Greek haircut only resets crisis clock to 2009 27 Oct 2011 Banks have agreed to a 50 pct haircut on Greek government bonds, clearing the way for further euro zone support. But Greece’s debt burden remains higher than when the crisis began, and the country faces years of challenging austerity. Another restructuring may still be necessary.
Pitching in on Europe is in China’s best interest 27 Oct 2011 China has suggested a contribution to Europe’s bailout would come with strings. But as a beneficiary of global trade, the world’s number two economy has good reason to do whatever it takes to secure a stable euro zone. That would also spare China a rapid and painful adjustment.
EFSF II haircut SPIV BRIC plan can’t fail 27 Oct 2011 What might Europe’s comprehensive solution to its crisis look like? Breakingviews offers a tongue-in-cheek draft of a possible communique.
Chinese censorship runs on greed more than fear 27 Oct 2011 After a series of PR fumbles and web-inspired protests, the authorities are stepping up Internet controls. Rumour-mongers are even being arrested. Yet many of these curbs depend on companies and investors playing along. While growth is rapid, greed motivates more than fear.
Hot speech tech firm’s story is too complicated 26 Oct 2011 Nuance Communications has built an $8 bln market cap by getting machines to understand talk. Its technology may even be behind speech recognition in the new iPhone. But its sky-high valuation multiple requires too much trust considering its complex finances and acquisitive ways.
Obama is handing too much gold to ivory towers 26 Oct 2011 The $1 trln U.S. student loan market fuels soaring tuition fees and leaves taxpayers on the hook for default. The president’s move to lighten the burden on graduates will only increase defaults. And taxpayers are already getting scant return for rising college subsidies.
Jon Corzine gets déjà vu moment at MF Global 26 Oct 2011 Dealing with rising costs, prop trading pain and capital concerns helped elevate Corzine to the top job at Goldman in 1994. Now he’s facing similar issues running MF Global. His experience should help, but the brokerage’s turnaround story is a tougher sell than Goldman’s was.
EU bank recap too blunt an instrument for Spain 26 Oct 2011 Europe wants lenders to reach a 9 percent core Tier 1 capital ratio and take haircuts on sovereign debt. But the problem with Spanish banks is their exposure to real estate, not government debt. Forcing only big groups to raise capital also misses the point.
Ethical economy: Debt is a moral matter 26 Oct 2011 Aristotle said interest-bearing loans are unfair to borrowers. Many Greeks these days feel the same way. But some Germans – and Chinese – worry that it’s the lenders who get an unjust deal. In a debt crisis, rights and wrongs can make all the difference.
Gupta arrest puts Corporate America on notice 26 Oct 2011 Prosecutors have nailed dozens of insider traders, including Galleon founder Rajaratnam. Those now look to be mere prologue to the case against former McKinsey boss and Goldman director Gupta. The charges will be tough to prove, but a conviction would be the ultimate deterrent.
Neutral is best gear for U.S. automakers’ cash 26 Oct 2011 Ford’s ninth quarterly profit in a row has investors wondering about a dividend. GM’s cash pile has raised hopes it might buy back the U.S. Treasury’s holdings. But growth is sluggish and Europe’s still a profit hole. Keeping balance sheets strong is the better option for now.
Orderly euro exit virtually impossible 26 Oct 2011 A UK businessman has promised a 250,000 pound prize for the best explanation for how a country could quit the single currency in an orderly fashion. Hugo Dixon gives his best shot, but still concludes there would be mayhem.
China’s irate homebuyers foretell mess to come 26 Oct 2011 Property developer Longfor drew an angry mob after it seemed to cut prices on new Shanghai apartments by 25 percent. Though prices aren’t yet plunging across the country, it’s looking increasingly likely that they will. Angry scenes will become more common.
Boardroom rejig still leaves Olympus adrift 26 Oct 2011 The Japanese camera-maker, racked by accusations from its ousted CEO, has sidelined its 70-year-old chairman. But Kikukawa will stay on the board, along with 13 other former Olympus managers. Shareholders need to call for new blood to put the rudderless company back on course.
UK bank default swaps anticipate bail-in too soon 26 Oct 2011 The cost of insuring UK bank debt has rocketed. Investors are fretting that ring-fencing reforms make senior debt more risky. It’s good that bondholders are no longer betting on a bailout. But they’re ignoring phase-ins designed to delay the pain until the crisis abates.
Crop of shock CEO exits reinforces need to plan 25 Oct 2011 Judging by First Solar’s 25 pct stock price drop, you’d think it erred in ousting its chief. Or that Quest’s 11 pct jump meant it should’ve dumped its boss sooner. And no reaction must make IBM’s new CEO a snooze. The real lesson is that boards must carefully plan successions.
Amazon keeps digging costly moat around business 25 Oct 2011 The Internet retailer shocked Wall Street with low profitability due to heavy investment. This expenditure may eventually pay off - that’s why the stock trades at 100 times estimated earnings. But it’s a timely warning that even Amazon must keep girding the barriers to entry.
ArcelorMittal chickens out to hoard its cash 25 Oct 2011 The world’s largest steelmaker abruptly bailed on a joint takeover of Australia’s Macarthur Coal, selling out to partner Peabody, as investors tendered their shares with unexpected alacrity. It may be a sensible move, but it certainly makes the billionaire Mittals look a nervy bunch.
Sprint’s antitrust pitch hedges against DoJ miss 25 Oct 2011 The third-largest U.S. mobile operator says it just wants to help Justice kill AT&T’s takeover of T-Mobile USA. But its separate lawsuit suggests unease with Uncle Sam’s arguments. Such private cases rarely succeed. But this one looks like insurance against a government stumble.
Banks have two aces in Greek default poker 25 Oct 2011 The euro zone wants private creditors to take a 60 percent haircut on Greek debt. But this negotiating position is undermined by an irrational fear of triggering CDS, and reluctance to take a loss on governments’ Greek exposure. Banks may use this to go for a sweeter deal.
Euro-recession, not rebellion, is what boxes UK in 25 Oct 2011 An EU protest vote by members of his own party has knocked the UK prime minister. But David Cameron has a bigger and more immediate European problem. An already-weak UK economy is likely to be dragged into recession by the euro zone. Fiscal policy revisions may be necessary.
Turkish banks still shine despite musical chairs 25 Oct 2011 Dexia has joined the foreign lenders looking to exit the country after just a few years. But Turkey’s banks are well capitalised in an underpenetrated market, and valuations are near historic lows. Even with an economic slowdown looming, they offer a potential bargain for buyers.
Rick Perry’s simple tax plan spoiled by complexity 25 Oct 2011 The Republican presidential contender’s 20 pct flat tax is a sensible plan with some nice new features and structured to avoid being too regressive. But the capital gains exemption is a silly loophole and making it optional wrecks Uncle Sam’s yield. It’s a missed opportunity.
Rupert Murdoch’s sham governance on full display 25 Oct 2011 A majority of stockholders who don’t share the media mogul’s last name snubbed his sons, James and Lachlan, along with three other News Corp directors. The emphatic vote may be only symbolic. But even a board so entrenched as this one can’t ignore the angry mob.
Deutsche holds firm in turbulent markets 25 Oct 2011 The German lender made a pre-tax return on equity of just 7.2 pct in its third quarter. This reflects poor trading in the investment bank. But that part of the business is gaining share. And it may now avoid having to raise fresh equity.
BP’s turnaround still work in progress 25 Oct 2011 The UK oil major says it has reached a turning point in its operations. It plans to grow cash flow by 50 pct in the next three years and make more divestments. The strategy is right. But a real recovery would require more clarity about Russia and the Gulf of Mexico litigation.
Pfizer milk bid could fortify China’s M&A hopes 25 Oct 2011 Mengniu Dairy’s bid for the U.S. pharma giant’s $10 bln nutrition unit would make strategic sense. China can gain from deals pegged on rising consumer demand rather than cheap labour. Buying foreign brands may also help address food safety problems, if bidders tread carefully.
India’s inflation fight lacks credibility 25 Oct 2011 The central bank’s latest rate hike won’t tame stubborn inflation of over 9 percent. The urgent task now is to reduce expectations of more price increases with a more explicit inflation target. It might mean GDP slows a bit, but that’s an acceptable price to pay.
Netflix’s melting core spells value disaster 25 Oct 2011 Up till now, the company has been cagey about the respective profitability of the two units it was planning to separate. New figures show Netflix makes about 10 times more from a DVD customer than an online streaming subscriber. Trouble is, the wrong arm is shrinking - and fast.
Icahn’s American truck merger pitch has wheels 24 Oct 2011 The billionaire investor often has loopy ideas for M&A among his holdings (remember Lions Gate-MGM?) But a $5 bln-plus combination of Navistar and Oshkosh makes some strategic sense. The net present value of cost synergies could be worth more than their combined market cap.