Posts from Wednesday Jul 29 2009

Oil, still fundamentally weak

WTI oil fell more than 5 per cent to $63 per barrel on Wednesday after US inventory data showed a much higher than expected build in crude stocks. Analysts had been expecting inventories to draw of 1.5m barrels, compared with the actual increase of 5m barrels.
As BNP Paribas’s Harry Tchilinguirian points out the rise came largely due to an unexpected rise in imports (our emphasis):

US crude stocks bucked expectations by posting a 5 mb build this week. The consensus was looking for a 1.5 mb draw amidst still depressed crude imports and refinery runs holding even. However, refinery runs pulled back by the week ending 24 July in sympathy with declining refining margins. Crude imports posted a strong gain, increasing some 820 kb/d to 10 mb/d and allowing a build in inventories. The jump in crude oil imports came as a surprise after several weeks of imports trending in the 9 to 9.2 mb/d range. The jump in imports was about evenly split between the West and Gulf Coasts, with potentially delivery of floating storage boosting the numbers on the US Gulf Coast. With this week’s build, US crude stocks end at 348 mb, over 52 mb above last year and over the upper limit of their recent five-year range. For the first half of July, the NYMEX futures 3:2:1 proxy for refining margins had come considerably down, trading mostly below $8/Bbl (compared to double digits in June). And given a rising surplus in product inventories, economics and discretion were probably at work behind the moderation in runs. Throughputs on the week fell 170 kb/d to 14.6 mb/d, leaving nation-wide utilisation rates of refining capacity at 84.6%.

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Those cheery US housing numbers, reconsidered

A debate is brewing between über housing blogger Calculated Risk and the equally anonymous Free exchange blog. The crux of the debate is whether the May numbers for US house prices, as represented by the Case Shiller index, are as bullish a sign as commentators (read: the media) seem to think.

Here, for instance, is how the FT reported the numbers: Read more

Lex: Santander

Santander has done well in turning around its Brazilian bank, but is it time to cash out?

Santander’s decision to issue new shares equivalent to a 15 per cent stake in its Brazilian bank has therefore fuelled concerns that Spain’s biggest bank may secretly need more capital.One explanation is that Santander’s chairman, Emilio Botín, is more pessimistic about the bad debt outlook than he lets on, so floating the Brazilian operation would really be a disguised rights issue.A less prosaic explanation is that Mr Botín, is simply a deal-making maestro.

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CDS report: Worries about asset quality hit Spanish banks

This CDS report was written by Markit’s Gavan Nolan

European credit markets struggled for the second consecutive session, paying little heed to rallying stick markets. The Markit iTraxx Europe index was trading around 94.7bp, about 0.5bp tighter than yesterday’s close. The Markit iTraxx Crossover index was the worst performer, widening 7bp to 656bp, while the Markit iTraxx HiVol index again dislocated from its underlying constituents and tightened by 4bp. Read more

Ice-y tactics in commodities

We just spotted Intercontinental Exchange CEO Jeffrey Sprecher’s view on ETFs in the commodity space:

Changes to Exchange Traded Commodity Funds May be Required
A recent phenomenon has been the emergence and growth of Exchange Traded Funds (“ETFs”) that invest in commodity futures. While such ETFs may represent a convenient mechanism for investors to access commodity futures markets, these funds regulated by the Securities and Exchange Commission with investor protection in mind, may not contemplate the ability of the CFTC, or CFTC regulated exchanges and trading platforms, to order down the size of an ETF’s position. Read more

A European LBO legacy

It’s a €120bn-high mountain of maturing debt in Western Europe.

S&P chart of European LBO debt maturing 2009-2017 Read more

‘Teflon’ Mac Bank sails on

Regardless of all those doomsayers who never seem to give up hope that they’ll see Macquarie Group come a cropper, Australia’s so-called “millionaires factory”, though slightly worse for wear, has shown yet again that it’s doing fine, thank you very much.

And despite reports of the death of Macquarie’s famed (or is that “infamous”?) listed-funds model, the group appears to be quietly and steadily evolving and moving onto related, but undoubtedly lucrative, new areas,  including unlisted funds. Read more

Lunch Wrap

On FT Alphaville Wednesday morning,

– Just 5 out of 10 SWF asset managers said… Read more

When is an SWF not an SWF?

For a secretive kind of outfit, Temasek is certainly generating a lot of publicity these days. Following the storm of media interest last week over news of the sudden departure of its chief executive-designate Chip Goodyear, the Singaporean state investment agency is again in the news.

This time, the Temasek newsmaker is none other than Ho Ching, the SWF’s low-profile chief executive, wife of Singapore’s prime minister and a renowned shunner of media interviews. Read more

Non-performing loan zones

Yesterday both Deutsche Bank and BBVA experienced the wrath of the NPLs — that is non-performing loans.

This was the relevant bit of Deutsche’s second-quarter statementRead more

Markets live transcript 29 Jul 2009

Live markets commentary from 

Just 5 out of 10 SWF asset managers said…

… “Verifiable” governance standards were crucial to keeping politics separate from investment decisions.

11356.jpg Read more

Presenting, the ‘physical loophole’

First there was the London loophole. Now, it appears, the development of another entirely new loophole is underway. Let’s call it the physical loophole.

From Intercontinental Exchange CEO Jeffrey Sprecher’s Tuesday testimony to the CFTC on the matter of position limits and the influence of speculators on the price of commodities: Read more

Further reading

Elsewhere on Wednesday,

– The great preventerRead more

Pink picks

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

Asia rising, but don’t lump China in with India
There is really only one new economic giant in town, and that is China, writes Shankar Acharya, author and former adviser to the Indian government. The other potential giant, India, is still a relative stripling. For all its apparent sense, the pervasive bracketing of the two often masks critical differences and impedes understanding of the challenges posed by their expansion. Read more

Snap news

Not-so-breaking market news on Wednesday,

– Santander Q2 net attributable profit down 4 per cent at €4.52bn — statementRead more

Shake-up at UKFI stuns City

Top City of London bankers were stunned on Tuesday by news of a shakeup in the team that runs the UK taxpayer’s stake in the banking industry, raising fears of a “massive hole” in the management of a portfolio that could eventually be sold for more than £100bn. Chancellor Alistair Darling said that John Kingman, chief executive of UK Financial Investments, was stepping down to join the private sector and that Sir David Cooksey, the venture capitalist, would replace Glen Moreno – who also chairs Pearson, publisher of the FT – as UKFI chairman.

China State Construction soars on debut

China State Construction Engineering Corp soared on its first trading day in Shanghai after the builder sold stock in the world’s largest IPO in 16 months, reports Bloomberg. Shares of Beijing-based State Construction, China’s largest housing contractor, jumped as much as 90% to Rmb 7.96 and traded at Rmb 7.12 by mid-morning local time, valuing the company at Rmb213bn ($31bn).

Microsoft and Yahoo near deal

Microsoft and Yahoo are on the brink of sealing an online alliance that could create a more formidable rival to Google in the search business. The deal had yet to be formally concluded late on Tuesday but the major terms had been agreed in principle, suggesting an announcement could come on Wednesday. The deal would mark an end to Microsoft’s 18-month pursuit of Yahoo, which began with an unsolicited takeover bid and gave way to a push for a looser alliance to combine their search technology and search advertising systems.

Santander to spin off Brazil arm in IPO

Banco Santander has appointed advisers to spin off its Brazilian business in an IPO that could raise at least $3bn and create one of Brazil’s largest publicly listed banks. Santander, which reports Q2 earnings on Wednesday, plans to float at least 20% of Banco Santander Brasil on the Brazilian stock exchange within the next three months. BofA-Merrill Lynch, Credit Suisse, UBS and Santander are in place to underwrite the deal, with BofA as lead co-ordinator after fully underwriting Santander’s €7.2bn rights issue last November.

KKR plans Dollar General IPO

KKR is in advanced preparations for an IPO of stock in houseware and food retailer Dollar General, as the US buyout firm tries to solidify its reputation ahead of its own trip to the public markets, reports the WSJ. But in a twist, KKR will also be  one of the lead underwriters on the deal, via a recent alliance with Fidelity Investments. It would be the first time KKR underwrote one of its own IPOs, a task it plans to share with Goldman Sachs and Citigroup, among others. Dollar General’s board will finalise the underwriter selection in coming days.

Deutsche Bank hit by loan fears

Shares in Deutsche Bank tumbled 11% on Tuesday amid renewed fears over its exposure to the economic crisis and increased provisions against bad loans. The concerns overshadowed a second successive quarter in which profits from investment banking helped Deutsche earn net income of more than €1bn. Deutsche raised its provisions against loan losses to €1bn, double the amount in Q1 and about equal to total provisions in 2008. See also Lex.

Draft EU hedge fund rules to be revised

Controversial draft regulations for hedge funds will be substantially amended, according to Sharon Bowles, new head of the European parliament’s economic and monetary affairs committee. The draft directive on alternative investment funds has drawn the ire of hedge funds and financial centres around the globe . Bowles said there was a risk of “unintended consequences” to the draft directive and that it was time “to fix bits to make it workable.”

US official urges curbs on energy speculators

The key US regulator of commodity markets said Tuesday that the government should “seriously consider” strict limits on trades by purely financial investors in the futures markets for oil, natural gas and other energy products, reports the NYT. In the first of three hearings on proposals to curb such speculative trading, Gary Gensler, chairman of the CFTC, urged tighter volume limits on noncommercial traders that account for a big share of trading in energy contracts.

GE addresses investor concerns

General Electric predicted its finance arm would remain profitable next year, even as loan-loss provisions climbed, and reassured investors the unit would not need more capital from its parent until at least early 2011. The forecast, made in a call with analysts on Tuesday, allayed some concerns for a business that had weighed on GE’s profits for more than a year. The stock rose 1.6% while the cost of insuring GE Capital debt against default declined.

BBVA results fall on loan provisions

Shares in BBVA surged 4% on Tuesday after Spain’s second-largest bank beat forecasts with a 10% year-on-year decline in first-half net profits. The bank said profits for the half to end-June were €2.8bn ($3.9bn), compared with €3.1bn a year ago. After stripping out one-off gains from asset sales last year, the decline was 4.4%, the bank said. Q2 profits, at €1.56bn, were “its best ever”, it added.

High-frequency trading under scrutiny

The lightning fast world of high-frequency equity trading is being scrutinised by the US SEC, amid concerns that this computer-dominated scene is placing less tech-savvy investors at a disadvantage. Volumes of trading generated by computers placing super-fast orders has rocketed in recent years.  HFT accounts for as much as 73% of US daily equity volume, up from 30% in 2005, according to estimates by Tabb, a consultancy.

Tui lines up funds for Hapag-Lloyd

Tui, the German tourism group, is to provide more than two-thirds of the short-term financing needed by Hapag-Lloyd after many of the container shipping line’s other shareholders refused to take part in a rescue deal. Most of the €330m lifeline will come from the €315m sale to shareholders of Hapag-Lloyd’s 25.1% stake in Hamburg’s most advanced container terminal. But Tui, which owns only 43% of Hapag-Lloyd, must provide €215m of that amount.

Bharti Airtel reassures over MTN

India’s Bharti Airtel and South Africa’s MTN will operate as separate companies, even after they seal a proposed merger. In an attempt to ease concerns over a deal to create a regional telecoms powerhouse, Sunil Bharti Mittal, chairman and founder of Bharti Airtel, told the FT that the management team of MTN would also remain unchanged until the two companies are able to implement a full merger, possibly within the next few years.

SEC takes hard line on UAE citizen

The US SEC has named a citizen of the United Arab Emirates in connection with alleged insider dealing, the second such charge of a Gulf national in the past week. The SEC complaint, filed Monday, accuses Khaled Mohammed Sharif Al Sayed Al Hashemi of buying 120,000 shares in petrochemical producer Nova Chemicals in February, in the run-up to its $2.3bn July takeover by IPIC, an Abu Dhabi state investment vehicle. The FT says the case marks a tougher SEC stance.