M & A wrap: Lifting the Vale
Brazil’s Vale said on Wednesday it has created a new logistics company for cargo transport, but it denied media reports it is planning to sell stock in the unit in a spin-off. Logistics services generated $1.5 billion in revenue in 2010, an increase of 33 percent from the year before.
Cerberus Capital Management LP’s deal to buy 64 hotels from bankrupt Innkeepers USA Trust could still go forward, but at a lower price, two sources familiar with the situation told Reuters.
NYT’s DealBook contributor Steven M. Davidoff writes that Capital One’s proposed $9.2 billion acquisition of ING Direct requires clearance from the Federal Reserve, as it poses a potential systemic risk. “Whether or not the Fed approves the Capital One/ING Direct transaction, it is time for the Fed to run public hearings on what exactly Dodd-Frank means for our banks and what we as a country want from them,” writes Davidoff.
Why IPO when the markets stink? Venture capitalist Jeff Richards’s answer: “You go public in a choppy market because your business has strong fundamentals that investors will buy into regardless, you raise important growth capital, and begin establishing a track record as a public company.”
If private equity firms drafted their NFL dream team, who would make the roster? Fortune.com’s Dan Primack goes deep.
Post Traumatic Stress Test Order
A week ago, when the Fed and Treasury mesmerized the financial world with the results of “stress tests” and capital-raising targets for banks, nobody spent much time asking “what if they can’t raise the money?” There was a sense that authorities had washed away enough uncertainty in the sector to satisfy investors. In short order, healthier institutions started raising capital. Those that didn’t need any stepped up efforts to rid themselves of onerous state support.
Bank of America shares are on a tear after the bank raised nearly $13.5 billion through a stock sale. Along with money it raised by selling part of its stake in China Construction Bank, this put Bank of America about half way to filling its stress-test gap.
But when Regions Financial, a large U.S. Southeast regional bank that was stress-tested, announced plans this morning to raise $1.25 billion through stock offerings — also about half of what federal regulators told it to raise — investors balked, sending its stock down more than 8 percent.
Just goes to show that not everybody can fail a stress test and impress shareholders with massive ownership dilution. Regions’ trouble may be that aside from selling stock, it has far less to offer than bigger banks in terms of asset sales to make shareholders feel better about doubling down. If nothing else, the market reaction could put a scent in the air that might interest an acquisition-minded lender needing exposure in the U.S. Southeast. If such a creature exists, it might find many more stressed-out lambs in the U.S. financial pasture.
GMAC, I mean Ally Bank can not raise money, they will call the Treasury, ask for a (many)few more billions. Why do we keep giving this worthless firm anything. Fold it. Many bank already availible to loan. . . Who cares, fake company, fake bankruptcy, fake about everything, makes me sick. Billions down a rathole.
Stress Management
Perhaps the best that can be hoped for from the upcoming week of stress test anxiety is that once it is over, a modicum of uncertainty will be gone as well. Sometime today, we should know how heavy the yardstick used in the tests was. The banks either already know or will soon find out whether they passed, and on May 4, expect all kinds of whooping and hollering outside the Deans’ office when the results are officially posted. Of course, there is a pretty good chance that as the banks find out the test results, the news will find a way out, so May 4 may turn out to be somewhat anti-climactic.
What happens next is still a bit vague. There is much talk about officials force feeding more funds to stressed-out banks. And despite the bad press on shotgun marriages — what with NY AG Andrew Cuomo stomping his feet over alleged pressure applied to Ken Lewis for Bank of America to take over Merrill Lynch — financial matchmakers will certainly look at the failures as prime candidates for synergistic harmonization.
But for the optimist, the market truism that the end of uncertainty is always a good thing could come as a welcome spring break for the troubled financial sector.
(PHOTO: A man hits a punching bag depicting a “boss”, as part of a test to measure his stress level, in a Madrid hotel July 3, 2007. Spanish hotel chain NH organized the promotional event which involved the smashing up of one floor of the hotel before its remodeling. REUTERS/Sergio Perez)
Deals of the day:
* Italian power-grid operator Terna SpA sold a 66 percent stake in its Brazilian unit for 2.33 billion reais ($1.06 billion) to Brazilian power firm Cemig, as it focuses on developing the grid.
* China Huiyuan Juice said it is unaware of the source of news reports that suggested Coco-Cola has resumed discussion with the company.
UBS dodges bigger bullet in tax pact
Embattled Swiss bank UBS struck a deferred prosecution agreement with the U.S. Justice Department that will cost them $780 million. It could have been worse.
Though paying a hefty fine, the Swiss bank is paying ZERO punitive fines, despite conceding that they helped U.S. residents – estimated to number 250 — avoid paying income taxes over an eight year period.
The agreement announced on Wednesday specifies that UBS will give up $380 million of profit from eight years of cross-border business — of which $200 million will be paid to the U.S. Securities and Exchange Commission and $180 million to the Department of Justice — and $400 million for back taxes, tax penalties and restitution for unpaid taxes and interest .
But it will not pay a penalty. In addition to wining points for its cooperation, Uncle Sam evidently took pity on a bank that has already suffered billions of losses from fixed-income trades and investments during the credit crunch. Halfway down Page 3 of the agreement Reuters found this little nugget:
“In recognition of the current international financial crisis and after consultation with the Federal Reserve Bank of New York, the government will forgo additional penalties.”
Not bad considering the 43-page agreement spells out some seriously naughty behavior.
“Beginning in 2000 and continuing until 2007, UBS, through certain private bankers and managers in the United States cross-border business, participated in a scheme to defraud the United States and its agency, the IRS…”
UBS means “you and us”…according to UBS’s latest television commercial. Somehow, UBS is trying hard to connect UBS’s message of “hope” to Senator Schumer’s videotaped remarks that the American taxpayer supposedly doesn’t care about “pork” or earmarks attached to congressional legislation.
We don’t get the connection. We don’t think that UBS Warburg gets the connection either.
We of the Middle & Working Class don’t get UBS at all, Mr. & Mrs. Reader. Our average IRA/401(k) was cut in half when the stock market tumbled from a Dow of 14,093.08 on October 12, 2007, to where the Dow Jones Industrial Average is now, i.e., hovering around 7,000.
We think that President Obama is absolutely correct. That is, in his remarks last night he said that the wealthy few are simply going to have to pay higher taxes. He has drawn the line at taxable incomes above $250,000.
Okay, that takes care of the line in the sand.
Now the question is what will the top marginal rate being increased to? It was lowered to 70% from 91% in 1964. Messrs. Reagan, Rostenkowski, Stockman, O’Neill and others of the so called Reagan Revolution lowered the top rate even further to 50% in 1981, and then to 28% in 1986.
That’s when the progressive tax system was flat out broken.
George H.W. Bush attempted a repair in 1990, raising the top rate to 31%. Bill Clinton went further in 1993, raising the top marginal rate to 39.6%. Something clicked and the deficit was gone by 2000. The U.S. Public Debt was being paid down, and the Social Security Trust Fund ceased to be raided to mask the annual federal budget deficit.
Unfortunately, George W. Bush and William Marshall Thomas reversed course and lowered the top marginal rate to 35% in 2001. Now we’ve got a $3 trillion deficit, a $5.6 trillion FY 2009 federal budget & a $13 trillion U.S. Public Debt. The U.S. Public Debt at the beginning of the Reagan administration in 1981 was $1 trillion (about $2.3 trillion after inflation today). The annual budget in 1981 was a mere $700 billion ($.7 trillion)…jumping to $3.1 trillion in FY 2001…even before adding the bailout, the stimulus & Mr. Bernanke’s toxic waste buyout program (the additional $2.5 trillion altogether).
Yet even with such a mess, the Privileged Class doesn’t want to even pay the Bush top rate of 35%…so here comes UBS for wealth management and tax avoidance. Wow!
The original ratio of bottom marginal rate to top marginal rate in 1913′s first tax rate schedule was 7:1.
That’s what America needs again. The top rate should be 1964′s 70% and the bottom marginal rate should be 10%…thus 7:1 again, i.e., the 15% and bracket should be merged with the 10% bracket and a “line in the sand” on the bottom end of the scale being $250,000 (at most $300,000).
OKJackGroup
oklahomajack.com
Who’s your boss, Mr. Liddy … and for how long?
Edward Liddy was appointed chief executive of insurer American International Group Inc within hours of a Sept. 16 government rescue, averting the 89-year-old insurer’s collapse.
On Monday, fifty-five days after stepping into the corner office, Liddy unveiled the company’s biggest-ever loss. Concurrently, the U.S. government restructured most elements of its initial AIG bailout in favor of a new better-for-AIG scheme, overshadowing the bad quarterly news.
Under the revised plan, AIG gets easier repayment terms and, most importantly, the U.S. Treasury will sink $50 billion into a fund that will buy and hold mortgage derivatives, including those underlying AIG credit default swaps — a thorny area that has led to massive losses for the insurer.
That leaves the government, not AIG, most exposed to potential future losses if markets for these securities grow darker still. If things go the other way, a clause baked into the new agreement means the insurer will get a portion (a third in the case of credit default swaps) of gains as market values rise.
“We’ve tried to thread that needle as best we can so that we are protected from the downside and have some opportunity on the upside,” Liddy told investors on Monday.
Any way you cut it, the U.S. now has the most to gain or lose.
Public company CEOs typically answer to a board of directors, and make decisions based on what is best for shareholders. For Liddy, that basically means the U.S. taxpayer, since the government is entitled to a 79.9-percent stake as part of the AIG bailout, which has already heavily diluted those holding stock before the bailout.
AIG says to report ‘earnings’. Really???
American International Group, the once giant insurer which has become best known as a sinkhole for government money, says it will report third-quarter results on Nov. 10.
Most notable was how AIG described what almost certainly was one of the ugliest reporting periods in financial history: “AIG’s earnings release and financial supplement will be available in the investor information section” of its website.
Earnings? According to the Merriam-Webster dictionary the use of the word “earnings” means money was earned during the quarter, or that the company will report there was money left in the coffer after pay outs. That is unlikely, at least based on analysts’ expectations.
Analysts’ on average expect AIG to report a loss of $1.69 a share in the third quarter, according to Reuters Estimates. It will be the insurer’s fourth-consecutive quarterly loss.
Maybe the insurer should have stuck with the word “results.” It would likely be more accurate and sounds better than the other alternative, “loss report.”
The company’s quarterly report will be its first since it accepted a $85 billion federal bailout on Sept. 16. Since, the insurer has been extended more federal aid, putting a total of $123 billion in taxpayer funds at its disposal.
So much for unbiased journalism. Did the author chew on a lemon before writing such a bitter-tongued article?
Obamanomics and the Federal Reserve
Barack Obama economic adviser Laura Tyson said at the Democratic National Convention on Monday that U.S. financial regulation needs modernizing, but hedged on how big a role to give the Federal Reserve.
Tyson, former chair of the Council of Economic Advisers in the Clinton administration, said she believes the Fed failed to crack down on subprime mortgage lending in recent years.
“What we have learned from the past two years … is that the old form of regulation is broken,” Tyson said.
View the full video conducted by Corbett B. Daly, Washington bureau chief for Thomson Reuters markets. Click here for the related story from Reuters News.
Bad News Bear
The aftershocks of Bear Stearns’ collapse are front and center. China’s CITIC Securities is moving on, formally calling off its $1 billion strategic tie-up; JPMorgan is moving in, ditching plans for a new office building now that it owns the $1.5 billion Bear Stearns HQ.
The Federal Reserve — hours away from the most aggressive rate cut in years — is arranging shotgun weddings for failing financial institutions, but policy makers might be running out of eligible suitors. “There may be some potential buyers left, but the list is looking pretty thin,” said Adam Compton, co-head of global financial stock research at RCM Global Investors.
Across the Atlantic, the European Commission said that while it was not asking for job cuts at stricken British mortgage lender Northern Rock, the bank would have to slim down to be a viable business in the future without state support. UK newspapers reported that one-third of staff could be axed.
Delta Air Lines’ pilots union confirmed that has failed to reach an agreement with Northwest Airlines’ pilots union on how the groups would resolve issues like seniority if the companies merged, the Atlanta Journal Constitution. throwing the long-anticipated deal into doubt. Look for heaps of comment today, as senior execs from the industry debate the future of aerospace at the JP Morgan aviation conference.
India’s Tata Motors has signed a deal to receive a $3 billion one-year bridge loan from Citigroup and JPMorgan to help finance a potential purchase of luxury brands Jaguar and Land Rover, according to sources familiar with the deal. “It is signed, but it’s still at an early process,” said one of the sources, who was not authorised to speak to the media. Tata is expected to agree on a deal by the end of the month to purchase the two well-known UK brands from U.S. auto maker Ford Motor, according to media reports in India.
Chinese aluminum giant Chinalco, which earlier this year led a $14 billion investment in Rio Tinto, is more likely to raise its stake than reduce it. Chinalco and U.S. aluminum firm Alcoa jointly purchased 12 percent of Rio’s London-listed shares, or 9 percent of the total equity of the firm at an average price of almost 59 pounds per share. The shares closed at 50.61 pounds on Monday.
Saudi Telecom plans to spend about $15 billion acquiring firms and licenses outside its home market during the year, according to a report in London-based MEED magazine. The Middle East’s largest telecom company by market value will target mobile phone licenses in Bahrain and Lebanon, and also wants to win the second fixed-line licence in Egypt.
