Posts from Monday Jul 20 2009

“Extrapolating is dangerous”

So say Dresdner’s credit analysts in a note published on Friday. From the report:

•Markets have been extrapolating the recent improvement in economic data, which is a dangerous assumption. Read more

Morgan Stanley’s hedgie hire

Morgan Stanley (NYSE: MS) announced today that Jack DiMaio will join the Firm as the Global Head of Interest Rate, Credit and Currency trading. Mr. DiMaio, who has more than 20 years experience in the bond and credit markets and previously served as the Head of Fixed Income (North America) at Credit Suisse as well as the Head of Alternative Investments at Credit Suisse Asset Management, will also join Morgan Stanley’s Management Committee. He will report to Michael Petrick, Global Head of Sales and Trading.

Long live the prop desk. Read more

Lex: Iceland’s rehabilitation

Iceland’s plan to save its banks looks good on the surface, but there are at least three problems with it.

First, the agreement to compensate British and Dutch retail savers the $5.5bn they deposited in internet bank Icesave requires parliament’s approval. That will be a contentious vote given the number of angry locals wearing “Iceslave” t-shirts. Second, the creditor workout at the old “international” banks is yet to begin; with liabilities of around $60bn, claimants will form the usual disorderly queue. Finally, the new local banks’ assets are unlikely to be as white as the driven snow, so further restructuring of dud domestic loans will be needed. Read more

The Fake Sheikh is back in town… (2nd update)

… and we’re not talking the News of the World’s fancy dress enthusiast Mazher Mahmood.

Yesterday afternoon news organisations the world over received a fax (yes, a fax, remember those?) from an organisation called Arabian Peninsula Group announcing a $49.50 bid for US car stereo-maker and Essex boy-racer staple Harman InternationalRead more

Sticky inflation, redux

Last week UK inflation fell below the Bank of England’s target for the first time since September 2007, meaning it has taken almost two years of financial crisis to bring inflation back below 2 per cent. Sticky meet UK inflation. UK inflation meet sticky.

UK inflation is a bit sticky relative to its CPI peers as well. To wit, this chart from RBC Capital Markets: Read more

Timber!

Friday’s much better than expected US housing start figures are still feeding through into positive sentiment this Monday. At 582,000, the number reported by the Commerce Department beat analyst expectations of 530,000 by one of the widest margins yet since the crisis.

But just how significant a turnaround is this? Read more

Lunch Wrap

On FT Alphaville Monday morning,

- A tale of multiple CDOs. Read more

Markets live transcript 20 Jul 2009

Live markets commentary from FT.com 

A tale of multiple CDOs

We heard last week that Morgan Stanley has begun making plans to repackage downgraded debt into a new tranche of AAA-rated securities. That technique essentially involves employing a Re-REMIC strategy typically used for CMBS-backed CDOs, to repackage a CDO backed by leveraged loans – a CLO. Meanwhile, Goldman Sachs and Barclays are said to be up to their own securitisation schemes.

And late on Friday we heard of another new one, from Structured Finance NewsRead more

George Osborne, clap-trapper

There was one thing missing from George Osborne’s cosy Sunday morning chat with Andrew Marr on the BBC, and his subsequent View from Europe interview with George Parker, the FT’s political editor:  evidence that this man quite has what it takes to be Britain’s next Chancellor of the Exchequer.

In fact, quite the opposite. Osborne’s  headline-grabbing promise to scrap the FSA betrayed a breathtaking naivety. Does he really think we can just dismantle the infrastructure of Britain’s financial regulator — 10 years in the building — and then simply reconstruct it in some supposedly firm old hands in Threadneedle Street, and, hey presto, everything will be fixed? Read more

Quotes du jour, Gasparino pugnacity edition

From the FT’s profile of CNBC’s Charlie Gasparino:

“People at CNBC will tell you that I’m a pain in the ass, hard to manage, that kind of thing, but they benefit from me being that way,” he says. Read more

EU-IMF breakdown over Latvia?

The IMF’s mission to Latvia should have finished last Friday. But with no agreement on the international body’s second instalment of aid yet, many are beginning to question the very survivability of the current international lender model in emerging Europe.

Writing for Barclays Capital, Christian Keller comments (our emphasis): Read more

Further reading

Elsewhere on Monday,

- Hide-and-seek in the market. Read more

Pink picks

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

Pink picks illustrationClive Crook: A rocky road for the fiscal stimulus
Unemployment has already risen further in the US than President Barack Obama’s economics team expected, and forecasters agree it will rise for quite a while yet. In fact, it has risen further than in the White House projections early this year of what would happen if Congress failed to pass the fiscal stimulus. Read more

Snap news

Breaking pre-market news on Monday,

- Resolution welcomes Friends Provident statement, to meet today — statementRead more

Tories pledge to scrap the FSA

An incoming Conservative government would rip up Britain’s tripartite system of financial regulation and transfer powers to the Bank of England to avoid a repeat of the banking crisis. George Osborne, shadow chancellor, said on Sunday he would abolish the Financial Services Authority, only a decade after it was established by Gordon Brown. The FSA’s role in supervising individual banks, building societies and other financial institutions would be handed back to a beefed-up Bank of England. Mervyn King, Bank governor, has said publicly he does not want that job. However Mr Osborne told the BBC’s Andrew Marr programme that the tripartite regulatory system of FSA, Bank and Treasury would be scrapped. He wants lines of accountability going “straight to Threadneedle Street”. To assist Mr King in performing the new role, a new financial policy committee would be set up mirroring the Bank’s monetary policy committee. It would have external members and the Bank would have a third deputy governor to oversee prudential supervision. Meanwhile a new Consumer Protection Agency would take on some of the roles of the FSA.

Lex worries that the authority of Hector Sants, the FSA chief executive, and Lord Turner, chairman, will ebb away the likelier a Conservative victory becomes.

Jenkins to leave Barclays

Roger Jenkins, the structured finance and tax avoidance specialist at Barclays Capital, is to leave the bank. The Sunday Telegraph said he plans to set up an advisory business that will work with sovereign wealth funds and other cash-rich institutions on takeover deals and other corporate activity. He is expected to continue advising Barclays on a consultancy basis, including in relation to its largest shareholder, the Qatar Investment Authority.

CIT wins eleventh-hour reprieve

CIT on Sunday night clinched a two-year, $3bn rescue financing with its creditors that will enable the troubled US finance group to avoid bankruptcy. After round-the-clock talks that included the possibility of a Chapter 11 filing, CIT and its main creditors sealed an agreement on the financial lifeline. A group of at least six creditors who are planning to provide the capital comprise a mix of traditional money management firms and hedge funds, who bought into the debt at much less than 100 cents on the dollar. They include Baupost, a Boston-based hedge fund, CapRe, hedge fund and private equity firm Centerbridge Partners, Oaktree Capital, Pimco and Silverpoint Partners. Barclays is expected to act as agent on the financing package.

Mudd to replace Edens at Fortress

Investment group Fortress is expected to approve the appointment of Daniel Mudd, the former chief executive of Fannie Mae, as chief executive. Mr Mudd will replace Wes Edens as the company, with $27bn under management, aggressively pursues a strategy to buy banks and other financial institutions. Fortress recently contemplated turning itself into a bank holding company.

KKR to merge US business with Amsterdam listing

Kohlberg Kravis Roberts will on Monday publish details of its plan to list on the Amsterdam stock exchange after the independent directors of its Dutch-listed fund approved a merger with the US private equity group. KKR staff and owners will receive 70 per cent of the combined entity and have the right to switch its listing to New York six months after the merger is completed on October 1.

Harvard and Yale scupper Nordwind ambitions

The Harvard and Yale university endowments are among a group of investors that has blocked a deal agreed by a German buy-out fund, highlighting how the balance of power in the private equity industry is shifting back to investors. In a microcosm of the tensions spreading across the industry, a group of investors in Nordwind Capital, including Harvard and Yale, pushed back against a deal by the Munich-based private equity group that raised a €300m debut fund in 2004.

Porsche/VW deal close

Porsche’s controlling families will agree on Thursday to accept an offer by Volkswagen to buy its sports car business Porsche AG for roughly ¢8bn, Der Spiegel reported on Saturday. The rival Porsche and Piech clans, which own 100 percent of Porsche SE votes, will approve the two-stage takeover at a supervisory board meeting on July 23. Volkswagen would purchase a 49.9 percent stake in Porsche AG and at a later date acquire the rest, in a deal that would create an integrated automotive group with 10 brands under the leadership of the Wolfsburg-based carmaker, the magazine said.

Rio’s Chinese arrests said to be related to price talks

China’s arrest of Rio Tinto Group’s Stern Hu is related to a criminal probe into iron-ore price talks, not espionage, and the case may result in a decision to charge the mining executive, Bloomberg reported. The agency cited Australian foreign minister Stephen Smith, who met with Vice Foreign Minister He Yafei on July 17. The investigation into Hu and three other Rio executives detained on July 5 has strained relations between China and Australian Prime Minister Kevin Rudd, a Mandarin-speaking former diplomat to Beijing. China said on July 16 that Australia was interfering with its legal sovereignty.

Iceland refreshes its banking system

Iceland is set to announce a €1.5bn recapitalisation of its banking sector and unveil a deal to hand control of two of the country’s healthy new banks to foreign creditors. The steps mark an important milestone in efforts to rebuild Iceland’s shattered banks and reintegrate the north Atlantic island nation into the international financial system. The government will issue bonds worth IKr270bn ($2.1bn) next month to three new banks set up last year after the country’s three main banks fell victim to the global credit crunch.

US bail-out money claimed to boost lending

Most US banks claim that government bail-out money has allowed them to write new loans to customers, while a minority has used it to buy rivals, according to a new report by Neil Barofsky, the special inspector-general for the troubled asset relief programme. But there are still arguments between the so-called ‘Sigtarp’ with the US Treasury over how much information should be disclosed by recipients of the money.  Some 83 per cent of the 360 recipients surveyed by the Sigtarp team said they had used funds from the government for lending.

EM brands tipped for the top

The world’s next Coca-Cola or Starbucks is most likely to emerge from Asia, the Middle East or South America according to research prepared for the FT by Wolff Olins, the consultants behind the London 2012 Olympics logo. Five food and drink brands from emerging markets are tipped to become global brands: Juan Valdez Café, a Colombian coffee chain; Almarai, a Saudi dairy and fruit-juice company; Patchi, a Lebanese boutique chocolate chain; ChangYu, China’s biggest wine producer; and United Spirits, India’s largest drinks group, which owns Scotch whisky Whyte & Mackay.