California’s governer declared a state of “fiscal emergency” after lawmakers failed to agree on a budget plan by the deadline on Wednesday, Reuters reported.
From Reuters: Read more
Wednesday’s dollar dive (as illustrated below by the movements of the dollar index) is, according to some reports, being put down to yet more rather non-dollar friendly signals from China.
James Davis, the former chief financial officer of Stanford Financial Group and who is facing charges related to an alleged $7bn fraud at the group, intends to plead guilty to the three charges against him, his attorney told the Financial Times.
Attorney David Finn, who is representing only Mr Davis, told the FT there would likely be a “procedural not guilty plea” entered at his arraignment, but that his client would ultimately plead guilty to the charges against him “once all the details are worked out.” Mr Davis is due to appear in court in Houston on July 13. Read more
Dealbreaker points to an Institutional Investor story on a 23-year-old financial wunderkind Merritt Graves – who is managing a $4.7m equity long-short fund while nominally attending college in California.
From II’s rather frothy profile of the talented Mr Graves: Read more
The report follows a similar assessment from Moody’s, which found US credit cards losses, as measured by the rating agency’s Credit Card Index, broke through 10 per cent in May. That is a record in the 20-year history of the index.
The FT’s Saskia Scholtes noted that the trend has put pressure on big US banks: Read more
As widely expected (read: leaked), the US Securities and Exchange Commission on Wednesday voted in favour of seeking feedback from investors and bankers on whether companies who benefited from government aid should be obliged to give shareholders a direct vote on executive compensation.
The proposed rule is quite limited in scope, since it would only apply to banks that haven’t yet repaid the funds they received under the Tarp (i.e, it would not apply to Goldman, JP Morgan and Morgan Stanley). Read more
Willem Buiter, former member of the Bank of England monetary policy committee, economist and FT ‘Maverecon’ blogger on Wednesday looked back through his voluminous works and commented thus (our emphasis):
Like most authors, I tend to cringe when I read something I wrote more than a few years ago. But when engaging in some authorial auto-archeology recently when preparing the index for a new paper (after all, if I don’t cite myself, who will?), I was pleasantly surprised with a few bits from a paper I wrote in 1999 and published in 2000 in the Bank of England’s Quarterly Bulletin, titled “The new economy and the old monetary economics”.
“Hedge fund returns up, redemptions down” says Reuters. Not, though, for everyone.
Proof that the redemptions nightmare is still not over for some funds: Thames River Capital, the multi-billion fund of funds is winding up a long/short emerging markets credit fund it operates, Hillside Apex, according to HFM Week. Read more
What’s this? Northern Rock has fallen below its minimum regulatory requirements?
Northern Rock’s capital base has now reduced to a level below its minimum regulatory capital requirement. Northern Rock proposes to address this situation through a legal and capital restructuring of the Company and HM Treasury’s commitment to provide an adequate level of capital for the Company to meet its regulatory capital requirements, once the proposed restructuring is completed and subject to appropriate State Aid clearance being obtained from the European Commission.
Whoever becomes the new chairman of Lloyds, the first thing he should do is get rid of the chief executive, Eric Daniels.
The current arrangement , which allows Mr Daniels to escape his share of responsibility, is explicable only in so far as it saves the government the embarrassment of having to admit how colossally it mishandled the Lloyds/HBOS merger. The new chairman, whether Sir Win or someone else, will have to have the courage to tell Mr Daniels’ supporters in Downing Street and UK Financial Investments that they must now cut him loose.
The number of bond exchanges occurring in Europe is gathering pace as issuers take advantage of declines in the value of subordinated securities to reorganise debt and boost capital.
Bloomberg reports that among the banks that have already taken deals to market in the perpetual sphere are RBS, UBS, Lloyds Banking Group, Standard Chartered and Barclays. Accordingly, it’s worth taking a closer look at what credit analysts say about these sorts of offers, especially in the case of distressed exchanges. Read more
US companies cut more jobs than forecast in June, according to data released by ADP Employer Services on Wednesday.
The ADP jobs report showed a drop of 473,000 private sector jobs on a seasonally adjusted basis from May to June, compared with expectations for a decline of 395,000, according to economists polled by Bloomberg. Read more
There was something of a flurry this week in the world of European debt exchanges, when Austria’s Raiffeisen Bank – the second biggest lender to emerging Europe – pulled without explanation a €500m perpetual exchange offer it had put to market on June 18th.
As the following Reuters story reports, speculation has focused on there not having been enough demand for the offer (our emphasis): Read more
On FT Alphaville on Wednesday morning,
– Other comprehensive income cleverness. Read more
Matt Taibbi’s Rolling Stone article on Goldman Sachs has been making tidal-sized waves in the blogosphere for the past week.
That’s unsurprising given that it begins with the following unnerving paragraph: Read more
Here’s a rather funny thing via UBS’s US banking team, which re-initiated coverage of a number of American IBs yesterday.
It relates specifically to Citi, but will certainly extend to other banks. Here’s UBS analyst Glenn Schorr: Read more
Live markets commentary from FT.com
Rights issues, all the rage in many key markets, have never been popular in Japan.
In fact, just like in the US, they are non-existent. That is partly due to a broad preference among Japanese companies for tapping the broader market with new share sales or using private placements – not least because of a Tokyo Stock Exchange rule that only allows them to conduct rights issues through doubling outstanding shares, not a smaller dilution, such as just a fifth of outstanding shares. Read more
We were yesterday reminded of the true Golden Era in central banking, circa 2006. A time when, freed from the dull chore that was setting interest rates, the main pressures on a Bank of England employee’s schedule were questions such as:
1) Moet or Veuve for the next CPI basket?
2) Can we try getting Sarah Beany on the MPC, just to shut Blanchflower up?
3) Canal boat or Yacht? Read more
The question is, which is the leading indicator?
9:30 RTRS – UK Q1 OUTPUT PER WORKER -2.0 PCT QQ, -4.2 PCT VS YR AGO, BIGGEST YY FALL SINCE RECORDS BEGAN IN 1960.
And so to the Melbourne Mining Club on Monday evening, where Xstrata’s Mick Davis was telling us how he was once the youngest cricketing umpire in South Africa, explaining along the way the “intellectual purity” of a nil premium merger of equals, as he would like to consummate with the unwilling Cynthia Carroll at Anglo American.
Nervous Takeover Panel-types can listen to an audio clip of the Davis address here. Read more
Greg Hutchings was, they still say, the “epitome” of the 80s entrepreneur.
He joined engineering co Tomkins in 1984 to lead the firm — in classic-corporate raider style — to a 350 per cent outperformance of its sector over the next seven years. Hutchings quit in 2000, however, in a cloud of controversy over company perks and with the final three years of his tenure underperforming the same sector by about 20 per cent. Read more
Elsewhere on Wednesday,
– “Do correlations matter when the world is on fire?” Read more
Comment, analysis and other offerings from Wednesday’s FT,
Martin Wolf: The cautious approach to fixing banks will not work
The financial system had to be rescued from its own mismanagement of risk, notes Wolf. This is not going to be changed by external supervision, which would be like moving regulatory deckchairs on the Titanic. It is going to be changed only by fixing incentives. Read more
Breaking pre-market news on Wednesday,
– Tesco is a “potential bidder” for Northern Rock — Times. Read more
Sir Win Bischoff, former chairman of Citigroup, is being lined up as the next chairman of Lloyds Banking Group. The veteran British banker, who stepped down from Citi in February, has been asked by UK Financial Investments – the body that manages the government’s bank stakes – to help Lloyds integrate HBOS, which it rescued last autumn. He is thought unlikely to oust Lloyds’ chief executive Eric Daniels, as some new chairmen might have done.
Morgan Stanley is joining forces with Japan’s Mitsubishi UFJ Financial Group in a US corporate lending venture that will help Morgan Stanley compete with Wall Street rivals. Under a deal announced Tuesday, Morgan Stanley and MUFG, the US group’s largest investor through its holding of preferred shares, will pool lending resources. The new venture, set to be extended to Latin America and Canada, will draw on MUFG’s existing US loans of about $70bn and Morgan Stanley’s $30bn.
ANZ, one of Australia’s top banks, may buy Royal Bank of Scotland Group’s units in at least five Asian countries as the government-controlled bank splits its assets in the region to attract buyers, reports Bloomberg. ANZ is in advanced talks to acquire RBS’s retail and commercial-banking units in HK, Taiwan, Singapore, Vietnam and Indonesia. Standard Chartered is seeking RBS’s businesses in China, India and Malaysia. The assets on sale may fetch about $1.5bn.
Lloyds Banking Group could be forced to sell its Halifax or Bank of Scotland branch networks to comply with EU anti-trust rules, Neelie Kroes, EU competition commissioner, warned Tuesday. Kroes, who also described RBS as “highly dangerous” to Europe’s single market, told the FT that Lloyds would have to make a “viable carve-out that won’t lead to job cuts”, which could well mean the forced disposal of Halifax or BoS branch networks.
Citigroup has sharply increased interest rates on up to 15m US credit card accounts just months before curbs on such rises come into effect, in a move that could fuel a consumer backlash against bailed-out banks. Citi, which is about to cede a 34% stake to the US government, upped rates on 13m to 15m credit cards it co-brands with retailers such as Sears. The news came as the government proposed legislation to create a powerful consumer protection regulator.