Posts from July 2010

Adventures in precious metal charts

It’s too late on a Friday to even try to begin to explain.

But news comes to us of “gold backwardation” and quite a startling opposite effect in silver. Read more

Former Nomura fund chairman fingers Nomura Asset Management to the SEC

It’s a bit of an odd one this. So here’s a straight story to start:

——- Read more

Repo curve inversion?

We’re not sure how significant this is, but the US repo curve appears to have inverted.

Looking at the historical data it seems not for the first time in the last year either. Read more

The far future of Europe’s fiscal crisis

It’s summer, the Sun is high in the sky… and the European sovereign stress is low.

But that hasn’t stopped Barclays Capital looking for glimpses in the crystal ball. Read more

US GDP comes in below consensus at 2.4 per cent

US GDP grew at an annualised rate of 2.4 per cent in the second quarter, according to Commerce Department data released on Friday. From the release:

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 2.4 percent in the second quarter of 2010, (that is, from the first quarter to the second quarter), according to the “advance” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 3.7 percent. Read more

How Dodd-Frank travels – all the way to Canadian ABCP

DBRS’s Andrew Fitzpatrick has a wonderfully understated way of putting things:

. . . it would be something between ironic and sad if the best-laid plans of the Montréal Accord, a difficult but ultimately successful private-sector restructuring in response to the financial crisis, that was a year-and-a-half in the making, were to be undone by a foreign government’s response to that same crisis. It is a small world after all. Read more

UBS ponders the UK’s quiet CPI calibration

Is Britain’s government quietly working on a(nother) CPI/RPI change?

Back in May, the new UK chancellor George Osborne suggested to Mervyn King that he would “welcome” the Bank of England governor’s views “on how we might accelerate the process of including housing costs in the [Consumer Prices Index] inflation target.” Read more

Markets Live transcript 30 Jul 2010

Live markets commentary from FT.com 

A humpy US curve

FT Alphaville reported on Wednesday that the US 10-year Treasury swap spread was back in negative territory.

But rather than looking at the historical spread for clues as to what’s going on, we thought it might be a good idea to look to the curve. Read more

Nomura’s horrible quarter

It says a lot about recent business conditions for Japan’s biggest investment bank that an 80 per cent year-on-year plunge in quarterly net profit — reported on Friday — was at the high end of forecasts.

Nomura said it earned a profit of Y2.3bn ($26.6m) in the three months to June, the first quarter of its financial year, down from Y11.4bn a year ago, largely due to a 31 per cent drop in investment banking revenue, and featuring the biggest pretax loss in its overseas businesses in five quarters. Read more

House to debate offshore drilling bill

Legislation that will crimp offshore drilling practices in the oil industry will arrive in the House of Representatives on Friday, Reuters reports, three months on from a BP well explosion in the Gulf of Mexico threw deep-water drilling into crisis. BP’s outgoing CEO Tony Hayward has meanwhile defended his much-criticised handling of the Gulf spill response in an interview with the WSJ — though expressed the hope that his departing the company will enable BP to rebuild in the US.

Disney sells Miramax for over $660m

Walt Disney has ended months of bidding and negotiations with the sale of Miramax Films to Filmyard Holdings for more than $660m, Reuters reports. The sale marks a strategic shift by Disney back into monetising its own franchises and the Pixar and Marvel Comics brands it has recently acquired, after Miramax failed to follow up on past commercial successes at the box office.

Probing the mystery of Lehman’s liquidity

There’s no one reason why Lehman Brothers failed — but misrepresentations of the size of its liquidity pool in autumn 2008 might have been one of the biggest, says the anonymous finance lawyer blogging at Economics of Contempt. A stated $32.5bn pool as of September 12 2008 had shrunk to at most $2.5bn by September 15 — largely because assets defined as ‘liquid’ for purposes of inclusion in the pool in reality weren’t.

Which shows the importance of regulators improving liquidity requirements — if the Basel Commitee ever finishes the job, with the NYT noting torpor in the process of reform. Plus the IMF has pointed to continuing risk in the US financial system, reports the WSJ.

GrainCorp: A homegrown deal Down Under

Deal of the day — or possibly for several months — in Australia focuses on a rare bit of homegrown M&A activity  in the resources sector.

This time however, it’s in the less controversial field of grains, rather than the highly-charged mining sector, and with no acquisitive Chinese companies in sight, it entails the creation of what some have hailed as a national agribusiness champion that could take on global market leaders like Glencore, Bunge and Cargill. Read more

Bear Stearns and AIG bailouts turn paper profits

The US public’s hope of getting repaid for the bail-outs of Bear Stearns and AIG in the financial crisis increased on Thursday after the Federal Reserve reported a paper profit for the first time on all the holdings of securities bought from the companies, the FT reports. The Maiden Lane I portfolio reported profit this week, catching up with the Maiden Lane II and III vehicles, which have been showing paper profit for some time. Unrealised gains from all three vehicles stood at $10.8bn as of Wednesday.

Fed officials clash on deflation

James Bullard has brought a a subtle shift in Fed monetary policy out into the open at last, reports the NYT. The President of the St. Louis Fed warned on Thursday that the US faces Japan-style deflation, strengthening support within the Fed for further large-scale asset purchases, and placing him within the ranks of inflation doves on the central bank’s board. It’s good that some in the Fed are taking deflation more seriously, says Paul Krugman — but not everyone. Dallas Fed President Richard Fisher has compared the impact of QE on the current stage of the recovery to ‘pushing on a string’, Reuters reports.

Citi pays $75m in subprime settlement

Citigroup has settled SEC charges that it failed to disclose its full subprime exposure before investors in 2007 with a $75bn bill, Reuters reports. The SEC had accused Citi of understating its exposure by $40bn, after the bank’s eventual disclosure shocked investors and led to the resignation of its chief executive Chuck Prince. In reality, the bank’s subprime exposure stank from the beginning, FT Alphaville notes, with the SEC settlement closing a chapter on Citi’s failure to report its super senior holdings of debt exposed to subprime. At any rate, the size of this settlement amounts to a mere slap on the wrist, writes Yves Smith at Naked Capitalism.

Economists gloomy ahead of GDP report

The Commerce Department’s advance report on GDP is expected to show markedly slower growth in the United States in the second quarter, Reuters reports. Weaker consumer spending and a widening trade deficit may have led GDP to increase by 2.5 per cent compared to 2.7 per cent in the first quarter, according to Reuters’ survey. However, slowdown is normal, if grim, for economies recovering from a financial crisis, says the NYT. Even so — plenty of hedge fund managers are glum on the prospects of a slowdown in all the advanced economies, Bloomberg reports – with signs of slowing growth apparent in Japan’s post-crisis recovery, too, the FT adds.

Wyly brothers charged with $550m fraud

The Securities and Exchange Commission has charged Dallas billionaires Samuel and Charles Wyly with reaping $550 million in undisclosed gains by using offshore vehicles to trade the stocks of companies on whose boards they served, FT Alphaville reports. Charges of insider trading were also brought, the NYT adds, noting that the SEC case follows six years of investigations. A lawyer for the brothers said the case was without merit.

Banks rush to grab cheap finance

US banks are taking advantage of improving earnings and growing investor demand to raise billions of dollars in debt at historically low interest rates, a move that could boost the sector’s profits in coming years, the FT reports. Institutions sold a record $7bn in debt last week, according to Dealogic. Goldman Sachs, Morgan Stanley and JP Morgan also all got away $3bn bonds this month. The burst of issuance has led to 10-year swap rates once again falling below Treasury yields, the FT adds, with interest rates on the new debt swapped from fixed to floating.

Citi’s super senior subprime SEC slip

One of these is a draft version of a third-quarter pre-earnings announcement Citigroup considered making in the credit-crunched October of 2007, in reference to its subprime exposure. The other is what actually went out.

Exhibit A : Read more

Further reading

Elsewhere on Friday,

- Anatomy of Lehman’s (liquidity) failure. Read more

Pink picks

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

Philip Stephens: Three years on,  markets are masters again
It has been three years since the roof started to fall in, writes the FT’s Stephens. And only a year and a bit since the more faint-hearted stocked their cellars with bottled water and canned food lest the financial crash presage a descent into anarchy. So what has happened since? Simple: not much. The markets (and the bankers) still rule. Read more

Snap news

Breaking pre-market news on Friday,

- British Airways pre-tax loss increases to £164m from £148m – statementRead more

GrainCorp to buy AWB

GrainCorp, one of Australia’s largest grain handlers, has agreed to buy AWB, Australia’s largest wheat exporter, for A$856m ($769m) amid increased competition for domestic supplies from global grain companies, reports Bloomberg. GrainCorp offered one of its shares for every 5.75 AWB shares, valuing each AWB share at A$1.047, or 9.6% more than Thursday’s closing price.

PartyGaming, Bwin to merge

PartyGaming and Bwin on Thursday announced a deal to create a unified business with the aim of dominating European internet poker, casino, bingo and sports betting, the FT reports. The long-mooted deal will create what they called the world’s biggest company in online gambling. The Guardian adds that the enlarged company could be well placed to profit from the deregulation of the lucrative US market which was closed overnight to PartyGaming four years ago, causing its shares to plunge and forcing it out of the FTSE 100.

City stockbroker in buy-out

KBC Peel Hunt sought to end months of uncertainty over its future when the London City stockbroker unveiled a £74m staff-led buy-out from its Belgian parent KBC, reports the FT. The deal, which was a year in the pipeline, is being backed by individual investors led by the motor insurance dealmaker Neil Utley, who will collectively take a stake of 25% in the business. The broker’s 136 staff will own the remaining equity. Peel Hunt agreed to be bought by KBC for £218.5m less than 10 months after floating on the Aim market in 2000.

Overnight markets: Down

Investors are turning very selective about risk, says the FT in its rolling Global Market Overview, noting that a share rally lost momentum late in Thursday’s global session, although the euro kept rising as fears of a looming crisis in Europe continued to decline,

As of 21:20 BST, the FTSE All-World stock index was slightly down, with shares in Europe paring gains at the end of their session. The world index reached its highest point in 11 weeks on Tuesday, and has stumbled since. The S&P 500 index closed lower by 0.4% as traders look toward a potentially grim GDP report on Friday. Read more

US banks rush for cheap finance

US banks are taking advantage of stronger earnings and growing investor demand to raise billions of dollars in debt at historically low interest rates, reports the FT. The burst of US fundraising contrasts  with Europe, where banks have struggled to issue debt amid the eurozone crisis. The cheap finance locked in by big institutions such as JPMorgan Chase, US Bancorp, Goldman Sachs and Morgan Stanley in recent days marks a striking comeback for a sector shunned by investors during the financial crisis.

Li Ka-shing bids £5.8bn for UK utility

EDF of France is set to sell its UK electricity networks business to Cheung Kong Infrastructure, controlled by Hong Kong billionaire Li Ka-shing, for £5.8bn, 45% more than the price originally suggested in the deal, reports the FT. EDF is expected to announce the sale with its half-year results on Friday morning. The deal at a stroke reaches the €5bn target the French state-controlled utility set for disposals by the end of 2011. CKI outbid a consortium of Australia’s Macquarie, the Abu Dhabi Investment Authority, and Canada Pension Plan. For CKI, one analyst told Bloomberg, the deal gives it a sizeable overseas asset with good returns.