|Bid||107.69 x 1800|
|Ask||107.69 x 1400|
|Day's range||105.87 - 107.98|
|52-week range||91.11 - 119.24|
|Beta (3Y monthly)||1.15|
|PE ratio (TTM)||11.01|
|Earnings date||15 Oct. 2019|
|Forward dividend & yield||3.60 (3.42%)|
|1y target est||121.15|
(Bloomberg Opinion) -- With support for globalization and free trade declining in much of the world, Asia has a historic chance to break out of its traditional role as a capital exporter to the West and to instead redirect flows to improve its own economies and financial industries.According to some estimates, the region’s pool of wealth at $110 trillion exceeds those of North America and Europe and is growing faster. Japan and China were at or near the top of foreign portfolio investment in the United States, including stocks and short- and long-term bonds, in 2017 with $2 trillion and $1.5 trillion respectively, a U.S. Treasury survey showed. Yet Asia has a poor record of protecting its assets stranded overseas when the cycle turns. In the 1990s, Japanese investors incurred significant losses, primarily on property. During the 2008 crisis, a range of Asian sovereign wealth funds and high net-worth individuals lost heavily on advanced economy shares, real estate, and mortgage-backed and structured securities.The desire to invest overseas partly reflects concern about political risk and governance at home. But leaving familiar territory brings other risks.Distance, language and cultural differences can put Asian investors at a disadvantage when it comes to information. As a result, investors often rely too heavily on intermediaries whose interests don’t align with their own.Their main failing, though, is a bias toward certain assets. In an echo of the ill-fated Japanese purchases of Rockefeller Center and the Pebble Beach golf course in the 1980s, Asian investors are buying prime office buildings in New York and London. Swanky apartments are quickly snapped up in world cities, especially by Chinese buyers.Lacking cozy domestic informational networks, Asian investors are particularly susceptible to chasing name asset managers or fashionable businesses. That restricts their options since the best funds are frequently closed to new arrivals. Managers often can’t repeat past results. Inadequate expertise frequently leads to unwise choices. In the run-up to 2008, Asian banks and investors suffered losses on purchases of structured products and collateralized debt obligations, or CDOs. High net-worth and retail segments are buying again. Japanese banks have purchased up to 75% of AAA tranches of collateralized loan obligations, and perhaps one-third of all CLOs, which have common features with CDOs.Where investments are leveraged, they must be financed by borrowing dollars and euros in wholesale markets. Losses may create difficulties in rolling over funding. As in 2008, forced sales and the lack of trading liquidity will accelerate declines in prices.Why look abroad at all? There is a mismatch between Asian savings and the size of domestic capital markets, which are marked by low returns, a smaller range of investment products and limited local expertise. The regional rivalries between Singapore, Hong Kong, Shanghai, Mumbai and Tokyo and a bias toward real industry have hampered the development of financial services.Asia lacks quality indigenous banks such as JPMorgan Chase & Co. or The Goldman Sachs Group Inc., or asset managers such as BlackRock Inc. or Pacific Investment Management Co. Most financial institutions are domestically focused. In 2018, assets under management at Asian hedge funds fell 10% to just over $100 billion, a mere 3% of the global total. Private wealth management remains the preserve of Western firms.Asia’s high savings are a global anomaly, driven by rising incomes, a culture of thrift and minimal social safety nets. Governments need to move with greater determination to enable more savings to be absorbed locally. The timing may be right as the world is tilting more toward national interests and self-sufficiency.The first step must be to accelerate development of capital markets to boost size, depth, liquidity and investment choices. Revised listing and issuance rules, harmonized pan-Asian regulations, breakups of family dominated conglomerates, and partial or full privatization of key state-owned firms would improve market depth. Changes in rules and tax incentives should encourage local pension funds or insurance companies to adopt stable, long-term investment practices.Second, the creation of world-class financial institutions and skilled asset managers needs to be a priority. To attract the best and brightest, limited career choices and pay that lags behind international levels need to be addressed. State-sponsored financial skills training and accreditation systems should be improved. A system of mutual recognition of qualifications would increase labor mobility.Finally, retaining capital within Asia requires improving confidence in the security of savings. Key steps include creating independent institutions free from political interference, as well as bolstering the rule of law and transparent and consistent regulations. Singapore and Hong Kong, despite its recent protests, are examples to emulate.Without change, the familiar cycle of exuberant foreign investment and the loss of Asian wealth is likely to be repeated in the next downturn. To contact the author of this story: Satyajit Das at firstname.lastname@example.orgTo contact the editor responsible for this story: Patrick McDowell at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Satyajit Das is a former banker and the author, most recently, of "A Banquet of Consequences."For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
(Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. Argentina was downgraded deeper into junk territory by two of the three biggest ratings companies as markets brace for a possible default after the populist opposition won a landslide victory in Sunday’s primary election.Fitch Ratings cut Argentina’s long-term issuer rating by three notches to CCC from B, putting the South American nation on par with Zambia and the Republic of Congo. S&P lowered the country’s sovereign rating to B- from B and slapped a negative outlook on it.The move caps a traumatic week for Argentina that saw the peso fall to a record, the benchmark equity gauge suffer one of the worst daily routs in 70 years and the yield on the nation’s century bonds spike to an all-time high. S&P cited Argentina’s “vulnerable financial profile” and the slump in asset prices following the primary.“Uncertainty continues on the private sector’s predisposition to roll over government debt and hold pesos while depreciation stresses the government’s high financing needs,” S&P analyst Lisa Schineller wrote in a statement accompanying the downgrade.As of March 31, Argentina had $33.7 billion in foreign-currency debt payments due by year-end, the vast majority in short-term Treasury bills, or Letes, according to the latest debt report by the Finance Ministry.Fitch’s said the deterioration in the macroeconomic environment “increases the likelihood of a sovereign default or restructuring of some kind.”Argentine bonds had started to recover from the worst of this week’s rout. The average spread on sovereign bonds tightened 80 basis points today, after earlier narrowing 128 bps, according to a JPMorgan index.Past PopulismOpposition candidate Alberto Fernandez trounced President Mauricio Macri in the primary, giving him a seemingly unassailable lead ahead of October’s presidential election. Investors fear that victory for Fernandez will mark a return to the populist policies of the past and a likely default.Moody’s Investors Service already rates the nation’s notes at five levels below investment grade.Fearful Argentines Pull Dollars From Banks After Election ShockThis week’s slump in assets resulted in large losses for some of the world’s biggest money managers, who piled into Argentine assets in a search for yield.It may already be too late for Argentina to avoid a default, according to Siobhan Morden, a New York-based strategist at Amherst Pierpont Securities. She said the weakening peso will push debt ratios even higher.Rising DebtFitch said it expects Argentina’s federal government debt to climb to around 95% of gross domestic product this year, without even factoring in the risk of a further slide in the currency. Meantime, South America’s second-largest economy will probably contract 2.5% by year-end, Martinez said.Financing pressures could intensify in 2020 when the sovereign will need to turn to the market to finance a fiscal deficit and some $20 billion in debt maturities as the nation’s disbursements from the International Monetary Fund run dry, according to Fitch.“Both roll-over and fresh financing could be difficult if local and external borrowing conditions do not improve markedly from current stressed levels,” Martinez said.(Updates with downgrade by S&P Global.)\--With assistance from Aline Oyamada and Justin Villamil.To contact the reporters on this story: Ben Bartenstein in New York at firstname.lastname@example.org;Sydney Maki in New York at email@example.comTo contact the editors responsible for this story: Julia Leite at firstname.lastname@example.org, Philip Sanders, Alec D.B. McCabeFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- President Donald Trump held a conference call Wednesday amid a plunge in the stock market with three of Wall Street’s top executives -- JPMorgan Chase & Co.’s Jamie Dimon, Bank of America Corp.’s Brian Moynihan and Citigroup Inc.’s Michael Corbat.The three chief executives were in Washington for a previously scheduled meeting with Treasury Secretary Steven Mnuchin on banking secrecy and money laundering, according to people familiar with the matter. On a conference call, they briefed the president, who was at his resort in Bedminster, New Jersey.The talks came during a tumultuous day in markets as Trump’s trade war with China continued to cast a cloud over the global economy. Stocks plummeted as signs appeared in the bond market a recession could be on the horizon.Moynihan, speaking in a Bloomberg Television interview on Friday, said the turmoil has been driven by issues outside the U.S., and that recession risks are low.“We have nothing to fear about a recession right now except for the fear of recession,” Moynihan said.Back-and-forth posturing by Trump and Chinese President Xi Jinping has kept investors on edge amid volatility that’s gripped markets for most of August. China called looming U.S. tariffs a violation of accords, while Trump said Thursday that any deal with Beijing must be “on our terms.”Spokespeople for JPMorgan, Citigroup and Bank of America declined to comment, as did the Treasury Department.\--With assistance from Katherine Chiglinsky and Michelle F. Davis.To contact the reporters on this story: Jennifer Jacobs in Washington at email@example.com;Jenny Surane in New York at firstname.lastname@example.orgTo contact the editors responsible for this story: Alex Wayne at email@example.com, Joshua Gallu, Justin BlumFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Japan’s 10-year bond yield slipped to the lowest since July 2016, shrugging off an attempt by the central bank to stem its decline amid a global debt rally. New Zealand’s benchmark rate also fell to a new record low.The JGB yield dropped two basis points to minus 0.255%, as growing fears about world growth and the U.S.-China trade war drive investors to haven assets. The Bank of Japan, widely seen as having a yield target range of about 20 basis points from zero for the benchmark, cut its purchases of 5-to-10 year bonds at Friday’s operations.The world’s negative-yielding bonds have surged to a record $16.7 trillion, while a key part of the U.S. Treasury curve inverted this week, signaling an expectation for the American economy to tip into a recession. With markets pricing in further easing by major central banks, investors including Janus Henderson are continuing to pile into debt.“BOJ’s action came as yields were getting too low,” said Takafumi Yamawaki, head of local rates and FX research at JPMorgan Chase & Co. in Tokyo. “It is difficult for the BOJ to achieve everything, such as monetary expansion guideline, steepen yield curve, boost yield levels and keep the 10-year range. At some point, the BOJ will have to give up something.”READ: Yields Sinking Below Target Puts Spotlight on BOJ’s ResponseNew Zealand’s 10-year bond yield fell as much as 3 basis points to 0.98%, the first time it has dipped under 1%.“Major global central banks are easing, and the fall in global yields will ripple to New Zealand,” said Imre Speizer, head of New Zealand strategy at Westpac Banking Corp. in Auckland. The nation’s central bank could cut rates by 25 basis points to 0.75% in November, he said.New LowsTreasury 30-year yield hit a record low this week, while the 10-year fell below the 2-year rate. Thursday’s U.S. retail sales figures, which showed the consumer remains in fine form, barely had any market impact with investors waiting on clarity about U.S.-China trade and the Federal Reserve policy outlook.The BOJ cut purchases in the key five-to-10 year maturity zone by 30 billion yen ($282 million) from its last operation, its first reduction since December. It has been gradually tapering its outright bond purchases, with the recent focus largely being on steepening the yield curve.“Global yields are sinking or approaching zero, adding momentum for Japanese investors to return to super-long Japanese government bonds,” Kazuhiko Sano, chief strategist at Tokai Tokyo Securities Co., wrote in a note before the operations. “Against this backdrop, it’s unlikely that the drop in yields will stop even when the 10-year yield at minus 0.25% serves as a milestone.”To contact the reporters on this story: Chikako Mogi in Tokyo at firstname.lastname@example.org;Ruth Carson in Singapore at email@example.comTo contact the editors responsible for this story: Tan Hwee Ann at firstname.lastname@example.org, Shikhar BalwaniFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- The re-emergence of a huge U.S. equity volatility buyer has banks scrambling to hedge the other side of the trades and is even affecting levels on the Cboe Volatility Index, according to Nomura Securities International.In July, a big purchaser accumulated protection against a major sell-off in U.S. stocks over the next month on the so-called VIX, in activity similar to that of the volatility buyer known as “50 Cent” given a penchant for hedging at that level in large amounts. And there’s someone on the other side of all those purchases.Dealers are short a series of VIX calls, especially those with strike prices in the 20 to 24 range, “in massive size due to the ‘50 Cent’ entity’s massive hedging program flows,” Nomura strategist Charlie McElligott wrote via email on Wednesday. “This fund’s return to the VIX options market has the Street beyond capacity because as dealers get short this VIX upside, they have to go out and buy all sorts of crash protection due to their synthetic position.”Read: ‘50 Cent’ Copycat Likely Made $170 Million Hedging During RoutJPMorgan Chase & Co. sees 20 as particularly key for VIX.“We are seeing relatively elevated gamma imbalance tilted toward the calls, with large concentration around the 20 strikes,“ said Peng Cheng, a JPMorgan global quantitative and derivatives strategist. “Since dealers are likely to be short gamma, one would expect ‘reverse pinning,’ i.e. VIX futures to be repelled away from the 20 strike. Therefore the 20 level is likely to be a floor/support for the VIX August future.”The VIX closed down 4.2% at 21.18 on Thursday, while VIX volatility (VVIX) fell 1.5% but remained near its highest levels since October 2018. Six of the VIX’s last nine sessions have seen double-digit percentage moves as markets are whipsawed by U.S.-China trade developments and geopolitical tensions. Skew, the cost of bearish options compared with bullish ones, has gotten expensive and forced investors to look hard for cheap protection. And the MOVE Index, which measures prices swings in Treasuries, is the highest since February 2016.Read: Stock Turmoil Sparks a Wall Street Hunt for Cheap Hedges“VIX, volatility of volatility (VVIX) and skew have been saying over course of July that we were either going to crash up or crash down,” McElligott wrote. “So clearly all this short gamma for dealers in the VIX complex means chase-y moves in either direction, especially with the rates volatility spasm.”(Adds JPMorgan comment and updates market levels.)\--With assistance from Luke Kawa.To contact the reporter on this story: Joanna Ossinger in Singapore at email@example.comTo contact the editors responsible for this story: Christopher Anstey at firstname.lastname@example.org, Dave Liedtka, Rita NazarethFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Cloudflare Inc., a firm that helps websites protect and distribute content, warned potential investors in its initial public offering that risks to its business go beyond the boilerplate Silicon Valley advisory that it may never become profitable.The San Francisco-based company said in its IPO filing Thursday that the risks include negative publicity from the use of its network by 8chan, a website favored by white supremacists and used by gunmen before mass shootings in El Paso, Texas and Christchurch, New Zealand, this year. It also cited the use of its services by neo-Nazi website The Daily Stormer around the time of the 2017 protests in Charlottesville, Virginia.Activities of such groups have had “significant adverse political, business, and reputational consequences” for the company, Cloudflare said in the filing. Terminating those accounts, though, has raised censorship concerns, it said.“We received significant adverse feedback for these decisions from those concerned about our ability to pass judgment on our customers and the users of our platform, or to censor them by limiting their access to our products, and we are aware of potential customers who decided not to subscribe to our products because of this,” according to the filing.Cloudflare co-founder and Chief Executive Officer Matthew Prince has publicly struggled with decisions balancing freedom of speech on the internet with the need to limit hateful, racist online posts and potentially dangerous calls for violence.Risky PrecedentAfter deciding to cut services to The Daily Stormer, Prince said the move could set a dangerous precedent.“After today, make no mistake, it will be a little bit harder for us to argue against a government somewhere pressuring us into taking down a site they don’t like,” Prince wrote.In its filing with the U.S. Securities and Exchange Commission, the company listed the amount of its offering as $100 million, a placeholder that will change when terms of the share sale are set later.Customers, LossesCloudflare said about 10% of Fortune 1,000 companies are paying customers. Its security services blocked an average of 44 billion cyber threats a day during the second quarter, it said.For the first six months of the year, Cloudflare lost $37 million on revenue of $129 million, compared with a loss of $32 million on revenue of $87 million for the same period last year, it said in its filing.Prince currently controls 16.6% of Cloudflare’s shares, according to the filing. Its largest investor is the venture capital firm New Enterprise Associates Inc., with a 20.4% stake, followed by Pelion Ventures with a 18.8% share and Venrock Associates with 16.2%.After going public, the company will have a dual-class stock structure that will give its Class B stockholders 10 votes per share, according to the filing.The offering is being led by Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co. Cloudflare is applying to list the shares on the New York Stock Exchange under the symbol NET.(Updates with details of risks starting in second paragraph)To contact the reporter on this story: Michael Hytha in San Francisco at email@example.comTo contact the editors responsible for this story: Liana Baker at firstname.lastname@example.org, Michael Hytha, Alistair BarrFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg Opinion) -- General Electric Co. is learning the price of its credibility shortcomings.Shares of the embattled industrial giant plunged more than 15% at one point on Thursday after Bernie Madoff whistle-blower Harry Markopolos published a damning critique of the company’s accounting. Markopolos is working on behalf of an unidentified hedge fund that is betting GE shares will decline. The company calls his claims “meritless,” and CEO Larry Culp deemed the report “market manipulation” in an e-mailed statement. I read the report (all 170-plus pages of it), and my first instinct was that none of the allegations — which range from GE’s need to immediately bolster its long-term care insurance reserves with $18.5 billion in cash to looming writedowns on its stake in Baker Hughes to the generally confusing way the company represents its finances — are particularly new, at least not for those who have been paying close attention. The scale of the potential problems is bigger than any others have estimated, and the person making the claims has a track record of exposing fraud, having warned the U.S. Securities and Exchange Commission about Madoff’s Ponzi scheme years before it became public. But the line from the report that stood out to me the most was this one: “Who’s being transparent — them or us?”The market is giving its verdict. A series of broken promises, presentation “errors” that later have to be corrected, a continuing tendency to micromanage Wall Street expectations to orchestrate optical “beats” and an unwillingness to do away with heavily engineered earnings adjustments have cost GE dearly in the credibility department. Regardless of the truth of Markopolos’s report — and again, there’s plenty to debate there — GE has surrendered the high ground in its defense.Just this week, Steve Winoker, GE’s head of investor relations, issued an update on the company’s power unit and sought to clarify “confusion” about the number of 7F gas turbines it has installed. GE says it has 900 units in service, which is up relative to the year-end total of 2017 and 2018. But marketing materials from those years put GE’s 7F installed base at more than 1,100 units. Winoker says those materials lumped other types of units into the 7F tally. But there was really no room for that kind of interpretation in the wording of the brochure. This disclosure follows outgoing CFO Jamie Miller’s acknowledgment in May of the “confusion” created when she referenced an industry data firm’s calculation of power-equipment orders on an earnings call in a way that made GE’s business appear more robust than it was. At the Paris Air Show in June, in response to a question from JPMorgan Chase & Co. analyst Steve Tusa, Jean Lydon-Rodgers, CEO of GE Aviation’s services arm, said the company’s CF34 and CF6 engines account for “slightly less” than half of repair shop visits, raising questions about how exposed that business may be to a drop in profitability once those older models are replaced. In a follow-up e-mail to investors, Winoker clarified the number is actually just less than a third.Maybe these are all inadvertent errors. But for a company that clearly needs to do more to bolster its transparency and credibility, it’s a troubling fact pattern and puts it on the back foot when countering Markopolos’s allegations.The primary focus of Markopolos’s analysis is GE’s long-term care insurance business, which he argues needs an immediate $18.5 billion cash influx with a $10.5 billion non-cash GAAP charge looming over the next few years because of tougher accounting rules. That’s on top of the $15 billion reserve shortfall GE disclosed in January 2018. GE’s argument that insurance reserves are “well-supported for our portfolio characteristics” runs up against the contrast between what appears to be a deeply researched, numbers-heavy analysis by Markopolos and its own opaque commentary and financial presentations.Is Markopolos’s estimate correct? He bases it off an analysis of loss ratios and reserves for comparable policies at insurers such as Prudential Financial Inc. and Unum Group. His numbers seem dire, but GE itself warned in its annual filing that a more sober outlook for investment yields and the rate at which insurance claimants get healthier could force the company to put up additional pretax GAAP reserves, with some scenarios demanding a $12 billion increase. Estimating the appropriate reserve amount is a careful dance of assumptions of various puts and takes, and you’d need a crystal ball to accurately predict what’s required here. But the underlying point is that GE isn’t being nearly as conservative as it should be with this business, especially given looming accounting rule changes. I made that argument in February.He also argues that GE shouldn’t consolidate the Baker Hughes results in its numbers and that it’s avoiding a writedown on that deal. I’m less troubled by this because GE has disclosed the size of the potential impairment once its stake in Baker Hughes drops below 50%, and it does clearly break out the earnings and cash flow contribution from the business. What could end up being most problematic for GE is Markopolos’s brief allusion to the disconnect between the aviation unit’s $4.2 billion in 2018 free cash flow and engine partner Safran SA’s disclosure that it loses money on each Leap engine produced and won’t recover cost of goods sold until the end of the decade at best. The true underlying financials of that business have been a fixation for critics who contend it’s not as solid as GE makes it out to be.Markopolos obviously has a vested interest in pushing down GE’s share price. But the company would be wise to focus less on his motivations and more on refuting the specifics of his claims with hard numbers of its own. That would go a long way toward rebuilding investors’ trust.To contact the author of this story: Brooke Sutherland at email@example.comTo contact the editor responsible for this story: Daniel Niemi at firstname.lastname@example.orgThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Brooke Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
(Bloomberg) -- Argentina’s century bonds may have been in the spotlight as the country’s assets tumbled this week, but there’s another 100-mark looming: the yield on its domestic securities.Peso bonds have lost almost half their value in dollar terms since President Mauricio Macri’s defeat in last weekend’s primary election, which sparked fears that populist opposition leader Alberto Fernandez will defeat him in the main vote in October. Prices on short-dated securities maturing in November next year have collapsed to 63 cents, equating to a yield of 89%.Losses on external debt have also been severe. Argentina’s dollar bonds are now the cheapest in the world, with average yields climbing to 27% on Wednesday from 11% last week, according to Bloomberg Barclays indexes. It’s a clear signal that traders think Argentina’s government may default on its obligations.Franklin Templeton’s Michael Hasenstab and Ashmore are among the investors that have been hurt by the sell-off.Still, the rout may have ended after Macri spoke with Fernandez on Wednesday to address the uncertainty ahead of the Oct. 27 election. Argentine Eurobonds gained on Thursday and spreads over U.S. Treasuries fell 132 basis points to 18.25 percentage points as of 1:20 p.m. in London, according to JPMorgan Chase & Co. indexes.To contact the reporter on this story: Paul Wallace in Lagos at email@example.comTo contact the editors responsible for this story: Dana El Baltaji at firstname.lastname@example.org, Robert Brand, Srinivasan SivabalanFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Morgan Stanley famously nabbed this year’s largest initial public offering, thanks partly to its top technology banker’s moonlighting job as an Uber driver. But the firm is nowhere to be found on what’s shaping up to be the year’s second-biggest IPO, WeWork.Morgan Stanley stepped back from a lesser role in the deal after WeWork rejected its pitch to be the top underwriter, according to people with knowledge of the matter. The relationship became strained when the bank wouldn’t extend as much debt financing as WeWork was seeking from key lenders, the people said, asking not to be identified discussing non-public information.The lead roles on the IPO and debt financing are held by JPMorgan Chase & Co., one of WeWork’s biggest investors and a long-time banker to Chief Executive Officer Adam Neumann. On the IPO alone, underwriters could slice up what could be more than $122 million in fees, assuming WeWork ends up paying 3.5%, a figure the company was discussing with banks this month. The final payout hasn’t been disclosed.After the snub, Morgan Stanley chose not to commit as much as its biggest rivals to a $6 billion credit facility for the loss-making company, complaining about WeWork’s risk profile and credit requirements, people with knowledge of the matter said. It did offer to contribute a smaller amount along with a commitment from the bank’s largest shareholder and occasional partner, Mitsubishi UFJ Financial Group Inc. But WeWork wasn’t interested in that kind of arrangement, they said.Bankers at the firm knew their decision to balk at the full credit commitment would risk Morgan Stanley’s role on an IPO, which is slated for September, some of them said. WeWork lost $690 million in the first half of the year, according to a regulatory filing Wednesday.Representatives for Morgan Stanley, WeWork and MUFG declined to comment.Morgan Stanley’s move was a surprise, considering its years-long pursuit of WeWork’s business. Michael Grimes, the New York-based firm’s top technology banker, had previously made a pitch to Neumann for a starring role on the IPO, people familiar with the matter have said.Yet Grimes and Neumann didn’t hit it off, standing in the way of a closer partnership, the people said. Morgan Stanley’s competitors also had a leg up: Affiliates of both JPMorgan and Goldman Sachs Group Inc. are investors in the company.Morgan Stanley was among lenders that led a junk-bond offering for WeWork last year, and it previously underwrote almost $10 million of mortgages for Neumann’s own homes. It was also part of a credit facility almost four years ago with JPMorgan, Citigroup Inc. and Deutsche Bank AG.Morgan Stanley is also among WeWork’s clients. The bank hired the startup last year to overhaul some of its office space to make it more millennial-friendly.But unlike JPMorgan, Morgan Stanley wasn’t among banks to loan Neumann money with his privately held shares as collateral. That $500 million loan, which also involved UBS Group AG and Credit Suisse Group AG, was considered risky by Morgan Stanley’s bankers, the people said.WeWork’s IPO is expected to raise about $3.5 billion, second only this year to Uber Technologies Inc.’s $8.1 billion IPO in May. JPMorgan is leading WeWork’s $6 billion credit facility, and all the banks listed as arrangers are also underwriters on the IPO, including Goldman Sachs, Bank of America Corp., Citigroup and Barclays Plc.Morgan Stanley could still do business with WeWork in the future, people familiar with the matter said.(Updates with client relationship in 10th paragraph.)\--With assistance from Michelle F. Davis.To contact the reporters on this story: Sonali Basak in New York at email@example.com;Gillian Tan in New York at firstname.lastname@example.orgTo contact the editors responsible for this story: Alan Goldstein at email@example.com, Steve Dickson, Daniel TaubFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Mexico’s central bank is the closest to cutting interest rates since it last did so five years ago. The question economists are now asking isn’t if, but when, and timing is key.Analysts are split almost down the middle between forecasting whether Banxico will lower its key rate Thursday, or keep it at a decade-high 8.25%, even if just for a little while longer. Sixteen see the central bank on hold, 14 see a quarter-point cut and one sees a half-point reduction, the closest they have come to predicting a reduction since the last one took place in 2014.The decision is bound to be divisive. Two of five board members expressed a dovish stance in the previous communique in June, while the majority raised concerns about high core inflation and a deeply uncertain global environment. And last month, President Andres Manuel Lopez Obrador broke from his strict non-interventionist stance to tell Bloomberg he’d like to see a rate cut.What Our Economist Says“Monetary conditions are tight and anchoring the economy. A negative and widening output gap argues for accommodative monetary conditions, but high core inflation and volatility in financial markets are policy constraints. The central bank should be able to cut interest rates 25 basis points, in line with the Federal Reserve in July, to avoid relative tighter monetary conditions more than providing policy accommodation.”\--Felipe Hernandez, Latin America economist with Bloomberg EconomicsThursday’s decision will be published on the central bank’s website at 1 p.m. local time together with a statement from the bank’s board.Here’s what to watch for:TimingThe central bank hasn’t properly prepared the market for lower borrowing costs this time around, warns Manuel Sanchez, a former central bank board member known for his hawkish views. Banxico has a single inflation-fighting mandate with a target of 3%.“If they argue that convergence to the target is going well, it’s probable that suspicions will arise that they cut rates to chase an economic growth objective,” Sanchez, whose term was up December 2016, said in an interview. The central bank could lose credibility that’s key to controlling inflation if it eases too soon, he said.Inflation Vs Core PricesInvestors are leaning slightly toward easing as forecast by interest-rate swaps. Their argument goes: the 3.78% inflation rate is the lowest in 30 months, the economy narrowly dodged recession and the Federal Reserve, Brazil and Chile all just lowered borrowing costs.Naysayers warn that 3.82% core inflation remains high, trade war risks with the U.S. abound and Argentina’s assets just fell off a cliff after a primary election stoked concern it’ll return to populist policies.Weak Economy, DowngradesBudget cuts by the Lopez Obrador administration, declining investment due to uncertainty about his policies and the risk of credit downgrades at state oil company Pemex have exacerbated a slowdown in Mexico’s economy. Latin America’s second-biggest economy may expand only 1% this year, the slowest since the 2009 recession, according to a Bloomberg survey.JPMorgan Chase & Co. doesn’t see lower rates before September, and then only if certain conditions are met.“We agree that an easing cycle is approaching, but the timing is tricky and requires clear signals,” JPMorgan economist Gabriel Lozano wrote in a research note. “The Fed cut and weak growth warrant a dovish stance” but “risks of downgrades, tariff threats, and fragile public finances call for prudence.”To contact the reporter on this story: Nacha Cattan in Mexico City at firstname.lastname@example.orgTo contact the editors responsible for this story: Juan Pablo Spinetto at email@example.com, Robert Jameson, Walter BrandimarteFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Oil tumbled the most in a week as global financial markets swooned and swelling U.S. crude stockpiles reinforced fears about an economic slowdown.Futures closed down 3.3% in New York on Wednesday, joining a slide in equities that saw 98% of the stocks in the S&P 500 Index drop. American crude inventories posted a surprise increase for the second straight week, U.S. data showed. That accelerated a flight from commodities and other higher-risk assets as sagging Treasury yields sounded alarm bells for a recession.“People are panicking,” said Mark Waggoner, president of Oregon brokerage Excel Futures Inc. “They are saying ‘I can’t be long crude here if the economy is going to slow down.’ ”Despite a late-session rebound, West Texas Intermediate crude for September settled $1.87 lower at $55.23 a barrel on the New York Mercantile Exchange. The contract slipped below its 50- and 200-day moving averages, a bearish harbinger.Brent for October settlement decreased 3% to $59.48 on the ICE Futures Europe Exchange. The international benchmark traded at a $4.23 premium to same-month WTI futures.Fears of a recession spread after the yield on 10-year U.S. Treasuries fell below the rate on the two-year for the first time since 2007. The S&P 500 dropped as much as 3%. A contraction in Germany’s economy and weak retail and industrial activity in China added to hints of a slowdown that could stall oil demand.In the U.S., crude stockpiles grew by 1.58 million barrels, the U.S. Energy Information Administration said. It was the second straight week of surprise increases to inventories. Still, exports rebounded, gasoline stocks shrank and gasoline demand climbed to its highest in almost 30 years of record-keeping.While the data can be volatile, “in general, a crude build on a day when there’s growing concern about a recession is not going to do anything good for oil prices,” said Rob Thummel, managing director at Tortoise, a Kansas firm that oversees more than $16 billion in energy assets.The American stockpiles report puts more pressure on Saudi Arabia, which has pledged to cut exports to help stem the price rout, he said.“I think OPEC knows they need to get their imports to the United States down,” he said.\--With assistance from Grant Smith and Sharon Cho.To contact the reporter on this story: Alex Nussbaum in New York at firstname.lastname@example.orgTo contact the editors responsible for this story: Simon Casey at email@example.com, Joe Carroll, Catherine TraywickFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- The brash founders of WeWork Cos., the global network of shared office spaces now on the cusp of going public, have officially stated their mission: “to elevate the world’s consciousness.”Never mind making money first.The signature grow-at-any-cost ethos of the unicorn era was on full display Wednesday as WeWork filed to go public after months of fevered speculation.Having raised more than $12 billion since its founding nine years ago, and having never turned a dime of profit, WeWork now hopes to sell billions of dollars in stock while simultaneously borrowing billions more.Investors have cause to be leery, especially given the unsettled state of the global economy and financial markets. WeWork is not only chasing bold -- and possibly quixotic -- ambitions to transform the way the world lives and works. It also looking to transform when and how young companies can go public.“WeWork is pushing ahead with an IPO despite an unclear path to profitability that could endanger its valuation,” said Bloomberg Intelligence Analyst Jeffrey Langbaum. “We believe the company will be hard-pressed to reverse losses as long as it pursues significant revenue growth.”Stark LossesThe losses, as laid out in the IPO prospectus, were stark: $2.9 billion in the past three years and $690 million in just the first six months of 2019. Still, the company said those losses resulted from continual investments in its growth. Its annual revenue more than doubled to $1.8 billion in 2018 compared to $886 million in the previous year.“We have a history of losses,” it said in the filing with the U.S. Securities and Exchange Commission. “We cannot predict whether we will achieve profitability for the foreseeable future.”Chief Executive Officer Adam Neumann faces persistent questions about WeWork’s propensity to burn cash. The company has described some of its more scrutinized expenses, including a flashy contest series that cost more than $40 million, as a “critical means through which we express our key values.”Another potential hurdle: unpredictable swings in the stock market as investors fret over trade tensions, Brexit and other issues. It may not be the best time to go public, as evidenced by the tepid reception to Uber Technologies Inc.’s debut in May.“These broad market fluctuations may adversely affect the market price of our Class A common stock,” WeWork said in its filing.Stock ClassesIn an unconventional move, there will be three classes of common stock at WeWork: Holders of Class A shares will have one vote each while Class B and Class C holders will have 20 votes for each share. That arrangement gives Neumann, who will control a majority of the voting power, outsize sway over picking board members and other matters subject to a shareholder vote.The office-rental company listed an offering size of $1 billion, which is typically a placeholder that will be revised when terms of the share sale are set later.WeWork had been targeting a share sale of about $3.5 billion in September, people familiar with the matter have said. That would make it the second-biggest IPO of the year, topped only by Uber Technologies’s $8.1 billion listing. In parallel with the stock offering, WeWork has been in talks to raise as much as $6 billion in debt.JPMorgan Chase & Co. and Goldman Sachs Group Inc. will be the lead underwriters on the offering. Executives from major banks had been courting the company for years.Debt LevelsThe New York-based company said it could one day be profitable if it “stopped investing in our growth.” WeWork said only 30% of its open locations are “mature” and that 70% of its locations had been open for two years or less. It also has a revenue backlog of $4 billion, eight times its backlog last year, it added.The full-year net loss attributable to the company widened more than 80% to $1.6 billion, from a loss of $883.9 million in 2017. It lost about $430 million in 2016.SoftBank Group Corp. is the company’s largest backer and has valued the business at $47 billion. It has invested about $10.7 billion in WeWork since the start of 2017 and holds a board seat, according to the filing.WeWork is by far the most valuable co-working business, though numerous rivals around the world are trying to lure away members.WeWork -- which changed its name to the We Co. in a diversification move earlier this year -- has in recent weeks been looking to raise a significant amount of debt. It was seeking to borrow $2 billion through a letter-of-credit facility and $4 billion from a delayed-draw term loan, Bloomberg previously reported.Banks will have to make good on their commitments only if at least $3 billion is raised in the IPO. It confirmed in the filing that it entered into a commitment letter this month for a credit facility of as much as $6 billion.The company plans to list shares under the symbol “WE,” although the exchange wasn’t listed.(Adds additional details throughout, starting in first paragraph.)\--With assistance from Michael Hytha, Drew Singer, Gillian Tan and Sonali Basak.To contact the reporters on this story: Ellen Huet in San Francisco at firstname.lastname@example.org;Liana Baker in New York at email@example.comTo contact the editors responsible for this story: Liana Baker at firstname.lastname@example.org, ;Mark Milian at email@example.com, Larry Reibstein, Matthew MonksFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Investing.com – Stocks plunged Wednesday after a key economic signal flashed a recession warning and both Germany and China showed more signs of slowing growth.
Allergan chief executive Brent Saunders disclosed the role of JPMorgan and Wachtell, Lipton, Rosen & Katz asadvisers to the company on its planned sale to AbbVie, not AbbVie chief executive Richard Gonzalez ...
Top advisory shops, including the likes of Goldman Sachs and Morgan Stanley, have long shunned activists for fear of alienating their corporate clients. As a result, shareholder activism has become a lucrative business for banks hoping to cosy up to corporates in search of future business and hefty fees.
(Bloomberg) -- Argentine assets extended an unprecedented slump as traders reassessed the new political outlook for the troubled South American nation after Sunday’s primary election upset.The peso fell another 6% after losing 15% on Monday. Century notes fell to a record 49.85 cents on the dollar in New York, while yields on bonds due in 2021 surged to 46%. Argentina’s spreads over U.S. Treasuries have now surpassed Zambia, according to JPMorgan indexes, and trail only Venezuela. The selloff has pushed the upfront cost to protect Argentine debt for five years with credit-default swaps to 45.8%, making it the most costly to insure against non-payment in the world, according to CMA data. That would imply a probability of default of about 80%.Investors are concerned Argentina will return to populist policies that included currency controls after President Mauricio Macri’s stunning loss in primary elections over the weekend, seriously hindering his re-election chances in the Oct. 27 vote. While the opposition’s Alberto Fernandez said Monday that he doesn’t want a default, neither candidate has been able to assuage market concerns. “So much of the path for peso is going to be determined by commentary now and I didn’t think Fernandez’s comments helped too much,” said Brendan McKenna, a currency strategist at Wells Fargo in New York. “It would have been more comforting to hear something along the lines of ‘we’ll find a way to not default’ or something to calm markets."While some investors like Jefferies have held firm through the turmoil, most have run for the exit -- and recommended clients do the same. Citigroup closed its recommendation to go long on 2020 Lecaps as Argentine assets, saying the country’s assets will likely to remain under pressure, while BTG Pactual said investors should reduce positions in the nation’s bonds trading above the mid-60 cents level on the dollar to underweight.It’s the same for the currency: Morgan Stanley said the peso may still drop another 20% from Monday’s close in nominal terms in the months to come as traders clean out positioning and inflation expectations deteriorate. Analysts at Bank of America Merrill Lynch revised its forecasts to 70.5 per dollar by year-end, from 51.4 before, and 106.6 by 2020, saying the market collapse will have strong effects on the economy going forward.Stocks have been the sole bright spot on Tuesday, with the Merval benchmark gauge rebounding 8.5% in dollar terms after falling a record 48% the previous day. \--With assistance from Katia Porzecanski.To contact the reporters on this story: Julia Leite in Sao Paulo at firstname.lastname@example.org;Aline Oyamada in Sao Paulo at email@example.comTo contact the editor responsible for this story: Daniel Cancel at firstname.lastname@example.orgFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.