FT : French central banker floats printing money to hand to companies

French central banker floats printing money to hand to companies
So-called helicopter money is ‘possible to imagine’, says Villeroy de Galhau

The head of the French central bank has floated the idea of printing money and giving it directly to companies, saying such measures could be conceivable if needed to combat severe deflation as eurozone policymakers seek to tackle the economic impact of coronavirus.

François Villeroy de Galhau, who is also a member of the European Central Bank’s governing council, said in a speech on Wednesday that if there was “a major risk to price stability” then it would be possible to consider that a “central bank would create money on a lasting basis to finance businesses directly” — a tactic that has been dubbed ‘helicopter money’.

While the ECB has massively increased its purchases of both sovereign and corporate bonds in response to the coronavirus crisis, it has shied away from discussing the possibility of “helicopter drops” that hand central bank money directly to businesses or individuals. The idea is likely to meet resistance from more conservative members of the ECB governing council, such as Germany’s Bundesbank boss Jens Weidmann, who have previously complained that it blurs the line between monetary and fiscal policy.

Some governments have launched schemes to distribute money directly to citizens to cushion the impact of the coronavirus crisis, including those in the US and Hong Kong, but so far no major central banks have followed their lead.

Mr Villeroy said the recent fall in inflation — which recently dropped to 0.7 per cent in the eurozone, far below the ECB’s target of close to 2 per cent — was “fuelling some much more speculative and complex thinking on post-crisis monetary policy”. 

“If monetary financing of public authorities is prohibited by the European treaties, it would, for example, be possible, according to these theories, to imagine that the central bank would create money on a lasting basis to finance businesses directly,” he said. “In principle, nothing is ruled out in an intellectual debate. However, only a major risk to price stability from the bottom up could lead to such decisions being considered.” 

Mr Villeroy’s move came after the ECB provided much of the eurozone’s initial response to the economic downturn by launching a €750bn bond-buying programme, while EU politicians are still bickering on what joint action to take.

Some economists are calling on the ECB to launch a programme of helicopter money, arguing that central banks should directly fund government deficits which are expected to expand rapidly because of the extra spending needed to mitigate the impact of the economic slowdown.

Gilles Moec, chief economist at French insurer Axa, said: “I think allowing central banks to ‘vacuum out’ the emergency loans granted to SMEs and de facto extinguish them . . . would be an elegant solution since it would circumvent the prohibition of monetary funding of governments.”

However other economists fear the ECB is running short of options for further action, having already slashed interest rates deep into negative territory, promised a “no limits” asset purchase programme and injected vast amounts of cheap funds into the banking system.

“Now we are in a situation there is not much more the ECB can do, beyond a potential deflationary scenario,” said Frederik Ducrozet, strategist at Pictet Wealth Management. “But even then I think it is more likely they will do more with their existing tools [than launch further policies such as direct payments to individuals].”

FT: Centerview hires Lazard’s Matthieu Pigasse to lead new Paris office

Centerview hires Lazard’s Matthieu Pigasse to lead new Paris office
Self-styled enfant terrible of French financial world joins US investment banking group

Centerview Partners, one of America’s top investment banks, has hired Matthieu Pigasse to launch its Paris operations, six months after the former head of Lazard in France announced he was leaving to start a new project “beyond investment banking”. 

Mr Pigasse, who had fashioned himself as a disrupter in France’s close-knit financial world, will be joined by two other former Lazard bankers, Nicolas Constant and Pierre Pasqual, and 12 other professionals, to launch Centerview’s first office in continental Europe. The group will build on the team of 40 people already working for Centerview in London. 

The move by veteran dealmakers Blair Effron and Robert Pruzan, who co-founded Centerview in 2006, to expand in Europe comes at a time when a multiyear boom in dealmaking activity has come to a halt during the shutdown caused by the coronavirus pandemic.

“Despite current challenges, we are confident that businesses in France and across Europe are resilient and will be essential contributors to the global economic recovery,” said Mr Effron. “Matthieu is one of the most renowned and well-respected bankers in Europe.”

Centerview’s decision to go ahead with the long-planned opening of the French office during a tough time for businesses globally reflects the group’s faith in its ability to weather a potentially longstanding deal and revenue drought. 

With roughly 55 partners, New York-based Centerview generates about $1bn in revenues annually from deal fees. This has included advising 21st Century Fox on its $71bn asset sale to Walt Disney, and US jeweller Tiffany when it recently agreed to be acquired by French luxury group LVMH for $16.6bn. 

Mr Pigasse, who left Lazard in October after 17 years at the investment bank, said the opening of Centerview’s new office in Paris was “an act of confidence in the future”.

The decision by the flamboyant French banker, who also co-owns Le Monde newspaper, to join a rival investment bank marks a blow for Lazard. The venerable firm, founded in New Orleans in 1848 as a dry goods merchant by the Lazard brothers, has dominated deal advisory banking in France for decades. Centerview, which launched just over a decade ago, has emerged as a rival to Lazard in the US and will immediately challenge it on its home turf. 

In the weeks leading up to the October announcement that Mr Pigasse would leave Lazard by the end of 2019, there had been mounting speculation that he was in discussions with multiple firms looking to launch in Paris. Both he and Lazard, however, consistently denied he would leave.

Mr Pigasse’s departure⁠ — which he described at the time as “my next chapter beyond investment banking in a new entrepreneurial project” — was at least partially a relief for Lazard’s senior management who had grown weary of the ongoing drama. Nevertheless, insiders at the bank’s 30 Rockefeller Plaza headquarters in New York believed that their Parisian colleague would not defect to an arch-rival.

Kenneth Jacobs, chairman and chief executive of Lazard, said at the time of Mr Pigasse’s departure: “Matthieu has unfortunately decided to resign, and I want to thank him for his contribution and wish him every success as he turns to his new entrepreneurial endeavour.”

Mr Pigasse has advised some of France’s largest companies, including Carrefour, Sanofi, L’Oréal and Danone, and carved out a reputation advising on sovereign debt restructuring for Iraq, Ecuador, Argentina, Cyprus and Greece. 

“Matthieu’s experience building long-term client relationships and mentoring younger bankers aligns perfectly with Centerview’s philosophy and culture,” said its co-founder Mr Pruzan. 

WSJ : Hedge Fund Star Behind 4,000% Coronavirus Return Peers Into Crystal Ball

Hedge Fund Star Behind 4,000% Coronavirus Return Peers Into Crystal Ball
Mark Spitznagel’s investors made over 40 times their money last quarter, but they don’t have to agree with his economic view

Financial news outlets are full of predictions these days by investors who allegedly “called the coronavirus collapse” for what they think will happen next. A leaked client letter from a hedge fund star who made an absolute killing in the selloff promising a peak into his “magical crystal ball” is practically financial catnip.

Mark Spitznagel could be forgiven some immodesty. His Universa Investments, which offers investors a tail-risk hedging strategy that serves as an insurance policy against extreme market events, made a return as crazy as the market action this year: 4,144% in the first quarter.

That is the net return of the strategy on its own, but Universa expresses it as a small part of an overall portfolio. For example, last month the S&P 500 lost 12.4% of its value while an investor with 3.3% in Universa’s tail-risk hedge strategy and the remainder in an index fund tracking that stock market benchmark would have made 0.4%. No other “risk mitigation” trade, such as putting a chunk of a portfolio in gold, bonds or a basket of hedge funds, would have had a positive return.

Yet a fantastic month for stocks wouldn’t have meant the inverse because Universa doesn’t make linear bets—its frequent losses are small. Moreover, four pages after teasing readers with his “crystal ball” comment, Mr. Spitznagel notes that he has no idea what will come next. His recent bonanza wasn’t based on some hunch that the coronavirus would turn into an economically ruinous pandemic.

“As we gaze into the abyss of the coming months and years, we needn’t care what gazes back,” he says.

Longtime watchers of the talented Mr. Spitznagel won’t be surprised that his crystal ball comment was tongue-in cheek, and they also won’t be shocked to hear his take on the macroeconomic environment. He notes that, “if the pandemic doesn’t pop this bubble then, of course, it will be something else that eventually accomplishes this.” His operating assumption has long been that we are in a bubble and that central banks are the force that keeps inflating it. And if he thought so before the Federal Reserve’s multitrillion dollar response to the pandemic then he certainly should be more convinced that the eventual reckoning will now be worse.

He may well be right, but it is an unusual degree of certitude for someone who claims not to be able to predict crashes. After all, Universa got its start in 2008 just as central banks ramped up what he considers to be a dangerous game and his returns have been superb despite their unprecedented stimulus.

It is possible to be an investor in Universa and to be agnostic about Mr. Spitznagel’s economic musings. What is getting harder to doubt is his mathematical prowess and the notion that markets do a lousy job of anticipating black swan events like the coronavirus pandemic.

FT : Covalis targets $500m fund to profit from market turmoil

Covalis targets $500m fund to profit from market turmoil
Sharp swings in stock prices are throwing up opportunities, says hedge fund founder

London-based investment firm Covalis Capital is planning to raise $500m for a new portfolio to take advantage of sharp stock market moves, the latest fund to spot opportunities in the coronavirus-driven turmoil.

Covalis, an equity-focused company that manages roughly $1.5bn in assets, believes large-scale selling by investors cutting exposures in recent weeks, as well as the impact of government lockdowns on companies’ earnings, is throwing up trades for managers who can act quickly.

“We see a lot of dislocations right now,” said founder Zach Mecelis, a former trader at hedge fund GLG Partners, whose company specialises in trading utilities, commodities and infrastructure stocks. “We’re our most excited on a five-year view.”

The fundraising follows similar moves by a number of larger managers that have been closed to new investors for long periods. DE Shaw is raising $2bn for its first fundraising in its flagship fund in seven years and Baupost has been approaching investors, while Christopher Hohn’s TCI has been looking at further fundraising after being approached by investors.

Covalis’s two hedge funds have been shut to new money for several years. However, it has occasionally done co-investments, in which a client invests alongside a hedge fund in a specific trade.

But such arrangements can take time to put together. And because of the sharp daily swings in stocks over recent weeks, some disparities in share prices have opened up only for a matter of days.

For the new vehicle, investors will reserve a portion of the $500m capacity and, if an investment that Covalis spots meets their criteria, then it can put the money into the market rapidly.

Mr Mecelis said he had noted peculiarly large falls in some stocks hit by investors slashing risk, even though other stocks in the same industry and with similar characteristics were less affected.

He also pointed to sectors such as airports and toll roads, where the impact of the coronavirus lockdown around the world is badly denting companies’ earnings. Such large changes in profits, which have been lacking in recent years, can create opportunities for traders to bet on one stock against another.

“We've lived in a world where dispersion is very low, which is depressing,” he said, referring to the spread of profits of individual companies. “We now see enormous dispersion and volatility of earnings.”

Covalis’s main fund has made an average annual return of around 14 per cent, including double-digit gains in 2015, 2016 and 2017. 

Meanwhile, US-based hedge fund Pecora Capital has raised $30m for a new Recovery Opportunity fund, to take advantage of short-term price falls in stocks and other assets.

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance:

  • MSM -1.8%

Select China related names showing weakness:

  • GSX -7.4%, EDU -4.6%, BIDU -3.7%, VIPS -3.6%, WB -1.8%, BABA -1.6%, HUYA -1.1%

Other news:

  • TAL -9.4% (announced certain employee wrongdoing discovered in the Company's routine internal auditing process), IQ -5.4% (iQIYI responds to short seller report; believes report contains "numerous errors, unsubstantiated statements and misleading conclusions")
  • PTCT -3.2% (provide regulatory update on risdiplam for the treatment of spinal muscular atrophy; FDA extends PDUFA date)
  • ALGT -2% (updates schedules and strategic measures being implemented; current cash burn is estimated to be $2.0 to $2.5 million per day)
  • ZUO -1.2% (light volume; appointed Paolo Battaglini, Chief Accounting Officer, to serve as interim CFO, Principal Financial Officer and Principal Accounting Officer effective on April 5, 2020)
  • SAGE -0.6% (announces restructuring and headcount reductions to introduce cost savings)

Analyst comments:

  • AMC -5.1% (downgraded to Sell from Hold at Loop Capital)
  • W -4.4% (downgraded to Underweight from Neutral at JP Morgan)
  • WU -2% (downgraded to Underweight from Equal Weight at Wells Fargo)
  • CWH -0.8% (downgraded to Neutral from Buy at Northcoast)
  • DIS -0.6% (downgraded to Equal Weight from Overweight at Wells Fargo)