The Toronto-Dominion Bank confirmed Tuesday morning that it has agreed to buy Cowen Inc. in its latest U.S. takeover.
Under the terms of the deal, TD will pay US$1.3 billion, or US$39 per share, in cash to buy the New York-based investment bank. TD said it sold 28.4 million shares in The Charles Schwab Corp. to finance the transaction; as a result, TD said the deal will be neutral to its Common Equity Tier 1 capital ratio.
“Cowen is a leading independent dealer with a premier U.S. equities business and a strong, diversified investment bank that, when combined with TD Securities, will allow us to accelerate our strategic U.S. growth plans,” said TD President and Chief Executive Officer Bharat Masrani in a release.
The deal has been a source of speculation for weeks, after Bloomberg News reported in early July that talks were underway. The Wall Street Journal reported late Monday that a deal for more than US$1 billion could be announced as early as today.
Paul Harris, a partner and portfolio manager at Toronto-based Harris Douglas Asset Management, said the scale of TD’s investment banking ambitions in the U.S. will go a long way in determining the success of the Cowen deal.
“Is this really a deal to help their existing client base grow and help them with investment banking, and corporate finance, etcetera? Is that the goal? Or is the goal to say we want to be a big investment bank in the United States? And I think if that’s the case, I think that’ll be very difficult. … And so if you’re going to compete with Goldman (Sachs), I think this would be a very bad thing, or with Morgan Stanley or JP Morgan.”
Harris, whose firm owns shares in TD, added the Cowen deal would probably “look terrible” in a few years if TD has any intent of trying to compete with those Wall Street giants.
TD said the purchase of Cowen will “modestly” boost its fiscal 2023 adjusted earnings per share, and that it’s expecting up to US$450 million in pre-tax integration and retention costs over a three-year period. The transaction, which TD said is expected to close in the first quarter of next year, is subject to regulatory approvals in Canada and the United States, as well as a vote by Cowen shareholders.
“The reality is that by selling down its Schwab stake, [TD] is simply trading some U.S. wealth exposure for U.S. capital market exposure. The diversification inherent in that trade is not necessarily a bad thing, although we note that the market generally prefers wealth to capital markets especially coming off of a historic M&A cycle. On top of that, the track record of successful cross-border capital markets acquisitions is small, with retention of people being the key obstacle over the medium to long term,” wrote Meny Grauman, an analyst at Scotia Capital, in a note to clients.
Cowen is the second major U.S. takeover that TD has revealed this year. In February, the Canadian bank announced it agreed to buy Memphis-based First Horizon Corp. for US$13.4 billion. That deal is still awaiting final regulatory approvals.
FPIs pump in Rs 8,600 crore in September; pace of investment slows – Economic Times
After infusing more than Rs 51,000 crore last month, foreign investors have slowed down the pace of equity buying in India in September so far, as they invested a little over Rs 8,600 crore, on sharp depreciation in rupee. Going forward, Foreign Portfolio Investors (FPIs) are unlikely to buy aggressively amid rising dollar, VK Vijayakumar, Chief Investment Strategist at , said.
Indication of further rate hike by the US Federal Reserve, fears of a recession, depreciating rupee and continued tensions in Russia and Ukraine will affect FPI flows, Basant Maheshwari, smallcase manager and Co-founder, Basant Maheshwari Wealth Advisers LLP, said.
The latest inflow comes following a net investment of Rs 51,200 crore in August and nearly Rs 5,000 crore in July, data with depositories showed.
FPIs turned net buyers in July after nine straight months of net outflows, which started in October last year. Between October 2021 till June 2022, they sold Rs 2.46 lakh crore in the Indian equity markets.
According to the data, FPIs have bought equity to the tune of Rs 8,638 crore during September 1-23.
However, FPI activity has turned highly volatile with alternate bouts of buying and selling. They have sold on seven occasions in this month so far. In fact, in the last two trading sessions, they have pulled out Rs 2,500 crore from the Indian equity markets.
Vijayakumar has attributed increased FPI selling in recent days to rising dollar and rising bond yields in the US.
In addition, the 75 basis points (bps) rate hike by the US Fed for the third consecutive time to control rising inflation and the surging dollar have impacted FPI buying, Wealth Advisers LLP’s Maheshwari said.
“The US Fed’s hawkish tone on interest rates and the fear of a global recession fuelled pessimism among investors,” Shrikant Chouhan, Head – Equity Research (Retail), Kotak Securities, said.
Foreign investors have been slowing down their equity buying in India since September. The scenario turned adverse after a hotter-than-expected inflation report dashed hopes that the US Fed would scale down its rate hikes in the coming months.
The August US inflation edged 0.1 per cent higher from the preceding month to 8.3 per cent. Compared to one year ago, it eased as it was 8.5 per cent previously.
The aggressive stance of the central bank chair, which made it apparent that the Fed will once again go for another 75 bps hike for the fourth consecutive time in its next meeting as well, dented sentiments and turned investors risk averse towards emerging markets like India, Himanshu Srivastava, Associate Director – Manager Research, Morningstar India, said.
Also, currency movement is another factor that FPIs track very closely as it has a significant impact on the returns that they make on their investments in any country. Therefore, the outflows tend to accelerate in a scenario of rapid currency depreciation.
The sharp depreciation in Rupee as it touched all-time low of Rs 81.09 against the dollar does not augur well for foreign investments, he added.
“With the dollar index above 111 and the US 10-year bond yield above 3.7 per cent FPIs are unlikely to buy aggressively, going forward. The situation will change if the dollar index and US bond yields decline,” Vijayakumar said.
In addition, foreign investors have pumped in Rs 5,903 crore in the debt market during the month under review.
Apart from India, FPI flows were positive for Indonesia and Philippines, on the other hand, South Korea, Taiwan and Thailand witnessed outflows during the period under review.
Top 3 investment bets for millennials to beat market volatility and make money – Economic Times
There is a thrill for many to do things that are so-called out of the ordinary. As mentioned in the first part of this story, millennials are the impatient investor class who are all up to ignore the stereotypes, bet even on riskier investments.
On that note, in the first part we talked about three new-age investments that go beyond the ordinary for the millennials or the digital natives. To know more about millennials and more about the investment options, you can read the first part here:
Top 3 new-age investment bets for millennials looking to take risk and earn big
Nonetheless, it is never bad to be cautious. A roller coaster ride is fun at the amusement parks but when it comes to using the hard-earned money, no one will be keen to lose their savings. It is often said volatility is the daily crux of the market. Experts also opine it can be a motivation to capitalize on the imbalances.
“Volatility is the ghost that haunts you only if you look at it. The best way to avoid volatility is to ignore it; don’t trade into a market when there’s euphoria or out of it when there’s panic. Instead, constrict and hold a diversified portfolio for the long term, or better still, a mutual fund, which isolates individuals from volatility shocks,” Utkarsh Sinha, managing director at boutique investment bank firm Bexley Advisors said.
The economy too is at a volatile juncture with slower-than-expected growth recovery and galloping inflation. For stocks, the plausibility of earnings growth is diluting and valuation is said to trade below the long-term average. So, what could be better than to have some safe options even during a volatile period, enjoy the thrills of new-age investments and still achieve the monetary goals?
Girirajan Murugan, the chief executive officer at FundsIndia, lists more instruments that will help millennials to avoid some volatility:
InvIT – Infrastructure Investment Trust
This involves a trust channeling investments from individuals/institutions toward infrastructure projects. In a developing country like ours, the demand for good infrastructure is huge and perennial, in my opinion, Murugan said, adding that an investment in an InvIT with a good management will be a fruitful investment for the long term.
However, most infrastructure projects are subject to government regulations and interference. Change in the political space could affect such investments. Lack of choices to choose from is a severe disadvantage. Being a budding avenue, the participation in this investment is comparatively low. This means that selling them in the current market could be difficult. However, if the market for this type of investment takes off, then this concern will be void.
REIT – Real Estate Investment Trust
Similar to InvITs, REITs pool resources to invest in real estate assets. “Real estate investment has not lost its flair even today, despite being a conventional investment. That’s exactly why I’d like to call this a “grandfather-approved investment,” Murugan said.
By enabling part ownership, REIT has made real estate more accessible for all sections of people. REIT investments buy you ownership to the property in question, proportionate to the investment made. The income from this asset shall also follow the same proportion.
There are 2 categories of REIT – tradable and non-tradable. Some non-tradable REITs disclose the share values only after 18 months. Non-tradable REITs also carry the disadvantage of less liquidity.
ESG (Environmental, Social and Governance) Investing
In this mode, the investment is directed toward the development of businesses that toil for the betterment of the world. One can either invest through readily available ESG Mutual Funds, or they can identify the right companies and invest in their stocks.
“As far as ESG investing is concerned, it’s a thumbs up from me, and I say this from an ethical standpoint. The reason is that a good planet and a harmonious society are something we can’t survive without. When it boils down to it, man will eventually be forced to choose survival over profitability. If you choose to do it for the purpose, rather than for profitability, this may be one of your best investments,” Murugan said.
ESG assets are on track to exceed $53 trillion by 2025 and represent more than a third of the $140.5 trillion in projected total assets under management (AuM), according to Bloomberg Intelligence.
Bexley Advisors’ Sinha said millennials are at the best point of their lives currently to invest, as they have the bulk of their lives ahead of them. With these options explained, the millennials perhaps have better insight on the options available. Remember how we introduced the generations in the first part of the story and talked about an angry young man from Bollywood? Well, keep the swag and invest with prudence.
How rising interest rates impact insurers' investment decisions – Canadian Underwriter
Recent interest rate hikes aimed at curbing inflation, and the potential for more rate hikes next year, has the insurance industry keeping an eye on its investment returns.
But while the transition from a low-interest-rate environment to a higher-rate environment will create short-term challenges, it also creates a long-term opportunity, noted Gord Dowhan, CFO at Wawanesa Insurance in a recent Canadian Underwriter interview.
“Over time…higher interest rates can create an opportunity for us to increase our yield moving forward,” Dowhan said. “As bonds mature, it gives us the opportunity to invest at a higher rate.
“You’ve seen this experience in Europe and elsewhere, where they were at zero percent and negative interest-rate environments in some cases. Having higher rates is healthier than being in that environment [of extremely low or negative interest rates], and there’s definitely an opportunity for us to pick up yield and investment returns within our investment portfolio as those instruments mature.”
For an insurer’s portfolio, Dowhan noted a rising interest rate environment makes certain investment instruments more attractive. And his firm has some of these in place, including preferred shares, limited recourse capital notes, and floating-rate or variable-rate debt.
“We’re also looking at real estate and infrastructure investments. From a rate-reset, preferred-share perspective, this gives us the opportunity to increase our yield; the dividend yield resets regularly based on five-year government bond yields,” he said.
“In a rising rate environment, this gives us an opportunity to increase our returns. Floating-rate, or variable-rate, debt has become increasingly attractive as rates rise. We’ve invested in and will continue to invest in floating-rate debt and look for opportunities to grow our portfolio there.”
What’s more, Dowhan said that during high inflationary periods, real estate and infrastructure tend to outperform other asset classes.
“The underlying instruments within these products, leases and other revenues that produce revenue streams linked to inflation, is one reason why they typically outperform other asset classes during periods of high inflation,” he told CU. “So, opportunities exist for us to enhance our yield in the long term and continue to deliver value for our policyholders.”
This article is excepted from one that appeared in the August-September issue of Canadian Underwriter. Feature image by iStock.com/porcorex
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