Manhattan-New York

In Case You Missed It: Weekend Round-up

istock_000005778419xsmall1.jpgContributed by Martin Mitchell of the Corporate Training Group

In case you were too busy enjoying your weekend to have kept up with the news, contributor Martin Mitchell has again been kind enough to gather some important market events from this past weekend (and week) so that you can start this week well informed:

Sunday, November 9th

  • China announced a $586 billion stimulus package Sunday in its biggest move to stop the global financial crisis from hitting the export-driven economy. The money will be invested in infrastructure and social welfare – including low-cost housing, new railways, roads and airports, as well as health, education, high tech and environmental protection.

Saturday November 8th

Mergers and Acquisitions

  • Porsche revealed that it had earned 8 times as much from its Volkswagen option trades than from selling cars. In the year to July, it made €6.83bn from trading VW options, plus another €1bn from the increase in value in its stake in VW. Analysts have dubbed Porsche as a rather successful hedge fund!

Financial Institutions

  • Bank of America’s overtures to persuade the key revenue generating financial advisors at Merrill Lynch to stay on appear to be working. BofA is offering substantial signing bonuses that start at 100% of annual fees and commissions for those generating at least $1.75m per annum. The bonuses will be in the form of loans and cash, and are spread over 7 years. About half of those offered the signing bonuses have already agreed, with the deadline set for November 14th.
    DBS, South-East Asia’s largest bank, unveiled a steep fall in quarterly profits and plans to axe 900 jobs. This represents about 6% of the workforce and will mainly impact operations in Singapore and Hong Kong.
  • Franklin Bank, a Texas-based bank and Security Pacific Bank, a Los Angeles, California-based bank were shut down by state regulators on Friday night. Prosperity Bank based in El Campo, Texas, will assume all of the deposits of the failed Franklin Bank and will purchase $850 million of assets; Pacific Western Bank of Los Angeles will assume all of the deposits of Security Pacific Bank and will purchase approximately $51.8 million of the assets. The FDIC will purchase the remaining assets for later disposal.

Other

  • Both the US and the UK governments are considering stimulus packages to help flagging their economies. US president-elect Barack Obama said he wanted ‘to see an economic stimulus package sooner rather than later’, adding that if it was not in place by the time he takes office, it would be the ‘first thing’ he does. In the UK, the Prime Minister Gordon Brown talked of the emerging consensus across the world that fiscal policy should be used in addition to monetary policy to support growth.

Friday, November 7th

Mergers and Acquisitions

  • Belgo-Brazilian brewer InBev said it was still on track to complete its $52bn takeover of US brewer Anheuser Busch. This is despite postponing a rights issue in mid-October and concerns that it may find it difficult to finance the deal. InBev hopes to complete the deal by the end of the year.
  • Vodafone unveiled a £1.4bn deal that will see it take control of Vodacom, South Africa’s largest mobile phone operator. Vodafone already owns 50% of Vodacom, with South Africa’s largest fixed line operator Telkom holding the remainder. The deal will see Vodafone buy a further 15% from Telkom for £1.3bn and take on Vodacom’s £100m of net debt.
    Financial Institutions
  • In a day of bad news for hedge funds and private equity, Blackstone reported a $340m third quarter loss, Man reported a 44% fall in performance fees and UK-listed private equity firm 3i reported its first negative returns for 5 years.

Credit

  • Significant interest cuts were announced in the UK and Europe. The Bank of England made an unexpectedly large cut of 150 basis points to reduce the base rate to 3%. The European Central Bank also cut its rate by 50 basis points to 3.25%.
  • Successful auctions for European CDSs linked to the collapse of three Icelandic banks, Kaupthing, Landsbanki and Glitnir means settlement can proceed on notional values of around $71bn. However, offsetting positions mean that net notional amounts are estimated at $1.8bn for Landsbanki, $2bn for Glitnir and $3.8bn for Kaupthing. Payouts of 93.34% to 98.75% mean around $7bn will change hands.

Thursday, November 6th

Financial Institutions

  • Germany’s bail-out of Commerzbank is being investigated by the European Commission. The investigation revolves around whether the €8.2bn bail-out was too cheap. Brussels maintains that a minimum cost of 105 is required and the deal with Commerzbank is in two tranches – the first paying 8.5% and the second only 5.5%. Commerzbank argues that the bail-out terms will also allow the government to partake in dividends and upside participation in the Commerzbank share price.
  • UBS, the Swiss bank that has suffered writedowns of around $48bn in the credit crisis, is considering legal action against executives to force them to relinquish some of their bonuses. Attention is focused on former chairman Marcel Ospel who had an annual package of around SFr20m and recipients of large severance packages including Peter Wuffli, Clive Standish and Huw Jenkins.

Credit

  • Royal Bank of Scotland is set to be the 3rd UK bank to use the government’s credit guarantee scheme when it sells £3bn of bonds today. It plans to sell two tranches of three-year bonds, one in sterling and the other in euro. It follows Barclays three-year issue of €3bn two weeks ago, and HBOS £3bn of two-year debt last week.
  • GMAC, General Motors’ financing arm said there was ‘substantial doubt’ about the survival of its mortgage unit Residential Capital without support. GMAC is hoping to be able to access the US government’s troubled asset relief programme.
  • The US Treasury announced that it will sell $55bn in new debt next week, led by $25bn of three-year Treasury notes. A sharp jump in borrowing is the result of the $700bn Treasury bail-out plan, and the use of three-year notes suggest that the government is hoping that much of the money used to support the financial system will be repaid or recovered relatively quickly.

Wednesday, November 5th

Mergers and Acquisitions

  • European Commission regulators issued a statement of objections to the proposed $79.5bn hostile takeover of global miner Rio Tinto by BHP Billiton. The Commission is concerned about the impact on the iron ore and metallurgical coal markets.

Financial Institutions

  • JPMorgan Chase is planning to make much smaller bets with its own capital as it eliminates its standalone proprietary trading desk. It will fold its 80 strong proprietary trading staff into its other trading operations.
  • UBS has decided that it will not take advantage of the controversial accounting rule change that would flatter its results because investors would ‘see through it’. This is in contrast with some rivals that have taken advantage of the ability to reclassify financial assets so as to avoid a hit to profits. RBS reclassified £24bn of assets, avoiding a £1.2bn writedown, and Deutsche Bank reclassified almost €25bn which raised net income by €536m.

Credit

  • The Reserve Bank of Australia surprised investors with an aggressive 75 basis points cut, taking its main lending rate to 5.25%.
  • Ireland raised €4bn via a new three-year bond issue, but had to pay 25 basis points over average European government bond yields. The price was equivalent to the recent €3bn, three-year UK government-backed bond from Barclays Bank and yields 122bp more than the three-year German bund.
  • Allco Finance, the Australian asset manager, has collapsed into receivership owing almost A$1bn.

Other

Tuesday, November 4th

Mergers and Acquisitions

  • British Sky Broadcasting (BSkyB) is in exclusive talks to purchase the UK assets of struggling Italian telecom group Tiscali. The deal involves an indicative offer of £450m, and would see BSkyB become a close competitor to Virgin Media in the provision of broadband access to UK households.

Financial Institutions

  • Goldman Sachs Investment Partners, a flagship hedge fund run by Goldman, has managed to lose almost $1bn since its launch in January. After raising more than $6bn, the fund has told its investors it had lost $989m by September. The fund has a 2-year lock in for investors and has a strong bias towards equity.

Other

  • Private equity house Kohlberg Kravis Roberts (KKR) decided to delay its planned New York initial public offering. KKR said that it was still committed to completing the transaction, but not until 2009. The decision showed how conditions have deteriorated for private equity. In June 2007, rival Blackstone floated and was valued at $30bn – now its equity is only worth about $3bn.
  • Morgan Stanley’s European equity strategist who correctly warned investors to sell equities in June 2007, just before the credit crunch, is saying the market is sending its strongest buy signal for 6 years. Described as a ‘full house buy’, he said that all four indicators (valuation, capitulation, risk, fundamentals) are telling investors to buy.

Monday, November 3rd

Mergers and Acquisitions

  • Lloyds TSB, the UK bank that is acquiring the UK’s biggest mortgage lender HBOS, revised the financial plans surrounding the deal. Chief executive Eric Daniels increased the estimated cost savings from £1bn to £1.5bn primarily from the removal of duplicate operations. Both banks are boosting their capital prior to the acquisition which involves the UK government underwriting ordinary share issues and purchasing preference shares that will pay 12% pa. Lloyds is issuing £4.5bn of ordinary shares and £1bn of preference shares, HBOS is issuing £8.5bn of ordinary shares and £3bn of preference shares.

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

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