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Jed Rakoff is quite the hero. A New York District judge, he has done what the rest of us would love to do, and busted a cosy deal between bankers and their regulators. In early 2007, just when everything was starting to slide, the caring, sharing boys at Citigroup assembled a $1bn fund of, ahem, less-than-prime mortgage-backed securities. As Judge Rakoff explained.
That allowed [the bank] to dump some dubious assets on misinformed investors. This was accomplished by Citigroup’s misrepresenting that the fund’s assets were attractive investments rigorously selected by an independent investment adviser, whereas in fact Citigroup had arranged to include in the portfolio a substantial percentage of negative projected assets and had then taken a short position in those very assets it had helped select. Read more
Live markets commentary from FT.com
Consensus expectations were for 9 per cent and 125,000.
But don’t be deceived by the eye-catching drop in the unemployment rate: this report was good but not great. Read more
… we can just not call your bonds like you thought we would.
This is the tactic that Santander and Lloyds have seemingly been taking, as they try to get bondholders to exchange subordinated debt for senior bonds that improve capital. Read more
Dressing up a pig as a princess, doesn’t make the pig a princess, and concentrating all the counterparty risk in the financial system into one place, doesn’t make it vanish. It’s still there. For the most part.
Given that you haven’t done anything with the risk other than shift it, the logical conclusion is that regulators have to be ready to either backstop or wind-down a central counterparty (CCP) in order to prevent some potentially rather cataclysmic disruption to markets. Read more
Live markets commentary from FT.com
Equity markets were rallying once again, although the mood was cautious ahead of the closely watched monthly US employment report as traders sought to preserve their gains – or cut their losses – after what was shaping up to be the best week for global equity markets in two and a half years, the FT reports. The FTSE Eurofirst was trading 1 per cent higher and Asian equities also ticked up. The euro, however, barely budged overnight and stood just 0.1 per cent up on the day at $1.3477. Although the past 48 hours buoyed hopes of a resolution to the eurozone debt crisis at a summit next Friday, as investors remained wary after past disappointments. “The risk near term is that eurozone governments fail to commit to faster fiscal consolidation and the ECB fails to commit to larger bond purchases,” Nick Verdi at Barclays Capital said. On Thursday Mario Draghi, European Central Bank president, offered a crumb of hope to traders desperate for the region’s central bank to intervene more aggressively in its sovereign debt markets, hinting that it might be prepared to act if politicians agree more binding measures to prevent overspending. Read more
Eurozone banks borrowed more than €8bn from the European Central Bank overnight on Thursday, the highest amount since March, in a sign of the deep strains in the financial markets, the FT reports. Traders said the jump of overnight lending by the ECB highlighted the inability of virtually all eurozone banks, with the exception of the very strongest, to get funding from the markets. One trader said: “Just look at my screen. It tells the story. I have one big European bank willing to lend and 40 banks wanting to borrow. And look at those names, they aren’t little regional banks. They are some the biggest banks in the eurozone and they can’t get funding in the market place. They have to go to the ECB.” Other traders said the spike might be an exceptional, one-off. For them, it is worrying, but only extremely serious if the high level of borrowing from the ECB continues. In that instance, then in the eyes of some it suggests the private lending markets for eurozone banks has more or less broken down. The ECB emergency lending facility saw €8.64bn loaned to eurozone banks on Thursday – the highest since spikes in March when crippled Irish banks were forced to turn to the central bank for large amounts of cash. Read more
Tom Glocer will step down as chief executive of Thomson Reuters sooner than expected, handing over power on January 1 to Jim Smith, chief operating officer, in another round of management upheaval at the financial and professional information business, the FT reports. The choice of Mr Smith, a Thomson veteran who ran its legal and other professional units before being promoted this July, was seen by some insiders as evidence that Woodbridge, the Thomson family holding company that owns more than 55 per cent of the stock, is tightening its hold on its largest asset. People close to the company say that David Thomson, chairman, and Geoffrey Beattie, the family consigliere who runs Woodbridge, have been frustrated with the Thomson Reuters share price, which has fallen from more than $41 to $27.22 this year. The company indicated that the latest restructuring would incur “one-time charges”, but gave no details, saying that its guidance for 2011 was otherwise unchanged. Investor fears about the impact of market turmoil on headcount at the group’s financial services clients have contributed to pressure on the stock. Read more
Angela Merkel has called for European Union treaty change to introduce as quickly as possible a legally-binding set of rules for the eurozone’s fiscal union, the FT reports. Looking very sombre in a black suit and not deviating from her written text, the German Chancellor said in a speech to the Bundestag, the German parliament, the eurozone was not facing a debt crisis, but a crisis of confidence that would take years to resolve. Ms Merkel confirmed that she and Nicolas Sarkozy, the French president, would present a reform plan together in Paris on Monday which would be aimed at creating a “stability union” of the 17 eurozone countries, with stricter budget discipline rules, and tougher sanctions, with stricter surveillance of national budgets. Ms Merkel stressed it was vital to have those rules made legally binding and as automatic as possible. “We are not just talking about a stability union,” she said. “We are beginning to create one.” Ms Merkel’s call for greater fiscal union echoed a speech by Mr Sakozy on Thursday night. He said that eurozone countries must be subject to tougher central control over their budgets to stem the sovereign debt crisis. Read more
Comment, analysis and other offerings from Friday’s FT,
Philip Stephens: This time they may save the euro
Take a deep breath. Here is a mad proposition: Europe is about to save the euro. Don’t bet the bank on it. European leaders have shown an unmatched talent for messing things up. But there has been a change in the political dynamics of the continent’s sovereign debt crisis, says the FT’s Philip Stephens. This time policymakers might just get it right. Before such thoughts are dismissed as the Panglossian daydreaming of someone who thinks that it is really quite important to rescue European integration, I am happy to concede the case against. At every turn the story so far has been one of hopes raised and dashed. Angela Merkel, Nicolas Sarkozy and the rest have gone into summits promising to get ahead of the financial markets. They have emerged with packages as halfhearted as they have been half-baked. After a short respite, during which investors and bond traders gave them the benefit of the doubt, the crisis has returned with the fears of the markets redoubled. Read more
Zynga, the online games developer, will sell about 15 per cent of its common stock in an IPO, reports Bloomberg, citing a person with knowledge of the matter, in contrast with recent internet IPOs using a lower free float to boost demand. Zynga plans to sell shares for $8.50 to $10 each in an IPO to raise as much as $1bn, the news agency says, which would value Zynga at as high as $7bn. Meanwhile the FT reports companies that listed in the US this year are struggling to maintain share prices above their flotation price, with the typical company losing about 10 per cent of its value after its debut. The average US initial public offering has fallen by 9.9 per cent in its first six months of trading, according to Dealogic, a capital markets data provider. By contrast, the Russell 3000 Growth index, which tracks smaller companies, is up 1.1 per cent this year. Read more
Europe has moved towards imposing an oil embargo on Iran, intensifying the pressure on Tehran to abandon its suspected nuclear weapons programme, the FT reports. Meeting in Brussels, EU foreign ministers started working on an embargo, saying they had “agreed to broaden existing sanctions” and were examining “measures aimed at severely affecting” Iran’s financial and energy sectors. Oil industry executives and diplomats said the EU was likely to back an embargo by its next meeting in January. Iran is the world’s third largest oil exporter. Executives and officials said Italy, Spain and Greece – the biggest buyers of Iranian oil in Europe – had dropped their opposition to an embargo but had asked for time to find alternative supplies.
Asian stocks took a breather from Thursday’s rally as investors awaited the US non-farm payrolls report due later in the day, says the FT’s global markets overview. The MSCI Asia Pacific index was flat, with many markets consolidating the previous session’s sharp gains. Japan’s Nikkei 225 Stock Average was flat, Australia’s S&P/ASX 200 advanced 0.5 per cent and South Korea’s Kospi Composite index fell 0.5 per cent. Exporters and commodity producers lost ground as investors took profits from Thursday’s stellar gains and investors were disappointed by an unexpected rise in US jobless claims.
Hyundai Motor dropped 1.8 per cent in Seoul while Sony fell 0.7 per cent in Tokyo. Samsung Electronics retreated 0.7 per cent after Australia’s highest court extended a ban on Samsung’s tablet sales for at least another week. In Hong Kong, resource stocks traded lower on profit-taking, pushing the Hang Seng index 0.1 per cent lower. Jiangxi Copper and Cnooc each fell 0.8 per cent and Angang Steel dipped 1.5 per cent. Read more
Leading players in the eurozone debt negotiations – Angela Merkel, Nicolas Sarkozy, Mario Monti, Mario Draghi, and Herman Van Rompuy – seem to be singing from the same song-sheet ahead of next week’s summit, says the FT. Essential details, however, are still the subject of intense negotiations that could run right up to the EU summit on December 9, not just between France and Germany, but with the European Commission – the EU executive – and smaller member states. The deal involves accelerated agreement on what Mr Draghi described on Thursday in the European parliament as a “fiscal compact” between the 17 eurozone members to enforce much stricter budget discipline and debt control throughout the monetary union. The other two elements are agreement on a reinforced firewall to prevent contagion from one eurozone country to the next; and tough national measures in the most debt-laden states to restore confidence in the markets. Mr Draghi’s blessing for the three-pillar combination is critical, and the ECB president hinted in his Thursday speech that the “fiscal compact” could pave the way for a more agressive ECB approach, reports the FT separately. Read more
Barclays faces an €82m ($110m) lawsuit in London for allegedly misusing confidential information from a potential client to seal the 2010 takeover of a Swedish carbon trading company, reports the FT. CF Partners, a UK advisory and trading firm, claims it came to Barclays in September 2008 to explore whether the British bank could provide financing for a potential deal with Tricorona, a Stockholm company that had a vast portfolio of carbon credits in the niche area of hydro power projects. When that transaction stalled amid a deepening global financial crisis, Barclays used CF’s work on the value of Tricorona’s credits in pursuing its own deal with the Swedish company nearly two years later, CF alleges in a lawsuit filed in the High Court last month. Barclays said the case was “without merit” and would be contested “vigorously” by the bank.
US authorities are expected to arrest three former Wall Street traders as early as next week in an expansion of their insider trading investigation, the FT says, citing to a person familiar with the matter. Insider trading charges are expected to be brought following a raid of the two hedge funds, Diamondback Capital and Level Global, in November 2010, this person said. Since then, agents with the FBI and prosecutors with the US Attorney’s office in Manhattan have won the co-operation of several hedge fund employees, sources told the newspaper, and another person said the investigation is expected to include allegations of improper trading in several stocks, including several trades around one tip that resulted in profits of more than $50m, which would make it one of the biggest single insider trading transactions. Read more
Tom Glocer will step down as chief executive of Thomson Reuters sooner than expected, reports the FT, handing over power on January 1 to Jim Smith, chief operating officer, in another round of management upheaval at the financial and professional information business. The choice of Mr Smith, a Thomson veteran who ran its legal and other professional units before being promoted this July, was seen by some insiders as evidence that Woodbridge, the Thomson family holding company that owns more than 55 per cent of the stock, is tightening its hold on its largest asset. The decision to replace Mr Glocer with Mr Smith was a mutual one, driven by a realisation that management had to concentrate on operations in a tougher economic climate rather than pursue more aggressive strategic goals, the newspaper says, citing someone close to the events. Read more
The Brazilian government has ordered Chevron to shut one of its 11 production wells in an important offshore field where the company suffered an oil leak last month, says the FT. Chevron said the decision by the Brazilian regulator, the National Petroleum Agency, followed a safety audit last week of its Frade offshore oil platform amid reports the authorities were unhappy that the company did not report the presence of hydrogen sulphide in crude at the facility. Chevron said the well in question accounted for less than a tenth of the platform’s outputs. Chevron was banned from drilling in Brazilian waters last month after about 2,400 of barrels of oil leaked from the Frade project in the Campos basin, 230 miles north-east of Rio, when workers encountered unexpected pressure while drilling. Ibama, Brazil’s environmental regulator, fined Chevron R$50m ($28m) – an amount that could at least triple, and Rio’s government said it could impose additional fines for damage to the local environment.
The EU may exempt bank debt issued before 2013 from proposals forcing investors to take losses, Bloomberg says, citing a person familiar with the plan. The exemption could be extended if banks struggle to raise funds, but it would require approval from national governments and the European parliament. A draft proposal contains provisions for holders of senior, unsecured long-term debt – defined as maturities longer than a year – to bear losses before short-term bondholders, says the news agency, as well as powers for regulators to forcibly convert a bank’s bonds into ordinary shares. A European Commission spokeswoman declined to comment. Read more
US auto sales rose 14 per cent in November over the same eriod last year, as lower petrol prices and a wider availability of Japanese models helped the industry achieve its highest selling rate in more than two years, the NYT reports. Chrysler said sales across all brands were 45 per cent higher than November 2010, while Ford’s sales were 13 per cent higher but gains in SUVs and trucks offset a decline in demand for the company’s cars. GM’s sales rose 7 per cent with its smaller cars and pickup trucks recording big gains. Some Asian auto makers also benefited from higher demand in the US, reports Bloomberg, with Toyota, Nissan, Hyundai and Kia selling more vehicles than analysts had expected. However Honda failed to see an upturn, as the company says its US sales are still suffering the effect of the March disasters in Japan. Analysts in both reports indicated the surge was the temporary effect of Americans having long delayed new vehicle purchases. Read more
Massachusetts sued the five biggest mortgage companies in the US on Thursday, accusing them of “corrupting” the state’s land records through pervasive use of fraudulent documentation in seizing borrowers’ homes, reports the FT. The lawsuit throws a wrench into discussions between various federal and state agencies and the five lenders – Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial – to settle allegations of faulty mortgage practices. The two sides have been nearing a $25bn deal over the past year to resolve claims sparked by the discovery that the banks employed so-called “robosigners”, or workers who signed foreclosure documents en masse without properly reviewing individual borrowers’ paperwork. Martha Coakley, Massachusetts attorney-general, on Thursday alleged that the banks illegally foreclosed on borrowers’ mortgages because they were not the actual holders of those mortgages, among other accusations. This was due to their failure to properly review, assign and transfer critical paperwork, she said, adding that the banks “had no legal right to conduct the foreclosure”. Read more
Two Federal Reserve officials sought to play down market expectations that the central bank will move quickly to provide further monetary easing, says the WSJ. James Bullard, president of the Federal Reserve Bank of St. Louis, said Thursday that recent data on the economy had been surprisingly strong and ”it’s reasonable to think” there would be a pause until at least 2012. Richard Fisher, president of the Federal Reserve Bank of Dallas, dismissed talk of the Fed cutting the rate charged on emergency loans from its discount window. Read more