Manhattan-New York

In Case You Missed It: Business News Round-up

Contributed by Martin Mitchell of the Corporate Training Group.Martin Mitchel of CTG

The proposed sale of General Motors’ Opel business to Magna International and Sberbank has suffered a setback. US banks Citigroup, Bank of America, Goldman Sachs and JPMorgan all reported third quarter results. CEO of Lazard and ‘father of modern M&A’ Bruce Wasserstein died aged 61. These are but a few highlights of important market events that we’ve gathered to help you start the week well informed.

Economic Backdrop

  • US Federal Reserve minutes showed that the Fed is still cautious on growth. Despite positive factors such as rising activity in the housing market and stabilising consumer spending, the ‘economic recovery is likely to be quite restrained’.

Mergers and Acquisitions

  • Xstrata dropped its proposal for a merger of equals with rival Anglo American. The Swiss-based mining company backed away from making a formal bid by October 20th, after the UK Takeover Panel had issued a ‘put up or shut up’ requirement. Xstrata cannot now make a bid for six months, unless there is an offer from a third party.
  • Overseas-Chinese Banking Corp (OCBC) will acquire the Asian private banking assets of ING Group for $1.46bn. The cash deal will triple OCBC’s private banking funds to $23bn.
  • Brussels-based financial investor RHJ International agreed to buy one of the oldest names in UK banking, Kleinwort Benson from Commerzbank for £225m in cash. RHJ plans to transform Kleinwort Benson into an ‘old fashioned merchant bank’.
  • British private equity house CVC Capital Partners is set to buy the central European brewing operations of AB InBev for $2.2bn. The operations include the brand Staropramen that CVC hope to turn into a globally recognised name. If CVC’s return on investment meets certain hurdles, it will pay a further $800m to AB InBev.
  • AIG announced the sale of Nan Shan, its Taiwanese life assurance business, for $2.15bn to a consortium consisting of a fund called Primus Financial and Hong Kong-based buyers. Deutsche bank advised Primus and Morgan Stanley advised AIG.
  • The proposed sale of General Motors’ Opel business to Magna International and Sberbank suffered a setback. The EU competition commissioner said Germany’s financial aid for the deal would not comply with the internal market rules of the EU because it needs to be available ‘irrespective of the choice of investor or plan’. Germany opposed a rival bid by investment group RHJ International and was only willing to underwrite Magna and Sberbank’s bid.

Financial Institutions

  • US banks Citigroup, Bank of America, Goldman Sachs and JPMorgan all reported third quarter results. Goldman and JPMorgan both beat expectations and reported healthy net income of $3.2bn and $3.6bn respectively.
  • In contrast, the two banks with substantial commercial banking activities disappointed, largely due to consumer credit losses. Citigroup reported a small loss per share, its seventh loss in eight quarters. Bank of America posted a $1bn loss, despite a positive result from the recently acquired Merrill Lynch.
  • CEO of Lazard and ‘father of modern M&A’ Bruce Wasserstein died aged 61. He leaves a successful business that is focused on selling pure advice at a time when clients and investors are wary of conflicts of interest at the large banks.
  • Citigroup was fined $600,000 by the US Financial Industry Regulatory Authority (Finra) for a failure to control trading in relation to total return swaps. The swaps helped Citi’s foreign clients receive the full value of dividends from the US without paying the withholding tax.
  • Citigroup also became the first US financial institution to open a retail operation in Vietnam. Citi will open a branch in Ho Chi Minh City to provide deposit services to individuals and remittance services for the Vietnamese.
  • UK’s Lloyds Banking Group has been told by the UK government that it will have to pay at least £1bn as a ‘break fee’ if it proceeds with its plan to leave a state-backed asset protection scheme. In March, the bank agreed in principle to a fee of £15.6bn to put £260bn of toxic assets into the scheme for five years. The deal has yet to be signed and Lloyds are investigating a rights issue and divestments that would raise sufficient funds to avoid the need to be part of the expensive scheme.
  • The Dutch central bank took control of DSB Bank, a small lender that focuses on mortgages and consumer credit, after a run on the bank. The central bank said the country’s deposit guarantee scheme would be activated, allowing depositors to claim up to €100,000 each.
  • An Abu Dhabi state-linked investment fund called Aabar Investments invested $328m in depositary shares issued by Banco Santander’s Brazilian unit. Santander recently floated the Brazilian operation in an $8.1bn IPO.
  • In a positive sign for the financial markets, the world’s largest buy-out firm Blackstone revealed plans to list up to eight companies it owns and sell up to five others. Later in the week, one of Europe’s biggest private equity groups, Permira revealed similar plans.

Credit

  • Barclays is looking at a deal that will see a £4bn portfolio of collateralised loan obligations removed from its balance sheet. The deal will either be similar to last month’s deal that saw £12.3bn of mortgage assets spun out of Barclays into a vehicle led by former staff, or it will be a divestment to a third party buyer.
  • Abu Dhabi’s first Islamic bond, a $1bn issue for the Tourism Development and Investment Company, attracted orders of almost $7bn.
  • French bank Credit Agricole said it will repay its government aid by the end of the month. The bank will repay €3bn of aid plus €220m of accumulated interest. The move follows similar announcements from BNP Paribas and SocGen.
  • A Japanese government-appointed task force overseeing the rescue of troubled Japan Airlines has proposed that creditor banks forgive Y250bn ($2.8bn) in loans. The biggest lenders to the airline are the state-run Development Bank of Japan and three private-sector groups: Mitsubishi Tokyo, Mizuho and Sumitomo Mitsui.
  • As governments look to fund large deficits as the result of the global slow-down, New Zealand has embarked on a marketing campaign to convince investors that buying NZ debt is a good way of diversifying away from the US dollar debt exposure. New Zealand is expected to issue more than NZ$40bn ($29.2bn) of debt in the next three years.

Other

  • A US federal jury started to hear a case involving two former Bear Stearns hedge fund traders. The case accuses the traders of misleading investors in relation to two sub-prime mortgage investment vehicles. Shortly after privately saying in an email that ‘the sub-prime market looks pretty damn ugly’ and ‘there is simply no way for us to make money’, one of the two told investors that he was ‘very comfortable with exactly where we are’ and that ‘there’s no basis for thinking this is one big disaster’.
  • Another US case involving insider dealing was dismissed. In 2004, a billionaire entrepreneur was told by the chief executive of Mamma.com that the company intended to issue more equity. The entrepreneur promised to keep the information confidential and promptly sold all of his shares in the company. The Texas judge ruled that he was not barred from selling the shares because he made no promise that he would not sell. The SEC is appealing against the judgment.
  • To complete a busy week for US financial prosecutions, six people were charged in an alleged insider trading scheme. The six included prominent hedge fund manager Raj Rajaratnam, former Bear Stearns employees and an IBM executive. Mr Rajaratnam is the founder of the $3bn Galleon hedge fund, one of the most prominent stock-picking hedge funds on Wall Street. The prosecutors allege that insider trading took place in at least 12 companies including Hilton, IBM, Google and Advanced Micro Devices. In Hilton alone, Mr Rajaratnam allegedly made a $4m profit after being told about an impending takeover being a ‘sure thing’.
  • One of India’s biggest companies, mobile operator Reliance Communications has been questioned by a government-commissioned audit after it under-reported its revenue. In the year to March 2008, there was a substantial ‘gap’ between revenues reported to investors and those reported to the government. The government reports determine the licence and spectrum fees payable by Reliance.
  • Two investors, who lost more than $2.4m in Bernard Madoff’s Ponzi scheme, have filed a negligence suit against the SEC. The suit alleges that because the SEC failed to uncover the $65bn fraud that flourished for more than two decades, the government should compensate the investors for their losses.
  • A draft law that will see most off-exchange derivatives forced through central clearing and exchanges was approved by the US House financial services committee. The bill will be brought together with a parallel bill being drafted in the House agricultural committee before it is combined with legislation drawn up in the Senate.

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

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