FT : Air France-KLM hobbled by state aid while rivals pounce on deals

Air France-KLM hobbled by state aid while rivals pounce on deals
Market opportunities put group under mounting pressure to repay pandemic bailouts quickly

Air France-KLM is coming under growing pressure to repay its pandemic state-aid packages quickly, as rivals including Lufthansa pounce on potential acquisitions in the aviation industry that the Franco-Dutch group will otherwise be barred from.

The French state, which recapitalised the airline group last year in a deal that constrains it from making purchases, is “looking closely” at financial options along with the company, said Jean-Baptiste Djebbari, France’s junior minister for transport.

“The issue [for the company] is whether it will manage, financially, to untie its hands quickly enough so that it can respond to market opportunities,” Djebbari said on Monday. The group needed to be “one of the major players” in a post-crisis world and in a possible wave of consolidation, he added, allowing it to compete with Lufthansa and other rivals such as International Airlines Group, the owner of British Airways and Iberia.

Germany’s Lufthansa, which has repaid its own state aid, and Swiss-Italian shipping conglomerate MSC last week expressed an interest in buying a majority stake in Italy’s state-owned ITA Airways, the successor to bankrupt Alitalia and part of the SkyTeam airline alliance along with Air France-KLM and Delta.

The Franco-Dutch group has no liquidity problems and would have been a natural suitor but was constrained by its bailouts, two people familiar with the matter said.

ITA’s slots at Linate airport, Milan, which feeds corresponding flights into Paris, made it particularly attractive, one of the people added.

Air France-KLM could yet consider ways of formulating an approach, with a promise to buy into the group further down the line, the person added, although Lufthansa and MSC have asked for an exclusive negotiation window with ITA for close to three months.

Air France-KLM received just over €10bn in state guaranteed loans and direct help from the French and Dutch governments when the pandemic struck in 2020.

A €4bn recapitalisation by the French state last year, through a mix of new shares and hybrid debt, constrains the group from taking more than a 10 per cent stake in any competitor until three-quarters of that aid is repaid.

The appearance of the rapidly spreading Omicron coronavirus variant at the end of 2021 derailed plans for an expected capital raising, which would have whittled down the state support.

But apart from business travel, air traffic is recovering, helping to restore Air France-KLM’s appeal to investors, and the group might also consider hybrid debt issuance, the people familiar with the matter said.

Air France-KLM, which is nearly 29 per cent owned by the French government and 9 per cent by the Dutch state, said it had “noted” Lufthansa and MSC’s ITA move and would “follow the developments in the coming weeks very closely”.

>>> US After Hours Summary: SANM +6.1% higher on earnings; CRUS -2.7% initially

After Hours Summary: SANM +6.1% higher on earnings; CRUS -2.7% initially popped on earnings, but fell during call; WWD -4.8% falls on earnings miss; NYT buys Wordle

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: SPIR +8.4%, XOS +7.4% (raises guidance for Q4 revs and deliveries), SANM +6.1%, HP +2.7%, KMPR +0.1%, KRC +0.1%

Companies trading higher in after hours in reaction to news: WISH +8.3% (names new CEO), SI +2.6% (acquires blockchain payment net assets from Diem for $182 mln in cash and stock), AWH +1.7% (announces addition of 465,000 covered lives), CSWC +0.4% (increases dividend)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: WWD -4.8% (also increases dividend and announces $800 mln share buyback plan), HLIT -4.3%, CRUS -2.7%, AXTA -2.3%, NXPI -1.2% (also approves 50% dividend increase; approves $2 bln share repurchase program), ARE -1%, AGNC -0.4%, JJSF -0.1%

Companies trading lower in after hours in reaction to news: XMTR -6.7% (announces $250 mln convertible notes offering in private placement; also provides Q4 revenue guidance), INN -4.5% (COO to retire), NYT -0.8% (acquires word game Wordle for "low seven figures", according to NY Times), VERI -0.8% (stock offering), NVST -0.4% (extends commercial relationship with Pacific Dental Services), NLY -0.4% (files mixed securities shelf offering), AMGN -0.4% (AMGN and NVS amend license and collaboration agreement), EA -0.3% (EA hires MSFT exec Chris Suh as its new CFO), MSFT -0.3% (EA hires MSFT exec Chris Suh as its new CFO), LMT -0.2% (awarded $1.4 bln Air Force contract; Sikorsky Aircraft awarded $680 mln Navy contract), SRE -0.1% (co and Mexico's FEC sign MOU for development of natural gas supply projects)

>>> US Close Dow +1,17% S&P +1,89% Nasdaq +3,41% Russell +3,05% VIX 24,75 -10,5%

Closing Stock Market Summary

The S&P 500 rose 1.9% on Monday in a steady advance paced by the growth stocks. The Nasdaq Composite (+3.4%) and Russell 2000 (+3.1%) outperformed with gains over 3.0%, while the Dow Jones Industrial Average underperformed on a relative basis with a 1.2% gain. 

There weren't any specific macro catalysts today. Instead, the market received support from month-end rebalancing activity that disproportionately benefited growth stocks after a dismal January, an improving technical posture as the S&P 500 reclaimed its 200-day moving average (4437), and a fear of missing out on further gains. 

All 11 S&P 500 sectors closed in positive territory amid another strong finish. The consumer discretionary (+3.8%), information technology (+2.7%), and communication services (+2.4%) sectors, which contain the mega-caps, finished atop the standings while the energy sector increased just 0.4%. 

The rebalancing into growth stocks was further aided by positive-minded analyst recommendations, specifically in Tesla (TSLA 936.72, +90.37, +10.7%), Netflix (NFLX 427.14, +42.78, +11.1%), Spotify (SPOT 196.26, +23.28, +13.5%), and Beyond Meat (BYND 65.13, +8.59, +15.2%), which were all upgraded to the equivalent of Buy ratings.

Citrix Systems (CTXS 101.94, -3.61, -3.4%) was an exception after announcing a deal to be taken private for $16.5 billion, or $104 per share, in cash. Shareholders were disappointed by the purchase price, which was less than the closing price last Friday. 

Separately, Atlanta Fed President Bostic (not an FOMC voter) said a 50-basis-point rate-hike in March is a possibility but not his preference. Kansas City Fed President George (FOMC voter) commented that gradual rate rises are always preferred while Richmond Fed President Barkin (not an FOMC voter) told CNBC that the speed at which the Fed hikes rates depends on the economy.

The Treasury market, meanwhile, was much more reserved than the stock market. The 2-yr yield decreased one basis point to 1.16%, and the 10-yr yield was unchanged at 1.78%. The U.S. Dollar Index pulled back 0.7% to 96.63. WTI crude futures settled above $88 per barrel ($88.16, +1.42, +1.6%).

Overall, today was a light news day, at least compared to the rest of the week, which will feature more mega-cap earnings, key manufacturing and employment data, and central bank meetings in Europe. Rather than shying away from risk assets in front of these events, investors were steadfast in the rebound pursuit. 

Monday's economic data was limited to the Chicago PMI for January, which increased to 65.2 ( consensus 62.5) from a revised 64.3 (from 63.1) in December. Looking ahead, investors will receive the ISM Manufacturing Index for January, Construction Spending for December, and the JOLTS - Job Openings report for December on Tuesday. 

  • Dow Jones Industrial Average -3.3% YTD
  • S&P 500 -5.3% YTD
  • Nasdaq Composite -9.0% YTD
  • Russell 2000 -9.7% YTD

FT : Ex-BNP banker wins £2m payout for gender discrimination

Ex-BNP banker wins £2m payout for gender discrimination
Stacey Macken receives one of the largest awards ever made by a UK tribunal

A former BNP Paribas employee has won a £2m payout after judges decided the French bank unfairly discriminated against her because of her gender.

In one of the largest awards made by a UK employment tribunal, Stacey Macken is to receive £2m in compensation after BNP paid her significantly less than male colleagues over a four-year tenure at the bank’s London office. The award comes more than two years after Macken won her case for gender discrimination at a UK tribunal.

The case is a rare win for women working in the City of London, which is haunted by the lingering culture of laddish behaviour on trading floors. Women remain under-represented in senior roles, with many who have left the industry blaming a lack of equal pay.

“When the time is right, I will tell my story and people will be shocked to learn what barriers women have to go through to be treated as equals to their male counterparts,” Macken told the Financial Times.

“It is time that these big corporates got their house in order and realise that it is no longer acceptable to pay men more for jobs of equal value or discriminate by paying them higher bonuses for no good reason,” she added.

Macken joined BNP Paribas in 2013 as an employee of the prime brokerage division which deals with hedge funds. She later discovered that her pay was 25 per cent lower than a male colleague in an equivalent role. Three years later the gap had widened to 85 per cent.

She also said she had been subjected to disparaging comments during her time there and her colleagues left a witch’s hat on her desk one evening after a night of heavy drinking. Macken decided to challenge the bank when she discovered the pay gap.

In March 2019, a UK employment tribunal ruled BNP had subjected her to “direct sex discrimination and victimisation” throughout her time there.

Macken, who earned about £125,000 a year, had claimed she received less than her male peers in salary and bonuses and that her managers treated her unfairly when she complained. When awarding the compensation for injury to feelings, the tribunal judge concluded that “this is a case where there was a discriminatory motive and where the conduct was spiteful and vindictive”.

The bank said: “We at BNP Paribas understand that we fell short in our duty to Ms Macken. We are actively considering the tribunal’s judgment to see what we can learn. Our aim is to ensure that all of our people are treated with the respect they deserve at all times.”

The tribunal calculated her compensation award last August in a ruling that was made public on Monday.

Employment Judge Emma Burns ordered the bank to pay £217,946 for lost salary, £117,491 for lost bonuses, £857,044 for harm to her future earnings as well as additional compensation including £35,000 for injury to her feelings and £22,915 for loss of congenial employment. The tribunal noted that BNP had already paid Macken £667,380.

She was a qualified accountant and then spent two decades in banking. The tribunal ruling noted Macken had “prioritised her 22-year career in banking over other lifestyle choices. This includes remaining single and not having children. She enjoyed her work and was fulfilled by it. Other than keeping her personal fitness at a high level she pursued no hobbies or interests.”

FT : FTX valued at $32bn as blue-chip investors pile into crypto groups

FTX valued at $32bn as blue-chip investors pile into crypto groups
Exchange led by billionaire Sam Bankman-Fried raises $400m in new funding round

Cryptocurrency exchange FTX has been valued at $32bn in a new funding round announced on Monday, as blue-chip investors continue to pile into the hype-fuelled sector.

Existing investors including Japan’s SoftBank and Canada’s Ontario Teachers’ Pension Plan were among those that participated in a new $400m investment round for the Bermuda-based group, the third time FTX has gained new funds in six months.

The company, led by 29-year-old crypto billionaire Sam Bankman-Fried, was valued at $25bn in its previous fundraising announced in October last year. In 2020, FTX was worth just $1.2bn.

Bankman-Fried said the latest “financing round represents a milestone achievement for FTX, as we raised close to $2 billion in six months”.

The deal illustrates the voracious appetite of traditional investors for companies that operate in the world of digital assets, with billions of dollars flowing into a sector that advocates say represents a new frontier for finance but sceptics warn leaves many retail investors at risk of losing huge sums.

FTX’s valuation has surpassed more traditional financial institutions such as Germany’s Deutsche Bank, which has a market capitalisation of $25bn.

Separately from Monday’s announcement, the company’s US operation was valued at $8bn after raising $400m last week, including funding from Singaporean state investor Temasek, SoftBank’s Vision Fund and US investment group Tiger Global.

The hefty price tag comes despite the large drop in cryptocurrency prices in January, which saw bitcoin lose 20 per cent of its value.

That trend has hit rival exchanges, with shares in Coinbase falling more than half since the company listed on Nasdaq in April, trimming $50bn from its market value. Crypto exchanges have responded with a flurry of new listings for coins and tokens that could draw the attention of global financial regulators.

FTX said its new valuation reflected the significant growth the company had seen in the past six months, including a 60 per cent growth in the number of its users and a surge in daily volumes traded on the platform, which stands at about $14bn a day. FTX is the third-largest crypto exchange after Binance and Coinbase.

FTX was launched in May 2019 by Bankman-Fried, two years after he set up crypto trading company Alameda Research. In January, FTX added a venture capital investment arm with a $2bn war chest.

Bankman-Fried said the latest funding “will support our continued mission of delivering innovative products and services . . . as well as expanding our global reach with additional licenses around the world”.

WSJ : Bill Ackman Scored on Pandemic Shutdown and Bounceback

Bill Ackman Scored on Pandemic Shutdown and Bounceback
Two complex trades on the economy’s swift shutdown and its fevered reopening netted almost $4 billion

As the coronavirus emerged, Bill Ackman made billions betting that the market was misjudging the virus’s economic toll.

Then he did it again a year later.

In two complex debt investments—one presaging the economy’s swift shutdown and the other its fevered reopening—Mr. Ackman made nearly $4 billion in profit on an outlay of about $200 million, according to fund documents and people familiar with the matter. In short, he called the pandemic’s economic fallout coming and going.

It is another chapter in the rise-and-fall-and-rise-again saga of the hedge-fund manager, who last week disclosed a substantial stake in streaming giant Netflix Inc. Mr. Ackman made his name as a corporate rabble-rouser, building his firm, Pershing Square Capital Management, into one of the biggest activist funds in the world. Then came disastrous wagers on drugmaker Valeant and supplement marketer Herbalife Nutrition Ltd. and four straight years of losses. By the time the pandemic began, Pershing Square’s assets had shrunk to less than $7 billion from $20 billion.

Now Pershing Square is back near its peak size. Its publicly traded fund—a decent proxy for the hedge fund that manages the money of Mr. Ackman, his employees and institutional investors—gained 70% in 2020 and 27% last year. It beat an index of hedge funds maintained by research firm HFR Inc. in both periods.

The windfall is all the more surprising because this isn’t Mr. Ackman’s usual terrain. Professional investors fall into two camps: “macroeconomic” traders who use bonds, currencies and commodities to bet on global economic shifts, and stock pickers like Mr. Ackman.

Mr. Ackman dabbled profitably in macroeconomic trends once before, in 2007 predicting a crash in subprime credit and betting against the debt of two big bond insurers. But investors give him money to dig into the story of a single company and nudge it down a more profitable path, sometimes through pressure campaigns or public fights for board seats.

Yet since the pandemic upended financial markets, the economy and daily life two years ago, his biggest winners have come in the opaque world of credit, where loud-mouthing counts for little. Together, Mr. Ackman’s two debt trades returned 20 times the money spent to purchase them, the kind of gains typically reserved for venture capitalists who hit it big on a hot startup.

In late February 2020, Mr. Ackman, increasingly worried about the virus, bought instruments that would pay off if corporate bonds fell in value. He said at the time he figured they would offset losses in Pershing Square’s stockholdings, which were tanking along with the rest of the equity market.

He paid $27 million for the position and sold it a few weeks later for $2.6 billion after investors woke up to the risk that pandemic-battered companies might not be able to pay their debts. He used the profits to boost stakes in Hilton Worldwide Holdings Inc., Lowe’s Cos. and the owner of Burger King restaurants, all at fire-sale prices, according to investor documents.

The world looked different by the end of 2020. Vaccines were coming. Consumers were weary of lockdowns and flush with savings after a year of government stimulus and nowhere to spend it.

The Federal Reserve had kept interest rates near zero since the start of the pandemic to keep credit flowing and protect the economy. But Mr. Ackman assumed the reopening would unleash a flood of consumer spending, sparking inflation not seen for decades and forcing the Fed to intervene. (Higher interest rates can cool an overheated economy by making borrowing more expensive.)

So he spent $177 million on options tied to Treasury bonds that would pay off if interest rates rose significantly over the next 18 months, according to investor documents and people familiar with the matter. By late March, the investment had more than tripled in value. By the fall, concerns about inflation had gripped Wall Street and the position kept rising.

All the while, Mr. Ackman was urging the Fed to raise rates. In October, he made a presentation to the New York Fed laying out the risks of runaway inflation and criticizing the central bank’s “wait and see” stance on interest rates. “It is time to turn down the music and settle down,” he tweeted soon after.

The soapbox advocacy borrowed from Mr. Ackman’s activist playbook. That he stood to profit wasn’t exactly a secret—Pershing Square had disclosed the wager as early as March, and he had tweeted it along with a link to the presentation he gave to the Fed.

In both trades, Mr. Ackman bet on something that the market thought was unlikely. In early 2020, bond investors remained unfazed by the virus and so were willing to cheaply sell what amounted to fire insurance. A year later the economy was still fragile, and traders didn’t think the Fed would end its easy-money policies by raising rates soon, so they offered long odds to anyone willing to wager on it.

On Wednesday, the Fed signaled it would begin raising interest rates in March, the first of what analysts expect to be as many as seven increases over the next year or so.

But Mr. Ackman had already made his money. Pershing Square had started selling its position in the preceding days and was already out by the time Fed Chairman Jerome Powell took the podium, with $1.25 billion in profits. Mr. Ackman plowed most of the money into a stake in Netflix, returning to his stock-picking roots.

He invested the rest in a new, smaller bet that interest rates will keep going up.