Tuesday, February 28, 2006

globeandmail.com : Mergers hit $166-billion

Takeovers have been coming fast and furious of late in Europe and North America. The NY Times' Deal Book reported on trend from a global perspective today. I'll try to further summarize this activity.

First Canada' Globeandmail.com reports on the large spike in Canadian activity: Mergers hit $166-billion:
"Merger-and-acquisition activity in Canada jumped 47 per cent to a near-record $166-billion last year amid “ideal market conditions,” investment banker Crosbie & Company Inc. said Monday.

All told, there were 1,244 announced transactions in 2005 — a rate of more than three a day, seven days a week, and a 42-per-cent increase over the 875 deals in 2004."
The large number of deals has of course drawn politiacl interests as politiicans in many countries try to block some deals. From the NY Times:

"In the past month, efforts in continental Europe to keep foreign buyers out have spread. In the latest instance, French politicians said last weekend that the private utility Suez and Gaz de France would merge, effectively halting a bid by Enel, an Italian company, for Suez.

Elsewhere, the intrusion has been subtler, but palpable. In the United States, lawmakers have raised security concerns over Dubai Ports World's takeover of the British company Peninsular & Oriental Steam Navigation, which manages some United States ports. In Britain, officials fretted earlier this month over scrutiny by Gazprom, the Russian government-controlled monopoly, of the British gas company Centrica as a possible takeover target.

Around the world, globalization has lowered barriers to entry. But some of its costs, like large-scale job losses, have created fertile conditions for politicians hoping to build national champions and keep out foreign buyers. Also, national security concerns — about everything from energy sources to ports — have coalesced into government action to keep strategic assets out of foreign hands."

(for more on this protectionism see Business Week as well)

Finally Bloomberg reports that the surge in M&A activity has led to higher profits at banks such as the Bank of Scotland:
"Revenue gained 14 percent to 25.6 billion pounds....[at the] Bank of Scotland, the biggest arranger of leveraged loans in Europe, benefited from a surge in takeovers by buyout firms that spurred borrowing last year.

Bloomberg.com: Top Worldwide


Bloomberg.com: Top Worldwide:
"The New York Stock Exchange's plan to take over Archipelago Holdings Inc. and end 213 years as a member-owned stock market today received final approval from the Securities and Exchange Commission.

Buying Archipelago, a Chicago-based electronic market, will enable the world's largest stock exchange to compete better with the Nasdaq Stock Market and to expand into options trading. NYSE members will receive about $7.6 billion of cash and stock in NYSE Group Inc., the combined company.

``There is the demutualization and the merger of these two exchanges, and any one of those alone would be a landmark decision,'' said Hans Stoll,"

Saturday, February 25, 2006

FRB: Speech, Ferguson--The Importance of Education--February 24, 2006

The Fed's Vice Chairman Roger Ferguson on The Importance of Education--February 24, 2006: "Perhaps more indicative of the economic value of education, workers with college degrees earn an education premium, and that premium has risen over the past twenty-five years. Most economists have found that an additional year of schooling typically raises an individual's earning power between 8 and 15 percent. Recent studies show that four years of college boost earnings about 65 percent."

Mmm, qualitatively consistent to what many have been saying for years. I really do think everyone (and especially all students) should read (or risten to) Thomas Friedman's The World is Flat.

Tuesday, February 21, 2006

How The IPO Market Got Its Buzz Back

A note to my students: we start IPOs next week!

Business Week's look at the current IPO market.

How The IPO Market Got Its Buzz Back: "With 32 offerings priced since Jan. 1, up 14% from the same time last year, 2006 is shaping up to be the busiest year for new issues since before the tech crash.

And IPOs are performing well in the aftermarket. They returned an average of 18% in 2005 and 10% so far this year, according to Renaissance Capital in Greenwich, Conn., vs. returns of just 5% and 1%, respectively, for the Standard & Poor's 500-stock index."

Postcard from China: Banking Accounts, Part 1 | PFBlog: The Unique Personal Finance Weblog

A few "look-ins" from PFBLOG's discussion of Banking in China.

Postcard from China: Banking Accounts, Part 1:

* "It is important to understand that the current regulations in China does not allow a bank to offer insurance or brokerage products, so a bank is a bank and a bank only."

* "Although checking account is among the core offerings, there is no personal check per se. Access to checking accounts usually includes ATM, deposit/withdrawal at bank branches, or debit-card-based purchase. For one thing, it is probably cost prohibitive to enforce the security of personal checks -- it is so easy to produce counterfeit copies of whatever products in China"

* "The automation of consumer banking in China is no less advanced than that in the States. Everything from transaction tracking, transfer between accounts, opening CD, online bill payment, inter-bank transfer, and many other things can be done online."

good stuff! Be sure to check it out!

Saturday, February 18, 2006

BBC NEWS | Science/Nature | Retirement age 'should reach 85'

Yeah I know it is a science/nature article. But for a second think about the ramifications on social security and pensions etc.

BBC NEWS | Science/Nature | Retirement age 'should reach 85':
"The age of retirement should be raised to 85 by 2050 because of trends in life expectancy, a US biologist has said.

Shripad Tuljapurkar of Stanford University says anti-ageing advances could raise life expectancy by a year each year over the next two decades.

That will put a strain on economies around the world if current retirement ages are maintained, he warned."

Stock Market News and Investment Information | Reuters.com

On Friday the deal appeared still shaky, but it is of local interest at Bonaventure since Cerberus is William Richter's firm (of the Richter Center fame)

Stock Market News and Investment Information | Reuters.com: "NEW YORK, Feb 16 (Reuters) - A group led by hedge fund Cerberus Capital Management and a unit of Citigroup has taken the lead in negotiating a potential purchase of General Motors Corp.'s finance arm, the Wall Street Journal reported on Thursday."

Thanks Rich!

Friday, February 17, 2006

The iShares Have It (State Street, Barclays, Bank of New York, Nasdaq 100 Trust, SPDR Trust)| SmartMoney.com

Another topic from this week's class is in the news:

The iShares Have It (State Street, Barclays, Bank of New York, Nasdaq 100 Trust, SPDR Trust)| SmartMoney.com:

"...226 ETFs currently trading in the U.S. State Street is the No. 2 provider of ETFs behind Barclays (BCS), based on total assets. In third place is Bank of New York (BK), creator of the popular Nasdaq 100 Trust (QQQQ).

ETFs are baskets of securities that track an index, much like plain-vanilla index mutual funds, yet trade like stocks throughout the day. (Mutual funds are priced just once daily.) There's plenty of good reason for investors to flock to ETFs: They're cheap, tax efficient and relatively simple to understand and invest in."

The Australian: Money drives us crazy: it's official [February 09, 2006]

Gee in a week where we spoke of behavioral finance in almost every class I taught, comes this:

The Australian: Money drives us crazy: it's official [February 09, 2006]: "The pleasure of orgasm, the high from cocaine, the rush of buying Google at $US450 a share - the same neural network governs all three, Knutson, 38, concluded. What's more, our primal pleasure circuits can, and often do, override our seat of reason, the brain's frontal cortex, the professor says. In other words, stocks, like sex, sometimes drive us crazy.

Knutson says he knows how heretical his findings are. Wall Street is dedicated to the principle that when it comes to money, logic prevails,"

and then the wrap up from a Nobel Prize winner:
"This controversial field, called neurofinance, may represent the next great frontier on Wall Street, says Daniel Kahneman, who won the 2002 Nobel Prize in economics for his pioneering work in behavioural finance, which fuses classical economic theory and studies of human psychology. "The brain scientists are the wave of the future in the financial world,""

THANKS TO MONEYSCIENCE for pointing this out!
What a perfect way to introduce the Fed (and its actions) to a Money and Banking class!

From Voice of America:

"The Federal Reserve affects interest rates mainly through its open market operations. The Fed can either buy or sell United States government securities. These bonds, bills and notes are all debt guarantees that pay interest until they are repaid. Thirty-year Treasury bonds are the longest-term debt that the government sells. The Fed suspended sales in two thousand one, but started again on February ninth.

The Open Market Committee of the Federal Reserve trades in securities as a way to increase or decrease the money supply. If the Fed wants to make a purchase on the open market, it places an order through its trading offices in New York City. The Fed buys the securities from dealers. It credits the amount of the sale to the dealers' banks."

You can read the article here or you can listen to the whole thing here.

(BTW the speaker does not exactly make it an excting listen...lol...reminds me of the person who replaced Robin WIlliams (mid movie) on Good Morning Vietnam.)

Thursday, February 16, 2006

FRB: Testimony, Bernanke-Monetary Policy Report to the Congress, U.S. House of Representatives-February 15, 2006

FRB: Testimony, Bernanke-Monetary Policy Report to the Congress, U.S. House of Representatives-February 15, 2006: "The U.S. economy performed impressively in 2005. Real gross domestic product (GDP) increased a bit more than 3 percent, building on the sustained expansion that gained traction in the middle of 2003. Payroll employment rose 2 million in 2005, and the unemployment rate fell below 5 percent. Productivity continued to advance briskly.

The economy achieved these gains despite some significant obstacles. Energy prices rose substantially yet again, in response to increasing global demand, hurricane-related disruptions to production, and concerns about the adequacy and reliability of supply."

Friday, February 10, 2006

breakingviews | Sample Story

For those of you that have never had a corporate class from me, you don't know how often we discuss the Nexius of contracts. Well here is a great example!

breakingviews | Sample Story:
" BAA is caught between a rock and a hard place. Its bondholders are demanding better terms - a so called change-of-control clause - on bonds that have yet to settle. Bond investors fear Spain's Ferrovial's highly leveraged approach will cause their investment-grade debt to be downgraded....

But BAA's first responsibility is to its shareholders. It shouldn't change the terms of the bonds because that could act as a poison pill - a deterrent to a takeover bid. And it is up to BAA's shareholders and not its management to decide if an offer - that is, if one is tabled - is attractive.

Besides, a deal is a deal. Bond investors have committed. Unfortunately, they did not negotiate hard enough for a change-of-control clause ahead of time and they may regret it now, but that's their responsibility. "

Good stuff!

Monday, February 06, 2006

FT.com / Home UK - Banks hope to cash in on rush into hybrid securities

The Financial Times has a very cool article on financial engineering and the development of securities that combine debt and equity-like features.

FT.com / Home UK - Banks hope to cash in on rush into hybrid securities: "Securities that straddle the debt and equity worlds are not new. They combine features of debt such as regular interest-like payments and equity-like characteristics such as long or perpetual maturities and the ability to defer payments."

"About a decade ago, regulated financial institutions started issuing so-called trust preferred securities, or Trups, which are functionally similar to preferred stock but can be structured to achieve extra benefits such as tax deductibility for the issuing company. Other hybrid structures have also been tried.

But bankers were still searching for what several called the “holy grail” – an instrument that looked like debt to its issuer, the tax man and investors, but like equity to credit rating agencies and regulators.

That goal came closer a year ago when Moody’s, the credit rating agency, changed its previously conservative policies, opening the door for it to treat structures with some debt-like features more like equity."