BNP Paribas to move 400 jobs to Europe due to Brexit By Reuters


© Reuters. BNP Paribas bank office in Nantes

PARIS (Reuters) – French bank BNP Paribas (PA:) said on Friday it was creating 400 jobs in continental Europe due to Britain’s exit from the European Union, and that it has taken all measures required by regulators to continue to operate in the United Kingdom.

Britain’s vote to leave the EU has forced banks to examine where to base their operations, given that the system of unfettered market access they have enjoyed on both sides of the English Channel, known as passporting, will end.

A Brexit transition period runs out at the end of the year, and details of the future relationship between Britain and EU have not yet been agreed.

“Selling financial services from the UK to EU clients will not be allowed,” the bank said in a press release while reporting quarterly results. “In the UK, the front office roles, mainly sales positions, and their associated set-up positions are impacted by these measures”.

BNP said some 400 new positions were being created in Europe, of which 160 were in the front office and 240 in support functions. As of the end-June, 260 of those positions have been taken up, it added.

It did not give details of where those new positions were based, or mention any corresponding job losses in London.

“The group is already prepared for the end of the Brexit transition period in December 2020,” it said.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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Garrett Motion: Sputtering Due To High Liabilities (NYSE:GTX)


As the market continues to hit new highs, finding undervalued stocks for the long term has become more difficult. As investors, we need to properly differentiate a “value stock” from a “value trap”. One company that appears like a “value stock” but is actually a “value trap” is Garrett Motion (GTX). I wanted to share my due diligence on the company.

Just a brief background on the company. Garrett Motion, originally a subsidiary of Honeywell (HON) before it was spun off, is a manufacturer of turbochargers for vehicle OEMs. A turbocharger is a device that crams more air into the vehicle’s internal combustion engine, increasing its power. These turbochargers are typically used for gasoline and diesel vehicles, but the company has products for hybrid and hydrogen vehicles as well. Garrett Motion works closely with its customers to ensure its turbochargers are able to improve fuel efficiency and reduces exhaust emissions. In 2019, roughly 51% of all vehicles come equipped with a turbocharger, and the company expects this number to increase to 56%.

Apart from turbochargers, Garrett Motion has also been developing other products, such as electric-boosting technology for hybrid and hydrogen fuel cell vehicles, as well as “Internet of Things” technology focused on automotive cybersecurity and integrated vehicle health management. These products, though, only account for 2% of its revenue. In 2019, the company supplied its products to 60 OEMs, however, its top ten customers represented 60% of revenue. Garrett Motion’s largest customer is Ford Motors (F), which accounted for 12% of revenue.

Source: Company presentation

In terms of Q1 2020 results, like most companies, Garrett Motion did not have a good quarter. Net sales fell to $745 million, a 10.8% decrease from the same time last year (an 8.5% decrease adjusting for currency). Net income was $52 million in Q1 2020 vs. $73 million in Q1 2019. The company’s manufacturing facilities in China were affected by the coronavirus outbreak there, but have since resumed operations. In terms of liquidity, Garrett Motion drew down from its credit facility at the end of the quarter and had ended up with $658 million in cash. This is against total debt of $1.4 billion. The company had a Net Debt-to-EBITDA ratio of 3.0x.

Electric vehicles pose a long-term risk to a distracted company

Widespread adoption of full battery electric vehicles would materially affect the company’s profitability. The vast majority of Garrett Motion’s income is still dependent on turbochargers, which require an internal combustion engine to work. The company is trying to hedge this bet by developing technologies for the hybrid electric vehicle market. However, should the market adopt full battery electric vehicles in favor of hybrid alternatives, the company would be in trouble.

The jury is still out though on whether full battery electric vehicles or hybrids would be the car of the near future. Global automakers are split on which side to take. Ford, Fiat (FCAU), and Toyota (TM) believe in using hybrids as a complement to pure electric, while General Motors (GM) and Volkswagen (OTCPK:VWAGY), as well as upstarts like Tesla (TSLA), Rivian and Nio (NIO), are focusing on full battery electric.

“If you pick one path and go with it, then it significantly reduces your development costs,” said Sam Abuelsamid, industry analyst with Ann Arbor-based Navigant Research. “If you know you’re going full-EV, you don’t have to design hybrid powertrains. The downside is that if people don’t buy EVs, you’re stuck.”

“- Fork in EV road: Is hybrid or fully electric best way?,” Detroit News, August 19, 2019

The technology for electric vehicles is moving incredibly quickly though, and it is becoming clear that at best hybrid vehicles are seen as a “stepping stone” to full battery-electric while the necessary infrastructure is being built out. Toyota and Volvo (VOLAF) disclosed plans to generate half of their sales from electric vehicles by 2025. BMW Group says that electric will make up 15-25% of sales by 2025. Volkswagen aims to make electric vehicles 40% of its global fleet by 2030. Not to mention the continued popularity of Tesla.

Technology moves incredibly quickly, and Garrett Motion will need to accelerate its development of other products (which make up 2% of revenue) in order to stay relevant. The company needs to stay focused and have minimal distractions. However, the company is currently entangled in a bitter court battle with its former parent over its $1 billion in legacy Bendix asbestos liability. Garrett Motion is required to make payments to Honeywell to cover 90% of Honeywell’s asbestos-related liability up to a yearly cap of $175 million until 2048. It’s a pretty bad deal on multiple fronts, as it is the very definition of moral hazard. From Investopedia, “Moral hazard is a situation in which one party engages in risky behavior or fails to act in good faith because it knows the other party bears the economic consequences of their behavior.” Garrett Motion suffers from moral hazard because it can’t manage this ongoing liability claims and has to rely on Honeywell.

Honeywell incorporated onerous and unlawful covenants into the Indemnification Agreement that were uniquely designed to give Honeywell a veto over Garrett’s key corporate decisions for 30 years. These covenants hobbled Garrett’s ability, as an independent, publicly-traded company, to refinance its debt and engage in corporate transactions.

Honeywell denied many of Garrett’s requests for information concerning the liability for which it is indemnifying Honeywell, despite Garrett’s right to this information and its attempts for more than a year to obtain it. Honeywell has also failed to establish its right to indemnity for each and every asbestos settlement of the thousands for which it seeks indemnification. Moreover, Honeywell has not allocated between indemnifiable amounts and non-indemnifiable amounts, including punitive damages or intentional misconduct
.

– “Garrett Motion Files Complaint Against Honeywell in Asbestos Indemnity Suit,” Business Wire, January 16, 2020

Garrett Motion sued Honeywell, and I’m not a lawyer, so I won’t speculate on how this will be resolved. However, I will say that Garrett Motion’s large amount of debt and asbestos-related liability, not to mention the ongoing coronavirus pandemic, will severely hamper the company’s ability to make the necessary investments for its future.

Valuation and Conclusion

Garrett Motion seems to have a lot of “baggage” as a company. First, there is the high debt level and asbestos-related liability, which have a combined value of $2.4 billion. Second, it is part of the automobile/vehicle industry, which is cyclical. Finally, the company faces long-term challenges with regard to the emergence of mass-market full battery electric vehicles. The company has a 2019 EBITDA of $529 against interest expense of $68 million, implying an interest coverage ratio of 7.8x, which is decent. However, that doesn’t take into account its liabilities to Honeywell due to the asbestos issue. In 2019, Garrett Motion paid Honeywell $153 million. The company has $64 million and $227 million in debt due in 2022 and 2023 respectively.

With a 2019 EPS of $4.12 vs. current share price of $7.28 implying a P/E ratio of 1.7x, the company is actually trading at a gigantic discount. However, due to its high liabilities, the company has negative equity of $2.3 billion. I like the price of the stock and can see it being “cheap” enough for a quick trade for the more adventurous among you. However, I cannot recommend the firm as a long-term investment, so it’s not for me. Garrett Motion gets a hard “Avoid” from me.

Disclosure: I am/we are long F. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Caveat emptor! (Buyer beware.) Please do your own proper due diligence on any stock directly or indirectly mentioned in this article. You probably should seek advice from a broker or financial adviser before making any investment decisions. I don’t know you or your specific circumstances, therefore, your tolerance and suitability to take risk may differ. This article should be considered general information, and not relied on as a formal investment recommendation.





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Spanish airline Iberia will downsize due to coronavirus: CEO By Reuters


© Reuters. FILE PHOTO: Empty Iberia check-in counters are seen at Madrid’s Adolfo Suarez Barajas Airport

By Graham (NYSE:) Keeley

BARCELONA (Reuters) – Spanish airline Iberia will reduce the size of its fleet, the number of destinations it flies to and how frequently as the coronavirus pandemic continues to drag on demand, its chief executive officer said in a newspaper interview.

Luis Gallego also told El Pais that Iberia, part of International Consolidated Airlines Group (LON:) (IAG.L), wants to extend a temporary layoff scheme for workers, known as ERTE, until December.

“In Iberia, we will be smaller, but we will exist, something that it is not clear other airlines will be able to say,” Gallego said in the interview, published on Sunday.

“Smaller, unfortunately, with the capacity adapted to the demand. We will have fewer planes, fewer flights and fewer destinations.”

The Madrid-based airline has been losing 7 million euros per day as lockdowns to curb the spread of coronavirus have grounded planes, he said.

Iberia will withdraw 17 Airbus (PA:) A340-600 planes from its fleet, he said.

Gallego, who will take over as chairman of IAG in September, said demand in the airline industry was not expected to return to 2019 levels until 2023 or 2024.

In May, Iberia and Vueling, both part of IAG, secured 1 billion euros ($1.1 billion) of government-backed loans to cope with the fallout from the coronavirus pandemic, which has tipped the airlines industry into its biggest ever crisis.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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‘La la land?’ The stock market is ‘insanely disconnected’ and due for a ‘reckoning,’ Warren Buffett buff warns


Those betting against this “absurdly overvalued” stock market are about to get paid, if Kevin Smith, Crescat Capital’s chief investment officer, has it right in his gloomy assessment.

“Speculation is rampant and being championed by a bold new breed of millennial day traders,” he said. “The mania is based on a widespread hope in Fed money printing. The catalysts for reckoning are numerous as a major cyclical economic downturn has only just begun.”

Smith, who recently talked about learning the ropes from a stack of Berkshire Hathaway
BRK.A,
-0.51%

BRK.B,
-0.55%

shareholders letters his dad gave him long ago, said, in a very un–Warren Buffett fashion, that shorting stocks “is worthy of a significant allocation today.”

Smith used this chart of plunging S&P 500
SPX,
-0.56%

profit margins to show “how insanely disconnected equity prices are from their underlying fundamentals.” He warned that buy-the-dip investors are “not paying attention and have simply been too eager to call the bottom.”

Smith reiterated his “macro trade of the century” call that there’s never been a better set-up for rotating out of overvalued stocks and into undervalued precious metals.

“Markets driven by euphoria never end well,” he explained in a note to clients this week. “The U.S. stock market today is in la-la land. It is discounting a new expansion phase of the economy at the same time as a major recession has only just begun.”

Smith took some lumps in his funds when the market was soaring early in the year, but his returns ballooned in March as the coronavirus pandemic arrived. Here are his historical numbers:

The severe “reckoning” Smith has been warning about hasn’t arrived as of Thursday’s trading session, but the Dow Jones Industrial Average
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-0.80%
,
S&P 500 and tech-heavy Nasdaq Composite
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+0.03%

were all under pressure, at last check.



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If airlines keep the middle seat empty due to fears of coronavirus transmission, will air travel become more expensive?


Airline tickets are cheap right now. But don’t expect that to last forever.

How cheap are flights? You can book roundtrip airfare in August between New York and Los Angeles for $62, according to a search on travel website Kayak
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+1.91%
.
For less than $200, you can get round-trip airfare between Miami and dozens of destinations across Latin America and the Caribbean.

Airlines have slashed the price of tickets as demand plummeted in the face of the global coronavirus pandemic. They’ve flown practically empty planes, and pilots and flight attendants have faced the risk of furloughs and layoffs as airlines’ business has tanked. Meanwhile, travelers are sitting on millions of dollars in vouchers from carriers such as Delta
DAL,
+3.80%
,
American
AAL,
+5.81%
,
JetBlue
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+1.29%

and United
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+5.06%
,
which they received for trips cancelled due to health concerns.

Some have even predicted that one or more airlines could go bankrupt as a result of the downturn. Warren Buffett’s Berkshire Hathaway
BRK.A,
-1.09%

even sold off its stakes in airlines because of the pandemic.

The downturn will likely keep flight prices down for some time to come.

“Early on, many analysts expected a V-shaped recovery in air travel,” said Scott Keyes, founder and chief flight expert at travel website Scott’s Cheap Flights. “That’s clearly not borne out, and instead we’re looking at a stretched out Nike
NKE,
+0.97%

swoosh recovery.”

Also see:Walt Disney World cancels dining reservations and stops taking new hotel bookings ahead of planned July reopening

“Slashing fares is the simplest and most effective tool airlines have to get people back on planes,” Keyes added.

Another factor keeping prices low, besides airlines attempting to boost demand, are fuel costs, Keyes said. Oil prices fell precipitously as stay-at-home orders went into effect across the globe. That’s helped keep costs down for the industry, which has enabled airlines to pass savings onto consumers.


‘Slashing fares is the simplest and most effective tool airlines have to get people back on planes.’


— Scott Keyes, founder and chief flight expert at travel website Scott’s Cheap Flights

But prices won’t stay low forever, and travelers shouldn’t bank on deals sticking around, experts said.

“I would not take too much stock in the prices you see for later this year or 2021,” said Brian Sumers, senior aviation business editor at travel industry news outlet Skift. “This is a fast-moving crisis, and the models airlines use to predict future pricing trends cannot keep up.”

Airlines are hesitant to drop prices too much now for future dates in case travel demand recovers, because doing so would leave them stuck with cheap fares. If demand doesn’t recover, airlines will probably cancel many flights, Sumers said.

Indeed, many airlines have cut less popular routes during the pandemic to reduce their costs. And in some cases, that actually has raised ticket prices. Airfare for trips between Atlanta and Denver is 25% more expensive than in 2019 because JetBlue and Spirit
SAVE,
+7.79%

suspended service on that route until September, said Hayley Berg, an economist at travel company Hopper.

Read more:Half of all Americans are canceling their summer vacations — what to expect in refunds from cruise lines, hotels and airlines

“Spirit and JetBlue offer low base fares compared to other major carriers on the route, and a suspension of service and these fares drives up the average price available on the route,” Berg said.

“As carriers work to restructure their schedules and partner with the [Department of Transportation] to determine which routes can be changed, it’s likely that there will be some routes where average prices will rise compared to previous years given the fewer options available to customers,” she added.


‘Airlines blocked middle seats to try to get people comfortable to fly again. But it’s not sustainable, long-term.’


— Brian Sumers senior aviation business editor at travel industry news outlet Skift

If demand does rebound in earnest though, you could see airlines responding by changing coronavirus-related policies. In other words: Don’t expect flights to remain so empty.

“Airlines blocked middle seats to try to get people comfortable to fly again,” Sumers said. “But it’s not sustainable, long-term. Airlines will get back to selling every seat on the airplane soon enough.”

United recently announced a set of disinfecting protocols, including a partnership with Clorox
CLX,
-0.98%
,
aimed at making passengers feel more comfortable about the safety of boarding an airplane during a pandemic.

Carriers also have grounded many planes and put them in storage because of the slowdown in air travel. If flight demand picks up enough, those aircraft could be put back in service. That added capacity would help to mitigate rising prices.



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