From the Securities Lending Trading Desk

European offshore deep water drilling companies continue to experience both challenges and securities lending demand.  The energy sector is also driving demand in the US, where securities lending fee levels for stocks in the oil and gas sector spiked last week as crude rallied.  In Asia, the Japanese Consumer Electronics sector continues to restructure due to declining profits and an increase in global competition.

Americas

Securities lending fee levels for stocks in the oil and gas sector spiked last week as crude rallied.  Crude oil prices have been trending higher, with West Texas Intermediate Oil (WTI) for October delivery climbing to $47.37 a barrel intraday on September 3.  This is up more than 25% since touching $37.75 – its lowest level since February 2009 – on August 24.  Despite the recent rally, some analysts suggest WTI could fall again in the not too distant future.  Citigroup has suggested that WTI crude oil prices could hit $32 per barrel.  Many names in the sector have rallied with the WTI and investors are feeling bearish towards these stocks.  As a result, we are seeing fee levels trend higher for Chesapeake Energy Corporation, Comstock Resources and Laredo Petroleum.

Dutch auctions, spin-offs, and stock buy-backs, oh my!  This week we have seen an uptick in demand for deal-related names.  Earlier this week, the Dow Chemical Company announced details of their spin-off of Olin Corporation, driving immediate interest for both companies.  Olin has been in demand since early July and now we are seeing increased demand for stock elections in the deal.  Separately, the Dutch auction of Motorola Solutions will be completed this week.  Shares were placed with brokers amid mild securities lending demand.  Finally, borrowers are showing some initial interest in The St. Joe Company ahead of a stock buy-back expected to be completed at the end of September.  The spread between the tender price and the current stock price has compressed, resulting in limited demand.

Asia Pacific

Demand to borrow Singapore-based Noble Group remains elevated, despite a share price gain in August.  The commodities trader has lost more than half of its value in Singapore trading since mid-February when a group calling itself Iceberg Research published its first report criticizing the company’s accounting practices.  Lending demand for Noble Group has continued to climb, despite the share price increase.

The Japanese Consumer Electronics sector continues to restructure due to declining profits and an increase in global competition.  Sharp, which is forecasting its fourth loss in five fiscal years, announced a recovery plan in May which included cutting its workforce by 10%, as well as selling its headquarters and preferred shares to banks. We have seen strong lending demand across the sector with a focus on Sharp.

Europe

Rights issues are back in focus.  Impala Platinum Holdings announced plans to raise $300 million after the firm’s full-year profit was cut by 58% due to a slump in metal prices.  Impala shares are trading in the securities lending market at general collateral to “warm” levels during the accelerated bookbuild, and we may see more demand firm up ahead of the company’s annual meeting in October.  Elsewhere, Abengoa’s €650m capital increase with Bank of America Merrill Lynch, Citigroup and Société Générale is under threat after concerns were raised about the financial state of the company.  The trading desk expects Abengoa’s fee levels will increase during the rights trading period due to limited liquidity in the securities lending market.

Offshore deep water drilling companies continue to experience both challenges and securities lending demand.  Seadrill’s CEO expects to see smaller offshore companies ‘disappearing in the market’ but said Seadrill is not currently looking to make acquisitions because it needs to put its ‘house in order.’ The challenging market will continue into 2016 and Seadrill plans to increase savings.  Seadrill levels are coming off slightly, but we can expect the levels to trade within the medium- to hard-to-borrow fee range.  Seadrill’s peers, Transocean and Saipem, have traded in a similar range over the past quarter.