TheChek News Flow

Ajit Pai urges telecoms watchdog to vote against company’s application next month

Ajit Pai, chairman of the US Federal Communications Commission, said on Wednesday he opposes China Mobile’s effort to offer telecommunications services in the US amid concerns over national security.

“After reviewing the evidence in this proceeding, including the input provided by other federal agencies, it is clear that China Mobile’s application to provide telecommunications services in our country raises substantial and serious national security and law enforcement risks,” Mr Pai said in a statement.

He added: “Therefore, I do not believe that approving it would be in the public interest. I hope that my colleagues will join me in voting to reject China Mobile’s application.”

The five members of the FCC are due to vote on China Mobile’s application at a meeting next month. Officials said the other members are expected to support Mr Pai’s stance, according to Reuters.

The application seeks approval for connecting calls between the US and other countries.

China Mobile did not immediately respond to requests for comment.

Mr Pai’s opposition comes as the Trump administration pushes back against China’s influence in the telecommunications and technology industries and as the US races Beijing in the roll-out of 5G wireless infrastructure.

In a statement Mr Pai circulated to his colleagues, he said China Mobile is “vulnerable to exploitation, influence, and control by the Chinese government”. The FCC has said the company, China Mobile USA, is indirectly controlled by the Chinese government.

“This is more politically motivated than about whether there are objective grounds for doing this,” said Ramakrishna Maruvada, head of Southeast Asia and India telecoms research at Daiwa Capital Markets.

“There are a lot of operators in the world where the government holds a substantial equity ownership in an indirect or direct way.”

The FCC’s announcement is unlikely to have an impact on the stock price because China Mobile is mostly exposed to the domestic Chinese market, said Mr Maruvada.

“That’s what drives its revenues and earnings,” he said. “So to that extent I don’t think it’s going to make any material difference to its outlook from a share price or operations perspective.”

China Mobile’s share price in Hong Kong fell as much as 1.1 percent on Thursday to its lowest since early January.

 Stocks in Asia pulled back from a six-month high Thursday after the latest batch of corporate earnings did little to boost their U.S. counterparts. Treasuries inched higher alongside the yen.

Shares in Japan and Hong Kong retreated, while losses were more modest in China. Equities in South Korea underperformed as issues with a new Samsung Electronics Co. phone weighed on the biggest stock in the benchmark. Earlier, the S&P 500 closed lower, led by a drop in health-care providers on concern about policy changes. The dollar edged higher and the yuan weakened. The Aussie fluctuated after a better-than-expected jobs report.

US After Hours URI +7%, ETFC / LVS +3%, SNBR -13%, TEAM -9%, PLXS -6%, AA -2% among earnings/guidance movers

Nikkei -0.76% Hang Seng -0.56% CSI -0.34% Shanghai -0.25% Shenzen -0.22%

Eur$ 1.1300 CNH 6.6869 CNY 6.6918 JPY 111.85 GBP 1.3048 CHF 1.0097 RUB 63.8778 TRY 5.7722 WTI$ 63.78 +0.03%

S&P -0.23% EuroStoxx -0.32% FTSE -0.20% Dax-0.37% SMI -0.28%

Macro :

- $1.7 Trillion European Stock Rally Seen in Danger of Hangover

- Japan’s Aso May Discuss FX With Mnuchin Next Week: Kyodo

- Pinterest Raises $1.43 Billion After Pricing IPO Above Range

- Enigma of Weidmann Looms Over Race to Succeed Draghi at ECB

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Keep an eye on :

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- ARCAD NA : Arcadis First Quarter Net Revenue 2.6% Above Estimates

- ASML NA : TSMC Misses Estimates Amid Sluggish Global Smartphone Demand

- ASML NA : Watch Samsung Suppliers Amid Issues Reported With Fold Phone

- BMPS IM : Paschi Says WRM Decided Not to Submit Offer for Its IT Platform

- BOL FP : Bollore 1Q Revenue Rises 7% to EU5.69b

- CSGN SW : Swiss Prosecutors in Touch With Mozambique on Credit Suisse: HZ

- DAI GY : Daimler Car-Sharing Service Halted as Chicago Police Probe Fraud

- DBK GY : Deutsche Bank Processed EU175m in Dirty-Money Saga: FT (Earlier)

- DIA SM : DIA Offer Acceptance Period Extended to April 30: Filing

- DIS US : Magic Johnson Joins Ice Cube’s Effort to Acquire Sports Networks

- EDEN FP : Edenred 1Q Total Rev. up 14.1% Lfl to EU383M

- ENEL IM : PLC Power Signs Deal for Sale of Projects to Enel Green Power

- EL FP : EssilorLuxottica Shares May Climb on CEO Search: Morgan Stanley

- ENX FP : Euronext Sees EU2.7 Mln Positive IFRS16 Impact on 1Q Ebitda

- FB US : Japan Plans Stricter Rules to Safeguard Personal Data: Nikkei

- FCA IM : Fiat to Pay $6.4 Million Penalty to Settle California Violations

- FDP LN : First Derivatives Sees Earnings in Line With Consensus Forecast

- GALP PL : Watch Galp Energia Shares as Portuguese Trucker Strikes Bite

- GET FP : Getlink Confirms Ebitda Targets Through 2022

- GNFT FP : Genfit Says Elafibranor Won FDA Breakthrough Therapy Designation

- INDV LN : Indivior Suboxone Film Erosion More Benign Than Expected: Citi

- IDIA SW : Idorsia Keeps Guidance After 1Q Operating Loss of CHF119m

- IFX GY : TSMC Misses Estimates Amid Sluggish Global Smartphone Demand

- KER FP : Kering’s Gucci 1Q Organic Rev. Growth of 20% Meets Avg. Est.

- KER FP : Kering’s 1Q May Not Be Enough to Drive Earnings Momentum: Citi

- LI FP : Klepierre First Quarter Revenue EU330.7 Mln, Confirms 2019 Outlook; 1Q Rev. EU331M

- LHN SW : LafargeHolcim Proposes New Board Members, Details Dividend

- MITRAS BB : Mithra in Pact With GSP for Development of Hormonal Injectable

- NEOEN FP : Neoen Full Year Ebitda 1.5% Above Estimates

- NESN SW : Nestle First-Quarter Organic Revenue Beats Estimates, 1Q ORGANIC SALES GROWTH +3.4%, EST. +2.8%

- NRR LN : Woodford Sells GBP42m of NewRiver REIT Shares to Invesco: FT

- NOVN SW : Novartis Treatment Granted Orphan Drug Status by FDA

- OSR GY : Bain, Carlyle Confidence in An Osram Bid Shrinks: Manager Mag.

- RI FP : Pernod Ricard Raises Profit Goal to Top End of Range

- PROX BB : Proximus Won’t Cut Dividend to Save on Costs: L’Echo

- REC BB : Recticel Says Kingspan’s EU700m Offer Lacks Critical Information

- REP SM : Spain’s Repsol Suspends Swap Deal for Venezuela’s Oil: Reuters

- SPM IM : Saipem First Quarter Revenue 4.3% Above Estimates

- SRT GY : Sartorius First Quarter Adjusted Ebitda Beats Highest Estimate

- DIM FP : Sartorius Stedim 1Q Underlying Ebitda Beats Highest Est.

- SU FP : Schneider Electric 1Q Rev. EU6.31B; Est. EU5.25B

- SIP BB : Sipef NV 1Q Palm Oil Output 62,200 Metric Tons Vs. 66,500 Y/Y

- SLIGR NA : Sligro First Quarter Sales EU528 Mln

- SOI FP : Soitec FY Revenue Beats Ests.; Co. Lifts FY Margin Guidance

- SRAIL SW : Stadler Rail Wins EU200m Order for Locomotives From VR Group

- STM FP : TSMC Misses Estimates Amid Sluggish Global Smartphone Demand

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- TATE LN : Rare Sugar Gets Favorable FDA Nod After Tate & Lyle Petition

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Handful of first-quarter results lead to optimism but some managers will still struggle

If the world’s biggest investment company is a bellwether for the industry, then BlackRock’s first-quarter results this week suggest fund managers made a much-needed comeback after a torrid 2018.

The New York-listed group’s assets under management rebounded to $6.5tn after three months of healthy market returns and modest inflows. BlackRock said it was its strongest first quarter for four years, having seen more than $500bn wiped from its assets due to market moves in the previous three months.

Those losses were reversed as global equities rose 11 per cent and BlackRock attracted $65bn of inflows.

Last year was the worst for global asset managers since the financial crisis a decade ago. Listed groups saw their share prices fall 26 per cent on average as fund managers under long-term fee pressure were no longer protected by buoyant markets. Fund industry executives headed into 2019 hoping for a change of fortune.

A handful of first-quarter results indicate there is reason for moderate optimism.

A Wells Fargo analyst report on big US mutual fund managers found most started the new year on a firmer footing compared with the end of 2018 but long-term pressure on active managers was still evident.

“Organic growth in March weakened to 2.8 per cent from 3.5 per cent in February, but continued the recovery after heavy outflows in the highly tumultuous month of December,” the analysts wrote. They singled out BlackRock, T Rowe Price and Legg Mason as having hit the ground running in 2019. However, managers that had suffered in recent years, including Franklin Templeton and Invesco, were again hit by investor withdrawals, albeit at a lower rate than last year.

Active US mutual funds bled a net $258bn in the final three months of 2018, according to Morningstar. These same funds drew in $14.4bn in the beginning of 2019 — their largest quarterly haul since the start of 2015.

Rising markets have been good news not only for investment portfolios but also for shareholders in listed asset managers.

David McCann, an analyst at Numis Securities, said the average one-year forward price-to-earnings multiple — a measure of company value — for UK-listed managers had risen 15 per cent in the first three months of the year, from 13 times to 14.9 times. “This reflects share prices increasing by 7.4 per cent on average — likely following the UK market being up 8.4 per cent in that period — and one-year forward earnings on average being down 6.5 per cent,” he said.

But Chris Turner, an analyst at Berenberg, said British investment companies had not benefited as much as their international competitors.

“The market rose a lot in Q1 but for UK asset managers much of that was undone by foreign exchange moves,” he said. “A stronger sterling has been bad for UK managers and has taken away about half of the increase in the market, so it’s not quite as positive as you might think.”

He said flows had yet to recover with retail investors still waiting it out. The situation was worse with institutional investors, and he expected to see some large withdrawals announced. “The only exception is that demand for emerging markets products, particularly debt funds, has been huge. Ashmore’s short duration bond funds have done something crazy this month: something like £2.5bn in inflows,” he said.

Ashmore, the FTSE 250-listed group, reported strong quarterly results on Tuesday, with an 11.2 per cent rise in assets to $85.3bn. This was mostly due to $5bn of inflows, a tenfold increase on the intake for the previous three months.

Market watchers have predicted a strong year for emerging markets after a dovish turn by the US Federal Reserve. A continuation of low interest rates in the world’s largest economy will make higher yields offered elsewhere more attractive.

One company that has seen a mixed start to the year is Man Group, the $112bn UK-listed alternatives manager. Last week it reported that market returns had improved its assets by $4.5bn but it had suffered $700m of investor redemptions. The company said these outflows were concentrated in the discretionary long-only business, and included European retail investors cutting exposure to Japan and institutional investors reducing exposure to global equities.

“While we expect clients to continue adjusting their portfolio allocations during the second quarter, we see ongoing engagement with clients on new mandates and, in particular, continuing strong demand for our total return strategies,” said Luke Ellis, Man’s chief executive.

GAM, the crisis-hit Swiss fund group, had a better start to 2019. Having lost a third of its assets last year following it decision to suspend star manager Tim Haywood, GAM on Wednesday reported a 2 per cent fall in assets in the first three months of 2019, excluding Mr Haywood’s former funds.

Net outflows of SFr4bn were only partially offset by positive investment performance and foreign exchange movements of SFr3bn.

Managers at exchange traded funds have experienced a quieter than normal start to the year. Investors ploughed slightly less than $100bn into the products up to the end of March, a 28 per cent decrease on the same period last year, according to ETFGI, the data provider.

Some of the largest managers, including Lyxor of France and State Street Global Advisors of the US, suffered outflows, while the two industry leaders, BlackRock and Vanguard, saw falls in inflows, down 13 per cent and 19 per cent, respectively.

Numis classifies UK investment companies according to whether it believes they would do well or badly in a market downturn. Among its picks for weathering the storm are Schroders, River & Mercantile and Premier, while the companies it identifies as least resilient include Polar Capital, Liontrust and Intermediate Capital Group.

“Asset management is a high beta sector, therefore in the short term, most, if not all, companies are likely to sell off in the event of a significant market or macro downturn and this will probably be worse than the overall market average, as we saw in Q4 2018,” the analysts noted.

“However, we think that some companies are likely to operationally outperform the sector and therefore are worth considering, especially for a recovery trade.”

Finance minister’s apparent support for merger could backfire

Berlin’s poltical class calls it the “Scholz trap”: the predicament that Olaf Scholz, Germany’s finance minister, is in a month after the official start of merger talks between Deutsche Bank and Commerzbank.

Mr Scholz is seen as instrumental in bringing about those talks, yet a tie-up could prove politically toxic for him.

“He is in a precarious position,” said one senior official in Berlin. “If the deal collapses, he will be seen as a loser. If it works out, he will get the political blame for all the job losses.”

Mr Scholz has always denied being the driving force behind the idea of uniting Germany’s two largest listed banks. Officials insist it is a decision for the banks’ shareholders and management, not the government.

But with his talk last year of creating a “national banking champion”, it was clear that — at the very least — the idea had his tacit support. In January, it was revealed that he and his deputy Jörg Kukies, a former Goldman Sachs banker, had spoken with Deutsche Bank representatives 23 times last year.

It was no surprise, then, that when the start of talks was announced, he immediately became the main target of the wave of negative reaction that ensued. That could be highly damaging for a man who has ambitions to be Germany’s next chancellor.

“I don’t understand how a Social Democrat can try to engineer such a merger when it’s clear it will cost at least 30,000 jobs,” said Frank Schäffler, an MP from the liberal FDP party who is a member of the Bundestag finance committee.

Even Mr Scholz’s own party is sceptical. “A tie-up will be a big mistake if it is accompanied by a massive reduction in headcount,” said Lothar Binding, an SPD MP and an expert on banking. “And that seems to be where we’re heading right now.” Unions led by the 2m-member service-sector union Verdi have already staged protest marches.

Mr Scholz fired the starting gun on a big shake-up of banking with a speech in Frankfurt last August. He complained that German banks “don’t have the scale and global reach” needed to accompany German companies abroad, and called for an “industrial policy” for the banking sector.

The background to the speech was mounting concern in Berlin about the weak state of Germany’s two leading lenders, particularly Deutsche, whose share price has slumped and funding costs costs have risen over the past year. Concerns were also expressed that Commerzbank — and even Deutsche — might be taken over by a foreign rival.

It would have been “negligent” for policymakers not to consider possible remedies, “including M&A scenarios”, said one senior German regulatory official.

Yet he insisted that Mr Scholz “never crossed any lines”. The finance ministry did not “order” the two banks to merge — “they simply pressed them to seriously evaluate the pros and cons of such a deal, and to keep an open mind,” he said.

But Mr Scholz’s team also hoped that a merger could cement his image as a can-do problem solver.

“He has a track record of doing the right thing,” said one person familiar with his thinking. “He does things that are necessary — structural reforms that are needed.”

Scholz fans point to his success with the Elbphilharmonie, a concert hall in Hamburg wracked by cost overruns and delays. As mayor of Hamburg he steered the €866m project through to completion.

“After sorting out the Elbphilharmoie, he seems to think he can even fix Deutsche Bank and Commerzbank,” a banking insider quipped.

Yet his activist approach has raised hackles in Berlin. “Right from the start there has been this impression that politicians were pushing for a merger, and that’s always a bad thing, because they should keep out of such matters,” said Hans Michelbach, a senior conservative MP.

Reactions like these underscore the deep hostility in Germany towards the kind of interventionist economic policies that are commonplace in neighbouring France. To some, Mr Scholz seemed to be flouting the basic principles of “Ordnungspolitik” — the idea that the state defines the rules for the private sector but never gets involved in corporate decision-making.

Otto Fricke, another FDP MP, said Mr Scholz had committed a “massive political blunder” by pushing the idea of a national banking champion so forcefully. “He is pursuing a French model of industrial policy, which has largely failed,” he said.

Some regulators also came out against a merger. Raimund Röseler, head of banking supervision at the regulator BaFin, told German media that consolidation was “no panacea” for problems in the sector.

Still more dangers loom for Mr Scholz. Deutsche’s managers have been discussing a capital increase of up to €10bn to finance the merger. The German state, which owns 15 per cent of Commerzbank, would have to put fresh money in if it wanted to keep its stake in the enlarged group at about 5 per cent.

“The idea that German taxpayers would have to take part in the capital increase of a German bank that is the epitome of capitalism — that’s pretty bold,” said Mr Schäffler. ”It would be an Armageddon scenario for the Social Democrats.”