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Our briefing for Tuesday August 25, 2020:
Aug 25, 2020 3:30:28 PM
- In the United States, President Donald Trump defended his government’s handling of the coronavirus pandemic on the first night of the Republican national convention. “When the China virus invaded our country, we launched the greatest mobilization of American society since World War II, said President Trump. Two of the other key profile speakers on Monday night also blamed China – former South Carolina governor Nikki Haley and the president’s eldest son – Donald Jr. Elsewhere in the country, health officials are concerned when/if a vaccine becomes available - who will be the first to receive the vaccine? If a vaccine was approved for American use, there would not be enough doses immediately available for a national campaign. The country’s national vaccine committee is looking to publish a full report on their recommendations within a few weeks, but they are keen to make sure vaccine recipients are selected based on their need, and not their political stripes.
- As the majority of Canadian children prepare to head back to classes in two weeks, health officials are concerned over the progress in the country’s testing for coronavirus. For instance, in the United States, five saliva-based tests have been approved so far by a government agency. Health Canada has yet to approve one. Researchers and Canadian public health officials have been calling for COVID-19 based saliva tests, saying that asking school aged children to spit into a cup is much simpler and less evasive than the current, uncomfortable nasal swab test.
- The United Kingdom government is calling on companies to launch regular workplace testing to test staff for COVID-19 as they return to the workplace and in order to keep the economy going through an expected winter surge in infections. The Financial Times is reporting meetings have been taking place with business leaders and government officials even suggesting some employers could be allowed to stay open even if new lockdowns are introduced, as long as they are conducting regular testing of their staff. The question from the business community is who pays for the testing and if the company is on the smaller scale, can they afford it after already taking a significant hit due to the pandemic?
- In order to help curb the spread of COVID-19 in its country, Spain has enlisted the help of the military to bolster their track-and-trace effort. Spain’s Prime Minister Pedro Sanchez said he would make 2,000 soldiers available to help with the government’s tracking efforts. This was also the first news conference the prime minster has held since his summer break. The country’s leader has taken criticism for being missing in action as Spain was experiencing the worst coronavirus rates in Europe over the past two weeks.
- India continues to be the hotspot for the COVID-19 pandemic, reporting the highest number of new coronavirus cases globally for the 18th straight day. It took the country of 1.4 billion people six months to reach 1.6 million cases, a period in which the government imposed a strict lockdown. However, infections have surged by another 1.5 million in August alone. Despite this, India and its government leaders keep pointing to the comparatively low mortality rate – about 1.84% of cases, compared to the global mortality rate of 3.4% due to COVID-19.
- The Washington Post is reporting a bizarre occurrence in Brazil. Even with the country experiencing the second most COVID-19 cases in the world, and its leader, Jair Bolsonaro seemingly doing everything wrong along the way, he has never been more popular among his people. According to the polling service Datafolha, President Bolsonaro’s approval rating over the last two months has risen from 32% to 37%, while his disapproval rating has dropped from 44% to 34%. The popularity bump has been attributed to the poorer population and Bolsonaro’s prioritization of the economy. That segment of the population couldn’t survive without working and some have been receiving emergency financial aid, an income they have never seen before. In some cases, the financial aid reached poorer people long before the pandemic did.
Covid-19 – Due Diligence And Asset Management
Hamptons Concert Slammed by Cuomo Raised Only $152,000 for Charity
Brief: Spinning records on that sultry night in the Hamptons: DJ D-Sol, better known as David Solomon of Goldman Sachs. Among the thousands paying up to $25,000 to attend the outdoor concert: the Winklevoss twins, Cameron and Tyler, and the hedge fund mogul Kenneth Griffin. The payoff for the charities that were promised to benefit: all of $152,000. Safe & Sound, as the July event was called, has gone down as the most tone-deaf musical moment of the Hamptons’ Summer of Covid. State health officials launched an investigation after Governor Andrew Cuomo excoriated the organizers and well-heeled revelers for “egregious social-distancing violations.” But the night’s real surprise turns out to be the sums that were raised for charity. To some, $152,000 is very un-Hamptons-esque. This, after all, is where a beachfront estate originally built for the Ford family was recently listed for $145 million. “I never would have gone if I knew how little it would be,” said Daniel Tannebaum, one of the Manhattan residents who’s been spending more time at the beach since lockdown, working remotely for a management-consulting firm. Others find $152,000 a fair amount considering the expenses of putting on such an event, and the scrutiny that has created legal and crisis-management issues as well as potential government fines. “I feel a little sense of relief,” said Southampton Town Supervisor Jay Schneiderman, who was born in Montauk and has lived on the East End full-time for more than 30 years. “I had the fear it would be zero.”
JPMorgan Will Have Staff Cycle Between Office and Remote Work in a Move that may Remake Wall Street
Brief: With Wall Street preparing for more of its traders and bankers to return to offices next month, a shift underway at JPMorgan Chase may have lasting implications for the entire industry. Workers in the firm’s corporate and investment bank, an industry heavyweight with 60,950 employees, will cycle between days at the office and at home, keeping the ability to work remotely on a part-time basis, according to Daniel Pinto, head of the massive division and co-president of the banking giant. “We are going to start implementing the model that I believe will be more or less permanent, which is this rotational model,” Pinto told CNBC in a Zoom call from London, where he is based. “Depending on the type of business, you may be working one week a month from home, or two days a week from home, or two weeks a month.” The coronavirus pandemic forced Wall Street to send most of its employees home in March, and apart from skeleton crews that never left the trading floor, that is where most of them stayed. Now, banks are preparing for more people to return after Labor Day, according to executives at lenders and technology vendors. At Citigroup, some managers have begun sign-up sheets to gauge demand for a September return, according to people with knowledge of the situation.
U.S. Bank Profits Down 70% from Year Prior on Coronavirus Uncertainty
Brief: U.S. bank profits were down 70% from a year prior in the second quarter of 2020 on continued economic uncertainty driven by the coronavirus pandemic, a regulator reported Tuesday. Bank profits remained small as firms build up cushions to guard against future losses and business and consumer activity dropped, according to the Federal Deposit Insurance Corporation. Bank deposits climbed by over $1 trillion for the second straight quarter, and the regulator said the industry has “very strong” capital and liquidity levels. Tuesday’s report marks the second straight quarter that banks have seen their profits reduced to a fraction of record levels they experienced in 2019. The FDIC similarly reported a 70% decline in profits in the first quarter of 2020, although industry profits were actually up slightly in the second quarter. Banks continued to set aside huge amounts of cash to guard against future loan losses — in the second quarter firms reported a 382% increase from a year prior in how much they had reserved for potential credit losses.
Larger Share of Commitments Going to Megamanagers During Pandemic
Brief: Mega alternative investment managers' ever-expanding roster of client types comes at a time when overall alternative investment fundraising has slowed as a result of the pandemic, but has not reduced the percentage of capital committed to the largest funds. Despite the slowdown, the largest managers continue to get bigger. The percentage of capital raised by the largest managers in the first half of 2020 increased. In real estate alone, megamanagers accumulated 75% of the total capital raised in the second quarter and 45% of the aggregate capital raised in the six months ended June 30, Preqin data shows. The pandemic is proving to benefit megamanagers' accumulation of assets at the risk of newer and smaller managers, said David Conrod, co-founder and CEO of placement agent firm FocusPoint International Inc. Managers with existing limited partner relationships are getting capital commitments, he said. It's harder to raise capital with new limited partners during the current pandemic, he said. "Creating new relationships without seeing people in person will take longer," Mr. Conrod said. Meanwhile, investors see their managers seeking capital from new sources.
Central European Private Equity Firms Hit Lowest Confidence Level Since the Financial Crisis, but They are More Optimistic than in 2008
Brief: Central Europe’s private equity (PE) firms’ confidence hits lowest level since the global financial crisis, as a result of the COVID-19 impact, but deal-doers are more optimistic than during the 2008 crisis, according to the latest Deloitte CE Private Equity Confidence Survey. The confidence index, which has been decreasing since the end of 2017, is now at 62, the second historical lowest after October 2008, when it reached 48. Seven in ten professionals in Central Europe private equity houses forecast a decline in market activity and worsening economic conditions, given that the regional economies, which are largely consumer-driven, are expecting significant GDP contraction in 2020 amid demand shrink caused by unemployment rise. The survey results also indicate a noteworthy proportion of believers in a quick economic recovery, as 13% of respondents actually expect conditions to improve.
Private Equity Firms Risk Becoming Chief Villains of the Pandemic
Brief: Having been cast as the chief villains of the global financial crisis, the banks have so far avoided serious further damage to their reputations during the pandemic. Instead it is private equity firms that are in danger of sinking lower in the public’s estimation (if that were possible). The industry has scored a spectacular own goal over the issue of government-backed coronavirus bailout loans. Given the level of public suspicion of the industry you might think it was obvious that private equity firms should steer clear of anything that could be viewed as a taxpayer subsidy. It would be asking to be pilloried by the Daily Mail if firms that had piled debt onto their investments in order to minimise their tax bills and maximise their returns then came crying to the government when the going got tough. But that is just what some firms are doing. Worse, the industry is working with the government to find ways around EU state aid rules that would seem to disqualify some heavily-indebted companies from accessing the loans. The predictable result is an outcry in the media including a hostile editorial in the FT and a thundering commentary in the Daily Mail that concluded: “The idea that some morally bankrupt private equity companies — which have for so long made themselves rich at everyone else’s expense — should now benefit from that government largesse is abhorrent.”
