Health and life sciences
The health industry is the front line of the US response to COVID-19. Health providers must simultaneously continue operations while preparing their pandemic response and in some cases, responding to immediate health needs due to infection outbreaks. Pharmaceutical and life science companies are spooling up production of test kits and research and development infrastructure for vaccine development. But what do they need to be thinking about from a regulatory perspective?
Banking and capital markets
Communication is a key part of effective crisis management. For banks and capital markets firms, this takes on heightened importance because trust and reputation are integral to what they offer clients. The industry has many stakeholders, but three are particularly important during these challenging times:
- Regulators will want to know that boards are engaged, capital and liquidity standards are appropriate and risk management is effective.
- Clients (whether retail, commercial, corporate, or institutional) will want reassurance that their financial institutions are strong and stable — even if their own finances are under stress.
- Employees need to know about their personal safety and about how their jobs may change.
- COVID-19 and the banking and capital markets industry
- How retail banks can keep the lights on during the COVID-19 crisis — and recalibrate for the future
- Our take: The changing regulatory landscape
Asset and wealth management
The SEC, FINRA, IRS and other reporting regulatory channels are providing new guidance and relief, and they may offer more in the coming days and weeks. Regulatory changes could affect planning for people, reporting, third-party risk and other contingencies. Organizations should consider exercising extreme diligence in staying up to date on guidance, and plan for pivots to any preparations based on new guidance.
The COVID-19 crisis is already shifting the way insurers will need to think about the valuation of their investments and liabilities. Regulators may step up oversight and requirements, including more detailed reporting on asset adequacy; consideration of stress-testing based on the pandemic; and consideration of impact on solvency. The New York Department of Financial Services (NYDFS) has already issued a circular letter requiring insurers to show how they’ll address disruption to operations and financial risk caused by the virus. You’ll also be required to make disclosures about the impact of the virus on your business within financial statements or other SEC filings in line with GAAP and SEC disclosure standards. Such disclosures may include risk factors, impairment, debt, liquidity, and management discussion and analysis (MD&A) regarding operating results and changes in key asset or liabilities balances.
Due to the different needs, strategies and capabilities of each underlying company, PE firms have to wrangle a diverse host of workforce issues. Office-based businesses may seek guidance on work-from-home provisions, whereas manufacturing facilities face different safety and continuity considerations. Geographic diversity and local government regulations also come into play. Without the right monitoring and planning, PE firms could be overloaded with issue after issue, causing a fire drill every time. Additionally, HR policies and directives may be inconsistent within and across the underlying entities.
The energy industry is likely to continue to struggle in the wake of a precipitous drop in oil and gas prices (and share prices) due to dampened demand from the effects of COVID-19 and recent failed negotiations between OPEC and Russia. Looking ahead, this environment of depressed oil prices, and revenue, and production declines will likely continue to present major challenges for oil and gas companies, especially for those at risk of being unable to refinance debt or meet existing debt covenants.
Power and utilities
While regulated utilities are mandated to have access to adequate supplies of critical parts, components, equipment and materials for emergencies, utilities might encounter shortages due to constrained production of supplies produced in countries highly affected by COVID-19. Developers of renewable energy projects could potentially experience difficulties in getting critical components (e.g., photovoltaic cells, turbines) from suppliers in affected countries. Additionally, we expect some utilities to experience load reductions due to dampened demand for power, gas and water from the commercial and industrial sectors. They also may find that some customers are struggling to pay their bills.
The sudden, sharp timing of this crisis caught many companies off guard, bringing into clear focus the immediate need for an effective crisis command center. Being in a sector that’s at the forefront with consumers, many consumer-facing companies were among the first to respond to this crisis. Social distancing guidelines require an almost instantaneous shift to virtual management of programs and projects.
The shift in the pandemic’s epicenter to Europe and North America underscores the need for automotive companies to remain nimble in their responses to the crisis. Supply chain disruptions combined with the significant — and growing — macroeconomic uncertainty fueled by COVID-19’s global spread can make formulating the right response a moving target. Careful scenario planning is crucial. Companies should not only consider the pandemic’s likely impact across a range of critical areas detailed here, but they also should take into account the volatile economic, policy and financial market terrain.
Manufacturers will likely face continued downward pressure on demand, production and revenues as the COVID-19 pandemic intensifies. They will also likely face cash-flow liquidity challenges and difficulties in managing debt obligations. Given the unknown variables of how the COVID-19 pandemic will play out and when containment will be achieved, industrial manufacturers should brace for a trying period and plan for a recovery that may not arrive for at least one year, based on prior crises the industry has experienced. Manufacturers can also expect to enter a new era of closer public-private coordination in order to strike the right balance between producing critical products and protecting public health.
Engineering and construction
As the COVID-19 crisis unfolds, E&C companies will likely be hit on numerous fronts. Yet, how your company will be impacted depends on what segments you serve and where you sit in the industry’s value chain. Large multinational E&C players will also need to look beyond their own economic viability. They may need to coordinate closely with the public sector to help forge plans central to public safety and the solvency of their workforce, while keeping the lights on in their operations. This should be especially relevant for firms designing and building projects connected to critical infrastructure, such as energy and power, transport, communications, food and agriculture and others.
Aerospace and defense
Uncertainty surrounding the duration — or even a deepening — of these conditions adds to a clouded view of how a recovery could play out for the industry. Indeed, the airlines and aircraft manufacturers will likely need swift government support. Plans for that are already afoot, not only in the US, but also globally. Unfolding plans for government support (i.e., the CARES Act) will likely provide greater visibility into the future viability of many companies in the aerospace and defense sector — especially the commercial airlines.
The technology industry has weathered past crises and found novel ways to emerge stronger each time. In fact, tech companies have led the way on a variety of strategies other industries are now using to cope in this crisis — from remote working to a globally dispersed supply chain to managing through disruption. This crisis might well spark further creativity and innovation.
The lifeblood of modern communications, the telecommunications industry has been relaying messages between individuals and businesses for almost two centuries — even during crises. This crisis is no different. Stress-tested for resilience during the past 200 or so years, the industry will surely evolve again after this crisis, emerging even more prepared for the decades ahead.