Wednesday 1st July 2015
NEWS TICKER, TUESDAY JUNE 30TH 2015: Pamplona Capital Management (“Pamplona”) has acquired Precyse, a health information manager in services, education and technology founded in 1999. Also, earlier this month, Pamplona sold the majority of its controlling stake in Alvogen, a high growth generic drugs company, to a consortium of investors. The Precyse investment has been made from Pamplona’s fourth private equity fund, Pamplona Capital Partners and was advised by Deutsche Bank Securities and received legal advice from Simpson Thacher & Bartlett. Pamplona is a London and New York based specialist investment manager established in 2005. In addition to Precyse, Pamplona’s healthcare investment portfolio currently includes Spreemo, a company that is bringing to the workers compensation specialty benefits management industry with a focus on radiology; Intralign, which helps hospital and surgeons achieve a rep-less, optimised surgical episode by combining assessment with clinical support and operational tools; Magnacare, a healthcare administrative services company focused on self-insured employers and workers complains in the New York and New Jersey regions; and Privia Health, a physician practice management and population health technology company. - In line with its strategy to focus on packaging solutions for its pharmaceutical customers, Gerresheimer today announced that it will sell its glass tubing business to Corning Incorporated. The €196m ($219m) deal was advised by McDermott Will & Emery - GVQ Investment Management Limited (GVQIM), a specialist fund manager that applies private equity investment techniques to the public markets, has announced the appointment of Jane Tufnell as non-executive chairman. Tufnell co-founded Ruffer Investment Management Limited, a privately owned fund management group in 1994. She is an Independent Non-Executive Director of the Diverse Income Trust and of the JP Morgan Claverhouse Investment Trust. - Insurance broker and risk advisory firm Willis Group Holdings and professional services group Towers Watson on Tuesday said they had agreed to an all-stock merger that values the combined company at $18bn. Under the deal, which has been approved by both boards, Towers Watson shareholders will get 2.6490 Willis shares for each share held as well as a one-time cash dividend of $4.87 a share. Willis Group shareholders will own 50.1% of the combined group and Towers Watson shareholders will own the rest. The combined company, to be named Willis Towers Watson, will have 39,000 employees in more than 120 countries and revenue of about $8.2bn. Willis Chairman James McCann will be chairman of the combined company and Towers Watson Chairman and Chief Executive John Haley will be its CEO. Willis CEO Dominic Casserley will be president and deputy CEO of the combined company. Its board will consist of six directors from each company. Towers Watson’s chief financial officer, Roger Millay, will be CFO - According to BankingLaw 360, the US Supreme Court has granted an appeal from Merrill Lynch, UBS Securities LLC and other financial institutions over a shareholder suit alleging they engaged in illegal and manipulative “naked” short selling - Roxi Petroleum has reported progress at its flagship BNG asset as it posted an operational update. The Central Asian oil and gas company with a focus on Kazakhstan says that a gross oil-bearing interval of at least 105 metres, from 4,332 metres to 4,437 metres, was found at its Deep Well A5. The well, which was spudded in July 2013, will require specialist equipment for a more comprehensive 30-day core sampling test, but has already began preparatory extraction work Elsewhere, Deep Well 801, spudded in December 2014, is in the production test phase. "Progress at the BNG deep wells can best be described as steady," says chairman Clive Carver. "We look forward to reporting the results of our ongoing work in the near future – Advisory firm Hargreaves Landsdown has reportedly acquired a client book of 7,000 investors with a combined £370m of assets from JP Morgan Asset Management. The book accounts for 6% of JP Morgan’s direct client business and represents clients that hold or plan to continue to invest in non-JP Morgan funds or investment trusts in wrappers other than the JP Morgan ISA. This includes clients with direct equities, gilts or exchange-traded funds, who will be moved the brokers Vantage platform. The sale follows JP Morgan's announcement in January 2014 that it would no longer offer direct clients anything other than JP Morgan funds and investment trusts and that it would close its cash ISA and Sipp. There will be no transfer charge for clients moving to Hargreaves. The terms of the deal have not been disclosed - The OECD will publish Government at a Glance 2015 on Monday July 6th. The biannual report, now in its fourth edition, presents more than 50 indicators to compare governments’ performance in everything from public finances (including government spending per person), cuts to staffing and pay in central government and the level of private asset disclosure by government officials to access to and satisfaction with the healthcare, education and the justice systems This year’s report covers non-OECD countries for some indicators including Brazil, China, Egypt, India, Russia, South Africa and Ukraine and 36 country factsheets with infographics will be published alongside it. OECD Deputy Secretary-General Mari Kiviniemi will present the report at OECD Headquarters in Paris at 09:00am - Queensland diversified property group WA Stockwell has closed its $35m bond issue oversubscribed following a strong investor response to the offer, sole lead arranger FIIG Securities has announced. The six year senior secured amortising note issue will pay a fixed rate of interest of 7.75% pa. FIIG CEO Mark Paton says the success of the Stockwell issue confirmed the market appetite, especially among wholesale investors, for credit exposure to quality Australian companies. The Stockwell issue is the fourth that FIIG has sole-arranged for a company in the property and infrastructure sector, following successful issues by ASX-listed property developer Payce Consolidated, infrastructure operator Plenary Group, and ASX-listed property funds manager 360 Capital.

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The European Review

By Patrick Artus, chief economist at Natixis

ECB bond purchases: the case for Spain and Italy

Monday, 13 August 2012 Written by 
ECB bond purchases: the case for Spain and Italy The European Central Bank (ECB) is feeling the pressure to add to its balance sheet massive amounts of sovereign debt from eurozone countries that are in distress. Assuming that the bank was to do so, with the clear objective of sharply reducing those countries' long-term interest rates, it begs the question, would the eurozone crisis then be solved? If we were to consider this in the context of Spain and Italy, we would argue that it could only happen if the bank’s intervention not only restored the fiscal and external solvency of the countries in distress, but also revived growth. While these objectives would be fairly easily achieved in Italy, they would not rescue Spain. In fact, even a massive intervention by the ECB in government bond markets would not pull Spain out of its crisis. http://www.ftseglobalmarkets.com/

The European Central Bank (ECB) is feeling the pressure to add to its balance sheet massive amounts of sovereign debt from eurozone countries that are in distress. Assuming that the bank was to do so, with the clear objective of sharply reducing those countries' long-term interest rates, it begs the question, would the eurozone crisis then be solved?

If we were to consider this in the context of Spain and Italy, we would argue that it could only happen if the bank’s intervention not only restored the fiscal and external solvency of the countries in distress, but also revived growth. While these objectives would be fairly easily achieved in Italy, they would not rescue Spain. In fact, even a massive intervention by the ECB in government bond markets would not pull Spain out of its crisis.

Strong pressure on the ECB

The high level of long-term interest rates in Spain and Italy is stifling their economies. Strong pressure is therefore being put on the ECB to buy large quantities of government bonds issued by these countries, in the hope it will sharply reduce their long-term interest rates. This could be done directly or indirectly, perhaps by transforming the European Stability Mechanism (ESM) into a bank with funding provided by the ECB.



Massive purchases of government bonds by the ECB: Would the eurozone crisis be ended?

If massive purchases of government bonds by the ECB were to resolve the debt situation in Spain and Italy, the consequential fall in interest rates would need to restore fiscal solvency, restore external solvency and bring back acceptable growth.

Let’s look at these three points now:

1. Fiscal solvency

Fiscal solvency is ensured if the primary budget surplus is greater than the public debt multiplied by the differential between the long-term interest rate and nominal long-run growth.

If long-term interest rates were lowered by ECB interventions to close to the eurozone average, a primary surplus of 4.2 percentage points of GDP would be needed in Italy and 2.8 percentage points of GDP in Spain to ensure fiscal solvency. Italy’s primary surplus is forecast to meet 4% of GDP next year, while Spain’s primary deficit is due to exceed 3%.With lower interest rates Italy would be fiscally solvent in 2013, but by no means would Spain be.

2. External solvency

External solvency is ensured if the primary surplus (excluding interest on external debt) of the current-account balance is greater than the external debt multiplied by the differential between the long-term interest rate and nominal growth.

If the ECB moved long-term interest rates closer to the eurozone average, a primary current-account surplus of 0.8 percentage point of GDP would be needed in Italy, and 3.1 percentage points of GDP in Spain. At present, Italy has a deficit of 1.8 percentage points of GDP, and Spain has a deficit of 2.5 percentage points. As such, with lower interest rates, external solvency would not be guaranteed in Italy, while in Spain, again, the situation is far worse – external solvency would be very far from guaranteed.

3. Growth

The growth prospects are dramatic for Spain and Italy. A fall in long-term interest rates would significantly impact growth in a positive way, but only if the contraction in activity was predominately due to the high level of long-term interest rates. This would be the case if the contraction itself occurred because there was a decline in investment, rather than anything else such as job losses or deleveraging.

While consumption is declining in both countries, the decline in investment is far more dramatic in Spain than in Italy. The sharp decline in investment in Spain can be attributed to the collapse of the construction sector and the need for deleveraging, a problem which is far more acute in Spain than in Italy. As a result, a fall in interest rates would not be sufficient to revive growth in Spain, but would help in Italy.

Conclusion: Would massive purchases of Spanish and Italian government bonds by the ECB stop the eurozone crisis?

In conclusion, if the ECB were to purchase massive amounts of government bonds issued by struggling eurozone countries, a sharp fall in long-term interest rates in Spain and Italy would:

  • restore fiscal solvency in Italy but not in Spain;
  • restore external solvency in neither of the two countries, though the problem is far more serious in Spain than in Italy;
  • revive growth in Italy, but not in Spain where the decline in activity does not stem mostly from high interest rates.

Massive intervention by the ECB in government bond markets would therefore be decisive for Italy, but much less so for Spain.

Patrick Artus

A graduate of Ecole Polytechnique, of Ecole Nationale de la Statistique et de l'Adminstration Economique and of Institut d'Etudes Politiques de Paris, Patrick Artus is today the Chief Economist at Natixis. He began his career in 1975 where his work included economic forecasting and modelisation. He then worked at the Economics Department of the OECD (1980), before becoming Head of Research at the ENSAE. Thereafter, Patrick taught seminars on research at Paris Dauphine (1982) and was Professor at a number of Universities (including Dauphine, ENSAE, Centre des Hautes Etudes de l'Armement, Ecole Nationale des Ponts et Chaussées and HEC Lausanne).

Patrick is now Professor of Economics at University Paris I Panthéon-Sorbonne. He combines these responsibilities with his research work at Natixis. Patrick was awarded "Best Economist of the year 1996" by the "Nouvel Economiste", and today is a member of the council of economic advisors to the French Prime Minister. He is also a board member at Total and Ipsos.

Website: cib.natixis.com/research/economic.aspx

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