Posts from Friday Feb 12 2010

CDS report: Banks and sovereigns intertwined

Markit’s Gavan Nolan wrote this CDS report

Some weeks ago we highlighted three factors that have emerged with the potential to trigger a prolonged correction in risky assets. A sovereign debt crisis, radical changes in bank regulation and a tightening in Chinese monetary policy have all weighed on the financial markets to a greater or lesser extent this year. The latter factor has taken something of a back seat in recent weeks as the sovereign debt crisis in the eurozone took the headlines. But China has been the main growth engine in the global economy through the Great Recession, and its policy direction was always likely to be influential in shaping spread direction. Read more

Covered bond bailouts

Last week FT Alphaville mused on whether covered bonds — darlings of the European debt universe — could make it through a sovereign crisis unscathed.

Here’s a quick Friday follow-up. Read more

Euro-breakup: Not necessarily a credit event

So says Barclays Capital, in a note on everything you ever wanted to know about sovereign CDS trading, but were afraid to ask.

Indeed, according to the analysts, a credit event would only transpire in the event of a currency redenomination, and even then not in all cases. Read more

Around the world in 22 CDSs

For your amusement/unease/perusal — a collection of sovereign CDS, courtesy of CMA.

Interesting to note that the cost of protecting British or Japanese sovereign debt against default, is now higher than the cost of protecting government bonds from, err, Slovenia.

America is Lehman-fied

Last month FT Alphaville mentioned that Europe had become Lehman-fied in terms of CDS liquidity.

That is, its Fitch Solutions liquidity score was lower than it had been in September 2008, after Lehman collapsed. As a reminder, the lower the CDS liquidity score the more market uncertainty, according to the agency. That’s the opposite to the actual CDS market, where higher numbers indicate a higher cost for protection against default — as investors rush to manage exposures, hedge, speculate or whatever. Read more

Dubai CDS, deja vu

Something’s up in Dubai, and we were hearing on Friday that it just might have something to do with our favourite palm-tree island maker, Dubai World’s Nakheel.

As Reuters reported earlier, Dubai CDS has gone through the roof again: Read more

Volcker turns the screw on Goldman

One of the more beguiling aspects of the detail-lite Volcker rule, as unveiled by President Obama late last month, was the notion that Goldman Sachs and Morgan Stanley could side-step all of the more draconian aspects of this regulatory clampdown by simply tearing up their puny deposit-taking licenses.

Krishna Guha wondered at the time whether GS and MS would actually benefit from the Volcker rule, since their competition in the shape of JP Morgan, Citigroup and others would be split asunder. Here on FT Alpavhille we simply speculated whether Goldman would have to go ex-US if it were to cock such a public snoot at the spirit of these proposed reforms. Read more

Lunch Wrap

On FT Alphaville Friday morning,

- Let’s throw a concert for GreeceRead more

And so it begins…

…the backlash against those nasty conspiratorial financial speculators who have caused all this sovereign debt crisis stuff, that is.

The following quotes come from a Newsnight interview with Christine Lagarde, France’s finance minister. Read more

Markets Live transcript 12 Feb 2010

Live markets commentary from FT.com 

Pangs of gilt(s) – again

Notice anything about the below chart, from RBC Capital Markets’ Richard McGuire?

 Read more

Germany’s export decision

Following news on Thursday that the European Union will support Greece in its fiscal hour of need, it’s still the case that the cost of  euro-peripheral bailouts will have to be borne by someone.

For the time being in Europe that means the community’s most productive members, ie Germany and France. Read more

Euro fall *alert*

Oh dear.

EURO HITS 8 1/2-MONTH LOW OF $1.3567 – REUTERS DATA Read more

Chasing the dragon

Launching the Fidelity China Special Situations this week, star fund manager Anthony Bolton claimed China was the place to be, from an investment perspective, over the next 10 years:

“I firmly believe that China is the investment opportunity of the next decade. I have been a regular visitor to China since 2004, when I started meeting and investing in Chinese companies. After spending the last few months in Asia, I have become increasingly excited by the prospect of managing a portfolio investing in the growth potential of China. I plan to relocate to Hong Kong shortly in readiness for the launch.” Read more

Corporate bonds: The rot sets in as gold shines

It’s happening… corporate bond markets are already in the grip of that “massive case of indigestion” that commentators were warning about last month. But the mounting risk aversion to sovereign debt, amid contagion fears over the Greek debt crisis, could be providing a (very mild) panacea.

From Bloomberg on Thursday: Read more

Goldman asks, is sovereign strain Europe’s subprime?

We’ll spare you the suspense.

The answer, according to Goldman Sachs analysts Ben Broadbent and Nick Kojucharov, is no, it probably isn’t. Or, at least it won’t be as long as defaults stay below a certain threshold. Read more

Bonuses: Where has all the rage gone?

Now that even Barack Obama seems to have abandoned his earlier “bonus rage” and acknowledged - if not welcomed – bankers’ multi-million dollar bonus payouts as part of America’s “free market system”, it should be all okay then.

Presumably nobody’s going to get excited to learn that bankers in London have received average bonus increases of 40 per cent this year and most have also received a jump in base salary. Read more

Let’s throw a concert for Greece

The EU’s response to the Greek crisis has fallen rather flat.

Markets are lacklustre on Friday morning — a day after European leaders pledged “determined and co-ordinated action if needed to safeguard stability” of the eurozone. Read more

Further reading

Elsewhere on Friday,

- Are banks really refusing to lendRead more

Pink picks

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

James Rickards: How markets attacked the Greek piñata
Wall Street loves a piñata party – singling out a company or country, making it the piñata, grabbing their sticks and banging it until it breaks, writes Rickards, director of Omnis and former general counsel of  LTCM. As in the child’s game, the piñata is left in shreds. Unlike the child’s game, in the Wall Street version the piñata is stuffed with money for the bankers to scoop up with both hands, instead of sweets. We see this game being played today, with Greece as the piñata. Read more

Snap news

Breaking pre-market news on Friday,

- Eni Q4 adjusted net income beats forecasts at $1.9bn – statementRead more

EU’s pledge fails to calm fears

A general pledge by EU leaders to stand by crisis-hit Greece hit hopes in the financial markets on Thursday of a swift rescue and raised fears of renewed selling. Efforts by Nicolas Sarkozy and Angela Merkel, the French and German leaders, to resolve differences over the Greek debt crisis led to a summit statement in Brussels that stopped short of providing immediate support for Athens. The 27 EU leaders promised “determined and co-ordinated action if needed” to safeguard eurozone stability, which has been hit by contagion fears.

Markets ‘bewildered’ over EU deal

News that the EU summit in Brussels had agreed a ‘deal’ to assist Greece left markets bewildered on Thursday. Stocks, bonds and the euro vacillated, while gold soared as traders debated whether they were relieved that the EU stood ready to support Greece if required; disappointed at a lack of concrete proposals; or happy that the lack of unconditional aid meant Athens still faced tough decisions on its fiscal woes. At the same time, investors wondered whether a potential rescue was positive for the eurozone’s long-term economic health.

Goldman wins role in AIA IPO

Goldman Sachs has been chosen as one of the banks that will manage the $10bn-plus listing of AIG’s Asian unit – despite controversy over Goldman’s actions during the insurer’s near-collapse in 2008. Goldman was one of seven banks to be selected as bookrunners for the IPO of AIA, AIG’s flagship life insurance unit. AIA’s listing on the Hong Kong stockmarket, expected later this year, is crucial to AIG’s plans to start repaying the $80bn-plus it owes the US government.

Credit Suisse returns to profit

Credit Suisse returned to pre-crisis levels of profitability last year, reporting net profits of SFr6.72bn ($6.31bn) on Thursday, compared with a loss of SFr8.22bn in 2008. The group also attracted money in its core wealth management division, with total net new money of SFr35.3bn in 2009 – although group earnings and net new money were hit by one-off charges. Net earnings of SFr793m fell sharply on a quarterly basis, on lower revenues in investment banking and a one-off legal settlement with the US over business with Iran.

US power groups in $4.7bn deal

FirstEnergy agreed on Thursday to acquire Allegheny Energy for $4.7bn in an all-stock deal to create one of the largest US utility groups. The combined company would have 10 regulated power utilities across seven states encompassing coal, nuclear, natural gas, oil and renewable power generation. Analysts said the deal could see more tie-ups in the utility sector. FirstEnergy said it hoped to close the deal in 12-14 months and expect the combined company to have $16bn in annual revenue and $1.4bn in annual net income.

Och-Ziff pulls in $650m

Och-Ziff Capital, the listed US hedge fund manager, has received more than $650m in new client money over the past six weeks, according to regulatory filings – surpassing the net amount it pulled in over the last six months of 2009 combined. The inflows are one of the first concrete signs of a turnround in investor sentiment for the group and the hedge fund industry at large. Och-Ziff, which oversees just over $24bn in assets, is often cited as an industry bellwether because of its size and relatively conservative approach.

Motorola plans two-way split

Motorola, the US mobile phone and electronics group, will split into two separate publicly quoted companies through a tax-free stock distribution to Motorola shareholders in the 2011 first quarter, the company said on Thursday. As expected, Motorola’s struggling mobile phone division and its set-top box business will be folded into one company led by Sanjay Jha, Motorola’s co-CEO. The other company, comprising Motorola’s enterprise mobility unit and its wireless networking business, will be run by Greg Brown, Motorola’s other co-CEO.

Merlin delays £2bn IPO

Merlin Entertainments, the theme park operator owned by US buy-out group Blackstone, is postponing plans for a £2bn flotation blaming market volatility, although it insists it has not abandoned the listing. Following the move this week by Travelport, the Blackstone-owned US travel services company, to pull its planned £1.2bn IPO, Merlin said all options, “including an IPO”, remained viable.

Vale in $1bn deal for Fosfertil

Vale, the Brazilian mining group, has agreed to pay $1.03bn for just over 20% of Fosfertil, Brazil’s top producer of fertilisers, in a further push to expand in the sector. Last month Vale agreed to pay $3.8bn in cash for Brazilian assets owned by Bunge, the agricultural commodities trading giant, including a 42.3% stake in Fosfertil. The latest purchase, from Mosaic, the New York-listed fertiliser maker, brings Vale’s share in Fosfertil to 78.9% and values the company at about $5bn.