The week in investor relations: Gensler tells Chinese firms to open books, Peel Hunt to list on AIM and Roger Federer-backed shoe company goes public
– The SEC may need to prohibit trading in about 270 China-related companies by early 2024, according to an opinion piece written by commission chair Gary Gensler and published in The Wall Street Journal (paywall). In it, Gensler said Chinese firms needed to ‘open their books’ and that the potential trading ban could be traced back to the Enron and WorldCom accounting scandals. ‘Congress passed the Sarbanes-Oxley Act in 2002, mandating inspections of public companies’ auditors by the Public Company Accounting Oversight Board. More than 50 foreign jurisdictions allow the board to ‘audit’ the auditors,’ he wrote. ‘Two do not: China and Hong Kong.’
– City broker and small and mid-cap-focused investment bank Peel Hunt intends to float on London’s AIM market after a bumper year when revenues more than doubled, reported Financial News. The firm, run by chief executive Steven Fine, will list the AIM on September 29, it said in a statement. Like many City-focused brokers, the investment bank enjoyed a stellar year as fund-raising on UK markets soared. It made £196.8 mn ($271 mn) over the past year, up from £95.5 mn. The bank also appointed Lucinda Riches, who previously headed up equity capital markets at UBS, to its board. She will eventually replace Simon Hayes as chair, Peel Hunt added.
– Shares of Roger Federer-backed On Holding jumped more than 47 percent in their debut on the NYSE on Wednesday, valuing the shoemaker at about $11.35 bn, said Reuters. The IPO comes at a time when athletic gear, especially shoes, has been flying off the shelves at most retailers as Covid-19-led gym closures pushed people to take up running to keep themselves fit. The company sold 31.1 mn shares priced at $24 in its IPO, well above its $20-$22 target price range, and raising $746.4 mn. On Holding was founded in 2010 by running enthusiasts Olivier Bernhard, David Allemann and Caspar Coppetti, with Federer investing an undisclosed sum in the company in 2019.
– The WSJ reported that Invesco is in talks to merge with State Street’s asset-management business, which manages almost $4 tn in assets. Citing people ‘familiar with the matter’, the paper noted that no deal is imminent, and the discussions might not result in an agreement. It isn’t clear what the terms of a potential deal would look like, but it would likely be one of the industry’s biggest in recent memory, the WSJ added.
– The Guardian reported that Rishi Sunak, the UK chancellor, gave his blessing to a multibillion-pound trend that has seen foreign private equity firms snap up British businesses, describing the buying spree as ‘good news’ for the economy. Sunak was speaking at the launch of Treasury Connect, an event intended to bring together fast-growing tech businesses with investors and politicians to spur innovation in areas such as fintech and life sciences. Addressing a trend in which overseas buyers target UK firms – with supermarket Morrisons set to be the latest to fall – Sunak said: ‘We’ve always been an economy that benefits from investment in it. I would view it as a sign of confidence in the UK. It’s good news for our economy.’
– Schroders will include sustainability data at an individual fund level in its next value assessment as the asset manager said it wants to ‘differentiate’ itself from peers, according to CityWire. Since October 2019, the UK’s Financial Conduct Authority has been asking asset managers to rate their funds on seven points, including quality of service, investment performance and comparable services, within four months of their full-year results. Schroders will now also add the ESG metric, which is not dictated by the regulator. CityWire quotes James Rainbow, head of Schroders UK business, as saying: ‘We see this as an opportunity for Schroders as an active manager to differentiate ourselves by enhancing transparency around sustainability and demonstrate additional value to our clients.’
– The Financial Times (paywall) reported on the news that China’s leading ride-hailing app, Didi Chuxing, has seen its number of daily users fall 30 percent since its initial public offering in New York in June triggered ‘a fierce backlash’ by Beijing. In the days after Didi’s IPO, Chinese regulators banned the company from signing up new customers while they carried out a data security investigation, which is ongoing. Regulators also ordered app stores to remove 25 of Didi’s other apps, including those that register new drivers. Didi shares have fallen more than 40 percent since the IPO and its rivals have begun to lure Didi customers with promotions.
– More than two thirds of investors anticipate a stock market pullback before the end of the year, reported the Guardian, citing concerns over growth prospects and the Covid-19 Delta variant. According to a poll of more than 550 global investors by Deutsche Bank, an equity correction sometime before the end of the year is ‘an overwhelming consensus now’, with 58 percent forecasting a drop of 5 percent to 10 percent. One in 10 expect a steeper tumble, while just under a third predict markets will avoid stumbling in the next few months.
– Reuters reported that foreign investors are ‘growing more worried’ that Canada’s federal election on Monday could result in a deadlock that hampers Ottawa’s response to the Covid-19 pandemic and further slows the economic recovery from the crisis. Polls show Prime Minister Justin Trudeau’s center-left Liberals virtually tied with the opposition Conservatives ahead of the September 20 vote, raising the prospect that no party will be able to form even a stable minority government. Adding to the uncertainty is an expected increase in mail-in voting that could delay the counting of ballots in some key electoral ridings. Financial markets generally view Canadian elections from the vantage point of which of the big parties would be most friendly for investors, Reuters noted, but warned that this time that tendency ‘may take a backseat’ to the desire to have a government quickly in place during a crisis.
– According to the WSJ, spending on share buybacks by US companies increased much faster than capital expenditures in the first half of the year, after pullbacks in both categories last year amid the pandemic. Share repurchases at companies in the S&P 500 increased to $370.4 bn, up 29 percent from the first six months of 2020. Capital spending rose to $337.17 bn, up 4.8 percent from the year-earlier period. Government stimulus efforts, such as those launched amid the coronavirus pandemic, are aimed partly at encouraging companies to invest in their businesses. But companies have faced criticism for using funds for stock buybacks or dividends.
– CNN reported that Senator Elizabeth Warren, D-Massachusetts, called for the Federal Reserve to break up Wells Fargo following years of scandal at the bank. ‘Every single day that Wells Fargo continues to maintain these depository accounts is a day that millions of customers remain at risk of additional negligence and willful fraud,’ Warren wrote in a letter sent to Federal Reserve chair Jerome Powell. She urged the Fed to revoke Wells Fargo’s status as a financial holding company and require the company to separate its traditional banking activities from non-banking activities. A Fed spokesperson said the central bank received the letter and plans to respond.
Without responding directly to Warren’s letter, Wells Fargo issued a statement detailing the various regulatory hurdles it has cleared in recent years and milestones it has achieved since it came under scrutiny. ‘Meeting our own expectations for risk management and controls – as well as our regulators’ – remains Wells Fargo’s top priority,’ the company said. ‘We are a different bank today [from the one] we were five years ago because we’ve made significant progress.’