US banks see higher earnings on capital market activity, mortgage refinancing

Increased capital market activity drove stronger earnings and increased profitability for major US banks in the third quarter of last year, according to ratings agency Fitch Ratings.

Fitch said that strong debt issuance, tighter fixed income spreads, and an equity market rally fueled a healthy rebound in capital markets revenues from depressed levels in Q3 ’11 and subdued activity in the prior quarter.

Core profitability for the major banks was slightly improved and better than expected during the quarter.

The mortgage refinance boom further contributed to stronger revenues for the quarter. This reflects the effects of theFederal Reserve’s quantitative easing measures, which have brought long-term rates down to very low levels.

Although refinance activity will continue into 2013, Fitch expects that it will level off and thus current levels are not considered sustainable.

The larger US banks began disclosure of expected Basel III Tier I common ratios in Q3. Although this guidance is not finalized, Fitch expects that most rated banks will be in compliance ahead of full implementation.

US Treasury sells remaining AIG shares for $7.6bn

New York-based insurer American International Group, Inc. (NYSE: AIG) has announced the completion of an offering of approximately 234.2m shares of AIG common stock by the US Department of the Treasury (Treasury).

According to AIG, Treasury received proceeds of approximately USD 7.6bn from the sale. The sale of these shares the last of Treasury’s remaining shares of AIG marks thefull resolution of America’s financial support of AIG.

Since September 2008, America committed a total of USD 182.3bn in connection with stabilizing AIG during the financial crisis.

Since then, through asset sales and other actions by AIG, theFederal Reserve, and Treasury, America recovered its USD 182.3bn plus a combined positive return of USD 22.7bn.

Beginning in May 2011, Treasury successfully sold approximately 1.7bn shares of AIG common stock in six public offerings for total proceeds of approximately USD 51bn, including approximately USD 13bn purchased by AIG.

Treasury continues to hold warrants to purchase approximately 2.7m shares of AIG common stock the sale of which is expected to provide an additional positive return to taxpayers.

US economy poised for growth, but austerity threatens

According to a report from Canada-based financial services firm Toronto Dominion’s (TSX: TD) (NYSE: TD) US-based TD Bank’s TD Economics affiliate, the main obstacle standing in the path of faster US economic growth is a strong headwind blowing in from fiscal restraint.

The report said that, without fiscal drag, the US economy would be headed for a growth trajectory in the 3-4% range in 2013.

It said that the worst of the consumer deleveraging cycle and its dampening effect on economic growth appear to be over. But just as the private sector is set to provide a welcomed tailwind to the economy, it will be met with worsening cross winds from public sector restraint.

TD Economics forecasts economic growth to average 1.9% in 2013 down from an estimated 2.2% in 2012. However, by the second half of next year, clearer fiscal policy should lead to resurgence in private demand, placing the economy on a stronger footing with 3.0% growth in 2014.

With a few weeks to go before deep spending cuts and tax hikes arrive and hamper economic growth, a deal to avoid them between the White House and Congress has yet to be reached.

TD Economics estimates that if all tax hikes and spending cuts are allowed to take place as scheduled, it would cut 3.0 %age points from real GDP in 2013.

The constraint on growth posed by fiscal policy comes amid signs that housing has entered a self-sustaining recovery. Home prices have risen consistently through 2012 while delinquencies and foreclosures have fallen.

TD said that the rise in home prices has been substantial prices are up 5.0% from year-ago levels and appears sustainable. The fall in construction activity over the last several years has cleared the supply overhang and allowed rising demand to pull up prices.

The housing market has also been the focus of the Federal Reserve, whose latest round of quantitative easing has focused on purchases of mortgage-backed securities.

NBA clears acquisition of Memphis Grizzlies by Pera group

The National Basketball Association (NBA) said its governors board had given its unanimous support to the sale of the Memphis Grizzlies professional basketball franchise to a group of investors headed by businessman Robert Pera.

The agreement was signed in June between Grizzlies owner Michael Heisley and Pera’s group, without disclosing financial details.

Heisley’s company Hoops LP, which owns and operates Grizzlies, also announced the approval by the NBA to the deal, saying the transaction is expected to be wrapped up shortly. Until then, the parties will abide by the terms of the signed confidentiality agreements, Hoops explained.

Pera founded and leads as CEO California-based communications technology firm Ubiquiti Networks (NASDAQ:UBNT).

Grizzlies was initially located in Vancouver and owned by Arthur Griffiths, who also had the Vancouver Canucks hockey club. The basketball team, which joined the NBA in 1995 as an expansion team, was bought by Chicago businessman Heisley in 2000. The year after that, the new owner relocated the franchise to Tennessee. Now it plays at Memphis’ FedExForum.

The team has taken part in the playoffs in five seasons and finished fourth in the Western Conference in the 2011-2012 season.

In a statement, NBA commissioner David Stern welcomed the NBA approval for the deal, saying that the strong local ties of Pera’s group will benefit the team and the community.

America’s most imported wine relying on holiday promotion

Yellow tail, America’s most imported wine, is relying on the holiday season in the US to promote itself and its prospects among customers in the country.

The Australia-based wine company said that it would start a national advertising campaign on late-night television, cable and the Internet from October 1 until January 1. Deutsch Family Wine & Spirits, the exclusive importer and marketer for yellow tail, is gambling that Americans will increase their wine intake during the holidays and is promoting products that it says have been developed specifically for the holidays.

The wine company is to promote itself through a ‘go to’ holiday campaign that will promote the brand as the ideal choice for the holidays.

Tom Steffanci, president of Deutsch Family Wine & Spirits, said, ‘Yellow tail is the most beloved wine brand in the U.S. with a dedicated consumer following that cuts across all age groups. The brand delivers what our consumer research has shown our customers want: reliability, consistency and great value. It is the wine you can count on for any occasion, and with pricing under eight dollars for a 750ml bottle it is the wine you can afford to stock up on for the holidays. Yellow tail has the country’s number one selling Merlot and Shiraz and the number three selling Cabernet Sauvignon. This year we’ve added two hot wines to the brand portfolio: Yellow tail Moscato, one of the most successful launches of the year, and Sweet Red Roo, a naturally sweet red blend of Shiraz, Cabernet Sauvignon and other red varieties. Both are perfect wines for casual parties and fun with family and friends.’

Figures show that the brand has grown 2.5 percent over the last 52 weeks, mostly helped by television and online campaigns.

Sponsor Clayton Dubilier & Rice in $1bn deal to acquire David’s Bridal

US private equity group Clayton, Dubilier & Rice LLC (CD&R) has entered into a definitive agreement that will make it the new owner of David’s Bridal Inc, the US retailer specialising in wedding gowns and related accessories.

Leonard Green & Partners LP, which bought David’s Bridal in 2006, will retain a minority stake in the business. CD&R said that the deal values the target company at about USD1.05bn (EUR842m) and is expected to close during the fourth quarter. Paul Pressler, operating partner at CD&R, will become chairman of David’s Bridal once the purchase is finalised.

David’s Bridal has been in business for more than six decades and currently sells its wares through 300-plus US stores, five outlets in Canada and an online store. In addition to designer bridal gowns, the company also offers special occasion dresses and accessories.

CD&R partner Richard J. Schnall said that David’s Bridal had the advantage of being a unique and strong business operating in a sizeable and stable industry. CD&R looks forward to helping the company solidify its leadership and make the most of its scale by expanding into new segments, channels and geographies, Schnall added.

David’s Bridal president and chief executive Robert D. Huth said that the company was excited to have the CD&R team on board. Their operational expertise will be most welcome as David’s Bridal accelerates its growth strategies, Huth stated.

CD&R, which received legal advice from Debevoise & Plimpton LLP, has secured financing commitments from Bank of America Merrill Lynch, Barclays plc (LON:BARC), Goldman Sachs Bank USA and Morgan Stanley (NYSE:MS). David’s Bridal had Bank of America Merrill Lynch and Barclays as financial advisers, while Latham & Watkins LLP provided it with legal counsel.

US food group General Mills completes acquisition of Brazil’s Yoki

US food company General Mills Inc (NYSE:GIS) said it had finalised its deal to acquire Brazilian sector player Yoki Alimentos SA.

The definitive purchase agreement was unveiled on 24 May 2012 but the financial parameters of the transaction remained undisclosed. Sean Walker, president of General Mills’ Latin American operations, described the closure of the acquisition as a new start for the company’s Brazilian business.

General Mills has expanded its portfolio with brands that have been favourites of Brazilian households for decades. As a result of this acquisition, General Mills will be able to accelerate its growth in the vibrant Brazilian market, Walker added.

Walker, who also runs General Mills Brazil, will be put in charge of Yoki. He will be assisted by a management team comprising key executives from both companies.

Yoki was established in 1960 by Yoshizo Kitano and currently sells over 600 products across the country under nine brands. The food products marketed under its Yoki and Kitano brands have secured leading market positions in categories such as snacks, convenient meals, basic foods and seasonings.

The company has multiple production facilities and a national retail distribution network. In 2011, it booked revenues of BRL1.1bn (USD539.4m/EUR438.5m) on an IFRS basis.

UK insurance group Aviva puts its US business on the block

UK insurance major Aviva Plc (LON:AV) is gearing for a sale of its US business after receiving several unsolicited approaches from trade buyers and private equity groups, the Sunday Telegraph reported without specifying its sources.

According to the UK newspaper, Aviva’s finance chief Pat Regan has spent quite a while in Des Moines, Iowa – the city where Aviva USA’s headquarters are located – to make preparations for the sale and launch the process. An investment bank is yet to be formally appointed but Aviva’s executives are believed to have settled on Goldman Sachs Group Inc (NYSE:GS) as manager of the sale.

Aviva agreed to pay GBP1.8bn (USD2.8bn/EUR2.3bn) in mid-2006 for what was then called AmerUs, combining it with its existing US business to create Aviva USA. The sale of the business is expected to leave the UK company with a loss of GBP800m on its initial investment since the division is now estimated to be worth GBP1bn, the Sunday Telegraph said.

Following shareholder pressure, Andrew Moss stepped down as chief executive of Aviva in May, leaving newly appointed executive chairman John McFarlane to fill the gap on a temporary basis.

Earlier in July, McFarlane presented his plan for a strategic overhaul of the company, saying that 16 out of 58 businesses have been designated non-core and will either be sold or shut down. However, Aviva could not be drawn into commenting at the time on whether its US division was one of those businesses.

The company has already pulled out of Hungary, Romania, the Czech Republic and Australia and is set to exit Taiwan as well, selling its 49% stake in its local joint venture.

The Sunday Telegraph was unable to extract a comment from an Aviva spokesman with regard to the US divestment.

Cosmetics giant Coty forms South Korean JV with LG Household & Health

US-based beauty care products maker Coty Inc has formed a joint venture with South Korean sector company LG Household & Health Care Ltd (KRX:051900), or LG H&H, to extend their presence in the Korean cosmetics market, the parties announced today.

The creation of this JV, called Coty Korea, is an important step for Coty through which the company wants to grow its presence in Asia and to strategically expand its cosmetics and skin care operations on a global basis, it said. At the same time, the move strengthens LG H&H’s leadership in the Korean consumer market.

According to Coty Prestige president Michele Scannavini, Korea represents an important emerging market for the beauty sector. The newly-announced development may also be followed by other potential common projects abroad, LG H&H CEO Suk Cha said.

The parties did not provide information regarding the ownership structure of the venture or the amount they will invest in the new entity.

This autumn, the JV intends to introduce its beauty brand philosophy into the Korean marketplace, Coty said, adding that this brand is expected to play a crucial role in the expansion of its product portfolio. Furthermore, Coty Korea will continue to seek for opportunities to further grow and improve its presence in the market.

Coty is a beauty care products manufacturer with annual net sales of USD4.5bn (EUR3.7bn), about 12,000 employees and offices in New York, Paris and Geneva.

US newspapers increasingly outsource journalism to the Philippines

Newspapers across the United States of America are outsourcing the production of local news to low-paid researchers and writers in the Philippines, radio progamme This American Life has revealed.

In an interview with a young American journalist, Ryan Smith, This American Life presenter Sarah Koenig exposes the work of outsourcing company Journatic and the newspapers for whom it works, many of whom would rather remain unknown.

Former Journatic employee Smith says in the report that Journatic’s news is ‘written overseas, half-heartedly edited and slapped on a page’.

Smith, who risked being fired for speaking publicly, says he wrote and edited stories for newspapers in Texas while never leaving Chicago, about 1,000 miles away.

Using freelancers in the Philippines, Brazil, Eastern Europe and Africa, Journatic produces vast quantities of local stories, such as death notices, house sales and bowling scores based on publicly available information, for American newspapers that no longer have the resources to cover the micro detail of daily life.

Journatic and some of the newspaper companies who use it told This American Life that no writing was done in the Philippines itself. Rather, the Filipinos, who earn between 35 to 40 cents per story, ‘assemble information, in paragraph form,’ which is then written and edited in America.

However, it is hard to know how true this is. Koenig spoke to one anonymous Filipino freelancer who claimed to write stories himself. Yet their real names are never published. Instead, American newspaper publishers can click a ‘Select Alias’ button and choose Americanised names such as Jenny Cox or Glenda Smith.

While the programme paints the practice in a negative light, Journatic CEO Brian Timpone argues a good case for his model. He says he knows that he will be criticised for his business interests, but he argues that outsourcing information aggregation is the way forward for the financially-strapped media industry.

‘I personally think we’re saving journalism with our approach, ‘ says Timpone.

‘The single reporter model, the old model, just doesn’t work and hasn’t done for 30 or 40 years.’

‘We’ll be able to see more things, things that no one covers,’ Timpone says.

He goes even further, asserting that having journalists on the ground does not produce more accurate or more engaging stories than his at-a-distance model.

Timpone claims that his company can produce more content for less, helping to drive traffic for newspapers and encourage local advertising, an important stream of revenue.

‘If you have a better idea, I’m all ears,’ challenges Timpone.

Written by Will Fitzgibbon of The Bureau of Investigative Journalism.

Listen to the original This American Life programme here.