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 U.S. Federal Reserve upgraded its assessment of the economy and left discount rates unchanged. ExxonMobil is to buy XTO Energy, a U.S. natural gas company in a $31bn all stock deal. Terra Firma launched a multibillion-pound lawsuit against Citigroup. 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 U.S. Federal Reserve upgraded its assessment of the economy and highlighted its intention to shut down most of its crisis-fighting liquidity measures in early 2010. However, it left the discount rate at which it lends to banks unchanged.
  • The ECB made its final offer of 12-month, emergency liquidity.
  • After seven years of deflation, the Bank of Japan said it will no longer ‘tolerate’ falling prices.

Mergers and Acquisitions

  • ExxonMobil is to buy XTO Energy, a U.S. natural gas company. The $31bn all stock deal will see the original 1993 shareholders in XTO make a 50 times multiple on their investment. JPMorgan Securities acted as financial advisers to ExxonMobil and BarCap and Jeffries are acting for XTO Energy.
  • Cadbury published its defense document against the hostile takeover offer from Kraft. The document urged Cadbury shareholders not to let Kraft ‘steal’ the company. Cadbury’s chief executive described the potential acquisition by Kraft as being like taking a ‘fast-moving sports car and sticking it into a four-door sedan lane of traffic’.
  • Apax Partners agreed to buy a majority stake in Israel’s biggest asset manager, Psagot, for $621m. The 76% stake is largely being purchased from a U.S. hedge fund called York Capital.
  • Brazilian steelmaker Companhia Siderurgica Nacional launched a €3.86bn bid for Cimpor, Portugal’s biggest cement group.
  • The only remaining bidder, Dutch sports carmaker Spyker Cars tried but failed to agree a deal to buy Saab Automobile from General Motors.

Financial Institutions

  • Citigroup unveiled plans to raise up to $19.6bn and return $20bn to U.S. taxpayers.
  • Wells Fargo, the only other major bank still in the Tarp programme, sold $10.7bn in new shares to help it to repay $25bn in U.S. federal aid. The offering was underwritten by Wells Fargo’s own securities arm and Goldman Sachs.
  • Citigroup is also facing an arbitration claim from the Abu Dhabi Investment Authority (ADIA). ADIA claims it was misled when it invested $7.5bn in Citi two years ago. It is seeking rescission of the investment agreement or damages in excess of $4bn. Citi is ‘vigorously’ defending the claim.
  • Credit Suisse revealed that it expected to pay U.S. authorities around $536m to settle issues relating to financial dealings with Iran during the period April 2002 and April 2007.
  • UBS ruled out any legal action against its former managers after writing off more than $50bn and requiring a SwFr6bn bail out in late 2008. After a ‘thorough review’ it concluded that there was ‘no evidence of criminal conduct under Swiss law’ and any civil action was not in the interests of UBS, its clients and shareholders.
  • Goldman Sachs is facing a legal action from a pension fund for U.S. fire and police officers. The action complains that paying 50% of net revenues to staff constitutes ‘waste’ and ‘elevates the interest of senior Goldman employees over those of shareholders’.
  • Royal Bank of Scotland (RBS) is investigating a suspected fraud in its commercial banking operation in China. Local media estimate the alleged fraud may have resulted in client losses of up to RMB20m ($3m).

Credit

  • Abu Dhabi extended a $10bn bail-out to Dubai. The $10bn will be used to settle a $4.1bn sukuk issued by Nakheel and due for repayment, as well as providing funds whilst Dubai World negotiates a debt restructuring. The Nakheel sukuk repayment will prevent a cross-default at Dubai World which guaranteed the bonds.
  • Dubai also ushered in a new bankruptcy framework to enable Dubai World to raise priority funding and maintain existing contracts during the course of its debt restructuring.

Other

  • The U.S. Securities and Exchange Commission introduced new rules for disclosure on executives and their backgrounds. Starting in 2010, companies will have to provide a written explanation about their pay practices for all employees if the policies ‘create risks that are reasonably likely’ to have a material adverse impact on the company.
  • They will also have to give more details about directors, including their relevant skills, directorships at other companies and any litigation or regulatory enforcement actions involving them.
  • The U.S. subsidiary of the U.K.’s Icap agreed a $25m settlement with the SEC. The SEC alleged that brokers at Icap had used fake trades to encourage trading by clients.
  • The U.K. branch of Toronto Dominion Bank was fined £7m by the Financial Services Authority for repeatedly failing to control how its traders price sophisticated financial products. Because Toronto Dominion reported the incident to the FSA, it was given a 30% discount on the fine.
  • China’s stock exchanges have raised double the amount of IPO money compared to U.S. exchanges in 2009. Dealogic figures show Hong Kong has raised $27.2bn and mainland Chinese exchanges have raised $24.4bn. U.S. exchanges have only managed to raise $26.5bn.
  • Terra Firma launched a multibillion-pound lawsuit against Citigroup. The suit claimed the bank fraudulently misrepresented the facts of the auction that resulted in Terra Firma buying EMI. Citigroup both advised EMI and financed the £4bn acquisition.
  • Eurex and the London Stock Exchange are about to launch equity derivative contracts to compete with NYSE Liffe. Eurex will launch equity options on 30 British blue chip companies next month, and the LSE is looking to launch options on the FTSE share index in early 2010.

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

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