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 (or too swamped trying to get all of your holiday shopping done) 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, December 6th

  • Mergers and Acquisitions
    Spain’s Ferrovial has invited bids to sell London Gatwick airport in advance of an antitrust decision that is expected from the Competition Commission next March. Ferrovial owns BAA, which in turn owns all 3 London airports as well as Edinburgh and Glasgow. Indicative bids are expected by January 19th.

Financial Institutions

  • Europe’s biggest buy-out fund, Permira, has offered to hand back €1.5bn of unused capital to investors. The unusual move comes at a time when returns from private equity have slowed markedly.
  • HSBC has taken ownership back of its Canary Wharf headquarters from its Spanish property company Metrovacesa. HSBC sold the property for £1.09bn last summer and leased it back in a deal that involved a bridging loan to Metrovacesa of £810m. With Metrovacesa faced difficulties refinancing the loan, HSBC agreed to buy the property back for £838m.
  • Merrill Lynch stockholders voted to approve the firm’s acquisition by Bank of America. The all-stock transaction valued Merrill at about $20bn and is expected to close by December 31st.

Friday, December 5th

Mergers and Acquisitions

  • Ryanair sweetened its offer for Aer Lingus in an attempt to win the support of the Irish government. The Irish government has a 25% stake in Aer Lingus and its support is vital to a successful bid. The sweeteners involved matters that are of concern to the government, such as safeguarding Aer Lingus’ take-off and landing slots at Heathrow, and restoring the route between Shannon and Heathrow.

Financial Institutions

  • The FT published a table outlining the job cuts that have been announced by the large banks since quarter 3 of 2007, and the percentage of the workforce the cuts represent. The total across eleven banks exceeds 100,000 and the list is as follows:
  1. Citigroup cutting 35,200 jobs (9.4% of its workforce)
  2. Bank of America 11,150 (5.3%)
  3. RBS 10,200 (4,5%)
  4. Washington Mutual 9,200 (18.6%)
  5. Morgan Stanley 9,193 (19.1%)
  6. UBS 9,000 (10.8%)
  7. Commerzbank 9,000 (24.5%)
  8. Credit Suisse 7,620 (15.0%)
  9. JPMorgan 7,100 (3.9%)
  10. BayernLB 5,950 (30.9%)
  11. Merrill Lynch 5,720 (8.9%)
  • The changes in the industry are likely to make it harder to recruit the best talent – ‘Nobody with a second option would want to consider starting a career in investment banking today’ said Shaun Springer of search firm Napier Scott.

Credit

  • The UK central bank, the Bank of England, reduced the official cost of borrowing by another percentage point to 2%. The European Central Bank also cut its policy rate by three-quarters of a percent to 2.5%.
  • The UK Financial Services Authority (FSA) is proposing that British banks hold a greater proportion of their assets in highly liquid government bonds. The proposal is included in a consultation paper to strengthen banks’ liquidity reserves and the FSA estimates that banks could be forced to switch £87bn to £353bn of their assets into government bonds.

Thursday, December 4th
Mergers and Acquisitions

  • Iberia, the Spanish airlines that has been discussing a merger with BA for five months, has issued an ultimatum saying that BA must choose between Iberia and Qantas. Iberia’s chief executive learned about the BA/Qantas talks only one hour before they were announced, and said that it would be ‘too complex’ for BA to pursue both deals.
  • Constellation Energy, the Maryland based electricity supplier that is considering a $4.7bn offer from Warren Buffet’s MidAmerican Energy, has received an offer from the French energy group EDF. EDF has offered Constellation $4.5bn for 50% of its nuclear assets. EDF is in a joint venture with Constellation called Unistar, and it wants Constellation to inject half of its nuclear assets into the JV. The EDF offer is likely to be preferred to the MidAmerican bid. However, Mr Buffet is unlikely to be too concerned since if the EDF offer is accepted, MidAmerican will receive around $590m in break fees and reimbursement of convertible preference shares.
  • Vodafone has lost the first round in its legal battle against the Indian tax authorities’ demand for $2bn on its $11bn purchase of Hutchison Essar. In February 2007, Vodafone bought a 67% stake in Hutchison Essar and India’s tax department argues that the UK group should have withheld $2bn of capital gains tax on the government’s behalf. This is despite Vodafone being the buyer, and the transaction itself involving a Dutch company controlled by Vodafone paying a Cayman Island entity run by Hutchison.

Financial Institutions

  • UK listed fund manager New Star Asset Management has reached agreement with its bankers for a debt to equity swap. Under the terms of the deal, five banks – HBOS, Lloyds TSB, Royal Bank of Scotland, HSBC and National Australia Bank – will cancel £240m of New Star’s £260m debt in return for a majority shareholding.
  • Goldman Sachs’s plans to expand into fund management have suffered another setback due to poor fund performance. Goldman Sachs Liquidity Partners 2007 fund, that initially raised $1.8bn in the summer of 2007 to invest in the credit markets, is down 55.3% this year. This follows Goldman’s flagship Global Alpha Fund losing 40% of its value.
  • Commerzbank began to spell out the ramifications of its integration with Dresdner on investment banking activities. The investment bank, Dresdner Kleinwort will see the UK M&A business closed down and trading with the bank’s own capital abolished.
  • Nomura has completed the integration of Lehman Brothers’ Middle East operations and will shortly start investment banking activities in Saudi Arabia. Meanwhile, in London Nomura is planning to cut about 1000 jobs, two-thirds of which are likely to be from the 3000 employees from Lehman’s equities and investment banking operations.

Credit

  • The Markit iTraxx Crossover Index rose to over 1000 basis points for the first time since it was created in 2004. The index measures the cost of protecting junk-grade companies against default. It rose to a high of 1020, meaning it costs around €1.02m to insure €10m of debt annually against default over 5 years. It stood at below 200bp before the credit crunch.
  • The US Treasury is working on a plan to help revive the housing market by cutting rates on new loans. The plan is thought to involve Fannie Mae and Freddie Mac pushing rates on 30-year loans down to 4.5%, almost a full percentage point below current rates.
  • A record surge in US home financing activity followed the Federal Reserve announcement that it will purchase $500bn of mortgage securities. The Mortgage Bankers Association data for the week ended November 28th saw mortgage application volume more than double. The increase was mainly refinancing to take advantage of falling rates, along with a ‘relatively modest’ rise in purchase applications.

Other

  • Volkswagen’s five executive directors made €25m selling shares in the middle of the Porsche inspired price spike. The five executives decided to donate 10% of their personal profits to an endowment helping children in Wolfsburg.

Wednesday, December 3rd
Financial Institutions

  • Illustrating the difficulties faced by private equity firms, UK’s 3i is expected to announce a 15% cut in its workforce.

Credit

  • The big three US carmakers (General Motors, Ford and Chrysler) submitted their appeal to US Congress for $25bn in emergency loans. Ford’s boss, Alan Mulally said he would draw an annual salary of just $1 if Congress granted access to up to $9bn of bridging finance.
  • US banks have rushed to take advantage of the US government’s temporary liquidity guarantee program that enables them to sell bonds backed by the Federal Deposit Insurance Corp. Issuance has reached more than $25bn in a week as Goldman Sachs, JPMorgan and Bank of America have used the scheme. Citigroup and Wells Fargo have been marketing debt sales this week.

Other

  • UBS will next week become the first London Stock Exchange user to switch its clearing from LCH.Clearnet to the Swiss clearing provider X-clear. UBS is the largest single provider of trading liquidity on the LSE.
  • Royal Bank of Scotland shares surged on the London Stock Exchange in advance of an index reweighting that will see the FTSE and MSCI indices incorporate its £15bn capital raising. The shares rose 16.8%, with turnover of more than 355m, close to 4 times the usual daily average.

Tuesday, December 2nd

Financial Institutions

  • Hedge fund guru Paul Tudor Jones has suspended redemptions from his flagship Tudor BVI fund whilst he restructures it. The plan involves certain ‘toxic’ credit assets being split from the Tudor BVI fund into a new ‘Legacy’ fund.
  • AIG has sold its Swiss-based private bank to a group of investors from Abu Dhabi for SFr307m ($254m). The deal marks the first significant disposal by the insurance group since it was taken over by the US government.
  • Bank of America is facing a legal challenge over its plans to modify home loans for 400,000 borrowers. The plans relate to a multi-state agreement to settle deceptive and predatory lending practices against Countrywide Financial, bought by BofA earlier this year. Illustrating the difficulties that can arise when mortgage assets are repackaged and sold, it is an investor in securities backed by the mortgages that has launched the legal challenge.

Credit

  • Leading European companies are facing spiralling funding costs in the bond markets. National Grid sold €600m in six-year bonds at 3.3% above Libor, about 7 times the cost pre-credit crunch. Daimler sold €1bn of three-year bonds at a spread of 600 basis points over the interbank rate, almost 20 times higher than it paid in 2005; Daimler carries a single A rating.

Monday, December 1st
Mergers and Acquisitions

  • Troubled US carmakers General Motors and Ford have approached the Swedish government about financial aid for their lossmaking Saab and Volvo brands.

Financial Institutions

  • Barclays Capital (BarCap) is building on the US equity platform acquired from Lehman Brothers to create a global equities operation. On top of the former Lehman Brothers’ US equities business, Barclays has hired 60 former Lehman employees in Europe and almost 100 in Japan. BarCap’s head of European and Asian equities was quoted as saying ‘we’ve been looking for the right opportunity to enter the cash equity space in an efficient way for many years’.
  • Citigroup is poised to sell its trust bank in Japan. NikkoCiti Trust and Banking Corporation will hopefully raise Y40bn ($419m). The business has just over Y6,000bn in trust accounts and 136 employees.

Credit

  • Concerns are mounting about the ability of governments to finance the debt required to cover bank bail-outs and economic stimulus packages. It is estimated that the combined borrowing in 2009 will be around $2,000bn –half of which will come from the US government.

Other

  • The economic woes showed signs of worsening in Dubai as Nakheel, the government-owned property developer said it was cutting 500 jobs, about 15% of its workforce. Morgan Stanley and Credit Suisse are also shedding around 10% of their regional staff.
  • Worries emerged is relation to antitrust regulation in China, where the Ministry of Commerce (Mofcom) announced requirements for the newly created InBev Anheuser-Busch. Whilst allowing the Anheuser-Busch acquisition to go ahead, Mofcom imposed restrictions on InBev’s ability to acquire further interests in four key players in the China beer market. InBev is not permitted to increase its 27% holding in Tsingtao Brewery or its 28.5% holding in Zhujiang Brewery. It is also banned from acquiring shares in two other domestic breweries – China Resources Snow and Beijing Yanjing. Lawyers were surprised that the ruling required InBev to enter into binding obligations governing future conduct.

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

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