GOING DOWN, GOING BUST, GOING OUT
Each week, in this section, we provide a global overview from various sectors of the economy to illustrate the depth and implications of the COVID lockdowns.
HSBC BANK’S PROFITS CRASH. Profits at the worldwide bank that focuses on Asia dove 96 percent in 2020’s second quarter to $192 million year-on-year.
The bank set aside $3.83 billion as a reserve against bad loans, about seven times as much as in 2019’s second quarter. About 40 percent of the reserve is earmarked for the bank’s troubled U.K. division, which showed a loss for the quarter valued at $857 million.
The bank may inflate its loan-loss reserve to as much as $13 billion as 2020 progresses.
HSBC has drawn criticism for supporting China’s restrictive securities law governing Hong Kong, then sparked ire from the Chinese government when it became involved in the U.S. legal case against China’s Huawei Technologies Co. for violating sanctions against Iran.
HSBC’s stock price has fallen more than 40 percent this year, a blow to its large base of its small-scale individual investors in Hong Kong.
NEW YORK CITY BUSINESSES CLOSING BY THE THOUSANDS. About 3,000 small businesses in New York City have permanently closed because of the economic shutdown, the website Yelp has reported. About a third of those have been restaurants.
The city’s small businesses comprised 98 percent of New York’s employers, providing work for about three million people. Thanks to the shutdown, those businesses have cut at least 520,000 jobs, according to city data.
Before the pandemic subsides, as many as a third of the city’s 240,000 small businesses could permanently close, said a report by The Partnership for New York City, a nonprofit business group.
About half of the permanent closures so far have been in Manhattan, where commuters have disappeared, tourists have vanished, and wealthy residents decamped to second homes farther away.
The first wave of business failures was among coffee shops, newsstands, and other retailers that depended on those commuters.
Among New York’s bars and restaurants, one the hardest-hit business sectors, 80 percent did not pay their full rent in June, the NYC Hospitality Alliance reported.
Restaurants were preparing to reopen indoor dining in July, with state permission. After ordering food and recalling staff, the eateries learned that the ban on indoor eating would continue when the state learned of surging virus caseloads in other states.
The wasted expense pushed more dining establishments closer to closing for good.
TREND FORECAST: With much of the nation stuck in COVID Fear, there remains a general uneasiness to go shopping and dine out. And with strict regulations on bars and with entertainment venues locked down, there are few places to go out.
This trend is national and will prove devastating to businesses large and small.
AIG LOSES $800 BILLION. The business insurance giant reported $674 billion in payouts, including $458 million related to the economic shutdown and $126 million due to protests in the wake of George Floyd’s death at police hands.
A year earlier, the company posted $1.1 billion in profits.
The loss also was partly due to AIG’s sale at a loss of most of its interests in Fortitude Group Holdings, an investment services business. The sale canceled the company’s liabilities for products it no longer sells.
Many business insurers are being swamped by claims from hospitals whose workers contracted the COVID virus, from businesses seeking reimbursement for lost revenue, and concerts, sports games, and other events that had cancellation coverage.
CASINOS CRAP OUT. Wynn Resorts Ltd. saw 95 percent of its revenues raked off the table in the quarter ending 30 June and posted a loss of $523 million, compared to $219 million in operating income a year earlier.
Wynn reported debts of $12.8 billion and $3.8 billion cash on hand as of 30 June.
Previously, Las Vegas Sands Corp. reported quarterly revenue down 97 percent; MGM Resorts International said its intake was off 91 percent.
Casinos that reopened in May and June welcomed a surge of visitors expressing pent-up demand for entertainment and diversion. But a lasting recovery in Las Vegas depends on the return of conventions and big-spending tourists arriving on airplanes, two things unlikely to happen in the near future.
TREND FORECAST: As the “Greatest Depression” worsens, with less people working, gambling revenue will continue its decline.
And, with so many New ABnormal rules that have stifled a once freewheeling casino spirit, plus the lack of live entertainment, the gambling halls will lose customers looking to have a fun time.
Moreover, the loss of customers will cause deep economic pain to those employed by casinos and the businesses that service them.
In addition, with so many tradeshows and conventions cancelled in casino rich cities, that, too, will bring down gambling and hotel revenue.
As tourism and betting declines, so will real estate values.
CRUISE SHIPS TO STAY DOCKED. U.S. cruise lines have extended their shore leave until 1 November, the new date on which the luxury ships will set to sea again. The extension was announced by the Cruise Lines International Association and adds an additional month to the 1 October cruise date that had been allowed by the CDC.
BOOKING HOLDINGS CUTS BACK. The company that owns online travel agencies Agonda, Booking.com, Kayak, OpenTable, and Priceline will cut as many 4,000 jobs as the travel industry continues to languish.
Booking.com alone employs about 17,000 people and the travel crash “has hit, and will continue to hit, our business hard,” said CEO Glenn Fogel.
The company is in talks with unions and workers’ organizations to time the cuts and decide which workers to let go.
Competitor TripAdvisor previously moved to cut about 900 jobs, roughly a quarter of its workforce. Expedia Group reported last week its bookings had fallen 90 percent in this year’s second quarter.
BROOKFIELD PARTNERS BOWS OUT. The international real estate firm had planned to redevelop an abandoned mall in Burlington, VT, into a residential and office combination.
After three years of work, the company had demolished the mall, prepared the site, and gathered needed permits. But after the economic shutdown, the project no longer will be able to meet the company’s minimum rate of return, executives said.
Brookfield turned the project over to its local partner, Devonshire Investors.
The University of Vermont Medical Center had pledged to move into the new development.
Burlington’s mayor called the abandonment “a breach of faith.”
Brookfield has specialized in converting old malls into mixed-use centers and owned 122 U.S. retail properties as of 1 April.
SAUDI ARAMCO NET INCOME SLASHED IN HALF. Saudi Arabia’s national oil company reported net income of $23.2 billion in this year’s first half, slightly less than half of the amount it posted for the same period in 2019.
The company still will pay its second-quarter dividend, totaling $18.75 billion, in the third quarter this year.
Saudi Aramco now expects its capital expenditures for 2020 to be slightly above $25 billion, compared to $32.7 billion last year.
The global oil industry is reeling from a glutted market as the world’s economic shutdown collapsed demand for oil for fuel and chemical feedstocks.
As a result, oil companies are drastically reducing the estimated value of their reserves and hundreds of smaller producers are on, or over, the edge of failure.
Yet, Saudi Aramco sees the barrel as half full. “We are seeing a partial recovery in the energy market as countries around the world take steps to ease restrictions and reboot their economies,” said Amin Nasser, the company’s CEO.
This year’s earnings will suffer, he added.
TREND FORECAST: Brent Crude prices have been hovering in the low to mid-$40 a-barrel range for several weeks.
Today, on the news that the Washington was poised to inject yet another massive dose of monetary methadone to artificially prop up the world’s second largest economy, crude oil prices spiked 2 percent.
But by the day’s end, Brent Crude fell 1.16 percent, closing at $44.47 a barrel. We maintain our forecast that supply will continue to outpace demand despite injections by governments and central banks to artificially prop up economies.
