tip off

Canwest tricks … Banks down the gurgler … Land of hope and glory

Canwest latest: Tricky Aspers, Vampire squid strike. These two effectively sank Canwest, the Canadian media group that once owned the Ten Network in Australia, via a combination of overweening ambition, too much debt and investment banking greed. That saw Canwest gradually implode and collapse last year with the TV and newspapers going under about $C4 billion in debt, much of it provided by Goldman and borrowed by the ambitious Lenny Asper. Now the TV business looks like being sold to Shaw Communications after a Canadian Court OKed the sale of Canwest Global Communications over the weekend. But not before Asper, Goldman Sachs and a Canadian private equity fund lobbed a last-minute, apparently higher bid at 3.30am on Friday, Canadian time, just before the court hearing, and then argued in court for a postponement until Monday to allow their offer to be assessed.

We’ll walk. Upset at the Asper-driven attempt to gazump them, Shaw threatened to pull its bid and walk from the court, which, after a long hearing, approved the sale of Canwest Global for $C85 million in cash for 20%, plus 80% of the votes, and negotiations on the huge debts taken on by Lenny Asper and his boardroom mates. Now Shaw has to win over Goldman Sachs, which has a three-year deal that effectively gives it control over the entire TV business. How so?

How the Aspers were fooled by a clever Vampire Squid. This column in the Toronto Globe and Mail explains how  the greed of Lenny Asper and his family allowed them to be stitched up by Goldman Sachs in 2007: “The contract could be summarised as follows: Canwest retained approximately 35 per cent of its television business, plus voting control, plus the ability to earn a bigger stake over time, depending on how much the business earned. Goldman inherited 65 per cent of the business, plus — crucially — a put option that gave it the right to sell its stake back to Canwest at a predetermined price, for a guaranteed return. One party — Goldman — had a great deal of upside, but limited downside. Canwest, on the other hand, had all of the pressure of trying to squeeze as much out of the assets as possible, but all the risk if it went badly. Canwest shareholders, events later proved, had unlimited downside: Their shares are now essentially worthless.” That is the deal Shaw has to break apart to get control of all the TV assets of Canwest, including the much desired Cable TV channels, which are at the heart of the Goldman financing.

Down the plug #1. After a week off, American regulators were busy last Friday, shutting four more smallish banks to take the total so far this year to 20. The largest was La Jolla Bank in San Diego with about $US3.6 billion in assets. All up the quartet had more $US4.2 billion of assets. The four were sold to other banks. The closures come ahead of the regulator, the Federal Deposit Insurance Corporation, releasing its December quarter update on the health of US banks on Tuesday night, our time. It will reveal industry earnings for the fourth quarter of 2009, the number of banks on its problem list (552 at the end of September), profits, write-offs, provisions and the types of bad debts and bung loans, as well as provide an updated figure of the number of banks on its problem list. 140 banks failed in 2009, 25 in 2008 and only three in 2007.

Down the plug #2. More bad news on US mortgages with the Mortgage Bankers Association of America on Friday revealing that a record proportion of mortgages were in foreclosure or at least one payment past due in the fourth quarter. The association said  the combination of loans in foreclosure and one payment in arrears was 15.02% on a non-seasonally adjusted basis, the highest ever in the survey, which goes back to 1972. But there was a glimmer of good news; the delinquency rate for mortgages on one-to-four-unit residential properties fell to a seasonally adjusted rate of 9.47% of all loans outstanding as of the end of the fourth quarter of 2009, down from 9.64% in the third quarter. But it was up from 7.88% in the last quarter of 2008.

Sod’s law, again, in Ireland. The Irish Government has been forced to take 16% of the Bank of Ireland after the bank said it would have to pay a dividend in shares instead of cash. That means that from tonight our time, the government will be the biggest shareholder in the bank through its National Pension Reserve Fund. This will automatically dilute all the other shareholders in the bank. The bank had been due to pay €280 million to the government by Sunday at the latest under the terms of the €7 billion recapitalisation scheme that last year saved the country’s banks from collapse. That saw the government inject €3.5 billion into each of the Bank of Ireland and Allied Irish Banks. The European Commission upset things by halting the already agreed upon annual “coupon” payments (or a return linked to an interest rate) from each bank of up to the €280 million. The EC’s halt triggered the Bank of Ireland’s payments under by-laws. The government, which is short of money, would have preferred the cash.

Break out the sherry, chaps. Yes, there will be bonfires lit and massed choruses will hum Land of Hope and Glory later this week if the UK economic statisticians manage to boost the UK’s 4th quarter economic growth estimate by 100%, as forecast in weekend media reports. The first estimate was 0.1% positive growth. That could be doubled to 0.2% in the second estimate to be released in London on Friday night, our time. Why, because industrial production was much stronger in a final report for the quarter. But so what? Retail sales in January fell by a very nasty 1.2%, thanks it seems to the very cold weather. And the UK government borrowed a net £4.5 billion in January to make up for a revenue shortfall. Markets had expected a surplus of £2.8 billion. January is supposed to be strong month for tax receipts.

TIT for TAT? And in an interesting story, America’s Federal Communications Commission is reported to be examining claims that producers of a Fox Network game show — which  never went to air — fed answers to potential contestants before taping the show last year. The New York Times cited a letter about the show, called Our Little Genius that the commission released in response to a Freedom of Information Act request. The quiz show, which featured contestants aged 6-12, was pulled from Fox before its premiere in early January, according to the Times. The  report claimed the letter released by the FCC was written by a parent of one of the show’s contestants and received by the FCC on December 22. It alleged that before a planned taping, a member of the show’s production staff reviewed potential topics with the contestant and his parents. The program was from Mark Burnett, of Survivor and The Apprentice fame. Was this the Times’ reply to last week’s embarrassment of a business reporter from the paper who was sprung pinching from Wall Street Journal and Reuters stories and not sourcing the material to them?

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