TheChek News Flow

Questions remain over what LVMH was trying to achieve

Time to clap along with Pharrell Williams – everybody is, at last, happy. Peace has broken out in the tense and rarefied atmosphere of the French luxury goods industry. LVMH has agreed to distribute its 23 per cent stake in Hermès to its own shareholders. Hermès rids itself of an unwanted shareholder, LVMH can reflect on a profitable investment, and LVMH shareholders can decide for themselves whether they want to own equity (at 27 times forecast 2015 earnings) in the maker of clothes, scarves, handbags and saddlery.

The gain for LVMH is certainly impressive. It bought the Hermès shares (via equity swaps) in October 2010 at an average price of €106. The shares are now trading at €249, even after a 5 per cent drop on Wednesday. So LVMH will end up with a total gain of €3.4bn on the stake (some of which has already been booked in the accounts.)

But although legal action between the two related to the stake has been dropped, not everything is quite back to where it was. The agreement will vastly increase the Hermès free float from the current 7 per cent, so the company will be easier for outsiders to invest in. But the Dumas family that controls Hermès has tightened its grip since LVMH took its stake. A family member is back in charge after an eight-year gap, and the creation of a family holding company (H51) in 2011 will protect Hermès from a hostile takeover.

For LVMH, the agreement gives its shareholders a special dividend in the form of Hermès shares. But that still leaves the question of why LVMH bothered at all. Yes, it has been an outstanding financial investment. But investors do not own LVMH for its canny ability to spot undervalued shares (even shares in its own sector). They own it for its ability to make and sell luxury goods. Having made a success of this foray, the danger is that it will try to repeat the move elsewhere.

The largest US banks have a $100bn liquidity shortfall to meet new rules, which force them to maintain a cash cushion in case of a future credit crunch, according to the Federal Reserve.

US regulators on Wednesday are expected to finalise the liquidity coverage ratio requiring banks to hold a certain amount of assets that could be quickly turned into cash, a key component of global reforms aimed at helping banks better withstand another financial crisis.

Banks subject to the rule would have to hold a total of about $2.5tn in high quality liquid assets over a 30-day stress period if the proposal was in effect now, Fed officials said, more than they have. Assets considered to be of the highest quality include Fed reserves and Treasury securities.

The liquidity rule applies only to the largest US banks. But the Fed anticipates proposing a plan that would extend the liquidity measures to the US holding companies of the largest foreign banks, which have to be established by July 2016 under new Fed rules.

“As the financial crisis demonstrated, most of our largest and most systemically important financial institutions did not hold a sufficient amount of high quality liquid assets to independently withstand the stressed market environment,” Fed chairwoman Janet Yellen said.

Complying with the liquidity rule will be phased in, with banks having to fully meet the requirements by January 1, 2017, a more stringent deadline than the Basel III rules that give banks until January 1 2019.

The plan largely mirrors the initial proposal issued in October. The biggest difference from the original plan is the final rule allows the biggest banks to phase in the daily reporting requirements and calculate their liquidity coverage ratio on a monthly basis during that transition period.

Regulators also broadened the categories of certain debt and equity securities that can be counted as high quality liquid assets. Under the final rule, any investment grade corporate debt security issued by a non-financial sector company that has a proved liquidity record can be included in a certain category of liquid assets.

Local governments were one of the groups that expressed serious concern about the liquidity rule because it did not count municipal bonds as high quality liquid assets that banks would want to hold. US cities warned they would face budget crunches to pay for schools, roads and sewage systems if the liquidity rule is approved.

Although the final rule still excludes muni bonds, the Fed staff recommended establishing a new proposal that would allow the most liquid muni bonds to be included as high quality assets.

In another change, the final rule does not apply to certain nonbanks that have been designated as systemic risks by the Financial Stability Oversight Council, such as AIG and GE Capital. A different liquidity rule is expected to be issued for those companies.

In a separate move, officials also proposed new rules on margin requirements for swaps that are not cleared by a central counterparty that differ from the initial 2011 plan to take into account liquidity costs for market participants. It also largely reflects recommendations made by the global Basel Committee of regulators in September 2013.

Regulators said Wednesday they hoped the plan provides incentives for such transactions to be cleared.

As part of global reforms in the derivatives markets, many kinds of swaps are required to be cleared, but certain tailored swaps were not included in that mandate, leaving regulators worried about loopholes.

The new proposal sets a minimum initial margin requirement for a covered swap entity involved with a counterparty that is a financial end user or swap entity, which is much more stringent than standards for cleared swaps.

Five things to know about the US liquidity coverage ratio ru le

(1) Banks have to hold high quality liquid assets equal to projected stressed cash outflows over a 30-day period.

(2) Requirement applies to the largest US banks. Regulators expect to issue a similar rule for the biggest foreign banks with US operations in the future.

(3) Banks have to be fully compliant by January 1, 2017, two years before the Basel III deadline.

(4) Municipal bonds are still excluded from high quality liquid assets but regulators are working on a proposal to include the most liquid muni bonds at a future date.

(5) The rule doesn’t apply to nonbanks designated as systemic risks by US regulators. Officials will come up with a separate liquidity proposal for them.

Nicolas Puech a décidé, en plein cœur de l’été, de quitter ses fonctions au sein du conseil de surveillance d’Hermès à la suite de désaccords récurrents avec le reste de sa famille. Le 18 août dernier il a envoyé une lettre au groupe Hermès ainsi qu’à l’Autorité des marchés financiers pour les informer de cette démission qui n’a pas encore été rendue publique.

Cette décision intervient alors qu’Hermès et LVMH ont décidé d’enterrer la hache de guerre. Dans un communiqué, les deux groupes ont annoncé ce mercredi matin que grâce à la médiation de Frank Gentin, président du tribunal de commerce de Paris, LVMH, qui possède plus de 23% du capital de son rival, va distribuer l’intégralité de ses actions Hermès à ses actionnaires et s’engage à ne pas acheter de nouveaux titres pendant cinq ans.

Des relations tendues avec ses cousins

La menace d’une prise de contrôle rampante de son entreprise avait poussé Hermès à rassembler une grosse partie de ses participations dans une holding, H 51 verrouillant le capital du groupe. Tous les actionnaires familiaux avaient accepté d’y loger leur participation sauf Nicolas Puech qui refusait d’y placer ses 5,7%. "J’ai dit à ma famille qu’enfermer nos actions dans une holding présentait l’inconvénient majeur de priver les actionnaires familiaux de leur pouvoir individuel de contrôle sur la gestion. La liberté de chacun est le meilleur garant de notre unité à long terme", avait-il expliqué au Journal du Dimanche en 2011.

Vivant entre Martigny en Suisse et l’Andalousie, Nicolas Puech prenait assez peu part au débat stratégique de la maison Hermès bien que siégeant au Conseil de surveillance depuis mai 2012. Ses relations avec ses cousins s’étaient tendus lorsque le rapport de l’AMF révélé par Le Monde affirmait que les deux-tiers des titres acquis par LVMH en couverture d’equity swaps entre 2007 et 2008 proviendraient des comptes suisses de Nicolas Puech. Une thèse qu’il a toujours vigoureusement démentie rappelant que cela représentait 8,8% du capital d’Hermès et qu’il n’a jamais détenu officiellement plus de 6% du capital.

Nicolas Puech ravi

Aujourd’hui Nicolas Puech est "très content" que les deux parties aient enfin trouvé un terrain d’entente. "Je souhaitais depuis très longtemps que LVMH et Hermès se parlent pour trouver un accord, c’est fait. C’est parfait", a-t-il confié par l’intermédiaire de son porte-parole. Pour autant il est peu probable que Nicolas Puech ait joué un rôle dans ce dossier? "Il était beaucoup trop éloigné des cercles parisiens des deux groupes", confie un proche d’Axel Dumas.

Plusieurs tentatives d’approches ont été tentées l’année dernière mais sans succès. "Les deux clans ont réellement avancés dans leur réflexion au début de l’été constatant qu’ils se neutralisaient mutuellement et que la situation n’était pas optimale ni pour les uns, ni pour les autres", note une source proche du dossier. Frank Gentin, le président du Tribunal de commerce de Paris a ensuite œuvré jusqu’à hier soir pour obtenir la signature de Bernard Arnault et Axel Dumas.

Nicolas Puech resigned from the Supervisory Board of Hermes

EXCLUSIVE While LVMH and Hermes bury the hatchet, its largest shareholder has decided not to sit on the inner sanctum of the family group.

Nicolas Puech decided in the heart of summer, leaving office in the Supervisory Board of Hermes as a result of recurring disagreements with the rest of his family. On August 18 he sent a letter to the Hermès Group as well as the AMF to inform them of his resignation which has not yet been made public.

This decision comes Hermes and LVMH decided to bury the hatchet. In a statement, the two groups announced Wednesday morning that through the mediation of Gentin Frank, President of the Commercial Court of Paris, LVMH, which owns over 23% stake in its rival, will distribute all of its Hermes to its shareholders and is committed not to buy new shares for five shares.

Strained relations with his cousins

The threat of a creeping takeover of his company had pushed Hermes to collect a big chunk of its shares in a holding company, 51 H locking the capital of the group. All family shareholders had agreed to accommodate their participation except Nicolas Puech, who refused to place its 5.7%. "I told my family that locking up our shares in a holding company had the major disadvantage of depriving the family shareholders of their individual power to control management. Freedom of each is the best guarantee of our unity in the long run , "he explained to the Sunday newspaper in 2011.

Living between Martigny in Switzerland and Andalusia, Nicolas Puech took little part in the strategic debate of Hermès although sitting on the Supervisory Board since May 2012 His relationship with his cousins ​​had become strained when the AMF report revealed by Le Monde claimed that two-thirds of the shares acquired by LVMH in hedging equity swaps between 2007 and 2008 would come from Swiss accounts Nicolas Puech. A thesis that has always strongly denied remembering it accounted for 8.8% stake in Hermes, and he never officially held more than 6% interest.

Nicolas Puech delighted

Today Nicolas Puech is "very happy" that the two sides have finally found common ground. "I wanted for a long time that LVMH and Hermes to speak to an agreement, it is done. This is perfect, "Has he said through his spokesman. Provided it is unlikely that Nicolas Puech has played a role in this? "It was too far from the Parisian circles of the two groups," says a close Axel Dumas.

Several attempts of approaches have been tried last year without success. "The two clans have really advanced in their thinking early summer noting they neutralize each other and the situation was not ideal for either one or the other," said a source familiar with the matter. Frank Gentin, President of the Commercial Court of Paris then worked until last night to get the signature of Bernard Arnault and Axel Dumas.

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