Posts from Wednesday May 11 2011

Further further reading

For the commute home,

- Cisco beats expectations after the bell. Read more

AIG shares strengthen on offering plan

Shares in AIG rallied after the insurance group and the US Treasury outlined plans for a scaled-back share offering in the company, reports the FT. AIG said on Wednesday that it would sell 100m shares and that the Treasury would sell 200m shares, raising some $9.2bn – an amount much lower than the $20bn originally targeted by the US government. AIG’s share price was up 3.4 per cent in midday US trading.

Mongolia plans first bond issue

Mongolia plans to issue its first sovereign bonds this month, marking a milestone for capital markets in this resource-rich democracy. The newly created Development Bank of Mongolia will issue $700m in sovereign bonds to fund lending programmes, Chuluundorj Khashchuluun, chairman of the national development and innovation committee, told the FT.

Shooting sparks Thai election fears

Less than 24 hours after Abhisit Vejjajiva, the Thai prime minister, dissolved parliament in preparation for what are likely to be the most bitterly contested elections in years, a politician was attacked, reports the FT. Pracha Prasopdee, an MP for the opposition Puea Thai party which remains broadly loyal to Thaksin Shinawatra, the controversial former prime minister, was shot and injured in his constituency on the outskirts of Bangkok on Tuesday night in what police suspect was a politically motivated assassination attempt.

Toyota warns on strong yen

Toyota has pleaded for relief from the strong yen as it seeks to repair the financial damage from March’s earthquake and tsunami, a call that could add to pressure on Japan’s government to resume intervention in the currency market, reports the FT. Satoshi Ozawa, the Japanese carmaker’s chief financial officer, said on Wednesday that Toyota had “reached the limits of our ability to manufacture in Japan” after annual earnings results showed exchange-rate swings cut Y290bn ($3.6bn) from its net profit last fiscal year.

HSBC targets savings of up to $3.5bn

HSBC has narrowed its global ambitions, announcing targeted savings of $2.5bn-$3.5bn over the next two to three years and a probable withdrawal from dozens of high streets worldwide, says the FT. Stuart Gulliver, who took over in January as chief executive of Europe’s largest bank by market capitalisation, said on Wednesday that he would scale back in both retail banking and wealth management.

China slow to silence roaring tiger of inflation

Wang Qishan, Chinese vice-premier, this week became the latest senior official to identify the fight against inflation as his government’s most important task this year, writes the FT. “The most pressing problem we face right now is the problem of inflation,” Mr Wang said in an interview on The Charlie Rose Show in the US on Monday. “In order to do this, we have to use monetary policy, fiscal policy and at the same time economic restructuring,” he said.

Commodities relapse as dollar strengthens

A relapse for commodities as the dollar rallied knocked early optimism that the global economy is robust enough to shrug off the policy implications of burgeoning inflation, reports the FT. US gasoline futures traded down sharply enough – the RBOB contract was now down 7.1 per cent, to $3.13 a gallon – that the New York Mercantile Exchange triggered its trading halts on oil products at one point. WTI crude futures were down 4.7 per cent at $99.01. The stronger dollar, which was up 1 per cent on a trade-weight basis, was having a particularly hard impact on the rally in precious metals. Silver, arguably the market’s favourite vehicle for punting, and therefore a good gauge of risk appetite, was down 8.3 per cent at $35.24 an ounce. Gold has also fallen 0.9 per cent to $1,502 an ounce. Bond investors also continue to bet against a rapid recovery, with benchmark US Tresaury yields falling back to near their lowest level of the year. Ten-year note yields were down 6 basis points to 3.15 per cent. The FTSE All-World index was down 0.8 per cent and benchmark. Wall Street’s S&P 500, which according to overnight futures prices was due to open above its cyclical closing high of 1,360, was sporting a loss of 1.1 per cent at 1,340, its worst one-day drop in over three weeks.

Rajaratnam guilty of insider trading

Raj Rajaratnam, the hedge fund billionaire, has been convicted of insider trading, handing the US government its biggest victory in a generation in its campaign to root out corruption on Wall Street, reports the FT. On their 12th day of deliberations, the jury of eight women and four men convicted the former head of Galleon Group on all 14 counts of securities fraud and conspiracy. He was found guilty on Wednesday of making $63m by trading on inside information about earnings announcements and corporate takeovers.

Commodity rout – Mark 2

Right…

So here’s the story. Read more

Raj Rajaratnam: the sentencing book

Q: What sentence awaits Raj Rajaratnam?

A: You tell us. Put your best guess in the comments below and the winner receives a mystery prize. (So mysterious we don’t know what it is yet.) Read more

If we build it, they will come

FT Alphaville has explored the financing and bespoke servicing role of ETFs before.

The FT’s Gillian Tett has now openly likened the products to CDOsRead more

Raj Rajaratnam: guilty of all charges

After a deliberation length that would make Henry Fonda blush, Raj Rajaratnam has been found guilty on all 14 counts of conspiracy and securities fraud. Bernie could now have a cell mate.

From the FT, which also has a batch of instant analysis: Read more

The shrinking AIG stock offering

Welcome back AIG, or um, another 15 per cent of you.

From the bailed out insurer’s public offering prospectus, released Wednesday morning: Read more

HSBC’s big strategy day

It’s going to take some time to plough through HSBC Strategy Execution plan, announced on Wednesday.

There’s an RNS statement and presentations from the chairman, CEO and finance director to get through, on top of the feedback from the meetings management are hosting all day. Read more

The BoE and the bank funding gulf

There’s a lot to pick over in the Bank of England’s latest inflation report, out on Wednesday. (Full PDF here)

But not so much on inflation. Rather on bank funding relative to interest rates. Read more

Markets Live transcript 11 May 2011

Live markets commentary from FT.com 

Chinese commodity imports are falling

It’s probably fair to say that in the commodity world, all eyes are now very firmly set on the state of Chinese imports.

Some interesting signals are now emerging. Namely — and perhaps not surprisingly to some — that Chinese imports are struggling with high global commodity prices. Read more

BlueGold down 20 per cent on oil collapse

BlueGold has emerged as one of the biggest casualties of this month’s downturn in oil markets, the WSJ reports. The $2.4bn London-based hedge fund is down 20 per cent so far this month, losing $500m. The fund is however exiting few positions and remains bullish on oil prices over the next few years. Taylor Woods Capital Management was relatively unscathed by last week’s carnage by contrast, having closed positions once prices failed to move up on bullish news. Despite losses piling up elsewhere — Sprott’s main fund down 12 per cent, Blenheim Capital’s flagship fund down 5.7 per cent — commodity hedge funds remain confident in their long plays, the FT says.

Google charge shows regulator pressure

Google has taken a charge of $500m to set aside for a potential legal settlement with the Justice Department over its practices in online advertising, says Reuters. The admission, contained in a terse one-line statement in the company’s official quarterly filing with the Securities and Exchange Commission, is the first indication that US regulators have found significant fault with the advertising business that lies at the heart of the company’s moneymaking machine, the FT reports. Google has seen search advertising land it in trouble with regulators before, including a $31.5m settlement in 2007 over advertising by gambling companies.

Investors attack Microsoft-Skype deal

Microsoft has come in for heavy criticism from shareholders for its decision to pay $8.5bn for Skype even as its executives trumpeted opportunities from the deal, Reuters says. Whitney Tilson, who is a long-term buyer of Microsoft stock via T2 Partners, said that ‘I wish they had not done it,’ citing overpayment. Investors are also wary of revenue and earnings growth from Skype. Microsoft says that it will raise revenues via video advertising, the FT reports. However, eBay failed to find synergies from its 2005 acquisition of Skype, the WSJ reports, noting that Microsoft has paid three times what eBay sold the company for 18 months ago.

Raise taxes to fix budget, says Wall Street

Seventeen out of the 29 biggest dealers and investors in Treasuries believe that spending cuts alone will not be able to fix federal deficits, according to a Reuters survey. However, primary dealers were much more favourable to spending cuts than money mangers polled. Twelve out of 23 fund managers and economists polled said that Congress had until late July to work out a deal before bond markets would begin to worry. The Treasury has forecast that August 2 is the deadline to deal with the debt ceiling. Respondents were divided on whether reforms to entitlements such as Social Security and Medicare should be part of a debt deal this year or could be left to after the 2012 elections.

Flood risk to US gasoline prices

The danger to refineries in Louisiana from Mississippi floods has sent US gasoline futures higher than crude prices despite the capitulation in oil markets, threatening to increase prices at the pump even further, according to the FT. Gasoline for June delivery has risen 1.5 per cent in the last week. Brent crude has fallen 4 per cent. Floods could disrupt deliveries of fuel via barges to states that are beyond the reach of pipelines, such as Florida, in addition to interrupting refineries. It’s the worst possible time for a shortage, FT Alphaville says. With refiners already stuck in Cushing syndrome, the market is on the cusp of the summer driving season and regulators are moving in to probe prices.

Microsoft and Skype, for and against

Microsoft’s agreed $8.5bn acquisition of Skype evokes shades of the frenzied dotcom bubble era and M&A tech mania: the deal, unveiled on Tuesday, brings this year’s total of announced tech deals to $94.5bn — a 56 per cent increase from last year – and also marks the highest levels of tech M&A activity since 2000, notes DealJournal.

Even so, the blog notes, this year’s levels hardly compare with the deal-obsessed months of 2000 when five of the largest tech transactions of all time and a total of $226.28bn in tech deals were announced. Indeed, while it’s a whopper in tech land, the Skype deal barely cracks the biggest-ever Top 20 tech deals, it adds. Read more

Chinese inflation still high at 5.3%

China’s consumer price index rose 5.3 per cent in April, lower than March’s 5.4 per cent increase but still higher than expected, the FT reports. Food prices also rose faster than during the first quarter at 11.5 per cent, compounding political sensitivities. Industrial output nevertheless fell in tandem with producer prices, indicating that the four interest rate hikes since October are cooling growth. However, fixed-asset investment has ballooned 25.4 per cent so far this year, indicating that domestic demand cannot support growth, Bloomberg reports. If fixed-asset investment falls, the central bank may even begin cutting rates by the end of the year, Reuters says.

Webvan slows down

The first cracks in the Webavan 2.0 investment case or something altogether less sinister?

From Ocado’s unscheduled trading statement on Wednesday: Read more

Large AIG share sale abandoned

The Treasury and AIG have scaled back this month’s sale of stock in the insurer to $8.7bn, with AIG’s board having considered postponing the offering altogether, the FT reports. The proposed size is far below the $25bn top end of the range that had been originally planned for the sale. While a decision on the offer price will have to wait until after an investor roadshow beginning on Wednesday, it is expected to come in close to the Treasury’s break-even price of $28.73. If investor demand is weak and the price falls too low, the offering could be abandoned, a person familiar with the matter told the WSJ. With over-allotment the size of the offering could increase to $10bn, but nevertheless only 15 per cent of the Treasury’s stake is likely to be sold, Reuters reports.

The deflation risk is still out there, SocGen says

This is what happens when markets are built on sand (silicon QE, anyone?).

They can crumble all too quickly. Read more

The Greeks investigate the Germans

You knew this would end in tears.

Friday’s report in German paper Der Spiegel that Greece was considering leaving the eurozone — a prospect later denied by Greek and European officials — will be given the ol’ investigatory treatment. Read more

Further reading

Elsewhere on Wednesday,

- Economics in an imperfect worldRead more