UBS Completes Acquisition of Credit Suisse: "A Joint Journey"

Today UBS Group AG has been merged into Credit Suisse Group AG. Trading of Credit Suisse shares on the SIX will cease today and shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares. Sergio Ermotti, CEO of UBS Group AG and an ex-Merrill equity derivatives specialist, welcomed his new colleagues, uttering: "Instead of competing, we'll now unite as we embark on the next chapter of our joint journey".  UBS expects a quarterly CET of 14% staying constant throughout 2023.

Washington versus Wall Street - Should Ken have invoked the MAC (change clause) and dumped Merrill?

The Atlantic has run an article on the last days of Merrill Lynch, and the coercive influence of the Fed and the Treasury. It asks the question, "Did the deal save us all from economic apocalypse?". Let's review deal terms. BoA offered $29 a share - a 70% premium over the previous Friday close, and nearly 2x book value. Andrew Cuomo, NY Attorney General (chief legal office in NY state, which borders with Quebec and Ontario in Canada, and dominated by the Great Appalachian Valley in the East), brought many of the facts to light regarding the Fed and Treasury trying to keep the firms together, once Merrill's losses became evident. They were collateralising loans with bad assets. By November, it emerged Merrill had $9bn in losses. Should Ken Lewis at this stage have invoked the MAC (material adverse change clause) to allow his banking Wal-Mart to walk away from the deal before it closed? It was now Washington versus Wall Street.

On December 5 2008, shareholders approved the deal. Prior to this, no information was revealed on the exact extent of Merrill Lynch's problems. According to Lewis, Paulson threatened to remove the board and management of Bank of America should Lewis invoke the MAC, as it would sink Merrill Lynch and create a "systemic risk" to the US economy. The flip side - shareholder litigation for not invoking the MAC.

Rights Issues Rampant in City of London

Industrial materials firm Cookson has launched a rights issue. They are asking for £240m at 37% discount. The underwriters are JP Morgan / Merrill Lynch. The company is also cutting 1,250 jobs. Last December Cookson sold off its ceramic filters business to companies owned by Sud-Chemie AG, a chemicals company specialising in adsorbents. The history of ceramic filters, including piezoelectric ceramics, is detailed in this article by Satoru Fujishima. Cookson is a member of various trade organizations, such as the CEA, which has over 2000 member companies.

A rights issue is when a company issues new shares (which it usually offers at a deep discount to the prevailing market price; 20% is not uncommon) to existing shareholders. For this reason, the share price of a company usually falls after a rights issue. Essentially, a rights issue gives shareholders first refusal on the right to buy additional shares as compensation for the price fall after a rights issue (pre-emption rights, in other words).

Highly leveraged Xstrata also announced a heavily discounted (66%) rights issue in a bid to slash its debt from $16.3bn to $12.6bn. The issue ran into controversy that major shareholder Glencore was being offered favourable terms (underwriters: Glencore, JPM and DB). Dissenters included the ABI whose members, 400-strong, constitute 20% of investments in the London stock market.

Friends Down, Pfizer eats Wyeth, Steel down 50% since Sep08

The Sales for Friends Provident (the UK pensions and insurance tout) were down 27%, but only down 4% in the fourth quarter. Current CEO Trevor Matthews (formerly with Standard Life) joined as CEO in July 2008. It is interesting to understand the origins of Friends Provident. Friends was founded in Bradford in 1832 and has Quaker origins (Samuel Tuke and Joseph Rowntree). Their aim was "to provide the security of life assurance" to Quakers and their families. 45 friends put up an initial £10,700 Guarantee Bond. The company demutualised in 2001, with a big IPO advertising campaign entitled "You're better off with Friends". Its debt issuer credit rating is BBB (good). 

Pfizer, the world's biggest pharmaceutical company, is expected to conduct a blockbuster takeover of US rival Wyeth for between $65bn and $70bn (editor: deal closed at $68bn). 

Pfizer, being advised by Merrill Lynch and Goldman Sachs, is under pressure from investors to replace >$12bn revenues the company may lose in three years (that's an average $4bn a year) when Lipitor, the cholesterol pill and best-selling medicine in history, faces competition from generic drug makers (the patent expires in November 2011). 

Wyeth is being advised by MS and Evercore Partners (based in East 52nd Street, New York). Pfizer's R&D investment is impressive; at Sandwich, Kent, over 2000 drug-searching scientists are employed. The transaction consisted of cash, debt and stock. 

Corus, the largest steelmaker in the UK and a subsidiary of Tata Steel, is expected to announce the loss of 3,500 jobs as demand falls from carmakers and the construction industry. Steel prices have dropped 50% since September. Steel derivatives on the LME offer risk management for the steel industry. Hot places to trade steel derivatives include the LME, CME, Shanghai Futures Exchage, India and Dubai. 

India is the world's fifth largest steel maker, China is the largest.

BoA drops 13% Thursday, Thain Leaves Merrills, Tech Ups and Downs, KBC Bailout

Ex-Merrill chief John Thain is ejected from Bank of America.

mba(thain,hbs).

BoA's general counsel Brian Moynihan replaces Thain. ML announced a loss of $15.3 billion in the fourth quarter, or $9.62 a share.

Microsoft, the maniacal operating system giant, announced it was cutting 5,000 employees indicating few companies are immune to recession. Fiscal discipline is necessary for all technology companies in this climate.

Commented one investment firm manager, "it's tough to do well in this environment, and if a company succeeds, it's a huge compliment to management" adding "Microsoft has turned into the big old sluggish company that IBM used to be".

KBC has been bailed out to the tune of €2 billion from the Flemish government (Flemish is Dutch as spoken in Belgium) fueling a rebound in its shares (adding to the existing bailout paid in October). KBC announced it will concentrate its activities on home markets, reduce costs and market risk. It would scale down its derivatives business.

Barclays Bank Shares Tumble 25% in Friday Trading, BoA drops 13.7% on Q4 Results

Barclays shares fell 25%, hours after the ban on short-selling was lifted. Speculation surrounds further credit writedowns at Barclays Capital (managed by this team). Are we heading for nationalisation of Barclays?

BoA reported 2008 full-year profit of $4.01 billion compared with net income of $14.98 billion for 2007. The full-year profit was greatly impacted by a Q4 loss of $1.79 billion. These results include Countrywide Financial, acquired 1 Jan 2009, but not Merrill Lynch. Bank of America this month raised $2.8 billion by selling under 15% of its shares in China’s second-largest bank, China Construction Bank.

According to their press release, Bank of America ended 2008 with a Tier 1 capital ratio of 9.15 percent. Additional capital from the Treasury will boost the company's Tier 1 capital ratio to approximately 10.70 percent, on a pro-forma basis. T1C is a Basel-measure, measuring the ratio of the bank's core equity capital to risk-weighted assets. The Basel accord specifies capital adequacy requirements for banks, "le contrôle bancaire".

US broker Ameritrade expands into Options Market

America's 3rd largest online stockbroker TD Ameritrade agreed to acquire Thinkorswim Group for $606m (€444m) in cash and stock, in a move to push further into the fast-growing options market and build up its investor-education programs, reports efinancialnews. Other online options brokers include optionsexpress.

The FT reports the deal is expected to close in six months, subject to shareholder and regulatory approval. Ameritrade is being advised by Merrill Lynch, while thinkorswim is being advised by Park Avenue-based Paragon Capital Partners.

In other banking news, BoA has completed its acquisition of Merrill Lynch, creating the world's largest wealth management business. BoA expects to make $7bn in pre-tax expense savings, fully realised by 2012. Sources of cost reduction include elimination of positions, reduction of overlapping technology, vendor and marketing expenses.