Contributed by Martin Mitchell of the Corporate Training Group
European private equity LBO activity shows signs of life. The Swiss government makes a 26% annualised return on the UBS bail-out. Global corporate bond issuance for 2009 is already more than $1 trillion. These are but a few highlights of important market events that we’ve gathered to help you start the week well informed.
- Ben Bernanke reinforced hopes that the global economy is on the mend. Speaking at an annual Federal Reserve conference, he said,”‘after contracting sharply over the past year, economic activity appears to be levelling out both in the US and abroad, and the prospects for a return to growth in the near term appear good.”
- US office prices rose in the second quarter for the first time since 2007. A report from Moody’s showed a 4.1% increase in office prices, however industrial, retail and apartment building continued to suffer with the overall index falling 1%.
- Minutes released from the last meeting of the Bank of England’s monetary policy committee revealed that the Governor of the Bank had wanted to increase the money injected into the UK economy via ‘quantitative easing’ by £75bn. However, the committee voted for a smaller £50bn injection.
- The UK’s Office for National Statistics published inflation figures for July. The main measure of inflation, the consumer price index was at 1.8% in July, unchanged from June. Average forecasts had been for a sharp fall to 1.5%. The retail price index that includes mortgage rates was at minus 1.4% in July. In the foreign exchange market sterling jumped in anticipation that the Bank of England’s monetary policy committee will lift interest rates earlier than previously thought.
- Following last week’s positive news of Germany and France coming out of recession with growth in the second quarter, Japan reported its second quarter’s GDP up by 0.9%. However, the Japanese GDP was well below average forecasts.
- Iceland’s parliament is close to approving the repayment of nearly €4bn lost by British and Dutch investors in failed Icelandic banks.
- Just over 9 months after their banking crisis, Iceland is also experiencing a baby boom, with deliveries up 3.5% so far this year. One commentator thinks many Icelanders have ‘sought solace in love and sex.’
Mergers and Acquisition
- Private equity and leveraged buyouts showed signs of life in Europe as Silverfleet Capital completed a €215.5m buy-out of Kalle, the German maker of sausage cases. Silverfleet raised €133m of debt from a consortium led by Bank of Ireland and including Lloyds, NIBC, GE Capital, Rabobank and DZ Bank. The debt will bear interest of 425-475 basis points over Euribor.
- German prosecutors are investigating Porsche after a complaint from Bafin, the German financial regulator. The investigation is thought to be looking at market manipulation, alleging that Porsche misled the markets about its intentions to takeover VW. During a four year period, Porsche’s takeover attempt distorted the market for VW’s ordinary shares so much that at one stage it was the world’s most valuable company. However, the takeover attempt ending up pushing Porsche to the brink of bankruptcy and having to agree to a merger with VW to survive.
- Australian-listed packaging group Amcor is finalising the details of an A$2.4bn (US$2bn) purchase of the Alcan packaging assets from Rio Tinto. Amcor will use an A$1.6bn equity raising to help fund the deal. The equity fundraising is led by Deutsche Bank, UBS, Bank of America Merrill Lynch, JPMorgan and CommSec, Australia’s largest retail brokerage.
- The bank-owned pan-European trading platform Turquoise has been put up for sale after an approach by Nasdaq-OMX, the US exchange group. Turquoise has around 5.5% of the trading in European equities, second to Chi-X’s 15% in the multi-lateral trading facilities that are winning business from the established exchanges. Turquoise is expected to sell for up to £50m.
- General Motors announced that it has reached a firm agreement to sell its Swedish carmaker Saab to Koenigsegg Automotive, a high performance sportscar manufacturer. However, Koenigsegg’s CEO warned that he still needed the Swedish government to plug a shortfall in the required financing of around €300m.
- Reflecting the strong expansion of credit in China, the Industrial and Commercial Bank of China (ICBC) revealed it had increased its loan book by 19% in the first half of the year. ICBC is the world’s largest bank by market capital and its lending increased by Rmb864.5bn ($126.5bn) in the first half.
- The Swiss government cashed in its investment in UBS for a profit of SFr1.2bn (£682m). The SFr6bn investment was only made last October to bail out the troubled bank, producing an annualised return of approximately 26%.
- An as yet unnamed hedge fund has spent approximately $5.6m purchasing January and February call options to buy US natural gas at $10 per British thermal unit. Natural gas is currently trading at around $3 per Btu.
- Australian-based investment bank Macquarie sealed a deal to buy a US money manager from Lincoln Financial. Macquarie has agreed to pay $428m for Delaware Investments that has more than $125bn under management. Macquarie also entered into a joint venture with a Chinese state-owned investment company to raise $1.5bn to invest in infrastructure projects in China, Taiwan and Hong Kong.
- Bahrain-based investment group Investcorp reported its first annual loss. The loss of $780.6m came alongside a fall in the value of assets under management from $17.7bn in June 2008 to $11.7bn in June 2009. Most of the loss stemmed from losses on hedge fund investments.
- The US and Switzerland finally reached agreement that the names of 4,450 wealthy Americans holding offshore accounts with UBS will be revealed. The criteria used to select the names will not be released for three months – a strategy aimed at putting pressure on the bank’s customers to come forward voluntarily.
- Later in the week, Bradley Birkenfeld, the former UBS private banker turned informant was sentenced to 40 months in prison by a Florida judge for helping wealthy American clients evade tax.
- US financial regulators flexed their muscles at Citigroup, where the US government holds a 34% stake. It emerged that it was an agreement with the regulators (the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation) that forced the replacement of the CFO in early July.
- The Federal Deposit Insurance Corporation is also negotiating the possibility of clawback in bank rescue deals that go better than expected. As part of the rescue of Colonial, which is being sold to BB&T, the regulator has agreed to absorb 80% of the first $5bn in losses and 95% of further losses up to a ceiling of $14.3bn. However, it has also agreed that BB&T will repay some money in 10 years time if the losses from Colonial’s assets are less than $5bn.
- The UK arm of JPMorgan has asked the regulator, the Financial Services Authority to review a multi-million package that has been offered to lure one of its star prop traders to rival Barclays Capital. The trader specialises in commodities, and he and his team of four have been offered as much as £30m in cash and stock to switch employers.
- Global corporate bond issuance has risen to $1,103bn in 2009 so far, the first time it has exceeded $1,000bn in a year. The main currency denominations are dollars ($487bn of issuance), euro ($299bn), yen ($64bn) and sterling ($53bn). Of the $1,103bn raised, 90% has been in investment grade bonds, with 30% from companies in the utilities and oil and gas sectors. The boom has come as three companies face difficulty in obtaining bank loans and high levels of demand from investors, where the yields are much more attractive than those available on government bonds. The syndicated loan market has only delivered $1,052bn so far in 2009, compared to $2,182bn in the same period in 2008 and $3,369bn in the same period in 2007.
- German ball bearing and car parts maker Schaeffler announced a €12bn refinancing that will enable its family owners to retain control and open the way to complete a merger with rival Continental. Schaeffler amassed around €12bn of net debt after bidding €11.35bn for Continental. It currently holds 49% of Continental with a further 40% held by the banks. The deal with the five main creditor banks – Commerzbank, LBBW, Unicredit, UBS and RBS – will see the debt split into two tranches, repayable in four and a half years and six years.
- Publisher Reader’s Digest announced a voluntary bankruptcy. Reader’s Digest has struggled with a fall in advertising revenues after an LBO in November 2006, led by Ripplewood Holdings meant the company had to service $2.2bn of debt.
- US small business lender CIT Group that is struggling amid rising loan losses and a freeze in wholesale market funding, revealed it had won time to avert a bankruptcy filing. A tender offer for $1bn of bonds at $875 per $1000 nominal was successful and buys the company time to file plans with the Federal Reserve Bank of New York as to how it will maintain its capital requirements by early October.
- The UK’s Office of Fair Trading ruled that a lack of competition in the local bus market may be inflating fares and reducing services. The OFT is considering whether to refer the sector to the Competition Commission for an in-depth investigation and will make a final decision after a consultation period ending in mid-October.
- The volume of clearing in the CDS markets has started to increase. The Intercontinental Exchange (ICE) announced that it had cleared 734 transactions totalling €50.8bn in credit default indices during the week of August 10th. ICE Trust, the company’s North American CDS clearing house, has cleared contracts with a notional value of more than $1,700bn since its launch in March. However, there is still some way to go, with the total amount of outstanding credit derivatives estimated at $32,300bn.
- A survey by London recruitment company Morgan McKinley indicated that the freeze in financial markets recruitment is beginning to thaw. The recruiter said that, whilst ‘recruitment continues to be at very suppressed levels compared to 2008, hiring is occurring across most areas within the City, particularly at manager level and above.’
- Saudi Arabia was in the news. Early in the week it granted investment banking licences to Barclays and Société Generale, and, later in the week, a prison sentence was given for the first time to a defendant convicted of insider dealing. The individual concerned was given a three-month jail sentence, fined SR100,000 ($26,660) and ordered to repay another SR52,690 that he made in profit.
- The UK’s National Audit Office refused to sign off the accounts of the Ministry of Defence due to an ‘inadequate level of evidence’ that £6.6bn of assets existed. £6.6bn is equivalent to the UK’s entire annual defence budget.
- The UK’s Financial Services Authority (FSA) sought to clarify that hedge funds and other activist investors can work together to oust a chief executive or change corporate strategy without falling foul of market abuse rules. The clarification is aimed to support calls for an increase in shareholder engagement.
Note : The details contained in this article have been drawn from a daily review of the Financial Times