FT : China’s central bank in talks to cut rate banks pay to savers

China’s central bank in talks to cut rate banks pay to savers
Reduction in deposit rate would help boost banks’ profitability hit by coronavirus

China’s central bank is in discussions to cut the interest rate banks pay on deposits for the first time since 2015, in a bid to help banks eke out higher profits as they are enlisted to help spur an economic recovery following the coronavirus outbreak.

The country’s economy has been brought to a standstill since the global pandemic started in January. But the PBoC’s response to the crisis has been relatively muted compared to efforts in the US and Europe, where billions of dollars are being deployed by central banks to fight a global recession.

Chinese banks have been recruited, however, to help boost the economy. They have been told to extend loans to struggling companies, lower lending rates and increase their tolerance for bad debt created during the crisis.

While such measures could be effective in helping troubled companies survive over the next few months, they are also expected to hurt bank profitability in 2020.

A deposit rate cut could be announced in the coming days, according to two people familiar with the discussions at the People’s Bank of China.

Lowering the deposit rate would provide more breathing room by widening the spread between how much they pay out to depositors and how much they charge for loans.

The PBoC has been pushing through interest rate reforms for several years in which it has sought to move away from setting the rates for loans and deposits. But banks still use deposit rates set by the central bank to determine how much they pay depositors.

The PBoC last cut the demand deposit rate, or the rate it pays on ordinary deposits, in 2012. Term deposit rates for deposits held for a set amount of time were last cut in 2015.

A cut in the benchmark savings rate would be primarily aimed at shoring up the banking sector rather than spurring consumption, according to people familiar with the PBoC’s deliberations.

“The main reason is to encourage banks to lend without squeezing their margins,” one of the people said. “It’s mainly about protecting the banks.”

The people added that the measure would probably be paired with more cuts in the central bank’s medium-term lending facility, which influences the benchmark loan prime rate announced by banks on the 20th of each month. The LPR is a new benchmark lending rate adopted last year that is intended to be more market oriented.

Since the coronavirus pandemic erupted, the LPR has been cut just once and only by 10 basis points, to 4.05 per cent. The central bank has also cut the reserve requirement ratio to free up more capital in the banking system.

Many analysts have been expecting a cut to the deposit rate for weeks.

“The chances [for a savings rate cut] are quite decent,” said Harry Hu, a senior director for financial institutions ratings at S&P Global. “They need the banks to continue to make a profit.”

Last week, China’s National Bureau of Statistics released a series of weak economic indicators for January and February, after which analysts began to revise down their already low expectations for first-quarter gross domestic product growth.

Based on a calculation by Capital Economics, gross domestic product in the first three months of this year is expected to contract by about 20 per cent quarter on quarter.

>>> US After Hours Summary: Nike jumps as earnings not as bad as expec

After Hours Summary: Nike jumps as earnings not as bad as expected; SNX -13.8% down sharply on earnings

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: NKE +11.1%, SCS +2.5%, AIR +1.8%, GVA +0.4%, SQ +0.2% (forecasts Q1 revs higher but EPS below prior guidance)

Companies trading higher in after hours in reaction to news: EVRI +12.4% (withdraws its 2020 guidance), AYR +3.6% (receives final regulatory approval in connection with pending merger), HNGR +1% (withdraws its 2020 guidance), JACK +0.9% (closes dining rooms system-wide; borrows under is credit facility)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: HOME -21.4%, SNX -13.8%, NOAH -7.1%, GO -2.1%

Companies trading lower in after hours in reaction to news: TTEC -3.2% (withdraws guidance), FB -1.8% (discloses increased user engagement with apps in countries hardest hit by the virus)

WSJ :Trump Hopes to Have U.S. Reopened by Easter, Despite Health

Trump Hopes to Have U.S. Reopened by Easter, Despite Health Experts’ Warnings
President says Americans could continue social distancing but go back to work after 15-day period end

WASHINGTON—President Trump said he hopes to have the country reopened in just over two weeks, a timeline that is dramatically sooner than what many public-health experts have recommended to help contain the coronavirus pandemic.

“I would love to have the country opened up and just raring to go by Easter,” Mr. Trump said on a Fox News town hall filmed in the White House Rose Garden on Tuesday. Easter falls on April 12.

He said that once the 15-day period in which the government has urged Americans to practice social distancing ends next week, “we’ll stay a little bit longer than that” but that he wants the effective shutdown of the country to end “very soon.” He said Americans could continue to practice some form of social distancing while also going back to work.

In a second Fox News interview on Tuesday, Mr. Trump said he was concerned that keeping the U.S. shut down longer would make it more difficult for the economy to bounce back. “The longer it takes, the longer we stay out, the longer that is to do,” he said.

Mr. Trump’s comments marked the escalation of a complicated debate, both inside and outside the White House, over how to balance the public-health benefits of coronavirus restrictions against the broad economic pain those measures are causing.

For days, the president and his aides have been discussing easing social-distancing guidelines as early as next week. The president has been pushed by advisers and business leaders to boost an economy beset by deepening job losses nationwide, people familiar with the discussions said. Among those who have pressed the president to get the economy running are Treasury Secretary Steven Mnuchin and Domestic Policy Council director Joe Grogan, people familiar with discussions said.

Conservative economist Stephen Moore, an informal outside adviser to the president, has been advocating for reopening businesses and getting people back to work and said he had a conversation Monday with top level White House officials about the idea.

“I think it will be a real shot of confidence to the business community and investors that we’re not going to see a multi-month checked out period, which would be catastrophic,” Mr. Moore said.

His White House conversation followed a Sunday conference Mr. Moore participated in with about a dozen economists and business leaders to discuss the idea. The group suggested Easter Sunday as a date for an “economic resurrection,” though Mr. Moore said he wasn’t sure that was what prompted the president.

“His presidency is riding on getting this right,” Mr. Moore said. “He’s got to make sure that the plan of action is sensible and sound and takes an appropriate balance of getting people back on the job while not making the pandemic worse. You have to have very strict public safety measures.”

As state and local governments have directed Americans to stay home, financial markets have taken a steep dive in recent weeks, as concerns about growth prospects have erased nearly 30% of the value of the S&P 500 and left volatility in American stocks at historically high levels.

Other aides, particularly public-health advisers, have cautioned Mr. Trump against easing the guidelines, warning the measures remain necessary.

Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, said in an interview on NBC on Friday that it would be at least several weeks before the coronavirus outbreak in the U.S. begins to abate. “I cannot see that all of a sudden, next week or two weeks from now it’s going to be over,” he said. “I don’t think there’s a chance of that. I think it’s going to be several weeks.”

Other leading public-health experts also called for greater caution. More than 130 million Americans are being urged by cities and states to stay at home. There have been 544 deaths in the U.S. from coronavirus and about 44,100 identified cases, according to the Centers for Disease Control and Prevention.

House Speaker Nancy Pelosi (D., Calif.) firmly disagreed with the president’s call to open up businesses, saying that the country should listen to the medical professionals.

“This is not a time for notion-mongering, this is a time for serious, evidence-based decision making,” she said in an interview on MSNBC on Tuesday. “What the president is suggesting is really a formula for more uncertainty, more infections and more harm to the economy.”

Some conservative lawmakers expressed caution as well. Rep. Liz Cheney (R., Wyo.) wrote Tuesday in a tweet: “There will be no normally functioning economy if our hospitals are overwhelmed and thousands of Americans of all ages, including our doctors and nurses, lay dying because we have failed to do what’s necessary to stop the virus.”

The social-distancing guidelines instructed all Americans to avoid nonessential travel, sit-down restaurants and gatherings of more than 10 people, among other steps.

Even if the president relaxes federal guidelines, Americans would still be subject to restrictions that governors and mayors nationwide have rolled out, shutting schools and many retail businesses.

As millions of Americans have stayed home, job losses have escalated while businesses fret about making rent payments. “You can destroy a country this way, by closing it down,” Mr. Trump said on Tuesday. “I gave it two weeks…and we’ll assess at that time, and we’ll give it some more time if we need any more time. But we have to open this country up.”

He predicted that if the shutdown continues, the economy could descend into a massive recession, which he said could be accompanied by a marked uptick in depression. “You’re going to have suicides by the thousands,” he said.

>>> US Close Dow +11.37% S&P +9.38% Nasdaq +8.12% Russell +9.39%

Closing Stock Market Summary

The S&P 500 surged 9.4% on Tuesday, as news that the elusive fiscal stimulus package was close to being agreed to in the Senate spurred a broad-based rebound. The Dow Jones Industrial Average climbed 11.4%, the Nasdaq Composite climbed 8.1%, and the Russell 2000 climbed 9.4%.

All 11 S&P 500 sectors posted strong gains, especially the energy (+16.3%), financials (+12.8%), and industrials (+12.8%) sectors. The consumer staples sector (+4.8%) was the lone sector to advance less than 5.0%. 

Lawmakers continued to narrow their differences on the stimulus bill, with Senate Minority Leader Schumer (D-NY) placing negotiations "on the two-yard line" around lunchtime. According to CNBC, the White House is hopeful to have agreement in principle by "sunset," but noted it was unlikely that an actual Senate vote would take place tonight. 

An agreement is needed to restore some confidence for consumers, investors, and businesses during the economic shutdowns across the country. The Fed has already stepped in numerous times to expand credit and liquidity, while President Trump today provided a goal for when he wants the economy to reopen despite the outbreak. 

Specifically, President Trump said he would love to have the country open for business by Easter (April 12) but will decide based on expert input from health officials. New York Governor Cuomo, who has been very active in trying to slow the rising rate of infections, empathized with the president but argued that we shouldn't "accelerate the economy at the cost of human life."

Nevertheless, the prospects of fiscal stimulus and possibly having the economy reopen in April, combined with some short-covering activity and a bargain-hunting mindset, helped the market bounce from a deeply oversold condition. Tuesday's huge gains cut the S&P 500's monthly decline to 17.2% and yearly decline to 24.3%. 

Chevron (CVX 66.55, +12.33) was among today's largest gainers with shares rising 22.7%, as investors were pleased to hear that the company has no plans to cut its dividend despite the turmoil in the oil market. The company also cut its capital spending plan by $4 billion and suspended its share buyback program. WTI crude rose 1.9%, or $0.44, to $23.93/bbl on Tuesday. 

U.S. Treasuries retreated for most of the day but did close off session lows. The 2-yr yield rose eight basis points to 0.37%, and the 10-yr yield rose five basis points to 0.82%. The U.S. Dollar Index declined 0.5% to 101.96. Gold futures rose 6.0% to $1659.80/ozt to extend its weekly advance following some positive-minded commentary out of Goldman Sachs.  

Friday's lone economic report was New Home Sales for February, which decreased 4.4% m/m in February to a seasonally adjusted annual rate of 765,000 units (consensus 761,000) from an upwardly revised 800,000 (from 764,000) in January.

  • The key takeaway from the report is that it shows new home demand was strong in February, but that was before everything changed this month in the U.S. with the coronavirus situation, which is expected to severely weigh on home buying interest in the near term.

Looking ahead, investors will receive Durable Goods Orders for February, the FHFA Housing Price Index for March, and the weekly MBA Mortgage Applications Index on Wednesday.

  • Nasdaq Composite: -17.3%
  • S&P 500: -24.3%
  • Dow Jones Industrial Average: -27.5%
  • Russell 2000: -34.3%

FT : SoftBank held talks on going private with Elliott

SoftBank held talks on going private with Elliott
Masayoshi Son explored buyout with US hedge fund and Mubadala before selling assets

SoftBank Group explored an audacious attempt to take the Japanese technology conglomerate private over the past week, holding discussions with investors including hedge fund Elliott Management and the Abu Dhabi sovereign investment vehicle Mubadala. 

The talks, which were confirmed by three people with knowledge of them, came as SoftBank founder Masayoshi Son scrambled to revive shares in the Japanese-listed group, which has $55bn in net debt, after a stock market rout last week.

Eventually SoftBank decided instead to move ahead with a plan to sell down about ¥4.5tn ($41bn) in assets to pay down its debt and boost a share buyback to a huge ¥2.5tn ($23bn). That has helped revive SoftBank shares from a four-year low to ¥3,791, up 41 per cent from last week. 

But a potential take-private illustrates the extent to which Mr Son was considering all options to manage the turbulence that rattled SoftBank’s share price and global markets. At the end of last week, SoftBank’s shares had an equity value of around $50bn before any potential premium would have been applied. SoftBank, Elliott and Mubadala declined to comment. 

Mr Son, who already owns a quarter of the company, began thinking about a leveraged buyout after Gordon Singer, who runs the London office of Elliott, expressed interest in buying more SoftBank shares last week as their price fell, according to one person close to the talks. 

During the course of those discussions, these people said, Mr Son began to seriously study the formation of an investor consortium to take SoftBank private. “The idea originated from people around Masa and he wanted to explore it,” one person following the situation said. 

The discussions also involved some of Mr Son’s key lieutenants, including Yoshimitsu Goto, SoftBank’s chief financial officer, Rajeev Misra, the former Deutsche Bank trader who oversees SoftBank’s Vision Fund, and Marcelo Claure, the company’s chief operating officer. 

The plan was eventually abandoned for a number of reasons, including the complications around getting an investor consortium together quickly for such a large deal, Tokyo-listing rules and other tax considerations, multiple people said. 

Mr Son, a risk-addicted dealmaker, has repeatedly vented his frustration with the public markets, arguing that SoftBank’s equity value is at a steep discount to the value of its holdings, including a roughly $130bn stake in Chinese ecommerce giant Alibaba, a majority stake in the UK chip designer Arm Holdings as well as control of telecom operators Sprint and SoftBank Japan. 

By the end of last week, SoftBank said that discount had stretched to a record 73 per cent, the widest in the company’s history. 

FT : This pandemic is an ethical challenge

This pandemic is an ethical challenge
To avert disaster, solidarity between countries must be as strong as within them

The coronavirus seeks only to replicate. We seek to halt that replication. Unlike the virus, humans make choices. This pandemic will pass into history. But the way in which it passes will shape the world it leaves behind. It is the first such pandemic for a century. And it comes to a world that — unlike in 1918, when the Spanish flu hit — has been at peace and enjoys unprecedented wealth. We should be able to manage it well. If we do not do so, this will be a turning point for the worse.

Making the right decisions requires that we understand the options and their moral implications. We now confront two fundamental sets of choices: within our countries and across borders.

In high-income countries, the biggest choice is how aggressively to halt transmission of the virus. But we also need to decide who will bear the costs of that choice and how.

Some continue to argue that it is wrong to force the economy into a depression to suppress transmission of the virus. This, they suggest, will cause unnecessary disruption. If, instead, the virus is left to spread relatively freely, we can achieve “herd immunity”, sustain the economy and still focus resources on the vulnerable.

Yet it is not clear that the economy would fare better under this relatively laissez faire “mitigation” policy than under one of determined “suppression”. Long before government-imposed lockdowns, many people stopped travelling or going to restaurants, cinemas or shops. Decisive action to suppress the virus and follow up with testing and tracking of new infections could well end the inevitable economic slump even sooner than otherwise.


What seems quite certain is the global health system would fare much better under suppression than mitigation. Under the latter, argues the Imperial College Covid-19 Response Team, the health systems of the UK and US would be overwhelmed: large numbers of predominantly old people would be left to die untreated. It was presumably to prevent this from happening across China that the government suppressed the virus so fiercely in Hubei. Could a health calamity that is unacceptable in China be acceptable in the UK or US?

Yet the critics are also right: it will be impossible to close large parts of our economies for very long. If suppression is to be tried, it must be successful quickly and resurgence of the virus must be throttled. Meanwhile, central banks and governments must seek to keep as much of the economy going as possible, preserve as much productive capacity intact as possible and ensure that the people, above all the vulnerable, are generously protected in whatever way a country finds practical.


The solidarity between countries needs to be as strong as within them. The financial instability and looming recession (probably depression) we see coming will inflict huge harm on emerging and developing countries. The IMF states that investors have already removed $83bn from emerging economies. The fall in the prices of commodities, upon which many emerging and developing countries depend, is also deep.

These countries must also grapple with the domestic spread of the virus and the weakening of their own domestic demand. Their ability to manage these internal and external pressures is limited. The outcome could be huge economic and social disasters. The IMF itself already faces 80 requests for rapid financial support. The aggregate external financing gaps of emerging and developing countries are likely to be far beyond the IMF’s lending capacity.


These vulnerable countries will benefit if high-income countries succeed in suppressing the disease and rescuing their economies. But this will not be true in the short run. Emerging and developing countries will need much assistance. That will also help every country’s economic recovery. The virus is a shared challenge. So, too, is the coming global slump. Practicality and the demands of solidarity justify generous help.

The same is true within the eurozone. The defining characteristic of a currency union is that individual members have given up the insurance of fiscal autonomy and a sovereign currency in favour of collective mechanisms. During the global financial crisis, that largely failed a number of member countries. Yet, in that case, a moralistic argument could plausibly assert that it was in good part their own fault. This pandemic is not anybody’s fault. If the eurozone cannot show solidarity in such a crisis, its failure will be neither forgotten nor forgiven. The wounds will be deep, perhaps mortal. Without visible solidarity in a crisis for which nobody bears blame, the European project will be morally, maybe practically, dead.


Any cross-border aid cannot, moreover, be purely financial. Medical help will be needed too. A crucial step will be ending the spate of export controls that are destroying medical supply chains.

Fortunately, the disease we now confront is nothing like as bad as the plagues that repeatedly devastated the lives of our ancestors. Yet it is still something virtually no living person has experienced. It is a practical challenge that must be met with well-informed decisions. But it is also an ethical challenge. We should recognise both aspects of the decisions we must make.


Do leaders project calm and use reason? Do we defeat the disease, while minimising the economic damage? Do we ensure that the weakest people and countries are protected? Do we choose solidarity over hostility and global responsibility over inward-looking nationalism? Do we seek to bequeath a better post-pandemic world, not a worse one? Unlike viruses, human beings have choices. Choose well.

FT : NMC Health discovers further $1.2bn of undisclosed debt

NMC Health discovers further $1.2bn of undisclosed debt
Liabilities balloon at former FTSE 100 group with suspected fraud in its finance

NMC Health has discovered it has a further $1.2bn of undisclosed debt in the latest damaging revelation from the troubled healthcare provider, which earlier this month said it had found evidence of suspected fraud in its finances.

The Middle East-focused group said on Tuesday that its net debt had ballooned to $6.6bn after investigations uncovered more than $1bn of facilities that had not been flagged to the board, as well as about $50m of cheques used as guarantees.

The company’s last reported debt figure was $2.1bn, meaning that it has now discovered more than $4bn of loans that it had no knowledge of before a report by short-seller Muddy Waters in December raised questions about the extent of its financial position. 

At the time, the company denied the allegations of financial impropriety, but it has since admitted that it has found evidence of suspected fraud.

The crisis at NMC has raised questions about how a former FTSE 100 company in apparent good health and supported by several blue-chip financial advisers could have such huge holes in its accounts.

The Financial Conduct Authority is investigating the company, which has had its shares suspended since the end of February. Last month Prasanth Manghat was fired as chief executive, while chief financial officer Prashanth Shenoy resigned on Tuesday.

This month, the group said that it had uncovered more than $2.7bn in debt facilities previously not disclosed or approved by the board, more than twice its reported net debt position.

On Tuesday NMC revealed a complex web of loans, facilities and cheque guarantees.

The company has bilateral and syndicated debt obligations comprising more than 75 debt facilities from over 80 financial institutions, it said, with work ongoing to verify outstanding debt obligations. 

Its debt position is now estimated to be about $6.6bn, including a $360m convertible bond, a $400m sukuk — a bond structured to comply with sharia law — and billions of dollars of newly identified facilities.

Another $50m of cheques written by group companies and used as security for financing arrangements for others were also discovered.

NMC said it was continuing to work with its advisers — which include former FBI director Louis Freeh, who was appointed in January to investigate the allegations by Muddy Waters — to understand the nature and size of the undisclosed facilities, “including the circumstances in which they were obtained”. 

The board said that it believed that some of the proceeds may have been used for purposes outside the company, and it is trying to trace the proceeds and see if it can recover any cash.

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance:

  • N/A

Other news:

  • MIST -72% (announces top-line results from Phase 3 NODE-301 trial of etripamil for PSVT misses primary endpoint)
  • NYMT -35% (suspends dividends; notifies financing counterparties that it does not expect to fund existing and anticipated future margin calls)
  • VXX -15.16% (falling with Futures rising in pre-mkt)
  • LC -1% (says "vigilantly" monitoring performance)

Analyst comments:

  • VSH -1% (downgraded to Underperform at Exane BNP Paribas)