Posts from Thursday Feb 16 2012

China wants say in World Bank choice

China has said that the next World Bank president should be chosen on merit, seeking to challenge a tradition that the bank’s chief be a US citizen, though it did not suggest a candidate, the FT reports. Robert Zoellick said on Wednesday that he would step down in June at the end of a five-year term as bank president. Speculation has focused on Hillary Clinton, US secretary of state, and Larry Summers, former White House chief economic adviser, as potential successors. Emerging markets have said before that there is no justification for the custom of reserving the bank’s top position for an American. Some wonder whether China, the world’s second-largest economy, might put forward a candidate. “China hopes that the next president of the World Bank will be selected based on the principle of merit in an open and fair competition,” Liu Weimin, foreign ministry spokesman, said in a news briefing.

China set to become biggest gold market

China is set to overtake India this year as the world’s largest consumer of gold, the World Gold Council predicted, underscoring the surge in Chinese demand that has revolutionised the bullion market, the FT writes. India has for decades been the world’s largest gold market, but in the final quarter of 2011 demand tumbled by almost half from a year earlier as a collapse in the value of the rupee made gold more expensive for Indian buyers. “It is likely that China will emerge as the largest gold market in the world for the first time in 2012,” said Marcus Grubb, managing director for investment at the WGC, a lobby group for the gold mining industry. Thursday’s prediction comes after a surge in Chinese gold demand last year, with imports from Hong Kong – a proxy for overall import demand – more than tripling from 2010. In the second half of the year, as Indian demand waned, China edged ahead as the world’s top consumer, according to data from GFMS, the consultancy, that were published by the WGC on Thursday.

Robust US data improve sentiment

Stocks rose and the euro rebounded from earlier losses as investors shrugged off the lack of resolution and political tensions building over the Greek bail-out, reports the FT. Investors are wary that the impasse over Greece’s €130bn aid package may result in a messy default, and that this would batter regional sentiment and put the continent’s financial system in turmoil. However, better-than-expected US jobs and housing market data have given many growth-focused assets a boost, helping Wall Street’s S&P 500 index gain more than 1 per cent. The index closed at near its highest level in three years. They have even given a lift to the euro as risk appetite improves somewhat. The European single currency earlier hit a three-week low of $1.2975, but at the close in New York was up 0.6 per cent at $1.3141.

Uncertainty surrounds Greek rescue deal

The president of the group of eurozone finance ministers said a decision to supply Greece with a new €130bn bail-out would not be made until next week, representing yet another delay in the fractious and prolonged process to help the indebted country avoid a messy default, the FT writes. Jean-Claude Juncker, the Luxembourg prime minister who chairs the group of finance ministers, said in a statement following a conference call on Wednesday night that he was “confident that the group will be able to take all the necessary decisions” on Monday, adding that “substantial further progress” had been made this week. However, Mr Juncker said surveillance mechanisms had to be strengthened to ensure Greece implemented the programme and that the country gave priority to “debt servicing”. The group has proposed in earlier discussions that bail-out funds be placed in an escrow account and disbursed as Greece achieves fiscal and structural reform benchmarks over the next three years.

Athens faces tough bail-out terms

A €130bn bail-out of Greece will contain unprecented controls on Athens’ ability to spend aid, officials said, as European leaders scrambled on Thursday to paper over their divisions on the rescue package, reports the FT. The agreement, which officials hope to finalise on Monday, is likely to include an escrow account that must always contain enough cash to pay Greece’s debt for nine to 12 months. If the account falls below that level, funding will be taken from aid earmarked to run the Greek government, according to people briefed on the talks. In addition, the bail-out will include a permanent and beefed-up presence of international monitors who will attempt to keep real-time tabs on the Greek government’s spending decisions, officials said.

  Read more

Further further reading

For the commute home,

- Measuring the consequences of the zero bound constraintRead more

Something interesting and ignored in yesterday’s FOMC minutes

The media never pays much attention to the discussion in the FOMC minutes that presents the views of Fed staff economists; we all flock to the parts that describe the thinking of the FOMC participants themselves.

Which is perfectly sensible — we’re looking for insights into what is steering monetary policy and scrutinising the thoughts of the people who, um, steer monetary policy. Read more

Green light on how the City works

Andrew Osborne is justified to feel hard done by. A single four-word remark in a long phone conversation has cost him a small fortune. The words were “something like 350 sterling”, an amount which bears a curious symmetry to the £350,000 fine which the FSA has just levied on him. Given his long years and senior position, he can probably pay it without having to eat bread and water, but it’s still pretty eye-watering. It also looks like rough justice, as he himself claims.

Osborne was a managing director at Merrill Lynch, the brokers with the unenviable task in 2009 of trying to restore financial stability to the pub chain Punch Taverns, a confection of debt built on a sliver of equity. For months, it had seemed odds-on that Punch would collapse, but the “dash for trash” in the spring that year propelled the share price up from 40p to around 160p, and offered a get-out-of-gaol opportunity. Read more

Roubini for World Bank?

Lateral idea. And it’s not ours.

While we love the clubbable doomster, we share this without endorsement… Read more

Vix dog millionaire

Macro Risk Advisors’ (MRA) Dean Curnutt has picked on a very interesting development in the land of volatility ETNs. In the last few days there’s been an absolutely astounding amount of vega trading through these products.

As he notes: Read more

The Punch Call (updated)

DAVID EINHORN: Oh, you’re — you’re — you’re getting more than — than I could help with anyway. So, this is good.

PUNCH CEO: Okay. That’s fair enough. Well, one day we’ll get you a round on a pub crawl around some English pubs. Read more

Markets Live transcript 16 Feb 2012

Live markets commentary from FT.com 

North America sales boost Nestlé

An acceleration in North America helped Nestlé report better than expected sales growth. The maker of Nescafé coffee, Kit Kat chocolate bars and Purina pet food on Thursday said year-on-year organic sales growth was 7.5 per cent in 2011, higher than the 7-7.1 per cent expected by analysts, the FT reports. Jim Singh, chief financial officer, said the buoyant fourth quarter reflected strong pricing as well as a pick-up in growth in North America, where pet care and bottled water sales did particularly well. However, he said the group was not expecting a rapid strengthening of consumer confidence in the US: “There are some bright spots in the US but generally the North American economic environment will remain subdued for this year.” Mr Singh also declined to comment on reports that Nestlé had bid for the unit of Pfizer that makes formula milk for babies, amid speculation that it could be sold for as much as $10bn.

Greek rhetoric turns into battle of wills

The battle of wills between Athens and its eurozone lenders has intensified, with Greece’s finance minister accusing “forces in Europe” of pushing his country out of the euro while his German counterpart suggested postponing Greek elections and installing a new government without political parties, the FT reports. The tongue-lashing by Evangelos Venizelos, who is expected to stand in April elections as leader of the centre-left Pasok party, came as his government scrambled to meet escalating demands from international lenders that must be met if Athens is to avoid a full-scale default. Greece took a step closer to meeting those demands when Antonis Samaras, head of the centre-right New Democracy party and the presumptive next prime minister, sent a two-page letter to European Union leaders on Wednesday vowing to implement the austerity measures included in the €130bn bail-out programme.

SocGen fourth-quarter profits tumble

Société Générale, France’s second-largest lender, on Thursday reported a near 90 per cent drop in fourth-quarter profits, following losses at its investment bank and further writedowns on Greek sovereign bond holdings, the FT reports. However, the bank said it had met tougher regulatory capital requirements six months early, with a core tier one ratio – a key measure of financial strength – of 9 per cent, following in the footsteps of larger rival BNP Paribas. Frédéric Oudéa, SocGen chief executive, expressed confidence that the European Central Bank’s extension of cheap three-year loans to the region’s lenders had eased fears of the collapse of the single currency. Mr Oudéa told CNBC: “I’m happy with the start of the year regarding capital markets [but] I remain overall prudent for 2012. “Clearly the decision made by the European Central Bank with the [long-term refinancing operation] … has been key to reassure the markets regarding extreme scenarios. Still, we will have relatively mediocre economic activity. It’s not a catastrophe, but not that dynamic.” The WSJ noted, meanwhile, that the bank increased provisions for Greek sovereign bonds from 60 per cent to 75 per cent, booking an additional €162m charge in the fourth quarter for the position.

A fistful of legacy dollars, at SocGen

More huge numbers on US dollar asset deleveraging in a French bank’s end-2011 results, on Thursday. Societe Generale got rid of $55bn in funding needs in the six months from June 2011:

 Read more

Greek bail-out worries knock sentiment

The euro dipped below $1.30 and the market mood was fairly grim as traders reacted with dismay to a lack of resolution and building political tensions over the Greek bail-out, the FT reports on Thursday. So-called riskier assets were seeing sellers and funds switch into perceived havens, with investors fretting that the impasse over Athens’ €130bn aid package could result in a messy default by the Mediterranean nation and that this would batter regional sentiment and roil the continent’s financial system. The FTSE All-World equity index was down 0.6 per cent after Asia fell 1.1 per cent and the FTSE Eurofirst 300 opened with a loss of 0.8 per cent as dealers struggled to process a very busy day of European corporate results. Financial stocks were having to deal with additional pressure from news that Moody’s Investors Service placed various ratings of 114 financial institutions in 16 European countries on review for a possible downgrade. The FTSE Eurofirst banking index was down 1.7 per cent.

Further reading

Elsewhere on Thursday,

- Come on financial blogosphere, let’s all try to get along. Read more

Pink picks

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

David Pilling: India’s ‘bumble bee’ defies gravity
Who is the most powerful person in India, asks the FT’s David Pilling? Manmohan Singh, the 79-year-old prime minister whose second term has been a washout? Not likely. Sonia Gandhi, the Italian-born torchbearer of the Nehru-Gandhi dynasty? Possibly. How about S.H. Kapadia? Who, you might ask, is S.H. Kapadia? Well, he is chief justice of the supreme court, which this month set all of India chattering when it revoked 122 second-generation (2G) mobile licences. The court, which declared a spectrum sale in 2008 “arbitrary and unconstitutional”, ordered the regulator to reallocate the licences by auction in four months. Read more

Snap news

Breaking pre-market news on Thursday,

– SocGen misses forecasts – Bloomberg Read more

Morgan Stanley, UBS and Credit Suisse may be cut by Moody’s

UBS, Credit Suisse Group and Morgan Stanley’s credit ratings may be cut by as many as three levels by Moody’s Investors Service, which is reviewing 17 banks and securities firms with global capital markets operations, says Bloomberg. Goldman Sachs, Deutsche Bank, JPMorgan Chase and Citigroup are among companies that may be downgraded by two levels, Moody’s said in a statement, adding that the “guidance is indicative only.” Moody’s today cut some European insurers’ ratings based on risks stemming from the region’s sovereign debt crisis. The potential downgrades, which may raise borrowing costs and force banks to increase collateral, put the ratings company at odds with bond investors, who are sticking with bets that new capital rules and trading limits will make the financial firms safer in the long run.

Overnight markets: Down

Asian stocks fell amid growing concerns over delays in Greece’s €130bn bail-out while Australian shares were pulled lower by disappointing corporate results, says the FT.

The MSCI Asia Pacific index shed 0.7 per cent with Australia’s S&P/ASX 200 off 1.5 per cent and South Korea’s Kospi Composite down 1 per cent. Hong Kong’s Hang Seng index shed 0.5 per cent while China’s Shanghai Composite index was flat. In Japan, the Nikkei 225 Stock Average crept up 0.2 per cent., Read more

Fed rules out further easing to boost recovery

The US Federal Reserve is not yet ready for a QE3 programme of asset purchases to boost the recovery, according to the minutes of its January policy meeting, the FT reports. Only a few members of the rate-setting Federal Open Market Committee thought that economic conditions “could warrant the initiation of additional securities purchases before long”. The minutes show that despite the Fed’s bias towards doing more to aid an economy beset by high unemployment, its hurdle for another big asset purchase programme is high.

 

Walker poised to buy Iceland Foods

Malcolm Walker, the founder and chief executive of Iceland Foods, is poised to acquire the frozen food specialist for about £1.5bn, the FT says. Mr Walker and the management of Iceland Foods have signed an exclusivity deal with the Resolution committee of Landsbanki, which is selling the failed Icelandic bank’s majority stake in Iceland Foods.  The exclusivity arrangement means that Mr Walker now has the right to negotiate a deal with Landsbanki and Glitnir to acquire the value supermarket. Mr Walker who put in a £1bn bid for Iceland 18 months ago has seen off competition from private equity groups BC Partners and Bain Capital. They put in second round offers for Iceland two weeks ago.

Investigators suspect ‘serious criminality’ at News Corp

Investigators looking into alleged corrupt practices at News Corp’s UK newspapers suspect that cash payments worth more than £100,000 were made to police officers and other public officials, the FT reports, citing one person familiar with the investigation. News Corp’s management and standards committee, set up after the News of the World phone hacking scandal convulsed the News International newspaper division last July, has been under fire from reporters for passing information to police that has led to the arrests of nine journalists at The Sun. On Wednesday, a person with knowledge of the investigation dismissed claims that journalists were being penalised for innocuous lunches with sources. “This is not about sources or expenses,” he said: “This is an investigation into serious suspected criminality over a sustained period.”

Goldman trader said to be facing insider trading inquiry

A Goldman Sachs stock analyst has been drawn into the government’s sweeping investigation into insider trading at hedge funds, says NYT DealBook. Federal investigators are examining whether Henry King, a senior technology industry analyst for Goldman based in Asia, provided confidential information to the bank’s hedge fund clients, the blog says, citing a person with direct knowledge of the matter. Mr King recently took a leave of absence from Goldman, according to this person. The WSJ earlier cited people close to the situation as saying Goldman clients were told in recent weeks that Mr King, head of Taiwan research, took a leave from his Goldman post in Asia after making a trip to the US earlier in the year.

UBS suspends traders in Libor probe

UBS has suspended some of its most senior traders in connection with an international probe into the possible manipulation of interbank borrowing rates, the FT reports, citing people familiar with the investigation. Regulators in North America, Europe and Japan have been investigating whether traders at big US and European banks colluded to influence the London interbank offered rate, or Libor, and other benchmark lending rates. People familiar with the investigation told the Financial Times that Yvan Ducrot, the co-head of UBS’s rates business, and Holger Seger, the global head of short-term interest rates trading, are among a group of Zurich-based traders who have been suspended pending further inquiries into the bank’s rate-setting processes.

Greek rhetoric turns into battle of wills

The battle of wills between Athens and its eurozone lenders intensified on Wednesday, says the FT, with Greece’s finance minister accusing “forces in Europe” of pushing his country out of the euro while his German counterpart suggested postponing Greek elections and installing a new government without political parties. The tongue-lashing by Evangelos Venizelos, who is expected to stand in April elections as leader of the centre-left Pasok party, came as his government scrambled to meet escalating demands from international lenders that must be met if Athens is to avoid a full-scale default. Greece took a step closer to meeting those demands when Antonis Samaras, head of the centre-right New Democracy party and the presumptive next prime minister, sent a two-page letter to European Union leadersvowing to implement the austerity measures included in the €130bn bail-out programme. The letter, which came along with a similar missive from George Papandreou, the former prime minister who remains head of Pasok, was demanded by EU leaders as a condition of the deal. But the letter was received coolly in Brussels, particularly as Mr Samaras reiterated his stance that “modifications might be required” to the programme. Meanwhile the WSJ cites an unnamed eurozone government said the ministers were seeking “some sort of permanent presence for the troika” in Greece “with enough authority and manpower.”

China FDI falls again in January

Foreign direct investment in China fell for the third month in January as slowing economic growth and Europe’s debt crisis prompted companies to rein in spending, reports Bloomberg. Foreign investment declined 0.3 per cent to $9.997bn last month from a year earlier, the Ministry of Commerce said. Spending dropped 12.7 per cent in December after a contraction the previous month that was the first since 2009. The outlook for foreign investment in China, which attracted a record amount of spending last year, is “not optimistic,” the ministry said in December. Weaker global growth and changes to the nation’s policies on overseas funding for some industries may temper gains this year.

Olympus ex-chairman Kikukawa reportedly arrested

Former Olympus chairman Tsuyoshi Kikukawa was arrested by Japanese prosecutors investigating his part in a $1.7bn accounting fraud, Kyodo News reported, without citing anyone, says Bloomberg. The Japanese camera maker is facing shareholder lawsuits and may be subject to further criminal investigation after admitting to a 13-year cover-up. The company restated past securities reports and took a $1.3bn reduction in net assets in December.  Olympus will cooperate fully with prosecutors, Olympus said in an e-mailed statement today. Yoshiaki Yamada, a Tokyo-based spokesman for Olympus, wasn’t immediately available for comment.