|Bid||26.55 x 1100|
|Ask||26.63 x 3200|
|Day's range||26.51 - 27.04|
|52-week range||22.67 - 42.17|
|Beta (5Y monthly)||0.51|
|PE ratio (TTM)||29.66|
|Forward dividend & yield||N/A (N/A)|
|Ex-dividend date||27 Feb 2020|
|1y target est||N/A|
Hollywood Bowl shored up its balance sheet with a £10.9m placing post period end, and has also secured additional headroom with lenders, writes Alex Janiaud. With a March 31 period-end, Hollywood Bowl’s half-year figures do not reflect the worst effects of the lockdown. Excluding the fortnight commencing March 16, which was impacted by the roll-out of social distancing protocols, like-for-like turnover rose by 8.6 per cent, against a growth rate of 4.4 per cent for the corresponding period in 2019.
HSBC and Standard Chartered have drawn the ire of politicians and investors in the UK for their public support of a controversial national security law China plans to impose on Hong Kong. On Wednesday, the two banks released carefully-worded statements backing the legislation, which Beijing says intends to target “splittist, subversion of state power, terrorism or interference by foreign countries or outside influences” in Hong Kong. “I wonder why HSBC and StanChart are choosing to back an authoritarian state’s repression of liberties and undermining of the rule of law?” tweeted British Conservative party politician Tom Tugendhat, who chairs parliament’s foreign affairs committee.
UK banks HSBC and Standard Chartered have openly supported the national security law China is imposing on Hong Kong, breaking their silence on the legislation opposed by the British government. The decisions follow similar moves by Swire and Jardine Matheson, two British colonial-era trading houses. In a carefully worded post on Chinese social media platform WeChat on Wednesday, HSBC said that Peter Wong, chief executive of the lender’s Asian businesses, had signed a petition in support of the legislation.
(Bloomberg Opinion) -- Hong Kong’s finance industry is thriving from the great divorce between the U.S. and China. Billion-dollar initial public offerings are on the horizon again, as New York-listed mainland companies seek a second home. The city’s blue-chip index has even revised its weighting rules so tech stocks can feature more prominently. But is this enough to rouse a sleepy stock market? While Hong Kong is on par with Shanghai in terms of total market capitalization, turnover pales in comparison, and it's practically a stagnant pool compared with the very liquid Shenzhen bourse. While mega IPOs are exciting, they are one-time events. Once bankers earn their fees and wave goodbye, trading could languish again.South Korea may offer some insights. One year ago, Seoul was still in a deep bear market, plagued by steep conglomerate discounts and historically low turnover. Now, it’s teeming with life. Since global markets started turning around in late March, the benchmark Kospi index has soared more than 40%, making it one of the world’s best performers.All of a sudden, Koreans, who dabbled in cryptocurrencies and all sorts of structured products, are frantically buying cash equities. Retail investors have single-handedly supported the main stock index as foreigners and domestic institutional investors sold.CLSA Ltd. recently conducted a fascinating study explaining what’s become one of the Kospi’s largest ownership changes in history. Survey data show a few usual suspects: historically low deposit rates, cheap valuations, and blow-ups in popular alternative investments, such as mezzanine convertible bonds and equity-linked securities. A liquidity crisis and global market meltdown have tamed Koreans’ taste for exotic products.But the most interesting finding is that investors are swapping their real estate holdings for stocks. This comes as President Moon Jae-in’s administration has made it harder to invest in residential property, with a recent ban on mortgage lending for anything valued over 1.5 billion won ($1.2 million). In the past few years, a series of tightening measures has worked: A flattening of home prices, along with dwindling sales volumes, dented investor sentiment.Apartments in Seoul were once considered one of Korea's best performing long-term assets. They registered a capital gain of 80.9% over the past 15 years, with flats in the affluent Gangnam district returning more than 200%, data provided by CLSA show. Yet property restrictions look set to remain as long as Moon’s around — and he’s not required to leave office until 2022. So people with money to invest have to look elsewhere. Samsung Electronics Co., which gained 443% over the same period, is a good alternative. Retail investors have poured $7.2 billion into the company’s shares this year. Many of the catalysts that drove Koreans to stocks are present in Hong Kong, too. Interest rates are even lower and high-profile stocks are landing, including NetEase Inc., while Alibaba Group Holding Ltd. completed its secondary listing last year. Meanwhile, local investors can no longer count on HSBC Holdings Plc for reliable dividend payouts, forcing them to look at tech companies instead. It’s no coincidence that the retail portion of NetEase’s Hong Kong listing was met with brisk demand on the first day, enabling the company to increase its allotment to local investors. The missing piece, however, is real estate. As soon as Hong Kong loosened its social distancing rules in May, secondary home-sales prices ticked up, along with transaction volume. The Land Registry recorded 6,885 property deals in May, a 12-month high. The faith that this sector can outperform stocks hasn’t broken yet. For an equity market to shine, local retail participation is essential. Overseas institutional investors, the biggest contributors to Hong Kong’s turnover, come and go. Those from the mainland, now active players through the stock connect, are equally fickle, given they’re so used to liquidity-driven markets back home. So unless Hong Kong moms and pops can learn from the Koreans — trading away their flats in Gangnam for a slice of Samsung — the Hang Seng will remain asleep. This column does not necessarily reflect the opinion of the editorial board or 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) -- It’s the rise of the robots: Japan’s second-largest company is now a maker of industrial automation systems, highlighting the rising importance of a less visible sector to a nation long associated with consumer-facing brands.Keyence Corp., a maker of machine vision systems and sensors for factories, has jumped 19% this year to become Japan’s second-largest company by market value. At a valuation of over 11 trillion yen ($100 billion), it has overtaken telecommunications giants SoftBank Group Corp., and NTT Docomo Inc., which have jostled for the honor to sit behind Toyota Motor Corp. over most of the past decade.Keyence is famed for its dizzying profitability with an operating profit margin of more than 50%, among the country’s highest. That’s enabled by its “fabless” output model, according to analysts, with production of its array of pressure sensors, barcode readers and laser scanners outsourced to avoid high capital costs.Its industry-leading sales system creates bespoke solutions for clients, and its frequently listed as the highest-paying company in Japan. The surge in its shares has also benefited founder Takemitsu Takizaki, who has overtaken SoftBank’s Masayoshi Son by a good margin to become Japan’s second-richest man.“It’s got everything — high growth, high dividends and a high operating margin,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities Co. “It’s the type of long-term stock you want to leave to your kids or your grandkids.”Keyence has more than tripled in market value since early 2016. “We feel the sense of expectation from our shareholders,” said Keyence director Keiichi Kimura when asked to comment on the milestone. “We’ll do our best to live up to those expectations.”The rise has also underscored how important the country’s parts and robot makers have become to the stock market, shown in the weighting of companies that make up the the country’s benchmark Topix index. Japan stocks were once dominated by banks and automakers — but years of zero rates which now dip into negative have hurt the profitability of the former, while the importance of the latter was declining even before the coronavirus sent the industry into reverse gear.The weighting of the Topix’s Electrical Appliance sector, also home to the likes of Sony Corp., Murata Manufacturing Co., and Fanuc Corp., has increased to almost 15%, the highest in about a decade, as the importance of the Banks and Transportation Equipment sectors have declined. The Information and Communication sector, headed by the five listed companies that dominate Japan’s mobile carriers, is the second-most heavily weighted segment.The growing presence of IT shares has also been a feature in the U.S. stock market, with the sector making up the highest proportion of the S&P 500 Index since the dot-com bubble burst. The coronavirus pandemic has amplified a trend for investors to prefer companies that eliminate humans from the process — a trend Keyence benefits from both with its fabless production model, and by enabling companies to automate their own production.“It’s a business model that grows the more factory automation throughout the world progresses,” said Mitsubishi UFJ Morgan Stanley Securities’ Fujito.Founder Takizaki holds about 23% of Keyence’s shares, Bloomberg-compiled data show. For the Topix, which takes the free float of the shares into account in its weightings, those holdings mean Keyence is less heavily weighted than Sony, whose market value trails by comparison. Toyota the biggest company on the index, and even forecasting an 80% drop in profit this year, the automaker remains Japan’s largest business with a market value double that of Keyence.“We like Keyence as it outsources production instead of owning factories, allowing it to focus on R&D,” HSBC analysts including Helen Fang wrote in a May 26 report that initiated coverage of the company with a buy rating. “It also uses a direct-sales model that keeps it close to clients. This strategy means it can better capture market share in a widening array of industries and can focus on high-value client solutions.”While the coronavirus pandemic will depress profits this year, Nomura sees a recovery “to record-high profit levels” the following year and sees a record profit the next, analyst Masayasu Noguchi wrote in a report May 28 raising its target price on the stock.“It’s unclear how long the coronavirus pandemic will continue,” Keyence’s Kimura said. “The global uncertainty is likely to continue and in the midst of that we’ll continue to do what we can.”Factory Automation in Asia May Be First to Recover From PandemicThe notoriously tight-lipped Osaka-based company does not provide earnings guidance in its sparse quarterly disclosure. It’s an outlier in a country where companies are being encouraged to boost their transparency and communication with the market.“They are an efficiency-above-any-other kind of company, so doing extra that doesn’t result in revenue addition is probably less of a priority,” said Bloomberg Intelligence analyst Takeshi Kitaura. “They think generally those following the company are happy when they manage solid earnings and growth.”Yoshiharu Izumi, an analyst at SBI Securities Co., says that Keyence holds talks with shareholders and that reassures investors, and doesn’t view the paucity of disclosure as a problem. “Keyence has overtaken Sony, which is extremely proactive in responding to shareholders,” he said. “When Keyence starts putting energy into disclosure, that might be the time to sell.”(Updates with quotes from Keyence from sixth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
HSBC’s dominant and lucrative business position in Hong Kong “should not be taken for granted”, a former Hong Kong chief executive has warned, as pressure grows on the city’s businesses to declare their support for a contentious new national security law being imposed by Beijing. “HSBC has been enjoying unique privileges in Hong Kong which should not be taken for granted,” Leung Chun-ying, who served as the Chinese special administrative region’s third chief executive, told the Financial Times in an email exchange on Friday. Mr Leung has been one of the territory’s highest profile pro-Beijing figures for decades and was chief executive during the “umbrella revolution” protests that rocked Hong Kong in 2014.
(Bloomberg Opinion) -- The deterioration of U.S.-China relations is fast and furious, with Washington throwing out accusations of unfair trade practices, unlawful technology transfer and an early cover-up of the coronavirus outbreak, which has claimed over 100,000 American lives. The Chinese yuan, this year’s beacon of stability, is now is now at risk of tumbling like other emerging markets currencies.On Wednesday, the offshore yuan, which trades freely, flirted with its weakest level on record, dropping as much as 0.7% to 7.1965. While Thursday morning’s yuan fix came in stronger than expected, the overall sentiment is downbeat.It’s tempting to theorize that a weaker yuan could become a powerful weapon in the new Cold War, yet there’s little evidence of foul play from the People’s Bank of China. Since mid-2017, the central bank has based its fixing on the previous day’s close, dollar movement overnight against a currency basket, and what it calls the “countercyclical factor," a catch-all metric that grants wiggle room to deviate from market fundamentals. The yuan can move in a 2% trading range around the PBOC’s daily target.Take a look at Goldman Sachs Group Inc.'s estimate of the countercyclical factor. Over the last year, the PBOC has been consistently guiding its yuan stronger, not weaker, to artificially track the dollar. For all the theatrics of getting labeled a currency manipulator, Beijing wasn’t making its exports any cheaper.What’s new this year is the PBOC’s Zen-like attitude. Rather than playing the heroic fireman, handling one crisis after another, the central bank has been largely hands-off. It has used the countercyclical factor in a meaningful way only twice since January, on Feb. 4 when China emerged from the Lunar New Year holiday to face a national lockdown, and at the end of March when the outbreak was shaking up global markets.And why should the PBOC adhere to the dollar anyway? The coronavirus downturn has only showcased America’s exceptionalism — it prints the world’s reserve currency. Haven demand for the dollar has surged, evidenced by soaring currency swap rates from the euro zone to South Korea, and the Federal Reserve’s scramble to re-establish swap lines with other central banks. Looking back to 2008, the greenback only started to weaken two months after demand for “emergency dollars” peaked, data provided by Deutsche Bank AG show.So it makes sense for China to adopt a more enlightened approach, allowing the yuan to weaken during periods of dollar strength, and catch up when global tensions recede. From the PBOC’s view, the trade-weighted yuan is certainly stronger now than it was last fall, when the central bank was in fire-fighting mode. China doesn’t want to spend another $1 trillion of its foreign reserves defending its currency. The rapid drawdown in 2015 and 2016 traumatized the Chinese for good.To be sure, the pressure of capital outflows is still there. Just look at the consistent negative value of the “net error and omissions” figures in China’s balance of payment data. However, here’s the beauty of the virus: The Chinese can’t go anywhere. They can’t come to Hong Kong to buy insurance products, and unless you’re ultra-rich (with private bankers around the world apartment-hunting for you), Manhattan real estate is off-limits. The PBOC has less to worry about than before.So now the market can test the true value of the yuan. It could easily drop below 7.30 if the phase one trade deal breaks down and the Trump administration imposes some of the tariffs it had previously threatened, estimates HSBC Holdings Plc.Long-time China bear Kyle Bass abandoned his yuan short in early 2019 for the greenback-pegged Hong Kong dollar. He didn’t profit from his yuan trade because the PBOC established powerful tools, such as selling yuan-denominated bills in the offshore market, to kill anyone betting against the currency. Now that their interests are becoming aligned, it’s time for the bears to wake up.This column does not necessarily reflect the opinion of the editorial board or 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.
To cope with the economic fallout of the pandemic, the board of HSBC wants executives to deepen restructuring efforts, which may include further job cuts.
(Bloomberg) -- HSBC Holdings Plc is taking full control of its German business as Europe’s largest lender restructures its global operations in smaller markets, and targets Asia for growth.The bank will acquire an 18.66% stake in HSBC Trinkaus & Burkhardt AG from Landesbank Baden-Wuerttemberg, a regional lender in the south of Germany, according to statements by the banks on Monday. They didn’t disclose a price.HSBC is pivoting to Asia and planning 35,000 job cuts amid sluggish revenue in its other markets, especially in continental Europe, though the coronavirus pandemic has put key parts of that program on hold. Net profit in HSBC’s German unit fell almost 17% last year to 98 million euros ($107 million) after the bank recorded a rise in loan impairments.HSBC Trinkaus & Burkhardt had total assets of 26.6 billion euros ($29 billion) and employed more than 3,000 people at the end of last year. It warned in February alongside its full-year results that earnings in 2020 would likely remain “adversely affected” because of the difficult economic backdrop.HSBC will hold 99.33% of the registered share capital after the deal closes, and plans to squeeze out remaining investors. LBBW said the stake it sold in the business was “a purely financial investment,” while London-based HSBC declined to comment further.The bank makes the majority of its revenue and profit in Asia, and announced its revamp in February after pressure from investors to revamp European and U.S. divisions that have held back its performance.HSBC’s planned sale of its French retail bank could take 4,000 to 8,000 workers off its payroll, a person with knowledge of the matter said in October. The lender is also planning to partially exit stock trading in other Western markets, including Germany, the U.S. and the U.K., Bloomberg News had reported.(Adds details throughout of HSBC’s restructuring and German performance)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 chief financial officer of Huawei Technologies Co., fighting extradition to the U.S., gets her first shot at release this week in a case that’s triggered an unprecedented diplomatic tussle between the U.S., China and Canada.On Wednesday, the Supreme Court of British Columbia is set to release a decision on whether Meng Wanzhou’s case meets a key threshold of Canada’s extradition law. If Associate Chief Justice Heather Holmes rules that it fails to meet that test, Meng could be released from house arrest in Vancouver. If not, extradition proceedings will continue.The case was triggered when Meng was arrested on a U.S. handover request in December 2018 during a routine stopover at Vancouver airport, a city where she owns two homes and often spent summer holidays. The fallout has since spanned three countries.Meng, the eldest daughter of Huawei’s billionaire founder, Ren Zhengfei, has become the highest profile target of a broader U.S. effort to contain China and its largest technology company, which Washington sees as a national security threat.China has accused Canada of abetting “a political persecution” against a national champion. In the weeks after her arrest, China put two Canadians -- Michael Spavor and Michael Kovrig -- in jail, halted billions of dollars in Canadian imports and put two other Canadians on death row, plunging China-Canada relations into their darkest period in decades. U.S. President Donald Trump muddied the legal waters further when he indicated early on that he might try to intervene in her case to boost a China trade deal.Canadian Prime Minister Justin Trudeau -- caught between his country’s two biggest trading partners -- has resisted any such attempt to interfere in the high-stakes proceedings, saying the rule of law will govern Meng’s case.“Canada has an independent judicial system that functions without interference or override by politicians,” Trudeau said last week in response to comments by the Chinese ambassador that Meng’s case was the biggest thorn in Canada-China relations. “China doesn’t work quite the same way and doesn’t seem to understand that we do have an independent judiciary.”China’s foreign ministry urged Meng’s release at a regular briefing in Beijing Tuesday, saying the U.S. and Canada had “abused their bilateral agreement on extradition.”“Canada should correct its mistake and immediately release Meng Wanzhou and ensure her safe return to China to avoid continuous damage of China-Canada relations,” ministry spokesman Geng Shuang said. He said the rights of Kovrig and Spavor had been “guaranteed and protected.”Escalating FightMeng, 48, faces tough odds: of the 798 U.S. extradition requests received since 2008, Canada has refused or discharged only eight cases, or 1%, according to Canada’s Department of Justice.Whether she goes free or continues her battle against U.S. extradition, the ruling is likely to further escalate the fight between Washington and Beijing, increasingly at loggerheads over everything from the coronavirus pandemic to the status of Taiwan and Hong Kong to trade and investment.Huawei continues to play a central role in those tensions. Earlier this month, the Commerce Department barred chipmakers using American equipment from supplying Huawei without U.S. government approval, closing a loophole in an effort to cut the Chinese company off from essential supplies used in its phones and networking gear. The move drew condemnation from Beijing and warnings from Huawei’s rotating chairman, Guo Ping, that the latest U.S. curbs on its business would cause the whole industry to “pay a terrible price.”The U.S. government has lobbied its allies, including Canada, to ban Huawei from next-generation 5G networks, saying its equipment would make such infrastructure vulnerable to spying by the Chinese government. Despite that, the U.K. said in January it would allow Huawei a limited role. But in recent days, British media have reported the government is backtracking and preparing to end Huawei’s presence by 2023.Trudeau has been stalling on Canada’s decision with the fates of Spavor and Kovrig hanging in the balance. The two detainees have been confined for more than 500 days without access to lawyers. In contrast, Meng was photographed by CBC News on Saturday as she posed with nearly a dozen colleagues and friends -- social distancing rules to fight the virus notwithstanding -- displaying victory signs in front of the courthouse.The pursuit of Meng by U.S. authorities predates the Trump administration: officials were building a case against her since at least 2013, according to court documents in her case. Central to the case are allegations that Meng committed fraud by lying to HSBC Holdings Plc and tricking the bank into conducting Iran-related transactions in breach of U.S. sanctions.Wednesday’s ruling will focus on whether the case meets the so-called double criminality test: would Meng’s alleged crime have also been a crime in Canada?Her defense has argued that the U.S. case is, in reality, a sanctions-violations complaint framed as fraud in order to make it easier to extradite her. Had Meng’s alleged conduct taken place in Canada, the transactions by HSBC wouldn’t violate any Canadian sanctions, they say. The U.S. bank and wire fraud charges carry a maximum term of 20 years in prison on conviction.If the ruling goes against her, Meng’s next court hearings are scheduled for June and are set to continue to at least the end of the year. Appeals could lengthen the process for years longer.(Updates with China foreign ministry comment from eighth paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
HSBC bankers don’t know whether they are coming or going. Chief executive Noel Quinn should harden his resolve and remember the dictum “never let a crisis go to waste”. Covid-19 is only adding to the problems HSBC faces.
(Bloomberg) -- The coronavirus pandemic has prompted HSBC Holdings Plc’s board to order a review of the bank’s recent reorganization, according to the Financial Times.The health crisis requires more drastic measures than those announced three months ago in what was HSBC’s biggest overhaul in its 155-year history, the newspaper said in its Tuesday edition, citing senior people at the London-based bank it didn’t identify.HSBC in February announced plans to cut 35,000 jobs, $4.5 billion in costs and $100 billion of risk-weighted assets by reducing its U.S. and European businesses and investment bank, though the pandemic has since prompted management to pause layoffs.The board is now pressing executives to restart the overhaul and consider even more dramatic changes, the FT said. Those include further cuts or even a possible sale of its U.S. business as well as its retail network in France and operations in smaller non-strategic countries. A spokesperson for HSBC declined to comment on the report.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.
HSBC’s board is set to deepen the biggest restructuring in the bank’s 155-year history after deciding that the coronavirus crisis requires more drastic measures. In February, Europe’s largest lender said it would slash 35,000 jobs, $4.5bn in costs and $100bn of risk-weighted assets by radically shrinking its US and European businesses and investment bank. Executives plan to redirect resources to Asia, HSBC’s historical heartland and profit centre.
(Bloomberg) -- U.K.-listed banks with heavy exposure to Hong Kong slipped as China’s attempt to tighten its grip on the city fueled a political backlash.HSBC Holdings Plc dropped as much as 6.5%, the most in about seven weeks, while rival lender Standard Chartered Plc declined 4.7%. Insurer Prudential Plc tumbled 9.8%, its biggest fall in more than two months, before paring losses along with the banks.China confirmed on Friday that it would effectively bypass the city’s legislature to implement national security laws. The announcement triggered immediate calls for fresh protests and sent the MSCI Hong Kong index to its worst loss since 2008.“China’s latest move is damaging to gross domestic product, sentiment, loan growth and Hong Kong’s status as a global financial destination,” Bloomberg Intelligence analyst Jonathan Tyce said in written comments. HSBC and Standard Chartered each derive a quarter of their revenue from Hong Kong, and “far more” of their pretax profits, he added.Banks operating in Hong Kong, as well as luxury-goods makers, have been volatile since the final quarter of 2019 as protests gripped the city, sending it into recession. The global spread of Covid-19 spurred share plunges in 2020.Prudential, which has seen its shares plunge 28% year-to-date, is also highly exposed to the former British colony. Hong Kong accounted for 23% of the London-based company’s adjusted operating profit in Asia in 2019, more than any other market in the continent, according to the group’s annual report.And it wasn’t just European financials dropping on the Hong Kong developments, as luxury-goods makers that are dependent on sales in the city also slipped. Cartier watch-maker Compagnie Financiere Richemont SA and Gucci-owner Kering SA fell as much as 4.1% and 2.3% in Zurich and Paris, respectively.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.
Banking giants like Citigroup (C), HSBC and others try to speed up the pace of their digital offerings amid the current crisis to ward-off competition from digital startups in Asia.
(Bloomberg Opinion) -- Goodbye, high-yield savings accounts. We hardly knew you.For years, the oxymoronic products were a resounding success for both consumers and financial institutions alike. After getting almost zero interest from big U.S. banks, individuals who parked their excess cash with the likes of Ally Financial Inc., Barclays Plc, Goldman Sachs Group Inc.’s consumer bank, Marcus, or HSBC Holdings Plc’s HSBC Direct were suddenly bringing in a comparatively bountiful 2% or more around this time last year. At that point, the Federal Reserve had raised its short-term interest rate for what would be the final time this cycle in December 2018. The rest is history. First, the Fed felt compelled to lower interest rates three times from July through October to offset the economic impacts from the Trump administration’s trade wars. That, as I noted in an October column, brought prevailing high-yield savings rates dangerously close to the fed funds rate. And yet, in early 2020, Marcus users could still lock in that 2% magic number by opting for a no-penalty certificate of deposit.Then the coronavirus happened. This chart says it all: As it’s plain to see, there’s now a chasm between the fed funds rate and the going rates on some top high-yield savings accounts. The banks have so far moved lower gradually, likely to avoid sticker shock that would cause their customers to take their deposits elsewhere. But even with online banking’s cost-saving advantages over more typical brick-and-mortar institutions, they can’t defy gravity forever. Eventually, rates will have to head closer to the zero lower bound. These savings accounts will still hang around but will hardly seem to fit the moniker of “high yield.”Marcus announced the cut to its savings rate on May 8 with this message:“Effective today, the rate on our Marcus high-yield Online Savings Account has been adjusted down to 1.30% from 1.55% APY. We understand that this isn’t welcome news. During this unprecedented time, please know that the rate on our Marcus Online Savings Account remains highly competitive with an APY that’s still 4X the national average. You can rest assured that we continue our commitment to providing value and helping your money grow.”“For a guaranteed return, consider adding a fixed-rate No-Penalty CD. You’ll earn a high-yield rate with the flexibility to withdraw you balance beginning 7 days after funding. Our 7-month No-Penalty CD currently earns 1.55%.”The marketing is top-notch. First, it’s transparent about being bad news, but then quickly pivots to play up that Marcus still provides comparatively more interest than accounts at Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. The announcement also wastes no time suggesting a no-penalty CD to make up for the lost interest (and, in a benefit to Goldman, create a “stickier” deposit). Marcus is a relatively new venture for Goldman, and it seems reasonable to assume the investment bank will operate it with Chief Executive Officer David Solomon’s “evolutionary path” in mind. Goldman is looking to diversify away from historically volatile trading revenue, much like its Wall Street rival Morgan Stanley. If it means running Marcus with tight margins to keep customers in the fold, so be it.A bank like Ally, on the other hand, may have less flexibility. Heading into this year, it was fresh off of an upgrade by S&P Global Ratings to BBB-, one step above junk. That upswing didn’t last long; it was one of 13 banks that S&P put on negative outlook earlier this month. Analysts said it “could be more sensitive to the economic fallout from the Covid-19 pandemic than the average U.S. bank. We attribute this sensitivity to Ally's sizable concentration in auto lending that may face heightened risk of financial distress in the current economic environment.” Also a risk: “Ultra-low interest rates will weigh on net interest income,” which accounts for more than 70% of Ally’s net revenue.Ally, for its part, also knows how to sell itself. “People don’t want to hear messages that are depressing and that add to their anxiety,” Andrea Brimmer, chief marketing officer at Ally, told the Financial Brand in an article published last week. “They want to hear optimism and they want to hear about purposeful ideas that make them feel like the world is going to kind of get back to normal.” The theme of a campaign promoting its savings options: “Is your money not sure what to do with itself?”Whether Ally, Barclays, Marcus or HSBC are the answer to that is an open question. As it stands, these interest rates barely cover the market-implied inflation rate over the next 10 years. That’s somewhat by design, of course — the Fed cuts rates in part to encourage borrowing and purchases of riskier assets, both of which boost the economy more than parking cash in a high-yield savings account. Stocks, however, seem increasingly detached from the current economic reality. In that sense, Ally’s focus on being unsure might resonate with individual investors.Future interest rates on high-yield savings accounts are on equally shaky ground. While there’s not much in the way of precedent, it’s safe to say they’ll continue to offer more than the rock-bottom rates on money-market funds. Banks will probably do whatever they can to delay going below 1%, a round number that could be the last straw for some individuals. Other than those parameters, though, anything is possible; such is life at the zero lower bound.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- A Singapore foreign-exchange platform has won financial backing from HSBC Holdings Plc and Citigroup Inc. just as its trading volume more than doubled on coronavirus-driven volatility.HSBC and Citi join Goldman Sachs Group Inc. as investors in Spark Systems after participating in series B funding that’s raised $16.5 million over two rounds, according to Chief Executive Officer Wong Joo Seng. Citi and HSBC representatives confirmed their companies have invested in Spark. OSK Ventures International Bhd., a Kuala Lumpur-based investment firm, also joined the current round, which brought the firm’s valuation to $70.5 million, Wong said.Wong said the amount raised will be sufficient for the next three and a half years, though more investors will participate in the current round later this year.The timing for the fund-raising has been propitious. Currency trading skyrocketed across the globe earlier this year when panic selling in the coronavirus-induced market meltdown triggered a stampede for dollars and fueled demand for lightning-fast pricing.“Trading started to surge into late February just as the contagion spread,” said Wong.Singapore, already Asia’s biggest currency-trading hub, is wooing the world’s top banks to set up electronic-pricing engines in the city state to win a bigger slice of the $6.6 trillion-a-day foreign-exchange market. The island nation posted an average daily trading volume of $640 billion in April 2019, and ranked third globally behind the U.K. and U.S, data from the Bank for International Settlements show. Spark currently provides clients with prices from banks such as JPMorgan Chase & Co. and UBS Group AG that have pricing systems set up in Singapore, according to Wong.“We are executing in Singapore on a one to two millisecond time basis,” he said, noting that executions in London or New York could take on the order of 380 milliseconds, so the time savings from the regional operation is substantial.Spark’s platform helps boost Singapore’s position as a low latency financial hub, said Alaa Saeed, global head of electronic platforms and distribution of CitiFX and Gavin Powell, HSBC Singapore’s head of global markets.The start-up, which is backed by the Monetary Authority of Singapore, recorded an average $5.5 billion-a-day trading volume during the first quarter, up from $2.5 billion during the same period in 2019. But the slowing global economy is now starting to dampen activity in the second quarter, Wong said, with average trading volume sliding to $4.5 billion to $5 billion a day.“If you have GDP shrinking, if you have numerous companies that are badly affected, it will affect the level of economic activity and the amount of forex being traded,” he said.The vast majority of the firm’s trades currently involve Group-of-Ten assets, but Wong sees opportunities for the firm to boost its capabilities in emerging-market currencies such as the Korean won, Chinese yuan, Malaysian ringgit and Indonesian rupiah.“We see Singapore as a very natural hub for corporate treasury and for emerging market currencies price discovery,” he said. “We’d like to be the center where that is being traded.”(Adds BIS data in sixth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- HSBC Holdings Plc lost around $200 million in one day in March because of disruptions to the gold market that caused prices to diverge dramatically in key trading hubs, according to a filing by the bank.The one-day loss was unusually large for a market in which the leading banks -- which include HSBC and JPMorgan Chase & Co. -- typically hope to make around $200 million in an entire year. It far exceeded the maximum loss anticipated by HSBC’s value-at-risk models.HSBC’s loss highlights the extreme nature of the disruption to the gold market in late March, as lockdowns closed refineries and grounded planes, strangling the supply routes that allow physical bullion to move around the globe.The price of gold futures in New York and spot gold in London, which usually trade within a few dollars an ounce of one another, diverged by as much as $70 -- the most in four decades. The divergence hit banks that are active in trading the so-called EFP, or Exchange for Physical, the mechanism by which traders switch positions between the New York and London markets.HSBC, which had disclosed in a previous filing that it was hit by the gold market disruption, revealed the scale of the loss in a chart this week showing its daily trading profits for the first quarter.The bank described the loss as a “mark-to-market loss mainly associated with gold refining and transportation challenges.” It highlighted the “unprecedented widening of the gold exchange-for-physical basis,” which “affected HSBC’s gold leasing and financing business and other gold hedging activity leading to mark-to-market losses.”HSBC declined to comment.In the past week, the price difference between the New York and London markets has returned to more normal levels of less than $5 an ounce.Still, HSBC is not the only one struggling with the unusual moves in the gold market. Banks often sell gold futures in New York to hedge their positions in the London market, exposing them to significant losses should the two markets diverge.As a result, some banks have stepped back from trading the EFP in recent weeks. And Canada’s Bank of Nova Scotia, for years one of the leading bullion traders with a business that dates back to the 17th century, told staff in April it was shuttering its precious metals unit.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 turmoil engulfing Singapore’s oil trading community deepened on Friday as the country’s police force raided the office of ZenRock Commodities Trading Pte Ltd. following allegations made by HSBC Holdings Plc that the company was involved with a number of “dishonest” transactions.The raid comes just weeks after the implosion of legendary fuel trader Hin Leong whose founder said the company hid millions in losses and secretly sold some of the oil inventories it had pledged as collateral for loans.The revelations have rocked the close-knit oil trading community in Singapore, one of the world’s most important commodity hubs, and exposed the risks to banks that finance the opaque business of moving raw materials around the planet.They also point to a widening fallout from the crash in oil prices triggered by the coronavirus, as a collapse in demand shakes the energy industry to its core.Singapore’s police raided ZenRock’s office following a hearing in the High Court on Friday concerning HSBC’s application that the trader be placed under judicial management, a form of debt restructuring in which it’s run by a third party, according to people familiar with matter. Executives from KPMG LLP were appointed to lead the process to oversee ZenRock, said the people, who asked not to be identified because they’re not authorized to speak publicly.The Singapore police said it was “inappropriate to comment’ on the matter while nobody answered calls or messages to ZenRock’s management. HSBC confirmed the court had granted its application for the appointment of interim judicial managers in relation to ZenRock. KPMG confirmed its appointment but declined to comment further “on account of on-going investigations by the Singapore Police.”HSBC has alleged that the trader was involved in a series of “highly dishonest transactions” that included the company using the same cargo of oil to obtain more than one loan from banks, according to court documents seen by Bloomberg. The bank reported ZenRock to Singapore’s Commercial Affairs Department on April 28, according to the documents.The bank said it has lost confidence in the management of the company and its ability to pay its debts to the bank, which amount to almost $49 million, according to the documents filed to Singapore’s High Court on May 4.HSBC said it has reason to believe ZenRock provided false and/or fraudulent transaction documents in its loan applications to the bank. It also said it believes the trader may have wrongfully diverted payment of funds that should have been paid directly to the lender “and/or dissipated these funds beyond the reach of the bank.”The court documents cite a number of trades in which HSBC claims ZenRock used the same cargo of oil to secure financing from at least two banks including the London-based lender. In one of the examples, HSBC said it issued a letter of credit to ZenRock to buy a cargo of Djeno crude from Azerbaijan’s state owned oil company Socar, which the trader then sold to France’s Total SA. But HSBC claims it didn’t receive payment and found ZenRock instructed Total to pay a different bank for another loan backed by a cargo of crude on the same vessel of the same size and loading period.There is no suggestion of impropriety on the part of Total or Socar. “Our policy is to comply with the confidentiality provisions of our trading contracts,” Socar spokesman Ibrahim Ahmadov said by email. “We can confirm that there are no outstanding obligations from ZenRock to Socar Trading.” Total declined to comment.HSBC said it understands that the company’s total debt to institutional lenders stands at about $165 million, according to the documents.HSBC’s claim against ZenRock comes as Europe’s biggest lender faces even bigger losses from the implosion of Hin Leong Trading (Pte) Ltd. Of the more than 20 banks owed almost $4 billion by the fabled trader, HSBC was said to have the biggest exposure at about $600 million.Just a few weeks ago, ZenRock released a statement in response to speculation over its financial status, saying it’s not under statutory restructuring or insolvency protection. The Singapore-based company is operational and is working with other creditor banks to negotiate a consensual restructuring, a person said on Wednesday.The allegations come in the wake of some high-profile cases in recent years of banks being hit by traders using the same commodities as collateral for several loans. In one of the industry’s most notable cases, Standard Chartered Plc and Citigroup Inc. in 2014 lost millions after a Chinese metals trader pledged the same stockpile three times.ZenRock was established in 2014 in Singapore by a group of veteran oil traders including Xie Chun and Tony Lin. Xie used to work for Unipec, the trading arm of Chinese state-owned oil titan Sinopec, and Lin was previously at Vitol SA, the world’s biggest independent oil trader.The company traded more than 15 million tons of oil and petroleum products last year, according to its website. Its business spans from trading to risk management and market research, and it has offices in Singapore, Shanghai, Zhoushan and Geneva.It posted revenue of $6.15 billion in 2018, compared with $1.24 billion in 2016, according to its latest annual financial statement on Singapore’s accounting regulator website.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 Libra Association, the group behind the proposed digital currency invented by Facebook Inc., named former U.S. Treasury Department official Stuart Levey as its first chief executive officer.Levey has been chief legal officer at London-based bank HSBC Holdings Plc since 2012. As leader of the Libra Association, he will work with global regulators to push the project forward -- a daunting task that already led the group to revise its plans for releasing a digital coin. The association is currently working with regulators in Europe and the U.S. to obtain the necessary payment licenses.Before joining HSBC, Levey was under secretary for terrorism and financial intelligence at the Treasury Department, where he helped “combat illicit finance,” the Libra Association said Wednesday in a statement. Much of the skepticism about Libra has centered on concerns that the coin could be used for illegal activity.Libra, which was announced in June 2019, was conceived and developed by Facebook, the world’s largest social network. It’s now governed by a 24-member independent coalition of companies and nonprofits, though the group has changed since the project was launched. Levey will assume the role sometime this summer, and will be stationed in Washington. The Libra Association, based in Geneva, said last month that it aims to have its coins ready in late 2020.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 prospect of Britain’s biggest telecommunications deal in five years is threatening Vodafone Group Plc in its backyard, prompting speculation it could counterattack. A tie-up between Virgin Media and O2, the U.K. broadband and mobile units of Liberty Global Plc and Telefonica SA, could be announced as soon as this week, according to people familiar with the matter. That leaves Vodafone -- viewed previously as a strong alternative partner for Virgin Media -- looking isolated. Virgin Media is the only serious challenger to former monopoly BT Group Plc in fixed-line infrastructure. So a Virgin deal would be Vodafone’s sole opportunity to seize a place in the landline market and offer customers more lucrative bundles of mobile, broadband and TV at a national scale. Vodafone has already extolled the benefits of being a converged fixed-and-wireless operator in its other markets such as Germany. “The Vodafone management team will have some difficult decisions to make in short order,” said HSBC analysts led by Adam Fox-Rumley in a note. Vodafone and Liberty also have a history of close deal-making. The U.K.-based global wireless operator bought Liberty’s German and eastern European operations for 18.4 billion euros ($19.9 billion) last year. The two have a Dutch joint venture, VodafoneZiggo, that looks almost like a template for the emerging terms of Liberty’s U.K. deal.Liberty also jumped to Vodafone’s wireless network from BT’s to resell its own-brand U.K. mobile services in November.The risk to Vodafone from a Virgin-O2 deal looks so great that some observers are speculating the Liberty-O2 talks are a tactic by Liberty’s deal-savvy Chief Executive Officer Mike Fries to sweeten the terms of the Vodafone deal he may really want.“This story that Virgin Media is in discussions with O2 UK could still just be a ploy to try to flush out a deal with Vodafone and to set up a Dutch auction,” said New Street Research analyst James Ratzer. “In any deal with O2 UK, Vodafone would be the big potential loser here.”Vodafone declined to comment.Regulator RiskVirgin’s cable and fiber connections reach about half of Britain’s homes, making it by far the biggest fixed-connection rival to BT, some way ahead of a flurry of fiber businesses such as CityFibre Ltd. that are vying to become a serious third-placed contender.All the more reason for Telefonica Chairman Jose Maria Alvarez-Pallete to make sure a Liberty deal doesn’t slip through his fingers. British and European regulators united to block his last attempt to sell O2 to CK Hutchison Holdings Ltd.’s unit Three in 2016, weeks before the U.K. voted to leave the EU.This had a chilling effect on telecom industry consolidation across Europe as regulators took a dim view of linking up networks at the risk of increasing prices.A deal allowing Virgin Media and O2 to leapfrog BT to become the biggest U.K. telecom operator stands a better chance of being approved by regulators, if past interventions are anything to go by.A potential Virgin-O2 tie-up wouldn’t reduce the number of competitors in the U.K. mobile market from four to three. Neither did BT’s 12.5 billion-pound acquisition of wireless unit EE, which was waved through by antitrust officials.What’s more, the coronavirus pandemic is forcing millions of people to rely more on telecommunications, strengthening the argument for allowing suppliers to merge so they can invest more in networks. U.K. or EU?While company revenues would usually require a deal review by the European Union’s merger watchdog, even during the Brexit transition period, the U.K.’s Competition and Markets Authority could ask to take over a probe. Germany has repeatedly failed to win back telecom reviews but Britain’s imminent departure from the bloc may make it hard for the EU to refuse.That would also set up a test for Melanie Dawes, the new chief executive officer of British communications watchdog Ofcom, who started in the role in March and is yet to have such a big deal pass her desk.Legal issues could still complicate a deal as Telefonica has set up a challenge to the U.K.’s pending 5G spectrum auction. That could create uncertainty about O2’s value as it’s unclear how much money Telefonica will have to pay for 5G airwaves and what it would own. Telefonica had previously planned an initial public offering for O2, which it said couldn’t happen until after Britain’s previous spectrum auction.Another potential point of conflict is Virgin Media’s agreement to shift its virtual mobile service to Vodafone’s network next year.New Street analyst Ratzer said there’s probably a break fee for Virgin to exit the deal with Vodafone, but it shouldn’t prove a stumbling block.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) -- Germany’s Wirecard AG plans to regain the confidence of investors with sweeping measures to improve compliance and control, said Chief Executive Officer Markus Braun, dismissing calls to step down.The payment processing company will reveal details of nine projects to improve “global internal control systems including how it reports and punishes compliance violations and dealings with business partners,” Braun told Bloomberg News late on Sunday.It follows an independent KPMG audit of Wirecard that caused its shares to fall more than 30% last week. KPMG said it was unable to obtain the data it needed and criticized the company for internal “shortcomings” and an unwillingness by its third-party partners to contribute to the report.Wirecard managers had hoped the KPMG probe would resolve lingering concerns around the Munich-based firm’s third-party business, merchant payments and business activities in India and Singapore, after a series of articles by the Financial Times accused it of fraud in those areas.However, the report was repeatedly delayed and KPMG said evidence provided for revenues of 1 billion euros ($1.1 billion) in transactions with third parties was sufficient for reporting purposes but insufficient for the forensic probe. It said Wirecard has an “accumulation of software contracts without economic substance.”Braun renewed a previous commitment to improve compliance and move away from doing business with third-party business partners, which process payments in countries where Wirecard has no license to operate. Such contracts represented about half of its transaction volumes last year.“We will massively cut back our third-party business and replace it with our own licenses within the next two years,” Braun said by phone. He said the measures won’t affect revenue and profit margins.Rating CutsThe KPMG report has stirred concern among some of the longest-running Wirecard backers, with analysts from Kepler Cheuvreux, HSBC and Morgan Stanley each cutting or suspending their long-term buy ratings.Wirecard’s shares were down another 4.6% as of 10:39 a.m. in Frankfurt.While Braun acknowledged there’s more to be done, he said progress has already been made, pointing to a project launched in mid-2019 to strengthen internal controls in Singapore that was rolled out worldwide and has improved standards.He said the company is boosting staff in its compliance department to 160 from 100. Chairman Thomas Eichelmann last week said it would add compliance and sales specialists to its management board.Braun rejected a call from billionaire activist investor Chris Hohn of TCI Fund Management Ltd. last week for him to step aside. The CEO said he brings “substantial value-enhancing potential to Wirecard, with a clear plan to boost its revenues and profits by multiple times” within the next ten years.“We are on course to meet our financial targets for 2020 and keep our long-term guidance,” Braun said.He said the coronavirus crisis has weighed on the firm’s business with airlines but helped in other areas such as online retail.“All growth drivers are intact and will be strengthened by the digitalization trend and accelerated by corona,” Braun said. Wirecard is due to present first-quarter earnings on May 14 and its long-awaited, audited annual report on June 4.(Updates to add latest analyst rating cuts in eighth paragraph. An earlier version of this story was corrected to fix the date of first-quarter earnings in final paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.