What will governments do with banks? 18 Dec 2008 Governments aren t used to running banks. But the British authorities control Royal Bank of Scotland and their US counterparts now have more than $300bn of investments in their banking sector. How should they use their influence, and how will they use it?
Finmeccanica looks protected in bad times 18 Dec 2008 The Italian defence company is proving defensive. It will probably pocket most of the nearly E1bn the Italian government wants to spend on defence R&D. It also recently secured an important UK contract. Boss Guarguaglini s stated confidence in 2009 looks justified.
BA/Qantas crash dents hope for all-share deal boom 18 Dec 2008 Talks between the airlines on a merger of equals are off for the foreseeable future. The uncertain business outlook makes managers wary about bold moves. BA is still in talks with Iberia. But while defensive sharebased mergers make sense in a downturn, pulling them off is hard.
Obama’s SEC pick needs to pursue dramatic change 18 Dec 2008 The US securities regulator s serial failures, including ignoring the Madoff scheme for years, justify a rootandbranch overhaul. New boss Mary Schapiro, a career regulator, may not find it easy to tear up the US oversight playbook and rewrite it but that's what's needed.
Deutsche Bank wreaks havoc on $420bn market 18 Dec 2008 The German bank failed to call a bond that came with an implied promise, but not a guarantee, of early payback. That will cause pain, and writedowns, for investors in similar securities. Deutsche may regret putting economics before reputation.
Credit Suisse rolls out innovative bonus Tarp 18 Dec 2008 The bank is shoving $5bn of semidodgy assets into a portfolio and awarding slices to staff. Shareholders benefit from a deleveraging of the bank without firesale markdowns. Employees get a bonus of sorts, and possibly an embarrassingly rich reward if the portfolio recovers.
Argentine saga reminds investors to avoid airlines 18 Dec 2008 The tale of Aerolineas Argentinas demonstrates that airlines are among the least attractive emerging market assets for foreign investors. They are asset heavy, only modestly profitable even in good times and horribly vulnerable to nationalists when things get tough.
US rate policy may hurt borrowers 18 Dec 2008 The Fed s move to nearzero interest rates will make it hard for money funds to earn enough to cover expenses. And investors may switch to higheryielding alternatives such as bank deposits. Japan s experience suggests this could cause problems for corporate borrowers.
Buffett loses Constellation, gains stellar return 17 Dec 2008 EDF has pipped MidAmerican, the Buffettowned utility, for Constellation Energy. The Nebraskan billionaire would have liked to put $5bn or more to work. But on the $1bn invested so far, he ll now more than double his money in a year not bad for a broken deal.
Flight to simplicity likely in 2009’s bond market 17 Dec 2008 Bond investors have lost over $1tr from investing in complex structures and credits, some of them rated tripleA. They have learned their lesson. Despite low government yields, bond investors who want higher returns will seek credit certainty. The new bond motto: keep it simple.
China’s property stimulus aims at the wrong target 17 Dec 2008 The country's real estate stimulus is misdirected. Its property downturn is minor compared with the US or Britain and a natural bottoming will improve the market's health. Tax and bureaucracy relief for farmers and small business would be greatly economically preferable.
BNP Paribas is latest to fall off pedestal 17 Dec 2008 France s top bank prided itself on having weathered the crunch. Now its investment bank has lost E1.6bn in two months, including E350m on the Madoff debacle. Coming after Goldman s maiden losses, the idea that there are still some good banks out there has taken a beating.
Unhappy New Year beckons for European retailers 17 Dec 2008 Christmas won t be cancelled this year. Desperate price slashing has brought some festive cheer to shop owners. But with much of Europe in recession, a lot of chains face big challenges as the New Year dawns. Operational and financial restructurings will be in order.
C4’s flirtation with BBC puts RTL on the spot 17 Dec 2008 The stateowned UK broadcaster is benchmarking a tieup with the BBC as a solution to its funding needs. That s a setback to RTL, which covets a synergistic deal between C4 and its C5. RTL faces a challenge to convince the UK government that a private sector solution is best.
Constellation trades a cheap deal for a risky one 17 Dec 2008 The company had to do something. But it has walked away from selling itself cheap to Warren Buffett in favour of a pact with French power company EDF. The new deal implies a much higher value on paper, but Constellation shareholders take the risk for no quick reward.
Morgan Stanley stops mimicking Goldman 17 Dec 2008 The Wall Street bank is reining in risky activities, and returning to its roots in clientfocused businesses. That is a sensible retreat, since only deft balancesheet management kept a bad Q4 from being worse. But it also means earnings may have to rebase downwards.
Steve Jobs is worth $20bn to Apple shareholders 17 Dec 2008 Ok, this isn t scientific. But the value of each of Apple s businesses can be calculated. The premium the stock fetches to them reflects investor faith in the CEO s ability to stitch the whole together. That s why questions about Jobs health matter.
Sterling’s slide has bankers mulling au revoir, London 17 Dec 2008 The city had huge attractions to foreign finance professionals during the boom years. But the financial crisis is diminishing its allure. Sterling s fall is making continental Europeans consider moving home. The pros and cons of staying in London are now finely balanced.
Bankers’ new worry: bond-for-debt swaps 17 Dec 2008 Metals trader Glencore may draw down a line of credit to buy back its own bonds at a discount. That s a neat trick for companies with lines of credit they are sure won t be needed. For banks, bondfordebt swaps add to the strain on already overloaded balance sheets.
Madoff shows madness of paper investment strategy 17 Dec 2008 The hedge fund s strategy could have delivered solid returns. But it wrongly assumed that a stack of options could be bought at market rates without moving the price. That s a key lesson. With liquidity scarce, the gap between what works on paper and in reality is widening.
Listed buyout funds offer glimpse of private woes 16 Dec 2008 Buyout firms listed single funds like KKR Financial during the boom. They hoped they would attract longterm capital of their own. KKR's two different listed funds are both struggling. For buyout shops, it's an unwelcome window onto their broader, private troubles.
Gold may glitter again in 2009 16 Dec 2008 Huge government deficits, low interest rates and rapidly growing money supply all add to the likelihood of renewed inflation and a rising gold price. Since there's much more hot money than in 1980, a gold bubble could push the price above 1980's peak of $2,430 in today's money.
Recession will inflame political investment risk 16 Dec 2008 Investors barely flinched at the Mumbai attacks and Greek riots, just as they virtually ignored war in Georgia. But as the IMF's StraussKahn suggests, recession will alter the fortunes of many already unstable countries. Rising tension may finally start to hurt investor returns.
Gaming billionaires should cut their losses 16 Dec 2008 Partygaming s founder was right to hand himself in to US lawmakers and take a $300m fine, rather than bet on a softer approach under President Obama. After Wall Street s colossal losses, hedge fund collapses and a $50bn Ponzi scheme, gambling is more of a dirty word than ever.
Personal view: Accountability calls for human sacrifice at Fed 16 Dec 2008 The Fed's easy money policies since 1995 have contributed to the deepest recession since the Big One. Last year's rate cuts inflated a commodity bubble whose bursting has raised the debt deflation spectre. Fed chairman Bernanke should take some responsibility for these errors.
Fed’s dramatic easing faces bank bottleneck 16 Dec 2008 For it to work, banks have to start lending. Granted, some of the US central bank s moves, like the purchase of mortgagerelated securities, will have a more direct effect. But cutting rates and creating excess reserves alone won t spur lending until banks are done deleveraging.
Goldman tries to shrug off $2bn quarterly loss 16 Dec 2008 The Wall Street firm reckons rattled markets present great investment opportunities. That s the sort of fighting talk one expects from Goldman. But the enduring credit crisis makes business as usual risktaking tricky especially with investors so wary of losses.
Don’t rule out HSBC coming to the market 16 Dec 2008 The UKlisted bank stands out for not having issued new capital. But its strong balance sheet could be harmed by bad debts in the US and nasty surprises like Madoff. With new benchmarks for bank capital still a work in progress, even HSBC may decide that it cannot have too much.
Corporate sports sponsorship starts to flounder 16 Dec 2008 After 12 years, Vodafone isn t renewing its sponsorship of the English cricket team. It s unclear who will fill the gap. With the biggest corporate sponsors financial services and carmakers under huge pressure to cut costs, it s not just cricket that will suffer.
BAA faces tricky Gatwick sale 15 Dec 2008 There s only one thing worse than having to sell a London airport in these market conditions having to sell two of them. But that s precisely what BAA may be forced to do. Ferrovial, which controls the airport operator, doesn t have much room for manoeuvre.