TheChek News Flow

The company says its vaccine will meet regulatory approval thresholds despite snafu

A top executive at AstraZeneca AZN -1.81% PLC pushed back on Wednesday against criticism that the company failed to disclose enough data from a clinical trial of its Covid-19 vaccine earlier this week, and acknowledged skepticism about the vaccine’s 90% effectiveness in a group of patients who were accidentally given a lower dose than intended.

“I’m not going to pretend it’s not an interesting result, because it is—but I definitely don’t understand it and I don’t think any of us do,” said Mene Pangalos, AstraZeneca’s executive vice president for biopharmaceuticals research and development. “It was surprising to us.”

The U.K. company said on Monday that the vaccine it is codeveloping with the University of Oxford was on average about 90% effective in preventing Covid-19 when volunteers were given a half-dose shot followed by a full dose a month or more later, but only 62% effective when two full doses were given. The data pooled trial results from the U.K. and Brazil.

U.S. regulators have set the bar for authorizing vaccines at 50% effectiveness, but vaccines in development by Moderna Inc., and partners Pfizer Inc. and Germany’s BioNTech SE have set the benchmark even higher with study results showing greater than 90% effectiveness. Those vaccines use a new gene-based technology that, despite its impressive clinical results thus far, requires the shots to be stored at subzero temperatures. AstraZeneca’s vaccine can be stored in a more standard refrigerator, which could make it attractive to low- and middle-income nations.

In the days since the results were announced, independent scientists and U.S. government officials said the data is further proof that vaccines can prevent Covid-19, but they also cautioned that the 90% effectiveness rate might not hold up under further analysis.

AstraZeneca on Monday said in interviews with news media that the half-dose regimen was the result of a manufacturing error, which neither the company nor Oxford initially mentioned in their press releases announcing the results.

The dosing error was identified after a trial investigator noticed that volunteers weren’t having as much of an inflammatory response to the shot, prompting the researchers to analyze their vaccine supply and find that they had miscalculated the dose, Dr. Pangalos said.

AstraZeneca and Oxford informed regulators in the U.K., U.S., and European Union and amended the study design to include the half-dose group in their analysis.

“The mistake is actually irrelevant,” said Dr. Pangalos. “Whichever way you cut the data—even if you only believe the full-dose, full-dose data….We still have efficacy that meets the thresholds for approval with a vaccine that’s over 60% effective.”

Oxford researchers said on Monday that the lower dose may have been more effective because it more accurately reflects the natural immune response to viruses, but that they would have to investigate the findings further to know for sure.

Other factors could also be at play. The half-dose was only given to volunteers 55 and younger, whereas the full-dose group also included older patients, said Dr. Moncef Slaoui, chief scientific adviser to the U.S. government’s Operation Warp Speed initiative, on a call with reporters on Tuesday, the first disclosure of the lack of older participants in the half-dose group. It is also possible that the difference between the groups was a statistical fluke and the result of chance, he said.

“There are a number of variables that we need to understand,” said Dr. Slaoui. “It’s unlikely but it’s still possible that it’s a random difference.”

AstraZeneca plans to test the half-dose regimen in a large, ongoing U.S. study expected to enroll more than 30,000 volunteers, Dr. Pangalos said. The study has enrolled more than 11,000 volunteers and could have results soon given the progression of the pandemic, Dr. Slaoui said.

Dr. Pangalos said there is a theoretical rationale for why a lower first dose might work, but that he wouldn’t speculate until the researchers investigate the data further. “I’m not going to hand wave with the immunologists,” he said. “Until I see some data that gives me some science behind it, I’m going to say ‘I don’t know.’”

Some scientists have criticized AstraZeneca for not revealing key data from the trial results, such as how the number of infections that occurred across patient groups and broken down by age and severity of disease—though the company did say that no patients receiving the vaccine developed severe disease or required hospitalization.

“AstraZeneca provided very little real information for one to independently assess how their vaccine trials are doing,” said Shane Crotty, a vaccine and infectious diseases researcher at La Jolla Institute for Immunology. “It’s quite reasonable for people to be skeptical.”

Dr. Pangalos said the researchers only received the data last weekend and are working to quickly release the full data in a peer-reviewed journal. “The right way of publishing and documenting the results is in a scientific journal, and these data will all be published within the next week or so,” he said.

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Macro :

- France Accuses the U.K. of Dragging Its Feet in Brexit Talks

- Trump is said to be planning a wave of pardons, including for Michael Flynn.

Keep an eye on :

- ATO FP : Orange Denies Any Project Concerning Takeover of ATOS

- AUTN SW : Autoneum Sees FY Rev. Down ~20%, ‘Slightly’ Positive Ebit Margin

- BMPS IM : Paschi Proceeds with Bad Loans Sale to Amco, Signs Spinoff Deed

- BAYN GY : Bayer Sues Over Latest Adempas Patent as Related Trial Nears

- BEWIME NO : BEWi Offering Prices 3.57m Shares at NOK21/Share

- CAI AV : CA Immo 9M FFO I EU104.7M Vs. EU101.4M Y/y

- CAI AV : CA Immo Targeted as Activist Petrus Calls for Sales, Buy-Backs

- ALCAR FP : Carmat Sees First U.S. Implants for Its Heart Prosthesis in 1Q

- COTN SW : Comet Sees FY Sales CHF385M to CHF395M

- CVAL IM : Creval to Appoint Advisers to Help Review Credit Agricole Bid

- EKTAB SS : Elekta 2Q Operating Profit Beats Estimates

- EUCAR FP : Europcar Agrees W/ Main Creditors to Reduce Debt by EU1.1B

- IIA AV : Immofinanz 9M FFO I EU89.2M Vs. EU92.8M Y/y

- INS GY : Instone Real Estate 9M Adjusted Ebit EU50.0M Vs. EU56.7M Y/y

- MCP PL : Pluris Makes Media Capital Bid to Comply With Regulator’s Ruling

- ORA FP : Orange Denies Any Project Concerning Takeover of ATOS

- ORA FP : Orange to Launch 5G on Dec. 3 in 15 French Cities: Echos

- RCO FP : Remy Cointreau 1H Current Oper Profit -22.5%; Sees FY Growth

- STM FP : SpaceX Hired STMicroelectronics for Starlink Dishes:Bus. Insider

- TEF S:M : Telefonica Hires KPMG to Ready Tech Units Spin-Off: Expansion

- TLG GY : TLG Immobilien Cuts FY FFO Forecast

- WDI GY : Wirecard Auditors Face German Lawmakers’ ‘Considerable Doubts’

SEOUL (Reuters) - South Korea reported 583 new coronavirus cases on Thursday, the highest since March, as it grapples with a third wave of infections that appears to be worsening despite tough new social distancing measures.

The government reimposed strict social distancing rules on Seoul and surrounding regions this week, only a month after they had been eased following the second wave of infections.

Now some experts say the government moved too early to relax those rules, as the daily official case tally exceeds 500 for the first time since March 6.

“The easing was done because of economic concerns and growing fatigue but it was premature and sowed the seeds of people’s complacency,” said Kim Woo-joo, a professor of infectious diseases at Korea University Guro Hospital in Seoul.

South Korea’s first wave emerged in late February from meetings of a religious sect but the latest cases are more dispersed around the capital Seoul, making them harder to trace and contain.

The armed forces ordered a 10-day ban on leave after a series of outbreaks at military facilities. Other clusters have been traced to a sauna, a high school, an aerobic academy, churches, a children’s cafe and a friends’ get-together.

“COVID-19 has arrived right beside you and your family,” Health Minister Park Neung-hoo told a televised meeting of health officials.

“In particular, the spread of infections among young generations is extraordinary.”

Infections among young people, many of whom show no symptoms, prompted the government to urge students to stop attending cram schools and private lessons ahead of college entrance exams slated for Dec. 3.

“Infections are emerging concurrently in our daily lives including family gatherings and informal get-togethers which makes it difficult for the government to take preemptive action,” Education Minister Yoo Eun-hae told a briefing.

Health officials did not respond directly to criticism that the government had been too quick to ease restrictions following the previous spike in infections in August.

They have expressed regret about the economic impact of the latest measures, coming just after Asia’s fourth-largest economy returned to growth in the third quarter.

South Korean markets held their nerve on Thursday as the central bank kept its policy rate steady and marginally raised its growth outlook for this year and next.

Of the latest cases, 553 were locally transmitted and almost 73% of those were in the greater Seoul area, the Korea Centers for Disease Control and Prevention (KCDC) said.

Total infections in South Korea stand at 32,318, with 515 deaths.

ESG: a trend we can’t afford to ignore

The pace of green change has rapidly accelerated as a byproduct of the pandemic

What is the ideal soundtrack for ESG (environmental, social and governance) investors? There is one classic song that has been covered by some of the greats — Frank Sinatra, Diana Ross, Ray Charles and Van Morrison, to name a few. But in my opinion the original performer has never been bettered. 

Kermit the Frog first sang “It’s not easy bein’ green” in 1970. Voiced by Muppets creator Jim Henson, it became a hit, telling a sweetly thoughtful tale of how Kermit’s doubts over his colour dissipate as he comes to recognise the positives in his appearance. 

If you’ll forgive the leap, it is also rather a good metaphor for sustainable investing — an idea we can no longer expect to arrive some time in the future, but is already here with us.

Back in the 1970s, the notion of being green was largely a fantasy. The oil shortage was looming, which in the UK gave us the three-day week. That traumatic period demonstrated the dangers of global overdependence on fossil fuels but the lesson was not learnt. The revolution had begun but took decades to take hold.

It is a different story today. This year the pace of green change has rapidly accelerated as a byproduct of the pandemic. Car usage plummeted and business and long-haul holidays were suspended, deferred or cancelled. Some of this travel is unlikely to return, even with a successful vaccine programme.

Deliveries of shopping and goods were made in bulk. Instead of 50 people driving to the shops, one van delivered. Amazon never left my street, but neither did the cars.

These trends have their corollary in investment. Being green is becoming so ordinary that a 2020 study by the US SIF foundation, a membership organisation focused on sustainability, found that roughly one out of three dollars invested in the US — or $17.1tn — has a sustainable mandate. That is a lot of green. 

As a wealth manager, I can also say the trend has been driven not only by the investment industry but by its clients. In conversations over the past 18 months with families and individuals I advise, green investing has become a big priority for them, either because they wish to invest in a future-proof way, or because their children have asked probing questions about where their money is invested — and millennial and Gen Z children are keener than ever not to inherit what they think of as “dirty money”.

Another motive can be a guilty conscience. One client sought a sustainable investment portfolio for the money they had made from the sale of their business — a cement manufacturing business that had caused years of environmental damage. 

Opportunities for sustainable investment used to be scarce, but today it is hard to find a company that does not have an ESG policy. Nine out of 10 of companies in the S&P 500 index produced sustainability reports in 2019. This creates a fresh set of problems: how do you decide when a business is genuinely motivated by these concerns and when its ESG claims are hot air?

For professional investors, it means company visits and interrogating management and the financials. For private investors without privileged access, it can be far harder to sort the green from the greenwash. Take those firms that trumpet their carbon neutrality by trading off the harmful parts of their business with offsetting green initiatives. Investors must ask hard questions of these activities. Are today’s emissions, for instance, really justified by tree planting that will take 30 years to deliver benefits? 

Some companies fall into the category of businesses that are set up with the aim of doing good. Among the investments in my firm’s sustainable fund, for example, is Renewable Infrastructure Group, an investment trust with assets generating 8tn watts of clean energy a year and avoiding 1m tonnes of CO2 emissions. Or there is Greencoat UK Wind, an investment fund focused on UK wind farms. Another is Equinix, a data storage company aiming to reduce carbon-intensive paper production.

What about the rest, though? Should investors expunge all those companies that have yet to show themselves sufficiently committed to the ESG agenda? 

Not always. Many sustainable fund managers — including our own — reserve a portion of the portfolio for actively intervening in companies that need an extra nudge, using the voting rights that share ownership affords them to try to change the companies from within. This may mean exerting pressure when it comes to strategy, remuneration or governance rules. 

This approach can be a bone of contention when I speak to clients who want to put more of their money into ESG. They ask for any ethically unproven companies to be excluded. But the more bars are applied to a portfolio, the harder it is to make money and find appropriate investments. What is more, applying the principles of ESG to specific companies can reveal stark differences of opinion between investors over what constitutes a “good” or “bad” business. 

Many sustainable funds, for instance, include credit card companies in their investments, on the grounds that they provide lower income families with a vital financial lifeline as they struggle to make ends meet from week to week. Others see these companies as levying a tax on the poor, charging exorbitant interest rates and leading people down the road to debt. The truth is that there are few investments that will leave everyone feeling entirely comfortable. 

Which brings me to the question I still hear regularly from clients: How much performance do I need to give up?

In my view, the answer is none. ESG fund managers are capitalists. They are investing to make money — they might do some good, but that good has to lead to return. The evidence supports this: a study in June by Morningstar found that most sustainable funds had outperformed non-ESG funds over one, three, five and ten years. 

So look at your investments and ask yourself — are they ready for the 2020s and can you help change the world? I am not advocating going vegan — I’ll leave that column to Miss Piggy. But ESG is here to stay. As Kermit concludes: “I am green and it'll do fine. It's beautiful, And I think it’s what I want to be.” He accepted the green revolution. Will you?

Default concerns drive up borrowing costs for Chinese state companies

Government-controlled enterprises forced to pay higher rates to attract investors

China’s state-owned enterprises are being forced to issue bonds at higher interest rates after a slew of high-profile defaults shattered investor confidence in what was once seen as a risk-free asset class.

Data from East Money, a financial data provider, show the average coupon rate for newly issued SOE bonds has hit 5.7 per cent since October, when a number of state-run companies, ranging from coal mines to automakers, failed to make principal or interest payments on their maturing debts.

This was 1 percentage point higher than the 4.7 per cent recorded in the first three quarters of this year.

The increase in borrowing costs on new issuance suggests local investors are starting to reprice the risks of SOE bonds, which have for many years enjoyed low interest rates and high credit ratings thanks to an implicit guarantee from the local governments.

Investor confidence was shaken by a succession of defaults led by a state-owned coal company in central China, Yongcheng Coal and Electricity Holding Group, which failed to make a payment on a bond worth $152m this month.

China’s corporate debt market is worth nearly $4tn, of which SOEs are estimated to account for more than half. 

“We used to price SOE bonds based on how strong their government backing was,” said Zhang Pan, head of credit rating at a Shanghai-based bond fund. “We will have to pay more attention to their fundamentals in the future.”

The higher interest rates on newly issued debt is especially pronounced among bonds from underdeveloped provinces, where local governments are too stretched to bail out struggling SOEs as they did in the past.

In the south-western province of Guizhou, one of the nation’s poorest, state-owned Louhaiqing Tourism Development Investment Co this week issued a Rmb1bn ($152m) bond that carried a coupon rate of 7.5 per cent and a double A plus rating. By contrast, the company in August paid 5.4 per cent interest to issue a Rmb540m bond with a triple A rating.

“There is no change in our business over the past few months,” said an official at LTDIC. “We are paying a higher interest rate because our government support is no longer taken for granted.”

The rise in rates, however, was not enough to restore confidence in the market for some investors.

“What we care about is not raising coupon rates by 20 or 30 basis points,” said David Huang, a Hangzhou-based bond fund manager. “It is whether issuers will make an effort to repay the debt when things go wrong.”

Other investors said the rise in interest was still not enough to reflect the growing risk. While the credit spread for corporate bonds over debt issued by policy banks, a barometer for risk in China, has picked up in recent weeks following the default spree, the figure remains at a historically low level.

“That means hopes of government bailouts remain,” said Mr Huang.

Aberdeen Standard targets women-led hedge funds with new strategy

Funds run by women have outperformed in 2020 after limiting losses in March turmoil

Aberdeen Standard Investments, one of Europe’s biggest asset managers, is set to launch a fund investing solely in hedge funds run by women, meeting demand from investors who are keen to foster diversity in a male-dominated industry and from those who believe greater diversity leads to better returns.

The new fund will track the performance of an index of women-run hedge funds, constructed by data provider HFR, and aims to capitalise on growing interest among US pension plans and other investors picking asset managers based on environmental, social and governance criteria.

The move comes towards the end of a strong year for women-led hedge funds relative to the overall industry, after many were able to limit losses during March’s market turmoil. HFR’s Women Access index is up 6.9 per cent this year to the end of October. That compares with a 1.1 per cent rise in the broader HFRI 500 Fund Weighted Composite index.

“Investors are looking at being responsible investors throughout the investment chain,” said Petra Dismorr, chief executive of ESG consultancy Northpeak Advisory, which works with fund firms. A number of US state pension funds have issued dedicated mandates to allocate money to businesses owned by minorities and women, and other investors are increasingly looking for more diversity in their fund managers, she added.

Among the women-led hedge funds that have performed well are Catherine Nicholas’s Nicholas US Equity Opportunities fund, which has gained around 23 per cent this year, and Lan Wang Simond’s Mandarin Offshore fund, up around 24 per cent, according to numbers sent to investors. Ms Simond’s fund was helped by cushioning itself against the March tumult and by positions in technology stocks.

Leda Braga, one of the industry’s highest-profile figures, has gained just over 3 per cent in her flagship Systematica fund so far this year, said a person familiar with its performance. That compares with an average 2.6 per cent fall among computer-driven funds that bet on market trends.

While many investors have focused on changing corporate behaviour at the companies they hold shares in, there is also a growing move among investors to drive change at the firms that manage their money. The proportion of women working at hedge funds, at just under 19 per cent, is the second-lowest across seven alternative asset classes, according to a study by data group Preqin. That is up only slightly since 2017.

Last month David Swensen, chief investment officer at Yale’s endowment fund, wrote to its external investment managers to suggest ways of increasing diversity in their entry-level jobs and to ask them to complete an annual survey on the issue.

“Our goal is a level of diversity in investment management firms that reflects the diversity in the world in which we live,” Mr Swensen wrote in the letter on October 2.

Aberdeen Standard’s fund is part of a suite of products it is launching, that will let clients invest in around 30 different categories of Cayman-based hedge funds, split by strategy or theme, or in a wider basket of 500 funds.

Early last year the firm launched a portfolio tracking the performance of 140 Europe-based hedge funds, raising around $400m. It has amassed a further $180m for a strategy tracking the performance of computer-driven trend-following hedge funds.

The launches highlight how the huge growth of passive investing — which has driven assets in exchange traded funds and products to $6.8tn globally as at the end of October, according to ETFGI — is reaching even hedge funds, long considered the epitome of active investment management.

Tracking the performance of an index of hedge funds is more complicated than replicating an index of stocks, as the fund provider has to constantly add or reduce holdings with underlying managers, some of whom may have tougher terms on withdrawals depending on flows into or out of its own fund.

Economic pressures in the country are among the fiercest in the eurozone

The desolate streets around Madrid’s 17th-century Plaza Mayor help explain why Spain’s banks have embarked on a hasty round of consolidation that could put up to three-quarters of the country’s loans and deposits in the hands of just three lenders.

José Fernando Bartolomé, whose family operates tourist outlets in the neighbourhood, says his company, EU Souvenirs, can no longer service its outstanding loans. Because of the coronavirus crisis, the group’s revenues have fallen by more than 90 per cent and its debts have tripled to €4.5m.

In these circumstances the question becomes if — rather than when — such debtors can ever repay their obligations.

“We were doing well until 2020, when Covid came and killed us,” said Mr Bartolomé. “Now we will have to work for six years just to pay off our Covid debt — and freeze our loans until we are in better conditions.” 

This bitter economic climate has helped spur merger negotiations among Spain’s largest banks, which investors say could usher in a wave of long-mooted consolidation across Europe.

“Even before the crisis, European banks were not profitable, struggling with negative interest rates,” said Francisco Riquel, head of equity research at Alantra Equity Research in Madrid. Until about a year ago many banks held out hope that rates would rise relatively soon, he added. “Now expectations are that we will remain in negative interest rate territory for another ten years, so banks will have to transform and adjust to survive, gaining bigger scale through mergers and acquisitions.”

Nowhere is that more true than in Spain. The economic pressures in the country are among the fiercest in the eurozone — the Spanish government expects gross domestic product to contract by more than 11 per cent this year.

With tourists likely to stay away from the country for months and unemployment set to surge as temporary bans on firing employees expire, both European and national regulators have called on the banking sector to prepare for a rise in bad loans next year.

In response, Spanish banks have in recent weeks kicked off a round of consolidation that stands out from the rest of Europe.

Last week BBVA agreed to sell its US assets to PNCBank in an all-cash deal for $11.6bn. The same day it confirmed it was in talks to acquire midsize domestic rival Banco Sabadell. CaixaBank hopes to complete an agreed €17bn merger with state-controlled Bankia by February or March. And Santander, which in 2017 absorbed its failed competitor Banco Popular, announced earlier this month that it is closing up to a third of its branches in Spain and buying the technology platform of disgraced German payments provider Wirecard to ramp up its online operations.

If both mergers are successful, CaixaBank plus Bankia would command 25-30 per cent of the domestic market’s loans, deposits and mutual funds, and BBVA plus Sabadell 20-25 per cent. Santander, which stresses that only about 15 per cent of its business is in Spain, is at 15-20 per cent market share, depending on the specific product.

Only relative minnows would be left in the Spanish market, two of which — Unicaja and Liberbank — are also in the process of merging.

“Spain is consolidated and pretty much done,” said Stuart Graham, founder of Autonomous Research. “The interesting thing is that there are now three big Spanish banks and each will have to look outside Spain for further expansion.” 

Politicians and policymakers across Europe have long sought to persuade the region’s lenders to consolidate a fragmented market that has lost ground in profitability and size to US and Chinese rivals since the financial crisis.

In July, the European Central Bank tried to remove several hurdles to spur activity. This included recognising an accounting gain, known as badwill, generated when a bank buys a rival for less than the fair value of its assets minus its liabilities. 

After Spain, the most active banking sector for deal talks has been Italy, where the country’s largest lender Intesa Sanpaolo’s acquired smaller rival UBI Banca in July. But further Italian dealmaking has stalled owing to the unresolved fate of Banca Monte dei Paschi di Siena, majority-owned by the state since a 2017 bailout, whose sale has been complicated by legal disputes.

In contrast, CaixaBank’s plans to acquire Bankia, the former savings bank controlled by the Spanish state after a €22.4bn bailout in 2012, appears to have triggered the latest round of consolidation in Spain.

“We are all in a similar situation,” Javier Pano, chief financial officer of CaixaBank, told the Financial Times. “Negative interest rates were the most important consideration; consolidation is one way to make a bank’s profitability sufficiently attractive to shareholders, and other entities could arrive at the same solution as us.”

However, BBVA stressed its own plans for Sabadell are far from a done deal. “There is no certainty that a decision will be taken,” said Onur Genc, BBVA chief executive, last week. “We are very early in the process and we are starting the process of analysing . . . We don’t feel forced to do anything. We already have 15 per cent market share in Spain . . . above the minimum efficient scale required to operate successfully in a country . . . We will only do it if there is value for shareholders.” 

Meanwhile, Santander argues that the key development is the shift of banking online, which has been greatly accelerated by the Covid-19 crisis.

Although Spanish banks overall have halved their number of branches over the past decade, the country still has about 50 branches per 100,000 people — one of the highest levels in the EU. The prospective mergers mean that BBVA and CaixaBank are highly likely to follow Santander in culling branches further.

“Overbanking is a legacy of the bubble that preceded the financial crisis,” said Xavier Vives, professor of Economics and Finance at IESE Business School. “And naturally as the economic perspective in Spain is worse, there is more pressure here to deal with it.”

Spanish banks also stand out for their low levels of capitalisation. At the end of last year, the four big European banks with the lowest ratios of tier one capital were Santander, Sabadell, BBVA and CaixaBank, according to a study carried out by the European Banking Agency.

Spanish bankers said this metric underestimated their financial strength. They argued that since they were primarily involved in retail, rather than investment banking, their activity is much less risky than that of peers such as Deutsche Bank. They also highlighted the considerable provisions they had made against loan losses. Amid the coronavirus pandemic this year, past due loans remain at their pre-crisis level of about 3 per cent of total loans — less than half the percentage in Italy.

Nevertheless, nervous regulators have been reassured by the plans for mergers and divestments, despite fears about unemployment and the economic outlook next year. In the case of BBVA’s sale of its US assets, the deal will increase its capital buffer from about 300 to about 600 basis points.

CaixaBank’s reserves could also benefit from its planned tie-up with Bankia. “We have a more diversified business model,” said CaixaBank’s Mr Pano. “They have excess capital, so the combination would result in a stronger and more profitable bank.”