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Daily Update: September 11, 2020

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Daily Update: September 11, 2020

Despite taking action to recruit and promote diversity, no U.S. megabank has ever been led by a woman—but banking’s boys club is about to change.

Jane Fraser, a 16-year veteran of Citigroup—who oversaw its Latin American operations and now serves as president of the firm heading its consumer-banking division—will succeed Michael Corbat as chief executive officer of the U.S.’s third-largest bank.

To analysts’ surprise, Mr. Corbat announced that he will retire in February after an eight-year stint as CEO and 37 years at the bank. At age 59, “he likely had a few years left as CEO,” Keefe Bruyette & Woods analyst Brian Kleinhanzl said in a note, according to S&P Global Market Intelligence.

“I have often said that I am a steadfast believer in term-limits. With that in mind, I have given significant thought to when the time is right for me to hand over the reins,” Mr. Corbat said in a Sept. 10 LinkedIn post. “I am thrilled that our Board of Directors has chosen Jane Fraser to succeed me. Jane will become our first female CEO, a point of pride for all of us and groundbreaking for our industry.”

“We believe Jane is the right person to build on Mike’s record and take Citi to the next level,” Citigroup Chairman John C. Dugan said in a statement. “She has deep experience across our lines of business and regions, and we are highly confident in her.”

“I will do everything I can to make all of our stakeholders proud of our firm as we continue to build a better bank," Ms. Fraser said in a statement. "Citi is an incredible institution with a proud history and a bright future."

Ms. Fraser played a pivotal role in navigating the New York-based banking giant through the 2008 financial crisis, experience that is likely to prepare her for the coronavirus-caused economic downturn. During her nearly two-decades-long tenure at the bank, she also led the firm’s strategy division, mortgage group, client services operations, and wealth management.

Women represent nearly 50% of Citi’s board—the greatest gender balance of the boards of the U.S.’s six largest banks—and Ms. Fraser will immediately be named to the bank’s board of directors ahead of her taking her role as CEO.

Still, Ms. Fraser will be the sole woman at the top of a major U.S. bank, and one of the few within senior leadership positions in the industry. Only 26% of senior leadership positions across U.S. financial institutions were held by women last year, according to the consulting firm Oliver Wyman.

Ms. Fraser’s ascension is likely to raise questions regarding other banks’ succession plans. Citi’s Mr. Corbat—alongside the CEOs of JPMorgan Chase, Bank of America, Goldman Sachs, Morgan Stanley, Bank of New York Mellon, and State Street—didn’t raise his hand when asked during a U.S. House Financial Services Committee hearing in April of last year if a woman or person of color would take over his position.

Banks falling behind on their efforts to prioritize gender equity during the pandemic could negatively impact progress made across the sector. "The real risk in the short term is that diversity and inclusion initiatives are seen as 'nice to have' and fall off everyone's radar," Jessica Clempner, a principal at Oliver Wyman, told Market Intelligence.

Today is Friday, September 11, 2020, and here is today’s essential intelligence.

Uncertainty in the Global Economy

Emerging Markets Monthly Highlights: Uneven Recoveries After Economies Hit Low Points In The Second Quarter

Pandemic evolution in EMs remains mixed, as COVID-19 appears to be receding in many key emerging markets (EMs), but is yet to be contained in others. Social distancing measures have taken a large toll on growth. Second-quarter GDP readings show the depth of the crisis, with a median around 43% (seasonally adjusted annualized rate), with China an outlier.

—Read the full article from S&P Global Ratings

73% Of PE, VC Managers Expect Drop In Dealmaking Following COVID-19 Fallout

Just 27% of private equity and venture capital fund managers globally expect investment activity to remain flat or rise in the coming months, with the remaining 73% taking a more pessimistic view, as managers grapple with uncertainty following the spread of coronavirus, according to an S&P Global Market Intelligence survey. Of the 142 managers polled globally, 30% expect dealmaking to slow by between a quarter and a half, with 29% expecting a volume dip of one-quarter and 13% taking a more negative view, predicting a drop of over 50%.

—Read the full article from S&P Global Market Intelligence

The Future of Credit

Black Swan Or Not, COVID-19 Is Disrupting Global Reinsurers' Profitability

Once again, the global reinsurance sector won't earn its cost of capital in 2020, just as it has struggled to do so in the past three years. Hence, S&P Global Ratings’ sector outlook remains negative. The top 20 global reinsurers reported about $12 billion in COVID-19 losses year-to-date. S&P Global Ratings now forecasts that this cohort will generate a combined ratio of 103%-108% in 2020 and 97%-101% in 2021, and a return on equity (ROE) of 0%-3% and 5%-8%, respectively. Sector capitalization remains robust with no material capital destruction so far, benefiting from capital raises in 2020 and market recovery from March lows. Property and casualty (P/C) reinsurance pricing has been hardening during the past 18 months in reaction to natural catastrophe and pandemic losses, as well as alternative capital and retrocession capacity constraints. S&P Global Ratings expects the reinsurance pricing positive momentum will carry into 2021. Life reinsurers are facing higher mortality losses caused by the pandemic, but the impact is manageable.

—Read the full report from S&P Global Ratings

US High-Yield Bond Issuance Smashes August Record As Market Rolls On

Against a backdrop of sharply lower borrowing costs, the U.S. high-yield bond market set another issuance record in August, with $52.9 billion of volume in what is typically a quiet month. It was the busiest August on record by far. For reference, volume totaled $9.7 billion in August 2019, amid heightened recession fears and trade tensions between the U.S. and China. Last month's volume is the second-highest total for any month on record, bested only by the $59.9 billion in June, and more than double the $26.2 billion in July. Underscoring the breakneck pace in the primary markets, each of the last four monthly totals are now record-high amounts for those respective calendar-month periods.

—Read the full article from S&P Global Market Intelligence

Western Australia's COVID-19 Response, Low Interest Rates Seen Driving ASX Ipos

Experts say high gold prices, low interest rates and Western Australia's superior COVID-19 management are ensuring the ASX continues its impressive IPO run which is on track to exceed the number of metals and mining listings in 2019. After a four-year low in metals and mining IPO capital raisings in 2019 following a decade-high in 2018, July 2020 saw listings by gold and silver producer Manuka Resources Ltd. and rare earths hopeful Australian Strategic Materials Ltd as well as a backdoor listing by Suvo Strategic Minerals Ltd. They followed Westgold Resources Ltd.'s demerger of Castile Resources Ltd. and IPOs of gold and base metals juniors Kaiser Reef Ltd. and Cobre Ltd.

—Read the full article from S&P Global Market Intelligence

Banking Sector Under Pressure

Risk Of Money-Laundering Fine For Danske Unchanged Despite Court Victory In US

A U.S. judge's decision to dismiss a securities fraud class action against Danske Bank A/S related to a large-scale money-laundering scandal may be a relief for Denmark's largest lender, but it does not reduce the risk of a fine from U.S. or European authorities, according to legal experts. Nor is the decision likely to impact the large number of shareholder lawsuits filed against Danske in Denmark, with law firms representing investors there saying the cases are not comparable to those in the U.S. Danske could pay a total of 12 billion kroner, approximately $1.9 billion, in fines and damages to authorities and shareholders, according to an estimate from Jyske Bank analyst Anders Vollesen.

—Read the full article from S&P Global Market Intelligence

Rapid Departure Of Citi CEO Corbat Draws Mixed Analyst Reaction

The timing of Citigroup Inc.'s announcement that Jane Fraser will succeed Michael Corbat as CEO in February caught analysts by surprise, with some saying investors hoped for a bigger change and others taking the move as a sign of the company's "bench strength." Fraser, a 16-year veteran of the bank, was named president and became Corbat's heir apparent in October 2019. At the time, Corbat said he remained "committed to leading our firm in the coming years." Corbat's departure in February of 2021 would represent an interval of about a year and a half.

—Read the full article from S&P Global Market Intelligence

Technology & Innovation

Tencent's Global Gaming Ambitions To Suffer Amid India App Bans

Chinese internet company Tencent Holdings Ltd. needs to find alternative sources of revenue growth following the ban of its leading mobile games in India, experts told S&P Global Market Intelligence. After banning 59 Chinese apps in June, India on Sept. 2 banned a further 118 apps that were either based in or linked to China, including Tencent's popular online multiplayer games "PlayerUnknown's Battlegrounds Mobile," or PUBG Mobile, and "Arena of Valor." Tencent said it would engage with authorities in India to "ensure the continued availability of its apps in India."

—Read the full article from S&P Global Market Intelligence

U.S. Tech Q2 Better Than Feared; Soft Enterprise Demand Coming

U.S. technology sector credit held up to the COVID-19 pandemic in the second quarter better than expected because shutdowns disproportionately hurt small and midsize businesses (SMB) and local firms. The companies S&P Global Ratings rates have less exposure to these segments than the broader economy. Enterprise spending was weak, but it held up much better. For example, revenue from Cisco Systems Inc.'s SMB customers was down 23% year over year while enterprise was down only 7%. The COVID-19 pandemic even drove strength in several areas including e-commerce on brick-and-mortar shutdowns (evident in the results for Inc. and eBay Inc.), PCs on work from home (WFH) and remote learning, and hyperscale and some pockets of networking on increased data traffic and streaming.

—Read the full report from S&P Global Ratings

Chronic Care, Mental Health May Be M&A Targets In Telemedicine 'Arms Race'

Teladoc Health Inc.'s $18.5 billion acquisition of digital chronic care management provider Livongo Health Inc. — the largest healthcare deal of the year — has analysts wondering who could be next as the COVID-19 pandemic pushes more patients online. Telemedicine companies that may be looking to conduct acquisitions include Amwell, which recently filed for an IPO; MDLIVE Inc.; and Doctor on Demand Inc. RBC Capital analyst Sean Dodge said these companies are likely looking for ways they can become all-in-one platforms instead of singular point solutions. "When you take a step back, across the space there's a bit of an arms race happening. There [are] lots of small Teladoc and Livongo look-alikes out right now raising money as fast as they can to broaden their platforms and scale-up," Dodge said in an interview with S&P Global Market Intelligence.

—Read the full article from S&P Global Market Intelligence

ESG in the Time of COVID-19

The Essential Podcast, Episode 21: The Biodiversity Crisis — The Market Impact of Extinction

Biodiversity loss is a crisis. But is it a crisis markets care about? Ashim Paun, Global Co-Head of ESG Research, Climate Change Strategist at HSBC joins the Essential Podcast to explain the costs of losing and preserving biodiversity. Listen and subscribe to this podcast on our podcast page, Apple Podcasts, Google Podcasts, Deezer, and Spotify.

—Listen and subscribe to the Essential Podcast from S&P Global

INTERVIEW: EV Supply Chain Needs To Be As Clean As Possible To Achieve Net Zero: Vulcan

The entire battery supply chain, from mining to end-user, needs to be as green as possible for the electric vehicle market to maximize its ambitions for a lower-carbon future, Vulcan Energy's vice-president for business development, Vincent Ledoux Pedailles told S&P Global Platts Sept. 10. In the wake of the coronavirus pandemic local supply chains have been thrust into the spotlight, as Environmental, Social and Governance metrics continue to climb the ladder of importance for investors.

—Read the full article from S&P Global Platts

EC set to propose stricter 2030 CO2 cut target for EU on Sept. 15

The European Commission plans to propose a stricter 2030 EU target for cutting CO2 emissions on Sept. 15, as part of efforts to reduce fossil fuel use and make the EU climate neutral by 2050, according to its draft agenda. The proposal was widely expected by sources in Brussels to be a 55% cut on 1990 levels, at the top end of the 50%-55% range the EC has been evaluating, and up from the current 40% binding target agreed in 2018.

—Read the full article from S&P Global Platts

Environmental, Social, And Governance: The Growing Importance Of ESG In The Resources Sector

Rio Tinto's recent destruction of an Indigenous sacred site in Australia attracted global scrutiny and a parliamentary inquiry. This highlighted the possibility that ESG factors such as cultural issues could go beyond a company's legal obligations. Environmental and other social risks will also become more pertinent given mounting investor pressure on mining and resources companies to set carbon emission targets and address safety issues. Given the heightened investor interest, companies will need to consult all stakeholders when implementing projects to address potential ESG risks. ESG factors could also affect S&P Global Ratings' view of a corporate entity's creditworthiness.

—Read the full report from S&P Global Ratings

The Future of Energy & Commodities

Watch: Market Movers Europe, Sep 7-11: Crude Demand Remains Uncertain; Germany Pushes For Cleaner Wind Energy

In this week's highlights: The oil market hopes for demand recovery as coronavirus infections ease; the German parliament is set to debate offshore wind options; gas flows into Ukrainian storage will be eyed; and the petrochemicals market will look for demand cues from the auto industry.

—Share and watch this video from S&P Global Platts

Insight From Washington: US Oil Policy At Stake In November Presidential Election

President Donald Trump is expected to continue a deregulatory push to expand federal areas to drilling, ease permitting for pipelines and export projects, remain a vocal player in supply negotiations among OPEC+ producers, and keep a tight hold on sanctions against Iran and Venezuela. Trump often touted US “energy abundance” in his first term to highlight economic growth and reduced dependence on Middle East imports. But the oil price collapse earlier this year has left US oil producers hobbled, making any federal deregulation in a second Trump term take a backseat to market forces.

—Read the full article from S&P Global Platts

US Coal Companies Reduced Estimated Asset Value By At Least $1.80B In Q2

Accountants at publicly traded U.S. coal companies are bringing company books in line with the declining market for the once-dominant fuel, with four U.S. coal companies reporting about $1.80 billion in asset impairments during the second quarter alone. The companies booking impairments pointed to lower long-term expectations for some coal assets as the sector also deals with the near-term impacts of the COVID-19 pandemic. The bulk of the impairments comprised a $1.42 billion reduction in the value of a Powder River Basin mine owned by Peabody Energy Corp., the largest coal miner in the U.S.

—Read the full article from S&P Global Market Intelligence

Written and compiled by Molly Mintz.