Covid-19 Business Update

May 14, 2020: Luxembourg private equity sector confident it will rebound, and other business-critical European and worldwide news

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Covid-19 Business Update
14th May 2020

Luxembourg City to extend retail rent suspension until June

The City of Luxembourg has extended its suspension of rent on retail properties it owns until June 1 to protect owners of shops, cafés and restaurants during the coronavirus pandemic, according to first alderman Serge Wilmes. The provision could be extended for cafés and restaurants, which have not yet been given a date for reopening. The suspension of rent will cost the city an additional €80,000 this month, bringing the total amount of rent foregone to €240,000.

Best source: Delano
See also: Wort
(in French)

Luxembourg private equity sector looks to rebound as Covid-19 fears subside

Jean-Nicolas Braun, head of independent asset managers and asset structuring at EFG Bank Luxembourg, says the country’s private equity sector is confident of a rebound in dealmaking worldwide once Covid-19 lockdowns ease, involving both private equity firms and listed companies. Private equity funds worldwide are estimated to have as much as €2.5trn in ‘dry powder’ capital ready to be invested. Gorka Gonzalez, head of private equity at Quintet Private Bank, also believes that transaction activity will pick up once concern over Covid-19 subsides, pointing to a number of distressed sectors that represent ideal investment opportunities for the sector.

Best source: Luxembourg Times
(subscription required)

European Central Bank sets new weekly record with €45bn in bond purchases

The European Central Bank’s asset purchase programme set a new record last week with the purchase of around €45bn of assets, including €34bn of bonds and other debt instruments acquired as part of the ECB’s €750bn Pandemic Emergency Purchase Programme. During April the ECB acquired instruments totalling €103.4bn, with the proportion of Italian state bonds substantially  higher than their previous quota limit, and German bonds significantly below.

Best source: Frankfurter Allgemeine Zeitung
(subscription required, in German)

ESMA points to risks in rating of collateralised loan obligations

The European Securities and Markets Authority says the main supervisory concerns and medium-term risks in relation to the credit rating of collateralised loan obligations in the EU include the internal organisation of credit rating agencies, their interaction with CLO issuers, operational risks, commercial influence on the rating process and the need for proper analysis of CLOs. ESMA says it expects rating agencies to continue to perform regular stress-testing simulations and to provide market participants with granular information on the sensitivity of CLO credit ratings to economic variables affected by the Covid-19 pandemic, noting that the current economic environment poses significant risks for CLO instruments.

Best source: European Securities and Markets Association
See also: Global Custody

BaFin adds two banks to ‘intensive care’ list over Covid-19

BaFin has added two unnamed banks to its intensive care list, indicating that the institutions are having problems and require closer oversight. The regulator has also received information that foreign banks are retreating from the German market due to the coronavirus pandemic, while domestic institutions have begun reporting losses and increased provisions against non-performing loans.

Best source: Reuters

Spanish government prepares to add unit-linked assets to wealth tax scope

Spain’s budget ministry is preparing a wide-ranging tax reform that is expected to eliminate the exemption of unit-linked contracts with an irrevocable beneficiary from the country’s wealth tax. The Socialist Party had unveiled the proposal in 2018, before needing two further elections to secure a ruling coalition, and is now set to bring it forward due to increased funding needs as a result of the coronavirus outbreak. While the wealth tax is effectively not paid in several regions, including Madrid, advisers to ultra-wealthy clients expect a minimum rate for the levy to be imposed nationally over the coming months to ensure it is collected everywhere. Unit-linked assets in Spain reached €14.3bn at the end of last year, but the proportion of contracts that name an irrevocable beneficiary is unknown.

Best source: El Confidencial
(in Spanish)

US Fed starts buying corporate debt starting with exchange-traded funds

The US Federal Reserve has launched its corporate bond purchasing programme, starting with exchange-traded funds that invest in corporate debt. The Federal Reserve announced on March 23 it would begin buying corporate debt in the secondary market and directly from issuers.

Best source: Les Echos
(subscription required, in French)
See also: Financial Times
(subscription required)

North Korean hackers reported to be increasing crypto-currency manipulation

A surge in activity by North Korean hackers manipulating crypto-currency platforms has prompted South Korea’s ESTsecurity to alert investors to dealings by the so-called Lazarus group, which is believed to have been behind hacking attacks on Sony Pictures in 2014 and the central bank of Bangladesh two years later. A US government advisory last month also noted increased activity by North Korean groups as the country seeks to build up financial resources through the crypto-currency markets using extortion, blackmail and money laundering. The US is offering a reward of up to $5m for information about North Korean cyber-crime.

Best source: Les Echos
(subscription required, in French)
See also: Treasury Department

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