Posts from Friday Sep 24 2010

Random economics

As we sometimes enjoy closing out the week with a bit of brainy fun, today we pass along three unconventional items from the fringes of economics and finance.

First up is a new paper, summarized at VoxEU, which finds that “countries with a more individualist culture have more innovation, a higher level of total factor productivity and higher long-run growth than countries with a more collectivist culture.” Read more

Citi sued by Norwegian central bank

Inevitable, really. Though we wouldn’t have expected the staid Norwegian central bank to be the first (?) to take up legal arms.

After the US Securities and Exchange Commission exposed Citi’s super senior subprime slip — in which the bank misled investors over its subprime exposure between July and October 2007 — now come the lawsuits. Read more

An intriguing pick-up in Treasury settlement fails

Some curious developments in the US Treasury market to report.

First, there’s been a relatively strong burst of settlement failures in the US Treasury repo market in the last week. Read more

The price of bear insurance

One of the ways you could criticise many of the über-bears in the market is that — while they’re good at prognosticating doom — they just don’t explain well enough what investors should do to avoid it.

So kudos to Société Générale economist Dylan Grice on Friday. Read more

The replacement of Larry Summers

The bitching and moaning in Washington about a likely replacement for Obama economic adviser Larry Summers is all getting a bit — well, bitchy. Lex on Friday notes speculation about potential candidates to replace Summers, who will leave the White House after the November midterm election to return to Harvard.

And, horror of horrors, it says in breathless tones: Read more

A loser’s nightmare in Europe’s debt auctions?

Did anyone else puzzle over the results of Ireland’s T-bill auction on Thursday?

The sale, after all, failed to secure the maximum amount sought, despite being extremely well covered: Read more

Ireland fights pessimism. Leaves budget in peace.

Wandering around Dublin this Friday? Got a spare few hours and €55? Tired of all the doom and gloom surrounding Ireland’s economy, and proffered on sites such as this one?

Then you might be interested in the below: Read more

Would you buy bonds from this man?

Presenting John Corrigan, head of the Irish National Treasury Management Agency:

RTRS-IRISH DEBT AGENCY CEO SAYS MKT CONCERN ABOUT FUNDING CHALLENGES OF IRISH BANKS IS LIKE EARLIER HYPE ABOUT “MILLENNIUM BUG” Read more

Markets Live transcript 24 Sep 2010

Live markets commentary from FT.com 

When Anglo Irish bonds are liability managing

This week, the prospect of an Anglo Irish debt ‘liability management’ exercise burst into the market’s consciousness.

Anglo Irish anguish
 Read more

BHP gets first clearance for Potash bid

The Federal Trade Commission has given antitrust clearance for BHP Billiton to continue its $39bn hostile takeover bid for PotashCorp, Reuters reports – although it’s perhaps the easiest obstacle BHP has been facing recently. The Canadian fertiliser-maker’s shareholders present a much tougher hurdle to vault, with PotashCorp’s US shares trading at an 11 per cent premium to the offer as it currently stands from BHP — not to mention possible Chinese moves to construct a counter-bid. At the same time, another miner is moving closer to China, the FT says — Vale, the Brazilian mining giant, plans to list shares in Hong Kong as the company seeks closer ties with Chinese investors.

Obama urges Wen to act over renminbi

President Obama has pressed Beijing to do more on currency policy, protect intellectual property rights and guarantee “fair treatment” for American companies, at a meeting with Chinese premier Wen Jiabao, the FT reports. Mr Obama told Mr Wen that currency policy was “the most important issue” in their discussion, administration officials said. But the President is forgetting that the dollar, too, is cheap, Reuters says — meaning that any compromise on currencies will likely have to be global in nature. Nor is the US trade deficit a creature of currency manipulation: Americans are still buying European cars even as the euro rises against the dollar. FT Alphaville, meanwhile, sees not compromise but a global race to the bottom.

Stock pickers shredded by macro

Another chapter in the correlation saga. Stock pickers are giving up, the WSJ reports — with only 24 per cent of mutual funds focused on growth companies now beating growth indices this year, compared to 50 per cent on average between 1995 and 2007. Hence the rise of macro-oriented mutual funds and macro hedge funds to take advantage of way in which macro events now move stocks together in tandem. But those funds have their own problems — as it remains hugely difficult to predict and time macro events. Of course, they’re not the only funds seeing disappointing returns, with a new study revealing that a majority of private equity investors received market returns at best from 1980 to 2005, the WSJ adds.

General Motors offering cut down to size

General Motors’ initial public offering will be smaller than has been suggested, while the government will likely sell a relatively small part of its giant stake in the auto-maker, sources have told the NYT. GM now plans to offer between $8bn and $10bn, the sources said. That would be somewhat below predictions that GM would rival Visa’s $19n offering in 2008, the largest in US history — bankers to GM having pushed a higher offering in order to get fees, the NYT adds. By contrast, the Treasury has indicated to GM that the government is more concerned to secure the highest possible price for its own stocks than to send a large offering to market.

Yen falls on talk of more intervention

The dollar spiked above Y85 in late Asian trading as rumours swept the market that Tokyo was once again intervening in the currency market to curtail the Japanese unit’s strength, the FT reports. The Tokyo authorities refused to confirm any intervention had occurred — which is just as well, as it is clear that if indeed intervention did take place, the Japanese Ministry of Finance will be disappointed by the bang it got for its buck. The yen was down just 0.4 per cent at 10am UK time. The Bank of Japan may simply have spooked the market rather than intervening, FT Alphaville observes — but the bank’s inimically inscrutable attitude makes it hard to tell.

Disney interactive chief to step down

Steve Wadsworth, one of Walt Disney’s longest-serving senior executives, is to resign as head of the company’s interactive media group after more than a decade running the unit, the FT reports. Since Mr Wadsworth became president of Disney’s internet group in 1999, it has become one of its most closely watched units — but has struggled to become profitable, even despite a 2007 overhaul. Disney Interactive Media Group has launched interactive simulations, online role-playing games, and recently expanded into social networks, highlighting the problems media conglomerates have in capitalising upon new media, the WSJ adds.

HSBC’s Geoghegan going, going, gone

Michael Geoghegan is to step down as chief executive of HSBC at the end of the year, two people close to the bank’s board have told the FT. He will be replaced by Stuart Gulliver, head of the group’s investment bank — while Douglas Flint will take over as chairman from Stephen Green, who is due to join the UK government. HSBC’s succession process has surprised observers with the extent of the boardroom rifts it has revealed, as well as reaching a different outcome than that expected. That outcome also marks the victory of the bank’s Hong Kong side against London, the FT’s John Gapper argues. The bank’s strong emphasis on China and emerging markets is indeed only likely to be strengthened, Reuters adds.

Louis Dreyfus and Olam in $15bn merger talks

Louis Dreyfus, the French family-owned commodity trader, is in merger talks with Singapore-listed rival Olam International to create the world’s third-largest agricultural trader, the FT reports. Olam said that the two companies’ discussions were still preliminary. However, if a deal is made, it would create the commodity market’s largest trader in cotton, coffee, and rice — including formidable presence in wheat and corn. Both Olam and Louis Dreyfus have moved in recent years to add more profitable production assets to their pure trading activities, seeking to take advantage of future regional imbalances in supply and demand in agricultural products.

Petrobras offering raises $70bn

Petrobras, Brazil’s national oil company, has raised about $70bn in the biggest share issue in corporate history, the FT reports. A source familiar with the matter said the sale had total demand of $87bn — including ‘tremendous’ demand from US mutual funds, Reuters reports. Asian and Middle Eastern sovereign wealth funds were among the estimated $30bn worth of bids from institutional investors. However — many of those investors will have been forced to buy in order to avoid going underweight against benchmark indices for emerging markets, the FT’s beyondbrics observes; and there are still plenty of concerns over state interference in the oil company.

Yen intervention redux: did they or didn’t they?

The yen suddenly weakened again on Friday – after four days of fairly solid gains – igniting the FX intervention rumour mill (again):

 Read more

Big Brother is watching/listening/scoping

Related link:
FSA presses for crackdown on leaks to media – FT

The IBC’s six degrees of (banking) separation

The future of the British banking sector, might just be right here

On Friday we get the trailed publication of the UK Independent Commission on Banking’s so-called ‘Issues Paper’ and call for evidence. It’s 68 pages of rip-roaring industry stuff, but we’ve picked out the more interesting “reform options” for you below. Read more

Further reading

Elsewhere on Friday,

- A September slowdown in trading. Read more

Pink picks

Comment, analysis and other offerings from Friday’s FT,

John Varley: Casino jibes do UK banks no justice
The subject of bank reform is topical, writes Varley, chief executive of Barclays. As the past days have shown, a debate rages. So complex and abstruse is much of the post-Lehman reform agenda that it is easy to lose sight of the wood because of all those eye-catching prudential, systemic, counter-cyclical and risk-adjusted trees. So it is worth asking: what do citizens and bank customers want to come out of the reform programme? Read more

Snap news

Breaking pre-market news on Friday,

- Independent Banking Commission says options include separating investment and retail banking — statementRead more

Electronic trading slowdown alert

A continuing decrease in trading volume reported by the US’s largest electronic trading groups such as ITG, Knight Capital and Charles Schwab has prompted analysts to warn that the fall in activity might be more than a seasonal phenomenon, reports the FT. A record-long streak of outflows from equity mutual funds – now 20 successive weeks from May 1, according to the Investment Company Institute – and uncharacteristic reluctance by hedge fund managers to take big bets suggest there are other factors at work. Data from Ticonderoga Securities, compiled last week, show that trades for the trading industry are down 8% so far in September from August, when trading fell to a three-year low.

GSK hit by Avandia ban

International regulators dealt a huge blow to GlaxoSmithKline by imposing a near-blanket ban on sales of Avandia, the UK pharmaceutical group’s top-selling diabetes drug, reports the FT. The move was expected by financial markets after long-running concerns over the drug’s links to heart attacks and strokes. But the different responses taken by US and European regulators risked confusion. The European Medicines Agency ruled on Thursday that sales of Avandia – also known as rosiglitazone – should be suspended, while America’s FDA said it would “significantly restrict” Avandia’s use while authorising future prescription through a special programme. But, notes The WSJ, the result will be similar to an outright ban.

BHP clears first hurdle on Potash bid

BHP Billiton has cleared the first regulatory hurdle in its bid for Canada’s PotashCorp but any potential deal still faces regulatory obstacles, particularly in Canada, reports Reuters. The Angl0-Australian miner said on Thursday it had received antitrust clearance from the US Federal Trade Commission to proceed with its $39bn bid for PotashCorp. However, BHP stressed, the offer is still contingent on other regulatory approvals. Separately, reports Bloomberg, BHP and joint-venture partner Apache Corp said on Friday they would develop the $1.5bn Macedon natural gas project in Western Australia to meet rising fuel demand from the state’s mining industry.

KNOC to update on Dana stake

State-run Korea National Oil Corp will on Friday brief the market on the total stake it has acquired in Dana Petroleum as it nears completion of its hostile $2.6bn bid for the UK-listed oil and gas explorer, reports Reuters. Last week, KNOC reported it bought a 29.5% stake in Dana, after saying in August it had secured non-binding letters of intent to accept its bid from around 49% of shareholders. The KNOC/Dana deal, if successful, would be the biggest hostile acquisition by a South Korean firm and biggest deal for KNOC, which purchased Canadian group Harvest Energy last October for $1.7bn.

Crackdown on eurozone public finances

Member countries of the eurozone would be forced to pay punitive fines if they did not keep their public finances under control, under radical proposals put forward by Olli Rehn, the European commissioner for economic and monetary affairs, reports the FT. The proposed legislation would levy fines equivalent to 0.2% of GDP of eurozone members who consistently fail to reduce their public debt levels. Other penalties could also be imposed on states that fail to control annual spending or fail to reform their economies to improve competitiveness, according to documents seen by the FT.