Yes, MASSIVE. Knocks Martha Stewart, Galleon, etc into a cocked hat…
The Securities and Exchange Commission today charged brothers Samuel E. Wyly and Charles J. Wyly, Jr. of Dallas with violating federal securities laws governing ownership and trading of securities by corporate insiders. The Wyly brothers reaped more than $550 million in undisclosed gains while sitting on corporate boards by trading stock in those public companies through hidden entities located in foreign jurisdictions to conceal their ownership and trading of those securities.
Citigroup agreed to pay $75m to settle Securities and Exchange Commission charges that it failed to disclose to investors more than $40bn in exposure to subprime mortgages, the FT reports. Thursday’s deal comes two weeks after the SEC levied a record $550m fine against Goldman Sachs to settle allegations the bank defrauded investors in a collateralised debt obligation based on subprime mortgages. Citi did not admit wrongdoing but the settlement includes information that could prove useful in investor lawsuits filed against it.
Aluminum Corp of China and Rio Tinto signed a $1.35bn deal on Thursday that allows the Chinese state-owned miner to buy in to a rich iron ore project in Guinea, in a move that places both mining companies at the centre of the multi-billion-dollar scramble for west Africa’s iron ore, the FT reports. Rio and Chinalco – the common name of the Chinese miner – revealed few changes to the earlier agreement they signed in March over Simandou, the Guinean deposit. Chinalco will pay Rio $1.35bn that will fund project development. In return, Chinalco buys its way up to a 47 per cent stake in the Rio-Chinalco joint venture
The world’s biggest banks will continue to trade over-the-counter derivatives in much the same way as they did before the financial crisis, in spite of the recently enacted legislation on US financial reform, the CME Group said on Thursday. As the FT reports, the opacity of OTC derivatives such as credit default swaps – which offer insurance against banks, companies and governments defaulting on debt – was widely blamed for aggravating the financial crisis. An important impetus for financial regulatory reform was to bring transparency to the OTC markets.
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, a sector forecast to reach €20bn ($26bn) in gross gaming yield globally by 2012. 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.
The world’s biggest chocolate maker on Thursday warned that cocoa prices, which recently hit a 33-year peak, were set to stay at current high levels for the foreseeable future because of continued demand pressure and scarce supply, the FT reports. Jürgen Steinemann, chief executive of Barry Callebaut, the chocolatier supplying many of the world’s top foods groups, said: “At this moment, cocoa is a scarce material: demand has been rising, supply has been stable, so prices have gone up.”
Fitch, the credit rating agency, yesterday downgraded Vietnam’s sovereign debt, sparking rare criticism from the Asian Development Bank and other analysts who said the country’s economy was looking up, the FT reports. The rating was downgraded from BB- to B+, which is four steps below investment grade, with a stable outlook. Moody’s Investors Services and Standard & Poor’s have left their ratings unchanged with a negative outlook.
The UK’s financial regulator has sharply expanded the number of companies that will be subject to tough restrictions on pay and bonuses, extending its rules to cover most hedge funds and investment managers as well as banks and building societies, the FT reports. The FSA is broadening the scope of its remuneration code from 27 large banks to more than 2,500 financial services companies, including the UK branches of many overseas businesses.
The battle for Dollar Thrifty, the Oklahoma car-rental operator, intensified on Wednesday with Avis Budget making a $1.3bn cash-and-shares bid to head off Hertz’s agreed offer submitted two months ago, the FT reports. Avis said its bid, valued at $46.50 a share, offered a 17 per cent premium to Hertz’s proposal
US government agencies charged with reviewing sensitive acquisitions are engaged in a debate over how to handle Huawei, the Chinese software and telecoms equipment-maker viewed with deep scepticism by government security experts, the FT reports. Last week, Huawei narrowly lost a bid to take over 2Wire, a privately held US maker of broadband internet software that was ultimately acquired by Pace of the UK for $475m, even though Huawei offered more than its rival, according to people familiar with the matter. This month, the Chinese company was also on the losing end of a bid for Motorola’s mobile network infrastructure unit, which was bought by Nokia Siemens for $1.2bn.
In both cases serious questions over Huawei’s ability to win regulatory approval for the acquisitions played a role in the bidding process, forcing Huawei to offer a higher premium. Both deals would have had to win approval from the Committee on Foreign Investment, an interagency panel that reviews foreign acquisitions on national security grounds.
Chris Viehbacher, the chief executive of Sanofi-Aventis of France, on Thursday left open the option of a $19bn takeover of US biotech company Genzyme as he unveiled second-quarter results for the French pharmaceutical group with earnings up nearly 8 per cent to €1.90 a share, reports the FT. Mr Viehbacher refused to “comment on specifics” but reiterated that one of the company’s top three priorities was to pursue external growth, including a focus on mergers and acquisitions of “small to medium-sized companies” with market capitalisation of up to $20bn.
Joachim Fels just isn’t giving in.
Here’s what Morgan Stanley’s central-bank watcher had to say on his recent theme of inflation on Thursday — never mind the contrary case building for deflation: Read more
With a tip of the hat to Simon Johnson, here’s a Harvard paper with a curious take on two hot topics of the financial future: macro-prudence and shadow banks.
Getting the first wrong might create (more) perverse incentives in the second. Read more
Barclays Capital has won its battle against Hamp stats.
BarCap analysts Sandeep Bordia and Jasraj Vaidya last week criticised the latest Hamp loan performance data, published on July 20 by the US Treasury. Their objection had to do with the way a key performance metric — the redefault rate for Hamp-modified mortgages — was being calculated. Read more
FT Alphaville noted on Wednesday how the basis between the Euribor rate (set by a panel of 42 European participating banks) and Euro Libor (as set by 16 banks in London) has been diverging on the back of the European sovereign crisis.
Of course, there was one other divergence that appeared in the European funding market post the Lehman crisis. The difference between Euribor (a survey of unsecured term lending) and Eonia (unsecured overnight lending rates). Read more
Live markets commentary from FT.com
At first glance, it might look as though investors were horrified at moves by Japanese electronics giant Panasonic to transform itself into a company focused on renewable energy and energy conservation — and to spend about $9.4bn and issue Y500bn ($5.7bn) worth of new shares doing it.
After media reports on Thursday that Panasonic planned buy the remainder of two key subsidiaries, Sanyo and Panasonic Electric Works (PEW), Panasonic stock slid by as much as 11 per cent. Read more
California’s ailing state finances have prompted Governor Arnold Schwarzenegger to declare a state of emergency, plus an August pay furlough for public workers, Reuters reports. The state budget faces a $19bn shortfall but lawmakers have delayed passage for more than a month. But investor concern over municipal fiscal problems is easing, the FT reports, with muni bond yields approaching record lows. Nassim Taleb for one doesn’t trust government deficits, describing them as a ‘pure Ponzi scheme’ during an interview with Bloomberg BusinessWeek.
Banks in Europe are beginning to assess the potential impact on derivatives and bond markets of a country exiting from the eurozone, the FT reports. While the prospect is remote, Europe’s economies face a two-speed recovery under pressure of the sovereign debt crisis and fiscal austerity, the NYT’s Economix blog finds — with governments on the continent’s southern rim increasingly behind on catching up with northern neighbours like Germany.
Financial markets are also starting to bifurcate, FT Alphaville observes, noting a curious divergence between the Euro Libor and Euribor rates, plus moves for peripheral sovereigns to post collateral in the clearing of derivatives.
On Wednesday the European Central Bank whipped out its scissors to trim a little more off the top of eurozone banks’ repo collateral, as well as restyle certain market segments.
The ECB released its long-trailed revisions to the discounts financials have to take on the assets they provide the central bank in return for its liquidity. In particular, the ECB is introducing a graduated haircut scheme for assets — to take into account varying degrees of riskiness — and creating five eligible categories of ‘liquidity’ each with their own trimming needs depending on maturity and credit rating. Read more
Royal Dutch Shell has defended deep-water drilling as having ‘an important role to play’ in global energy production despite BP’s spill in the Gulf of Mexico, amid a 94 per cent rise in profit over the second quarter, the FT reports. Shell warned that trading outlooks for the year remained uncertain, however, according to Bloomberg. Quite — the era of global oil giants is over, writes Nick Butler, a former BP strategist, in the FT. ConocoPhillips at least is selling its full stake in the Russian oil and gas firm Lukoil, the WSJ reports.
The battle for Dollar Thrifty, the Oklahoma car-rental operator, has intensified with Avis Budget making a $1.3bn cash-and-shares bid to head off Hertz’s agreed offer submitted two months ago, the FT reports. Avis said its bid, valued at $46.50 a share, offered a 17 per cent premium to Hertz’s proposal. Budget brands like Dollar Thrifty are attracting interest in an environment where consumers are watching costs, adds Reuters.
Telefónica has posted an above-forecast 16 per cent gain in second-quarter profits in Latin America, Bloomberg reports, setting the seal on its $9.8bn deal to win control of Vivo, the Brazilian wireless operator. But while Telefónica can finally merge Vivo with its existing fixed-line business in Brazil, the price paid in the deal values Vivo at eleven times EBITDA — requiring a lot of synergies to be made for it to be worth it, the FT’s Lex says. Nevertheless — here are four macro reasons to believe in Brazil, says the Economist.
US economic activity has “continued to increase” over the past seven weeks but there are signs of a slowdown, according to the Federal Reserve’s latest Beige Book survey, released on Wednesday, the FT reports. Ten out of 12 Federal Reserve districts said activity rose, compared to all of them in the last survery. Cleveland and Kansas City reported activity was flat, while increases in other districts slowed. The data show that consumers are getting weary, the WSJ says. Meanwhile, Calculated Risk rehearses the arguments for a second-half slowdown.
Amazon has made an early move to give its Kindle e-reader device mass appeal, with the launch of a $139 wireless-only version, Reuters reports. The new price lies just above the $99 price-tag that analysts believe would tip the Kindle into mass adoption, promising an e-reader price war, the NYT adds. With e-book margins being squeezed and devices becoming cheaper, the publishing industry will have to get more creative, the FT’s John Gapper observes. And using the device itself? Not bad, the FT’s Tech Blog says — but it’s no iPad.
No more s***** deals, please. Goldman Sachs has banned workers from swearing in emails, the WSJ reports. The bank did not specify which swear words were forbidden in a verbal directive sent to employees, but asterisked curses also come under the ban. Morgan Stanley and JP Morgan already stringently enforce no-cursing rules on their trading floors, while CME Group fines traders who turn the air blue in its pits.
To post collateral or not to post collateral?
That is the sovereign derivatives question of the week. Read more
French drug-maker Sanofi-Aventis remains ready to make a takeover bid for US biotech firm Genzyme after revealing plans to pursue companies with a market capitalisation of up to $20bn, the FT reports. Sanofi’s board has authorised managers to make a formal offer of up to $70 a share, Reuters adds. The company may make a ‘bear hug’ expression of interest within days, after a month of informal negotiations with Genzyme failed to produce a transaction.
Not nitroglycerine but, umm, something altogether more stable, ya know.
Gilts have overcome criticism at the start of 2010 to become one of the best-performing assets this year. Even Pimco, the bond fund whose manager Bill Gross made that famous “gilt market is resting on a bed of nitroglycerine” analogy, has reversed its stance on British bonds. Read more