Posts from Tuesday Jul 27 2010

London sees surge in steel futures trading

Trading in steel futures at the London Metal Exchange has started to pick up, with volumes up nearly fourfold in the first half of the year, marking the first sign of interest by producers, consumers and investors on this nascent derivatives market, the FT reports. The LME is battling with rival exchanges in New York, Shanghai and Dubai for dominance in derivatives trading in the $500bn-a-year steel market – one of the world’s largest commodities market by value.

India to stress test banks

India is planning to conduct twice-yearly stress tests on its banks, following financial regulators in the US and Europe, the FT reports. The Reserve Bank of India said on Tuesday it had conducted rudimentary stress tests in the global financial crisis to check credit and interest rate risk, but would carry out more sophisticated tests in future to build confidence in the country’s banking system.

UK Lords to review Big Four

The Big Four accountants’ dominance of the audit industry is facing mounting international scrutiny after the UK’s House of Lords launched a review into the firms’ role in the financial crisis, the FT reports.

Tomkins investors angry at bid deal

Tomkins shareholders have expressed anger at the price and “massive” management incentive package in an agreed takeover bid from Canadian investors that values its equity at almost £3bn, the FT reports. Standard Life, one of Tomkins’ biggest shareholders with just under 3 per cent, said the bid from the Onex consortium undervalued the the UK engineering company.

Lorry driver jailed over scam to sell Ritz

A bankrupt lorry driver who orchestrated an audacious scam to sell the Ritz Hotel and Casino for £250m has been jailed for five years, the FT reports. Anthony Lee, 49, duped his victims into making a £1m payment in a “well-targeted and extremely ambitious” con based on “one great big lie”, Southwark Crown court heard.

Triple bonus boosts Europe bank shares

European bank stocks soared on Tuesday, as buoyant results from UBS, relief at watered-down global regulatory proposals and the afterglow of last Friday’s stress-test results overcame investor nervousness, the FT reports. The FTSE Eurofirst banks index rose nearly 5 per cent, the best performance since the €750bn eurozone bail-out package was sealed on May 10, outstripping other sectors in Europe and bank stocks elsewhere in the world.

BP plans $30bn sales to meet spill costs

BP moved to repair its image in the wake of the huge oil spill in the Gulf of Mexico as the energy group unveiled plans to sell $30bn of assets and confirmed the departure of its chief executive, the FT reports. The announcements came as BP reported one of the largest losses in British corporate history, losing $17bn after tax in the second quarter after a $32.2bn pre-tax provision to pay for cleaning up the spill and compensating its victims.

Cleveland 0, Wall St 1

The US Sixth Circuit Court of Appeals has thrown out the city of Cleveland’s case against 22 banks and mortgage lenders, alleging they created a public nuisance by issuing mortgage-backed securities, which subsequently led to a rash of foreclosures locally and a generalised blot on the Cleveland landscape.

Apparently, according to Reuters, there was “too indirect” a link between the defendants’ actions and the damage done to Cleveland’s neighbourhoods. Read more

For Edwards, the Japanese lesson still holds…

FT Alphaville Albert Edwards.

Nothing to do here but quote as much of his latest Global Strategy Weekly Posts as we can without the SocGen strategist complaining… Read more

Crock regulation

From Britain’s financial regulator on Tuesday (translation ours):

The Financial Services Authority has fined David Jones, former finance director (FD) of Northern Rock PLC (NR) five bob and given him a spank.

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About that gold sell-off…

Spot gold prices continued their recent sell-off on Tuesday — chart via Kitco:

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Did Socgen use ETFs to liquidate Kerviel positions?

Jerome Kerviel stood accused by Société Générale of taking mass positions in DAX, CAC and Eurostoxx futures; positions which the bank later had to liquidate at a well publicised cost of €4.9bn over the end of January 2008.

However, in all the coverage generated there has been scant mention of the fact that Kerviel’s responsibilities on the Delta 1 desk included the trading of Socgen ETFs (as marketed under the Lyxor brand name). Or that Lyxor CAC, DAX and Euro Stoxx 50 ETFs were impacted disproportionally over the liquidation period. Read more

From Basel, avec amour

This is either another lesson in the non-impact of the European stress tests — or proof of la bonne chance of French banks.

A rally in European bank stocks simply kept on going on Tuesday, with French financials leading the charge:

US 10-year swap spread goes negative (again)

As the market turns its head away from Europe’s deficits, it seems that it may increasingly be turning its attention back to the size of the US fiscal burden instead (potentially).

The latest evidence for this comes in the fact that after skirting around the zero level, the US 10-year treasury swap spread turned, ever so briefly, negative on Tuesday — for the first time since March this year (when European worries overshadowed most other market concerns). Read more

Jersey Shore and the (New York) stock market

The cast of Jersey Shore rang the opening bell at the New York Stock Exchange on Tuesday. Yet they were banned by their publicist from talking to the media. This video on FT Alphaville might help explain why… Read more

Markets Live transcript 27 Jul 2010

Live markets commentary from 

About that other ‘P’ in peripheral

Here’s a somewhat surprising finding from BNP Paribas’ Bartosz Pawlowski.

A closer look at the adverse scenario assumptions made by the Committee of European Banking Supervisors (CEBS) for use in the European stress tests reveals one particular recession-defying European country high up in the sovereign haircut leagues. Read more

Icahn heads to court over Lions Gate bid

The investor Carl Icahn plans to sue Lions Gate Entertainment for ‘scorched-earth’ tactics that have impeded his bid for a hostile takeover, Reuters reports. Lions Gate’s recent debt-to-equity swap reduced Icahn’s stake to 33.5 per cent from 37.9 per cent, as well as hampering his ability to effect board changes. The lawsuit aims to rescind the note exchange, and follows Icahn’s latest offer for Lions Gate’s shares made last week.

FX market back to pre-crisis volumes

The foreign-exchange market grew at a double-digit rate in 2010’s first half, helping trading volumes to reach a record $4 trillion, the WSJ reports. Volatility caused by the European sovereign debt crisis boosted trading, but shifts in Australian currency trading show a longer-term re-weighting of FX to emerging markets. All except one country — IMF officials told the Journal that China’s renminbi remains ‘substantially undervalued’, even after the authorities introduced a flexible exchange rate in June.

State loan fears stalk China’s banks

China’s banks are facing serious default risks on more than one-fifth of the Rmb7,700bn ($1,135bn) they have lent to local governments across the country, senior Chinese officials have told the FT. In a preliminary self-assessment carried out at the request of the country’s regulator, banks identified about Rmb1,550bn in questionable loans to local government financing vehicles – which are mostly used to fund regional infrastructure projects. Now that’s a stress test, says the FT’s Lex, while FT Alphaville points out that Chinese credit ratings are also grabbing headlines.

IBM faces twin European antitrust probes

The European Commission has begun two investigations into IBM’s position in the market for mainframe computers, bringing back memories of the antitrust case faced by Microsoft on the continent, the NYT reports. Europe’s competition commissioner Joaquin Almunia is building on his predecessor’s work on Microsoft by focusing on the information technology sector. Mainframes are a central pillar of IBM’s business, with perhaps 40 per cent of operating profit related to the products, the FT adds.

Deutsche Bank plays the ‘good German’

So Deutsche Bank has decided to set a good example to its peers and play ball with Europe’s bank regulators — sort of. Amid European mutterings about German bank recalcitrance — i.e. the refusal by six German banks to publish their government debt exposure as part of European banking stress tests —  Deutsche said on Monday it would publish full details of its sovereign holdings.

Err, well, sehr gut, boys — apart from the fact that Deutsche had already listed its main sovereign debt exposure in a June 10 presentation to investors, outlining a net sovereign exposure of €3.2bn to Italy, €500m to Greece and €200m to Ireland, and no such holdings in Spain and Portugal. Read more

Basel overhauls capital and leverage rules

Global banking regulators have reached a breakthrough agreement to tighten capital requirements and impose new worldwide liquidity and leverage standards, but softened some of their proposals and delayed others to at least 2018, the FT reports. All but one of the Basel Committee’s 27 member countries – believed to be Germany – signed up to the proposals. While some changes to the definition of liquid assets will please banks, they are still on the hook for much tighter capital rules, Bloomberg says.

Stimulus fight reaches turning point

The debate on the economic of success of President Obama’s stimulus program is hotting up eighteen months after it began, with deficit concerns coming to the fore, reports the WSJ. Arguments over the $862bn measure have become especially acute as both parties weigh up how to replace Bush-era tax cuts expiring at the year’s end. Federal stimulus will leave behind a mixed fiscal picture for U.S. states when it too ends, the FT adds, noting that tax revenues look set to improve in 2011, after investor fears over the size of many municipal fiscal deficits.

Deutsche profits rise; UBS beats forecasts

UBS posted strong investment banking performance in the second quarter with profits of 2bn Swiss francs above expectations of $1.34bn, while lower loan loss provisions led Deutsche to report profits in line with consensus, Reuters reports. Investment banking at Deutsche declined in line with trends at such competitors as Goldman Sachs, reports Bloomberg, amid a 6.4 per cent rise in profit. While UBS has also warned that volatile markets could leave clients wary of transactions, chief executive Oswald Gruebel has reduced the rate of client outflows, the FT says.

Deutsche Bank also unveiled €14.8bn of gross exposure to sovereign debt issued by peripheral countries such as Greece, the FT adds, following criticism of its refusal to disclose its holdings in recent stress tests.

Chinese rating agency criticises … Chinese rating agencies

This Chinese rating agency is really grabbing some headlines.

And not just for criticising its western rivals. Or stripping the US of a triple-A rating. Read more

BP plans $30bn asset sale as Hayward departs

BP plans to sell assets worth $30bn (€23bn, £19bn) to meet the costs of its massive oil spill in the Gulf of Mexico, and has confirmed the departure of its chief executive Tony Hayward, the FT reports. The firm’s American managing director Bob Dudley will take charge in October. Dudley has a daunting strategic task ahead of him, the WSJ says, in dealing with the future of the energy giant’s US operations.

Indeed, BP posted a record loss of $17.2bn in its second-quarter results due to $32.2bn pre-tax provisions for costs from the spill, Bloomberg reports. The company is turning into a well-functioning litigation-offset machine — but its future as an oil company is as unclear as ever, FT Alphaville says.

Beware Possibilities (updated)

You’d think, having ditched a chief executive and posted a record loss — and planned $30bn worth of asset sales — a company’s stock couldn’t possibly be as equipoised as BP’s was on Tuesday:

Then again, the costs facing BP from the Gulf oil spill were priced in a long time ago. Or have they? Read more

Phantom European securitisation del día

Is Bloomberg trying to tell us something about the ICO’s new €23bn CLO?

July 26 (Bloomberg) — Instituto de Credito Oficial, a Spanish government agency that lends to businesses, plans to issue 14.8 billion euros ($19.22 billion) of bonds backed by company loans . . . Amid the financial crisis, Spanish banks have put together asset-backed bond issues that they don’t sell, instead using them as collateral for European Central Bank loans. The nation’s banks borrowed a record 126.3 billion euros from the ECB in June, according to data compiled by the Bank of Spain.

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CDS Port(ugal) in a sovereign storm

Warning: This is not your standard PIIGS Club Med European peripheral CDS post.

Risk’s excellent Duncan Wood reports on Tuesday that Portugal’s debt office is now agreeing to post collateral to derivatives dealers. That’s the industry standard one-way CSA turned on its head. Read more