Manhattan-New York

In Case You Missed It: Business News Round-up

martin1Contributed by Martin Mitchell of the Corporate Training Group

The meeting of finance ministers of the G20 called for much bigger and better capital buffers to be held by banks. US Treasury secretary Tim Geithner declared that he is taking the first step towards unwinding policies that have propped up the US financial system. The UK’s monetary policy committee voted to keep interest rates at 0.5%. These are but a few highlights of important market events that we’ve gathered to help you start the week well informed.

Economic Backdrop

  • As expected, the meeting of finance ministers of the G20 called for much bigger and better capital buffers to be held by banks. The details to be finalised before the full G20 gathering in Pittsburgh on the 24th and 25th of September will include stricter rules about what is acceptable as a capital buffer, plus the requirement for complex institutions to develop ‘living wills’ to plan for their unwinding.
  • US Treasury secretary Tim Geithner declared that he is taking the first step towards unwinding policies that have propped up the US financial system by allowing the guarantee for the $2,500bn money market mutual fund industry to expire on schedule at the end of the month. He said it was time to move from crisis response to recovery.
  • The UK’s monetary policy committee voted to keep interest rates at 0.5%, and made no changes to its £175bn programme of quantitative easing.

Mergers and Acquisitions

  • US food group Kraft launched an unsolicited £10.2bn takeover of Britain’s best-known chocolate brand Cadbury. Kraft offered 745p per shares, a 31% premium to Friday’s closing price. Lazard, Deutsche Bank and Citigroup are advising Kraft. Goldman Sachs, Morgan Stanley and UBS are advising Cadbury.
  • Abu Dhabi’s state-owned Advanced Technology Investment Company launched a $1.8bn offer for Chartered Semiconductor Manufacturing of Singapore. Temasek, the Singaporean state-owned investment company has agreed to sell its 62% stake.
  • T-Mobile UK, the mobile operator owned by Deutsche Telekom, has had informal offers from Vodafone and Telefonica of around £4bn. Deutsche Telekom is considering its options for T-Mobile UK after years of underperformance. It is estimated that either Vodafone or Telefonica could secure synergies worth up to €3bn from the increase in pricing power, reduced customer defections and mobile network efficiencies.
  • However, Deutsche Telekom and France Telecom, owner of Orange UK, announced plans to link their UK assets in a joint venture. They will set up a 50:50 joint venture for three years, after which one party could buy out the other. Because Orange UK is bigger than T Mobile UK, France Telecom will place £1.25bn of debt into the new entity and T Mobile UK will go into the JV on a debt free basis. The combined UK market share will be 37.3%, ahead of both Vodafone at 24.7% and Telefonica’s O2 at 26.4%.
  • Telefonica has agreed to consolidate its links with China Unicom by each buying equity stakes in the other worth $1bn. Telefonica will pay HK$11.17 per share. The Chinese group will pay €17.24 a share for its Telefonica stake. The prices are based on the average over 30 trading days before August 28th.
  • General Motors’ sale of Saab to a consortium led by Koenigsegg of Sweden took a significant step forwards when the Chinese Beijing Automotive Industry Holding Company (BAIC) agreed to plug the funding gap estimated at €275m. BAIC will explore growth opportunities for the Saab vehicles in China.
  • General Motors made its decision to sell its Vauxhall/Opel European business to Magna International, the Canadian parts supplier, and Russia’s Sberbank. Magna and Sberbank will take a 55 per cent stake, GM’s European employees will take 10% and GM will retain 35%. LCH.
  • Clearnet is in talks with a consortium of banks, ICAP and its own shareholders about buying out shareholders that are willing to sell at €11 a share.
  • French communications and entertainment group Vivendi launched a €2bn takeover bid for Brazilian telecoms provider GVT. Vivendi will pay 7 times GVT’s estimated EBITDA for 2010.

Financial Institutions

  • Asset manager BlackRock is planning to launch its own global trading platform across the firm. As it becomes the world’s biggest money manager with $3,000bn assets under management after the purchase of Barclays Global Investors, Blackrock wants to be able to ‘cross’ trades internally, rather than going through Wall Street.
  • Goldman Sachs chief executive Lloyd Blankfein admitted that banks lost control of their own activities and was critical of Wall Street compensation practices. At a speech in Frankfurt, he said the furor over bankers’ pay was ‘understandable and appropriate.’ On the banks he said ‘the industry let the growth and complexity in new instruments outstrip their economic and social utility as well as the operational capacity to manage them.’
  • Morgan Stanley chief executive John Mack is stepping aside to be replaced by James Gorman. Mr Gorman was previously in charge of Morgan Stanley’s brokerage arm and Mr. Mack will remain as chairman.
  • A JPMorgan study anticipates that an increasing level of regulation, including tougher capital rules, will cut long term profitability at US and European banks. The impact will be heaviest on investment banking activities – the study said ‘traditional credit will be a better place to be than investment banking.’
  • Barclays Capital has been fined £2.45m for inaccurately reporting 57.5m transactions to FSA, the UK regulator. The fine is the eighth largest in FSA history and the largest for transaction reporting. Barclays failed to submit any report for 17m transactions and reported the incorrect trade time for 24.6m transactions. Barclays also failed to identify whether 3.8m trades were buys or sells.
  • RBS has hired Goldman Sachs to explore options for its aircraft leasing operation. The bank is hoping to sell the unit that is one of the leading aircraft leasing operations in the world with 100 airline customers in 40 countries.
  • A lawsuit has been filed by 72 City of London bankers suing Dresdner Kleinwort and its owner, Commerzbank for €33m of unpaid bonuses. An additional 25-30 former employees are expected to file a separate lawsuit in the coming weeks.
  • Barclays Capital is planning to team up with sovereign wealth funds to buy natural resources including mines, oil fields and power plants. Barclays has invested $1bn in the past four years and is in advanced talks about a $400m investment from South Korea’s Natural Resources Fund.

Credit

  • The private equity real estate fund group of Goldman Sachs made its first significant investment in European debt for some time when it acquired almost 900 non-performing and sub-performing loans backed by Italian residential property. The amount paid is thought to be about half the original loan values of approximately €120m.
  • Britain is likely to preserve its triple A credit rating with the growing political consensus on the need to cut public spending. Moody’s head of sovereign risk said the triple A status was ‘resilient’ and a downgrade ‘very unlikely.’
  • The European securitisation market looks to be re-opening. Volkswagen announced plans for an offer of asset-backed securities backed by car loans. The deal has been mandated to JPMorgan and WestLB. It is expected to be in excess of €500m and happen in the week beginning the 21st of September.
  • The ‘old’ portion of Chrysler that is still under Chapter 11 protection has defaulted on a $3.3bn loan to the US government. It also owes a further $29m in accrued interest after failing to make any payments on the loan since it became due on June 30th.

Other

  • A former Morgan Stanley investment banker was found guilty of 10 counts of insider dealing in Hong Kong. Du Jun was found to have traded on insider information obtained whilst advising Citic Resources on a $1bn bond offering and potential oil hedging contracts. Mr Du now faces up to 7 years in prison and a maximum fine of HK$10m ($1.3m).
  • Dutch banks are poised to become the first in the world to cap bonuses. In a code drawn up by the Dutch bankers’ association and the finance ministry, the most senior executives will have their bonuses restricted to the equivalent of a year’s salary. The code will apply from January 2010.
  • Following the decision by Thomson Reuters to end its London listing, the luxury fashion group Burberry will be elevated to the FTSE 100. Burberry has a market capitalisation of £2.2bn.
  • McDonald’s lost an eight year battle to stop a Malaysian curry restaurant using its ‘Mc’ prefix. Malaysia’s highest court allowed the restaurant to call itself McCurry.

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

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