TheChek News Flow

Private banker on weathering the storm in his new role after hostile defection from Credit Suisse

The timing of Iqbal Khan’s arrival at UBS, the world’s biggest wealth manager, late last year could have been very unfortunate — the Covid-19 pandemic struck just three months after the high-flying Swiss private banker took up his new top job.

But UBS has so far weathered the biggest shock to financial markets in a decade better than most global banks, posting a 40 per cent surge in net profits to $1.6bn in the first quarter.

Powering the increase was a 41 per cent gain in pre-tax profits to $1.2bn in the dominant global wealth management division, where Mr Khan was appointed co-head alongside UBS veteran Tom Naratil.

With the bank’s advisers steering clients through the vicious market swings, the division made its largest quarterly profits since before the 2008 global financial crisis.

“Market volatility leads to more activity by investors,” says Mr Khan, who joined the Swiss bank from arch-rival Credit Suisse after a spectacular row with his former chief executive. “It also reinforces the need for quality advice.”

At Credit Suisse, the son of a Pakistani father and Swiss mother was a high flyer, earning the post of head of international wealth management from the then-chief executive, Tidjane Thiam.

Mr Khan delivered results. But last year he fell out with Mr Thiam in a personal dispute that culminated in a confrontation between Mr Khan and detectives hired by Credit Suisse to monitor him after he had resigned. Mr Thiam was later also forced to depart.

Mr Khan declines to talk about the dispute. He prefers, not surprisingly, to focus on his new job.

As UBS warned in its most recent quarterly statement, there are tough times ahead, with coronavirus still rife, the global economy falling into recession and investment clients cautious.

Mr Khan and his colleagues believe difficult conditions play to the bank’s strengths, notably its position as the world’s wealth management market leader, with $2.3tn in assets under management, far above competitors, including Credit Suisse.

But to make the most of this advantage, analysts say UBS needs to become more profitable by squeezing costs and generating more revenue from its global network. With wealth management revenues expected to shrink this year, the competition will get tougher, not least from leading rivals including JPMorgan, Bank of America and Morgan Stanley of the US, as well as Credit Suisse and smaller Swiss banks.

It is the 44-year-old Mr Khan’s job to help UBS navigate this storm. In pairing him with Mr Naratil, UBS chief executive Sergio Ermotti wants to combine Mr Khan’s undoubted energy with the avuncular 58-year-old American’s deep knowledge of UBS.

If Mr Khan proves up to the job of generating more profit out of global wealth management at the same as getting a grip on UBS’s complex and sometimes bureaucratic structures, he could be in line for an even bigger job: he is already spoken of as a potential future chief executive of the group. The 60-year-old Mr Ermotti, who has been at the helm since 2011, will be replaced by ING boss Ralph Hamers, who is 53, in November.

Mr Khan says that on joining the bank he was impressed by the power of the UBS brand with the global business elite. “I have to tell you probably my biggest wow experience on joining UBS was the opening of doors,” he says, adding that focusing on the clients behind those doors is the key.

Like much of the sector, UBS has struggled to control costs in wealth management in the past decade, in the face of simultaneous challenges to upgrade technology, improve regulatory compliance and invest in high-growth Asia.

Boston Consulting Group calculates that the average cost-income ratio for wealth managers has soared from 60 per cent in 2007 to 77 per cent in 2018. UBS itself recorded a 79 per cent ratio in wealth management last year.

The bank’s overall 2019 results underline the point, posting a 7 per cent drop in pre-tax profits to $5.6bn. The return on core capital was 12.4 per cent, missing a 15 per cent goal and pushing the bank to cut the target for 2020-22 to 12-15 per cent.

Mr Khan and Mr Naratil have quickly attacked inefficiencies to raise margins, with an overhaul that has seen 500 posts cut from 23,000 in wealth management. Bureaucratic layers have been axed to reduce costs, accelerating decision-making and boosting profitability.

UBS executives say that while the speed of action owes a lot to Mr Khan it builds on profit-boosting changes Mr Naratil pushed earlier in the Americas.

Mr Khan and Mr Naratil have reorganised a decade-old ultra rich unit, which has served about 6,000 clients with at least $50m in assets.

The most active big investors among them have been switched to an even more exclusive unit — the global family office operation, which has direct access to the UBS investment bank. This division’s client list is more than doubling to about 2,000 customers who are not just very rich but are active investors.

Management oversight of other super-rich customers’ accounts has been decentralised from Zurich to offices around the globe to speed decision-making.

It is not the first time that a big bank has tried to expand the direct contact between investment banking and top wealth management clients. A rival private banker says such moves are risky, given the cultural differences between deal-oriented investment bankers and relationship-focused private wealth managers.

“If UBS now links investment banking and wealth management together, this is bigger than anybody thinks,” the rival banker says. “Nobody has done this [effectively] before and I don’t know whether it can succeed.”

Mr Ermotti said in January that the actions taken in wealth management will help deliver pre-tax growth of 10-15 per cent in 2020-22.

Even before Covid-19 this was an ambitious aim. Now the target looks even harder to hit, despite the strong first-quarter results.

But analysts think that whatever the eventual bottom line outcome, UBS wealth management is heading in the right direction at a faster pace than before.

As a leading Swiss bank analyst says: “UBS wealth management is a huge tanker. They can’t change everything in one night. But UBS people are saying, ‘Actually we needed this because the organisation was very bureaucratic and conservative.’ It was like a wake-up call and things are now moving.”

Mr Khan has made a good start at UBS. But he knows it will be a long haul.

Fed chair says economy may not fully bounce back until virus vaccine is available

Federal Reserve chair Jay Powell has warned that a full US economic recovery may take until the end of next year and require the development of a Covid-19 vaccine.

“For the economy to fully recover, people will have to be fully confident. And that may have to await the arrival of a vaccine,” Mr Powell told CBS News on Sunday. A full revival would happen, he said, but “it may take a while . . . it could stretch through the end of next year, we really don’t know”. 

He added: “Assuming there is not a second wave of the coronavirus, I think you will see the economy recover steadily through the second half of this year.”

Mr Powell told CBS it was likely there would be a “couple more months” of net job losses, with the unemployment rate climbing to as high as 20-25 per cent. But he said it was “good news” that the “overwhelming” majority of those claiming unemployment benefits report themselves as having been laid off temporarily, meaning they are expecting to go back to their old jobs.

Oil prices and stocks in Asia rose on Monday despite the gloomy outlook. West Texas Intermediate, the US crude benchmark, climbed 4.4 per cent to take it above $30 a barrel for the first time in two months. Brent crude, the international benchmark, rose 3.6 per cent to $33.67 a barrel. Japan’s Topix was up 0.4 per cent and China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks added 0.6 per cent.

Donald Trump, US president, said last week that he hoped to have a vaccine ready by the end of 2020. But public health experts, including Anthony Fauci, the head of the US National Institute of Allergy and Infectious Diseases, and Rick Bright, the recently ousted head of the US Biomedical Advanced Research and Development Authority, have warned that the process is likely to take longer.

Dr Fauci, a high-profile member of Mr Trump’s coronavirus task force, has said he expects the search for a vaccine to take at least a year to 18 months. But Dr Bright has said that was too optimistic.

Some world leaders have also raised doubts about the immediate prospects for a vaccine. Giuseppe Conte, prime minister of Italy, said at the weekend that his country could “not afford” to wait for a vaccine, while Boris Johnson, UK prime minister, warned that a vaccine “might not come to fruition” at all.

Mr Powell said that while lawmakers had “done a great deal and done it very quickly”, Congress and the Fed may need to do more “to avoid longer-run damage to the economy”.

The Fed chair said fiscal policies that “help businesses avoid avoidable insolvencies and that do the same for individuals” would position the US economy for a strong recovery post-crisis.

Mr Powell also reiterated his position against using negative interest rates, something Mr Trump has called for. The Fed chair told CBS that the Federal Open Market Committee had eschewed negative interest rates after the last financial crisis in favour of “other tools” such as forward guidance and quantitative easing.

“I continue to think, and my colleagues on the Federal Open Market Committee continue to think, that negative interest rates is probably not an appropriate or useful policy for us here in the United States,” he added.

The Fed’s crisis-fighting measures so far, including cuts in base interest rates to near-zero and a series of programmes to supply liquidity, have led to sharp rebounds in financial markets from lows in late March.

But economic data remain bleak. US unemployment surged to a postwar high of 14.7 per cent in April, with more than 36m Americans filing for unemployment benefits since the coronavirus pandemic first spread to the world’s largest economy.

The US Congress has already approved nearly $3tn of economic relief measures intended to support struggling businesses and individuals, but there is growing consensus in Washington that more fiscal stimulus will be needed — even if Democrats and Republicans are divided over how to dole out federal funds.

Late on Friday, the Democrat-controlled House of Representatives passed Nancy Pelosi’s plan for $3tn in new stimulus spending.

But Mitch McConnell, the Senate’s senior Republican, has dismissed the proposed “Heroes Act”, an 1,815-page bill that includes $500bn for state governments and $375bn for local authorities struggling to balance increased costs and lower tax revenues triggered by the pandemic.

Republicans are drafting their own proposals, including a “liability shield” for businesses to avoid litigation stemming from workers contracting coronavirus while at work.

Mr Trump has repeatedly called for the next stimulus to include a cut to payroll taxes — deductions for entitlements such as social security and Medicare. Last week, Larry Kudlow, the top White House economic adviser, suggested that lower corporate taxes and looser business regulation should be part of any future relief package.

The Trump administration has taken a more bullish stance on the US economic recovery than Mr Powell, with White House officials repeatedly insisting that the economy will bounce back before the end of the year.

Mr Powell told CBS it was a “reasonable expectation that there will be growth in the second half of the year” but “we won’t get back to where we were by the end of the year”.

Uber’s offer of 1.9 shares per Grubhub share was deemed insufficient Sunday

Uber Technologies Inc. and Grubhub Inc. continued their merger discussions over the weekend, with the companies’ chief executives trying to hash out the price of a deal that would reshape the meal-delivery business.

Grubhub Chief Executive Matt Maloney spoke to Uber Chief Dara Khosrowshahi Sunday and indicated that Uber’s latest offer of 1.9 of its shares for each Grubhub share is too low, according to people familiar with the matter. Mr. Khosrowshahi said he might be able increase the offer to 1.925 Uber shares, but that is still well below the price Grubhub had been seeking.

There is no guarantee the companies will manage to reach agreement on a price, and once they do there are still other items to be negotiated for a deal that would combine Grubhub with Uber’s food-delivery unit, Uber Eats. An agreement—should there be one—is still unlikely in the next few days, the people said.

The gap between what each side is seeking is a sign of the challenges they face in cementing a deal that would establish a larger competitor in the cutthroat industry and potentially yield hundreds of millions in cost savings. The companies have estimated cost savings would top $300 million, but Morgan Stanley analyst Brian Nowak estimated in a note Wednesday that the figure could be more than twice that, mainly due to decreased sales-and-marketing and delivery costs for Grubhub.

Even if the companies are able to settle on a mutually agreeable price and other terms, regulators would still need to sign off on a transaction at time when a number of politicians have signaled opposition to this combination and mergers in general while the coronavirus pandemic has hobbled the economy and thrown tens of millions out of work.

While the stay-at-home orders the pandemic has triggered have been a boon to meal-delivery demand, they have also thrown up new challenges for the industry and increased the desire on the part of its main players to consolidate.

Grubhub had previously proposed an exchange ratio of 2.15 Uber shares per Grubhub share, which Uber rejected.

Grubhub shares closed at $54.97 Friday, having surged on reports of a possible tie-up last week, while Uber’s shares closed at $32.47. A ratio of 1.925 would value Grubhub at roughly $62.50 a share or $6 billion, while a ratio of 2.15 would value the company at $69.81 a share or $6.8 billion.

The Wall Street Journal reported Wednesday that discussions between the companies had centered around an exchange ratio of about 1.9 and were taking place between the CEOs. Uber made an initial offer worth roughly $60 per Grubhub share earlier this year and has increased the exchange ratio in several offers since.

Meanwhile, two European food-delivery players, Delivery Hero SE and Just Eat Takeaway.com NV, have considered potential Grubhub bids but are unlikely to jump in at least for now given that Uber appears to be in pole position, people familiar with the matter said.

SoftBank in Talks to Sell T-Mobile Shares to Deutsche Telekom

Deal would boost German telecom giant’s T-Mobile stake above 50%

SoftBank Group Corp. is in talks to sell a significant portion of its T-Mobile US Inc. stake to controlling shareholder Deutsche Telekom AG as the Japanese technology conglomerate scrambles to raise funds.

The transaction, if completed, would boost Deutsche Telekom’s nearly-44% stake in T-Mobile above 50%, according to people familiar with the matter. The German company already has voting control of the U.S. mobile-phone giant under a prior agreement with SoftBank, which recently held almost 25% of T-Mobile’s common stock, according to FactSet.

The size of any purchase is still being discussed but it would likely be significant: T-Mobile’s market value stands at about $120 billion.

Details of the discussions couldn’t be learned but Deutsche Telekom would likely buy the shares at a slight discount, as is typical for a transaction of this type.

A deal isn’t guaranteed and the talks could still fall apart, the people cautioned.

T-Mobile took its current form on April 1 after it absorbed Sprint Corp., a SoftBank-controlled business that struggled for years to defend its customer base against competition from rivals. By combining the third- and fourth-biggest players, the merger consolidated the U.S. wireless sector into a market dominated by three national networks.

SoftBank is expected to retain rights to 48.8 million shares it surrendered to complete the merger that will be reissued if T-Mobile’s stock price reaches certain milestones within two years, one of the people familiar with the matter said.

SoftBank is seeking to sell assets and improve its performance after suffering big investment losses and coming under pressure from activist investor Elliott Management Corp. SoftBank Chairman Masayoshi Son in March said his company would aim to sell $41 billion of assets to boost its liquidity and help fund a big new stock-buyback program. The company was expected to look at a number of holdings, including T-Mobile, to help fund the buyback.

The new stock sale under discussion would allow SoftBank to cash out some of its bet on Sprint, a holding that recently turned into a rare bright spot for the Japanese conglomerate. Many other SoftBank investments—some through its giant Vision Fund—including WeWork, ride-hailing service Uber Technologies Inc. and Oyo Hotels & Homes Pvt. Ltd., operate in sectors particularly hard-hit by the coronavirus crisis.

SoftBank and Deutsche Telekom had agreed to lockup provisions that prevent SoftBank from selling most of its position in T-Mobile over the next four years, with exceptions for small divestitures. Those rules would likely be tweaked to allow for the stock sale under discussion.

Deutsche Telekom on Friday reported that its first-quarter revenue and profit both increased despite the early effects of the coronavirus pandemic on its operations. Asked whether the German company had the balance-sheet strength to buy more T-Mobile shares, Chief Executive Tim Höttges declined to comment but called the U.S. carrier “a great business to have” with “big, attractive opportunities going forward.”

JAB seeks €2bn shot for coffee business with listing

JDE Peet’s planned Amsterdam IPO would be Europe’s largest offering this year

JAB Holdings plans to raise as much as €2bn from the Amsterdam listing of its JDE Peet’s coffee business, pressing ahead with Europe’s largest IPO this year despite the chill cast over markets by coronavirus, people with direct knowledge of the matter said. 

JAB, which manages the wealth of Germany’s billionaire Reimann family, will this week unveil its intention to float the world’s largest pure-play coffee company and the biggest competitor to Nestlé in selling the beverage through retail stores, these people said. 

The documents, seen by the Financial Times, will show that JDE Peet’s plans to raise €700m from the issuance of new shares, which will be used to pay down debt.

In total, JAB is hoping to raise between €1.5bn and €2bn from the IPO, with the remainder coming from existing shareholders such as food group Mondelez International, which will have the option to sell down its 26 per cent stake. JAB itself will not be selling any of its holdings and will remain the largest individual shareholder, said people familiar with the situation.

The decision to push ahead with the listing reflects JAB’s thinking that the social and economic effects of coronavirus will linger for months if not years, but that the coffee market will remain resilient. Higher demand for coffee helped to push larger rival Nestlé to its fastest quarterly growth in almost five years in the first quarter of 2020, as the pandemic gathered pace.

The IPO comes at a time when many companies across Europe and in particular in the UK have been seizing on their depressed share prices to raise capital from investors. But new listings have been limited. Earlier this month, a Norwegian videoconferencing rival to Zoom called Pexip marked a rare bright spot when it listed shares in Oslo. 

For JAB, the listing is a critical test of a strategy it has pursued over nearly a decade to consolidate the global coffee industry under its managing partner Olivier Goudet. 

In preparations for the IPO, JAB merged Jacobs Douwe Egberts Group, the second-largest coffee roaster globally after Nestlé, with the US retail coffee brand Peet’s, and overhauled its management.

JDE Peet’s mainly sells coffee beans and capsules through retail stores, under brands such as L’Or, Senseo, Tassimo and Kenco. Almost 80 per cent of the business involves coffee drunk at home.

But Peet’s also runs more than 250 coffee shops, many of which are closed or operating a limited service during the pandemic. And the group owns high-end specialist coffee venues such as Stumptown Coffee Roasters and Intelligentsia Coffee & Tea.

JDE Peet’s made €585m profit in 2019, down from €663m a year earlier, on €6.9bn of revenues, up from €6.7bn in 2018, according to documents seen by the FT. 

JDE Peet’s is planning to tell investors that it will seek to reduce its ratio of net debt to adjusted earnings before interest, tax, depreciation and amortisation from about 3.7 times to 3 times in the next 12 months.

JAB has expanded rapidly since 2012, raising about €12bn from university endowments, sovereign wealth funds and wealthy families, but faces pressure to show it can successfully operate the businesses created by its dealmaking spree.

JAB’s portfolio spans public stakes in companies such as Keurig Dr Pepper, the coffee and soft drinks group, and Coty, the cosmetics group that has been struggling operationally and under a heavy debt burden for years. JAB also privately owns chains such as Pret A Manger, Panera Bread and Krispy Kreme.

BNP Paribas, Goldman Sachs and JPMorgan Chase are the lead banks on the JDE Peet’s deal.

German car industry gets cold shoulder from Berlin

Politicians and public reluctant to see sector receive special assistance

In 2009, during the last financial crisis, a new compound noun beat “Bad Bank” and swine flu to be crowned the German word of the year.

“Abwrackprämie”, or scrapping bonus, entered the lexicon as Berlin spent €5bn on a stimulus programme that propelled car sales in the country to an all-time record; a scheme that was soon aped by the UK and France.

But in the wake of the coronavirus crisis, German carmakers damaged by the “Dieselgate” emissions scandal are finding it hard to convince Angela Merkel’s government to pull the same economic lever again.

Despite urgent pleas from the once-mighty car lobby — the VDA — a much-anticipated teleconference between the chancellor, her top ministers, and the bosses of Volkswagen, Daimler and BMW on May 5 ended without resolution.

Ms Merkel’s administration would commit only to further meetings to “discuss measures to stimulate the economy”, with a possible announcement in early June.

Car executives were quick to express their dismay.

Herbert Diess, the chief executive of the world’s largest carmaker, Volkswagen, underlined that an incentive scheme would have a “powerful, broad-based and immediate effect” on Europe’s largest economy, as the stimulus would trickle down to thousands of suppliers and dealerships.

Daimler’s Ola Kallenius had said he was concerned that customers would put off purchases in anticipation of a scrapping bonus, compounding the industry’s woes, while BMW’s Oliver Zipse conceded that it had become “difficult to convey” to the German public the need for an incentive scheme in their home market.

“Things have changed a lot since 2009,” said Stefan Bratzel, the director of the Center of Automotive Management near Cologne.

Due to the diesel emissions scandal, “a lot of trust and confidence has been lost”, he added, making it almost impossible for politicians to directly subsidise the sector, which supports approximately 3m jobs in Germany alone.

Last week, the presidium of Angela Merkel’s party, the CDU, which includes leadership hopeful Armin Laschet, dealt a further blow to the automakers’ hopes, as it came out in support of an “overall stimulus package”, signalling a reluctance to privilege a specific industry.

That message was echoed by the head of Germany’s largest union, IG Metall, which represents hundreds of thousands of car workers, while environmental movements launched a social media campaign to protest any subsidy.

“After years of building the wrong [polluting] models, tax money must not simply be thrown at companies so that they can put cars on the road at a lower price,” said Olaf Bandt, the chairman of environmental group Bund.

Instead, the organisation argued, the state should subsidise bicycle sales, and invest in public transport infrastructure.

While Germany’s auto chiefs have been careful not to waver from their commitments to meeting EU-wide CO2 reduction targets, the industry’s European lobby has asked for leniency from Brussels, bolstering activists’ arguments.

Carmakers and major suppliers have also provoked the ire of campaigners by planning to pay out €5bn in dividends this year, despite putting more than 200,000 workers on the state-sponsored furlough scheme.

Yet opposition to a scrapping scheme is not confined to politicians and activists.

Several leading German economists say the market conditions do not call for a revival of the Abwrackprämie, despite a warning from rating agency Moody’s that the western European market is facing a 30 per cent slump in sales this year.

“Unlike in 2009, there is no problem with financing car purchases,” said Gabriel Felbermayr, president of the IfW Institute. “Consumers have sufficient liquidity.”

A programme that purely supports the sale of electric vehicles could lead policymakers to “abandon the necessary technological neutrality”, he warned. Green cars already carry a subsidy of up to €6,000 in Germany, and account for under 10 per cent of models purchased. 

Furthermore, the country’s car industry is even more reliant on exports than it was a decade ago, with almost two-thirds of demand coming from abroad.

Since the share of imported cars in Germany has also risen, a subsidy “would help foreign suppliers more than before”, Mr Felbermayr said.

Volkswagen, which had reopened its sprawling Wolfsburg headquarters to great fanfare two weeks ago, confirmed on Wednesday that it would have to idle some assembly lines, due to anaemic demand across Europe.

While the carmakers themselves have months of liquidity left, they say smaller suppliers cannot survive a sustained fall in demand while Berlin wavers.

Such appeals are met with little sympathy from Monika Schnitzer, who sits on the government-appointed Council of Economic Experts.

“If it is really true that the car industry is so important to Germany, perhaps that is a problem in itself,” she said.

Despite the auto sector’s oversized role in the country’s economy, a survey conducted for public TV channel ARD last week found that 63 per cent of Germans opposed giving it any specific help.

Nonetheless, “even though there is momentum against [Kaufprämien], I would bet it will happen”, said Dr Schnitzer.

“The lobby is very strong.”

Such a scenario could still work in the auto industry — and Berlin’s — favour, said Jürgen Pieper, an analyst at Metzler, as it would act as “pan-European stimulus”.

“A Kaufprämie [buying bonus] scheme would have a pro-Europe element, and that’s useful in these times,” he said. If consumers end up buying Italian, French and Spanish cars, “it could help polish Germany’s image a bit in southern Europe”.

The more immediate focus, however, is on the auto industry’s domestic woes.

Investors bet American Airlines will default on debt

Price of carrier’s credit default swaps outstrips US competitors

The price for the Fort Worth airline’s credit default swaps has risen since February and outstripped other big US carriers. Historically, paying more for swaps, a financial instrument to insure against corporate default on debt, has indicated a greater risk of that happening. Bloomberg data show that investors think the airline’s default probability in the next five years is nearly 100 per cent.

American’s five-year credit default swaps hit 6,659 basis points, according to IHS Markit data. The price has risen more than 4,000 per cent in the past three months. The market priced swaps for United Airlines at 3,677bp, for Delta Air Lines at 1,212bp, and for Southwest Airlines at 505bp.

American’s debt totals $34bn, well above the $23bn on the balance sheets at both Delta and United, and almost six times as much as Southwest. That reality is driving speculation that American, which filed for Chapter 11 nine years ago, could be headed back to court — what lawyers grimly call “Chapter 22”.

“It truly is just where their debt level is relative to others,” said Berenberg analyst Adrian Yanoshik. “I could give you other reasons, but when you peel the onion back on those sub-reasons, they tend to end up with: They have more debt.”

An American spokesman said the airline was “right sizing” and planned “to reduce our 2020 operating and capital expenditures by more than $12bn. We expect to end the second quarter with approximately $11bn in liquidity, and we have significant unencumbered assets — valued at more than $10bn excluding the (mileage) programme — at our disposal.”

Airlines around the world are taking huge hits to revenue as the pandemic shrinks demand for air travel to near zero. US carriers have parked hundreds of planes and are drawing on a $50bn aid package that the federal government approved in March.

David Calhoun, Boeing chief executive, said in a May 12 interview that a big US carrier would “most likely” file for bankruptcy this year. A spokesman said he was not referring to any particular airline, but the remark still raised eyebrows in aviation.

Capital expenditures and share buybacks both contributed to American’s debt burden. The airline spent $30bn between 2013 and 2019 to renew its ageing fleet, replacing nearly 500 aircraft. It spent $13bn on share repurchases between 2010 and 2019. The company also posted lower earnings in recent years than competitors.

S&P Global Ratings analyst Philip Baggaley recalled that American executives said when they prioritised buybacks over debt repayment that the airline’s balance sheet remained satisfactory according to their modelling.

“They were well prepared for a once-every-10-years hurricane, and unfortunately, they got a once-every-100-years hurricane,” he said.

American has raised new capital, but less than either Delta or United. Existing debt makes credit so expensive for American that it is harder to afford liquidity-boosting transactions like selling planes and leasing them back, Mr Yanoshik said. American received $5.8bn from the first portion of the US government’s $50bn bailout, which was meant to support payrolls. Chief executive Doug Parker said the company also will tap $4.8bn in loans at about 4 per cent interest, calling it “the most efficient financing out there for American Airlines”.

By contrast, United and Delta have applied for the loans but plan to wait until the government’s September 30 deadline before deciding if they will access the money.

American faces challenging circumstances, Mr Yanoshik said, and while the credit default swap markets are not infallible, they tend to be efficient. He would not “lean against the wind” to predict a low risk of default “because we kind of know what their options are, and their options are not good”.

Alibaba founder leaves after 13 years with Japanese tech group set to report historic loss

Alibaba founder Jack Ma is stepping down from SoftBank’s board after 13 years, the latest in a string of high-profile departures from the Japanese technology group that is headed for a historic loss. 

The resignation of Mr Ma follows the departure of outspoken critics of SoftBank founder Masayoshi Son’s pivot towards a $100bn investment fund, including Fast Retailing chief executive Tadashi Yanai. 

SoftBank is expected to report a $12.5bn annual operating loss — its biggest ever — when it publishes results later on Monday, as the market turmoil caused by the coronavirus outbreak wreaked havoc on some of the biggest bets made by its Saudi-backed technology fund. 

Shares in SoftBank briefly rose 3 per cent as the company said it planned to buy back as much as ¥500bn ($4.7bn) of its own shares by March 2021, in the first tranche of a ¥2tn share buyback announced in March.

Mr Ma and Mr Son are close friends and have been business partners since the founder of SoftBank made his most successful investment in Alibaba in 2000. But the two Asian billionaires have taken separate paths, with Mr Ma retiring as executive chairman of the Chinese ecommerce group in September to focus on philanthropic projects in education.

Mr Ma warned in a panel conversation with Mr Son in December that included discussion about the Vision Fund that “too much money” inevitably leads to a “lot of mistakes”.

SoftBank said Mr Ma had asked to resign for “personal reasons”. Alibaba could not be immediately reached for comment.

In addition to Mr Yanai, Nidec founder Shigenobu Nagamori stepped down from SoftBank’s board three years ago. Power struggles inside the Vision Fund also led to the departure last year of Mark Schwartz, the company’s longtime independent director. 

On Monday, SoftBank said it would add two new non-executive directors to its board: Lip-Bu Tan, founder of San Francisco-based venture capital fund Walden International and chief executive of Cadence Design Systems, and Yuko Kawamoto, a professor at Waseda Business School.

However, some analysts expressed reservations at the changes.

“We question whether these members would be able to challenge Son sufficiently to ensure good governance,” Lightstream Research analyst Mio Kato wrote in a note on research platform Smarkarma. 

SoftBank’s stock has climbed 74 per cent since plunging to a four-year low of ¥2,687 on March 19, a sell-off that prompted Mr Son to unveil plans for a $41bn asset sale to reduce debt and launch the share buyback.