IFR 03.7.2020

16 International Financing Review March 7 2020

Who’s moving where...

JP MORGAN’S DANIEL PINTO AND GORDON SMITH, P

Buyers consider using MACs

Buyers that have agreed deals but not yet

completed them are considering whether

they can change the transaction terms due

to the coronavirus outbreak and recent

market turmoil.

Numerous supply contracts or

agreements to ship goods have already been

renegotiated or cancelled in the wake of the

coronavirus outbreak, but pending

acquisitions have so far been less affected.

Problems have cropped up where

contractors based in China have been unable to

FULlLûEXPORTSûBECAUSEûTHEûHEALTHûAUTHORITIESû

have effectively shut factories, or shipping has

not been possible because of port closures.

At the moment most of those affected are

trying to renegotiate deliveries rather than

invoke force majeure claims to protect

themselves from having to pay compensation

for failure to complete contracts.

“Most people are looking for a way

forward rather than compensation,” said

*AMESû"REMENûPARTNERûATûLAWûlRMû1UINNû

Emanuel, who chairs its construction and

engineering practice.

"UTûIFûTHEûDISRUPTIONûPERSISTSûWIDERûlNANCINGû

agreements could be affected, such as on

projects under the belt and road programme.

“There could be a big impact on major

construction projects if workers and

supplies can’t move from China,” said

Bremen. “Projects could be delayed, costs

rise and loans might have to be renegotiated

and restructured.”

Similarly, outstanding sales and purchase

agreements for M&A and associated

lNANCINGûDEALSûCOULDûBEûAFFECTEDû4HATûCOULDû

see terms renegotiated and borrowers

invoking material adverse change clauses.

INVOKING MACS?

MAC clauses are controversial and are rarely

used, but in certain circumstances have

been invoked in the past.

After the attacks on the US in September

2001, for example, advertising agency WPP

cancelled its agreement to buy Tempus.

Jonathan Kelly, partner specialising in

LITIGATIONûATûLAWûlRMû#LEARYû'OTTLIEBûSAIDû

-!#SûWEREûDIFlCULTûTOûCALLûBECAUSEûOFûTHEIRû

“thresholds and consequences”.

“But this is the kind of scenario where

they might come into play, always

Fed creates new stress capital buffer

The US FEDERAL RESERVE adopted a new “stress

capital buffer,” or SCB, creating a capital

requirement for banks that integrates

annual stress test results with non-stress

capital requirements.

The SCB will be effective from October.

The move is intended to simplify capital

rules for large banks while preserving capital

requirements already in place, the Fed said.

Fed staff estimated the rule would increase

Common Equity Tier 1 capital requirements

for global systemically important banks by as

much as US$46bn and decrease requirements

for smaller banks.

Still, the new SCB minimums are lower than

the CET1 ratios of the banks at the end of last

year, KBW analysts estimated. KBW estimated

Morgan Stanley and Goldman Sachs are likely

to have the highest SCB at 14.6% and 13.1%. JP

Morgan and Citigroup fall in the middle with

minimums of 11% and 10.4% respectively.

NO LEVERAGE BUFFER

While the rule is broadly similar to an April

ûPROPOSALûTHEûlNALûRULEûDOESûNOTû

include a stress leverage buffer. That is a gift

for large banks, who lobbied aggressively

against it.

Another gift was to cut back the size of

dividends banks had to reserve for under the

stress tests. Previously, the capital reserve

was calculated to assume banks would

continue to make planned dividends and

share repurchases under stress, for nine

quarters. The new rules cut it back to four

quarters.

By combining the stress tests - which

project the capital needs of each bank under

adverse economic conditions - with the non-

stress capital requirements, large banks will

now be subject to a single, forward-looking,

and risk-sensitive capital framework, the

&EDûSAIDû4HEûSIMPLIlCATIONûLEAVESûBANKSû

needing to meet eight capital requirements,

instead of the current 13.

Under the new rules, required capital

levels for banks would more closely match

THEûRISKûPROlLEûANDûLIKELYûLOSSESûASûMEASUREDû

under the stress tests, the Fed said.

FAULT LINE

But the new rule exposed a fault line within

the Federal Reserve Board between those

looking to relax capital rules and those

wishing to preserve current standards.

“I support integrating the non-stress

capital rules and the stress-test based capital

requirements into a single framework that

preserves capital neutrality,” said Lael

Brainard, a member of the Fed board since

2014.

“Unfortunately, today’s rule gives a green

light for large banks to reduce their capital

buffers materially, at a time when payouts

GOLDMAN SACHS’

head of activism and

shareholder advisory

for the Americas, Peter

Michelsen, has left to

join technology sector-

focused rival Qatalyst

Partners, a source said.

Michelsen was named

Goldman’s co-head of

shareholder advisory

for the Americas in

2018 and became the

sole head last year. He

returned to Goldman

after leaving in 2014 to

work for CamberView

Partners. Michelsen is

the second senior

banker to leave

Goldman’s activism

defence after global

head Steven Barg left

in August to join Elliott

Management.

UK stockbroker

PANMURE GORDON

has appointed former

senior Barclays

investment banker

Rich Ricci as its chief

executive. The move

reunites Ricci with Bob

Diamond, the former

Barclays CEO whose

investment firm

bought Panmure three

years ago. Ricci was his

boss’s right-hand man

during Diamond’s long

period running

Barclays Capital –

together with Jerry del

Missier they were

known as the “three

musketeers”. Panmure

said it was also buying

small-cap broker

Whitman Howard.

“We have been working hand-in-hand with Jamie and the

board over the past two years to help lead our company”

5 IFR PM 2323 p 15 - 24 .indd 16 06 / 03 / 2020 19 : 22 : 43