Standard & Poor’s is pouring cold water on “contingent capital,” the hot new way to shore up bank balance sheets, recently popularized by Lloyd’s Banking Group. In a new report on the topic, S&P made it clear it does not believe contingent convertibles will do much to help banks improve their tangible common equity.

As outlined in our criteria, we do not consider contingent capital securities to be a form of common equity. We can include them as hybrid equity depending on their exact features.

A new study from Grant Thornton documents an alarming 22% decline in the number of publicly traded U.S. companies since 1991 and lays the blame on low cost electronic trading and increased regulation such as Sarbanes-Oxley. Interesting, then, that in its prescription for how to reverse the trend, the accounting firm does not suggest repealing or rolling back SOX. In fact in a draft email it is suggesting supporters send to congress, GT specifically notes that the proposed changes would comply with SOX:

“Alternative Public Market Segment: A public market solution that provides an economic model to support the “value components” (research, sales and capital commitment) in the marketplace. This solution would establish a new market segment that benefits from a fixed spread and commission structure. It would be subject to traditional SEC registration and reporting oversight (e.g., annual and quarterly reporting, Sarbanes-Oxley compliance).”

Kraft’s (KFT) decision to stand pat on its offer for Cadbury (CBY) should come as no surprise to readers of ResearchRecap. From the beginning, we doubted that Kraft’s initial “indicative offer” would set off a bidding war. Other potential bidders each have their own impediments to making a bid and Kraft itself is constrained in how much it can raise its offer by credit issues. And the fall in Kraft’s share price means the company’s formal bid is actually worth less than the original one.

With Cadbury’s swift and firm rejection of the formal offer from Kraft we appear set for a period of standoff before learning whether a deal will ultimately be consummated.

The Bank of England’s Monetary Policy Committee (MPC) on November 5 decided to continue its unorthodox program of asset purchases, known as quantitative easing (QE). This is the United Kingdom’s one remaining policy instrument for promoting recovery from the recession, which has reduced GDP by about 5%. Conventional interest rate policy is exhausted, with an interest rate of 0.5%. Further expansion of fiscal policy is virtually precluded by the size of the budget deficit, now 12% of GDP, and the sharp increase of the debt/GDP ratio.

Prior to the crisis, the MPC failed to take account of asset prices and took no action to curb the upsurge in real estate prices. However, such action was not within its present remit, which is limited to achieving a predetermined target rate for inflation, with some concern for growth and stability. If asset price bubbles are to be addressed by the MPC, its terms of reference must be redefined:

Default activity in 2009 has been heavily concentrated in the media and entertainment sector.

Consumer products, media and entertainment, and retail/restaurants remain the most negatively affected sectors amid the economic downturn, according to Standard & Poor’s Ratings Services.

LBOs by Cerberus and Apollo are performing much worse than other private equity deals, while deals by KKR, JP Morgan and Welsh Carson have seen better performance.

Excerpts from Private Equity: $640 Billion & 640 Days Later

Excerpts from Refinancing the Buyout Boom: Profiles of Select Leveraged Credits (complimentary download)

In the next five years, an unprecedented amount of leveraged loan and high yield bond debt comes due. Each dollar of the more than $800 billion in debt maturing in this period will need to be addressed on a company-by-company and highly negotiated basis.

Moody’s today reiterated its negative outlook on the US apparel industry “because we expect apparel sales will continue to weaken through the year-end holidays and into 2010, as consumers hold off on discretionary purchases in a still-difficult economy.”

Other Highlights of Moody’s Industry Outlook.

It looks like Royal Bank of Scotland Group (RBS) drew the short straw in the UK government’s latest shakeup of the UK banking sector.

As DealBook reported, RBS agreed to sell its insurance business and some bank branches in England, Wales and Scotland to meet European competition rules on accepting state aid. The bank, which is already majority-owned by the British government, will receive an additional government investment of £25.5 billion ($41.6 billion) and accept help in containing potential losses from problem assets. As a result, the government’s stake in the bank will increase to 84.4 percent from 70 percent.

A few interesting tidbits from the World Bank’s latest biannual East Asia and the Pacific Update:

• The ratio of exports to GDP has risen only in Korea
• Korea’s companies gained global market share as others in Asia stumbled
• Korea’s Hyundai has increased its share in the U.S. by almost 50% during the crisis (see also Korean Automakers Benefitting from Clunker Schemes)

• Vehicle sales in China have surpassed those in the U.S.
• China has overtaken Germany as the world’s largest exporter (in percent of world exports)
• Due to the crisis, 14 million more people will be in poverty by 2010

As suggested by Research Recap two months ago, there’s a good chance there will be no merger of Kraft (KFT) and Cadbury (CBY) – at least for now. In Kraft-Cadbury: Deal or No Deal?, we outlined the reasons why such a combination might not make sense, noting that Sanford C. Bernstein’s Andrew Wood considers that Kraft would need to increase its offer up to £9.00 [from £7.45].

“This may be further than Kraft is willing or able to sensibly go in today’s more cautious post-crisis business environment, so it’s hard to see this deal being consummated at reckless cost. 'No deal' may disappoint those looking for a revival of the M&A market, but that may be better than a bad deal.”

Excerpts from Mind the GAAP: Reflections on European Corporates’ Results for H1 2009

Accounting limitations make it difficult to assess how the worst economic crisis since the Great Depression has affected the financial health of Europe’s largest non-financial companies, according to Moody’s Investors Service

Convincing debt holders to swap holdings that are in danger of default for bonds of lesser value has become an increasingly attractive option for some hard-pressed companies. “As long as capital markets remain open, we believe that some issuers will consider this option,” according to Diane Vazza, managing director of Standard & Poor’s Global Fixed Income Research Group.

“Yet, it’s important to understand that, after a distressed debt exchange, many companies won’t necessarily present a stronger credit profile.,” she wrote in a Q&A on the speculative grade sector.

Increased competition rather than heavier regulation may be a better way to deal with the problem of financial institutions (FIs) that are too big to fail (TBTF), according to an article in Booz & Co’s strategy+business.

“It is debatable whether a heavier degree of regulation will actually make financial institutions safer,” write Alan Gemes, Peter T. Golder, and Thorsten Liebert. “Throughout 2008, markets, not regulators, provided the first signals of crisis. The true riskiness of FIs and financial transactions can best be determined closest to the source of risk buildup. Proposals for different types of FIs need to take into account their different risk profiles. This asymmetry of information and the lack of transparency are likely to lead to a more restrictive level of regulation than would be optimal.

Railroads should pick up market share from trucking companies as economy improves.

Moody’s appears to concur with major investor Warren Buffett’s long-term view of the US railroad industry (or is it the other way around?). On the heels of further reducing Berkshire Hathaway’s (BRK.A) holdings in the ratings agency, Buffet is making a huge bet on the railroad industry through Berkshire’s acquisition of Burlington Northern (BNI).

First positive price change in over a year and the largest increase since the market downturn began in mid-2007.

The MIT Center for Real Estate’s latest transaction-based index (TBI) paints a pretty picture: Results for the 3rd quarter of 2009 show a 4.4% increase in prices compared to the previous quarter for properties sold from the NCREIF database, placing the price index 36.5% below its Q2 '07 peak.

CreditSights says accelerating shift from interest-only to higher amortising payments will spur delinquencies.

Excerpts from US RMBS Update: A Payment-Shock Seesaw

Delinquencies should reach 6% by 1Q 2010; assumptions already reflected in ratings criteria.

Excerpts from State of U.S CMBS Ratings: Moving Toward Stability

But Harvard research UK finds little change in CEO pay in UK.

Excerpts from Shareholders Need a Say on Pay

Guest Post by Oxford Analytica

Investors who continue to short the dollar in 2010 face considerable risk.