From the Securities Lending Trading Desk

merchant container ship

We’ve seen an uptick in demand for British American Tobacco PLC following the news that they had offered to buy US tobacco company Reynolds American. Korean shipbuilders continue to aggressively cut costs in an attempt to offset large losses. In Europe, borrower appetite increases for Swedish telecom Tele2 AB and securities lending demand increases as a result of Banco Popolare and Pop. Milano merging to form Banco BPM.

Below please find the November 2 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.


There was an uptick in demand for British American Tobacco PLC after news surfaced that the company had offered to buy U.S. tobacco giant Reynolds American in a $47 billion cash and stock deal. The deal would create the world’s largest publicly traded tobacco company. The proposal values Reynolds at $56.50 per share, representing a 20% premium over the stock’s closing price on October 20. The offer comes as U.S. companies are dealing with the rapidly declining use of tobacco products, and are seeking to reclaim some of that market with new products such as e-cigarettes. Although the deal is pending, we have seen increased demand for shares due to the stock component in the offer which has sent fees-to-borrow higher.

Under Armour, Inc. the “most-shorted” member of the S&P 500 this year, validated bearish bets after shares plummeted on news that they will not be able to deliver on the lofty full-year operating profit it made last year. The athletic-gear maker also gave a weak forecast over the next couple of years, due to a slowing market for U.S. sports apparel, leading to numerous analyst downgrades. Since the news was released, we have seen new short interest, thus putting additional pressure on liquidity and resulting in increased fee levels.

Asia Pacific 

Shares in several South Korean firms that are dependent on Chinese visitors slumped in trading last week amid worsening relations between the two countries. South Korean media reported that several local Chinese governments have been trying to suppress travel to South Korea, with a particular emphasis on reducing the amount of hugely popular travel packages that are focused on day trips primarily for shopping. The measures have come in light of South Korea’s plan to deploy a missile defence system with the United States to counter the threat from North Korea, which has upset the Chinese government on concerns that the radar could track China’s military capabilities. Companies that have been most impacted include cosmetics firms AmorePacific Corp and LG Household & Health Care as well as Hotel Shilla, the nation’s second-largest duty free operator. We continue to witness strong long-term securities lending demand for Hotel Shilla which has seen its share price decline by approximately 30 per cent this year.

Korean shipbuilders continue to aggressively cut costs in order to offset large losses and a plunge in global demand for new vessels. South Korea’s shipbuilding industry has shed 20,000 jobs so far in 2016 and looks set to cut further to reduce cost. Analysts are forecasting up to 40,000 jobs could be lost in the sector. The “Big Three” Korean shipyards have lost a combined 6.6 trillion won ($5.8 billion) in the last six quarters and are aggressively restructuring their business models to turn a profit. We have seen strong long term lending demand for Hyundai Heavy Industries Co Ltd, Samsung Heavy Industries Co Ltd and Daewoo Shipbuilding & Marine Engineering Co Ltd.


Borrower appetite increases for Swedish telecom Tele2 AB prior to rights issue. Tele2 AB is the latest Swedish firm to launch a capital increase of SEK 2.8b in order to finance their acquisition of TDC Sverige. Rights went ex on 10/28 and will trade from November 2nd until November 14th, while rights holders may exercise their right to purchase one new share at SEK 53 for every 8 rights held. Demand has steadily increased but is patchy as the market holds ample borrow liquidity and the oversubscription proration is expected to be somewhat low. Levels trade in the mid fee range and may increase depending upon spread between ordinary shares and rights.

Banco Popolare and Pop. Milano are merging to form Banco BPM. Securities lending demand has increased as the lock down period for the withdrawal rights issue terms on the 2nd November. Directional funds and merger arbitrage funds are driving the demand, which has helped increase fees. Deutsche Bank recently announced that they expect Banco BPM 3Q trends to be sizable and capital solid enough to carry on with balance sheet strengthening