The NYSE Euronext-Deutsche Boerse deal dilutes a U.S. icon and gives a German company 60 percent control over the combined entity. Image CC rudynorff/Flickr

The parent company of the New York Stock Exchange, NYSE Euronext, agreed to enter a $10 billion all-stock merger with Deutsche Boerse AG. The merger of Deutsche Boerse AG, operator of the Frankfurt Stock Exchange, with NYSE Euronext combines two of the world’s largest stock exchanges. News of the NYSE-Deutsche Boerse merger triggered angst among American politicians, who insisted that the merger place “New York” first in its name in order for the deal to win government approval.

Terms of the NYSE-Deutsche Boerse deal

Deutsche Boerse and NYSE Euronext aim to create a dominant financial market on a global stage. In an all-stock deal that creates the world’s largest owner of equities and derivatives, Deutsche Boerse and NYSE Euronext will swap one symbolic share. Every NYSE Euronext share will be converted into 0.47 share of the combined company that values NYSE Euronext at about $10 billion. Deutsche Boerse will hold 10 seats on the 17-seat board of the corporation, because its shareholders own about 60 percent of the merged shares. NYSE Euronext-Deutsche Boerse will have headquarters in New York and Frankfurt. The combined company will be incorporated in the Netherlands for tax avoidance purposes.

Deal made with eye on derivatives

The NYSE Euronext-Deutsche Boerse deal allows investors access to thousands of stock listings in the U.S. and Europe, plus options and  derivatives. The merged entity will list corporations worth about $15 trillion, more than any other stock exchange. The most lucrative aspect of the merger is ownership of growing venues for derivatives, which are are wagers on stocks, bonds, currencies or commodities, or changes in interest rates. Some analysts predict that NYSE Euronext could generate more than 50 percent of its earnings from derivatives by 2013.

A blow to national pride?

To some on Wall Street, the NYSE-Deutsche Boerse deal is a blow to national pride. The Big Board at the NYSE is viewed as an American icon on par with the Washington Monument or Golden Gate Bridge. The fact that the NYSE has been absorbed by a European entity brings stark realization to the fact that U.S. institutions no longer dominate the global marketplace. Senator Charles E. Schumer, D-N.Y., implied that the combined company must place “New York” first in its name for the deal to be approved.

Sources

New York Times

Business Week

MarketWatch

Wall Street Journal

Living on a budget has Americans feeling all tuckered out. Image: CC JoyTek/Flickr

Middle class Americans are suffering from “frugal fatigue” as they wait for the end of the recession to trickle down to them. Frugal fatigue is a weariness with tight budgets, pinching pennies and settling for less. But as living within one’s means becomes the new normal, frugal fatigue may describe a failure to accept financial responsibility.

The frugal fatigue epidemic

Frugal fatigue has set in upon a generation of Americans not accustomed to creating a budget, tracking spending and saving for an emergency fund. Two thirds of Americans are suffering from this debilitating disorder, according to the National Foundation for Credit Counseling. In a recent NFCC survey, 66 percent of respondents said yes, they had frugal fatigue, and they’re tired of pinching pennies, but they have no choice but to continue for the foreseeable future. Twenty percent in the survey said they were better off living with a new sense of financial responsibility and are happy to continue. Eight percent claimed their financial habits were unaffected by the recession and 5 percent were ready to return to their spendthrift ways.

Giving in to frugal fatigue

The rate of economic growth, however slow, is encouraging some people who have jobs to set aside their frugality and splurge. After two years of decline, credit card debt is rising, car loans are boosting U.S. automakers, and investors are leveraging their debt. According to the Federal Reserve, revolving credit card debt increased 2.5 percent from $807.2 billion to $826.6 billion in December. Non-revolving debt such as installment loans rose from $1.608 trillion in November to $1.611 trillion in December. Investors have been watching and have acted accordingly. On the New York Stock Exchange, the margin of credit, which is money investors borrow to buy stock, increased to $276 billion in December, up from $233 billion in January 2010.

Frugal fatigue is all in your head

For consumers suffering from frugal fatigue, it’s important to remember that it is a state of mind, not a psychological disorder. Those who who miss spending beyond what their income can support have missed the point made by the recession. Is it better to feel stressed by a pile of debt, or feel at ease for being relieved of that burden? Many people who lose weight just end up putting the pounds back on again. Others stay fit for the rest of their life.

Sources

MarketWatch

MSNBC

Daily Finance

Advance America is forced to desert 122 stores after Arizona banned their trade from the state. Image from Wikimedia Commons

After the Arizona ban on payday lending went into effect, and new legislation is being passed in Colorado, Advance America announced it was closing more than 100 store locations nationwide.  One of the nation’s largest payday lenders, and one of the few that grew large enough to be publicly traded, is shutting down 122 stores in Arizona, Washington and Colorado.  The stock price for Advance America then quickly tumbled on the New York Stock Exchange or NYSE, dipped 5 percent. Advance America has been in a stock lull so far this year

Advance America to shutter 122 stores

Advance America announced it would close 122 stores. The affected states are Washington, Arizona and Colorado. The state of Arizona recently let a law lapse that allowed payday lenders to operate in the state. The law was not renewed, and payday lending is now illegal in Arizona which has forced numerous payday loan stores to close their doors. Advance America will be closing 47 stores in Arizona and 75 other locations in Colorado and Washington state. The company will incur up to $5 million in closing costs in doing so.

Stock price dips

Advance America announced the store closures on July 9, after an all time low for the year. The share price for the firm was down to $3.55 on the NYSE. As of July 22, the stock price had climbed back up to $3.66. Publicly traded payday lending companies are thought to be at great risk with the creation of the Bureau of Consumer Financial Protection, as some believe the newly created agency will regulate cash advance lenders out of business. Since the average payday loan store employs at least 3 people, 366 people are now going to be out of work due to these closures.

State governments starting to slip the noose

Payday lending has been under fire for more than a decade. While no one relishes the idea of high cost lending, payday lenders entered into a market that the banks had left. One wonders what options will be left if the finance market that is not Wall Street is driven out of existence.

Further Reading

Advance America closures

NYSE

Freddie Mac and Fannie Mae will delist from the New York Stock exchange because the value of their shares can't be held above acceptable levels. Flickr photo.

Freddie Mac and Fannie Mae, the key sources of funding that have kept lending to home buyers from completely drying up, were ordered by the government to cease trading their shares on the New York Stock Exchange to abide by NYSE delisting rules. Freddie Mac and Fannie Mae stocks, which have already lost nearly all their value in the housing crisis, fell further when the markets got the news. After the delisting,which was ordered for failing to meet NYSE requirements for maintaining price levels, the stocks of the two companies will be traded in the over-the-counter market.

NYSE delisting rules

Freddie Mac and Fannie Mae were delisted because NYSE delisting rules require that a company pull its stock if it can’t take action to keep shares from dropping below the $1 average price level for 30 trading days. The Associated Press reports that after the NYSE delisting announcement Fannie Mae shares dropped 42 cents, or 46 percent to 50 cents, while Freddie Mac slid 55 cents, or 45 percent, to 67 cents. In 2007, shares of both companies traded at more than $60. As the housing crisis deepened, the stocks lost almost all of their value, plummeting below $1 by September 2008. Fannie and Freddie were then taken over by the government.

Freddie Mac/Fannie Mae losses

Fannie and Freddie own or guarantee almost 31 million home loans worth about $5.5 trillion. That’s about half of all mortgages in the U.S. CNNMoney.com reports that since September 2008 the Treasury Department has poured $83.6 billion into Fannie Mae and $61.3 billion into Freddie Mac to cover losses on the mortgage-backed securities they own or guarantee. During the housing crisis, the money has kept lending to home buyers alive, kept home sales and new home construction from falling further than it has, and kept homes from losing more value than they have. But Freddie Mac/Fannie Mae losses totaled $93.6 billion in 2009 and another $18.2 billion in the first quarter this year. The Congressional Budget Office estimates that nearly $400 billion in tax dollars will eventually be needed to cover Freddie Mac/Fannie Mae losses, making it the most expensive of all the government bailouts.

Fannie Mae/Freddie Mac stock delisted July 8

Freddie Mac and Fannie Mae will delist from the New York Stock Exchange on or about July 8. The Wall Street Journal reports that the NYSE delisting meets the goals of government conservatorship to preserve and conserve assets. Pulling their stocks off the NYSE will save Fannie and Freddie $500,000 apiece in annual listing fees. Both companies paid the maximum amount because of the large number of shares outstanding.

Fanny Mae/Freddie Mac OTC stock

After July 8 Fannie and Freddie stock will be traded in the over-the-counter market. Brokers and dealers will negotiate  directly with one another for Fannie and Freddie stock over computer networks and by phone. OTC stocks are usually very risky because they are the stocks that are not considered large enough or stable enough to trade on the New York Stock Exchange. Research about these stocks is also harder to find. With the delisting, David Lutz,  managing director of equity trading at Stifel Nicolaus & Co. in Baltimore, told Business Week that “We lose some transparency into what is essentially a large black hole that is eating up a large part of our bailout funds.”

ITMN's drugs are currently under FDA review. Image from Flickr.

This morning, IterMune stocks (on the New York Stock Exchange as ITMN) rose over 60%. This was a result of the FDA annoucing it would be reviewing ITMN’s drug application for their new drug Esbriet (pirfenidone). The FDA has expressed concerns over this particular drug, however, so I wouldn’t yet recommend taking out personal installment loans just to buy this stock – at least, not yet.

ITMN drug treats lung problems

The new drug from ITMN that the FDA will be reviewing is intended to treat idiopathic pulmonary fibrosis. This is a condition where a person’s lungs (pulmonary system) develops thick, heavy scarring (fibrosis). Idiopathic cases are simply cases that have no known cause. Learn more about the disease ITMN’s new drug is intended to treat on the Mayo Clinic website or on Google Health. If the drug ITMN developed is approved, it would be the first and only treatment intended for this deadly disease.

ITMN dodges a bullet of criticism – so far

When the FDA announced that InterMune’s drug would be take up for review, the outlook was not entirely rosy. While the commentary was rather critical, it was still better than industry watchers and ITMN officials had expected – which is why ITMN stocks jumped so quickly this morning. A large part of the criticism, as pointed out by Bloomburg News was based on the fact that the drug actually failed in one of the two studies intended to test the ITMN drug’s effectiveness.

The future of ITMN looks good

While ITMN has a very long and stressful week ahead of it, the outlook for this company is fairly good. Currently, ITMN has only one approved drug – Actimmune – which treats rare congenital disorders. However, on ITMN’s website they list several more drugs in development, including second-generation HIV treatments. Business Week also points out that the drug ITMN is hoping to get approved by the FDA was approved for use in Japan in October of 2008. Their stock has had some fairly severe ups and downs, though if they can successfully use this drug to make progress on their debt repair, they will be in a good financial position for future earnings.