Some highlights from Monday’s FTfm.
Bank-owned funds used as props
Bank-owned asset managers systematically use investors’ money to prop up the share price of their parent company in the wake of significant falls in the stock price of the bank, an academic study has found, but do their actions constitute illegal price support? Read more
Some financial ghoul links for Halloween:
– 13 money-themed costumes for Halloween. Read more
FT Alphaville presents a guest post by Sean West and Helen Fessenden, US political risk analysts at Eurasia Group, a political risk research and consulting firm. The views expressed are strictly their own.
Taxpayers, investors, and businesses hoping that the Bush tax cuts will be quickly extended once the election is in the rear-view mirror have another thing coming: It is more likely than not that the tax cuts will expire in January. Read more
We’ll have more next week on the elections and their potential impact on the markets, but for now we’ll pass along some thoughts from the strategy team at RBS — thankfully free of the silliness that often accompanies analyses of this kind.
First a quick primer: Read more
British readers of a certain age will remember the practice of carpet-bagging building societies — open a series of savings accounts in societies that were likely to demutualise, and then scoop up free stock when the institution converted.
Everyone did it. Well, everyone that had 500 quid to their name. And if you didn’t have 500 quid (like if you were, say, 15) chances are a parent or other relative would open an account or two in your name so you could play the game. Read more
We’d have loved to have been a fly on the wall in the Columbia Business School Investment Banking Club meeting where someone decided (and convinced everyone else!) that sending this email was a good idea — via Brainiacs:
To: [IBC Members] Subject: [IBC] Personal hygiene Read more
You already know that US corporates have been saving their retained earnings as cash this year, while the IG-bond rally has been driven increasingly by companies taking advantage of the debt-equity arb.
In other words, the one thing non-financial corporates have not been doing with their cash is spending it on labour and capital. Read more
They are the ultimate consensus trade inside the ultimate consensus trade.
They are consumers in China. Read more
Foreclosure fraud! Robosigning! Repurchases!
How, as Mike Konczal noted a couple weeks ago, did mortgage servicers get it so wrong? Read more
When does robust punditry cross over into downright rudeness?
Answer: when the New York Times’s Paul Krugman starts picking on some poor analyst from the International Energy Agency. Read more
Barclays Capital economists Pietro Ghezzi and Antonio Garcia Pascual have moved peripheral bond markets once before.
They pointed out in September that Ireland was in danger of falling behind on making its fiscal cuts work, considering a poor outlook for growth in the coming years. That caused Irish spreads to widen even more, amid existing tension over Anglo Irish’s bailout. Read more
Something of a scrap has broken out between Nouriel Roubini and Clusterstock’s Joe Weisenthal on the back of Friday’s bang-on-expectation Q3 US GDP release.
Actually, it seems more of a defensive back-peddling strop on Roubini’s part. Read more
This is a chart from the latest edition of the European Mortgage Federation’s monthly newsletter showing the yield differential between unsecured senior bank debt and covered bonds:
More UK double-dip food for thought, this time courtesy of the Bank of England.
The Bank’s lending data for September show net mortgage lending stalling (click to enlarge the chart): Read more
The US economy grew exactly as analysts predicted in the third quarter. Though likely not as much as the Federal Reserve wanted.
GDP expanded 2 per cent on an annualised basis, according to flashes via Reuters: Read more
Something’s afoot in the Mortgage-Backed Securities (MBS) market.
After this week’s drop-off in secondary market trading for private-label residential MBS, comes Friday’s news that MBS trade settlement failures reached a record: Read more
Either Willem Buiter is setting out to shock, or he really is worried about Japanese deflation this time. Read more
If you’re a China-based bank you might have received this in your inbox on Thursday — from the Hong Kong Monetary Authority (HKMA):
——– Read more
Live markets commentary from FT.com
Why is Banco Santander looking to float 20 per cent of its UK business at a much reduced valuation of £16bn?
The answer is because it needs to, reckons Andrew Lim of Matrix: Read more
China’s export embargo on rare earth minerals has ended as mysteriously as it began, reports the NYT. Exports have resumed despite official silence on why the embargo was lifted — or why it was made in the first place, with shipments to the US and Europe suddenly stopping early last week. Japanese-bound exports have also resumed having been frozen in September, although some disruptions remain. Here’s one explanation — exports restarted just before Secretary of State Hillary Clinton called for the US and its partners to reduce their dependence on Chinese production. They’re some of the most forthright comments made on the topic by a senior American official, the FT says.
General Motors will repay $2.1bn of its $49bn bailout bill to taxpayers and shore up holes in its pension and retiree health funds as it seeks to convince investors ahead of its IPO, the NYT reports. GM will raise the $2.1bn buying back some of the federal government’s preferred stock, taking the total of its bailout costs repaid so far to $9.5bn. Around $6bn in contributions will take GM’s unfunded pension obligations to a mere $20bn, while $2.8bn will be paid to a health care trust. GM has also arranged a $5bn facility of ‘backup liquidity’ from banks, Reuters adds. So is GM on the road to being fixed? Not exactly, says the WSJ. GM has some weaknesses in its future product lines even if it mends it balance sheet.
Independent Strategy have never been ones to mince words.
On Friday they’ve tackled the thorny issue of currency wars and global imbalances. It’s a topical debate given that US Treasury secretary Tim Geithner suggested earlier this week that G20 members (ahem, China) restrict their current account surpluses to no more than 4 per cent of GDP, to help alleviate certain unevenness. Read more
Lions Gate Entertainment is suing Carl Icahn, the activist investor who is one of its largest shareholders, alleging that he violated securities laws and misled investors about his intentions regarding a merger between the company and the Metro-Goldwyn-Mayer film studio, the FT reports. The two sides had previously joined forces in making the merger proposal, which follows MGM turning to creditors after being crush by its debt burden. The creditors will vote on a debt-for-equity restructuring plan on Friday. Lions Gate accuses Icahn of wrecking a previous merger proposal with public criticism, even as he built up large positions in MGM debt. As the WSJ previously reported, other MGM creditors’ positions are still large enough to force Icahn into a stalemate over his rival plan.
Get ready for a blockbuster seven days in the market, says FT Alphaville — next week brings the US mid-term elections, the FOMC’s likely QE2 decision as well as policy meetings at the Bank of Japan, the Bank of England and the ECB. If anything, the elections may be the least market-moving of the week’s events, with all eyes on the Federal Reserve’s stimulus measures instead. A wave of poor industrial activity data from Asia are encouraging traders to trim bets on growth-focused assets before Friday’s main event of US Q3 GDP, says the FT. The economy is forecast to have grown 2 per cent on an annualised basis, ahead of 1.7 per cent growth in the second quarter but still far from enough to tackle high unemployment, reports Reuters.
Halliburton had largely escaped the taint of the Gulf of Mexico oil spill and had recently seen its stock rise higher than it was before the accident, Lex says. No longer. Halliburton’s shares fell 16 per cent after investigators announced that the company had known along with BP that cement used on the Macondo well was unsafe weeks before it exploded, the FT reports. The company previously said the cement complied with industry standards, the NYT adds, which raises questions even though the investigation does not pin the disaster solely on the cement job. The consequences of the report for the two companies are unclear. Halliburton may not have reported the faulty cement findings to BP in the first place, the WSJ says. BP shares were up in London trading on Friday, Reuters reports.
A hectic seven days for global markets just got even busier.
Via Reuters: Read more
Canada’s PotashCorp has reported a 62 per cent jump in profit just as the Canadian government prepares to rule on whether BHP Billiton’s $39bn takeover offer can proceed, Reuters reports. Shares in Potash fell after the Globe and Mail reported that politicians from the company’s home province were succeeding in convincing the government to drop the deal. As a source close to BHP told the paper: ‘I think we’re going to get screwed’. However, sources have also told the FT that the government is concerned to remain investor-friendly, and thus favours going ahead with the deal. Potash’s profit will nevertheless allow it to bolster its defence and argue that BHP’s price is indeed too low, the paper adds. There is still no sign of a rescue counter-bid however, reports Bloomberg.
Microsoft has announced a 51 per cent increase in net come for the first quarter of FY2011, thriving on its cash cow software products Windows and Office, according to the WSJ. But is it all good news? Microsoft has shown that it remains a cashflow machine — but the results are flattered by comparing them with last year, when demand was just emerging from recession, says Reuters. Microsoft has also joined other big tech companies in relying upon revived corporate demand as individual customers stay away, Bloomberg observes. Then there’s the Cupertino, California-based elephant in the room. Apple’s revenues of $20.34bn have soared past Microsoft’s $16.2bn, notes TechCrunch.
Why was Hugh Hendry trending on Twitter Thursday night?
Because the outspoken hedge fund manager made something of a splash on Question Time — the BBC’s townhall-style debate show. Hendry’s thoughts on finance and the global economy turned out to be his least controversial statements of the night. Read more