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In Case You Missed It: Business News Round-up

martin1Contributed 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:

 Economic Backdrop

  • ECB data on lending behaviour in June showed banks doing what the ECB wanted – lending funds in the form of longer term assets. The seasonally adjusted increase in credit to the non-financial private sector was €132bn.
  • Chinese regulators ordered banks to ensure that their unprecedented volumes of new loans were channeled into the real economy, and not into equity or real estate markets. The first half the year saw Chinese banks lend Rmb7,370bn ($1,080bn), more than twice the same period last year, and regulators are concerned that asset bubbles might be forming in equities and real estate.
  • Both the US and UK house prices saw gains. US house prices showed their first monthly gain in three years in May, climbing 0.5%. UK house prices rose by 0.1% in June in the first monthly rise for almost 18 months.

Mergers and Acquisitions

  • After announcing its takeover plan for Porsche, Volkswagen is examining a capital raising of up to €4bn to help fund the deal. The move would help to counter rating agencies views that the VW-Porsche combination will worsen VW’s credit profile because of Porsche’s high debt. The two companies plan to decide on the structure of the combined group by August 13.
  • The world’s biggest steelmaker, ArcelorMittal is exploring a joint venture spin off of its stainless steel business. The two potential JV partners are thought to be Posco of South Korea and Outokumpu of Finland. ArcelorMittal’s stainless steel division employs about 11,000 people and reported sales of $8bn and EBITDA of $900m last year.
  • UK insurer Friends Provident rejected the latest offer from Resolution adding that it saw no need for ‘further engagement’. The offer of 74.6p per share was described as ‘wholly inadequate.’
  • Swedish telecoms company Ericsson won the auction for the core wireless assets of Canada’s Nortel Networks in a $1.1bn bid. Blackberry maker Research in Motion is calling for the Canadian government to review the acquisition in an effort to keep the assets in Canadian hands.
  • US private equity house Warburg Pincus is investing $115m to buy a 23.9% stake in Webster Financial, a Connecticut-based bank.
  • Abu Dhabi state-linked investment company Aabar Investments is planning to buy a 32% stake in Virgin Galactic for $280m. Virgin Galactic is the commercial space venture that aims to start flying passengers into space within 2 years at a cost of $200,000 per ticket.
  • IBM announced an all-cash $1.2bn acquisition of technology company SPSS
  • Mobile telecoms company Sprint Nextel unveiled a $420m deal to acquire Virgin Mobile USA.
  • After failing in its attempt to buy it for $48bn last year, Microsoft entered into a search alliance with Yahoo instead. The deal will see Yahoo hand over control of it internet search technology in exchange for a share of future search revenues. The lack of any upfront cash for Yahoo meant its shares slumped 12% on the day of the announcement. In contrast, Microsoft shares rose 1.4% in anticipation it will have the scale to challenge Google in search.

Financial Institutions

  • The UK Financial Services Authority plans to perform extra checks on the ‘fitness and properness’ of up to 2000 traders and managers. As part of the regulator’s response to the financial crisis, it will ask banks and other financial institutions to identify people in senior positions who carry out roles that might expose their institution to significant risk or who exert a significant influence over their company. The FSA will then examine their experience and record to ensure they are fit for the role.
  • Barclays Capital has increased its headcount in Japan by about 200 and is considering moving into larger offices in Tokyo. The rapid expansion comes at a time when other western rivals are reducing their exposure to Japan. HSBC has transferred it research division in Tokyo to Hong Kong, whilst Citigroup has sold its Japanese retail brokerage to Sumitomo Mitsui Financial Group.
  • Calpers, the US’s biggest pension fund has agreed to buy back a portfolio of US shopping centres for $1.73bn. The centres were sold for about $2.73bn by Calpers four years ago.
  • Citigroup is looking to exit from its private banking operations in Italy. The business has about €2bn of assets under management and is considered too small to be competitive. If a buyer can be found it will be sold, otherwise it will be closed.
  • Former Citigroup chairman Sir Win Bischoff is to become chairman of the UK’s Lloyds Banking Group. Sir Win will earn £700,000 per annum.
  • The UK chancellor announced that both the chairman and the chief executive of UKFI were leaving. UKFI is the arm’s length body set up to manage and ultimately sell the UK government’s stakes in rescued banks – 100% of Northern Rock, 70% of RBS and 43% of Lloyds Banking Group.
  • Banco Santander is planning to sell off at least 20% of its Brazilian business in an IPO that could raise $3bn. Bank of America-Merrill Lynch has been lined up as the lead co-ordinator and underwriter alongside Credit Suisse, UBS and Santander itself.
  • Deutsche Bank reported second quarter results with net income of €1.1bn compared with €645m a year earlier. Investment banking produced pre-tax income of €828m compared with a €311m loss in the same period a year ago.
  • Nomura Holdings reported its first quarter in the black since 2007, making a net profit of Y11.4bn (£73m) in the second quarter.
  • Japan’s largest bank, Mitsubishi UFJ also reported a return to profit in the first quarter, reported net profit of Y75.9bn ($792m). In contrast Mizuho Financial Group unexpectedly reported a Y4.4bn loss caused by higher credit provisions and losses on equity and credit hedges.
  • The trustee seeking to recover money for Bernard Madoff’s victims filed a law suit to recoup almost $45m from Mr. Madoff’s wife.
  • A study compiled by Andrew Cuomo, the New York attorney-general showed the extent to which the large banks that received US government Troubled Asset Relief Program (Tarp) funds paid bonuses to their staff. Shockingly Citigroup and Merrill Lynch, who collectively lost $55bn in 2008, paid bonuses of $1m or more each to 1400 employees. Mr. Cuomo said ‘compensation for bank employees has become unmoored from the banks’ financial performance.’
  • Exchange operator NYSE Euronext released second quarter figures. The figures showed a loss, mainly attributed to a one-time charge of $355m paid to LCH-Clearnet for breaking a contract that enabled the US group to set-up its own London based clearer. NYSE Euronext has also agreed to pay $200m for a 20% stake in the Doha Securities Market in Qatar.
  • The importance of owning a clearing operation was underlined as Hong Kong Exchange and Clearing became the world’s biggest exchange by market capitalisation at $19.7bn, ahead of CME Group at $17.7bn and Deutsche Borse at $15.4bn – all three own substantial clearing businesses.
  • A study by Preqin reported that the private equity industry suffered its worst year on record in 2008, with one year returns across the industry at a 27.6% fall. However, as the worst of the financial crisis recedes, private equity giant Kohlberg Kravis Roberts is rumoured to be preparing up to six of its biggest buy-outs for IPOs – including Toys”R” Us, HCA (one of the US’s biggest hospital groups) and credit card processor First Data.
  • The US and Switzerland have reached an ‘agreement in principle’ regarding the US attempts to force UBS to reveal the names of 52,000 American clients suspected of offshore tax evasion. Final details of the agreement are still being negotiated.

Credit

  • The world’s biggest drinks can maker, Rexam launched a £350m 4 for 11 rights issue to avoid the risk of its credit rating slipping to ‘junk’ status. Rexam is at S&P’s and Moody’s lowest investment grade rating and has £2.7bn of net debt. Last month it refinanced £860m of debts that were due to mature next year, to 2012. Its next refinancing need is in 2011, when it has to repay £500m.
  • The owners of Hapag-Lloyd, Germany’s biggest container shipping line are in talks over a €300m lifeline for the company. The two largest shareholders, tourism group Tui and Hamburg’s state government are expected to provide the funds in exchange for Hapag-Lloyd’s 25.1% stake in Hamburg’s Altenwerder Container Terminal.
  • Coffee Republic, the coffee shop chain currently in administration is to be purchased by Arab Investments. Arab Investments is a private property company and will take over the 80 Coffee Republic outlets (60 in the UK and 20 elsewhere). The price has not been disclosed.
  • Anglo-Dutch publisher Reed Elsevier announced plans to raised almost a billion pounds in a share placing. The cash will enable the group to pay down at least some of its $8bn-plus debt. Reed is using a so-called cash-box structure that enables it to avoid a rights issue, which would have been very expensive given Reed’s dual-listed structure. Reed hopes the capital raising will bring net debt to EBITDA down from 3.6 times to below three times and enable the current credit rating of BBB+ to be retained. If the company were to slip to BBB, the higher interest cost would be about £20m per annum.
  • Rome-based utility company Enel reported first half of 2009 figures with net debt of €55.7bn, €23.7bn of which is in the form of bonds. The group is expecting to refinance up to €10bn of its borrowings by the middle of 2010 and could raise a further €7.5bn in asset disposals to reduce the debt load.

Other

  • To underline the potential bubble in Chinese equity prices, Sichuan Expressway, the first company to list on the Shanghai exchange for almost a year, saw its price triple on its first day of trading.
  • Average daily turnover in the foreign exchange market in London fell 25% year on year in April to just $1,356bn. However London retained its global dominance, with closest rival New York volumes falling 26.3% to $526bn per day.
  • The SEC is attempting to use the ‘clawback’ provisions of the Sarbanes-Oxley law for the first time against an executive who was not personally involved in any wrongdoing. The US regulator has asked a court to order the return of $4m paid to Maynard Jenkins, the former chief executive of CSK Auto. CSK Auto’s profits were allegedly inflated by accounting fraud committed by others.
  • The pension deficit of BAE Systems, Europe’s biggest defence contractor, jumped by almost £1bn in the first half to £3.1bn. The increase was attributed to volatility in the bond and stock markets.
  • Americans appear to be going back to school in the hope of better job prospects when the economic situation improves. Kaplan, the higher education division of the Washington Post, saw profits up 74% to more than $70m. Kaplan saw a 31% increase in enrolments to its online post-secondary education programmes and a 20% increase in applications for its law school admission tests. Attendance was also up 40% for an event for business school applicants to meet MBA admission officers.

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

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