Financial Times Europe - 08.04.2020

Wednesday8 April 2020 ★ FINANCIAL TIMES 7

CO M PA N I E S & M A R K E T S

A L I STA I R G R AY— G L A S G O W

The property developer behind Man-
hattan’sHudson Yards evelopment isd
to scrutinise the finances of commer-
cial tenants that have fallen behind on
rents to establish if they are in genuine
distress, after about three-quarters of
retailerswithheldpayments.

Jeff Blau, chief executive of The Related
Companies, said while he was sympa-
thetic to companies that were struggling
with thecoronavirus hutdown, thoses
that were failing to pay included large
groups with globally recognised brands
and the financial resources to make the
payments.
“The people who can afford to pay,
they need to pay the rent,” he told the
Financial Times. “Every part of the
chain is going to have to bear some of the
loss. If they don’t pay, the system breaks
down.”

The comments from the chief of

Related, which owns and manages a

$60bn asset portfolio across the US with

more than 30m sq ft of commercial

space, are the latestsign of tension

between landlords and commercial ten-

ants.

As well as juggling rental demands,

retailers are also dismissing hundreds of

thousands of workers, scrapping divi-

dends and putting off store upgrades to

shore up their finances.

Mattress Firm and Cheesecake Fac-

tory are among the companies that have

said they will not be meeting rental obli-

gations as widespread closures hit their

income.

Some landlords are taking a firm line.

Taubman, a US shopping mall operator,

told tenants in a memo last month that

it expected rental obligations to be met,

pointing out that it had its own bills to

pay, from utilities to insurance. It

encouraged tenants to seek recourse

under business interruption insurance

policies.

Taubman later said in a statement

that the memo “does not replace our

willingness to talk to each tenant about

their respective challenges and help

them chart an appropriate course for

the future”.

Mr Blau said Related was ready to

work out payment plans with tenants

that were struggling to pay and said the

crisis threatened to tip several retailers

into bankruptcy. “This is going to push a

lot of retailers to the edge,” he said.

He added that Related was assessing

whethergroupswithholding rent were

in fact able to pay and estimatedabout

half were in a position to do so. Legally,

he added, tenants were required to meet

rental obligations but only a quarter of

those in properties that had closed due

to coronavirus had done so.

Property

Pandemic no excuse, Hudson tenants told

O L I V E R R A L P H —LO N D O N

DAV I D K E O H A N E— PA R I S

AxachiefexecutiveThomasBuberlhas

hit out at the regulatory confusion over

European insurers’ dividends, saying

he found it “difficult to accept” that

central guidance should be applied dif-

ferentlyacrosstheEU.

The European insurance regulator,

Eiopa, last week urged insurersnot to

pay dividends ecause of the coronavi-b

rus crisis. But national regulators, which

have the final say on how insurance

companies are run, havetaken different

stances.

In France the ACPR, which regulates

Axa, supported Eiopa’s call. But Ger-

many’s BaFin has not imposed a blanket

ban so companies such as Allianz and

Munich Re are still planning to pay out.

All EU insurers are governed by the

bloc’s Solvency II rule book. “It is rela-

tively difficult to accept that we live in a

common Europe,” said Mr Buberl in an

interview with the Financial Times. “We

have the same capital standards and yet

there are very different applications

across the different regulators.”

Axa has postponed its annual general

meeting by two months until the end of

June in the hope that the regulators

come to some agreement before then.

The Axa board has not yet withdrawn its

dividend proposal.

Mr Buberl said the delay “gives us

enough time to see what and if they

work something out”.

He also added his voice to growing

calls from the insurance industry for a

public-private partnership to cover

businesses in the event of future pan-

demics. Insurers have said most busi-

ness interruption policiesexclude costs

caused by infectious diseases, prompt-

ing a wave of criticism from customers

and politicians. Any effort to force them

to pay out beyond the terms of the poli-

cies, the insurers added, would be an

existential threat.

“One learning from this crisis is that

we were not prepared,” said Mr Buberl.

“We need to start building an insurance

regime for if another pandemic hap-

pens.” He proposed a system similar to

France’s Caisse Centrale de Réassur-

ance, in which a small part of everypre-

mium is kept aside and used to fund

coverage for large natural disasters pro-

vided by both a pool of private insur-

ance companies and the government.

Insurance

Axa criticises regulators over dividend disparity

E R I C P L AT T A N D A N D R E W
E D G E C L I F F E- J O H N S O N— N E W YO R K

A special committee of WeWork board
members issued a legal challenge over
SoftBank’s withdrawal from a $3bn deal
yesterday, in what is expected to be the
first of several legal disputes over the
Japanese group’s decision to pull out of
an agreed share buyout.
The committee’s lawsuit against Soft-
Bank and its Saudi Arabia-backed
Vision Fund, filed in a Delaware court,
said that the group had “engaged in a

purposeful campaign to avoid comple-

tion of the tender offer”.

The $3bn agreement was just one part

of a multibillion-dollar rescue package

that SoftBank negotiated with WeWork

last autumn that injected $1.5bn in

emergency capital into the office com-

pany and provided new debt to stave off

imminent insolvency.

The lawsuit represents an escalation

of hostilities between two of the share-

holders who helped turn WeWork into

one of the world’s most highly valued

companies before its crash last year,

when a failed initial public offering left

the high-spending company with just a

few weeks worth of cash and reset its

valuation from $47bn to under $10bn.

The special committee includes Bruce

Dunlevie of Benchmark Capital, which

bolstered WeWork’s claim to be a tech

company when it became the first Sili-

con Valley investor to back Adam Neu-

mann’s start-up in 2011.

Also on the committee is Coach chair-

man Lew Frankfort, another longtime

WeWork board member and share-

holder.

“SoftBank’s failure to consummate

the tender offer is a clear breach of its

contractual obligations under the [mas-

ter transaction agreement] as well as a

breach of SoftBank’s fiduciary obliga-

tions to WeWork’s minority stockhold-

ers, including hundreds of current and

former employees,” the committee said

in a statement.

SoftBank’s legal argument hinges on a

provision of thedeal, which permitted it

to back out of the share purchases if

SoftBank, the Vision Fund or WeWork

faced “material liability” over investiga-

tions into the group and its co-founder

Mr Neumann, whoquit last year.

The special committee said that none

of the probes into WeWork, which

include an inquiry from the Securities

and Exchange Commission, would

result in any material liability to the

group. It added that SoftBank was aware

of all of the investigations when it

amended itsdeal in December.

The $3bn deal was also dependent on

regulatory approval as well as separate

transactions involving two WeWork

joint ventures in Asia. “None of the con-

ditions that SoftBank listed gave it a

legitimate basis to terminate the tender

offer,” attorneys from Wilson Sonsini,

which is representing the committee,

wrote in their complaint.

The legal battle between WeWork’s

largest shareholders has broken out as

the economic tumult triggered by the

coronavirus pandemic isputting new

pressure n its business.o

SoftBank and the Vision Fund

declined to comment.

Technology

WeWork sues SoftBank for ending $3bn deal

Suit over rescue package

deepens hostilities between

office group’s key investors

PAT R I C K M C G E E— S A N F R A N C I S C O

On the final day that non-essential busi-
nesses were allowed to operate in the
Bay Area last month, Chris Bradley had
his hourly-paid staff work until mid-
night so that they could earn overtime.
Then he laid them all off.
“I had no choice because I wasn’t sure
if we were going to survive,” said Mr Bra-
dley, head of Thalia, a Kickstarter
project he founded in 2014 that uses
high-tech lasers to cut exotic wood into
guitar accessories and phone cases.
Just weeks later, everyone on his 12-
person production team has been
offered their job back, with one modifi-
cation — Thalia is now an “essential”
business making medical gear for the
fight against Covid-19.
Mr Bradley believes that Thalia now
has the potential to create greater reve-

nue during the crisis than before it. “We
can emerge from this stronger than we
went into it,” he said.
The company is one of several US
groups retooling to manufacture equip-
ment to fight coronavirus. These range
from carmakers General Motors and
Ford churning out ventilators, to pro-
ducers of hoodies and T-shirts that are
switching to face masks.
Thalia’s turnround began when Mr
Bradley sounded out friends on how his
niche manufacturing expertise could be
put into service during the coronavirus
outbreak. One of them — Gary Tamkin,
a physician who oversees 30 emergency
departments — showed him a product
used in China: an “intubation box” that
sits over a patient’s head while the tubes
are inserted into their mouth to protect
medical staff from contagion.
“I basically sent Chris a picture of one
of these boxes,” Dr Tamkin said. “‘Can
you make these?’ I asked... ‘Abso-
lutely,’ he said.”
Designs for the boxes were readily
available on the web. Mr Bradley played
with them, angled the glass differently
to reduce glare, and tried producing a
few. On day one, last Wednesday, a team
of three built 25 units. By this week he
will be making 200 a day and he soon
plans to run three daily shifts, 24/7, to

make 400 a day. Thalia has been able to

shift its production faster than a com-

pany a hundred times its size. While

Ford and GM are today at the prototype

stage of ventilator production, “Thalia

boxes” are already in use at a major hos-

pital in Merced, California.

“Thalia, while they’re not on the New

York Stock Exchange... their ability to

crank these things out is an exponential

ability,” said Dr Tamkin, who on Satur-

day held a call with the American Col-

lege of Emergency Physicians of Califor-

nia, a non-profit he once led, to form a

partnership and expedite oxes tob the

state’s 450 acute healthcare centres.

“Ideally you’d want one of these in

your emergency room, another in your

operating room, and another in your

intensive care unit,” Dr Tamkin said.

For Thalia’s employees, the start-up’s

reinvention is a lifeline while much of

the state is shut down. The day it was

closed, March 16, Chris Bean had taken

the day off to celebrate his first wedding

anniversary.

He had been with the company for

nine months, making apparel and cus-

tom wood picks. When he filed for

unemployment benefits, the prospects

of being hired elsewhere soon looked

dim.

But now he is back at work, learning

to bend acrylic glass. “It’s even better

that the thing I am doing is going to be

helpful in some way,” he added.

“Because I think the overwhelming

feeling that a lot of people have right

now is a feeling of helplessness.”

Healthcare. ssential businessesE

Musical kit start-up switches to medical gear

Thalia joins list ofUS groups

‘retooling’ to help fill shortages

in thebattle againstCovid- 19

Physician Gary

Tamkin using

the ‘intubation

box’ made by

Thalia, which

originally made

musical

accessories

(below) but is

now making

Covid-

medical gear

‘SoftBank’s failure to

consummate the tender

offer is a clear breach of its

contractual obligations’

‘Thalia’s

ability to

crank these

things

out is an

exponential

ability’

Gary Tamkin,

physician

M A RT I N A R N O L D— F R A N K F U RT

The eurozone banking system entered

the coronavirus crisis in a weakened

state, with the sector’s profitability

declining in 2019 for the first time in

three years, according todata rom thef

EuropeanCentralBank.

Hit by slowing economic growth

and falling interest rates, return on

equity at the 113 banks supervised by

the ECB fell last year from 6.2 per cent to

5.2 per cent.

The least profitable banks by country

were in Germany, where the 21 lenders

tracked by the ECB had an average

return on equity of only 0.08 per cent.

That was well below the profitability of

Italian banks, which are commonly seen

as the sector’s weakest link but had an

average return on equity of 4.85 per cent

last year.

“The already low profitability of euro-

zone banks — and in particular in Ger-

many — is worrying as it could leave the

industry struggling to rebuild capital

buffers and to cope with rising non-per-

forming exposures,” said Katharina

Utermöhl, senior economist at Allianz.

“If anything, this could revive the

debate about the long-overdue consoli-

dation of the sector.”

The falling profitability of eurozone

banks drags the sector even further

behind its US rivals, which last year on

average reported returns on equity that

were more than twice as high.

It also underlines the increased vul-

nerability of Europe’s banking sector to

the economic and financial turmoil

caused by the measures taken to con-

tain thepandemic, which are forcing

vast numbers of companies and work-

ers to seek government aid.

Bank profits were hit last year by the

slowdown in eurozone growth to 1.2 per

cent. Lending margins in the sector

were also squeezed by the ECB’s cut in

interest rates to a record low of minus

0.5 per cent in September.

Economists forecast that the euro-

zone economy could contract about 10

per cent in the second quarteras the

world faces its deepest recession since

the Great Depression of the 1930s.

“On the negative side, the current fall

in GDP will probably be worse than dur-

ing the 2008/2009 crisis,” said Florian

Hense, economist at Berenberg.

But Mr Hense said eurozone banks

were “in better shape now, with more

capital and liquidity” than in the 2008

financial crisis. He added that “the

aggressive policy response limits the

damage” after central banks promised

to inject trillions of euros into the finan-

cial system and governmentspledged

similar amounts of support for strug-

gling businesses and households.

Regulators across Europe have low-

ered banks’ capital requirements and

urged them tofreeze dividends nd reina

in bonuses to give themheadroom to

absorb the hit from the crisis, as part of a

global move to free up almost $500bn of

capital on bank balance sheets.

The ECB said that in other ways the

eurozone banking system had become

more healthy last year, as its capital lev-

els increased both against total assets

and those weighted for their riskiness,

while non-performing loans fell to their

lowest level since the 2008 crisis.

Financials

Eurozone

banks had

declining

profits before

virus crisis

Thaliahas been able to

shift its production

faster than a company a

hundred times its size

‘One learning from

this crisis is that

we were not prepared’

Thomas Buberl, Axa chief

‘It could leave the industry

struggling to rebuild

buffers and to cope with

non-performing exposure’

APRIL 8 2020 Section:Companies Time: 4/20207/ - 18:21 User:andy.puttnam Page Name:CONEWS1, Part,Page,Edition:EUR, 7, 1