We have all the tools we need to achieve a smooth and effective exit at the appropriate time.
Friday’s decent jobs report and accompanying hawkish cacophony have encouraged further talk about when the Fed will raise rates and revert to a place called normalcy. Read more
For the commute home, where your very own recovery starts,
- The pieces of America’s recovery are falling into place (maybe). Read more
You know what we said lately about sovereign credit ratings turning on a dime?
Example du jour late on Friday: Read more
There’s still much to look through in the Fed’s data dump from Thursday. But here’s one chart we found interesting.
It shows the share of market value of collateral pledged at the Fed’s Primary Credit Dealer Facility and Term Securities Lending Facility (TSLF) by dealer. By the the week this chart was printed, in August 2009, PDCF borrowing was zero — but TSLF borrowing, not so much: Read more
Live markets commentary from FT.com
Behold a central pricing solution for illiquid assets… stuff like TruPS CDOs or, err, Irish bank loans.
Non-Farm payrolls rose by 216,000 jobs in March, according to the Bureau of Labor Statistics.
Analysts had been expecting an increase of 190k jobs in the month. The unemployment rate came in at at 8.6 per cent, its lowest since March 2009. Read more
The more we read about recent US consumption activity, the less we seem to understand exactly what’s happening.
But that won’t stop us from trying. Get comfortable, folks — this will take a while. Read more
Live markets commentary from FT.com
The owner of the stricken Fukushima Daiichi nuclear power plant in Japan will review all its data on radiation levels recorded at the site, amid confusion over how much radioactive material has flowed into seawater around the plant, the WSJ reports. Confusion also reigns over whether the Japanese government will nationalise or break up Tokyo Electric Power, with compensation claims on the company so far yet to be assessed, FT Alphaville says. Officials hope to prevent conditions at the plant from further deterioration within weeks, but caution that decommissioning will take years, reports the FT. Read more
A European rather than an American bank was the biggest borrower from the Federal Reserve discount window at the peak of banks’ use of the window in October 2008, Bloomberg reports, following the release of more than 29,000 pages of Fed documents on the facility. Belgian lender Dexia borrowed $31.5bn on October 24 2008 and $26.5bn on October 29. As for US banks, Goldman Sachs used the discount window more times than appears to have been publicly disclosed, the FT says, noting that Goldman and other banks that converted to bank holding companies in the crisis used the Primary Dealer Credit Facility more than the discount window. Read more
BlackRock is really making a name for itself in financial crisis-related services — valuing the Fed’s Maiden Lane portfolio and undertaking the Irish banking stress tests too. But Ireland’s central bank also hired Boston Consulting Group (BCG) to supervise the stress testers, so to speak.
So, want to know what Boston Consulting said about BlackRock’s methodology? Read more
Raj Rajaratnam made more than $2m in profits after being tipped off by a colleague that Integrated Circuit Systems was negotiating a sale of the company, according to trading records and a government witness at the Galleon Group founder’s insider trading trial, the FT reports. Adam Smith, a former Galleon portfolio manager who has pleaded guilty to securities fraud, testified on Thursday that he tipped Mr Rajaratnam that Integrated Device Technology was in talks to acquire Integrated Circuit Systems in early 2005. When the deal was announced that June, Integrated Circuit’s stock rose 10 per cent. Mr Rajaratnam sold his position over the next several days for profits of more than $2m. Read more
Prices on a key subprime bond index have doubled since the low of the financial crisis they helped cause, as investors search for yields from subprime and RMBS, reports the WSJ. Prices have risen from 30 cents on the dollar to roughly 60 cents. As part of the quest for yield, investors are also seeking nonagency bonds, which are not backed by Fannie Mae or Freddie Mac, in addition to subprime. A revival in jumbo mortgages with lower interest rates also reflects investors’ return to the market. The Fed’s sale of Maiden Lane II portfolio assets will increase investor interest, with four major life insurers considering purchases, sources told the Journal. Read more
The price action early on Friday morning:
AIG has appointed former JPMorgan finance chief Peter Hancock to run Chartis, its largest business, the FT says. The move strengthens the Wall Street veteran’s case to succeed the group’s chief executive, Robert Benmosche, who has pledged to step down next year after the company regains its independence from government ownership. Mr Hancock joined AIG in February last year, another step in a career that included helping to invent modern credit derivatives while at JPMorgan. Chartis, an entity formed in 2009 to house AIG domestic and international property and casualty insurance operations, was also restructured into two global groups, ahead of the Treasury’s May sale of its shares in AIG . Read more
Prices of farm commodities soared after the government revealed that inventories of corn and soyabeans were lower than had been believed, adding to inflationary pressures around the world, says the FT. While US Department of Agriculture said on Thursday that prices were prompting farmers in the US to plan big increases in plantings, the extra acreage is unlikely to be enough to rebuild stocks to comfortable levels. High prices will prompt farmers to plant 5 per cent more land with corn this year than in 2010. At 92.2m acres (36.9m hectares), this would be the second-largest expanse of corn fields since the second world war — but will squeeze land for soyabeans even more. Read more
Nasdaq OMX and NYSE cancelled trades in 10 exchange-traded funds after their prices plummeted in early trading on Thursday, raising questions about measures brought in after last year’s ‘flash crash’ to curb sudden price falls, the FT reports. Prices in 10 of 15 Focus Morningstar ETFs launched on Wednesday dropped by as much as 98 per cent after a human processing error at Knight Capital Americas, a market maker for the ETFs. While exchanges introduced trading curbs after the flash crash, the Focus ETFs were not included because they launched after these initial measures were rolled out. Read more
David Sokol has defended his decision to purchase stock in a company before recommending it to Warren Buffett, saying another key lieutenant had done the same thing, the FT reports. “I didn’t know anything that others didn’t know,” Sokol said in a CNBC interview. He had done nothing wrong or unethical, he said, but did add that “knowing today what I know, what I would have done differently is not bring the deal to Warren”. The SEC is likely to launch an inquiry into Sokol’s trades, a person familiar with the matter told the WSJ. The circumstances of Sokol’s purchases are a regulatory gray area at least, Reuters says. Read more
Here’s a tip for all financial journalists and market participants.
To spot the next source of financial instability — simply identify the assets currently considered ‘safest.’ At the moment we’d argue those are covered bonds, and of course, sovereigns. The first hasn’t gotten much regulatory scrutiny of late but the second, well, there are some capital games afoot. Read more
The latest kerfuffle about the future of Tokyo Electric Power Co, the power provider and operator of Japan’s crippled Fukushima nuclear power plant, began quietly enough, with a small report in the Mainichi Daily newspaper, claiming the Japanese government was considering taking a stake of up to 50 per cent in the utility.
The report cited an unamed government official saying the government was considering taking a stake as public funds may be necessary to ensure Tepco can supply electricity to Tokyo in the summer and also pay compensation to companies and individuals hit by the nuclear plant crisis. Any stake would not exceed 50 per cent and the government may also offer a loan guarantee, the offical added. Read more
We’re still working our way through the Irish banks’ stress tests results. But there’s already a conundrum in assessing the severity of the tests.
Severity being the essential variable here — a severe test underlines Ireland’s vulnerability to restructuring and makes the case to outside actors that they need to provide backstop funding, and allow (bank) bondholders to be burned, while exposures are removed from Irish banks. We’ve noted this dynamic in the way capital and deleveraging are finely balanced in the tests, too. Read more
Elsewhere on Friday,
- Support is running out for the muni market. Read more
Comment, analysis and other offerings from Friday’s FT,
Analysis: Chinese finance – a shadowy presence
With banks subject to Beijing’s tough credit and interest rate controls, a growing system of informal loans provides capital to the private sector but buoys inflation, writes the FT’s Henny Sender. Read more
Breaking pre-market news on Friday,
- Bank of Ireland working on initiatives to meet €4.2bn equity capital requirement; shares to resume trading– statement. Read more
AIG has appointed Peter Hancock to run Chartis, its largest business, strengthening the Wall Street veteran’s case to succeed the group’s chief executive, reports the FT. Hancock, a former JPMorgan finance chief credited with helping to invent credit derivatives two decades ago, joined AIG in February 2010 to oversee risk, finance and strategy. Robert Benmosche, AIG’s chief executive, has pledged to step down next year after the company regains its independence from government ownership. Read more
Vodafone is to pay $5bn to buy the Essar conglomerate out of the UK mobile phone group’s Indian business, reports the FT. Vodafone said that put and call options were being exercised, under which Essar would sell its 33% stake in Vodafone Essar, the UK group’s Indian business, for $5bn cash. The deal should resolve an increasingly acrimonious dispute between Vodafone and Essar over how to value the Indian conglomerate’s minority stake in Vodafone Essar. In 2007 Vodafone bought a 67% controlling interest in what was then Hutchison Essar for $10.9bn. It was then renamed Vodafone Essar. Indian authorities meanwhile are pursuing Vodafone for $2.5bn in tax they insist is due on the 2007 deal. Read more
Asian stocks declined on Friday for the first time in three days as exporters dropped after a Fed official said interest rates may need to rise, reports Bloomberg. Futures on the S&P 500 Index gained 0.1% after the index fell 0.2% on Thursday on remarks by Fed Bank of Minneapolis President Narayana Kocherlakota, who said that policy makers may have to lift rates to fight inflation.
In Tokyo, the MSCI Asia Pacific Index lost 0.3% to 135.37 as of 11:55am, trimming this week’s advance to 0.8%. The gauge last week had its biggest weekly gain since November as Japan moved to stabilize nuclear reactors damaged by the March 11 earthquake, and as companies from Cnooc to Bank of China reported better-than-expected earnings. Read more
JPMorgan Chase has fully syndicated its $20bn loan to AT&T for the US cellphone carrier’s bid to buy T-Mobile USA, spreading it out across 11 other banks, reports DealBook, citing a regulatory filing. The move could allay fears that JPMorgan could face a big credit risk if it were forced to hold the loan — the biggest ever by a single bank — on its books. That concern was articulated last week in a research note by credit rating agency Moody’s which estimated the loan represented about 17% of JPMorgan’s tier-one capital. But people close to the matter said JPMorgan was confident it would be able to disperse the risk by distributing pieces of the loan to other banks. The firm began contacting potential syndication partners this week. Read more
Nasdaq OMX and NYSE cancelled trades in 10 exchange-traded funds after their prices plummeted in early trading on Thursday, raising doubts about safeguards put in place against sharp market swings after last year’s “flash crash”, reports the FT. The exchanges cancelled certain trades that occurred in 10 of 15 Focus Morningstar ETFs that launched on Wednesday, said a spokesman for Scottrade, the ETFs’ sponsor. The trades occurred early in the session when prices dropped by as much as 98% after a human processing error at Knight Capital Americas, a market maker for the ETFs. The net asset values of the ETFs and the value of the underlying securities and shareholders were not affected, Scottrade said. Nasdaq said it cancelled trades in FocusShares ETFs executed between 9:54am and 9:56am that were more than 10% away from the day’s trade before the erroneous order or the previous close if no trades occurred prior. Read more