B10| Saturday/Sunday, March 28 - 29, 2020 **** THE WALL STREET JOURNAL.
BUSINESS & FINANCE
The Federal Reserve, Fed-
eral Deposit Insurance Corpo-
ration and the Office of the
Comptroller of the Currency,
which regulates national
banks, also said they would
speed up the implementation
of a new methodology for
measuring counterparty credit
risk in derivatives transac-
tions.
That move likely reduces
the amount of capital lenders
have to hold against such
transactions because it recog-
nizes improvements to the
safety of the derivatives mar-
kets since the financial crisis
of 2008.WASHINGTON—U.S. regula-
tors gave banks a reprieve
from new accounting stan-
dards that require lenders to
book losses on soured loans
more quickly, the latest step
designed to encourage banks
to keep lending during the
spread of the new coronavirus.
Banks will now have up to
two additional years before
they must set aside more capi-
tal for reserves against loan
losses, as required by the new
“current expected credit loss,”
or CECL, accounting standard,
regulators said.BYANDREWACKERMANBanks Get a Break on
Bad-Loan Accounting
China cleared Goldman
Sachs GroupInc. andMorgan
Stanleyto take majority con-
trol of their local securities
businesses, taking a key step
in opening up its financial
markets to Wall Street.
The China Securities Regula-
tory Commission will allow the
two banks to move to 51% own-
ership of their local joint ven-
tures, Goldman Sachs Gao Hua
Securities Co. and Morgan Stan-
ley Huaxin Securities Co., the
two U.S. institutions said Friday.
Both had initially lodged appli-
cations around August last year.
Goldman Sachs is injecting
new capital to increase its stake
in its joint venture from 33%. It
said it would move as soon as
possible to migrate some busi-
ness units that operate under
its local partner, Beijing Gao
Hua Securities, into the joint
venture. Morgan Stanley will
increase its stake in its Shang-
hai-based venture from 49%.American financial firms,
including investment banks,
money managers and credit-
card firms, have been trying to
pry open China’s markets for
decades, and restrictions on
their activity have been a focal
point in President Trump’s
trade war with China.
The governments of the
world’s two biggest economies
reached a trade deal in January
that included awarding U.S. fi-
nancial institutions better ac-
cess to the Chinese market.China increased the share-
holding cap on local securities
joint ventures to 51% in 2018,
and UBS Group AG of Switzer-
land subsequently became the
first foreign bank permitted to
take majority control. Beijing
later said it would remove own-
ership caps completely and al-
low 100% holdings as of April.
Goldman Sachs said it
would now seek full ownership
of its unit “at the earliest op-
portunity.”
The approvals came just asChina resurfaced from a nearly
two-month nationwide lock-
down to contain the spread of
the new coronavirus. The U.S.
and Chinese governments have
traded barbs over the virus,
but in the past day Mr. Trump
and his counterpart, Xi Jin-
ping, held a phone call, which
the U.S. president described as
a “very good conversation.”
JPMorgan Chase&Co.in
December received approval to
set up a new 51%-owned secu-
rities joint venture in China.BYJINGYANG
China Approves Goldman, Morgan
A focus of President Trump’s trade war with China has been efforts by U.S. financial firms, like Goldman Sachs and Morgan Stanley, to pry open Chinese markets.
QILAI SHEN/BLOOMBERG NEWS
Allianz Global Investorsis
liquidating two hedge funds
after they took heavy losses in
recent weeks on stock-options
trades.
An Allianz Global Investors
spokesman said the two funds,
Structured Alpha 1000 and
Structured Alpha 1000 Plus,
had been net buyers of puts,
or options giving the holder
the right to sell an asset at a
predetermined price in the fu-
ture. The puts were designed
to hedge against losses the
funds might endure from
other positions should the
market decline.
They didn’t work, in large
part because the market sold
off more rapidly this month
than it had during past down-
turns, including the 2008 fi-
nancial crisis, a person famil-
iar with the funds said.
This pace “had a particu-
larly large impact on the op-
tions positions held by Struc-
tured Alpha funds, particularly
the two highest target alpha
private strategies,” the
spokesman said in an email.
As the market continued its
descent, the funds were forced
to lock in losses.
“The portfolios were re-
structured and de-risked sig-
nificantly during the course of
this turmoil, but not without
sustaining significant realized
losses,” the spokesman said.
Allianz Global Investors, an
investing arm of German in-
surer Allianz SE, will also
close a related offshore feeder
fund.BYJUSTINBAERAllianz
Sells Off
Two Funds
WASHINGTON—Public com-
panies will have extra time to
file annual reports and other
major disclosures, as firms
ranging from McDonald’s
Corp. toHersheyCo. brace for
a financial hit from the new
coronavirus.
The Securities and Ex-
change Commission has given
companies an additional 45
days to file the periodic re-
ports that investors depend on
to learn about financial per-
formance and developing
risks. The relief applies to fil-
ings that companies would
normally make between March
1 and July 1.
The situation isn’t ideal for
investors. Delays in financial
reporting deprive them of thequestion: What are they not
telling us, and why?” said Paul
Miller, a professor emeritus of
accounting at the University of
Colorado at Colorado Springs.
“The market’s aggregate will
respond with uncertainty by
depressing share prices.”
The SEC’s measures reflect
a growing recognition among
policy makers and investorsthat it could take months to
determine the economic im-
pact of the pandemic and of
efforts to contain it.
Surveys this week showed
record declines in U.S. and Eu-
ropean business activity in
March, and some data suggest
that many smaller compa-
nies—particularly restaurants
and retailers—would struggle
to survive a shutdown lasting
longer than a few weeks.
“As we cannot predict the
duration or scope of the
Covid-19 pandemic, the nega-
tive financial impact to our re-
sults cannot be reasonably es-
timated, but could be
material,” McDonald’s said in
a filing Wednesday.
With a growing number of
businesses closed to contain
the virus, it may be impossible
for many companies to assess
accurately the value of inven-
tory, goodwill, accounts receiv-
able or securities held.
“If all of a sudden most of
your primary customers are
looking at potential bank-
ruptcy, you’ve got to make
massive write-downs in your
accounts receivable,” said J.W.
Verret, a law professor at
George Mason University. “Ac-
countants are facing an impos-
sible task right now.”
For companies such as the
health-care logistics firm Ow-
ens & Minor Inc., the task of
preparing financial statements
for the latest quarter has so far
taken a back seat to the finance
team’s analysis of business divi-
sions affected by the pandemic.
“We’ve probably been more
focused on customer-facing de-
cisions at this point, and not as
focused on our Q1 reporting of
the numbers,” Chief Financial
Officer Andy Long said. “It’s
something that, quite frankly,
we’re going to spend a little bit
more time on going forward.”The latest round of SEC re-
lief is similar to what regulators
provided companies in areas af-
fected by Hurricane Katrina in
2005 and superstorm Sandy in
2012, though much broader in
geographic scope.
The SEC doesn’t give com-
panies free rein to withhold
material information, however.
The agency issued guidance
this week on how companies
should update investors on
business disruptions from the
coronavirus, including
whether work-from-home re-
quirements might hurt their
operations and accounting
systems.
Some decisions may be
trickier than usual, such as
whether to book an impair-
ment on assets that are less
valuable owing to economic
shock. Still, that information
should be given to sharehold-
ers as quickly as possible, the
SEC said.
“The commission is not go-
ing to second-guess business
people who make disclosures
in good faith, but they also
make clear that if you know-
ingly or recklessly make mis-
statements, that will trigger
enforcement,” said Dick
Walker, a partner at King &
Spalding LLP and a former
SEC enforcement director.
Regulators have also noted
the heightened chance of in-
sider trading in the age of the
coronavirus. Managers may
have inside information about
risks or business impacts
stemming from the pandemic
and should refrain from trad-
ing, the SEC’s enforcement di-
vision said this week.
The SEC extended similar
relief to some filings required
of investment advisers and
mutual funds if their opera-
tions have been affected by
the pandemic.information they need to as-
sess future performance, pro-
moting higher capital costs,
lower stock prices and more
volatility.
“A delay always raises aByPaul Kiernan,
Mark Maurer
andDave MichaelsSEC Gives Firms Extra Time to File Reports in Pandemic
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