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In Case You Missed It: News Round-Up

martin.jpgContributed by Martin Mitchell of the Corporate Training Group

In case you were too busy to have kept up with all the news, contributor Martin Mitchell has gathered some important market events from last week to help you start this week well informed:

Mergers and Acquisitions

  • Richard Li’s $2.2bn buyout of the Hong Kong telecoms group PCCW is to be held up for a month. The hold up is as a result of allegations of manipulation of the shareholders’ vote, with the Securities and Futures Commission being given more time to complete an investigation.

Financial Institutions

  • Royal Bank of Scotland (RBS) announced a £24.1bn loss – the biggest annual loss in UK corporate history. The loss announcement came alongside details of the asset protection scheme provided by the UK government. £325bn of toxic assets is to be insured by the government, with RBS taking the first £19.5bn of losses and 90% of the remainder borne by the state. The cost of this insurance is that RBS will give the government £6.5bn of non-voting ‘B’ shares, as well as sacrificing its existing tax credits and tax credits that may arise in the next three years. RBS is also issuing another £13bn of B shares to the government for cash, and has the option of issuing an extra £6bn at some point in the future. The ‘B’ shares are all convertible into ordinary shares at 50p. In return for the insurance, RBS have undertaken to extend £25bn in new lending in the next year.

  • Coinciding with the UK’s latest rescue attempt, the news broke that former RBS chief executive Sir Fred Goodwin had left the bank taking a £16m pension pot that will provide him with a £693,000 annual pension.

  • Lloyds Banking Group announced its first results that incorporated both Lloyds TSB and HBOS. The 2008 year results showed a £10bn loss, made up of a £10.8bn loss at HBOS and an £800m profit at Lloyds TSB. Despite the loss the chairman said ‘acquisitions should be judged over time, not a few weeks after the deal has been completed’. No announcement was made regarding Lloyds use of the UK government’s asset protection scheme, where negotiations are still ongoing.

  • In a highly unusual move, the management company of private equity house Terra Firma has taken over three investors €25m holdings in its latest buy-out fund. The funds were commitments that had yet to be called in, and it is thought that the price paid was close to zero.

  • The US government said that it ‘stands firmly behind the banking system during this period of financial strain’. Allied with the statement that the government had a ‘strong presumption’ towards keeping banks in private ownership, this was seen as good news for any support for Bank of America and Citigroup falling short of nationalisation.

  • At the end of the week, the US Treasury increased its stake in Citigroup by converting up to $25bn of its $45bn of preference shares into common stock. The deal will see the government’s stake increase to up to 36%. Other preference shareholders, including the Government of Singapore Investment Corporation and Saudi Prince Alwaleed will also convert the same proportion on the same terms. The result of the deal will see the existing common stockholders’ stake fall to just 26%. Citigroup’s market value has slipped to just $8.5bn from $148bn a year earlier.

  • The New York attorney general Andrew Cuomo filed a motion to ask a judge to compel John Thain, former CEO of Merrill Lynch, to testify about specific bonuses paid to individual Merrill’s employees last year.

  • Lehman Brothers Holdings, which filed for bankruptcy protection in September, has announced the spin off of its venture capital business into an independently run entity partly funded by HarbourVest Partners. The price was not disclosed, but the renamed entity Tenaya Capital will have about $750m under management.

  • AIG, the insurance giant that is 80% owned by the US government, is in advanced discussions with US authorities to restructure into at least three divisions. The divisions are expected to be AIG’s Asian operations, its international life assurance business and the US personal lines business. There could also be a fourth unit comprised of AIG’s other businesses and its troubled assets. The deal would see the US authorities relax the terms of a $60bn five-year loan and convert $40bn of preferred stock into shares.

  • UBS has been accused of ‘serious failure’ by Luxembourg’s financial regulator over its role as depositary bank for Luxalpha. Luxalpha was a fund set up for investors who had money with Bernard Madoff and wanted to hold their investments through a Luxembourg fund. UBS argued the accusation was ‘unfair’ as the investors were ‘sophisticated and explicitly agreed that the safekeeping of the securities was Madoff’s responsibility and not that of UBS.

  • UBS also announced its new chief executive, Oswald Grubel. Mr Grubel was previously chief executive at Credit Suisse, which he is credited with turning around in the years leading up to 2007.

  • The US regulatory regime is again subject to criticism over revelations that a whistleblower contacted the SEC in 2003 about Allen Stanford’s businesses. The whistleblower also appeared at an employment tribunal hearing run by the National Association of Securities Dealers (now Finra) at which she outlined her suspicions that Mr. Stanford was running ‘a Ponzi scheme to defraud its clients’.

  • HSBC is planning to raise more than £12bn through a rights issue to strengthen its capital ratios. The deal will be underwritten by Goldman Sachs and JPMorgan Cazenove and the announcement is expected alongside the 2008 annual results on Monday 2nd March. A dividend cut is also expected.

Credit

  • The United Arab Emirates is to lend Dubai $10bn to ease the Emirate’s debt repayment schedule. The funds came from the UAE Central Bank subscribing for $10bn of five year bonds yielding 4%.

  • Indonesia saw an Islamic bond issue raise almost 4 times its target. The sukuk raised Rp5,556bn ($466m) against a target of just Rp1,700bn. Indonesia also announced details of a $1.5bn yen-denominated bond that will carry a Japanese government guarantee.

  • Swiss pharmaceutical company Roche issued bonds to raise most of the cash needed to fund its proposed $42bn takeover of US biotech group Genentech. On top of a $16bn US dollar bond sale last week, Roche raised more than €11bn in a European deal that included €5.25bn in 4 year bonds at a spread of 225bp over mid swaps, €2.75bn in 7 year bonds with a 265bp spread, €1.75bn in 12 year bonds with a 310bp spread and £1.25bn at 275bp over Gilts. The deal was managed by Barclays Capital, BNP Paribas, Deutsche Bank and Banco Santander.

  • The German Chancellor Angela Merkel called for global co-ordination of debt issuance to ensure that governments do not drive up borrowing costs by competing against each other in the capital markets. A record global issuance of around $3,000bn in government bonds is expected in 2009, against roughly one third of that in 2008.

  • The flood of UK government bonds, where net new issuance for 2009 is expected to be around £130bn, might be largely taken up by the banks. The FSA is looking at new liquidity management rules for the banks, and it is estimated it could require the banks to buy some £100bn of gilts.

Other

  • The International Accounting Standards Board (IASB) argued against regulators developing ‘dynamic provisioning’ that forced banks to salt away profits in good times to help them in bad times. Head of the IASB, Sir David Tweedie, called for any such new reserves to be set aside after profits are reported and not before.

  • General Electric cut its quarterly dividend for the first time since 1938. The dividend will be cut from 31 cents to 10 cents per share in an embarrassing reversal in view of the ‘economic uncertainty’.

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

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