The grilling Ben Bernanke received on Capitol Hill Thursday was a classic example of politicians playing to the camera. But this wasn’t just a regular episode of “American grandstand,” says Todd Harrison, CEO of Minyanville.com. The hearing was
Xstrata is different from most other major mining companies. Rather than being a long established group with strong links to a particular country, such as Australia for Rio and BHP, South Africa for Anglo American, or Brazil for Vale, it is a relative upstart with few ties to any particular territory, aside from its tax inspired domicile, Switzerland.
The group’s culture might seem innocuous but it is important, particularly when Xstrata has this week proposed a “merger of equals” with South African stalwart Anglo American. Unlike many of its rivals, Xstrata’s raison d’etre is doing deals, led by raucous chief executive Mick Davis.
The company floated in March 2002 with an initial value of £2 billion. Since then, a number of transformational acquisitions such as the $19 billion purchase of Falconbridge, and the recovery in global commodity prices, has meant the group is now valued at £20 billion. At its record high last year, when it tried to buy platinum producer Lonmin, it was worth £67 billion.
Xstrata’s strength is that it has always been much closer to its customers than other, perhaps more parochial groups keener on looking after their employees. The presence of trading entity Glencore on its shareholder register, with a third of Xstrata’s stock, is testament to this.
Davis’s true loyalty showed earlier this year when he effectively enabled Glencore to retain this stake, by funding its participation in January’s £4.1 billion rights issue, via a side deal selling certain Glencore coal assets in Colombia to the group for $2 billion.
The current tilt at Anglo American, now worth £24 billion, looks a deal too far for Xstrata. For one, Glencore looks likely to be diluted down to a sixth of the combined group, as the proposal currently lies. Secondly, Anglo American will vigorously defend its independence, as it is already showing, helped by implicit South African support.
Glencore must have approved Xstrata’s move but that in effect puts Xstrata in play, if it is indeed willing to effectively relinquish control. That is highly significant. The end result might either see Anglo American making a “pacman” offer for Xstrata to defend itself or else encourage Vale, which has approached Xstrata before, to make a play for it.
Ultimately Xstrata, with few political connections, looks the more vulnerable participant in this process.
General Electric Co Chief Executive Jeff Immelt went to Michigan, the bleeding heart of the U.S. industrial heartland, on Friday to call for a resurgence in American manufacturing.
But even as he warned against relying too heavily on the financial industry to drive economic growth, he subtly set up a defense of the largest U.S. conglomerate’s hefty finance arm.
Analysts and investors are worried that the Obama administration’s proposed overhaul of U.S. financial regulations could force GE to spin off GE Capital, which has businesses ranging from leasing jet planes to investing in commercial real estate.
“We also need a financial system that is built around helping industrial companies to succeed,” Immelt told the Detroit Economic Club. “GE is an important part of this financial services approach. We plan to focus GE Capital on financing small- and medium-sized customers in industries that we know the best.”
He said that after first contending that the U.S. had come to rely too much on Wall Street wizardry and consumers who spend more than they earn to drive prosperity. Disparities in pay reflect that imbalance, he said.
“You know something is wrong when a mortgage broker is pulling down $5 million a year while a Ph.D. chemist is earning $100,000,” Immelt said.
Immelt did not directly address the proposal on Thursday. But earlier this week, he told GE employees that the largest U.S. conglomerate would fight any effort to force it to separate GE Capital from its industrial core.
Several analysts this week warned that the administration’s current proposal, which would prevent large financial institutions from having nonfinancial operations, would likely require such a separation. However, they pointed out that even the current proposal — which would be subject to negotiation in Congress — allows a five-year grace period.
“The government is unlikely to do anything to cause major disruptions to a huge company like GE until the market recovers significantly, especially since GE has not been blamed for any problems in the financial system,” wrote BernsteinResearch analyst Steven Winoker, in a note to clients.
With the “animal spirits” alive at quarter’s end, the S&P 500 has window to make a run at 950, “the most important level of the year,” according to Todd Harrison, CEO of Minyanville.com.
Why is 950 so critical
UBS received a temporary restraining order earlier this week against Jefferies and two of its former health care bankers, Benjamin Lorello and Sage Kelly, preventing them from starting work at Jefferies for 30 days. The order also prevents Jefferies from poaching other UBS bankers until July 20.
This is not the first time UBS has gone to court to make sure its employment contracts are honored. The Swiss bank sought an injunction against rival Vestra Wealth last year in London, after 75 of its wealth managers left for the start-up.
The order against Jefferies and the bankers is posted below.
Lear is preparing to file for bankruptcy as soon as next week, The Wall Street Journal reported on Thursday, citing people familiar with the matter. The auto parts supplier’s lenders have agreed to waive defaults under its primary credit facility through June 30. The ventilator may still be working, but the decision on whether to pull the plug will soon be at hand.
Last week, the White House rejected a request from the auto parts industry for up to $10 billion in additional emergency funding. Yesterday, General Motors CEO Fritz Henderson made the case that a speedy exit from bankruptcy for the automaker was the way to avoid a “fatal” blow to suppliers.
Henderson said tentative plans to resume operations at some GM plants by July 13 could be endangered if the court does not approve the sale of the its best assets to a reorganized company funded by Uncle Sam.
Bankruptcy court is a busy place. Lear could be arriving just as the court hears arguments on GM’s asset sale, scheduled for next Tuesday, June 30. On the face of it, there isn’t a whole lot to discuss. There are no other bids out there to rival the government’s $60 billion financing for GM, though some of the automaker’s smaller unions have filed objections to the sale.
So far this year, at least 15 auto parts suppliers have filed for bankruptcy or had their assets seized by creditors, according to the Motor & Equipment Manufacturers Association. The casualty list includes Visteon, Metaldyne Corp and Noble International Ltd.
Its half-year review time in investment banking, when London’s top firms gather up their heavyweights and engage with the press.
Each year a different business line takes the spotlight. In the pre-crisis boom times of 2007, M&A bankers held centre stage. Everybody wanted to talk to them. They were the most popular kids in school.
This year it was the turn of capital markets bankers to shine.
As my colleagues Douwe Miedema and Jessica Hall wrote earlier, mammoth bond sales and massive rights issues kept investment banking revenue rolling in in the second quarter.
Take a look at my own story for the contrasting performance of the M&A market – quarterly M&A fees hit an eleven-year low.
But at least the green shoots of economic recovery are a source of hope. Unless you believe we are in for a W shaped recession, and then they are poison weeds.
The auto industry shake up looks set to accelerate.
Germany’s Volkswagen is exploring a deal to cooperate with Japan’s Suzuki Motor to boost its presence in ultra-small cars, a source tells Reuters. The news sent Suzuki sahres racing to a 10-month high.
Cooperation with Suzuki, which dominates Japan’s 660cc minivehicle market along with Toyota’s Daihatsu, could yield a new model for VV below its upcoming “New Small Family” range of small cars, the source said.
Deal news reported by other media on Friday included:
Four savings banks in Spain’s Catalonia region are in advanced talks to create what would be the country’s eighth-largest savings bank, La Vanguardia newspaper reported. Unlisted savings banks Sabadell, Terrassa and Manlleu are discussing a merger which Caixa Manresa could also join, it said. For the Reuters strory click here.
Norway’s Telenor is close to an agreement with its Russian partner, the Alfa Group, to merge their Russian and Ukrainian mobile telecoms businesses, Vimpelcom and Kyivstar, Vedomosti newspaper said. For the Reuters story click here.
Miner BHP Billiton is looking to sell its Yabulu and Ravensthorpe nickel operations in Australia as a package, the Australian Financial Review reported.
Faced with big debts and falling revenues, companies across the world are hiring experts and pondering options.
One option is to swap old bonds for new, exchanging looming maturities for redemptions a few years off. Another is to buy back debts trading at discounted prices.
UK broadcaster ITV (ITV.L) is the latest company to swap its bonds, one of the most successful of a string of exchanges Reuters predicted back in April.
ITV said today that 54 percent of holders of its 2011 bonds were happy to swap their holdings for a mix of cash and new bonds, maturing in 2014. A moderate success, said analysts.
However, this result came only after the company sweetened the deal with an increase in the coupon after sobering talks with some big investors.
Given the success of ITV’s swap we can expect the flow of exchanges to continue as many lenders continue to prefer pain deferred rather than risking pushing borrowers into default.
GM cleared several of the hurdles on its way out of bankruptcy Thursday at a court hearing in Manhattan. The federal bankruptcy judge gave GM the final ok to tap the rest of its $33.3 billion bankruptcy financing and a lawyer for asbestos claimants withdrew a request for official committee status. Other obstacles including the status of non-union retirees rights to healthcare benefit– are on the agenda for the afternoon. We’ll be filing updates from the hearing in the live headline box below and on our Twitter feed.
Ben Bernanke faced hostile fire from Congressmen of both parties Thursday as the inquiries into the government’s role in the Bank of America-Merrill Lynch deal continue.Bernanke steadfastly defended his actions, and the Fed’s action, during that dark chap
Ben Bernanke is in the hot-seat today
for his role in the extraordinary events of late 2008 (more on that
later). Just 24 hours ago, however, the Fed chairman was making
headlines for more pedestrian reasons: the conduct of monetary policy.