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Look Beyond Stocks for True Extent of Corporate Devastation

It’s earnings season and this one is unlike any other.

Look Beyond Stocks for True Extent of Corporate Devastation
The Samsung C&T Corp. headquarters building. (Photographer: SeongJoon Cho/Bloomberg)

(Bloomberg) -- It’s earnings season and this one is unlike any other. The global coronavirus pandemic has resulted in the end of the longest U.S. bull market, full scale shutdowns of economies, sky high unemployment and a wave of businesses shuttering for good.

Quarterly reports are already beginning to yield some clues about the damage done to publicly traded companies, and the broader statistics are clear. About $10 trillion in market value has been wiped out of global stocks, 3 percentage points of worldwide GDP have been erased, and 26.5 million jobs have been lost in the U.S. alone.

But as investors look for ways to measure the impact on the corporate world -- and to detect signs of a rebound -- they’ll need some more precise tools. Bloomberg compiled data on how dividends have been slashed and corporate insiders have liquidated, while bond spreads and new issue concessions have blown out. We’ll update these figures over time to show the depths of the crisis and, eventually, the pace of recovery.

Read More: Here’s How Payouts Are Shrinking in Europe

Dividends

Look Beyond Stocks for True Extent of Corporate Devastation

Market chatter normally focuses on which shares are rising and falling, but for many investors a steady quarterly payout is the reason to own a stock. Dividends are the lifeblood of many a pensioner and retiree, and their disappearance can be catastrophic for investors who had thought they were playing it safe.

Here’s How Payouts Are Shrinking in Asia: Dividend Tracker

As of April 23, more than $70 billion of regular cash dividends earmarked for investors have been canceled. The bulk of the cancellations came from Western Europe where more than half the total comes from its beleaguered banking sector. HSBC Holdings Plc, the largest cancellation, raised the ire of core investors who called for legal action against the halted payouts. The bank will withhold more than $4 billion of cash that was previously earmarked for investors. Boeing Co., the Chicago-based planemaker, suspended its dividend on March 20 after the outbreak disrupted travel and upended the company’s finances as it was spending heavily to keep its suppliers afloat ahead of the expected midyear return of the 737 Max. Other companies, including Walt Disney Co. and AT&T Inc., have held on to dividends so far.

Insider Transactions

Look Beyond Stocks for True Extent of Corporate Devastation

Corporate insiders almost always sell more than they buy, even in good times -- it’s where many of them get most of their compensation, after all. And true to form, sales outpaced buys in the C-suite over the last month.

But if you’re looking for a ray of hope, insiders bought more shares than they have in any other month since at least 2018. That’s a possible indication that they saw the stock market’s plunge as a temporary buying opportunity and not the beginning of a prolonged slump.

OAS Spread

Look Beyond Stocks for True Extent of Corporate Devastation

Spreads on corporate bonds -- a measure of the additional risk investors are willing to take on to own the debt of a company -- blew out as investors sought the safety of cold hard cash and U.S. Treasuries. Here we looked at the option-adjusted spread, which measures the difference between the yield of a fixed income instrument versus a so-called risk-free holding such as U.S. Treasuries. The higher the spread, the higher the perceived market risk. The option adjusted spread for the Bloomberg Barclays Global Aggregate soared by more than 200 basis points, or 2 percentage points. For a company selling $1 billion in bonds, that would translate to an extra $20 million a year in interest.

The spread rose to 326 basis points in late March. That’s more than double its daily average of 145 basis points from 2010 through 2019.

New Issuer Concessions

Look Beyond Stocks for True Extent of Corporate Devastation

Bonds that are new to market typically trade at an initial discount to attract buyers. With yields at historic lows for much of the past decade and with a never ending fight to find yield, those concessions, at times, turned into premiums. In the months since the pandemic spread, the new concession has made a triumphant return -- a sign that companies are having to work harder to raise debt. The average new concession has hovered around 40 basis points since March, peaking near 107 basis points. The spread was negative as recently as February.

©2020 Bloomberg L.P.