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We like to think that when we deposit a dollar at the bank, it goes into a big vault and we can pull out that same dollar at any time. But that¿s not how the U.S. banking system works. Banks take that money and invest it to make money themselves, so cash gets spread around. This, naturally, leads to a big risk: What happens if those investments go sour? Well, you¿d be out of luck. You can¿t get your dollar back.
The Federal Reserve doesn¿t like that scenario, so it prohibits banks from putting all the cash it has on deposit on the line. In fact, the Fed forces banks to keep a portion of their assets at the Federal Reserve itself, to make sure that some of your assets won¿t get squandered if the bank¿s bets go south. These are called ¿reserves,¿ (hence, Federal Reserve. Got it? Good), and usually amount to 10% of the total cash kept in checking accounts.
These reserves are never exactly 10%, and banks like to keep a little extra in reserve ¿ not, as you might think, to make you more comfortable that they¿re in good financial shape, but rather so they can take that excess and lend it to other banks and make money off it. (They¿re banks, they can¿t help themselves.) The rate at which they make these loans is called the Federal Funds rate, which is set by the Federal Reserve¿s Federal Open Market Committee.
When you hear people chattering about how the Fed cut or hiked interest rates, this is what they¿re talking about: the interest rate banks can charge for lending money from their reserves. This begs the question: If these are essentially loans between banks, why is the Fed Funds rate so important for the rest of the economy?
Well, simply put, because loans make the financial world go round. Bank A lends Bank B $10,000 at a Fed Funds rate of 5%. Bank B then lends out $10,000 to a small business at 7%. The small business then takes that money and expands the business and hires new workers. Now someone is employed, Bank B has made interest off the loan, and Bank A is the richer for making it all happen. It¿s perhaps overly simplistic, but you get the idea. When you want the economy to thrive, you make lending cheaper.
Of course, sometimes you don¿t want the economy to thrive. In fact, you might want it to cool down, mostly to avoid money flooding the system and causing inflation. In that case, the Fed raises interest rates, making it difficult to lend or borrow.
Home / Markets / Industries / Energy
Wednesday, June 11, 2008
Cordero Energy Inc. Reaffirms Recommendation
Comtex
CALGARY, ALBERTA, Jun 11, 2008 (Marketwire via COMTEX) ----Cordero Energy Inc. ("Cordero") (TSX:COR) confirms that it received a revised written proposal from Ember Resources Inc. ("Ember") on June 6, 2008 documenting Ember's intention to acquire all of the issued and outstanding shares of Cordero. Ember's proposal was not capable of being accepted as a binding alternative to the outstanding offer by ENMAX Corporation ("ENMAX"), because it is a non-binding invitation for Cordero to enter into exclusive negotiations in connection with the acquisition of Cordero by Ember by way of a plan of arrangement based on Cordero shareholders receiving 2.61 Ember common shares, at a deemed value of $2.05 per Ember common share, for each Cordero common share (valued at $5.11 per Cordero share based on the three-day volume-weighted average trading price of Ember) or $5.35 per share in cash. According to the Ember proposal, the cash portion payable by Ember to Cordero shareholders would be limited to $55 million, $45 million of which would be raised by Ember pursuant to a private placement of subscription receipts which would require the approval of Ember's shareholders at a meeting called for that purpose and the remaining $10 million of which would require Ember taking on additional bank debt. The Ember proposal also provides that elections by Cordero shareholders for more or less cash would result in a proportionate adjustment to the number of Ember shares issued to Cordero shareholders.
The Cordero Board of Directors (the "Board") has carefully considered Ember's proposal including the advice of both Cordero's financial advisor and legal counsel and has concluded, based on the information available and uncertainties regarding the negotiation of a mutually acceptable binding arrangement agreement and the risks of not receiving Ember shareholder approval for the financing, that it is unable to determine if the Ember proposal is superior to the outstanding offer by ENMAX to acquire all of the outstanding common shares of Cordero for $4.75 cash for each share (the "ENMAX Offer"), which expires at 4:30 p.m. (Calgary time) on June 13, 2008.
ENMAX has requested the Board reaffirm its recommendations to shareholders pursuant to Section 11.1 of the Pre-Acquisition Agreement dated February 18, 2008 between Cordero and ENMAX. Accordingly, based on discussions with its financial advisor who has reaffirmed to the Board its fairness opinion respecting the ENMAX Offer, the Board does hereby reaffirm its recommendations to Cordero shareholders regarding the ENMAX Offer as set out in its Directors' Circular dated March 10, 2008 previously sent to all shareholders, including that the ENMAX Offer is in the best interests of shareholders of Cordero and that shareholders of Cordero should accept the ENMAX Offer and tender their shares thereto.
Cordero is an independent exploration and development company pursuing conventional oil and natural gas production and reserves as well as coalbed methane development in western Canada. Cordero is based in Calgary, Alberta.
SOURCE: Cordero Energy Inc.
Cordero Energy Inc. David Elgie President and Chief Executive Officer (403) 265-7006 Cordero Energy Inc. Dean Setoguchi Vice President and Chief Financial Officer (403) 265-7006 Website: www.corderoenergy.com
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