We have updated our Terms of Use.
Please read our new Privacy Statement before continuing.

Corona Capital

21 Jul 2020 By Breakingviews columnists

Corona Capital is a daily column updated throughout the day by Breakingviews columnists around the world with short, sharp pandemic-related insights.


– Movies’ mystery

– Hoopsters’ hurrah

– Confident or not?

A riddle wrapped in a mystery inside an enigma. The plot of Christopher Nolan’s sci-fi thriller “Tenet” starring John David Washington and Robert Pattinson is a closely guarded secret. So, too, is the opening date, which has already been pushed back several times. Now AT&T’s Warner Bros studio is indefinitely postponing the movie’s silver-screen debut as Covid-19 cases surge in the United States. It’s another blow to movie chains, like AMC Entertainment.

“Tenet” is not just any flick about a hero trying to prevent World War Three from the afterlife (if in fact, that is the premise). It’s a summer tentpole, Hollywood lingo that translates into high expectations for blockbuster box-office ticket sales. And the movie was supposed to be the barometer for the post-pandemic industry. Warner Bros’ decision will probably have a domino effect. Walt Disney’s highly anticipated “Mulan” is supposed to open Aug. 21. Another TBD is not out of the question. (By Jennifer Saba)

Triple bubble. The National Basketball Association has a few reasons to cheer. First, none of the 346 hoopsters tested for Covid-19 last week at its Florida campus – the so-called bubble – received positive results. That’s an improvement over the previous week’s already promising 0.6% positive rate. With less than a fortnight before Los Angeles Lakers’ star LeBron James and company tip off for the first time since March, this goose egg is a relief.

But the bubble itself is also a hit. In under two weeks, the Twitter account @NBABubbleLife, which posts video clips and screenshots from athletes’ social-media accounts, racked up more than 100,000 followers. Fans can watch superstars play practical jokes on their teammates, shotgun brewskis and somehow make fishing entertaining. This trend of relatively unmediated access started before players landed in Florida, but now it’s getting supercharged. It’s a safe bet it’ll continue transforming sports media long after the quarantine ends. (By Anna Szymanski)

Silicon Valley semi-downer. Technology executives are an optimistic lot. But four months into the pandemic and their confidence has taken a hit – albeit a mild one. Of the tech bosses and entrepreneurs polled in July by investment bank Stifel Financial, those reckoning the economy faces a U-shaped recovery rose to 60%, while those banking on a quicker V-shaped rebound fell to 14%.

But those were small shifts since the firm’s April survey. And more than two-thirds of respondents reckon they haven’t lost any customers. More than three-quarters don’t expect much of a hit, if any, to revenue this year. Meanwhile, 63% are limbering up for acquisitions. Some never stopped. The top-10 most active buyers since 2015 have kept the engine running: Microsoft, Visma, Accenture, Facebook and Apple, for example, have racked up 23 deals between them this year, Stifel says. Pessimism is not showing much sign of infecting the tech industry. (By Antony Currie)

Sun screened. Europe’s largest holiday operator has resorted to frantic measures to persuade people to go on package holidays this summer: free Covid-19 travel insurance. Germany-based TUI said it was rolling out the policies across Europe this week after striking a deal with insurer AXA to pay for any coronavirus-linked medical plus repatriation cost. Even if it takes a loss on the insurance, the $2.6 billion company hopes it will reassure anxious customers and steal market share from rivals.

It’s a smart strategy: a recent survey by the International Air Transport Association suggested that fewer than half of those surveyed planned to hop on a flight anytime soon, hurting Mediterranean destinations like Magaluf and Mykonos, which typically make up half of the German group’s sales. Given a heavy 4.3 billion euro debt burden, equivalent to more than 4 times 2021 forecast EBITDA according to Refinitiv data, TUI needs sun-seekers to rediscover their wanderlust soon. (By Christopher Thompson)

Rent rut. Covent Garden’s rent rejig shows UK landlords’ waning clout. Capital & Counties Properties, or Capco, which owns the trendy shopping hub in London, is giving tenants rent holidays, and allowing some bars, restaurants and shops to temporarily tie monthly payments to revenue.

The idea of linking rent to revenue is a big change from lengthy leases that increase in line with inflation. The emergence of online shopping forced some to accept lower rents. Now, Covid-19 is hitting business in upmarket locations like London’s West End. Capco only collected 27% of the rent it was owed in the third quarter.

Linking rent to turnover leaves landlords with a more volatile income. It also incentivises tenants to sell more goods online, as internet sales are typically exempt from the turnover definitions used to determine rent. While punters eschew shops and restaurants, a shaky income stream may be the best landlords can hope for. (By Aimee Donnellan)

Stitch fix stat. It’s a bad moment to be a luxury goods firm, and a worse moment to be one without a leader. Tapestry Chairman and CEO Jide Zeitlin is leaving the $4 billion retailer for personal reasons, the company said on Tuesday, to be replaced for now by Chief Financial Officer Joanne Crevoiserat. Zeitlin signed up for a three-year commitment when he was appointed chief executive, less than a year ago.

The owner of Coach, Kate Spade and Stuart Weitzman already occupied a no man’s land in retail: the upwardly aspiring middle ground. Under Zeitlin’s watch since September, Tapestry’s total shareholder return declined 35% while luxury conglomerate LVMH’s return was up 18%.

Worse, Tapestry is a mainstay in malls across America, which are getting clobbered by lockdown restrictions and public apprehension of crowds. A change at the top can usher in a new look, but now isn’t the time. (By Jennifer Saba)

Bargain bars. Cognac lost out to chocolate during lockdown. Remy Cointreau on Tuesday reported sales of 150 million euros in the quarter to the end of June, a year-on-year decline of 33%. However, the $8 billion spirits maker’s performance was better than expected by analysts, who had pencilled in a 43% drop. Contrast that with Lindt & Spruengli. The $20 billion Swiss chocolate maker said it expects organic sales to fall just 5%-7% this year.

Remy and Lindt’s share price performances don’t reflect the relative resilience of what they sell, though. The distiller’s share price is 27% higher this year, while the chocolatier’s stock is trading below its pre-pandemic levels. Remy’s exposure to China, which is expected to recover faster, explains much of the difference. Still, with punters only slowly returning to bars and duty-free outlets, sales of spirits will languish behind chocolate for some time. (By Dasha Afanasieva)

Last resort lenders. Careworn European bank shareholders need to adjust their expectations downwards – again. Lenders face a hit of at least 400 billion euros in credit losses over the next two years which, combined with falling revenue, will squeeze already mediocre profitability, according to a report by Oliver Wyman. If a second lockdown occurs then bad debts could rise to 830 billion euros, or one-tenth of outstanding loans.

Regulators can take some comfort. In a less severe scenario nearly three-quarters of banks would maintain common equity Tier 1 capital ratios above a healthy 12% threshold. Shareholders will suffer more. Europe’s largest lenders trade at an average of 0.7 times projected 2020 tangible book value, according to Refinitiv data, implying they need to earn a 7% return on tangible equity. But the consultants reckon average returns will only touch 5% by 2022. Investors should brace for another pummelling. (By Christopher Thompson)

Just say yes. The United States and India are haggling over a package that would open India’s market to U.S. dairy, almonds and apples, in exchange for preferential treatment for Indian generic drugs, sources told Reuters. It’s a good time for Prime Minister Narendra Modi to approach President Donald Trump, whose trade pact with China looks unstable, so he’s in the hunt for another win. The president has also been taking anti-malarial quinine to fend off Covid-19, and India is a big manufacturer – although it relies on China for raw materials.

New Delhi could use a warmer relationship with the White House, which withdrew from trade negotiations last year complaining about lack of reciprocity. A surprise digital tax on foreign transactions was resented by Alphabet-owned Google and Amazon.com. Now, with Chinese troops menacing at the border, India is hardening its stance towards Beijing in the economic field. A mild rebalancing towards Washington seems likely. (By Pete Sweeney)


Email a friend

Please complete the form below.

Required fields *


(Separate multiple email addresses with commas)