From the Securities Lending Trading Desk

This week, in the US, stock prices in the oil and gas sector fell to all-time lows. We are seeing semiconductor Manufacturing International Corp shares plunge in HK trading following disappointing earnings and analyst downgrades. Meanwhile in Europe, the British telecommunications provider TalkTalk falls 17% after profit warning. 

Below please find this week’s 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 

Stock prices in the oil and gas sector fell to all-time lows amid multiple cuts in earnings, OPECs slowness to cut production, and the collapse of Brent spot-prices. While many of the companies have started to turn around, some familiar stocks such as Diamond Offshore Drilling (DO) continue to be in demand as volatility in oil services stocks remains high. Last week, DO closed at a six month high of $17.54 on 11/9. However, the global offshore oil and gas drilling contractor quickly gave up those gains, falling as much as 10% in the past week. Despite the recent declines, year to date DO has been one of the best performers compared to some of their peers including Transocean, Noble, Rowan Companies, and Ensco. Fee levels remain elevated for DO as bears remain focused uncertainties and fear the returns of headwinds that are not so far behind them.

Nordic American Tankers (NAT) remains a long term focus of bearish sentiment as the stock price tumbles to a 52-week low. Recently, NAT announced third quarter earnings that missed Wall Street’s expectations and analysts quickly cut price targets. NAT reported a loss for Q3 of $34.3 million, a loss of $0.34, and revenue of $23.7 million, all of which fell short of analysts’ expectations. The company commented that their time charter equivalent of $10,600 per day did not meet the NAT’s break-even cost of $11,500. And despite the company’s long history of paying dividends; they have been drastically reducing these quarterly payments, going from $0.43 back in May to $0.03 this month. Some investors may expect NAT to start increasing these payments as they have three new builds in the pipeline; however that is merely speculation. Demand remains strong as some investors question if the stock has further to fall. 

Asia Pacific 

Toshiba Corp shares fell sharply in Tokyo trading last week after reports revealed that the Japanese conglomerate is considering a large capital raising. According to reports, Toshiba Corp is considering the option of raising 600 billion Yen ($5.3. billion) through a public offering or a third party allotment. Toshiba Corp has been desperate for cash to meet liabilities from its failed U.S. nuclear unit Westinghouse Electric and to cover a negative equity shortfall which could potentially lead to it being delisted next year. We saw strong lending interest following the reports due to the potential dilutive impact of the large proposed share issue.

Semiconductor Manufacturing International Corp shares plunged in HK trading following disappointing earnings and analyst downgrades. Shares fell 19% in two days following a 95% surge since the beginning of September. Gains had been spurred by optimism that Liang Mong Song’s appointment last month as co-chief executive would help drive Semiconductor Manufacturing International Corp’s earnings higher. Disappointing results in the third quarter, however, reversed investor sentiment leading to the sell-off. We saw strong lending demand for Semiconductor Manufacturing International Corp.

Europe 

Announcement of MSCI deletions spurs demand and fee spikes. The MSCI index provider announced its Semi Annual review last week providing a number of upcoming deletions. The announcement rings alarm bells for prime brokers who have a high concentration to MSCI supply as they’ll receive a number of recalls. The result of such a squeeze means funds that don’t track the MSCI indices can earn a small premium over the re-balance period with borrowers looking to secure stable supply. Some of the more in-focus names that have benefited include; Hikma Pharmaceuticals, Impala Platinum Holdings, Carillion Plc, Sapiem Spa, and INTU Properties.

The British telecommunications provider TalkTalk falls 17% after profit warning. Since last May, the telecoms mid-tier provider has embarked on an overhaul by removing former CEO Dido Harding in an attempt to simplify its business and gain market share away from its main rivals BT, SKY, and Virgin Media. The announcement that came last Wednesday highlighted that the firm fell into a loss in the first half of the year (£75 million) and warned that full year profits would be at the bottom end of expectations (£270-300 million). In response to the first half losses, the firm slashed its interim dividend in half compared to this time last year. The news brought increased interest from hedge funds looking to build to their short positions.