From the Securities Lending Trading Desk

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Shorts have piled into Eastman Kodak Company (KODK) after the share price skyrocketed 245% in the two days following an announcement that the company will be jumping into the cryptocurrency and blockchain fray.  Japanese companies with exposure to digital currencies declined after the price of Bitcoin and other cryptocurrencies slumped last week.  In Europe, UK stock prices took a turn for the worse, prompting an increase in securities lending demand. 

Below please  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

Shorts have piled into Eastman Kodak Company (KODK) after their share price skyrocketed 245% in just two days after the company announced it will be jumping into the cryptocurrency and blockchain fray with the creation of KodakCoin. Kodak coins will be used to support a platform for photo rights management using blockchain technology. Prior to the announcement, there was little directional demand in Kodak but according to S3 Partners, short interest nearly doubled when the news surfaced. Some analysts suggest the initiative does not justify the sharp rise in stock price and the crypto craze could be short lived. Since the jump in price, shares have given back some of those gains. As skeptics remain on whether Kodak can actually reinvent itself by launching its own digital money, we expect directional demand to stay prevalent in the market.

We continue to see bearish sentiment for Synergy Pharmaceuticals Inc. (SGYP) as the share price remains under pressure. SGYP has fallen nearly 48% since reaching a 6-month high back in July, as markets grow weary of small-cap biotechnology companies. Since the company launched its main drug, Trulance, last year prescription growth grew 100% month-over-month, but analysts grew less confident in the stock. Investors began to increase their bearish bets, as short interest more than tripled from January to December of 2017, according to one source. Third-quarter results failed to incite any investor interest as expenses outpaced sales. This past November, the company announced a 21 million equity offering with one analyst saying another one is imminent, which would further dilute the stock. Until the FDA approves Trulance for treating other diseases and they can build up sales, Synergy will continue to face headwinds.

Asia Pacific

Japanese companies with exposure to digital currencies declined after the price of Bitcoin and other cryptocurrencies slumped last week. Leading the declines was Tokyo-based company GMO Internet Inc which provides internet related services to corporate customers. The company launched their Bitcoin mining business in 2017 and saw its shares rally by over 20% in the past three months, buoyed by the rally in cryptocurrencies. However, some analysts are concerned that the current business requires improvement across all of its segments, citing a lack of profit contribution from its mobile games business as a negative factor. We witnessed an increase in securities lending demand last week for GMO Internet Inc after Bitcoin slumped as much as 25% amid fears of increased crackdowns by Chinese and South Korean regulators in the digital currencies space.

Potential gains for investors are likely as Noble Group makes progress with asset sales. Hong Kong-based commodities trading house, Noble Group, is pushing to restructure its massive $3.5 billion debt. The company raised around $525 million through the sale of its global oil liquid and gas power business in North America, and retired two borrowing base facilities last week as it enters a critical phase of survival. Noble Group must pay $39.7 million on its bond maturing in 2020, and has not yet disclosed if they would pay the coupon while it is still in restructuring talks. However, failure to meet its obligations could result in a potential default. We continue to see long-term securities demand for Noble Group whose shares are up by over 40% since December 2017.

Europe 

The information technology sector is seeing further consolidation as Informa launches offer for UBM. Informa shares sold off while UBM surged following news that UK companies may merge in a cash and stock mix-match deal. Informa shareholders may be skeptical of the proposed terms following the dip in share price, however the market is pricing a high likelihood of the combination gaining approval. Both names are currently trading at GC levels. Informa shareholders may choose cash, stock, or a combination of both, subject to proration. Once deal terms are finalized, we expect to see demand for certain Informa election types.

UK stocks drove securities lending demand last week as they took a turn for the worse. Interserve Plc reported on Wednesday that the U.K. contractor is under government scrutiny after the collapse of rival Carillion Plc. Shares fell as much as 15%. Elsewhere in the UK, Dignity, the UK-listed funeral provider, lost half its value in morning trade after it issued a profit warning that it blamed on an increasingly competitive environment and outlined a plan to drop its prices. Finally, Countrywide’s shares plunged 18% after it revealed disappointing expectations for its full-year profits, citing the performance of the London property market. Rival Foxtons also fell 5%.