Posts from Friday Jul 16 2010

Guest post: Towards a eurozone governance overhaul

Shahin Vallée, economist at BNP Paribas and Jérémie Cohen-Setton, PhD candidate at U.C. Berkeley argue that euro area leaders, although actively engaged in the definition of the EDRM, should refrain from publicly talking about it given the risk of self fulfilling prophecies.

A credible EDRM should be an integral part of the eurozone governance overhaul Read more

Important information about the 6am Cut

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 by email. That’s £3.79 a week for access to what we believe is the best business website around. Read more

The Big Fume

Why is Barry Ritholtz, round at The Big Picture, so bad tempered when it comes to writing about the Goldman Abacus case?

As the uber-blogger fumed on FridayRead more

A flashing red light from the ECRI

This will have bears like David Rosenberg and Albert Edwards licking their lips.

The Bloomberg chart below — which you can click to enlarge — shows the Economic Cycle Research Institute’s (ECRI) weekly indicator: Read more

Another Ocado analyst who doesn’t get it

Even we are starting to get “really bored” with this, but another City analyst has published a damning note on Webvan 2.0.

This time the man who “doesn’t get it because he’s used to assessing the prospects of traditional high street retailers rather than new online business models such as Ocado”, is Evolution Securities’ Dave McCarthy. Read more

A counter-cyclical Basel banking proposal

This looked bracing from the Basel Committee for Banking Supervision on Friday: proposals for a counter-cyclical capital buffer for banks.

But there’s a bit less than meets the eye. Read more

‘The stage might well be set for a deflationary process’

Brian Yelvington, fixed income strategist at Knight Research, is concerned about the potential for deflation in the US. As he put it in a note published on Friday:

Data observations and central bank concerns have led us to believe that we might not just be in a deleveraging process, but a deflationary process as well. Read more

Citigroup Q2 net income $2.73bn

Citigroup’s second quarter results are through and the bank, it seems, continues in the tradition of Bank of America and JP Morgan before it.

Net income for the quarter came in at $2.73bn, down from $4.39bn the year before, but at 9 cents per share well above the 5-cent analyst consensus average. Read more

Fed’s asset purchase aftermaths aren’t all-American

Or, more evidence that the Federal Reserve’s unconventional monetary policy affects everything.

In a new St Louis Fed working paper, Christopher J. Neely makes a case for the international effects of the Fed’s large-scale asset purchases (LSAPs). That’s the quantitative/credit easing, which saw the US central bank snap up agency debt, mortgage-backed securities and long-term US Treasuries. Read more

Bank of America beats with EPS of $0.27

And the beat goes on in US earnings season. Bank of America announced Q2 earnings of $3.1bn on Friday, translating to an EPS of 27 cents a share versus estimates of 23 cents.

More flashes, via Reuters: Read more

Zen and the art of flogging UK banks

We live in a new era of Austerity Britain.

One must make cutbacks and maximise value where one can. Read more

EMU break-up risks UK depression worse than 1930s, says ING

ING recently spelt out what a eurozone break-up would mean for the global economy — seemingly much to the delight of commentators like the Telegraph’s Ambrose Evans-Pritchard.

From the July 7 edition of the British paper: Read more

Markets Live transcript 16 Jul 2010

Live markets commentary from FT.com 

Basel agrees draft bank buffer rules

The Basel Committee on Banking Supervision has published proposals for bank capital buffers, the Bank for International Settlements said. The draft rules would allow national authorities to activate the buffers in response to excess credit growth, but did not specify the level of funds that would be required, Reuters reports. Liquidity and leverage take priority as things to get right in the Basel III framework, Deus Ex Macchiato argues.

Street looks beyond Goldman’s SEC settlement

At least Lloyd Blankfein is safe, the NYT says, as Wall Street digested the aftermath of his bank’s $550m settlement with the Securities and Exchange Commission over the Abacus case. However, the SEC could still turn its attention to similar deals struck by other banks over mortgage-related products, according to the WSJ. And while Goldman Sachs has won this battle, the history books are likely to take a different view on a bank that still looks more vulnerable than at any time since divisions between its partners in 1994, the FT’s John Gapper writes.

Investors not feeling lucky on Google

Unexpected growth in capital spending costs led Google’s second-quarter earnings to disappoint on Thursday, the FT reports, raising doubts about its strategy of pursuing long-term investment opportunities. Proforma earnings per share came in ten cents short of estimates at $6.45. Shares in Google fell by up to 4.2 per cent in after-market trading. Google has responded by touting growth in its Android open-source mobile software, and is planning further bond issues to finance investment, ZDNet reports.

Correlated returns, high-yield edition

It seems equities, commodities and currencies are not the only asset classes running increasingly correlated returns, FT Alphaville writes. There’s a similar trend popping up in high-yield securities and the VIX index. Are fundamentals becoming a sideshow? Read more

Financial reform: Who benefits?

Bank of America is on the front lines of Wall Street’s effort to survive and prosper in the new regulatory world brought forth by the financial oversight bill passed on Thursday, the WSJ reports. Regulation could reduce BofA’s earnings by 11 per cent, well beyond its peers in terms of overall size — prompting it into a new strategy of getting customers to deepen their business, while increasing fees for banking services. Other banks aim to adapt their derivatives brokerage business in order to take advantage of the new rules, the NYT adds.

Credit distortion de crise

It’s been (relatively) good to be a bank creditor. But for how long?

As the FT’s Gillian Tett notes in her Friday column, one of the doubts still lingering — even with the passage of the US financial reform bill — is how to avoid taxpayers funding future bail-outs. Read more

Found – Ocado investor [updated]

Call off the search.

Finally someone has said they are backing the flotation of Webvan 2.0Read more

US financial reform – ‘How could rational people do this?’

If you’re looking for some exceedingly harsh criticism of the just-passed US financial reform bill, look no further than Dick Bove, FT Alphaville writes. Now, Bove has made some… odd bank calls in the past, but he’s got some interesting points about what he calls the ‘macro stuff’ behind the rise of the big banks — and which he says the bill won’t cover. Read more

Further reading

Elsewhere on Friday,

- Why the market is overvalued. Read more

Pink picks

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

Gillian Tett: ‘Bail-in’ will save the taxpayer from the bail-out
As the US passes financial reform, what is still unclear is whether this system will be robust enough to really prevent more big bank failures, says the FT’s Tett. Hence the lingering suspicion that taxpayers could soon end up back on the hook; and hence all that simmering anger. Is there any solution? One fascinating idea now provoking a chorus of behind-the-scenes debate among regulators and central banks is the concept of a so-called “bail-in,” which would force creditors – not taxpayers – to swallow losses if disaster strikes. Read more

Snap news

Breaking pre-market news on Friday,

- Macondo well integrity test could last 48 hours, BP says — statementRead more

Bolton bets on Chinese consumption

Anthony Bolton, the fabled British stockpicker, is staking his reputation on a £460m ($702m) bet that the Chinese economy is shifting away from exports and towards domestic consumption. In an FT interview Mr Bolton, whose China Special Situations fund of that value was launched in April, revealed that his portfolio was heavily weighted towards consumer sector stocks. Separately, on Thursday China posted GDP growth of 10.3 per cent in the second quarter over the year before, down from the previous three months as government efforts to cool the housing market and infrastructure investment began to bite.

Crest advisers shun £350m Horizon bid

A £350m offer for Crest Nicholson was in jeopardy on Thursday night after advisers to the debt-burdened housebuilder told its lender-owners to reject the bid as too low, the FT says. A steering committee representing Crest’s creditors, which took control of the housebuilder following a £630m debt-for equity swap last year, met with Morgan Stanley on Friday to discuss details of the possible sale of the business.

Glaxo to take £1.6bn legal charge

GlaxoSmithKline expects to take a £1.57bn ($2.41bn) charge to resolve several long-running legal battles, including a probe into a former plant and litigation related to Paxil and Avandia, two blockbuster drugs, the FT reports. The pharmaceuticals group announced the charge on Thursday, a day after advisers to US regulators eased the risk that diabetes drug Avandia would be withdrawn from the market.

AgBank debut fails to live up to peers

The weakest of China’s big state-controlled banks has posted the weakest debut performance of any Chinese bank on its first day of trading in Shanghai on Thursday, the Beyond Brics blog says. Agricultural Bank of China’s shares opened up around 1 per cent in after the bank completed the Shanghai portion of what is expected to be the world’s largest ever initial public offering, raising as much as $22.1bn.

The FT notes that though that 1 per cent figure is well below the 10 per cent jump AgBank’s management had targeted, the fact that the shares did not fall will still come as a relief to bank execs and government officials. Bloomberg reports that AgBank’s Hong Kong-listed shares, which start trading on Friday, are up 2.2 per cent in early Asia trading.

US Senate passes landmark financial reform

The US Senate finally passed a landmark reform of Wall Street on Thursday, delivering President Barack Obama’s second big legislative victory and ushering in a raft of restrictions on banks, the FT reports. Mr Obama will next week sign into law the Dodd-Frank Act, bringing to a close a year-long effort to overhaul the US financial system and its regulators. There’s a summary of the 2,300-page legislation available here.

The New York Times’ Deal Professor finds eight “good things” in the final bill, though he notes that the document is “years of regulation in the making” with potential hidden provisions that may yet bring substantial change. However, the Becker-Posner blog lambastes the bill for  being “disorderly” and “not well thought out.” Meanwhile, FT Alphaville just wants to know what to call the darn thing.

Overnight markets: Very mixed

Traders were of a mixed mind on Thursday, with relief over the completion of financial reform and good news from the Gulf of Mexico competing with worries that a cooling Chinese economy might exacerbate slowing activity in the US and beyond, the FT says in its rolling Global Overview.

The FTSE All-Word equity index fought back to end the day flat, defying US short-term Treasury yields hitting record lows and the dollar tumbling to its weakest level since early May as the buck loses its “haven” status. Commodities rallied into the end of the day, but were slightly lower. Read more