RBS agrees $1bn mortgage mis-selling deal

BY Richard Summerfield

Royal Bank of Scotland has agreed to pay $1.1bn to settle a number of legal claims in the US which alleged that the bank mis-sold mortgage securities in the run-up to the financial crisis.

RBS sold the securities to two credit unions, which failed after the US housing bubble burst in 2008. Accordingly, state-backed RBS, which has admitted no fault under the terms of the deal, has struck the settlement with the National Credit Union Administration Board (NCUA), which regulates credit unions.

The deal will see RBS resolve two lawsuits which had been filed in federal courts in California and Kansas by the NCUA, which had been acting as the liquidating agents for two failed credit unions.

Rick Metsger, chairman of the NCUA, said, "NCUA is pleased with today's settlement and fully intends to stay the course in fulfilling its statutory responsibilities to protect the credit union system and to pursue recoveries against financial firms that we maintain contributed to the corporate crisis."

The settlement brings the agency's recoveries against various banks to $4.3bn in lawsuits over their sale of mortgage-backed securities before the 2008 financial crisis.

Though RBS has finalised this deal with the NCUA, it is not yet out of the woods. The settlement with the NCUA board is just one of the three major issues that bank is currently facing regarding its selling practices in the build-up to the financial crisis. The bank must still address suits being brought against it by the Department of Justice and the Federal Housing Finance Agency (FHFA).

According to RBS, the settlement won’t have a material impact on the bank’s core capital ratio given that the $1.1bn payment will be “substantially covered by existing provisions”. In 2015 the bank agreed to pay $129.6m to settle a separate case with the NCUA. Though the most recent settlement will see the NCUA will dismiss its pending civil lawsuits against the bank, RBS is still defending against 15 civil lawsuits in the US, though it has not yet entered formal discussions with the DoJ.

Going forward, the bank is likely to have to pay out considerably more than $1.1bn to the DoJ and FHFA. Indeed, it is believed that ultimately the bank may be forced to pay a total of $13bn. Accordingly, RBS noted that it “may require additional provisions in future periods that in aggregate could be materially in excess of the provisions".

RBS is not alone in drawing the ire of the DoJ, with Deutsche Bank recently fined $14bn for mis-selling mortgage-backed securities.

News: RBS to pay $1.1 billion to resolve some of its U.S. mortgage claims

Lanxess to acquire Chemtura in $2.7bn cash transaction

BY Fraser Tennant

In a €2.4bn ($2.7bn) transaction that ranks as its largest ever takeover deal, German speciality chemicals company Lanxess AG has announced that it is to acquire US-based Chemtura Corporation, a global provider of high-quality flame retardant and lubricant additives.   

Under the terms of the definitive acquisition agreement, which will significantly expand Lanxess’ footprint in North America where approximately 45 percent of Chemtura’s revenue is generated, Chemtura shareholders will receive $33.50 per share in cash for each outstanding share of common stock held.

Furthermore, for Lanxess, the acquisition of Chemtura will be accretive to earnings per share in the first fiscal year and will be financed mainly through senior and hybrid bonds, as well as from existing liquidity.

“With this acquisition, we are forming a champion in the field of additives and are strengthening our already profitable portfolio,” said Matthias Zachert, chairman of Lanxess. “Through the acquisition, we are further implementing our strategy to become a more resilient and profitable chemical company, as well as significantly building on our competitive positioning in medium-sized markets.”

Once the transaction is complete, Lanxess, which currently has approximately 16,700 employees in 29 countries, will have built on its Rhein Chemie Additives business unit by adding Chemtura’s two additive segments to form a new performance additives with expected annual synergies of €100m by 2020.

Headquartered in Philadelphia, Pennsylvania, Chemtura encompasses 20 sites in 11 countries and approximately 2500 employees worldwide. In the last four quarters the firm reported sales of around €1.5bn.

“The transaction provides premium value to our shareholders and benefits our customers and employees by making Chemtura part of a much larger, stronger global enterprise with the resources to fully support a more diverse suite of specialty chemicals products and services,” said Craig A. Rogerson, president, chief executive and chairman of Chemtura.

The transaction,  expected to close around mid-2017, is subject to approval by Chemtura shareholders, required regulatory approvals and certain other customary closing conditions.

Recognising that his firm is set to become one of the world’s major actors in a growing market, Mr Zachert concluded: “Lanxess is taking a next and major step forward on its growth path.”

News: Germany's Lanxess to buy U.S. chemical firm Chemtura for $2.7 billion

Asian growth slower and profits elusory, says new EY/HBR Analytic Services report

BY Fraser Tennant

Opportunities for companies in the Asia-Pacific region to grow are fewer and profits more elusive, according to a new report by EY and Harvard Business Review (HBR) Analytic Services.

In ‘Asia: Time to Refocus’, EY/HBR Analytic Services note that despite Asia having been a major source of growth for multinationals and private equity firms for 20 years, expected profits have not materialised and the current outlook is that the land-grabbing strategies of old are no longer sustainable.

Moreover, the Asia-Pacific companies that once relied upon an almost unlimitless potential for growth but that are now struggling to adapt their products and value propositions, are being advised to adopt a ‘depth-over-breadth’ capital strategy in order to re-engage with the region’s complex business environment. 

“Asia today is not the Asia of 20 years ago, or 10 years ago, or even five years ago," said Vikram Chakravarty, EY’s Asia-Pacific capital transformation and operational transaction services leader. “It continues to grow faster than most developed economies, but more slowly than it did in the past.

“It remains a region of great opportunity, but also one where profitability remains elusive for those unwilling to invest the resources necessary to tailor their offerings and business models to its individual markets.”

The challenge for companies in the region, says Chakravarty, is for them to identify how and where they should be focusing their capital and other resources, and also where they should be taking a step back.

To do this, the EY/HBR Analytic Services report advises companies looking to transition to a new capital strategy in Asia to: (i) conduct a portfolio review; (ii) launch a large-scale cost-cutting initiative to improve profitability; (iii) right-size their go-to-market models; (iv) reorganise to emphasise country over category; (v) plan a path to exit, and limit losses, where market leadership and profitability are not realistic; and (vi) double down in priority countries by undertaking transformative deals — big-bang M&A transactions and partnerships — to boost market share quickly.

Chakravarty concluded: “Companies that have yet to see Asia’s promise cascade to the bottom line must determine where they have a path to profitability and focus their attention there. Depth, not breadth, will win the day.”

Report: ‘Asia: Time to Refocus’

Abbott to sell medical optics unit for $4.325bn

BY Richard Summerfield

Abbott Laboratories has announced plans to divest its ophthalmic unit, Abbott Medical Optics, to Johnson & Johnson in an all cash deal worth $4.325bn.

The transaction is expected to close in the first quarter of 2017 and is subject to customary closing conditions, including regulatory approvals, the companies confirmed in a statement.

“We've been actively and strategically shaping our portfolio, which has recently focused on developing leadership positions in cardiovascular devices and expanding diagnostics," said Miles D. White, chairman and chief executive of Abbott. "Our vision care business will be well-positioned for continued success and advancement with Johnson & Johnson, and I'd like to thank our employees for building a successful business."

Abbott Medical Optics produces lasers and other equipment used for cataract surgeries and laser vision correction procedures, and also makes eye drops and cleaners for contact lenses. The division posted sales of $1.1bn last year.

The acquisition of Abbott Medical Optics will provide a significant boost to Johnson & Johnson’s cataract business. At present the company is the number two global business in cataract surgeries. As a result of the deal, Johnson & Johnson will boast an $8bn global market which, according to data from the company, is growing at a rate of 5 percent a year.

"Eye health is one of the largest, fastest growing and most underserved segments in health care today," said Ashley McEvoy, company group chairman responsible for Johnson & Johnson's Vision Care Companies. "With the acquisition of Abbott Medical Optics' strong and differentiated surgical ophthalmic portfolio, coupled with our world-leading ACUVUE contact lens business, we will become a more broad-based leader in vision care. Importantly, with this acquisition we will enter cataract surgery – one of the most commonly performed surgeries and the number one cause of preventable blindness."

Abbott acquired the unit in 2009 for around $2.8bn when it was known as Advanced Medical Optics. However, Abbott moved to divest the business after deciding to refocus on heart devices and expanding diagnostics.

News: Abbott to sell its eye care business to J&J for about $4.33 billion

Digital revolution underway in Africa, claims new report

BY Fraser Tennant

Africa is in the midst of a digital revolution with growing affordability, accessibility and untapped demand driving advances across the continent, according to a new PwC report released this week.

The report – ‘Disrupting Africa: Riding the wave of the digital revolution’ – highlights a number of ways in which businesses, disruptors and policymakers can embrace new technology, while providing the infrastructure and capacity needed to ensure digital disruption is genuinely transformational in realising the continent’s economic potential.

PwC also notes that making products and services easier to access will unlock technology for Africa’s ‘global emerging middle’ market (characterised as "sitting just below the conventional middle class in income terms, but with aspirations for quality, high performing products that are in sync with higher segments") of more than two billion consumers.

PwC estimates that this emerging middle market will make up $6 trillion of the global market by 2021.

However, although the report states that digital disruption should support economic growth in Africa, this assertion comes with a caveat: that the reach and benefits of growth need to be more evenly spread across the continent.

“Technological disruption is transforming markets and societies across Africa in ways that wouldn’t have been possible even five years ago,” said Joel Segal, chair of PwC’s Africa business group. “This opens up huge and largely untapped commercial potential for domestic and international businesses. From the demographic dividend of a young and rapidly expanding population, to the fastest growing middle class of any continent – Africa has the potential to become a new powerhouse of production and consumption in the twenty first century, just as Asia was able to do in the late twentieth century.”

Moreover, asserts the report, businesses and policymakers can utilise technological advances to break down physical barriers, improving local knowledge, infrastructure and access remote communities. One example of this is the development of surveyor drones to help clients monitor infrastructure, manage construction sites and carry out insurance assessments.

“By broadening their outlook, businesses can dramatically increase their pool of potential customers, as well as giving a large proportion of Africa’s population access to products and services that would have been beyond their reach before," concludes Mr Segal.

Report: Disrupting Africa: Riding the wave of the digital revolution

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