The breakdown of the Giants

Two of the American "Big Three" , General Motors and Chrysler, are looking for a fusion. Indeed, these two giants of the American industry have big problems concerning cash assets.

Cerberus, homeowner of Chrysler, and JPMorgan , the principal creditor of these two companies, press to find an accord. If this project reach, it will enable General Motor to conserve its leadership, whereas Toyota preempt it for the first mid-year.

A fusion between these two giants will allow GM to access to Chrysler's cash assets (more than 11 billiards) and to a big part of the 25 billiards of the governmental help for this sector. The problem of cash assets is, firstly, the consequence of the economic slowdown and the competition with asiatic constructors.

Then, these companies need a lot of money to change their production : indeed, they try to reduce the construction of 4x4, because the demand of it has completely fallen (because of oil's prices).

In the USA, these "Big Three" (General Motors, Chrysler and Ford) who were omnipresent have now "only" 50% of the market ...

This future fusion is a new example of the fall of the American industry of its first place in the world. After banks, it's now cars sector who has got problems and who needs an intervention of the government. These problems come from the fall of American demands: Indeed, these three companies made more than a half of their turnovers in North America, which is now in a period of crisis. However, even if they will never become again what they were, the fight is not finished. GM is still the first seller in emergents countries, and it doesn't want to lose this place, whereas Chrysler and Ford are looking for to progress in these countries (like the "BRIC" Brazil, Russia, India and China). However, after Banks, it's the end of an American dream...

Links :

GM, Ford and Chrysler in the "BRIC"

Apple threatens to close the most popular online music store

The iPods' creator has threaten to close its music store iTunes. This news was out on the 1st of October on The Times,when the CRB (Copyright Royalty Board) asked Apple to increase downloading prices. According to the National Music Publishers' Association, the increasing of the rates should represent 66%, so, between 9 to 15 cents more, in order to help the artists and music publisher to earn more money. In Euro, a song costs 0.99€. The new price would be of 1.64€. An increasing which isn't negligible.

However, Apple desagreed with this project. The company thought that their customers wouldn't buy on iTunes anymore, and that their turnover would decrease. To avoid this loss, Apple threatened to close the store.

But this solutions didn't seem to be credible. In fact if they let the store open with increased prices, the customers' number would decrease, but still, they would earn money. Whereas closing iTunes, the company would loose all of its customers, and wouldn't have money at all. Closing iTunes would meen that Apple's consummers wouldn't trust the company anymore. It means that they won't buy iPods or other Apples products, because the prices would have grown up as well.
Apple wouldn't be able to make the same turnover as before, and to try to make it the same, they would have been obliged to increase their prices, otherwise, the company would be in troubles.

Maybe this reasonning went a bit to far...
However, at my sense, I don't think this would be the case. In fact, Apple, in term of design, innovation, technology ,and durability and quality of its products, prooved very good results. For example, when the iPhone came out, despite its high price, Apple sold 1 million of these in one week-end. Which is enormous.


Now, we know that this maneuver had well worked. The prices haven't increase, which is a good news.

In relation to this second link, the author of this article gives elements which are interesting. In fact, increasing prices of music wouldn't help to struggle against illegal downloading. There would have been more of it. And, they say in this article, that a possible concurrence with Microsoft might be conceivable. We are really not sure about it, but it could be a possibility.

This case of threat in interesting to study, because we can see the weight a big company could have, in order to do what it wants (or almost...)

The end of the Benelux Bank.

Belgium and Luxembourg are looking for an investor, who can buy the remaining activities of the Bank Fortis , after the decision of Netherlands to nationalize the dutch part of the financial group.

The plan programmed the last week-end planned the resale of the participation of Fortis in the dutch bank ABN Amro (bought in 2007 for 24.4 Billions Euro) to ING, which finally decided to stop negotiations. That's why the Dutch government has decided to nationalize all the activities of Fortis in Holland ( notably the essential of the activities of ABN Amro ) for 16.8 billions Euro. This nationalization leads to a disassembly of the group.

Belgium has said that the only solution of the group is to sell itself to a private investor , or to nationalize it to protect all savers and to avoid the layoff of some of the 45.000 employers.

This “second saving plan” (the first one was the participation of the Benelux in the bank, decided in the middle of September but useless because of the panic of all the clients of the bank who withdraw a lot of money) is organized during the meeting of the “G4” in Paris (France, Germany, Italy and England) where these four members states tried to find a common position towards the financial crisis.

The Belgium Minister of Economy, Jeannot Krecke, has indicated that the French bank BNP Paribas could be a potential buyer . “BNP Paribas is a possibility among others” said Krecke.

Fortis has been the first bank in Euro zone to fall because of the subprimes crisis. She bought ABN Amro last year for 24.4 billions Euro just before the beginning of the crisis, which leads to a crisis of credits, which make the possibility to borrow money more difficult to finance the operation.

The project of disassembly of this transborder group, just after the plan of the Benelux to save it, proves that the crisis is now completely present in Europe and can be very dramatic without the intervention of all the governments. After a period of privatizations, we can see a period of nationalizations (even in USA, the liberal state).

However, even if this crisis is bad for all financial sectors (less benefits, less power...) , some banks profit of the fall of others to take more power, to grow in Europe or in the world (like HSBC, BNP Paribas or Barclay's).

A new take-off

Alitalia's pilots have finally accepted the “relaunch plan” proposed by Italians buyers regrouped in the Italian Air Company (CAI). The two rivals Air France-KLM and Lufthansa are now in competition to become minority shareholder of the italian airline.

After this news, Berlusconi's government (who played an important part in negotiations) immediately broke the news of his “satisfaction” and his “gratitude” towards the buyers. A bankruptcy of Alitalia (held by the Italian State at 49.9%) or its selling to a foreign company would be a defeat for Berlusconi, who promised to find an Italian buyer after being opposed to the repurchase of the company by Air France-KLM during the elections, to protect the “national identity”. Air France-KLM and Lufthansa want to enter in the capital of the company.

Lufthansa is the favorite company for north Italians thanks to its organisation in many hubs. This organization seduced Italians because they want to relaunch air traffic also from Milan-Malpensa airport, whereas Air France-KLM plans to use only Rome-Fiumicino airport as a hub.

The preservation of the “independence" of Alitalia is a success for Berlusconi, but it's an exception in Europe. Indeed, since a year and the rise of petrol prices, we can observe in Europe a lot of alliance of European airlines companies (like Iberia, Austrian Airline and Brussels Airline) with the Big Three (British Airways, Air France-KLM and Lufthansa). But, even if Alitalia is an exception, one of these Big Three will be a minority shareholder of it. It proves that even the fourth European company is obliged to become dependent of one of these three, and predicts the future total reign in Europe of BA, AF-KLM and Lufthansa.

NOTE : Air France a finalement pris une participation de 25% dans le capital de la nouvelle Alitalia, débarassée de ses dettes grâce à la CAI (alliance de grandes entreprises italiennes qui ont renfloués Alitalia) et désormais fusionnée avec Air One, son ancienne concurrente Italienne. Air France renforce sa place de première compagnie aérienne européenne face a Lufthansa !

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The fall of the 5th Wall Street 's Bank

The business bank, Lehman Brothers, still suffers the consequences of the "subprimes crisis" . The share has lost seventy five percent of its value in one week at Wall Street and continues to drop. The priority for Richard Fule (the CEO of the bank) is to forget his will to save the independance of the bank and to find a controlling stockholder.
According to the "Washington Post" and the "Wall Street Journal", the Central Bank conducts negociations with private investors, such as the second american bank , "Bank Of America", ( who is, according to the WSJ, "the white hope" of Lehman Brothers), or the english Barclays. Some hedge funds could be interested in , but this solution could disturb the Federel Reserve (according to the " New York Times").
When the Federal Reserve had organized the takeover of Bear Stearns by JPMorgan Chase, the Central Bank had accepted to finance the operation (30 billions dollars). The candidates of the takeover of Lehman Brothers would like to benefit of the same aid from authorities. However , those are not really willing to do it. Above all after the engagement to pay to safeguard the functioning of Fannie Mae and Freddie Mac ( 200 billions dollars) .

 15th September 2008 :      Finally, after the decision of the Barclays and the Bank Of America ( who has announced today his take over of  the business bank Merryl Lynch for 50 billions dollars) to don't takeover Lehman Brothers, the 5th Wall Street's Bank becomes bankruptcy. Today , the world of finance is shell-shocked (CAC 40 : -3.78% , FSTE 100 : -3.92%, Dow Jones : -2.92%).

Links :

This link describes the stages of the Subprimes Crisis' developement until the 15th September (FRENCH)

CLICK HERE

This one represents a list of the principal banks who suffered of the Subprimes Crisis (French)

CLICK HERE