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Friends Forever – US-FOREX.US

Forex-Publisher — Mon, 10 Aug 2009 11:46:23 +0000

Like they say, fourth time’s a charm. The British investment firm Resolution has made another attempt to bid for the money-losing insurer Friends Provident, and this time a deal just might happen. The new terms stipulate that investors in Friends could receive 0.9 Resolution shares for each of their own; alternatively, the insurer’s 750,000 retail investors, who own 20% of the firm, could get up to 500 million pounds in cash. The bid represents a 13.3% premium to Friends’ closing price on Friday in London and values Friends at 1.9 billion pounds based on the price of Resolution’s shares on Monday morning. It is likely that the two sides want to reach an agreement before Friends announces its interim results on Tuesday. Shares of Friends Provident
, which was founded in 1832 and demutualized in 2001, shot up by 7.7%, or 5.4 pence to 75.5 pence on Monday morning in London. With the stock hovering just under the bid price, it appears that investors are not holding out for a higher offer. Resolution floated on the stock market last December and raised 660 million pounds to be spent on vacuuming up undervalued insurance and asset management firms in the United Kingdom. Its speciality is “zombie” insurance funds that no longer accept new business. The company, founded by insurance tycoon Clive Cowdery and domiciled in the British tax haven of Guernsey, intends to raise 3-5 billion pounds over an 18 month period for more acquisitions. Its biggest shareholder, with just under 9% of equity, is Scottish Widows, a subsidary of Lloyds Banking Group
, and the rest are other institutional investors like Aviva and Standard Life.
A source close to the situation said Friends Provident was at the “smaller end of the spectrum” for deals, and that Resolution could buy three or four more firms, including privately-owned assets and subsidiaries of banks. Resolution has been in talks with a number of vendors of insurance assets but Friends is the first one to go into the public domain because it is a listed company. One rumored acquisition target for Resolution is a division of Lloyds, possibly asset management.Barrie Cornes, a banking analyst at Panmure Gordon who has a “buy” rating on Friends Provident, calculates the insurer’s underlying embedded value at 108 pence a share, suggesting Resolution is acquiring the company at a 25% discount. Friends and Resolution had come close to a merger in 2007, but the deal collapsed when an earlier incarnation of the firm, Resolution Plc was itself taken over in November 2007 by insurance rival Pearl Assurance, for 5 billion pounds . But Cowdery later formed Resolution Ltd.andJuly 2009 saw it and Friends go back in forth with bids and counter bids, first with Resolution offering 0.8 of its shares for every Friends share, then Friends making a counter-bid, then Resolution trying again with 0.82 of its shares. All three offers were rejected. Now the board of Friends has said it believes the revised proposal has been “sufficiently improved” to justify talking with Resolution again. Friends has been losing money for the last two years, and posted an annual loss of 489 million pounds for fiscal 2008. But the total value of its assets has stayed fairly resilient, slipping by just 1% to 56.4 million pounds in 2008. Also, the company’s chief executive and chief financial officer, Trevor Matthews and Evelyn Bourke, are well-regarded by the market. Having both been in their respective positions for less than a year, Panmure’s Cornes thinks it unlikely that Resolution will push them out.

Reality Check From The Bank Of – US-FOREX.US

Forex-Publisher — Thu, 06 Aug 2009 12:46:13 +0000

Britain has recently been reveling in positive economic data that gave the impression its economy was suddenly and inexplicably on the mend. But the Bank of England smartly put a stop to all that on Thursday. The British central bank is expanding its quantitative easing program by a larger-than-expected 50 billion pounds , to further increase the amount of money it is putting into the economy. In doing so, it has raised its quantitative easing target to 175 billion pounds from the 150 billion pound limit authorized by the Treasury in March.Judging by public letters between the Chancellor and the Bank of England and minutes from the Bank of England’s monetary policy committee, the 175 billion-pound figure seems to have been discussed as recently as the committee’s meeting on Thursday.
Its decision took the market by surprise: the pound sank to 1.684 from 1.699, soon after the announcement.But far from being a gloomy omen, some think the move is a healthy dose of reality for the market. “It’s brilliant, inspired and sensible,” said David Buik of BGC Capital Markets. “I’m so pleased they made it up to 50 billion-pound mark. All this euphoric stuff over recent economic data is just nonsense.”
Buik also thinks it ridiculous that sterling recently reached 1.70 after a series of positive economic indicators. They included data from mortgage lender Halifax that showed house prices in Britain had risen by 1.1% in July. Then the Chartered Institute for Purchasing and Supply said earlier this week that Britain’s services sector had grown at its fastest rate in nearly a year-and-a-half in July. Industrial and manufacturing production numbers released this week were also better than expected.
Britain’s FTSE 100, which has risen by 12% in the last month, was up 1.3% at 4,708 points after the decision. British bonds were also resilient: yields across the board were up on Thursday afternoon. “I think it sends a very clear message to the market that we are far, far from the end game in restoring free-flow liquidity for lending in the U.K. market,” said Manus Cranny, senior analyst at MF Global Spreads. “The reality over where we are at with defaults in consumer credit and mortgage lending is a lot more painful than the market seems to have provided for this week.” Economists and market participants in Britain had been at odds over whether the Bank of England should or shouldn’t increase its asset purchase program, in which it aims to increase the amount of money in the British economy by buying assets like Government and corporate bonds. The British Chamber of Commerce and the Institute of Economic Affairs’ Shadow Monetary Policy Committee were in favor of a 25 billion pound increase, while the Times Monetary Policy Committee opposed any change.The Bank of England had surprised the market in July when it decided to keep its assets purchase program on hold. With interest rates at minimal levels, the role of central banks has been shifting from that of controlling the cost of borrowing, to keeping liquidity flowing between banks to help revive the economy.

Should Lloyds Bulk Up On Investment Banking – US-FOREX.US

Forex-Publisher — Wed, 05 Aug 2009 17:46:25 +0000

It’s been a rather tragic, double whammy for Lloyds Banking Group: Not only does the lender’s deep involvement in domestic retail banking mean its fortunes are dangerously tied to Britain’s economic ups and downs, it has had to deal with billions of dollars worth of bad assets brought on from its controversial takeover of mortgage lender HBOS. Lloyds, with almost no investment banking operations to speak of, has had to pay the price for bankers that made ill-judged bets on the commercial property market. Hence the lender’s 6.8 billion loss reported on Wednesday and 22.8 billion in loan impairments for the first half of 2009. Misfortune aside, it also begs the question of whether Lloyds should grasp the thorn and diversify itself a little, particularly by building up its presence in investment banking. Richard Hunter, head of equities research at of Hargreaves Lansdown, believes there are gaps in the investment banking market left by Lehman Brothers
that other banks could still fill in Britain. A number of banks have also recently seen a revival in their investment banking operations. Profits at Barclays’ main securities and underwriting division, Barclays Capital, doubled to 1.1 billion pounds for the half year, boosted by the company’s opportunistic takeover of Lehman Brothers’ North American assets last year. Those profits helped to offset a decline in revenues in domestic banking. There was a similar picture at Societe Generale on Wednesday, which reported healthy revenues at its investment banking division that helped make up somewhat for sliding profits at its retail banking arm. But the problem is that other lenders with a sizeable investment banking presence-think Barclays
and HSBC
-will already be elbowing each other to maintain market share in the U.K. “I’m sure Lloyds will be casting an envious eye towards the likes of Barclays and even Royal Bank of Scotland,” Hunter said. “But I wouldn’t have thought it is a step they could take right now.”
Lloyds, once seen as a stable investment that paid high dividends and was consistently cash generative, is enamored with the task of writing down legacy assets from HBOS-with help from the British government’s asset protection program-as well as re-building its presence in the U.K. domestic banking market. Jonathan Newman, a banking analyst at Brewin Dolphin, believes the bank should just stick to those tasks and little else. “It would not be appropriate for Lloyds to think about investment banking when they have a very large U.K. domestic operation to get back on track and make profitable,” he said, adding that if investors wanted to put their money in a British lender with investment banking exposure, they could just invest in Barclays. There may also be little in the way of investment banking expertise that Lloyds can pick up from HBOS, even though the mortgage lender had been very active in trading asset-backed securities before being taken over by Lloyds last year. With the market for those securities now collapsed, Lloyds revealed Wednesday that it was still exposed to 46.2 billion pounds worth of asset-backed securities that are now extremely difficult to sell. A breakdown of revenue at Lloyds also suggests its now-struggling retail division shows more promise: While its investment banking, or “wholesale” division, posted a 5.4 billion loss on Wednesday, mostly thanks to bad loans at HBOS , its retail division brought in a 612 million profit, down from 2.9 billion last year. Lloyds’ wholesale division had brought in just 62.9 million in profit last year. The market for investment banking meanwhile looks highly competitive. Royal Bank of Scotland
is the only British bank to have gained market share among the top 10 lenders in the investment banking arena in Britain, to 9.9% between January and August 2009, from 6.9% last year, according to data provided by Dealogic. Barclays Capital’s market share has meanwhile fallen to 4.7% from 5.2%, while HSBC has dropped out of the top 10 altogether. “I think whatever expertise Lloyds and HBOS might have in investment banking it would not be enough to make a mark on that part of the market,” adds Hunter. Perhaps things are best left as they are.

Prudence Pains Lloyds – US-FOREX.US

Forex-Publisher — Wed, 05 Aug 2009 11:46:12 +0000

Like a few other European banks reporting this week, Lloyds Banking Group is doing its best to put a positive spin on a stunningly bad set of results. The British bank explained Wednesday that it was being “prudent” by marking down billions of dollars worth of legacy assets it had taken on after its controversial takeover of mortgage lender HBOS. The impairments totaled 13.4 billion pounds , versus 2.9 billion pounds in charges last year. Around 80% the first-half charges were associated with property loans doled out by HBOS before it collapsed in Sept. 2008 and was subsequently taken over by Lloyds. This led to a 4 billion pound loss at Lloyds Baking Group
, more than wiping out the 11.9 billion pounds in revenue the bank had brought in in the first six months of 2009. But Lloyds is putting a brave face on the numbers. Chief Executive Eric Daniels said the bank’s core business had “delivered a resilient performance, despite the weak economy.” Crucially, he added that the loan impairments at the bank had “peaked” in the first half, and that Lloyds expected the group’s results to improve in the second half through to 2010. This comment seems to be what gave the market hope on Wednesday morning: shares of Lloyds jumped 10.3% to 92.94 pence in London. The shares must trade above 122.6 pence for the British government, which owns 43% of Lloyds, to break even on its investment. There is a big “if” here, though. Lloyds needs not only the economy but house prices in Britain to pick up if it wants its mostly-property related legacy assets from HBOS to regain value. House prices in Britain rose by 1.1% in July, according to mortgage lender Halifax, which is owned by Lloyds. There may also be more hope for Britain’s economy: activity in Britain’s services sector in July grew at its fastest rate in nearly a year and a half, according to the Chartered Institute for Purchasing and Supply. Unlike fellow British bank Barclays
, whose second-quarterly results benefited from a relatively strong performance at its investment bank, the famously conservative Lloyds relies on its retail banking operations more than its investment banking to bring it revenues.
While its investment banking, or “wholesale” division posted a 3.2 billion pound loss on Wednesday, attributed to bad HBOS loans, its retail division brought in a 360 million pound profit, down from 1.7 billion pounds last year. Lloyds’ wholesale division brought in just 37 million pounds in profit last year. In the mean time, Lloyds is in negotiations with the British government about putting its bad assets through the spinner and sharing some of its subsequent losses with U.K. taxpayers. The bank said Wednesday that “approximately three quarters” of the impairment charges it had booked in the first half would be included in the state’s so-called asset protection scheme. This is a process by which the government will limit the bank’s losses on its bad loans by booking some of the losses on the state balance sheet; Royal Bank of Scotland
is also taking part in the program. Lloyds said it was working with the Treasury to finalize the terms of its participation. “The operation of the scheme and the impact on our business is complex,” it added. Indeed, it’ll be a while yet before Lloyds actually participates in the program. The Treasury said in May that Lloyds was intending to place 260 billion pounds worth of bad assets into the plan after paying a participation fee of 15.6 billion pounds . Lloyds would have to absorb the first 10%, or the first 25 billion pounds or so of any losses, while the government would take on the remaining 90% and Lloyds stayed on the hook for a further 10% of residual losses. As part of the program the government’s stake in Lloyds will rise to around 65%.”There is little additional commentary on the asset protection scheme,” noted analysts at Nomura, “other than that the company still expects to conclude it.” Since Lloyds has yet to reach the 25 billion-pound mark to be eligible to hand its bad loans over to the state, it’s shareholders will have to continue bearing the pain of mark-downs for some time to come.

Labor Pains For British Airways – US-FOREX.US

Forex-Publisher — Fri, 03 Jul 2009 12:46:03 +0000

When the dispute between British Airways and its staff to cut jobs and salaries was passed to ACAS on Wednesday, fears of another summer of strike action cast a shadow over thousands of holiday plans. But the airline’s problems with striking staff are nothing new. They began in July 2003, when an unofficial strike over a new clocking system caused massive disruption and left 80,000 unable to fly.Problems rose again in August 2005, when another 70,000 passengers were stranded after many of BA’s ground staff allied themselves with the dismissed ‘Gate Gourmet’ catering workers, and went on another unofficial strike. The action left 100 flights grounded, and thousands sleeping in departure lounges. Then in August 2007, a strike was narrowly avoided over a 2.1 billion pound pension deficit.Such disputes are, in one way, business as usual for many carriers. Airline employees are in a position of considerable power because strike action can halt an airline’s functioning entirely. But BA’s fractious relationship with its staff seems to be rooted in the company’s background a state-owned carrier. “BA’s culture of ‘us versus them’ goes back to the pre nationalization days,” said Doug McVitie, Managing Director of Arran Aerospace. “The company and the unions have always been at loggerheads. The company isn’t badly run-it’s just had a long history.”
What can be done to ease the tensions between BA’s managers and staff, and get them working together again? Tom Smith, occupational psychologist at consultancy Lane4, believes the management must set about rebuilding trust in their staff. “Leaders need to start talking about their companies at a more personal level. They need to talk about what is happening and how to resolve it, and that will go some way towards rebuilding trust.”
Recent tough measures taken by British Airways
, such as unpaid leave and job cuts, may well designed to get employees to recognize the scale of the issue, and for managers to take some of their power back. The airline employs 40,000 people but is looking to cut 2,000 flight attendants and 1,500 ground workers. Last month Chief Executive Willie Walsh called on employees to work for free for a month, and around 7,000 staff agreed to take some amount of unpaid leave, work part time or work unpaid. BA has suffered badly from rising fuel costs and the plummeting demand for business travel, as hard up travelers switched to lower cost airlines like Easyjet
and Ryanair
. In May it announced a 220 million pound annual operating loss. Now as it reigns in its costs, the carrier is waiting and hoping for the premium market to stabilize. If it doesn’t, the airline might have to consider alliances with other companies. “BA cannot be the leading British airline and be an international player,” said McVitie. “It needs to swallow its identity into a bigger whole. BA will not be a standalone airline five years from today.”

Something Rotten In U.K. Businesses – US-FOREX.US

Forex-Publisher — Fri, 03 Jul 2009 12:45:59 +0000

Nobody likes to admit to being duped-especially businesses when they fall victim to fraud. But according to a report published on Thursday, it’s happening more than ever before in the United Kingdom. In the first six months of 2009, reported cases of business fraud cost British companies 1.5 billion. And with 2008′s total reported business fraud at only 1.9 billion, this year’s total could double last year’s or worse, says Simon Bevan, head of the fraud services team at BDO Stoy Hayward. “It is extremely likely that the total fraud figures will treble during the course of the recession,” he said. In the North East of England, the cost of fraud rose from 7.6 million in the first six months of 2008, to 155.4 million this year, a year-on-year increase of 1,900%. The sharp rise is thought be caused by a handful of high-value fraud cases in the region which included a Ponzi Internet scam that cost York residents 4.9 million, a 1.3 million mortgage fraud, and a single property fraud case worth 147 million. But Bevan was careful not to dismiss the figures as being skewed: “Fraud tends to go where the money is.”In Scotland, where there is a high level of commercial activity, fraud costs jumped to 16.6 million in 2009 from 2.9 million in the first half of last year, a 450% increase. But even that was lower than expected. Why the rise across the country? Although most business fraud occurs in boom times, it is only in darker economic days that the fraud is exposed, says Bevan, who believes that people turn a blind eye in good times as long as it doesn’t directly harm them. “It’s only when you get into a recession that you ask the questions that reveal the problem.”
The report says that around a billion dollars of reported fraud will have targeted banking and building societies, where employees take out bogus loans or management “cook the books” by fiddling a company’s accounts to avoiding tax payments.
Another 158 million is mortgage fraud, often involving a scheme where corrupt solicitors and valuers band together to overvalue a property, and banks then pay out an inflated mortgage. The problem comes when the banks want their money back. Because the banks and other lenders burned by fraud use civil courts to recover their missing money, instead of prosecuting fraudsters, very little fraud is actually reported. Even the report’s figures don’t fully represent the true scale of the problem. BDO Stoy Hayward’s report only takes into account criminal fraud cases, and only those that defrauded over 50,000 pounds from companies.”This is only a fraction of the whole picture,” says Bevan. “We’re one of the U.K.’s leading fraud investigation services, and 95% of what we do doesn’t go to the courts.”

Summer Of Love For MS – US-FOREX.US

Forex-Publisher — Wed, 01 Jul 2009 13:45:58 +0000

Brits have not been the only ones benefiting from the U.K.’s unusually hot weather this summer. It also apparently helped British mid-market retailer Marks & Spencer get more goods off the shelves and post a smaller-than-expected drop in first-quarter underlying sales.And while its chief executive, Stuart Rose, said he was “cautious about the outlook for the remainder of this and next year,” analysts said the positive momentum in the company’s shares could last for the rest of the year. Shares of Marks & Spencer, which sells clothes, homewares and food from over 600 stores in Britain and about 285 internationally, jumped 4.6%, or 14.00 pence , to 320.00 pence in morning trading in London.
“Expect the stock to rise in the next three to six months,” said Luca Solca, an analyst with Sanford C. Bernstein. “The trading update was good and same-store sales were ahead of expectations. If we don’t have any major market pull backs, M&S should benefit with easier comparisons and the likely upward revision.”The retailer has said its priorities include an improvement in its food business, badly hit by cheaper options on the market, and an increase in its international operations. Analysts expect the Indian food retail sector, where M&S has a foothold, to grow by between 10% and 15% in the next two years.Marks & Spencer has partly benefited from an improvement in consumer confidence but also by keeping benchmark products at the same price as competitors to show shoppers they are paying a fair price, said Anne Critchlow, an analyst with Societe Generale in London. Solca said the 125-year old company also benefited from better weather in Easter, and by managing to lure shoppers through promotions.
Though this was the company’s seventh quarterly sales decline in a row, it represented the best performance since the second quarter of its 2007-08 financial year. “It is wise of them to plan cautiously, but the outcome could be better [than expected],” Critchlow said.

Vodafones T-Mobile Play – US-FOREX.US

Forex-Publisher — Mon, 29 Jun 2009 15:46:14 +0000

Britain’s crowded mobile phone sector has been great for consumers, but terrible for the margins of its five big players. That’s why reports on Monday that Vodafone was exploring a bid to buy T-Mobile U.K., the British mobile network unit belonging to Deutsche Telekom, came as little surprise. Not only had Deutsche Telekom booked a 1.8 billion-euro write-down on T-Mobile U.K. in the first quarter, it has openly expressed an interest in reviewing the unit’s strategic operations. But that doesn’t mean Vodafone will bag T-Mobile U.K. on the cheap.
Deutsche Telekom
would be selling at the bottom if it were to do a deal with Vodafone now, said telecoms analyst Michael Kovacocy of Daiwa Institute of Research, Europe. The unit’s profit margin dropped below 15% in the last quarter, and “I doubt that they would want to use that as a basis for a deal.”
A more likely scenario: T-Mobile U.K. sticks around and tries to raise its profit margins by selling more contract deals to consumers, and hope the British economy improves in the meantime. “This pushes any potential deal out at least a few quarters,” said Kovacocy.
Yet Vodafone
won’t want to wait that long, and for a higher price tag on a company that is worth approximately 5 billion, with goodwill set near to 2 million, according to Cantor Fitzgerald global strategist Stephen Pope. The British mobile giant has been struggling, like its rivals in the U.K., in a highly dense field. Whereas most countries have three or four leading mobile phone networks, Britain has five: Telefonica’s
O2 being the largest; followed by Vodafone; France Telecom’s
Orange; T-Mobile and Hutchison Whampoa’s 3. Vodafone has also suffered from strong take-up of Apple’s
iPhone in the United Kingdom, which is only available under a contract with O2.Buying T-Mobile would help Vodafone capture a larger share of the retail market to rival O2, and although the company is in debt, new dividends from 45%-owned Verizon Wireless should help it pay that down in the near future. Many investors expect the Verizon
unit to start paying significant dividends its two parent companies from around 2012, said Tom Gidley-Kitchin, an analyst at brokerage firm Charles Stanley.
Gidley-Kitchin believes Vodafone’s reported interest in T-Mobile U.K. is illustrative of the strategy of its new, pragmatic chief executive, Vittorio Colao, who’s business plan is focused on cash flow more than strategic growth. “He’s said he’s not going to do transformational acquisitions,” said the analyst. Rather than the big strategic acquisitions made by predecessor Arun Sarin several years ago in emerging markets, Vodafone has recently done little more than increase its stake in a South African telecoms company and merge with Hutchison’s 3 Australia. With that in mind, if T-Mobile doesn’t work out, there’s always Hutchinson. Analysts think that company’s operator could also be the extra “fifth player” that gets bought out if T-Mobile manages to remain independent.