Saturday, January 31, 2015

Citigroup's Swiss Franc Loss

In 2011, the Swiss National Bank pegged the Swiss franc to the euro, at a rate of 1.2 francs per euro. As recently as December, Swiss officials stood by the peg. Then, on January 15th, the Swiss National Bank unexpectedly removed the peg, sending the Swiss franc up up by 30 percent on the day. Unfortunately for Citigroup, the company had let it's Swiss franc hedge expire the previous week. As a result, Citigroup lost more than $200 million in the hours following the announcement. Of course, not everyone lost: It was reported that JPMorgan Chase & Co. had gained $300 million on the removal of the franc peg. The cost of the hedge was likely a reason that Citigroup allowed the position to expire. During the previous year, Citigroup lost $100 million on a hedge tied to unrest in the Ukraine.  

Friday, January 30, 2015

Shake Shack IPO Doubles

Shake Shack went public today, at a price of $21 per share. Evidently investors were hungry for the stock, as it opened at $47 per share, climbed to $52 per share, before closing at $45.90, an increase of about 119 percent. The company, which began as a hot dog cart in Manhattan, is now worth about $1.6 billion.

Tuesday, January 27, 2015

S&P Junks Russian Debt

S&P has downgraded Russian sovereign debt, as the company lowered Russia's credit rating to BB+. Although Moody's and Fitch still have a BBB- rating on Russian debt, both companies are expected to follow suit and downgrade Russian debt soon. The downgrade is due to the bleak economic growth prospects for the country. As a result, Russian corporations will likely have a more difficult time refinancing as the credit markets in Russia tighten as a result of the downgrade.

Skymall Flies Into Bankruptcy

Even though the ubiquitous Skymall magazine reached 650 million travelers a year in the seat back in front of you, the company was recently forced to file for bankruptcy. Skymall famously offered such products as a globe that could be opened into a liquor bar ($189) or a chess set ($212). The company suffered as airlines offered internet access and passengers began bringing smartphones and tablets, which meant they weren't forced to look in the seat back in front of them for reading material. In the bankruptcy filing, Skymall suggested an auction be held at the end of March.

Wednesday, January 21, 2015

An Uber Investment

Mobile car booking company Uber just raised $1.6 billion in convertible debt from Goldman Sach's clients. The company is still in talks to raise $600 million from hedge funds and just raised $1.2 billion in financing in December. An interesting note is the structure of the convertible bond. The bond has a six year maturity, and allows bondholders to convert the bond into equity at a 20 to 30 percent discount to Uber's valuation at the time of the company's IPO. However, if Uber does not go public in the next four years, the coupon rate increases.

Monday, January 19, 2015

A Hip Hop IPO

We love when finance becomes an integral part of a popular television show. The new Fox show Empire is one we can grow to love since it deals with a company undergoing an IPO. And while we know that television and movies often stretch the truth, The Wall Street Journal blog Moneybeat promises to keep track on how realistically each episode portrays the IPO process. For example, in the first two episodes, the company didn't disclose the fact that the CEO has a terminal illness (it must be disclosed), dealing with the dilution that founders typically experience, and a company funded by drug money (disclose, disclose, disclose). Keep up with Moneybeat to see how truthful Empire is going forward.

Saturday, January 17, 2015

The Exchange Rate For Pizza

So what does pizza have to do with exchange rates? Quite a lot if you live in Switzerland. About a year ago, Swiss customs changed the law and allowed food deliveries like pizza to avoid having to pass through customs. However, over the past year, the Swiss franc has strengthened while the euro has lost value. With a strong Swiss franc, the Swiss customs administration changed the law back, forcing pizza deliveries to pass through customs. As a result, bargain-hunting Swiss can no longer have pizzas delivered from Germany or France.

Merger Activity Increases in 2014

Merger and acquisition activity increased worldwide, with $1.8 trillion in deals announced during the first half of 2014. M&A activity is the highest it has been since 2008, when the economic crisis caused a crashing halt. In a recent survey, 84 percent of corporate executives expected M&A activity to increase over the next 24 months, while 89 percent of private equity executives expected average to above average M&A activity going forward. Interestingly, over the past 20 years, when an acquisition was announced, the acquiring company saw a stock price drop. However, during the first half of 2014, acquiring companies saw a 4.4 percent stock price increase the day the acquisition was announced, the highest one-day return since Dealogic began tracking this number in 1995.