HONG KONG/MILAN/LONDON (Reuters Breakingviews) – Corona Capital is a daily column updated throughout the day by Breakingviews columnists around the world with short, sharp pandemic-related insights.
LATEST
– Samsung goes green
– China’s bling recovery
– Lloyds’ strength in weakness
BETTER LATE THAN NEVER. The virus is helping turn Samsung Electronics green. South Korea’s $328 billion technology conglomerate is talking up sustainability in its earnings. It follows the lead of President Moon Jae-in, who promises an ambitious “Green New Deal” as part of a $133 billion pandemic spending plan that focuses on tackling climate change and creating new jobs. Samsung’s approach features more climate-related disclosures.
The company has a lot of catching up to do. Rival chipmaker Taiwan Semiconductor Manufacturing recently pledged to achieve 100% renewable energy in all its operations by 2050. And last week, Apple committed to be completely carbon-neutral in its supply chain and products by 2030. The pandemic has prompted a renewed debate on all things environmental in South Korea, one of Asia’s worst polluters. That’s potentially one happy outcome of the global health crisis. (By Robyn Mak)
GREEN SHOOTS. The pandemic tide has started to turn for some purveyors of bling. Despite terrible second quarters, Gucci-owner Kering and Italy’s Prada reported strong “revenge” buying, as Chinese customers spent with gusto when stores reopened after the lockdown. Kering said its main brands’ sales in mainland China since May have been between 40% and 70% higher than last year. Prada’s Chinese purchases soared more than 60% in July. Hermes International, which took a surprisingly big hit on operating margin, was cagier, simply saying that the Middle Kingdom had showed great dynamism.
Chinese spend is likely to represent half of global luxury revenue in 2020, up from 36% last year. But the industry’s road to full recovery is tortuous as long as travel stays on hold and the rest of the world underperforms. Prada doesn’t expect to regain 2019 revenue levels until the end of 2021. For weaker players like Salvatore Ferragamo and Tod’s, the wait could be even longer. (By Lisa Jucca)
TAKING THE MEDICINE. Britain’s 18 billion pound Lloyds Banking Group spooked investors on Thursday with a whopping 2.4 billion pound second-quarter charge for expected bad debt. That was two-thirds higher than the impairment Chief Executive António Horta-Osório booked in the first quarter. Shares were down 9% by 0815 GMT.
Perversely, it could be a sign of strength. By taking the pain early, Horta-Osório has a bigger cushion to absorb actual loan losses. It’s unlikely that he’ll have to book additional hefty charges when government pandemic support programmes tail off later this year. Combined with a beefy 14.6% common equity Tier 1 capital ratio, that reduces uncertainty for investors. It also sends a useful signal to supervisors. They are less likely to unwind capital relief as long as the sector appears to be groaning under the weight of dud credit. In the topsy-turvy world of banking regulation, perceived weakness can be an advantage. (By Liam Proud)
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Breakingviews – Corona Capital: Samsung, Luxury, Lloyds – Reuters
