Posts from Monday Jul 27 2009

BlackRock pitching distressed assets to Main Street

The NY Times reported on Sunday that BlackRock intends to open up the market for distressed assets – previously limited to institutional investors and hedge fund types – to “ordinary Americans”:

BlackRock is putting together an investment fund that it says will give ordinary Americans a chance to profit from the financial bailouts that they are paying for. The company quietly filed plans on Friday to raise money for the vehicle.

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The ETF blowup begins

H/T Zerohedge for drawing attention to the fact that UBS has suspended purchases of leveraged and inverse ETFs. We’ve now got the official statement from UBS:

“UBS Wealth Management Americas has suspended purchases of leveraged and inverse ETFs to our clients, effective immediately, as the short-term nature of these securities is generally inconsistent with the long-term view of investing that UBS advocates when building client portfolios.  In addition, recent regulatory guidance on leveraged and inverse ETFs reinforces the short-term nature of these products, particularly in volatile markets.  UBS Wealth Management Americas’ financial advisors have been fully briefed and our clients are being contacted regarding these securities.”

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CDS report: Credit market rally powers on

This CDS report was written by Markit’s Gavan Nolan
Lacklustre equity markets did little to slow the relentless rally in credit. The Markit iTraxx Europe index was closed at 92bp, off the sub-90bp levels reached this morning but still over 3bp tighter than Friday’s close. The Markit iTraxx HiVol and Crossover indices tightened by similar amounts in percentage terms, and all of the indices comfortably outperformed their equity counterparts.

The rally was comprehensive, with most sectors sharing in the gains. Defensive names lagged the broader market, though the likes of Unilever and British American Tobacco widened only slightly. Banks, retailers and energy credits all tightened significantly as risk appetite persisted. Read more

Guest post: Prof Craig Pirrong on the pricing-clearing link in the derivatives market

Prof Pirrong of the University of Houston tackles the complexities of clearing by central counterparties…

Since the late-90s, I’ve emphasized in my academic writing the importance of accurate price information in making clearing efficient-or even possible.  It is therefore encouraging to see this article in the FT make the same point.  It is important to note, though, that although this is an important part of the story, it is not the whole story. Read more

Sir Allen discovers there’s no air conditioning in jail

Sir Allen Stanford, the Texan businessman who stands accused of operating a $7bn Ponzi scheme, is having a hard time adjusting to the reality of his new circumstances.

The financier, who has denied all the allegations against him, has been in federal custody since his arrest on June 18, and has had multiple requests for bail overturned. Read more

A quick turn of events in Latvia

There was joy on Sunday night in Latvia as reports suggested the government had — after a week-long stalemate — finally agreed upon terms for the country’s second instalment of IMF financing.

But that wasn’t to last long.  As Reuters reported on Monday: Read more

Lex: Hedge funds

Cash may have been pouring into hedge funds at a faster rate in the past quarter, but the little fish may soon find themselves on the hook…

The hedge fund industry remains shakey and needs to string together a series of quarters of stable returns to soothe investors’ nerves. There is also a flight to qualilty. Nervy types would prefer to invest with larger firms that have diversified trading strategies. In a highly-fragmented and over-populated industry, such firms will be the likely winners, especially as they can also better afford to attract money back through lower fees. US hedge fund Fortress is already considering gobbling up competitors. The big boys are about to come out and play. Smaller funds need to watch out.

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Sympathy for the ASBs

Pity the accounting boards trying to come up with new fair value, or mark-to-market, accounting rules, with industry feedback like below.

It’s from Valuation Research, which undertook a survey on attitudes towards fair value accounting. The  report, completed in May, examines the fair value opinions of financial professionals from accounting, investment banking, private equity, hedge funds, law and consulting backgrounds. Read more

Free money! Honest

Forex Robot

The financial world’s attention may be on the high frequency trading programmes employed by numerous banks and hedge funds. But there is another story… Read more

Lunch Wrap

On FT Alphaville Monday morning,

– Electronic trading and commoditiesRead more

Electronic trading and commodity prices

Yes, everyone — bar the old open outcry pit traders — loves electronic trading in commodities.

Ahead of this week’s CFTC hearings on position limits and speculator influence on prices, however, have the commodity regulators perhaps forgotten to question the obvious? That is, the influence of electronic trading on commodity prices. After all, it has only been a few years since ICE and Globex screens revolutionised the way commodities are traded. Coincidentally, it has been in that time that the so-called price “anomalies” have begun to manifest themselves. Read more

CDOs, a tendency to liquidate

This is Kent Funding I, a $1bn asset-backed CDO issued by Declaration Management back in 2005:

Kent Funding I description (from JPM CDO Weekly) Read more

Markets live transcript 27 Jul 2009

Live markets commentary from 

The new equity market consensus

Another day, another big house predicting further gains for stock markets.

Joining Goldman Squid, Credit Suisse and HSBC, Nomura sees a further upside of 13% for global equities in the second half of the year. And like its peers, Nomura’s justification for year-end target prices like 5,300 for the FTSE 100 and 2,900 for the Euro Stoxx 50 is the improvement in corporate earnings, valuations and the high cash balances of institutions. Read more

KBC – not hollowing out, just quietly self-immolating

Things have lurched from bad to worse at the Japanese outpost of KBC. But with bosses in the Brussels HQ of Belgium’s third-largest bank fighting far bigger fires, the folks in Tokyo are floating rudderless as their chief executive jumps ship to a cushy job at Deutsche Securities and angry employees fight a potentially troublesome law suit.

To recap, after several government bail-outs amounting to more than $41bn for KBC, the bank’s clients in Europe have threatened legal action against the bank and its UK-based securities arm, KBC Financial Products, while employees in the Japan office have filed suit against the bank’s broking arm, KBC Financial Products. Read more

The VW Cayenne and other Porsche posers

“The Smartest Guys have now left the room,” notes Max Warburton, the Bernstein analyst who brought us the Porsche/Volkswagen Fruit Machine in October last year.

The reckless idiocy of that VW takeover plan, pursued in stealth through the options market in Germany, has ended with Porsche itself on the block. CEO Wendelin Wiedeking and CFO Holger Härter have been forced out, albeit with gold-encrusted bin liners. But what’s left still defies conventional valuation analysis. Read more

UNG goes OTC

Bloomberg reports the United States Natural Gas exchange traded-fund, which has been buying Nymex and ICE natural gas swaps since at least the beginning of June, has now been pushed into the world of OTC bilateral swaps.

As the agency writes: Read more

The finance of flu

With the British Chamber of Commerce hosting an online seminar on Tuesday to discuss the potential impact of swine flu on businesses, it is probably an apt time to look back at the effects of the last great influenza pandemic — that of Spanish flu in 1918 — on the financial services industry.

That particular flu outbreak infected about one-fourth of the global population and killed something like 50m to 100m people as it swept the world during late 1918 and early 1919, coinciding with the end of World War I. Read more

Further reading

Elsewhere on Monday,

– Oil: The market is the manipulationRead more

Pink picks

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

Gillian Tett: Forget globalisation – localisation is back in fashion
In some offices in the US Treasury, there are framed posters exhorting the country’s population to buy US government bonds as part of their patriotic duty. The patriotic theme may become relevant today; in coming years, western governments are set to issue a tsunami of government debt and officials are now wondering whether it’s time to launch a quasi-patriotic debt-buying campaign. Read more

Snap news

Breaking pre-market news on Monday,

– Commerzbank sells Dresdner Bank (Switzerland) to Liechtenstein-based LGT Group — statementRead more

US takes 34% stake in Citi

The US government will this week take a 34% stake in Citigroup following Sunday’s completion of a long-awaited $58bn share offering. The move is a milestone in a crisis that has seen Washington rescue some top institutions. Citi announced Sunday night that nearly all non-government holders of preferred shares had agreed to convert them into common stock, enabling the government to complete the exchange of its $25bn of preferred shares in the next few days.

Europe braced for credit card defaults

European lenders fear a surge in consumer debt defaults as the US credit card crisis spreads across the Atlantic. The IMF estimates that 7% of the $2,467bn of consumer debt in Europe will be lost, with much of that falling in the UK. In the US, about 14% of total consumer debt of $1,914bn will turn sour. UK banks, which begin reporting their first-half results next week, have already warned of a sharp increase in credit card debts.

Courts to rule on Ericsson’s Nortel win

US and Canadian courts are expected on Tuesday to approve Ericsson’s $1.1bn bid for most of the core wireless assets of Nortel Networks, the Canadian telecoms equipment company operating under Chapter 11 bankruptcy protection. The assets include Nortel’s businesses in CDMA wireless technology used in North America. Ericsson outbid Nokia Siemens and MatlinPatterson at the end of a six-round, nearly 12-hour auction that finished late on Friday night in New York.

VW plans to raise $5.7bn

Volkswagen, Europe’s largest carmaker, is eyeing a capital raising of up to €4bn ($5.7bn) as part of a plan to buy Porsche. Last week the Piëch and Porsche families ended months of feuding by agreeing to fold the German sports carmaker into VW. But ratings agencies have warned that Porsche’s high debt load – more than €10bn of net debt – could undermine VW’s credit profile.

UK’s National Express set to reject bid

Troubled UK transport group National Express is this week set to reject a takeover bid from Spain’s Cosmen family and CVC private equity group, rebuffing an approach that was expected to value the group at more than £500m. National Express will argue at its interim results on Thursday that its plans for an independent future, including cutting costs and paying down debt, offer better value than either of the preliminary approaches it has received.

Hungary offers bail-out for Permira deal

The Hungarian government is throwing a lifeline to one of eastern Europe’s biggest buyout deals by offering a €100m ($142m) loan to Borsodchem, the chemicals group acquired by UK buy-out house Permira for €1.6bn in 2006. The loan from state-owned Hungarian Development Bank is conditional on Permira agreeing with Borsodchem’s lenders to restructure its excessive debt in a way that is acceptable to Budapest.

Arcelor eyes $3bn unit spinoff

ArcelorMittal is exploring a joint venture spinoff of its stainless steel business, worth an estimated $3bn, suggesting it is scaling back after expanding over the past decade via acquisitions including the €26.9bn purchase of Arcelor of Luxembourg in 2006.  One company with which ArcelorMittal has discussed a possible stainless steel JV is Posco of South Korea. Another JV candidate could be Outokumpu of Finland.

HNA, Bravia try to untangle Allco deal

Executives from China’s HNA Group and US buyout firm Bravia Capital Partners will this week try to win over European lenders opposed to the consortium’s bid to take over the aircraft leasing business of collapsed Allco Finance. The roadshow is an attempt to close a deal ostensibly sealed in May, when their bid for the 68-aircraft fleet was declared the winner by the receiver representing Allco’s creditors. Several banks that hold Australia-based Allco’s debt have threatened to exercise their right to veto the agreement, triggering a stalemate.

FSA extends tests to traders

Up to 2,000 traders and managers in the UK could face extra checks and even interviews by the UK financial regulator to ensure they are “fit and proper” to do their job. Traders, bankers and managers who exert significant influence over their companies are set to face additional scrutiny from this week as the FSA watchdog formalises proposals to widen its “approved persons” regime. The tests covers senior positions at the largest 40-50 banks, insurers and other institutions.