Beijing should rein in the pace of Yuan appreciation as the global economic downturn hits mainland exports, a researcher in the state planning department said yesterday. The comments came despite unexpectedly robust trade growth in January, which saw the trade surplus jump 22.7 per cent to US$19.49 billion for the month, prompting calls for the central bank to allow the Yuan to appreciate more quickly. “The US economic correction will not only drag down the world economy but also have, directly or indirectly, a negative impact on China’s export growth,” Wang Xiaoguang, a researcher with the National Development and Reform Commission, said in an article carried by the Shanghai Securities News. “Owing to the weakening pressure on the Renminbi to appreciate, together with the continued presence of asset price inflation, it is necessary to reduce the speed of Yuan appreciation and to widen the Yuan’s trading band. “If the external impact is too great, China could even let the Yuan depreciate within reasonable bounds,” he said, without elaborating. The slowdown in the world economy would see the mainland’s export growth fall to 18 per cent this year from 25.7 per cent in 2007, with the overall trade surplus rising 22 per cent to US$320 billion, significantly below last year’s 48 per cent increase, Mr Wang forecast.
NEW YORK - THE United States economy is in a recession, albeit a mild one, as a weakening consumer sector has compounded ongoing problems in the housing and credit markets, according to UBS economists.
‘It’s not coming. It’s here,’ UBS said in a research report on Wednesday.
The Federal Reserve on Wednesday sharply lowered its forecast for US economic growth for this year, but it is still expecting the economy to avoid a recession.
Citing a deepening housing slump and tight credit, the Fed lowered its forecast to between 1.3 per cent and 2 per cent from a range of 1.8 per cent to 2.5 per cent it had projected in November last year.
UBS economists forecast US gross domestic product to fall 0.6 percentage point from the end of last year to the middle of this year.
The projected mild contraction will be led by the first decline in personal spending since the recession of 1991, UBS said. Last month, the US government said the economy grew at an annual rate of 0.4 per cent in the fourth quarter of last year and expanded 2.2 per cent for the entire year, the weakest pace in five years.
China shares widen losses after midday break on nervous selling in blue chips amid mounting concerns over liquidity crunch caused by upcoming fundraising. Shanghai Composite Index off 3.7% at 4358.80, next support at psychological 4200 level. “China Railway Construction's IPO subscription starts next Monday and investors are panicking amid rising rumours about refunding by blue chips,” says Zhang Gang at Southeast Securities. Among actives, Daqin Railway (601006.SH) hit 10% downside limit at CNY19.94, China Merchants Bank (600036.SH) down 6.0% at CNY30.28. Shenzhen Index down 3.2% at 1377.65. (WYL)
中国经济蓬勃，对电力需求日趋殷切，内地电力能源主要是煤（煤产生了百分之七十八的电力），而其价格去年增百分之七十三（据「纽卡素环球煤价指数〔Global Coal New Castle Index〕」），中国本来是产煤和出口煤的大国，但去年第一季开始成为煤的净入口国（去年进口煤为五千一百多万吨，比二○○六年增百分之三十四），从南非大停电矿区无法运作令矿产供应抽紧的情况看，加上恶性通胀骎骎然有卷土重来之势，煤价今年有升无已，似属必然。显而易见，内地厂商经营成本上涨，是全面性而非地区性，换句话说，即使厂商弃高成本地区如珠三角向较偏远地区迁徙，并不等同搬往低成本地区。
LONDON -- HSBC, Europe's largest bank by market value, has been named the world's most valuable banking brand, while three Chinese banks are among the top 25, according to The Banker magazine's latest Top 500 Financial Brands listing.
HSBC overtook Citibank, which was at the top last year, while Bank of America took third place in the magazine's ranking. Xinhua got a copy of the listing on Tuesday.
This year's The Banker magazine listing highlights the emergence of Chinese banks as significant players on the international stage, with three Chinese banks appearing among the top 25 brands.
Industrial and Commercial Bank of China (ICBC) ranked 15th, while China Construction Bank is 17th and Bank of China 22nd.
In its latest issue, the magazine also named HSBC as the only bank to achieve the highest possible triple 'A' brand rating.
The announcement follows last year's Interbrand study of the world's most valuable brands across all sectors, which saw HSBC jump five places to 23, the second-best growth performance of the top 40 companies surveyed.
Chris Clark, Head of Group Marketing at HSBC, said that "in just 10 years the HSBC brand has become a very powerful asset. Many customers across all our business lines are increasingly looking for services and solutions with an international dimension. We are very well placed to help them and the brand sets out our credentials as these trends develop."
Banks that are based in large and rapidly emerging markets, such as Brazil, Russia, India and China (the "BRIC" countries) continue to benefit from rapid economic growth in their territories, the report said.
Apart from three Chinese banks, three Brazilian banks are listed 42nd, 45th and 53rd, while Russia's Sberband is ranked 55thand India's State Bank of India 59th.
Brian Caplen, editor of The Banker, said "banks are increasingly aware of the value of their brand and how it underpins everything they do across all business lines and all geographies."
He said The Banker magazine, together with Brand Finance, has put together a unique listing based on brand values and "we congratulate HSBC on coming top in this year's poll."
The report, initially published in 2006, is the first publicly available table analyzing the financial value of the world's top banking brands. It is then published annually and incorporates data from the world's 32 largest stock markets.
China warns on inflation, sees yuan as policy tool
By Eadie Chen and Langi Chiang February 22 2008
BEIJING, Feb 22 (Reuters) - China will step up use of the yuan's exchange rate to help bring better balance to China's international payments and the domestic economy, the People's Bank of China said on Friday.
The comments, in the PBOC's monetary policy report for the fourth quarter, follow a marked acceleration in the pace of the yuan's rise in recent months as the central bank battles to keep a lid on rising inflation.
"We will go a step further in allowing the exchange rate to play a role in adjusting the balance of international payments and promoting balanced economic growth," the report said.
The central bank, which keeps the yuan under tight control, allowed the currency to reach 7.1413 per dollar on Thursday, the highest level since it scrapped a dollar peg in July 2005 and let the yuan float in managed bands.
The yuan has now gained 13.6 percent against the dollar, including an initial 2.1 percent revaluation in July 2005.
Most exporters had improved their competitiveness and adapted better than expected to the stronger yuan, the report said.
The PBOC said its corporate surveys showed firms were responding to the stronger yuan by increasing efficiency, cutting costs and upgrading their products.
It gave the example of textile firms, some 55 percent of which had raised their prices in the first half of 2007.
Some had moved production to cheaper cities inland, and some had started to sell more goods inside China or had expanded into new markets in South East Asia, Australasia and Africa.
TORRENT OF LIQUIDITY
The yuan's quickening rate of climb has been widely welcomed by economists, who say it will reduce China's trade surplus and so cap at the source the torrent of liquidity pouring into the economy that has helped propel inflation to an 11-year high of 7.1 percent.
Inflation will remain relatively high in the first half of the year and that might dampen household consumption, the PBOC said.
International uncertainties, stemming in part from the fallout of the U.S. subprime mortgage crisis, would also act as a drag on growth. The result would be a modest slowdown in 2008 for an economy that has expanded at double-digit rates for the past five years, the report said.
China would stick to the explicitly tight monetary stance it adopted in December to tackle inflation and prevent the economy from overheating, the PBOC said.
But the central bank said it would make "prudent" use of interest rates as part of a broad-based, pre-emptive monetary strategy to control credit growth and stabilise the economy.
With U.S. rates falling fast, economists say China will risk sucking in unwanted speculative capital if it raises its own interest rates too far.
The central bank stressed the need to complement monetary policy with structural policies aimed at boosting consumption -- an essential ingredient of any rebalancing of China's growth model away from investment and exports.
It also advocated tax breaks to spur consumption in order to cushion the likely slowdown in China's export growth due to the worsening international environment.
AQR's Biggest Hedge Fund Fell Almost 15% Through Mid-February
By Jenny Strasburg
Feb. 22 (Bloomberg) -- AQR Capital Management LLC's largest hedge fund fell almost 15 percent this year through Feb. 15 as market swings tripped up computer models the managers use to make trades, two people with knowledge of the matter said.
The assets of AQR's Absolute Return fund dropped to $2.9 billion last month from $4 billion in the fourth quarter, said the people, who declined to be identified because the Greenwich, Connecticut-based firm doesn't publicly disclose the data. AQR's smaller Asset Allocation fund lost 16 percent of value.
Quantitative managers who rely on computers to make trades have struggled as global equity markets declined. Assets managed by AQR, co-founded in 1998 by former Goldman Sachs Group Inc. managing director Clifford Asness, slipped more than 20 percent to $8.6 billion in the past six months because of investment losses and client redemptions.
``Quants traditionally do well when the market moves in broad strokes, and during choppy markets, their practices suffer,'' said Geoffrey Bobroff, an independent investment consultant in East Greenwich, Rhode Island, who isn't affiliated with AQR.
AQR spokesman Brian Maddox declined to comment.
Quant funds run by AQR, Goldman and JPMorgan Chase & Co.'s Highbridge Capital Management LLC stumbled in July and August when credit markets seized up and managers rushed to raise cash by selling stocks. Goldman and Highbridge are based in New York.
January Slide
Losses accelerated in January as managers who concentrate on picking stocks lost an average of 4.1 percent, the biggest monthly decline in more than seven years, according to data compiled by Chicago-based Hedge Fund Research Inc. The Standard & Poor's 500 Index closed up or down more than 1 percent in 14 of 21 trading days in January. That occurred just once in January 2007.
AQR, which is partially owned by Affiliated Managers Group Inc. of Beverly, Massachusetts, manages about $35 billion in assets across all of its funds, according to its Web site. That includes funds that bet solely on rising stock prices. The firm, which Asness started with David Kabiller, Robert Krail and John Liew, considered going public last year, the Financial Times reported.
Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets and participate substantially in profits from money invested.
Zwirn Shuts Hedge Funds After Clients Pull $2 Billion
By Jenny Strasburg
Feb. 22 (Bloomberg) -- D.B. Zwirn & Co., the New York-based investment firm that was hobbled by disclosures of improper accounting, will liquidate the two largest hedge funds after clients asked to withdraw more than $2 billion.
The firm will shut the domestic and offshore versions of the Special Opportunities Fund after its 2006 financial audit was delayed, leading to ``a large number of investor redemptions,'' according to a letter sent yesterday to clients. The funds have about $4 billion in assets, 80 percent of the firm's total.
Started by Daniel Zwirn in October 2001, the company expects to tell investors in March how it will return their money, according to the letter, a copy of which was obtained by Bloomberg News. It may take as many as four years to wind down the funds, whose holdings include hard-to-sell private-equity investments and derivatives based on the underlying value of debt securities.
The hedge-fund manager told investors in early 2007 that an internal investigation found improper financial transfers and accounting of expenses. Its independent auditor, PricewaterhouseCoopers LLP, took until December to sign off on its books, according to a copy of a Dec. 3 audit obtained by Bloomberg.
By that time, clients had asked to withdraw $482 million, according to the audit.
D.B. Zwirn was ``the unfortunate victim of misconduct by certain former employees,'' according to an e-mailed statement from spokesman Shawn Pattison. Accounting issues were ``thoroughly investigated'' and current managers of the firm were ``found to be above reproach,'' the statement said, without naming the former employees.
Internal Investigation
The firm plans to continue managing about $1 billion in assets outside the funds it's closing, according to the letter.
D.B. Zwirn's former finance chief, Perry Gruss, stepped down in October 2006, the month the firm started the investigation into accounting practices including its calculation of client fees and transfers among funds, according to a March 2007 letter to investors. The internal investigation prompted a probe by the U.S. Securities and Exchange Commission.
That inquiry was continuing when the PricewaterhouseCoopers audit was completed, according to the December report.
The Special Opportunities funds gained 15.6 percent in 2006, according to the December audit. That compared with the 12.9 percent average return of hedge funds globally, according to Chicago-based Hedge Fund Research Inc.
The Special Opportunities funds invest in corporate and real- estate debt, industrial assets and securities of companies going through mergers and other reorganizations, according to the PricewaterhouseCoopers audit. The funds also make longer-term private-equity investments in companies and real estate.
Trader Dismissed
D.B. Zwirn drew attention in 2006 after it fired a trader previously terminated by Citigroup Inc. for inflating profits by $20 million to boost his bonus. The trader, David Becker, pleaded guilty in September 2006 to one count of conspiracy to falsify bank records and to commit wire fraud while he oversaw commodities trading at the New York-based bank, which ended his employment in March 2004.
Daniel Zwirn previously was a managing director and senior investment manager overseeing special opportunities for Highbridge Capital Management LLC, the $29 billion hedge-fund affiliate of New York-based JPMorgan Chase & Co. Zwirn continued as a senior investment adviser to Highbridge after the firm contributed money to the founding of his company.
Zwirn, 36, built a company that once had 15 offices around the world and more than 1,000 employees, according to the Financial Times. The company now has 255 workers, the paper said.
Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets and participate substantially in profits from money invested.
Danny John and Stuart Washington February 22, 2008
BANKERS are working to a tight deadline to approve a new business plan for the debt-challenged Allco Finance Group which would pull the company back from the brink of insolvency.
A syndicate of at least 10 banks, led by the Commonwealth, are desperately trying to avoid putting Allco into the hands of administrators. But their decision to refinance a key part of its debt depends on a business plan being compiled by corporate restructuring specialists Ferrier Hodgson that will state whether a revamped Allco can remain a going concern.
Such a conclusion from Ferrier would allow Allco's beleaguered directors to sign the group's latest half year accounts, triggering both their much-delayed release and a sale of assets to pay off debt.
According to sources close to negotiations over Allco's future, this could result in the banks agreeing to refinance the most pressing part of the $1.1 billion in short-term debt: a $250 million loan due to expire on May 1.
Allco is understood to have put the view that even after meeting all its debt obligations, it has more than $1 billion in assets. Businesses inside Allco include not only aviation and rail leasing businesses but hard assets such as $500 million in property, which were due to be spun out into separate funds before Allco was caught out by the credit crunch.
One syndicate member told the Herald yesterday: "They are working towards a number of announcements - I think that they have got good assets and lots of other things they are looking at doing."
The finely-balanced talks would resolve the board's quandary over Allco's interim results, given concerns over what have been described by sources as "solvency issues".
Publication of the figures have been delayed twice in the past week, despite market announcements which indicated that they had been signed.
Following questions put to the company by the Herald on Wednesday about its financial state, Allco chief executive David Clarke responded that the accounts were still being finalised and that the group had until next Friday to do so.
That means Allco is staring down a deadline of seven days to get the figures ready or face having to release accounts that will have to be highly qualified because of the cash flow concerns.
The negotiations over the group's future have been made harder by the complex nature of the organisation's corporate structure, its links with various listed and unlisted entities and the amount of total debt being carried by the entire operation. In all, the Allco empire is said to owe at least $6 billion.
St George Bank became the latest of Allco's lenders to disclose that it had a $60 million exposure to a $850 million unsecured facility provided by a banking syndicate.
- Another Allco stockmarket satellite, property investor Record Realty, added to the group's woes by reporting a $32.7 million loss for its latest half year.
The UK Treasury announced on Friday it bought all the shares in troubled bank Northern Rock, including its preference shares, and that an order setting up compensation for shareholders will be sent to parliament shortly.
Shareholders in Northern Rock, which received more than 25 billion pounds ($49 billion) in government support funds since it ran into trouble last year, have criticized the government for nationalizing the bank, saying they need to be compensated.
“The principles for assessing any compensation … reflect the principle that the government should not be required to compensate shareholders for value which is dependent on taxpayers’ support,” a Treasury statement said.
The listing of Northern Rock’s ordinary and preference shares was canceled, the statement said, but the company’s debt securities will continue to trade.
Nationalizing Northern Rock was the best solution to protect the taxpayers, Darling said. The bank’s shares were suspended from trading on the London Stock Exchange on Monday. Last Friday’s closing price was 90 pence.
The government was analyzing two bids from the private sector but decided to put the bank in state hands at the weekend. Parliament passed legislation allowing the bank's nationalization on Thursday.
Restructuring plans for Northern Rock will need the approval of the European Union, under EU rules regarding state aid.
America's economy risks the mother of all meltdowns
By Martin Wolf February 20 2008
"I would tell audiences that we were facing not a bubble but a froth - lots of small, local bubbles that never grew to a scale that could threaten the health of the overall economy." Alan Greenspan, The Age of Turbulence.
That used to be Mr Greenspan's view of the US housing bubble. He was wrong, alas. So how bad might this downturn get? To answer this question we should ask a true bear. My favourite one is Nouriel Roubini of New York University's Stern School of Business, founder of RGE monitor.
Recently, Professor Roubini's scenarios have been dire enough to make the flesh creep. But his thinking deserves to be taken seriously. He first predicted a US recession in July 2006*. At that time, his view was extremely controversial. It is so no longer. Now he states that there is "a rising probability of a 'catastrophic' financial and economic outcome"**. The characteristics of this scenario are, he argues: "A vicious circle where a deep recession makes the financial losses more severe and where, in turn, large and growing financial losses and a financial meltdown make the recession even more severe."
Prof Roubini is even fonder of lists than I am. Here are his 12 - yes, 12 - steps to financial disaster.
Step one is the worst housing recession in US history. House prices will, he says, fall by 20 to 30 per cent from their peak, which would wipe out between $4,000bn and $6,000bn in household wealth. Ten million households will end up with negative equity and so with a huge incentive to put the house keys in the post and depart for greener fields. Many more home-builders will be bankrupted.
Step two would be further losses, beyond the $250bn-$300bn now estimated, for subprime mortgages. About 60 per cent of all mortgage origination between 2005 and 2007 had "reckless or toxic features", argues Prof Roubini. Goldman Sachs estimates mortgage losses at $400bn. But if home prices fell by more than 20 per cent, losses would be bigger. That would further impair the banks' ability to offer credit.
Step three would be big losses on unsecured consumer debt: credit cards, auto loans, student loans and so forth. The "credit crunch" would then spread from mortgages to a wide range of consumer credit.
Step four would be the downgrading of the monoline insurers, which do not deserve the AAA rating on which their business depends. A further $150bn writedown of asset-backed securities would then ensue.
Step five would be the meltdown of the commercial property market, while step six would be bankruptcy of a large regional or national bank.
Step seven would be big losses on reckless leveraged buy-outs. Hundreds of billions of dollars of such loans are now stuck on the balance sheets of financial institutions.
Step eight would be a wave of corporate defaults. On average, US companies are in decent shape, but a "fat tail" of companies has low profitability and heavy debt. Such defaults would spread losses in "credit default swaps", which insure such debt. The losses could be $250bn. Some insurers might go bankrupt.
Step nine would be a meltdown in the "shadow financial system". Dealing with the distress of hedge funds, special investment vehicles and so forth will be made more difficult by the fact that they have no direct access to lending from central banks.
Step 10 would be a further collapse in stock prices. Failures of hedge funds, margin calls and shorting could lead to cascading falls in prices.
Step 11 would be a drying-up of liquidity in a range of financial markets, including interbank and money markets. Behind this would be a jump in concerns about solvency.
Step 12 would be "a vicious circle of losses, capital reduction, credit contraction, forced liquidation and fire sales of assets at below fundamental prices".
These, then, are 12 steps to meltdown. In all, argues Prof Roubini: "Total losses in the financial system will add up to more than $1,000bn and the economic recession will become deeper more protracted and severe." This, he suggests, is the "nightmare scenario" keeping Ben Bernanke and colleagues at the US Federal Reserve awake. It explains why, having failed to appreciate the dangers for so long, the Fed has lowered rates by 200 basis points this year. This is insurance against a financial meltdown.
Is this kind of scenario at least plausible? It is. Furthermore, we can be confident that it would, if it came to pass, end all stories about "decoupling". If it lasts six quarters, as Prof Roubini warns, offsetting policy action in the rest of the world would be too little, too late.
Can the Fed head this danger off? In a subsequent piece, Prof Roubini gives eight reasons why it cannot***. (He really loves lists!) These are, in brief: US monetary easing is constrained by risks to the dollar and inflation; aggressive easing deals only with illiquidity, not insolvency; the monoline insurers will lose their credit ratings, with dire consequences; overall losses will be too large for sovereign wealth funds to deal with; public intervention is too small to stabilise housing losses; the Fed cannot address the problems of the shadow financial system; regulators cannot find a good middle way between transparency over losses and regulatory forbearance, both of which are needed; and, finally, the transactions-oriented financial system is itself in deep crisis.
The risks are indeed high and the ability of the authorities to deal with them more limited than most people hope. This is not to suggest that there are no ways out. Unfortunately, they are poisonous ones. In the last resort, governments resolve financial crises. This is an iron law. Rescues can occur via overt government assumption of bad debt, inflation, or both. Japan chose the first, much to the distaste of its ministry of finance. But Japan is a creditor country whose savers have complete confidence in the solvency of their government. The US, however, is a debtor. It must keep the trust of foreigners. Should it fail to do so, the inflationary solution becomes probable. This is quite enough to explain why gold costs $920 an ounce.
The connection between the bursting of the housing bubble and the fragility of the financial system has created huge dangers, for the US and the rest of the world. The US public sector is now coming to the rescue, led by the Fed. In the end, they will succeed. But the journey is likely to be wretchedly uncomfortable.
CANBERRA - A sex-and-property scandal involving a female city planner on a “mission for sex” in return for approvals of high-rise buildings threatened to engulf Australia’s biggest state government on Friday.
An undercover sting by anti-corruption investigators uncovered a web of affairs involving 32-year-old town planner Beth Morgan in the steel-and-surfing city of Wollongong, south of Sydney, with three prominent building developers.
Morgan, said by one of the three men to be “on a mission for sex”, gave approval for millions of dollars worth of unlawful city building developments in return for gifts and affairs, the powerful Independent Commission against Corruption heard.
“Mile High Rise Club,” said a headline in the mass-selling Daily Telegraph newspaper. Morgan gave testimony to the commission about the affairs, admitted to by two developers, while a third denied the pair actually had a sexual relationship.
But the scandal, which has captivated Australians, also threatens several ministers in the government of the nation’s most populous state, New South Wales, which includes Sydney.
Australians generally believe their country to be largely corruption free and it ranks well on the international index prepared by Transparency International.
Amid the public ICAC hearings, state Premier Morris Iemma promised to sack a senior minister if he was found to have improperly given a job to a Wollongong city councillor linked to the scandal.
Four other state ministers have also been indirectly linked by the ICAC to central figures in the furore.
“Anyone found to have done the wrong thing will be out, no matter who they are,” Iemma said.
The ICAC hearings have been given front-page treatment, with corruption investigators documenting lurid details of emails and phone messages between Morgan and her alleged lovers, which in turn have run in newspapers nationally.
Adding to public shock are photographs of the stylish Morgan and the men she pursued, receiving from them cameras, cash payments, a China holiday and designer handbags, the ICAC heard.
Hundreds of late night and weekend phone calls between Morgan and her alleged partners have also been logged by corruption investigators from the commission.
Why M&A Is Back, for Now What's behind the new urge to merge?
The November election, for starters
by Ben Steverman
Despite a credit crunch and recession worries, the dealmakers have returned to Wall Street.
Their current run includes Microsoft's (MSFT) $44 billion bid for Yahoo! (YHOO). Major U.S. air carriers are reportedly talking about mega-mergers. And a wave of smaller deals has hit the headlines, including Reed Elsevier's (RUK) $4 billion buyout of ChoicePoint (CPS).
So far it's a pale imitation of 2007, when private equity firms used cheap credit to gobble up company after company. That pumped up the stock market in the first half of the year, just before the credit crunch took it down again.
Fears of a Coming Antitrust Crackdown The credit crisis still drags on, and private equity players sit on the sidelines, unable to obtain financing for billion-dollar deals. So what's behind this encore performance of the M&A boom? And how long can its run last if the economy continues to deteriorate?
One factor is the Presidential election. The next U.S. President will appoint regulators who can decide whether to challenge deals on antitrust grounds. They will determine whether a proposed combination would restrict competition or create a monopoly. Some deals are being rushed to get them approved before President George W. Bush leaves office on Jan. 20, 2009.
Most deals ultimately get approved, but the process can create a headache for CEOs and shareholders. On Feb. 19, the proposed merger between XM Satellite Radio (XMSR) and Sirius Satellite Radio (SIRI) hit its one-year anniversary as the controversial deal still waits for word from the Justice Dept.'s Antitrust Div.
Obama Has Criticized Bush's Antitrust Record All else being equal, most assume a Democrat in the White House will be more suspicious of proposed mergers. But it's hard to know what the next President will do. Antitrust regulation is the sort of topic that makes voters' eyes glaze over, so it rarely gets attention on the campaign trail.
Senator Barack Obama (D-Ill.) was the only current candidate to respond to a questionnaire from the American Antitrust Institute last year. Obama criticized the Bush Administration for "the weakest record of antitrust enforcement of any administration in the last half century." He pledged to "reinvigorate" enforcement, and cited health care, including the insurance and pharmaceutical industries, as a sector where the lack of competition has raised prices for consumers.
Delta Air Lines (DAL), Northwest Airlines (NWA), Continental Airlines (CAL), and United Airlines (UAUA) are among the carriers said to be discussing mergers. Airline deals have gotten close scrutiny from regulators in the past, and that's likely to happen again. On Feb. 14, Senator Hillary Clinton (D-N.Y.) said the mergers should prompt "a hard look at the potential effects on workers" before they're approved.
Federal Judges Have the Ultimate Say Antitrust law is full of "squishy language that reasonable people can disagree on," says Robert Lande, a University of Baltimore law professor who co-founded the American Antitrust Institute. While all regulators may worry that a merger would raise prices, Democrats are more likely to consider other factors, such as whether a merger would restrict consumer choices, Lande says. That approach could threaten mergers of media companies, for example, under an Obama or Clinton Administration.
Still, many argue antitrust policy won't change much even if Democrats take the White House. For one thing, political appointees don't make ultimate decisions on mergers—federal judges with lifetime appointments do.
Also, a new Administration may affect "close cases," but there is a consensus on most questions, says antitrust expert Paul Denis, now at the law firm Dechert LLP. As a Justice Dept. lawyer in the early 1990s, he helped draft merger guidelines still in place today. The political parties may be split on many other important issues, but antitrust "is an issue where there is probably more agreement than disagreement," Denis says.
A Leadership Vacuum Could Stall Approvals The 2008 election does create problems for dealmakers, however, Denis says. The transition to a new administration in 2009, often a chaotic process, could create a leadership vacuum, he says. Under normal circumstances, deals under review can stall for months and months, with the average review taking seven-and-a-half months, Denis says. The change in power in early 2009 could add to delays even if Republicans remain in power. Companies have just a few more months to put together big deals before they run the risk of getting stuck in post-election limbo.
For large, controversial mergers like the airline deals or the possible Microsoft-Yahoo combination, the 2008 election is undoubtedly at least one consideration. But otherwise, M&A experts say, the Presidential election is a sideshow to a number of bigger factors shaping the M&A market in 2008.
First, companies are finding more bargains when they look for acquisition targets. The weak stock market has lowered share prices. And private equity firms aren't around anymore to bid up buyout offers. Before the credit crunch made many leveraged buyout deals impossible, companies "got to the point where they didn't feel like they could compete" with private equity buyers, Denis says.
Foreign Buyers Eye Global Brands A weak U.S. dollar adds to the advantages for foreign buyers. Strong respective currencies are helping Canadian, Asian, and European firms see lots of good prices in the U.S. stock market. "You can afford some deals that you couldn't afford before," says Stefano Aversa, co-president of AlixPartners, a global consulting firm. The most recent example is Anglo-Dutch firm Reed Elsevier's $4 billion offer for ChoicePoint on Feb. 21.
Buyers from India and China may be especially active in 2008, Aversa says. In the consumer space, foreign buyers may be attracted to global brands with great long-term value, Aversa says. In technology, firms in emerging markets with production capacity may want to buy U.S. tech firms for their respected brands and their access to technology and Western consumers, he says.
It won't just be foreign buyers on the prowl for bargains, says Mike Hogan, managing director at Harris Williams. The weak economy may be prompting more CEOs of all stripes to find ways to expand their companies through acquisitions, he says. With his firm focusing on M&A's "middle market"—companies under $1 billion—Hogan says the buyout market is "still very active."
More Banking Mergers Are Expected Popular targets of M&A activity are firms in energy, technology, transportation and logistics, and commodities, Hogan says. For smaller firms, antitrust rules aren't much of a worry. However, the election may have an impact: Buyers of family-controlled firms may want to sell before Democrats allow Bush's cuts to capital-gains and estate taxes to expire, he says.
In other sectors, trends are pushing companies toward consolidation, says Mike Moriarty, a partner at A.T. Kearney, a management consulting firm. Banks, for example, will still want to merge to compete with global giants such as HSBC (HBC) and JPMorgan Chase (JPM). Given the trends in banking, "Aspiring to be the Wal-Mart (WMT) of banking is not a bad idea," he says. Hotels, publishing, aluminium, and steel are other industries undergoing consolidation, he says.
A variety of factors, from elections to strategy to good bargains, may be pushing players toward more M&A activity this year. But it won't be easy for dealmakers: A slowing economy and wild financial markets have many players sitting on the sidelines. Moriarty argues that smart CEOs will see past the current difficulties. If they do, they'll be rewarded. M&A is "such an important part of every successful company's strategic kit," he says. Despite the tough market and weak economy, "Companies are going to find a way to make that happen."
That might be true for the bravest players. But until the economic climate clears up, many firms will be reluctant to spend their rainy-day funds on expensive mergers.
Dresdner questions future of SIVs By Chris Hughes and Paul J Davies in London
Published: February 21 2008 12:24 | Last updated: February 21 2008 12:24
Dresdner Bank on Thursday hammered another nail in the coffin for structured investment vehicles when it provided a potential $19bn rescue facility for K2, its SIV, and questioned the future of the specialised funding vehicles that banks have used to keep assets off their balance sheets.
SIVs were set up to raise cheap funding in the so-called commercial paper market and invest the proceeds in high-yielding credit assets. However, the freeze in the commercial paper market has left SIVs struggling to refinance.
Dresdner, which is Germany’s third-largest bank and belongs to the Allianz insurance group, said it was offering a support facility to K2 to help the SIV repay all its senior debt due in stages from the middle of this year.
The move should prevent K2 from becoming a forced seller of its assets, although the plan is that Dresdner will eventually wind down the portfolio. Dresdner said K2’s assets had been reduced from $31.2bn to $18.8bn since July.
Dresdner’s move is the latest evidence that the prospect of a meaningful recovery in commercial paper remains distant. K2 stood out among SIVs in not having been downgraded by ratings agencies.
Helmut Perlet, Allianz’s chief financial officer, said he did not expect K2’s assets to come on to Dresdner’s balance sheet and did not anticipate the bail-out to lead to losses. K2’s assets were entirely investment grade and contained no exposure to the type of subprime or mortgage-backed structured credit assets which have caused widespread losses across the banking sector.
“The refinancing of these vehicles gets harder by the day. The appetite from investors is not overwhelming,” he said.
Banks have no contractual obligation to support the SIVs that they have set up and manage, but they face reputational risks in letting them fail. In November, HSBC became the first major bank to pledge support to its SIVs, which had a value of more than $45bn. Citigroup in December offered to support its seven SIVs, worth $49bn, having previously insisted it would not do so.
Dresdner also said it was scaling back its investment banking activities, including withdrawing from the SIV business, with the loss of 450 jobs. About two-thirds of the cuts have already been made.
Dresdner Kleinwort, Dresdner’s investment banking arm, will concentrate on cash management services for corporations and infrastructure financing. However, it is not thought to be planning to add to headcount in those areas.
“The question is what is the right fit and size of [the] investment bank. We are cutting a few product lines that don’t fit. This is the most burning issue for us at the moment,” Mr Perlet said.
However, Michael Diekmann, Dresdner’s chief executive, said he did not wish to get into a “strategic discussion” about the future of investment banking within Allianz.
Merrill's Fleming sees strategic deal recovery Thu Feb 21, 2008 4:57pm EST
By Mark McSherry
NEW YORK (Reuters) - Strategic mergers could pick up again in the second half of this year, but leveraged buy outs might stay in the doldrums until 2009, according to Merrill Lynch (MER.N: Quote, Profile, Research) president and chief operating officer Greg Fleming.
Fleming said in an interview that conditions in the credit markets have been as tough as he can remember but that things could improve in the next six to nine months.
Announced global M&A volume is down roughly 25 percent year to date and buy out volume is down roughly 53 percent, according to data provider Dealogic.
"The dialogue exceeds the pipeline today (for deals), but there is hope that as and when the credit markets get better, M&A will pick up reasonably quickly," said Fleming.
"Stock as acquisition currency, for well positioned companies, is back, and you may see more hostile activity," Fleming said.
He said private equity deals were likely to be slow through 2008, and added: "A pick up in financial sponsor deals is a 2009 event -- we have to work through so much inventory."
Speaking of Merrill Lynch, Fleming said: "We are conscious of the environment. We are watching expenses and cutting where we think it makes sense, but we want to be well positioned when the cycle turns."
23 comments:
Winter storms cost China’s forestry sector $8 bln
Stanford waives tuition if income under $100,000
HK banks ‘may not follow US rate cuts’
Shanghai draws up plan for nation’s
tallest building
Tight credit could bring property deal rush
Beijing should rein in the pace of Yuan appreciation as the global economic downturn hits mainland exports, a researcher in the state planning department said yesterday. The comments came despite unexpectedly robust trade growth in January, which saw the trade surplus jump 22.7 per cent to US$19.49 billion for the month, prompting calls for the central bank to allow the Yuan to appreciate more quickly. “The US economic correction will not only drag down the world economy but also have, directly or indirectly, a negative impact on China’s export growth,” Wang Xiaoguang, a researcher with the National Development and Reform Commission, said in an article carried by the Shanghai Securities News. “Owing to the weakening pressure on the Renminbi to appreciate, together with the continued presence of asset price inflation, it is necessary to reduce the speed of Yuan appreciation and to widen the Yuan’s trading band. “If the external impact is too great, China could even let the Yuan depreciate within reasonable bounds,” he said, without elaborating. The slowdown in the world economy would see the mainland’s export growth fall to 18 per cent this year from 25.7 per cent in 2007, with the overall trade surplus rising 22 per cent to US$320 billion, significantly below last year’s 48 per cent increase, Mr Wang forecast.
‘US has slipped into recession’
Reuters - 22 February 2008
NEW YORK - THE United States economy is in a recession, albeit a mild one, as a weakening consumer sector has compounded ongoing problems in the housing and credit markets, according to UBS economists.
‘It’s not coming. It’s here,’ UBS said in a research report on Wednesday.
The Federal Reserve on Wednesday sharply lowered its forecast for US economic growth for this year, but it is still expecting the economy to avoid a recession.
Citing a deepening housing slump and tight credit, the Fed lowered its forecast to between 1.3 per cent and 2 per cent from a range of 1.8 per cent to 2.5 per cent it had projected in November last year.
UBS economists forecast US gross domestic product to fall 0.6 percentage point from the end of last year to the middle of this year.
The projected mild contraction will be led by the first decline in personal spending since the recession of 1991, UBS said.
Last month, the US government said the economy grew at an annual rate of 0.4 per cent in the fourth quarter of last year and expanded 2.2 per cent for the entire year, the weakest pace in five years.
China shares widen losses after midday break on nervous selling in blue chips amid mounting concerns over liquidity crunch caused by upcoming fundraising. Shanghai Composite Index off 3.7% at 4358.80, next support at psychological 4200 level. “China Railway Construction's IPO subscription starts next Monday and investors are panicking amid rising rumours about refunding by blue chips,” says Zhang Gang at Southeast Securities. Among actives, Daqin Railway (601006.SH) hit 10% downside limit at CNY19.94, China Merchants Bank (600036.SH) down 6.0% at CNY30.28. Shenzhen Index down 3.2% at 1377.65. (WYL)
林行止: 中国经济升级带动全球通胀
2008年02月21日
一位前厂家的友人在「评论」〈羊城招工起薪升百分之十三创新高〉新闻时，指出这是中国经济转型的开始，他说，当厂商尤其是劳工密集的工厂赚大钱时，经济表象即使蓬勃丰盛，经济本质仍属艰难期；只有厂商面临工人难求、盈利倒退的大环境，才是经济升级的征象。这种情况香港人应该非常清楚，愈来愈多空置厂厦说明低档工业已无可为，但香港经济确是比前更上层楼！看来中国经济亦将如此。
上述那段刊于本报十八日的消息，指出「七千个空缺岗位，进场求职人员不过四千人次。上周末广州节后首场招聘会呈现企业招工难、劳动者找工易现象。为了抢到心水员工，平均起薪点增幅达百分之十三」。这种增幅，是建立在「外地民工」二○○五年薪金平均升百分之六点五、○六年升百分之十一点五、○七年升百分之二十的基础上，薪金连年增加，具体地反映了内地劳工市场「人求事」的情况已彻底改观，经过三十年的「艰苦奋斗」及充分利用政府给予的种种优惠条件（包括漠视劳工权益），经营有术、避税有方的资本家早已「先富起来」。另一方面，这数年来，中国取消农业税、贯彻九年免费教育、津贴粮价、实施农村保健措施，大部分国人的收入有所增加，劳工阶级开始行使其工作选择权，是大势所趋，他们当然会和昨天罗耕在「财经ＤＮＡ」所写一样：〈人望高处〉。罗氏这样写道：「港商北上的历史，起码有二十年。当时大陆有的是贱命，无的是技术，工人任劳任怨，随时因工伤残。相反，港商有的是资本，无的是人力，于是各取所需，达成双赢贸易。不过，既然深知珠三角不外是滞后二十年的香港，理应不会料不到有二十年后的今天。港商们，二十年来你们有未雨绸缪吗？二十年前政策『倾斜』（共X挡语）到你们一边，目的就是以剥削（也是共X挡语）当地工人来换取你们设厂，你取便宜，他取技术。如今他们已有相当技术，工资亦不再便宜，设厂模式瓦解亦自然不过。难道大陆要无了期地以剥削、污染政策来优惠你们？」别说罗耕「犬儒」，实情确是如此。
不管港商能否适应新的经济生态，内地营商环境已变，是不可逆转的趋势。薪金上升、原材料及能源价格飞涨、更严格的环保措施出台、数以百项出口货退税政策取消、今年一月一日落实的新《劳动合同法》（有厂商在《金融时报》指出当局推出多项保障权益的措施，内地劳工成本今年将增百分之四十，厂商「生意维艰」，难怪张五常在《壹周刊》的「南风窗」一连数周予此新法以恶评；练乙铮在本报「香岛论丛」则细说其利〔抽象的〕少弊〔具体的〕多之病）以至人民币价只有上升未见下降，在在增加生产成本，于不动声色间把「中国制造」和低价产品中间的等号摘除！
中国经济蓬勃，对电力需求日趋殷切，内地电力能源主要是煤（煤产生了百分之七十八的电力），而其价格去年增百分之七十三（据「纽卡素环球煤价指数〔Global Coal New Castle Index〕」），中国本来是产煤和出口煤的大国，但去年第一季开始成为煤的净入口国（去年进口煤为五千一百多万吨，比二○○六年增百分之三十四），从南非大停电矿区无法运作令矿产供应抽紧的情况看，加上恶性通胀骎骎然有卷土重来之势，煤价今年有升无已，似属必然。显而易见，内地厂商经营成本上涨，是全面性而非地区性，换句话说，即使厂商弃高成本地区如珠三角向较偏远地区迁徙，并不等同搬往低成本地区。
生产成本上涨令物价上升这种转变，不仅对厂商带来冲击，对消费者的影响亦非常深广。迄今为止，中国低价货出口，等于向进口其货物的市场输出通缩，这种情况不仅令消费者开颜，亦使联储局前主席格林斯平把利率降低至绝对足以诱发通胀的一厘但通胀不至；低利率刺激了美国经济长期增长，然而，天下没有免费午餐，美国开始要为长期繁荣付出经济代价了。统计显示「中国制造」占美国百分之七点五的消费品市场，比例不算太大，但那已褫夺其竞争者的定价能力，令美国赤字山积、利率似有若无、消费者大事举债消费而通胀人间蒸发。这种好景将因中国输出的不再是通缩反可能是通胀而全面改观。「中国制造」价格因成本上涨而上升，亦予其竞争对手以加价的机会，结果自然是环球性通胀升势变本加厉！
中国出口货价上升的后果，可能是中国外贸顺差及美国对中国贸易逆差的收窄，对美国经济也许有意外的刺激，而中国「家底」已厚，加上有香港这只生钻石蛋的肥鹅，顺差下降外收入萎缩的影响不大。由于有较佳的基建、高技术劳工队伍、高科技效率以至美元价疲不能兴等优势，美国未来成为多项低价产品出口国，是不足为奇的。
曾渊沧 : 渣 打 好 戏 继 续 上 演
2008年02月22日
昨 日 港 股 ， 又 是 一 场 无 法 合 理 解 释 的 发 展 ， 上 午 好 好 随 外 国 上 升 300 多 点 ， 午 后 ， 日 股 收 市 升 幅 不 错 ， 其 他 亚 太 区 股 市 升 幅 也 不 错 ， 但 港 股 则 急 转 直 下 ， 指 一 度 倒 跌 ， 收 市 仅 上 升 32 点 。 我 无 法 合 理 的 解 释 ， 只 能 说 是 大 户 在 为 指 期 货 激 战 。
楼 价 一 升 再 升 ， 但 蓝 筹 地 产 股 则 一 跌 再 跌 ， 许 多 小 股 民 已 开 始 信 心 动 摇 ， 决 定 放 弃 ， 止 蚀 离 场 。 前 日 公 布 纯 利 多 赚 两 倍 的 隆 地 产 （ 101 ） 更 惨 ， 前 日 股 价 跌 5% ， 昨 日 再 跌 4% ， 为 蓝 筹 股 中 跌 幅 最 大 的 。 隆 不 是 靠 物 业 重 估 来 取 得 利 润 ， 售 楼 利 润 增 加 29 倍 ， 租 务 溢 利 上 升 27% 。 隆 的 主 业 是 租 务 ， 不 是 开 发 地 产 ， 因 此 ， 说 隆 售 楼 收 益 急 升 29 倍 也 等 于 卖 了 之 后 以 后 没 产 业 可 卖 ， 为 将 来 的 盈 利 贡 献 打 折 扣 ， 但 是 因 此 而 导 致 股 价 急 跌 两 日 则 说 不 过 去 。
渣打 银 行 （ 2888 ） 旗 下 与 美 国 次 按 有 关 的 Whistlejacker （ WJ ） 回 天 无 力 ， 渣 打 已放 弃 注 资 挽 救 ， 让 之 破 产 。 WJ 破 产 ， 持 有 不 少 WJ 发 行 的 结 构 性 衍 生 工 具 的 中 信 国金 （ 183 ） 惨 了 ， 业 绩 恐 怕 会 出 现 亏 损 。
发 钞 地 位 多 争 拗
受 到 美 国 次 按 影 响 ， 渣 打 股 价 跌 幅 也 不 小 ， 昨 日 收 市 价 为 237 元 ， 去 年 12 月 11 日的 最 高 价 为 314 元 。 美 国 次 按 风 暴 发 生 后 ， 渣 打 是 极 少 数 银 行 股 股 价 能 继 续 逆 市 上升 ， 其 中 最 重 要 的 原 因 是 新 加 坡 政 府 全 资 拥 有 的 淡 马 锡 在 努 力 地 增 持 。
现 在淡 马 锡 的 持 股 比 率 已 接 近 20% 。 不 久 前 香 港 金 融 管 理 局 总 裁 任 志 刚 说 ， 如 果 外 国 政府 持 有 香 港 发 钞 银 行 股 权 超 过 20% 时 ， 他 会 重 新 考 虑 是 不 是 仍 然 让 该 银 行 继 续 发 钞。 后 来 ， 市 场 传 出 渣 打 管 理 层 有 人 向 香 港 金 管 局 要 求 放 宽 一 点 点 ， 让 淡 马 锡 再 增 持多 数 个 百 分 点 。 至 今 为 止 ， 任 志 刚 仍 未 再 度 针 对 淡 马 锡 持 股 问 题 公 开 发 言 ， 但 他 的一 名 手 下 ， 助 理 总 裁 刘 应 彬 于 前 日 则 公 开 说 ， 没 有 谈 判 余 地 ， 他 说 一 旦 有 外 国 政 府持 有 香 港 发 钞 银 行 股 权 达 到 20% ， 金 管 局 马 上 会 取 消 该 发 钞 银 行 的 发 钞 地 位 。
过 去 几 天 ， 市 场 上 出 现 许 多 传 闻 ， 其 中 有 传 闻 说 ， 淡 马 锡 完 全 没 有 控 制 渣 打 银 行 的 经营 权 力 ， 只 是 将 持 有 渣 打 银 行 股 票 当 成 一 项 有 利 可 图 的 投 资 ， 因 此 仍 不 死 心 地 希 望任 总 网 开 一 面 。 但 也 有 传 闻 说 ， 淡 马 锡 认 为 渣 打 的 发 钞 地 位 并 不 重 要 ， 宁 可 失 去 发钞 地 位 也 要 增 持 渣 打 银 行 的 股 权 。 无 论 如 何 ， 肯 定 还 有 好 戏 会 上 演 。
3 Chinese banks in top 25 of world banking list
2008-02-20
LONDON -- HSBC, Europe's largest bank by market value, has been named the world's most valuable banking brand, while three Chinese banks are among the top 25, according to The Banker magazine's latest Top 500 Financial Brands listing.
HSBC overtook Citibank, which was at the top last year, while Bank of America took third place in the magazine's ranking. Xinhua got a copy of the listing on Tuesday.
This year's The Banker magazine listing highlights the emergence of Chinese banks as significant players on the international stage, with three Chinese banks appearing among the top 25 brands.
Industrial and Commercial Bank of China (ICBC) ranked 15th, while China Construction Bank is 17th and Bank of China 22nd.
In its latest issue, the magazine also named HSBC as the only bank to achieve the highest possible triple 'A' brand rating.
The announcement follows last year's Interbrand study of the world's most valuable brands across all sectors, which saw HSBC jump five places to 23, the second-best growth performance of the top 40 companies surveyed.
Chris Clark, Head of Group Marketing at HSBC, said that "in just 10 years the HSBC brand has become a very powerful asset. Many customers across all our business lines are increasingly looking for services and solutions with an international dimension. We are very well placed to help them and the brand sets out our credentials as these trends develop."
Banks that are based in large and rapidly emerging markets, such as Brazil, Russia, India and China (the "BRIC" countries) continue to benefit from rapid economic growth in their territories, the report said.
Apart from three Chinese banks, three Brazilian banks are listed 42nd, 45th and 53rd, while Russia's Sberband is ranked 55thand India's State Bank of India 59th.
Brian Caplen, editor of The Banker, said "banks are increasingly aware of the value of their brand and how it underpins everything they do across all business lines and all geographies."
He said The Banker magazine, together with Brand Finance, has put together a unique listing based on brand values and "we congratulate HSBC on coming top in this year's poll."
The report, initially published in 2006, is the first publicly available table analyzing the financial value of the world's top banking brands. It is then published annually and incorporates data from the world's 32 largest stock markets.
China warns on inflation, sees yuan as policy tool
By Eadie Chen and Langi Chiang
February 22 2008
BEIJING, Feb 22 (Reuters) - China will step up use of the yuan's exchange rate to help bring better balance to China's international payments and the domestic economy, the People's Bank of China said on Friday.
The comments, in the PBOC's monetary policy report for the fourth quarter, follow a marked acceleration in the pace of the yuan's rise in recent months as the central bank battles to keep a lid on rising inflation.
"We will go a step further in allowing the exchange rate to play a role in adjusting the balance of international payments and promoting balanced economic growth," the report said.
The central bank, which keeps the yuan under tight control, allowed the currency to reach 7.1413 per dollar on Thursday, the highest level since it scrapped a dollar peg in July 2005 and let the yuan float in managed bands.
The yuan has now gained 13.6 percent against the dollar, including an initial 2.1 percent revaluation in July 2005.
Most exporters had improved their competitiveness and adapted better than expected to the stronger yuan, the report said.
The PBOC said its corporate surveys showed firms were responding to the stronger yuan by increasing efficiency, cutting costs and upgrading their products.
It gave the example of textile firms, some 55 percent of which had raised their prices in the first half of 2007.
Some had moved production to cheaper cities inland, and some had started to sell more goods inside China or had expanded into new markets in South East Asia, Australasia and Africa.
TORRENT OF LIQUIDITY
The yuan's quickening rate of climb has been widely welcomed by economists, who say it will reduce China's trade surplus and so cap at the source the torrent of liquidity pouring into the economy that has helped propel inflation to an 11-year high of 7.1 percent.
Inflation will remain relatively high in the first half of the year and that might dampen household consumption, the PBOC said.
International uncertainties, stemming in part from the fallout of the U.S. subprime mortgage crisis, would also act as a drag on growth. The result would be a modest slowdown in 2008 for an economy that has expanded at double-digit rates for the past five years, the report said.
China would stick to the explicitly tight monetary stance it adopted in December to tackle inflation and prevent the economy from overheating, the PBOC said.
But the central bank said it would make "prudent" use of interest rates as part of a broad-based, pre-emptive monetary strategy to control credit growth and stabilise the economy.
With U.S. rates falling fast, economists say China will risk sucking in unwanted speculative capital if it raises its own interest rates too far.
The central bank stressed the need to complement monetary policy with structural policies aimed at boosting consumption -- an essential ingredient of any rebalancing of China's growth model away from investment and exports.
It also advocated tax breaks to spur consumption in order to cushion the likely slowdown in China's export growth due to the worsening international environment.
AQR's Biggest Hedge Fund Fell Almost 15% Through Mid-February
By Jenny Strasburg
Feb. 22 (Bloomberg) -- AQR Capital Management LLC's largest hedge fund fell almost 15 percent this year through Feb. 15 as market swings tripped up computer models the managers use to make trades, two people with knowledge of the matter said.
The assets of AQR's Absolute Return fund dropped to $2.9 billion last month from $4 billion in the fourth quarter, said the people, who declined to be identified because the Greenwich, Connecticut-based firm doesn't publicly disclose the data. AQR's smaller Asset Allocation fund lost 16 percent of value.
Quantitative managers who rely on computers to make trades have struggled as global equity markets declined. Assets managed by AQR, co-founded in 1998 by former Goldman Sachs Group Inc. managing director Clifford Asness, slipped more than 20 percent to $8.6 billion in the past six months because of investment losses and client redemptions.
``Quants traditionally do well when the market moves in broad strokes, and during choppy markets, their practices suffer,'' said Geoffrey Bobroff, an independent investment consultant in East Greenwich, Rhode Island, who isn't affiliated with AQR.
AQR spokesman Brian Maddox declined to comment.
Quant funds run by AQR, Goldman and JPMorgan Chase & Co.'s Highbridge Capital Management LLC stumbled in July and August when credit markets seized up and managers rushed to raise cash by selling stocks. Goldman and Highbridge are based in New York.
January Slide
Losses accelerated in January as managers who concentrate on picking stocks lost an average of 4.1 percent, the biggest monthly decline in more than seven years, according to data compiled by Chicago-based Hedge Fund Research Inc. The Standard & Poor's 500 Index closed up or down more than 1 percent in 14 of 21 trading days in January. That occurred just once in January 2007.
AQR, which is partially owned by Affiliated Managers Group Inc. of Beverly, Massachusetts, manages about $35 billion in assets across all of its funds, according to its Web site. That includes funds that bet solely on rising stock prices. The firm, which Asness started with David Kabiller, Robert Krail and John Liew, considered going public last year, the Financial Times reported.
Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets and participate substantially in profits from money invested.
Zwirn Shuts Hedge Funds After Clients Pull $2 Billion
By Jenny Strasburg
Feb. 22 (Bloomberg) -- D.B. Zwirn & Co., the New York-based investment firm that was hobbled by disclosures of improper accounting, will liquidate the two largest hedge funds after clients asked to withdraw more than $2 billion.
The firm will shut the domestic and offshore versions of the Special Opportunities Fund after its 2006 financial audit was delayed, leading to ``a large number of investor redemptions,'' according to a letter sent yesterday to clients. The funds have about $4 billion in assets, 80 percent of the firm's total.
Started by Daniel Zwirn in October 2001, the company expects to tell investors in March how it will return their money, according to the letter, a copy of which was obtained by Bloomberg News. It may take as many as four years to wind down the funds, whose holdings include hard-to-sell private-equity investments and derivatives based on the underlying value of debt securities.
The hedge-fund manager told investors in early 2007 that an internal investigation found improper financial transfers and accounting of expenses. Its independent auditor, PricewaterhouseCoopers LLP, took until December to sign off on its books, according to a copy of a Dec. 3 audit obtained by Bloomberg.
By that time, clients had asked to withdraw $482 million, according to the audit.
D.B. Zwirn was ``the unfortunate victim of misconduct by certain former employees,'' according to an e-mailed statement from spokesman Shawn Pattison. Accounting issues were ``thoroughly investigated'' and current managers of the firm were ``found to be above reproach,'' the statement said, without naming the former employees.
Internal Investigation
The firm plans to continue managing about $1 billion in assets outside the funds it's closing, according to the letter.
D.B. Zwirn's former finance chief, Perry Gruss, stepped down in October 2006, the month the firm started the investigation into accounting practices including its calculation of client fees and transfers among funds, according to a March 2007 letter to investors. The internal investigation prompted a probe by the U.S. Securities and Exchange Commission.
That inquiry was continuing when the PricewaterhouseCoopers audit was completed, according to the December report.
The Special Opportunities funds gained 15.6 percent in 2006, according to the December audit. That compared with the 12.9 percent average return of hedge funds globally, according to Chicago-based Hedge Fund Research Inc.
The Special Opportunities funds invest in corporate and real- estate debt, industrial assets and securities of companies going through mergers and other reorganizations, according to the PricewaterhouseCoopers audit. The funds also make longer-term private-equity investments in companies and real estate.
Trader Dismissed
D.B. Zwirn drew attention in 2006 after it fired a trader previously terminated by Citigroup Inc. for inflating profits by $20 million to boost his bonus. The trader, David Becker, pleaded guilty in September 2006 to one count of conspiracy to falsify bank records and to commit wire fraud while he oversaw commodities trading at the New York-based bank, which ended his employment in March 2004.
Daniel Zwirn previously was a managing director and senior investment manager overseeing special opportunities for Highbridge Capital Management LLC, the $29 billion hedge-fund affiliate of New York-based JPMorgan Chase & Co. Zwirn continued as a senior investment adviser to Highbridge after the firm contributed money to the founding of his company.
Zwirn, 36, built a company that once had 15 offices around the world and more than 1,000 employees, according to the Financial Times. The company now has 255 workers, the paper said.
Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets and participate substantially in profits from money invested.
Scramble to keep Allco afloat
Danny John and Stuart Washington
February 22, 2008
BANKERS are working to a tight deadline to approve a new business plan for the debt-challenged Allco Finance Group which would pull the company back from the brink of insolvency.
A syndicate of at least 10 banks, led by the Commonwealth, are desperately trying to avoid putting Allco into the hands of administrators. But their decision to refinance a key part of its debt depends on a business plan being compiled by corporate restructuring specialists Ferrier Hodgson that will state whether a revamped Allco can remain a going concern.
Such a conclusion from Ferrier would allow Allco's beleaguered directors to sign the group's latest half year accounts, triggering both their much-delayed release and a sale of assets to pay off debt.
According to sources close to negotiations over Allco's future, this could result in the banks agreeing to refinance the most pressing part of the $1.1 billion in short-term debt: a $250 million loan due to expire on May 1.
Allco is understood to have put the view that even after meeting all its debt obligations, it has more than $1 billion in assets. Businesses inside Allco include not only aviation and rail leasing businesses but hard assets such as $500 million in property, which were due to be spun out into separate funds before Allco was caught out by the credit crunch.
One syndicate member told the Herald yesterday: "They are working towards a number of announcements - I think that they have got good assets and lots of other things they are looking at doing."
The finely-balanced talks would resolve the board's quandary over Allco's interim results, given concerns over what have been described by sources as "solvency issues".
Publication of the figures have been delayed twice in the past week, despite market announcements which indicated that they had been signed.
Following questions put to the company by the Herald on Wednesday about its financial state, Allco chief executive David Clarke responded that the accounts were still being finalised and that the group had until next Friday to do so.
That means Allco is staring down a deadline of seven days to get the figures ready or face having to release accounts that will have to be highly qualified because of the cash flow concerns.
The negotiations over the group's future have been made harder by the complex nature of the organisation's corporate structure, its links with various listed and unlisted entities and the amount of total debt being carried by the entire operation. In all, the Allco empire is said to owe at least $6 billion.
St George Bank became the latest of Allco's lenders to disclose that it had a $60 million exposure to a $850 million unsecured facility provided by a banking syndicate.
- Another Allco stockmarket satellite, property investor Record Realty, added to the group's woes by reporting a $32.7 million loss for its latest half year.
Most hedge funds mauled by bear market in January
More companies looking for cheaper markets than China’s factories
Government Buys All Northern Rock Shares
22 Feb 2008
The UK Treasury announced on Friday it bought all the shares in troubled bank Northern Rock, including its preference shares, and that an order setting up compensation for shareholders will be sent to parliament shortly.
Shareholders in Northern Rock, which received more than 25 billion pounds ($49 billion) in government support funds since it ran into trouble last year, have criticized the government for nationalizing the bank, saying they need to be compensated.
“The principles for assessing any compensation … reflect the principle that the government should not be required to compensate shareholders for value which is dependent on taxpayers’ support,” a Treasury statement said.
The listing of Northern Rock’s ordinary and preference shares was canceled, the statement said, but the company’s debt securities will continue to trade.
Nationalizing Northern Rock was the best solution to protect the taxpayers, Darling said. The bank’s shares were suspended from trading on the London Stock Exchange on Monday. Last Friday’s closing price was 90 pence.
The government was analyzing two bids from the private sector but decided to put the bank in state hands at the weekend. Parliament passed legislation allowing the bank's nationalization on Thursday.
Restructuring plans for Northern Rock will need the approval of the European Union, under EU rules regarding state aid.
America's economy risks the mother of all meltdowns
By Martin Wolf
February 20 2008
"I would tell audiences that we were facing not a bubble but a froth - lots of small, local bubbles that never grew to a scale that could threaten the health of the overall economy." Alan Greenspan, The Age of Turbulence.
That used to be Mr Greenspan's view of the US housing bubble. He was wrong, alas. So how bad might this downturn get? To answer this question we should ask a true bear. My favourite one is Nouriel Roubini of New York University's Stern School of Business, founder of RGE monitor.
Recently, Professor Roubini's scenarios have been dire enough to make the flesh creep. But his thinking deserves to be taken seriously. He first predicted a US recession in July 2006*. At that time, his view was extremely controversial. It is so no longer. Now he states that there is "a rising probability of a 'catastrophic' financial and economic outcome"**. The characteristics of this scenario are, he argues: "A vicious circle where a deep recession makes the financial losses more severe and where, in turn, large and growing financial losses and a financial meltdown make the recession even more severe."
Prof Roubini is even fonder of lists than I am. Here are his 12 - yes, 12 - steps to financial disaster.
Step one is the worst housing recession in US history. House prices will, he says, fall by 20 to 30 per cent from their peak, which would wipe out between $4,000bn and $6,000bn in household wealth. Ten million households will end up with negative equity and so with a huge incentive to put the house keys in the post and depart for greener fields. Many more home-builders will be bankrupted.
Step two would be further losses, beyond the $250bn-$300bn now estimated, for subprime mortgages. About 60 per cent of all mortgage origination between 2005 and 2007 had "reckless or toxic features", argues Prof Roubini. Goldman Sachs estimates mortgage losses at $400bn. But if home prices fell by more than 20 per cent, losses would be bigger. That would further impair the banks' ability to offer credit.
Step three would be big losses on unsecured consumer debt: credit cards, auto loans, student loans and so forth. The "credit crunch" would then spread from mortgages to a wide range of consumer credit.
Step four would be the downgrading of the monoline insurers, which do not deserve the AAA rating on which their business depends. A further $150bn writedown of asset-backed securities would then ensue.
Step five would be the meltdown of the commercial property market, while step six would be bankruptcy of a large regional or national bank.
Step seven would be big losses on reckless leveraged buy-outs. Hundreds of billions of dollars of such loans are now stuck on the balance sheets of financial institutions.
Step eight would be a wave of corporate defaults. On average, US companies are in decent shape, but a "fat tail" of companies has low profitability and heavy debt. Such defaults would spread losses in "credit default swaps", which insure such debt. The losses could be $250bn. Some insurers might go bankrupt.
Step nine would be a meltdown in the "shadow financial system". Dealing with the distress of hedge funds, special investment vehicles and so forth will be made more difficult by the fact that they have no direct access to lending from central banks.
Step 10 would be a further collapse in stock prices. Failures of hedge funds, margin calls and shorting could lead to cascading falls in prices.
Step 11 would be a drying-up of liquidity in a range of financial markets, including interbank and money markets. Behind this would be a jump in concerns about solvency.
Step 12 would be "a vicious circle of losses, capital reduction, credit contraction, forced liquidation and fire sales of assets at below fundamental prices".
These, then, are 12 steps to meltdown. In all, argues Prof Roubini: "Total losses in the financial system will add up to more than $1,000bn and the economic recession will become deeper more protracted and severe." This, he suggests, is the "nightmare scenario" keeping Ben Bernanke and colleagues at the US Federal Reserve awake. It explains why, having failed to appreciate the dangers for so long, the Fed has lowered rates by 200 basis points this year. This is insurance against a financial meltdown.
Is this kind of scenario at least plausible? It is. Furthermore, we can be confident that it would, if it came to pass, end all stories about "decoupling". If it lasts six quarters, as Prof Roubini warns, offsetting policy action in the rest of the world would be too little, too late.
Can the Fed head this danger off? In a subsequent piece, Prof Roubini gives eight reasons why it cannot***. (He really loves lists!) These are, in brief: US monetary easing is constrained by risks to the dollar and inflation; aggressive easing deals only with illiquidity, not insolvency; the monoline insurers will lose their credit ratings, with dire consequences; overall losses will be too large for sovereign wealth funds to deal with; public intervention is too small to stabilise housing losses; the Fed cannot address the problems of the shadow financial system; regulators cannot find a good middle way between transparency over losses and regulatory forbearance, both of which are needed; and, finally, the transactions-oriented financial system is itself in deep crisis.
The risks are indeed high and the ability of the authorities to deal with them more limited than most people hope. This is not to suggest that there are no ways out. Unfortunately, they are poisonous ones. In the last resort, governments resolve financial crises. This is an iron law. Rescues can occur via overt government assumption of bad debt, inflation, or both. Japan chose the first, much to the distaste of its ministry of finance. But Japan is a creditor country whose savers have complete confidence in the solvency of their government. The US, however, is a debtor. It must keep the trust of foreigners. Should it fail to do so, the inflationary solution becomes probable. This is quite enough to explain why gold costs $920 an ounce.
The connection between the bursting of the housing bubble and the fragility of the financial system has created huge dangers, for the US and the rest of the world. The US public sector is now coming to the rescue, led by the Fed. In the end, they will succeed. But the journey is likely to be wretchedly uncomfortable.
Sex-and-property scandal stuns Australia
Reuters - Friday, February 22
CANBERRA - A sex-and-property scandal involving a female city planner on a “mission for sex” in return for approvals of high-rise buildings threatened to engulf Australia’s biggest state government on Friday.
An undercover sting by anti-corruption investigators uncovered a web of affairs involving 32-year-old town planner Beth Morgan in the steel-and-surfing city of Wollongong, south of Sydney, with three prominent building developers.
Morgan, said by one of the three men to be “on a mission for sex”, gave approval for millions of dollars worth of unlawful city building developments in return for gifts and affairs, the powerful Independent Commission against Corruption heard.
“Mile High Rise Club,” said a headline in the mass-selling Daily Telegraph newspaper.
Morgan gave testimony to the commission about the affairs, admitted to by two developers, while a third denied the pair actually had a sexual relationship.
But the scandal, which has captivated Australians, also threatens several ministers in the government of the nation’s most populous state, New South Wales, which includes Sydney.
Australians generally believe their country to be largely corruption free and it ranks well on the international index prepared by Transparency International.
Amid the public ICAC hearings, state Premier Morris Iemma promised to sack a senior minister if he was found to have improperly given a job to a Wollongong city councillor linked to the scandal.
Four other state ministers have also been indirectly linked by the ICAC to central figures in the furore.
“Anyone found to have done the wrong thing will be out, no matter who they are,” Iemma said.
The ICAC hearings have been given front-page treatment, with corruption investigators documenting lurid details of emails and phone messages between Morgan and her alleged lovers, which in turn have run in newspapers nationally.
Adding to public shock are photographs of the stylish Morgan and the men she pursued, receiving from them cameras, cash payments, a China holiday and designer handbags, the ICAC heard.
Hundreds of late night and weekend phone calls between Morgan and her alleged partners have also been logged by corruption investigators from the commission.
Why M&A Is Back, for Now
What's behind the new urge to merge?
The November election, for starters
by Ben Steverman
Despite a credit crunch and recession worries, the dealmakers have returned to Wall Street.
Their current run includes Microsoft's (MSFT) $44 billion bid for Yahoo! (YHOO). Major U.S. air carriers are reportedly talking about mega-mergers. And a wave of smaller deals has hit the headlines, including Reed Elsevier's (RUK) $4 billion buyout of ChoicePoint (CPS).
So far it's a pale imitation of 2007, when private equity firms used cheap credit to gobble up company after company. That pumped up the stock market in the first half of the year, just before the credit crunch took it down again.
Fears of a Coming Antitrust Crackdown
The credit crisis still drags on, and private equity players sit on the sidelines, unable to obtain financing for billion-dollar deals. So what's behind this encore performance of the M&A boom? And how long can its run last if the economy continues to deteriorate?
One factor is the Presidential election. The next U.S. President will appoint regulators who can decide whether to challenge deals on antitrust grounds. They will determine whether a proposed combination would restrict competition or create a monopoly. Some deals are being rushed to get them approved before President George W. Bush leaves office on Jan. 20, 2009.
Most deals ultimately get approved, but the process can create a headache for CEOs and shareholders. On Feb. 19, the proposed merger between XM Satellite Radio (XMSR) and Sirius Satellite Radio (SIRI) hit its one-year anniversary as the controversial deal still waits for word from the Justice Dept.'s Antitrust Div.
Obama Has Criticized Bush's Antitrust Record
All else being equal, most assume a Democrat in the White House will be more suspicious of proposed mergers. But it's hard to know what the next President will do. Antitrust regulation is the sort of topic that makes voters' eyes glaze over, so it rarely gets attention on the campaign trail.
Senator Barack Obama (D-Ill.) was the only current candidate to respond to a questionnaire from the American Antitrust Institute last year. Obama criticized the Bush Administration for "the weakest record of antitrust enforcement of any administration in the last half century." He pledged to "reinvigorate" enforcement, and cited health care, including the insurance and pharmaceutical industries, as a sector where the lack of competition has raised prices for consumers.
Delta Air Lines (DAL), Northwest Airlines (NWA), Continental Airlines (CAL), and United Airlines (UAUA) are among the carriers said to be discussing mergers. Airline deals have gotten close scrutiny from regulators in the past, and that's likely to happen again. On Feb. 14, Senator Hillary Clinton (D-N.Y.) said the mergers should prompt "a hard look at the potential effects on workers" before they're approved.
Federal Judges Have the Ultimate Say
Antitrust law is full of "squishy language that reasonable people can disagree on," says Robert Lande, a University of Baltimore law professor who co-founded the American Antitrust Institute. While all regulators may worry that a merger would raise prices, Democrats are more likely to consider other factors, such as whether a merger would restrict consumer choices, Lande says. That approach could threaten mergers of media companies, for example, under an Obama or Clinton Administration.
Still, many argue antitrust policy won't change much even if Democrats take the White House. For one thing, political appointees don't make ultimate decisions on mergers—federal judges with lifetime appointments do.
Also, a new Administration may affect "close cases," but there is a consensus on most questions, says antitrust expert Paul Denis, now at the law firm Dechert LLP. As a Justice Dept. lawyer in the early 1990s, he helped draft merger guidelines still in place today. The political parties may be split on many other important issues, but antitrust "is an issue where there is probably more agreement than disagreement," Denis says.
A Leadership Vacuum Could Stall Approvals
The 2008 election does create problems for dealmakers, however, Denis says. The transition to a new administration in 2009, often a chaotic process, could create a leadership vacuum, he says. Under normal circumstances, deals under review can stall for months and months, with the average review taking seven-and-a-half months, Denis says. The change in power in early 2009 could add to delays even if Republicans remain in power. Companies have just a few more months to put together big deals before they run the risk of getting stuck in post-election limbo.
For large, controversial mergers like the airline deals or the possible Microsoft-Yahoo combination, the 2008 election is undoubtedly at least one consideration. But otherwise, M&A experts say, the Presidential election is a sideshow to a number of bigger factors shaping the M&A market in 2008.
First, companies are finding more bargains when they look for acquisition targets. The weak stock market has lowered share prices. And private equity firms aren't around anymore to bid up buyout offers. Before the credit crunch made many leveraged buyout deals impossible, companies "got to the point where they didn't feel like they could compete" with private equity buyers, Denis says.
Foreign Buyers Eye Global Brands
A weak U.S. dollar adds to the advantages for foreign buyers. Strong respective currencies are helping Canadian, Asian, and European firms see lots of good prices in the U.S. stock market. "You can afford some deals that you couldn't afford before," says Stefano Aversa, co-president of AlixPartners, a global consulting firm. The most recent example is Anglo-Dutch firm Reed Elsevier's $4 billion offer for ChoicePoint on Feb. 21.
Buyers from India and China may be especially active in 2008, Aversa says. In the consumer space, foreign buyers may be attracted to global brands with great long-term value, Aversa says. In technology, firms in emerging markets with production capacity may want to buy U.S. tech firms for their respected brands and their access to technology and Western consumers, he says.
It won't just be foreign buyers on the prowl for bargains, says Mike Hogan, managing director at Harris Williams. The weak economy may be prompting more CEOs of all stripes to find ways to expand their companies through acquisitions, he says. With his firm focusing on M&A's "middle market"—companies under $1 billion—Hogan says the buyout market is "still very active."
More Banking Mergers Are Expected
Popular targets of M&A activity are firms in energy, technology, transportation and logistics, and commodities, Hogan says. For smaller firms, antitrust rules aren't much of a worry. However, the election may have an impact: Buyers of family-controlled firms may want to sell before Democrats allow Bush's cuts to capital-gains and estate taxes to expire, he says.
In other sectors, trends are pushing companies toward consolidation, says Mike Moriarty, a partner at A.T. Kearney, a management consulting firm. Banks, for example, will still want to merge to compete with global giants such as HSBC (HBC) and JPMorgan Chase (JPM). Given the trends in banking, "Aspiring to be the Wal-Mart (WMT) of banking is not a bad idea," he says. Hotels, publishing, aluminium, and steel are other industries undergoing consolidation, he says.
A variety of factors, from elections to strategy to good bargains, may be pushing players toward more M&A activity this year. But it won't be easy for dealmakers: A slowing economy and wild financial markets have many players sitting on the sidelines. Moriarty argues that smart CEOs will see past the current difficulties. If they do, they'll be rewarded. M&A is "such an important part of every successful company's strategic kit," he says. Despite the tough market and weak economy, "Companies are going to find a way to make that happen."
That might be true for the bravest players. But until the economic climate clears up, many firms will be reluctant to spend their rainy-day funds on expensive mergers.
Dresdner questions future of SIVs
By Chris Hughes and Paul J Davies in London
Published: February 21 2008 12:24 | Last updated: February 21 2008 12:24
Dresdner Bank on Thursday hammered another nail in the coffin for structured investment vehicles when it provided a potential $19bn rescue facility for K2, its SIV, and questioned the future of the specialised funding vehicles that banks have used to keep assets off their balance sheets.
SIVs were set up to raise cheap funding in the so-called commercial paper market and invest the proceeds in high-yielding credit assets. However, the freeze in the commercial paper market has left SIVs struggling to refinance.
Dresdner, which is Germany’s third-largest bank and belongs to the Allianz insurance group, said it was offering a support facility to K2 to help the SIV repay all its senior debt due in stages from the middle of this year.
The move should prevent K2 from becoming a forced seller of its assets, although the plan is that Dresdner will eventually wind down the portfolio. Dresdner said K2’s assets had been reduced from $31.2bn to $18.8bn since July.
Dresdner’s move is the latest evidence that the prospect of a meaningful recovery in commercial paper remains distant. K2 stood out among SIVs in not having been downgraded by ratings agencies.
Helmut Perlet, Allianz’s chief financial officer, said he did not expect K2’s assets to come on to Dresdner’s balance sheet and did not anticipate the bail-out to lead to losses. K2’s assets were entirely investment grade and contained no exposure to the type of subprime or mortgage-backed structured credit assets which have caused widespread losses across the banking sector.
“The refinancing of these vehicles gets harder by the day. The appetite from investors is not overwhelming,” he said.
Banks have no contractual obligation to support the SIVs that they have set up and manage, but they face reputational risks in letting them fail. In November, HSBC became the first major bank to pledge support to its SIVs, which had a value of more than $45bn. Citigroup in December offered to support its seven SIVs, worth $49bn, having previously insisted it would not do so.
Dresdner also said it was scaling back its investment banking activities, including withdrawing from the SIV business, with the loss of 450 jobs. About two-thirds of the cuts have already been made.
Dresdner Kleinwort, Dresdner’s investment banking arm, will concentrate on cash management services for corporations and infrastructure financing. However, it is not thought to be planning to add to headcount in those areas.
“The question is what is the right fit and size of [the] investment bank. We are cutting a few product lines that don’t fit. This is the most burning issue for us at the moment,” Mr Perlet said.
However, Michael Diekmann, Dresdner’s chief executive, said he did not wish to get into a “strategic discussion” about the future of investment banking within Allianz.
Copyright The Financial Times Limited 2008
Merrill's Fleming sees strategic deal recovery
Thu Feb 21, 2008 4:57pm EST
By Mark McSherry
NEW YORK (Reuters) - Strategic mergers could pick up again in the second half of this year, but leveraged buy outs might stay in the doldrums until 2009, according to Merrill Lynch (MER.N: Quote, Profile, Research) president and chief operating officer Greg Fleming.
Fleming said in an interview that conditions in the credit markets have been as tough as he can remember but that things could improve in the next six to nine months.
Announced global M&A volume is down roughly 25 percent year to date and buy out volume is down roughly 53 percent, according to data provider Dealogic.
"The dialogue exceeds the pipeline today (for deals), but there is hope that as and when the credit markets get better, M&A will pick up reasonably quickly," said Fleming.
"Stock as acquisition currency, for well positioned companies, is back, and you may see more hostile activity," Fleming said.
He said private equity deals were likely to be slow through 2008, and added: "A pick up in financial sponsor deals is a 2009 event -- we have to work through so much inventory."
Speaking of Merrill Lynch, Fleming said: "We are conscious of the environment. We are watching expenses and cutting where we think it makes sense, but we want to be well positioned when the cycle turns."
(Editing by Toni Reinhold)
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