Posts from March 2013

Alphachat: the cunning plan edition

Regular posting will resume on Tuesday. In this Easter edition of Alphachat, Joseph, Cardiff and David do their best to compare Jeroen Dijsselbloem to Baldrick before moving on to slightly weightier stuff. Read more

Home sweet tax shield – how the Dutch do property

Peek under the lid of the Dutch housing market. It’s awfully idiosyncratic in there. Also it’s doing rather badly and has been the subject of recent, significant tax reforms that will drastically change its shape in the coming decades.

Right into the deep end, with this chart released last week by Statistics Netherlands (CBS):

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Markets Live: Thursday, 28th March, 2013

Live markets commentary from FT.com 

The (early) Lunch Wrap

Cyprus imposed severe capital controls || Kurodo warns Japan debt ‘not sustainable’ || Chevron cuts senior executives’ pay || RBS and Lloyds must raise extra £9bn || France’s towns demand rescue from ‘Time bomb’ of Dexia loans || Google eyewear to be ‘made in USA || Blacktone is open to keeping Michael Dell on as CEO if it gains control of Dell || German unemployment unexpectedly rises amid euro crisis || American Airlines’ $11bn merger with US Airways is approved Read more

If you can’t beat them, just spend

Gary Jenkins writing in Credit Matters this week gets to the heart of the matter when it comes to what investors should do with their money (our emphasis):

Is nowhere safe? The natural reaction to this is that fi nancing for banks should become more expensive. We are already seeing this reaction in the market to some degree. But what does this mean for a product like Cocos? How does an investor monitor the risk of conversion if the ECB could, on any given day, decide to withdraw liquidity unless the bank were to improve its capital position?

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Further reading

Elsewhere on Thursday,

- The Tesla powered Mercedes Benz.

- Poland is not yet lost, or is it?

- Jobs are becoming less routine and more cognitive.

- Some goldbug hyperbole. Read more

The 6am London Cut

Cyprus imposed severe capital controls: “Cyprus is to become the first eurozone country ever to apply capital controls – with limits on credit card transactions, daily withdrawals, money transfers abroad and the cashing of cheques – intended to prevent a vast outflow of euros when its banks open on Thursday. Under drastic measures that some analysts say are incompatible with monetary union, depositors would be able to withdraw no more than €300 in cash each day, said people familiar with the move. Transfers over €5,000 would require permission of the central bank.” (Financial Times)

Chevron cuts senior executives’ pay: “Chevron, the US oil group, is cutting the pay of its chief executive and other senior executives after high-profile safety failures. The board has decided to cut stock awards and cash bonuses for 2012 by about 10 per cent, according to a person familiar with the decision.” (Financial Times)  Read more

The Closer

Flat, light-volume, US stocks. The S&P 500 closed down 0.1 per cent at 1,562.85, still looking for that record high (Bloomberg).

Cyprus prepared to reopen its banks for the first time since March 16. The six-hour reopening on Thursday will be accompanied by the first capital controls to be introduced in a eurozone country. Cyprus will ban taking more than €3,000 of banknotes on foreign trips, and limit cash withdrawals from deposits to €300 per day among the measures. The controls will last for seven days, but can be renewed by decree depending on the pace of the deposit flight they are designed to stem (Financial Times, Wall Street Journal). Read more

Is the FSA (still) a leaky ship?

It may seem fanciful that Tidjane Thiam and other directors at Prudential believed that a leak of their planned $35bn takeover of AIA three years ago might come from the FSA. But they did. Here’s paragraph 4.6 from the final notice censuring Mr Thiam and fining the Pru $30m…

4.6. The directors of Prudential, including Mr Thiam, met on 31 January 2010 to be briefed on the proposed transaction by Credit Suisse. There was a consensus between the directors of Prudential at this meeting that:

(1) a leak was the key risk to the transaction;

(2) the FSA was one of a number of parties which might be the cause of a leak; and

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Meanwhile, in Greece…

Dromeus Capital. The name might ring a bell. It’s the fund which did its homework on underpriced Greek assets last year, making a killing.

Pretty striking, then, that they’ve now gone cautious on Greece. Read more

Save the rich!

The public, as well as most of the financial commentariat space, seem mostly to be behind the amended terms and conditions to Cyprus’ Eurogroup bailout, believing them to be fairer for most concerned.

Unlike the original proposal, the new terms do, for example, discriminate between good and bad banks — lessening the burden on those invested in better banks. They spare insured depositors below €100,000. And they require greater participation from other uninsured parties and equity holders in those banks deemed particularly bad. Read more

Is the end of the oil era nigh?

Okay. This is weird.

Perhaps the analysts in Citi’s commodities team headed by Seth Kleinman (which includes the inimitable Ed Morse) didn’t get the memo? You know, the one about needing to talk up the old carbon complex as much as possible?

After all, how else do you account for the disruptive tone of the following summary points: Read more

Markets Live: Wednesday, 27th March, 2013

Live markets commentary from FT.com 

The Pru and thin-skinned, idiot regulation

A theory was gaining ground on Wednesday that, having utterly failed in any way to deal with Britain’s cartwheeling banks ahead of the crisis, the FSA, Britain’s alleged financial regulator, has now set its sights on wrecking the healthy side of Britain’s financial sector.

The Prudential has been fined £30m, and its strikingly successful chief executive, Tidjane Thiam, has been censured, seemingly for worrying that someone at the FSA might possibly leak news of the Pru’s ultimately bungled takeover bid for AIA three years ago. Read more

The (early) Lunch Wrap

The world’s pool of Aaa-rated government debt has fallen 60 per cent since the start of the financial crisis || European regulators to charge banks over derivatives || Cyprus readies capital controls || Fund manager bonuses cap set to be eased || Warren Buffett will become one of Goldman’s largest shareholders || Credit Suisse is to buy Morgan Stanley’s wealth management arm in Europe, the Middle East and Africa || US crackdown on Citi laundering laws || Commodities trading rule call rejected || Improving home prices help drive US economy || Markets wrap || FTAV’s latest Read more

Capital controls and the Cypri-outlier

Even if the barn door is closed before the horse bolts, the horse will find another way to escape. That’s essentially the point made by John Dizard over the weekend:

Capital controls turn into trade controls, as the locals attempt to find ways to turn hard assets or non-banking services into foreign exchange. At some price, for example, you can buy a boat in Cyprus with post-haircut, capital-controlled local deposits, sail it to Lebanon, and then sell it for real, usable money. The same with antiques, jewellery, or anything else you can think of. Even capital goods such as fork lifts can be motored off in the middle of the night.

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Further reading

Elsewhere on Wednesday,

- Summarising the Sage.

- What Cyprus tells us about Germany.

- Maths test. (Only one question.) Read more

The 6am London Cut

Secret HQ set up in London to fight cyber crime: “Britain’s security services are to open a new unit in London to work with business to protect UK companies from the growing threat of cyber attacks by China, Russia and Iran. The new initiative – formally called the Cyber Security Information Sharing partnership – will be established at an undisclosed location in London, where around a dozen officers from the Government Communications Headquarters and MI5 will work with business representatives to monitor potential threats.” (Financial Times)

The world’s pool of Aaa-rated government debt has fallen 60 per cent since the start of the financial crisis. The loss of top ratings by the US, UK, and France have helped shrink the stock of debt deemed Aaa by Fitch, Moody’s and Standard & Poor’s from almost $11tn at the start of 2007 to $4tn in 2013 (Financial Times). Read more

The Closer

FT markets round-up: “A calmer mood prevailed in the markets after the volatility of the previous session, as participants took a positive view of some mixed US economic data and attempted to put lingering concerns about the eurozone to one side. Indeed, the S&P 500 US equity index rose 0.8 per cent to finish within two points of the record closing high of 1,565.15 it set in October 2007. The FTSE Eurofirst 300 closed 0.2 per cent higher, although there were further losses for peripheral eurozone equity markets, with the Ibex 35 in Madrid shedding 1.8 per cent and Milan’s FTSE MIB down 1 per cent.” (Financial Times)

Warren Buffett will become one of Goldman’s largest shareholders, after a deal to convert billions of dollars of warrants into common stock. Berkshire Hathaway was originally issued the warrants as part of investing $5bn in the bank during the crisis, giving it the right to purchase about 9 per cent of the bank for $115 per share before October 1 this year. Tuesday’s revised deal will see Goldman issue Berkshire stock equivalent to the company’s paper profit on the position (Financial Times, Goldman statement). Buffett’s gain of a 2 per cent stake from the deal will making him a top 10 Goldman shareholder (Wall Street Journal, Bloomberg). Read more

Argentina en banc? Mais non

Guess it pretty much comes down to the alternative ‘formula’ for paying its holdouts which Argentina will be making to the Second Circuit at the end of this week, then.

The court on Thursday denied the government’s separate request to have its pari passu case reheard ‘en banc‘ — that being when a full court hears your case, instead of a panel of judges (which is usual): Read more

Depositing some calm, at least for the little guys

A small antidote to Messr Dijsselbloem if you will.

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Clearly, all this green stuff can wait

Today should have been the day when ex-BP chief Tony Hayward and a raft of other energy and security luminaries got to their feet at a conference hosted by the UK’s biggest green power trade body. But the Renewable Energy Association’s “Symposium 2013” at the historic Mayfair headquarters of the Royal Institution has been cancelled due to lack of interest.

The programme’s here if you can be bothered to clickRead more

Deal with failed banks the Dutch way: rely on the ECB, deposit insurance, and the public’s faith in the government

The irony police dropped by FT Alphaville on Tuesday. They asked us to reverse back to the last European bank bailout before Cyprus: the nationalisation of Dutch financial group SNS Reaal. The government of the Netherlands, complete with a finance minister by the name of Jeroen Dijsselbloem (have you heard of him?), used their freshly minted Intervention Act to expropriate the shareholders and subordinated bondholders in order to help finance the February 1st nationalisation. Read more

Quality time with the ailing Dutch commercial real estate sector

The latest bank-sovereign crisis always gets the most attention. Despite the best of intentions, no amount of preparation can get the current flair-up ready to have its place in the limelight stolen. Once torn, salt is rubbed into the wound by means of nasty comparisons that disrespect the unique nature of one’s distress. Ireland is not Greece! Portugal is not Ireland! Italy is not Spain! And Cyprus is special because of gangsta finance and its reliance on deposits for funding…

Grow up. Everyone has problems.

That said, we’ve carved out a special place in our schedules this morning to spend some quality time with one of the middle children. Aren’t we good? And so to the Netherlands, where the government nationalised SNS Reaal, the parent company of SNS Bank, on February 1st. It used its shiny new Intervention Act and everything. Read more

Markets Live: Tuesday, 26th March, 2013

Live markets commentary from FT.com 

The (early) Lunch Wrap

Cyprus banks to stay closed for days || Dell founder set to explore deal options || Worries hit RIM after US launch || IPO fundraising jumps 50 per cent || Boeing flight-tests Dreamliner batteries || Berezovsky death ‘consistent with hanging Read more

Further reading

Elsewhere on Tuesday,

- Golden shackles.

- Overheard in Brussels.

- Cyprus thesesRead more

The 6am Cut London

Cyprus banks to stay closed for days: “Cypriot banks will remain closed until Thursday, the government announced on Monday night, as President Nicos Anastasiades acknowledged that the country had come ‘a breath away from economic collapse’ before its last-minute bailout. Speaking after he agreed a €10bn international rescue that includes the restructuring of the island’s two biggest lenders with losses for bigger depositors, Mr Anastasiades also said capital controls would be imposed but as a ‘very temporary measure that will be gradually relaxed’.” (Financial TimesRead more

The Closer

Within a point of the record high — and then it fell. The S&P 500 rose as high as 1,564.91 on Monday, just below its 2007 high of 1,565.15. Jitters over Cyprus and bank stocks then pushed the index lower. It closed down 0.33 per cent at 1,551.69 (Reuters).

Cyprus marks a tough new approach for making senior bank creditors and depositors take losses, the eurozone signalled — before walking it back. “If we want to have a healthy, sound financial sector, the only way is to say: ‘Look, where you take the risks, you must deal with them, and if you can’t deal with them you shouldn’t have taken them on and the consequence might be that it is end of story’,” Jeroen Dijsselbloem, President of the Eurogroup of finance ministers, said hours after brokering the deal for Cyprus (Financial Times, Reuters). Read more

Guest post: The case for Cypriot national equity

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.

The second attempt to resolve the unsustainable debt burden of Cyprus’s over-leveraged banks spreads the pain differently to the disastrous initial attempt, but looks likely to leave Cyprus as an economic wasteland for generations. Frances Coppola outlined brilliantly yesterday the sort of financial disaster zone which Cypriots can expect. Read more