Five Things You Need to Know: Bank of New York, Mellon Financial Team Up to Produce Horrible Cover Song, Must Be Monday, Question of the Day, Unexpected Expenses, Striped Shirt Sales to Plummet
What you need to know (and what it means)!
Minyanville's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:
1. Bank of New York, Mellon Financial Team Up to Produce Horrible Cover Song
Bank of New York (BK) said today that it agreed to buy Mellon Financial (MEL) for about $16.5 billion. Analysts expect the move to produce a cover song significantly worse than the Bank of America/MBNA merger's version of One.
- The merger links New York's oldest bank, founded by Alexander Hamilton in 1784, with the institution that helped finance the steel industry in the 1900s, Bloomberg noted.
- The deal that will create the world's largest custodian of financial assets and one of the top 10 asset-management firms, the Wall Street Journal reported.
- Bank of New York's shareholders will own about 60 percent of the combined company, to be known as Bank of New York Mellon Corp.
- The transaction will reduce Bank of New York's earnings in 2007 and add to them in 2008, the company said in a statement.
- The new company will generate 38 percent of revenue from security-issuing, trade-clearing and treasury services. Asset management and private wealth management will account for 29 percent of revenue, and asset servicing 28 percent, Bloomberg reported.
2. Must Be Monday
Whew. After last Monday's relative inactivity we were beginning to think that the Monday M&A Put had expired. Thank you Bank of New York!
- Last week we feared the worst; that the Monday M&A Put had perhaps expired.
- Deals were sparse last Monday. And the S&P 500 showed the strain, putting in its worst session in a little more than five months.
- Bloomberg data shows that U.S.-based financial services companies have agreed to spend $267 billion on buying rivals in the country this year, 42 percent more than in the same period last year.
- Meanwhile, the Monday M&A Put has been responsible for a significant number of Monday morning bear-busting deal announcements:
- Monday, Nov. 20
- Private equity buyout firm Blackstone Group agreed to buy U.S. office building owner Equity Office Properties Trust (EOP) for $36 billion including debt.
- Freeport-McMoRan Copper & Gold Inc. (FCX) agreed to buy Phelps Dodge (PD) for $25.9 billion in cash and stock.
- Monday, Nov. 13
- Clear Channel to be acquired by private equity consortium for $19 billion.
- Monday, Nov. 6
- Abbott Laboratories (ABT) said it will acquire Kos Pharmaceuticals (KOSP) for $3.7 billion.
- OSI Restaurant Partners (OSI) agreed to be acquired by an investor group for $40 a share in cash.
- McKesson Corp. (MCK) agreed to buy health administration company Per-Se Technologies.
3. Question of the Day
Is there an ETF to play the dollar rising? Seems many of the Minyanville professors see a counter trend rise... I just read this morning an article on Bloomberg on Peter Thiel... He is betting on a RISING dollar going forward... Thanks for your thoughts!
- Scott, there are a number of ETFs available to play select currencies.
- Rydex offers currency ETFs for the Australian dollar (FXA), the British Pound (FXB), the Canadian dollar (FXC), the Euro (FXE), the Swiss Franc (FXF), the Yen (FXJ), the Mexican Peso (FXM) and the Swedish Krona (FXS).
- In addition, the ProFunds Falling U.S. Dollar fund (FDPIX) tracks a basket of foreign currencies.
- There is also the Franklin Templeton Hard Currency Fund (ICPHX).
- As well, Deutsche Bank on August 11 filed a prospectus with the SEC for both the PowerShares DB US Dollar Index Bullish Fund and the PowerShares DB US Dollar Index Bearish Fund.
4. Unexpected Expenses
The payday loan industry took $4.2 billion out of consumer pockets in 2005 because states have not done enough to restrict high interest loans and practices that trap people in financial quicksand, the Center for Responsible Lending said late last week, according to the Associated Press.
- The $4.2 billion going to lenders is "hard-earned cash being siphoned out of the wallets of working people," Julian Bond, chairman of the National Association for the Advancement of Colored People said.
- The report found more than 60 percent of payday loans go to people taking out one or more loans a month.
- Also, the group's report estimates 90 percent payday lender revenue comes from people who can't pay off loans when they're due and not from one-time users trying to meet a short-term financial emergency.
- The typical consumer borrows $325 but repays $793, the report said.
- However, Jamie Fulmer, spokesman for Advance America Cash Advance Centers, said the report appears to be an attempt to undermine consumers' access to payday advances.
- "Our products allow folks to find firm financial ground and firm footing to overcome their unexpected expenses," Fulmer said.
- Unexpected expenses include: $250 in scratch off lotto tickets, two liters of Gorton's Gin, $36 trifecta box in the 4th race at Melbourne Greyhound Park, a carton of Marlboro Lights, a 36 piece "finger-lickin' fun" bucket from KFC and a Hustler magazine.
5. Striped Shirt Sales to Plummet
Goldman Sachs has become the first bank to launch a hedge fund replication tool, the Financial Times reported.
- Goldman Sachs has become the first bank to launch a hedge fund replication tool that aims to deliver the returns of the hedge fund universe at a fraction of the cost.
- Goldman's Absolute Re-turn Tracker Index, or Art, is the first of an expected flood of hedge fund "cloning" platforms that some fear could put pressure on many run-of-the-mill hedge funds to justify their high fee structures, the FT said.
- Typically a fund charges a 2 percent annual fee and a 20 percent performance fee.
- Goldman has spent two years developing the complex algorithm that underpins Art.
- The performance characteristics of thousands of hedge funds are fed into Art on a monthly basis, the FT said, and the system deconstructs the data to determine the aggregate position of the hedge fund universe; that is, the degree to which funds are long or short the S&P 500, small-cap stocks or commodities.
- Art's simulated track record shows that, had it existed prior to now, it would have generated net returns of 11-12 per cent per annum since 2003, which Goldman says is probably 4-6 per cent higher than many comparable funds of hedge funds over the same period.
- Academics in Europe and the US claim to be on the verge of producing for commercial use their own cloning strategies, a trend that promises to be as disruptive for the $1,300bn hedge fund industry as the arrival of passive index trackers was for long-only mutual funds a generation ago, the FT reported.
- Meanwhile, if the cloning performs as expected, retailers are bracing for a dramatic decline in striped shirt sales.
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