PSA and Fiat-Chrysler face exhaustive antitrust probe over merger
The groups are set to miss a deadline to allay concerns about their strong position in the van market
The $50bn merger between France’s PSA and Italian-American Fiat-Chrysler faces a full-scale antitrust probe after the two companies failed to provide concessions to EU officials, according to people with direct knowledge of the situation.
PSA and FCA, which plan to create the world’s fourth-largest carmaker, faced a deadline of Wednesday evening to allay concerns in Brussels about their combined might in the highly lucrative small van segment.
The combined van units would give PSA-FCA a third of the European market, more than double the 16 per cent of Renault or Ford, the two closest competitors.
However, the companies have been reluctant to sell the divisions, which are highly profitable, according to three people familiar with the negotiations.
People with direct knowledge of the EU probe said that during the lengthier phase, which will last four months, the companies must either sell all or part of the division or appease competition concerns through other means.
But the deal is expected to be cleared eventually by EU authorities and the firms had already priced in a more taxing probe given the size of the deal, these people added.
PSA and FCA already have a joint venture producing some light commercial vehicles in Europe.
Scrutiny of the van divisions had been expected going into the deal, which was announced formally in December and is expected to close in the first quarter of 2021.
If it closes, the deal will catapult the two businesses past rivals including General Motors and Hyundai-Kia to become a 9m-a-year manufacturer, with strong positions in Europe and North America and one of the most profitable vehicle line-ups of any carmaker globally.
While the deal needs to clear antitrust hurdles in other markets such as Latin America, Europe is the region where the companies have the greatest overlap.
The European Commission, which needs to decide on the merger by next week, declined to comment.
Representatives from FCA and PSA declined to comment.
Separately on Wednesday, PSA said that the Vauxhall Ellesmere Port car plant in the UK will not reopen until September.
The plant, which produces the Vauxhall and Opel Astra, has been offline since March. The Astra model is also made in Gliwice in Poland, which restarted production on Monday.
PSA was the first major group to close all European factories, and consistently said it will not restart its operations until demand recovers.
Some Ellesmere Port workers will be redeployed to PSA’s Luton van plant, which restarted in May and is about to add a third shift to increase output because of strong demand.
Samsung/Elliott: jail blazers
The possibility of South Korean company’s de facto head serving time should not panic investors
Elliott Management has become a household name in South Korea. Yet five years on, it has little to show for high-profile campaigns against conglomerates like Hyundai and Samsung. The US activist fund blames the government and a local pension fund for its dismal record in the country. Now local prosecutors are strengthening Elliott’s hand.
After an unsuccessful proxy fight with Samsung in 2015, Elliott turned to the investor-state dispute settlement mechanism. This is a system investors use to sue governments for alleged discriminatory practices based on provisions in bilateral trade agreements. Elliott, pugnacious as ever, sued the Korean government two years ago.
The activist fund alleges that government influenced a key vote, destroying shareholder value. The National Pension Service, one of the biggest shareholders of Samsung affiliate, Samsung C&T, supported a controversial merger of two Samsung affiliates, blocking Elliott’s efforts to derail the deal.
This has turned up the pressure on Lee Jae-yong, de facto head of Samsung. He is now fending off local prosecutors too. They are investigating allegations of accounting fraud and stock manipulation that may have facilitated the contentious merger. Earlier this week, a court turned down an application for a warrant to arrest Mr Lee.
Samsung denies the accusations. The investigation continues. If any resulting court case went badly for the conglomerate, it would strengthen Elliott’s position in the arbitration case
The possibility of Mr Lee serving time should not panic investors. He was in jail during 2017, when Samsung proved resilient. Mr Lee turned out to be quite good at managing the company from prison.
Shares in Samsung Electronics surged to a historic high back then, just weeks after he was taken into custody. In the quarters following, Samsung posted its largest ever operating profits.
Today the shares are 9 per cent below their level before Covid-19, at a small discount to the resurgent South Korean market. They are valued in line with LG Electronics, which lacks legal complications. Korean conglomerates may be sluggish. They are also incredibly stable.
Deutsche Bank warns bad loan provisions set to reach 11-year high
Germany’s largest lender expects €800m hit this quarter but says situation will improve
Deutsche Bank has warned its provisions for bad loans will surge to the highest level in more than a decade this quarter as the coronavirus crisis leaves the global economy mired in recession.
Germany’s biggest lender had earmarked a provision of just €506m for bad loans in the first three months of the year, but cautioned on Wednesday that the figure would increase this quarter.
“Our expectation would be that credit loss provisions will be in a range around €800m for this quarter,” James von Moltke, chief financial officer, told analysts on Wednesday at Goldman Sachs’ European Financials Conference.
Analysts were expecting just €630m in provisions for the second quarter, and €800m will be up fivefold from a year ago.
Mr von Moltke added that “we would expect that the second quarter will be the peak of the loan loss provisioning for this year”, and that the picture would improve in the second half of the year.
Shares in Deutsche Bank rose 2.6 per cent in early afternoon trading in Frankfurt to the highest level since late February.
The optimism reflected in Deutsche’s first-quarter provision caused some surprise among analysts given the economic damage wrought by efforts to contain Covid-19. Relative to the size of their loan book, only 10 of the 40 largest European lenders provisioned less than Deutsche, according to data by DBRS Morningstar.
Deutsche has argued that it is less exposed to credit card debt than many of its rivals and that an early lockdown in Germany, where state aid for stricken companies is more generous than in many other countries, will limit the damage to its loan book.
“There is nothing we have seen since [late April] that would change our outlook for the full year,” Mr von Moltke said on Wednesday, confirming Deutsche’s guidance that 2020 credit losses will range between 35 and 45 basis points of its loan book. That is up from 17 basis points last year.
In calculating their expected credit losses, banks have some leeway over the inputs they feed into their internal models. European regulators urged lenders at the onset of the pandemic to take a long-term view and not be too “mechanistic”.
As a result, Deutsche in the first quarter reverted to three-year average economic forecasts to model likely loan losses, compared with its previous policy of using quarterly assumptions. That meant that the implied hit to gross domestic product in Deutsche’s risk models was smaller, inflicting less damage on borrowers.
TCO -30%
Gapping down
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Analyst comments:
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Gapping up
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Other news:
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- APT +16.4% (up in sympathy on strong quarter from LAKE)
- BVXV +14.7% (announced the completion of the clinical study report (CSR) of a Phase 2 clinical trial of the Company's M-001 universal influenza vaccine candidate)
- RADA +10.6% (announced the receipt of over $25 million in new orders during the months of April and May 2020, a record for a two month time period)
- APAM +7.9% (reports assets under management)
- TSLA +5.5% (Elon Musk says it is time to bring Tesla Semi to volume production; most of production will occur outside of California) GMAB +5% (Genmab and Abbvie (ABBV) enter collaboration to jointly develop and commercialize three of Genmab's oncology products; GMAB raises FY20 guidance)
- RDHL +3.5% (submits Clinical Trial Application with the Ministry of Health of the Russian Federation for a Phase 2/3 clinical study evaluating opaganib in patients hospitalized with severe SARS-CoV-2 infection and pneumonia)
- FULC +3.5% (plans to evaluate losmapimod as a potential treatment for patients with COVID-19)
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Analyst comments:
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