- AstraZeneca (ZEG TH) +2.8%
- Astra Pressure Mounts as Investors Await Oxford Vaccine Data
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Daimler (DAI TH) +2.2%
- Daimler’s Late-Quarter Recovery Limits Loss to $1.9 Billion
- Daimler Wants to Save About EU2b in Annual Personnel Costs: HB
- Signify (G14 TH) +1.9%
- ASML (ASME TH) +1.5%
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BHP Group PLC (BIL TH) +1.1%
- What to Watch in Commodities: Freeport, Oil, BHP, Shell, Pompeo
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Ericsson (ERCB TH) +1%
- Ericsson Sales Beat Shows Carriers Still Upgrading Networks
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TOMRA (TMR TH) +0.9%
- TOMRA Second Quarter Revenue 3.1% Above Estimates
- Enel (ENL TH) -0.9%
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H&M (HMSB TH) -1.2%
- Renewcell Is Preparing For IPO Later This Year, DI Says
Closing Stock Market Summary
The S&P 500 declined 0.3% on Thursday amid relative weakness in the technology sector, but the market did close near its best levels of the session. The Dow Jones Industrial Average declined 0.5%, the Nasdaq Composite declined 0.7%, and the Russell 2000 declined 0.7%.
Earnings news and economic data were mostly better than expected, but today's price action appeared to be more influenced by unrelated moves in the mega-cap technology stocks. The Nasdaq, for instance, was down as much as 1.8% intraday, but it staged a decent rebound in the afternoon as shares of Amazon (AMZN 2999.90, -8.97, -0.3%) nearly recouped an early 3.0% decline.
The top-weighted S&P 500 information technology sector, however, struggled all session with a 1.2% decline amid a lack of leadership from Apple (AAPL 386.09, -4.81, -1.2%) and Microsoft (MSFT 203.92, -4.12, -2.0%). The utilities (+1.3%), materials (+0.4%), communication services (+0.3%), and consumer staples (+0.2%) sectors closed higher.
Earnings reactions were mixed to better-than-expected results from Bank of America (BAC 23.93, -0.67, -2.7%), Morgan Stanley (MS 52.64, +1.29, +2.5%), Johnson & Johnson (JNJ 149.25, +0.99, +0.7%), and Abbott Labs (ABT 96.40, -0.33, -0.3%).
On the data front, retail sales increased 7.5% m/m in June (Briefing.com consensus 5.2%), and weekly initial jobless claims decreased by 10,000 to 1.300 million (Briefing.com consensus 1.260 million). Market reaction was muted.
In other developments, high-profile accounts on Twitter (TWTR 35.28, -0.39, -1.1%) were compromised in a bitcoin scam, Dell (DELL 59.10, +6.42, +12.2%) confirmed it's exploring a potential spin-off of its stake in VMware (VMW 139.87, +0.17, +0.1%), and American Airlines (AAL 12.45, -0.99, -7.4%) warned it could furlough or lay off up to 25,000 employees.
U.S. Treasuries finished the session mostly higher but closed near their flat lines. The 2-yr yield increased one basis point to 0.15%, while the 10-yr yield declined two basis points to 0.61%. The U.S. Dollar Index increased 0.3% to 96.33. WTI crude futures fell 0.9%, or $0.37, to $40.76/bbl.
Reviewing Thursday's economic data, which included Retail Sales for June and the weekly Initial and Continuing Claims report:
- Initial jobless claims for the week ending July 11 decreased by 10,000 to 1,300,000 (consensus 1.260 million). Continuing claims for the week ending July 4 decreased by 422,000 to 17,338,000.
- The key takeaway from the report is that initial jobless claims continue to run at extremely high levels relative to where they were before the COVID shutdown period began in March, which is a reminder that the labor market recovery still has a long, long way to go.
- Retail sales increased 7.5% m/m in June ( consensus 5.2%) following an upwardly revised 18.2% increase (from 17.7%) in May. Excluding autos, retail sales rose 7.3% (consensus 5.0%) on the heels of a downwardly revised 12.1% increase (from 12.4%) in May.
- The key takeaway from the report is that the pace of growth slowed in June, which is important knowing that retail sales activity in July will be crimped by efforts to pause or roll back reopening activity in response to a surge in coronavirus case counts. In other words, the good news for June will be offset by an expectation for less good -- or even bad -- retail sales for July.
- The NAHB Housing Market Index for July increased to 72 (consensus 58) from 58 in June.
- The Philadelphia Fed Index for July decreased to 24.1 (consensus 22.5) from the 27.5 reading in June.
- Business inventories declined 2.3% in May, as expected, following a revised 1.4% decline in April (from -1.3%).
Looking ahead, investors will receive Housing Starts and Building Permits for June and the preliminary University of Michigan Index of Consumer Sentiment for July on Friday.
- Nasdaq Composite +16.7% YTD
- S&P 500 -0.5% YTD
- Dow Jones Industrial Average -6.3% YTD
- Russell 2000 -12.0% YTD
After Hours Summary: NFLX -9.3% on earnings miss and weak Q3 subscriber outlook; PPG +4.2% upon earningsAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: FNB +4.9%, PPG +4.2%, MRTN +2.7%, JBHT +2.3%
Companies trading higher in after hours in reaction to news: PHAS +8.9% (doses first patient in Phase 2 trial in hospitalized COVID-19 patients), PBYI +3.9% (licensing partner receives marketing approval for NERLYNX in Malaysia), SVM +2% (reports Q1 production results)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: NFLX -9.3%, WAL -0.2%
Companies trading lower in after hours in reaction to news: PSTI -11.4% (files for $250 mln mixed securities shelf offering), SPXC -8.2% (names new CFO), ROKU -2.7% (in sympathy with NFLX), TTWO -0.5% (discloses entrance into new Xbox Console Publisher License Agreement with MSFT), DGX -0.1% (granted EUA from the FDA for its HA SARS-CoV-2 Assay)
ECB’s pledge to encourage bank mergers is falling on deaf ears
M&A rumours make for good gossip but lenders are better off focusing on self-improvement
For sale: a 150-year-old German bank. Bargain price with shares trading at only a fifth of book value. Enviable market position serving hundreds of loyal Mittelstand clients. Fresh management team set to take over. Great fixer-upper potential. Yours for just over €6bn.
Investment bankers are once again speculating about how soon Commerzbank will be in merger talks with a rival. A perennial subject of takeover rumours, the German lender announced this month that its chairman and chief executive were leaving and it is now believed to be working on a drastic plan to shed some 10,000 of its 48,000 employees.
Commerzbank’s woes are symptomatic of a European banking sector suffering from bloated costs, squeezed profit margins, fierce competition and rapid digital disruption. In most other industries, this would result in only one thing: takeovers.
The European Central Bank, which oversees the biggest eurozone lenders, stepped up its efforts to encourage more consolidation this month by publishing a guide clarifying how it would go easy on capital requirements in future banking mergers.
The heads of three big eurozone banks contacted by the Financial Times welcomed the ECB’s move, arguing it should clear up doubts created by the cautious way its supervisors have handled previous deals, which may have acted as a deterrent to others.
They pointed to the extra capital the ECB called on Banca Popolare di Milano to raise after its merger with Banco Popolare in 2016 as well as the tougher risk models the supervisor pushed for when Spain’s Banco Santander bought its failing rival Banco Popular a year later.
It is easy to make the case for a shake-up of Europe’s banking sector. Return on equity at the 113 banks the ECB supervises fell last year from 6.2 per cent to 5.2 per cent — far behind most of their US and Asian rivals.
The struggles of European lenders are encapsulated by the gulf between JPMorgan Chase, the biggest US bank with a market capitalisation close to $300bn, and France’s BNP Paribas, the eurozone’s closest rival, which has a valuation almost six times smaller.
ECB officials believe this is at least partly due to Europe being overbanked. However, the number of banks in the EU fell 30 per cent in the decade after the financial crisis to reach 6,000 by 2018, according to the European Banking Federation.
That means the region has fewer banks per capita than the US. So the profitability problem does not seem to be caused by the sheer number of lenders — especially as Japan has fewer than 200 and yet they have still struggled with weak profitability for decades.
A better metric of lending capacity could be the number of physical bank branches. The eurozone has 41 bank branches for every 100,000 inhabitants, against only 25 in the US.
Despite all this, mergers between European banks have steadily dried up from a peak of 218 deals worth $123bn in 2006 to only 77 deals worth a paltry $6bn last year, according to Refinitiv.
While some takeovers — such as Intesa Sanpaolo’s bid for its Italian rival UBI Banca — are still being pursued, even that deal is struggling and most eurozone bank bosses are sceptical that deal flow will increase anytime soon, whatever the ECB promises on capital requirements.
One of the biggest hurdles bankers face is how to work out what a rival’s lending book is worth when the eurozone is heading for a record postwar recession and the fallout from the coronavirus pandemic threatens to cause a surge in defaults.
In addition, banks now rely more than ever on taxpayer support, both from state loan guarantees and ultra cheap liquidity from central banks. This makes some executives dubious that they could cut enough costs with job losses and branch closures to make a deal work without stirring up a jarring backlash from unions and politicians.
The ECB is forcing banks to conserve capital by stopping them paying dividends or buying back shares. But this restriction is likely to be lifted later this year — at least for the strongest banks — and with share prices trading at big discounts to book value across the sector, buying back shares is likely to be a more attractive use of capital than a risky acquisition.
In any case, bank mergers have a terrible record. Most destroy value and Royal Bank of Scotland’s takeover of its Dutch rival ABN Amro in 2007, which left the British lender needing a £45bn government bailout, still casts a long shadow.
So most bank bosses, including whoever gets the top job at Commerzbank, will be better off doing the hard work to strip out costs themselves, rather than counting on any ECB-assisted takeover to help them out.
Thermo Fisher sweetens Qiagen bid by €1bn after hedge fund criticism
Deal values company at nearly €10.7bn as Covid-19 provides a boon to diagnostic business
Thermo Fisher has sweetened its offer to buy Qiagen by nearly €1bn, following a surge in demand for its coronavirus-testing equipment that led investors to push the diagnostics-maker to secure a higher takeover bid.
The revised, all-cash deal unveiled on Thursday will see the US scientific equipment maker pay €43 per share to acquire Dutch-headquartered Qiagen. That is an increase of 10.2 per cent from the €39 per share price agreed in early March.
It is unclear if the new deal will gain the support of hedge funds who have built stakes in Qiagen’s shares in recent months and demanded a higher takeover price. The revised offer still falls short of the €50 per share price that US hedge fund Davidson Kempner said Qiagen would reach if it remained a standalone company.
Thermo Fisher appears to have taken steps to reduce the chances that a deal will fall through. Under the new agreement, it has reduced the minimum threshold of Qiagen shareholders who need to vote in favour of the transaction to 66.7 per cent from 75 per cent.
Should Qiagen investors not approve the deal, the company is now liable to pay $95m to Thermo Fisher in what was described as an “expense reimbursement” fee.
Qiagen’s supervisory and management boards said they unanimously supported the new terms, urging shareholders to vote in favour of a tie-up.
Thierry Bernard, Qiagen chief executive, said: “The rationale for this strategic step is stronger than ever, especially as the value of molecular testing becomes ever more evident.”
Marc Casper, chairman and CEO of Thermo Fisher, said: “Both of our companies are playing important roles in helping customers to battle the Covid-19 pandemic. After careful consideration, we've decided to increase our offer for Qiagen to reflect the fair value of the business given the current environment.”
Frankfurt-listed shares in Qiagen, which has a large operational presence in Germany, climbed 2.7 per cent to €41.81. The new agreement values Qiagen’s equity at €9.81bn. It has net debt of €878m.
Last week, an arm of Davidson Kempner called Thermo Fisher’s first offer “wholly inadequate,” saying it had failed to take into account the impact of the pandemic in its calculations.
In its preliminary results for the second quarter, Qiagen said net sales were up almost 20 per cent from the same period last year, driven by the “unprecedented demand” for its coronavirus-related products, which has offset weaker sales among its other divisions.
Petropavlovsk investor calls for probe into deals
Big shareholder urges independent review to end turmoil at London-listed gold miner
A forensic examination of all deals and transactions involving Petropavlovsk over the past three years is needed to help end the stand-off that has rocked the Russia-focused gold miner, one of the company’s biggest shareholders has said.
Nikolai Lioustiger, a businessman who controls 12 per cent of the company through investment vehicles Slevin and Everest, said an independent investigation by one of the UK’s Big Four auditors would help “clear the waters” and “restore” shareholder confidence.
“Everest sincerely hopes that by raising its concerns it will motivate as many shareholders as possible to vote at the upcoming general meeting and exercise their right to hold management to account,” Mr Lioustiger said in his first comments on the shareholder dispute.
Petropavlovsk, which owns a state of the art processing plant in Russia, was one of the best-performing stocks in London over the past year.
Aided by a rising gold price, its shares have soared 190 per cent, giving it a market value of almost £1bn and a place in the FTSE 250 index.
However, it was plunged into corporate turmoil last month when its chief executive and co-founder Pavel Maslovskiy and six other directors were ousted by Mr Lioustiger and two other shareholders: UGC, a privately owned Russian gold miner, and Fortiana, an investment vehicle controlled by Russian businessman Vladislav Sviblov.
The company is aiming to hold a general meeting next month to appoint a new board.
Mr Lioustiger said he was concerned by Petropavlovsk’s refusal to explain the strategic rationale for the proposed buyout of its Temi subsidiary as well as Deloitte’s decision to stop auditing the company.
Deloitte chose not to seek reappointment as Petropavlovsk’s auditor because of its length of service and concerns about the “limitations” of the company’s “internal controls and systems for financial reporting”, according to a shareholder circular.
Mr Lioustiger, who has taken legal action to stop the appointment of four interim directors, said that while Deloitte’s decision was itself worrying, he was also puzzled by the company’s continued refusal to explain the details of the Temi transaction.
“If the transaction goes ahead, the company will pay tens of millions more to an unknown counterparty for an asset which does not appear to be worth anything like the amount being paid for it,” said Mr Lioustiger.
He added that “a thorough investigation conducted by a reputable and, most importantly, independent firm would in Everest’s view go a long way to clear the waters and restore shareholder confidence”.
Peter Mallin-Jones, analyst at Peel Hunt, said Mr Lioustiger’s call for an investigation was an attempt to “muddy the waters” around Petropavlovsk and stir up investor concerns ahead of the upcoming general meeting
Petropavlovsk said the rationale behind the Temi deal had been well communicated to investors as an “accretive step” for securing a long-life asset and extending the life of its Albyn mine by a minimum of 19 years.
It added that Deloitte had been the external auditor for the company since 2009 and a process for a new auditor started in 2019. “In their resignation letter Deloitte did mention certain limitations in Company’s financial reporting due to heavy reliance on Excel. [The] previous Board has acknowledged that and as mentioned in the Audit Committee report has fully addressed that point,” it said
Separately, Bonum Capital, a private investment vehicle that declared a 3.5 per cent stake in Petropavlovsk last month, “called for strong and effective management”.
“[We] are against any corporate conflicts that can ruin the capitalisation of Petropavlovsk,” said Murat Aliev, owner of Bonum.
Recruitment group Hays warns profits will almost halve this year
‘No signs yet’ of businesses returning to hiring as lockdowns ease worldwide
Hays, the UK-based recruitment company, cut 1,000 jobs and warned its profit this year would almost halve as there were “no signs yet” of companies restarting hiring as lockdowns ease across the world.
In a trading update on Thursday, the Hays said fees earned from making placements in the three months to the end of June had dropped 34 per cent year on year. It expected annual operating profit to be between £130m and £135m, compared with £248.8m in 2019.
“Without a doubt these have been the toughest trading conditions that we’ve faced in 14 years,” said Paul Venables, chief financial officer.
The hiring group, which operates in 33 countries covering sectors from IT to construction, was hardest hit in Europe and the UK, where fees dropped more than 40 per cent. Fees were down by about 30 per cent in the US, Asia, and Australia and New Zealand.
“In many respects the difference between regions is driven by how hard and long the lockdowns have been,” Mr Venables said, adding that Hays’s specialism in the UK construction sector had left it particularly exposed when sites closed at the start of the lockdown. In regions such as Australia sites remained open.
Hays’s update added to a gloomy picture for the UK, which has lost more than half a million jobs since the lockdown started in mid-March, despite a number of government support measures aiming to keep people on payroll.
Hays has reduced its global headcount by 9 per cent, triggering about 1,000 job losses. However, Mr Venables said part of this was a result of a naturally high turnover rate in the industry and jobs that had not been filled, rather than redundancies.
“It ties with the pretty poor data that we’ve had coming out of the UK today,” said Thomas Callan, analyst at Investec. “But it’s to be expected, and it’s important not to get too hung up on the UK market,” he added, referring to the fact that more than 75 per cent of Hays’s income comes from outside of the UK.
Mr Venables said Hays expected to be lossmaking over the summer months as the cost of reopening offices was coupled with a seasonal lull in hiring.
Mr Callan said the company had managed to exceed profit expectations and the decline of a third in the fourth quarter was less than the expected 50 per cent drop. But he said Hays had been “extremely cautious” in a call with analysts on Thursday.
“Basically July trading has been really weak, there’s no real sign of positive momentum coming through,” Mr Callan said. “The group remains pretty nervous about the prospect of second outbreaks.”
Hays’s share price was down by about 3 per cent at lunchtime trading on Thursday.