Posts from Monday Sep 6 2010

Macquarie warns weaker trading to hit profits

Macquarie Group, Australia’s top investment bank, warned first-half profits could fall by a quarter due to weakening market conditions, sending its shares down as much as 9 per cent, the FT reports. During its annual meeting in July, Macquarie flagged an uncertain outlook due to factors ranging from the European debt crisis and economic growth concerns but it did not provide profit guidance. However, analysts said the latest warning on Monday was sparked by a further deterioration in trading in recent weeks when it became clear Macquarie would not meet broker estimates. Global investment bank peers have also suffered due to weaker deal volumes.

Reliance $9bn tower assets deal collapses

A landmark deal designed to help Reliance Communications, India’s second-largest mobile operator, reduce debt and make it more attractive to suitors has collapsed amid speculation about a dispute over price, the FT reports. The $9bn deal, under which Reliance Communications was to sell its tower assets to Indian group, GTL Infrastructure, was aimed at preparing billionaire industrialist Anil Ambani’s flagship company for a possible stake sale to Gulf rival Etisalat.

Japan convicts whale activists of theft

Two Japanese Greenpeace activists have been convicted of stealing whale meat belonging to a sailor on Japan’s research whaling fleet, after a court rejected the argument that they were trying to expose corruption in the controversial hunting programme, reports the FT. The verdict, in a case that has attracted attention from advocates of free expression as well as anti-whaling organisations, appeared to reflect a toughening stance by Japanese authorities against critics of the country’s whale hunts, which are conducted under a loophole in the international ban on commercial ­whaling. Greenpeace called Monday’s conviction and one-year sentence, suspended for three years by a district court in Aomori, northern Japan, “disproportionate”, and warned that it would have “a chilling effect on those who seek to investigate and expose wrongdoing by the authorities”.

Chongqing eyes listing for UK unit

One of the first Chinese companies to gain a foothold in Britain’s engineering sector plans to float its UK subsidiary on the London Stock Exchange, the FT reports. Chongqing Machinery & Electric Company, a 70% state-owned Chinese business, hopes to list Lancashire-based Precision Technologies Group within the next three to four years, according to Tony Bannan, chief executive of the UK company. Under the plans, Chongqing Machinery – listed on the Hong Kong stock exchange – would retain a majority share in PTG, with possibly 30-40% available to other investors.

Kabul steps in to stop run on biggest bank

Afghanistan’s financial institutions have stepped in to stop a run on Kabul Bank, the country’s largest lender, as customers withdrew about 60 per cent of the bank’s cash deposits after its two top executives resigned amid corruption allegations, the FT reports. Mahmoud Karzai, a shareholder of Kabul Bank and brother of Afghan president Hamid Karzai, told the Financial Times that “the government has stepped in to reassure people”. The Washington Post reported last week that the central bank had taken control of Kabul Bank, forcing its senior two managers to resign. Mahmoud Karzai, speaking from Dubai, said the situation at the ailing bank was improving. “Withdrawals have now almost stopped,” he said. “Almost $300m has been withdrawn, and [the bank] had about $500m in cash before, so they still have about $200m.”

German banks try to fend off Basel III

Germany’s top 10 banks will have to raise as much as €105bn ($135bn) of fresh capital under a global regulatory overhaul, the country’s banking industry has warned, in a last-ditch effort to change tough new rules, reports the FT. The so-called Basel III rules would stymie the banks’ ability to function, curtail lending and undermine Europe’s biggest economy, said the Bundesverband deutscher Banken, representing private sector banks. The warning on Monday came a day ahead of a meeting of the Basel Committee on Banking Supervision, which is putting the finishing touches to rules governing the capital and liquidity requirements for banks.

September stock surge extends into fourth session

The September stock surge is into its fourth consecutive session as mostly improving economic data over the past few days encourage a shift into plays on global growth, the FT reports. The FTSE All-World equity index is up 0.4 per cent, taking its advance since the start of the month to 5 per cent, and metal prices are moving up. Currencies are relatively stable – though it is noticeable that those forex crosses most associated with risk aversion, such as the yen/dollar and euro/Swiss franc, are still flirting with 15-year and record highs respectively. In addition, highly-rated sovereign debt is retaining its cachet as Bunds rally after last week’s sell-off.

Citi under fire over deferred tax assets

Citigroup is at the centre of a dispute among analysts and accounting experts over whether it should set aside funds to cover $50bn of deferred taxes, a move that would reduce its capital buffer and weaken its balance sheet, the FT reports. The assets, a product of the accounting principles applied by US tax authorities to companies, are crucial to Citi’s financial health. At the end of the second quarter, deferred tax assets made up more than a third of Citi’s tangible equity – a measure of balance sheet strength. The US bank has rebuffed calls to reserve for its DTAs – the biggest held by a US company – arguing that it will earn enough money in the future to justify keeping the assets on its books. Under accounting rules, Citi has to be confident it will earn $99bn in taxable income during the next two decades to avoid making provisions for DTAs. In the 2002-2006 period Citi had annual pre-tax profits of at least $20bn.

Obama finds patience thinning

Declaring an end to US combat operations in Iraq last week, Barack Obama told his country he would from now on devote his attention to the ailing economy, saying that restoring growth and jobs was his “central responsibility as president”, reports the FT. Some listeners may have felt they had heard this somewhere before. Mr Obama said the economy would be his top priority four months earlier  – and in January be­fore that . . . and last November. Opinion polls show that voters are also growing fed up with hearing him saying the economy is on the right track when their daily lives do not bear this out. Even as the unemployment rate ticked up to 9.6 per cent last week, Mr Obama said his administration had taken steps to “break the back of this recession”.

Why yes, August was rubbish

File this one in the (bulging) ‘no one ❤ stocks’ archives.

August in London, according to the London Stock ExchangeRead more

Crash and burn, or when F1 meets FX

Vroom!

That’s the speed at which retail punters can be parted from their money on one of the many forex trading platforms that have sprung up in the past decade. Read more

More Anglo Irish candour

Spot the odd one out in this bevy of Irish credit spreads on Monday — chart and data courtesy of Markit:

 Read more

Making BP and big oil beautiful

Those of uncharitable disposition might sum up BP’s strategic response to the Gulf of Mexico disaster as follows: remove the Brit with the funny accent and install a Yank as CEO. (And, of course, flog off some assets to help pay for the spill).

But is that really enough? A quick look at the BP share price since the well was finally capped suggests not – the share price has gone nowhere as the graphic below shows. Read more

Back to the future in shorting Spain

Back in May, at the peak of the European sovereign debt crisis, the Spanish stock market regulator announced it would ramp up rules on the disclosure of short positions on Spanish stocks from June onwards.

As the FT reported at the time (our emphasis): Read more

Basel vs Barclays

Sighted in the market — a Basel III attack on a UK bank.

Of course, Diamond Bank would really rather continue being Universal Bank, thank you very much. But diamonds don’t come cheap. Read more

Markets Live transcript 6 Sep 2010

Live markets commentary from FT.com 

Macquarie Bank: desperately seeking swagger

That old affluent sparkle seems rapidly to be wearing off Australia’s once seemingly teflon-coated Macquarie Bank – especially after the unthinkable happened and MacBank, once dubbed the “millionaires’ factory” for its exorbitantly high pay scale, was criticised in a UBS analyst note in late July for its “low compensation capability”.

The UBS note, as Bloomberg reported at the time, concluded that Macquarie should cut jobs to boost pay levels and retain talented staff. Read more

Google warned on China plans

Google’s technological lead over Baidu has eroded, the company’s former China head has said, highlighting the increasing challenges that western internet companies face in the world’s most populous internet market, according to the FT. Kai-fu Lee told the FT that Chinese players Baidu, Alibaba and Tencent would keep their stranglehold so long as western companies like Google held back from building stronger local presences.

Fears return over Europe’s sovereigns

Don’t fall for the talk of European solvency, says the FT’s Wolfgang Munchau. The spread between bunds and the bonds of peripheral eurozone countries has widened back out to levels seen at the height of May’s debt crisis — and that presages market fears that sovereigns cannot pull off structural reform. This month’s planned bond issuance by peripheral governments is almost double the amount issued in August, reports the FT, adding to fears that investors may shun them — even if that means higher premiums on yields, rather than governments not being able to fund themselves outright.

Pondering last week’s bond sell-off

Could it be that the epic run in government bond prices has finally come to an end?

For example this was the action in the yields of US, German and UK government ten-year debt last week: Read more

Obama plans economic policy shift

President Barack Obama is to ask Congress to expand and make permanent a tax credit for research and development to boost a flagging recovery, the FT reports, as the administration sets out its stall on the economy in advance of November’s mid-term elections. Congress is unlikely to pass the tax credit before then, however. Still, the President plans to argue that the Democratic response to the crisis has stopped the bleeding and produced some growth, reports Reuters, with other ideas — payroll tax holidays, middle-class tax cuts — also in play.

September stock surge goes on

The September stock surge entered its fourth consecutive session in Asian and European markets on Monday, with mostly improving economic data over the past few days encouraging a shift into plays on global growth, says the FT. Even though US markets are taking a break for Labor Day, the S&P 500 has already rallied 5.3 per cent so far in September, versus a 4.8 per cent fall in August. Investors are playing catch-up with Friday’s jobs report, according to Reuters — but the IMF’s chief economist is still warning of weak growth in the US and Europe.

A revisionist history of the week begining Aug 30, 2010

There’s no pleasing some people.

You might have thought last week was a good one for data what with the ISM and payrolls numbers beating expectations.  But it wasn’t, according to Jan Hatzius, the chief US economist at Goldman Sachs, and his team. Read more

Kohn calls for Fed action on stimulus

Former vice-chairman of the Federal Reserve Donald Kohn has called on the Fed’s board to roll out additional stimulus if the recovery does not progress fast enough, the NYT reports. Achieving higher levels of employment would be key, Kohn said, adding that any Treasury purchases by the Fed this time shouldn’t have a specified limit, as previously. But it’ll be hard for the Fed to act in what is becoming a ‘growth recession’ — that is, growth without jobs — according to Reuters. Oh, get a grip, America, says the UK’s Daily Telegraph. The Fed has much more policy room than you think, well beyond Fed chair Ben Bernanke’s vision of credit easing and into a ‘blitz’ of bond purchases.

Australia’s Macquarie sees profits slump

Macquarie Bank has warned investors that it faces weakened profits in a tough environment for making deals, citing a 25 per cent drop in first-half profit, reports Bloomberg. The bank said that deal-making was at its worst level since 2004, pushing it out of the top ten of Australian merger advisers for the first time since 1999. It’s a grim outlook for the bank known as the ‘millionaires’ factory’ for its generous executive compensation, Reuters says, especially after US banks from Goldman to JP Morgan also cited a decline in deals in recent results. Even so, Macquarie’s bid to carve out a niche among global banks may stand it in good stead for a recovery, despite the passing of the glory days of executive pay, says FT Alphaville.

Foxconn warns on long-term profit

Foxconn, the Taiwanese manufacturer of Apple’s iPhone and iPad products, has cut its target for long-term growth by 50 per cent, reports Bloomberg. Foxconn’s chairman Terry Gou said he’d target annual sales growth of 15 rather than 30 per cent in future, having led the firm and its precision unit Hon Hai to bigger sales volumes than Apple or Dell. Vertical integration of manufacturing via huge acquisition deals has kept Foxconn surging so far, reports the FT — but now the empire seems to be reaching its limits. Shares in Hon Hai fell 4 per cent in Taipei on Monday, according to Reuters.

Hurd’s the word for Oracle

Oracle’s board will meet within days to vote on a deal to bring Mark Hurd to the company in a top role, marking a rapid corporate rehabilitation for the ousted Hewlett-Packard chief executive, the FT reports. While Mr Hurd isn’t expected to take the chief executive role off Oracle’s founder Larry Ellison, almost any position will be a coup for his comeback — and for Oracle, which would benefit from his expertise as it squares up to HP in hardware markets.

Even so, the decision is still up to the board, the WSJ says. Mr Hurd has also received offers from private equity firms, Reuters adds. Then again — if Mr Hurd is accepted, Larry Ellison will have an instant succession plan, opening the possibility of a CEO role later on, ZDNet’s Between the Lines notes.

Further reading

Elsewhere on Monday,

- Krugman says it’s all downhill from hereRead more

Pink picks

Comment, analysts and other offerings from Monday’s FT,

Wolfgang Munchau: Don’t believe talk about European solvency
While the Europeans are celebrating the end of the financial crisis, something strange is happening in the bond markets, writes the FT’s Munchau. The gap in the yields between the 10-year bonds of peripheral eurozone countries and Germany has been growing at an alarming rate, and is now close to the levels just before the EU decided to set up its bail-out fund in May. This gives rise to the immediate question of whether some countries would be able to remain solvent under such a scenario. Read more

Snap news

Breaking pre-market news on Monday,

- India’s GTL cancels tower merger plan with Reliance – via ReutersRead more