FT : Paris considers loan to keep Air France-KLM flying

Paris considers loan to keep Air France-KLM flying
Airlines are scrambling to shore up finances as travel bans and coronavirus fears hit bookings

The French government is preparing to come to the aid of Air-France KLM, which has been hit hard by the coronavirus and Donald Trump’s travel ban.

France is studying how best to support the carrier, which is 14.3 per cent state-owned, with senior finance ministry officials saying they were considering loans rather than increasing their shareholding.

The government has already said it would stand behind the airline, which was formed by the merger of Air France and KLM of the Netherlands in 2004.

Bruno Le Maire, the French finance minister, said on Friday that France would “help all companies in which the state has a stake . . . Whatever it costs we will be at their side.”

After Air France-KLM chief executive Ben Smith and Mr Le Maire spoke on Friday, rumours swirled in the French press that the state was considering a capital injection. And while those rumours were swiftly denied by the finance ministry on Saturday, officials said such an injection remained an option if the situation deteriorated further.

Any increase in shareholding by the French state would risk increasing tensions with the Dutch government, which last year increased its shareholding to 14 per cent — roughly matching that of the French state’s — in order to protect its national interests.

The move to support Air France-KLM comes as airline chiefs around the world scramble to shore up their businesses as cancellations spike due to the virus and following US president Donald Trump’s move to block most travel by Europeans to the US.

The boss of British Airways said in a memo to staff this week that the current crisis is more serious than “the global financial crisis, the Sars outbreak and 9/11”. It is “a crisis of global proportions like no other we have known,” he added.

In a video to staff, Mr Smith, who is credited with starting to turnround Air France-KLM since taking over in 2018, said the company faced an “unprecedented situation” and was preparing a crisis plan.

Although they gained over 12 per cent on Friday, Air France-KLM shares have lost almost 50 per cent in the past month.

Air France-KLM declined to comment on the government’s plans but had said on Friday that it had drawn down €1.1bn of its revolving credit facility to “limit the impact of the virus on its profitability and preserve its financial flexibility”. Its total liquidity now stands at €5.5bn.

“The European airline industry is ripe for consolidation,” said Stephen Furlong, an aviation analyst with Davy. “I’d say Air France-KLM is a survivor in part because there is obviously quasi-government backing.”

FT : Traders learn to adapt in biggest homeworking shift since 9/11

Traders learn to adapt in biggest homeworking shift since 9/11
Remote connections to typically bustling trading floors pose liquidity problems

For the asset management arm of one European bank this week, the back-up plans appeared to be running smoothly. The firm had listened to the medical advice, told some of its bond traders to work from home and dusted off its little-used business resilience plan.

Then a storm hit the markets on Monday and the portfolio managers wanted to react. They hit a serious problem.

“Our traders can’t go into the system and do a trade remotely — at least they couldn’t until we tweaked the rule,” the chief information officer of the asset manager said. The firm had considered freeing up remote access in the past, he said. “But we didn’t actually make it possible until the virus.” 

Getting by has become common as bankers, brokers and asset managers accustomed to working in a highly customised work environment are split up and sent either to work from home or at back-up sites in satellite towns around big trading hubs.

It is shaping up to be the biggest test of the physical infrastructure for trading since the September 11 attacks of 2001, when thousands of traders in New York were sent home. This dislocation appears to be contributing to the dramatic volatility in equity and bond prices. 

“The mass relocation of a significant fraction of market making . . . has almost no historical precedent in terms of its reach or scale, with the exception of 2001,” said Joshua Younger, an analyst at JPMorgan. “Liquidity overall could also suffer, with some signs of emergent stress . . . in even benchmark Treasuries.” 

Many markets have changed dramatically in the last 19 years. The vast majority of trading in equities, futures and currencies is now done not by humans but by humming machines in data centres miles from the traditional trading floors of London and New York. 

Since the onset of the virus, exchanges are being forced to adapt. Intercontinental Exchange, which operates the Brent crude oil contract, shut down its London office for the week after one employee tested positive for coronavirus. But the majority of its users access its markets with a remote login to their normal workplace systems. 

“It is not a physical market any more. Investors are ready,” noted Brian Levitt, global market strategist for North America at Invesco. 

More shutdowns will follow next week. At the end of Friday the CME and CBOE Global Markets were due to close their trading floors in Chicago as a precaution, although electronic services will continue. 

Leaving a workplace where the infrastructure is both regulated and designed for maximum efficiency creates a new set of potential problems.

The UK’s Financial Conduct Authority said it expected all the companies it regulates to continue to meet obligations, such as entering orders and transactions promptly into relevant systems, using recorded lines when trading and giving staff access to compliance support. 

Finra, the regulator for thousands of brokerages in the US, indicated it would ease some of its rules and allow traders to work remotely if employers could maintain a supervisory system. 

“Liquidity is certainly a concern. People are separating operations and working from home . . . Certainly once you divide those groups like that, it could pose a problem in terms of desk communication and things of that nature. It is something that we are watching,” said John McColley, a portfolio manager for liquidity strategies at Columbia Threadneedle Investments. 

That could be exacerbated with some traders located at back-up sites out of town. Most of these are synchronised to receive and send information at exactly the same time as the principal site where the bank’s servers sit. Those that do not synchronise face a delay in speed of around one millisecond — an age in a world of high-speed trading. A bigger problem lies in the lack of communication. 

“If you are no longer sitting in the trading room and you don’t hear that old-fashioned market colour that comes across the desk, that has the potential to change the dynamics of the market,” said Kevin McPartland, head of market structure and technology research at Greenwich Associates. 

For many banks the issue is not slow trading speeds, which can be strained especially in a home environment, but meeting compliance requirements. Traders need to use recorded lines and many banks already have restrictions on using mobile phones on the trading floor. “We’ve always assumed working from home is a non-starter,” said one trader. “You’d have to rebuild the trading floor in every home.” 

But as public health warnings and precautions are stepped up, some accept there is likely to be a trade-off. 

“With Street desks moving, some working partly from home and some partly in the office, you have to expect liquidity will get reduced over the next few weeks,” said Ashok Bhatia, deputy chief investment officer for fixed income at Neuberger Berman. “We are hopeful things will be smooth . . . you plan for the worst and hope for the best.”

Some challenges are unexpected. Traders at one bank, which has split its 24-hour coverage team into three, are finding it difficult to take toilet breaks at busy periods because it would leave the desk understaffed. 

Barron’s Weekend Summary: The coronavirus poses an existential threat to the air

Barron’s Weekend Summary: The coronavirus poses an existential threat to the airline industry, and it may put a stop to what was set to be a bumper year for tech IPOs
* Cover story: The coronavirus outbreak poses an existential threat to the airline industry, leaving carriers fighting for survival and trying to reassure Wall Street that they can stay in business even under dire circumstances—but as bad as things are now, they could get worse, though the industry will ultimately survive because it is the backbone of global growth.

* Tech Trader: The IPO market is inherently risky even in the best of times, and while this was supposed to be a big year for another bumper crop of highly valued unicorns, including Airbnb, DoorDash, and Robinhood, none of those are sure things anymore—the coronavirus pandemic has all but closed the IPO window.

* Trader: Despite all the coronavirus-related turmoil, market professionals advise against excessive caution and inaction—Donald Donabedian of CIBC says investors should focus on good business fundamentals and not switch to names with the lowest beta or price/earnings ratio; Berkshire Hathaway chief Warren Buffett has the opportunity to follow his own maxim that investors “should be fearful when others are greedy and greedy when others are fearful” and make what could be some lucrative investments, as he did during the financial crisis.

* Interview: Renowned stock market forecaster Ed Yardeni, who has dismissed previous market jitters as “panics,” downgraded his forecasts for growth and earnings to reflect the new unknowns, and says that “If you have cash, this is the time to buy quality names, some of the dividend-yielding stocks,” and that the coronavirus should dissipate significantly by the middle of the year, ending a recession and bear market in stocks.

* Features: 1) Positive: CXO, COG, PSX, VLO, EURN, INSW, STNG: Analysts recommend these seven stocks as ones that could still prosper amid the slump in oil prices resulting from OPEC and Russia’s moves to dump cheap crude on the market, hammering US shale companies; 2) Members of Barron’s Roundtable offer stock picks for investors betting on a rebound after the coronavirus crisis: Scott Black (ORCL, UPS, MRK, NVS), Todd Ahlsten (AMAT, BDX), Meryl Witmer (SCHW, PSX, NGVT), William Priest (UNH, MRK, AMGN, CME), Henry Ellenbogen (KWR, WST), James Anderson (ILMN), Mario Gabelli (HRI, CR); 3) Positive on LUV, DAL: Airline investors may want to stay on the sidelines until there’s evidence that the coronavirus threat is receding, but a Barron’s stress test on airlines found a few to consider, especially Southwest and Delta Air Lines, both of which should make it through the crisis more or less unharmed; 4) Global governments face growing pressure to introduce measures to ease the coronavirus crisis, but unlike the 2008 financial crisis, the damage from the pandemic is more widespread, globally and across sectors, making it harder than just bailing out a single sector like banks; 5) Cautious on RCL, CCL: The rapidly deteriorating situation in the cruise industry, which is strapped with fixed costs, poses a major test of the financial strength of the cruise companies and could lead to a cash crunch and, by extension, dividend cuts for the two lines that pay them.

* Top Financial Advisors: Story about Barron’s annual list of the 1,200 top financial advisors says they “are scrambling to react to coronavirus headlines—reassuring clients, reviewing allocations, and rethinking how their teams work together,” as well as preparing for Regulation Best Interest, which takes effect in June and bars broker-dealer advisors from placing their own interests, or those of their employers, above those of their clients.

* European Trader: Cautious on Intertek Group: The British product-testing company’s reliance on international trade—which is under pressure from trade wars and fallout from the virus—means it isn’t a good short term bet, and investors should take profits.

* Emerging Markets: “It’s hard to think about dust settling from the Covid-19 pandemic when each day brings a blinding new storm—but the case is building that China and other emerging markets could lead the inevitable rebound in stocks.”

* Commodities: Copper, known as a leading indicator of economic activity, has suffered along with many other commodities on the heels of the spread of the coronavirus, and its price moves “are particularly important for those who look to the metal for hints on where the economy and stock market are headed.”

* Streetwise: “If you’re shopping for stocks now—and there are plenty of reasons to do so—think like a lender,” say columnist Jack Hough. “Look beyond income statements, and what they say about cheapness, to balance sheets and cash-flow statements, and what they show about the ability to weather a collapse in commerce.”

>>> Thermo-Fisher : FDA issues Emergency Use Authorization to Thermo Fisher for

Thermo-Fisher : FDA issues Emergency Use Authorization to Thermo Fisher for diagnostic test used to detect COVID-19

Announced today that the U.S. Food and Drug Administration (FDA) has issued an emergency use authorization (EUA) for its diagnostic test that can be used immediately by CLIA high-complexity laboratories in the U.S. to detect nucleic acid from SARS-CoV-2, the virus that causes COVID-19, and not for any other viruses or pathogens.

The authorized test uses Applied Biosystems TaqPath Assay technology and is designed to provide patient results within four hours of a sample being received by a lab. The estimated time-to-result also includes time for sample preparation and instrument analysis."

The authorization of our diagnostic test for COVID-19 will help to protect patients and enable medical staff to respond swiftly to treat those who are ill and prevent the spread of infection," said Marc N. Casper, chairman, president and chiefexecutive officer of Thermo Fisher Scientific. "At Thermo Fisher, our Mission is to enable our customers to make the world healthier, cleaner and safer. In partnership with the FDA and regulatory authorities around the world, we are committed to expanding the availability of diagnostic testing to prevent the spread of this disease."The EUA test is optimized for use on the company's Applied Biosystems 7500 Fast Dx Real-time PCR instrument, which is covered under the EUA and already used in clinical laboratories worldwide.

This test has not been FDA cleared or approved, however, the FDA can issue an EUA to permit use of certain medical products that may be effective in diagnosing, treating or preventing a disease or condition, as in the case of the novel coronavirus when the secretary of the U.S. Department of Health and Human Services (HHS) declares a public health emergency. HHS Secretary Alex Azar declared an emergency for COVID-19 on January 31. The test is only authorizedfor the duration of the declaration that circumstances exist justifying the authorization of emergency use of in vitro diagnostic tests for detection and/or diagnosis of COVID-19 under Section 564(b)(1) of the Act, 21 U.S.C. § 360bbb-3(b)(1), unless the authorization is terminated or revoked sooner.

Barron's : Panic Seized the Stock Market Last Week. Here’s What to Do Now.

This is what a market panic feels like. But now that the storm has made landfall, it’s time for unnerved investors to sort out a few things: What just happened, why did it happen, and, most important, what should they do next. The pros have some advice: Don’t be too cautious.

What just happened? The coronavirus was declared a pandemic by the World Health Organization. Saudi Arabia announced a huge output increase, sending oil prices plunging. Forrest Gump contracted the coronavirus. There are no basketball scores to check. Baseball won’t start on time this spring. And President Donald Trump declared a national emergency on Friday after announcing a European travel ban on Wednesday.

Investors had a brutal week. All three major U.S. indexes fell into bear-market territory, ending an 11-year bull market in U.S. stocks.

The Dow Jones Industrial Average fell 2,679 points, or 10.4%, to 23,185.62. The S&P 500 dropped 8.8%, to 2711.02, and the Nasdaq Composite dropped 8.2%, to 7874.88. It was one of the 20 worst weeks of all time for the Dow. The weekly Dow drop came despite an epic 1,985-point rally on Friday.

The numbers are breathtaking. They will be talked about by our children’s children.

“This stinks, it’s horrible, we hate it,” Bill Smead of Smead Capital tells Barron’s, reflecting on the recent trading action. Unmitigated selling pressure causes a panic. No one likes a panic, but stock-market history is dotted with them.

“Most of the clients we speak to don’t feel like they are panicking,” says RBC head of U.S. equity strategy Lori Calvasina. That might be true, but that is the nature of a market panic. No one suggests people act against their own economic self-interest. But in a panic, the buy orders dry up. Traders step back because of extreme volatility. That leaves, essentially, an imbalance of sell orders.

There are, of course, new risks for investors to discount. Some, like a pandemic, are hard to understand. If investors go to Wikipedia to learn the definition of pandemic, it’s a sign things aren’t normal.

All the stress can compress investors’ time horizons. Falling 2020 earnings estimates start to dominate better potential earnings in the future. The S&P 500 now trades for less than 13 times 2022 estimated earnings. Things should be back to normal by then. It is also what stocks traded for around the lows of 2002, 2016, and 2018.


That’s the what. The why is the easiest question to answer. It is the virus—and the fact that there are no good precedents to figure out when the crisis will pass or how many people will be significantly affected.

“I have purposefully stayed out of the science,” Calvasina says. “I’m interested in what the market is telling me.” And what the numbers show her is the market is pricing in a recession. “Last week the market was trying to hold 2,700,” she notes. That lines up with other 10% to 20% drops in the aftermath of the 2008-09 financial crisis. Those were market corrections. They didn’t imply recession.

The S&P 500 dipped below 2,700 this week before closing higher on Friday, after a final-hour rally. The next negative milepost Calvasina is watching for is 2,300. If the market breaks that level, then it is no longer pricing in just a garden-variety recession. It would signal worse things are on the horizon.

Even during the depths of Thursday’s 9.5% decline, the index hit only 2,479, well above her 2,300 barrier. As hard as it is to believe, the market tells Calvasina that it won’t be as bad as the financial crisis. The market doesn’t expect a grinding, year-plus slowdown accompanied by a 50% drop in stock prices. (The average peak-to-trough recessionary drop in U.S. stock prices is about 30%.)

What to do next? The pros advise against excessive inaction.

“Hiding in the market’s most conservative names was a nice idea three weeks ago, but it isn’t the best idea today,” David Donabedian, CIBC U.S. private wealth chief investment officer, tells Barron’s. “Just focus on good business fundamentals”—and don’t switch to names with the lowest beta or price/earnings ratio. (Beta measures a stock’s underlying volatility and correlation with the market.)

Calvasina agrees and is staying overweight in the industrial sector. “It is underperformed recently, but the sun will rise on the industrial economy again,” she says—probably by the middle of 2020, she calculates. Calvasina also recently upgraded her rating on the health-care sector, but not because of the virus. Former Vice President Joe Biden’s resurgence in the Democratic presidential contest reduced the “political risk” within that sector.

“This [volatility] will reverberate for a number of months,” Smead adds. He has 40 years of market history under his belt. He recommends shopping, too, but his shopping list includes his favorite stocks—which include home builders and banks—and not hand sanitizer.