TheChek News Flow

* Aalberts NV Raised to Buy at ABN Amro Bank; PT 39.75 euros (+)

* Commerzbank Raised to Buy at Citi; PT 5.40 euros (+)

* Lonza Shows ‘Impressive’ First-Half Momentum, Jefferies Says (+)

* Schindler 1H Results ‘Robust’ but Guidance Could Disappoint: MS (+)

* Sulzer 1H Results Show High Order Intake and Order Backlog: ZKB (+)

* Vodafone 1Q Beat, Guidance Reiteration ‘Reassuring:’ Goldman (+)

European aerospace group has agreed with France and Spain to amend launch aid arrangements

Airbus announced on Friday that it had moved to eliminate subsidies deemed illegal by the World Trade Organization, in the latest move to end a long-running dispute with the US over state aid to aircraft manufacturers.

The company said it had agreed with the governments of France and Spain to amend launch aid arrangements that have been at the centre of the dispute, which had led the US to target products from French wine to aircraft parts in retaliation against the state support.

Launch aid is a form of subsidy designed to help manufacturers develop new models. 

“After 16 years of litigation at the World Trade Organization, this is the final step to stop the longstanding dispute and removes any justification for US tariffs,” Airbus said in a statement.

“The tariffs imposed by the United States Trade Representative (USTR) are currently harming all targeted industry sectors, including US airlines, and are adding to a very difficult environment as a consequence of the Covid-19 crisis.”

The move is set to be welcomed by Brussels, which has sought for months to reach a settlement with the US to end the dispute.

Phil Hogan, EU trade commissioner, has bemoaned the lack of engagement by the Trump administration in coming to an agreement. The EU has a parallel action at the WTO against aid for Boeing, with a decision expected in September on the volume of retaliation the bloc can take against US products. 

Washington was awarded the right to impose punitive levies of as much as 100 per cent on $7.5bn of European goods — the result of a WTO decision last year that the EU had failed to eradicate illegal support for Airbus aircraft. The US has ratcheted up those levies in stages, with the next deadline falling in August.

Big withdrawals at start of pandemic have seen many investors miss out on market rally

US equity outflows for the week to Wednesday have brought the amount withdrawn from stock funds in 2020 to more than $20bn, illustrating investors’ caution over re-entering the market after a sell-off this year.

The $3.2bn in redemptions from mutual funds and exchange traded funds over the past week brings the amount investors have put back to work since the stock market rally began in March to $17bn. That is just over a third of the $45bn that was withdrawn between the market peak in February and the start of the rally five weeks later, according to data from EPFR Global.

The rapid exit from US stocks as the coronavirus pandemic hit financial markets means many investors have missed out on much of the rally that has added 45 per cent to the value of the S&P 500 since late March, bringing the benchmark above the level at which it began the year.

“It’s really easy to go to cash when you’re scared but it’s almost impossible to come back out at the right time,” said Liz Young, director of market strategy for BNY Mellon Investment Management.

The increase in valuations may also make it hard for investors to find undervalued corners of the market to put money to work, she said. “The big tech names and the sectors that have driven the rally so far are not going to look as attractive.”

Investor caution has increased the appetite for safer parts of the fixed-income market. US investment grade corporate bond funds had $1.6bn in inflows for the week, pushing the amount of new money that has flowed into the funds above $50bn this year.

The inflows helped push the yield on investment grade debt below 2 per cent this week for the first time, according to an index from Ice Data Services.

“Even as corporate bond yields hit new all-time lows, dropping below 2 per cent for the first time ever, the demand backdrop for credit looks strong,” said Shobhit Gupta, head of US credit strategy for Barclays. “After outflows in March and early April, inflows to credit funds have remained elevated despite declining yields given the lack of more attractive alternatives.” 

Investors have pointed to the recent drop in real yields on US Treasuries, which measure bond returns once the effects of inflation have been stripped out, as a signal that the Federal Reserve will continue to be supportive of financial markets for the foreseeable future.

The Fed has already rebuffed the idea that it will raise interest rates any time soon and in recent public appearances officials have hinted at the need for additional stimulus. Some investors think new policies could be announced as early as the central bank’s meeting next week.

Additional support from the Fed could provide a boost to equity markets, investors say, pouring fuel on the recent rally. 

“Fixed-income valuations are even less attractive than stock valuations,” said Ms Young. “If we get a vaccine you’ll see a steepening of the yield curve and another huge move from cash into equities.”

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Court Records Reveal Neiman’s Store Closings

The closures include the retailer’s store in Hudson Yards.

The other three department stores that will close are in Bellevue, Wash.; Palm Beach, Fla., and Fort Lauderdale, Fla.

The four department store closings and 17 Last Call closings were listed in court documents indicating leases that are being assumed or rejected.

But it’s likely there will be additional store closings determined in the future. Neiman’s has been working with A&G Real Estate Partners to market the Neiman Marcus department stores in Walnut Creek, Calif., and Mazza Gallerie in Washington, D.C., along with the Palm Beach and Bellevue units.

The Neiman Marcus Group includes 42 Neiman Marcus department stores and two Bergdorf Goodman emporiums, as well as 22 Last Call outlets.

Neiman’s has for awhile been in talks with Related Companies., co-developer of Hudson Yards, on replacing the Neiman Marcus space with Facebook offices. Facebook is already a major tenant at Hudson Yards.

“While we have no other store closures to announce at this time, we will continue to assess our store fleet throughout the restructuring process. We will communicate any additional decisions as they are made,” Lana Todorovich, president and chief merchandising officer of Neiman Marcus, told vendors in a letter Thursday, a copy of which was obtained by WWD.

Todorovich also wrote, “The closing of these select stores is a difficult action but it will optimize our market presence and ensure the long-term success of NMG. Final closing dates have not been determined yet, but we anticipate these stores closing in the fall.

“The COVID-19 pandemic reaffirmed the importance of our stores in the context of our digital ecosystem,” the chief merchant added. “The pandemic also gave us the opportunity to build and nurture customer relationships through digital sales which helped us gain market share. We are purposefully focusing on the stores that maximize customer relationships and increase profitability.”

Updating the status of the store fleet, Todorovich said, “As of this week, we have successfully reopened 31 stores for customer traffic and 42 stores for customer appointments. We strategically paced our reopenings and took a very deliberate approach for the safety of our teams and clients with the goal of building our ecosystem to develop and nurture our customer relationships. These reopenings have been very successful and feedback from our customers continues to be positive. Our sales associates also continue to connect with our customers digitally, serving them via NM Connect. Over three months, customers have purchased more than $60 million through Connect.”

Neiman’s assessment of stores involves ways to monetize locations and not necessarily close them. Decisions would depend on Neiman’s outlook on the stores, their profitability, bankruptcy proceedings and negotiations with landlords.

Neiman’s filed for Chapter 11 bankruptcy on May 7. Bankruptcy enables retailers to get out of leases without penalty.

Sources have cited Neiman’s downtown Dallas, St. Louis; Natick, Mass., and Westchester, N.Y., as units that could be candidates for closure.

The Neiman Marcus Group also includes the Mytheresa and Horchow direct-to-consumer businesses.

The company, through its Sparc Group, offered a $305 million going-concern bid.

Jamie Salter has made another bold move in his quest to buy Brooks Brothers.

The chief executive officer of Authentic Brands Group has stepped forward with a $305 million stalking-horse bid to purchase the venerable retailer.

Thursday night, Brooks Brothers revealed that it filed a motion in the United States Bankruptcy Court for the District of Delaware to obtain court approval of an asset purchase agreement with Sparc Group LLC, a company backed by ABG with its partner Simon Property Group.

The bid is to purchase substantially all of Brooks Brothers’ global business operations as a going concern and includes a commitment to acquire at least 125 of the company’s retail locations.

The agreement is subject to court approval and any higher or better offers as part of the retailer’s ongoing auction process.

A court hearing to approve the stalking-horse bid will take place on Aug. 3. Brooks Brothers is requesting that the deadline for competing offers be set for Aug. 5 and that a hearing to approve the sale take place on Aug. 11.

But Sparc won’t be without competition. WHP Global, the new brand management firm that has so far purchased Anne Klein and Joseph Abboud, is still hot on owning Brooks Brothers.

On Thursday night, Yehuda Shmidman, chairman and chief executive officer of WHP, said: “It’s early innings in the Brooks Brothers bankruptcy sale process. The next key date is the auction. Our company, WHP Global, backed by Oaktree Capital and BlackRock, is a bidder. We are big believers in the power of the Brooks Brothers brand, the global footprint and the management team. We’re looking forward to competing at the auction — that’s when the future of Brooks Brothers will be determined.”

WHP had initially agreed to provide Brooks Brothers with debtor-in-possession financing when the company filed Chapter 11 in early July, effectively positioning itself as the unofficial stalking horse. But a few days later, ABG and Simon swooped in with a slightly larger DIP package, elbowing WHP into the back seat.

Also interested in acquiring the brand is a group of Italian investors, Club Deal 8, spearheaded by entrepreneur Luciano Donatelli and including online retailer Giglio Group, the Biella-based Gruppo Verzoletto, and a silk group from Como that has requested anonymity for the time being.

In each case, the potential acquirers point to Brooks Brothers’ long history — 202 years — and American roots as among its key attributes. And although most believe the company needs to be modernized and increase its online presence, its heritage is undeniable.

Sparc operates more than 2,600 stores and shop-in-shops in North America, South America, Europe, and Asia Pacific. It is the dedicated operating partner for the Aéropostale and Nautica brands and oversees businesses with more than $2.7 billion in annual global retail sales.

The Row has shed up to half its staff, according to sources, and is weathering financial difficulties that could see it reduce general operations.

The Row, , the luxe minimalist brand founded by Ashley and Mary-Kate Olsen, is weathering financial difficulties, layoffs and the scaling back or closure of its short-lived men’s wear line, according to sources.

Despite numerous accolades, the Olsens’ reputation as arbiters of taste and CFDA Award wins and nominations — including those released this week, for Womenswear Designer of the Year and Accessories Designer of the Year —sources say the brand’s finances have long been choppy and that the current global economic crisis resulting from the coronavirus has been a further blow to the label.

When reached for comment regarding its business, The Row issued a statement to WWD saying it is, “actively producing the pre-fall 2020 and fall 2020 collections, developing the spring 2021 collection and working on its expansion plans for 2021 and beyond.”

“Like all retail brands, the company responsibly reduced overhead to address what we all hope will be a temporary disruption of the supply chain due to the global pandemic,” the statement said. “The Row is steadfastly committed to and maintains a diverse and inclusive workplace. We are not going to comment on the other inaccurate gossip about our business, other than to say we are excited about The Row’s future, including our men’s wear line, accessories, our e-commerce business and our future profitability.”

Following global COVID-19 lockdowns, The Row made extensive cuts to its staff, according to sources, by one account slashing 50 percent of all jobs. Among those said to have exited were head of women’s design Anna Sophia Hövener, and founding head men’s wear designer Paul Helbers, while a fleet of other design, sales and development positions were eliminated. Those cuts followed the October ouster of president David Schulte, who has since filed a sealed lawsuit against the sisters, their label and its parent company Dualstar Entertainment.

The job reductions came on the heels of Barneys New York’s bankruptcy last year — the court filings from which revealed that The Row was owed $3.7 million in outstanding debts. Barneys was among The Row’s biggest wholesale accounts, and the brand was the store’s second-biggest debtor — even outpacing two of the retailer’s landlords.

But even as third-party retail continues to decline globally, The Row has not made a major push to develop its own e-commerce channels, which some sources pointed to as one of the reasons for its current woes.

Some say the departure of Helbers, formerly head men’s designer for Louis Vuitton and Maison Martin Margiela, represents the end of The Row’s experiment with men’s wear — a launch charted in August 2018 at Schulte’s insistence, according to a source. The concept never quite got off the ground and was underperforming at retail, they said. Helbers did not respond to requests for comment.

When New York City entered phase one of reopening, between 10 and 12 members of The Row’s design and development team — a group that originally stood at around 30 people — were called back to the office to begin working on new collections. Among those called back were the label’s in-house patternmakers, according to a source.

It is understood that with the teams called back, Ashley is now serving as the company’s ceo, while Mary-Kate is creative director.

A source said at one point it appeared that The Row would shift its operations to Milan to be closer to its handbag and shoe development sites — two of the label’s biggest categories — but it appears the brand’s headquarters are staying put in New York for now. One source said The Row’s longtime leather supplier had some trouble getting paid and recently received notice from the brand terminating their working relationship.

Financial hardships aside, The Row has also seen internal turmoil regarding racial inequity, according to a source, who noted that the brand does not employ any Black professionals in its corporate headquarters and has very few employees of Asian decent. The source said that Asian employees were often excluded from promotions and raises even after years of working for the company. After the company’s recent round of layoffs, the source is unsure if any people of color remain on staff.

When asked to confirm or deny specifics relating to this story and their accuracy, The Row declined further comment.

The Row has long been regarded for its carefully crafted, guarded image — the kind of label that avoided discounting in order to maintain an aura of exclusivity. The brand’s fashion shows are attended by a curated list of fashion figures and are organized as refined, meditative experiences. The company’s Instagram is often cryptic, posting photos of minimalist artworks and archival photos.

All things considered, one would not expect to encounter The Row’s designs at discount retailers. However, one well-placed source said that in recent months The Row liquidated a considerable amount of merchandise to off-price channels in order to drum up a much-needed spurt of cash. The brand is still operating two flagship stores, one in New York and the other in Los Angeles, which are well-respected for their environmental approach to retailing and tasteful assortment. Both locations are currently open for shopping.

Throughout the label’s history, The Row has done well at producing some high-margin accessories, like its signature Ascot bag — a piece of silk knotted into a hammock shape that retails for around $1,000. The label also sells velvet Furlane gondolier shoes, versions of which cost around $20 at stores across Italy, for the retail price of $550. Recently, more of that product had ended up on sale racks at luxury stores.

But as The Row faced financial trouble, sources say that Ashley and Mary-Kate continued to spend lavishly — even installing a fur bed in the middle of their studio office that no one sat on. This summer, Mary-Kate became enmeshed in a high-profile divorce from Olivier Sarkozy, and was reported to spend $325,000 on a summer Hamptons rental to hide out in during COVID-19 lockdowns this summer. The designer has since been photographed back at work outside The Row’s corporate headquarters.

Wealthy buyers snap up ‘safe haven’ private islands as they flee pandemic

Demand surges for private hideaways even as global economy goes into a deep recession

With its pristine beaches, coral reefs and 32 acres of lush tropical gardens, Fiji’s Mai Island could be the perfect place to hunker down and see out the coronavirus pandemic. And for a few million dollars it could be yours.

The island, which has previously been on the market for just over $4m, is one of a host of offshore retreats being marketed to the super-rich as ideal spots to escape the ravages of Covid-19.

The South Pacific, Caribbean and remote parts of the US and Europe are among the most popular destinations, according to real estate agents who are rushing to tap the surge in demand for private hideaways even as the world economy goes into a deep recession.

Trayor Lesnock, founder of Platinum Luxury Auctions, which is conducting the online sale of Mai Island on Saturday, said the pandemic had led people to reassess their lives and pursue the things they had fantasised about but always held off from doing.

“Owning an island has long been considered cool and desirable but it’s often been a whimsical dream,” he said. “But with Covid-19 it’s starting to look a lot more practical, as people rush to find private spaces for themselves and keep a distance from others.”

It is not just tropical paradises with fabulous weather that are tempting the wealthy. A mystery buyer last week snapped up Horse Island, a 157-acre private hideaway off the south-west coast of Ireland that had a €5.5m asking price. As well as an extensive main residence, Horse Island has six guest houses, a tennis court, helicopter pad and enough space for anyone who wishes to socially distance during a pandemic.

“There’s obviously a thought process in people’s minds — particularly those that can afford these multimillion-euro properties — that they can just get away and self-isolate,” said Callum Bain, a surveyor at Colliers International, the real estate agent that helped sell the island. 

He said he did not know the buyer’s motivation but pointed out that Horse Island was previously an agricultural holding — meaning the new owner would be able to grow enough food to be self-sufficient if they wanted to. Its location close to an airport in nearby Cork city was also an attraction for anyone with access to a private jet, he added.

But Covid-19 has thrown up complex travel challenges for would-be buyers tempted to relocate offshore, even for those with their own transport. Some nations, including Japan, New Zealand and Australia, have closed their borders to non-residents, making physical viewings of potential island purchases impossible in some cases.

The new owner of Horse Island reportedly bought it without visiting in person, while potential foreign-based bidders for Mai Island will not be allowed to set foot there before putting in an offer.

“We’ve sold some less expensive islands in Scandinavia and Canada recently to buyers who looked at photos and bought the properties,” said Farhad Vladi, a German businessman who said he had sold more than 3,000 islands in a career spanning 50 years. “But people generally want to visit more expensive islands before they buy.”

He agreed the pandemic had led to a spike in interest among high-net worth individuals looking to acquire their own island, but noted how the ultra-rich often preferred to rent their offshore hideaways due to security concerns, particularly if they were well-known.

He also insisted that owning your own private island was not as far-fetched as many people would have thought. “You don't need to be a billionaire to buy an island. If you’re able to buy a very good car you can buy an island,” he said.

For example, a small island off the coast of Finland was currently for sale via Vladi Private Islands for less than €100,000. At the other end of the scale, a 1,100-acre Greek island retreat in the Ionian Sea would set you back €45m.

Agents said private islands in countries that had avoided the worst of the pandemic were proving popular with would-be buyers, with Australia, New Zealand and the South Pacific islands remaining relatively virus free.

Pumpkin Island, an eco-retreat in Australia’s Great Barrier Reef Marine Park that was put on the market with a price tag of A$25m, was described by its current owners as a “safe haven” from the pandemic.

“We’ve weathered the [coronavirus] storm well and people are looking for places where they will have space and where they don’t feel like they’re on top of someone else . . . I definitely think that’s an attraction,” said Laureth Rumble, whose family owns Pumpkin Island.

Whether the price tag can be met remains to be seen given that non-residents are currently not allowed to enter Australia. But opportunities to own such a home do not come around very often: the Rumbles bought Pumpkin Island 17 years ago for A$1.3m from the previous owner who had won it in a poker game in 1961.

“We’ll be very sad to leave,” Ms Rumble said. “It’s just stunning.”

Recent letter from Randal Quarles points to heavier regulation for asset managers

The note sent on July 14 by the Federal Reserve’s vice-chair Randal Quarles to other central bank governors and finance ministers reads like one of those anodyne diplomatic demarches that trade hands just before a major war.

The note, written on the heading of the Financial Stability Board, is a warning directed against hedge funds, big asset managers and anyone else Quarles and the Fed believe to be responsible for the approaching apocalypse in the fixed income markets.

Like submariners watching the depth gauge swing down to crush depth, bond traders and the Fed are trying to calculate when sinking yields on five and 10-year bonds will get within 10 or 20 points of zero. Right now they are about 60 basis points, having reached a high of 90 after the March Covid-19 crisis.

When the 10-year gets close to zero, transaction costs will keep even the big banks from making any margin by buying Treasuries. Then the system breaks down. Maybe just after Election Day. Nobody is sure.

The July 14 Quarles letter lays out a plan for who will take the blame when that happens.

After the usual niceties for fellow FSB regulators, Mr Quarles gets down to the point, which is “reinforcing resilient non-bank financial intermediation (NBFI)”. As Mr Quarles puts it, the Covid-19 crisis “has highlighted vulnerabilities in the NBFI sector related to liquidity mismatches, leverage, and interconnectedness, and investor behaviour to certain funds that they treat as cash equivalents during economic calm, but not during crisis”.

Here is what that means: since the liquidity crisis in the short-term funding markets that started last August, fixed income investors, some of them in very large hedge funds in Chicago and New York, saw that they could make a steady income by using strategies such as “gamma scalping”, or selling offsetting puts and calls on Treasuries on the assumption that the Fed would support the market and suppress volatility.

Gamma scalping like positions dribble out lots of small profits from option premium less the loss of time value. The risk is of a sudden move in Treasuries prices out of the range set by the option contracts, which can expose the house to catastrophic loss. But since the assumption was that the Fed would continue to suppress volatility, the strategy was like an annuity.

Until coronavirus. In March, as the panic and lockdowns hit the world, emerging market central banks had to sell lots of Treasuries to get cash. Treasuries prices plunged out of the range the hedge funds and other leveraged investors had bet on with all that gamma scalping. The multibillion investors were, technically, close to broke and the market was shutting down. So the Fed came in and bought the market. Prices recovered, and the hedge funds were back in the money.

The Fed bailout left so much short-term dollar cash available around the world — against Treasury collateral, that is — that the funds turned around and decided to put on another bet at the Fed’s expense. Collectively, through various mechanisms, since March, leveraged investors have put on a giant carry trade on the Treasury curve.

You can see traces of this in the first-quarter results from the banks, where fixed income trading has brought in fortunes nearly as large as what will be lost from commercial real estate.

Fed chair Jay Powell and his confreres wanted the added liquidity to go to restarting the real economy. But Covid-19, corporate restructuring, trade wars and low oil prices keep that from happening. Instead, there’s speculation on the Treasury carry trade and buying valueless shares on a Robinhood app.

So even conservatives like Mr Quarles are looking for someone’s blood. As he writes: “By the G20 summit this November the group (within the Financial Stability Board) will carry out a holistic review of the market turmoil in March . . . to improve the resiliency of the NBFI sector while preserving its benefits.”

Translated into English, the Fed and its international friends will go along with Democrats’ plans to limit hedge fund leverage, tax transactions to reduce runaway liquidity and bring large, public facing asset managers under much heavier regulation.

Elizabeth Warren may have lost the nomination, but her people are on their way to winning the war.