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Coronavirus Diligence Briefing

Our briefing for Wednesday December 16, 2020:

Dec 16, 2020 4:14:16 PM

  • In the United States, the deaths from COVID-19 surpassed 3,000 for the third time in a week. The death toll was 3,102 on Tuesday, the third highest total since the pandemic began and lifted the overall total to over 304,000. The case load of 16.7 million infections represents roughly 5% of the American population, according to Reuters. The United States are aiming to have 2.9 million doses of the Pfizer COVID-19 vaccine delivered by week’s end, but that is a far cry from where the country needs to be. Politicians and medical authorities have conducted a two-pronged media blitz aimed at vowing the safety of the vaccines, but also urging Americans to continue social distancing and mask wearing for the foreseeable future. 

  • In Canada, Quebec announced sweeping new coronavirus restriction measures as they face a rising number of hospitalization and daily cases. As of Thursday, and expected to last until January 11th, all offices and schools will close. Most retailers will be shut down as of December 25th until January 11th, which means no in-person Boxing Day shopping this year. Grocery stores, pharmacies, banks, hardware stores and pet stores will be allowed to remain open. Big box stores will be restricted to selling essential goods only. Canada’s other largest province – Ontario saw its daily case count climb above 2,000 for the second day in a row. Again, the two longest locked down areas of Toronto and Peel Region accounted for more than half of the new cases (1,308 of 2,139 reported cases).

  • United Kingdom Prime Minister Boris Johnson is trying hard to avoid all those Grinch cartoon caricatures being printed in the daily tabloids saying developed administrations have reached “unanimous agreement” to “proceed in principle” with existing holiday plans. Those plans of course are to loosen coronavirus rules over the Christmas break with Prime Minister Johnson stating during question period in the House of Commons that “we don’t want to criminalize people’s long-made plans.” However, the UK leader has urged Britons to have a smaller and shorter Christmas and to exercise common sense in gatherings, such as coming into contact with elderly people.

  • Germany shattered its record COVID-19 deaths on Tuesday, just as it entered a new hard national lockdown on Wednesday. According to the Robert Koch Institute (RKI), 952 people died due to COVID-19. The previous record was 598 on December 11th. The drastic spike in deaths though the RKI says could be a delay in reporting data from the large state of Saxony. Nevertheless, German officials said the current situation was “as serious as it has ever been during the pandemic.” A RKI spokesperson said Germans need to be prepared for the situation to get worse over Christmas.

  • China announced on Wednesday for the first time publicly that they have ordered a foreign inoculation in their fight against COVID-19. German firm BioNTech will supply 100 million doses to its Chinese partner Fosun Pharma for mainland use in 2021. BioNTech are now seen as the prime international competitor to domestic COVID-19 vaccines such as Beijing-based Sinovac and state-owned Sinopharm. However, with a population of 1.4 billion in China, there is still plenty of opportunity for the two Chinese firms as they have already begun expanding manufacturing capacity and distributing vaccines.

  • Reuters is reporting the World Health Organization’s (WHO) global scheme to deliver COVID-19 vaccines to poorer countries faces “a very high” risk of failure, potentially leaving billions without a vaccine until as late as 2024. Reuters is looking at the WHO’s COVAX programme as the main global scheme to inoculate the world’s poor and middle-income countries. The programme is struggling from a lack of funds, supply risks and complex contractual arrangements, which could make it impossible to reach their goals. The COVAX programme’s aim is to deliver at least 2 billion vaccine doses by the end of 2021 to cover 20% of the most vulnerable people in the world from countries mostly in Africa, Asia and Latin America.

Covid-19 – Due Diligence And Asset Management

Sun Life Bets US$7B on Japanese Workers Returning to Office Life

Brief: Sun Life Financial Inc. is wagering billions of dollars that Japanese workers will return to the office after the pandemic. The Canadian insurer’s real estate arm plans to double staff and invest US$10 billion in Japan over the next two to three years, of which as much as 70 per cent may go into office buildings in the country’s major business districts, said Sonny Kalsi, chief executive officer of BentallGreenOak. “We don’t think that work from home is going to be a big long-term trend in Asia overall and in Japan specifically,” Kalsi said in an interview. “That’s part of the reason we are bullish on Japanese offices -- more so than any other market.” Like their peers around the world, Japanese companies are grappling with how to use office space once the coronavirus is defeated. Some including Hitachi Ltd. and Nomura Holdings Inc. are embracing flexibility, while others like SBI Holdings Inc. want employees back on-site to ensure productivity. Offices in Tokyo have emptied during the pandemic, even as many workers continue to commute in a country where coronavirus cases remain lower than in Europe and the U.S. Vacancies in the city surged to a four-year high last month, according to real estate brokerage Miki Shoji Co. Yet Japan’s business culture suggests people will prefer to work together in person once the pandemic subsides, underpinning the need for offices, said Kalsi, who lived in Tokyo from 1998 to 2006. “I think Japanese companies are more traditional in how they are run and managed,” he said.

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Citi to Offer Workers a 12-Week Sabbatical, Extra Vacation Days

Brief : Citigroup Inc. will soon offer workers the ability to take a 12-week sabbatical as part of a bevy of new employee perks in the wake of the coronavirus pandemic. Staffers also will be able to buy as many as five extra vacation days annually starting next year, and the bank is debuting a program that will allow employees to work pro bono with a charitable organization for as much as four weeks while still receiving 100% of their base pay. The new perks are a byproduct of months of meetings among the firm’s top human resources professionals to discuss what work would look like after the pandemic subsides, said Diane Arber, who leads human resources for the bank’s institutional clients group. “So here we are now all working from home and being extremely productive -- it really gave us time to pause and think about what should we be doing differently for the employees,” she said. “People just sometimes need a break, and they don’t want to just stop their career.” Citigroup has seen record increases in employee satisfaction in an internal annual survey, with many staff members preferring to work from home and the flexibility it provides, Arber said. With the new benefits, the bank’s looking to make some of that flexibility permanent. With the sabbatical, employees at any level who have been with Citigroup for at least five years can take as long as 12 weeks to do whatever they want. Workers are limited to two sabbaticals, and will receive only 25% of their base pay during the time away.

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FINRA Seeks Comment on Lessons From the COVID-19 Pandemic

Brief: In response to the coronavirus (COVID-19) pandemic, member firms have made rapid and unprecedented changes to their business operations in order to prioritize the health and safety of firm personnel and investors, while maintaining the public’s access to capital markets. These changes include widespread use of remote offices and alternative work arrangements and new and expanded methods of engaging with personnel and investors. Member firms have also used new methods of engaging with FINRA and other regulators and complying with regulatory requirements. For its part, FINRA has taken numerous steps to assist member firms, firm personnel and investors as they navigate the effects of the COVID-19 pandemic. FINRA welcomes feedback on lessons learned from stakeholders’ experiences during the pandemic, including the impact of changes made to member firms’ operations and business models, and the effectiveness of business continuity planning. FINRA further requests comment on whether it should consider changes to its rules, operations or administrative processes to address lessons learned during the pandemic or to address anticipated long-term impacts of the pandemic on member firms and investors.

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Vaccines Have Arrived – And Investors Are Ready to Party

Brief: Investors are shedding cash and piling into risk assets as they seek to “buy the reopening,” according to new research from Bank of America. The bank’s latest survey of fund managers found that investor optimism has “skyrocketed” this month following news that coronavirus vaccines from Pfizer and Moderna had proven effective in clinical trials. The poll ended on December 10, after UK regulators had granted emergency authorization to the Pfizer-BioNTech vaccine but one day before the U.S. Food and Drug Administration did the same. According to BofA Securities, fund managers have responded to the vaccine news by increasing allocations to equities and commodities and decreasing cash holdings. In fact, the surveyed investors reported that they were underweight cash for the first time since May 2013. Most investors said they believed the vaccine would start having a positive impact on economic activity within the first half of next year, with the average respondent predicting that the turn-around would occur by May 2021. These vaccine hopes were accompanied by higher expectations for profit and economic growth, with a net 78 percent of respondents expecting corporate earnings to improve — the highest proportion in the survey’s history.

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US Bankruptcies Surpass 600 in 2020 as Coronavirus-Era Filings Keep Climbing

Brief: U.S. corporate bankruptcy filings continue to increase during the coronavirus crisis as 18 new companies joined the list of 2020 bankruptcies in the last two weeks, according to an S&P Global Market Intelligence analysis. There have been 610 bankruptcies this year through Dec. 13, exceeding the number of filings seen in any year since 2012. The 18 new filings match the number of bankruptcies reported during the prior two-week period, continuing a slowdown from earlier in the crisis. Market Intelligence's analysis is limited to public companies or private companies with public debt where either assets or liabilities at the time of the bankruptcy filing are at least $2 million. Private companies without public debt must report at least $10 million in either assets or liabilities at the time of filing. Companies that entered bankruptcy proceedings Nov. 30-Dec. 13 include Florida-based American Purchasing Services Inc., oil field services company Superior Energy Services Inc., boutique clothing chain Francesca's Holdings Corp. and coal companies White Stallion Energy LLC and Lighthouse Resources Inc.

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70% of Fund Managers See Better Economy by June 30 – Survey

Brief: Investor sentiment remains bullish as COVID-19 vaccinations begin, according to Bank of America's December Global Fund Manager Survey, with 7 in 10 managers expecting the global economy to improve in the first half of 2021. When asked when the COVID-19 vaccine will start positively impacting the economy, 42% of surveyed fund managers said it would begin in the second quarter, while 28% said the first quarter and 19% said the third quarter. A net 89% of fund managers surveyed expect stronger growth in 2021, while a record 87% expect higher long-term yields. COVID-19 continues to be the biggest tail risk, with 30% of respondents putting it at the top of their list this month, but that's11 percentage points less than November due to vaccine expectations. The other top tail risks are fears of inflation (24%) and fiscal policy drag (18%). Although 2020 was dominated by the global recession sparked by the global COVID-19 outbreak, managers' recovery expectations surpassed previous recessions both in terms of speed and magnitude, survey results showed. Seventy percent of fund managers said the global economy is in an early cycle phase, the highest percentage reported since January 2010. Meanwhile, only 12% said it is in a recession.

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Contact Castle Hall to discuss due diligence

Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Topics:Coronaviruscovid-19