Markets can be very impatient when it comes to states trying to refinance near-term obligations during a sovereign debt crisis, don’t you find?
Exhibit A — Greece, April-May 2010. Read more
Much like the previous sixty-six days of the oil spilling, Friday was a day to forget for BP and its share price.
So it’s… serendipitous that Structured Products’ Clare Dickinson has uncovered a curious reverse convertible referencing the company’s stock, which Royal Bank of Canada is currently offering to US investors. Read more
We are still waiting for a definitive text of the Wall St reform package agreed on Capitol Hill in the early hours of Friday morning. When posted it should be available here, on the House Financial Services Committee website.
In the meantime, here’s a taster – a summary of changes relating to the treatment of derivatives tabled late on Thursday. Read more
Precise details on the nature of the Volcker rule - or Dodd-Frank Act, as it is now known – are still thin on the ground.
Some hedge funds have reason to be thankful for the 3 per cent concession contained in the latest draft (meaning banks will be allowed to invest an amount equivalent to 3 per cent of their tier-1 capital in alternative investments, as opposed to none of it). But today’s release also gives grounds to be downbeat. Read more
Financial blogger Alea points to this paper on clearing houses ahead of OTC derivatives reform:
Are we building the foundations for the next crisis already? The case of central clearing Read more
A strain in Chinese bank liquidity, visualised. The one-month China repo rate below:
Live markets commentary from FT.com
As if the bad press surrounding BP could get any worse.
On Tuesday MyFoxTampaBay.com reported that a boat captain working to rescue sea turtles in the Gulf of Mexico saw BP ships burning the loveable marine critters alive. Read more
The US Supreme Court on Thursday put strict new limits on prosecutors’ ability to charge white collar criminals in a decision that touches on two of the most high-profile corporate crime cases in recent history, the FT reports. The court said the cases of both Conrad Black, former publisher of the Chicago Sun-Times, and Jeffrey Skilling, the former chief executive of Enron, could be reviewed by US appeals courts. The ruling significantly narrows the scope of the ‘honest services’ law defending against fraud, the NYT says Read more
Shares in BP have hit their lowest levels since August 1996, months before the energy giant merged with Amoco and acquired the lion’s share of its US assets, FT Alphaville reports, as legal and financial risks to the company continue to mount. BP announced on Friday that it has spent $2.35bn so far on cleaning up and paying out on the Gulf oil spill, according to the WSJ. Thunderstorms in the Caribbean have a 60 per cent chance of forming into a tropical storm this weekend, Bloomberg reports, and which may then head into the Gulf of Mexico spill region. Read more
Plans by global regulators to compel banks to set aside billions of dollars in extra capital to cope with future crises are to be pared back after intense lobbying by the industry, the FT reports. After wrangling over the details of a regulatory overhaul published six months ago, a consensus on the Basel committee is suggesting that its proposals be thinned down. The latest draft will be presented to the G20 summit at the weekend, containing measures to make banks increase short-term emergency funding, but shelving plans for a longer-term ‘net stable funding ratio’. Read more
Banks and hedge funds would be hit with a $19bn fee to pay costs associated with financial reform, Barney Frank, chairman of the US House financial services committee, said late on Thursday, as legislators race to complete legislation, the FT reports. Banks with more than $50bn in assets and hedge funds with more than $10bn will be required to pay into the fund as a proportion of their assets. Lawmakers agreed early on Friday that banks would be allowed to trade many OTC derivatives in-house, Reuters reports. Read more
The Bank of England’s latest financial stability report has turned its attention to the increasingly cumbersome issue of Exchange-Traded Funds (ETFs), which have recently come in for some criticism over their growing complexity and lack of transparency.
As the Bank notes, the products do offer some great advantages to the market. Read more
Attention knife-catchers: BP stock hit its lowest levels since August 1996 on Friday — that’s before it merged with Amoco in 1998, and picked a whole bunch of US assets. Read more
It’s ba-ack. The formula that famously felled Wall Street, the Gaussian copula, is being revamped to deal with its fatal flaw — the fat tail of correlated default risk, FT Alphaville writes. UniCredit’s Martin Krekel has been attempting to tweak the model for pricing distressed CDOs. Which is ambitious. And brave. Read more
The first of the Bank of England’s 2010 Financial Stability Reports is out, FT Alphaville observes — and Britain’s central bank is rather fuzzier on the need for banks to move to the Basel regulatory regime and set up stronger capital buffers. And curiously enough, the Bank is now also less keen on making banks hold government bonds in those buffers. Read more
Elsewhere on Friday,
- Greece, it’s different this time.
Comment, analysis and other offerings from Friday’s FT,
Mohamed El-Erian: Beyond the false growth vs austerity debate
There are two camps in current economic debates, El-Erian, chief executive of Pimco, argues — ‘growth now’ and ‘austerity now’. The two sides are both right, and wrong. Their impasse will persist until both understand that the debate is incomplete. In particular their discussion takes too narrow an historical perspective, looking excessively to the past experience of industrial countries as opposed to also reflecting that of emerging economies. Read more
Breaking pre-market news on Friday,
- BP says cost of spill response hits $2.35bn – statement. Read more
Greece is preparing to sell, or offer long-term leases, on about 6,000 of its islands in an effort to repay its debts, the Guardian reports. An area in Mykonos, one-third owned by the government, is reportedly on offer in the hopes that it might be developed into a luxury tourism complex. Potential investors are also looking at property on the island of Rhodes, and are mostly Russian and Chinese, the paper says. Read more
Nikkei 225 down -143.58 (-1.45%) at 9,785
Topix down -8.48 (-0.96%) at 871.29
Hang Seng down -8.14 (-0.04%) at 20,725
S&P 500 down -18.35 (-1.68%) at 1,074
DJIA down -145.64 (-1.41%) at 10,153
Nasdaq down -36.81 (-1.63%) at 2,217 Read more
New rules to overhaul Europe’s patchy system of financial supervision moved significantly closer on Thursday after negotiators in Brussels made surprise progress towards new structures for the banking, insurance and securities markets sectors, reports the FT. But prospects of agreeing separate legislation to regulate hedge funds and private equity funds before the August break appears to have receded. Read more
New US financial legislation will turn a regulator established in the 1970s to police American corn and wheat trading into the world’s leading derivatives watchdog, the FT says. The Commodity Futures Trading Commission (CFTC) will emerge from the financial reform bill, close to completion, with a new remit, authorised to look beyond futures exchanges to the $615,000bn over-the-counter derivatives markets. Read more
A year-long financial reform effort in the US approached the finishing line on Thursday with Wall Street banks braced for an expensive restructuring intended to prevent any repeat of the 2008 financial crisis, says the FT. The final days’ arguments have centred on limits for derivatives dealing and the Volcker rule that prevents banks from proprietary trading and restricts their relationships with hedge funds and private equity firms. Read more
Resolution has clinched its £2.75bn deal to buy most of Axa’s UK life assurance operations in a deal that takes the group another step along its path to create a £10bn life and pensions company, the FT reports. Resolution said on Thursday that its shareholders had unusually pre-committed to take up 52 per cent of the £2bn rights issue being used to fund the deal before the final terms of the takeover were announced. Read more
A number of interdealer brokers in the credit default swaps market have agreed to pay $4.3m in fines to settle the Financial Industry Regulatory Authority’s investigation into fixing commissions, reports the FT. The settlement comes after Finra has been investigating practices in the $25,000bn over-the-counter market for credit derivatives between July 2005 and December of 2006. Read more
Heading in to this weekend’s meeting of the G20 heads of government in Toronto, the scene appeared set for a battle over fiscal strategy between the US and most of the rest of the G20, notes the FT. The US has appeared to place much more weight on the need to keep demand going in the short run, with most of the rest of the G20 – certainly the Europeans and the Canadians – preferring to emphasise rapid deficit reduction. Read more
The failed sale of one of AIG’s crown jewels has strained relationships at the top of the US insurer, increasing tensions between CEO Robert Benmosche and chairman Harvey Golub, the FT reports. The rift between AIG’s two senior executives has triggered concerns that one of the two men might leave less than a year after their appointment. Read more
The UK’s economic recovery is at risk if the nation’s banks do not move swiftly to raise the £750bn-£800bn needed to refinance their borrowings due by the end of 2012, the Bank of England will warn on Friday. UK banks have greater refinancing needs over the next two years than lenders based in the US, Germany, France or Italy, according to the BoE’s Financial Stability Report, the FT says. Read more