Posts from Tuesday Jul 14 2009

Buy on the rumour, steady on the fact

The price action in Goldman Sachs post results on Tuesday afternoon.

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Meredith Whitney is our leader

David Rosenberg‘s latest morning note has some interesting observations on the behaviour of investors and the cult of personality that seems to have arisen around former-bank slayer Meredith Whitney:

We thought that the ability of one person to move the market went out three decades ago with Henry Kaufmann over at Salomon Bros., but Meredith Whitney did manage to do the same – in a bullish fashion, though – with her CNBC remarks on Goldman yesterday morning. (Although, it was interesting that Dell’s reduced guidance for the current quarter garnered little attention.) What was interesting was how she stressed that this was not an industry-wide comment but rather specific to the firm and yet this was the tide that lifted all boats across the financials and the entire stock market for that matter. What this tells us is that even after 12 years of no appreciation in equities, and after brutal bear markets seven years apart, the public’s resolve in the stock market has not been shaken. The fact that the equity market could rally this much based on one analyst’s commentary is testament to the view of how badly investors want to believe that the recession and credit crunch are behind us and that unbridled prosperity lies ahead. As WTO Director-General Pascal Lamy said yesterday, “I would caution against excessive optimism.”  Read more

The IASB does fair value

Behold the International Accounting Standards Board’s proposed revisions to IAS 39.

IAS 39 being an accounting principle at the centre of much controversy in recent months and even years. The standard sets out how to value financial instruments, among other things, and the debate is essentially another mark-to-market one. Read more

Goldman’s getting riskier

This morning we were struck by the following paragraph in a New York Times article:

While others are shying away from risks, Goldman is courting them. A common measure of risk-taking at Goldman and other banks is known as value at risk, which estimates how much money a firm might lose on a single day. At Goldman, that figure rose by more than 20 percent in the first quarter. Analysts predict Goldman’s V.A.R. ran high in the second quarter as well.   Read more

Goldman, bonuses all around

This is unlikely to engender any good public feeling for the investment bank.

From the just-released Q2 earningsRead more

Goldman reports Q2 EPS of $4.93

This is on the Goldman Sachs site already. The full press release is “not found”.

Goldman Sachs Reports 2009 Second Quarter Earnings Per Common Share of $4.93 Read more

Lunch Wrap

On FT Alphaville Tuesday morning,

- The BoE’s axeman speaksRead more

Markets live transcript 14 Jul 2009

Live markets commentary from FT.com 

Airplane graveyard forensics

When airlines retire their aircraft — or simply decide to temporarily cutback capacity — they send their airplanes to hangars, or in some cases, to places like the Mojave desert in California. So-called ‘Airplane graveyards’ in the region look something like this:

http://www.pbase.com/clements/image/33575461 Read more

The BoE’s axeman speaks

Adam Posen, the new addition of the Bank of England’s monetary policy committee, has been speaking on Tuesday morning at his appointment hearing before Parliament’s Treasury Committee.

And true to form Posen, who has called for wholesale sackings at failing banks, is speaking his mind. Read more

CIT would be the fourth-largest bankruptcy in US history

The short-term financing crisis over at CIT is gaining momentum after Moody’s slashed the corporate lender by four levels to B3 from Ba2 on Monday.

By the way, if you’ve not heard of CIT, this is probably a good time to get acquainted with the company. Bloomberg reports CIT is the third-largest US railcar-leasing firm and the world’s third-biggest aircraft financier. It also funds about 1m businesses, including 300,000 retailers. In short, Barclays Capital estimates that if the company was to fail it would be the fourth-largest bankruptcy by assets in US history, in between General Motors and Enron. Read more

Quick Goldman results primer

There’s really only one thing that matters today and that’s second quarter results from the IB everyone loves to hate: Goldman Sachs.

The figures will hit the tape at 13.30 (8.30 ET) with a conference call scheduled for for 16.00 (dial 1-888-281-7154 US, 1-706-679-5627 Intl to listen in). Read more

Going from the exchange floor to the prison yard? (updated)

If so, Wall Street Prison Consultants is here to help.

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Imitation alpha

Look what hit the FT Alphaville inbox on Monday evening.

It is a press release from the IQ Alpha Hedge strategy fund, which claims to be the first no-load, open-end mutual fund designed to “replicate broad-based hedge fund performance characteristics.” In english, it is a mutual fund, comprised entirely of ETFs, masquerading as a hedge fund. Read more

On the (de)merits of small banks in developing countries

Over at the Economist’s Free exchange blog, a handful of top-flight economists (as one would expect) have been engaged in a lively debate on the optimal size and complexity of developing countries’ financial systems.

Mark Thoma has been keeping track of the roundtable, which is hosted by Justin Lin, the chief economist at the World Bank and which kicked off with a guest essay by Lin in the print edition of the Economist and migrated online. [As an aside, clever integration there guys] Read more

Further reading

Elsewhere on Tuesday,

- “While others are shying away from risks, Goldman is courting them.” Read more

Pink picks

Comment, analysis and other offerings from Tuesday’s FT,

Pink picks illustrationGideon Rachman: China is now an empire in denial
When the Soviet Union collapsed in 1991, it suddenly became obvious that the USSR had never been a proper country. It was a multinational empire held together by force. Might we one day say the same of China? Read more

Snap news

Breaking pre-market news on Tuesday,

- UK retail sales values rose 1.4 per cent on a like-for-like basis from June 2008 – British Retail ConsortiumRead more

Goldman execs sold $700m of stock in Lehman aftermath

Executives at Goldman Sachs sold almost $700m worth of stock following the collapse of Lehman Brothers last September, the FT reported, citing SEC filings. Most of the sales occurred during the period in which the investment bank enjoyed the support of $10bn from the troubled asset relief programme. A spokesman declined to comment on the sales, other than to note that Goldman partners receive a big share of annual bonuses in stock, and that for many, stock sales are an effort to diversify their holdings. Goldman will report its second-quarter earnings on Tuesday.

RBS chief to face tougher pay targets

Stephen Hester, chief executive of Royal Bank of Scotland, will be given tougher performance targets to meet next year to collect his maximum bonus following a public outcry over his pay award of up to £9.6m for this year. Mr Hester would next year have to hit goals on profitability and other measures, not just the RBS share price target he has been set for his 2009 long-term incentive plan, people involved in the decision making told the FT.

RHJ vows to put Opel in profit by 2011

RHJ International is promising to make Opel profitable by 2011 and keep its two Vauxhall plants in the UK open as part of its bid for the European business of General Motors, the FT said. The Brussels-listed industrial holding, which has kept a low profile throughout GM’s sale of Opel, confirmed for the first time on Monday that it was “at an advanced stage” of talks with the US carmaker. It is now preparing a final contract to buy Opel, which it plans to present to GM this week, according to a person with direct knowledge of its plans.

French workers threaten to blow up plant

Workers at a failed French car parts supplier are threatening to blow up their factory unless the company’s two biggest clients – Renault and PSA Peugeot Citroen – stump up extra compensation, the FT reported. Employees of the engine parts maker New Fabris have rigged up a series of gas canisters inside a factory workshop which they say will be detonated on July 31 if the two carmakers fail to pay €30,000 to each of the 366 workers facing unemployment.

UK house sales rise as market improves

Inquiries by would-be homebuyers at estate agents are translating more frequently into purchases, according to figures published on Tuesday. Newly agreed sales are rising more widely across the market than at any point since data were first collected in 1999, the FT said, citing a monthly survey of housing by the Royal Institute of Chartered Surveyors. Buyer inquiries have been rising for the past eight months, and Rics said the latest data reflected interest in buying homes beginning to channel through to more sales.

US in talks to rescue CIT

The crisis at CIT, one of the largest US middle-market lenders, worsened on Monday with the company talking to regulators about ways to stave off failure while its credit ratings were cut deeper into junk territory A failure at CIT could result in losses for Goldman Sachs and Wells Fargo, the FT said. Goldman last year agreed to a $3bn secured financing facility for CIT and Wells Fargo provided $500m in secured financing. The WSJ said US government officials were in advanced talks about providing some sort of aid to the company, but it added the discussions are fluid and that it remained unclear whether a final deal could be brokered.

Facebook common stock deal puts value at $6.5bn

Digital Sky Technologies, the Russian internet group that has invested $200m in Facebook, will purchase up to $100m in common stock from existing shareholders in the social network, the FT reported, citing a person close to the deal. The deal clarifies Facebook’s valuation, giving its common stock a value of about $6.5bn. This is higher than the rumoured valuations last autumn when a similar deal was considered, but lower than the value of Facebook’s preferred stock.

Microsoft in free software assault on Google

Microsoft on Monday escalated its battle with arch rival Google, reacting to an assault on one of its core businesses with the announcement of a free online version of its widely used Office software, to be launched next year, the FT said.

SEC to create group to check rating agencies

The SEC  has created a new group of examiners to oversee credit rating agencies, which came under sharp criticism for their role during the financial crisis, the FT reported. The regulator has already adopted a number of measures to increase transparency at credit rating agencies, which are paid by the issuers they rate. But greater oversight is needed with officials expected to conduct both routine and special examinations of their activities, Chairman Schapiro is set to tell a Congressional oversight hearing on Tuesday.

Overnight markets: Up, at last

Asian equity markets rallied on Tuesday, snapping a nine-session losing streak and lifting the MSCI Asia Pacific Index from an eight-week low. Traders were spurred by positive economic news from Singapore, which upgraded its forecast for economic growth, Bloomberg reported. By noon in Tokyo, the MSCI Asia Pacific Index had risen 1.9 per cent to 99.90 after closing on Monday at its lowest level since May 18.

Asian markets (Tue)
04:oo BST
Nikkei up 201.05 (2.2%) at 9,251.38
Topix up 16.12  (1.9%) at 868.54
Hang Seng up 306.6 (2.2%) at 17,640.63 Read more