MURDOCH DISCOUNT:News International's share price has fallen by almost 20 per cent after recent phone hacking revelations.
With Standard & Poor’s threatening the company’s credit rating, there is increased chatter that embattled chief executive Rupert Murdoch may step down.
That might bring cheer to shareholders. The company’s share price has halved since 2000. MySpace, bought in 2005 for $580 million, was sold last month for $35 million. Media company Gemstar cost the firm $6 billion in write-downs before being offloaded in 2007.
Murdoch’s attachment to newspapers, exemplified by the 70 per cent premium paid for the Wall Street Journal in 2007, is not shared by analysts, while long- held corporate governance issues are also a concern.
It trades for 13 times reported earnings – rival Disney trades at a multiple of 17. Analysts at Barclays and Gabelli, using a sum-of-the- parts valuation, estimate the company to be worth between $62 billion to $79 billion. The market valuation is just $41 billion.
Shares are weighed down by the so-called Murdoch discount – not a new phenomenon.
STRESSED BY TESTS: Only eight European banks out of the 90 tested failed last week's stress tests and they need to raise just €2.5 billion, according to the European Banking Authority.
JP Morgan analysts, however, estimate that 20 banks need extra capital, while Standard Poor’s warned last March that banks may need as much as €250 billion.
Bizarrely, the tests did not allow for a Greek default, even though this is expected by 48 out of 49 economists surveyed last week by the Wall Street Journal, while credit default swap data confirms that restructuring is seen as certain. Furthermore, 10-year Greek bonds are trading at a discount of 50 per cent, but stress tests included a write-down of just 25 per cent.
“Why did they bother?” Goldman Sachs asset management chairman Jim O’Neill asked after the tests. With European banking stocks suffering their biggest one-day fall in almost a year on Monday, investors clearly agree.
HEDGING BETS:Ray Dalio runs Bridgewater, the biggest hedge fund in the world. A thinker as well as an investor, he warned the US treasury department in 2007 of the impending global financial crisis. As this week's lengthy New Yorker interview makes clear, he remains pessimistic. Very.
Dalio anticipates a deleveraging period “for 10 years or more”. Indebted countries like the US will eventually suffer a currency and bond market collapse (“there hasn’t been a case in history where they haven’t eventually printed money and devalued their currency”). European countries denied this option will suffer “classical depressions”.
When? “I think late 2012 or early 2013 is going to be another very difficult period.”
