Posts from Tuesday Mar 29 2011

Further further reading

For the commute home, where your liquidity should never be abruptly halted,

– Why the growth rate mattersRead more

Nomura US investment bank head quits

Nomura has replaced the head of its US investment banking business with a Deutsche Bank veteran as it struggles to make significant inroads in the fiercely competitive North American market, the FT reports. Jim DeNaut, a senior oil and gas banker who joined Nomura from Deutsche last August, is taking over with immediate effect from Glenn Schiffman, who is leaving the bank after just one year at the helm of its New York operations.

Man Group’s flagship fund hit by market slide

London’s Man Group, the world’s second-largest hedge fund manager by assets under management, has lost more than $2bn over the past month as a result of Japan’s devastating earthquake and tsunami, the FT reports. The company on Tuesday warned investors of the impact the crisis was likely to have on its business, but remained upbeat on a medium and long-term view for the company and its investments. The past few months had been a “negative period” for its computer-driven flagship AHL fund, it said, with performance turning “sharply down with markets” following the earthquake in Japan. “March brought an extraordinary concentration of macro shocks,” Peter Clarke, chief executive, told shareholders in the FTSE-listed company’s pre-close trading update. The situation in Japan had led to a “decreased risk appetite and increased volatility in markets,” he said.

Tepco shares fall on talk of state takeover

Shares in Tokyo Electric Power fell 19 per cent amid growing speculation that the operator of Japan’s crippled Fukushima Daiichi nuclear power plant could be nationalised, reports the FT. Public anger and potentially huge liability claims stemming from the worst nuclear crisis in 25 years have fuelled speculation the government could take over the utility. Koichiro Gemba, Japan’s national policy minister, suggested on Tuesday that nationalisation was an option: “All kinds of discussion are, of course, possible on what to do with Tepco.” The Yomiuri Shimbun, Japan’s biggest circulation daily newspaper, had reported that the government was considering taking a majority stake in the company.

Traders take on risk ahead of crucial data

Risk appetite is growing despite more bad news from the Fukushima nuclear plant, though investors still appear to be wary ahead of several days of crucial data, the FT reports. The FTSE All-World equity index is higher by 0.2 per cent, with the S&P 500 on Wall Street up 0.6 per cent. A fall in US consumer confidence this month was not as great as some had feared given recent events and is providing some support, as is news of another acquisition by GE. Industrial commodity prices are mixed and the dollar is slightly firmer as the euro holds its ground in spite of another downgrade of Greece and Portugal by S&P. The FTSE Eurofirst 300 index inched forward to close slightly higher, fighting through weakness in banking after news of a share sale by Italian bank UBI raised fears the sector needs to boost its capital further. Financials are also lagging on Wall Street, but demand for energy groups and telecoms is strong. Gold is now being sold off, core bond yields are solidly higher and the Australian dollar, a commodity currency that usually tracks broad market bullishness, continues to hover near a 29-year high. Fears that US Federal Reserve officials were signalling an early exit to the central bank’s $600bn quantitative easing programme – which would remove a major reason that investors have been buying riskier assets – seem to have dissipated, as markets await expected comments from several more Fed officials in addition to a raft of US economic data.

Summit swings behind Libyan rebels

Libya’s opposition Transitional National Council significantly boosted its relations with world powers confronting Colonel Muammer Gaddafi on Tuesday, winning the right to sell Libyan oil on international markets and getting potential access to hitherto frozen regime assets, the FT reports. As more than 40 nations convened in London for an international summit on the future of Libya, Qatar formally announced that it would facilitate the sale of Libyan oil in rebel held areas, delivering humanitarian goods in return. On a day that saw Mahmoud Jebril, the leader of the TNC, meet Hillary Clinton, US secretary of state, and David Cameron, British prime minister, there were also indications by Washington that it could arm the rebels in the event that their confrontation with Col Gaddafi descends into a stalemate.

The RMBS risk retention exemption, qualified

US federal agencies on Tuesday published 233 pages of proposed rules around credit risk retention for sponsors of asset-backed securities, a requirement laid down in the Dodd-Frank legislation.

Sexy lede, right? Wait, come back… Read more

Corporate balance sheets: when will the real spending begin?

A quick rewind is necessary to put this post in context.

We wrote repeatedly last year about the problem of non-financial companies hoarding their cash rather than spending it, and attributed the trend to a few different factors: Read more

Chinese ‘copper financing’ got even more popular this month

So says Standard Chartered bank in their latest Metals Weekly research.

The bank was among the first to bring attention to the fad of commodity-backed financing in China, and now has this update: Read more

When sovereign ratings turn on a dime

Remember this chart from Exotix, comparing periphery ratings and bond spreads to frontier markets? One of the pair looks out of place:

 Read more

One step from high yield – Portugal

More on Tuesday’s downgrade of Portugal (and, to a lesser extent, Greece) from the excellent Harvinder Sian at RBS.

He reckons S&P are spot on with their decision to cut Portugal to BBB- (with the ratings outlook negative) and says there a real risk of a downgrade to junk. Read more

Vix parity, volatility arbitrage and Japan

Olivier Jakob of Petromatrix is a rare breed of energy market analyst. He believes it’s important to look beyond the immediate scope of the energy complex to really understand what’s going on.

As a result his energy market reports are often filled with valuable little gems of insight. Read more

Barclays – Too big for Britain

We’d assumed Diamond Bob and John Varley were bluffing when they said Barclays might quit Britain for the US.

Perhaps not. Read more

Tepco and those nationalisation rumours

Shares in Japan’s distressed nuclear plant operator Tepco took a beating on Tuesday as rumours swirled that the government was preparing to nationalise the company.

 Read more

ESM seniority starts claiming victims

The seniority of Europe’s future bailout fund: no longer just tricky, more just plain terrorising the periphery.

Portugal… (downgraded to BBB- from BBB by S&P on Tuesday): Read more

Covered bonds as the new sovereigns

Non-German readers won’t be able to read this article by a representative of the German finance ministry (except, perhaps, through the magic of Google Translate).

But we can summarise it for you. Read more

Eurovision debt crisis

We’ve been dying to post this since the weekend — presenting Portugal’s entry for the 2011 Eurovision Song Contest:

 Read more

The political problem with Portugal’s bailout

Yes, Portuguese bond yields have hit unsustainable levels.

 Read more

Markets Live transcript 29 Mar 2011

Live markets commentary from 

Federal budget deal mired in Congress

Democrats and Republicans are beginning to outline a compromise to fund the government for the rest of the fiscal year, although proposed cuts of $30bn may prove too embarrassing for Democrats, or too little for Republicans’ rank-and-file supporters, the FT reports. One extra obstacle to a deal has been a series of so-called riders, ideologically motivated and fiscally insignificant policies included in the budget passed by Republicans and rejected by Democrats, such as defunding NPR. Failure to reach a deal by April 8 would begin a government shutdown, and seems increasingly likely, says the WSJ.

Plutonium in Fukushima soil

Plutonium has been detected in soil samples taken around the stricken Fukushima Daiichi nuclear power plant, complicating radioactive clean-up even further, the WSJ says. A government spokesman said that the levels of plutonium were too low to pose a serious risk, adding that the discovery reinforced suspicions that one or more of the reactor cores had experienced partial meltdown. Plutonium-239 is highly dangerous, has a half-life of more than 25,000 years, and was present in the plant either in spent fuel rods or Reactor No 3, FT Alphaville has previously pointed out. For the first time, the Japanese government has openly considered nationalising the plant’s operator, Reuters reports.

Galleon notebooks come in focus

Prosecutors are fighting to question a former trader at Galleon Group over statements to the Federal Bureau of Investigation that he saw notebooks being removed by the brother of Raj Rajaratnam, the founder of the hedge fund group on trial on insider trading charges, reports the FT. Prosecutors say government witness Adam Smith will testify that the notebooks are similar to ones Raj Rajaratnam used to record notes from conversations he had with company insiders. The notebook issue underlines the significance of Rengan Rajaratnam to Raj’s case, not least because the criminal inquiry into Raj grew out of a civil probe into Rengan’s hedge fund, the WSJ writes.

CPP’s identity crisis – Part II

The downgrades are starting to rain down on CPP, the credit card and identity theft insurer that’s attracted some unwanted regulatory heat.

Joint broker JPMorgan has cut its forecasts and is worried the FSA probe revealed late on Monday could land CPP with a large fine, while the company’s other adviser, UBS, has put its rating under review. Elsewhere, Citigroup has removed its buy rating on CPP and Canaccord Genuity is simply advising clients to sell. Read more

Stricter home loan rules to be outlined

Regulators are set to flesh out a crucial area of housing finance reform on Tuesday when they propose which mortgages are sufficiently risky that lenders should retain a financial interest in the loans, says the FT. Officials will propose that loans in which a borrower makes a 20 per cent downpayment should be exempt from the new risk retention rules, according to people familiar with interagency talks. In other mortgages, lenders would have to keep a 5 per cent financial interest. Defining the risk retention rule is crucial to reviving the private-label securitisation market, banks say — although others insist that high downpayments would disadvantage small lenders.

Ebay looks to rival Amazon with GSI bid

Ebay has made a bid to revive sales growth and diversify its business with the agreed acquisition of GSI Commerce, an interactive marketing company, for about $2.4bn, including debt, the FT reports. Growth in Ebay’s auctions business is slowing, and using GSI to help third-party sellers would allow it to compete with Amazon, Reuters says. Ebay will pay $29.25 a share, a premium of 51 per cent over GSI’s closing share price last week, for the Pennsylvania company, which handles the e-commerce activities for large brands and retailers, including the National Football League, Toys R Us and Ralph Lauren, the FT adds.

Walmart sex bias case heads to Supreme Court

Walmart is to defend itself at the Supreme Court in the world’s largest sex discrimination case, which has the potential to transform the future course of legal disputes between big business and workers in the US, reports the FT. The court on Tuesday will hear arguments on whether the case can go forward as a class-action lawsuit. Walmart argues that the class action brings together claimants who have too little in common to be included in a single suit, Reuters reports. Court precedent is on Walmart’s side. While the Supreme Court could affirm the class action and allow it to proceed to the merits, little short of a truly ‘seismic’ compensation ruling threatens Walmart’s finances, Reuters adds.

Of FARTs and fire sales

As Irish Life & Permanent looks about to complete Ireland’s nationalisation of its entire domestic banking system…

More abbreviation fun on Tuesday with the mooted ECB facility to replace emergency loans from Irish national central banks, with an important moral for bailout philosophy. Read more

BP executives face manslaughter charges

Federal prosecutors are reviewing whether to bring manslaughter charges against BP managers for decisions taken before the Gulf of Mexico oil well explosion and spill, sources have told Bloomberg. A further line of inquiry focuses on whether the company executives’ congressional testimony last year conflicted with what they knew of problems at the Macondo well. Individual charges would significantly alter the balance of environmental safety penalties that BP may face. Investigators are considering charges of involuntary manslaughter or seaman’s manslaughter, sources added.

Moody’s caution on JPMorgan’s AT&T loan

JPMorgan Chase’s $20bn bridge loan to finance AT&T’s acquisition of T-Mobile USA is a “credit negative” for the banking industry that might encourage banks to take on outsized risks to win underwriting fees, according to Moody’s Investors Service, reports the FT. While AT&T is an A2-rated company, there remains a chance JPMorgan will not find buyers for the loan, Moody’s analysts wrote in a note on Monday. The bank’s role as a sole underwriter increases the attractions of single-risk exposure for other US banks, creating the credit negative, they added.