(GS) Orange/BOUY deal talks inconclusive, consolidation remains likely

* News
This morning, Orange announced that it had ‘examined the possibilities of
participating in consolidation’ and believed that ‘it cannot pursue this
avenue at the present time’. We note that there is no legal or time horizon
restriction on when Orange could launch a renewed approach for
Bouygues. CEO Stephane Richard has said that he did not expect talks to
resume for the coming months. According to Orange, negotiations had
reached a very advanced stage with Bouygues, including discussions over
the concessions involving distributing assets to Iliad and Bouygues.
However, Orange says that it could not reach an agreement with Iliad on
these concessionary deals.

* Analysis
While today’s announcement likely reduces the probability of consolidation
in the near term (we believe that this may forestall an Orange deal for a
couple of months), we continue to see a high likelihood of consolidation in
France in the medium term. We believe that the advanced stage which
consolidation negotiations have already reached demonstrates the
strategic rationale for a deal and Bouygues being open to the sale of its
asset.

* Implications
Today’s news is potentially a modest negative for the probability of
consolidation in France. However, we continue to believe that all players,
including the French government, are keen for consolidation. Within our
current Iliad price target, we include an equal weighting of an
Orange/Bouygues consolidation scenario, in which we value Iliad at €380,
and an Iliad/Bouygues scenario, in which we value Iliad at €320. The news
today has confirmed what we already understood, which was that
Bouygues is a seller of its telecom asset.

(BFW) EU Airlines May Be Oversold; Lufthansa Cut, Prefer IAG: Barclays

EU Airlines May Be Oversold; Lufthansa Cut, Prefer IAG: Barclays
2014-07-02 06:40:30.840 GMT


By Brian Lysaght
     July 2 (Bloomberg) -- EU airlines face some headwinds,
don’t deserve “tumbling valuations” of last two months, see
compelling entry points, says Barclays in note.
  * Lufthansa cut to equal weight from overweight, has multiple
    structural issues
  * IAG (reiterated overweight) has best restructuring story,
    strong management and global positioning
  * Ryanair (reiterated overweight) has best EPS momentum in
    next six months
  * EasyJet (reiterated overweight) oversold on capacity
and fuel concerns; has history of conservative guidance, has
cost headroom to absorb any price weakness
  * Air France reiterated underweight, has LT challenges:
    Barclays
  * See yday: Lufthansa, Air France Lag in June, Lead EU Airline
    Shares Lower
Link to Company News:LHA GR <Equity> CN <GO>

For Related News and Information:
First Word scrolling panel: FIRST<GO>
First Word newswire: NH BFW<GO>

To contact the editor responsible for this story:
Brian Lysaght at +44-20-7330-7908 or
blysaght@bloomberg.net

FT : BNP’s record fine highlights double-edged sword for US

With the record fine levied on BNP Paribas for evading sanctions, the US authorities have unleashed a powerful weapon to deter international banks from trying to break the rules, but it could undermine the US financial system if it is overused.
As part of the $8.97bn settlement that the US Justice Department announced on Monday evening, parts of BNP Paribas’ operations will be barred for a year from conducting US dollar transactions – the first major international bank to suffer such a penalty for evading sanctions.

The punishment goes to the heart of why US sanctions have become so controversial among banks, because they allow the authorities to police business arrangements that do not involve Americans.
At a time of huge reluctance to take military action, sanctions are increasingly becoming the policy instrument of choice in Washington to try and shape the behaviour of other countries.
But with its embrace of financial sanctions, the US risks provoking a backlash against the role that the US dollar plays in the global economy at a time when emerging rivals such as China are claiming a bigger role in the international financial system.
“The reason US sanctions have such power is that they can touch transactions that do not involve US persons – as the BNP case highlights,” says Zachary Goldman, a former Treasury department official who worked on sanctions policy, now at New York University. “But as the costs of compliance rise, so the US also needs to be aware of the potential limitations of sanctions.”
BNP pleaded guilty on Monday to state charges that it processed billions of dollars of transactions on behalf of Sudan, Iran and Cuba that were in violation of US sanctions on those countries.
The French bank is the latest in a series of major financial institutions that have fallen foul of US sanctions policies. Justifying the record fine, the criminal complaint criticised the “bank’s cavalier – and criminal – approach to compliance with US sanctions laws”. James Cole, a senior Department of Justice official, said that BNP acted as the “de facto” bank to the Sudanese government.
Over the past decade, US authorities have increasingly used sanctions that target financial transactions – taking advantage of the centrality of the US financial system in the global economy. If US dollars are used in trade or investment, the transaction is eventually likely to involve a bank in the US, which allows the American authorities to claim jurisdiction.
That ability to dictate terms to banks outside of the US has become a running sore with many international financial institutions. According to the 2012 complaint that accused Standard Chartered of violating Iran sanctions, one of the bank’s executives complained to US officials: “You Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians.”
“Our governments all grumble but they realise there is not much we can do and they generally support the objectives of the sanctions,” says a senior European official. “But the banks hate the sanctions. They really, really hate them.”
Michel Sapin, France’s finance minister, said that the BNP fine should give Europe reason to “mobilise” more transactions in euros, so that European banks are not so beholden to US regulators.
The increasingly aggressive enforcement by the US of financial sanctions also comes as China is pushing to increase the use of the renminbi in international trade and investment, part of a long-term plan for its currency to rival the US dollar. Russia has also called for greater use of currencies other than the greenback.
Obama administration officials acknowledge that sanctions are usually only effective when they are backed by significant number of countries, as was the case with Iran. The desire not to completely alienate friends and allies was one reason for the intricate negotiations that surrounded the BNP settlement – the ban on its US dollar clearing operations, for instance, was designed to affect only one part of the bank.
However, US officials believe that there is little immediate danger to the role of the US dollar from a sanctions backlash. “The US is the irreplaceable, unavoidable place where one needs to do business,” says Neal Wolin, former US Treasury secretary. “That means the US can say, ‘you can either deal with us or deal with X’.”
The dominant role of the US dollar is underpinned by the depth of US capital markets, the size of the economy and the system of contracts and rule of law.
“We should be constantly vigilant about what sustains the role of the US dollar...but the basic reasons for why the dollar is the principal reserve currency are not going to go away,” says Mr Wolin.

>>> Vodafone rumoured to be eyeing Orange takeover

Vodafone rumoured to be eyeing Orange takeover

Vodafone, the UK-based mobile-phone retailer, was rumoured yesterday, 1 July, to be a potential acquirer of its French rival Orange, The Independent reported. The market report said chatter suggests Vodafone might benefit from access to the Orange-Deutsche Telekom joint venture EE. Unattributed speculation Vodafone might be considering moving on Orange was also mentioned in a Daily Express market report.

Alternatively, Deutsche Telekom could merge with Orange, the reports said.

London-listed Vodafone has a market capitalisation of GBP 52.1bn (EUR 65.3bn).

Source Independent, Daily Express

Reuters - Italy's FSI and Kuwait's KIA create investment firm with $2.98 bln in


(Reuters) - Italian state-backed private equity fund Fondo Strategico Italiano (FSI) and Kuwait Investment Authority (KIA) have created an investment company with assets and commitments worth 2.185 billion euros ($2.98 billion), FSI said on Tuesday.

The new company, FSI Investimenti, will be 77 percent owned by FSI and 23 percent owned by KIA, it added.

"The agreement is consistent with FSI strategy of increasing its capital to 7 billion euros, also by attracting foreign investments in Italy," FSI said in the statement.

Both FSI and KIA have committed to inject up to 500 million euros into the new company, with KIA expected to pay in 352 million euros in the next few days. The capital of FSI Investimenti could be increased in future via commitments of new co-investors, FSI added.

FSI will transfer to FSI Investimenti its interests in fibre network provider Metroweb Italia, biopharmaceutical company Kedrion Group, equipment maker Valvitalia, SIA, IQ Made in Italy Investment Company and a 44.55 percent stake in power engineering company Ansaldo Energia, with the transferred portfolio valued at 1.185 billion euros.

The contributed portfolio will exclude FSI's interest in insurer Generali, earmarked for divestment by the end of next year, and a 40 percent stake in Ansaldo Energia already committed for sale to Shanghai Electric Group.

FSI Investimenti will have the same investment perimeters as FSI, excluding the gaming and alcohol sectors, in which KIA cannot invest.

>>> Goldman Sachs may consider buys of electronic brokerages E*Trade, Charles Sc

Goldman Sachs may consider buys of electronic brokerages E*Trade, Charles Schwab 

Goldman Sachs (NYSE: GS) may consider buys of electronic brokerage firms E*Trade (NASDAQ: ETFC) or Charles Schwab (NYSE: SCHW), according to Fox Business.

The report cited unidentified bankers and an analyst as saying the current regulatory environment could push Goldman to consider such a deal. The analyst told Fox Business that the firm must find a use for its large cash position that it no longer can put into trading operations.

The information was part of a larger article on Goldman preparing to downsize its fixed-income trading unit in the face of decreasing profitability.

Source Fox Business News

>>> US After Hours

After Hours Summary: SHLM +3.7%, CAMP -13.9%, PAYX -1.5%

After Hours Gainers: Companies trading higher in after hours in reaction to earnings: SHLM +3.7%

Companies trading higher in after hours in reaction to news: POZN +4.0% (resubmited PA8140/PA32540 New Drug Application), ABMD +1.9% (announced acquisition of ECP to broaden and strengthen its existing intellectual property and product platform), XON +0.8% (to acquire Trans Ova Genetics for $60 mln in upfront cash, $30 mln in Intrexon common stock, and deferred payments of up to $20 mln)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings: CAMP -13.9%, PAYX -1.5%

>>> US Close Dow+0,77% S&P+0,67% Nasdaq+1,15%


Closing Market Summary: Stocks Begin Q3 With Broad Rally
The stock market kicked off July on a strong note with small caps pacing the rally. The Nasdaq Composite and Russell 2000 jumped 1.1% and 1.0%, respectively, while the S&P 500 advanced 0.7% with nine sectors ending in the green.

Equities displayed early strength after economic data reported overnight and in the early morning indicated expanding manufacturing activity in China, Japan, the eurozone, and the U.S. Although some of the PMI readings missed estimates, they were all above 50, a level that represents the border between expansion and contraction. The data fostered the bullish tone, which was amplified by the arrival of new money at the start of the quarter.

In large part, today's advance was powered by four of the most influential sectors. Consumer discretionary (+1.1%), health care (+1.3%), financials (+0.6%), and technology (+1.1%) jumped to the top of the leaderboard at the open and held their ground throughout the session.

The health care sector was the top performer thanks in part to the relative strength of biotechnology. Regeneron (REGN 303.39, +20.92) surged 7.4%, while the broader iShares Nasdaq Biotechnology ETF (IBB 263.12, +6.09) advanced 2.4%. Furthermore, the outperformance of biotech boosted the Nasdaq Composite (+1.1%), which also drew strength from the technology sector.

Top-weighted tech components like Apple (AAPL 93.52, +0.59), Google (GOOGL 591.49, +6.82), and Qualcomm (QCOM 79.73, +0.53) rallied across the board, while chipmakers fared even better. The PHLX Semiconductor Index rose 1.4% with all 30 components posting gains.

Elsewhere, the discretionary sector stayed near the lead amid broad strength. Shares of Netflix (NFLX 473.10, +32.50) soared 7.4% in reaction to a Goldman Sachs upgrade, while home builders and retailers also charged ahead. The iShares Dow Jones US Home Construction ETF (ITB 25.09, +0.29) added 1.2% and SPDR S&P Retail ETF (XRT 87.47, +0.67) settled higher by 0.8%.

On the downside, the utilities sector (-1.0%) was the lone decliner amid some profit taking after the sector added 4.2% in June. Even though the rate-sensitive sector started the third quarter on a lower note, its year-to-date gain (15.3%) after today's slide was still large enough to keep the sector at the top of the 2014 leaderboard.

Treasuries spent the duration of the session in a steady retreat with the 10-yr note shedding nine ticks. As a result, the benchmark yield rose three basis points to 2.56%.

Participation remained on the light side with less than 675 million shares changing hands at the NYSE.

Economic data was limited to May Construction Spending and June ISM:
  • Construction spending increased 0.1% in May following an upwardly revised 0.8% (from 0.2%) gain in April. The consensus expected construction spending to increase 0.4% 
    • Private construction spending fell 0.3% in May, giving back nearly all of the 0.3% increase from April 
    • Total public construction spending increased 1.0% in May after increasing 2.1% 
  • The ISM Manufacturing Index fell slightly to 55.3 in June from 55.4, while the consensus expected the Index to increase to 55.8 
    • Considering that nearly all of the regional Federal Reserve manufacturing surveys showed an acceleration in manufacturing activity in June, the deceleration registered in the national ISM Index was disappointing and confusing 
    • New orders managed to increase to 58.9 from 56.9 
    • Order backlogs contracted, falling to 48.0 from 52.5 
    • Production Index fell to 60.0 from 61.0 
Tomorrow, the weekly MBA Mortgage Index will be released at 7:00 ET, while Challenger Job Cuts for June will be announced at 7:30 ET. ADP Employment Change (consensus 200K) for June will be announced at 8:15 ET, while May Factory Orders (consensus -0.4%) will cross the wires at 10:00 ET.
  • S&P 500 +6.8% YTD 
  • Nasdaq Composite +6.8% YTD 
  • Dow Jones Industrial Average +2.3% YTD 
  • Russell 2000 +3.7% YTD