Reuters - Goldman fixed-income trading to stay challenged in third quarter: Schw

Goldman fixed-income trading to stay challenged in third quarter: Schwartz

Goldman Sachs Group Inc (GS.N) President Harvey Schwartz said on Tuesday conditions for fixed-income trading have not improved much since the beginning of the year.

“The market environment in the third quarter feels like the first and second quarter,” Schwartz said at a Barclays Group PLC financial conference in New York. “For FICC, it’s still a pretty challenging environment.”

Schwartz’s comments are similar to remarks made by Goldman Chief Financial Officer Marty Chavez in August.

In the second quarter, Goldman reported a 40 percent drop in bond trading revenue and the weakest commodities results in its history as a public company.

Other banks also expect a trading slump during the third quarter.

Citigroup Inc (C.N) may see revenue in stock and bond trading drop as much as 15 percent in the quarter, the bank’s CFO John Gerspach said earlier this week.

FT : Nigeria will resist cuts to its oil output says minister

Nigeria will resist cuts to its oil output says minister
Emmanuel Kachikwu says country’s energy industry needs more time to recover

Nigeria will resist any attempts to curb its oil production when it meets with Opec and Russia later this month, posing a threat to the cartel’s efforts to cut global supplies and boost crude prices towards $60 a barrel.

Emmanuel Kachikwu, Nigeria’s minister of state for petroleum resources, told the Financial Times that the west African nation’s energy sector was still suffering from years of violent disruptions and needs more “recovery time” before joining a supply deal agreed last year between some of the world’s biggest oil producers.

Mr Kachikwu, who represents Nigeria at Opec meetings, said in an interview he would not consider reducing production until at least March next year, as it had not yet been proven that the country’s rebound in production would last.

“We have a nine-month exemption period within which to come back to the table,” Mr Kachikwu said, referring to the decision to extend the near 2m barrel a day supply cut deal from June. “You need that timeframe to see if any recovery is sustainable.”

His stance puts Nigeria on a potential collision course with other Opec members as the country’s output has rebounded strongly in the past 12 months, blunting the effectiveness of a deal between 24 countries to shave almost 2 per cent of global oil output.

Africa’s largest oil producer has seen its output jump from a low of 1.4m b/d a year ago to almost 1.9m b/d in August, according to consultants and analysts Opec relies on to track members’ oil production. Nigeria’s own output numbers are lower.

Both Nigeria and its conflict-ridden Opec peer Libya were made exempt from the initial agreement reached late in 2016 as both countries’ oil sectors recovered after years of unrest that has crippled the lifeblood of their economies.

But higher than anticipated production from both countries has dulled the impact of the supply deal, as has resilient US shale production and poor adherence with the pact from participating members of Opec such as Iraq and the UAE.

A ministerial committee monitoring compliance with the deal, made up of officials from Opec and those outside the cartel such as Russia, has said Nigeria would cap or curb its output once production stabilised at 1.8m b/d.

But a timeline or framework to measure steady production and the country’s entry into any deal has never been specified.

Pressure on Nigeria to reduce its crude production is expected to increase when it attends an informal meeting in Vienna later this month with delegations from Saudi Arabia and Russia, which have been leading the cuts effort.

Mr Kachikwu said while militant attacks in the resource-rich Niger Delta region had subsided, and output had rebounded from last year’s low, more time was necessary.

“They should let us exhaust those nine months and see whether we have been able to establish stability,” he said.

Alexander Novak, Russia’s energy minister, told the FT in July that volatile output from Nigeria and Libya was causing “uncertainty” among market participants. Industry analysts say both countries’ production is keeping ceiling on prices.

Global producers took co-ordinated action as the crude price downturn that had put acute strain on their economies entered its third year. Saudi Arabia has discussed a further extension in recent days with several oil producers and two Opec delegates say Nigeria’s involvement is in focus.

For Mr Kachikwu, limits to price rises had mostly to do with robust US shale oil output. “[Opec’s] big expectation that we would be able to hit $60 a barrel is not looking likely,” said Mr Kachikwu.

“$60 is looking very, very tough right now if you look at the sort of numbers coming out from US shale,” he added

Mr Kachikwu said Brent crude would likely stay close to $55 a barrel for the next year, with any further rises depending on a “well managed” Opec output policy that ensured producers did not “pump unnecessarily”.

He added that should US shale output continue to expand, prolonged output cuts will be “difficult” to keep up. “The earlier all of us get used to the fact [shale] is going to be there for a long time, the better,” said Mr Kachikwu.

>>> Stada investor Elliott's support for DPLTA does not preclude later litigatio

Stada investor Elliott's support for DPLTA does not preclude later litigation - lawyers
(ME-rgerMarket)
  • Scope for higher compensation to become clearer at EGM
  • Independent valuation in 12-18 months expected at EUR 73-76 - source
  • Shareholders voting in favour of DPLTA can still appeal compensation

Stada Arzneimittel [ETR:SAZ] investor Elliott's support for a domination and profit and loss transfer agreement (DPLTA) at the price proposed by bidders Cinven and Bain does not preclude litigation at a later stage, lawyers following the situation said.

After the success of the private equity groups' bid for Stada, Elliott, which controls 15% of Stada shares, said it would only support a DPLTA if the compensation offered to minority shareholders is at least EUR 74.40 per share.

Nidda Healthcare, the bid vehicle for Stada, controlled by Bain and Cinven, announced last week that it would meet Elliott's demands and proposed a price of EUR 74.40 to Stada's board in its negotiations to implement a DPLTA.

Given that the bidders had met Elliott's price demands, two Germany-based lawyers believed litigation to secure higher compensation was now off the table.

But, a third lawyer said litigation after the DPLTA’s registration was still likely. Some other minority investors in Stada have already contacted him, speculating that a higher price can be achieved, he said. The scope for further appraisal and a higher value compensation will only become clear once the valuation method used for the domination agreement is revealed at the EGM, he said.

A DPLTA would give Bain and Cinven operational control over Stada without owning the company’s entire share capital. In return, the buyers must offer minority shareholders a fair value price to tender their shares and guarantee a regular dividend to any remaining shareholders who do not want to sell out.

Nidda, which has secured 63.87% of Stada through its offer, would require 75% approval from shareholders present at the EGM to implement the domination agreement. This would be guaranteed with Elliott’s support. The EGM is expected to take place within two months, a source close to the situation said.

Elliott's statement that it would support a DPLTA at that minimum compensation level only means that the activist shareholder will not look to block the domination agreement, the third lawyer pointed out. There was no commitment from Elliott to tender its shares at this level or not to launch a later appraisal proceeding, this lawyer said.

The domination agreement would be voted through to secure minorities a put option over their Stada shares, this lawyer thought. But, Elliott's support of the agreement does not necessarily mean that the investor will not look to benefit from a higher price at a later stage, he added.

If Elliott opts for the guaranteed dividend, it can remain a shareholder and possibly challenge the compensation amount later, agreed the first lawyer. This lawyer and the second lawyer, however, speculated that Elliott would likely cash out. Elliott is looking for a return relative to the time period, the lawyer said, who believed the investor would be more likely to take a good profit in a very short time rather than stretch it out over litigation.

This view was shared by two sources close to the deal, who predicted Elliott would tender its shares. At EUR 74.40, Elliott is getting a 40% annualised return based on its first entry at EUR 62-63, pointed out the first source. Even if it comes to litigation and an independent valuation is carried out, the valuation in a 12-18-month time frame would likely come at between EUR 73-76, this source estimated, adding that Elliott had clearly done its calculations before setting its minimum price requirements.

Cinven and Bain (Nidda) are expected to seek some kind of agreement with Elliott not to pursue litigation, the two sources close to the situation and the first two lawyers said.
A person close to Nidda, however, indicated that the proposal offered by the bidders was in direct response to Elliott's statement over its minimum requirement to support a domination agreement. The person would not confirm whether any agreement between the parties has been reached that would guarantee Elliott tendering its shares in a domination agreement or not to pursue a litigation process. The concession to Elliott's price demands were made simply to facilitate and remove uncertainty over the proceedings, this person said.

The third lawyer also questioned why Elliott would limit its options in this case, given that it has leverage over the situation. Elliott has a tendency to go down the litigation route, he pointed out.

Even if Elliott votes in favour of the domination agreement, it does not stop them filing an appraisal proceeding, this lawyer said. “You can vote for the DPLTA, but not be satisfied with the price.” Appraisal is not an aggressive procedure as you are contesting only the price and not the basis of the DPLTA or its registration, this lawyer added.

An appeal for an appraisal can be filed within three months of registration of the DPLTA, the third lawyer added.

Spokespeople for Elliott and Nidda declined to comment.

WSJ : Why the Market Keeps Going Up and What Would Bring It Down

Why the Market Keeps Going Up and What Would Bring It Down
Big, fast-growing companies have led the recent rally, and that should continue—but when it ends, get out fast

The stock market just won’t go down, despite geopolitical concerns, stretched valuations and an unpredictable president. Understanding why shares keep rising is one way to gauge how long the rally will last and what happens next.

The good news is there is a logic to the market’s behavior, and that at the moment, nothing seems likely to alter its course. The bad news is things can turn quickly, and when they do, the decline could be severe.

The big winners so far this year have been huge, fast-growing companies such as Amazon.com , Facebook , Apple and Google parent Alphabet . So while the S&P 500 has risen 11% so far this year, the S&P 500 Growth Index, which is concentrated in companies with strong earnings and revenue growth, has risen 17%. In contrast, the S&P 500 Value Index—which focuses on stocks with lower price-earnings, price-to-sales and price-to-book ratios—is up just 4%.

The 10 biggest stocks in the growth index have increased 26% this year, according to FactSet, adding about $900 billion to the S&P 500’s market capitalization, which stands at about $23 trillion.

The gains for these stocks make sense for two reasons. First, investors tend to favor fast-growing companies in the latter stages of an economic expansion, which is where the U.S. economy is right now after eight years of growth. That is because it is harder to generate growth late in the cycle after the easy gains have been made, putting a premium on companies that still exhibit strong profit gains.

Second, many of the big companies leading the rally do a large portion of their business abroad, where many countries are experiencing economic upswings. Microsoft and Facebook, for example, both draw roughly half their sales from outside of the U.S. An added boost is the weaker dollar, which boosts the value of profits earned overseas.

For now, nothing seems likely to disturb this rosy scenario, which makes the gains self-reinforcing. Investors who want to beat the market need to plow cash into the shares of large-cap growth stocks. Passive investors who simply track the index are seduced by the market’s healthy gains and low volatility, and they boost their investments, pulling the whole market higher. Those who chase performance will buy growth-oriented funds, which further drive these trends.

The love affair investors are having with big growth stocks could eventually set them up for big losses. Stocks of large, fast-growing companies have performed poorly when the economy starts to falter and the growth that investors were paying up for disappears. That was how the growth-stock driven rally of the late 1990s ended. In the six months that preceded the recession that began in March 2001, the S&P Growth Index fell by third—and then fell by another third before hitting bottom in mid-2002. It was a repeat of patterns seen in the 1960s.

What could cause the turn? A run of weak data or any event that makes investors question the U.S. economy’s staying power. And if signs build up that an actual recession looms? History says it pays to get out fast.

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance:
  • PPHM +8%, LAYN +7.1%, PRGS +2.6%, (Q3 pre-announcement)
M&A news:
  • TEVA +7.4% (Teva Pharma enters into a definitive agreement under which CooperSurgical (COO) will acquire PARAGARD; also receives FDA Priority Review for first line use of TRISENOX)
  • GIMO +1.6% (Hearing sell side out suggesting between $47-60/share takeout could be in the works)
Other news:
  • ALDX +47.5% (announces positive results from Dry Eye Disease Phase 2a Clinical Trial; Statistically and clinically significant improvement across multiple sign and symptom endpoints)
  • HTBX +9.3% (granted a Type C meeting with the FDA to discuss the registrational pathway for our non-small cell lung cancer trial with HS-110 in combination with Bristol Myers-Squibb's (BMY) Opdivo based upon maturing Phase 2 data)
  • ZFGN +4.7% (presents data for ZGN-1061 )
  • DWDP +2.7% (completes review of the portfolio composition of the three intended independent companies)
  • EYES +2.4% (Director Gregg Williams discloses 41.64% active stake)
  • WDC +1.9% (seeing after hours strength on reports of winning bid for Toshiba (TOSBF) chip unit)
  • GPRO +1.9% (continued strength)
  • TTD +1.5% (continued strength)
  • MU +1.2% (ahead of AAPL product event)
  • AMD +1% (ahead of AAPL product event)
  • AAPL +0.8% (ahead of AAPL product event)
Analyst comments:
  • CTIC +8% (initiated with a Buy at Jefferies)
  • DB +3.5% (upgraded to Outperform from Market Perform at Keefe Bruyette)
  • AA +2.5% (upgraded to Buy from Hold at Deutsche Bank)
  • MTZ +2.2% (upgraded to Buy from Hold at Deutsche Bank)
  • CMCSA +1.5% (upgraded to Buy from Neutral at MoffettNathanson)
  • NKE +0.8% (initiated with a Outperform at Bernstein)

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance:
  • LMNR -9.7%, ADXS -1%
Other news:
  • SAGE -25.5% (reports top-line results from its Phase 3 STATUS Trial of brexanolone)
  • ICPT : -16% on OCALIVA dosing warning letter
  • MBVX -16.7% (greed to sell approximately 4 mln shares of its common stock for gross proceeds of approximately $2.0 million ($0.50/share))
  • HIIQ -16.5% (continued weakness following management update conference call after the close)
  • BCRX -9.7% (to sell $80 mln of its common stock in an underwritten public offering)
  • BIP -5% (Brookfield Infrastructure to issue 16,628,000 L.P. units on a bought deal basis to a syndicate of underwriters at $42.10 per L.P. unit)
  • BG -3% (enters into a definitive agreement to acquire a 70% ownership interest in IOI Loders Croklaan from IOI Corporation Berhad for $946 mln)
  • PTLA -2.6% (plans to offer $300 mln of its common stock in an underwritten public offering )
  • FDC -2.1% (confirms that New Omaha Holdings intends to offer for sale in an underwritten secondary offering 85 mln shares of Class A common stock pursuant to the registration statement)
  • CPT -1.5% (prices 4.75 mln common sharesfor gross proceeds of $445.3 mln)
  • EFX -1.1% (continued weakness)
Analyst comments:
  • PDS -4.8% (downgraded to Neutral from Overweight at JP Morgan)