Dell plans to go private in biggest LBO since financial crisis | Obama calls for short-term budget deal | Nasdaq and SEC discuss Facebook IPO settlement
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06 February 2013
CFA Institute: Financial NewsBrief
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Dell plans to go private in biggest LBO since financial crisis
Dell computer company founder Michael Dell reached an agreement with private equity investor Silver Lake Partners and Microsoft to take the firm private in a landmark $24.4 billion leveraged buyout deal, after 24 years on public markets. The deal requires approval by a majority of the shareholders, excluding Dell himself. The $13.65-a-share deal price is a 25% premium to the market price of Dell shares before buyout talks became public last month. Reuters (05 Feb.), CNET (05 Feb.), Austin American-Statesman (Texas) (free registration) (05 Feb.)
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Obama calls for short-term budget deal
President Barack Obama urged Congress to pass a package of stop-gap tax increases and spending cuts quickly to avert deep across-the-board reductions in military and domestic spending that will automatically take effect March 1. He said the action would give lawmakers time to work out a comprehensive deficit-reduction plan that would put automatic sequestration of funds to rest permanently. Obama said there is no need to endanger "the jobs of thousands of Americans." The New York Times (tiered subscription model) (05 Feb.), Reuters (05 Feb.), Bloomberg (05 Feb.)
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Nasdaq and SEC discuss Facebook IPO settlement
Nasdaq OMX Group reportedly is looking at settling with the Securities and Exchange Commission, which would include a $5 million penalty relating to technical errors during Facebook's initial public offering. Nasdaq has already offered more than $60 million in compensation to firms possibly harmed by the errors. Reuters (05 Feb.), Bloomberg (05 Feb.)
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RBS reportedly will face $630M fine in rate-rigging inquiry
Royal Bank of Scotland reportedly will be be fined about £400 million by U.S. and U.K. regulators for its role in alleged manipulation of the London Interbank Offered Rate. By agreeing to plead guilty in the U.S., the bank resolved the last sticking point in settlement negotiations. No individuals are expected to be charged. The Wall Street Journal (tiered subscription model)/Dow Jones Newswires (05 Feb.)
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NYSE Euronext posts profit plunge, says ICE deal is on track
NYSE Euronext says weak trading drove its fourth-quarter profit down 75%, but its takeover by IntercontinentalExchange is still on track to be completed in the second half of the year. "We are focused on building momentum in our business prior to closing the deal with ICE," CEO Duncan Niederauer said. Fox Business (05 Feb.), Reuters (05 Feb.)
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Japan's Nikkei reaches its highest level since 2008
Japan's Nikkei 225 rose 3.8%, closing at its highest level in more than four years. Stock prices jumped after the yen fell as currency traders speculated that the central bank chief's early departure opens the door to more aggressive monetary policies. Elsewhere in the Asian-Pacific region, Hong Kong's Hang Seng Index gained 0.5%. Australia's S&P/ASX 200 added 0.8%. Taiwan's Taiex edged up 0.3%. China's Shanghai Composite moved up 0.1%. South Korea's Kospi fell 0.1%, as did India's Sensex at midafternoon. MarketWatch (06 Feb.), Reuters (06 Feb.), NHK World (Japan) (05 Feb.), The Economic Times (India) (26 Feb.)
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Liberty Global offers $16B for Virgin Media
U.S. cable company Liberty Global has agreed to pay $16 billion in cash and stock for Britain's Virgin Media. Liberty says Virgin shareholders would get the equivalent of $47.87 per share, a 24% premium to Virgin's closing price Monday. The acquisition, subject to regulatory and shareholder approval, would give Liberty access to Europe's biggest cable market. The New York Times (tiered subscription model)/DealBook blog (05 Feb.), Broadcasting & Cable (05 Feb.)
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Inflation expectation drives up losses on 30-year Treasury
Investors' losses on the 30-year U.S. government bond have topped 5% this year as buyers of Treasury securities brace for accelerating inflation. For the first time in more than a year, the Federal Reserve's benchmark for inflation expectation is near 3%. Bloomberg (06 Feb.)
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European companies issue record volume of convertible bonds
Companies in Europe issued a record number of convertible bonds last month, prompted by rising stock markets and investor concern about the how long the rally will last. "If you are not completely sure how any of these very big issues are going to be resolved, whether short term or long term, or how the market will react to it, then you need to be in converts," said Maxime Perrin of Lombard Odier Investment Managers. Reuters (05 Feb.)
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Economics
CBO forecasts deficit under $1T for first time in 5 years
The Congressional Budget Office said it expects the 2013 fiscal year federal deficit to come in at $845 billion, the first time in five years that the shortfall would be less than $1 trillion. The U.S. economy will expand 1.4% this year, rather than contracting 0.5% as previously predicted, the CBO said. At the end of 2013, unemployment will be 8%, the office said. U.S. News & World Report (05 Feb.), Bloomberg/The Ticker blog (05 Feb.), The Wire (05 Feb.)
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2 to 3 decades of low returns await investors, report says
For the next 20 to 30 years, annualized worldwide returns on equities will reach 3% to 4% and less than 1% on bonds, according to a report by London Business School and Credit Suisse. Since 1980, real returns on equities and bonds have exceeded 6%, but those days are over, the report says. Many institutions still assume "unrealistic" returns of 6 to 8 percentage points higher than inflation, the report says. Pensions & Investments (free access for SmartBrief readers) (05 Feb.)
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Analysis: Nordic prosperity comes from honest government
The Nordic countries have prospered without financial and social discord endured by other developed economies because of their tradition of honest, transparent and pragmatic government, according to The Economist. "The Nordic combination of big government and individualism may seem odd to some, but according to Lars Tragardh, of Ersta Skondal University College, Stockholm, the Nordics have no trouble reconciling the two: they regard the state's main job as promoting individual autonomy and social mobility," the magazine notes. The Economist (tiered subscription model) (02 Feb.)
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Survey: Investors trust adviser but not advisory firm
Individual investors have more confidence in their financial adviser than in an advisory firm as a whole, according to a survey by Cerulli Associates. More than 60% of clients think advisers are required to act in their best interest, whereas 28% think advisory firms put clients ahead of themselves. InvestmentNews (free registration) (05 Feb.)
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China adopts plan to narrow gap between rich and poor
The Chinese State Council has approved a 35-point plan to reduce income disparity. The measures include raising minimum wage to 40% of average pay, boosting spending on affordable housing and education, and relaxing controls on bank deposit and lending. Bloomberg (05 Feb.)
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Geopolitical/Regulatory
Hollande breaks with Germany, demands exchange-rate policy
French President Francois Hollande has called for the eurozone to determine a midterm exchange rate. The request runs counter to Germany's position that governments cannot interfere with central bank monetary policy. The emphasis should be on "strengthening competitiveness, rather than weakening the currency," German Economy Minister Philipp Roesler said. The Washington Post (tiered subscription model)/The Associated Press (05 Feb.), Bloomberg (05 Feb.), Financial Times (tiered subscription model) (05 Feb.), The Wall Street Journal (tiered subscription model)/The Euro Crisis blog (05 Feb.)
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BaFin and Bundesbank differ on rate-setting reform
Germany's financial regulator and central bank have taken opposite sides of the debate on how to reform benchmarks such as the London Interbank Offered Rate. BaFin says the system might need to be changed, while the Bundesbank thinks better reporting will fix the problem. Reuters (05 Feb.)
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FINRA delays price bands and circuit breakers
The Financial Industry Regulatory Authority has postponed the implementation of volatility controls, including circuit breakers, to April 8. In addition, the introduction of limit up/limit down on individual equities is scheduled to be completed by Sept. 30. The controls are part of a response to the May 6, 2010, "flash crash." Traders Magazine Online (05 Feb.)
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Financial Products
Security Benefit adds fund options to variable annuity
Security Benefit has broadened choices under the EliteDesigns variable annuity by adding 71 fund options. The funds come in response to advisers' request for better tools to manage volatility and tax efficiency for clients, Vice President Michael Reidy says. PlanAdviser.com (05 Feb.)
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Ethics
S&P execs were mixed on lower standards, documents show
E-mails and other documents made public in the U.S. Justice Department's lawsuit against Standard & Poor's offer insight into happenings at the company as crisis emerged regarding mortgage-backed securities. Some S&P executives pushed to relax criteria for ratings to preserve profit, while others expressed concern about lowering standards. The New York Times (tiered subscription model)/DealBook blog (05 Feb.), Google/The Associated Press (05 Feb.)
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