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Update: Fed lowers interest rate, Bank of England doesn’t; corporate manslaughter

Grin and Bear it
Stock indices globally plummeted on the news that JPMorgan Chase announced it
would acquire investment bank Bear Stearns in an all-stock transaction, the
latest corporate collapse in credit crunch-stricken US markets – and certainly
the swiftest.

JPMorgan exchanged 0.05473 shares of its own common stock for each share of
Bear Stearns stock, valuing its acquisition at $236m. Fearing further meltdown,
the Fed had stepped in two days previous with around $30bn emergency funding for
Bear Stearns’ less liquid assets through its Discount Window, in conjunction
with JPMorgan.

On the Monday morning following the announcement (billed as a ‘merger
agreement’ by Bear Stearns and an ‘acquisition’ by JPMorgan), the FTSE-100 fell
by 2.6%, Paris-based Cac 40 fell by 3.2% and Frankfurt’s Dax dropped by 3.8% –
while the Nasdaq opened 1.6% down and the S&P 500 cash index fell by 1.8%,
the BBC reported. Markets rallied the following day as investors clamoured for
Bear stock trading for $2 a pop.

Fed cuts rates…
The Federal Reserve lowered interest rates from 3% to 2.25%, the latest in a
handful of emergency moves the Fed has made as commentators concur that the US
is sliding into recession. The cut is smaller than expected as the Fed warned it
would be watching inflation carefully in the coming months.

…BoE holds
The Bank of England held interest rates at 5.25% this month, saying
“back-to-back reductions might lead observers to think the committee was
focusing on downside risks to demand at the expense of the medium-term outlook
for inflation” which, in turn “could lead to an exaggerated response of the
market yield curve to a rate reduction.”

Yahoo talks money

Yahoo executives reportedly met with Microsoft’s top brass to discuss the
$44.6bn unsolicited offer for the search engine, which Yahoo’s board rejected.
Microsoft has said that it would pursue a hostile bid if it could not secure an
accepted bid. Meanwhile, Yahoo said it will swap London for Geneva as its
headquarters for tax reasons.

Pale green
UK businesses only adopt green policies to retain staff or improve their bottom
line, not because they care about saving the planet, a study by Grant Thornton
has found. But, of the businesses asked, 48% said public perception was the
motivating factor for enacting environmentally-minded policies. The remaining
52% cited cost management as the driver.

IFRS delay

The government’s one-year delay in switching to IFRS accounting standards until
2009 has been criticised by Deloitte, which says it will now not need to raise
the matter of bringing £30bn of PFI/PPP spending onto its balance sheet for
another year. “It is paramount that public bodies keep up the momentum,” said
Deloitte’s accounting advisor Mark Williams.

Manslaughter update
The UK’s new corporate manslaughter law comes into force on 6 April, making it
easier for companies to be prosecuted for the death of an individual due to
their gross negligence. Prosecution immunity for the Crown will also be removed,
which means that government departments will, for the first time, be liable to
prosecution.

TECHNICAL UPDATE
Cartels
The Office of Fair Trading is now offering rewards of up to £100,000 in return
for information enabling it to prosecute illegal cartels. Rewards will be
calculated according to a formula and will be non-negotiable. The scheme will
run for an initial period of 18 months, says CMS Cameron McKenna.
www.law-now.com

Tax
The Treasury aims to secure an extra £1.7bn through anti-avoidance measures,
including action relating to controlled foreign companies and double taxation
treaty abuse.
www.hm-treasury.gov.uk/budget

In the Treasury’s crackdown on UK non-doms, up to 5,000 offshore account
holders will receive a letter from HM Revenue & Customs chasing disclosures,
having gained information about the accounts from various banks and second-tier
financial institutions through the European Savings Directive after June 2007,
says Grant Thornton.
www.budgetcomment.com

New tax rules in Germany restricting the deductibility of interest paid are
expected to affect the M&A and private equity markets, according to Robert
Heym, a partner law firm at Reed Smith Richards Butler.
www.reedsmith.com

The government published the second part of the King Review of low-carbon
cars, which carries recommendations relating to emission targets, cleaner fuels
and research & development. At £1.2bn, the Chancellor’s Budget moves on road
tax were the single biggest revenue-raising item in his package of proposals.
See Decisions April 2008: Fleet management
www.hm-treasury.gov.uk/budget

Accounting
The FRC is proposing to increase its business levies by 10% so as to raise £4.8m
of the £11.9m core budget. See Accounting column: Pick up the tab
www.frc.org.uk

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