Porsche in the fast lane?

Automobile


By Julian Sudre

Shifting into high gear is what Porsche excells at; but the recent statement from the luxurious car maker revealed it earned three times as much money from trading derivatives - or share options - as it did from selling cars. The latest news that the Stuttgart-based company made $5.2bn (3.6 bn euros) last year from those shares against just 1bn euros from its so called core carmaking business. As a result a fury of speculation erupted on all sides as Porsche could be more perceived as a hedge fund than a car maker.
But Porsche's stock has gained a hefty 70 per cent this year; with a workforce of only 12000 the volume of the company has reached 29.1 bn euros that is more than twice that of GM Corps, the world's largest automaker.

A sigh of relief was heard a couple of days ago when the company announced that it would not break up Volkswagen. Labour leaders and VW's work force were pleased to hear that their largest shareholder -- 31 per cent stake -- was keeping the current structure of the company.
Such a move could have created more confusion about the stance of Porsche as its recent critics named it a hedge fund that evidently could have taken apart VW.
Chief Executive Wendelin Wiedekin and Chief Financial Officer Holger Haerter also denied rumours of mergers but aknowleged that its stake-building in VW had caused "uncertainties" amongst some Volkswagen employees. Mr Wiedekin was lambasted when it referred to VW as a "goldmine".
Porsche has spent about $7.3bn over the last few years building up its stakes in VW and will stand to benefit heavily in the coming years of VW.
The luxury German automaker raised hackles recently when it confirmed it had set up a holding company for its VW stake that gives VW employees less influence than they are used to.
The company allocates three supervisory-board seats to VW workers and three to Porsche workers, an arrangement that is critised as inappropriate by VW labours leaders.
Shares in Porsche tumbled by 6.5 per cent today amid concern that the US economy is slowing. The company got 35 per cent of its revenue in 2006 from US sales. Operating profit fell to 1bn euros in its fiscal year through July from 1.2 bn euros a year earlier, excluding gains from VW.

MERGER OF NIKANOR AND KATANGA

By Julian Sudre



Mining

Nikanor, the Aim-listed mining group with assets in the heart of the African copperbelt in the Republic Democratic of Congo, had its shares lifted 24p to 644p today when a merger with Mining group, Katanga was announced.

Katanga, the Toronto Stock Exchange-listed company agreed to a $2.1bn to buy Nikanor and the combined firm is expected to generate a $3.3bn market capitalisation along with being the largest copper producer in Africa and the largest cobalt producer in the world.
Such merger will produce an output potential of 400 000 tonnes of copper cathode and 40 000 tonnes of cobalt.

Kantanga will issue 0.613 of a share and pay $2.16 for each share. Nikanor shareholders will hold a 60 per cent of the combines company and Kantaga shareholders will have the other 40 per cent.
Shares in Katanga soared 42 per cent while Nikara's were up 5.4 per cent.

"Transacting the deal now gives us the best opportunity to lower the overall capital spending and deliver maximum benefit from consolidated suite of operations" said Arthur Ditto, the CEO who will lead the merged company.

The merged company will retain the name Katanga Mining Limited and will apply for a primary listing on the main market of the London Stock Exchange and will have therefore have primary listings on the TSX and LSE.

BATTLE FOR CONTROL

By Julian Sudre




Banking


More fuel was added to the banking fire when Merrill Lynch announced 10 days ago that it was taking a $8bn-worth of losses on mortages related securities. The writedown was twice the size of the losses that the bank had forecast a couple of weeks back. But to add insult to injury, some financial analysts expect that the banks may make another $4bn write-off in the coming months.
UBS unveiled $3.4bn of third-quarter mortgage-related losses last week and could be prone to taking up to $8bn more losses in the fourth quater of this year. The lastest blow was taken by Citi when the world biggest bank reported $6.5bn in writedowns and losses from credit markets.
Since the announcement, Citi has lost more than a fifth ot its market value and its shares have plummeted 25 per cent in three weeks.
Evidence has proven that the credit turmoil not only has hit the big US banks but also British bank such as Barclays which triggered concerns for investors when shares at the bank lost nearly 6 per cent of friday and amid unsubtantiated reports that it had been forced to seek emergency funds from the Bank of England.
When bullish american analysts forecast that the the credit crunch was over in September, it seems now that people in the City and Wall Street are getting jittery to open more cupboards and find dead bodies lying there. Such tsunami of red ink has engendered a tremendous amount of anxiety amongst investors as this time the $20bn mortgage holdings-related writedown does not appear to have captured all the potential losses.

Citigroup's chief executive, Charles Prince resigned on sunday as investors hope his departure will lead to a break-up of the company. Meredith Whitney, the CIBC World Markets' financial analyst believes the only way forward for new Chairman Robert Rubin and interim chief executive Sir Win Bischoff is to carve the bank up and sell it off. Nevertheless Prince al-Waleed bin Talal, a long-term investor who owns 3.6 per cent stake in City oppposed any break-up.
Tough times for Prince have hit the headlines in recent days more particulary when back in the summer he was reported saying "as long as the music is playing, you have got to get up and dance." What's more he was branded a deal junkie and appeared to have turned a blind eye to the storm in credit markets. The bank said it faced additional writedowns of between $8 to $11bn with shares falling 4.9 per cent to $35.90 after a slide of 11.5 per cent last week and now lie at their lowest level in more than four years. But investors were stumped to know that the bank has a $55bn in subprime mortgage-related exposure on its balance sheet, a number that was vasly larger than the previous assessment of its position as closer to $13bn.

But yesterday the focus was on UBS, which indicated last week it may be forced to take further writedowns in the fourth quarter which could be up to $8.5bn according to Lehman Brothers.
Shares in Barclays and RBS dropped yesterday -- both banks with substantial fixed-income activities -- as investors fretted over more losses to be disclosed.

Nevertheless, after Merrill Lynch ousted its chief, Stan O'neil and Citi's resignation of Chuck Prince; the latter bank made a firm debut yesterday on the Tokyo Stock Exchange rising a five per cent. Citigroup is in the process of acquiring 100 per cent of Nikkio Cordial, Japan 's third-largest securities group, through a share swap that will give current Nikkio Cordial shareholders, shares in Citigroup.