From the Securities Lending Trading Desk

Modified Dutch auctions are creating opportunities for lenders in the US.  In Asia, borrowers are seeking shares of Takata as the airbag manufacturer faces another round of recalls.  German engineering group, Bilfinger is seeking strong interest from borrowers. 

Below please the June 23 edition of From the Trading Desk, which provides timely commentary about top security earners, revenue drivers and other factors influencing the securities lending market from the BBH Securities Lending Trading Team.

Americas
Demand has been strong for Fitbit amid an IPO rally and skepticism on valuations.  At its opening price, Fitbit was valued at about $6.15 billion, or about 8.2 times the company’s 2014 sales.  The share price has surged as much as 50% in the first few days of trading.  This has some skeptics questioning if the valuation is warranted and sustainable.  As supply settles into the market, we expect strong demand from market makers and shorts alike.

Modified Dutch auctions are creating opportunities for lenders.  In a corporate repurchase scenario, a range of prices is set by the offering company within which shareholders are invited to tender their shares.  The tender offer is open for a specific period of time and the amount of stock to be purchased is stated as well (subject to proration).  Lending opportunities arise when there is a difference between the tender price and the market price.  We are seeing demand for Universal Truckload Services and the Wendy’s Company.

Asia Pacific
Speculation continues to mount around the Shenzhen-Hong Kong Stock Connect scheme and whether it will launch in 2015.  According to media reports, the Shenzhen-Hong Kong Stock Connect is on track to start in the second half of 2015.  Following the launch of the Shanghai-Hong Kong Stock Connect in November 2014, the Hong Kong market has witnessed significant volatility in a number of securities as a result of increased mainland investor participation.  We have seen a significant increase in lending demand for these securities and expect a broader increase in lending demand following the implementation of the Shenzhen-Hong Kong Stock Connect scheme.

Borrowers are seeking shares of airbag manufacturer, Takata Corporation after major car manufacturers expanded the recall of cars in the United States.  The airbag problem, which first came to light in 2014, has resulted in several fatalities globally and prompted the recall of an estimated 34 million cars.  We continue to witness strong securities lending demand for Takata, which has seen its share price decline by more than 40% since October 2014.

Europe
As Greece and its creditors continue negotiations, Greek-driven securities lending demand remains muted.  German, Italian, and Spanish debt, as well as European equities, advanced last week as investors speculated a default scenario wouldn’t trigger contagion.  Securities lending demand for Greek equities and Euro-area stocks with Greek exposure has been quiet.  Market sentiment is that European banks are better prepared to deal with the current solvency issues than the sovereign shock of 2011-2012.

Securities lending demand has been strong for German engineering group, Bilfinger, after the firm announced plans to sell its power business.  The power division, which is valued at approximately $1.9 billion, builds and maintains electricity plants.  A recent financial review revealed substantial losses at the power unit.  Bilfinger will instead focus on industrial and facilities management.