Posts from Thursday Sep 23 2010

Petrobras gears up for record share issue

The biggest share issue in corporate history will be priced later on Thursday as Petrobras, Brazil’s national oil company, attempts to raise up to R$134bn ($78bn) from existing shareholders and new investors, reports the FT. The company’s shares were outperforming the market strongly on Thursday morning, apparently on expectation that the issue would be significantly oversubscribed. Petrobras’s board was due to meet at 5pm in Rio de Janeiro to approve the outcome of bookbuilding, under way since September 3.

China-Pakistan reactor deal to open fresh US rift

A new potential dispute between the US and China is opening up as Beijing goes public with its plans to export two more nuclear reactors to Pakistan, in a deal that will raise ­questions about controls on nuclear technology, the FT reports. Chinese officials have admitted privately since earlier this year that they planned to go ahead with the long-mooted plan to sell Pakistan two more nuclear reactors, in addition to the one reactor it has already built and a second under construction.

Hyundai E&C set for bidding war

Creditors are putting a $2.6bn controlling stake in Hyundai Engineering & Construction up for sale, reigniting a feud in the founding family of the splintered Hyundai conglomerate, reports the FT. The bidding war, which begins in earnest on Friday will pit Chung Mong-koo, the chairman of Hyundai Motor, the world’s fifth-biggest carmaker, against his widowed sister-in-law Hyun Jeong-eun, who heads Hyundai Group, a separate company with interests ranging from lifts to tourism. The battle for supremacy at Hyundai illustrates how family loyalties and rivalries still dominate decision-making in South Korea’s biggest companies. It also undermines Seoul’s attempts to shift the economy’s centre of gravity from unwieldy conglomerates that have traditionally weakened themselves by overextending into non-core businesses.

China takes lead in financial deals

Deals and capital raisings in China’s booming financial services sector have outpaced those in the US for the first time since records began in 1995, fuelled by a wave of refinancings by Chinese banks needing to repair their balance sheets, the FT reports. There have been $36.2bn-worth of deals in China’s financial sector so far this year, compared with $26.2bn in the same sector in the US, according to data from Dealogic. Bankers said the increase in deal flow was being driven by large refinancings by Chinese banks as they move to shore up their capital this year, rather than full takeovers.

Deutsche Bank warns on capital ‘race’

Josef Ackermann, chief executive of Deutsche Bank, has warned of risks to the economy if banks compete in a “race to the top” to exceed new global capital standards, reports the FT. The comments from one of the world’s top bankers followed agreement among regulators on the new Basel III measures requiring banks to boost capital reserves.

Arrests step up China’s dispute with Japan

Beijing is investigating four Japanese citizens it has accused of “illegally” filming a military site in China in an apparent escalation of a dispute which has quickly engulfed east Asia’s two competing powers, reports the FT. The official Chinese news agency, Xinhua, said on Thursday evening that state security in Hebei province had taken “measures” against the four “according to law after receiving a report about their illegal activities”.

Malicious computer worm launched at industrial targets

A piece of highly sophisticated malicious software that has infected an unknown number of power plants, pipelines and factories over the past year is the first program designed to cause serious damage in the physical world, security experts are warning, the FT reports. The Stuxnet computer worm spreads through previously unknown holes in Microsoft’s Windows operating system and then looks for a type of software made by Siemens and used to control industrial components, including valves and brakes.

Ireland debt worries hit stocks

Stocks had their worst day in two weeks – and the dollar had its best in a week – as the “deflation trade” sparked by the Federal Reserve’s hint at further monetary easing took a day off, thanks to a surge in fears about the Irish banking system, the FT reports. The FTSE All-World index was down 0.6 per cent while core sovereign debt is in demand, pushing yields lower, as traders seek perceived havens. News that Ireland’s GDP fell 1.2 per cent in the second quarter kicked off the session’s anxiety, as did rumours of a default by Allied Irish Banks. It should be stressed there has been nothing to suggest the latter is anything other than market scuttlebutt, but credit-default swaps on AIB hit 615bp, rising 31bp, according to Markit.

Geoghegan set to quit HSBC by year-end

Michael Geoghegan is to step down as chief executive of HSBC at the end of the year, according to two people close to the bank’s board, the FT reports. He will be replaced by Stuart Gulliver, head of the group’s investment bank. At the same time, Douglas Flint will take over as chairman from Stephen Green, who announced a fortnight ago that he will take up a government job in January as trade minister. The double changeover at the head of the global banking group follows a turbulent two weeks of jostling for position among board members, following Mr Green’s announcement.

Microsoft, debt/equity arb, and IG coupons

Have a look at this chart from Econompic Data that’s been making the rounds since Wednesday:

 Read more

Dealing with disinflation

Plenty of pixels have been used here on the inflationista vs deflationista debate, but fewer about a third category that doesn’t get as much attention: the disinflationista.

Okay, no such thing. But we’ve previously discussed the work of the IMF’s André Meier, in which he looks at 25 previous episodes of persistent large output gaps (long, deep recessions and sluggish recoveries) to find that they normally have strong disinflationary effects without quite leading to outright deflation. Read more

Geoghegan, out

Now that there is actual news, here’s an update on the HSBC boardroom battle, since we know the suspense has been killing you.

From the FTRead more

The legacy of fat bloke finance

This is London’s Centre Point tower, a (cough) architectural icon from the 1960s that sits at one end of Oxford Street.

Its owner is Targetfollow, a Norwich-based company that Lloyds Banking Group could force into administration as soon as Friday. Read more

The Fed cometh like a thief in the night

It’s increasingly not if, but when, as far the market is concerned over the Federal Reserve’s most recent pronouncements on reviving quantitative easing.

But when is when? And what might answering that tell us about inflation? Read more

R.I.P. European unsecured lending

FT Alphaville has talked about the vaporisation of unsecured lending in Europe, as well as the consequent impact on quality collateral via the rush towards collateralised lending.

But in case you didn’t believe us, here’s the news straight from the horse’s mouth via the ECB’s Euro Money Market Survey 2010: Read more

Existing home sales rebound from disastrous July

The NAR’s existing-home sales figures for August are out, having climbed after last month’s catastrophic report revealed one of the lowest monthly levels on record (for July).

But by historical standards, the market is still very weak. From the release (emphasis ours): Read more

More on the ‘Irish panic’

“Liability management” (or buying backbonds to capitalise on the fact they are trading at a fraction of face value).

That’s a phrase we could be hearing more of as the Irish government prepares to deal with Anglo Irish Bank’s €1.7bn of “controversial” subordinated debt. Read more

Katabasis in the market

In which the Greek crisis meets the perils of indexing.

The FTSE did its annual shuffling of world stock indices on Thursday. Read more

Money market funds meet moral hazard

Cast your minds back to August 2007, when money market funds were experiencing their first major crisis. It was far less sexy than what was to follow in September 2008 — when Reserve Primary notoriously broke the buck and sent money markets into panic — but it was one of the earlier manifestations of the credit crunch.

In 2007, as demand for Asset-Backed Commercial Paper (ACP) rapidly dissipated, the money market funds (MMFs) which invested in ABCP were rocked by credit and liquidity issues. Read more

Hindenburg sighted… on Bloomberg

Oh, the humanity! Oh, the HIND <GO>! Which function gets you, err, this when you tap it into your nearest Bloomberg terminal, as of Thursday:

 Read more

The Ashes of O’Austerity

In addition to what’s now being called the ‘Irish Panic’ — after the market punched Ireland credit default swaps in the face on Thursday, following fears that Anglo Irish will be brought down by its subordinated debt — here’s another Gaelic headache.

From the Irish statistics office’s latest release on economic growth: Read more

Markets Live transcript 23 Sep 2010

Live markets commentary from 

What price Betfair?

What valuation will the market put on Betfair when the online betting exchange lists on the LSE in a month’s time?

Based on the numbers released on Tuesday, a market capitalisation of £1.5bn looks very optimistic. In fact, £1.2bn might be a push even for those clever folks at Goldman Sachs who (along with Morgan Stanley) are running the IPO show. Perhaps the company will have to settle for £1bn. Read more

The even stranger tale of the Facebook Phone

Facebook is indeed developing a phone using its software, working with the handset manufacturer INQ and the service provider AT&T, sources have informed Bloomberg. AT&T has not committed to a deal but the phone are said to pencilled in for a 2011 roll-out in the US. Facebook itself has not yet decided whether to put its brand on the phones, a source said. TechCrunch, which originally broke the story, says the details don’t add up — and it’s not clear who at Facebook is actually collaborating with INQ. Even so — a social networking-dedicated phone is something Facebook might well need if it’s planning to compete with Apple and Google’s smartphones, CNET News says.

Hamp homeowner sign-ups crumble

More than half of the homeowners who signed up to the Hamp foreclosure prevention program have dropped out since its March 2009 inception, data from August show, Reuters reports. The 500,000 borrowers who received permanent help up to August also fall far short of the three to four million originally planned for, the WSJ adds, increasing the likelihood of further foreclosures hitting the already-weak housing market. Weak is the word — mortgage loan demand is falling again, the FT reports. A shame, then, that foreclosure processes are a bureaucratic nightmare, with Calculated Risk reporting the tale of a home without a mortgage being foreclosed on — while the Washington Post reveals the mistakes made by foreclosure ‘robo-signers’.

Lehman retrieves $60bn – and creates precedents

The bankrupt estate of Lehman Brothers has recovered nearly $60bn in value for creditors since September 2008, but a decision on how to distribute the funds will not be finalised until next year at the earliest, the FT reports. The bank’s restructurers said reaching deals with foreign subsidiaries had proved more difficult than expected. At the same time, this unwinding is being closely watched by lawyers and regulators round the globe as a model for other collapsed banks and for precedents that may affect new derivatives deals, the FT adds. In particular, the Lehman cases have tested — and found wanting — a key provision of derivatives law allows non-defaulting counterparties to terminate their contracts and withhold payments if there has been a default by the other side.

Ireland’s subordinated bond ATTACK!

Ireland may have forsworn a default on senior bank bonds — but the subordinated stuff could turn out to be a rather different story.

On Thursday morning, Irish bank CDS shot sharply up on [UNCONFIRMED] chatter of an imminent “Allied Irish default” : Read more

Republicans unveil ‘Pledge to America’

Republican lawmakers seeking to take back the House of Representatives in November are promising that tax cuts and a sharp cutback in government spending will revive the slumping economy as part of their new “Pledge to America”, the FT reports. The draft document centers on promises to make job creation the “first and most urgent domestic priority”. The Washington Post has a PDF copy of the pledge — although the Post’s Ezra Klein isn’t very impressed with the policies on offer, arguing that they would add trillions to the deficit. Senate Republicans haven’t so far rustled up their own plan, the WSJ reports, reflecting a fierce debate within the GOP on how specific policy should be made before the midterm elections.

Blockbuster has new bankruptcy plan

Carl Icahn to the rescue. Loss-making rental chain Blockbuster has agreed a ‘pre-packaged’ bankruptcy and restructuring plan with senior debt-holders, the FT reports. The plan will allow it to continue to expand its business even as it prepares to file for bankruptcy protection in the coming days. Mr Icahn acquired a third of Blockbuster’s senior notes after stepping down as a director earlier this year, giving him a leading role in the talks. Blockbuster has been heavily damaged by internet competitors like Netflix — which, the FT adds, are increasingly benefiting from the ‘à la carteing’ of the media industry.

The great race (to the bottom)

Some further thoughts on the topic du jour — competitive currency devaluation and the race to the bottom.

In the wake of Tuesday’s FOMC statement, RBS FX analyst Gregg Gibbs reckons the chance of a major meltdown on the currency markets is increasing as investors seek the relative safety of higher growth regions — or ones that are not dropping notes from helicopters: Read more