25 November 2008

Bailout Changes Prospects for a Citi Sale Financial Week, 24 November 2008 Goldman Sachs and Morgan Stanley have been looking for the chance to buy a bank with deposits ever since they converted from investment houses to bank holding companies in October. Citi might have been a perfect catch, but Sunday's bailout appeased depositors and counterparty investors and insulated the firm from mounting pressure to sell.

Our View: Government intervention has not changed the fundamental health of banks. In fact, capital-raising has not kept pace with write-downs and losses through Q3 and with more and possibly larger write downs to come. Organizations that assume they can hold off on evaluating counterparty risk should be doing the exact opposite – they should add more financial rigor beyond looking at credit default swaps (CDS) and should increase the frequency to monthly or weekly reporting. One Treasury client put it best when he said “government support of banks only delays the inevitable, more banks will fail and it is now only becoming harder to tell which ones and when.”

EU Investors Set Sights on Dividends The Wall Street Journal, 23 November 2008 European advisors are weighing dividend yields more heavily than earnings-based valuations because dividends are more resilient in the current economy. Investors note that earnings are unknowable and the value of a company cannot be assessed by stock price alone in today's volatile market.

Our View: Temper investor demand for higher dividend payments by maintaining a consistent dividend policy that leaves room for the occasional increase - as shareholders will expect such increases. To do this, determine the future cash flow that is needed to allow for an increase in the dividend over time that is comparable to industry peers.

A 30 Billion Dollar Injection for an Ailing Patient

The Guardian, 25 November 2008

Alistair Darling, the UK's finance minister, yesterday revealed his plans to prop up the country's economy as it slides deeper into recession.  He is lowering the national rate of value-added tax (charged on the majority of goods and services) from 17.5% to 15%.  He also announced a number of tax holidays for certain sectors of the economy, including deferring a planned increase in the corporation tax rate for small businesses, and other fiscal stimuli for pensioners and families.  This all adds up to an injection of £21bn ($31.5bn), and will be paid for with loans.   Borrowing is predicted to increase to a record 8% of UK GDP in 2009-10.

'Heard in the Suite' - Emerging Trends: Companies Beginning to Reconsider Their Tax Advisors
This feature highlights member quotes that represent 1) Emerging Trends, 2) Challenges to Conventional Wisdom, or 3) Under-Reported News
As part of their effort to cut costs, some members are examining what tax activities they can outsource to a third party while still maintaining control over them. One company is considering business with just one provider by consolidating tax consulting advisory fees with the tax audit fees. Although this was normal practice for many companies before SOX, board approval is now required and senior management usually prefers not to request it. “I think the pendulum is swinging back though, and companies are not as conservative about their tax advisors. We are feeling more comfortable with the idea of combining tax services into one provider again.”

Fed Has Opaque Role in Financial Crisis Aid

The Washington Post, 24 November 2008
The Federal Reserve is lending billions of dollars to a wide range of institutions but refuses to name the banks and other companies accessing the cash, citing the need to protect investor and depositor confidence. The Fed has replaced safe investments in U.S. government bonds with loans to unnamed institutions to the tune of $893 billion, a far higher figure than Treasury has paid out in its rescue efforts. 

Obama Names His Economic Team

The New York Times, 24 November 2008
President-elect Barack Obama unveils his economic team and pledges to honor commitments the outgoing administration has made to rescue financial markets. Nominations include: Timothy Geithner as Secretary of the Treasury, Lawrence Summers as the Director of the National Economic Council, Christina Romer as Chair of the Council of Economic Advisors, and Melody Barnes as Director of the Domestic Policy Council. 
 

Daily Lift - Pairing Wine With Family Dysfunction

Bloomberg, 21 November  2008
Wine has long been the palliative of choice at the holidays when close interaction with numerous and diverse family members is required. Elin McCoy suggests several wines that accommodating hosts should keep in mind when selecting for a range of palates and personalities.
 

Daily Capital Markets Review: Markets Extend Rebound Behind Citi Rescue, Obama Picks

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