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Breakingviews – Corona Capital: StanChart, Carmakers, Odd activism

Reuters Reuters

LONDON/HONG KONG (Reuters Breakingviews) – Corona Capital is a daily column updated throughout the day by Breakingviews columnists around the world with short, sharp pandemic-related insights.

LATEST

– Standard Chartered

– VW versus Daimler

– Chinese electric carmaker

– Chris Hohn and Wirecard

HONG STRONG. Banks everywhere are cranking up bad debt charges due to the pandemic-induced slowdown. Yet Hong Kong looks a financial safe haven, despite being one of the first places outside mainland China to impose a lockdown. Standard Chartered on Wednesday said that first-quarter pre-tax profit in the special administrative region was broadly unchanged from the previous three months, at $378 million, even though bad debt charges almost doubled. Larger rival HSBC a day earlier reported pre-tax profit of $2.85 billion in Hong Kong, up 9% from the previous quarter.

What’s going on? Hong Kong has so far been successful in containing the Covid-19 outbreak. The government is supporting consumers and companies, though its biggest support package only came earlier this month. And Hong Kong banks started raising bad debt charges last year, as violent protests kept visitors away from the financial hub. The global slump will squeeze its economy, which is dependent on tourism and finance. So far, however, Hong Kong’s financial system is holding up. (By Peter Thal Larsen)

UPHILL START. The gears are crunching badly at Daimler and Volkswagen. First-quarter operating profit at the two German automakers fell by roughly four-fifths year-on-year, the pair reported on Wednesday. But China offers a crumb of comfort. Daimler said April unit sales in the country were 97% of the comparable figure a year earlier, up from just 29% in March. And footfall in the company’s dealerships was already back at levels seen in January before an economic lockdown was initiated. Volkswagen, meanwhile, said it expected China car sales would by July match 2019 trends.

Any resurgence would benefit VW more than Daimler. China accounts for around two-fifths of group sales at the Wolfsburg-based company, versus one-tenth at the Mercedes-Benz maker. That may why boss Herbert Diess still expects VW to report an operating profit in 2020, albeit “severely” below the prior year. Something is better than nothing. (By Christopher Thompson)

FACE-SAVING MOVE. Chinese electric-car maker BYD unveiled terrible results late on Tuesday, but it was surprisingly chipper about the months to come. The $20 billion company, which reported an 85% decline in quarterly net profit from a year earlier, expects the first-half bottom line to increase by as much as 24% once the April to June period is included. Amid a depressed market for vehicle sales, handset assembly will power some of the growth. Another unlikely source: surgical face masks.

It took less than two weeks for Shenzhen-based BYD to set up the new manufacturing process. By mid-March, the plant was running at full capacity churning out 5 million masks and 300,000 bottles of disinfectant daily. The likes of Fiat Chrysler Automobiles and General Motors also have shifted gears into making protective and medical equipment. Given some of the virus-induced societal changes in the offing, this might be a form of diversification that pays longer-term dividends. (By Sharon Lam)

CROSSED WIRES. The usual path for an activist investor harbouring a beef with a company is to get on its share register, build a stake and lobby for management to get the boot. Chris Hohn is offering an interesting variation. The head of $24 billion TCI Fund Management has a 1.04% short position in Wirecard’s shares, and is demanding the exit of Chief Executive Markus Braun, who also holds 7% of the German payments group.

A short-seller might want an underperforming boss to stay in post. Either way, it keeps the spotlight on Wirecard. The group’s shares fell on Tuesday after auditor KPMG found no evidence of “balance sheet forgery” but added big caveats such as an unwillingness to cooperate by Wirecard’s third-party partners. Those businesses were central to allegations of suspect accounting made by the Financial Times, which Wirecard has always denied. With shares off another 7% on Wednesday, greater transparency might be needed. Hohn’s odd activism helps maintain the pressure for more light. (By George Hay)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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