By Powerscourt on 08/05/2020
Powerscourt Coronavirus Briefing – 08 May 2020
ANALYSIS
The UK, and most of the continent, celebrates the 75th anniversary of Victory in Europe (VE day) today as the battle against COVID-19 rages on. Media reporting of an end to lockdown was premature with Minsters taking to the airwaves to urgently manage expectations. In Thursday’s Downing Street briefing Dominic Raab formally extended the coronavirus lockdown and pointed to a “modest and incremental” easing of a small number of measures next week.
Instead, the country awaits the much heralded prime ministerial address on Sunday in which Boris Johnson is now expected to outline Britain’s multi-phased exit from lockdown with Downing Street briefing that any immediate easing would be “very limited”. Maybe, for the weekend that we are in, he will adapt the words of Winston Churchill and say: “It is, perhaps, the end of the beginning.”
In less surprising news, the NHS has begun building a second contact-tracing app, using Google and Apple technology, given the myriad of issues (all forewarned) with its first app launched this week on the Isle of Wight.
We continue to absorb the findings of the Bank of England’s latest report into the economic impact of COVID-19, with the UK now facing its worst recession in 300 years. Mel Stride, the chair of the Treasury Select Committee warned not all businesses will be able to survive, saying: “That is the hard reality. These are extraordinarily expensive measures – the furloughing of a quarter of work force is costing more than we put into the NHS.” Downing Street has also acknowledged the “huge” impact on the economy, but warned the effect would be even more severe if there was a second spike. In other words, business should not be too hopeful of a major policy shift on Sunday.
All this comes as we absorb more astonishing numbers coming out of the US – another 3.2 million axed workers filed for unemployment benefits, taking total clams in the past seven weeks to 33.5 million.
Behind the headlines over lockdown strategy, there are continued signs of the inherent strength of the UK economy. The same BoE report highlighted that even though it forecasts Banks may lose c. £80 billion because of the coronavirus crisis, they will be able to cope because of their high levels of capital. Corporate activity continues – “Project Pink” – the £31 billion merger of O2 and Virgin Media creates a major competitor to BT (which suspended its final dividend yesterday) and Vodafone. Shareholders are still supporting businesses, with Costain, Polypipe and Hyve all raising new money yesterday in quickfire share placings. We also saw global markets lift again after a surprise recovery in Chinese exports and encouraging noises from China-US trade negotiators. Japan’s Nikkei 225 index closed up 2.5% while the London indices opened up about 1.5%.
One thing is for certain however. Office gossip in the canteen is furloughed until further notice.
WHAT ARE COMPANIES SAYING?
Consumer and Retail
Marston’s
The brewer announced yesterday afternoon that it has formally asked for waivers and amendments from note holders, “solely as a consequence of the enforced temporary closure of its pubs”. The company highlighted its mitigating actions during the crisis, including furloughing over 90% of its employees, reducing salaries of the Board and other staff, suspending capital expenditure and engaging with tenants and suppliers.
Neiman Marcus
US department store chain Neiman Marcus has filed for bankruptcy. The company has secured financing to fund operations through bankruptcy, about which CEO Geoffroy van Raemdonck said “The binding agreement from our creditors gives us additional liquidity to operate the business during the pandemic and the financial flexibility to accelerate our transformation. We will emerge a far stronger company.”
Financial Services & Real Estate
Barclays
In his statement ahead of the bank’s AGM yesterday, CEO Jes Staley said the bank can continue to run safely and profitably and provide support to its customers and clients, as well as communities and the wider economy. In terms of performance, Staley said the first quarter had been “pretty good” until the impact of the pandemic. The bank took a $2.1bn credit impairment charge in the quarter and generated £913m of profit before tax.
ING Group
The financial services group reported profit before tax more than 35% lower than the first quarter of 2019, saying this reflects “higher risk costs and negative value adjustments as a result of market volatility and the expected future impact of the Covid-19 pandemic”. CEO Ralph Hamers said: “While we now find ourselves in a period of great uncertainty, I remain confident about ING’s future. Since launching our Think Forward strategy in 2014, we’ve been among the leaders in digital banking and we offer a differentiating customer experience, as shown by our growing number of customers and the increasing amount of business they do with us.”
Macquarie
The Australian investment bank reported an 8% fall in annual profit and halved its dividend, following a number of impairments related to the pandemic. It withdrew its guidance for the first time in a decade. CEO Shemara Wikramanayake said: “We continue to maintain a cautious stance, with a conservative approach to capital, funding and liquidity that positions us well to respond to the current environment.”
EY
Big Four accounting firm EY sent an email to consultants in its financial services division telling them to take holiday in the last week of May. The email, from CEO Paul Sparkes, said “We will continue to monitor the situation and may need to repeat this exercise in the coming months.” An EY spokesperson said the company is encouraging employees to take holiday to protect individual wellbeing and safeguard the company’s efficiency and productivity.
Industrials & Transport
Bombardier
The Canadian jet and rail manufacturer announced its first quarter results yesterday, reporting weaker earnings than last year and a negative free cash flow of $1.6bn. The company said it has begun “gradual resumption” of its manufacturing operations. CEO Eric Martel said: “Bombardier is taking the right actions to manage the impact of the COVID-19 pandemic. As we bring our operations back on-line, we remain focused on protecting our employees, supporting our customers during this difficult period and taking the actions necessary to preserve the Company’s long-term future.”
Uber
The ride-sharing giant reported first quarter losses of almost $3bn. The company said its Uber Eats business has substantially increased and provides a “silver lining”. CEO Dara Khosrowshahi predicted that Uber would be critical in return to work plans, with people preferring ridesharing instead of public transport. It was also announced yesterday that Uber is leading a $170m investment in Lime, the electric scooter company, which will see Lime take over Uber’s e-bike rental service Jump.
IN THE NEWS
Boris Johnson urges ‘maximum caution’ over easing lockdown – Financial Times
Force banks to take on more capital, says Sajid Javid – Financial Times
Banks able to cope with £80bn losses, says governor Andrew Bailey – The Times
UK ‘must prioritise green economic recovery’ – BBC News
