From the Securities Lending Trading Desk

Business deal in front of stock price

The energy sector remains in focus for the US with Jones Energy Inc.’s stock price falling 21% last Thursday. We’ve seen an increase in lending demand for Tokyo-based Sharp Corp, as the share price rallied following speculation the stock will be added to the MSCI index. In Europe, Banca Monte dei Paschi di Siena CEO, Fabrizio Viola confirmed that he is part of a false accounting probe causing volatility in rates and utilization for the troubled lender’s shares.

Below please find the August 23 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

The energy sector remains in focus, with Jones Energy Inc.’s stock price falling last week while the sector rallies. The share price fell 21% on Thursday morning and trading volumes were up from the 30 day average of 232,000 to 1,558,700. Much of this decline comes as the company announced a $136.5 million purchase of Oklahoma oil and natural gas acreage and sale of stock to help pay for it. According to Bloomberg, Jones Energy is selling 14m Class A common shares, and 1m perpetual convertible preferred shares at $50 each. Managers have option to buy an additional 2.1m common and 150,000 preferred.

There was an uptick in demand for United Bankshares, Inc. following the news they had agreed to buy Cardinal Financial Corp. in an all-stock deal, valued at about $912 million. Bloomberg reports indicate that the buyer will pay 0.71 United share for each Cardinal share, a price that represents 2.24 times Cardinal’s tangible book value as of June 30. The deal is expected to close in the middle of next year. The stock component to this deal will likely result in strong demand through completion of this merger.

Asia Pacific

Sharp Corp shares surged in Tokyo trading due to speculation the stock will be added to the MSCI index. Sharp Corp shares jumped 58% in a week after Foxconn Technology Group completed a deal to take over the troubled manufacturer. Investors speculated the Foxconn deal completion boosted Sharp Corp’s MSCI addition prospects. Despite the recent surge in price, Sharp Corp still trades at less than half of its 2014 valuation. We saw an increase in lending demand for Sharp Corp as the share price rallied.

Shares in Cyberdyne Inc, a leading manufacturer of specialized medical equipment in Japan, declined sharply last week after the publication of a negative research report by a prominent hedge fund analyst. The company, which specializes in products that improve the functioning of physically challenged patients, has seen its share price tumble in recent months. Citron Research’s Andrew Left wrote in a report that the company is overvalued and Cyberdyne’s shares are due a major correction. Left cited that the company faces slowing sales growth for its core assistive-limb product as a major reason for his negative outlook. We have witnessed strong securities lending demand for Cyberdyne in recent months, which has seen its shares decline by 30% from its record high in May.

Europe

The Banca Monte dei Paschi di Siena CEO, Fabrizio Viola confirmed that he is part of a false accounting probe. Viola issued a statement Friday stating that issues would “be cleared up rapidly”. Rates and utilization for the troubled lender’s shares have been volatile, and an expected business plan proposal mid-September will be in focus for the anticipated EUR 5bn rights issue. Utilization and fees are expected to climb as the details surrounding the company’s capital increase materialize.

Securities lending demand has resurged after concerns for earnings at K+S. The German salt producer and manufacture of fertilizer announced that earnings could drop by half this year. The shares have fallen 10% since the announcement and fees are increasing in line with the demand. Setbacks in production and lower demand for de-icing salt have been attributed to the slump in earnings.