Flu epidemic exposes U.S. risk management flaws 14 Jan 2013 The virus kills about 36,000 Americans and inflicts $90 bln of economic damage annually. While one year’s death toll is 10 times greater than all terrorist attacks since 2000, the government spends far more on homeland security. Poor resource allocation can be a hard thing to cure.
California budget shows merit of forced discipline 14 Jan 2013 Governor Jerry Brown faced a deficit crisis in 2011. Now, his 2013-14 budget achieves a modest surplus. Spending cuts and higher taxes were required by the state’s balanced budget law and encouraged by bond downgrades. Washington should learn from the former and fear the latter.
M&A machines can’t live off debt forever 14 Jan 2013 Privately held Ardagh has grown sevenfold since 2007 through deals bankrolled by high-yield investors. Now the Irish packager is buying a Saint-Gobain unit for $1.7 bln. Debt-funded M&A sprees needn’t end in tears. But Ardagh will one day need the support of equity investors too.
UK bank capital reforms are double-edged sword 14 Jan 2013 The BoE’s new Financial Policy Committee could soon be able to make banks hold extra capital for sector-specific risks. That’s an improvement on the current system. But if the FPC isn’t joined up with other national and global agencies, it could create more confusion.
Trade drives Germany and the world on 14 Jan 2013 The latest German export figures are a disappointment, with sales to the euro zone sharply down. But sales to emerging markets have quintupled in the past decade and will continue to power the German economy - and make the global one more balanced and healthier.
Fiat pegs Chrysler as most undervalued carmaker 14 Jan 2013 CEO Sergio Marchionne’s latest offer to buy a stake in Chrysler from the UAW trust sets the U.S. manufacturer’s worth at $6 bln. True, it lacks the cash and margins of Ford or GM. But it’s a purer play on a recovering U.S. market. Fiat can safely value Chrysler more generously.
Europe brings the pain for UPS and TNT 14 Jan 2013 Competition watchdogs are barking again, after killing DB-NYSE last year. A likely EU veto has led the U.S. courier to drop a $7 bln bid for its Dutch peer. TNT’s stock is down 50 pct. If the group’s strategy since its demerger has been to get bought, it needs to think again.
Generali’s radical words not yet echoed by deeds 14 Jan 2013 Italy’s biggest insurer is seeking 4 bln euros more capital by 2015 via selling assets. New CEO Mario Greco is rightly trying to move Generali away from its Italian power-broking past. But a really radical move would have been a sale of non-core stakes and a rights issue now.
Banks will pay either way for gaming UK tax change 14 Jan 2013 Companies have long sought tax boons for staff by fiddling with payout dates. Now Goldman Sachs and others are looking at delaying bonus payments to capture a reduction in personal tax rates. But it’s not good corporate citizenship, reputations will suffer and staff will feel it.
Hugo Dixon: EU positive contagion hinges on growth 14 Jan 2013 Mario Draghi says the euro zone is now experiencing “positive contagion”. The ECB president is right that the vicious cycle in financial markets has given way to a virtuous one. But until Italy and Spain stop shrinking, the risk of tipping back into negative contagion remains.
Singapore property curbs show Asia’s fear of yen 14 Jan 2013 The city-state is bracing itself for more hot money inflows - this time from Japan. Higher stamp duties and new lending limits are designed to cool Singapore’s soaring real estate market. They may also set the tone for Asian policy makers’ reaction to an abundance of cheap yen.
Shifting trade winds catch Li & Fung off-guard 14 Jan 2013 It used to be that China produced and the U.S. bought. That’s changing, but at an uncertain pace. A profit warning that wiped 16 percent off the value of Hong Kong supply chain company Li & Fung shows that keeping pace is costly, and there’s plenty of room for error.
Wells Fargo productively bides time 11 Jan 2013 The San Francisco-based bank generated a record $5.1 bln quarterly profit even as its net interest margin tumbled another 10 basis points. Wells Fargo, like its peers, can’t lend out the deluge of deposits fast enough. It’ll be an ongoing challenge until the Fed reverses course.
Breaking debt cap is best of bad options for Obama 11 Jan 2013 He must meet U.S. obligations, and he can’t cut spending without Congress’s say-so. But some lawmakers want to stop him borrowing more. Trillion-dollar coins aside, breaching the debt ceiling is legally the president’s safest bet. That could force his critics into hard choices.
Spurned by Belgium, LVMH boss can still try Russia 11 Jan 2013 Some countries have standards. Bernard Arnault may not meet Belgium’s and that country could deny him citizenship. If the billionaire boss of luxury giant LVMH really wants to avoid high French taxes, he could try Moscow. For once, Vladimir Putin would import an oligarch.
Commerzbank faces timing dilemma over rights issue 11 Jan 2013 The German lender looks undercapitalised on new Basel III rules, has state aid to repay, and the shares are up a third since November. Financially, it should raise capital sooner rather than later. Politically, Germany’s 25 pct stake and looming elections argue the opposite.
Review: Haiti’s unreconstructed disaster story 11 Jan 2013 It is three years since a massive earthquake hit the Caribbean state. A new book suggests that a multi-billion dollar international aid effort failed badly. Much of the supposed help was wasteful or even harmful. Money proved a poor substitute for know-how, empathy and trust.
Japan’s fiscal stimulus is call for action to BOJ 11 Jan 2013 New prime minister Shinzo Abe’s $117 bln spending boost is timely. The money the Bank of Japan will print to mop up the state’s extra borrowing should further weaken the yen. But targeting the exchange rate more directly would be a better option for Japan to end its deflation.
RBS Libor bonus ploy reflects second-tier status 11 Jan 2013 The UK bank’s reported plan to pay half its expected Libor fine from its bonus pool sends a noble message to shareholders and taxpayers. But RBS’s ruse is unlikely to be followed by Barclays and UBS. Both are still more in thrall to their investment banking talent.
Beware bond-equity rotation and focus on value 11 Jan 2013 Investors have started 2013 feeling bold. Equities are firm, bonds are weak and gold is soft. Is this the long-awaited rotation back to risk? Blindly chasing perceived switches in asset allocation is dangerous. But the value argument is there: shares look cheap relative to bonds.
Convertibles flurry shows issuer power 11 Jan 2013 From steel group ArcelorMittal to engineer Abengoa, European companies have drawn massive demand for convertible bonds. No matter that last year’s stellar returns won’t be repeated - yield hunger plus stock-market optimism mean the mini-boom won’t end soon.
Welcome to the new world of "high" yield: 2.9 pct 11 Jan 2013 That’s what Germany’s junk-rated Fresenius will pay on its new 7-year bonds. It’s certainly not Drexel Burnham’s idea of high yield. But with benchmark rates and defaults both low, investors are desperate. This sort of pricing won’t look smart when the rate cycle finally turns.
India’s plan to shield IPO investors has merit 11 Jan 2013 A proposal to allow small shareholders in flopped IPOs to claim a refund smacks of regulatory overkill. But the plan might help restore faith in markets. And unless company owners face consequences for ultra-aggressive pricing, they won’t stop abusing their information advantage.
Big U.S. banks have plenty to prove in 2013 10 Jan 2013 Wells Fargo aside, valuations have languished below book value. After a strong 2012 for stock markets and with Q4 reports imminent, JPMorgan and Goldman are again near that level. Getting there will be a relief rather than anything to crow over, and investors rightly remain wary.
Venezuelan political folly is a cue for investors 10 Jan 2013 Allies of ailing Hugo Chavez seem to be taking even greater liberties interpreting the constitution than expected. There’s no inauguration, caretaker government or sign of a new election. If markets truly hate uncertainty, then animus toward Venezuela should be off the charts.
Public choice theory will outlive its founder 10 Jan 2013 While Keynesians see government as an impartial economic problem-solver, James Buchanan, who died on Jan. 9, assumed public sector decision-makers were self-interested. The lessons - big government comes with big risks, and firm rules can improve behavior - are essential.
UBS grilling shows how banks go badly wrong 10 Jan 2013 The Swiss bank’s ex-CEO and three deputies gave a British parliamentary committee, and future bank bosses, a lesson in how not to do it. They admitted incompetence on Libor-rigging, but explained that they had made so many grave mistakes that this one escaped their notice.
U.S. mortgage rules herald a kind of housing turn 10 Jan 2013 Five years after the real estate bust, regulators have set out provisions to shield lenders from home-buyer lawsuits. In an industry plagued by litigation, it should help lure investors back. The rules may not stop another bubble, but are an integral step to reshape the market.
This time it’s different for capital-markets cycle 10 Jan 2013 History rhymes, even in the capital markets. Issuance in some asset classes has followed a pattern after the traumatic years of 1989, 2001 and, to an extent, 2007. By this logic, 2013 could mark a rebound for IPOs. Shame, then, for equities bankers that investors may disagree.
A how-to guide for Japan to escape deflation 10 Jan 2013 The nation’s new prime minister has promised to end falling prices. But raising the central bank’s inflation target may not suffice. Aiming for a sustained increase in the price level would be more credible. And a de facto currency peg may be better than more money-printing.