Financial Times Europe - 23.03.2020

6 ★ FINANCIAL TIMES Monday23 March 2020

JA M E S F O N TA N E L L A- K H A N— N E W YO R K

A N D D E R E K B R OW E R —LO N D O N

Occidental Petroleum hief Vickic

Hollub looks set to keep her job at the

embattled oil producer just days after

Carl Icahn urged her sacking as the

company finalises a deal with the

activist investor that would give him

two seats on the board, said people

briefed about the matter.

The truce between Occidental and the

billionaire investor, who has been agi-

tating the company’s board since he

tried to block its$56bn takeover foAna-

darko Petroleum ast year, seeks to endl

months of public fighting and shift the

focus to reviving the business’s fortunes.

As part of the deal being negotiated

yesterday, two close associates of the

New York investor, Andrew Langham

and Nicholas Graziano, will join the

board of Occidental, those people said.

An additional board member could be

added, who will be selected jointly by

Mr Icahn and the existing board, the

person added.

Mr Icahn, whoowns about 10 per cent

of Occidental, had previously sought to

remove four directors from theboard

and pushed for the company to sell

itself. In response, Occidental’s board

deployed a “poison pill” of more share

issuance to prevent a hostile takeover

orchestrated by Mr Icahn.

Occidental also announced that board

chairman Eugene Batchelder would

step down at this year’s board meeting.

Late last week, it emerged that

Stephen Chazen, who was Occidental’s

chief executive until 2016 and hand-

picked Ms Hollub as his replacement,

would become the new chairman.

Mr Chazen was determined to put an

end to the fight with Mr Icahn before

taking on the role, said people informed

about the matter.

However, he was also adamant that

Ms Hollubwould keep her job as part of

the truce deal, those people added.

One person involved in the negotia-

tions, which were first reported by the

Wall Street Journal, warned that there

had been a lot of back and forth between

Mr Icahn and the company’s board and

no final agreement had been reached.

Any settlement would likely be

announcedtoday after the markets

close, the person added.

The collapse in oil prices ash hit Occi-

dental, the US’s biggest domestic oil pro-

ducer, especially hard. Its shares are

downalmost 70 per cent inthree weeks.

Occidental

closes in on

truce with

activist Icahn

M A R K VA N D E V E L D E— N E W YO R K

Wall Street’s “big short” against US
retail has inflicted painful paper losses
on AllianceBernstein, a mutual fund
house on the other side of the trade,
which has insured debts owed by shop-
ping malls that face disruption or clo-
sure in the coronavirus pandemic.
More than two dozen funds managed
by AllianceBernstein have sold about
$4bn worth of protection against mort-
gages owed by hopping centres ands
other commercial borrowers. Retail
sceptics, including the veteran investor
Carl Icahn, have wagered that mall own-
ers will be unable to meet their debts.

The derivatives bet is based on the so-
called CMBX 6 index of mortgage-
backed securities, which has a large
exposure to retail.
Its junk-rateddouble B tranche has
fallen 25 per cent in the past fortnight,
indicating higher expectations of
default, as one big shopping centre oper-
ator closed all its properties and another
moved to reassure investors about its
financial strength.
AllianceBernstein’s $29bn American
Income Portfolio is down 15 per cent
since the beginning of March, having
written $1.9bn of protection on CMBX 6,
while some of the group’s smaller funds
have higher concentrations.
The trade reflects a conviction that
American malls are “evolving, not
dying,” as the firm put it last October, in
a papertitledThe Real Story Behind the

CMBX. 6: Debunking the Next ‘Big Short’.

That paper subsequently disappeared

from AllianceBernstein’s website, but

was replaced on Friday, shortly after the

Financial Times asked about it.

“We definitely still like this,” said Ger-

shon Distenfeld, AllianceBernstein’s co-

head of fixed income. “You can expect

this will be on the potential list of things

we might buy [more of].”

Simon Property Group, one ofthe big-

gest US mall operators, has closed all

of itsproperties in the country until

March 29.

Another listed property fund, run by

the Canadian asset management

groupBrookfield, moved on Friday to

reassure investors about its financial

health.

“We continue to enjoy the sponsor-

ship of Brookfield Asset Management,”

the group said in a statement, adding

that its parent company was “in excel-

lent financial condition should we ever

require assistance”.

Executives at AllianceBernstein said

that the paper losses on their CMBX 6

positions over the past fortnight

reflected outflows of capital from high-

yielding assets that investors see as

risky. They added that the trade outper-

formed last year.

Even if some borrowers ultimately

default, CDS owners are not likely to be

owed any cash for several years, said

Brian Phillips, a senior vice-president at

AllianceBernstein.

He believes any liabilities under the

insurance will ultimately be smaller

than the annual coupon payment the

funds receive. “We’re going to continue

to get a coupon from Carl Icahn or who-

ever — I don’t know who’s on the other

side,” Mr Phillips added. “And they’re

going to keep [paying] that coupon in

for many years.”

‘Big short’ on

US malls hits

fund house’s

derivatives bet

3 AllianceBernstein portfolio falls 15%

3 Risk of mortgage protection payouts

One ofthe biggest mall

operators, Simon

Property Group, has

closed all of itsproperties

Andrew Hill Coronavirus is testing underrated, overburdened, oft-maligned middle managers as never before’‘ yWORK & CAREERS

R O B I N W I G G L E S WO RT H

The bull run in US stocks ended in

pretty gory ashion this month. Butf

how long this bear market lasts will

depend largely on what kind of eco-

nomic shock the coronavirus proves

to be — and what other financial vul-

nerabilities it uncovers or exacer-

bates.

The S&P 500 is now almost 30 per

cent below its peak, leaving analysts

and investors wondering whether this

is now an opportunity to dive back

into the equity market, or whether

there is more pain to come.

Goldman Sachs’s chief global equity

strategist Peter Oppenheimer has tal-

lied 27 bear markets since the 1800s.

He found that the average decline is

38 per cent, and that it has on average

taken 60 months for US equities to

return to their previous peak. How-

ever, the dispersion between different

types of bear markets is significant.

“Structural” bear markets, which

are triggered by deep-seated econo-

mic imbalances and financial bubbles

unwinding, have on average meant a

57 per centdrop, and taken 111 months

to return to their previous peak.

The more garden-variety “cyclical”

bear markets, where rising interest

rates damp conomic activity ande

depress orporate profits, have typi-c

cally led to a 31 per cent peak-to-trough

drop for the US stock market, and

taken on average50 months to recover.

Meanwhile, “event-driven” bear

markets are those triggered by some

kind of one-off shock, such as a war,

spiking oil prices, an emerging-mar-

kets crisis or a brief financial calamity

like the Black Monday crash. This

seems to fit thecoronavirus scenario

best, Mr Oppenheimer argues. Such

bear markets on average lead to a

more modest 29 per cent decline, and

last just 15 months.

Nonetheless, Mr Oppenheimer

stresses that there are reasons to

think that the current market may be

more painful than the typical event-

driven bears of the past.

A global pandemic is a novel danger

with no modern precedents, and inter-

est rates are alreadyextremely low

across most of the global economy,

which meanscentral banks have less

firepower available to mitigate the

impact, he said. This bear market

could therefore morph into something

far more pernicious and persistent.

History lessonsGoldman analysis of 27 bear

markets since 1800s offers glimmer of hope

Source: Goldman Sachs Global Investment Research

US bear markets and recoveries since the s

-

-

-

Average

Structural

Cyclical Event-

driven







Average

Structural

Cyclical Event-

driven

Average decline () Average length (months) Average time to recover (months)

Average

Structural

Cyclical Event-

driven

DAV I D K E O H A N E— PA R I S

DA N I E L D O M B E Y— M A D R I D

Iberdrola, Spain’s largest energy com-

pany, put the finishing touches last

week to an Excel spreadsheet of more

than 20 pages that is intended to

prevent catastrophe and keep the lights

on as the coronavirus tests the country’s

infrastructure.

The document, dispatched to the gov-

ernment, lists Iberdrola’s critical infra-

structure in Spain: generators, substa-

tions, distribution networks and more.

It provides a list of the personnel at

each facility — and also what the mini-

mum staffing level is at each location.

Such information is crucial for the

Spanish government, which has taken

on the responsibility of guaranteeing

the supply of energy during the corona-

virus crisis, assuming vast new tempo-

rary powers.

The Spanish army is also guarding

nuclear power stations as well as carry-

ing out a range of other tasks, such as

disinfecting airports, train stations and

hospitals.

Iberdrola and the government itself,

like authorities elsewhere in Europe and

beyond, say such protocols are part of

emergency measures that will guaran-

tee vital infrastructure, despite lock-

downs and the possible ravages of the

coronavirus itself on essential staff.

Across Europe and North America, as

governments promise billions and

mobilise armies to help maintain an

economy that is shutting down and a

medical system at risk of being over-

whelmed, infrastructure providers are

being asked to step up.

In Italy, which is the European coun-

try hit hardest by the virus, industry has

suffered severe disruptions, according

to Confindustria, a trade body.

On Saturday, the government shut all

non-essential businesses — going

further than Spain or France so far —

but, even before that in regions such as

Lombardy in the north of the country

and at the centre of the outbreak, less

than 50 per cent of industry wasoperat-

ing. However, essential services such as

power, water and waste are still

operating normally.

In France, which went into lockdown

on Tuesday, finance minister Bruno Le

Maire called upon workers in “essential

sectors” such as waste, food supply and

distribution to “go to their places of

work” in order to guarantee “economic

security”.

Under French labour laws, workers

have the right to withdrawif they think

their health is at risk. But Mr Le Maire

has underlined that there must be a

“serious and imminent danger”.

Not all workers have been able to keep

showing up as the coronavirus has

spread but utility companies critical to

society have responded with long-held

plans to guarantee services.

Groups across sectors are putting

together crisis plans for the govern-

ment, splitting their teams to limit

infections, moving some staff to off-site

bases, providing beefed-up safety

equipment and cutting back on non-

essential maintenance and repairs.

In the north of France, at the idle

Flamanville nuclear plant, EDF was

forced last week to put in place the more

extreme version of its “pandemic plan”

after coronavirus cases spiked in the

area around the site.

That pandemic protocol, in place for

the whole state-backed group, means

staff are separated and in extreme cases

cut back sharply in order to maintain

essential work but limit the risk of infec-

tion. In Flamanville, the number of

workers was cut to 100 from 800.

It is a scenario that could soon play

out elsewhere. In Germany, energy

giants RWE and EON also have long-

standing pandemic plans. And in the US,

the nuclear lobby said “everyone has

activated their pandemic plans”, which

have been maintained since 2006.

Iberdrola has provided similar docu-

mentation to the file it sent the Spanish

government in other countries where it

is active — the UK, where it owns Scot-

tish Power, the US, Mexico and Brazil.

In such cases, the purpose is to co-or-

dinate with governments to ensure

there is enough staff to keep vital infra-

structure working, even where the coro-

navirus is spreading fast and a country-

wide lockdown is in force.

“In each of these countries, we are

essential for one purpose or another,”

said José Ángel Marro, Iberdrola’s direc-

tor of human resources, referring to the

company’s worldwide mix of electricity

generation and distribution assets.

Mr Marro emphasises that, while 75

per cent of the staff in the company’s

administrative offices are teleworking,

that is not an option for workers in the

field.

“You can’t ask someone who is main-

taining vital infrastructure to do it from

home because that is not possible,” he

said. “So we have to protect our people

from contagion while guaranteeing that

we are going to maintain our service.”

Neither, except in Flamanville, has

EDF — with both companies expressing

confidence they can maintain accepta-

ble services throughout the epidemic.

French demand for power hasfallen 15

per cent and Spanish demand by 7-

per cent as economic activity has suf-

fered.

Suez, the French water and waste util-

ity, which has implemented its own

emergency plan, said it can “ensure key

operations even if its workforce is

reduced by 40 per cent”.

In Paris last Monday, as night fell on

empty streets ahead of the city’s shut

down, Alain Bernard, a 42-year-old gar-

bage collector, said he was concentrat-

ing on his job.

“You can’t let yourself get too much

into your own head,” he said. “And if I

stopped working, Paris would become a

rubbish dump.”

Additional reporting by Joe Miller in

Frankfurt, Gregory Meyer in New York and

Davide Ghiglione in Rome

Emergency planning. ssential servicesE

Crisis protocols keep lights on and taps running

Utility groups manage to

provide key services despite

lockdown and loss of staff

Iberdrola is planning to protect vital

infrastructure amid the pandemic

MARCH 23 2020 Section:Companies Time: 3/202022/ - 18:28 User:karen.crawcour Page Name:CONEWS1, Part,Page,Edition:USA , 6, 1