On FT Alphaville this week,
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Of all the economic bubbles that have been pricked, few have burst more spectacularly than the reputation of economics itself.
So says the Economist in its exploration of what went wrong with the dismal science and its practitioners, whose pronouncements – in the wake of the ongoing economic crisis – “are viewed with more scepticism than before”. Read more
Citi is surprisingly transparent about its accounting for mortgage holdings and investments in its recent Q2 results.
Of particular interest in the tables below, is the rather remarkable turn around in subprime exposures — which have turned from a $2.3bn mark-to-market loss in Q1 2009 to a $613m gain in the most recent quarter. Commercial real estate is still rather weak, however. Read more
Live markets commentary from FT.com
John Kemp over at Reuters has published some sober – and much needed – analysis on the amount of risk Goldman is taking on its trading books.
The back story here is that Tuesday’s figures showed Goldman’s net value at risk (VAR) in the second quarter averaged $245m, about a third more than in the same quarter in 2008. Read more
News that CIT’s potential bankruptcy could impact a number of synthetic CDOs — in Europe in particular — hit the wires earlier this week:
NEW YORK, July 14 (Reuters) – Standard & Poor’s said on Tuesday that 1,881 synthetic collateralized debt obligations are exposed to CIT Group (CIT.N: Quote, Profile, Research), the troubled small business lender struggling with a liquidity crisis. Read more
Latvia watchers will be awaiting the end of the IMF’s mission to Baltic country on Friday with trepidation.
We already know the talks have been difficult. And while Latvia technically can survive without receiving the second tranche of IMF aid being discussed, failure to do so could result in credibility issues. Meeting any new conditions on the €7.5bn worth it has already received from the IMF, meanwhile, could be tough for a country that has already had to extensively cut public spending to maintain its budget. Read more
Comment, analysis and other offerings from Friday’s FT,
David Pitt-Watson: Investors need to behave more like owners
The senior adviser to Deloitte,says that as any good lawyer will tell you, there are some things you can enforce by law: thou shalt not kill; thou shalt not smoke in a public building. But you cannot legislate for good governance and you cannot ensure shareholders behave as good owners. All regulators can do is get everyone to tick the box. Read more
Leading bankers in London hit out at government-backed recommendations to rein in executive power and make public the details of top bankers’ salaries, saying the proposals were overly bureaucratic and populist. One senior figure at an American investment bank equated proposals in the Walker Review, published on Thursday, to the provisions of Sarbanes-Oxley legislation in the US, which imposed strict new governance requirements on listed companies in the wake of the Enron scandal and the era of dotcom excess. “There are real echoes of the Sarbox syndrome here,” he said. “This is the dead hand of bureaucracy.” Sir David Walker, the former chairman of Morgan Stanley International and author of the report on financial sector corporate governance, said that boards’ remuneration committees must take on far more work. They should scrutinise the pay of anyone earning more than the average board-level executive. Sir David also wants financial groups to set up board-level risk committees, separate from audit committees, to ensure that executives are not allowed to run amok.
Jamie Dimon, chief executive of JPMorgan Chase, on Thursday hit out at strict rules on US credit cards, saying they would cost the bank’s lossmaking card unit up to $700m next year. His comments came after JPMorgan underlined its status as one of the winners from the crisis, beating expectations with second-quarter earnings of $2.7bn, up 36 per cent from a year ago, thanks to strong investment banking revenues. Mr Dimon said that while JPMorgan supported most of the reforms introduced by the US government, some of the “fast and furious” regulatory activity had gone “a little bit too far”. He singled out the credit card provisions, which from February will constrain lenders’ ability to raise rates for risky borrowers, and rules that propose to move most derivatives trading on to exchanges as two contentious areas. The tough stance by JPMorgan reflects Wall Street’s new-found confidence in lobbying regulators and the government. After keeping a low profile during the crisis, many of the banks that repaid the bail-out funds are becoming more aggressive in Washington.
A new order is emerging on Wall Street – one in which just a couple of victors are starting to tower over the handful of financial titans that used to dominate the industry, the New York Times reports. On Thursday, JPMorgan Chase became the latest big bank to announce stellar second-quarter earnings. Its $2.7bn profit, after record gains for Goldman Sachs, underscores how the government’s effort to halt a collapse has also set the stage for a narrowing concentration of financial power.
Blackstone, the private equity group, is advising its rival Terra Firma on a plan to issue high-yield bonds to repay Citigroup’s £2.6bn of loans to music group EMI, one of the US bank’s biggest single exposures. JPMorgan and Morgan Stanley may underwrite the issue. Citi has already been approached by Guy Hands, chairman of Terra Firma, with a proposal for the private equity group to inject £300m of equity into EMI. The buoyant high-yield bond market could be an escape route for companies bought by private equity during the debt bubble that are facing concerns on how to repay about $600bn of loans maturing over the next five years.
One of Saudi Arabia’s most powerful family-owned companies has filed a lawsuit in which it accuses Maan Al-Sanea, the Saudi billionaire and owner of the Saad Group, of “massive fraud” and alleges that he “misappropriated approximately $10bn as a result of his frauds”. Ahmed Hamad Algosaibi and Brothers Company filed the suit in New York in answer to a case filed against it by Mashreqbank, a UAE-based bank, over $150m allegedly owed to it by AHAB. Such a public dispute is virtually unheard of in the Gulf.
Hank Paulson, the former US Treasury secretary, faced hours of Congressional questioning about his decisions at the height of the financial crisis on Thursday, with lawmakers highlighting the collapse of Lehman Brothers and his relationship with Goldman Sachs. A studiously polite Mr Paulson responded to an often scatter-gun interrogation by the House oversight committee, saying he lacked the powers to save Lehman and had sought ethics advice to guard against conflicts between his former job at Goldman and his position as Treasury secretary.
Shares in CIT, the US small-business lender, fell 75 per cent on Thursday after the failure of government bail-out talks prompted fears of a bankruptcy filing. The company was scrambling on Thursday to obtain last-minute financing commitments from lenders that could help CIT persuade the Federal Deposit Insurance Corporation to allow it to transfer assets to its banking subsidiary. However, chances of success were slim,
Government departments iin Britain have amassed more than £20bn in underspends, the Treasury revealed on Thursday, adding to the problem of public expenditure control over the next decade. The announcement of the totals built up under what is termed “end-year flexibility” – money which departments have a right to spend – came on the same day the International Monetary Fund’s annual assessment of the economy confirmed its initial recommendation that the government should bring forward plans to cut the £175bn deficit in the public finances this year.
Iceland is preparing to make a formal bid for European Union membership within days as it turns to Brussels for help in stabilising its shattered economy. Its parliament on Thursday narrowly voted in favour of accession talks, a decision that reflected a shift in public opinion that had been fiercely opposed to membership. It now faces two years of negotiations before it holds a national referendum on whether to join the bloc of 27 countries.
Porsche SE is likely to reach an agreement on a stake sale in a few days, chief executive Wendelin Wiedeking told Bloomberg, when asked whether Porsche will be sold to Volkswagen. “It’s already on the table,” he said in Ingolstadt, Germany, where he’s attending the 100th anniversary celebration for Volkswagen’s Audi division. Porsche is also considering an offer by the Qatar Investment Authority to buy a stake in Porsche’s holding company and options on Volkswagen stock. Stuttgart-based Porsche is considering ways to reduce more than 9 billion euros in debt after amassing a 51 percent stake in VW as well as the options over a further 20 per cent of the Wolfsburg-based carmaker.
At least eight people were killed on Friday in two separate explosions at the JW Marriott and Ritz-Carlton hotels in central Jakarta, just over a week after the world’s most populous Muslim majority nation completed a peaceful presidential election. The first explosion was heard at the Marriott around 0745am local time. The hotel was targeted in 2003 by the al-Qaeda-linked Jemaah Islamiyah, when a bomb set off by the Islamic terrorists killed 11.