What's going on!

The subprime crisis has not finished yet. Maybe even its peak has not occured yet. In fact several banking groups announced this mornings terrible losses due to the subprime and the CDO.
But this is not the most amazing part of the story. Although those banks used to be helped and backed by central banks in the past, this time rescuers are investors from ... China, Singapore , Abu Dhabi. Here is the point: what's going on? Who is supposed to be helping and who is supposed to be helped? And I am even more amazed because nobody seems to criticise this situation. What a shame for the US, the UK and all these countries who were supposed to be the best in the field of finance!!!

Sarkozy in China: a wonderful haul

Nicolas Sarkozy has visited China, where he has meet Hu Jintao’s Administration. In fact French government is willing to build strong partnership with China to enhance economy growth, spur exports and negotiate some changes in monetary policy. It appears for the moment that this meeting has generated many agreements. Thus Sarkozy’s trip in China seems to be a huge success.

· New contracts for French companies

o 20 billion of contracts
French companies have strengthened their position in China, where they have managed to create many fruitful partnerships and agreements. In fact French companies have already signed 20 billion of contracts. This wonderful haul is much higher than expected. Thus Sarkozy intends to enhance French economy by spurring exports to China.

o Many companies involved
Most of the sectors have benefited from this wave of agreements. Although Areva and EADS are the biggest winner of those transactions, many other companies also managed to find a deal.

EADS managed to sell 160 planes to China, which will generate 12 billion of Euros. Although this command is a huge success for EADS, it might be a disappointment as it is does not include any A380. However Mr Gallois, the CEO of EADS, is quite delighted regarding those new commands.

Areva also managed to generate 8 billion of euros through negotiation of new contracts with China. Areva has been negotiating for those contracts for many years in order to be the company which will supply China with nuclear energy. There was a big competition with American companies. Finally they managed to convince Hu administration that French nuclear knowledge was the best in the world. This is a huge success for Sarkozy, as China will spend substantial amounts of money in this business in the following years. Furthermore EDF, and Suez have also been able to create some partnerships with China in Energy sector.
Moreover in technology sector, Alcatel-Lucent has signed some contracts with China. Thus this company will earn 750 million of Euros thanks to Sarkozy’s trip.
In Pharmaceutical sector, the French champion Sanofi-Aventis has also benefited from this negotiation wave in China. In fact it will create a new factory in China in order to be stronger in vaccines market.
Finally Alstom, Europcar and also Natixis have developed their position within Chinese market.

· Negotiation regarding monetary policy

In the same time, Sarkozy has tried to negotiate some changes regarding the monetary policy. In fact most of currencies specialists claim the Yuan is undervalued. Thus world trade is unfair and China is benefiting from an undervalued Yuan to sell its products at very cheap prices.
The goal of French government is to convince China to increase the value of its currency, as Sarkozy said ``we need to reach harmonious and fair exchange rates''. Consequently these negotiations should accelerate the Yuan appreciation against the Euro.

· Big change after a long period of tension due to trade

The visit of Sarkozy in China is the symbol of a big change in geopolitical situation. In fact, during the previous years there was a big tense between China and Europe due to trade policy. Thus current negotiations may create a new period of strong cooperation between France and China. For instance they emphasized that they have the same point of view regarding the cooperation in North Korea nuclear dispute, the restoration of peace in the Darfur region, the nuclear problem in Iran, the position with Taiwan,etc.
Furthermore French government agreed to share technologies with China in order to improve climate and energy issues.

· A good opportunity for Sarkozy to improve its image

Finally those successful negotiations might help Sarkozy to improve its image in France, where its popularity is going down sharply. Thus he might convince French people that he is still the one they need to improve economical issues.

Ethanol: the worst energy investment of the year

Although Ethanol has been encouraged and substantially supported by the Bush administration and important investors those previous years, it has been ranked as the worst energy investment of the year. Thus it appears that Ethanol failed to substitute oil energy, and more and more analysts are beginning to claim investing in such energy was a big mistake. Consequently Ethanol sector is in a particularly uncertain and hazardous situation. Let us analyse more precisely the environment of Ethanol market.

Production and consumption encouraged by Bush administration

President Bush elaborated a plan to confront high gasoline prices. Thus this plan encouraged investment in Ethanol, which appeared to be the best alternative and substitute to oil. In fact US economy was still addicted to oil, and thus was dependent on other countries, who supply oil. The goal of the plan was to change this situation. Ethanol was also presented as a good manner to fight against the high level of oil barrel price and thus protect consumers. The government also intended to encourage oil companies to invest their huge profits in research and development or exploration.

Furthermore Bush administration tried to enhance hybrid vehicles. Thus it encouraged drivers to use for instance General Motors cars, which work with Ethanol. Consumers are encouraged with tax credit.

US government made substantial efforts in order to boost investments in oil substitutes, in order to reduce the dependence on foreign oil. Most of those investments targeted the Ethanol market. Thus the government supported farmers and small companies to invest in this energy.
Generally Bush administration has created 20 laws and incentives in order to enhance ethanol use. This trend was also adopted by most of the states.

Does ethanol really benefit to the population?

On the one hand numerous studies claim Ethanol really benefits to the environment. Thus Ethanol seams to create new activities for farmers, who can generate more profits. Furthermore it is supposed to boost employment in the US. And Ethanol would also enable the US to create a substitute to oil, which means that Ethanol would enable the US to diminish its energy imports and maybe even generate some exports.

On the other hand, more and more analysts believe there are no Ethanol benefits. In fact it does not improve the environment; it is not as environmentally friendly as once claimed. Moreover a professor of Cornwell University emphasized that ethanol requires more energy than it generates. Finally Ethanol is not important enough to change US dependency on foreign oil.

Threats


As ethanol is becoming more popular, corn demand has increased sharply. Consequently price of corn is very high nowadays. Thus ethanol production is becoming more expensive. Corn price may have a negative effect on ethanol development.
This year has been really disappointing for Ethanol companies. Inventories go up, whereas demand slows down. In sort-run, this situation is not terrible. However, it must not last long; otherwise it would be very dangerous for those companies.
Moreover Ethanol could also be affected by the tight credit. In fact lack of liquidity could sharply affect small companies who would not be able to attract investors any more.

Is a rebound possible?

The previous year, many projects were cancelled because of the bad trend of Ethanol market. Some companies also went bankrupt. In this uncertain environment, Barry Frazier, the president of Center Ethanol LLC, does not anticipate “any sort of immediate rebound”.
However some people still believe in this energy.

To sum up Ethanol future is really uncertain, and it will be interesting to see how the situation evolves in the following months.

Natixis: french symbol of subprime crisis and unrealistic annual reports

· Who is Natixis?
Natixis is one of the biggest financial institutions in France. It was created by the merger between two subsidiaries of Caisse D’Epargne and Banque Populaire about one year ago. The merged group is specialised in five areas of expertise: corporate and investment banking, asset management, private equity and private banking, services and receivables management. Natixis in currently quoted on the Paris Stock Exchange and it belongs to the CAC40.

· First financial report the 30th August 2007

According to the Web site of Natixis
In its first six months of activity,

Natixis achieved solid operating performance. These good results were achieved thanks to strong business momentum across all segments.
Furthermore the group announced strong development potential and resilience to the subprime crisis and depreciation of the American currency. Natixis believed the subprime crisis was limited and under control.
Moreover Natixis believed the merger would create substantial synergies thanks to its integration process. In this first announcement, they emphasised €83m of synergies.
To sum up, this financial report provided a very positive image of Natixis. As a result Natixis’ shares increased sharply the day of this announcement.
Let us have a look now on the community reaction.

Community point of view

Before the announcement, some people within the financial community were really pessimistic regarding the capacity of Natixis to handle the credit crunch. Then this optimistic and positive financial report reassured most of the community in the short run. However most of analysts realized in the followings weeks the extent of the crisis. And the reality was terrible. Thus most of analysts have slashed their opinion regarding Natixis future, by discovering the real impact of the subprime crisis on the financial community. For example, “Credit Suisse” decreased its objective regarding Natixis from 19.70 to 17.50 euros after the financial report.
To conclude the financial community has realized the danger of the subprime too late.

· Very difficult and uncertain position now
In France, Natixis is the bank which suffered the biggest losses due to the credit crunch. Its position is now quite dangerous and its shares are decreasing sharply.
In this difficult context, the future of Natixis is particularly uncertain. Thus different rumours have been created these previous weeks. Maybe there will be a change in the governance of Natixis in order to establish a more efficient management. In the same time, another French bank might be interested in making a bid to Natixis. In fact it appears that Societe Generale is preparing a bid in order to establish a partnership with Natixis. This is a good moment to make a bid, as Natixis shares are very cheap now. Furthermore some analysts even believe Natixis might collapse by the end of the year due to the subprime crisis.


To conclude, the case of Natixis is really interesting and instructive. In fact it emphasizes the unrealistic vision provided by companies’ annual reports. Although Natixis was supposed to be in very comfortable position according to its financial reports, it appears in reality that Natixis has suffered huge losses due to the subprime crisis.

A complete restructuring of the oil sector in Mexico

• Nationalization in the 1930s

In the 1930s, a major problem occurred in the oil sector in Mexico. People tried to find out: “whose oil is it?”. In other words, there was a competition to become the owner of energies. At this time, oil belonged to American companies. However Roosevelt did not defend them during this competition. In fact his goal was to create friendly relationship with Mexico. Between the two World Wars, the most important was the access and not the control of this oil. Thus oil sector was nationalized in 1938 with the regime of Lazaro Cardenas.

• A strong growth to become a crucial sector

After its nationalization, oil sector has rapidly developed. Thus Mexico was the second strongest producer of oil before the appearance of the “Elephants”, meaning the countries of Middle East. Furthermore the oil crisis of 1973-1974 has encouraged Mexico to look for additional reserves. This process has lead them to substantial discoveries in the 1980s. Thus Mexico, who was importer of oil, managed to transform its economy to be one of the leading exporter in the world. Although Mexico does not belong to the OPEC, it was the fifth-strongest producer in the world in 2005. Consequently oil sector has become crucial within the economy of Mexico; and the government is now relying on Pemex for about one third of its budget. Nowadays Mexico is dependant on oil sector.

• A complete restructuring program
  

The government of Mexico has been trying to transform its oil sector these previous years. In fact Mexico is willing to threat the nationalization of this sector. Vicente Fox is the first president who tried to reach this goal. However he never managed to change the rules. The new president of Mexico, Calderon, and its government are now trying to privatise oil sector in order to improve the declining situation of its flagship Pemex. Nevertheless it will be a very difficult task, as it is even written in the constitution that energy belong to the government and the country. Although it is difficult, most of specialists believe Calderon will manage to privatise and deregulate oil sector and reform the tax system.

The impact of the Fed policy

The Federal Reserve, which is the central bank of the US, has decided to cut once again its interest rates. Although this decrease was anticipated by most of the economists, there was a surprise regarding the extent of this decrease. In fact market thought the Fed would slash interest rates by a half of a point, whereas it has been only a quarter of a point. In the end US interest rates are now at the level of 4.5%.

• What is the aim of this policy?
  

Housing crisis and subprime meltdown have strongly damaged the mood of the market. Every week, another company announces terrible results with huge losses. And we do not know yet the extent of this crisis. In order to avoid a recession, the Fed has decided to slash its interest rates in order to improve the market confidance, avoid a recession, and boost the growth of the economy.

• Is this decrease a trend?

There is no consensus regarding the policy of the Fed. Economists ignore whether this decrease is only a short-run policy, or whether it is long-term trend. However most of specialists believe it might be the last cut until 2008, if at all.

• What is the impact on the bond market?

The immediate impact on bond market is positive. In fact this cut is a good opportunity to purchase bonds in the second market.

• What is the impact on the stock market?

Stock market is strongly related to the Fed policy. When interest rates go up, it becomes less attractive to invest in shares, as cost of opportunity is higher. On the other hand, when interest rates go down, it becomes more profitable to invest in shares, which is the case now. Consequently stock market will benefit from the policy of the Fed.

Interest rates policy through the world

Interest rates are a tool used by central banks in order to regulate the economy. Their policy has an impact on growth and inflation. Thus high interest rates enable government to avoid inflation, whereas low interest rates are used to enhance growth and avoid recession.

Different Central Banks do not all have same goal and policy. Let us have a quick look at the different institutions through the world.

· China
China has an impressive growth nowadays. Some specialists even claim this growth is too high; it might be only the result of speculation wave. If this theory is true, there might be terrible consequences for Chinese economy. In fact speculation could suddenly change. Speculative bubbles are quite unpredictable. A bad result announced by Chinese institutions could radically change the movement of the wave.
In order to diminish the euphoria, the central bank of China has decided to increase its interest rates. Thus Chinese are less willing to borrow money. However it appears that this rates policy in not able to control this euphoria. It will be interesting in the following years to see what happens to China. Will China become the strongest economy in the world? Or is China going to collapse?

· US
The Federal Reserve (Fed) aims to enhance growth and avoid inflation. However its main priority is the growth. During the reign of Alan Greenspan, the Fed slashed the interest rates to a very low level to avoid recession and thus to boost the economy. Consequently US economy developed quite rapidly this period.
Nevertheless more and more economists claim that this policy is the origin of the current crisis. Low interest rates encouraged people to borrow money to purchase home; homeownership was supposed to enhance security and stability. But the rise in mortgage foreclosures, fuelled by subprime lending, seriously threatened and undermined American efforts of stability and revitalization.
Bernanke, the new chairman of the Fed, decided to change regulation laws and to slash interest rates in order to improve the market mood after the credit crunch.

· European Union
The European Central Bank (ECB) focuses on avoiding inflation. It does not really care of the growth. This policy is maybe the result of previous huge inflation, which occurred between the world wars. European countries are quite afraid of inflation.
The governor of ECB is currently JC Trichet.

· Japan
On the other hand, the bank of Japan was obliged these previous years to fight against deflation. Thus they slashed interest rates to a very law level in order to boost the economy and encourage people to borrow money. Consequently the level of interest rates was 0% for a long while.

No real alternatives to oil energy for the moment

Most of analysis show the evidence of a nearly end of oil reserves. Oil barrels are more and more expensive. In the same time, researchers have highlighted the danger of oil regarding the planet health. Consequently, governments are looking for new ressources and praising green energy. However, it appears that there are no real alternatives to oil energy for the moment. Let us have a look at the different energies, which tried to take the place of oil.



For a long while nuclear energy have been considered as the ideal substitute of oil energy. This ressource is indeed particularly strong. Neverthless, some scandals and accidents, like chernobil, have destroyed its image. Nuclear energy is now criticized by a lot of people; it is considered as a harmful and hazardous energy. Many associations and groups have demonstrated and have been militant against it.




Electricity and eolian energy have the advantage to offer a very “clean” and safe energy. However their strengh is not important enough; these ressources are not able to satisfy the world demand as a whole. Thus they can contribute to the energy supply; but definitely not threaten the oil hegemony.





Ethanol might be the most serious threat to oil hegemony. This ressource is indeed becoming more and more important in energy sector. Many companies have invested in ethanol, by claiming it stands for the future energy. Furthermore american(Georges W Bush) and brazilian (Lula) governments have spoken highly of this energy and established a parternship in order to boost ethanol production. Neverthless there is no consensus about this alternative. In fact ethanol consuption and production cause pollution and thus can not be considered as clean and green energy! In Brazil, ethanol factories have caused substancial inconveniances for employees and inhabitants. Furthermore ethanol industry's revenue stands for less than one percent of Brazil's GDP. There is no ethanol revolution.
In this environment, Gordon Brown is likely to reconsider green energy target. In fact, several members of the government claim that the previous target regarding alternative green energy will not be reached. This evolution seems to be more complicated that expected due to impressive cost and "practical difficulties" involved.

The crucial role of information

Nowadays world is organized around the concept of financial markets, which are a mechanism that allows people to easily trade. The appearance and development of these markets have given a crucial role to information.

In fact information has become a key tool in the current system. It enables people to get a knowledge of the market and thus to trade efficiently.
Most of time knowledge is not equal; some agents may have more information or maybe different information than the others. These problems of asymmetric and non perfect information may destroy the effectiveness of the market. Such inconveniances have been the origine of substantial researches in economics, like the market of lemons theory. Moreover this year, American economists received the Nobel price regarding their contribution to the establishment of a more efficient market.

Firms and investors are willing to pay huge amounts to get the best information possible. Thus they make a kind of intangible investment, as information is supposed to generate profits in the future. Inormation has become a quite valuable asset.

Another crucial point is the information flows speed. Time is important; those who get information first have a great advantage over the others. Sometimes a difference of only a few seconds can create a gap of millions pounds. As a result, companies need efficient system to spread and find information.

Do authorities have to rescue banks in trouble?

Since the announcement of Northern Rock' crisis, the bank of England has already lend huge and impressive amounts to help this bank to survive. Was is a good idea for financial authorities to intervene in such a situation?

In short-run, a helpful policy enables financial authorities to avoid a crisis by rescuing banks in trouble. It helps bank's customers, who might have lost all their savings and also helps bank's employees, who may lose their job and thus increase unemployment rate.
Furthermore this policy avoids a domino effect, which could have drastic consequences on the financial community as a whole. Central banks may also intervene for personal reasons...pride and honor instead of rational and realistic judgment!

Fortunately authorities refuse to rescue banks sometimes. For example it happened in the UK, when Barings collapsed. Barings Bank was the oldest merchant banking company in London until its collapse in 1995 after one of the bank's trader lost $1.4 billion in speculation.

Let us move on to the reasons not to help. If a company has a harmful management, why should authorities help it? By rescuing such banks, authorities may appear weak and thus may encourage careless management.
Moreover by lending money to banks in trouble, central banks risk losing even more money in the future. Here is a big dilemma...a helpful policy may avoid the crisis in the short-run, whereas it might create a bigger one in the future. Financial authorities have to be credible. Thus banks would be aware of risks and that is crucial!

Stock options : why do they scare people?

Louis Gallois has announced officially his desire to eliminate Stock options within his company EADS due to the insider trading scandal. Some top executives and corporate shareholders, Lagardere and DaymlerChrystler, indeed sold substantial amounts of shares just before announcing the company problems, by using illegally their insider knowledge.

Stock options have been created originally in order to motivate managers to work efficiently. Their earnings were indexed to the company's shares value. Theoretically this tool was supposed to help all the stakeholders. Shareholders would eliminate the agency problem, which claims managers may not work for the benefit of shareholders. And Managers would have the possibility to increase their earnings.

However the real and effective impact of stock options is different. Managers use their insider knowledge for their own goals. They focus on short-run to maximise shares value and thus their earnings. Then just before bad news announcement, they sell illegally the shares. It is illegal because it privileges an investor over another and establish asymmetric information. Thus stock market confidence goes down. This problem is not new. Previous financial scandals such as Enron emphasized it.

Finally EADS scandal may release the end of stock options existence. The desire to destroy stock options is not the goal of only Mr Gallois. New French government intend also to establish new rules to prohibit them and act to curb so-called “golden handshakes”

Subprime loan : a tool which contributed to the current crisis

Financial community is getting more and more anxious about the current crisis. In fact another prestigious bank, Merryl Lynch, has announced very bad results. This quarter, they lost $5 billion because of subprime loans. Many other banks have similar problems: Northern Rock, BNP Paribas, Morgan Stanley, Barclays, UBS…

Subprime loans are a very dangerous tool. They were provided most of time to “bad” customers, whose credit rating was under medium average. In fact these borrowers who did not qualify for loans from mainstream lenders. This phenomenon was widespread in the US, where about six million people who have no money have borrowed about 100% of the value of a house, right at the top of housing market which has since fallen sharply. These are the subprime borrowers. With subprime loans, customers pay only the loan's interests for a long while and then have to pay suddenly all the borrowed money. This is very risky... Furthermore these loans depended on the interest rates. As central banks raised their interest rates, it became harder and harder for customers to pay back their loans. A slowdown in the US housing market coupled with rising US interest rates have also hit the subprime system.

A lot of people have been unable to pay their debts. Thus banks lost huge amounts because of this risky tool. All the financial community is suffering from this incident. Banks are afraid and refuse to lend money each other. Thus Central Banks are now obliged to lend huge amounts to banks.

Plavix patent: the end of Sanofi-Aventis nightmare?

A Canadian Federal Court has rejected Apotex's challenge to Sanofi-Aventis' Plavix patent. Even if the fight is not finished, Sanofi-Aventis may feel reassured. In fact the result of this battle will be crucial for the French group.

Plavix is one of the most important medicines, which belong to Sanofi-Aventis. It enables them to earn a lot of money. We call it a “blockbuster”. All pharmaceutical companies need some blockbusters to finance their huge investments in research and investments. Plavix is the highest-selling antiplatelet agent and its main competitor is aspirin.

Apotex, a pharmaceutical company which produces more than 260 generic pharmaceuticals in approximately 4000 dosages, has challenged Sanofi over a Plavix patent, which expires in 2011. In fact Apotex claim that the 2011 patent is invalid because the molecular structure of Plavix is already described in another patent expiring in 2003.

This case has not finished yet, as it is still ongoing in US. Nevertheless the result in Canada is a great victory for Sanofi-Aventis, who was afraid to be obliged to share its blockbuster revenues…

Investor relations : a key tool

Because of globalization and the development of financial markets, companies have become obliged to focus on a new work : investor relations. Nowadays communication is very important...communication is key to success! It's a link between a company and investor community. That's why investor relations have a strategic importance. Thus companies have to devote time to this activity which enable to earn a good reputation.

• What are the criteria of good investor relations?
The key aim is to appear “transparent” by providing the maximum of informations. Thus investor community can feel reassured and confidant. Therefore annual reports have to be available as well as company' s strategy, structure and management. The company has to find the appropriate balance between technical and easy information. In fact this information must be useful for financial analysts but also for all the shareholders.
Finally another important criteria is the interactivity. Investors community is indeed keen to contact the company to request some information. Thus it would be advisable for company to elaborate some e-communication and blog.

• Do investor relations provide a real knowledge ?
For investors, information provided by the company is useful. Nevertheless it is not sufficient to create a knowledge. It is advisable for investors community to use it only like a data or an information and then create their own analysis. In fact companies try to influence and attract investors by giving a good image of their situation. Companies try to emphasize their advantages and hide their weakness. Consequently only the financial statements, which are neutral, are useful.
Thanks to balance sheet and income statement investors can determine financial ratios (liquidity, leverage, profitability, efficiency...) and compare the company to the whole industry. Thus investors can create their own knowledge of the company.

• The importance of financial informations : the case of LVMH and Morgan Stanley.

Financial informations are crucial for investor community. Without this tool, it would be impossible to examine companies. Thus this information must be precise and proved. Otherwise it could lure people...

For example in 2004 Morgan Stanley gave false information about the group LVMH. Consequently LVMH shares decreased sharply. Then Morgan Stanley was ordered to pay at least 30 million euros ($38.5 million) in damages to LVMH after a Paris court found the investment bank guilty of "talking down" the world's largest luxury goods maker in analyst research notes.

This example emphasizes the crucial importance of financial communication and the impact it may have on investor community.

Alan Greenspan : is the myth declining?

Although the former chairman of the Fed has managed to become the genius of finance and the most important person in the world, it appears now that some specialists are criticizing his previous policy.

Greenspan was chairman of the Fed from 1987 to 2006...almost twenty years! During these years, he managed to build a wonderful reputation. He maintained the interest rates at a low level for a long while in order to boost the economy and avoid a recession. Thanks to this policy, Greenspan enabled USA to reach very high level of growth.

Some analysts criticize him regarding his policy. They claim current financial problems of USA are due to previous mistakes of Greenspan. According to them, Greenspan shouldn't have slashed interest rates to such a low level to avoid housing bubble.

On the other hand, Greenspan claims nothing can avoid a bubble.”Bubbles are unavoidable”. Fed policy is not the origin of this crisis...the bubble was a world phenomenon! By trying to avoid
housing bubble, Fed might have created a recession.

Bernanke, the new chairman of the Fed, has decided to defend Greenspan policy by claiming he would have done exactly the same.

To know more about the story, look at the video in this link : http://video.google.co.uk/videoplay?docid=-7230818744817509491&q=greenspan&total=527&start=0&num=10&so=0&type=search&plindex=4

A new merger for Sanofi Aventis : oppportunity or threat?

The French index CAC 40 is about to witness a new merger. In fact Sanofi Aventis is about to arrange a friendly merger with the American company Bristol-Myers Squibb (BMS). Although this operation is not sure for the moment, it wouldn't be amazing to see such a merger as there have been a lot of mergers during previous years. Such a merger would enable this new group to become world number one.

Sanofi Aventis is the biggest European company in pharmaceutical sector.
It has been created by the non friendly fusion of Sanofi-Synthélabo and Aventis in 2005 thanks to the abnegation of Mr Deheck.

The announcement of a new merger has created a decrease in Sanofi Aventis shares value. There are different points of view regarding this merger. On the one hand, there are some advantages. These company indeed have complementary portfolios. And their merger would enable some synergies regarding their structures. Sanofi Aventis would increase it's turnover, and would have more power in USA.
On the other hand the decrease in shares value after the announcement of the merger is the proof that some analysts are skeptical. This merger could create some problems, because of the partnership between BMS and another company AstraZeneca.

The dangerous power of Media

Normally journalists should work in order to help people. Their goal is supposed to widespread information to protect people…thus there would not be asymmetric information anymore. Consequently journalists should fight for justice. Unfortunately truth is by far different…in fact the appearance of many financial scandals, turmoil and crisis has lead people to open their eyes. Media has a huge power…and this power can be used in very dangerous ways. What is the real impact of the revolution of media? We will focus on different examples which emphasis the danger of media.

So, let’s start by looking at the current example of EADS. A few months ago, this company was about to announce a very bad news to the market about its activity. To avoid a big decrease in their shares value, EADS asked to the French media Le Figaro, to publish a false rumour which could enable them to attract investors before publishing the bad news. Thus Le Figaro wrote an article, which claimed Mr Abramovich was about to buy the biggest plane of EADS. Obviously, investors have been attracted. In the end this false rumour has enable EADS not to lose shares value, instead of bad results.

Let’s move on to the example of the French bank Caisse d’Epargne. In the 1990s, media widespread the rumour that this bank was about to go bankrupt, which was false. Thus all the customers went to their bank to take back their money…people were afraid to lose all their money. Because of this panic movement, Caisse d’Epargne has been in a very dangerous position. They manage to stay alive only thank’s to the bank of France.

To sum up, media can create rumours to help companies showing a false image about their results. And the danger of these rumours is their ability to create panic movements in the result financial crisis.

Are we going to live a new crash like in 1929?

Are we going to live a new crash like in 1929?

This week of September 2007 will certainly enter in the history. In fact for the first time in 30 years, an english bank is obliged to request help from the bank of England because of drastic loss. And this bank is one of the most prestigious in the UK : Northern Rock. This company detains about 20% of the english mortgages...it means Northern Rock is the english number one in term of market shares in this business. You can now understand the astonishment and the fear of the whole business, economical and financial community! Although Northern Rock was the flagship of the UK, it suddenly appears to be wobbly... Is it only the problem of a company? or are we going to live a new crash similar to the Wall Street one of 1929?
The crash of 1929 is the biggest stock market crash in the history. After “the roaring
twenties”' impressive profits, shares prices suddenly collapsed...the economic bubble burst! Only one week before, the economy was described as very strong by most of the economists. In this period of euphoria, people even borrowed money to invest in stock market. There was a big
confidence in the market. And suddenly all this confidence disappeared...and transformed into a big panic. It appears that all the previous confidence was only speculation. Thus shareholders became aware of the reality...their dream transformed in nightmare. Most of them have been obliged to sell their shares in order to pay back their loans...however they sold these shares at very low prices. Consequently shareholders lost a lot of money. And in the same movement, many banks went in bankrupt. In fact they lent a lot of money to their customers, who have been unable to pay back this money. It was a domino effect, a system crisis. At first shares collapsed... then customers lost their money... then banks went bankrupt...and finally the world witnessed the biggest depression of the history : the Great Depression!
What is the extent of the current crisis? Are we going to witness a new crash? This question may seem a little bit pessimistic. But let's study the current situation. The crisis started in the USA. In fact because of low interest rates and above all because of the bankers carelessness, very poor and insolvent people have been able to borrow money to purchase new houses. Unfortunately most of these customers have been unable to pay back their loans. Consequently many banks are now in big trouble. This phenomenon appears at first in the USA, but now it seems to invade Europe as well.
That's why the situation of Northern Rock is not only the problem of a sole company, but it may be the beginning of a new crash... or even another depression! Panic has now invaded people.
In the end, it will be interesting to see how politics will manage to handle this situation.
There is a big conflict about the interest rate : shall centre bank increase it in order to control the loans emission, or shall centre bank on the contrary decrease the interest rate in order to avoid a depression and enhance the economy. It may be necessary to create new laws like the famous “Glass-Steagall Act” which followed the crash of 1929.