Financial firms expand distressed company units
Wednesday, July 05, 2006 11:01:00 AM (GMT-06:00)
Provided by: Reuters News
(Adds money manager and consultant's comments)
By Elena Moya
LONDON, July 5 (Reuters) - U.S. investment bank Goldman Sachs Group Inc. <GS.N> has strengthened its European restructuring unit, as financial firms move to boost staff ahead of an expected rise in companies struggling to avoid bankruptcy.
Goldman Sachs said in a statement on Wednesday it had appointed Lachlan Edwards, 39, as co-head of European restructuring, reporting to Tim Flynn and Doug Henderson, the bank's co-heads of European leveraged finance.
Edwards was previously head of restructuring in the UK and co-head for Europe at Rothschild [ROT.UL].
Accounting firm Ernst & Young LLP <ERNY.UK> is also expanding its restructuring units on a view that more industries look vulnerable to higher interest rates and record energy costs, said Keith McGregor, partner at Ernst & Young in corporate restructuring in London.
The Ernst & Young restructuring unit has expanded by 20 percent over the past six months ahead of an expected pick up in restructuring activity in early 2007.
"We see businesses have too much debt, deals have been done that have left companies over-indebted, so any increase in the cost of borrowing or the downturn in operational performance will mean that there will be an increased number of casualties," McGregor said in an interview.
Retailers, auto suppliers and industries exposed to soaring energy costs, such as printing and packaging, are vulnerable, McGregor said.
HIGH RETURNS EYED
Investment banks like Goldman Sachs are expanding into the distressed debt market on a view that any economic slowdown could increase advisory mandates and trading opportunities.
"With rising rates, the distressed debt market continues to have a very favourable outlook. It's still a market that if you do your research you can find some outsized returns," said William Maze, who helps manage $1.5 billion in global utilities at London-based hedge fund Ecofin Ltd.
Companies in distress seek advice from banks as new market participants, such as hedge funds, or trading instruments, including credit default swaps, have made bankruptcies more complex.
Hedge funds, including Polygon, have benefited from trading in once distressed energy companies, such as Drax <DRX.L> and British Energy Group Plc <BGY.L>. These funds bought debt at a fraction of their value when the companies were unprofitable in 2002 and 2003, only to sell it at as high as four times its value when the businesses recovered.
Both Drax and British Energy carried out debt-for-equity restructuring plans, and saw their shares soar after re-listing.
New laws adopted in Germany and Italy over the past few years make it easier for companies to declare bankruptcy and execute a restructuring plan that lets them return to business. This process is similar to the Chapter 11 bankruptcy protection process in the United States.
A series of strong economic figures from the euro zone recently has led to speculation that interest rates will rise in the future after years of low-cost borrowing. In the United States the Federal Reserve increased interest rates a 17th straight time on June 29.
About 172 global debt and structure finance jobs are on offer at the Web site of financial job agency Michael Page, as many as for corporate finance and mergers and acquisitions.
((Reporting by Elena Moya, editing by Richard Hubbard/Greg Mahlich; Reuters Messaging: elena.moya.reuters.com@reuters.net; tel: +44 207 542 2515))
Keywords: FINANCIAL RESTRUCTURING JOB
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UBS fund chief says no need to part with parent
Wed Jul 5, 2006 6:26 AM ET
By Tom Burroughes
MONACO, July 5 (Reuters) - The fund arm of Swiss-owned UBS <UBSN.VX> does not accept it must choose between managing money and distributing funds to clients as has happened with rivals in the United States, the unit's chief executive said on Wednesday.
While some companies like Citigroup <C.N> and Merrill Lynch <MER.N> have spun off asset management divisions to focus on banking and brokerage, UBS sees no need to go down the same route, John Fraser, CEO of UBS Global Asset Management, told an ICBI conference.
"It is unthinkable to divorce manufacturing (of funds) from the distribution ... they go hand in hand."
Far from being a distraction, having major distribution channels to clients gave UBS ideas for new investment products, for example, he said.
UBS's asset management division oversaw $614 billion of assets at the end of March this year. When added to the private banking and other assets of the Swiss financial giant, UBS runs a total of about $1.5 trillion.
The decision by Citigroup to spin off its asset management unit to Legg Mason this year prompted industry figures to speculate that similar moves may happen in the United States and Europe. Merrill Lynch also offloaded its fund management arm in a deal with the U.S. company Blackrock.
Analysts argue that many investment firms do not have the scope or scale to both pick investments and market funds to clients. By trying to embrace all functions, they argue, some investment firms have damaged their profits and reputations.
"I see more people debating whether they want to be manufacturers or distributors. There will be increasing tension between those areas they (firms) want to dominate and those places where they want to be less involved in," Huw Van Steenis, analyst at Morgan Stanley, told the same conference.
"This tension is most acute in the States but it is becoming more of an issue in Europe as well."
Many European fund management firms are part of large bank or insurance groups such as France's AXA <AXAF.PA> rather than stand-alone businesses such as U.S. fund management giant Fidelity or Britain's Schroders <SDR.L>.
The bulk of UK investment funds, for example, are sold to the public through independent financial advisers rather than through banks and insurers, as is widespread in continental Europe.
Some European banks with asset management units have retreated from asset management in recent years, however. Last year Germany's Deutsche Bank AG <DBKGn.DE> sold its UK fund management division to UK investment firm Aberdeen Asset Management <ADN.L>, retaining a German investment operation.
There also is speculation that Germany's Commerzbank <CBKG.DE> may be looking to offload its UK investment management unit Jupiter after a failure to secure a buyer for the business about five years ago.
The German bank does not expect to make a decision on whether or not to float the UK fund arm before the end of the year, a source familiar with the matter has told Reuters. Commerzbank has appointed Goldman Sachs to advise it on various options for Jupiter. Commerzbank has declined to comment.
There has also been a trend of fund management firms signing joint ventures with other firms to penetrate new markets or draw expertise that would otherwise take years to acquire. This has also been driven by firms' desire to break into markets such as the red-hot Chinese economy.
Schroders, for example, entered a joint venture last year with China's Bank of Communications <3328.HK> to enter the Chinese funds market.
However, UBS's Fraser said his firm was not interested in joint ventures because there is a risk that a company could suffer damage to its reputation if a deal went awry.
"We eschew such arrangements. I would expect that to be the case for some time to come." |
