News round up: Citi, Morgan Stanley, Amazon, State-owned banks, Portugal, Tax and benefit changes, JJB Sports.
Morgan Stanley’s (NYSE:MS) chief executive James Gorman has been in discussions with Moody’s in an attempt to maintain its credit ratings and stave off a downgrade that could diminish the bank’s ability to buy the rest of Citigroup Inc (NYSE:C) brokerage Smith Barney, according to people familiar with the matter.
Morgan Stanley owns 51 per cent of Smith Barney, and holds an option, which kicks in at the end of May, to increase its stake to 65 per cent. Taking full control of the brokerage is a centrepiece of Mr Gorman’s strategy. eople familiar with the bank’s thinking have said Morgan Stanley could consider buying all of Smith Barney outright, but its ultimate decision will depend on price. Analysts have valued Citi’s remaining Smith Barney stake at around $10bn.
Morgan Stanley would most likely have to issue debt to fund the purchase, people say. That would become more expensive if Morgan Stanley is downgraded. Moody’s put Morgan Stanley, along with five other banks, on review for a downgrade in February. The bank could see its rating reduced by as many as three notches to Baa2 - two levels above junk status. A downgrade would also force Morgan Stanley to provide additional collateral to back its vast derivatives business, where it acts as a counterparty, writes the Financial Times.
Amazon.co.uk, Britain's biggest online retailer, generated sales of more than £3.3bn in the country last year but paid no corporation tax on any of the profits from that income – and is under investigation by the UK tax authorities. Regulatory filings by parent company Amazon.com with the US securities and exchange commission (SEC) show the tax inquiry into the UK operation, which sells nearly one in four books sold in Britain, focuses on a period when ownership of the British business was transferred to a Luxembourg company, reports the Guardian.
Monopoly of state-owned banks
China's Premier Wen Jiabao has taken a leaf out of Vince Cable's book, calling for the monopoly of state-owned banks in the world's second largest economy to be broken. 'Frankly, our banks make profits far too easily. Why? Because a small number of major banks occupy a monopoly position, meaning one can only go to them for loans and capital,' the country's second highest ranking politician said, according to China National Radio, writes the Independent.
Political leaders should be ready to provide a further bail-out for Portugal within the next year, Europe's economic and financial affairs commissioner Olli Rehn has warned. Mr Rehn said Lisbon, which has received a €78bn (£64.5bn) rescue package, is likely to need more public support before it can return to the bond markets next year. "From the European Union side, it would be wise to be prepared. Some kind of bridge needs to be built when Portugal returns to the markets," he said, according to the Telegraph.
Tax and benefit changes
Families with children will lose an average of £511 a year under tax and benefit changes which come into effect tomorrow, the start of the new financial year. An analysis by the Institute for Fiscal Studies (IFS) of austerity measures announced by George Osborne in the Budget last month underlines the scale of the squeeze faced by middle-income families.
It also reveals that despite the row over the so-called granny tax, pensioners will suffer the least as a result of the coalition’s policies. More than 850,000 families on modest and middle incomes will lose all their child tax credit, worth about £545 a year. The average income for families with children is £38,000, the Times writes.
Chris Ronnie, the former Chief Executive of JJB Sports, was yesterday charged by the Serious Fraud Office over an alleged £1m fraud relating to contracts entered into by the sportswear retailer in 2008. The SFO has also charged David Ball, an accountant and joint owner of Fashion & Sport, a supplier to JJB, with three offences of 'furnishing false information' contrary to the Theft Act 1968, the Independent reports.