Posts from Tuesday Dec 6 2011

Delhi threatens crackdown on social media

India has threatened to take action against global internet groups, including Facebook, Google and Twitter, after they refused to remove blasphemous and politically inflammatory material from their online platforms, the FT reports. Kapil Sibal, India’s telecommunications minister, said on Tuesday that over the past three months he had repeatedly asked social media executives to find mechanisms to monitor and block the release of “offensive material”. But, he added, the internet companies told him “we can’t do anything”.

Further further reading

For the commute home,

- Meet GREK, the Greek stock ETF. Read more

Protesters defy troops on Moscow streets

Over 1,000 demonstrators on Tuesday gathered for a second evening of protests over flawed parliamentary elections defying a show of force by the Kremlin, which had deployed thousands of troops and army trucks on to Moscow’s main streets, the FT reports. The protesters attempted to stage an unsanctioned rally at Triumphalnaya Square off Moscow’s main thoroughfare, but were vastly outnumbered by police, soldiers and pro-Kremlin supporters. Scores were manhandled and shoved into police vans. They included Boris Nemtsov, an opposition leader and former deputy prime minister.

S&P feels Europe’s ire over ratings threat

The warning by Standard & Poor’s of a possible future downgrading of 15 members of the eurozone brought angry charges from both bondholders and politicians that the US credit ratings agency was destabilising the markets, just as a comprehensive deal to stem the financial crisis was in sight, the FT reports. The sharpest response came from Europe’s central bankers. Christian Noyer, president of the Banque de France, accused the rating agency of giving more weight to political than economic factors, and “once again” getting its timing wrong. It had issued the warning just hours after Angela Merkel, German chancellor, and Nicolas Sarkozy, French president, had announced the outlines of a comprehensive package to resolve the eurozone crisis.

EU talks on doubling financial firewall

Eleventh-hour negotiations have begun to create a much bigger financial “bazooka” to present at this week’s European Union summit that could include running two separate rescue funds and winning increased support for the International Monetary Fund, the FT reports. This three-pronged rescue system would form part of a carefully crafted package EU leaders hope will win over financial markets, just two months after a similar summit failed to convince bond investors Europe could contain its spiralling debt crisis. The rescue system would be introduced alongside proposals to rewrite EU treaties with far tougher budget rules for the eurozone.

The unusual case of Green Bay Packers shares

FT.com reporter Jason Abbruzzese submits this guest post for FT Alphaville.

250,000 shares are for sale at Packersowner.com for $250 a piece (check out the prospectus here), making a great stocking stuffer for anybody that bleeds green, gold and white. For that price, you get a handsome certificate cementing your place as a shareholder of the defending Super Bowl champions. Read more

More talk of a magically bigger firewall

A good start to the week for anyone studying the FT Effect. Although in this case, the rally petered off by the close of trading.

The latest 3pm-ish scoop from the paper that keeps markets on edge for at least an hour a day: Read more

The problems with the ECB-IMF switcheroo

It’s been the subject of more rumours than Kim Kardashian but the ECB-IMF switcheroo is increasingly likely, at least according to reports from Bloomberg and Reuters.

One would think the involvement of the credible-again IMF would be good news. But in a note out Monday, Nomura’s Desmond Supple warns of three “significant drawbacks” to using the IMF as a conduit for ECB or National Central Bank (NCB) funds. Read more

All Know Holdings vs SEC

Securities and Exchange Commission Civil Action No 11 CV 8605.

Presented without comment, obv. Read more

Step inside the mind of Willem Buiter — but tread carefully

Bobby Robson, the former England football coach, once described a player as being so truculent he could have an argument with himself.

Willem Buiter has gone one better. In his latest note, the Citigroup chief economist has invented someone so he can have an argument. Read more

Why France could be on the wrong side of the Eurozone crisis

Anyone betting that France will make it through the eurozone crisis because it’s a AAA country (just about), might want to a look at this chart and think again:

 Read more

Corporate bonds to the rescue?

Back in September, the FT reported an interesting estimate by JP Morgan.

Twenty-eight European banks would have faced a total liquidity shortfall of €493bn at the end of 2010, if they had been forced to meet new liquidity requirements (which actually come due in 2015) then and there. Read more

I am altering the PSI. Pray I do not alter it any further

Or, to rip off Thucydides — official creditors of sovereign debtors do (and promise) what they please… and private creditors suffer what they must. Read more

How Germany is paying for the Eurozone crisis anyway

The European Central Bank has always been a special case in the world of central banks.

While policy is decided centrally, actual enforcement and implementation of that policy is conducted on a national central bank (NCB) level. Read more

Collateral crunch, meet BoE

In light of the continuing exceptional stresses in financial markets, the Bank of England is today announcing the introduction of a new contingency liquidity facility, the Extended Collateral Term Repo (ECTR) Facility. This Facility is designed to mitigate risks to financial stability arising from a market-wide shortage of short-term sterling liquidity. There is currently no shortage of short-term sterling liquidity in the market. But should that position change, the new Facility gives the Bank additional flexibility to offer sterling liquidity in an auction format against the widest range of collateral. The introduction of the ECTR Facility underlines the Bank’s commitment to take appropriate measures to maintain UK monetary and financial stability.

The Bank already provides liquidity on a bilateral basis through its Discount Window facility, and also provides longer-term funds each month through its Indexed Long-Term Repo facility. This is very useful though, both for allowing banks to bid for funds using a variable rate (at least 125bps above Bank Rate), and for allowing collateral “pre-positioned” for use at the discount window. Assets eligible for DWF collateral are listed here. Compare with the BoE’s “narrower” list of collateral. Read more

Markets Live transcript 6 Dec 2011

Live markets commentary from FT.com 

S&P warning shakes eurozone

Eurozone officials have greeted S&P’s warning that it may downgrade 15 member-states as “astonishing”, “a wild exaggeration and also unfair” and risking turning rating agencies into “becoming a motor in the current crisis”, reports Reuters. Monday’s move is the most countries that S&P has put on ‘creditwatch’ at any one time, the WSJ reports. ”After a good two years of trying to manage the crisis, the political efforts have not been able to arrest matters,” Moritz Kraemer, head of European sovereign ratings at S&P, told the FT, though adding that a December 9 summit may still make enough decisions on solving the crisis to avert a round of downgrades.

‘This economy is no place for young men’

GMO’s Jeremy Grantham’s latest letter is briefer than his other recent efforts (in fact he says it’s his shortest ever), and it doesn’t offer much insight into the eurozone crisis other than to say it’s a terrifying situation.

But, as well as reprising some of the social equity concerns he raised earlier in the year — and decrying the state of US infrastructure, education, and politics — Grantham has a cute (that is, scary) extrapolation to make from the history of bubbles. The bubbles that burst in 2002 and 2009, he says, did not see a break below equity market trends anywhere near as low as the previous 10 bubbles: Read more

Japan’s Olympus risks delisting after ‘rotten’ report

An independent report into the $1.7bn Olympus accounting scandal has concluded that ”the core part of management was rotten,” says the FT. Arguing that executives in the cover-up should face legal action, the probe nevertheless did not find involvement by “anti-social forces”, or organised crime. Investors in Olympus stock largely took the findings in their stride, reports FT Alphaville, although the Tokyo Stock Exchange has warned that Olympus may face delisting even if it beats a December 14 deadline to post financial results, Bloomberg says.

Will a Basel risk-free ‘about turn’ be enough?

News that Basel III is reconsidering the use of government bonds as eligible capital to be held in banks’ so-called liquidity buffers, couldn’t have come quicker.

The world, for want of another phrase, is running out of collateral. Especially in Europe. Read more

BP accuses Halliburton of destroying evidence

Halliburton intentionally destroyed evidence about the Deepwater Horizon spill to stop it being used against it in a trial, BP has claimed, according to the FT. BP alleged in a filing to a New Orleans court that Halliburton, which was contracted to work on cement to seal the well at the time of the disaster, destroyed test results and computer analysis of the cement mix. Halliburton has previously countered that BP failed to use technology to position the well properly, allowing the cement to become damaged, the Houston Chronicle reports.

Rosenfeld to head post-Kraft company

Irene Rosenfeld will remain as chief executive of the global snacks company which will be created after Kraft splits into two later next year, the FT says. Rosenfeld’s future had been in question because it is rare for chiefs to stay in power at one of the smaller businesses after a large company splits. Analysts said that the leadership move signals that both the global snacks unit and the second post-Kraft creation, the North American grocery unit, could be acquisitive after the split is complete. Kraft expects the spin-off to finish in 2012, Reuters reports.

MF Global risk officer warned Corzine

MF Global’s chief risk officer warned Jon Corzine that the broker lacked capital to back its trades in eurozone sovereign debt before resigning in March, the WSJ says. Michael Roseman also advised MF Global’s board of directors of the danger of the trades, including the consequences of MF Global’s credit rating being cut. Corzine suggested to board members earlier this year that questions over his judgement in doing the trades might push him to depart as chief executive. The CFTC has meanwhile restricted the ability of brokers to use customer cash to back trades in foreign sovereign debt or to finance repo deals, following the disappearance of $1.2bn in client funds after MF Global’s collapse, the FT reports.

Paulson down further in November

John Paulson’s flagship fund lost 3.6 per cent in November, taking losses for the leveraged Advantage Plus fund to 46 per cent in 2011, Bloomberg says. Gold-denominated shares in the fund have fallen 29 per cent in 2011, dropping 2.7 per cent last month, while dollar shares in the Advantage fund fell 3.3 per cent in November. Paulson & Co’s Gold fund is up 11 per cent for the year, the FT reports, adding that the the Dow Jones Credit Suisse hedge fund index is down 7 per cent for the year so far. Paulson has already apologised to investors, and promised to reduce risks arising from his bets in financial stocks, Reuters says.

The non-Yakuza bounce

Olympus shares on Tuesday:

 Read more

Yes! We have no collateral today

Didn’t think the quality collateral scarcity issue was a big problem?

Seems the fast diminishing pool of ‘risk-free’ assets is a big enough issue to have the Basel Committee on Banking Supervision completely change its mind on the role of government bonds in its new banking rules. Read more

Further reading

Elsewhere on Tuesday,

- European volatility neck-and-neck with emerging markets. Read more

Pink picks

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

After MF Global: how to protect customers’ cash
Customer money is missing at MF Global. After three mysterious weeks, we don’t even know whether the shortfall is $600m or $1.2bn, writes Darrell Duffie, the Dean Witter Distinguished Professor of Finance at Stanford University’s Graduate School of Business. While this is obviously a problem for MF customers, it’s also a significant challenge for the larger financial system. When missing customer cash is needed as collateral for other transactions, its absence could contribute to a cascade of failures in other markets. Worried investors, meanwhile, might suddenly reduce their derivatives positions in order to retrieve the margin cash they had placed with other futures brokers to back their trades. This retreat could contribute to dangerous fire sales, further worsening a downward spiral. Read more

Snap news

Breaking pre-market news on Tuesday,

- Xstrata announces further significant increases to mineral resources in South America - statement. Read more

Osborne to unveil offshore tax reform

The Treasury plans to slash the red tape faced by multinationals, in what is viewed as a key test of George Osborne’s bid to make the corporate tax system the most competitive in the G20 group of nations, says the FT. In an overhaul of anti-avoidance rules to be unveiled on Tuesday, the Treasury is expected to say that companies’ offshore operations will now only be caught by the British tax net in “situations that pose the highest risk of artificial diversion of UK profits”.  The decision to exempt other situations comes after a consultation in which businesses said that increased compliance burdens might deter groups from basing their headquarters in the UK.