The US has eased onerous reporting requirements on overseas financial institutions, which it had sought to impose as part of a global crackdown on tax evasion, the FT reports. The Treasury department announced Wednesday that it had struck agreements with the governments of the UK, France, Germany, Italy and Spain, allowing banks in those countries to submit information on American account holders through their own governments rather than directly to US tax authorities. The Foreign Account Tax Compliance Act, a US law passed in 2010 that targets tax dodgers using foreign accounts, had originally required overseas financial institutions to provide information directly to the Internal Revenue Service, potentially in breach of their home countries’ privacy laws. Those that did not comply faced, among other penalties, a 30 per cent withholding tax on payments received from the US. Banks argued that the original rules were unworkable and amounted to an attempt to conscript them as arms of the US tax authority. US officials said the new bilateral agreements would better allow them to capture lost tax revenue. Read more
For all the uncertainty over Greece, Europe’s bond markets have been rallying strongly, the FT writes. Now the “risk on” sentiment has spilled over into markets for company and bank debt, with investors snapping up a wave of bond issues from Italy, Ireland and Spain. Bankers say that the European Central Bank’s €489bn injection of much-needed liquidity through a three-year loan programme into Europe’s financial system not only provided unlimited and cheap funds to the region’s banks but helped to lure cash-rich investors back into the public bond markets, and those of so-called peripheral eurozone nations in particular. Last week, Italy’s Intesa Sanpaolo reopened the market for peripheral bank debt after a four-month hiatus with a €1.5bn, 18-month senior unsecured bond. The following day, Spain’s Santander raised €2bn via a three-year issue of covered bonds, an ultra-safe form of debt, the first from Spain since May 2011. Spain’s Banesto, Banco Sabadell and BBVA followed suit this week. There has also been healthy demand for corporate assets. Telefónica, the Spanish telecoms operator, raised €1.5bn on Tuesday, attracting about €10bn of orders, following Repsol, Iberdrola and Gas Natural in Spain, Ireland’s CRH, and Eni and Atlantia in Italy. Read more
Global stocks hit a fresh six-month high and demand for government bonds eased amid hopes for a worldwide economic recovery, the FT reports. Gains were limited though, as lack of an agreement in Greece over terms required for a second bail-out program weighed on sentiment. The FTSE All-World equity index was up 0.2 per cent, and it touched its best level since the start of August. Wall Street’s S&P 500 erased earlier gains, and in early afternoon trading in New York was 0.1 per cent lower, but still near its best levels since the summer of 2008. Industrial commodities are seeing demand, with copper up 0.8 per cent to $3.91 a pound, and Brent crude consolidating above $116 a barrel. US 10-year notes yields traded at 2 per cent right after the government sold $24bn of the securities at an auction at a yield of 2.02 per cent. A measure of the demand at the auction, the bid-to-cover ratio, came reasonably solid at 3.05 per cent. Industrial commodities are seeing demand, with copper up 0.8 per cent to $3.91 a pound, and Brent crude consolidating above $116 a barrel. US 10-year notes yields traded at 2 per cent right after the government sold $24bn of the securities at an auction at a yield of 2.02 per cent. A measure of the demand at the auction, the bid-to-cover ratio, came reasonably solid at 3.05 per cent. Read more
Three Japanese semiconductor manufacturers including Panasonic and Fujitsu are in talks to merge their operations to create a national champion chipmaker that would be backed by the government, according to people familiar with the matter, the FT reports. The discussions, which are still preliminary, could result in the second state-sponsored consolidation in Japan’s struggling electronics sector in recent months. The industry is facing tens of billions of dollars of losses this year and a number of well-known companies have announced plans to restructure. Read more
Leaders of Greece’s fractious national unity government were on the verge of approving tough new austerity measures on Wednesday night, one of the last hurdles to be cleared before eurozone officials can sign off on a €130bn bail-out and save Athens from a messy default, reports the FT. The expected agreement, due at a meeting of Lucas Papademos, the technocrat prime minister, and the heads of the three Greek political parties in his cabinet, included €3bn in new spending cuts contained in a 50-page document distributed to political leaders in the morning. The full cabinet is due to rubber stamp the deal on Thursday. The deal comes after mounting frustration in other European capitals, including Brussels, where officials had hoped to get a deal agreed last weekend so that they could quickly execute the central pillar of the deal – a €200bn bond swap that will see private Greek debt holders lose half their holdings, wiping €100bn off Athens’ €350bn debt pile. Read more
For the commute home,
- Gavyn Davies assesses the impact of QE. Short version: it’s working. Read more
Take a moment to imagine what it must be like to be an American regulator. There are plenty to imagine being: the OCC, the Fed, the CFTC, SEC, FDIC, and that thrift one, until it subsumed into the OCC. Got one?
A familiar theme in this year’s Barclays Equity Gilt Study (57th edition, just out)…
Greece is not printing its own money already. No drachmas are being issued by Greece, nor is there monetisation of public debt. However….
And with that rather tantalising intro — Stephane Deo of UBS blows the lid off something we’ve been wondering about Greece for a while. Read more
The natural gas market has always behaved a little oddly.
First, it’s always been hugely seasonal, thus responsible for many a widow-maker trade. But now investors and traders have to contend with the impact of fracking too, a process which has by and large upped production to such a degree that prices have been knocked well and hard (à la the Baltic Dry Index): Read more
Live markets commentary from FT.com
RBS is still in its loss making phase (1) which inevitably gives us communication challenges. The losses ironically are a measure of our recovery success…
– Stephen Hester’s memo to staff on Tuesday. Read more
Caesars Entertainment, the casino chain carrying more than $22bn in debt, completed an initial public offering that gives the company a market value of $1.13bn, Bloomberg reports. Las Vegas-based Caesars, taken private in a $30.7bn buyout by Apollo Global Management and TPG Capital in 2008, raised $16.3m selling 1.81m shares at $9 each, the company said in a statement. The stock, which was offered for $8 to $10 apiece, will start trading on the Nasdaq Stock Market on Wednesday under the symbol CZR. The $16.3m raised is a fraction of what it was hoping to muster two years ago. Reuters says the deal is often referred to as an example of how the credit bubble that preceded the financial crisis of 2008 led to overleveraged deals that have left their private equity investors with a Herculean challenge of getting their money back. Caesars’ earnings before interest, tax, depreciation and amortization (EBITDA) were $1.8bn in the 12 months ending September 30 on interest expenses of $1.93bn, according to its IPO document.
From Icap’s latest repo weekly report:
Global stocks hit a fresh six-month high as hopes for a worldwide economic recovery outweighed the sentiment-sapping impact of the lingering eurozone fiscal crisis, the FT reports. The FTSE All-World equity index was up 0.5 per cent, its best level since the start of August, while traditional “risk on” features populate ddealers’ screens. S&P 500 futures suggested Wall Street would start the session with a gain of 0.2 per cent, leaving the benchmark index just 1 per cent shy of its best close since the summer of 2008. The FTSE Eurofirst 300 was advancing 0.6 per cent as miners and banks showed form. Industrial commodities were seeing demand, with copper up 1 per cent to $3.92 a pound, and Brent crude consolidating above $116 a barrel. US 10-year bonds moved back to the 2 per cent level, up 2 basis points on the day, as residual haven buying was counteracted by optimism that the US economy was gaining some traction, following Friday’s stronger than expected jobs report. The US Treasury is set to auction $72bn in securities this week, with $24bn of 10-year Treasuries up for grabs on Wednesday. Read more
Stephen Hester has revealed that the dramatic restructuring of Royal Bank of Scotland has cost £38bn in a rallying memo to staff days after the embattled chief executive waived a £1m bonus, the FT reports. Urging employees to “prove the critics wrong”, Mr Hester provided a stark reminder of the difficult task he faces in cleaning up the bank after its £45bn government bail-out three years ago. The £38bn charge includes the loan losses, disposal costs and restructuring charges the bank has taken since its near collapse in 2009. People close to RBS estimated that the final restructuring bill could surpass the price paid for the government’s 83 per cent stake. Mr Hester highlighted the cost for the first time as he sought to boost morale among staff following the recent bonus dispute. “There is no doubt that our position in the spotlight makes the job harder,” he wrote in an email. “But the best way to deal with it is to prove the critics wrong.” Read more
Goodbye to one massive FT Alphaville bugbear, anyway? An interesting story from Stephen Fidler of the WSJ/DJ FX Trader:
The ECB has agreed to exchange the government bonds it purchased in the secondary market last year at a price below face value, provided the debt-restructuring talks have a successful outcome… Read more
ICMA’s European Repo Council has taken a look at the role of haircutting repo collateral in the current crisis on Wednesday. It’s decided that, overall, (and especially in Europe) there is little reason to believe the practice of discounting repo assets’ market value has had much of an impact.
This is mainly for two reasons, writes the reports author Richard Comotto. First, there is a lot of misunderstanding in the market as to how haircuts and margins actually work. Second, the practice in Europe is very different to that in the United States. Read more
Elsewhere on Wednesday,
- Roubini is bullish; time to short everything! Read more
Comment, analysis and more from Tuesday’s FT,
Martin Wolf: Crisis must not change India’s course
What do the financial and economic crises of the high-income countries mean for emerging and developing countries? I addressed this in New Delhi last week, at a discussion sponsored by the Federation of Indian Chambers of Commerce and Industry (FICCI), the Consumer Unity & Trust Society (CUTS) and the Financial Times. The conclusion I drew was that the crisis is dangerous. But this is not so much because of its direct effects. It is far more because of the lessons that might be drawn. The right lessons have to be drawn, not the wrong ones. Read more
Breaking pre-market news on Wednesday,
- Statoil raises 2012 capex, Q4 beats forecasts – statement. Read more
The US diagnostics company Illumina has rejected Roche’s $5.7bn hostile takeover bid, calling the offer “grossly inadequate” and urging stockholders not to tender their shares. Roche, the Swiss pharmaceuticals company, last month launched an unsolicited bid for Illumina for $44.50 a share in cash, about a 64 per cent premium to the genetic sequencing company’s share price in mid-December, reports the FT.
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, reports the FT. 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. Standard Life, the miner’s fifth-biggest shareholder with a holding of about 2 per cent, said it would vote against the deal. “Although we see some merit in the merger of Xstrata and Glencore the proposed exchange ratio clearly undervalues Xstrata’s assets and future earnings contribution,” said David Cumming, head of equities. Standard Life also owns a 0.3 per cent stake in Glencore. Richard Buxton, head of UK equities at Schroders, which owns a 0.6 per cent stake in Xstrata, said: “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.” Two other leading investors, who declined to be identified, also told the Financial Times they did not support the transaction. Xstrata shares excluding Glencore’s 34 per cent holding, meaning a 16.5 per cent vote against the deal would block it. The WSJ says “a number” of Xstrata’s top investors said on Tuesday that they hadn’t made up their minds yet on how to vote, while a spokeswoman for BlackRock, which owns a 5.8 per cent stake, declined to comment.
Asian shares inched up with the Japanese market outperforming the region but gains were limited as investors remained cautious after Greece missed another deadline to agree on a debt restructuring, says the FT.
The MSCI Asia Pacific index advanced 0.2 per cent, rising for a third consecutive session. Japan’s Nikkei 225 Stock Average gained 0.5 per cent, Australia’s S&P/ASX 200 index was up 0.1 per cent and South Korea’s Kospi Composite index added 0.4 per cent. Hong Kong’s Hang Seng index rose 0.4 per cent while China’s Shanghai Composite index edged 0.1 per cent higher. Read more
The White House has quietly injected itself into ongoing settlement discussions aimed at resolving regulators’ allegations that leading US banks abused struggling homeowners, underscoring the deal’s potential impact on the broader housing market and the presidential election, says the FT, citing people involved in the talks. Aides to President Barack Obama have in recent weeks courted civil rights groups and borrower advocacy organisations, scheduling meetings and calls in an attempt to gain support for the expected settlement and muffle criticism from key political allies. A broad settlement with major banks over mortgage servicing abuses that would bring relief to distressed US homeowners could be announced as early Thursday, says Reuters, citing two people familiar with the matter. Negotiators said a federal-state mortgage servicing settlement already has the backing of over 40 states but so far lacks the support of a handful of critical states, including California and New York. The size of the settlement is estimated at up to $25bn, but that could drop if a number of states stay on the sidelines. New York attorney general Eric Schneiderman had planned an announcement late Tuesday about the settlement but postponed it “indefinitely” without explanation. Last Friday New York filed a lawsuit that conflicted with part of the settlement. His office has been in discussions with bank lawyers to move forward with both the lawsuit and the settlement, according to two other sources familiar with the matter. Read more
General Motors is preparing to disclose “horrendous” fourth quarter losses out of its European Opel/Vauxhall unit and wants to cut costs in a plan that could involve job cuts and plant closures, the WSJ says, citing an unnamed GM official. The official said the auto maker’s patience with the money-losing operation is running out. “There is increasing frustration with Opel and a feeling that the cuts two years ago did not go nearly deep enough,” the official said. “If Opel is going to get fixed, it is going to get fixed now and cuts are going to be deep.” The newspaper also cites people familiar with the matter as saying GM executives are preparing a plan for its European operation that could include more plant closings and job cuts, and one source said the company and the union are discussing moving some production to Germany from Korea to offset the cuts. Read more
Goldman Sachs is to beef up its asset management business as part of a strategy to tap into the retirement savings of a wave of ageing baby boomers, says the FT. Goldman Sachs Asset Management, a unit of the Wall Street bank, has agreed to buy Dwight Asset Management for an undisclosed sum. Dwight, which is based in Vermont, specialises in so-called “stable value” money management, which aims to deliver safe and consistent returns to investors in a similar way to money market funds. Dwight has $42bn of assets under supervision, and is now on track to become part of GSAM in the second quarter of the year. Goldman is buying the firm from Old Mutual Asset Management, part of the London-based savings group, Old Mutual. Read more
Yahoo’s chairman, Roy Bostock, and three other directors are to step down as part of a boardroom clear-out, marking the latest attempt to win back investor confidence as the US internet company pursues a change in strategic direction, says the FT. Mr Bostock announced the board-level changes, which include two new independent directors, in a letter to shareholders on Tuesday. Also stepping down at this year’s annual meeting will be Vyomesh Joshi, Arthur Kern and Gary Wilson. Mr Bostock added that Maynard Webb, a former number two at Ebay, and Alfred Amoroso, who once served on IBM’s top management committee, have been elected to replace them, and a search is under way for other independent directors. Reuters says Mr Bostock, who joined Yahoo’s board in 2003, was a lightning rod for Yahoo shareholders upset about the company’s fall from grace and the string of struggles that defined the company during his tenure. Read more
Stephen Hester has revealed that the dramatic restructuring of Royal Bank of Scotland has cost £38bn in a rallying memo to staff days after the embattled chief executive waived a £1m bonus, reports the FT. Urging employees to “prove the critics wrong”, Mr Hester provided a stark reminder of the difficult task he faces in cleaning up the bank after its £45bn government bail-out three years ago. The £38bn charge includes the loan losses, disposal costs and restructuring charges the bank has taken since its near collapse in 2009. People close to RBS estimated that the final restructuring bill could surpass the price paid for the government’s 83 per cent stake. Mr Hester highlighted the cost for the first time as he sought to boost morale among staff following the recent bonus dispute. Read more