U.S. attacks Germany for being virtuous 31 Oct 2013 The Treasury doesn’t like the EU leader’s high trade surplus and relatively slow growth. Would they really like Germans to emulate bad American habits? German industrial efficiency may worsen global financial problems, but U.S. monetary policy is a greater threat to stability.
PwC-Booz merger adds up to a major culture clash 31 Oct 2013 The deal would be the most prominent example of a Big Four auditor expanding in consulting. That’s where the growth is, but limits on cross-selling accounting and advisory services mean staffers in the two areas could end up brawling over clients. It’s a recipe for trouble.
Avon can’t dress up ugly foreign bribery case 31 Oct 2013 A rift with the SEC over corruption charges coupled with poor results erased over $2 bln of the cosmetic giant’s market value. Balking at a government offer isn’t unusual, but doing so in public breaks new ground. Avon and others may be fed up with the regulatory zeal on FCPA.
Investors remain too sweet on Novo Nordisk 31 Oct 2013 Danish diabetes-treatment giant Novo Nordisk suffered a rare earnings miss, and dropped its double-digit growth target. Generic competition and a cancer scare both hurt. Investors promptly erased 6 percent of Novo’s value. But they are still being generous.
Conoco shows rivals splitting up is great to do 31 Oct 2013 The driller had a bumper Q3 thanks to hiving off refining and pipelines 18 months ago. Shares in Conoco and its two spinoffs have also bested its full-service brethren, despite similar overall performance. The benefit of a breakup is getting harder for Exxon and Shell to ignore.
Three Simons may be enough at Robertson Robey 31 Oct 2013 Simon Warshaw is to join his namesakes Robertson and Robey at their advisory boutique. The latest Simon is as big an M&A hitter, and offers the same ties to UBS as Robey has to Morgan Stanley. But the firm still needs to decide how big it can get without becoming unwieldy.
Edward Hadas: Economists overvalue stock markets 31 Oct 2013 The latest Nobel prize rewarded researchers who have pondered whether investors can outperform the market. The game may be fun, but too much attention has been paid to the economically pointless effort to gain an elusive and basically unethical edge.
Facebook’s mobile surge bodes well for Twitter too 31 Oct 2013 Mark Zuckerberg’s social network once looked stymied by the smartphone migration. Its solid Q3 results show just how Facebook has answered the call. Mobile is lifting margins and the shift in revenue should persist. The growth is also a good sign for would-be Twitter investors.
China’s banks languish in valuation twilight zone 31 Oct 2013 The likes of ICBC and CCB earn double the return on equity of global rivals, but trade on the same multiple of book value. Investors are suggesting those returns won’t last. Valuations will only adjust when Chinese banks address fears about what’s lurking on their balance sheets.
Investors unfairly ground Lufthansa 31 Oct 2013 Europe’s largest airline faces many challenges, but is in much better shape than its battered stock-market valuation suggests. The numbers are confusing, but Lufthansa is en route to becoming a leaner and more profitable airline by 2015. The market hasn’t caught on.
Danske’s new broom commences timely deep clean 31 Oct 2013 The Danish bank’s capital, leadership and even advertising have been questioned of late. A new CEO is correct to focus on more cost cuts and throttling back in Ireland. Investors won’t like the hacking back of return goals, but will like signs that Danske is getting a grip.
Vodafone’s India bet starts to look less bad 31 Oct 2013 The British telco is set to take full control of its Indian unit amid hopes it is turning a corner. The indicated price, based on terms set two years ago, implies a value of $10.6 bln. That’s less than Vodafone paid for previous stakes, and less than implied by peer valuations.
China Index: Waiting for the Party to start 31 Oct 2013 The economy held more or less level in September, despite an unexpected drop-off in exports, according to Breakingviews’ alternative growth index. With new leaders set to reveal plans for the next decade at the “third plenum” later this month, the inertia could be short-lived.
Federal Reserve is now just waiting for Godot 30 Oct 2013 In somewhat absurdist fashion, the central bank will keep buying $85 bln of bonds each month without any clear idea of when to stop or obvious evidence the year-old program is helping the economy. The recovery isn’t apt to accelerate soon. Taper expectations may be in vain.
Even bankruptcy can’t subdue Batista’s swagger 30 Oct 2013 The Brazilian tycoon is selling gas assets cheaply to a utility he partly owns, practically goading creditors of insolvent OGX. Their odds of recovering more money still improve by injecting new cash. Pushing these bondholders too far, though, could lead to a painful liquidation.
Fund managers could learn from hometown Red Sox 30 Oct 2013 The team is a win away from being baseball’s champs. Its success hinges on the disposal of concentrated long-term bets in favor of liquidity, early-stage backing and steadier assets. Such diversification is a good reminder for the Boston-based investment industry and beyond.
FX probe shows risks of benchmarks 30 Oct 2013 Watchdogs delving into foreign-exchange trading may find nothing, but like Libor, FX is open to abuse. Traders can profit from pushing benchmarks away from the real market price. They supposedly offer certainty and lower costs, but they need tough regulation.
Chrysler needs $18 bln valuation to justify IPO 30 Oct 2013 That’s the point where the union trust fund that owns 41.5 percent of the Detroit automaker would reap more than it could ever get from Fiat. Hitting that figure is doable but would require margins to double by 2015 and investors to forgo a minority discount. It’s a big gamble.
Teva CEO’s sudden exit prompts rocky prognosis 30 Oct 2013 The world’s largest generic drugmaker has lost boss Jeremy Levin. That raises governance concerns and casts doubt on the firm’s ability to weather the expiration of patents on its biggest seller. A takeover could be in the offing, but shareholders probably won’t be so lucky.
Risky bonds offer strange kind of safety 30 Oct 2013 Yield-hungry investors are gobbling up junk bonds and “pay-in-kind” notes. Yet there is an odd rationality behind this exuberance. As economies grow, companies can de-gear safely. And these bonds will be hit less hard by rising interest rates or leveraged buyouts.
Barclays’ deleveraging phase has only just begun 30 Oct 2013 The UK bank raised equity in the third quarter and made progress on existing plans to cut leverage. But it could yet be hit by further fines and regulatory demands for higher capital ratios. Unless Barclays wants to curb dividend payouts, it may have to cut its investment bank again.
Porsche performance disguises VW’s weak spots 30 Oct 2013 Europe’s largest carmaker is far from firing on all cylinders. Volkswagen lifted operating profit by a fifth in the third quarter with Porsche doing especially well. But its mass-market brands are slowing and there are nagging doubts about a large-scale revamp of production.
Three questions to ask of China’s "third plenum" 30 Oct 2013 Hopes are high for November’s huddle of top Communist Party officials. At previous meetings, leaders unveiled plans that jolted China’s economy. Specific reforms may not surprise, but there could still be big clues about whether anything has really changed under the new guard.
China excitement stirs up Aussie milk frenzy 30 Oct 2013 Canada’s Saputo is battling rivals down under for control of A$470 million milk processor Warrnambool. Now Japan’s Kirin has paid a premium for a 10 percent blocking stake. The battle is another bet on China’s growing love for foreign dairy. But the price is looking rich.
Sears breakup turns Eddie Lampert into un-Buffett 29 Oct 2013 A decade ago, the billionaire hedge fund manager was supposed to use the U.S. retail chain as a base to build the next Berkshire Hathaway. Offloading Auto Center and Lands’ End would smack more of a hapless Woolworth. The Buffett blueprint is easier to invoke than implement.
Predicting BofA penalty as dicey as its mortgages 29 Oct 2013 The mega-bank faces a hefty fine after being found liable for selling dodgy loans to Fannie and Freddie. Just how large is anyone’s guess, given the loose legal guidelines involved. U.S. Judge Jed Rakoff will make the final call, but Breakingviews attempts its own calculation.
Pfizer on right path for others to follow 29 Oct 2013 A two-year diet has done more for investors than a decade of acquisitions. The drug giant still trades at a 10 pct discount to rivals - fodder for CEO Ian Read to push for a breakup. And Pfizer’s recovery should encourage others to find similar solutions to sluggish performance.
Rabo’s Libor fine shows mutuals are mixed blessing 29 Oct 2013 The Dutch lender was fined $1.1 bln for fiddling interbank rates. Cooperative banks are supposed to act ethically, but amoral traders still polluted Rabobank’s culture. Without careful regulation, mutuals can act as badly as shareholder-owned banks, only with poorer governance.
BP’s memo to the market: we are cheap 29 Oct 2013 The UK oil major has bumped its dividend and is buying back stock despite falling profit and hefty capex. BP is trying to show strength to a market that values its shares at a discount to peers. To be convincing, BP may have to show it can also generate sturdy earnings growth.
UK takes token step into Islamic finance 29 Oct 2013 The government is finally making good on a promise to be the first Western nation to sell a sukuk, the Islamic finance name for a bond. It could establish a benchmark for other British issuers, but at 200 million pounds, the deal’s main payoff is political, not financial.