Commentaries
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from Rolfe Winkler:
Lunchtime Links 1-12
China surprises with bank reserve hike (Xin/Rabinovith, Reuters) The Fed could learn something from the PBOC. This sudden move to tighten bank lending maintains the PBOC's reputation for acting without warning. If the Fed had a similar rep, U.S. lenders wouldn't be so cavalier taking interest rate risk.
Special bankruptcy court for banks mulled in Senate (Younglai, Reuters) Interesting proposal for Dodd's Senate financial reform bill. Can't really comment until details are made available.
Citi unit grows -- with Fed's help (Enrich, WSJ) The fact that Citi subsidiary GTS is so important to the global financial system -- and that its failure would be disastrous -- is a good argument that regulators should find a way to wind it down...
Obama weighs tax on banks to cut deficit (Calmes, NYT) No details here either, but I expect whatever is proposed to pass, as the proposal will come not long after banks announce bonuses. Plan would raise as much as $120 billion. Taking money away from the financial sector, including its customers, is a necessary step towards de-leveraging the economy.
from Rolfe Winkler:
Consumer bankruptcy filings increase
From the American Bankruptcy Institute (no link yet):
The 135,913 consumer bankruptcy filings in October represented a 27.9 percent increase over last October’s monthly total of 106,266, according to the American Bankruptcy Institute (ABI), relying on data from the National Bankruptcy Research Center (NBKRC). The October 2009 consumer filings represented an 8.9 percent increase from the September 2009 total of 124,790. Chapter 13 filings constituted 28.5 percent of all consumer cases in October, a slight increase from the September rate.
“The nearly 9 percent increase in consumer bankruptcy filings in October, together with a 7 percent jump reported in business cases, demonstrates the sustained stress on the U.S. economy,” said ABI Executive Director Samuel J. Gerdano. ABI forecasts that total bankruptcies this year will exceed 1.4 million, the highest number since 2005.
Lehman the tax scofflaw
Wow, Lehman Brothers really didn’t like paying taxes.
Back in June, New York City’s tax department filed a $626 million claim for back taxes against the bankrupt investment bank. And now comes New York State with an even bigger $1.2 billion tax claim.
Most of Lehman’s unpaid taxes to the state stem from last year, not surprising given what happened to the firm. But the state lists Lehman as having a $223 million outstanding corporate tax liability from 1999.
‘Living wills’ easier said than done
In the wake of the widespread chaos that accompanied the bankruptcy of Lehman Brothers last September, regulators have sought to find a better way to unwind global financial giants. One approach is that the banks themselves should prepare for their own orderly demise — a kind of “living will”.
That idea has been gathering steam of late. The G20 group of finance ministers and central bankers meeting in London over the weekend agreed to require “systemic firms to develop firm-specific contingency plans.”
Stones and glass houses, offshore tax haven edition
One of the week’s more amusing stories takes us to the sun-kissed shores of the Cayman Islands, scuba diver’s paradise, magnet for hedge funds and – until very recently – world-beating tax haven.
The financial crisis has not been kind to the Caymans. Hundreds of hedge funds have collapsed and global banks have slashed jobs. As if this was not enough, President Barack Obama in the spring launched a crackdown on tax havens that forced a number of Caribbean islands, including the Caymans, to embrace greater transparency – after a fashion.
Trash is king as Lehman shares surge
It’s either a sign of sheer boredom on Wall Street, or an early celebration of the one-year anniversary of Lehman Brothers’ demise, but shares of the fallen invesment bank were red hot today.
The stock rose some 200%. Take that AIG.
For some inexplicable reason, shares of the bankrupt investment bank, which trade on the loosely regulated over-the-counter Pink Sheets, changed hands some 73 million times on Friday. That’s a lot of trading in a stock that’s been worthless for nearly 12 months.
Germany should call GM’s bluff
Recently bankrupted companies seeking billions in taxpayer handouts do not generally have the strongest hand at the negotiating table. Yet General Motors seems determined to drive a hard bargain over the bailout of Opel, its European car arm.
After months of tortured negotiations with the German authorities, GM is now threatening to reverse away from the deal. However, it appears to have few alternatives.
Nortel value for Ericsson is to keep out rivals
LONDON, July 27 (Reuters) – Ericsson’s last-minute bid of $1.13 billion for Nortel Network’s wireless assets is difficult to justify on sales prospects alone.
A merger won’t wring out much in the way of efficiencies either: Nortel has already undergone years of huge job cuts.
There is, however, another factor at work here: The value of keeping competitors out.
The Swedish mobile network equipment maker snatched the Nortel business away at auction from Nokia Siemens, which last month agreed to pay $650 million for the same assets — a little over half Ericsson’s final price.
Ericsson also significantly outbid a third bidder, private equity firm MaitlinPatterson, which offered $725 million, for Nortel. BlackBerry-maker Research in Motion is seeking a separate patent licensing deal with Nortel after its $1.1 billion offer for Nortel’s mobile business failed to win support.
Understanding the deal requires knowing some of the technology dynamics involved. Nortel’s main franchise remains in CDMA networks, the technology that came to dominate the North American mobile market in the 1990s and earlier this decade. It’s a region where Nokia Siemens has struggled to make inroads.
Ericsson, on the other hand, shares some of the same customers and technology as Nortel. As the world’s biggest maker of mobile network equipment, Ericsson bought its way into the CDMA market earlier this decade by acquiring the wireless network assets of CDMA pioneer Qualcomm Inc.
Nortel Networks has also been working on the next generation of high-speed networks based on a technology called LTE, or Long Term Evolution. Nortel sold around $2 billion worth of CDMA and LTE equipment in 2008.
But the business has been in decline. Customers have been taking a go-slow approach to upgrading their networks, even before the global economic downturn. Nortel also lacked the scale of bigger rivals like Ericsson, Nokia Siemens or Alcatel Lucent that would have helped it compete with lower-
cost Chinese and Korean competitors.
Nomura analyst Richard Windsor estimates that at a price of $1.13 billion, Ericsson stands to receive only a meager return of 6.25 percent on Nortel assets, assuming continued sales declines and optimistic operating margins of 20 percent — far higher than Ericsson itself is predicting for the Nortel business.
The value of Nortel’s wireless business depends on milking the remaining market for replacement CDMA equipment, while working with those customers to help them make a stable long-term transition to LTE and other next-generation equipment. But that would be paying a lot to simply reinforce relationships.
Call the additional price Ericsson is paying the “keep-out premium.” To make this deal work, Ericsson needs to turn its greater scale into sustained gains in operating margins. Keeping competitors at bay is the only way to justify the acquisition price.
– At the time of publication Eric Auchard did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. Read some of Eric’s previous columns and blogs here. –
Lehman D-Day
It’s taken awhile, but a deadline for filing claims in the Lehman Brothers bankruptcy has finally been set and it’s Sept. 22.
A Sept. 15 deadline, the one-year anniversary of Lehman’s collapse, would have been more appropriate. But maybe that would have just been rubbing everyone’s face in it.
GM sprung free and world still standing
They said it couldn’t be done and here we are less than 40 days after GM filed and the new leaner, possibly meaner, automaker has been sprung free from bankruptcy court.
I don’t want to downplay the hardship of the GM workers being left behind, but the much feared Armageddon just hasn’t happened, giving the Obama Administration a big win for making the politically risky move of allowing GM and Chrysler to go into bankruptcy in the first place.
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The Wall
