DAILY MORNING NOTE | 27 March 2023
Week 13 strategy: Over the past two weeks the Fed, ECB and BOE have raised interest rates. These rate hikes will only slow an already weakening global growth. We worry another form of shadow tightening is also underway through bank lending. Bank contagion seems to be spreading even to healthier banks such as Deutsche Bank. We think there is nothing here. The bank’s earnings doubled in 2022 and it enjoys a huge capital buffer with CET 1 of 13%. It has US$1.4tr of assets (Lehman: US$640bn) and is a global systemically important bank, another word for too big to fail.
With both investors and depositors extremely nervous, the only course of action for bank CEOs is to shore up their balance sheets. Banks will reduce lending over fears of a recession and keep their assets as liquid as possible. Of concern will be a vicious spiralling of global banks shrinking their balance sheets. Domestically, we had our mini-credit shock when Lippo Mall REIT announced it was not paying dividends on its S$140mn perpetual securities. The gearing was 44% and it had S$111mn of cash. However, there were multiple credit downgrades and S$550mn of refinancing hurdles over the next two years.
Singapore shares recorded losses for a second straight session on Friday (Mar 24), dipping 0.2 per cent. SGX was the biggest winner, gaining 1.7 per cent or S$0.15 to close at S$9.08. At the bottom of the table was Genting Singapore, which lost 1.8 per cent or S$0.02 to S$1.08. Performance of the trio of local banks was mixed. DBS fell 0.4 per cent or S$0.12 to S$33.37, UOB lost 0.4 per cent or S$0.13 to S$29.29, while OCBC eked out a 0.2 per cent gain, closing S$0.02 higher at S$12.36.
US stocks shook off gloomy banking news to end the day slightly higher on Friday (Mar 24). The Dow Jones Industrial Average index closed 0.4 per cent higher at 32,237.53, while the broad-based S&P 500 indexes ended the day up 0.6 per cent at 3,970.99. The Nasdaq rose 0.3 per cent Friday to finish the week at 11,823.96. Shares in German lender Deutsche Bank ended the day 3.1 per cent lower in New York and fell 8.5 per cent in Europe.
Sembcorp Marine issued a notice on Friday morning that its wholly-owned subsidiary, Estaleiro Jurong Aracruz (EJA), was being investigated for “alleged irregularities” in its practices. This comes after the Office of the Comptroller General of Brazil published a notice in the official gazette, saying it had initiated a preliminary administrative liability proceeding against EJA. The notice did not provide further details, and Sembcorp said it was unable to assess the matter or the impact, if any, on EJA.
Rex International Holding announced on March 24 that there were some discrepancies between is unaudited condensed interim financial statement and audited financial statement for the 12 months to Dec 31, 2022. The material variances were due to the completion of the purchase price allocation for the acquisition of the Yme Field in Norway.
Travelite Holdings announced on March 24 that it has entered into a sale and purchase agreement to acquire a 40% stake in a music company, Funkie Monkies Ventures. The acquisition price is based on a formula but is likely to be no higher than $2.4 million, and no lower than $688,000. The proposed acquisition is subject to shareholders approval. Travelite says the proposed acquisition is for diversification.
The anchor tenant of Starhill Global Real Estate Investment Trust’s (Starhill Global Reit) mall in South Australia, Myer Centre Adelaide, launched arbitration proceedings to claim unspecified damages as well as seek entitlement to terminate its lease, which otherwise runs till June 2032. Department store chain Myer occupies about 52 per cent of Myer Centre Adelaide’s net lettable area as at end-2022. As arbitration proceedings are in the early stages and are expected to take over 12 months to conclude – and considering that Myer has been making payment of rent under its lease – the manager said this is unlikely to have a material impact on the Reit’s distributable income for the current financial year ending Jun 30, 2023.
Marina Bay Sands (MBS) has been given yet another year to kick-start its S$4.5 billion expansion plan, with this reprieve granted by the Singapore Tourism Board (STB). MBS, which is owned and operated by US-listed Las Vegas Sands, will now have until Apr 8, 2028, to complete the extension, an SEC filing said. Under the amended terms, certain changes to the construction and operation plans under the agreement can be made.
Deutsche Bank shares tumbled on Friday after the cost of insuring the bank’s debt against the risk of default shot to more than four-year highs. Despite the turbulence, market watchers highlight that European regulators and central banks have reiterated their intention to keep markets stable, and that the banks themselves are more strongly capitalised and regulated than they were back in 2007 just before the global financial crisis. Separately, Deutsche Bank said it would redeem $1.5 billion in a set of tier 2 notes due in 2028. The bank had already issued similar new notes in February, which were designed to replace the notes that the bank is now redeeming.
Salesforce could see another round of job cuts while the company continues to focus on improving profitability, said chief operating officer Brian Millham. However, he added that consultant Bain & Co, which Salesforce is working with to review the business, has yet to provide final recommendations. Salesforce in January announced it would eliminate 10 per cent of its workforce, or about 8,000 employees, and close offices across the US. A group of activist investors are pushing to cut costs further in search of increased earnings and improved profit margins.
The gap between Activision Blizzard’s stock price and Microsoft’s takeover offer is at its narrowest level since the US$69 billion merger was announced in January 2022, as an update from UK regulators lifts expectations that the deal could go through. Activision rallied 5.9 per cent on Friday (Mar 24) to US$84.39. The surge came after the UK Competition and Markets Authority narrowed the scope of their merger probe, putting the stock around 11 per cent below Microsoft’s US$95-per-share offer.
Oracle has cut jobs at its Cerner digital health records unit, particularly in marketing, as the software giant works to integrate last year’s US$28.3 billion acquisition. Workers were informed last week that their positions had been eliminated. While the full scale of cuts couldn’t be determined, Cerner’s marketing and creative services divisions were hard hit, and some technical positions also were affected, said former employees who lost their jobs. Oracle employed about 143,000 people in May 2022, before the Cerner deal closed last June, the company said. Cerner had about 25,000 employees when the acquisition was announced in December 2021.
Twitter will begin removing so-called legacy verified marks from user accounts next week, as it works towards a model where only paid subscribers and members of approved organisations have that status. The move to strike legacy verification begins Apr 1, the company said in a tweet on Thursday (Mar 23).
Standard Chartered said on Sunday (Mar 26) that it plans to sell its Jordanian business to Arab Jordan Investment Bank (AJIB), as it presses ahead with plans to exit seven markets in Africa and the Middle East. The bank entered into an agreement with AJIB, subject to central bank approval, in which Standard Chartered’s corporate, commercial and institutional banking, consumer lending and private banking businesses migrated to AJIB. All Standard Chartered Bank employees in Jordan will be transferred to AJIB.
Xiaomi’s profit beat expectations as the world’s third-largest smartphone maker weathered a difficult quarter to close the year. Smartphone shipments were down dramatically in the three months ended December, but the company still managed to record net income of 1.5 billion yuan (S$291 million), better than the average analyst estimate of 800 million yuan. Revenue in the quarter was 66 billion yuan. Xiaomi’s global smartphone shipments fell 26.3 per cent in the fourth quarter – the steepest decline among all vendors. Still, the company’s 33.2 million units shipped in the period was good enough to edge out local rivals to keep the title as the world’s No 3 smartphone brand after Apple and Samsung Electronics.
TikTok CEO Chew Shou Zi, confronted with an unforgiving, distrustful Congress, tried to give answers in his testimony Thursday that avoided offending either the US government or China. But his evasiveness left Congress unsatisfied, with representatives hungrier than ever to punish TikTok for ties to its parent company ByteDance Ltd., and he didn’t bring his company any closer to a resolution. TikTok’s executives had been discussing divesting from ByteDance to resolve US national security concerns, but China this week said it would firmly oppose a forced sale.
Farizon Auto, Zhejiang Geely Holding Group’s new-energy commercial vehicle brand, is considering raising as much as US$300 million in fresh funds ahead of a potential initial public offering (IPO) in the United States. The carmaker is seeking a valuation of US$4.5 billion in the new round, up from US$3 billion in its fundraising last year, people familiar with the matter said. They added that the company is studying the possibility of listing in the US as soon as the end of this year, but no final decision has been made. Considerations are at an early stage and details of the new funding round and IPO could still change.
Source: SGX Masnet, Bloomberg, Channel NewsAsia, Reuters, CNBC, WSJ, The Business Times, PSR
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