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Our briefing for Friday November 20, 2020:
Nov 20, 2020 3:10:21 PM
- In the United States, Treasury Secretary Steve Mnuchin plans to allow several of the Federal Reserve emergency lending programs expire on December 31st, which will dramatically reduce the central bank’s ability to help the financial system in the midst of the pandemic. Funding set to expire at the end of the year include plans to cover corporate bond buying, loans to state and local governments and the Main Street Lending Program to small and medium-sized businesses. Mnuchin says the move isn’t a political issue and there is plenty of money around to provide funding where needed. The Federal Reserve who has been working with the Trump administration through the majority of the pandemic, disagreed with the decision stating: “The Federal Reserve would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backup for our still-strained and vulnerable economy.”
- Canadian Prime Minister Justin Trudeau asked citizens to please follow public health rules in their regions as provinces across the country struggle to keep an alarming spike in COVID-19 cases under control. “We are facing [a] winter that’s going to drive people inside more and more, and we’re really at risk of seeing caseloads go up, and hospitals get overwhelmed, and more loved ones dying,” said Trudeau. The prime minister’s plea comes as new modelling from Canada’s public health agency shows the number of COVID-19 cases could reach 60,000 a day in the country by the end of December if Canadians increase their current level of contact with other people. The number could be limited to 20,000 a day if Canadians maintain their current number of personal contacts, according to the data.
- United Kingdom Health Secretary Matt Hancock said there are “encouraging signs” the number of coronavirus cases are starting to flatten in the country. The health secretary was also asked about plans to ease restrictions for Christmas. Hancock said the government was hoping to come up with a set of uniform rules across the four nations that make up the UK but warned it won’t be a normal Christmas. Some semblance of Christmas though would be key it seems – especially to young Britons. The Office of National Statistics carried out a survey and noted that more than a third of those aged 16-29 feel lonely and 41% reported a high level of anxiety, only heightened due to the pandemic and well above the shares for other age groups included in the study.
- Sweden’s health authority and scientists are on much different pages when it comes to the effectiveness of masks against the coronavirus pandemic. Swedish health authorities reiterated their skepticism towards masks on Thursday saying they didn’t see the need to recommend general use of face masks on public transit as it shouldn’t be used as an excuse not to keep a safe distance. The policy view has drawn sharp criticism from the Royal Swedish Academy of Sciences, which awards Nobel Prizes in Physics, Chemistry and Economics. They issued a statement of their own in defence of masks. On Thursday, the number of COVID-19 cases in Sweden went above 200,000 as the country is struggling more during the second wave.
- While many countries throughout the world are coping with the second wave of the coronavirus, Hong Kong health officials are stating the fourth wave of the coronavirus has started in the region. Two of Hong Kong’s top infectious disease experts declared the city’s fourth wave had begun with more than 30 confirmed and preliminary infections across various districts and sectors. The health officials stated that all non-essential indoor gatherings should be postponed with immediate effect and the public should be prepared for school closings and working from home if caseloads double or triple in the next few days.
- The World Health Organization (WHO) has advised against prescribing the drug remdesivir to COVID-19 patients in hospital. The WHO expert panel published their recommendation in the British Medical Journal on Friday stating the drug was “not suggested for patients admitted to hospital with Covid-19 regardless of how severely ill they are, because there is currently no evidence that it improves survival or the need for ventilation.” Remdesivir was approved last month by the United States Food and Drug Administration (FDA) and was one of the cocktail drugs given to President Donald Trump when he contracted COVID-19. Clearly, the US based drugmaker for remdesivir, Gilead has disagreed from the outset with the WHO, stating their study was flawed and that there was “robust evidence” from multiple studies showing the drug accelerated COVID-19 recovery.
Covid-19 – Due Diligence And Asset Management
KKR is Said to Make Preparations for New European Buyout Fund
Brief: KKR & Co. is preparing to raise another European buyout fund just a year after its last one, having comfortably outspent rivals during the coronavirus pandemic, according to people familiar with the matter. The U.S. private equity firm is in the early stages of planning for a new fund, the people said, asking not to be identified discussing confidential information. The vehicle is likely to be larger than the 5.8 billion euros ($6.9 billion) KKR raised for its fifth European private equity fund in November 2019, the people said. KKR plans to begin the fundraising next year, one of the people said. The fund will be managed by partners Philipp Freise and Mattia Caprioli, the person said. Deliberations are ongoing and no final decisions on timing or amount have been made, according to the people. A representative for KKR declined to comment. Such a quick return to the fundraising trail is a result of KKR having been the world’s most active buyout firm this year, according to data compiled by Bloomberg. It has announced more than $20 billion of purchases in Europe alone, the data show. While the crisis brought an abrupt halt to dealmaking for many of the private equity industry’s biggest names in March, KKR continued to spend big and invest through the downturn. Notable deals have included a 6.8 billion euro take private of German publisher Axel Springer SE and a 4.2 billion pound ($5.6 billion) acquisition of waste-management business Viridor Ltd.
U.S. Financial Groups, Wary of Crackdown, Feel Out Biden Transition Team
Brief: Financial lobbyists, kept at arm’s length by Joe Biden’s campaign, have begun engaging with the Democratic president-elect’s transition team on issues including economic stimulus, pandemic aid programs, and appointees, according to more than a dozen executives at banks and financial lobby groups. Some industry executives had worried they may struggle to access Biden’s transition team after his campaign had largely warned off lobbyists pushing policy asks and pledged to crack down on influence-peddling if he won. But recently Biden’s transition team has approached financial groups and lobbyists to discuss policy and regulation issues, three people said. In addition to these formal meetings, other industry executives said they had been able to chat informally with long-established contacts, including policy experts and academics, now acting as unpaid advisers to the transition team. With progressives pushing Biden to reverse Trump’s corporate giveaways, install hard-charging financial regulators and ramp-up consumer protections and climate-risk measures, financial executives hope the access may help avert an industry crackdown. Richard Hunt, chief executive of the Consumer Bankers Association (CBA), which represents big lenders including Bank of America Corp BAC.N, Citigroup Inc C.N, and Wells Fargo & Co WFC.N, said Biden's team recently approached the CBA to discuss its priorities.
JPMorgan Becomes First Major Bank to Say First-Quarter GDP Will Decline Because of Covid Surge
Brief: JPMorgan economists now see an economic contraction in the first quarter due to the spreading coronavirus and related restrictions being imposed by states and cities. The new forecast is a departure from Wall Street’s widely held view that the first quarter would be positive, with an improving economy throughout 2021. The JPMorgan economists said they expect the economy to expand briskly in the second and third quarter, based on positive vaccine developments. “This winter will be grim, and we believe the economy will contract again in 1Q,” the economists wrote. They projected that the first quarter will contract by 1% after growth of 2.8% in the fourth quarter. For the second quarter, they see the economy rallying and growth of 4.5% followed by a robust 6.5% in the third quarter. The economists also expect about $1 trillion of fiscal stimulus, likely beginning near the end of the first quarter. That should help boost midyear growth. “One thing that is unlikely to change between 2020 and 2021 is that the virus will continue to dominate the economic outlook. ... Case counts in the latest wave are easily surpassing the March and July waves,” the economists wrote.
Morgan Stanley Sees K-Shaped Recovery For Commercial Real Estate
Brief: Morgan Stanley says commercial real estate will see a so-called K-shaped recovery from the pandemic, leading to stark winners and losers among holders of commercial mortgage-backed securities. This bifurcation means that some deals will experience much higher realized losses than others, depending on factors such as bond, vintage and property type. Bonds backed by hotels, retail and offices are likely to see more struggles than those on industrial properties. The split creates a market where due diligence and active management is key as investors seek to gain an upper hand amid the chaos. “A bond picker’s market has emerged,” a team of Morgan Stanley analysts led by Richard Hill wrote in an outlook report Wednesday. For instance, a “market of ‘haves’ and ‘have-nots’ has emerged in BBB- (CMBS bonds), as idiosyncratic risks and rising loss expectations magnify quality tiering.” This has led to scant trading opportunities for older BBB- CMBS conduit tranches. Investors are unwilling to sell the higher-quality bonds, while the lower-quality bonds lack sponsorship, the analysts wrote.
Where Glenview Founder Larry Robins Is Bullish on Covid-19 Vaccine Optimism
Brief: Glenview Capital Management founder Larry Robbins is upbeat about the development of Covid-19 vaccines, making him optimistic about some sectors but still wary of others. “For the first time in this battle, in the last several weeks there’s been real light at the end of the tunnel,” Robbins said Thursday at the New York Alternative Investment Roundtable’s online event. “We do believe that there will be millions of doses given in December,” he said, with frontline workers and the elderly being among the first to receive it and the second phase of distribution beginning as early as March. “We think Pfizer files tomorrow,” Robbins said, referring to government authorization for its Covid-19 vaccine. “We think we are in a cadence now where every week, or every two weeks, you’re going to get good news from another supplier,” he said, explaining that means good data on their vaccines or ways to ship them to the markets. Robbins expects that beaten-down hospital stocks — such as Glenview’s largest holding, Tenet Healthcare Corp. — are likely to rise as deferred procedures such as knee replacements and cataract surgeries get done once vaccinated patients feel safe.
Private Equity Veterans Says Virtual Fundraising Rocks
Brief: The coronavirus-induced necessity of raising funds virtually this year has done more good than harm for well-established private equity firms, industry veterans speaking at a private equity forum sponsored by Hong Kong-based AVCJ said this week. "We haven't missed a beat," said Kewsong Lee, New York-based CEO of the Carlyle Group in a keynote interview Wednesday. Carlyle, with $230 billion in alternatives assets, raised $18 billion over the first nine months of 2020, exceeding the prior year's $16 billion total in part due to the effectiveness and efficiency of virtual client meetings, Mr. Lee said. Having conversations that start in the morning with Korea, Japan and China before moving on to Europe in the afternoon is something "you couldn't do ... in a world where you're hopping on an airplane," he said. "From a productivity standpoint ... this is a step forward," agreed Jean Eric Salata, chief executive and founding partner of Hong Kong-based Baring Private Equity Asia, in an interview Thursday morning. "You can get a lot more done in a much shorter period of time." By contrast, flying around the world and meeting investors one on one is time-consuming and inefficient, he said.
