Posts from Sunday Feb 26 2012

Lloyds and RBS eye €15bn ECB loans

Britain’s two part-nationalised banks plan to tap the European Central Bank’s special three-year funding scheme for a combined amount of about €15bn, reports the FT — on a par with some of the eurozone’s largest banks. Lloyds Banking Group and Royal Bank of Scotland have both indicated that the scheme is attractive because of its low 1 per cent interest rate. Neither bank would comment on how much they planned to raise through the facility. However the FT, citing people familiar with their plans, says Lloyds, which did not use the LTRO in December, would rubber stamp a plan on Monday to seek about €10bn of funding. The money would be used to part-fund a portfolio of nearly €30bn of eurozone lending, focused on Ireland, the Netherlands and Spain, which is set to be wound down over the next three years. About €20bn of that exposure is already funded through customer deposits. RBS, which took about €5bn of LTRO money in December, is set to take a similar amount in Wednesday’s auction, according to senior bankers. The group’s eurozone exposure is focused on Ireland, where it owns Ulster Bank.

Weekend news catch-up

Weekend headlines from the FT and other UK media:*

From The FT,
– Hammerson’s £500m office portfolio up for sale
– Ed Miliband and Ed Balls are at odds over the party’s attack on excessive bonuses
– UBS enlists Sam Molinaro, the former Chief Financial Officer of Bear Stearns, as a top executive Read more

Call for manufacturing tsar to boost economy

A study of UK industry commissioned by David Cameron says Britain should appoint a “manufacturing tsar” to champion the sector and help deliver a prolonged economic revival, says the FT. A report compiled by Sir Anthony Bamford, chairman of JCB, the construction machine company, says Britain should implement a nine-point plan to strengthen the role of manufacturing in the economy while cutting the country’s spiralling trade deficit on factory-made goods. A central proposal by Sir Anthony is that the government should enlist a person with business experience who would act as the UK’s “champion” for manufacturing within Whitehall and ensure the necessary proposals are adopted to aid the sector’s growth.

Payment-in-kind notes make comeback

Payment-in-kind notes — a speculative, often toxic type of debt that became popular at the peak of the economic boom and recently contributed to the failure of UK retailer Peacocks — could be staging a return, says the FT. PIK notes are typically not repaid until they mature and rank low down on the list of creditors to be repaid in the event of a company going under. Although they do not result in any cash drains from a company over their lifetime, ballooning PIK notes can become ticking time bombs for companies that cannot repay the full amount when they come due. The popularity of PIKs peaked in 2007, when they were used to partly finance private equity acquisitions or to raise capital for a “special dividend” for owners. However, since the crisis there has been little issuance, as investors have recoiled from speculative structures. However Polkomtel, a Polish telecoms group, in early February sold a $200m PIK note that yielded almost 15 per cent. Bankers and financiers say several smaller, private deals have also been signed recently.

A special invitation from the Hellenic Republic…

Here’s the key Greek document — the invitation to participate in the PSI bond exchange. Click to read.

 Read more

Buffett stamps on the gold bugs (again)

It’s not new that Berkshire Hathaway’s Warren Buffett prefers productive assets to unproductive ones, but his latest letter to shareholders sets out his compelling argument…

…The major asset in this category is gold, currently a huge favorite of investors who fear almost all otherassets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however,has two significant shortcomings, being neither of much use nor procreative. True, gold has someindustrial and decorative utility, but the demand for these purposes is both limited and incapable ofsoaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will stillown one ounce at its end. Read more

FTfm on AV

Some highlights from Monday’s FTfm.

Funds focus on single EU market
The cross-border fund sector has doubled its share of Europe’s €5.2tn investment industry in the past decade in an apparent victory for the EU’s push for single markets but doubts remain as to whether investors have benefited from the economies of scale unleashed by the internationalisation of a once parochial industry. Read more