21^st to 24^th November 2011

Bob Tallent

The Synergy Group

24^th November 2011

This weeks highlights on the international scene include: America’s banks are undergoing stress tests like those in Ireland, Thomas Cook saw its share price collapse, James Murdoch has stepped down from the boards of the subsidiaries that operate News Corporation’s British newspapers, and in Europe, bond yields maintained almost unmanageable levels on Spanish and Italian government debt and crept up for other countries, especially Belgium and France.

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• America’s banks are undergoing stress tests like those in Ireland.  They must assess whether they can maintain a Tier-1 capital ratio of 5% under a hypothetical economic scenario that includes America’s unemployment rate reaching 13%.The six largest banks will also have to demonstrate that they can withstand a severe global financial shock similar to the scale of that in 2008, but with the addition of a financial meltdown in Europe.  I hope not.
• Also on US banks and unlike Irish banks, they have made a collective profit of $35 billion for the third quarter – 48% up from the same quarter in 2010.  That is $538,461,538 for every working day or $14,957 for every working second.  Like Ireland, they increased their income by putting less money aside to cover bad loans, rather than expanding lending.
• Staying in America, the American economy didn’t perform quite as well in the third quarter as had been planned. Their GDP grew by an annual rate of only 2%, their first estimate had projected 2.5%. Nevada’s unemployment rate is still the highest at 13.4%.  Unemployment fell in 36 states in October, and rose in five.
• The Indian rupee has depreciated rapidly in the past three months falling to a record low against the dollar. There are doubts about the strength of India’s economy and a slump in foreign direct investment.
• It is planned that in January 2013, the Tokyo Stock Exchange would merge with the Osaka Securities Exchange, which focuses on derivatives, creating the world’s third-biggest stock exchange. Sceptics wonder if the new company will be an effective international player among the other big exchanges.  Let’s wait and see.
• After it sought to negotiate a second round of debt financing within a month and delayed the publication of its annual results, the travel company, Thomas Cook, saw its share price collapse. Even though the company can trace its British roots to 1841, its founder, also Thomas Cook, who transported people to temperance rallies, is struggling at the cheaper end of the European holiday market.
• James Murdoch has stepped down from the boards of the subsidiaries that operate News Corporation’s British newspapers. He faces questions from a parliamentary committee about his previous testimony on phone hacking and he stays on as chairman of News International, News Corp’s British newspaper division.
• Nokia Siemens Networks said it would cut 17,000 jobs because the network-equipment maker is restructuring its business to focus more on broadband infrastructure.
• The drugs company best known for its treatments for HIV, Gilead Sciences, said it would buy Pharmasset in an $11 billion deal.  Phasmasset develops drugs to combat viral infections.  It is working on new products for people with hepatitis C that can be taken in a single go instead of the several daily medications that are currently required and has no medicines on the market at the moment.
• Merck is plagued with problems.  It is paying out $5.85 billion, part of which includes $4.9 billion to settle lawsuits from patients. The company reached a settlement with the American government over Vioxx, its best-selling painkiller pulled from the market in 2004 because it was found to increase the risk of heart attacks and strokes It is to pay a $322m fine and a further $628m to conclude civil charges. Merck agreed to plead guilty to a misdemeanour related to the marketing of Vioxx to doctors.
• In one of the biggest leveraged buy-outs since the start of the financial crisis, a consortium led by Kohlberg Kravis Roberts agreed to buy most of Samson Investment, a privately held oil and gas exploration firm, for $7.2 billion.  Samson owns drilling rights in several shale-gas formations, including in North Dakota.
• In Europe, bond yields maintained almost unmanageable levels on Spanish and Italian government debt and crept up for other countries, especially Belgium and France. The euro zone crisis increased as banks struggled to obtain credit in the markets, forcing more of them to borrow from the European Central Bank. Germany also had its problems, when it was only able to sell 60% of ten-year Bunds it issued at an auction, though the low yield of 1.98% may have been a factor in turning off investors.
• Groupon’s shares fell well below the price of $20 a share the internet company set at its initial public offering earlier this month. Questions remain about the company’s competitiveness in the crowded market for discounting online. It floated only a small portion of its stock, making it more vulnerable to price volatility.

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