June 3, 2020 / 8:18 PM / a month ago

Breakingviews - Corona Capital: Crisis loans, Jet fighting

NEW YORK/SAN FRANCISCO/LONDON/HONG KONG (Reuters Breakingviews) - Corona Capital is a daily column updated throughout the day by Breakingviews columnists around the world with short, sharp pandemic-related insights.

The Wall Street sign is pictured at the New York Stock exchange (NYSE) in the Manhattan borough of New York City, New York, U.S., March 9, 2020. REUTERS/Carlo Allegri

LATEST

- Loan drawdowns

- U.S.-China flight bans

DRAWING A LINE. Corporate America’s great liquidity rush is over – at least, judging by companies’ drawdown of backup credit facilities. Last week banks handed over just $850 million, most of it to discount store Dollar Tree. That’s barely a rounding error compared to the $265 billion firms siphoned off their lenders since March – including $140 billion in one frenetic week that month, according to Morgan Stanley analysts.

It’s a relief for banks, which at one stage were inundated by clients tapping credit lines for fear of going under. And around a fifth of the borrowings have been repaid, reckons Morgan Stanley. That will mean less interest income, but at least players like JPMorgan and Bank of America have scooped up fees helping companies issue bonds and equity. And it’s good to know banks have firepower in reserve because if there’s a second wave of the virus, the race will be back on. (By Antony Currie)

UNFRIENDLY SKIES. Chinese airlines can’t fly to the United States from June 16, the U.S. Transportation Department said on Wednesday. It’s not like many of their usual customers would want to, between social unrest and an ongoing pandemic. Yet it’s a symbolic retaliation, and a sign the White House is prepared to fight battles on many fronts.

China had already blocked U.S. airlines. Delta Air Lines and United Airlines pushed to reinstate flights this month but haven’t received a response from authorities there. The Donald Trump administration’s order, which affects Air China, China Eastern Airlines, China Southern Airlines and Hainan Airlines, levels the playing field.

It’s a bit of a hollow blow. The International Air Transport Association said daily flights have somewhat recovered recently but mostly in domestic markets. But it suggests that even as Trump faces conflict and economic turmoil at home, his desire to make China pay – or at least appear to – only gets keener. (By Gina Chon)

MOUNTAIN RETREAT. The pandemic has not dented Klaus Schwab’s Rolodex. The World Economic Forum’s founder on Wednesday convened a virtual mini-summit to discuss his call for a “Great Reset”. Dignitaries including Prince Charles, International Monetary Fund chief Kristalina Georgieva, Microsoft President Brad Smith and BP boss Bernard Looney beamed in from their lockdown locations. The result was a 75-minute version of the earnest debates that characterise the four-day January shindig in Davos.

The line-up suggests the 82-year-old may still be able to lure big names to the physical event in the Swiss mountain retreat next year. Less clear is whether executives, financiers and hangers-on still want to come. Aside from the risk of catching Covid-19, joining a party for the global elites will be even harder to justify after a severe global recession. JPMorgan Chief Executive Jamie Dimon joked recently that a coronavirus outbreak in Davos would have been “good news”. Perhaps Schwab should take the event fully online. (By Peter Thal Larsen)

CLOSING CREDITS. The movie script is no longer in the hands of AMC Entertainment. The global theater chain owned by China’s Dalian Wanda on Wednesday warned of “substantial doubts” about its ability to continue as a going concern ahead of a scheduled first-quarter earnings release next week. Shelter-in-place orders designed to limit the spread of the coronavirus have been brutal for cinemas.

Even if AMC can reopen theaters soon, it doesn’t mean that moviegoers will flood back. Social-distancing rules and habits will last until a vaccine or at least better treatment for Covid-19 is found. Suppose there is pent-up demand for movie outings, there still may not be anything special to see. Movie studios like Walt Disney, Paramount Pictures and Universal are postponing openings and in some cases launching new films straight to their own streaming services. The silver screen may be quickly fading to black. (By Jennifer Saba)

HALFWAY HOUSE. Sometimes it pays to battle a national regulator. Axa found this out on Wednesday after the French insurer said it would pay out half the dividend it had intended for 2019 and consider a special payout to shareholders later in the year if markets allow. The 44 billion euro insurer’s share price jumped 7% as investors welcomed the surprise. After all, the French insurance regulator had called for a dividend cull until October 1.

Chief Executive Thomas Buberl had a strong case to make. Even though the European insurance watchdog EIOPA had called for dividends to be scrapped to better absorb losses from Covid-19, Allianz announced a full payout after taking advice from the German regulator. Italy’s Assicurazioni Generali distributed half its intended dividend. French rival Scor, however, scrapped its dividend last week. European insurance payouts remain something of a lottery. (By Aimee Donnellan)

NORDIC NOIR. Sweden’s laissez-faire approach to the pandemic has turned from outlier to pariah. Reflecting on the decision not to enforce a lockdown to fight Covid-19, Anders Tegnell, Sweden’s state epidemiologist, on Wednesday admitted on local radio that he would have adopted a firmer approach in retrospect.

Such doubts are understandable. Sweden’s mortality rate of 436 deaths per million people is nearly equal to that of virus hotspot France, according to the World Health Organization, and is over six times worse than the average among other Scandinavian countries. A higher infection rate is also the reason Norway and Denmark have opened their borders to each other but have excluded their Nordic neighbour.

Sweden has garnered praise for suffering considerably less economic damage than peers: its GDP actually grew quarter-on-quarter in the first three months of the year. But if its pariah status persists, that advantage could quickly disappear. (By Christopher Thompson)

IN STOCK. It’s one small step for capitalism in Australia, where Woolworths is rewarding employees with equity in the $31 billion supermarket chain. In recognition for hard work throughout the Covid-19 outbreak and generally difficult circumstances, over 100,000 full- and part-time staffers will receive up to A$750 ($520) worth of stock. Financially speaking, it equals less than the typical weekly wage in the country’s retail sector, but there is greater significance.

Even if 20 or so shares won’t mint millionaires, turning workers – who must hold their stakes for three years if employed by Woolworths – into owners can help change how they perceive their jobs and employers. Boss Brad Banducci acknowledged their essential role “as we all adjust to the new normal”. If more companies around the world are inspired to follow suit, or even up the awards, it will be one of the good side effects from the pandemic. (By Jeffrey Goldfarb)

QUANTUM COVID. Is bad data less severe if it’s released when nobody is around to analyse it? The Russian government appears to hope so. In May it began publishing statistics which show the adverse economic impact of Covid-19 late in the evening. Sources told Reuters on Tuesday that the aim is for the numbers to get less attention because journalists won’t have time to talk to experts and do a thorough analysis.

Sneakiness will only undermine trust in the country’s response to the pandemic. GDP contracted 12% in April and is forecast to fall 5%-8% this year. On Tuesday Prime Minister Mikhail Mishustin said Russia’s economic stimulus plan would cost around $73 billion over two years. At around 5% of GDP, that’s a fraction of what developed countries are spending. Tinkering with statistics is addressing the symptom, not the cause. (By Dasha Afanasieva)

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