WSJ : Evergrande Hires Advisers to Probe $2 Billion Cash Seizure

Evergrande Hires Advisers to Probe $2 Billion Cash Seizure
Chinese property giant also agrees to $575 million project disposal

A quartet of outside law firms and accountants will help probe how banks ended up taking control of more than $2 billion at a key China Evergrande Group subsidiary.

Last week, the highly indebted Chinese real-estate developer and its Evergrande Property Services Group Ltd. unit said lenders had enforced their rights over 13.4 billion yuan, or about $2.1 billion, of bank deposits pledged by the subsidiary to guarantee third-party borrowing.

The professional advisers will work with non-executive directors at Evergrande EGRNF 9.11% and its property-services unit, after both companies set up board committees to investigate the incident.

“Preliminary investigation has revealed that the pledge of the relevant deposits and the enforcement took place in 2021,” Evergrande said late Tuesday in a filing to the Hong Kong stock exchange.

China Evergrande said it will hire Reed Smith Richards Butler LLP, while the subsidiary will appoint DLA Piper, Jincheng Tongda & Neal and Grant Thornton China. Both companies said the investigation committees had begun collecting information and will strive to complete their probes as soon as possible.

Shares in the two Hong Kong-listed companies and another major Evergrande subsidiary, China Evergrande New Energy Vehicle Group Ltd. , had been halted since March 21.

On Wednesday, shares in the car-making unit, which is also known as Evergrande Auto, resumed trading and fell as much as 14% in morning trade. Evergrande Auto said it was seeking more information on the deposit seizure. “The board considers that this primarily concerns a sister company,” it added.

Evergrande Auto said its shares would be halted again from Friday, as it won’t meet Hong Kong’s March 31 deadline to publish audited annual results. It said it expects to release the audited results in about three months.

Evergrande and Evergrande Property Services, whose shares are still suspended, have both said they won’t meet the deadline for audited results either.

In another filing, Evergrande said it had agreed to offload a stake in Crystal City, a project in the eastern Chinese city of Hangzhou, for 3.66 billion yuan, or about $575 million.

The two state-owned buyers will pay Evergrande within 20 months after the sale is completed, it said. About a quarter of the proceeds will be used to repay construction fees owed to one of the buyers, Evergrande added.

Evergrande is China’s most-indebted property developer, with the equivalent of more than $300 billion in liabilities as of June 2021. It defaulted on its offshore debts in December.

Last week, Evergrande told offshore creditors it was on track to deliver a global restructuring plan by July, but warned that there may be additional pledges and guarantees made from the company’s offshore subsidiaries to onshore entities.

>>> Europe : Brokers Upgrades & Downgrades - 30th of March 2022

>>> Up
* Capital & Regional Raised to Add at Peel Hunt
* Credito Emiliano Cut to Underperform at KBW; PT 6.80 euros
* Equinor Raised to Buy at SpareBank; PT 370 kroner
* Greencoat UK Wind Raised to Buy at Jefferies
* Hammerson Raised to Reduce at Peel Hunt
* Huhtamaki Raised to Buy at Inderes; PT 39 euros
* Mediobanca Cut to Market Perform at KBW; PT 11.20 euros
* Novozymes Raised to Buy at Deutsche Bank; PT 500 kroner
* Piteco Raised to Buy at Corporate Family Office; PT 12 euros
* UniCredit Raised to Outperform at KBW; PT 13.90 euros

>>> Down
* Antofagasta Cut to Underperform at RBC; PT 1,350 pence
* Experian Cut to Neutral at Citi; PT 3,146 pence
* Grand City Properties Cut to Neutral at JPMorgan; PT 23 euros
* Intl Petroleum Cut to Neutral at SpareBank; PT 95 kronor
* Kion Cut to Hold at SocGen; PT 67.50 euros
* IQE Cut to Hold at Canaccord; PT 43 pence
* Lloyds Cut to Underperform at RBC; PT 44 pence
* Nokian Renkaat Cut to Sell at SEB Equities; PT 13 euros
* Nokian Renkaat Cut to Neutral at JPMorgan; PT 15.50 euros
* P&G Cut to Neutral at JPMorgan; PT $165
* Santander Mexico ADRs Cut to Neutral at JPMorgan; PT $6
* Vesuvius Cut to Underweight at Barclays; PT 375 pence

>>> Initiation
* ASMI Rated New Buy at Aletheia Capital; PT 500 euros
* Carnival Rated New Underweight at Wells Fargo; PT $21
* Civitanavi Systems Rated New Buy at Berenberg; PT 6 euros
* Deutsche Euroshop Reinstated Neutral at Oddo BHF; PT 18 euros
* Erste Rated New Buy at Pekao Investment Banking; PT 41.60 euros
* Logitech Reinstated Neutral at Exane; PT 80 Swiss francs
* Robinhood Rated New Equal-Weight at Morgan Stanley; PT $15
* Royal Caribbean Rated New Overweight at Wells Fargo; PT $93
* Vitec Software Group Rated New Buy at SEB Equities
* Western Bulk Chartering Rated New Hold at DNB Markets

>>> Call
* AG Barr Gains; Peel Hunt Says FY Results Were ‘Strong’
* Antofagasta Downgraded at RBC With Valuation Seen Stretched (1)
* Capital & Regional, Hammerson Both Upgraded at Peel Hunt
* Europe Banks Now Less Compelling, Lloyds Double-Downgraded: RBC
* Experian Cut at Citi on Headwinds For North American B2B Unit

>>> What to look at today - 30th of March 2022

 Stocks in Asia rose Wednesday as investors weighed prospects for a de-escalation in the war in Ukraine that could reduce pressure on commodity prices, allowing inflation to ease and slowing the pace of monetary policy tightening. 
A gauge of Asia Pacific shares rose for a second day, lifted by Hong Kong and China. Equities fell in Japan as the yen lifted off a six-year low and as some stocks traded without the rights to the next dividend. U.S. futures wavered after the S&P 500 gained for a fourth day and the Nasdaq 100 also climbed. Bonds got a reprieve from their recent rout as hopes for progress in talks between Russia and Ukraine drove down oil prices and inflation expectations. A slide in long-end yields saw the two- to 10-year curve briefly invert -- typically a signal of impending recession, though its accuracy is in doubt after years of heavy stimulus.  In Japan, bonds climbed with the yen after the Bank of Japan pledged to buy more securities than planned and include longer-dated debt. Oil reversed a little of its slide as investors remained circumspect about the chances of a resolution to the war. Russia said it will sharply reduce military activity near Ukraine’s capital Kyiv and its chief negotiator said Moscow would take steps to “de-escalate” the conflict. The talks failed to reach agreement on a cease-fire, however, and the Pentagon said Kyiv remains under threat. The dollar slipped.  Consumer sentiment appears resilient, as the latest U.S. confidence data suggest solid job growth has offset Americans’ concerns over accelerating inflation for now. Government data Friday are expected to show the economy probably added close to a half million jobs in March as the unemployment rate fell to 3.7%. Chinese technology stocks pared gains after a Wall Street Journal report of new curbs in the live-streaming industry.  US after Hours MLKN +9.1%, LULU +7.4%, MU +4.1% higher on earnings; CHWY -13.3% falls on earnings; RH +0.7% up on earnings and plans for a 3-for-1 split

Nikkei -1,73% Hang Seng +1,17% CSI +2,16% Shanghai +1,45% Shenzen +1,73%

Eur$ 1,1109 CNH 6,3680 CNY 6,3595 JPY 121,94 GBP 1,3100 CHF 0,9287 RUB 90,8125 TRY 14,6185 WTI$ 104,5 Gold 1,923,82 BTC 47,400 -0,15% ETH 3,390 -0,03%

S&P -0,0% Nasdaq -0,05% EuroStoxx 0,00% FTSE +0,08% Dax -0,14% SMI +0,00%

Macro :
- BofA Warns Stock Surge Is Bear-Market Trap With Curve Inverted
- U.S. Short Sellers Face Risk of Squeezes, Citi Strategists Say
- Hedge Funds That Took Abramovich’s Billions Have No Way Out
- Hackers Steal $590 Million From Ronin in Latest Bridge Attack
- China Is Systemic Rival Threatening German Economy, Lindner Says

Keep an eye on :
- AB FP : AB Science Says It’s Evaluating Whether to Appeal AMF Decision
- AIR FP : Air Canada Aims to Eventually Operate 45 Airbus A220s
- BESI NA : BE Semiconductor to Offer EU175M 7-Year Convertible Notes: Terms
- DBK GY : Nexi Shares Sold for Gross Proceeds of About EU38.3m: Terms
- EKTAB SS : Elekta: NHS Supply Chain Ordered Multiple Licenses for Proknow
- EDP PLC : EDP Holder BlackRock Raises Stake to 10.01%
- ECV GY : Encavis Sees 2022 Oper Ebitda Above EU285M, Est. EU262.5M
- EOAN GY : Fortescue Provides Clarification on Comments on MoU With E.ON
- G IM : Del Vecchio, CRT End Generali Investors Consultation Pact
- KIN BB : Nicolas De Clercq to Depart as CFO of Kinepolis
- MTO LN : U.K. CMA Raided Mitie Office Earlier in March, Guardian Reports
- KCR FH : Cargotec, Konecranes Abandon Merger After DOJ Threatens to Sue
- NENTB SS : Nent Proposes Name Change to Viaplay Group
- NEXI IM : Nexi Holder Deutsche Bank Offers About 3.48m Shares: Terms
- PNL NA : PostNL Calls Belgian Action Out of Proportion, Unacceptable
- RNO FP : Renault Is Said to Explore AvtoVaz Ownership Transfer in Russia
- SHEL LN : Shell to Boost Supply of Key Oil Grade From U.S. Gulf of Mexico
- SIP BB : Sipef Warns For Upward Price Pressure On Indonesian Palm Levy
- TIT IM : Telecom Italia Is Said to Ask for Details on KKR Bid by April 4
- UBS SW : UBS Starts New $6B Share Buyback Program As Of March 31
- URW NA : Unibail-Rodamco-Westfield To Reinstate Dividends From 2023

>>> US After Hours Summary: MLKN +9.1%, LULU +7.4%, MU +4.1% higher on earnings;

After Hours Summary: MLKN +9.1%, LULU +7.4%, MU +4.1% higher on earnings; CHWY -13.3% falls on earnings; RH +0.7% up on earnings and plans for a 3-for-1 split

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: MLKN +9.1%, LULU +7.4% (also authorizes $1 bln stock repurchase program), HLTH +6%, MU +4.1%, VRNT +2.3%, RH +0.7% (also announces intent to do a 3-for-1 stock split), PRGS +0.6%, SLGC +0.5%, RCII +0.5% (reaffirms guidance for 1Q22 and FY22, announces mgmt change), PVH +0.3%, CALM +0.1%

Companies trading higher in after hours in reaction to news: VIR +9.6% (to be added to S&P SmallCap 600), RMO +3.9% (announces shipment of first pedigree packs to key customer), CSTL +2.6% (granted Advanced Diagnostic Laboratory Test status by CMS), SUNL +2.3% (names new CFO), WDC +1% (in sympathy with MU earnings), WE +0.8% (appoints CEO Sandeep Mathrani to role of Chairman), DDD +0.7% (to create joint venture with Dussur for expansion of additive manufacturing in Saudi Arabia), KGC +0.3% (to divest Russian assets), CPT +0.2% (to be added to S&P 500), FSR +0.1% (establishes Environmental Policy ahead of Nov 2022 start of production date)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: CHWY -13.3%, MVST -7.8%, SPWH -4.3%, CNXC -3.4%

Companies trading lower in after hours in reaction to news: GERN -17.2% (stock offering), NWN -6.1% (stock offering), MTDR -4.6% (to be added to S&P MidCap 400), UDR -2.3% (stock offering), HESM -1.4% (commences offering of 7.9 mln Class A shares by selling shareholders; signs accretive $400 mln sponsor unit repurchase agreement), ARRY -1.4% (concludes that certain periods should not relied upon due to error)

FT : Barclays halts new US retail structured products after $15bn error

Barclays halts new US retail structured products after $15bn error
Regulators investigate trading breach after bank says it will have to pay investors at least £450mn

Barclays has shut the sale of new retail structured products in the US while being investigated by regulators over a $15bn trading error, in a hit to a lucrative unit of its investment bank.

The lender announced on Monday that it was having to pay investors at least £450mn over a clerical error that dated back to 2019 but was only discovered this year. At least one of its largest shareholders has also sold shares worth £900mn in the group this week, in what is shaping up to be an early crisis for CS Venkatakrishnan, the new chief executive.

Under US market rules, providers of structured products — pre-packaged investment strategies based on derivatives — are required to register an amount of products they intend to issue, known as a shelf.

Barclays formerly had a licence whereby its shelf automatically increased the more products it issued, but this was removed following a trading scandal, according to people familiar with the matter who would not be drawn on the precise run-in with regulators.

They added that the bank had continued to operate as if its shelf would automatically increase, which caused it to breach its limit.

In August 2019, the bank set its maximum shelf at $20.8bn, but earlier this month discovered it had exceeded that amount by $15.2bn. It immediately stopped issuing new shares in two popular exchange-traded notes to limit the damage, which meant trading went haywire in the two products. The bank then spent the next two weeks estimating the potential damage, according to a person familiar with the matter.

Barclays’ breach of its limit means the bank is required to buy back affected securities at their original price, known as a rescission offer.

The US Securities and Exchange Commission has begun investigating the breach, according to people with knowledge of the matter, while the UK’s Financial Conduct Authority confirmed to the Financial Times that it was discussing the matter with Barclays.

The bank told the FT that, while it had stopped issuing new structured products in the US, it would continue to issue exchange-traded notes that were registered before it first breached the shelf in February last year.

“As we indicated in our announcement on March 28, Barclays Bank intends to file a new automatic shelf registration statement with the SEC as soon as practicable,” it said in a statement.

“We are continuing to issue structured products on other issuance programmes, including in Europe and Asia-Pacific, and remain committed to our global structured products business.”

Barclays has said the impact of the breach will cause it to delay its share buyback plan and analysts have predicted the group’s first-quarter results will be hit.

On Tuesday one of Barclays’ largest shareholders sold a 3.4 per cent stake in the business through a block trade facilitated by Goldman Sachs. The two largest active investors in Barclays’ share register — the Qatar Investment Authority and US investment group Capital — declined to comment on whether they sold the stake.

FT : Bill Ackman to abandon public battles for quieter investment approach

Bill Ackman to abandon public battles for quieter investment approach
Founder of activist hedge fund Pershing Square says he intends to work behind the scenes with companies

Billionaire hedge fund manager Bill Ackman is abandoning his use of aggressive activist campaigns to publicly shame company boards and executives to bring about change and bolster share prices, he said in an annual report to investors.

Pershing Square Capital Management’s founder said on Tuesday that he planned to be a less vocal shareholder, buying large blocks of publicly traded companies and working behind the scenes with companies on any concerns or strategies.

“[A]ll of our interactions with companies over the last five years have been cordial, constructive, and productive,” Ackman said in the report. “We intend to keep it that way as it makes our job easier and more fun, and our quality of life better.”

The announcement formalises a shift in the way Ackman invests after he made his name on Wall Street running bruising campaigns against companies such as retailer JCPenney, payrolls provider ADP and Canadian Pacific Railway.

The change, which Ackman is calling “Pershing Square 3.0”, comes amid an improvement in performance from the billionaire investor as he has retreated from public fights, instead building stakes in strong-performing companies such as restaurant group Chipotle Mexican Grill, retailer Lowe’s and hotelier Hilton Worldwide.

After three years of losses between 2015 and 2017 driven by a disastrous investment in Valeant Pharmaceuticals, Pershing Square has become one of the hedge fund industry’s top performers.

In 2019 it generated a 58 per cent net return, about double the S&P 500 stock index. During pandemic-plagued 2020, Pershing Square generated a 70 per cent net return, while the firm was able to keep pace with rising markets last year, gaining 26.9 per cent.

Pershing Square’s turn in performance has come as Ackman has taken a quieter approach by focusing on companies that do not require big fixes. After exiting multi-level-marketing company Herbalife in 2018 at a loss, he also abandoned short selling — betting against companies’ share prices — and running public campaigns in search of a profit.

“[W]e have permanently retired from this line of work,” Ackman said in the annual report.

Instead, Ackman has hedged his heavy exposure to stocks in recent years by placing hedges against the broader market that have made Pershing Square billions of dollars, which it has reinvested into the market.

In 2020, at the outset of the coronavirus pandemic, Ackman bought more than $70bn in protection against credit markets that made Pershing Square $2.6bn, allowing the firm to build large stakes in Starbucks and Hilton.

A year ago, Pershing Square paid over $150mn to put on about $100bn of hedges to protect itself against rising interest rates. In January, Ackman sold the majority of those hedges for $1.2bn, using the proceeds to build a stake of more than $1bn in streaming media company Netflix.

As interest rates have since risen, it has put the value of Pershing Square’s remaining hedges at $2.1bn, or over 10 per cent of the $15bn firm’s overall assets.

As of March 22, Pershing Square’s interest rate hedges had protected the firm against a broad market drop due to plunging tech sector valuations and the war in Ukraine. The firm was down just 2.2 per cent this year, beating the S&P 500.

(ZH) One Bank Spots Powerful Selloff Trigger Hidden Within Historic Market Diver

One Bank Spots Powerful Selloff Trigger Hidden Within Historic Market Divergence

Remember when Zoltan Pozsar said one month ago that Powell has to crash the market in order to spark the recession he so desperately needs to finally contain inflation? He may not have long to wait according to the latest note from Bank of America's derivatives team...
Bear markets produce the most vicious rallies - recall the relentless facerippers of Oct/Nov 2008 or March 2020 - and indeed, over the last two weeks, the S&P has produced one of its sharpest rallies in history. As shown below, the recent 10-day ramp ranks in the 98th %ile of bear market rallies and in the 99.5th %ile of non-bear market rallies
The recent rally has also surpassed the largest 10-day returns in 7 of the S&P’s 11 bear markets since 1927 and was actually larger than any of those bear market rallies when controlling for the size of the prevailing max drawdown.
This historic bear market rally is "Not explained by fundamentals" according to BofA, and is taking place despite what the bank's derivatives strategists note is clearly weaker macro fundamentals (more hikes, higher inflation, and curve inversion) and the Fed leaning against equity market strength to hike faster (i.e., the birth of the short "Fed call", the opposite of the bullish Fed put).
Some numbers: the rally has sent the S&P 6.7% above where it stood before Russia first moved into Ukraine on 24-Feb, bringing the bank's measure of cross- asset stress down in tandem.
During the same time:
  • The Fed funds rate priced in for Dec-2022 is up from 1.57% (6 hikes) to 2.10% (8 hikes)
  • US 10yr inflation breakevens have risen from 2.58% to 2.96%
  • The 2s/10s Treasury curve just inverted (and certainly by far more than it ever did pre-GFC)
  • Investors thinking we are “late in the cycle” up from 48% to 60% in our March. Fund Manager Survey, and “global recession” jumped to 2nd biggest tail risk.
Instead, markets have been dragged higher on the back of yet another epic short squeeze, and an even more furious gamma squeeze as Nomura's Charlie McElligott explained earlier.
As one of Goldman's top traders noted over the weekend in a surprisingly bearish note, the light positioning and inflated earnings are not enough to sustain gains: Indeed, as BofA notes, some blame the rally on light equity positioning and a positive effect of inflation through higher earnings. On the latter, the experience of the 1970s suggests otherwise (S&P returned 1.6% ann. during the decade). At the same time, Bank of America's strategists note that the lack of equity positioning (evident in the bank's Bull & Bear signal enter a “Buy” territory and lack of vol convexity in the selloff), even if it helped this bounce, seems unlikely to sustain it against this challenging macro backdrop.
While stocks are whistling past the graveyard, rates markets a lot more stressed, and are pricing in a lot more risk than equities. As shown in the chart below, the spread between the S&P gain and Treasury selloff over the last 10 days is the 5th biggest since the GFC.
Even more stunning, the increase in rates vol (MOVE Index) relative to falling equity vol (VIX) has been the largest since 2009 and one of the largest ever.
What tends to follow? In the 2009 episode, the S&P fell 7% in the next 6 weeks in what was its first sizeable dip since the GFC low.
But wait there's more, because now that the “Fed put” has transitioned into a “Fed call”, any market upside is at best questionable: According to BofA, "investors should have by now stopped counting on the “Fed put” to come to the rescue. In fact, we think the Fed put has been for now replaced with a (short) “Fed call”.
What do we mean by this? The Fed is seeking tighter financial conditions to aid their fight against inflation, and in practice this means lower risk assets. Hence, they may hike faster on equity rallies, limiting the upside in stocks. Case in point: various financial conditions measures (and our GFSI index) have actually loosened since the Mar FOMC and triggered an avalanche of “50bp” comments from Fed speakers (see Global Rates Weekly)
As a counter to its bearish view, BofA notes that softer inflation is the only true, but unlikely upside risk: The arrival of the short “Fed call” suggests the key catalysts for sustained upside in US equities is one that, without harming growth, lowers the Fed’s need to quickly raise rates back to neutral. The most visible upside risk, therefore, is inflation softening on its own from here. And yet most economists see risks of inflation worsening on its own. Other upside catalysts that may only work in the short term are:
  • Retail buying returns or earnings shine: but with the inflation backdrop unchanged, this allows the Fed to tighten further (and options data suggests extreme retail buying has not returned)
  • Russia-Ukraine ceasefire: most positive near-term, falling commodities may be positive for equities (Exhibit 16), but lower geopolitical risk allows the Fed to hike faster (recall they pushed back against 50bps in March due to the conflict)
  • Fixed income markets break before equities notice: the Fed is most sensitive to credit spreads and in theory could be forced to rescue credit before equities wake up to reality; however, this has never happened before, and it would only kick the can down the road if inflation doesn’t abate
How to trade this? In summary, for a moderate grind higher towards all-time highs, the bank likes buying S&P call ratios (buy 1, sell 2) in May, selling elevated implied vol and offering up to a 4.7-to-1 payout. To hedge downside risks, consider buying S&P June put spread collars, which cheapen the cost of the hedge by also selling away upside (this time above all-time highs) and offer close to a 10-to-1 max payout.
  • To rent upside: with positioning still arguably light, the pain trade remains a grind higher. To participate in a continued grind higher for a low upfront cost and with limited downside risk, BofA likes buying call ratio overlays in SPX, benefitting from elevated implied vol. For instance, one can buy SPX May 4650/4800 1x2 call ratios (buy one & sell two calls) for 0.70% (4.7x max payout, ref. 4575.52). The short calls are struck at all-time highs.
  • To hedge: the earlier points reinforce our preference for put spread collars as cheap protection, particularly when initiated on a rally as sharp as the S&P has just delivered. For instance, consider buying SPX Jun 4900/4400/3900 put spread collars for 1.1% (9.9x max payout, ref. 4575.52). The short call is struck 2% above all-time highs.
  • Risks: beyond the upfront premium, the risk to both trades is a rally beyond the short call strike.
Much more in the full BofA note available to pro subs in the usual place.