Manhattan-New York

In Case You Missed It: Weekend Round-Up

Contributed by Martin Mitchell of the Corporate Training Group

In case you were too busy enjoying your weekend to have kept up with the news, contributor Martin Mitchell has been kind enough to gather some important market events from this past weekend (and week) so that you can start this week well informed:

Saturday, November 1st

Financial Institutions

  • Barclays plc announced a £7.3bn fundraising, mainly from Middle Eastern investors, that will save it from having to accept a British government bail out. Shaikh Mansour from the UAE will inject up to £3.5bn, with Qatar’s sovereign wealth fund providing £2bn and £300m from a member of Qatar’s ruling family. The remaining £1.5bn will come from other investors. The capital raising will see Shaikh Mansour, the UAE’s Minister of Presidential Affairs, own up to 16.3% of the bank and Qatari investors holding up to 15.5%.
  • German bank Commerzbank is rumoured to be considering a state capital injection. With its tier 1 capital at approximately 7.4%, compared to British banks at around 9% and Deutsche Bank at 10%, the bank will have to weigh up the reputational damage of seeking state help against its need for additional capital.

Credit

  • Several hundred angry investors, many of them elderly retirees, protested outside banks in Hong Kong. They are demanding compensation from 8 banks for losses on Lehman Brothers structured products that were sold to them. The banks include ABN Amro, Standard Chartered, Bank of China, Citic Ka Wah and DBS.
  • The Bank of Japan reduced its official interest rate by 30 basis points to just 20 basis points, joining the global response to the credit crisis.

Friday, October 31st

Mergers and Acquisitions

  • Delta Air Lines completed its $2.6bn merger with Northwest Airlines Inc to create the world’s biggest airline. The all-stock deal closed after clearing the final regulatory hurdle, a US Justice Department antitrust review. The Justice officials cited the likelihood of ‘substantial and credible efficiencies’ without harming consumers or competition.

Financial Institutions

  • Deutsche Bank announced 3rd quarter profits of €93m, but only after taking advantage of the change in accounting rules that did not require trading assets to be marked to their fair value. The result was a writeback of €800m, reducing writedowns to €1.2bn. Without the change the quarter’s performance would have been a substantial loss.
  • As the UK’s HBOS takeover by Lloyds TSB gets closer, speculation circled around the pay-off for those HBOS directors that will not have roles in the merged entity. 5 of the 6 directors that will not have roles, have contractual rights to a total of £2.7m compensation for loss of office.

Credit

  • The International Monetary Fund (IMF) created a new emergency lending tool – a short-term, quick response financing for countries with strong economic policies facing temporary liquidity problems. Until now, the IMF has focused on countries that require financing and economic policy adjustment. The IMF has $200bn available to lend.

And here are some other important market occurrences earlier last week:

Thursday, October 30th

Mergers and Acquisitions

  • German carrier Lufthansa is taking a majority control of BMI British Midland, the second largest operator at London’s Heathrow. The controlling stake of 50% plus one share is being sold by BMI’s chairman Sir Michael Bishop for €400m. Lufthansa already owned 30% minus one share, with SAS Scandinavia Airlines owning the other 20%. As a member of the Star Alliance, it is thought that the Lufthansa/BMI tie-up will accelerate the creation of a more viable competitor for Heathrow’s major operator, British Airways. The Star Alliance includes Singapore Airlines, which in turn owns 40% of Virgin Atlantic.

Financial Institutions

  • Goldman Sachs announced a new 94 partners in its biannual refreshment of its inner circle. No news was forthcoming about how many of the existing 349 partners would lose their status. Goldman tries to keep the number of partners in the range of 1% of employees, and at the end of the third quarter Goldman had 32,600 employees. Goldman has announced plans to lay off 10% of its workforce.

Credit

  • The US Federal Reserve cut interest rates by half a percentage point to 1%. The Fed also announced that it will lend $30bn each to the central banks of Brazil, Mexico, South Korea and Singapore. The $ loans will be structured as currency swaps and should help satisfy intense demand for the $ in these emerging markets.
  • Russia’s state development bank VEB approved a $10bn refinancing for the country’s cash-starved oligarchs. $4.5bn will be loaned to Oleg Deripaska’s Rusal holding company, and be used to repay a syndicate of Western banks including RBS and Merrill Lynch. Mikhail Fridman’s Alfa Group will also be a recipient after his telecom’s company, Altimo, failed to meet a margin call on $2bn in loans from a syndicate of Western banks led by Deutsche Bank.
  • Commercial property lender Hypo Real Estate (HRE) became the first private sector group to ask for help in Germany’s €500bn financial sector bail-out fund. This is less than a month after HRE was saved in a €50bn rescue package from the German government, the Bundesbank and a consortium of German banks.

Wednesday, October 29th

Mergers and Acquisitions

  • Car manufacturer General Motors is frantically negotiating purchasing Cerberus Capital Management’s stake in Chrysler. The deal would potentially create a merger between Detroit’s number one and number three car makers. The rationale is desperation as both parties try to nail down government financial assistance in advance of the impending election.
  • The Porsche-VW situation saw VW’s shares rise a further 82% after Monday’s 147% leap. VW closed to as the 2nd largest company ahead of Wal-Mart, General Electric and Microsoft.

Financial Institutions

  • Dutch insurer Aegon accepted a €3bn capital injection from the state. The terms involve the government buying non-voting securities that pay an 8.5% coupon as long as Aegon declares a dividend. The payment rises from 8.5% over time. Unsurprisingly, Aegon said it would scrap its 2008 final dividend and the board agreed to give up all cash and stock bonuses for 2008.

Credit

  • Iceland raised its interest rate from 12% to a record 18% as a condition of a proposed IMF loan of $2bn. The interest rate rise is expected to accelerate the refloating of the Icelandic krona – a vital first step towards restoring some sort of normality to the troubled island.
  • Deleveraging was blatantly exhibited with Barclays rumoured to be behind a massive auction. A single portfolio consisting of $1.5bn of global corporate bonds and $3bn of credit derivatives was liquidated. The sales were thought to be on behalf of a US-based client.

Tuesday, October 28th

Mergers and Acquisitions

  • BG Group announced a recommended takeover offer worth £2.2bn for Australian gas group Queensland Gas Company. The offer was pitched at A$5.75 per share, almost double the A$3.20 per share at which QGC shares were suspended last Friday.
  • Volkswagen’s shares rose by 147% as Porsche disclosed it had used derivatives to increase its stake from 35% to 74.1%. Since the State of Lower Saxony holds 20.1% of the shares, the free float fell to just 5.8%. This led to a scramble by short sellers to cover their positions. VW is Germany’s largest company by market capitalisation, and the increase saw the Dax index of 30 companies increase by 1%, despite all of the other constituents share prices falling.

Financial Institutions

  • Hundreds of top members of staff at CLSA, the Asia-focused brokerage arm of Credit Agricole, have agreed to take voluntary pay cuts of up to 25%. The move is an attempt to stave off the threat of redundancy and get the staff working together to improve performance. The staff were given the choice of rejecting the offer, or accepting either a 15%, 20% or 25% pay cut. In exchange for the cut, the foregone salary will be repaid plus an additional bonus, if CLSA meets certain financial targets. The additional bonus will be bigger for those choosing the higher salary reduction. Apparently 4 out of 5 of those offered the choices accepted the cuts, with most opting for the higher 25% reduction.
  • Japan’s largest banking group, Mitsubishi UFJ Financial Group (MUFG) unveiled plans to raise up to Y990bn (£6.8bn) of new capital. The move comes after MUFG’s spending spree where it purchased a 21% stake in Morgan Stanley for $9bn and a further $3.5bn to take full control of the Union Bank of California.
  • US regional banks accepted more than $30bn of fresh capital from the US Treasury. 15 institutions accepted capital injections including SunTrust, Capital One and Keycorp.
  • Morgan Stanley’s regulatory filings revealed it had used more than $23bn to prop up its money market funds after credit market convulsions. The subsequent conversion from a securities firm to a bank holding company, means Morgan Stanley now has access to the Federal Reserve’s lending facilities.

Monday, October 27th

Financial Institutions

  • Goldman Sachs CEO Lloyd Blankfein reportedly called Vikram Pandit, CEO of Citigroup about the two entities merging. The approach was made before the announcement of the US government’s bailout package. Apparently, Mr Pandit immediately rejected the proposal.

Credit

  • The IMF announced an outline agreement to lend $16.5bn to the Ukraine. The Ukraine is suffering from a fall in demand for steel, its main export, and a widening current account deficit. The loan follows a $2bn loan deal for Iceland.
  • Kuwait suspended trading in Gulf Bank after it was revealed that it had made losses on derivatives trades.

Note : The details contained in this article have been drawn from a daily review of the Financial Times.

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