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Corona Capital

21 December 2020 By Breakingviews columnists

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


– Vaccination decisions

Making the cut. An advisory committee for the U.S. Centers for Disease Control and Prevention has made the tough call on recommendations for those who will receive the next round of Covid-19 vaccines. At a meeting Sunday, the panel decided that 30 million frontline essential workers like first responders, teachers and grocery store workers, should be in the next tranche, along with people at least 75 years old.

A shortage of vaccines means officials have to prioritize who gets the inoculations. If states follow the committee guidelines, 20 million essential workers not considered on the front lines, like bank tellers and drivers for rideshare apps, will have to wait a bit longer. That’s despite companies like Uber Technologies and Amazon.com lobbying to help get their employees moved up in the queue. The debate over who should get the vaccine first is set to become more heated. (By Gina Chon)

Tipping point. Gucci has finally kowtowed to Alibaba. The Kering-owned maker of $700-plus sneakers has agreed to open two virtual stores on TMall Luxury Pavilion, the Chinese e-commerce giant’s high-end marketplace. The move marks a change of heart for Kering, which in 2015 sued Alibaba over the sale of counterfeit goods. But it’s also an acknowledgement that the pandemic-induced repatriation of spending by Chinese consumers cannot be ignored.

Covid-19 lockdowns helped propel the share of posh bags and clothes sold online in China to 23% of total sales in 2020 from 13% in 2019, according to Bain & Company data. While other markets suffered from the pandemic, Chinese luxury sales are expected to grow by around 50% in 2020 to 346 billion renminbi ($53 billion), thanks to the Middle Kingdom’s speedy recovery. Mega-brands like Gucci and Louis Vuitton had initially snubbed Alibaba. Now that it has Gucci’s blessing, the Chinese behemoth will find it easier to lure other high-end names. (By Lisa Jucca)

Unexpected gifts. Britain’s new dividend rules have given Metro Bank a helping hand. Although the Bank of England is allowing lenders to resume payouts next year, its tight restrictions have still left big banks like NatWest awash with capital. That may be one reason why the latter’s Chief Executive Alison Rose was willing to pay a 2.7% premium, or 83 million pounds, to buy a 3.1 billion pound book of mortgages from Metro.

The sale got Metro out of a bind. Without it, the 230 million pound so-called challenger bank would have had to issue expensive loss-absorbing debt to meet new solvency rules. It doesn’t help that it has to hold far more capital against mortgages than bigger banks which, like NatWest, can use their own models to determine assets’ risk weights, rather than rely on those imposed by the regulator. With smaller banks facing similar penalties and their larger rivals hungry to deploy spare capital, more portfolio switcheroos look likely. (By Aimee Donnellan)

Zoom out. The world may never go back to pre-pandemic business as usual, but with a vaccine on the horizon, unresolved issues are coming back into focus. For Zoom Video Communications, whose stock octupled this year before news of an inoculation reduced its share price by a quarter, its China conundrum is generating fresh headlines. U.S. prosecutors on Friday charged a former executive with disrupting meetings commemorating the anniversary of the Tiananmen Square crackdown, when the Chinese military violently quashed demonstrations at Beijing’s request.

Technology giants from Facebook to Alphabet-owned Google have had their run-ins with the censors. Zoom, headquartered in California, is vulnerable because it has engineers in China: the company’s 2019 initial public offering prospectus showed almost a third of employees working there. It is opening a new research centre in Singapore, but that’s not the same as divesting from China. There’s no vaccine for toxic U.S.-China politics. (By Katrina Hamlin)

Silent write. Ben van Beurden has two final gifts for shareholders this year. The Royal Dutch Shell chief executive’s good news is a $2.5 billion sale of Australian liquefied natural gas facilities, helping him meet divestment targets; his bad news is another write-down. As with the $18 billion hit that the $145 billion oil major took earlier in 2020 when oil prices cratered, this $3.5 billion to $4.5 billion one reflects a weaker outlook.

Monday’s 4% drop in Shell shares, however, looks more about a similar drop in oil prices amid fears that a new strain of Covid-19 will further hammer demand. That would be a particular blow for oil groups like Shell that are yet to lay out specific targets for a switch to solar and wind power. Higher crude prices in the short term would offset a more leisurely renewables approach. With shares off 45% price this year – more than any other oil major except BP – Shell could have done without the final kick. (By George Hay)


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