Posts from Thursday Feb 23 2012

Passive aggressive putback tiff du jour

Bank of America stops pricing and piping over new mortgages to Fannie. BofA will take its high-quality housing collateral elsewhere in this town, obviously. (?)

From the latest 10-K anyway: Read more

Hope for German growth lifts sentiment

Global stocks edged up to record their first gains in the wake of Greece’s bail-out deal while the euro jumped to its highest level against the dollar for more than two months as German business confidence showed unexpected resilience, the FT reports. The Ifo business confidence index of analysts and investors climbed to its highest since July, countering fragile sentiment in the markets caused by the resurfacing of global growth fears on Wednesday’s disappointing economic data. The FTSE All World rose 0.2 per cent to 216.96, the first rise in three sessions with the index also previously weighed down by lingering concerns over the implementation of Greece’s bail-out package. The single currency gained 0.7 per cent to a session high of $1.3343, a 10-week high, before easing back to just above the $1.33 level. “The better than expected Ifo report this morning extends the theme of Germany experiencing a good crisis despite the economic pain being experienced in the less well fiscally positioned eurozone countries,” said Jane Foley, of Rabobank. “The relative strength of Germany goes some way to explain the apparent resilience of the euro to the eurozone crisis.” “February’s rise in the German Ifo index adds to evidence that the economy might avoid falling into recession in the first quarter but this still looks set to be a tough year,” added Ben May, of Capital Economics.

Currency investors follow high oil price

As the oil price hits all-time highs against the euro and sterling, investors are starting to worry about the knock-on effect on their currency portfolios, reports the FT. The price of Brent crude has risen more than 12 per cent in the past month to reach $124.50 a barrel, amid rising tension between Iran and the West over its nuclear programme. The planned introduction of European sanctions and Iranian threats to cut off supplies have fuelled the gain in prices. Currency analysts are poring over portfolios to predict the effect of an oil supply shock on investors, in response to concerns from clients in recent weeks. “Lots of clients have been asking about Iran,” says John Normand, head of currency strategy at JPMorgan. “A recurring question is how to hedge Middle East tension in currencies.” Many are recommending that those concerned about oil price volatility move into currencies of countries that are both oil exporters and which are regarded as havens at times of crisis.

Wynn Macau plans emergency board meeting

Wynn Macau will hold an emergency board meeting on Friday afternoon in Macao to discuss the removal of Kazuo Okada as a director, according to two people familiar with the situation, as Steve Wynn moves to sever ties with his long-term business partner and a co-founder of his casino empire, the FT reports. The other board members of Wynn Macau could unilaterally vote against Mr Okada’s continued presence on the nine-person board under Hong Kong’s listing rules, according to these people, but it would require a shareholder vote to remove Mr Okada from the board of the US parent Wynn Resorts, they said. Wynn Resorts, which operates several casinos in Las Vegas and Macao, has been rocked by an acrimonious dispute between the company’s two founders and former friends. The group this week requested that Mr Okada resign from the board after an internal investigation alleged that he broke US anti-corruption laws through his dealings with officials in the Philippines, where he is building a casino resort of his own. Mr Okada has denied breaking any laws. A report prepared for the Wynn board by Freeh Sporkin & Sullivan, a law firm, alleged that Mr Okada made payments exceeding $110,000 that directly benefited two senior regulators responsible for gaming licences in the Philippines.

Further further reading

For the commute home,

– Mario Draghi does not know baseball. (Plus other #DraghiQuotesRead more

Athens told to change spending and taxes

European creditor countries are demanding 38 specific changes in Greek tax, spending and wage policies by the end of this month and have laid out extra reforms that amount to micromanaging the country’s government for two years, according to documents obtained by the Financial Times. The reforms, spelt out in three separate memoranda of a combined 90 pages, are the price that Greece has agreed to pay to obtain a €130bn second bail-out and avoid a sovereign default that the government feared would throw Greek society into turmoil. They range from the sweeping – overhauling judicial procedures, centralising health insurance, completing an accurate land registry – to the mundane – buying a new computer system for tax collectors, changing the way drugs are prescribed and setting minimum crude oil stocks. “The programme is much, much more ambitious than economic reform,” said Mujtaba Rahman, Europe analyst at the Eurasia Group risk consultancy. “This is state building, as typically understood in traditional low-income contexts.”

Apple bows to investors on board voting

Apple has bowed to investor demands to give shareholders greater influence over the election of directors, a move that will make it far harder for other leading US companies to ignore calls to improve corporate governance standards, the FT reports. The technology group had disregarded a shareholder vote at last year’s annual meeting calling for the change, but faced renewed pressure from Calpers, the largest US public pension fund, to introduce majority voting for seats in the boardroom at its Thursday meeting. “It’s vitally important that a company the size and importance of Apple is not lagging behind on governance”, said Anne Simpson, head of corporate governance at Calpers. “A high standard of governance will underpin their future success.” Before the change, shareholders in the world’s largest listed company could only withhold their vote in favour of the election of a director, rather than vote against. If a director was unopposed, only one vote in favour was required to retain the post, irrespective of how many votes were withheld.

Blueprint for China to open up markets

China should accelerate the loosening of capital controls, its central bank said, in a report outlining the path to a freely tradeable currency and more open capital markets, the FT reports. While China’s economy has grown dramatically over the past three decades, its financial markets have remained mostly closed off from the rest of the world. Opening the capital account would give foreigners far more access to Chinese stocks and bonds and help transform the renminbi into a global currency and potential rival to the dollar.

Rally Monkey, in the study, with a bearish engulfing candlestick

“Do not ignore this chart,” shouts Murray Gunn, Head of Divination and Rune Casting at HSBC, in his daily Short Cycle report. So here we are, pointedly not ignoring it.

Several lines of various colours.

Help Tim Cook


Caption cash competition! Read more

The Alex indicator

FT Alphaville had despaired of any indicator stepping up to the mark set by the usual “throwing darts blind©” technique.

But, courtesy of the Saïd Business School (via the FT’s Duncan Robinson), we may have found one. Read more

Inside the RWA mines

We’re shocked (shocked!) that Commerzbank has rolled out a €1bn capital increase now that European bank equity isn’t a total disaster area. Having not done it when it was.

By executing this transaction Commerzbank intends to take advantage of a favourable market opportunity to further improve its capital structure…

 Read more

A NOK jolt

Fat finger? Flash crash? HFT? Something strange has transpired in the NOK/USD cross rate.

 Read more

US jobs and seasonality: the DeLorean edition

FT Alphaville has written a fair amount about seasonal distortions in economic data but thought this latest piece of research from Nomura was worth highlighting (mostly because it involves time-travel).

It pokes a small but important hole in the surprisingly low 348k new US claims for unemployment insurance which were filed in the week ending 11 February, the fewest since March 2008. Read more

Markets Live transcript 23 Feb 2012

Live markets commentary from 

MF Global investigators examine transfers

Investigators seeking to locate $1.6bn in missing costumer funds at failed brokerage MF Global are closely examining two large transfers made in the dying days of the firm at the end of October 2011. One of the transfers was only recently uncovered, the WSJ reports. One transfer was done between an MF Global customer account to JP Morgan, the brokerage’s clearing bank, for $175m. Brokerage firms sometimes keep their own cash in customer accounts too, and JP Morgan Chase subsequently sought to confirm the legitimacy of the transaction. Another transaction, for $165m, has also come to light. This transaction was sent on October 26th from MF Global to JP Morgan, by the brokerage’s staff in Chicago who subsequently tried to reverse the transaction but it isn’t clear whether that succeeded.

HP printer business facing challenges

The printer business which has long underpinned Hewlett-Packard’s finances is facing structural problems that threaten its position as the company’s cash cow, Meg Whitman, chief executive, has warned. Ms Whitman’s comments, which included a warning that the US computer maker faces deep challenges in all its main businesses, came on Wednesday as HP reported a 7 per cent slump in sales in its latest quarter, reflecting lost ground across a broad range of technology markets, says the FT. Profits fell more than analysts’ estimates as sales of PCs fell 15 per cent over a three month period ending in January while declines in sales were also seen in other product segments, Bloomberg reports.

BP and Anadarko liable for Macondo damages

BP and Anadarko Petroleum, co-owners of the Macondo well that blew out in the Gulf of Mexico in 2010, are both liable for damages and penalties that could run into billions of dollars, the judge hearing the case arising from the disaster has ruled, the FT reports. On Wednesday, Judge Carl Barbier at the federal court in New Orleans delivered a summary judgment that both companies were liable for clean-up costs and damages under the Oil Pollution Act, and civil penalties under the Clean Water Act. His decision followed a move by the US government to establish the liabilities of some of the principal companies involved in the spill, before the trial begins on Monday, February 27. By clarifying the liabilities that the companies face, the ruling could accelerate settlements between some or all of the parties before the trial begins.

Obama and Romney unveil rival tax plans

President Barack Obama and Mitt Romney, his most likely Republican rival in this year’s election, battled for the mantle of tax reformer as they released competing visions for comprehensive reform, the FT reports. Mr Obama set out a plan that could change where global companies choose to invest by cutting the US corporate tax rate from 35 to 28 per cent, imposing a minimum tax on profits US companies earn in offshore tax havens, and eliminating tax breaks except for manufacturing and research. He also wants to raise billions of dollars via a “Buffett rule” that would mean people making more than $1m a year have to pay a minimum of 30 per cent of their income in tax, but he has not set out a detailed plan for personal tax reform. In a move that may increase his appeal to conservative Republican primary voters, Mr Romney proposed aggressive cuts to personal income tax rates, calling for a one-fifth reduction in each of today’s marginal rates. The new rates would range from 8 to 28 per cent.

Outlook for growth back on agenda

Global stocks crept towards their first gains in the wake of Greece’s bail-out deal but sentiment remained fragile across markets as growth fears resurfaced to cloud the outlook for investors, according to the FT’s Global Market Overview. The FTSE All World index rose 0.2 per cent to 216.93, the first rise in three sessions as concerns have lingered about the implementation of Greece’s bail-out package. Crude oil prices dropped back from nine-month highs as the previous session’s economic activity data from Europe, the US and China all proved softer than expected, highlighted by indications that the eurozone moved closer to a recession this month. Bloomberg reports that the Ifo institute has recorded the fourth straight gain in German business confidence Thursday morning, with the index hitting a seven-month high, rising more than the median forecast of 38 economists.

Germany fights eurozone firewall moves

The FT reports that the German government is set to resist or delay increasing the size of the eurozone’s financial “firewall” against contagion from the Greek debt crisis, in the face of mounting pressure from its partners, the International Monetary Fund and the US administration. Steffen Seibert, spokesman for Angela Merkel, the German chancellor, insisted on Wednesday that Berlin saw no need to increase the size of the permanent €500bn European Stability Mechanism. “The German government’s position has not changed,” he said. “That means no, it is not necessary.” Ms Merkel and her finance minister, Wolfgang Schäuble, are looking isolated in the face of strong pressure from Christine Lagarde, managing director of the IMF, and the other 16 members of the European monetary union. Mr Schäuble is likely to face further pressure on the subject this weekend at a meeting of G20 finance ministers in Mexico City.

Hester defends RBS banker bonuses

Stephen Hester, chief executive of Royal Bank of Scotland, defended the pay of its investment bankers on Thursday as the state-controlled group posted a deeper annual pre-tax loss of £766m, the FT reports. Mr Hester, who gave up his own bonus of almost £1m last month under intense political pressure, said investment bankers’ remuneration had been falling faster than the profits of their division, which has been hit by tough trading conditions. RBS confirmed that its investment banking bonus pool for 2011 was £390m, down 58 per cent on 2010’s £937m and an average of £22,941 per employee. The operating profit of its investment banking arm fell 54 per cent to £1.6bn. Mr Hester said the task of salvaging the bank after its disastrous over expansion and poor lending required it to offer competitive pay.

Policing by powerpoint

It’s difficult to know what to say about the Serious Fraud Office in the wake of its acknowledgement that its officers simply didn’t understand documents that patently cleared the property investor Vincent Tchenguiz of wrong-doing in the collapse of Iceland’s Kaupthing.

Apparently they were “very busy” at the time (Spring last year) and this is just a case of “human error.” Read more

Entwining bailouts and eurozone central banks

Exhibit one, the Greek default.

The European Central Bank will not take losses on Greece. It will not even have to do anything tricky with ‘purchase prices’ etc under the latest bailout deal. The ECB simply hands over profits on the bonds that it makes over time (accrued coupons, “pull to par”, so on) to eurozone governments – a perfectly normal operation – who can then commit the (pretty meagre) proceeds to Greece. Read more

Further reading

Elsewhere on Thursday,

– US corporate tax cut proposed. But WHY?! Read more

Pink picks

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

John Gapper: Wynn raises the stakes in Las Vegas
The Wynn-Okada tussle is an enthralling battle of wills between two hardened Vegas gamblers. It is also a sad reflection of the lack of investors’ rights in Nevada, which takes to deliberate extremes the US tendency to place the interests of corporate directors above those of their shareholders. The irony is that the 70-year-old Mr Wynn may yet be hoist by his own – and his adopted state’s – legal petard. Read more

Snap news

Breaking pre-market news on Thursday,

– RBS posts £2bn loss, pays £390m in bonuses – statement.  Read more

UK and Japan warn Volcker rule poses threat to recovery

The UK and Japan have urged the US to rewrite its so-called “Volcker rule”, claiming that trading restrictions on US banks could hit the international sovereign debt market at a delicate moment in the global recovery. George Osborne, the British chancellor, has joined forces with Jun Azumi, his Japanese counterpart, in warning in a column in Thursday’s FT that the US banking reforms could make it “more difficult, costlier and riskier for countries to issue and distribute debt”, at a time when many eurozone countries are already under strain.


Russian link in $150m fraud claim

A $150m fraud allegedly attempted by a former fund manager at Threadneedle Asset Management is linked to a trade in more than a billion Argentinian warrants by former staff at Otkritie, the Russian financial services group. Threadneedle confirmed on Tuesday that a former trader had been dismissed in August after attempting an allegedly “suspicious trade” that had triggered in-house alarms and had become part of a wider City of London police investigation. The FT, citing those familiar with the case, earlier in the summer Otkritie had contacted a Threadneedle employee about a large trade in Argentinian warrants set up by a number of Otkritie employees. Otkritie, which is part owned by VTB, Russia’s second-largest lender, is now embroiled in a lawsuit with several of its former executives, which is expected to come for a preliminary hearing before the High Court next month.

SFO admits Tchenguiz case errors

The Serious Fraud Office has admitted to “very regrettable errors” and failures in the way it handled its case against property tycoon Vincent Tchenguiz, in a letter seen by the FT. In the letter, the solicitors acting for the SFO describe how it “inadvertently miscast” information when obtaining search warrants against Mr Tchenguiz as part of an investigation into Kaupthing, the failed Icelandic bank. The SFO apologises, in the letter, to Mr Tchenguiz, who has initiated a £100m claim against it for reputational damages. The authority explains that its case workers, “extremely busy” with a “very large amount of complex information”, failed to identify and verify documents in its possession that contradicted the case against Mr Tchenguiz. Richard Alderman, director of the SFO, told the FT the authority had “accepted that the warrants were wrong, and the question now is to costs”.