Global News - June 13 2008

Lehman Bros unveils recast of top deck

Troubled US investment bank cum securities firm, Lehman Brothers ousted CFO Erin Callan and COO Joseph Gregory, becoming the latest casualties of the credit crunch that has engulfed the Wall Street since late last year. Lehman said Bart McDade, head of the global equities business, would replace Gregory. Co-chief accounting officer Ian Lowitt will replace Callan. The latter, who had served as the firm's CFO since December, will be rejoining the investment-banking division in a senior capacity. The announcement came three days after Lehman Brothers raised US$6bn to help shore up its fragile capital position and reported the first quarterly loss since the company went public in 1994. On June 9, Lehman Brothers said it sold US$130bn in assets in recent months, reducing leverage, but analysts and others still question about the brokerage firm's illiquid holdings and how it has valued some of those exposures. The company also reported a preliminary net loss of US$2.8bn for the second quarter ended May 31, surprising analysts and investors, and announced plans to raise US$6bn by selling new shares and preferred securities.

Yahoo says deal talks with Microsoft fail

Yahoo shares slid on June 12 after the Internet giant said its negotiations with software major Microsoft on a merger fell through. The acknowledgement from Yahoo puts an end to a five-month ordeal over a proposed merger that would have been the largest deal ever for the technology sector. Microsoft later confirmed that the companies were not able to reach an agreement, though it reiterated that it remains open to a deal. According to analysts, the collapse of the talks meant that Microsoft is not willing to buy Yahoo for the US$33 a share it offered before talks broke up more than a month ago. The news deals a setback to billionaire investor Carl Icahn’s effort to force the two sides into a merger. Separately, Yahoo and Google struck an online advertising partnership. The Internet firm announced that it would begin using Google’s search advertising technology to help grow its profits.

InBev offers US$46bn for Anheuser-Busch

Belgium's InBev NV announced an unsolicited offer for US-based Anheuser-Busch Cos., to create the world's biggest brewer with half of the US market. InBev, whose prominent labels include Stella Artois, Becks & Bass, offered to pay US$65 per share in cash for the maker of Budweiser, an offer that values the company at US$46.3bn. The bid was 11% higher than Anheuser-Busch's share price at the end of New York Stock Exchange composite trading, on June 11. InBev plans to finance the transaction with at least US $40bn in debt arranged by banks including Banco Santander SA. InBev said that it sees significant opportunities to globalise Anheuser-Busch's key brands and would position Budweiser as the combined company's flagship brand, leveraging InBev's expansive international footprint. It also vowed to keep key members of the management team and all of its US breweries while offering to rename the company to evoke the heritage of Anheuser-Busch brands. In light of the limited overlap between the InBev and Anheuser-Busch businesses, the Belgian company said it believes the proposed combination should not face significant regulatory issues and that it expects the proposed transaction to be completed promptly.

Babcock & Brown shares slump on debt worries

Shares of Australian securities firm Babcock & Brown tumbled in Sydney after the company's market value fell below levels that could prompt banks to call for a review of its debt obligations. Babcock shares plunged as low as A$4.70 (down 32%) on the Australian stock exchange, dipping below its October 2004 IPO price of A$5 for the first time. It fell 28% on Thursday. The stock had reached a record high of A$34.78 on June 19, 2007. The huge sell-off this week shaved off nearly A$1bn from Babcock's market capitalisation, cutting it to A$2.3bn, well below the A$2.5bn trigger point that lets its banks call for a review of its A$2.8bn. However, Babcock said it's market value would have to remain below A$2.5bn for at least four months before banks can demand early repayment of debt. UBS, Citigroup, Merrill Lynch and Credit Suisse all cut their ratings on Babcock. Separately, Babcock, which said that the rout was caused by short-selling and that business was running as usual, signed a US$7bn deal to buy Angel Trains in the UK from the Royal Bank of Scotland (RBS).

Steve Jobs unveils 3G iPhone; cuts price

Apple unveiled a new 3G version of its iPhone, as it tries to take market share from smart phones made by Nokia and BlackBerry maker Research in Motion. The new handset is expected to come on the market next month at drastically reduced prices. The new iPhone will be sold at half the price of the current model. The new 8-gigabyte iPhone will cost US$199 and a 16-gigabyte version will cost US$299. Some analysts said the price reduction on the new iPhone lineup will make it a mass market product as opposed to the earlier niche positioning. The news was greeted with a mixed reaction by Wall Street investors, who drove Apple's shares down as much as 5% after the announcement. However, the stock managed to regain some lost ground by the closing bell. The new iPhone will be available worldwide starting July 11.

UK's FSA to restrict short selling

In a major clamp down on short selling, British regulator Financial Services Authority (FSA) said it would introduce a new disclosure norms next week for significant short positions in companies undertaking rights issues. The new restrictions, which will come into force from June 20, come hot on the heels of sharp falls in share prices of companies like Royal Bank of Scotland (RBS) and HBOS to raise capital by selling new shares to existing investors. "In current market conditions, there is increased potential for market abuse through short selling during rights issues," the FSA said. "As a result, there has been severe volatility in the shares of companies conducting rights issues." "This is potentially damaging not only to the issuers in question but also to confidence in the overall fairness and quality of the UK market. It can be particularly prejudicial to the interests of small investors," it added. The FSA said the practice of taking a short position in a company while it is undertaking a rights issue to shareholders was potentially an abuse of the market. From next week, short-sellers will have to disclose their positions to the wider market.

UBS completes rights issue

UBS said it has successfully completed its SFr15.97bn (US$15.4bn) rights offering, marking the Swiss bank's third attempt in the past few months to shore up its precarious finances. UBS issued 760,295,181 new shares at SFr21 per share. Subscription rights for 755,466,901 new shares were exercised, representing 99.4% of the rights offer. The remaining 4,828,280 new shares will be sold by UBS Investment Bank in open market. Investors were offered 7 new shares for every 20 held. UBS shares were up 1.7% at SFr24.74. Since the start of the rights offer, UBS shares have tumbled by about 13%. It has lost 63% of its market value in the past 12 months. The bank is scheduled to publish its second-quarter results on August 12. The rights offer is fully underwritten by a group of banks, led by JPMorgan Chase, Morgan Stanley, BNP Paribas and Goldman Sachs.

Dollar spurts on rate hike talk

The US dollar and bond yields jumped after Federal Reserve Chairman Ben Bernanke fueled expectations of interest rates increases by warning that inflation risks were rising in the world's biggest economy. In a speech delivered in Massachusetts on June 9, Bernanke said the Fed will strongly resist a rise in inflation expectations, which have come under pressure from soaring energy prices. "The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so," Bernanke said in a speech at a Boston Fed conference. "The Federal Open Market Committee will strongly resist an erosion of longer-term inflation expectations." European and Asian stocks dropped and Asian bonds slumped on concern that the Fed will raise borrowing costs. Futures markets now expect American and euro-area interest rates to rise before the end of the year.

The dollar headed for its biggest weekly gain in more than three years against the euro on speculation officials from the Group of Eight nations meeting on the weekend will signal they favor a stronger US currency. The euro also fell on concern voters in Ireland will reject the EU's new governing treaty designed to boost the strength of the 27-nation bloc. The dollar was poised for the largest weekly advance versus the yen since 2004 before a government report that may show US inflation accelerated, giving the Fed more reason to raise rates. The dollar rose to US$1.5319 per euro at 7:04 a.m. in New York on Friday from US$1.5439 on Thursday. The dollar rose 3% this week, the most since the week ended Jan. 7, 2005. The currency traded at 108.33 yen, from 107.96 on Thursday. It is up 3.1% this week, the biggest advance since Feb. 2004.

IEA cuts global oil demand forecast

As expected, the International Energy Agency (IEA) cut its oil demand growth forecast for the year. But, in a surprise move, the energy watchdog announced a deep reduction in its non-OPEC supply growth forecast, leaving the world economy more dependent on OPEC. In its monthly oil market report, the IEA cut its demand growth forecast further by 80,000 barrels per day (bpd) to an annual increase of 800,000 bpd because of record high prices, US slowdown and the partial removal of fuel subsidies in some Asian countries. "This is a case of supply and demand pulling in opposite directions to push prices higher," the IEA said. "Global market fundamentals showed continued tightness, with constrained supplies and robust non-OECD demand growth." The agency said every day there were fresh signs of demand destruction, particularly in sectors such as airlines. But, it warned that so far there were very few signs of slowing demand in non-OECD countries.

Meanwhile, crude oil fell as the dollar headed for its biggest weekly gain in almost three years, reducing the appeal of commodities, and partly on a report that Saudi Arabia plans a sizeable increase in crude production. Oil is down 2.3% this week as the dollar has risen against the euro, making dollar-denominated commodities more expensive for buyers in other currencies. Saudi Arabia is likely to announce higher oil production at a June 22 meeting with consumers, the Middle East Economic Survey reported. Crude oil for July delivery fell as much as US$1.94, or 1.4%, to US$134.80 a barrel on the New York Mercantile Exchange. It traded at US$135 at 12:02 p.m. London time. Futures reached a record US$139.12 a barrel on June 6.