European Union finance ministers on Tuesday pledged on Tuesday to pursue a levy on the banking sector, despite the lack of global consensus at last weekend’s G20 meeting and differences amongst EU states over the use of levy funds, the FT reports. The ministers also agreed at their Luxembourg meeting on tough intervention powers for EU officials if member states’ economic statistics are suspected to be flawed.
The pound fell on Tuesday after Fitch warned that the UK faced a “formidable” fiscal challenge in the coming months. However, the credit rating agency stopped short of reducing the country’s triple A status, the FT reports.
As FT Alphaville notes, the move has coincided with a strange draining of liquidity in the European sovereign CDS market…
Jérôme Kerviel appeared on Tuesday at the Palais de Justice in Paris accused of causing a €4.9bn loss for his former employer, Société Générale, and exposing France’s second-biggest bank to €50bn of unhedged positions on futures markets in January 2008, the FT reports. He faces up to five years in prison, a €375,000 fine and up to €4.9bn in damages if found guilty of charges of breach of trust, computer abuse and forgery.
An economic action plan including cuts in public sector wages and a temporary bank tax was unveiled by Hungary’s prime minister on Tuesday in an effort to show fiscal restraint and calm financial markets, the FT reports. After much criticism of his Fidesz party’s economic rhetoric, Viktor Orban pledged to overhaul the tax system and ban foreign-currency denominated mortgages. But FT.com’s Beyond Brics emerging markets blog, asks: has Orban done enough?
Terry Guo, head of the world’s largest contract manufacturer Foxconn, has announced changes to the Chinese company’s labour force structure by abandoning the “factory town” model at the heart of Taiwanese and Hong Kong investment into China, the FT reports. Foxconn has seen a spate of suicides at its manufacturing hub in Shenzhen, alarming key foreign customers such as Apple.
The prospect of a bidding war for Chloride emerged on Tuesday after ABB made an agreed 325p per share cash bid for the UK maker of uninterruptible power supply systems, trumping an approach in April pitched at 275p from Emerson Electric of the US, the FT reports.
Shrimp prices have jumped in the wake of the Gulf of Mexico oil spill, with domestically-produced US shrimp up more than 40 per cent to $6.20 per pound since the BP well explosion, according to Urner Barry, a pricing agency. The FT notes that the international shrimp trade is worth about $15bn a year, but unlike other popular food commodities the seafood does not trade on a futures exchange.
See the FT’s Energy Source blog for some snappy analysis of the Gulf disaster.
The London Stock Exchange on Tuesday signalled a frontal assault on Europe’s two largest derivatives exchanges – Eurex and NYSE Liffe – with plans to build pan-European derivatives business within nine months, the FT reports. Xavier Rolet, LSE chief executive, said the group would launch equity derivatives on a new trading system provided by TMX Group, the Canadian exchange operator.
Petronas, the Malaysian state energy company, is considering floating its petrochemicals arm in a move that could raise about $2bn, the FT reports. Bankers said the group was discussing an IPO with Malaysian and international investment banks, although no advisory mandates have yet been signed.
The Australian unit of German builder Bilfinger Berger is planning Australia’s largest IPO so far this year, aiming to raise A$1.39bn ($1.15bn). Bilfinger Berger will sell its entire shareholding into the float of the newly named Valemus as it expands its more lucrative services operations in Europe, the FT reports.
CDS markets are looking up lately — well, if you’re an emerging sovereign:
The session opened on a positive note, with Ben Bernanke’s comments about the US and European economies having a calming effect. But this didn’t last long and risk aversion soon regained its hold over the credit and equity markets. There wasn’t a clear negative catalyst that precipitated the shift in sentiment, though the significant underperformance of the banking sector suggests that it is still seen as the credit market’s Achilles heel. The Markit iTraxx Senior Financials was 15bp wider at 208bp, and the index was approaching its record closing wide of 210bp in March 2009. Given that many of the major banks were on the verge of collapse at this time credit investors clearly have a dim view of the sector’s prospects. Rumours have been flying around the market and investors are looking for clarity.
The sovereign market, whose governments are effectively the benefactors of their banking sectors, enjoyed a relatively tepid day by its standards. The Markit iTraxx SovX Western Europe index was 1bp tighter at 167bp, though it did go beyond 170bp earlier in the session. The index has outperformed its corporate sibling in recent days, being more or less at the same level as last Friday (see chart). Read more
The last time FT Alphaville looked at the Bank of England’s Asset Purchase (APF) facility was in the last week of May, and we remarked on the fact that the Old Lady had bought £88m (cash) of corporate paper.
Now, that was something of a departure from proceeding months as the graphic below shows: Read more
Here’s una piccola variazione all’italiana on why troubled eurozone sovereigns rely on domestic banks to buy up their debt (which FT Alphaville has noted may pose a few grande problems further ahead).
According to Lombard Street Research’s Stefano Di Domizio, the illiquidity of eurozone sovereign debt is causing pain in the carry trade that European banks have set up between easy ECB liquidity and issuance by their own governments. Read more
A second helping of bearishness on Tuesday, courtesy of Albert Edwards.
The Soc Gen strategist is worried about the recent slump in the US Economic Council Research Institute (ECRI) leading indicator. (You may not have heard of this, but no less an authority than the Economist says it has a stellar record). Read more
Plenty of gems in the latest missive from Bob Janjuah.
Aside from the above, the RBS strategist believes the market is starting to realise just how daft the consensus views for global growth and corporate earnings are: Read more
Knock 5.6 percentage points off the American dream: US home ownership.
Doing that will effectively strip out those homeowners currently in negative equity, according to a Federal Reserve paper by Andrew Haughwout, Richard Peach and Joseph Tracy. Read more
Live markets commentary from FT.com
Hungary, look what you’ve kicked off.
JP Morgan published its analysis of which major European banks are exposed to the eastern European nation earlier this Tuesday. And BNP Paribas’ Ivan Zubo and Olivia Frieser have just followed suit with a rundown of country-by-country exposure to Hungary. Read more
Remarks from Federal Reserve chairman Ben Bernanke that the US economy is improving have encouraged timid “bargain hunting” by embattled risk investors, according to the FT’s rolling global markets overview. S&P 500 futures were up. Bernanke also assured that Europe was committed to the survival of the euro, Reuters reports, driving the single currency up on Tuesday.
Bank of America will pay $108m to settle claims its 2008 acquisition Countrywide overcharged more than 200,000 mortgage customers, the WSJ reports. The Federal Trade Commission, which said the settlement was one of the largest in its history, alleged that Countrywide had raise the cost of foreclosure and inspections for mortgage-holders close to default. Bank of America did not admit to any wrong-doing as part of its settlement.
The Obama administration will move quickly on new safety measures for oil drilling and gas exploration in shallow-water areas, the WSJ reports, after critics said delays could cost thousands of jobs. BP is meanwhile is in deep over potential legal penalties for the Gulf Coast oil spill, with the White House threatening punishment ‘in the many billions of dollars’.
The lower house of Switzerland’s parliament has voted down a bill that would have moved toward handing American tax evaders’ data to US authorities, the WSJ says. The bill, which emerged out of a tax case between UBS and the US over disclosure of Americans’ offshore accounts, could go to a referendum unless differences can be ironed out with the Swiss upper house, the NYT’s Dealbook adds.
More on the topic du jour for the banking sector — funding.
Citigroup says the issue isn’t so much the availability of capital — The Fed has after all, reopened its dollar swap lines and the European Central Bank seems likely to replace its expiring 12-month repo facility with more short-term liquidity — but cost. Read more
BIS academic Stephen Cecchetti has been much exercised by the currency costs of international financial integration lately — quantifying the yen carry trade.
And now he’s taken another look at dollar shortages. Read more
The end of an era at Britain’s largest retailer.
From the RNS: Read more