Wednesday18 March 2020 ★ 13
© The Financial Times Limited 2020 Week 12
The current financial turmoil should be
a moment for buyout firms to savour.
With $.2.5tn to hand and markets in
freefall, rainmakers believe they are set
to strike deals of a lifetime. Yet while
assets are cheaper, some private
equity-owned groups are facing ruin.
AnalysisiPAGE 15
Turmoil presents mixed
opportunities for buyouts
DAV I D C R OW— LONDON
HSBChas appointedNoel Quinnas its
permanent chief executive, drawing a
line under a seven-month search to
find a leader for Europe’s largest bank.
Mr Quinn was appointed interim chief
executive of the Asia-focused bank in
August last year. His predecessor,John
Flint, was ousted after just 18 months in
the role because he had lost the confi-
dence of the board of directors and
chairmanMarkTucker.
Despite his interim status, Mr Quinn
insisted he did not want to be a “care-
taker” and embarked on an overhaul of
the lender that saw him replace several
topexecutives.
Last month, he unveiled what he
describedasoneofthe“deepestrestruc-
turings” in the bank’s 155-year history,
including plans to slash 35,000 jobs
from HSBC’s 235,000 headcount over
thenextthreeyears.
Mr Quinn set out plans to cut annual
costs by $4.5bn and shed $100bn of
assets adjusted for risk by the end of
2022 to free up “trapped” capital in
Europe and the US so it can be deployed
in Asia, where the bank generates the
vastmajorityofprofits.
The new chief said he was “honoured
to be given the opportunity to lead
HSBC” and hinted at the tests facing the
bank as it attempts to restructure while
the global financial system is being
rockedbythespreadofcoronavirus.
“There is much that remains to be
doneandIamconfidentthatwewillrise
tothechallenge,”hesaid.
Thelong search for a chief, led by
Mr Tucker, caused consternation
among some large investors, who ques-
tioned the wisdom of Mr Quinn unveil-
ing such a radical strategyas interim
chief.
Mr Tucker said yesterday: “Noel has
proven to be the outstanding candidate
to take on a role permanently that he
has performed impressively on an
interimbasissinceAugust2019.”
Shares in HSBC, which have fallen 17
per cent this year because of fears over
coronavirus, closed 6.5 per cent higher
yesterday on signs that several Asian
countrieshadstartedtostemthespread
ofthevirus.
HSBC makes Quinn permanent chief
after 7-month quest for new leader
February and beginning of March. Simi-
lar trends have been seen for masks and
medical supplies. The company’s share
priceroseabout7percentyesterday.
“Amazon is one of the biggest benefi-
ciaries of coronavirus,” said Brent Thill,
an analyst with Jefferies. “This is the
right move to focus on the most impor-
tantelementscustomersneednow.
“There will be a financial conseque-
nce which is hard to predict. Bottom
line,theyarebetterprotectedthanmost
in technology. And most investors are
looking through the short term and
focusing on higher quality long-term
storieslikeAmazon.”
Coronavirus falloutpages 14 & 15
delivery.Asaresult,thevastmajorityof
thirdpartiescannolongeroffergoodsas
partofAmazon’sPrimedeliveryservice.
“We do have self-fulfilment capabili-
ties on part of our catalogue,” said Mr
Kavesh. “But merchant-fulfilled listings
do only a small percentage of the sales
volumeascomparedtoaPrimelisting.”
In 2019, third-party sellers sold 700m
products that used Amazon’s Prime
one-day shipping option. On the comp-
any’s 2019 Prime Day event, sales from
third-party sellers exceeded $2bn, acc-
ordingtodatafromAmazonthisyear.
Superfly Insights data show that sales
ofhandsanitiseronAmazonsawasurge
of more than 250 per cent at the end of
to the millions of companies that use
Amazontodistributetheirproducts.
“This could become an existential
threat to many companies, including
mine,” said Jerry Kavesh, who sells foot-
wearandclothingonAmazon.
The measurebegan yesterday and
was set to run until at least April 5.
Goods already in warehouses, or on
their way there, would be handled as
normal, Amazon said. The order does
notpreventthird-partysellersfromlist-
ingandsellingotheritemsonAmazon.
Vendors and sellers must now use
self-fulfilmentmethodsthatavoidusing
Amazon’s infrastructure for storing
goods, processing orders and handling
DAV E L E E— SAN FRANCISCO
Amazonis temporarily blocking ship-
ments to its warehouses in the US and
Europe of all items other than house-
hold essentials, medical supplies and
similar high-demand products amid the
coronavirusoutbreak.
At the weekend, the ecommerce
group warned that unprecedented
strainonitsoperationshadmeantitwas
out of stock on many important house-
hold goods. The move to restrict ship-
ments, communicated to third-party
sellers and vendorsyesterday, will allow
Amazontoprioritise,thecompanysaid.
But it will come as a devastating blow
Amazon blocks non-essential goods
3 Warehouse shipments curbed 3 Focus on high-demand supplies 3 Third-party vendors hit
‘This could
become an
existential
threat
to many
companies’
Companies / Sectors / People
Companies
Air France...................................................... 3
Alitalia............................................................. 3
Amazon.......................................................... 13
American...................................................... 14
Anheuser-Busch InBev......................... 12
Anthem.......................................................... 12
Antofagasta................................................ 22
Apollo............................................................. 15
Aramark......................................................... 12
BC Partners................................................. 15
BMW.................................................................. 3
Bank of America...................................... 16
Beyond Meat............................................. 14
Blackstone.................................................... 15
British Airways.......................................... 14
CVS Health.................................................. 12
Chesapeake Energy............................... 16
China Development Bank.................... 9
Cigna............................................................... 12
Cineworld..................................................... 22
Citigroup....................................................... 16
Co-Diagnostics......................................... 22
Compass........................................................ 12
DB Schenker................................................. 3
Daimler.......................................................... 16
Danone.......................................................... 22
Delta................................................................ 14
Deutsche Bank.......................................... 14
Deutsche Post............................................. 3
Dixons............................................................ 22
Dufry............................................................... 22
EasyJet.....................................................12,
Elementis..................................................... 22
Elior.................................................................. 12
Export-Import Bank of China............ 9
ExxonMobil................................................. 16
Fiat................................................................... 16
Fiat Chrysler............................................... 16
Fidelity........................................................... 13
Flybe................................................................ 12
Ford................................................................. 16
Fosun International.............................. 14
Frasers Group........................................... 14General Motors......................................... 16
H2O Asset Management.................... 21
Harrods......................................................... 14
Hologic.......................................................... 22
Hony Capital.............................................. 15
Horizons Ventures................................. 14Humana......................................................... 12
IAG................................................................... 14
ITV................................................................... 22
Iliad.................................................................. 22
Impossible Foods.................................... 14
Industrial and Commercial.................. 9
Invesco Oppenheimer........................... 13JPMorgan...............................................10,
Khosla Ventures...................................... 14
Kirkland & Ellis......................................... 16
Kuehne + Nagel......................................... 3
L Brands....................................................... 22
LVMH............................................................. 14Laboratory Corp...................................... 22
Lanvin............................................................ 14Loewe............................................................. 14
Lord Abbett................................................ 13
Lufthansa..................................................... 14
Mercedes-Benz....................................... 16
Mirae Asset Global Investments... 14
Mulberry....................................................... 14
Natixis............................................................ 21
Nissan............................................................. 16
Norwegian Air Shuttle......................... 14
Oaktree Capital Management......... 15
Osram............................................................. 22
PSA.................................................................. 16
Partners Group......................................... 15
Procter & Gamble................................... 10
Qantas............................................................ 14
Renaissance Technologies................. 15
Renault.......................................................... 16
Rothschild & Co....................................... 16
Sandro............................................................ 14
Santander..................................................... 14
Siemens........................................................... 3
Sodexo........................................................... 12Temasek....................................................... 14
Thermo Fisher.......................................... 22
Toyota............................................................ 16
Ulta Beauty................................................. 22
United............................................................. 14
UnitedHealth.............................................. 12
Virgin Atlantic............................................ 11
Virgin Australia........................................ 14
Volkswagen................................................. 16
Walmart........................................................ 22
Wells Fargo...........................................16,Sectors
Airlines.............................................3,11,14,
Automobiles..........................................16,
Banks...................................................14,16,
Financial Services..............................15,
Financials.....................................14,15,15,Food & Beverage...............................12,
Health............................................................... 4
Healthcare.........................................4,10,
Insurance...................................................... 12Oil & Gas..................................................4,
Retail.........................................................13,
Retail & Consumer................................. 22
Support Services.................................11,
Telecoms...................................................... 22
Travel & Leisure........................2,11,12,People
Alderslade, Tim........................................ 14
Andretta, Thierry.................................... 14
Ashley, Mike............................................... 14
Botín, Ana.................................................... 14
Cousins, Richard....................................... 12
Crastes, Bruno........................................... 21
Guillon, Bruno............................................ 14
Hecquet, Jean-Philippe....................... 14
Lee, David.................................................... 14
Marks, Howard.......................................... 15McClendon, Aubrey............................... 16
Niel, Xavier.................................................. 22
Simons, Jim................................................. 15
Svider, Raymond...................................... 15Close callRegulators eye curbs on
trading to tame volatility—ANALYSIS, PAGE 21
Cash buffersJapan Inc is paying the
price for past hoarding—INSIDE ASIA, PAGE 14
Tommy
Stubbington
Tail
Risk
Bynowitshouldbeclearthatmonetarypolicycannotcure
coronavirus. But central bankers can certainly aggravate
themarketsymptoms.
ThatistheaccusationbeinglevelledatChristineLagarde
after a remark she made last week that triggered a sell-off
in parts of Europe’s bond markets. It is not the European
CentralBank’sjob,thepresidentsaid,to“closethespread”
betweenthebondsofdifferentmemberstates.
Clearly, some traders thought it was, judging from the
subsequentslideinItaliandebt.
Despitean apologyto her colleagues, andswift backped-
allinginpublic,borrowingcostscontinuetorise.Italian10-
year yields hit a nine-month high of more than 2.3 per cent
yesterday, which is the last thing Rome needs as it consid-
ers extra spending on the pandemic crisis. Just two weeks
ago,Italycouldborrowforadecadeatjust1percent.
Perhaps even more worrying are the echoes of the euro-
zone debt crisis: Greek, Portuguese and Spanish bonds
haveweakenedinsympathywithItaly.Yieldlevelsarestill
far below the peaks of over 7
per cent reached in 2012 but,
still, the concerns are clear.
Muchofthegnashingofteeth
in markets is pure self-inter-
est. Many investors will be
sitting on big bets on Italian
government bonds that have
soured over the past week.
But, regardless of their
motives, these investors are
the people the ECB needs to convince if it wants to prevent
borrowingcostsfromspirallingupwards.
In a sense, what Ms Lagarde said last week was true: the
ECBhasnodirectmandatetocontrolspreads,atleastuntil
they start to impair the functioning of monetary policy.
Mario Draghi’sassertion in 2012 that he would do “what-
everittakes”tosavetheeuroalwayscamewithcaveats.
But the episode showed that Ms Lagarde, a former law-
yer, lacks the sensitivity to markets of her predecessor.
Bear in mind that Mr Draghi, a former banker, had suc-
ceededinconvincingpeopleofthepowerofabond-market
rescuepackagewithouteveractuallyusingit.
For Ms Lagarde, halting the march higher in yields is
likelytorequireanopen-endedpledgefromtheECBtobuy
bonds. Markets have clearly already decided that last
week’sextra €120bnof asset purchases this year (on top of
themonthly€20bn)willnotbeenough.TheslideinItalian
debt, in fact, may force the ECB to relax its self-imposed
ruletobuynomorethanathirdofanycountry’sbonds.
“There’s reason to think that something good will come
outofthisanditwillforceabolddecisionontheissuerlim-
its,” said Frederik Ducrozet, a strategist at Pictet Wealth
Management.“That’sthefastestwaytodemonstratetothe
marketthatthecommitmentisthere.”
If Ms Lagarde’s slip-up proves one thing, it is that central
bankers’wordsandactionsstillmatter.
Italian debt’s slide
may force the ECB
to relax its rule to
buy no more than
a third of any
country’s bonds
USleveragedloanpriceshavesunkto
theirlowestlevelsincethefinancialcrisis,
asinvestorsreassesstheabilityof
companiestoserviceheavydebtsinlight
ofthecoronavirusoutbreak.
TheaverageUSleveragedloan—atype
ofcredittypicallyusedbylow-rated,
heavilyindebtedcompanies—hassunk
tojust84centsonthedollar,anindexrun
bytheLoanSyndicationsandTrading
Associationsays.
ThatisitsweakestsinceAugust2009,
eclipsinga2016mini-crisisassociated
withadropintheoilprice.
Issuanceofsuchloanshasexplodedto
about$1.2tnoutstandinginrecentyears,
asinvestorsstarvedofincomehavebeen
happytotakegreaterrisk.
“Theextraordinaryuncertaintyis
gyratingallmarketsandtheloanmarket
isnoexception,”saidAndrewSveen,
co-directoroffloatingrateloansatEaton
Vance,whichrunsoneofthelargestloan
mutualfunds
Cutsininterestrateshavealsodented
theappealofloansthatpayafloatingrate
trackingtheFederalReserve’spolicyrate.
InvescoOppenheimer’sfloatingrate
fundhaspostedlossesof13.3percentthis
year,whileFidelityandLordAbbetthave
notchednegativereturnsof12.2percent
and11.5percent,respectively.
Pressureisalsomountinginother
cornersofthecorporatedebtmarket.The
yieldaboveTreasuriesonUSjunk-rated
bondsjumpedmorethan1percentage
pointonMondayto8.4percentagepoints,
closinginonitsFebruary2016highof
8.9points.Joe Rennison
Debt depthsLeveraged loan prices sink as investor uncertainty rises
US loan prices fall to lowest
level since the financial crisis
LSTA leveraged loan price index
Sources: Bloomberg; LSTA; ICE Data Indices
US junk bonds are under
intense pressure
Option-adjusted spread
(percentage points)
A man guards against the coronavirus risk outside the New York Stock Exchange— Reuters/Andrew Kelly
MARCH 18 2020 Section:2Front Time: 17/3/2020-18:59 User:julian.summers Page Name:2FRONT USA, Part,Page,Edition:EUR, 13 , 1