>>> What to look at today - 9th of December 2022

Stocks in Asia followed Wall Street higher as investors looked to inflation readings for clues on the path of interest rate hikes. A benchmark of Asia equities headed for a sixth weekly gain, the longest such stretch in two years. US futures moved higher ahead of producer price data later Friday and after the S&P 500 notched its first advance this month. Chinese shares rose as factory-gate prices contracted while consumer inflation eased, giving the nation’s central bank some room to ease policy to foster economic recovery from the impact of the pandemic. Investors are taking heart from any signs of softness in prices that may allow policymakers around the world to be less hawkish and more supportive of economic growth.   The dollar dropped versus most of its major counterparts, extending Thursday’s move when geopolitics-driven appetite for haven investments faded. The offshore yuan slightly strengthened. Treasury yields declined, with 10-year rate hovering near 3.45%. Government bond yields also moved lower in Australia while Japan’s benchmark 10-year yield fell by half a basis point. Oil rose in Asia, but headed for a weekly drop of nearly 10% after a volatile session on Thursday on concerns over economic outlook. Still, strategists from Morgan Stanley to JPMorgan Chase & Co. have warned investors against piling back into risk on hopes the Fed is getting close to pivoting to easier policy. US After Hours DOCU +8.6%, AVGO +3.2%, RH +2.8% higher on earnings; COO -9.1%, LULU -6.1%, CHWY -2.4% lower on earnings.

Nikkei +1.18% Hang Seng +2.09% CSI +0.99% Shanghai +0.30% Shenzen +0.56%

Eur$ 1.0581 CNH 6.9544 +0.20% CNY 6.9560 +0.16% JPY 135.95 GBP 1.2262 CHF 0.9335 RUB 62.7386 TRY 18.6422 WTI$ 72 +0.77% Gold 1,797 +0.44% BTC 17,210 +0.15% ETH 1,281.50 +0.25%

S&P +0.23% Nasdaq +0.31% EuroStoxx +0.30% FTSE +0.13% Dax +0.27% SMI +0.40%

Macro :
- JPMorgan’s Kolanovic Says Sell Energy Stocks With Oil Gap Wide
- Morgan Stanley’s Wilson Sees Value Stocks at Risk in a Downturn
- Morgan Stanley Says China Stocks to Outperform Global Peers

Keep an eye on :
- ABBN SW : ABB Bribe Scheme Nearly Collapsed Over Division of Loot, US Says
- ADS GY : Lululemon's Weak Gross Margin Causes Conversion Concern: React
- ADJ GY : Adler Bondholder Group Plans to Block Key Restructuring Deal
- AF FP : Air France-KLM Proposes Extending Couderc’s Mandate as Chair
- BICO SS : BICO Issues Shares to Sartorius, Agrees on Strategic Cooperation
- CSGN SW : Credit Suisse Raises $4.3 Billion Capital After Wild Ride
- LOAD LN : Aggreko Agrees to Buy Crestchic For 401p per Share
- EDF FP : Fortum, EDF Sign Agreement to Explore New Nuclear Opportunities
- ENX FP : *EURONEXT MAKES NO CHANGES TO CAC 40 INDEX COMPOSITION IN REVIEW
- FORTUM FH : Fortum, EDF Sign Agreement to Explore New Nuclear Opportunities
- EMG LN : Man Group Announces Share Buyback Program of Up to $125M
- MBG GY : Thai Government to Grant Tax Benefits to Mercedes-Benz’s EVs
- MTRO LN : Metro Bank Says BOE Agreed Temporary Adjustment for Tier 2 Notes
- PEAN SW : Peach Property Reduces Debt Via CHF63M Additional Equity Capital
- RIO LN : Rio Considers Renewable Generation to Power Smelter: Newsroom
- SAN FP : Revolution Medicines Slides as Sanofi Ends Collaboration Deal
- SAM SM : FCA Fines Santander £107.7M for Anti-Money Laundering Failures
- SAS SS : SAS Gets Approval for Collective Bargaining Agreements W/ Union
- STATT NO : Statt Torsk Offering of 23.5m Shares Prices at NOK1.70/Share
- STM FP : TSMC Revenue Rises 50% in November Despite Covid Challenges
- TSLA US : Musk Bankers Mull Tesla Margin Loan to Cut Risky Twitter Debt
- FR FP : Valeo Appoints Michel as Chairman to Replace Aschenbroich
- VNA GY : Vonovia: Clara Streit to Take Over as Supervisory Board Chair
- VOW GY : VW May Pick EV Battery Plant Site in East EU Within Months: CTK
- WBD IM : Webuild Provides Wages for Clough Employees on Hydro Project
- ZURN SW : Zurich Said to Be Frontrunner to Buy MetLife’s Malaysia Insurer

>>> Europe : Brokers Upgrades & Downgrades - 9th of December 2022

>>> Up
* ABN AMRO GDRs Raised to Outperform at Credit Suisse; PT 17 euros
* Amadeus Raised to Buy at Goldman; PT 70 euros
* Estee Lauder PT Raised to $270 from $230 at Jefferie
* InterContinental Hotels Raised to Buy at Peel Hunt
* PolyPeptide Group Raised to Buy at Baader Helvea
* Workspace Raised to Overweight at JPMorgan; PT 650 pence

>>> Down
* Air Liquide Cut to Underperform at Jefferies; PT 124 euros
* Alcoa Cut to Equal-Weight at Morgan Stanley; PT $56
* Apple Cut to Sell at Aletheia Capital; PT $118
* Assura Cut to Neutral at JPMorgan; PT 62 pence
* CaixaBank Cut to Neutral at Credit Suisse
* Equitable Holdings Cut to Hold at Jefferies; PT $34
* Fidelity National Cut to Hold at Jefferies; PT $75
* Inmobiliaria Colonial Cut to Neutral at JPMorgan; PT 7 euros
* Julius Baer Cut to Neutral at Credit Suisse
* LondonMetric Cut to Neutral at JPMorgan; PT 205 pence
* Lundin Mining Cut to Market Perform at BMO; PT C$8
* MetLife Cut to Hold at Jefferies; PT $82
* UBS Group Cut to Neutral at Credit Suisse
* WDP Cut to Neutral at JPMorgan; PT 30 euros
* Worldline Cut to Neutral at JPMorgan; PT 55 euros

>>> Initiation
* Cellavision Rated New Buy at Nordea; PT 275 kronor
* Gurit Rated New Neutral at Credit Suisse; PT 98 Swiss francs
* Lagercrantz Rated New Sell at SEB Equities; PT 96 kronor
* Marks Electrical Group Rated New Buy at Shore Capital
* Schweiter Rated New Outperform at Credit Suisse
* Topdanmark Rated New Underperform at Jefferies; PT 270 kroner
* Tryg Rated New Hold at Jefferies; PT 155 kroner

>>> Call
* Capita Overweight Again at Barclays With Asset Sales Under Way
* CS Overweight on EU Banks for 2023; Cuts UBS, Upgrades ABN Amro
* Citi’s Manthey Says European Equities Pricing 2023 Earnings Drop
* EU Chemicals Face Tough 2023, Air Liquide Double Cut: Jefferies
* IHG Raised to Buy as Peel Hunt Says Share Price ‘Left Behind’
* JPMorgan’s Kolanovic Says Sell Energy Stocks With Oil Gap Wide
* JPMorgan More Constructive on European Real Estate in 2023
* Morgan Stanley’s Wilson Sees Value Stocks at Risk in a Downturn
* Morgan Stanley Says China Stocks to Outperform Global Peers
* Worldline Downgraded at JPMorgan, Adyen Now Top Payments Pick

FT : Airlines feel squeeze as plane leasing groups raise rents

Airlines feel squeeze as plane leasing groups raise rents
Scarcity of aircraft and surging borrowing costs ripple through commercial aviation market

Airlines are flying back into profitability after racking up big losses during the pandemic. There is a cloud on the horizon, however: sharp increases in the cost to rent a plane.

More than half of the world’s commercial aircraft are owned or managed by leasing companies, and their rates are rising. For Airbus’s A320neo and Boeing’s 737 Max — the most sought-after single-aisle aircraft — lease rates have respectively risen 14 per cent and 20 per cent since the lows of the pandemic, according to IBA, an aviation consultancy.

The jump in rental fees is another consequence of global central banks’ push to raise interest rates as surging inflation ends an era of cheap finance. Higher interest rates mean that the specialist companies that own and hire out aircraft fleets have more costly debt. Lessors must calculate how to pass on these borrowing costs to carriers that are already dealing with ballooning higher fuel and labour expenses.

Air Lease, a Los Angeles-based lessor, last week raised $700mn through a bond offering at an interest rate of 5.85 per cent — roughly double the rate of a similar bond issuance in January.

The deal, the first such bond offering since Russia’s war in Ukraine, is “somewhat of a bellwether,” said Philip Baggaley, analyst at S&P Global. “They had to pay a lot more than they used to borrow at, but that’s the market reality.” 

Air Lease executive chair Steven Udvar-Házy said he had not seen the cost of capital increase this quickly since the 1970s, when inflation was rampant.

The rapidity of the rise makes it harder to pass higher financing costs on to airlines, but Udvar-Házy said Air Lease has started already. Airlines, whose lease rates had already risen owing to scarce aircraft supplies and strong demand, are resisting.

“Airlines are always pushing back,” he said. “I’ve never had an airline say that our lease rates are too low. It’s like a big Istanbul grand bazaar: The leasing company says 100, the airline says 80, and we hope to negotiate at 99 and a half.”

Many airlines asked lessors for financial relief during the pandemic. But they are back in the black as air travel has roared back. “So it’s very hard to plead poverty,” Udvar-Házy said. “Yes, we’re going to work with our customers, but they read the newspapers, they see what’s going on. The cost of financing is going up.”

Several airlines referred to rising interest rates with regard to leases in their recent earnings calls.

Wizz Air of Hungary told investors last month that it benefited from having “fixed interest rate structures financing 94 per cent of its existing fleet”. In the US, Frontier Airlines chief financial officer Jimmy Dempsey said it had financed 35 out of its next 37 aircraft deliveries, “and we’ve done it in a way that has capped interest rate exposure on a lot of these leases”.

Andy Cronin, chief executive of Irish leasing company Avolon, said lease rates were moving upwards for both new and used aircraft in response to the undersupply of aircraft in the market, rising interest rates and the withdrawal from the market of certain lessors, in particular some from Asia.

Surging interest rates have hit the market for bonds composed by bundles of plane leases. The value of deals for such asset-backed securities is expected to total $1.1bn in 2022 compared to $9.2bn last year, revealing a changed market, said Ishka Global aviation consultant Paul O’Driscoll.

“Nobody wants to buy a package of leased aircraft because they have [quantitative-easing] era leases, while investors can get [quantitative-tightening] era yields by providing capital for new lease transactions,” he said, referring to central banks’ sudden move to tighten monetary policy.


Tense bargaining between lessors and airlines will be limited somewhat because only 15 to 20 per cent of a lessors’ fleet comes up for lease renewal in any given year.

“Current market lease rates for new aircraft are up 5 to 10 per cent. But that is not the 30 per cent that might be required given the interest rate increases we have seen this year. Lessors will therefore face some [profit] margin compression,” said Rob Morris, head of global consultancy at Ascend by Cirium.

As they enter into negotiations, leasing executives point out that airlines have not hesitated to raise prices for their own customers. Average US airfares were up 22 per cent year on year in the second quarter of 2022, government data show.

“Airlines are under tremendous cost increase pressure, but they’ve been able to pass it on to the traveller in higher ticket prices,” Udvar-Házy said. “So Air Lease is not a sinner in this respect. We’re simply trying to deal with economic realities.”

FT : A close Suisse shave

A close Suisse shave
Credit Suisse’s rollercoaster rights issue shows risks even for a Justice League of underwriters

Yesterday Credit Suisse announced that its shareholders subscribed to 98.2 per cent of its rights issue. That’s an impressive level of take-up, but it was nail-biting suspense until the end.

The CS share price fell so much during the rights issue period that late last week it looked like the underwriters might end up owning a significant chunk of the Swiss bank’s stock. This would have been a nasty shock to everyone involved, including the market.

In the end, the shares rebounded and the rights issue completed successfully. But the close shave has exposed some unresolved and perhaps unresolvable issues that arise when investment banks underwrite capital-raises for companies.

Launched as part of a SFr4bn capital increase and organisational overhaul, Credit Suisse’s SFr2.24bn rights issue should have been smooth sailing. For one thing, the new shares were being offered at SFr2.52 per share, a meaty 32 per cent discount to the dilution-adjusted price (aka “theoretical ex-rights price” or TERP).

Moreover, CS was able to assemble a massive syndicate of 19 banks to underwrite the fundraise at SFr2.52. The rights issue was also accompanied by a SFr1.76bn share placement to investors, mostly the Saudi National Bank, with a further commitment from those investors to exercise their rights to buy shares.

So this capital increase had the building blocks for success: (1) a deep discount to ensure that shareholders exercise the rights to buy shares, (2) a Justice League-strength underwriting syndicate, and (3) the presence of a cornerstone investor.

Yet the rights issue caused some sweaty palms. Battered by client outflows and a profit warning, Credit Suisse shares tumbled from the late October announcement. On 1st December the shares skidded to SFr2.667, meaning the discount to buy shares in the rights issue had contracted from 32 per cent to just 5.5 per cent. That’s waaaay too close for comfort.


The vast majority of rights issues are anticlimaxes. As long as the shares stay well above the subscription price, shareholders have every incentive to exercise the right and buy shares at a discount. And since the underwriting banks aren’t actually selling shares, there is none of the stress or uncertainty of collecting orders and building a book of investor demand, as there is in an IPO or share placement.

What matters is that the share price does not get too close to the underwritten price. It can drift or drop a bit, but not crumble or crater. A 32 per cent discount is a big cushion, and such a sizeable discount is why some investors disparage the fees that banks earn for underwriting as “money for old rope”: the underwriters are pocketing a fee for taking on the very remote risk of being stuck with shares.

Yet rights issue underwriting has two features that can turn money for old rope into a noose around the neck of underwriters.

First, it exemplifies what Nassim Taleb and others call “picking up pennies in front of a steamroller.” The underwriters collect fees of around 2 per cent, but in the extraordinarily unlikely event that the share price collapses, they could be left with a big position in a stock they don’t want to hold.

The “pennies in front of a steamroller” situation typically arises when a party writes (sells) a low-value derivative, such as a deeply out-of-the-money option or a credit default swap. That party collects the premium, and there is little chance of the option ever being exercised or the CDS being triggered. But in the extreme case it is exercised, the party can find itself nursing big losses.

To be clear, the underwriters did not enter into an actual derivative contract with Credit Suisse. There was no ISDA documentation, and the exposure never sat in a derivatives book. But by underwriting at the deep discount, the banks sold Credit Suisse the functional equivalent of a short-expiry, deeply out-of-the-money put. If shareholders hadn’t bought shares in the rights issue, then CS could have “put” shares to the underwriters at SFr2.52 per share.

Thus the underwriting has the substance, but not the form, of a derivative option. And the size of that de facto derivative is enormous as a percentage of market capitalisation or trading volume. There is no way to buy an equivalent out-of-the-money put in such size in the regular trading market. And no market counterparty would ever write one, either.

A second, albeit related problem, is that there is virtually no way to hedge the underwriting of Credit Suisse shares either. When writing an option, most market players hedge their positions. But here it’s practically impossible.

For one thing, shorting CS shares is likely prohibited in the underwriting agreement and in any case would be self-defeating as a hedge, as you would be pushing the share price down — it would be akin to an animal eating its own tail to feed itself.

For another, shorting a basket of other peer stocks will create mismatches (known as “basis risk”): in the middle of a major corporate event, Credit Suisse shares had their own dynamic, and they could not be expected to closely correlate to UBS or other European banking shares.

Buying Credit Suisse credit default swaps would also have been difficult as a hedge, given the illiquidity and idiosyncrasies of that market, and it may have been barred in the underwriting agreement anyway.

The underwriters of a rights issue can hedge against a market crash via index options, but not a stock-specific one. An index hedge here might have generated significant losses, because the broader market rallied hard from the time of the deal’s announcement.

So when shares get perilously close to the subscription price, what can the underwriters do to manage their risk?

Not much. You can stare at the terminal screen to will the shares higher, but if Uri Geller couldn’t stop Brexit with his telepathy, an investment banker won’t have more sway even if they are doing God’s work. More practically, you can lob in communication advice to management, but at such a late stage it’s usually like screaming in a wind tunnel.

Fortunately, a sharp rally in Credit Suisse came in the nick of time, lifting the share price above SFr3 last Friday after chair Axel Lehmann said that outflows had stopped. This good news was followed by weekend media reports about possible investments by the Saudi Crown Prince and Bob Diamond’s Atlas Merchant Capital into its First Boston investment bank spin-off. As FT Alphaville wrote: “Timing’s pretty convenient.”

But you can’t always count on such deux ex machina to save the day. It is extremely rare, but rights issues can leave underwriters stuck with an outsized rump of stock. The cumulative underwriting losses on July’s €2bn rights issue for Italian oilfield services firm Saipem may have exceeded €100mn.

In the end, the underwriters will have made money on the Credit Suisse rights issue. But the close shave is a reminder that rights issues expose underwriters to equity risk that is both unhedgeable and many times larger than their reward.

>>> US Close Dow +0,55% S&P +0,75% Nasdaq +1,13% Russell +0,63%

Closing Stock Market Summary

There was a positive bias in today's trade coming off a weak start to December for the stock market. The S&P 500 closed in the red eight out of the last nine sessions and has logged five straight losses to begin December. According to Bloomberg, that is the worst start to a month for the S&P 500 since 2011.

Things got started on an upbeat note today before the S&P 500 faded back to test yesterday's closing level (3,933.92). Buyers stepped in, however, and defended that line, which aided investor sentiment. 

The market hit an air pocket in the afternoon trade, though, following the news that the FTC is seeking to block Microsoft's (MSFT 247.40, +3.03, +1.2%) acquisition of Activision Blizzard (ATVI 74.76, -1.17, -1.5%). Again, buyers showed up to help stabilize the market and the main indices ultimately closed around the levels seen before the Microsoft news emerged. 

Broad buying interest left most of the S&P 500 sectors in positive territory by the close. Communication services (-0.5%) lagged due to a weak showing from Alphabet (GOOG 93.95, -1.20, -1.3%) and the energy sector (-0.5%) felt the pinch of falling oil prices ($71.40/bbl, -0.89, -1.2%).

On the flip side, the information technology (+1.6%) and consumer discretionary (+1.1%) sectors sat atop the leaderboard. The latter was boosted in part by casino stocks trading up on the news that Macau is easing COVID-19 testing requirements, according to Reuters. Las Vegas Sands (LVS 48.31, +1.18, +2.5%) and Wynn Resorts (WYNN 86.43, +1.47, +1.7%) were winning standouts for the group. 

Tesla (TSLA 173.44, -0.60, -0.3%) was an individual story stock of note today. It lost ground again on news that Elon Musk's bankers could provide him with new margin loans supported by Tesla stock to replace high interest Twitter debt, according to Bloomberg. The company is also aiming to shorten shifts in Shanghai and delay hiring, according to CNBC.

Treasury yields moved higher today. The 2-yr note yield rose eight basis points to 4.32% and the 10-yr note yield rose eight basis points to 3.49%.

  • Dow Jones Industrial Average: -7.0% YTD
  • S&P Midcap 400: -12.2% YTD
  • Russell 2000: -19.0% YTD
  • S&P 500: -16.8% YTD
  • Nasdaq Composite: -29.2% YTD

Reviewing today's economic data:

  • Initial claims for the week ending December 3 increased by 4,000 to 230,000 (consensus 220,000) and continuing claims for the week ending November 26 increased by 62,000 to 1.671 million.
    • The key takeaway from the report is that continuing jobless claims hit their highest level since February 2022, suggesting perhaps that it is becoming more difficult to find a job as employers are taking a more cautious-minded approach with their hiring plans.
  • Weekly EIA Natural Gas Inventories showed a draw of 21 bcf versus a draw of 81 bcf last week

Looking ahead to Friday, market participants will be focused on the November Producer Price Index ( consensus 0.2%; prior 0.2%) and core-Produce Price Index ( consensus 0.2%; prior 0.0%) at 8:30 a.m. ET. Other data out tomorrow includes:

  • 10:00 a.m. ET: Preliminary December University of Michigan Consumer Sentiment ( consensus 57.0; prior 56.8)
  • 10:00 a.m. ET: October Wholesale Inventories (prior 0.6%)

>>> US After Hours Summary: DOCU +8.6%, AVGO +3.2%, RH +2.8% higher on earnings;

After Hours Summary: DOCU +8.6%, AVGO +3.2%, RH +2.8% higher on earnings; COO -9.1%, LULU -6.1%, CHWY -2.4% lower on earnings;

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: DOCU +8.6%, CMTL +6.4%, AVGO +3.2%, RH +2.8% (also acquires Dmitriy & Co and Jeup), PHR +2.5%, MTN +1.7%

Companies trading higher in after hours in reaction to news: BBWI +5.2% (Third Point discloses 6.02% stake), UTZ +2.7% (increases dividend), DNUT +2.3% (names new CFO), FG +2.2% (declares inaugural dividend), EXEL +1.7% (CONTACT-01 study did not meet its primary endpoint), PENN +1.6% (authorizes $750 mln increase to existing share repurchase program), EXK +1.6% (announces initial mineral resource estimate), TRN +1.5% (authorizes new $250 mln share repurchase program; also increases dividend), WPC +0.8% (increases dividend), GH +0.8% (GH to collaborate with AZN on Guardant360 CDx), WM +0.7% (announces a new share repurchase auth of $1.5 bln; also increases dividend), BHR +0.6% (increases dividend; also authorizes stock repurchase program of up to $25 mln), AMBC +0.4% (says media report re discussions to acquire a financial guarantee co is inaccurate), MDT +0.3% (increases dividend), VRTV +0.1% (names new CEO), CNS +0.1% (reports Nov AUM), LMT +0.1% (awarded $2.22 bln U.S. Navy contract modification)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: COO -9.1%, LULU -6.1%, CHWY -2.4%, DOMO -1%, CURV -0.5%, COST -0.2%, MANU -0.1%

Companies trading lower in after hours in reaction to news: AUTL -20.4% (pivotal Phase 2 FELIX trial meets primary endpoint; also ADS offering), ZTS -2.8% (increases dividend), NRDY -2% (completes 17% workforce reduction), ECL -1.9% (increases dividend), CMRX -1.3% (launches ONC201 Phase 3 ACTION Study), ALNY -1.2% (submits sNDA to FDA for ONPATTRO), AZN -0.5% (GH to collaborate with AZN on Guardant360 CDx), BMY -0.2% (increases dividend), BKD -0.2% (reports Nov operating data), ACA -0.1% (renews $50 mln share repurchase auth)

FT : Numis/Peel Hunt: brokers try to look on the bright side of deal freeze

Numis/Peel Hunt: brokers try to look on the bright side of deal freeze
The London market is frosty right now, with equity capital transactions at their lowest level in a decade

Stockbrokers in the UK can be forgiven for feeling uneasy when contemplating the year of dealmaking ahead in 2023.

At City outfit Numis, a one-third decline in revenues in the 12 months to September 30 is striking. Yet in the context of sparse equity financings, that decline could have been even worse. The broker’s claim that it is successfully diversifying its business deserves attention.


The London market is exceedingly frosty right now. Equity capital transactions are at their lowest level in a decade. Rising interest rates and geopolitical uncertainty have put a stop to new investment. Balance sheets at many UK companies are full of cash raised in the frenzy of the past two years. Add this to the waning attractions of London as a global listing location and it is little wonder brokers are feeling down.


Reflecting the chill, Numis shares have halved from last year’s peak. They now trade close to the decade lows experienced at the start of the Covid-19 pandemic.

On the bright side, at least that performance beats rival Peel Hunt, whose shares have lost almost two-thirds of their value over the same period. Last week, the smaller broker said its half-year revenues were down 40 per cent.