Sunday newspaper round-up: Virgin Money, Eurozone bonds, Resolution

20th Nov 2011 14:00

The big danger for some investors and strategists is that Eurozone bond markets might be broken beyond repair. Matt King, a credit Strategist at Citi, thinks the point of no return was passed long ago. He compares the situation to the triple A U.S. collateralized debt obligation market in 2008 when investors rushed to sell at almost any cost. But the scale of the problem is bigger than in 2008. Mr.King notes there is $3,000bn of government bonds trading with spreads of more than 150bp to German bunds. There were only $2,000bn CDOs outstanding at the peak. "It´s thinking about your exposure in a new way. It now clearly exceeds my risk tolerance," says Mr. King. "Once you start looking at it in that way it is almost unstoppable," he concluded, says The FT´s Weekend edition. Though he is expected to end up owning 44% of the combined Virgin Money, alongside Virgin Group´s 46% stake, he will not be around forever. Having paid the equivalent of 0.8-0.9 times the bank´s book value, Wilbur Ross, the U.S. financier, told the Financial Times: "If investors ever like bank stocks again, we would hope to sell out a few years down the road for 1.5 times book value." The FT´s Weekend edition also reports that, "asked about his appetite for buying into the UK´s other part-nationalised lenders, Royal Bank of Scotland and Lloyds, Mr. Ross said only that this was," not anything for the near term." High petrol prices hurt, but will not throttle the economy, according to The Economist. Though filling up a tank feels like being gouged, motoring costs have actually fallen in real terms over the past decade, according to the Office for National Statistics, because new cars are cheaper. Businesses are sitting on so much cash at the moment that high fuel prices are unlikely to lead to a drop in investment. Fuel duty has also served as a useful environmental weapon, since it accurately targets a pollutant and changes behaviour. (...) Thanks to pricey fuel and tax incentives, car and van mileage has fallen for four consecutive years and fuel efficiency has increased, notably because new cars have better engines. The economics of petrol pricing are fairly simple. It is the politics that could yet leave the chancellor in a jam.Resolution, the insurance conglomerate run by City tycoon Clive Cowdery, has made a £1.2bn takeover bid for rival Phoenix Group. He is in advanced talks over an offer that would value Phoenix at close to 700p a share ? a 40% premium to the current price. A deal would rank as one of the biggest in Britain's financial services industry since the global credit crunch swept through the City in 2007. Cowdery faces opposition from Swiss Re, one of the world's biggest insurers and CVC, the big private equity firm, which is believed to be preparing a cash bid. He is thought to be close to securing an all-share deal, however. He presented his plans last week to the syndicate of 17 banks that fund Phoenix, according to The Sunday Times."I appreciate that we're all sick and tired of financial turmoil. I also accept, given that I've been making the argument for my entire adult life, that "fiscal union" is the only economically coherent system under which the Eurozone can possibly survive in its original form. I'm starting to lose patience, though, with those who expect to be taken seriously when they venture that such an arrangement can actually be implemented in Europe. Greece is a democracy. Spain is a democracy. Italy is a democracy. France, the world's fifth-largest economy and one of the most powerful countries on earth, is a democracy - and a pretty feisty one at that. Are all these countries, their electorates supplicant, their future politicians content, really going to subscribe to and live under, for decades to come, a system based on Berlin telling them how much they can borrow and spend?," writes Liam Halligan for the Sunday Telegraph. Tomkins, the UK engineering firm that was sold to private equity 15 months ago, is selling its tyre safety business which supplies leading car manufacturers including BMW and Ford for around £550m. (...) The 15.3% rise in sales was driven by higher volumes, especially in the US where 78% of sales came from (...) The double-digit increases in both earnings and sales stem from higher vehicle production volumes in North America and the growing adoption of tyre pressure monitoring systems in emerging markets, The Sunday Telegraph reports.Compass, the world's largest contract caterer, will reveal plans this week to return £500m to shareholders by buying back shares. Analysts expect the company to announce the move alongside its annual results, when profits are forecast to exceed £1 bn. (...) Buybacks are becoming increasingly common among large groups with plenty of cash on their balance sheets, Glaxo Smith Kline and Virgin Media among them. (...) This week it will announce it has won new business, such as providing security services to Thomson Reuters, the media group, and catering for Vodafone in Turkey and Dell in India, The Sunday Times reports."Let there be no doubt. In the Asia-Pacific in the 21st century, the United States of America is all-in," said US President Barack Obama at a speech in Canberra, Australia, writes the Financial Times´ Editor, Lionel Barber, this past weekend. Mr. Barber goes on to add that, "Historians will look back and ask whether America´s reengagement in the Pacific in November 2011 marked the moment when tensions with China, the superpower-in-waiting, escalated irreversibly. Throughout the ages, the failure to accommodate rising powers - or rather the failing of rising powers to accommodate the existing state system - has been a source of conflict."And just as cars are growing more fuel-efficient, Americans are driving less. In 2010 they drove just under three trillion miles?less than they did in 2006. While better fuel-efficiency is good news for Americans' wallets and less driving good for the country's air, for its highways and mass-transit systems, it is something of a disaster. That is because federal funds, mostly derived from fuel-tax revenue, account for 22% of all highway funding (...) The American Society of Civil Engineers estimated in 2009 that 36% of America's major urban highways are congested, costing $78.2bn each year in wasted time and fuel costs. According to Transportation for America, an advocacy group, one in nine highway bridges are "structurally deficient"?a quality they seem to share with America's Congress, writes The Economist in its latest edition.AB