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Air France to Acquire Alitalia; Royal Bank of Scotland Expects Solid Third Quarter Despite Writedowns; China Netcom Wants a Largest Telefonica Stake for Christmas; Moody’s Gives Canadian Imperial Bank a ‘Negative’ Plunges After Announcing An Additional $222 Million in Write Downs.
- Air France-KLM (AKH) announced yesterday [Thursday] it would make an undisclosed offer for the unprofitable Alitalia Linee Aeree Italian (ALAIF). Alitalia started taking offers when the Italian government announced that it would sell its 49.9% stake in the carrier. "This major step in European consolidation would not only be beneficial for passengers but would also meet the requirements for the groups economic and financial stability," Air France Chairman Jean-Cyril Spinetta said in the statement. Air France expects the full support and assistance of Alitalia’s unionized workforce to reach its financial goals. Two other groups have made bids, including Italian carrier Air One and a group led by Italian business lawyer, Antonio Baldassare. A decision between the bidders will be announced by the end of the year, though most analysts expect Air France to end up with the carrier.
- Royal Bank of Scotland Group Plc (RBS) said that it was taking write downs of $2.6 billion [1.25 billion pounds] resulting from exposure to subprime mortgages. Despite the losses, Royal Bank said that it expects profits to be well ahead of analyst expectations. "Although some of our businesses have been affected by the challenging market conditions, the group’s underlying earnings trajectory has remained comparatively unaffected," Royal Bank CEO Fred Goodwin said. The company pointed to strong loan growth and a broader customer base that driving net interest income higher as reasons for its optimism. Goodwin also said that he expected the dividend policy to be "business as usual." Last year’s dividend payout ratio was 45% of earnings, and Goodwin indicated that it should be in that range for 2007 as well.
- Zhang Chunjiang, chairman of China Netcom Group Corporation (CN), said Thursday that he hopes the Telefonica S.A. (TEF) raise its stake in the company, Thomson Financial News reported. Telefonica currently owns 5%, and Zhang hopes that Telefonica ups its ownership to 9.9% by the end of the year. Telefonica told representatives of the European media yesterday that it intended to reach that level in 2008 but not this year. Zhang also commented on efforts to obtain a domestic listing for shares of China Netcom. "We have expressed our intention to list yuan denominated A shares on mainland China bourses to the regulatory body and talked to some investment banks for information. But we don’t have a concrete plan now," Zhang said. Chinese regulators have yet to make a decision on domestic listing for those Chinese companies listed on the Hong Kong Exchange. In a separate announcement on Thursday, China Netcom announced it would acquire Bejijing Telecom Design Institute for $40.4 million to strengthen its operational capabilities.
- Shares of Canadian Imperial Bank of Commerce (CM) dropped sharply Thursday following an announcement that – despite 7.9% fourth-quarter earnings growth – it could have to take additional $222 million in write downs from exposure to the U.S. subprime mortgage market, . That would bring its total write downs up to almost $1 billion. Canadian Imperial also warned that it would be faced with significant future losses if market conditions worsen in the fourth quarter. Following the announcement, Moody’s Investors Service changed its credit outlook for the bank from "stable" to "negative." "The existence of concentrated risks in this portfolio points to weakness in strategic risk decision making at the bank and indicate that improvements in the banks risk management discipline has not permeated the organization as fully as Moodys had expected," senior credit officer Peter Routledge said. Canadian Imperial Bank shares were down almost 6% Thursday to close at $80.70.