Posts from Wednesday May 12 2010

Because one panel on the flash crash wasn’t enough…

SEC chair Mary Schapiro’s testimony to the congressional hearing convened on the flash crash is less than 24 hours old, but already there’s talk of hosting another talking shop on the matter.

Politico reported on Wednesday that the first item on the agenda of the freshly-announced joint SEC-CFTC committee on “emerging regulatory issues” will be “a review of last Thursday’s market events, with an eye to what might have contributed to the day’s volatility.” Read more

Pru’s AIA deal back on track

Prudential hopes to launch its delayed $21bn (£14bn) rights issue early next week after agreeing to changes to the financing of its proposed $35.5bn takeover of AIA, the Asian businesses of the stricken US insurer AIG, the FT said. The UK company, which declined to comment, was forced to delay the launch of its rights issue at the final hour last week after the UK regulator refused to sign off on the proposed capital buffer of the enlarged company.

Nissan narrows loss

Nissan on Wednesday reported a much narrower net loss for the fiscal fourth quarter and gave a brighter outlook for this fiscal year as it targets record global vehicle sales amid growth in China and the US, the WSJ said. Japan’s third-biggest car maker by volume posted a net loss of 11.6bn yen in the 3 months ended March 31, narrowing from a net loss of 276.9bn yen a year earlier, according to the newspaper.

IEA warns against US oil spill over-reaction

The International Energy Agency has warned US law makers against making rash decisions in the wake of BP’s oil spill. “A knee-jerk reaction by regulators, banning new offshore licensing altogether, as some are proposing, risks pushing companies to ever more precarious locations in search of hydrocarbons,” the IEA said in its monthly market report released on Wednesday. See the FT’s Energy Source blog for full coverage.

Eurozone sees muted growth

The eurozone managed only modest economic growth in the first quarter of this year, with Germany’s performance, held back by the bitter winter, failing to kick-start a broader recovery in the region, the FT reported. Eurozone GDP expanded by just 0.2% compared with the previous three months, the EU’s statistical office said.

Cameron hails ‘seismic shift’

David Cameron, Britain’s new prime minister, declared that the creation of his coalition government marked the start of a “historic and seismic shift” in British politics as he sought to bury his party’s rivalry with his new Liberal Democrat partners, the FT reports. Cameron said his new alliance with Nick Clegg, the Lib Dem leader, would last five years and would be based on “strong and stable leadership”. See’s guide to the new coalition cabinet.

SAP close to buying Sybase for $6bn, Bloomberg says

SAP, the world’s biggest maker of business-management software, is close to buying Sybase for about $6bn, Bloomberg reported, citing two people with knowledge of the matter. Shares in Sybase closed up 35 per cent in New York — after having rallied as much as 50 per cent on the report — and were being briskly traded in the after-hours market.

Panel reveals failures on oil spill

A litany of failures in the blow-out preventer led to the catastrophic spill from BP’s leaking Gulf of Mexico well, a powerful Congressional investigations panel revealed on Wednesday, suggesting that BP and Transocean officials overlooked warning signs and then disagreed on what to do about them, the FT reported. The revelations also showed that the blow-out preventer had been extensively modified in ways that BP did not appear to recognise as the leak began.

Gome reappoints Bain directors

An incarcerated Chinese billionaire temporarily unseated three directors representing foreign investors in his Hong Kong-listed flagship, suggesting prison is no barrier to corporate influence in China. Two holding companies controlled by Huang Guangyu, in detention since November 2008, voted his shares against the re-election of three directors at Gome, one of the country’s largest electronics retailers. The unseated directors represented Bain Capital, and were promptly reappointed by the board, the FT said.

AIG chief says group will stay in profit

Robert Benmosche, AIG chief executive, told shareholders at the company’s annual meeting on Wednesday that the beleaguered insurer would continue to earn a profit and pay back all of its obligations, including the $101.6bn it owes US taxpayers, the FT reported. Mr Benmosche also said AIG ‘s lawyers were combing through contracts it had with Goldman Sachs and other firms to see whether they can recover any funds.

Morgan Stanley denies knowing of probe

Morgan Stanley’s chief executive said the bank had “no knowledge whatsoever” of a US government probe into it, as its shares fell following a report that federal prosecutors were looking at mortgage-related deals, the FT reported. James Gorman said the US Department of Justice had not asked the bank about two CDOs  mentioned in a report in Wednesday’s WSJ. FT Alphaville has the details on the ‘dead presidents‘ under (alleged, disputed) investigation.

Indian telecoms groups hit out at charges

Telecoms companies in India have raised alarm over a threat of retrospective charges for use of mobile spectrum, the FT reported. The move by the Indian telecoms regulator provoked protest from industry leaders Bharti Airtel and Vodafone Essar. Analysts estimate  the recommendations from the Indian telecoms regulator could cost Bharti about $700m and Vodafone around $650m at a time when they are facing billions of dollars in outlays on third generation mobile spectrum.

China boosts business links with S Africa

China will on Friday formally announce its largest investment in South Africa for two years, entrenching its position as the resource-rich continent’s most important economic and commercial partner, the FT has learnt. The China Africa Development Fund and the Jidong Development Group will help build a new cement plant worth at least Rmb1.5bn. China emerged as South Africa’s largest trading partner last year.

Odd trends in CDS liquidity

CDS liquidity is suddenly on the rise somewhere in developed markets, Fitch said on Wednesday, using its, er, unique liquidity scoring.

(The lower Fitch’s score, the more liquid contracts on a given reference entity are, which, according to Fitch, indicates greater uncertainty over credit risk.) Read more

CDS report: Sovereigns, banks resurgent

Markit CDS chart for Banco Espirito Santo and Santander

European credit markets today continued where they left off yesterday and extended the recent rally. The euphoria following Monday’s bailout announcement has dissipated but some of the positive sentiment has lingered as contagion fears have receded. The credit market ignored a lacklustre start by equities but the rally gathered pace when the latter market accelerated upwards in the afternoon. The Markit iTraxx Europe index was 7bp tighter at 94.5bp, a full 47bp tighter than Friday’s close. However, this is still wider than April month-end levels and spreads have some way to go before they return to the sub-75bp levels seen in March. Read more

Fiscal squeals

Beyond the rescue package, it’s now all about watching the fiscal cuts… and the bank vulnerabilities… and the financing needs.

So let’s look at the long-term task ahead for Club Med (plus Ireland). Read more

Quick, run for the Goldschläger!

Gold zoomed through fresh record highs on Wednesday. See this chart:

 Read more

Et in Arcadia ego

Oh dear. Here’s an unwelcome blast from the past for Greece’s bailout, via the FT:

The Greek rescue package will fail, according to Cristina Fernández, Argentina’s president, whose country suffered the world’s biggest debt default in 2001. Read more

Did futures cause the ‘flash crash’?

The NYT has followed up on the testimony of CFTC chair Gary Gensler before the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, which held its first hearing into the ‘flash crash’ of May 6.

According to the paper, investigators are now focusing on the deals of a single trader in the derivative markets. These, the paper says, were put through 10 minutes before the wider market began to sell off. Read more

All about EM tightening prospects

While Europe’s sovereign debt crisis has grabbed the attention of global markets, inflation is again clawing its way back in emerging economies, as Philip Poole of HSBC notes on the FT’s Beyond Brics blog. China provided more evidence of this trend on Tuesday, with the release of CPI data for April which showed inflation continuing to move higher.

As the FT reported, both Chinese inflation and housing price rises continue to quicken, with consumer price inflation rising to 2.8 per cent in April from 2.4 per cent the month before – its highest in 18 months, although still short of the government’s 3 per cent target – while factory-gate inflation jumped to 6.8 per cent from 5.9 per cent. Read more

UBS on which stocks – and teams – will win the 2010 World Cup

The analysts at UBS have taken a break from the sovereign debt crisis to make some World Cup “just for kicks” stock picks, and predict which team will win. See FT Alphaville for their picks. Read more

Markets Live transcript 12 May 2010

Live markets commentary from 

‘Financial crisis is far from over,’ BoE’s King says

The Bank of England’s latest inflation report has just been released.

The top line is that Governor Mervyn King still appears unconcerned about inflation, because if anything the CPI basket will undershoot the target even if rates stay steady. Read more

Fed bailout audit to proceed

The US Senate on Tuesday unanimously backed a full-scale audit of the Federal Reserve’s actions during the financial crisis, the FT reports, but rejected a proposal for continuing sweeping probes, which the central bank said would compromise its independence.

Fiduciary and derivatives reforms face backlash

Goldman Sachs’s second-in-command on Tuesday warned that markets would stop functioning if Congress forced banks to look after their clients’ interests when operating as “market makers” standing between buyers and sellers of securities, the FT says.

Meanwhile, large US industrial and manufacturing groups have intensified their campaign to ensure they will be exempt from proposed rules to reform the over-the-counter derivatives market, the paper addsRead more

Flash Crash theories fly

Regulators investigating last Thursday’s stock market plunge are looking closely at heavy selling by a single trader just prior to the crash, the NYT says.

CFTC chair Gary Gensler said that an unidentified 500 e-mini futures dealer was of interest, as he joined the SEC chair at a Congressional hearing on Tuesday. Read more

New UK government to set out cuts

The first British coalition government in 70 years will prepare an emergency budget within 50 days of taking office on Tuesday, Bloomberg reports. The budget is expected to contain $9bn of spending cuts as the UK seeks to avoid becoming the next Greece.

London market reaction was positive, if muted, FT Alphaville notes. However, the ideologically-split two-party deal behind the coalition remains fragile, the WSJ adds.

Rivals close in on Apple

Apple’s dominance in tablet computers faces a joint Google-Verizon attack, the WSJ reports. The rush to build an iPad killer marks another stage in a growing alliance between Verizon and Google, the Journal adds.

Nokia has meanwhile named a new executive to lead its smartphone unit, Bloomberg reports. The company is still looking to claw back markets taken by Apple’s iPhone, especially after disappointing first-quarter earnings.

ConDem-ing the UK banks

Here’s something of a surprise:

 Read more

Banking and broking JVs 101: How not to do it

FT Alphaville isn’t sure who to feel more sorry for: the bankers and brokers at Morgan Stanley or its Japanese joint-venture partner (and part-owner), Japan’s Mitsubishi UFJ Group. Read more