From the Securities Lending Trading Desk


Pokemon Go has sparked a worldwide frenzy, driving demand for Nintendo and related securities such as Tomy and McDonalds. Meanwhile in the US, Under Armour has come under scrutiny for its current valuation, resulting in an increase in lending demand. In Europe, demand to borrow European steel companies is heating up again.

Below please find the July 26 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.


The biotech sector continues to be a strong focus of directional demand, in particular Juno Therapeutics (JUNO). JUNO has fallen roughly 43% from a six-month high of $48.50 back in June. Earlier this month, they announced that a key Phase II drug testing for the treatment of adult relapsed/refractory leukaemia was placed on clinical hold after two recent deaths within the trial. Over the past two weeks the share price has stabilized, however some investors remain bearish on the company. Stock values in this sector have historically been greatly affected by clinical trial failures or delays, competition, regulatory obstacles and other news events.

Although sports apparel is especially strong in the consumer sector, some investors question if the current valuation of Under Armour, Inc. (UA) is warranted, resulting in increased lending demand. According to reports, UA is currently trading at a price-to-earnings ratio above 70 (based on analyst expectations of $0.58 earnings per share in 2016), while their direct competitors are much lower. The P/E ratio for Nike is 27, Adidas is roughly 34, and Lululemon is 41. Recently a note from Morgan Stanley suggested a downside view on the current sports retail environment and forecast a 23% price target downside for UA in the fiscal year 2018.

Asia Pacific  

The Nintendo Co Ltd game Pokemon Go, which spurs players to venture into the real world and catch creatures using their smartphones, sparked a worldwide frenzy. Nintendo Co Ltd added $18 billion to its market cap after releasing Pokemon Go as its share price doubled in just over a week. Similar surges were seen in share prices of companies affiliated with the Pokemon brand. Tomy Co Ltd, which sells Pokemon toys, rose to its highest in 10 years, whilst Mcdonald’s Holdings Co Japan Ltd rose sharply after announcing a collaboration with Pokemon Go. We saw an increase in short interest for Nintendo Co Ltd as investors speculated that the share price surge failed to correspond with fundamentals. We also saw strong lending demand for Tomy Co Ltd and Mcdonald’s Holdings Co Japan Ltd.

A prominent activist hedge fund filed for a petition in a Hong Kong court against Bank of East Asia (BEA) last week in an attempt to force a sale of the city’s last remaining family-run bank. US based hedge fund Elliot Management, which earlier this year won a very public and bitter battle against Argentina after the nation defaulted on sovereign bonds, escalated its ongoing rhetoric against BEA by accusing the bank of impropriety when issuing shares that diluted minority shareholders interests and allegedly entrenched management control. The bank issued a statement denying the claims and said it would vigorously defend the action. We have witnessed increased securities lending demand for BEA in recent months which, despite the latest tussle with Elliot, has seen its share price rise by nearly 50% from a seven-year low in February this year.


Securities lending fees see a strong correction in Wirecard. This week we have witnessed a dramatic downward correction to the lending fees for Wirecard, as hedge funds cover their shorts and refinance existing borrows. Wirecard are set to post strong 2nd quarter results and have set up collaboration payments in Turkey and Indonesia. We have seen the stock price bounce 40% from the lows seen in March.

Steel producers come back into focus. Demand to borrow European steel companies is heating up again. France’s Vallourec, Sweden’s SSAB and Finland’s Outokumpu have eased in recent months but are back on short sellers’ radar. Fee levels trade in the mid to high level range.