First Group, UK’s rail and bus group, has been on a massive expansion plan in the United States. After buying over Laidlaw, owners of U.S.’s popular Greyhound bus service, last year for £1.8 billion pounds, First group is looking to push for further expansion. For this purpose, they intend to raise 230-240 million ponds in share placing.
This cash flow would provide for them the much needed flexibility in their balance sheet. A part of this inflow would be used for refinancing the debt from the take over deal and a part of it would fund further expansion operations.
Chief Executive of First Group, Moir Lockhead, was certain that the synergies gained from the Laidlaw acquisition will pay off better this year, up to $150 million annually, as compared to the $70 million that was predicted. A further cause for cheer is that the Greyhound bus service has now started growing revenues.
First Group’s operating profit for the year looked upbeat, with an increase of an astounding 40% to 360 million pounds. This was in keeping with predicted estimates. Lockhead stated that the group had hedged fuel costs for this entire year and 10% for the year 2009/10. The share policy will be based on oil at $100-$120 million per barrel.
The shares for First Group were trading at 561.5 pence on Wednesday morning, reportedly down by 6%. According to their plan, 43.5 million shares will be placed and will be at the rate of 526-549 pence each. This would help them raise 230-240 million pounds. First Group’s revenue from the start of 2008 until March end was reported to have jumped 26% to 4.7 billion pounds.
The equity analysts at Merrill Lynch have a massive task up ahead. They have to rethink and press harder in terms of performance. The Wall Street investment bank has ordered its equity analysts to spot companies who’s shares will take a plunge in the next 12 months. The initiative (or call it decree) issued across all it offices will pressurize researchers to double the number of underperforming companies. Apparently about 12 % of all stocks are issued by companies who, according to their insight, would have a negative total return in the year. Other than assessing companies equity analysts even guide their clients on buying, holding and selling stocks. And one of the underlying motives is to attract hedge funds through the initiative. This because hedge funds tend to sell shares it does not already own, in turn shorting the stock.
These companies sell stocks early fearing the fall in price. According to Merrill Lynch this move is designed to add value and better serve their clientele. Now analysts will be pressed to explain their verdict on a company. They will even have to elaborate on the firm’s price performance, risk profile and predict the share price in 12 months. There have been a lot of changes made with the incorporation of the new system. The new rules restrict analysts from recommending stocks unless they can illustrate the rise of a particular share over 12 months. Even remuneration of Merrill Lynch analysts depends on quality of their predictions.
Banks are becoming increasingly unfriendly with their customers. They are finding a softer way of recovering their profit loss by making customers pay heavily for different everyday services. Many of the largest banks have increased charges for overdrafts, credit cards and mortgages, while pushing through heavier cuts in interest rates and refusing bad credit loans to customers. Halifax gave a double blow to the customers by cutting high-interest account rates by one percentage point and raising overdraft charges by 60 basis points. Alliance & Leicester and HSBC introduced rate cut of half point on premier account, while Royal Bank of Scotland and Natwest raised overdraft rates.
Current account holders of Nationwide will be in deep trouble as the bank is proposing to cut credit interest rate to 2% from existing 3.75% and enhance overdraft charges by 3 percentage points.
Rising food prices, mortgage rates and utility expenses are making people’s life more difficult.
As per Michelle Slade, an analyst at Moneyfacts, banks are keeping margins up, as their profits are shrinking due to credit crunch. They are anticipating a cap from Office of Fair Trading on penalty charges levied by them on over daft and bouncing of cheques.
A £12 cap on credit card charges had boosted the card sales from 14.9 per cent to 16.4 per cent. The recent hike in overdraft rates is aimed at pre-empting the move to put a cap on current-account fees.
Banks are becomign increasingly tighter with their money, often point blank refusing to dispense bad credit loans and reducing interest rates on savings but not mortgages.
These are the tactics played by the banks to add more to their profits at the cost of consumers’ hard earned money.
The Government is facing threat of being sued on the issue of nationalisation of Northern Rock. Private share holders had a shot in their arm when Lender’s largest share holder, SRM Global joined them in suing the Government on this issue.
SRM is approaching the high court to force the Government to reveal its planning on proposed nationalisation. It would like that conduct of Government, HM Treasury, Bank of England and Financial Services Authority in the decision making for nationalisation be subjected to investigation by the High Court. It wants judicial review of procedure to calculate shareholder compensation.
Government is trying to cover up its handling of important issue by rejecting requests to release documents pertaining to reasons for pursuing nationalisation. SRM is seeking court’s intervention in this regard.
UK Shareholders’ Association and SRM are of the view that Government has conveniently imposed such constraints in the calculation of level of compensation that it will be of nil value as against Northern Rock’s book value of minimum £4 a share.
SRM argues that Government has exploited the position of Bank of England for its commercial gains. Government has a hidden plan of selling the bank and making a profit at the cost of shareholders.
The recent credit crunch has been causing people to tighten their belts throughout the UK, but it doesn’t seem to have affected the serviced office industry. Evidence has recently emerged that office provider companies are not only weathering the economic problems, but are in fact performing well in the climate.
Regus shares rose by 9% recently and their revenue for Q1 rose by an impressive 24%.
Meanwhile MWB are experiencing an increased demand for their office space within the whole of the UK, up a reported a 20%. With concerns over any potential loss in capital negated by the serviced office option, more companies are heading down that road.
In fact the office space industry seems willing and ready to take advantage of the credit crunch by offering daily rates and flexible licenses.
It all points to healthy times ahead for the office space industry.
The rule of buying back one’s own debt at a discount is resulting into a conflict of interest in the private equity market. A banking association is to recommend amendments in rule to plug loopholes. The London-based Loan Market Association, which represents Europe’s syndicated loan market, is working towards this.
The association has realised that some private equity groups buy back their debts at a discount from banks, which try to manipulate their balance sheets through this route.
Neil Murray, of law firm Travers Smith, states that banks are trying to offload debt, which they planned to sell before the credit crisis. This has come as an opportunity to the private equity groups to exploit the situation and make profits. The banks hope to get free from capital obligations.
Mr. Murray says this is a clear conflict of interests. He opines that Loan Market Association could bar companies and private equity groups from getting voting rights, which are attached with re-purchased debts. Definitions in the rules could also be revised to prohibit prepayment of debts. Buy-back of debts to be permitted only when debt was at par value. These measures will remove loopholes and eliminate exploitation.
Standard Life has gone against the grain, in the first quarter of 2008, and has boasted of an impressive 8% rise in sales. This, they have accomplished due to the growth in savings and investment, that have by and large negated the adverse effects of the weakness in the main pension products in UK.
Standard life posted total sales amounting to £4.48 billion in the life and pensions department, which is way above the average sales in that department. The UK share of these total sales was also up 6%, standing at £3.52 billion.
Despite losses due to the early cashing in of policies by customers, Standard Life’s inflow rate looked upbeat, rising a staggering 42% to £826 million.
The only area that looked weak was the Self-Invested-Personal-Schemes (SIPP). Individual SIPPs were down 14% and insured SIPP and drawdown products were down 40%.
Although Standard Life’s finances are showing a positive trend, their officials have issued a warning against ongoing grim conditions UK markets and are certain that these conditions are not going to disappear anytime soon. But they are sure that they will continue to “outperform relative to the market”.
In a move that has incited wide-spread talk of trouble at the top of Britain’s third largest bank, a senior Barclays executive, Paul Idzik, has unexpectedly stepped down from his post. His resignation has been rumoured to be due to Mr. Paul Idzik’s mounting frustrations due to the differences between chief executive officer, Mr. Varley and Bob Diamond, who is the bank’s president and the head of its investment banking division.
Mr. Idzik has been a fixture with the bank for nine years and has played an integral part in Mr. Varley’s endeavour to reform the bank’s culture and management. Barclays is already sailing through troubled water. The bank has been subjected to increasing criticism from its shareholders due to the steep drop in profits in its investment arm Barclays Capital, as a consequence of the credit crunch. This has lead to a widely acknowledged notion that Barclays may have to resort to a rights issue in order to raise extra cash from its investors to tide over its financial troubles.
Mr. Varley has appreciated the efforts Mr. Idzik has made for the betterment of the bank. Barclays maintains that Mr. Idzik’s resignation is not the sign of trouble a-brewing among the top brass, but rather just an individual’s yearning for a new challenge, now that he has completed all he had set out to do at Barclays.
Royal Bank of Scotland, Britain’s second largest bank, is to approach shareholders for nearly £10bn of extra cash for improving its financial position.
Royal Bank of Scotland (RBS) is looking to raise the money from its existing investors through probably the biggest ever rights issue in the country’s corporate history. The global credit crunch has forced banks worldwide to shore up their crumbling capital positions, and it is believed that others may well follow suit.
RBS, owner of NatWest, insurer Direct Line and Ulster Bank, has not commented. In a statement released, it has merely confirmed that it would provide a trading update, which is due ahead of its annual meeting next week. Analysts are certain that the bank will announce a big rights issue (a demand for new cash from the shareholders) next week. According to a BBC News report, RBS will also go for about £5bn of write-downs when it actually launches its rights issue.
The rights issue is considered to be a prudent measure for providing a capital cushion for the amount of risk on the bank’s balance sheet after it played a major role in last year’s takeover of ABN Amro, the Dutch bank.
The Royal Bank of Scotland, England’s second largest bank, unveiled its Rights Issue, to a mixed response. The £12 billion rights issue is the highest ever in England’s history. This capital building exercise was considered a must by RBS after falling prey to the global financial turmoil. The RBS has been forced to make large writedowns on toxic assets, the latest of which is a £5.9 billion pre-tax one in addition to the £2.4 billion one made in February. RBS’s tally sheets have already been stretched to the limit, especially affected by the 71 billion Euros it spent last year, during the takeover of the Dutch bank ABN AMRO.
The rights issue will help the RBS build capital. The issue offers shareholders 11 new shares for every 18 existing shares at a heavily discounted rate of 200 pence per share. This is nearly a 46% discount from the price of the RBS shares on Monday’s closing- which was roughly around 373 pence. The rights issue also marks a radical u-turn in RBS’ policy as they had outright shot down similar proposals on several previous occasions, as late as just two months ago.
The rights issue will be fully underwritten by Merrill Lynch, Goldman Sachs and UBS. The three will be paid £180 million with an additional bonus of £30 million if all goes as scheduled.
In addition to the rights issue, RBS is also contemplating selling off a few of its assets in a bid to raise £6 bllion. It aims to do this by selling its insurance arms such as Churchill and Direct Line and a few others. It has also announced a reduction in dividends, with a decision that it will pay interim dividends in shares rather than in cash. RDS stated that the dividend would be paid in keeping with the 49pc ratio to underlying earnings excluding exceptional terms.
The RBS held its annual general meeting on Wednesday and will have the rights issue Okayed by shareholders in mid-May. The bank believes that the sheer enormity of the Rights Issue should reassure shareholders but it doesn’t seem to be going that way. Shares for RBS have been dropping at the markets and fell 2.5% on Monday itself.
A lot of other banks are expected to follow suit and release rights issues. Most analysts expect Barclays and HBOS to figure prominently on that list. All this will probably depend on the success of RBS’ rights issue. The RBS has 200,000 shareholders, 93% of which are major investors, such as pension funds, while 7% are made up by private individuals.