Posts from Tuesday Feb 7 2012

Further further reading

For the commute home,

- “Deposits” with money market funds aren’t protected like those in banks, and the SEC is only just getting around to regulating them. Better late than never? Read more

Japan confirms stealth intervention to limit yen

The Japanese government has confirmed that it intervened unannounced into foreign-exchange markets to weaken the yen last year, for the first time since 2004, the FT reports. Ministry of Finance data released on Tuesday showed Japan carried out Y1.02tn ($13.3bn) worth of unannounced intervention during the first four days of November, after selling a record Y8.07tn on October 31st, when the yen climbed to a post-war high of 75.35 against the dollar. This so-called “stealth intervention” had been widely anticipated, given discrepancies between the rise in yen balances implied by Bank of Japan reserve balance data, and the Y9.09tn of yen-selling MoF had earlier disclosed for the period between October 28th and November 28th. Even so, the more detailed breakdown may increase pressure on Japan from the US. A December report from the US Treasury Department sharply criticised the G7 nation for its recent unilateral interventions to curb yen appreciation. The BoJ has sold the currency four times since late 2010, under orders from MoF.

Interbank rate investigation narrows

Investigators in a world-wide probe of how interbank lending rates are set are focusing on a small number of traders suspected of trying to influence other bank employees to manipulate the rates, says the WSJ, citing people familiar with the situation. The investigations by regulators and law-enforcement officials in Europe, Japan and the US into the Libor and Tibor began more than a year ago. The newspaper’s sources say there is no indication that the alleged actions by the traders resulted in bank employees acting improperly in setting rates or that there has been any collusion among banks. It says a former UBS trader and a former Citi managing director were under scrutiny from Japanese regulators. Spokespeople for both banks declined to comment.

India growth cut to 6.9 per cent

The government of India cut its growth forecast for the fiscal year ending March 31st to 6.9 per cent, which would make it the slowest rate of growth in three years, the WSJ reports. The previous year saw growth of 8.4 per cent and the initial projection for this year had been for a rate of 9.0 per cent. Subsequent revisions to that figure had brought it within a range of 7.25 to 7.75 per cent. Economic uncertainty globally has negatively impacted exports and the Reserve Bank of India has engaged in 13 rounds of monetary tightening in the last two years, curbing demand in domestic markets too. Only recently, in January, has the central bank taken a move to ease by cutting reserve requirements.

China moves up fuel ceiling

On Tuesday authorities in China decided to move the ceiling on fuel prices upwards in response to price movements in international markets, the WSJ reports. This is a continuation of a balancing act between shielding consumers from the vulgarities of markets while also trying to rein in any increases in energy consumption and encourage fuel efficiency. The price increases are in the range of 3.3 to 3.6 per cent. The move is also an indication of decreased concerns about inflation. Bloomberg reports that the increase in the ceiling is the first such move in ten months. China Petroleum and PetroChina had urged the government to do so in reaction to increases in the price of crude.

Stocks rise despite Greek debt worries

Global stocks resumed gains after a pause on Monday, led by gains in companies such as Coca-Cola and Yum! Brands, which reported results that beat analysts’ expectations, according to the FT’s Global Markets Overview. The advance was limited, though, as worries over whether Greece and its creditors could reach a bond restructuring agreement weighed on risk appetite. Still, the euro has reversed an early decline and is up 0.8 per cent to $1.3240, an eight-week high, after traders got excited by reports that Greece was drafting a bail-out agreement that would be put to political leaders later in the day.By afternoon trading in New York, the FTSE All-World equity index was up 0.4 per cent, extending its 9 per cent advance for the year, while the the FTSE Eurofirst 300 was slightly lower on lacklustre earnings by UBS.

Peer-to-peer lending takes root in China

The rich farming soil in central China is an unlikely field for financial innovation but that is exactly what it has become. When Shang Meigong faced a cash crunch in her vegetable seed business in Xiangyang, Hubei province, she was turned away by local banks and decided to look to the internet for funds. CreditEase, the biggest of a fast-growing pack of peer-to-peer lending websites, paired her up with wealthy people across the country who lent the Rmb50,000 ($7,900) that she needed. Peer-to-peer, or P2P, lending websites are at the leading edge of a microcredit boom in China, the FT reports. For a service fee, they connect people wanting to invest money with those looking to borrow small amounts, whether to attend school, buy a computer or start a business.

Macquarie slashes full-year outlook

Macquarie has underlined the tough conditions facing the investment banking industry by slashing its full-year profits guidance. The Australian bank on Tuesday said net income in the year to March would be 25 per cent lower than the previous year – much worse than analysts’ expectations – due to weak market conditions and uncertainty caused by the eurozone debt crisis, reports the FT. Macquarie blamed the profits warning on its two capital markets facing businesses: Macquarie Securities, the bank’s equities and derivatives business, and Macquarie Capital, its corporate finance arm, where earnings are forecasts to be down 35 and 30 per cent respectively on a year ago.

Greece misses bail-out deadline

Greece missed another deadline to approve conditions for a second €130bn bail-out on Tuesday night, after a meeting with political leaders was postponed until Wednesday because of last-minute haggling with international lenders over emergency spending cuts, reports the FT. A government official said Lucas Papademos, the technocrat prime minister, would hold the talks on Wednesday morning and expected a deal to be presented for approval at a meeting of eurozone finance ministers later in the week. But the delay over agreeing €3bn of extra spending cuts fuelled anxieties that Athens may be forced into a messy default next month. It also triggered concern over whether Greece remains committed to fiscal and structural reform after two years of failing to implement measures agreed in return for billions of euros in financial support.

Glencore and Xstrata face blocking threat

The FT reports that several large investors have threatened to block Glencore and Xstrata’s proposed all-share merger, which would create a $90bn commodities giant in the largest global mining deal on record. Opponents of the deal said on Tuesday that the offer of 2.8 Glencore shares for every Xstrata share undervalued the miner of thermal coal, copper, nickel and zinc. Glencore, the world’s largest commodities trader, would end up with a 55 per cent stake in the combined group. “This is a fabulous deal for Glencore, it’s probably a great deal for the Xstrata management, but it’s a poor deal for Xstrata’s majority shareholders,” said Richard Buxton, head of UK equities at Schroders, which owns a 0.6 per cent stake in Xstrata.

Global liquidity fail — the role of skewed incentives

Presenting, one of the best accounts of how the current crisis came about that we’ve read to date.

It comes courtesy of Benoît Cœuré, member of the executive board of the ECB, and should be required reading for every player in financial markets, if not every technocrat the world over. Read more

From deposit stashing to repo lending at UBS

UBS announced lacklustre results on Tuesday, saying it expected further weakness in investment banking  in the first quarter.

But the bank also provided details of some interesting underlying trends at the bank, funding wise. The following table taken from the bank’s results statement provides a good summary (click to enlarge): Read more

It just dropped in my inbox…Trump Hotel Collection

This is a pilot for an occasional AV series.

Shouting and emphasis not ours… Read more

LTRO-ing, with Magnus

Intesa Sanpaolo’s chief executive says he’ll use ECB funds to buy Italian bonds…

BBVA sells the first senior unsecured bond to be issued by a Spanish bank since October… (like Intesa a few weeks ago. Both with unusually short – 18-month – maturities, however) Read more

Markets Live transcript 7 Feb 2012

Live markets commentary from FT.com 

Calstrs makes $500m infrastructure bet

The California State Teachers’ Retirement System is making a $500m bet that it can make money from utilities, roads, ports and pipelines around the globe, reports the Wall Street Journal. Better known as Calstrs,  the fund is teaming up with Australia’s Industry Funds Management, a firm which manages about $10bn in 26 infrastructure investments, according to officials of the big pension fund. The fund’s $500m wager on infrastructure assets is considered one of the largest one-time investments in an area that has at times been among the hottest in the financial world, says the WSJ. Infrastructure investing itself has gained more attention recently, but is still to prove itself profitable. According to the WSJ, budget deficits around the globe have sparked talk that more governments will turn to sales of various assets to raise cash. Some analysts now expect the infrastructure market to grow globally as transmission lines, energy and water-related assets are sold by governments to raise revenue or as they seek new investments to upgrade existing assets.

Japan confirms stealth intervention to limit yen

The Japanese government has confirmed that it intervened unannounced into foreign-exchange markets to weaken the yen last year, for the first time since 2004, the FT reports. Ministry of Finance data released on Tuesday showed Japan carried out Y1.02tn ($13.3bn) worth of unannounced intervention during the first four days of November, after selling a record Y8.07tn on October 31st, when the yen climbed to a post-war high of 75.35 against the dollar. This so-called “stealth intervention” had been widely anticipated, given discrepancies between the rise in yen balances implied by Bank of Japan reserve balance data, and the Y9.09tn of yen-selling MoF had earlier disclosed for the period between October 28th and November 28th. Even so, the more detailed breakdown may increase pressure on Japan from the US. A December report from the US Treasury Department sharply criticised the G7 nation for its recent unilateral interventions to curb yen appreciation. The BoJ has sold the currency four times since late 2010, under orders from MoF.

Worries about Greece hobble risk rally

Worries over whether Athens and its creditors can reach a bond restructuring agreement was again hobbling the recent impetus of the growth-focused asset rally, the FT reports. The FTSE All-World equity index, which by the end of last week had bounced almost 9 per cent in 2012, was up just 0.1 per cent on the session. Asia was mixed, with Shanghai off 1.6 per cent, Tokyo down 0.1 per cent but Seoul up 0.4 per cent after some shippers in the region made gains as the Baltic Dry Index, a barometer of shipping demand, ended a 33-session losing streak. The FTSE Eurofirst 300 opened flat but is now down 0.4 per cent, while S&P 500 futures suggested Wall Street would shed 0.1 per cent later in the session. “The rally in risky assets has gone a long way, with global equities soaring by more than 18 per cent from the October lows …” said Barclays Capital in a note to clients. The recent surge, Barclays added “can be explained by a combination of easy money in G10; reduced risks in Europe; resilient global growth; and extreme pessimism/short positioning in the second half of 2011”.

Collateralised commodity borrowing, BP edition

From BP’s fourth quarter results on Tuesday:

At 31 December 2011, $131 million of finance debt ($128 million at 30 September 2011 and $790 million at 31 December 2010) was secured by the pledging of assets, and no finance debt was secured in connection with deposits received relating to certain disposal transactions expected to complete in subsequent periods ($3,530 million at 30 September 2011 and $4,780 million at 31 December 2010). In addition, in connection with $2,344 million of finance debt ($2,426 million at 30 September 2011 and $4,588 million at 31 December 2010), BP has entered into crude oil sales contracts in respect of oil produced from certain fields in offshore Angola and Azerbaijan to provide security to the lending banks. The remainder of finance debt was unsecured. Read more

UBS issues gloomy outlook for 2012

UBS issued a gloomy outlook for the current year, noting the tough conditions experienced in 2011 were likely to be prolonged, meaning “traditional improvements in first quarter activity levels and trading volumes may fail to materialise fully”, the FT reports. The Swiss group warned such conditions would “weigh on” its first-quarter results, notably in investment banking. The downbeat forecast came as the group said net profits in the fourth quarter slumped to SFr393m ($426m), reflecting the severe pressures on earnings seen at some US rivals and at Deutsche Bank in Europe. Earnings were a fraction of the SFr1.66bn made in the same period the previous year and demonstrated the impact of tough markets, reluctant clients and heavy costs, in spite of savings. Fourth-quarter earnings in investment banking, as at some rivals, turned negative, with a SFr256m pre-tax loss, compared with a profit before tax of SFr100m the previous year. The poor results reflected sharply lower revenues in all the investment bank’s businesses, notably the two powerhouses of equities and fixed income, currencies and commodities.

BP raises dividend as progress returns

BP sought to draw a line under the past two years since the Gulf of Mexico crisis, raising its dividend for the first time since it resumed pay-outs a year ago and hailing the return of “operational momentum”, the FT reports. Bob Dudley, BP’s chief executive, reiterated that the company was prepared to settle the thousands of lawsuits against it as a result of the disaster, but only “if we can do so on fair and reasonable terms”. “Equally, if this is not possible, we are preparing vigorously for trial,” he added. The big civil trial to resolve damages for the Deepwater Horizon disaster is due to begin later this month. The UK oil group, which used to account for £1 in every £6 invested by pension funds, announced a 14 per cent increase in its fourth-quarter dividend – to 8 cents a share. The dividend rise came as it reported fourth-quarter earnings, adjusted for one-off items and changes in oil and gas inventory, of $5bn. The result compared with $4.4bn a year earlier. BP’s fourth-quarter replacement cost profit, which strips out the value of oil and gas inventory, was $7.6bn, up from $4.61bn in the same period a year earlier.

Glencore and Xstrata agree $90bn deal

Glencore and Xstrata on Tuesday announced an all-share merger that would create a $90bn giant combining the world’s largest commodities trading house with one of the biggest miners of thermal coal, copper, nickel and zinc, the FT reports. Under the agreement announced in a joint statement, investors in the miner would receive 2.8 Glencore shares for every Xstrata share they hold. That ratio puts a greater relative value on Xstrata shares than most investors had expected, representing a 15.2 per cent premium over the closing share price on February 1. “We have a fantastic opportunity to create a new powerhouse in the global commodities industry,” said Ivan Glasenberg, chief executive at Glencore. Mr Glasenberg and Mick Davis, his counterpart at Xstrata, agreed the make-up of the combined company’s board and senior management. Sir John Bond, Xstrata’s chairman, will stay on as chairman of the enlarged group. Mr Davis will become chief executive and Mr Glasenberg deputy chief executive.

Mangled metaphors from Neelie Kroes

From the European Commission vice-president (Digital Agenda), interviewed in the Dutch paper Volkskrant, via Google translate

“…But there is absolutely no man overboard when we miss someone from the eurozone…Maybe my word choice was not entirely happy. What is a man overboard? They always said: if a country lets you off or ask to get out, then the whole edifice collapsed in. But that’s just not true… “ Read more

Glenstrata — some backlash? [updated with more backlash]

The Scheme will be subject to the following conditions:

2.1 its approval by a majority in number of the Scheme Shareholders who are on the register of members of Xstrata at the Scheme Voting Record Time, and who are present and vote, whether in person or by proxy, at the Court Meeting and at any separate class meeting which may be required (or any adjournment thereof) and who represent not less than 75 per cent. in value of the Scheme Shares held by those Scheme Shareholders; Read more

The dramatic final days of MF Global

From the Powerpoint of the trustee’s update on their investigation — re-ordered slightly, for narrative flow.

Let’s start with the timeline of margin calls… Read more

“Grexit”

Grexit being, of course, a Greek exit from the eurozone. (Also, an app for archiving and sharing Gmail threads. Bummer for them.)

The term comes from Willem Buiter and Ebrahim Rahbari at Citi, who are now leaning towards the “let them leave” argument: Read more

Further reading

Elsewhere on Tuesday,

- Stigma (for some) in tapping the ECB’s LTRO. Read more

Pink picks

Comment, analysis and more from Tuesday’s FT,

Jagdish Bhagwati: Shame on you, Mr Obama, for pandering on trade
President Barack Obama infamously killed the multilateral Doha Round last December by instructing his representative at the World Trade Organisation to be a “rejectionist” negotiator, writes Bhagwati, a professor of law and economics at Columbia University. He compounded the folly by instead floating the trans-Pacific Trade Initiative that is conceived in a spirit of confronting China rather than promoting trade, and is also a cynical surrender to self-seeking Washington lobbies that would have made John Kenneth Galbraith blush. Mr Obama is wet behind the ears on outsourcing, and his surrender to the “manufactures fetish” is a disaster. Read more

Snap news

Breaking pre-market news on Tuesday,

– Glencore offer for Xstrata pitched at a ratio of 2.8 – statement Read more

Overnight markets: Down

Asian shares took a breather as markets were torn between renewed fears of a Greek default and increasing hopes for a global economic recovery, says the FT. The MSCI Asia Pacific index was up 0.3 per cent after rallying to a five-month high, with investors awaiting the outcome of a second round of negotiations in Greece over its sovereign debt.

Japan’s Nikkei 225 Stock Average lost 0.2 per cent, Australia’s S&P/ASX 200 advanced 0.2 per cent and South Korea’s Kospi Composite inched up 0.3 per cent. Hong Kong’s Hang Seng index rose 0.5 per cent while China’s Shanghai Composite index slid 1.0 per cent. Read more