France more than doubles crisis package cost to 100 billion euros By Reuters


© Reuters. FILE PHOTO: French Finance Minister Le Maire gives New Year’s address to economic actors

By Leigh Thomas

PARIS (Reuters) – The French government on Thursday more than doubled the expected cost of its coronavirus crisis measures to cope with the worst recession since at least World War Two, pushing the budget deficit and national debt to record levels.

Finance Minister Bruno Le Maire told Les Echos newspaper that the government now expected its crisis package to cost 100 billion euros ($108.6 billion) – over 4% of GDP and up from expectations of 45 billion euros less than a month ago.

“These numbers could yet change as the economic situation and companies’ need of support is changing fast. We’re going all out to save our companies,” Le Maire said.

The overall bill is likely to rise even more as the government has yet to put a cost on bailouts for big companies like Air France KLM that Le Maire says is in the works.

The immediate cost of the economic fallout from the outbreak has spiralled since President Emmanuel Macron pledged to save lives, jobs and companies “no matter what its costs”.

The government will present its second update to the 2020 budget in as many months next Wednesday. Le Maire forecast that the economy would contract 6% in 2020 – the most since 1945.

The government has ramped up its crisis measures with the economy operating at two-thirds of normal levels since the country went into lockdown on March 17.

With economic activity in freefall and crisis spending spiralling, the government’s public sector budget deficit would hit 7.6% of economic output this year, budget minister Gerald Darmanin said in the joint interview with Le Maire.

That is nearly double the 3.9% budgeted just last month and tops the previous record of 7.2% France saw in 2009 during the global financial crisis.

As the fiscal gap yawns, the national debt burden will reach 112%, whereas the government had hoped in its original 2020 budget to keep it to less than 100%.

So far the bond market has not balked at the extra debt, and the premium France pays over German debt to borrow from the markets has remained steady in recent days around 45 basis points.

SPIRALLING COSTS

The cost of the crisis package has ballooned as companies have rushed to take advantage of deferred tax and payroll charges, making up the largest chunk of the measures at 35 billion euros.

Firms are also using a state-subsidised furlough programme far more than expected, with nearly seven million workers covered at a cost of more than 20 billion euros, compared with the 8.5 billion budgeted in mid-March.

At the same time, 342,000 small companies have tapped a special solidarity fund aimed at keeping them afloat at a cost now expected at 6 billion euros, up from 1 billion last month. Extra healthcare spending is also getting hiked to 7 billion euros from 2 billion.

While the cost of big corporate bailouts remains to be budgeted, so does that for jumpstarting the economy once the lockdown is eventually lifted, which the government has pushed back past April 15.

Le Maire has called for a large-scale investment programme that would target the healthcare sector in particular as well as industries particularly hard hit by the crisis such as the aerospace and automobile industries.

The huge costs that will entail helps explain why Le Maire has lobbied other EU finance ministers to back plans for a jointly financed economic recovery fund to finance such investments.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.



$690 Billion Remittance Risk By Bloomberg


© Reuters. The Money’s Not Coming Home: $690 Billion Remittance Risk

(Bloomberg) — The amount of money migrant workers send to their home countries usually holds up well in a crisis. Not this time.

Waves of job losses among overseas workers and international border closures are sapping the $690 billion annual flow of global remittances at a time when many emerging economies need hard currency more than ever. Lebanon, Ukraine and the Philippines will be among the hardest hit, while Latin America could see an 18% drop in money being sent home compared with last year.

Global remittances flows have reached record highs in recent years as countries have become more closely interconnected. Apart from China and Ecuador, most of the reported Covid-19 cases come from industrialized nations that are home to the majority of the world’s migrant workers, according to Manuel Orozco, who directs the Inter-American Dialogue’s migration, remittances and development program in Washington.

The crisis could wipe out 6.7% of working hours globally in the second quarter of this year, according to the International Labor Organization. More than a billion workers are at high risk of a pay cut or losing their job, the organization said.

The shock from coronavirus “upends the wisdom about remittances being very stable” said Elina Ribakova, deputy chief economist at the Institute of International Finance in Washington. “The countries where migrant workers are temporarily based are experiencing a big crisis, and many of them are in the sectors that are being hit.”

Here’s a rundown on some of the emerging markets that will be affected the most:

Lebanon (12.5% of GDP)

Lebanon was already suffering from a drop in remittances due to a sovereign default and economic turmoil. Money sent home from the country’s diaspora used to be a key factor in keeping finances afloat. Unofficial capital controls imposed by commercial lenders have put pressure on household finances, leading to a devaluation in black-market rates for the pound.

Ukraine (11.8% of GDP)

Ukrainian workers who flocked to higher-paying jobs in the European Union in recent years rushed to get back home last month before the border was closed. The central bank said remittances could drop by as much as $3 billion this year as a result.

“If we take some remittances off the balance, then it should devalue the hrvynia,” said Vitaliy Sivach, a Kyiv-based bond trader at Investment Capital Ukraine. “The big question is how long it will last.”

The currency has fallen more than 12% this year, but lower energy prices and rising revenue from wheat exports may offset some of the damage.

Philippines (9.8% of GDP)

The Philippines deploys more than a million workers abroad every year, mostly to the Middle East. Remittances from Filipinos working overseas, which account for about one-tenth of the economy, may decline by as much as 30% this year as thousands of workers return home, Economic Planning Secretary Ernesto Pernia told ABS-CBN News.

Egypt (8.8% of GDP)

Remittances and tourism are the two largest sources of foreign currency for Egypt and many Egyptians working overseas are based in countries dependent on oil exports.

The drop in repatriated money, combined with a recent slump in portfolio inflows, will erode the country’s foreign-currency reserves, according to Ehsan Khoman, head of Middle Eastern research at MUFG Bank in Dubai.

Dominican Republic (8.6% of GDP)

The Dominican Republic has one of the highest remittance rates in Latin America as a share of gross domestic product, World Bank data show. Foreign workers sent $582 million home in January, according to the central bank.

Pakistan (7.9% of GDP)

Pakistan’s central bank intervened to stop a plunge in the rupee last week as remittances dropped. Almost a third of Pakistan’s money transfers come from the U.S. and the U.K., two countries at the epicenter of the coronavirus outbreak, according to Mohamed Abu Basha, head of macroeconomic research at Cairo-based investment bank EFG Hermes.

“I would expect to see a bit of a slowdown for one to two quarters because of that exposure,” Abu Basha said, adding that some of the drop will be offset by lower fuel costs.

Mexico (3.1% of GDP)

Remittances to Mexico totaled $2.7 billion in February, up 10.5% year on year. Money transfers from abroad, mostly the U.S., account for a significant part of the country’s informal sector. A drop will likely hamper household incomes and further damage the country’s economic outlook.

El Salvador (20.8%), Honduras (21.4%), Guatemala (13.0%) and Nicaragua (13.1%)

In Central America, a region ravaged by gang violence, drug trafficking and poverty, remittances are a multi-billion dollar industry that have made governments less reliant on the bond market for financing. Under emergency coronavirus measures, the U.S. has implemented a rapid-fire deportation system. Unauthorized border crossings have tumbled, and initial data from this year show remittance flows have already declined.

 





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Buffett’s Geico offers $2.5 billion credits as coronavirus cuts driving


(Reuters) – Geico Corp, part of billionaire Warren Buffett’s Berkshire Hathaway Inc, said on Tuesday it will offer about $2.5 billion of credits to its 19 million auto and motorcycle policyholders, reflecting the decline in driving stemming from the coronavirus pandemic.

FILE PHOTO: Berkshire Hathaway Chairman Warren Buffett walks through the exhibit hall as shareholders gather to hear from the billionaire investor at Berkshire Hathaway Inc’s annual shareholder meeting in Omaha, Nebraska, U.S., May 4, 2019. REUTERS/Scott Morgan/File Photo

The insurer said it will offer a 15% credit on policies up for renewal between April 8 and Oct. 7, averaging about $150 per auto policy and $30 per motorcycle policy.

Geico said it has about 18 million auto customers and 1 million motorcycle customers.

The announcement came one day after Allstate Corp said it would return more than $600 million to policyholders, mostly through a “payback” of 15% of premiums for April and May on about 18 million policies. [nL1N2BU0PO]

Many Americans are driving less because of stay-at-home orders aimed at curbing the pandemic.

Geico said vehicle accidents are down considerably, though it expects a return to near-normal levels as the pandemic subsides.

“The ongoing crisis has widespread effects that will linger,” Geico Chief Executive Todd Combs said in a statement. “Our customers have been loyal, and we are committed to doing all we can to help them.”

State Farm and Progressive Corp are also reviewing their premium practices in light of the decline in driving.

Geico earned $35.57 billion of premiums in 2019, and paid out $28.94 billion, or 81.3%, to cover loss claims.

Pretax underwriting gains totaled $1.51 billion, after accounting for underwriting expenses.

Berkshire, based in Omaha, Nebraska, has owned all of Geico since 1996.

Reporting by Jonathan Stempel in New York; Additional reporting by Suzanne Barlyn; Editing by Lisa Shumaker



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Trump says $70 billion in coronavirus rescue loans authorized. But where’s the cash?


WASHINGTON (Reuters) – Roughly $70 billion of a $350 billion pot of loans to cover the payrolls of ailing small businesses have been originated by U.S. lenders in recent days, President Donald Trump said on Tuesday, adding that that money was “essentially loaned.”

The downtown district of Washington, looking east to the U.S. Capitol, remains largely empty to try to limit the spread of COVID-19 during the coronavirus disease pandemic in Washington, U.S. April 7, 2020. REUTERS/Jonathan Ernst

In fact, no one, including the administration, seems to know how much of that money has made it into the hands of small businesses, many of which say they have yet to see a penny.

“They’re saying it’s going great but on the street no one’s received any funds yet,” said Sachin Mahajan, who shut down his restaurant, Karma Modern Indian, in the heart of Washington, D.C., on March 16 after business nosedived.

“All the business owners I have spoken with, none of them have seen anything come through yet,” said Mahajan, who submitted his payroll application on Monday, after his bank asked him to resubmit online his Friday paper application.

Neither the U.S. Treasury Department nor the Small Business Administration, which are jointly administering the program, have formal data on disbursements, which are issued by participating banks, a senior administration official told Reuters.

Reuters contacted five major Washington-based bank trade groups, as well as the U.S. Chamber of Commerce, all of which said they did not have that data as of Tuesday.

Only one of the groups, the Independent Community Bankers of America (ICBA), said it was trying to gather information on loan disbursements from its members.

“As a one-off anecdotal example, one of our largest SBA-lenders is trying to get out disbursements today,” said Paul Merski, an executive director at the ICBA.

“That’s the first one I heard of that would actually be putting cash out the door.”

Wells Fargo & Co, a major small business lender, on Sunday hit a $10 billion cap on loan applications it plans to accept under the program, but on Tuesday said it had yet to disburse any funds to clients. JPMorgan and Bank of America, which have been processing applications since the scheme began on Friday, declined to comment on disbursements.

Launched on Friday as part of a $2.3 trillion congressional economic relief package, the $350 billion program allows small businesses hurt by the coronavirus to apply for government-guaranteed loans with participating banks. Those loans will be forgiven if they are used to cover payroll costs, subject to some conditions.

Speaking on Tuesday, Trump said $70 billion had “been loaned,” but that figure is likely to refer to loans that have been processed by the SBA, as opposed to cash that has been released to businesses, three banking sources said.

They said the amount of money dished out to small businesses is likely to be much smaller because many lenders are still waiting for the SBA and Treasury to issue a loan authorization form – the last piece of the paperwork puzzle required for money to be handed to the customer.

The form lenders had initially been using turned out to be incorrect, according to an SBA email seen by Reuters on Monday and the sources, and a compliant form has yet to be issued.

The cause of the hold-up was not clear, the sources said. SBA and Treasury did not respond to a request for comment on regarding loan authorizations.

Without that paperwork, banks worry loans may not qualify down the line for the government guarantee, or for forgiveness, the sources said. Lenders are also getting mixed signals on how to proceed: Treasury officials have told banks verbally to go ahead and issue loans, on the basis they will be grandfathered into the compliant regime once the correct paperwork is issued.

But some regional SBA offices emailed banks on Monday telling them to hold off, according to two of the sources, and another email seen by Reuters. That has left many banks in limbo, said a spokesman for the Consumer Bankers Association.

“Some banks are disbursing funds but many are concerned without final language from SBA, there could be forgiveness issues down the road,” he said.

Reporting by Michelle Price, Pete Schroeder and Lindsay Dunsmuir in Washington; Additional reporting by Imani Moise and Elizabeth Dilts Marshall in New York; Editing by Matthew Lewis



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EU clears 50 billion pound UK ‘umbrella’ scheme to support economy By Reuters


© Reuters. FILE PHOTO: European Union flags fly outside the European Commission headquarters in Brussels

BRUSSELS (Reuters) – The European Commission said on Monday it had approved a 50 billion pound ($61.5 billion) British “umbrella” scheme to support companies affected by coronavirus outbreak.

The approval is in line with modified EU rules allowing a temporary and limited amount of aid to businesses facing a sudden shortage of liquidity. The British aid would take the form of grants, equity injections, tax advantages and loans.

Britain left the European Union at the end of January, but continues to be subject to EU rules for a transition period set to last until the end of 2020.

With the coronavirus lockdown ravaging European economies, the bloc has stepped up calls for London to extend that time to allow the sides to agree on a new trade partnership after talks came to a virtual halt as capitals switched focus to fighting the pandemic.($1 = 0.8135 pounds)

British Prime Minister Boris Johnson, who has previously repeatedly ruled out such a possibility, was in hospital in London for tests on Monday suffering persistent coronavirus symptoms.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.



UAE central bank takes new anti-coronavirus steps, bringing stimulus to $70 billion By Reuters


© Reuters.

DUBAI (Reuters) – The United Arab Emirates’ central bank said on Sunday it had reduced banks’ reserve requirements for demand deposits by 50% to support the country’s economy during the COVID-19 pandemic.

The aggregate value of all capital and liquidity measures adopted by the central bank since March 14 is 256 billion dirhams ($69.70 billion), the Central Bank of the United Arab Emirates (CBUAE) said in a statement.

The bank halved the reserves requirements for demand deposits for all banks to 7% from 14%, which it said will inject about 61 billion dirhams of liquidity to support banks’ lending and liquidity management.

The central bank also extended the duration of a previously announced stimulus package for affected retail businesses and corporates.

The deferral of loan principal and interest payments for customers was extended until the end of the year, and banks participating in the scheme can benefit from a capital buffer relief until December 2021. The value of the capital buffer relief is 50 billion dirhams.

Banks are also allowed a “zero-cost funding facility” against collateral until the end of this year – a programme also worth 50 billion dirhams.

Banks will be allowed to use a third of their current liquidity buffers and have the flexibility to maintain a minimum loan coverage ratio (LCR) of 70% and a minimum eligible liquid assets ratio (ELAR) of 7%. The overall release of regulatory liquidity buffers is estimated at 95 billion dirhams, the regulator said.

CBUAE said it has collaborated with other regulators to issue guidance on financial reporting standard IFRS 9 for banks and finance companies.

“The planned implementation of certain Basel III capital standards will be postponed to 31 March 2021 for all banks, to minimize the operational burden on the financial industry during this challenging period,” the central bank said.

“CBUAE has issued a new requirement for all banks to apply a prudential filter to IFRS 9 expected loss provisions,” the bank said, adding it aims to minimise IFRS 9 provisions’ effect on regulatory capital “in view of expected volatility due to the COVID-19 crisis.”

IFRS 9 provisions will be gradually phased-in during a five-year period through the end of 2024.

The guidance was issued for public consultation on Sunday and is expected to be finalised by April 8.

“The additional measures announced today will effectively relieve the pressure on financial institutions, allowing them to continue to carry out their crucial role as the backbone of the economy while offering the required relief and continued access to funding for businesses and households,” the bank’s governor, Abdulhamid Saeed, said in the statement.

Saeed was announced as the central bank’s new governor on Thursday.

 

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.



With no fries sold, Dutch farmers face billion kilo potato pile By Reuters


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© Reuters. Coronavirus disease (COVID-19) outbreak, in Purmer

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By Hilde Verweij

BEEMSTER, Netherlands (Reuters) – It’s potato planting season, but many Dutch farmers are facing a mountain of a problem, with a million tons of potatoes left over from last season due to the coronavirus outbreak.

Restaurants in the Netherlands, many serving popular deep fried “patat”, have been closed since mid-March, with a ban on public gatherings set to last until June 1 at least.. With their closure, the market for potatoes collapsed overnight.

“This is a dramatic season, a turn of events no one could have predicted,” said Dirk de Heer from his farm in Beemster, in North Holland.

De Heer says he is selling his crop to a dairy farmer for 0.01 euro per kilogram, instead of the 18 cents he had hoped to receive.

De Heer is one of around a thousand farmers in the Netherlands in the same situation.

Food potato production in the Netherlands is roughly 4 million tons annually, of which a quarter is exported.

The country’s agricultural organization LTO estimates damages from the virus outbreak so far at 6 billion euros, with the floral industry also hard-hit.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.



Trump administration awards $25 billion in emergency transit funding By Reuters


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© Reuters. FILE PHOTO: An MTA transit worker cleans a nearly empty Times Square – 42nd street subway station following the outbreak of coronavirus disease (COVID-19) in New York City

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By David Shepardson

WASHINGTON (Reuters) – The Trump administration on Thursday said it was allocating $25 billion in emergency funding grants to public transportation systems to address a massive falloff in demand due to the coronavirus pandemic.

The U.S. Federal Transit Administration (FTA) funds, including $5.4 billion for the New York City area, were approved by Congress last week and transit systems should start receiving payments in the coming weeks.

Transportation Secretary Elaine Chao said the “historic $25 billion in grant funding will ensure our nation’s public transportation systems can continue to provide services to the millions of Americans who depend on them.”

The funds include $1.2 billion for the Los Angeles area, $1.02 billion for the Washington, D.C. area, $883 million for the Boston-area, $879 million for the Philadelphia area, $820 million for the San Francisco area and $520 million for Seattle.

Many of the areas cover systems that are also in nearby states and were awarded under a population-based formula.

Last month, New York’s Metropolitan Transportation Authority, which oversees two commuter railroads, subways and buses, sought $4 billion as ridership had fallen more than 60% on the subways.

New Jersey Transit this week sought a $1.25 billion bailout after reporting a nearly 90% drop-off in ridership. The San Francisco Bay Area Rapid Transit District also appealed for emergency funds after ridership declined by 90%.

The FTA said $22.7 billion was allocated to large and small urban areas and $2.2 billion to rural areas. The funds will “support capital, operating, and other expenses generally eligible under those programs to prevent, prepare for, and respond to COVID-19,” the agency said in a statement.

The FTA announcement came one day ahead of the required timetable from Congress.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.



WeWork troubles deepen as SoftBank pulls $3 billion tender offer


(Reuters) – SoftBank Group Corp (9984.T) said it has terminated a $3 billion tender offer for additional WeWork shares agreed last year with shareholders, drawing threats of legal action and plunging the floundering office space company further into crisis.

FILE PHOTO: A WeWork logo is seen at a WeWork office in San Francisco, California, U.S. September 30, 2019. REUTERS/Kate Munsch

The tech investment giant said in statement that given its duty to its shareholders it could no longer proceed with the deal, citing criminal and civil probes into the startup, WeWork’s failure to restructure a joint venture in China and the impact of the coronavirus pandemic.

A special committee of WeWork’s board said it was disappointed and is considering “all of its legal options, including litigation.”

SoftBank’s decision to rescind the offer means the Japanese firm is no longer obligated to proceed with a further $1.1 billion in debt financing for WeWork. It also underscores the depth of the disarray at WeWork, which is undergoing a drastic restructuring and whose earnings are at risk as many countries impose orders to stay at home due to the pandemic.

“WeWork is in real trouble and SoftBank’s withdrawal from the share purchase worsens the situation materially,” Richard Windsor, an independent analyst, wrote in a note.

The startup, which lost $1.25 billion in the third quarter, told investors last week that it had $4.4 billion in cash and cash commitments and would be able to weather the economic downturn.

The tender offer, which would have mostly benefited a select group of shareholders including ousted co-founder Adam Neumann, had been agreed in October as part of bailout plan by SoftBank after WeWork’s IPO plans flopped. Investors had been concerned about its losses and a business model that involves taking long-term leases and renting out spaces for a short term.

In November, sources said the New York State Attorney General was investigating WeWork, examining whether Neumann, indulged in self-dealing to enrich himself. A spokeswoman for Neumann declined to comment at the time.

SoftBank said in its statement that there were “multiple, new, and significant” pending criminal and civil investigations in which authorities have also requested information about WeWork’s financing activities and communications with investors.

Following the termination of the deal, SoftBank shares closed up 2.5%, outperforming a 1.4% decline for the broader Tokyo market .N225.

SoftBank itself has been under growing financial strain, with souring tech bets bringing it under pressure from activist investor Elliott Management and pushing it into a radical pledge to raise $41 billion by selling down core assets to raise cash for share buybacks and to reduce debt.

A merger of its U.S. wireless unit Sprint with T-Mobile US (TMUS.O) was completed on Wednesday, which will provide an undetermined gain to be booked in the quarter ending June and will reduce strains on its balance sheet.

Reporting by Sam Nussey in Tokyo and Kanishka Singh in Bengaluru; Editing by Edwina Gibbs



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U.S. pension funds may pour $400 billion into stocks, lifting virus-hit markets: JP Morgan


NEW YORK (Reuters) – U.S. pension funds that delayed rebalancing their portfolios are likely to pump about $400 billion into stocks over the next two quarters, analysts at JP Morgan said, providing a potential boost to equity markets battered by the coronavirus pandemic.

Weeks of asset price volatility may have pushed some fund managers to postpone rebalancing portfolios where equity allocations have been knocked out of whack by a sharp decline in stocks, the bank said in a note to investors. The S&P 500 fell 20% since the start of the year, marking its worst quarter since 2008.

“We still expect that US pension funds will eventually rebalance within 1-2 quarters,” wrote strategist Nikolaos Panigirtzoglou.

The bank said its estimate of $400 billion in equity buying by the funds over the next two quarters could prove conservative. U.S. pension funds bought $200 billion in stocks by the first quarter of 2009, in the aftermath of the global financial crisis — equivalent to $600 billion today, the bank said.

Wild market swings have presented a challenge to asset managers looking to square their portfolios against a benchmark or return to their long-maintained allocation of stocks versus bonds. While the S&P is down about 24% from its February highs, unprecedented support from the Federal Reserve and a $2.2 trillion relief package from U.S. lawmakers helped stocks rally 15.5% since March 23.

At least one fund — the Los Angeles City Employees’ Retirement System, which oversees some $15 billion — is allowing its rebalancing to be deferred, according to a report in Pensions & Investments. The fund did not immediately respond turn a request for comment.

Brian Reynolds, chief market strategist with Reynolds Strategy, said in a note this week a rebalancing that leads pensions to sell bonds and buy stocks “makes no sense for pensions given the capital calls they are facing from credit and related products.”

Some index providers, such as S&P Dow Jones Indices, have delayed their quarterly rebalancing due to the market volatility, potentially complicating the picture for funds that look to track index performance.

Last week’s rally in stocks may have helped boost some funds’ equity allocations, making the need to increase exposure less acute, said Mike Schumacher, head of macro strategy at Wells Fargo Securities.

The bank last week had estimated that U.S. corporate pensions will need to shift about $40 billion from fixed income into equities to maintain allocation targets. Its estimate now stands at $20 billion following last week’s rally, Schumacher said.

At the same time, mutual funds, pensions and other asset managers rebalancing their portfolio may have stoked some of last week’s gains.

FILE PHOTO: A man wears a protective mask as he walks on Wall Street during the coronavirus outbreak in New York City, New York, U.S., March 13, 2020. REUTERS/Lucas Jackson

Steven DeSanctis, an equity strategist at Jefferies, said moves from fixed income into equities “most likely” happened last week, adding that “the rebalancings don’t have to take place on the 31st.”

Jack Janasiewicz, portfolio strategist at Natixis Investment Managers Solutions, said some of the market’s recent gains have come from quarter-end and month-end rebalancing.

“Once we get through the next couple of days, it’s going to be a little bit more interesting because the question then becomes, ‘Do we return really back to fundamentals and technicals?’.”

Reporting by Lewis Krauskopf; additional reporting by Sinéad Carew and Medha Singh; Editing by Ira Iosebashvili and Tom Brown



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