German investor confidence plunged this month at the steepest rate since the collapse of Lehman Brothers in late 2008 as Europe’s largest economy was hit by fears over the eurozone debt crisis, the FT reports.. The Mannheim-based ZEW institute said its economic sentiment indicator dropped by 17.1 points in June taking the index to its lowest level since April last year. Read more
News Corp expects to borrow about $4bn to fund its attempt to buy out the 60.9 per cent of shares in British Sky Broadcasting it does not already own, and does not currently expect to issue new stock, executives told analysts on Tuesday. Rupert Murdoch’s media empire, which had $8.2bn in cash on its baIance sheet at the end of March, said it would maintain its credit ratings by taking pro forma debt to about three times earnings before interest, tax, depreciation and amortisation as of March 31, the FT reports. Read more
The Bank of Japan on Tuesday unveiled the framework of its new Y3,000bn ($33bn) lending programme in its latest effort to help spur economic growth and tackle deflation, the FT reports. The new temporary lending scheme, to start at the end of August, will supply one-year loans at the bank’s overnight rate, against eligible collateral, to financial institutions, for lending to companies. The initial plan was announced in May. Read more
KB Financial has appointed a close ally of the South Korean president as its new head, paving the way for the country’s second largest lender by assets to acquire a local bank such as Korea Exchange Bank or Woori Bank. The appointment of Euh Yoon-dae as the chairman of KB Financial Group, the parent of Kookmin Bank, ends a nine-month impasse that was viewed as a leading factor in South Korea’s inability to consolidate its banking sector, the FT reports. Read more
Wen Jiabao, China’s premier, went on a widely publicized tour of orphanages, low-income households and construction sites in the nation’s capital on Tuesday — a coded charm offensive to soothe the nation’s increasingly restless population of migrant workers. For the first time since a series of strikes at Honda factories focused global attention on an agitated young generation of factory workers, one of the country’s senior leaders has sought to deflect a growing wellspring of popular anger, the FT reports. Read more
The credit markets failed to share in the gains made by equities today, a weak performance from sovereigns and financials weighing on spreads. The Markit iTraxx Europe index was trading at 129.5bp, about 3bp wider than yesterday’s close, while the Markit iTraxx Crossover index was little changed on the day at 580bp. However, the market recovered just before the close.
The news flow around Greece has dried up compared to the torrent seen earlier this year. But the sovereign was back in the headlines after the close yesterday after Moody’s downgraded it junk. Even though it was a four-notch downgrade the announcement had a relatively small impact on the market. S&P had already downgraded Greece to junk some weeks ago and it has been trading equivalent to a sub-investment grade name for some time, according to Markit implied ratings. Nonetheless, Greece is back around the 800bp mark and the downgrade will have a significant effect on benchmark bond indices. GGBs will be removed from the Markit iBoxx Europe indices when it is rebalanced at the end of this month on ratings grounds and other indices will also remove GGBs. This could cause funds to reweight their portfolios away from Greek debt. Read more
Data on money flows into (and out of) the US gives us one clue as to where investors see the safest havens for their cash. FT Alphaville has the details. Read more
Some interesting details are emerging from the trial of Société Générale’s rogue trader Jerome Kerviel in Paris, now in its sixth day.
For one, the defence is trying hard to prove that Kerviel’s direct management was in-the-know about many of his unhedged positions. Read more
As BSkyB shares retreated toward the 700p level in late London trading on Tuesday, News Corporation’s stock moved sharply higher in New York.
That’s even though a bid for the UK satellite company is supposed to be bad news, because it means no return of capital: Read more
Via the Bank of England’s Quarterly Bulletin, here’s an interesting observation on the sovereign CDS market — one that should be required reading for regulators, traders and the media alike.
It focuses on activities of counterparty valuation adjustment (CVA) desks and how they influence — sometimes quite strongly — the price of sovereign CDS. Read more
This sounds like it was a fun trip for ING’s chief global economist Rob Carnell — giving a Greece-bearish presentation to an audience in, ah… Athens.
Not that it seems to have been such a tough crowd: Read more
The FT’s Sam Jones is at the GAIM 2010 hedge fund conference in Monaco. He’s hoping to help justfiy the trip by posting regular updates to FT Alphaville. Read more
Here’s a structured finance blast from the past; some trouble in mezzanine tranches of ABS CDOs.
Last week the ailing (in fact, almost dead) bond insurer Ambac announced it would commute its remaining $16.4bn of of exposure to Collateralised Debt Obligations of Asset-Backed Securities. That is, it will terminate CDS on the CDOs by making an agreed-upon payment to the insured counterparties. Read more
Fitch cut BP’s credit rating a full six notches to BBB from AA on Tuesday.
The agency also set its rating watch on BP to ‘evolving’ from negative, as credit risks from the Deepwater Horizon spill remained unclear. Read more
Live markets commentary from FT.com
The Bank of Japan unveiled the framework of its new Y3,000bn ($33bn) lending programme on Tuesday in its latest effort to spur economic growth to help end deflation. The temporary lending programme, to be introduced by the end of August, will supply one-year loans at the bank’s overnight rate against eligible collateral to financial institutions to lend to companies with the objective of raising productivity and creating consumer demand. Read more
Jérôme Kerviel’s cover-up of €50bn ($61bn) in allegedly unauthorised trades was “criminal”, Société Générale’s head of global markets told a Paris courtroom on Monday. The FT reports Christophe Mianné went on to accuse the former trader, blamed by France’s second-biggest bank for its €4.9bn loss in 2008, of being “dishonest”, “disloyal” and “a liar”. Read more
Spanish officials have acknowledged the country’s banks and companies are having difficulty finding credit, according to the Wall Street Journal. Madrid now faces pressure to pursue deep structural changes to win back investor confidence. According to the WSJ, investors are particularly concerned that Spain would be unable to supply its banks with more capital, if needed, without emergency aid from the European Union and the International Monetary Fund. The FT says Spanish government bonds sold off sharply on the comments, which came from the Spanish Treasury secretary and Francisco González, chairman of BBVA, Spain’s second-biggest lender. Read more
Traders seemed uncertain about the risk rally of the past few sessions, after a downgrade of Greek sovereign bonds to “junk” reignited fears about the eurozone debt crisis, the FT reports. The FTSE All-World equity index was down 0.4 per cent, commodity prices were softer and the euro’s bounce appeared to have lost momentum. US equity futures were flat. Read more
The price action in BSkyB on Tuesday morning following confirmation a highly conditional proposal from its biggest shareholder News Corporation.
British Sky Broadcasting’s directors have demanded another £1bn from News Corporation for Rupert Murdoch’s media conglomerate to take full control of the satellite broadcaster, the FT reports. BSkyB’s independent directors on Tuesday swiftly rejected a proposal, worth £7.8bn or 700p a share, from News Corp for the remaining 61 per cent of the satellite broadcaster it does not already own. News Corp’s offer would value BSkyB’s total equity at more than £12bn. For more see FT Alphaville. Read more
Reuters reports that Citi is about to eject Greek government bonds from its World Government Bond Index (WGBI), after Moody’s, the last agency to rate the Hellenic Republic above junk status, cut the country from A3 to Ba1 on Monday. The bonds will also be removed from Citi’s EMU Government Bond Index (EGBI) and the World Broad Investment-Grade (WorldBIG) Bond Index. According to Barclays Capital, the downgrade means Greece will be out of most major bond indices, adds FT Alphaville. Read more
While the issue of dark pools and electronic communication networks (ECNs) has fetched a fair share of attention in the media, a little less scrutiny has befallen the SEC’s other area of concern — the practice of broker-dealer internalisation. Public comment on the topic, however, has been increasingly focusing on the issue of internalisation and sub-pennying, reports FT Alphaville. Read more
The European Central Bank has purchased €56bn worth of covered bonds via the purchasing programme (CBPP) it announced back in May 2009. The result so far, via Deutsche Bank:
“If the Spanish state has difficulty in financing itself outside Spain, then the difficulties will be even greater for those in the private sector.”
Actually the problem is that the market is now conflating the Spanish state with the private sector. Read more
That soundbite is from the Democratic majority leader in the Senate, who helped trigger Monday’s 10 per cent slide in the BP share price with his call for a $20bn escrow account, reports FT Alphaville. Read more
Elsewhere on Tuesday,
- What the World Cup can teach us about modern portfolio theory. Read more
Comment, analysis and other offerings from Tuesday’s FT,
Gideon Rachman: Love and loathing across the ocean
We now have it on the authority of President Barack Obama himself, notes the FT columnist. His fury over the BP affair is nothing personal. It is purely business. The president’s words were soothing. But the BP crisis has served as an unfortunate reminder that, underneath the much-discussed “special relationship”, there lies a well of mutual loathing – ready to spring to the surface if something goes wrong. Read more
Breaking pre-market news on Tuesday,
- News Corp offers 700p a share for BSkyB; Sky’s independent directors want 800p– statement and statement. Read more
Citigroup has agreed to sell its nearly C$2bn (US$1.9bn) Canadian MasterCard portfolio to the Canadian Imperial Bank of Commerce in Citi’s continuing push to divest non-core assets, reports the WSJ. Citi said the transaction, the terms of which were not disclosed, was expected to close by October and would not have a material impact on Citi’s net income or capital ratios. Read more