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TD Bank’s acquisition of New Horizons might be in trouble:

TD-T … prospects of closing a major acquisition in the United States took a hit Wednesday after its merger partner, FHN-N … , disclosed that the deal is struggling to receive regulatory blessings in a timely manner.

In an annual filing, First Horizon, which is based in Memphis, Tenn., disclosed that TD TD-T … recently told its management team that TD does not expect to get the required regulatory approvals in time to complete the deal before May 27, which is when their merger agreement is set to expire.
…
First Horizon disclosed in its annual filing Wednesday that “receipt of regulatory approvals for the pending TD merger has taken longer than originally anticipated.”

First Horizon’s shares closed down 11 per cent to US$22.14. TD agreed to pay US$25 a share in a deal worth US$13.4-billion.

The IMF looks at its recent inflation forecasts:

The IMF produces and publishes its World Economic Outlook forecasts on a quarterly basis—these include GDP growth and inflation. We recently dissected the errors in our core inflation forecasts for the world’s economies—that is, forecasts of inflation stripped of the volatile effects of food and energy price swings.
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We consider four factors that, with the benefit of hindsight, help us rationalize inflation underpredictions. First, as the pandemic shock hit, policymakers were quick to provide fiscal support to avoid deep scarring from the crisis. Still, forecasts projected some scarring, and output gap projections for 2021 foresaw a large contraction in economic activity compared with potential. Only in retrospect did it become clear that the output slump, relative to potential, was not as dire. Most world economies—almost 80 percent of world GDP—are now known to have had smaller output gaps than projected in early 2021, an indication that the rapid recovery in demand exceeded expectations.
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Second, the strong demand recovery met highly strained supply chains. Supply chain bottlenecks are normally caused by either demand or supply shocks, rarely a combination of the two.
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Third, the demand-supply imbalances were amplified by the shift in demand from services to goods during the early lockdown period as the leisure and hospitality sector mostly ceased functioning. This temporarily reversed a trend seen over the past couple of decades of goods inflation that was lower than services inflation.
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Fourth, unprecedented labor market tightness, which persists to this day in some advanced economies, confounded some of the previous factors. Measured by the ratio of vacancies to unemployment, labor markets have been particularly tight in Australia, Canada, the UK, and the US, significantly correlating with the magnitude of these countries’ core inflation forecast errors.
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One peculiar feature of the policy response to the pandemic in 2020 was the aggressive fiscal stimulus, which according to some observers resembled wartime spending. Importantly, this stimulus was part of the forecasters’ information set at the time. Our analysis shows that the size of the COVID-19 fiscal stimulus packages announced by different governments in 2020 correlates positively with core inflation forecast errors in advanced economies in 2021.

PerpetualDiscounts now yield 6.31%, equivalent to 8.20% interest at the standard equivalency factor of 1.3x. Long corporates yielded 5.25% on 2023-2-24 and since then the closing price has changed from 14.72 to 14.74, an increase of 13bp in price, with a Duration of 12.20 (BMO doesn’t specify whether this is Macaulay or Modified Duration; I will assume Modified) which implies a decline in yield of about 1bp since 2/24 to 5.24%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has widened slightly (and perhaps spuriously) to about 295bp from the 290bp reported February 22.

This entry was posted on Wednesday, March 1st, 2023 at 9:29 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.