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Our briefing for Thursday May 28, 2020:
May 28, 2020 3:52:49 PM
- As the death toll in the United States has now passed 100,000, the state hit the hardest is making a bold move when it comes to facial coverings. New York state governor Andrew Cuomo will sign an executive order that will authorize private businesses the right to deny entry to people who don’t wear a mask, or facial covering. “When we are talking about reopening stores in places of business, we are giving the store owners the right to say if you are not wearing a mask, you can't come in. That store owner has the right to protect himself, governor Cuomo said. New York City mayor Bill de Blasio is preparing for the area to begin phase 1 of its reopening in the first or second week of June.
- Canadian Prime Minister Justin Trudeau was co-host of a United Nations (UN) meeting that included more than 50 heads of state and governments aimed at lessening the social and economic blow of the coronavirus pandemic. Prime Minister Trudeau co-hosted the meeting with UN Secretary-General Antonio Guterres and Jamaican Prime Minister Andrew Holness. Trudeau called on a co-ordinated effort for global and domestic economies to bounce back. Noticeably not one of the 50 heads of state to join the meeting was United States President Donald Trump who has argued smart leaders put the interests of their country first.
- United Kingdom Prime Minister Boris Johnson announced Thursday that England has met all five of the government’s tests for easing the lockdown. Therefore as of Monday June 1st, groups of six people can meet outdoors, outdoor retail and car showrooms can reopen and primary schools can resume as well. Non-essential retailers will be allowed to reopen starting June 15th with social distancing measures in place.
- France Prime Minister Edouard Phillippe announced the country will relax travel restrictions inside the country and allow schools, cafes and restaurants to reopen next week. The announcement marks the second stage of France’s easing from their lockdown. The first stage happened on May 11th after a two-month shutdown. The country like many others throughout the world has seen their economy suffer with unemployment claims rising to 22% in April.
- Philippines President Rodrigo Duterte has approved a recommendation to relax lockdown restrictions in Manila as of June 1st. Gatherings of up to ten people will be allowed, shops and some public transportation will reopen, while movement in and out of the capital city will be permitted. However, provided people wear masks and observe social distancing. The relaxed rules are happening even though the country reported its highest daily infection rate on Thursday. As of this weekend, Manila’s lockdown will surpass Wuhan’s, ground zero for the coronavirus epidemic, in terms of length.
- South Korea announced on Thursday they will be strengthening quarantine measures in Seoul and surrounding areas after experiencing its largest jump in daily infections in nearly two months. Public facilities such as galleries and parks will be closed for two weeks while the country’s health minister has urged entertainment venues to suspend operations as well.
Covid-19 – Due Diligence And Asset Management
Finance CEO’s Worry Markets are too Optimistic About Economy
Brief: Leaders of the biggest financial companies are getting more optimistic about an economic rebound as the pandemic lockdown eases, but say recent stock gains might have overshot reality. “The market is assuming that we’re not going to see a severe second wave or third wave” of Covid-19, and that treatments will become available to cushion the impact of new outbreaks, BlackRock Inc. Chief Executive Officer Larry Fink said Wednesday at a virtual industry conference. “I do believe jobs are going to be slower coming back than other people believe.” Stock-market optimism was particularly pronounced this week, with some of the best performers, including Carnival Corp. and United Airlines Holdings Inc., among those hurt most by the pandemic. The S&P 500 has increased 36% since reaching its lowest in almost 3 1/2 years on March 23. Signs that economies are starting to come to life and prospects for a vaccine helped fuel the gains, as did upbeat comments from policy makers and business leaders. JPMorgan Chase & Co. CEO Jamie Dimon said some borrowers who requested forbearance are still making payments, and banks could be done adding to loan-loss reserves after this quarter.
Hedge Funds Seek Distressed Debt Mavens Amid Pandemic Turmoil
Brief: First came the money. Now it’s the manpower. Hedge funds and investment firms are scouting for distressed debt specialists as they raise large war chests to snap up bargains amid the downturn triggered by the coronavirus pandemic. Elliott Management Corp., Signal Capital Partners and Taconic Capital Advisors have all embarked on a hiring spree in recent weeks, while headhunters Paragon Search Partners are juggling requests for distressed debt hires. “There’s so much money being raised, it requires more people on the ground,” said Louisa Watt, a lawyer who advises distressed debt funds as a partner at Brown Rudnick LLP. This is the busiest her clients have been in years, she added. One of the hedge funds she works with has done more trades in the last six weeks than they did in the last two years combined. Firms including Oaktree Capital Group LLC, Highbridge Capital Management and Chenavari Investment Managers are seeking to raise a record $68 billion to target companies that have been punished by the global economic shutdown, according to data compiled by Preqin.
Property Fund Income Seen Plunging 35% and Value Slump May Last Beyond Crisis
Brief: Investors relying on commercial property funds could lose up to 35% of their income as rents dry up during the pandemic, and experts warn them to "brace themselves" for a looming crash in values even if the market bounces back. Asset managers running some of the UK’s largest commercial property funds are beginning to warn their clients to expect lower payouts as the virus hammers the industry. According to a Legal & General investor note, sent on 22 May and seen by Financial News, the firm’s £2.8bn UK property fund has collected 76% of the rent required by the end of March. L&G said that it collected 88% of required rent from offices, 81% from industrials, 76% from alternatives, 61% from retail, and 15% from leisure. L&G's rental collection from offices is holding up so far, but there might be fewer firms looking to rent space due to the success of swathes of employees working from home. Analysis from occupier consultancy DeVono Cresa found that demand for commercial property had dipped by 30% in the first quarter of 2020.
Home Trading Triggers Bank ‘Black Hole’ Surveillance Alerts
Brief: Potential breaches of market rules have spiked since traders began working from home in March, drawing scrutiny from regulators and piling pressure on banks to plug “black holes” in surveillance systems, industry officials say. With banks unable to check in person on the behaviour of traders working remotely, they have to rely on machines that flag any apparent bad behaviour or suspicious transactions made under the unusual coronavirus crisis working conditions. “In your kitchen or spare bedroom there is no colleague to monitor what you are up to and what we are seeing across a number of clients is a spike in escalations,” said Erkin Adylov, CEO of Behavox, whose software is used by banks, hedge funds and asset managers in New York, London and Asia to monitor staff. Behavox has seen an 18% rise in conduct being “escalated” or singled out for scrutiny among clients since March, ranging from swearing to more serious incidents like disclosing client names.
Canada’s Big Banks Set Aside $7.9 Billion for Soured Loans
Brief: Toronto-Dominion Bank and Canadian Imperial Bank of Commerce set aside record amounts for soured loans in the fiscal second quarter, bringing total provisions for Canada’s six-biggest banks to C$10.9 billion ($7.9 billion) as they brace for the coronavirus pandemic’s economic aftermath. Toronto-Dominion reported the biggest set-asides among the country’s large lenders, earmarking C$3.22 billion, while CIBC’s figure was C$1.41 billion. The higher provisions for credit losses eroded net income in the three months through April, with both companies missing analysts’ earnings estimates. The Canadian banks, like their U.S. counterparts, are building up reserves in anticipation of expected stresses to consumers and companies from the outbreak, which brought the North American economy to a virtual standstill and boosted unemployment on both sides of the border. Loan-loss provisions topped analysts’ expectations of C$8.9 billion for Canada’s six biggest banks.
Private Equity in the Covid-19 Crisis
Brief: While the impact of the coronavirus pandemic on global stock markets is clear to see, it's harder to discern its effect on private equity markets. Investors in unlisted companies don't have the option to buys and sell shares at a moment's notice as they do with businesses listed on the stock market, but that doesn't mean these firms can't see their valuations plunge during a crisis. Private equity is typically viewed as a risky area of investment. Lack of liquidity is a prime concern as it can take a long time to offload an investment, and fledgling businesses are often prone to failure. Concerns around the risk of the sector were raised last year during the high-profilecollapse of the Woodford Patient Capital Trust, which was taken over and renamed by Schrodersafter embattled investor Neil Woodford closed his eponymous fund firm. Investment trusts have been caught up in the market turmoil of recent months and private equity trusts have not come out unscathed; Morningstar Direct data shows the average Private Equity investment trust is down 20.1% year to date. That compares with the FTSE 100, which is still down 20% year to date, and the S&P 500, down 13%. Just one of the 14 trusts in the sector, BMO Private Equity Trust (BPET), is in positive territory, with its share price up 2.42% year to date. Its peers, meanwhile, have seen their share prices tumble by as much as 49%.
