Gapping down
In reaction to disappointing earnings/guidance:
- STML -18.2%, GME -9.7%, ACIW -7.8%, APHA -7%, BSX -6.3%, WFC -1.7%, BLDR -0.9%, ETH -0.7%
Other news:
- NK -7.4% (surged late in day on Bloomberg report that CEO claims pancreatic cancer patient achieved a complete response)
- STAG -1% (commences 8 mln share offering)
Analyst comments:
- TEX -1.6% (downgraded to Underweight from Equal Weight at Wells Fargo)
- TTWO -1.5% (downgraded to Equal-Weight from Overweight at Stephens)
- FCX -1.4% (downgraded to Underperform from Neutral at Credit Suisse)
- LOGI -1.3% (downgraded to Neutral from Overweight at JP Morgan)
- SPLK -0.9% (downgraded to Neutral at First Analysis Sec)
- X -0.8% (resumed with a Sell at Goldman)
- BP -0.7% (downgraded to Hold from Buy at Berenberg)
Gapping up
In reaction to strong earnings/guidance:
- ICHR +14.2%, MX +11.4%, TCS +6.3%, ZUMZ +5.4%, CLDR +4.2%, DAL +3.8%, MCK +3.3%, CHEF +1.5%, JPM +1.4%, INFO +1.3%
M&A news:
- PERI +8% (to acquire Content IQ for $73.05 mln)
Other news:
- RTIX +93.5% (announces sale of OEM business for $490 mln)
- MMSI +9.7% (Bloomberg reports activist investor has built stake in MMSI, Starboard later confirmed stake)
- BYND +8.9% (continued strength)
- ACM +4.2% (speculation of WSP (WSPOF) interest in deal)
- PHAS +1.1% (acquires assets and intellectual rights related to aldosterone synthase inhibitors)
Analyst comments:
- CWH +5.2% (upgraded to Buy from Neutral at Northcoast)
- USX +5.2% (upgraded to Buy from Neutral at BofA/Merrill)
- NAV +2.1% (upgraded to Overweight from Equal Weight at Wells Fargo)
- GEF +1.2% (upgraded to Overweight from Equal Weight at Wells Fargo)
- WERN +1% (upgraded to Buy from Neutral at BofA/Merrill)
- WCC +1% (upgraded to Outperform from Sector Perform at RBC Capital Mkts)
Hedge Funds Could Make One Potential Fed Repo-Market Fix Hard to Stomach
Federal Reserve officials are considering a new tool to ease stresses in the repo market
One hurdle to a possible fix for recent volatility in the short-term cash markets: hedge funds.
Federal Reserve officials are considering a new tool to ease stresses in the market for Treasury repurchase agreements, or repos. Through the repo market, banks and hedge funds borrow cash overnight, while pledging safe securities such as government bonds as collateral. In September, an unexpected shortage of available cash to lend sparked a surge in the cost of repo-market borrowing, prompting the Fed to intervene for the first time since the financial crisis.
One potential solution is to lend cash directly to smaller banks, securities dealers and hedge funds through the repo market’s clearinghouse, the Fixed Income Clearing Corp., or FICC.
Hedge funds currently borrow through a process called sponsored repo, in which they ask a large bank to act as a middleman, pairing their government bonds with money-market funds willing to lend cash. The bank then guarantees that the parties will fulfill their obligations—repaying the cash or returning the securities. Firms trading through the FICC contribute to a fund that would cover a borrower’s default. Critics of the new plan say if the Fed lends cash directly through the clearinghouse, it could end up contributing to a hedge-fund bailout.
The Fed’s aim, according to analysts, is to step back from temporary efforts to quell repo-market volatility and increase financial reserves. After September’s volatility, officials succeeded in suppressing year-end swings with temporary measures, such as offering short-term repo loans and buying Treasury bills.
Yet the new approach could also create political problems for policy makers, analysts said. The problem centers on the central bank lending directly to hedge funds, the unregulated investment vehicles that tend to serve wealthy or institutional investors.
The political backlash that followed crisis-era bank rescues hangs over policy makers’ approach to the current problem, analysts said, even as officials work to ensure the smooth functioning of a key piece of the infrastructure underpinning financial markets. Some fear that lending directly to hedge funds could lead to the perception the Fed is fueling risky bets.
“There’s a strong aversion to fat cat bailouts,” said Glenn Havlicek, chief executive of GLMX, which provides technology to repo trading desks.
Many hedge funds trade in the cash market through sponsored repos. The clearinghouse sits between buyers and sellers to ensure that neither party backs out of the transaction. Records of cleared trades also are publicly available, improving the market’s transparency.
The idea of using the clearinghouse appeals to some investors and analysts because the Fed has had trouble getting cash into the hands of the smaller banks, securities dealers and investors who need it the most.
That is because the Fed trades exclusively with a small group of large banks and securities firms, known as primary dealers. Even among these firms, activity is tightly concentrated. A study recently published by the Bank for International Settlements said that liquidity in the repo market rests in the hands of the four largest banks in the U.S. system.
Though hedge funds are key participants in the market—where they both borrow and lend cash—lending to them directly through the FICC would raise questions about whether the government was backstopping their bets, analysts said.
Hedge funds often use borrowed money to increase potential gains from investments, but that strategy can also magnify losses. Policy makers typically haven’t encouraged the use of levered investment strategies. During the financial crisis, many said bets using borrowed money worsened the downturn.
Some investors say the connections between firms involved with sponsored repos make the distinction between lending to one or the other meaningless.
Gang Hu, a hedge-fund manager at WinShore Capital Partners, said he borrows cash in the repo market to increase the impact of his investments in Treasury-bond futures and other interest-rate products.
“They are reluctant to provide a tool that would allow” overall leverage to increase beyond current levels, Mr. Hu said. “The system cannot work without leverage, but a system with too much leverage is unstable.”
Early premarket gappers
- Gapping up:
- RTIX +92%, ICHR +12.3%, PHAS +11.2%, MMSI +10.8%, PERI +6.6%, BYND +6.3%, TCS +6.3%, APHA +5.5%, ZUMZ +5.4%, ACM +4.1%, MCK +3.7%, NK +2.9%, MX +2.5%, CLDR +2%
- Gapping down:
- STML -16.2%, GME -9.7%, ACIW -6.2%, ETH -5%, BSX -4.9%, STAG -1.6%, BLDR -0.9%, INFO -0.5%
BlackRock Will Put Climate Change at Center of Investment Strategy
In his influential annual letter to chief executives, Larry Fink said his firm would avoid investments in companies that “present a high sustainability-related risk.”
Laurence D. Fink, the founder and chief executive of BlackRock, plans to announce Tuesday that his firm will make investment decisions with environmental sustainability as a core goal.
BlackRock is the largest in its field, with nearly $7 trillion under management, and this move will fundamentally shift its investing policy — and could reshape how corporate America does business and put pressure on other large money managers to follow suit.
Mr. Fink’s annual letter to the chief executives of the world’s largest companies is closely watched, and in the 2020 edition he said BlackRock would begin to exit certain investments that “present a high sustainability-related risk,” such as those in coal producers. His intent is to encourage every company, not just energy firms, to rethink their carbon footprints.
“Awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance,” Mr. Fink wrote in the letter, which was obtained by The New York Times. “The evidence on climate risk is compelling investors to reassess core assumptions about modern finance.”
The firm, he wrote, would also introduce new funds that shun fossil fuel-oriented stocks, move more aggressively to vote against management teams that are not making progress on sustainability, and press companies to disclose plans “for operating under a scenario where the Paris Agreement’s goal of limiting global warming to less than two degrees is fully realized.”
Mr. Fink has not always been the first to address social issues, but his annual letter — such as his dictum two years ago that companies needed to have a purpose beyond profits — has the influence to change the conversations inside boardrooms around the globe.
And now Mr. Fink is sounding an alarm on a crisis that he believes is the most profound in his 40 years in finance. “Even if only a fraction of the science is right today, this is a much more structural, long-term crisis,” he wrote.
A longtime Democrat, Mr. Fink insisted in an interview that the decision was strictly business. “We are fiduciaries,” he said. “Politics isn’t part of this.”
BlackRock itself has come under criticism from both industry and environmental groups for being behind on pushing these issues. Just last month, a British hedge fund manager, Christopher Hohn, said that it was “appalling” of BlackRock not to require companies to disclose their sustainability efforts, and that the firm’s previous efforts had been “full of greenwash.”
Climate activists staged several protests outside BlackRock’s offices last year, and Mr. Fink himself has received letters from members of Congress urging more action on climate-related investing. According to Ceres and FundVotes, a unit of Morningstar, BlackRock had among the worst voting records on climate issues.
In recent years, many companies and investors have committed to focusing on the environmental impact of business, but none of the largest investors in the country have been willing to make it a central component of their investment strategy.
In that context, Mr. Fink’s move is a watershed — one that could spur a national conversation among financiers and policymakers. However, it’s also possible that some of the most ardent climate activists will see it as falling short.
Even so, the new approach may put pressure on the other large money managers and financial firms in the United States — Vanguard, T. Rowe Price and JPMorgan Chase, among them — to articulate more ambitious strategies around sustainability.
When 631 investors from around the world, representing some $37 trillion in assets, signed a letter last month calling on governments to step up their efforts against climate change, the biggest American firms were conspicuously absent.
BlackRock’s decision may give C.E.O.s license to change their own companies’ strategy and focus more on sustainability, even if doing so cuts into short-term profits. Such a shift could also provide cover for banks and other financial institutions that finance carbon-emitting businesses to change their own policies.
Had Mr. Fink moved a decade ago to pull BlackRock’s funds out of companies that contribute to climate change, his clients would have been well served. In the past 10 years, through Friday, companies in the S&P 500 energy sector had gained just 2 percent in total. In the same period, the broader S&P 500 nearly tripled.
In an interview, Mr. Fink said the decision developed from conversations with “business leaders and how they’re thinking about it, talking to different scientists, reading different research.” Mr. Fink asked BlackRock to research the economic impacts of climate change; it found that they are already appearing in a meaningful way in the form of higher insurance premiums, for fires and floods, and expects cities to have to pay more for their bonds.
Wherever he goes, he said, he is bombarded with climate questions from investors, often to the exclusion of issues that until recently were once considered more important. “Climate change is almost invariably the top issue that clients around the world raise with BlackRock,” he wrote in his letter.
He wrote that he anticipated a major shift, much sooner than many might imagine, in the way money will be allocated.
“This dynamic will accelerate as the next generation takes the helm of government and business,” he wrote. “As trillions of dollars shift to millennials over the next few decades, as they become C.E.O.s and C.I.O.s, as they become the policymakers and heads of state, they will further reshape the world’s approach to sustainability.”
While BlackRock makes its green push, the Trump administration is going in the opposite direction, repealing and weakening laws aimed at protecting the environment and promoting sustainability. Indeed, Mr. Fink’s effort appeared to be another example of the private sector pressing on issues that the White House has abandoned.
Still, Mr. Fink made plain that while he intends for the firm to consider climate risks, he would not pursue an across-the-board sale of energy companies that produce fossil fuels. Because of its sheer size, BlackRock will remain one of the world’s largest investors in fossil-fuel companies.
“Despite recent rapid advances in technology, the science does not yet exist to replace many of today’s essential uses of hydrocarbons,” he wrote. “We need to be mindful of the economic, scientific, social and political realities of the energy transition.”
BlackRock manages money for countries across the globe as well as states and municipalities across the nation. It could face opposition for its new stance in areas that benefit from fossil fuels, like countries in the Middle East or states where oil has become a significant part of their economies.
Mr. Fink said that because much of the money BlackRock manages is invested in passive index funds like those that track the S&P 500, the firm was unable to simply sell shares in companies that it felt were not focused on sustainability. But he did say that the firm could do so in what are known as “actively managed funds,” in which BlackRock can choose which stocks are included.
BlackRock also plans to offer new passive funds — including target-date funds that are based on a person’s age and are meant to be used to prepare for retirement — that will not include fossil fuel companies. Investors will be able to choose these instead of more traditional funds. To the extent that fossil fuel companies are in an index, BlackRock plans to push them to consider their eventual transition to renewable energy. Mr. Fink said the company would vote against them if they are not moving fast enough.
“We will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them,” he wrote.
UK to crack down on credit card use in gambling
Industry watchdog seeks to protect gamblers with the ban, in force from April
Credit cards will be banned from use in gambling from April, according to rules announced by the UK’s industry regulator on Tuesday in response to calls for greater protection of problem gamblers.
The ban, which comes following a consultation completed in November, was widely expected to be limited to online gambling, but will apply to offline betting as well with the exception of over-the-counter lottery tickets.
Shares in some of Britain’s biggest bookmakers fell in early trading. William Hill dropped 3.3 per cent, while Paddy Power Betfair owner Flutter and GVC, which owns Ladbrokes Coral, slipped just over 2 per cent.
Of the 24m adults who gamble in the UK, according to Gambling Commission figures, UK Finance estimates that 800,000 use credit cards.
“Credit card gambling can lead to significant financial harm. The ban that we have announced today should minimise the risks of harm to consumers from gambling with money they do not have,” said Neil McArthur, the Gambling Commission’s chief executive.
Many of the major betting companies, including Bet365, William Hill and Ladbrokes, allow customers to gamble on credit, although company executives say that it is a minority of their business. William Hill said that fewer than 10 per cent of customers bet using a credit card.
The regulator said that, from the end of March, all online operators will have to take part in the Gamstop scheme, which allows vulnerable gamblers to exclude themselves from all betting websites on its books without having to close accounts at each operator.
It is the first time that the Gambling Commission has made Gamstop part of the licence conditions for operators. It was previously concerned that the industry might use data from the scheme to target marketing at gamblers who had self-excluded.
“It is important that self-exclusion schemes are as effective as possible and they will be most effective when used in combination with other blocking tools such as gambling blocking software and payment card blocking,” Mr McArthur said.
The changes come in response to growing calls from campaigners and politicians for stricter regulation of an industry that they say has failed problem gamblers. Last year the regulator enforced stricter age checks online and brought in a 98 per cent cut in the maximum stake permitted on high speed electronic slot machines — known as fixed odds betting terminals — in betting shops.
Culture minister Helen Whately said that the government would also carry out a review of the 2005 Gambling Act although no date has yet been set.