Stocks and Funds
Higher funding costs predictably hurt interest margins at the struggling state’s two biggest lenders in the first quarter. The pain at Sberbank and VTB was limited by trading gains, as the rouble and oil price both rose. But bad debts and political tension remain big threats.
Two weeks after the firm cut the city’s credit rating to junk, underwriters priced about $670 mln of bonds with yields approaching 6 pct. That’s nearly double what triple-A cities pay, but well shy of broke Puerto Rico. It’s a fair reflection of Chicago’s simmering fiscal mess.
The UK state-held bank may bid for a 13 bln stg mortgage portfolio held by its fellow state-run entity. That sounds weird, but Granite could boost RBS’s weak profitability. That in turn could give a helpful shove to the UK’s efforts to sell the bank back to the private sector.
The Italian group’s pledge to hike dividends may look bold: ultra-low bond yields are hurting insurers. But bigger players are relatively better placed, and Generali just hit a set of multi-year targets. Besides, a shift away from guaranteed-return products could help profit.
Bids and Buyouts
A new study suggests corporate wheeler-dealers generating strong returns use riskier options like cross-border and hostile transactions. Plenty of research, though, shows most acquirers struggle to add value. CEOs would do well to recognize their limits before building empires.
Sergio Marchionne argues mergers would cut duplicative spending and boost shareholder returns. GM has already rebuffed him, probably because such deals are complex and hard to complete. But he also hurts his case by downplaying the benefits of lower costs and fewer employees.
The serial acquirer is buying semiconductor rival Broadcom for more than $36 bln. Cost cuts should just about cover the 30 pct premium. Avago’s track record, the cash-and-stock mix and the logic of industry mergers all add up, too. Only an interloper could spoil the party.
The Irish government has backed British Airways’ parent in its 1.4 bln euro offer for Aer Lingus. The 40 pct premium is less generous than it looks, given the wider rise in airline shares. Key shareholder Ryanair could push for more, but other investors shouldn’t bank on it.
Money and Markets
One SEC commissioner is an economist, another hails from Congress and Chair Mary Jo White prosecuted fraudsters. Two vacancies give the regulator a chance to add market expertise. Critics may gripe about the revolving door, but it pays to know how the financial world works.
It’s now received wisdom that America can’t afford to forget financial crises. Veteran FDIC bank examiner John Bovenzi manages to corral the evidence in a surprisingly readable book, joining the dots from the 1980s S&L rout to the start of too-big-to-fail and subprime stupidity.
An accounting fraud trial kicked off this week against three of the defunct law firm’s leaders. Dewey & LeBoeuf’s methods may have been extreme, but big shops tend to play fast and loose with already fuzzy rules. What attorneys consider creative could turn out to be illegal.
Over 20 lenders are mentioned in the U.S. Department of Justice’s 164-page soccer rap sheet. Even if FIFA officials are found guilty, banks may be blameless. But UBS’s recent experience suggests any sniff of wrongdoing could change how U.S. regulators view past misdemeanours.