Posts from Wednesday Jul 15 2009

US government to end the era of the unregulated hedge fund

Legislation is being sent to the Hill today, according to a speech to be given shortly by Assistant Treasury Secretary Michael Barr:

I would like to speak to you about where we stand today in the economy at large and the forces and incentives that led us into the current crisis. I would also like to begin a discussion with you on the sweeping set of reforms that the Obama Administration has proposed for our financial sector. In the weeks since the release of those proposals, the Administration has pushed forward this debate in testimony and outreach and continued to make our proposals concrete in legislation and regulation. Later today we will continue our efforts by sending legislation to the Hill that will require registration of all hedge fund advisers.  

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The roguest debt agency of them all

Here’s an interesting story out of Austria on Wednesday.

Via Reuters: Read more

Accounting brinkmanship

Accounting *yawn*. But how about accounting in German?

We are getting the first industry reactions to the IASB’s proposals to reform IAS 39, the accounting standard which sets out how to value financial instruments under IFRS, among other things. And the reactions appear to be largely in the negative. And are coming out of Germany. Read more

Leading hedge fund manager to quit

… according to Germany’s business weekly WirtschaftsWoche:

FRANKFURT, July 15 (Reuters) – Porsche SE’s  embattled chief executive, Wendelin Wiedeking, is leaving the company, Germany’s business weekly WirtschaftsWoche reported on Wednesday, without citing sources. Read more

Trichet on the ECB’s rubbish assets

As Maverecon professor blogger Willem Buiter has been writing for a while, the ECB is uniquely different to other central banks in terms of the unconventional credit easing operations it has been conducting during the crisis, and as far as its positioning on the way into the crisis.

As Buiter has stressed, the ECB has accepted all manner of unconventional collateral (mortgage-backed securities et cetera) at its liquidity windows since inception. Read more

Defensive decoupling

The Merrill Lynch fund manager survey for July is out and it shows that the big investment bank’s have been successful in persuading their clients to rotate into more defensive stocks:

Having been fleetingly underweight all the big defensive sectors, investors have started reversing their stance.

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Is Goldman Sachs a giant credit portfolio?

Jim Bianco has a fascinating post at The Big Picture, asking what is Goldman Sachs?

His answer: one big credit portfolio. Read more

Arnie goes all Terminator on California budget-crisis

Da da duh da doo… da da duh da doo…

StandforCalifornia commercial Read more

Bulls vs Bears

From Merrill Lynch, who have just called the end of the recession based on the July Research Investment Committee report. Click to enlarge:

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Who’s not happy about extra commodity regulation?

Last week the US Treasury Secretary Timothy Geithner provided more details on how he plans to give regulators  greater powers in policing the world of  commodity exchange-listed and OTC derivatives. The biteback from the industry is now gathering pace.

Barcap’s daily energy note on Tuesday infers such moves are ‘misguided’ (our emphasis): Read more

Lunch Wrap

On FT Alphaville Wednesday morning,

– Moody’s and the monolinesRead more

Moody’s and the monolines

More monoline difficulty:

New York, July 14, 2009 — Moody’s Investors Service is modifying the rating methodology it applies to structured finance securities insured by financial guarantors. Specifically, starting September 1, 2009, Moody’s will withdraw the ratings on those structured finance securities insured by guarantors that have financial strength ratings below Baa3 (that is non-investment grade) if either of two conditions are met: Moody’s is unable to determine an underlying rating (i.e., absent consideration of the guaranty) on the security or the issuer has requested that theguaranty constitute the sole credit consideration. Read more

Markets live transcript 15 Jul 2009

Live markets commentary from 

Getting to the bottom of negative gold-leasing rates

We drew attention to Professor Antal Fekete’s concerns over the spate of ‘ongoing’ backwardation in the the gold physical market on Monday.

The backwardation apparently has much to do with a decline in the activity of those eager to sell physical gold in the market. Professor Fekete’s methodology for identifying backwardation, however, does not rest upon looking at the exchange-listed futures curve. As he explained on the 14th December: Read more

Goldman’s blow-out Q2, the media reacts

Apart from a fascination with how much money Goldman Sachs made by the day, minute, hour and second in the second quarter of 2009, the media reaction to Tuesday’s record-breaking figures mostly focuses on whether they will be some sort of regulatory backlash.

Nils Pratley at The Guardian ask whether exceptional profits deserve exceptional rates of taxation: Read more

Trouble in Latvia, again

Uh oh. This can’t be good.

From Reuters (our emphasis): Read more

The business of financial commentary

We try not to indulge in media navel gazing here at FT Alphaville, but sometimes something comes along that just deserves a wider audience.

Step forward, Felix Salmon, the blog ambassador at Reuters, who has penned an interesting analysis on comment service Breakingviews, which also touches on the business of financial commentary itself. The back story here, of course, is that Reuters is in preliminary discussions to buy Breakingviews. Read more

Goldman’s blow-out Q2, the analysts react

There are two clear takeaways from the analyst reaction to Goldman’s blow-out second-quarter results on Tuesday.

Firstly, while the results were pretty impressive, there’s a lot of uncertainty about where future profits will be coming from. Secondly, there’s some concern about the bank holding onto excess capital that (shock, horreure) could be deployed for profitable purposes — such as a share buyback. Read more

Intel on Intel?

Intel wowed the street on Tuesday with much better than expected numbers. As Reuters reports:

SAN FRANCISCO (Reuters) – Intel Corp’s quarterly results and outlook blew past Wall Street forecasts on better-than-expected consumer demand for PCs, especially in Asia, setting an auspicious tone for the technology sector. Shares of Intel, the world’s largest chipmaker, jumped 8 percent on the report, driving Standard & Poor’s 500 stock index futures sharply higher and bolstering technology shares such as arch rival Advanced Micro Devices Inc.  Intel projected third-quarter revenue at $8.1 billion to $8.9 billion, compared with analysts’ average forecast of $7.8 billion, according to Reuters Estimates.

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CMBS watch

The CMBS market looks like it was roiled yesterday — the day before the second Talf offering — by S&P downgrades.

Markit - CMBX AAA chart Read more

Further reading

Elsewhere on Wednesday,

An EU commissioner’s pipeline dreamsRead more

Pink picks

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

FT cartoon Martin Wolf: After the storm comes a hard climb
Is the world economy on its way out of the crisis? Has the world been learning the right lessons? The answer to both questions is: up to a point. We have done some of the right things and learnt some of the right lessons. But we have neither done enough nor learnt enough. Recovery will be slow and painful, with substantial danger of relapses. Read more

Snap news

Breaking pre-market news on Wednesday,

– WPP buys majority stake in T&A Communications in Vietnam – statementRead more

Goldman bonuses top the boom years

Pay at Goldman Sachs this year is set to beat the boom levels enjoyed before the financial crisis, with employees on track to earn a record $770,000 each on average. The news accompanied surging second-quarter profits, the FT reported. Earnings of $3.44bn were up 65 per cent from the three months to May 30 last year, on revenues of $13.76bn – figures that surprised even the most bullish analysts. If the bank maintains that growth, its staff could share total pay and bonuses of $22bn.  Lex noted that  it takes some sucking power to extract $3.4bn of quarterly net income within a year of a full-throated banking crisis. With Goldman’s shares close to levels before Lehman Brothers collapsed, you’d be forgiven for wondering if 2008 ever happened.

Myners promises alternative to draft EU hedge rules

The European Commission’s draft directive on hedge funds and private equity funds can and will be improved, according to the financial services minister, Lord Myners. “The UK government does agree there is a case for regulation at the EU level,” Lord Myners told the House of Lords EU subcommittee on Tuesday, adding that there were nonetheless, serious “deficiencies” with the draft. The Treasury has already begun to draft alternative suggestions to the European Union regulations, he said.

The view from Mayfair

From the salons of Mayfair to the sidelines of children’s baseball games in the fancier parts of town beloved of expats, the outrage in London is palpable,write Brooke Masters and Nikki Tait in an FT analysis. Mention the European Union’s new proposal to regulate alternative investment managers – as those who work in the hedge fund and private equity world are known – and out pours a torrent of angry complaints. The draft directive is, say industry figures, poorly drafted, ill conceived and anti-competitive. “A blatant attempt by the French and Germans to sock one to London,” fumes one Mayfair-based hedge fund manager.

IASB unveils fair value proposals

A radical shake-up of how banks and insurers report the value of financial instruments has been proposed by the International Accounting Standards Board in an attempt to resolve an intense dispute at the heart of efforts to prevent a repeat of credit crisis. A simple principle is proposed for valuing a financial investment as a long-term holding or as a trading position. The IASB says that if a bank’s investment produces predictable cash flow like a government bond, it can be valued in accounts using an accounting mechanism that smooths out market fluctuations. If the investment’s cash flow is unpredictable, like some derivatives, it should be valued at current market levels. The proposals are a riposte to a transatlantic push to water down “fair value” accounting, valuing assets at market levels. Some banks and policy markers believe the “fair value” creates unnecessary volatility in earnings, contributing to a loss of investor confidence at the height of the credit crisis when plunging asset prices hit balance sheets.

BT faces questions over pension liability assumptions

Britain’s pensions regulator is braced for a battle with BT over its retirement plan, the country’s biggest private sector pension scheme, which could add billions of pounds to a shortfall in savings for tens of thousands of employees and pensioners. The FT has learnt that the regulator has raised questions about the assumptions BT has used in valuing the scheme’s liabilities. It has taken the unusual step of retaining an external actuarial adviser for negotiations with BT over those assumptions, a sign it is braced for tough talks. BT has disclosed a shortfall in the scheme’s assets of £3.97bn at the end of March. But it has yet to finalise an actuarial valuation, which must be done before the regulator can approve any plan to plug the funding gap.

British Airways seeks cash

British Airways is being forced to raise fresh capital to shore up its shrinking cash resources, chairman Martin Broughton told shareholders on Tuesday. While a rights issue has been ruled out, the airline is discussing with investors other ways of raising liquidity, most probably through a convertible bond issue. The UK flag carrier is the latest of a growing list of leading international carriers to seek to raise funds to strengthen balance sheets, that have been hit by mounting losses and the impact of the recession on demand for air travel, in particular from the most lucrative premium travellers.

Intel reports a Q2 pick up

Intel, the world’s biggest chipmaker, reported its strongest pick up in business in more than 20 years, giving a major lift to the PC industry and technology sector on Tuesday. The company reported second-quarter revenues of $8bn, up 12 per cent on the first quarter and well ahead of analyst expectations of $7.23bn. Its profit of 18 cents a share also blew past the Wall Street consensus of 8 cents. Intel shares rose 7 per cent in after-hours trading in New York.