HP Inc. reports EPS in-line, misses on revs; guides Q4 EPS in-line (31.37 +0.03)
- Reports Q3 (Jul) earnings of $0.86 per share, excluding non-recurring items, in-line with the FactSet Consensus of $0.86; revenues fell 9.9% year/year to $13.20 bln vs the $13.38 bln FactSet Consensus.
- Personal Systems segment revenue was $8.9 billion, down 11% year over year (down 8% in constant currency) with a 6.6% operating margin. Consumer PS net revenue was down 12% and Commercial PS net revenue was down 11%. Total units were up 3% with Consumer PS units up 8% and Commercial PS units flat.
- Printing segment revenue was $4.3 billion, down 7% year over year (down 5% in constant currency) with an 18.6% operating margin. Consumer Printing net revenue was down 28% and Commercial Printing net revenue was down 6%. Supplies net revenue was down 2% (flat in constant currency). Total hardware units were down 19% overall, with Consumer Printing units down 20% and Commercial Printing units down 8%.
- Co issues in-line guidance for Q4 (Oct), sees EPS of $0.85-0.97, excluding non-recurring items, vs. $0.95 FactSet Consensus.
Closing Stock Market Summary
It was another strong day for stocks on light volume. A big drop in market rates provided the positive catalyst for stocks. The S&P 500 climbed its 50-day moving average (4,460) shortly after the open and ultimately settled just a whisker shy of the 4,500 level. All the major indices settled near their highs of the day.
Treasury yields dropped sharply following the release of the July JOLTS - Job Openings Report and August Consumer Confidence Index at 10:00 a.m. ET. Both of those reports were weaker than expected, which is a good thing in the market's eyes as it relates to Fed policy.
Job openings slumped to 8.827 million in July from a downwardly revised 9.165 million (from 9.824 million) in June. The Consumer Confidence Index, meanwhile, dropped to 106.1 in August (consensus 116.0) from a downwardly revised 114.0 (from 117.0) in July as receding optimism about employment conditions negatively affected consumers' view of the present situation and outlook.
The 2-yr note yield, at 5.03% just before the data, fell 15 basis points from yesterday's settlement to 4.91%. The 10-yr note yield, at 4.21% just before the data, fell nine basis points to 4.12%.
The drop in market rates coincided with a drop in rate hike expectations. The probability of another rate increase at the November FOMC meeting fell to 45.6% from 62.3% yesterday, according to the CME FedWatch Tool.
Mega caps and other growth stocks led the upside charge, reacting positively to the drop in market rates. The Vanguard Mega Cap Growth ETF (MGK) jumped 2.0% and the Russell 3000 Growth Index rose 1.9%.
All 11 S&P 500 sectors closed with a gain. The communication services (+2.5%), consumer discretionary (+2.4%), and information technology (+2.1%) sectors were propelled to first place on the leaderboard by their strong mega cap components.
A gain in Best Buy (BBY 76.93, +2.86, +3.9%) following its earnings results and outlook provided an additional boost to the consumer discretionary sector.
The utilities (+0.3%) and energy (+0.3%) sectors saw the slimmest gains.
In other news, Crypto-related stocks were a pocket of strength after a Federal appeals court ruled against the SEC in the Grayscale spot bitcoin ETF case, saying the SEC incorrectly rejected Grayscale's spot bitcoin ETF filing. Coinbase (COIN 84.70, +10.99, +14.9%) was a top winner from the space.
- Nasdaq Composite: +33.2% YTD
- S&P 500: +17.1% YTD
- Russell 2000: +8.6% YTD
- S&P Midcap 400: +7.6% YTD
- Dow Jones Industrial Average: +5.1% YTD
Reviewing today's economic data:
- June FHFA Housing Price Index 0.3%; prior 0.7%
- June S&P Case-Shiller Home Price Index, Yr/Yr -1.2% vs consensus of 0.9%; Prior -1.7%
- August Consumer Confidence 106.1 vs Briefing.com consensus of 116.0; Prior was revised to 114.0 from 117.0
- The key takeaway from the report is that receding optimism about employment conditions negatively affected consumers' view of the present situation and outlook.
- July JOLTS - Job Openings 8.827 mln vs consensus of ; Prior was revised to 9.165 mln from 9.842 mln
Wednesday's economic calendar will feature:
- 7:00 ET: Weekly MBA Mortgage Index (prior -4.2%)
- 8:15 ET: August ADP Employment Change (consensus 195,000; prior 324,000)
- 8:30 ET: Q2 GDP -- second estimate (consensus 2.4%; prior 2.4%), Q2 GDP Deflator -- second estimate (consensus 2.2%; prior 2.2%), July advance goods trade balance (prior -$87.8 bln), advance Retail Inventories (prior 0.3%), and advance Wholesale Inventories (prior -0.5%)
- 10:00 ET: July Pending Home Sales ( consensus -1.3%; prior 0.3%)
- 10:30 ET: Weekly crude oil inventories (prior -6.14 mln)
The SEC failed to prove that dog wags tail, court rules
Futures and cash markets . . . what’s the difference, really?
A panel of three judges ruled today that the Securities and Exchange Commission was “arbitrary and capricious” in its decision that . . . spot markets are fundamentally different from futures markets?
Hold on.
For some background: a US district court vacated the SEC’s decision that prevented Grayscale from converting its closed-end GBTC fund into a spot bitcoin ETF. Grayscale had been trading at a persistent discount to the net asset value, under the presumption that investors wouldn’t be able to claim their bitcoin legally.
Bitcoin is up 7.5 per cent Tuesday. Grayscale’s Bitcoin Trust is up 18 per cent. Even Coinbase is rallying, up 16 per cent.
But the court’s decision, on its face, is a little odd. Judge Neomi Rao writes:
RAO, Circuit Judge: It is a fundamental principle of administrative law that agencies must treat like cases alike. The Securities and Exchange Commission recently approved the trading of two bitcoin futures funds on national exchanges but denied approval of Grayscale’s bitcoin fund.Petitioning for review of the Commission’s denial order, Grayscale maintains its proposed bitcoin exchange-traded product is materially similar to the bitcoin futures exchange-traded products and should have been approved to trade on NYSE Arca. We agree. The denial of Grayscale’s proposal was arbitrary and capricious because the Commission failed to explain its different treatment of similar products. We therefore grant Grayscale’s petition and vacate the order.
Similar products . . . wait, what type of similar products do they mean?
In this case, the court means Bitcoin futures ETFs:
“This tight correlation is not a coincidence: bitcoin futures prices are ultimately based on spot market prices. Bitcoin futures trade based on predicted settlement prices that are in turn calculated using the Bitcoin Reference Rate. The Reference Rate, like the CoinDesk Index, aggregates spot prices from multiple exchanges. Id. at 40,317. Four of the six exchanges are shared between the indices. See id. at 40,318. A study conducted by a finance professor and expert on derivative contract valuation found the CoinDesk Index and the Reference Rate are ‘near perfect substitutes.’”
In other words, the bitcoin market’s arbitrageurs have done a good job arbitraging. (As their reward for this, they are getting more opportunities for arbitrage.)
But was the SEC’s issue with a Grayscale ETF really about whether the spot market and futures market trade closely enough?
Or is it that there is no reasonable way to ensure that a global over-the-counter market gets appropriate surveillance, and that by allowing Grayscale to further liquefy it, the US is helping the types of sketchy stuff that can happen in a global over-the-counter market?
From the ruling:
When approving the bitcoin futures ETPs, the Commission acknowledged the risk of fraud to bitcoin futures from “trading outside of the CME bitcoin futures market,” such as trading in the spot market. Teucrium Order, 87 Fed. Reg. at 21,679; Valkyrie Order, 87 Fed. Reg. at 28,851. Huh.This was an important problem to address for the futures ETPs because futures markets “are hard to manipulate . . . because of actual and potential competition from the cash commodity,” so the primary risk is often in the spot market. See Frank H. Easterbrook, Monopoly, Manipulation, and the Regulation of Futures Markets, 59 J. Bus. S103, S103 (1986). Fraud and manipulation in the bitcoin spot market pose a similar risk to both futures and spot products. Because the spot bitcoin market and the CME bitcoin futures market are so tightly correlated, a price distortion in the spot market will be reflected in the price of the futures market. After all, futures are derivatives of the spot market.The SEC did not suggest the 99.9 per cent correlation was coincidence or caused by some third variable. We recognise the basic principle that mere correlation does not equal causation. But here the correlation was based on the logical and mathematical connection between the spot and futures markets. In this context, the almost perfect correlation was at least strong evidence of causation. And the Commission failed to explain why a surveillance sharing agreement with the CME was sufficient to protect bitcoin futures ETPs from potential fraud, but not Grayscale’s proposed bitcoin ETP.
Wait, what?
It’s definitely reasonable to say that bitcoin futures face risk from manipulation or fraud in the spot bitcoin market, of course.
But to say that spot bitcoin markets are sufficiently regulated because the CFTC regulates its futures markets seems . . . odd. Wouldn’t that mean the CFTC implicitly regulates every market where it lists futures, through some weird transitory property of arbitrage? For example, few would argue that the CFTC’s regulation of Treasury futures makes it unnecessary for the SEC to oversee Treasury-trading platforms. (In fact, the Treasury flash rally in October 2014 provides a helpful demonstration of what can go wrong in unregulated cash trading.)
There is, however, one actual example of an ETF trading today that is similar to a spot bitcoin ETF: the SPDR Gold Trust, which listed in November 2004 and is backed by gold bullion held in a vault.
What gold and Bitcoin have in common is that they are both money-transfer vehicles that are said to be popular for money laundering, crime, and cross-border capital flight. They are both quite popular in libertarian political circles, and trade on global over-the-counter markets that are impossible to thoroughly surveil.
If anything, gold markets are actually tougher to regulate than bitcoin because — lest we forget — bitcoin is pseudonymous, not anonymous.
If State Street can float a gold ETF backed by physical gold in a vault, it doesn’t seem unreasonable to think that Grayscale can make its fund of spot bitcoin into an ETF.
Now, one could pretty easily argue use this argument to say that the US shouldn’t be listing ETFs backed by spot gold.
Or you could take the other side, like Doug Cifu of Virtu Financial:
“Political Gary getting pants again” is an inspired turn of phrase from [at]Dougielarge.
It’s rather esoteric, of course . . . what does “getting pants” mean? Does he mean “getting pantsed”, as in the thing where a middle-school bully pulls someone’s pants down between classes?
And most important: does “Political Gary [Gensler]” imply the existence of an “Apolitical Gary [Gensler]”?
Apple Sends Invites for Sept. 12 Event, Where New iPhones Are Expected
The tech company is expected to unveil the iPhone 15 with a new USB-C charging port
Apple AAPL 2.18%increase; green up pointing triangle on Tuesday sent out invitations for its Sept. 12 event, where the technology company is expected to unveil the latest iteration of the iPhone.
The in-person event will be held at the Steve Jobs Theater at the company’s headquarters in Cupertino, Calif., at 10 a.m. local time, according to the company’s invitation. The invite featured the word “Wonderlust,” but provided few other details.
The company typically unveils new iPhones and other devices each fall. Last year, Apple debuted its iPhone 14 lineup, as well as new software and updated Apple Watches. The in-person event in 2022 followed two years of virtual fall launch events due to the Covid-19 pandemic.
The new phones are expected to have a new charging port—a USB-C connector—as well as an enhanced zoom lens and other updates. Greg Joswiak, Apple’s senior vice president of worldwide marketing, said at The Wall Street Journal’s Tech Live conference last fall that the company would have to comply with European Union legislation requiring a common charging standard in mobile phones.
Mobile phones and other electronic devices sold in the EU will be required to have USB-C ports by the end of 2024, according to the legislation.
An Apple representative didn’t immediately respond to a request for comment Tuesday.
Apple said earlier this month that its revenue declined for the third consecutive quarter. It is the company’s longest sales slump since 2016, when sales fell 7.7% annually, largely due to declining iPhone sales. At the time, iPhone sales made up nearly two-thirds of the company’s revenue. Now, they make up about 50%.
Apple posted sales of $81.8 billion for the most recent quarter ending in July, down 1.4% from the previous year. iPhone sales fell 2.4% to $39.7 billion for the quarter, missing analysts’ expectations of $40.2 billion. Apple Chief Executive Tim Cook highlighted strong iPhone sales in emerging markets, including India. Cook also pointed to 7.9% revenue growth in China, where, he said, consumers are switching to the iPhone from a rival smartphone.
In New Step Toward Israel Deal, Saudi Arabia Offers to Resume Palestinian Authority Funding
Riyadh wants the Palestinians to crack down on militants and curb violence
Saudi Arabia is offering to resume financial support to the Palestinian Authority, said Saudi officials and former Palestinian officials familiar with the discussions, a sign that the kingdom is making a serious effort to overcome obstacles to establishing diplomatic relations with Israel.
Saudi officials say they are trying to secure Palestinian President Mahmoud Abbas’s support for open ties with Israel, providing more legitimacy to any eventual agreement and forestalling any accusations that the kingdom would sacrifice Palestinian efforts to establish an independent state to advance its own goals. Recognizing Israel is especially sensitive for Saudi Arabia because it hosts Islam’s holiest sites, giving it a special status in the Muslim world, where Palestinian statehood remains an emotional rallying cry.
The Saudi outreach has fueled a debate among Palestinian leaders about whether to back the kingdom’s outreach to Israel—a move that would represent a significant shift from officials who accused Gulf leaders of stabbing them in the back when they established diplomatic ties with Israel in 2020.
To advance their interests, the Palestinian Authority is sending a senior delegation to Saudi Arabia next week to discuss what the kingdom can do in talks with Israel to advance flickering hopes of creating a Palestinian state, the officials said.
Saudi Arabia has been a staunch supporter and benefactor of the Palestinians since 1948, when Arab leaders launched an unsuccessful war to prevent the creation of Israel. The kingdom has pumped more than $5 billion dollars into Palestinian causes, including direct support to the Palestinian Authority. But Riyadh began cutting back funding to the Palestinian Authority in 2016 amid allegations of incompetence and corruption, with aid plunging from $174 million a year in 2019 to zero in 2021.
Now, resumption of Saudi funding to the Palestinians could play an important role in securing their support for the kingdom’s outreach to Israel.
Saudi Crown Prince Mohammed bin Salman first raised the idea of funding with Abbas at a meeting in Saudi Arabia in April, connecting the resumption of aid to the authority cracking down on militant groups and violence in the West Bank, according to Saudis and Palestinians briefed on the talks.
Militant groups hold more power than Palestinian security forces in some cities, and Israel has responded to the rise in Palestinian attacks with repeated military operations. More than 200 Palestinians, many of them militants, and nearly 30 Israelis, almost all civilians, have been killed this year, in what the United Nations said is already the highest recorded annual death toll since the end of the second Palestinian uprising in 2005.
If Abbas can get security under control, the crown prince offered assurances that the kingdom would eventually resume its funding for the Palestinian Authority and that Saudi Arabia wouldn’t accept any deal with Israel that undermines efforts to create an independent Palestinian state, the officials said.
Reducing West Bank violence would represent an important step toward the broader goal of Saudi-Israeli normalization. If the Palestinian Authority can get a handle on militancy, it would demonstrate its ability to govern an independent state that wouldn’t pose a threat to Israel. It would also allow Israeli forces to scale back deadly military operations in the West Bank that have hurt their image across the region and hampered their ability to forge new relationships with Arab neighbors.
While the Saudi proposal wasn’t explicitly tied to Palestinian support for a Saudi-Israel diplomatic deal, the offer provides Palestinians with more incentives to back the kingdom’s efforts, the officials said.
In recent months, the Palestinian Authority has begun trying to reassert control in cities like Jenin, where militant groups had taken effective control, making it a target of frequent Israeli military raids.
Several Palestinian Authority officials didn’t respond to requests for comment.
Palestinian leaders were blindsided by the Abraham Accords, which opened diplomatic relations between Israel and the United Arab Emirates, Bahrain, Morocco and Sudan in 2020. As part of that Trump administration-brokered deal, Israel suspended plans to annex parts of the West Bank, providing limited relief from continued Israeli settlement expansion on land once expected to be part of a Palestinian state.
At the time, Abbas accused the U.A.E. of stabbing the Palestinian people in the back. Emirati leaders said the deal had preserved chances for creation of a Palestinian state by staving off Israeli annexation of West Bank land.
Getting Palestinian support is one of a thicket of challenges facing any Saudi-Israel deal, including the fast-approaching U.S. presidential campaign and resistance from Israeli leaders and U.S. lawmakers wary of giving the kingdom help developing a nuclear program and more military aid.
Some Abbas advisers want the Palestinian leadership to provide the Saudis with plausible concessions they could ask of Israel that would advance efforts to create a Palestinian state.
“Saudi-Palestinian relations are strong, and we have confidence in them,” Palestinian Foreign Minister Riyad al-Maliki said earlier this month.
“We would like very much to listen to the Saudis, to coordinate with the Saudis and to see how we can endorse and strengthen the position of the Saudis when it comes to this particular matter, and how the Saudis could hear from us about the steps that they should undertake as necessary steps in order for the question of Palestine to be resolved,” he said.
Palestinians who support active cooperation with the Saudis say they want to ensure that the Saudis don’t trade away their concerns to advance the kingdom’s more important interests.
“It’s much easier to bypass the Palestinians when you call the Saudis backstabbers,” said one Palestinian. “It’s more difficult when you cooperate.”
Other Palestinian officials are wary of being betrayed by Saudi leaders who have barely concealed their dim view of the Palestinian Authority’s leadership.
In their recent talks, Mohammed assured Abbas that he wouldn’t bend in his support for the Saudi-led Arab Peace Initiative. In that 2002 proposal, the Arab League agreed to establish open ties with Israel only when it allowed the creation of an independent Palestinian state in the West Bank and Gaza Strip, with East Jerusalem as its capital.
With the Gaza Strip run by the rival Palestinian group Hamas, a U.S.-designated terrorist group, and East Jerusalem annexed by Israel, meeting that bar right now appears unattainable. That makes it unlikely Mohammed would hold firm to such an expansive demand if he hopes to secure a deal with Israel soon. Saudi leaders have told U.S. officials that they expect Palestinians to accept concessions short of statehood and that the Palestinians won’t have any power to veto a Saudi-Israel deal.
Israeli Prime Minister Benjamin Netanyahu has long suggested that Saudi Arabia cares little about the Palestinians and that he won’t have to agree to anything that advances the realistic prospects for an independent Palestinian state. Saudi leaders have insisted publicly that they will accept nothing less than what is in the Arab Peace Initiative. If it secures a deal with Israel that doesn’t achieve that, Saudi Arabia is expected to continue to support the initiative’s goals, just as the Emiratis did in 2020 when they normalized relations.
German coalition agrees €7bn corporate tax relief package
Move aimed at reviving economy and polishing image of coalition weakened by months of squabbling
The German government has agreed a €7bn package of corporate tax relief, in a move aimed at reviving a stuttering economy and polishing the image of a three-party coalition weakened by months of squabbling.
The bill comes as concerns grow about the state of the German economy, which stagnated in the three months to June after shrinking in the previous two quarters, underperforming all its large rivals.
The IMF and OECD both expect Germany to be the world’s worst-performing leading economy this year.
The so-called Growth Opportunities Law, which will run for four years, was the centrepiece of a 10-point plan for boosting growth presented by chancellor Olaf Scholz on Tuesday during the first day of a two-day government retreat in Schloss Meseberg, a baroque palace outside Berlin.
However, the plan omits a proposal backed by the economy ministry to subsidise electricity prices for industrial companies and it was unclear whether the issue would be discussed at Meseberg. “Long-term subsidies are not a solution,” the text of the plan says.
Scholz’s fractious coalition of Social Democrats, Greens and the liberal Free Democrats (FDP) has been riven by disagreements over policy that have hit all three parties’ approval ratings. A recent poll by YouGov found 69 per cent of Germans do not consider the government capable of solving the country’s problems.
The tax relief bill, which aims to “improve Germany’s competitiveness” and “give new impulses for growth”, was unveiled by finance minister and FDP leader Christian Lindner earlier this summer. But it was blocked by Green families minister Lisa Paus in retaliation for his refusal to allocate more money to child benefit reforms spearheaded by her ministry.
The argument highlighted the deep ideological divisions between the left-leaning Greens and pro-business liberals. In the end, the ministers called a truce, announcing on Monday that they had reached agreement on the child benefit issue.
The deal paves the way for both the benefit reform and tax relief bills to be passed by the German cabinet on Wednesday and sent to the Bundestag.
The tax package is designed to incentivise investment and is targeted at the Mittelstand — the small- and medium-sized enterprises that form the backbone of the German economy.
It will introduce a tax allowance for investments, especially those designed to fight climate change and improve energy efficiency, and tax incentives for research and development. It also aims to boost the construction industry by introducing new depreciation allowances to incentivise investment in new housing.
Apart from the tax relief package, the 10-point plan contains little new. It includes a pre-announced Climate and Transformation Fund, worth €212bn, that will finance investment in electric vehicles, building refurbishment and decarbonisation of industry, as well as semiconductor manufacturing. Some €58bn will be made available in 2024 alone.
The government said it would also seek to speed up planning procedures, reduce bureaucracy and provide “secure and affordable energy” by expanding solar and wind energy capacity.
US targets 10 drugs for pricing negotiations in crackdown on costs
Expensive medicines made by Pfizer, J&J and Merck selected for talks in biggest shake-up in decades
The US government named 10 of the best-selling drugs as the first to face tough price regulations in a bid to slash healthcare costs, marking the biggest shake-up for the pharmaceutical industry in decades.
The new rules give the federal government the power to negotiate lower prices for some of the most expensive prescription drugs produced by Pfizer, Merck and other pharma companies purchased by Medicare, the taxpayer-funded healthcare system for retirees.
The reforms, which have been bitterly opposed by the pharmaceutical industry, aim to cut exorbitant costs for Americans, who face some of the highest prices for prescription drugs in the developed world. In 2022 the country spent more than $600bn on medicines, almost half the total global outlay, according to Statista.
“While the pharmaceutical industry makes record profits, millions of Americans are forced to choose between paying for medications they need to live or paying for food, rent and other basic necessities,” said President Joe Biden, who is expected to deliver a speech at the White House on the changes later on Tuesday. “Those days are ending,” he said.
The Department of Health said negotiations would begin this year and any negotiated prices would be implemented in 2026 for the 10 drugs, which cost Medicare $50bn in the 12 months to the end of May. Seniors paid $3.4bn of their own money for these drugs in 2022, a burden that was not reimbursed by insurers, the White House said.
The initial list of 10 drugs to face price negotiations includes a diabetes pill called Jardiance sold by Boehringer Ingelheim and Eli Lilly; a medicine to prevent strokes called Eliquis made by Pfizer and BMS; and a Novartis drug to treat heart failure called Entresto.
The Biden administration applied specific criteria in selecting the products for price talks, including their cost to Medicare and the level of competition for each drug. More drugs will be added to the list for government negotiations.
Under the proposed reforms the minimum cut from a drug’s list price will be 25 per cent, although the government may be able to secure much steeper discounts for some drugs.
The Congressional Budget Office, a non-partisan government spending watchdog, has estimated the drug price negotiation element of Biden’s reform package could save Medicare more than $100bn over a decade.
The pharma industry has filed several lawsuits aimed at blocking the reforms, which are part of Biden’s Inflation Reduction Act. They have warned that the shake-up of drug pricing will cripple innovation and stymie the development of life-saving medicines.
Phrma, an industry trade body, said the reforms were the result of a “rushed process” focused on short-term political gain rather than what was best for patients.
“Many of the medicines selected for price setting already have significant rebates and discounts due to the robust private market negotiation that [already] occurs,” said Stephen J Ubl, Phrma chief executive.
But a senior White House official said the Biden administration was “not backing down” in the face of legal challenges.
“There is no reason why Americans should be forced to pay more than any developed nation for life-saving prescriptions, just to pad Big Pharma’s pockets,” the official said. “The drug companies are running to court to try to accomplish through the courts what they couldn’t get in Congress, which is block negotiation from happening.”
Manufacturers who do not comply with the negotiation process are liable to an excise tax, which starts at 65 per cent of a product’s sales in the US.
GAM: Niel’s pitch invasion forces Liontrust out of takeover deal
Clients will not like turmoil, no matter who runs the business
Fund management companies and professional football clubs share a number of similarities: performance matters, the best staffers are costly and key assets can walk out of the door.
Swiss fund manager GAM has received a kicking in recent years. A tussle between former bidder Liontrust and activist investor group NewGAMe has done little to raise the game.
On Tuesday, GAM’s board agreed to step down in an upcoming extraordinary meeting. It is a victory for NewGAMe, led by French billionaire Xavier Niel, which successfully blocked a takeover attempt by UK rival Liontrust.
Niel’s consortium does not want a takeover by Liontrust. It wants control. It owns 9.6 per cent of the shares already and has offered to buy another 17.5 per cent.
On Tuesday, NewGAMe said it would provide SFr20mn of financing to keep GAM going. A proposal for a SFr25mn convertible bond proposal awaits at the EGM.
This leaves GAM in limbo. Clients will not like turmoil, no matter who runs the business.
Some stalwart GAM shareholders may hope for a better exit price. But this is unlikely to happen until assets under management reverse a long-term downward trend. Since 2017, the fund manager’s assets under management have more than halved to SFr68bn. The 2018 Greensill scandal — involving former star bond manager Tim Haywood — was the cause of most of this. But GAM’s asset spill had already begun when it hit headlines.
GAM’s management struggled under chief executive Peter Sanderson, a former BlackRock executive. Chair David Jacob would have ushered in steep cost cuts with Liontrust’s takeover — some 44 per cent of GAM’s cost base, according to Numis. That looks high compared with about 30 per cent for deals in the sector. NewGAMe’s plans for a new board, and possibly even a new CEO, will not eliminate the need for cost reduction.
GAM claims funds performance over three years has outpaced benchmarks. That will not stop more clients calling time amid the tumult.