Posts from March 2012

No Resolution at all, really

It’s hard to see the point of some businesses. This week the particularly pointless Resolution produced an interminable, impenetrable statement. Its bosses have decided that something must be done, and breaking it up is something, so it must be done. Resolution calls this a “self-managed exit plan”. It’s tough on the shareholders, who had been anticpating their own exit plan, in the form of a £250m cash return which they had been half-promised by the management.

Alas, the markets have been too choppy for the lash-up that is SS Resolution to remain seaworthy without the £250m, so the company is to be split between a business which may or may not have a future, and one which definitely doesn’t. It may even add value for shareholders, despite what are delicately described as “dis-synergies arising from separating into two separate businesses” but it would be unwise to bet on it. Read more

Groupon in accounting mess shocker

It is, at pixel time, getting quite late on Friday in the States.

What better time for Groupon – the business school accounting cautionary tale masquerading as an online discount deals-maker – to slip out an earnings revision accompanied by a “material weakness” in its internal controls. Just six months after its going public. Read more

Systemically biased results – Part 2

Credit event auctions determine the amount paid out by credit default swaps when the company or sovereign referenced by the swap defaults. As such, the auction process is a vitally important part of the CDS market. Evidence from an academic paper, penned by Haoxiang Zhu and Songzi Du of the Graduate School of Business at Stanford University, suggests that these auctions are systemically biased.

In Part 1 of our overview of the study, FT Alphaville gave a brief refresher on how auctions work as well as the intuition behind the source of the potentially in-built bias in credit event auctions. Here we get a bit more into the guts of the paper, describing some of its exact findings. We also review some of the descriptive statistics of their dataset. Read more

US Markets Live transcript 30 Mar 2012

Live markets commentary from 

US-UK Markets Live! – 10am New York, 3pm London

Join Bryce Elder, Cardiff Garcia and Joseph on Friday, 10am New York time and 3pm London time, for the last transatlantic Markets Live session of the week.

We’ll be talking RIM’s awful numbers, the Spanish budget, and these funny eurozone firewalls thingies, among much else… Read more

Systemically biased results – Part 1

A week has passed since the auction for Greek CDS. Perhaps it’s now time to reflect on the credit event process. Toward that end we wanted to share our thoughts in a combined derivatiViews and media.comment post, and we also encourage our readers to offer their views.

That was from Isda’a media.comment blog, in an entry posted on Wednesday. Excellent timing really, because FT Alphaville has a view to offer on credit event auctions. Read more

The Lunch Wrap

Good morning, New York


Now you see the headline fiscal deficit, now you don’t

So, in case you missed it, the IMF released an excellent, pithy staff note on ‘Accounting Devices and Fiscal Illusions’ this week – all about book-cooking of sovereign debt stats.

It touches on almost any accounting trick you can think of, where the effect is that ‘this year’s reported deficit is reduced, but only at the expense of future deficits,’ as the IMF note says. ‘The result is that the reported deficit loses some of its accuracy as a fiscal indicator,’ it drily adds. Read more

Further reading

Elsewhere on Friday,

– Michael Pettis vs The Economist. Fight, fight, fight, fight! Read more

The 6am Cut London

An audit of Chinese factory conditions at Apple supplier Foxconn found 43 violations of Chinese laws and regulations. The independent audit made recommendations on wages, working hours, safety and worker representation which Apple said it supported. Foxconn said it would improve conditions, without specifying how. The company’s margins on making Apple products are estimated at just 1.5 per cent and its size as a global manufacturer means big changes could have implications for the entire industry. (New York Times)(Bloomberg)

Panic fuel buying as strike fears grow leads to finger-pointing at David Cameron’s handling of the issue. (The TelegraphRead more

Overnight markets: Down

Asian stocks swung between gains and losses on Friday and Japanese manufacturers slid after the nation’s industrial production unexpectedly fell and investors waited for US data on income and spending, says Bloomberg.

Industrial & Commercial Bank of China, the world’s most profitable lender, climbed 1.6 per cent after posting earnings that exceeded estimates. Quanta Computer, the world’s largest laptop maker by shipments, rose 5.1 per cent in Taipei after reporting better-than-expected net income. Fanuc, Japan’s biggest maker of factory robots, fell 2.3 per cent and Sun Hung Kai Properties plunged 11 per cent in Hong Kong after the firm’s co-chairmen were arrested in a corruption probe. Read more

The Closer


The day was split in two for US equities as they overcame an early decline to rally nearly back into the black by the close of trading. European shares had a rougher day, the Euro fell against the dollar, and Spanish and Italian bond yields climbed. (ReutersRead more

C-suites in Motion

CTO of 13 years – gone

COO, Global ops – gone Read more

Can we make Irish promissory notes a bit more bonkers? Yes we can

We have an Irish promissory notes deal! A weird one.

This is not the deal to restructure the notes (used to reanimate the IBRC, the Anglo Irish after-life vehicle) overall. This is not a deal ‘with’ the ECB at all, technically. It’s in order to defer a €3.06bn cash payment that Ireland would have had to send to the bank at the end of this month. One plan was to swap out the cash for a long-term Irish government bond, achieving the deferral for, potentially, the bond’s lifetime. Read more

SocGen vs Citi: the Aussie debate

Having for so long been the darling of the high-beta FX world, the Australian dollar is having a bad time of it recently. It has been beaten down some 4.4 per cent versus the dollar since the start of February and lost 3.8 per cent against the yen since March 20.

 Read more

Bernanke’s fourth lecture: the aftermath of the crisis

You can watch the live stream here, and click below to see the slides for the fourth and final lecture:

 Read more

The vega is strong with this one

Vega. The brightest star in the constellation Lyra. Or, jargon for the sensitivity of an option’s value to the change in expected volatility.

Usually, it’s described as the absolute change in an option’s value for every percentage move in volatility. Read more

Will the last person to leave HM Treasury, etc

Selected quotes/charts from the ‘Review of HM Treasury’s management response to the financial crisis‘, which reveals that there was a significant lack of personnel in the finance ministry who knew about banking crises, on the eve of the UK’s biggest ever banking crisis…

After serious concerns were first raised about Northern Rock in mid-August, it took the Treasury about four weeks to appreciate that there might be systemic dimensions which would mean wider handling and greater Treasury input

 Read more

US Q4 GDI up 4.4%, GDP unchanged from 2nd estimate at 3%

So much for the Okun’s Law mystery?

Those who think Gross Domestic Income, whose first quarterly estimate arrived in the same release the third estimate of GDP, is the more useful growth measure of the two will be encouraged by this: Read more

Markets Live transcript 29 Mar 2012

Live markets commentary from 

This next quarter in US credit is different

Bank of America Merrill Lynch analyst Hans Mikkelsen is bullish on US corporate credit. With Europe awash with liquidity thanks to the ECB and excess demand for corporate bonds in the second quarter, he expects there to be the third consecutive quarterly rally.

Mikkelsen thinks this time is different — a daring statement to make if ever there was — because of an expectation that home prices will have hit a trough in the first quarter and that in “harsh stress tests US banks were shown to be extremely well capitalised”. And while the price of oil is a bit of a wildcard, if prices do significantly rise, the impact isn’t likely to be fully felt until later in the year. Read more

GDF Sluggish pounces slothlike on International Procrastination

Behold, a bid approach! For International Power! From GDF Suez, its 70 per cent shareholder! This must come as a total surprise!

Except perhaps to readers of the FT (January 11) Read more

Saudi Arabia resorts to Jedi mindtricks

Saudi Arabia’s oil minister Ali Naimi penned a sharply worded piece in the Financial Times on Thursday declaring that high prices are unjustified because “there is no lack of supply.”

But what does resorting to an op-ed in the Financial Times actually tell us about the kingdom’s position? Read more

The Lunch Wrap

Good morning, New York


If you thought Greek bondholders were subordinated…

Subordination of private bondholders by the official sector is already very acute. This means that the more a PSI exercise is delayed, the higher the haircut on the notional needs to be for a given level of debt relief. Consequently, the sooner a PSI exercise happens, the better…

Not Greece 2011, but Portugal 2012. Read more

Further reading

Elsewhere on Thursday,

– Flying with the family on the company dimeRead more

Overnight markets: Down

Asian stocks fell for a second day, and headed for the first monthly drop since November, as US durable-goods orders and earnings trailed estimates, says Bloomberg. The yen rose, while oil traded near a one-week low.

Asian markets
Nikkei 225 down -81.16 (-0.80%) at 10,101
Topix down -6.45 (-0.75%) at 857.98
Hang Seng down -251.09 (-1.20%) at 20,634 Read more

The 6am Cut London

Oil remains at its lowest price in a week after talk of a reserves release, and higher US inventories. (Bloomberg)

Facebook will halt private secondary market trading in its shares at the end of this week, ahead of an IPO expected in May. (Financial TimesRead more

The Closer


Crude prices were hit by a pincer movement of official talks over an emergency reserve release, and ‘op-ed intervention’ by Saudi Arabia. The French government said that the US had proposed a release and that it “welcomed the proposal” (Bloomberg). Ali Naimi, the Saudi oil minister, took to the pages of the FT to argue that “The bottom line is that Saudi Arabia would like to see a lower price. It would like to see a fair and reasonable price that will not hurt the global economic recovery” (Financial Times). Read more