Year: 2009

Rio Tinto hasn’t justified bending the rules

13 Feb 2009

The miner has struck a $20bn deal with its biggest shareholder, a vassal of the Chinese state. Shareholders will get a vote on the transaction but can't put in their own money. Rio s arguments for sidestepping important market principles aren t compelling.

Stimulus bizarrely squelches meritocratic pay

13 Feb 2009

US lawmakers compromise bill looks set to limit bonuses, but not salaries, of top executives at banks that the government invests in. The lastminute populist move doesn t appear stimulative. More importantly, it smothers the important idea of pay for performance.

Lloyds’ credibility takes a hammering

13 Feb 2009

Last month the UK bank insisted that its purchase of HBOS had not deteriorated in spite of shocking numbers for December. Now it has been forced into a uturn, saying HBOS will make a worsethanexpected pretax loss for 2008 of some £10bn. Investors will be asking for heads.

BHP sidelined by Rio’s £20bn cash-call

13 Feb 2009

Rio Tinto s shareholders cosy tieup with Chinalco, owned by the Chinese state, weakens the position of mining rival BHP Billiton. It will almost certainly have to abandon hopes of taking over Rio, and may find negotiation with China, its biggest customer, harder going.

Take note: nationalised banks really are bankrupt

13 Feb 2009

A UK court ruled against holders who wanted more than a pittance for their Northern Rock shares. Aggrieved Fortis investors are demanding a better deal, and JC Flowers thinks Germany should pay 10 times the market rate for its Hypo stake. The law is unlikely to sympathize.

Chinalco makes good on Rio Tinto

12 Feb 2009

The stateowned Chinese group bought into the AngloAustralian miner at a high price a year ago. It overpaid then, but the holding helped Chinalco get good terms on a proposed rescue package for Rio. If the deal goes though, Chinalco will have extracted what it really wanted.

Swiss Re needs more radical change

12 Feb 2009

Jacques Aigrain has quit as chief executive of the troubled insurance group. He had lost all credibility. But his deputy associated with Aigrain s failed strategy is replacing him. The reinsurer needs a more substantial change. An overhaul of the entire board is in order.

Fortis holders shouldn’t gain from populist revolt

12 Feb 2009

Shareholders have rejected the October nationalisation of the DutchBelgian financial group. This deprives BNP Paribas of coveted banking assets and leaves the Belgian government with a failed bank. It should be sure that shareholders don't gain from their obstructionism.

Hedge fund earnings justify share price falls

12 Feb 2009

Performance fee wipeouts and declining assets at GLG and OchZiff cut their measures of last year s earnings by 6070% explaining much of the declines in their shares. The future looks brighter. But investors are right to stay sceptical about the fund managers earnings power.

Irish banks still need more help

12 Feb 2009

Ireland s latest bailout for Allied Irish Banks and Bank of Ireland contains reasonable taxpayer safeguards. But this is another bailout with an incomplete toxicasset insurance scheme. As Ireland s economy weakens, the banks need the full package fast to avoid nationalisation.

Paul Allen’s cable group finally pushes reset

12 Feb 2009

Charter Communications is worth quite a bit just not anywhere near the amount Microsoft s cofounder and other investors and lenders pumped into it. Going bankrupt and writing off $8bn of debt is painful, but slashing leverage is the best thing for Charter's future.

Obama’s bipartisan economic policy myth in tatters

12 Feb 2009

The withdrawal of his second nominee, a Republican, for Commerce secretary due to clashes over the stimulus isn t just the latest embarrassing blunder for an increasingly naïvelooking administration. It makes Obama s promise of bipartisan economic policy ring hollow.

Dow Chemical’s dividend cut may not be deep enough

12 Feb 2009

The chemical giant chopped its payout citing economic uncertainty and pending business issues . That makes sense. But Dow is also trying to wriggle free of its acquisition of Rohm & Haas, saying Dow won t be viable postdeal. Paying any dividend makes that look farfetched.

Rio Tinto’s $20bn cash boost has too many strings

12 Feb 2009

The AngloAustralian miner s twostep deal with Chinese miner Chinalco dilutes shareholders and leaves a big customer with too much influence. Rio should have shopped assets around to rivals and done a rights issue. It s not too late.

Newspaper industry should look to cable for help

12 Feb 2009

Adopting an iTunes model for web content isn t the answer. Charging for subscriptions makes more sense, but only if all the major publications do so at once. Google or Yahoo should lead the charge in corralling them into a bouquet service akin to the cable model.

Who will buy all the T-bonds?

12 Feb 2009

Chinese doubts about the value of US Treasury bonds highlight that question. With $2.74.2 trillion worth to be issued in the next two years, foreign purchases accounting for only $200bn annually, and domestic investors unable to bridge the gap, the Chinese are right to worry.

Geithner’s bad bank riddled with problems

11 Feb 2009

The idea of the US government partnering with the private sector to help cleanse bank balance sheets is seductive. But there are immense difficulties putting this scheme into practice, says Hugo Dixon.

Credit Suisse’s logic is hard to follow

11 Feb 2009

The Swiss bank was meant to be a step ahead in risk reduction, yet its Q4 loss of SFr6bn was more than expected. While Credit Suisse remains well capitalised, it says its cushion will barely dent returns even as leverage and risk fall. The message sounds unjustifiably optimistic.

Boom-time whoops drowned out HBOS whistleblower

11 Feb 2009

Paul Moore claims he told the UK lender s board it ought to slow down and was fired from his job as head of regulatory risk. You didn t need to be a risk wizard to see fast growth funded by wholesale money. But in 2005, no bank board would have called that a serious problem.

Nordea tries to stop lightning striking twice

11 Feb 2009

The Scandinavian bank emerged from the wreckage of state bailouts in the 1990s with the Swedish government holding a 20% stake. But after a E2.5bn privately sourced capital raising, Nordea should be able to avoid increased state involvement even if loan losses start to mount.

US bank CEO hearings underline widespread blame

11 Feb 2009

Eight bank bigwigs lined up and took flack for losses, bonuses and corporate jets. But one Congressman admitted that his industry government also had a credibility problem. So did some of his colleagues questions. Between the two groups, there s a lot of rebuilding to do.

Crosby wise to make speedy exit from FSA

11 Feb 2009

The former HBOS chief s resignation makes things easier for the UK regulator. His position looked awkward even before he was ensnared in the bank s whistleblower scandal. But doing the honourable thing may also be selfinterested, if it limits questions about his HBOS legacy.

ArcelorMittal proves its mettle

11 Feb 2009

The world s largest steelmaker has halved its dividend and is aggressively cutting costs. But excluding oneoff charges, Arcelor is still making money and is on track to meet its debt reduction targets. It s an impressive performance in extremely difficult conditions.

Asian global growth engine may have blown a gasket

11 Feb 2009

China's January export figures bring it in line with other major Asian exporters. And its huge drop in imports suggests that its economy may be shrinking. Asian emerging markets are economically underperforming the West; this is both a mystery and a major global worry.

BP shouldn’t rush to name new chairman

11 Feb 2009

Paul Skinner was tipped for the top job at the UK oil producer, but the Rio Tinto chairman has tarnished his record with a big cash acquisition at the top of the market, and an ongoing fight over raising capital to pay for it. There s no rush to make a decision, so best to wait.

Was Chuck Prince a visionary?

11 Feb 2009

The deposed Citi boss didn t mean it literally when he equated the credit boom to dancing. But boy was he prescient. This week Muzak, the pioneer of elevator music, filed for Chapter 11; Sirius may follow and Clear Channel radio is in trouble. The music really has stopped.

Bank of England edges towards printing press

11 Feb 2009

With inflation projected well below target, the UK central bank may start buying government debt. Investors should be concerned that a government deficit funded by moneyprinting will compromise the bank s independence and lead to inflation and further falls in the pound.

US IPO market re-learns to crawl

11 Feb 2009

The $720m float of baby formula company Mead Johnson shows the equity market is creaking open. The company increased the size of the offering and priced it at the top of the range. While good news, spinning out a profitable, noncyclical business is only a baby step to recovery.

Kuwait’s Dow damage won’t be easily undone

10 Feb 2009

The KIA could inject more equity into Dow Chemical to help it close its takeover of Rohm & Haas. In return, Dow could drop legal action against Kuwait over a scrapped joint venture that would have funded the deal. But it s not as neat a solution as it sounds.

UK bankers get appropriate caning

10 Feb 2009

After a lamentable showing over Northern Rock, the UK parliament's Treasury committee made a decent fist of dragging the bosses of RBS and HBOS over the coals. But although the politicians landed the most blows, the bankers fought their corner.