Posts from Thursday Apr 28 2011

Further further reading

A friendly reminder that FT Alphaville is off on Friday to celebrate an odd ritual whose meaning escapes its American correspondent. (We kid, people, relax.)

Monday, of course, is a bank holiday. We’ll be on alert in case something huge breaks, but in all likelihood we’ll see you on Tuesday. Read more

More on Q1 GDP

Our thoughts are below, but for reference you can click to enlarge these two charts. The first, via RQD Economics, shows the change in each of the categories that contribute to the GDP number:

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Reflections on Bernanke

The following was written by Gavyn Davies and is also posted at his blog. We’d like to again thank Gavyn for having joined FT Alphaville yesterday for our special edition of Markets Live.

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Copper, the re-export factor

We’ve already referred to the latest Reuters Metals Insider report on Thursday, but somehow we feel that the following is worth a special mention of its own.

That is, what happens when the government attempts to rein in innovative Chinese financing schemes like those using copper as collateral? Read more

A little Protium light

For no reason other than to have it out in the open somewhere -presenting the financial filings of C12 Capital Management LLP:

It’s controlled by C12 Capital Management Holding Ltd – as in the guardians of Protium, the infamous Barclays toxic asset portfolio which is now being wound up – and it’s a nice breadcrumb on the trail leading to Michael Keeley, the former BarCap executive who managed Protium assets. Read more

A Greek buyback boondoggle

Not quite a Greek restructuring or re-profiling, but a big warning sign that we’re now very close.

First a little background… Read more

Chinese bonded warehouses’ copper inventories still rising

Having flagged the problem in the first place, it was natural for Standard Chartered to follow up on the state of China’s bonded warehouse copper inventories this month.

And what they found — surprise, surprise — was that stocks in April were still on the rise: Read more

US real GDP was 1.8% in Q1

Maybe you’ve been watching with increasing anxiety as the Q1 forecasts kept dropping.

Well, the revised estimates turned out to be mostly right. (Yes, we know, economists also think much of the deceleration is likely due to temporary factors: bad weather in January, higher oil prices, Japan, etc). Read more

“Mostly meaningless blurbs”

Oh deary me.

Someone at a major European investment bank (known for its foreign exchange services) is possibly a touch red-faced right about now. Read more

Dead economist throwdown, yo

Something to hold you over while you eagerly await those US GDP numbers:

Part 1 is here.

Markets Live transcript 28 Apr 2011

Live markets commentary from 

Japan’s ‘stunning’ stats: Yosano’s new nightmare

As variously predicted, the “3/11 effect” on Japan’s economy is starting to kick in. And true to warnings that the impact could be far worse than feared, the latest batch of data is reasonably horrible.

Only a day after S&P signalled fresh concerns about Japan’s economy, official data on Thursday showed a far sharper plunge in March industrial production than the consensus 10.6 per cent – a whopping 15.3 per cent fall from February – while March household spending slid an annual 8.5 per cent. Read more

Nomura quarterly profits drop 35%

Nomura reported a 35 per cent drop in quarterly net profits as its global market operations were hit by volatility resulting from the European sovereign credit crisis, the FT reports. Japan’s leading investment bank posted net profits of Y11.9bn ($146m) in the January to March quarter, a decline of 11 per cent compared with the third quarter of its fiscal year. Nomura said its quarterly revenue performance was the best since September 2009. The bank’s performance in global markets was “unfortunately, a bit disappointing”, said Shigeru Oshita, chief fund manager of Japanese equities at Chuo Mitsui Asset Trust and Banking. While western investment banks’ profits from global markets rose substantially in the past quarter, “Nomura’s global markets business has not grown much at all compared with the third quarter”, he said.

US traders use river transport to profit from oil glut

Barges laden with crude are set to make their way to the oil-rich Gulf of Mexico in the latest sign of how price anomalies have reconfigured energy markets. Petro Source Terminals, a storage tank operator, plans to start filling vessels with crude oil at the river port of Catoosa, Oklahoma, to sell to refiners in Louisiana, hundreds of miles downstream. The company is hiring barges because the price of West Texas Intermediate crude, the US oil benchmark, has been weighed down by record 40m-barrel stocks at its delivery point in Cushing, Oklahoma. On Wednesday, the price of Louisiana sweet crude was $127 per barrel, while Nymex June WTI futures were $111.90, having dropped 31 cents. Profit awaits traders who can sell WTI-linked oil in more expensive markets, but moving it out of landlocked Cushing is difficult. This week two companies, Enterprise Products Partners and Energy Transfer Partners, said they would build a pipeline to move 400,000 barrels per day from Cushing to Houston to provide an outlet for the “stranded” barrels. The project would not begin service until late 2012.

Higher margins and oil prices lift Shell

Royal Dutch Shell’s first-quarter underlying profit rose by almost a third, aided by improved refining margins and increased crude oil prices, the FT reports. The Anglo-Dutch energy group on Thursday said that first-quarter profit rose 41 per cent year-on-year to $6.9bn (£4.1bn) on a current cost of supplies basis, a closely watched post-tax measure that removes the effect of price changes on inventories. Underlying CCS profit – which further strips out one-off items, such as disposal gains and fair value accounting fluctuations – rose 30 per cent to $6.3bn, slightly ahead of the $6.2bn average forecast of analysts polled by Bloomberg. Oil and gas output in the first quarter was down 3 per cent year-on-year at 3.5m barrels of oil equivalent per day, having been squeezed by disposals. The first quarter dividend remained unchanged at $0.42 per share.

Apple pledges to curb collection of location data

Apple has blamed programming errors for its collection of data that tracked the rough location of iPhone users and pledged to cut down drastically on the practice, which has alarmed consumers and privacy advocates, the FT reports. After a week of increasing criticism and regulatory attention over the issue, the company said that it should not have been compiling the information on users who turned off location-based services. It said it should not have stored the records for a year. “The reason the iPhone stores so much data is a bug we uncovered and plan to fix shortly,” Apple said. “We don’t think the iPhone needs to store more than seven days of this data.” The furore echoes Google’s gaffe with its StreetView service, in which fleets of cars sent out to take pictures recorded personal data sent over WiFi networks. Google’s unauthorised data collection was uncovered by German regulators, prompting the company to drop the practice.

Protium’s acid reflux [updated]

Plenty of column inches on Thursday are devoted to the wind up of Protium, the Cayman Islands-based vehicle created by Barclays to warehouse a portfolio of highly toxic credit market assets.

According to the FT, analysts see the Protium — also a name for a medical treatment for gastric acid —  as another example of Barclays’ unnecessary complexity that has fuelled distrust among shareholders, holding back the bank’s share price and rating the stock at barely 80 per cent of the group’s asset value, a discount to many peers Read more

Spanish market weighs on Santander

Net profit at Spain’s Santander, the biggest bank in the eurozone by market capitalisation, fell to €2.11bn ($3.11bn) in the first quarter of this year, 4.8 per cent down on the same period of 2010 and slightly worse than expected by market analysts, the FT reports. Santander said on Thursday that its international diversification had kept profits high, although continued strong performance from Brazil and the rest of Latin America failed to compensate fully for the weakness of continental Europe, especially the Spanish domestic market. Banco Sabadell, a smaller listed Spanish bank, also announced on Wednesday that its net profit fell 22 per cent to €84.2m in the first quarter from €108.4m in the same period of 2010. Santander nevertheless said business, margins and profits were all showing signs of improvement since last year. In Spain, gross income was up 7 per cent to €1.56bn from a low point in the fourth quarter of 2010.

Deutsche Bank boosted by retail division

Deutsche Bank said it was confident of meeting profit targets for this year after beating analysts’ expectations with its first-quarter earnings, the FT reports. Germany’s largest bank by assets earned net income of €2.1bn ($3.1bn) in the first three months of the year. Pre-tax profits from operating businesses were €3.5bn, with a record quarterly contribution from retail banking and asset management offsetting a decline in pre-tax profits from the bank’s trading and investment banking arm. Josef Ackermann, chief executive, said on Thursday he was confident the bank would reach a target of €10bn of annual pre-tax profits this year from its operating businesses. “As encouraging as the magnitude of this quarter’s earnings is how we achieved these results – a broad based contribution that demonstrates the business and geographic diversity of our entire franchise,” Mr Ackermann said in a statement.

Fleeing the sovereigns, racing to capital

The sovereign bank cycle in Europe will not die — chart via the Morgan Stanley analysts Huw van Steenis and Alice Timperley:

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Berkshire eyes legal action against Sokol

Warren Buffett’s Berkshire Hathaway is considering legal action against David Sokol, Mr Buffett’s heir-apparent until his surprise resignation last month, after accusing him of violating company policies over share purchases, the FT reports. A probe by the audit committee concluded that Mr Sokol made “misleadingly incomplete disclosures” to Berkshire’s top managers over his dealings in $10m of shares in the US chemical group Lubrizol, the company said on Wednesday. Lubrizol was acquired by Berkshire for $9bn last month. The report said Berkshire was considering “possible legal action against Mr. Sokol to recover any damage the company has sustained, or his trading profits, or both”.

Exelon set to buy Constellation for $7.7bn

Exelon is set to buy Constellation Energy in a stock deal worth about $7.7bn that would create one of the largest utility companies in the US, the FT reports. People close to the talks said that the two power companies could announce a deal as soon as Thursday. The combined entity would rival Duke Energy and Progress, which are in the process of merging their operations to create the US’s largest power group. Constellation investors are expected to receive 0.93 Exelon shares for their stock, worth about $38.50 a share based on the latest prices. Constellation shares closed at $34.30 on Wednesday, up more than 4 per cent, while Exelon gained 0.8 per cent to $41.49. The two companies have a combined market value of more than $34bn.

Traders take heart from Fed comments

The cheap money binge can continue, reports the FT. That appeared to be the message markets were drawing from the Fed overnight with equities booming, the dollar sinking and gold and the Australian dollar hitting new highs. Relief that US monetary policy would remain easy for some time, following Ben Bernanke’s groundbreaking, if slightly dull, press conference and yet more stronger-than-expected earnings are providing fuel for bulls. The FTSE All-World Index was up 0.8 per cent and the dollar slid to fresh three-year lows against major currencies. Gold, viewed as both a hedge against future inflation and protection against the debasement of paper currencies, hit a fresh nominal high of $1,532.91. The Federal Reserve on Wednesday raised its inflation forecast for this year above its goal, but chairman Ben Bernanke said the rise in prices would be “transitory”. Mr Bernanke also signalled the Fed would complete its current ‘QE2’ programme of asset purchases at the end of June and then buy no more.

And now for Chinese zinc shenanigans

FT Alphaville has already alluded to the fact that it isn’t just copper that has been subject to Chinese inventory financing shenanigans.

Other commodities, especially base metals, are supposedly also being used for such purposes. Read more

Meanwhile in China…

…. another big move in Shanghai B shares overnight:

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Further reading

Elsewhere on Thursday,

– Bernanke “wimps out“. Read more

Pink picks

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

John Gapper: Glencore’s debt to China’s women
Simon Murray is a straight talker. That is the best that can be said for the interview given by the new chairman of the Switzerland-based commodities company Glencore this week, when he gave his crusty opinions on women’s attitudes to work, the FT columnist writes. Actually, he was plain incorrect. The irony is that businessman who made his fortune in Hong Kong is the last person on earth who should doubt the professional ambition and drive of women, for it has been women – especially Chinese women – who helped to put them where they are today. Read more

Snap news

Breaking pre-market news on Thursday,

– Deutsche Bank reports first quarter 2011 net income of €2.1bn; but results from Banco Santander disappoint — statement and statementRead more

Barclays buys back Protium assets

Barclays is buying back a troubled $9.3bn portfolio of credit assets, codenamed Protium, 18 months after selling it to a fund dominated by former employees in a complex accounting manoeuvre designed to make its profits less volatile, reports the FT. The UK bank detailed the U-turn on Wednesday as it reported a 9% annual fall in first quarter profits. Barclays’ shares fell 4% to 289.65p on the results. Analysts said the Protium affair had damaged Barclays’ reputation but the more worrying news was the earnings outlook. Barclays had said previously it was comfortable with analysts’ consensus expectations for £7bn of underlying pre-tax profit this year. But management said on Wednesday the number, while still correct, excluded an estimated £400m hit from a government levy on UK banks. Analysts said the 8.1% return on equity for the first quarter was flattered by the non-inclusion of the levy hit and a £190m write-up of the value of Protium assets. Lex says given the uncertain outlook for investment banking arm BarCap and tougher regulatory capital requirements, the current share price, at 0.84 times book value, “looks about right”.

Japan’s March production slumps

Japan’s economy took a bigger hit from last month’s earthquake and tsunami disaster than anticipated, with factory output falling the most in more than 50 years, underscoring calls for the central bank to add stimulus, reports Bloomberg. March factory output dropped a record 15.3% from February and household spending plunged 8.5% from a year earlier, data showed on Thursday. Retail sales fell the most in 13 years, according to figures on Wednesday. Signs of economic deterioration add to pressure on Prime Minister Naoto Kan after S&P on Wednesday downgraded its outlook for Japan’s credit rating. The Bank of Japan will on Thursday detail an emergency lending programme for banks in devastated northeastern areas as a group of lawmakers and former Cabinet ministers presses for more purchases of government bonds.