From the Securities Lending Trading Desk

In America, levels for Fitbit have cooled following the IPO lock-up release of 14 million shares and in Europe mining stocks are in high demand as nickel prices collapse. Elsewhere, Japanese camera manufacturer Nikon has been one of the most borrowed Asian stocks in 2015 due to a stagnation in the company’s revenues.

Below please find the November 24 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

Levels for Fitbit have cooled following the IPO lock-up release of 14 million shares.  Last week we saw fee levels decline after roughly 24% of Fitbit’s float was sold by directors, executive officers and other shareholders. On November 13th, Fitbit’s daily trading volume spiked to 30 million shares, which was up significantly from the 5-month average daily trading volume of 7.5 million. The additional liquidity in the market resulted in both lower fee levels and a lower share price, down 34% so far in November.  The lock-up on the remaining restricted IPO shares is due to expire on December 15.  We expect that fee levels will continue to ease.

Universal Insurance fell 38% amid news the company is a short focus, however the company is fighting back and repurchasing stock.  Lakewood Capital’s Anthony Bozza recently spoke at a conference and laid out many reasons why he believes Universal is over-valued, among them: a Category 4 storm would destroy the company and the company writes property insurance in a dangerous location of Florida.  He added that Universal has been “lucky” there have been no major hurricanes in Florida in the past 10 years.  This allowed the company to minimize losses and present low reinsurance pricing, which in turn caused explosive growth in Universal’s reported earnings.  Universal has disputed many of these claims, however the share price continues to plummet, driving bearish demand even higher.  The company also recently announced plans to buy back $10 million of its shares.

Asia Pacific

The initial euphoria surrounding the privatization of one of Japan’s oldest government institutions has now begun to show signs of abating.  The IPO of Japan Post into three separate companies raised approximately $11.9 billion, ranking it as the largest IPO in the world this year.  Although it was geared largely towards domestic retail investors as part of the government’s goal to encourage households to invest more of their savings in the domestic equities, market institutional investors are now querying the current valuation of each company, which have surged since commencing trading.  In the past week we have witnessed particularly strong securities lending demand for Japan Post Insurance with some interest also seen for Japan Post Bank and Japan Post Holdings as well.

Japanese camera manufacturer Nikon has been one of the most borrowed Asian stocks in 2015 due to a stagnation in the company’s revenues.  Demand to borrow Nikon shares has doubled this year due to digital camera sales missing analyst expectations. Investors are questioning the future profitability of the digital camera market as smartphone technology improves, making cameras obsolete. We have seen strong securities lending demand for Nikon.

Europe

Mining stocks are in high demand as nickel prices collapse.  Decreased Chinese demand, excess supply and high capital expenses in the nickel market have put pressure on miners as analysts forecast that companies may close mines in 2016.  France’s Eramet, the UK’s Glencore and Lonmin, and Sweden’s Lundin Mining are among the world’s largest nickel producers and have become harder to borrow in the medium to high fee range.

French railroad transportation provider Alstom is garnering interest heading into a share buyback program.  Alstom proposed a plan to purchase 29.2% of share capital (€3.2 billion) at €35 per share, a significant premium over the spot price which has traded between €28.90 and €29.70 over the past week.  Borrowers are willing to pay a premium for guaranteed untendered shares  — roughly €1.50 – €2.20 depending on spot price. The deal is expected to be ratified at the extraordinary general meeting on December 18th and will run from December 23rd until January 20th.  Repurchased shares will settle and be canceled by the company on January 28th.