July 20th, 2010
Corporate mergers and acquisitions have been more important even than new issues in keeping the merchant banks’ names in the public eye. Over the past few years, such deals have become even more acrimonious with charge and counter-charge flying back and forth in national newspapers. The growing importance of American banks in this field is increasing the use of the rather less ‘gentlemanly’ tactics used in US takeovers.
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June 8th, 2010
Many merchant banks were begun by immigrants, refugees or Jews, shut out of the rather stuffy world of the clearing banks. The wheeling and dealing involved appealed to the more adventurous spirits. However, after the early inspiration of a maverick leader, the merchant banks quickly became absorbed into the mainstream establishment .there are a lot of very blue-blooded merchant bankers.
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May 5th, 2010
Suppose that a country has only one bank, which finds that it needs to keep 20 per cent of its deposits in the form of cash. It receives an extra ?200 worth of cash deposits. The bank the buys ?160 of British Telecom shares, leaving ?40 cash free to meet any claims from depositors. The person from whom it bought the shares now has ?160 in cash, which is deposited with the bank. So the bank has ?360 in deposits (the original ?200 plus the new deposit of ?160), of which it needs to keep only ?72 (20 per cent) in the form of cash. The bank is therefore able to increase its total investment to ?288 (?360 – ?72) and can buy a further ?128 of BT shares. Once again the person from whom it buys the shares will receive cash, depositing this with the bank. This process will continue until the bank has deposits of ?1,000, of which ?200 is held in the form of cash. The bank’s balance sheet will then look like this:
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April 2nd, 2010
Once the underwriting is arranged, a company will issue a prospectus setting out in very detailed form its structure, trading record and prospects. The prospectus must appear in at least two daily newspapers. Investors are then invited to apply for shares by a certain day. On the day that applications close, the sponsor counts up all the offers and then announces whether the issue is over- or undersubscribed. If oversubscribed, this means that investors have applied for more shares than there are on offer; either their applications will be scaled down or there will be a ballot, in which only a few will get shares. If the issue is undersubscribed, the underwriters will have to buy the shares at the offer price.
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March 22nd, 2010
They will then send the seller a contract note, stating the terms of a sale. No stamp duty is paid, but sellers do have to pay a further broker’s commission. Read the rest of this entry »
March 22nd, 2010
We have already proposed a general principle of finance – that lesser liquidity demands greater reward. That being the case, longer-term instruments should always bear a higher interest rate than short-term ones. This is not always true. Long-term rates can be the same as, or lower than, those of short-term instruments.
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March 21st, 2010
The best way to sell shares is to ring a stockbroker, who will quote an indicative price, which may or may not be the price eventually paid. That will depend on the movement of the share price while the order is being processed. Read the rest of this entry »
March 16th, 2010
Making a study of the figures relating to a particular firm, British Land, on a random day may help. British Land, as its name might indicate, appears in the Property sector. On Friday, 6 December 1985, its share price was 154 pence. Read the rest of this entry »
March 12th, 2010
In general, the higher the cover figure the better, since it indicates that the company has a strong chance of paying an equivalent or higher dividend in future. Read the rest of this entry »
March 9th, 2010
At the back of the paper, it prints the previous day’s closing share prices. The listings of companies are separated into various groups, which can help the investor to narrow down his or her choice to a particular industry or field. Read the rest of this entry »
March 9th, 2010
In the late 1970s and early 1980s, Lloyd’s was hit by a series of scandals which caused much adverse press and parliamentary comment. The first headline case was the Savonita dispute which concerned the loss through fire of a number of cars aboard ship. The Lloyd’s underwriters felt the circumstances were suspicious and refused payment. That was followed by news of heavy losses on computer leasing insurance and a loss to the Sasse syndicate of ?21.5 million which seemed to have been caused by the insurance of some dubious properties in the USA. The names involved protested strongly and the Lloyd’s committee eventually agreed to cover part of the losses, although the names were still expected to find the balance of ?6.25 million.
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March 6th, 2010
British governments have historically spent more than their incomes and, like anyone else, they have to borrow to cover the difference. They borrow, as we saw in Chapter 5, in the form of long-dated securities called gilts and short-dated securities called Treasury bills. Money is also borrowed direct from the public through the various national savings schemes on offer. The government can give itself a built-in advantage in the market for personal savings because it can allow savers to escape tax. It does so on some schemes. However, the loss of tax income increases the government’s cost of borrowing. As a result, it tries to maintain a balance between the amount it borrows in the form of savings schemes, bills and gilts.
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February 28th, 2010
A new issue normally takes place in the early years of a company’s existence. As companies attempt to expand, however, they need more funds than were provided by the original sources. There are many avenues open to raise funds in the form of debt. However, as we noted in Chapter 8, too much debt makes a company unbalanced. At some point, the company will need further equity capital.
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February 24th, 2010
Soon even credit cards may seem out of date if the banks and retailers succeed in establishing an EFTPOS system. The idea behind EFTPOS (Electronic Funds Transfer at the Point Of Sale) is quite simple. When you check out at Sainsbury, Tesco or even Harrods, instead of paying with cash, cheque or credit card, you hand the cashier a new card with a special electronic code. When the right sequence of numbers is keyed into the machine, it will automatically debit your account and credit the story with the value of the bill.
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February 21st, 2010
Participants in the foreign-exchange market include everyone from the Governor of the Bank of England to you and me when we purchase our foreign currency for a holiday. Tourist purchases are, in fact, among the few foreign-exchange transactions in which noted and coins actually change hands. The vast majority of deals take place over the telephone in bank dealing rooms, and funds are transferred telegraphically from one account to another.
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February 20th, 2010
In addition to these varied duties, the Bank also has to keep a watchful eye over the City. This brings it into a wide variety of areas. It reported its concern about the activities of the London Metal Exchange some eighteen months before the tin market collapsed. The scandals at Lloyd’s insurance encouraged the Bank to intervene and impose an outside Chief Executive, even though it had no real powers over the insurance market.
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February 16th, 2010
In theory, the yield on shares should be higher than that on most bonds, since shares a riskier form of investment. However, in recent years equities and property have offered lower yields than bonds or savings accounts because the prospects of capital growth are much greater with the former investments.
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February 15th, 2010
The TSB
The big retail banks have faced increasing competition for the deposits of ordinary individuals. The challenge of the building societies has already been mentioned. There are other long-standing competitors of which perhaps the most important is the Trustee Savings Bank (TSB). Trustee Savings Banks were set up in the nineteenth century to collect the savings of small depositors who did not have enough money to be attractive to the larger banks. The banks were run by ‘honorary trustees’ who invested the depositors’ funds in gilt-edged securities and paid the interest thus earned to the depositors. In the 1860s, there were over 600 banks but this number fell to 20 in the mid-1970s as the banks merged.
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February 13th, 2010
The riskiness of share ownership, and the distortions of the tax system, have contributed to a decline in the proportion of shares held by private individuals. Instead, investment institutions now dominate the equity markets. However, the privatization issues have encouraged many individuals back into the stock market and some have estimated that there are still as many as 9 million shareholders in the U K.
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January 12th, 2010
The advantages of the Eurobond market – the degree to which it is unfettered by regulation and the size of the investor base – have resulted in its truly phenomenal growth since that first issue in 1963. In that year the volume of Eurobond issues was just over $100 million. By 1986 it was over $183 billion. The UK government was able to raise $4.5 billion at a stroke in 1986.
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