Rich may be in same hole as sub-prime borrowers 29 Jul 2008 Default rates on superprime consumer loans are rising. That s unsurprising; the top 1% increased their income share by 80% in 19942006 and did not foresee their party ending any more than they foresaw the housing collapse. The rich can be deadbeats too, with much larger debts.
Geronzi stirs up a storm at Mediobanca 29 Jul 2008 The chairman of the Italian merchant bank wants to abolish the dual board structure, which is only a year old. If Geronzi wants to improve decisionmaking, that would be fine. But if the longstanding powerbroker is just trying to augment his personal influence, it s not OK.
SEC shouldn’t be so biased against short-sellers 29 Jul 2008 The US regulator is investigating unnamed shortsellers for spreading nebulous rumours. But the Merrill Lynch saga makes clear that purveyors of negative views were much closer to the mark than Wall Street bosses like John Thain. The SEC should admit it, and publicly.
KKR’s $15bn self-valuation looks optimistic 29 Jul 2008 KKR wants investors to ignore its reported figures in favour of rather optimistic adjusted earnings calculations. But a more realistic analysis brings down its value. A comparison with listed rival Blackstone points to a valuation nearer $10bn.
India applies brakes but looks too late 29 Jul 2008 India has raised interest rates further to curb inflation. But with the money supply and credit growing far too rapidly and government spending increasing, it may be too late to prevent inflation getting worse and growth suffering in 2009.
KKR makes big fuss over a couple of dollars 29 Jul 2008 That s the pershare value of the unusual contingent value interest the US buyout firm is waving in front of investors in KPE, the vehicle it wants to buy out. There s a heap of fine print attached too. Investors should probably just ask for their dollar in cash.
ABS vulture funds are ravenous – for now 29 Jul 2008 Dozens of firms have raised perhaps $100bn between them to buy distressed paper. But not all will be gifted the funding leverage Lone Star and Blackrock got from Merrill and UBS. That makes soaking up $1tr or more of problem assets harder. Potential sellers shouldn t wait around.
KKR’s reverse float puts shareholders in a bind 28 Jul 2008 The buyout firm will swallow its listed KPE subsidiary, and relist the whole group in the US. Despite some concessions from KKR, KPE shareholders will have to trust a valuation that looks more like art than science. And unlike a regular IPO, the buyers can t easily say no.
Turkey aligns power with prosperity 28 Jul 2008 The nation s Constitutional Court averted a crisis by imposing only a token penalty on the ruling AK Party. The conflict between oldfashioned secularists and the generally reformist government isn t over yet, but it looks like the good guys for the markets are winning.
Thain forced to eat his words 28 Jul 2008 For months the Merrill boss insisted the firm had enough capital to avoid selling either assets or new equity. Now he s had to do both. At least Merrill should now be largely free of its CDO mess. But Thain is now the textbook case of the dangers of boxing oneself into a corner.
Cambodia could be next Asian tiger 28 Jul 2008 The country s ruling party has won reelection. Corrupt, impoverished, with high population growth and poor infrastructure, Cambodia might seem a basketcase. Yet with Vietnamese backing and nearly 10% annual growth since 2000, it could become a hot emerging market.
Bank failures disguise beauty of being small 28 Jul 2008 The FDIC seized two more piddling banks on Friday. Only one US failure this year has been of a large bank. But dont let this deceive. Smaller US banks are better capitalized, take fewer risks and make fewer dud loans than those deemed too big to fail.
JPMorgan Cazenove goes outside for new CEO 28 Jul 2008 Naguib Kheraj isn't coming to revolutionise the banking joint venture, which has a distinguished past and a more doubtful future. But Kheraj, whose last fulltime job was finance director at Barclays, must deal with some big questions, not least whether the entity will survive.
KKR prefers Blackstone’s valuation to its own 28 Jul 2008 Well, to that of KPE, anyway. Rather than deducing its own value from its listed subsidiary's, KKR is pegging its worth against its peers. That enables it to say it s paying a premium for KPE before going public itself but it s an opportunistic and rather circular calculation.
Tesco takes on the banks 28 Jul 2008 Tesco s decision to pay £950m for RBS s share of Tesco Personal Finance fits past form. The retail behemoth spots opportunities and acts fast. The move to launch a full service retail bank looks clever and well timed. Conventional UK banks should be afraid of this new rival.
Paulson unveils another damp squib 28 Jul 2008 The US Treasury secretary is right that covered bonds can be a good way to fund mortgages. But their use didn t prevent property busts in Spain and the UK. And pushing for them in the middle of a housing bust won t do much, if anything, to kickstart the market in the US.
Motorola’s handset spin-off gets shakier 28 Jul 2008 The tech group s handset business lost nearly half its market share in the past year. Second quarter results are likely to show further decline. If the meltdown isn t arrested soon, the spinoff of the division could be imperilled.
UK companies and investors need to fight more 28 Jul 2008 The biggest investor in the UK stock market, Legal & General, thinks more UK bank chiefs should quit. But there s little sign of heads rolling. That s partly because UK companies increasingly ignore investors. Both sides should reengage in public.
Ryanair has itself to blame for profits warning 28 Jul 2008 The budget airline has grown too fast. The only way to keep its planes full in a weakening economy is to slash fares, which will hit the bottom line. Fortunately, it has kept a tight lid on costs, and has a strong balance sheet to weather the crisis.
Merrill deal shows peril of ratchets 28 Jul 2008 It is paying $2.5bn of its $8.5bn of new capital straight back to Temasek. It shows the danger of price resets by definition, they bite a firm when it s already down. Boss John Thain has now managed to eliminate all the resets Merrill agreed earlier. Others should take heed.
Fed has upper hand in turf battle 25 Jul 2008 The SEC has belatedly staked a claim for a bigger role in US financial regulation. But the Federal Reserve, seemingly backed by the Treasury, looks more likely to get extra powers, including jurisdiction over investment banks. That looks like the right way to go.
British Energy sale might spark UK industry 25 Jul 2008 The nuclear power company is reportedly close to being bought by France s EDF and the local Centrica for £12.4bn. The deal would recognise France s technological lead. But it could give Britain a chance to reverse decades of neglect and rebuild part of its manufacturing base.
Why is HBOS vulnerable? 25 Jul 2008 Shares in the UK s largest mortgage lender have fallen 70% in a year, its rights issue just failed and now breakup rumours are swirling. There are some good reasons. HBOS is exposed to risk in its core lending business, its business lending, and its wholesale funding.
Harbinger could find Inmarsat hard to catch 25 Jul 2008 The activist hedge fund could need 18 months to get the regulatory OK to buy the 71% of the £2.1bn global satellite group it doesn't own. Potential rivals for Inmarsat's spectrum might be able to go faster. By showing its hand, Harbinger gives them an opportunity to pounce.
Lehman may need amputation 25 Jul 2008 Two limbs might need to be lopped off. One is the diseased $65bn of dodgy debt securities. Sadly, to pay for the hit, Lehman could also have to cut off its healthy fund management arm.
Roche replays Genentech history, with a twist 25 Jul 2008 The Swiss drugs group first bought out Genentech s minority shareholders back in 1999. Swiftly taking the US biotechnology company public again was smart and profitable. Now, Roche wants it all to itself again. The biotech s far larger size explains the change of heart.
Southwest keeps its edge with hedges 24 Jul 2008 Alone among big US airlines, the discount carrier managed a secondquarter profit largely thanks to fuel hedges. But longrunning cash constraints have made it difficult for competitors to emulate Southwest. With oil coming off record highs, it could be too late.
Yell has low margin for error 24 Jul 2008 The directories publisher met its first quarter earnings target. But the UK business underperformed. The company is expecting worse to come. Yell s clinging on to its dividend. With its debt covenants facing a squeeze and limited capital raising options, that might not last long.
Taylor Wimpey moves to Plan B 24 Jul 2008 The UK house builder has called in NM Rothschild to renegotiate its covenants, confirming that the sector can t raise equity in the current environment. Taylor Wimpey will now try to ensure its bondholders don t abandon the company. Luckily, that doesn t look likely.
Inflationary hump leading to global slump 24 Jul 2008 Exports from Japan fell sharply in June. That indicates bad news in most of the rest of the world an abrupt collapse in European demand, persistent US weakness, and weak growth in much of Asia. Only China remains reasonably strong. The global economy is turning down markedly.