Connect with us

Business

Nomura and Credit Suisse warn of significant losses after Archegos share dump – The Globe and Mail

Published

 on


Credit Suisse warned a default on margin calls by a U.S. hedge fund could be ‘highly significant and material’ to its results.

Walter Bieri/The Associated Press

Nomura and Credit Suisse warned on Monday they were facing big losses after a U.S. hedge fund, named by sources as Archegos Capital, defaulted on margin calls, putting investors on edge about who else had been caught out.

Losses at Archegos Capital Management, run by former Tiger Asia manager Bill Hwang, had triggered a fire sale of stocks on Friday, a source familiar with the matter said.

Nomura said it faced a possible $2 billion loss due to transactions with a U.S. client while Credit Suisse said a default on margin calls by a U.S.-based fund could be “highly significant and material” to its first-quarter results.

Story continues below advertisement

Credit Suisse said that a fund had “defaulted on margin calls” to it and other banks, meaning they were now in the process of exiting these positions.

Nomura shares closed down 16.3 per cent, a record one-day drop, while Credit Suisse shares were down 14 per cent, their biggest fall in a year.

Deutsche Bank was down 5 per cent while UBS was 3.8 per cent lower. UBS had no immediate comment on their stock prices or exposure to Archegos.

Deutsche’s Archegos exposure was a fraction of what others have, a source familiar with the matter said, adding that the German bank had not incurred any losses and was in the process of managing its position.

Switzerland’s financial regulator said on Monday it was aware of the international hedge fund case and in touch with Credit Suisse about it. The Swiss regulator also said several banks and locations internationally were involved.

The Swiss National Bank declined to comment.

A margin call is when a bank asks a client to put up more collateral if a trade partly funded with borrowed money has fallen sharply in value. If the client can’t afford to do that, the lender will sell the securities to try to recoup what it is owed.

Story continues below advertisement

Investors were nervous about whether the full extent of Archegos’ apparent wipeout has been realised or whether there was more selling to come.

Nasdaq 100 futures and S&P 500 Futures were both down 0.5 per cent in early European trade as the widening fallout of Archegos’ liquidation became clearer.

Shares in ViacomCBS and Discovery each tumbled around 27 per cent on Friday, while U.S.-listed shares of China-based Baidu and Tencent Music plunged during the week, dropping as much as 33.5 per cent and 48.5 per cent, respectively, from Tuesday’s closing levels. Baidu was trading slightly lower in Hong Kong at the open.

Investors and analysts cited blocks of Viacom and Discovery shares being put in the market on Friday for likely exacerbating the decline in those stocks. Viacom was also downgraded by Wells Fargo on Friday.

A person at Archegos who answered the phone on Saturday declined to comment. Hwang, who founded Archegos and ran Tiger Asia from 2001 to 2012, renamed it Archegos Capital and made it a family office, according to a page capture of the fund’s website. Tiger Asia was a Hong Kong-based fund that sought to profit on bets on securities in Asia.

Hwang in 2012 settled insider trading charges by the U.S. Securities and Exchange Commission according to a press release at the time. He and his firms at the time agreed to pay $44 million to settle, according to the release.

Story continues below advertisement

The scale of the losses at banks is likely to prompt questions about the risk management of banks’ exposure to Archegos.

In Japan, Chief Cabinet Secretary Katsunobu Kato said the government would carefully monitor the situation at Nomura and that the Financial Services Agency would share information with the Bank of Japan.

For Credit Suisse this will mark the second straight quarter the bank has recorded losses on hedge fund exposure and adds to pressure on chief executive Thomas Gottstein, who is grappling with the fallout from the bank’s dealings with collapsed supply chain finance company Greensill.

Last quarter Credit Suisse booked a $450 million impairment after alternative investment firm York Capital Management, which it held a stake in, informed investors it would wind down its European hedge funds business.

VOLATILITY CONCERNS

Some market participants said last week’s wild share price moves were likely to unsettle investors.

“It’s insane,” said Edward Moya, senior market analyst at OANDA. “When you consider how some of these companies have skyrocketed over the last few months, there will be concerns that we are over-levered.”

Story continues below advertisement

Others said potential further unwinds would only have a limited impact on broader markets. The Nasdaq Composite and S&P 500 both surged over 1 per cent on Friday despite the sharp selloffs in Viacom and other stocks.

“These stories around fund liquidations happen from time to time,” said Michael Antonelli, market strategist at Baird. “Some of the names where big blocks were traded on Friday might see some near-term volatility as traders wonder whether the selling is complete.”

Several banks were meant to be involved with the trade unwinds. A source familiar with the matter said on Saturday that Goldman Sachs Group Inc was involved.

On Monday, a source familiar with the situation said any losses incurred by Goldman Sachs were immaterial.

The Financial Times reported that Morgan Stanley sold $4 billion worth of shares early on Friday, followed by another $4 billion in the afternoon. Bloomberg and the Financial Times on Saturday reported thatGoldman liquidated more than $10 billion worth of stocks in the block trades. An email to clients seen by Bloomberg News said Goldman sold$6.6 billion worth of shares of Baidu Inc, Tencent Music Entertainment Group and Vipshop Holdings Ltd, before the U.S. market opened on Friday, the Bloomberg report on Saturday said. Following this, Goldman sold $3.9 billion worth of shares inViacomCBS Inc, Discovery Inc, Farfetch Ltd, iQIYI Inc and GSX Techedu Inc, the report said.

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

Let’s block ads! (Why?)



Source link

Continue Reading

Business

Canadian National challenges Canadian Pacific with $33.7 billion Kansas City bid

Published

 on

By Shreyasee Raj

(Reuters) -Canadian National said on Tuesday it had offered to buy Kansas City Southern railroad for about $33.7 billion, and shares of U.S. company soared as investors anticipated a potential bidding war with Canadian Pacific.

Canadian Pacific had agreed a deal to acquire Kansas City Southern for about $25 billion last month. Either combination would create a North American railway spanning the United States, Mexico and Canada as supply chains recover from being disrupted by the COVID-19 pandemic.

The acquisition interest in Kansas City Southern also follows the ratification of the US-Mexico-Canada Agreement last year, that removed the threat of trade tensions which had escalated under former U.S. President Donald Trump.

Kansas City said it would evaluate Canadian National’s offer. If it found it could lead to a better deal, Canadian Pacific will be given the opportunity to raise its bid.

Canadian National’s cash-and-stock offer, worth $325 per share, is at a 26.8% premium to Kansas City Southern’s offer as of Monday’s trading close.

“We are surprised by this move given the healthy valuation Canadian Pacific had already offered to Kansas City Southern shareholders,” Stephens analyst Justin Long wrote in a note to clients.

Kansas City Southern shares rose 15.8% to $297.12, indicating most investors deemed it unlikely the company would stick with Canadian Pacific’s offer.

One investor that took a different view is Chilton Investment Co, which has a less than 1% stake in Kansas City Southern. Citing regulatory hurdles, it said it preferred a deal with Canadian Pacific.

“There’s more overlap with Canadian National deal which makes it harder to get (regulatory) approval. The Surface Transportation Board (STB) doesn’t like overlap,” Chilton CEO Richard Chilton said.

Canadian National CEO Jean-Jacques Ruest said his network and that of Kansas City Southern are “highly complementary networks with limited overlap.” They only run parallel for 65 miles, between Baton Rouge and New Orleans.

Kansas City Southern has domestic and international rail operations in North America, focused on the north-south freight corridor connecting commercial and industrial markets in the central United States with industrial cities in Mexico. Calgary-based Canadian Pacific is Canada’s No. 2 railroad operator, behind Canadian National.

The STB updated its merger regulations in 2001 to introduce a requirement that Class I railways have to show a deal is in the public interest. Yet it provided an exemption to Kansas City Southern given its small size, potentially limiting the scrutiny that its acquisition will be subjected to.

Canadian Pacific agreed in its negotiations with Kansas City Southern to bear most of the risk of the deal not going through. It will buy Kansas City Southern shares and place them in an independent voting trust, insulating the acquisition target from its control until the STBLatest clears the deal. Were the STB to reject the combination, Canadian Pacific would have to sell the shares of Kansas City Southern, but the current Kansas City Southern shareholders would keep their proceeds.

Canadian National said it was willing to match these terms. It said its offer does not require approval from its own shareholders because of how much cash it has, eliminating a condition in Canadian Pacific’s offer.

Bill Gates’ Cascade Investment, which is Canadian National’s biggest investor with a 14.25% stake, said it fully supports the combination.

A private equity consortium led by Blackstone Group Inc and Global Infrastructure Partners (GIP) made an unsuccessful offer last year to acquire Kansas City Southern. But it was Canadian Pacific’s announcement of a deal with Kansas City Southern that spurred Canadian National into action, as it raised the prospect of losing out to its rival, according to people familiar with the matter.

(Reporting by Shreyasee Raj and Ankit Ajmera in Bengaluru; Additional reporting by Greg Roumeliotis in New York; Editing by Shinjini Ganguli, Anil D’Silva and David Gregorio)

Continue Reading

Business

CEO shake-up at Canada’s Nutrien could pave way to M&A: shareholders

Published

 on

By Rod Nickel and Maiya Keidan

WINNIPEG, Manitoba (Reuters) – Investors expect the new chief executive of Canada‘s Nutrien Ltd to swing deals as part of a more aggressive growth strategy, after an abrupt shake-up at Canada‘s biggest agriculture company.

Nutrien, the world’s biggest fertilizer producer by capacity, surprised shareholders on Sunday by promoting its chairman, Mayo Schmidt, to CEO, replacing Chuck Magro, who had led the company since it formed from Agrium’s 2018 merger with Potash Corp.

Schmidt, raised on a Kansas farm, is best known for leading the Saskatchewan Wheat Pool grain cooperative’s acquisition of competitor Agricore United in 2007, creating Viterra Inc, one of Canada‘s biggest grain handlers. He subsequently bought Australia’s ABB Grain before leading the sale of Viterra to commodity trader Glencore PLC in 2012.

“Acceleration of M&A is a natural progression as we enter the next commodity supercycle,” said Michael Underhill, chief investment officer at Capital Innovations LLC, which owns Nutrien shares. “I would not bet against him.”

Nutrien shares were down 1.3% on Tuesday, after falling 3.5% on Monday. They have risen about 35% year over year, riding soaring corn prices, but gained only 2% since they began trading in 2018.

Some investors had grown uncertain about Nutrien’s growth strategy under Magro, said Mike Archibald, vice-president and portfolio manager at AGF Investments, which owns C$136 million ($109 million) worth of the company’s stock.

Archibald said now the strategy looks likely to shift to deals.

“The incoming CEO does have a history as a deal-maker so, to the extent he lives up to what he’s done in the past, we should expect sometime in the next 12 months that we’ll get something happening on the M&A front,” Archibald said.

POTENTIAL DEALS

Nutrien could try to acquire U.S. nitrogen fertilizer rival CF Industries, which has a $10-billion market capitalization, or accelerate the company’s roll-up of smaller farm retail stores, Archibald said. A CF spokesman did not immediately respond to a request for comment.

Conversely, Schmidt could sell off the retail business to focus on fertilizer production, Archibald said.

Nutrien declined an interview request for Schmidt. A company spokeswoman said Schmidt’s plans include following the company’s climate change initiatives, which Magro unveiled this month.

Schmidt may also eye selling Nutrien’s phosphate fertilizer business, even though it recently got a boost from U.S. duties against Russian and Moroccan imports, said Brian Madden, senior vice-president at Goodreid Investment Counsel, a Nutrien shareholder.

The CEO change is positive, as Schmidt has an exceptional record of creating shareholder value, said Scotiabank analyst Ben Isaacson. He added that Nutrien could look to consolidate the nitrogen industry.

Schmidt would find it difficult to sell Nutrien itself, Madden said. There is no obvious domestic acquirer and the Canadian government rejected a foreign bid for Potash Corp in 2010.

“Schmidt has got cred in the ag world,” Madden said. But he added that abruptly changing chief executives is not how successions should occur at large companies.

 

 

(Reporting by Rod Nickel in Winnipeg and Maiya Keidan in Toronto; Editing by Marguerita Choy)

Continue Reading

Business

Canadian Business During the Pandemic

Published

 on

In 2019 the world was hit by the covid 19 pandemic and ever since then people have been suffering in different ways. Usually, economies and businesses have changed the way they work and do business. Most of which are going towards online and automation.

The people most effected by this are the laymen that used to work hard labors to make money for there families. But other then them it has been hard for most business to make such switch. Those of whom got on the online/ e commerce band wagon quickly were out of trouble and into the safe zone but not everyone is mace for the high-speed online world and are thus suffering.

More than 200,000 Canadian businesses could close permanently during the COVID-19 crisis, throwing millions of people out of work as the resurgence of the virus worsens across much of the country, according to new research. You can only imagine how many families these businesses were feeding, not to mention the impact the economy and the GDP is going to bear.

The Canadian Federation of Independent Business said one in six, or about 181,000, Canadian small business owners are now seriously contemplating shutting down. The latest figures, based on a survey of its members done between Jan. 12 and 16, come on top of 58,000 businesses that became inactive in 2020.

An estimate by the CFIB last summer said one in seven or 158,000 businesses were at risk of going under as a result of the pandemic. Based on the organization’s updated forecast, more than 2.4 million people could be out of work. A staggering 20 per cent of private sector jobs.

Simon Gaudreault, CFIB’s senior director of national research, said it was an alarming increase in the number of businesses that are considering closing.

We are not headed in the right direction, and each week that passes without improvement on the business front pushes more owners to make that final decision,”

He said in a statement.

The more businesses that disappear, the more jobs we will lose, and the harder it will be for the economy to recover.

In total, one in five businesses are at risk of permanent closure by the end of the pandemic, the organization said.

The new sad research shows that this year has been horrible for the Canadian businesses.

 

The beginning of 2021 feels more like the fifth quarter of 2020 than a new year,” said Laura Jones, executive vice-president of the CFIB, in a statement.

She called on governments to help small businesses “replace subsidies with sales” by introducing safe pathways to reopen to businesses.

There’s a lot at stake now from jobs, to tax revenue to support for local soccer teams,”

Jones said.

Let’s make 2021 the year we help small business survive and then get back to thriving.”

The whole world has suffered a lot from the pandemic and the Canadian economy has been no stranger to it. We can only pray that the world gets rid of this pandemic quickly and everything become as it used to be. Although I think it is about time, we start setting new norms.

Continue Reading

Trending