The Great Debate UK
from Breakingviews:
Buffett’s crisis bets outrunning his freight train
Warren Buffett's annual missive to Berkshire Hathaway's shareholders is out. Among the usual folksy nuggets, the Sage of Omaha notes that he funded Goldman Sachs, General Electric and others at the height of the crisis.
The $21 billion invested is now worth a quarter more and yields 10 percent annually. Short term at least, that's more than Buffett's bet on railroad Burlington Northern Santa Fe is likely to deliver.
Berkshire has deployed a similar amount of cash to buy BNSF -- some $22 billion. It has also issued stock. That's why Buffett's latest letter is partly a primer for the 65,000 new shareholders the deal added to the half million or so that Berkshire already had.
Even Buffett, though, admits that the decision to buy BNSF in November was a "close one". The generous $34 billion price tag for the rail company's equity looked even higher from Buffett's point of view because he paid partly in stock. He and his investing partner Charlie Munger like issuing shares "about as much as we relish prepping for a colonoscopy", the 79-year-old Buffett writes.
It's an expensive, long-term punt on a capital-intensive industry: Buffett at the time described it as "an all-in wager on the economic future of the United States."
Meantime the $21.1 billion invested in the past 18 months in Dow Chemical, GE, Goldman, Swiss Re and Wrigley -- a combination of confidence-building injections and pre-agreed investments -- has delivered more instant gratification.
Those holdings are now on the books at $26 billion, and they throw off $2.1 billion of interest and dividends annually.
from Breakingviews:
Russian IPO rush means investors can be choosy
Russian initial public offerings are set for a comeback. Some $20 billion of Russian share sales are forecast this year, including dozens of IPOs. With plenty of options, investors should be able to drive a hard bargain.
Following a two-year lull in activity, bankers are excited at the prospect of a return to the heady days of 2006 and 2007, when Russian companies raised some $37 billion in 42 international share issues. Media group Profmedia plans to raise $500 million in April with a London listing, while iron ore miner Metalloinvest and coal miner SUEK are mulling billion-dollar IPOs in 2010.
Russian new issues have been understandably popular with investors in the past. They tend to be sizeable and offer exposure to high-growth sectors. The Russian stock market also appears less expensive than other emerging markets on some measures.
But issuing companies’ bosses often have inflated estimates of what they are worth. Around two thirds of all Russian IPOs have underperformed the local stock market since issue date, in some cases losing 80 percent of their value, according to data compiled by Renaissance Capital.
That suggests the prices of previous Russian IPOs were too high. This time, it should be different. Aside from the sheer number of possible candidates, many Russian companies are under pressure to raise money quickly. They borrowed heavily before the crisis and need cash fast.
Uralsib Capital estimates that Russian companies will issue $55.5 billion of equity in 2010 and 2011, of which $17.5 billion is required to repair balance sheets. The Profmedia IPO, for instance, would help repay some of parent company Interros's $2 billion of debt. With local finance still scarce and expensive, smaller and less indebted Russian companies also need to raise equity to kick-start stalled expansion plans.
Investors during the last wave of Russian IPOs were too willing to stump up cash. This time, it should be more of a buyer’s market.
This article has no context, ignores issuance costs and prospectus’ contents’ trends. This place has +- 15 times zones and +-150 dialects, I think there is more to it than someone chopping wood on the steppes or heads in Gorky Park.
from Breakingviews:
Bank of New York pays full price for small gain
By Rolfe Winkler
Bank of New York Mellon is growing – at a price. The giant trust bank on Tuesday agreed to buy PNC Financial Services' back-office operations for $2.3 billion. That works out to 23 times annualized fourth-quarter 2009 earnings. That is a heady multiple for only a marginal boost in market share.
PNC’s shareholders seem to be getting the better end of the transaction. The sale of the PNC Global Investment Servicing (GIS) unit boosts its capital and should help it repay $7.6 billion of bailout money received from the government.
Thanks to the deal, PNC's Tier 1 capital ratio rises to 6.7 percent from 6 percent. PNC probably needs to raise yet more equity to pay back its Troubled Asset Relief Program funds, but this is a good start.
The advantages for BNY Mellon shareholders look less certain. The bank says the acquisition complements multiple business lines. But Robert Kelly, the chief executive, seems to be coughing up too much cash for just a 4 percent gain in assets under administration. The GIS business has been lumpy. And even using last quarter’s earnings as the basis for analysis – the unit’s strongest quarter of 2009 – BNY Mellon is paying a chunky multiple.
The purchaser reckons it can squeeze out $120 million a year of cost cuts. Taxed and capitalized, those savings are worth around $720 million today. Take that off the purchase price, and BNY Mellon is still paying $1.6 billion for the GIS business – a price-to-earnings ratio of 16 times, which still looks a full price. It’s the same multiple that leading rival Northern Trust trades on, while BNY Mellon's own shares trade at just 12 times this year's estimated earnings.
So to sell the deal to shareholders, management is talking about between $200 million and $300 million of extra revenue based on integrating GIS into BNY Mellon. But such cross-selling opportunities often turn out to be elusive, and even BNY Mellon acknowledges they could take three to four years to transpire.
from Commentaries:
Cazenove’s yield may muddy JP Morgan deal
As your friendly neighbourhood investment bank rarely tells you, something like 80 percent of deals don't pay off. So why do one if you don't have to?
That is the question facing the mighty City of London firm of Cazenove. Five years after Caz poured its investment banking business into a joint venture with the U.S. bank, JP Morgan <JPM.N>, it has to decide whether to go the whole hog and sell the remainder -- or to hang on.
Technically the shares are the subject of a put and call arrangement -- JP Morgan can force Caz's investors to sell and vice versa. But it is hard to imagine the Americans obliging the shareholders to sell if they clearly don't want to.
Which raises the question: why would they want to?
A deal has certain attractions for JP Morgan. The bank's UK business would be simpler if it owned 100 percent of its UK investment banking operations. The current set-up is quite advantageous for Caz. Not least it gives it access to JP Morgan's deep pockets and client list.
But these are also good reasons for Caz shareholders to hang on. Most commentators have focused on the cultural reasons for leaving the joint venture intact and these are indeed potent. But there are also good financial reasons to leave things where they are. Take the fact that the joint venture perches on JP Morgan's mega balance sheet. This gives it the best of both worlds. It can use the U.S. bank's financial heft to haul in equity capital markets business but it doesn't carry the risk. Any duff underwritings land on JP Morgan's plate.
This means the JV hardly needs any capital. Caz itself is a shell these days -- its only asset is its near 50 percent stake in the joint venture. That in turn means almost all its profits are flushed through as dividends. Caz's share of the joint venture's after-tax profit last year was 46 million pounds, all of which was paid to its own shareholders (plus a further 3 million generated by Caz itself).
Can anyone plese tell me does Cazenove shares traded in any stock exchange? something written in the annual report about internal market?
will really appreciate if anyone can provide ISIN code
Thanks in advance
Ash
Warren Buffett likes trains – which isn’t a bad thing – and his pal Bill Gates is the single largest shareholder in Canadian National Railways, so it’s hardly surprising the sage of Omaha bought himself a shiny new electric train set to run under the tree at Christmastime. People nowadays look down on railroads: too much capital, too much labour, too much history, too much TOO MUCH. Mr. Buffett isn’t stupid, nor is Mr. Gates. Consider their investments in rail as something to emulate.