The Wall St.Journal 28Feb2020

B10| Friday, February 28, 2020 THE WALL STREET JOURNAL.

LONDON—Banks with heavy
exposure to Europe and Asia
have warned profits could be
hit by the coronavirus out-
break as they tell employees
to restrict travel and initiate
special measures to help cus-
tomers.

Banking stocks sold off
heavily Thursday with shares
in several European lenders
falling more than 7%. Those re-
treats outstripped declines in
broad stock market indexes,
which slid toward correction
territory as virus concerns con-
tinued to roil global markets.
The spread of the virus will
make it more difficult for
Asia-focused, London-based
Standard CharteredPLC to
hit its financial targets, Chief
Executive Bill Winters said as
the bank warned that profit

growth would slow this year.

That warning comes after

rivalHSBC HoldingsPLC said

earlier this month that it

could take up to $600 million

in additional loan loss provi-

sions if the crisis extends into

the second half of the year.

Other banks are curbing

travel plans, canceling func-

tions, conducting business by

videoconference and circulat-

ing employee hygiene advice

as disruption caused by the vi-

rus spreads. Some have intro-

duced relief measures for cus-

tomers, such as delaying

mortgage repayments.

For Standard Chartered, the

fallout from the virus coupled

with other political headwinds

make for a gloomy short-term

outlook. Mr. Winters declined

to estimate a cost of or worst-

case scenario for the impact of

the virus but said the bank is

in a strong financial position

to withstand any outcome.

“We have not put a number

on it,” he said, adding that his

“singular focus” was to get the

bank through “a bumpy period.”

A quarter of Standard Char-

tered’s Hong Kong branches

are closed and there are no

face-to-face services in some

mainland China branches as a

precaution due to the corona-

virus outbreak, the bank said.

It said some clients affected

by the virus can delay repay-

ments on mortgages and busi-

ness loans. The bank also said

it is waiving fees on personal

loans, and extending the re-

payment dates of companies’

trade finance loans.

Elsewhere, most banks are

following advice from the World

Health Organization, with sev-

eral imposing restrictions on

travel to China and Italy.

CitigroupInc. told employ-

ees that all travel into, be-

tween and out of all countries

in the Asia-Pacific region must

be approved by their chief

country officer. JP Morgan

Chase& Co. employees also

need line-manager approval

fortraveltoItaly.HSBCtold

staff not to book travel to

Hong Kong until after April

20, and has banned travel to

mainland China until further

notice.

Deutsche Bank has im-

posed staff travel restrictions

to and from mainland China,

Hong Kong, the affected parts

of Italy and South Korea. It

asked staff to defer all nones-

sential travel.

“We continue to monitor the

government authorities’ assess-

ment and advice and change

our procedures accordingly,”

the bank said in a statement.

“We have analyzed where our

staff’s exposure to the virus

may be greatest and are work-

ing with local offices to mini-

mize the risk to local staff and

travelling populations.”

Deutsche Bank also changed

the format of a discussion on

the state of the global econ-

omy due to take place in

Frankfurt Thursday evening so

that its senior economists

could join by videoconference

from London and New York,

avoiding travel, replacing a

sit-down dinner with a cold

buffet to make the event eas-

ier to hear.

Banks are relying on video-

conferencing and other meth-

ods of communication to en-

sure the coronavirus fallout

doesn’t impede their ability to

compete for business. Italy-

based SIA SpA is pursuing a

possible initial public offering,

and some banks without a sig-

nificant presence in Milan

where the payments company

is based are pitching for an

underwriter role remotely be-

cause of their in-house travel

restrictions, according to peo-

ple familiar with the matter.

Some Milan-based bankers are

still making their case in per-

son, some of the people said.

Bankers said that the broad

market selloff is pushing com-

panies in sectors such as en-

ergy, retail and travel—whose

businesses are at particular

risk because of the virus—to

put on hold any IPO plans that

they had been considering, but

not made public.

That said, the market vola-

tility hasn’t interrupted SIA’s

plan for a possible IPO, which

was announced earlier this

month and remains on track,

according to a person familiar

with the matter.

—Margot Patrick

and Tom Fairless

contributed to this article.

Banks Restrict Travel, Cancel Functions, Warn of Slower Growth

BySimon Clark,

Patricia Kowsmann

andBen Dummett

The coronavirus outbreak

has already forced Hollywood

studios to postpone the re-

lease of several prominent

films in China. Now the epi-

demic is starting to disrupt

production of the next slate of

blockbusters.

Practically all movie theaters

in the world’s second-largest

box office market have been

closed since late January, an

extraordinary measure Chinese

health officials took as the

number of new coronavirus

cases, especially in major cities,

grew rapidly.

As the virus spreads, produc-

tion of at least one new film is

also being affected—actor Tom

Cruise’s next “Mission: Impossi-

ble” movie, which was slated to

start filming in Italy.

For major studios likeWalt

DisneyCo., Universal Pictures

and Paramount Pictures, there

is no guarantee when they will

be able to go back to business

as usual in China, a market that

is vital to their strategy of

pouring resources into films

with global appeal.

Two notable casualties so

far have been Universal’s “Do-

little,” starring Robert Downey

Jr., and Paramount’s “Sonic the

Hedgehog,” which stars Jim

Carrey. Both movies, marketed

as family-friendly films, have

had their Chinese releases

postponed indefinitely, accord-

ing to their respective studios.

Universal, owned by parent

Comcast Corp., shelved its

original plans to release “Dolit-

tle” in China last month. The

studio spent $175 million to

make the movie and had hoped

to offset some of the costs with

a strong run in China. Mr. Dow-

ney is popular in the country

thanks to his appearances in

several Marvel movies. “Dolit-

tle” fell flat in North America

and has so far made a weak

$204.9 million world-wide, ac-

cording to Box Office Mojo.

“Sonic,” released by Via-

comCBSInc.’s Paramount, has

recorded two consecutive suc-

cessful weekends in much of

the world and grossed $204.2

million globally. But Paramount

on Monday said it was delaying

the film’s China debut, origi-

nally slated for the end for Feb-

ruary, without setting a new

date.

Paramount, citing coronavi-

rus, said it would release the

movie in China when “it is ap-

propriate to do so.”

Oscar-winning films looking

to capitalize on their awards

glory with a theatrical run in

China have also had their re-

leases delayed. Universal’s

“1917” had its Chinese release

bumped amid coronavirus wor-

ries and theater closures.

During the first quarter of the

year, Chinese releases usually

dominate the local box office, as

families observing the Lunar

New Year typically go on vaca-

tion and theaters emphasize lo-

cal fare over imported titles.

Key releases slated for the

second quarter include MGM

Holdings Inc.’s latest James

Bond film, “No Time to Die,”

and Disney’s Avengers spinoff

“Black Widow.” The movies are

scheduled for release in the

U.S. and Canada in April and

May, respectively.

BYR.T.WATSON

Hollywood

Box Office,

Production

Are Jolted

the outbreak. Some plants have

reopened, though many are op-

erating on thin staff. Others are

scheduled to remain closed for

days or weeks.

Vehicle sales in China cra-

tered 92% in the first 16 days of

February, according to the

China Passenger Car Associa-

tion. Several suppliers have cut

profit forecasts in recent days

because of the fallout, including

electronics suppliers Aptiv PLC

and Visteon Corp., and seat

maker Adient PLC.

The global auto sector al-

ready was slowing even before

the outbreak. China’s once-

booming market was sagging

amid a trade war with the U.S.

Forecasters predict a small de-

cline in the U.S. car market in

2020 after years of near-record

sales.

Moody’s Investors Service

on Wednesday cut its outlook

for global auto sales, citing a

coronavirus-related supply-

chain disruption and a reduc-

tion in vehicle demand. The

ratings firm expects a 2.5%

drop, versus a prior forecast of

a 0.9% decline.

Parts shortages already have

forced some car factories to

close or curb production in

Japan and South Korea and has

threatened some car output in

Europe, where the virus has

spread over the past week. But

so far no auto maker has pub-

licly disclosed an interruption at

North American factories.

Any trouble in North Amer-

ica would be especially prob-

lematic for General Motors

Co.,Ford MotorCo. andFiat

Chrysler Automobiles NV,

which are struggling in over-

seas markets and increasingly

reliant on the U.S. for the lion’s

share of their global profit.

Each company says its North

American operations are run-

ning normally.

This month, United Auto

Workers officials flagged the

risk of parts shortages at GM

plants in Michigan, Indiana and

Arlington, Texas, where the

company’s lucrative pickup

trucks and big sport-utility ve-

hicles are built. But production

at those factories so far hasn’t

been affected, a company

spokesman said.

Auto parts made in China

generally take several weeks to

be shipped via ocean freight to

the U.S., a lead time that has so

far delayed any impact on U.S.

vehicle production, said Razat

Gaurav, chief executive of LLa-

masoft, an Ann Arbor, Mich.-

based supply-chain analytics

firm.

However, with some critical

components already in short

supply, several car companies

and auto-parts suppliers have

chartered airplanes or booked

space on commercial cargo

planes to fly parts directly from

China, Mr. Gaurav said.

Toyota MotorCorp., for in-

stance, said some of its North

American suppliers are ship-

ping smaller components from

China by plane.Nissan Motor

Co. plans to reserve space on

commercial cargo planes to

ship key parts to other regions,

a spokesman said.

Early trouble spots could in-

clude electronics like infotain-

ment systems and audio equip-

ment because they use

semiconductor chips, which

have more-limited supply net-

works, Mr. Gaurav said.

Renesas ElectronicsCorp.

and Murata Manufacturing Co.

Ltd., two Japan-based compa-

nies that specialize in electronic

parts, said their Chinese facto-

ries had halted temporarily but

have resumed production.

Semiconductor makerRohm

Co. Ltd., also of Japan, said

output at one of its factories in

China remains limited. It is try-

ing to boost production at

other Asian plants and is out-

sourcing some production, a

spokesman said.

But pinch points also could

emerge even for mechanical

parts that have a broader sup-

ply base, such as brake pads

and door hinges, Mr. Gaurav

said, because so many auto

makers are scrambling to find

backup supplies.

Vehicles are made of roughly

30,000 individual parts. “That

finished vehicle doesn’t get off

the shop floor until each of

those component parts are in

place,” Mr. Gaurav said. “It’s all

or nothing.”

—Ben Foldy

and Chieko Tsuneoka

contributed to this article.

BUSINESS & FINANCE

The auto industry is prepar-
ing for supply-chain problems
from the coronavirus outbreak
in China to soon hit vehicle
production in the world’s
healthiest car market: the U.S.
Automotive suppliers are
warning car companies they
could run out of certain parts
used in North American facto-
ries in coming weeks, with par-
ticular concern over potential
shortages of electronic compo-
nents, industry executives and
attorneys say. Hoping to stave
off factory work stoppages,
some manufacturers have taken
the unusual and costly step of
flying in critical parts by cargo
planes.
Sheldon Klein, a Detroit-area
attorney at Butzel Long repre-
senting auto-industry clients,
said he has been sending let-
ters daily on behalf of suppliers
to auto makers in the U.S.,
warning of potential parts
shortages and asking for leni-
ency in their contracts because
of the unforeseen nature of the
outbreak.
One of his suppliers antici-
pates a problem that could re-
sult in halted production at one
auto maker’s assembly line
within days, he said. Mr. Klein
declined to give specifics be-
cause his discussions with cli-
ents are confidential.
“There is a strong likelihood
that there will be disruption of
production” at car companies
in the U.S., Mr. Klein said. “It
will get more serious before it
gets better.”
At least one major electron-
ics supplier based in Japan has
notified each of its North
American customers—more
than a dozen auto makers—that
it expects to run out of certain
parts in coming weeks and
months, according to an execu-
tive at the company.
The coronavirus outbreak al-
ready has crippled China’s auto
market, the world’s largest by
sales, after several factories
were idled for weeks from a
government-ordered business
shutdown in an effort to contain

BYMIKECOLIAS

Virus Threatens Car-Parts Supply

RestofWorld

475

Japan

$4B

China

56

Canada

7

Mexico

6

Virus-relatedauto-parts

shortagesnowhittingAsia

couldmaketheirwaytotheU.S.

2019U.S.auto-partsimports

Source: Commerce Department

for the holiday season by a

month.

It’s the latest challenge for a

toy industry that in recent

years has faced the threat of

tariffs and bankruptcies of key

retailers including Toys “R” Us.

Toy sales declined 4% in the

U.S. last year, according to re-

search firm NPD Group Inc.

“This is going to put some

companies out of business if it

goes on too long,” said Steve

Pasierb, president and chief ex-

ecutive of the Toy Association

Inc., a trade group.

He said that many toy com-

panies have convened war

rooms with daily calls to their

Chinese manufacturers for sta-

tus updates. Some have said

they might see their expected

output fall by around 25% in

the second quarter of the year.

Jay Foreman, chief execu-

tive of toy company Basic Fun

Inc. in Boca Raton, Fla., said

that full production might not

ramp up until April, and if the

outbreak stretches much fur-

ther, the holiday season could

face trouble. “It will start to

put strain on the supply chain

for the second half of the

year,” he said.

At Toy Fair New York this

week, the impact of coronavi-

rus cast a long shadow at an

event where hundreds of com-

panies convened to showcase

everything from Baby Shark to

Baby Yoda toys. Large compa-

nies likeHasbroInc.,Mattel

Inc. andLegoA/S are trying

to minimize the effect of de-

layed factory openings. They

have said they expect some

impact to sales and supplies

at the beginning of the year

that could worsen if the out-

break drags on.

Anna Mowbray, co-founder

of Zuru Ltd., which makes X-

Shot blasters and Bunch O Bal-

loons water balloons, said its

factories have reopened in

phases over the past few

weeks. Zuru installed dividers

between workspaces, added

extra sanitation stations and

implemented other precaution-

ary measures. But the company

is thinly staffed due to restric-

tions on China travel and is op-

erating at just 20% of capacity

right now, Ms. Mowbray said.

Zuru, which is based in

Shenzhen, has had to scrap a

new product launch for the

year and is likely out tens of

millions of dollars in revenue,

Ms. Mowbray said. It is also

asking retailers to be flexible

with how much product they

initially ship.

“There’s definitely going to

be holes on shelves,” she said.

“There’s a hole for us in revenue

because of it, and I think there’s

going to be less freshness.”

Hog Wild Toys LLC has re-

opened its factory in Guang-

dong, but it is also running at

only about 15% of capacity,

said Joshua Loerzel, vice presi-

dent of sales and marketing.

But upstream in the supply

chain, it is unable to get tool-

ing equipment needed to make

some new products as those

producers are facing the same

labor shortage.

Toy companies are delaying
shipments and new product
launches and struggling to fill
retail orders as the coronavirus
epidemic disrupts the indus-
try’s supply chain.
Some toy factories in China,
where around 85% of the
world’s toys are made, remain
closed and others are operating
at a fraction of capacity, either
because of worker shortages or
difficulties securing raw mate-
rials and molds to make their
products, industry executives
and analysts said.
Inside factories that are op-
erating, companies are install-
ing dividers between work-
spaces and taking other
precautions against the spread
of the disease, which has
raised the prospect of a global
pandemic.
The disruption is threaten-
ing the carefully orchestrated
schedule of manufacturing and
shipments that delivers Barbie
dolls and Nerf blasters to
shelves. Some large retailers
are searching for alternative
products to fill holes in their
inventories and considering
delaying setting their shelves

BYPAULZIOBRO

Toy Industry Upended by China Disruption

The 2020 Toy Fair New York showcased new products.

JOHANNES EISELE/AGENCE FRANCE-PRESSE/GETTY IMAGES

A quarter of

Standard Chartered

branches in Hong

Kong are closed.

The United Auto Workers has flagged shortage risks at General Motors plants. A GM line in Michigan.

JEFF KOWALSKY/BLOOMBERG NEWS

Moody’s cut its

outlook for global

auto sales, and

expects a 2.5% drop.