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☆ No China is no fix for Britain’s industrial woes
▼ + stars: | 2022-11-17 | by ( ) www.reuters.com time to read: +2 min

LONDON, Nov 17 (Reuters Breakingviews) - The British government has blocked the sale of a silicon wafer factory in Wales to a subsidiary of China’s Wingtech Technology (600745.SS). It’s a sign of the growing wariness among western governments of the risks involved in Chinese investment. The decision to force Netherlands-based Nexperia to sell most of its stake in the Newport Wafer Fab business isn’t illogical. The plant makes basic silicon wafers, used in chips for switches in domestic appliances such as vacuum cleaners. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

☆ Intesa’s payments exit sends awkward message
▼ + stars: | 2022-11-15 | by ( ) www.reuters.com time to read: +2 min

MILAN, Nov 15 (Reuters Breakingviews) - Carlo Messina has picked a puzzling moment to get out of Nexi (NEXII.MI). Italy’s biggest bank by market capitalisation, a key industrial partner to the 11 billion euro payments group, sold its entire 5% stake at 8.7 euros a share late on Monday, or 584 million euros. Intesa, which sold its retail payments business to Nexi for 1 billion euros and entered a long-term partnership, will remain a key business ally. Analysts believe Nexi is worth 12 euros a share, according to average target prices from Refinitiv. Intesa’s hurried sale suggests the stock, which has already lost more than a third of its value this year, may have further to fall.

☆ Saudi Credit Suisse deal is fair Buffett imitation
▼ + stars: | 2022-11-02 | by ( Liam Proud | ) www.reuters.com time to read: +3 min

Saudi National Bank (1180.SE) is continuing the tradition, ponying up about $1.4 billion for a 9.9% stake in troubled Credit Suisse (CSGN.S). By contrast, Saudi Arabia’s biggest bank is acquiring $1.2 billion of new Credit Suisse shares in a private placement and then participating in the bank’s imminent rights issue. Credit Suisse is targeting a 6% return on tangible equity in 2025, once Chief Executive Ulrich Körner has cut costs and shrank the investment bank. The Gulf bank has talked up the wider opportunities of partnering with Credit Suisse. That would cost SNB roughly 220 million Swiss francs, taking its total investment spend to around 1.4 billion Swiss francs.

☆ Europe’s diverging prices complicate ECB’s task
▼ + stars: | 2022-11-01 | by ( Pierre Briancon | ) www.reuters.com time to read: +4 min

LONDON, Nov 1 (Reuters Breakingviews) - The euro zone monetary policy debate may soon become more tense. The region’s inflation rate, at 10.7% in October, masks wide disparities among member states. The recent dispersion in euro zone inflation rates began with the recession triggered by Covid-19. Retail energy prices in the euro area increased by 40% between August 2021 and August 2022. Monetary policy may become less predictable.

☆ Brazil gives flagging climate fight a timely boost
▼ + stars: | 2022-10-31 | by ( George Hay | ) www.reuters.com time to read: +3 min

As such, the election of Luiz Inácio Lula da Silva as Brazil’s president counts as a tangible boost. Tree planting and restoration could then absorb the annual emissions caused by the so-called Land Use, Land-Use Change and Forestry (LULUCF) sector by 2040. Curbs on environmental enforcement and illegal mining declined, and LULUCF emissions jumped. As such, Lula’s victory has international importance. That makes political developments like Lula’s victory all the more vital.

☆ European banks’ perfect moment will prove fleeting
▼ + stars: | 2022-10-26 | by ( Liam Proud | ) www.reuters.com time to read: +4 min

LONDON, Oct 26 (Reuters Breakingviews) - Europe’s big banks are enjoying a perfect moment. That dream scenario allowed Deutsche Bank (DBKGn.DE), Barclays (BARC.L) and Banco Santander (SAN.MC) to report chunky profits in third-quarter results released on Wednesday. Barclays’ revenue from trading fixed-income securities, currencies, and commodities in the first nine months of 2022 was 63% higher year-on-year. Deutsche, Barclays and Santander have slashed their group-wide stock of loan-loss provisions since 2020, and in the latter two cases they’re even below pre-pandemic levels. Deutsche Bank and Barclays were down 0.5% and 0.9% respectively.

☆ Loafer buyout flop may have sting in the tail
▼ + stars: | 2022-10-26 | by ( ) www.reuters.com time to read: +1 min

MILAN, Oct 26 (Reuters Breakingviews) - Founder Diego Della Valle’s stingy attempt to take luxury shoemaker Tod’s (TOD.MI) private appears to have floundered. Della Valle’s refusal to lift the bid price appears puzzling. Adding perhaps 10% to the offer price would have mollified the naysayers. Investors would be forced to accept illiquid stock or compensation based on Tod’s average price in the six months prior to the offer. Della Valle’s next deal could be even stingier.

☆ Britain’s next leader will be on a short leash
▼ + stars: | 2022-10-21 | by ( Peter Thal Larsen | ) www.reuters.com time to read: +4 min

The British leader announced her resignation on Thursday after just 44 days in charge, making her the country’s shortest-serving prime minister ever. Truss will stay in office until the Conservative Party chooses a replacement by the end of next week. However, her tenure effectively ended last Friday, when she was forced to replace her finance minister and reverse massive tax cuts which had triggered a self-imposed financial crisis. Truss said she would step down as leader and remain prime minister until a successor is chosen “in the next week”. “I recognise though, given the situation, I cannot deliver the mandate on which I was elected by the Conservative party,” Truss said.

☆ Breakingviews: Britain’s next leader will be on a short leash
▼ + stars: | 2022-10-20 | by ( Peter Thal Larsen | ) www.reuters.com time to read: +4 min

☆ Philip Morris’ Swedish bet may take multiple tokes
▼ + stars: | 2022-10-20 | by ( ) www.reuters.com time to read: +2 min

LONDON, Oct 20 (Reuters Breakingviews) - Philip Morris International (PM.N) may need to show more flexibility. PMI Chief Executive Jacek Olczak has strengthened his hand by sealing a $2.7 billion deal with Altria to buy the rights to sell IQOS heated tobacco products in the United States, giving him an alternative way to grow in smokeless tobacco products. Still, it may be hard to get the Swedish Match deal over the line, given PMI’s ambitious 90% acceptance rate. That’s probably why the shares are currently trading close to the offer price at 112 crowns. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

☆ Tricky Monte Paschi cash call comes at high cost
▼ + stars: | 2022-10-17 | by ( ) www.reuters.com time to read: +2 min

The fees amount to some 15% of the 857 million euros banks and fund Algebris have agreed to backstop. The fees in Saipem’s (SPMI.MI) 2 billion euro rights issue amounted to less than 5% of the amount banks had agreed to mop up. Monte Paschi says investors have committed 37 million euros and others say they will take up more than 50% of the 900 million euro portion of the rights issue reserved for private investors. That implies the banks may get stuck with some 400 million euros of unsold stock in a worst case scenario. Register now for FREE unlimited access to Reuters.com RegisterFor Monte Paschi, the cost of the rights issue will cut some 15 basis points off its Tier 1 capital ratio target of 14.2% for 2024.

☆ Sovereign debt greens yet net-zero pledges darken
▼ + stars: | 2022-10-13 | by ( George Hay | ) www.reuters.com time to read: +5 min

LONDON, Oct 13 (Reuters Breakingviews) - Governments are increasingly getting into green bonds. Nearly 40 sovereigns as well as other local public entities have issued green bonds in recent years. And they are also issuing green debt at increasingly longer tenors: in August the Monetary Authority of Singapore raised $2.4 billion via a 50-year green bond. Still, the boom in sovereign green bonds has not been accompanied by much progress towards net zero. The bonds’ proceeds will be earmarked for environmental investments, such as energy efficiency projects.

☆ Breakingviews: Bailey outburst blunts BoE crisis-fighting tools
▼ + stars: | 2022-10-12 | by ( Neil Unmack | ) www.reuters.com time to read: +5 min

LONDON, Oct 12 (Reuters Breakingviews) - Andrew Bailey is in danger of blunting the Bank of England’s crisis tools. The UK central bank governor on Tuesday vowed to end emergency bond-buying that has been propping up pension funds, even as investors increasingly assumed the scheme might get extended. Indeed, 30-year bond yields have risen further on Wednesday. CONTEXT NEWSBank of England Governor Andrew Bailey reiterated in a speech on Oct. 11 that the bank planned to its cease its emergency government bond purchases on Oct. 14. The BoE announced a 65 billion pound government bond purchase scheme on Sept. 28 to help indebted pension funds facing margin calls avoid being forced to sell gilts.

☆ Bailey outburst blunts BoE crisis-fighting tools
▼ + stars: | 2022-10-12 | by ( Neil Unmack | ) www.reuters.com time to read: +5 min

LONDON, Oct 12 (Reuters Breakingviews) - Andrew Bailey is in danger of blunting the Bank of England’s crisis tools. The UK central bank governor on Tuesday vowed to end emergency bond-buying that has been propping up pension funds, even as investors increasingly assumed the scheme might get extended. Indeed, 30-year bond yields have risen further on Wednesday. Lastly, if Bailey is indeed forced to U-turn by extending the programme, he will have damaged the bank’s credibility. The BoE announced a 65 billion pound government bond purchase scheme on Sept. 28 to help indebted pension funds facing margin calls avoid being forced to sell gilts.

☆ BoE drawn into risky game of financial whac-a-mole
▼ + stars: | 2022-10-11 | by ( Neil Unmack | ) www.reuters.com time to read: +5 min

On Tuesday, the UK central bank said it would buy more bonds to avert a fire sale by pension funds. But its plan to end such support on Friday is hampered by a distressed bond market, and wayward government. Prime Minister Liz Truss’s unfunded plan to cut taxes had triggered a surge in government bond yields, which in turn forced indebted pension funds to sell assets. Register now for FREE unlimited access to Reuters.com RegisterThere are plenty of signs that the bond market remains distressed. Without a credible fiscal strategy, investors may continue to steer clear of UK gilts.

☆ Renault, Nissan messy breakup is least-bad option
▼ + stars: | 2022-10-10 | by ( Neil Unmack | ) www.reuters.com time to read: +4 min

Another headache is the alliance’s lopsided governance, which sees Renault hold a 43% stake in Nissan but the Japanese group prohibited by French law from exercising voting rights associated with its 15% stake in Renault. That will need Nissan’s backing, and the Japanese group might also invest in the electric division. The quid pro quo may be for Renault to give up some of its 43% share in Nissan. That implies the current value of just over 9 billion euros assigns little worth to the Nissan stake. Nissan is pressing Renault to cut its 43% stake in the Japanese group to as little as 15%, Reuters reported on Oct. 8.

☆ Credit Suisse’s wayward debt is a bet for the bold
▼ + stars: | 2022-10-06 | by ( ) www.reuters.com time to read: +2 min

LONDON, Oct 6 (Reuters Breakingviews) - Credit Suisse’s (CSGN.S) debt derivatives are still sending spooky signals, even though its equity is not. Yet its credit default swaps (CDS), contracts used to speculate on a company defaulting on its debt, are still bizarrely elevated, despite the absence of any bad news. Five-year swaps were trading at roughly 360 basis points on Thursday, compared with around 200 basis points in mid-September, according to Refinitiv data. Credit Suisse’s one-year CDSs, meanwhile, were quoted at around 600 basis points on Thursday morning, according to one trader. Investors willing to bet that Credit Suisse can survive would make handsome gains.

☆ Pension fund blowup faces brutal second act
▼ + stars: | 2022-10-06 | by ( Aimee Donnellan | ) www.reuters.com time to read: +5 min

The Bank of England announced a 65 billion pound gilt-buying scheme to stabilise markets and rescue pension funds. Bailey’s move may have been too late to stop some pension funds from having to close out their hedges, like interest rate swaps or futures. The rate at which retirement payments are discounted will also fall, pushing up the pension fund’s future liabilities, but without a corresponding asset gain. Meanwhile, investors like Goldman Sachs are hoovering up cut-price stakes in private equity vehicles, which LDI funds are selling. They also held 78 billion pounds and 317 billion pounds in property and equities respectively.

Yet the government’s unfunded mini-budget on Sept. 23 stoked fears of runaway inflation, causing gilt yields to soar. The mess left pension funds scrambling to raise margin, and they wound up doing so by selling their most liquid asset – gilts. And the more the pension funds sold, the more gilt prices fell, causing a vicious spiral and fears the funds could run out of cash. By the time Governor Andrew Bailey intervened, certain pension funds had been hit with margin calls as high as 100 million pounds. Ahead of the BoE’s announcement, strategists said the 2.1 trillion pound gilt market was seizing up, with very poor liquidity and pricing quality being a clear sign of market dysfunction.

☆ Breakingviews: BoE’s bond-buying U-turn is worth the risk
▼ + stars: | 2022-09-28 | by ( Neil Unmack | ) www.reuters.com time to read: +5 min

The fallout makes it even harder for Governor Andrew Bailey to convince markets he can tighten monetary policy. His decision on Wednesday to buy UK government debt and delay plans to sell down its 857 billion pound ($915 billion) bond portfolio carries big risks. Bailey’s goal is to cut holdings by 80 billion pounds over the next year. UBS analysts reckon issuance of gilts, after factoring in sales and redemptions from QT, will reach 355 billion pounds in the year ending March 2024. If Bailey can now tighten monetary policy without freaking out investors, his U-turn will have been worth the risk.

☆ Nexi can play catch-up with rival Worldline
▼ + stars: | 2022-09-27 | by ( ) www.reuters.com time to read: +2 min

The logo of Italian payments group Nexi is pictured inside their headquarters in Milan, Italy, March 28, 2019. REUTERS/Alessandro GarofaloMILAN, Sept 27 (Reuters Breakingviews) - It’s time for Nexi (NEXII.MI) to close a valuation gap with rival Worldline (WLN.PA). The 11.5 billion euro Italian payments group pledged on Tuesday to boost revenue by 9% per year by 2025 and its EBITDA by 14%. Worldline’s Gilles Grapinet, who competes with Nexi to snap up European payments assets, had earmarked just 0.8 billion euros of free cash flow in its four-year plan. Despite similar growth targets, Nexi is valued less richly than Worldline.

☆ UK swaps one cost-of-living crisis for another
▼ + stars: | 2022-09-27 | by ( Liam Proud | ) www.reuters.com time to read: +3 min

But the budget plans of new Prime Minister Liz Truss and her Chancellor Kwasi Kwarteng may cause a world of pain for mortgage borrowers. Surging interest rates will crimp spending and hurt the housing market, further undermining Truss and Kwarteng’s growth plans. Capital Economics reckons at Monday’s implied levels, mortgage costs could reach their highest level relative to borrowers’ income since 1990. Rather than having to bail them out, regulators and politicians may push lenders to offer repayment holidays or cut interest rates. It will find it equally difficult to let mortgage borrowers suffer alone.

☆ Bank of Cyprus bid makes case for lender buyouts
▼ + stars: | 2022-09-22 | by ( Liam Proud | ) www.reuters.com time to read: +3 min

Lone Star’s roughly 700 million euro offer for Bank of Cyprus (BOCH.CY) shows that the sector may have reached such a level in Europe. Chief Executive Panicos Nicolaou churned out a respectable 7.3% return on tangible equity (ROTE) in the first half of 2022, excluding one-off charges. That helps explain why the bank has rebuffed three offers from U.S. fund Lone Star, the last of which valued it at almost 0.4 times tangible equity. Even if Bank of Cyprus hits that lower number, a fair valuation might be closer to 0.8 times tangible equity, or around 1.3 billion euros – double Lone Star’s offer. In making the case for bank buyouts, Lone Star may be doing the whole sector a favour.

☆ Tokyo blinks in game of forex chicken
▼ + stars: | 2022-09-22 | by ( Pete Sweeney | Thomson Reuters | Asia Economics Editor Pete Sweeney Joined Reuters Breakingviews In Hong Kong In September Previously He Served As Reuters' Chief Correspondent For China Economy | ) www.reuters.com time to read: +3 min

Japanese yen and U.S. dollar banknotes are seen with a currency exchange rate graph in this illustration picture taken June 16, 2022. The BOJ would rather wait for the outcome of companies’ annual wage negotiations next year before leaping to policy conclusions. That further widens the gap between American and Japanese benchmark bond yields – already well over 3 percentage points – which further hurts the yen. Register now for FREE unlimited access to Reuters.com RegisterThat’s why Tokyo has decided to deploy some of its $1.3 trillion in forex reserves to stem the slide. Bond investors have already expressed scepticism towards the BOJ’s commitment to keeping the 10-year sovereign bond yield below 0.25%.

☆ Novartis’ growth ills lay tricky treatment pathway
▼ + stars: | 2022-09-22 | by ( ) www.reuters.com time to read: +2 min

LONDON, Sept 22 (Reuters Breakingviews) - Novartis (NOVN.S) is facing a prolonged period in recovery. On Thursday, the $187 billion Swiss drugmaker said it will make expansion in the U.S. market a top priority as it seeks to boost its lacklustre growth. He will also spin off its generic drug business next year and list it on the Swiss stock exchange. Strip that away from Novartis’ current enterprise value of $196 billion and the core drugs business is valued at around $167 billion. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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