David Fuller and Eoin Treacy's Comment of the Day
Category - General

    Aramco Failure to Win Foreign Money Makes IPO Local Event

    This article by Javier Blas for Bloomberg may be of interest to subscribers. Here is a section: 

    Most of the money is likely to be raised from domestic rather than foreign investors. This means that the proceeds won’t be a fresh inflow of foreign capital but an internal transfer from Saudi households and corporates to the government. --Ziad Daoud, Chief Middle East Economist for Bloomberg Economics

    So poor is the international appetite for the deal, even at the lower valuation, Saudi Aramco decided at the last minute against marketing the IPO in the U.S., Canada and Japan -- three markets traditionally seen as a must-go destination for any big Wall Street deal. Instead of the planned approach to American investors, using what lawyers and bankers know as the 144A rule of the U.S. Securities Act, Aramco decided on Sunday the tepid interest meant it wasn’t worth the trouble.

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    Ford Unveils Electric Mustang SUV to Challenge Tesla Dominance

    This article by Keith Naughton for Bloomberg may be of interest to subscribers. Here is a section:

    The Mach-E will make a profit “on vehicle one,” he said in a Bloomberg TV interview. “That’s surprising a lot of people because electrics have not had a history of making money. This will.”

    Hackett said it will turn a profit because the vehicle “creates the passion that follows with Mustang” and prices start in the mid-$30,000 when U.S. subsides on electric cars are factored in. “So it’s attractive to customers.”

    Ford is building it in Mexico because it had an open factory there and it needed to be overhauled to build an electric vehicle, Hackett said. “As we start to adopt more electric vehicles — we had capacity down there, we had no capacity in the United States — we’re going to have electric capacity here in the United States. They’ll be building other electric platforms.”

    Still, it’s a high-risk gambit. The Mustang is Ford’s signature sports car, having sold more than 10 million units since it debuted in 1964 with simultaneous cover stories in Time and Newsweek. When Ford decided to abandon the traditional passenger-car business last year, it spared only one model: The Mustang.

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    Email of the day - on Brexit In Name Only (BRINO)

    Your recent comments that Boris Johnson's Brexit is really a BRINO have left me a bit puzzled. It's true that it's not the best deal, but to characterise it as worse than Theresa May's as some have done seems to me to be wide of the mark. Given the constraints of parliament, deadlines and Ireland - to mention just three - it seems to me that it's pretty good. 

    I show a link below from an article by Martin Howe QC who is an informed commentator on Brexit and Chair of Lawyers for Britain. In it, he argues the case that it's not a bad deal which I think is well made. But it all rests on the Conservatives getting a good majority.


    As always, thanks for your invaluable commentary and insights.

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    CECL Symposium Highlights: Still More Questions Than Answers

    Thanks to a subscriber for this report from Raymond James which is dated August 6th but makes a number of worthwhile points. Here is a section:

    What is CECL?: CECL is a new accounting standard that modifies how companies estimate loan and lease losses, and affects all periods starting after December 15, 2019 (i.e., begins 1Q20). In the midst of the financial crisis in 2008, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) established the Financial Crisis Advisory Group (FCAG). FCAG believes it has identified a “weakness in current GAAP being the delayed recognition of credit losses that results in the potential overstatements of assets,” which ultimately led to its recommendation for this new standard. The new standard requires financial institutions to use a combination of historical information, current conditions and reasonable forecasts to estimate the expected losses over the life of a loan. This is a significant shift from the current methodology, which relies on incurred losses. We note on day one of implementation, there will be a balance sheet adjustment, creating additional general reserves for expected credit losses and negatively impacting capital levels, but implying limited income statement impacts.

    Conclusion: We walked away with more questions than answers, and anticipate a significant amount of variability in disclosures amongst the banks given the latitude FASB has provided in the standards. While many questions remain, FASB officials, consultants and management teams alike continue to work through the issues and are refining models as overall understanding of the standards improves. Fortunately, we anticipate regulatory capital relief for the banks as necessary, since capital levels remain elevated and the intent of the new standards was not to increase capital levels at the banks. However, we believe there could be some unintended consequences and potential ripple effects that will create further disruption in the space, potentially shifting assets out of the banking space and into the non-bank space, which has continued to gain share. Ultimately, we remain concerned with the uncertainty around CECL, anticipated volatility around disclosures and capital impacts, as well as potential negative implications on industry demand will serve to provide one more reason for investors to not own the space.

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    SoftBank Next 30-Year Vision

    Thanks to a subscriber for this report which may be of interest.

    Amarin Fish-Oil Heart Drug Will Be Big, Could Be Huge

    This article by Max Nisen for Bloomberg may be of interest to subscribers. Here is a section:   

    Part of that question was answered Thursday after a panel of experts convened by the Food and Drug Administration reviewed Amarin's data. They voted 16 to 0 that Vascepa was safe and cuts cardiovascular events. The vote doesn’t bind the FDA, but the agency often follows panel recommendations, so it would be a surprise now if the drug isn’t made available to more Americans. That’s big news for Amarin — and for many patients. 

    We still don't know exactly how good the news is, however, and won’t until the FDA makes a final decision by the end of the year. There was consensus on the drug’s overall effectiveness. Still, the panelists disagreed about how far that impact extends. Access for millions of additional patients and billions of potential sales are still up the air, which means there’s more volatility ahead for Amarin investors. The market seems focused on the positives for now: Amarin shares surged 7% in early trading Friday after rising more than 20% on Tuesday, when the FDA released briefing documents ahead of the panel that were seen as relatively supportive for the drug.

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    Sputtering China Growth Underscores Need for Trade Reprieve

    This article from Bloomberg news may be of interest to subscribers. Here is a section:

    The investment data shows how cautious private companies have become, with their spending in the first 10 months of the year at the lowest level since 2016. The continued stability in spending by state-owned firms’ is preventing an even stronger drop in the headline data.

    Investment in the property market is one bright spot, with spending by the manufacturing sector barely above the record low recorded in September. Infrastructure investment growth continued to bounce along around 4% as it has all year.

    “I’m quite concerned with property investment, the only stable element in fixed-asset investment now,” according to Xue Zhou, analyst at Mizuho Securities Asia Ltd in Hong Kong. “Monetary policy needs to be more supportive on economic growth and there should be more cuts to banks’ reserve ratios to help smaller banks.”

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