In Case You Missed It: News Round-up

Contributed by Martin Mitchell of the Corporate Training Group

• Fiat has ambitious plans to create a new European car giant by buying Opel from GM and also taking a stake in Chrysler after it emerges from Chapter 11 bankruptcy protection. However the Opel deal faces pressure from the German government aimed at protecting jobs, as well as competition thought to include sovereign wealth funds from Abu Dhabi and Singapore and three private equity firms.

• UK van manufacturer LDV has been rescued from administration by a £5m taxpayer-funded loan from the UK government. The loan is set to last up to 4 weeks, to enable a rescue of the business by Malaysian vehicles business Weststar.

• UK restaurant chain Carluccio’s has received a takeover approach. The buyer is yet to be revealed, but private equity firms are considered likely since Carluccio’s currently has no debt.

• Volkswagen and Porsche announced a merger that will create a family-controlled company. A taskforce of Porsche and VW managers, works council representatives and the state of Lower Saxony will work out the final details of the company structure over the next four weeks.

• The consortium that includes Icap finally launched its bid for LCH.Clearnet. The details have not been disclosed and the board of LCH.Clearnet will consider the offer next week.

• UK’s Carphone Warehouse agreed to pay £236m in cash for the UK assets of Tiscali, the Italian telecoms company. The deal will make Carphone Warehouse the second largest broadband provider in the UK and pave the way for a demerger splitting the company’s retail and telecoms interests to be executed in late 2009/early 2010.

Financial Institutions

• The US federal regulator’s stress tests for 19 banks were finally published showing that the banks require almost $75bn of equity in total. The 10 banks that require capital have 28 days to announce their capital raising plans, and have until the 9^th November 2009 to implement them. The banks and the amount of additional capital required (after capital actions and results announced in the first quarter of 2009) are: Bank of America $33.9bn; Citigroup $5.5bn; Wells Fargo $13.7bn; GMAC $11.5bn; Morgan Stanley $1.8bn; PNC Financial Services $0.6bn; Regions Financial $2.5bn; SunTrust $2.2bn; Fifth Third Bancorp $1.1bn; and Keycorp $1.8bn. Nine remaining banks (JPMorgan, Goldman Sachs, Metlife, Bank of NY Mellon, Capital One, American Express, US Bancorp, State Street, BB&T) require no additional capital.

• In response to the stress test results, Wells Fargo, Morgan Stanley and Citigroup unveiled plans. Wells Fargo immediately raised $7.5bn of common equity and argued it will generate the rest of the capital required by out-earning the US Treasury estimates in the next two quarters. Morgan Stanley plans to raise $2bn in equity and sell $3bn in debt. Citigroup will expand an existing plan to convert $52bn of preferred shares to include a further $5.5bn of trust preferred shares. To meet the demands of the stress tests, Bank of America hopes to raise $17bn through the sale of new equity and conversion of preferred stock held by institutional investors into common stock. The remainder of the capital will come from earnings and the possible sale of assets including Columbia Management and First Republic Bank. Ken Lewis, CEO was quoted as saying ‘the bogey is large, but we have a significant opportunity to meet our target …. The game plan is designed to get the government out of our bank as soon as possible’. Bank of America has received a total of $45bn from the US government in Tarp funds.

• A report by the Center for Public Integrity revealed that the top 25 US originators of sub-prime mortgage loans spent almost $370m in Washington over the past decade on lobbying and campaign donations as they tried to ward off tighter regulation in the industry. Most of the originators were either owned or heavily financed by the largest US banks including Citigroup, Goldman Sachs, Wells Fargo, JPMorgan and Bank of America.

• American International Group (AIG) reported a $4.35bn loss for the first quarter. This followed the $62bn loss reported for the last quarter of 2008, the largest quarterly loss in US corporate history.

• Barclays reported first quarter results with pre-tax profits up 15% at £1.4bn. The investment banking unit BarCap reported income of £5bn, double the income for the same period in 2008. One third of the revenue came from the US operations which were formerly Lehman Brothers.

Credit

• A US bankruptcy judge ruled that those secured creditors seeking to block the restructuring of Chrysler must reveal their identities. The group is questioning the legality of the agreement that will see the most viable parts of Chrysler go to the United Auto Workers union, whilst the US government and Fiat secured creditors will get 28c on the dollar. A number of Tarp recipient creditor banks have already accepted the 28c offer. By the end of the week, the non-Tarp creditors gave up their fight saying they ‘don’t have the critical mass to withstand the enormous pressure and machinery of the US government.’

• The European Central Bank cut its main interest rate by a quarter of a percentage point to 1%. It also announced plans to buy €60bn of covered bonds.

• The Bank of England kept its interest rate at 0.5% and announced that it will pump a further £50bn into the economy by buying assets.

• Fannie Mae, the US mortgage lender, said it would draw a further $19bn of assistance from the US Treasury after it reported a seventh consecutive quarterly loss of $23.2bn.

Other

• US President Barack Obama announced a crackdown on offshore tax avoidance by US companies. He cited a Cayman Islands building that houses more than 18,000 US companies – ‘either it is the biggest building in the world or it is the biggest tax scam in the world’ he said.

• Tangible signs of a recovery in equity issuance were heralded after considerable activity in convertible bond issuance in March and April. The activity was led by Anglo American and ArcelorMittal with convertible issues of around $1.7bn.

• The first US insider trading case involving credit default swaps was brought by the Securities and Exchange Commission. A Deutsche Bank bond salesman is accused of passing confidential information to a trader at hedge fund Millennium Partners – the information related to changes to a high yield debt offering from Dutch publisher VNU, and Millennium bought credit default swaps on VNU bonds. After the restructured bond issue was announced Millennium made a $1.2m profit on the credit default swaps.

• An investigation by the UK’s FSA relating to a £28m fraud saw 7 people arrested. The scam is thought to be a ‘boiler room’ operation which involved cold-calling investors and selling them shares in companies that proved to be non-existent or virtually worthless.

• An independent day trader in the UK won a 7 year case against brokerage MF Global. The day trader won £20m in damages based on a period in 2001 when he was repeatedly told he was making big gains betting on short-term market movement.

• A busy week for capital raising in the UK saw private equity group 3i announce a £732m rights issue. Its chief executive admitted its £800m share buyback in 2007 had been a ‘step too far’. Housebuilder Taylor Wimpey announced a £510m open offer and share placing and retailer Debenhams is working on plans to raise £500m. Both deals are aimed at debt reduction.

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