Posts from Thursday Mar 3 2011

Further further reading

For the commute home, or while marking your over/under on tomorrow’s payrolls number,

- Banks’ litigation losses in tabular form. Read more

Yunus fights dismissal order

Bangladeshi microfinance pioneer Muhammad Yunus has gone to court to challenge the legality of a central bank order dismissing him as head of Grameen Bank, the trail-blazing micro-lender he founded, reports the FT. In a petition to the Bangladesh high court, Yunus argued that Bangladesh Bank – the central bank and regulator – lacked the authority to remove him from the helm of the microlender. Nine members of the Grameen bank board – elected by the institution’s more than 8m poor female borrowers – expressed support for Yunus in a separate petition to the court. Yunus and his supporters hope the court will issue a temporary stay to prevent Bangladesh Bank from enforcing its order removing Yunus as managing director of Grameen. The court is not expected to make any judgment until Monday.

Japan in push to build infrastructure in Vietnam

Tokyo’s overseas aid agency is to team up with Japanese companies to build a Y140bn ($1.7bn) port in northern Vietnam and is considering a possible Y300bn project to develop a large airport to serve the southern commercial hub of Ho Chi Minh City, the FT reports. The port project will be one of the first public-private partnership deals in Communist-ruled Vietnam, underscoring Tokyo’s determination to make better use of state financing to win its companies a bigger role in infrastructure development by Asian neighbours. Officials cite data suggesting that in Asia alone, spending on electricity provision, transport, telecoms and water sanitation will total about $750bn a year over the next decade. The Japan International Co-operation Agency expects to sign an agreement before the end of April for the first tranche of what is planned to be Y120bn in loan financing for development of the Lach Huyen Port, a Jica official said.

Top court ousts India’s anti-graft chief

The Indian government suffered another blow after the Supreme Court struck out the prime minister’s controversial appointment of the country’s anti-corruption chief, reports the FT. The Supreme Court decision on Thursday came as Manmohan Singh’s government tried to regain the initiative and inject energy into its stalled economic reform agenda by approving steps towards greater banking liberalisation. The ruling by a bench led by Chief Justice S.H. Kapadia over the appointment of P.J. Thomas, chief of the Central Vigilance Commission, ends weeks of intense pressure on him to resign amid corruption allegations surrounding the Congress-party led government. Leading opposition parties and the Supreme Court had challenged the suitability of Mr Thomas to investigate irregularities surrounding the award of 2G telecoms licences two years ago, which an official audit has claimed lost the national exchequer as much as $39bn.

Stocks firmer on US jobs optimism

Stocks are making strong gains and government bonds are seeing sharp losses, as traders suddenly shed their obsession with $100-a-barrel oil and turmoil in the Middle East, preferring to focus on better US jobs and service sector data, the FT reports. Higher interest rates in the core sovereign bond complex and a flattening of the yield curve – often a bearish sign for equities – following hawkish comments from European Central Bank president Jean-Claude Trichet, are damping bull’s ardour. In a sign monetary policy remains fraught with contradictions, core and peripheral eurozone equities went in opposite directions as traders reckoned any hike in the bloc’s interest rates would harm the likes of Spain and Italy. The broader market has decided not to be fussed with such matters, nor that the coming session on Friday tends to be troublesome, as recently it has coincided with the weekly peak of civilian unrest across the Middle East. The FTSE All-World index is up 1.2 per cent and gold down nearly $20 from its record close after oil prices nudge slightly lower. The Swiss franc is down nearly 1 per cent to SFr0.9319 to the US dollar. News that weekly US initial jobless claims had fallen 20,000 to 368,000, the lowest since may 2008, is also supporting sentiment, as is an upbeat US ISM non-manufacturing survey. The S&P 500 on Wall Street rose 1.7 per cent.

Foxconn to move China jobs inland

Foxconn Technology will transform its south China manufacturing hub into an engineering base and move 200,000 jobs to cheaper inland provinces in a further sign that the region’s days as a low-end production centre are numbered, reports the FT. The world’s largest contract electronics manufacturer employs 1m people in China. About half its workforce is based at two huge factory complexes in Shenzhen, near Hong Kong. “Shenzhen will probably be our largest site in China for quite some time to come,” Louis Woo, special assistant to group chairman Terry Gou, told the Financial Times. “But the goal is to eventually move all of the actual mass manufacturing to other sites. We will make Shenzhen an engineering campus where we do pilot production only.” Foxconn, a unit of Taiwan-listed Hon Hai, began its move to less developed regions of China last year, after a series of suicides among its Shenzhen workforce. The company responded to the crisis by raising wages – a trend that was reinforced last year after pay-focused strikes at a number of Honda factories in south China.

The reemergence of cov-lite loans

FT Alphaville noted last week that Citi analysts were predicting a return to the heady pre-crisis levels of leveraged buy-outs.

But, they argued, this time is kind of different: there will be fewer “mega-deals” (>$7bn) and the CLO business will be “a shadow of its former self.” Read more

Berkshire in $1bn ‘junk bond’ writedown

Warren Buffett’s Berkshire Hathaway recorded a $1bn fourth-quarter write-down on $2.1 bn in “junk” bonds of the Texas power producer formerly known as TXU Corp, reports the WSJ. The investment dates back to the height of the leveraged-buyout boom and is the only blot on an otherwise strong year for the conglomerate. The FT, meanwhile, reports that Bombardier has agreed to sell up to 120 aircraft to NetJets, the business jet company owned by Berkshire, for up to $6.7bn at catalogue prices. Although the actual price paid is often much lower, the deal reflects optimism about recovery in the business jet market. The deal, Bombardier’s largest such transaction, sent shares in the Canadian group up 8% on Wednesday.

Peripheral debt — more corporate connections

Further to the different reactions of Portuguese corporates to their sovereign’s plight in the market — courtesy of Fitch, here’s a handy tabulation of corporate liquidity across the periphery:

 Read more

Trichet calls for a ‘quantum leap’ amid ‘strong vigilance’

Thursday’s comments from ECB President Jean-Claude Trichet have gone down a treat in the foreign exchange markets.

At pixel time the euro was headed straight through a bunch of moving averages while approaching the all important psychological $1.40 mark: Read more

Sky News, and the irregular plurals

Are we missing something here?

Culture secretary Jeremy Hunt is satisfied that News Corporation’s planned float-and-leaseback of Sky News would “address concerns about media plurality“. An independent board will keep Rupert Murdoch from setting BSkyB’s agenda, apparently. Read more

Why debt investors are taking leave of their senses

Here’s an interesting view.

Is the search for yield getting in the way of all rational sense in the market? Read more

Portugal’s broken debt, the corporate connection [updated]

When a sovereign can’t sustainably issue its own debt in markets, the problem is that neither can sovereign-linked companies.

So spare a thought for REFER, Portugal’s state-owned railway infrastructure company: Read more

Markets Live transcript 3 Mar 2011

Live markets commentary from FT.com 

Aviva plays down impact of gender ruling

Aviva posted a 35 per cent increase in annual profit on Thursday and announced that it had eliminated the vast majority of its pension deficit, the FT reports. The London-based insurer also played down the likely impact of a controversial European court ruling earlier this week on gender equality in the pricing of insurance. Aviva posted a pre-tax profit of £2.44bn for 2010, up from £1.81bn a year earlier. Operating profit rose 26 per cent to £2.55bn, beating the £2.45bn analyst consensus forecast compiled by the company. The profit increase came in spite of the snow and ice in the run-up to Christmas, which meant that annual weather-related costs were £40m more than normal in its UK arm, and €80m higher in its other European operations. Strikingly, the group said it had cut the funding deficit in its final salary pension scheme from £1.7bn to £3m over the course of the year.

Let the battle for Sky commence [updated]

Now that the Secretary of State for Culture, Olympics, Media and Sport has approved News Corp’s bid for BSkyB (as long as it spins off Sky News) the real fun can begin.

News Corp sources have told the FT that any Sky investor expecting to get more than 750p-800p for their shares is going to be sorely disappointed. Read more

Total to buy $4bn stake in Russia’s Novatek

French oil group Total is to buy a 12 per cent stake in Novatek of Russia in a $4bn deal, the FT reports. The agreement, unveiled by chief executive Christophe de Margerie at Russian prime minister Vladimir Putin’s residence near Moscow on Wednesday night, will give Total an interest in the Russian group’s Arctic gas project. The French explorer plans to raise its holding to 19.4 per cent within three years. Global oil producers are looking at Russia to boost reserves. The world’s biggest energy producer needs foreign expertise to develop challenging projects in harsh, remote areas to maintain output. Russia wants to boost liquefied natural gas output to expand in growing Asian markets and compete in Europe. “It is a good deal that has great potential,” Mr Putin said. For more see FT Alphaville.

Brazil seeks to curb rising inflation

Brazil’s central bank raised interest rates by 50 basis points in the second such move this year as it seeks to curb rising inflation, the FT reports. New central bank head Alexandre Tombini boosted the benchmark Selic rate to 11.75 per cent on Wednesday night as he seeks to balance rising inflation against a strong currency. “The Copom (monetary policy committee), decided unanimously to raise the Selic rate,” the central bank said, without elaborating. Brazil’s economy is expected to have grown about 7.5 per cent in 2010 and is on track for further expansion this year on the back of rising consumer credit and investment. The government is expected to release fourth-quarter gross domestic data on Thursday. The rapid growth has also rekindled inflation and attracted foreign investment inflows that have strengthened the Brazil’s currency, the real. At 6.08 per cent in the 12 months to mid-February, inflation is above the central bank’s target of 4.5 per cent, plus or minus 2 per cent.

Sky News to be spun off in BSkyB deal

Jeremy Hunt, UK culture secretary, said he was minded to wave through News Corp’s £8.3bn proposed bid for British Sky Broadcasting on condition that it spins off Sky News as a separate listed company, the FT reports. The deal will go to a short consultation period, but if Mr Hunt sticks to his guns, News Corp will avoid a lengthy referral to the Competition Commission and negotiations on a final price for BSkyB will begin. Mr Hunt said that Rupert Murdoch’s group had offered to set up an independent board even though it would maintain a controlling 39.1 per cent stake in the new Sky News. News Corp has agreed to provide a lump sum of several million pounds and guarantee 10 years of funding for the news channel, which will continue as BSkyB’s exclusive provider of 24-hour rolling news. Existing BSkyB shareholders will be given an equivalent stake in the new company. The licensing of the Sky brand to the new company will last for only seven years, a deal that Mr Hunt believes will give an incentive to News Corp to renew its 10-year financing deal after seven years. For more see FT Alphaville.

Profit surge bolsters Glencore ahead of IPO

Glencore saw its net income surge nearly 40 per cent in 2010 on the back of higher commodities prices, helping the world’s largest trading house to bolster its valuation as it prepares to go public in London in the second quarter, the FT reports. The Switzerland-based trader said on Thursday that, excluding exceptional items, its net income rose to $3.79bn last year, up from $2.72bn in 2009, boosted by “strong metals prices” and “a significantly increased contribution” from its agricultural commodities unit. Oil trading was “subdued”, however. Glencore, led by South African chief executive Ivan Glasenberg, is in the process of a radical transformation, aiming for an initial public offering in the second quarter of the year that is likely to value the trading house at a minimum of $60bn. However, the group is keeping its options open and could decide to attempt a merger with Switzerland-based miner Xstrata, in which it owns a 34.4 per cent stake. Citigroup, Morgan Stanley and Credit Suisse are advising Glencore on its options.

Crude slips on hopes for Libya peace plan

Brent crude futures tumbled more than $3 dollars at the start of the European session, nearly breaching $113 a barrel, after news of a possible Libyan peace plan emerging, the FT’s global market overview reports. The oil market has been roiled of late by fears that the civil war in the oil producing nation would crimp supplies and possibly add to further unrest across the region.  The spike in energy over recent days has rattled stock and commodity markets that many saw as vulnerable given the strong rally since the middle of 2010. The Arab League, which has been resistant to Western intervention in the Libyan conflict, confirmed it was considering a proposal to end the fighting. But when the market noted it was the design of socialist icon and Gaddafi apologist Hugo Chavez, president of Venezuela, traders seemed to become less enamoured of the prospect, and the Brent contract is now down just 0.3 per cent at $116.01. The early excitement in the oil complex did not have much impact on other risk assets, possibly because it came at about 0600 GMT, when much of Asia was coming to the end of its trading day, and before European dealers had settled in. The FTSE All-World index was up 0.2 per cent and gold was down $10 per cent from its record close.

‘Peace’ breaks out in Brent crude

Noted by the FT’s Jamie Chisholm early on Thursday — a $3 sell-off in Brent, on reports of a survival plan for Gaddafi ‘peace plan’ for Libya:

 Read more

Quick, to the MRO

Borrowing from the ECB’s emergency overnight facility has dropped from record highs — €15.1bn recently — to a more normal €1.24bn.

From an ECB release on Thursday morning: Read more

It’s all about Russian Arctic energy

It looks like 2011 really is becoming the year of Russian strategic energy partnership deals.

The latest to join the ever-growing Arctic-focused club is French oil major Total. The firm announced on Wednesday that it will pay $4bn for a stake in Russia’s top independent gas company Novatek, a move which allow Total to join its Arctic gas project. As Reuters noted, the move follows similar Russia-focused deals by BP and ExxonMobil this year. Read more

Lehman in SCDO trial down under

Bloomberg reports Wednesday on the first day of an Australian trial involving a long-running dispute with potentially interesting consequences for notions of fiduciary duty:

Wingecarribee Shire Council, the City of Swan and Parkes Shire Council claim they were sold improper investments as Lehman pushed synthetic collateralized debt obligations, or SCDOs, to collect fees and commissions that were greater than it would have earned from selling term deposits. Read more

Further reading

Elsewhere on Thursday,

- The esteemed board member and his friend the hedgie…. Read more

Pink picks

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

Guy Verhofstadt, Jacques Delors and Romano Prodi: Europe must plan a reform, not a pact
The last time EU leaders met, in early February, a Franco-German proposal for a competitiveness pact was thrust upon them. It received short shrift from many around the table, as much for the indelicate manner of its presentation as for its content. Now an alternative is needed, write Verhofstadt, Delors and Prodi, former prime minister of Belgium and two former presidents of the European Commission respectively. Instead of the competitiveness pact, EU leaders should adopt a “Community Act” for economic convergence and governance. The EU must get a grip on the issue of economic governance. Read more

Snap news

Breaking pre-market news on Thursday,

- Secretary of State for Culture, Olympics, Media and Sport says he intends to approve News Corp bid for BSkyB — statementRead more

AIG’s MetLife share sale raises $6.3bn

AIG raised $6.3bn through the sale of shares in its US rival MetLife, in a move that will help the insurer step up repayment of the US government’s bail-out aid, reports the FT. The sale of the shares – which AIG received as part payment for the $16.2bn sale of Alico, its foreign life insurance business, in November – puts an end to AIG’s unusual position as a large shareholder in one of its key rivals. MetLife said on Tuesday it would raise about $3bn by selling shares to buy back preferred shares held by AIG. The rest of AIG’s stake in MetLife, comprising common stock and equity units that convert into common stock, will be sold into the market.