UK’s profligacy is irresponsible 25 Nov 2008 The government expects a budget deficit of 8% of GDP. Even worse, it will stay too high for too long. A shortterm stimulus is just about ok but only if it is backed up by something dramatic like a subsequent spending freeze until the deficit is totally wiped out.
US imbalances show deeper slump than OECD thinks 25 Nov 2008 The $12 trillion contraction in wealth and the end of mortgage equity withdrawals suggest US consumption should decline by 7.6% of GDP. That would give a peaktotrough real GDP decline of 45%. Not the Great Depression, but considerably deeper than OECD s new forecast.
London’s hedge fund alley won’t disappear 25 Nov 2008 Even if a third of the hedge funds clustered around Mayfair s Curzon Street went under, over 250 would remain. The financial sector s travails will push down rents, but the district should remain a destination for smaller, statusconscious financial firms.
BHP’s about-face leaves Rio Tinto stranded 25 Nov 2008 The implosion of BHP Billiton's allstock offer for the rival miner leaves both sides redfaced. But Rio is groaning under a $38bn mountain of debt, its share price in tatters. By leaving its rival in such a tough spot, BHP may have scored a sort of victory after all.
Fed’s $800bn backstops reinforce bad behaviour 25 Nov 2008 Its plan to buy $600bn of mortgage bonds and lend $200bn against other ABS may get funds flowing. But the schemes don t spur banks to abandon their troublesome originateanddistribute strategies and could distort the market. It would be better to inject more capital into banks.
Private equity not the solution for Irish banks 25 Nov 2008 The Irish banks need to raise capital to peergroup levels to regain investor confidence. But unlike UK banks, they aren t going bust right now. That makes government intervention harder to justify. But allowing private equity to take pricey stakes isn t the way forward.
Goldman’s $5bn US-backed deal a crowd pleaser 25 Nov 2008 It looks advantageous for the Wall Street firm, its regular bondholders and new investors who usually buy government and mortgage agency debt. And now Goldman has opened the market, rivals should get better rates. That s just what the market needs even if it is still a bailout.
Facebook-Twitter sucker’s game reveals vulnerabilities 25 Nov 2008 Merger talks that would have seen Facebook acquire Twitter for $500m have reportedly ended. The details emerging make it seem both parties were trying to pull one over on each other. Their methods reveal critical flaws in the Silicon Valley darlings.
UK rights issues don’t just need more speed 25 Nov 2008 The UK is accelerating the timetable for rights issues, after banks were blindsided in fundraisings earlier this year. But the length of a rights issue timetable might not be such a critical issue if underwriting and subunderwriting functioned better in the first place.
Citi reaps fantastic deal in Fed bailout 24 Nov 2008 Citi's boss Vikram Pandit isn't known for his dealmaking. Yet he has seemingly pulled off a fantastic deal: Citi's own bailout. He has shuffled off much of the risk in his $306bn bad bank for what appears to be a very low insurance premium.
UK budget on the wrong track 24 Nov 2008 The country s deficit is the biggest outside wartime. The plan is to boost growth and reassure markets but it looks a long shot. A ragbag of taxes cut and delayed is unlikely to stir impecunious consumers. And there is little to reassure markets as borrowing soars to £118bn.
Deleveraging mob won’t stop with Citi 24 Nov 2008 The US giant looked strong enough to grow in October. But tumbling stocks and awful economic news have moved investors into red alert mode sell first and ask detailed questions later. Faced with fearful hordes, governments have little choice but to come to the rescue.
Obama team poses political, management challenges 24 Nov 2008 The US presidentelect's economic team brings welcome skills. But their centrist views may dismay Obama s liberal base. And giving Larry Summers the opportunity to vie for influence with the new Treasury boss his former apprentice could become a management challenge.
Barclays gets its capital – but with an earful 24 Nov 2008 The UK bank s shareholders approved a pricey £5.8bn deal with Abu Dhabi and Qatar. But more than a fifth of them voted against it or registered displeasure by abstaining. Some in favour said OK only through gritted teeth. They ll have the chance to speak up more loudly in April.
Citi’s bad bank scores well against UBS’s 24 Nov 2008 The US arrangement for separating Citi s dodgy assets looks less neat than the bad bank unveiled by its Swiss peer last month. Citi gets a government stoploss guarantee, while UBS got a clean break. But Citi s deal will be smoother, and doesn t require a policy Uturn.
Germany shouldn’t slow Europe’s stimulus train 24 Nov 2008 Calls for Germany to beef up its economic stimulus package are becoming more pressing. No EUwide package can be credible without a significant German consumption boost. But the effort must be shared, and Berlin s concerns about longterm fiscal discipline should be addressed.
Standard Chartered does a Santander 24 Nov 2008 Like its Spanish peer, the UKlisted bank is raising equity just weeks after implying it wouldn t. That will dent some egos. But StanChart is doing so off its own bat and has solid liquidity. Investors now have to hope £1.8bn is a sufficient buffer against Asia unravelling.
Citi lives to fight another day 24 Nov 2008 That s the good news in the government s mega bailout. The bad news is that the terms are too lenient, big valuation questions are unanswered and it s not clear that the bank is out of the woods.
UK budget changes are more political than economic 24 Nov 2008 A raft of measures to boost the economy and help homeowners is needed. But the government is putting tax at the centre of politics again. It may regret trying to win support by raising taxes on higherincome earners while running up a record budget deficit.
Cigar butts: bargains or toxic waste? 24 Nov 2008 Numerous tech and biotech companies are valued at less than the net cash on their books. Many of these firms are just trash, but activists and value investors might still be able to get a last puff of value from some of them.
Ackermann’s message sounds out of touch 24 Nov 2008 The Deutsche Bank boss says nothing justifies the group s lowly valuation. But this capital refusenik also needs to delever. Talking up the stock is understandable. But after the Standard Chartered rights issue and Citi rescue, investors are right to be sceptical.
AB Inbev’s rights offer highlights extraordinary cost of capital 24 Nov 2008 The beer company priced its $8bn sale of stock at a 69% discount. That s on top of a nearly 60% drop in the stock since the summer. Inbev is raising the cash to pay down Budrelated debt. Even wellpositioned companies have to pay steeply for capital in this environment.
Pakistan-India trade offers economic gains, political risks 24 Nov 2008 President Zardari s proposal for free trade with India offers huge economic gains India now accounts for only 4% of Pakistan s trade. It would also help relations with the US and IMF. However it risks an extremist domestic political backlash that could prove fatal literally.
Governments must get ahead of the curve 22 Nov 2008 With confidence shot to bits and the crisis moving into another vicious phase, this is not a time to dawdle. Urgent action is needed on banks and fiscal policy to stop this recession turning into a slump. The alternative is too awful to contemplate.
Obama’s Treasury pick can hit ground running 21 Nov 2008 Markets rightly applauded the choice of Tim Geithner to succeed Hank Paulson. The New York Fed chief has been central to some of the more sensible crisis management, so the transition should be smooth. With the markets melting and the economy deteriorating, that s a big plus.
Babcock & Brown gasps for life 21 Nov 2008 The debtladen Australian investment firm has offered up a radical package of asset sales and job cuts. But a looming covenant breach prompted one bank to freeze B&B s funds. Lenders may renegotiate terms again but in a hostile world, B&B may not have time to deleverage.
Iceland counts cost of doing the right thing 21 Nov 2008 An Argentinestyle default on its mountain of debt might have reduced Icelanders financial pain. As it is, their main reward for acting honourably is huge tax hikes to pay for a $10bn IMF bailout. Yet if doing so brings EU membership closer, virtue may eventually be rewarded.
Putin can’t square Russian economic circle 21 Nov 2008 Russia s prime minister tried to soothe his countrymen s anxiety over the crisis with a package of tax cuts and reassurances on continued state investments. But even a superleader couldn t do it all, with falling oil prices, slowing growth and shrinking reserves.
L&G climbdown shows weakness of UK bank investors 21 Nov 2008 The fund manager s mealymouthed grumbling about Barclays pricy capital was too little too late. With a vote set for Monday, L&G and other funds who hold over half of Barclays have little choice but to go with the tide. They may yet, though, have a chance to redeem themselves.
Detroit fails to browbeat Congress into bailout 20 Nov 2008 US lawmakers weren t cowed into submission by the Big Three s prophesies of doom. Nor did they hang Motown out to dry. They re offering the carmakers another chance to make their case in two weeks, and linking any handout to their viability. It s a promising start.