Auction-rate triage

The great auction-rate securities blood-letting banks have begun might well fill the bath if a lawsuit from Europe’s largest computer chip maker against Credit Suisse taps a legal vein. STMicroelectronics says the bank placed $450 million of its cash into auction-rate securities without authorization, and that there’s a lot more where that came from. “At least a dozen other multinational corporations are victims of the same scheme carried out by the same group of brokers and directors at Credit Suisse Securities and furthered by Credit Suisse,” the chip maker contends, adding that it believes more than $2 billion of these clients’ money ended up invested in auction-rate securities. Interesting that Credit Suisse should choose today to reinitiate coverage of the IT hardware sector with a “neutral” rating. Guess they aren’t taking a view of whether the challenge will be successful.
A 5.9 billion pound ($11.4 billion) writedown on risky assets sent Royal Bank of Scotland to a first-half loss of 691 million pounds – better than feared, but still one of the biggest losses in British history. RBS, Britain’s second-biggest bank, said the loss was “a chastening experience” but it was building a comfortable capital cushion and sales of assets were going as planned, although tough financial and economic conditions would continue.

Indicative bids for General Electric’s potential sale of its Australian mortgage business are due next week, but bankers do not expect a stampede as likely buyers grapple with the fallout of a global credit crisis. GE’s advisers, JP Morgan and Citigroup, have sent out information memorandums (IMs) to about 10 interested parties, including domestic and foreign banks. Commonwealth Bank of Australia, the nation’s second-biggest lender, was unlikely to bid, one industry source told Reuters. It declined comment. “People have had the IMs for a while … and they have to respond with interest next week,” said one person with direct knowledge of the matter. In May, GE said it was considering strategic options for Wizard Home Loans, a non-bank lender owned by GE’s financial services arm, GE Money. Local media have said GE Money paid about A$500 million ($455 million) to buy Wizard from its founder Mark Bouris in 2004.

Other deals of the day:

* Australia’s Newcrest Mining said it acquired an initial 30 percent stake in a Papua New Guinea gold mine joint venture, paying around $230 million to partner Harmony Gold.

* British investment company Guinness Peat Group said it sold its 29.7 percent stake in mid-sized insurer Tower Australia to Japan’s Dai-ichi Mutual Life Insurance.

* The controlling shareholders in Italian fashion group Mariella Burani launched a partial buyout offer for a 15 percent stake, bidding 17.5 euros per share