Royal Mail regulatory chicken comes home to roost 22 May 2014 The UK post company says future profit will be hit by its obligation to sustain a pan-national service. There’s a reasonable case for the regulatory change Royal Mail wants. Without reform, the group will struggle to deliver on hopes that have buoyed the post-float share price.
Negative rates lost potency as ECB dithered 22 May 2014 Talk that the ECB could take its deposit rate into negative territory at its June meeting is growing. Doing so in the heart of the crisis would have been dangerous – but potentially powerful. Now the effect may be muted, and the ECB has better tools at its disposal.
JD.com wins rich price despite poor governance 22 May 2014 The e-commerce group priced its $25 bln IPO above expectations. Investors seem unfazed by the revelation of a $591 mln gift of stock to boss Richard Liu. Investors are buying into his expertise, but a large, unexplained transfer of value days from going public raises red flags.
TCI smokes out activist returns at Japan Tobacco 22 May 2014 The hedge fund hasn’t got all it wanted from the world’s third largest tobacco company since going public in 2011. Yet it has done enough to ensure its investment is a huge financial success. TCI now wants a full privatisation. Its track record makes the demand hard to resist.
Heed New York Times governance risk headlines 21 May 2014 Investors surrendering their rights to founders at Facebook, Google, Alibaba and elsewhere may want to consider the management kerfuffle at the Grey Lady. It’s what can happen when, down the line, the competent leaders they entrusted are gone and their successors entrenched.
Big Oil can learn from $50 bln Kazakh fiasco 21 May 2014 The oil majors running the Kashagan field may have to wait until 2016 before any black gold flows again. That’ll be a decade late and five times over budget. The debacle shows the drawback of too many partners involved in the same project under tough climate conditions.
Russia puts gas-hungry China in a bear hug 21 May 2014 A planned pipeline gives Russia a new market outside the increasingly frosty EU. For oil major PetroChina this should staunch losses from low regulated prices at home. China gets cheap supply, but at a cost: the optics of the deal shred Beijing’s claims of political neutrality.
Fed bigwigs short of signs on path to higher rates 21 May 2014 New York’s Dudley thinks interest rates should rise slowly, Philly’s Plosser reckons they should go up faster, and Bullard of St. Louis has crunched numbers implying rates should already be at “normal” levels. Veering off the beaten track has left the Fed uncertain how to return.
Investors face the brutal “new normal” of trading 21 May 2014 Southern European government bonds have slumped recently. The scale and speed of the moves were a shock to investors. They reflect a new reality. Regulations have hurt liquidity. It’s easy to buy right now, but selling along with the crowd has become harder, and more punishing.
Saga flotation has a few wrinkles 21 May 2014 A retail-heavy flotation targets a market cap of at least 2 bln stg. That looks pricey for what, despite sidelines in cruises and healthcare, is still basically an insurance broker. The risk is a soggy share price - and a backlash among Saga’s loyal base of older Britons.
Edward Hadas: Three Ms for economics re-education 21 May 2014 Students of the dismal science think their teachers are letting them down. The reproaches are just, but their reform agenda is insufficiently radical. The academic discipline of economics should reconsider the role of markets, pay less heed to money and allow for more morality.
Astra-Pfizer needs a fresh start later in the year 21 May 2014 Some shareholders want the UK pharma company to talk to its American suitor now. But there is no honest route to a higher bid until August. Talks in the dying days of the bid timetable could actually delay a full move. An amicable cooling off period is the best plan.
Oil’s eerie calm cannot continue 21 May 2014 Crude has been oddly stable since 2011. That’s tough for traders. For consumers, oil is expensive but at least predictable. Yet $110 a barrel promises alluring profits for too many potential producers. Brace for increased supply, lower prices and way more volatility.
Chinese real estate is in real trouble 21 May 2014 The coming correction could take several forms: shrinking investment, disappearing funding for developers, and lower prices. All three are connected. Financial pressures could be wide-ranging, but a downward spiral in property values is the hardest to reverse.
Credit Suisse misses chance to show accountability 20 May 2014 Brady Dougan says he did not consider resigning over the bank’s guilty plea for tax evasion. He may not have been involved in the wrongdoing, but as CEO he stands for the firm. A top-level departure would demonstrate Credit Suisse’s ethical standards, and shame other bank bosses.
Retail bricks battle for clicks appreciation 20 May 2014 Williams-Sonoma is a prime example of a common oddity. The cookware-to-furniture merchant generates nearly half its sales over the web with Amazon-like growth and more profitability. Yet investors pay 10 times as much for the e-commerce king’s earnings. That logic has its limits.
Reborn Chesapeake starts to hit its stride 20 May 2014 A year to the day after replacing profligate CEO Aubrey McClendon, the U.S. oil and gas explorer secured a two-notch credit rating upgrade to nearly investment grade. By slashing debt and simplifying Chesapeake, new boss Doug Lawler is winning over stock and bond investors alike.
Long arm of U.S. law doesn’t extend to cyberspace 20 May 2014 Credit Suisse’s guilty plea and $2.5 billion fine for helping tax dodgers shows Uncle Sam’s hold over finance is strong even beyond its borders. Yet hacking accusations against Chinese military personnel have produced only defiance. It’s a sign of the limits to U.S. legal power.
Deutsche laughs in face of fixed income fears 20 May 2014 Germany’s biggest lender reckons its investment bank can generate a 13 pct-plus return on equity after an $11 bln capital hike. That means pretax profit rising 50 pct by 2015 – a major bet that fixed income will cyclically rebound. The joke will be on Deutsche if it doesn’t.
Rob Cox: ITT’s ghost hangs over Silicon Valley 20 May 2014 As Amazon, Facebook, Alibaba and Google have become the new conglomerates, it’s instructive to consider the experience of Harold Geneen, who turned ITT into the original M&A machine. The internet approach may be different, but the driver is the same: a fear of obsolescence.
Valeant’s slashing could trigger FDA lashing 20 May 2014 The Canadian pharma M&A machine buys rivals and strips costs to the bone. It promises to cut Allergan’s R&D spending from $1 bln to $200 mln and still develop drugs. That doesn’t look sustainable. It may not be enough to even finish studies on existing drugs that regulators require.
Loophole offers Pfizer risky way back into AZ deal 20 May 2014 The U.S. pharma group noted that it could technically make a higher offer for Astra if the target first agreed to its “final” $119 bln proposal. After this dodge, Astra could accept the real, higher price. But the UK takeover watchdog would almost certainly reject such cunning.
Investing in the new Vodafone requires patience 20 May 2014 Europe’s largest telco sold out Stateside, bought nearer home, and caught AT&T’s eye. Now the focus switches to fundamentals: upgrading networks, integrating businesses, and fighting for market share. This will be a slog. At least investors get a big dividend for their loyalty.
ECB deflation omerta hinders EU bank stress tests 20 May 2014 The pan-European financial health check wasn’t credible in 2011 because it didn’t test for investors’ biggest fear – a sovereign default. This year banks won’t be stressed against a deflationary spiral. The common theme: both scenarios would imply the ECB isn’t doing its job.
KKR’s $3.1 bln bid pours pressure on Treasury Wine 20 May 2014 The Australian wine producer has rebuffed an opportunistic offer from the U.S. buyout firm. The former Foster’s unit is a persistent underperformer. Treasury’s new CEO needs to quickly demonstrate his turnaround credentials, or let KKR try to squeeze out some value instead.
Credit Suisse’s guilty-lite plea lacks a point 20 May 2014 U.S. prosecutors secured their first criminal conviction of a bank in years. But they took care to limit the damage to the Swiss institution. Top bankers weren’t charged, either. Doing more than imposing fines is commendable, but the Credit Suisse case may not accomplish much.
Alibaba tries out role of the noble monopolist 20 May 2014 The retailing group effectively owns Chinese online shoppers. Its payment affiliate is the biggest game in town. Both are attractions for the upcoming IPO. As China’s monopoly regime matures, Alibaba’s challenge will be showing its dominance helps the market rather than restricts it.
India in depth: Voters junked a model, not party 20 May 2014 The root of Congress Party’s worst-ever electoral defeat goes beyond popular angst with stagflation or corruption. Indian voters are fed up of an unviable economic ideology that talks of “inclusive growth” but puts welfare ahead of work and stresses consumption over investment.
Chastened AT&T enlists new team for fresh fight 19 May 2014 None of the three banks that worked on the telecom giant’s botched bid for T-Mobile US is back for the DirecTV deal. Instead, Lazard is sole adviser, aiding AT&T for the first time in 20 years. CEO Randall Stephenson also has more lawyers. Fresh eyes may help see things through.
Joke’s on lenders in $2.6 bln Batista payback plan 19 May 2014 The fallen Brazilian billionaire wants investors in his bankrupt shipbuilder, OSX, to wait until 2040 for full payment and proposes an $11,000 installment after a year. To think he once boasted that his assets were “idiot proof.” His chutzpah now threatens OSX’s reorganization.