Markets live chat transcript for the chat ending at 12:14 on 19 Feb 2008. Participants in this chat were: Paul Murphy (PM) Neil Hume (NH)
PM: Welcome to Markets Live.
PM: This is FT Alphaville’s daily stock clown about
PM: Neil Hume is with me
PM: We’re going to ring the changes today.
PM: NOT
PM: It seems we are chained – forever – to the banking sector.
PM: Cos I was sitting here this morning at just after 7am, poppin Ibuprofen to deal with an aching neck and frozen shoulder,
PM: Economy class travel to from HK.
PM: I was reading through the Barclays statement – assuming they had sent the 2006 figs over rather than 2007 cos I couldn’t immediately find any reference to the fact that that the financial world kinda blew up recently…
PM: And Andy Slade wandered over from the newsdesk and said:
PM: Ha! Seen Credit Suisse?
NH: And then its JEEPERS – one week after releasing their figures they’ve found a a blackhole $3bn deep.
NH: Here’s the statement for those who haven’t seen:
NH: Further to its commitment to provide transparency, Credit Suisse today announced that in connection with the operation of ongoing control processes, it has undertaken an internal review that has resulted in the repricing of certain asset-backed positions in its Structured Credit Trading business within Investment Banking. The current total fair value reductions of these positions, which reflect significant adverse first quarter 2008 market developments, are estimated at approximately USD 2.85 billion (having an estimated net income impact of approximately USD 1.0 billion). In the first quarter to date, we estimate we remain profitable after giving effect to these reductions. The final determination of these reductions will depend on further results of our review and continuing market developments. We will also assess whether any portion of these reductions could affect 2007 results. Finally, our internal review, which has identified mismarkings and pricing errors by a small number of traders in certain positions in our Structured Credit Trading business, is continuing.
PM: “Repricing” and “mismarkings”
PM: Dangerous things
PM: So CS stock is down a whopping 9 per cent in Zurich
PM: The general effect has been a fresh breakdown in trust …
NH: ah, well, it had been a break down in trust
NH: but the banks, the UK at least, are rallying
NH: HBOS up 21p at 660p
NH: barclays up 13.5p at 745p
NH: traded as low as 439p this morning
NH: and Lloyds are now ahead 5.25p at 430p
PM: See Lina is on below
PM: Ms Saigon is the FT’s M&A correspondent
PM: Suggested that the QIA are not great investors
NH: and she has a point
PM: Hmm — waht has caused the turnaround in the UK banks
NH: Barclays conference call going really well apparently
NH: Paul and Lina are fighting over the keyboard
PM: CORRECTION: Saigon is M&A editor, apparently
PM: Still doest have enough work to do in current market
NH: is that fight over
PM: Yes
PM: I won
NH: back to Barclays
PM: Lookl absolutely fine
NH: yes
PM: before we go into the details of the Barclays numbers
NH: he’s the banking analyst at Exane
PM: we have a very amusing note from James Eden
NH: sorry we got that back to front
PM: Good morning. Barclays seems to have adopted a practice more common among
German banks, pre-releasing its results to the newspapers.
PM: Today’s results
are bang in line with the figures announced in the Sunday Times, which
drove an 8% increase in the share price yesterday. The German banks have a
good excuse – the law requires a loose-lipped trades union representative
to sit on the Board. We are not clear who the source of the Sunday Times
article was.
Our conclusion from today’s results is that Barclays remains extremely
cheap in absolute terms and cheap relative to European banks, hence we have
decided to maintain our Outperform recommendation despite some of the
ethical concerns about investing in the company. However, following its
recent share price outperformance, Barclays is certainly not our favourite
UK bank – B&B, RBS, HBOS and A&L all offer stronger upside.
PM: so, as Mr Eden says
PM: the results were bang in line with expectations
NH: including the dividend
NH: and it really made me laugh yesterday, the way the whole market was getting excited about a 10% dividend rise
NH: the fact is that was what every analyst that followed Barclays was expecting
NH: and that’s what they got
PM: anyway
PM: : how are the shares faring at the moment
NH: well, they have been all over the place this morning
NH: opned at 444p
NH: drifted down to 439.25p
NH: but now up 14p at 474p
NH: now, some of the early weakness was probably down to Credit Suisse
NH: and some of it is probably down to the cautious outlook statement contained in the figures
NH: What is the outlook for 2008? We see another year in which global economic
growth will be 4%, or something close to that. The emerging economies account
for about a third of global GDP, but they account for two thirds of global GDP
growth and they continue to perform strongly. However, in many economies of the
developed world, there will be a slow-down, and in particular we expect economic
growth in the UK and the US to be below the trend of recent years. In an
environment such as this we will have to be disciplined in our risk management
and rigorous in our approach to lending. But our experience of 2007 gives us
confidence, and we enter 2008 with a strong capital base, a consistent strategic
direction, a well diversified set of businesses and significant opportunities
for growth in the medium term.
NH: of course, the really interesting stuff in this morning’s results statement is buried on page 60
NH: this gives us an in depth peak at Barclays exposure to toxic sub-prime stuff and leveraged buyout loans etc
NH: and some people are drawing comfort from page 60
NH: here is a brief list of the exposures
NH: Alt A mortgages (£4.9bn)
monolines (£1.3bn)
commercial mortgages (£12bn)
SIVs (£590m)
SIV lites (£152m).
NH: All of those exposure are net rather than gross.
NH: Now, none of this info has been given before, I am informed by one friendly analyst
NH: he says these exposures are not shocking, as they had been at UBS for example
NH: but of course as Credit Suisse has shown today, not everyone actually believes the numbers published by the banks anymore
PM: But why are we seeing other banks rally on the back of this Barc statement?
PM: What is the read across??
PM: in terms of retail banking, credit cards etc
PM: Obviously that will be important for the likes of Lloyds and RBS which have yet to report
NH: well, credit quality at Barclays does not seem to have got any worse since December (their last trading update)
NH: and of course there are no nasty surprises
NH: actually, I have got a good note from Cazenove on this subject
PM: Ok
NH: I can paste if you like
NH: An encouraging start from the first of the major banks to report. This may provide a near term fillip to share prices from the lack of (negative) surprises. Relief rather than a turning point. The absence of any marked deterioration in credit quality is not conclusive as it is too early for the higher base rates and tighter credit conditions to have fed through
NH: UK credit quality trends appear unchanged from those disclosed in December. While Barclays does not disclose arrears it gives some indication with risk tendency (RT). RT fell for UK Retail (partly reflecting lower unsecured lending balance) and Barclaycard (similarly declining UK balance, as well as falling arrears). RT for UK Commercial Bank was as expected and there is no commentary warning of softening trends. Larger corporates are trending up to RT but there was a decline a Medium corporates, reversing the earlier trend.
NH: Balance sheet growth and capital position are close to prior guidance.
Confident statement with the dividend growth maintained at H1 pace of 10%. This will put pressure on other large UK banks to follow with a similarly positive stance on the dividend.
NH: Royal Bank of Scotland (RBS.L RBS LN UNDERPERFORM 361p)
Barclays met our expectations through a larger than expected gain on fair value of own debt offsetting the larger marks on sub-prime and other assets. Yet the fair value gains on own debt do not contribute to capital.
Therefore a similar result at RBS of in-line results through larger fair value gains on own debt would produce a lower than expected equity tier 1 ratio.
The scale is probably modest (RBS announced a fair value gain of £250m to 30 November (equivalent to 5bp) vs £658m reported by Barclays today) but RBS has little room for manouevre.
NH: Lloyds TSB (LLOY.L LLOY LN IN-LINE 425p), HBOS (HBOS.L HBOS LN OUTPERFORM 639p)
Positive read-across for Lloyds and HBOS to the extent of credit quality though this is limited as it is too early to have seen a marked deterioration. Other issues of property exposure and wholesale funding pressures are not so relevant to Barclays.
We can not read-across from the main positive of Barclays’ results, which is the lack of surprises in the new disclosures. This may be company-specific. The level of additional disclosure compares favourably with that from those international competitors which have reported. The positive is that the scale of additonal exposures to other contentious assets is probably towards the low end of market fears.
PM: thanks for that
NH: and here’s a quick bit of comment from ABN Amro
NH: Barc FY07 (hold): positive headline sentiment, but after initial relief of no
blow ups, performance ENTIRELY dependent on Barcap where H2 costs were down
40% on H1 and though FY07 write downs were less than feared, large “high risk”
asset exposures remain (GBP36bn). Barc trades on 6.9x ABNe ’08 PE, 1.6x ’08
tangible book value for 22% cash ROE
NH: Headline EPS, DPS, Tangible Common Equity and outlook confidence statements
all broadly in line with Sunday Times article, ie slightly better than ABN and
consensus forecasts, and no blow-ups.
* Every division PBT is slightly below our forecast apart from Barcap, which at
GBP2.3bn PBT is up 5% YoY and 10% higher than our forecast. Drivers here are
GBP1.6bn write downs (less than our GBP1.9bn) and costs, which at GBP4.0bn were down
1% YoY and implies H2 costs of GBP2467m, ie down 40% on 1H07 and 21% YoY.
* Also, extra disclosure on remaining “high risk” asset classes on balance sheet
mean that we cannot rule out further downgrades (GBP29bn total: GBP4.7bn ABS CDO super senior; GBP5.0bn; Alt A GBP4.9bn, monoline insurers GBP1.3bn; commercial mortgages GBP12.4bn; SIV lite liquidity GBP152m; SIV GBP590m; GBP7.4bn leveraged loans).
PM: Hang on ! Costs down 40% half on half at Barclays
PM: How did they manage that?
NH: yep does look odd
NH: this was the reflection of another analyst
NH: Looks a little odd that expenses were down 1% in Bar Cap but headcount was up by 22% to 16,200. This may be explained by the fact that “the majority of the growth was in Asia Pacific
PM: Eh — even more confusing
PM: 
PM: Lets go to some comments below
PM: V interesting one from Tony on whetehr mid or bid prices are used for mark to market operationns in Euopre
NH: jeepers
NH: even RBS is moving
NH: now up on the day
NH: up 2.75p at 364p
PM: RBS – there was this rumour that went round earlier about huge loses in the forex market.
NH: hit 348.25p earlier
NH: Hmm – rattled a few people.
PM: But then it went round that RBS had flatly denied the rumour.
NH: It did.
PM: But there is another matter weighing on RBS.
NH: Does this relate to that Citi hedge fund thing last week?
PM: it does
PM: Last week Citi suspended redemptions from CSO parners, a 500m fund specialising in corporate debt. – taken a big bad bet on a leveraged corporate loan.
PM: And that loan is widely believed to have come from ProSiebenSat1.
PM: Basically, the story is largely conjecture, but it is suggested Citi was having trouble syndicating its chunk of ProSieben’s $7bn of debt last summer – and some of it ended up in this hedge fund.
PM: Now – RBS was in this ProSieben deal – and it brags about it on its website:
PM: ProSiebenSat.1 – Bookrunner and Mandated Lead Arranger in the Leveraged Buyout by KKR and Permira (EUR 3,304m Senior and Subordinated Facilities) and in the Acquisition of SBS Broadcasting by ProSiebenSat.1 (EUR 4,600m Senior Facilities
NH: Of course we don’t know whether RBS still has ProSieben paper sitting on its books – but it is worth noting – as Sam Jones was saying earlier – the debt is trading at about 73 cents in the euro.
NH: He was also saying that according to a credit suisse analysts (ironically) RBS has a leveraged loan portfolio of £12bn – and so far it has only marked down the value of those loans by about 3%.
NH: So, in ProSiebien’s case, if it still holds the paper, just another 24 centage points to go,
PM: 
PM: Bohemia has sent us back into the hundred page Barc statement….
PM: 
PM: Thanks Bohemia
NH: and thanks for the Wal Mart stuff
NH: *WAL-MART 4Q EPS $1.02, EX-ITEMS $1.04; ANALYST EST. $1.02
NH: hang on a mo, Paul is in the Barclays statement
PM: abs ¢do sUPER sENIOR
HIGH GRADE 4,869 6,151
mEZZANINE 1,149 1,629
eXPOSURE BEFORE HEDGING 6,018 7,780
HEDGES (1,347) (348)
nET abs ¢do sUPER sENIOR 4,671 7,432
oTHER Us SUB-PRIME
fiHOLE LOANS 3,205 2,900
oTHER DIRECT AND INDIRECT EXPOSURES 1,832 3,146
oTHER Us SUB-PRIME 5,037 6,046
aLT-a 4,916 3,760
NH: trying to cut and paste all the exposures
PM: that’s rubbish pasting
NH: but Bohemia was right
PM: Look at page 60 of this:
PM: http://www.newsroom.barclays.com/Content/Detail.asp?ReleaseID=1315&NewsAreaID=2
PM:
PM: Wider market Neil?
NH: after yesterday’s strong performance, which I am still totally puzzled by
NH: the FTSE 100 is down 8.5 points at 5,938.1
NH: opened much weaker than that
NH: went down to 5,884.8
NH: but has rallied
NH: and now everyone is waiting for Wall Street to reopen
PM:
PM: Can we go straight to Mitchells & Butlers?
PM: Vol mentioned below
PM: vik saying 21m so far
NH: yes, there have been some big prints going through the ticker in M&B and also Sainsbury
NH: after the close last night a block of 22m SBRY shares went through the ticker
NH: and this morning there was a lump of 20m M&B traded at 440p
PM: right…
PM: given the names concerned we can assume that Mr Tchenguiz is behind them
NH: I think so
NH: but it is difficult to know what is happening
NH: he could just be transferring physical stock to CFD’s and using the cash for something else
NH: now a lot of people in the market think he has been doing this to buy more M&B
NH: the theory being that if he gets above 25% he will be able to block most bid approaches for M&B
NH: I don’t buy that because in reality his 23% stake is probably enough to scupper anything he does not like
NH: of course he could be switching some of his M&B stake into physical stock so he has the voting rights
NH: but as with everything Tchenguiz
NH: we just don’t know
NH: and anything anyone tells us this morning
NH: we are taking with a huge pinch of salt
Sainsbury (J) (SBRY:LSE): Last: 379.75, down 2.75 (-0.72%), High: 381.25, Low: 375.00, Volume: 1.96m
Mitchells and Butlers (MAB:LSE): Last: 443.00, down 2 (-0.45%), High: 445.75, Low: 438.25, Volume: 21.35m
NH: wasn’t there some other news on Tchenguiz this morning?
PM: Yep
PM: For readers of the Times there was
PM: Laurel Pub Company, the high street group owned by property tycoon Robert Tchenguiz, is considering options for up to 100 of its pubs that could lead to them being sold off or put into administration.
The future of the pubs has come into doubt as rival companies including Punch Taverns and Marston’s have put small groups of pubs on the market in the wake of the smoking ban and a decline in consumer confidence.
Mr Tchenguiz has been in talks with banks about refinancing Laurel’s debt and the pub company is discussing a group of between 50 and 100 pubs that have been hit hard by the difficult trading environment.
NH: good story from Dom Walsh
PM: Wasnt Dom Walsh — sorry it was in the telegraph
PM: My mistake
PM: Jonathan Sibun of the tel
NH: yeah, sorry Dom had the Ladbrokes story, which oddly has had not inpact on the shares
NH: i find that v surprising
NH: anyway back to Laurel
PM: Weren’t you lookin at this last week?
NH: well it was a couple of weeks ago and flatly denied by laurel’s PR
NH: so we left it
PM: Ah, College Hill — waste of a telephone call checking with them
NH: you’re not wrong
PM: In fact, they are possibly the worst PRs in London
PM: I know that is an extreme statement — but it is also accurate
PM: 
NH: i think there would be many people who agreement with that statement
NH: anyway, moving on
PM: Might put their client list up
NH: shall we look at Cadbury
NH: i think we should
NH: quick
NH:
PM: Not on their website
PM: Which is rubbish, btw
NH: can we talk about Cadbury now??
PM: Actually found it now
NH: really interesting story
PM: Jimmy Choo, punch taverns, costain, cafe nero
PM: Barloworld Leading brands
PM: British energy
PM: Mooody’s
NH: Moody’s!!!!!!!!
PM: No wonder the world of credit ratings is in crisis
NH: CADBURY PLEASE
PM: Fitz — point taken!
PM:
PM:
PM: Let’s take a look at Cadbury Schweppes
NH: FINALLY
NH: Nelson Peltz is not going to be happy man when he wakes up
PM: Noooo
NH: some very disappointing news from the confectioner
PM: some very disappointing news from the confectioner
PM: basically, they will not be returning any cash to shareholders post the demerger of its fizzy drinks business
NH: that’s right
NH: not a bean is going back to shareholders
NH: now, this whole process has been a bit of shambles
NH: first Cadbury was going to sell the business
NH: that was scuppered by the credit crunch
NH: now they are going to demerge it
NH: but can’t load the thing up with debt and return the proceeds to shareholders
NH: because of the credit crunch, apparently
NH: here’s the quote from the statement
NH: “In the light of current turbulent conditions in the debt markets, particularly the cost and availability of sub-investment grade debt, it has become clear that both companies can only be financed economically by implementing investment grade capital structures. On this basis, there will be no capital return to shareholders on demerger”.
NH: One imagines that when Mr Peltz reads that he will be firing off another letter to the board of Cadbury
NH: Do you remember the one he sent before Xmas?
PM: no refresh my memory
NH: OK
NH: here’s what we wrote on it
NH: Cadbury Schweppes was confronted yesterday with aggressive new demands to raise its financial performance, from a hedge fund led by US activist investor Nelson Peltz.
Trian Fund Management, the investment vehicle run by Mr Peltz that holds a 4.5 per cent stake in Cadbury, sent the board of the confectioner a blunt letter urging it to raise its profit margin targets.
NH: The letter warned that if Cadbury failed to achieve “meaningful” progress on margins next year, Trian would become “significantly more active in evaluating all of our alternatives as a large shareholder”.
It said Cadbury’s confectionery and beverage businesses, which it plans to demerge, could become takeover targets if Trian’s demands were not met.
The letter expressed concern that recent management updates to shareholders on the performance of the business seemed to be followed by declines in the share price.
NH: “We believe this trend signals that management’s credibility with the company’s shareholders is still very low,” it said.
Trian said Cadbury’s share price could be worth as much as 970 pence if the company cut costs more extensively; sold soft drinks brands such as Motts, Rose’s and ReaLemon; and hired new board directors with experience in “operational turn-arounds”. Cadbury’s shares rose 15p, or 2.5 per cent, to 623p.
It said Cadbury should immediately announce a new “chairman in waiting” to replace Sir John Sunderland, the outgoing chairman, and lift profit margin targets for its confectionery business to the “high teens” by 2011.
“We believe there is no reason why Cadbury should not have as high or higher confectionery margins than best-in-class peers,” Trian said.
Cadbury, which has confectionery margins of 10 per cent, has already promised to lift them to the “mid teens” during the next four years. Cadbury said it was already making the changes demanded by Mr Peltz, and its board was “pleased” with the progress. “Trading performance has been strong, margin improvement plans are being executed and the beverages demerger is on track,” Cadbury said.
PM: well, at least Cadbury has met one of Peltz’s demands
PM: they have appointed a new chairman
NH: yes
NH: Roger Carr
NH: of Mitchells & Butlers fame
PM: Oh, except its roger carr
NH: yep the man who presided over the hedging fiasco
PM: and what about the figures?
PM: are they OK??
NH: they seem to be fine
NH: in as much as there are no nasty surprises
NH: whether they will be enough for Peltz remains to be seen
NH: In confectionery, organic sales growth came in around 7.0%, with an underlying EBIT margin improvement of 30 basis points, which was a little bit better than expectations
NH: and that margins improvement is down to pricing initiatives, US gum and a recovery in UK chocolate market
PM: and what about the outlook statement for 2008?
PM: that’s crucial isn’t it??
NH: yep
NH: and it’s all in line
NH: guidance is for organic sales growth within the goal range of 4-6% and “meaningful margin progression” in-line with the “mid teens” by 2011
PM: So none of this is going to be enough to appease Peltz
NH: no, and I fully expect him to fire off another missive today
PM: And the shares????????
NH: Oh, they have taken a whack
NH: currently down 37p at 575p
NH: that’s a fall of 6%
PM: how have the analysts reacted to this morning’s statement??
NH: well
NH: everyone is disappointed by the capital return
NH: but say there are signs that CBRY is finally starting to get its act together
NH: this is from Rob Mann at Collins Stewart
NH: There are two contrasting stories here – the improving performance of the
business itself and the journey towards the upside from that improving
performance. We already knew that revenue growth had been strong in H2 in
the confectionery business, but this has been accompanied by margin
expansion of 80bp on an underlying basis, after a decline in H1. Margins
remain miserable compared to where they should be, but at long last would
appear to be moving in the right direction, despite the commodity cost
headwinds, which are unlikely to ease in 2008.
NH: But disappointment centres on no capital return on demerger
However, the driver of the shares today is more likely to be the
announcement that there will be no capital return to Cadbury shareholders on
demerger of Dr Pepper Snapple, in the interests of maintaining a BBB rating
in Cadbury plc and BBB+ in Dr Pepper Snapple. Arguably that might provide
more firepower to soak up flowback from UK institutions not wishing to hold
DPSG, but it will not be taken well.
NH: A great asset still struggling to emerge…
Nonetheless, having risen 11% in February alone it would seem likely that at
least part of the reason for that rise was hope of some form of capital
return. Our view of the shares remains that there is a high quality
strategic asset which would command a premium valuation inside the group,
struggling to get out. Indeed, the 2008 outlook looks for c6% revenue growth
and “meaningful” margin progression in the confectionery business.
but scepticism will reign until it does
At 600p, the shares are trading on 14.6x 2009 earnings, for 12% growth in
2008 earnings and 20% growth in 2009, as the Vision into Action plan takes
hold. The market remains sceptical of this management team’s ability to
drive the margins in the confectionery business forward, hence the consensus
view that the shares are fully valued. For that to change we will need to
move through the demerger process to a transparent standalone confectionery
asset.
NH: and this is from Andrew Wood
NH: at Sanford Bernstein
NH: he is the sector’s top rated analyst
NH: As we expected Cadbury reported a strong end to what has been a turbulent 2007…with +7.1% FY organic top-line growth in confectionery (including 8.0% in H2) and 4.4% growth in Beverages. Additionally, there was 30bps of underlying margin growth in confectionery (including a very encouraging +80bps of underlying margin growth in H2).
NH: Top-line guidance for 2008 was the top-end of management’s 4-6% goal range (as we had hoped) but there was a maddening lack of specifics on guidance for margin growth, still just “meaningful”…although “in line with our margin growth objectives of 2011” is implied guidance of +125bps. However, we do not believe that this provides clear enough guidance at this time! Overall, operating momentum remains strong and prospects are good for 2008…but we are not convinced the guidance for 2008 will provide a strong catalyst for the stock
NH: Despite our frustration on the lack of specific margin guidance (as discussed above) it is clear that significant progress is being made with the margin improvement plan and that management is treating this with adequate urgency. Management set out a long list of actions undertaken to date as part of the plan…which include the HQ move to Uxbridge (a 15% reduction in headcount), reorganisation of the Britain and Ireland business (15% reduction in G&A headcount); various actions in Americas Confectionery (16% of G&A headcount), the closure of the UK Somerdale chocolate plant by 2010, a reduction of 30% of the workforce at a big chocolate factory in Ireland; and reduction of indirect headcount by over 300 in the Americas Confectionery business etc…
There was also a lack of specifics about the Beverage demerger, except for confirmation it will tale place in Q2, with an update before the end of March. Unfortunately, despite our hopes, management has indicated it will not be giving a special dividend upon demerger. We have received favourable comments on the new Chairman, Roger Carr, from investors who have met or spoken with him…which is also a net positive.
PM: R carr a net positive…..
NH: and finally this is from Panmure Gordon
NH: No cash return to shareholders in demerger process
While we always thought the maths of a cash return to shareholders was
marginal at best, and had assumed just a 20p payout, the fact that Cadbury is
going back on its previous statement is not very impressive. Results were in
line, but Cadbury needs to be clearer as to what its definition of “meaningful”
margin expansion is. We do not see dramatic hidden value in Cadbury
Schweppes shares in the near term. Hold.
NH: Demerger maths: After having stated that it was going to return cash to shareholders, it has now changed its mind. DPSG margins are indicated to be modestly down in 2008E, against our assumption of flat margins and capex of 5%/sales is quite a bit more than we expected (the historic rate was 3-4%). Given our central case assumption of 623p (10.5x 2008E EV/EBITDA for Beverages, 12.0x for Confectionery) is not likely to move forward on today’s newsflow, we maintain our Hold recommendation, particularly given the recent strength in the share price.
PM: Thanks for all that
NH:
NH: just having a look at what else is moving today
NH: Next is weak
NH: off 27p at £13.53
NH: Soc Gen are telling clients to flog it
NH: they are quite bearish
NH: Rating downgrade Next’s record of generating double-digit EPS growth on the back
of negative LFL sales trends might be about to come to an end. Forecasts lowered,
assuming LFL falls 4% in 2008/09.
NH: and they don’t like Marks & Spencer either
NH: 12m target downgrade LFL sales forecast lowered from -2% to -4% for 2008/09,
cutting EPS by 8%. TP cut from 370p to 359p. Ex-recovery and no meaningful growth
seen
NH: M&S up 3.5p at 407.5p
PM:
PM: Interesting debate kicking off below
PM: on how americans might spend their tax breaks
PM: I really do wonder how people react with unexpected money in a downturn
PM: if you are losing your house, do you go on the drink
PM: Or do you use it to payoff other debts
PM: Anyone see the Dispatches last night on the box
PM: Channel 4
PM: 8pm
NH: missed that
NH: still on my way home
NH: was it any good???
PM: I was pleasantly surprised
PM: it was hugely sensationalist — but it was frontted by jon Moulton of Alchemy
PM: Moulton seemed to be claiming that he had warned everyone — including the BoE and the FSA
PM: And that they were completely ignorant — which was a bit of a daft claim
PM: Remember Howard Davies point about CDOs being toxic waste in the financial system?
PM: Think that was uttered in about 2003
PM: And as for the Bank — Pen Kent was warning about all this — sliced and diced risk coming back onto the banking system — back in about 2000
NH: so, what was the upshot of it all
PM: Er, got kicked off the TV by the kids
NH: Moulton great. he saw it all coming.
PM: Missed conclusions
PM: have to get it on Four OD
PM: on demand, not overdose
NH: although if you have a MAC it won’t work
PM: which i do, so it wont
NH: but BBC iPlayer does
PM: As for the whole CDO thing — i would just blame College hill
PM:
NH: can we go back to Ladbrokes
NH: story in the Times this morning that Joe Lewis has amassed a 7% holding through Citigroup
NH: well, Citi are heding his CFD position
NH: I thought it would have a positive impact on the share price
PM: yes, was surprised by the lack of reaction
PM: Why do you think?
NH: well its not because people don’t believe it
NH: it will be true as Dom Walsh was involved
NH: but the only reasons I can come up with is
NH: Ladbrokes have had a good run and stake building rumours are not new
NH: and then we have Mr Lewis
NH: does anyone really care that he is buying??
PM: Point below that people disappointed tht its not a PE buyer
NH: Lad down 2.75p at 324.25p
PM: just another punter — albeit a big one
PM: ladbrokes might go the way of Bear Stearns of course
NH: Ladbrokes up 18% in the past month
PM: Another Lewis investment
PM:
PM: just to the points below on numbers ….
PM: Answer is silent thousands, of course
PM: OH — breaking news below
NH: thousands of readers out
PM: thanks mr
NH: who don’t like comment coz they could get in trouble with compliance department
PM: On reader numbers you can apply the internet rule — 90/9/1
PM: Active readers / occasionally active readers / parasites
PM: Anyway — Neil you got this MBIA statement?????
NH: yep
NH: ARMONK, N.Y.–(BUSINESS WIRE)–Feb. 19, 2008–MBIA Inc. (NYSE:MBI) today announced that Joseph (Jay) W. Brown, 59, will return to the company, resuming his positions as chairman and chief executive officer, and becomes president of MBIA, effective immediately. Mr. Brown replaces Gary C. Dunton, 52, who has resigned from MBIA.
Until May 2004, Mr. Brown had served as chairman and chief executive officer of MBIA Inc., and of its main operating unit, MBIA Insurance Corporation. Mr. Brown retired as executive chairman of MBIA Inc. in May 2007. He joined the company as chairman and CEO in January 1999, having been a director since 1986.
“MBIA faces meaningful challenges,” said Mr. Brown. “Thanks to Gary’s hard work, we can now build on our enhanced capitalization and reframe our risk policies and strategies. I see significant opportunities ahead for MBIA. Our shareholders, policyholders, bond owners, and employees need us to re-examine our business model to address changing conditions. I look forward to working with the MBIA team to frame a new model for the financial guarantee business. In addition, it is critical that we expedite our communications with the New York State Insurance Department. I have already spoken with Superintendent Eric Dinallo. I believe we can look forward to improved dialog with the Department. Eric and I had a constructive discussion regarding MBIA’s plans and he provided us with helpful guidance. We expect to rebuild confidence in the company and in the industry.”
“The board appreciates Gary Dunton’s dedicated service to MBIA, particularly his hard work in recent months during our successful capital-raising initiatives. Our enhanced capitalization will enable MBIA to redesign its business to address conditions in the current market. We are grateful to Gary for his courageous leadership in this critical period,” said David C. Clapp, lead director of the MBIA board. “The entire board joins me in thanking Gary for his contributions and his commitment to MBIA.”
NH: “Moving forward, the board is unanimous in its belief that Jay Brown’s deep understanding of MBIA and its challenges make him singularly qualified to lead the company and differentiate MBIA in the current environment,” said Mr. Clapp. “Jay was present at the inception of the financial guarantee market and has been part of MBIA for more than 20 years. He has proven leadership in tough times. We are delighted that he is returning to the company.”
During the past two months, MBIA has increased its claims-paying resources by as much as $3.2 billion, including $1.1 billion from the sale of 94.6 million shares of common stock, $500 million from the sale of 16.1 million shares of common stock to Warburg Pincus, the sale of $1 billion in surplus notes, and $200 to $500 million (varies by rating agency) in additional net capital generated from operations due to maturing insured transactions during the fourth quarter of 2007. MBIA currently has over $17 billion in total claims-paying resources.
Prior to joining MBIA in 1999, Mr. Brown was chairman and CEO of Talegen Holdings, Inc., an insurance holding company. While at Talegen, Mr. Brown successfully led the company’s reorganization and restructuring, working closely with insurance regulators in all states, including the major state of domicile, New York. Before his election as chairman and CEO of Talegen, Mr. Brown was president and CEO of Fireman’s Fund Insurance Company. Mr. Brown joined Fireman’s Fund in 1974, where he held numerous executive positions including chief financial officer at the time of its IPO in 1985 from American Express and president and COO at the time of its sale to Allianz AG in 1990.
Mr. Brown has a long history of board service in several industry-leading companies where he has also served on key committees within those boards. He served on the board of Oxford Health Plans from 2000 to 2004 and on the board of Fireman Fund Holdings prior to the sale of its insurance subsidiary to Allianz. He has served on the SAFECO board since 2001 and was elected non-executive chairman in January 2006. He steps down from that chairmanship in May 2008. Through service on each of these boards, Mr. Brown has also developed experience in serving on key committees including the Executive, Compensation, Finance, Risk, and Audit Committees.
During Mr. Brown’s leadership at MBIA, the company was repeatedly recognized by Institutional Shareholder Services (ISS), Governance Metrics International (GMI) and Moody’s for the quality of corporate governance practices adopted by MBIA.
He is a 1974 graduate of Northern Illinois University, where he majored in Probability and Statistics. He is a fellow of the Casualty Actuarial Society, as well as a member of the American Academy of Actuaries and the Chartered Property Casualty Underwriters Society.
NH: ONTACT: MBIA
Media:
Willard Hill, +1-914-765-3860
or
Elizabeth James, +1-914-765-3889
or
Investor Relations:
Greg Diamond, +1-914-765-3190
PM: Er, ta. Sam’s going to be busy this afternoon
PM: MBIA dont even have enough money to hire College Hill, it seems
PM: Carlomagno and SL — thanks for paying attention
PM: We are pleased with the numbers and level of involvement
PM: We also think you are a pretty smart crowd
PM: Honestly!
PM: that’s why we are doing this new forum
PM: it should be ready by end March
NH: i agree. readers are very savvy. we had not expected that
NH: thought we would get more of a retail readership
PM: thought wed be able to pontificate
NH: but that’s not the case
PM: In fact this job makes me feel a bit stupid
PM: Anyway enough of that
NH: it’s difficult to keep pace sometimes
PM: i have a peace lunch
NH: who with, College Hill??
PM: No,, Lina Siagol
PM: right — we are off
PM: Thank you for joining us today
PM: back tomorrow at 11am
PM: Oh — i was going to put the Citi note on Credit Suisse up!
PM: here you go
PM: Markdowns & Mispricing
ABS Marks $2.85bn YTD — Credit Suisse has announced $2.85bn (SFr3.1bn)
additional markdowns on “certain asset-backed positions in its structured
credit trading business within investment banking”, with an estimated net profit
impact of $1.0bn (SFr1.1bn) after compensation and tax offsets. The
disclosure is required in connection with a bond issue closing today.
We Had Estimated c$1.8bn ABS Marks — Based on detailed 4Q disclosures
last week, we had estimated cSFr2.0bn ($1.8bn) YTD marks on ABSs (CMBS,
prime/subprime RMBS, CDOs) plus a further SFr0.6bn ($0.5bn) on leveraged
finance exposures. If today’s $2.85bn is on the same positions as our $1.8bn
estimate, then neither the fact nor the scale of marks is a big surprise.
“Mismarkings & Pricing Errors” — The company says that within these marks it
“has identified mismarkings and pricing errors by a small number of traders in
certain positions”. This may make investors nervous about other problems yet
to come to light, and/or dent confidence in the company’s risk controls more
broadly.
Still Profitable YTD, Implies Rest of Group is Fine — Importantly, the company
says that “in the first quarter to date, we estimate that we remain profitable”
despite these marks. With a profit run-rate around SFr2bn/quarter, ie SFr1bn
for the half quarter elapsed so far, this implies (a) that core businesses are at
least in line, and (b) that there are no other major problems.
PM: Capital Intact — The still-in-profit guidance implies that capital is unaffected.
A cSFr1bn profit run-rate for the rest of the quarter would cover the cSFr0.9bn
dividend accrual, but leave little for any RWA growth. The FY07 10.2% Basle-2
tier 1 ratio is tight (vs 10% target), but the company could cancel the dividend
accrual (SFr0.9bn) and/or re-sell buyback shares held (SFr2.4bn).
Key Questions Outstanding — We need the company to confirm these $2.85bn
marks include all QTD CMBS/RMBS/CDO marks, not just those relating to one
particular team: ie is there more on top of this? Also, investors will want to
know how much of the $2.85bn is from market moves, and how much from
mispricing, and will want more detail on the control failure.
Conference Call 3pm CET — The company plans to hold a conference call at
3pm CET to give further details on this announcement.
PM: Off to look at MBIA….
PM: Seeya
NH: bye