Markets live chat transcript for the chat ending at 12:11 on 28 Feb 2008. Participants in this chat were: Paul Murphy (PM) Neil Hume (NH)
PM: Hello!
PM: Welcome to Markets Live.
PM: This is FT Alphaville’s daily markets discussion, where Neil Hume and myself mumble on while the readers find something else interesting to debate.
PM: But look we are going to RING THE CHANGES this morning.
PM: We’re going to talk about the banks.
PM: 
NH: are we??
PM: No avoiding it.
PM: Neil RBS?
NH: i can’t bear.
NH: we done too much banks this week and the RBS numbers are boring anyway
PM: 
NH: which is probably what they wanted
PM: Well waddya wanna discuss???
NH: the Royal Rat Catcher
PM: that’s rubbish.
NH: and Debenhams
PM: Now Debs — Ive warned that you have a Debs story up your sleeve
PM: Right — bear with us
PM: Tom Braithwaite — retail corr — has taken neil away for a moment
PM: 
PM: Im going to discuss RBS with VP below
PM: if that’s ok VP
PM: Price all over the place earlier.
PM: Figures came out at 7am – looked okay at first glance.
PM: Then it became clear that the analysts couldn’t immediately make sense of them.
PM: Form an earlier forecast that the stock might open 20p higher there was a sudden panic.
PM: The quote dropped below 400p as soon as trading got underway.
PM: And then just as quickly there was this sudden surge – it was as tho some one big was hooving up stock.
NH: right am back
NH: Debs
NH: where were we?
PM: Well i wanted to talk abotu RBS. As did VP
PM: But i guess we should do Debs now you have graced us with your presense
NH: yes
PM: Neil and I were mucking around on the FT newsroom’s one and only Bloomberg screen this morning
PM: I cant work it
PM: we were looking for a page called IIRA
PM: which stands for all indications of interest
NH: or something like that
NH: and on the Debs IIRA page there is a figure that really stands out
PM: Yep
PM: UBS are advertising 116m shares for sale
NH: that’s around 13.2% of the company
PM: Put up at around 9.30 last night
PM: When people shopping for Debs go shopping i guess
NH: 13.2% is around the size of the stake owed by TPG
NH: that’s one of Deb’s private equity backers
PM: So, it looks like TPG are trying to get out
PM: and doing it quietly off market
NH: well, that’s what I thought earlier this morning
NH: but Tom Braithwaite has been digging away and has got a different story
NH: he will try and put it up on FT.com later
NH: but one point to note is that the 116m shares had been traded already
NH: they trade has been booked
NH: but not on the LSE
NH: we now need to find out if the seller was TPG and who the buyer was
PM: So let’s get this straight — we know that 13% of Debs has changed hands — trade has gone thru
NH: at 9.00pm last nigh
PM: And there is no print on the Debs quote in front of us
NH: yep
PM: And thats thanks to Mifid — opaque markets
NH: FX Trader - to be clear
NH: this trade has to be booked somewhere, even if they use a dark pool of liquidity
NH: looks like they have choosen to do it via Bloomberg and it seems to be public information
NH: i see no reason why we can’t flag it up for all the readers out there who can’t afford a Bloomie
PM: knowing whether 13 per cent of the company is on the move is intrinsically price sensitive
PM: in my view anyway
PM: right
PM: But who could the buyer be??
NH: well it could be Baugur
NH: they already own 13.5%
PM: ??
NH: but given some of the hits they have taken recently and the fact they are bidding for Moss Bros, I can’t see that
NH: it could be Milestone Resources
NH: they own 9% of Debs
PM: Curious — below — we are jsut not sure as yet on this
PM: Anyway — who are Milestone?
NH: knew you were going to ask that
NH: Milestone Resources Group is an entity owned by Dubai-based retailer Landmark
NH: which in turn is controlled by Mahesh ‘’Micky'’ Jagtiani
PM: Ah, Micky
PM: your so fine
NH: who is something of a colourful character
PM: you’re
NH: said to be reclusive billionaire Mr Jagtiani
NH: started out with a single shop in Bahrain in the 1970s, after reportedly working as a London cabbie and hotel cleaner.
NH: Landmark Group now has more than 600 shops in India, Spain and the Middle East.
NH: : but more recently has diversified into sectors such as leisure, hotels and electronics.
PM: thanks for that
PM: But this is a fluid story
PM: This could jsut be a roll over of stock liked to CFDs etc, o?
PM: no?
NH: it could be perfectly innocent
NH: we don’t know at the moment
NH: hopefully we will get to the bottom of it so the next time we get an IIRA print we know what we are dealing with
PM: But we will be keeping an eye on this IIRA page thingy
PM: What are debs shares doing by the way?
NH: off 0.75p at 69.5p
PM: 
PM: While we are on the bear tack (if that is where we are) — how about Rentokil
PM: hang on –
NH: our retail correspondent has posted
PM: Now we’re having our stories knocked down by 20 somethings in the FT newsroom
PM: Young Tom B says its just a CFD rollover in Debs
PM:
NH: that would explain it
PM: Thank you Tom
NH: case closed
NH: move along, nothing more to see here
PM:
PM:
PM: rentokil — thats real news
PM: Rentaboardroomexecutioner
NH: right
NH: shares in the royal rat catcher have lost a quarter of their value this morning
NH: currently down 25p at just 79.8p
PM: whoa tahts 24%
NH: company has issued another profits warning
NH: the chairman is off
NH: and the company WILL lose its place in the FTSE 100 at next month’s quarterly review
PM: what a mess
NH: yep
NH: and once again it is Rentokil’s parcel division that has prompted the profits warning
PM: that’s called City Link right?
NH: yep
NH: and basically what has happened this morning
NH: is that the company has come and said 2007 results will be a touch better than expected
NH: but
NH: and it’s a big BUT
NH: the problems at the Citi Link business, which were responsible for the profits warnings before Xmas, are going to take longer to solve
NH: so, management credibility is in tatters
NH: and the drop in profits at City Link really is frightening
NH: in the fourth quarter of 2007, profits fell by 60% to £6.3m
NH: and things are going to get even worse
NH: as Rentokil are now flagging problems with integration issues with Target
NH: that was another parcels business Renotkil acquired to bulk up
NH: analysts now fear City Link will do no better than break even in 2008
PM: I just can’t see how this business has gone into reverse so quickly
PM: Just last summer Doug Flynn was saying it was absolutely fine — talking about a point of inflection
PM: i think he spoke too soon
NH: Actually that’s not the end of the bad news
NH: well, Rentokil have also changed the guidance for the business
NH: they are now going for ‘modest’ growth in adjusted PTP
NH: earlier guidance of mid-to-high single digit growth.
NH: as you can imagine analysts are now taking a serious amount of red pen to profit forecasts
NH: This is from Cazenove
NH: Estimates reductions
NH: Our 08E included £45m EBIT from Parcels, so this would imply 2008E PE from £252m to c.£207m, a -18% reduction.
EPS from 10.3p to 8.5p. Further reduction possible as digest core trading.
09E: However longer-term we would expect some profit recovery; the business has a c.15% share in a stable UK market, so fo 09E we would estimate roughly a £20m reduction from £267m to £247m, a -8% reduction. EPS from 10.9p to 10.0p.
NH: Recommendation
RTO has underperformed by -8% YTD (after -28% in 2007).
On above first cut estimates, 2008E PE 12.5x, 09E 10.6x.
Dividend of 7.4p (7.0% yield) now looks less covered and, given ch change, we perhaps move closer to possible reduction; the company is ‘not committing’ to dividend maintenance for 2008.
We continue to see medium-term margin risk (particularly in UK and European washroom and pest control, implying EPS reduction risk of further c.-13% before any tax rate normalisation), although these pressures do not seem highly visible at this stage. We would continue to avoid this share.
NH: and this is from Investec
NH: Credibility in tatters
NH: Full year results for 2007 were not great, even if they came in a bit above our
expectations. However, the results are completely overshadowed by the sharp
deterioration in the performance of CityLink which is now only expected to be
at break-even in the current year. The Chairman is stepping down and the
group clearly has a long haul to rebuild credibility, which is in tatters. We
reiterate our Sell recommendation.
Final results. Full year results came in just ahead of expectations which had
been reduced at the year end, with adjusted pre-tax profits/EPS of £211m/9.11p
down from £225m/9.69p. As expected, the final dividend was maintained at
5.27p to make an unchanged payment for the year of 7.38p
NH: Trading. Trading in 2007 was generally in line with expectations, aside from a
sharp deterioration in City Link in the fourth quarter of the year. Revenues rose
by 20% to £2.22bn, but this was driven largely by acquisitions with organic
growth of only 3%. Operating profits edged ahead of the previous year, with a
reasonable performance elsewhere held back by a disappointing performance
from City Link.
NH: The outcome for the current year will be heavily impacted by City Link, which
was loss-making in January and is now expected to be only at break-even for
the year. As a result, overall results for the group are expected to be
“significantly lower” than in 2007.
Management change. The Chairman, Brian McGowan, is stepping down from
the Board and the process is already under way “to find a new Chairman with
the right credentials”.
Morning Meeting Notes
Outlook. The group has confirmed that results in the current year will be
significantly lower than 2007 and our first estimate is that adjusted pre-tax
profits/EPS could fall to around £180m/7.1p (from £242.0m/9.5p). Credibility is
clearly in tatters and the City Link debacle may herald the eventual break up of
the group, in our view. We reiterate our Sell recommendation
PM: So, a break up on the cards
NH: looks that way
NH: CEO Doug Flynn and the outgoing chairman have tried to restructure this business
NH: but it is just not working
NH: something more radical is required
PM: actually the triubutes paid to McGowan this morning are quite funny
PM: Doug Flynn, chief executive of Rentokil Initial, said:
PM: Brian’s decisive action and strong leadership have been of immense value to the
board, the company and its shareholders over the last eleven years. He has never
been slow to take difficult decisions, demonstrated most notably by his
willingness to step up to the mark and take on the role of executive chairman in
2004. More recently, as non-executive chairman, my board colleagues and I have
valued his advice and experience through what has been a challenging period. We
will all miss him.”
PM: Brian McGowan, chairman, Rentokil Initial, said:
PM: Rentokil Initial is a world class business with strong brands and powerful
capabilities. The last few years have been challenging but Doug and the team can
now point to a demonstrable operational turnaround in the vast majority of the
group’s businesses. I have enjoyed my time with the group but have decided that
the time has come for the board to look for a new chairman to help guide
Rentokil Initial through the next stage in its development
PM: demonstrable operational turnaround
PM: hello?
PM:
NH: earth to McGowan, come in
NH: are you there
NH: what about City Link???
NH: that’s RTO’s biggest buisness
NH: that has not turned around it has been slammed into an almighty reverse
NH: anyway I reckon shareholders are cursing the day they told Gerry Robinson to get stuffed
NH: well, not all of them did in fairness
NH: to recap, a couple of years ago Robinson offered to install himself as chairman in return for a load of stock
NH: and one has to think he could hardly have done a worse job than this
NH: when Robinson approached the company, RTO shares were trading at around 170p
PM: Stock is only down 83% form its circa 2000 peak
PM: Shall we move on?
PM:
NH: although I am bored of the banks, it appears many of you are not
PM: What’s RBS now — up 2.25p at 412
NH: so we are going back to RBS
PM: Dropped below 400p at the opening
PM: But quickly rallied
PM: it was as tho some one big buyer was hooving up stock.
PM: Qatar??
NH: Who knows at this stage.
PM: There still seems to be a lot of uncertainty out there over this mornigns numbers
PM: Think it was summed up in this “flash” note from Citi this morning on the RBS figs:
PM: FLASH: Royal Bank of Scotland Group PLC (RBS.L): In Line (We Think)
PM: we think
PM: Well, Helen thru a complete Thomas this morning.
PM: As she was going thru the RBS figs
PM: Her basic point, going thru the statement and joining the conference call, was that RBS had put the numbers in the release but hadn’t bothered to add them up.
PM: Did a nice post on it earlier.
PM: As for analysts stuff…
PM: we are still waiting for definitive stuff – reports going round that the analysts meeting went very well.
PM: But here’s some early quick stuff
PM: RBS FY results look in line with consensus. Group PBT (inc ABN £10.3bn (consensus £10.3bn) and excluding ABN £10.3 (consensus £10.2bn)
On an Adj EPS 79p (inc ABN) looks 5-10% ahead, but this is due to a lower than usual tax rate of 21%.
DPS raised 10% to 33p. Capital ratios at 31 December 2007 were 7.3% (Tier 1) and 11.2% (Total). Core tier 1 was 4.5%.
They have raised the synergy target by 33% to Eu 2.3bn. This suggests 9% accretion in adj EPS, a return on investment in 2010 of 16% and an internal rate of return of 18%, according to the company. They had told us in December that transaction benefits would be “slightly higher”. NB there is also a £1bn reduction in carrying value of financial instruments they have acquired.
PM: Divisional Detail
* Impairment losses actually fell to £39m in Global Banking and Markets, with subprime related hits taken in income (ie trading activities -61%)
* UK Corporate Banking operating profit up 11% to £1,961 million.
* Retail Markets, operating Profit up +12% to £2.5bn helped by falling bad debt charge.
* Wealth Management’s with operating profit increasing by 30% to £413m. Company highlights growth in customer numbers and income in Asia.
* Ulster Bank has operating profit rising by +22% to £513 million, despite a slowing Irish market.
PM: RBS Insurance, results were held back by the £274 million impact of the floods in June and July, and excluding this, operating profit increased by 28%. Including the effects of the floods, operating profit declined by 9% to £683.
* Citizens (the US subsidiary) the impairment charge doubled to £341m. Operating profit 9% decrease on a US $ basis
CDO’s, ABS etc they have given net exposures - but no gross exposures. RBS has £2.6bn of net exposure to financial guarantors (ie monolines).
PM: Conclusion: These results are in line, somewhat annoying that RBS did not give us the proforma numbers ahead of the results day (like they told us they would) and not a very promising start to the integration, whatever the outlook statement says. Following the acquisition of NatWest, RBS was able to raise it’s synergy targets. We would be a little cautious about this, as underlying growth of the business acquired is as important as ‘synergies’. (IE underlying profits can fall, when achieved synergies are subtracted from the group PBT). However, the shares appear cheap, and our recommendation is BUY. TP 590p.
NH: hang on, got a bit distracted
NH: some big news coming out of JPMorgan Cazenove
NH: apparently the CEO has resigned
NH: Pickering
NH: Robert Pickering
NH: Mayhew to assume day to day control
PM: Again — how old is he now
PM: I wont say 87 — got to be respectful to Mr Mayhew
PM: has had much much finding a successor
NH: well, there always this newcomer
NH: what’s his name??
NH: Preztlik??
PM: 
PM: Ian Hannam coup?
NH: looks like the Pickering came with results from JPMorgan Cazenove
NH: this is up on reuters now
NH: Market conditions will make life
difficult in the first half of this year for British investment
bank JPMorgan Cazenove, outgoing Chief Executive Robert
Pickering said after the firm posted flat 2007 revenue.
JPMorgan Cazenove said Pickering was leaving after 23 years
at Cazenove, the British broker which set up the joint venture
with U.S. investment bank JPMorgan Chase & Co in 2005. The
venture’s chairman, Cazenove veteran David Mayhew, 67, will take
on the CEO role while a successor is sought.
NH: We’ve got a high degree of market volatility and we’ve got
uncertainty about the economic outlook,” Pickering said during a
conference call. “It’s going to be quite a tough first half for
the business. After that it’s difficult to predict.”
He said challenging markets were delaying the execution of
some initial public offerings and merger and acquisition deals,
adding that the joint venture’s IPO pipeline was “probably
stronger than I can ever remember”.
“On the cash equities side … we’ve had a very strong start
of the year and the volatility that we’ve seen in January and
going into February has meant a very high level of secondary
market activity,” Pickering said.
NH: After a big jump in 2006, JPMorgan Cazenove revenue fell 1
percent to 440.2 million pounds ($872.7 million) last year as
the global credit crunch crimped high levels of activity.
“I think to come out in line with 2006 is a pretty good
result,” Pickering said.
Cazenove reported operating profit of 73.9 million pounds
from its 50 percent share of the venture.
Pickering said JPMorgan Cazenove will look for his
replacement both internally and externally, adding he had no new
job lined up yet.
Cazenove, one of the most venerable stockbroking names in
the City of London’s financial arena, gave up more than 180
years of independence to link up with JPMorgan.
JPMorgan Cazenove acts as corporate broker to 35 FTSE 100
listed companies and 81 of the FTSE 250 index of midrange firms.
PM: Apparently Chris Hughes, our IB corr is abotu to put something up on FT.com
PM: intriguing story
NH: it is
PM: Reminds me of when Mayhew came in for lunch (at the Guardian)
PM: Brunswick — prs went ballistic, cos he hadnt been to a nono-pink paper for lunch before that
PM: Pickering turned up as well
PM: Actually — im not going to continue that anecdote 
PM: Sorry
NH: I was there as well
NH: that’s because he named virtually everyone of your sources
PM:
NH: the look on your face - priceless
NH:
NH: let’s get back to these banks
PM: Thought there was a good comment on the site earlier – from pooh bear I think:
PM: Why does no one seem to be pointing out that barclays and rbs (although rbs seems better) aren’t marking to market - i know that some argue that as IG has been “loss lending” for a number of years that the loan loss provision is sufficient - but whilst i agree that can be argued for IG it certainly can’t be argued for hung lev loans which are waiting to be sold - these should be marked to market rather then hid in a hold to maturity book…
PM: How’s HBOS doing today.
PM: ?
NH: Still looking very sick.
NH: Fell off a cliff yesterday after it’s own fig. V cautious outlook statement.
NH: Well they are down another 18p at 639p this morning.
NH: There has been some nasty stuff going round in the market.
NH: Well its coming out of the credit markets actually.
NH: People talking about it facing losses of up to 5bn on its ABS book
PM: What people have been doing is looking at yesterday’s figs and saying there has been no adjustments to its provisioning on ABS generally – and there is anywhere between 40 and 90 billion of this stuff.
PM: And then they are saying last quarter HBOS admitted that it had not marked any of this to market.
PM: So…..
NH: Well here’s a note from a trader this morning:
Therefore GBP2.5-GBP5bn loss looks conservative at best & possibly their approach
is to use future profits to hide/erode the actual exposure. Therefore, this
suggests a long term underperformer at best, or more importantly, vulnreable
to a sharp reappraisal at worse…or should that be the other way round.
- Nevertheless, the credit mkt says this stock is an avoid on all counts and the
10% fall yesterday has been met with NO bounce today…Something ugly lurks
within HBOS….
PM: Ouch!
PM: Southing ugly lurks within HBOS — allegedly
PM:
NH: and apparently there is something ugly lurking in the hedge fund world
PM: Hmmm — we are not going to name the firm here, are we?
NH: no, coz we put a call in and they have not responded. so that would be irresponsible
PM: Well, the receptionist was very cheery — but all the senior people seem to be stuck in a meeting
NH: UK HEDGE FUND IN TROUBLE
NH: STORY DOING THE ROUNDS THAT UK HEDGE FUND XXXXXXX IS IN SERIOUS TROUBLE + PRIME
BROKERS ARE MOVING THERE RATES UP.
PM: There is clearly somethign to this — firm in question was heavy into subprime
PM: As in moved into subprime believeing it was cheap….
PM: …in September
NH: oh dear
NH: and there was rumour yesterday if a large fund being shopped around for liquidation.
NH: again it was the same name being mentioned
PM:
PM: Moving on
PM: we must take a look at the big M&A story of the day
PM: Or non M&A that is
PM: Xstrata
NH: yes
NH: Xstrata shares down 197p at £39.40 on fears that Vale might walk
NH: Now, I was hoping that Lina Saigol, our M&A editor, might make a guest appearance on ML this morning to talk about what is going
NH: but as she was up until the early hours chasing down this story we have decided to let her off
NH: anyway, here is what she wrote this morning
PM: (DW — quick note — we are NOT talking about Man Group)
PM: This is much smaller — and not publicly listed
PM: Back to XTA…
NH: Xstrata shares slide as talks collapse
By Lina Saigol in London
NH: Vale’s putative $85bn takeover of Xstrata was on Wednesday night on the brink of collapse after a leading shareholder in the Anglo-Swiss miner refused to agree to the terms of the offer.
Glencore, the commodities trader which owns 35 per cent of Xstrata, was demanding a significant extension of the lucrative marketing rights to commodities, including coal and nickel, that it already has in place with Xstrata, according to people close to the situation. Those people said the terms were not acceptable to Vale.
NH: The report that takeover talks may end sent Xstrata shares 164p lower or nearly 4 per cent to £39.73.
Vale and Xstrata started discussions last year and an offer of around £45 a share had been proposed 10 days ago. However, negotiations between Vale’s management and Glencore continued and only ended on Wednesday night after the pair were unable to agree the restructuring of the commercial agreements.
NH: Vale’s offer was structured as a straightforward takeover of Xstrata, leaving one listed company in Brazil. Vale, which has two classes of shares, would have needed Glencore to accept preference shares, which have fewer rights than its ordinary shares to complete a deal, a person close to the negotiations said.
Vale initially opened talks with Xstrata at £40 a share, but that was rebuffed.
The Brazilian group – which had secured $50bn financing for its offer – was able to significantly increase that to £45 after it secured bigger-than-expected increases in the prices paid by Japanese and South Korean steelmakers for its iron ore, which helped its shares rise more than 5 per cent.
Because the offer was about 40 per cent cash and 60 per cent equity, the difference in the value of the two miners’ share groups was key to the bid’s structure.
A combination of Vale and Xstrata would create the world’s largest mining company, although it would be overtaken by Australia’s BHP Billiton if the group succeeds in its hostile bid to take over Anglo-Australian rival Rio Tinto.
NH: Xstrata this week published a mixed production report ahead of annual results next week. with weaker copper output offset by a strong rise in coal volumes.
The group said it had mined record amounts of coking coal, thermal coal, nickel, zinc, ferrochrome and platinum last year. The coal divisions were particularly strong, with Xstrata’s South African thermal coal mines producing 20 per cent more than in 2006.
PM: Hmmm
PM: I would have thought Xstrata shares would be done more
PM: fallen further
PM: they closed at record high yesterday on the back of that Anglo American story
PM: and this deal looks in real danger of collapse
NH: well, some of the merger/arb community are taking a different view
NH: they say this is all part of the negotiating tactics by Glencore
NH: they are playing hard ball but really they want this deal to happen
PM: seems a dangerous tactic to me
PM: I don’t think they should test the patience of the Brazilians
NH: well a lot of hedge funds think Glencore will eventually soften its stance
NH: once they have secured some marketing rights
NH: that said, I still think Xstrata shares are trading too high
NH: if this deal gets done Vale shares are likely to come under pressure as investors short Vale
NH: apparently this is something that has not happened
NH: that will obviously result in lower share price
NH: which could take months
NH: and still the shares are trading round £40
NH: which seems odd if they offer something like £45, as Lina says
NH: this is turning into a real game of brinkmanship and I don’t think the dangers that it could below up are fully reflected in the price
PM: Ok thanks for that
PM: If we see Lina before we go off air, will grab her
PM:
PM: Right anything else moving?
NH: the LSE is in a bear market
PM:
NH: its own bear market
NH: shares have fallen 30% since the start of the year
PM: whoa
NH: stock down a further 38p to £14.27 this morning
PM: What’s sparked this morning’s weakness
PM: I saw you wrote about the LSE this morning
NH: well I would like to take credit
NH: but I think this morning’s weakness has been caused by a heavy hitting downgrade from Morgan Stanley
NH: analyst Bruce Hamiltion has downgraded to the equivalent of a sell
PM: slashed his target price to £15 apparently
PM: But its through that already
PM: What’s behind the downgrade???
NH: worried Dubai might place its stake
NH: he also thinks some of the Italian banks that became shareholders through the Borsa Italian deal could also sell
NH: other than that he thinks the shares are too expensive given the slow down in new issues and increased competition
NH: here’s the note
NH: We downgrade LSE to Underweight with a price target of
£15.00 and remove it from the Banks Model Portfolio. We
see significant downside risks from the stock overhang,
pro-cyclical nature of the Borsa Italiana business, and primary
issuance fees given the tougher equity market outlook. We cut
our earnings estimates by ~7%, placing us ~3% below
consensus for F2009.
NH: We also think LSE is more vulnerable to potential competition
from the likes of Chi-X and Turquoise, as its business is
skewed to cash equities (we estimate ~85% of revenues linked
to cash equities and ~36% to equity trading fees). We see
more modest self-help potential, with merger synergies and
capital distribution benefits from balance sheet re-leveraging.
NH: Headwinds are likely to prevail from the overhang and
moderating growth, although we recognise that the stock has
already de-rated in line with the sector (down ~25% this year
versus global exchanges down ~25%). It is now trading at
~15.9x calendarised 2009 EPS, on our estimates, broadly in
line with European exchanges. Hence, the price already
reflects some of the above. We prefer DB1 and TLPR for their
PM: ok
NH: greater exposure to derivatives and macro volatility.
NH: Here’s some more on the overhang
NH: NH: What’s new in this note
• We emphasise our bear case, which takes greater
account of potential slowing in issuance and trading
volume momentum in a recessionary outcome.
• We consider the implications of the new competitive
threats following meetings with CEOs of Chi-X and
Turquoise.
• We consider the potential for stock overhang in view of
capital constraints in the European banking sector, which
may lead to corporate stake sales by Italian banks, plus
from Borse Dubai in view of its debt funded position re
OMX deal.
official would not rule out selling out some of the LSE stake at
some time in the future” (Financial Times, Feb 14/08).
NH: Borse Dubai’s exchange investments have been funded
by debt, which we do not think is well understood. HSBC
has recently been mandated to raise US$4.2 billion of debt to
support Borse Dubai’s acquisition of OMX. In the current
funding climate, we think that Borse Dubai may be reluctant to
persist in the long term with ~£850 million tied up in its LSE
stake. We also see a risk to the ~20%+ owned by Italian banks,
given the significant funding/capital pressures we expect
across the European banking industry in 2008. For more on
this view, please see Intense Funding Pressures (November
PM: thanks for all that
PM:
PM: We should go to some questions below
PM: Not sure if we have lots of answers tho
NH: just getting an amlin note for sean
PM: Pharmacogenomics !?!?!
NH: its from KBW
PM: Amlin — go on
PM: From Numis?
NH:
Profits comfortably ahead of repeatedly upgraded forecasts.
