Britain tells banks to prepare for pandemic debt pile By Reuters


© Reuters. FILE PHOTO: The Chair of the Financial Conduct Authority Charles Randell, speaks at a Reuters Newsmaker event, in London

By Huw Jones

LONDON (Reuters) – British banks need to accelerate preparations for dealing with businesses unable to repay money borrowed to bridge the coronavirus pandemic, the national financial sector regulator said on Tuesday.

Over 800,000 businesses have taken out state-backed loans worth around 34 billion pounds ($43 billion)under schemes introduced by the government as lockdowns forced companies to shutter temporarily.

Financial Conduct Authority (FCA) Chair Charles Randell said some of the debt incurred will turn out to be unaffordable and will need to be tackled fast to avoid dragging on recovery.

“Lenders will need to scale their arrears-handling functions quickly, and invest in training and controls,” Randell told an online meeting with the chairs of Britain’s banks.

“There needs to be an appropriate dispute resolution system, and we are working with the Financial Ombudsman Service and the Business Banking Resolution Service to ensure that there is capacity to deal with the volumes we may see.”

Banks were criticised for being slow initially in building up capacity to dole out loans, sparking complaints from small companies struggling to stay afloat.

“We can’t allow this to become a replay of the 2008 crisis where the treatment of some small business borrowers did such serious damage to people and to trust in financial services,” Randell said.

The pandemic’s impact on markets has added to questions about the value of some high cost and risky investment products, including those sold through “long and expensive distribution chains”, he said.

“We will be saying more about the issue of high risk investments in the near future.”

There is also a need to “redesign the system” so that “polluting firms” that break the rules pay for the consequences, rather than being mutualised across the industry, he 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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There’s now a $32 billion pile of commercial real estate loans in special servicing, the first step to debt relief


Landlords have been scrambling for debt relief on hotels, stores, office buildings and other commercial properties that sat mostly vacant over the past two months of U.S. lockdowns, with more woes on the horizon.

There is now $32 billion worth of commercial property loans in “special servicing” as of May, or more than double the late-February tally when the coronavirus deepened its hold on the U.S., according to a new Moody’s Investors Service report.

Special servicing is the first stop for borrowers seeking relief on loans bundled into commercial mortgage-backed securities (CMBS), a type of bond deal. Transfers to special servicing often happen once a default occurs, a borrower threatens to default or one looks likely.

Like at a bank, special servicers handle debt payments, but do so on behalf of bondholders instead of a single lender. They also are in charge of negotiating any workouts with borrowers, sometimes offering debt relief and other times handling a foreclosure or bankruptcy.

Lately, however, more property loans are being transferred to special servicing even while borrowers remain current on their debts, but operate in industries hard hit by COVID-19.

That’s how $975 million of property debt on the famed Fontainebleau hotel in Miami Beach hit special servicing in April.

See: Miami Beach’s iconic Fontainebleau tops list of U.S. hotels facing debt woes during pandemic

Servicer notes for May indicate the borrow wants a forbearance.

Here’s a Moody’s chart showing the spike, so far, in special servicing activity during the pandemic.

Hotels and retail hardest hit


Moody’s

While the roughly $550 billion CMBS market isn’t the biggest source of funding for U.S. commercial properties, it’s an important one that offers an early glimpse into the health of commercial real estate, mainly through monthly bond reports.

As of a year ago, roughly 13.5% of the $3.5 trillion U.S. commercial property debt sector was financed in the CMBS market, with banks and thrifts making up the largest funding source at 39%, according to the Mortgage Bankers Association.

Like many sectors, early signs point to landlords in the CMBS market being caught off guard by fallout from the pandemic as swaths of the American economy ground to a halt, a threat to their ability to manage significant debt loads.

Optimism about more U.S. states reopening for business gave U.S. stocks another week of gains heading into the long Memorial Day weekend, with the Dow Jones Industrial Average
DJIA,
-0.03%

gaining 3.3% on the week, leaving it only 17% off its record close on February 12, according to Dow Jones Market Data.

Still, the human and economic toll of the coronavirus is still being counted, weeks after the outbreak closed borders and led stretches of the globe to work from home.

Read: Retail sales crater a record 16.4% in April amid coronavirus lockdowns and spending slump

Retail and hotel properties have been the hardest hit in the past two months, not only in terms of the balance of loans crashing into special servicing, but also when looking at late payments, according to Moody’s data.

Late payments spiked to 11.8% in May on “conduit,” or multi-loan CMBS that have exposure to most property types, up from 8.6% in April and only 2.6% in March, per Moody’s.

The office sector has been one of the better performing assets during the pandemic, although that could change too, particularly if more companies follow the footsteps of Facebook Inc.
FB,
+1.52%

and other tech companies and give employees the option to keep working from home, long after the coronavirus threat is tamped down.

Read: Facebook employees may face pay cut if they move to cheaper areas to work from home



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Pandemic-hit Macau casinos look to play the long game with cash pile By Reuters


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© Reuters. People wearing masks walk in front of Casino Lisboa before its temporary closing following the coronavirus outbreak in Macau

2/2

By Farah Master and Scott Murdoch

HONG KONG (Reuters) – Light on debt and cash rich, Macau’s Galaxy Entertainment (HK:) is bleeding $3 million daily in operating cost as the coronavirus crisis upends its casino business.

Such a jolt could sink most companies – a risk not taken lightly by global policymakers who have delivered various measures over the past two months to help cushion corporate losses.

Yet Galaxy and many of its counterparts in the world’s biggest gambling hub have enough cash on hand to ride out the storm and, surprisingly, even survive on zero revenue for several months to a few years.

Having enjoyed robust earnings growth in recent years, thanks to insatiable gaming demand from mainland Chinese, the balance sheets of Macau’s casino operators stand tall over those in Las Vegas, which are saddled with much higher debt.

A Reuters calculation shows the Macau casino operators came into 2020 with a cumulative cash position of just over $12 billion, providing a solid buffer to tide over the lean times.

Galaxy’s (HK:) cash pile is a case in point.

Its policy of not dishing out regular dividends has seen it amass a war chest of around $5.7 billion over the past several years – allowing it to burn through $3 million daily on operating cost and weather the coronavirus for a lengthy period on zero revenue.

The survival of Macau’s gambling industry is crucial for the Chinese-ruled territory where the sector employs about three quarters of its 600,000 population, either directly or indirectly.

“It’s very difficult to predict how this is going to work out,” Robert Drake, Galaxy’s chief financial officer said at its full-year earnings briefing at the end of February during the height of the virus outbreak.

The coronavirus is also expected to delay a pipeline of multi-billion-dollar projects in Macau that were due to start this year.

While Sands China (HK:), MGM China (HK:), Melco Resorts (O:) and Wynn Macau (HK:) have lower buffers than Galaxy, they can still go without revenues for around 6-24 months, say analysts. All players can survive a minimum of half a year without having to tap debt financing, but anything longer could spell trouble.

MGM, Galaxy, Melco, Wynn and SJM declined a Reuters request for comment.

MARATHON, NOT SPRINT

To curtail the coronavirus, Macau barred all visitors from the mainland, neighbouring Hong Kong and Taiwan who had travelled overseas in the previous 14 days. Visitors from the greater China region make up more than 90 percent of its tourists.

The numbers trickling in so far are telling.

Although Macau’s casinos have reopened after a two-week suspension in February, revenues have plummeted between 80%-90%, hit by travel curbs and health regulations.

April’s gambling revenues, to be released on Friday, is expected to show a plunge of 95% year on year.

Daily visitors to Macau number around 200 versus over 100,000 a year earlier

“It’s a marathon, not a sprint, and we can see that there’s been a gradual improvement in mainland China, that hopefully, will trickle down into Macau,” Galaxy’s Drake said.

Fortunately, a solid period of growth for Macau’s six casino operators, which have raked in over $200 billion in gaming revenues since 2014, has strengthened the industry’s capacity to deal with the pandemic’s far reaching impact.

Their average debt to equity ratio at 53% also compares favourably to the near 87% ratio for the Las Vegas players, according to Thomson Reuters (NYSE:) Eikon.

Sands, which suspended its dividend payment due to the pandemic’s impact, is bleeding nearly $4 million a day in operating costs. However, with cash reserves of around $1.4 billion, it can keep going for two years without any revenues, said DS Kim, an analyst at J.P. Morgan in Hong Kong.

Sands Chairman Sheldon Adelson said any resumption in dividend payment would depend on income going forward.

“I assure you I have not said yay dividends and yay buybacks for the last time,” Adelson said during an investor call following first-quarter results on April 22.

Sands reported a $166 million quarterly net loss, with others due to announce results in the coming weeks. Analysts expect to see only a gradual recovery in the second half once travel restrictions are loosened.

If casinos did move to tap the capital markets, bankers caution it would be a tough sell.

“All of the deals that we have seen in Asia have been in sectors where there has been visibility on what the future will look like, we don’t even know when people are going to be able to go to Macau again.”





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Boeing 737 MAX cancellations pile up during production halt By Reuters


© Reuters. Unpainted Boeing 737 MAX aircraft are seen parked at Renton Municipal Airport in Renton

By David Shepardson and Rachit Vats

(Reuters) – Boeing Co (N:) on Tuesday reported another 75 cancellations for its 737 MAX jetliner in March, as the coronavirus crisis worsened disruptions from the grounding of its best-selling jet.

The U.S. planemaker posted a total of 150 MAX cancellations in March, including 75 previously reported from Irish leasing company Avolon. New cancellations came from buyers including 34 of 135 aircraft ordered by Brazil’s GOL (SA:).

GOL confirmed the 34 cancelled planes and said it reached agreement with Boeing on “cash compensation and changes to future orders and associated payment schedules.”

“GOL remains fully committed to the 737 MAX as the core of its fleet and this agreement further enhances our successful long-term partnership with Boeing,” said GOL chief executive Paulo Kakinoff in a statement. GOL now has 95 remaining firm orders for 737 MAX aircraft.

The cancellations come as Boeing seeks to untangle delivery commitments after halting output of the MAX in January, following delays in returning it to service.

Boeing shares closed down 4.3% to $141.00, off $6.33.

Boeing, facing a 13-month-old freeze on deliveries of the MAX and now disruption to deliveries of larger planes due to the coronavirus epidemic, said it had delivered 50 planes in the first quarter, barely a third of the 149 seen a year earlier.

That was the lowest since 1984 for the first quarter.

The company posted orders in March for 12 787 Dreamliners, one 767 freighter and 18 pre-MAX versions of the 737 for the P-8 maritime patrol program. For the first quarter, it posted 49 new orders, or a negative total of 147 after cancellations.

After further accounting adjustments representing jets ordered in previous years but now unlikely to be delivered, Boeing’s adjusted net orders sank to a negative 307 airplanes.

The pandemic has forced Boeing and European rival Airbus (PA:) to cut production in the face of plunging demand, cash problems at airlines and logistical difficulties in delivering aircraft.

Boeing remains in talks with regulators seeking approval to return the plane to service. Last week, Boeing said it was addressing two new software issues with the MAX flight control computer.

Major U.S. airlines, suffering an unprecedented downturn in demand due to the coronavirus, on Wednesday said they agreed in principle on the terms of $25 billion U.S. government payroll aid.

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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Bill Gates on Trump call for quick end to lockdown: It’s tough to tell people ‘keep going to restaurants, go buy new houses, ignore that pile of bodies over in the corner’


‘There really is no middle ground, and it’s very tough to say to people, “Hey, keep going to restaurants, go buy new houses, [and] ignore that pile of bodies over in the corner. We want you to keep spending because there’s maybe a politician who thinks GDP growth is all that counts.” ’


Bill Gates

That’s billionaire Bill Gates, the co-founder of Microsoft

MSFT, -4.11%

and noted philanthropist, sharing in a TED interview as described by the Vox Media site Recode his view on the drumbeat, notably from President Donald Trump, for an earlier end to public health policies aiming to mitigate the spread of a deadly pandemic that has brought much of the world’s business activity to a screeching halt.

Most of the U.S., including New York, New Jersey, Illinois and California, are under rules that limit movement and travel. Those efforts to dull the impact of the outbreak of COVID-19 are putting the U.S. economy into a recession and have tanked U.S. equity markets that were just a month ago at record highs.

See: Governors reject Trump’s timeline to reopen economy; ‘Job one has to be save lives,’ Cuomo says

The illness that is carried by the novel strain of coronavirus first identified in China in December has been contracted by some 622 ,000 people and killed more than 28,000 across the globe, according to data compiled by Johns Hopkins University, as of Saturday late morning.

In the U.S., where the epidemic is likely still in its nascence, more than 105,000 have been infected and 1,710 killed.

Trump, however, said on Tuesday during a Fox News interview in the White House Rose Garden that he hopes to have the country reopened as early as Easter on April 12, though most countries have taken months to achieve some semblance of managing the infection.

Trump has argued that a longer U.S. shutdown would make it more difficult for the economy to rebound from a recession. “The longer it takes, the longer we stay out, the longer that is to do,” he explained.

Read: Do you need to change and wash your clothes after visiting the grocery store?

An early end to the lockdown in the U.S. has been viewed as ill-advised by many experts and politicians who fear that lives would be sacrificed in the bid to resume business-as-usual, and achieve a stock-market rebound, before the virus subsides.

New York Gov. Andrew Cuomo, whose updates on the virus’s impact on the Empire State have been closely followed, expressed views similar to those of Gates on Tuesday. “No American is going to say, accelerate the economy at the cost of human life, because no American is going to say how much a life is worth. Job [No. 1] has to be save lives,” the governor said.

See: ‘You pick the 26,000 people who are going to die’: New York’s Cuomo, in plea to Trump administration for ventilators

Gates told TED, according to Recode, that “it’s very irresponsible for somebody to suggest that we can have the best of both worlds,” referring to mitigating the impact of the deadly pathogen on human lives and keeping the economy whirring.

U.S., and global, stock markets have been in turmoil due to the viral outbreak, with some at least partly attributing Tuesday’s biggest percentage gain since 1933 by the Dow Jones Industrial Average

DJIA, -4.06%

, up 11.4%, to a belief that Trump’s administration may push forward with reopening the U.S. economy, despite public health experts indicating that such a move would likely be premature. Noted infectious-diseases specialist Anthony Fauci suggested at a late-afternoon news conference at the White House that it might be worth exploring an idea floated by Trump that some sections of the country could have restrictions eased ahead of others.

The Dow surged 2,112 points on Tuesday, while the S&P 500 index

SPX, -3.37%

soared 9.4%, and the technology-heavy Nasdaq Composite Index

COMP, -3.79%

finished Tuesday’s session up 8.1%. All three indexes finished out the week lower but booked strong weekly gains, as President Trump signed a $2.2 trillion coronavirus rescue package into law.

Gates, who boasts a net worth of $94.6 billion, according to Forbes (making him the second wealthiest man in the world behind Amazon.com’s

AMZN, -2.83%

Jeff Bezos) is among a group of billionaire philanthropists who have said they would give away at least half their wealth to charities under terms of the Giving Pledge. The Bill and Melinda Gates Foundation has donated $100 million to pandemics science and testing.

Check out: Man who scored big wins during the 2008 financial crisis says the stock market could be ‘near a bottom’ if U.S. gets a coronavirus recovery plan



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