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Our briefing for Tuesday August 18, 2020:
Aug 18, 2020 3:24:10 PM
- As millions of students and teachers are planning to head back to classes in just a few weeks, some welcome news might be on the horizon in the United States. Testing has long been a sore spot since the pandemic began in America, but SalivaDirect, a test that doesn’t require specialized supplies and can deliver results in less than three hours could be made available to the public in a matter of weeks. Elsewhere in America, Dr. Deborah Birx, a key member of the White House coronavirus task force, said during an interview on Monday she wishes the country had gone into a stricter lockdown earlier. “I wish that when we went into lockdown (in March) we looked like Italy”, said Dr. Birx. “When Italy locked down, I mean people weren’t allowed out of their houses (without a pass). Americans don’t react well to that kind of prohibition.”
- The Canadian federal government made some major reshuffling on Monday night into Tuesday with the resignation of their finance minister and the announcement of his replacement. Bill Morneau is out and makes way for Chrystia Freeland, the country’s first female finance minister. Morneau said this would be the best time to let a fresh minister steer Canada through its post-pandemic economic recovery. Conservative opposition, however, sees a different picture – one where Morneau is the fall guy for the recent We Charity controversy (they wanted Prime Minister Trudeau to step down as well) and playing “musical chairs” with the cabinet will not allow the Liberals to overcome the government’s failures.
- The United Kingdom will scrap Public Health England as an independent agency to make way for a new body responsible for dealing with pandemics and infectious diseases the government announced on Tuesday. Health Secretary Matt Hancock said Public Health England will be merged immediately with the NHS coronavirus “test and trace” program, along with the Joint Biosecurity Centre to form a new National Institute for Health Protection. The move was made as fears grow of the second wave of the pandemic hitting the UK in the autumn or early winter.
- France has mandated the wearing of protective masks will be required in all enclosed and shared workspaces in the country as of September 1st. What this means is facial coverings will need to be worn in meeting rooms, corridors, changing rooms and open spaces. However, it does not apply to individual private offices. Masks have already been required in enclosed spaces such as shops and even local authorities have begun imposing the rule in the outdoors on busy streets and markets as France has experienced a surge in new COVID-19 infections in recent weeks.
- Still reeling after the tragic explosion that rocked Lebanon’s capital city Beirut, the country has announced a countrywide lockdown following a surge of COVID-19 cases. The Lebanese caretaker government says the lockdown will go into effect on 6 A.M local time on Friday and last until 6 A.M. local time on September 7th. All private institutions, open markets, commercials companies, tourist facilities as well as restaurants, cafes and nightclubs will be closed. Restoration work and aid distribution to those still in need after the Beirut blast will be exempt from the lockdown.
- Philippines President Rodrigo Duterte has decided to ease a mild coronavirus lockdown of its capital Manila, along with four outlying provinces. As of Wednesday, most businesses, including shopping malls and dine-in restaurants, along with church services will be allowed to resume with masks and social distancing required. President Duterte had reimposed the mild lockdown two weeks ago for the region of about 25 million people after health officials expressed concern that hospitals were being overwhelmed with COVID-19 patients. The Philippines have reported more than 164,000 cases, along with close to 2,700 deaths.
- In Australia, an epidemiologist told an inquiry on Tuesday the latest COVID-19 wave that struck Victoria state can be traced back to returning travellers in two Melbourne hotels. Charles Alpern was “99%” sure the outbreak started with a family of four who returned from overseas on May 9th. At the height of the second wave, infections were as many as 725 new cases a day, along with as many as 25 deaths in a 24-hour period. However, there does seem to be some good news with Victoria state reporting their lowest amount of new cases since July 18th.
Covid-19 – Due Diligence And Asset Management
Citigroup and Brigade Square off in Court Over $900 Million Flub
Brief: Brigade Capital Management LP told a federal judge it can’t return $175 million that Citigroup Inc. says it paid as part of a $900 million error because the money went to other funds, while the bank says Brigade is the only one of dozens of lenders that has “flat out” refused to return the money. Citigroup, which sued the money manager on Monday, wired payments to about 40 funds that use Brigade as their investment or collateral manager, and knows Brigade itself isn’t one of the lenders and doesn’t have the money it’s seeking, Brigade said in a legal filing Tuesday. The bank has asked the court to order the firm to return its share of the $900 million it inadvertently wired to Revlon Inc. lenders, some of which are locked in a bitter fight with the struggling cosmetics giant. Citigroup has recouped less than half of the money, which it blamed on a clerical error, and some lenders are refusing to pay, saying Revlon was in default on a loan and should have repaid them anyway, according to people with knowledge of the matter. But at a hearing on Tuesday before U.S. District Judge Jesse Furman, a lawyer for the bank said Brigade is the only lender that has declined outright, while others have given the payments back and Citigroup is in talks with still others.
S&P 500 Completes Recovery from COVID-19 Sell-Off, Hits Record High
Brief: The S&P 500 index hit an all-time high on Tuesday, completing its recovery from the stock market crash after the onset of the coronavirus crisis in February. The index was up at 3,394.99 points at 09:48 a.m. ET, topping the high of 3,393.52 hit on Feb. 19 and further underlining the disconnect between a rally driven by trillions in official stimulus and a recession-hit U.S. economy. The tech-heavy Nasdaq Composite in June was the first of the three major U.S. stock indexes to reclaim record highs as investors gravitated to stocks including Amazon.com and Netflix seen as stay-at-home winners from COVID-19 lockdowns. It has taken the benchmark S&P 500 about two months longer as surging COVID-19 cases sparked fears of another round of shutdowns that would again cripple business activity. On the day, the S&P 500 gained 0.4% putting it up about 55% from March’s lows. The Nasdaq gained 0.6% to hit a record high and the Dow Jones Industrials, which is still about 6% off its February highs, added 0.1%.
Pimco, Amundi and BlueBay Stand by Big Bet on CoCos in Pandemic
Brief: Managers from Pacific Investment Management Co., Amundi SA and BlueBay Asset Management LLP are sticking with, or even adding to, bets on banks’ CoCos, after prices of the bond-stock hybrid whipsawed during the pandemic. Initial fears about the economic wreckage wrought by the coronavirus sent prices into free-fall in March, pushing yields close to a record 15%, according to a Bloomberg Barclays index. Since then the bonds, which are also known as Additional Tier 1 debt, have recovered to about 5.6%, rewarding portfolio managers that bought more of them during the market volatility. The securities’ appeal lies in their higher-than-average interest to compensate investors for the risk of holding notes that stand first in line for losses if the issuer goes bust. In an era of central bankers keeping growth on life support with base rates at, or even below, zero, more investors are prepared to consider buying them. At the same time, they’re not as risky as they once were. A decade-long drive by banks to build up capital buffers to absorb losses after the 2008-2009 financial crisis, has also attracted investors. “AT1s of European banks still look incredibly cheap,” said James MacDonald, a co-manager of BlueBay’s $1.16 billion Financial Capital Bond Fund, which invests in the bonds. “Banks have become much safer since the previous crisis, and that’s not fully reflected in spreads yet.”
Starboard Seeks up to $345 Million for Blank-Check Company
Brief: Jeff Smith has become the latest activist investor to go on the hunt for a mystery company to acquire Smith’s Starboard Value launched a blank-check company Tuesday, and said it plans raise as much as $345 million to buy and fix up a company, leveraging its experience as an activist investor. Starboard Value Acquisition Corp. will seek to raise $300 million by issuing 30 million units at $10 apiece, according to a filing. The value may increase by $45 million if underwriters exercise an over-allotment option, the filing shows. The firm is following at least two other activist investors into the space. In July, Bill Ackman’s Pershing Square Capital Management raised $4 billion for a blank-check company. Dan Loeb’s Third Point launched one in 2018 and agreed to acquire payment provider Global Blue -- despite revising the terms of the deal in the wake of the Covid-19 crisis. Blank check companies, also known as special purpose acquisition companies, or SPACs, raise money on the public markets to make a purchase within a set period of time, usually about two years. They don’t identify a target until shares are trading.
Hedge Funds Missed out as Small Vaccine Companies Surged
Brief: Even as hedge funds have increasingly invested in large vaccine developers since Covid-19 shut global economies in March, they’ve mostly sat on the sidelines as the stocks of small and mid-cap companies working on a vaccine rallied by more than 1,000 percent this year. Although hedge funds clearly missed out on a big opportunity, their lack of exposure to these stocks may also be a healthy show of restraint, according to Jon Caplis, CEO of hedge fund research and analytics firm PivotalPath. The research firm’s index of small and mid-cap vaccine developers has increased 1,191.1 percent this year through July. Hedge fund managers told PivotalPath that valuations of these stocks have been too high given that in the end there will be very few companies that win the vaccine race. Caplis said the intelligence he’s gotten from hedge funds has been consistent. Back in April and May, they said that the stocks had rallied so much that there was a lot of downside risk in betting on any one company’s success. PivotalPath’s quantitative analysis also showed that hedge funds held a negligible amount of these stocks.
Schroders to Allow Home-Working Post-Covid
Brief: London-based asset manager Schroders has permanently embraced flexible working across its business. In a statement issued today, Schroder said that the move will allow employees to adopt working practices that “best meet client responsibilities, business requirements and their individual working patterns, while also ensuring that we still have face-to-face interaction to maintain our culture of collaboration, innovation and strong productivity”. The statement added that Schroders continues to see many benefits in people coming to the office and “this will remain an important part of our approach to flexible working”. Emma Holden, Schroders’ global head of human resources, said: “Schroders embraced flexible working long before lockdown and the investments we have made in remote-working technology over the years meant our business has not missed a beat since March. "But in the space of a few months, we have made 20 years progress in attitudes towards flexible working, and we are going to continue with this momentum.
