Porsche Shares Jump After U.S. Court Dismisses Lawsuit

By Christoph Rauwald

FRANKFURT—Shares in Porsche Automobil Holding SE jumped 11% when markets opened Monday after a U.S. court last week dismissed a lawsuit filed by U.S. hedge funds, removing a major roadblock for the sportscar maker’s planned merger with German peer Volkswagen AG.

DZ Bank analyst Michael Punzet said in a note to clients the U.S. court decision clears the way for Porsche’s planned €5 billion ($6.69 billion) capital increase ahead of the merger, but noted that some tax issues still need to be resolved.

Equinet Bank analyst Tim Schuld lifted his rating on Porsche’s stock to hold from reduce, but noted that plaintiffs have 30 days to file an appeal to the U.S. Court of Appeals for the Second Circuit.

At 0901 GMT, Porsche shares traded up 11% at €66.20, while the DAX bluechip index was up 1.1%.

A group of U.S. hedge funds filed a lawsuit over alleged market manipulation by Porsche during the period it built its stake in Volkswagen, claiming more then $2 billion in damages. Some investors in Germany threatened to take similar action, but according to recent statements by Porsche no lawsuits have been filed.

Porsche Chief Executive Martin Winterkorn, who is also in charge of Volkswagen, reiterated at the end of November that the company regards the claims as unfounded. “We believe that the facts are on our side and we have the better case in all of these legal issues,” Mr. Winterkorn said during a shareholder meeting.

Separately, Volkswagen confirmed Sunday that Mr. Winterkorn’s contract as CEO has been extended by five years until the end of 2016. The decision was widely expected as Mr. Winterkorn enjoys the support of Volkswagen’s influental supervisory board chairman Ferdinand Piech and the company’s powerful labor unions.

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AIG: Here’s What’s Boosting the Shares

By Matt Phillips

After shares of bailed-out insurer American International Group Inc. jumped 6.7% yesterday, an analyst at UBS is reminding investors that the increase in AIG’s stock price helps fuel–wait for it–the increase in AIG’s stock price.

That’s because the non-governmental shareholders who own the stock when the U.S. converts its AIG preferred shares to common will get 75 million warrants entitling them to buy more stock at $45 a share over 10 years. Those warrants were out of the money when the arrangement was announced in late September. But shares have risen about 37% since then, and were at $51.35 in Wednesday afternoon trading.

UBS analyst Andrew Kligerman says a $1 increase in AIG’s stock raises the value of the warrants by 40c/share. The warrants are now worth $12 to $13 apiece, Kligerman says. UBS had previously valued the warrants at about $8 to $9 a share back when the stock was around $42 in mid-October.

Another factor that’s boosting AIG shares, according to the UBS, is an increase in the stock price of rival insurer MetLife Inc. AIG got the stake when it completed the sale of an Asian life insurer called Alico to MetLife on Nov. 1. MetLife shares have risen 8.5% since then, meaning AIG’s stake is worth nearly $10 billion.

AIG will use those MetLife shares to help repay its bailout under a plan finalized earlier this month.

Of course, the logic also works in reverse: a drop in MetLife shares hurts AIG, and a decline in AIG shares depresses the value of the warrants.

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Irish Bank Shares Fall; Government May Raise Stake in Bank of Ireland

By Vladimir Guevarra

LONDON–Irish bank shares continued to slide Wednesday on mounting expectations that the Irish government is likely to take a majority stake in the Bank of Ireland as part of a rescue package worth close to €85 billion from the European Union and the International Monetary Fund.

Shares in the Bank of Ireland were down 10% at €0.27. Allied Irish Banks PLC, whose government ownership will rise to around 95% after a planned rights issue, was down 19% at €0.27. Irish Life & Permanent, which so far hasn’t received any state aid, fell 0.4% to €0.75. The Irish ISEQ Financials index has fallen around 36% since Friday.

The Irish government is trying to stem its losses from the banking sector, which are largely the result of overlending in a decade-long property boom that crumbled in the financial crisis, while getting the banks to reduce their reliance on European Central Bank funding. A majority stake in the Bank of Ireland would leave Ireland without a significant lender free of state control.

Irish bank shares have been under pressure since the Irish government said Sunday that it had formally applied for tens of billions of euros in aid from the EU and IMF. Both have indicated that the money will be forthcoming, pending negotiations on the steps the government will have to take to restructure its debts and cut its budget deficit.

The government currently owns 36% of Bank of Ireland, but that could rise to 80%, based on an equity injection of around €3.5 billion, which would raise Bank of Ireland’s trough core Tier 1 ratios to 12%, said NCB Stockbrokers analyst Ciaran Callaghan.

MF Global analyst Simon Maughan also said it was likely the government would take a majority stake in the Bank of Ireland. However, Mr. Maughan says that prospect is a “suboptimal situation” and “it’s better for BoI bondholders to do a debt-for-equity swap and keep the government as a minority shareholder” in order for the Bank of Ireland to be a more independent bank. Maughan kept his sell rating on the Bank of Ireland.

The Financial Times reported that the Irish government is in talks to take a majority stake in Bank of Ireland, citing government officials.

Credit analysts at Moody’s Investors Service on Monday said they expect another €8 billion to €12 billion to be injected into Ireland’s banks, and that it would take around €0 billion to increase the core Tier 1 capital ratios of Bank of Ireland, Allied Irish, EBS and Irish Life & Permanent to 12%, above the central bank’s current 8% target.

Prime Minister Brian Cowen on Sunday said the 8% target probably wasn’t enough to appease markets. He said banks would also have to shrink their operations and sell off non-essential business lines and assets to return to health.

A spokesman from the Bank of Ireland declined to comment. A spokesperson for the Irish government couldn’t be immediately reached for comment.

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Irish Bank Shares Fall After Bailout News

By Margot Patrick

LONDON–Shares in most Irish banks tumbled Monday after Ireland ministers said the banks will need more capital as part of the country’s massive bailout package agreed late Sunday.

Ireland said it has applied for a bailout worth tens of billions of euros from the European Union and the International Monetary Fund, sparking a rally in the euro, euro-zone government debt and Asian stocks overnight.

Irish bank shares sank, though, after Ireland Prime Minister Brian Cowen on Sunday said more capital will likely be put into the country’s banks to reassure investors, and that the banks will be made smaller “so that they can gradually be brought to stand on their own two feet once more.”

Shares in 36%-owned Bank of Ireland PLC, which could end up in further state control as part of the bailout, fell 10% in London to trade recently at €0.44, while Irish Life & Permanent, which so far hasn’t received any state aid, was off 13% at €1.

Shares in Allied Irish Banks PLC, which is already planning a rights issue that will take the government’s stake to more than 92%, was flat at €0.45 in London trade, reflecting the reduced scope for additional shareholder dilution compared with its peers.

“The extent of dilution facing shareholders is likely to be significant, and will ultimately be determined by the results of the stress tests combined with the new regulatory thresholds to be reached,” said Ciaran Callaghan, a banks analyst at NCB Stockbrokers.

Shares in Royal Bank of Scotland Group PLC, which has about ￡54.4 billion in direct exposure to Ireland, were up 0.3% at 42 pence, while Lloyds Banking Group PLC, with around ￡27 billion in Irish loans, were up 0.7% at 67 pence.

Finance Minister Brian Lenihan said the bailout package will include a contingent fund for banks to draw upon to cover bad loans, and to serve as “a powerful demonstration of the firepower behind the banks.”

Further efforts will be made to downsize the banks by selling overseas and nonessential assets, he said.

Already, Allied Irish Banks has raised about €2.5 billion by selling its Polish unit to Spain’s Banco Santander SA, and made a capital gain of around €900 million from the disposal of its 22.4% stake in M&T Bank Corp.
last month. But it put on hold a plan to sell its U.K. unit earlier this month, citing insufficient bids.

The bank said Friday it would raise around €6.6 billion from a larger-than-expected rights issue later this month that will take the state’s stake above 90%.

Anglo Irish Bank Corp., which was fully nationalized last year, and Bank of Ireland are also trying to dispose of assets.

Other state assets after taxpayer bailouts include Irish Nationwide Building Society and the Educational Building Society.

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Natixis Shares Slump After Disappointing Results

By Elena Berton

Natixis shares dropped sharply in early trade Wednesday as the lender’s third-quarter results, which missed expectations, failed to offset the French bank’s upbeat comments about complying with new banking rules without the need to raise fresh capital.

The stock recently traded down 7%, or €0.30, at €4.17, underperforming the CAC-40 Index, which was down 0.5%. It was the hardest faller among European financial stocks.

Natixis late Tuesday said net profit declined 16% to €305 million in the third quarter due to charges related to the changing value of its own debt. Revenue in the period was down 4%.

Turning to its forecasts for new international banking rules, known as Basel III, the bank said it expects its core Tier 1 ratio–a key measure of capital strength–to be more than 7% on Jan. 1, 2013, without raising cash.

Nomura analyst Jon Peace said that while the operating performance missed expectations, the comments on
capital levels offered reassurance. However, he said the lender’s core Tier 1 ratio is “still well below peers,” pointing out that the stock’s premium valuation will be difficult to sustain.

Credit Suisse analysts said in a note to clients that they see little upside at present due to Natixis’s high valuation. “This is expensive in a French context,” they said, maintaining their neutral recommendation.

Credit Suisse also said Natixis’s Basel III disclosure is triggering short-term uncertainties about Credit Agricole SA, which is due to report third-quarter earnings Wednesday after the market closes.

The announcement that the stake held in Natixis’s parent, Groupe BPCE, will be weighted at 370% in order to comply with the new rules, suggests that Credit Agricole will have a similar treatment, leading to a likely increase in risk-weighted assets of €48 billion, the analysts said.

Credit Agricole was recently trading down 2.4%, or €0.29, at €11.94.

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