From the Securities Lending Trading Desk

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Demand is strong for Sprint as investors question the wireless communications company’s turnaround plans. Borrowers have also been seeking shares of Sharp Corp after the firm reported a 24.7 billion yen ($209 million) loss as it continues to decide between two competing bailout offers. Meanwhile, shorts circle Anglo American shares; the rebound in metals prices and M&A speculation have helped the company rally 60% over the past two weeks.

Below please find the February 9 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 is strong for Sprint as investors question the wireless communications company’s turnaround plans. The major concern is the company’s unconventional network upgrade strategy. In addition, there are worries with regard to the viability and the credit quality of the fourth-largest wireless carrier. On January 20 the stock price fell to a multi-year low of $2.45. Fee levels are trending higher as bearish sentiment increases.

A miss on analyst fourth-quarter earnings estimates has pushed GoPro Inc. to its lowest price ever. The company — which went public in June 2014 — has lost as much as 89% from its high of $93.85 on October 7, 2014, closing at $9.88 on February 4. Competition has been a long term focus of concern for analysts as well as the devices’ ability to connect to the cloud and smartphones. Despite new products, including the new drone, Karma, the Hero5 camera and a new editing software package, GoPro also missed analyst expectations on the future revenue forecast. Demand for GoPro is expected to remain strong in the face substantial headwinds.

Asia Pacific

Recent government reforms to liberalize the South Korean duty-free retail sector, including the award of additional licenses to new entrants, has resulted in lower earnings for key operators in the sector. The changes have had the biggest impact on Hotel Shilla, the only listed duty-free operator and the nation’s second largest, as intensifying competition has cut into profit margins. We have witnessed strong long-term securities lending demand for shares in Hotel Shilla, which recently announced disappointing 4th quarter 2015 results that missed estimates by approximately 24 billion won ($20 million).

Sharp Corp reported a 24.7 billion yen ($209 million) loss as it continues to decide between two competing bailout offers. The board at Sharp Corp is currently considering rival bids from state-backed Innovation Network Corp of Japan and Taiwan’s Foxconn Technology Group with the company planning to select a partner in approximately a month. Media reports that Sharp plans to give preference to Foxconn led shares to rally sharply last week. We have seen long term lending interest in Sharp Corp.

Europe

Arcellormittal, the world’s largest steel producer, announced a plan to tap shareholders for $3 billion following a $8 billion loss in last year’s earnings. The troubled steel maker is looking to refinance its debt obligations in order to stem cash flow while its operations suffer from tighter margins under depressed iron ore prices. Levels have tightened steadily over the last few weeks and the desk is actively monitoring liquidity.

Shorts circle Anglo American shares as the rebound in metals prices and M&A speculation have helped the company rally 60% over the past two weeks. Markit reported that shares borrowed as a percentage of shares outstanding has risen to 19% from 13% on January 25, making Anglo American the second most shorted stock in the FTSE 100. Levels have been volatile as some funds have covered their short positions and re-entered over the past few sessions.