Posts from Tuesday Jul 13 2010

AIA flotation may reportedly be back on

The board of AIG is due to meet in New York on Wednesday to discuss the future of its Asian life insurance business, AIA, after the disastrous collapse of plans to sell the business to Britain’s Prudential. An IPO now looks the most likely option, Reuters reports, citing unnamed sources.

Faulty Toyota drivers, rather than pedals to blame – WSJ

US Department of Transportation analysis suggests that many Toyota vehicles involved in accidents blamed on sudden acceleration and sticky accelerators, actually had their throttles wide open and brakes un-used at the time of the crashes, according to the Wall St Journal. It is assumed that drivers were mistakenly slamming on the accelerator rather than the brakes.

Chicago traders start new derivatives exchange

Five Chicago-based trading firms have joined forces with CME Group, the US futures exchange, to launch a new exchange that will offer trading in interest rate swap derivatives closely modelled on current over-the-counter (OTC) rate swaps, the FT reports. The new venture, called Eris Exchange, is designed to take advantage of the rapidly shifting competitive landscape in trading and clearing of derivatives amid sweeping financial regulatory reform of such markets.

African Minerals in $1.5bn China pact

The scramble for west Africa’s iron supplies gained pace on Tuesday when a Chinese steel mill, Shandong Iron and Steel,  agreed to pay $1.5bn for a minority interest in a single non-producing iron ore project in Sierra Leone, the FT reports. Frank Timis, the controversial mining and oil entrepreneur, sealed his second financing deal this year between African Minerals, the London-listed Sierra Leone iron ore company he leads as executive chairman, and a Chinese state-owned steel company.

Citi sells interests in private equity fund

Citigroup is selling most of its interests in its private equity fund of funds and other investments to Lexington Partners in a deal affecting about $5bn in assets, as part of chief executive Vikram Pandit’s plan to streamline the bank. StepStone Group will buy Citigroup’s management platform and will manage the assets on Lexington’s behalf as part of the transaction, the FT reports.

India seeks ban on iron exports

The Indian government has proposed a ban on the export of iron ore to secure the country’s mineral wealth for the fast-growing domestic economy, the FT reports. “It will be good to completely ban iron ore exports as these are non-renewable resources,” Atul Chaturvedi, secretary in the ministry of steel, said on Monday. “Once you exhaust them, you won’t get them [again].” About half of India’s annual 220m-tonne iron ore output is exported to China.

Japan pension funds in record JGB sales

Japan’s public pension funds last year were net sellers of Japanese government bonds for the first time in nearly a decade, underscoring the difficulties Tokyo faces financing its borrowings from domestic investors as the population ages, the FT reports. The Government Public Investment Fund and other much smaller public pension funds sold a combined net Y443.2bn ($5bn) of JGBs in the year ended March, according to the Bank of Japan’s flow of funds data. The sales included Zaito bonds, the proceeds of which are used to make loans to government institutions.

China imports expand US trade gap

A surge in imports from China pushed the US trade gap sharply higher in May, adding to a stream of weak data for the Obama administration already under pressure over the economy and stagnant jobs market, the FT reports. The trade deficit grew by 4.8 per cent to $42.3bn, according to commerce department figures, the highest since November 2008 and at odds with the consensus of economists, who forecast the gap would shrink in May.

The 6am Cut – a special offer!

Some of you won’t like this. Charging is (partly) upon us.

From next Tuesday (July 20) you will have to be a fully-fledged subscriber to FT.com in order to continue receiving the 6am Cut briefing service. Read more

A Greek/Estonia swap?

Estonia received the final okay from eurozone finance ministers on Tuesday to enter their currency union next year. It will become the 17th European Union member to do so when it joins on January 1, 2011.

And yes, it appears the country was not put off joining the monetary bloc due to the fiscal woes of Greece. Read more

Goldman really likes its new iPad

Apple’s stock took a beating on Tuesday, after reports that the iPhone 4′s ‘death grip‘ issue is a hardware problem sparked pressure for a product recall:

 Read more

Ocadon’t

As we wait for chairman Michael Grade and his PR advisers to set the record straight on the flotation of Webvan 2.0, another piece of negative pre-IPO research has landed in the FT Alphaville inbox.

We can’t remember a float that attracted such hostility from the City scribblers and surely it is just a matter of time before the whole process is pulled (if that’s possible for a retail offering) or the price range or size of the offering is slashed. (Although there are plenty of hedge funds praying the issue does make it market…so they can short it.) Read more

Same old song at the MPC

It’s four years since Andrew Sentance was appointed by Gordon Brown, then Chancellor of Exchequer, as a member of the monetary policy committee. And he’s decided to mark that date by explaining why he voted for a small rise in interest rates to 0.75 per cent last month in a speech to the Thames Valley Chamber of Commerce in reading on Tuesday.

But not in the usual dry central banker way. Read more

Just what is the BBA smoking?

Further adventures in Twitter transparency from the British Bankers Association:

Ingenious social media masochism strategy, or just plain odd? Er, pass.

The tale of the Shadow Banks

Here’s a scary story to recount at finance campfires.

It’s the Federal Reserve Bank of New York’s monograph on the rapid growth — and collapse — of the shadow banking system. It’s also 81-pages of acronyms (think CDOs, ABCP, SPVs) and flow charts, with extra scariness points for the fact that the central bank is writing this after the system was allowed to grow unfettered to monstrous proportions. Read more

Prime custody, and the business of collateral

No, it’s not a prison for hedge funds.

Rather, it’s a model that is (re)-springing up amongst traditional prime brokers and custodians all over in the wake of the Bear Stearns and Lehman crises. It’s called prime custody and fuses the roles of custodian and prime broker together into one entity. Read more

Hedgies are better off in Asia … or are they?

Within the big wide world of Asia-focused funds, some interesting trends emerge via recent research from Singapore-based consultancy GFIA.

As the FT reports on Tuesday, Asia-based hedge fund managers have been generating higher returns than those outside the region running similar strategies, according to the GFIA study, which tracked the performance of 668 funds from January 2005 to May 2010. Read more

Markets Live transcript 13 Jul 2010

Live markets commentary from FT.com 

Housing regulator sends out MBS subpoenas

The Federal Housing Finance Agency has sent 64 subpoenas to issuers of mortgage-backed securities as it investigates whether the government-sponsored enterprises Fannie Mae and Freddie Mac were misled over investments in private mortgage bonds, the WSJ reports. If lawsuits followed, the FHFA’s action could unleash a long-range threat to the firms under scrutiny, the American Banker adds.

Moody’s cuts Portugal to A1

Moody’s downgraded Portugal’s sovereign debt by two notches to A1 from AA2 on Tuesday — but European markets seemed rather relaxed about it, FT Alphaville reports. The rating agency cited deteriorating government debt metrics even as the country presses on with deficit reduction. The euro dipped slightly against the dollar after Moody’s acted, while Portugal’s borrowing costs also increased, Reuters reports. Even A1 may not really reflect what Portuguese debt is really worth, FT Alphaville observes.

What should Portugal really be rated?

What then to make of Moody’s decision to cut its rating on Portugal by two notches to A1?

Perhaps unsurprisingly not a lot. Read more

China worries temper solid start to earnings season

The sheen provided by a positive start to the US second-quarter earnings season has been tarnished after worries about China’s property market returned to spook investors, according to the FT’s global market overview. The S&P 500 futures contract has given up an overnight 0.5 per cent advance that had come in the wake of well-received earnings from Alcoa. However, the aluminum giant’s higher demand forecasts suggest growing confidence in the global economic recovery, Bloomberg says.

New offshore ban means more driller pain

President Obama has banned new deepwater drilling activity until November 30, the WSJ reports, winning praise from lawmakers in Florida and California but brickbats in the offshore oil industry. Firms involved in shallow-water drilling also said they were unclear about new regulations. BP will meanwhile continue tests on its new sealing cap for the Gulf oil spill on Tuesday, Reuters says — while the NYT notes the company’s history of costly operational mistakes in the Gulf.

Finance reform set to clear Senate

US financial reform has enough votes to pass the Senate after three Republicans said they had decided to back the legislation, the FT reports. Scott Brown, the Republican Senator from Massachusetts, said the legislation “isn’t perfect” but welcomed “safeguards to help prevent another financial meltdown” and said he expected to vote in favour, which would give Democrats the 60 votes they need for passage. Senators Susan Collins and Olympia Snowe also signalled their support. Bank lobbyists will now turn to regulators given wide discretion in the new law, the WSJ says.

Transparency in banking

Any PR is good PR, eh? From the British Bankers Association’s Twitter feed:

Stressing Spanish banks out, with Fitch

Here’s a late addition to FT Alphaville’s collection of unofficial European bank stress tests being put out in advance of the actual certified versions on July 23.

This one’s from Fitch. The test focuses on Spanish banks’ domestic loan books — for which read the country’s cratering real estate market. Read more

Frank is back and bigger than ever

Forget the vodka, Frank Timis will be ordering Bollinger on Tuesday morning. The irrepressible entrepreneur, who also does a lot of good work for charity, has tempted a second Chinese company to invest in his Tonkolili iron ore project in Sierra Leone.

In fact, he has sold a 25 per cent stake for $1.5bn! Read more

Quant-ifying the HFT effect in stock movements

Here’s something for critics of high-frequency trading (HFT) to pull out for their next dinner party conversation, FT Alphaville writes – a new academic paper analysing the correlations of NYSE and Nasdaq stocks. Surprise: correlations are up, especially for smaller share trades.  Read more

Moody’s cuts Portugal to A1, markets shrug [updated]

Moody’s cut Portugal’s sovereign debt by two notches to A1 from AA2 on Tuesday — but European markets seemed rather relaxed about it.

The rating agency explained its downgrade thusRead more

Accounting for European stress

Does the reception of the European banking stress tests now hinge on an accounting quirk? There’s been some confusion over which aspects of European banks’ balance sheets will actually be stressed, FT Alphaville says – and the debate hinges on whether banks’ debt holdings will be held-to-maturity or available-to-sale. Read more