>>> US Early premarket gappers

Early premarket gappers

Gapping up: AWRE +21.5%, PRGS +10.8%, MTW +10.2%, AZZ +4.7%, FINL +4.4%, DRRX +3.8%, BRKS +3.4%, YRCW +3%, NKE +3%, BCS +1.5%, TEX +1.4%, GPRO +1.3%, QEP +1.2%, PLUG +1.1%, MGM +1%, EXPE +0.8%, EGO +0.8%, EXPE +0.8%

Gapping down: ANAD -6.7%, ISIS -5.6%, DD -2.6%, AIXG -2.4%, IG -1.7%, AMSG -1.6%, JPM -1.5%, LOGI -1.4%, UBS -1.1%, SAN -0.9%

FT : London’s IPO market is becoming a racket

Private equity is stuck with businesses it meant to sell years ago

Tempted by the latest IPO? Then lie down until the feeling goes away. London’s new issues market is in danger of becoming a racket.
Prospectuses are frequently published only after conditional dealings have started; banks or brokers whose analysts might be expected to take a robust view are brought on board, thus silencing criticism, while any prospective investor asking awkward questions risks being cut out of the issue.

The process has become less transparent, not more. Competition was supposed to drive down fees, but the evidence shows the opposite and in some recent IPOs a significant portion of the flotation proceeds has gone to the advisers. One finance director who negotiated a lower price from bank A was asked by bank B to accept the tariff in return for better terms on some future deal. Some of the real clunkers can only have got away by those in charge warning potential buyers that they might not see the next (better) offer.
So who are the villains of this particular piece? Not all private equity companies have behaved badly, but a disconcerting number of the real dogs at flotation have been done over by the PE boys. They are overstocked with businesses they expected to sell years ago, before the bear market got in the way. Some of those businesses have been sold to other private buyers en route, with equity replaced by debt at each transaction.
Nobody is forced to buy new issues. Anyone tempted to do so should ensure that there’s a published prospectus and that the business has been trading in its current shape for more than just a year or two. Then look at who is selling in the offer. Ignoring this market completely may mean you miss the odd nugget, but it saves sifting through all that low-grade ore.
Pricey floorcovering
It is hardly surprising that Philip Harris is reluctant to give up the carpet business. The 71-year-old knows almost nothing else and this week rescinded his earlier proposal to leave the chair at Carpetright, arguing that 71 no longer looks old to him.
The puzzle, though, is why so many outside shareholders (his family owns a fifth of the stock) are also clinging on. Carpetright is nothing like as successful as Allied Carpets, the previous venture of Lord Harris, which made his fortune. Carpetright sales hit £475m in 2007, when EY (as Ernst & Young is now called) made him entrepreneur of the year, and it has been increasingly threadbare ever since.
The last dividend was more than three years ago and there is red ink all over the accounts. Yet the shares refuse to reflect this depressed reality and actually perked up on this week’s horrid trading news. At 511p Carpetright is valued at £346m, but last year’s £448m of sales yielded just 4.7p of “underlying” earnings per share. If the housing market is picking up, it has not picked up Carpetright’s carpets.
When EY was giving Lord Harris his award, earnings hit 46p a share, supporting a 33.9p dividend. Perhaps the company’s exciting new luxury vinyl tiles and lovely soft polyprop carpets will bring those days back, but it’s a distant prospect and time is not on Lord Harris’ side, however young he feels.
Joy for jobsworths
Ooh, goody, a brand new boondoggle. The Chinese are prepared to lob in a spare $100bn as starting capital for “a new global financial institution” and 22 other countries with too much money want to join the proposed Asian Infrastructure Investment Bank.
The first aim is to finance a rail link from Beijing to Baghdad (a sort of iron silk road) but the real attraction is to found an institution that is not controlled by the smug western bankers and bureaucrats who dictate policy at the World Bank and International Monetary Fund.
These boondoggles are easy to start, quickly sprouting their own secretariats, conferences and cushy jobs for cronies of the founding governments. The Paris-based OECD shows that stopping them is another matter. It sails on long after performing any useful function, as does the UN Industrial Development Organisation, or UNIDO, to which the only response is: “Oh no we don’t”.

WSJ : BNP Plans to Slash Dividend, Sell Multibillion Euro Bond Next Week

BNP Plans to Slash Dividend, Sell Multibillion Euro Bond Next Week
Move Comes Amid Investigation into Bank's Alleged Violation of U.S. Sanctions

BNP Paribas plans to slash its dividend and sell billions of euros of bonds to investors next week as it settles a long-running U.S. investigation into its alleged violation of U.S. sanctions, according to a person familiar with the matter.

The settlement between the large French bank and U.S. authorities is expected to be announced on Monday, although both sides are still ironing out final details, this person said. BNP Paribas is expected to plead guilty to criminal charges and pay up to $9 billion, people familiar with the negotiations have said.

New York's financial regulator also is expected to suspend for up to a year the bank's ability to engage in certain dollar-clearing activities, according to other people familiar with the matter. The planned suspension, which will be phased in over several months, is likely to focus on transactions specifically related to BNP's trade-finance unit, which is at the center of the sanctions-violation case, these people said..

The expected penalty of up to $9 billion will hurt BNP's capital ratios, but the bank doesn't currently plan to issue new shares to replenish its capital, according to the person familiar with the matter.

Instead, the bank expects to dramatically reduce its dividend, this person said. It isn't clear if the dividend will be scrapped entirely, or if BNP will maintain a token dividend for symbolic purposes.

BNP has paid out a dividend each year since at least 1998. Earlier this year, the bank paid out a 2013 dividend of €1.50 per share. BNP previously had said it hoped to increase that dividend payment for 2014.

Analysts say BNP is likely to suspend its dividend for up to two years.

One victim of the dividend cut will be the State of Belgium, which owned a 10.3% stake in the French bank as of Dec. 31. The Belgian government, which bought shares in the French bank back in 2009, this year received about €192 million in dividend payments from BNP Paribas.

A spokesman for the Belgian Finance Ministry declined to comment.

BNP also plans to issue a multibillion-euro bond, according to the person familiar with the matter. The exact size of the bond issuance isn't clear.

(Barclays) European Beverages - Diageo / SAB is a alternative to ABI /SAB

Pressure is building for corporate activity in Beverages: The press has widely speculated that a bid from ABI for SABMiller is imminent. However, as highlighted by the formation of Diageo, deals can emerge both quickly and from the most unlikely of places. Although its relatively open shareholder register and attractive positioning means SABMiller is the common denominator in many M&A scenarios, after its recent substantial share price under-performance, the strain on Diageo management to do something proactive may also be increasing. An ABI/SABMiller deal may not be the only option if the Dance of the Beverage Industry Elephants begins.

--> We believe a potential merger between
Diageo and SABMiller is a credible alternative to a ABI/SABMiller deal. Diageo has long
highlighted the attractions of a Total Beverage Alcohol (TBA) strategy while integrating
Guinness into SABMiller’s global beer footprint could yield over £400m of cost saving
and additional revenue synergies in our view. Although the benefit of combining spirits
and beer is less evident in some markets, overall value creation could still be attractive.

M&A optionality exists in beer and spirits: We caution investors against taking heavy
underweight stock positions across either the beer or spirits space. We re-iterate our
Neutral Beverage and Tobacco sector view.

(BFW) Diageo/SABMiller Deal May Be Alternative to AB InBev: Barclays

Diageo/SABMiller Deal May Be Alternative to AB InBev: Barclays
2014-06-27 09:12:57.971 GMT


By Heather Burke
     June 27 (Bloomberg) -- Diageo/SABMiller merger is a
“credible alternative” to a AB InBev/SABMiller deal, Barclays
says in note.
  * Barclays: Pressure mounting for corporate activity in
    beverages, focus on AB InBev/SABMiller
    * May be increasing pressure on Diageo to be proactive
      after shrs have lagged significantly
    * Diageo has long focused on attractiveness of a Total
      Beverage Alcohol (TBA) strategy, putting Guinness with
      SABMiller’s global distribution may save >GBP400m,
      additional rev. synergies
    * Cautions mkt against above being heavily underweight in
      either beer or liquor, keeps neutral view of beer and
      tobacco sector
    * Reiterates overweight on Diageo, equalweight on
      SABMiller, equalweight on AB InBev (raises PT to EU84 vs
      EU80)

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

To contact the reporter on this story:
Heather Burke in London at +44-20-7673-2044 or
hburke2@bloomberg.net
To contact the editor responsible for this story:
James Ludden at +44-20-7673-2645 or
jludden@bloomberg.net

FT : Pimco runs risks in turning up the ‘vol’

Pimco runs risks in turning up the ‘vol’

It was a tantalising introduction. Bill Gross, Pimco’s “Bond King” and founder of the world’s largest fixed income fund, promised to impart the secrets of his extraordinary success to an audience of financial advisers in Chicago. “I’ll be handing you the keys to the Pimco Mercedes,” he told them.
Unlike smaller fixed income funds that might just buy and sell bonds, the $230bn Pimco Total Return fund is a clever user of derivatives trading strategies, Mr Gross went on to explain, and Pimco is one of the biggest sellers of insurance against market volatility.

For investors who don’t want the value of their bond portfolio to move around too much, his fund is on hand to provide insurance that will pay out if there is a market shock – in return for a premium of course.
“Sounds dangerous, and is sometimes,” Mr Gross said. “Obviously, the volatility has to be underwritten properly and priced appropriately. It doesn’t pay to write flood insurance before a flood, but over time it has been a very respectable structural template alpha generator.”
In fact, so many different kinds of investors are now “selling volatility” that BlackRock’s Dennis Stattman worried at the same conference that it had become a “crowded trade”. Sceptics worry these new players might be selling flood insurance on the cheap, just before a deluge.
Meanwhile, Mr Gross is putting a focus on the Total Return fund’s use of derivatives at a time when regulators around the world are considering systemic risks that might be posed by large mutual fund managers. Former Federal Reserve governor Jeremy Stein warned last year that insurance sales by asset managers might be introducing unobserved risk into the financial system.
Raymond Nolte, managing partner at SkyBridge Capital, a fund of hedge funds, says he has never been a big fan of selling volatility. “It’s like writing hurricane insurance because we haven’t seen one for a while. If you want to sell premium you should do so when volatility is high, not near historic lows.”
Mihir Worah, a deputy chief investment officer at Pimco, says the firm was selling ahead of this year’s decline in volatility. “Obviously at these levels we are not selling volatility aggressively,” he told the Financial Times.
Vol, as the traders call it, has effectively become an asset class unto itself, although trading it is more complicated than buying or selling stocks and bonds. It is more complicated, too, than buying and selling insurance as generally understood by anyone with a fire or flood or car insurance policy.
Selling volatility typically involves selling options, which would pay out if a particular market moved by more than a pre-agreed amount. The Vix index, sometimes referred to as the stock market’s “fear gauge”, is based on the price of a combination of options on the S&P 500. The more investors are paying to protect themselves from big swings, the higher it goes. The fixed income market has a similar gauge called the Move index.
Both are close to historic lows, and traders are in the midst of a vigorous debate about why. The economic recovery and central bank support for markets suggest big swings may be unlikely. But some traders think vol may be priced too low for technical reasons, too, such as the retrenchment of bank trading desks and resulting illiquidity, or an imbalance between supply and demand.
According to Maneesh Deshpande, head of equity derivatives strategy at Barclays, the demand for protection from volatility has soared, but the supply from people selling insurance has soared even more.
“Premium has declined to the levels prevalent in the 2004-2006 period, so we call it the ‘old normal’ – but with a twist,” Mr Deshpande said.
The twist is that a host of new players are in the market, trading a host of new volatility products. More than a half-dozen exchange-traded products allow hedge funds and retail investors to short the Vix. Trading in options is buoyant, with open interest near a record level.
The attraction of selling vol is that, over several decades, payouts have been less than the money investors have taken in through premiums. The volatility implied by the price of options has never been fully realised in the actual, subsequent movement of the stock or bond markets.
Howard Tai, analyst at Aite Group says in a world of low returns, it is an attractive strategy for some investors. Pension funds have joined the sellers, attracted to the premium income at a time when bonds are yielding a pittance. The question is how many will be carried out if vol spikes and their losses are more than they can afford.
“If there is a flare up that causes volatility to jump, you will have a scramble at that point as sellers will need to buy it back,” says Mr Tai.
Mr Gross told his audience that such flare-ups can lead to bouts of underperformance for his fund, but it is a short-term price worth paying.
“Why are people willing to pay for insurance?” he said. “They want to sleep at night. And so at Pimco, we’re willing to sell that insurance. We’re willing to sleep less, but perform better.”

FT : US drones risk continual war, says report

The routine use of drones by the US to kill alleged terrorists offshore may be creating “a slippery slope leading to continual or wider wars” and is increasingly inconsistent with the rule of law, according to a major new report.
The report, produced by the Stimson Centre, a think-tank in Washington, also says that America’s enemies which are far less discerning about the use of lethal unmanned aircraft could be emboldened to use drones against the US as the technology spreads.

“We are concerned that the Obama administration’s heavy reliance on targeted killings as a pillar of US counterterrorism strategy rests on questionable assumptions, and risks increasing instability and escalating conflicts,” the report says.
US drone policy has come under heavy criticism largely from civil libertarians and left-of-centre groups but this report was produced with the help of an array of figures with lengthy experience in the US military and diplomatic establishment.
The primary authors of the report are a retired general, John Abizaid, a former US Central Command commander, and Rosa Brooks, a law professor and former Pentagon official under President Barack Obama.
Far from ending the threat of anti-US terror groups, the report notes that Sunni and Shia Islamist extremist groups have grown in scope, lethalness and influence in their areas of operation in the Middle East, Africa and South Asia.
“Furthermore, US strikes also create new strategic risks,” it says, including the erosion of sovereignty norms and the threat of “blowback” against the US.
According to the London-based Bureau of Investigative Journalism, the US carried out 376 drone attacks in Pakistan between 2004 and 2013, with the death toll between 2,500 and 3,600 individuals.
Reports in the Pakistan media have said up to one-third of those killed were civilians. Of all the “non-battlefield” targeted killings carried out by the US since 2002, 98 per cent have involved drones.


Mr Obama, in a major speech on US policy last year, said drone strikes “had saved US lives” by taking al-Qaeda commanders off the battlefield, and the attacks had been proportional, in self-defence and legal.
But the report is perhaps most critical of the evolving legal doctrine cited by both the George W Bush and Obama administrations to justify their strikes against “combatants” in the “war on terror.”
“The legal norms governing armed conflicts and the use of force look clear on paper, but the changing nature of modern conflicts and security threats has rendered them almost incoherent in practice,” the report says.
“Basic categories such as ‘battlefield’, ‘combatant’ and ‘hostilities’ no longer have clear or stable meaning. When this happens, the rule of law is threatened.”
The report recommends that the US conduct a rigorous cost-benefit review of the use of drone strikes and also increase the transparency surrounding them.
Drone technology is already spreading rapidly around the world. In recent days, US officials have noted how Iran has been using drones to gather intelligence on the militant groups threatening the government in Baghdad.
In its latest annual report on the Chinese military, the Pentagon said it was “probable” that China used a drone for a reconnaissance mission in the East China Sea in 2013 and it had revealed details of four different drones under development.
It cited another Pentagon report that claimed the China drones programme enjoyed “unlimited resources” and “might allow China to match or even outpace US spending on unmanned systems in the future”.

(BFW) Gazprom Denies Seeking Stake in OMV, IFX Says, Citing Deputy CEO

OMV lower

Gazprom Denies Seeking Stake in OMV, IFX Says, Citing Deputy CEO
2014-06-27 08:19:20.951 GMT


By Benjamin Dow
     June 27 (Bloomberg) -- Information regarding Gazprom
seeking stake in OMV is untrue, Interfax says, citing Russian
gas co.’s Deputy CEO Alexander Medvedev.
  * NOTE: Yesterday, Austria’s Kurier said Gazprom seeking stake
    in OMV held by Abu Dhabi’s IPIC (holds 24.9% of OMV), citing
    MP Peter Pilz
  * NOTE: Today, chairman of Austrian state holding co. OIAG
    Siegfried Wolf said he was not aware of Gazprom’s interest;
    OAIG holds 31.5% in OMV


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

To contact the reporter on this story:
Benjamin Dow in Moscow at +7-495-771-7735 or
bdow2@bloomberg.net
Benjamin Dow