Manhattan-New York

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 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 22nd
Financial Institutions

  • The difficulties for Citigroup chief executive Vikram Pandit continued as shares in the universal bank fell to $3.77, meaning the shares have lost half their value in 3 days. Mr Pandit denied any plans to sell Smith Barney, its US wealth management business.
  • The two Scottish bankers campaigning to keep UK bank HBOS independent, rather than allowing it to be taken over by Lloyds TSB gave up their fight. The plan was dropped because the government had made it ‘crystal clear’ that it did not want HBOS to be independent, according to the two men.

Credit

  • UK retailer Woolworths is running out of time to save itself from administration. The group is in talks with lenders GMAC (the consumer lender part-owned by General Motors) and Burdale, and a potential purchaser of its retail stores, Hilco UK. The group hopes to be able to structure a deal that will see the 800 stores sold to Hilco UK for assuming £265m of debt plus a nominal £1. The deal would leave behind two profitable business divisions holding the balance of £120m of debt, EUK ,a wholesale distribution business, and a DVD joint venture with the BBC called 2entertain. To be successful, the deal needs to gain the support of the group’s lenders.

Friday, November 21st
Financial Institutions

  • Citigroup’s share price is currently so low that its biggest individual investor, Prince Alwaleed Bin Taleel, is going to raise his stake from 4% to 5%. The Saudi investor believes the shares, currently at $4.71, are ‘dramatically undervalued’. Given Citi’s market cap of around $30bn, the increased stake will cost around $300m.
  • The UK’s Northern Rock bank that was nationalised earlier this year, has announced that its master trust mortgage loan securitisation vehicle is to be wound down. The vehicle called Granite holds some £35.5bn of mortgage loans, and will go into run-off, which means that Northern Rock will stop supplying it with any new mortgage loans and the bondholders will be repaid as the old mortgages repay.
  • Legal and General Investment Management has decided to vote in favour of the latest Barclays capital raising. Despite being unhappy with the capital raising, the 5% holder of Barclays shares felt that in these ‘exceptional circumstances’, a failure to secure the capital could lead to ‘a material detriment in shareholder value’.
  • As the Royal Bank of Scotland (RBS) shareholders voted in favour of a UK government backed £20bn capital injection, the outgoing Chairman said he was ‘profoundly sorry’ for the position the bank had reached.

Credit

  • GMAC has applied to become a bank holding company in a bid to gain access to the US $700bn rescue fund for the finance industry. A bank charter would also enable GMAC to issue debt guaranteed by the Federal Deposit Insurance Corporation.

Other

  • Oilexco, the oil exploration and production company, abandoned a planned $180m issue of convertible bonds and shares just a day after publishing a draft prospectus. The company is dual listed in London and Toronto. The company’s president and chief exec decided the bond and share issue was a poor deal for shareholders. The convertible bonds would have raised $150m, were due to pay 15% interest and on conversion would have diluted existing shareholders by 25-30%.

Thursday, November 20th

Mergers and Acquisitions

  • Chrysler is hoping to revive merger talks with General Motors once a US government bail-out is agreed. The three carmakers (Chrysler, Ford and General Motors) are asking Congress for an emergency bridge financing to head off a cash crunch.

Financial Institutions

  • Deutsche Bank is to shed 900 jobs form its investment banking operations. The cuts will be felt globally, but will fall mainly in London and New York.
  • Fidelity International is cutting several hundred jobs from its UK operations.
  • The Rothschild family is selling a 7.5% stake in its investment bank to Rabobank of the Netherlands. The deal could be the first step towards a closer alliance as the two parties team up to advise clients on food and agricultural deals.

Credit

Other

  • The UK government completed its first ever auction of carbon dioxide emission permits. Nearly 4m permits were sold in an auction that was 4 times oversubscribed and raised the government £54m. The buyers were not disclosed, but are thought to be mainly electricity producers.
  • The UK regulator, the FSA, said traders should have ‘rumour policies’ to combat abuse. The comment follows the wild swings in banks’ share prices (in particular HBOS) that were subsequently discovered to be based on unfounded gossip.

Wednesday November 19th

Mergers and Acquisitions

  • BHP Billiton is to outline in the next two weeks which iron ore mines it will sell or spin off to win European Commission approval for its $62bn hostile takeover of rival Rio Tinto; without the spin off, the combination will potentially have too much power over the price of iron ore, the main raw material for steel.
  • The announcement that Yahoo’s chief executive Jerry Yang will step down has reignited speculation that Yahoo will be able to agree terms for a Microsoft takeover. Mr Yang turned down a $33 per share offer from Microsoft earlier this year, after which Microsoft walked away.
  • InBev completed its $52bn purchase of Anheuser-Busch. It is now the world’s largest brewer.

Financial Institutions

  • Barclay’s £7bn fundraising is still in the balance after an attempt to win over powerful investors. The bank offered a limited retreat on elements of its plan to raise funds from Qatar Holding and Sheikh Mansour Bin Zayed Al Nahyan. It offered existing investors the opportunity to claw back £500m in securities yielding 14% that it is proposing to issue to the Gulf investors. The executive board also said it will refuse any bonuses – meaning president Bob Diamond will suffer a 99% pay cut. Last year he earned £36m and this year he will only receive £250,000. Barclays needs 75% to vote in favour of its proposals at Monday’s extraordinary general meeting.

Credit

  • US Treasury Secretary Hank Paulson’s bail-out plans came under pressure from the House financial services committee. Mr Paulson said that the $700bn fund would not be used to aid carmakers, but could be used to ease the pressures of foreclosures in the mortgage market.
  • The UK’s Premier Foods scrapped its interim dividend and postponed a key debt covenant for 3 months as it discusses restructuring its £1.8bn of debt with its bankers.
  • Ford Motor is to raise $540m cash by selling almost two thirds of its 33.4% stake in Mazda. The sale of 20% of the Japanese company will involve 7% being bought back by Mazda, and the other 13% being purchased by more than 20 companies with ties to the Japanese company.
  • China has overtaken Japan as the largest foreign holder of US government debt. China’s holding is $585bn, Japan’s is $573.2bn.
  • US regulators are moving to approve centralised clearing houses for credit derivatives. Four groups are trying to set up as central counterparties in the massive OTC market – The Clearing Corporation, Liffe and Eurex. A decision is expected within weeks.
  • Dubai is in talks with the UAE government over a loan facility that would make state funds available to companies as international sources of capital dry up and a decade of strong growth stutters. The plan could be unveiled as early as next week.

Tuesday 18th Nov 2008
Mergers and Acquisitions

  • Alternative equities trading platform Chi-X acquired Cicada Corp, a market data and trading technology company. The terms of the deal were not disclosed.

Financial Institutions

  • UBS announced that its 12 most senior executives will not receive bonuses this year and that the whole compensation system for top staff will be revised from 2009. The Swiss bank’s chairman Peter Kurer said ‘I’m convinced this is essential, and the entire financial services industry will have to adjust its compensation models to the new realities.’
  • Thomson Reuters Starmine provided data regarding broker recommendations geographically. US brokers recommended 48.6% of companies a ‘buy’, 6.7% a ‘sell’ and 44.7% a ‘hold’. UK and Ireland brokers recommended 54% a ‘buy’, 14.3% a ‘sell’ and 31.7% a ‘hold’.

Credit

  • John Paulson, the hedge fund manager with $36bn under management who made big profits by foreseeing the collapse of the subprime mortgage market has started to buy securities backed by residential mortgages. This was just after the US Treasury secretary Hank Paulson (no relation) announced that the $700bn troubled asset relief program would not be used to buy toxic assets, leading to a fall in prices of US residential mortgages securities.
  • The German government is ready to give Opel a €1bn credit guarantee, after the German arm of General Motors said it could run out of cash. Opel employs almost 26,000 people in Germany and estimates suggest another 100,000 jobs at suppliers dependant upon the company.
  • Opel’s parent, General Motors, is to sell its 3% stake in Japan’s Suzuki Motor for Y22.4bn ($231m) to help shore up its rapidly deteriorating cash reserves.
    Other
  • The NYSE announced the elimination of it ‘sub-penny trading halt’ rule that removed companies from having their shares traded on the main floor of the exchange when their shares price fell below $1.05. Given the recent falls in stock prices, 91 companies were affected including mortgage giants Fannie Mae and Freddie Mac, Blockbuster, Nortel Networks and Unisys.

Monday, November 17th
Credit

  • The G20 gathering at Washington finished with leaders promising to take ‘whatever further actions are necessary to stabilise the financial system’ and to ‘use fiscal measures to stimulate domestic demand to rapid effect, as appropriate’.

Other

  • First State Investments has raised $130m for a new fund that focuses on music copyrights. The fund called ‘Media Works’ has acquired copyrights to move more than 26,000 songs and will earn a royalty every time they are played commercially. First State expects the fund to generate minimum returns of 15% pa and argues that the fund is uncorrelated with other asset classes and is largely immune from economic weakness.

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

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