Posts from Thursday Jul 7 2011

Fresh charges in S Korean football scandal

South Korean prosecutors have charged 46 professional footballers with match-fixing in a spiralling scandal that threatens to destroy the country’s domestic football league, reports the FT. Thursday’s charges, which pose uncomfortable questions about the depth of corruption in Korean sport, come only one day after South Korea’s victory in the International Olympic Committee vote to host the 2018 winter games. Lee Myung-bak is vowing to use the final 18 months of his presidency to purge rampant corruption from Korean society, which he says is holding back the country’s economic development. His main focus has been on bankers and state officials, rather than sportsmen. Prosecutors said they would also charge 17 alleged members of violent organised crime gangs with running gambling syndicates connected to match-rigging. Six of these were on the run. There was no immediate indication of how those charged would plead.

Singh loses cabinet minister over scandal

An Indian cabinet minister has resigned following allegations he abused his power during his tenure as telecoms minister, becoming the latest cabinet minister to quit in the wake of the multibillion dollar telecoms scandal, the FT reports. Dayanidhi Maran stepped down from his post of textiles minister on Thursday, a day after India’s Central Bureau of Investigation published allegations related to his time as head of the telecoms ministry between 2004 and 2007. The CBI’s deposition alleged that Mr Maran stalled the approval of mobile network licenses for Aircel between 2004 and 2006, in order to force the sale of the company in a deal that benefited his brother. Aircel’s then owner, C. Sivasankaran, last month alleged he felt pressured to sell Aircel to Maxis, a Malaysian company. Maxis’ sister company subsequently made a $157m investment in Sun TV, a company owned by Mr Maran’s elder brother. After Maxis bought Aircel, the company was granted eight telecom licenses.

Japanese retailers in strong rebound

Japan’s supermarkets and convenience stores are seeing a stronger rebound from the March 11 disaster than initially expected, helped by a rush to buy emergency supplies and electricity-saving goods, the FT reports. Seven&I Holdings, one of Japan’s largest general merchandise store groups by sales, on Thursday raised its full-year net profit forecast by 20 per cent, supported by a faster-than- expected reopening of damaged stores and buoyant consumption. Seven&I, which owns the Seven-Eleven convenience store franchise and the Ito-Yokado supermarkets, said it expected net profits in the year to February 2012 to be Y105bn ($1.29bn) rather than the Y87.5bn forecast in early April. The revision follows Aeon’s announcement on Wednesday that the supermarket group expected full-year net profits to be 25 per cent higher than forecast earlier, at Y50bn. “Thus far, the impact of the earthquake appears to have been less than expected. Beyond that, strong cigarette sales have helped Japanese convenience store retailers and it appears that the general merchandise stores have benefited from strong cost discipline,” said Toby Williams, senior analyst at Macquarie in Tokyo.

Central banks pull most gold in a decade from BIS

Central banks have pulled 635 tonnes of gold from the Bank for International Settlements in the past year, the largest withdrawal in more than a decade, the FT writes. The move, disclosed in the BIS’s annual report, marks a sharp reversal from the previous year when central banks added to deposits of gold at the so-called “bank for central banks” rather than lending it directly to the private sector amid growing concerns over counterparty risk. Central banks and other official institutions collectively hold about 30,000 tonnes of bullion in their reserves, and many seek to earn an income on their gold by lending it out, just as any other currency. However, demand to borrow gold has fallen sharply in the past decade, driving interest rates on gold lending to record lows. Hedging by gold miners, which is typically structured to involve borrowing gold, was traditionally the largest source of demand. But since miners have cut back their hedging programmes to almost zero, the gold lending market, which is mediated by large bullion-dealing banks, has dwindled.

JPMorgan agrees to $228m settlement

JPMorgan Chase has agreed to pay $228m to settle allegations brought by state and federal officials that it made municipalities pay more for management of their bond issuance proceeds by rigging the tender process for the business, according to the US Department of Justice, writes the FT. The settlement is the largest to date in the ongoing probe by the DoJ and various other state and federal agencies. In December, Bank of America agreed to pay $137m to settle similar claims, followed in May by UBS, which agreed to pay $160m. In addition to the banks, 18 individuals have been charged, including James Hertz, a former JPMorgan employee. Nine of the 18 have pleaded guilty, including Mr Hertz, the DoJ said. JPMorgan said it had agreed to pay $211.2m, net of a $17m credit to the Securities and Exchange Commission and the Office of the Comptroller of the Currency. The money will be divided among 24 state attorneys-general – including Connecticut, New York, Illinois and Texas – the Internal Revenue Service, SEC and OCC.

US jobs data and ECB move spark rally

Better than expected US jobs data and a move by the European Central Bank to treat eurozone sovereign debt contagion is firing up the bulls, the FT reports. The FTSE All-World equity index is up 0.7 per cent to its best level since June 1, helped by Asia shrugging off Wednesday’s after-hours rate rise by the People’s Bank of China. Commodities are mostly firmer – Brent crude is up 4 per cent to $118 a barrel – while core bond yields are edging higher and the dollar index is down 0.2 per cent in a classic “risk on” scenario. Optimists have been bolstered by Wall Street’s performance over recent sessions. Despite flare-ups of eurozone fiscal angst, an interest rate hike by China’s, a weaker-than-forecast service sector survey and a market arguably ripe for profit-taking after a strong start to the month, the S&P 500 closed marginally higher on Wednesday. The advance took New York’s benchmark close to its best level in five weeks. And it is advancing again – up 1.1 per cent – after traders were cheered by a stronger than expected ADP report on private sector hiring. This in turn has raised hopes for a good non-farm payrolls number on Friday, where consensus estimates are for a net rise of 90,000 jobs.

Murdoch to close News of The World

Rupert Murdoch has sacrificed the News of the World in a desperate attempt to cauterise a crisis at his $46bn global media empire, as his son admitted personal fault in handling the escalating phone hacking scandal at the British tabloid newspaper, reports the FT. James Murdoch, News Corp’s deputy chief operating officer, said that the 168-year-old title would print its last issue this Sunday. His father’s 1969 purchase of the racy tabloid, which specialised in sex scandals and populist campaigns, launched the then-Australian press baron on the world stage. As insiders described a mood of gathering alarm at News Corp, James Murdoch said that both the News of the World and News International, the UK newspaper arm for which he has been responsible since 2007, “failed to get to the bottom of repeated wrongdoing that occurred without conscience or legitimate purpose”.

Further further reading

For the commute home,

- BBC Newsnight’s NOTW special is also on CSPAN at 5:30pm New York time. Read more

The debt ceiling: break in case of emergency

Reuters has found details of the US treasury’s not-so-secret plan should Congress fail to raise the debt ceiling in early August.

In an article published on Thursday, Richard Cowan identifies the three options treasury officials have been exploring as part of their contingency plan. Read more

Chart du jour, US long-term unemployment edition

We’ll be dissecting tomorrow’s employment report on US Markets Live at 10am in New York (3pm in London).

Hacking the messenger

Not actually a hack — a URL script trick.

 Read more

Northern Crock(ed) liability management

Bad bank, bad behaviour?

A timeline of recent events at debt-ish Northern Rock Asset Management: Read more

The Sun also rises

News Corp stock up 1.6 per cent at pixel time, after shutting down the corporation’s most profitable newspaper under a dark cloud of scandal:

(Does killing the News of the World really inoculate senior News International executives from UK prosecution? Is the BSkyB deal really safe? What does this say about James Murdoch’s decision making process? What will happen if hacking is found at other newspapers? How would the Sun replace the NOTW? Is this just an acceleration of plans to merge newsrooms? And so on. We’re confused) Read more

News of the Screwed

How’s this for lancing the boil?

 Read more

Latin America safe from Europe’s debt crisis, Nomura says

It’s a shame the internet doesn’t do smell-o-vision, as there’s a rich, warm waft of historical irony hanging over this post.

It’s about Latin America being secure from Europe’s debt troubles, especially in terms of its exposure to Spanish banks should they go under. Read more

Bahrain: the “most improved” sovereign

CMA Datavision on Thursday released its Q2 2011 report on the world’s best and worst sovereign debt performers.

There are few surprises in its top 10 most risky sovereigns, with Pakistan making a new entry due to further instability, following the assassination of Osama bin Laden (click to expand). Read more

#ECBCollateral

Thursday’s ECB press conference — in which the Jean-Claude Trichet suspended ratings requirements for Portuguese bonds — is being neatly summed up on Twitter:


Trichet on rating requirement for Portugal: whatever, don’t worry about it

UPDATE: Yep, looks like the ECB now accepts promises as high-quality collateral (we say in jest… somewhat).

Here’s the official announcementRead more

Default as a state of normalcy

As one senior banker has pointed out to FT Alphaville, it’s very rare for a country to simply grow its way out of excessive debt. Far more common, historically, is a restructuring or straight-out default. Read more

When Italy is already priced to wreck the eurozone, redux

As we’ve said, it’s a ‘Greek’ crisis, but the shadow is being cast across Italian government bond yields to an increasing extent. (The 10-year benchmark keeps coming in north of 5 per cent nowadays. Its spread to Bunds is the highest since 1999.)

The issue perhaps isn’t contagion (there is a good rebuttal here) more merely that the game is up for the eurozone being a place where sovereign borrowing costs would always converge to the safest credit, Germany. Not any more. The trade is divergence, albeit one that could wait years before the eurozone really does implode (assuming it survives a Greek exit). And quite simply, Italy has so much debt, even a relatively small rise in interest payments has a disproportionate effect on its sustainability. Read more

Markets Live transcript 7 Jul 2011

Live markets commentary from FT.com 

The new trend in corporate earnings

Ouch.

 Read more

Morgan Stanley, Goldman top up bullish commodities calls

Goldman Sachs and Morgan Stanley analysts are predicting that Brent crude prices will hit $130 a barrel in a year’s time, calling a strong global recovery in the second half of 2011, says Bloomberg. Copper prices will also reach $11,000 a ton on Chinese demand in 2012, according to Goldman. But just as interesting are the bank’s agriculture bets, says FT Alphaville. Analysts reiterated that the soybeans market would also see big price rises in the coming year. It’s a bet that clashes with concerns that soybeans have become the latest commodity to be used in questionable Chinese collateral financing arrangements.

Ex-CitiFinancial unit sale pared down

Citigroup has dropped $4bn of property assets from its attempt to sell OneMain, its rebranded CitiFinancial consumer lending unit, to Centerbridge, Leucadia and Berkshire Hathaway, says the FT. OneMain’s price in a sale would likely now be around $9bn, having begun with $13.5bn at the beginning of talks. Citi has insisted that it will not accept less than book value for the unit, originally about $2bn. After the changes the value is closer to $1.5bn, people close to the matter said. Part of the problem is Moody’s granting OneMain a lower credit rating than expected, making a deal harder to finance, according to Reuters.

NYSE shareholders set to clear merger

The NYSE is unlikely to face opposition in a vote on its tie-up with Deutsche Boerse starting at 8:00am today, Reuters reports. NYSE needs 50 per cent approval, with its largest shareholders likely to swing behind it. The 75 per cent approval Deutsche Boerse needs from its own holders will be a much more difficult hurdle, says the FT. The exchange’s works council has urged shareholders to reject the deal, amid a complex tendering process that will culminate in a vote on July 13 — subject to a short extension if the exchange has trouble finding votes.

Chinese interest rate direction unclear

Bank analysts have swung behind the view that China will limit or even suspend interest rate increases for the rest of the year, says Bloomberg. JPMorgan, HSBC, and Goldman analysts all said that Wednesday’s 25bps hike was likely to be 2011′s last, as Chinese inflation becomes “controllable”. But a Chinese central bank adviser also called for further tightening of deposit rates, saying they were still below inflation, according to the WSJ. Inflation is likely to have reached 6 per cent in June, but the central bank will be cautious of raising rates too far unless they damage borrowing costs for local government debt over the edge, the FT says.

Goldman tapped $15bn from Fed ST OMOs

Goldman Sachs borrowed $15bn in a single loan from the Federal Reserve’s single-tranche open-market operations, a secret lending program conducted over 2008, the WSJ reports. Loan-by-loan data was disclosed on Wednesday following an initial release of records in May. While Goldman’s $15bn loan was the largest, the bank’s total borrowings of $53.4bn are small compared to the $259bn borrowed by Credit Suisse from the facility. Lehman Brother’ brokerage firm borrowed $18bn over four separate loans in June 2008, Bloomberg reports.

Goldman Sachs is hot for soybeans

The latest ‘Commodity Watch’ note from Goldman Sachs continues to paint a bullish picture for most of the commodities complex in 2011 and 2012.

The usual Goldman arguments about how global growth, fueled by Asia, will support rising commodities demand, are all there. As the analysts explain in the summary: Read more

Antitrust chief departs DoJ

The Department of Justice is set to lose Christine Varney, head of its antitrust division, to Cravath, Swaine & Moore, a leading M&A legal firm, says the FT. Under Varney, DoJ antitrust regulators were seen to have stepped up activity, having stymied in May the Nasdaq-ICE bid to take NYSE out of the hands of Deutsche Boerse, and put tough enforcement conditions on approved mergers, such as NBC-Comcast. The administration will try to find a pragmatist in Varney’s mould as it seeks to balance business and core supporters ahead of the 2012 election, according to the WSJ.

SEC seeks deal on China audits

SEC officials will meet with Chinese counterparts next week to push for access to auditors based in China who have been caught up in the reverse-merger scandal, the FT reports. The talks will centre on proposals to allow inspectors from the Public Company Accounting Oversight Board to review auditing firms, as required under the Sarbanes-Oxley law. About 110 auditing firms based in China and Hong Kong are registered with the PCAOB. However, it is not clear whether existing Chinese law allows foreign regulatory access, says Bloomberg.