Deutsche Börse and NYSE Euronext: Competing arguments

26 January 2012

UK Only Article:  standard article Issue:  China and the paradox of prosperity Fly Title:  Deutsche Börse and NYSE Euronext Rubric:  What should investors make of faltering merger plans? FOR the chief executives of Deutsche Börse (DB) and NYSE Euronext, this week’s hobnobbing in Davos was strictly business. A $9.5 billion plan to unite the two exchanges was derailed in early December when European Commission staff revealed they were likely to advise blocking it on competition grounds. The exchanges are lobbying hard to persuade the 27 EU commissioners to ignore their staff and approve the deal. A decision is due to be made on February 1st. On the face of it, investors should support the commission’s recommendation to stymie the deal. Its competition wing is mandated to stop mergers that are likely to raise prices, reduce quality or dull innovation. In this case the concern is that the exchanges’ derivatives businesses—DB’s Eurex and NYSE Euronext’s Liffe—would share over 95% of European trading for some assets. There may also be concerns that a merged exchange would be able to ...

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Insider trading: Red light for Greenlight

26 January 2012

David Einhorn, the boss of Greenlight Capital (pictured), a large American hedge fund, is usually the one to point out the errors in others’ ways. He has been a vocal critic of companies, such as Lehman Brothers, which he shorted before its collapse in September 2008. But yesterday Mr Einhorn was the one facing scrutiny. He and his firm were fined £7.2m ($11.3m) by Britain’s Financial Services Authority (FSA) for trading on inside information relating to an equity offering for Punch Taverns, the largest pub and bar operator in the United Kingdom.

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British banks: Britain’s credit crunch: getting worse?

23 January 2012

THE latest review of British banks’ lending, released last Friday, is a bleak read. Annual growth in business lending has never recovered following the initial credit crunch (see chart). In fact, banks just marked a grim anniversary: thirty consecutive months of data showing negative lending growth (June 2009 to November 2011).Lending figures are the outcome of loan demand from businesses, and loan supply by banks. If lending falls, which keeps happening, this could be because of lower demand, or lower supply, or (very likely) both. The latest survey data suggest a supply problem is playing a part, with firms saying that credit has become more costly, and harder to get, in recent months.And the supply problem is getting worse, as banks’ funding costs – the rate they have to pay to borrow – kept on rising during 2011. One proxy for funding costs (CDS premia) was higher at the end of 2011 than in 2008. Much of the increase happened last autumn, and has not (yet) fed through to the cost of lending.A deterioration in the cost and availability of credit is a risk to growth, according to the Office for Budget Responsibility's November 2011 forecast. And a credit tightening now looks likely: British banks expect that in the first quarter of 2012 credit to all sizes of firm – small, medium and large – is going to get more expensive. Britain’s credit crunch looks likely to ...

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The euro crisis: Checking in on Europe

20 January 2012

REGULAR readers know that my view of the likely outcome of the crisis in Europe is a gloomy one. This hasn't changed. Given a number of positive developments in the euro zone—like fairly successful debt auctions for Spain and Italy, and corresponding drops in bond yields—it's worth keeping a close eye on the situation to make sure that something important and positive hasn't actually happened.The European Central Bank's introduction of its long-term refinancing operations late last year has had several significant effects on the dynamic in the euro zone. First, it had an immediate impact on the liquidity crunch that threatened to bring down the euro-area banking system. Banks that were having an increasingly difficult time rolling over the short-term financing they need to survive were given the opportunity to borrow huge amounts of money from the ECB at very low rates and fairly long—3 year—durations. Boy did they seize it. the first LTRO provided some €489 billion to European banks. The next round, to take place in February, may involve even more lending. For now, that seems to have removed a major, immediate threat to the euro zone.Secondly, the ECB's action took the air out of sovereign debt markets at a very fortuitous time. Lots of observers were very worried about the large amounts of debt Italy and Spain were scheduled to sell in the first month or two of this year. ...

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Buttonwood: Not so smart

19 January 2012

UK Only Article:  standard article Issue:  The rise of state capitalism Fly Title:  Buttonwood Rubric:  How executives spend their company’s cash Main image:  20120121_FND002_0.jpg IT IS easy to accept that small investors might be irrational—piling into dotcom stocks in late 1999, for example, or buying half-built Miami condominiums in 2006. But corporate executives are supposed to be “in the know”. That, after all, is why there are such stringent laws against insider dealing. Take share buy-backs. Investors often see a decision by a company to buy back its own shares as a positive indicator. If the executives think the shares are a bargain, everyone else should. In this sectionLosing altitude »Not so smart Volunteers wanted Vienna 2.0 Two twists in the dragon’s tail iPadded The hangover ReprintsRelated topicsBuybacks Business Stockmarkets Dividends Financial markets But are executives any good at market timing? Not according to the calculations of Andrew ...

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Austrian banks: Vienna 2.0

19 January 2012

UK Only Article:  standard article Issue:  The rise of state capitalism Fly Title:  Austrian banks Rubric:  A familiar problem for central Europe Location:  Berlin EUROPEAN banks have to raise enough capital to reach a 9% core Tier-1 ratio by June 30th. But they are also under pressure to keep providing credit. That puts west European banks with units in central Europe in a quandary: whether to pull back on lending there to concentrate on home markets. A withdrawal of this sort would hit the region hard. Credit growth in central Europe depends largely on three Austrian banks—Raiffeisen Bank International, Erste Bank and Bank Austria, owned by Italy’s UniCredit—and a handful of other west European banks (see chart). A bevy of multilateral bigwigs descended on Vienna on January 16th to urge against “excessive and disorderly” deleveraging by lenders to the region. In this sectionLosing altitude Not so smart Volunteers wanted »Vienna 2.0 Two twists in the dragon’s ...

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American banks: Losing altitude

19 January 2012

UK Only Article:  standard article Issue:  The rise of state capitalism Fly Title:  American banks Rubric:  Lenders can cheer for their own survival, and not much else Location:  New york Main image:  20120121_FND001_1.jpg BY THE time JPMorgan Chase finished reporting its fourth-quarter results on January 14th, any optimism about a lovely, if surprising, sign-off to a difficult year had been squashed. Its return on equity was just over 11%, and if that is how the institution widely thought to be the best managed and best balanced of the big American banks performed, the only question was how poorly the rest would fare. If there was a positive spin on the final quarter of 2011, and the overall year, it was that things were worse three years ago. No big bank, for example, went bust or seems on the verge of doing so. Bank of America, notable for its vast potential to make both profits and losses, has seen its share price ...

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State capitalism’s global reach: New masters of the universe

19 January 2012

UK Only Article:  standard article Issue:  The visible hand Fly Title:  State capitalism’s global reach Rubric:  How state enterprise is spreading THE HEADQUARTERS OF China Central Television, designed by Rem Koolhaas, a Dutch architect, looks like a monstrous space invader striding across Beijing. The headquarters of the China National Offshore Oil Corporation resembles an oil tanker emerging from a shimmering sea. It was designed by Kohn Pedersen Fox, an international firm of architects, and sits directly opposite China’s ministry of foreign affairs. All over central Beijing you see state companies erecting giant monuments to themselves, reflecting their huge power and their vision of themselves as agents of modernisation. That vision is not confined to Beijing. Petronas, Malaysia’s state-owned oil company, has built 88-storey twin towers in the heart of Kuala Lumpur. In Moscow, VTB, Russia's second-largest state bank, has its headquarters in a sleek glass skyscraper in the spanking new Moskva City Business Complex. The most striking thing about state-owned enterprises ...

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Insider trading: Seven down, many more to go

18 January 2012

ON JANUARY 18th the Securities and Exchange Commission charged seven hedge-fund managers and analysts as well as two hedge funds with insider trading. The alleged scheme involved insiders at Dell Computer and Nvidia Corporation, a chipmaker, passing along confidential information about the companies’ performance, which helped the two hedge funds, Diamondback Capital and Level Global, make $78m.

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The independence debate in Scotland: Interviewing Alex Salmond, the man who wants to break-up Britain

12 January 2012

BAGEHOT is in Edinburgh. Yesterday afternoon I interviewed Alex Salmond, first minister of the devolved Scottish government and generator of a hundred headlines this week, as the man who wants to break up Britain.My report for the newspaper is here. With apologies for a very long post, I thought some readers of this blog might like a fuller account of what the first minister said.Mr Salmond, who led his pro-independence Scottish National Party to a thumping victory in the 2011 Scottish elections, is preceded by quite a reputation nowadays."The most talented politician in the British Isles," I was told by an academic, as I made some last-minute calls about the implications of Mr Salmond's declaration, earlier this week, that Scotland would hold a vote on independence in 2014. "A brilliant demagogue...slippery... a total opportunist," one of his political rivals assured me. Over coffee in London last week, a senior Labour politician urged me, with surprising passion, not to suspend my critical faculties when meeting Mr Salmond. Don't be lulled into thinking you are in a foreign country, and so cannot understand what he is up to. Ask him your toughest questions, urged the Labour grandee.I met the first minister at his official residence, Bute House, an Adam mansion in Edinburgh's New Town. It was my first time inside, and—perhaps appropriately—the setting felt at once foreign ...

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