TheChek News Flow

Italy’s options appear to have narrowed

Guido Bastianini is in a tight spot. The chief executive of Banca Monte dei Paschi di Siena should be thinking about how to help integrate parts of the bank into UniCredit. Instead, he spent Monday explaining to politicians what will happen after the deal collapsed last month.

Bastianini must present a plan that will satisfy regulators and unlock a cash injection supported by the Italian state next year. A standalone MPS remains a far-fetched proposition. But a benign economy will help support the creation of a more palatable acquisition target.

Time is also on Andrea Orcel’s side. The chief executive of UniCredit, who resisted a deal that could have been costly for shareholders, will present a new strategy next month. His likely course of action will be to return excess capital via buybacks. The window of opportunity for an alternative deal — Banco BPM is tipped as a target — is rapidly closing. The government proposes eliminating generous deferred tax asset incentives by the end of the year.

It is difficult to imagine an acquirer for MPS other than UniCredit. That puts the onus on executives and politicians to rejig the bank to Orcel’s satisfaction.

Third-quarter results last week showed better than expected profits, capital and costs at MPS. But costs remain bloated. The bank is in the process of shedding 2,600 jobs through an early retirement scheme costing almost €500m. The cost-to-income ratio is expected to remain at more than 70 per cent next year. Bastianini will have to find further savings. Returns on equity are expected to reach just 2 per cent by 2023, according to analysts’ consensus.

Asset quality remains questionable. That was reflected in the big dowry UniCredit demanded to proceed with a takeover. The ratio of non-performing loans fell to 4.4 per cent, estimated Citi. MPS insists its capital limitations have constrained its lending to higher-quality credits.

Italy’s options appear to have narrowed. For Orcel to take MPS off its hands it must either provide generous equity or concede that the bank’s assets are even weaker than it ever admitted.

Less than $1 of every $6 being invested is earmarked for the ‘legacy chips’ facing the longest backlogs

SEOUL—The semiconductor industry’s bets for tomorrow aren’t addressing the problems of today.

Global chip manufacturers are projected to pour about $146 billion into capital expenditures this year, a roughly one-third rise from the previous year and 50% higher than pre-pandemic 2019, according to Gartner Inc., a tech-market researcher. That investment is more than double the industry spending of five years ago.

But less than $1 of every $6 is earmarked for the so-called legacy chips facing the longest backlogs right now, Gartner estimates.

The small investment reflects how the scarcest chips—many sold for just a few dollars apiece—get made with older technology and equipment that requires less money to procure. But it also shows that many semiconductor makers are cautious about making multibillion-dollar bets on the needed chips given the slim profits and risk of falloff in demand.

Three firms— Taiwan Semiconductor Manufacturing Co. , Samsung Electronics Co. and Intel Corp. —account for about three-fifths of all 2021 spending, Gartner says. Nearly all of that is going toward new capacity for chips built on cutting-edge technology, the type that have largely remained plentiful.

The spending direction likely means a continually tight supply of run-of-the-mill chips used in cars, home appliances and gadgets, according to industry analysts. It also suggests the wait for orders may remain long, they say.

On Tuesday, TSMC and Sony Group Corp. said they would build a $7 billion chip plant in Japan to make semiconductors based on older technology, in an effort to fill some of the gap. The plant isn’t set to start mass production until late 2024, so it won’t help solve the problems hitting production of cars and electronics. While a significant outlay, it also doesn’t move the needle much in terms of overall global investment.

The mismatch reflects the imbalance in the world’s chip-supply problem: Not all chips are created equal in the $464 billion semiconductor industry.

The gap in financial rewards between the two worlds of chip production, newer and older, is stark. A 5-nanometer wafer for advanced chips—which allow apps to run on the latest smartphones such as the iPhone 13—sells for about $17,000 as of this year, according to Bain & Co., a management-consulting firm. That price compares with roughly $3,000 for a 28-nanometer wafer for “legacy” semiconductors that perform simpler functions such as connecting devices to Wi-Fi networks.

The semiconductor world categorizes itself by nanometers, or the size of the transistors used for production. The smaller the transistor, the newer and more advanced the process technology and the greater the number of chips that can be made on a single silicon wafer. The chips made using the 28-nanometer process or larger are generally considered legacy chips, with higher numbers denoting older technology. Chips made using smaller-nanometer processes are seen as advanced, with the most cutting-edge chips being produced on single-digit nanometer processes.

Spurred by economic reopenings and rebounding consumption, companies around the world in various sectors have begun a “red-hot capex cycle,” according to Morgan Stanley estimates. Global investment will return to pre-pandemic levels this year and surpass them next, Morgan Stanley says.

But no industry right now is accelerating investments the way chip makers are. Of the 20 industries with the biggest capex outlays, the semiconductor sector’s year-over-year leap in capital expenditures this year is the largest at 32%—about 2.5 times bigger than the average, according to S&P Global Ratings, based on analysis of the world’s 2,000 largest nonfinancial public companies.

The semiconductor world’s spending on advanced chips is often planned and executed in close coordination with the needs of buyers. “They’ve generally done a good job” historically, said Christopher Taylor, a director at market-researcher Strategy Analytics who focuses on tech components.

The uptick reflects how much next-generation semiconductors cost to produce. A single chip-making plant, or fab, can cost up to $20 billion.

Setting up “clean rooms”—needed to ensure the chips stay free of impurities—can cost half a billion dollars. A single photolithography machine, which imprints chip designs on a silicon wafer, can stretch to $150 million. Even process-control equipment can total $10 million apiece. The latest advanced fabs may have hundreds of these types of machines.

Makers of semiconductor equipment are flourishing. Lam Research Corp. , a Fremont, Calif.-based firm that makes wafer-processing equipment, has reported six straight quarters of record revenue. Netherlands-based ASML Holding NV, the only producer of the industry’s most advanced lithography equipment, is fully booked through the start of 2023.

“I would not think of this as a peak,” said ASML Chief Executive Peter Wennink on a recent earnings call. Sales could climb through 2025, he said.

Going forward, the restrained bets on the hardest-hit types of semiconductors mean that the world’s legacy-chip supply won’t catch up with projected demand through 2024, Counterpoint Research, a tech-market researcher, estimates.

Many legacy-chip makers are hesitant to make big investments for new capacity because by the time a new factory starts production in a few years, there may not be the same demand, resulting in underused plants and losses. “If you think about oversupply, that’s very scary,” said Dale Gai, a Taiwan-based research director at Counterpoint who focuses on semiconductors.

Also, a new factory for older-technology chips, such as a 28-nanometer facility, would lose money because of the upfront costs and lower production yields at the start—something the biggest competitors, operating depreciated machinery in years-old factories with efficient cost structures, wouldn’t face, said Peter Hanbury, a partner at Bain who specializes in semiconductors.

Taiwan-based United Microelectronics Corp. , a major producer of the world’s legacy chips, has noted how such market considerations make it challenging to expand capacity for older-technology chips made on 8-inch and 12-inch wafers.

“If the economics stays the same, it will be very difficult to have a justified return on investment,” UMC Co-President Jason Wang told investors in July.

Government subsidies can play a role in motivating chip manufacturers to build new plants, but they are concentrated on next-generation chip technologies. In June, the U.S. Senate approved $52 billion in funding to support semiconductor research and production, but just $2 billion was earmarked for legacy chip production.

Some legacy-chip makers are boosting investments to levels they say reflect a prudent response to demand. UMC has pulled the trigger on a $2.3 billion expansion this year—but only after securing advance bookings from customers and locking in pricing. Two auto-chip players, STMicroelectronics NV and Infineon Technologies AG , plan to invest $2.1 billion and $1.2 billion respectively this year for capacity expansions, according to Gartner. Texas Instruments Inc., which manufactures analog chips for automotive and industrial applications, has spent $1.2 billion in capital expenditure this year through the end of September.

Still, many legacy-chip makers are inclined to hold off on big bets because “rational capacity” is a principle that has shaped the industry for decades, Bain’s Mr. Hanbury said. “The last thing you want to do is spend billions on a new plant and not have it loaded” with orders, he said.

America’s best-known conglomerate will break into businesses focused on healthcare, energy and aviation

General Electric plans to break into three separate companies, effectively ending its status as America’s best-known industrial conglomerate after years of trying to respond to flaws in the model exposed by the financial crisis.

The split into three public companies focused on healthcare, energy and aviation marks the final step in the undoing of the sprawling group created by Jack Welch at the end of the last century.

It is also the boldest move yet by chief executive Larry Culp in his years-long effort to streamline the diversified company, which has faced growing investor pressure over its underperformance.

Shares in GE jumped more than 10 per cent in pre-market trading as investors welcomed the move, which will make it easier for them to decide which of the businesses they want to back.

GE Healthcare will be spun off in 2023, with GE retaining a 19.9 per cent stake in the unit. GE Renewable Energy, GE Power and GE Digital will be combined into one energy-focused company that will be spun off in 2024. Once these transactions are completed, the original GE will focus on aviation.

“By creating three industry-leading, global public companies, each can benefit from greater focus, tailored capital allocation and strategic flexibility to drive long-term growth and value for customers, investors and employees,” said Culp.

“Today is a defining moment for GE, and we are ready . . . And we’re not finished — we remain focused on continuing to reduce debt, improve our operational performance and strategically deploy capital to drive sustainable, profitable growth,” he added.

Under the stewardship of former chief Welch, GE became the world’s largest company, praised for its managerial efficiency and steady profit margins, making it a darling of US investors.

But successive chief executives have been restructuring GE since it ran into severe difficulties during the global financial crisis, exposing the risks of a group that once produced everything from television shows to jet engines and ultrasound machines.

Culp in particular has sought to shrink GE to control its debts. GE this year sold its aircraft leasing business to Irish group AerCap in a $30bn deal. Before him, Jeff Immelt and John Flannery sold vast swaths of the group, including GE Capital, its property assets and the insurance business.

GE said on Tuesday that the changes came on the back of a strengthened financial position, including a more than $75bn reduction in gross debt between 2018 and 2021. All three new companies would have investment-grade credit ratings, the group said.

GE had been shedding assets for more than a decade before Culp became chief in 2018, but he has accelerated the pace of disposals, particularly from the troubled GE Capital arm, which once dominated the group.

During the financial crisis, pressures on its financial services arm prompted GE to seek a bailout from Warren Buffett. The experience led the then chief Jeff Immelt, the successor to Welch, to say that conglomerates worked well until markets turned, when their complexity became a liability.

“For more than a century, GE people have done great things, and I am certain they will continue to do so in the future,” Immelt told the Financial Times on Tuesday. “I wish everyone at GE great success.”

Activist hedge fund Trian Partners built a $2.5bn stake in GE in 2015, its largest position at the time, and Ed Garden, the firm’s chief investment officer, was nominated to the board in October 2017.

The activist fund, which had pushed for cost reductions and increased borrowing to help fund share buybacks, forecast at the time that GE shares would be worth as much as $45. However, GE’s performance fell significantly short of the targets set by Trian, and by the start of 2018, the value of its stake had more than halved. The fund started trimming its position a year later and now holds about half a billion dollars worth of shares.

Nelson Peltz, the billionaire founder of Trian, has previously said that holding on to the firm’s large stake in GE had been a “big mistake”.

En Allemagne, Lars Windhorst fait les gros titres de l'actualité sportive et financière… rarement à son avantage. Dernier exemple en date : le 2 novembre, un tribunal des Pays-Bas a déclaré l'insolvabilité de Tennor, le holding d'investissement néerlandais de cet homme d'affaires sulfureux , a dévoilé le quotidien populaire « Bild ».

Cette décision, confirmée à la Deutsche Presse-Agentur, est une mauvaise nouvelle pour le Hertha BSC, un club de football qui pointe dans le bas du classement de la Bundesliga, dont Lars Windhorst est copropriétaire. C'est aussi une très mauvaise nouvelle pour H2O Asset Management (AM) et ses clients, essentiellement des épargnants français exposés à Tennor via des contrats d'assurance-vie. La société de gestion, toujours filiale de Natixis , a investi environ 1,6 milliard d'euros dans la dette du groupe Tennor et ses filiales (La Perla…). Des titres logés dans des fonds illiquides, cantonnés depuis plus d'un an (« side pockets »).

DAX:

MDAX:

SDAX:

Nikkei -0,75% Hang Seng +0,17% CSI -0,07% Shanghai +0,21% Shenzen +0,69%

Eur$ 1,1594 CNH 6,3937 CNY 6,3957 JPY 112,86 GBP 1,3586 CHF 0,9121 RUB 71,2925 TRY 9,7020 WTI$ 81,86 Gold 1,823;10 BTC 68,320 +2180 ETH 4805 +35

S&P -0,14% Nasdaq -0,05% EuroStoxx -O,27% FTSE -0,30% Dax -0,17% SMI -0,26%

Macro :

- Fed’s Evans Says There Is Some Evidence Inflation Is Broadening

- Big Deals Come to Italy After Years of Small Listings: ECM Watch

- Denmark Will Bring Back Some Restrictions as Covid-19 Cases Soar

- Bitcoin, Ether Hit Records Amid Broad Rally in Cryptocurrencies

Keep an eye on :

- 1U1 GY : 1&1 9M Revenue EU2.90B Vs. EU2.81B Y/y

- YOU GY : About You 2Q Adjusted Ebitda Margin -3.3% Vs. -5% Y/y

- AGFB BB : Agfa-Gevaert 3Q Adjusted Ebit EU6M Vs. EU0 Y/y

- AMBUB DC : Ambu Sees FY 2021/2022 Ebit Margin of 7-9%

- ARAMI FP : Aramis Confirms 2021 Margin Target, Sales Rise 26%

- AZN LN : Australia Grants Provisional Determination to Astra’s EVUSHELD

- ATEB BB : Atenor Told by Administration to Reduce Height of Realex Project

- BAKKA NO : Bakkafrost 3Q Operating Ebit Misses Estimates

- BAR BB : Beauduin’s Titan Barrato Buys More Barco Shares, Exceeds 20%

- BAYN GY : Bayer Boosts FY Core EPS From Continuing Ops Forecast

- BAYN GY : Bayer 3Q Adjusted Ebitda Beats Estimates

- BFIT NA : Basic-Fit 4.5m Share Sale by 3i Group Book Is Covered: Terms

- CA FP : Carrefour to Triple E-commerce GMV to EU10B in 2026

- COOR SS : Coor 3Q Net Sales Meet Estimates

- EUZ GY : Eckert & Ziegler Maintains FY Revenue About EU180M

- RF FP : Eurazeo SE 3Q Net Asset Value Per Share EU99

- EUCAR FP : Hertz Shareholders Raise $1.3 Billion in Nasdaq Listing

- ENX FP : Euronext Open to More Acquisitions as Part of New Strategic Plan

- RACE IM : Porsche, Ferrari Eye Enhanced China Growth as Luxury Outperforms

- FRA GY : Fraport Sees FY Revenue Above EU2B, Saw About EU2B, Est. EU2.08B

- GSK LN : Elliott Should Abandon Its Cowardly Campaign Against GlaxoSmithKline

- HABA GY : Hamborner REIT Boosts FY FFO Forecast

- HTRO SS : Hexatronic Offers Up to SEK500m Shares

- IMCD NA : IMCD 9M Gross Profit EU620.8M Vs. EU485.7M Y/y

- INGA NA : ING Eyes $11 Billion Buybacks, 20% EPS Upside, 10% ROE: BI Focus

- MC FP : LVMH Looks to Burnish Tiffany Image With Supreme Collaboration

- AERO SW : Montana Aerospace 9M Net Sales EU548.3M Vs. EU480.6M Y/y

- BMPS IM : Italy Underestimated Cash Needed to Shore Up Paschi, Orcel Says

- MUV2 GY : Munich Re 3Q Operating Profit Misses Estimates

- NDX1 GY : Nordex Cuts FY Ebitda Margin Forecast

- NRS NO : Norway Royal Salmon 3Q Operating Ebit Misses Estimates

- PSPN SW : PSP Swiss 9M Vacancy Rate 3.5%

- RR/ LN : Rolls-Royce Raises $617 Million for U.K. Small Nuclear Reactors

- SRE LN : Sirius Real Estate Offering of Shares Prices at GBp130/Share

- SUPR LN : Supermarket Income REIT in Talks to Buy Two Assets

- SLHN SW : Swiss Life 9M Fee & Commission Income CHF1.64B Vs. CHF1.40B Y/y

- TEG GY : TAG Immobilien Sees 2022 FFO EU188M to EU192M

- TEL NO : Telenor Myanmar Sale to M1 Sidelined Over Junta’s Opposition: FT

- UCG IM : UniCredit CEO Orcel Says M&A Is Not a ‘Goal in Itself’

- UCG IM : UniCredit to Sell Its Shareholding in Yapi Ve Kredi Bankasi

- UTDI GY : United Internet 9M Ebitda EU994.5M Vs. EU896.4M Y/y

- RIN FP : Vilmorin 1Q Sales EU258.4M Vs. EU234.4M Y/y

- WIE AV : Wienerberger 3Q Net Income Beats Estimates