Posts from Tuesday Jul 21 2009

Apple crushes consensus, Yahoo middling

Yahoo, via Reuters:

* Q2 earnings per share $0.10

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Auction rate securities: market dead, litigation alive and well

Did anyone who bought or sold auction rate securities understand what they were getting into? The slew of recent litigation on Wall Street over these instruments would tend to suggest otherwise.

First, some background. Read more

Trouble at Parex?

(H/T to Edward Hugh /A fistful of euros)

It seems the following little press release from Latvia’s Parex Banka went mostly unnoticed by the Western press last Friday. Parex, with assets of 3.1bn lats  ($5.6bn), was the Baltic region’s largest independent bank until it was taken over by the Latvian government to prevent a bank-run. Read more

North Dakota, engine of US growth?

The Federal Reserve Bank of Philadelphia (the Philly Fed) has released its “monthly coincident indices” for June, showing the economic conditions in each of the 50 US states.

47 states showed declining activity over a three-month period, while on a 1-month basis, activity decreased in 46 states (and was unchanged in one).
From the releaseRead more

CDS report: iTraxx backtracks

European CDS indices have finally returned to pre-Lehman levels, as the continent’s equity rally, which is enjoying its seventh consecutive session, helped squeeze spreads tighter.

The Markit iTraxx Europe index, which tracks the 125 most liquid names in the investment-grade class, has fallen below the psychologically important 100 basis points mark for the first time since September 2008.  By mid-morning the index was trading at 99.35bp bid and 100.35bp offered. Read more

Guest post: Mohamed El-Erian on Bernanke’s bold prose

From Pimco’s chief executive…

While it may not rank quite as high as his appearance on the US news show ’60 Minutes’ a few months ago, Chairman Bernanke’s Op Ed in today’s Wall Street Journal is nevertheless notable and important. It represents a bold attempt by the Federal Reserve to reach out broadly and pre-empt mounting concerns about the challenges facing monetary policy. Read more

Bienvenido multi-cedula

(Cue the return of structured finance marriachi music).

Spain’s multi-cedulas are back — even as their problems may only just be beginning. From The CoverRead more

If a central banker screams in a forest….

Ben Bernanke has penned an op-ed for the Wall Street Journal on how exactly he proposes the US central bank will withdraw from quantitative easing in time to stave off an undesirable amount of inflation.

Here’s a taster: Read more

Lex: Guaranteed bonuses and the FSA

The FSA has shown that it still has some bite, but there may not be much it can do about bonuses as the Treasury struggles to get RBS off its books.

Reining in Royal Bank of Scotland will be particularly hard because of the way the government is conflicted. If bankers critical to the profitability of key business units leave for rivals, the government’s chances of getting RBS off its books and of snaring sorely-needed privatisation receipts would be harmed. UK Financial Investments, custodian of the government’s stake, has accepted that RBS must offer at least market rates if it is to stop haemorrhaging talent.

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Lunch Wrap

On FT Alphaville Tuesday morning,

Bloomberg.comedy Read more

Stressed-out VaR

One of the centrepieces of Lord Turner’s review of banking regulation is the potential use of so-called stressed VaR — an attempt to rectify the failings of the ‘normal’ Value at Risk model, one of the pillars of upcoming banking regulations on market risk.

From the report: Read more

Markets live transcript 21 Jul 2009

Live markets commentary from 

Mighty Pompey power on as Scummers flounder


More footie M&A. UAE shrewdie Dr Sulaiman Al-Fahim said on Tuesday that he had clinched a takeover of Portsmouth FC.  A full announcement was due later in the day. Read more

Don’t bite the hand that feeds, Latvia

As talks between Latvia and the IMF over the fund’s second instalment of aid to the country slog through to their second extended day, Danske Bank offers the following piece of advice to Latvian Economics Minister Artis Kampars who let loose on Latvian TV this week with the following outburst:

“Representatives sitting in Washington and educated at Yale do not fully understand what is going on in Latvia.”

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CNBC comic

Hadn’t noticed this clown-on-the-box before.

I am not making this up. I am not manufacturing outrage here…Couple of points: I decided to be a journalist aged 10. Never wavered. At high school I wrote a mean review of the chorus and it caused a small riot in the newspaper office, but the principal refused to suspend me. He said it would violate the First Amendment.

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European own credit, a banking preview

Second-quarter earnings for some of Europe’s biggest banks are fast approaching and with them a host of probable questions for investors.

Not least is the giant question mark over the significance of own credit losses and gains, otherwise known as the ability of banks’ to profit from their crummy creditworthiness, or lose from the increasing value of their liabilities. Indeed, UBS has already warned that it will post a net loss in Q2 because of own credit. Read more

CIT saved, but troubles still brewing in the CP market

David Rosenberg of GluskinSheff draws attention to the continuing contraction of the US commercial paper market, one of the main portals of funding for medium-sized enterprises in the country. In his latest report he writes (our emphasis):

We continue to hear from strategists and economists that the credit clouds have parted, and yet the U.S. commercial paper market continues to contract (by $40 billion in the July 15th week) to a level not seen since 1998. And, the declines are right across the board — financial issuers, non-financial, asset backed — in fact, the asset backed market is all the way down to $440 billion of outstandings from $1.2 trillion at the credit bubble peak in the summer of 2007. Commercial bank balance sheets also continue to shrink — by $12 billion in the latest week, with outstanding consumer credit falling the fastest.

 Read more


Where, oh, where do we place the Bloomberg news agency on this “visual thesaurus,” an interactive tool from Thinkmap that allows us to “discover the connections between words in a visually captivating display?”  Words like GULLIBLE.

10576.jpg Read more

Further reading

Elsewhere on Tuesday,

– No inflation hereRead more

Pink picks

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

George Magnus: Older societies will have to retire later
UBS’s senior economic adviser writes: The debate about longer working lives is normally framed in terms of the rights or the capacity of individuals to do so. However, this debate goes further than humanitarian issues. It is forcing us to think about the unique change in age structure that is evolving and how we can deliver economic growth in the future, given the forthcoming waves of retiring baby boomers, who will not be replaced in the workforce by their progeny. Read more

Snap news

Breaking pre-market news on Tuesday,

– Truckmaker Volvo Q2 loss worse than expected – statementRead more

FSA warns banks over long-term bonuses

Banks that have agreed to pay their executives a guaranteed bonus for more than a year risk heavy penalties, the head of the FSA warned in a letter sent to more than 40 chief executives within the financial services industry. Hector Sants said using long-term guarantees to lure star investment bankers could put them in breach of the authority’s new remuneration code. The new rules will cover all deals struck since the FSA first opened its pay consultation in March, meaning bankers who have recently negotiated guaranteed bonuses may see them revoked, the FT reported.

Deutsche Bank caught by ‘spying’ probe

Deutsche Bank is involved in a probe into possible criminal wrongdoing after it hired detectives to carry out surveillance of board members in the latest in a series of “spying” scandals at top German companies. Data protection authorities in the bank’s home state of Hesse have asked prosecutors to establish whether to open a criminal inquiry, two months after the bank revealed it would ask external lawyers to investigate the activities of its corporate security department, the FT said.

Friends rejects Resolution’s sweetened offer

Friends Provident on Monday rebuffed a fresh takeover proposal from Clive Cowdery‘s Resolution after a frosty meeting that left the two sides at odds over the structure of a merged group, the FT said. Mr Cowdery said his Guernsey-based company would not make an offer for Friends that compromised Resolution’s status as a separate vehicle designed to pursue various consolidation projects. Friends criticised Resolution’s structure as “totally inappropriate”, but Lex believes Friends is merely holding out for a knock-out offer that satisfies all shareholders.

Drug groups to reap swine-flu billions

Some of the world’s leading pharmaceutical companies are reaping billions of dollars in extra revenue amid global concern about the spread of swine flu. Analysts expect to see a boost in sales from GlaxoSmithKline, Roche and Sanofi-Aventis when the companies report first-half earnings lifted by government contracts for flu vaccines and antiviral medicines, the FT said.

Tarp exposes US to $23,700bn risk, watchdog says

Neil Barofsky, special inspector-general for the troubled asset relief programme, said that the various US schemes to shore up banks and restart lending exposed federal agencies to a risk of $23,700bn – a vast estimate that was immediately dismissed by the Treasury, the FT said. The Treasury said the estimate for total liabilities was “inflated” and not “useful”, including programmes that have never been used or were winding down and ignoring assets acquired by the government – such as equity in banks and carmakers – that offset the risk.

China Investment takes Diageo stake

China’s sovereign wealth fund has acquired 1.1 per cent of the Diageo drinks group, giving it a stake worth £221m  in a sign of its emerging strategy to spread its investments over different global markets and asset classes. The move by China Investment Corp, which manages $200bn of the country’s $2,132bn in foreign exchange reserves, makes the fund the UK-based groups’ ninth-largest investor, the FT reported.

Private equity groups eye Merill’s Asian businesses

Several firms have expressed an interest in buying the management of Merrill Lynch‘s Asian real-estate investment business, including the management of its $4 billion Merrill Lynch Asian Real Estate Opportunity Fund, people involved in the discussions told the WSJ. Blackstone and Apollo have separately expressed interest; Japanese giant Sumitomo Mitsui Banking, part of Sumitomo Mitsui Financial, and Red Fort Capital Advisors, a New Delhi private-equity firm focused on real estate, are eyeing a joint bid, the WSJ said.

Ameritrade to buy back auction rate securities

TD Ameritrade, the US online broker, became the latest company to agree to repurchase auction rate securities from investors as part of a settlement with regulators investigating the collapse of the market for the debt instruments, the FT said. Its agreement to buy back $456m of ARS came as Andrew Cuomo, the New York attorney-general, threatened to sue another large broker, Charles Schwab, claiming it misrepresented the safety of such investments to its customers. Schwab has denied the charges.

CIT board approves $3bn rescue package

CIT‘s board on Monday approved a two-year, $3bn rescue package with a group of lenders enabling the troubled US finance group to avoid a bankruptcy filing, after round-the-clock weekend talks. The company and its creditors had to move quickly to arrest a slide into bankruptcy and prevent its best customers from defecting for fear the lender could no longer support them. But the the rescue finance will not come cheaply, with the yield on the paper is expected to be about 11 per cent, the FT reported.