Posts from Wednesday Jun 2 2010

800,000 CDS trades

The DTCC has published what it calls a “snapshot” of the CDS market, but it’s actually more like a “time-lapse movie”, FT Alphaville writes. We now have nine months of data, covering just about every single-name CDS traded since last June. Read more

Berlin enacts ‘naked short” ban

The German government on Wednesday made good on its pledge to crack down on financial speculators by agreeing to block the speculative “naked” short-selling of German stocks and eurozone sovereign bonds. However, it stopped short of banning speculative trading in euro currency derivatives, although the bill approved by the cabinet will allow the market regulator Bafin to impose a ban in case of market turbulence, the FT reports.

Pru executives seek support

Prudential is seeking support from shareholders as part of a fightback against calls for its top management to resign following the collapse of the UK life assurer’s putative $35.5bn takeover bid for the Asian business of AIG. Tidjane Thiam, chief executive, and Harvey McGrath, chairman, will face a public grilling over the abortive acquisition at the group’s annual shareholders’ meeting on Monday, the FT reports.

Fundraisings weigh on China bank IPO

Bank of China launched a Rmb40bn ($5.9bn) convertible bond sale on Wednesday amid official concern that a flood of fundraisings by the country’s largest banks could hinder next month’s high-profile IPO by Agricultural Bank of China, the FT reports. Agricultural Bank plans to raise as much as $30bn in mid-July in a Hong Kong and Shanghai IPO that would be the world’s largest, but falling stock markets and huge capital-raising plans at other banks are casting a shadow over the long-delayed listing.

Etisalat eyes Reliance Comms stake

Emirates Telecommunications of the UAE is in talks with Reliance Communications about taking a 26%  stake in India’s second-largest mobile company by subscribers. The deal would value the stake at about $4bn but the Gulf company, also known as Etisalat, is among several to have approached Reliance, the FT reports, citing a person familiar with the matter.

Telefónica confident on Vivo offer

Cesar Alierta, Telefónica’s chairman, remains confident that Portugal Telecom’s shareholders will accept the Spanish group’s sweetened bid to buy the Portuguese company out of Vivo, their Brazilian mobile phone joint venture, the FT reports. Telefónica had insisted that its initial €5.7bn offer to Portugal Telecom was “final”, but on Tuesday raised it by 14 per cent to €6.5bn.

Circuit breakers to ‘halt repeat of flash crash’

Next week, in a bid to prevent a repeat of May’s “flash crash”, new rules for US equities are being introduced in the most dramatic attempt to curb volatile trading since market-wide price limits were introduced after the 1987 stock market crash, the FT reports. The changes represent the first policy response from the Securities and Exchange Commission since the turmoil on May 6 and will, in effect, subject all stocks in the S&P 500 to new speed limits.

Buffett defends Moody’s

Warren Buffett, the largest shareholder in Moody’s Corp, told the Financial Crisis Inquiry Commission that the credit rating agency deserved less criticism than the bailed-out banks, the FT reports. Mr Buffett, who had refused to attend the hearing until he was forced by a subpoena, stood alongside Ray McDaniel, chief executive of Moody’s, as both men raised their right hands and swore to tell the truth. Catch up with Simone Baribeau’s live blog of the FCIC hearings here. Collect written testimonies from those appearing before the FCIC at FT Alphaville.

Yen weakens as Hatoyama steps down

The yen was the surprise victim on currency markets after the resignation of Japan’s prime minister and his party secretary. Yukio Hatoyama stood down as prime minister less than nine months after his Democratic Party of Japan won a historic victory that ended nearly 50 years of rule by the Liberal Democratic party, the FT reports. The yen fell 0.8 per cent to Y91.71 versus the dollar on Wednesday. Catch a round-up of analysts’ reaction at FT Alphaville.

The commercial real estate-failed bank nexus

The warnings have become the reality. Back in October 2009, the NY Times cited an estimate by research firm Foresight Analytics that as many as 581 small banks were at risk of collapse by 2011, due in large part to their exposure to commercial real estate.

And on Wednesday, mortgage market trade magazine HousingWire reported thus (emphasis ours): Read more

Vanity Capital L.P

We watched the video, so you don’t have to…

Vanity Fair promoRead more

The exposed case of “Client A”

Consider the following extract from a “final notice“, issued by the FSA on Wednesday as the UK regulator slapped a lifetime ban and a £100,000 fine on one Andrew Kerr, a commodity broker at Sucden Financial:

4.24. The 600 lot order was placed by Client A with Mr Kerr during a call that commenced at 12:06 and terminated seconds after 12:30. During the course of this conversation: Read more

CDS report: Spreads overflowing

Investors with appetite for risk were still on the back foot today as spreads continued to widen. A late sell-off in US markets yesterday ensured that European spreads would open wider this morning. The seemingly omnipresent sovereign debt concerns played their part, as did the oil spill disaster in the Gulf of Mexico. Credit markets have recovered somewhat this afternoon following a solid open in the US.

The oil and gas sector was comfortably the weakest in credit yesterday, and its performance today was even worse. BP had another day to forget, its spreads widening 100bp to 270bp, soaring past yesterday’s record wide level. The announcement that the US Department of Justice is launching a criminal investigation added another risk to the many that BP is already facing. Following its failure to stem the flow of oil from its leaking well, BP said that it will take at least another two months for its latest effort to work. Each day that passes adds to the mounting clean-up costs that BP faces. Read more

Everyone v the rating agencies

No, it’s not déjà vu. The rating agencies are once again being hauled up before a jury of their not-quite peers.

This is not the first, nor even the second time the likes of Moody’s and Standard & Poor’s have been obliged to come out with their hands up, obliged to defend at great and tedious length their right to bestow gold-plated triple-A ratings upon the most toxic of sludge. Read more

Greek fire (sale)

Welcome to Austerity Greece.

The Hellenic Republic’s government committed to a rather impressive bout of privatisation on Wednesday, according to flashes from Reuters: Read more

Post-apocalyptic Pru

Cheer up, Prudential. Tomorrow’s another day, even if your ‘transformational’ bid for AIA has blown up and your chief executive is looking ready for the chop.

So let’s look at the case for moving swiftly on. Read more

Bailed-out bank stakes cost UK £3.2bn a year, JP Morgan says

JP Morgan analysts Carla Antunes da Silva and Amit Goel have been looking at Britain’s part-nationalised banks, Lloyds and RBS. Their investment advice to the British government: “Sell.” Read more

Markets Live transcript 2 Jun 2010

Live markets commentary from FT.com 

Selling Germany, buying Greece

Or, the German safe haven status that never was.

According to Citi’s latest bond and swap analysis, over the course of May bond traders have been selling out of German debt and buying into Greek debt (and the Netherlands). How very topsy-turvy. Read more

Legal woes add to BP hammering

BP’s London stock fell 2.2 per cent in Wednesday morning trading, Bloomberg reports, as legal difficulties arising from the Deepwater Horizon spill become clearer. BP shares had fallen 13 per cent the day before. The Attorney General Eric Holder announced civil and criminal probes into the disaster on Tuesday, says the FT, while lawyers on both sides are already preparing for battle over local lawsuits in affected Gulf regions, according to the WSJ.

HP slashes jobs in streamlining effort

Hewlett-Packard expects to cut a net 3,000 jobs as part of a $1bn restructuring effort of its enterprise services division, the FT reports. The world’s largest IT company by revenue said it would cut 9,000 jobs in the division but add 6,000 in sales and delivery, hoping to generate $500m to $700m savings by the end of 2013.

Japan’s post-Hatoyama outlook: ‘Shades of drab’

News on Wednesday morning of the resignation of Japanese prime minister Yukio Hatoyama after just eight months in power has caused much more of a political stir than a financial one, as the FT noted in a report with the distinctly unflattering (for the hapless Hatoyama) headline: “Markets shrug off Hatoyama’s resignation“.

(For more turgid background than you may want on the fall of Japan’s fourth prime minister in as many years, see FT Alphaville’s earlier post on the subject.) Read more

Investor split on risk aversion

Elements of risk aversion remain in vogue as investors continue to fret about the chances of a “double dip” for the global economy on Wednesday, according to the FT’s rolling global markets overview. The FTSE All-World equity index is down 0.8 per cent and commodities are lower. However, the euro is stronger against the dollar and haven bond yields are higher, suggesting some ‘risk on’ sentiment. US equity futures point to a 0.1 per cent gain when Wall Street opens.

Pru deal’s collapse sets AIG strategy back

Two months ago AIG hailed the sale of its Asian unit AIA to the UK insurer Prudential as a breakthrough in its bid to pay back taxpayers for its 2008 government bailout, the NYT reports. As Prudential withdraws its bid, AIG may have to revert to its original plan of offering AIA stock on Asian markets, but insurance stocks are much weaker than when the plan was first aired. This so-called ‘jewel’ in AIG’s crown needs some polishing before any IPO, the WSJ adds.

Apple’s supplier to raise wages by 30%

Foxconn, the contractor for Apple’s iPad and iPhone products, will increase its workers’ salaries by at least 30 per cent after a spate of suicides at its Chinese plant, Bloomberg reports. The wage increase is larger than earlier indicated, and is launched as Foxconn, which also trades as Hon Hai, seeks to end damage to its reputation from the suicides.

Greek exposure one-upmanship

Earlier this week Germany’s Spiegel reported that ze Germans were a tad miffed at les French over the European Central Bank’s sovereign bond-buying, amid claims that it is unduly benefiting French banks’ sales of Greek debt. France has now made its retort – banks have pledged to maintain their Greece exposure indefinitely. Read more

To Brazil, from Europe with love

How far away can the volatile effects of the eurozone crisis be felt?, FT Alphaville asks. As far away as Brazil, apparently, after the emerging-markets powerhouse experienced what basically amounts to a failed bond auction. And it wasn’t the first. Read more

Famous last words

From Prudential’s statement ending the AIA deal on Wednesday:

 Read more

How much is a Japanese PM worth?

How much is a Japanese prime minister worth to investors and markets? Not that much, it would seem, FT Alphaville says, after Yukio Hatoyama became the fourth Japanese leader to resign in four years. Japanese government bonds and USD/JPY traditionally don’t react strongly to the country’s political personalities. Read more

Further reading

Elsewhere on Wednesday,

- A less naive model of sovereign riskRead more