For the commute home, have a great weekend:
Part I: Making sense of the odd payrolls report Read more
For the commute home, have a great weekend:
Part I: Making sense of the odd payrolls report Read more
Efforts by emerging market governments and central banks to shut out hot money to protect their economies are doomed to fail – or so says the hot money.
Bart Turtelboom and Karim Abdel-Motaal, who run the emerging markets hedge fund at GLG, now part of Man Group, represent $1.6bn of the “hot money”, politely known as portfolio flows, which has been causing such angst in emerging markets. Read more
Earlier, we considered whether the Republic of Greece is turning into a giant collateralised debt obligation.
This is because proposals to have the EFSF back a Greek government bond buyback appear to introduce some element of collateralisation to Greece’s debt. Although it’s all very complex – and we could be wrong. Read more
In early 2009, customers of AXA Rosenberg began complaining of ‘industry overexposure’ in their portfolios, according to an SEC order published on Thursday.
Fast forward two years and AXA — which was one of the pioneers of quant models for portfolio investments — has now been fined $242m by the US securities watchdog, for failing to disclose the discovery of a coding error in their investment model. Read more
Amazing stuff on Friday from Fine Gael, the party that’s likely to take power in Ireland’s elections later this month, on their policies for fixing Ireland’s bailed-out banks.
Live markets commentary from FT.com
Nonfarm payrolls likely grew by 145,000 in January, following December’s 103,000 gain — but recent snowstorms may throw the figures and jobless rates probably increased, according to Reuters’ survey of economists. The edging up of the jobless rate to 9.5 per cent from 9.4 per cent would do little to dissuade the Federal Reserve from ending quantitative easing too early. Bloomberg’s collation of forecasts ranges from a 5,000 decrease to a gain of 230,000.
European leaders are preparing to commit themselves to an overhaul of the eurozone’s sovereign bail-out fund that would increase its lending power and give it more tools to tackle the debt crisis, according to draft summit conclusions seen by the FT. Friday’s summit will commit to proposals being finalised next month, Reuters says. The draft does not include details of what form the changes will take, as they remain in dispute. “Let’s be clear: We are not in full agreement with our German friends,” said a senior French official. There’s one proposal still worth considering then, reports FT Alphaville: reducing the interest rate charged by the fund on its bailout loans to the sovereigns who ask for help.
Institutional Shareholder Services, the influential investor adviser, has backed an Apple shareholder proposal to make the company disclose its strategy for replacing Steve Jobs, Reuters reports. Apple said in a recent regulatory filing that it has a ‘comprehensive’ succession plan, but that to disclose it would give rivals an unfair advantage. Mr Jobs stepped away from Apple last month on medical leave, placing COO Tim Cook in charge. The proposal by the Central Laborers’ Pension Fund of Jacksonville, Illinois, is likely to gain more votes when it is put before investors at Apple’s annual meeting on February 23, the FT reports. The non-binding proposal by the fund would call on the board to make public reports each year on the state of its succession planning.
The quantitative investment firm Axa Rosenberg Group will pay $242m to settle SEC allegations that it failed to warn clients about a bug in its models that lost them millions of dollars, the WSJ says. The action is the first of its kind against quantitative funds. According to the administrative complaint, senior managers learnt in June 2009 about an error in the computer model’s code that disabled a “key component for measuring risk”, the FT reports. Rather than fix the error immediately, senior managers told others to keep quiet and let the error remain in the model unfixed, the SEC alleged. The error was introduced in the system in 2007 but the company’s chief executive only learnt of the problem in November 2009. Clients were told in April 2010.
There’s shareholder activism…
City institutions have catapulted a rebel investor into the chairmanship of one of the UK’s largest asset managers in a bold act of shareholder activism. Investors in F&C Asset Management, which manages £105bn of assets for 3m savers, voted overwhelmingly to oust Nick MacAndrew, chairman, and install Edward Bramson, ending a two-month battle between the two sides.
The Securities and Exchange Commission has opened an investigation into Rhode Island’s bond offerings, as the regulator steps up scrutiny of the $3,000bn market where states and municipalities raise money, the FT reports. A source said that the SEC was investigating state disclosure of liabilities and underfunded pension obligations to investors. Rhode Island’s general treasurer said that the SEC had provided no further details on the investigation for her state and that no requests for information had been received. The treasurer is already reviewing the state’s bond disclosures.
The Federal Reserve, Federal Deposit Insurance Corporation and other regulators are expected to propose on Monday that a high proportion of bonuses for senior executives at banks with more than $50bn in assets should be paid over at least three years, rather than in large annual cash sums, sources have told the FT. In addition to an emphasis on clawbacks and ‘holdbacks’, regulators also plan to force conservative compensation practices on junior staff in particular. Bank boards will be made to identify employees who could put their companies at “material risk” of failure and ensure that their pay is held back for several years, and cancelled if their trading or loans go bad.
A senior JPMorgan Chase risk officer was warned that Bernard Madoff had “a well-known cloud” over his head and was suspected of running a Ponzi scheme nearly 18 months before the New York broker was charged with presiding over a $19.6bn fraud, according to a newly unsealed court filing, reports the FT. The allegation is part of a $6.4bn lawsuit filed against the bank by Irving Picard, the Madoff victims’ trustee. The NYT has an indexed copy of the complaint. The complaint quotes emails from within JPMorgan urging that the bank assess the accuracy of statements made by Madoff, Reuters says. The first JPMorgan analyst to look at Madoff’s feeder funds said that its returns did not make sense as early as February 2006, notes the NYT.
Asset purchases by the US Federal Reserve do not cause rising food prices in countries such as Egypt, the central bank’s chairman Ben Bernanke said on Thursday, the FT reports. “I think it’s entirely unfair to attribute excess demand pressures in emerging markets to US monetary policy, because emerging markets have all the tools they need to address excess demand in those countries,” Mr Bernanke said. The problem is which tool. Bangladesh announced on Friday that it will speed up purchases of grain in order to stay ahead of prices. Indonesia, meanwhile, unveiled a surprise interest rate hike after eighteen months of easy policy, also in response to food price inflation, the Straits Times reports.
US officials say they are talking with Egyptian counterparts about making the country’s president quit immediately and replacing him with a military caretaker government, the NYT reports. With protests in Cairo and other Egyptian cities expected to grow in size and intensity on Friday, the Obama administration fears they may erupt into more widespread violence unless their main demand is met — the removal of President Hosni Mubarak, the FT says. Saudi Arabia and the United Arab Emirates have however insisted to Mr Mubarak that he stay on and oversee a longer transition, reports the WSJ. Brent’s move to $103 a barrel yesterday caps a fortnight in which the market has re-learned long-term fears over Middle East oil supply, Reuters says.
Hermès is to pay an interim dividend for the first time, boosting the efforts of family shareholders to hold off the stakebuilding by LVMH, the luxury goods company headed by Bernard Arnault, reports the FT. Hermes said it would pay an interim dividend of €1 on Feb 10, citing record net cash flow and pre-tax profits expected to be 40% higher than in 2009. Patrick Thomas, chief executive, said the interim dividend was unconnected with the planned creation of a family holding company into which most Hermès shareholders are to deposit shares, using the dividends to buy out other members. He spoke as the company announced a 25% increase in 2010 sales to €2.4bn ($3.3bn), or 19% in constant currency terms. Reuters meanwhile reports that LVMH is expected to announce a rebound in luxury sales when it reports earnings on Friday.
Moody’s and Standard & Poor’s have forecast another strong year of revenue growth, highlighting the continued profitability of the credit rating agencies despite sharp criticism over their role in the financial crisis, the FT reports. New regulatory requirements aimed at curbing conflicts of interest arising from their traditional business model have imposed extra costs on the agencies, but have so far not severely dented the practices which underpin the biggest groups. Moody’s on Thursday reported higher-than-expected earnings in the fourth quarter, with profits at $137.4m from $101.9m a year earlier. Earnings per share rose to 58 cents from 43 cents, higher than average forecasts of 48 cents per share. The results echo those earlier this week of S&P, part of media group McGraw-Hill.
Elliott Associates, the $17bn US hedge fund, has called for the resignations from the board of the chief executive and chairman of Actelion, the Swiss biotech company, in a push for a sale of the company, reports the FT. In a letter to directors on Thursday, Elliott, Actelion’s largest shareholder, said the board had made “little apparent progress” on concerns about the company’s “strategic direction and corporate governance”, adding that Actelion’s market valuation was as much as 50% below where it could be. Elliott said it would use its 6% stake in Actelion to force resolutions onto the agenda for the annual meeting on May 5. Actelion is valued at around $7.1bn and would attract “substantial interest” from big pharam companies “if it were to come up for sale”, bankers said.
Sweden’s government will sell up to 6.3% of Nordea, the largest Nordic bank, to institutional investors, marking the start of the disposal of its 19.8% stake in the bank, reports the FT. At Thursday’s share price, the stake would raise just over $3bn for the Swedish treasury. The sale, set for auction on Friday, would kick off a fresh round of privatisations by the centre-right government after its re-election last September. The Nordea stake has been high on the list of assets earmarked for sale but the finance ministry surprised investors on Thursday with its announcement. It will initially sell 200m Nordea shares, and may extend the offer to a further 55m shares. The WSJ adds the sale will reduce the government’s stake to 13.5-14.8% of the bank.
Raiffeisen Bank International has agreed to pay €490m ($668m) for a majority stake in Poland’s Polbank, highlighting the emerging Europe-focused lender’s push into central Europe’s largest economy, reports the FT. RBI said it would acquire 70% of the Polish retail and SME lender from Greece’s EFG Eurobank Ergasias and would then merge it with RBI’s existing corporate banking franchise. Eurobank will remain a minority shareholder in the merged entity, which will become Poland’s sixth-largest commercial bank by assets.