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Wall Street Insider May 23: Top finance news

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Welcome to Wall Street Insider, where we take you behind the scenes of the finance team’s biggest scoops and deep dives from the past week. 

If you aren’t yet a subscriber to Wall Street Insider, you can sign up here.

Car-rental giant Hertz filed for bankruptcy protection on Friday evening after it was unable to reach an agreement with its biggest lenders, adding to a wave of bankruptcy filings in recent weeks as companies struggle with an unprecedented hit from the coronavirus pandemic. 

Distressed-credit trading at Wall Street banks had been a small, quiet corner of the market over the past decade. But as the economic fallout spreads, more opportunities and flow are likely to come the way of the desks that make markets in bonds and loans trading at discounted prices, bankruptcy claims, litigation events, and other more complex and special situations.

Alex Morrell and Dakin Campbell spoke with industry insiders —  including buy-side traders and portfolio managers, current and former sell-side credit execs, and headhunters and consultants — to map out Wall Street’s most powerful and noteworthy distressed-debt traders. 

Read the full story here: 

The pandemic has also prompted a surge in e-commerce as well as a re-think of how companies use and occupy office space. A pair of stories from Dan Geiger this week took a look at how those forces are already reshaping real-estate markets. 

Facebook CEO Mark Zuckerberg revealed on Thursday that the tech giant is eyeing offices in cities like Dallas, Atlanta, and Denver to act as “hubs” to support 50% of its workers staying remote — and it’s a move that could upend Silicon Valley and NYC real estate. Meanwhile, warehouse properties are suddenly red-hot, with Amazon snapping up space while ailing companies are looking to sell. Here’s a look at key deals and market forecasts that lay out a huge opportunity for industrial real-estate.

Keep reading for a look at where investors draw the line when it comes to hedge fund social-media spats, the story behind pandemic bonds, and a push to pitch SPACs to family offices and super-wealthy people. 

Have a great long weekend!

Meredith


Cliff Asness



Lucy Nicholson/Reuters


As social media has become ubiquitous over recent years — and the pandemic now has everyone staying at home and logged on at all hours — hedge-fund investors have added online activity to their due diligence checklist.

Bradley Saacks took a look at what allocators make of high-profile social media spats, and what kinds of online behavior from managers can cross the line and cause them to rethink investments. 

Read the full story here:


Pandemic bonds

Karen Fang Bank of America



Bank of America Merrill Lynch


Investors are clamoring for “pandemic bonds” linked to the coronavirus recovery effort, and Alex Morrell took a look at how Wall Street banks are preparing for a deluge of similar socially-minded financing opportunities.

For one, Karen Fang, a star in Bank of America’s sales and trading division who’d been promoted to an ambitious new role a year earlier, relinquished some of her trading responsibilities earlier this year to take on a newly created global head of sustainable finance role. 

Read the full story here:


Staffing shuffle at JPMorgan and Bank of America

bankruptcy graffiti



Reuters/Joshua Lott


As Dakin Campbell reports, some of the largest US banks have been shifting employees into roles restructuring troubled loans. Workers are also lending a hand with an influx of new loan requests, including credits for troubled companies seeking cash.

Lenders are being encouraged to move people around by regulators who have come to see them as a source of strength, insiders said. In some cases, authorities are taking a lighter regulatory approach that’s in turn allowing banks to move people who would have interfaced with them into more hands-on roles.

Read the full story here:


A man walks past a UBS logo projected on a screen in Singapore, January 14, 2019. REUTERS/Feline Lim

A man walks past a UBS logo projected on a screen in Singapore

Reuters


UBS is pitching special purpose acquisition companies — so-called blank-check companies — to its massive wealth-management network, and looking to bring SPACs to market with as much as a 20% retail investor base.

Dan DeFrancesco took a look at how the trend is a departure from how SPACs — entities with no commercial operations that raise money and IPO with the intention of acquiring a company — traditionally raise money.

Read the full story here:


Amol Sarva Knotel

Amol Sarva, CEO of flexible office provider Knotel

Knotel


Dan Geiger revealed that flex-office firm Knotel and the insurance startup Rhino failed to disclose a family tie between the two companies when the pair struck a deal to place an insurance firm on the hook financially if Knotel defaults on office leases it has signed.

In recent months, Knotel has let millions of dollars in bills to vendors and landlords go unpaid — and its CEO has said the firm will walk away from leases. 

Read the full story here:


Citadel is adding Two Sigma’s Andrew Janian, the $60 billion quant fund’s former chief information officer and data chief, to its tech team. Ken Griffin’s fund has poached several big names from Wall Street and Silicon Valley for its tech team in the past couple of years, including former Goldman Sachs partner Umesh Subramanian.


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EasyJet says finance chief Findlay to leave in 2021 | News

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FILE PHOTO: Andrew Findlay EasyJet Chief Financial Officer poses for a photograph during an event of the British budget carrier EasyJet to p
FILE PHOTO: Andrew Findlay EasyJet Chief Financial Officer poses for a photograph during an event of the British budget carrier EasyJet to p

LONDON (Reuters) – British low cost airline easyJet said chief financial officer Andrew Findlay will leave the company in May 2021, and it had started the search for his successor.

Findlay, who joined easyJet as CFO in 2015, on Friday survived an attempt by the airline’s founder to oust him, the chief executive, the chairman and another director.

EasyJet said on Tuesday that Findlay has advised the board of his intention to leave and in line with his contractual obligations is expected to stay on for a year.

CEO Johan Lundgren praised Findlay for his efforts in helping to shore up easyJet’s balance sheet during the coronavirus crisis, as the airline battles to keep costs down at a time when its planes are grounded.

(Reporting by Sarah Young; editing by James Davey)




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HSBC board rethinks overhaul and seeks even sharper cuts

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HSBC’s board is set to deepen the biggest restructuring in the bank’s 155-year history after deciding that the coronavirus crisis requires more drastic measures.

In February, Europe’s largest lender said it would slash 35,000 jobs, $4.5bn in costs and $100bn of risk-weighted assets by radically shrinking its US and European businesses and investment bank. Executives plan to redirect resources to Asia, HSBC’s historical heartland and profit centre.

The pandemic — which HSBC fears could saddle it with $11bn of bad loans this year alone — caused management to pause lay-offs.

But the board is now pressing executives to restart the restructuring and come up with even more radical changes, including further cuts or even a possible sale of its US business alongside its retail network in France and operations in smaller non-strategic countries.

Some of the more marginal businesses that were previously given the benefit of the doubt are being re-examined, say senior figures at the bank. 

One person familiar with the discussions said the board wants a new strategic plan “sooner rather than later”, but that it will be several months before the review is completed. 

The bank’s US business is under particular scrutiny, where HSBC has a small east-coast retail network alongside trading and transaction banking operations. These were shrunk by almost a third in February, but management is now debating whether the US operation is viable at all.

A US sale “is possible, but it’s very early in terms of making that decision”, the person said. “What HSBC needs to understand is, for better or worse, their opportunity is in China.”

“We have to have a business there [the US], there’s no question of that, but the shape we’ve got to look at again,” said another person involved in setting strategy.

US profits fell 39 per cent last year and it made a return on tangible equity — a measure of profitability — of just 1.5 per cent. That compares with a 15.8 per cent return in Asia and 12 per cent in the Middle East.

HSBC declined to comment.

Line chart of Pence per share showing A rollercoaster decade for  HSBC

“We’ve been saying for a decade that HSBC should get out of US retail,” said Ronit Ghose, an analyst at Citi, adding that the bank could service US corporate clients “in Asia and internationally without a subscale American retail franchise”.

The bank’s retail network in France, with more than 200 branches and 4,000 staff, is also being evaluated and the bank has invited bids from other banks and from private equity firms.

Executives are also revisiting a long list of small, non-strategic countries including Malta, Bermuda, the Philippines and New Zealand to see if any of those divisions can be sold or closed. Previous efforts to sell were hampered by a lack of buyers acceptable to local regulators, one of the people said.

Mark Tucker, the bank’s chairman and a tough former insurance executive who joined in October 2017, is the key protagonist. He fired John Flint as chief executive within 18 months for not being decisive enough, replacing him with Noel Quinn, an HSBC lifer.

Mr Tucker wants the board to be “more assertive and more engaged”, believing that in the past it has been “too passive”, a person familiar with his approach said.

Investors were underwhelmed when the current strategy was unveiled on February 18 — its stock fell 6 per cent on the day.

Coronavirus has added to the scepticism. HSBC shares now trade at their lowest in more than a decade and retail investors in Hong Kong were furious when the Bank of England forced the bank to cancel its dividend for the first time in 74 years.

Covid-19’s early toll was revealed in HSBC’s first-quarter results. Profits fell by half after the bank boosted reserves against potential bad debts fivefold to $3bn. Mr Quinn warned provisions could hit $11bn by the end of the year in the worst-case scenario.

HSBC’s economic forecasts are among the most pessimistic of any global bank.

“We’ve got to look at where we want to be in five years’ time and get ourselves in position, not incrementally, but top down,” said one executive. “We have a fundamental reorganisation to do and we’ve delayed this, as a corporation, for 12 years.”

“We have to bloody well get on and do it . . . but we have to be sensitive to redundancies in this environment,” they added. “As Churchill said, one can’t waste a good crisis.”

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Lufthansa Group secures finance package from economic fund | News

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Lufthansa Group has secured approval from the federal German government’s economic stabilisation fund, WSF, for a €9 billion financial package.

Under the agreement the WSF will contribute up to €5.7 billion to Lufthansa’s assets including €4.7 billion in equity.

The measure will be supplemented by a syndicated three-year credit facility of up to €3 billion, provided by private banks and KfW – yet to be approved.

It says the “silent participation” is unlimited in time and can be terminated by the company – either in whole or in part – on a quarterly basis.

The remuneration will amount to 4% for 2020 and 2021, increasing gradually to 9.5% by 2027.

WSF will acquire shares to build up a 20% shareholding in Lufthansa Group at a price of €2.56 per share – equating to an overall cash investment of some €300 million.

It will be able to increase the shareholding further, to just over 25%, if there is a takeover of the company.

LH A350

If Lufthansa Group fails to remunerate the fund then an additional portion of the WSF participation can be converted into another 5% shareholding from 2024 and 2026 – although the second conversion only becomes valid if the shareholding increase from a takeover has not been exercised.

Subject to Lufthansa’s fully repaying the participations and a minimum sale price of €2.56 per share, plus annual interest of 12%, the WSF is undertaking to sell its entire shareholding at the market price by 31 December 2023.

Lufthansa Group says the stabilisation package still requires the final approval of its management board and supervisory board, while the measures are also subject to shareholders’ and regulatory approval.

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