In Case You Missed It: News Round-up

• Details were released of the bid by a consortium of 11 banks and inter-dealer broker Icap for LCH.Clearnet. The cash offer is at €11 per share, valuing the clearing house at €830m.

• EDF announced the sale of a 20% stake in British Energy to Centrica. The deal will see Centrica pay around £2.3bn for the stake, half in cash and half by handing over its 51% stake in SPE, Belgium’s second largest power producer. The stake is being sold to Centrica at a 6% discount to the £12.5bn value of British Energy by EDF when it acquired it just a few months ago. The discount was explained by EDF’s chief executive as simply ‘symbolic’ of the minority position being acquired, and would not lead to any writedowns on the value of British Energy in EDF’s accounts. EDF was advised by Bank of America Merrill Lynch, Centrica was advised by Goldman Sachs.

• Abraaj Capital, the Middle Eastern buyout firm, is in talks to acquire a minority stake in DP World, the world’s fourth largest ports operator. The stake is thought to be around 15%, which would be valued at approximately $1bn at current prices.

Financial Institutions

• Barclays has received at least two further approaches for iShares, its asset management division. After agreeing a sale for $4.2bn to CVC Capital Partners last month, Barclays reserved the right to invite counter bids at higher prices – a ‘go shop’ provision. It is thought up to $5.2bn is on offer from others, thought to be private equity bidders. If Barclays receives a higher bid from another party, CVC is entitled either to match it or to take a $175m break fee.

• Hot on the heels of the iShares sale, rumours were rife that Barclays was considering the sale of the remainder of its asset management arm, Barclays Global Investors (BGI). BlackRock was mentioned as the potential bidder rumoured to be considering a $10bn bid for the whole of BGI including iShares. Clearly any sale including iShares would involve Barclays invoking the ‘go shop’ provision.

• After raising $7.5bn in equity after the stress tests results were announced last week, the Chief Financial Officer at Wells Fargo believes the bank ‘already has a lot of capital’ and is ‘accumulating regulatory capital at a very high rate’. The stress tests said Wells Fargo required $13.7bn of additional capital and that the banks requiring additional capital have had government assurances that they will be allowed to raise less capital if earnings in the next six months outstrip regulators’ forecasts.

• Goldman Sachs agreed to make a $60m settlement to resolve claims by a Massachusetts regulator that it participated in unfair and deceptive lending practices involving subprime mortgages. It is thought that Goldman is the first of a number of banks that are being investigated in relation to ‘how securitisers facilitated the origination of unfair loans in Massachusetts’.

• Bank of America raised $7.3bn by selling around 6% of the shares in China Construction Bank, one-third of BofA’s stake. It was surprising that the deal was done directly with a group of mainly Chinese institutional investors, without mandating Merrill Lynch.

• Barclays Capital has hired more than 450 people for its fledgling European and Asian cash equities business since last autumn. The positions filled are approximately 200 front office and 250 back offices. BarCap is still planning to hire at least 100 more front office staff and 200 more back office staff by the end of the year.

• Bank of America Securities – Merrill Lynch (BAS-ML) topped the worldwide FT-Starmine league table for analysts for 2008. BAS-ML was top in the US, second behind Calyon’s CA Cheuvreux in Europe and fifth in Asia behind Goldman Sachs, Macquarie, CLSA and Citigroup.

• Morgan Stanley was fined £1.4m by the UK’s Financial Services Authority after weak controls over its credit derivatives desk enabled a rogue trader to significantly overprice his positions for six months. The trader was fired last September and has also been fined £105,000 and banned from the industry.

• Politically active private equity firm Carlyle Group agreed to pay $20m following an investigation by the New York attorney general. The investigation related to how Carlyle used political donations to gain contributions to its funds from New York’s $122bn Common Retirement Fund.

• The trustee in charge of recovering assets from Bernard Madoff’s fraudulent investment scheme is expecting ‘significant settlements’ from investors who reaped profits from the funds. Law suits have already been filed seeking the return of around $10bn from parties that withdrew profits from Madoff’s funds.

• Singapore’s sovereign wealth vehicle Temasek has sold its entire 3.8% stake in Bank of America. Temasek is reducing its exposure to the US and Europe in favour of Asia and other emerging markets.

• Japan’s Mizuho said it aims to raise up to Y800bn ($8.4bn) in fresh capital to bolster its balance sheet. Mizuho suffered a net loss of Y589bn for the year ended March 2009.

Credit

• Microsoft turned to the bond market for the first time in its history. It raised $3.75bn paying yields ranging from 2.97% to 5.21%. The deal was several times oversubscribed and Moody’s reaffirmed Microsoft’s triple A credit rating.

• Dubai property developer Nakheel that built landmark projects like the Palm Jumeirah, has received funding from the emirate’s $5bn that is being disbursed to help state-linked companies. The $5bn is one-half of the $10bn loan extended to Dubai by the UAE’s central bank in February.

• Freddie Mac is set to draw a further $6.1bn in aid from the US Treasury, after a first quarter loss of $9.9bn drove its net worth below zero. The latest capital infusion brings the US government’s holding to $51.7bn of senior preferred stock, which is due to pay a 10% annual dividend. The dividend looks very unlikely to be paid. Last week, rival Fannie Mae said it would be seeking an additional $19bn on top of the $15.2bn it has already received from the US government.

• Bank of America, Citigroup, JPMorgan, Barclays, HSBC and 13 other large financial institutions filed a law suit against MBIA claiming the credit insurer reduced its ability to pay policyholders by splitting its business in two. MBIA split itself into a ‘good bank’ business responsible for guaranteeing municipal bonds and a ‘bad bank’ business responsible for insuring structured bonds including those backed by mortgage loans.

• Arcandor, the troubled German retail group that owns UK travel company Thomas Cook will ask the German government for a mixture of credit guarantees and loans as it seeks to refinance €700m of debt by mid June.

Other

• The world’s biggest chipmaker, Intel, was fined a record €1.06bn by the European Commission for anti-competitive behaviour. The case dates back to 2000, when Intel’s closest rival Advanced Micro Devices filed a complaint that Intel has abused its dominant market position and offered illegal rebates to computer manufacturers.

• Ford Motor Company distanced itself from its troubled rivals Chrysler and General Motors by announcing plans to raise close to $2bn in an equity issue. The proceeds will enable Ford to pay for its contributions to a union-managed heathcare trust that it committed to in 2007. In contrast, Chrysler is already under bankruptcy court protection and General Motors is expected to follow suit before the end of the month.

• As the Obama administration in the US considers the financial impact of healthcare reforms, official projections of the current fiscal year’s budget deficit were revealed. The projected deficit is $1,841bn, up from the $1,752bn predicted in February.

• The Obama administration also released proposals for a reform of OTC derivatives business. Specifically, the proposals would force all ‘standardised’ OTC derivatives to be traded on regulated exchanges and cleared through a central clearing house, increasing transparency and reducing counterparty risk.

• The UK’s telecoms company BT could be forced to double its annual pension contribution to up to £560m per year under a legally binding agreement reached with the trustees of its pension scheme. The deal involves BT having to double its annual top up of £280m if investment returns fall short of target. BT’s runs the UK’s largest defined benefit pension scheme.

• Fujitsu Services, the UK arm of the Japanese technology company is to close its final salary pension scheme to existing workers. Whilst many schemes have been closed to new workers, it is relatively unusual to close schemes to existing workers. However, pensions experts are anticipating this trend growing rapidly in the face of the recession.

• Babcock International is soon to become the first UK company to hedge against the risk that its retirees will live longer than expected. The ‘longevity swap’ deal is set to involve Credit Suisse as the counterparty. Numerous similar deals are thought to be in the pipeline.

• One of Britain’s most closely watched economic indicators has been heavily overstated. The Office for National Statistics previously said that between August 2007 and March 2009 retail sales volume grew by 3.6%, but now admits the real rise was only 2.3%.

• Credit Suisse boss Brady Dougan has lost out in a legal action against his ex-wife. Under an agreement when they divorced Mr Dougan agreed to pay $7.8m in 30 days and a further $7.5m a year later. The second payment was made 12 days late and Mr Dougan paid $25,000 interest (or 10%) for the 12 day period. However lawyers for Mr Dougan’s ex-wife argued that the interest provision in the divorce agreement required a whole year’s interest. The Connecticut appeals court accepted the argument.

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