– ‘Liquidity has been a hallmark of the $51 tn US equities market,’ noted the Financial Times (paywall), ‘but over the past two weeks money managers have observed its deterioration, with costs increasing to complete large purchases or sales, prompting some to avoid putting on big trades entirely.’ The paper reported that ‘huge swings’ in US stocks such as Meta, PayPal and Snap reflected surprises in their financial results but also point to what investors say has been a dramatic recent decline in the capacity to transact large batches of shares. Shares falling short of Wall Street estimates have plunged in value in magnitudes rarely seen outside of a crisis, the paper said.
– Banker’s salaries were in the news this week as Bloomberg (paywall) reported that big bonuses are back, with yachts and champagne back on the bill. eFinancialNews said $500,000 is the new $400,000 for managing director salaries at banks and the FT described how Credit Suisse changed bonus rules in a bid to retain senior staff. Credit Suisse warned senior bankers they will have to give up some of their cash bonus if they leave within three years, said the paper, describing the move as ‘a controversial step designed to retain staff as the lender battles to recover from a series of crises.’
– The FT reported that hedge funds are ‘scooping up’ Russian and Ukrainian assets after sharp declines since last autumn, while institutional investors ‘stay clear’. The paper said institutions view the intensifying political risks as ‘too hot to handle’. Many big investors have become increasingly nervous about the possibility of military conflict in eastern Europe. The specter of war or Western sanctions against Russia has made financial assets in the region ‘too difficult to hold’ for some large traditional managers, noted the paper, though it added that some hedge funds are ‘diving into the market’ in search of bargains, believing that while Russian President Vladimir Putin is ‘unlikely to back down soon, he will not want to risk a significant conflict’. The paper quoted David Amaryan, founder of Balchug Capital, a global fund run out of Moscow, as saying: ‘We’re quite confident there will be no war.’
– In related news, the US warned Chinese firms on Thursday that they would face consequences if they sought to evade any export controls imposed on Moscow in the event of Russia invading Ukraine. CNBC reported US State Department spokesperson Ned Price making the remark after China’s Foreign Ministry said China and Russia had co-ordinated their positions on Ukraine. ‘We have an array of tools we can deploy if we see foreign companies, including those in China, doing their best to backfill US export control actions, to evade them, to get around them,’ Price told a regular news briefing.
– Rio Tinto this week published in full a self-commissioned report into the treatment of its 47,000-strong global workforce, with the results being described as ‘deeply disturbing’ by CEO Jakob Stausholm. According to CNN, the external review found ‘bullying and sexism are systemic across Rio Tinto worksites, with almost half of the people experiencing bullying.’ The company has promised to implement all recommendations from the report as it seeks to rebuild its reputation following its demolition of the Juukan Gorge caves in Western Australia in 2020, a move that eventually forced out then-CEO Jean-Sébastien Jacques. Stausholm, the company’s former CFO, took on the top job, promising to ‘restore trust’. The FT said it was ‘a report that should be read widely’ and described it as a wake-up call for business.
– According to the Wall Street Journal (paywall), US and European activist investors are targeting some of the UK’s largest public companies, taking advantage of dropping stock prices to push for company breakups and other changes. The flurry of activity highlights how the UK market is particularly ripe for activist campaigns. The FTSE 100 benchmark has a total market value of around $2.7 tn, making it one of Europe’s biggest indexes and offering investors a pool of large-cap candidates. At the same time, the market has become cheap due to individual company problems, a relative lack of high-growth technology companies and the economic fallout from Brexit.
‘The opportunity to restructure businesses and improve returns that have been low in recent years makes the UK attractive to activist investors, private equity or other global investors,’ said Sharon Bell, European equity strategist at Goldman Sachs.
– Reuters reported that Shell began trading with a single line of shares after the UK oil company confirmed the assimilation of its A and B shares as part of plans to simplify its two-tier structure. The group, which dropped ‘Royal Dutch’ from its name last month after moving its headquarters to the UK from the Netherlands, said its shares would start their dealings on Euronext Amsterdam, the LSE and the NYSE. Shell, which held its first board meeting in London on December 31, introduced the two-class share structure in 2005 after a previous corporate overhaul.
– Google parent Alphabet said its board approved plans for a 20-for-1 stock split, CNBC reported. The move comes a year and a half after Apple most recently split its stock, giving three shares for each share owned. Alphabet intends to split the Class A, Class B and Class C shares of the stock, according to an earnings statement, though the change requires shareholder approval. Each shareholder at the close of business on July 1 will receive – on July 15 – 19 additional shares for each share of the same class of stock they own. In 2012, Google added Class C shares, which have no voting rights. The company already had Class A shares, which carry one vote per share, and Class B shares, which are held closely by founders and early investors and carry 10 votes.
– The ‘memestock’ revolution ‘largely just lined the pockets of major financial firms,’ according to the WSJ. It reported that brokerages serving individual investors received a windfall last year for selling their customers’ order flow to electronic trading firms, even as the practice faced increasing scrutiny from regulators. The dozen largest US brokerages earned a combined $3.8 bn for selling their customers’ stock and options orders last year, up 33 percent from 2020, according to new data compiled by Bloomberg.
– Hong Kong is hoping for an IPO revival following a disappointing second half last year, according to the South China Morning Post. It noted that ‘several firms applied for a Hong Kong listing just before the Lunar New Year holiday’, with companies betting that demand for initial public offerings will improve after a ‘dismal’ January that saw just a handful of deals. The paper reported that BIEL Crystal, the world’s largest maker of smartphone screens and a company that counts Apple among its customers, is one of the firms to have filed listing plans. This is the second time the company has submitted IPO plans, after its application from last summer lapsed. At the time, Biel’s founder Yeung Kin-man said the company was targeting around $2 bn.
Another notable IPO application comes from Trinity Acquisition Holdings, a special purpose acquisition company co-sponsored by Li Ning, a former Chinese Olympic gymnast and chairman of the eponymous sportswear company, which already trades on the Hong Kong bourse.