Monday Sep 8 2008
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Markets live chat transcript for the chat ending at 12:02 on 7 Sep 2007. Participants in this chat were: Paul Murphy (PM) Neil Hume (NH)

PM: Welcome to Markets Live – FT Alphaville’s market commentary

PM: Neil Hume is with me.

PM: He’s just on the phone

PM: Got a couple of live situations here

PM: Feel free to post comments / questions on anything you think we might have a vague view

PM: The Footsie generally is pretty flat

PM: But there’s an edgy tone this morning

PM: not quite sure why — maybe people are just tired

PM: So now I can see Neil wandering aroudn the news room

PM: With phone glued to his ear

PM: it will become clear why in a moment

NH: morning

NH: heavy phone call

PM: Yes — just before we discuss it…

PM: Fitzsimons — vol pretty poor — and not just cos it is Friday

PM: Been poor all week

PM: Wetherspoons? For VP

PM: I personally have ALWAYS avoided them

PM: Clunky wooden furniture — cheap, warm beer

PM: damp food

PM: Acidic wine

PM: Shall i go on?

NH: no stop there

PM: Just personal views of course

NH: anyway u don’t go to pubs anymore since the smoking ban

PM: Hmm. no point

PM: thanks james!

PM:

PM: let’s cut to the chase!

PM: Any more on Max Petroleum??

PM: that’s the oil exploration company focused on Kazakhstan that has got the whole city talking

PM: City even

NH: shares still suspended

PM: ok…..

PM: any more details on the options scandal??

PM: For those of you who missed the news yesterday Max suspended its chief executive and chief operating officer after launching an investigation into the undisclosed receipt of share options

PM: And “other matters” which the company did not disclose

PM: So what are the brokers/traders/hedge who follow the company saying?

NH: well there are numerous theories doing the rounds but the undisclosed options stuff keeps coming back to one company

PM: Which is?

NH: an Australian outfit called Jupiter Energy

PM: Ah

PM: Is it listed?

NH: yep on the ASX

NH: started off life a exploration company but earlier this year decided to transform itself into a oil exploration company focused on guess where??

PM: Kazakhstan by chance?

NH: yep

PM:

NH: and its shares flew

PM: Oh, im sure they did

PM: just looking at the chart

PM: what a run

NH: from April when they raised some money for their foray into Kazakhstan until the end of the July when the Co obtained its first permit to work in the company, Jupiter shares went from A$0.044 cents up to A$0.32 cents

PM: then they collapsed !

PM: Just to repeat that — from nought point nought 44 to 0,32 cents

PM: But then collapsed back down again

PM: what happened??

NH: good question

NH: but the shares came back down to earth, closed at 0.12 yesterday

PM: So what is the market saying that Max’s CEO and COO were acting as consultants to Jupiter ???????

NH: well what the market is saying is that the options investigation centres on Jupiter

NH: we don’t know what the relationship if any was between the two directors and Jupiter

NH: but the two directors have very, very good connections in kazakhstan

NH: the link in all of this, according to the market, is a guy called Dave Rigoll

PM: Oh right — dave Rigoll

PM: Nice name

NH: He is said to be a founder of Max an is also reported to be very familar with Jupiter

PM: Right…. “very familiar”

NH: Now, Mr Rigoll seems to be a series player and appears to have been buying up half of Perth in Western Australian

NH: Here’s an article from the The Western Australian newspaper from May

NH: He cut his teeth in the business world working for the late Laurie Connell, made a fortune in Kazakhstan and now lives in a mansion in the Swiss tax haven of Zug.

And in between, colourful former stockbroker Dave Rigoll has quietly become one of Perth’s biggest real estate moguls.

NH: In the past year, the 44-year-old magnate has splashed out $31 million for mansions in Mosman Park and Claremont, and helped a family member buy a third plush pad in Mosman Park for another $5.2 million.

The West Australian can also reveal that Mr Rigoll has made a $70 million pitch to buy Cottesloe’s iconic Ocean Beach Hotel from Perth businessman Stan Quinlivan.

NH: The buying spree — and the mansions Mr Rigoll boasts in Switzerland, London and Dubai — appears to be on the back of a big oil and gas deal in Kazakhstan, the former Soviet republic made famous by the Borat movie.

NH: “He’s made a serious amount of money, who knows (how much),” said a Perth entrepreneur who mixed with the high-flyer in the 1990s.

Mr Rigoll is reported to have made his contacts in the oil and gas industry in Kazakhstan through younger brother Tony, who also worked as a stockbroker in Perth before heading overseas. One project found its way into firm Max Petroleum, which Dave Rigoll helped list on London’s Alternative Investment Market in 2005. The company now has a sharemarket value of almost $1 billion.

NH: Mr Rigoll’s financial success appears to have rubbed off on Perth based Jupiter Energy, shares in which have trebled in the past month amid rumours of an imminent deal in Kazakhstan. Jupiter executive director Geoff Gander said yesterday that while he had met Mr Rigoll, he wasn’t “directly” involved with the company’s push into the country. “Certainly a lot of the people we’re working with in Kazakhstan know him,” Mr Gander said.

NH: After about a decade overseas, Mr Rigoll reappeared in Perth in April last year when he helped a family member buy a $5.2 million property in Hutchinson Avenue, Mosman Park, from John Jenkin and Judith Fordham.

NH: there’s loads more but if you want to read the full article go to

NH: http://www.thewest.com.au/printfriendly.aspx?ContentID=27941

PM: That’s fascinating

PM: Think he’s actually bought about three fifths of Perth, not half

PM: Get yer facts straight, Neil

NH: if he has a big holding in Max still he may be forced to sell a few

PM: Hope the local property market is liquid

PM: but…….

PM: we should point out here, that there is nothing linking Mr Rigoll with Jupiter and Max have declined to comment on whether the options investigation centres on Jupiter

PM: and you can see from the article above the Jupiter says it does not have any links with Mr Rigoll

PM: Not any formal links

NH: no. All of this is speculation at the moment but as I said early this it is THE story that most brokers seem to have heard

PM: Thanks for all that.

PM: Hope other reporters have had a chance to write that down

PM: Sure they will accredit us later

NH: i am sure they will. either that or they will rubbish it

PM:

NH: did u see the negative reaction to the Rio story in a few papers this morning

PM: I did!

NH: the tone was of moral outrage that someone would suggest BHP might look at Rio

PM:

PM: Suppose that is why Rio’s price has collapse this morning — everyone rubbishing the bid story

NH: what do u mean??

PM: Well its collapsing upwards — 22p higher to 37.38 as all the bid speculators rush for the exit

PM: Or not

PM:

PM: Adrian below - -havent heard rumours of a french bank profit warning, yet

PM: We have forwarded the question to a shrewdie — see what comes back

PM: in the meantime, lets have a look at the wider equity market

PM: i said earlier that the footsie was flat — it is currently down 10 points at 6303

NH: and that’s all down to the banks

NH: which are all heading south again

PM: SIV worries??? — as viktock asks below??

NH: yes Barclays down 15.5p at 592p

NH: follows reports that it is to underwrite the rescue of another SIV

PM: So Barclays are going to provide what, a credit line?

NH: looks that way

NH: seems it will kick in as Mainsail’s commercial paper comes due

PM: Hmmm. We knew Mainsail was in trouble — and knew barclays was working ona workout for it

PM: But the fact that it actually helping the rescue is new

PM: Think vitosk makes a v interesting point below…

PM: specifically on whether there is some sort of legal commitment

PM: received wisdowm is “no” — that it is primarily a reputational matter for Barclays

PM: Keeping good relations with its customers

PM: But then it feels as tho the reputational damage has already been done

PM: Our colleague Sam Jones has been threatening to look at this

PM: We might hve a post on the subject later today

PM: Neil’s on the phone….

PM: Thanks to Concept ABS — SocGen just denied profits warning, according to reuters

NH: i’m off now

PM: These moves by Barclays and HBOS to provide credit lines to SIV’s is the main reason why three-month libor remains so high?

NH: yep. The banks are clearly very worried that they will have to extend credit to more of these vehicles to prevent them from going under

NH: as a result they are hoarding liquidity and refusing to lend to one other

NH: the result is three month sterling libor is 100 bps over base rates

PM: have we had a Libor fix this morning?

NH: I think we have but I don’t know what it is

NH: if any of the readers have the fix could they post it please

PM: Actually, ive got a handy guide to Libor now — thanks to the BBA

PM: Here, i will paste it for general consumption

PM: Key facts about BBA LIBOR

1. What is BBA LIBOR?

The British Bankers’ Association London Interbank Offered Rate closely reflects the real rates of interest being used by the world’s big financial institutions. Central banks (such as the Bank of England, the US Federal Reserve and the European Central Bank) may fix official base rates monthly, but BBA LIBOR reflects the actual rate at which banks borrow money from each other. BBA LIBOR figures are issued daily on more than 300,000 screens around the world. Rates are
quoted for a range of borrowing periods, ranging from overnight loans to 12 months, and a range of world currencies.

When referring to these rates, please note “LIBOR” is a generic term, which refers to an individual bank’s rate. “BBA LIBOR” is the benchmark index of London interbank lending. The term LIBOR has been used erroneously to describe this industry standard, but as individual banks may calculate their own Libor rates, the term BBA LIBOR should be used to distinguish them.

2. Why is it in the news?

Because BBA LIBOR rates are calculated daily from the rates at which banks agree to lend each other money, it is a more accurate barometer of how global markets are reacting to market conditions. Recently the overnight borrowing rate has been moving considerably.

3. How is it calculated?

The BBA uses Reuters to fix and publish the data daily, usually before 12 noon UK time. It assembles the interbank borrowing rates from 16 contributor panel banks at 11am, looks at the middle 50 per cent of these rates and uses these to calculate an average, which then becomes that day’s BBA LIBOR rate. This process is followed 150 times to create rates for all 15 maturities (ranging from overnight to 12 months) and all 10 currencies for which a BBA LIBOR rate is quoted.

4. What should I be looking for?

Dramatic changes in the overnight BBA LIBOR rate mean that there is short term volatility in the markets. The overnight rate is the rate which is most often quoted in the financial press. The banks’ longer-term expectations for the markets are more clearly evident in the 12-month figures.

5. How did it become so important?

BBA LIBOR was first developed in the 1980s as demand grew for an accurate measure of the real rate at which banks would lend money to each other. This became increasingly important as London’s status grew as an international financial centre. More than 20 per cent of all international bank lending and more than 30 per cent of all foreign exchange transactions now take place in London.

BBA LIBOR is now used to calculate the interest rates for a range of financial instruments and derivatives based on the BBA LIBOR rates are now traded on exchanges such as LIFFE, the Chicago Mercantile Exchange (CME) and SIMEX. Independent research from Prof. Donald Mackenzie of the Universtiy of Edinburgh estimates that financial derivatives totalling USD 150 trillion are indexed to BBA LIBOR.

PM: How’s that for reader service?

NH: public sector broadcasting

PM:

PM:

PM: What about the share price of our favourite banking stock?

NH: what Northern Crock you mean?

PM: yep

NH: down a further 6p to 665.5p and while Libor remains high its shares will go down, unless another bid rumour surfaces

PM: So the rate of decline has slowed…. That’s Good News in Crocksville

NH: down 10% in the past three and a bit days

PM: While we are in the banking sector

PM: any movement in the share price of HSBC??

NH: down 3.5p at 889p

NH: but most of the brokers in the City are talking about our story

NH: activist shareholder Knight Vinke has taken a stake and written to the board of HSBC requesting a “fundamental review”of the company’s strategy

PM: i bet they are

PM: But why the muted share price reaction?

NH: I think our banking editor Peter Thal-Larsen summed it up very well in the paper this morning

NH: Knight Vinke’s activism is about 8 months too late

NH: and that if Knight’s plan is to get HSBC to sell Household then that is not going to happen in the current environment

NH: here’s some of Peter’s analysis from the paper this morning

NH: At the beginning of the year, HSBC seemed a prime target for shareholder activism. The banking group, which had grown into the world’s fourth-largest financial institution through a series of audacious acquisitions, seemed to have lost its way.

NH: HSBC had just issued the first profits warning in its modern history, the result of a foolish bet on US subprime mortgages that had prompted investors to question the bank’s strategy and its ability to manage its far-flung operations.
The bank’s attempt to break into the bulge bracket of global investment banking also appeared to be an expensive mistake. HSBC’s usual share price premium over the UK banking sector had all but disappeared as investors doubted the effectiveness of large universal banks. And investors had once again raised the question of whether the bank’s approach to corporate governance - which led to the promotion of Stephen Green from chief executive to executive chairman - suited the challenges it was facing.

NH: Eight months on, however, HSBC appears to have answered many of these criticisms. It has moved quickly to stem the losses in the US, replacing several key executives. It has also refocused the investment bank to concentrate on products and parts of the world where it enjoys a competitive advantage.
Mr Green and Michael Geoghegan, chief executive, have indicated their desire to expand in emerging markets: just this week, HSBC moved to fill a large hole in its Asian footprint by unveiling a deal to take control of Korea Exchange Bank, South Korea’s sixth-largest lender. Although the Dollars 6.3bn (Pounds 3.1bn) deal may yet face resistance from regulators, it is an indication of HSBC’s ambitions.

NH: The bank’s rehabilitation was also clear from its first-half results, published at the end of July, which showed record profits of Dollars 14.1bn, an increase of 13 per cent. “It was pretty difficult to find an awful lot to fault in the results,” one analyst said yesterday.

NH: Perhaps most pertinently, the global liquidity crisis has given investors a new-found appreciation for HSBC’s size, geographic spread and powerful balance sheet. Its shares, which had underperformed the rest of the sector for several years, have held up reasonably well in the market turmoil, reflecting the widely held view among investors that HSBC is a safe harbour in a storm.
In this context Eric Knight, the activist shareholder who is due to call for a “fundamental review” of HSBC’s strategy, would appear to have launched his campaign several months too late.

PM: Thanks for that. Unlike you to cozy up to the banking editor

PM: Lots more on ft.com on that

PM:

PM: OK, time to look at a few small cap stocks

NH: before we do. got some RAW market info and some deal news to discuss

PM: Ooh! Let’s have the RAW then

NH: OK. Concerns Burberry.

NH: was a Merrill note out yesterday saying it could be a takeover target

PM: right — chavtailer

NH: indeed

NH: merril reckoned the Company could be attractive to a US outfil called Coach

NH: word in the market this morning is that LVMH is interested and crunching some numbers

NH: there is also talk that results due next month could impress

NH: apparently there is also a largish short position in the stock on account of its recent strong run

PM: Notice the shares are currently up 3p at 614p

NH: just looking at the chart. shares seemed to have rallied from 570p in the last few weeks

PM: This is quite something — hard core bid chatter returning to the London market!

NH: and you know why

PM: go on

NH: we have had the first PE bid for a listed company since the melt down started

PM: you referring to Domestic and general ?

NH: yep and Lina Saigol’s great scoop this morning

NH: Company has recommended a £14.25 a share offer from PE firm Advent Capital

PM: D&M price up 130p at 13.95 in the market

PM: Trading at a bit of a discount — market clearly doesnt think someone else is going to gatecrash this deal

NH: not sure about that. market probably scared that a PE bid could fall apart and because D&G is a insurer this deal will require FSA approval which could take a while

PM: So are there any counterbid rumours?

NH: well there is talk that GE might gate crash the party

NH: but shrewd judges of M&A situations are not so sure

NH: what they are hearing from the company’s advisers are

NH: that D&G held a auction process

NH: talked to several parties, including Homeserve, which dropped out of the running recently

NH: and Advent trumped them all

NH: so its quite possible GE had a look and decided not to bid

PM: Hmm fair enough

PM:

PM: Talking about auctions — wasnt today supposed to be the deadline for those wanting to bid for Nasdaq’s 31% stke in the LSE??

NH: well, i think it is a soft deadline

PM: Well im getting some raw stuff saying…

PM: That there were no firm bids for the stake – at least not near a price that might have satisfied Nasdaq.

PM: Specifically — one or two of the ME bidders that lots of people were sure would show interest

PM: Turns out they would not meet the price

NH: that’s interesting. so what happens now. will Nasdaq try and place it in the market???

PM: Well, i guess that is one option — might be the only option

NH: apparently there are loads of Italian institutions with interests in Borsa Italania that would be interesting in picking up some stock

PM: Dont think we will hear much talk about bid deadlines going forward tho

PM: Italian speculation sounds sensible

NH: and then there are people like Sam Heyman and the other big US hedge funds on the register

NH: i imagine they might pick up some stock in the placing

NH: mind you given the way volumes had fallen off a cliff in the past couple of weeks I am not sure what the outlook for earnings at the LSE is going to be like

PM: Shares in LSE off 3p at 13.87 currently — think the recent rally was overdone

NH: does look that way. especially given the competitve threats emerging

PM: sure — from Turquoise and the like

PM:

PM: Er, thanks viktock!

PM: Let’s have a root around the small caps

PM: Anything of interest?

NH: one of the biggest risers this morning is a company that has come back from suspension

PM: Who is that?

NH: called Ragusa Capital

NH: got a great ticker

PM: go on

NH: USA.L

PM:

NH: shares up 11.5p at 62p following their relisting

NH: that’s a rise of 22.3%

NH: the company has managed to get its hands on some very interesting oil and gas exploration assets in Argentina

NH: and from what I am being told some of Argentina’s biggest and most shrewd investors have backed the deal

PM: Oh yeah. “very interesting oil exploration assets in Argentina”

PM:

NH: its no worse than Gold Oil in Peru or Cuba

PM: Actually, Gold Oil has been performing quite nicely recently

PM: But anyway tell me about USA.l — Ragusa capital

PM:

NH: right the terms of the deal are this

NH: Company has agreed to buy exploration and cash cow utility assets in argentina for $72.5m

NH: buying Edemsa main electricity distributor in the Mendoza province

NH: but that exciting bit is that it is also buying 100% of Integra Oil and Andes Oil

NH: now I should state here that these are very, very risky and very early state exploration assets. but they could have big potential

PM: Right — you know this one is going in the Hume Basket Warrant, dont you?

NH: what’s that

PM: Hume is a buyer of USA.L at the currently market price of 62p

PM: Argie oil & gas

PM: And dont anyone suggest a merger with Gold Oil …

PM: Producing usa.l in goo.l

NH: that won’t happen

PM: Bush’s predicament

NH: this company has a decent chairman

NH: Michael Stevens.

NH: he is also the chairman of Artisan, UK property company

PM: Hmmm

PM: We could have a race between USA.l and GOO.l

NH: ok let’s rebase them from today. USA vs GOO

PM: Alright — goo.l offered at 8.1p

PM: USA.l at 65p

PM: We’re both handicapped cos both stocks have had v v good run

PM: Ragusa just today, Gold Oil over three days

PM: P.S. — this is NOT advice to buy Goo in real life,. PLEASE

NH: this is just a bit of fun

PM:

NH: we have not got time to look at Cairn Energy. Seems to have turned itself into a consolidation vehicle. snapped up a couple of smaller E&P companies this morning

NH: and there are a lot of small E&P companies listed in London

PM: Interesting….. but for another day.

PM: ive got a lunch to go to

PM: Youve got a column to write

PM: Thanks for joining us today. Do have a good weekend

PM: Thanks for all the comments — and for the Libor rate ABS

PM: We will be back on Monday with the next editiion of Markets Live

NH: have a good weekend