Posts from Wednesday Jun 30 2010

EU agrees tough bonus rules

European Union lawmakers and member states on Wednesday backed the toughest restrictions on bankers bonuses seen so far, the FT reports. Under rules expected to pass the European parliament next week, 40% to 60% of a bonus payment would be deferred for three to five years and half the upfront bonus would be paid in securities linked to the bank’s performance. The agreement caught bankers and regulators by surprise, with the UK’s FSA saying it would have to study how the directive would affect its practices.

Ex-AIG executive defends actions

Joseph Cassano, the former AIG executive whose financial-products division helped trigger a $180bn government bail-out, broke his silence on Wednesday to defend his business’s actions leading up to the financial crisis, the FT reports.  Cassano told the US Financial Crisis Inquiry Commission that AIG Financial Products, the division he ran from 2002 until early 2008, stopped writing new insurance on debt securities backed by subprime loans in February 2006.

SMFG buys into Kotak Mahindra

Sumitomo Mitsui Financial Group has agreed to buy a 4.5% stake in India’s fourth-largest private bank, the first investment by a Japanese financial group in an Indian bank. SMFG and India’s Kotak Mahindra will also explore setting up an infrastructure fund, helping companies in India raise money through samurai bonds as part of a new equity alliance, the FT reports.

Carlyle in limbo on Taiwan deal

Carlyle Group’s $1bn deal to sell a pay-TV operator to Taiwan Mobile is in limbo after it failed to obtain regulatory approval ahead of a deadline, the FT reports. The deal is the second involving a foreign group to run into difficulty with Taipei recently, after AIG was last month forced to extend the deadline for the $2.2bn sale of its Taiwan insurance unit to a Hong Kong consortium.

Lisbon blocks Telefónica bid

Portugal on Wednesday used special veto rights to override shareholders and block Telefónica’s €7.15bn offer to buy Portugal Telecom out of Vivo, their Brazilian mobile phone joint venture, the FT reports. Lisbon’s controversial use of its “golden share” to overrule 74% of shareholders who voted in favour of the offer intensified the acrimonious bid battle between the two Iberian operators.

Relief at low uptake of ECB money proves short-lived

The ECB eased worries about the eurozone bank system after reporting much lower demand than was expected for emergency three-month liquidity to replace €442bn in 12-month loans that expire on Thursday. The lack of interest suggested eurozone banks were less dependent on the unlimited liquidity from the ECB than analysts had supposed, the FT said. Only 171 banks borrowed a total of €132bn in three-month liquidity – compared with forecasts that demand might exceed €300bn.

The relief proved to be short-lived on financial markets, with stocks plunging once more late in the day on Wall St and US treasuries touching fresh lows. See the FT’s rolling global market overview for details.

Moody’s warns on Spain’s triple-A

Rating agency Moody’s has placed Spanish government debt on review for possible downgrade, FT Alphaville reports. The move follows action by Fitch in April and Standard & Poor’s in May.

What is it with SocGen types and alleged market abuse?

Jean-Pierre Mustier, SocGen’s former head of investment banking and the man who called Jérôme Kerviel a liar, has been fined for insider trading by the French market regulator.

Background: Mustier quit SocGen in August 2009 after France’s Autorité des marchés financiers opened proceedings against him, subsequent to an investigation into allegations of délit d’initié Read more

Moody’s warns on Spain’s triple-A

On April 28, Fitch stripped the Kingdom of Spain of its triple-A rating.  Standard & Poor’s followed 30 days later with a downgrade from AA+ to AA, having kicked the Kingdom off its untouchable triple-A pedestal back in January 2009.

And on Wednesday, Moody’s weighed in (emphasis ours): Read more

Will derivatives reform take us from CCPs to GSEs?

Confused about just how the Dodd-Frank Act would actually change derivatives markets? Happily, Barclays Capital’s Rajiv Setia and team have tried an answer.

Not so happily, the answer is a bit disconcerting. Read more

These aren’t the facilities you’re looking for

On the day surplus liquidity (potentially) died, the ECB also made the following announcement about its covered bond purchase programme:

 Read more

Leaving UK GDP down the back of the sofa

Next time you’re thinking about reacting to the first print of some important UK economic data — please bear in mind this press release from the Office of National Statistics, released on Wednesday:

Quarterly National Accounts (Q1 2010) scheduled for publication on 30 June 2010 at 9.30am has been postponed by the Office for National Statistics. Read more

The cost of normalisation

So — the ECB’s 3-month liquidity operation saw less demand than expected on Wednesday. Approximately €132bn versus consensus expectations of some €250bn, to be exact, which left markets and the euro to rally after the announcement.

Nevertheless, as Unicredit’s Luca Cazzulani warned in his LTRO guide, there are some risks associated with too little demand for the facility — specifically demand below the €140bn mark, as has transpired. Read more

Parsing the post-ECB tender bounce

European bank stocks were up, up and away on Wednesday, after far less liquidity was demanded from the European Central Bank’s latest three-month tender than predicted. It’s a good sign that the system as a whole doesn’t face a funding crisis.

But — some were more up than others. And it’s worth asking why. Read more

Markets Live transcript 30 Jun 2010

Live markets commentary from 

New circuit breaker acts to stop trades of Citigroup

The New York Times reports that an experimental circuit breaker for stock markets that was put in place after last month’s flash crash kicked in for the second time on Tuesday. It acted to stop an erroneous trade  in Citigroup which caused a sudden plunge in the price of  the bank’s shares. Trading was paused for five minutes at 1:03 p.m. following an over-the-counter trade of about 8,821 shares was posted at much lower price than the previous trade.

Telefónica raises offer for Brazil unit

Telefónica on Tuesday night raised its offer to buy Portugal Telecom out of their Brazilian mobile phone joint-venture by 10 per cent to €7.15bn ($8.71bn), reports the FT. The Spanish telecommunications group increased its bid in a last-ditch attempt to persuade Portugal Telecom’s shareholders to vote in favour of the offer at a special investor meeting on Wednesday. Shares in Portugal Telecom were up almost 5 per cent in mid-morning Lisbon trading.

The not-so-big roll-over, banks take €132bn at ECB’s 3M LTRO

So, not with a bang, but a whimper come the results of the European Central Bank’s three-month Long-Term Refinancing Operation (LTRO) — the liquidity op meant to replace its €442bn 12-month LTRO, which expires tomorrow, Thursday. A total of €131.9bn was tapped from the central bank, reports FT Alphaville — which means less than a third of the 12-month LTRO was rolled-over into the three-month op. Read more

Commodities suffer worst quarter for more than a year

Commodities are heading for their worst quarter in more than a year on growing fears about slower growth from China, reports Bloomberg, According to the wire, The S&P GSCI Total Return Index, which tracks 24 raw materials, has plunged 11 per cent since the end of March, led by declines in industrial metals, gasoline and crude oil. It’s the steepest decline since the fourth quarter of 2008.

Every little helps (updated)

It’s not every day a company the size of Tesco – the UK’s biggest retailer – gets taken to task over its accounting policies — but it happened on Wednesday.

Citigroup reckons the supermarket giant has a more aggressive policy than its peers with regard to: Read more

What’s up with commodity currencies?

Having warned about increasingly negative sentiment towards the euro, Bank of New York Mellon’s Simon Derrick takes a stab at commodity currencies on Wednesday. In a nutshell, they are behaving oddly, reports FT Alphaville. More specifically, he says, they’re behaving very much like they did ahead of the 2008 mega sell-off. Read more

Reasons not to worry about the European roll-over

There is quite a bit to worry about at the moment – deflation, a double dip, China’s property market, a jobless US recovery – but the expiry of the ECB’s €442bn Long-Term Refinancing Operation (LTRO) is not one of them.

In fact it is likely to be something of a non-event, according to the banking team at Merrill Lynch, for three reasons: Read more

The rating agencies downgrade . . . the rating agencies

Here’s some late Tuesday rating agency hilarity to take the edge off a Wednesday morning:

S&P Puts Moody’s Corp. ‘A-1’ Short-Term Rtg On Watch Negative Read more

From Roubini, to Russia, with love

A new twist in the still-developing Russian-Irish New York/New Jersey spy story.

 Read more

Further reading

Elsewhere on Wednesday,

– The crowd discovers energy MLPs. Read more

Pink picks

Comment, analysis and other offerings from Wednesday’s FT,

Martin Wolf: This global game of ‘pass the parcel’ cannot end well
Was the summit of the Group of 20 leading economies in Canada over the weekend a step forward towards co-operation or a step backwards towards disagreement? The answer seems to be both, writes the FT columnist. Yet, instead of examining the outcome in detail, I asked myself a broader question: where have we got to? Read more

Snap news

Breaking pre-market news on Wednesday,

– Standard Chartered to invest $500m in Agbank IPO — statementRead more

Talk gathers pace of possible Exxon BP bid

BP provided one of the few distractions for traders on Tuesday as global slowdown worries sent the FTSE 100 to its sharpest fall since November, reports the FT. BP was a talking point after JPMorgan Cazenove speculated about the chances of ExxonMobil launching a bid for its besieged rival. FT Alphaville has a summary of the JPM’s “fantasy oil major M&A” research.

UK money supply growth signals QE impact

Underlying money supply grew at its fastest rate since the early days of the financial crisis in the three months to May, in a sign that the effects of quantitative easing may be coming through more strongly than previously estimated, the FT says. Separately, Bloomberg reports that Bank of England markets director, Paul Fisher, said the central bank’s mandate is “clear” if inflationary pressures persist.

ECB fixed-term deposit auction fails

FT Alphaville says the European Central Bank’s latest attempt to sterilise its government bond purchases has landed with a resounding thud. Results from the ECB’s Tuesday one-week fixed-term deposit (FTD) auction, in which it planned to drain the €55bn of extra liquidity created by its €55bn of bond-buying, show the central bank only managed to auction €32bn. Financials are holding tight to liquidity.