John Paulson is not the only prominent fund manager hurt by the share plunge of Sino Forest, the Toronto-listed Chinese company, reports Bloomberg. Christopher Davis, a value investor who researches stocks and holds them for long periods, owned 13% of the Chinese tree-plantation owner as of April 29 through his Arizona- based firm Davis Selected Advisers. The value of that stake has since dropped 92% or more than $600m, after Muddy Waters, an investment firm run by Carson Block, said Sino-Forest overstated its timber holdings. Davis’s firm, with $71bn in assets, held 30.9m Sino-Forest shares as of April 29, making it the second-biggest owner before Paulson & Co. dumped its stake, according to Bloomberg. The FT earlier reported that Paulson & Co lost more than $500m after selling its entire holding in Sino Forest.
Cable & Wireless Worldwide said on Tuesday it had rejected a bid approach for its international assets and announced it is cutting the pay packages for its top managers following shareholder anger over the telecoms group’s poor performance during its first year as an independent company, reports the FT. The basic pay and perks of Jim Marsh, chief executive, rose 45% in 2010-11, while the group’s share price fell 43% in the same period after two profit warnings. The company’s annual report, published on Tuesday, revealed the company has decided to curb executive pay in 2011-12. The FT reported on Monday that the $500m bid had come from Pacnet, a telecoms company based in Hong Kong and Singapore.
Asian stocks rose, driving the region’s key index up for a second day as Greek Prime Minister George Papandreou won a parliamentary confidence vote, moving the country a step closer to avoiding a default on its debt, reports Bloomberg. The MSCI Asia Pacific Index rose 0.6 percent to 131.43 as of 9:20am in Tokyo, extending Tuesday’s 1.4% advance after Luxembourg’s Jean-Claude Juncker, leader of euro-area finance ministers, indicated that a solution to the crisis will be found.
Nikkei 225 up +129.64 (+1.37%) at 9,589
Topix up +8.28 (+1.02%) at 824.01
Hang Seng up +145.13 (+0.66%) at 21,996 Read more
Shares in Misys rose nearly 9% on Tuesday after the UK software company confirmed it had received a preliminary bid approach, giving it a market value of $1.4bn, reports the FT. A deal would follow the $1.3bn sale of Misys’s Allscripts healthcare business last year, and complete a five-year turnround of the business by Mike Lawrie, chief executive. Misys, which provides software for banks, said the approach “may or may not lead to an offer being made”. It did not identify the potential bidder but a deal could be struck within a month, said people familiar with the situation. Analysts speculated the most probable bidder was a US group, with Sungard, FIS Global and Fiserv all potential candidates. Indian IT services companies such as Infosys and HCL are also possibilities as is Swiss-based Temenos, Misys’ closest rival in banking software. An offer for the company could reach 500p a share, implying a £1.8bn value, said analysts.
A series of macroeconomic shocks since early 2011 has hit big-name hedge fund managers that trade the world’s economic balances, and many fear there is worse to come, reports the FT. The month of May saw the average hedge fund lose 1.18% according to Hedge Fund Research. But the average global macro hedge fund – which tend to be the biggest in the industry – lost more than double that with a 2.38% reverse. This year is shaping up to be the third in a row that global macro funds, specialising in bets on interest rates, sovereign bonds and currencies, have underperformed. Among the star names in negative territory are Caxton Associates, whose main fund is down 3.38%, Tudor Investment’s main fund is down 2.25%, Moore Capital’s flagship is down 2.84% and Fortress has seen its macro fund dip 2.44%, according to the latest May and June figures from investors in the funds.
A New York judge has handed Anglo Irish Bank a deadline of 5pm on Wednesday to argue why a US Federal court should not intervene in the Irish government’s attempts to reconstruct its banking system, reports the FT. The demand is in response to a legal challenge by Fir Tree Capital, a hedge fund holding $200m of subordinated debt, which may scupper Anglo Irish’s plans to sell a $10bn commercial property portfolio in the US. In a further sign of the complexities in winding up a financial institution funded in multiple countries and jurisdictions, the hedge fund is seeking an injunction related to covenants on debt issued by the Irish bank in New York. Paul Gardephe, the judge, has asked Anglo Irish in a court order to discuss whether it has submitted a plan to merge with Irish Nationwide Building Society, if it has sold substantial commercial assets in the US and “whether the ‘sale of all of its remaining US-based assets’ is ‘imminent’”.
One of UBS’s top dealmakers in Europe has defected to a smaller rival, renewing speculation that the Swiss group’s investment bank is suffering from a crisis of morale, reports the FT. Liam Beere, UBS’s global co-head of M&A, has left to join the London outpost of independent advisory firm Moelis, in the latest in a wave of senior departures from the Swiss bank. While most of the highest-profile defections have come from UBS’s US business, Beere’s decision to join a smaller, “boutique” franchise will fuel questions about whether the Swiss group’s investment banking recovery has stalled. Since its near-collapse in the financial crisis, UBS has managed to stop the rot in some of its hardest-hit businesses, including a fixed-income division that was forced to write off $50bn in toxic securities. But recent departures from its M&A advisory and debt and equity capital markets businesses – including 15 senior bankers in the US – have demoralised employees on both sides of the Atlantic, executives concede.
Anthony Bolton, one of the UK’s best known and most successful fund managers, said the recent performance at his Fidelity China Special Situations fund had been “disappointing”, reports Reuters. Industry veteran Bolton, who led Fidelity’s flagship Special Situations fund for 28 years before moving to Asia to launch a new fund last year, said in a statement on Tuesday accompanying the fund’s maiden annual results that a difficult period for Chinese equities had challenged his initial optimism. The fund’s net asset value has dropped more than 5% since it launched, falling to 93.86 pence per share on June 17 from 99.01 on April 19, 2010 while the benchmark MSCI China Index has remained broadly unchanged. Bolton, whose fund has net assets of £683.9m said he continued to believe in “the long-term case for investing in China.” The fund’s annual results for the period April 19 2010 to March 31 2011 showed a 5.2% increase in net asset value per share, outpacing a 3.3% rise in the MSCI China Index. The fund’s shares increased by 10%.
European banks’ reliance on secured long-term funding has reached its highest level since the credit crisis began as anxiety surrounding Greece has again virtually closed the market for unsecured borrowing, reports the FT. The ratio of senior unsecured debt issuance – the mainstay of bank funding – to secured borrowing, in the form of asset-backed securities and covered bonds, is at its lowest this month since July 2007, according to data-provider Dealogic. Senior unsecured borrowing is worth just over half the funds raised through secured bonds so far this month, compared with an average monthly ratio of 1.3 times. Investors awaited the outcome of a confidence vote in the Greek government – which Prime Minister George Papandreou survived early on Wednesday – and another key vote next week on the planned austerity package. Watchers are confident the market will reopen if both votes pass but say a more prolonged freeze could cause problems.
Greece’s embattled government won a parliamentary vote of confidence early on Wednesday, clearing a key obstacle to a fresh €120bn bail-out by international lenders, reports the FT. The confidence motion in George Papandreou’s reshuffled team passed by 155 votes to 143, with all his Socialist party deputies voting for the government. The government must now rapidly pass two more tests – enacting a €28bn austerity plan and the laws needed to implement it – to win a new bail-out to avert the eurozone’s first sovereign default. The euro, which had made gains before the vote, fell back slightly in early Asia trading on Wednesday. The vote followed a cabinet reshuffle as Papandreou replaced ministers who had opposed structural reforms with tough Socialist politicians committed to accepting an austerity package agreed with the EU and IMF.
PetroChina and Calgary-based Encana have abandoned plans for a joint venture to develop a large shale gas deposit in western Canada, marking the latest in a series of retreats by Chinese companies from proposed natural resource deals overseas, reports the FT. PetroChina’s investment, set at $5.4bn when the deal was unveiled in February, would have been China’s biggest investment in Canada’s energy sector. It would also have been its largest in shale gas, which is difficult to extract and for which Chinese companies want to master the technology. DealBook cites CIBC analysts saying that while Encana’s balance sheet was “reasonable,” the company was less likely to pursue a large buyback without PetroChina’s cash.
Web-video site Hulu is weighing whether to sell itself, as the fight over distributing TV content online intensifies, reports the WSJ. Hulu’s board is considering the move after a potential buyer for the company approached it with an unsolicited offer, said people familiar with the matter. The offer has spurred directors to study options, including soliciting other potential interest from larger companies and private-equity firms, among others. The move could put one of the leading online video providers in play as cable, satellite and media companies compete to distribute more content online. Hulu, which launched publicly in 2008, was an early mover, securing exclusive rights to various popular television shows. But it faces stiff competition from TV distributors and fast-growing rivals such as Netflix. DealBook notes that despite its popularity, Hulu has ‘laboured to make a profit’.
JPMorgan Chase has agreed to pay $153.6m to resolve US civil fraud charges that it misled investors in a mortgage-related security created for Magnetar, an Illinois hedge fund that was betting against the deal, reports the FT. The SEC alleged that JPMorgan failed to tell investors Magnetar helped select mortgages included in the collateralised debt obligation, known as Squared, and placed a big bet to profit against its decline. According to the SEC, JPMorgan’s marketing material told investors, including a Minnesota faith organisation and an adviser to General Motors’ pension plan, that the CDO’s mortgage portfolio had been selected by GSC Capital, an independent investment adviser. JPMorgan settled without admitting or denying wrongdoing, and also agreed to reimburse investors in a different CDO called Tachoma. DealJournal meanwhile looks at some “colourful” JPM correspondence over Squared.
Shares in Foster’s Group surged more than 13% on Tuesday as investors bet on a bidding war for Australia’s biggest brewer by sales, reports the FT. Foster’s rejected an A$9.5bn ($10bn) takeover offer on Tuesday morning from SABMiller, the world’s second-largest brewer by sales, claiming the bid significantly undervalued the company. But analysts predicted further machinations, either through the entry of a rival bidder or an increased offer from SABMiller. In a separate analysis, the FT says the financial arguments for SAB’s bid are clear for all to see. Lex notes that if SAB “really wants to win”, it would do well to oblige Foster’s shareholders, who clearly expect a higher bid – before other bidders emerge.
Asian stocks rose on Monday, snapping a seven- week decline, after Citigroup raised its recommendation on Japanese carmakers and Australian banks gained on speculation they will avoid losses from Europe’s credit crisis, reports Bloomberg. The MSCI Asia Pacific Index added 0.5% to 130.26 as of 11:32am in Tokyo. The gauge lost 1.9% last week, completing its seventh straight weekly decline, the longest such run since 2004.
Stocks in the Asian benchmark were valued at 13.2 times estimated earnings on June 16, the lowest since April 20, according to Bloomberg data. Almost $700bn has been wiped off the market value of the gauge since its high for the year on May 2. Read more
Shares in Sega Sammy Holdings, which owns video-game maker Sega, dropped the most in almost three months after the company said hackers stole data on almost 1.3m customers at its European unit, reports Bloomberg. The stock fell as much as 5.4% to Y1,475, the biggest intraday drop since March 23, and was down 3.5% in Tokyo morning trade, while the benchmark Topix index gained 0.3%. Sega Sammy said personal data including names and passwords on 1,290,755 customers at a European unit were accessed. Sega Europe suspended some online services after discovering the leak. No credit card data was compromised, according to the company. The WSJ adds that Sega said it discovered the breach on Friday and halted the service immediately to launch an investigation.
Cable and Wireless Worldwide, the troubled UK telecoms group, is looking at retrenching to Britain by selling most of its international assets, reports the FT. Pacnet, a telecoms company based in Hong Kong and Singapore, has made an informal offer of about $500m for C&W Worldwide’s overseas businesses, said people familiar with the situation. C&W Worldwide’s board is this week expected to consider Pacnet’s offer amid a sweeping review of the group’s operations after a difficult start to life as an independent company. C&W Worldwide demerged from the old Cable and Wireless group in March last year and has since issued two profit warnings, prompting its share price to fall almost 50%. The group has only just started generating cash after a five-year turnround and the profit warnings badly dented investor confidence.
Merger arbitrage investors are braced for a second consecutive month of losses after a string of unexpected upsets marred the the hedge fund strategy, reports the FT. Arbitrageurs – who invest during takeovers in the hope of capturing the difference between the target’s stock price and the eventual value of a deal – finished down slightly in May, according to Hedge Fund Research’s global data. With a week left to run in June, the strategy is down a further 1.38%, leaving it scarcely in the black for the year. That leaves deal investors facing back-to-back months of negative performance for the first time since late 2008, when the financial crisis hit markets. Merger arbitrage funds have enjoyed successive quarters of inflows as investors eye a pick-up in deals as the global economy recovers. The sector has more than $18bn under management globally.
Budget talks between the White House and both parties in Congress enter an intense phase this week, amid broad predictions they will extend beyond the initial early July deadline set for resolution, reports the FT. Global financial markets are nervously watching the talks, being chaired by US vice president Joe Biden, to lift the US borrowing limit of $14,300bn before the ceiling is reached on Aug 2. The Treasury department has warned that in the absence of a deal to lift the ceiling, the US could default on its debt, damaging irreparably the creditworthiness of the world’s reserve currency and potentially plunging a fragile economic recovery into a new recession. Even if there is a last-minute resolution before the Aug 2 deadline, the White House fears such brinkmanship could have a similarly damaging impact on confidence.
Indian industrial conglomerates, including Reliance Group and Mahindra & Mahindra, are set to gain access to the country’s lucrative retail banking sector after policymakers decided to drop years of opposition, reports the FT. The Reserve Bank of India, the central bank, has agreed to let such groups apply for licences, say people close to the situation. The move will intensify competition for domestic lenders such as ICICI and HDFC, as well as for foreign groups including HSBC and Citigroup. The RBI, which has voiced concern that corporations could threaten the stability of India’s robust banking sector, is set to release draft guidelines for the new licences in coming weeks. The move comes as India seeks to modernise its financial system. Large industrial houses were banned from banking in 1969 when then-prime mininster Indira Gandhi nationalised 14 big banks.
The euro fell against the dollar on Monday as calls for new elections in Greece dimmed prospects for austerity measures and an aid package to prevent the eruozone’s first default, Bloomberg reports. As Greek parliament prepared to resume debating a motion of confidence in Prime Minister George Papandreou’s government, European governments on Sunday failed to agree on releasing a loan payment to spare Greece from default, raising pressure on Papandreou to first deliver budget cuts. Ahead of the Tuesday confidence vote, which could bring down Papandreou’s government, euro-area finance ministers pushed Greece to pass laws to cut the deficit and sell state assets. They left open whether the country will get the full €12bn ($17.1bn) promised for July as part of last year’s €110bn lifeline. Earlier, the FT reported that Papandreou called for cross-party support as eurozone ministers discussed the structure of a new €120bn bailout package.
Weekend headlines from the FT and other UK media:*
From The FT,
– Former Asda chief lines up retail investments
– Investors risk handbagging in luxury goods
– Ringfencing threatens higher loan costs
– Japan halts nuclear plant clean-up
– Vale venture in Argentina in limbo
– Opti Canada battles to stave off debt default
– Barratt looks to Gunners for support
– Boeing-Airbus dogfight flares up again
– Porsche and VW push on with merger plans
– Leonard Green in BJ’s buy-out bid
– Fight over Healthcare Locums rescue plans
– CSR cuts Zoran offer price by 30%
– Pandora dips below offering price
– Laird to close handset antennae business
– Oaktree files for $8 billion NYSE listing Read more
Prices of some rare earth metals have doubled in just three weeks to mid-June amid heavy stockpiling by China that has raised fears over global supplies, reports the FT. China produces more than 90% of the world’s rare earths, 17 elements used in hybrid cars and many high-tech applications. A recent crackdown by Beijing on rare earth mines and restrictions on exports have rattled markets, prompting Japan and the US, the biggest importers of rare earths, to voice concerns to Beijing amid complaints from industrial users. Last year, China cut its exports by 40% and temporarily banned exports to Japan during a political dispute. Rare earth prices have already been rising sharply this year, but the recent sharp price increase has puzzled Chinese analysts, who blamed it largely on hoarding by companies who expect prices to rise further. Bloomberg reports that Goldman Sachs recently said Beijing may further reduce export quotas, pushing prices higher.
As it prepares to go public, the Carlyle Group has picked three banks — JPMorgan Chase, Citigroup and Credit Suisse — to lead its pending initial public offering, reports DealBook. The three banks were among the more than half-dozen firms to pitch last week at Carlyle’s Manhattan HQ for lucrative roles in the offering, the latest by a private equity giant. JPMorgan is expected to be named first in the list of book runners, in the much-coveted “lead-left” position, said people briefed on the matter. The bank served as one of the lead book runners for Apollo Management’s offering earlier this year. Others that had sought the mandate include Goldman Sachs, an early front-runner that was lead-left on the offerings, including those of Apollo and Fortress Investment. Citigroup was one of the joint book runners for Blackstone’s IPO in 2007, alongside Morgan Stanley. Carlyle is expected to pick additional book runners to help canvas potential shareholders in the coming weeks.
Oaktree Capital, an alternative asset manager with $85.7bn in assets, has filed to list its shares on the New York Stock Exchange in a move that is expected to value the group at between $8bn-$9bn, reports the FT. Oaktree’s listing would follow that of Apollo, another alternative asset manager. Rival Carlyle is also expected to go public in coming months. The filing on Friday showed that Oaktree’s two founders, Howard Marks and Bruce Karsh, each own 15% of the firm. While most such firms have increased assets under management ahead of a public listing, Oaktree has been returning money to investors, citing the lack of opportunities in the distressed debt markets. Among risk factors included in its filing is the firm’s tendency to limit assets under management to achieve better returns, a discipline its traditional investors love but which may limit fees that public investors value. DealBook adds that Goldman Sachs and Morgan Stanley will underwrite the IPO.
PNC Financial Services Group has agreed to buy the US retail banking operations of Royal Bank of Canada for $3.45bn, reports the WSJ. The deal, involving nearly 430 RBC branches in the US, follows Capital One’s $9bn purchase of ING Direct USA last week and comes as financial institutions seek to shed businesses at the behest of regulators or sell unprofitable or peripheral units. The price represents a small $112m discount to the book value of RBC’s US retail bank of just over $3.5bn. The deal is expected to close in the first quarter. PNC, which beat rival regional bank BB&T for the RBC operations, may pay for the deal in a mix of cash and stock, although the composition will not be known until next year. Meanwhile the FT reports that HSBC is also proceeding with plans to sell part of its US operations, including its upstate New York branches and its US credit card business.
Tata Steel , India’s biggest producer, gained the most in three months after agreeing to sell its stake in Australia’s Riversdale Mining to Rio Tinto for A$1.06bn ($1.12bn), The shares climbed more than 3%, the most since March 14, to 571.50 rupees and traded at 568.50 rupees in Mumbai morning trading, reports Bloomberg. Rio Tinto, the world’s second-largest mining company, gained almost full control of Sydney-based Riversdale after Tata Steel said it would sell its 26.27% stake that has almost doubled in value in less than four years. The transaction takes Rio’s holding to 99.47% and gives the group reserves of coking coal in Mozambique as prices for the steelmaking ingredient increase. Tata Steel had said as recently as April 25 it would continue to hold its stake in Riversdale. Rio’s offer of A$16.50 a share is due to close on Friday.
US investor Bill Ackman is considering launching an initial public offering of a new fund to raise as much as $3bn in permanent capital for investments, reports the FT. The activist investor, whose hedge fund Pershing Square has $10bn under management, aired his aim of securing a reliable source of capital in a letter to investors on May 25, saying: “While we have been able to manage our assets effectively during periods of large capital outflows, capital stability is important for the long-term success of the strategy”. A listed fund that mirrors the investment strategy of the flagship fund is among options under consideration, said a person close to the matter. Ackman’s is known for taking large, long-term holdings in public companies and then pressing management for changes to the business.
Emilio Botín, chairman of Banco Santander and one of Spain’s best-known business figures, is being investigated by the country’s high court over allegations of tax-related offences alongside 11 other members of his influential family, reports the FT. The court said on Thursday it was conducting a probe related to information given to Spanish authorities by French tax investigators about Spanish clients of HSBC’s Swiss private bank who had misreported income in the period from 2005 to 2009. The court said it had to make a formal notification of the investigation to keep the case open before the 2005 year falls under Spain’s statute of limitations in July. No specific charges have been brought against the Botín family. During a tax amnesty last year for undeclared accounts at the HSBC Swiss private bank, the family voluntarily paid €200m ($283m) to settle an outstanding tax bill over an account that is the focus of the investigation, said people familiar with the matter.
Global regulators are preparing to set a new tiered regime of additional capital requirements for about 30 of the world’s biggest banks, reports the FT. The regulators plan to place each institution into a “bucket” carrying a particular surcharge based on bank size, global reach, structural complexity and whether other banks could absorb its business. Banks could move between categories as their size, structure and risk appetite change. At least eight banks — three from the US and five from Europe — are being targeted for capital surcharges of 2.5% of their assets, adjusted for risk, on top of the ‘Basel III’ minimum of 7% set by regulators last year. The list is an informal effort to forge a global compromise and has not been formally circulated. If the ideas are adopted, Citigroup, JPMorgan, Bank of America, Deutsche Bank, HSBC, BNP Paribas, RBS and Barclays would have to maintain core tier one capital ratios of 9.5%, say people briefed on the plans.