Traders Weigh Management Shake-Up at Vale

(Bloomberg) -- Vale SA's American depositary receipts erased earlier losses of as much as 3.8 percent to close higher Monday, after the company's chief executive officer Fabio Schvartsman and other directors stepped down temporarily. The removal of executives took place amid mounting pressure from authorities, after the second deadly disaster in about three years in one of the miner's tailings dams in Brazil.

“Investors have expressed concern to us over this news given that Mr Schvartsman was well regarded,” Citigroup analyst Alexander Hacking wrote in note. “Yet, we are less concerned given that Vale's near-term priority is to assist victims and navigate the crisis.”

According to Citigroup, it's key that the company maintains its independence, with the board free to set strategy without government interference. “All indications from Brazil's new government so far is that this will be the case,” Hacking said.

A change in the company's management has come “sooner than we expected,” HSBC analysts led by Jonathan Brandt wrote in report earlier. “While the directors themselves technically requested the removal, their request is the consequence of the recommendation of government entities and what we would characterize as government pressure for a change in management.”

HSBC reiterated its hold rating for Vale's ADRs, on the back of increased uncertainty and potential liabilities. The bank believes that, while temporary, the recent movement is likely a first step toward permanent removal, given the level of public pressure. It added that Eduardo Bartolomeo, who has served as executive director for base metals since January 2018 and was appointed as interim CEO, is “well respected by the market.”

Scotiabank downgraded Vale's ADRs to sector perform from sector outperform, lowering its price target to $13.60 from $16. “A change in management – unclear at this point to us how temporary it would be – may be seen by some investors as a new reason for concern,” analyst Alfonso Salazar wrote in note.

“Investors may need time to assimilate the implications of having a temporary new management team under today's complex situation,” Salazar said.

To contact the reporter on this story: Vinícius Andrade in São Paulo at vandrade3@bloomberg.net

To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, Brad Olesen, Richard Richtmyer

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