Posts from Tuesday May 4 2010

Pre-avoiding regulation, Goldman style

How does this work?

Goldman argues that the highly profitable, tailored segment of the derivative business is unable go on an exchange due to low volumes or pricing difficulty. Alternatively, these high margin OTC products will likely be cleared through a common settlement venue, and based on the current draft of the Senate Bill, would have to be originated outside the bank (Section 1065). This would force banks to move their fixed income derivatives books from the bank subsidiary (that is FDIC protected and has access to the Fed window) to a new separately capitalized (and lower rated) derivatives subsidiary that would likely be guaranteed by the bank holding company. Goldman already operates its OTC fixed income derivatives book out of such a subsidiary and would not have to use new capital to support this subsidiary.

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China ignites global coal market

China’s growing appetite for imported coal has ignited coal prices and fueled deal making on the belief that the country, once a major coal exporter, will be a long-term buyer of foreign coal, the WSJ reported. The country’s growth amid the global economic rebound is already driving up a swath of commodities, including iron and oil. But so far—at least for coal—prices remain below the pre-recession highs of 2008, when Newcastle coal breached $180 a ton.

Standard Chartered says it had record Q1

Standard Chartered, the British bank that generates the majority of its earnings in Asia, said it posted “very strong” profit and revenue in the first quarter on an improved performance from consumer and corporate banking, Bloomberg reported. Profit was “higher” than in the first quarter of 2009, the London-based company said in a statement today. It didn’t provide a figure for earnings.

Agricultural Bank of China applies for HK listing

Agricultural Bank of China, the last of China’s big four state-run lenders to be listed, filed its listing application with the Hong Kong stock exchange Tuesday, officially kicking off the process for its $20 billion to $30 billion dual listing in Shanghai and Hong Kong, the WSJ said, citing people familiar with the situation.

Indian oil groups drop bid for Gulfsands

The two spurned Indian state-owned oil companies stalking Gulfsands Petroleum have dropped their £380m takeover approach for the Syria-focused explorer. Oil India and Indian Oil Corporation said their 315p per share indicative offer – which Gulfsands rejected last week for a second time as “wholly inadequate” – had been taken off the table after they were prevented from conducting due diligence, the FT said.

UBS back close to pre-crisis levels

UBS, one of the biggest European casualties of the credit crunch, made a step towards recovery on Tuesday as quarterly earnings returned to near pre-crisis levels for the first time. But the Swiss banking group, which has written down more than $50bn on toxic securities, acknowledged it still needed to rebuild its investment banking business and regain the confidence of clients at its powerhouse private bank, the FT said.

Are fears of China’s overheating overdone?

Much of the commentary following China’s announcement of an11.9 per cent GDP growth rate for the first quarter of this year has dwelt on the spectre of dangerous overheating. However, alternative readings support the thesis that a cooling process is already underway, according to China Confidential’s James Kynge.

Vigilante finance

The following Reuters flash only caught our eye because of the involvement of an associate company…

So, there appears to be an “investigation into possible breaches of fiduciary duty and other violations of state law by members of the Board of Directors of Interactive Data Corporation… in connection with their actions in causing Interactive Data to enter into a definitive agreement with investment funds managed by Silver Lake and Warburg Pincus.” Read more

EU ponders launching its own rating agency

The European Union senior financial services regulator Michael Barnier said on Tuesday he would look at setting up a European credit rating agency, as he expressed concern over the way in which Greek debt was dealt with. Mr Barnier told European lawmakers that he had watched, with surprise, the “rapid deterioration of the [Greek] rating”, the FT said.

Essar Energy shares tumble in London debut

Essar Energy, the power and oil company spun out of India’s sprawling Essar Conglomerate, tumbled 7.2 per cent on its first day of trading after raising £1.2bn last week – the worst debut of a big London flotation in almost eight years, the FT said. FT Alphaville dubbed the debut a ‘fail‘.

US Congress turns up heat on BP

The US Congress is turning up the heat on BP and Transocean over the Gulf of Mexico oil spill, the FT reported. Two executives from Transocean, the world’s largest offshore drilling company that owned and operated the exploration rig, and two from BP, the British oil company that drilled the well, were questioned by members of the House of Representatives’ energy and environment and investigations subcommittees on Tuesday.

Europe’s debt crisis hammers markets

Global financial markets tumbled on Tuesday as fears grew that the eurozone debt crisis was deepening and worries rose over the health of the Chinese economy, the FT reports. In currencies, the euro dropped to a one-year low against the dollar, European stocks plumbed two-month lows, while the bond markets of weaker eurozone economies fell as rattled investors sought to sell. The Dow closed more than 220 points lower on the day, while the S&P 500 index ended 2.4 per cent lower. CDS markets were similarly roiled.

…and sells

EURUSD => 1.2997 (before a mild dead cat…)

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America discovers Europe…

JPM wishes the adults were in charge of financial reform [UPDATED]

FT Alphaville has only one thing to say about the following note from JP Morgan economist James Glassman: ouch. In the note, Glassman deplored US lawmakers’ “unnerving ignorance of fundamental principles of market economics”, among other criticisms.  Read more

Merkel’s calls for ‘orderly insolvencies’ threaten more disorder

There’s nothing quite like a crisis to expose the underlying cracks and fissures in both political systems and regulatory frameworks.

According to Bloomberg reports,  Germany’s coalition government, fronted by chancellor Angela Merkel, has ‘stepped up calls for allowing the “orderly” default of euro-region member states burdened with debt to avoid a repeat of the Greek fiscal crisis’: Read more

CDS report: Peripherals capitulate

Markit chart of Spain and Portugal 5-year CDS

* Peripheral sovereigns capitulate as bailout fails to reassure Read more

Going nuclear at the ECB

With markets across Europe reeling on Tuesday, will the European Central Bank have to press the nuclear option button and start buying government bonds?

Gary Jenkins of Evolution Securities is one of an increasing number of analysts who think it might be the only way to stop the contagion spreading. Read more

¡¡¡The un-rally monkey!!!

Related links:
Greek contagion fears hit Europe stocks
– FT
– FT Alphaville
Spain’s PM decries market ‘madness
’ – FT Alphaville

Oh, those naughty short selling…US senators?

Hats off to the Wall Street Journal for delving into the two-facedness of US legislators, at least as far as short selling is concerned.

In a story published on Monday, the Journal reported that “some members of Congress made risky bets with their own money that US stocks or bonds would fall during the financial crisis”. The newspaper conducted its own analysis of congressional disclosures. Read more

Spain’s PM decries market ‘madness’

Spain’s prime minister José Luis Rodríguez Zapatero sought to reassure investors on Tuesday as the country’s Ibex equity index fell and amid rumours of Spanish interest in a €280bn bailout. (Le Figaro reported on the chatter).

Flashes, via Reuters: Read more


A small indication of the carnage across European markets on Tuesday just as US markets opened.

The FTSE 100, off about 2 per cent: Read more

A glimpse into financial hell

Alan Ruskin has peered into the abyss of a US sovereign debt crisis to see what the world might look like. Unsurprisingly, it’s not a nice place.

Food commodities would be about the only thing left worth owning, according to the RBS strategist. Read more

Sovereign woes are a pain in the periphery

Equity markets in Spain and Portugal tumbled on Tuesday, undermining hopes — and politicians’ assertions — that the €110bn Greek rescue package would quell fears of eurozone contagion.

David Shairp, global strategist at JP Morgan Asset Management, attributed some of the negative reaction to the details in the aid package (and the hangover from rating agency Standard & Poor’s decision to downgrade both Spain and Portugal). Read more

Deutsche Bank will support Greek bonds

Well, here’s one more happy German buyer of Greek bonds. Deutsche Bank’s CEO Josef Ackermann publicly declared his support for Greek sovereign debt on Tuesday.

Flashes, via Reuters: Read more

Markets Live transcript 4 May 2010

Live markets commentary from 

The horrid Henry Tax

Messy, complicated, confusing and ultimately damaging for investment in mining down under – that was the reaction in the City of London to the Australian government’s plan for a 40 per cent tax on profits generated by resource companies (the so-called Henry Tax), which hit the share prices of mining companies hard on Tuesday morning. Read more

Australia raises benchmark rate to 4.5%

Australia’s central bank on Tuesday raised interest rates for the sixth time since October, a move which could add to political pressure on the centre-left government ahead of an election later this year, the FT reported. The latest 25 basis point rise took the benchmark lending rate to 4.5 per cent and came as Kevin Rudd’s ruling Labor party suffered its worst opinion poll rating since he took power from the Liberal/National coalition in 2007.

Iberian contagion, redux

FT Alphaville reports a case of Greek bailout contagion on Tuesday. Spain’s Ibex 35 index was down 2.75 per cent, while Portugal’s main PSI20 index was off by some 1.2 per cent on the day. Investors fear both countries could be in line for potential fiscal hurdles of their own in the months to come, despite contributing to the Eurozone’s collective €110bn bailout pledge at the weekend. Portugal meanwhile sought on Monday to strengthen its defences against contagion from the Greek crisis by pledging tough measures to cut public deficits, according to the FT. Read more

Greek workers step up fight against austerity

Tens of thousands of Greek state workers will extend protests on Tuesday against the country’s emergency action plan as the government pushes through legislation to enforce a three-year austerity programme, the FT reported. ADEDY, the public sector umbrella union, brought forward a 24-hour walkout planned for Wednesday and extended it to 48 hours amid rising anger over wage and pension cuts and a rise in value added tax. For more on Greek austerity protests, see FT Alphaville.