Cosco Offers $6.3 Billion To Buy Orient Overseas

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COSCO Shipping Holdings Co Ltd has offered to buy Orient Overseas International Ltd (OOIL) for HK$49.23 billion ($6.30 billion), in a deal that will set the mainland China group to become the world’s third largest container liner.

The offer comes as China’s government is outspoken over its desire to increase its profile in global shipping, which merges with its Belt and Road initiative aimed at increasing its influence over supply chains from Asia to Europe.

State-owned Cosco will pay shareholders of Orient Overseas HK$78.67 a share in cash. The Tung family, which founded Orient Overseas Container Line in 1969, has accepted the offer, which still needs regulatory approvals and consent from Cosco’s investors.

As the deal goes through, COSCO Shipping will become the world’s third-largest container shipping line after Denmark’s Maersk Line and Switzerland’s Mediterranean Shipping Company (MSC). Container lines from Denmark to Japan have pursued acquisitions as too many ships and companies chasing the same trade has led to a collapse in freight rates and burgeoning losses, reasons that pushed Hanjin Shipping Co. of Korea to file a bankruptcy last year.

“COSCO Shipping Holdings believes this acquisition will enable both COSCO Shipping Lines and OOIL to realize synergies, enhance profitability and achieve sustainable growth in the long term,” the Chinese group said in the statement.

The enlarged company will operate more than 400 vessels with capacity exceeding 2.9 million twenty-foot equivalent units, including order book. Cosco currently has a market share of 8.4 percent, while Orient Overseas has 3.2 percent. Their combined 11.6 percent share would make the merged entity the third-biggest container-shipping company, overtaking CMA CGM with 11.2 percent, according to the shipping data provider.

“This looks like a happy ending for both parties,” said Han Ning, China director for Drewry Shipping Consultants Ltd. “Cosco can benefit from OOCL’s strong presence on routes from the Far East to Australia and to the U.S. The company’s operational efficiency has long been admired by outsiders as well.”

Cosco stock rose as much as 6% to its highest in almost two years HK$ 4.29 on Monday after the offer was made, while OOIL shares rose over 20% on Monday as well.

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RBS Closes In On $4.5 Billion Over U.S. Mortgage Bond Settlement

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Royal Bank of Scotland (RBS) is closing in on a multi-billion pound settlement with a U.S. regulator over the mis-selling of toxic mortgage bonds that will get rid of one of the long-standing obstacles to the government returning the lender to the private sector.

It was reported that RBS and the Federal Housing Finance Agency are on the verge of agreeing a deal that could cost the bank as much as $4.5 billion (£3.5 billion), allowing the bailed out lender to put some of its mortgage backed securities legacy behind it.

Such an agreement would draw a line under one of RBS’ largest legal challenges and potentially pave the way for the government selling down its stake. Apparently, the discussions made progress sufficiently far to leave both sides hopeful that an announcement can be officially made in the next few weeks.

RBS is the last of 18 banks to settle with the FHFA, although a number of other banks are also yet to settle with the DoJ, including Barclays, which is involved in a legal battle with the agency.

The settlement with the FHFA relates to the mis-selling of mortgages to the US government-backed loan firms Fannie Mae and Freddie Mac prior to the 2008 financial crisis, when RBS was among the biggest players on Wall Street.

RBS executives are keen to come to an agreement as soon as possible as they continue their efforts to return the bank, which is more than 70%-owned by British taxpayers to profit for the first time since 2007.

However, a settlement with the FHFA will not mean that RBS is completely out of the woods yet as it must still face formal settlement talks with the US Department of Justice about big penalty related to residential mortgage-backed securities, which are expected to cost it substantially more than any deal with the FHFA.

Meanwhile, RBS shares went up 1.7% to £254.35 on Tuesday after the news. It opened at £252.00, with a session high of £258.00 and a session low of £251.30, with a market capitalization of £30.19 billion.

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Banks Major Relocation Plan Due to Brexit

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Brexit is still two years away but the mass departure of finance-related jobs has been set into motion as largest global banks in London are planning to move jobs to the continent already in the next two years.

According to separate reports by Oliver Wyman and Ernst & Young, possible estimates for finance job losses due to Brexit are on wide scale from 4,000 to 232,000.

Banks are moving with caution, performing two-stage contingency plans in order to prevent losing worried London-based personnel while they work out how many jobs will have to move in the end.

This would imply that the figures could likely go up further depending on what agreement will eventually be made between the European Union (EU) and Britain.

The first part involves small numbers to make sure the necessary licenses, technology and infrastructure are in position, while the next will rely on the longer term plan of a bank’s European business.

The Bank of England has given finance corporations until July 14 to get started on their plans.

JPMorgan stated it plans last week to move between 500 to 1,000 jobs to three European cities specifically Dublin, Frankfurt and Luxembourg in the next two years which was still notably smaller than the 4,000 figure the bank’s chief executive officer Jamie Daimon first estimated before the French presidential election.

Standard Chartered which regularly conducts business in Asia followed suit with plans to strengthen its subsidiary in Frankfurt in preparation for Brexit.

The bank’s chairman Jose Vinals said that the Brexit would not oblige the Asia-orientated bank to change its UK quarters explaining that adapting its Frankfurt division into a subsidiary, which would be questioned to stricter directive, would only involve a small number of London-based staffs. It currently has about 90 employees in Frankfurt.

Frankfurt and Dublin are on the rise as the major victors from the relocation plans since six of the 13 banks chose to open a new office or moving the greater part of their business to Frankfurt while three of the banks will look to expand in Dublin.

The Deutsche Bank said on April 26 that up to 4,000 United Kindom-based jobs could be moved to Frankfurt and other locations in the EU as a result of Brexit. This was the biggest move of any bank.

Chief executive of HSBC Stuart Gulliver has said this week that the bank’s earlier estimate of about 1,000 employees would be relocated to Paris following Britain’s decision to withdraw from the EU.

Plans of large banks including Credit Suisse and Bank of America and several smaller banks are still unknown.

Thirteen of the biggest banks worldwide including Goldman Sachs, UBS and Citigroup have provided a plan on the subject of how they would build up their operations in Europe to secure market entry to the EU’s sole market once Britain separates from the union.

Discussions with financial officials in Europe have been ongoing for more than a few months nevertheless banks are completing plans to relocate staff and operations.

Even if the transfers would correspond to about 2 percent of London’s finance-related jobs, Britains tax revenues could be affected if it loses wealthy taxpayers working in financial services.

According to a think tank on budget matters, what is left of the population will have to pay more if top earners move.

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Fed Reserve Likely to Keep Rates Steady Over Economic Uncertainties

On Wednesday, the U.S. Fed Reserve is anticipated to keep interest rates steady in its first policy decision as the central bank awaits for more clarity on economic policies since President Donald Trump took office.

arthur-3On Wednesday, the U.S. Fed Reserve is anticipated to keep interest rates steady  in its first policy decision as the central bank awaits for more clarity on economic policies since President Donald Trump took office.

President  Trump has guaranteed a large infrastructure spending program, tax reductions, a rollback of regulations and a renegotiation of trade contracts, but has only presented few information or a timeline for their roll out since his victory.

The current policy decision of central bank is set to be released at 2 p.m. EST (1900 GMT) on Wednesday at the end of a two-day meeting..

The policy decision will come a week after  Fed Reserve  Chair  Yellen highlighted that the U.S. economy is close to full employment and advised of a “nasty surprise” on inflation if the central bank is too slow with its rate hikes. Yellen is not scheduled  to hold a press conference

Economist surveyed have all but stop considering  a rate hike at this week’s meeting.  Investors anticipate next  interest rate hike in June, according to Fed futures data compiled by the CME Group.

The Fed Reserve raised its benchmark interest rate at its previous policy meeting in December, the second policy amendment in a decade, to a target range between 0.50% and 0.75%. It forecasted additional three rate increases in 2017 after its meeting last December.

On Additional News

In spite of positive U.S. economic data, Fed policymakers are currently delayed in evaluating how quickly inflation might increase until they have additional information on Trump’s economic plans.

“At the moment, there’s incredible uncertainty surrounding fiscal policy and the potential for stimulus and the composition of that,” said Paul Ashworth, an economist at Capital Economics. “The Fed can’t react until it knows what to react to.”

With the U.S. economy already bouncing up against full employment, Trump’s promises on fiscal stimulus and tax restructuring could quickly spur higher inflation as would commanding tariffs on Mexican imports. That may lead to Fed  Reserve policymakers to increase rates faster.

The U.S. unemployment rate is 4.7% and business investment has developed, in spite of a slowdown in 4th quarter economic growth initiated mostly by a spreading trade deficit. Consumer expenditure, which accounts for more than two thirds of the nation’s economic activity, increased solidly in December, according to Commerce Department data released on Monday.

In the same report, the Fed’s carefully observed inflation measure also inched up to 1.7 percent.

Other policies, such as an immigration crackdown, violate what the Fed Reserve argues that the U.S. economy needs to progress over the long term.

On Monday, U.S. stocks declined  after Trump cut travel and immigration to the United States from seven predominantly Muslim countries.

The S&P 500 index is still up approximately 6%  since Trump’s victory and the strength of the domestic economy makes the United States increasingly divergent from Japan, the euro zone and Britain, none of which are expected to increase rates anytime soon.

The Fed Reserve will possibly make only minor tweaks in its policy speech on Wednesday to reflect a string of positive latest economic reports.

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