BHP Drops Rio Tinto Merger, UK Mortgages Fall

Darlington Musarurwa
25 Nov, 2008
New York City

BHP Billiton drops hostile merger plan with Rio Tinto on difficult financing conditions. U.K. mortgage origination in October plunges 52%. Business investment in the third quarter falls 0.2% to

[R]3:00PM New York, 9:00PM London – BHP Billiton drops hostile merger plan with Rio Tinto on difficult financing conditions. U.K. mortgage origination plunges 52% to 21,584 in October. Business investment in the third quarter falls 0.2% to £35.2 billion.[/R]

Stocks in London trading edged lower after surging more than 10% in the previous session. The second rescue of the Citigroup by the U.S. lifted the trading sentiment in the afternoon. Rio Tinto plunged nearly 38% after BHP Billiton dropped its proposed merger plan between the two companies and will take a charge of $450 million related to deal.

In London trading FTSE 100 index fell 0.1% or 2.65 to 4,150.31.

Of the FTSE 100 index stocks, 57 increased and 45 declined. Standard & Chartered increased 15.9% followed by Barclays Plc with a surge of 14%.

U.K. House Purchase Loans Fall 52%

British Bankers Association reported today that loans granted for house purchase plunged 52% to 21,584, while net mortgage lending increased by £2.9 billion in October but below average for the previous six months.

Consumer credit rose by £300 million but rise in personal deposits were flat.

The BBA statistics director David Dooks said high street banks provided two-thirds of all new mortgages of £12 billion of all new mortgages in October and lending to non-financial companies jumped by £1.4 billion.

“Comparison of current lending levels with last year is obscured by the very different economic conditions that exist now, reflecting a much reduced appetite for borrowing. Mortgage approvals remained low, consumer credit was subdued and people used their deposits to fund spending in October,” said Dooks.

Q3 Business Investment Fall 0.2%

The Office of National Statistics reported today that business investment in seasonally adjusted terms dropped 0.2% in the third quarter from the second quarter and fell 0.5% from a year earlier to £35.2 billion. The investment peaked in 2005 above £45 billion.

Private and public sector manufacturing business investment in estimated to have increased 4% from a month ago and 0.8% from the comparable year ago period at £3.6 billion.

For the private sector, business investment for services in the review period is estimated to have declined 0.5% to £4.3 billion, while construction and other production declined 1.6% to £26.3 billion from the previous quarter.

BHP Drops Rio Offer

BHP Billiton reported today that the mining company has decided to drop its offer for rival Rio Tinto as it is no longer in the best interest of the shareholder.

BHP chief executive officer Marius Kloppers said the proposed merger will lead to a huge prospective level of debt relative to the cash flow required to service and repay debt.

The company is also concerned about the request by the European Commission for the divestment in iron ore and metallurgical coal that could adversely impact on its ability to reduce debt.

BHP will write off $450 million spent to negotiate the deal. The stock rose 7.2%.

Gainers & Losers

Standard Chartered led advancers in the FTSE 100 index shares with a rise of 15.9% followed by increases in Barclays Plc of 14%, in ICAP Plc of 11.3%, in Schroders Plc of 9.4%, and Lloyds TSB Group of 9%.

Rio Tinto led decliners in the FTSE 100 index shares with a fall of 36.7% followed by losses in Friends Provident of 12.9%, in Centrica Plc of 7.2%, in Antofagasta of 6.9%, and Imperial Tobacco of 6.8%.

Europe Markets Review

In London FTSE 100 Index closed higher 18.29 or 0.44% to 4,171.25, in Paris CAC 40 Index increased 37.45 or 1.18% to close at 3,209.56 and in Frankfurt DAX index higher 6.09 or 0.13% to close at 4,560.42. In Zurich trading SMI increased 11.99 or 0.22% to close at 5,478.39.