Friday 21/02/20

  1. In CORONAVIRUS NEWS, Chinese banks cut lending rate to help the economy, Airlines and Maersk count the cost and app downloads soar
  2. In FINANCIALS NEWS, Morgan Stanley buys ETrade, Swiss Re suffers from storms and wildfires and Lloyds Bank sees profits fall
  3. In UK CONSUMER NEWS, retail spending jumps and calls increase for Sunak to reform stamp duty
  4. In INDIVIDUAL COMPANY NEWS, Sprint/T-Mobile merger terms change, we looks at what’s in store for Victoria’s Secret and TikTok aims to evolve
  5. In OTHER NEWS, I bring you tightrope-walking over a volcano and how to dry a wet dog…



So Chinese banks try to cushion the blow, airlines and Maersk count the cost of the coronavirus and isolated Chinese buy into app downloads…

Chinese banks cut lending rate to prop up coronavirus-hit economy (Financial Times, Hudson Lockett and Adam Samson) highlights the lowering of the one-year loan prime rate by Chinese banks – a key lending rate used across China’s financial system – in order to ease lending conditions. The decision came as ratings agency S&P warned that banks face a sharp increase in bad loans due to the chaos caused by the coronavirus.

Meanwhile, Airlines warn of $29bn earnings hit as coronavirus saps demand (Daily Telegraph, Tom Rees) cites forecasts from the International Air Transport Association (Iata) which say that airlines in Asia will take a $29bn sales hit in 2020 due to the outbreak. Air France-KLM and Qantus have already warned on earnings and Iata says that it expects airline traffic to fall this year for the first time since 2003. Maersk warns of coronavirus blow to earnings this year (Financial Times, Richard Milne) shows that things aren’t any better at sea as the world’s biggest shipping container company warned of a “very, very

weak February and weak March”. Having said that, chief exec Soren Skou said that he expects a significant bounce-back in April, May and June as factories get back to normal production. * SO WHAT? * Maersk in particular is seen as a bellwether for global trade as its containers account for one in every six transported by sea. The current quarter comes after a tricky year last year marred by the ongoing US-China trade war. Skou believes that factories in China are operating at about 50-60% capacity and that this will go up to 90% by the beginning of March.

Given how many people remain isolated as a result of the coronavirus outbreak, China app downloads surge due to coronavirus outbreak (Financial Times, Leo Lewis and Hudson Lockett) is not really surprising! Smartphone users downloaded record numbers of games and other apps, boosting the $150bn global games industry. According to analytics provider AppAnnie, average weekly downloads for the first two weeks of February, shot up by 40% versus the average taken across the whole of 2019. Share prices of listed game-makers have shot up accordingly – Tencent’s share price is now at a 20-month high. Education apps have also done well as schools remain closed and shares in New Oriental Education, which provides online education in China, have shot up by 17% this year. * SO WHAT? * This follows on from what I was saying about companies that make software and/or apps that enable remote working. It seems that homebound Chinese are spending longer on apps, which also increases the chance of monetisation. 



Morgan Stanley buys ETrade, Swiss Re counts the cost of wildfires and storms and Lloyds Bank sees a fall in profits…

Morgan Stanley agrees $13bn deal to buy ETrade (Financial Times, Laura Noonan) heralds the biggest purchase by a Wall Street bank since the financial crisis as Morgan Stanley becomes the latest investment bank to invest in a retail banking business to boost its future growth. The all-stock purchase, which is subject to regulatory approval, comes at a time when the US wealth management industry is consolidating and rivals such as Goldman Sachs are also going down the same road. It also comes only months after November’s $26bn merger between ETrade rivals Charles Schwab and TD Ameritrade which occurred against the backdrop of falling trading fees. * SO WHAT? * If the deal goes through, it will mean that 57% of Morgan Stanley’s pre-tax profits will come via wealth management and investment management as opposed to the more volatile area of investment banking. The deal appears to make strategic sense in terms of diversifying income streams into less risky areas but the downside is that the company thinks it will take until 2022 to break even.

Swiss Re profits hurt by storms and wildfires (Financial Times, Oliver Ralph) highlights tough times for reinsurance group as growing payouts in the US and a succession of natural disasters have dented profits (reinsurance

companies sell insurance to insurance companies). US payouts are rising because there is a trend for juries to award higher compensation payments for things such as motor accidents and medical malpractice. Natural disaster payouts have also been on the rise due to Australian bushfires and storms in the US, Japan and Bahamas. * SO WHAT? * When natural disasters happen, after all the human and environmental cost, people tend to think about insurers – so I thought I’d mention reinsurers for a change, as they suffer too! You would have thought that things are going to get worse given the coronavirus, but then again it depends on how much of its consequences were actually covered by insurance. For instance, cruise companies appear not to be covered because the premiums were too expensive…

Lloyds bank boss takes 28% pay cut after annual profits fall (The Guardian, Kalyeena Makortoff) shows that chief exec Antonio Horta-Osorio has taken a pay cut (don’t feel too sorry for him – he will still earn £4.7m – phew!) as the bank’s profits fell sharply last year. The bonus pool also shrunk as the company said that its results were “heavily impacted by the additional PPI provision and other conduct-related issues”. * SO WHAT? * Lloyds is seen by some as a bellwether for the UK economy as it is domestically focused and is a major mortgage provider and business lender. I would be inclined to think that a lot of the bad news is already in the share price and there is an end in sight for PPI payouts. It remains to be seen how successful the bank will be in changing its offering to suit the evolving tastes of its customer base and the increasing competition with innovative digital rivals. Or maybe it’ll just buy one??



Retail spending climbs and calls increase to reform stamp duty…

Shoppers banish Brexit blues with jump in retail spending (The Times, Philip Aldrick) cites the latest figures from the Office for National Statistics which show that customers headed back to the shops in January, lifting retail sales by 0.9% (biggest lift since March 2019) – or by 1.6% if you exclude fuel (the biggest hike since May 2018) and came in above consensus forecasts. * SO WHAT? * The “Boris bounce” seems to be leaking through to the high street at the moment but obviously time will tell if this is a blip or a trend. As long as wage growth continues and the labour

market stays tight I would have thought that this should continue. It will also be helped by people feeling “richer” as the paper value of their abodes go up as per recent figures.

Chancellor urged to pull the plug on stamp duty to boost market (Daily Telegraph, Rachel Millard) shows that the new chancellor, Rishi Sunak, is coming under increasing pressure to reform the UK’s stamp duty system in his first Budget to be unveiled next month. Reformists say that punitive levels of tax on property sales is causing a logjam as they make families wanting to move up stay put, meaning that there’s less room for first-timers to get on the housing ladder. People are calling for a higher threshold for paying stamp duty (it’s currently slapped on all properties costing over £125,000) and excluding downsizers from having to pay. It all sounds good, but we’ll just have to wait until March 11th to see whether anything actually happens!



The Sprint/T-Mobile terms are revised, Victoria’s Secret faces an uncertain future and TikTok wants to expand…

Further to the recent court judgement for the Sprint/T-Mobile merger to go ahead and subsequent moves by T-Mobile’s parent company Deutsche Telekom to retrospectively change the terms of the deal (because Sprint’s performance has been cr*p since the deal was originally announced), Sprint, T-Mobile revise merger terms (Wall Street Journal, Cara Lombardo, Dana Cimilluca and Drew FitzGerald) shows that the two companies have agreed on new terms by improving the share exchange ratio. Originally, 9.75 Sprint shares were to be exchanged for 1 T-Mobile share, but now 11 Sprint shares will be exchanged for 1 T-Mobile share. The new company will be called T-Mobile. It is expected that the merger will be closed on or by April 1st.

Following L Brands’ disposal of Victoria’s Secret yesterday, Victoria’s Secret must rely on angels anew if it is not to be undone (Daily Telegraph, Laura Onita) looks at the difficult way ahead for the company that will now be taken private by its new majority owner, Sycamore Partners. Although it was hot property for the 90s and noughties, the company has since lost its way and customers have complained that

it is not keeping up with the times. Things will have to change. * SO WHAT? * Industry data suggests that the online underwear market will grow by over 40% over the next five years – implying that there is a decent market to chase. The Victoria’s Secret offering has fallen behind up-and-coming brands such as Les Girls Les Boys so it will be interesting to see how much it will change away from the pressures of the stock market.

Then in TikTok owner’s plan: be more than just TikTok (Wall Street Journal, Shan Li) we see that TikTok’s owner ByteDance is looking beyond its popular entertaining videos and into new apps, games and e-commerce to take advantage of its current momentum and not end up as a one-hit wonder. It has launched a financial services app, is testing a music streaming app and has bought some game developers in China. There is now speculation that ByteDance will be introducing a subscription service that will give users access to additional content from preferred creators – but the company has not confirmed this. * SO WHAT? * Diversification while TikTok is “hot” is an excellent idea and would diversify its income streams and give it access to more user data which would help advertising revenues. It’s too early to tell whether this will all work BUT at least they are giving it a go! Still, it won’t be easy because the company will be dipping its toes into waters dominated by the likes of Tencent’s WeChat Pay and Ant Financial’s Alipay in addition to Western companies such as Spotify.



And finally, in other news…

I thought I’d leave you today with a couple of ideas to ponder for the weekend. Namely, Man to walk tightrope over active volcano (Independent, Harry Cockburn which looks just RIDICULOUS and then the rather more sedate Woman fed up of wet dog making a mess after bath time solves problem for £3.50 (The Mirror, Courtney Pochin My dog Poppy, who some of you may have seen in a pre-Christmas post, definitely needs something like this. At the moment, after fighting to shampoo her in the bath and then getting her “towel-dry”, she insists on rubbing herself along any carpet in the house – which is quite amusing to watch, but not ideal. Have a great weekend!

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Some of today’s market, commodity & currency moves (as at 0721hrs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!

FTSE 100 *Dow Jones *S&P 500 *Nasdaq**DAX *CAC-40 *Nikkei **Shanghai **
7,437 (-0.27%)29,220 (-0.44%)3,373 (-0.38%)9,75113,664 (-0.91%)6,087 (-0.29%)23,387 (-0.39%)3,039 (+0.29%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

(markets with an * are at yesterday’s close, ** are at today’s close)