WHY?

PSNB includes public corporations, which now includes the banks operating surpluses. It was worth £12bn in 2008-09.

WHAT SHOULD WE DO?

Always check “general government net borrowing” as well as “public sector net borrowing”. If there is a big difference, we need to tell readers that the underlying situation is worse. This is particularly true if we use public sector debt figures excluding financial sector interventions, the corollary is to use GGNB nor PSNB.

AND GILTS?

This is one of the main reasons why the gilt issuance will be so much higher than the headline level of borrowing

The federal bank “stress tests” rate the individual loans held by big regional banks as riskier than the complex troubled assets held by the industry titans, according to a Federal Reserve document obtained by The Associated Press.

That approach could threaten some major regional banks while making the national banks appear in better shape when the government releases the results of the tests next month.

Regulators are administering the tests to 19 large financial firms to determine which banks are healthy, which need more help and which might fail if the recession worsens.

Under one scenario, the tests assume banks will see “no further losses” on the complex securities, according to the document obtained by AP. By contrast, it estimates that individual loans will lose up to 20 percent of their value.

Regional banks are holding more individual loans and fewer of the securities Wall Street giants specialize in — complex derivatives backed by huge pools of mortgage-backed loans and other debt.

Analysts say regulators are probably favoring the largest banks because if even one failed, it would pose a grave financial risk. Banks that deal in securities are more connected to other corners of the global financial system.

The approach spelled out in the Fed document “certainly penalizes those banks that are more involved in traditional banking, which frankly have been performing better in recent months,” said Wayne Abernathy, a former Treasury Department official now with the American Bankers Association.

He said banks’ loan portfolios have lost only about 5 percent of their value so far, while the values of complex securities are down 30 to 40 percent.

The securities are held mostly by banking titans like Citigroup, JP Morgan Chase, Bank of America and Goldman Sachs. Their value is based on the performance of vast pools of underlying loans.

As defaults on the underlying loans spiked last year, investors lost confidence in the value of the assets. Individual loans have lost less value because their prices are tied more closely to actual defaults.

A Treasury Department spokesman referred questions to the Fed. A spokesman for the Federal Reserve declined comment.

Nevertheless, we expect services like that to become a major part of the market in the longer term. GMG is aware of the threat and is developing its online presence. The question remains: will it be able to secure the market share in the online world that it has built offline?

2009 UK sector LFL forecast raised +250bp to -4%; 2009E EPS raised +21% —
On the back of this macro analysis, we increase our 2009E LFL +250bp to
-4% (split 1H -4.4%; 2H -2.7%). This increases our UK sector EPS forecast by
+21% to +9% above consensus (2009E sector EPS -15.3% year on year).

3 Hold ratings raised to Buy (Next, Signet and Sports Direct); target prices raised on 12 stocks (see below) — underpinned by the sector’s 20% EV/EBIT discount to its long-run average. We now have 10 Buy and 4 Hold ratings across our UK coverage universe, representing an Overweight sector stance.

It is true that this brand, and the rest of the MH portfolio of luxury spirits and Champagne brands (such as Belvedere vodka, Glenmorangie Scotch whisky and Moet Champagne), are already one third owned by Diageo. Moreover, the two companies already have a loose distribution alliance, the extent of which varies market by market. But this acquisition would increase Diageo’s economic interest in the attractive Cognac category, allow it to consolidate MH’s cashflows (it currently only receives a dividend), and bring MH’s brands fully within its global distribution network.

The timing of the deal could therefore be excellent for both parties, increasing the likelihood of it going ahead. LVMH would get a good price for a business that has held up relatively well in the recession, and the ability to reinvest the proceeds in areas where valuations have been harder-hit by the downturn. Diageo would strengthen its position in the luxury end of the spirits business market near the bottom of the economic cycle, thus leaving itself well placed to benefit from a return to trading up as the world economy recovers.

The Telegraph puts the value of MH at E12bn (£10.6bn). On this basis the deal would cost Diageo £7bn.

We suspect that the actual number could be even higher. MH makes very high (34%) EBIT margins, even by the standards of the spirits industry. Its 2008 EBIT was therefore E1,060m, implying a CAMP (contribution after marketing and promotion) of c.E1.6bn. With previous deals in the spirits industry being struck at CAMP

With the savings from this deal likely to be far lower than in previous deals due to the existing distribution overlap, and with only one realistic buyer for the business, we do not expect the valuation to be as high as this. But, as with previous deals, we believe that the price would surprise the market on the upside.

Al-Watan newspaper said in an unsourced report that a United Arab Emirates-Kuwait consortium was close to securing a deal to buy the world’s largest maker of business jets, offering $21 a share. It did not identify the companies.

The New York Stock Exchange said in a statement it had asked Textron to “issue a public statement indicating whether there are any corporate developments which may explain the unusual activity” but that the company said its policy is not to comment on market rumors.

Lockheed and Raytheon officials on Monday declined to comment on those reports.

“Compared with earlier press speculation that has focused on large defense contractors as potential acquirers of Textron, the interest from a Middle East consortium would appear to make more sense,” Macquarie Capital analyst Robert Stallard wrote in a note to clients.

Textron shares were up $4.31 to $13.42 in afternoon trading on the New York Stock Exchange. Over the past year, they have fallen 84 percent, a steeper drop than the 55 percent decline in the Standard & Poor’s capital goods industry index < .GSPIC>.

Given the pounding of the shares, management might have a hard time resisting serious takeover bids, an analyst wrote.

“Given the legacy of execution issues at Textron, high investor dissatisfaction with recent company performance and continued liquidity uncertainty, a legitimate takeover attempt will be hard to resist,” wrote Citigroup analyst Jeffrey Sprague, in a note to clients.

According to the newspaper report, the consortium of buyers would plan to sell off Textron’s military businesses — Bell helicopter and Textron Systems, which makes armored vehicles. That could help to alleviate the national security concerns that could be triggered if a foreign buyer tried to buy a U.S. defense contractor

Apparently, the communists behind this blog are being sued by Goldman Sachs. But that is not the whole story. I can reveal that Goldman has actually commissioned me to put a curse on the blog. The bank is paying me an obscene amount of money for this service, but I would have done it for free.