from Financial Regulatory Forum:
Financial regulation scorecard
A House-Senate conference committee must find a middle ground between financial regulation bills passed by the two chambers. The committee's final report could differ from earlier versions.
Once approved by both chambers, the compromise legislation will go to President Barack Obama to sign it into law. That could happen by July 4, analysts say.
Here's a look at the status of major points in the House and Senate financial regulation bills.
from Summit Notebook:
Tax evaders on the run
By Neil Chatterjee The U.S. has promised it will hunt down tax evaders. And it seems tax evaders are on the run. DBS bank, based in the growing offshore financial centre of Singapore, told Reuters it had been approached by U.S. citizens asking for its private banking services. But when told they would have to sign U.S. tax declaration forms, the potential clients disappeared. Swiss banks also approached DBS on the hope they could offload troublesome U.S. clients to a location that so far has not been reached by the strong arms of Washington or Brussels. DBS said no thanks. In fact many private banks and boutique advisors now seem to be avoiding U.S. clients. Will this spread to other nationalities, as governments invest in tax spies and tax havens invest in white paint? Is this the end of offshore private private banking?
UPDATE-BA’s convertible bond flies off the shelves
*This post was updated after the bond priced*
British Airways unveiled a $1 billion fundraising aimed at securing its future earlier on Friday, including $540 million in bank loans that had been earmarked for its pension funds as a safety net against the airline going bust.
The fundraising also included a 350 million pound ($570.5 million) convertible bond, which was over 7 times covered, pointing to healthy investor appetite.
Convertible bonds have become an increasingly important source of finance for firms in Europe. The instrument allows companies to raise capital paying less interest than standard bonds, while avoiding an immediate dilution of earnings per share because investors look to gains in share prices over a medium term.
With European stocks rallying some 33 percent since early March, the convertible market has rebounded with year-to-date issuance reaching $16 billion including the BA deal, according to Thomson Reuters data.
The convertible was the third UK deal this year and BA’s first in 20 years. It was arranged by Barclays Capital, Deutsche Bank, HSBC, Merrill Lynch and RBS Hoare Govett.
GE’s Immelt’s subtle defense
General Electric Co Chief Executive Jeff Immelt went to Michigan, the bleeding heart of the U.S. industrial heartland, on Friday to call for a resurgence in American manufacturing. But even as he warned against relying too heavily on the financial industry to drive economic growth, he subtly set up a defense of the largest U.S. conglomerate’s hefty finance arm.
Analysts and investors are worried that the Obama administration’s proposed overhaul of U.S. financial regulations could force GE to spin off GE Capital, which has businesses ranging from leasing jet planes to investing in commercial real estate.
“We also need a financial system that is built around helping industrial companies to succeed,” Immelt told the Detroit Economic Club. “GE is an important part of this financial services approach. We plan to focus GE Capital on financing small- and medium-sized customers in industries that we know the best.”
He said that after first contending that the U.S. had come to rely too much on Wall Street wizardry and consumers who spend more than they earn to drive prosperity. Disparities in pay reflect that imbalance, he said.
“You know something is wrong when a mortgage broker is pulling down $5 million a year while a Ph.D. chemist is earning $100,000,” Immelt said.
Immelt did not directly address the proposal on Thursday. But earlier this week, he told GE employees that the largest U.S. conglomerate would fight any effort to force it to separate GE Capital from its industrial core.
Several analysts this week warned that the administration’s current proposal, which would prevent large financial institutions from having nonfinancial operations, would likely require such a separation. However, they pointed out that even the current proposal — which would be subject to negotiation in Congress — allows a five-year grace period.
Agrium CEO makes a plea for kindness
“Be kind in your article. I read this morning I wasn’t going to get the deal across,” said Agrium CEO Mike Wilson, referring to an article in Canada’s Globe and Mail about his company’s hostile bid for rival fertilizer maker CF Industries. “What the hell is that?”
Speaking on the sidelines of a BMO Capital Management agriculture, protein & fertilizer conference, Wilson said he was frustrated by CF’s unwillingness to discuss his company’s bid, but “frustration won’t make us go away.”
Agrium bumped its cash-and-stock bid for CF to around $85 a share on Monday, increasing its previous bid more than 6 percent.
“At $85, I can’t believe (CF CEO Steve WIlson is) not going to come to us and say let’s talk,” Agrium’s Wilson said. “I’d be amazed.”
First Reserve’s deal war-chest expands
First Reserve is sitting on another $9 billion of spending money for energy deals after finishing raising its latest buyout fund, Fund XII. The private equity giant, which specialises in energy investments, said the fund is the largest ever raised in the energy sector and exceeds its previous fund, Fund XI, which raised $7.8 billion in 2006.
The fund appears to be lower than target, however. London-based private equity intelligence firm Preqin said in a recent report that the fund had a $12 billion target.
“Energy remains a large, dynamic and complex industry where change creates new, attractive investment opportunities,” said William Macaulay, Chief Executive Officer of First Reserve in the press release (below).
Private equity firms have been struggling to raise new money for funds as the pension and endowment funds that invest in them have been hit by slides in the equity markets.
Some sectors and funds have been more successful than others. Secondary firms, which typically buy investors’ positions in buyout funds at a discount, have been particularly successful at raising capital.
Taxpayer dollars losing appeal?
When the U.S. government started handing out taxpayer dollars to banks under TARP last fall, hundreds of banks lined up. To many, government money was cheaper than the terms they were getting in private and public markets.
“That really, in effect for several months, put a lot of our discussions with issuers really on hold,” said John Duffy, CEO of investment bank KBW, which specializes in the financial services sector.
Now, the pendulum may be swinging away from the government.
The Obama administration has made it clear that the recipients of more capital will have to live under dictates on what they can and cannot do with the money — dividend restrictions, executive compensation caps and such.
And now the private market may be becoming more attractive to banks, despite private equity seeking better terms like asking for a more senior position than just common shares in investments, Duffy said.
“The longer this environment exists, the more there will be capitulation on the part of banks or potential issuers that the government is forcing them to go get that capital,” Duffy said on a conference call after announcing results. “And I think the capital out in the public or private markets is maybe more appealing than the terms attached on the latest government plan.”
(Photo: REUTERS/Romeo Ranoco)
