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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

  • The US non-farm payrolls report showed that the economy lost 247,000 jobs in July, below the median estimate of 320,000 from a Reuters’ survey of economists.
  • A separate survey of US households showed that the unemployment rate slipped from 9.5% in June to 9.4% in July.
  • Both the Bank of England’s monetary policy committee and the European Central Bank decided to keep their interest rates on hold at 0.5% and 1% respectively.
  • The Bank of England also announced that it will add a further £50bn to the £125bn it has already pumped into the financial system under its policy of quantitative easing.
  • Questions are being asked about the reliability of China’s GDP figures with first half numbers from the provincial authorities some 10% higher than those reported by the National Bureau of Statistics. At worst, there are worries that individuals in the provinces manufacture the figures to improve their career prospects.
  • Surveys showed that global manufacturing is on the rebound, with activity contracting at a significantly slower pace in the US and continental Europe, and UK industry back on a growth path.

Mergers and Acquisitions

  • Energy company Centrica won approval from the UK’s Office of Fair Trading to buy a 20% stake in British Energy from EDF for £2.3bn. However the deal involves half the deal being paid in cash and the other half via the sale of Centrica’s 51% stake in SPE, the Belgian utility company, to EDF. The SPE sale is still awaiting European Commission clearance.
  • Deutsche Bank is in advanced talks to take a stake in Sal Oppenheim, one of Europe’s biggest independent private banks. Sal Oppenheim has about €130bn under management.
  • Bank of New York Mellon is in advanced talks to buy the bulk of Insight Investment Management, one of the UK’s biggest fund managers. BNY Mellon won an auction for Insight, which is being sold by Lloyds banking Group. It is thought that the cost could be up to £250m to purchase the third-party business of Insight that has approximately £74bn under management.
  • British media company ITV is to sell Friends Reunited, the social networking site, to DC Thomson for £25m. It is less than 4 years since ITV bought Friends United for £170m.
  • Stagecoach and the Spanish-led consortium (the Cosmen family and CVC) bidding for UK travel company National Express have been told to ‘put up or shut up’ by the UK Takeover Panel. The bidders must make a firm offer by September 11th or walk away.
  • PepsiCo has agreed to take control of its two largest bottlers, Pepsi Bottling Group (PBG) and PepsiAmericas (PAS) in a $7.8bn deal. PepsiCo was advised by Centerview Partners, BofA Merrill Lynch and Citigroup. PBG was advised by Morgan Stanley and PAS by Goldman Sachs.

Financial Institutions

  • The pecking order of investment banks by their quarter 2 revenues is as follows: (1) Goldman Sachs $13.1bn; (2) >Citigroup $8.7bn; (3)JPMorgan $8.4bn;  (4) Bank of America $7.1bn; (5) Deutsche Bank $6.5bn; (6) Credit Suisse $5.7bn; (7) Barclays Capital $5.6bn; (8) Morgan Stanley $5.3bn; (9) BNP Paribas $3.6bn; (10) HSBC $4.4bn; (11) Soc Gen $4.1bn; (12) UBS $1.9bn
  • Morgan Stanley is set to pay $950m to buy back warrants issued to the US government as part of its $10bn bail out. The warrants gave the government the right to buy Morgan Stanley shares at a fixed price for 10 years, and the buyback will give taxpayers a 20% annualised return on their investment.
  • Standard Charteredsurprised the market as it raised £1bn of additional capital alongside its first-half results. The cash was raised to strengthen the bank’s balance sheet and enable it to supports corporate customers in Asia as they come out of the downturn. The placing was managed by JPMorgan Cazenove and UBS.
  • Troubled UK bank Royal Bank of Scotland reached agreement on a deal to sell its operations in six Asian countries to ANZ of Australia for $550m. The deal does not involves operations in China and India, where RBS is in discussions to sell to Standard Chartered.
  • Royal Bank of Scotland also announced half year profits of £15m before tax. The chief executive neatly summarised the difficulties faced by the bank that is 70% owned by the UK government after a bail out. ‘We sometimes feel as if commentators variously want us to go back to over-lending, to operate on a ‘not-for-profit’ basis, to never entertain a client and to offer employment conditions that deter the best and brightest’.
  • Bank of America agreed to pay $33m to settle with the SEC over claims that it failed to provide complete information to investors about a $5bn bonus pool at Merrill Lynch prior to last December’s shareholder vote over the takeover of the bank. However a federal judge in New York has issued an order challenging the agreement, suggesting ‘it would leave uncertain the truth of the very serious allegations made.’
  • Barclays and HSBC both released half year results that pleased the markets. Barclays announced a £2.9bn pre-tax profit, HSBC announced a $5bn pre-tax profit. Both banks investment banking divisions performed particularly well.
  • Later in the week, there were more disappointing figures for the first half. The UK-government owned bank Northern Rock reported half year losses of almost £725m. Lloyds Banking Group reported losses of £4bn after writing off more than £13bn of bad loans.
  • Goldman Sachs’brand strength has suffered in 2008 and 2009 according to a survey of 17,000 Americans by Brand Asset Consulting. Goldman still has ‘that Gordon Gekko look to it among the general public’ according to the consultancy.
  • However, the fall in brand strength does not seem to have impacted Goldman Sachs’ ability to make money from trading. A detailed filing accompanying its quarter two results showed the bank’s traders made more than $100m on 46 separate days in the quarter, breaking its previous record. It also revealed Goldman lost $75m-$100m on one day and $25m-$50m on another.
  • US government-controlled insurer AIG reported its first profit in seven quarters. The $1.8bn profit was helped by large gains in a partial reversal of the huge mark-to-market losses that forced the government rescue in 2008.
  • Listed US hedge fund group Och-Ziff reported worse than expected second quarter losses of $88.3m. The firms assets under management have fallen from $33.6bn in June last year to just $22bn currently. Investors were surprised to see that $25.4m of the losses were attributed to a set-aside for a bonus pot.
  • Nasdaq OMX has closed its liaison office in India after failing to list any Indian company on its New York-based exchange since establishing a presence in Bangalore in 2001.

Credit 

  • Belgian bank KBC has set aside €300m to compensate private investors who bought collateralised debt obligations from its private banking arm.
  • The US Treasury unveiled a record $75bn debt sale for next week. Dealers are being asked for bids for $37bn in three-year notes, $23bn of 10-year notes and $15bn of 30-year bonds. The total US deficit is expected to peak at $1450bn this year, receding to $1350bn next year.
  • A €1bn 7-year bond issued by European aerospace and defence group EADS attracted orders of €9bn in just half an hour. The bond will yield 4.68%. BNP Paribas, Société Generale and Deutsche Bank managed the deal.
  • Ukraine is threatening to restructure a foreign bond issued by state gas company Naftogaz. The $500m bond is due to mature in late September and Fitch has recently downgraded its rating on the bond from B to CC, quoting the possibility of ‘coercive debt restructuring’.
  • The prices of most traded leveraged loans have reached their highest levels for more than a year, with levels reaching approximately 90% of face values on both sides of the Atlantic.
  • Data for S&P LCD estimates that the biggest private equity groups are sitting on a $400m debt mountain that needs to be repaid in the next five years. The debt is the result of raising large amounts of bank debt to buy companies between 2005 and 2007.

Other

  • General Electric agreed to pay $50m to settle accounting fraud charges with the SEC. The settlement does not involve any admission of guilt by GE, but the SEC’s complaint alleged that GE boosted earning by more than $780m over the 2002 and 2003 periods. The alleged accounting ‘errors’ included improper changes to an accounting policy to hedge, reporting sales of locomotives that had not yet occurred and improper changes to accounting for sales of aircraft engines and spares.
  • Former chairman of AIG, Hank Greenberg agreed to pay $15m to settle the SEC’s claims that he was involving in improper accounting that inflated AIG’s results from 2000 to 2005. Howard Smith, vice-chairman and CFO settled for $1.5m on similar claims.
  • The chairman of the SEC called for the regulator to become self funded Despite expecting to generate $1.3bn in registration and transaction fees in 2009, the agency is only permitted to spend the $960m authorised by Congress.
  • The US SEC is preparing to clamp down on the very fast ‘flash’ trades made on electronic systems. The regulator is concerned that the trades put some investors at a disadvantage. Such trades are not allowed on NYSE Euronext, but are used by Nasdaq OMX, BATS and Direct Edge to compete for market share.
  • UK City minister Lord Myners has put forward some radical proposals for a ‘two-tier’ shareholder register that will give greater voting rights to longstanding institutional investors. The proposals are an attempt to make institutions more comfortable with their ownership responsibilities.
  • UK company Rentokil Initial has changed its auditors and struck a cheaper, streamlined deal with KPMG that will see it shave £1m, almost a third off its previous bill. KPMG will take over from PWC as external auditor and it has controversially also taken on the internal audit role from Deloitte.
  • A former SocGen head of investment banking resigned from the bank after the French regulator opened sanction proceedings against him for insider dealing. A similar probe saw sanction proceedings opened against a non-executive director at the bank who had sold €140m of SocGen shares weeks before the bank announced a €2bn writedown and €4.9bn of losses from the ‘rogue trader’ Jerome Kerviel.

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

 

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