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In Case You Missed It: Weekend Round-up

martin.jpgContributed 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 again 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 15th
Mergers and Acquisitions

  • Franco-Belgian bank Dexia agreed to sell its monoline insurer, Financial Security Assurance. The sale to Assured Guaranty, a Bermuda-based insurer, will see Dexia receive $361m in cash, plus 44.6m of shares in Assured Guaranty worth around $350m. The bank will book at net loss on the sale of €1.5bn.

Financial Institutions

  • Fund manager RAB Capital has abandoned plans to build a retail mutual fund business and is closing about a third of its funds to streamline its business. The changes come as a result of assets under management shrinking on the back of poor performance and clients withdrawing money. Assets under management peaked at $7.2bn in 2007 and are expected to be about $2bn at the year end.
  • Royal Bank of Scotland (RBS) is planning to cut about 3,000 jobs in its investment banking division. The bank has already cut 7,000 jobs in the investment banking division as a result of the integration of ABN Amro.
  • The administrators of Lehman Brothers European operations told a creditors’ meeting that they are unlikely to get all of their money back, and that returning the funds could take years. The administrators said that assets currently outweigh liabilities by around $17bn, however if asset values fall, or liabilities increase this could quickly disappear. Fees to administrators will also be a significant factor – they are currently accruing at £4m per week.

Credit

  • Freddie Mac, the mortgage financier that has been nationalised by the US government, has asked for a further lifeline of $13.8bn after suffering a $23.5bn quarterly loss. The loss was primarily due to large credit-related writedowns.

Other

  • At the G-20 Summit, the leaders of the nations agreed to take ‘whatever further actions are necessary’ to tackle the financial crisis and restore global growth at an emergency summit in Washington. The guiding principles to which they committed include strengthening transparency and accountability through requiring proper disclosure, improving oversight, promoting integrity in financial markets by preventing market manipulation and fraud, reinforcing international cooperation, and reforming international financial institutions.
  • Pakistani and IMF have agreed on a financial stabilization package for Pakistan worth $7.6 billion loan, $4 million of which will be delivered this year, with the rest to be disbursed during 2009.

Friday, November 14th

Mergers and Acquisitions

  • The planned sale of Reed Business Information by UK/Dutch parent company Reed Elsevier is hanging in the balance. Indications of interest from the three remaining bidders (Bain Capital, TPG and Apollo) have dropped from £1.25bn to £650m-£750m. It is thought that the plan will be abandoned unless a sale price of at least £700m can be achieved.

Financial Institutions

  • In a blow to Barclays, that chose to seek private capital, the UK government made clear that its £37bn stake in part-nationalised banks will be held at arm’s length. The two men charged with managing the investments said they ‘have not been asked to act as some sort of general regulator of the recapitalised banks’. The three banks (RBS, Lloyds TSB and HBOS) are all trading below the price at which the UK government has agreed to invest – making it unlikely existing shareholders will assist in the recapitalisation and leaving the government sitting on a £4.9bn paper loss.
  • Japan’s Mizuho Financial Group announced it will raise up to Y300bn (£2.1bn) in preferred shares to boost its capital.
  • Credit Suisse is in talks over a joint venture to boost the scale of its traditional asset management business following a strategic review.

Credit

  • Three of the world’s major providers of credit insurance are refusing to write policies for suppliers trading on credit with General Motors or Ford. Euler Hermes, Atradius and Coface who together control more than 80% of the world’s credit insurance market removed cover for the suppliers to the US motor manufacturers. Short of being unable to get hold of the parts they need, the move leaves GM and Ford with either the possibility of paying upfront for supplies, or their suppliers willingly trading uninsured.

Other

  • Top hedge fund managers including George Soros and John Paulson testified after being summoned to Capitol Hill to face questions about the risks hedge funds pose to the broader economy. The result is expected to be greater regulation including enhanced disclosure for this previously secretive sector of the US financial services industry.
  • Dubai property company Emaar is planning to cut jobs as the six-year bull run in Dubai property prices runs out of steam.

Thursday, November 13th
Mergers and Acquisitions

  • UK retail guru Sir Philip Green has purchased a 28.5% stake in listed entity Moss Bros for £6.7m. Speculation surrounds whether Sir Philip will use the listed entity to give himself shares that could be used in future acquisitions.

Financial Institutions

  • The financial sector’s total losses from the credit crisis are nearing $1,000bn. In the banking sectors, writedowns and losses since Jan 2007 are led by Wachovia ($96.5bn), Citigroup ($68.1bn) and Merrill Lynch ($55.9bn). The insurance sector is led by AIG with some $60.9bn of writedowns and losses.
    Credit
  • US Treasury Secretary Hank Paulson announced that the plan to buy toxic assets has been abandoned. Instead the $700bn rescue plan will concentrate on an expanded recapitalisation programme plus supporting the markets that securitize credit card loans, vehicle loans and student loans.
  • Outstanding CDS volumes shrank for the first time over the first half of the year according to new data. The Bank for International Settlements said notional values fell from $57,894bn at the start of the 2008, to $57,325bn at the end of June. The BIS data shows a lesser decline than the figures from the International Swaps and Derivatives Association that reported a 12% fall to $54,600bn over the first half of 2008.
  • The UK’s biggest building society, Nationwide, became the latest institution to use the government debt guarantee scheme. Nationwide sold £1.5bn of three-year bonds priced at 98.8 basis points above gilts.

Other

  • HSBC said that property prices in Dubai fell 4% in October and in Abu Dhabi they fell 5%. This put an 18-month surge into reverse, which had seen prices in some areas double.
  • US authorities indicted Raoul Weil, UBS head of global wealth management. The Department of Justice move is the latest step in investigating allegations that UBS helped thousands of US clients evade tax.
  • The European Union competition commissioner imposed its largest cartel fine of €1.38bn on four leading glass manufacturers. France’s Saint-Gobain will pay €896m, UK’s Pilkington €370m, Japan’s Asahi Glass €113.5m and Belgium’s Soliver €4.4m. The fines relate to the illegal fixing of prices of glass used in the automotive industry over a five year period. Saint-Gobain in particular plans to appeal against the penalty it described as ‘excessive and disproportionate’.

Wednesday, November 12th
Mergers and Acquisitions

  • UK acrylics company Lucite has been acquired by Japanese rival Mitsubishi Rayon for $1.6bn. The deal is only just in excess of Lucite’s net debt of $1.5bn, leaving little profit for its majority shareholder Charterhouse. Lucite was advised by Merrill Lynch and Deutsche Bank, Mitsubishi Rayon was advised by Credit Suisse and Tokyo-Mitsubishi UFJ.

Credit

  • Major nations are lining up co-ordinated fiscal stimulus packages. The Chinese have already announced a $586bn package, the US Senate has approved a $170bn package already that may be followed by a second stimulus, Japan has unveiled a $50.8bn package and Germany $15.7bn. The UK is expected to make an announcement in the pre-Budget report. The World Bank is also set to provide up to $100bn in loan aid to developing countries such as Mexico and Indonesia.
  • Revolving credit facilities that were once priced based on the ‘relationship’ between the corporate client and their banker are being changed to fully incorporate risk in the financial crisis. In recent months, AT&T, Wal-Mart, Caterpillar, Halliburton, Nokia and Novartis have all renewed their short-term financing arrangements. The renewal for Caterpillar is typical, where using the 364-day revolving credit facility will incur interest at Libor plus the then current credit default swap spread for Caterpillar.
  • The lack of clarity and activity on the US plan to buy mortgage backed securities and other instruments is becoming a problem. The $700bn troubled asset relief program announced in September has not yet been used to buy any troubled assets. It has been used to provide capital infusions into banks ($250bn) and the insurer AIG ($40bn).

Tuesday, November 11th
Financial Institutions

  • UK banks are hiring to beef up their teams to manage troubled businesses in the wake of the anticipated increase in corporate borrower defaults. Lloyds TSB and Barclays are amongst those hiring people with private equity experience to fulfil these roles.
  • Lloyds TSB became the latest UK bank to take advantage of the government guarantee scheme. The bank sold €2bn and £1.4bn in three year bonds, attracting €12bn in investor demand.
  • Banco Santander of Spain launched a deeply discounted rights issue to raise €7.2bn. The one in four issue at €4.5 per share compared with a prevailing share price of around €8.34. The issue is fully underwritten and led by Merrill Lynch. The money will be used to improve Santander’s capital ratios, with the core capital ratio set to increase from 6.31% to 7.0%.
  • AIG reached a new deal with the US government involving a $100bn capital injection and a $50bn government backstop for AIG’s ‘toxic’ assets. This is in addition to the original $85bn loan made before the $700bn rescue plan for the financial sector. The capital injection consists of $40bn of preferred stock paying 10% and a $60bn loan set at 3% over Libor.
  • Swedish investment bank Carnegie was taken over by the Swedish government. The takeover was due to internal control deficiencies rather than a direct result of the global financial crisis. The bank is likely to be broken up and sold.

Credit

  • The World Bank issued its first ‘green bond’, raising around $300m in Swedish Kroner and paying an annual rate about 0.25% above Swedish government bond rates over the 6 year period. The proceeds will be used to finance projects that will cut carbon dioxide emissions in the developed world such as wind farms and solar parks.

Other

  • Mexico, the world’s 6th biggest oil producer, has hedged almost all of its 2009 production at prices ranging from $70- $100 per barrel. Mexico’s oil income stabilisation fund spent around $1.5bn instituting the hedge with Barclays Capital and Goldman Sachs.
  • GLG Partners, the New York listed hedge fund manager, announced third quarter results showing assets under management falling from $23.7bn to $17.3bn and a net loss of $162.7m for the quarter.
  • The possibility of a bail-out for the US car industry moved closer as the White House said it was willing to ‘listen’ to any new proposals from Capitol Hill. It coincided with a report from Deutsche Bank suggesting General Motors shares were worthless.
  • Circuit City, the US electronics retailer filed for Chapter 11 bankruptcy protection. DHL announced it is to close its US express delivery service with the loss of 9500 jobs.

Monday, November 10th
Credit

  • Britain remains committed to launching the first Islamic bond by a western government. It hopes the issue will cement London’s position as the leading western centre for Islamic finance.

Other

  • The number of impending redundancies in financial services could reach 70,000 globally from US banks alone. This will be in addition to the 150,000 who have already lost their jobs.

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

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