The US financial services sector could be forced to reimburse the US government for any losses on its $700bn rescue plan under a breakthrough agreement that paves the way for congressional approval as early as Monday.
But hours before a government bailout bill was due to move to the floor of the House of Representatives, Republican holdouts had yet to give an assurance they would help vote it into law.
After a weekend of frenzied talks, Hank Paulson, the Treasury secretary, and Nancy Pelosi, the Democratic House speaker, announced early on Sunday that a tentative deal had been reached authorising the government to buy up to $700bn of troubled assets from financial institutions.
The deal envisages historic restrictions on executive pay for banks involved in the programme and opens the door for the government to take equity warrants in those institutions.
More than half of Democrats in the Democratic-controlled House pledged to support the deal. But at a closed-door meeting of House Republicans late on Sunday, it was unclear whether enough would follow their party leaders to guarantee adoption of the package.
As the White House urged Republican opponents to come on board, John Boehner, House minority leader, appealed to Republicans “whose conscience will allow them” to support the bill. “The American people are angry and my colleagues are angry about the situation they find themselves in,” said Mr Boehner.
He acknowledged the bill was not exactly the one Republicans would have drafted but it contained elements they had helped to introduce.
Both Republicans and Democrats tried to claim credit for defending the interests of taxpayers amid public outrage at the prospect of spending $700bn to bail out Wall Street.
House Republicans, the most vocal opponents of the rescue plan, remained wary even after their leaders signed up to the agreement.
The two presidential candidates gave their qualified support on the basis of the outline of the deal. John McCain said: “Let’s get this deal done, signed by the president, and get moving.” The Republican came under fire from Democrats last week who claimed he slowed the outcome by intervening in the talks. Barack Obama, his Democratic rival, said if concerns on issues such as executive pay were addressed, “my inclination would be to vote for it, understanding that I’m not happy”.
Democratic legislators said they had earlier spoken by telephone to Warren Buffett, the billionaire investor, who warned them of “the biggest financial meltdown in American history” if they failed to act.
Although final details of the legislation were still being worked on throughout the morning, Capitol Hill aides said they expected the House and Senate would both approve the measures early in the week.
On Saturday night, negotiators found a way to address concerns that the bail-out plan insufficiently protected taxpayers. If, after five years, losses were incurred by the government on the sale of the troubled assets it purchases through the programme, the US president would have to present a plan to recover the money from those who benefited from it.
While imposing curbs on the compensation of executives at companies participating in the bail-out, Democrats dropped demands that shareholders be given a vote on pay. The $700bn would be authorised fully but released in three stages, beginning with an initial $250bn. Congress would review and could in principle block the final $350bn disbursement.
Monday, September 29, 2008
Fortis Gets EU11.2 Billion Rescue From Governments
Fortis, the largest Belgian financial-services firm, received an 11.2 billion-euro ($16.3 billion) rescue from Belgium, the Netherlands and Luxembourg after investor confidence in the bank evaporated last week.
Belgium will buy 49 percent of Fortis's Belgian banking unit for 4.7 billion euros, while the Netherlands will pay 4 billion euros for a similar stake in the Dutch banking business, the governments said in a statement late yesterday. Luxembourg will provide a 2.5 billion-euro loan convertible into 49 percent of Fortis's banking division in that country.
Fortis is the largest European firm to be bailed out in the global financial crisis that drove Lehman Brothers Holdings Inc. into bankruptcy two weeks ago and prompted U.S. President George W. Bush to seek a $700 billion bank rescue package. Fortis dropped 35 percent last week in Brussels trading on concern the company would struggle to replenish capital depleted by the 24.2 billion-euro takeover of ABN Amro Holding NV units and credit writedowns.
``Confidence in Fortis needs to be restored,'' said Corne van Zeijl, a senior portfolio manager at SNS Asset Management in Den Bosch, the Netherlands, who oversees about $1.1 billion and owns Fortis shares.
Fortis plans to sell its stake in ABN Amro's consumer banking unit, though a buyer wasn't identified. Fortis joined with Royal Bank of Scotland Group Plc and Spain's Banco Santander SA last year to buy Amsterdam-based ABN Amro for 72 billion euros, just as the U.S. subprime mortgage market collapsed.
Lippens Resigns
Fortis Chairman Maurice Lippens stepped down and will be replaced by someone from outside the company, Fortis said. The firm picked company insider Filip Dierckx to succeed Herman Verwilst as chief executive officer on Sept. 26, just three months after former CEO Jean-Paul Votron was pushed out.
Fortis, formed in the 1990 merger of the Dutch insurance company NV Amev, Belgian insurer AG Group and the Dutch bank VSB, angered investors on June 26 by scrapping the interim dividend and announcing plans to sell shares to help strengthen its finances.
``We're buying power in the bank, getting more influence on the decisions that will be made, that's what savers need in these times,'' Dutch Finance Minister Wouter Bos told Dutch public television NOS. Bos said he couldn't comment on who'll buy the ABN Amro business.
The collapse of New York-based Lehman and the U.S. rescue of American International Group Inc. heightened concern about the global financial system and made it costlier for banks to raise funds. Seattle-based Washington Mutual Inc. was seized by regulators last week in the biggest U.S. bank failure in history.
Bradford & Bingley
Bradford & Bingley Plc, Britain's biggest lender to landlords, may be taken over by another bank or nationalized today under a U.K. government-backed plan to protect 21 billion pounds ($39 billion) of customer deposits.
Hypo Real Estate Holding AG, Germany's second-biggest commercial-property lender, said today it received a credit facility, following a report by the Financial Times Deutschland that the company may collapse.
In the U.S., Bush and congressional leaders said yesterday in Washington that they had reached agreement on the rescue package, which is designed to revive moribund credit markets.
Fortis tried three days ago to assuage investor concerns by stating that its financial position was ``solid,'' and that it had identified banking and insurance businesses to sell worth as much as 10 billion euros. Fortis said it wouldn't sell assets at fire-sale prices, and didn't have an urgent need for funds.
`Over-Leveraged'
The remarks, presented in an impromptu press conference by Verwilst and Dierckx, failed to stem the selling. The stock ended the day down 20 percent.
``Markets thought that they were over-leveraged,'' European Central Bank Governing Council member Nout Wellink said. ``What's happening in the U.S. is having an impact on the rest of the world. At the end of the day Fortis is a good bank,'' said Wellink, who also heads the Dutch central bank.
Fortis has fallen 71 percent this year in Brussels, the second-worst performance among the 69 companies on the Bloomberg Europe Banks and Financial Services Index, cutting the lender's market capitalization to 12.2 billion euros.
The company has about 3 billion euros of bonds maturing this year and needs to refinance an additional 7 billion euros next year, said Ivan Lathouders, an analyst at Banque Degroof SA in Brussels, in a report last week.
Short-Selling Restricted
Fortis reported a 49 percent decline in second-quarter profit on credit-related writedowns on Aug. 4. The banking business's core Tier I capital ratio, an indicator of a bank's ability to absorb losses, was 7.4 percent at the end of June, compared with Fortis's own target of 6 percent.
The company's structured credit portfolio, which includes collateralized debt obligations and U.S. mortgage-backed securities, amounted to 41.7 billion euros at the end of June. Fortis said Aug. 4 the pretax impact of the credit market turmoil on its earnings was 918 million euros in the first half.
Belgian and Dutch regulators restricted short-selling in the shares and derivatives of financial companies for three months last week to curtail a market rout. The rules require investors betting on a decline in stock prices to arrange to borrow the shares before selling them. The Belgian and Dutch regulators also requested investors to refrain from lending the securities.
Belgium will buy 49 percent of Fortis's Belgian banking unit for 4.7 billion euros, while the Netherlands will pay 4 billion euros for a similar stake in the Dutch banking business, the governments said in a statement late yesterday. Luxembourg will provide a 2.5 billion-euro loan convertible into 49 percent of Fortis's banking division in that country.
Fortis is the largest European firm to be bailed out in the global financial crisis that drove Lehman Brothers Holdings Inc. into bankruptcy two weeks ago and prompted U.S. President George W. Bush to seek a $700 billion bank rescue package. Fortis dropped 35 percent last week in Brussels trading on concern the company would struggle to replenish capital depleted by the 24.2 billion-euro takeover of ABN Amro Holding NV units and credit writedowns.
``Confidence in Fortis needs to be restored,'' said Corne van Zeijl, a senior portfolio manager at SNS Asset Management in Den Bosch, the Netherlands, who oversees about $1.1 billion and owns Fortis shares.
Fortis plans to sell its stake in ABN Amro's consumer banking unit, though a buyer wasn't identified. Fortis joined with Royal Bank of Scotland Group Plc and Spain's Banco Santander SA last year to buy Amsterdam-based ABN Amro for 72 billion euros, just as the U.S. subprime mortgage market collapsed.
Lippens Resigns
Fortis Chairman Maurice Lippens stepped down and will be replaced by someone from outside the company, Fortis said. The firm picked company insider Filip Dierckx to succeed Herman Verwilst as chief executive officer on Sept. 26, just three months after former CEO Jean-Paul Votron was pushed out.
Fortis, formed in the 1990 merger of the Dutch insurance company NV Amev, Belgian insurer AG Group and the Dutch bank VSB, angered investors on June 26 by scrapping the interim dividend and announcing plans to sell shares to help strengthen its finances.
``We're buying power in the bank, getting more influence on the decisions that will be made, that's what savers need in these times,'' Dutch Finance Minister Wouter Bos told Dutch public television NOS. Bos said he couldn't comment on who'll buy the ABN Amro business.
The collapse of New York-based Lehman and the U.S. rescue of American International Group Inc. heightened concern about the global financial system and made it costlier for banks to raise funds. Seattle-based Washington Mutual Inc. was seized by regulators last week in the biggest U.S. bank failure in history.
Bradford & Bingley
Bradford & Bingley Plc, Britain's biggest lender to landlords, may be taken over by another bank or nationalized today under a U.K. government-backed plan to protect 21 billion pounds ($39 billion) of customer deposits.
Hypo Real Estate Holding AG, Germany's second-biggest commercial-property lender, said today it received a credit facility, following a report by the Financial Times Deutschland that the company may collapse.
In the U.S., Bush and congressional leaders said yesterday in Washington that they had reached agreement on the rescue package, which is designed to revive moribund credit markets.
Fortis tried three days ago to assuage investor concerns by stating that its financial position was ``solid,'' and that it had identified banking and insurance businesses to sell worth as much as 10 billion euros. Fortis said it wouldn't sell assets at fire-sale prices, and didn't have an urgent need for funds.
`Over-Leveraged'
The remarks, presented in an impromptu press conference by Verwilst and Dierckx, failed to stem the selling. The stock ended the day down 20 percent.
``Markets thought that they were over-leveraged,'' European Central Bank Governing Council member Nout Wellink said. ``What's happening in the U.S. is having an impact on the rest of the world. At the end of the day Fortis is a good bank,'' said Wellink, who also heads the Dutch central bank.
Fortis has fallen 71 percent this year in Brussels, the second-worst performance among the 69 companies on the Bloomberg Europe Banks and Financial Services Index, cutting the lender's market capitalization to 12.2 billion euros.
The company has about 3 billion euros of bonds maturing this year and needs to refinance an additional 7 billion euros next year, said Ivan Lathouders, an analyst at Banque Degroof SA in Brussels, in a report last week.
Short-Selling Restricted
Fortis reported a 49 percent decline in second-quarter profit on credit-related writedowns on Aug. 4. The banking business's core Tier I capital ratio, an indicator of a bank's ability to absorb losses, was 7.4 percent at the end of June, compared with Fortis's own target of 6 percent.
The company's structured credit portfolio, which includes collateralized debt obligations and U.S. mortgage-backed securities, amounted to 41.7 billion euros at the end of June. Fortis said Aug. 4 the pretax impact of the credit market turmoil on its earnings was 918 million euros in the first half.
Belgian and Dutch regulators restricted short-selling in the shares and derivatives of financial companies for three months last week to curtail a market rout. The rules require investors betting on a decline in stock prices to arrange to borrow the shares before selling them. The Belgian and Dutch regulators also requested investors to refrain from lending the securities.
AIG eyes sale of more than 15 businesses- report
American International Group, the insurer bailed out by the US Federal Reserve earlier this month, is looking to sell more than 15 businesses, to repay its $85 billion government loan, a newspaper report said on Sunday.
Citing people close to the situation, the newspaper said AIG was prepared to consider selling most of its operations besides its international life insurance unit and US pension businesses. The company's board was meeting in New York on Sunday night to discuss possible sales, the newspaper said.
AIG was not immediately available to comment. Assets AIG is considering selling include its aircraft leasing unit International Lease Finance Corp, its 59 per cent stake in reinsurer Transatlantic Holdings as well as its property portfolio and private equity investments, according to the article.
The paper said no final decisions had been made on what assets to sell. AIG, once the world's most valuable insurer, needs to raise cash quickly to repay the $85 billion loan that allowed it to avoid bankruptcy after taking massive losses on mortgage derivatives. If the loan is not repaid, the US government has the right to take an almost 80 per cent stake, heavily diluting investors' stock.
Citing people close to the situation, the newspaper said AIG was prepared to consider selling most of its operations besides its international life insurance unit and US pension businesses. The company's board was meeting in New York on Sunday night to discuss possible sales, the newspaper said.
AIG was not immediately available to comment. Assets AIG is considering selling include its aircraft leasing unit International Lease Finance Corp, its 59 per cent stake in reinsurer Transatlantic Holdings as well as its property portfolio and private equity investments, according to the article.
The paper said no final decisions had been made on what assets to sell. AIG, once the world's most valuable insurer, needs to raise cash quickly to repay the $85 billion loan that allowed it to avoid bankruptcy after taking massive losses on mortgage derivatives. If the loan is not repaid, the US government has the right to take an almost 80 per cent stake, heavily diluting investors' stock.
Infy may top HCL bid with 720p offer
Infosys is likely to make a one-time move to match or surpass HCL’s offer to acquire London-headquartered SAP consulting firm Axon, but would guard itself from entering into an expensive bidding war, sources said.
Axon board, which received HCL’s 650 pence counter offer amounting to $811 mn on Friday, is expected to formally discuss the development after providing Infosys the mandatory 60-hour window to react.
Infosys, which made 600 pence offer to buy Axon for $753 mn last month, is expected to disclose its plan on Monday.
Banking sources who have tracked Infosys believe the Bangalore-based tech giant could make a conditional offer—either matching or going up to 710-720 pence—after getting an assurance from Axon that it would consider another revised bid by HCL, or any other player, only if it comes at 750-755 pence or more.
However, it remains to be seen if HCL and Infosys opt for a bidding war. Some bankers argued that Infosys’ aversion for expensive acquisitions may take it out of fray beyond 700-720 pence. However, anticipating an escalation in the bidding war, LSE-listed Axon saw its stock price gallop on Friday to close at 682 pence.
Banking sources said HCL’s counter offer with a narrow 8.3% premium was a strategy banking on Infy’s lack of appetite for an aggressive bidding war. “Why pay 15% premium straight away if you can get Infy out with 8.3%,” said one banker.
But then, as a sectoral analyst warned, Infosys may turn the heat on HCL game plan as its legendary organic growth story looks increasingly uncertain in the midst of economic slowdown. Analysts said it was interesting why Indian companies were now aggressively chasing Axon, which has been an acquisition target for around two years.
Infy’s original offer—valued at 24 times Axon’s EBITDA—was already perceived to be rich. If it makes revised offer, Infosys will lace the unfolding discussions with softer arguments like the benefits of aligning with a stronger company that has an acclaimed work culture. There is also a likelihood that given the legal concurrence given by the Axon management to Infosys, the latter might leverage it to rein in other shareholders.
But if it’s hard numbers doing the talk, as it often happens with shareholders of UK-listed companies, Infy is widely expected to opt out. The report last month on Infosys’ announcement of its intention of acquire Axon said that a counter-bid was likely. It is understood that Infosys had factored in the possibility that it may have to hike its offer by 15-20%.
An eventual HCL offer could be $1 bn in payout forcing the company to raise significant debt from StanChart and HSBC that have offered a line of credit. HCL has over $500 mn sitting on books, but is unlikely to plough all of that into the acquisition play. Infy, on other hand, has a reserve of over $1.8 bn and has been traditionally wary of expensive inorganic growth strategies.
The Axon acquisition tale may take many more twists as there is speculation that besides the Indian players, there are also European and Japanese entities looking into company very keenly. It was reported earlier this month that Japanese major Fujitsu may also enter the fray.
Axon board, which received HCL’s 650 pence counter offer amounting to $811 mn on Friday, is expected to formally discuss the development after providing Infosys the mandatory 60-hour window to react.
Infosys, which made 600 pence offer to buy Axon for $753 mn last month, is expected to disclose its plan on Monday.
Banking sources who have tracked Infosys believe the Bangalore-based tech giant could make a conditional offer—either matching or going up to 710-720 pence—after getting an assurance from Axon that it would consider another revised bid by HCL, or any other player, only if it comes at 750-755 pence or more.
However, it remains to be seen if HCL and Infosys opt for a bidding war. Some bankers argued that Infosys’ aversion for expensive acquisitions may take it out of fray beyond 700-720 pence. However, anticipating an escalation in the bidding war, LSE-listed Axon saw its stock price gallop on Friday to close at 682 pence.
Banking sources said HCL’s counter offer with a narrow 8.3% premium was a strategy banking on Infy’s lack of appetite for an aggressive bidding war. “Why pay 15% premium straight away if you can get Infy out with 8.3%,” said one banker.
But then, as a sectoral analyst warned, Infosys may turn the heat on HCL game plan as its legendary organic growth story looks increasingly uncertain in the midst of economic slowdown. Analysts said it was interesting why Indian companies were now aggressively chasing Axon, which has been an acquisition target for around two years.
Infy’s original offer—valued at 24 times Axon’s EBITDA—was already perceived to be rich. If it makes revised offer, Infosys will lace the unfolding discussions with softer arguments like the benefits of aligning with a stronger company that has an acclaimed work culture. There is also a likelihood that given the legal concurrence given by the Axon management to Infosys, the latter might leverage it to rein in other shareholders.
But if it’s hard numbers doing the talk, as it often happens with shareholders of UK-listed companies, Infy is widely expected to opt out. The report last month on Infosys’ announcement of its intention of acquire Axon said that a counter-bid was likely. It is understood that Infosys had factored in the possibility that it may have to hike its offer by 15-20%.
An eventual HCL offer could be $1 bn in payout forcing the company to raise significant debt from StanChart and HSBC that have offered a line of credit. HCL has over $500 mn sitting on books, but is unlikely to plough all of that into the acquisition play. Infy, on other hand, has a reserve of over $1.8 bn and has been traditionally wary of expensive inorganic growth strategies.
The Axon acquisition tale may take many more twists as there is speculation that besides the Indian players, there are also European and Japanese entities looking into company very keenly. It was reported earlier this month that Japanese major Fujitsu may also enter the fray.
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