Citi’s Mexico fraud besmirches industry further 28 Feb 2014 The mega-bank has been cheated out of $400 mln by an oil services firm in one of the most basic businesses in banking – accounts receivable. Citi’s Banamex didn’t even spot it – Mexico’s government did. Missing such simple fraud is something that should worry Citi’s rivals, too.
Big Oil could use some venture capital mojo 28 Feb 2014 An unwillingness to tackle small wells meant oil majors missed out on the lucrative U.S. shale oil boom. Exxon and its ilk were too focused on mega-projects. Seeding a new generation of nimbler upstarts, a strategy that worked for Big Pharma, might renew verve and boost output.
Review: GDP and its discontents 28 Feb 2014 Diane Coyle’s new book discusses the many weaknesses of GDP, the standard measure of economic success. Why do policymakers still rely on it? Her answer is that the alternatives are no better. That’s fair, but her analysis leads to a more aggressive, and compelling, conclusion.
Bankia sale better for morale than for finance 28 Feb 2014 The placing of 7.5 pct of the Spanish bank by the state is an impressive testament to the country’s recovery. Increasing the free float makes sense, and the deal has been sensibly sized. But Madrid will struggle to recoup the 22 bln euros it sunk into the lender.
Pearson has to sell investors on recovery story 28 Feb 2014 The educational publisher has followed a profit warning for 2013 with surprisingly low guidance for the current year, sending the shares tumbling again. Pearson is struggling to adapt to change in its U.S. market. CEO John Fallon has yet to demonstrate it’s just a cyclical blip.
Panglossian view of euro zone debt has pitfalls 28 Feb 2014 Italian and Spanish bond yields are falling with German ones. Investors no longer view southern European debt purely through the prism of credit risk. That makes sense for now. But over-optimism may be unwise, especially if low-to-no inflation hampers debt-cutting.
Blackstone bets Versace can go up a few sizes 28 Feb 2014 The U.S. group is buying 20 pct of the Italian fashion house. The 1 bln euro, all-equity minority deal shows that buyout firms are lacking classic takeover opportunities. This is also a bet that Versace’s lightweight business can one day match the power of its extra-large brand.
State aid may just prolong Qantas’ pain 28 Feb 2014 The Australian carrier, which just cut 5,000 jobs, is struggling to compete against its loss-making, foreign-backed rival. Lifting a cap on foreign ownership will only help if Qantas can find a deep-pocketed investor. A state guarantee for its debt may just extend the price war.
Macau casino stocks are priced for perfection 28 Feb 2014 A building boom will expand capacity in China’s gambling enclave. But to justify their valuations, casinos not only need to attract more punters but encourage them to spend more at the tables. Any slowdown in visitor numbers or increased competition could test excited multiples.
Breakingviews columnists win SABEW awards 28 Feb 2014 Andy Mukherjee and Peter Thal Larsen won the award for International Commentary from the Society of American Business Editors and Writers for their views on Japan’s economy and stock market. Rob Cox was a finalist in the Digital Commentary category for his columns on gun safety.
Tesla customizes hot new convertible for hedgies 27 Feb 2014 A $1.6 bln bond that becomes equity is a cheap way for Elon Musk’s electric carmaker to raise cash for its new Gigafactory. Hedge funds love such securities, which provide unique trading opportunities on volatile stocks. And lately they’ve been almost as hard to buy as a Tesla.
Dan Loeb bids against himself at Sotheby’s 27 Feb 2014 The hedge fund activist surprised the auctioneer by nominating three directors, after the firm offered him one uncontested board seat and listened to, and even acted on, some of his gripes. Loeb must have reasons, but it may discourage other targets from engaging with activists.
TXU’s carcass scavenged for tax meat 27 Feb 2014 The Texas utility renamed Energy Future is nearly bust six-plus years after the $45 bln takeover led by KKR and TPG. A flock of buyout firms and hedge funds, including Apollo and Avenue, are clawing at each other for the scraps. This odd beast has juicy bits buried in its books.
Merkel starts to take British EU exit seriously 27 Feb 2014 The German chancellor disappointed British eurosceptics, who wanted her to tell the UK parliament that she wants less Europe. They should be flattered. Her robust endorsement of European political idealism was directly aimed at the threat they pose to the region’s prosperity.
Pimco’s Gross leaves Allianz with a dilemma 27 Feb 2014 Market softness and currency shifts may challenge Pimco, the world’s biggest bond manager, in 2014. Legendary boss Bill Gross has a strong record to fall back on. But questions over both performance and his style mean his German masters can’t ignore the question of succession.
Back Stephen Hester to fix RSA 27 Feb 2014 The former RBS CEO has taken a full-on approach to healing the UK insurer. He’s planning disposals, cost cuts and a 775 mln stg rights issue. After a terrible 2013, the capital hike asks a lot of investors. But Hester has enough credibility to usher this through.
PayPal has outgrown eBay’s warm embrace 27 Feb 2014 The online merchant’s ownership provided rich soil for the payments system to thrive. But PayPal is now mature enough to grow faster on its own. Separating the two businesses could send eBay’s stock up 15 percent or more.
RBS once again asks investors to take long view 27 Feb 2014 The UK bank is to slash 40 pct off its cost base and cut its investment bank. The new focus on higher capital and a simpler structure is welcome, but won’t fully kick in until 2018. That would be a downer even if investors hadn’t already been in restructuring mode for five years.
Credit Suisse boss gets easy ride in Senate 27 Feb 2014 Brady Dougan was only lightly chastised about his firm helping Americans dodge taxes. Senator Carl Levin was at least as angry with Swiss and U.S. authorities. And investors don’t expect much more pain. To execs at Goldman and elsewhere, it must have looked like a cakewalk.
Investors take note: low inflation isn’t deflation 27 Feb 2014 The theory says that bonds benefit and stocks suffer during deflation. In the real world, disinflation has yet to turn into persistent price declines. Sluggish price rises are no bar to equities doing quite well, as long as there is GDP growth. It’s too early to write off stocks.
Man starts to crawl out of the wilderness 27 Feb 2014 The hedge fund manager’s stock soared after it smashed forecasts. After years of falling assets and dependence on an ailing quant business, it is becoming a leaner, more profitable group. To close the share-price discount to peers, Man has to show it can sustain the performance.
SoftBank’s Alibaba stake both blessing and burden 27 Feb 2014 Billionaire chief Masayoshi Son is expanding the Japanese internet firm through M&A. But its 37 pct stake in the Chinese e-commerce giant dominates its valuation, according to a Breakingviews calculator. When Alibaba goes public, SoftBank may come under pressure to let it go.
China’s yuan plan looks too clever by half 27 Feb 2014 The central bank seems set on bashing speculators betting on a stronger yuan, without changing the currency’s long-term appeal. The trick is to target low volatility that fuels trades. But it’s a fine balancing act – and risks rewarding those who were betting on a China downturn.
Wall Street may have lost its last DC cheerleaders 26 Feb 2014 Democrats delivered bankers a whipping after the financial crisis. More draconian regulation was only kept at bay by Republican pushback. With the GOP now calling for a big bank surcharge and a tax hike on fund bosses, the industry looks even more friendless and vulnerable.
Bursting U.S. gun bubble begins to take victims 26 Feb 2014 Fear of legislation following the Connecticut shooting drove demand for guns to absurd heights. It’s increasingly clear laws won’t be tightened. Sturm Ruger is the first to admit the emotion that fired up the bottom line has run its course. The reckoning will be painful.
Bubbly AO float shows craving for tech hits 26 Feb 2014 Selling fridges online isn’t quite Twitter. Yet Britain’s AO popped 40 pct after floating at 1.2 bln stg. The valuation takes breakneck future expansion for granted. Investors like new stock and entrepreneurs, and will pay up for growth based on disrupting existing industries.
UK GDP offers partial vindication for BoE caution 26 Feb 2014 The latest growth report shows consumer spending up a little and business investment up a lot. As more confident businesses invest, they should boost productivity, wages and then spending. It’s a slow process. In the meantime, “lower for longer” interest rates look justified.
Target $1 bln breach rings bell for Luddite bosses 26 Feb 2014 Combine lost Q4 sales and possible future costs, and that could be the U.S. retailer’s minimum tab for the theft of up to 110 mln customer records, Breakingviews estimates. It’s a meaningful sum for any company. There’s no excuse now for CEOs and boards to dally on cybercrime.
Edward Hadas: How hunger and obesity go together 26 Feb 2014 It’s a scandal that poor people in rich countries have to choose between eating and winter heating. The problem is not the traditional economic curse of inadequate production nor the modern scourge of malign neglect by politicians. This hunger is a symptom of societal malfunction.
Repsol makes the best out of bad YPF deal 26 Feb 2014 The Spanish oil group will get $5 bln from Argentina as compensation for the expropriation of its stake in YPF. It’s half what Repsol wanted and will be paid in government bonds. Still, the final deal enshrines that Repsol must ultimately receive the value Buenos Aires promises.