Posts from Thursday Feb 9 2012

Further further reading

For the commute home,

– The labour market in swing states has improved faster than in other states. Read more

Euro firm on reports of Greek deal

The FT’s Global Markets Overview reports that the euro is rising and oil is rallying after news that Greek politicians have reached a deal on austerity measures, but stocks in Europe and in the US are struggling to maintain recent highs. Some markets were encouraged by the long-awaited Greek agreement, and the upshot of all the action is that investors are in a generally upbeat mood, despite limited details from Athens. The euro is one of the session’s highlights, adding 0.3 per cent to $1.3295. The single currency experienced a volatile session in Asian trade, first dropping to as low as $1.3215 and later staging a rebound, briefly taking out barriers at $1.33. The recent rally in the euro is also the result of a broader market risk appetite that has helped push global stocks and major industrial commodities to multi-month highs after recent US data bolstered hopes of a global economic recovery.

Muted share price reaction to foreclosure deal

US bank stocks saw a mixed reaction, as US regulators announced a deal that could be worth up to $39.5bn to resolve allegations that the largest US mortgage lenders improperly foreclosed on homes, reports the FT. The five biggest lenders will take a $25bn hit on mortgage principal writedowns and interest payments but the majority will come out of existing reserves. “This is just a shuffling of losses. There will be almost no impact on bank balance sheets this quarter,” said Richard Staite, US bank analyst at Atlantic Equities. Exposure to legal risk stemming from the housing crisis has weighed heavily on bank share prices.

Chinese inflation jumps to 4.5%

The FT reports that Chinese inflation jumped in January, breaking a streak of five straight monthly declines, but seasonal factors were largely to blame and price pressures were expected to weaken in the coming months. The consumer price index rose 4.5 per cent from a year earlier, up from December’s 4.1 per cent pace. The main cause of the rebound was a shopping blitz before last month’s Chinese New Year holiday, which pushed up food prices, an effect which has regularly been seen in the past and is likely to be temporary. Core inflation, stripped of food costs, rose much more slowly, giving Beijing some room to stimulate the slowing economy if necessary. “It is very likely that after the holiday, prices will come down, especially for food. Next month’s number should be lower and that will ease concerns,” said Ken Peng, an economist with BNP Paribas.

Incremental housing help

The details of the foreclosure settlement this morning mostly reflected what had been reported late last night, and here was the final take from the FT’s Shahien Nasiripour and Kara Scannell:

Under the agreement, Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and Ally Financial will be forced to improve their mortgage procedures, reduce borrowers’ loan balances and monthly payments, and make about $4.2bn in cash payments to an estimated 750,000 aggrieved homeowners and state governments. … Read more

Japanese companies invest in Vietnam

The FT reports that Japanese companies are flocking to Vietnam in record numbers seeking cheap labour and growth markets and business is booming for the Hanoi branch of Izakaya Yancha, a Japanese restaurant chain. “Many Japanese men in their 40s like to hang out here with their Vietnamese girlfriends after going to karaoke,” says Shinya Nakao, the restaurant’s manager. “We expect more Japanese companies to move to Vietnam, so we’re planning to open a second branch this year and maybe some more after that.” A record 208 Japanese companies set up in Vietnam last year, pledging to invest just over $1.8bn, according to Jetro, the Japanese trade promotion body. In 2010, 114 Japanese companies came to Vietnam, vowing to invest $2bn.

Indonesians eye Bumi compromise

The Indonesian shareholders in coal miner Bumi are open to a compromise that would see financier Nat Rothschild stand down as co-chairman of the company but remain on its board, according to people familiar with the matter. Publicly, however, the shareholders – the businessman Samin Tan and the Bakrie family – are insisting on pushing through their proposal to drop Mr Rothschild and will launch a charm offensive next week to persuade others to back them, reports the FT. The Bakries and Mr Tan, who together own 29.9 per cent of the voting rights in Bumi, said last Friday that they wanted to remove Mr Rothschild and other key directors from the board. They proposed Mr Tan and Indra Bakrie be named as co-chairmen.

Bank of England lifts stimulus by £50bn

The Bank of England’s Monetary Policy Committee voted to keep interest rates at their current record lows on Thursday and authorised further gilts purchases totalling £50bn, in line with economists’ expectations, reports the FT. The move brings the size of the total gilts purchasing programme, known as Quantitative Easing, to £325bn and suggests that, despite recent signs that the UK economy is picking up after a trough in the middle of last autumn, the Bank’s policymakers do not feel confident there is enough momentum for demand to build on its own.

Citigroup took $50m loss over traders in Libor probe

Citigroup was forced to write off $50m after two traders accused of attempting to influence global lending rates left the bank, according to people familiar with a worldwide investigation that is gathering pace. Nine separate enforcement agencies in the US, Europe and Japan have been probing whether US and European banks manipulated the London Interbank Offered Rate or Libor, the benchmark reference rate for $350tn worth of financial products, and other interbank lending rates, the FT reports. The investigation into possible manipulation of global interbank lending rates has accelerated in recent weeks, with more than a dozen traders at banks including Royal Bank of Scotland, Deutsche Bank, UBS and JPMorgan Chase fired, suspended or placed on administrative leave.

Greek parties agree €3.3bn austerity cuts

Greece’s political leaders ended weeks of market-rattling brinkmanship on Thursday by agreeing to €3.3bn in budget cuts that they hoped would clear the way for a second multibillion euro bail-out to avert a sovereign default, reports the FT. No sooner was the deal sealed in Athens, however, than a potentially more fractious debate began in Brussels, where eurozone finance ministers were poised to work late into the night to structure a bail-out package with the target of cutting Greece’s debt to 120 per cent of economic output by 2020. Hopes for an agreement were raised by Mario Draghi, president of the European Central Bank, who indicated that he was willing to forgo profits on the bank’s €40bn in Greek bonds, a move that could wipe up to €15bn off of the Athens’ €350bn debt load. Without the ECB’s co-operation, the International Monetary Fund has determined that it will be impossible to reduce Greece’s debt sufficiently through the restructuring of private debt alone. Private bondholders have agreed to take a €100bn writedown on the €200bn in Greek debt they hold.

The foreclosure settlement

Click to open the generic state form (Word doc) sent out to US state attorney generals earlier on Thursday…

Thursday…   Read more

Here be Draghi, on ECB collateral [updated]

Some interesting points about the ECB’s expansion of the collateral it will accept for funding at February’s three-year LTRO, plus a bit on its Greek bonds, from ECB President Mario Draghi at pixel time…

(“New collateral” = credit claims, or bank loans, which national eurozone central banks will accept, and bear risk on, under the revised rules. Draghi said that the ECB would publish further rules at 1500 GMT. We’ll post when we get them. Update –– see below!) Read more

Bank of England ups QE (and tweaks its gilts)

In the light of its most recent economic projections, the Committee judged that the weak near-term growth outlook and associated downward pressure from economic slack meant that, without further monetary stimulus, it was more likely than not that inflation would undershoot the 2% target in the medium term. The Committee therefore voted to increase the size of its programme of asset purchases, financed by the issuance of central bank reserves, by £50 billion to a total of £325 billion. The Committee also voted to maintain Bank Rate at 0.5%. The Committee expects the announced programme of asset purchases to take three months to complete. The scale of the programme will be kept under review….

Three years of 0.5 per cent, now. Read more

Markets Live transcript 9 Feb 2012

Live markets commentary from 

Albert the (financial) Populist

Albert Edwards is with Terry Smith on this one.  If Shredded Fred must lose his knighthood, then certain other players in this game of bubble and crunch need to forego an honour or two.

But while Smith has focused on Sir Alan Greenspan, Edwards has it in for Sir Mervyn King. From the SocGen man’s latest Global Strategy Weekly… Read more

Last-minute Greek demands threaten deal

Eurozone states are unlikely to agree a deal for a second Greek bailout on Thursday after Greece surprised negotiators with last-minute revisions to budget projections, reports the FT. Lucas Papademos, the Greek prime minister, has insisted on revising budget targets for 2014 and only informed European negotiators at 6am this morning. Greece’s finance minister was already set to go before his eurozone colleagues with an incomplete plan at a meeting in Brussels later on today, Reuters says.

Groupon loses $42.7m in three months

Groupon has missed forecasts for a profit in its first post-IPO earnings release, reporting a loss of two cents a share, Bloomberg reports. Analysts had predicted profits of 3 cents a share from the daily deals website. Its shares plunged by around 15 per cent in post-trading hours, according to the FT. Groupon said the fourth-quarter losses were down 89 per cent from a year earlier, adding that international expansion and tax rates had led costs to rise. But the company attracted criticisms from analysts over signs of slowing growth in the US, and a failure to disclose key metrics that were included in its IPO filings. Groupon also changed how it counts growth in its users, Reuters says.

Calstrs takes aim at Facebook board

The California State Teachers’ Retirement System, Calstrs, has called for Facebook to split the role of chairman and chief executive and to appoint a woman to its all-male board for the first time, the FT reports. Calstrs, one of the biggest US public pension funds, is already invested in Facebook through its private equity holdings, and will pick up shares through index-tracking after its IPO. Calstrs’ demand for shareholders to be given voting powers according to the size of their stake will be a tough request to meet, however. Facebook has revealing in filings that Mark Zuckerberg paid nominal sums to other shareholders in agreements to gain enormous voting clout, says NYT Dealbook.

Another IB “surprises” on the downside…

And so to the harsh news amongst the “key messages” from Credit Suisse, which on Thursday followed both UBS and Deutsche Bank in reporting rather softer Q4 numbers than anyone seemed to be expecting…

 Read more

Viniar comes out for Volcker rule

Goldman Sachs’ chief financial offer has told an industry conference that a ban on proprietary trading could in fact improve the bank’s profits, departing from usual banker reactions to the Volcker rule, reports the FT. US banks could squeeze more cash from clients for executing their trades under the rule and pocket the difference between bid and ask prices for assets, David Viniar said at the Credit Suisse conference. “Ultimately, it could lead to lower dealer inventory levels and could be [return-on-equity] enhancing as we adapt to a less capital intensive business model,” he added. A PDF of Viniar’s presentation can be found here.

Shock loss at Credit Suisse

Credit Suisse posted a surprise net loss of $700m in the last three months of 2011, weighed down by $1.1bn of charges, Reuters says. Analysts had expected the Swiss bank to post $472m in profit. The bank’s full-year net profit is not much more than it would have made in a single good quarter before the financial crisis, the FT reports. Just under half of the charges were related to “cost-efficiency measures”, with the rest tied to the shrinking of Credit Suisse’s investment bank. Revenues were down some 46 per cent from a year earlier, the WSJ adds.

Foreclosures settlement: almost there

Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and Ally Financial are on the verge of signing a deal on foreclosures with nearly all US states, the FT reports. The agreement, which could come Thursday or Friday, would see banks pay $5bn in penalties in return for states dropping litigation over mortgages, the WSJ says. The agreement would require banks to provide $3bn in refinancing aid to home-owners. Another $17bn is tied up in “credits” that banks would earn for giving payment relief to borrowers, but this sum could increase to $30bn. That means the “value” of the settlement could vary between $25bn and $40bn. A breakthrough in getting a deal came after New York and California decided to join talks, Reuters adds.

John Paulson vs Hartford Financial

You’ll have to imagine how it sounded.

But here’s an interesting demonstration of John Paulson at work… stepping onto Hartford Financial’s earnings conference call to lambast the insurer’s performance. Shares in Hartford dropped 39 per cent last year. Paulson’s the biggest holder. Read more

Optimistic forecast of the day, Greek GDP edition

Some detail on the draft agreement Greece’s political leaders want to submit to their international saviours (assuming they can agree to pension cuts).

Via Bloomberg (emphasis ours): Read more

Further reading

Elsewhere on Thursday,

– No, banks shouldn’t be in the tail risk-selling business. Read more

Pink picks

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

John Gapper: Don’t put venture capital at risk
Venture capital is now on the same threshold that both banking and private equity crossed before, with unintended consequences, the FT columnist writes. It is a craft industry, hitherto small and private, that is increasingly dominated by a few “bulge bracket” firms, which are growing and turning global. Size has benefits but it will also put them in the spotlight, as an industry and as individuals. Read more

Snap news

Breaking pre-market news on Thursday,

— Robust first half from Diageo – statement Read more

Deutsche Bank Asset Management auction falters

The auction process to sell Deutsche Bank Asset Management is faltering after JPMorgan and State Street withdrew from the bidding, making it more likely the bank will have to break up the business as part of a prolonged sale of the assets. Deutsche Bank had raced ahead with the sale process in the past week, narrowing interest from a wide range of potential bidders to a shortlist of a half a dozen, before the leading contenders withdrew. Ameriprise, another candidate to buy the business, is baulking at the price and could soon withdraw, the FT says, citing people familiar with the situation.

News Corp hacking costs near $200m

The UK newspaper scandal that forcedNews Corp to shut the News of the World has cost Rupert Murdoch’s media group at least $195m so far, it said as it warned that it could not predict its future outlay on lawyers’ fees and civil settlements with phone hacking victims, reports the FT. Second-quarter results from the US group showed further strength at cable networks such as Fox News that account for almost 60 per cent of operating income, but highlighted its newspaper assets as an increasing drag on profits. News Corp on Thursday announced a further $87m in charges related to investigations stemming from revelations of phone hacking, payments to police officers and computer hackingat its UK newspaper arm.

Greek leaders’ talks stalled on pension cuts

A meeting among Greek Prime Minister Lucas Papademos, the parties supporting his coalition, and New Democracy, the opposition conservative party, broke up early Thursday morning without an agreement on economic overhauls sought by the EU and the IMF in exchange for lending an additional €130bn to the Greek government, says the WSJ. The key sticking point was cuts to the Greek pension system. “There is only one issue, that of pensions, to be resolved,” Antonis Samaras of the New Democracy party, the country’s second-biggest party, told reporters in Athens in comments televised live on state-run TV, reports Bloomberg. “The talks will continue.” Bloomberg reported earlier that a draft financing agreement said Greece would pledge permanent spending cuts, including lower pension payments and a 20 per cent reduction in the minimum wage.