Covid-19 Business Update

April 6, 2020: BIL: lockdown could trigger teleworking transformation, and other business-critical European and worldwide news

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Covid-19 Business Update
6th April 2020

Pandemic response could shake up workplace mobility, says BIL officer

Olivier Waltzing, an IT outsourcing and cloud officer at Banque Internationale à Luxembourg, says that the coronavirus lockdown has significant implications for workplace mobility and could represent a paradigm shift in working patterns. Waltzing, who is beginning his third week of teleworking from his home at Arlon in Belgium, says working can be more efficient in many ways, although it is less easy to communicate with managers and colleagues. He says the bank’s shift to widespread teleworking has only been made possible by the CSSF’s relaxation of restrictions on cross-border access to institutions’ core banking systems.

Best source: Paperjam
(in French)
SNCI to provide €400m in loans to businesses facing liquidity problems

Luxembourg’s National Credit and Investment Corporation is to provide up to a total of €400m in loans to businesses struggling with liquidity difficulties resulting from the coronavirus epidemic. Companies must apply to their commercial banks for approval of loans ranging from 12,500 to €10m, with the SNCI contributing up to 60% of the total amount, which will not have to be repaid for two years. The institution has already announced a moratorium on repayment of existing loans due in March and June. In 2018, it granted loans totalling €56m, meaning that the new lending facility is eight times larger than normal, according to assistant director Marco Goeler.

Best source: Luxembourg Times
(subscription required)
Coronavirus to prompt increase in asset management consolidation: State Street

State Street’s country head for Luxembourg, Eduardo Gramuglia Pallavicino, expects that the coronavirus crisis will put greater pressure on asset managers’ ability to generate fee income, and this will result in increased consolidation of the asset management industry as well as greater use of outsourcing. Gramuglia also praises the CSSF for its swift action in response to the Covid-19 pandemic in streamlining procedures and authorising use of cloud services, private computers and other aspects of remote working. He says plans at State Street Luxembourg to make 101 employees redundant over the next two years may be put on hold.

Best source: Luxembourg Times
(subscription required)
Services activity collapses in UK, Italy and France: IHS Markit

Services business activity is collapsing all over Europe, with the IHS Markit purchasing managers’ index for services, which account for 80% of the UK economy, falling from 53.2 in February to 34.5 last month, the lowest measure since records began in 1996. In Italy, the IHS Markit Business Activity Index for services slumped from 52.1 in February to 17.4 in March, a record low, while in France the purchasing managers index for services fell from 52.5 to to 27.4.

Best source: Financial Times
(subscription required)
See also: Reuters
See also: Reuters
See also: Reuters
Economic slump seen accelerating consolidation within Swiss wealth management sector

The economic slump precipitated by the coronavirus pandemic is set to accelerate consolidation within the Swiss wealth management industry and prompt a wave of acquisitions, according to Boston Consulting Group strategy consultant Anna Zakrzewski and Millenium Associates founder Ray Soudah. Zakrzewski says wealth managers are in worse shape than before the the global financial crisis in 2008, averaging barely half the pre-tax profit. They face substantial losses over the coming quarters, mainly due to a sharp drop in fees from assets under management, lower interest rates and less credit-financed purchases of securities. This will pose an existential threat for many smaller firms, as 43% of those with less than CHF10bn in client assets were already unprofitable in 2018. Soudah says M&A deals could start to materialise within six to 12 months, with valuations depressed due to the presence of more sellers than buyers in the market.

Best source: Reuters
(in German)
European Central Bank starts purchases of corporate commercial paper

The European Central Bank has made its first purchases of corporate commercial paper as part of its response to the economic disruption caused by Covid-19. Under its expanded asset purchasing programme, the ECB bought €1.5bn of non-financial commercial paper on its first day in the market. Vice-president Luis de Guindos and board member Isabel Schnabel say the ECB’s entry into the market is already encouraging new issuance.

Best source: Frankfurter Allgemeine Zeitung
(subscription required, in German)
See also: Reuters
See also: ECB
US banks set to maintain dividends as European authorities push institutions to retain capital

US banks are likely to maintain dividend payments although European regulators and political authorities are pressuring institutions to suspend pay-outs in order to conserve capital for lending. Leading US banks, which are counting on approval from the Federal Reserve when they submit capital plans this week, argue that suspending dividends would destabilise investors and undermine confidence in the sector. They say the point of capital requirements set up after the global financial crisis was to ensure that dividends did not collapse in the event of a fresh crisis arising.

Best source: Financial Times
(subscription required)
See also: Wall Street Journal
(subscription required)
US regulators suggest that non-disclosure of weakness could forestall bank runs

Two US regulatory officials have suggested it is better to not release bank data that could provoke panic among customers during a crisis. Haelim Anderson of the Federal Deposit Insurance Corporation and Adam Copeland of the Federal Reserve Bank of New York say that too much information could prompt runs on banks that have weaknesses but are still solvent. Their argument runs counter to the widespread assumption in the wake of the global financial crisis that banks would tend to avoid excessive risk if they feared it would become public as a result of enhanced transparency.

Best source: Wall Street Journal
(subscription required)
Junk bond funds attract record inflows as risk premium soars

Investors are regaining an appetite for high-yield corporate bond issues, with $7bn in inflows last week into mutual and exchange-traded funds that invest in junk bonds after five weeks of outflows, a new high for a single week. A record $5.9bn flowed into funds investing in US high-yield bonds, according to investment data provider EPFR Global. The coronavirus pandemic has pushed up the risk premium traditionally associated with high-yield offerings from recent lows to levels last seen around September 2011.

Best source: Financial Times
(subscription required)
See also: Neue Zürcher Zeitung
(subscription required, in German)
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I Dare to Hope That the World After Covid-19 Will No Longer Be As It Was

Raymond Schadeck
Raymond Schadeck, Member, VitalBriefing International Advisory Board

An optimist by nature, I always have a tendency to try and imagine the manifold new opportunities that any situation, even a crisis of this magnitude, might reveal. This one is no exception. I am deeply convinced that the current health, economic, and financial crises offer plenty of such opportunities – it will be up to us to seize them once the crisis comes to an end. And I dare to believe that on an individual and collective basis we will seize at least some of them.

The partial or total confinement we currently experience helps us rediscover the innate and vital necessity of human contact; a basic need that, with all the technological evolution of the last decades, we might have neglected or even forgotten. 

The present situation further reanimates the importance of our most essential values which we are easily inclined to neglect or even forget altogether, such as:

  • The importance of our families: our yearning to love and be loved,
  • The undeniable effect of health on our personal welfare and happiness,
  • The value of solidarity over individualism and selfishness.

We are also awakening to the real value of some of our most basic needs, such as access to food, clean water, and medication; vital life supports we easily take for granted without reflecting on where they come from, how and where they are produced, what resources are required to produce them. At the same time, we realize that, as suggested by the famous Maslow pyramid, we might just be able to live and even enjoy life without an endless stream of many non-essential or luxury products. We’re returning, at least for the time being, to a simpler and less materialistic world.

As Bill Gates recently noted, we further realize that this health crisis affects all of us equally. It does not discriminate between culture, race, religion, gender, occupation, wealth, or popularity. As such it underlines the true connectedness of our planet: the virus does not stop at our made-up borders, nor does it need a passport to spread.

We are indeed in the midst of re-shaping our society: the crisis is teaching us to not take things for granted, it is re-orienting our relationships to each other and the outside world, it is helping us realize that it is only through joint efforts and concerted action that we can persist, that we can get through this.

And thus, in light of all this, I dare to hope that the biggest gains from this crisis will be:

The huge revival of solidarity, cooperation and discipline

Let’s be honest, many of us believed these values lost, and we’re so delighted to realize that maybe all this goodness was merely dormant inside all of us, waiting to be activated by the disruptive situation we are currently facing. However, let’s not forget that, as Yuval Noah Harari (author of Sapiens Homo Deus) recently observed, such solidarity requires trust; trust in science, trust in public authorities, trust in the media, and trust in each other.

Much like Harari, I am deeply convinced that the magnitude of the current disruption will contribute to an increased willingness to listen more closely to and appreciate the words, advice, and opinions of our scientists. It will help us to better distinguish between reckless policymakers who tend to ignore, or worse, publicly contradict science and hide crucial information from their citizens, and those who in total transparency and in partnership with leading scientists come up with well-structured and highly efficient protection and defense action plans. It will also allow us to pick out those media companies whose business plan is built entirely around instilling fear in their audience, from those who truly live up to their responsibility of covering the news as impartially as possible and who deliver factual information on bad, as well as good news. 

A much-needed revalorization of underappreciated labor

I am indeed pretty confident that the present turmoil allows us to truly grasp the real value of jobs like those of our health workers, but also our firemen, truckers, storekeepers, cashiers, delivery people and so many more. But I also hope that, in the future, we will seriously reconsider the actual added value, or lack thereof, of many other jobs, many of which suffer from a severe disconnect between their remuneration and the actual value they bring to communities. Just as the discussions on impact investing and sustainability are centered around measuring real impact, it might be worth re-assessing the actual impact of diverse jobs on our society and adjust their respective remuneration accordingly.

Nature and the fight against climate change

In the present quarantine situation, an increasing number of people are taking daily walks outside – on their own or as a family – getting the chance to reconnect with nature. Having the possibility to slow down and enjoy the outdoors, our appreciation for the world around us is revived and we are rediscovering the positive impact that nature has on our well-being. 

Furthermore, we are all currently witnessing how quickly nature can rebound if we humans give it the chance and time to breathe. A quick look at the comparative pollution maps of China and India allows all of us to assess the extraordinary speed at which nature can bounce back. Thus, I dare to hope that this will help our policy makers adequately assess not only the urgency of their actions, but also the rapid and unmistakable benefits their decisions might have on climate change. I doubt it’s a coincidence that the impact of the present health crisis is most severe in countries like the US or Brazil, where policymakers tend to ignore the alarm calls of climate scientists.

COVID-19, as we know, attacks our lungs, or more precisely the pulmonary alveoli, the exact point where the exchange between air and blood takes place. And we deeply appreciate that in just a few weeks political, economic and financial decisionmakers have, with our full support, developed and launched very concrete action plans and the required financing to fight this virus. And so, one last time, I dare to hope that these same leaders, with the full support of us citizens, will dedicate the same energy and power toward the development and deployment of a similar action plan to cure and save the lungs of our planet: our forests and trees, who have exactly the same  function for our planet as our lungs have for us – both being perfectly complementary to each other.

5 Ways to Keep Everyone’s Morale High While Working from Home

It’s a challenge to be upbeat in these stressful and uncertain times. 

As businesses around the world scramble to implement emergency remote-working plans for staff, keeping company morale high is still more critical.

While preventing virus transmission is priority #1, making sure your people are feeling positive, energised and reassured comes close behind.

The point to convey: We must work still smarter than ever before.

Learn the five things you should do to keep employee morale high while working from home, in this recent article we wrote for our client,