From the Securities Lending Trading Desk


We continue to see securities lending demand for casino operators in Asia this week, with Japan deciding to press ahead with legalizing casino gambling, and Crown Resorts Ltd abandoning a proposed spin-off of international assets in China. In the US, it will be critical for Duluth Holdings to do well during the holidays if they hope to reverse their recent share price decline. Whilst in Europe, Italian lender UniCredit announced a much anticipated rights issue and Amundi agreed to buy UniCredit’s Pioneer Investment arm.

Below please find the December 20 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.

Last week, President-elect Trump met with top executives from Amazon, Tesla, Apple, Facebook, Alphabet (Google’s parent company), and Microsoft, among others in what is being referred to as the Trump Tech Summit. There is concern in the market that this administration will be far more agenda-focused than those of the past, which could mean ETFs and other instruments that are heavily focused on technology could underperform, while those focused on manufacturing and infrastructure could rally. Directional demand has spiked for instruments tracking the Nasdaq 100 Index, as well as individual stocks in the index such as Sirius XM Holdings.

There has been strong demand for Duluth Holdings since early November as the share price climbed to a 52-week high of $37.64 on 11/28. However, the stock has been on the decline after releasing a disappointing third-quarter financial report. The company designs and retails apparel products and has fallen nearly 30% since reporting profit of $500,000, which was slightly better than expectations but not enough to warrant the rally. It will be critical for Duluth Holdings to do well during the holidays if the company hopes to reverse the recent share price decline.

Asia Pacific
Japan’s decision to press ahead with legalizing casino gambling in the country could negatively impact casino operators in the region. Law-makers in Japan’s upper house approved legislation last week, despite over half of the Japanese public opposing the idea, as the country seeks alternative sources of revenue to boost the flagging economy. Some analysts expect this will intensify competition amongst casino operators in the region, particularly in South Korea, who in recent times have significantly benefitted by virtue of increased gambling tourists from mainland China. We continue to witness long-term securities lending demand for two of South Korea’s largest casino operators, Grand Korea Leisure and Paradise Co. Ltd., on concerns that a combination of the latest measures and recent rising political tensions between China and South Korea may dent future earnings.

Casino billionaire James Packer scrapped plans for a gambling empire spanning the world’s largest gaming markets after a clampdown by authorities in China and unpredictable returns in Macau. Crown Resorts Ltd announced that it will abandon a proposed spin-off of international assets and instead halve its stake in Macau casino operator Melco Crown Entertainment Ltd. The stake is worth approximately $1.2 billion. In October, Chinese authorities arrested 18 members of Crown staff for alleged gambling crimes which is expected to impact the company’s ability to draw high rollers. We have seen an additional lending demand for Crown Resorts Ltd.

Italian lender UniCredit announced a much anticipated rights issue of EUR 13b to strengthen its capital position. The extraordinary general meeting is set for January 12th and rights trading period should take place mid-late January. Mid to wide arbitrage spreads are forecasted due to insufficient borrow liquidity to hedge the new share issuance.

Amundi agrees to buy UniCredit’s Pioneer Investments arm for $3.7b, rights issue on horizon. Amundi will become the eighth largest global asset manager following its acquisition of Pioneer. In order to finance the transaction, Amundi will raise EUR 1.4b via a rights issuance. Credit Agricole owns 75% of Amundi and plans to underwrite the offer. However, Agricole has only pledged to keep a stake of at least 66.7%, raising prospects the rights issue may be under subscribed and could lead to a high oversubscription proration.