FT : SoftBank cools on Swiss Re stake deal

SoftBank cools on Swiss Re stake deal
Japanese group had been in discussions with reinsurer for 3 months


Talks between Swiss Re and SoftBank over an investment in the reinsurance company are close to collapsing after three months of discussions.

SoftBank has been in talks to take a minority stake in the Swiss group but people close to the situation say the Japanese company’s enthusiasm has waned in recent weeks.

The size of the deal, which would involve SoftBank buying existing shares rather than Swiss Re issuing new ones, has already been scaled back.

When the talks were first revealed in February, SoftBank was considering taking a stake of up to 33 per cent alongside several seats on the board. But in April, Swiss Re said the stake would probably not exceed 10 per cent. At the time it said the two companies were also looking at other areas of co-operation.

Announcing first-quarter results on Friday, John Dacey, Swiss Re’s chief financial officer, said only that discussions between the two companies were continuing and that the outcome was still open. He said the company “was constantly in discussions with current and potential investors and with corporates and other groups about business ideas”.

SoftBank declined to comment.

News of the talks between SoftBank and Swiss Re sparked intense discussion in the insurance world over why the acquisitive Japanese technology, telecoms and financial services conglomerate would want a minority stake in a traditional Swiss reinsurer. Speculation centred on the possibility that Swiss Re could help to provide insurance for some of SoftBank’s other businesses.

Walter Keilholz, Swiss Re’s chairman, is still said to be “intrigued” by the idea of a tie-up with Masayoshi Son, SoftBank’s founder and chief executive, and by the insights he could provide into the latest tech developments.


Swiss Re does not need any extra capital from new investors. On Friday, Mr Dacey said the company’s annual share buyback programme, which will total Sfr1bn ($1bn) this year, will start earlier than usual.

“Previously we waited to see where the year was heading in terms of large losses but we are in a robust position in terms of capital,” he told the Financial Times. “In spite of $4.7bn of natural catastrophe losses last year . . . we were able to build capital year on year.”

Swiss Re reported net income of $457m for the first quarter, down 30 per cent on the same period last year largely due to the impact of accounting changes. Without those changes, profits would have been slightly higher.

Kamran Hossain, analyst at RBC Capital Markets, said Swiss Re’s property and casualty insurance business had “got off to a strong start to the year” with profitability higher than expected and volumes up 7 per cent.

>>> Barrons weekend summary: Cover story on XOM; Cautious feature on WWW

Barrons weekend summary: Cover story on XOM; Cautious feature on WWW

* Cover story: At a time when renewable energy is on the rise, XOM is doubling down on oil and natural-gas production, while rivals are curtailing capital investment and returning cash to shareholders; To capitalize on oil and natural gas, Exxon “has an ambitious plan to increase its energy output by 25% and more than double its earnings by 2025.”

* Features: 1) The current dealmaking boom has gone on for nearly eight years by some estimates, but booms are cyclical and investors are starting to question how long the current cycle will last; 2) Positive on VNQ, BKLN, MUB, NOBL, XLU: As the Fed raises interest rates, income-generating assets may be pressured, but these plays offer decent yields and relative safety; 3) Positive on AEB Pfd, JPM Pfd H, MS Pfd E, KKR Pfd A, APO Pfd A, SSW Pfd E: Amid shifting 10-year Treasury yields and changing corporate and industry credit conditions, these six preferred-stock issues offer high yields and strong protections; 4) “Utility stocks and rising bond yields don’t mix well, but investors can still find companies capable of fighting that headwind with solid growth prospects”; 5) Cautious on WWW: Company has set aside $35M to cover legal and remediation costs for the leak of Scotchguard chemicals into wells and aquifiers, but investors wonder if that amount will be enough.

* Tech Trader: Cautious on AAPL: Warren Buffet’s stake in the company is less a tech investment than an appreciation of cash flow, and the company’s current lineup of products “represents a kind of stagnation for Apple and the mobile tech industry”; “The tech world feels like it’s poised on the edge of its next great leap, but the elements to make that possible are not yet available.”

* Trader: Stifel’s Barry Bannister thinks the market will decline to around 2520 by the end of September as global growth slows, the dollar rises, and the 10-year yield falls—after which it will rise by 10% by year-end; Positive on BA: Aerospace giant is moving more into the aircraft interiors and avionics sector, and could become a major player when it rolls out the B797; Positive on SRPT: Company’s exon-skipping program is going faster than anticipated, says JMP Securities analyst Liisa Bayko.

* Interview: Silicon Valley venture-capital titan John Doerr talks about a corporate approach based on “objectives and key results,” or OKRs, which he would like to bring to government, schools, and nonprofits.

* Follow-Up: Positive on AAPL: While Wall Street worries about iPhone growth, the company is diversifying its business in areas such as the cloud, iTunes, and digital content.

* European Trader: Positive on Continental: Tire company is also a big player in powertrain manufacturing, brake systems, interior-electronics, and other auto components—and should see sturdy growth ahead.

* Emerging Markets: The Fed probably won’t choke off demand for risk assets this time, says Eamon Aghdasi of State Street Global Markets, and currencies will probably remain range-bound with more volatility.

* Commodities: “In a few days, the U.S. will decide whether to extend waivers on economic sanctions against Iran. If it doesn’t, the global market could lose about one million barrels of oil a day”

* Streetwise: Commenting on TSLA, Ben Levisohn says that “when management feels the need to ply investors with made-up metrics and visionary arrogance, they shouldn’t forget that investors have a choice too: they don't have to buy the stock.”

Barron's : Tire Maker Continental’s Stock Could Get on a Roll

Tire Maker Continental’s Stock Could Get on a Roll

Continental’s shares lately, leading bulls to say the stock may be a smart buy.

A mid-April profit warning tied to the strengthening euro has put pressure on the stock. Gains for the currency, which is up about 10% against the dollar over the past 12 months, tend to cut into overseas revenue generated by multinationals, such as Continental (ticker: CON.Germany).

In that warning last month, the company’s management said that “exchange rate and inventory valuation effects” would hit first-half earnings—as well as cut into profit margins. But strategists at Germany’s DZ Bank have remained upbeat, recently adding the stock to their “equity long ideas” list. “The negative share-price reaction after Continental’s outlook adjustment seems overdone to us,” the bank’s team wrote in a note. “The margin adjustment is triggered by two one-time effects and will have no negative impact for mid- to long-term margin development.”

It’s possible the euro’s recent rally is over. That would give a lift to Continental, which generates about 20% of its revenue in the U.S., while China, Japan, and the United Kingdom each contribute 4% to 5%. After wallowing under $1.05 in early 2017, the euro rose above $1.25 in February, but it’s lately fallen back to around $1.20. Bank of America Merrill Lynch strategist David Woo has recommended selling the euro in a recent note, citing weakening euro-zone economic data and other factors.

While Continental is best known for its tires, the company also ranks as a big player in powertrain manufacturing, brake systems, car-interior electronics, and other auto components. DZ Bank sees sturdy growth ahead overall: “We expect an increasing demand for driver-assistance systems, as well as for components for electrified drivetrains. In our view, Continental should benefit from such a development, besides a solid demand for cars worldwide.”

Continental’s valuation doesn’t look that rich. Its shares trade at 13 times estimated forward-year earnings, below the Stoxx Europe 600’s multiple of 15. The stock is down about 2% this year, paring its advance over the past 12 months to 8%.

Another part of the bull case for Continental is a much-anticipated reorganization that could bring spinoffs. “The share price over the coming quarters is likely to be driven by any comments regarding a potential split into several entities,” wrote UBS analysts in a recent report, noting that they “don’t expect Conti to say much regarding a potential separation into several entities before this summer.” The UBS team’s sum-of-parts valuation, or breakup-value analysis, suggests that Continental stock could be worth as much as €260 ($312), or 18% above its recent price around €221. The Swiss bank’s analysts have a Buy rating on shares, along with a price target of €253, implying a rally of 14%.

The Hanover-based company first acknowledged in January that it was considering a revamp. “We are in the early stages of analyzing how our organization can become even more flexible in response to the fast-changing environment in the automotive industry,” Continental officials said at that time.

The stock surged north of €257 in January, thanks to the breakup chatter, before pulling back. Continental soon might roll back to that area, if investors like its reorganization plan—and if the euro becomes less of a drag.

Barron's : Iran Sanctions Could Raise Oil Prices by $10 a Barrel

Iran Sanctions Could Raise Oil Prices by $10 a Barrel

In a few days, the U.S. will decide whether to extend waivers on economic sanctions against Iran. If it doesn’t, the global market could lose about one million barrels of oil a day.

The Trump administration has until May 12 to make its move. The sanctions on Iran were lifted under a 2015 agreement among a group of world powers, including the U.S. and Iran, aimed at curbing Tehran’s nuclear activities.

Iran’s current oil production stands at 3.8 million barrels a day—up almost one million barrels since the sanctions were lifted, says Jay Hatfield, portfolio manager of the InfraCap MLP exchange-traded fund (ticker: AMZA). So if the U.S. decides to reimpose sanctions, the oil market could lose just under 1% of total global production, he says.

That doesn’t sound like much, but with the overall market facing an average deficit of 700,000 barrel per day, Matt Parry, head of long-term research at Energy Aspects, says that “any loss of Iranian supplies would add a significant premium to oil prices.”

James Williams, energy economist at WTRG Economics, believes that the amount of lost oil would be closer to 500,000 barrels a day, or perhaps less, depending on possible increases from other producing countries around the world, if sanctions are reinstated. “Certainly, other countries could make up the difference, but it would not be instantaneous,” he says.

Israeli Prime Minister Benjamin Netanyahu added a fresh twist in the run-up to the U.S. decision by offering what he claims is proof that the nuclear deal was based on lies, and accusing Iran of hiding a nuclear-weapons program.

Netanyahu’s accusations reinforce expectations that the U.S. will pull out of the nuclear pact and reinstate sanctions on Iran. It’s “still not 100%, but probably nearer to 80% that Trump will not extend” the sanctions waivers, Williams says.


On April 30, when Netanyahu presented his case, West Texas Intermediate crude futures rose to a one-week high of $68.57 a barrel on the New York Mercantile Exchange. Brent futures on ICE Futures Europe also saw a session high above $75 for the first time in almost a week.

President Donald Trump has said that Netanyahu’s speech validated his own view that the pact with Iran was flawed, but he was already “highly skeptical of the agreement,” says Hatfield, who sees a likely rise of $5 to $10 a barrel in oil prices if sanctions are reintroduced.

Still, Hatfield expects that the supply shortfall would be “made up partly by conservation spurred by higher prices and higher production from the U.S. and other producers.” There would also “be more incentive for OPEC members to cheat on,” or consider raising, their production quotas.

Those potential outcomes have helped to recently temper oil’s rise, with prices posting a loss for the last full week of April. On Thursday morning, WTI oil was at $67.47 a barrel, down nearly 1% on the week.

Anas Alhajji, a Dallas-based energy-market expert, believes that “even if the deal is ended and sanctions reimposed, the impact on the global oil market is limited.”

Alhajji expects that actual exports will probably decline “only marginally,” while “legal” exports might decline significantly. Iran might resort to its old strategy of “selling oil as if it were Iraqi oil, building massive floating storage, and using more oil in power generation and exporting oil embedded in electricity.”

The most significant impact of sanctions would be on Iran’s plans to increase oil-production capacity, so the long-term impact on the market could be higher than in the short term, says Alhajji.

And while Trump has shown some interest in modifying the nuclear deal, it is clear from Netanyahu’s speech “that Israel wants to end it,” he says. That could lead to even broader implications.

The decision on Iran “will affect the stability of the Middle East” and, as a result, oil prices, says Will Rhind, CEO of GraniteShares, an ETF firm.

A decision not to reimpose sanctions “may be more destabilizing, by sending a message to Russia and Iran that the U.S. does not support Israel’s strong intent to remove Iran from Syria,” he says. On the other hand, reimposing sanctions could reduce Iranian oil production and may “prevent Iran from continuing its actions in Syria, potentially preventing further hostilities” in the region.

>>> Telecom Italia sees CdP signal it is ready to increase stake following victo

Telecom Italia sees CdP signal it is ready to increase stake following victory of Elliott slate in BoD elections (translated)
05 MAY 2018
Cassa Depositi e Prestiti (CdP), an investment vehicle of the Italian Treasury, is ready to increase its stake in Telecom Italia (TIM) [BIT:TIT], Italian language daily Il Sole 24 Ore reported. The report cited a spokesperson for CdP that also welcomed the victory of a slate for TIM's board of directors promoted by activist hedge fund Elliott over a rival slate backed by TIM's largest shareholder French media group Vivendi [EPA:VIV].
The Cdp spokesperson said that any increase in the 4.9% stake held by CdP would take place over the long term.
The report added that the CdP would also look to have representation on the TIM board.