John Buchanan

Tracking Deals

 

How can I keep abreast of M&A activity, including deals involving government takeovers and bailouts?

 

Mergers and acquisitions have been in a slump since last year as the global credit crunch has hindered companies’ ability to do site deals. Activity hasn’t dried up entirely, though, and with finan­cial turmoil prompting bailouts, governments are increasingly part of the mix. You can use the Bloomberg M&A Analysis (MA) function to track and rank deals and advisers, analyze transactions, search for data using criteria you select and view related headlines.

Type MA <GO> 1 <Go> to access the M&A Search function. You can either choose one of 30 standard searches or customize your own using criteria you select including date, payment type and advisers.

To view transactions in which governments have played a part, select a search under Custom Search and press 2 <Go> to clear any prior criteria. Tab in to the SEARCH TITLE field and enter a name for your search, such as BAILOUTS. Enter 0 for All in the CURRENT STATUS field. Click on the number to the right of Deal Type and select Government Administration so that a blue star appears to the left of it. Press <Menu> and type 1 <Go> to run the search, which will be saved auto­matically. Click on any of the deals for more transaction terms.

 

UNDERWRITER RANKINGA

Type LEAG <Go> to create a custom In gue table using criteria you select.

How can I track underwire rankings across regions a d markets?

 

At a time when investment banks ar competing for a dwindling number of deals, yo can use the Underwriter Rankings (LEAG) fun on to identify the leading firms for arranging stoc and debt sales. For the top underwriters of U.S. ini al public offerings and additional stock sales so f. in 2009, for example, type LEAG <Go>. Click on Select a Market on the red tool bar, select Equity 8c 0quity Linked and click on U.S. Equity Offerings.

U.S. Equity Offerings

You can refine your equity rankings list further by creating a custom league table. o display the top underwriters of stock deals for financial firms this year, for instance, click on the elect a Market button, select Custom Markets an click on Add A Custom Market. Tab in to the Custom SEARCH NAME field and enter a name for you table, such as FINANCIALS. To view available sectors and Groups, click on the plus sign to left of Issuer Data and then on Industry in the t e that appears below it. Click on the plus sign to t e left of Finan­cial, followed by Select All, and the click on the Begin Search button to see your customized list, which will be saved automatically click on any item in the list and select Securities in the pop-up box that appears to view details of hat offering.

 

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The Troubled Asset Relief Program

THE TARP

 

Originally intended as a $500bn programme, estimates for the cost of the Troubled Asset Relief Program (TARP) have fallen sharply. In February last year, it was expected to cost $330bn. By August 3009 this had been slashed to $25lbn, then $117bn and finally $90bn. Tim Geithner, Treasury secretary, now believes the Treasury may actually end up making a profit of around $19bn from its lending to investment banks. Take, for example, the loan to Goldman Sachs. Accounting for everything, the Treasury earned an annualised return of 32 per cent, a haul that would make many private investors green. As of February, the Treasury had achieved a return of 8.8 per cent on its aid to banks.

 

The fiscal support to the economy has been huge and will eventually lead to some combination of higher taxes or lower spending. To put the problem in perspective, between 1956 and 3002 the average fiscal deficit in the US was 1.6 per cent of GDP, while in 3002 the fiscal debt to GDP ratio was 26 per cent.

Troubled Asset Relief Program

The financial crisis has hurt US finances in two ways. Tax revenues fell by almost 30 per cent last year. Corporate income taxes halved as the economy.

 

The Federal Reserve claims it has a full toolkit and will have no trouble controlling interest rates

slowed. Meanwhile, efforts to revive the economy resulted in an almost 30 per cent increase in federal spending. As a result, in 3009 the deficit hit almost 20 per cent of GDP, or $l,500bn, the highest level since 1953. The outlook for 3010 is even worse — a deficit of 20.6 per cent of GDP is forecast. Overall, the federal debt is expected to climb.

 

THE TABF

The Fed’s Term Asset-Backed Securities Loan Facility (TABF) aimed to prop up bonds backed by consumer loans and small business loans. This was due to expire on 21 March. It remains to be seen to what extent spreads will widen after the end of these subsidised loans from the Fed to buy the securities. Best year the programme helped spur around $158bn of bond issuance, according to Bank of America. The impact may hinge on the quality of loans. Higher-quality bonds, backed by prime car loans, are not expected to be affected too severely. Others, such as private student loans, retail credit cards and subprime car loans, may suffer.

The reasons that a return to normality will be so tough are as follows. First, when fiscal policy is being tightened, the Fed can often offset some of the economic pain through lower rates. In coming years, this will be almost impossible. Indeed, monetary policy will need to be tightened.

 

Term Asset-Backed Securities Loan Facility

Hence any fiscal austerity will be more painful than usual. Second, even before the fiscal problems inflicted by the bailout and the recession, the US deficit was deteriorating. An ageing population combined with escalating medical costs will account for much of the budget deterioration. Keeping debt levels under control while coping with these larger forces poses a huge political problem.

 

So policy-makers have managed to avert a depression. But returning the US economy to its previous state will take many years. Many economists, especially those at bond fund manager Pimco, believe that the “new normal” will be slow growth, as consumers and the govern­ment struggle to pay down debt. Nailing the ending could well end up being the toughest policy challenge of all.

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