In Case You Missed It: Business News Round-up

Contributed by Martin Mitchell of the Corporate Training Group

The FDIC identified an increase in the number of problem banks. The Terra Firma seals its first US acquisition. Close Brothers are bidding for a private banking franchise. These are but a few highlights of important market events that we’ve gathered to help you start the week well informed.

Economic Backdrop

The gathering of the world’s central bankers at the Federal Reserve’s annual retreat concluded. The general conclusion was that the world’s economies are starting to recover, with most officials believing that interest rates could be maintained at ultra-low levels for a considerable time without generating excess inflation. However, the majority also thought the road to recovery is likely to be long and bumpy.
President Obama also announced his intention to reappoint Ben Bernanke as chairman of the Federal Reserve. The reappointment needs to be confirmed by the Senate.
Details of Germany’s second quarter 0.3% GDP growth figures showed that consumer spending rose 0.7%. However, the GDP in the quarter was 7.1% lower than the same period last year.
German businesses’ expectations have improved. The Munich-based Ifo institute business climate index has risen from 87.4 in July to 90.5 in August, its highest level since September 2008. The part of the survey that relates to expectations over the next six months rose even more quickly from 90.4 to 95 – the biggest monthly rise since the survey started in 1991.
Central banks grappling with ways to encourage banks to lend are keeping a close eye on Sweden. Last month the Swedish central bank (the Riksbank) became the world’s first central bank to introduce negative interest rates on bank deposits. Designed to boost lending, the Riksbank has a deposit rate of minus 0.25 per cent.

Mergers and Acquisitions

Eldorado Gold of Vancouver, Canada has agreed to buy Australia’s Sino Gold in a C$2bn (US$1.8bn) all share deal. The acquisition will make Eldorado the leading gold producer in China.
UK private equity firm Terra Firma has sealed its first US acquisition. It is spending $200m up front to buy about 90% of Everpower, a developer of wind farms. Terra Firma has also agreed to invest a further $150m over time. The deal will be funded entirely with equity.
General Motors has still not decided on whether to sell Opel/Vauxhall to Magna International (the Canadian parts-maker that has linked up with Russian bank, Sberbank), or RHJ International, the Belgian-based private equity firm. The German government is pushing hard for the Magna deal to go ahead, with the federal government and various German states agreeing to put up the entire €4.5bn in credits to finance the deal.
UK utility group Centrica appears to have succeeded in its £1.3bn takeover of North Sea oil and gas producer Venture Production. Centrica has now purchased 48.4% of the shares and has valid acceptances for another 10%. Centrica is being advised by Goldman Sachs, JPMorgan Cazenove, RBS Corporate Finance and RBS Hoare Govett. Venture is being advised by NM Rothschild, Lambert Energy, UBS and Oriel Securities.
Procter & Gamble completed a $3.1bn divestment of its pharmaceuticals division to drugs company Warner Chilcott. P&G was advised by Goldman Sachs, Warner Chilcott was advised by JPMorgan and Morgan Stanley.
UK-listed bus and train operator National Express canvassed its main shareholders as to whether they would prefer a £350m rights issue to a takeover proposal from the Cosmen family-led consortium. The Cosmen family and private equity group CVC tabled a bid valuing the group at around £600m. The company is struggling with £977m of debt and it appeared that the shareholders preferred the rights issue, assessing the bid as too low and with too many conditions attached.

Financial Institutions

The second highest ranking executive at the Stamford Financial Group, CFO James Davis pleaded guilty to charges relating to the alleged $7bn fraud at the group. Sir Allen Stamford was unable to appear in court due to an irregular heart beat and extremely high pulse.
The US Federal Deposit Insurance Corporation (FDIC) said the number of ‘problem banks’ in the USA had risen from 305 to 416 in the second quarter. The ‘problem banks’ are at risk of failure and were not named but are thought to be mainly small banks that lend to businesses and consumers. The FDIC also said its deposit insurance fund has shrunk by 20% to just $10.4bn, the lowest level since March 1993. FDIC has already charged the banking industry an emergency fee to raise $5.6bn for the fund and can charge up to two more special fees this year.
President Sarkozy of France warned banks that they will be barred from lucrative government mandates unless they keep pay levels within tough new domestic rules. The rules include deferring trading bonuses over three years, paying one-third of any awards in shares and imposing strict long-term performance criteria in order to assess what payments should be made. Leading French banks including BNP Paribas, Société Générale and Crédit Agricole have already signed up to the rules.
French investment bank Natixis has confirmed that its parent BPCE will cover around €35bn of risky assets through a guarantee. The guarantee will cost the bank around €48m per year and will run for 10 years.

RBS is thought to have hit a stumbling block in its negotiations to sell its China retail banking assets to Standard Chartered.

In the wake of the Swiss government’s exit from its UBS bail-out crystallising a SFr7.2bn gain, the FT reported on the remaining large stakes held by governments: Lloyd Banking Group, the UK government is sitting on a $4bn paper loss; RBS (UK) $1.4bn paper loss; Commerzbank (Germany) $0.1bn paper loss; HRE (Germany) $2.2bn paper loss; Dexia (Benelux) $3.2 paper loss; Citigroup (US) $12bn paper profit.
London-based investment bank Close Brothers is bidding for Kleinwort Benson, the private bank that has been put up for sale by Commerzbank. The price could be as high as £300m.

Credit

Creditors of Eggborough, a coal-fired power station owned by EDF Energy, have exercised an option to take control of the plant. As one of Britain’s biggest coal-fired power stations, Eggborough is estimated to be worth up to £1bn. The option was granted by the British government in 2005, when Eggborough was owned by British Energy and requires the creditors to pay around £216m. However, the plant will need further investment to meet EU emission standards by 2016. EDF bought British Energy in January for £12.5bn.
Deutsche Bank announced plans to sell up to €500m of hybrid bonds to retail investors. The deal involves new perpetual tier-one bonds, which will be callable in 2015 and are expected to pay a coupon of between 9 and 10%.
Santander boosted the debt markets by launching a programme to buy back 27 different issues of bonds backed by mortgages, consumer credits and business loans with a combined face value of €16.5bn. The deal was aimed a profiting from depressed prices and will potentially bring stability by setting a floor for debt securities prices.
Activity in the US municipal bonds market is improving. Borrowing costs have fallen, with yields on double A rated 20-year muni bonds at 4.20% versus an average of 4.77% over the past decade. Activity has been helped by the so-called ‘Build America Bonds’ or BABs where under the US government’s stimulus package, muni issuers receive a subsidy of 35% of the interest when raising finance for infrastructure projects. Issuers have raised a total of $27bn in BABs so far this year.
Alongside its interim results UK Coal said it was reviewing its financial structure as it talks to banks about its debt facilities. UK Coal has two bank lines for a total of £102m that will run out in September 2010 including a £52m revolving facility from Landsbanki, the state-controlled Icelandic lender. UK Coal also announced a rise in its pension deficit from £74.8m at the start of the year to £162.5m at the end of June.

Other

US regulators announced an antitrust investigation into the mobile phone industry. Among the issues likely to be considered is whether big companies such as AT&T and Verizon Wireless thwart competition by charging high fees for connecting small rivals’ calls over their networks.

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