Posts from Friday Jul 8 2011

The Weekender

This week on FT Alphaville,

- We peered through the holes in Chinese local government balance sheets. Read more

Further further reading

For the commute home,

- US jobs analysis: charts, links and a punchy pieceRead more

US housing feedback loops

In case you needed any reminding that there was another horror story in the US economy, Nomura has a nice little note out on the prolonged impact of foreclosures on the housing market.

House prices are in double-dip territory, although they may well be bottoming out. The problem, according to Nomura, is not prices but the 4.1m mortgages that are seriously delinquent or in foreclosure. A problem that as you know isn’t going away soon. Read more

Sky falls in — takes News Corp with it [updated]

Shares in BSkyB down around 4 per cent-plus at pixel time. Is there an arbitrage trader left in this thing?

 Read more

US Markets Live transcript 8 Jul 2011

Live markets commentary from FT.com 

Reminder: US Markets Live starts at 10am New York time

For those unmoved by Monday’s Independence Day fireworks to set their clocks to US time, that’s 3pm in London.

We’ll kick things off with a discussion of the ghastly payroll numbers and related market reactions, and then we’ll cheer ourselves up with the latest in the US debt ceiling negotiations. And anything else — NOTW and otherwise — that breaks in real-time. Read more

An awful June employment report: payrolls up 18,000…

… and unemployment rises to 9.2 per cent.

A disastrous report, with not a single piece of good news that we can discern. To wit: Read more

Danish covered bonds at dawn

A break in the clouds, for Denmark’s stormy covered bond market:

(Bloomberg) Denmark’s covered bonds are likely to be snapped up by U.S. buyers even after Moody’s Investors Service downgraded the securities, according to Alan Boyce, the head of the George Soros joint venture Absalon Project. Read more

Sky falls in

There goes BSkyb straight through 800 pence to as low as 775p:

 Read more

Volatile Venerdi

A small case of contagio bancario italiano seems to be hitting European markets on Friday.

At pixel time Unicredit shares were down 6.8 per cent after being halted briefly due to excessive losses brought about by euro crisis contagion fears: Read more

Markets Live transcript 8 Jul 2011

Live markets commentary from FT.com 

Biggest bank title set to pass to JPMorgan

JPMorgan is on course to overtake Bank of America as the United States’ biggest bank, though chiefly because BofA is deleveraging faster than its rival, reports Reuters. JPMorgan had $2,200bn assets at the end of March, not far off Bank of America’s $2,270bn, though analysts are unsure whether BofA will be surpassed at the beginning or end of 2012. Bank of America has meanwhile agreed to sell its Balboa Life Insurance unit, a legacy asset from its 2008 Countrywide acquisition, to Securian Financial for an undisclosed amount. The move is part of efforts to improve the bank’s capital, says the FT.

Haldane on HFT’s market-making problem

Sharp thoughts on Friday from Andrew Haldane, executive director for financial stability at the Bank of England, on the changing topology of the market — including the rise of high-frequency trading.

Haldane — champion of the “we may have become too impatient” philosophy — wonders in a speech to the International Economic Association in Beijing, about a number of issues connected to the above. Read more

JPMorgan settles for $228m in muni scandal

JPMorgan has struck the largest settlement so far in the ongoing probe into the tender process for municipal bonds, the FT reports. The bank paid $228m to settle regulators’ allegations that it rigged tenders in order to extract bigger fees. Bank of America agreed to pay $137m in December to settle similar claims, followed in May by UBS, which agreed to pay $160m. Around $129m of JPMorgan’s settlement will go to muni bond issuers themselves. The allegations that JPMorgan bankers rigged bids involved at least 31 states over eight years, the Bond Buyer says.

Minnesota stripped of AAA rating

Fitch has downgraded the state of Minnesota one notch to AA+, as the state’s budget impasse continues, Reuters reports. Minnesota’s state government has been shut since Friday after Democrats and Republicans missed the July 1 deadline to agree on a budget. About $35bn worth of measures remains under discussion. Fitch cited an “increasingly contentious budgeting environment” and noted that Minnesota may eventually opt to sell tobacco bonds to raise money rather than raising income taxes on the wealthy.

Nonfarm payrolls seen rising modestly

Friday’s nonfarm payrolls release is likely to report that jobs rose 90,000 in June, up from the anaemic 54,000 posted in May, says Reuters from a survey of economists conducted last week. Jobless rates were expected to remain at 9.1 per cent. Bloomberg’s survey predicts 105,000 with a 9.1 per cent jobless rate, with forecasts in the estimates it collected ranging from 40,000 to 175,000. Falls in the cost of fuel likely made it cheaper to hire in June, with May’s shock deceleration chalked up to supply chain disruption from the Japanese earthquake, which has diminished.

Volatility hits hedge fund returns

Some of the world’s largest hedge fund managers have been left nursing significant losses after two months of volatile markets, reports the FT. Paulson and Co.’s flagship Advantage Plus fund dropped 11.5 per cent in June, according to an investor. The $9bn fund is down 18.4 per cent so far this year. Even veterans of macro trading have been under pressure, with the MLM Macro fund dropping 9.2 per cent for June as at June 24. Hedge funds which sought pickings in the muni bond market fared better, the WSJ reports. Funds which bought up speculative “tobacco bonds” saw returns of more than 10 per cent.

Hope for debt ceiling accord

President Barack Obama and Speaker of the House John Boehner have sketched out a deal to reduce the deficit by $4,000bn over 10 years as part of talks to raise the debt ceiling, some way beyond the $2,400bn that analysts believed would be sufficient for agreement, the FT reports. Any such “fiscal grand bargain” would however be difficult to get through supporters in either political party. President Obama has nevertheless threatened to veto a short-term deal that would raise the debt ceiling for only a few months, Politico reports.

News Corp rocked by tabloid’s closure

News Corp has executed the News of the World, its most profitable British newspaper, in order to contain a growing phone-hacking scandal, the WSJ says. But doubts are rising that its US empire will escape damage, the Guardian says. Lawyers are already assessing the liability of senior executives, including James Murdoch, for the scandal, reports the FT. News Corp’s bid for BSkyB — a deal which would bring in 100 times the revenue generated by the News of the World — is still likely to go ahead but on a delayed timetable, notes Reuters. “Rupert Murdoch is quite astonishingly inept at crisis management” judging by this scandal, says Felix Salmon.

It’s the end of the World as we know it

But seriously, shares in Trinity Mirror up more than 10 per cent on the death of the Sunday Mirror’s biggest rival?

Daily Mail and General Trust shares were up 2.37 per cent, while Johnston Press was up 4.76 per cent. Read more

Battle of the BTPs and Bonos

It’s Europe’s least-loved debt, after Greek, Irish and Portuguese of course. It puts the ‘I’ and ‘S’ in the porcine periphery acronym we’re not supposed to say. It’s Italian BTPs versus Spanish bonos.

And Italian government debt, or Buoni del Tesoro Polianuali, has had a tough time of it lately. Read more

Further reading

Elsewhere on Friday,

- Once Greece goes… Read more

Pink picks

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

 Read more

Snap news

Breaking pre-market news on Friday,

- News Corporation files Form 8k to the SEC – statement.
 Read more

Branch banking stages a revival

The explosion of online banking a decade ago looked destined to sound the death knell of the traditional branch. But as banks battle it out to win coveted current account customers many are putting their high street presence back at the heart of their post-crisis ambitions. New entrants to the banking market are vying for the rare opportunity to buy a ready made network through Lloyds Banking Group’s sale of 630 branches, says the FT. Those that already have a foothold in the market – Virgin Money and Metro Bank, for example – are trumpeting their branches as “lounges” or “stores” in a bid to shake-off the age-old image of faded grey carpets and long queues.

 

CFTC gets more powers on manipulation

The main US derivatives regulator has approved rules boosting the agency’s legal firepower against market manipulation after winning only one case at trial in its 36-year history, the FT says. The rules, adopted over the objections of hedge funds and the futures industry, will allow the Commodity Futures Trading Commission lawyers to cite recklessness as a reason to sue traders for manipulation. Previous rules required proof that traders had distorted prices.

 

HFT trading adding risk, says Haldane

High-frequency trading is creating systemic risk and markets may need a “redesign”, a top official at the Bank of England said in prepared remarks. The FT reports that in a policy speech to be given in Beijing, Andrew Haldane, executive director for financial stability at the Bank of England, said the “race to zero” in the amount of time it takes to make a trade is increasing volatility and “tail risk” in global markets. It is the strongest statement of concern about market structure by a central bank official and echoes the sentiments of securities and futures regulators in the US and Europe. It is also unusual in that it ties the issue to broader efforts to reduce systemic risk and generate growth

 

Overnight markets: Up

Asian shares tracked solid gains on Wall Street as strong jobs data from the US private sector increased hopes that the world’s largest economy may be emerging from a soft patch. The MSCI Asia Pacific index added 0.9 per cent, on track to record a gain for a third week, with all eyes on US non-farm payrolls data due later in the day. Consensus estimates are for a net rise of 90,000 jobs. If the crucial non-farm payrolls numbers beat traders’ forecasts, that may bolster the belief among some that the US economy’s recent softness was little more than transitory.

  Read more

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. The FT reports 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.

BofA sells Balboa unit to boost capital

Bank of America has agreed to sell its Balboa Life Insurance unit to Securian Financial, a US provider of insurance and retirement plans, for an undisclosed amount. The FT says largest US lender has been selling extraneous businesses to refocus on its core operations of retail and commercial banking in the face of new regulatory rules that will boost capital requirements for the largest banks. BofA has said it expects to record a pre-tax gain of $750m from the sale of Balboa when it reports second-quarter earnings on July 19. Terms of the life assurance sale, which is expected to be completed by October 1, were not disclosed. BofA said that the deal was not material to its earnings.