ECB’s limits fuelled flash crash in German debt 6 May 2015 The rules of the euro zone central bank’s debt-buying encouraged investors to pile into relatively scarce Bunds. But a small market shift spurred a rush to sell. Rational trading in this irrational QE game led to non-linear – that means big – price changes. More can be expected.
Yum Brands China split short on crispy goodness 6 May 2015 Activists have turned the hotlamp on the KFC parent’s China arm. It could be worth $20 bln if diners forget past safety scandals, a Breakingviews calculator shows. To justify more, Yum must expand rapidly, but pitching into China’s poorest cities brings risk as well as revenue.
Would Microsoft really want to own Salesforce? 5 May 2015 Buying the cloud-based customer-service software could make businesses less likely to ditch Office. It might, however, cost Microsoft some $60 bln, more than all past deals combined. A bold bet for boss Satya Nadella would create earnings dilution that annoys his shareholders.
Trickle-down economics look all dried up 5 May 2015 Lawmakers aiming for more employment would be better off slashing taxes for low-earners, according to research from a University of Chicago economist. Another new paper suggests a dividend tax cut helps neither investment nor wages. Will Rogers may have had it right all along.
Guest View: Fixing a U.S. immigration bottleneck 5 May 2015 Outdated immigration policies are again preventing the supply of coveted visas from matching the demand from American companies, says former U.S. Treasurer Rosario Marin. Reforming the H-1B visa program would dramatically lift economic growth and deserves bipartisan support.
HSBC revival overshadowed by existential questions 5 May 2015 Better investment banking revenue and fewer bad loans boosted the $194 bln bank’s quarterly results. That’s a welcome respite from the Swiss tax furore. Still, long-term fortunes rest on decisions about its shape, head office location and UK business. None will be resolved soon.
Hedge fund pay hauls a political-financial shame 5 May 2015 The top 25 managers took in $11.6 bln last year, Alpha magazine calculates. If these rewards were for building a stronger economy, the 0.001 percent’s political clout might still be troubling. But such gains for largely mediocre performance in secondary markets are shocking.
PartnerRe manages to cede high ground to Agnellis 5 May 2015 The Italian dynasty’s vehicle, Exor, has offered $6.4 bln for the Bermudan reinsurer. PartnerRe’s rigid board is sticking with a sweetened but lower-value merger with Axis. Exor’s hostile stance may put PartnerRe in play – as it probably should have been from the start.
Holdout investor gaffes threaten M&A golden goose 5 May 2015 Appraisal suits help shareholders win higher payouts and deter dodgy deals. But T. Rowe Price sued over Dell’s buyout after technically voting in favor - and several hedge funds couldn’t beat the merger price after years of litigation. Such flubs may lead to limits on the tactic.
UBS pulls ahead of both activist and rivals 5 May 2015 The Swiss lender’s Q1 profit leapt 88 pct to 2 bln francs. A strong return at the leaner investment banking unit further discredits Knight Vinke’s case for an exit. And with better capital ratios on both main metrics, UBS is piling pressure on less decisive competitors.
VW could take governance lessons from Airbus 5 May 2015 The tussle with ex-Chairman Ferdinand Piech is a reminder of the drawbacks of the carmaker’s convoluted ownership and board structure. Volkswagen could use the recent overhaul at Airbus, the European planemaker, as a roadmap for better operational and share price performance.
BBVA unnerves with another sudden C-suite shuffle 5 May 2015 Francisco Gonzalez, the Spanish bank’s dominant executive chairman, has replaced the second COO in six years. Picking the head of digital banking as his replacement fits Gonzalez’s tech fascination. But investors are right to focus more on profitability, growth - and succession.
Indian retail union is marriage of convenience 5 May 2015 After parting ways with Wal-Mart, Sunil Mittal is folding Bharti’s retail operations into larger rival Future Retail. The former gets a big partner and the latter reduces its debt load. The enlarged group also gains a stronger footing amid India’s shifting shopping habits.
China’s investment bank wannabes face long march 5 May 2015 Haitong Securities plans to hire hundreds of international bankers. Citic is touting its Asian network. Cross-border capital flows and pumped-up valuations help the push. But even if Chinese firms avoid previous upstarts’ mistakes, the challenges are big and the rewards distant.
Oil boss switch leaves China’s comfort zone intact 5 May 2015 New chairmen at Sinopec, CNPC and CNOOC are likely to be a bit more than civil servants, but a lot less than strategic leaders. A dispassionate shareholder might prefer chiefs who can innovate and wield the axe. The reality is that such dramatic reforms come from higher up.
BofA plays the cynic on shareholder rights 4 May 2015 The bank is finally giving owners a say on last year’s addition of the chairman’s job to CEO Moynihan’s duties. The board claims it’s responding to investor demands. But the move comes after months of criticism and conveniently too late for a vote at this week’s annual meeting.
Carly Fiorina undermines Republican business pitch 4 May 2015 The former HP boss says her time running the Fortune 500 firm qualifies her to head the party’s presidential ticket. But she was more of a flop than a success as an executive. The GOP needs better candidates before it can credibly claim the title of private enterprise champion.
McDonald’s boss slow-cooks fast-food turnaround 4 May 2015 Steve Easterbrook is carving up global regions differently and vowed to “return excitement” to the burger chain. It’s a multi-year project with merit. Modest cost cutting and a lack of extra capital returns, however, mean investors will have to wait patiently for a Happy Meal.
Mylan may have found cure for the common conflict 4 May 2015 The drugmaker sued its former lawyers at Kirkland & Ellis for advising Teva on its $40 bln hostile bid to buy the company. The attorneys say Mylan agreed, but a court may finally rule such waivers unethical. Even better would be if the case emboldens clients to stop signing them.
Cisco safely and slowly routes leadership change 4 May 2015 After two decades as CEO, John Chambers will pass the baton in July to another company veteran, Chuck Robbins. Unlike Microsoft’s Steve Ballmer, Chambers withstood an investor uprising and learned from it. The rare feat for a long-tenured boss should make the transition smoother.
India’s aborted central bank plan has few mourners 4 May 2015 The government has withdrawn a proposal to curb the Reserve Bank of India’s sway over the bond market. It’s a welcome retreat. Retrospective taxes on foreign investors have already dented confidence. Clipping the wings of a well-functioning regulator would have caused more alarm.
Buffett makes golden case for Teflon force field 4 May 2015 At a 50th anniversary Woodstock for Capitalism celebration, the Oracle of Omaha easily parried queries and concerns about Coke, IBM, NetJets and more. While Berkshire Hathaway will one day miss Buffett’s investing nous, his human shield powers may be his most undervalued quality.
Hugo Dixon: UK politics is failing the trust test 4 May 2015 In the run-up to the May 7 election, the public has lambasted leaders of the established parties for breaking promises and lack of candour. While the critique is healthy, Britain has yet to give birth to leaders who score high on integrity. This is needed, not just in the UK.
Elon Musk plugs Tesla valuation into the grid 1 May 2015 The Silicon Valley billionaire’s new home battery system is, like his electric cars, too pricey for many. But if costs keep falling, Tesla’s Gigafactory runs smoothly and the solar market expands, shareholders may find there’s more spark in batteries than vehicles.
Wall Street’s P2P folly reverts to reckless form 1 May 2015 Traders want to link derivatives to the fledgling peer-to-peer loan market. Such lenders don’t need to reduce balance sheet constraints like banks do, however. A hedging tool may have marginal utility, but the securities will mainly create unnecessary and dangerous speculation.
JPMorgan exposes America’s IP fix as patently lame 1 May 2015 The bank beat infringement claims because the intellectual property involved was bogus. Yet a bipartisan bill aims only to squelch two-bit firms that buy the rights to inventions just to file suit. So-called trolls are a costly nuisance, but bad patents are a far bigger threat.
President’s vanishing act works magic for Brazil 1 May 2015 The more Dilma Rousseff takes herself out of the picture, the greater her country’s credibility. Letting lieutenants tackle Brazil’s creaky finances and the central bank fight inflation unhindered is a good start. The $2 trln economy, however, requires additional feats to amaze.
Lloyds revival makes retail offer unnecessary 1 May 2015 The state-owned UK lender avoided new legal charges as underlying pre-tax profit rose 21 pct. Improved capital implies decent dividends. The government may think retail investors should share the upside. But banks are leveraged, cyclical investments better sold to institutions.
Inflation stages a small comeback 1 May 2015 Oil prices have rebounded 47 pct, U.S. wages are picking up and euro zone prices have stopped falling. The worst of this cycle’s disinflationary pressure is probably over. But an oil glut and an ageing world will temper inflation, even if GDP growth speeds up.
Review: Hank Paulson’s kiss-and-don’t-tell China guide 1 May 2015 The former U.S. Treasury secretary paints a world where noble Chinese officials beg straight-talking American bankers to help get their finances in order. Some things have changed. What hasn’t is that contacts are everything, and that killer details are always left unspoken.