March 23, 2020 / 8:57 PM / in 6 days

Breakingviews - Corona Capital: Religious aid, Ad-spending slump

HONG KONG/LONDON/DALLAS (Reuters Breakingviews) - Breakingviews has launched a daily column covering pandemic-related insights that you might have missed. Throughout the day, we’ll bring you shorter-than-usual views from columnists around the world with the same financial savvy on companies, economies and capital markets during this important unfolding story.

Health workers applaud people who show them gratitude from their balconies and windows as part of an event organized through social media, during a partial lockdown as part of a 15-day state of emergency to combat the spread of coronavirus disease (COVID-19) in Barcelona, Spain, March 20, 2020. REUTERS/Nacho Doce


- Religious aid

- Ad-spending slump

CHURCHES SUFFER FROM SHRINKING FINANCIAL PULPITS. Vice President Mike Pence wants Americans to give money to places of worship. Combatting Covid-19 has forced them to close their doors for religious services, but “all the ministries are continuing to play a vital role in our communities,” said Pence, who describes himself as a “born-again, evangelical Catholic.”

Many churches already provide free meals, for example. Ramping that up as millions of people lose their jobs should be a moral obligation, and not just on religious grounds: Churches, synagogues and mosques are more or less exempt from paying taxes, so it’s precisely when Americans fall on hard times that they ought to step up.

But religious institutions are less flush than they used to be: Donations were flat in 2017 and declined in 2018 after years of slow growth, according to Giving USA. As many as 10,000 U.S. churches are dying each year, reckons Missio Alliance.

Pence is right that someone has to pay to help those in need. Ultimately, though, getting the government’s role sorted should be his current calling. (By Lauren Silva Laughlin)

DIGITAL ADVERTISING WILL BE DOWN BUT NOT OUT. Pity the pitchman. Ad-dependent industries in the United States will get clobbered as Covid-19 lockdowns take hold. But the pain won’t be doled out evenly. Morgan Stanley reckons that spending on all manner of advertising, including broadcast television and newspapers, will decline 8% to $210 billion in 2020 from last year. That’s after growing 6% and 9% in the previous two years.

The Wall Street firm’s analysts reckon only internet advertising will snap back, rising nearly 5% in 2021. Total broadcast TV ads are likely to fall 9% this year – and that’s with spending on the U.S. presidential election propping it up. It also assumes the Summer Olympics in Japan go ahead, which now looks highly unlikely. Next year TV ad spending will probably drop 12%.

Granted, plenty of consumers stuck at home will be glued to their screens. But that’s no use if they’re bingeing on Netflix – it’s ad-free. (By Jennifer Saba)

BROADBAND STRETCH EXERCISE. Coronavirus shutdowns are giving telecommunications networks real-life emergency workouts. With millions working from home, broadband service providers are dealing with unprecedented daytime demand. Traffic is so far comfortably below normal evening peaks, driven mainly by Netflix. Britain’s telecoms’ bosses biggest worry on Monday was 800,000 people tuning in to an online workout with fitness guru Joe Wicks.

Unlike supermarkets, whose supply chains have been up-ended by panic-buying, telecoms networks are benefitting from lots of built-in headroom. This month, BT reported record data traffic of 17.5 Terabits per second (Tbps) when a live-streamed Champions League soccer match clashed with two online game releases. That compares to just 4 Tbps during a normal working day. By slowing some of its highest-resolution streaming, Netflix is erring on the side of caution during a global crisis. There’s still some way before the Body Coach needs to take a rest. (By Ed Cropley)

COVID OPERATIONS (ABUJA EDITION). Nigeria, Africa’s biggest economy and top oil producer, chose the financial market equivalent of the dead of night – after-hours on a Friday – to devalue its currency. The central bank confirmed at 6:30 p.m. on March 20 that it had dropped the naira’s official rate to 360 naira against the U.S. dollar after reports from traders that it had sold greenbacks to a local bank at the weaker rate. Breakingviews predicted on March 10 that a plunge in oil prices triggered by coronavirus and a price war between Russia and Saudi Arabia put African producers like Nigeria on course for devaluation. (By Ed Cropley)

OXY FINDS ITS SOFTER SIDE. A lethal virus and collapsing economy are no time to split hairs. Occidental Petroleum is nearing a settlement with activist Carl Icahn to cede control of two board seats and agree mutually on a third, the Wall Street Journal reported. That kind of weak truce could set a pattern for activism during Covid-19.

Oxy chief Vicki Hollub wrecked her reputation buying Anadarko Petroleum last year and cutting the dividend after the oil price slumped. Adding Icahn-istas to the board isn’t the obvious fix. Hollub is a good operator – her problem was timing and ambition. Icahn’s reputation isn’t pristine either. SandRidge Energy and Chesapeake Energy chalked up huge losses after he agitated.

It would be cleaner for Hollub to go – as Icahn originally wanted – and the company to sell itself. Yet with unprecedented market conditions, dramatic moves have less appeal. The value of peace, however fragile, has risen. (By Lauren Silva Laughlin)

MAC TESTED DOWN UNDER. Abano Healthcare, which operates one of the largest dental networks in Australasia, warned on Monday that the coronavirus may trigger a material adverse change clause in its sale plan after New Zealand health officials strongly recommended that elective and non-essential procedures be suspended. The company’s shares tumbled 30% and were trading at a 39% discount to the November takeover agreement with private equity firm BGH and the Ontario Teachers’ Pension Plan, which values the company at about NZ$150 million ($85 million).

Abano said the buyers have indicated they would be willing to consider an alternative transaction if the MAC occurs. They also can terminate the deal following a consultation. Such M&A provisions are famously hard to invoke and very specific to each contract, but the economic consequences of the pandemic will put them to their biggest test yet, including in the Asia-Pacific region, as Breakingviews noted earlier this month. The toughest questions relate to how severe the crisis impact will be and how long it might last. For dealmakers everywhere, that will make MAC clauses as scary as a root canal. (By Jeffrey Goldfarb)

BIG OIL FIRES BIG GUNS. Royal Dutch Shell and Total both announced cost cuts and suspended share buybacks on Monday. But despite the plunge in oil prices which has left Brent crude futures trading at little more than $25 a barrel, they left their dividends intact.

The desire to protect payouts is hardly surprising. Bernstein analysts reckon Shell last cut its dividend during the Great Depression of the early 1930s, though the Anglo-Dutch giant suspended distributions around the period of World War Two and offered shareholders scrip after the 2008 financial crisis. Chief Executive Ben van Beurden will now be sitting on $8 billion to $9 billion of extra cash. Still, with Shell and Total shares both yielding more than 10%, it will be hard for investors to relax. (By George Hay)

COVID OPERATIONS. Global crises can provide cover for embarrassing corporate announcements. Just ask Stockholm-based Swedbank. The $13 billion lender on Monday released a 218-page report by law firm Clifford Chance which identified historic “inadequate systems and controls to ensure proper management of the AML (anti-money laundering) and economic sanctions risk”.

Granted, publication had been scheduled for some time. But other banks may also welcome the distraction provided by the coronavirus. Goldman Sachs on Friday said Chief Executive David Solomon’s compensation rose by $4 million to $24.7 million last year. Deutsche Bank’s annual report, released on the same day, contained the nugget that one unidentified individual was paid between 13 million and 14 million euros last year. That’s almost three times as much as CEO Christian Sewing. Eyes peeled for more awkward revelations. (By Liam Proud)


Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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