Posts from Tuesday May 3 2011

Wires: Portugal agrees to bailout loan

Bloomberg and Reuters, citing Portugal’s prime minister Jose Socrates, are reporting that the country has arrived at an agreement with the EU and IMF on a three-year, €78bn ($116bn) bailout loan.

Some details from Bloomberg, which had the story up first: Read more

Glencore eyes mid-$50bn valuation

Glencore is set to price its initial public offering at a level that will give the commodities trading house a valuation in the mid-$50bn range, below an average forecast of $62bn, according to people familiar with the deal, the FT reports. Following the issue of $8bn of new shares in the IPO the company will have a value of more than $60bn. The lower-than-expected pricing comes in spite of strong demand from cornerstone investors, who are set to take about a third of the IPO, which is raising a total of $11bn from the sale of new and existing shares. The move is aimed at generating a share price rally for the company after its flotation. “Ivan Glasenberg [Glencore chief executive] is determined to price a deal that has a great after-IPO performance,” said a person familiar with the IPO process.

Deutsche Bank hit by $1bn US lawsuit

The US justice department has sued Deutsche Bank for more than $1bn, accusing the German lender and a subsidiary of lying their way into a government scheme that insured mortgages, the FT reports. “Once in that programme, they recklessly selected mortgages that violated programme rules in blatant disregard of whether borrowers could make mortgage payments,” according to a civil complaint filed by the US Attorney’s office in Manhattan. US officials allege that Deutsche and its MortgageIT arm profited from the resale of mortgages that would eventually leave thousands of Americans facing default or eviction while sticking the government with hundreds of millions in insurance claims. According to the complaint, the US government paid more than $386m in claims and costs stemming from insurance approvals largely based on MortgageIT’s false statements.

Sharp rise in European anxiety on nuclear safety

Japan’s Fukushima nuclear disaster has triggered a sharp increase in worry across the European Union about the safety of nuclear power, according to a new Harris poll commissioned by the Financial Times. Nonetheless, the Harris poll found that – with the exception of Germany – citizens were broadly confident about the management of nuclear plants in their own country. Harris also revealed that Europeans were nervous about the prospect of a long-term military mission in Libya, and have little appetite to intervene on behalf of civilians elsewhere in the region.

India lifts rates to curb inflation

India has aggressively raised benchmark interest rates as the central bank tacitly acknowledged that the incremental steps it had taken over the past year to tighten monetary policy had failed to tackle rampant inflation, the FT reports. The Reserve Bank of India on Tuesday increased its two main monetary policy rates by 50 basis points – double most economist forecasts. The measure was taken as the bank warned inflation was higher than expected, threatening prospects for economic growth.

US lays bare mistrust of Pakistan

Relations between the US and Pakistan came under new strain as Washington officials said they feared that Islamabad would have warned Osama bin Laden of the US operation that killed the al-Qaeda leader, the FT reports. As Pakistani officials contested accusations on Capitol Hill and elsewhere that they must have known about bin Laden’s hiding place near a prestigious military academy, the US laid bare its mistrust of Islamabad, which was not informed in advance of Sunday’s raid on the compound in Abbottabad. “It was decided that any effort to work with the Pakistanis could jeopardise the mission,” Leon Panetta, CIA director, said in an interview with Time magazine. “They might alert the targets.” Such allegations illustrate the extraordinary tensions between the US and Pakistan – a country US government officials deem as strategically vital but also deeply unreliable.

Further further reading

For the commute home,

Finance books released in May, and three foreign policy books recommended by Dan Drezner. Read more

April global M&A wrap

Just sharing a few highlights from the finaly April M&A tally, compliled by Dealogic:

Global M&A totaled $260.1bn in April 2011, a fall of 17% on March volume of $313.3bn. The number of deals totaled 2,756, down 28% on March’s total of 3,821 deals. Compared with April 2010, volume is up 45% from $179.6bn 12 months ago.

 Read more

Pundit predictions and coin-toss comparisons

Hamilton College has a new report (via Romanesko via Yglesias) assessing the predictive accuracy of professional pundits during a 16-month period through December 2008.

The findings, emphasis ours, with some commentary to follow: Read more

China versus the UK Takeover Panel

This promises to be fun.

A Chinese state-owned nuclear power company is squaring up for a fight with the Takeover Panel over Kalahari Minerals. Read more

Superman, future tax deadbeat?

The Son of Jor-el has a problem.

Not Kryptonite or Lex Luthor or those fashion-challenged creepshows from Superman II. Read more

The skeletons (or mortgage audits) in Deutsche Bank’s closet [updated]

One word to describe the narrative in the just-announced civil suit against Deutsche Bank’s mortgage unit: quaint. Though parts of it are still shocking.

The suit centres on alleged abuses of the US government’s mortgage insurance programme, which has the Federal Housing Administration (FHA) and the Department of Housing and Urban Development (HUD) assume the ultimate default risk on millions of American mortgages. Here’s how it works. Read more

Aer Lingus stake set for take off?

Aer Lingus, the troubled Irish flag carrier, has been in focus on Tuesday.

The Daily Mail reckons Ryanair is making a third attempt to acquire the airline, in a bid to create an all-Irish national champion: Read more

Cash is king

Here’s something you don’t hear very often in the City of London: cash doesn’t get the attention it deserves as an asset class.

But SocGen’s strategist Dylan Grice wants to change that. He reckons there are times when it’s simply the best thing to own. Read more

US files civil suit against Deutsche Bank’s MortgageIT [updated]

Breaking on Tuesday (flashes via Reuters):


Choose your own MBS accounting

Basel III. Accounting. Mortgage-Backed Securities. Yawn.

But wait — Basel III’s attempt to incentivise banks into managing their interest rate risk could be about to permanently alter the way banks handle some $1,480bn worth of MBS, or 11 per cent of their assets. Read more

The ongoing mess in Allied Irish’s capital structure

So bad a mess even the hedging looks bust.

Quite apart from threatening to overturn the foundation-stone financial hierarchy of debt over equity… Read more

Gunfight at High Yield

Tom Young over at IFLR has something interesting.

It’s a letter purportedly written by 30 of the biggest high-yield debt investors in Europe, and sent to high-yield underwriters — the banks. You can view the whole thing by taking out a quick trial subscription to the International Financial Law Review, or read on for a short summary. Read more

A not-so-CLO ratings reversal

Type II ratings errors — where agencies prove too pessimistic in their assessment of bonds and securitisations — rarely generate much noise compared to their too-optimistic Type I cousins.

So here’s a chart you might have missed from Expect[ed] LossRead more

More on Greek debt buybacks

Petros Christodolou, director-general of the Hellenic Public Debt Management Agency, writes in response to our recent post on Greece buying back some debt:

I believe this article was way off the mark, was based on erroneous assumptions of Greece buying medium and long term debt having engaged into a liability management exercise. Read more

Markets Live transcript 3 May 2011

Live markets commentary from 

Volatile silver

It turns out that bank holidays can make for interesting silver markets:

 Read more

The ECB’s separation principle rules OK

The ECB announces its monetary policy decision on Thursday and is widely expected to keep rates unchanged at 1.25 per cent.

What’s much less clear is whether President Trichet will use the phrase “strong vigilance”. Read more

Bin Laden market bounce quickly fades

FT Alphaville reports that initial cheer on Sunday night in the US over news that US forces had killed Osama bin Laden was quickly overtaken by concerns about retaliatory action and longer-term challenges. Stocks went up, then down, commodities fluctuated and ‘safe-haven’ currencies eventually benefited. Reuters adds that Asian stocks fell on Tuesday morning as the ‘bin Laden effect’ faded. The FT says the US dollar also faded after an initial rally, touching a three-year low, and was slightly higher late in New York, its first gain in 10 days. Pimco’s Mohamed El-Erian, writing on FT Alphaville on Monday, said global markets were likely to interpret the news of bin Laden’s death as implying “an overall reduction in terrorist threats, the elimination of a specific security risk and, as such, a lowering in the risk premia.”

US jubilant at bin Laden’s death

The killing of Osama bin Laden, following the most intensive manhunt in history, triggered jubilation among Americans, who had increasingly despaired of ever catching the man blamed for the most deadly attack on the US since the second world war, the FT reports. With the decision to order a covert operation that claimed the life of the world’s most wanted terrorist, president Barack Obama has a compelling new narrative for the American people, the paper says. At the same time, adds the FT, the fact that bin Laden’s stronghold was in Abbottabad, 50km from the capital, Islamabad, and site of the country’s top military academy, raised questions about the US ally’s commitment to combating international terrorism.

Teva agrees to buy Cephalon for $6.8bn

Israel-based Teva Pharmaceuticals has agreed a $6.8bn deal with Cephalon, trumping a hostile approach for the US biotech group from Canada’s Valeant, as it seeks to boost its branded specialty drugs business reports the FT. Teva said on Monday it would pay $81.50 a share in cash for Cephalon, versus Valeant’s $73 offer. Teva is known as a maker of generics but also generates income from patented drugs led by Copaxone, a multiple sclerosis drug. The deal will increase the share of Teva’s business from branded drugs to 36% from about 28% last year. UBS analysts said that investors, wary of Teva’s “aggressive moves” into branded drugs through M&A, could view this deal in the same light Cephalon’s stock rose 4% at lunchtime on Monday to $80.30. Teva’s deal represents a 39% premium to Cephalon’s price before the Valeant bid. DealBook notes that the deal comes at a particularly critical time for Teva.

Bullion strength points to investor nerves

Strength in precious metals is signalling incipient investor nervousness in some quarters as appetite for growth plays wanes, the FT reports in its rolling global markets overview. Gold is up 0.3 per cent to $1,549 an ounce – just shy of Monday’s intraday record of $1,576 – and silver is rallying from the previous session’s margin hike-induced sell-off, currently up 3.7 per cent at $45.40 an ounce. The FTSE All-World equity index is down 0.3 per cent, core bond yields are fractionally lower and “commodity currencies” are softer. US futures point to a 0.2 per cent fall for Wall Street at the open. The Sensex index in India is down 0.9 per cent after the central bank raised interest rates by a greater-than-expected 50 basis points to 7.25 per cent.

Second Sony network shut by hacker fear

Sony closed a second online network for its gaming customers and said for the first time that hackers had stolen account information on thousands of payment cards, the FT reports. The company disabled the Sony Online Entertainment system, which serves players of its EverQuest and other games played from personal computers. It said that at around the same time that one or more hackers broke into the larger PlayStation Network for console gamers, there was a similar breach at the PC service. Bloomberg adds that Sony may have exposed up to 100m customers to years of potential identity theft after hackers breached the company’s online entertainment networks in mid-April.

The quick demise of the ‘OBL death rally’, where next?

As happens so often in markets, optimism generated by one event can be quickly off-set by associated downside risks. Initial cheer on Sunday night in the US over news that US forces had killed Osama bin Laden in his Pakistan stronghold was overtaken by concerns about retaliatory action and longer-term challenges. Stocks went up, then down, commodities fluctuated and ‘safe-haven’ currencies eventually benefited.

Accordingly, the “Bin Laden death rally” — as it was dubbed in equity markets — fizzled nearly as rapidly as it began in thin trading on a Monday when key markets including Japan and the UK were closed for holidays. Read more

Treasury says it will act to avoid default

Treasury Department officials said Monday that they will begin to take extraordinary actions Friday to manage the government’s finances so the US won’t default after hitting its borrowing limit on May 16, the Wall Street Journal says. The moves come amid divisions among congressional leaders over how to raise the debt limit and avoid a default that Treasury officials say could cause another financial crisis. Tim Geithner told lawmakers last month that the US would hit the debt ceiling by May 16 and could default as soon as July 8. Officials now estimate that the actions announced Monday, combined with stronger-than-expected tax receipts, will enable the government to postpone a possible default until August 2.