Posts from Wednesday Feb 17 2010

Fed: we need to shrink our balance sheet, but how?

The Federal Open Market Committee released the minutes of the Jan 26-27 session on Wednesday.

The meeting minutes revealed disagreement — or at the very least, debate — over the nature and timing of any moves to reduce the size of the Federal Reserve balance sheet. Emphasis FT Alphaville’s: Read more

风水指数 二零一零 or feng-shui your investment

Here’s A bit of feng-shui fun.

CLSA Asia-Pacific Markets has issued a fresh, auspiciously-correct investment reading for 2010, following the exceptional success of the feng shui calendar they published last year. Read more

‘The risk of [Greek] contagion is low but…’

Brian Yelvington, formerly of CreditSights and now director of fixed income research at Knight Libertas, on Tuesday published his thoughts on the possibility of systemic contagion in the eurozone.

By his reckoning: Read more

The wafting risk of floating rate CMBS

Presenting interest rate risk for commercial real estate.

Sometime before the start of the new millennium real estate players hit upon a novel idea; commercial mortgage-backed securities (CMBS) collateralised by floating rate loans. The idea was that floating rate CMBS would give borrowers financial flexibility in the midst of interest rate uncertainty – in effect, allowing them to refinance their loans at a later (cheaper) date. Read more

‘Think Spring 2009…’

…and substitute “sovereigns” for “banks.”

That was the almost blasé message from Barry Knapp, the highly-regarded New York-based BarCap strategist, commenting in his latest US Portfolio Strategy weekly on the cocktail of woes that have been holding back financial markets: Read more

Treasuries, dollars and sense

See what you’ve done?

All the clamouring over recently-published US Treasury data has forced Capital Economics to print a note on the subject. TIC December data had China selling $34.2bn in USTs during the month. Read more

“The US is not a viable concern anymore” – Duncan

FT Alphaville spoke with Richard Duncan, partner at Blackhorse Asset Management and author of The Dollar Crisis on Tuesday, regarding his new book The Corruption of Capitalism. And while he is pretty pessimistic on the US, Duncan says there is a way out if policymakers make bold decisions.

But first some background. In the Dollar Crisis, published in 2003, Duncan explained how the collapse of the Bretton Woods system in 1973 was always going to lead to a global financial crisis due to the trade imbalances it encouraged and created.  Based on the premise, Duncan successfully predicted the subprime problem, the downfall of government sponsored agencies as well as the banking crisis (and related bailouts) we’ve all — seven years on — come to know and love. Read more

Provisioning for losses the Spanish way

No, it’s not a simplified double-helix. It’s a graphic representation of dynamic provisioning — the new darling of accounting methods. As JP Morgan notes in its 184-page opus on financial reform, regulators around the world are looking at the method as a way to better prepare banks against losses. Read more

That terrible, terrible 2007 vintage [Corrected]

Back in 2008, the great, good and downtrodden of the structured finance industry gathered in the desert — alright, the Las Vegas Venetian hotel — for an annual securitisation conference hosted by the American Securitization Forum.

During the boom years, when credit flowed as fast as the HELOC approval process and as loose as the underwriting on NINJA loans, the forums drew thousands of industry practitioners from across the structured finance spectrum. Read more

Lunch Wrap

On FT Alphaville Wednesday morning,

US Treasuries get dumped. Read more

LME cancelled warrants are rising fast

Some intriguing gyrations are under way in the world of metal trading.

First, following a big dip in January, copper prices are on the rise again: Read more

Greece: Take fewer holidays! (and other suggestions)

That’s just one of the helpful suggestions from the securitisation team at Barclays Capital to Greece, which of course is struggling to meet its fiscal shortfall.

Others include raising revenues by selling off state assets a la Poland, reducing tax avoidance, cutting wages and increasing the retirement age. Read more

Bearing the cost of reformed banks

More on that doomsday regulation scenario for banks.

JP Morgan has published a whopping 184 pages on the potential impact of proposed regulatory reform on financials — that’s things like the Volcker rule, increased liquidity requirements, the Tobin tax, leverage ratios, living wills, capital reform and accounting changes. Read more

Markets Live transcript 17 Feb 2010

Live markets commentary from 

UK employment *fall*/*fail*

Yep, the UK claimant count unexpectedly rose in January. In fact it was the biggest rise since July.

From the Office of National Statistics on Wednesday: Read more

Low-cost flying liquidity collars

What is Sir Stelios Haji-Ioannou up to?

We ask the question because for the second time in five months the easyJet founder has made liquid some more of his holding in the no-frills airlines. Read more

Carry-ing on in Spain

Funding costs. Familiarise yourself with the term.

It’s making headlines on Wednesday, having cropped up late last year, and is likely to continue to be a buzzword this year. The reason? For a start wider spreads on government bonds are feeding into banks’ funding costs. At the same time, you still have central banks seeking to normalise their monetary policies — though that could swiftly change if sovereign jitters continue. Read more

Dumping US T-bills

A good day for China conspiracy theorists, a bad one for holders of US Treasuries, as official US figures confirmed that earlier paranoia about Beijing’s plans to dump Treasuries were proven correct.

From Wednesday’s FTRead more

Further reading

Elsewhere on Wednesday,

– Thumbsucker: should we rethink macroeconomic policyRead more

Pink picks

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

Martin Wolf: How to walk the fiscal tightrope
Niall Ferguson is not given to understatement, writes the FT’s Wolf. So I was not surprised by the claim last week that the US will face a Greek crisis. I promptly dismissed this as hysteria. Like many other high-income countries, the US is indeed walking a fiscal tightrope. But the dangers are excessive looseness in the long run and excessive tightness in the short run. Read more

Snap news

Breaking pre-market news on Wednesday,

– BNP Paribas reports net income of $5.83bn, as defaults drop- statementRead more

Simon bids $10bn for rival

Simon Property, the largest US mall operator, said on Tuesday it had made a $10bn offer to acquire General Growth Properties, its troubled rival. The bid for General Growth, which filed for Chapter 11 bankruptcy protection last April, could deliver windfall profits to holders of $7bn in unsecured debt who bought in at distressed levels and to shareholders. It is also expected to trigger a heated contest for the Chicago-based mall owner.

No bonus for Barclays top two

John Varley, chief executive of Barclays, and Bob Diamond, president, have given up their 2009 bonuses to win more credibility in the debate on regulatory reform.  The news came as Barclays on Tuesday reported a forecast-beating £11.64bn annual pre-tax profit and said it would distribute £1.5bn in cash bonuses to staff, as well as a further £1.2bn of longer-term awards that would be subject to a clawback option. See also FT Alphaville: “Barclays reconsidered“.

Goldman, Greece, didn’t disclose swaps

Goldman Sachs managed $15bn of bond sales for Greece after arranging a currency swap that allowed the government to hide the extent of its deficit, reports Bloomberg. A review of prospectuses indicates that no mention was made of the swap in sales documents for the securities in at least six of the 10 sales the bank arranged for Greece since the transaction. Goldman helped Greece raise $1bn in off-balance-sheet funding in 2002 through the swap, which EU regulators say they knew nothing about until recent days.

US mortgage short sales to rise

Big US banks including Bank of America, Wells Fargo, JPMorgan Chase and Citigroup are moving to clear their books of troubled mortgages by embracing “short sales”, in which homeowners settle debts by selling their properties for less than the mortgage value. Short sales are expected to climb sharply this year as home values continue to fall in some parts of the US;  the number of homes entering or in foreclosure is also expected to climb to a record 4.3m, from 3.4m in 2009.

Canada curbs lending

Canada tightened mortgage lending rules on Tuesday with the aim of damping a housing boom fuelled by low interest rates and fast-rising consumer debt. Jim Flaherty, finance minister, played down concerns that the surge in home prices could fuel an unsustainable bubble, describing the market as “healthy and stable”. Nonetheless, he said, early policy action could  ward off “negative trends”.

Foreign demand falls for Treasuries

Foreign demand for US Treasury securities fell by a record amount in December as China sold $34.2bn in US Treasury securities over  the month, the US Treasury said on Tuesday. China’s move leaves Japan as the biggest holder of US government debt with $768.8bn, and suggests that the US may have to pay more to service its debt interest. It comes as the White House grapples with how to cut the US deficit, projected to be $1,560bn in 2010, or 10.6% of GDP.

JPMorgan warns on bank profits

The biggest banks will see profitability fall by nearly two-thirds next year under a Doomsday scenario to be outlined in JPMorgan research to be published on Wednesday. The research calculated that if all proposals to curb banks’ risks – from the US, UK and France as well as the Basel Committee on Banking Supervision – are implemented, it would cut banks’ average return on equity from a projected 13.3% to 5.4%.

Renaissance suffers rare setback

A hedge fund launched by Renaissance Technologies with grand ambitions to be an industry colossus suffered further declines last year, compounding a lacklustre record. Renaissance, one of the world’s highest-rated hedge fund groups, had hoped its Institutional Equities Fund could grow to up to $100bn in assets – unheard of for a single fund. But Rief closed 2009 down 6%, according to investors, and fell a further 1.5% in January before recouping that loss.

JPMorgan to buy RBS Sempra units

JPMorgan on Tuesday agreed to buy a large chunk of RBS Sempra Commodities for $1.7bn in cash. The bank said it would purchase RBS Sempra’s global oil unit, its profitable metal trading business and operations in coal, freight and power and gas in Europe and Asia. RBS Sempra will retain its US natural gas and power operations. The sale of the business – a joint venture between RBS and US utility group Sempra Energy – was triggered by a European Commission order last year to RBS to divest its stake.