A week for the alchemists
Gold and confectionaries take the headlines
This week gone by has been a veritable potpourri of news. Lloyds Banking Group seems discontent with nationalisation and has presented a fresh proposal to avoid coming under the wrath of a government scheme insuring it against credit losses. Only last month, the part-nationalised lender had talks with the government to rethink its participation in the Asset Protection Scheme - it thought the scheme costly given the economy's upturn, and its solution as of now seems to stem from raising money without government call.
Chief executive of Lloyds, Eric Daniels, wants the bank to avoid the APS altogether - he considers its punitive nature misplaced and inappropriate, and also opposes it because it would raise the taxpayer stake to 60 percent. Is this a case of biting the hand that feeds? Both Lloyds and the FSA have declined to comment on the matter, with critics predicting that Lloyds will not be able to fully escape the APS and will instead have to partly use the scheme.
In the light of the revival, those hoping to cash in on a recent boost in merger and acquisition activity should hold the fort a little longer; access to financing is still hampering bids. Analysts are thinking in the longer term, into whether the value of sweetened bids or successful deals will carry through in the absence of a further catalysed drive in M&A activity. Recent movement has included Kraft Foods Inc's $16.7bn bid for Cadbury PLC, and Cisco Systems Inc's $3bn move for Tandberg ASA, a Norwegian video-conferencing equipment maker. "The heavily leveraged debt finance vehicles which were used to fund M&A activity up until summer 2007 are just not there any more," said Peter Dixon, economist at Commerzbank. Loading up on debt seems unsensible not only in and of itself but moreover, because banks are still extremely wary of finance.
The price of gold is also rising, now sitting at a comfortable $1,044. Commerzbank trader Michael Kempsinki told reporters: "It's pretty much all a fund and investor driven rally. Those guys like to buy at the highs and have the power to push it through." Private investors may well move fast, and he predicted that prices could soon hit as much as $1,100 an ounce. Barclays Bank seemed to suggest that the gold price could rise to the heights of $1,500/oz, after the dollar weakened and governments around the world stepped in with stimulus packages and bumper bailouts.
Whatever next?
