Banks From UBS to BofA Rethink Operations to Cope with Virus in Asia
Banks From UBS to BofA Rethink Operations to Cope with Virus in Asia
(Bloomberg) -- Global banks rushed to bolster their contingency measures as the threat posed by the novel coronavirus reverberated through the financial system, dragging down stock markets and freezing credit markets.
Credit Suisse Group AG has started to split its workers in South Korea into different offices to ensure business can continue, while lenders including Deutsche Bank AG and Goldman Sachs Group Inc. restricted travel to Italy, the worst-hit nation in Europe.
The banks are working to ensure they can continue to operate as they brace for the impact of the epidemic on clients, particularly in Asia and Europe. Deals involving Chinese companies have already slumped, as have initial public offerings in Hong Kong. HSBC Holdings Plc and Singapore’s three biggest banks have warned the virus may force them to set aside more money for soured loans.
Debt issuance in the $2.6 trillion international bond market, a key source of income for investment banks, came to a virtual standstill Wednesday as Wall Street faced its third straight day without any offerings and Europe’s bankers had their first day of 2020 without a deal.
“There’s a risk that the reduction in stock and bond sales will hit investment banking revenue,” said Philipp Haessler, an analyst at Pareto Securities in Frankfurt. “The much bigger issue is whether we slide into recession, which would mean a rise in defaults and higher provisions at banks.”
Soured Loans
Banks are at risk on multiple fronts. They help companies raise money through stock and bond sales, so if those sale dry up, so do banks’ fees. If borrowers struggle to make their payment because of the virus, the lenders may have to write down those loans.
That’s a worry in China, where the four big banks’ problem loan ratios could rise to 2% if more small and mid-sized borrowers default, wrote Francis Chan, an analyst with Bloomberg Intelligence. But it’s also a concern in Italy, now home to the most infections in Europe, where many banks are already weighed down by soured loans.
“Italy could be hit pretty hard on that front because the virus has shut down parts of the north of the country, which is the economy’s real driver,” said Haessler.
Areas under lockdown include Milan, the country’s financial hub containing most domestic Italian banks and international firms’ local headquarters. Goldman Sachs is restricting all business travel to, from and within the Veneto region and Lombardy, the area around Milan, according to a memo sent to employees on Tuesday. The firm is also postponing all non-essential business travel to, out of or within the rest of Italy.
Morgan Stanley has limited travel to Italy to business-critical trips, with managers required to sign off on any travel, according to people with knowledge of the matter. Similar restrictions were applied at Credit Suisse, while UBS Group AG asked employees to defer all non-essential business travel to northern Italy, other people familiar with the banks’ situations have said.
Hot Spots
In Asia, firms from Shanghai to Hong Kong and now Seoul are rethinking how they work and travel to keep staff safe and ensure business continues. In South Korea, infections have now topped 1,200, making it a new hot spot for the virus, which has killed more than 2,700 people globally. About two dozen countries including Singapore have levied restrictions on travelers from South Korea, while flights and tour-group trips to the nation are being canceled.
In Japan, Prime Minister Shinzo Abe called for major sporting and cultural events to be called off, postponed or scaled down over the next two weeks, saying the move was crucial in preventing the domestic spread of the virus. Japan has 164 confirmed cases so far.
UBS has put South Korea on a so-called level 2 as part of it business continuity planning, in line with Hong Kong and Singapore. China is categorized as level 3, signaling the highest risk, one of the people said. At HSBC, South Korea is rated as an “increased caution,” meaning business travel can continue but employees should reconsider the need for the trip and avoid the heaviest hit areas of Daegu and Gyeongbuk, a spokeswoman said. Morgan Stanley and Standard Chartered Plc have also restricted travel to and from South Korea.
--With assistance from Alfred Liu, Takashi Nakamichi, Sonia Sirletti and Steven Arons.
To contact the reporters on this story: Cathy Chan in Hong Kong at kchan14@bloomberg.net;Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net
To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Marion Dakers
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