Posts from Wednesday Dec 7 2011

Further further reading

For the commute home,

- Prognostication problems and the archives of The Economist. Read more

Barclays withdraws from $1bn retail business in India

Barclays is withdrawing its retail business from India, worth about $1bn in assets, reversing an expansion the UK banking group began five years ago in Asia’s third-largest economy, reports the FT. The realignment, part of a broader global strategy, will allow the bank to focus on its more successful investment and corporate banking business in India. As part of a sale of loan books begun a year ago, Barclays on Tuesday sold its India credit card business to Standard Chartered, the emerging markets-focused bank.

Drop in China’s local land sales poses threat to growth

The Guangzhou government’s land sales programme has seized up, reports the FT. Last month, the city government in southern China had to cancel or drastically scale back its plans to auction land four times because cash-strapped private developers were nervous about Beijing’s raft of measures to cool property prices. “The sale of 32 sites was cancelled within two weeks. There has never been a situation like this in the history of Guangzhou,” says Peng Peng, a local academic. In the first nine months of this year, the government collected just Rmb14bn ($2.2bn) in revenues from land sales versus a target for 2011 of Rmb50bn after Rmb45.5bn was raised in 2010.

Olympus pledges legal action after report

Olympus, the scandal-hit Japanese camera-maker, has responded to a critical report on its accounting and governance with fresh promises to overhaul its management and pursue legal action against executives involved in hiding more than $1bn in losses, reports the FT. Shuichi Takayama, president, on Wednesday acknowledged for the first time the role played by Michael Woodford, the British chief executive fired by the company in October, in bringing the long-running cover-up to light. Olympus sacked Mr Woodford after he confronted other executives over the deception, yet it had continued to insist he was removed over problems with his management style.

PetroChina finds shale gas reserves

PetroChina has discovered shale gas in China’s Sichuan province, confirming that the energy-hungry country is sitting on vast reserves of this unconventional fuel source, reports the FT. Shale gas, or natural gas trapped inside deposits of shale rock, is expected to transform China’s energy supply in future decades by providing a potentially cheap and plentiful new source of fuel for the world’s biggest energy consumer. PetroChina, the listed subsidiary of Chinese oil and gas producer CNPC, told the Financial Times it had drilled about 20 wells in its shale gas acreage in southern Sichuan province and that initial results had been positive. “The wells are producing more than 10,000 cu m of gas per well per day,” said Mao Zefeng, PetroChina senior assistant secretary to the board. “We are still assessing the exact size of the potential reserves.”

 

Renminbi under pressure as China slows

The renminbi has fallen to the bottom of its official trading band for six straight days against the dollar, an unprecedented indication of the Chinese currency’s potential weakness as the economy slows, reports the FT. Beijing has so far acted to keep the renminbi largely stable against the dollar by supporting its value and selling some of the country’s massive pile of foreign exchange reserves. But the intervention is prompting growing discussion in China about whether the renminbi could depreciate or at least become considerably more volatile.

India shelves plan for retail reform

India’s ruling Congress party has been forced to shelve controversial legislation to open the country’s $450bn retail sector to foreign investors, in an embarrassing setback for the government led by Manmohan Singh, prime minister, reports the FT. Pranab Mukherjee, finance minister, said the decision to permit 51 per cent foreign ownership of supermarkets had been “suspended until a consensus is developed through consultation among various stakeholders”. The minister gave no timeframe for when consensus might be reached but few believe the government will be able to revive the reforms, which were unveiled just two weeks ago.

Apple loses iPad trademark case in China

Apple could face disruption to its iPad sales in China after a court rejected its claim to own the iPad trademark in the country and a rival sought to halt sales of the tablet device in two Chinese cities, reports the FT. The developments are the latest in a long-running dispute between Apple and Proview Technology (Shenzhen), a struggling Taiwanese-owned company that registered trademarks for the name IPAD in many countries long before Apple conceived its smash hit tablet computer. Normally, Apple is on the receiving end of intellectual property rights infringements in China, with counterfeits extending even to copies of its flagship stores. The US company has nonetheless reported soaring sales over the past three quarters, following a push started last year under which it has so far built four Apple stores in Beijing and Shanghai and 1,000 resellers across the country.

 

Private equity struggles to find finance

The volume of European private equity deals has dropped to its lowest level since the height of the financial crisis two years ago as buy-out groups struggle to finance deals amid the eurozone debt crisis, reports the FT. Europe’s buy-out market has shrunk to $11.5bn in the current quarter to date, a mere fifth of the transaction volume seen in the fourth quarter of 2010 and the lowest level since the second quarter of 2009, according to data from Dealogic.

Germany insists on new treaty for Europe

Germany on Wednesday insisted that its European partners must undertake the politically fraught process of changing European Union treaties, or at least accepting a binding new eurozone accord, to bring stability to the single currency and restore the confidence of investors, reports the FT. On the eve of a European summit in Brussels to stem the eurozone crisis, a senior German government official dismissed the suggestion by Herman Van Rompuy, European Council president, that tougher fiscal discipline could be enforced without a full-blown treaty overhaul. “A number of actors have not understood the seriousness of the situation,” the German official said, warning that a “bad compromise” of small steps or “little tricks” would not meet the expectations of the public or the financial markets.

 

For sale: one timber company, hardly used

It’s about time we heard again from Sino-Forest.

The timber flipper has been quiet since it published the interim report into allegations of fraud made in June by short seller Muddy Waters. Third quarter results aren’t out until December 15, but Bloomberg has spoken to Judson Martin, Sino-Forest CEO, and the company seems in pragmatic mood. Read more

Who does the ECB call when it wants to speak to Europe?

Answer: the United States.

The Washington Post on Wednesday has a sympathetic piece highlighting US officials’ behind-the-scenes roles in the eurozone crisis. Read more

When the deleveraging meets the real economy

Looking forward to the new year yet?

After a likely outright contraction in GDP in 2012, in the creditless recovery that we envisage the pick-up in GDP growth is likely to be slow and shallow. Read more

Bloomberg vs Bernanke

How did it come to this?

1. Bloomberg News spent a couple of years trying to extract more information about the bank bail-out loans than the Fed wanted to share. Read more

Markets Live transcript 7 Dec 2011

Live markets commentary from FT.com 

Me like cheap dollars

A much bigger turn-out than usual from banks for the ECB’s latest operations to swap their euros for dollars:

RTRS-ECB ALLOWS 50.685 BLN DOLLARS IN 84-DAY OPERATION VS RTRS POLL $10 BILLION Read more

Tax rises for wealthiest New Yorkers

The governor of New York and state legislators have reached a deal to increase taxes for the wealthiest earners, while lowering rates for other residents, the FT reports. The tax rise for those earning more than $2m annually will replace a surcharge which would have led to lower rates if legislators had left it to expire at the end of this year. Governor Andrew Cuomo had resisted renewing the surcharge in the face of demands from Occupy Wall Street groups that the “millionaires’ tax” remain in force, according to the NYT, but the deal allows both sides to declare victory.

Markets greet yet another eurozone bazooka

Stock markets in Asia and Europe have risen modestly on the latest plan to deliver a “firewall” for eurozone sovereign debt, the FT reports. The Italian 10-year bond yield fell below 5.8 per cent early in European trading. The proposal involves cobbling together the eurozone’s existing EFSF funds with bringing forward over $670bn of fresh funds from the European Stability Mechanism, a bailout vehicle, earlier than planned, the FT adds. Timothy Geithner, the Treasury Secretary, has praised eurozone leaders’ efforts on his three-day trip to Europe — but declined to be drawn on what the European Central Bank should do to fix the crisis, reports the WSJ.

Lehman bankruptcy in final phase

A court has approved the remnant of Lehman Brothers to exit bankruptcy early next year, allowing pay-outs to creditors to begin soon after, reports Reuters. Lehman has some $65bn of assets under its three-year liquidation plan to meet the $450bn claims of its creditors. Judge James Peck called the bankruptcy the “most impossibly challenging” ever in approving the plan in court, Bloomberg says. Senior bondholders of Lehman will get 21.1 cents on the dollar back under the plan, compared to 16 cents in a rival proposal put together by creditors of Lehman’s affiliates.

BofA left behind in dividend race

Bank of America’s chief executive has come out as markedly less optimistic than his rivals about restoring dividends after the latest Federal Reserve stress tests, the FT reports. “I’ve said we are not going to ask for a dividend until I’m sure we’ve got the capital picture solved along any dimension and that we can get approval,” Brian Moynihan said at a banking conference. A 2010 promise to restore BofA’s dividend was resisted by Fed officials at the time, WSJ Deal Journal says. Moynihan also once more declined to rule out bankruptcy as a solution to Countrywide’s woes, Reuters reports.

MF Global failure lands farms in cash crunch

Farmers across the United States have been left increasingly unable to buy equipment or to hedge their crops, because their money is still tied up in MF Global’s frozen customer funds, the WSJ reports. Customers of the broker have been waiting for $2.1bn of the funds since its collapse in October, but regulators cannot find around $1.2bn of missing funds. Farmers had already been hit when MF Global’s bankruptcy forced crop-hedging positions to be liquidated or subjected to margin calls on being moved to other brokers, Reuters reports, and now face tough decisions on whether to delay buying equipment in the crucial year-end period.

Citi to take almost $1bn in charges

A plan to cut 4,500 jobs worldwide will contribute to at least $900m in charges in Citigroup’s next financial results, the FT reports. Citi’s chief executive Vikram Pandit said that the cuts will mean $400m of charges related to severance pay and other costs, the WSJ says. Some $200m of charges involve Citi booking losses against the rising value of its own debt, reflecting the “debt valuation adjustments” accounting treatment that enabled the bank to record a $2.6bn gain in the last quarter. Another $300m of charges correspond to hedging losses related to tightening credit spreads.

UBS doubts your eurozone contingency plan is good enough

The latest eurozone missive from UBS’ global economics team is out, and they sound worried that their earlier reports were not adequately scary taken seriously enough.

Yes, the euro is deeply flawed, say Paul Donovan, Stephane Deo and Larry Hatheway. They were were pointing this out before it was cool. Read more

Further reading

Elsewhere on Wednesday,

- What went down at Olympus. Read more

Pink picks

Comment, analysis and more from Wednesday’s FT,

Martin Wolf: Merkozy failed to save the eurozoneFT  logo
If the most powerful country in the eurozone refuses to recognise the nature of the crisis, the eurozone has no chance of either remedying it or preventing a recurrence, writes Wolf. Yes, the ECB might paper over the cracks. In the short run, such intervention is even indispensable, since time is needed for external adjustments. Ultimately, however, external adjustment is crucial. That is far more important than fiscal austerity. Read more

Snap news

Breaking pre-market news on Wednesday,

- Olympus director resigns, panel to examine legal steps – Reuters. Read more

Schroders braces for eurozone break-up

Schroders, one of the UK’s biggest fund managers, is is the latest in a number of international companies to outline its plans to evade the possible worst effects of the eurozone crisis, the FT says. The company is preparing contingency plans in the event of a break-up of the eurozone, tightening the list of collateral it will accept and clamping down on counterparty risk. Alan Brown, chief investment officer of the UK fund manager with about £182bn in assets invested across the world, said that Schroders was looking carefully at where the banks that it deals with clear euro trades, avoiding those that cleared through the more vulnerable eurozone states and opting instead to work with banks clearing through Germany.

Swiss franc dives as investors look for intervention

A growing belief among investors that the Swiss National Bank will intervene again to weaken its currency sent the franc tumbling against the euro and the dollar on Tuesday, says the FT. Many analysts and traders now think action by the central bank this month is inevitable, after figures on Monday showed a decline in consumer prices for the second month in a row. The franc fell nearly 1 per cent against both the euro and the dollar, amid increased expectations that deflationary pressure in Switzerland would spur the SNB to act again.

 

Europe bazooka talk lifts Asian markets

Asian stocks rose on news of last-minute negotiations to create a bigger financial “bazooka” to present at this week’s EU summit, reports the WSJ. US stock markets also rose in the late afternoon on the news, but lost most of the gains by close. The FT, citing senior European officials, says negotiators are considering allowing the eurozone’s existing €440bn bail-out fund to continue running when a new €500bn facility, the European Stability Mechanism (ESM) comes into force in mid-2012, almost doubling the firepower of the bloc’s financial rescue system. The proposal is being debated by “sherpas” ahead of Thursday’s crucial eurozone summit, could also include speeding up cash payments into the ESM to give it more heft and support its credit rating. Under the plans being considered, the ESM is unlikely to have its headline €500bn from the start, now envisioned for July. But leveraging up the existing EFSF, which could raise its disposable resources to about €600bn, and adding new IMF and ESM resources could create the so-called “bazooka” effect leaders have been searching for. As FT Alphaville notes, however, it’s not clear — among other things — where the funds would come from, or how such a plan might win support from the electorates of the northern eurozone countries. Tim Geithner, in Berlin for talks with eurozone leaders, backed the German-French push for closer economic ties in Europe that was discussed on Monday, says Bloomberg. Mr Geithner’s comments were more upbeat than his previous remarks urging European leaders to act faster.

US states ramp up illegal foreclosure fight

US state attorneys-general stepped up their attacks on large US banks for allegedly illegal home seizures, says the FT, creating further doubt for an industry longing for resolution of mortgage-related litigation. The state of Massachusetts on Tuesday asked the federal government to investigate US taxpayer-owned Ally Financial for allegedly illegal foreclosures, while California and Nevada, alleged hotbeds of mortgage fraud that are among the states hardest hit by the downturn, announced a partnership to investigate mortgage misdeeds. Their actions follow multiple lawsuits and investigations launched in recent months by attorneys-general across the country alleging various mortgage-related illegalities. Meanwhile the Occupy movement moved onto the foreclosure front, reports NYT’s Lede blog, holding events in about 20 cities including staged reposessions of foreclosed-upon homes.