WSJ : Kodak Says Ex-Executives Sold Stock Options They Didn’t Own

Kodak Says Ex-Executives Sold Stock Options They Didn’t Own
Company says weak controls failed to prevent former staff from exercising forfeited options in July and collecting $5.1 million

Eastman Kodak Co. KODK -3.99% said five former executives were able to collect millions of dollars by selling stock options they didn’t own, an admission that is set to add to the scrutiny the company faces over the circumstances surrounding a halted U.S. loan.

Kodak Finance Chief David Bullwinkle said on an earnings call Tuesday that the company had discovered deficiencies in its controls that had failed to prevent the “unauthorized issuance” of the company’s stock.

About 300,0000 previously forfeited stock options were exercised by the former executives in July, according to a securities filing. Kodak said it incurred about $5.1 million in compensation expenses related to the options in the third quarter.

Shares of the one-time photography juggernaut closed at $6.68 on Tuesday. The stock surged to $60 in July amid news of the federal loan. The shares tumbled after the loan was put on hold.

Kodak has determined that controls were inadequate “with regard to the timely input and verification of master data updates for equity grants,” Mr. Bullwinkle said. This resulted in errors or misstatements in employees’ equity account balances, he said.

Kodak said it would try to recover about $3.9 million from the ex-employees for the fair value of the shares at the time of the sale and about $3 million from the withholding of taxes on behalf of the ex-employees. It didn’t identify the former employees.

Mr. Bullwinkle said the error didn’t result in any misstatements of current or prior financial results and the company expects to fix its internal controls by the end of the year. The company said it would treat the event as a modification of the original option awards for accounting purposes.

The company faces several investigations by federal agencies over its handling of a planned $765 million loan from a U.S. government agency to produce drug ingredients at its U.S. factories.

Kodak’s share-price spike briefly produced a potential windfall for company executives who owned stock-option grants, some of which were granted on July 27, the day before the loan was announced.

Soon after the proposed deal was announced, the Securities and Exchange Commission began an investigation into how the company disclosed the loan. The federal agency that had teamed up with Kodak, the U.S. International Development Finance Corp., halted the deal and its own watchdog opened a review.

An internal company investigation found the company didn’t break any laws in disclosing the loan. Kodak’s review did raise corporate-governance questions, including over a $116 million gift of Kodak stock made by board member George Karfunkel on the same day the stock’s price peaked, to a religious charity he started.

Chief Executive Jim Continenza has repeatedly said Kodak will move forward with expanding its pharmaceutical business regardless of government assistance.

Under the initial plan with the government, Kodak was to produce ingredients for a number of generic drugs—including the antimalarial drug hydroxychloroquine that President Trump has touted in the treatment of coronavirus. Researchers have said the drug has no benefit as an early outpatient treatment.

FT : Sampo/Elliott: trouble at the mill

Sampo/Elliott: trouble at the mill
The Finnish insurer’s fortunes will improve faster without Nordea

Finnish insurer Sampo is named after a mythical moneymaking milling machine. It’s about time it lived up to its moniker, reckons activist investor Elliott. The hedge fund, which owns 3 per cent of Sampo, thinks it could unlock up to €9bn of value by becoming a pure play insurer. This week’s €1.2bn sale of a fifth of its 19.9 per cent stake in Helsinki-based Nordea is a good start.

The Nordea stake, gradually amassed since 2008, was sold at 12 per cent more than Sampo’s average purchase price, though below its book value. But the holding has done disproportionate damage to investor perceptions. As the fortunes of the insurance and banking sectors diverged in recent years, a hefty conglomerate discount emerged. 

Stripping out the Nordea stake, Sampo’s core insurance businesses trade at 15 times forward earnings, compared with about 20 times four years ago. Conversely, those of Nordic peers Tryg and Gjensidige now trade at nearly 21 times, nearly a third higher than back then. 

Were Sampo to sell off its remaining Nordea stake — or perhaps distribute the shares as a dividend — it may achieve the same multiples as its rivals, and possibly regain its historic premium. That could add as much as €9bn of market value. 

Then again given intensifying competition, regaining its historic premium might be too optimistic. Denmark-based Tryg plans to buy the Scandinavian business of British insurer RSA for £4.2bn. That should enable it to rival Sampo as the largest Nordic property and casualty insurer. 

Still the size and profitability of Sampo’s core insurance business impresses. Elliott, obviously a fan, describes Sampo as the best underwriter in Europe’s most attractive market. Credit goes to Torbjorn Magnusson, who ran this business for nearly two decades before taking on Sampo’s top job in January.

That sort of flattery should make him receptive to Elliott’s arguments. This week’s sale sends an encouraging signal. While a turnround is under way at Nordea, Sampo’s fortunes will improve faster without it.

FT : Swiss economists urge Bern to impose second lockdown

Swiss economists urge Bern to impose second lockdown
Wealthy state that has eschewed new curbs faces one of the highest coronavirus infection rates in the world

More than 60 prominent Swiss economists have added their names to an open letter urging the government to rethink its coronavirus strategy and impose a nationwide lockdown as Covid-19 cases across the country soar.

Bern has repeatedly said it has no intention of reinstating tough restrictions on public life. But as a result, the wealthy alpine state, with its reputation for efficiency and order, faces one of the highest coronavirus infection rates in the world.

The new signatories were added to the letter, posted online last week, warning the Swiss economy will be just as hard hit by keeping shops and restaurants open — and allowing infections to rise — as it would be by a second lockdown.

“There seems to be a pervasive misunderstanding regarding the economics of Covid-19,” it stated.

The latest data from the Federal Office of Public Health show a seven-day average of 2,361 cases per 100,000 residents, a figure greater than that for the US or the UK, and second only to the Czech Republic in continental Europe.

The situation is particularly stark given that Switzerland’s handling of the first wave was viewed by many — not least by the Swiss themselves, as polls in the summer showed — as having been exemplary.

“The numbers are just hallucinatory,” said Richard Baldwin, professor of international economics at the Graduate Institute on Geneva and one of the early signatories of the open letter. “Literally in one month, October, Switzerland went from being significantly better than the US to three times worse.”

The consensus in the governing Swiss Federal Council, the seven-person executive that represents four political parties, leans away from any new curbs on public life, however.

The council believes the current appropriate response is to stress heavily the need among the Swiss for selbstverantwortung — self-responsibility.

Officials are also now openly talking of the “Swiss variant” of the Swedish model.

Sweden eschewed a lockdown during the first wave of the pandemic and instead sought to encourage its population to slow the spread of the virus with softer, less-coercive measures.

Switzerland was one of the first countries in Europe to reopen its shops and restaurants after the first wave, and since the end of the summer, the focus from Bern has been on trying to boost the economy.

“We strongly believe that the Federal Council has made the right decision and that this time it is different to the spring,” said professor Rudolf Minsch, chief economist at Economiesuisse, the highly-influential business lobbying group. Economiesuisse is closely listened to by the Federal Council, which rarely acts out of line with the group’s advice.

“This strategy is the right thing to fight this . . . you could say it is an adapted Swedish approach.”

Treatments are more efficacious, contact tracing is in place, and across public life social distancing and hygiene measures are being followed, Prof Minsch said, so the second wave can be much more effectively controlled than the first.

The effect of more targeted restrictions that came into place in Switzerland last month, designed to curb “super spreader” events by banning gatherings of more than four people indoors and closing hospitality venues at 11pm, is only now beginning to be seen, he added. “The government is very closely following the science . . . We know that super spreader events are the key. The next few days will be crucial.”

In the past seven days, the rolling seven-day average of new infections in Switzerland has plateaued and begun to fall.

Many are still sceptical of what lies ahead, however.

“There is a false dichotomy between health and the economy,” said Florin Bilbiie, professor of economics at the university of Lausanne, and a cosignatory of the public letter condemning Bern’s current course. “If you let things get out of control as they have so quickly, then things are going to stop, especially in an economy which is service driven.

“Who is going to go to hotels or ski slopes this year with people dropping like flies?”

WSJ : Pandemic Boosts Upper End of Housing Market Coast to Coast

Pandemic Boosts Upper End of Housing Market Coast to Coast
Nearly one in four buyers who purchased homes between April and June paid $500,000 or more

The pandemic is revving up the market for expensive homes where many people are spending far more time, luring richer buyers and nudging more sales over the half-million dollar mark from northern California to the New York City suburbs.

Nearly one in four home buyers between April and June bought houses priced at $500,000 or more, up from 14% of buyers during the preceding nine months, according to a Wednesday report from the National Association of Realtors.

Home buyers during the coronavirus pandemic had a median household income of $110,800, compared with $94,400 for pre-pandemic buyers, the survey showed.

“The buyers who purchase during Covid[-19] want a larger home,” said Jessica Lautz, vice president of demographics and behavioral insights at NAR. “There’s certainly more homes being purchased that are expensive.”

The pandemic has caused the economy to sputter and businesses to close, a condition usually associated with slower home sales and lower home prices. But white collar professionals have largely avoided the worst of the downturn. Many of those who can work remotely are seeking a bigger house with more outdoor space or are buying vacation homes.


The surging demand that is pushing up home prices is also making homeownership harder to attain for lower-wage workers and for some younger buyers. First-time buyers made up 31% of all primary-home buyers in the year ended in June, down from 33% the year before and the historical norm of 40%, NAR said.

Pandemic buyers were less likely to have been denied by a mortgage lender, and many new homeowners rushed to lock in record-low mortgage rates. But the higher home prices wiped away some of that benefit, analysts say. The median purchase price for pandemic buyers jumped 26% compared with pre-pandemic purchases to $339,400, according to the survey.

NAR polled more than 8,000 people who bought primary homes in the year ended in June, though recent home sales data suggests these trends have continued since then.

Home sales had been relatively stagnant for several years heading into 2020. Then low interest rates and strong employment pushed existing-home sales to a 13-year high in February.

Shelter-in-place restrictions, financial uncertainty and fears of Covid-19 infection dampened the market during much of the spring. Home sales dropped for three straight months, hitting a 10-year low in May. The resurgence that followed surprised economists and real-estate brokers who failed to anticipate that the pandemic would spur so much new demand from buyers.

Economists at NAR forecast existing-home sales to total 5.4 million this year before jumping to 5.86 million next year, which would be the highest level since 2006.

Sacramento was the most popular destination with buyers shopping outside their own metro area in the third quarter, according to real-estate brokerage Redfin Corp.

Employees at tech companies in the Bay Area who can now permanently work from home are drawn to Sacramento for its relative affordability, said Wendy Kay, a Coldwell Banker agent.

The median Sacramento home-sale price rose 12.8% in the week ended Sept. 19 from a year earlier, according to Zillow Group Inc. Ms. Kay recently sold a two-bedroom house for $750,000. “It’s insane,” she said. “But apparently it’s still cheaper than the areas that they’re coming from.”

Home sales in Greenwich, Conn., are also booming as New York City residents shop for primary or second homes in the suburbs, said Jack Sarsen of Compass. Bidding wars and all-cash buyers have become more common.

“The mortgage buyers that we’ve worked with have really unfortunately been cut out of the deal in many cases on the homes that they’ve wanted,” he said.

The Boise, Idaho, metro area has experienced some of the fastest home-price growth in recent months. Steve and Michelle Klock, both 53 years old, bought their first home in Meridian, Idaho, in October. They got outbid multiple times before landing a three-bedroom house for $310,000.

“In a market like this, the only thing you can feel right now is fortunate,” Mr. Klock said. “If you don’t get in, every day that you sit on the sideline you could be losing as much as $5,000 a week” as prices rise, he said.

>>> US Gapping down

Gapping down
In reaction to earnings/guidance:

  • EGAN -24.4%, MODN -16.1%, DDOG -7.3% (also extends strategic partnership with Google Cloud), SILK -7.1%, GO -6.3%, APD -5.8%, COHR -3%, RXT -2.8%, RKT -2.2%

Other news:

  • ACB -17.1% (stock offering)
  • VIE -13.9% (files mixed securities shelf offering)
  • ORGO -9% (stock offering)
  • ESPR -6.6% (convertible notes offering)
  • BIGC -4.1% (stock offering)
  • ABR -2.5% (prices offering of 7 mln shares of common stock for gross proceeds of $94.5 mln)
  • FLR -2% (filed to delay its 10-Q; does not anticipate being able to file the Q3 Form 10-Q until after the filing of the Q2 Form 10-Q)
  • BNTX -2% (BioNTech and Pfizer agree to supply the EU with 200 mln doses of BNT162b2 mRNA-based vaccine candidate)
  • KROS -1.9% (stock offering)
  • CMBM -1.8% (stock offering)
  • ORIC -1.4% (stock offering)
  • PHAT -1.4% (files for $500 mln mixed securities shelf offering)
  • BSY -1.1% (stock offering)

Analyst comments:

  • PLAY -2.7% (downgraded to Neutral from Buy at Longbow)
  • AIG -1.9% (downgraded to Neutral from Buy at Goldman)
  • TT -1% (downgraded to Underperform from Buy at BofA Securities)
  • IHG -0.9% (downgraded to Sell from Neutral at UBS)
  • PNR -0.8% (downgraded to Underperform from Buy at BofA Securities)

>>> US Gapping up

Gapping up
In reaction to earnings/guidance:

  • FUBO +33.9%, LPRO +10%, ONEM +9.4%, BRKS +8.3%, FICO +6.1%, KRNT +5.6%, DOX +5.4%, LYFT +5.4%, HUYA +4.6%, SANM +4.4%, TME +4.3%, TDOC +4.3%, ADPT +4.1% (also to collaborate with GSK on clonoSEQ Assay), ASH +4%, DOYU +4%, RPRX +3.4%, ALC +3.1%, MMSI +1.8%, PRSP +1.7%, PRPL +1.3%

Other news:

  • FPRX +332.6% (announces top-line results from Phase 2 FIGHT trial)
  • SURF +10% (announces FDA fast track designation granted by FDA for SRF388 to treat liver cancer)
  • IVA +6.6% (receives positive FDA feedback to advance its lead drug candidate)
  • TLSA +6% (to collaborate with Parexel Biotech to conduct phase 1b/2 clinical trial)
  • BDX +4% (announces Health Canada authorization of SARS-CoV-2 antigen test)
  • GME +3.6% (will redeem $125 mln of its 6.75% Senior Notes due 2021 on December 11, 2020)
  • AGTC +2.7% (reports additional positive data from its phase 1/2 clinical trial in patients with x-linked retinitis pigmentosa)
  • MESO +2.5% (reports second interim analysis of clinical outcomes after 135 patients results in recommendation to continue remestemcel-L Phase 3 trial in COVID-19 ARDS) PACB +2.2% (prices offering of 7,400,460 shares of common stock at $14.25 per share)
  • MYE +1.8% (acquires Elkhart Plastics)
  • BA +1.7% (awarded $9.8 bln Air Force contract)
  • AMD +1.7% (Advanced Micro and IBM sign multi-year agreement to jointly develop AI for both companies)
  • MRNA +1.4% (announces clinical updates on personalized cancer vaccine program)
  • XRX +1.2% (Carl Icahn discloses slightly increased active stake)

Analyst comments:

  • MYO +15.6% (upgraded to Buy from Neutral at ROTH Capital)
  • ABEO +8.7% (upgraded to Overweight from Neutral at Cantor Fitzgerald)
  • DOX +5.4% (upgraded to Overweight from Neutral at JP Morgan)
  • TPR +4% (upgraded to Outperform from Market Perform at Cowen)
  • CRWD +3.4% (upgraded to Outperform from Neutral at Robert W. Baird)
  • CNHI +3% (upgraded to Buy from Underperform at BofA Securities)
  • AZN +2.2% (upgraded to Hold from Reduce at HSBC Securities)
  • YELP +1.9% (upgraded to Outperform from In-line at Evercore ISI)
  • HWM +1.7% (upgraded to Outperform from Market Perform at Cowen)
  • DHI +1.2% (upgraded to Positive from Neutral at Susquehanna)

>>> US Early premarket gappers

Early premarket gappers

  • Gapping up:
    • FPRX +284.1%, FUBO +29.1%, LPRO +10%, IVA +9.7%, ONEM +9.4%, MESO +6.2%, FICO +6.1%, KRNT +5.6%, LYFT +5.4%, TDOC +5%, TLSA +4.7%, DOYU +4.3%, SANM +4.2%, ADPT +4.1%, ASH +4%, TME +3.7%, ALC +3.5%, GME +3.3%, HUYA +3%, EPD +2.4%, DOX +2.3%, PRPL +2.2%, IVZ +2.1%, MMSI +1.8%, PRSP +1.7%, BA +1.3%, APD +1.3%, XRX +1.2%, PFE +1.2%
  • Gapping down:
    • EGAN -20.9%, MODN -15.7%, ACB -14%, VIE -13.9%, ORIC -9.3%, ORGO -8.8%, DDOG -8.8%, ESPR -8.3%, SILK -7.1%, ABR -4.4%, BIGC -2.9%, RXT -2.8%, RKT -2.3%, FLR -2%, KROS -1.9%, CMBM -1.8%, COHR -1.5%, RPRX -1.5%, PHAT -1.4%, TXG -1.2%, BSY -1.1%, BNTX -1.1%, GO -1%