L Brands boss Leslie Wexner to step down as company sells off Victoria's Secret - New York Post

Retail tycoon Leslie Wexner will leave the helm of his L Brands conglomerate amid scrutiny of his past ties to Jeffrey Epstein, as the company sells off its struggling Victoria’s Secret lingerie brand.

Wexner, 82, will step down as CEO and chairman of L Brands, which he founded and has led for decades, after private equity firm Sycamore Partners takes control of Victoria’s Secret in a deal valuing the underwear chain at about $1.1 billion, the company announced Thursday.

Sycamore will pay about $525 million for a 55 percent stake in Victoria’s Secret, which will become a separate privately held company with L Brands holding the remaining 45 percent, according to a news release. That appears to be a steep discount for a brand that posted more than $7 billion in net sales during L Brands’s 2018 fiscal year.

Wexner will remain on the L Brands board but will eventually be replaced as CEO by Andrew Meslow, whom the company named chief executive of Bath & Body Works, the conglomerate’s beauty retailer that will become a standalone public company.

“Les Wexner is a retail legend who has built incredible brands that are household names around the globe,” Allan Tessler, L Brands’s lead independent board director, said in a statement. “His leadership through this transition exemplifies his commitment to further growth of Bath & Body Works and Victoria’s Secret and driving overall shareholder value.”

News of the deal sent L Brands shares down 11.3 percent to $21.81 in premarket trading as of 9:04 a.m.

Long a dominant player in the global lingerie market, Victoria’s Secret has recently wrestled with falling sales and allegations of inappropriate behavior toward its models that were detailed in a New York Times exposé earlier this month. Reports emerged in January that L Brands was in talks to sell the brand to Sycamore, which has previously snapped up flailing retail outfits such as Talbots, Limited, Hot Topic and Nine West.

Wexner — the longest-serving CEO of an S&P 500 company — has also faced questions about his relationship with Epstein, the pedophile financier who died by suicide last August awaiting trial on sex-trafficking charges.

Wexner has said he’s “embarrassed” about his connections to Epstein and has accused him of misappropriating more than $46 million while serving as Wexner’s money manager.

Victoria’s Secret recorded more than $1.4 billion in total sales for the quarter that ended in early November. That amount accounted for more than half L Brands’s roughly $2.6 billion in sales for the quarter but marked a 7.6 percent decrease from the comparable period in the prior year.

By contrast, Bath & Body Works saw sales rise in that quarter to about $1 billion from roughly $956 million the year before. Combined international sales for Victoria’s Secret and Bath & Body Works were roughly flat at about $133 million.

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2020-02-20 14:08:00Z
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Goldman Sachs warns of imminent risk for stocks due to complacency on coronavirus - MarketWatch

Stocks look ready to take a breather and you can blame that on some fresh coronavirus worries.

Japan reported two deaths from a cruise ship and South Korea told 2.5 million people to stay home following its first casualty. While investors may be tired of hearing how virus-complacent they are, as stocks keep busting records, our call of the day from Goldman Sachs is saying exactly that.

“In the nearer term…we believe the greater risk is that the impact of the coronavirus on earnings may well be underestimated in current stock prices, suggesting that the risks of a correction are high,” chief global equity strategist Peter Oppenheimer told clients.

The virus history books — SARS in 2003 — reveal that setbacks for markets are often temporary. But China’s economy is “six times bigger now than it was then,” with Chinese tourism a 0.4% chunk of global GDP and missed work days in China equal to an two-month unplanned break for the entire U.S., he notes.

Oppenheimer points to Apple’s AAPL, +1.45%  latest warning that Wall Street largely shrugged off, noting that the company has been driving better-than-expected fourth-quarter earnings results.

“During the fourth quarter, the five largest stocks in the S&P 500 (Facebook FB, -0.14%, Amazon AMZN, +0.67%, Apple AAPL, +1.45%, Microsoft MSFT, +0.30%, Google owner Alphabet GOOGL, +0.36% ) posted an average earnings surprise of +20%, compared with just 4% for the average S&P 500 company. Any weakness to these and other companies would likely push earnings estimates lower,” cautions Oppenheimer.

Don’t look to stretched valuations in bond markets versus stocks to immunize against an equity pullback, he said. Not a sustained bear market, but don’t hit the snooze button is the message.

Last word goes to JPMorgan’s top quantitative strategist Marko Kolanovic, who notes investors have been piling into technology, low-volatility stocks and bonds, driven by coronavirus fears and as passive-funds pile into stock winners. As a fan of value stocks, Kolanovic expects a rotation back to that asset class once the virus subsides.

“We caution investors that this bubble will likely collapse, i.e. this time is not ‘different,’ with valuations reverting closer to 2010-2020 average,” he warns in a note.

The market

The Dow YM00, -0.25%, S&P ES00, -0.28%  and Nasdaq NQ00, -0.36%  are down, along with European stocks SXXP, -0.34%. China stocks 000300, +2.30%  jumped after the central bank cut its loan rate — an expected move but not enough, say some.

The U.S. dollar DXY, +0.12%  is up, with the Australian dollar AUDUSD, -0.8687%  falling after a jobless spike.

Read: Could a surging buck hurt stocks?

The chart

Palladium prices PAH20, +0.43%  have been going parabolic, and the commodity is a fine Tesla TSLA, +6.88%  contender as a “green hedge” for investors, says The Market Ear blog.

The Market Ear/Thompson Reuters

“Palladium is a key component in pollution-control devices for cars and trucks. About 85% of palladium ends up in the exhaust system in cars, where it helps turn toxic pollutants into less-harmful carbon dioxide and water vapor,” says the blogger.

The buzz

Shares of E*Trade ETFC, +2.60%   are soaring after Morgan Stanley said it will buy the electronic trading platform in an all-stock deal valued at $13 billion.

A shipping giant and more airlines have warned over coronavirus fallout. China’s new cases rose by just 394, as officials changed their counting methodology again.

L Brands LB, +0.00%  is reportedly selling control of its lingerie arm Victoria’s Secret to take it private.

Shares of Zillow Z, +4.19%  are surging after the online real estate group posted higher revenue, though losses rose as well.

Democratic presidential candidate Mike Bloomberg came under attack by rivals at Wednesday’s debate.

Weekly jobless claims are clinging to a postrecession low, while the Philadelphia Federal manufacturing index came in stronger than expected. Leading economic indicators are still to come.

Random reads

Nine dead in Germany after gunman attacks hookah bars.

What the Taliban want — deputy leader’s New York Times opinion piece.

Silicon Valley inventor behind “cut-copy-paste” has died.

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. Be sure to check the Need to Know item. The emailed version will be sent out at about 7:30 a.m. Eastern.

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2020-02-20 13:36:00Z
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Morgan Stanley Is Buying E*Trade, Betting on Littler Customers - The Wall Street Journal

Low interest rates have cut into the money E*Trade makes by investing the cash its customers leave in their accounts.

Photo: Andrew Harrer/Bloomberg News

By

Liz Hoffman

Liz Hoffman
The Wall Street Journal
• Biography
• @lizrhoffman
• liz.hoffman@wsj.com

Feb. 20, 2020 7:24 am ET

Morgan Stanley is buying E*Trade Financial Corp. in a $13 billion deal that will reshape the storied investment bank and firmly stake its future on managing money for regular people.

The all-stock takeover, set to be announced Thursday, will combine a Wall Street firm in the late innings of a decadelong turnaround with a discount broker built on the backs of dot-com day traders. It is the biggest takeover by a giant U.S. bank since the 2008 crisis.

E*Trade brings five million retail customers, their $360 billion in assets and an online bank with cheap deposits that Morgan Stanley can funnel into loans. Its CEO, Michael Pizzi, is coming along to run the e-brokerage business, which will keep its brand, its handful of retail storefronts and its buzzy and well-funded ad campaigns, Morgan Stanley Chief Executive James Gorman said.

Photo: Simon Dawson/Bloomberg News

“ ‘We’ll take on Schwab. We’ll take on Fidelity.’ ”

—James Gorman, Morgan Stanley CEO

E*Trade’s future has been uncertain since November, when its two main competitors, Charles Schwab Corp. and TD Ameritrade Holding Corp., announced their own merger. Schwab had thrown an elbow weeks before by cutting the trading fees it charges customers to zero. The move sent E*Trade shares tumbling and raised questions about whether the brokerage, dwarfed by a merged competitor, could survive alone.

Morgan Stanley already has 15,500 human advisers catering to millionaires and last year rolled out an online-only tool for customers with less money and less-complicated financial lives. E*Trade will slot into that wealth-management arm, which will have more than eight million users and $3.1 trillion in client money once the deal closes.

“We’ll take on Schwab. We’ll take on Fidelity,” Mr. Gorman, now in his 10th year as CEO, said in an interview. “This isn’t about legacy-building; it’s about getting [Morgan Stanley] ready for prime time.”

E*Trade became a household name in the late 1990s with its dot-com vibe and splashy Super Bowl commercials. Falling commissions have hurt its brokerage arm and low interest rates have cut into the money it makes by investing the idle cash its customers leave in their accounts.

Its crown jewel is a comparatively low-profile business: managing the stock that employees at hundreds of companies receive as part of their pay. Those shares are typically locked up for a few years and when they become available, E*Trade aims to move those employees into brokerage accounts.

Morgan Stanley has a competing business, which it expanded a year ago by acquiring Solium, a privately held specialist in the space. After buying E*Trade, Morgan Stanley would have more than 4,000 corporate customers and $580 billion of stock held on behalf of their employees who might, it hopes, one day be rich.

The takeover, code-named Project Eagle, is the largest deal by a major Wall Street player since the crisis, when regulators arranged hasty marriages in a bid to shore up the financial system. Few have been willing to test the waters in Washington since then.

That the test balloon comes from Morgan Stanley, the banking industry’s weakling during the 2008 crisis and a problem child for years afterward, is a testament to its reinvention under Mr. Gorman. The 61-year-old has cut riskier trading operations and grown steadier businesses like lending and wealth management. Revenue hit a record $41 billion last year.

“We’re strong now, and I believe you move from a position of strength,” Mr. Gorman said.

He has sounded more acquisitive in recent months and floated a trial balloon with regulators and investors by buying Solium last year for $900 million. Morgan Stanley shares have gained 40% since September, giving him a more richly valued currency to shop with.

Mr. Gorman said he has been eyeing E*Trade since 2002, when he was an executive at Merrill Lynch. He reached out again in 2007, when he was tasked with fixing Morgan Stanley’s brokerage arm, but negotiations wavered as E*Trade started to feel tremors of the coming meltdown in its portfolio of home-equity loans.

Talks this time around began in late December, when a two-hour conversation between Messrs. Gorman and Pizzi convinced both men of the deal’s merits. Mr. Gorman said the tumult kicked off by Schwab made E*Trade “more open” to a deal but said he wasn’t low-balling: The deal price of $58.74 a share, all in Morgan Stanley stock, is 34% higher than E*Trade’s price before Schwab announced its fee cut.

Morgan Stanley expects to recoup that premium through $400 million of cost cuts and additional savings of $150 million from using E*Trade’s low-cost deposits to replace more expensive funding. Mr. Gorman said he also sees an opportunity to take E*Trade international, where his firm has no wealth-management presence.

All of Wall Street is on the hunt for more reliable sources of revenue after postcrisis regulations and a long period of eerie calm in the markets crimped trading. JPMorgan Chase & Co. and Bank of America Corp. are getting bigger in payments, while Morgan Stanley’s closest peer and fierce rival, Goldman Sachs Group Inc., is building an online retail bank.

Mr. Gorman is proving himself to be one of the savvier corporate deal makers. He pried wealth manager Smith Barney away for a song from a weakened Citigroup Inc. in the wake of the crisis. Here he seized on the brokerage price war to nab E*Trade.

Morgan Stanley has also been scouring takeover targets in asset management, where it is smaller and nichier than peers, people familiar with the matter have said.

The E*Trade acquisition is expected to close in the fourth quarter.

Write to Liz Hoffman at liz.hoffman@wsj.com

Copyright ©2019 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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2020-02-20 12:24:00Z
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Goldman Sachs warns of stock market correction - CNN

Stocks keep reaching record highs. Goldman Sachs is worried that leaves investors vulnerable to surprises.

The investment bank told clients this week that a near-term correction, in which the market slides at least 10% from a recent peak, "is looking much more probable."

The thinking: Equity markets look "increasingly exposed" to disappointing earnings growth due to the new coronavirus outbreak, Goldman warns.

Remember: The number of companies that have lowered their guidance on profits for the first quarter is still in line with past years. But Apple's surprise update this week that it wouldn't hit its revenue target has put investors on edge.

Goldman Sachs notes that the global economy is expected to keep growing, and the United States is, too, despite the country already having experienced its longest economic expansion in 150 years. That creates a supportive environment for stocks. But the bank is concerned that earnings expectations could still be too rosy, especially given the exposure of global companies to the Chinese economy.

Apple (AAPL), it observes, has been "an important driver" of better-than-expected earnings results. Big Tech companies — Facebook, Amazon, Apple, Microsoft and Google — beat earnings expectations by 20% on average last quarter, compared with 4% for the average S&P 500 company.

"Any weakness to these and other companies would likely push earnings estimates lower," wrote Peter Oppenheimer, the firm's chief global equity strategist.

Additionally, depressed bond yields have made stocks look more attractive by comparison. Oppenheimer points to Germany's DAX, which has also hit an all-time high as the yield on the country's benchmark 10-year bond remains in negative territory. That raises the stakes for corporate earnings as well, he argues.

Victoria's Secret is going private at $1.1 billion valuation

L Brands is closing in on a deal to sell control of Victoria's Secret to a private equity firm, the Wall Street Journal reports.

Sycamore Partners is expected to buy 55% of the brand and take the struggling business private. The deal, which could be announced as soon as Thursday, values Victoria's Secret at about $1.1 billion. L Brands, which would be reduced to running Bath & Body Works, is set to control 45% of the separate company.

Leadership shakeup: The Journal reports that Leslie Wexner, the billionaire who built L Brands into a retail behemoth, will step down as CEO and chairman, but is expected to remain on the board and keep stakes in both companies. Wexner has come under heavy scrutiny for his close ties to Jeffrey Epstein, who died in prison last summer while awaiting trial on sex trafficking charges.

Under pressure: Victoria's Secret has struggled with falling sales and competition from upstart lingerie brands. The company said in November that it was canceling its annual fashion show amid growing claims that it was out of touch. Last year, an activist investor built up a stake in the company and pushed for it to spin-off the more successful Bath & Body Works.

Shares of L Brands (LB) fell more than 10% in premarket trading. The valuation is a knock for a company that runs hundreds of Victoria's Secret and PINK brand stores globally, per its last annual report. They brought in more than $7 billion in sales in 2018.

Gold prices hit a nearly 7-year high

Stock records and the highest price for gold in nearly seven years? You read that correctly.

Even as market bulls drove the S&P 500 and Nasdaq to fresh records on Wednesday, gold prices passed $1,610 per ounce. The spike indicates that the spread of the novel coronavirus is encouraging investors to pile into safe haven assets, even as many decide to keep making riskier bets.

UBS analysts Wayne Gordon and Giovanni Staunovo think that gold could hit $1,650 per ounce or higher in the coming weeks. Their argument: First quarter data will "look ugly before it gets better."

"With US equity valuations elevated, any further upsets could see another bout of volatility, a further rally in government bonds and a higher gold price," they said in a recent note to clients.

Domino's Pizza (DMPZF) and ViacomCBS (VIACA) report results before US markets open. Dropbox (DBX) and Zscaler (ZS) follow after the close.

Also today:

• The US Energy Information Administration releases weekly crude oil inventories at 11 a.m. ET.
• The European Central Bank also releases minutes from its January meeting.

Coming tomorrow: US existing home sales for January.

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2020-02-20 12:22:00Z
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UBS, the world's largest wealth manager, is getting a new CEO - CNN

UBS (UBS), the world's largest wealth manager, has announced that Sergio Ermotti is stepping down as CEO. He'll be replaced by Ralph Hamers, the current chief executive of Dutch bank ING (ING).

Axel Weber, the chairman at UBS, said in a statement that Hamers "is the right CEO to lead our business into its next chapter." Hamers will take up the post on November 1.

Both of Switzerland's top banks have announced a change in leadership this month.

Credit Suisse (CS) CEO Tidjane Thiam resigned earlier this month after acknowledging that two spying scandals last year had "disturbed" the firm. He's been replaced by company veteran Thomas Gottstein.

Change at UBS

Ermotti became chief executive of UBS in 2011 in the aftermath of a rogue trader scandal that cost it $2 billion.

He oversaw efforts to beef up the bank's wealth management business amid continued weakness at its investment banking division. Asia has been a particular focus.

In 2018, UBS became the first foreign bank to be allowed to take control of its business in China. It received approval from regulators to increase its stake in a joint venture there to 51%.

And last year, UBS launched an alliance with Japan's Sumitomo Mitsui Trust to create a one-stop shop for asset management products and services.

— Michelle Toh contributed to this report.

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2020-02-20 09:22:00Z
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Coronavirus latest: Apple supplier Foxconn warns of hit from outbreak - Financial Times

China's banks face up to $1.1tn surge in questionable loans, S&P warns

China's lenders may be hit with an increase of as much as Rmb7.7tn ($1.1tn) in questionable loans as the coronavirus outbreak deals a heavy blow to China's economy, S&P Global Ratings has warned.

The Covid-19 outbreak, which has prompted China to lock down large swaths of its sprawling economy, will cause some individuals and companies to "have difficulty with debt repayment," S&P said in a report issued on Thursday in Hong Kong.

In a worst-case scenario in which the outbreak does not peak until April, S&P forecasts China's economy, the second biggest in the world, will expand 4.4 per cent in 2020. That would mark a dramatic slowdown from the 6.1 per cent growth in 2019 and be the weakest pace since 1990, according to World Bank data.

S&P's base scenario, in which the virus peaks next month, points to 2020 growth of 5 per cent, which would also be the lowest in three decades. Even in the best case in which the virus peaks in February, GDP growth is forecast at 5.5 per cent.

The "growth shock" would cause the value of non-performing loans in China's banking sector to surge by Rmb7.7tn to Rmb10.1tn in S&P's worst-case scenario. In the base case, the figure would jump Rmb5.4tn to Rmb7.8tn. In the best case, the NPLs would rise Rmb3.4tn to Rmb5.8tn. The ratio of NPLs to total loans would be 7.8 per cent, 6 per cent and 4.5 per cent in the worst, base and best case scenarios, respectively.

S&P said it also expects Chinese regulators to relax rules for what counts as a bad loan and potentially give certain loans to affected communities and business "special consideration" in how they are accounted for on bank balance sheets.

The ratings firm said it "may take years for domestic banks to revert to normal standards, with long-term repercussions for the creditworthiness of some institutions."

China has already begun to take action aimed at stimulating its economy and easing conditions in its financial system. The loan prime rate, a key lending rate, was reduced on Thursday after the People's Bank of China earlier this week reduced another important medium-term lending rate.

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2020-02-20 08:56:00Z
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Nasdaq hits record as China pledges to stimulate coronavirus-hit businesses - MarketWatch

U.S. stock benchmarks traded modestly higher at the start of Wednesday’s session as investors took some optimism from measures China says it has taken to help coronavirus-stricken businesses, helping to push the Nasdaq Composite to a new all-time high.

How are benchmarks performing?

The Dow Jones Industrial Average DJIA, +0.28% advanced 105 points, or 0.3%, to 29,337. The S&P 500 SPX, +0.47% rose 13 points, or 0.4%, to 3,383. If the S&P 500 finishes above 3,380.16, it will set a new closing high. The Nasdaq Composite COMP, +0.77% added 61 points, or 0.5%, to 9,794.

On Tuesday, the Dow shed 165.89 points, or 0.6%, to settle at 29,232.10, while the S&P 500  lost 9.87 points or 0.3% to close at 3,370.29. However, the Nasdaq Composite Index  gained 1.57 points, or less than 0.1%, to finish at a record 9,732.74, after flipping positive in afternoon trade.

What’s driving the market?

U.S. stocks have remained in an uptrend for February, helped by corporate earnings reports, despite the potential for slowing global economic growth due to disruptions to trade and travel caused by COVID-1, the infectious disease that originated in Wuhan, China late last year.

Chinese officials have said the rate of new cases has begun to ebb, but the World Health Organization has recommended caution.

On Wednesday, investors also appeared heartened by comments from China’s Ministry of Industry and Information Technology, which said Beijing would help companies to identify weak links in supply chains, The Wall Street Journal reported.

The assistance is one of several steps that Beijing and local Chinese authorities have taken to limit the economic fallout of the coronavirus, which has sickened 75,200 people and claimed more than 2,000 lives. Help is focused on small and medium-size businesses in Hubei province and include temporary cuts to taxes, low-interest-rate loans for farmers and rent reductions for businesses, according to the South China Morning Post.

Looking ahead, investors will watch for cues from the Federal Reserve, which will release minutes from its policy meeting last month, where the central bank held benchmark rates at a 1.50%-1.75% range and said it would monitor the coronavirus impact on the global economy.

“COVID-19 remains the market driver and is set to frame policy makers’ reactions around the world over the near-term,” wrote Han Tan, market analyst at FXTM, in a research report.

“The global economic outlook remains mired in uncertainty at this point in time, with coronavirus-related warnings emanating out of Apple and corporate America,” he said, referring to Apple Inc.’s warning on Monday, which weighed on stocks on Tuesday.

In U.S. economic reports, the Commerce Department said housing starts fell 3.6% in January to an annual pace of 1.57 million, but permits rose to a 13-year high of 1.55 million. U.S. producer prices jumped 0.5% last month, its biggest increase in 15 months.

“Net, net, the economy looks good with residential home building activity beating expectations and a little more producer price inflation even if the data overstate how well the country is doing in terms of generating the growth and inflation the Federal Reserve wants to see,” said Chris Rupkey, chief economist at MUFG.

Which Fed speakers are on deck?

• Minneapolis Fed President Neel Kashkari is due up at 11:10 a.m.
• Dallas Fed President Robert Kaplan speaks at 1 p.m.
• Richmond Fed President Thomas Barkin is scheduled to make remarks at 4:30 p.m.

Which stocks are in focus?

• Garmin Ltd. GRMN, +7.15% shares rose after the company reported results that were better than expected.
• Bausch Health Cos. Inc. shares BHC, -9.59% fell after reporting quarterly results.
• Analog Devices shares ADI, +4.73% climb after Wall Street earnings beat.
• Philip Morris stock PM, +0.49%  slump after earnings falls short of expectations.
• Tesla Inc.’s stock TSLA, +8.19%  shot above $850 after a Benstein analyst said it saw no “imminent” negative catalyst.
• Uber Technologies Inc. UBER, +1.03%   shut down its Los Angeles office, but its shares traded higher on Wednesday.

How are other assets performing?

The price of a barrel of West Texas Intermediate crude for March delivery CLH20, +1.40% rose 1.4% to $52.79 a barrel on the New York Mercantile Exchange.

Gold for April delivery GCJ20, +0.42% added 0.2% to reach 1,606.90 an ounce, extending its climb above the psychologically important level at $1,600.

The U.S. dollar DXY, +0.24% was little-changed against a basket of rival currencies at 99.60.

The benchmark U.S. 10-year Treasury note TMUBMUSD10Y, +0.06% was up slightly at 1.57%. Bond yields fall when prices rise.

In Europe, the Stoxx Europe 600 SXXP, +0.80% advanced 0.6%, while the FTSE 100 UKX, +1.01% climbed 0.8%.

In Asia overnight, the China CSI 300 000300, -0.15%  ended 0.2% lower to close at 4.051.31, the Shanghai Composite SHCOMP, -0.32%  edged down 0.3% at 2,975.40, and the Hang Seng Index HSI, +0.46% gained 0.5% to 27,655.81. The Nikkei 225 NIK, +0.89% rose 0.9% to 23,400.70.

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2020-02-19 14:56:00Z
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