UBS Takes Credit Hit; Commodity Prices Dampen China Earnings; Bancolumbia Income Up 45%; HSBC Sells Credit Cards; Morgan Stanley Buys Japanese Beer...
- Swiss banking giant UBS AG (UBS) said yesterday (Tuesday) that it experienced a third-quarter net loss of $712 million, due in large part to difficulties in the U.S. mortgage securities markets. Most of the loss came from the Investment Banking division, which lost $3.16 billion in the portfolio of subprime mortgages traded during the quarter. Many of the banks operating divisions were profitable for the period, but it was far from enough to overcome the trading losses and write-downs. Global Wealth Management and Business Banking notched record-level profits of $2.05 billion. Earnings from the Wealth Management International and Switzerland business units also hit a new all-time high, with profits of $1.39 billion. UBS also warned that they still held a significant amount of mortgage bonds and credit derivatives, and that more losses were likely in the fourth quarter. Citigroup Inc. (C) analysts estimate that the trading losses could reach $1.29 billion to $1.72 billion in the next three months. This was the first quarterly loss at UBS for almost five years.
- In China Tuesday several companies reported a decline in year-over-year earnings bought on by the rising costs of raw materials, as inflationary pressures begin to have an impact on some industries. Baoshan Iron and Steel said its profits fell 50% year over year due to soaring zinc prices, one of the key ingredient in stainless steel. The ensuing correction caused stainless steel prices to drop, as well, compressing margins in the quarter. Chongquin Auto Supply also announced that rising costs and higher tax expenditures had negatively impacted business in the quarter, as net profits fell 12%. Chinese milk and yogurt producer Bright Dairy and Food Co. Ltd. also indicated that rising costs had caused profits to drop 7.2%, in spite of a revenue increase. The Chinese economy is growing at an annual rate of 11.9%. The last time the Chinese Central raised interest rates to help stem inflation was March 24.
- In Medellin, Columbia yesterday Bancolumbia S.A. (CIB) reported that unconsolidated net income for the first nine months of the year was up 45% from last year, reaching $291 million. Total net interest income rose 56% in the period, while income from other investments, including activities such as currency trading and corporate bond trading, fell 18%. Bancolumbia also stated that loan quality improved 2006, with past-due loans declining from 2.64% in August to 2.55% in September. Columbian gross domestic product (GDP) is growing at the fastest pace in three decades, and Bancolumbia continues to experience rapid growth as a result of the economic. This growth - coupled with a leveling off of interest rates in the last quarter - has benefited the bank's lending abilities and profits.
- HSBC Holdings PLC (HBC) was selling two of its credit card portfolios that it viewed as non-core operations, the Financial Times said yesterday. The bank sold the Marbles and Beneficial credit card companies for an estimated $796 million to SAV Credit LTD, a unit of private equity concern Paloma Partners. The portfolios, which consisted of 338,000 accounts, were not compatible with the banks other United Kingdom credit card operations. Steve Britain, the head of consumer cards for HSBC, said: "We are fortunate to have a number of strong brands with which to grow our credit card business in the U.K. The Marbles and Beneficial brands are not part of this strategy and accordingly we are pleased to have sold them to SAV." HSBC is one of the four largest credit card issuers in the UK, with total receivables of $16.5 billion. SAV Credit Ltd. primarily issues cards and other financial products to consumers who fail to qualify for regular credit cards, a market that is currently almost 20% of the U.K credit card market. Daan Knottenbelt, a partner at parent Paloma Capital, said "this acquisition moves the company [SAV] to the forefront of the non-standard credit card market." The transaction was financed through additional equity contributions from Paloma, as well as Electra Private Equity, Morgan Stanley Alternative Investment Partner, as well as debt funded by the Royal Bank of Scotland.
- U.S. investment banking giant Morgan Stanley (MS) plans to take a stake in Japanese brewer Sapporo Holdings Ltd. (SBOOF), according to a Reuters news report. The initial investment of 1.5% of the beer maker's shares will be made by a Morgan Stanley real estate fund. Morgan Stanley has indicated that it may buy an additional 3.5% of the company in the future. Although Sapporo is Japan's third largest brewer, its real estate operations contribute more than 70% of the company's profits. In addition, Morgan Stanley is spending $437 million for a 15% stake for Yebisu Garden Palace, the flagship commercial property in downtown Tokyo. The two companies will explore further joint real estate ventures and investigate buying new properties throughout Japan. The move allows Morgan Stanley to strengthen its property business in Japan in conjunction with a local partner. For Sapporo, the benefit is twofold: Many analysts expect a tie-in with Morgan Stanley and access to capital for improvement will boost the value of many of its current holdings; additionally, the deal would give Sapporo a stable, friendly shareholder to help stave off efforts of a U.S.-based, activist hedge fund investor Steel Partners. Steel Partners, headed by Warren Lichtenstein, owns 18% of the company and has demanded better returns from Sapporo, even threatening to launch a tender offer for more shares if returns do not improve. Strong competition and an aging population have caused the core beer business to struggle in the past few years. In an attempt to overhaul that business and create shareholder value, Sapporo has entered into a joint venture with a Japanese buyout fund, Crescent Partners.