Posts from Monday Jul 26 2010

Carlyle in talks to sidestep Kbro sale hurdle

Carlyle Group is in talks to sell Taiwan’s biggest cable television operator to the Tsai family, one of the island’s wealthiest, in a deal that could be worth up to T$70bn (US$2.2bn), according to the FT. A person close to the transaction said Carlyle had agreed to sell Kbro to the Tsai family for T$70bn in cash. In addition, the Tsai family would take on Kbro’s T$20bn of debt. The deal would restructure an earlier agreement by the US private equity firm to sell Kbro to Taiwan Mobile, which is controlled by the Tsai family.

Shanghai in longest rally since November

Asian stocks recorded moderate gains on Monday as investors awaited the response of European markets to the results of stress tests on the region’s banks, the FT reports. Shanghai advanced for a sixth successive session – its longest rally since November – as confidence remained buoyed by optimism that the authorities could loosen policy in the months to come. However, banks underperformed on fears they might not recover loans made to local government financing vehicles.

UAE: BlackBerrys won’t be picked on (yet)

Good news for businessmen in the United Arab Emirates: your BlackBerrys are a little closer to safety, the FT’s beyondbrics blogs reports. On Sunday the country’s telecoms regulator warned that the smartphones currently operate “beyond the jurisdiction of national legislation”. But it rowed back on Monday, claiming to have no plans to introduce a ban. In an interview with Al Arabiyah, a Dubai-based  news channel, an official at the Telecommunications Regulatory Authority (TRA) said that the UAE is “studying all options to regulate the services…but we don’t have plans to stop them.”

Accessing China’s wallet, from home

In emerging markets, things get made. China has long enjoyed (or endured) the moniker ‘workshop of the world’. But perhaps China will soon be better known as the wallet of the world, if Morgan Stanley’s latest projections on global spending power are anything to go by. As the FT’s beyondbrics blog reports, the number of households in Bric countries with an income over $10,000 a year will surpass that of both the eurozone and the US, before rocketing off into the stratosphere. Spending power is moving south and east, and it’s doing so at blistering pace.

DLF aims to buy Dubai World stake in JV

New Delhi-based DLF, India’s biggest property developer by sales,  is aiming to buy Dubai World’s stake in their equally held India realty joint venture for 2bn rupees ($42.6m), Dow Jones reports, citing a senior DLF executive. “Both partners invested 2 billion rupees each in the project, but it never took off since the government couldn’t provide land,” the executive told Dow Jones. “The appeal has been made so that Dubai World can get its investment back,” he added.

Bank regulators reach deal on liquidity

Global banking regulators reached a breakthrough agreement on Monday to tighten capital requirements and impose new worldwide liquidity and leverage standards, but softened some requirements and delayed others to 2018, the FT reports. The Basel Committee on Banking Supervision said all but one of the 27 member countries had signed on to the new principles, which limit what banks can count as so-called tier one capital – the only kind that can be counted on to absorb losses. The lone holdout, said by sources to be Germany, said it will decide whether to sign on later this year.

Khazanah trumps Fortis in Parkway battle

Malaysia’s sovereign wealth fund Khazanah Nasional is set to take control of Parkway Holdings, Asia’s biggest listed hospital operator, after trumping India’s Fortis Healthcare with a bid that values the company at about S$4.5bn (US$4bn), the FT reports. Khazanah has been battling Fortis for control of Parkway for the past two months as both groups seek to bolster their positions in Asia’s booming healthcare market. Khazanah on Monday offered S$3.95 a share in cash for the 76.1 per cent of Parkway that it does not already own. Fortis, which holds 24.9 per cent of Parkway, said it had accepted the proposal.

China gas growth to hit suppliers

International energy groups are set to miss out on billions of dollars of future sales over the next decade as China, their most voracious customer, aggressively develops its own large gas reserves and slashes its imported gas requirements, the FT reports, citing a new study by Wood Mackenzie. China will need only half as much more liquefied natural gas from 2020 than it will require in the next decade, according to the study. Wood Mackenzie also predicts that China will overtake Europe as the world’s number two in developing unconventional gas.

Kirin buys F&N stake from Temasek

Kirin is paying Y84.6bn for a 14.7 per cent stake in the largest beverage company in Malaysia and Singapore, underlining Japanese corporations’ ambitions to expand in neighbouring growth markets in Asia, the FT says. Kirin, which owns Lion Nathan National Foods in Australia, will become the single largest shareholder in Fraser and Neave when it acquires the stake from Temasek, the Singaporean SWF. The deal highlights Japanese companies’ drive to invest in growing markets in Asia to make up for sluggish demand at home.

Chinese banks face state loans turmoil

China’s banks are facing serious default risks on more than one-fifth of the Rmb7,700bn they have lent to local governments across the country, the FT reports, citing senior Chinese officials. China’s commercial banks have identified about Rmb1,550bn in questionable loans to local government financing vehicles – which are mostly used to fund regional infrastructure projects. A senior official from the China Banking Regulatory Commission told the FT these loans would not necessarily all go bad but that the country’s non-performing loan ratio would almost certainly “increase slightly” at the end of the year.

Hayward to be offered BP Russia job

Tony Hayward, the departing chief executive of BP, is expected to be offered a directorship at TNK-BP, the group’s Russian joint venture, when he leaves the mulitnational oil group in the autumn, the FT says. BP had not yet made any formal statement on Hayward’s position by early Monday evening UK time and the company’s board was still meeting to make a final decision, but people close to the company said it was expected that his departure would be mutually agreed. Hayward is expected to be replaced by Bob Dudley, the managing director for the Americas and Asia, who has been overseeing BP’s response to the spill for the last six weeks.

Of butterflies and stress tests

How are the European bank stress tests like a butterfly?

We think we know — thanks to Deutsche Bank’s take on the Spanish banks’ stress-test results on Monday. Read more

Overheard in the Long Room

Members of FT Alphaville’s private finance forum, the Long Room, enjoy (and regularly engage in) spirited debate. Here’s a selection of what’s been said and posted just recently:

– User Praxis22 philosophizes on the ‘problem with wisdom’ over on Monkey’s Table. Read more

From Bank of England to Bank of Everything

Financial Services Authority, the name of thy doom is, er, one of a selection of rubbish acronyms — as detailed in HM Treasury’s white paper on UK financial reform, released on Monday.

We’ve thus now got a bit more detail on the FSA’s successors — which include the PRA, the FPC, and the CPMA. But frankly, it all adds up in the end to the BOE. Read more

The Great (Economist) Mortification

Will Philip Mirowski be getting an invite to the next economist shindig? Perhaps not. The Carl Koch Professor of Economics and the History and Philosophy of Science at the University of Notre Dame has taken a flame-thrower to the post-crisis explanatory powers of his colleagues, in the latest edition of the Hedgehog Review. FT Alphaville has more. Read more

Markets Live transcript 26 Jul 2010

Live markets commentary from 

Genzyme could prompt bidding war

The French drugmaker Sanofi-Aventis is probably not the only suitor in the market for biotech firm Genzyme, the WSJ reports — with analysts pointing to GlaxoSmithKline and Johnson & Johnson as potential rivals, especially after GSK made a ‘very casual’ approach to the company. The industry is on the lookout for fresh high-margin products ready for when their blockbuster drugs come off patent.

Gulf spill relief work goes on

Even as BP prepares for a change in leadership, the energy giant pressed on with drilling relief wells towards the blown-out well in the Gulf of Mexico, Reuters reports. Company engineers plan to commence a ‘static kill’ during the drilling process which will begin pumping mud and cement on top of the well. BP has meanwhile rallied in credit markets, Bloomberg reports, with bonds from energy companies outperforming returns on other corporate debt.

Pearson triples first-half profits

Pearson, the FT’s owner, has raised its outlook for 2010 on strong growth in its Penguin book publishing and US higher education businesses, Bloomberg reports. Net income rose to $142.3m in the first six months compared to $43.2m a year earlier. Sales at the Financial Times group were up 9 per cent. Pearson still plans to avoid dependency on advertising revenue, the company warned.

Monday funding fears

So much for any interbank market relief after the stress tests.

The below just out from the European Banking Federation: Read more

More lawsuits in pipeline for Madoff investors

The trustee charged with recovering money for the victims of Bernie Madoff has warned that he could sue around 1,000 investors who withdrew more from his investment fund than the principal they put in, the WSJ reports. Any such ‘clawback’ suit would have to be filed by December — two years after regulatory proceedings against Mr Madoff began. Irving Picard has already recovered $1.5bn in assets for victims, and is seeking a further $15bn from Mr Madoff’s brother and sons, funds that put money into his firm, and other investors.

Parsing Europe’s bank stress tests

Risky assets were on the march on Monday, following the resounding shrug that greeted the European bank stress tests released last Friday, according to the FT. European equities staged a modest rally, with the euro up 0.3 per cent against the dollar. Criticism of the test’s assumptions rolled on, however, with analysts telling Bloomberg that methodological weaknesses were a missed opportunity.

The weaknesses are many, FT Alphaville points out. Regulators assumed that sovereign support for banks would continue — even though the tests responded to investor fears over sovereign risk. Flaws also existed in the tests’ accounting of Tier 1 capital, while the assumption that no sovereigns will default in a stressed scenario seems questionable, in that the eurozone’s bailout fund is yet to be activated.

Wall Street looks for breakout in stocks

US stocks will open the week on the lookout for strong earnings and economic data, Reuters reports, with the S&P 500 testing out the technical level of 1,100 reached before Friday’s close. If the index can hold this level, the sell-off of spring may have ended, giving positive momentum to the market even as double-dip fears continue. Investors are indeed likely to be drawn back to equities as bonds mature and cash markets continue to show poor yield, says a buy-side analyst at Trader’s Narrative.

The case for German and French non-financials

Stock markets have bounced up and down recently, as fears of a double-dip recession have alternated with bouts of confidence that the recovery will continue. Even so, UK-based economist and commentator Andrew Smithers noted in a recent report, economic forecasts from the IMF and OECD, among others, “while demonstrably fallible”, assume that economic recovery will continue.

Indeed, as Lex recently noted, the OECD’s latest economic outlook “should be taken with a truckload of salt”. Read more

Democrats split over Bush tax cuts

Senate Democrats have met in private to thrash out a plan for dealing with $3,000bn of Bush-era tax cuts that expire at the end of the year, presenting an uncomfortable battleground for the party in November’s midterms, the FT reports. President Obama wants to extend the cuts for low-earners, while Republicans have pushed for them to be extended across all income classes. But there is no chance of any attempt to arrest long-term fiscal dangers if the Republicans retake power, the FT’s Martin Wolf says, given a dangerous reliance on supply-side economics.

Bob Dudley to replace BP’s fallen Hayward

Bob Dudley will become the first American to head BP, pending an announcement on Tuesday, the WSJ reports, as the energy giant positions itself to move beyond the oil spill in the Gulf of Mexico with a change of leadership. The outgoing chief executive Tony Hayward was negotiating his departure with BP’s board on Monday, the UK’s Daily Telegraph said.

Dudley, who currently serves as BP’s managing director, will provide a clean slate, plus expertise at dealing with political issues, according to the NYT. Hayward, meanwhile, lost his battle to stay on for longer after intense criticism of his crisis role, the FT says.

Crisis panel threatens Goldman with audit

The Financial Crisis Inquiry Commission will bring in external accountants to probe Goldman Sachs’ derivatives business unless the bank provides more information, the panel’s chair Phil Angelides has told the FT. The FCIC is probing trading risks faced by Goldman during the crisis, including exposure to the bailed-out insurer AIG, but bank executives argue that the derivatives data provides little information on this.

But while Goldman has long maintained that it faced few if any losses if AIG had failed, congressional documents released on Friday showed that the bank was exposed to losses through the weaknesses of trading partners such as Lehman Brothers, the NYT points out.

Gaming the stress tests 101

This probably would have been more useful before July 23, but oh well.

Much like the US stress tests conducted in the spring of 2009, the European version possessed a couple of pretty significant loopholes for participating banks. One has to do with accounting (think FAS 157 in the US), the other with balance sheet management. Read more

C(onn)aught out

Crash, bang, wallop.

That’s the sound of Connaught’s shares on Monday morning: Read more

Let’s talk ‘real’ stress – and real recapitalisation, says BarCap

Not with a bang but a bleat did the results of the European bank stress tests arrive on Friday.

Seven of the 91 European banks tested  were found to need just €3.5bn of additional capital, most of which they are already in the process of raising. But, given a mounting consensus that the assumptions of the tests weren’t quite stressful enough, what might happen if some ‘real’ anxiety was encountered in the European system? Read more