TheChek News Flow

DAX:

MDAX:

SDAX:

American Airlines, United to Cut 32,000 Jobs as Washington Debates Relief

American says it will bring workers back if lawmakers approve an extension of aid to airlines

American Airlines Group Inc. and United Airlines Holdings Inc. will go forward for now with a total of more than 32,000 job cuts Thursday after lawmakers were unable to agree on a broad coronavirus-relief package, the airlines told employees.

The airlines’ moves put more pressure on lawmakers who have negotiated on and off for months over an aid package that could include relief for airlines and other hard-hit industries like restaurants and small businesses. Both carriers said they would bring workers back if a deal is reached in the next few days.

“We implore our elected leaders to reach a compromise, get a deal done now, and save jobs,” United said Wednesday night. The airline said over 13,400 employees will be out of a job starting Thursday.

American, which has planned deeper cuts than any other carrier, also told Treasury Secretary Steven Mnuchin that it will bring its 19,000 workers back if lawmakers can approve more aid in the next few days, Chief Executive Doug Parker told employees in a letter. Airlines considered postponing their cuts—something Mr. Mnuchin urged them to do earlier Wednesday.

But Mr. Parker said too much uncertainty remained.

“I am extremely sorry we have reached this outcome. It is not what you deserve,” he wrote to employees.

Conditions attached to airlines’ $25 billion in earlier government aid—approved as part of a broad economic package passed in March—had largely insulated their workers from the effects of deep declines in travel.

That aid was meant to help airlines manage through what they hoped would be a temporary crisis without resorting to mass layoffs. While air-travel demand has climbed from the depths it reached in April, it remains nearly 70% lower than a year ago. Analysts forecast that U.S. airlines will lose $30 billion this year, according to FactSet data.

So while tens of thousands of workers opted to retire early or took buyouts as airlines scrambled to cut spending, most have been able to stay in their jobs until now.

Airlines have raised billions of dollars from capital markets and in some cases from additional government loans, and are in little danger of imminently running out of money. But they say they don’t want to pay workers they don’t need while they are burning through millions of dollars a day and flying a fraction of their usual schedules.

Airlines and their labor unions have lobbied aggressively for another $25 billion to pay workers for another six months, and continued the push into the final hours of negotiations on Wednesday.

While Republicans and Democrats both supported aid to airlines and several other items under consideration, they have remained split on other issues and have been unable to come to terms on how much to spend overall.

Mr. Mnuchin and House Speaker Nancy Pelosi (D., Calif.) renewed their stalled negotiations this week, though they failed to reach an agreement Wednesday afternoon. Still, Democrats and the White House continued to seek common ground. The House of Representatives opted to delay a vote on a $2.2 trillion coronavirus-aid package, which Democratic aides said would allow the two sides to keep talking. As it stands now, the legislation has no chance of passing in the Senate.

Labor unions, whose members have picketed and inundated lawmakers with letters and tweets, also said they plan to continue ratcheting up their efforts.

American and United account for the bulk of the job cuts scheduled for this week, though a few other carriers have planned smaller reductions. Allegiant Air said it remained optimistic and decided to hold off on the 275 job cuts it had planned. Hawaiian Airlines said it would go ahead with its furloughs.

Several airlines have whittled down the number of jobs they plan to cut, offering buyout and early-retirement offers and striking deals with unions to cut costs. Some, including Southwest Airlines Co., aren’t planning any furloughs at all this week, though they have warned they might not be able to avoid them indefinitely without aid.

United, which initially warned 36,000 workers that their jobs were at risk, struck a deal to delay any furloughs of pilots until June.

Both United and American are set to receive larger-than-expected loans from the Treasury under a government loan program set up in the Cares Act passed in March, separate from the aid for worker salaries. United said Wednesday that it has secured a $5.17 billion term-loan facility and has been told the Treasury will increase that to as much as $7.5 billion. United said it had already drawn $520 million. American said last week it had secured a $5.5 billion loan facility that could also be increased to $7.5 billion.

Lawmakers have also introduced a pair of bills in the House and Senate that would focus solely on aid for the aviation industry, which could gain more traction in the coming days, though some industry observers have said it might be more difficult to pass legislation that benefits only one industry.

For workers, the last-minute wrangling has added to months of uncertainty about their futures. “I’m scared,” said Leo Valladares, a flight attendant set to be furloughed this week. The coronavirus outbreak in Asia was barely on his radar when he began training in February after two years with a smaller carrier. Now he is faced with spending his savings as he looks for work.

A move by the German government to phase out Huawei as a supplier of 5G telecoms equipment would be a huge blow to the Chinese company’s international ambitions. Germany, like the UK, has been one of Huawei’s key markets for expansion outside mainland China and its deals with companies such as Vodafone and Deutsche Telekom have helped turn it into the world’s largest supplier of telecoms equipment. MPs who have seen the new bill say it will introduce a two-stage approval process for telecoms equipment, involving a technical check of individual components combined with a political assessment of the manufacturer’s “trustworthiness”.

“The German parliament requires the legal means to be able to exclude untrustworthy suppliers like Huawei from the 5G buildout, and this new law appears to do just that,” said Nils Schmid, foreign policy spokesman for the Social Democrats, a junior partner in Ms Merkel’s coalition government who has called for a tougher approach to Huawei. The bill is not yet finalised and may still undergo technical changes. But it is already clear that it will make it almost impossible for Huawei to participate in Germany’s 5G programme. “How can Huawei, a company with suspected links to the Chinese state, pass a political trustworthiness test?” said one MP involved in the discussions on the new law. “It’s impossible.”

The bill also envisages a key role for Germany’s intelligence services, which have long been sceptical about Huawei. “In its current form [the bill] envisages that when doubts arise as to a company’s trustworthiness then the government can investigate it, using information provided by the intelligence services,” said Thorsten Frei, an MP with Angela Merkel’s CDU/CSU. Germany joins a growing group of countries that have moved to impose restrictions on Huawei, which critics believe could be used by Beijing to conduct espionage or cyber sabotage. Washington has repeatedly cited a law obliging Chinese companies and citizens to aid the state in intelligence-gathering. Huawei has denied that it is a tool of the Chinese government.

In July, the UK government banned operators from buying new 5G equipment from Huawei from the end of the year, while France has created regulatory hurdles designed to steer telecoms operators away from using the company’s kit. The US government has been pressing its allies in Europe to drop Huawei as a supplier for several months. Last year the US warned it would scale back intelligence-sharing with Germany unless Berlin blocked Huawei. “The American pressure has been just brutal,” said one senior German official. On Wednesday, US secretary of state Mike Pompeo used a trip to Rome to warn the Italian government that Chinese technology companies “with ties to the Chinese Communist party” were a threat to Italy’s national security and the privacy of its citizens.

Ms Merkel has resisted US pressure to impose an explicit ban on the Chinese company, telling the FT earlier this year that it was wrong to “simply exclude someone per se”. Instead, she has sought to tighten the country’s security requirements towards all telecoms equipment providers and diversify suppliers. But she has faced a rebellion from her own party, which has demanded a much harder line on Huawei — as have the Social Democrats and opposition Greens. Huawei declined to comment on the new German law, stressing that the bill had yet to be finalised. It said it was a “purely private company” that was co-operating with the German security authorities and could “see no plausible reasons to limit our access to the [German] market”.

Deutsche Telekom and Telefónica, two of Germany’s biggest mobile operators, declined to comment. Vodafone said it would “continue to monitor the situation and will always comply with regulations”. All three companies have used Huawei equipment for their mobile and fixed line networks and that has continued into the 5G era. In recent years the operators have signed deals to use the Chinese company’s kit for radio access networks (RAN) — the equipment that sits on masts and rooftops to connect phone calls. But even before the new bill was being finalised, the companies had started to move away from using Huawei systems in the “core” — the intelligent part of the network where customer information is processed.

Heels or hoodies? How workwear is changing

Many enjoyed the brief return to smarter clothes but, as WFH is extended, will suits be swapped for sweatpants again?

When I returned to the office in the summer, I went straight back to my old Givenchy handbag,” says Rachael, 31, a London-based management consultant at one of the Big Four. “I hadn’t used it in so long that inside I found the boarding pass from the flight I took home from my last project. It was crazy; the US had just announced it was closing the air bridge, so I had to get out ASAP.”

On her first day back in July, with a client meeting in the diary, Rachael took a Sandro knit dress out of its dry-cleaning plastic and paired it with a smart cardigan blazer and ballet flats. “It actually felt really nice to get dressed up again,” she says. “For me, clothes are how I feel more confident and powerful.”

Rachael was one of several lawyers, bankers, civil servants and consultants I spoke to a fortnight ago about dressing to go back to the office. For many, rediscovering forgotten shirts, trousers and even ties, with all their promise of the outside world, had become a relief and an occasion. Even if they were coming in to work just one or two days a week, the psychological shift was palpable.

But then Boris Johnson decided it would be better for us to return to working from home again, where possible.

Where does that leave our workwear? Will brogues go back in their boxes? Will ties be tossed in the trash? A friend who had returned to her desk near St Paul’s for just one day since lockdown had immediately succumbed to that time-honoured ritual: the emergency LK Bennett lunch-hour shoe purchase. “That’s £250 for some heels I won’t wear again in 2020,” she grumbles.

Workwear was already in flux before lockdowns began. Suits were becoming less popular (since 2016, suit sales in the UK have fallen by more than 24 per cent to £397m at the start of 2020, according to Kantar), and attitudes at big banks and city law firms had relaxed even before “waist-up dressing” took hold, with Goldman Sachs announcing a “firm-wide flexible dress code” in 2019.

Lately, there has also been a disconnect between what luxury retailers are promoting as the “new workwear” and what we will really put on in the mornings. As lovely as Net-a-Porter’s suggestion of a Bottega Veneta knitted dress with Khaite red satin mules might be, is anyone really going to wear them for a day Zooming from home?

And for every person who can’t wait to inhale the crisp, chemical tang of a dry-cleaned dress, there is another who has relished the decreased formality ushered in by lockdown. As offices partially reopened this summer, many kept it casual unless they had meetings; I even heard tell of hoodies and bare arms. Why wear a suit if you’re enclosed in a cubicle, in a near-deserted space where no one can hear you scream, let alone admire your cufflinks?

A civil servant friend who swapped black trousers for black jeans when she (temporarily) returned to Whitehall pointed out that formality’s fourth wall has now been breached. For many, the professional persona projected by heels and tailoring has been replaced by more rounded, domestic impressions of colleagues via glimpses of kids, cats and questionable interior-design choices.

“It’s a cliché but the lockdown has accelerated existing trends,” says one male thirtysomething lawyer at a City law firm. “Even five years ago it would be odd for a male associate to walk around with an open collar if away from his desk. Now it looks more unusual if they are wearing a tie.” He adds, however, that while there was a fleeting “semi-proper” return to office working, most people were at least wearing chinos and a button-up shirt.

At home, not everyone has surrendered to sweatpants. Gerald Onuorah, a technology manager at Bain & Company, isn’t letting standards slide just because he’s been out of office.

On our call he looked pretty dapper in purple braces, a purple tie and a purple-and-white striped shirt by Collarbone London, the customisable shirt brand he set up in 2018. “At home in lockdown I would dress up just to say, ‘This is work time.’ I do wear a shirt, braces and a tie every day.”

He says that with no immediate return to the office in sight, he will “continue wearing a shirt, braces and tie, but no suit because it can be quite uncomfortable”. He thinks the shirt will increasingly become the focal point of the professional wardrobe.

With Collarbone, he has noticed, “there’s a lot more traction in the last few months. Shirts have become the new formal item and not just traditional white, blue and pink. People are getting bolder with their choices.”

Laura Vandendorpe, a consultant at Bain in her twenties, thinks that, long term, “office workers, especially women, won’t be used to formal or uncomfortable clothing any more. I think the biggest impact in our industry, where business-casual will continue to be the norm due to client meetings, might be the shoe etiquette for women. I think it will become perfectly acceptable for women to wear flat shoes or even sneakers to the office.”

Others echo this reluctance to suffer the discomfort of heels.

When Vandendorpe briefly returned to her near-empty offices on the Strand in central London this summer, she relished the opportunity to wear hoodies and less make-up, and match her clothes to the weather rather than the dress code. She expects to see more variety in how people express themselves: “Some will be more casual but others will want to find their own style of formal.” As we have more flexible working, so too more flexible wardrobes.

Rachael’s Givenchy handbag might be going back in its dust-bag, but she won’t give in to waist-up dressing just yet. It turns out that many of us have more affection for our workwear than we thought.

“I have had a lot of virtual workshops and even though they can only see half of my body, I am wearing a dress, I’ve got a headband on,” she says. “It still changes the way you act and gets you in the mindset.”

H2O suffers payment problems on illiquid bonds

Luxury lingerie maker La Perla missed 7.25% annual interest payment in March

H2O Asset Management has faced serious payment issues on illiquid bond investments this year, including an unpaid interest bill from an Italian lingerie maker that appeared to constitute a default.

The €22bn investment firm, which is a London-based subsidiary of French bank Natixis, froze a series of its funds at the end of August after France’s financial regulator raised concerns about the valuations of its sizeable investments in hard-to-sell bonds.

The rare regulatory intervention came more than a year after the Financial Times first revealed that H2O had substantial investments in private bonds linked to Lars Windhorst, a flamboyant German financier with a history of legal trouble.

One of these investments — a bond backing luxury lingerie maker La Perla — missed a 7.25 per cent annual interest payment in March, according to filings. 

H2O’s funds have been the largest holder of this €500m bond, with its flagship MultiBonds fund alone owning €162m at the end of 2019. The investment firm is also a main shareholder of the underwear maker, while using both La Perla’s bonds and shares as collateral backing a complicated series of trades with small brokerages.

La Perla has struggled financially for years and the auditors of the group’s holding company La Perla Fashion Holding issued a warning over the company’s ability to continue as a going concern for 2019. La Perla's core business lost €89m in 2019, according to annual results published in May.

H20 has consistently cited the substantial interest it earned on private bonds such as La Perla, describing their “high yield” in a letter to investors last month. Bruno Crastes, the asset manager’s chief executive, said in June 2019 that their relationship with Mr Windhorst gave his firm “access to very innovative companies that pay extremely high returns and have very high chances of success”.

H2O’s fund filings and other recent public communications to investors do not appear to make any reference to the missed payment, however. In contrast, another asset manager holding a much smaller €2m position in the bonds — Belgium’s Merit Capital Global Investment Fund — disclosed the payment failure by La Perla in its recently filed semi-annual report.

This document said that the La Perla bond had still not paid interest at the time of this June 2020 report, which under the terms of the bond “would give rise to immediate repayment of capital and interest”. Terms and conditions of the La Perla bond separately seen by the FT outline that “non-payment of interest” is an “event of default”, if not remedied within 30 days.

A spokesman for Merit Capital, which manages the fund, said that its position in La Perla has now been sold with “accrued interest including the coupon in full”.

H2O declined to comment on the status of its coupon payment, citing “confidentiality reasons”. “H2O always acts in the best interest of its investors and will seek to protect their rights with any appropriate action,” the asset manager said. “H2O will continue to keep its investors informed.”

Another Windhorst-related bond in H2O’s portfolio — Latitude Finance — has failed to meet its redemption deadline this year. The debt was scheduled to be repaid in full in August, but filings show there has now been a 90-day maturity extension until November.

Formerly known as Chain Finance, H2O was the largest investor in this €500m bond that Lars Windhorst raised in 2017. It provided vital funding at a time when the financier was trying to settle a number of disputes, which included a lawsuit linked to the former energy minister of Russia.

Merit Capital is separately embroiled in a dispute with H2O over its alleged role in a series of complicated trades involving illiquid bonds. The semi-annual report from its fund notes that the Belgian regulator considered its own investments in Windhorst-linked bonds as “ineligible”.

A spokesman for Lars Windhorst said his firm had already redeemed the “majority” of both sets of bonds, with the remainder to be repaid in the “coming weeks”. “We expect the remaining Latitude bonds to be redeemed by November 11,” he added. “We are not aware of any bondholder whose coupon has not been paid.” 

World’s third biggest equity market shut down for entire day due to system error

Tokyo’s stock exchange suffered its worst outage since it shifted to fully electronic trading in 1999, as a system error knocked out the world’s third-largest bourse for a full day and threw investment strategies into chaos.

Thursday’s shutdown, which fell on a critical day of economic data releases and portfolio rebalancing, affected more than 2,500 stocks listed on exchanges run by Japan Exchange Group. The company is Asia’s largest operator in terms of listed companies’ market capitalisation. 

The exchange announced the halt shortly before the market was due to open at 9am. It later said the closure would last for the full day.

The outage — the first to impact all listed stocks on the TSE since one in 2005 that lasted part of the day — also hit exchanges in Nagoya, Fukuoka and Sapporo, which use the same underlying cash equity trading system built by technology group Fujitsu. It was unclear, however, whether the problem arose from a separate data management system that was not designed by Fujitsu.

A spokesperson for Fujitsu told reporters the company was investigating. A JPX spokesman said it had ruled-out hacking or a cyber attack.

Japan’s chief cabinet secretary, Katsunobu Kato, said the shutdown was “highly regrettable” as it curtailed investment opportunities.

Derivatives trading continued as normal on the Osaka Exchange, which is owned by JPX but relies on different systems.

JPX said it did not know whether trading could resume on Friday, leading brokers and market strategists to predict intense volatility when it does eventually restart. JPX also halted activity on ToSTNeT, its platform for off-auction transactions, and said it would announce later on Thursday its plans to restart it.

A spokeswoman for Nomura, Japan's largest brokerage, said it was taking customers' orders but warning them that trades might not go through. 

The TSE suffered a series of embarrassing glitches in the mid-2000s but had been relatively stable since 2010, when it introduced Fujitsu’s “Arrowhead” trading system. The last time it was forced to suspend all share trading was in 2005.

The outage comes on a day when equity volumes would traditionally be high, said brokers. October 1 is the first day of both the new financial quarter and the second half of Japan’s financial year. That means funds are often active as they adjust portfolio weightings. 

The Bank of Japan also released its closely watched Tankan survey, a quarterly report that investors use to gauge the mood and outlook of companies. The Tankan, released shortly before trading should have begun, showed sentiment among Japan’s big manufacturers was improving less quickly than expected.