Of obseen Libor manipulation

Lloyds gets a $383.2m fine for Libor manipulation, split between US and UK regulators and including some £7.76 million in compensation to the BoE for manipulating the Special Liquidity Scheme (yup, the same scheme set up to help struggling banks), and we get to relive the glory days of Libor manipulation transcripts.

Some plain vanilla from the FCA:

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Yukos — Putin’s loose lips

Was Rosneft an arm of the Russian state in 2004?

For anyone looking at its shareholder list — or the background of Igor Sechin, chairman of the board of directors at the time — back then, it might hardly seem a taxing question. But it’s not the question the arbitration tribunal saw as important in Monday’s Yukos ruling.

This was whether Rosneft was specifically acting on behalf of the state when it played its part in the dismemberment of Yukos in 2004. (State responsibility in international law is a tricky subject.)

In an astonishing passage, the tribunal is sceptical that there is evidence of Rosneft acting in this way — until it notices the reflections of the man in the Kremlin from the time… Read more

Temporisation watch

That uneasy feeling when everything is going well. Is it deserved? Can it last? Should you cash in and go paint watercolours in that studio on the Pembrokeshire coast?

Strategists are not immune, with a summer bout of the temporaries upon us. Goldman is the latest, downgrading its view of stocks over the weekend but without really committing to it:

We also downgrade equities to neutral over 3 months. We are concerned that a sell-off in government bonds will lead to a temporary sell-off in equities in line with what we saw last summer, though the magnitude is likely to be smaller as the need for bond yields to correct is lower than it was back then.

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Yukos — the interest-ing bit

Another excerpt from Monday’s ruling by an arbitration tribunal, awarding $50bn to be paid by Russia to Yukos ex-shareholders…

As part of the damages from Russia’s expropriation of Yukos’ assets — the tribunal also had to work out interest. This is an important part of any arbitration case looking at financial losses incurred years ago. Although actually, there is surprisingly little guidance on what rate to choose. And the rate used by the tribunal here is (excuse the pun) interesting. Read more

Markets Live: Monday, 28th July, 2014

Live markets commentary from FT.com 

War and markets

Amid all the debate about why geopolitics isn’t hurting stock markets, a nice table from JP Morgan Asset Management:

All figures show war-zone countries as a percentage of the world, with our emphasis:

  • 11.7 per cent population
  • 9 per cent oil production
  • 3.8 per cent foreign direct investment
  • 3 per cent GDP

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The (early) Lunch Wrap

Former Yukos shareholders awarded $50bn damages against Russia || GSK opens issue of spinning off consumer division || Reckitt pushes ahead with spin-off of pharmaceuticals arm || Argentina braces for sovereign debt default || Aberdeen falls on £4bn mandate withdrawal || Markets Read more

A small and significant problem

A small squall or a broad based pall? BCA Research have spotted that small capitalisation stocks have been under pressure all around the world, in the US, Europe, Japan Asia and even, say they, the UK.

The reason, BCA suggests, is wage costs. Read more

Redemption is, a mutual fund story

Summary of stuff you probably know up top, newer stuff on whether big mutual funds are in fact systemically important nearer the bottom.

Last week the SEC finally got around to publishing new rules for money market funds which forces certain, arguably riskier, funds to switch to a floating share price instead of the current fixed $1-a-share cost. They have two years to comply.

Now, as Matt Levine says, you can largely ignore the changes if you’re a (coddled) human rather than a corporation as funds targeted at retail investors will be exempt from the floating share price, but still, from the FTRead more

Yukos — the $50bn award

Here’s how the tribunal of the Permanent Court of Arbitration worked out the figure, after finding in favour of former Yukos shareholders on Monday…

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Further reading

Elsewhere on Monday,

- Benchmark blues.

- The bastard love-child of snooping and high-level mathematical theory.

- Judge Griesa, very much in the soup.

- And the #GrieFault trade. Read more

The 6am London Cut

Markets: “Asian stocks rose, with a gauge of Chinese shares in Hong Kong heading toward a bull market, while Treasuries and oil slipped as investors await data on U.S. services before the Federal Reserve meets this week. Soybeans and corn rallied… U.S. reports on services activity and pending home sales are due before the Fed meets to discuss monetary policy, while Goldman Sachs said last week rising yields may spur a retreat in global stocks and bonds over the next three months.” (Bloomberg)

And have a weekly calendar of events (click to enlarge) for what Citi are calling “a volatile week in a boring month”: Read more

How not to introduce official e-money?

We’ve argued enthusiastically for the introduction of state e-money before.

But we overlooked the likelihood that it might first be adopted by countries like Ecuador as a means of getting out of their dollar bind (via Bloomberg):

Ecuador’s congress approved a new law today that allows the government to create its own parallel currency for use in local transactions as the government struggles to meet spending commitments.

Congress voted 91-22 to approve President Rafael Correa’s proposal to change the South American nation’s monetary and financial laws, allowing payments in “electronic money” and giving presidential appointees the power to decide who gets loans and how lenders invest their reserves.

The bill now goes to Correa for his signature or veto. As a current-account deficit drains dollars from the economy, making it harder for Correa to fund a burgeoning budget gap, a new currency could be used to meet government payments, said Jaime Carrera, a former deputy finance minister and director of the Quito-based Fiscal Policy Observatory. It could also lose its value quickly if not backed by the central bank, he said.

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RBS — the bank that outperformed

From Lex Live at noon on Friday…

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Dealmaking from an Indian jail apparently not so easy

Sahara’s incarcerated “managing worker” Subrata Roy — who is in a scrap with regulators over $4bn worth of convertible bonds sold, oft to impoverished farmers, in 2008 — is after a dealroom at Delhi’s Tihar jail.

Can you blame him?

If you were sitting in jail waiting for a (roughly) $1.6bn bail to be posted while being given some 6hrs leave a day to negotiate the sale of of three trophy hotels, including the Grosvenor in London, the proceeds of which would go towards meeting that bail… wouldn’t you try to hunt down a little extra calm and negotiating space? Read more

Geopolitical central banking

What happens when you raise rates by 2.5 percentage points, within a period of six months, for an economy that might only grow 0.2 per cent this year?

We’re not sure. Read more

The British economic recovery in 13 charts

So the UK economy grew 0.8 per cent in the second quarter of 2014, leaving output on this preliminary estimate at just about the previous peak set in Q1 2008, over six years ago. For an economy that produces almost £400bn a quarter in gross domestic product, exceeding the previous peak by £752m is really small beer, as our first chart below the break shows.

This has been the slowest recovery from recession since the 1920s, although be warned, the ONS has form on revising up its estimates. Joe Grice, its chief economist is already hinting at such a move, commenting today that the ONS “may yet modify our view of how slow the UK’s recovery has been”.

This post will examine how the economy has changed over the past six years in charts even though output is now again at the same level. Read more

Markets Live: Friday, 25th July, 2014

Live markets commentary from FT.com 

The (early) Lunch Wrap

RBS shares jump on better-than-expected trading update || BSkyB to pay up to £7.4bn to acquire European sister companies || Pearson sticks to profit targets || Lloyds to pay up to £300m Libor fines || Air Algerie airliner wreckage found in Mali || Heathrow records growth and looks for more via a third runway || Goldman bankers to Babble on their own chatroom || Amazon dives after losses blow out || Markets Read more

Further reading

Elsewhere on Friday,

- Andolfatto interviews Woodford.

- Barc’s dark pool rebuttal: technical and nit-picky, but persuasive.

- In other words, to continue offering high yields, Yu’E Bao has started to display classic signs of maturity mismatch.

- Hazlitt, Keynes and the glazier’s fallacy. Read more

The 6am London Cut

Markets: Asian markets were generally higher following a decent Wall Street session buoyed by corporate earnings, with Japanese stocks brushing off figures showing a fall in inflation. The attraction of haven assets dimmed as the S&P 500 notched yet another record high close in New York, gaining 0.1 per cent to 1,987.9 as generally well-received earnings reports outweighed lingering geopolitical worries. (FT’s Global Markets OverviewRead more

The Closer


- Robin Hanson on the new Nicholas Bostrom bookRead more

How to forward a new golden age

This is a guest post by Carlota Perez, Centennial Professor of International Development at the London School of Economics (LSE) and author of Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages in which she responds to arguments set out by Bank of England chief economist Andrew Haldane at the launch of the Mission-Oriented Finance this week.

Andy Haldane is one of the most brilliant and original minds in analysing the complexity of today’s finance and the policies that could shape it. It is an honour to be his discussant and indeed a challenge. Read more

Dryness alert, the Liquid-o-Meter siren has sounded

RBS have joined the chorus of concerns about dangers in credit markets from thin trading volumes and a lack of risk takers making markets.

The bank also, it turns out, has a measure for trading lubricacity:

Our Liquid-o-Meter shows liquidity in the credit markets has declined around 70% since the crisis, and it is still falling. We define liquidity as a combination of market depth, trading volumes and transaction costs: all have worsened. We also measure the premium for illiquidity: it is at a record low, meaning investors are not getting paid to take liquidity risk.

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The importance of patience and the danger of information overload

That Andrew Haldane, chief economist of the Bank of England, believes that short-termism is a bad thing for markets is hardly news.

He’s published numerous papers on the subject of patience in markets and the danger of short-sightedness, speaking frequently about the need to encourage long-term thinking in finance.

But what was fascinating about his speech at the mission-oriented finance launch party this week – where he once again outlined this argument — was not only the breadth and range of the colourful anecdotes he provided to make the case for long-termism, but also the concerns he raised about information overload. Read more

Putting a floor under the Grosvenor in India

Some numbers to understand the Sahara group, India’s hotel-to-banks conglomerate:

Rs 10,000 crore (roughly $1.6bn): the amount Subrata Roy, he of the “empire built on the poor“, must pay in bail if he is to be let out of Delhi’s Tihar jail after a five month stay.

Roughly $1.6bn: the combined estimated values of Mayfair’s Grosvenor House Hotel and the Plaza and Dreams Downtown Hotels in New York, all owned by Sahara.

Six hours: the amount of time per day Roy will be let out of jail to negotiate sales of the group’s hotels once a concrete offer is made. Read more

When are monopolies a good thing?

Here’s the proposition. Rule by committee isn’t a good thing.

In the worst-case scenario it leads to the “Lawrence of Arabia” problem, wherein you spend so much time trying to figure out how to rule well, you fail to notice when your sovereignty is being stripped away from you under your nose. Alternatively, it leads to the phenomenon of “settling”, wherein the pressure of arriving at a consensus allows all sorts of sub-optimal scenarios to creep in.

It’s probably not a coincidence, consequently, that great leaps forward tend to be associated with charismatic visionaries who, thanks to a near hypnotic effect on colleagues and associates, end up attracting the sort of approval and following that allows them to sculpt the future as they, not others, see fit.

Once in charge these guys tend to rule absolutely, deploying their wealth and power – often generated by early career triumphs – to implement the change they believe in. A lot of time, their greatest directional successes come as a result of forming monopolies or near monopolies in the areas they operate in. Read more

Markets Live: Thursday, 24th July, 2014

Live markets commentary from FT.com 

STAN: “We do not accept these media rumours”

We should just note the livid statement from Standard Chartered on Thursday morning…

The Board of Standard Chartered PLC “The Board” notes rumours in some media outlets on succession planning for the Group Chief Executive, and Chairman. Read more

The (early) Lunch Wrap

Good morning New York,