and widen the trade imbalance between the two economies, people familiar with the discussions saidChina’s inflation slowed as the coronavirus hammered demand, with a measure of price gains that strips out food and energy prices slumping to the lowest in a decadeChina will inject 12.1 billion yuan ($1.73 billion) of capital into Bank of Jinzhou Co., adding to a rescue of the lender last year as authorities take steps to shield the nation’s banking system from the coronavirusIndia’s central bank pledged to use its record $481 billion foreign-currency arsenal to stem a market rout that’s threatening growth in an already-slowing economyIndia’s current-account deficit shrank to the narrowest in 14 quarters, helped by a diminishing trade gap and higher earnings from services exports and remittancesIndia’s inflation rate dropped in February as food prices eased, a sign of a turnaround just as oil costs plummetIndia once again finds itself defending the stability of its financial system after the biggest bank failure in its historyBank of Korea is considering an emergency board meeting and will take steps to stem excessive foreign-exchange movements as markets around the world slump on fears over the coronavirusSouth Korea will carry out more measures to stabilize financial markets if needed, on top of strengthened rules on stock short-selling, Vice Finance Minister Kim Yongbeom saysIndonesia announced details of a second emergency stimulus plan, including tax breaks for companies and manufacturers, in a bid to bolster the economy from the coronavirus crisisIndonesia’s central bank is stepping up efforts to shield the economy after a plunge in oil prices sent a new shockwave through markets already pressured by the coronavirusThe nation’s budget deficit is set to widen to as much as 2.5% of GDP as the outlook for the economy deteriorates due to the coronavirus and the crash in oil priceIndonesian state companies plan to spend 10 trillion rupiah ($675 million) to buy back shares after concerns over the economic impact of the coronavirus and a crash in oil prices sent local stocks into a bear marketThe country’s stock exchange will halt trading for 30 minutes if the Jakarta Composite Index falls more than 5% and another half hour if it drops over 10%, according to new rules effective March 11Global funds have pulled more than $2.8 billion from Indonesian bonds this year, a record outflow that has sent policy makers into high alert for further volatilityMalaysia’s prime minister picked the head of one the country’s main banks as his new finance minister amid heightened global risks and domestic policy uncertaintyMalaysia has appointed Azam Baki to lead its anti-graft agency after the previous chief stepped down following a change of governmentMalaysia will review a stimulus package unveiled by the previous government to see whether there’s more to be added, Prime Minister Muhyiddin Yassin saidThailand’s government approved a package of stimulus measures that it said will inject about 400 billion baht ($12.6 billion) into the economy to counter the impact of the coronavirus outbreakThai government has suspended a plan to hand out 2,000 baht each to millions of people for now, Prime Minister Prayuth Chan-Ocha saidPhilippine President Rodrigo Duterte said he’s placing the capital region on a lockdown for a month to help contain the coronavirus outbreak after declaring a state of public health emergency on MondayDuterte will be tested for coronavirus and key economic officials -- including the central bank governor and finance minister -- are going into quarantine as infections risePhilippines is watching for opportunities to offer $1 billion to $1.5 billion in dollar-denominated debt and up to $1 billion in Samurai bonds as overseas yields fall due to the coronavirus outbreak, Treasurer Rosalia de Leon saysPhilippines expects the budget deficit to breach this year’s ceiling and remittance growth to slow because of the coronavirus outbreak, officials sayBangko Sentral ng Pilipinas has a menu of options available to support financial markets, Deputy Governor Francis Dakila saysTaiwan’s central bank disclosed its outstanding position in foreign-exchange swap trading, a rare move aimed at answering calls for improved transparencyCentral bank’s outstanding position in foreign-exchange swap trading was $99.1 billion at the end of FebruaryTaiwan’s government plans to spend an additional NT$40 billion ($1.3 billion) to support the economy amid the coronavirus outbreakEMEA:South Africa’s rand plummeted as investors fled riskier assets, but demand at the country’s weekly government bond auction hit a record, with local yields at levels where investors were comfortable enough to return to the marketSouth Africa’s indebted power utility Eskom Holdings SOC Ltd. won a High Court ruling against the energy regulator, which had blocked the company from recovering some costs it says it incurred during the 2019 financial yearBusiness sentiment plunged to the lowest level in more than two decades in the first quarter and could weaken even further as the coronavirus hits the domestic and global economyNigeria’s fiscal and monetary authorities will announce measures in coming days to deal with the economic fallout from the coronavirusPoland’s government shut schools for two weeks as part of a campaign to contain the spread of the coronavirus. The central bank predicted a “soft landing” for the economy as falling oil prices sent financial markets plummeting amid growing fears over the outbreakSerbia followed the lead of central banks in the U.S. and the U.K. with an emergency interest-rate cut to offset the economic impact of the coronavirusLebanon was waiting to see if foreign bondholders will agree to negotiate new terms on more than $30 billion of debt as the government attempts to contain the country’s worst financial meltdown amid tightening liquidityLebanon will present what it considers a conclusive economic and financial plan to the International Monetary Fund as it prepares for talks with creditors after announcing it would freeze a Eurobond payment, Finance Minister Ghazi Wazni saidLebanon was downgraded to selective default by S&P Global Ratings, days after the government set the stage for the nation’s first-ever missed payment on international bondsBattle for control of the global oil market intensified as Saudi Arabia promised to increase production capacity and the United Arab Emirates said it plans to pump as much as possible next monthSaudi Arabia plans to boost oil output next month to above 10 million barrels a day as it responds to the collapse of its OPEC+ alliance with RussiaShares in Saudi Aramco dropped below their IPO level for the first time as the looming price war in global crude markets battered the outlook for the kingdom’s flagship oil companyThe company said Sunday it was slashing planned spending this year, as it announced its 2019 results Iran urged the U.S. to ease sanctions hindering imports of medicines and food it needs to fight a major outbreak of the coronavirusGovernment of Kuwait declared the period of March 12-26 a holiday in an effort to limit exposure to the coronavirus outbreakFirst slowing in Egyptian inflation since October may not spur further interest-rate cuts as authorities brace for the potential impact of the coronavirus outbreak on capital outflows and tourism incomeLatin America:Brazil’s markets plunged, with stocks triggering a circuit breaker four times in a week and the currency sinking past 5 per dollar to a record, as local political woes added to a coronavirus-fueled global sell-offCongress overturned a Presidential veto on some welfare benefits, a decision that will expand government expenses by 217 billion reais ($45 billion) in 10 years, about 20% of the savings created by last year’s pension reformBrazil’s swap rates surged and trade was temporarily halted; investors closed bets on an additional rate cut in March 18, which was fully priced inCentral bank intervened in the spot and foreign-exchange swap auctionsPolicy makers are preparing measures to support an economy that’s “basically stalled” as coronavirus disrupts activity, Economy Minister Paulo Guedes saidBrazil’s inflation rose 0.25% in January, more than analysts predicted, largely driven by seasonal factors; industrial output rose more in January than economists forecast as capital goods production bounced backPresident Jair Bolsonaro tested negative for coronavirus, giving his inner circle and allies some relief after a close aide was diagnosed with the illnessMexico’s central bank announced a $2 billion foreign-exchange hedge auction as the currency slid to a recordBanxico had expanded the upper limit of its foreign-exchange hedge program earlier in the weekPemex bond yields and credit default swaps jumped as oil prices slumped; the company needs “substantial” support from Mexico, Moody’s saidMexico’s finance minister said the country’s oil income is completely covered by its sovereign oil hedgeInflation accelerated more than economists expected to the fastest since JulyMexico is planning to grant loans to commercial sectors that could be hit hardest by the coronavirusArgentina said it intends to restructure as much as $68.8 billion in bonds issued under foreign law, a formal step in negotiations with creditors; it’s the first time President Alberto Fernandez’s government has explicitly stated the nominal value of debt held by foreign bondholders it plans to restructureLatin American bankers from HSBC Holdings Plc, Citigroup Inc. and Bank of America Corp. will lead the restructuring of more than $76 billion of debt owed by Argentina and the province of Buenos AiresCreditors and government officials are eying a $1.4 billion payment due on May 7 as a more urgent date to hammer out a dealFitch Ratings said it may lower Chile’s credit rating because of slowing growth and higher government spendingEcuador’s bonds plunged to around 40 cents after the government announced plans to slash spending and delay payments on bilateral debt amid an economic crisisPeru’s central bank kept borrowing costs unchanged in the face of global market turmoil, giving priority to stabilizing the currency, while standing ready to add stimulus laterCentral bank is evaluating the magnitude of the crisis triggered by the coronavirus outbreak before deciding on economic stimulus, said bank’s chief economist, Adrian Armas.\--With assistance from Philip Sanders and Paul Wallace.To contact Bloomberg News staff for this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net;Colleen Goko in Johannesburg at cgoko2@bloomberg.net;Aline Oyamada in Sao Paulo at aoyamada3@bloomberg.netTo contact the editors responsible for this story: Tomoko Yamazaki at tyamazaki@bloomberg.net, Nicholas ReynoldsFor 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.
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Europe Widens Virus Lockdown, Moves to Limit Economic Damage
(Bloomberg) -- Europeans faced increasingly draconian restrictions on public life, as governments tightened border controls to check the spread of the coronavirus and moved to limit damage to the continent’s fragile economies.With Europe now the epicenter of the outbreak, countries in the Schengen free-travel zone were considering restricting access to foreigners and asking residents to refrain from leaving, effectively sealing external frontiers, three officials familiar with the matter said. France may intensify its national lockdown, Finance Minister Bruno Le Maire said in a television interview.Italy was weighing new measures for Europe’s hardest-hit nation, including increased spending for its stricken health-care sector, aid to airlines and postponing some tax deadlines. France is considering additional spending of as much as 40 billion euros ($44 billion) to counter the economic impact, Les Echos reported.Germany will partially close its borders with France, Switzerland, Austria, Luxemburg and Denmark on Monday, though goods and commuter traffic will still be allowed to flow, Interior Minister Horst Seehofer told reporters.While one focus is checking the spread of the disease and limiting the strain placed on medical facilities, another is addressing the impact on economies. The European Central Bank unveiled a series of monetary measures Thursday that failed to pacify investors concerned that the euro area is heading for recession.Markets recovered Friday as Germany pledged to spend whatever it takes to protect its economy and the European Commission said it’s ready to green light widespread fiscal stimulus.Still, HSBC Holdings Plc economists are among those declaring that a euro-area recession looks unavoidable. Italy and France were already contracting before the health emergency, while Germany had stalled.For the broader European Union, the European Commission last week said there could be a 1% contraction this year, which would be more severe than the downturn experienced during the sovereign debt crisis a decade ago.Earlier on Sunday, Austria banned gatherings of more than five people and said it will close restaurants from Tuesday. France announced cuts in domestic air, rail and bus links, a day after closing restaurants, cafes and non-essential stores.That’s after Italy and Spain went into lockdown. Many other governments have followed suit or are poised to.“The next weeks will be challenging, difficult and painful,” Austrian Chancellor Sebastian Kurz told an emergency session of parliament. “We’re hoping that we, our society and our economy will be resurrected after Easter, and our life can go on as we love and cherish it.”Irish BarsIreland’s government asked pubs to close for at least two weeks after footage of bars filled with drinkers in defiance of guidelines appeared on social media. Industry groups say it proved impossible to police social distancing guidelines. The government also pleaded with citizens not to replace pub visits with house parties.The Dutch government, falling in line with restrictions in much of the rest of Europe, ordered schools, gyms, restaurants and bars closed for three weeks. At Amsterdam’s “coffee shops,” known more for selling joints than java, lines stretched around the block when it was announced they’d have to close.In other developments:\- Deaths in Italy from the new coronavirus rose to 1,809, an increase of 368 from Saturday, officials said in Rome. Authorities are attempting to halt an exodus of people from lockdown in the north to second residences or toward their families in the south, La Repubblica reported.\- A 75-year-old man became Hungary’s first fatality from the virus.\- Spain’s confirmed cases jumped by 2,000 to 7,753 on Sunday and the death toll more than doubled to 288 from 136.\- Lithuanian Prime Minister Saulius Skvernelis pledged to announce a financial aid package of “no less” than 1 billion euros ($1.1 billion) on Monday.\- Estonia will bar everyone except for residents and their family members from entering the country from Tuesday.\- Latvia will close borders, airports and ports to non-residents on Tuesday and ban all official events, with unofficial events capped at 50 people.\- The Swiss government may provide additional economic support on top of its $10 billion Covid-19 aid package if the crisis worsens.\- Slovenia suspended public transport from Sunday and the government is expected to close all bars and restaurants.\- Poland has implemented full border controls and international flights are suspended. Cafes, bars, restaurants and shopping malls are closed.\- The Czech government may place the entire nation into quarantine, Prime Minister Andrej Babis said.\- Bulgaria will use its state-owned development bank to provide liquidity to businesses, Finance Minister Vladislav Goranov said in Sofia.\- Greece closed its land borders with Albania and North Macedonia and stopped flights and sea arrivals from the two nations.\- Cyprus announced measures worth 700 million euros, or 3% of its gross domestic product, to support companies and workers.(Updates with measures by Germany, France, Ireland and the Netherlands. A previous version corrected day of Estonia border closing.)\--With assistance from Zoe Schneeweiss, Boris Groendahl, Simon Kennedy, Milda Seputyte, Joao Lima, Jan Bratanic, Marek Strzelecki, Peter Laca, Jerrold Colten, Macarena Munoz, Stephan Kahl, Aaron Eglitis, Zoltan Simon, Ott Ummelas, Slav Okov, Georgios Georgiou, Bryce Baschuk, Sotiris Nikas, Dara Doyle, David Rocks, Joost Akkermans, Geraldine Amiel and Hailey Waller.To contact the reporters on this story: Nikos Chrysoloras in Brussels at nchrysoloras@bloomberg.net;Viktoria Dendrinou in Brussels at vdendrinou@bloomberg.net;Alberto Brambilla in Milan at abrambilla5@bloomberg.netTo contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net, Iain Rogers, Andrew DavisFor 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.
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European Stocks Cling to Gains as Trump Plans Emergency Measures
(Bloomberg) -- European equities all but gave up gains on Friday after a report that U.S. President Donald Trump plans to declare a national emergency over the virus outbreak overshadowed optimism on policy responses in Europe.The Stoxx 600 Index ended the session with up 1.4%, after earlier rallying as much as 8.8% as Germany pledged to spend “billions” to help cushion the blow from the pandemic. Trump plans to declare a national emergency, invoking an act that will open the door to more federal aid for states and municipalities, people familiar with the matter said, before a scheduled news conference at 3 p.m. in Washington.The Italian FTSE MIB Index was an outperformer, though it more than halved earlier gains. Germany’s DAX Index was up 0.8% after briefly erasing gains that reached 9% at one point. Travel and leisure stocks were the biggest decliners, down 2.4%, on worries over the impact of restrictions on freedom of movement on businesses.“Until volatility starts coming down, we recommend investors maintain a cautious stance,” Alastair Pinder, a global equity strategist at HSBC Securities, said by phone. “We remain cautious on Europe and despite the sell-off, it’s not the right time to be going into buying European equities.”European stocks plummeted the most on record on Thursday, after a U.S. travel ban and an underwhelming European Central Bank response did little to calm investors seeking a strong, coordinated effort to deal with the pandemic’s impact on global growth.Indications from Germany that it will abandon its long-standing balanced-budget policy if necessary appeared to help sentiment earlier today, while a European Union executive said the bloc is ready to trigger a crisis clause allowing fiscal stimulus.Among notable movers, Roche Holding AG advanced after the Swiss drugmaker won approval from the U.S. government for a highly automated coronavirus test.\--With assistance from Kit Rees, Michael Msika and Ksenia Galouchko.To contact the reporters on this story: Namitha Jagadeesh in London at njagadeesh@bloomberg.net;Jan-Patrick Barnert in Frankfurt at jbarnert3@bloomberg.netTo contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, Jon MenonFor 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.
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HSBC Sounded Out Ex-Citigroup Banker Forese for CEO Position
(Bloomberg) -- HSBC Holdings Plc sounded out former Citigroup Inc. banker James Forese to gauge his interest in the chief executive officer’s post, at least the third high-profile outside financier to be approached.Forese, 57, declined to participate in that process for personal reasons, according to people familiar with the matter. Instead, he took on a non-executive director role at HSBC, the bank said Tuesday.Candidates whose names have surfaced to run Europe’s biggest bank by market value include UniCredit SpA’s Jean Pierre Mustier and former Citigroup executive Stephen Bird. Mustier last month withdrew from the process, and the Sunday Times has reported Bird took himself out of the running.HSBC declined to comment.HSBC has been seeking a permanent chief since August, when Chairman Mark Tucker ousted John Flint after just 18 months on the job. Interim head Noel Quinn, once seen as the front-runner, last month unveiled a strategic overhaul that will eliminate 35,000 jobs and drop some lines of business.Forese, who started his Wall Street career with Salomon Brothers in 1985, became head of Citigroup’s trading operations in 2007 as the financial crisis loomed. He helped the firm recover from the crash and repay a $45 billion taxpayer bailout. During his tenure, however, the bank was also embroiled in allegations that it rigged interest rates and currency markets across the globe and misled investors about the quality of mortgage-backed bonds.He continued to climb the ranks at Citigroup, and analysts speculated he might succeed CEO Michael Corbat. Forese’s final role before his departure last year was head of the institutional clients group, a sprawling division that includes trading, investment banking and private banking, along with one of the world’s biggest transaction-services businesses. ICG generated about $39 billion of revenue in 2019, more than half the bank’s total.His appointment to the HSBC board was well-received internally, one of the people said.To contact the reporters on this story: Ambereen Choudhury in London at achoudhury@bloomberg.net;Donal Griffin in London at dgriffin10@bloomberg.net;Harry Wilson in London at hwilson57@bloomberg.netTo contact the editors responsible for this story: Sree Vidya Bhaktavatsalam at sbhaktavatsa@bloomberg.net, James Hertling, Daniel TaubFor 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.
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If Muddy Waters Is Shocked, You've Really Been Bad
(Bloomberg Opinion) -- In an incendiary report dispatched from California shortly before Christmas, Carson Block’s Muddy Waters Capital LLC wrote that the debt reported by FTSE 100-listed healthcare company NMC Health Plc was “manipulated and understated.”On Tuesday evening the company’s shareholders, banks and bond holders discovered the mind-boggling extent of those alleged debt shenanigans. Instead of the $2.1 billion of debt reported by the United Arab Emirates’ hospital operator last June, the company really has closer to $5 billion of borrowings, its advisers believe.This is by no means the only ghastly disclosure that NMC has made in recent weeks but it’s by far the most damaging. Apparently some of the money has been used for “non-group purposes,” which explains why instead of swimming in cash, the company seems to have all but run out of it.NMC’s update confirmed it had met its payroll obligations in February. That this wasn’t self-evident speaks volumes about its precarious financial condition. As recently as last June the company reported $500 million of cash on its now discredited balance sheet.Needless to say, this is a shockingly bad time for a private hospital operator to suffer a gigantic financial scandal that calls into question its survival. Like most countries, the UAE has registered scores of coronavirus infections.While it seems likely that the UAE will find the funds from somewhere to bail out NMC and keep its clinics operating, any lingering hopes that NMC shareholders will recoup some value from a takeover look all but shot. The shares are suspended pending full clarification of NMC’s true financial position. NMC’s $360 million, 1.875%-coupon bonds maturing in 2025 are trading at just 22 cents on the dollar — bond-market parlance for “will someone please get me out of here.” The scale of possible financial misstatements at NMC make recent British corporate scandals such as the one affecting cake shop owner Patisserie Valerie Holdings Ltd look almost quaint. But while the sums are several orders of magnitude larger, similar questions must be asked once again: Why were non-executive directors oblivious, what were the auditors (in this case Ernst & Young) doing and how about the banks?NMC worked with Standard Chartered Plc, HSBC Holdings Plc, JPMorgan Cazenove and Barclays Plc to arrange financing, as well as local banks. The company’s massively misleading disclosures are as devastating for them as they are for the reputation of London’s capital markets.Doubtless, those involved will offer up various shades of “how could we have known?” But it was no secret that NMC’s corporate governance was shoddy, and that related party transactions involving the company’s controlling shareholders were extensive. Last year, NMC’s board appointed a special committee to oversee such transactions. Somehow it failed to spot the $2.7 billion in additional debt that NMC appears to be on the hook for. Even the preternaturally skeptical Block seems surprised by the extent of NMC’s debt omissions. If Muddy Waters is shocked, imagine how minority shareholders feel. To contact the author of this story: Chris Bryant at cbryant32@bloomberg.netTo contact the editor responsible for this story: James Boxell at jboxell@bloomberg.netThis column does not necessarily reflect the opinion of Bloomberg LP and its owners.Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.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.
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ECB’s Lagarde Warns of 2008-Style Crisis Unless Europe Acts
(Bloomberg) -- European Central Bank President Christine Lagarde said Europe risks a major economic shock echoing the global financial crisis unless leaders act urgently on the coronavirus outbreak, and signaled that her institution will take steps as soon as Thursday.Lagarde told European Union leaders on a conference call late on Tuesday that without coordinated action Europe “will see a scenario that will remind many of us of the 2008 Great Financial Crisis,” according to a person familiar with her comments. With the right response, the shock will likely prove temporary, she added.Lagarde said her officials are looking at all their tools for Thursday’s policy decision, particularly measures to provide “super-cheap” funding and ensure liquidity and credit don’t dry up, said the person, who declined to be identified because the call was private.Still, she stressed that central-bank measures can only work if governments throw their weight behind them too, with steps to ensure banks keep lending to businesses in affected areas, said the person. An ECB spokesman declined to comment.Lagarde spoke hours before the Bank of England became the latest central bank to take emergency action. It announced a 50 basis point interest-rate cut early Wednesday, combined with measures to help keep credit flowing, and said it still has more policy space to act if needed.BOE Governor Mark Carney echoed Lagarde’s view that a proper response would help prevent a global recession. “There is no reason for this shock to turn into the experience of 2008, a virtual lost decade in a number of economies, if we handle it well,” he said.ECB OptionsEconomists see the ECB’s options as including a version of an existing program that offers long-term loans to banks at potentially negative interest rates -- meaning it actually pays banks to borrow money -- if they lend the cash onto companies and households. That could be used to encourage lending to small and medium-sized enterprises should they see cash flows dry up as the virus disrupts supply chains, travel and spending.What Bloomberg’s Economists Say“Lots of firms in the euro area are already feeling the pinch from the spread of the coronavirus, but the smaller ones may need the most support [...] To play its part, the European Central Bank will probably throw them a lifeline this week, helping to avoid the widespread bankruptcies and layoffs that could threaten price stability once the virus outbreak has passed.”\-- David Powell. Read the ECB INSIGHTThe ECB could also step up its asset-purchase program, perhaps skewing it more toward buying corporate debt to much companies’ financing costs lower.Investors expect a rate cut, though possibly as little as 10 basis points because the key rate already is at a record-low minus 0.5%.The U.S. Federal Reserve and Bank of Canada made 50 basis point reductions last week, shortly after Group of Seven Finance chiefs pledged to use “all appropriate policy tools” to protect their economies.Lagarde’s message serves as both a dire warning and a dramatic plea for authorities to step up efforts to prevent the virus dragging Europe into a recession. Even before the outbreak, ECB officials had repeatedly called for governments to raise public spending as monetary policy reaches its limits.HSBC economist Simon Wells said that “given this disruption, we believe a euro-zone recession looks unavoidable.”Italy, where a national lockdown has been imposed, has been hardest hit so far by the spread of the virus, and is facing a crippling slump. On the same call with Lagarde, Italian Prime Minister Giuseppe Conte appealed to EU leaders to show the same determination and solidarity that they showed during Europe’s debt crisis.On Wednesday, Italian Finance Minister Roberto Gualtieri said the government raised the amount it plans to spend to cushion the blow to the economy to 25 billion euros ($28.3 billion.)Lagarde warned that the damage will likely spread to other countries. She praised actions taken so far in some areas, but demanded more, the person said. Failure to act boldly now would raise the risk of “the collapse of part of your economies,” Lagarde told leaders.(Updates with BOE from seventh paragraph)To contact the reporter on this story: Fergal O'Brien in Zurich at fobrien@bloomberg.netTo contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net, ;Flavia Krause-Jackson at fjackson@bloomberg.net, Paul GordonFor 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.
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Argentina Hires HSBC, BofA Veterans for $76 Billion Debt Talks
(Bloomberg) -- Three experienced Latin American bankers from HSBC Holdings Plc, Citigroup Inc. and Bank of America Corp. will lead the restructuring of more than $76 billion of debt owed to global investors by Argentina and the province of Buenos Aires.Gerardo Mato, chairman of global banking in the Americas for HSBC, is leading the team that is helping the federal government restructure $68.8 billion of sovereign debt, according to people familiar with the matter. HSBC’s team will also include Andres Nicastro, they said.Nicolas Bendersky, a managing director at Citigroup, is overseeing the group working on behalf of Buenos Aires, Argentina’s largest province, to restructure at least $7 billion, the people said.Sebastian Loketek, regional head of investment banking at Bank of America, is working on both deals together with a team of about eight people that the U.S. lender has deployed in part to help coordinate the negotiation strategy between the national government and the province, according to the people familiar. The Bank of America team will also have Maxim Volkov and Matthew Radley.Representatives for HSBC, Cititgroup and Bank of America as well as the Argentine Economy Ministry declined to comment.Argentina, which has defaulted eight times in its two centuries of independence, struck a record $56 billion credit line with the International Monetary Fund in 2018 and is trying to again reduce its foreign-debt obligations as the economy heads for its third straight year of contraction in 2020.Both Bank of America and HSBC will work as market agents in the debt talks together with Lazard Ltd., the appointed financial adviser for the sovereign deal.The three Wall Street giants, which won the advisory mandates over competing firms including JPMorgan Chase & Co. and Itau Unibanco Holding SA, will likely rely mainly on local bankers in the physical talks and teleconferencing beyond that as the spread of the coronavirus is making travel from the U.S. and Europe difficult, the people said.Bank of America helped restructure Argentina’s debt in 2005, while Citigroup handled the negotiations on behalf of the province of Buenos Aires the same year.To contact the reporter on this story: Pablo Gonzalez in in São Paulo at pgonzalez49@bloomberg.netTo contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, Boris KorbyFor 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
Blackstone Spies a Gem Amid the Virus Rubble
(Bloomberg Opinion) -- The world’s biggest private equity fund is making its boldest bet on China. Blackstone Group Inc.’s planned $4 billion offer for Hong Kong-listed property company Soho China Ltd. is cheap enough to ensure that the deal is a winner, even amid an economy that’s been ravaged by attempts to contain the coronavirus.Blackstone is bidding HK$6 per share to take the owner of office buildings in Beijing and Shanghai private, according to a Reuters report Tuesday. That’s more than double the stock’s HK$2.98 closing price Monday. Soho China shares surged 38% after the report, before being halted from trading at the company’s request pending an announcement under the takeovers code. Its HK$21.3 billion ($2.74 billion) market capitalization on suspension is still a third below Blackstone’s offer.At first glance, the price appears rich for a developer that has passed its glory days. Founded in the 1990s by husband-and-wife team Pan Shiyi and wife Zhang Xin, the company switched strategy in 2012 from developing and selling projects to becoming an office landlord focused on recurrent income streams. The stock has never regained its pre-global financial crisis high of HK$11.92, reached shortly after listing in 2007, and has traded on average at less than a quarter of that level over the past year.There’s value in its assets, though. Even after Tuesday’s surge, Soho China is trading at only 0.54 times forward book value — far lower than when it began its shift to a build-and-hold model eight years ago. Prestige developments include the Bund SOHO in Shanghai’s city center and the futuristic Wangjing SOHO in Beijing, designed by Zaha Hadid, the first woman to receive the Pritzker Architecture Prize. The $4 billion price tag, which translates to 0.78 times forward book, is a bargain, according to analysts at Bloomberg Intelligence. In October, Soho China was considering selling a majority of its commercial property holdings for as much as $8 billion, Bloomberg News reported, citing people familiar with the matter. Blackstone will also assume Soho China’s debt, which stood at the equivalent of $4.7 billion at the end of June, Reuters reported.Granted, the office market has been struggling. Vacancy rates in 17 major cities were already at their highest levels since at least 2008 in the third quarter, according to a report from CBRE Group Inc. Shanghai’s vacancy rate was 19.5% while Beijing’s was 10.9%, the report said. Measures to contain the coronavirus, which shut down as much as two-thirds of the economy in February, have damaged the outlook for growth, already damped by the trade war with the U.S. last year.Soho China hasn’t escaped trouble. First-half profit fell almost half. Meanwhile, a push into office sharing has failed to impress investors, especially after the fiasco of WeWork’s scrapped U.S. IPO last year.Blackstone will be betting that the company’s premium developments prove relatively immune to the declining rents and increased supply afflicting the Beijing and Shanghai commercial markets. Average office occupancy at Soho China’s buildings was 94% in the first half of 2019, though that was down from 97% a year earlier, according to analysts at HSBC Holdings Plc. New York-based Blackstone, which raised $7.1 billion in its largest ever Asian property fund late last year, has a record of making big wagers at times of turmoil that turn out well. The company bought Hilton Worldwide Holdings Inc. for $26 billion in 2007, just before the financial crisis, and sold it for a $14 billion profit 11 years later. Don’t bet against it repeating the trick. To contact the author of this story: Nisha Gopalan at ngopalan3@bloomberg.netTo contact the editor responsible for this story: Matthew Brooker at mbrooker1@bloomberg.netThis column does not necessarily reflect the opinion of 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.
- Bloomberg
Why $3.6 Trillion of Roads Will Never Be Enough
(Bloomberg Opinion) -- With the coronavirus shutting down large parts of China, plans for big infrastructure spending to stimulate the economy are rising. But what will be built, and for whom? The scale seems striking. Several provinces have cumulatively announced plans to build or restart around 25 trillion yuan ($3.6 trillion) of projects over the next few years. For 2020, that amounts to around 3.5 trillion yuan of expenditure. To finance this building spree, around 950 billion yuan of special bonds were issued in the first two months of the year, with close to 70% for infrastructure.Work has resumed on more than 500 major highway and waterway projects that had been halted with the outbreak, and local governments are pushing for more. There are also some encouraging indicators as the country begins to emerge from lockdown. Factory restarts and return-to-work numbers are getting better. Rail and freight data are edging up. Machine operating rates have been rising at a faster pace than workers are returning to their jobs, suggesting a rush to show construction activity and boost sentiment. Whether all this building actually gets done is one issue. China has large swathes of land and rural areas outside the southern and eastern regions that could use infrastructure, but they have always needed an uplift. A more pressing question is what purpose is served besides deploying money on roads to nowhere. The economy remains hung-over from excesses of past stimuli. Will one more highway in the hinterland boost car sales? Can a maglev rail line ease pressures on crippled industrial and tech supply chains?Much of the spending is intended to address an impending hit to growth from the virus and the latent effects of the trade war with the U.S. It comes as the central and local governments race to meet targets under the current five-year plan while heading into a new one. But attempting to prop up growth numbers won’t return workers to the parts of the economy that need it most or get companies the parts they need.The headline numbers might not even be met. A 1% increase in infrastructure investment can lift nominal gross domestic product by 0.1 percentage points, according to HSBC Holdings Plc analysts. That means, they say, that such spending needs to grow by 10% to 12%, from 6% to 8% previously, to help reach the growth target of at least 5.7%.(1) Home-bound investors have cheered the prospect of infrastructure stimulus, China’s fallback in tough times. Stock prices of domestic construction machinery makers Sany Heavy Industry Co. and Jiangsu Hengli Hydraulic Co., which should benefit from a push to build, have far outpaced the benchmark Shanghai Stock Exchange Composite index over the last month, even as large parts of China were effectively shut.The foundations of such hope-based bets are flimsy. Spending doesn’t directly translate to growth because it includes outlays on land acquisition, for instance. In addition, a look at machine-operating rates as of February shows that activity has increased most in the already built-up southern and coastal regions. Meanwhile, the companies that are back to work are mainly state-backed. The country needs factories to be up and running, not smoother roads.Part of what’s driving these stocks to multi-year highs is that Beijing is pulling out all the stops. They’re off by a few percentage points in the latest rout, but heading up again.Hundreds of billions of yuan are being funneled to local governments with pressured finances. The issuance of special bonds amounts to directly injecting cash into the construction sector. Approval for the new projects comes straight from the top, arguably ensuring better quality. Yet even if all this building takes off, where will the trucks and excavators come from if parts factories aren’t operating? Demand was already high pre-virus as old machines were being replaced, but growth was coming down from double-digits.None of these measures address the problem at a hand: an economy with broken supply chains. Beijing’s reflex to build its way out of trouble is the wrong one for this crisis. President Xi Jinping says the government will back “new infrastructure” that includes 5G telecom networks and data centers. Those plans may yield results in a few years, but not in the next two quarters, when the hit to growth and manufacturing will likely be severe.China has been through this before. If there’s one lesson from its state-sanctioned discretionary spending, it’s that public investment is no longer efficient in China and real return rates have dropped. Each yuan does less for the economy as debt piles up and deepens China Inc.’s existing balance sheet problems. The benefits end up with the state sector, not the smaller and more fragile private side. China needs, as soon as possible, to alleviate the pain from the supply shock that is spilling over and worsening demand. Trucks and excavators can only do so much. To all this, add fiscal constraints. The virus has brought extra costs, with public expenditure totaling at least 90 billion yuan, according to HSBC’s analysts. But revenues are slowing, thanks to tax cuts and measures to boost demand. China’s road to nowhere will be a bumpy one. (1) In their base case scenario, the analysts assume that the virus outbreak will be better contained in March. They expect real GDP growth to slow to 4.1% from a year earlier in the first quarter, and 5.1% the second quarter, before recovering to 6.0% in the third quarter. They have cut their 2020 real GDP growth forecast to 5.3% from 5.8% previously.They also assume that China's "around 6%" target indicates that growth should be no lower than 5.7% this year.To contact the author of this story: Anjani Trivedi at atrivedi39@bloomberg.netTo contact the editor responsible for this story: Patrick McDowell at pmcdowell10@bloomberg.netThis 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
The Last Place You'd Think to Hide in a Meltdown
(Bloomberg Opinion) -- As if markets didn’t have enough trouble. With the coronavirus outbreak intensifying, and the first shots of an oil price war fired, investors seem to be left with few good options. Could there be anywhere to hide in the world of corporate credit?China, despite two years of record defaults, may be in better shape to withstand an oil slump than the U.S. For now, traders in Asia can sit tight and watch how hard the mighty angels on the other side of the Pacific fall.Oil’s tailspin is bringing back harsh memories of early 2016, when West Texas Intermediate crude tumbled below $30 a barrel, well beneath the breakeven point for many American producers. U.S. junk bonds’ credit spread over Treasuries shot as high as 8.4%, almost doubling the five-year average. The price of oil remains a major catalyst there. When WTI falls below $50 a barrel, the correlation coefficient between that level and the spread of junk bonds more than doubles to 73%, recent sensitivity analysis conducted by HSBC Holdings Plc shows. Energy, metals and mining companies represent about 15% of the high-yield cash bond market.To make matters worse, a new host of fallen angels — investment-grade firms that get downgraded to junk — may make the high-yield bond universe a bit too crowded. The energy sector comprises roughly a quarter of the $846 billion BBB rated corporate issues in the U.S. When market sentiment is already weak, the last thing traders need is a flood of new supply. Asia paints a different picture. Whereas U.S. junk bonds are dominated by companies that profit from “drill, baby, drill,” Asia is all about build, baby, build. Just look at who dominates issuance. Even in the throes of the coronavirus outbreak, Asia’s dollar bond market didn’t freeze up, with more than $34 billion of deals in February, up a third from a year earlier. Mainland companies continued to dominate — as they have in recent years — with 65% of the total. Chinese real-estate developers raised a whopping $6.4 billion. Energy companies, by comparison, barely registered. No surprise there: Most Asian countries are net importers.In Asia, what really matters is Beijing’s liquidity stance — and there are signs that the coronavirus is ending China’s corporate deleveraging campaign, which began in late 2017. From benchmark rate cuts to re-lending facilities for small businesses, officials are tweaking all sorts of rules to ensure that China Inc. doesn’t face a liquidity crisis.With many sales offices still closed, China’s highly leveraged developers are by all means distressed. But are they any worse off now than, say, in late 2018, when industry titans were wondering if they’d survive a harsh winter? At that point, Beijing had shut down the shadow financing channels that developers relied heavily upon for refinancing.This month, however, Beijing substantially lowered the hurdle for onshore bond issuers, lifting restrictions that prevented companies with a ratio of outstanding bonds-to-equity of more than 40% from raising money. This directly benefits real-estate developers, which have better ratings onshore, thanks to their land banks.In the past, if the U.S. sneezed, Asia would catch a bad flu. With China’s rise, markets in the region are slowly evolving. Federal Reserve rate cuts now matter less than Beijing’s liquidity stance. For once, Asia may just provide some diversification benefits.To contact the author of this story: Shuli Ren at sren38@bloomberg.netTo contact the editor responsible for this story: Rachel Rosenthal at rrosenthal21@bloomberg.netThis column does not necessarily reflect the opinion of Bloomberg LP and its owners.Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is 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
Central Banks Need to Sober Up for This Panic
(Bloomberg Opinion) -- Remember the proverbial drunk looking for his wallet under the lamppost, and not where it may have fallen? Global monetary czars are behaving a lot like that.To them, containing the impact of the coronavirus seems to be all about lowering the price of money. While that shores up asset prices that are tumbling globally, the effect on actual activity, particularly in ravaged Asian economies, could be the opposite of what’s intended. Multinationals don’t need cheap money as much as they need banks that can confidently commit more capital to Asia, where demand will rebound after the disease subsides. For central banks to reduce lenders’ profit margins by slashing interest rates cuts them off at the knees. And that could, in turn, hurt corporate expansion. If the Federal Reserve were to ask chief financial officers of firms whose supply chains have been disrupted by the outbreak in China, South Korea, Singapore and Japan, it’s not the cost of funding that’s keeping them awake at night, but availability of liquidity in the right places. The corporate banking rails on which money moves across countries are provided in Asia by Citigroup Inc., HSBC Holdings Plc and Standard Chartered Plc. From hedging currency volatility in countries where firms buy and sell stuff to funding their vendors’ working capital and deploying the cash generated in different countries, multinationals in Asia rely on these three “global locals,” as banking consultant Greenwich Associates calls them.The U.S.-China trade war has already triggered a search for production bases that aren’t too reliant on the People’s Republic. The coronavirus has further shown the folly of keeping all eggs in one basket. But a fresh location requires local-currency funding in a new country. Turning on such taps is easier for HSBC, Citi or StanChart, recently ranked by Greenwich Associates as the top three in market penetration for banking and cash management for large companies in Asia. “Over the past 12 months, securing reliable financing has replaced cost optimization as the top priority,” say the firm’s analysts Gaurav Arora and Winston Jin. “It makes sense for large Asian companies to turn to banks that span multiple countries and have deep expertise in transaction banking.”Just when there’s demand for their services, rate cuts, like the Fed’s half-percentage-point reduction, which is bound to lead to more easing now that the entire U.S. yield curve has dipped below 1% for the first time, will damage lenders by crimping their ability to eke out a decent net interest margin and investor returns. Unable to achieve the return that shareholders want, HSBC is cutting 35,000 jobs; StanChart, which last year earned just 6.4% on its tangible equity, two percentage points less than HSBC, may be fishing for a new chief executive, according to a story this week by Bloomberg News. Citi’s boss Mike Corbat has been asked why he doesn’t trim down operations in Asia to earn the 19% that Jamie Dimon garners at JPMorgan Chase & Co. Citi managed only 12% last year. Indeed, as Greenwich’s Arora says, JPMorgan’s appetite to take on the risk of large companies in Asia has risen exponentially over the past few years because Wall Street’s biggest spender on new technology isn’t distracted by the problems dogging HSBC or StanChart. Against this backdrop, if central banks further weaken the profit outlook for the global-local banks by their zeal to cut rates, these lenders may be reluctant to open up their balance sheets to corporate clients, especially with the epidemic prompting them to step up loss provisions to deal with future bad loans. They may also lose critical transaction banking talent to local and increasingly aggressive Japanese rivals that can currently support firms in just a few countries. Had the coronavirus been hurting global demand more than supply, cutting rates boldly would have been the right response. But so far, demand destruction is mostly a problem in China, where car sales fell by a record 80% in February. The rest of the world is mostly facing a supply crunch — or in the case of oil, a glut, sparked by a price war among the world’s largest crude producers. One way to deal with supply shocks is to ensure that the nuts and bolts of banking that support production, storage, transport and distribution don’t get corroded by the oxygen of cheap money. Since the 2008 crisis, central banks have gotten so intoxicated by their monetary powers — and so blinded by the idea that they alone can save the world — that they’re missing this important link.To contact the author of this story: Andy Mukherjee at amukherjee@bloomberg.netTo contact the editor responsible for this story: Patrick McDowell at pmcdowell10@bloomberg.netThis column does not necessarily reflect the opinion of Bloomberg LP and its owners.Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.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.
