Posts from Monday Feb 14 2011

Further further reading

For the commute home, and to help plan your next financial disaster country tour,

– Big news out of US bankruptcy court that a judge has ruled that MERS cannot legally transfer mortgages (HT Ritholtz). Read more

Turkish Airlines stake primed for sale

Turkey is preparing to sell a further stake in Turkish Airlines, cashing in after a period in which the flag carrier has expanded rapidly by using Istanbul as a hub for transit between Europe and the Middle East, reports the FT. The privatisation agency will hear bids to advise on the sale on Tuesday, according to a banking source. The agency last month said shortlisted bidders included consortia led by Citigroup, Credit Agricole, Goldman Sachs, HSBC, UniCredit and UBS.

Grohe to snap up China rival

German sanitary fittings maker Grohe is buying its largest Chinese rival in a move aimed at tackling product piracy by Chinese companies, reports the FT. The maker of premium bathroom and kitchen fittings announced on Monday that it would launch a tender offer for all outstanding shares of rival Joyou, leader by sales in its home market of China.

Stocks resume rally as Egypt turmoil eases

The end of Hosni Mubarak’s regime in Egypt sparked a relief rally in global stocks, but not all was sanguine in global markets as traders priced in the risk that Egyptian’s success in ousting their leader could inspire movements elsewhere, reports the FT’s global market overview. The FTSE All-World index is up 0.5 per cent and commodities are firmer as traders welcome an easing of tensions in Egypt and get back to assessing what they see as improving fundamentals for the global economy. The price of insuring defaults in the government debts of Egypt and Bahrain were up double digits, with small increases for Tunisia and Morocco as well. Egyptian credit default swaps were up 16 basis points to 330bp, meaning it costs $330,000 to insure $10m of debt, according to Markit. Bahrain CDS rose 10 basis points to 245bp. The price of oil has pushed past $103 a barrel on the news, while US Treasury bonds and the US dollar – the ultimate risk “safe havens”, along with gold – are also in demand in spite of the rally in equities.

China economy overtakes Japan

China replaced Japan as the world’s second-largest economy in dollar terms last year, Japanese data have confirmed, a long-awaited event that underscores Beijing’s rapidly growing global clout, reports the FT. In Japan, which had basked in the status of number two in global economic terms after the US for more than four decades, government leaders welcomed the passing of the baton as a reminder of the opportunities presented by China’s modernisation.

China trade surplus drops as imports rise

China’s trade surplus fell last month to its lowest level since April 2010, as commodity prices pushed China’s imports close to record levels, reports the FT. The trade surplus fell from $13.1bn in December to $6.5bn in January, a reduction likely to be welcomed in Beijing ahead of the meeting of G20 finance ministers in Paris later this week.

Indian inflation eases despite food price rises

India’s headline inflation eased in January, but not sufficiently to rule out the possibility that the country’s central bank will raise lending rates again next month, reports the FT. Figures released on Monday showed that the wholesale price index had risen to a year-on-year rate of 8.23 per cent last month compared with 8.4 per cent in December. The data provide scant relief for the government, which forecasts that inflation will dip to 7 per cent by the end of March.

Suu Kyi warned over sanctions support

The Burmese junta has warned Aung San Suu Kyi, the opposition leader, that she and her party “will meet their tragic ends” unless they change their stance on the lifting of western sanctions, reports the FT. Ms Suu Kyi and the National League for Democracy have called for European Union and US sanctions to remain in place, enraging the ruling generals, who appear to have hoped that last year’s elections would open a new era in international engagement in spite of allegations of wholesale ballot rigging.

User fees and CFTC funding

On page 1202 of 1364 in the appendix to the White House’s FY 2012 Budget is a Valentine offering to the CFTC (H/T Bloomberg):

Additionally, the Budget proposes to fund CFTC non-enforcement activities through user fees. This user fee proposal brings the CFTC into line with all other Federal financial regulators, which are funded in whole or in part through user fees. Subject to enactment of authorizing legislation, the Budget offsets $117 million of FY 2012 funding with fees imposed on the regulated community.

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Largest bond fund cuts US government holdings

The world’s largest bond fund sharply cut its exposure to US government-related debt in January, before US bond yields rose this month to their highest level in almost a year, reports the FT. Pimco’s Total Return Fund, run by Bill Gross, a founder of Pimco, reported that its holdings of US government-related securities fell from 22 per cent in December to 12 per cent in January.

Obama urges corporate tax reform

President Barack Obama called on Congress to immediately embark on an overhaul of the US corporate tax code, as he laid out a $3,730bn budget request designed to bolster America’s standing in the global economy and start shrinking its large fiscal gap, reports the FT. While signaling that tax reform could take several years, and was a painstakingly difficult process, the White House said it was necessary to transform a system that “makes our businesses and our economy less competitive as a whole”.

Hundreds of thousands march in Tehran

Iranian security forces clashed with protesters as hundreds of thousands marched in Tehran on Monday in the biggest rally by the opposition Green Movement for more than a year, reports the FT. Police used teargas in an attempt to disperse the vast numbers as opposition supporters took to the streets to express solidarity with the recent uprisings in north Africa. The crowd – whose size far exceeded the predictions of most analysts – assembled despite threats by the Revolutionary Guard in recent days to crush any gathering. At least 20 politicians and journalists were arrested before the rally.

Private equity: tilting and growing (again)

Having duly warned you of the risks that come with private equity investing in emerging markets, it’s time to pass along EMPEA’s full-year 2010 statistics for EM investment and fundraising.

If the subject matter doesn’t get your juices flowing the way it does ours, here’s the three-point summary: Read more

Consumer surveys don’t predict inflation

Time to unburden ourselves of a long-withheld complaint ahead of this Thursday’s release of the January CPI numbers.

Here’s a chart comparing 12-month inflation expectations in the Reuters/University of Michigan consumer confidence survey (updated last Friday) against actual 12-month changes in the CPI (both headline and core): Read more

The Justice League

Justice sold for £900m on Monday:

Justice, a British Virgin Islands incorporated company founded by Nicolas Berggruen, Martin E. Franklin and William A. Ackman, is pleased to announce the results of its successful IPO by way of a placing of Ordinary Shares (the “Placing”)…

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Moody’s to operate on bank debt uplifts

Proponents of CoCos, bridge banks and bail-ins rejoice!

Moody’s announced Monday that it was analysing the impact of new resolution tools on its rating of subordinated bank debt. As surely you must know, since the financial crisis governments have shifted slowly away from full creditor protection and towards a bit of burdensharingRead more

Household deleveraging continues, sort of

From the FRBNY’s Q4 report on household debt and credit:

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The FY2012 “Budget”

The White House’s FY2012 budget is out:

This is, of course, just a proposal — it’s now up to Congress to amend, appropriate and approve. That’s the theory, anyway; we’re still waiting for that FY2011 budget and the next extension for a continuing resolution to, um, fund the government runs out on March 4. Read more

What Ireland’s secret liquidity costs

By this point, we know a few things about how Irish banks are getting emergency liquidity assistance from their national central bank (even though officially, this is all rather hush hush).

The ‘penalty’ rates on this assistance, for instance. (Low, compared to ELA elsewhere.) A possible exit strategy for ELA, too. (And on which, further key details here.) Read more

China’s vanishing forests?

… We like CF for two major reasons. First, CF has a strong competitive edge, brought by the experience of its management team. CF was among the first wave of private companies that entered into China’s forestry industry and has successfully developed during the past 7 years, it has the know-how in doing business with local governments, which aids first-move advantages in acquiring resources. The management team have also built an operating system designed to harvest and replant trees, financed by CF through IPO and high yield bonds as well as the developing of core customers such as the China Packaging Group. The 2nd reason why we like CF is that we believe China’s timber production will not meet consumption in the future. Investors could share in the benefit of rising log prices through investing in CF …

That’s Zhang Yang at SWS Research initiating coverage of China Forestry with a ‘buy’ back in November. And here’s how shares of the Hong Kong-listed company have performed: Read more

London’s burning, fetch the engines

Do we have another UK support services blow-up on our hands?

Very possibly. Read more

Markets Live transcript 14 Feb 2011

Live markets commentary from 

A tale of two tech companies

As the share price of Nokia continues to sink in the wake of Friday’s distinctly underwhelming tie-up with Microsoft…

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Credit Suisse places $6.2bn in contingent capital

Credit Suisse has announced that it will issue $6.2bn of contingent capital notes, debt that will convert into equity at a certain trigger point, reports FT Alphaville. Qatar Holding LLC and Saudi Arabian conglomerate, the Olayan Group, two of the Swiss bank’s biggest investors, will receive some notes in exchange of existing hybrid debt issued by Credit Suisse. Only Swiss regulators have so far explicitly backed cocos, in plans to make Credit Suisse and UBS issue billions of dollars worth of the bonds by 2019 to provide an extra capital buffer, the FT reports, noting that the sale will be watched closely by the market for signs of interest in the products.

Sovereign wealth funds sought for AIG sale

The US government and AIG want to entice sovereign wealth funds to buy a large portion of the authorities’ sale of up to $20bn-worth of shares in the insurer, people close to the situation have told the FT. People familiar with the government share sale, which is expected to take place in May, said the government, AIG and their advisers had begun informal contacts with sovereign funds in Asia and Europe. Singapore’s Government Investment Company and China Investment Corporation are among the funds on the US authorities’ list, according to people close to the sale. Sovereign funds’ response to the US authorities’ entreaties will be a gauge of their renewed interest in the US financial sector, especially because after divestments AIG is largely a domestic company.

Japan’s savings rate about to go negative, Goldman says

Japan has just announced that its national savings rate rose to 5 per cent in 2009, from 2.2 per cent in 2008. But already some analysts are predicting a sharp reversal in the trend. Goldman Sachs’ Chiwoong Lee thinks the rate is about to turn negative.

From a Monday note: Read more

Apple working on iPhone Lite

Apple is working on an iPhone prototype that is half the size and far less expensive than its latest model, the iPhone 4, the WSJ reports. The new iPhone could be sold to carriers for around half current prices, which are $625 per phone on average. The pricing would allow carriers to subsidise almost all of the phones’ cost, placing iPhones in the mass market bracket for the first time. People familiar with the matter also said that Apple will overhaul MobileMe, its cloud-computing offering, in time for release with the new iPhones this summer. MobileMe could become free and available for storing iTunes music and video, the sources added.

Obama to reveal $1,100bn cuts plan

Barack Obama will on Monday propose slashing the federal budget deficit by $1,100bn over the next ten years, an administration official has told the FT. Precise details of the budget for the fiscal year 2012 are still under wraps, but officials said two-thirds of the deficit reduction would come from lower spending, including a five-year freeze on discretionary programmes unrelated to national security and defence that would save $400bn through to 2021. The plan falls some way short of bipartisan commission recommendations last year that $3,900bn in cuts be found.

Chinese GDP surpasses Japan’s, trade surplus drops

China is officially the world’s second largest economy, pushing Japan into third place, reports the WSJ. Data released on Monday confirmed that Japanese GDP totalled $5.47 trillion – versus $5.88 trillion reported by China in January. US 2010 GDP stood at $14.66 trillon. Also on Monday, data showed that China’s trade surplus fell in January because of soaring import demand, a reduction that eases pressure on Beijing ahead of the G20 summit in Paris later this week, the FT reports. The trade surplus fell from $13.1bn in December to $6.5bn last month, the lowest surplus in nine months, as a result of stronger-than-expected imports.

GE buys John Wood unit for $2.8bn

General Electric will pay $2.8bn for the well-support division of John Wood Group, the UK oil services company, continuing its drive to expand in the energy industry by acquisition, the FT says. The deal is the fourth acquisition for GE’s energy business in recent months, taking its total spending to $7.5bn, as the group seeks to reduce its dependence on its financial arm, GE Capital, and strengthen its position in industrial and infrastructure markets. “Five years ago, our revenues from oil and gas drilling and production equipment were zero. Now, out of nowhere, we are a force to be reckoned with,” said John Krenicki, chief executive of GE’s energy business.