As you undoubtedly know by now, global stocks lost $3 trillion in value in the two trading days after the U.K.’s Brexit vote, the worst two-day loss in history.
Jacksonville stocks, of course, were not unscathed.
The aggregate market value of the 20 Jacksonville-based public companies with stock prices above $1 dropped by $5.55 billion over those two days.
But for local companies, it really wasn’t as bad as that might seem.
While just about every stock fell, most of the losses were consolidated in two companies, CSX Corp. and Fidelity National Information Services Inc. (FIS), which lost a combined $4.2 billion in value.
The market in general began to recover in the middle of last week, and if you exclude CSX and FIS, the other 18 companies recorded an aggregate gain in the week following the vote.
FIS, which provides technology services for banks not only in the U.S. but also in overseas markets, seems to be the Jacksonville company facing the biggest direct impact from Brexit. The company’s annual report said 22 percent of its revenue last year came from international business.
The company did not break that down by country but Robert W. Baird analyst David Koning said in a research report about 7 percent of FIS’ revenue comes in British pounds and another 7 percent comes in euros.
In his report on exposure to Brexit issued before the vote, Koning expected it to have “little impact to our coverage list from a fundamental standpoint,” but companies did have to worry about the impact on foreign exchange rates.
The banks that use FIS technology will still need to use it, regardless of the state of the British economy, but the sharp drop in the pound should impact FIS’ revenue when it is translated into U.S. dollars.
CSX doesn’t directly do business in Europe but it does transport freight to and from just about every major East Coast port. A disruption in European trade would impact its business.
The company lost $2.4 billion in market value in the two trading days after Brexit. If that seems excessive, remember that CSX has nearly 1 billion shares of stock outstanding so a $1 change in its stock price translates into a $1 billion change in its market capitalization.
As the market recovered, CSX’s net loss was narrowed to $879 million by Thursday, a week after the Brexit vote.
FIS lost $1.8 billion in value in those first two days but recovered to show a net loss of just $75 million a week after the vote.
The third-biggest two-day market loss for Jacksonville-based companies was $173 million for Rayonier Inc., another company with significant overseas interests.
The timber and real estate company reported 45 percent of revenue last year came from international sales, but that was mainly in Asian markets served by its New Zealand and Northwest U.S. timberlands.
Rayonier AM leads way
Even with the post-Brexit losses, FIS was still one of the top performing Jacksonville-based stocks in the first half of 2016, posting a 21.6 percent overall gain since Jan. 1.
FIS reported improving results after a somewhat disappointing 2015 and investors have been encouraged by the potential of its acquisition of SunGard Data Systems Inc. in December.
FIS was one of four Jacksonville-based companies that produced gains of more than 20 percent in the first six months of the year.
The leader was Rayonier Advanced Materials Inc., which is slowly rebuilding investor confidence after two disappointing years since it split with Rayonier Inc. into separate public companies.
Rayonier AM, which makes cellulose specialties products, jumped 38.8 percent in the first half of the year. That sounds good but unfortunately, it was still 69 percent below its July 2014 peak, shortly after the spinoff, of $44.18.
Rayonier AM continues to look forward. The company last week said it is moving closer to construction of a $135 million lignin products plant at its Fernandina Beach facility. The plant will be a joint venture with Norway-based Borregaard, which will own 55 percent of the facility.
Lignin is a natural component of wood that can be used in construction, agriculture and other industrial applications.
The two companies announced the joint venture a year ago and said last week they expect to complete a final review of the project in the second half of this year and begin operations about 18 months after that.
Rayonier AM and its predecessor companies have been operating a performance fibers plant in Fernandina Beach since 1939.
ParkerVision also jumps
A surprising big gainer in the first six months of this year was ParkerVision Inc.
The wireless technology company, which seems best known for its various lawsuits alleging patent infringement, has been up since a positive legal development in January when the U.S. International Trade Commission said it would investigate ParkerVision’s claims against several manufacturers.
The ITC case is scheduled for trial in August and the results will likely sway investor sentiment once again.
ParkerVision’s stock was trading below $1 before a 1-for-10 reverse stock split at the end of March lifted the price to get the company in compliance with Nasdaq rules.
The stock now trades above $3 and the price (including adjustments for the split) rose 36.5 percent in the first half of this year.
Regency rated ‘neutral’
Regency Centers Corp. was another strong performer, with its stock price rising 22.9 percent. When you factor in its strong dividend payments, the total return for shareholders was 24.4 percent in the first half of this year.
In a turbulent market, Regency could attract new investors, Boenning & Scattergood analyst Floris van Dijkum said in a research report last week.
“Despite trading near a 52-week high, we expect that investors will continue to flock towards perceived safe havens like grocery anchored properties owned by Regency,” van Dijkum said.
He initiated coverage with just a “neutral” rating but took a very positive view of the company.
“Regency Centers owns one of the highest quality strip portfolios with a strong focus on grocery anchored centers in the major coastal markets,” he said.
“The company currently enjoys cost of capital advantages to grow its portfolio and has been disciplined in funding its growth and has maintained its low leverage by issuing equity at a premium to deploy at par,” he said.
Regulators raise Deutsche Bank concerns
While most Jacksonville-based stocks did well despite concerns about Europe, a European-based company with a growing operation in Jacksonville dropped to a 30-year low last week.
Deutsche Bank’s stock, already hit by Brexit issues, fell further Thursday after the U.S. Federal Reserve Board said the Germany-based bank failed its so-called “stress test.”
The Fed looked at capital plans of 32 major bank holding companies and rejected two, Deutsche Bank Trust Co. and Santander Holdings USA.
Deutsche Bank Trust Corp is the U.S. transaction bank and wealth management business of Deutsche Bank.
The Fed said after a comprehensive capital analysis and review (CCAR), it objected to the bank’s capital plan on “qualitative grounds.”
“Although there were some improvements in certain aspects of capital planning at DBTC, the firm overall continues to have material unresolved supervisory issues that critically undermine its capital planning process,” the Fed said in its review.
Bill Woodley, CEO of DB USA Corp., said in a news release the bank’s capital adequacy “has never been in doubt.”
“We appreciate the Federal Reserve’s recognition of our progress, and we will implement the lessons learned this year in order to strengthen our capital planning process for future CCAR submissions,” he said.
DB USA is the new umbrella company for Deutsche Bank’s U.S. operations, which include more than 1,700 workers in Jacksonville and plans to add 350 jobs locally.
The Fed wasn’t the only major financial body to raise issues with Deutsche Bank last week. After the Fed’s late Wednesday announcement, the International Monetary Fund on Thursday also expressed concerns in a report on global banking.
“Deutsche Bank appears to be the most important net contributor to systematic risks in the global banking system,” it said.
Deutsche Bank did not respond to the IMF report.
The combined reports, following Brexit and other concerns, sent Deutsche Bank’s stock to a 30-year low Thursday on the Frankfurt Stock Exchange, the Wall Street Journal reported. The stock has dropped about 45 percent this year, it said.
Bank of America passes test
Another major Jacksonville employer, Bank of America, passed the Fed’s capital review and used the occasion to announce it is raising its quarterly dividend by 50 percent to 7.5 cents a share. Bank of America also said it will use excess cash to repurchase more stock.
“Over the last few years we have significantly strengthened our company and increased our earnings as we execute a straightforward strategy focused on responsible growth,” CEO Brian Moynihan said in a news release.
“This improvement has allowed us to take a significant step toward returning more capital to shareholders,” he said.