From Breakingviews: Berlin takes its fair pound of flesh from Lufthansa, and Axa’s French restaurant payout is unappetising news for insurers. Catch up with the latest financial insights here:
Airplanes of German carrier Lufthansa are parked at the Berlin Schoenefeld airport, amid the spread of the coronavirus disease in Schoenefeld, Germany, May 26, 2020.DAS POUND OF FLESH. Germany’s $9.9 billion Deutsche Lufthansa rescue provides a blueprint for governments looking to strike a hard bargain in bailout negotiations.
The airline’s shares jumped 5% on Tuesday after the government confirmed it would take a 20% stake at 2.56 euros per share, a 72% discount to the listed price. A further 5.7 billion euros will come as so-called “silent participations”, equity-like instruments which carry hefty annual coupons but don’t add to Lufthansa’s debt. Such tough haggling contrasts with the swifter, go-lightly approach of the U.S. Treasury, which earmarked around $50 billion for carriers like Delta Air Lines and American Airlines soon after the lockdown hit. In addition to giving low-interest loans the Treasury received warrants that convert into shares only when share prices recover. It might make sense to move fast in a pandemic. But by taking a little more time, German taxpayers have emerged the relative winners. BUSINESS INTERRUPTUS. Insurers do their best to cook up policies that limit heavy losses. Yet Axa has become one of the first industry heavyweights to lose a court case over payment of so-called business interruption insurance. The 37 billion euro insurer has to cover two months of lost revenue to a French restaurant. Chief Executive Thomas Buberl reckons the hit can be mitigated as fewer than 10% of Axa’s restaurant customers have similar contracts. But there’s a risk now of greater exposure – and almost certainly of lower returns. Having already cancelled dividends, French insurers may also be asked to hold more capital reserves to offset legal risk, Moody’s says. They’re unlikely to be alone. Lawmakers in New York and Ohio have introduced bills to force payouts. In the United Kingdom, hundreds of companies have joined forces to sue Hiscox for unpaid claims. Axa may merely have opened the floodgates. PAY GRADE. Notoriously analogue Hong Kong, where cash and paper-document stamping persist, is getting a digital lift amid the pandemic. HSBC’s PayMe just hit two million users, three years after the UK-based bank introduced its electronic wallet. It claims 70% of the market for settling purchases of everything from surgical masks to hand sanitiser, big drivers of late. Seeing what friends are buying, Venmo-style, has helped build a user base that’s roughly half millennial. Customers active on HSBC’s Hong Kong mobile banking app surpassed 1.1 million as of March, up nearly 40% from a year earlier. These are welcome milestones for HSBC as much as Hong Kong. The city’s fintech efforts have been sluggish, with many online-only banking rivals missing target dates set by the Hong Kong Monetary Authority. Stealing a digital march should help gird HSBC for the competition to come. Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.
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Corona Capital: Lufthansa, Axa, Hong Kong cashConcise views on the pandemic’s corporate and financial fallout: Berlin has finally taken its fair pound of flesh from Lufthansa; Axa’s French restaurant payout is unappetising news for insurers; the virus prods Hongkongers into the age of the digital wallet, to HSBC’s benefit.
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