Posts from Monday May 3 2010

Miners reel over Australian super-tax

Australian miners and analysts on Monday warned that Canberra’s plan for a 40 per cent tax on profits generated by resource companies would cut deeply into earnings and dividends and jeopardise the viability of already approved projects, the FT reports. Mergers and acquisitions in Australia’s mining sector could also be curtailed if the tax, which Canberra said at the weekend it wanted to introduce in 2012, is approved by the country’s parliament.

World Cup expected to net $1bn

Fifa, soccer’s governing body, expects this year’s World Cup in South Africa to generate a net gain of $1bn thanks to commercial deals, secretary-general Jerome Valcke told the Financial Times.  The 2010 tournament will produce total income of $3.3bn; Fifa will spend $1.2bn on the tournament, including $700m spent in South Africa. About $1bn is being spent on development programmes, financial assistance to national associations and other projects.

Emerging market floats struggle

The experience of Uralchem, a Russian fertiliser producer that has had to abort planned a $600m stock market flotation in London, points to evidence that investors are taking an increasingly sceptical view of emerging market offerings, the FT says.

US carmakers gain at Toyota’s expense

Carmakers posted higher US sales in April, boosted by the economic recovery and a discounting war led by Toyota as the Japanese carmaker seeks to recover from a series of damaging vehicle recalls, the FT reports. General Motors’ sales rose by 6.4 per cent and Ford’s by a quarter compared with April 2009.

Avis to rival Hertz over Dollar Thrifty

Car hire group Avis Budget raised the prospect of a competing offer for rival Dollar Thrifty, saying it was interested in bidding “substantially” more than the $1.2bn tabled by Hertz last week, the FT reports. Ronald Nelson, Avis Budget chairman and chief executive, criticised Dollar Thrifty for not responding to earlier approaches from Avis Budget, and for agreeing unusually strong deterrents to rival bidders.

Continental and United to merge

UAL, the parent of United Airlines, and Continental Airlines on Monday announced a merger of the two US carriers, creating the world’s largest airline, the FT reports. The boards of both companies approved the all-paper deal on Sunday.

Goldman TV

Lloyds Blankfein looks to be a different man to the one that appeared in front of a Senate subcommittee last week. Tune in to the Charlie Rose interview with the Goldman Sachs boss via FT Alphaville. Read more

Xstrata Glencore, maybe, someday, possibly

Before Xstrata and Glencore can merge, the financial markets need to be able to work out how much Glencore might be worth, FT Alphaville notes. Read more

Short-sellers lose out in stock rally

The greatest equities rebound in seventy years has left investors who shorted banks and auto-makers out of pocket, Bloomberg reports. Hedge funds which specialize in short-selling have lost 34 per cent of their value in a year.

Low interest rates and a strong first quarter for earnings results and economic growth created a dangerous environment for bears. ‘If you were short this market, you’ve had your face ripped off,’ one investment officer said.

‘No effort spared’ in oil spill fight

President Barack Obama has said the federal government will do ‘whatever it takes’ to combat the damage done by the ongoing oil spill in the Gulf of Mexico, according to Bloomberg.

The Deepwater Horizon well’s rupture and leak on to the Gulf coastline was a ‘massive and potentially unprecedented environmental disaster,’ the President added. Read more

Papers reveal subprime’s ‘toxic magnification’

Senate documents reveal that Goldman and other banks often replicated the same subprime mortgage bonds in several different CDOs, the WSJ reports. Senator Carl Levin said the practice had ‘magnified the impact of toxic mortgages’, during last week’s Goldman Sachs hearing on Capitol Hill.

Europe’s central bank extends Greek lifeline

Greece has been given an unprecedented lifeline by the European Central Bank that will boost the attractiveness of its crisis-hit government bond market, the FT reports. The ECB said on Monday that it was suspending the minimum credit rating required for banks to use Greek government-backed assets as collateral in its liquidity operations.

Standard & Poors’ junking of Greek bonds last week had left European banks holding the assets in danger of losing liquidity, as FT Alphaville noted.

Further reading

Elsewhere on Monday,

– And the Greek restructuring mandate goes to… Read more

Overnight markets: Down and out

Asian markets
Nikkei closed on Monday for a holiday
Topix closed on Monday for a holiday
Hang Seng down -247.41 (-1.17%) at 20,861

US markets
S&P 500 down -20.09 (-1.66%) at 1,187
DJIA down -158.71 (-1.42%) at 11,009
Nasdaq down -50.73 (-2.02%) at 2,461 Read more

Ireland may skip debt auctions on Greek woe

Ireland may skip some of its upcoming monthly bond auctions in response to the sovereign debt crisis that has driven bond yields higher among the heavily indebted countries of the eurozone, the FT says. Oliver Whelan of Ireland’s National Treasury Management Agency said the country had a “sufficient buffer of cash to be able to carry on as normal”.

Chinese banks to raise reserves again

China’s central bank said on Sunday it will raise the amount banks must hold in reserve for a third time this year, the latest move by Beijing to cool its booming economy, the FT reports. The increase came after regulators ordered China’s largest banks to re-examine their loan books and provide estimates of their exposure to un-collateralised loans, especially to provincial governments.

Watchdog supports UK banking inquiry

A competition probe into the banking industry is justified in the wake of the financial crisis, the chief of the official watchdog has said in comments signalling a potential post-election battle over the industry’s future, says the FT. The Competition Commission chairman said there was a “compelling logic” to arguments that the sector needed to be investigated to see whether the state bail-out and other emergency measures resulting from the financial crisis had distorted the market.

Buffett warns on derivatives legislation

Warren Buffett has stepped up his warnings over the impact of any move by the US Congress to bring in retroactive rules on the use of derivatives contracts, reports the FT. The Berkshire Hathaway chief executive reassured a crowd of 37,000 at the investment vehicle’s annual meeting at the weekend that the plans would not cost the company “a dime”. But he said that counterparties to Berkshire’s portfolio of derivatives deals would face increased costs.

Junk bonds trading close to face value

Prices of junk bonds have rallied so strongly over the past year that a key market benchmark suggests that they are collectively trading at near 100 per cent of face value, a level not seen since before the credit crisis took hold in 2007, reports the FT. US junk bond prices, measured in a Bank of America Merrill Lynch index, last week reached a price of 99.55, the closest it has been to par – that is 100 per cent of face value – since June 2007.

UAL, Continental to announce merger

UAL, the parent of United Airlines, and Continental Airlines are on Monday expected to announce a merger of the two US carriers, creating the world’s largest airline. The boards of both companies met on Sunday and approved the deal, which will see Continental shares exchanged for 1.05 United shares in an at-the-market stock swap, reports the FT.

Norsk Hydro in $4.9bn Vale deal

Norsk Hydro has agreed to buy the aluminium assets of Vale, the Brazilian metals and mining group, in a $4.9bn deal that willsecure the Norwegian company’s raw material supplies for decades, the FT says. The move will give Norsk Hydro control of Paragominas, the world’s third-biggest bauxite mine, as well as Vale’s alumina refining and aluminium production facilities in Brazil.

Australia plans new mining sector tax

Australia’s centre-left government angered the country’s mining industry on Sunday when it announced plans for a 40 per cent tax on profits generated by resource companies, reports the FT. The so-called resources super profits tax, which mirrors a levy imposed on offshore petroleum projects, forms part of an overhaul of the country’s taxation system.

Goldman plans to overhaul practices

Goldman Sachs is planning to change some of its practices in dealing with institutional clients, a step that could help it settle charges filed last month by US securities regulators, says the FT. The internal policy revisions come as the US Securities and Exchange Commission steps up demands for corporate governance changes as part of any negotiated settlement.

Goldman CEO Lloyd Blankfein will face another test this week at the bank’s annual shareholder meeting, Bloomberg reports. Blankfein will have to win over investors concerned over recent damage to Goldman’s reputation.

Eurozone agrees $146bn Greece loans

Eurozone finance ministers on Sunday approved a €110bn ($146bn) package of emergency loans aimed at averting a sovereign default by Greece and preventing a confidence crisis spreading to countries such as Spain and Portugal, reports the FT.

Serious questions nevertheless remain over whether Greece can pull off planned austerity cuts as its part of the deal, the New York Times says. Economists fear the effect deflation could have in exacerbating the country’s debt problem. Nor does a cure-all for rising yields on government debt elsewhere in Europe, the WSJ adds.