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. Itencouraged 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 SAxachiefexecutiveThomasBuberlhas
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 BruceDunlevie 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 itscontractual 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 thegroup. 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 NewYork 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 itscontractual obligations’
‘Thalia’s
ability tocrank these
thingsout is an
exponentialability’
Gary Tamkin,
physicianM A RT I N A R N O L D— F R A N K F U RTThe 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 withnon-performing exposure’
APRIL 8 2020 Section:Companies Time: 4/20207/ - 18:21 User:andy.puttnam Page Name:CONEWS1, Part,Page,Edition:EUR, 7, 1