Posts from Thursday Sep 9 2010

Goldman fined £17.5m by UK regulator

Goldman Sachs has been fined £17.5m for regulatory control failings that led the investment bank to neglect to tell the UK financial regulator that it was under investigation by US authorities, the FT reports. The Financial Services Authority said on Thursday that Goldman’s US arm failed to share critical information with the bank’s compliance department in London about a US investigation of subprime mortgage products for more than 18 months. That omission meant Goldman failed to notify the FSA that it and trader Fabrice Tourre had been warned in September 2009 by the US Securities and Exchange Commission that they were likely to face civil fraud charges. At the time, Mr Tourre was working in London in a function that required FSA approval.

Stocks rise on better US jobs data

Surprisingly positive US jobs data has given some support to stock buyers, but trading is still cautious as fears for the global economy and European banks linger, the FT reports. The S&P 500 on Wall Street was up as much as 1 per cent following a drop in weekly initial jobless claims by 27,000, which followed news that the US trade deficit had narrowed thanks to rising exports. But another report showed oil inventory in the US was at its highest since 1990 – a sign that business and consumers are still not in a buying mood. At the same time, many industrial metals are also lower, following regulatory jitters in China, while a more cautious mood in forex markets continues to aid “safety” plays such as the yen.

Trichet calls for tougher euro rules

Eurozone members that break the region’s rules on public finances should be excluded temporarily from Europe’s political decision-making, the president of the European Central Bank has proposed, the FT reports. The controversial suggestion by Jean-Claude Trichet, in an interview with the Financial Times, would be part of a “quantum leap” in the governance of Europe’s 11-year old monetary union, needed to prevent a future Greece-style economic crisis.

Deutsche lines up pre-Basel rights issue

Deutsche Bank is set to launch a rights issue of €8bn-€9bn, in a bid to strengthen its capital ratios ahead of an expected hike in banks’ capital requirements, reports the FT. According to people close to the plan, the bank aims to announce the offering – the biggest in Europe this year – on Monday or Tuesday. The deal comes as global regulatory chiefs prepare to meet in Basel, Switzerland, this weekend to approve a set of new capital and liquidity measures drawn up by the Basel Committee on Banking Supervision, the international watchdog.

Battle for retailer stirs fear of ‘Americanisation’

An ownership battle between the chief executive and imprisoned founder of Gome, one of China’s largest electronics retailers, has spilled over into an angry and sometimes nationalistic debate in the country’s media and internet, the FT reports. Executives and advisers working for Gome say they have received death threats in recent weeks from people claiming to be supporters of Huang Guangyu, the company’s founder and once China’s richest man.

Japan alarm over China’s JGB purchases

Japan has expressed concern about China’s recent sharp increase in purchases of Japanese government bonds in the latest of a series of sour notes in a traditionally tense bilateral relationship that both sides had worked hard to steady, the FT reports. China’s purchases of JGBs is an especially sensitive issue as it plays into anxieties in Japan about the strengthening yen and its impact on the economy. Tokyo and Beijing also clashed this week after Japanese authorities arrested the captain of a Chinese fishing boat in the disputed waters of the East China Sea. “There is something unnatural about the fact that China can buy Japanese government bonds while Japan cannot [buy Chinese bonds],” Yoshihiko Noda, the Japanese finance minister said.

Vietnam hits back at IMF criticism

Vietnam’s foreign minister has dismissed International Monetary Fund concerns that a lack of clarity in the government’s macro-economic policy is damaging confidence among international investors, the FT reports. The Vietnamese government has been forced into a series of rapid shifts in macro-economic policy over the last three years as it was buffeted first by a bout of high inflation, then the global slowdown and, most recently, fears about a possible currency crisis. The central bank has devalued its currency, the dong, three times since November in a bid to stem the downward pressure on the currency, which has been driven by concerns about Vietnam’s large trade and budget deficits. In an annual review of Vietnam’s economic policy released on Thursday, the International Monetary Fund (IMF) paid tribute to the government for managing to ride out a number of difficult challenges but warned that “the current macroeconomic stability does not appear robust”.

S Korea races to save face over F1 Grand Prix

It is not the hairpin bends on South Korea’s first Formula One Grand Prix track that are causing the feverish brows, sweaty palms and hearts in mouths. It is the teams of construction workers still laying kerbs and asphalt six weeks before its first scheduled race as a F1 host in October, the FT reports. Unusually for a country that prides itself on its building skills and is home to some of the world’s top construction companies, South Korea has found itself in a rather mystifying race against the clock to get its Grand Prix track finished. If it is not ready and approved at the final inspection on September 21, it could bring commercial disaster and political embarrassment.

Rubin, Prince seemingly under scrutiny

Bloomberg does its homework and finds something intriguing in an SEC court filing on Wednesday, as the agency defended its decision to settle charges with Citigroup for $75m.

Reports Bloomberg (emphasis ours): Read more

More on the US trade figures and global imbalances

Thursday’s US trade report from the Census Bureau brought some welcome news, though it’s probably best not to get too excited just yet.

Exports resumed growing again after a slight dip in June, while imports declined by $4.2bn. Overall the deficit declined to $42.8bn from the $49.8bn reported in June. Read more

Opportunities from the covered bond dislocation

SocGen analysts have turned their attention to the dislocation in covered bond prices vis-a-vis secured lending rates and government bonds.

Just as BarCap noted before them, they observe how “rich” covered bonds are currently trading with respect to the other markets. Read more

Save our shorts, redux

Now here’s something you don’t see every day — calm evidence-based, consideration of the impact of short-selling (and thus, rules that prohibit short-selling, conversely) on the price and volatility of stocks.

It’s found in a new NBER paper that looks at the effects of stock lending supply across two very different periods in recent equity market history. Here’s the abstract (emphasis ours): Read more

Keep your fiscal friends close…

On the eve of a vast UK government review of spending cuts this autumn, Robert Chote has been tipped for the prestigious post of abattoir inspector chairman of the Office for Budget Responsibility.

And well, there are two ways to take that news. Read more

Duelling indicators on US unemployment

At this point, we may as well throw our hands in the air and give up trying to figure out in which direction US employment is trending.

Weekly unemployment insurance claims posted a big decline for the second time in the last three weeks on Thursday, falling 27,000 to 451,000. Read more

Central banks are depressing (yields)

Stephen Lewis at Monument Securities is trying to rationalise the ultra-low state of government bond yields.

It all started on Wednesday, when he pointed out that current long-dated yields in the US and in the UK are now lower than they were during the Great Depression. Read more

Kill the old, deflation edition

Morgan Stanley economists always have such interestingly contrarian views on the inflation-deflation debate. For example – Joachim Fels’ unfashionably inflationista analysis of central bank credibility.

And now — the deflation-fighting case for Logan’s RunRead more

That ol’ dependable 0.5 per cent, at the BoE

Noted for the record (again) on Thursday — the Bank of England’s latest decision to make sure the song remains the same:

 Read more

China, Japan and the intervention two-step

At last, a chance for browbeaten Japanese finance ministers and bureaucrats to recover some mojo — and blame someone else for the yen’s seemingly irrepressible rise.

After yet another dismal round of promises by Japanese officials to act to curb the currency, some handy new balance of payments figures have provided a new whipping boy for unabated yen strength. Read more

Markets Live transcript 9 Sep 2010

Live markets commentary from 

Wall Street prosecutor turns to civil tools

Preet Bharara, US attorney for the southern district of New York, will unveil another weapon against Wall Street fraud on Thursday, according to the FT, with renewed emphasis on civil litigation alongside existing criminal actions. Mr Bharara will announce the appointment of Heidi Wendel, a former New York state deputy attorney-general, to head a six-strong unit focused on taking civil enforcement action against fraud. Her remit covers “every single type of fraud”, including complex financial misconduct, mortgage deals, abuse of the government’s troubled asset relief programme and healthcare scams, Mr Bharara said.

Invitation to Tea@theFT

A once in a life time offer. Unlikely to be repeated.

Do you day trade?  Read more

Signs of Basel easing on capital rules

Basel III may be less tougher on bank capital requirements than had been feared as recently as this week, FT Alphaville reports. Core Tier 1 capital is set to be calibrated at 4.5 per cent, with a 2.5 per cent conservation buffer on top, according to Australia’s Banking Day and BBC News. The last-minute fall in the capital ratio — around 0.5 per cent has been shaved off core Tier 1 — might be due to the influence of German banks, which have complained that tougher rules would leave them undercapitalised and at a competitive disadvantage.

Ireland bids to regain sovereign certainty

Ireland is still at the eye of the autumn’s European sovereign debt storm, says Bloomberg, even after the government announced measures on Wednesday to split up the bailed-out bank Anglo Irish, which observers have feared could bring down the country’s finances. Splitting Anglo Irish into good and bad banks provides some certainty – but it still doesn’t answer the question of the final cost to the government. FT Alphaville summarises the details of the plan.

Goldman anticipates QE2 dollar weakness

In a further sign that Goldman is putting all its eggs in the QE2 basket, the bank’s FX team was also out on Thursday, recommending quantitative easing-related dollar weakness positions.

As the team headed by Thomas Stolper wrote in a September note: Read more

Paulson & Co thwacked by US economy

Paulson & Co, the world’s third-largest hedge fund manager, has seen another painful month thanks to growing fears over the health of the US economy, the FT reports. The firm’s $9bn Advantage Plus fund, which aims to profit from trading corporate events, lost 4.26 per cent in August, according to an investor, wiping out gains made in July. The fund, Paulson & Co’s largest, is down 11 per cent so far this year. Last month proved worse for the $3bn Paulson & Co Recovery fund, however, which was launched in 2008 to profit from a rebound in the US housing market and economy, losing 9.13 per cent in August compared to a 6.5 per cent gain a month earlier.

Goldman keeps up call for QE2

Goldman Sachs’ chief US economist Jan Hatzius has already called for about $1,000bn of fresh quantitative easing this week, FT Alphaville notes — and the bank has promptly moved on to how, not if, the Federal Reserve will do it. The Federal Open Markets Committee should announce the measure all at once — $1,000bn in one meeting rather than $100bn over ten, according to Goldman. But even massive quantitative easing would only have a small and statistically insignificant impact on rates, argues John Taylor at Economics One. Meanwhile, economists are cutting their US growth forecasts for the rest of this year, Reuters reports.

FSA fine watch

Another day and another fine from the Financial Services Authority.

This time it’s Goldman Sachs on the receiving end. A £25m hit (reduced to £17.5m for good behaviour) for the heinous crime of not telling the FSA it was being investigated by the SEC over the Fab Fabrice/Abacus CDO case. Read more

Oracle’s Hurd saga rolls on

Mark Hurd is expected to earn $11m in his new role at Oracle, putting him back among the tech industry’s highest-paid executives, the FT reports — though he may not like having a boss (Oracle’s Larry Ellison) above him for once, the WSJ says. But Hurd’s move is more than a executive suite soap opera, the FT adds — the industry as a whole is moving from an era of close alliances to deepening fractures on which chunks of the market to carve out. Oracle is shoving its way into the server and storage sector — while Hurd’s former employers HP are making a defensive bid in networking.

Basel backtracks

So near, and so far, Basel.

Australia’s Banking Day had the basic numbers overnight on what looks to us like a last-minute climbdown on bank capital: Read more

Goldman fined $27m by UK regulator

Goldman Sachs has been fined £17.5m ($27m) by the UK’s financial regulator following a five-month investigation into the investment bank’s international business initiated in the wake of fraud charges against the company in the US, the FT reports. The fine, confirmed by the Financial Services Authority on Thursday, is a blow to Goldman’s efforts to put the high-profile Abacus case behind it following the bank’s settlement with the US Securities and Exchange Commission probe in July for $550m. The news will at least take a shine off moves to spin off Goldman’s Principal Strategies unit to suitors ranging from KKR to Pimco, Blackrock and Carlyle, as reported by Dow Jones. FT Alphaville’s series on the Abacus case can be found here.