Posts from Monday Feb 22 2010

And a round of applause for those who blew up the economy…

We’d never heard of the Dynamite Awards before, but they appear to be — in ethos at least — a distant cousin of the notorious Darwins.

But unlike the Darwin Awards, these gongs aren’t handed out to those who’ve managed to kill themselves in inordinately silly ways. Instead, as the Real World Economics Review blog explained, the winners are: Read more

Dubai World: the restructuring that keeps on giving

The debt shenanigans at Dubai World are keeping analysts, investors and the financial media quite busy.

In the latest issue of Moody’s Weekly Credit Outlook, the rating agency estimates that Dubai World’s UAE-based creditor banks “would incur losses amounting to only around 9 per cent of their capitalization as of year-end 2009” even if they had to swallow a 40 per cent haircut on their loans to the conglomerate. Read more

CDS report: walking(out) on Air

Markit’s Otis Casey wrote this CDS report

Anxiety was high in Europe today not because of movement in the sovereign markets as has been the case but rather due to the airlines. Union strikes, particularly from pilots, against the major European airlines threatens flight cancellations across the continent. On Friday, British Airways cabin crew employees lost a legal battle to fight changes regarding pay and working conditions. The union for the cabin crew is reportedly balloting to strike. The industry has struggled for some time with declining passengers and cargo; the global economic slump did not help. As the airlines try to rationalize their cost structure, they are retrenching routes, reducing pay and benefits and planning layoffs–all of which, predictably, the unions find unappealing. Read more

A little perspective on the euro?

The “everyone is shorting the euro” story continued to hold court in the financial media space on Monday.

Bloomberg noted that: Read more

Eric Daniels no longer the last man standing

Yep, the CEO of Lloyds, is going to waive his 2009 bonus of £2.33m.

Not that he had much choice in the matter after his opposite number at RBS,  Stephen Hester,  announced on Monday morning that he would forfeit an estimated £1.6m in bonus, and the two top executives at Barclays, John Varley and Bob Diamond, did likewise. Read more

‘Half-baked justice at best’

So why accept it, you might ask?

Unlike the cheery countenance portrayed in his stock pic, Judge Jed Rakoff has been all scowls since the day he picked up the case of SEC v Bank of America Merrill Lynch. Read more

Goodbye to the risk-free rate

Morgan Stanley’s Graham Secker has put out an interesting note on the rising cost of capital on Monday.

And it’s not a cheery read if you happen to be a sovereign issuer, given the shift of private-sector debt into the public sector. Read more

Dubai World debt: to pay or not to pay?

Further developments in the Dubai World restructuring saga.

The Dubai government is no longer seeking preferred creditor status, according to Reuters. If true, that removes a key sticking point in the $22bn debt work-out discussions. Read more

Bank of Spain to raise provision requirements?

On Monday, Reuters citied Spanish media on a story that the Bank of Spain was considering raising the minimum amount banks must hold in provisions against potential losses on property assets.

According to the news wire, the Bank — which raised the minimum required cushion to 20 per cent from 10 per cent as recently as November — could now look to institute a base provision of 30 per cent. Read more

The defensive Goldman Sachs [updated]

On Monday, Goldman finally acknowledged those Greek currency swaps with a statement of the bleeding obvious. The swaps were legal the bank says, and consistent with the rules at the time etc.

All of which is true, but why has Goldman suddenly felt the need to explain all of this, as well as the fact that the swaps had a minimal effect of Greece’s fiscal situation? Read more

Profiteering Pfandbriefe?

Riskante Pfandbriefe? Perish the thought.

Germany’s covered bonds are often regarded as the safest bonds in the world. Read more

Anthony Bolton’s ‘stagging’ risk

Stagging: buying into an IPO and flipping at the first opportunity.*

Anthony Bolton’s soon-to-be launched China investment trust runs the risk of being ‘stagged’, Fund Strategy said in a report on Monday. Read more

Guest post: Roger Ehrenberg asks, ‘are derivatives the real problem?’

Roger Ehrenberg, a veteran of Wall Street (and derivatives), contends that the focus on the ‘evils’ of the derivatives market is misplaced.

Regulators, Congress, and the media generally focus on the crisis at hand. The Enron scandal gave us Sarbox. The market crash has created a PR flurry against “sponsored access” and proprietary trading. AIG generated a firestorm surrounding the use of credit derivatives. The common thread is that policy-makers are reactive and missing the big picture, leading to short-termism and a host of poorly constructed rules and policies. And invariably the word “derivatives” is used as a lightning rod for why new regulations should be promulgated.

 Read more

Lunch Wrap

On FT Alphaville Monday morning,

CMBS then and now, and in 2006-2008. Read more

Total refinery strike down *alert*

Here’s a story that’s currently topping the minds of most energy traders in Europe, via Bloomberg:

Feb. 22 (Bloomberg) — Total SA unions called for a refinery strike to spread to all French plants and said fuel shortages could be imminent. “The strike will be intensified and extended to all refineries,” Charles Foulard, a representative of the Confederation Generale du Travail union, said late yesterday after talks with Total management on ending the six-day walkout broke down without an agreement. He warned the labor disruption will create fuel shortages in France this week. Read more

VaR and piñata pensions reform

Here’s something you may have missed down Mexico way.

From the Wall Street JournalRead more

Markets Live transcript 22 Feb 2010

Live markets commentary from 

CLSA revives Tokyo’s ‘high touch town’

Who said Tokyo, as an investor destination, had lost its mojo?

At least, this week, as Asia-focused brokerage and investment firm CLSA kicked off its 7th annual Japan Forum at the Grand Hyatt hotel in central Tokyo, the one-time investment banker Mecca around the bars, clubs and financial institutions of Roppongi looks just like old times. Read more

How do you say speculators in Japanese?

Which sovereign(s) would you short?

There’s a plethora of options based on fiscal positions, as the chart, courtesy of Sean Corrigan at Diapason Commodities, shows. For now though, we’d note that the biggest outlier — Japan — might be starting to become more popular among certain speculating factions. Read more

Shareholder activism – Mike Ashley style (updated)

You have to admire the chuzpah of the Sports Direct owner — he’s the one on the right by the way. Read more

CMBS then and now, and in 2006 to 2008

Bored of US commercial real estate yet?

Not us. Nor, it seems, are the ratings agenciesRead more

JPMorgan’s dust-up Down Under

Investment bankers everywhere might want to keep a watchful eye on a relatively small but highly symbolic legal battle taking place in Australia.

An Australian court on Monday was set to hear the case brought by JPMorgan Chase’s Australian arm against Palmary, a mining company controlled by a Ukrainian billionaire – a rare legal case that has as the FT notes, to set “adviser against client” and shone “a light on investment bank fee structures”. Read more

Further reading

Elsewhere on Monday,

AIG and Greek government debt. Dear God, no.
 Read more

Pink picks

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

George Soros: Questions for Europe and the euro
The survival of Greece would still leave the future of the euro in question, says Soros, chairman of Soros Fund Management and author of the Soros Lectures, published by PublicAffairs this month. Even if it handles the current crisis, what about the next one? What is needed is more intrusive monitoring and institutional arrangements for conditional assistance. A well-organised eurobond market would be desirable. The question is whether the political will for these steps can be generated. Read more

Snap news

Breaking pre-market news on Monday,

– BAA reports FY pre-tax loss of £821.9m – statementRead more

Schlumberger to buy Smith for $12bn

Schlumberger, the world’s largest oil services group, has agreed a $12.4bn all-share deal to acquire US group Smith International, reports the FT. Andrew Gould, Schlumberger’s chairman and CEO, said the deal would enable a “step change” in oil and gas drilling technology. Based on Schlumberger’s closing price of $63.9 on Friday, the offer of 0.6966 of its shares for every Smith share values the target at $12.4bn, including $1.2bn of debt – an 18% premium to Smith’s Friday closing price, which had risen by 13% after news of the talks leaked in the morning

RBS’s Hester to decline bonus

Stephen Hester, chief executive of RBS, will forgo his 2009 bonus, in an effort to encourage the UK government – which owns 70% of the bank – to sign off RBS’s plans to pay a “commercial rate” of bonuses to its investment banking staff. Hester’s decision to give up a bonus – which could have amounted to £1.6m-plus as part of a near-£10m potential pay package – follows a similar decision by Barclays bosses John Varley and Bob Diamond last week. It also puts pressure on Eric Daniels, CEO of 41% state-owned Lloyds Banking Group, to follow suit, the FT notes in a separate report.

Greece set for bond issue test

Greece will call on other European countries for help if it is unable to borrow money at similar rates to other eurozone members, George Papandreou, Greek prime minister, told the BBC on Sunday. Bankers in Athens expect a multibillion-euro syndicated bond issue to be launched within days after the government appointed a senior commercial banker on Friday as new head of its debt agency. Papandreou said Greece’s borrowing needs were covered till mid-March.

Deutsche in BMW pensions deal

Deutsche Bank will take over the longevity risks of nearly £3bn of pension liabilities from BMW’s UK scheme in the largest deal to be done in corporate longevity insurance, in effect doubling the size of the market. The deal, to be announced on Monday, is being carried out through the bank’s insurance subsidiary, Abbey Life, and was structured in partnership with Paternoster, the specialist pensions business 40%-owned by Deutsche.

Berlin extend EADS stake deal

The German government has been forced to extend a deal that gives a group of banks a 7.5% stake in EADS, having failed to find a national buyer for the defence company. Berlin brokered the arrangement in 2007 after German carmaker Daimler sought to cut its EADS stake. But a sale could threaten the balance with the French government and the Lagardère group, which together still hold 22.5%. The failure to sell the stake after three years highlights political and cultural difficulties associated with the holding.