United States of America

BYD caught in two Chinese economic traps

6 Aug 2012

Warren Buffett bought into the automaker, but insiders are now selling amid falling profits. BYD expanded too fast after Beijing’s 2009 stimulus. The downturn is hurting its mostly low-end customers. Besides, a fatal tragedy has reinforced the Chinese love of foreign brands.

Bank breakups – a guide for the perplexed

3 Aug 2012

Sandy Weill created the Citigroup financial supermarket in 1998 by calling the bluff of U.S. lawmakers and ignoring the Glass-Steagall Act, which limited what banks could do. Washington soon repealed the law. Now, Weill says big banks should be broken up. What gives?

What hedge funds share with rock’n’roll festivals

3 Aug 2012

Not a lot, at first sight. But both are subject to the law of large numbers. Festivals like this weekend’s Pickathon are limiting entry to make the experience less mundane. And the likes of Moore Capital are seeking better-than-average returns by shrinking, too.

Knight shows that next creative loss is never far

2 Aug 2012

The market-maker’s unlikely $440 mln hit may put its future in doubt. The software error behind it, fresh on the heels of UBS’ head-scratching Facebook blunder, proves investors can never be too imaginative about the potential to lose money. Risk just can’t be regulated away.

M&A discretion will come with a price of its own

2 Aug 2012

Martin Marietta forfeited a hostile bid after rival Vulcan successfully sued it for a confidentiality breach. Now, a Blackstone-owned firm is accusing a suitor of illegal blabbing. Leaks can be harmful, but dealmakers and their clients may also find they miss the chatter.

Goldman shows not all innovation in finance is bad

2 Aug 2012

A $9.6 mln loan to the Big Apple is a canny use of pocket change. The bond will yield a tidy profit only if criminal recidivism in the city declines. It may be PR, but Goldman has a chance to prove not all Wall Street concoctions are weapons of financial mass destruction.

Brazil’s Chevron ban straddles worst of two worlds

2 Aug 2012

Suspending the U.S. oil giant’s operations over a minor spill keeps Latin America’s biggest economy aligned with the likes of Argentina. Such meddling won’t help Brazil revive flagging growth. At the same time, the prosecutorial zeal apes bad practice from the developed world.

Man Utd counts on investors behaving like fanatics

2 Aug 2012

The English soccer club’s supporters expect nothing but success. That ethos carries over to Manchester United’s IPO, which seeks to value the enterprise at an optimistic 22 times EBITDA. Though Man Utd fans are rarely disappointed, buyers of the stock at the mooted price will be.

Fed looks helpless until at least 2013

1 Aug 2012

The FOMC bewailed slowing U.S. growth but made no policy changes. Absent crises, more quantitative easing this year is unlikely. QE3 may anyway be more effective in theory than in practice. After the U.S. election, though, the Fed may face much tougher choices.

The $10 bln LBO may again be within reach

1 Aug 2012

Even if private equity firms don’t scoop up $8.5 bln LabCorp, a buyout on that scale looks possible. Big funds collectively have some $500 bln of purchasing power, lenders are hungry for yield and terms are easing. But it would also mean a return to the dreaded club deal.

Market flap shows danger of throwing glitch stones

1 Aug 2012

Knight Capital’s trading hiccup caused halts in several stocks. The firm, whose shares dropped over 20 pct, is separately demanding recompense from Nasdaq over the Facebook IPO debacle in May. Companies reliant on tech perfection should join hands before they point fingers.

Loser Citi lawsuit sends SEC back to drawing board

1 Aug 2012

A jury cleared a banker of misleading CDO investors, while also urging the U.S. watchdog to bring more financial fraud charges. But quantity isn’t the issue. The SEC has filed over 100 crisis-related suits. What’s too often lacking, as with the Citi example, is a solid case.

Avon needs clean break from discredited Jung

1 Aug 2012

Revenue at the cosmetics giant is tumbling, and it’s losing sales reps in key markets like Brazil. New CEO Sheri McCoy wants to get back to basics. Yet Andrea Jung, her predecessor and architect of the chaos, is still executive chairman. Any value in her sticking around is gone.

Conoco refining spinoff catches industry wave

1 Aug 2012

The May split that created Phillips 66, America’s largest refiner, was nicely timed. Cheaper oil and reduced competition helped the $24 bln company deliver a 14 pct surge in Q2 profit. It’s a useful start, but Phillips 66 still needs to beef up its promising chemicals business.

Lowe’s Canadian target can’t build solid defense

31 Jul 2012

Quebec home-improvement chain Rona missed the domestic housing boom. That makes a $1.8 bln bid from Lowe’s a nice upgrade. The board can’t be blamed for putting the screws on its U.S. rival for a higher bid. But protectionist cries à la Potash and TMX don’t have much foundation.

U.S. banks loath to kick even soft crisis drug

31 Jul 2012

Community banks are pushing to extend a crisis program under which the FDIC insures $1.5 trln of deposits without limit. Yet the program helps concentrate risk, distorts funding costs and brings outsized benefits to bigger banks like JPMorgan. There’s every reason to let it die.

Silver lining tarnishes for U.S. gas drillers

31 Jul 2012

The likes of Chesapeake and Devon have long struggled with soft natural gas prices. Associated liquids like propane used to provide crucial cash for investment. But in the last year these products’ prices have tumbled by nearly half. Expect to see the companies’ earnings suffer.

Chevron’s two-state oil pact gives Africa hope

31 Jul 2012

The U.S. oil giant’s $2 bln deal with Angola and Congo is a diplomatic coup. It unites two of the largest producers on a continent gushing with resource disputes. With Africa supplying a quarter of the world’s new oil, anything that could help resolve other clashes is welcome.

Vivendi may be out of pocket on EMI by salving EU

30 Jul 2012

The French group’s Universal Music arm could sell over a quarter of its British target’s business to appease European trustbusters. Yet Vivendi still must pay 90 pct of the $1.9 bln purchase price. Lost profit and synergies could cost it much more than if the EU nixed the deal.

Pepsi owners face the Indra Nooyi challenge

30 Jul 2012

Under her stewardship, shareholder returns have lagged Coke’s. President Obama may offer the CEO the path to a graceful exit while activist investor Ralph Whitworth holds out hope for splitting soda from snacks. But Nooyi shows no signs of budging from Pepsi or breaking it up.