Bulgarian government victim of euro zone slump 21 Feb 2013 Boiko Borisov’s government fell after protests against electricity prices and low living standards. Its track record included small budget deficits and moderate taxes. But the economy, linked to a deflating euro zone, has shrunk since 2008. Five-year recessions make people angry.
A $4.3 bln oil deal parlays financial engineering 21 Feb 2013 Linn Energy’s purchase of Berry Petroleum is the first time an oil master limited partnership has swallowed a whole exploration company. The bold move leans on the tax advantages of such structures and raises the sector’s risk profile. Linn’s 8 pct yield is a necessary buffer.
European insurer dividend angst looks overdone 21 Feb 2013 Allianz and AXA have respectively held and increased their dividends, a day after UK rival RSA cut its own. While all insurers are battling low investment yields, the larger players have more room for manoeuvre. The same logic should apply to the payout of fellow big beast Aviva.
Welcome back, CLOs 21 Feb 2013 Sales of new collateralised loan obligations are taking off in Europe for the first time since the financial crisis. These packages of high-yield debt were a major culprit behind the last credit bubble. But this time round, lower leverage has made CLOs safer. They even have a useful role to play in refinancing.
Qatar seeks to spread the wealth with IPO bonanza 21 Feb 2013 The emirate is planning a series of new listings that could allow Qataris to participate in the country’s global expansion. The move by the absolute monarchy looks like an attempt to modernise its traditional relationship with citizens. Financially, it looks a bit ambitious.
China’s central bank will find value in continuity 21 Feb 2013 PBOC governor Zhou Xiaochuan has presided over a decade of more-or-less stability. The cost has been financial repression and the build-up of sizeable risks. But the PBOC’s freedom is limited. If ideas and experience are what counts, Zhou remains the best person for the job.
Southeast Asia’s growth could lead to credit curbs 21 Feb 2013 The region’s debt-fuelled expansion is reviving memories of the unsustainable mid-1990s boom. But the authorities are reluctant to tighten monetary policy as higher interest rates might attract more foreign capital. Policy makers may prefer to control credit more directly.
BofA structures Brian Moynihan’s pay just so 20 Feb 2013 He landed one of the biggest raises among peers despite the lender’s many lingering problems. Even so, return on assets and the share price soared. BofA also requires specific financial targets be met for the CEO to be paid in full. In this regard, the bank is an industry leader.
U.S. debit-card deal recalls value of subprime 20 Feb 2013 Since the crisis, borrowers with middling to poor credit have been all but abandoned by mainstream lenders. Yet the $1.1 bln sale of prepaid card provider NetSpend, which caters to them, values the company at 17.5 times expected earnings. It’s a sweet spot that now eludes banks.
BoE tempted by monetary radicalism 20 Feb 2013 One third of the UK central bank’s rate-setting committee wants to push monetary policy further. If the economy remains tepid and the next governor follows up on his dovish talk, the UK could test a no-holds-barred money-push. That would be exciting - but not in a good way.
Credit Agricole should finish what it has started 20 Feb 2013 The French lender has booked a 6.5 billion euro annual loss after disposals, goodwill writedowns, and a last-minute tax bill. The pain is worth it if this is the end of an ill-thought European expansion. But Credit Agricole may need to offload its Italian arm as well.
Dirty money flight integral part of Putin’s Russia 20 Feb 2013 The head of the central bank says that the same “group of people” controlled half of the $50 billion of illegal money transferred out of Russia in 2012. The government can hardly feign surprise. Its claims notwithstanding, it is at the centre of the country’s web of corruption.
Lufthansa’s cost-cutting zeal could backfire 20 Feb 2013 The savings plan of Europe’s biggest airline is ahead of schedule. Nevertheless, it will double down and suspend dividends. Lufthansa does need to change, but should not overdo it. Otherwise it could annoy customers, employees and shareholders - all at the same time.
U.S. deficit dynamic duo remain uncontested champs 20 Feb 2013 The plan spearheaded by Alan Simpson and Erskine Bowles became part of the vernacular, though was rejected by policymakers. A revised $2.4 trln compromise, like the original, contains plenty of items not to love. Yet balanced ways to restrain the national debt remain elusive.
Office romance gives new meaning to reverse merger 20 Feb 2013 An announcement from Office Depot needed a big glop of white-out as it disclosed a $1.2 bln deal with OfficeMax before crossing all the t’s. Typically, failings in mergers show up later rather than earlier. In this case, with everything now official, the good news is yet to come.
Ethical economy: The menace of financial markets 20 Feb 2013 Are free and open markets for stocks, bonds and currencies the glory of the capitalist system? Quite the contrary. Because financial assets have no clear value, these markets are always too influenced by disruptive wild emotions, and encourage destructive greed.
Marius Kloppers will be hard act to follow at BHP 20 Feb 2013 The miner’s outgoing boss benefited from great assets, management discipline, a bull market, and some luck. BHP’s returns were solid under Kloppers, despite the financial crisis. His successor, Andrew Mackenzie, will stick to the formula, but he’ll need more luck to do as well.
Carlos Slim takes least-worst option at KPN 20 Feb 2013 The Mexican mogul has belatedly agreed to help the Dutch telco raise 4 bln euros of capital. Slim’s near-28 pct stake is way out of the money. But the alternatives to raising the losing bet were even uglier: a quixotic full bid; heavy dilution; or leaving KPN over-levered.
China’s next debt crisis will be a local affair 20 Feb 2013 Elaborate ties between local governments, lenders, companies and guarantee firms mean that the big risks may not lie in the country’s big banks, but in towns and regions. A recent suggestion of setting up local bailout funds sounds sensible. But contagion will be hard to avoid.
Riposte: Money printing is in fact a barmy idea 20 Feb 2013 The FSA’s chairman Adair Turner and my colleague Edward Hadas have argued that the direct monetisation of public expenditures can sometimes be sensible. While unorthodox thinking is urgently needed in economics, this idea is poisonous. Lock it up and throw away the key.
Heinz deal shows value of ultra-long investing 19 Feb 2013 Berkshire Hathaway and 3G Capital are pouring on financial sauce unpalatable to others. Dividends and debt will eat up much of Heinz’s cash, meaning it could take a decade for the $28 bln deal to produce a decent return. It’s the kind of dish that’s definitely an acquired taste.
$12 bln Qatar fund adds new risk: public scrutiny 19 Feb 2013 Creating and listing a firm to invest overseas underscores Qatar’s asset-management ambitions and opens a new channel for wealth distribution. It will also boost liquidity on the Doha exchange. But going public increases disclosure - a major change for a secretive government.
Bank firewalls: a guide for the perplexed 19 Feb 2013 The UK, U.S. and Europe have different ideas about partitioning their banks. The Vickers, Volcker and Liikanen plans reflect divergences in the regions’ pre-crisis banking systems, and how badly taxpayers suffered. Breakingviews mulls over whether their lack of agreement matters.
RBS share giveaway: a shareholder writes 19 Feb 2013 The UK government is toying with the idea of giving away its RBS shares to the public. It should consider the law of unintended consequences. A putative investor sets out what could go wrong in this unhappy letter to the bank’s chairman, after throwing in the towel in 2015.
Euro zone enjoys rays of economic light 19 Feb 2013 There is still dark news around, for example falling GDP at the end of 2012. But that is the past. A survey shows growth returning to Germany, the currency area’s strongest economy, while a narrowing current account deficit is a sign of adjustment in Greece, one of the weakest.
Riposte: Bank bonuses deserve to be capped 19 Feb 2013 The question on bankers’ pay is not whether it’s too high, but how best to make it lower. Ideally, market forces and capital regulations will do the job, but progress is slow. Bonus limits are crude, but likely to be effective. A new EU rule could start a downward race.
Offices Depot and Max lucky to have each other 19 Feb 2013 Uniting the U.S. purveyors of pens and paper clips is about as obvious as it gets in M&A. The potential $3 bln of synergies could be worth more than the market value of the two companies combined. As the Internet ravishes retail, at least this corner can cling to life by merger.
EU bonus crackdown means more cash for bankers 19 Feb 2013 European plans to cap handouts will do little, if anything, to cut banker pay. Salaries will rise, leaving less to be clawed back for bad behaviour. It’s a perverse outcome. Better to make banks hold more capital, compete more effectively, and allow them to fail.
Novartis pay-for-silence retreat is first of many 19 Feb 2013 In the face of public fury, the Swiss drugmaker has cancelled $78 mln in non-compete payments to its retiring chairman. Daniel Vasella’s case was extreme: ultra-high reward for essentially no action in an egalitarian land. But it sets a strong precedent for activists everywhere.
Singapore kicks off necessary benchmark rate cull 19 Feb 2013 The city-state is expected to scrap its U.S. dollar Sibor interest rate in order to focus on the weightier local currency benchmark. With alternatives on tap, the switch should be manageable. It will also be a useful test for London’s planned interest rate bonfire.