Posts from Friday Feb 24 2012

Vedanta’s iron-clad PR

Vedanta Resources is creating happiness. This might seem like a tall order for a mining group, but it must be true because the company tells us how it’s sent some nascent film-makers around India to snap pictures of smiling kiddies. It’s also pledging to present itself in an open and transparent manner. It must be true, because the company’s global communications head tells us. Despite its prominent position in the FTSE100, Vedanta has found happiness elusive and transparency hard. On Tuesday, it felt moved to put out a statement after the shares jumped 7%. Here it is, in full:

“Vedanta notes media speculation regarding a potential group restructuring. Vedanta’s stated strategy is to simplify and consolidate its corporate structure. Management reviews options to deliver this strategy on an ongoing basis and will update the market as appropriate.”

 Read more

The Weekender

This week on FT Alphaville,

– A Greek deal emerged… and a DSA horror was born Read more

Further further reading

For the commute home,

– Our colleague Robin “Hip Specs” Harding on the housing and recovery paper from today’s US Monetary Policy Forum. Read more

When household formation growth returns

A chart from Goldman Sachs:

 Read more

The worlds inside a Greek GDP warrant

Let’s start by saying you’re a bondholder mulling Greece’s PSI offer this weekend. (Or you’re Maynard, after a hellish week, reflecting on the offer that you helped to create.)

Remind yourself… Read more

Greek PSI — the offer

Click image for the full release doc — we’re still waiting for the technical memo stuff:

Guest post: Post-Modern Fiscal Theory

The following is a guest post from Chris Cook, a senior research fellow at the Institute for Security and Resilience Studies at University College London. His work is focused on a new generation of networked markets – which will, in Chris’s view, necessarily be dis-intermediated, open, decentralised and, therefore, resilient.

Following the recent upsurge in interest in Modern Monetary Theory (MMT) I was rash enough to make the comment that the central insight of MMT – that modern ‘fiat’ money is a credit instrument ultimately based upon the government’s power to tax – is muddied by disputes as to what the proper basis for taxation actually is, or indeed, whether there should be any taxation at all. Read more

US Markets Live transcript 24 Feb 2012

Live markets commentary from 

US Markets Live reminder: 10am New York time, 3pm London

Exciting times here at US Markets Live as the ‘Joseph Cotterill in New York’ era begins today.

We’ll be blabbering about Greece, oil prices, AIG, macro on both sides of the ocean, a bit on US banks and whatever else hits the wire. At the usual place, see you then!

Required reading for Glenstrata advisers

From the FT on Friday:

Executives at Glencore, the world’s largest commodities trader, and Xstrata, the mining group, had been confident that their deal would not require a formal investigation by the European Commission. Read more

Make losses and prosper, AIG edition

Dear American International Group, can’t you do anything in a small way? The gigantic numbers make our heads bleed and ruin any sense of scale we once had.

A $182bn bailout, $467bn net notional of super senior credit default swaps written, and now, in AIG’s fourth quarter results, $17.7bn of $19.8bn of fourth quarter net income is down to… a “release of valuation reserves”? Read more

Markets Live transcript 24 Feb 2012

Live markets commentary from 

That Greek sustainability analysis, annotated

The full document is here, but Gary Jenkins of Swordfish has an early draft with some revealing scrawlings…

“Strictly Confidential” (It has already appeared on Wikileaks so give away as you likeRead more

So long, covered bond LTRO carry-trade

The covered bond LTRO carry trade. Pretty attractive in December. Not so much now.

That at least, is the view of Leef Dierks at Morgan Stanley on Friday. Read more

AIG reports profit after substantial tax benefit

American International Group reported a profit of $19.8bn for the fourth quarter, Reuters reports. Having made substantial losses during the crisis, the insurer built up substantial tax assets. However, the company also booked large valuation allowances against them. Given that AIG is now “more likely than not” to be consistently profitable, $17.7bn of the valuation allowance was released in the last quarter. The shares rose in response to the announcement, bringing them to a price past the US government’s breakeven point on its investment in the insurer. AIG is 77 per cent government owned, having received $182bn in bailout money over the course of the crisis. There is currently no timetable for the government’s exit from its investment.

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, the FT writes. According to Reuters, another condition of the bail-out was set into motion by legislation passed by the parliament in Athens on Thursday that will enable a bond swap of Greek government debt. It is hoped that the swap, which will launch on Friday, will reduce the sovereign’s debt burden by €100bn.

Optimism lifts oil and global equities

Bulls remained in the driving seat as crude oil prices stretched their winning streak to the longest in two years, while global stocks climbed for a second day, according to the FT’s Global Markets Overview. New York oil prices rose 0.7 per cent to a nine-month high of $108.54 a barrel, a seventh successive session of gains. The FTSE All World index built on Thursday’s gains to tick up 0.3 per cent to 217.72. Asian shares drifted higher and European equities opened positively as investors took heart from positive economic data in Europe and the US. Weekly jobless claims in the US held steady at its lowest level in nearly four years while Germany’s business confidence index rose to a seven-month high. But there was also some concern in the markets that crude oil prices could pose a threat to the global economic recovery.

Apple yields to governance reform call

Lloyds warns of tough year ahead

Lloyds Banking Group made a pre-tax loss of £3.54bn in 2011 after a big reduction in loan impairment losses was unable to compensate for a previously-announced £3.2bn charge arising from the payment protection insurance mis-selling scandal, reports the FT. The partly state-owned bank added that income was likely to be lower in 2012 than it was in 2011 and confirmed it would miss key medium-term financial targets. However, it also predicted that impairments – losses taken on bad loans – would ease faster than expected this year, while cost savings were also set to accelerate. On the controversial topic of pay, Reuters reports that the bank will pay out £375m in bonuses this year, down 30 per cent. Lloyds doesn’t have a large investment banking operation.

US predicts receding food price threat

The threat of a worldwide jump in food prices has receded after farmers planted record amounts of grain in response to soaring commodity markets, the US has said. The official government forecast may come as a relief for households struggling with bigger grocery bills, but could quickly unravel if weather in important farming regions turns harsh, the FT reports. Joseph Glauber, chief economist at the US Department of Agriculture, said that record prices in late 2010 and the first half of 2011 had led to bumper production worldwide of major crops from corn to cotton. Ethanol refineries’ appetite for US corn had also levelled off, helping to buoy projections of stocks of the most important animal feed grain this year, he said.

Further reading

Elsewhere on Friday,

– The CAC is the new moral hazardRead more

Pink picks

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

 Read more

Snap news

Breaking pre-market news on Friday,

– Lloyds Banking Group warns of tough times after £3.5bn loss – statementRead more

Overnight markets: up

The Nikkei remained close to around 9,600 in Asian markets, with traders telling Reuters that there were few signs of investors getting fed up with buying the rally. Asian stocks are close to posting a record tenth weekly gain, Bloomberg reports.

Combined bullishness from German business confidence and US jobless claims nevertheless failed to boost equities with high oil prices providing a dampening effect, the FT saysRead more

Crude spike sends investors running for cover

Brent crude priced in euros rose to an all-time high on Thursday, adding another threat to eurozone growth, Reuters reports. But it is Asian buyers’ increasing unwillingness to pay up for Brent which may offer a clue that the current rally is about to crack, Reuters columnist Robert Campbell says. Increased Saudi Arabian supplies may be assuaging Asian demand. In the meantime, investors faced with price spikes in both euro- and sterling-denominated crude are scrambling to find “oil hedge” currencies, the FT says.

LME concedes over fee amid bid battle

The London Metal Exchange has had to climb down from some plans to charge a controversial trading fee, postponing its roll-out and cancelling it for spread trades, reports Reuters. Bidders for the LME have closely observed the dispute as revising the fee could hit future revenues at their target. The LME’s board will work on narrowing down its list of suitors to a single name through to April, before putting the bid up for shareholder approval, the WSJ says.

Three quarters there on clean-up, says RBS chief

Stephen Hester, RBS chief executive, has said that larger losses posted on Thursday could in fact be interpreted as a good thing, showing the rapid removal of the bank’s legacy assets, the FT reports. Mr Hester added that the bank was “more than three-quarters of the way” through cleaning up its balance sheet, which has shrunk from £1.6tn to £977bn in three years, compared with a target of £1.2tn. But RBS has also been swept up in a tide of debt crisis losses at European banks, including the biggest income hit for Credit Agricole since it went public in 2001, the WSJ adds.

Phone hacking: ‘Evidence was destroyed’

News International executives made a policy of deleting emails related to its phone hacking scandal that could have been used against it in court, the Telegraph reports. Hundreds of thousands of emails were wiped “on nine separate occasions” according to documents prepared by hacking victims’ lawyers and released by the High Court. News International in January 2011 destroyed the entire email archives of the News of the World dating to before 2007, when phone hacking at the paper was rife, the FT says. The “email deletion policy” was created in November 2009, four months after the Guardian first began to report on hacking of a massive scale.

Greece to be ‘micromanaged’

Greece must carry out no fewer than 38 measures by the end of this month whose combined effect would effectively lead to its finances being micromanaged from the outside, according to official memoranda seen by the FT. Immediate policies and “prior actions” demanded by Greece’s eurozone creditors range from tax audits to liberalising beauty salons and changing how drugs are dispensed. Dozens more structural reforms must be passed in the first half of 2012. The Greek parliament has meanwhile backed the €200bn debt restructuring included as part of Greece’s second bailout, including collective action clauses implanted in debt to allow enforcement of the bond swap, the WSJ says.

LSE’s Borsa legacy under fire

Italy’s top financial regulator has cast doubt on the long-term success of the London Stock Exchange’s takeover of Borsa Italiana five years ago, reports the FT. Giuseppe Vegas, head of Consob, said “the merger of the LSE and Borsa Italiana could be a good thing but it has not yet demonstrated good effects”. There were not many capital flows between Italy and Britain, Mr Vegas added, apparently targeting his remarks at equity trading and the small-cap Aim Italia bourse. Borsa’s revenues are 30 per cent higher in absolute terms since the takeover, LSE said.